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[Markets] Bipartisan Support Is Growing For Gun Confiscation In 2019

Authored by José Niño via The Mises Institute,

The 2018 midterm elections produced a split Congress with Democrats gaining control of the House and Republicans gaining seats in the Senate.

 The Guardian detailed House Democrats’ desire to pass gun control legislation in the upcoming Congress:

“Ted Deutch, a Democratic congressman from Florida who represents Parkland, where a February school shooting left 17 dead, said this week that he expected House Democrats to focus on bills with more bipartisan support. Those measures included bump stock bans and “extreme risk protection orders”, also known as red flag laws, which give law enforcement and family members a way to petition a court to temporarily bar an unstable person from buying or owning guns.”

What Are Red Flag Laws?

Red flag laws or Extreme Risk Protection Orders (ERPOs) are the euphemistic label for a variety of new proposed gun-control laws. Under red flag laws, law enforcement has the ability to confiscate an individual’s firearms who is deemed a threat to themselves or others. A simple accusation from a family member, friend, or associate will suffice to seize someone’s firearms.  

These laws, mind you, operate in the absence of normal due process.  The accused in these cases could have their weapons confiscated without even so much as a hearing a before a judge. It could take months before a gun owner could appear in court to win back his gun rights.

Thirteen states currently have red flag laws on the books. What started out as a state-level movement may have some legs at the federal level. Although it’s true that Congressional Democrats are making gun control a major theme of their legislative agenda, it’s naïve to think red flag laws are only relevant because of “gun-grabbing” Democrats have taken power.

As we’ll see below, red flag laws have a history of bipartisan support. And when any piece of legislation has Democrats and Republicans locking arms in agreement, you know trouble lies ahead.

The Gun Control Bipartisan Status Quo

Despite the passionate campaign rhetoric, a significant portion of Republican politicians will change colors on gun rights once in DC. Several GOP members in the upcoming Congress stick out like a sore thumb when it comes to their gun control advocacy:

Brian Mast:  A Congressman from Florida’s 18th district, Brian Mast penned an op-ed for the New York Times a few months ago calling for the ban of so-called “assault weapons” and a number of firearms accessories. However, actions, not words, are what matter most in politics. Mast went on to co-sponsor H.R. 2598, a bill which authorizes the Department of Justice’s Community Oriented Policing Services to provide grants to states with red flag laws on the book.

Marco Rubio: Following the Parkland shootings, Rubio joined the gun control chorus by sponsoring a red flagbill along with Democrat Senators Joe Manchin, Bill Nelson, & Jack Reed. Rubio has even flirted with the idea of regulations on magazine clips, raising the minimum age to buy certain firearms like AR-15s, and tweaking the current background check system.

Rick Scott: Former Governor of Florida and now a US Senator from Florida, Rick Scott poses an interesting threat to gun rights. Despite his ostensible anti-gun-control rhetoric, Scott signed SB 7026 Florida’s most expansive gun control measure in recent history. Scott’s SB 7026 contains red flag provisions, raises the age to buy a firearm to 21, and imposes a three-day waiting period for all firearms purchases.

Larry Hogan: On April 24, 2018, Maryland Governor Hogan signed a series of gun bills, one which included a red flag law. In October, the first month Maryland’s red flag law went into effect, there were 114 requests to confiscate individuals’ firearms.

Maryland’s red flag law has not been without its fair share of controversy.

At 5 a.m on Monday, November 5, two police officers came knocking on 61-year-old Gary Willis’ door to serve him a court order mandating that he turn over his guns. What seemed like a typical court order, quickly turned deadly as one of the cops shot and killed Willis in a struggle that ensued. Quick to defend one of his own, Anne Arundel County Police Chief Timothy Altomare defended the cops’ action by callously claiming that they “did the best they could with the situation they had.”

The tragic incident in Maryland is an ominous sign of what is to come should red flag laws gain more traction.

Whether or not Republicans will support new Red Flag laws is anyone’s guess. The bigger problem at hand is an ideological one, and opponents of gun control would do well to stop putting their faith in the winner-take-all electoral slugfest we see at the federal level every 4 years, and to embrace decentralization instead.

Published:12/26/2018 7:36:57 PM
[Markets] Fairytales And Snowflakes

Authored by Raul Ilargi Meijer via The Automatic Earth blog,

There are not many things that I’m allergic to. But there are some. Here’s a good example: bigotry.

Behold, in the article quoted below, the danger of political correctness in all its glory. A 30-year old Christmas song, Fairytale of New York, it is claimed, must be censored or banned. For a reason I’ll explain, such things always make me think of Rembrandt’s painting “Bathsheba at her Bath” (the painting below), which hangs in the Louvre.

No doubt there are those who are offended by her nakedness. But as John Berger put it in the video below, the master painted it with the utmost love and devotion. I first saw the video many years ago in art school, and it’s always stayed with me. Berger was a British art critic (he died last year) who wrote many books and made lots of TV shows on his view of what makes art – and its viewers- tick, together. Berger loved Rembrandt as much as Rembrandt loved Bathsheba. And so do I.

Back to the song, Fairytale of New York: There are people who think/feel/proclaim that the perhaps most popular Christmas song of the modern age contains one word they do not like, and must therefore be changed. It hurts their safe space, or something. It’s not politically correct. You can’t say ‘faggot’, even after it’s thoroughly explained to you that it means something else entirely in older Irish vocabulary. This is a very dark road towards a very dark future; don’t go there.

We can censor and ban a large part of art -and rock- history if we go by 2018 PC standards, but we should never give in to the vapid illusion that we know better now than the artists in the days and places when and where they produced the paintings, the sculptures or the songs. That is profoundly stupid, arrogant and conceited. None of us are any better than the Greek and Roman sculptors who carved their genius marbles of naked splendor. None of us are better people than Rembrandt or Michelangelo or the ancient Greek sculptors just because we live later in time then them. So we have no right to correct them.

And none of us have the right to demand a correction of a 30-year old song. Don’t even try to take our art away from us. It’s the best thing handed to us through the ages. Art is where man excels, much more than technology or anything like that. Art. And Fairytale of New York is Art. So don’t you dare touch it.

Calls To Censor ‘Fairytale Of New York’ Lyrics

A student newspaper editor has called for the word “faggot” to be censored from The Pogues’ popular song “Fairytale of New York” over claims it is offensive. Tom Haynes, the assistant editor of The Tab, shared his opinion about the classic Christmas song in an article titled: “Dear straight people, stop singing the word ‘faggot’ in ‘Fairytale of New York’” – which has since divided people on social media.

According to Haynes, the line in question, sung by Kirsty MacColl, “you scumbag, you maggot, you cheap lousy faggot,” is homophobic – but despite being censored on some stations, including the BBC and MTV channels, continues to be sung by “straight people” when it comes on. “Only when you take a step back does something seem off with that picture in 2018,” Haynes wrote.

He also points out that, despite being repurposed by the gay community, the slur can “evoke very specific memories of being bullied either online or in real life” and is comparable to the n-word. Haynes concludes by suggesting that people simply skip the word when singing the 1987 song – which has faced lyrical controversy numerous times in the years since it was released. “That’s all – one word, two syllables. Not too much of a stretch, right?” he wrote. The response to Haynes critique of the beloved Christmas song has been varied – with some disagreeing and labelling the editor a “snowflake” millennial, and others recognising that he has a point.

According to some people on social media, who have defended the use of the word in the song, faggot has a different meaning in old Irish slang. “I won’t be refraining from singing the lyric ‘cheap, lousy faggot’ in ‘Fairytale of New York’ because it’s not in reference to any homophobic intent – in old Irish faggot simply means a lazy person,” one person wrote. Another said: “Snowflakes left right and centre saying ‘Fairytale of New York’ is homophobic when in reality the cheap lousy faggot line is in reference to laziness.”

Update: as I was writing this, and looking for info, I stumbled upon singer Shane McGowan of the Pogues actually defending the lyrics . Sort of. And saying the band are not going to change a thing. But really, he should tell ’em all to stick it to the dark side of the moon.

“The word was used by the character because it fitted with the way she would speak and with her character. She is not supposed to be a nice person, or even a wholesome person. She is a woman of a certain generation at a certain time in history and she is down on her luck and desperate.

“Her dialogue is as accurate as I could make it but she is not intended to offend. She is just supposed to be an authentic character and not all characters in songs and stories are angels or even decent and respectable, sometimes characters in songs and stories have to be evil or nasty in order to tell the story effectively.

That’s enough of that safe space blubber. It’s endless. One person wants just two syllables changed, the next one another two, and before you know it Bathsheba is fully clothed and Rembrandt lost his interest, and so therefore have we all. It’s not up to us to decide what an artist paints or sings or writes. Period.

Let’s move on to how and why this is relevant to anyone who’s not a snowflake.

John Berger years ago described with how much love Rembrandt painted Bathsheba’s belly:

..”there isn’t another belly in European art painted with a fraction of this devotion..”

Start at 6.30 min into the video for that. The whole video is very much worth watching, it’s brilliant even. Rembrandt discovered light itself in painting, and how to get from two dimensions to three. He saw that what the human eye sees from up close is very different from what she sees at 2 meters, or 4, or 10. His was an unmitigated genius.

However, yes, Bathsheba is naked. And plenty people today will find that offensive. What about the kids!? (gee, I don’t know, where they born fully dressed?) But Rembrandt painted Bathsheba in 1654. And nobody has any business today being offended by what people did or said 350 years ago.

Or, better yet, if you want to be insulted about something from that era, why not protest any and all signs of slavery and warfare, rape and pillage, of Europeans massacring Africans and Native Americans, and leave art alone once and for all, stay away from a genius painter putting what love he can muster into the depiction of a biblical character.

I post a lot of art works at the Automatic Earth, a new glorious picture every day, and only once have I had a complaint about it. That was for a photograph whose artist the thought police apparently wasn’t familiar with. Not even full frontal nudity, but people seen from behind diving into the water. But there was a complaint alright. The acne-ridden social media overlords deemed it inappropriate. They wouldn’t dare with Rembrandt, but that’s beside the point.

Also, as you may know, I’ve spent a lot of time in Athens lately. And if you walk through the Parthenon, or its museum, or any of the other archeological sites in the city, there’s no way you can bring enough stickers or fig leaves to hide what nudity offends you. Probably all the Americans who visit the city think it’s far enough removed from them in time that they can watch the naked men and women without being offended (aroused, I’m not so sure).

But even if they do, they are the same people who use terms like ‘the F word’ and ‘the N word’ on a daily basis. Something as bigoted as protesting a word such as ‘faggots’, or a sculpture or painting that’s 100s or 1000s years old. Maybe if you let everyone say ‘fuck’ to their heart’s desire, they’ll stop saying it. And even if they don’t, so what? Why ban words when everybody uses them, why ban nudity when everybody’s naked under their clothes, why ban or censor art when it’s the best thing our forefathers have ever left us?

Published:12/25/2018 8:27:32 AM
[Anti-Semitism] Understanding Alice Walker (& the Times) (Scott Johnson) I subscribe to the New York Times Books Briefing (an email newsletter). In today’s email from Times Book Review editor Pamela Paul there is this drily stated bullet point: • Alice Walker recommended an anti-Semitic book in the Book Review’s By the Book column. In the face of public outcry, she defended her choice. You may have read about Walker’s book recommendation last week. Turning to the article linked in Published:12/24/2018 5:23:56 PM
[Markets] OPEC+ Deal Not Enough To Save The Oil Market

Authored by Nick Cunningham via Oilprice.com,

If the goal of the OPEC+ cuts was to boost oil prices, then the deal is clearly failing.

OPEC+ is scrambling to figure out a way to rescue oil prices from another deep downturn. WTI is now down into the mid-$40s and Brent into the mid-$50s, both a 15-month low. U.S. shale continues to soar, even if shale producers themselves are now facing financial trouble with prices so low. Oil traders are clearly skeptical that OPEC+ is either willing or capable of balancing the oil market.

OPEC+ thought they secured a strong deal in Vienna in early December, but more needs to be done, it seems. OPEC’s Secretary-General Mohammad Barkindo wrote a letter to the cartel’s members, arguing that they need to increase the cuts. Initially, the OPEC+ coalition suggested that producers should lower output by 2.5 percent, but Barkindo said that the cuts need to be more like 3 percent in order to reach the overall 1.2 million-barrel-per-day reduction.

More importantly, the group needs to detail how much each country should be producing. “In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available,” Barkindo told members in the letter, according to Reuters. By specifying exactly how much each country will reduce, the thinking seems to be, it will go a long way to assuaging market anxiety about the group’s seriousness.

Still, the plunge in oil prices this month is evidence that traders are not convinced.

The view is “that the U.S. will continue to grow like gangbusters regardless of price and overwhelm any OPEC action,” Helima Croft, the chief commodities strategist at Canadian broker RBC, told the Wall Street Journal.

“Unless there is a real geopolitical blowup, it could take time for these cuts to really shift sentiment.”

While cuts from producers like Saudi Arabia will help take supply off of the market, OPEC might help erase the surplus in another unintended way. Bloomberg raises the possibility that low oil prices could increase turmoil in some OPEC member states. The price meltdown between 2014 and 2016 led to, or at least exacerbated, outages in Libya, Venezuela and Nigeria. The same could happen again.

Just about all OPEC members need much higher oil prices in order to balance their books. Saudi Arabia needs roughly $88 per barrel for its budget to breakeven. Libya needs $114. Nigeria needs $127. Venezuela needs a whopping $216. Only Kuwait – at $48 per barrel – can balance its books at prevailing prices. Brent is trading in the mid-$50s right now.

That raises the prospect of more unrest. Venezuela’s supply losses are assured – and largely already factored into market forecasts – although the rate of decline remains uncertain. But further unexpected outages are possible, and become more likely with lower prices. Libya and Nigeria are the most likely sources of instability. Unexpected disruptions in supply in 2019 could tighten up the market.

Still, while there are many problems facing OPEC+ as it seeks to balance the market, one important factor lies mostly out of the group’s control. Much of the OPEC+ discussion focuses on supply-side dynamics – how much the group should be producing in order to achieve some price target. But the problems sweeping over the oil market right now could be even larger.

Specifically, a global economic slowdown could translate into much slower demand, a problem that OPEC+ cannot fix. Sinking oil prices isn’t just a matter of market expectations of oversupply from U.S. shale.   

The financial turmoil and brewing economic slowdown is clearly overwhelming the OPEC+ cuts, as well as the jawboning that some OPEC officials have tried over the past week. Stock markets plunged in recent days after the Federal Reserve tightened interest rates yet again and signaled two more rate hikes in 2019.

There haven’t yet been any dramatic revisions to 2019 oil demand from leading energy forecasters, such as the EIA or IEA. But, then again, the financial instability and the souring oil market have only cropped up recently. The IEA has maintained a 1.4-mb/d growth rate for demand next year, but take that with a grain of salt. Demand revisions could be forthcoming. OPEC+ may have to keep its supply curbs in place for the full year in 2019, but it’s unclear if even that can push prices back up to where they were two months ago.

Published:12/24/2018 3:55:41 PM
[Entertainment] Must-Read Celeb Memoirs E-comm: Must-Read Celeb MemoirsYou've made it, the holidays are here. Whether long or short, hopefully you have at least a few days off to take a break and decompress from the year that was 2018. And what better...
Published:12/24/2018 5:21:37 AM
[Markets] If Truth Cannot Prevail Over Material Agendas We Are Doomed: PCR

Authored by Paul Craig Roberts,

Throughout the long Cold War Stephen Cohen, professor of Russian studies at Princeton University and New York University was a voice of reason. He refused to allow his patriotism to blind him to Washington’s contribution to the confict and to criticize only the Soviet contribution. Cohen’s interest was not to blame the enemy but to work toward a mutual understanding that would remove the threat of nuclear war. Although a Democrat and left-leaning, Cohen would have been at home in the Reagan administration, as Reagan’s first priority was to end the Cold War. I know this because I was part of the effort. Pat Buchanan will tell you the same thing.

In 1974 a notorious cold warrior, Albert Wohlstetter, absurdly accused the CIA of underestimating the Soviet threat. As the CIA had every incentive for reasons of budget and power to overestimate the Soviet threat, and today the “Russian threat,” Wohlstetter’s accusation made no sense on its face. However he succeeded in stirring up enough concern that CIA director George H.W. Bush, later Vice President and President, agreed to a Team B to investigate the CIA’s assessment, headed by the Russiaphobic Harvard professor Richard Pipes. Team B concluded that the Soviets thought they could win a nuclear war and were building the forces with which to attack the US.

The report was mainly nonsense, and it must have have troubled Stephen Cohen to experience the setback to negotiations that Team B caused.

Today Cohen is stressed that it is the United States that thinks it can win a nuclear war. Washington speaks openly of using “low yield” nuclear weapons, and intentionally forecloses any peace negotiations with Russia with a propaganda campaign against Russia of demonization, villification, and transparant lies, while installing missile bases on Russia’s borders and while talking of incorporating former parts of Russia into NATO. In his just published book, War With Russia?, which I highly recommend, Cohen makes a convincing case that Washington is asking for war.

I agree with Cohen that if Russia is a threat it is only because the US is threatening Russia. The stupidity of the policy toward Russia is creating a Russian threat. Putin keeps emphasizing this. To paraphrase Putin: “You are making Russia a threat by declaring us to be one, by discarding facts and substituting orchestrated opinions that your propagandistic media establish as fact via endless repetition.”

Cohen is correct that during the Cold War every US president worked to defuse tensions, especially Republican ones. Since the Clinton regime every US president has worked to create tensions. What explains this dangerous change in approach?

The end of the Cold War was disadvantageous to the military/security complex whose budget and power had waxed from decades of cold war. Suddenly the enemy that had bestowed such wealth and prestige on the military/security complex disappeared.

The New Cold War is the result of the military/security complex’s resurrection of the enemy. In a democracy with independent media and scholars, this would not have been possible. But the Clinton regime permitted in violation of anti-trust laws 90% of the US media to be concentrated in the hands of six mega-corporations, thus destroying an independence already undermined by the CIA’s successful use of the CIA’s media assets to control explanations. Many books have been written about the CIA’s use of the media, including Udo Ulfkotte’s “Bought Journalism,” the English edition of which was quickly withdrawn and burned.

The demonization of Russia is also aided and abeted by the Democrats’ hatred of Trump and anger from Hillary’s loss of the presidential election to the “Trump deplorables.” The Democrats purport to believe that Trump was installed by Putin’s interference in the presidentail election. This false belief is emotionally important to Democrats, and they can’t let go of it.

Although Cohen as a professor at Princeton and NYU never lacked research opportunities, in the US Russian studies, strategic studies, and the like are funded by the military/security complex whose agenda Cohen’s scholarship does not serve. At the Center for Strategic and International Studies, where I held an independently financed chair for a dozen years, most of my colleagues were dependent on grants from the military/security complex. At the Hoover Institution, Stanford University, where I was a Senior Fellow for three decades, the anti-Soviet stance of the Institution reflected the agenda of those who funded the institution.

I am not saying that my colleagues were whores on a payroll. I am saying that the people who got the appointments were people who were inclined to see the Soviet Union the way the military/security complex thought it should be seen.

As Stephen Cohen is aware, in the original Cold War there was some balance as all explanations were not controlled. There were independent scholars who could point out that the Soviets, decimated by World War 2, had an interest in peace, and that accommodation could be achieved, thus avoiding the possibility of nuclear war.

Stephen Cohen must have been in the younger ranks of those sensible people, as he and President Reagan’s ambassador to the Soviet Union, Jack Matloff, seem to be the remaining voices of expert reason on the American scene.

If you care to understand the dire threat under which you live, a threat that only a few people, such as Stephen Cohen, are trying to lift, read his book.

If you want to understand the dire threat that a bought-and-paid-for American media poses to your existence, read Cohen’s accounts of their despicable lies. America has a media that is synonymous with lies.

If you want to understand how corrupt American universities are as organizations on the take for money, organizations to whom truth is inconsequential, read Cohen’s book.

If you want to understand why you could be dead before Global Warming can get you, read Cohen’s book.

Enough said.

Published:12/22/2018 9:46:16 PM
[Markets] On Gun Confiscation: "Here's How It Might Actually Go Down"

Authored by Selco via Daisy Luther's Organic prepper blog,

After reading a couple of articles about magazines/weapon news from New Jersey – actually, after reading a lot of comments from people on that news-  I have the urge to write this article. It is written from the survivalist point of view. There is, of course, the possible danger to get comments like “What the hell do you know Selco? You are not American, shut up!” Because I am going to be “poking” a few sacred cows here.

So…

Right now, this is not the rise of communism.

“Stalin is coming.”

I do not think this all news is about “rise of communism” in the US, and also I do think that you still live in a land with a lot of great rights and liberties, which is very cool.

What is not cool is the fact that you are moving in the direction of slowly “shrinking” of those rights. But it is still very far away from a “communistic evil empire”, so I do not see sense in having big headlines about Nazis and such other than scaring people for whatever reason.

Weapon rights and the government

I see here something which is much more dangerous than the fear of communism.

It is how people react to news or new laws about any weapon limitation. It’s how they talk about what the majority of them are planning to do.

Government at its core has the urge to control people in whatever way they can.  If you are more armed that means you are less controllable.

But if you are acting in a way that you are screaming from the rooftops how you “will defend your right to have (whatever) weapon (contrary) to the newest law” and how you’ll “be proud to own i, and to show it”  you eventually are not doing yourself any favors.

Do you really think that when the time comes that the government will send two pale clerks to search your home looking for whatever weapon?

Nope.

Here’s how confiscation might actually go down.

Here is how it might actually go down. This is one possible scenario:

First, you’ll be labeled as a terrorist, some weird guy who wants to overthrow the government. Maybe your photo will be posted somewhere stating that you are very sick, and that you pose a danger to society.

If you are a member of some group, let’s say a prepper group, you all will be labeled as terrorists first, and through the media, you can be portrayed as a domestic terror cell, to the point that your next door neighbor will help police to get you.

Do not underestimate the power of the government machine. You may truly be a fighter for constitutional rights and a real patriot, but in 3 days you can become a crazy terrorist that citizens will actually hunt down and shoot like a mad dog.

The point here is there is no point of publicly “yelling” about what you own and what are your rights to own.

Of course, you need to own weapons that you think it makes sense to own.

But why does everybody else need to know that, including government and government services?

The 2nd Amendment

The 2nd Amendment is very cool, and I like it very much, but here is the ugly truth:

It works only if the government wants it to work.

One day, when the government does not want it to work anymore it will be out of order, illegal, or even terrorist to practice it.

Sorry, it is not your inalienable right. The government lets you THINK  it is your inalienable right.

Actually, you do need to protect that right. You need to defend it.

But again not in a way that you gonna portray yourself as a terrorist. I mean, I will own what I want to own, and only I am gonna know that untill the day when I need it very badly.

Owning weapons

There used to be a law about weapons here, where I live, before the war. And yes, you could own a weapon but it was such a hard law that actually not too many people owned legal weapons.

And right when the SHTthe F, first thing that happened was the confiscation of legal weapons, based on lists of who own legal weapons.

Now what people could do then was to say, “This is my legal weapon. I have a right to own it, by the law.” And those who did that usually got shot.

There were 20 heavily armed guys at your door asking nicely for your weapon, to be turned over to them in the name of “law” as an effort of a government that wanted to calm down a chaotic situation.

Sometimes if you said no, those guys would simply destroy the whole house with RPGs and bombs.

And guess what that meant?

Folks who owned legal weapon lost them even before the big SHTF. And a lot of guys who owned them in an illegal way hidden somewhere still own them when SHTF.

Illegal and legal have different meanings in different times and based who says those words, so think about it.

I am not saying that it will go like that there where you are. What I do say is you that you need to think a bit outside the box when it comes to owning things.

My thoughts on this

For many years I found it ridiculous not to have an illegal (not traceable) weapon stored somewhere safe for the bad times.

When SHTF and when (if) guys show up on my doorstep to confiscate my weapon what will I do?

I will give them the weapon that they know about. What else I should do?

Practice my rights?

Nope.

I have more of that stuff. It’s not worth it to fight over the one they know about.

What could be coming for the future?

Again I do not really see the government taking away all rights of owning a weapon as a possibility there. The tradition of firearms is simply way too big, and also the number of weapons is too big, too.

But what is possible is the rapid shrinking of that right through some big event, in an effort of getting things back to normal.

When something big happens and there is big fear and terror, people are ready to “give away” a lot of rights and liberties in exchange for the feeling of safety and security. This is wrong of course but it is how things work.

So actually you never know, anything is possible.

One bad side of having rights and freedoms for a long time (in owning weapon) is thinking it is always gonna be like that.

Or thinking it must be like that.

The “good side” of not having good gun rights is having a tradition of having ALWAYS hidden somewhere an illegal weapon. Always.

And only you know about it and maybe your family.

There is no need to brag about that anywhere else.

*  *  *

About Selco:

Selco survived the Balkan war of the 90s in a city under siege, without electricity, running water, or food distribution.

In his online works, he gives an inside view of the reality of survival under the harshest conditions. He reviews what works and what doesn’t, tells you the hard lessons he learned, and shares how he prepares today.

He never stopped learning about survival and preparedness since the war. Regardless what happens, chances are you will never experience extreme situations as Selco did. But you have the chance to learn from him and how he faced death for months.

Read more of Selco’s articles here.

Buy his PDF books here

Published:12/22/2018 7:42:52 PM
[Markets] "Endless War Has Been Normalized And Everyone Is Crazy..."

Authored by Caitlin Johnstone,

Since I last wrote about the bipartisan shrieking, hysterical reaction to Trump’s planned military withdrawal from Syria the other day, it hasn’t gotten better, it’s gotten worse. I’m having a hard time even picking out individual bits of the collective freakout from the political/media class to point at, because doing so would diminish the frenetic white noise of the paranoid, conspiratorial, fearmongering establishment reaction to the possibility of a few thousands troops being pulled back from a territory they were illegally occupying.

Endless war and military expansionism has become so normalized in establishment thought that even a slight scale-down is treated as something abnormal and shocking. The talking heads of the corporate state media had been almost entirely ignoring the buildup of US troops in Syria and the operations they’ve been carrying out there, but as soon as the possibility of those troops leaving emerged, all the alarm bells started ringing. Endless war was considered so normal that nobody ever talked about it, then Trump tweeted he’s bringing the troops home, and now every armchair liberal in America who had no idea what a Kurd was until five minutes ago is suddenly an expert on Erdogan and the YPG. Lindsey Graham, who has never met an unaccountable US military occupation he didn’t like, is now suddenly cheerleading for congressional oversight: not for sending troops into wars, but for pulling them out.

“I would urge my colleagues in the Senate and the House, call people from the administration and explain this policy,” Graham recently told reporters on Capitol Hill. “This is the role of the Congress, to make administrations explain their policy, not in a tweet, but before Congress answering questions.”

“It is imperative Congress hold hearings on withdrawal decision in Syria?—?and potentially Afghanistan?—?to understand implications to our national security,” Graham tweeted today.

In an even marginally sane world, the fact that a nation’s armed forces are engaged in daily military violence would be cause for shock and alarm, and pulling those forces out of that situation would be viewed as a return to normalcy. Instead we are seeing the exact opposite. In an even marginally sane world, congressional oversight would be required to send the US military to invade countries and commit acts of war, because that act, not withdrawing them, is what’s abnormal. Instead we are seeing the exact opposite.

A hypothetical space alien observing our civilization for the first time would conclude that we are insane, and that hypothetical space alien would be absolutely correct. Have some Reese’s Pieces, hypothetical space alien.

It is absolutely bat shit crazy that we feel normal about the most powerful military force in the history of civilization running around the world invading and occupying and bombing and killing, yet are made to feel weird about the possibility of any part of that ending. It is absolutely bat shit crazy that endless war is normalized while the possibility of peace and respecting national sovereignty to any extent is aggressively abnormalized. In a sane world the exact opposite would be true, but in our world this self-evident fact has been obscured. In a sane world anyone who tried to convince you that war is normal would be rejected and shunned, but in our world those people make six million dollars a year reading from a teleprompter on MSNBC.

How did this happen to us? How did we get so crazy and confused?

I sometimes hear the analogy of sleepwalking used; people are sleepwalking through life, so they believe the things the TV tells them to believe, and this turns them into a bunch of mindless zombies marching to the beat of CIA/CNN narratives and consenting to unlimited military bloodbaths around the world. I don’t think this is necessarily a useful way of thinking about our situation and our fellow citizens. I think a much more useful way of looking at our plight is to retrace our steps and think about how everyone got to where they’re at as individuals.

We come into this world screaming and clueless, and it doesn’t generally get much better from there. We look around and we see a bunch of grownups moving confidently around us, and they sure look like they know what’s going on. So we listen real attentively to what they’re telling us about our world and how it works, not realizing that they’re just repeating the same things grownups told them when they were little, and not realizing that if any of those grownups were really honest with themselves they’re just moving learned concepts around inside a headspace that’s just as clueless about life’s big questions as the day it was born.

And that’s just early childhood. Once you move out of that and start learning about politics, philosophy, religion etc as you get bigger, you run into a whole bunch of clever faces who’ve figured out how to use your cluelessness about life to their advantage. You stumble toward adulthood without knowing what’s going on, and then confident-sounding people show up and say “Oh hey I know what’s going on. Follow me.” And before you know it you’re donating ten percent of your income to some church, addicted to drugs, in an abusive relationship, building your life around ideas from old books which were promoted by dead kings to the advantage of the powerful, or getting your information about the world from Fox News.

For most people life is like stumbling around in a dark room you have no idea how you got into, without even knowing what you’re looking for. Then as you’re reaching around in the darkness your hand is grasped by someone else’s hand, and it says in a confident-sounding voice, “I know where to go. Come with me.” The owner of the other hand doesn’t know any more about the room than you do really, they just know how to feign confidence. And it just so happens that most of those hands in the darkness are actually leading you in the service of the powerful.

That’s all mainstream narratives are: hands reaching out in the darkness of a confusing world, speaking in confident-sounding voices and guiding you in a direction which benefits the powerful. The largest voices belong to the rich and the powerful, which means those are the hands you’re most likely to encounter when stumbling around in the darkness. You go to school which is designed to indoctrinate you into mainstream narratives, you consume media which is designed to do the same, and most people find themselves led from hand to hand in this way all the way to the grave.

That’s really all everyone’s doing here, reaching out in the darkness of a confusing world and trying to find our way to the truth. It’s messy as hell and there are so many confident-sounding voices calling out to us giving us false directions about where to go, and lots of people get lost to the grabbing hands of power-serving narratives. But the more of us who learn to see through the dominant narratives and discover the underlying truths, the more hands there are to guide others away from the interests of the powerful and toward a sane society. A society in which people abhor war and embrace peace, in which people collaborate with each other and their environment, in which people overcome the challenges facing our species and create a beautiful world together.

People aren’t sleepwalking, they are being duped. Duped into insanity in a confusing, abrasive world where it’s hard enough just to get your legs underneath you and figure out which way’s up, let alone come to a conscious truth-based understanding of what’s really going on in the world. But the people doing the duping are having a hard time holding onto everyone’s hand, and their grip is slipping. We’ll find our way out of this dark room yet.

*  *  *

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Published:12/22/2018 5:41:21 PM
[Markets] Is This 'Tinder For Corporate Credit' The Latest Harbinger Of A Debt Implosion?

As recently as October, desperate yield-chasers seemingly couldn't get enough of leveraged-loan paper, until a dramatic and sudden collapse in demand left Wells Fargo and JPM stuck with more than $400 million in loans that they will need to keep on their books until they can find a buyer, a phenomenon that prompted one credit strategist to muse about "end-of-credit-cycle" behavior. As we've been warning for a while now, the massive agglomeration of debt that has occurred in various sectors of the US economy since the financial crisis has remained safely out of sight for years as low interest rates ensured that any struggling borrowers could easily roll their debt at rock-bottom costs. But as interest rates rise and the global economy falters, concerns about 'fallen angels', leveraged loans, consumer credit, subprime auto loans, student debt and myriad other facets of the US's exaggerated pile of consumer and corporate debt have come rushing back.

Corporate

In a profile that shows just how desperate - and therefore, reckless - investors became as yields dropped during the post-crisis period,  Bloomberg this week published a stunning profile chronicling the rise of the direct-lending industry. Featured in the profile was a company called DebtMaven, which is trying to create what its founder, Jordan Selleck, described as a "Tinder for corporate credit." His service connects lightly vetted borrowers with similarly lightly vetted lenders so that they can make deal magic with minimal fuss (and maximal risk).

In barely two years, more than 470 different potential lenders have signed up to his match-making web site, DebtMaven. For a small fee, he connects them with smaller companies looking for money.

"They’re hooked on deal flow and willing to pay," Selleck says of his lenders. "It’s grown at a crazy pace."

That pace is now raising red flags among regulators and central bankers, who fret that the direct-lending industry is helping to fuel a global credit bubble that’s leaving the economy increasingly vulnerable. Reaching for anything that pays decent returns, investors have been pouring money into all sorts of risky assets. Not since the heady days of 2007, when private credit was a relative backwater, have the rewards for holding riskier debt like junk bonds seemed so meager.

During the QE era, investors struggled to find even speculative-grade debt yielding more than 5%.

Five

This shortage of debt offering a decent yield provided the spark for the private-credit industry to grow from a niche market...

So why is private credit so beguiling? One word: yield. A decade of central bank stimulus caused it to evaporate in the usual places, such as the debt of blue-chip corporations. If everything goes according to plan, loans from private lenders are usually more lucrative than those to bigger companies. They hold out all-in yields of 7 percent to 9 percent, sometimes much more. That compares to an average 4.3 percent for the typical investment-grade corporate bond.

...to one that's rapidly approaching $1 trillion in assets, bearing yields between 7% and 9% (analysts expect the market to hit the $1 trillion mark by 2020).

Debt

And unsurprisingly, as this segment of the US shadow-banking market expands, banks are finding a way to get in on the action, using - what else? - the same types of collateralized loans that became "weapons of financial mass destruction" during the crisis.

Even the financial engineers are getting to work. So far this year, Wall Street has churned out almost $20 billion of collateralized loan obligations that transform those often risky loans into securities rated as high as triple-A.

Meanwhile, the surging demand for private credit has transformed startups like DebtMaven into titans overnight.

The frenzy has turned lending startups into heavyweights almost overnight. Owl Rock Capital Partners—a New York firm founded by Blackstone, KKR and Goldman Sachs veterans—has amassed $9.5 billion of assets since it started in 2016.

Money raised by Owl Rock found its way to the outskirts of Charlotte, North Carolina, where it helped fund the buyout of Carolina Beverage Group by Cold Spring Brewing Co., a craft-beer producer owned by private equity firm Brynwood Partners. Owl Rock’s financing amounted to almost $45 million.

TransPerfect Global Inc., a New York-based language-service company, borrowed about $262 million from Owl Rock to help one of its founders buy out the shares of the other after they had a falling out. That debt pays more than 9.5 percent. They’re among loans Owl Rock has arranged for companies with typical earnings before interest, taxes, depreciation and amortization of $10 million to $250 million annually.

So it's hardly surprising that the industry is raising red flags, and regulators are beginning to take an interest.

That pace is now raising red flags among regulators and central bankers, who fret that the direct-lending industry is helping to fuel a global credit bubble that’s leaving the economy increasingly vulnerable. Reaching for anything that pays decent returns, investors have been pouring money into all sorts of risky assets. Not since the heady days of 2007, when private credit was a relative backwater, have the rewards for holding riskier debt like junk bonds seemed so meager.

But it might already be too late. Because with the Fed expected to raise interest rates for the fourth time this year on Wednesday, the pressure on small and medium-sized companies, which represent the bulk of borrowers, is intensifying. And because these loans don't trade publicly and aren't priced to market, it's difficult for lenders and investors to tell where the pressure points lie.

The risks—for investors and companies alike—will likely grow as interest rates keep climbing. And they’ll be more acute for small and midsize businesses that borrowed heavily in good times.

"It has the seduction of offering the appearance of both higher returns and stability, because it doesn’t have to mark-to-market, and it doesn’t trade," Steve Vaccaro, chief executive officer of CIFC Asset Management, says of private credit. "But some companies are over-banked and over-levered and prices are likely to move substantially if there is a problem."

Others have been more blunt with their warnings. Dan Zwirn, chief executive officer at Arena Investors, a New York firm that lends to firms less able to access conventional sources, says the boom will probably end like the others: with finger-pointing and litigation.

"There will be recrimination and litigation, and cries of 'I was fooled'. 'I didn’t have the information' and 'You took advantage of me," Zwirn says. "When, in fact, the data, as with the mortgage crisis, was right in front of our faces."

If nothing else, the rise in private-lending echoes fears of the shadow-banking industry in China, which critics say has helped mask the true quantity of leverage rattling around the system.

Shadow

And while investors and shadow lenders are piling in to these risky loans, traditional banks are raising their credit standards as fears that a recession might be looming in 2020 continue to percolate, according to Reuters. 

This suggests that lenders will soon feel the sting of recession, even if losses haven't started cropping up yet and the economic fundamentals appear (relatively) strong. 

Bank executives acknowledge that the U.S. economy is probably in the final stages of a long recovery from the 2007-09 global financial crisis. But they say that until credit metrics start to deteriorate meaningfully, there is no reason to boost reserves or slash customer financing.

"There is a big disconnect at this point in time between the market technicals and what we’re really seeing on the ground," Citigroup Inc (C.N) Chief Financial Officer John Gerspach said at an industry event last week. "The fundamentals still look very good."

The notion that fundamentals look "good" isn't entirely true. But regardless, consumers and lenders will soon need to figure out whom they trust more: the economy, which appears to be in good shape (at least on the surface), or the market?

We know where Stanley Druckenmiller stands. And if more consumers and lenders follow his lead, that could create serious complications for opaque private credit markets which, thanks to an unintended side-effect of QE, is now large enough to pose a systemic risk.

Published:12/22/2018 5:11:16 PM
[Markets] David Collum's 2018 Year In Review: "The Year Everything Changed"

Authored by David B. Collum, Betty R. Miller Professor of Chemistry and Chemical Biology - Cornell University (Email: dbc6@cornell.edu, Twitter: @DavidBCollum),

“Dave: You are roundly tolerated.”

~Danielle Dimartino Booth, former Fed advisor and founder of Quill Intelligence

2018 Year In Review: "The Year Everything Changed"

The whole beast can be downloaded as a single PDF Here...

Contents

  • Introduction
  • Background: The Author
  • Sources
  • My Personal Year
  • Investing
  • The Economy
  • Valuations
  • Broken Markets
  • The FAANGs
  • Gold
  • Bitcoin: Tales from the Crypt
  • Real Estate
  • Pensions
  • Debt
  • Corporate Debt
  • Personal Debt
  • Sovereign Debt
  • Inflation versus Deflation
  • Banks
  • The Fed
  • Human Achievement
  • Nature
  • Middle East
  • Syria
  • Nerve Gas Poisoning
  • Kavanaugh versus Blasey Ford
  • Political Correctness–Adult Division
  • Political Correctness–Collegiate Division
  • Political Correctness–Youth Division
  • Conclusion
  • Acknowledgments
  • Books

Introduction

Every December, I write a Year in Review that’s first posted on Chris Martenson & Adam Taggart’s website Peak Prosperity and later at ZeroHedge. This is my tenth, although informal versions go back further. It always presents a host of challenging questions like, “Why the hell do I do this?” Is it because I am deeply conflicted for being a misogynist with sexual contempt—both products of the systemic normalization of toxic masculinity perpetuated by an oppressively patriarchal societal structure? No. That’s just crazy talk. More likely, narcissism and need for e-permanence deeply buried in my lizard brain demands surges of dopamine, the neurotransmitter that drives kings to conquer new lands, Jeff Bezos to make even more money, and Harvey Weinstein to do whatever that perv does. The readership has held up so far. Larry Summers said he “finished the first half.” Even as a fib that’s a dopamine cha-ching.

"If you think you are too small to make an impact, try spending the night in a room with a mosquito."

~African proverb

A non-pejorative justification for writing this beast is that life, with the aid of the digital world, hurls information at us so fast we cannot process it. Who could forget when Knight Capital Group launched an algorithm that sent them into bankruptcy within 45 minutes? What ever came of the Vegas shootings? Will David Hogg's 10 minutes of fame as a world-class douche be forgotten? (If not, please euthanize me.) It seems a shame to simply let these fragments of life drift into the void without trying to find an underlying meaning to the human folly. I mostly ponder broken markets and the antics of bankers looking for signs of unintelligent life. The markets have been well over the historical fair value marks for 15 years. I have been a bear long enough to earn my permabear merit badge. The always-chipper Mark Dow called me a “bunker monkey.” John Hussman referred to some of my ideas as “bloodthirsty,” although I prefer the term “ghoulish.” The odds that I understand what has already happened are vanishingly small. I don't know if markets are going up or down, only that they will move from left to right. None of what I say should be taken as investment advice; channel George Costanza and do the opposite.

“I would have written a shorter letter, but I did not have the time.”

~Blaise Pascal, French mathematician, 1656

What’s with the trite “matrix” metaphor? (I swear I will not refer to naked swimmers, rhyming history, or kicking cans.) I'm not even sure the puzzle pieces are real, fake, or as Ben Hunt calls them, “counterfeit.” It is deeper than that. I have like-minded friends sharing seemingly common interests who look at events—think Brett Kavanaugh, for example—and extract from them unrecognizably different messages because our perspectives are not similar; they are profoundly different. If you shuffle a deck of cards, the odds that the resulting order has ever before been created is zero (52! = 8 × 1067). What are the odds all of us share common websites, read the same articles or blogs, or have the same Twitter feed? Zero. It is preposterous to think that we are looking at the same world through similar lenses. The viral audio in which some hear “Yanny” and others hear “Laurel” is metaphorical.ref 4 This document is what I saw and heard described as fact-based hyperbole. It is the Year According to Dave.

“I want to thank everybody who made this day necessary.”

~Yogi Berra

Background: The Author

When reading Dave's Year In Review
You'll note one conclusion rings true
His odd observations
And strange contemplations
Have proven he's missing a screw

@TheLimerickKing

By way of introduction—despite a knowledge and understanding of economics, finance, and politics that one would expect from a lifetime of studying organic chemistry—I am 1/1,024th economist. There is absolutely no substitute for a genuine lack of preparation. I’ve managed to get cameos in the most improbable of venues including the Wall Street Journal, Russia Today (RT), the Guardian, and even Rolling Stone (but not “on the cover”). With some regularity and little forethought, I routinely manage to risk career and what's left of my tattered reputation by getting embroiled in international incidents, which included brawling publicly with the American Federation of Teachers in 2017ref 5 and locking arms with Nassim Taleb in defense of Nobel Prize winner Tim Hunt in 2015.ref 6 This year was no exception. I risked an international incident by being the only chemist in the world calling bullshit on the Sergei and Yulia Skripal Novichok poisoning story. That gets its own section.

Aristotle noted that an educated man can entertain an idea without endorsing it. I also have a penchant for entertaining any idea until it dies of SIDS or gets legs, and I have to chase it down. I am, in short, a conspiracy theorist. We all should be conspiracy theorists because men and women of wealth and power conspire. If some ideas make you uneasy, just shut up. Pejoratively denouncing the rest of us as “conspiracy theorists” is intentionally shutting down uncomfortable discussions. If you do this in the current political climate, I get to smack you to get you to agree with me. If you wish to discuss dicey topics, quit apologizing by saying, “I am not a conspiracy theorist but . . .” because you are one.

Figure 1. Jeff Macke (@JeffMacke) original. CNBC's Fast Money and chartist-artist extraordinaire.

I can't control what topics go on and off my radar; they just do it. Hardly a shot was fired this year in the War on Cash. Some issues are huge but change on geologic timescales. We're all doomed to burn in eternal hell, but I can only say that so many years in a row before it starts getting old. I got the most email complaints for not discussing the opioid crisis. I still haven't gone there, but I’m about to read Beth Macy’s Dopesick. Energy has been a hot topic and had moments of hilarity this year, but my bandwidth limitations and lack of investment exposure left me bored.

There is a tractor beam that pulls economic blogs into the political realm. I have saved more notes and links and destroyed more gray matter than I thought possible trying to understand Russian collusion, the politics of Trump and Trump haters, and criminal behavior inside the FBI and CIA. I could write a book, but I just can’t do these topics justice in this forum. I'm letting them go for now, concluding that we desperately need a wall . . . around the Beltway.

If I have offended you already—I guarantee that at least a few readers are—it’s time to stop reading. Although no puppies were killed writing this blog, trust me: I am just warming up.

Sources

I sit in front of a computer 16 hours a day gerrymandering my brain, at least three of which are dedicated to non-chemistry pursuits. I’m a huge fan of Adam Taggart and Chris Martenson (Peak Prosperity), Tony Greer (TG Macro), Doug Noland (Credit Bubble Bulletin), The Automatic Earth, Grant Williams (Real Vision and Things That Make You Go Hmmm), Raoul Pal (Real Vision), Bill Fleckenstein (Fleckenstein Capital), Mike Krieger (Liberty Blitzkrieg), Demetri Kofinas (Hidden Forces), James Grant (Grant’s Interest Rate Observer), Campus Reform, and any nonsense spewed by Twitter legend @RudyHavenstein. There are so many others, many of whom I consider friends that I am simply waiting to meet. ZeroHedge is by far my preferred consolidator of news; it’s an acquired taste and requires a filter, but I think those rogues are great. Twitter is a window to the world if managed correctly—especially for a chemist attempting to connect with the finance world. Warning: the Holy Grail of maximizing follower counts is an illusion; it produces a counterproductive hyperconnectivity that makes extracting signal from noise difficult. So much flow, so little time.

My Personal Year

My emergent role as a Roosky apologist (pronounced “Roo-ski”) brought in a wave of interviews including two each with British provocateur George Galloway, RT,ref 7,8,9 Lee Stranahan and Garland Nixon on Fault Lines,ref 10 and Scott Horton.ref 12 Other interviews focusing on economics, markets, and the absurdity we call “college” included Crush the Street,ref 11 Jason Burack (Wall St. for Main Street),ref 13 Chris Martenson (Peak Prosperity),ref 14 several with Lance Roberts,ref 15,16 and several on local radio.ref 17 Last year’s write-up on pensions was reproduced verbatim in the Solari Report on pensions.ref 18

A three-hour dinner with Jonah Goldberg. I'll remember vividly. I also played a role in coaxing one of my favorite economists, Stephen Roach, and one of my readers and friend, Tony Deden, to do RealVision interviews purely out of self-interest: I wanted to hear what they had to say. This much heralded two-part Deden interview was his first interview ever.ref 19 In return, I got to spend 10 hours sitting on my deck chatting with Tony about the meaning of everything. Y’all are now free to eat your hearts out.

On the chemistry front. Somebody recorded a chemistry lecture I gave in Portugal in which you can hear my Yankee-dog jokes bomb.ref 20 Halfway through dinner that night, I remembered that one of my three compatriots had won the Nobel Prize in chemistry six months earlier. Another was six months shy of winning this year’s prize. (Congrats, Frances) In 2017 I had two NIH grants hit the same study section. Any academic will tell you that was guaranteed to be a “Sophie’s choice” moment at best. I only needed a few stitches—I got one of them funded—and it looks like the other is coming back in the spring. (Phew!)

Investing

My investing acumen has been pretty lucky, with one notable bad streak. From 1980 to 1987, I was all long-dated bonds. Those suffering acute equityphilia may not realize that bonds were great. The ’87 dip prompted me to switch to equities, which I held until mid-1999. Here's a dark secret that I’ve never told anybody: I had tech stocks on leverage. Ding! Ding! Ding! They ring bells at the top! I woke up in time, sold everything, and held only cash, gold, and a token short position from late 1999 forward, dumping the short position during the ’02–’03 recession. From around 2003 through 2010 it was gold, cash, and energy-based equities with a pinch of tobacco. That was my best decade, relatively speaking, cranking out >10% annually compounded returns like a boss in an otherwise brutal environment. Yahtzee! Then we get to 2010 through the present, and Mr. Smarty Pants got a ’tude adjustment. Energy, gold, and cash hoisted me by my own petard and put me headfirst through a wood chipper. As explained last year, my employer booted me out of my entire (15%) energy position after the beatings. Thanks. I've been sitting on gold and cash witnessing an epic equity ’roid rage accumulating skid marks in my boxers.

Precious metals, etc.: 28%
Energy: 0%
Cash equivalent (short term): 63%
Standard equities: 9%

For me, however, investing is all about valuations. The section on “Valuations” will explain why I didn’t buy equities when they were dirt cheap—hint: they were never dirt cheap—and where I think it all goes from here. I have one overarching goal: don’t fuck up. If I hit this goal, I will retire in comfort. The one variable I have no control over, however, is time, and that is why the chronostrictesis of sitting on the sidelines for nearly a decade caused me to start cutting myself again. Let me show you a foreshadowing chart that should give you pause (Figure 2):

Figure 2. Peak-to-peak or trough-to-trough (full cycle) inflation-adjusted capital gains of 1.8–2.2% per annum since 1870.

If you negate timing—if you measure peak-to-peak or trough-to-trough—your inflation-adjusted capital gains will average about 2%. If you get caught holding your life savings in equities at the wrong time, you will not recover in your lifetime. Hold that thought until “Valuations.”

"But there is one course of action – one classic mistake – that I most strongly feel is wrong: reaching for return."

- Howard Marks, founder of Oaktree Capital

How’d I do in 2018? Large physical gold and much smaller silver investments went moderately down (–5% and –15%, respectively). Fixed income finally offered returns without a zero preceding the decimal point, but they’re still pyrrhic gains at best. My TIAA retirement account returns 3.6% per year guaranteed (unless the zombie apocalypse arrives). I am also laddering 2-year treasuries and CDs; reaching any further for yield makes sense only if you’re a diehard deflationist because the yield curve is dangerously flat. To my joy, my former energy position would have cost me another –10% loss had it not been liquidated by my employer. I will get it back when I’m ready—when the next recession is making headlines. All this compares with a –10% return on an S&P index fund.

Here is my maxim: Save to retire, and invest to combat inflation. I have prided myself on saving 20–30% of my gross salary per year, but for the first time ever (including the college tuition years!), my spending exceeded earnings. Adult children are expensive as hell, especially when the youngest spawn is trying to be a non-starving musician and starting a new venture—buying and selling violins.ref 21 (You wanna buy a violin?) You could call the money loans, but that means you’ve never loaned money to your children. Also, being married to a grandmother of three who is armed to the teeth with credit cards and digitally linked to point-and-click purchases of toys and kid’s clothing (Amazon) is quite the experience. I bought her a Jacuzzi for our deck overlooking Cayuga Lake (Figure 3) knowing that she can't order toys and clothes while while in the tub. I plunged into the antique furniture bear market after a multi-decade hiatus by buying some nice pieces at seriously low prices; those in Figure 4 are emblematic. They will be in my estate, but I’m still hoping they don’t get seriously cheaper. Did I mention the dental implant, which seems almost metaphorical? To top it all off, I got an altogether unexpected 30% hit on annual gross income, which appears to be a one-off event. I see a return to profitability in Q1 2019—the ol’ first-half recovery story.

Figure 3. Hot tub city, and I am the mayor.

Figure 4. (a) Mid-19th century tiger maple drop-leaf dining room table; (b) Circa 1770 century Boston highboy.

The Economy

"In our current framework the economy is singularly brittle."

~Larry Summers (@LHSummers), former secretary of the Treasury

“Absolute blowout number for ISM Manufacturing Index in August. 61.3 is a 14-year high. While many keep pointing to threats, this economy is Kevlar.”

~Brian Wesbury (@wesbury), chief economist, First Trust Portfolios

“I am not playing this down at all. I think we have a very serious global synchronized downturn.”

~Lakshman Achuthan (@businesscycle), Economic Cycle Research Institute (ECRI)

It is instructive to ponder the meaning of wealth creation. It’s about making our collective lives better. The U.S. built an empire founded on strong property rights, a growing populace with a gritty work ethic, a resource-rich continent with seemingly limitless room for expansion, and global European competitors hobbled by relentless tribal fighting. How many of these factors are still intact? The first industrial revolution was about converting enthalpy (heat) obtained from fossil fuels into negative entropy (order we call civilization). I keep wondering what will drive the gains over the next 100 years. We are told FAANGs are replacing the smokestack industrial juggernauts. We'll see.

Heady questions aside, how about this year? This time last year I was writing about downturns in housing and autos, and now I’m hearing about downturns in housing,ref 22 autos,ref 23 lumber,ref 24 retail,ref 25 trucking,ref 26energy,ref 27 and semiconductors (chips ’n’ dips).ref 28 Did we have a boom I missed? Yes and no. Assuming inflation corrections using “substitution” and “hedonic improvements” are accurate—I don’t—and assuming GDP corrections using these inflation numbers are accurate—I don’t—then the GDP grew a paltry 2% off the ’09 bottom, quite literally tracking the Great Depression from 1931 to 1939.ref 29 BLS employment numbers are generated by a trend-cycle statistical modelref 30 (read: making shit up). Nonetheless, even Helen Keller could’ve seen the help wanted signs on the lowest economic rung (retail). Personal consumption expenditures (PCEs) are said to be soaring relative to GDP despite stagnant wages and no personal savings.ref 31

“It doesn't take even 10 minutes’ worth of investigation to show that the BLS tightness gauge—the U-3 unemployment rate—is not worth the paper it's printed on.”

~David Stockman (@DA_Stockman), former Reagan economic advisor and former Blackstone group partner

In 2018 we somehow witnessed a couple quarters of 3–4% GDP growth. I am so dark that I wonder whether the numbers have been jiggered explicitly to provide cover for the Fed to raise rates. Even so, more balanced individuals than I wonder whether we are creating real wealth or witnessing economic activity stimulated by yet another credit bubble. Luke Gromen (FFTT, LLC) notes that the 4% GDP print was suspicious in light of a 6.5% year-over-year drop in tax receipts and a 1.8% drop in gasoline demand.ref 32 (Fuel consumption and economic activity go together like Starsky and Hutch.) Something is amiss. David Stockman says that “these goal-seeked numbers are notoriously unreliable at cyclical turning points like late 2007 and early 2018.” He also notes that S&P profits haven’t grown for over three years.ref 33 In a really engaging interview,ref 34 economist Mariana Mazzucato seems to contradict Stockman, noting that “this is the sharpest post-recession rise in reported EPS in history.” She goes on to say that the “sharp increase in earnings did not come from revenue.” Stephen Roach, former executive director at Morgan Stanley asks, "Are the fundamentals really that sound? For a U.S. economy that has a razor-thin cushion of saving, nothing could be further from the truth."ref 35 He notes the anemic personal savings rate of 2.4%—the lowest in a dozen years and one-fourth of the historical norm—cannot support a strong economy. The scholarly market historian and market maven Lacy Hunt calls the economy “very weak.” Let us not forget the obvious: The views are always the best from the summit.

Today’s economic boom is driven not by any great burst of innovation or growth in productivity. . . . The global economy is now awash in debt.”

~Steven Pearlstein, Washington Post

“If it’s debt financed, you cannot increase GDP. You can only increase components of GDP.”

~Lacy Hunt, economist

The main problem is that growth, whether tepid or strong, was driven largely by a doubling of global debt over the decade,ref 36 which I am tempted to call 7% annualized inflation. The debt-to-GDP ratio in the third world—called “emerging markets” on Wall Street and “shitholes” inside the Oval Office—created a mania of mergers and share buybacks while the real economy sputtered. Debt is consumption pulled forward. The bill for that hamburger you eat today is coming due on Tuesday, Wimpy.

Pre-pubescent Paul Volcker: "Why can't we have a boat like those people?"

Momma Volcker: "They have mortgages; we don't."

Figure 5. Popular plot asserting that federal debt is losing its stimulatory effect.

The real story of the 2018 economy appears to be that it was juiced by several large, one-time stimuli. Hurricane repairs holding over from the 2017 carnage lifted GDP while creating no additional net wealth.ref 37 (One could argue trashing the old and replacing with new brings minor benefits.) The 14% Trump tax cuts and massive one-time tax repatriation of overseas earnings—one time since the last one in 2004ref 38—is said to have contributed significantly to the economy. The bulk was preordained to go to share buybacks despite blathering by corporate chieftains. Even so, that is said to represent a new slug of coin pulsing through the economy somewhere—but maybe not. That money wasn’t just parked in a vault in Zurich; it was in the multinational banking system already juicing economies worldwide.

“For now, we estimate that the U.S. economy has peaked—the powerful expansionary cocktail of unfinanced tax cuts, repatriation of capital, and fiscal spending ramped up growth in the U.S., but these one-off effects will peter out as the year ends.”

~Steen Jakobsen (@Steen_Jacobsen), chief economist and CIO at Saxo Bank

Meanwhile, corporate debt grew way faster than GDP.ref 39 Of course, some debt for pump ’n’ dump schemes (share buybacks) was offset by cash waiting for repatriation, but debt is the lifeblood of a leveraged system (Ponzi finance), and it grew. The IMF suggests that the benefits of the one-time boluses should wear off soon, leaving a 2.5% growth rate by 2019.ref 40 (I'm looking for contraction, but that's just me.) Before moving to the last one-off stimulus, let me add that these routine overseas tax repatriations rot the system by giving advantage to slow-growing multinationals while providing no benefit to rapidly growing smaller companies. Look at it this way: If you can make money overseas and then get a tax jubilee every decade or so to “make America great,” where will you build your plants? Where will wily corporate bean counters declare all their earnings? Of course, the share buybacks don’t stimulate the economy at all because these monetary ’roids never left the system, so they can’t return to it. Shares and money just change hands. The real point is that since taxpayers will have to fill the void left by the tax jubilee, then what we just witnessed were taxpayer-funded corporate share buybacks.

The third one-time bolus for the economy this year was the looming trade war with China. Scrrrrratch! Come again? Are you nuts? Stay with me here as I digressively peel back a few layers of this onion. First, some claim that there has been a trade war on slow burn for decades and that the U.S. is finally starting to fight back. Obama fired the first shot with a tariff on rolled steel in 2014ref 41 to garner union support while, according to Roach (personal communication), it merely shifted business to higher cost producers. Trump then took the tariff debate to 11 on the dial. (He had been talking about doing this years before the election.)ref 42 One can squeal that this is a tariffying repeat of the Smoot–Hawley tariffs. The Smoot–Hawley Tariff Act was a political football for Roosevelt during the 1928 election, causing the putative damage from the bugger-thy-neighbor tariffs to be overplayed in the history books. The tariffs also conveniently take the blame off central bankers for creating a ginormous credit bubble in the '20s as promulgated by the 500+ economists on the Fed’s payroll. Hoover’s failure to get authority to change the tariffs without Congressional approval may have left a destructive rigidity—an unresponsiveness—in the Smoot–Hawley Act (see "Books"). Through the auspices of the “United States Fair and Reciprocal Tariff Act"—yes, the U.S. FART Act—Trump requested the same authority.ref 43 Somehow giving the Donald discretionary power to do anything important makes people nervous. He is rumored to be a little volatile.

Do you have a point here, Onion Boy? Sure, but drop the ’tude, ya punk. Tariffs were GDP positive in 2018 as industry scrambled to make hay while the pre-tariff sun was still shining. The Atlanta Fed claimed that up to 60% of U.S. economic growth stemmed directly or indirectly from industry front-running the tariffs by stockpiling and accelerating exports.ref 44 Of course, billions of dollars of subsidies are already budgeted to offset the negative effects on farmers with presumably more to come.ref 45 The savvy reader will notice that the consumer will pay more for imported goods and higher taxes for the subsidies—a one-two punch to the groin. In the short run, the tariffs generated a little wiggle in the economy this year and may even be a powerful bargaining chip to get concessions during a period of Chinese vulnerability, but they will be a problem if they linger.

“What does it say about productivity when the retail sector reportedly hires 50k in the same month when sales dip 0.1%. Or maybe the payroll number was completely bogus.”

~David “Rosie” Rosenberg (@EconguyRosie), chief economist and strategist at Gluskin Sheff

We hear how employment is tightref 46—said by Alan Greenspan to be the tightest labor market ever—while 100 million working-age Americans are not working and while inflation-adjusted wages have been stagnant since the 1980s. The law of supply and demand says there’s something wrong with this picture. Indeed, we have a system in which 100 million are incented not to work even if jobs are aplenty. The other problem is that rising wages (oh thank the Lord. Finally!) will create what economists call “negative externalities” or, as the rest of us say, “shit happens.” What comes next is predictable. First, the wage pressures will cut into corporate profits—real wage growth conflicts with bubble-level corporate profit margins—driving equity valuations skyward or equity prices earthward. Second, the rising wages will be labeled “inflation,” which will cause the bean counters to correct for it declaring, “inflation-adjusted wages are stagnant.” Third, the Fed will get their thongs in knots and slay the inflation dragon by stepping on the economy. Just as consumers are trying to pull themselves up from the precipice, our Fed overlords will be stepping on their fingers.

“We have abolished the idea of failure—nature’s cleansing mechanism. As a consequence, we’ve lost real economic vitality. We’ve substituted finance for industry as the locomotive of economic growth. In GDP terms, it looks terrific. But it is neither enduring nor real.”

~Tony Deden, founder of Edelweiss Holdings

That’s a great segue into a chat about wealth inequality, a topic that is causing even the gazillionaires living in modern-era Versailles palaces to get nervous. I submit that a healthy economy naturally distributes wealth with a Machiavellian fairness. As you grow an economy that is firmly founded on wealth creation—making and moving goods and services—it is not a zero-sum game; all boats rise, albeit to different levels. (It will never be fair; get over it.) The natural tension between the cost of labor and the cost of labor-saving technology is dealt with by the supply–demand curve. When you have to redistribute wealth at a wholesale level to keep the mobs from charging the Bastille, however, something got out of whack. As you financialize the economy—as the GDP becomes a measure of how much money is being moved around or what economists call “rent seeking”—it is a reverse Robin Hood wealth distribution. The rich accumulate wealth at the expense of the poor because nobody is actually creating wealth. It becomes a zero-sum game with winners and losers. Rockefeller, Carnegie, and Vanderbilt got fabulously wealthy building an empire. I remain unconvinced that Zuckerberg, Bezos, and What’s His Name at Apple will be able to make such claims. David Tepper, Ray Dalio, Stevie Cohen, and Warren Buffett create none of the Wealth of Nations. They are wealth aggregators, much to the joy of their adherents.

“The greatest economic recovery the top 0.1% has ever seen.”

~@RudyHavenstein, legend

One more point. Economic models assume dislocated workers will just move, but they don’t. The impacts of “rolling industry recessions” is to leave workers behind and instill social instability owing to epidemic levels of cognitive dysphoria slathered with some serious hysteresis (lingering negative externalities!). The gutting of the middle class is setting up to be emblematic of the gutting of the American empire. What role did the Fed play? Their fake-it-till-you-make-it monetary policies financialized the economy. What do you think?

Valuations

“We’re probably only 10 years into another 50-year bull-market cycle.”

~Andy Sieg, head of Merrill Lynch Wealth Management

Jeepers. How long was Andy floating in the harbor when they found him? I recall sitting in a room with friends when the Nasdaq had just crept over 5,000 for the first time and proclaiming it would be back to triple digits. They laughed. I missed by <200 points. Benjamin Graham, the most legendary investor of the twentieth century and mentor of Warren Buffett, lost 70% in the ’29–’33 bear market. Failing to exit the highway before hitting the traffic jam taught him about risk. Every year I talk about valuations, but I will lay it out in detail so that, in the end, I can sleep knowing that you’ve been warned.

Let’s first illustrate the consequences of buying at secular highs. Many analyses show how long it has taken those fully invested at tops to break even. Of course, you must inflation-adjust to even approximate capital gains and losses. I have taken a slightly different tack by asking how long it takes to go from a secular high to that same value for the last time (Figure 6).

Figure 6: Inflation-adjusted S&P capital gains. Blue arrows show time required to return to the peak valuation for the last time (hopefully).

“So imagine valuations never see their norms, or 2009 levels again, and this cycle completes at 2002 levels—the highest level of valuations ever seen at a cycle low. That would still be more than enough to wipe out every bit of S&P 500 total return above T-bills since 2000.”

~John Hussman (@hussmanjp), Hussman Funds

The blue arrows illustrate four instances in which investors caught holding equities at the peaks paid profoundly. In each case, the big dip is followed by a recovery—the break-even point—followed by an extension of the rally that eventually fails. As though pulled by a tractor beam, the price revisits the original peak for the third and final time. Those arrows representing zero capital gains—treading water during the biblical flooding before finding terra firma from which to launch new gains—are 40–75 years! Let me repeat: on four separate occasions over the last 140 years, investors obtained zero inflation-adjusted capital gains for periods spanning half to three quarters of a century. The entire gains during those periods came from dividends eroded by a host of taxes and fees (see below). You will, however, get participation trophies too.

Don’t be deceived by analyses in which you start investing at the peak and invest throughout the ebbs and flows. These are calming words valid for millennials and Gen Zers. If you are a boomer with >80% of your lifetime savings already banked, however, there is little cost averaging in your future. Full return analyses in which dividends are included are less scary (Figure 7) but almost never account for the massive erosional costs discussed below.

Figure 7. Inflation-adjusted total return with dividend reinvestment by Mike Lebowitz uncorrected for fees and taxes.

“First law of finance: In the long run, returns must revert to the average.”

~Jason Zweig (@jasonzweigwsj), columnist at the Wall Street Journal, in 1997

You can keep your support lines and technical indicators. You can keep your crash fears too; they are rare technical events. All I care about are valuations. It has been said that "record-high equity valuations don't mean poor returns are imminent, only inevitable." The big risk is buying poor assets during good times. Although 2007–09 was painful, the 2007 market wasn’t even an equity bubble but rather a real estate and credit bubble caused by the Fed keeping rates too low for too long. The Mullahs of Macro's response to the collapse was to keep rates way lower for way longer. Paradoxically, it seems both moronic and, for now, effective, but is it? Or are we in another bubble? Before answering these questions, let’s take a quick peek at what one can expect out of equities ignoring valuations.

“Anyone who says stocks are guaranteed to outperform bonds or cash is an ignoramus.”

~Benjamin Graham, mentor of Warren Buffett and author of The Intelligent Investor

Last year, I obsessed over why stocks persistently return several percent more than U.S. treasuries and concluded it must be the awesome power of the State—rules forcing government debt into portfolios of compliant victims. My back-of-the-envelope calculations suggested that equities would sustainably provide 4–5% inflation-adjusted returns—not 7–8%—over many cycles spanning many decades. Headline-grabbing nominal returns must be corrected for fees, taxes on real and inflated gains, disasters (full-cycle, not partial-cycle, analysis), survivorship bias within indices, and demographics (1.4% growth in pie sharers). With that bug still buzzing, the Baader–Meinhof phenomenonref 47—the tendency to notice things only after the initial awakening—ushered in some new confirmation bias.

A stupendous paper by retired economist Edward McQuarrie shows how claims of 6.6% inflation-adjusted returns over the long term—100–200 years—are profoundly deceptive because they hide nasty periods of many decades in which returns are disastrous.ref 48 McQuarrie does not account for taxes, fees, and demographics, all of which will conspire to bring that 6.6% much lower; others have attempted such corrections.ref 49 Mark Spitznagle takes 2% more off reported headline indices because of highly “non-ergodic” compounding.ref 50 In an article from 1999, Marty Zweig noted that “funds charge annual expenses of 1 percent or so; then it costs them another 1.5 percent to 2 percent to buy and sell their stocks each year.”ref 51 I assumed 1% total. He also said the oft-stated 9–11% compounded returns is “guano” and that small caps sustainably beating large caps is “a crock.” Rob Arnott, eight-time Graham and Dodd Award winner managing over $200 billion and said by Howard Marks to be “one of the real thinkers in our field,” calculates a sustainable 3.1% annual inflation-, tax-, and fee-adjusted return.ref 52 Graham-Buffett-Zweig, in the latest Intelligent Investor (see “Books”), put the long-term gains at 4% before taxes and fees. It would appear, therefore, that folks claiming much higher returns have carried out incomplete analyses or are serving up the surf ’n’ turf combo platter (fishy analysis slathered with bullshit).

“I love equities, I'm not a weirdo, and I don’t live in a bomb shelter. But in a very real sense, the compounding of stock returns over long periods is a fraud. It really is. No one has ever gotten those returns.”

~Ted Aronson, January 1999, Aronson and Partners

You may have noticed that none of these analyses assume corrections for valuations. Changes in valuations can offer up an additional +4% compounded gains above the norm, providing a tailwind pushing investors up the Wall of Worry to the valuation summit during a secular bull market. Shrinking valuations can hit investors with  gale-force –4% compounded losses, representing a headwind as investors take the express elevator to the gates of hell pistol whipping themselves the whole way during the secular bear market. Thus, valuations matter a lot. According to Buffett's iconic 1999 must-read article,ref 53 multi-decade periods of collapsing valuations correlate with secular rises in interest rates, whereas the coveted valuation expansions are fueled by secular drops in interest rates. Thus, interest rates matter a lot too. Once rates have plumbed the lows or highs, you are at a turning point. Market extremes occur when it becomes “too expensive in the short-term to play the long-term.” Cliff Asness seems to contest this model by noting that falling rates do not justify high valuations,ref 54 but he notes that “to pay higher prices as a result of lower interest rates to avoid a very painful outcome requires that interest rates remain low indefinitely.” I infer that Asness and Buffett agree.

“Exponentially rapidly rising or falling markets usually go farther than you think, but they do not correct by going sideways.”

~Bob Farrell, former Merrill Lynch legend

Let's ponder what some of the contenders for the Wall Street Fat Bear Championship have to say. Many focus on the awkward evidence suggesting the ’roid rage of ’09–present was largely a growth in valuations and profit margins. The market über-bears all use essentially the same assumptions: (1) normal growth in GDP and no catastrophic events (no world wars), (2) regression to the mean, a force of nature, will do its thing while largely ignoring the inevitable regression of valuations through the mean, and (3) investors will hold for 7 or 10 years. They include corrections for inflation, but none include corrections for taxes and fees. Note that using longer durations (up to 20 years) allows assumed 3% GDP growth to cosmetically mask the bad optics of negative compounding while investors consume 50% of the approximately 40-year investing life expectancy.

  • Rob Arnott's estimated +3.1% return does not include valuation changes. Regression from current valuation to historic norms predicts –3% compounded losses over a decade.ref 55

  • Jeremy Grantham sees a precipitous drop of –48% or, if spread over 7 years with standard GDP growth, a drop of –5% compounded losses over the next 7 years (a 30% correction with positive GDP growth overlaid).ref 56 His most sanitized version points to small positive annualized returns over the next 20 years.

  • John Hussman sees a –57% loss in the Nasdaq, which is somewhat less than his expected losses in the S&P 500 (–64%), Russell 2000 (-68%), and Dow (–69%) over this cycle.ref 57 He also sees dead people.

  • Robert Shiller cautions that he is not predicting major calamity for the market but rather a much lower level of returns, in the 2.6% annual range over the next 10 years.ref 58 But this estimate appears uncorrected for anything except mean-regressing valuations. Any correction would be “probably not as bad as 1929, but it could be disruptive."

  • Goldman’s “bear market indicator” suggests –3% per annum prospective total returns for 5 years, placing it in the optimistic camp.ref 59

  • Mike Lebowitz of 720Global projects a drag of –7% per annum on capital gains over the next 10 years, leaving GDP growth and dividends to mitigate the damage.ref 60

“According to the Buffett yardstick, stocks are currently priced to deliver an annualized return of –3% over the next decade including dividends. Compare this to the 3% yield on the 10-year Treasury note and you’re looking at a –6% differential.”

~Jesse Felder (@jessefelder), former hedge fund manager and author of The Felder Report

“I expect the S&P 500 to lose approximately two-thirds of its value over the completion of this market cycle.”

~John Hussman

There are a gazillion valuation metrics. On the optimistic end you have peak idiocy and fibbing when price-to-earnings (P/E) ratios are quoted using non-GAAP forward earnings. Since markets are forward looking, why not five-year forward earnings? Why not ten? These are just Wall Streeters and corporate chieftains looking for bonuses. Let’s look at the ones that make the bears so fearful. What you’ll notice is that all metrics are normalized by dividing something (usually price) by something else (a metric of value) to give you a number that, unless you have good reason to think otherwise, should flop around some historic mean without trending up or down. Many will show that the last time we touched the historic mean was in ’09, and it stayed marginally below it for about 15 minutes. The last time we emerged from a protracted stay below the historic mean—we should reside below the mean half the time if my sixth grade math hasn’t failed me—was many years earlier (the early 90s). Bear in mind the latest edition of The Intelligent Investor confirmed that stocks were still overvalued after the 2000–2003 bear market, suggesting they had more correcting to do. As we shall see, the 2009 low was, by historical standards, near the historical mean, and the run from ’09 to ’18 was largely about elevating valuations. Regression through the means will take you into the dark mind of John Hussman. As I bang through some graphical measures of valuation, don’t lose sight of the fact that a 2× overvaluation requires a 50% correction to the mean and a 100% gain to recover. A 75% correction requires a 300% rally to recover. If you keep this arithmetic straight, it starts to get a bit ugly.

“The price of the market is 'highly dubious' right now . . . the next recession will be frightening.”

~Paul Tudor Jones, former hedge fund legend

The most deceptive and quite viral plot of the year (below) makes it look like you should never sell. Stocks almost always go up and a lot more than down. This little artifact derives from the non-linearity of the downside—100% down means you’re broke and need infinite returns to get even. The more conventional subsequent plot shows problems, but the normalization to the mean is obscured just like McQuarrie discusses (see above).

“We are at the top of the valuation range by any measure except for interest rates.”

~Stan Druckenmiller, former chairman and president of Duquesne Capital, compounding 30% returns over 34 years

The Shiller P/E with 10-year smoothing of earnings and analogous Crestmont P/E show >2× overvaluation relative to historic norms. Some say these will get tame looking as ’08–’09 earnings roll off the back end. Others did the mathref 61 and say the effect will be marginal because 10 years is a decent sample size. . . .

“If the Fed keeps on tightening, or if inflation breaks out and bondholders take fright, this latest and perhaps greatest of bubbles will also come to burst.”

~Edward Chancellor, author of Devil Take the Hindmostref 62

Doug Short’s composite valuation metric is parked at >100% overvaluation...

“It is a source of some concern that asset valuations are so high.”

~Janet Yellen, former chair of the FOMC, as the door is hitting her in the ass

Tobin’s Q, essentially a measure of price-to-book value, is approximately 2× the mean, sitting at a level commensurate with only the highest peaks and exceeded only by the 2000 bubble. The market cap-to-GDP (Buffett) indicator for the Wilshire 5000 is in the 99th percentile and sets a new world record. . . .

“Equities are currently more overpriced on dependable valuation measures, such as total market value to GDP and on a replacement cost basis (Tobin’s Q), than at any time save for the 2000 dot-com bubble. American corporations have also been borrowing like there is no tomorrow.”

~Edward Chancellor

Price-to-revenues and price-to-sales reached all-time highs. . . .

“A 40% crash looks justifiable . . . effectively a retracement to prior technical support levels, the S&P 500 highs of 2007 and 2000."

~Scott Minerd (@ScottMinerd), CIO at Guggenheim Partners

Price-to-PEG and price-to-EBITDA (earnings with all bad stuff excluded) have exceeded the 2000 high-water marks. . . .

“Equity exposure today on U.S. personal balance sheets has only been exceeded once before and that was in the late-1990s tech craze. I just don’t get it. But if you’re still long U.S. equities, please have a different reason than this drivel about this being a hated and under-owned asset class.”

~David “Rosie” Rosenberg

Corporate profit margins are soaring and said to be notoriously mean regressing. Hussman’s valuation model is a profit-margin-adjusted CAPE. Crudely speaking, if mean reversion occurs for both the profit margins and the CAPE, we are looking at a >60% correction. . . .

“Every market cycle in history has taken the most reliable valuation measures we identify (those best correlated with actual subsequent S&P 500 market returns) to less than half of current levels.”

~John Hussman

The number of stocks trading above 10× revenues for both the S&P and the Russell 2000 are at extremes. These are the same levels that Sun Microsystem CEO, Scott McNealy, was prompted to say about his investors, "What were they thinking?”

“The biggest market disasters happen when both leverage and securitization get mixed up with the same clever scheme.”

~Ben Hunt (@EpsilonTheory), former hedge fund manager and founder of Epsilon Theory

Price-to-corporate profits-GDP ratio (analogous to Hussman) suggests that Hussman is an optimist. The ratio of financial assets to real assets indicates a pronounced financialization of the indices. . . .

“The S&P 500 is trading at about a 93% premium to the long-run median. Falling to median therefore involves a 48% fall.”

~Jeremy Grantham, founder of Grantham, Mayo, van Otterloo & Co. (GMO) asset managers

Household equity ownership versus disposable personal income seems like good news until it mean reverts. Hours of work needed to purchase the S&P is also extreme. . . .

“Assuming you have the requisite capital and nerve, the big and relatively easy money in investing is made when prices are low, pessimism is widespread, and investors are fleeing from risk . . . this is not such a time.”

~Howard Marks, Oaktree Capital Management

Financial sector assets as a percent of GDP and margin debt versus GDP illustrate the financialization of the economy and the role of margin debt to achieve it. . . .

“There are two bubbles. We have a stock market bubble and a bond market bubble. At the end of the day, the bond bubble will be the big issue.”

~Alan Greenspan, former chair of the FOMC, January 2018

Some of these graphics come from the Big Brokerages who make tons of money marketing stocks and pension accounts. Figure 8 shows a table that nicely summarizes valuation metrics. They look awfully tame—so much so that you should just keep buying the dips.

Figure 8. Sanford Bernstein’s valuation models.

“And although I read recently that bull markets don’t die of old age or collapse of their own weight, I think sometimes they do.”

~Howard Marks

David Rosenberg estimates that >13 million worker bees have entered the finance industry since the ’09 bottom.ref 63 They have never actually been through a “bear market cycle. The boomers have; the next will be their third. They could get pretty skittish. For now, they are all-in for the ride.

Bloomberg’s Alix Steel: “Is there a magic-hedge that would help you if you owned the S&P 500?”

Mark Spitznagel: “Own less of it.”

On the off chance there are young ’uns reading this, I have altogether different advice. Save your asses off. Pick an asset allocation that smells right: I would think 60:40 or even 70:30 equities-to-fixed income sounds good. Allocate at that level. At the end of each year, don’t try to rebalance your portfolio immediately: Selling winners and buying losers is psychologically too hard. Simply change your allocation to bring it back to your set proportion. If bonds outperform, allocate to stocks. Make allocation changes once a year. The boomers’ risks are not your risks.

“The lapse of time during which a given event has not happened is . . . alleged as a reason why the event should never happen, even when the lapse of time is precisely the added condition which makes the event imminent.”

~George Eliot in Silas Marner

Broken Markets

JP Morgan’s top quant warns next crisis to have flash crashes and social unrest not seen in 50 years

~Headline, CNBC

“Stocks could surge 19% this year because investors are the right kind of cautious.”

~Bank of America Merrill Lynch

“When reward is at its pinnacle, risk is near at hand.”

~John Bogle, Vanguard and creator of index funds

“We are in the throes of a burgeoning financial bubble. If I had a choice between holding a U.S. Treasury bond or a hot burning coal in my hand, I would choose the coal.”

~Paul Tudor Jones, founder of Tudor Investment Management

Central banks dumped $20 trillion of backstop into the markets over the last decade; what do you expect to happen? I honestly can’t say because nothing like this has ever happened before. Unlike the mortgage crisis, which many of us saw coming from years back, I don't know anybody who knows anybody who saw this level of central bank intervention—the Bernanke Put—adopted by every central bank. It is instructive to simply look at what did happen.

“The recent divergence in the performance of U.S. equities versus the rest of the world is unprecedented in history. . . . This has never happened before . . . this is a market condition that will not persist.”

~Marko Kolanovic, JPM

Not even King Canute will be able to hold back the next bear when it’s time. Somebody calls in a bomb scare, panic starts, cashless (cushionless) exchange-traded funds (ETFs) sell immediately, and leveraged speculators are right behind. The markets are narrowing, with many domestic equities and most global markets considerably off their highs. As I am typing, tremors are undeniable. When they start shooting the generals—selling the increasingly rare market leaders—which they did in the early spring and again starting in September, it’s time to get nervous. We are also in a rate-hiking cycle, and history shows that the Fed will continue pulling on that trigger until they blow somebody’s head off.

@StockCats: How do they get these trendlines so perfect?
@RampCapitalLLC: Because we all draw the same ones.

Frothy Markets. The markets have been riding bareback—condom-free—for a decade now, and bull markets do die of old age—platitudes and an interesting and oddly Bayesian analysis by Larry Summers aside.ref 64 We went a decade off the ’09 lows without a single 20% correction. How could investors not buy into the euphoria? The fact that this run has been supported by an annualized 2% GDP growth doesn’t matter when shares are rising. Hedge funds shorting and snorting trying to time the top—good luck with that one—keep getting squeezed (like in May). When legends like David Einhorn lose for several years in a row and massively this year (–28% year to date), what is the message? Are these former geniuses now garden-variety idiots for doubting one of the greatest runs in history? They should have watched this hilarious and must-see commercial for “Hindsight Capital.”ref 65

“The market is cyclical, and given the extreme anomaly, reversion to the mean should happen sooner rather than later; we just can’t say when.”

~David Einhorn, founder of Greenlight Capital

“It has been one giant short-squeeze market.”

~Jim Chanos (@WallStCynic), Kynikos Associates (short seller)

The euphoria creates the fear of missing out (FOMO), causing a wave of articles explaining what a dumbass you are for not jumping on board. History shows the big gamblers during the bull—the twenty-somethings—get hurt the most at the inevitable conclusion, but these guys have never read the dusty archives so cannot fathom the chapter about to be written about them. Some random top-calling headlines:

"Stock Market Bears Are the Dumbest Thing on Wall Street"

~TheStreet.com

"Value’s for chumps as market puts momentum ETFs into overdrive"

~Bloomberg

"Are you missing out on the great market melt-up?"

~Bloomberg

"The stock market never goes down anymore"

~Bloomberg

"Market trends: bull run could last 20 years, optimists say"

~USA Today

"Stop freaking out about the Dow"

~@CNBC

What about all those corporate profits? Only the old guys remember the 1960s when 71% of IPOs paid a dividend. (Those senile old coots probably don’t either.) Some profits reported this year may be legit, albeit floated on huge mean-regressing profit margins and from tech companies that tend to have higher profit margins (for now, at least.) Margins are also riding the wave of cheap capital and stagnant wages. Regression of margins to historic means could stem from rising rates (check) and wage inflation (check). The huge profit repatriations from offshore are also blurring our beer goggles.

“We have intentionally constructed Berkshire in a manner that will allow it to comfortably withstand economic discontinuities, including such extremes as extended market closures.”

~Warren Buffett, 2017 annual report

What is stalling this day of reckoning besides recency bias observed at all market tops? Passive investing keeps a wall of money bidding up—not flowing into—markets. (Money doesn't “flow,” contrary to what 99% of pundits say.) The Swiss National Bank keeps putting bids under shares with freshly printed Swiss francs, which is insanely anathema to the concept of free markets.ref 66 The numbers don’t seem that large, but share prices are determined at the margins and every little bid helps. The storyline behind this particular bull run—central banks and their gargantuan interventions have our backs covered in perpetuity—is the most pathetic and insane bubble narrative in history, but it is now deeply ingrained in the market’s psyche. The late-cycle tax cuts and repatriations from abroad have probably stalled Armageddon (although to argue this money was sitting dormant, not influencing asset prices, is putty-headed). At the end of November, Jerome Powell blinked. The Powell Put was born when our new Fed chair kowtowed to nervous markets (or Trump).

“Interest rates are already doing damage; people just haven’t noticed. Leverage in the U.S. is grotesque for this stage of the cycle. At the moment, you’ve got peak leverage at peak prices. It’s not like you have to dig deep to find a problem.”

~Andrew Lapthorne, head quant at Société Générale (SocGen)

Buybacks. Share buybacks are hailed as a tax-friendly way to return profits to investors. They broke records this year and were often used to goose share prices the way announced stock splits did in the late 90s. Some say that the share buybacks are hoarding capital from the economy.ref 67 In defense of buybacks, Cliff Asness cogently notes that this argument is nuts.ref 68 It’s not like the money was sitting dormant. However, the claims that repatriation of overseas profits this year would boost the economy by facilitating construction of factories and jobs in the US are equally nuts. They already had access to capital and weren’t doing that. Some would like to get those repatriated profits as worker compensation. Indeed, that, too, was already possible and not happening. You won’t be getting ponies for Christmas either.

“Market sell-off is about 80 percent over and will be reversed by share buybacks.”

~JPM analyst, October 17, 2018

Buybacks are like stock splits: What they giveth in share reduction, they taketh back in shrunken balance sheets. Efficient markets would recognize the trade-off. The companies are merely pair-trading their diversified investment portfolio for their own shares. This is not irrational, but it certainly depends on which is a better value. They may be making the mistake that employees make by keeping their 401Ks bloated with shares of their employers. Robert Shiller recently called share buybacks “smoke and mirrors.” There is even a legislative push to ban them again. (They were legalized in 1982.)ref 69

Here are my gripes about the buybacks.

  • The huge tax breaks that facilitated buybacks mean that taxpayers—whether present or future—funded the share buybacks.

  • The notion that buybacks “return profits to investors” is a ruse. It’s not like you can reinvest them in better opportunities like beer, hookers, and shares of Netflix.

  • The executives are conflicted; they win if share buybacks support option prices and lose if money escapes their containment field as dividends.

  • Comparing share counts before and after the buybacks often show a shocking lack of share count reductions because they are being used to offset options issuance to executives. That’s not exactly returning capital to investors.ref 70

  • Share buybacks maximize at market tops (Figure 9), suggesting that the conflict is causing the buybacks to be dumb money (buying high). Oracle, for example, spent $15 billion buying back shares at $18 per share that they had allocated as options at $3 per share. Steve Eisman says Oracle will be issuing equity in 2019 (sell low).ref 71 In 2017, Deutsch Bank authorized buybacks and is now insolvent.

“Do these idiots ever do buybacks during the panic bottoms, when it actually makes more sense? Of course not.”

~Mr. Skin, anonymous market kingpin posting at Fleckenstein Capital

Figure 9. Share buybacks.

And here is the Big Unknown. Even if all share buybacks used only real cash flow and actually reduced share counts, the gains in price owing to share count reduction should be predictable with recourse to 5th-grade math: they should be zero. Yeah. That's right: zero. It is impossible, however, to know what effects a perpetual bid under corporate shares will have on price, particularly given non-linear amplifications in market-cap-weighted ETFs. When a truck driver in Peoria pays one cent more for a share of Apple than the previous bid, the market cap just rose $50 million. Price is determined at the margins. Years ago, Kodak jumped $2 on a 200-share trade—the last trade of the day—prompting the SEC to pretend to care. What is Apple’s buyback program doing? You cannot say, but it is surely price positive and could be massively so.

“Whenever we have forced selling to take place, the buyers disappear and the sellers have to sell no matter what. And corporate buybacks are not going to be enough.”

~Matt Maley, Miller Tabak & Co.

How about that wave of debt-based buybacks—not the debt that was incurred waiting for the Great Repatriation, but real debt (leverage)? Analysts at SocGen showed that all net debt issuance in the twenty-first century has been used to pay for stock buybacks.ref 72 That’s just fraud—a covert leveraged buyout by the creditor. But, as Jesse Felder notes, “When you have captive buyers [passive investors] who are entirely price insensitive, there is really nothing to stop you from leveraging your balance sheet.” How do I wrestle with the fact that Warren Buffett says he might buy back shares? As I’ve said on many occasions, watch what he does; The Orifice of Omaha is a hoser of a higher order.

“The fact that something is able to be sold legally, or the fact that there’s a market for it, can be very different from the fact that it can always be sold at a price that’s intrinsically fair or close to the last price at which it sold.”

~Howard Marks

“The S&P 500 is the only major market to have defied gravity, lifted by the financialization of America’s economy, whereby artificially cheap interest rates fueled stock buybacks, and desperate pensions turbocharged a leveraged private equity boom. With the Fed now reversing course, will we not have a chance to buy stocks materially cheaper?"

~Kevin PetersCIO of One River Asset Management

Let’s look at some of the silly, idiosyncratic events that happen when investors lose their minds:

  • As noted below (see “Bitcoin”), companies doubled their market caps by adding blockchain to their name or issuing a cryptocurrency.ref 73

  • An 18-year-old launched a hedge fund from his bedroom in suburban New Jersey.ref 74

  • Equities ran 300+% off the lows while the GDP tracked the Great Depression, compounding at 2% per year.

  • Value investing strategies have performed in the bottom 1 percentile since 1990.ref 75

  • The S&P ran 14 months in a row without a monthly loss.ref 76

  • Boeing rose 250% in two years.

  • Blue Apron IPOed at $10 a little over a year ago; it’s now at $1.23 and nobody has been indicted.

  • Tilray, a cannabis company reporting $28 million in sales, doubled in value in three trading days and rose tenfold in 2 months to a market cap of $20 billion before cutting in half.ref 77 As Scott McNealy would say, “What were they smoking?”

  • Solid Biosciences has no revenues and disclosed that one of its clinical trials was put on hold before its IPO in January.ref 78 The company sported a $1 billion market cap.

  • Domino’s Pizza added 35% to a 20-fold, 10-year run aided by a debt-funded buyback program.ref 79

  • Yulong Eco-Materials, a tiny Chinese manufacturer of eco-friendly building products, rallied 950% in one day after the company acquired a gemstone for $50 million.ref 80 The company claims the 17.9 kilogram Millennium Sapphire is worth up to $500 million, although the price suggests it’s worth . . . $50 million.

  • World Wrestling Entertainment (WWE) tripled in the first 9 months of 2018, sporting a trailing P/E of >100.ref 81

  • 60% of corporate debt issued by companies in the Russell 2000 is rated as “junk.”ref 82

  • GM pays its investors a dividend yield of 4.1% with a negative cash flow.ref 83

  • Uber has never turned a profit, but it’s about to go public at $120 billion.ref 84

Nike. Let’s take a peek at Nike. What’s not to like? It’s chart is totally parabolic, rising 20-fold in as many years. It got there, in part, aided by massive share buybacks. It’s sitting at a lofty trailing P/E of 100 on increased competition and faltering sales; regress that to 20 and you get an 80% loss. That would sting. Its edgy ads—Colin Kaepernick in particular—got elevated to meme status and prompted one sheriff to make all perps where Nike shirts for their mug shots.ref 85 Most disturbing, Nike is part of the “footwear index”—yes, there is a footwear index —which has risen >1300% in <20 years (Figure 10). Did we just discover the merits of shoes in the third millennium? Of course, after the company pioneered the Air Mercury line (Figure 11), the share price never looked back.

Figure 10. Shoe index.

Figure 11. A 2000-year-old Nike Air Mercury dug out of a Roman excavation.

“The market value of Elon Musk’s firm overtook BMW’s even though the profitable Bavarian luxury carmaker produced 30 times as many cars last year as the loss-making Tesla. . . . With so much dumb money about, one of Silicon Valley’s new mantras is ‘spray and pray’.”

~Edward Chancellor

Tesla. The newest entry to the automotive industry has a market cap larger than Honda’s and is headed by Elon Musk, the modern era’s Leonardo da Vinci or Thomas Edison. Why not jump on this can’t-fail opportunity? Again, there are niggling little details. Tesla’s shares took off in 2013 when the company announced the Model S. Musk is burning cash in the billions, except for the most recent and highly suspect quarter when earnings appeared just as new funding was needed (Figure 12).ref 86 Tesla began hemorrhaging senior executives right before the suspect earnings report.ref 87 The cash burn prompted Tesla to ask suppliers to give back some of their money,ref 88 rendering customer security deposits a little less secure. Tesla is supposedly making state-of-the-art cars in the desert in what are tents,ref 89 affording them an analyst-pleasing high sales-to-tent ratio. (I hasten to add that P. T. Barnum made some serious coin in tents.) Tesla had a fire at one of its factories.ref 90 What? No flame retardant on the tents? The Tesla Model 3 had a first-pass yield—the percent of cars requiring no additional work—of 14% during the last week of June compared with an industry norm of 80%. The tent-constructed cars, after making it through a rigorous inspection, began to spontaneously lose bumpers,ref 91 lock owners out of their cars,ref 92 and, on bad days, blow up.ref 93 Tesla owners are rumored to be fabricating unavailable parts to fix their own cars.ref 94 Note to Elon: hire those guys. Musk seems to have cut a few corners, like terminating “brake tests.”ref 95 The company also forgot to tell investors that the DEA (not the SEC) was investigating alleged meth and cocaine sales running through its Nevada Gigafactory.ref 96

“Tesla is the perfect metaphor for where the U.S. economy is at: a company stuffed with debt plus government subsidies, unable to deliver the wished-for miracle product—affordable electric cars—whirling around the drain into bankruptcy."

~James Kunstler, Kunstlercast

Figure 12. Cash burn.

Musk showed evidence of brain cell burn along the way, causing some to suspect that he was popping too much Ambien, downing too many mushroom pizzas, or going heavy on the poppy seed bagels at the Nevada Gigafactory. Before-and-after videosref 97 make the new-era Musk look more like Dave Chappelle's homeless character with the white stash. He started harassing analysts on conference calls for their “boring, boneheaded questions” about, oh, useless crap like “inventories.”ref 98 Harassment of the shorts included forcing an insider posting as “Montana Skeptic” (Lawrence Fosse) to shut down his Twitter feed by complaining to Fosse’s bosses.ref 99 Elon sent one of his detractors, David Einhorn, a pair of “shorts” to mock him. Late night (early morning) Tweets include gems like jokes about being bankrupt and insolvent,ref 100 which prompted fast response from the SEC (just kidding). He routinely taunted the SEC’s inability to reign him in.ref 101

“Musk is at it again. He’s doubling down on his pedophile comment.”

~James Chanos, Kynikos Associates

“You don't think it’s strange he hasn’t sued me?"

~Elon Musk tweet, prompting a lawsuit for the “pedophile” comment

“Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it.”

~Elon Musk tweet

“When you’re massive negative free cash flow, your 7-year bonds are trading $86 bid, and you need debt capital markets financing . . . you don’t joke about bankruptcy.”

~David Tamberrino, Goldman Sachs, on his “sell” recommendation

The fateful moment came when Musk announced that he was considering taking Tesla private at $420 per share, well above the asking price, causing a gargantuan wad of money to change hands in the short squeeze:

“I think the Thomas Edison of our age has come off the rails. ‘Funding secured’ means he has the money lined up, or he’s guilty of market manipulation.”

~Scott Galloway, author of The Four

“Funding secured” reached meme status, and the SEC did wake up this time. Elon and Tesla scrambled to find somebody to pretend like they were the ones tendering the offer (to no avail), eventually settling with the SEC for a $20 million fine and the requisite temporary demotion of Musk from CEO to CBW (Chief Bottle Washer).ref 102Of course, that triggered another massive short squeeze,ref 103 yet again hurting those betting against Musk. Charlie Gasparino says Tesla could be bracing for “billions of dollars in potential liability from private lawsuits," from both market longs, shorts, and, of course, cave-dwelling pedophiles. The street hasn’t yet figured out how to price Tesla’s shares (Figure 13). I think Tesla will eventually be auctioned off for parts on the courthouse steps. Of course, all this chaos has had a huge deleterious effect on its current share price (Figure 14).

“He claimed there is a specific source of funding, so that better be true. He also claimed that there is a specific amount available for funding, so that has to be true; otherwise even if it’s not manipulation it would be fraud.”

~Harvey Pitt, former SEC chairman

Figure 13. Chick fight over a few decimal points.

Figure 14. Tesla share price.

The VIX. I obsessed about the VIX—the so-called “volatility index”—last year.ref 104 It was important as both a reflection of and a cause of market frothiness. You could short the VIX at will—a one-decision trade—and make a lot of money, they said. Everybody extolled the virtues of shorting the VIX—“selling vol”—using vehicles like the XIV (clever anagram) or SVXY. There was historical precedence: Folks at LTCM loved shorting vol.ref 105

“References to exceptionally high ‘risk-adjusted returns’ leave me wondering: How do you adjust for risk on the vol trade?”

David Collum, YIR 2017

“Should I kill myself?”

~Online investor after losing $4 million on XIV

“People say congratulations, you called the short-vol trade. No, nothing has happened yet. This is just the appetizer for the unwind that is about to come. I think this is what people should be really afraid of . . . it will be quite disorderly and ugly.”

~Chris Cole, getting credit for calling the vol implosion

There were an estimated $2 trillion vol shorts last year. Seemed like that game had to end, but when? On February 5th, 45 minutes after the markets closed on a 15% one-day loss, the VIX short trade collapsed (Figure 15). We are not talking “crushed” or a “crash ’n’ burn.” It went to zero in fifteen minutes. Credit Suisse “terminated” the XIV trading vehicle.ref 106 TradeStation clients were sent an email terminating “futures trading” and told that margin accounts were “subject to immediate liquidation.”ref 107 Nomura shut its trading down.ref 108A number of funds blew up.ref 109 The speculation was that trading firms would collapse, but that did not materialize. Chris Cole had described in lurid detail how the VIX and $2 trillion of implicit and explicit vol bets could blow up about a week before it blew up.ref 110

Figure 15. Collapse of the XIV, a VIX short ETF.

Who lost? Various pensions proved to be the vol sellers, including University of Hawaii and the Illinois pension funds.ref 111 Harvard got out in time. Are they lucky, connected, or just “wicked smaht”? Who won? That’s harder to say because not all wish to take credit. A small hedge fund made 8,600% on a wildly improbable bet the XIV would go to zero.ref 112 Discussions of serious market manipulations surfaced,ref 113 suggesting that VIX shorts got spread over the five boroughs like Fredo. And when the dust settled, there was Goldman, sitting like the fat bastard at Donner Pass, chewing a toothpick with a $200 million profit.ref 114 Goldman had predicted the problem, almost like they knew something. Oddly enough, soon after vol shorters became full-time gene pool cleaners, the SVXY vol shorting vehicle was resurrected and is attracting a new batch of suckers who can't resist touching the stove too.

End of Cycle. The free market has caught up to a few hooligans. After 100 years, the iconic Sears is now a carcass being picked over by its creditors. Far more shocking, General Electric, the dominant industrial super power is –80% off its 2016 high and –88% off its 2000 all-time high (requiring an 700% gain to return), hitting levels not seen since 1994. It has been removed from the Dow and replaced with Walgreens,ref 115 which is sitting at its all-time high with the same market cap as GE. For those keeping score, GE bought back its own shares all the way down, which probably explains why its pension fund is the third largest holder of GE shares.ref 116 The $170 billion dollars of GE debt (depends on how you count) could be one of GE's toaster ovens being tossed into the pool and may be what spooked Powell into backing away from an overtly hawkish stance—"the birth of the Powell Putref 117" (which, as of December 19th, is said to have died).

“General Electric is the most admired company for the sixth time in the past decade.”

~Forbes, 2006

For the most part, the markets have made conservative investors—what we call Cassandras, Chicken Littles, Grumpy Old Men, and Nouveau impoverished—look like fools. Has the top reared its ugly head this year with the entertainment just beginning? If not, when?

JPM's Kolanovic says that the next meltdown in stock prices could cause the next financial crisis and has coined the name "Great Liquidity Crisis" to describe the phenomenon. Charles Hugh Smith suggests that 10 years of reckless behavior will “unleash a non-linear avalanche of reversions to the mean and rapid unwinding of extremes.” I think he's saying it will be fast. Rates are rising, the cycle that was never fundamentally impressive (or even sound) in the first place is getting very long in the tooth, markets seem awfully jumpy, and the algo bus fueled by unprecedentedly easy monetary policy that drove us to the summit may have no brakes for the trip down.

“The bulls don’t seem to acknowledge the artificial nature of this bull market in risk assets in general—no other cycle had such interference from central bank incursions and support by their balance sheet expansion. . . . The tax cuts have helped buy the bulls a little bit of time, but history shows that monetary policy is far more powerful and exerts its influence with lags that are typically long, variable, and insidious.”

~David “Rosie” Rosenberg

They say that nobody rings a bell at the top or bottom, but some would argue that is untrue. If you believe that valuations are ridiculous, the journey could be fast and hair-raising. Please do not blame hiking rates for a rout. The Fed laid the ground work over decades. And, by the way, if you think that you can hide from a washout by staying in the lower deciles of valuation, dream on. Hussman showed that the pain will be severe in all 10 valuation deciles.ref 118 When valuations plumb the lows, half the equities will be valued even lower. How about emerging markets? They seem cheap. Yes, but they will get cheaper. On the bright side, maybe I’m just wrong.

“The complex world financial system has so detached itself from underlying economic reality that it simply cannot continue without a catastrophic discontinuity.”

~Tony Deden

FAANGs

“When wireless is perfectly applied the whole earth will be a huge brain. We shall be able to communicate with one another instantly, irrespective of distance.”

~Nikola Tesla, 1926

One couldn't possibly miss the influence of the five FAANGs—Facebook, Apple, Amazon, Netflix, and Google—on collective global equity markets and, in turn, the perceived Wealth of Nations. The lowest interest rates since the Pharaohs walked the earth juiced world equity markets with hot money drawn to inflating assets. Non-linear gains owing to market-cap-dependent passive investing put the FAANGs on a tear (Figure 16). The euphoria has been palpable; the Bank of Montreal launched a triple-levered FANG ETF.ref 119 (Ding! Ding! Ding!) While the S&P rallied >200% off the 2009 lows, the FAANGs put up >600% gains, giving them a market cap greater than the UK’s FTSE index. At one point, Amazon alone accounted for >30% of the S&P 500’s gains for the year while putting 70% on its market cap in 165 trading days.ref 120 Market pundits breathlessly watched Apple and Amazon race to be the first company to reach a trillion-dollar market cap (willfully blind to PetroChina, which reached that high-water mark in ’07).ref 12 Somebody was bidding them up like they were signed copies of the Bible. A photo finish gave the win to Apple on September 2nd followed by Amazon two days later.ref 122 Am I the only one who finds this too coincidental? Does it seem odd that September 4th was also the high-water mark for Amazon?

Figure 16. FAANG index as of mid-2018.

Meanwhile, everything is not perfect in cyberspace. Insiders were locking in profits with record share sales.ref 123I also question whether these five companies are equipped to drive economies of the twenty-first century. Can the FAANGs create wealth like Standard Oil, General Motors, U.S. Steel, and General Electric did in the twentieth century? Will the FAANGs create wealth tangible enough to provide the needs of pensioners, feed millions, and sustain the American Empire? Most have valuation and balance sheet issues that certainly would leave value investors wondering if their IQ tests came back negative.

“If the DOJ had not moved in on Microsoft in the late 90s and warned them to stop killing small firms such as Netscape in the crib, we would not have Google, we would have Bing.”

~Scott Galloway

Meanwhile, all but Netflix are facing political and regulatory pressures that could prove catastrophic. The selective censoring of social media users based on political biases is now epidemic proportions and undeniable. Twitter's algorithms are so dumb that they censored their own CEO, Jack Dorsey (@jack) briefly.ref 124 I suspect that it won’t be long before First Amendment cases against Facebook, Google, or Twitter will be taken to the Supreme Court.ref 125

“I think that this certain situation is so dire and has become so large that probably some well-crafted regulation is necessary.”

~Tim Cook, Apple CEO, on the Facebook scandals

“God only knows what it’s doing to our children’s brains.”

~Sean Parker, former president of Facebook on the influence of Facebookref 126

Facebook. Here we have a trailing P/E in the 20s and no debt, making Facebook seem reasonable. My own concern is that it has a trendiness like a teenage clothing chain. Scandals with Cambridge Analytica have given it a serious black eye,ref 127–129 starting an anti-Facebook movement endorsed by Jan Koum, billionaire founder of WhatsApp, when he announced, “It is time to #deletefacebook.”ref 130 Half of millennials are said to have removed the Facebook app from their phones.ref 131 Whether Facebook dropped the millennials' phones from Facebook's apps is an altogether different question. Its usage has been cut in half from its peak owing to censoring, mounting evidence that it is Deep-State personified, and its triggering of dopamine responses like crack cocaine.

Mark Zuckerberg is being drawn and quartered by those who want to be protected from fake news—news that is not in somebody’s political interest—and those who abhor censorship as a crackdown on free speech. Zuckerberg himself—that True Blood “Suckerberg” look—and his antics creepier than a Boston Dynamics robot. Facebook is now positioning to manage data for the healthcareref 132 and banking industries.ref 133 If either is allowed, the term Orwellian will elevate to new levels. On the bright side, the Zuckerberg presidential run has returned to the netherworld from whence it came. Facebook looks like a long-term sell to me.

“Mark doesn’t care about publishers but is giving me a lot of leeway and concessions to make these changes. We will help you revitalize journalism . . . in a few years the reverse looks like I’ll be holding hands with your dying business like in a hospice.”

~Campbell Brown, head of news partnerships at Facebook

“They don't need to identify suckers anymore; Facebook does it for them.”

~Analyst on Facebook’s program to assist fake product ads

Amazon. Of the five FAANGs, this is the 500-pound gorilla. Amazon has essentially no earnings (P/E > 200) and operating margins below 2%, but its business model appears to be (a) pay no taxes, and (b) buy or destroy allcompetitors.ref 134 Once brick-and-mortar competitors have taken the caravan to the light, don’t be surprised if Amazon brings back brick-and-mortar under new management.

Figure 17. Amazon revenue versus profit.

“I can’t explain the valuation of big tech companies. . . . [T]o justify the multiple that Amazon trades at today, the company would have to be worth 25% of the US economy five years from now.”

~Sam Zell, commercial real estate god

Some would call Sam’s quote a prediction, not a valuation warning. Amazon’s risk is regulatory and antitrust also. It is priced as a monopoly. Should sovereign states (possibly in Europe) decide Amazon is too ruthless and try to break it up, the company will be hobbled for years.ref 135 Amazon would become profitless pieces (and some profitable pieces) that do not enjoy monopolistic power. Who decides it is a monopoly? Some politically motivated judge looking over his shoulder at an angry mob that’s given up fighting Walmart and Occupying Wall Street.

“There is nothing conservative about big corporations; they are the backbone of the left.”

~Tucker Carlson, journalist

Amazon’s image got bruised by its deal with the U.S. Postal Service for shipping rates that put the USPS in the red.ref 136 Arguments are being made that government subsidies such as food stamps to underpaid employees in general (and Amazon’s employees in particular) are really just government subsidies to defer Amazon’s salary costs.ref 137 In an effort to mitigate a backlash about poor treatment of employees, Amazon offered raises and then, rather inexplicably, announced they would be paid for by removing bonuses.ref 138 Amazon hastily reintroduced a new cash bonus of $1,500–$3,000 for employment milestones of 5, 10, 15, and 20 years. If all 500,000 employees hit all benchmarks, it will cost Amazon a couple billion dollars in total. If higher pay starts shrinking that 2% profit margin, Bezos will automate even more. Of course, an employee may be at risk of being laid off in years 4, 9, 14, and 19.

We went full oligopoly when a triumvirate of three profound monopolists—Berkshire Hathaway, Amazon, and JPMorgan Chase—proposed to partner up to convert the healthcare system into “an independent company that is free from profit-making incentives and constraints.”ref 139 No offense, but if you buy that “free” part you’re an imbecile. The Nation didn’t and took them to task.ref 140 The article also did a nice job of beating Buffett with the ugly stick, which I have tried to do a few times myself.ref 141 Amazon is also deeply embroiled in the privacy battles, as their hot new product, Alexa, records conversations within your home and sends the key data to advertisers.ref 142 A camera that follows you around the houseref 143 is being called “the Eye of Sauron.”

Amazon announced two new corporate headquarters, one in Long Island City.ref 144 Whether the deal cut by Cuomo sold NY state’s souls to the devil remains to be determined. The placement right next to Cornell’s new tech campus gets my selfish juices flowing.

Apple. I love Apple products but am getting closer to bailing on them. Scott Galloway, author of The Four, says Apple is successfully branding itself as an elite product line like Cartier. Maybe so but only those who bought Apple shares at the bottom can afford the 20–25% price hikes.ref 145 Paying $1,000 for a phone, $1,500 for a basic MacBook Air, and $2,000 for a MacBook Pro or iMac seems egregious. The $400 Apple watch—the Cartier of the digital world—is competing with the $25 watch that I get at Target. Apple’s revenue growth rate has slowed to an average of less than 4% annually over the past 3 years.ref 146 Jesse Felder notes that Apple’s stock trades at its highest ever price-to-free cash flow ratio while the company’s 5-year average revenue growth is the lowest in its history.ref

“So excited for the Apple Watch. For centuries, we’ve checked the time by looking at our phones. Having it on your wrist? Genius.”

~Ellen DeGeneres, talk show host

At least the company hasn’t saturated the marketplace with innovative new products. Bill Fleckenstein reminds us the iPhone 6, the latest product to dazzle the world, just had its sixth birthday! They grow up so fast. Tech analyst Fred Hickey calls Apple’s new iPhone rollout “disastrous”. Price cuts in Japan after only a month and collapsing sales in China are ominous. Buybacks are said to be keeping the shares afloat—or were until the swoon of >20% and moving faster than I can type. Apple is selling fewer phones than a few years back,ref 147which is reflected in inventory numbers. What is the company’s response to drooping iPhone sales numbers? Stop reporting sales numbers!ref 148 Seems like those 20–25% price hikes on all products are working their magic on demand. Maybe Apple’s cloud presence will save it, but the cloud also offers arbitrage opportunities (narrowing profit margins). Apple seems like a money-printing machine now, but the law of large sizes alone puts it at risk of, at best, going nowhere. In a wonderful video, Steve Jobs explains how once you have a monopoly, new products don’t help you, only better marketing. Soon, marketing people are running the company and what made it great is gone.ref 149 Indeed, what made it great is gone. They miss you, Steve.

Netflix. A trailing P/E of >200, a price-to-revenue ratio of 10, a high cash burn rate for its new content,ref 150 a commitment of another $18 billion for more new content (some parked off balance sheet) earning the moniker “Debtflix (Figure 18),”ref 151 and a share price that reached 70% above its 200-day moving average put Netflix at risk. Disney is pulling its content from Netflix in 2019.ref 152 A Netflix spokesperson noted, “we expect to be free-cash-flow negative for several more years (Figure 18)."ref 153 Fixed income investors had auto-callable debt with a huge 20% yield, but the notes were recalled, leaving investors with a net loss owing to 2.7% in fees.ref 154 Well, the bankers did OK. Future debt issuance could get dicey.

Figure 18. Netflix cash flow and debt.

“Google and others are suppressing voices of Conservatives and hiding information and news that is good. They are controlling what we can & cannot see. This is a very serious situation-will be addressed!”

~Donald J. Trump, President of the United States

Google. The share price of Google is up a tame 600% from the ’08 lows. With control of 90% of the search market, further penetration will have to come from other sources. Scott Galloway sees antitrust activity ramping up, although it seems to me like a weaker case than the one against Amazon.ref 155 Google is accused of biasing search results toward advertisers that pay more, which may pose an optics problem but is also how capitalism works. Leaked emails showed that Google helped Hillary with biased search results,ref 156 although not enough apparently. Its participation in deep-state filtering including ham-fisted if not downright abusive attacks on right-wing YouTube sites could lead to fines (a sarcastic BFD) or antitrust activity (a real BFD). Strong ties with the NSA are consistent with the widely held belief that all social media companies offer back doors to the Deep State.ref 157 (If you are confused as to why I keep referring to the Deep State pejoratively, you've got some catching up to do.)ref 158 To get dominance in China, Google appears to be signing off on a platform that allows totalitarian-state-level censorship (code-named Dragonfly).ref 159 Squeals from within the Google employee echo chamber urged Google to drop its military-funded drone program. As a compromise, it dropped its 17-year-old guiding catch phrase, “Don't Be Evil,”ref 160 replacing it with “Be Evil.” A $5 billion fine was a wrist slap.ref 161 Tangible constraints on them may be less benign.

Brand blemishing from firing James Damore last year got another smudge when a post-election video showed the high command at Google self-righteously spewing political views as truths and nothing but the truths.ref 162The former head of public relations says that Google suffers from serious truth issues.ref 163

“Give us a hundred years and us billionaires will show what wealth disparity looks like.”

~Sean Parker, former president of Facebook

As I type, the markets are having their way with the FAANGs—a “FAANG bang.” Maybe it’s just more jiggles en route to $2 trillion market caps for all...or maybe not.

Gold

“You very rarely, if ever, hear a serious discussion of the role of gold in the system going forward. I don’t see any appetite within that community to revisit that issue.”

~William White, formerly at the Bank for International Settlements

“The major gold-producing nations are tired of an international gold price that is determined in a synthetic trading environment having little to do with the physical gold market.”

~Sergey Shvetsov, deputy governor of the Bank of Russia

“If gold is a relic of history, why do central banks and the IMF still hold over $1T of gold? If it’s meaningless, why is everybody still holding it?”

~Alan Greenspan, May 2018

Gold has been boring for years, lurking in what a friend calls “the Collum range . . . oh, about $1,200." (Figure 19). It will be tested during the next downturn and consequent stimulus effort, but until then I’ve largely stopped reading articles about why gold will tank or soar. If it hedged against monetary idiocy, I would be living on my own Island in the Caribbean. Occasionally, however, I stumble across a nugget. Gold dropped linearly from April to August (Figure 20). Maybe that's normal or maybe Bernie Madoff whistleblower Harry Markopolos is right: Linearity in finance is fraud. (A 21-day linear drop in silver was even more awesome.) Hedge funds went net short,ref 164 suggesting correlation if not causation, possibly fueling the brief dip below $1,200. Evidence of horseplay appeared in the form of 260,000 futures contracts—$34 billion notional value—monkey-hammering gold in 4 hours in June.ref 165 Nobody even blinks at these anymore, especially not the regulators. Of course, a couple of gold-rigging charges were made—one guy even admitted that it had been happening at the industrial scale for years—but they were disposable traders and got acquitted anyway.ref 166 Canada’s Scotiabank will pay $800,000 to settle charges of “spoofing” (fake bidding).ref 167 Wow. $800,000. HSBC has been caught four times rigging the price of gold, promising four times to never do it again.ref 168 For those interested in buying allocated gold, the Texas Bullion Exchange has opened its vaults.ref 169 You get the convenience of a debit card while still enjoying the projectile-vomit-inducing price fluctuations of gold. There are others such as the Tocqueville Bullion Reserve.ref 170

Figure 18. Ten-year gold price.

Figure 19. Linear drops in gold.

“You can feel the dejection among hard core gold owners. They’re finally starting to ask themselves why there don't seem to be any kind of market conditions in which gold *works* as an investment or hedge.”

~Mark Dow (@mark_dow), hedge fund manager and gold bear

The debate about the future of gold in the global monetary system rages on among the 10 people who care. Craig Hemke (TF Metals Report) was early to notice an apparent pegging of the yuan to gold (Figure 20).ref 171Could be true or just goldbug pareidolia; regardless, it seemed to end this fall. Canada sold every last ounce of sovereign gold by 2016,ref 172 putting their holdings below those at the Bank of Dave. China, Russia, Poland, Hungary, Pakistan, Egypt, and Mongolia kept accruing the Bar-B-Qued relic.ref 173 Hungary cranked its inventories 10-fold with an affiliated repatriation from foreign vaults.ref 174 Turkey decided its gold was safer at the Istanbul Exchange than in JPM's vaults in New York.ref 175 Rumors that Russia and China have outlined plans to create a 100% gold-backed currency system to replace the U.S. dollar as the world’s dominant currency are wild speculation and provocative (Figure 21).ref 176 They certainly trust gold more than the dollar-denominated global banking cartel.

Figure 20. Yuan-gold peg and gold in U.S. dollars.

Figure 21. Russian and Chinese gold acquisition.

You really can’t put a value on gold (or eat it), but there are technical indicators suggestive of future price movements. The so-called speculators—the dumb money, whatever that means—went net short for the first time since the 2001 bottom, while the banks—the smart money (?)—went net long for the first time in history. We are parked at an all-time high of >500 claims against each ounce of gold at the COMEX vaults,ref 177 which could leave some wondering who Madoff with their gold.

“In recent years, bullion inventories have fallen materially, and last summer Charlie and I concluded that a higher price would be needed to establish equilibrium between supply and demand.”

~Warren Buffett, on silver, 1997

“We have a very similar situation in gold . . . it appears that a higher price is needed to establish equilibrium between supply and demand. . . . This won’t matter till it matters. Whenever it does, it will likely be too late to do anything about it.”

~Jesse Felder

For the gold-is-real-money crowd, the market value of all above-ground gold as a percentage of U.S. financial assets currently stands at 3.4%, which is well below the historic peaks of approximately 16% and not too far from the historic lows of approximately 2%.ref 178 In the spirit of bear markets die of boredom, Vanguard Gold Fund dropped “gold” from its name at the 2001 bottom and dropped the fund altogether this year.

In the world of human interest that even non-goldbugs can appreciate, the Rooskies dropped 3 tons of gold all over the runway when taking off at the Yakutsk Airport.ref 179 “Risk” players know that nothing good happens in Yakutsk. An amphora containing hundreds of fifth-century gold coins was found in excavations in Italy, while a Spanish galleon containing an estimated $17 billion in gold may have been located.ref 180

"Gold could be in a prolonged tailspin."

~Barron’s headline

Silver got pummeled a bit but, fortunately, nobody owns any (except me). The industrial demand keeps my relatively small position intact. Solar now consumes about 10% of annual silver production,ref 181 and silver is found in non-recoverable form in every electronic device. The gold–silver ratio has soared from 16:1 by weight in the ground to 80:1 by price in the market.ref 182 The notion that it should somehow price in proportion to supply is hotly debated, although the consumption of silver but not gold would logically give silver the relative boost in my opinion. JPM is said to control over 50% of the COMEX silver inventories—new-era Bunker Hunts or simply their clients’ silver.ref 183 For now, I watch with bemusement.

“The question as to whether the Fed can engineer yet another cycle (as it was able to in 2009) or whether the coming crash will be the end of the Supercycle will determine whether gold (and the miners) go up a lot or whether they rise to a terrifying degree.”

~Daniel Oliver, founder and managing director of Myrmikan Capital

Bitcoin: Tales from the Crypt

“Don’t put any money into bitcoin that you can’t afford to lose. But I don’t think we should ban it—the green bills in your pocket don’t have an intrinsic value, either.”

~Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corporation

“Cryptocurrencies do not fulfill any of the three purposes of money. They are neither a good means of payment, nor a good unit of account, nor are they suitable as a store of value. They fail dramatically on each of these counts.”

~Agustín Carstens, general manager of the Bank for International Settlements

In the battle of gold versus cryptos—the Bugs versus the Crypts—I am in the bug camp, but I am sympathetic and respectful of the cryptophiles. Against the current monetary regime, the enemy of my enemy is my friend.

”Millennials are afraid stocks are too risky, so they’re investing in bitcoin.”

~MarketWatch

The strongest case I can make for cryptos is karmic: I don’t own any. It’s still the Wild West, but that’s not to say this sector can’t make doubters look like boobs going forward. Some speculate that the loss in volatility—the onset of boredom—will be their demise, but I completely disagree. If they are to become currencies, they mustcalm the hell down. That plateau in the $6K zone in Figure 22, therefore, seemed “highly constructive”—until the bottom fell out. Shaking youthful day traders from the “space” is also constructive. Start with George . . .

Figure 22. Bitcoin price.

From Figure 22 we see that the cryptocurrencies got pegged this year as investors spit the bit. The trip from sublime to supine did not take long. After bitcoin was driven above $20,000 in late December 2017 (on its trek to $1,000,000, of course) it has now pulled back to about $3,200, which I believe is below the estimated $8,000 to mining it.ref 184 (It is said that crypto mining uses more energy per year than Ireland does.ref 185) The founder of the cryptocurrency called Ripple became richer than Zuckerbergref 186 before a little market inefficiency got cleaned up by handing Ripple a 90% drop in two days.ref 187 (Now if only we could get some market efficiency on FAANGs.)

Dogecoin, invented as a spoof four years ago,ref 188 hit a market cap of $2 billion in January, eventually pulling back 90%.ref 189 It seems indisputable that the vast majority of cryptos will find strong technical support at zero. KuCoin, with a market cap of <$50,000, can’t be long for this world. Obviously the beatings took some of the piss and vinegar from Cryptomania, but The Big Three—Bitcoin (BTC), Ethereum (ETH), and XRP—retain a combined market cap of $80 billion at the time of this writing, and there are more than 2,000 cryptos listed at CoinMarketCap.com.ref 190 Since its inception, the crypto space has taken beatings that would make Whitey Bulger blush (or die), yet they have shown remarkable anti-fragility.

“If authorities do not act preemptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability. . . . Accordingly, authorities are edging closer and closer to clamping down to contain the risks related to cryptocurrencies. . . . Cryptocurrencies are, in a nutshell, a bubble, a Ponzi scheme, and an environmental disaster.”

~Agustín Carstens, BIS

There are, however, some serious problems that pose existential risks. The authorities—every developed sovereign state and central bank in the world—have oligopolies on creating money and taxing money flows. If they can’t assimilate the Crypto Collective into the Borg Collective, they will try to destroy it. Crypto "hodlers" (hang on for dear lifers) stand defiantly (Figure 23), but it would scare the bejesus out of me. My Texas Hold ’em all-in bet would be on the awesome power of the State.

Figure 23. Tommy Lee lowering his expectations, predicting a 250% rally in Bitcoin in the last two months of 2018.

The State will try to tame Bitcoin before just crushing the crypto bastards garishly. Given that ignoring the cryptos wasn’t working, we witnessed subtle efforts to mainstream them. First, the banks had to stop the use of credit card purchases of cryptos for obvious reasons: the crypto collapse would (and did) cause people to default on their credit cards.ref 191 Banks then began introducing new crypto products—crypto futures, brownies, and vapes. This set the stage for the Commodity Futures Trading Commission (CFTC) to ride into Dodge City to get control.ref 192 During the routs this year, there were some huge buyers stepping in to provide what appeared to be J.P. Morgan-esque support. We’re talking $500 million purchases.ref 193 However, a federal judge ruled that cryptocurrencies are "commodities”ref 194 and, unlike all other markets on the planet where manipulation runs unchecked, the authorities promised to mete out some jail sentences. The SEC is “probing investment advisers for potential misconduct involving cryptocurrencies, signaling a new direction in its oversight of this emerging market.”ref 195 Ominously, Google announced a ban on all crypto and initial coin offering (ICO) advertising. This is the power of the State using Google as a stalking horse. (I capitalize state to get you to say, "Oooooh" and shake with fear.)

The IRS declared the gazillions of crypto transactions are merely gazillions of taxable events creating gazillions of miles of red tape and gazillions of new criminals, tipping risk–reward calculations decidedly toward risk.ref 196Can you imagine if every time you bought a product with dollars it became a line item on your tax return? (Of course not: the dollar purchasing power monotonically drops.) How about all those cool toys, houses, and Lamborghinis bought with liquidated Bitcoins? They've got the goods and huge capital gains tax bills.ref 197Could be worse, as Saxo Bank has pointed out: Some particularly resilient consumers purchased the toys on credit, comforted by the cushion of Bitcoins priced at $2,000 apiece.ref 198 They’ve now got the toys, debts, and crypto cushions that are more like donuts.

Claims that hackers from Russia were interfering in the crypto markets means the crypto space is a national security concern.ref 199 The NSA is now tracking the cryptos—they always were, silly—which means the whole privacy thingie is hooey.ref 200 (Hooey is Russian slang for horseshit.) It is also the rallying cry for more State intervention.

What would a mania be without human folly, self-inflicted wounds, and some serious humor? North American Bitcoin Conference organizers in Miami stopped accepting bitcoin payments for conference tickets owing to network fees and congestion.ref 201 A long position in bitcoin futures in Hong Kong’s OKEx crypto exchange processed a $416 million trade.ref 202 The exchange was “unable to cover the trader’s shortfall as Bitcoin’s price slumped.” Rob Arnott says bitcoin futures are 10–20× leveraged,ref 203 which accounts for the big moves both ways. CNBC had a guest whose firm offered a 100× leveraged bitcoin product.ref 204 I’m guessing they are now untraceable in the blockchain (like Lawnmower Man). A company called Proof of Weak Hands Coin, referring to themselves as “a Ponzi scheme” on Twitter complete with a pyramid avatar, raised $800,000.ref 205 Hackers promptly drained its funds. Another Ponzi scheme was so bad that the Russians shut it down, but it has resurfaced and is thriving in the Heart of Darkness (Africa).ref 206 A video promo for BitConnect was produced Gangnam style—some serious sleaze on display.ref 207 BitConnect turned out to be a Ponzi scheme and, unlike the other Ponzi schemes offered by Wall Street, actually collapsed.ref 208 There is no BitConnect without Bitcon. The miracle of creative destruction is on full display as Uber scooped up the influx of new drivers.

Legitimate (albeit pathetic) companies added “blockchain” to their names, causing their market caps to soar.ref 209 Eastman Kodak announced a crypto coin, causing shares to take off in flash. “Long Island Iced Tea” became “Long Island Blockchain." Smith Corona changed its name to Smith Coinola and did an ICO. (OK, I made that one up.) After a brief spike, the Kool-Aid swillers gave it all back, of course.ref 210 There are, however, emerging legitimate uses of blockchain. The LegalFling app, for example, records consensual sex agreements (blockchain keys to the chastity belts).ref 211 As Jim Rickards said, “Have fun, kids.” Here's some funny satire.ref 212

Real Estate

“There is a tsunami of supply comin’ down the road. If someone on this panel can tell me where the demand is gonna come from to meet that supply, then we got something to talk about.”

~Sam Zell

Seems like a truism to me that as rates drop, real estate prices will rise—and vice versa. It’s not shocking that big real estate bubbles occurred in the 1920s and 2000s during periods of loosening policies. And, of course, rates being too damned low for too damned long should goose prices too damned high, but I don’t sense that buyers and lenders have completely lost their minds this time. With mortgage rates at a 7-year high and rising (Figure 24), we will soon find out.

Figure 24. Thirty-year mortgage rates.

Some think we will have another crippling real estate bust. My canaries in the coal mine are the single-family rentals. As Joe and Jane Six-pack drove away from the burbs in ’09 watching their former abode shrink in the rearview mirror, the rest of you witnessed the absurdity of rising home prices in the face of falling occupancy (Figure 25). Nobody slipped you acid. The private equity guys jumped in to buy the houses at steep discounts and then drove the prices higher.ref 213 Mind you, single-family rentals are a terrible business that works only when the paper-thin capitalization rates (profit margins) are amplified by leverage—cheap money—relying on low interest rates. The obvious risks are, of course, rising interest rates. That risk didn’t stop Cerberus from increasing its portfolio with a $500 million expansion of FirstKey Homes.ref 214 I suspect, however, that the boom (and Cerberus) may die as rising interest rates and commensurate falling cap rates cause the private equity guys to decide the game is over and start liquidating their large shadow inventory to flood the real estate market. For now, however, we are witnessing more froth than fragility. For those interested, that image in Figure 25 in which two normally correlated prices diverge is called “alligator jaws.” There are a lot of 2018 charts from all over the financial universe that look like that. Alligator jaws are known to slam shut without much warning. It is not a subtle metaphor.

Figure 25. Home ownership rate versus price.

The enthusiasm for housing did get a bit manic, with a third of U.S. homebuyers (or should I say buyers of U.S. homes) bidding sight unseen.ref 215 A five-story Manhattan townhouse sold for a new record of $37.2 million—quadruple what the buyers had paid in 2012.ref 216 Credit unions are once again offering 0% down for mortgages up to $2.5 million.ref 217 I saw a show this morning describing how a divorced couple who had a house-flipping show during the last bubble have gotten past their hatred and contempt to restart the show. (Ding! Ding! Ding!) Real estate analyst Mark Hanson lays out city-by-city plots showing serious froth (Figure 26). These numbers are not inflation corrected.ref 218

Figure 26. Mark Hanson analysis.

Despite surveys showing a willingness of the majority of California residents to at least consider leaving the state,ref 219 the California housing market is on fire! (OK, that was tasteless.) As we witness a net population exodus from The (shit-stained)ref 220 Streets of San Francisco for the first time ever,ref 221 the cost of a median single-family dwelling in San Francisco rose to $1.6 million (Figure 27).ref 222 An 804-square-foot house in nearby Palo Alto sold for $100K in 2003 and $5.3 million in 2018.ref 223 A 900-square-foot bungalow near downtown Palo Alto listed for $2.6 million,ref 224 below the median listing in Palo Alto of $3 million.ref 225

Figure 27. San Francisco housing and their feces reports.

Evidence of housing market softening, however, is very real. Shares of homebuilders have been getting crushed (losses of 29–55%) in an economy said to be booming.ref 226 According to prominent economist Lakshman Achuthan, the national home price index was contracting by mid-year.ref 227 I—a friggin' chemist—saw the subprime and banking crisis as far back as 2002. ref 228 Bank and credit analyst Chris Whalen reminds us that the bust was clear by 2005.ref 229 He now says “nothing changed since 2008, but as in 2006, we have convinced ourselves that everything is just fine.” Total real estate sales in Manhattan fell 11% year over year.ref 230 Offers are coming in well below asking prices.ref 231 The drop was attributed to an acute oversupply of luxury units as foreign buyers sat on their hands, rising material costs of construction, and changes in tax deductibility of mortgage payments.ref 232 This latter point is important: If you can only deduct $10,000 per year of your state taxes on your Federal return, the prices of higher-end housing will necessarily adjust downward.

Canada never really experienced a bust when the U.S. did. It seems like they have rolling booms and busts as hot money moves from city to city. While the British Columbia median prices rose 9.2% year over year, the once-hot Vancouver housing market dropped over 40%.ref 233 The two biggest Canadian banks cranked up lending rates right before 50% of all Canadian mortgages were poised to reset.ref 234 Stay tuned. Toronto buyers were feeling their oats, as people were flipping their pre-sale houses—tripling the money on their down payments before the sale even closes.ref 235,236 The down payments were acting like levered options. That game may have ended. A 3,500-square-foot lot with a 650-square-foot house sold for only $1.1 million because it is too close to a highway.ref 237 The Carlyle Group is committing a $225 million senior secured loan to Canadian homebuilder Empire Communities.ref 239 Timing seems sketchy, eh? This turn-key, ready-for-occupancy gem in Vancouver is listed for $4 million:

Figure 28. Vancouver handy-man's dream.

The price of a house in London has increased fourfold in 20 years.ref 240 It appears as though Brexit, political upheaval, and mounting consumer debt may finally be causing the formerly red-hot London market to drop precipitously.ref 241,242 Spain’s housing bubble seems to have burst too.ref 243 China’s cap rates are in the razor-thin 1–3% range. Down in the Woop Woop of Australia, the credit bubble and housing boom seems be a bit of a boomerang, leaving homeowners a bit crikey and stonkered. Australian house prices are down 14% from their peaks and may not even be halfway to the lows,ref ref 244 which would pose way more systemic challenges than 30–45% drops in equities.

Another housing bust will call for more government intervention. It will be as feckless as the last:

Pensions

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list.”

~David Hunt, CEO of $1.2 trillion asset manager PGIM

“But if you look at these state pension funds, they’re a mess. These bills have got to be paid. . . . [A] good rate of return today of 2.5% to 3.5% doesn’t do the job. A big fear to me is who the hell in their right frame of mind would be buying bonds now?”

~Ken Langone, former CEO of Home Depot, on quantitative easing (QE)

"U.S. pension fund collapse isn't a distant prospect. It could come in 5 years"

~Bloomberg headline

"Why your pension is doomed"

~Wall Street Journal headline

"42% of Americans are at risk of retiring broke"

~CNBC headline

In ancient Rome, Augustus set up a military pension fund using the equivalent of $500 million of his own money and put ex-military trustees in charge. It got pilfered.ref 245 We have pilfered essentially every modern-day pension plan as well. Underfunded pensions are a form of leverage, and the pensioners are the creditors. Looming defaults will be devastating. Headlines focus on the risk posed by Social Security that, in conjunction with Medicare, is leveraged $50 trillionref 246 backed by a tax base racking up >$1 trillion (6–7%) annual deficits. The state, municipal, and corporate pension plans and private retirement accounts (401Ks and IRAs) are where the real bodies are buried. More than 100 million working-age Americans who should be progressing toward a stable retirement have saved precisely zero.ref 247 As you read the anecdotes below, keep in mind that pension holes are based on aggressive assumptions of 7–8% returns. The only safe bet is that those rates of return are not safe bets. The targeted balances—the balances the pros say you will need to retire comfortably—in personally funded accounts are pathologically understated.ref 248 If we really are in the Mother of All Bubbles (MOAB), what happens if it bursts?

The states’ unfunded pension liabilities have grown sixfold since 2003, and are now exceeding $1.4 trillion with the pedal to the metal. State pension costs are swallowing >25% of general revenues. The underfunding is estimated to eventually impose a surcharge to each household ranging from $30,000 for Tennessee to $180,000 for Alaska.ref 249 Kentucky has 16% of the funding needed, becoming the topic of a Frontline episode that made officials there look like a bunch of gullible hicks.ref 250 California's CalPERS is funded to <70%, with every private citizen in California owing >$100,000.ref 251 Illinois owes >$100 billion to its pension funds—six times the annual state revenue—and the liabilities are on track to double every 6 years (11% compounded).ref 252 It is said that if the Illinois state government put 50% of state revenue toward debt, pensions, and retiree healthcare, it will reach full funding in 30 years.ref 253 The state could raise taxes, but the Fighting Illini (tax payers) are already ranked #1 in the nation. Go team! New Jersey has $80 billion socked away to pay for $280 billion of future liabilities.ref 254 (The funding ratio fell from 93% in 2003 to approximately 30% in a dozen years.) Michigan, Pennsylvania, Florida, Ohio, Oregon, Colorado, Kentucky, and Rhode Island are said to not have the biggest actuarial problems but are at risk of running out of cash first.ref 255 I’m not even sure what that means. For 28 states, accrued liabilities have grown by 50% since 2003, way faster than their statewide GDPs.

Figure 29. Six states with problematic pension–GDP gaps.

What are states to do? The California Supreme Court will decide whether pensions can be cut on government employees.ref 256 I’m gonna guess no. The Illinois Supreme Court blocked state pension reforms in 2015, consistent with the idea that you cannot selectively screw one class of creditor.ref 257 CalPERS voted to increase the amount cities must pay, leading cities to foreshadow Chapter 9 bankruptcies.ref 258 Governor Jerry Brown wanted to crank up gas taxes by 40%, which could move him markedly closer to retirement.ref 259 Illinois wants to borrow $100 billion to speculate on equities.ref 260 That ought to help its already junk-level credit rating. The League of California Cities urged CalPERS officials to think “out of the box” to improve on their already aggressive 7% presumed annualized returns.ref 261 Short the VIX, dudes! It’s a one-decision trade. The state will be “totally bankrupt by 2021–2022.”ref 262 Between 2006 and 2017, Kentucky’s bond portfolio has grown from <1% junk bonds to 53% junk.ref 263

Reaching for yield is never a good idea, despite being forced at gunpoint by the Fed. Connecticut is broke: It may hock (sell) $2 billion worth of its buildings and lease them back at 7.5%.ref 264 Meanwhile the Fed has designed a bailout of the insolvent PBGC (Pension Benefit Guarantee Corporation)—a bailout mechanism in its own right—but one that does not cover state pensions.ref 265 My suspicion is that the Fed will loan the states money knowing full well it will never be paid back.

Figure 30. Total state pension deficits (dated data but trending).

The local (municipal) plans aren’t doing much better. New Orleans firefighters can expect 10 cents on the dollar based on their 10% funding level.ref 266 Wilkes Barre’s police and firemen’s pensions are <50% funded.ref 267Courts ruled that they couldn’t stick the pensioners. Next up: Chapter 9 restructuring, which is the legally correct solution. Cops and firemen in the tiny burg of Central Falls, Rhode Island, agreed to forfeit >50% of their pensions to escape insolvency.ref 268 New York, Philly, LA, Houston, and Phoenix all have $20,000–$30,000 per-capita pension IOUs coming due.ref 269 The murder capital of the country, Chicago, has a pension funded to 30%.ref 270 While the equity markets tripled from 2009 to 2018, Chicago’s liabilities more than doubled. Each Chicagoan is on the hook for more than $50,000 in pension debts and >$100,000 in total debts—not to mention the bar tab from the state.ref 271 Chicago’s problems are a little vague because Chicago’s and Moody’s bean counters disagree by a factor of two owing to different actuarial assumptions. Rahm Emanuel is taking a lifeboat—retiring...on a good pension—to distance himself from the Titanic problems. Before leaving, however, he wanted to borrow $10 billion to dump into the equity markets, but that got put on hold.ref 272 Maybe Illinois will lend you the money, Rahm. Similar strategies sent Detroit, Stockton, and San Bernardino into insolvency.ref 273

Figure 31. Municipal pension deficits versus tax revenue for 10 major cities.

There are countless reasons why we’re in this mess, but let’s just look at a bulleted list of waste that illustrates part of the problem, while retaining a comedic touch.

  • The head of the Oregon Health & Science University retired on a $913,000 per year benefit, while the poor University of Oregon’s retired football coach of 15 years only gets only $560K per year.ref 274 There are 2,000 Oregonians who get more than $100,000 per year.ref 275

  • The pooper scoopers who are charged with cleaning up shit off the streets in San Francisco make $184,000 per year.ref 276

  • The mayor of Ithaca, Svante Myric, is proposing that the city provide “free” child care. (I know Svante: He is a young man who I think will run for president someday. His platform will likely include some freebies.)

  • Illinois has been generous. The top 10 pensioners are each expected to pull an estimated $8–10 million from the state pension plan before they die (unless they visit Chicago). One gets over $400,000 per year as the superintendent of a school district with 1,200 kids.ref 277

  • Illinois taxpayers will be on the hook for more than 20,000 six-figure annual pensions for educators. Their pension benefits have compounded at 9% annually for nearly 30 years.ref 278

  • More than half the states have grown their pension promises at >5% annually since 2003.ref 279

One could make the argument that some of that is odious debt—debt incurred by somebody else (usually sovereign leaders) that is so odious that you say, “Screw it: I'm not paying.”ref 280 I believe, however, that the courts are unlikely to consider odiousness at lower levels.

Self-directed retirement plans—so-called defined contribution plans—are in brutal shape. Data from the Saint Louis Fed (Figure 32) show that the median retiree has almost nothing ($1,100),ref 281 and the highly indebted boomers with little time left to correct the error in their ways are altogether unready for retirement. The rallying cry that 80 is the new 50 ignores the harsh reality that 50% of retirements are forced by personal circumstances to retire,ref 282 and folks who do seek post-retirement employment—that's not retirement—take a 25% pay cut.ref 283 Most people have not been adequately trained to be their own human resource specialists.

Figure 32. Median retirement account and median boomer accounts.

On the bright side, the millennials are getting the memo early enough to act. The challenge is that the message seems to be either “Don't worry; be happy” or “Don’t bother.” Surveys show that even those with retirement accounts seem to have saved little. Those same millennials, not known for letting reality encroach on their world, want to retire, on average, at 56 years old.ref 284 Time to cut back on the bottled water, pumpkin spice lattes, and, for that matter, any form of food. It’s time to stop being a bunch of dingleberries, put your phones down, and pay attention.

On that latter point, there is a new group called FIRE—“financial independence, retire early.”ref 285 Members of the group want to work hard, cut costs, and then retire in their 30s and 40s to travel the world:

"How to retire in your 30s with $1 million in the bank"

~New York Times headline

“Nothing was wrong with the job—it was a great company, good money, six figures. I was 26 and I said, ‘Why am I going to spend my 20s sitting at a desk?’”

~Mason, 29-year-old retiree

There are over 400,000 subscribers to FIRE on Reddit,ref 286,287 sharing tips like “how to survive a Minnesota winter without shoes, gloves, or coats.” Suze Orman blew out both ovaries noting, “I hate it. I hate it. I hate it. I hate it.”ref 288 This group will be positioned perfectly for the Great Attitude Adjustment (GAA).

Well at least we have the corporate pensions to fall back on, but they are underfunded as well (Figure 33). Corporations could always top off their pensions if they diverted funds from share buybacks and other forms of financial engineering. Ironically, that would cut into the multi-sigma profit margins, crush share prices, and, ironically, shrink everybody’s pensions plans. That’s swell. Pension coffers should be bloated with FAANG-based returns as we near the end of this investment cycle. They obviously are not.

Figure 33. Corporate pension shortfalls.

The aforementioned PBGC bailout plan does not cover the state-funded (or should we say state-unfunded) plans. There are discussions of using Puerto Rico as a beta test to introduce Chapter 9 legislation to allow for state bankruptcies, which are currently not allowed under the federal bankruptcy code.ref 289 Bankruptcy laws are designed for precisely when available assets are insufficient to cover liabilities. Private defined-contribution pensioners—the IRA/401K crowd—are gonna be investing doggie style and playing a lot of Dialing for Dollars.

Debt

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on, would save one-half the wars of the world.”

~Thomas Jefferson

You have a debt problem when you have more debt than the capacity to pay it off. It arises from consumptive debt that is non-self-extinguishing. As far back as David Ricardo in the nineteenth century, we have known that debt-financed spending is not constructive to GDP. The debt problem goes global when the collective promises of sovereign states to their masses cannot be satisfied by future output. Not everybody can live the metaphorical American Dream no matter what global leaders have promised. There is a paradox in that you can save at the local level—personal, municipal, state, and even national—by having others outside your defined group owe you future goods and services (albeit accounted for using units of currency). You cannot, however, save globally. Because sovereign-level debt problems are PAYGO (pay-as-you-go) plans by definition, we’ve been trapped by compensation mechanisms that have increasingly relied on unfulfillable promises in the future rather than payment in the present. Now we find ourselves in a putative global asset boom—one that I find to be a sandcastle built by central bank largesse—while concurrently having debt problems. In the U.S., for example, average household net worth is soaring while the median family needs credit for basic needs and has squat for retirement savings.

“The great bond bull market began waaay back in 1982—36 years. And as governments were able to keep financing at lower and lower rates, they kept promising more and more.”

~Capitalist Exploits on the social justice movement

In the following sections I treat debt and savings as two sides of the same coin while somewhat arbitrarily separating corporate, personal, and sovereign debt problems from a looming global pension crisis and, for that matter, problems in the real estate market. I suspect that the Fed's pathological aversion to letting the economy sink or swim on its own may stem from its PTSD-levels of fear of the next recession, which—I hasten to add—is as inevitable as death and taxes. The Wall Street Journal worries that we will burn a decade recovering from the next recession. I worry that they are optimists.

All this debt has accumulated with a tailwind of relentlessly falling interest rates from a 36-year secular bull market in bonds. The blowoff phase of the bond bull is a decade of rates wrestled to 5,000-year lows by central bankers. Now we are in a rising-rate environment. The gyrations across global markets are just the trailer. If the secular bear market in bonds goes wheels up—if rates begin a multi-decade upward march because of our modern-era guns-and-butter policy—many of us may not be around to see resolution.

?Corporate Debt

“This time around, the big bubble is the extreme leverage on the corporate balance sheet, where the chart of debt-to-GDP looks a lot like the mortgage debt-to-GDP in 2007.”

~David "Rosie" Rosenberg

“Corporate debt has soared, but most of it has been used for financial engineering. . . . Who knows how many corporate zombies are out there because free money is keeping them alive?. . . Competition is a better tool than price control for protecting consumers. That applies to Amazon and the bond market.”

~Stan Druckenmiller

It is clear that this is a very different corporate bond market, and history-based financial models will most likely be found wanting.”

~Louis Gave, cofounder of GaveKal

The corporate debt market is a complicated story because huge amounts of debt to financially engineer pump ’n’ dump schemes with share buybacks were waiting to be extinguished by repatriated savings (tax amnesty) from overseas. Assessing corporate leverage—debt net offsetting cash and other assets—is more important than usual. That said, from my perspective up in the nosebleed section, loose monetary policy managed to create a mountain of corporate debt, which is unsurprising to everybody but central bankers. Whocouldanode? The 54 AAA-rated companies in the S&P before the crisis have been reduced to only two because of leverage.ref 290Many—myself included—believe that the corporate bond market will be Ground Zero of the next crisis. In case I haven’t said it enough times, we are in a rising rate environment: The fuse has been lit. Net leverage normalized to EBITDA (earnings before interest, taxes, depreciation, and amortization) has doubled in only a few years. Tighter banking regulations acted like Prohibition, opening the door to hooligans, hedge funds, and other non-bank grifters with their own leverage. There is a so-called shadow banking systemref 291 that is so enormous, complex, and hidden from the light of day for us Philistines. Here’s a trick question: Who do they borrow from? These corporate-focused lenders will scamper away in a heartbeat in a downturn. The retail investor will see bids for corporate paper (debt) buried in their portfolios disappear, and it could happen in a matter of days, hours, or minutes.

Mario Draghi’s European corporate-bond-buying binge sent some corporate bonds into negative interest rates—companies were being paid to borrow—and the Bank of Japan has now joined in.ref 292 The global bond binge caused the premium spreads—the extra interest paid for buying total garbage like commercial-mortgage-backed securities versus AAA bonds—to reach lows not seen since early 2007.ref 293 Those spreads are now widening. Companies are citing higher interest expenses chewing into earnings, which will amplify the credit spreads. Over $2.5 trillion—50% of the investment-grade corporate debt market—is rated just one notch above junk.ref 294Exchange-traded notes (ETNs) based on corporate debt are unsecured, subordinated debt that trades daily. A day will come when they don’t trade. The volume of covenant-lite corporate bonds—bonds with lower levels of constraints than the stuff we call garbageref 295—has soared and poses a huge risk because of (not despite) the fuzzy name. U.S. firms sold $9.2 trillion in bonds since 2013, a non-trivial $3.5 trillion being used for share buybacks ($850 billion in 2018).

Is this really a systemic problem? I think so. As I am writing, GE and Deutsche Bank are gasping their last breaths—debt rattles—while doing laps around the drain. GE has $170 billion in debt owing to years of financial engineering.ref 296 Its productive assets will live on in the hands of new owners, but current holders of its debt and equities will be dealt with severely. Deutsche Bank is so huge that it seems likely to be nationalized. Rumors of a merger with Commerzbank just surfaced in what seems like one of those '08-esque shotgun weddings.ref 297Companies like GM and IBM are not far behind. These are Mothra-sized butterflies flapping their wings.

“The debt load for U.S. corporations has reached a record $6.3 trillion, according to S&P Global. The good news is U.S. companies also have a record $2.1 trillion in cash to service that debt.”

~CNBC headline

What CNBC seems to have missed is that borrowing money (the $2.1 trillion part) to pay the interest on the $6.3 trillion is a Ponzi scheme,ref 292 and I’m not speaking metaphorically or hyperbolically. Individual companies that don't have the cash flow to make interest payments are called zombies, implying that they are dead but somehow still stumbling around the planet posing existential risks to the living. Of course, they are rare, right? Well, 20% of the Russell 2000 index and 14% of the S&P 500 are zombies.ref 299 Passive index investors own the shares of these gems and, if not, are financially linked to clowns called “counterparties" who own them. The problem is, as noted by the Bank for International Settlements (BIS), zombies do not come back to life.ref 300Unlike real zombies in which all you need to do is tie the recently departed's shoelaces together, these Walking Dead require the free market metes out shots to their heads.

The beginning of what looks like a serious bond bear is hammering risk-parity funds—bond funds that used leverage to seek the risk of equities.ref 301 Congrats, guys: You found it! And then there is the “leveraged loan market,” in which companies too weak to access the junk bond market go and borrow from a guy named Vinnie. These are the payday lenders for corporations. Retail investors with this crap in their retirement accounts will be toe-tagged and bagged.

“The selloff in GE is not an isolated event. More investment-grade credits to follow. The slide and collapse in investment grade debt has begun.”

~Scott Minerd, CIO at Guggenheim Partners

Let’s finish by taking a special look at GE’s debt. In 2002, I predicted that GE was headed for trouble in an email to a friend at Goldman.ref 302 Years of financial engineering finally worked their magic.ref 303 GE survived ’08–’09 with a lot of help from the authorities but appears to be on life support now. It is getting crushed by debt estimated at $40–$170 billion depending on who is doing the bean counting. The confusion is probably caused by off-balance-sheet debt . . . just like Enron. A bunch of GE debt is still investment grade, but it is “trading like junk,” which means we’re waiting for the rating agencies to read them last rites. To avoid bankruptcy, GE eliminated its quarterly dividend, causing double-notch bond rating downgrades.ref 304 The debt burden owing to a Hail Mary strategy of borrowing heavily for M&A (mergers and acquisitions) is probably now too high. GE is said to be “locked out of the commercial paper market,”ref 305 which means it’s time to call Vinnie. A default is said to be “unthinkable,” posing systemic risks as well as sentimental risks owing to a fall of an American Icon. On that note, Sebastian Mallaby gave us a "Crisis for Dummies" description of how cascading failures happen.ref 306

Personal Debt

“How do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.”

~Vincent Daniel in The Big Short

According to a Federal Reserve study, Americans have $1 trillion of credit-card debt, $1.5 trillion of student debt (Figure 34), $1.5 trillion of auto loans, and $13.5 trillion in mortgage debt.ref 307 So many zeroes: What the hell does that even mean? We can manage the mind warp by bringing it down to the family level. The average household has $140,000 in total debt.ref 308 This number does not included unfunded liabilities at the municipal, state, and federal levels. The student debt is disturbing in that 40% of it is held by senior citizens and who are defaulting with troubling frequency (37%),ref 309 and the boomers now owe more than the millennials: “Thanks, Mom and Dad. I’ll swing by on my way to Fort Lauderdale this spring.” There are 101 individuals with over $1 million of student debt, and one dentist owes >$2 million.ref 310 The $100,000 student debt club has 2.5 million members. Owed mortgage debt is almost 5× the yearly salaries of the owners.ref 311 Credit card debt has climbed back to its 2008 peak,ref 312 but the average interest rose 3% to a lofty average 15.5%. Consumers are paying $100 billion a year in interest payments with their disposable income. One could argue that if you have credit card debt, you have no disposable income.

Figure 34. Student debt or monetary policy?

Consumer debt is growing at 2× the rate of salaries (Figure 35) while 100 million Americans have no job to make such a comparison. The auto debt market continues to show stress fractures. Approximately 30% of trade-ins are in functional default (worth less than the loan balance.)ref 313 Trading in a beater for an improved newer model is a bad decision. An estimated $280 billion of subprime auto loans are defaulting, stressing the smaller subprime lenders.ref 314 A heavily cited stat this year was that 40% of Americans do not have enough money to cover an unexpected $400 expense without borrowing the money or selling something they own, and 60% can’t cover a $1,000 tab.ref 315 This is not a moral judgment, just the facts.

Figure 35. Household debt normalized to disposable income.

It’s hard to know whether the consumers are feeling the stress. The millennials are certainly in a rush to retire with <$20K saved (see “Pensions”).ref 316 Another survey showed that 41% of them spent more money on coffee than on investing in retirement last year.ref 317 No problem: There is a Congressional bill that would allow students to pay student loans with future Social Security money.ref 318 You get just deserts only after you eat your seed corn. Whoever hatched that plan should take some of that bank lobby money they obviously accepted and get professional help.

For every debtor there is a creditor. A global debt problem is less about some crazy form of owing too much but rather counterparty risk—the risk that debtors can’t pay. Good news: Somebody owes you $500,000. Bad news: It's your teenage son.

“Twenty years ago there was $40 trillion of debt in the world; today there is $250 trillion worth of debt in the world.”

~David Stockman, former Reagan economic advisor and Blackstone Group

“$20 trillion got to $21 trillion in 186 days: That is blistering. . . . Donald is pro-Warfare State, pro-welfare state and has just slashed Uncle Sam’s tax take to 16.6% of GDP—the lowest rate since 1950.”

~David Stockman

Sovereign Debt

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

~William White

The markets most important to the functioning of capitalism—the credit markets in which lenders and borrowers haggle to determine the cost of money—are damaged. Central banks have subverted price discovery, sending bizarre signals to market participants. I asked the Twittersphere what interest rate they would demand to buy a 30-year Treasury that they were required to hold for 30 years—no selling, trading, or hedging. The answer was telling:

Figure 36. Twitter poll about the term premiumref 319 that investors would require for 30-year treasuries.

It would appear that 30-year bonds are priced wrong because somebody will be holding these assets for 30 years. My personal answer is comfortably above 7%. The interest payments on U.S. debt rose by 14% over the last year owing to increased principal payments on inflation-protected securities ("just the TIPS"),ref 320 continued generalized debt growth motoring along at 6–7%,ref 321 and overall higher rates. We will add well over $1 trillion of debt before the year is over.ref 322 Stanley Druckenmiller submits that the next recession will usher in a $2 trillion deficit. Many say we should have issued century bonds—100-year treasuries—when interest rates were low. I disagree profoundly: Forcibly jamming rates low, eliciting fixed-income investors to do unnatural things with barnyard animals just to get income, and then stiffing your counterparties with such abominations would be bad karma. In any event, that ship may have sailed because sovereign holders of treasuries such as Japan, Russia, and China are now sellers.ref 323 We are on a path to our Minsky Moment at which debt overruns our capacity to make payments. We will just inflate it away, right? Maybe not. You create inflation by creating money, and you create money by creating debt. It makes me scratch my head.

“People who confidently think they know the consequences—none of whom predicted this—know what’s going to happen next? Again, witch doctors. How many in this room would have predicted negative interest rates in Europe?”

~Charlie Munger, Berkshire Hathaway

Global debt rose from 276% of global GDP in 2007, wallowed through the Great Recession, came out the other side topping 327% of global GDP, and continues to expand at >10% per annum.ref 324 Simon Black notes that while the economy grew 36%, the debt grew 123%.ref 325 The IMF blames the growth on a prolonged period of low interest rates—those foisted on us by central banks—for nearly a decade.ref 326 By early 2018, sovereign debt returning negative nominal interest rates—absurdities that should never exist in a functioning bond market—topped $10 trillion.

Figure 37. Negative interest rates on sovereign debt.

“If 2.60% is broken on the upside—if yields move higher than 2.60%—a secular bear bond market has begun.”

~Bill Gross, the former Bond King (2017) on the 10-year yield

“If we take out 3 percent . . . it’s bye-bye bond bull market. Rest in peace.”

~Jeff Gundlach, the new Bond King (2017) on the 10-year yield

Figure 38. Ten-year treasury yields.

Bank of America’s Michael Hartnett says, “the lowest interest rates in 5,000 years have guaranteed a melt-up trade in risk assets,” which explains the 600% wilding of the FAANGs off the ’09 lows. The rising-rate environment means that resolution and redemption—dead bodies—may start floating to the surface. JPM reported that the global bond yield curve inverted in June (Figure 39), which will trigger, sequentially, the following: (a) “yield curve deniers” will declare such inversions irrelevant, and (b) a potentially bone-crushing recession will arrive. There is also a big debt rollover coming in 2019–2028 (Figure 40). I've added the iconic plot of mortgage resets foreshadowing the ’08–’09 crisis just in case anybody else sees parallels.

Figure 39. Global bond yield curve turning negative.

Figure 40. Debt rollover, 2019–2028, versus mortgage resets, 2007–2012.

“Consider for a second that for the first time in 18 years (!), U.S. 10-year yields are trading at a premium (10 bps) to Australian comparables! The long bond at 3.21% is 6 bps above Italian 30-year yields. . . . America is an AAA credit, and Italy is BBB.”

~David “Rosie” Rosenberg

Europe seemed relatively quiet. Brexit looms, but I refuse to spend any more time reading about the carnage that will happen and patiently wait to see what does happen. The idiocy of central bankers is reflected by negative yields on Spanish sovereign debt, 10-year Swiss debt returning 0%, bonds maturing in 2055 returning 0.5%, emerging-market junk-bond yields that are now below U.S. junk-bond yields, and a Greek 10-year yield below that of the U.S. 10-year yield. Negative yields on Italian debt concurrent with the country’s budget imploding finally triggered a VIX-like response (Figure 41). Mario Andretti would be in awe of the acceleration on that price discovery. Meanwhile, the covenants underlying much of this sovereign debt are said to be weak.ref 327

Figure 41. Italian bond massacre.

“China is rewriting the economic history books because they have embarked on a view that they can simply borrow twice the amount of output growth as the growth in GDP.”

~Jim Chanos, Kynikos (on Real Vision)

The out-of-body experiences are found in the emerging markets. Emerging-market debt tripled during the last 8 years.ref 328 China’s bond market is opaque but said by many to be a profound risk to global markets. According to S&P, China’s local governments have $5.8 trillion of off-balance-sheet debt, representing “an iceberg with Titanic credit risks.”ref 329 Jim Chanos, who is a galaxy-class short seller, says that the Chinese are building two to three times the number of apartments that demand can absorb. Outstanding loans are growing by >10% year over year.

“My thesis is that over the next decade we will endure increasingly damaging debt crises that culminate in a coordinated global default—“The Great Reset,” as I call it. There are limits in how much leverage the world can handle and I think we are already beyond them. And that is before we have a global recession. The only question now is how we will manage the collapse.”

~John Mauldin, founder of Mauldin Economics

Japan doesn’t even have a bond market; it was nationalized by the Bank of Japan to the point that there are days in which not a single bond trades.ref 330 A market with a single buyer is called a "monopsony" (brought to you by Snapple.) Japan already spends a quarter of its tax revenue just to service its debt even though rates are ridiculously low.ref 331 If interest rates in Japan rose to 1% (not exactly usury), the nation’s annual debt service would literally exceed all government tax revenue. When what few private bondholders left sell causing rates to flicker higher, the BOJ intervenes (three times in a single week), buying up all the bonds.

Argentina defaults on its debt every 15 years on average.ref 332 In 2017 the country issued 100-year bonds—century bonds or what I call “Beanie Bonds”—that were oversubscribed by some of the biggest names in U.S. finance: Fidelity, BlackRock, Lazard Asset Management, and who knows how many multinational banks (Figure 42).ref 333 Gillian Tett of the Financial Times noted that these bonds “may end up being the government bond market equivalent of the Pets.com IPO during the 2001 tech boom—the sign of a bubble peak.”ref 334

Figure 42. Purchasers of Argentine century bonds.

It took less than 1 year for Argentina to functionally default.ref 335 Of course, its GoFundMe campaign secured $50 billion from the IMF to prevent global market turmoil by paying off its creditors.ref 336 Jim Rickards thinks the whole affair was a “backdoor way for China to lighten up on dollars. Yeah, it’s complicated.” That is outside my wheelhouse. What I do know is that it is never the country being bailed but rather the seemingly moronic creditors . . . which is not moronic if the creditors know bailouts are preordained. The IMF launders money from a number of countries to pay for such bailouts, but the primary sponsor is the United States—the U.S. taxpayer. Meanwhile, a 25% inflation rate and interest rates soaring to 40% are frying Argentina’s empanadas whether the country defaults or not.

“China reminded us that the tale of synchronized growth was false and that what we have been seeing in recent years has been synchronized growth of debt.”

~Daniel Lacalle, eighth-ranked “economic influencer” in the world!ref 337

I suspect that when the cost of money resets—when price discovery rears its fugly head—many of these assets will cease to exist. What’s left will likely have new owners.

Inflation and Deflation

“I just don’t see much inflation pressure.”

~James Bullard, president of the St. Louis Federal Reserve

“If I had to bet my life on higher or lower inflation, I’d bet a lot higher.”

~Warren Buffett

“We know how to deal with inflation. We don’t know how to deal with deflation in this country.”

~Gary Cohn, former CIO of Goldman Sachs and former chief economic advisor to President Donald Trump

“My generation gave former tenured economics professors discretionary authority to fabricate money and to fix interest rates. We put the cart of asset prices before the horse of enterprise. We entertained the fantasy that high asset prices made for prosperity, rather than the other way around. We actually worked to foster inflation, which we called ‘price stability.’ . . . We seem to have miscalculated.”

~James Grant, talking to our future selves and grandchildren, 2014

The Fed claims that a small amount of inflation is good and then wavers as to how much is optimal. Never mind that luminaries like Paul Volcker have denounced such thinking as delusional. I asked financial Twitter for the best arguments supporting the Fed’s ideas and got a host of answers, all of which had chards of truth and none of which made complete sense. The debate drew in big fish and little fry.

Some claimed that inflation is needed to coerce people to invest as though profit motive isn’t enough. Others said consumers will retrench if they know products are going to get cheaper, contrary to data on tech gadgetry and common sense aside. William White, formerly of the BIS, previously noted that “the widely held assumption that consumers and corporate investors will extrapolate from past price declines and hold off on making purchases as a result of deflation has essentially no empirical support behind it.”ref 338 Other Tweeters pointed to the dreaded deflation that has been MIA for almost a century. Of course, the reason deflation is so dreaded is that for it to appear against the headwinds of our inherently inflationary banking system means that central bankers already did way too much—they screwed the pooch.

Governments embrace inflation because they like to squander money they don’t have to buy votes and, as Milton Friedman said, "Inflation is taxation without legislation." They also like the covert tax of inflation, and love taxing nominal gains that are illusory.

“I hate the word deflation because it is only a symptom of the problem. It’s not the reason we have the problems we have today.”

~Richard Koo, chief economist at Nomura Research Institute, talking about Japan

Some chimed in that the psychological impacts of wage cuts are so devastating that they are better masked by positive nominal gains. Others believe paying somebody in debased money is better than laying them off; it is a sticky wage argument. The Wall Street Journal had made such an assertion:

“Higher inflation could have other benefits. It could help economies adjust after a downturn by lessening the need for outright wage cuts, because rising prices will erode wages anyway.”

~Wall Street Journal

The ultimate foolishness is that a Committee of Elders—the Fed—thinks it is better equipped than the Wisdom of Crowds—the free markets—at setting the price of capital. Its members appear to me to be just a bunch of fools making shit up based on hopelessly flawed Gaussian models claiming to be “data dependent.” It is odd that nobody in the mainstream seems to think that when deflationary pressures appear, maybe the markets are telling us that we need a dollop of deflation.

The article in the Wall Street Journal that enthusiastically endorsed inflation I found problematic and Tom McClellan found support for this monetary creationism inexcusable.ref 339 He attacked the Fed for trying to keep too many ligma balls in the air at one time:

The mystery of this most recent decade is that creating vast sums of new reserves in central banks—an estimated $20 trillion—did not generate high or even hyper-inflation (yet). I’m a goldbug; I thought inflation was coming. Ben Bernanke blamed the “savings glut” of our trading partners, which seems to be just looking for a scapegoat. Mervyn King (see “Books”), however, did a nice job of explaining that if our trading partners let trade imbalances chase financial assets rather than goods and services, you get a lousy economy and inflation in the financial assets. That’s exactly what we got. Of course, those who speculate in those financial assets love that kind of inflation until it unwinds (oftentimes violently).

“I’ve never bought into that.”

~William White, on the “savings glut” thesis

Just as deflation is demonized by the Fed, inflation is demonized by the blogosphere. Somebody called it the “the date rape drug of taxes.” Bloggers squealing about the dollar losing 97% of its purchasing since 1913, however, often forget that there are compensating mechanisms along the way in the form of nominal pay raises and nominal asset appreciations. David Andolfatto, vice president of the St. Louis Federal Reserve and who seems to function as an outreach coordinator for the Fed, addresses this in a thoughtful blog, noting that you are 97% poorer only if you took your 1913 dollars and stuffed them in a mattress.ref 340 Ironically, if they were in uncirculated condition, you would enjoy nominal gains of up to 200-fold in the numismatic marketplace. Andolfatto also makes the curious argument that high interest rates are anti-inflationary by stepping on the economy (check) but pro-inflationary by jamming gobs of interest into the system. Wait. What? That idea is new to me and creates a bit of a monetary paradox, but I keep thinking about it.

Michael Hartnett of Bank of America, noting 700 rate cuts and $14 trillion asset purchases by central banks since the Great Recession, sees parallels of 2018 and 1966.ref 341 Millennial chart monkeys will likely not appreciate that the years after 1966 witnessed virulent inflation, horrific real (inflation-adjusted) returns on financial assets, and an economic malaise that lasted until the early 1980s. The shift in preference from equities to hard assets and high-interest-rate bonds—notice I didn’t say “flow” into or out of anything, which is risible nonsense—caused severe turbulence. It was a terrible time to invest for most.

Official reports of inflation are starting to creep up, although by no means outside the Fed’s highly fluid comfort range. Anecdotal reports, however, are painting a more serious picture. The CEO of Sherwin-Williams said that “raw material inflation has been unrelenting and accelerating.”ref 342 Eric Cinnamond listens to hundreds of microcap investor conference calls each quarter and says that CEOs are all complaining of cost pressures.ref 343Companies like Caterpillar report that price increases are not keeping up with rising production costs.ref 344 The CEO of Lincoln Electric claims that “We’re in a very rapidly increasing inflationary environment.”ref 345

"J.B. Hunt says 10% raises are the antidote to the truck-driver shortage"

~Bloomberg headline

The tariffs discussed in the “Economy” section are causing companies to arbitrarily implement 15–25% price hikes anticipating raw material or finished goods costs emanating from China.ref 346 (I can’t help but wonder, admittedly with a low probability weighting, if the tariffs aren’t part of a covert bilateral agreement.) The wage pressures seem real. Teachers across America have been walking out of school classrooms to attend rallies in protest for higher salaries and improved classroom resources.ref 347 Jobs are going unfilled. Wage inflation scares macro bean counters. BIS economists suggest that a global shrinkage of the working-age population is causing inflation to trend up (more money chasing, fewer workers).ref 348 Paul Tudor Jones sees Fed chair Powell as George Custer, sandwiched between a mountain of debt on one side and inflationary pressures on the other.ref 349 He thinks Powell needs to hike rates pronto to curb margin debt in the markets and facilitate a more efficient allocation of capital.

“Volatility collapsed after the crisis because of central bank manipulation. That game’s over. With inflation pressures now building, we will look back on this low-volatility period as a five standard-deviation event that won’t be repeated.”

~Paul Tudor Jones

By now most have read about the distortions of substitution and hedonic adjustment foisted on us by the Boskin Commissionref 350 and unfoisted by John Williams.ref 351 I've already taken a bat to the MIT Billion Prices Project—I think there is an Achilles’ heel in it—and won’t return to it.ref 352 We also know that products that don’t last should be priced per unit function: They are not. Figure 43, showing the cost of various goods and services, blanketed the internet this year. Do you really think you can buy a TV for 4% of what you paid in 1990? Sure it’s a better TV (or at least a cooler TV), but you are not walking out of Best buy with an $8 TV even on Black Friday. Have prices of cars really not moved in 20 years? A Ford F150 cost $17,000 in 2007 and $40,000 in 2017. Yes, it now has a backup camera and anti-lock brakes, but it costs more than twice as much to move firewood, display our gun collections, and wield MAGA bumper stickers. Try Googling rents or single-family home prices: Are they really up only 61% since 1995? I am calling bullshit on this chart. It was undoubtedly created by hedonic-adjusting tools (economists).

“Americans are getting stronger. Twenty years ago it took two people to carry $10 worth of groceries; today a five-year-old could do it.”

~Henny Youngman, comedian

Figure 43. Hedonically adjusted prices.

I take a swipe at hidden inflation every year. The durable goods we buy have a programmed and accelerated senescence that borders on progeria. Your kids’ toys are cheaper, but do they last more than a few minutes? A toaster that cannot be repaired when it breaks is expensive, especially when it breaks fast. The quality reduction can be profound too. Processed food uses animal and vegetable parts that were previously fed to pigs. Food scientists have rendered them palatable through very clever tricks like adding buttloads of salt and sugar (or high-fructose corn syrup). The meat in Dinty Moore stew is disgusting. Cracker Jacks no longer are made from popcorn. Your appliances are shiny with lots of buttons that you never use, and they don’t last. Shrinkflation has been around for eons. Coke cut its 1.75-liter bottle to a 1.5-liter bottle and then raised the price. At some point, the company will offer a really large bottle (1.75 liters) for an even higher price. I still haven’t figured out how to account for laptops, iPads, iPhones, and internet service. For what you get, they are amazingly cheap. As a part of a family’s budget, however, they pose existential financial risk. How do you account for amazing technology that you must own—even the Mennonites own them—but that you cannot buy without a HELOC? Check out Figure 44. Try a little mental math on how much a paycheck could buy you in 1938.

Figure 44. Cost versus quality.

And here is a curious little anecdote:

1932 gold ounce = $20.67

1932 Yale University tuition, room, and board = $1,056 (51 ounces of gold)

2018 gold ounce = $1,225

2018 Yale University tuition, room, and board = $65,000 (53 ounces of gold)

Banks

“With mortgage applications declining, executives have a choice to make: Should underwriting standards be lowered? When volume becomes the defining metric for how loan officers and mortgage companies get paid, then loan quality deteriorates.”

~Chris Whalen, Whalen Global Advisors

“Your problem is that you are trying to understand it as an economic story. Once you think of it as a crime story, you’ll get it.”

~Insider to Matt Taibbi when writing about the subprime crisis

We’re told that the post-crisis banking rules were tightened to make the banks safe again, and now we are about to unwind these protections with the poorly named “Economic Growth, Regulatory Relief, and Consumer Protection Act” that would return the banks to their birthright as gigantic hedge funds.ref 353 A 1982 declassified memorandum included Jack Anderson, a journalist, discussing the upcoming collapse of the banking system and the CIA’s risk assessment.ref 354 There were crises of course; the late 80s savings and loan crisis may have been what was spooking the spooks. Do the bankers never learn? Are they doomed to loop around this infinite Mobius strip? In a sense, yes. This year’s winner of the Nobel Prize in economics, Paul Romer, and some famous guy named Akerlof, wrote a 1994 paper titled, “Looting: The Economic Underworld of Bankruptcy for Profit.”ref 355 They describe how the inefficiency of the boom–bust cycle is exploited by the banks during both phases. During the boom, the bankers make huge fees and pay themselves handsomely because, well, they are wonderful stewards of capitalism. During the bust, profits stem from looting the system, cloaked by the chaos and pandemonium of bailouts. The bankers then pay themselves handsomely because they are wonderful stewards of crony capitalism too.

Recall in ’09 when huge bonuses were defended to keep talent around long enough to save the world from the Apocalypse caused by all this talent. Banking is like Danegeld—payments to the Vikings to stop them from looting and spreading their DNA around the Isle of Britannia. Soon the Danes wanted more money and hot chicks. I suspect we have finished the boom half of the cycle again and are now looking for the raping and pillaging phase to commence. What will trigger the next crisis? Bank analyst Chris Whalen already sees lenders bracing for problems and reducing staff in their consumer and mortgage lending businesses.ref 356 Eyes are on the European banking sector getting its market caps deracinated. One of the popular risk measures—the Libor–OIS marginref 457—is vibrating like the puddle in Jurassic Park.

“The Senate just voted to increase the chances your money will be used to bail out big banks again.”

~Elizabeth Warren (@SenWarren), insert politically incorrect Indian joke here

Despite regulatory constraints, the banks have managed to insert leverage into every orifice imaginable while moving the risks away from themselves or so they say. Bank loans to non-bank financial firms have increased sixfold since 2010.ref 358 Big banks are not making lots of subprime auto loans but rather lending to subprime loan bundlers who have jammed a record $345 billion of subprime loans.ref 359 In a crisis, the autoloans default first, and then the bundlers hit a bridge abutment. Hmmm . . . who is on the hook now? Increasingly popular and dubious loans to unsuspecting, near destitute, and likely to be transitory homeowners are called “non-qualified mortgages.”ref 360 Truth in advertising. That particular form of high-risk lending doubled in a year and is said to be on track to double again next year.ref 361 The direct risks posed by notional derivatives, which have grown 50% to $1 quadrillion since ’07, are watched nervously.

“Getting a lot of calls about DB today. Where to begin? A hedge fund in drag that pretends to be a bank. . . . Earth [to] Merkel."

~Chris Whalen

Bearing down on a few specifics, the systemically important financial institutions (SIFIs) are all wobbling in synch—precessing—while their credit default swaps (CDSs) have arisen from their slumber.ref 362 Deutsche Bank (DB), for example, is five times the size of the former Lehman when it brought the system to its knees. DB also has the largest derivatives book on the planet. Of special interest, it is trading like Lehman, having lost 94% off its ’07 high (Figure 45). An 80% drop in earnings in 1 year suggests that the bank is insolvent and headed for nationalization. DB fired 10,000 employees (10% of its workers), a drop in the bucket.ref 363 I think it’s time it changed its name to Deutsche Blockchain.

Figure 45. Deutsche Bank.

“The best thing that could happen to society is the bankruptcy of Goldman Sachs.”

~Nassim Taleb, author of bestsellers (see “Books”) and former Goldman trader

Banking is supposed to be boring, but there were a few humorous moments this year. Goldman got caught stealing billions from the 1 Malaysian Development Bank (1MDB),ref 364 but who cares about the impoverished Malaysians? That’s a rhetorical question: Other sovereign wealth fund managers seemed to care.ref 365 As Jimmy Carter said, “I guess you just can’t trust Goldman.” Danske Bank laundered over $200 billion according to whistleblowers.ref 366 That ought to generate a few fines and send a lot of business back to HSBC. Wells Fargo had a “glitch” that led to double dipping on some payments and even some accounts being emptied.ref 367 It got fined $2 billion for stealing from millions of customers. Since fines for committing felony on a gargantuan scale are considered a business expense, the bank will get a nice tax break.ref 368 It was downgraded by its bank brethren for having inadequate safeguards to prevent getting caught.ref 369 Once Wells emptied its coffers to pump shares with stock buybacks,ref 370 it had insufficient funds to keep 26,000 people on payroll.ref 371 On the bright side, the CEO got a 36% raise this year to ensure that he sticks around to clean up his mess.

Of course, Wells Fargo’s largest shareholder, Berkshire Hathaway, played activist and jumped in to bring some honor back to this once great institution. Yeah, right. Neither side of Warren Buffett’s mouth was available for comment, but the irrepressible Charlie Munger chimed in:

“Wells Fargo will end up better off for having made those mistakes. I think it’s time for regulators to let up on Wells Fargo. They’ve learned.”

~Charlie Munger

Yes, Charlie, we’ve all learned: Crime pays, and your bluntness is surpassed only by your ruthlessness. The miracle of modern medicine is that you can sleep at night. That Wells hasn’t been auctioned off for parts and its high command marched off to a gulag illustrates the efficacy of the Obama-era “No Banker Left Behind” (NBLB) program. Being owned by Berkshire is also a “protected class.” The most satisfaction customers will get comes in the form of checks to compensate them for their losses. I’ve gotten two such checks for settlements of class action suits. They both were <0.1% of my assets under management. You know what this means? I got screwed three times: (a) the brokerages slipped roofies to me Cosby-style and repeatedly jammed illegal hidden fees up my . . ., (b) the lawyers took half the settlement, and (c) the justice system settled for squat and didn’t hang any of the bankers with their genitalia stuffed in their mouths. Do I sound bitter?

Several academic papers concluded that Wall Street firms trade on inside information and that “changing the law to fix that may not even be feasible.”ref 372 (Academics actually get paid to come up with such epiphanies.) Bank of America (BofA) did not have a single day trading loss in the first quarter.ref 373 Seems like an improbable run in a straight game. BofA also got caught robbing safe deposit boxes again.ref 374 Recall that the state of California was emptying safe deposit boxes and selling the contents without even inventorying them first.ref 375BofA has also been freezing the accounts of people suspected of being illegal aliens, no doubt out of a deeply moral conviction and support for Trump’s immigration policies.ref 376 One of Morgan Stanley’s highly compensated bankers has been driving for Uber in his free time.ref 377 Any bets on who gets the >$100 billion Uber IPO? Finally, Jeffrey Skilling of Enron fame got out of prison.ref 378 The bankers who helped set up all the off-balance sheet scams have not been released because, well, they never got arrested.

The party isn’t rockin’ until somebody calls the cops or puts an eye out. Until then, the social IQ of the partygoers just keeps dropping. Although nothing is happening yet—the KRE banking index is comfortably 200+% off the ’09 lows and only –20% off its 2018 highs.ref 379 There are, however, stresses building within the banking system. SocGen analysts list four triggers: trade wars, significant market repricing, European policy uncertainty, and a hard Chinese downturn.ref 380 The FDIC monitors “assets of problem banks” and reported a 200% increase during the third quarter of 2018.ref 381 The four largest U.S. retail banks are witnessing consumer stress in the form of credit card losses.ref 382 Scott Minerd suggests that small hikes in lending rates will blow out the zombies (see “Corporate Debt”), causing a wave of defaults that are long overdue.ref 383 Minerd notes, “There are a lot of companies that are zombie companies that survived the last cycle. As these companies have their debt repriced by the market with rates going up, it’s going to be harder and harder (for them) to stay alive.” The credit system is surely at risk if corporate paper starts defaulting. Jesse Felder suggests that “a cottage industry has developed to explain what is behind the dramatic move in Libor.”ref 384 Something is stirring below the placid surface. (Cue the Jaws sound effects.) Europe in general and Italy in particular pose serious risks, as does China. Whalen Global Advisors claims that net interest income for all U.S. banks will be declining by early 2019 and that, “the superficial narrative parroted by Wall Street pundits that rising interest rates are good for banks and other leveraged investors will be shown to be complete nonsense.”ref 385 Cheap funding is over. “Banks in the U.S. are about to get caught in an interest rate squeeze of gigantic proportions,” causing shrinking profits and—wait for it—a recession! There will be 11 Wells Fargo employees who couldn’t care less because they won a half billion dollars in California’s Powerball.ref 386

“From the economy’s vantage point, instead of asking how the banks are to be saved ‘next time’, the question should be, how should we best let them go under.”

~Michael Hudson, Levy Economics Institute

The Fed

“You will never see another financial crisis in your lifetime.”

~Janet Yellen, spring 2018

"I do worry that we could have another financial crisis.?

~Janet Yellen, fall 2018

“The lower-for-longer approach promises, in effect, to allow the economy to boom. The FOMC needs to make a credible statement endorsing such an approach, ideally before the next downturn.”

~Janet Yellen

“We have undertaken to stabilize economic forces, to mitigate the effects of the crash and to shorten its destructive period. I believe, I can say with assurance that our joint undertaking has succeeded to a remarkable degree.”

~Herbert Hoover, 1930

“The Fed can change the way things look, but it cannot change what they are.”

~James Grant

“The last duty of a central banker is to tell the public the truth.”

~Alan Blinder, former U.S. Federal Reserve vice chairman

“For more than three decades, macroeconomics has gone backwards.”

~Paul Romer, winner of the 2018 Nobel Prize in economics

The Fed has been oversteering and overmedicating the economy since 1913. The Fed promptly spawned a credit bubble in the 1920s that led to the biggest crisis in our history and was, in my opinion, the primary cause of the Great Depression.ref 387 The emergence of Greenspan sent us through a series of micro-crises ultimately leading to the big one in 2008–09. (Actually, I think the Big One is coming, but that is conjecture.) Everybody agrees that Greenspan kept rates too low for too long, laying the groundwork for the crisis. In response, Bernanke and eventually all central bankers began coloring way outside the lines. What did he do? As Stan Druckenmiller puts it, “They tripled down on what caused the crisis, and [they] tripled down globally.”

“Data dependent Fed: average real GDP growth during QE was 2.2%. During no QE and the 5 rate hikes it’s averaged 2.1%.”

~@GreekFire23, smart guy—possibly in prison or Goldman (but certainly not both)

Now the central banking cartel has created what appears to be an epic bubble of equities, bonds, and pretty much anything denominated in dollars. Bernanke opened the tap; Yellen kept it open and went for a smoke. All central banks served up buckets of punch, and the global economy became a sloppy drunk. Jerome Powell was left with the job of getting everybody to the vomitorium and cleaning up the vomit. Some think he’ll blink and let the party resume, but don’t forget that in 2001, the Fed hiked rates 50 basis points—a monetary bitch slapping—with the Nasdaq already 40% off its 2000 highs. Let’s hope that as Jay moose-knuckles the rates higher he has a steady, consistent hand on the rudder:

“I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses . . . we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy. I think there is a pretty good chance that you could have quite a dynamic response in the market.”

~Jerome Powell, chairman of the FOMC

“There’s no reason to think this cycle can’t continue for quite some time, effectively indefinitely.”
~Jerome Powell

“The US is on an unsustainable fiscal path; there’s no hiding from it.”

~Jerome Powell

“When it is time for us to sell [Fed assets], or even to stop buying, the response could be quite strong.”

~Jerome Powell, before becoming FOMC chair

As @GreekFire23 said—I can’t believe I just typed that—the average GDP growth during QE was only 2.2%. During the subsequent period witnessing multiple rate hikes GDP has averaged 2.1%. One might ask “What is it good for?” The answer could be “Absolutely nothing! Say it again!” Economists at the St. Louis Fed published a report card on the efficacy of QE and, shockingly, concluded that it was largely a bust.ref 388 The Fed made stone soup hoping that the free market would start bringing things to add substantial ingredients. While QE pushed up asset prices as intended, the economy limped along feebly. The Fed was trying to shove credit into a saturated credit market. This is how it plays out in my head:

Borrowers: “We would like to borrow some money.”

Savers: “OK. Here is what it will cost.” (Some haggling ensues.)

Savers: “We have a deal?”

Fed: “That price is too high. We know because we have PhDs! We’ll pound it lower.”

Borrowers: “Deal!”

Savers: “Dufuq?”

So how does QE actually work? In theory, banks can sell treasuries to get cash equivalents to be used as reserves for lending—treasuries are technically not considered reserves. Alas, that is a zero sum game because now cash is depleted elsewhere. When the Fed replaces long-maturity assets with short-maturity reserves via QE, no cash drains and the banks now have larger reserves against which they can lend more money with a 10- to 12-fold multiplier. Richard Koo noted that the 19-fold increase in reserves risked a 19-fold inflation and got . . . crickets.ref 389 Indeed, there was some lending, but arguably not lending conducive to economic growth (share buybacks, for example), and banks stored these reserves at the Fed in interest-bearing accounts more like an annuity to kick off a steady cash flow. The Fed economists who wrote the QE report seemed to question the practical consequences of QE and even the theoretical underpinnings:

“It is not clear that QE should have any effect and it might actually be detrimental to the efficiency of the financial system. . . . QE works much as conventional accommodative policy does—it lowers bond yields and increases spending, inflation, and aggregate output. But we should be skeptical of this interpretation.”

Frequent and willing sparring partner and vice president of the St. Louis Fed, David Andolfatto, often tells me that this cash-for-treasury swap is no big deal:

“I do not think QE facilitates credit creation. QE simply relabels the public debt as ‘interest-bearing reserves’ instead of ‘interest-bearing treasuries’.”

~David Andolfatto, vice President of St. Louis Federal Reserve

By the end of the ensuing debate, I find myself asking something like, “Then why did they do it?” I guess we will find out if it is no big deal in reverse, too, as they dehydrate the markets (drain liquidity) via quantitative tightening (QT). But I am ahead of myself.

Charles Gave notes, “purchasing government bonds from domestic banks, so flooding them with reserves, the Fed can engineer an increase in the U.S. monetary base." OK, but as Andolfatto would say, "so what?" Based on efforts in the U.S. and in Japan, where QE was big, or in Canada, where no QE is undertaken, the skeptics in St. Louis wondered whether there was any evidence that QE increases inflation or, more important, real GDP: “Evaluating the effects of monetary policy is difficult, even in the case of conventional interest rate policy. With unconventional monetary policy, the difficulty is magnified . . . perhaps the private sector can do a better job than the central bank in turning long-maturity debt into short-maturity debt.” We also got a report out of Deutsche Bank claiming that, with respect to “unconventional” monetary policies such as QE and negative interest rates, “the impact on the economy was negative.”ref 390 Prominent economist Daniel Lacalle concurs: Monetary stimulus does not work.ref 391

“In my view it failed, 100 percent. It caused the stock market to go up because people took all that liquidity and invested it in the stock market, but it did not cause the economy to grow even 10 basis points faster.”

~Steve Eisman on the effect of QE

One can only imagine what’s coming next and how we get out of this monetary lobster trap. Maybe QT will be a bust just like QE—no big deal. Oddly, Richard Koo claims he could find no papers whatsoever describing how to exit QE and submits that it might be quite a bitch—a Hotel California moment. Some say the Libor rate that determines corporate borrowing rates is already tightening ahead of the Fed. This is way above my pay grade, but the folks at BMO Capital Management seem seriously concerned.ref 392 They say a slow, methodical and putatively painless natural unwind by paying 2.5% on reserves will add $50 billion to our already bloated deficit every year. Why? Because it will deplete the cash flow from the Fed to the U.S. Treasury, which uses the cash flow to pay bills. Many don’t realize that the “FAST Act”, which authorized the U.S. government to plunder excess capital from the Federal Reserve, established a mechanism for the Fed to monetize Federal debt.ref 393

“Fed officials will be under enormous pressure to accommodate swelling federal deficits—even if it means pretending that the central bank is a source of revenue to the Treasury. The operative model of political economy here is Argentina in the 1970s.”

~Chris Whalen

“One of the characteristics of a struggling republic is the inability to separate its central bank's resources from the fiscal largesse of the federal government. Using central bank resources to avoid addressing funding of the government is a sure path to runaway inflation, economic decline, and periodic financial crisis.”

~David Kotok, co-founder of Cumberland Advisors

“Stop talking about ‘The Fed’. Talk about central banks. . . . Their balance sheets are the highest they've ever been.”

~Jim Bianco, founder of Bianco Research

Jim’s point is that everything you see the Fed doing is being done across the globe. The Bernanke QE model was implemented on industrial scales without even beta testing it. QT will be carried out with equal care and preparation.

“The success of our institution is really the result of the way all of us carry out our responsibilities. We approach every issue through a rigorous evaluation of the facts, theory, empirical analysis, and relevant research.”

~Janet Yellen

“Congress has taken away some of the tools that were crucial to us during the 2008 panic. It’s time to bring them back.”

~Bernanke, Paulson, Geithner

“Rubbish, they had all the tools necessary. They just never recognized beforehand that the economy was a massive credit bubble—just like it is now.”

~Albert Edwards, Societe General (SocGen), in response to the Bernank

Let’s finish with some quotes that give me pause and may give a few bloggers some quote porn.

“Although we work through financial markets, our goal is to help Main Street, not Wall Street.”

~Janet Yellen

“If the Fed can cause a 500-basis-point change in interest rates, it is absurd to wonder if monetary policy is important.”

~Paul Romer

“The Federal Reserve may have to press harder on the brakes at some point over the next few years. If that happens, the risk of a hard landing will increase.”

~Bill Dudley, former president of the New York Federal Reserve and former economist at Goldman Sachs

“Central bankers are like stupid magicians: They are as surprised as the audience when they pull a rabbit out of their hat that they just put there.”

~Sean Corrigan (@TrueSinews), Cantillon Consulting

"History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up."

~Robert Kaplan, president of the Dallas Federal Reserve

“I see roughly equal odds that the U.S. economy’s performance will be somewhat stronger or somewhat less strong than we currently project.”

– Janet “Yogi” Yellen

“We’ve become so complacent about central bank policies that we’ve quietly tolerated a rise in financial asset prices to the point where even a little inflation would devastate portfolio returns.”

~Eric Peters, CIO of One River Asset Management

“We have been suppressing rates. If rates rise it’s a ticking time bomb.”

~Richard Fisher, former President of the Dallas Fed, speaking in 2015

“Everything we see about the near-term outlook is quite strong.”

~Ben Bernanke, July 2018

“The Fed has acknowledged no failures. All the experiments have been successful, every one: no failures, no negative side-effects, no perverse consequences, only diminishing returns.”

~Peter Fisher, former official at the New York Federal Reserve

“Try to publish an article critical of the Fed with an editor who works for the Fed.”

~J. K. Galbraith, Harvard University and author of The Great Crash, 1929

“Even when things happen in the economy that would otherwise have triggered inflationary episodes, they don’t today because financial markets trust the Fed to do the right thing to keep inflation under control.”

~James Bullard

The yield curve will soon be inverted
As many have clearly asserted
When everything tanks
The fault? ...central banks
Their policies? ...clearly perverted

~@TheLimerickKing

Human Achievement

“Opportunities don’t happen; you create them."

~Chris Grosser

We are now transitioning from economics and markets to the political and social events of 2018. As noted at the outset, I have over a hundred pages of quotes, notes, and anecdotes about Trump, Russian collusion, and the nefarious activities going on in the Deep State. It has grown progressively harder to wrap my brain around what I am actually witnessing. I can no longer write a chapter or two. I may be able to write a book, but certainly not in the months of November or December. It is what it is. I have focused on what catches my eye and what is achievable.

Random topics that come across my field of view that I capture are loosely defined as "Human Achievement". Who could forget the heroics in Thailand as cave divers saved the Thai soccer team?ref 394 Buddhist teachings by their coach helped them cope with stress and lower their oxygen intake for two weeks. Two heroic cave divers found them.ref 395 Divers from around the world suffering from toxic masculinity—no pussy hats or man buns on those guys—pulled them out. Meanwhile, Elon Musk was show boating with a useless submarine and calling one of the heroes a pedophileref 396 and then gets sued.ref 397

Although watching sports is too time consuming for me, I catch a lot on the fly. 2018 had some unlikely sports heroes. A 36-year-old accountant, Scott Foster, was called to play goalie for the Winnepeg Jets. The night before he was playing rec league for "Johnny's Icehouse" and probably did so the following weekend. On that one memorable night, however, he played 14 scoreless minutes in the Big League.ref 398 A 32-year old rookie got called up to play for the LA Lakers, came off the bench, and drained 19 points.ref 399 (It's not quite like those six three-pointers by the autistic kid,ref 400 but it's still amazing.) The winning Superbowl coach was coaching high school football nine years earlier.ref 401 (Trivia point: years ago, Cornell fired one of a long string of marginally successful football coaches. He was George Seiferth. You can't get talent into the Ivies.) The Boss of the sports world was an approximately 12-year-old fan who, when handed a game ball by the infielder, had the smarts to give it to a seriously hot chick sitting behind him... but not before switching it with the ball he bought from Dicks Sporting Goods.ref 402 That's metagame.

The PyongChang Olympics had six Cornell alums (mostly women's hockey).ref 403 In my opinion, women's hockey is as good to watch as men's hockey. Meanwhile, American Elizabeth Swaney achieved everybody's dream by competing for Hungary in the half pipe while being awful—seriously wretchedly bad.ref 404 She spotted a seam in the rules that qualified her for the Olympics by amassing top-30 finishes at international events. She traveled the world competing in all half-pipe competitions with fewer than 30 entrants.ref 405

Other bulletable achievements included:

  • Tiger won his first tournament since 2013. It's all about redemption.
  • Jordan Bohannan tied Chris Street's University of Iowa record for most consecutive free throws, 34, that had withstood two decades. Chris had died in a car accident 3 days after graduation. Bohannan, stepping up to the line to set a new record, looked at his brother in the stands, bonked it against the iron, and pointed to the sky: "It was not my record to have." Superheroes don't always wear capes. I am tearing while I type.ref 406
  • In March madness, #16 seeded UMBC beat #1 seed University of Virginia 74–54, busting every March Madness Bracket in the World.ref 407
  • Drexel came back from a 34-point deficit, setting a new comeback record for Division I basketball.ref 408
  • LA Tech football team lost 87 yards in a single play.ref 409
  • Watch this kid play catcher; you wouldn't notice if I didn't tell you he has only one arm.ref 410(hotlink) I hope he applies to Cornell.

"I think the question we have to ask ourselves is this: What is the right way to behave to honor our sport and to respect our opponents?"

~Martina Navratilova, returning Serena Williams' serve

And then there were the darker moments. Serena Williams reached hero status by delivering her latest kid and in the blink of an eye making it to the finals of the US Open Singles Championship.ref 411 In the final match, however, a serious shitfit at the line judge put a dark smudge on the game. The authorities kowtowed (which is a Chinese term that translates to "acted like pussies"), causing much of the glory to be taken away from the winner, Naomi Osaka.ref 412 It wasn't Williams' first outburst.ref 413

And for some more Bullets from the Dark Side:

  • Phil Michelson six putted (if you include the two-stroke penalty for whacking a moving ball) and then claimed (admitted) it was tactical to avoid an even worse outcome.ref 414 The Mets signed him because he could hit a moving ball.
  • USA Gymnastics admitted it had more coverups of pedophilia than the Catholic Church.ref 415
  • Khabib Nurmagomedov—Khabib for short and for obvious reasons—beat Conor McGregor in the UFC. (Khabibe literally wrestled grizzly bears as a kid,ref 416 so it was not a shock.) Risk was brought to a new level when a huge and arguably most dangerous sports brawl in history broke out.ref 417
  • A Russian curler was charged with doping using a well-tracked substance.ref 418 Something is fishy...so many questions.
  • Another female Russian Olympian donning a shirt stating, "I don't do doping" tested positive for doping.ref 419
  • Nigerian soccer star Emmanuel Eminike divorced Miss Nigeria 2013 to marry Miss Nigeria 2014.ref 420
  • The first zero-emissions solar-powered boat is said to be circumnavigating the globe this year.ref 412Correct me if I am wrong but one of Magellan's zero-emissions wind-powered boats made it around some time back. Contrary to popular opinion, Magellan did not.

"The art world is the biggest joke going. It’s a rest home for the overprivileged, the pretentious, and the weak."

~Banksy

Away from sports, Banksy punked the art world when, seconds after the auction gavel fell on one of his $1 million paintings, a mechanism hidden in the frame shredded it.ref 422 The art world punked him back by declaring the painting's value just doubled.ref 423 A guy jumped from 25,000 feet without a parachute and landed "safely" in a net.ref 424 Another got the coveted hat trick when, after having been mauled by a bear and bitten by a rattlesnake, he got attacked by a shark.ref 425 While astronomers recorded the first video from the surface of an asteroid,ref 426 others identified a new type of aurora and named it "Steve".ref 427 Watch this girl playing a concerto on the violin with a prosthetic arm connected from her collar bone.ref 428 That is toxic femininity! This woman piloting a passenger jet has the engine blow off the plane and blew a hole in the plane sucking a passenger out. She displayed nerves of steel.ref 429(hotlink)

If you dig long and hard, you eventually find the bottom of the barrel. A couple raised $400,000 for a homeless vet and just squandered it before the courts could intervene.ref 430 The author of "How to Murder Your Husband" was arrested for allegedly murdering her husband.ref 431 A man who thought he was possessed by crocodile hunter Steve Irwin was arrested for tranquilizing and raping alligators.ref 432

In the non-hominid division, Beadnose (Bear #409) displayed impressive salmon-sourced cellulite, toppling the reigning champ, Otis (Bear #480), in Alaska's 2018 Fat Bear Championship (Figure 46).ref 433 The Flying Dog Championship witnessed a new jumping world record of 31 feet.ref 434 I'd like to see Beadnose try that.

Figure 46. Beadnose Bear at top feeding weight.

Had to save two for last. Ten players and two coaches of the Humboldt Broncos Youth Hockey Team coming from Humboldt, Saskatchewan were killed in a bus crash.ref 435 They were dominant on the ice. GoFundMe raised a $15 million memorial fund,ref 436 but I don't know how that town of 5,578 inhabitants will recover. RIP boys. (I'm tearing again.) Keep it in perspective folks.

You know all those fires in Boston that lit simultaneously due to an over-pressurized gas line (without a peep from the news questioning terrorism)?ref 437 My son was at the "red dot" chatting with me on the phone when they started. Like I said, keep it perspective.

Nature

"I know what it means to know something, and it's hard."

~Richard Feynman, physicist

Every year nature takes a bat to us in predictable and not-so-predictable ways. I have long stayed away from the global warming (or climate change, whatever) debate just because it is too rancorous, and I have little to offer. I once told the Secretary of Energy I was agnostic. After cleaning snot off my glasses I explained that I had not put in the 10,000 hours needed to form an educated opinion. For that matter, few have. Thus, all my colleagues in science with relatively few exceptions will sign off on the notion of anthropomorphic global warming with what is a vote of confidence in their scientific brethren but inadequate self study, providing an overstated scientific consensus. Here's what I will say. There are highly credible scientists on both sides now, not just whackadoodles looking for ten minutes of fame. I was shocked when I started Googling some of the deniers on this list to find out they they are both prominent and disbelievers.ref 438 Let me be equally clear because I am a wuss and so you don't hang some PC label on my sorry butt:

If I had to bet a paycheck, I would bet anthropogenic global warming is real. If I had to bet ten paychecks, I would bet that we are going to do the experiment despite the best intentions of those who worry. Resource depletion is what scares me.   

Let me make one important point: you can't watch the weather or make any anecdotal observations and say, "See. I told you so. You guys are full of crap." You sound like an idiot to anybody who is not an idiot (unless you are being a snarky punk, which is fine). Hundreds of hurricanes have hit North America in the last century; nothing says the last 20 are anthropogenic. Snow in October and warm days in January mean nothing:

"This week in 1936, North Dakota was 121 degrees. This week in 1913, California was 134 degrees. This week in 1901, hundreds of New Yorkers died in the streets from the heat."

The warming trend, even if raging and eventually creates wind chill factors of 114 °F, is well inside the detection limits of simple human observation. With 365 days in a year, 100 years in a century, and more metrics of weather than pregnant teenagers, do you know how easy it is to break an all-time record? Those who claim to see patterns are being Fooled by Randomness. And the celebrities all know there is global warming. Remember when the star in TV medical drama "Quincy, M.E.", Jack Klugman, testified to Congress about health care? Most celebrities are idiots as are members of Congress. Why do you think they didn't study robotics or bioengineering? Only good science supported by good data analysis can tease signal from the noise. And what may prove to be the most ironic part of the global warming debate is that NASA scientists have found that a "big crack opened in the Earth's magnetic field and plasma started pouring in."ref 439 Meanwhile, a disturbing lack of sun spots and solar flares suggest an impending mini ice age is coming.ref 440 "Men plan, God laughs" or as Emily Litella would say, "Never mind."

Why don't I worry about climate change? It is for practical reasons. Humans are not proactive; they follow the Law of the Commons, also known as the Law of Selfish Bastards. Look how happy the French are after being told they will get to pay a nominal energy tax to stop global warming. There was some serious heat on the streets of gay ol' Paris. We are going to do the experiment.

We had lots of hurricanes this year, with Hurricane Michael being the headline grabber. As it wiped out Mexico Beach, Florida,ref 441 it appears to have whacked a handful of our stealth bombers inside a hanger.ref 442Although there is a nice tutorial on why not every stealth bomber can be moved on short notice,ref 443 it's less obvious why you would store billions of dollars worth of hardware in a hanger that was not hurricane proof. Moving on to Hurricane Florence and North Carolina, we find that only 3% of homeowners have flood insurance and those that do also have counterparty risk; the Federal program providing flood insurance is $20 billion in the hole.ref 444 On a funny note, Hurricane Florence appeared to be ravaging a reporter struggling to hold his ground against gale-force winds to get a story...until two guys strolled by in shorts:ref 445

Figure 47. Risking life and limb.

Of course, fooled by randomness applies to other events like activity on the Ring of Fire. For those not paying attention, we are not talking about a Bangkok-hot curry but rather the ring circumnavigating the Pacific Ocean loaded with volcanic and other geological events. Seems to be acting up a lot lately. This year's Hawaiian volcano reminded homeowners that their houses built on formerly red hot lava might get squeegeed away, and they may no longer own ocean front property. Where some see disaster others see opportunities: can you buy futures on land that is not yet above sea level? I also waited with bated breath for Paul Krugman to write about his "broken pineapple fallacy". The Yellowstone caldera—an ancient super volcano—keeps rising a lot and spewing reminders that rare events happen.ref 446 By the way, "Krakatoa" by Simon Winchester is a great book and offers a fascinating description of plate tectonics.

The anti-vaxxers may have a case, but the evidence against a number of claims is profound (convinced me). I have zero doubt that, all things considered, vaccinations save lives. In regions where anti-vaccination campaigns have gotten legs, we are starting to see epidemics reappearing for the first time in many years.ref 447Disturbingly, polio has reappeared in Venezuela.ref 448 I guess we didn't eradicate it after all. I'd be vaccinating against that one. The only thing that scared me as a kid were (a) my Dad's stink-eye, and (b) images of iron lungs and polio wards:

Contrary to popular opinion, scientists in Big Pharma would love to cure diseases; there is no conspiracy there. Popular opinion is also correct that marketing teams will try to get you to snarf down as much healthcare as theoretically possible. We continue to be seriously outnumbered in our battle against bacteria. I think those in the know are worried. Bacterial resistance to antibiotics is appearing before the drugs hit the marketplace. They are becoming non-cost effective to produce. At the street level, new flesh-eating bacterial infections of the genitals are somehow linked to best-selling diabetes drugs, causing the flesh around the genitals to literally rot away.ref 449 The CDC is now warning of an antibiotic-resistant strain of gonorrhea.ref 450 An oral cancer epidemic in men is linked to oral sex.ref 451 The message is clear: abstain. A mind-controlling parasite—yes, these things are precedented in biology and can have wildly cool effects on animal behavior—has been found in cat feces.ref 452If you are eating cat feces you now officially have shit for brains. On the bright side, the virus has been linked with an almost reckless entrepreneurial spirit (not joking). It has been identified and named Elon Muskovitis (joking).

Of course, Nature's wrath amplified by Man's poor judgment was on full display as fires ravaged California. I was in a house fire in high school; I jumped out of a second story window into –2 °F weather buck naked (but who hasn't done that a few times.) People are dying from watching TV shows about fires. You have seconds to get the hell out. When your neighborhood is on fire, get out. Pepperdine University made the call to leave all students on campus.ref 453 That could have been a tragedy of a higher order. Some criticize the administration for commandeering the resources of all firefighters in the area. Others criticize them for doing it on purpose to ensure the university was protected. It is an interesting hypothesis, but I cannot fathom that level of sociopathy, even at a university.

I watch people lamenting the loss of their house and memories and think, "You're alive, your belongings were tacky, and your memories are safe in the cloud. Get over it." It is altogether different, however, when your house, school, church, stores, and employer burn to a crisp like in the ironically named Paradise, California. You really do have nothing now. It's not Yemen, but it's bad. There are regions in California that got one inch of rain since May in a much more secular (multi-year) draught. It was only a matter of time. I have read that the 20th century was the wettest of the last ten centuries in the State of California. It seems possible that millions moved into a desert without realizing the consequences.

Humans are a durable lot; they do not take guff from Mother Nature without a fight. In a battle against the weather, Volkswagen shoots off "hail cannons" near their Mexican factory to prevent formation of car-damaging hail stones, denying Mexican farmers rain for their crops.ref 453 We managed to finally exterminate the last white rhino because, well, who needs another large mammal that doesn't even make good stew meat.ref 455 Round-up is suggested to not only be solving our weed problem, but also eradicating those damned bees.ref 456 I'm sure Monsanto will figure out how to pollinate everything at some nominal cost. We are winning the war against sea creatures by filling the oceans with remarkable heaps of single-use plastic, generating an enormous wad of crap called the Great Pacific Garbage Patch.ref 457  The Chinese are rumored to be planning condos or a military base. 

Middle East

“We’re going to take down seven countries in five years. We’re going to start with Iraq, then Syria, Lebanon, then Libya, Somalia, Sudan. We’re  going to come back and get Iran in five years.”

~Wesley Clark, Four-star general in 2002, quoting a peer

According to Ellen Brown, none of these countries is "listed among the 56-member banks of the Bank for International Settlements (BIS). That evidently puts them outside the long regulatory arm of the central bankers’ central bank in Switzerland. The most renegade of the lot could be Libya and Iraq, the two that have actually been attacked." And from an interview long, long ago...

Lesley Stahl: "We have heard that half a million children have died. I mean, that's more children than died in Hiroshima. And, you know, is the price worth it?"

Madeleine Albright: "I think this is a very hard choice, but the price — we think the price is worth it."

That 1996 60 Minutes exchange hasn't aged well.ref 458 In the sequel, we pick up the plotline in the same country by following the antics of Bush the Younger. Press secretary Ari Fleisher referred to it as "Operation Iraq Liberation",ref 459 somehow not seeing a problem with the acronym. I find our Middle East policy to be confounding except for one guiding principle: keep them all fighting. It is not really about oil but about war and banking. Following the collapse of the Soviet Union our multi-trillion-dollar defense industry needed a new foe. (Bombing Canada was a non-starter.) As we mow through conflict after conflict it all makes sense if you assume that our goal is to keep the Middle East in a perpetual state of war. Quadafi gets too strong? Kill him. Assad gets too strong, throw a false flag and bomb him. We also don't hesitate to remind those that we haven't bombed (yet) about the merits of the petrodollar: we agree to buy oil in dollars and, in return, they agree to fund our federal deficit and prop our asset markets with these dollars.

In case it isn't obvious, we don't really like democracies. As The Donald showed in 2016, we don't know how to control them. We are having issues with that will-of-the-people malarkey. They're tolerable for Europe but less developed regions—the shithole countries as the Donald is known to say—require focused targets for bribes and threats of death and dismemberment. Dictators are optimal—Shahs for example—but a small gaggle of warlords is manageable. Stephen Kinzer's Overthrow describes 13 explicit US-backed coups that overturned foreign leaders, including democratically elected ones.ref 460

Our adventures in the Middle East have cost us an estimated $6 trillion dollars. Some is salary paid to soldiers but most is going to companies as part of our No Defense Contractor Left Behind Program (NDCLBP). Take a look at the price chart of Boeing, Lockheed Martin, Halliburton, Raytheon, or any other defense contractor (Figure 48). They are well bid based on both past and future earnings. Trump promised to be the least militaristic president—a low bar—and then increased our military budget.

Figure 48. Share price of Boeing

The Saudi regime is ruthless. They fly planes into buildings, chuck gays out of windows, and behead people for non-violent crimes. Women are tortured who dare to drive a car, remove their hijabs, or have the audacity to get raped. If you are the wrong person in Saudi Arabia, Islamophobia is not even a theoretical construct because the fear is not irrational. You wanna see a hero in the flesh? She's Iranian (not Saudi), quite possibly dead, but now an iconic image of global feminism, a meme:

Figure 49. Principled when it's neither cool nor safe.

Meanwhile the Saudis are slaughtering Yemenis (Houthis specifically), risking starvation of as many as 18 million of them.ref 461 Let's go to CNN headquarters to get the latest on the global uproar:ref 462

Rand Paul: "We are refueling the Saudi bombers. So we are essentially part of the Saudi campaign. We are helping them choose targets. It is said that thousands of civilians have died in Yemen because of this. Yes, we need to have a debate over this."

Wolf Blitzer: "So for you this is a moral issue cause, as you know, there are a lot of jobs at stake certainly if a lot of these defense contractors stop selling war planes, other sophisticated equipment to Saudi Arabia. There’s going to be a significant loss of jobs and revenue in the United States. That’s secondary in your standpoint."

The stark truth of that must-see exchange slathered with latent sociopathy leaves me gagging on my vomit. The Pentagon insists we are minimizing civilian casualties when it's just infanticide masquerading as politics. "OK guys: let's keep it under 18 million if we can." US foreign policy is fostering this carnage by providing the Saudis with "the engines of death." You can blame Trump but don't you dare blame just Trump.

Enter one Washington Post journalist named Khashoggi. He gets suckered into an embassy, sliced into pieces, and fed to the camels.ref 463,464 The journalists kicked it into gear and denounced the horror.

"You gonna eat that?"

~Jeff Dahmer to Mohammed bin Salman

Here is my very unpopular take: It was a bit gruesome, but not by Saudi standards that we enthusiastically tolerate. He is also just one damned journalist. Let's put this in perspective: 18 million dying Yemenis versus One Dead Kashoggi (ODK). The world has gone collectively sociopathic on this one. You know why y'all care about some guy whose name you didn't even know six months ago and still can't spell? It is, in part, because Journalists Lives Matter (JLM), and psychopaths in high places are telling journalists to tell you what to worry about. Wake up or shut up. Let's get those priorities in order. And as happened before, Nassim and I have locked arms once again:

"A single journalist is a tragedy; ten thousand Yemenis is a statistic".

~Nassim Taleb channeling Joseph Stalin

Epilogue: The journalists are now starting to notice the carnage in Yemen. Alas, it was never about Khashoggi or Yemen. They are just chess moves.

Syria

“We’ll be coming out of Syria, like, very soon. Let the other people take care of it now.”

~Donald Trump

“A new confirmed chemical attack in Syria would pose a dilemma for President Trump, who … recently said he wants to get the United States out of Syria.”

~NYTimes

"Just so there's no confusion here, if the Syrian regime uses chemical weapons we will respond very stronglyand they really ought to think about this a long time."

~John Bolton

Three days after Trump's announced pull out there was a chlorine gas attack attributed to Assad. That is some serious bad luck. A leaked 2006 memo shows we have been trying to "election monitor" and destabilize Syria for quite some time.ref 435 For several years I have been writing about false flag attacks under the Obama administration trying to georelocate Assad's remains across the Levant. A Sputnik article predicted fake chlorine gas attacks were imminent.ref 466

Figure 50. 2014 Department of State tweet declaring "Mission Accomplished: "Heckuva a job Johnny!"

A disturbing trend is that those pulling off such scams are getting sloppy, relying increasingly on simply controlling the press coverage. There are, however, rogue pundits who refuse to play along. Seymour Hersh declared the chlorine attacks and anti-Syrian rhetoric to be a crock.ref 467 Tucker Carlson, as he so often does now, stepped out on a limb and gave a brilliant must-see diatribe denouncing the neocons for marching us toward a military conflict.ref 468  Pat Buchanan joined with the doubters.ref 469 And, of course, Russia’s Ambassador to the EU in Syria declared it was a complete farce, a hoax concocted by the ‘white helmets’ to justify US forces to bomb Assad.ref 470 I did an RT interview on the chlorine gas attacks as follow up to the Skripal poisonings (see "Nerve Gas Poisonings"). I was so brain dead trying to keep it all straight that I Freudian slipped into a Skripal poisoning plotline before the interviewer reeled me in.ref 471 German Chancellor Angela Merkel denounced the attacks as evidence we failed to eradicate Assad's chemical arsenal, but Germany refused to enter the fray.ref 472 British ambassador to the United Nations, Karen Pierce, blamed the Russians of course.ref 473 (She must have slipped plotlines too.)

Social media dismembered the story. You would have time to run from the house, admittedly coughing and feeling really crappy, maybe even dying later.ref 474 The stacks of bodies inside the house smelled wrong, and the notable absence of sick survivors was odd.ref 475 The bodies were in different states of decay, showed assorted traumas, and displayed blood accumulating in the wrong places. (I'm sure there are Middle Eastern startups that provide bodies on-demand—there is no shortage—but the quality control might be lacking.) Most tellingly, the same bodies were being recycled for different photos.ref 476 One kid claimed he was walking along the street (probably staring at his cell phone), grabbed without warning, and hosed down in front of camera-wielding observers capturing his ordeal.ref 477 An intrepid western reporter, Robert Fisk, actually went to the scene—I'm surprised too—and found nobody knew about the attacks.ref 478 That's a special kind of PTSD. The public seems to not buy into these stories. Mike Krieger of LibertyBlitz blog caught a Fox News Twitter poll asking whether people were for or against attacking Syria because of the chlorine gas attack.ref 479 With 49,000 votes tallied—a non-shabby sample size—69% did not support action. Within two hours, 140,000 pro war supporters joined in and supported the attacks (Figure 51). We are all getting duped.

  

Figure 51. Fox poll swinging wildly (h/t @LibertyBlitz)

Who are these "unarmed and impartial" good Samaritans—these caped crusaders—known as the "White Helmets" who clean up the messes caused by pro-Assad bad guys?ref 480 They are called the Syrian Self-Defense Group. Max Blumenthal, a journalist with considerable experience in the Middle East, calls them a "shadowy group" who also appear to be creating the messes (the arsonist-firefighter combo platter.)ref 481 White Helmeted caped crusaders by day, dark villain mad bombers by night. According to Max, the group is part of a well-funded larger organization called the United States Agency for International Development (USAID) that travels the globe intervening in places like Cuba and Venezuela. The Netherlands figured this out and pulled their support.ref 482

I repeat my original assertion: our interest in the Middle East is more about war than oil. Eisenhower nailed it in his farewell address.ref 483 It's about money and power—the military-industrial complex. I found this Creature from Jekyll Island-like documentary about banking and war to be entertaining.ref 484

Nerve Gas Poisonings

A former colonel in Russian military intelligence who turned MI6 agent and his daughter Yulia were found unconscious on a public bench in Salisbury, England. Headlines flashed that a novichok-class nerve agent put the Skripals into comas. They eventually recovered and were whisked away to a secret location for their safety.ref 485 This is just spy versus spy stuff at best, but Prime Minister Theresa May and the British authorities were quick to condemn the Rooskies:

"It is now clear that Mr. Skripal and his daughter were poisoned with a military-grade nerve agent of a type developed by Russia. This is part of a group of nerve agents known as novichok. Based on the positive identification of this chemical agent by world-leading experts at the Defense Science and Technology Laboratory at Porton Down, our knowledge that Russia has previously produced this agent and would still be capable of doing so."

~Theresa May, Prime Minister of the UK

This is a heap of Moose and Squirrel feces. "Hey. There's novichok in the mass spectrum; let's start World War III!" The authorities were lying their asses off. The hyperbolic language—"military grade" to distinguish it from the crap sold at Walmart—and the suggestion that only the Rooskies know how to make it is hogwash. These novichoks are some of the simplest organic molecules with biological activity.ref 486 They are no harder to synthesize than Tylenol, so I called them out:

Although that tweet got picked up later,ref 487 it was crickets at the time. As the international sabers began to rattle loudly, I took another Tweet at it:

"That Russia Tweet was a fkn DAISY CUTTER man you are controversial. I applaud it."

~Tony Greer, @TGMacro  

That "f*cking daisy cutter" did the trick. It was all over the international press that a Cornell chemist threw a flag. As a nouveau Roosky apologist I found myself on George Galloway, Russia Today (RT),ref 488 Stranahan and Nixon on Faultlines,ref 489 Scott Horton,ref 490 and a missed opportunity to hit Al Jazeera. I was warned by nervous Cornell authorities about the propaganda machine RT, to which I asked, "Worse than CNN?" It also brought Tweeters into my feed from intelligence organizations prompting me to STFU.

The UK authorities say that the incidents in Amesbury and Salisbury are linked, but Professor of Chemistry at Cornell University, Dave Collum, told RT that “it’s impossible to make a connection as there’s been no data presented” to the public to back those claims. He also reiterated that London’s statements of only Russia being capable of producing the novichok chemical were “totally false.” He described the nerve agent as “a simple compound,” which is actually just “three steps from commercially available materials." “I’ve put it on a final exam in my course… and they [the students] all got full credit. It was so easy, I knew none would lose credit because it’s like asking a bunch of bakers to make chocolate chip cookie recipe,” the US chemist said.

~RTref 491

The boys and girls at Britain's Porton Down—the nerve center of the UK chemical weapons program(me)—refused to finger the Rooskies,ref 492 causing the rhetoric to target motive:

"There is no doubt the nerve agent used in the attack was the military-grade nerve agent from the Novichok series. This has been confirmed by specialists, our specialists,...There is also no doubt that the Novichok was produced in Russia by the Russian state. Russia has investigated ways of delivering nerve agents likely for assassination purposes. Part of this programme has involved producing quantities of Novichok agents. The fact that the Novichok was produced in Russia and the fact that Russia has a history of state-sponsored assassinations and the fact that Russia has responded with the usual playbook of disinformation and denial left us with no choice but to conclude that this amounts to an unlawful use of force by the Russian state against the United Kingdom. All of the UK's actions have been fully consistent with our obligations under the Chemical Weapons Convention."

~Dr. Laurie Bristow, British Ambassador to Russia

Who had the skill and motivation? Russia and any country interested in making it look like Russia did. That narrows it down to pretty much every sovereign state in the World, including, in the vernacular, the "shitholes." According to a private communication from a physicist in Finland, novichoks appear to have been made by the US, Iran, UK, Canada, Czech Republic, France, Israel, Sweden, The Netherlands, and Germany. The head of the military laboratory said his lab had made 'novichok'-related chemicals for testing. His statement was called "unfortunate" by the country's Prime Minister, and then he got fired.ref 493

To test my theory that it was easy to make, I put a question on the final exam of my first-year graduate-level organic chemistry course:

Figure 52. 2018 Final exam in Chem 6660, Synthetic Organic Chemistry.

All got full credit except one kid who obviously will never cut it as a terrorist. It's worse than that: I think you could pour the four critical ingredients in a bucket simultaneously and end up with a punch that would flatten way more than just a bunch of fraternity brothers (at Yale). These nerve agents weren't state secrets: their structures were reported in an eight dollar bookref 494 (that apparently only the Russians can afford) or, if you are particularly tech savvy, Wikipedia.ref495

I wasn't standing alone in my doubt. Craig Murray, former UK ambassador to Uzbekistan, was screaming at the top of his lungs.ref 496 The Spiez Laboratory at the Swiss Federal Institute for NBC-Protection, a division of the Federal Office for Civil Protection, got a sample and claimed it wasn’t even a novichok that whacked the Skripals but rather a substance used by the United States, the United Kingdom, and other NATO states.ref 497 Seymour Hersh didn't buy it:ref 498 “When the intel community wants to say something they say it…High confidence effectively means that they don’t know." Famous British journalist, John Pilger, called the Skripal poisoning "total bolox" and wondered "Why do we journalists write down what governments tell us?"ref 499 (That's a trick question: they are made men and women, many of whom on payroll.) The Ron Paul Institute noted that the British claim of Russian assassinations "reads like another desperate repetition of the falsehoods and insults towards Russia issued by Theresa May’s lame-duck Government."ref 500 The most interesting theory is that the Skripals got shell-fish poisoning from a seafood restaurant they ate at that day.ref 501

The Rooskies blamed Porton Down, which is only eight miles from Salisbury and had recently cut 132 staff (motive), prompting their spokesperson to say, “There’s no way that anything like that would ever have come from us or leave the four walls of our facilities.”ref 502 The internet sleuths dug in. Nobody could understand how a contaminated door nob at the Skripals could fail to kill the Skripals—there is a non-lethal dose, of course, so that logic is wrongref 503—and why nobody else got sick.ref 504 Before long, Skripal was being connected to the Steele Dossier.ref 505 I am not joking. I dissed that idea until more evidence emerged.ref 506

"One should be mindful that the chemical components or precursors of A-232 or its binary version novichok-5 are ordinary organophosphates that can be made at commercial chemical companies that manufacture such products as fertilizers and pesticides."

~Ex-Soviet Scientistref 507

This ex-Soviet scientist who wrote "the book" on Soviet nerve agents was remarkably obtuse, seemingly playing both sides.ref 508 Go figure. One exchange was particularly entertaining:

Mirzayanov: It is obvious to me that Moscow hoped that no one would catch them.

Interviewer: But you published the formula for novichoks eight years ago.

Mirzayanov: I don’t know if the FSB [Russia's security group] saw my book.

As the story began to die down and people were left pondering the whereabouts of Yulia Skripal—maybe with that Vegas security guard?—it happened again. Another couple in Salisbury got poisoned supposedly by somebody filling her Chanel perfume dispenser with eau du novichok.ref 509 She died; he recovered. Theresa May was at it again:

“No other country has a combination of the capability, the intent, and the motive to carry out such an act.”

~ Prime Minister Theresa May on the Salisbury poisonings

“Mr Speaker, we are quite clear that Russia was responsible for this act. As I set out for the House in my statements earlier this month, our world-leading experts at the Defense Science and Technology Laboratory at Porton Down positively identified the chemical used for this act as a Novichok – a military-grade nerve agent of a type developed by the Soviet Union. We know that Russia has a record of conducting state-sponsored assassinations and that it views some former intelligence officers as legitimate targets for these assassinations. And we have information indicating that within the last decade, Russia has investigated ways of delivering nerve agents probably for assassination, and, as part of this programme, has produced and stockpiled small quantities of Novichoks.”

~Theresa May on the Salisbury poisonings

This time they rounded up a couple of Roosky assassins, but that story began to fall apart almost immediately. The two patsies were fingered by two officers who were said to have a "rare skill in memorizing faces."ref 510Hokey Smokes, Bullwinkle: now the are just lying like teenagers. The residue detected in the assassins' hotel room found two months later could not be detected the following day.ref 511 That's not how chemistry works, folks. As they separately walked down the jetway at the airport a camera caught them at the exact same position in the jetway with the exact same time stamp to the second (Figure 53).ref 512 If they were even a second apart, one picture would necessarily show two men. Camera's showed them walking around London far away from the crime scene minutes before the putative crime, walking in the wrong direction.ref 513 The camera angles were also wrong.ref 514 If this was a Russian hit, they have lost their groove; real assassins get the job done (bumper sticker). One disturbingly knowledgeable tweeter noted that serious assassins have an independent team do the reconnaissance.

Figure 53. Fake photos showing two spies at the same place at the same time.

So what is it all about? More sanctions. More Russophobia. More demonizing of Putin. The New Cold War. Theresa May’s Government imposed sanctions on Russia, including the expulsion of 23 diplomats.ref 515 While France refused to play along,ref 516 the US chummed the water:

"This attack on our Ally the United Kingdom put countless innocent lives at risk and resulted in serious injury to three people, including a police officer...To the Russian government, we say, when you attack our friend you will face serious consequences."

~US State Department's Official Statement

The Russians weren't happy:

"The Skripal poisoning was not an incident but a colossal international provocation… Any threat to take ‘punitive’ measures against Russia will meet with a response. The British side should be aware of that."

~Maria Zakharova, Russian Foreign Ministry Spokeswoman

“I simply don’t have any normal terms left to describe all this...expulsions won't go unanswered...I said that the United States took a very bad step by cutting what very little still remains in terms of Russian-American relations."

~Sergei Lavrov, Russian Foreign Minister

Rob Slane of Blogmire blog summed up the situation nicely:ref 517

"It’s all remarkably clever, and it seems to have been specifically designed to generate the impression to the uninitiated that investigators are simply making it up as they go along.”

Any Russian will tell you that when things look bleak, drink vodka. A Bristol distillery promptly offered a new product, "Novichok Edition." Staggering from withering criticism, they found themselves apologizing, as often happens when alcohol is involved.ref 518                                   

Kavanaugh versus Blasey Ford

“We now live in an age that risks a new form of sexual McCarthyism. . .  The best way of assuring that we don’t is to accord every person, regardless of his status, the kind of fundamental fairness we would expect for ourselves if we were accused.”

~Alan Dershowitz, Harvard University

At risk of life, limb, and all forms of appendages, although I punted the ball on a lot of political topics this year, I've got to write about the Kavanaugh hearings because I believe the casual observer missed most of the plot. Quick disclaimer: As a pro-choice atheist I probably have a few bones to pick with Kavanaugh’s politics. Highly respected journalist Ambrose Evans-Pritchard described his dealings with Kavanaugh in unflattering terms years back during the Vince Foster and Whitewater investigations.ref 519,520 (That just got weird fast.) Unfortunately, hearings that were supposed to vet his credentials to be a Supreme Court justice were reduced to one simple question: Is Brett Kavanaugh a drunken serial rapist? Kinda gives me pause.

The protests against Kavanaugh began the minute his nomination was announced. Protesters hired by companies like Crowds on Demand to “astroturf” any issueref 521,522 sifted through stacks of signs opposing all possible nominees to pull out the anti-Kavanaugh signs.ref 523 As the story goes, Christina Blasey Ford (CBF) contacted Senator Dianne Feinstein about a sexual assault by Kavanaugh when she was 15. The details were both sketchy and fluid, possibly because she had forgotten about the whole affair until 2012 counseling sessions dredged up suppressed memories.ref 524 Feinstein paid for a lie detector test and then sat on the story until the time was right to pounce. I suspect that CBF thought she could drop a quick grenade and move on to a new career as a decidedly elevated heroine of the progressive community. As so often happens, all bets are off once the first shots are fired. Her name was leaked, and the journalists were off and running.

Reinforcements showed up. A woman claimed Kavanaugh swaffled her in the face at Yale, but she was decidedly fuzzy on details and it was a bit late to swab her face for DNA.ref 525 Another showed up with the Lawyer of the Porn Stars, Michael Avenatti, claiming she witnessed a dozen Kavanaugh-sponsored gang rapes until she realized how self-incriminating that sounded.ref 526 In an odd coincidence, she had previously filed a sexual harassment suit against New York Life . . . using the attorneys representing CBF.ref 527 (Wait. It gets weirder.) She and Avenatti are now under investigation for bearing false witness.ref 528 A guy claimed he witnessed Kavanaugh rape a woman on a boat until the FBI entered the scene. He lost his bearings fast and found himself out on the gangplank.ref 529 A new Jane Doe sent an anonymous letter describing being raped by Kavanaugh in a car, but she’s now not-so-anonymously heading for an altogether different hearing after admitting it was a fib and that she had never met him but was pissed off.ref 530 NBC knew that at least one of his accusers was lying like a dog but ran with the story anyway.ref 531 I’m old enough to remember when NBC was staffed by respected journalists.

“We have already reviewed your client’s allegations. We focus on credible allegations. Please stop emailing me.”

~Mike Davis, U.S. Senate Committee on the Judiciary, to Michael Avenatti

Kavanaugh detractors asked inane rhetorical questions like, “Why would they lie?” You just can't fix stupid I guess. The anti-Kavanaugh #MeToo team submitted that all those accusers, no matter how non-credible when in isolation, couldn’t all be lying. Recall that over 100 people found syringes in their Pepsi cans.ref 532 Why would they lie? They were all convicted of fraud. The pundits seemed to forget that rapists are determined by 12 of their peers in courts of law. With the accusers’ stories getting scalded by the light of day as non-hyperbolically summarized by The Weekly Standard,ref 533 David French,ref 534 Byron York,ref 535 and others.ref 536 the future of the Supreme Court came down to just two people in an epic he said–she said battle in the Congressional Octagon.

“I only drank beer to excess one time in college. When? If I’m remembering right, it was from 1977 to 1981.”

~Andrew C. McCarthy, contributing editor of the National Review

“I do not believe that the temperament of Kavanaugh can be judged from this one, unique circumstance. He was accused, among other things, of leading a virtual rape gang in high school. That would leave most people rather ticked and angry.”

~Jonathan Turley, constitutional law scholar at George Washington University

Kavanaugh threw early punches trying to make the case in a pre-game interview that he was a choirboy, but nobody bought it. His yearbook showed an amazing résumé but included jargon-rich comments typical of young men, showing he might have been a hooligan at an all-boys prep school. Allusion to a girl dubbed “Renate Alumnius” mentioned by name only (except to those who do not know what that semi-colon thingie is) was inferred as evidence that she was a favorite among the boys—a slut in the vernacular—but she was also one of the 65 female signers of a letter of support saying they knew Kavanaugh and he was honorable.ref 537 Police records from New Haven showed that Kavanaugh may have chucked a glass of ice on somebody at a bar while at Yale.ref 538 That proto-ice bucket challenge was morphed into a violent-drunk plotline. CBF had a yearbook too that was scrubbed but retrieved by the WayBack Machine.ref 539 It is said to be salacious, but I didn't bother to look; it's not relevant.

During the hearings Kavanaugh threw what appeared to be tantrums. I think they were ill-advised in retrospect, but I have no doubt that they were advised, not just spontaneous outbursts. Many say his bahavior was unbecoming of a judicial nominee. Here's how I see: If I am being falsely accused of such heinous crimes, I would get so medieval that my next hearings would be in a court of law looking at serious time spent in a condo that locks from the outside.     

“There is something deeply unsettling in the scene of a United States senator going through the yearbook entries written by a teenage boy in High School as a material issue for a confirmation to the United States Supreme Court.”

~Jonathan Turley

In a matter of a few months, Kavanaugh had been reduced from the lofty position of Supreme Court nominee to mean, beer-guzzling gang rapist displaying violent mood swings. As to the accused assault of CBF, he pulled out a calendar showing that he was out of town when the alleged assault took placeref 540 and has acute CCHD (compulsive calendar hoarding disorder). The dog piling came from every direction and was astonishing. USA Today accused him of being a pedophile (Figure 54). The American Civil Liberties Union (ACLU) committed $1 million dollars to keep a Supreme Court nominee off the court. Wrap your brain around that irony. Kavanaugh’s current employer, Harvard University, managed to start a Title IX charge against him and implied that if he did not get confirmed, he would be unemployed.ref 541

Figure 54. Fair and balanced

The battle was fierce. Lindsey Graham put on a now-legendary tirade:ref 542

“This is the most unethical sham since I've been in politics. . . . Boy, y'all want power. Boy, I hope you never get it. I hope the American people can see through this sham, that you knew about it and you held it.”

~Lindsey Graham, US Senator from South Carolina

Oddly enough, the media immediately began omitting, “Boy, y’all want power. Boy, I hope you never get it.” I think it had a little too much truthiness.

The day of CBF's testimony finally arrived, and what a show! Rachel Mitchell, the questioner with 25 years’ experience prosecuting sex crimes, allowed the skanky old white guys with sordid pasts and taxpayer-funded slush funds to bribe their own victimsref 543 to sit back and watch. The PTSD that caused CBF to forget the entire event until it was resurrected by therapy in 2012 gave way to lurid details with “100% confidence.”ref 544 She described how she had a second door installed in her house out of feelings of insecurity from the decades-old event and leaving family members baffled at what was going on in her head. Even flying was said to be a horrifying experience. CBF described her lie detector test as a bewildering new experience. Mitchell followed up with an equally bewildering question as to whether CBF had ever helped anybody else take one.ref 545 WTF was that about? Hold that thought. Mitchell subsequently summarized her concerns in a letter,ref 546 concluding that CBF’s testimony did not pass Mitchell’s smell test (although the GOP did hire her.) The court of popular opinion had a few opinions of its own, expressed in thoughtful, measured tones:

The press referred to her testimony as emotional, gripping, compelling. She described the trauma of being thrown on a bed and barely escaping. So what is the problem here? Let’s just hang the bastard. I’m gonna open big: I don’t care what all the sycophantic virtue-signalizing pundits had to say, CBF was not credible. I know enormous numbers of women in academics. They all have gravitas. Teaching anywhere from 40 to >100 lectures a semester grooms stage presence and amplifies the gravitas. Her résumé shows that she is rather accomplished.ref 547 Although I could quibble over factual errors in what she said (and there were a quite a fewref 548) the problem was in the presentation. She spoke like a 9-year-old girl, a rather pathetic one at that. We all had childhood memories that were ruined by our childhood, and then we #moveon. I grew up with a drunk mother—a face-in-her-mashed-potatoes drunk mother. It groomed independence. Oh, now I can hear you saying, “But Dave, you privileged punk: You've never been sexually assaulted," and you would be wrong. When I was about 8 years old—even unresurrected memories get a little fuzzy in detail—my brother and I were molested by an eye doctor named Dr. McGraw who grabbed our nuts for an hour straight. “First or second? I’ll take neither, you goddamned perv!” If I had been a little older, I probably could have reshaped his Prince Albert with a ball-peen hammer. Instead, we told my dad, ate dinner (probably mashed potatoes), and sat down to an episode of Mr. Ed (“Willlburrrrrr”).

When a well-known voice actress called out CBF’s fake voice—her “fry”—on YouTube, the actress was promptly fired.ref 549 I tried to find footage of CBF lecturing and came up with a goose egg. I’m waiting for some to show up after the fact, showing her in her natural state. Some screen grabs of her RateMyProfessor.com evaluationsref 550 provided insight into her unedited and unflattering demeanor. For example:

“Prof. Ford is unprofessional, lacks appropriate filters, and I am honestly scared of her. She’s made comments both in class and in e-mails, if you cross her, you will be on her bad side. I fear to think of the poor clients that had to deal with her while she got her MSW and her LCSW. Absolutely the worst teacher I ever had.”

~RateMyProfessor.com from a furry screen grabref

Supporters cried, “Fake!” OK, but how would we know? The originals got scrubbed from the website (probably with help from the Googleheads.)ref 551 Be my guest: go check.

And when you thought it couldn’t get weirder, her friend of 10 years and boyfriend of 6 years said in a sworn affidavit that CBF never mentioned the assault and flew in planes (including some sketchy ones) many times without fear.ref 552 The new front door installed to alleviate her PTSD just so happened to allow her to illegally rent part of her $3 million house to affluent Google techies, and its timing failed to match her claims.ref 553 The question about helping others with a polygraph is the plot thickener. The boyfriend testified that he witnessed CBF coaching a friend on how to pass a polygraph test.ref 554 Pretty good for somebody who has never taken one. Must have worked, because that friend soon thereafter joined the FBI and stayed until soon after Trump’s win “triggered” her resignation. CBF’s decidedly shifting memories of the assault that had been suppressed until 2012 are curious given that she is a psychologist. By the way, what is her research specialty? Glad you asked: suppressed memories and how one can shape them and even create new ones.ref 555,556

Then it gets super weird. CBF is said to have CIA ties, FWIW.ref 557 Sounds like internet legend, but renowned pundit David Icke seemed to buy it.ref 558 Her parents also have been tied to the CIA.ref 559 Her FBI buddy and handler, Monica McLean,ref 560 worked for Preet Bharara,ref 561 a highly political former prosecutor. One of McLean’s superiors answered to Jim Margolin, who just so happened to be working the Michael Cohen case.ref 562 Another CBF handler during the hearings had also helped Anita Hill take on Clarence Thomas.ref 563 Politics is a very dirty business indeed. CBF’s brother has been tied to Fusion GPS,ref 564 the same clowns who faked the Trump–Russia collusion dossier. My head just exploded, destroying yet another keyboard.

Let’s wrap this up, ACLU claims aside, to make a case against somebody, you need data. Otherwise, it’s just a lynch mob. Just ask Tom Robinson. Some subset of the #MeToo movement doesn't agree with this, but they are wrong. It is a profound problem that sexual assaults often leave no evidentiary trail. I hasten to add that if you read Martha Stout’s The Sociopath Next Door,ref 565 you’ll learn that an estimated 1 in 25 people are said to be clinical sociopaths. Stir in dirty politics, and the odds of flawed testimony soar. You’re welcome to blindly take people at their word, but on issues of such polarizing importance, you would be a fool (or, worse, a virtue signaler). In short, I will not just believe you in the absence of evidence. That’s not how Western justice works.

The final chapter may be unfinished. The democrats took a beating for tactics that seemed evil even among independents.ref 566 Of course, they blamed Avenatti, not themselves.ref 567 After Stephen Colbert asked, “So how did our politics get so poisonous?” one of his staffers, Ariel Dumas, expressed the left’s horror at their failure and solace in their pyrrhic victory:

Oh dear Ariel. You are a hateful person. I hope I haven't offended you. I presume you already know this.

The political establishment has no further use for CBF. It did, however, leave her with a GoFundMe campaign, which kept the spigot cranked open even after everything quieted down, raising over $867,000 to pay off whatever bills and costs were incurred during the ordeal (which is none because the DNC picked up the entire tab).ref 568 I’m sure it helped her remember why she did it.

One could argue that the Kavanaugh story is one of redemption—a potentially precocious teen showing some questionable judgment. Whoopie Goldberg, Malcolm X, Nelson Mandela, and Tim Allen did. I’m willing to let the ambiguity of what Kavanaugh may or may not have done as a teenager be corrected by time as well.

A GoFundMe campaign also left Kavanaugh with >$500,000, which he promptly and certainly mandatorily donated to charity.ref 569 Kavanaugh is now a justice on the Supreme Court of the United States. Those on the left may try to impeach him.ref 570 If they fail, maybe they will take the case all the way to the Supreme Court. Pundits on Fox enjoyed the final victory by, no kidding, downing a couple of beers on air.ref 571 Lindsey Graham seems to have recovered, displaying what may be the smuggest look I have ever seen. That pedophilic eye doctor in need of a beating with a ball-peen hammer is probably dead, but his legend lives on in his nickname: Quick Draw McGraw.

Epilogue: A video of Kavanaugh and his wife celebrating with Trump brought up one last serious question: Does he beat his wife? Oh FFS! Women claiming to work with battered women, however, say they have seen the look a million times. I confess that I watched the damning footageref 572 it quite a few times and, while the narrative is a reach, I could be convinced. This one is gonna live rent-free in my head for awhile.

Political Correctness: Adult Division

“Political correctness is elevation of sensitivity over truth.”

~Bill Maher, comedian

The construct of political correctness finds its roots in 1930s communism, in which it was “a semi-humorous reminder that ‘the Party’s interest is to be treated as a reality that ranks above reality itself.’”ref 573 A national survey showed that 80% of American adults think that political correctness is a problem,ref 574 suggesting that a relatively minor 20% are highly educated virtue signalers. Technically, I am a doctor of philosophy, but I identify as a medical doctor and can write you a prescription for a new pair of gonads. Virtue signaling—saying things to impress those around you to show that you are thinking correctly—is said by Taleb to be like paying for indulgences. It is a form of lying that, according to late evolutionary biologist John Maynard Smith, is a way of getting laid. He called it the “sneaky fuckers strategy.”ref 575 But am I not also virtue signaling to the 80% when I pejoratively call the signalers a bunch of wankers? No, because I may be dead wrong but I’m not lying.

A malign interpretation of political correctness—PC for short—is how the politically far left and left-wing power structure exert control over the population. Don’t blame me: I got this little thesis from Malcolm X:ref 576

“If you study the structure of the negro community—economically, politically, civically, psychologically, and otherwise—it’s controlled by the white liberals who usually pose as the friend of the negro who actually differs from the white conservative. . . . I’m suspicious of whites who join negroes and always have to be in the lead. Who always have to be at the top. Who always have to be in negro organizations. Let them give some advice to negroes and stand on the sidelines. . . . [Negro leaders] are puppets who have been put in front of the negro community.”

~Malcolm X, Nation of Islam and civil rights activist

PC encompasses all sorts of oddities, including cultural appropriation and overt disdain for the hat trick of evil—white/heterosexual/male. The blunt but highly effective tool is to hang a repugnant-sounding label on your opponents—misogynist, racist, homophobe, or Canadian—which is guaranteed to send them scrambling for safe spaces (or Jonestown). If the label sticks, you’ve vanquished the bastards.

2018 may have been a turning point. One senses that pushback will not necessarily get you fired. (Keep your savings account topped off, just to be safe.) The Supreme Court ruled that wedding cake bakers do indeed have constitutional protections.ref 577 We saw the emergence of Jordan Peterson, a decidedly no-frills University of Toronto psychologist who cut his teeth opposing mandated PC speech.ref 578 All imaginable labels have been tattooed on Jordan’s ass, but the guy has thought deeply about his beliefs and is a worthy foe. In what became an epic must-see interview—a meme in the making—he eviscerated Cathy Newman.ref 579  Newman was so brutalized by his logic and her inability to brand him by shoving words in his mouth that she embarked on a post-debate victim march and enrolled herself in a concocted witness protection program.ref 580 No, Cathy: Your beating was painful but only metaphorical. The left’s hatred of Jordan helped sell millions of copies of his book that would have sold a few hundred copies to friends and family otherwise (see “Books”). As is so common nowadays—what kind of word is nowadays?— ideas pose a threat. We can’t have any of those! Peterson’s ideas took root so fast that his personal YouTube channel was closed down but then reinstated.ref 581 I watch his interviews like a coach watches game films to see how not to get beat by skullduggery. Cathy would have owned my sorry ass.

Let’s take a peek at the year’s PC Follies in the adult world using a bulleted list—Can I use the word bulleted?—revealing what the “batshit crazies” got into this year. You may find yourself checking the mirror for facial drooping and listening for slurred speech:

  • A rapist identified as a trans woman was incarcerated in a women’s prison, where she sexually assaulted four more women.ref 582
  • A survey claims that 50% of millennials are socialists and that 75% of those don’t know what it means.ref 583
  • The #MeToo movement has spread to corporate America, wherein men supposedly meet to “talk through their feelings, allowing themselves to grow more vulnerable, and, yes, to cry together.”ref 584 I’m tearing up just thinking about it (sob). Despite the fact that this is clearly hyperbolic crockery, some have expressed concerns that these are men’s-only groups.
  • A woman hired by Facebook to review content flagged as highly dubious has sued Facebook for being “exposed to highly toxic, unsafe, and injurious content” that caused PTSD.ref 585
  • A controversial release of a pedophile on bail got the perp’s decapitated corpse delivered to the judge’s front door.ref 586 That, by the way, is not PC.
  • Transgender women continue to do shockingly well in women’s sporting events, including a gold medal at the 2018 UCI Masters Track Cycling World Championships.ref 587 To all you moms and dads who drove your daughter to practices—to the moms in the must-see iconic P&G “Thanks, Mom” Olympic commercialref 588—just remember that everybody is a winner.
  • Columbus Day celebrations were canceled in Columbus, Ohio.ref 589
  • The pink pussy hat has been deemed offensive to transgender women and gender non-binary people who don’t have typical female genitalia (pussies) and to women of color, whose genitals are not always pink.ref 590
  • GOP candidate Ron DeSantis got slammed for telling voters not to “monkey it up” by voting for his gubernatorial opponent in Florida (who happens to be black).ref 591 The left went nuts, saying they have never heard of this phrase or, apparently, this thing we call Google. Obama showed his white-nationalist roots by saying he “monkeyed around” with something.ref 592
  • NASCAR’s Conor Daly lost sponsorship of Lilly Diabetes owing to a racially insensitive remark made by his father in the 1980s.ref 593
  • Silicon Valley elites are spending $20 per gallon on raw water—water that is fully untreated.ref 594 An old SNL spoof ad sold Swill, mineral water from Lake Erie.ref 595
  • The Miss America pageant is removing the bathing suit competition.ref 596 Major news outlets reporting the story invariably showed pictures of prior contestants in skimpy bathing suits. They are replacing this leg of the competition with a quantum mechanics exam and calling it the Cal Tech Admissions Pageant.
  • A Canadian restaurant manager booted a customer for wearing a MAGA hat. Customers choked down their bear-meat omelets and left irate.ref 597
  • A woman tried to hang her kid in the basement—we’ve all done that one—and struck a bicyclist and a car driven by a pregnant woman while being pursued. The judge gave her probation.ref 598 I must confess that she is statistically unlikely to repeat that again.
  • The new celebrity fashion trend is to get facials made from cloned baby foreskins.ref 599 The nickname "Dicknose" seems appropo although something more subtle like Smegyn would work.
  • People are squealing for the rights of sex dolls to not be abused.ref 600
  • The Brits, never bashful about asking somebody to hold their beers, are discussing whether to make misogyny a hate crime or just let the birds fend for themselves.ref 601 Some note that “everything in the UK has been criminalized except crime.”
  • Microsoft is warning customers using Office, Xbox, Skype, and other products that the company is prohibiting offensive language and inappropriate content. Can I use phrases like "totalitarian", "Stalinist", or even "rot in hell fascist pigs?"ref 602
  • The mayor of London tweeted that “there is never a reason to carry a knife. Anyone who does will be caught, and they will feel the full force of the law.”ref 603
  • A restaurant in Britain charges white customers £13 more than people of colour—it's spelled color, you plonkers—to challenge racial wealth disparity.ref 604 I would guess that the owners personally helped narrow the wealth gap.
  • The French had their hold-my-Chablis moment: They are considering a bill to make cat-calling of women a crime punishable with a €750 fine.ref 605
  • A Polish brewery, The Order of Yoni, produced a beer marketed as being brewed using vaginal secretions from two smoking-hot models.ref 606 Yoni is Sanskrit for vagina. (I’m not joking . . . and it’s not PC either.)
  • Students in Indonesia are making moonshine out of used Tampons.ref 607
  • Black Lives Matter and former NAACP kingpin Shaun King was exposed for having some very white parents.ref 608 Rumors of a romance with Rachel Dolezal remain unconfirmed.
  • #MeToo activist Asia Argento is said to have paid off a 17-year-old (underage) actor to shut him up about an affair. She now claims her underage love muffin assaulted her.ref 609
  • Rhode Island is pondering a one-time $20 fee to access porn sites or other “offensive material” online.ref 610 That really sucks.
  • High fashion’s latest trend is said to be male models wearing prosthetics to look pregnant and macho men wearing bras.ref 611 The marketing head at Target says they can’t keep them in stock.
  • Literature published by a California health information provider, in an effort to deal with modern gender issues, refers to the vagina as the “front hole.”ref 612 Those who hatched this idea are now called “A-holes.”
  • A Roanoke City social services worker was fired and escorted from the building for having a concealed carry permit.ref 613 Not the gun; just the permit.
  • Nurses in South Africa have to acknowledge their white privilege before treating aboriginal patients (or get their heads hacked off).ref 614
  • The BBC is reducing the salaries of some male journalists after criticism over unequal pay.ref 615 Can’t say I saw that one coming.
  • Craigslist shut down personal ads—“SWM looking for hot monkey love”—after Congress passed a bill on sex trafficking.ref 616
  • The Manchester Art Gallery took down pre-Raphaelite paintings of naked nymphs to appease the pervs who think other pervs can’t look at them as just art.ref 617
  • To fight obesity, the UK wants to legislate that pizzas shrink or lose their fattening toppings.ref 618 Are you guys trying to have a revolution?
  • I personally heard a rumor that an employee at one of the FAANGs got reprimanded by human relations for calling a tall colleague a “long drink of water." The correct greeting is, “Hey, Stretch!”
  • A judge meted out a 25-year sentence without parole for drunk driving in which nobody got hurt.ref 619 I imagine there was a chronic problem, but you get less for shooting your spouse. Something like house arrest with an ankle bracelet for tracking might have sufficed.
  • Team USA was criticized for cultural appropriation for having Native American motifs on their gloves at the Winter Olympics.ref 620 Lacrosse teams around the country are scrambling to figure out how to play without sticks.
  • The former head of the CDC grabbed the ass of a friend of 30 years at a party, apologized, and nine months later was arrested and fired.ref 621 The woman said she worried about hurting someone by coming forward . . . and then wrote an article in the New York Times.ref 622 It just so happens that he was up to his ass in the politically charged vaccine debate.
  • Swedish authorities pixelated the face in the photo of a man wanted for murder.ref 623

Anything called “The War on . . . " is likely to be a bad idea and ineffectual. The War on Big Gulp Sodas has given way to the War on Straws. Restaurant owners who hand out unsolicited straws in California are subject to $1,000 fines and 6 months in prison for each infraction.ref 624 The originator of the movement, Milo Cress, claimed that 500 million straws are handed out unnecessarily. Milo’s data comes from—wait for it—a phone survey of straw manufacturers he conducted in 2011 when he was just 9 years old.ref 625 The Raw Water lobby was unconcerned because it sells its products in plastic bottles. Some wonder if a plastic straw conviction will keep you from getting a gun permit.

Starbucks is remarkably progressive, but it discovered that the intolerant left eats its own. It got into a spat about whether several black customers were loitering.ref 626 It’s likely that mistakes were made. A corporate-wide policy change to tolerate all such loiterers has now converted Starbucks into a safe space for crackheads.ref 627The bathroom-dwelling coke-snorters will have to bring their own straws. Starbucks’s new inclusiveness training also warned employees not to “accidentally mistake scruffy-looking husbands for homeless men.” Finally, somebody defends me.

“Dumbass fucking white people marking up the internet with their opinions like dogs pissing on fire hydrants.”

~Sarah Jeong, journalist and New York Times editorial board

Journalist Sarah Jeong was brought onto the editorial board of the New York Times. The newspaper claims to have been fully cognizant of her polarizing tweets over the years. How polarizing? She supported killing cops, killing men, and being remorseful that she will reach the end or her life without having killed a single guy.ref 628,629,630,631,632 The defense that she was fighting trolls by illustrating troll tactics fell apart when the vile tweets just kept surfacing spanning years.ref 633 Vox noted that “a lot of people on the internet today [are] confusing the expressive way antiracists and minorities talk about ‘white people’ with actual race-based hatred, for some unfathomable reason.”ref 634 The Verge, where Jeong still worked, described any assertion of racism in Jeong’s tweets as “dishonest and outrageous.”ref 635 Slate, a publication just slightly left of Putin, came to her defense referring to the work of conservative trolls.ref 636 Of course, she was fired immediately and booted off Twitter. Just kidding. She kept her job and got verified on Twitter because we couldn’t possibly know whether it was her or just some generic hateful, foul-mouthed troll. She hit peak irony when old tweets trolling her current employer surfaced in vast numbers.ref 637

“After a bad day, some people come home and kick the furniture. I get on the Internet and make fun of The New York Times.”

~Sarah Jeong

I didn't write about media this year—I had plenty of material but not enough time—but I will say that with Constitution protections offered to journalists come Constitution-level responsibilities. So many of you really suck now. I am talking the bottom-of-the-barrel, "suck the chrome off a trailer hitch" levels of suck.

There is nothing more sanctimonious than Hollywood multi-millionaires shaking their Oscars and talking about oppression. I find it odd that every TV show and movie now includes profound violence and multiple scenes where a lead actor sweeps off the top surface of a desk or kitchen table, plops some starlet’s yoga-tightened ass down, and bangs her lights out. Aren’t they supposed to ask permission—“May I touch your breast?”—or is that rule negated when your paycheck is on the line? Let’s see what Hollywood was up to this year:

  • In the moon-landing movie First Man, actor Ryan Gosling refused to plant the American flag. 
  • The BBC faces backlash for its decision to cast able-bodied Charlie Heaton in its adaptation of The Elephant Man rather any one of dozens of seriously deformed men who decided their best option was to go to USC’s acting program.ref 638
  • Hollywood pulled Scarlett Johansson from the role of a transgender man in Rub and Tug because she is not a transgender man.ref 639 That’s why it’s called acting. Daniella Greenbaum defended casting her, but then quit at Business Insider when it pulled her column.ref 640 On the bright side, it was a principled call because they surely didn't boot Scarlett to pump up the box office proceeds.
  • Bill Cosby was found guilty of sexual assault. Good riddance.ref 641
  • ABC executives regret their “knee-jerk” decision to fire Roseanne Barr because of a few tweets (that I happen to think had no racial intent) after realizing that destroying its best show (and her career) was an expensive blunder.ref 642 Norm MacDonald defended Roseanne for saying the #MeToo movement has gone too far and then was promptly pulled from a Tonight Show appearance.ref 643
  • The Weinstein Company filed for bankruptcy, ending all non-disclosure agreements. This could get interesting.ref 644
  • Elijah Wood had spoken out boldly about pedophilia in Hollywood saying, “It was all organized. There are a lot of vipers in this industry, people who only have their own interests in mind. There is darkness in the underbelly . . . victims can’t speak as loudly as the people in power. That’s the tragedy of attempting to reveal what is happening to innocent people: They can be squashed.”ref 645 Elijah now declares no direct knowledge of pedophilia in Hollywood.ref 646 The pervs got to him. 
  • Having attained predator status as an alleged pedophile, Kevin Spacey got written out of the script of House of Cards.ref 647 His new movie, somewhat ironically named Billionaire Boys Club, which was already in the can, opened in eight theaters and made $287.ref 648 That is not a typo. It would have been less if the one guy who went and sat in the back pleasuring himself—let's call him just "Kevin"—also bought a large Coke and popcorn. (How do you know when it is bedtime in the Spacey house? When the big hand touches the little hand.)
  • The Academy Awards hit an all-time low Nielsen rating—a 24% drop year over year—because sanctimony doesn’t sell.ref 649 Remember the olden days when they would defend victims like Juanita Broaddrick? Me neither.
  • The new Jack Ryan series was “blasted” for pushing “masculine American heroism” and “white male entitlement.”ref 650
  • My wife dragged me off to see Mama Mia (the sequel). The four men in the theater that night were literally congratulating each other for falling on their swords. By movie's end, I wondered if Hollywood may start delivering us leading men—three in this case—lacking any semblance of masculinity.

PC loses its humorous component when it goes violent. Antifa seems to have taken over Portland, Oregon. I never expected to read about “The Battle of Portland.”ref 651 This liberal enclave seems to be unprotected by the police, who were told to stand down.ref 652 Antifa has now been declared “domestic terrorists” by the authorities.ref 653 Portland citizens cheered as a squad of police scrubbed the streets of Antifa rascals harassing passersby.ref 654 Antifa vandalized the Metropolitan Republican Club in New York City and sees no irony in talk about punching Nazis.ref 655 A professor of philosophy who cold-cocked an unsuspecting person is out on $200,000 bail.ref 656 Apparently, if you are a prominent republican, you are no longer eligible to dine in public because the intolerant left has the right to make you miserable. A rare unmasked Antifa thug screamed vile insults to the widow of a 9/11 victim (a fireman).ref 657 The assailant escaped harm by a razor-thin margin. The Unmasking Antifa Act of 2018 proposes laws prohibiting protesting with a mask.ref 658 I’m fence-sitting that one. An investigative journalist undercover probing Antifa appears to have been whacked shortly after he vowed to expose George Soros.ref 659

A friend of the family supported this no-rules approach to politics, prompting me to “lose my shit” and state, “You are declaring war. Do you realize that my team has all the fucking guns?” This prompted my wife to send me to the store on an errand.

There is a really ugly side to the gender battles that I had underestimated until now. Let’s open with a tweet that sat in my notes for months:

“Well, I don’t want to go up and talk to her, because I’m going to be called a rapist or something.”

~Henry Cavill, actor who plays Superman in the DC universe films

Mike Pence, darling of the left (not), noted his policy to never have dinner alone with a woman who is not his wife.ref 660 This got called the Pence Rule and led to some investigative journalism. What they discovered is that corporate America, in addition to all the misogynist white men, is heavily populated with men fearing that they will be accused of something without cause.ref 661 Some said that they won’t ride alone in an elevator with a female colleague. Others have age cutoffs, below which the women are avoided. This is truly horrifying—what economists might call a negative externality of higher order. Young women need access to mentoring and opportunity. Fear of association—call it a phobia if you wish—is profoundly destructive. One gent said that the solution is obvious: “Just don't be an asshole.”ref 662 He is trivializing this paradox (and virtue signaling). We are moving women and minorities into positions of power and authority. Society hasn’t completely worked out some of the details.

Political Correctness: Collegiate Division

“The wind of freedom blows.”

~Stanford University’s motto

“You can’t spend your whole life worrying about your mistakes. You fucked up! You trusted us.”

~Otter in Animal House

Many administrators, professors, and students are working their asses off to get it right, going about the business of scholarship and education. Parents hand us their kids and ask us to equip them with technical and social skills needed to become functional adults. They also ask us to keep them healthy and safe for their first road trip. Most exceed our expectations outside the control of their parents (at least before cell phones). Forget not that these students descended from mammoth hunters. The headlines you read and YouTube clips you see of faculty and students acting like assholes belie the thousands of success stories that would make you proud and that Make America Great. (OK. Maybe I’m pressing my luck now.) There is, however, a creeping Tyranny of the Few—noisy whack jobs—who can alter the tenor of campus life. When they start throwing their feces, all hell breaks loose. I would call it Tyranny of the Minority, but that might be misconstrued as some racist dig, and I would find myself in front of a tribunal or angry mob (which I file in the Department of Redundancy Department).

“The darkest part is not the rise of radicalism, but the passive acquiescence of the vast majority of faculty and students.”

~Lee Jussim, professor of psychology at Rutgers University

“When they come to you—your kids—and say, ‘I’d like to study critical race theory and intersectionality and bullshit 101 whiteness.’ Then you say, ‘Yeah, well, you are going to pay the $60,000 because I am not going to pay the money that I have amassed through my hard work for you to be polluted learning about nihilistic academic fields that are intellectual terrorism.”

~Gad Saad, professor at Concordia University

Universities suffer from a host of self-inflicted wounds. Surveys show that what was a 2:1 left-wing lean among some faculty now tips the scales at anywere from 10:1 to well over 50:1.ref 663 Some colleges are said to have no conservatives. (I suspect they are in closets.) The rallying cry is that faculty members are all left leaning because of their great intellects. There is a core group of academics (students and faculty) that seems to have an insatiable need to gripe about wide-ranging topics that have been codified as “grievance studies.”ref 664 If your kid’s major ends in the word “Studies,” you might want to peek at the curriculum. Actions that are so insignificant as to be called “microaggressions”—mathematically one-millionth of a normal aggression—are now campus horrors to be strangled in the crib. In a grand bargain to create the most inclusive communities, universities are dismantling freedom of association of like-minded students.ref 665 Removal of such self-assembled support groups—think fraternities, for example—is forcing students to suffer an odd crowded isolation. If you oppose this new order, be ready to be tagged with a pejorative label that ends in “–phobia,” “–archy,” or “–ist.” Society is also trying to remove all semblances of hierarchies as being unfair or not inclusive, ignoring the fact that they are biological and cultural evolution's mechanism to minimize conflicts.

“My daughter is looking for a summer job. She’s a millennial so she’s hoping to find part-time work as a CEO."

~Brian Kiley (@kileynoodles)

We as a nation measure our intellectual worth by numbers of college graduates. Of course, students and their parents are loading up on mountains of debt to spend four or more years to “find themselves.” The military or Peace Corps will do so more cost-effectively, and for a mere $150,000, I will personally find your kid and save you a lot of money. The proliferation of college experiences that leave students with little or no chance of discharging their debt after graduation has done irreparable damage to a generation. This is not hyperbole: irreparable damage. I suspect that replacing half of our college degrees with technical training would provide huge benefits. An elevator repair guy told me that after a five-year paid apprenticeship, he will make a six-digit salary. What does four or five income-free, debt-laden years in college guarantee you?

“Whereas the University of Chicago has traditionally sought to cultivate an intellectually robust and diverse student body by seeking out creative and unconventional thinkers, the introduction of a pre-professional business major would attract applicants who view their education primarily as a preparation for lucrative careers.”

~An activist’s letter, nailing it!

The Department of Education claims that administrative positions have grown at 10 times the rate of tenured faculty positions.ref 666 The University of Michigan currently employs a staff of 93 full-time diversity administrators.ref 667 More than 25% earn in excess of $100,000—as much as elevator repair techs. These soaring added costs are exacerbated by an arms race to provide better food, dorms, study and safe spaces, and gym facilities. Schools either upgrade or watch the talent head off to greener pastures. Jonathan Haidt and Greg Lukianoff (see "Books") say that colleges crossed the Rubicon when they began thinking of students as consumers, and we all know the consumer as King. The unwillingness of college administrators to stand up to precocious and, at times unruly, consumers has been called an “epidemic of cowardice.”

“Universities are becoming ungovernable.”

~Anonymous university president

Now let us wander through anecdotal disasters that occasionally visit college campuses—stories that should touch a wide range of emotions, including the fear somebody slipped you a roofie. Colleges and universities constitute the mothership of political correctness.  Let’s begin with just some seriously goofy shit. Bear in mind that some of these ideas get attributed to universities when they are more likely emanating from university-sanctioned organizations—student clubs—that are given the coveted right to free speech, which they promptly exploit to suppress free speech from others:

Standardized tests are being removed so that objective measures of skill and merit can be replaced with more subjective measures of things like, oh, ideological conformity.

  • A Michigan State University study concluded that Latinos who support meritocracy, hard work, and independence are perpetuating a bias problem.ref 668
  • A Clayton State University professor offered students extra credit to attend an event of the Democratic Party's gubernatorial candidate: The school intervened.ref 669
  • Gonzaga University hosted an “International Day of Tolerance,” urging students, particularly “white people,” to ask themselves, “Am I a tolerant person?” and “Do I stereotype people?”ref 670 There is a concept rich in irony.
  • The University of Colorado-Boulder has removed the term “illegal aliens” from its library catalog in favor of “more ethical subject headings” to foster an “inclusive atmosphere.”ref 671 I have thoughts on what else you could remove from where.
  • University of Texas treats masculinity as a “mental health issue,” empowering young men to “break the cycle.”ref 672 I'm guessing the Alamo is no longer in the curriculum.
  • Clapping has been banned at the University of Manchester student union to avoid triggering anxiety and improve accessibility. It has been replaced with “jazz hands.”ref 673

  • A Fresno State professor followed a series of dubious tweets—we've all done that— with one baiting people to call her. The phone number she posted was for a mental health hotline instead.ref 674 Bet that worked well for this high-function moron.
  • Students at law schools are being triggered by curricula covering entire branches of study. Lectures on rape law, for example, are popular targets.ref 675 These same activists are likely to speak out in support of rape victims, albeit in total ignorance.
  • Emotional support dogs are growing by leaps and bounds.ref 676 That’s cool; I have three Labrador retrievers, although I would not call them supportive.
  • George Washington University students launched a petition to change the school’s mascot from the Colonials to the Hippos because Colonials is too evocative of colonization and oppression.ref 677 Hippos are really fat: aren't you fat shaming and culturally appropriating hippos?
  • Princeton put on (packed on?) a “fat-positive dinner” to discuss “fat-positive programming for the spring semester.”ref 678 The university also offered a course to help students fight “fat phobia” through dance. I'm more than a few pounds heavy now, and my wife fat-shames the heck out of me.
  • “If someone calls you fuckin’ fat, they may be bullying you, but you might be fuckin’ fat.”
  • ~David Goggins, former Navy Seal
  • I did the math: The famous “Freshman 15”—the pounds gained from all-you-can-eat buffet-style dining—causes Cornell’s North Campus housing to gain 45,000 lbs. every fall semester. I wonder if building codes accounted for this.
  • Students at Lee University petitioned to disinvite Vice President Mike Pence, declaring that Pence’s political views are “at odds with Christian values.”ref 679 What would Jesus say?
  • A professor who teaches politics and global security at Virginia Tech tells us that fossil fuels are contributing to a warped sense of “masculine identity” and “authoritarianism” among men, coining the phrase “petro-masculinity” to describe what she sees as a convergence of “climate change, a threatened fossil fuel system, and an increasingly fragile Western hypermasculinity.”ref 680 Nailed it.
  • A group of UCLA students earning $13 an hour to promote diversity on campus started a “Toxic Masculinity Committee.”ref 681 I'm guessing that they don’t lift weights together.
  • A St. Mary’s College professor offered a term project instead of a real final exam on topics ranging from “environmental racism,” “the Green Movement in Africa,” and “eco-normativity in Western environmental campaigns.”ref 682
  • Mount Holyoke College, an all-women’s school, is discouraging calling female students “women” to promote a “gender neutral” classroom environment.ref 683
  • A Cornell student gave her senior thesis defense in her underwearref 684 because her professor—a progressive and widely respected female faculty member—suggested that what she was wearing in her practice talk was potentially inappropriate.ref 685 Yeah, well, I was Cornell’s first streaker, running through Bio 101 in the fall of 1972.

“I tell 18-year-olds, ‘Six years ago you were 12; what the hell do you know?’”

~Jordan Peterson, Professor of Psychology and author of 12 Rules for Life

  • A University of Wisconsin student filed a dreaded “bias report” after a peer hogged weights at the campus gym then yelled at him to back off.ref 686
  • A website entitled, “Make them scared UW,” run by University of Washington students, allows individuals to anonymously accuse people of sexual assault with no evidence.ref 687
  • A Marquette University student group is telling “white folks” to “stop calling the cops” when they feel threatened. “Hey, what do ya say you put down your dukes and give me a big hug?”ref 688
  • A math paper was withdrawn in an uproar because it tried to model the genetics of gender differences.ref 689 (There’s an “irrational number” joke in there somewhere.)
  • A paper suggesting that males have fat-tailed intelligence bell curves—they tend to occupy the extremes of the spectrum—created such a ruckus that the National Science Foundation wanted acknowledgement of support removed. The paper got retracted.ref 690
  • A professor at Wilfred Laurier University wrote a book with a chapter entitled, “When a Man’s Home is Not a Castle: Hegemonic Masculinity Among Men Experiencing Homelessness". The detailed description does not clarify the idiocy.ref 691
  • A professor who was charged and pleaded guilty to a work-unrelated domestic violence charge years earlier was written up in the school newspaper. A shitstorm ensued, and he killed himself.ref 692 Y’all have blood on your hands and maybe lucky he turned the gun on himself. There are good articles on “academic mobbing” and other neo-Stalinist behaviors.ref 693
  • A paper on gender dysphoria by a Brown University assistant professor drew so much attention that Brown distanced itself from the work. A dean at Harvard hammered the president of Brown for being a coward (my words).ref 694
  • The University of Minnesota is considering introducing a “Pronoun Rule.” Professors, staff, and students who use the wrong pronouns (he, she, ze) risk firing or expulsion.ref 695 Zat is nuts.
  • Food workers at NYU’s dining facility celebrated Black History Month with “racially insensitive” meals.ref 696 The employees are African-American. Seems like it ought to provide some cover. The real crime was that the girl—can I call a teenager a girl?—said she—can I say she?—was “ignored.” A woman scorned...

“[T]his modern-day trend of cultural appropriation of yoga is a continuation of white supremacy and colonialism, maintaining the pattern of white people consuming the stuff of culture that is convenient and portable, while ignoring the well-being and liberation of Indian people.”

~Shreena Gandhi, a religious studies professor at Michigan State

“Nothing could be more asinine than outrage against ‘cultural appropriation’.”

~Steven Pinker, professor at Harvard University

  • A psychology study by researchers at San Francisco State University claims that 25% of millennials have PTSD because of the 2016 elections.ref 697 Heterodox Academy says it is the Gen-Zers, not the millennials, that began disrupting campuses abruptly in 2014-ish.ref 698
  • Hofstra students want to remove a Thomas Jefferson statue (because he was such a douche).ref 699
  • The removal of a Civil War statue at North Carolina State by protestors took hours, but campus police did nothing. Turns out the protestors were outside agitators, not students.ref 700
  • Students at Baylor University will receive training in microaggressions.ref 701 This training includes “talking to the victim” and “educating the attacker.” Recall that complimenting a woman on her shoes is considered a microaggression, so maybe the term "attacker" and "victim" is just a wee bit hyperbolic.
  • Feminists at Yale University are lobbying the administration to force all-male fraternities to open recruitment to women while not pushing to integrate sororities.ref 702
  • University of Wisconsin-Stevens Point will be cutting programs to "recognize a growing preference among students for majors with clear career pathways".ref 703 Tenured faculty in Art, English, Geography, History, Philosophy, Political Science, and Sociology will be packing their bags. I'm speechless.

“I cultivate a cutting-edge approach to human geography through a theoretical edifice that foregrounds emerging thematic concerns within the discipline by incorporating both poststructuralist critique and a radical revival of anarchist philosophy.”

~Simon Springer, professor and anarchist-geographer at the University of Victoria

Hyper-active political correctness is not unique to the United States. Lecturers in Britain have been told “not to use words in capital letters in course assignments because it might ‘frighten students’.”ref 704 BOO! Made ya flinch. A journalism school’s staff have been told to mollycoddle students by “writing in helpful, warm tones, avoiding officious language and negative instructions."ref 705 The memo refers to “enhancing student understanding, engagement, and achievement” and listed frowned-upon words. A Dutch university mob protested the appearance of Jordan Peterson because of “his politically-incorrect worldview.”ref 706

Three academics totally punked the grievance studies community by writing a bunch of fake papers—getting a few published and another pile accepted—before they pulled back the curtain.ref 707 My favorite podcaster, Joe Rogan, interviewed two of the perpetrators, Peter Boghossian and James Lindsay (Helen Wilson was not present).ref 708 This is 2 hours of eye-watering hysteria. They describe fake papers about gendering dogs at dog parks and putting men on leashes. They used the search-and-replace command on Hitler’s Mein Kampf to replace “Jew” with “white male” and then wrote a paper using the new sentences. A paper titled, "Going in Through the Back Door" described the desensitization of heterosexual men to homophobia by inserting various objects into their butts. The referees’ suggestions, without fail, made the papers even nuttier. They learned to “problematize” the target thesis and use “word laundering” to take a normal word and give it special meaning. (If you like binge-watching stuff, try Joe Rogan's 1200 podcasts.)

“There is no such thing as black racism.”

~A professor at Florida Gulf Coast University

Psst. Professor. Come here. Closer...YOU'RE AN IDIOT! Goofy ideas begin to do damage by leaking into the curriculum. As told by one of my favorites, Campus Reform, Berkeley offers courses about white privilege to “confront uncomfortable conversations about privilege and positionality” and to “understand where white bodies have the responsibility to be in movements against white supremacy and in solidarity with marginalized peoples and groups of color."ref 709 Berkeley offers over 150 student-taught courses, which helps keep the lights on and is said to be “an excellent way of meeting the University’s minimum unit requirement." One can only imagine the course content. A course at Salisbury University in Maryland titled, “Pyramid of White Supremacy” teaches students about—I don’t know—maybe pyramids of white supremacy?ref 710

Those little twinges of bias can get rather specific. A gender studies professor at Northwestern University suggests we should be able to “hate men.”ref 711 I can sign off on a few. If you surmise that the professor is referring to women, you might be wrong. Self-loathing and virtue signaling is considered admirable among young men. A University of Maryland support group called “White Awake” was designed to help white students who may “sometimes feel uncomfortable and confused before, during, or after interactions with racial and ethnic minorities.”ref 712 Pressure caused the University to change the name to “Anti-Racism and Ally Building Group.” How about just “Race Baiting 101”?

One of the big stories is that Harvard is getting pounded in court for racism in its admissions.ref 713 When a school bends over backward to accept underrepresented kids, it necessarily excludes others. Society decided long ago that, in moderation, this is an acceptable price to pay. Apparently, those of Asian descent—what we call Asian Americans—are taking the brunt of it, and numbers showing the bias are compellingref 714 and drawing fire from the courts.ref 715 I once personally stepped on a rake by claiming just such a latent bias exists. I can't even fake the PC thingie I guess. Evidently, kids with Asian-sounding names were scoring rather poorly in the subjective categories involving personality. I think universities have the right to accept only Americans if they want, whether such a policy is advisable is an altogether different story. They do not, however, have the right to discriminate against those named Chang, Chen, Lee, or Park.

“The greatest threat to free speech is no longer governmental.”

~Bret Weinstein, former professor at Evergreen State College

“This is beyond free speech; this is disrespectful.”

~President of Fresno State University

Probably the largest and most consequential political shift is the move away from free speech. One survey showed that 50% of students would support a law making it illegal to say offensive things in public.ref 716 Another revealed that only 35% of female college students think free speech is more important than “diversity and inclusion.”ref 717 A Gallup poll showed that the majority of American college students support “disinviting” speakers they don’t like; 37% support shouting them down; and 10% support using violence to silence them.ref 718 Anti-abortion clubs have been banned because the ideas being discussed are considered subversive.

“Identity” politics—the decidedly left-wing idea that you subsume your identity to that of the group and, thus, necessarily forfeit independent thought—arrived on campuses with little warning around 2013–14. Scholars like Haidt and Lukianoff have burned a lot of ATP trying to understand from whence it came and why. I have a theory! Kids are influenced profoundly during their formative years—their Wonder Years. What book series totally dominated the childhoods of current college kids? That’s right: Harry Potter. Early in the first book, the little wand-wielding wizards are assigned a group for the rest of their stay at Hogwarts by a magic hat. Once assigned, they assume the behavioral norms of their group. May God have mercy on your soul if you become a Slytherin. This is the stuff of Harvard psychology PhD theses showing how quickly people form group identities. It’s the classic prisoner–guard experiment.ref 719 It’s what inspires normally sane people to sit in –20°F weather in Green Bay wearing a cheese hat while rooting for a team full of guys with whom they have absolutely noshared ideals or experiences. We are witnessing the Slytherins coming of age and arriving on campuses.

“Apparently, all that is required to throw a student out of school is that some other student claims to feel unsafe."

~Gregory Germain, professor of law

The Title IX program that began with normalizing college commitments to women’s sports has morphed into a commitment to women’s rights more generally. It’s a great idea on paper. In the hands of activist university administrators, however, it can be nightmarish.ref 720 On the heels of a tenure case at Cornell in which an unsubstantiated assertion arguably cost an assistant professor tenure according to the courts,ref 721 the young accuser—Jane Doe, of course—subsequently exacted retribution on one of the faculty member’s graduate students, slamming the brakes on his PhD defense by filing yet another Title IX complaint.ref 722 Two dozen Cornell law professors interceded, demanding that Cornell grant the student his PhD and stop the bullshit (my words, not theirs).ref 723 As I've said before, if you ever run into John Doe or Jane Roe, for heavens sake stay away. Nothing good can happen.

A decidedly progressive sociology professor at University of Michigan, after accusing a student of plagiarism, was accused of harassment.ref 724 In a world where accusations are so vague and difficult to sort fact from fiction, Oberlin has a 100% conviction rate.ref 725 That is what they used to call "a hangin' judge". The courts are routinely beating up universities and exacting large fines when due process drops below minimally acceptable levels. Courts are demanding universities up their games on due process, which is sorely lacking on some campuses. This long-overdue pushback against unchecked Title IX cases has the most militant supporters of the #MeToo movement angry. After years of sexual harassment and abuse at the hands of men, they feel that women’s evidence-free accusations should suffice. Nearly 100 students at the University of Southern California demanded a tenured professor be fired after he sent a reply-all email noting that “accusers sometimes lie.”ref 726Others hold the quaint view that trying to destroy somebody’s life is a problem regardless of the weapon of choice. Cases of demonstrably false accusations keep piling up in numbers not approaching legitimate accusations but sufficient to underscore the importance of due process.ref 727 Here is my bottom line: If you have no data you have no case, regardless of how heinous the crime. I repeat: It’s how our system works.

“Racism is a serious issue, and unfortunately what we found were many examples of students willing to use that charge in an attempt to get back at their peers in everyday squabbles.”

~Chris Rochester, director of communications at MacIver Institute

I chose not to describe dozens of grisly stories, including many false accusations, and instead finish by noting that progress toward normalcy is detectable. We are starting to have discussions about identity politics. The now legendary Evergreen State College appears to be going even further down the rabbit hole toward totalitarianism and headed for insolvency.ref 728 That’s probably a win. Nationally recognized progressives including Alan Dershowitz, Steven Pinker, John McWhorter, Bret Weinstein, Heather Heyling, and Jordan Peterson—collectively referred to as the “Intellectual Dark Web”ref 729—are now defending against leftist McCarthyism on college campuses. Betsy DeVos, secretary of education, is attempting to tighten up some of the details of Title IX (much to the horror of fuming progressives).ref 730 Nicholas Christakis, one of the controversial Yale professors who found himself in the middle of Social Justice Warfare by supporting the idea that Yale students are capable of choosing their own Halloween costumes, has been awarded one of Yale’s Sterling Professorships, the highest honor a faculty member can receive.ref 731 Right-wing activist group TPUSA has watchlists of left-wing professors. That would look like a telephone book and is very bad idea for a bunch of free-speech libertarian types.ref 732 Princeton University has become the second Ivy League school, after Yale, to face a federal Title IX investigation into allegations that some of its programs discriminate against male students.ref 733 This too shall pass.

“We’ve been paid to leave a burning building.”

~Heather Heyling, commenting on her and her husband Bret Weinstein’s severance packages to leave Evergreen State College

Political Correctness: Youth Division

“Prepare the child for the road, not the road for the child.”

~Jonathan Haidt, author of Coddling the American Mind

No generation is completely ready for the next one. Certainly the Greatest Generation was ill-prepared for the arrival of drug-addled boomers who trusted nobody over 30. The latest generation of young punks has discovered porn on their phones, rendering back issues of National Geographic obsolete. Cyberbullying is acute, especially for girls who seem to be more at risk and are more prone to destroying social structures without having to resort to formal violence according to Haidt and Lukianoff (see "Books").ref 734 (When you Google this you will get articles about the girls as victims without clear statements about girls as perpetrators.) The boys, taking cues from the Jackass series, impale themselves from skateboards, dive into bonfires, and eat Tide Pods (killing more than one of these Tide Podlers).ref 735 Procter & Gamble is making its Tide Pods even less appetizing, if you can imagine that.ref 736 The sport of snorting a condom and pulling it out of your mouth probably has a funny back story.ref 737 Efforts to test boundaries are now “hold my phone” moments. Although Darwin Awardees in Training are not new, one wonders how many fatalities uploaded to the cloud are caused by the iPhone.

What has changed, however, is what the boomers will do to protect the little dumplings, inadvertently doing more damage in the process. These protective measures range from sketchy to moronic. (Sorry: If the shoe fits wear it, pinhead.) Parents are now monitoring their kids’ calls, email, and phone messages. Phone apps now exist that make the kid check in, or the cops get called and the phone tracked.ref 738 “We found your kid, Mr. and Mrs. Stalin. Their battery had died. Would you like us to take them to the Gulag anyway?" What happened to “be home for dinner by six and don’t be late?” An Edmonton day care is requiring kids bring helmets to protect them on the playground.ref 739 Sugared drinks are being mandated by law to be removed from children’s meal menus at restaurants.ref 740 Several towns have made it unlawful for a 12-year-old to trick or treat,ref 741 presumably to protect the littler kids who are, without fail, now accompanied by dozens of adults. A fine of $25 or “up to 6 months in jail” seems a bit weird. "I’ll take the $25, your Honor." We check the kids’ candy to make sure there are no razor blades or poison, unaware that every documented case of such attempted infanticide has been traced to a family member. “Honey, I poisoned the kids.” In one county, 10- and 11-year-olds must have at least one parent “get to the choppers” (helicopter parent) when the kids are outside playing.ref 742 Disney’s Sleeping Beauty is finally drawing scorn for the scene in which Prince Charming ravages the sleeping girl with a non-consensual kiss.ref 743 Hey, Amnesty International: Don't you have bigger fish to fry?

Of course, once the kids hit high school, it’s time to give some slack to the leash. Yeah, right. One high school declared that oral presentations in class are an unreasonable burden for those with anxiety.ref 744 Jonathan Haidt notes that we have about 100 kidnappings per year—most by a pissed-off divorcee parent—while 10 kids per day are killed texting and driving. One Girl Scout got the clever idea of selling her cookies in front of a pot dispensary.ref 745 I suspect a boomer parent hatched that plan. She sold 312 boxes to the stoners. Girl Scouts of America declared it “not cool.”ref 746 The GSA administrators in the Colorado chapter, however, declared that it was "totally cool, Dudette."ref 747 One teacher decided that the term “Ma’am” was inappropriate in the current PC culture. When the kid just couldn’t shake this rural nicety, she made him write the word repeatedly (which seems kinda backward) and have his parents sign it.ref 748 The teacher also said that if she had had something, she “would have thrown it at him.” I can only imagine that parent–teacher conference. Schools are banning children from using the term best friend over fears that some really unlikeable, spoiled little douche may feel left out. This also ensures that kids will not form tight, lasting relationships. A teacher in Florida was fired for refusing to give students a grade of 50% even though the assignments were not turned in.ref 749 The school had an unstated “no zero” policy. Ironically, the school was run by a bunch of zeroes.  

Most of these are marginally harmful lobotomizations that may not leave scars (provided the kid doesn’t become a cutter). However, many child psychologists suggest that increasing academic problems in young boys stem from repeated chastisement for acting like, well, young boys. Schools are denouncing toxic masculinity in kindergarten.ref 750 Kids caught “sexting”—sending semi-lewd or lewd pictures via cellphone—are being charged with trafficking in child porn.ref 751 One elementary school passed around flyers denouncing “white privilege.”

The institutionalization of PC not only hurts the kids but also infringes on parents’ rights to add any post-genetic finishing touches and determine levels of risk. A mom was investigated for letting her 8-year-old walk the dog around the block. Another received a visit from the police because her kids were playing in the front yard “unsupervised.” She noted that, "For something like this to happen to me, there’s something really wrong." Ya think? Something like this once happened to my wife and I, and a woman from social services showed up. Once this sanctimonious piece of human detritus—Do I sound like I’m over it?—started citing the scriptures in a decidedly sanctimonious way, I told her that "I am fighting the urge to throw you out the door on your fucking head." My wife suggested my comments were counterproductive. I thought I showed great restraint.

Schools are throwing Common Core math at them, ensuring that they will all share a common denominator: total mathematical ignorance including not knowing what “common denominator” means. After dropping $400 million on its development, the Gates Foundation declared common core math a total failure.ref 752 It is still in use, lobotomizing children across the country. I suspect its deep-seated purpose was to forcibly engineer equal outcome at any cost. So much for inclusivity. Ian McEwan, an award-winning author, began to wonder about the system as a whole when after helping his son with an essay about his own novel his son received a C.ref 753

“If you breastfeed your sons, you are training them to be rapists when they grow up. You’re basically teaching them that they can touch a woman’s body whenever they want. If you oppose rape, stop breastfeeding boys!”

~Shaykha Alia (@AliaAbheed), activist, not joking

Schools are increasingly filled with boys, girls, and fence sitters. I must confess that sexual and gender ambiguities must be traumatic for kids who are already in traumatic periods of their lives. I watched my son for at least 5 years wondering if and when he would come out (even to his family). He waited till it was time. Nobody else gets to make that call. Let the parents ponder how to raise the kid in the most nurturing and constructive manner possible.

I even support parents who are serious loons doing stuff I think is sketchy because it’s not my kid. A new class of child called “theybies” are babies and kids raised gender neutrally, ensuring that they will consume copious quantities of mental health services later in life.ref 754 One woman fought gender norms by naming her son Vagina.ref 755 Middle school may get a little rough. Didn’t Johnny Cash write a song titled, "A Boy Named Vagina"? There are, however, some real consequences moving down to the younger age brackets. Pediatricians and psychologists are battling it out over gender dysphoria, what it means, and what to do about it. Scientists are using fMRI to study transgenderismref 756 (sounds good) to aid earlier "transition" (gettin’ a little sketchy), possibly as early as age 3.ref 757 Hold your horses there, Buckeroos: You might want to wait till they can talk and get through a whole day without Pull-Ups (gender-neutral colors, of course.) Some worry about “social and peer contagion” of the gender dysphoria;ref 758 this is not like some passing lesbian phase sophomore year in college. One judge removed a 17-year-old transgender teen from her parents because they refused to allow hormone treatments.ref 759 All of this reminds me of the Saturday Night Live skit with the doctor who delivered 4,000 girls in a row. Half needed only a minor postnatal surgical procedure. One thing is clear, if your son transitions to become a girl, get ready to pay more for toys and clothes.ref 760 Somehow the free market has figured out that there is a recessive X-linked gene for insensitivity to price. If, on the contrary, your daughter transitions to a boy, you will be able to afford college. Jazz hands!

When I was a kid we had one rule: Be home for dinner. I was riding my bike miles from home by age 8 and groping young girls (not like Brett Kavanaugh!) and hitchhiking with permission at 12, drinking without permissionat 13, smoking pot at 14, and dropping acid at 15. I started to study at 17, graduated from Cornell with a degree in genetics at 22, and got my PhD in chemistry at 25. (Yes folks: That is a 2.7-year PhD from Columbia and no post-doc, all with damaged chromosomes to boot.) Nobody broke my spirit by declaring me flawed. My peer group played copious quantities of only self-supervised sandlot sports until middle school. We laid out the field, made up the rules, refereed the games, and had some Lord-of-the-Flies moments. This peer group generated a three-time first-team All-American lacrosse player at Syracuse, the 12-year center for the Dallas Cowboys, and probably the only faculty member in the modern era to have been an assistant or head coach of two collegiate sports (me).

How about some solutions or suggestions, Dave? OK. Since you asked. First, read Jonathan Haidt’s and Greg Lukianoff's book, Coddling the American Mind (see “Books”). I sent it to one of Cornell’s deans, and he said it described the problems landing in his office to the letter. Let them go outside, get hurt, cause trouble, and pay some consequences. No broken bones or lost eyes? That was a good day. Stop depriving kids of constructive play by inserting vast numbers of résumé-boosting activities with oppressive levels of adult supervision. I’ve read college and graduate admissions applications for many years; most parents haven’t a clue about what really matters. Watch the movie Stand by Me or the often overlooked Tree of Life. That was my childhood. And don’t you dare say those were simpler times; that’s a load of garbage asserted by helicopter parents.

Others are also taking action. The French are talking about banning phones in school. At first I flinched, but I realized that they’re onto something.ref 761 A woman named Lenore Skenazy has started the free-range parenting movement, which supports the type of parenting that used to be considered normal.ref 762 I am also now an enthusiastic supporter of school choice. If you insist on indoctrinating kids, at least give the parents the choice of which gulag to ship them off to every morning. And on the more micro level, give families some choice: (a) common core math versus actual math; (b) learning how to write versus reading books like Waiting for Godot, and (c) secular or religious philosophical underpinning. Parents shouldn’t have to pay double for private schools at least in the more populated areas where multiple tracks and schools are already necessary; there would be no added cost. Finally, let the kids determine their peer groups—let’s call them “boys” and “girls”—and let them play separately without adults force-feeding inclusion. Are what we called “cooties” now microaggressions with “attackers” and “victims”? There will be plenty of time in the later years for coed binge drinking and teen pregnancies. If none of this makes sense, that’s OK, but may God have mercy on your soul, mofo.

Conclusion

Bad times create strong men.
Strong men create good times.
Good times create weak men.
Weak men create bad times.

It’s safe to say we have tough times ahead, because that has always been true. If equity markets regress to the mean while the 38-year-old bond bull market turns into a bear, we will witness some serious wealth destruction. I could be wrong, of course, but if the case for overvaluation in both equities and fixed incomes is sound, I remind you that gravity always wins. It is undefeated. China seems on the cusp of the first serious lesson about the downside of capitalism. The European Experiment of a super-sovereign world may falter when fill-in-the-blanxits start leaving. If the U.S. finally comes to terms with its debt problem through a mechanism I haven’t yet imagined, the 12-step program will not include excessive consumption on the back of more debt (hair of the dog). Boom–bust cycles are normal, but this one could be a bit too synchronous for comfort, and it follows a supernatural monetary policy.

“I think the next downturn is going to be a different kind of downturn. I think it will be more severe in terms of the social-political problems. It will be harder to handle. . . . It will have bigger international implications."

~Ray Dalio

“There is a numbness out there, there is an ambivalence out there that’s concerning. . . . When the next turn comes—and it will come—it’s likely to be more violent than it would otherwise be if we let some pressure off along the way.”

~Michael Corbat, Citigroup CEO

Here’s what is bugging me. There has been a growing malaise since the ’08–’09 crisis manifesting upheavals that seem correlated. I blame Obama and his Department of Justice in part. This is not because of his politics—they shockingly never bugged me that much, and I like the guy—but rather because he let the bad guys go by policy. They stitched up festering wounds that laid foundations for social upheaval (mixed metaphorically speaking). The Occupy Wall Street movement was toothless but a beta test. Now we have Antifa, which is a combination of dangerous people and gullible followers. Presumably there are right-wing analogs, but I find them harder to identify as coherent groups.

“Liberals claim to want to give a hearing to other points of view, and are then shocked and offended when they discover there are other points of view.”

~William F. Buckley, founder of The National Review

I think the reason that those on the left are so prominent on my radar right now is that they went berserk when Hillary—the first female presidential contender—got beaten by the most repugnant opponent they could imagine. You don’t have to look hard to see educated and intelligent people—they are not one and the same—saying some of the most vile things. From the left has spawned an intolerant liberal left. There seems to be a prevailing wisdom that if you know you have the moral high ground (who doesn’t think that?), there are no rules. You first label your opponent—white, male, conservative, heterosexual, neo-Nazi, fascist, insufficiently progressive, or all of the above—and then attack verbally and even physically. I reached out to a decidedly progressive faculty member who was being eviscerated unjustly—scorn, hate mail, the whole enchilada. I’ve done this many times simply to let them know they’re not alone. When I noted the irony that it was coming from the left, they responded:

“The harsh criticism on my role in the story (as reported by the media) is not coming from folks on the left, it’s coming from liberals. There’s a big difference, as you know.”

What a fascinating response. As I understood it, liberals were compassionate and tolerant, albeit a little rich in fanciful ideas. The graphic in Figure 55 shows that everything has changed.ref 763 As your political opponents move to the extreme, you move to the other extreme. We were OK in 2004, quite healthy actually. By 2017, however, we had polarized.

Figure 55. The growing political and social divide.

“War is when your government tells you who your enemy is, and revolution is when you discover it for yourselves.”

~Source unknown

When the riots in France started, they were reputed to be about an energy tax. You would be shocked at the number of journalists and bloggers trolling Twitter trying to find someone who could explain what was reallyhappening. Here is my answer: Government is like a fiat currency. Once faith in it is lost, you will witness cascading failures that are too complex to comprehend in detail. Arab Spring began when one highly flammable Tunisian lit himself on fire. As Billy Joel says, “We didn’t start the fire.” Avalanches, explosions, earthquakes, and fires all thwart serious efforts to model them. Metastable systems—systems displaced markedly from equilibrium waiting for the right spark or trigger—return to equilibrium unexpectedly, quickly, and often violently. Social movements start small (by definition) and unexpectedly, but they move quickly and can end violently. France has been down this path. Edmund Burke was one of the few who saw the social movement in late eighteenth-century France as the first rumblings of a murderous rebellion. The Rodney King–sparked LA riots started to spread; we got lucky when they burned out. When everyone is grumpy and some guy decides to light a car on fire, don’t be surprised when others join in. They all share a common denominator: they're PO’d.

“The collapse is fundamentally due to the unstable position; the instantaneous cause of the crash is secondary.”

Didier Sornette, Professor of Entreprenurial Risks, ETH Zurich

The solution is to have strong social institutions and social capital that unifies the populace. This gets to my criticism of the left, not the people but rather the leaders and power brokers denounced by Malcolm X (above). When you deem it your job and derive power from providing goods and services to the masses, self-governing and self-sufficient groups represent risk. It’s a turf war. Under the guise of inclusion, people are now being discouraged from self-assembly. Men and women as well as boys and girls are not allowed to have their own sports. The Boy Scouts of America, where fathers and sons congregated to train and civilize a new generation of responsible fathers, is no longer just fathers and their sons.

Fraternities are an interesting case study in social cohesion. They are on the lam from society. You house a few dozen 18- to 22-year-old men away from their parents for the first time. A few mishaps are a certainty. Statistically, if you select a few dozen men from a campus randomly, give them a Greek label, and monitor their behavior they will collectively look like a dumpster fire. I will admit there is also groupthink that amplifies behavior and drops average IQs to levels that can shock adults. They also represent legal bull’s-eyes for lawyers when things go bad. Some universities have replaced fraternities with communal living units. Why do other schools support this increasingly polarizing Greek communal system? First, the nouveau communal units are not as cohesive as those that are self-assembled. I have a data-less theory: If universities analyzed suicides on campuses—they are common on all campuses because of the risky age bracket—they would find that the suicide rate in fraternities is low. When things go poorly—a flunked exam or being dumped by a girlfriend—the dejected kid goes back to his fraternity and gets shitfaced with dozens of his friends. It is a support group unlike any others (except for maybe in the military). From these collectives of incorrigible crazies emerge future leaders, not only of corporate America but also of university alumni organizations. I am stunned by what the Bands of Losers I lived with turned into as they got older. During reunions, fraternities fill with old friends sharing common stories—stories that are common even if they didn’t overlap in college—while independents wander the campus looking at new buildings or don’t bother to return at all. Are these really organizations you want to dismantle?

Let’s swing our gaze elsewhere for a moment. I always viewed gentrification of dilapidated neighborhoods in big cities as a rebirth of sorts, a spontaneous urban renewal. Out with the old, in with the new. I recently stayed with a friend (Andy Huszar) in Harlem. My life expectancy would have been 5 minutes when I was in grad school. What a miracle. What I failed to realize, however, was that those dilapidated buildings were part of neighborhoods, not just dwellings. Neighborhoods are like Cheers where “everybody knows your name.” Gentrification forces people to find cheaper housing elsewhere. They will find it, of course, but they won’t find a community. You can hear the fabric tearing.

"We live in a society of decreasing circles. More and more of us know fewer and fewer of us. We live alone and eat by ourselves, often with a TV or computer rather than a human being for company."

~The American Conservative (@amconmag)

Now I will go where no rational man has gone before: religion! I have been a pro-choice atheist my whole life—just a pagan with a busy sword—and am unlikely to switch sides now. As a scientist, extreme Christian views on creation and evolution are never gonna make sense. Over the years, however, my thinking became more nuanced as an accumulated broader historical perspective caused cognitive dissonance to encroach. The Church in medieval Europe certainly has plenty of blotches on its record, but in a “World Lit Only by Fire,” the church brought order where there would have been only chaos. Vivid imagery of Hell that made medieval life look cushy by comparison kept the nobles from abusing the peasants. How about the Spanish Inquisition? Well, they were legally trained well above the norm of their time. A documentary on the massive "inquisitor archives" showed that the inquisitors executed fewer people over four centuries than the state of Texas offed over a far shorter span. There is also evidence that the inquisitors viewed religion as outside of their jurisdiction during some periods. Why the bad rap? Every time Spain got into a war, which was quite often, the opposing team would pull out horrific tales of the inquisitors to rally the troops. Also, the norms for the era were pretty damned bad anyway (see Pinker in "Books").

How about all the scientists that got oppressed by the Church? A little history of science shows that gets a little fuzzy too. Leonardo da Vinci carved up people in the basement like John Wayne Gacy without getting flack. When scientists discovered something new, the Church would often say, “God is even more grand than even werealized.” A savvy scientist would say, “You betcha, Pope.” The scientists who got into trouble may have lacked the self-control to avoid pushing the Church’s buttons. I know enough scientists like this to say that my thesis is in the realm of possibility.

“Defending rights against the encroachments of the government saves the common liberties of the country.”

~Alexis de Tocqueville, 18th century French diplomat, historian, and political scientist

When Alexis de Tocqueville came to America, he marveled at how much freedom Americans enjoyed and how religious they were. He also marveled at the lack of lawlessness (brawling aside, which he noted was way too consensual). The message was that our strong Constitution and limited laws gave us unprecedented freedom while religion gave us the will not to abuse it. You resisted stealing from your neighbor simply because it was wrong. You helped your neighbor because it was right. Charles Murray in Coming Apart (see "Books") paints in graphic detail how the last half-century has witnessed a stunningly abrupt replacement of morality for rules. What happens when we have lots of rules but nobody feels morally obliged to follow them?

From the left there is a relentless push to remove Christmas from schools, denounce those who support the American flag, control what is taught to children and where, emasculate men, move decisions from the local to the centralized national government through rules and regulations, take away our freedom of choice with whom to do business, confuse abstract feminism with women's rights, take away parents' rights to choose what is best for their children, and decide with whom we can affiliate and who we get to exclude. These institutions and ideas represent a critical social glue. Be careful what you take away.

Thus, I am an atheist living in a unique society that was built on strong moral values that find their roots, at least in part, in religious convictions that I do not share in their detail. I should be very careful, however, to not lose sight of the fact that I am reaping what I did not sow. I should have more faith in those who already have faith. I am now a cognitive dissident. And with that, my work here is done. You're welcome.

“Maybe our favorite quotations say more about us than about the stories and people we're quoting.”

~John Green (who?)

Acknowledgements

There are so many people from the world of finance and markets who patiently allow me to invade their space with inane comments and questions. Many are household names—real legends—even outside of the finance world. One year I tried to thank a ton and found out how many more I excluded. As The Donald would say, “I love all of you” (but Rudy, you are the best. I love ya, man.) That said, people do reach out, and I’m happy to chew some fat. My email is dbc6@cornell.edu. If I don’t answer an email, it’s either because MSFT Outlook has filtered yet more emails (thanking Steve Sinofsky, friend and former president of Microsoft under Ballmer, for that one) or because I just screwed up. And if I know you, I’ll cook you burgers on our deck overlooking Cayuga Lake if you come to Ithaca. Some of you already have standing offers. People, not places or experiences, are what fill my bucket list. And, by the way, send your kids to Cornell because it is a truly wonderful school. How wonderful? We have more departments in the top ten than any other school in the country . . . and “everybody knows your name.” I have no strings to pull, but I do understand the system if you want some advice.

There are always new additions. That’s Sean in the middle sleeping on Grandpa, Miles on the left, and Liam on the right in the photo on the left. Sean’s a boy until he’s old enough to decide for himself. In the right-hand photo is Claire, a rescue from a breeder. This picture is after we peeled 25 pounds off her. She identifies as a Lab, our third, although similarities to bear #409 (Beadnose) are inescapable.

Figure 56. Three punks in training and The Master (left) and “Claire” aka “Claire the Bear” aka “The Tank” aka “Butterball” and The Master of that too (right). 

Books

“Moses wrote one book. Then what did he do?”

~Sidney Morgenbesser, Columbia University philosopher

I would have read more books when I was younger if the ones they made us read didn't suck salty balls and if it were not for acute CLCS (chronic lip cramping syndrome). I was a typical boy on the lower end of the reading scale with a highly targeted curriculum:

As an adult, career and family have kept my reading list short (outside of volumes on chemistry). Enter the audiobook. Snobs say it’s not reading, to which I say, “Bite me." I use my ears; you use your eyes. Hellen Keller used her damn fingers. I can get through a dozen per year just commuting a 24-minute round trip to work. When my wife asks me to go to the store, it's like asking me to read for a few minutes. And even if the books are mediocre—I try to be selective—they just keep marching forward monotonously to the finish. I have failed to finish very few (no fading Post-its). I burn them to disk for $10 a pop via Amazon Prime so that my colleagues can mooch them. The books all profess to be non-fiction, although I have my doubts sometimes. Topics include history, markets, economics, science, psychology, anthropology, and college-level courses from the Teaching Company. I’m trying to get through American history through the eyes of presidential biographers (even with Chester Arthur in my sights). Simple treatises on complex topics (like Mervyn King’s latest below) show me how to formulate and articulate complex ideas simply.

The Fifth Risk by Michael Lewis

Those who hate books that are one-third book and two-thirds fluff should appreciate Michael Lewis for brevity. Lewis’s treatise blends several plotlines without bringing much of his typical comedic flare. The primary plotline is to hammer Donald Trump for his poor transition in taking over the federal government. Some of the loons Trump put in key staff positions do indeed seem to be inexcusable. I think Lewis does a credible job, although it seems a little light on awareness that (a) Trump had no clue that he would win, and (b) his transition team had support from neither political machine. The second, dominant plot is to describe some of the amazing things federal employees do that we haven’t a clue about. He does this well, although he again glosses over the estimated 2 million federal employees who are not brimming with skill and productivity. The book was informative.

https://www.amazon.com/The-Fifth-Risk/dp/B07GNTDQJQ/ref=sr_1_1?ie=UTF8&qid=1540764617&sr=8-1&keywords=The+fifth+risk

Coming Apart: The State of White America, 1960–2010 by Charles Murray

Stan Druckenmiller said that Charles Murray’s book “scared the hell out of me.” Murray, you may recall, is the putative alt-right whackadoodle who wrote The Bell Curve and was physically attacked at Middlebury College in 2017. I would be hard pressed to pigeonhole this book as leaning to the right. It is a great story about how the fabric of social structure is fraying badly. We’ve replaced morality and a sense of social cohesiveness with a far less effective rule- and law-based society. It’s an important book. (Jonah Goldberg admitted to me that his newest book channels Murray’s, albeit dripping with sarcasm. It’s on my list.)

https://www.amazon.com/Coming-Apart-State-America-1960-2010/dp/B007A5GPI4/ref=sr_1_1?ie=UTF8&qid=1540766157&sr=8-1&keywords=coming+apart

The Intimidation Game: How the Left Is Silencing Free Speech by Kimberley Strassel (@KimStrassel)

Kimberley Strassel is no friend of the left, so it’s not a surprise that she would focus on the evil deeds of only left-wing politicians. She does a credible job of laying out the political hijinks, which are decidedly disquieting. The emphasis is on how they use government and law as a weapon against the right. If one were to assume the right wing is equally guilty, you probably get an accurate view of how awful politics inside the Beltway has become. It was too lopsided for me to endorse it enthusiastically.

https://www.amazon.com/s/ref=nb_sb_ss_c_1_17?url=search-alias%3Daps&field-keywords=kimberly+strassel+intimidation+game&sprefix=kimberly+strassel%2Caps%2C899&crid=KTNBKEVY0EKG

Antifragile: Things That Gain from Disorder by Nassim Taleb (@nntaleb)

To the list of terms “fragile” (easily broken) and “robust” (hard to break), Nassim Taleb suggests the term “antifragile” (grows more durable under stress). The most obvious and intuitive example is the immune system. Taleb venomously attacks those he disrespects (economists), and his prose is an acquired taste. Many will find the vitriol too much. He makes interesting arguments about how our efforts to protect ideas, objects, people, and institutions inadvertently weaken them. He reinforces maxims like “stability breeds instability” or “that which does not kill us makes us stronger.”

https://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680/ref=sr_1_1?s=books&ie=UTF8&qid=1540766748&sr=8-1&keywords=nassim+taleb+antifragility

Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Taleb (@nntaleb)

Nassim Taleb tees off on those in our world who get to call the shots and reap rewards but do not pay the price of failure. This heap of targets includes politicians, economists, and bankers. One of his strong supporters over at Amazon referred to Taleb as "rude and angry". Detractors hold a mirror up to him and ask if his disdain for advice givers isn’t some form of hypocrisy. As always, I enjoy reading his books, but bring a thick (antifragile) skin.

https://www.amazon.com/Skin-Game-Hidden-Asymmetries-Daily/dp/042528462X/ref=pd_sim_14_4?_encoding=UTF8&pd_rd_i=042528462X&pd_rd_r=3dd4538b-db03-11e8-8a27-e7c97784a407&pd_rd_w=H6BYO&pd_rd_wg=1XNLh&pf_rd_i=desktop-dp-sims&pf_rd_m=ATVPDKIKX0DER&pf_rd_p=18bb0b78-4200-49b9-ac91-f141d61a1780&pf_rd_r=00R3KDQCS3P0ZFCG8BQX&pf_rd_s=desktop-dp-sims&pf_rd_t=40701&psc=1&refRID=00R3KDQCS3P0ZFCG8BQX

The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google by Scott Galloway (@profgalloway)

Scott Galloway is an entrepreneur, venture capitalist, and New York University professor. He knows his way around the tech world. In this book he critiques the FAANGs (ex-Netflix). Although it seems to be intended as a tell-all description of the dastardly deeds of these monopolistic, civil-liberty-encroaching companies, he cannot hide his awe. Clearly Amazon is at the top of his leaderboard as a completely mind bending and society-changing wielder of unchecked power. Apple is praised for marketing itself as a well-branded provider of elite products. (I was left unconvinced of its durability.) Facebook and Google draw fire for their powerful incursions into our daily lives. I am unconvinced that any of them are as durable as Galloway thinks. The backlash to their power may be surprising. I only wish I had this book 15 years ago; I would have made a killing as a true-believing investor.

https://www.amazon.com/Four-Hidden-Amazon-Facebook-Google/dp/0735213674/ref=sr_1_1_sspa?s=books&ie=UTF8&qid=1540768834&sr=1-1-spons&keywords=scott+galloway+the+four&psc=1

The Coddling of the American Mind: How Good Intentions and Bad Ideas Are Setting Up a Generation for Failure by Jonathan Haidt (@JonHaidt) and Greg Lukianoff

Jonathan Haidt and Greg Lukianoff are evolutionary psychologists at the vanguard of the fight to push back against political correctness and the strange form of social activism that appeared abruptly on campuses around 2014 (and, I hasten to add, graduate programs around 2018). He is openly liberal while claiming that he no longer recognizes what is called liberalism in this era. The book describes in lurid detail what is happening, how it happened, and its profound consequences. If you’re the parent of young children, you should read it before it’s too late for your kids. Great book. I sent it to one of our deans, and he said that what Haidt describes is what he deals with every day, and it has caused him to rethink his child-rearing tactics.

https://www.amazon.com/Coddling-American-Mind-Intentions-Generation/dp/B079P7PDWB/ref=sr_1_1?ie=UTF8&qid=1540769381&sr=1-1&keywords=coddling+the+american+mind

The Marshall Plan: Dawn of the Cold War by Benn Steil (@BennSteil)

I read this book twice, the first time in draft form while it was being written and the second in audiobook form after publication. Benn Steil is a bestselling author hailing from the Council on Foreign Relations (CFR) which gives him a remarkable view of the world and access to unparalleled human resources. After piecing together how John Maynard Keynes and Harry Dexter White negotiated the new global currency order in his bestselling, Battle of Bretton Woods, Steil charges into the task of probing the political machinations required to establish the global political order. He describes in scholarly detail (read: not for the faint of heart) how the Russians and the U.S. went headlong into the Cold War. The Marshall Plan to save Europe from imploding in the post-war era was politics on steroids—less humanitarian and more global positioning. The politics within the U.S. and Europe were as complex as any. What I still have not grasped, however, is why West Berlin, deeply embedded in the Eastern Bloc, was so important.

https://www.amazon.com/Marshall-Plan-Dawn-Cold-War/dp/B078F1H2SP/ref=sr_1_1?ie=UTF8&qid=1540769828&sr=1-1&keywords=the+marshall+plan

12 Rules for Life: An Antidote to Chaos by Jordan B. Peterson (@jordanbpeterson)

Jordan Peterson has had a growing presence in the culture wars. He came to prominence fighting a Canadian law that would mandate the use of pronouns for all the gender fence sitters. Peterson then rocketed to fame after a series of interviews with liberal attackers (notably Cathy Newman) in which he systematically dismembered their ideas. (I watch his interviews as though they were game films.) This book describes a series of guidelines on how to live your life and raise your children to avoid becoming insufferable with insufferable children. The lessons are sound. The book is a good read that would have died in obscurity if not for his rise to fame, which has led to millions of copies sold. Cathy Newman made him wealthy.

https://www.amazon.com/12-Rules-Life-Antidote-Chaos/dp/B0797Y87JC/ref=sr_1_1?ie=UTF8&qid=1540771653&sr=1-1&keywords=jordan+peterson+12+rules+for+life

The Undoing Project: A Friendship That Changed Our Minds by Michael Lewis

At some level, this book is a recycling of ideas of Michael Lewis’s Moneyball (the book, not the movie!) and Daniel Kahneman’s Thinking Fast and Slow, both of which are brilliant books. Lewis goes into considerable depth describing how Danny Kahneman and Amos Tversky worked as “the odd couple” for many years to create the ideas underlying Thinking Fast and Slow, which won Kahneman the pseudo Nobel Prize in economics. The Undoing Project is about the two men. In my opinion, this book will likely lose a lot of appeal for readers who are unfamiliar with Kahneman’s and Tversky’s work. Thus, read Thinking Fast and Slow and Moneyball first, then decide about The Undoing Project.

https://www.amazon.com/Undoing-Project-Friendship-Changed-Minds/dp/0393354776/ref=tmm_pap_swatch_0?_encoding=UTF8&qid=1544929043&sr=1-1

The Better Angels of Our Nature: Why Violence Has Declined by Steven Pinker (@sapinker)

Pinker wrote what could have been titled, The Comprehensive History of Violence. It covers all facets from crimes, brutal punishments, wars, domestic violence, you name it. Steven Pinker makes a strong case that we have become less violent over the centuries. He deals with those who point out atrocities of the twentieth century by invoking a per-capita metric and describing hugely violent periods that are largely unknown to most of us. The horrific stats on violence in the past are sobering, occassionally forcing me to take breaks during the more gruesome parts. To paraphrase Pinker, “I could have Adolf Hitler standing in front of me, and I would not have thought of doing that to him.” The book could have been shorter, but it certainly is enlightening and serious scholarship.

https://www.amazon.com/Better-Angels-Our-Nature-Violence/dp/0143122010/ref=sr_1_fkmr0_1?ie=UTF8&qid=1524771442&sr=8-1-fkmr0&keywords=steven+pinker+the+better+angels+among+us

Red Notice: A True Story of High Finance, Murder and One Man’s Fight for Justice by Bill Browder (@Billbrowder)

I ran across Bill Browder ever so briefly last year as I wrote about the Magnitsky case in which the U.S. put sanctions on Russia for torturing Sergei Magnitsky to death. This affair got tangled up in the Clinton–Russia dealings. Browder describes his efforts at dealing with Russian oligarchs as he was an early entrant to Russia after the fall of the Soviet empire. You can’t help but notice that Browder is very much like the oligarchs he describes, strip mining Russia of assets on sale in the post-empire chaos. After reading the book, I began to run into bloggers who view Browder in a much darker light and paint him as the true villain. I am altogether uncertain about where fact and fiction meet in this book.

https://www.amazon.com/Red-Notice-Finance-Murder-Justice/dp/B00T567KIA/ref=sr_1_1?ie=UTF8&qid=1540773044&sr=8-1&keywords=red+notice+by+bill+browder

The Selfish Gene by Richard Dawkins (@RichardDawkins)

This 1970s classic describes how evolution works at the gene level rather than the group level. (This book was a natural choice for me as a former genetics major with a fondness for evolution and various nature–nurture battles.) Dawkins’s gene-level evolution was pushed so strongly that it stifled contrary theories—group-level natural selection—to the point that it took decades for them to re-emerge and eventually usurp Dawkins’ model. The book is a little dated, but I enjoyed it. His most lasting legacy is the idea that humans pass along non-gene-level information (ideas) through cultural evolution. He called these ideas “memes.” And now you know the rest of the story.

https://www.amazon.com/Unknown-The-Selfish-Gene/dp/B004U8NB2M/ref=sr_1_1?ie=UTF8&qid=1540773425&sr=1-1&keywords=the+selfish+gene&dpID=51ovAOjmklL&preST=_SX342_QL70_&dpSrc=srch

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham, Jason Zweig (@jasonzweigwsj), and Warren E. Buffett

This, folks, is the bible of investing. Graham was Warren Buffett’s mentor. This revised edition has updates from Zweig and Buffett, but it seems faithful to Graham’s original edition, which I read so many years ago that I had no idea of its importance and wisdom. Modern investors who read this will say either, “OMFG!” because they understand its importance or, “This thinking blows” because they’re still swilling new-era Kool-Aid. The book convinced me that I should probably never buy a common stock unless I am willing to throw a Hail Mary because I could not possibly do the analysis adequate enough to be called an “intelligent investor.” My best hope is to go for sectors. On the battle of stocks versus bonds, I was struck by the claim that people who think they will necessarily make more money in stocks than in bonds in the long run are “delusional.” Debunking this belief has been my white whale for a couple of years. I think the authors are correct, but the era of interventionist (arrogant) central banking has made their maxim seem wrong for a good long time. This book is a must read for those who think they are hotshot investors. Dismiss their wisdom at your peril.

https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=tmm_pap_title_0?_encoding=UTF8&qid=1540773969&sr=1-1

The End of Alchemy: Money, Banking, and the Future of the Global Economy by Mervyn King

Mervyn King's view of the financial crisis and monetary policy on both sides of the crisis is either precious—he is the former head of the Bank of England—or garbage, because he is one of “them.” Maybe he’s just trying to salvage his legacy, but King is remarkably critical of central banking and monetary policy. He knows that consumption is unsustainably high, and it cannot be solved with stimulus. That game is over. The level of the book is low—I think I could have written much if not all of it—but this level of “honesty” from one of the global elite is shocking. They way he articulates ideas with clarity makes the book highly entertaining.

https://www.amazon.com/End-Alchemy-Banking-Future-Economy/dp/B01GQNTC8K/ref=sr_1_1?ie=UTF8&qid=1540775043&sr=1-1&keywords=mervyn+king

Hoover: An Extraordinary Life in Extraordinary Times by Kenneth Whyte

I’m attempting to complete a history of the United States through the eyes of presidential biographers. Hoover was a natural given that he was POTUS during an economically disastrous four-year term. There are many myths propagated by Hoover owing to this little bit of bad timing that came to a head with Roosevelt beating him like a rented mule in the 1932 election. In a nutshell, Hoover was extraordinarily qualified as a businessman and, when called to service, a focused and highly competent civil servant. The guy got the job done. He has been vilified because of a largely erroneous role played during the Great Depression and because Roosevelt was a dick. Hoover saw it coming, spotted the metastability of the credit and stock markets, and sweated the details. He did everything in his power to mitigate the damage, stopping short of big-government solutions. He also didn’t pander to the masses for love or votes, which carried with it a high price politically. I was left with the sense that Hoover was one of the greats.

https://www.amazon.com/Hoover-Extraordinary-Life-Times-ebook/dp/B01MZAAX0M/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1543698108&sr=1-1&keywords=herbert+hoover+biography

Sapiens: A Brief History of Humankind by Yuval Noah Harari and Derek Perkins

I mowed through two books by Yuval Noah Harari and Derek Perkins that seem to ponder the meaning of life. Sapiens got the bulk of the press. The book wanders through the cultural evolution that led from hunter-gatherers to what we are today. One of the more interesting concepts is that you would have trouble arguing life got better until we reached the era of modern medicine. We merely got better at packing more people into tight places. I have this odd paradox: I enjoyed wandering through the story but within a matter of months could not for the life of me tell you what it was about. Some books are sticky: The ideas stay with you. This one was not of those for me (a little like a pleasant dream that leaves your memory moments after waking). One Amazon reviewer possibly caught the spirit of my concerns noting, “Rather than being the interesting synthesis I’d hoped for, this turned out to be a series of disjointed bits touching on nearly every aspect of society.”

https://www.amazon.com/Sapiens-Brief-History-Humankind/dp/B0741F3M7C/ref=sr_1_3?ie=UTF8&qid=1543699009&sr=1-3&keywords=homo+deus

Homo Deus: A Brief History of Tomorrow by Yuval Noah Harari and Derek Perkins

As the sequel to Sapiens, it suffers from the same disconnected wandering through a stream-of-consciousness presentation of entertaining ideas. Once again, I enjoyed it like one might enjoy listening to a symphony, but in the end, the notes blur together. One hopes that part of this disappointing lack of stickiness is merely how the human mind indexes information. Maybe the ideas are in in my skull—part of my cultural DNA—but only retrievable when a cue from the environment resurrects them, allowing me to molest somebody with my globality.

https://www.amazon.com/dp/B01BBQ33VE/ref=dp-kindle-redirect?_encoding=UTF8&btkr=1

The Oxford Dictionary of Allusions by Andrew Delahunty

An allusion is “an expression designed to call something to mind without mentioning it explicitly; an indirect or passing reference.” There you have it. I worked my way through a book of allusions for fun. Most aren’t that good, but I hit a couple of gems. The book is not for Philistines. (Did you catch that allusion?)

https://www.amazon.com/Oxford-Dictionary-Allusions-Andrew-Delahunty/dp/0198600313

The Myth of Capitalism: Monopolies and the Death of Competition by Jonathan Tepper

I read only a handful of draft chapters while this book was being written. Based on that foreshadowing, I suspect the overall message—oligopolies, not just monopolies, are destroying capitalism—will be a compelling story. I'll let you know a year from now.

https://www.amazon.com/Myth-Capitalism-Monopolies-Death-Competition/dp/1119548195/ref=sr_1_cc_1?s=aps&ie=UTF8&qid=1543701902&sr=1-1-catcorr&keywords=jonathan+tepper

The whole beast can be downloaded as a single PDF Here...

Published:12/22/2018 11:12:05 AM
[Markets] Loan Market Is Freezing: Banks Fail To Sell $1.6 Billion In Loans

One week age we noted that ominously the junk bond market appeared to have frozen without a single high yield bond pricing in the month of December, the first such occurrence since 2008. Yet while the bond market was on the verge of locking up especially in the lower rating tiers, we observed that the leveraged loan market was still functioning because even as prices had slumped over the past two months, banks that committed to finance highly leveraged buyouts offered loans at substantial discounts to entice investors. And, as the chart below shows, the average new issue yield by month had risen to the highest in years, with CCC-rated issuers forced to pay the most in 7 years to round up investor demand.

Even so, it was only a matter of time before the stock market contagion prompted a fearful reappraisal of the loan market, especially in light of the imminent collapse in CLO activity as a record amount of CLOs will be eligible to be reset or refinanced next month, putting even more pressure on prices...

... and the loan market itself froze up.

Sure enough, according to Bloomberg calculations, the ongoing rout in the corporate loans has now forced many of Wall Street’s largest banks to be stuck with at least $1.6 billion of unwanted leveraged buyout debt which they are unable to sell to investors in what is increasingly shaping up as a bidless market.

In addition to the previously discussed pulled loan deals by banks such as Barclays, Wells Fargo, and Goldman, virtually all banks that sell loans for LBOs are now struggling to sell loans they’ve agreed to make for private equity deals. As a result, at least four loan sales for buyouts and acquisitions have failed to clear the market so far this month, forcing the banks to keep the debt on their books, where it may incur mark-to-market risk should prices continue to fall, further depressing bank earnings. And, as discussed last night, the banks hope that by waiting until next year to sell the debt to investors the banks might be able to avoid a fire sale, however as further observed, deteriorating market dynamics could result in even further tightening in the market in early 2019.

The hung deals are equal to 14% of the $11.7 billion of loans sold in December, according to Bloomberg data. The good news is that they represent a small fraction of the more than $2.3 trillion of loans to corporations that were on U.S banks’ books as of Dec. 12, according to Federal Reserve data. The bad news is that as the fear and contagion spreads, the bidless market will hit more and more deals resulting in ongoing market lock ups, demands for even more price concessions, even higher yields until a feedback loops develops which may eventually culminate with a violent plunge in loan prices, which as shown below, have already suffered their worst drop in years.

Meanwhile, keep an eye on the following companies which are the proverbial canaries in the loan market coalmine - they were the first to see their loan deals pulled. They won't be the last.

  • Ulterra Drilling Technologies: Blackstone’s acquisition of a majority stake in the drilling equipment supplier closed this month. Wells Fargo & Co. and Barclays had to keep a $415 million loan on their books and plan to offload it in January.
  • Blue Racer: First Reserve’s acquisition of 50 percent of the pipeline operator is expected to close by the year end. The Goldman Sachs-led group arranging the financing ended up holding onto a $516 million loan. Goldman is now likely to sell the loan to a small group of buyers separate from the syndicated market, such as direct lenders or infrastructure funds, according to a person familiar with the matter. Barclays and Royal Bank of Canada are also involved.
  • C&D Technologies: The firm’s acquisition of Trojan Battery closed on Thursday, without the Bank of America-led group of underwriters being able to offload the $400 million loan to finance the deal. Credit Suisse Group AG, ING Groep NV and KeyCorp are also involved.
  • Apollo Infrastructure: Apollo Global Management LLC’s acquisition of a $1 billion investment portfolio from GE Capital’s Energy Financial Services is expected to close this quarter. Apollo Infrastructure has shelved the $275 million loan backing the deal, led by RBC. The loan is expected to return to the market in the new year once markets stabilize. BMO Financial Group and Goldman Sachs are also involved.
Published:12/22/2018 9:39:37 AM
[US News] OH SNAP! Bill Clinton, apparently a Jack Reacher fan, but not so much of THIS liberal author?!

Former President Bill Clinton released a list of the “Great Books I’ve Enjoyed Reading This Year.” Have a read: As we approach the end of 2018, I wanted to share some of the books that I’ve enjoyed reading this year. pic.twitter.com/b4FCvefMnR — Bill Clinton (@BillClinton) December 21, 2018 You have to click on the photo […]

The post OH SNAP! Bill Clinton, apparently a Jack Reacher fan, but not so much of THIS liberal author?! appeared first on twitchy.com.

Published:12/22/2018 6:38:47 AM
[Markets] Amazon's Creepy Facial Recognition Doorbell Will Surveil Entire Neighborhood From People's Front Doors

Authored by Meadow Clark via Daisy Luther's Organic Prepper blog,

At first glance of Amazon’s new patent application, one would be tempted to think it no more than a built-in “smart” security system.

But no, this facial recognition surveillance doorbell does a lot more than record would-be thieves.

Ding! Dong! Prepare to be downright disturbed.

According to a new report, the patent application, made available in late November, would pair facial surveillance such as Rekognition, the product that Amazon is aggressively marketing to law enforcement, with Ring – a doorbell camera company that Amazon acquired in 2018.

CNN writes, “Amazon’s application says the process leads to safer, more connected neighborhoods, as well as better informed homeowners and law enforcement.”

Yeah, that’s one way of putting it. Here’s another:

Amazon is dreaming of a dangerous future, with its technology at the center of a massive decentralized surveillance network, running real-time facial recognition on members of the public using cameras installed in people’s doorbells. Jacob Snow, ACLU

Wow. Do you feel safer yet?

This tech isn’t really there to protect your house or neighborhood.

It’s going to record all who walk by and gather composite images and recordings that can be stored in a cloud and accessed by law enforcement to help surveil and catch suspects.

One of the main problems – besides the obvious privacy violations and smashing the 4th amendment to smithereens – is that facial recognition has been abysmal so far. That means if a database determines you are a suspect because you bear a striking resemblance, then the police could show up and detain you before you even drop off the potato salad to your next potluck.

Snow writes:

While the details are sketchy, the application describes a system that the police can use to match the faces of people walking by a doorbell camera with a photo database of persons they deem “suspicious.” Likewise, homeowners can also add photos of “suspicious” people into the system and then the doorbell’s facial recognition program will scan anyone passing their home. In either case, if a match occurs, the person’s face can be automatically sent to law enforcement, and the police could arrive in minutes.

It would be far to easy to get yourself on a “list” with this technology

CNN reports:

The application describes creating a database of suspicious persons. Unwanted visitors would be added to the list when a homeowner tags them as not authorized. Other people could be added to the database because they are a convicted felon or registered sex offender, according to the application. Residents may also alert neighbors of a suspicious person’s presence.

But some people, such as a mail courier, could be placed on an authorized persons list. Postal service logos could be used to help identify them.

Putting people on a naughty list? Wait, doesn’t that all sound eerily similar to the social credit systemrolled out in China?

“The patent describes the neighborhood surveillance system as an opt-in service,” CNN adds.

But really, it is not possible to opt out of broad brushstroke surveillance. How can I opt out of my neighbor (and Amazon, and the government) storing everything about me in the Cloud? What if my neighbor hates that my tree branch hangs over their fence? Will I go on their suspicious persons list?

Remember when Amazon just sold books?

“As a former patent litigator, I’ve spent a lot of time reading patents. It’s rare for patent applications to lay out, in such nightmarish detail, the world a company wants to bring about,” writes Jacob Snow in a recent ACLU report on the newest invasive technology by the company that only 10 years ago just sold…books.

Save

Photo: Amazon

Is Justice blind or prejudiced?

“These systems threaten to further entangle people with law enforcement, ripping families apart and increasing the likelihood of racially biased police violence,” Snow claims.

He adds, “this technology puts activists and protesters in danger when exercising their First Amendment rights.”

Tests from the ACLU showed that facial recognition doesn’t correctly identify people and this leaves the door wide open to let A.I. do the justice. That means innocent people could be filling up the privatized prison system.

The ACLU tested the software, and…

The ACLU tested the Rekognition software and proved that it incorrectly identified members of Congressas common criminals. Yes, the irony would be giggle-inducing in a John Oliver segment, but not so much for the innocent person serving life in prison.

This glaring inaccuracy prompted Amazon shareholders to urge the company to stop selling this tech to law enforcement. The recent patent application serves as a flippant disregard for that plea.

“The application also undercuts Amazon’s own purported defense of its face surveillance product. The company has told the public that biometrics should only be used by law enforcement as an aid, not a replacement, to human judgment. But Amazon’s patent application is pushing the technology toward automation, removing human judgment from the identification process, and instead potentially relying on data, like arrest photos, that itself is a record of racially discriminatory policing,” says Snow.

The ACLU notes that facial recognition is even less accurate for darker skinned people and that this technology paves the way for harassment and wrongful action against the formerly incarcerated. But for activists, too.

Here is a figure of the doorbell and the surveillance scope. Check out the rest of the patent application HERE:

Save

Diagram from Amazon’s patent application

That’s Not All, Folks!

Snow warns that the patent makes it painfully clear that this surveillance tech will not be limited to doorbells or homes.

Any complementary audio or visual device – Cough! Echo! Cough! – can be set up for biometric scanning.

Amazon is expecting to target a bevy of other biometrics such as:

  • fingerprints

  • skin-texture analysis

  • DNA, palm-vein analysis

  • hand geometry

  • iris recognition

  • odor/scent recognition

In addition, the surveillance tech could even include recognition based on behavioral characteristics, like:

  • typing rhythm

  • gait

  • voice recognition

Imagine a doorbell – or in-home device – that can do all that.

Do we even know each other as well as Amazon will know us?

For Snow…“It confirms that Amazon wants to enable the tracking of everyone, everywhere, all the time. And it’s apparently happy to deliver that data to the government.”

We always knew the government had boundary issues but this is just TMI – too much intimacy. 

A lot of people are comfy and cozy with the idea that they are being watched all the time, like the people lining up to be scanned at the airport to save two seconds of their time.

For me, being watched under a microscope by my government makes every nerve of my being burn with the fire of a thousand hells with the added dread that there is not one minute of reprieve, nor any identity of my own except to be an eyeballed object of the all mighty, omnipresent State.

But, hey, that’s just me…

You can’t escape this recognition tech.

If you go to someone’s house, you’ll be on the digital record.

Snow writes:

Imagine if a neighborhood was set up with these doorbell cameras. Simply walking up to a friend’s house could result in your face, your fingerprint, or your voice being flagged as “suspicious” and delivered to a government database without your knowledge or consent. With Amazon selling the devices, operating the servers, and pushing the technology on law enforcement, the company is building all the pieces of a surveillance network, reaching from the government all the way to our front doors.

Like I said before when I wrote about biometrics at the Atlanta International airport: it’s nearly impossible to avoid facial recognition technology today.

Yet, we do still have control over how we spend our money, our voice, and with whom we spend our time. It’s not much control in the grand scheme of things but if we rise up and fight this, our great grandchildren will honor us.

That is, if they will even understand the concept of privacy by the time they get here…

Published:12/21/2018 8:38:12 PM
[Markets] "We Want Goldman Sachs Here": This Is Malaysia's Playbook For Prosecuting 1MDB Case

"Bring me Goldman Sachs!"

As outlandish as it might sound, Malaysian authorities are in the process of dragging the bank - or at least, some of its employees and subsidiaries - to Malaysia to face criminal charges filed against subsidiaries of the bank, as well as two senior bankers (who have also been indicted in the US), over charges alleging that the bank lied in its bond covenants with the intention of misleading investors in the three bond issuances it handled for 1MDB, and that Goldman knew corrupt Malaysian officials were preparing to loot 1MDB, the sovereign wealth fund at the center of one of history's largest money laundering scandals, but chose to pursue the deals anyway.

Goldman

In a guide to how the criminal charges filed yesterday against three subsidiaries of the bank and two of its employees, Bloomberg explained that Malaysian prosecutor M Kurup, who has been tasked with overseeing the case, isn't playing around. "We want Goldman Sachs here," he said.

Malaysian trials are similar to the English common law system (upon which they are based):

Criminal court proceedings are public and open to all, barring exceptions made by a judge or a court gag order. (Najib’s lawyers have sought such an order for his case to prevent a “trial by media.”) Malaysia’s legal system won’t be altogether alien to western companies and lawyers, since it’s fashioned on English common law. (Malaysia gained independence from Britain in the 1950s.) So there’s a presumption of innocence for defendants and a requirement by prosecutors to prove a case beyond reasonable doubt. Goldman’s cases would be tried by a judge, highlighting one difference from English law: Malaysia scrapped juries in 1995. The seriousness of the charges -- which carry fines for businesses and jail terms of up to 10 years and fines for individuals -- means defendants are required to attend. A trial might be delayed or lengthened if the prosecution attempts to subpoena overseas-based personnel. "We want Goldman Sachs here," said Malaysia’s prosecutor M Kurup.

The bank will be given the opportunity to make its defense - namely, that it was misled by corrupt Malaysian officials.

Goldman said the charges came without a chance for the firm to provide its view. "Certain members of the former Malaysian government and 1MDB lied to Goldman Sachs, outside counsel and others about the use of proceeds from these transactions," the bank said in a statement. "1MDB, whose CEO and board reported directly to the prime minister at the time, also provided written assurances to Goldman Sachs for each transaction that no intermediaries were involved." According to Nizam Ismail, a partner at RHTLaw Taylor Wessing LLP in Singapore, a criminal conviction against one or more Goldman units could “affect their status as fit and proper persons” and impact their standings as licensed entities. "Regulators that are regulating Goldman entities worldwide will be watching developments in Malaysia closely," he said. In the U.S., criminal convictions against banks used to be considered a death sentence, but they’ve become common-place after a flurry of currency-rigging cases.

But perhaps the most concerning aspect of this criminal case is the possible culpability of senior Goldman executives, including CEO David Solomon and CFO Stephen Scherr, both of whom were involved with the committees of senior partners who signed off on the deal. Unlike previous Goldman scandals, 1MDB is unique in that it originated with Goldman's investment bank - not its trading desk, which is notorious for ripping off the faces of clients, according to CNBC.

"Anyone who's been there a long time knows you can't do big things without senior people knowing, period," said one former Goldman employee, who spoke on condition of anonymity because he still has dealings with the bank. "No matter how senior you are, there's always somebody above you. So a lot of people had to decide they were comfortable committing billions of dollars to this."

Goldman has argued that it couldn't have known that corrupt Malaysian financier Jho Low was planning to plunder 1MDB (DOJ officials allege $4.5 billion was diverted into slush funds and used to pay bribes). But it's becoming increasingly clear to all that the bank knew the deals - which generated a staggering $600 million in fees (on $6.5 billion in business) due to the bank's need to hold the bonds on its books instead of immediately pawning them off on investors. The bank said 1MDB didn't care about the higher fees because it wanted the capital "right away". That this also didn't raise red flags doesn't reflect well on Goldman's compliance systems, which current Malaysian Prime Minister Mahathir Mohamed joked "don't work very well."

The upshot: As the DOJ probe ramps up and governments from Switzerland and Singapore pursue prosecutions of their own related to the 1MDB fraud, Goldman won't be able to simply write off the Malaysians as a side show to the maneuvering of prosecutors in the US. And that probably doesn't bode well for Goldman's battered share price.

Published:12/19/2018 6:37:52 PM
[Uncategorized] 3 good men, 3 great kids’ books 3 good men, 3 great kids’ books by Michelle Malkin Creators Syndicate Copyright 2018 Men get a bad rap. They’re blamed collectively for rape culture, violence, war, poverty, climate change and all other manner of global suffering. They’re forced to apologize on college campuses for their chromosomes, anatomy and athleticism. They’re vilified incessantly in women’s […] Published:12/19/2018 10:07:37 AM
[Markets] Stocks Slide As Xi Speech Disappoints: "China May Face Unimaginable Difficulties"

There was much anticipation ahead of tonight speech by Chinese President Xi Jinping at the 40th Reforms Anniversary Event.

Hope was high for Xi to highlight potential new reform measures, growth initiatives, and - what the markets want most - moar stimulus.

He instead offered none of the above, choosing a propaganda-heavy discourse on the Communist Party's contributions to the success of China.

Main highlights include Xi pointing out that 1978 marked major turning point of far reaching significance and "China's stability makes it one of the safest nations in the world..." (except if you're a Canadian businessman)

China's had an average +9.5% growth for the past 40 years.

But warned that:

"China may face unimaginable difficulties ahead"

The speech was dominated by role of the party in developing modern China

Says the party has led China on a "soul stirring journey"

“China has demonstrated the vitality of scientific socialism with indisputable facts.”

There was no concrete message from Xi's speech either on the trade friction with the U.S. or growth prospects for 2019.

"No one is in a position to dictate to the Chinese people what should or should not be done,"

Xi likens China's current stage of development to swimming midstream in a river or climbing half way up a mountain:

"There is no turning back."

On reforms, Xi warned:

"The road of reform and opening are becoming more steep, but we must go forward with conviction, commitment and confidence."

On globalization, Xi talked about a "new form of international relations."

There should be no "bullying" and there should be respect for different development models.

China "will never seek hegemony," Xi says, but we note that China is expanding influence, however, in regions such as the South China Sea, where it has built islands and put military emplacements on them.

“We will resolutely fight an uphill battle to prevent and defuse major risks, lift people out of poverty, and prevent and control pollution,”

Xi closed on the same heavy Communist and Marxist evangelism theme, by saying that China is in the process of:

  • Standing up

  • Getting rich

  • Growing strong

And remember, China is "standing tall and firm in the East."

But that was not what the market wanted to hear and investors are disappointed for now as Xi provided no new initiatives...

US Futures are fading also...

And early Yuan gains are leaking away...

And for now, no new measures and the old stimulus measures aren't working...

Since June 2018, China has been loosening monetary and fiscal policies in an attempt to refloat the sinking red ponzi amid the shadow banking system's deflation.

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

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

Published:12/17/2018 10:56:52 PM
[Markets] Venezuela's Crisis: What's Oil Got To Do With It?

Authored by Carmen Elena Doroba? via The Mises Institute,

After over three years of following the disastrous effects of socialism unfolding in Venezuela I can confidently say that 99% of the articles I’ve read on the issue will sooner or later point out that Venezuela’s crisis is not only surprisingly dire, but rather counterintuitive given that it is one of the most oil rich country in the world, with probably the largest proven reserves. As a result, most analyses will conclude that it is the current president’s incompetence on the one hand, and the fall in oil prices in the last 5 years on the other, that have brought about the collapse of the once-prosperous South American economy.

The latest example is the short video posted by The Economist, which, in summarizing Venezuela’s recent history, explains that “after Mr Chavez—who had spent generously when oil prices were booming—died in 2013, oil prices crashed and… Maduro inherited an economic crisis which he made worse with his ineptness. The country plunged into chaos.”

That the gravity of the situation is still surprising to most commentators when it should have been expected long ago is something I’ve discussed before. I would like now to focus on the implicit economic fallacy that underlines the assumption that a country is bound to be inherently prosperous if it owns significant natural resources, particularly oil.

First of all, it is merely an impression that Venezuela was indeed prosperous in a healthy way at some point in the past. The large-scale exploitation of its rich oil reserves, first discovered before the Spanish conquest, began only in 1910. Before, Simon Bolivar’s 1811 decree stated national ownership of all domestic mines and production was minimal at first. The beginning of the Venezuelan oil industry was also still plagued by government intervention, as drilling and refining were still only permitted via governmental concessions—usually offered to close friends of the 1920s Gómez administration. Later in 1975-76, a monopoly of oil production was handed to the state-owned enterprise Petroleos de Venezuela (PDVSA), then the world’s third largest refiner after Royal Dutch Shell and Exxon, as the Venezuelan oil industry was fully nationalized.

Although foreign companies were allowed minority partnerships, the taxes they had to pay were significantly increased during the Chavez administration.

During this turbulent history, oil production waxed and waned, following state directives rather than market incentives, yet booming oil prices in the early 2000s allowed for large cash windfalls. But eventually after 2005 all revenues from it began to be rerouted by the government into Chavez’s lavish social missions, which covered everything from free health clinics to neighborhood basketball courts.

It is this period that most commentators see as one of great Venezuelan prosperity. But this prosperity was illusory, a mere veneer for the consumption of capital that was occurring. Capital goods - especially those in the oil industry - were being misused and depleted through central planning. For a while, this created an apparent wave of prosperity and development that Joseph Stiglitz called “impressive” at the time and that Mises had long before likened to burning one’s own furniture to heat up the room. But as soon as capital wore out, the façade collapsed and the centrally planned mismanagement of the resources was revealed. No matter how rich in resources the country still is, those resources were and still are used inefficiently and wastefully.

Alternatively, Switzerland is very poor in mineral resources—or any natural resources, mind—and has not been plunged into an inflationary crisis. 

Chavez not only failed to eradicate poverty, as he claimed, but he laid the country squarely down the path of socialism and all its disastrous effects were merely magnified by Maduro. The latter is, contrary to its Western critics, not inept, but rather a committed and consistent socialist dictator, who only escalated and tightened, in good socialist fashion, government control over everything from currency and prices to political dissent and free speech. This, and falling world oil prices, certainly sped up the disintegration of the Venezuelan economy, but did not cause it.

What originally caused the Venezuelan crisis was not oil, nor can oil now be inherently its cure. The cause of Venezuela’s collapse is the stunting of domestic capital accumulation that began with monetary and social policies of the preceding century and whose effects are now fully felt. And it is the same brand of poor economic policies and government spending (albeit not in the same degree) that is sought after and implemented in the U.S. or Europe, where it is touted either as innovative, stimulating, or anti-cyclical.

In 1952, in The Plight of Underdeveloped Nations, Mises was discussing Iran’s plans to nationalize their oil industry and was pointing out the precise—and since unchanged—hypocrisy of the West in criticizing socialist policies they were themselves implementing at home:

If it is right for the British to nationalize the British coal mines, it cannot be wrong for the Iranians to nationalize the Iranian oil industry. If Mr. Attlee [Labour Party leader and prime minister of England from 1945–1951] were consistent, he would have congratulated the Iranians on their great socialist achievement. But no socialist can be or ever was consistent.

Mises’s further analysis in that essay—quoted below at length—can be used not only to cut through to the heart of the current Venezuelan problems, but to lay out the only solution for overcoming the crisis and allow for true prosperity. And as you might have guessed, it does not involve mentioning the large oil reserves at all:

What the underdeveloped nations must do if they sincerely want to eradicate penury and to improve the economic conditions of their destitute masses is to adopt those policies of “rugged individualism” which have created the welfare of Western Europe and the United States. They must resort to laissez faire; they must remove all obstacles fettering the spirit of enterprise and stunting domestic capital accumulation and the inflow of capital from abroad.

But what the governments of these countries are really doing today is just the contrary. Instead of emulating the polices that created the comparative wealth and welfare of the capitalistic nations, they are choosing those contemporary policies of the West which slow down the further accumulation of capital and lay stress on what they consider to be a fairer distribution of wealth and income. Leaving aside the problem whether or not these policies are beneficial to the economically advanced nations, it must be emphasized that they are patently nonsensical when resorted to in the economically backward countries. Where there is very little to be distributed, a policy of an allegedly “fairer” redistribution is of no use at all. […]

The problem of rendering the underdeveloped nations more prosperous cannot be solved by material aid. It is a spiritual and intellectual problem. Prosperity is not simply a matter of capital investment. It is an ideological issue. What the underdeveloped countries need first is the ideology of economic freedom and private enterprise and initiative that makes for the accumulation and maintenance of capital as well as for the employment of the available capital for the best possible and cheapest satisfaction of the most urgent wants of the consumers.

Published:12/17/2018 7:25:29 PM
[Markets] Credit Spreads Signal Recession

Authored by Mike Shedlock via MishTalk,

$176bn worth of corporate bonds has fallen from 'A' to 'BBB' so far this quarter - the highest since late 2015.

The Tweet of the day goes to Bloomberg's Tracy Alloway.

In contrast to 2015, this is not just oil-related. Let's fill in all the missing pieces.

First Time Since Lehman

The Financial Times reports US Credit Markets Dry Up as Volatility Rattles Investors.

Not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month. If that drought persists, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.

Junk Bond Spreads

Bianco Research

??

Bloomberg reports High-Grade Credit Weakens Most Since February on GE Angst.

Leveraged Loan Deals

?ZeroHedge reports late that in the aftermath of a dramatic drop in loan prices, a record outflow from loan funds, and a general collapse in investor sentiment that was euphoric as recently as the start of October, the wheels had come off the loan market which was on the verge of freezing after we got the first hung bridge loan in years, after Wells Fargo and Barclays took the rare step of keeping a $415 million leveraged loan on their books after failing to sell it to investors.

The two banks now "plan" to wait until January - i.e., hope that yield chasing desperation returns - to offload the loan they made to help finance Blackstone’s buyout of Ulterra Drilling Technologies, a company that makes bits for oil and gas drilling.

The reason the banks were stuck with hundreds of millions in unwanted paper is because they had agreed to finance the bridge loan whether or not there was enough demand from investors, as the acquisition needed to close by the end of the year. The delayed transaction means the banks will have to bear the risk of the price of the loans falling further, as well as costs associated with holding loans on their books.

... Meanwhile, things are even worse in the bond market, where not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month according to the FT. If that freeze continues until the end of the month, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.

Not Isolated

Recession Odds

Contrary Indicators "No Recession in Sight"

This one is either downright funny or ironically serious, depending on your point of view.

Top White House economic adviser Larry Kudlow says 'Recession is so far in the distance I can't see it'.

Piling On

Looming Maturity Wall

?

The preceding two charts are from the MarketWatch report U.S. Corporate Debt Party is Getting Out of Hand.

Not Just US

It's not just the US either: [Europe Is Ground Zero for Global Credit Fears](Europe Is Ground Zero for Global Credit Fears)

?

Capitulation Silliness

The above Bloomberg chart notes "capitulation". I disagree.

?

On a short-term basis the Bloomberg chart does indeed look like a serious selloff.

Long-term, we are not even close.

An asset-bubble, credit-bust recession is on the way.

Published:12/17/2018 2:24:30 PM
[Markets] Meanwhile Behind The Scenes: Banks Quietly Slash Loans As They Prepare For The Next Recession

Reading through the Fed's latest Senior Loan Officer Opinion Survey (SLOOS), revealed absolutely nothing to be concerned about when it comes to loan demand and loan standards (aside from a warning that a yield curve inversion would, predictably, result in substantially tighter financial conditions): as we noted one month ago, the net percentage of banks reporting easier standards on loans to large- and medium-sized firms stayed flat at 16%, while standards for small firms were basically unchanged on net. At the same time, terms on C&I loans eased somewhat for large- and medium-sized firms, as 27% of banks surveyed (in net terms) reportedly narrowed spreads of loan rates over the cost of funds; other terms, such as premiums charged for riskier loans, loan covenants, and collateralization requirements, all eased somewhat.

There is just one problem with the above: none of it is true.

In fact according to a Reuters investigation, when looking behind headline numbers showing healthy loan books, "problems appear to be cropping up in areas such as home-equity lines of credit, commercial real estate and credit cards" according to federal data reviewed by the wire service and interviews with bank execs.

Worse, banks are also starting to aggressively cut relationships with customers who seem too risky, which in a time when 3M USD Libor just hit a fresh decade high despite a flattening in short-term TSY yields, is to be expected: after all financial conditions in the real economy, and not the markets, are getting ever tighter and the result will be a wave of defaults sooner or later.

Quoted by Reuters, Andy Schornack, CEO of Flagship Bank Minnesota, told Reuters that "we are in somewhat of a goldilocks period of banking" as "interest rates are high enough that you can make good money and credit quality is at high enough levels where it’s pretty hard to lose money.”

It won't last.

Bank executives admit that the U.S. economy is probably in the final stages of a long recovery from the 2007-09 global financial crisis, Reuters warns, but they say that until credit metrics start to deteriorate meaningfully, there is no reason to boost reserves or slash customer financing.

"There is a big disconnect at this point in time between the market technicals and what we’re really seeing on the ground, said Citi CFO John Gerspach at an industry event last week. "The fundamentals still look very good" he added optimistically, with his banking peers echoing his comments, including Bank of America CEO Brian Moynihan, Wells Fargo CEO Tim Sloan, and JPMorgan Jamie Dimon.

And yet, despite this alleged "goldilocks" environment, and despite bank reports disclosing delinquency and default rates which remain near historic lows, as do industry reserves and charge-offs for bad debt, banks have started to pull back.

Here are the all too clear signs that banks are starting to prepare for the next recession by slashing and/or limiting risky loan exposure:

  • First, nearly half of the applications from customers with low credit scores were rejected in the four months ending in October, compared with 43 percent in the year-ago period, according to a survey released by the Federal Reserve Bank of New York.
  • Second, banks shuttered 7 percent of existing accounts, particularly among subprime borrowers, the highest rate since the Fed started conducting surveys in 2013.
  • Third, home-equity lines of credit declined 8 percent across the industry, with growth slowing in areas such as credit cards and commercial-and-industrial loans, the survey showed.

Then there are the bank-specific signs, starting with Capital One - one of the biggest U.S. card lenders - which is restricting how much it lends to each customer even as it aggressively recruits new ones, CEO Richard Fairbank said last week.

"We have been more cautious in the extension of credit, initial credit lines, the broad-based credit line increase programs," he said. "At this point in the cycle, we’re going to hold back on that option a bit."

Also, contrary to what the SLOOS reported, regional banks have become more cautious lately as well, as they avoid financing riskier projects like early-stage construction loans and properties without pre-lease agreements (here traders vividly recall the OZK commercial real estate repricing fiasco that sent the stock crashing).

New Jersey’s OceanFirst Bank has also pulled back on refinancing transactions that let customers cash out on their debt, and has started reducing exposure to industrial loans, CEO Chris Maher told Reuters.

“In a downturn, industrial property is extremely illiquid,” he said. “If you don’t want it and it’s not needed it could be almost valueless.”

The banks' cautiousness has backfired on their own stocks, because between collapsing loan issuance - amid concerns of an imminent recession - combined with the looming threat of an inverted yield curve, have sent bank stocks down more than 13 percent since the first trading day of the month, according to the KBW Nasdaq Bank Index .BKX.

What happens next? While a recession is now guaranteed, especially as it becomes a self-fulfilling prophecy with banks slashing loans resulting in even slower economic growth, resulting in even fewer loans, and so on, with the only question whether it is a 2019 or 2020 event, bankers and analysts remain optimistic that the next recession will look much more like the 2001 tech bubble bursting than the 2007-09 global financial crisis.

We wonder why they are so confident, and statements such as this one from Flagship Bank CFO Schornack will hardly instill confidence:

“I lived through the pain of the last recession. We are much more prudent today in how we underwrite deals.”

We disagree, and as evidence we present Exhibit A: the shock write down that Bank OZK took on its commercial real estate, which nobody in the market had expected. As for banks being more "solid", let's remove the $1.6 trillion buffer in excess reserves that provides an ocean of artificial liquidity, and see just how stable banks are then.

Published:12/17/2018 11:52:55 AM
[Books] Attn: Shoppers—The Perfect Stocking Stuffer! (Steven Hayward) Looking for the perfect gift for that hard-to-shop for person? Well, this may not be the perfect gift, but tomorrow Encounter Books will release—just in time for Christmas stockings!—the paperback edition of Patriotism Is Not Enough, available on Amazon at the bargain price of just $11.59 ($5.50 off the cover price). The paperback edition features an all new preface. Because I finished writing the book before Trump was even nominated, let Published:12/17/2018 10:54:55 AM
[World] [Orin Kerr] New Draft Article: "Implementing Carpenter"

From my forthcoming book, The Digital Fourth Amendment.

I recently posted a new draft article, "Implementing Carpenter," on the Supreme Court's blockbuster June 2018 decision in Carpenter v. United States. The article consists of two draft chapters of a forthcoming book, The Digital Fourth Amendment, that will be published by Oxford University Press. I'd love your critical feedback. I found these chapters tough to write, and the line-drawing exercises Carpenter requires very challenging. But I did my best to make them and justify them, and I'd rather you throw rotten fruit at me now instead of when the books comes out. So if you have feedback, please send it on.

The document I posted has two chapters. The first chapter, The Carpenter Shift, explains how Carpenter takes the Fourth Amendment in a new direction and explains the new state of the law. After explaining the conceptual basis of Carpenter and why it's a considerable departure from prior law, the chapter tries to reduce Carpenter to a doctrinal test. Based on a close read of the opinion and the broader theory of equilibirum-adjustment driving it, the chapter argues that Carpenter applies to non-content Internet records otherwise left unprotected when three conditions are met. First, the records must be new kinds of records of the digital age. Second, the records must not have been generated by meaningful voluntary choice beyond what is necessary to participate in modern life. Third, the records must be of a type that can reveal an intimate window into a person's life.

The second chapter, Implementing Carpenter, applies those general principles. It first focuses on the challenging question of how to identify a Carpenter search in a particular case. How do you measure a privacy invasion? Does a search occur when an intimate fact was actually revealed in an investigation? Does it occur when the government gets enough records that the revealing of an intimate fact would be expected, the so-called Mosaic Theory? After going through the pros and cons of different approaches, the chapter concludes that the best way to measure an invasion of privacy is a source rule: Any government collection of any amount of Carpenter-protected information, no matter how small or unilluminating in a particular case, should be treated as a search.

Finally, the chapter applies Carpenter to several important cases. It identifies two kinds of Internet non-content metadata that should trigger Carpenter: to/from information about messaging services such as e-mail and text messages, and monitoring the websites a person visits. When the government wants to conduct surveillance of who a person e-mailed or messaged, or wants to install a monitoring device to see what websites a person is visiting, collecting that metadata should be a Fourth Amendment search. It also identifies a few examples of metadata collection that should not trigger a search: acquisition of voice call metadata, the IP addresses a person was assigned while connected to the Internet, and records of ride-sharing services such as Uber of Lyft. The chapter concludes by arguing that downstream analysis such as datamining should not itself trigger a search, although the prospect of downstream analysis can change whether a particular record is protected under Carprenter and can trigger the Fourth Amendment upstream for all compelled acquisition of that kind of record.

Comments very welcome. Thanks as always for reading.

(Cross-posted at Lawfare)

Published:12/17/2018 9:22:22 AM
[Markets] The Bond Market Has Frozen: For The First Month Since 2008, Not A Single Junk Bond Prices

Late last week, we reported that in the aftermath of a dramatic drop in loan prices, a record outflow from loan funds, and a general collapse in investor sentiment that was euphoric as recently as the start of October, the wheels had come off the loan market which was on the verge of freezing after we got the first hung bridge loan in years, after Wells Fargo and Barclays took the rare step of keeping a $415 million leveraged loan on their books after failing to sell it to investors.

The two banks now "plan" to wait until January - i.e., hope that yield chasing desperation returns - to offload the loan they made to help finance Blackstone’s buyout of Ulterra Drilling Technologies, a company that makes bits for oil and gas drilling.

The reason the banks were stuck with hundreds of millions in unwanted paper is because they had agreed to finance the bridge loan whether or not there was enough demand from investors, as the acquisition needed to close by the end of the year. The delayed transaction means the banks will have to bear the risk of the price of the loans falling further, as well as costs associated with holding loans on their books.

The pulled Ulterra deal wasn't alone.

As we reported previously, in Europe the market appears to have already locked up, as three loans were scrapped over the last two weeks. To wit, movie theater chain Vue International withdrew a 833 million pound-equivalent ($1.07 billion) loan sale. While the deal was meant to mostly refinance existing debt, around 100 million pounds was underwritten to finance the company’s acquisition of German group CineStar.

More deals were pulled the prior week when diversified manufacturer Jason Inc. became at least the fourth issuer to scrap a U.S. leveraged loan. Additionally, Perimeter Solutions also pulled its repricing attempt, Ta Chen International scrapped a $250MM term loan set to finance the company’s purchase of a rolling mill, and Algoma Steel withdrew its $300m exit financing. Global University System in November also dropped its dollar repricing.

Today, the FT picks up on the fact that the junk bond market - whether in loans or bonds - has frozen up, and reported that US credit markets have "ground to a halt" with fund managers refusing to fund buyouts and investors shunning high-yield bond sales as rising interest rates and market volatility weigh on sentiment (ironically it is the rising rates that assure lower rates as financial conditions tighten and the Fed is forced to resume easing in the coming year, that has been a major hurdle to floating-rate loan demand as the same higher rates that pushed demand for paper to all time highs are set to reverse).

Meanwhile, things are even worse in the bond market, where not a single company has borrowed money through the $1.2tn US high-yield corporate bond market this month according to the FT. If that freeze continues until the end of the month, it would be the first month since November 2008 that not a single high-yield bond priced in the market, according to data providers Informa and Dealogic.

Separately, as we already reported, the FT notes that in the loan market at least two deals - including the Barclays/Wells bridge loan - were postponed and could be the first of several transactions pulled from the market this year, bankers and investors said, as mutual funds and managers of collateralised loan obligations — the largest buyer by far in the leveraged loan sector — wait out the uncertainty.

“This is clearly more than year-end jitters,” said Guy LeBas, a strategist at Janney Montgomery Scott. “What we’re seeing now is pretty typical for end-of-credit-cycle behaviour.”

A prolonged period of low interest rates since the financial crisis a decade ago has seen companies binge on cheap debt. However, as financial conditions have tightened, the high level of corporate leverage has raised widespread concern among regulators, analysts and investors.

In the loan market, it's not a total disaster just yet, because even as prices have slumped over the past two months, banks that committed to finance highly leveraged buyouts - including JPMorgan Chase and Goldman Sachs -  have offered loans at substantial discounts to entice investors. As the chart below shows, the average new issue yield by month has exploded to the highest in years, with CCC-rated issuers forced to pay the most in 7 years to round up investor demand.

Still, as the following table from Bank of America shows, quite a few deals have priced, if only in the loan market:

Even so, other banks including Barclays, Deutsche Bank, UBS and Wells Fargo, have had to pull deals altogether as they just couldn't find enough buyers no matter how generous the concessions.

In addition to the Ulterra deal, technology services provider ConvergeOne postponed a $1.3bn leveraged loan offering that backed its takeover by private equity group CVC last week. As the FT notes, Deutsche Bank and UBS had marketed the deal to investors in a package that included senior and subordinated loans, with the junior debt expected to yield as much as 12 per cent in November when prices were first floated. While the banks attracted some bids for the debt, orders failed to surpass the overall size of the deal, which was postponed to the new year, according to people with knowledge of the transaction.

Why delaying deals into 2019? One word: hope.

One person familiar with the deal said the banks would market the loans again in January, when they hope market conditions will improve, and that other leveraged loans being marketed could be postponed to 2019.

The trouble lenders have faced in the leveraged loan market has mirrored the exasperation felt by investors in other asset classes. Higher-quality investment-grade bonds have also sold off, with a number of planned deals pulled from the market in recent weeks.

That said, for now the junk bond freeze and loan indigestion has remained confined to lower-rated issuers. However, that may change too, and should the "Ice-9" spread to the high-grade sector, where the bulk of issuance is to fund buybacks and M&A, that's when the real pain begins.

Published:12/16/2018 8:49:42 PM
[Markets] "It May Get Even Uglier": Hedge Fund Armageddon

Submitted by Adventures in Capitalism

Like all industries, the hedge fund industry is highly cyclical. 2018 is proving to be a catastrophe for many of my fund brethren. Let’s face it; most hedge funds have produced pretty awful returns for the past few years—a time when the S&P (the global benchmark) has shot the lights out. There’s an obvious reason for this underperformance and it comes down to the demands put upon most hedge fund managers.

While funds theoretically can do whatever they want (within reason) if they want to actually raise substantial capital, they’re supposed to beat the S&P every month of the year, with a Madoff level of volatility, while providing monthly liquidity. As you can imagine, this is simply impossible to achieve, yet many of my friends try anyway. This is because the hedge fund industry is mostly about asset aggregation—rather than performance. Ironically, quite a few of my hedge fund friends that have great performance can never raise much capital. Investors may claim they want uncorrelated, idiosyncratic portfolios with plenty of alpha, but they can never stomach the volatility or periods of underperformance that those portfolios entail—despite consistent rolling 3-year out-performance. Is it any wonder that so many funds instead try to focus on achieving the impossible?

It seems that 2018 is the year when investors have finally grown tired of underperforming while overpaying for that privilege. The redemption requests are coming in hot and heavy. What happens when you have redemptions? You have to sell stuff. This, combined with general de-leveraging is creating mayhem—particularly in sectors that have already underperformed over the past few years. It also creates strange outlier moves—the death spasms of an industry getting liquidated.

Take Tesla for instance. It is up almost 40% since the low in October, has outperformed the NASDAQ 100 Index by 5000bps and its FAANG cohort by nearly 6000bps. Sure, they beat Q3 estimates, even if the “earnings” quality was horrid. However, I think the real reason for this outperformance was that Tesla had become the short hedge to every fund manager’s long book.

  • Got exposure to industrials with waning end-market demand? Hedge with Tesla—it is an auto OEM with a demand cliff.
  • Got exposure to companies with substantial overseas business that will be impacted by a trade war? Hedge it with Tesla—its overseas business is a substantial portion of overall revenue, but is vaporizing as newer products are introduced in its top markets.
  • Got exposure to companies with questionable accounting? Hedge with Tesla—no one’s books are worse.
  • Worried one of your positions is a fraud? Hedge it with Tesla—it has more red flags than a May Day parade.

You get the point. While short interest was only about $10 billion at the peak, that number doesn’t include the massive implied short through outstanding puts—which are many times the entire float. What happens when people take down their overall exposure through redemptions? They take down their longs AND their shorts. In this case, they liquidate their puts—causing the never-ending melt-up we’ve seen at Tesla. We can be sure it’s not due to financial performance, as it seems that most Q4 metrics are tracking negatively compared to Q3.

Moving to small caps; I’ve been involved in this sector for nearly two decades. I can only think of two other times where I have seen so much pain and frustration amongst my small cap friends. That would be the 2008 to 2009 period and to a lesser extent during the first few months of 2016. I am stunned at how many high quality businesses trade for mid-single digit cash flow multiples—despite strong balance sheets. I’m even more stunned at how many slightly leveraged businesses trade at low single digit cash flow multiples. It’s outright insane how many companies trade for massive discounts to NAV. Take a look at shipping for instance—you have dozens of companies where you can liquidate the fleet and double your money based on current vessel values. This is despite the fact that charter rates are up and values are increasing. Of course, this still doesn’t quite compare to anything exposed to the energy sector. These things are being given away as dozens of energy funds liquidate and sell everything they own. You could say that some of these businesses are challenged—they aren’t all challenged. Moreover, they shouldn’t all be declining by a few percent a day—with hardly an up day.

What is going on?

You are witnessing a massive culling of the hedge fund industry as hundreds of funds are liquidated and thousands more get sizable redemptions. Many of these funds own the same companies—the outcasts from the indexed world, the cheap, the unloved; the same stocks that many other hedge fund managers own. With the hedge fund industry going in reverse, there is suddenly no natural buyer for what must be sold. As a result, you are seeing waves of forced sell orders and few buyers. It is creating rather insane bargains all around.

Like all trends, this one too will end. If your fund is facing a year-end redemption, you need cash in hand by December 31 and you probably finish selling a few days before then. Therefore, at most, there’s 9 ½ days left to make sales. It may get even uglier—it may not. No one knows how to time this.

What I suspect, is that the pain will finally abate in two weeks. Or at least the forced selling pain will be done. If you look at Q4, despite only a small drop in the S&P, it has been one of the most painful that my friends or I can remember. There are lots of guys down 20% to 30% this quarter and suddenly forced to de-lever further, to get their risk ratios in order. This sort of pain and indiscriminate selling creates lots of opportunities.

I am bearish on the overall market—I am bearish on the economy. Increasing interest rates will matter more than people realize. There’s a reason that I sold so many positions this summer—I wanted less exposure. I was afraid this would happen. All of those positions that I sold are down substantially from where I sold them—even though most have reported great results. In a downdraft, even the good companies get hit.

Despite my bearishness, I have been putting capital back to work over the past two weeks. Many of the companies that I am buying are down more than half this year—some are down a whole lot more. It’s the most exciting opportunity I’ve seen since 2016—even though I have been a bit early in buying some names. I suspect that even if the overall market is down dramatically during 2019, the bargains of late 2018 will shine given their current valuations—especially as many institute buybacks to soak up the newly freed up shares hitting the market. Christmas has come early once again—at least in the stock market—I might as well take advantage of hedge fund Armageddon.

Read more over at Adventures In Capitalism

Published:12/16/2018 5:18:22 PM
[Markets] To All The World-Improvers' & Justice-Warriors: "Shut Up And Play Yer Own Cards"

Authored by Mark Jeftovic via Guerilla-Capitalism.com,

A few months ago I had formed a useful metaphor about the underlying mechanisms at play when those concerned with social justice want to improve things for the greater good. This is nothing new, Bill Bonner & Lila Rajiva wrote an entire book on this called Mobs, Markets & Messiah’s wherein they examined the trail of wreckage left behind by what they called “world improvers” like Che Guevara, Pol Pot, Stalin, the list goes on.

As they saw it:

“The trouble with the big wide world is that it is never good enough for some people. They keep trying to improve it. No harm in that, you should always try to make your world a better place. Wink at a homely girl, or curse a bad driver. But the world improvers are rarely content with private acts of kindness. Instead, they want gas chambers and Social Security –vast changes almost always brought about at the point of a gun. Thus is was that central banks were set up and given the power to control what doesn’t belong to them, your money. Thus it came to be that we got regularly felt up by strangers at airports –and thought it normal”.

Bonner expanded on that further in “Hormegeddon: How Too Much Of a Good Thing Leads To Disaster”, where, with due props to Nassim Taleb for introducing the concept of hormesis into the public lexicon. Hormesis describes how some things that might benefit us in small doses, almost certainly destroy us as we amp up the volume.

The metaphor I came up with was this: all any of us can do in these mortal coils of ours is to play the cards life deals us as best we can. That’s it. We have no other control over anything else. If we try to exert control over anything else, we are assuring disappointment for ourselves and grief for others.

If we have a halfway decent ethical compass, we’ll try to refrain from playing our hand in a way that would unfairly penalize others: no aces up our sleeves, or peaking at the other players hands. We would play a straight up game, not cheat, and expect the other players to play the same way, and if they don’t, we would avoid playing with them.

That’s basically life, and the golden rule, in a nutshell. Some famous rabbi once remarked, “everything is The Golden Rule, all else is commentary”.

But there are those for whom that isn’t good enough, these are what Bonner and Rajiva called “The World Improvers” or what today we would call social justice warriors. They aren’t satisfied playing the cards they are dealt to the best of their own abilities.

Because fate is unfair and luck is unevenly distributed they feel the need to:

1) Control the cards fate deals to the other players

“Now we’re getting somewhere” the social justice warrior might think. Life is unfair. If we can force life to deal the same hand to everybody, and then it’ll be fair. Then we can all play the game with the understanding that nobody is playing from an exalted position of privilege. Although sometimes, that can get tricky so you really have to  monkeyhammer the deck to ensure that equality ensues.

Charles Hugh Smith’s “Inequality and the Collapse of Privilege” sheds some insight that I think is lost on many social justice warriors. Beyond the obvious point that equality of outcomes is impossible and what we should really be striving for is equality of opportunity, Smith also makes a distinction between advantage  and privilege. 

The difference is that an advantaged class operates from a position of earned benefit, while a privileged class operates from an unearned one.

When the Globe and Mail’s Margaret Wente wrote the think piece “How Privileged Are You? Take this Test and Find Out“, it is clear that this distinction is lost on her. My quip when I first read it was that the dilemma she identified as privilege could be completely alleviated if children simply refused to be raised by parents who made sound life choices. Problem solved.

Another example is that “What is Privilege” video you have probably had shoved in your face at least once on social media that has over 3 million views on Youtube. It enumerates 35 markers of ‘privilege’ (such as “If you came from a supportive family environment”, “If there were more than 50 books in your household”…)

What Wente, the directors of this video and others fail to differentiate is between those who, for example, are raised within the inner circles of the economic / financial / political elites, who can borrow newly created money at near-zero interest, use it to buy up assets and income streams, then get bailed out by the state if the wheels come off (privileged); versus, say, a double-income couple who tough it out through marital stresses, support each other through university, live below their means and save enough money and cultivate enough stability to give their kids a stable foundation in life. That’s not privilege, that’s advantage. Earned advantage.

That’s actually the way it’s supposed to work! Your parents are supposed to raise children with the added benefit of what they learned themselves, each generation becoming a bit wiser, healthier, and self-actualized than the preceding generation. When that happens we shouldn’t be telling these kids something is wrong, what we should be doing is looking at why so many parents are failing at the job of parenting.

As Chris Rock puts it, “Dads, if your daughter ends up on the pole, that means you fucked up”.

But to the social justice warriors, because of the uneven outcomes, those who plan ahead and think through outcomes, especially if they’ve been trained to do that by their parents who learned that from their parents, and so on, find that “problematic”. It’s unfair.

But not to worry, when the social justice warriors cannot control the cards life deals to all the players, there is always the next logical step, and that is to

2) Control how the other players are permitted to play their own cards.

Now we’re really getting somewhere. Because life, fate, history, geopolitics et al are unfair, we can still even things out for everybody by simply dictating to the other players what they must or must not do with the cards they’ve been dealt.

I got an example of this personally this week when I sent out my weekly #AxisOfEasy newsletter, and put in the following postscript:

P.S Our little mastodon community is growing nicely, why not set up a free account  where you can openly admit to liking the song “Baby it’s cold outside” without fear of recrimination or doxxing.

The wholly contrived controversy around the song “Baby It’s Cold Outside” could only have been ignited by somebody with too much spare time on their hands who was on a mission to be offended. Nevertheless, it’s illustrative in that it gives us a microcosm example of the kind of neo-Jacobin Terrors we’ll all wind up under if we don’t vigorously challenge political uber-correctness like this. (Progressives frequently ruminate over the normalization of “hate”.  What I worry about being normalized is being told what I can and can not like or think).

Perhaps unsurprisingly, somebody who saw the newsletter did take offense to my postscript, and emailed me:

Please don’t advertise your community with such a trashy song. It seemed like you had good motivations for making your mastodon instance. But then you throw in a song that’s basically AT BEST trivializing daterape, and it makes you sound like a real piece of MRA shit.

Let’s pause here to observe the fact that if you examine the lyrics to “Baby It’s Cold Outside”, what is clear is that it is not “AT BEST trivializing date rape”, it is doing that only at worst, and only if one really shoehorns their own misanthropically biased interpretation into it. You really have to work to get there because it comes down to a single line in the song that has at least 3 or 4 other, more soulful interpretations off the top of my head.

I am belabouring this for a reason, and I am choosing this example because what happens next is the perfect illustration of how world improvers think things should work, as opposed to how the world actually works:

I wrote him back:

“with all due respect, it’s a song with innocuous lyrics, what that song means to any given person is a matter of how they choose to interpret it, and completely at their own discretion. That song happens to be very meaningful to my wife and I and we remember it fondly and romantically. I will not be told to feel bad for that or to abandon the memories, the meaning or the love that a song invokes, or otherwise disavow a deeply personal experience by those who would be hell bent on imposing their own hyper-moralistic tunnel vision on everybody else.

Also I don’t appreciate being called an MRA shit, next time you want to take an issue up with me keep it clean and be civil.”

to which he replied

Calling for civility is the refuge of those who wish for no judgment or consequences about their words and positions, and it’s a poisonous seed that grows into the flaming misogynist neonazi trash heap. I understand you disagree and have your own fond memories of the song, but in return I ask you to understand that your own nostalgia may cloud your vision.

I’m breaking this exchange out in excruciating detail because it presents a textbook example of how world improvers and social justice types frame conversations and are incapable of accepting what they see as non-conforming views.

What his response amounts to is that he, the social justice warrior, is permitted to hurl verbal abuse and profanity at me, and I am not allowed to object to that. By doing so I am somehow shirking my responsibility toward him. Further, it doesn’t matter if I am offended by what he said to me, what matters is that he is offended by something that might be going on in my head. Finally, despite my own feelings toward a song that has nothing to do with him, it’s my vision that may be clouded, and should by extension be re-educated, not his.

This type of exchange is typical of attempts at dialogue with the militant progressives, and they all follow a typical arc:

  • The social justice warrior seeks out, and purportedly finds some innocuous or misunderstood issue to be offended about.

  • The SJW then defines the terms of the dialogue so that any opinion they have about it is relevant and meaningful, while anything you have to say about it is out-of-scope and problematic. They may invent some neologism to neutralize your logic (i.e “Thomas Sowell is alt-right-adjacent, so nothing he ever said counts”) or they may just fall back to the old stand-by’s of calling you a Nazi and a racist.

  • (Also, the SJW has full license to behave with rudeness, treat you with sanctimony and derision, and resort to ad hominem attacks)

  • Finally, especially if this taking place on social media, when SJWs find themselves boxed into a corner, bounded by  their own contradictions and hypocrisy, they’ll just block you. (Kissinger: “Declare victory,  then withdraw”).

As Thomas Sowell once wrote:

“One of the most pathetic – and dangerous – signs of our times is the growing number of individuals and groups who believe that no one can possibly disagree with them for any honest reason”

The obvious solution here is…

This post’s title is a riff on Frank Zappa’s “Shut Up and Play Yer Guitar”. In 1986 Zappa gave testimony before the Maryland State Legislature about a proposed bill that would have expanded the definition of pornography to include music:

It is my personal feeling that lyrics cannot harm anyone. There is no sound that you can make with your mouth, or word that will come out of your mouth, that is so powerful that it will make you go to hell.

It’s also not going to turn anyone into a ‘social liability.’ ‘Disturbed’ people can be set off on a ‘disturbed’ course of action by any kind of stimulus. If they are prone to being antisocial or schizophrenic or whatever, they can be set off by anything, including my tie, or your hair, or that chair over there.

You can’t point to the statistics concerning ‘people doing strange things in the vicinity of rock music,’ because all you’ve got to do is look around at all the normal kids who listen to it and live with it every day who do not commit suicide; they don’t commit murder [ or date rape – markjr ], and they grow up to be, in some cases, legislators.

Anybody who feels “Baby it’s Cold Outside” is an affront to their decency can go ahead and not listen to it. To that end, the same day my exchange took place, CBC radio, the network that started the entire #BabyItsColdOutside debacle by removing the song from their Christmas playlist, reversed it’s course in the face of overwhelming public outcry and reinstated it, with the comment:

“Appreciating not everyone interprets lyrics the same way, listeners may wish to skip the song as we understand not everyone will agree with this decision.”

In other words, CBC is telling one and all to “Shut up and play yer own cards”.

Published:12/16/2018 2:20:43 PM
[Culture] Bah, Humbug

In the midst of all the new Christmas books that every year brings us, in the midst of all the made-for-Netflix holiday programs, in the midst of all the productions of The Nutcracker, in the midst of all the seasonal movies (from It’s a Wonderful Life to Die Hard), in the midst of all the Yuletide television specials, it might be worth remembering an indisputable truth about Christmas art: The single most successful bit of seasonal fiction is Charles Dickens’s A Christmas Carol.

The post Bah, Humbug appeared first on Washington Free Beacon.

Published:12/15/2018 6:40:36 AM
[World] [Ilya Somin] Thoughts on Today's Federal Court Decision Against Obamacare

The judge was right to conclude that the individual health insurance mandate is now unconstitutional, but wrong to rule that the rest of the ACA is now unlawful because it can't be severed from the largely toothless mandate left in place under the 2017 GOP tax bill.

Earlier today, Federal District Court Judge Reed O'Connor issued an important ruling in a case brought by twenty GOP-controlled state governments, arguing that the Obamacare individual health insurance mandate is now unconstitutional, because the tax reform bill Congress passed in December 2017 eliminates the monetary penalty for violation. Much more importantly, the states also claim that the rest of the Affordable Care Act must fall with the mandate because it cannot be "severed" from it. Judge O'Connor ruled in favor of the states on both counts. I think he was right on the first issue, but badly wrong on the second. Like co-blogger Jonathan Adler, I think it is highly likely that this part of the judge's ruling will be overturned on appeal (though, for reasons discussed below, I am a bit less confident on that score than he is).

On the plus side, Judge O'Connor correctly concluded that the post-2017 version of the mandate is now unconstitutional. The judge goes into a long and involved analysis of the issue. But the bottom line is simple. In NFIB v. Sebelius, the original Obamacare case, Chief Justice John Roberts' controlling opinion rejected claims that the individual health insurance mandate can be upheld under Congress' power to regulate interstate commerce, or under the Necessary and Proper Clause. He ultimately upheld it only because it could be reinterpreted as a tax. That theory no longer holds, for reasons I explained here:

Roberts listed several factors that led him to conclude that the mandate can be considered a tax. But a crucial one is that the violators were subject to a fine collected by the IRS. As Roberts put it, "the essential feature of any tax [is that] it produces at least some revenue for the Government."

In December 2017, the GOP Congress enacted a tax bill that.... abolished the fine previously imposed on people who disobeyed the ACA health insurance mandate. The mandate itself remains on the books. But violators are no longer subject to any penalty. For this reason, the state plaintiffs in the newly filed case argue that the mandate can no longer be considered a tax. In the absence of a financial penalty, it no longer "produces" any "revenue for the Government." Indeed, it no longer even tries to do so.....

The plaintiffs are absolutely right on this point. A tax that does not require anyone to pay anything is like a unicorn without a horn. It is pretty obviously not a tax at all.

As I explained in a post published back in June, I think this aspect of the case is important in and of itself, and not just because of the potential implications for the rest of the ACA. But almost everyone else following the current Obamacare litigation seems to care only about the severability issue. The fate of the ACA hinges on it, whereas few worry about the fate of the now-toothless mandate for its own sake.

And Judge O'Connor's analysis of the severability issue is badly flawed. When one part of a statute is ruled unconstitutional, courts are not supposed to strike down other parts of the same law unless they are inextricably connected and Congress would not have intended the latter to function without the former.

In today's opinion, O'Connor demonstrates at length that Congress considered the individual mandate to be an "essential" part of the Affordable Care Act when it was first enacted back in 2010. However, the mandate that reasoning applies to was the original version that included a penalty. Congress' 2010 legislative findings and other statements about the importance of the mandate simply do not apply to the post-2017 version, which no longer imposes any penalty for violation. It just doesn't make any sense to conclude that an essentially toothless mandate is "essential" to the ACA. And that is the version whose relevance the court must consider in the current case.

Judge O'Connor's analysis of the post-2017 version of the law is brief and cursory. He notes, correctly, that the 2017 Congress did not repeal the 2010 findings on the supposedly "essential" nature of the mandate, and that it did not make any new findings on this subject. But none of this changes the fact that the court's job is to evaluate the essentiality (or lack thereof) of the present version of the mandate, not the one that existed before December 2017. The 2010 findings do not apply to the former, and Congress did not need to make any new findings to demonstrate the fairly obvious point that a virtually toothless mandate is not essential to anything. Under the 2010 version of the ACA, it was plausible to argue that the mandate was a nail for want of which the battle (or, in this case, the ACA) would be lost. The current version is akin to a rusty nail that no longer holds up anything, and indeed no longer even has a sharp point.

For those interested, there is a more extensive discussion of the severability issue in the amicus brief I joined with several other legal scholars, including Jonathan Adler, Nicholas Bagley, Abbe Gluck, and Kevin Walsh. But, to my mind, at least, the issue really comes down to the simple common-sense point that a mandate without teeth cannot be considered essential to anything. For what it is worth, Adler and I believe that the original Obamacare mandate was unconstitutional, and he was one of several legal scholars who joined the amicus brief I wrote against it (we also later coauthored a book about the case). Bagley and Gluck were on the other side of that issue. But we are on the same page when it comes to the severability question.

As already noted, I do not expect this ruling to survive on appeal. But I am not quite as confident on that subject as most other commentators seem to be. The fact that one federal judge has endorsed the states' severability argument increases the odds that others might, as well. The history of ACA-related litigation is filled with surprises and failed predictions by experts. My own predictions about the original Obamacare case were right on some key points, but wrong on others. So it is certainly possible I could turn out to be wrong about a key aspect of this case, as well.

There is, however, one important distinction between the 2012 ACA case and the current one. Despite repeated claims to the contrary by the law's defenders, there was never a broad, cross-ideological consensus in favor of the constitutionality of the individual mandate. From early on, prominent conservative and libertarian legal scholars and commentators argued that the law was unconstitutional. The issue was one that divided experts largely along ideological lines. Thus, judges could (and did) write plausibly defensible opinions on either side of the issue.

By contrast, expert support for the states' severability argument in the present case is notable by its near-total absence. Those conservative and libertarian legal scholars who have opined on the subject have almost all argued that the states' position is badly wrong. That doesn't necessarily mean the states cannot win. Judges don't have to listen to expert commentators, and sometimes even go against their consensus views. But lack of intellectual respectability does make it much harder for a controversial new argument to prevail, especially in a high-profile case like this one.

UPDATE: I wrote this post before I had a chance to see Jonathan Adler's update to his own post about this ruling, where he offers a similar critique of the severability part of the decision.

Published:12/14/2018 11:37:19 PM
[Markets] Credit On Verge Of Crisis: $176 Billion A-Rated Bonds Downgraded To BBB In Q4

While the market's frenzied attention has lately shifted to the cracks appearing in the leveraged loan market, which as we reported last night is seeing the "wheels come off" following record outflows, a collapse in loan prices, massive original issue discounts, pulled deals, banks retaining loans on their books unable to find buyers and a general sense that the market is about to freeze, one should not forget the original bogeyman that many believe will be the cause of the next credit crisis when the upcoming recession finally hits: a wholesale downgrade of investment grade (or BBB) rated companies into the junk space as rating agencies finally wake up to the reality of what the combustible mix of record debt, declining cash flows and a contracting economy mean for US corporations.

And it is here that things are once again moving from bad to worse.

Recall that just two weeks ago we reported that no less than $90 billion in A-rated bonds had been downgraded to the lowest investment grade rating, BBB, below which companies become "fallen angels" as they move from investment grade to high yield, resulting in forced liquidations as countless vanilla funds are simply not permitted by their mandate to retain junk on their books.

Fast forward to today when Goldman reports that just two weeks after our original report, the number of A to BBB downgrades has doubled to a whopping $176 billion in the fourth quarter, just shy of the all time high hit in Q4 2015, and with several more weeks still left this quarter, it is likely that a new downgrade record will soon be hit.

As Goldman's Lotfi Karoui writes overnight, there are good and bad news in the recent data.

The good news is that in the credit strategist's opinion, the downgrade risk is higher among A-rated issuers than it is among their BBB-rated peers.

The bad news is that Goldman may have been "too" correct, as this view has continued to play out through 4Q2018, and "quarter to date, over $176 billion of debt has migrated into BBB territory from the A bucket; the highest amount since 4Q2015, which was a period characterized by a heavy wave of commodity-related "fallen angels".

Meanwhile, as shown by Exhibit 2, $12 billion worth of bonds rated A- remain on downgrade watch, and while Goldman believes that this is a relatively modest number, "we think it is worth bearing in mind that downgrades can – and often do – occur when a rating has a stable outlook."


Putting these trends in context, Goldman writes that over the long term, "we continue to believe the risk of negative rating action in the high end of IG remains elevated, more so than in the BBB bucket" and highlights one recent example from this week in which the announcement of a debt-funded share buyback – and the related deterioration in leverage – served as the catalyst for a downgrade into BBB territory.

We do not view this as a unique example. As we discussed recently, the willingness of many highly-rated IG firms to utilize their ample debt capacity for maintaining (or increasing) shareholder returns and pursuing M&A opportunities in 2019 is strong.

So yes, Goldman may be right, and it is likely that the even bigger risk of a "fallen angel" avalanche is the downgrade of A-rated names to BBB. But while rating agencies are clearly adding to the pre-fallen angel camp, there is no denying that the big threat is what happens if and when the BBB downgrade deluge begins. As Deutsche Bank calculated last month, when looking at those bonds most at risk of getting junked, $150bn of the $736bn of BBB- bonds are currently on negative watch/outlook with at least one rating agency, and in danger of imminent "junking."

And while Goldman remains clearly complacent about the BBB space at least until a recession hits, as Deutsche Bank warned last week, even before we get to an economic slowdown - some time in 2020 - or even before the market start pricing the slowdown in, "it feels like the tide might be turning and we start to see fallen angels outpace rising stars over the next year."

So there you have it: for those who believe a recession is either imminent or will soon be priced in, keep shorting the BBB space. Meanwhile, those who think it will take some more time before the rating agencies filter out the noise, the best place to be short is those "pre-fallen" A bonds which will first become BBBs, before they too join the deluge into the junk space, some time around late 2019/early 2020.

Published:12/14/2018 10:34:15 AM
[Books] A Whitaker Chambers Xmas revisited (Scott Johnson) A friend asked me to recommend a book about Whittaker Chambers as a Christmas gift for her smartly conservative daughter a few years ago. Chambers stands at the center of an incredible drama and several fantastic books that I know of about him. There is still much to be learned from him and his case. I want to revisit and expand the list this year with a little help from Published:12/14/2018 7:06:04 AM
[Markets] European Court Of Human Rights Blasphemy Laws: Where A Word Out Of Place Can Cost Your Life

Authored by Denis MacEoin via The Gatestone Institute,

  • The European Court of Human Rights ruled that criticism of Muhammad constitutes incitement to hatred -- meaning that in Europe, criticizing Muhammad is no longer protected free speech.

  • What the court has actually done, however, is rule out the possibility of any debate in which a range of various experts and members of the public could take part. Now, it seems, the only views that will be respected in the public forum are those of devout Muslims.

  • Underage marriages are considered by some countries child abuse or statutory rape, but are acceptable under shari'a law; they also take place in Muslim communities in Western countries such as the UK. This alone is a major reason why platforms must be found to debate the issue instead of sweeping it, as something offensive, under the carpet. Ignoring it is offensive.

  • Moreover, as some Muslims are often offended by even small matters regarding their faith, such as a toy teddy bear named Mohammad or a prisoner on death row declared innocent -- so that mobs take to the streets to condemn, or even kill, those individuals -- what now will notbe censored in the West?

Under Islamic shari'a law, statements that even a few people may consider blasphemous -- such as young schoolchildren naming a toy teddy bear Mohammad, a common enough name in the Sudan -- might be treated as criminal offences. (Image source: Maxpixel)

There are, of course, social settings where it pays to watch your words. Saying you fancy the looks of a mafioso's new girlfriend could well prove fatal. Spending time with a bunch of Hamas terrorists while expressing your love for Israel might not lead to your premature demise. In London today, young men who make remarks or play music to other youths on the street can wind up stabbed to death. A recent comment on The Independent website claims, "In this country [the UK], some views, regardless of how valid and logical, can result in anything from public rebuke to loss of a job to violence."

For the most part, we learn how to avoid words or actions that may offend someone or some group, especially if it is known to be prone to violence. Yet these misfortunes are rare and we live our lives on the assumption that in democratic countries, we can speak freely within the norms of civil society. We recognize that in many countries, racist, homophobic, antisemitic, or "Islamophobic" hate speech can be reported to the police and lead to the arrest and eventual trial of the speaker. The United States' First Amendment to its Constitution protects its citizens from prosecution for free speech, except where there is a credible threat of "Imminent lawless action."

If angry exchanges take place, they are just a consequence of living in countries where free speech and unfettered opinion are cherished. We have seen what happens in countries where there is no free speech –as the Soviet Union or present day Pakistan (herehere and here); it often is not pretty and in much of the West is regarded as well worth the trade-off.

Particular sensitivities surround religious ideas, and histories. Nowhere is this more apparent today than in the instance of Islam, where anything untoward, especially statements that even a few people may consider blasphemous -- such as young schoolchildren naming a toy teddy bear Mohammad, a common enough name in the Sudan -- might be treated as criminal offences. In the West, within secular democratic states, most churches mercifully appear no longer interested in controlling matters such as blasphemy. When I lived in the Irish Republic in the 1960s and early 1970s, the Catholic Church held a tight grip on society. Books were banned, including by James Joyce, D.H. Lawrence and all of Sigmund Freud. Films and plays were also banned or censored. The intolerant ban on Catholicsstudying at Trinity College Dublin perpetuated injustice. Since the 1960s, however, we now have same-sex marriage, women's right to abortion, and an openly gay Taoiseach (Prime Minister). This year, on October 6, a majority of the Irish voted in a referendum to abolish the blasphemy law that had been in its constitution since 1937. The country has liberalized remarkably.

Ironically, while Ireland's 2010 blasphemy law was still technically on the books (although never actually implemented ), the 57-state Organization of Islamic Cooperation (OIC) – consisting of 56 mostly Muslim states plus "Palestine" -- cited it in 2009 during an attempt to impose an international blasphemy law on the UN. Also in 2009, the government had passed a new Irish Defamation Act that contained a full definition of the blasphemy law (the one abolished this year). This vote took place during a committee meeting for the 13th session of the UN Human Rights Council. The proposal, made on behalf of the OIC by Pakistan, used the Irish definition:

38.1 States parties shall prohibit by law the uttering of matters that are grossly abusive or insulting in relation to matters held sacred by any religion thereby causing outrage among a substantial number of the adherents to that religion.

We do not know if the principal motivation for the OIC came less from a concern about religions that Muslims might consider entirely false, abrogated and inferior, such as Judaism or Christianity, or more from a concern that no one should be allowed to criticize Islam.

In any event, Ireland finally woke up to the injustice of its blasphemy law, and the damage it was doing to its growing reputation as a country purporting to observe human rights.

Figures for blasphemy laws worldwide were recently cited by the Pew Research Center in its 2016 report on "Trends in Global Restrictions on Religion":

We found that laws restricting apostasy and blasphemy are most common in the Middle East and North Africa, where 18 of the region's 20 countries (90%) criminalize blasphemy and 14 (70%) criminalize apostasy. While apostasy laws exist in only two other regions of the world – Asia-Pacific and sub-Saharan Africa – blasphemy laws can be found in all regions, including Europe (in 16% of countries) and the Americas (29%).

Possibly a better way of expressing concerns about blasphemy laws is to list the 30 Islamic countries that have such regulations, 13 of them imposing the death penalty for the offence. Here they are, in alphabetical order. Some offer life imprisonment. The ones in bold print carry death sentences:

  • Afghanistan
  • Algeria
  • Bahrain
  • Brunei
  • Egypt
  • Indonesia
  • Iran
  • Iraq
  • Jordan
  • Kuwait
  • Lebanon
  • Libya
  • Mauritania
  • Malaysia
  • Maldives
  • Morocco
  • Nigeria
  • Oman
  • Pakistan
  • Palestinian territories
  • Qatar
  • Saudi Arabia
  • Senegal
  • Somalia
  • Sudan
  • Tunisia
  • Turkey
  • United Arab Emirates (UAE)
  • Western Sahara
  • Yemen

With this disturbing list in mind, let us consider at least one dangerous development in Europe. More than one Western country is bringing forth legislation that will allow Islamic blasphemy laws in through the back door. In 2017, Canada passed Motion M-103, regarded as a shari'a blasphemy law forbidding free speech about Islam. Although at this stage it is "non-binding, one of its supporters, Samer Majzoub, president of the Canadian Muslim Forum and affiliated with the Muslim Brotherhood, wrote, "Now that Islamophobia has been condemned, this is not the end, but rather the beginning."

The most recent and glaring of these initiatives involves not a country, but the supranational, unaccountable European Court of Human Rights, a body that issues rulings enforceable in all 57 countries of the OIC that are signatories to the European Convention on Human Rights. Forty-seven of the signatory states are members of the Council of Europe, which is different from the 28-state European Union (although all EU states also belong within the Council).

There are, as well, other bodies to be taken into consideration – ones that open up another Pandora's Box.

Even though the primary focus of the Council of Europe is the wide network of its member states, it also has close links to, and shares activities with, a large range of international institutions. Through a variety of conventions and treaties, it helps set legal standards for those states, both members and non-members. Those non-member states include many familiar Western countries such as the USA, Canada, Israel, and Australia among others. These are states in which the values in areas such as human rights are closely aligned to those of the European member states. Many of the Council's conventions concern human rights, the protection of democracy, and the prevention of racial and other forms of intolerance.

The Council of Europe also engages with a variety of Muslim states, many of which are included on the list above of countries that enact laws on blasphemy. At a minimum, these include Algeria, Lebanon, Malaysia, Mauritania, Morocco, Senegal, and Tunisia.

The Council also has several other conventions on human rights, including

These and other positions of the COE clearly align with, and develop, the 1948 Universal Declaration of Human Rights, and are solidly founded within modern Western democratic values.

The Council has set out its human rights principles in its Convention for the Protection of Human Rights and Fundamental Freedoms. Article 9 of that Convention deals with "Freedom of Thought, conscience and religion":

"1. Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief and freedom, either alone or in community with others and in public or private, to manifest his religion or belief, in worship, teaching, practice and observance.

"2. Freedom to manifest one's religion or beliefs shall be subject only to such limitations as are prescribed by law and are necessary in a democratic society in the interests of public safety, for the protection of public order, health or morals, or for the protection of the rights and freedoms of others."

The following article (10) deals with Freedom of Expression. It begins:

"Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers."

However, its second part does permit restrictions:

"in the interests of national security, territorial integrity or public safety, for the prevention of disorder or crime, for the protection of health or morals, for the protection of the reputation or rights of others."

Of relevance to some of the Islamic states referred to above, Protocol 6 of the Convention deals with the abolition of the death penalty. The Protocol in Article 1 states that: "The death penalty shall be abolished. No one shall be condemned to such penalty or executed."

With these background facts, it is important to look at what happened on October 25 this year when the European Court of Human Rights issued its verdict on a case involving an Austrian woman, called Mrs. S., presumably Elisabeth Sabadtisch-Wolff, and an appeal she had made to the court to protect her right to free speech over a sensitive but factually correct issue concerning the Prophet Muhammad.

There is no room here for a full account of the woman in question, but readers may consult the details by the Soeren Kern here and here. What it amounts to is that Mrs. Sabaditsch-Wolff had given seminars about Islam in which she had drawn attention to the well-attested fact that Muhammad had married one of his eleven official wivesA'isha, when she was six, and consummated the marriage when she was nine. He apparently continued to have sexual relations with her until his death in 632, when she would have been eighteen.

Sabaditsch-Wolff was reported to the authorities for claiming that Muhammad "liked to do it with children. A 56-year-old and a 6-year-old? . . . What do we call it, if it is not pedophilia?". She was arrested and tried in 2009 through 2011, sentenced for "denigration of religious beliefs of a legally recognized religion", fined €480 ($625) and threatened with three months in prison. She appealed to Vienna's Provincial Appellate Court, which turned her down. Finally, she took her appeal to the European Court of Human Rights. That court, which reported on October 25, 2018, ruled that criticism of Muhammad constitutes incitement to hatred -- meaning that in Europe, criticizing Muhammad is no longer protected free speech. In their judgement, the judges wrote that defamation of Muhammad "goes beyond the permissible limits of an objective debate" and "could stir up prejudice and put at risk religious peace."

The judgement will have an ongoing negative impact not only on Sabaditsch-Wolff, who will carry a criminal record for the rest of her life, with the resulting serious effects on her career and other matters, but all of the West, as well. It has certainly banned her and others from exercising their right to free speech asserted in the Convention of the Council of Europe.

Now, it could well be argued, as the ECHR did, that Sabaditsch-Wolff expressed her concerns about Muhammad's sexuality without due attention to the historical and cultural context within which his marriage to A'isha took place. The ECHR did indeed argue this. The ECHR cited the Judgement of the Austrian courts:

"The national courts found that Mrs S. had subjectively labelled Muhammad with pedophilia as his general sexual preference, and that she failed to neutrally inform her audience of the historical background, which consequently did not allow for a serious debate on that issue."

What the court has actually done, however, is rule out the possibility of any debate in which a range of various experts and members of the public could take part, to exchange views on a clearly controversial and unresolved subject. Now, it seems, the only views that will be respected in the public forum are those of devout Muslims.

The ECHR ruling also, unfortunately, will have an even wider impact across Europe and the world. The present writer, unlike Sabaditsch-Wolff, has a doctorate in Islamic studies and languages.

If I were to refer to the original Arabic texts of the sacred traditions (ahadith) in which the story of Muhammad's marriage and sexual relations with A'isha -- texts officially held to be factually correct by all Sunni Muslims -- might I too now be put on trial for the same offence? Or if I were to write an article giving details of the approximately 40 individuals who were assassinated for having insulted the prophet on Muhammad's direct orders or whose assassinations were approved by him? What if, in the article, I also added comments on what this might indicate, backed up by chapter and verse of the Muslim histories and sacred traditions that record them, should I then be brought before a court, sentenced, fined or sent to prison?

Will no academic or well-informed individual in future be able to say anything about Muhammad, or will that now be legally prohibited? Moreover, as some Muslims are often offended by even small matters regarding their faith, such as a toy teddy bear named Mohammad or a prisoner on death row declared innocent -- so that mobs take to the streets to condemn, or even kill, those individuals -- what now will not be censored in the West?

It may well be suggested that Muhammad's sexual preferences are matters of purely historical interest, but in many Muslim countries, the proper age for marriage is determined, not according to the standards of the ECHR or other international bodies, but on the strength of the firmly established sacred traditions that help form the basis, alongside the Qur'an and the ahadith, of Shari'a law. In many countries, child brides are still commonplace, often in marriages that are forced – as, for instance hereherehere and here.

In some Muslim countries, such as Yemen, marriages at early ages are not uncommon and may be justified by reference to Muhammad's sexual relations with A'isha at the ages of 9. Underage marriages, considered by some countries child abuse or statutory rape, but acceptable under shari'a law, also take place in Muslim communities in Western countries such as the UK. This alone is a major reason why platforms must be found to debate the issue instead of sweeping it, as something offensive, under the carpet. Ignoring it is offensive.

As noted earlier, the Organization of Islamic Cooperation has been trying for years to persuade the UN Human Rights Council to adopt a general blasphemy law that will block anything deemed by someone as critical of one faith alone-- namely Islam.

A few weeks ago, the Islamic Republic of Pakistan informed the UN of an initiative for an international campaign to criminalize criticism of Islam.

This year, a significant and influential Western human rights court has shown the future potentially in store for us. It is not hard to imagine that the OIC is already making plans to employ the ECHR as its agency of choice for officially introducing the law it has coveted for so long: "Defamation of religion," meaning just one faith, Islam. There do not seem any plans afoot to stop criticizing Christians or Jews, or Christianity or Judaism. If the ECHR builds a foundation for universal censorship, how long will it be before the UN Human Rights Council, pressured by its Islamic state members, will fall in line?

I already wrote about this possible threat to all of us:

The chief threat to free speech today comes from a combination of radical Islamic censorship and Western political correctness... [W]e are free to call to account any religion from Christianity to Scientology, Judaism to any cult we choose....

It used to be possible to do this with Islam as well.... But many Muslim bodies -- notably the 57-member-state Organization of Islamic Cooperation (OIC) -- have been working hard for years to render Islam the only religion, political system and ideology in the world that may not be questioned with impunity. They have tried -- and are in many respects succeeding -- to ring-fence Islam as a creed beyond criticism, while reserving for themselves the right to condemn Christians, Jews, Hindus, democrats, liberals, women, gays, or anyone else in often vile, even violent language. Should anyone say anything that seems to them disrespectful of their faith, he or she will at once be declared an "Islamophobe".

Barely two and a half years later, that may soon come to pass. We need to take swift collective action to fight this death to free speech that such initiatives pose to freedoms that we revere in the West and to which so many millions elsewhere aspire.

Published:12/14/2018 2:34:57 AM
[Markets] "Acceptable Racism..."

Authored by Walter Williams, op-ed via Townhall.com,

How appropriate would it be for a major publicly held American company to hire a person with a history of having publicly made the following statements and many others like them? (In the interest of brevity, I shall list only four.)

"The world could get by just fine with zero black people."

"It's kind of sick how much joy I get out of being cruel to old black men."

"Dumbass f---ing black people marking up the internet with their opinions like dogs pissing on fire hydrants."

"Are black people genetically predisposed to burn faster in the sun, thus logically only being fit to live underground like groveling bilious goblins?"

I think most Americans would find such blatant racism despicable and would condemn any company that knowingly hired such a person. Leftists of every stripe would be in an uproar, demanding the dismissal of such an employee. College students and their professors would picket any company that hired such a person. I could be wrong about this, so I'd truly like any employer who'd hire such a person to come forward.

Most Americans would see such statements as racist, but consider this: Suppose we slightly changed the wording of each statement, replacing the word "black" with "white."

For example, "The world could get by just fine with zero white people."

Would you consider that statement to be just as racist? I would hope you'd answer in the affirmative. They're all racist statements!

The full scoop on those statements can be found in an excellent essay by William Voegeli, "Racism, Revised," in the fall edition of the Claremont Review of Books. The racist statements about white people were made by Sarah Jeong, one of the newest members of The New York Times' editorial board. Jeong attended the University of California, Berkeley and Harvard Law School. She decided to become a journalist specializing in technology and the internet. She has an active Twitter account with over 97,000 followers.

One person excused Jeong's tweets by saying they "were not racist" but merely "jokes about white people."

Leftists have been taught utter nonsense by their college professors. The most insidious lesson taught is who can and who cannot be a racist. Jeong was born in South Korea in 1988 and became a U.S. citizen in 2017, so she is a minority. According to the thinking of academia's intellectual elite, a minority person cannot be a racist. The reason is that minorities don't have the political, economic and institutional power to adversely affect the lives of whites.

Such reasoning is beyond stupid.

Here's a test. Is the following statement racist?

"Jews are money-hungry hustlers."

Before you answer, must you first find out the race of the person making the statement? Would you suggest that it's not a racist statement if the speaker is black but it is if he's white?

Voegeli says that calling someone "racist" is one of the most severe accusations that can be made against a person but at the same time is among the vaguest. Years ago, one had to don a hood and robe to be a certified racist. Today, it's much easier. Tucker Carlson of Fox News questioned whether diversity is all that it's cracked up to be. He asked:

"How, precisely, is diversity our strength? Can you think, for example, of other institutions, such as ... marriage or military units, in which the less people have in common the more cohesive they are?"

The Washington Post's media critic declared that it was racist for Carlson to cast doubt on the proposition that diversity is good.

Voegeli's article is rich with many other examples of how lots of Americans are losing their minds in matters of race. Muhammad Ali had it right when he said: "Hating people because of their color is wrong. And it doesn't matter which color does the hating. It's just plain wrong."

Published:12/13/2018 8:04:13 PM
[Markets] Wheels Come Off The Leveraged Loan Market: Banks Unable To Offload Loans Amid Record Outflows

To think it was less than three months ago that we wrote that "leveraged loan demand is off the charts as dangers mount." Since then, a lot has happened in the credit market, with yields and spreads blowing out in credit in a delayed response to the turmoil in the equity market, eventually hitting the leveraged loan market too, where as we wrote last week, loan prices have fallen precipitously as loan funds suffered dramatic redemptions in recent days, most notably the Blackstone leverage-loan ETF, SRLN, which last week saw its largest ever one-day outflow since its inception.

Fast forward to today when while credit appears to have found a shaky, tentative floor over the last few days, leveraged loans - which started falling later than other markets this quarter - are still sliding, and as long as funds keep pulling money out, will probably keep falling.

While floating-rate loans tend to track bonds, they are often slower to react both to the upside and downside. Since Oct. 1, loans have lost about 2%, including a 1% drop this month, while both high-yield and investment grade bonds rose slightly. In fact, since we last checked in on the S&P/LSTA lev loan index last week it has fallen another full point, and is now down to 95.4, its lowest price in over two years.

"It’s a bit of a catch up," James Schaeffer, deputy CIO at Aegon Asset Management told Bloomberg. "Aggressiveness - on terms and structure - has created more price volatility than in the high-yield market, now that we’ve seen demand for loans slow a bit."

That's putting it mildly: as we noted last week, JPMorgan had to slash the price on a $210 million loan to 93 cents on the dollar from par to sweeten investor demand and help finance a private jet takeover. This represented one of the steepest discounts seen in the leveraged loan market this year. And with the market on the verge of freezing, the size of the deal was cut by $70 million from the originally targeted amount. Meanwhile, in Europe, the market appears to have already locked up, as three loans were scrapped over the last two weeks. To wit, movie theater chain Vue International withdrew a 833 million pound-equivalent ($1.07 billion) loan sale. While the deal was meant to mostly refinance existing debt, around 100 million pounds was underwritten to finance the company’s acquisition of German group CineStar.

More deals were pulled the prior week when diversified manufacturer Jason Inc. became at least the fourth issuer to scrap a U.S. leveraged loan. Additionally, Perimeter Solutions also pulled its repricing attempt, Ta Chen International scrapped a $250MM term loan set to finance the company’s purchase of a rolling mill, and Algoma Steel withdrew its $300m exit financing. Global University System in November also dropped its dollar repricing.

Worse, there is no sign the pain will end in the near term as there has been a significant exodus from loan mutual funds and ETFs in recent weeks, and the market is braced for more: on Thursday afternoon, Lipper reported that US Loan Funds just saw a record $2.5 billion outflow in the past week.

"Mutual funds may have more room to shed incrementally from here given their level of inflows YTD," Bank of America said in a strategy note.

Citi agreed, saying that "despite the deep sell-off, we expect further weakness ahead. Recent outflows represent a small fraction of the inflows that occurred over the prior two years."

Adding to the pricing pressure, demand from collateralized loan obligations, the biggest and until recently most reliable buyers in the $1.3 trillion leveraged loan market, is rapidly slowing.

"The market is turning for loans and CLOs," said Maggie Wang, an analyst at Citi. "Both markets have struggled as people think the upside is now less because the Fed is getting close to the end of its rate hiking cycle."

The difference between the interest rates on the highest-rated CLO tranches and three-month Libor has hit 121 basis points — the biggest risk premium since February 2017. As recently as November 2017, the spread was 90bp, according to the FT.

Lower-rated CLO tranches have also come under pressure as the spread between double-B tranches and three-month Libor rose 70bp in November to 675bp, the biggest monthly increase since early 2016, Citigroup said.

While many have voiced concerns about the risks inherent in a collapse in the loan market, among them the IMF, Fed, BIS, JPMorgan, Guggenheim, Jeff Gundlach, Howard Marks and countless others, concerns about leveraged lending were highlighted this week when Janet Yellen reiterated warnings that declining underwriting standards for corporate loans could lead to more bankruptcies and prolong the next economic downturn.

But as the FT notes, the current tremors in the CLO market seem more related to diminishing investor appetite than a deterioration of underlying credits. CLO issuance this year has hit a record $125 billion, officially eclipsing the all-time record of $124.1 billion set in 2014.

The recent activity has raised the total size of the CLO market in the U.S. to $600 billion, according to J.P. Morgan, which projects the market to grow to $700 billion by the end of 2019, after expected net issuance of $100 million next year, taking into account maturing CLOs and loans that are paid down.

Such optimism may be misplaced, however, as investors have abruptly curbed their enthusiasm and pulled $1 billion from the asset class for the week ending December 5, bringing outflows since mid-November to $4bn, according to the loan pricing unit at Refinitiv. The last time the leveraged loan market saw such large outflows was three years ago.

“The appeal of floating rate instruments has become less attractive,” said Tracy Chen, head of structured credit at Brandywine Global Investment Management. "The late-cycle credit concern, as well as the Fed’s more dovish tone, may weigh on both leveraged loans and CLOs going into 2019."

Meanwhile, leveraged loans prices continue to slide: as shown above, the S&P/LSTA Leveraged Loan Price index has lost roughly 2 per cent this year and now sits at its lowest level since 2016. The price of Invesco’s Senior Loan ETF, by contrast, has declined 3.5 per cent. Meanwhile, the percentage of leveraged loans trading above par - an indication of demand in the secondary market - has collapsed to almost 0%, down from 70% as recently as two months ago according to Citi.

* * *

But the most vivid example of the freeze in the loan market came late on Thursday, when Bloomberg reported that in a flashback to the events that culminated in the 2008 financial crisis, Wells Fargo and Barclays took the rare step of keeping a $415 million leveraged loan on their books after failing to sell it to investors.

The banks now plan to wait until January to offload the loan they made to help finance Blackstone’s buyout of Ulterra Drilling Technologies, a company that makes bits for oil and gas drilling.

The reason the banks were stuck with hundreds of millions in unwanted paper is because they had agreed to finance the loan whether or not there was enough demand from investors, as the acquisition needed to close by the end of the year. The delayed transaction means the banks will have to bear the risk of the price of the loans falling further, as well as costs associated with holding loans on their books.

The loan market froze for at least this one deal after fund managers were reluctant to buy the loans after oil prices had fallen by around a third since early October, and resulted in the first major E&P bankruptcy in years, when Parker Drilling filed for bankruptcy yesterday as oil prices had fallen too far for its business model to remain viable, sending its bonds crashing.

* * *

With the leveraged loan market freezing up - as outflows accelerate to record levels - the recent weakness has raised concerns that other debt sales currently in the works may be sold at discounts that are so deep underwriters may have to book a loss if they can be sold at all, leading to strong pushback on new debt issuance. This is precisely what happened in late 2007 and early 2008 when underwriters found themselves with pipelines of debt sales that suddenly got blocked, and were forced to take massive haircuts to keep the credit flowing.

Still, optimists remain: "The downdraft in loans has been very orderly thus far," said Chris Mawn, head of the corporate loan business at investment manager CarVal Investors. "We anticipate most managers will keep buying in this market trying to be opportunistic and those who don’t have to sell will just hold."

Also, as a result of the recent selloff, leveraged loans are now returning 1.99% this year and some say they could outperform with a 6% gain in 2019. With the recent sell-off, some analysts say loans are looking cheaper compared to high-yield bonds.

Some CLO investors also remain upbeat, blaming the price deterioration on skittish retail investors and fund managers dialling back risk as the year comes to an end. They argue that a strong US economy is supportive of the market with rating agencies forecasting that company defaults will remain low next year (of course, if we learned anything from 2008 it is that rating agencies, and defaults, follow prices, not the other way around).

“There doesn’t seem to be a theme of sophisticated institutional investors being worried about near-term credit risk at this point,” said Tom Majewski, chief executive at Eagle Point Credit. “If anything, the cheaper prices have started to bring more investors into the market.”

Of course, speaking of flashbacks to 2007/2008 it was just this kind of investor optimism that died last.

Published:12/13/2018 6:59:32 PM
[Entertainment] Good news, everybody: Alyssa Milano inks deal with Scholastic to write children’s book series

Alyssa Milano's children's books will feature a middle-school girl working to promote social change in her community.

The post Good news, everybody: Alyssa Milano inks deal with Scholastic to write children’s book series appeared first on twitchy.com.

Published:12/13/2018 4:59:06 PM
[Markets] Bankers, Politicians, & Angry Citizens: Nomi Prins Exposes A World That Is The Property Of 'The 1%'

Authored by Nomi Prins via TomDispatch.com,

The Inequality Gap on a Planet Growing More Extreme

As we head into 2019, leaving the chaos of this year behind, a major question remains unanswered when it comes to the state of Main Street, not just here but across the planet.

If the global economy really is booming, as many politicians claim, why are leaders and their parties around the world continuing to get booted out of office in such a sweeping fashion?

One obvious answer: the post-Great Recession economic “recovery” was largely reserved for the few who could participate in the rising financial markets of those years, not the majority who continued to work longer hours, sometimes at multiple jobs, to stay afloat. In other words, the good times have left out so many people, like those struggling to keep even a few hundred dollars in their bank accounts to cover an emergency or the 80% of American workers who live paycheck to paycheck.

In today's global economy, financial security is increasingly the property of the 1%. No surprise, then, that, as a sense of economic instability continued to grow over the past decade, angst turned to anger, a transition that -- from the U.S. to the Philippines, Hungary to Brazil, Poland to Mexico -- has provoked a plethora of voter upheavals. In the process, a 1930s-style brew of rising nationalism and blaming the “other” -- whether that other was an immigrant, a religious group, a country, or the rest of the world -- emerged.

This phenomenon offered a series of Trumpian figures, including of course The Donald himself, an opening to ride a wave of “populism” to the heights of the political system. That the backgrounds and records of none of them -- whether you’re talking about Donald Trump, Viktor Orbán, Rodrigo Duterte, or Jair Bolsonaro (among others) -- reflected the daily concerns of the “common people,” as the classic definition of populism might have it, hardly mattered. Even a billionaire could, it turned out, exploit economic insecurity effectively and use it to rise to ultimate power.

Ironically, as that American master at evoking the fears of apprentices everywhere showed, to assume the highest office in the land was only to begin a process of creating yet more fear and insecurity. Trump’s trade wars, for instance, have typically infused the world with increased anxiety and distrust toward the U.S., even as they thwarted the ability of domestic business leaders and ordinary people to plan for the future. Meanwhile, just under the surface of the reputed good times, the damage to that future only intensified. In other words, the groundwork has already been laid for what could be a frightening transformation, both domestically and globally.

That Old Financial Crisis

To understand how we got here, let’s take a step back. Only a decade ago, the world experienced a genuine global financial crisis, a meltdown of the first order. Economic growth ended; shrinking economies threatened to collapse; countless jobs were cut; homes were foreclosed upon and lives wrecked. For regular people, access to credit suddenly disappeared. No wonder fears rose. No wonder for so many a brighter tomorrow ceased to exist.

The details of just why the Great Recession happened have since been glossed over by time and partisan spin. This September, when the 10th anniversary of the collapse of the global financial services firm Lehman Brothers came around, major business news channels considered whether the world might be at risk of another such crisis. However, coverage of such fears, like so many other topics, was quickly tossed aside in favor of paying yet more attention to Donald Trump’s latest tweets, complaints, insults, and lies. Why? Because such a crisis was so 2008 in a year in which, it was claimed, we were enjoying a first class economic high and edging toward the longest bull-market in Wall Street history. When it came to “boom versus gloom,” boom won hands down.

None of that changed one thing, though: most people still feel left behind both in the U.S. and globally. Thanks to the massive accumulation of wealth by a 1% skilled at gaming the system, the roots of a crisis that didn’t end with the end of the Great Recession have spread across the planet, while the dividing line between the “have-nots” and the “have-a-lots” only sharpened and widened.

Though the media hasn’t been paying much attention to the resulting inequality, the statistics (when you see them) on that ever-widening wealth gap are mind-boggling. According to Inequality.org, for instance, those with at least $30 million in wealth globally had the fastest growth rate of any group between 2016 and 2017. The size of that club rose by 25.5% during those years, to 174,800 members. Or if you really want to grasp what’s been happening, consider that, between 2009 and 2017, the number of billionaires whose combined wealth was greater than that of the world’s poorest 50% fell from 380 to just eight. And by the way, despite claims by the president that every other country is screwing America, the U.S. leads the pack when it comes to the growth of inequality. As Inequality.org notes, it has “much greater shares of national wealth and income going to the richest 1% than any other country.”

That, in part, is due to an institution many in the U.S. normally pay little attention to: the U.S. central bank, the Federal Reserve. It helped spark that increase in wealth disparity domestically and globally by adopting a post-crisis monetary policy in which electronically fabricated money (via a program called quantitative easing, or QE) was offered to banks and corporations at significantly cheaper rates than to ordinary Americans.

Pumped into financial markets, that money sent stock prices soaring, which naturally ballooned the wealth of the small percentage of the population that actually owned stocks. According to the Fed’s own Survey of Consumer Finances, “It is hardly a stretch to conclude that QE exacerbated America’s already severe income disparities.”

Wall Street, Central Banks, and Everyday People

What has since taken place around the world seems right out of the 1930s. At that time, as the world was emerging from the Great Depression, a sense of broad economic security was slow to return. Instead, fascism and other forms of nationalism only gained steam as people turned on the usual cast of politicians, on other countries, and on each other. (If that sounds faintly Trumpian to you, it should.)

In our post-2008 era, people have witnessed trillions of dollars flowing into bank bailouts and other financial subsidies, not just from governments but from the world's major central banks. Theoretically, private banks, as a result, would have more money and pay less interest to get it. They would then lend that money to Main Street. Businesses, big and small, would tap into those funds and, in turn, produce real economic growth through expansion, hiring sprees, and wage increases. People would then have more dollars in their pockets and, feeling more financially secure, would spend that money driving the economy to new heights -- and all, of course, would then be well.

That fairy tale was pitched around the globe. In fact, cheap money also pushed debt to epic levels, while the share prices of banks rose, as did those of all sorts of other firms, to record-shattering heights.

Even in the U.S., however, where a magnificent recovery was supposed to have been in place for years, actual economic growth simply didn’t materialize at the levels promised. At 2% per year, the average growth of the American gross domestic product over the past decade, for instance, has been half the average of 4% before the 2008 crisis. Similar numbers were repeated throughout the developed world and most emerging markets. In the meantime, total global debt hit $247 trillion in the first quarter of 2018. As the Institute of International Finance found, countries were, on average, borrowing about three dollars for every dollar of goods or services created.

Global Consequences

What the Fed (along with central banks from Europe to Japan) ignited, in fact, was a disproportionate rise in the stock and bond markets with the money they created. That capital sought higher and faster returns than could be achieved in crucial infrastructure or social strengthening projects like building roads, high-speed railways, hospitals, or schools.

What followed was anything but fair. As former Federal Reserve Chair Janet Yellen noted four years ago, “It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority.” And, of course, continuing to pour money into the highest levels of the private banking system was anything but a formula for walking that back.

Instead, as more citizens fell behind, a sense of disenfranchisement and bitterness with existing governments only grew. In the U.S., that meant Donald Trump. In the United Kingdom, similar discontent was reflected in the June 2016 Brexit vote to leave the European Union (EU), which those who felt economically squeezed to death clearly meant as a slap at both the establishment domestically and EU leaders abroad.

Since then, multiple governments in the European Union, too, have shifted toward the populist right. In Germany, recent elections swung both right and left just six years after, in July 2012, European Central Bank (ECB) head Mario Draghi exuded optimism over the ability of such banks to protect the financial system, the Euro, and generally hold things together.

Like the Fed in the U.S., the ECB went on to manufacture money, adding another $3 trillion to its books that would be deployed to buy bonds from favored countries and companies. That artificial stimulus, too, only increased inequality within and between countries in Europe. Meanwhile, Brexit negotiations remain ruinously divisive, threatening to rip Great Britain apart.

Nor was such a story the captive of the North Atlantic. In Brazil, where left-wing president Dilma Rouseff was ousted from power in 2016, her successor Michel Temer oversaw plummeting economic growth and escalating unemployment. That, in turn, led to the election of that country’s own Donald Trump, nationalistic far-right candidate Jair Bolsonaro who won a striking 55.2% of the vote against a backdrop of popular discontent. In true Trumpian style, he is disposed against both the very idea of climate change and multilateral trade agreements.

In Mexico, dissatisfied voters similarly rejected the political known, but by swinging left for the first time in 70 years. New president Andrés Manuel López Obrador, popularly known by his initials AMLO, promised to put the needs of ordinary Mexicans first. However, he has the U.S. -- and the whims of Donald Trump and his “great wall” -- to contend with, which could hamper those efforts.

As AMLO took office on December 1st, the G20 summit of world leaders was unfolding in Argentina. There, amid a glittering backdrop of power and influence, the trade war between the U.S. and the world’s rising superpower, China, came even more clearly into focus. While its president, Xi Jinping, having fully consolidated power amid a wave of Chinese nationalism, could become his country’s longest serving leader, he faces an international landscape that would have amazed and befuddled Mao Zedong.

Though Trump declared his meeting with Xi a success because the two sides agreed on a 90-day tariff truce, his prompt appointment of an anti-Chinese hardliner, Robert Lighthizer, to head negotiations, a tweet in which he referred to himself in superhero fashion as a “Tariff Man,” and news that the U.S. had requested that Canada arrest and extradite an executive of a key Chinese tech company, caused the Dow to take its fourth largest plunge in history and then fluctuate wildly as economic fears of a future “Great Something” rose. More uncertainty and distrust were the true product of that meeting.

In fact, we are now in a world whose key leaders, especially the president of the United States, remain willfully oblivious to its long-term problems, putting policies like deregulation, fake nationalist solutions, and profits for the already grotesquely wealthy ahead of the future lives of the mass of citizens. Consider the yellow-vest protests that have broken out in France, where protestors identifying with left and right political parties are calling for the resignation of neoliberal French President Emmanuel Macron. Many of them, from financially starved provincial towns, are angry that their purchasing power has dropped so low they can barely make ends meet

Ultimately, what transcends geography and geopolitics is an underlying level of economic discontent sparked by twenty-first-century economics and a resulting Grand Canyon-sized global inequality gap that is still widening. Whether the protests go left or right, what continues to lie at the heart of the matter is the way failed policies and stop-gap measures put in place around the world are no longer working, not when it comes to the non-1% anyway. People from Washington to ParisLondon to Beijing, increasingly grasp that their economic circumstances are not getting better and are not likely to in any presently imaginable future, given those now in power.

A Dangerous Recipe

The financial crisis of 2008 initially fostered a policy of bailing out banks with cheap money that went not into Main Street economies but into markets enriching the few. As a result, large numbers of people increasingly felt that they were being left behind and so turned against their leaders and sometimes each other as well.

This situation was then exploited by a set of self-appointed politicians of the people, including a billionaire TV personality who capitalized on an increasingly widespread fear of a future at risk. Their promises of economic prosperity were wrapped in populist platitudes, normally (but not always) of a right-wing sort. Lost in this shift away from previously dominant political parties and the systems that went with them was a true form of populism, which would genuinely put the needs of the majority of people over the elite few, build real things including infrastructure, foster organic wealth distribution, and stabilize economies above financial markets.

In the meantime, what we have is, of course, a recipe for an increasingly unstable and vicious world.

Published:12/13/2018 4:59:06 PM
[Markets] Gold - A Perfect Storm For 2019

Authored by Alasdair Macleod via GoldMoney.com,

This article is an overview of the principal factors likely to drive the gold price in 2019. It looks at the global factors that have developed in 2018 for both gold and the dollar, how geopolitics are likely to evolve, the economic outlook and how it is worsened for the dollar by President Trump’s tariff war against China, the availability and likely demand for bullion, and the technical position in paper markets. Taken together, the outlook is bullish for gold.

2018 reprise

For gold bulls, 2018 was disappointing. From 11 December 2017, when gold made a significant bottom against the dollar at $1243, it has ended virtually unchanged today, after being 4.2% up. Gold had to struggle against a rising dollar, whose trade-weighted index rose a net 3.7% over the same period, and as much as 9.4% from its mid-February low.

Dollar strength has been driven less by trade imbalances and more by interest rate differentials. A speculating bank for its own book or for a hedge fund client can borrow 3-month Euro Libor at minus0.354% and invest it in 3-month US Treasury bills at 2.36%, for a round trip of over 2.7%. Gear this up ten times or more, either on a bank’s capital, or through reverse repos for annualised returns of over 27%. To this can be added the currency gain, which at times has added enough to overall returns for an unhedged geared position to double the investment.

Not that these forex returns have been guaranteed, but you get the picture. The ECB and the Bank of Japan have been frozen into inactivity, reluctant to raise rates to correct this imbalance, and the punters have known it.

Financial commentators have routinely misunderstood the fundamental reason for the dollar’s strength, attributing it to foreigners’ desperate need for dollars. In fact, non-US holders of dollars hold it in record amounts, with over $4 trillion in deposits in correspondent bank accounts alone, and a further $930 billion in short-term debt. This $5 trillion of total liquidity was the last reported position, as at end-June 2017. Speculative dollar demand since then, driven by interest rate differentials, will have added significantly to these figures. The continuing US trade deficit, currently running at close to a trillion dollars annually, is both an associated and additional source of dollar accumulation in foreign hands.

Meanwhile, the same US Government data source reveals that US residents’ holdings of foreign securities was $6.75 trillion less than the foreign ownership of US securities, and the US Treasury reports that major US market participants (i.e. the US banks and financial entities operating in the spot, forwards and futures contracts) sold a net €2.447 trillion in the first nine months of 2018. Assuming these sales were not absorbed by official intervention on the foreign exchanges or by contracting bank credit, they can only have added to foreign-owned dollar liquidity.

To summarise the point; far from there being a dollar shortage, as market participants believe, the world is awash with dollars to an extraordinary degree.

The great dollar unwind is now overhanging markets, which will remove the principal depressant on the gold price. And when it begins, as a source of supply these hot-money dollars will be seen as the continuation of escalating supply, with the prospect of future US trade and budget deficits to be discounted. These dynamics are a duplication of those that led to the failure of the London gold pool in the late-sixties, which led to the abandonment of the Bretton Woods gold-dollar relationship in 1971. And as I argue later in this article, the supply of physical liquidity in bullion markets to satisfy demand arising from dollar liquidation is extremely tight.

Geopolitics and gold in 2018

It is likely that at a future date we will look back on 2018 as a pivotal year for both geopolitics and gold. Russia has moved to a position whereby it has substantially replaced its dollar reserves with physical gold. It is now able, if it should care to, to do away with the dollar entirely for its energy exports payments. It is even possible for it to link the rouble to gold.

China took the seemingly innocuous step of launching an oil contract denominated in yuan. It had prevaricated since at least 2014 before making this move, presumably conscious that it was an in-your-face threat to the monopoly of the dollar in pricing energy.

There was expectation that the oil-yuan futures contract would be a segway into a yuan-gold futures contract either in Hong Kong or Dubai, allowing countries such as Iran to avoid receiving dollars entirely. And indeed, a number of gold exchanges and interests in Asia have banded together to open a 1500-tonne vault in Qianhai to facilitate gold storage resulting from pan-Asian trade flows.

These include the China Gold and Silver Exchange Society, the Hong Kong Gold Exchange, and gold market interests in Singapore, Myanmar and Dubai. The objective is to give Hong Kong the opportunity to coordinate Asian gold markets and develop a “gold corridor” for the countries along China’s Belt and Road initiative. Therefore, both private and public sectors will be able to accumulate the oldest form of money as a backstop to local currencies, as an alternative to accumulating those of their trading partners.

Geopolitics evolved from fighting proxy wars in the Middle East and Ukraine, which were effectively won by Russia, to the less obvious war of trade tariffs. President Trump has styled himself as “A Tariff Man”. We have presumed that he is ignorant of economics, but that is no longer the point. Tariffs have evolved from a policy to make America great again to bankrupting China. China is seen as the greatest economic threat to America, and in this duel, tariffs are Trump’s weapon of choice.

The objective is to impede China’s technological development. It was tolerated when China, to steal a line from Masefield’s Cargoes, was the world’s supplier “…of firewood, iron-ware and cheap tin trays”. But China is moving on, creating a sophisticated economy with a technological capability that is arguably overtaking that of America. The battle for technological supremacy came out into the open with the detention on 1 December in Vancouver of Meng Wanzhou, the CFO of Huawei. Huawei is China’s leading developer of 5G mobile technology, installing sophisticated equipment around the world. 5G’s capability will make internet broadband redundant and will become widely available from next year.

Ms Meng’s arrest represents such an escalation of deteriorating relations between China and America that many assume it was ordered by rogue elements in America’s deep state. Maybe. But these things are difficult to reverse: does America tell the Canadian authorities to just let her go? It would uncharacteristic for America to admit a mistake, and it would probably need President Trump to personally intervene. This is difficult for him because application of the law is not in his hands.

If Ms Meng is not released, we will enter 2019 with the Chinese publicly insulted. They will realise, if they haven’t already, that ultimately there can be no accommodation with America. Fighting tariffs with more tariffs is a policy that will achieve nothing and damage China’s own economy.

It therefore becomes a matter of time when, and not if, China deploys financial weapons of its own. These will be targeted at the US’s obvious weaknesses, including her dependency on China for maintaining and increasing holdings in US Government debt. The increasingly compelling use of physical gold to both protect the yuan from attack in the foreign exchanges and limit the rise of yuan interest rates would serve to insulate China from the fall-out of a collapsing dollar.

The economic outlook, and the effect on the dollar

For market historians, the economic situation rhymes strongly with 1929, when the Smoot-Hawley Tariff Act was being debated. Eighty-nine years ago, the first round of votes in Congress was passed on 30 October, and Wall Street fell heavily that month in anticipation of the result. Following the G20 meeting two weeks ago, where it was vainly hoped there would be progress in the tariff negotiations between the US and China, markets fell heavily, reminding market historians of the 1929 precedent.

When President Hoover stated his intention to sign Smoot-Hawley into law on 16 June 1930, Wall Street crashed again. The lesson for today is that equity markets are likely to crash again if Trump continues with his tariff policies. Smoot-Hawley raised import tariffs on over 20,000 imported raw materials and goods, increasing the average tariff rate from 38% to over 60%. The difference today is that instead of tariffs being used only for protectionism, they are being targeted specifically against China.

There will be two likely consequences. The first is the the undermining of financial markets, which in the 1930s led to the virtual collapse of the US banking system and the global depression. And secondly, there is the escalation of a wider financial war raging between China and the US. These two factors are potentially very serious, with stock markets already on shaky ground.

This is not the uppermost reason for market weakness in investors’ minds, who worry about the economic outlook more generally. The conventional credit cycle features rising interest rates as a consequence of earlier monetary expansion, and the exposure of malinvestments. Markets discount the phases of the credit cycle when they become apparent to far-sighted investors, and only indirectly contribute to the collapse itself. But when valuations have become wildly optimistic, the fall in markets becomes a crisis on its own, contributing to the collapse in business that follows. This was the point taken up by Irving Fisher in the wake of the 1929-32 bear market.

In any event, the global economy appears to be at or close to the end of its expansionary phase, and is heading for recession, or worse. As well as the potential impact from an unanchored reserve currency, price inflation in the US will be boosted by Trump’s tariffs, which amount to additional consumer taxes. Price inflation pressures will then call for further rises in interest rates, while economic prospects will point to easing monetary conditions.

We have yet to see how this will be resolved. A further problem is that an economic downturn will increase government welfare commitments and therefore borrowing requirements. Bond yields will tend to rise and therefore borrowing costs, driving spendthrift governments into a debt-trap, just when price inflation is likely to demand higher interest rates. The most likely outcome will be further losses of fiat currencies’ purchasing power.

The 1930s depression saw a rising purchasing power for the dollar, with all commodity and consumer prices declining. The dollar was on a gold standard, and prices were effectively measured in gold, the dollar acting as a gold substitute. This is no longer true, and the purchasing power of the dollar, along with all other fiat currencies will at best remain stable measured against consumer products, or more likely will decline. In other words, a severe recession which looks increasingly likely on cyclical grounds, will lead to higher gold prices, irrespective of fiat currency interest rates.

The gold-fiat relationship and monetary inflation.

According to the World Gold Council, central bank gold reserves total 33,757 tonnes, worth $1.357 trillion at current prices. Global fiat money is estimated to total about $90 trillion, which suggests there’s 66 times as much in global cash and bank deposits as there is gold to back it.[iii] Admittedly, issuers have different gold-to-currency ratios, but overall this suggests the gold price would be far higher if a sustainable level of currency convertibility is to return.

The reason we must consider this relationship is that in the light of all the foregoing, the gulf between the two quantities is set to accelerate from the currency side.

In the early 1930s, dollar prices of raw materials and commodities fell heavily, bankrupting farmers and miners world-wide. The purchasing power of the dollar rose, because it acted as a gold substitute. Today there is no convertibility between the dollar and gold at all, so the effect of a global economic depression is bound to see the gulf between the dollar and gold widen, as central banks expand the quantity of money in an attempt to fight recession and keep their governments solvent. There can be no doubt the policy response from the Fed and all the other welfare-state central banks will be neo-Keynesian, exploiting all the freedoms of unsound money.

In fact, the increase in the money quantity is not new, dating from the Lehman crisis. This is shown in the chart below, of the fiat money quantity, compared with its long-term pre-Lehman growth path.

FMQ is basically the sum of true (Austrian) money supply and commercial bank reserves held at the Fed. Even though its growth has recently stalled, the gap between the pre-Lehman crisis growth path still stands at $5.55 trillion.

Now imagine what will happen when the global economy stalls. The Fed, along with other central banks, will be forced to make yet more currency available to support the banks, finance government spending and encourage consumption. The injection in the US last time was roughly $10 trillion, or 55% of GDP. Next time, with interest rates needing to be maintained in order to support the currency, it will almost certainly require more aggressive quantitative easing, with central banks substantially increasing their purchases of government bonds.

Gold is already close to all-time lows, relative to the money quantity. This is shown in the next chart.

It was from similar indexed levels that gold bottomed in the late sixties. A return to the level set by President Roosevelt in January 1934 implies a price of $53,250 today. This is not a forecast, and its only relevance is to illustrate the potential for an upward adjustment in the gold price, based on the degradation of the dollar since 1934.

Physical factors

Demand for physical gold consistently exceeds mine supply. Central banks are accumulating bullion, adding 425 tonnes in the year to September 2018. Chinese private sector demand continues at a steady pace, which measured by withdrawals from the Shanghai Gold Exchange, is running at a 1,900-tonne annualised rate. India’s total gold imports were 919 tonnes in the year to end-September (according to the World Gold Council), so adding identified central bank demand to private sector demand from India and China, these three sources account for 3,344 tonnes annually, which is the same as global mine supply.

The supply/demand balance is more complicated than these figures suggest. Some of the mine supply is not available to markets. For example, China, which is the largest mine supplier by far, severely restricts gold exports. Official reserves at central banks are only what are declared and includes gold out on lease or swapped, and therefore not in possession of the central bank. They are therefore short of actual possession, exposing them to potential counterparty and price risk.

Net demand from the rest of the world and from unrecorded categories is satisfied from the existing above-ground stock of bullion, which we estimate to be about 175,000 tonnes. Only an unknowable fraction of this is available for market liquidity. The most identifiable swing-factor is ETF demand, which saw outflows of 103 tonnes in the three months to September[iv]. Looking back over recent years, another substantial ETF outflow was in 2016 Q4, when the gold price bottomed, and in 2015 Q2 to Q4 saw net outflows every quarter. It appears that ETF demand is acting as a contrary indicator of future price trends.

This fits in with market theory, which based on investor psychology predicts investors are at best trend-chasers, investing most heavily at market tops and liquidating positions at price lows. The peak of net ETF liquidation in 2018 was in June and August. In June the gold price breeched the psychologically important $1300 level, and in August the market turned higher at $1160. ETF net selling tells us therefore the gold price may have recently indicated a turning point.

Supply from ETFs at market lows satisfies demand from those that have a continuing demand. We have seen the pattern of central banks increasing their buying on lower prices, but there is also some evidence commercial banks are accumulating bullion for their own books, possibly for risk purposes.

Under the new Basel III standard, physical gold held on an allocated basis is now classified as cash and has the advantage of zero risk weighting, compared with a 15% haircut under Basel II. Besides physical cash notes (which in practice banks try to minimise in their branches), the only other alternative to cash is balances held on the bank’s account at a central bank. The ECB and the Bank of Japan charge negative interest rates on these balances, which for commercial banks in the EU and Japan leaves only physical gold as an alternative.

For the thinking banker, it makes sense to hedge fiat currency exposure (which is the entirety of his business) with some physical bullion. The opportunity cost in the form of lost interest is not a factor, with overnight money-market rates in euros and yen negative. And the regulatory cost of holding gold is being removed.

A brief analysis of the availability of physical supply points to acute shortages on any expansion of demand. Seasonal factors can have a significant impact, with the Diwali festival in India a month ago, and the Chinese New Year in early February leading to an accumulation of bullion inventories.

The absorption of available liquidity from mine supply and scrap recycling tells us the physical market has become extremely tight. Instability in fiat currencies, particularly weakness developing in the dollar’s trade-weighted index, could therefore have a disproportionate effect on the gold price as a wide range of investing institutions and commercial banks try to correct their almost zero asset allocation to gold.

Paper markets for gold

As the chart below shows, gold bottomed in December 2015, since when it has been in a narrowing consolidation. Within this pattern, there is a seasonal effect, whereby gold sells off in early December and subsequently rallies. This is shown by the three black arrows on the chart.

There are reasons why this is so. The December contract is the last active contract to expire before the year end, when many hedge funds and bullion banks make up their accounts. Hedge fund managers want to present a balance sheet with less risk exposure than they normally run, and banks will wish to present shareholders and regulators with a sanitised version of their risk exposure as well.

This exposure cycle has had an extra twist this time, because market speculators in futures markets have shorted a wide range of futures in order to capture a strong dollar. In the case of the Comex gold future, this has led to an unprecedented technical position, shown in the next chart.

Over the last twelve years, hedge funds (which are represented in this category of speculator) have only been net short of Comex gold contracts twice. The first time was in late-2015, which marked the end of the 2011-15 bear market, and the second was recently, marking the sell-off to $1160. The only reason it has partially corrected is due to the expiry of the December contract.

Market sentiment is still markedly pro-dollar and anti-everything else, including gold. The underlying assumption appears to be that foreigners require dollars and the dollar has the highest interest rates of the major currencies. This being the case, the first supposition is an error. There is a growing expectation that the US economic growth will slow next year, and the Fed is under pressure not to raise rates any further.

When these changing factors are taken into account, the dollar is likely to be sold, and hedge fund speculators will take the other tack. The market-makers, traditionally the bullion banks, are bound to be aware of this possibility and will therefore try to maintain an even book.

Conclusion

All factors examined in this article point to higher gold prices in 2019. They can be summarised as follows:

  • The world is awash with dollars at a time when markets act as if there is a shortage. When the truth emerges, the dollar has the potential to fall substantially against other currencies, leading to a rise in the price of gold.

  • The move towards gold and against the dollar in Asia accelerated in 2018, with Russia having replaced the dollar with gold as its principal reserve currency. China has laid the foundation with an oil-yuan futures contract, which can be a bridge to yuan-gold contracts in both Hong Kong and Dubai. This is a direct challenge to the dollar as a reserve currency, and likely to be attractive to oil suppliers, such as Iran, seeking to circumvent use of the dollar and accumulate gold instead.

  • America’s trade war against China appears to be less about unfair trade practices and more about stopping China from evolving into a serious technological competitor against the US. In 2019, there is a strong possibility the tariff war will escalate into a wider conflict, with China selling down its exposure to the dollar and US Treasury debt. That would create significant difficulties for the US Government and the dollar itself.

  • With the credit cycle turning and the addition of American tariffs, markets are at a growing risk of replicating the 1929-32 crash and the economic depression that followed. This time, instead of commodities and consumer products effectively priced in gold through a gold standard, they will be priced in fiat currency. Monetary policies will ensure liquidity is freely available to support the commercial banks, government spending and economic activity. This is a recipe for higher gold prices.

  • Demand for physical gold continues to outstrip mine supply. In 2019, risk-weighting rules in Basel III open up the opportunity for commercial banks to augment their liquidity with allocated bullion, attractive to euro- and yen-based banks who face negative interest rates on short-term cash alternatives.

  • The technical position in the paper markets looks favourable, with close to record levels of bearishness, and an established pattern of December rallies in the gold price.

Published:12/13/2018 3:59:49 PM
[Apps] Glose raises $3.4 million for its collaborative reading app French startup Glose just raised a $3.4 million funding round (€3 million) for its reading app on iPhone, iPad and Android. The company wants to make reading books more social. If you’re an avid book reader, chances are you always carry a pencil with you to write some notes in the margins. Or maybe you […] Published:12/13/2018 3:24:59 AM
[Markets] "We're Approaching A Critical Mass..." - Know Your Rights Or You Will Lose Them

Authored by John Whitehead via The Rutherford Institute,

"If a nation expects to be ignorant and free in a state of civilization, it expects what never was and never will be." - Thomas Jefferson

We are approaching critical mass, the point at which all hell breaks loose.

The government is pushing us ever closer to a constitutional crisis.

What makes the outlook so much bleaker is the utter ignorance of the American people - and those who represent them - about their freedoms, history, and how the government is supposed to operate.

As Morris Berman points out in his book Dark Ages America, “70 percent of American adults cannot name their senators or congressmen; more than half don't know the actual number of senators, and nearly a quarter cannot name a single right guaranteed by the First Amendment. Sixty-three percent cannot name the three branches of government. Other studies reveal that uninformed or undecided voters often vote for the candidate whose name and packaging (e.g., logo) are the most powerful; color is apparently a major factor in their decision.”

More than government corruption and ineptitude, police brutality, terrorism, gun violence, drugs, illegal immigration or any other so-called “danger” that threatens our nation, civic illiteracy may be what finally pushes us over the edge.

As Thomas Jefferson warned, no nation can be both ignorant and free.

Unfortunately, the American people have existed in a technology-laden, entertainment-fueled, perpetual state of cluelessness for so long that civic illiteracy has become the new normal for the citizenry.

It’s telling that Americans were more able to identify Michael Jackson as the composer of a number of songs than to know that the Bill of Rights was the first 10 amendments to the U.S. Constitution.

In fact, most immigrants who aspire to become citizens know more about national civics than native-born Americans. Surveys indicate that half of native-born Americans couldn’t correctly answer 70% of the civics questions on the U.S. Citizenship test.

Not even the government bureaucrats who are supposed to represent us know much about civics, American history and geography, or the Constitution although they take an oath to uphold, support and defend the Constitution against “enemies foreign and domestic.”

For instance, a couple attempting to get a marriage license was recently forced to prove to a government official that New Mexico is, in fact, one of the 50 states and not a foreign country.

You can’t make this stuff up.

Here’s a classic example of how surreal the landscape has become.

Just in time for Bill of Rights Day on December 15, President Trump issued a proclamation affirming the importance of the Bill of Rights in guarding against government abuses of power.

“The Founding Fathers understood the real threat government can pose to the rights of the people… That is why those first 10 Amendments to the Constitution, among others, protected the right to speak freely, the right to freely worship, the right to keep and bear arms, the right to be free from unreasonable searches and seizures, and the right to due process of law. As a part of the Constitution, the supreme law of the land, the Bill of Rights has protected our rights effectively against the abuse of government power for 227 years… Since there will always be a temptation for government to abuse its power, we reaffirm our commitment to defend the Bill of Rights and uphold the Constitution.”

Don’t believe it for a second.

The government doesn’t want its abuses checked and it certainly doesn’t want its powers restricted.

For that matter, this is not a president who holds the Constitution in high esteem.

After all, Trump routinely rails against the rights enshrined in the first ten amendments to the Constitutiondecrying the free speech rights of protesters, denouncing the media (which enjoys freedom of the press) as the enemy of the people, supporting government efforts to seize private property through asset forfeiture and eminent domain, refusing to denounce the use of internment camps to detain American citizens, sneering at due process, and encouraging police officers to use excessive force against suspects.

As law professor Garrett Epps notes:

Donald Trump ran on a platform of relentless, thoroughgoing rejection of the Constitution itself, and its underlying principle of democratic self-government and individual rights. True, he never endorsed quartering of troops in private homes in time of peace, but aside from that there is hardly a provision of the Bill of Rights or later amendments he did not explicitly promise to override, from First Amendment freedom of the press and of religion to Fourth Amendment freedom from ‘unreasonable searches and seizures’ to Sixth Amendment right to counsel to Fourteenth Amendment birthright citizenship and Equal Protection and Fifteenth Amendment voting rights.”

To be fair, it’s not all Trump’s fault.

Indeed, we wouldn’t be in this sorry state if it weren’t for Presidents Barack Obama and George W. Bush and the damage their administrations inflicted on the freedoms enshrined in the Bill of Rights, which historically served as the bulwark from government abuse.

In the so-called named of national security, since 9/11, the Constitution has been steadily chipped away at, undermined, eroded, whittled down, and generally discarded to such an extent that what we are left with is but a shadow of the robust document adopted more than two centuries ago.

The Bill of Rights—462 words that represent the most potent and powerful rights ever guaranteed to a group of people officially—became part of the U.S. Constitution on December 15, 1791, because early Americans such as James Madison and Thomas Jefferson understood the need to guard against the government’s inclination to abuse its power.

Yet the reality we must come to terms with is that in the America we live in today, the government does whatever it wants.

Make no mistake: if our individual freedoms have been restricted, it is only so that the government’s powers could be expanded at our expense.

The USA Patriot Act, passed in the wake of the 9/11 attacks, drove a stake through the heart of the Bill of Rights, violating at least six of the ten original amendments—the First, Fourth, Fifth, Sixth, Seventh and Eighth Amendments—and possibly the Thirteenth and Fourteenth Amendments, as well. The Patriot Act also redefined terrorism so broadly that many non-terrorist political activities such as protest marches, demonstrations and civil disobedience were considered potential terrorist acts, thereby rendering anyone desiring to engage in protected First Amendment expressive activities as suspects of the surveillance state.

Since 9/11, we’ve been spied on by surveillance cameras, eavesdropped on by government agents, had our belongings searched, our phones tapped, our mail opened, our email monitored, our opinions questioned, our purchases scrutinized (under the USA Patriot Act, banks are required to analyze your transactions for any patterns that raise suspicion and to see if you are connected to any objectionable people), and our activities watched.

We’ve also been subjected to invasive patdowns and whole-body scans of our persons and seizures of our electronic devices in the nation’s airports and at border crossings. We can’t even purchase certain cold medicine at the pharmacy anymore without it being reported to the government and our names being placed on a watch list.

Government surveillance, militarized police, SWAT team raids, asset forfeiture, eminent domain, overcriminalization, armed surveillance drones, whole body scanners, stop and frisk searches (all sanctioned by Congress, the White House, the courts and the like), etc.: these are merely the weapons of the police state.

The power of the police state is dependent on a populace that meekly obeys without question.

Remember: when it comes to the staggering loss of civil liberties, the Constitution hasn’t changed. Rather, it is the American people who have changed.

Those who gave us the Constitution and the Bill of Rights believed that the government exists at the behest of its citizens. The government’s purpose is to protect, defend and even enhance our freedoms, not violate them.

It was no idle happenstance that the Constitution opens with these three powerful words: “We the people.” Those who founded this country knew quite well that every citizen must remain vigilant or freedom would be lost. As Thomas Paine recognized, “It is the responsibility of the patriot to protect his country from its government.”

You have no rights unless you exercise them.

Still, you can’t exercise your rights unless you know what those rights are.

“If Americans do not understand the Constitution and the institutions and processes through which we are governed, we cannot rationally evaluate important legislation and the efforts of our elected officials, nor can we preserve the national unity necessary to meaningfully confront the multiple problems we face today,” warns the Brennan Center in its Civic Literacy Report Card. “Rather, every act of government will be measured only by its individual value or cost, without concern for its larger impact. More and more we will ‘want what we want, and [will be] convinced that the system that is stopping us is wrong, flawed, broken or outmoded.’”

Education precedes action.

As the Brennan Center concludes “America, unlike most of the world’s nations, is not a country defined by blood or belief. America is an idea, or a set of ideas, about freedom and opportunity. It is these ideas that bind us together as Americans and have kept us free, strong, and prosperous. But these ideas do not perpetuate themselves. They must be taught and learned anew with each generation.”

There is a movement underway to require that all public-school students pass the civics portion of the U.S. naturalization test100 basic facts about U.S. history and civics—before receiving their high-school diploma, and that’s a start.

Mind you, it’s only the first of many steps.

If there is to be any hope for restoring our freedoms and reclaiming our runaway government, we will have to start by breathing life into those three powerful words that set the tone for everything that follows in the Constitution: “we the people.”

People get the government they deserve.

As David Fouse writes for National Review, A government by the people, for the people, and of the people is only as wise, as just, and as free as the people themselves.

It’s up to us.

We have the power to make and break the government.

We the American people—the citizenry—are the arbiters and ultimate guardians of America’s welfare, defense, liberty, laws and prosperity.

It’s time to stop waiting patiently for change to happen. Do more than grouse and complain.

We must act—and act responsibly.

Get outraged, get off your duff and get out of your house, get in the streets, get in people’s faces, get down to your local city council, get over to your local school board, get your thoughts down on paper, get your objections plastered on protest signs, get your neighbors, friends and family to join their voices to yours, get your representatives to pay attention to your grievances, get your kids to know their rights, get your local police to march in lockstep with the Constitution, get your media to act as watchdogs for the people and not lapdogs for the corporate state, get your act together, and get your house in order.

In other words, get moving. 

A healthy, representative government is hard work. It takes a citizenry that is informed about the issues, educated about how the government operates, and willing to make the sacrifices necessary to stay involved, whether that means forgoing Monday night football in order to attend a city council meeting or risking arrest by picketing in front of a politician’s office.

Don’t wait for things to get as bad as they are in France, where civil unrest over a government  proposal to raise taxes on gas has turned into violent clashes between protesters and the police.

Whatever you do, please don’t hinge your freedoms on politics.

No election will ever truly alleviate the suffering of the American people.

No matter which party controls Congress or the White House, the government as we have come to know it—corrupt, bloated and controlled by big-money corporations, lobbyists and special interest groups—remains largely unchanged. And “we the people”—overtaxed, overpoliced, overburdened by big government, underrepresented by those who should speak for us and blissfully ignorant of the prison walls closing in on us—continue to trudge along a path of misery.

Remember what Noam Chomsky had to say about politics? “It is important to bear in mind that political campaigns are designed by the same people who sell toothpaste and cars.

In other words, as I make clear in my book Battlefield America: The War on the American People, we’re being sold a carefully crafted product by a monied elite who are masters in the art of making the public believe that they need exactly what is being sold to them, whether it’s the latest high-tech gadget, the hottest toy, or the most charismatic politician.

It’s just another Blue Pill, a manufactured reality conjured up by the matrix in order to keep the populace compliant and convinced that their vote counts and that they still have some influence over the political process.

Don’t buy any of it.

The Constitution is neutral when it comes to politics. What the Constitution is not neutral about, however, is the government’s duty to safeguard the rights of the citizenry.

“We the people” also have a duty that goes far beyond the act of voting: it’s our job to keep freedom alive using every nonviolent means available to us.

As Martin Luther King Jr. recognized in a speech delivered on December 5, 1955, just four days after Rosa Parks was arrested for refusing to relinquish her seat on a Montgomery city bus: “Democracy transformed from thin paper to thick action is the greatest form of government on earth.”

Know your rights. Exercise your rights. Defend your rights. If not, you will lose them.

Published:12/12/2018 10:54:45 PM
[World] BOOK REVIEW: 'Cry Wilderness' by Frank Capra

CRY WILDERNESS

By Frank Capra

Rare Bird Books, $26.95, 272 pages

Twenty-one years after the death of director Frank Capra in 1991, his son, Tom, opened a box of his father's possessions. Inside were two very different manuscripts, both written in 1966 with edits made in 1968. Rejected by Hollywood, ... Published:12/12/2018 5:22:42 PM

[Markets] Elon Musk's Taxpayer-Funded Gravy Train

Authored by Allen Brownfield via The Mises Institute,

Elon Musk and his corporate empire, much of it financed by taxpayer dollars, is very much in the news. Most of it is not good. And it may be getting worse.

Tesla spends $1 million annually on Washington lobbyists.

Its cars are financed by over $280 million in federal tax incentives, including a $7,500 federal tax break and millions more in state rebates and development fees.

SpaceX has also received over $5 billion in government support. It has over promised and under delivered. SpaceX rockets, for example, are far less reliable than many of its competitors. This is outlined in reports from December 2017 and January 2018 in which the Department of Defense Inspector General and NASA's Aerospace Safety Advisory Council described a list of security concerns they have with SpaceX, among them 33 significant non-conformities.

Bloomberg Business News reported in November about a Tesla solar factory for which the State of New York paid $750 million based on a commitment to create 1,500 jobs. The factory had been developed for another Musk-run company, SolarCity, which Tesla bought in 2016 in a $2.6 billion deal. SolarCity had been $2.9 billion in debt. Only a relative handful of jobs have been created, and New York officials are expressing dismay.

Raymond Walter, a Republican in the New York State Assembly, says he is concerned that the state "has too many eggs in the Tesla basket, which doesn't seem like a very strong basket." John Kaehny, executive director of Reinvent Albany, a nonprofit focused on government accountability, says, "It's a complete hoo-ha! These mega-subsidy deals take place in complete secrecy without scrutiny from the public."

Bloomberg News declares that this is "...a familiar playbook for Musk, start with wild promises followed by product delays, production hell, shareholder anger and finally, hopefully, redemption."

Things, however, may be even worse than they appear.

Some are even speculating that Elon Musk, SpaceX and Tesla may be on their way to becoming the new Enron. Enron, the energy giant, employed approximately 20,000 people and claimed revenues of $111 billion at its peak by 2000. As it turned out, Enron used shady accounting practices to hide its losses and report profits which, in fact, did not exist. Andrew Fastow, the chief financial officer, created the scheme to falsify Enron's real financial status. In April 2001, the fraud began to unravel as analysts began to question Enron's numbers. In the end, Enron was found to have losses of $591 million and debt totaling $628 million. Stock prices declined from $90 in 2000 to less than one dollar when the scandal was exposed. Senior managers, who kept selling their stock while encouraging others to continue buying, were convicted of insider trading. In December 2001, the company declared bankruptcy.

In the view of many, Elon Musk has been engaging in similar behavior. A Bloomberg report in November suggests that SpaceX may be less than honest with its numbers, giving a false illusion of profitability. According to Bloomberg ,

"While SpaceX is burning through cash, disclosures to potential lenders showed the company had positive earnings before interest, taxes, depreciation and amortization of about $270 million for the 12 months through September, people with knowledge of the matter said. But that's because it included amounts that customers had prepaid and because it excluded costs related to non-core research and development...Without those adjustments, earnings were negative, they said.”

According to Bloomberg,

"This shouldn't come as a shock. A Wall Street Journal report from a few years ago showed that its profit margins were laser-thin. But if Musk is now going to these lengths to pad SpaceX's books to secure a loan, it appears there's a serious problem."

In the case of Tesla, the Wall Street Journal reports that,

"Federal investigators are probing whether Tesla's stated information about production of its Model 3 electric sedans had misled investors about the company's business. Under examination is Tesla's public statements about Model 3 productions as compared to the number of vehicles that were actually built."

Elon Musk and his companies have a very questionable record when it comes to truth and honesty. Overstating prices to qualify for higher state tax credits seems to fit a pattern. According to a recent report in The Oregonian/Oregon Live,

"The state of Oregon has recovered $13 million it paid to Tesla for solar power projects, after an investigation conclude the company inflated prices to qualify for higher tax credits."

Whether Elon Musk, Tesla and SpaceX will go the way of Enron is impossible to know, but that they should not be the recipients of taxpayer dollars seems clear. And whatever the future holds, speculation has already begun.

Marketwatch reports:

"Is Tesla the next Enron? One hedge fund manager charts a gloomy path. Harris Kupperman of Praetorian Capital recently compared Tesla to one of the biggest falls Wall Street has ever seen."

Time will tell, but in the interim, the government should put its cozy relationship with Musk on a long, if not permanent, hiatus.

Published:12/12/2018 1:21:12 PM
[Markets] Catastrophic Power Outage Poses "Profound Threat" To US, New Government Report Finds

Authored by Mac Slavo via SHTFplan.com,

The United States is not prepared for a catastrophic power outage, according to an alarming new report from the President’s National Infrastructure Advisory Council (NIAC).

The report, titled Surviving a Catastrophic Power Outage, explains the findings of the council, which is tasked with examining the nation’s “ability to respond to and recover from a catastrophic power outage of a magnitude beyond modern experience, exceeding prior events in severity, scale, duration, and consequence. Simply put, how can the nation best prepare for and recover from a catastrophic power outage, regardless of the cause?”

It begins with a grim statement in the Executive Summary:

After interviews with dozens of senior leaders and experts and an extensive review of studies and statutes, we found that existing national plans, response resources, and coordination strategies would be outmatched by a catastrophic power outage. This profound risk requires a new national focus.

The NIAC defines a catastrophic power outage as:

  • Events beyond modern experience that exhaust or exceed mutual aid capabilities

  • Likely to be no-notice or limited-notice events that could be complicated by a cyber-physical attack

  • Long duration, lasting several weeks to months due to physical infrastructure damage

  • Affects a broad geographic area, covering multiple states or regions and affecting tens of millions of people

  • Causes severe cascading impacts that force critical sectors—drinking water and wastewater systems, communications, transportation, healthcare, and financial services—to operate in a degraded state

Actions that all levels of government need to take to prepare are discussed in the report, as summarized in this chart:

Here’s more from the 94-page report (emphasis ours):

The NIAC was challenged to think beyond even our most severe power disruptions, imagining an outage that stretches beyond days and weeks to months or years, and affects large swaths of the country. Unlike severe weather disasters, a catastrophic power outage may occur with little or no notice and result from myriad types of scenarios: for example, a sophisticated cyber-physical attack resulting in severe physical infrastructure damage; attacks timed to follow and exacerbate a major natural disaster; a large-scale wildfire, earthquake, or geomagnetic event; or a series of attacks or events over a short period of time that compound to create significant physical damage to our nation’s infrastructure. An event of this severity may also be an act of war, requiring a simultaneous military response that further draws upon limited resources. For the purpose of this study, the NIAC focused not on the cause, but rather on the consequences, which are best categorized as severe, widespread, and long-lasting.

While most of the report’s focus is on actions that government agencies need to take, the report (on page 14) does mention preparedness for individuals as well:

People no longer keep enough essentials within their homes, reducing their ability to sustain themselves during an extended, prolonged outage. We need to improve individual preparedness.

Most preparedness campaigns call for citizens to be prepared for 72 hours in an emergency, but the new emerging standard is 14 days.

For example, Washington, Oregon, and Hawaii have a standard that individuals have enough food and water to support themselves for 14 days. These efforts could serve as a model for federal and state preparedness resources, campaigns, and training.

The idea of individual preparedness is not a new concept. Civil defense, an older term used to elevate a level of individual preparedness and activate communities, used to be be more widely accepted.

FEMA offers a number of tools, resources, and guidance on emergency preparedness, including recent efforts focused on better financial preparedness for disasters, and working with interagency partners on activity books and courses to educate students on emergency preparedness.

The NIAC is not the only group that has recently issued a report that contains dire warnings for the US. Just two weeks ago, the U.S. Air Force Electromagnetic Defense Task Force (EDTF) published a report that claims “electromagnetic pulse (EMP) and other electromagnetic threats pose an unprecedented threat to U.S. military power and national survival.”

The EDTF report examined threats from across the electromagnetic spectrum, including nuclear and non-nuclear EMP, geomagnetic disturbance (GMD), lasers and optics, directed energy (DE), and high-power microwaves (HPM), along with management of these threats.

Dr. Peter Pry (who served as chief of staff of the Congressional EMP Commission, on the staff of the House Armed Services Committee and at the CIA) highlighted some of the report’s findings in an article for The Daily Caller:

  • Protracted blackout of the electric grid could cause U.S. nuclear reactors to “go Fukushima” and contaminate vast regions with radioactivity, crippling U.S. capabilities to mobilize and project military power and threatening the lives of the American people.

  • U.S. military bases depend upon the civilian power grid and would be paralyzed by a protracted blackout.

  • Communications, transportation, food and water that sustain both the U.S. military and the civilian population are all at risk to electromagnetic threats.

  • “Based on the totality of available data, the Task Force contends the second- and third-order effects of an EMS [Electro-Magnetic Spectrum] attack may be a threat to the United States, democracy, and the world order.”

Both reports should provide an incentive to prepare for a grid-down event, if you haven’t adequately prepped already.

There are a few (totally insane) things you can expect during a grid failure.

If you are looking for a simple guide for beginners or for more advanced preppers to help you prepare for the possibility of a power grid failure, try reading The Prepper’s Blueprint. Written by Tess Pennington, the book expertly lays out effective ways everyone can begin to prepare for any apocalyptic situation.

“If we have learned one thing studying the history of disasters, it is this: those who are prepared have a better chance at survival than those who are not.” -The Prepper’s Blueprint

Published:12/11/2018 9:48:53 PM
[Markets] The World's Biggest Hedge Fund Is Getting Whacked, And Why "Moneyness" Matters

Authored by John Rubino via DollarCollapse.com,

A few years ago the Swiss National Bank (SNB) - which traditionally held “monetary assets” like government bonds, cash and gold to back up the Swiss franc - decided to branch out into common stocks.

This was a departure, but for a while a brilliant one. The SNB loaded up on Big Tech like Apple, Amazon and Microsoft, and rode them to massive profits, which enriched both the Swiss people and the SNB’s stockholders (in another departure, it’s a publicly traded company as well as a central bank).

But live by the sword, die by the sword. Turning your central bank into the world’s biggest hedge fund means outsized profits in good times, but potentially serious losses if those aggressive bets go wrong.

The following table shows the SNB’s seven biggest stock positions. Note that 1) they’re all US based multinationals – not a single Swiss stock – and 2) they’re all way up over the past few years but way down over the past two months. Total loss from these positions since September 30: nearly $2 billion.

SNB’s stock price, after quadrupling during the FANG stock bubble, has given back some of that gain.

Now, why should anyone other than the Swiss and the SNB’s stockholders care whether this central bank/hedge fund wins or loses? Because of the concept of “moneyness” and what it implies for the future.

The quick version of the story is that investors generally hold a variety of assets, some of which are money and some of which are not. Money is seen as risk-free or nearly so, and makes up the part of a portfolio that is expected to hold its value. Once that risk-free core is secured, other assets that fluctuate in value are added to generate excess returns.

But – here’s where it gets interesting - at different points in the credit cycle, different things are perceived to have “moneyness.” In stressful times the range of assets perceived as risk-free shrinks down to cash, gold and major-government sovereign debt. In more optimistic times – like the later stages of a credit bubble – other things come to be perceived as having moneyness because they’ve been going up for so long that it’s hard to conceive of them behaving any other way.

This sense that Amazon and its peers can never fall, and if they do that’s just an opportunity to buy the dip, had become widespread lately, to the point that most classes of investors had bought in. Pension funds, desperate to meet their unrealistic return targets, added equity and emerging market exposure. Hedge funds whose old models stopped working in the Everything Bubble were reduced to trend following, which meant loading up on FANG stocks because they were going up. Even retirees who couldn’t live on sub-1% bank CD rates moved into growth stocks, junk bonds and emerging market debt. All had the sense that these previously-risky asset classes had, by virtue of their awesome price charts, achieved moneyness and could therefore be trusted.

But now we’ve entered the downward sloping stage of the credit cycle, and the pool of assets with moneyness is shrinking. Here’s how Credit Bulletin’s Doug Noland explains the impact:

Throughout this Bubble period, I have referred to the “Moneyness of Risk Assets.” A “run” on perceived money-like Credit instruments sparked the collapse of the mortgage finance Bubble. Runs unfold when holders of perceived safe and liquid instruments suddenly recognize risk is much greater than previously appreciated. Past crises have typically originated in the money markets. But never have central bank and government policies so fostered the perception of safety and liquidity (“moneyness”) for risk assets – equities and corporate Credit, in particular. I would argue the proliferation and massive growth of index fund products poses a major risk to financial stability. And when it comes to policy-induced distortions, already extraordinary risks to financial stability are only compounded by the proliferation and growth of derivative trading strategies, both retail and institutional.

In other words, pretty much everything the financial world is doing these days relies on a false sense of security fostered by “innovations” (ZIRP, QE, ETFs) that hide the true risks of financial assets. And people are starting to figure this out.

The ultimate end game is the realization by investors that most major asset classes - including today’s fiat currencies - lack moneyness. The resulting stampede out of the dollar, euro and yen and into real assets will be one for the history books.

Published:12/11/2018 2:45:25 PM
[Entertainment] 10 books we loved reading in 2018: Michelle Obama, David Sedaris, Tayari Jones and more USA TODAY's reviewers pick the 10 books they most loved reading in 2018, including 'Becoming' by Michelle Obama and 'Clock Dance' by Anne Tyler.
     
 
 
Published:12/11/2018 6:13:04 AM
[World] A modern president and his tweet stuff

Thomas Jefferson collected old books and French wines, Warren Harding collected poker buddies, and FDR collected stamps. Harry S Truman collected sheet music and played the piano. Once he played it at the National Press Club, with Lauren Bacall draped across the upright with a helping of cheesecake. Bess, the ... Published:12/10/2018 8:10:42 PM

[Markets] Tokyo Prosecutors Formally Charge Carlos Ghosn With Underreporting Income By $80 Million

After languishing in an austere Tokyo jail cell for three weeks, former Nissan and Mitsubishi executive Carlos Ghosn has finally been formally charged by Japanese prosecutors with knowingly underreporting his income by some $44 million between 2010 and 2015. The charges, which came on the last day that Ghosn could be detained without charge under Japanese law, weren't the only legal action taken against the former executive: He was also rearrested, along with former Nissan director Greg Kelly, on charges they conspired to underreport Ghosn's income by $38 million between 2015 and the present day, according to the Financial Times.

Monday's indictment is the first official indication of the charges facing Ghosn, though a steady stream of media leaks had suggested that Ghosn would be charged for underreporting his income by as much as $100 million between 2010 and this year. Last week, a Tokyo judge granted prosecutors an extension, allowing them to hold Ghosn for an additional 10 days before charges would need to be filed.

Ghosn

Separately, an internal Nissan probe that was reportedly triggered by a whistleblower's complaint is being carried out in connection with Ghosn's alleged misuse of company funds to buy luxury homes and also possibly reports that he shifted trading losses onto Nissan's books during the financial crisis.

Prosecutors also indicted Nissan for filing false financial statements, meaning that the Japanese carmaker could face fines of up to $700 million for underreporting Ghosn's income, according to Reuters.

Though, unsurprisingly, Nissan tried to deflect the blame on to Ghosn by claiming that the executive had masterminded the scheme. According to Kelly and Ghosn's attorneys, Ghosn's income was reported in accordance with advice from outside consultants.

Nissan said it took the situation seriously, and that it planned to cooperate with investigators. However, legal experts quoted by Reuters said Nissan CEO Hiroto Saikawa might find it difficult to extricate himself from the situation now that prosecutors are formally moving against his company.

Analysts and legal experts have said it could be difficult for Nissan and its Chief Executive Hiroto Saikawa to avoid the fallout, whether it turns out that other executives had knowledge of Ghosn’s misconduct, or that the company lacked internal controls.

"Now suddenly the issue of CEO Saikawa becomes bigger. It becomes difficult to overlook Saikawa’s role in all of this. That becomes the main focus now," said prominent lawyer and former prosecutor Nobuo Gohara.

Though speculation about the straining relationship between Nissan and its 'alliance' partner Renault has subsided since Ghosn's arrest, Reuters said the indictments should revive it, as reports about Nissan's dissatisfaction with Renault's influence over the much-larger Japanese carmaker are once again trickling out into the media.

Putting aside rumors that Ghosn's downfall was orchestrated by Saikawa and other senior Nissan officials who had grown tired of Ghosn's untrammeled influence over the firm (according to media reports published over the weekend, Ghosn had been seeking to oust Saikawa at the time of his arrest), the backlash against Ghosn and his family has taken on an unmistakably personal dimension. Over the weekend, the company sought to bar the Ghosn family from accessing the home in the Copacabana neighborhood of Rio De Janeiro. However, a Brazilian court overruled Nissan and ordered that they must be allowed in.

Published:12/10/2018 5:39:02 AM
[Markets] Why Socialism Fails: Uganda Edition

Authored by Andrew Moran via LibertyNation.com,

Uganda was described as a “fairy tale” by Churchill, but it descended into chaos...

Africa is the cradle of mankind, the mother to all human beings that have ever existed on this blue pearl of the cosmos. It’s a land rich in resources, sights enriched with beauty, and cultures that have influenced generations. But Mother Nature would have never envisioned that the continent would be the hotbed of brutality, bloodshed, and barbarism. These have been the primary themes for centuries, and they persist today, with large swaths of the continental population barely surviving.

Most modern-day historians like to blame British colonialism and U.S. capitalism for the problems that plague the region. However, even dating back to the tribes of yesterday, researchers come across tales of sadism and savagery, like burying people alive and roasting flesh and bone as punishment.

Africa has produced some of history’s worst tyrants, ranging from Zimbabwe’s Robert Mugabe to Sudan’s Omar al-Bashir to Somalia’s Siad Barre. But there was nobody as evil as Uganda’s Idi Amin.

Because this despot and his regime’s destruction pale in comparison to that of other socialist atrocities, like Pol Pot’s Cambodia, Uganda’s flirtation with socialism and dictatorships is rarely discussed. But it doesn’t make it any less brutal for the victims of the madness of Idi Amin.

Like other accounts of failed socialist experiments, Uganda was entrenched in a one-man conquest to seize absolute power, kill dissidents, and nationalize private industry. Unlike other socialist utopias, Ugandans did not resort to cannibalism – it was Amin himself who enjoyed the taste of human skin.

Nationalization

Shortly after his death in 2003, Amin’s physicians revealed that he was clinically insane, relying on anti-psychotic drugs just to get by. Considering the economic policies he instituted and the viciousness he employed, the dosage was ostensibly insufficient.

While a traditional red tape central system to manage the economy was absent, the Amin government and his henchmen still adopted the mainstay of socialism: nationalizing the means of production.

The dictator’s first act was to expel more than 80,000 South Asians and seize their assets, accusing these people of deceiving the country and stealing from natives. The policy was popular among the population, promising to return the nation to ethnic Ugandans, many of whom envied and resented successful foreigners.

Idi Amin

The second act was to expropriate private property, nationalize industry, and take over agriculture. The economy was already on the decline, but these socialist pursuits exacerbated the nation’s financial plight. As expected, sugar exports plunged, factories collapsed, and businesses and stores shuttered their doors because of mismanagement, abuse of power, a lack of maintenance, and full-blown neglect.

When Amin and his henchmen were successful in exporting crops, the earnings were then used to buy weapons and luxury items for the military, including gold Rolex watches and Scotch whiskey. He believed this purchased permanent loyalty from his mercenaries, quoting the old African proverb: “A dog with a bone in its mouth can’t bite.”

As the economy worsened, Amin believed he could solve the nation’s woes by printing more money. Expectedly, inflation topped 700% – toilet paper would cost two weeks’ wages.

Ugandans never really got to experience the prosperity that was promised to them. Suffering from food shortages and a paucity of basic necessities, smuggling became rampant. Amin was so perturbed by this trend that he ordered his officers to shoot smugglers on sight, hoping to deter future heroes from trying to provide basic goods to the public.

Frozen Heads

To understand the mad leader’s time in office, you need to examine a dinner party he hosted. A year prior to the formal event, he ordered the killing of Brigadier Hussein Suleiman, the former army chief of staff who was appointed by his predecessor, Milton Obote. As the evening progressed, he brought out Suleiman’s frozen head and placed it proudly on the dinner table for the guests to admire.

Many of Amin’s enemies were beaten to death with wrenches, sledgehammers, and other tools and had their heads chopped off and frozen. He eventually constructed a room designated for refrigerators that housed his vast collection of frozen heads. It was known as the “botanical room.”

Amin had a thirst for blood and violence. This was life in Uganda from 1971 to 1979:

  • Prisoners in Mackindye, Naguru, and Maksero were forced to kill each other to save their own lives, only to later be killed by other inmates.

  • Human remains of dissidents, prisoners, and enemies of the state were dumped in rivers.

  • People whose last name started with “O” were slaughtered – “O” was common in the Acholi and Langi tribes.

  • Murders by security forces were secret and systematic.

  • He often ate the flesh of his human victims.

His family also suffered the same fate as Amin’s victims. For instance, one of his wives – he had a harem of women with up to 35 kids – died in a botched abortion. To serve as a warning to his other spouses, he demanded that her limbs be removed and reattached with the legs at the shoulders and the arms at the pelvis.

Amin’s anti-Semitism was also fierce, celebrating Adolf Hitler for killing six million Jews and accusing Israelis of not acting in the interest of the world.

He died in 2003 when his family disconnected him from life support as he suffered from kidney failure. His death would have come a lot earlier. Former British Foreign Secretary David Owen revealed that he had considered ordering the assassination of the African despot because “his regime goes down in the scale of Pol Pot as one of the worst of all African regimes.”

Idi Amin making white diplomats kneel before him

Uganda Will Never Forget

Venezuela will never forget Hugo Chavez and Nicolas Maduro. Cambodia will never forget Pol Pot. Romania will never forget Nicolae Ceausescu. Uganda, which remains rife with corruption and crime in 2018, will never forget Idi Amin.

These men all share the same legacies of failed economics, disturbing behaviors, or grotesque pleasures. Those who romanticize socialism typically omit them from their praise of how wonderful this iniquitous ideology is. But peering through the past will yield a record of mass misery, torture, and anguish – the hallmarks of every socialist test in history.

This brand of socialism is only responsible for the deaths of 300,000, a drop in the bucket compared to the millions in Mao’s China or Hitler’s Germany. It is still a tragedy that must be embedded in our minds when we begin to toy with socialism and all its subsidiaries. Kampala, Caracas, and Moscow, it’s all the same. Let’s not bring it to Washington, Ottawa, or London.

Published:12/9/2018 8:34:36 PM
[World] :@WilliamBaude: Reading Recommendations from Me and My Colleagues

mine is The Player of Games, by Iain Banks

Every year, the University of Chicago Law School asks the faculty for some of our holiday reading recommendations. I usually try to recommend one fiction and one non-fiction book, but this year I'd succumbed to several months of readers' block (not completely unrelated to being the father to a new toddler...) and thought I would have neither. But in the nick of time, I found a fiction recommendation:

Iain M. Banks, The Player of Games

The main character is a world famous game-player who is lured away from his home to play a game so complicated that a multi-planet empire has been constructed around it. Political intrigue, personal intrigue, principal-agent problems, and other forms of game theory ensue, though we never learn the details of this or any game. The book also serves as an introduction to Banks's Culture series, a set of science fiction books set in a post-scarcity society where humans live satisfied but boring lives while artificial intelligence handles the strategic planning. This novel is so captivating that it helped break me out of a several month period of reader's block.

You can click here for the rest from my colleagues.

(A new post on a non-fiction recommendation should be coming soon...)

Published:12/9/2018 7:03:45 PM
[Markets] It's Not Working! Charting China's Loosening Policy Path

Since June 2018, China has been loosening monetary and fiscal policies in an attempt to refloat the sinking red ponzi amid the shadow banking system's deflation.

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

It seems no matter what China throws at it, the economy (or the market) won't behave as the text-books say it should. The crackdown on the shadow-banking system is hard to overcome it seems with even the most finely tuned hammer of monetary policy...

 

As Goldman's Andrew Tilton (Chief Asia Economist) suggests:

"...two challenges brought us here.

Internally, policymakers’ efforts to constrain the growth of shadow banking and reduce financial risks worked almost too well. Financial regulations introduced in 2017 and early 2018 led to a meaningful contraction in shadow banking, which slowed overall credit growth and tightened credit conditions, particularly for private companies.

And externally, the escalation in US tariffs raised questions about China’s export growth and damaged confidence in the economic outlook. As a result, our China Current Activity Indicator (CAI) has fallen nearly two percentage points from its 1H2018 average of over 7%."

On the policy side, he remains optimistic...

"I do think policymakers have a better understanding of the macro problems and risks today. They also have a greater appreciation for the side effects of policy stimulus, which seems to have made them less willing to ease aggressively. They don’t want to do more than necessary to support growth."

But...

"There are reasons to be concerned [that easing is becoming less effective]. Local government officials who typically implement infrastructure spending and other forms of stimulus are facing conflicting pressures. The emphasis in recent years on reducing off-balance-sheet borrowing, selecting only higher-value projects, and eliminating corruption has made local officials more cautious. But at the same time, the authorities are now encouraging local officials to do more to support growth, like accelerate infrastructure projects. President Xi himself recently acknowledged the incentive problems and administrative burdens facing local officials."

And while the short-term does not look good, Tilton is hopeful for H2 2019...

" Growth is likely to slow a bit further, given that the credit cycle is still a drag and stimulus is ramping up relatively slowly. Chinese exports have also benefited from some frontloading, given that until recently it looked like US tariffs might increase in January; the payback for that in early 2019 will likely shave as much as 20bp off of GDP growth. Nonetheless, we expect growth to firm up in the second half of next year. Remember that China’s GDP growth is not only a measure of economic performance, but also a formal target that matters for credibility. "

But we give the final word to Evan Medeiros, former Senior Director for Asian Affairs at the National Security Council, who is more skeptical of any return to normal any time soon...

"We should expect a ‘new normal’ of persistent and consistent [US-China] tensions. Although cooperation between the two countries will continue, it will be difficult, episodic, and limited to big global questions."

Key to either scenario will be China’s willingness to compromise. For his part, Medeiros thinks China is prepared to make enough changes to its trade and investment practices to avoid a trade war, largely because of its domestic economic challenges. But he cautions that Xi Jinping - whom he spent time with as an advisor to President Obama - is confident enough to tolerate more friction in US-China relations than his predecessors. And if the trade conflict worsens, Medeiros thinks US companies will find themselves hamstrung in China, with other foreign competitors reaping the benefits.

Published:12/9/2018 6:33:29 PM
[Markets] China's Mass Detentions And Indoctrination Of Muslims Will Backfire Spectacularly

In shocking testimony the State Department informed senators earlier this week that China has detained at least 800,000 Muslim minorities in internment camps, especially located in the north-western province of Xinjiang, which we've documented multiple times before. 

Government social media post in April 2017 shows detainees in a camp in Hotan Prefecture, via Al-Jazeera/HRW

"The U.S. government assesses that since April 2017, Chinese authorities have indefinitely detained at least 800,000 and possibly more than 2 million Uighurs, ethnic Khazakhs, and other members of Muslim minorities in internment camps," Scott Busby, the deputy assistant secretary of State for democracy, human rights and labor, told a Senate Foreign Relations subcommittee on Tuesday. 

Based on the sheer magnitude of the allegation — that China has "disappeared" people in numbers in the millions — one would think the headline would elicit wall-to-wall media coverage, but it hasn't. "Reports suggest that most of those detained are not being charged with crimes and their families have little to no information about their whereabouts," Busby testified.

"Former detainees who have reached safety have spoken of relentless indoctrination and harsh conditions," Busby told the committee. "For example, praying and other religious practices are forbidden." He noted: "The apparent goal is to force detainees to renounce Islam and embrace the Chinese communist party."

But here's the essential question no one is asking... could this backfire in spectacular fashion?

Could China one day face even if years or decades from now  an uncontrollable and swelling militant Islamic insurgency seeking revenge on Communist Beijing? Could China's brutal and unprecedented crackdown fuel the future rise of an Islamic State of Xinjiang?

Chinese Muslim Uighurs, via Al-Jazeera

East Asian affairs and Middle East expert Dr. James Dorsey previously argued in an investigative report issued once mass detention allegations became increasingly proven that China is perilously ignoring the lessons of history, which "risks letting a genie out of the bottle." His full report is below. 

* * * 

A Chinese campaign to forcibly assimilate ethnic Uyghurs in its north-western province of Xinjiang in a bid to erase nationalist sentiment, counter militancy, and create an ‘Uyghur Islam with Chinese characteristics’ ignores lessons learnt not only from recent Chinese history but also the experience of others.

The campaign, reminiscent of failed attempts to undermine Uyghur culture during the Cultural Revolution, involves the creation of a surveillance state of the future and the forced re-education of large numbers of Turkic Muslims. In what amounts to an attempt to square a circle, China is trying to reconcile the free flow of ideas inherent to open borders, trade and travel with an effort to fully control the hearts and minds of it population.

In doing so, it is ignoring lessons of recent history, including the fallout of selective support for militants and of religion to neutralize nationalism that risks letting a genie out of the bottle. Recent history is littered with Chinese, US and Middle Eastern examples of the backfiring of government support of Islamists and/or militants.

No example is more glaring than US, Saudi, Pakistani and Chinese support in the 1980s for militant Islamists who fought and ultimately forced the Soviet Union to withdraw from Afghanistan. The consequences of that support have reverberated across the globe ever since. Some analysts suggest that China at the time was aware of the radicalization of Uyghurs involved in the Afghan jihad and may have even condoned it.

Thousands of Chinese Muslim extremists are currently in Idlib, Syria... what happens when they return? 

Journalist John Cooley reported that China, in fact, had in cooperation with Pakistan trained and armed Uyghurs in Xinjiang as well as Pakistan to fight the Soviets in Afghanistan. The notion that Islam and/or Islamists could help governments counter their detractors was the flavour of the era of the 1970s and 1980s.

Egyptian President Anwar Sadat saw the outlawed Muslim Brotherhood as an anti-dote to the left that was critical of both his economic liberalization and outreach to Israel that resulted in the first peace treaty with an Arab state. Saudi Arabia funded a four-decade long effort to promote ultra-conservative Sunni Muslim Islam and backed the Brotherhood and other Islamist forces that helped create the breeding ground for jihadism and wreaked havoc in countries like Pakistan.

China’s experience with selective support of militancy and the use of religion to counter nationalist and/or other political forces is no different. China’s shielding from designation by the United Nations as a global terrorist of Masood Azhar complicates Pakistani efforts to counter militancy at home and evade blacklisting by an international anti-money laundering and terrorism finance watchdog.

Mr. Azhar, a fighter in Afghanistan and an Islamic scholar who graduated from a Deobandi madrassah, Darul Uloom Islamia Binori Town in Karachi, the alma mater of numerous Pakistani militants, is believed to have been responsible for a 2016 attack on India’s Pathankot Air Force Station.

Back in the 1980s, then Chinese leader Deng Xiaoping saw his belief that what China expert Justin Jon Rudelson called a “controlled revival” of religion would foster economic development and counter anti-government sentiment boomerang. The revival that enabled an ever larger number of Uyghurs to travel to Mecca via Pakistan for the haj made Saudi Arabia and the South Asian state influential players in Uyghur Islam. Uyghurs, wanting to perform the haj, frequently needed Pakistani contacts to act as their hosts to be able to obtain a Chinese exit visa.

The opening, moreover, allowed Muslim donors to provide financial assistance to Xinjiang. Saudi Arabia capitalized on the opportunity as part of its global promotion of Sunni Muslim ultra-conservatism to put money into the building of mosques and establishment of madrassas.

via CNN

Receptivity for more conservatives forms of Islam, particularly in southern parts of Xinjiang that were closest to Central and South Asia, suggested that the closure of Xinjiang’s borders during the Sino-Soviet split in the 1950s and 1960s and the cultural revolution in the 1960s and 1970s had done little to persuade Uyghurs to focus their identity more on China than on Central Asia.

In fact, the collapse of the Soviet Union and the emergence of independent states in Central Asia coupled with rising inequality rekindled Uyghur nationalism. The rise of militant Islamist and jihadist Uyghurs constituted in many ways a fusion of Soviet and Western-inspired secular nationalist ideas that originated in Central Asia with religious trends more popular in South Asia and the Gulf in an environment in which religious and ethnic identity were already inextricably interlinked.

The juxtaposition, moreover, of exposure to more orthodox forms of Islam and enhanced communication also facilitated the introduction of Soviet concepts of national liberation, which China had similarly adhered to with its support for various liberation movements in the developing world. The exposure put Xinjiang Uyghurs in touch with nationalist Uyghur groups in Kazakhstan and Kyrgyzstan that fed on what political science PhD candidate Joshua Tschantret terms “ideology-feeding grievances.”

Nationalists, dubbed ‘identity entrepreneurs’ by Gulf scholar Toby Matthiesen, built on the presence of some 100,000 Uyghurs who had fled to Central Asia in the late 1950s and early 1960 during Mao Zedong’s social and economic Great Leap Forward campaign that brutally sought to introduce industrialization and collectivization and the descendants of earlier migrations.

With Pakistan’s political, economic and religious elite, ultimately seduced by Chinese economic opportunity and willing to turn a blind eye to developments in Xinjiang, Uyghurs in the South Asian country had little alternative but to drift towards the country’s militants. Militant madrassas yielded, however, to Pakistani government pressure to stop enrolling Uyghurs. The militants were eager to preserve tacit Chinese support for anti-Indian militants operating in Kashmir.

A "re-education camp" near Kashgar, China from August 2018. Image source: Wall Street Journal

Pakistan’s foremost Islamist party, Jamaat-e-Islami, went as far as signing in 2009 a memorandum of understanding with the Chinese communist party that pledged support for Beijing’s policy in Xinjiang. Despite eagerness to address Chinese concerns, Pakistan and China’s selective support of militants is likely to continue to offer radicalized Uyghurs opportunity.

“Jihadis and other religious extremists will continue to benefit from the unwillingness of the military and the judiciary to target them as well as the temptation of politicians to benefit from their support,” said former Pakistani ambassador to the United States Husain Haqqani, discussing overall Pakistani policy rather than official attitudes towards the Uyghurs.

Cultural anthropologist Sean R. Roberts noted that Central and South Asia became with the reopening of the borders in the second half of the 1980s “critical links between the inhabitants of Xinjiang and both the Islamic and Western worlds; and politically, they have become pivotal but contentious areas of support for the independence movement of Uyghurs."

The 1979 inauguration of the of the 1,300-kilometre-long Karakoram highway linking Kashgar in Xinjiang to Abbottabad in Pakistan, one of the highest paved roads in the world, served as a conduit for Saudi-inspired religious ultra-conservatism, particularly in southern Xinjiang as large numbers of Pakistanis and Uyghurs traversed the border.

Pakistani traders doubled as laymen missionaries adding Islamic artefacts, including pictures of holy places, Qurans and other religious literature to their palette of goods at a time that Islamist fighters were riding high with their defeat of the Soviets in Afghanistan and the emergence of the Taliban. Increased religiosity became apparent in Xinjiang.

Women donned veils in what was traditionally a more liberal land. Students of religion made their way to madrassas or religious seminaries in Pakistan where they came into contact with often Saudi-inspired Pakistani and Afghan militants – trends that China is trying to reverse with the construction of an Orwellian type surveillance state coupled with stepped-up repression and intimidation.

“The cross-border linkages established by the Uyghurs through access provided by the highway, Beijing’s tacit consent to expand Uyghur travel and economic links with Pakistan through Reform Era policies, and Beijing’s explicit consent in supporting anti-Soviet operations – all prompted the radicalization of a portion of Xinjiang’s Uyghurs,” concluded China scholar Ziad Haider more than a decade ago.

The process was fueled by the recruitment in the 1990s of Uyghur students in Pakistani madrassas by the Taliban and the Islamic Movement of Uzbekistan, both of which were linked to Al Qaeda. Some 22 Uyghurs captured by US forces in Afghanistan ended up in Guantanamo Bay.

The eruption of protests in Xinjiang in the late 1990s and late 2000s against rising income differences and the influx of Han Chinese put an end to official endorsement of a religious revival that was increasingly seen by authorities as fueling nationalism and facilitating Islamists.

Seemingly stubborn insistence on a Turkic and Muslim identity is likely one reason that China’s current assimilation drive comes as Xinjiang’s doors to its neighbors are being swung open even wider with the construction of new road and rail links as part of the People’s Republic’s infrastructure-centred Belt and Road initiative.

Forced assimilation is designed to bolster China’s expectation that increased economic ties to South and Central Asia will contribute to development of its north-western province, giving Uyghurs a stake that they will not want to put at risk by adhering to nationalist or militant religious sentiment.

The crackdown and forced assimilation is further intended to reduce the risk of a flow of ideas and influences through open borders needed for economic development and cementing Xinjiang into the framework of China’s infrastructure-driven Belt and Road initiatives that spans Eurasia

The assimilation effort is enabled by China’s Great Fire Wall designed to wall the country off of free access to the Internet. In doing so, China hoped in Xinjiang to halt cultural exchanges with Central Asia such as political satire that could reinforce Uyghurs’ Turkic and Central Asian identity.

The breadth of the more recent crackdown has complicated but not halted the underground flow of cultural products enabled by trade networks. Mr. Roberts noted as early as 2004 that Chinese efforts aiming to regulate rather than reshape or suppress Islam were backfiring.

“Interest in the idea of establishing a Muslim state in Xinjiang has only increased with recent Chinese policies that serve to regulate the practice of Islam in the region,” Mr. Roberts said at the time.

Published:12/8/2018 9:30:44 PM
[Markets] Narnia Author Warned About Genetically-Edited Babies 74 Years Ago

Authored by Meadow Clark via Daisy Luther's Organic Prepper blog,

C.S. Lewis, beloved author of The Lion, The Witch, and The Wardrobe had an important warning about genetically edited babies…and he said it 74 years ago – in 1944.

The Internet is enraptured that science may have crossed yet another threshold: another gene-edited baby greets the world.

The first genetically edited babies have already have been born.

Yet many scientists are condemning the news that a Chinese scientist recently used CRISPR gene-editing technology on twin girl embryos to prevent them from potentially contracting HIV and AIDS viruses. Believe it or not, many countries including China and the United States do not allow genetic editing on babies because it could pass on untold consequences through the genetic line.

Of course, there have been exceptions.

Speaking at a genome summit in Hong Kong, scientist He Jiankui declared he was proud to alter the genes of twin girls so that they could not contract HIV.

While his claims have not been verified, Jiankui says he created the “world’s first genetically edited babies” who were allegedly born this month.

“It’s scary,” said Dr. Alexander Marson, a gene-editing expert at the University of California. Other scientists in the field are horrified as well, and He’s university, the Southern University of Science and Technology in Shenzhen said it will launch an investigation. He is on unpaid leave, but that doesn’t change the fact that genetically edited babies are here.

“I feel a strong responsibility that it’s not just to make a first, but also make it an example,” He told the Associated Press“Society will decide what to do next.”

UPDATE: The scientist in question has now gone missing adding a sordid twist to these developments.

The idea of genetically edited babies is still so surreal, that it still seems the stuff of dystopian sci-fi books and futurist think tanks.

No one would bat an eye if reading about genetically edited babies in a Philip K. Dick story or in the opening chapter of Aldous Huxley’s Brave New World. And especially not in futurist shows like Netflix’s Black Mirror where a girl is injected with a brain implant that blocks anything violent or emotionally upsetting from her vision; a permanent brain hack. Nothing out of place there.

C.S. Lewis warned us about genetically edited babies in 1944.

But in C.S. Lewis’ book The Abolition of Man, the topic is about keeping values in a modern society. It’s a highly debated book and is considered #7 of National Review’s top 100 non-fiction books of the 20th century.

Thanks to writer Anne Holmquist, who compiled the following C.S. Lewis quotes in her article: “A 1944 Warning About Genetically Edited Babies.”

She quotes The Abolition of Man, emphasis hers:

Each generation exercises power over its successors: and each, in so far as it modifies the environment bequeathed to it and rebels against tradition, resists and limits the power of its predecessors. This modifies the picture which is sometimes painted of a progressive emancipation from tradition and a progressive control of natural processes resulting in a continual increase of human power. In reality, of course, if any one age really attains, by eugenics and scientific education, the power to make its descendants what it pleases, all men who live after it are the patients of that power. They are weaker, not stronger: for though we may have put wonderful machines in their hands we have pre-ordained how they are to use them.

Lewis goes on to explain that a world that tosses aside values is just as bad for its predecessors as it is for its successors.

Then, he shows a 74-year-old concern for “designer babies.”

The final stage is come when Man by eugenics, by pre-natal conditioning, and by an education and propaganda based on a perfect applied psychology, has obtained control over himself. Human nature will be the last part of Nature to surrender to Man. The battle will then be won. We shall have ‘taken the thread of life out of the hand of Clotho’ and be henceforth free to make our species whatever we wish it to be. The battle will indeed be won.

So, will humanity be able to thoughtfully wield this newfound power? Lewis writes,

I am very doubtful whether history shows us one example of a man who, having stepped outside traditional morality and attained power, has used that power benevolently. I am inclined to think that the Conditioners will hate the conditioned.

At the time of Lewis’s warning, scientists were experimenting with chimeras.

Eugenics is nothing new. Eugenics societies were brazenly out in the open in 1920s America. Instead of dissolving, some of them simply rebranded themselves as “social biology.” Some of the cautionary, dystopian stories of the time may have been wrought straight from reality.

Around the same time, there were mad scientists conducting chimera experiments on animals and humans. The idea was that by swapping body tissue, humans could gain new pep and longevity from the animals. Not only was this tortuous and fatal to countless numbers of animals, but humans too.

Today, the controversy of human experimentation surrounds discarded embryos used for the purpose of gene-edited babies and also the uncertainty of their future and human lineage. All I can say is that this is hauntingly similar to the opening chapters of Brave New World where many of the cloned, lab-designed embryos are discarded casualties for the “greater good” if they end up mutated or don’t make it.

Remember the 3-parent babies?

In recent times, the idea of genetically edited babies is not new. They are still being “created” in the UK using a controversial method.

Scientists created babies with three parents for the purpose of allowing women with genetic disorders to have children that wouldn’t die from a fatal genetic disorder. They’d fertilize the mother’s egg with the father’s sperm and also a donor egg with the father’s sperm. In a technique called pronuclear transfer, they’d remove and discard the nucleus of the donor’s fertilized egg and transfer the nucleus of the mother’s egg into the donor egg.

A Jordanian couple refused that method so the scientist did the same process except with the unfertilized eggs, called spindle nuclear transfer.

The embryologist performing these techniques said “to save lives is the ethical thing to do,” but he purposely conducted this experiment in Mexico where “there are no rules,” his words. Others have pointed out that out of five experimental embryos, only one developed normally.

Some people worry about a slippery slope where there will be designer babies that can be picked based on features and IQ.

Actually, that slope has already slipped.

This is what one of the mothers of the 3-parent baby told NPR about using another mother’s DNA:

“I knew that that tiny little bit of DNA is not responsible for such crucial stuff as your eyes color, your hair, your character and all[the]other important stuff,” she says of the donor’s DNA. It seemed, she says, “not very important for [the] child’s appearance and his character, his mentality.”

Additionally, the embryos were all forced to be boys so as not to pass on the gene problem. That’s a predetermined design. On the other hand, one of the babies is a girl which violates the original rules and…hey, who is supervising all this stuff anyway?

Could gene editing one day be required?

In growing our survival and prepping skills it’s best that we don’t lose sight of the world we are leaving to our future children. It’s important to speak up if something is wrong and continue pointing it out even if the plan goes forward, and even if we are ridiculed.

After all, what could be more disempowering than to have your very genetic makeup altered in an experiment without any say at all? Or, how would it feel to be a discarded experiment? And lastly, how would it feel to be compelled not to pass your “defective” genes on to a child.

Just like in the movie Gattaca.

Just like in 1920s America.

As it’s been repeatedly admitted, it’s not a life-saving technique, it’s yet another social experiment on humans. Will we even recognize humanity in 30 years?

Published:12/8/2018 8:57:54 PM
[Markets] Rickards: The Makings Of A Global Debt Crisis Are Now In Place

Authored by James Rickards via The Daily Reckoning,

In 2017, the financial world was filled with talk of synchronized sustainable growth in major economies for the first time since before the 2008 global financial crisis. This was being proclaimed by global financial elites including Christine Lagarde, head of the IMF.

Now that vision is in ashes. Synchronized global growth has turned into a synchronized global slowdown. Growth has already turned negative in two of the world’s largest economies, Japan and Germany, and is slowing rapidly in the world’s biggest economies, China and the U.S.

China may report something like 6.8% GDP growth, but when all the waste in its economy is stripped out the actual growth is probably closer to 4.5%. That’s still growth, but not nearly enough to sustain China’s massive debt overload. Its debt is growing faster than the economy and its debt-to-GDP ratio is even worse than the U.S.

For a sense of perspective, China had about $2 trillion total debt in 2000. Today, it’s about $40 trillion. That’s an unbelievable 2,000% increase in under 20 years.

Growth is also slowing in the U.S. The 2009–2018 recovery has already been the weakest recovery in U.S. history despite a few good quarters here and there. And there’s little reason to expect it to pick up from here.

GDP expanded 3.5% last quarter, which looks good on paper. But the trend is pointing down. Since this April, we’ve seen growth of 4.2% (Q2), and 3.5% (Q3). This trend tends to confirm the view that 2018 growth was a “Trump bump” from the tax cuts that will not be repeated. And Q4 GDP will probably be lower than Q3.

Goldman Sachs, for example, projects fourth-quarter GDP to expand at 2.5%. It further expects growth to drop to 2.2% by the second quarter of 2019, and to 1.6% by the end of the year.

Global slowdowns of the type we’re seeing now are exacerbated by the escalating trade wars and a new Cold War between the U.S. and China. But while global growth may be slowing down, debt creation is not.

I mentioned China. But it goes far beyond China. According to the Institute of International Finance (IIF), total debt held by economies it tracks (both mature and emerging) rose to a record $247 trillion in the first quarter of 2018. That’s up 11% over the same period in 2017.

But the IIF reports it required a record $8 trillion of freshly created debt to create just $1.3 trillion of global GDP. The trend is clear. The massive debts intended to achieve growth are piling on every day. But growth is slowing. Meanwhile, many of the debts taken on since 2009 are still on the books.

This is a crisis waiting to happen. The combination of slow or negative growth and unprecedented debt is a recipe for a new debt crisis, which could easily slide into another global financial crisis.

In some areas of China, home prices are being slashed 30%. And The Wall Street Journal reports that October auto sales fell 12% year over year. The Chinese stock market has also fallen 25% year to date, which places it squarely in a bear market.

There’s no reason to believe these problems will stay confined to China. As we learned in 2008, this shift from positive to negative conditions can happen seemingly overnight and spread rapidly.

But the problem is made worse by the Fed’s monetary tightening policies.

The Fed is trying to “normalize” interest rates. It’s determined to stay on its course of raising rates until the official policy rate reaches 4% in early 2020. And it’s ready to raise rates again on Dec. 19. It continues to see strong growth and expects inflation, based on the lowest unemployment rate in almost 50 years. But these views are highly misleading.

The real reason for Fed rate hikes is to prepare for a new recession. Research shows that it takes about 4% in rate cuts to pull the U.S. out of a recession. How do you cut 4% when rates are only 2.25% (the current level)?

The answer is you can’t. If a recession started today and the Fed cut rates to zero, it wouldn’t be enough to stop the recession.

The Fed is also drawing down its balance sheet with “quantitative tightening” (QT) by ceasing to roll over maturing positions in U.S. Treasuries.

It printed $3.7 trillion of new money from 2008–2014 under the banner of “quantitative easing,” or QE. But, behind the curtain, the Fed is also reducing the base money supply with QT to get their balance sheet down from $4 trillion to $2.5 trillion by the end of 2020.

Evidence suggests the impact of QT is roughly equivalent to another 1% per year of rate hikes. This means that the combination of nominal rate hikes and QT is equal to 2% of rate hikes per year off an extremely low base. In other words, the Fed is tightening more than it realizes and will probably cause a recession or worse by the time it realizes its mistake.

The trouble is that the Fed doesn’t set policy in a vacuum since it’s the most influential central bank in the world. Its tightening has created the need for other central banks to tighten or pause their easing in order to match it.

The global phenomenon is neatly illustrated in the chart below.

This chart combines the QE and QT of the BoE, BoJ, Fed and ECB using colors to show the individual contributions of each central bank.

The Fed’s QE1 (2008), QE2 (2010) and QE3 (2012) stand out clearly in the three blue spikes. The BoE also had three waves of smaller magnitude shown as green waves from 2010–2016. The BoJ started late (in 2011) but has never stopped since, as shown in the red wave. Finally, the gray wave is the ECB. They were also late to the party but made it up in volume.

What’s important about this chart is not where we’ve been but where we’re going. The Fed is already in negative territory (the blue wave below the “0” line starting in 2018). The BoE is neutral but is also ready to go negative. The ECB and BoJ are still positive but trending down sharply; the ECB will go negative in 2019, according to current plans.

The black trend line shows the aggregate of all four central banks. It crashed in 2018 (mostly because of the Fed) and will go negative globally in 2019. Before long, the cartoon of Jay Powell shoveling cash into a furnace will have to be updated to include Mark Carney, Mario Draghi and Haruhiko Kuroda.

If another crisis happens, the Fed will cut rates back to zero. But it won’t be enough. Then they’ll have to abandon QT and go back to QE4. Other central banks will follow the Fed’s lead.

The market sees this coming, but the Fed does not. As usual, the Fed will be the last to know. Investors should prepare now for the inevitable crackup.

Having cash and gold are two places to start.

Published:12/6/2018 3:43:47 PM
[Issues] State-Sponsored Qatari Book Fair Promotes Anti-Semitic Conspiracy Theories

A state-backed book fair in Qatar is promoting books containing Anti-Semitic conspiracy theories, prompting calls for the U.S. Embassy to pressure Qatari officials to remove the titles.

The post State-Sponsored Qatari Book Fair Promotes Anti-Semitic Conspiracy Theories appeared first on Washington Free Beacon.

Published:12/6/2018 11:43:19 AM
[Left Column] Manila Times features Morano’s book: Carbon tax revolt, Book’s exposé on IPCC shatter UN climate agenda

In his 2018 bestseller, author Marc Morano charges that the UN IPCC is not a scientific body. The book documents the fraud. He quotes a plethora of scientists, many of whom worked at one time with the IPCC. Among them are: 

1. Prof. John Brignell: “The creation of the UN IPCC was a cataclysmic event in the history of science. Here was a purely political body posing as a scientific institution.”

2. Kiminori Itoh, an award-winning environmental physical chemist from Japan who has turned his back on the UN climate panel. Kiminori contends that global warming fears are the “worst scientific scandal in history…. When people come to know what the truth is, they will feel deceived by science and scientists.”

3. Climatologist Judith Curry on the new IPCC report: “Same old, same old”. “The IPCC still has not made a strong case for this massive investment to prevent 1.5 C warming.”

Morano writes in his book: “The notion that ‘hundreds’ or ‘thousands’ of UN scientists agree does not hold up to scrutiny.”

5. The UK Guardian reported on how the sausage is made for the UN IPCC reports: “Nearly 500 people must sign off on the exact wording of the summary, including the 66 expert authors, 271 officials from 115 countries, and 57 observers.”

This is allegedly a scientific process. And yet it somehow features “government officials” having a say in each line of the report’s summary.

Published:12/5/2018 12:37:01 PM
[World] [Ilya Somin] Volokh Conspiracy Holiday Gifts!

Some VC-related holiday gifts for the law and public policy types in your life!

The 201i holiday season is now upon us! And if you are looking for possible gifts for regular Volokh Conspiracy readers in your life, what could better than books by VC bloggers?

Among my favorite books by VC authors are Randy Barnett's Restoring the Lost Constitution, David Bernstein's Rehabilitating Lochner, Dale Carpenter, Flagrant Conduct: The Story of Lawrence v. Texas, and Eugene Volokh, Academic Legal Writing.

Randy's book is one of the best recent works on originalism and constitutional legitimacy. It is relevant to ongoing debates over legal interpretation that are sure to heat up again as the Supreme Court considers several major cases in the near future. Randy Barnett is also the author of the recent Our Republican Constitution, which I reviewed here. Rehabilitating Lochner explodes numerous myths about one of the Court's most reviled decisions, one that remains relevant to current debates over "judicial activism." Flagrant Conduct is a great account of a milestone in the history of gay rights. It provides useful historical context for the still-ongoing battles over same-sex marriage and related issues. Finally, Academic Legal Writing is filled with useful advice, while also somehow managing to make this generally unexciting topic interesting.

The just-published Cambridge Handbook of Classical Liberal Thought (edited by Todd Henderson), includes chapters by three different VC bloggers: Jonathan Adler on environmental policy, David Bernstein on anti-discrimination law, and my own contribution on "voting with your feet."

This list is not intended to slight important books by Ken Anderson, Sam Bray, Orin Kerr, David Kopel, David Post, and other VC bloggers. I have not discussed them only because their subjects are relatively distant from my own areas of expertise.

In the spirit of shameless self-promotion, I will also mention the much-expanded second edition of my own book Democracy and Political Ignorance: Why Smaller Government is Smarter. Sadly, the problem analyzed in the book played an important role in the 2016 and 2018 elections. It also helps to account for widespread public ignorance about the Constitution, for the painful realities of voting for a lesser evil, and for the perpetuation of a wide range of government policies that constrict economic growth and harm the poor. Whether or not people agree with the specific solutions advocated in my book, I hope that recent events at least lead more Americans to start taking the problem of political ignorance seriously.

My most recent book is Eminent Domain: A Comparative Perspective, co-edited with Iljoong Kim and Hojun Lee. It analyzes the use and abuse of eminent domain in a variety of countries around the world.

My other books include The Grasping Hand: Kelo v. City of New London and the Limits of Eminent Domain, which is the first book by a legal scholar about one of the Supreme Court's most controversial modern decisions, and A Conspiracy Against Obamacare: The Volokh Conspiracy and the Health Care Case (coauthored with VC-ers Randy Barnett, Jonathan Adler, David Bernstein, Orin Kerr, and David Kopel). Conspiracy Against Obamacare focuses on the VC's significant role in the Obamacare litigation, and is the only book that includes contributions by six different VC bloggers. In November 2016, the University of Chicago Press published an an updated paperback edition of the The Grasping Hand, which incorporates new material on recent developments such as the growing legal and political struggle over pipeline takings.

Published:12/5/2018 10:08:14 AM
[] Captain Marvel Is Obviously Already a Disaster. Can the YouTube Shillers and NPC Media Bully America Into Seeing This Piece of Shit? Nerd Crew type dudes pretending they're totally stoked by Captain Marvel. This. Is. Sad. This is not the nation that destroyed the Nazi regime. If you're not into comic books, you probably don't know who the real, popular heroes are... Published:12/4/2018 8:02:28 PM
[Markets] The Ignored Legacy Of George H.W. Bush: War Crimes, Racism, & Obstruction Of Justice

Authored by Mehdi Hasan via The Intercept,

The tributes to former President George H.W. Bush, who died on Friday aged 94, have been pouring in from all sides of the political spectrum. He was a man “of the highest character,” said his eldest son and fellow former president, George W. Bush. “He loved America and served with character, class, and integrity,” tweeted former U.S. Attorney and #Resistance icon Preet Bharara. According to another former president, Barack Obama, Bush’s life was “a testament to the notion that public service is a noble, joyous calling. And he did tremendous good along the journey.” Apple boss Tim Cook said: “We have lost a great American.”

In the age of Donald Trump, it isn’t difficult for hagiographers of the late Bush Sr. to paint a picture of him as a great patriot and pragmatist; a president who governed with “class” and “integrity.” It is true that the former president refused to vote for Trump in 2016, calling him a “blowhard,” and that he eschewed the white nationalist, “alt-right,” conspiratorial politics that has come to define the modern Republican Party. He helped end the Cold War without, as Obama said, “firing a shot.” He spent his life serving his country — from the military to Congress to the United Nations to the CIA to the White House. And, by all accounts, he was also a beloved grandfather and great-grandfather to his 17 grandkids and eight great-grandkids.

Nevertheless, he was a public, not a private, figure — one of only 44 men to have ever served as president of the United States. We cannot, therefore, allow his actual record in office to be beautified in such a brazen way. “When a political leader dies, it is irresponsible in the extreme to demand that only praise be permitted but not criticisms,” as my colleague Glenn Greenwald has argued, because it leads to “false history and a propagandistic whitewashing of bad acts.”

The inconvenient truth is that the presidency of George Herbert Walker Bush had far more in common with the recognizably belligerent, corrupt, and right-wing Republican figures who came after him - his son George W. and the current orange-faced incumbent - than much of the political and media classes might have you believe.

Consider:

He ran a racist election campaign. The name of Willie Horton should forever be associated with Bush’s 1988 presidential bid. Horton, who was serving a life sentence for murder in Massachusetts — where Bush’s Democratic opponent, Michael Dukakis, was governor —  had fled a weekend furlough program and raped a Maryland woman. A notorious television ad called “Weekend Passes,” released by a political action committee with ties to the Bush campaign, made clear to viewers that Horton was black and his victim was white.

As Bush campaign director Lee Atwater bragged, “By the time we’re finished, they’re going to wonder whether Willie Horton is Dukakis’s running mate.” Bush himself was quick to dismiss accusations of racism as “absolutely ridiculous,” yet it was clear at the time — even to right-wing Republican operatives such as Roger Stone, now a close ally of Trump — that the ad had crossed a line. “You and George Bush will wear that to your grave,” Stone complained to Atwater. “It’s a racist ad. … You’re going to regret it.”

Stone was right about Atwater, who on his deathbed apologized for using Horton against Dukakis. But Bush never did.

He made a dishonest case for war. Thirteen years before George W. Bush liedabout weapons of mass destruction to justify his invasion and occupation of Iraq, his father made his own set of false claims to justify the aerial bombardment of that same country. The first Gulf War, as an investigation by journalist Joshua Holland concluded, “was sold on a mountain of war propaganda.”

For a start, Bush told the American public that Iraq had invaded Kuwait “without provocation or warning.” What he omitted to mention was that the U.S. ambassador to Iraq, April Glaspie, had given an effective green light to Saddam Hussein, telling him in July 1990, a week before his invasion, “[W]e have no opinion on the Arab-Arab conflicts, like your border disagreement with Kuwait.”

Then there is the fabrication of intelligence. Bush deployed U.S. troops to the Gulf in August 1990 and claimed that he was doing so in order “to assist the Saudi Arabian Government in the defense of its homeland.” As Scott Peterson wrote in the Christian Science Monitor in 2002, “Citing top-secret satellite images, Pentagon officials estimated … that up to 250,000 Iraqi troops and 1,500 tanks stood on the border, threatening the key U.S. oil supplier.”

Yet when reporter Jean Heller of the St. Petersburg Times acquired her own commercial satellite images of the Saudi border, she found no signs of Iraqi forces; only an empty desert. “It was a pretty serious fib,” Heller told Peterson, adding: “That [Iraqi buildup] was the whole justification for Bush sending troops in there, and it just didn’t exist.”

President George H. W. Bush talks with Secretary of State James Baker III and Secretary of Defense Dick Cheney during a meeting of the cabinet in the White House on Jan. 17, 1991 to discuss the Persian Gulf War. Photo: Ron Edmonds/AP

He committed war crimes. Under Bush Sr., the U.S. dropped a whopping 88,500 tons of bombs on Iraq and Iraqi-occupied Kuwait, many of which resulted in horrific civilian casualties. In February 1991, for example, a U.S. airstrike on an air-raid shelter in the Amiriyah neighborhood of Baghdad killed at least 408 Iraqi civilians. According to Human Rights Watch, the Pentagon knew the Amiriyah facility had been used as a civil defense shelter during the Iran-Iraq war and yet had attacked without warning. It was, concluded HRW, “a serious violation of the laws of war.”

U.S. bombs also destroyed essential Iraqi civilian infrastructure — from electricity-generating and water-treatment facilities to food-processing plants and flour mills. This was no accident. As Barton Gellman of the Washington Post reported in June 1991: “Some targets, especially late in the war, were bombed primarily to create postwar leverage over Iraq, not to influence the course of the conflict itself. Planners now say their intent was to destroy or damage valuable facilities that Baghdad could not repair without foreign assistance. … Because of these goals, damage to civilian structures and interests, invariably described by briefers during the war as ‘collateral’ and unintended, was sometimes neither.”

Got that? The Bush administration deliberately targeted civilian infrastructure for “leverage” over Saddam Hussein. How is this not terrorism? As a Harvard public health team concluded in June 1991, less than four months after the end of the war, the destruction of Iraqi infrastructure had resulted in acute malnutrition and “epidemic” levels of cholera and typhoid.

By January 1992, Beth Osborne Daponte, a demographer with the U.S. Census Bureau, was estimating that Bush’s Gulf War had caused the deaths of 158,000 Iraqis, including 13,000 immediate civilian deaths and 70,000 deaths from the damage done to electricity and sewage treatment plants. Daponte’s numbers contradicted the Bush administration’s, and she was threatened by her superiors with dismissal for releasing “false information.” (Sound familiar?)

He refused to cooperate with a special counsel. The Iran-Contra affair, in which the United States traded missiles for Americans hostages in Iran, and used the proceeds of those arms sales to fund Contra rebels in Nicaragua, did much to undermine the presidency of Ronald Reagan. Yet his vice president’s involvement in that controversial affair has garnered far less attention. “The criminal investigation of Bush was regrettably incomplete,” wrote Special Counsel Lawrence Walsh, a former deputy attorney general in the Eisenhower administration, in his final report on the Iran-Contra affair in August 1993.

Why? Because Bush, who was “fully aware of the Iran arms sale,” according to the special counsel, failed to hand over a diary “containing contemporaneous notes relevant to Iran/contra” and refused to be interviewed in the later stages of the investigation. In the final days of his presidency, Bush even issued pardons to six defendants in the Iran-Contra affair, including former Defense Secretary Caspar Weinberger — on the eve of Weinberger’s trial for perjury and obstruction of justice. “The Weinberger pardon,” Walsh pointedly noted, “marked the first time a president ever pardoned someone in whose trial he might have been called as a witness, because the president was knowledgeable of factual events underlying the case.” An angry Walsh accused Bush of “misconduct” and helping to complete “the Iran-contra cover-up.”

Sounds like a Trumpian case of obstruction of justice, doesn’t it?

A U.S. marshal, left, looking for a suspect, shows a mug shot to a man found allegedly using drugs in a crackhouse, according to police, in Washington, D.C., on July 18, 1989. The police raid was part of President George H.W. Bush’s war on drugs. Photo: J. Scott Applewhite/AP

He escalated the racist war on drugs. In September 1989, in a televised addressto the nation from the Oval Office, Bush held up a bag of crack cocaine, which he said had been “seized a few days ago in a park across the street from the White House . … It could easily have been heroin or PCP.”

Yet a Washington Post investigation later that month revealed that federal agents had “lured” the drug dealer to Lafayette Park so that they could make an “undercover crack buy in a park better known for its location across Pennsylvania Avenue from the White House than for illegal drug activity” (the dealer didn’t know where the White House was and even asked the agents for directions). Bush cynically used this prop — the bag of crack — to call for a $1.5 billion increase in spending on the drug war, declaiming: “We need more prisons, more jails, more courts, more prosecutors.”

The result? “Millions of Americans were incarcerated, hundreds of billions of dollars wasted, and hundreds of thousands of human beings allowed to die of AIDS — all in the name of a ‘war on drugs’ that did nothing to reduce drug abuse,” pointed out Ethan Nadelmann, founder of the Drug Policy Alliance, in 2014. Bush, he argued, “put ideology and politics above science and health.” Today, even leading Republicans, such as Chris Christie and Rand Paul, agree that the war on drugs, ramped up by Bush during his four years in the White House, has been a dismal and racist failure.

He groped women. Since the start of the #MeToo movement, in late 2017, at least eight different women have come forward with claims that the former president groped them, in most cases while they were posing for photos with him. One of them, Roslyn Corrigan, told Time magazine that Bush had touched her inappropriately in 2003, when she was just 16. “I was a child,” she said. The former president was 79. Bush’s spokesperson offered this defense of his boss in October 2017: “At age 93, President Bush has been confined to a wheelchair for roughly five years, so his arm falls on the lower waist of people with whom he takes pictures.” Yet, as Time noted, “Bush was standing upright in 2003 when he met Corrigan.”

Facts matter. The 41st president of the United States was not the last Republican moderate or a throwback to an imagined age of conservative decency and civility; he engaged in race baiting, obstruction of justice, and war crimes. He had much more in common with the two Republican presidents who came after him than his current crop of fans would like us to believe.

Published:12/3/2018 11:32:15 PM
[Markets] What's Really Being Taught In MbS' So-Called "Reformed" Saudi Schools

Via Al-Monitor.com,

Intel: How bigoted ‘backsliding’ in Saudi textbooks belies MBS’ reformist credentials

The US Commission on International Religious Freedom criticized Saudi Arabia’s “backsliding” on religious tolerance in a new report on middle and high school textbooks today, further undermining the embattled kingdom’s reformist credentials.

The independent federal government commission contracted a study of 22 textbooks focusing mostly on religious studies published by the Saudi government for the 2017-2018 academic year. It notably found that the books “caution students to avoid friendship with members of other religions […] encourage both violent and non-violent jihad against non-believers [and] espouse the death penalty for women who have an affair, and for gay men.”

“This review revealed an apparent reversal in the previous trend toward tolerance in Saudi textbooks,” the commission concludes.

“They reflect core Wahhabi doctrines and not other trends of Islamic scholarship that are more accepting.”

Why it matters: The report comes as Saudi Arabia’s reputation is already reeling in the United States and around the world following the murder of Saudi journalist Jamal Khashoggi. It is especially damaging to Crown Prince Mohammed bin Salman and the multimillion-dollar public relations campaign touting him as a progressive reformer championing a vision of a modern Saudi Arabia by 2030. The Anti-Defamation League, which combats attacks against the Jewish people, released a similar report last week that found that “intolerant language of all kinds still abounds in Saudi Arabia’s government-published textbooks for schoolchildren. The incitement is particularly egregious at the high school level.”

The Salafis strike back: While the US commission does not provide a definitive conclusion for the reasons behind the alleged backsliding, speculation is rife that horse-trading between the royal family and traditional clerics over reforms such as lifting the ban on women driving may have played a role.

“What’s most troubling here is that we’re seeing some backtracking in the education system where they had made progress, which we had verified over the years, in terms of cleaning up some of the worst passages in the textbooks,” said Dwight Bashir, the commission’s director of research and policy.

“In the midst of other forward-leaning reforms in the past couple of years, to see some backsliding in an area that is tightly monitored ... by the religious establishment, there might be an element there of some trading.”

The Saudi Embassy in Washington did not respond to a request for comment.

What’s next: The report will now be shared with members of Congress as well as the White House and State Department to figure out how to respond. Lawmakers of both parties have been increasingly vocal about pushing back against President Donald Trump’s desire to move past the Khashoggi affair, with no fewer than three Republican senators - Joni Ernst of Iowa, Mike Lee of Utah and Ben Sasse of Nebraska - urging a tougher response on this Sunday’s political shows. 

Published:12/3/2018 7:26:41 PM
[Entertainment] Best-selling authors ditch the boys' club to feature female detectives Love seeing female characters run the show? Check out these books by bestselling writers who are diverging from the usual boys' club to feature female detectives.
     
 
 
Published:12/3/2018 1:54:31 PM
[Entertainment] 5 new books you won't want to miss this week: Jackie Chan's memoir, new Nora Roberts Look for 'Never Grow Up,' a memoir by actor Jackie Chan. Nora Roberts delivers Book 2 in a dystopian series; plus more new books on sale Dec. 4.
     
 
 
Published:12/2/2018 7:18:14 AM
[Markets] The Many Ways Governments Create Monopolies

Authored by Mike Holly via The Mises Institute,

Politicians tend to favor authoritarianism over capitalism and monopoly over competition. They have directly created monopolies (and oligopolies) in all major industrial sectors by imposing policies favoring preferred corporations and preferred special interests. 

In 2017, University economists Jan De Loecker and Jan Eeckhout found monopolies behind nearly every economic problem. They have slowed economic growth and caused recessions, financial crises and depressions. These monopolies restrict the supply of goods and services so they can inflate prices and profits while also reducing quality. In addition, monopolies have decreased wages for non-monopolists by decreasing the competition for workers. This has led to wealth disparity, underemployment, unemployment and poverty

Monopolies have also led to many societal problems. Unlike truly competitive firms, institutions that enjoy monopoly power have more freedom to discriminate against outsiders, especially women and minorities. They block innovation, the key to long-term prosperity. Monopolies have led to imperialism and wars .

Today, the eight major industrial sectors, controlling about 92 percent of the economy (GDP), are dominated by special interests receiving preferential political policies. These include:

  • Banking (8%) is monopolized through the Federal Reserve central bank that regulates the banks and favors big over small banks, especially when controlling interest rates through the buying and selling of bonds from and to the big banks, respectively.

  • Housing (15%) is monopolized through the Fannie/Freddie home mortgage duopoly and Federal Housing Administration that finance and promote larger homes and urban sprawl; while local politicians favor real estate developer cronies.

  • Health care (18%) is monopolized through state licensure laws restricting the supply of doctors and other health professionals (according to Nobel Prize winning economist Milton Friedman ), certificate-of-need laws limiting the supply of hospitals, government and government-encouraged corporate buyer monopolies, and federal drug patent and other intellectual property laws.

  • Agriculture (8%) is monopolized through subsidies favoring traditional crops and the monopolies selling inputs for and outputs from those crops, including seeds (e.g., GMO), corporate mono-culture farms and junk food processors. The subsidies discourage the development of alternative crops, diversified family farms and healthier foods. Subsidized crop exports traded by international conglomerates have been rendering agriculture uncompetitive in the developing world .

  • Energy (12%) is monopolized through the U.S. government-encouraged OPEC oil cartel while U.S. electricity and natural gas markets are controlled by territorial utility monopolies. The utility monopolies conduct rigged bidding of power supplies favoring cronies . The U.S. also creates energy monopolies by picking winners and losers among fuel types. Big Oil & Gas receives preferential exemptions from environmental regulations for fracking . The natural gas by-product of oil fracking is favored over otherwise lower-cost coal in base-load electricity markets and for backing up favored wind and solar energy. Wind and solar energy, and also ethanol vehicle fuel made from corn and cellulose, receive tailored mandates and subsidies that block the development of other potentially lower-cost energies including renewables .

  • Transportation (10%) is monopolized through government regulations, including bailouts, favoring theBig Three automakers and airport favoritism for the four major airlines.

  • Technology (8%) is monopolized through patent and copyright laws while regulated territorial franchises are awarded to local telephone, internet and cable monopolies .

  • Government (13%) has created public monopolies through dominant federal, state and local funding, especially education.

These monopolies affect both consumer and government spending. Consumer spending, which is about 70 percent of the economy, is dominated by housing (36%), food (14%), transportation (14%), energy (9%), health care (8%) and education (3%). The U.S. government spends mostly on health care (30-35%), defense (20%), food (4%), education (3%), transportation (2%) and housing (2%). State spending is about 30 percent for education.

Education, health care and energy monopolies receive extreme favoritism, control nearly 40 percent of the economy and are responsible for most of today’s economic problems. Since the Great Inflation of the 1970s, monopolies in the education, medical and energy sectors have restricted supply, while demand has been growing, causing consumer prices to inflate (see figure) more than wages have risen. Energy is nearly a third of transportation costs and a tenth of housing and agriculture.

Meanwhile, public education controls 92 percent of K-12 and 78 percent of higher education. Colleges achieved monopoly power through preferential government funding that has covered the majority of revenues. Since 1980, college enrollment rose almost 150% while the number of four-year colleges rose only about 50%, thus increasing their market power. Market entry has been discouraged by the disadvantages of not receiving past, and even present, subsidies. Increasing demand and the suppressed supply of competitors has inflated total prices for college.

The U.S. “health care cost crisis” started in 1965. The government increased demand with the passage of Medicare and Medicaid while restricting the supply of doctors and hospitals. Health care prices responded attwice the rate of inflation. These inflated costs have also increased the cost of clinical trials needed by the drug industry. Since 1984, the drug industry has increased their profit margins to among the highest of all industries by successfully lobbying for overly-generous intellectual property rights (on top of patents).

Politicians likely support these policies in part because they make financial donations and other contributions to their election campaigns. They make excuses for their interventions favoring monopolies by alleging market imperfections or failures that may or may not exist. However, they oftendeclare market failures without much evidence or even analysis.

As science historian James Burke said: “You can only know where you're going if you know where you've been.” Capitalism has always been unfairly blamed for market failures, monopolies and economic problems. For more than three centuries, most of America has aimlessly suffered through disguised, evolving and perverse forms of authoritarian economies created with government policies favoring monopolies and ineffective regulation: mercantilism before 1900, then socialism until the 1970s, and corporatism since.

This article is adapted from a draft report published by Americans Against Monopolies.

Published:12/1/2018 4:42:02 PM
[Entertainment] 6 adorable picture books for the kids on your holiday list this season Jocelyn McClurg, USA TODAY books editor, recommends cute picture books about the holidays that kids would love to find under the tree this year.
     
 
 
Published:11/30/2018 2:35:13 PM
[Markets] "Absent Hard News, Take Everything With A Grain Of Salt" One Trader's G20 Trade Plan

The headline-hypersensitivity continues ahead of the G-20 meetings with an overnight drift lower instantly erased by algo panic buying on confusing lighthizer headlines.

So, how is one to manage through the next 48-72 hours of market rumors, innuendo, and news? Former fund manager and FX trader Richard Breslow has some thoughts...

Via Bloomberg,

Ahead of whatever the G-20 meetings deliver, markets have tried to do as little as possible. And that makes perfect sense. Still, we couldn’t avoid some subdued movements as hints, unsubstantiated comments, or just the ebb and flow of emotions about the likelihood of a particular result from the shared list of potential outcomes. Sad to say for something so important, and entirely under human control, it remains just a guessing game.

But for those who want to partake in the speculation, there is certainly no shortage of people using some kind of game theory to posit what will happen. Or more importantly for traders, what will happen after.

It has actually been a somewhat interesting day because the seeming fluctuating handicapping of possible results hasn’t been in sync between assets. There have been no signs of student body right, student body left behavior. Which strongly suggests that, so far, each individual market is clearing the business they have to rather than expressing any newfound conclusions.

Absent hard news, take everything with a grain of salt. It certainly hasn’t been a good day trading strategy to assume, as one would typically do, that the Shanghai Composite’s nice afternoon rally would spill over to the likes of emerging markets, S&P 500 futures or the Australian dollar. Leave that for early Monday.

One thing to remember as you strategize about how to react to the news is that all markets don’t open at the same time. Foreign exchange will be the only game in town from the get-go.

There will be a lot of proxy trading going on, which will need to get swapped out as other assets become available to trade. Potentially with large gaps.

It could all be quite sloppy and fun. But it might not be friendly. And, while it probably won’t matter at the beginning of the week, you can’t ignore the implications for central banks. Not that I think they are going to intervene but tailwinds versus headwinds will matter as you price future rate changes. Not to mention that the dinner also holds potential implications for European auto tariffs.

Even a deal, or the promise to delay tariffs and work toward one down the road, isn’t going to instantly cure what has been ailing the Chinese economy. Risk assets could fly without taking away the speculation surrounding a near-term PBOC cut to the reserve requirement ratio. Conversely, you might want to reread Fed Chairman Jerome Powell’s latest speech. It’s a bitterly sad commentary that no deal might end up being the less ambiguous side to trade. Although, no matter what happens the knee-jerk reactions should be pretty straightforward. Famous last words, I know.

I had an interesting debate with myself last night about how to view monthly charts with such a significant event coming on the Saturday after we close November’s books. I’ve concluded, for better or worse, that today’s is the relevant close. The reason being that if things get motoring, the important longer-term chart points will be the best guide to where there should be liquidity to source. Even if it doesn’t stop things. Just remember, momentum algorithms don’t care about my technical levels.

Published:11/30/2018 9:05:28 AM
[Markets] 25 Basic Life Skills That Should Be Taught In School (But Aren't)

Authored by Meadow Clark via Daisy Luther's Organic Prepper blog,

I know lots of you are homeschool parents. But please accept before reading this article that many kids are sent to public schools for a wide variety of reasons. Please do not turn this into an argument about homeschooling vs. public schooling or an insult festival toward parents who send their kids to school. That’s not productive. Let’s talk about what is taught vs. what is missing. And also, keep in mind that school is the only chance that some children have to learn new ideas because their parents are either disinterested or close-minded. While most of us try to teach our children these excellent skills at home, many young people are not raised in households like ours.

Think of the vast amount of time that students spend in school. But what do they come away knowing? They are taught very few life skills, so are they really prepared for the real world?

Here’s one of the glaring problems with public school: it’s designed to waste time.

Like a Weeping Angel from Doctor Who, school can zap your life away. It wouldn’t be half bad if you were being taught something useful. Sure, reading and math are important, but the bulk of those things can be taught in much shorter periods of time than are being utilized right now. Plus, reading skills are deteriorating and math was swallowed by Common Core.

Ideally, there would be myriad forms of trustworthy education that could suit any personality. And ideally many of these skills would be taught by family and imparted by experienced people – but that’s getting harder to do.

So in the list below, think of what it would be like if schools were ideal and actually preparing people to live meaningful lives.

Without further ado, here are…

25 Life Skills That Should Be Taught In School (But Aren’t):

#1 Individual Thought

Instead of regurgitating what the teacher says and mirroring their peers, people need to think for themselves only. That means no groupthink. Most people think they are unique but are only parroting. That’s why you can figure out who they are from just two of their beliefs. A lot of people struggle with who they really are but can’t even have a thought of their own. Life shouldn’t be so monochromatic and Borg-like. Calling all real individuals.

#2 Personal Finance, Saving & Budgets

The credit card and personal finance industry should not be the ones teaching us about money. And while I think Dave Ramsey’s advice from Total Money Makeover to start an emergency fund is golden; I’d like to nominate The Index Card by Helaine Olen as the curriculum. It is by far the best, most objective personal finance advice I’ve ever gotten. Takes all the confusion away. The name is from the idea that everything you need to know about finance fits on an index card – and the book even comes with it!

#3 Health & Nutrition

No fad diets. Just self-care and nutrition. Food selection and important information about vitamins, minerals, and bio-compounds. I know they teach health in school but c’mon… And why not include gardening and food prep?

#4 Resiliency & Failing Gracefully

The world can be crushing enough, perhaps resiliency and tenacity can be emphasized instead of measuring students against failure. Failure is inevitable after all, so people should be shown how to fall and get back up again.

#5 The Art of Conversation

‘Sup! Hav U taken this class B4?

#6 Logic, Reasoning, and Public Discourse

Did you know that schools have been rapidly dropping Logic classes? It’s time to stop the Idiocracy from spreading and revive Logic! Also, it would be nice if public discourse didn’t amount to two people rabidly screaming at each other.

#7 Character

You can’t legislate morality, but young people are eager to learn character. Instead of burdening children with global warming responsibility and punishing them severely for breaking unspoken social justice mores – how about letting them have fun but fostering a sense of character. Show them they have personal control/responsibility and that there are real-world consequences for their actions. Relationship skills probably shouldn’t be taught by government-run schools but ultimately those come from a person’s character.

#8 Negotiation

In order to make it in the real world and provide for a family, negotiating is crucial. It means being firm, having a backbone and the willingness to exhibit some disagreeableness.

#9 Cooking from Scratch

It’s a seriously needed lost art! And it overlaps with health, budget and survival classes.

#10 Survival & First Aid

All forms of survival, prepping and first aid, including wilderness first aid, should be taught to everyone. Survival without tech and during disasters or live shooting events – all of it. Gardening, self-defense, and firearms overlap with this class, too. The Dangerous Book for BoysThe American Boys Handy Book,  The Field and Forest Handy Book: New Ideas for Out of Doors would be a great, fun start! Of course, The Organic Prepper makes a great curriculum – hi, homeschoolers!

#11 Speed Reading (But with Deep Comprehension)

Speed reading is not the same as skimming. Many people have been taught to skim haphazardly because of the Internet, new gadgets and pressure to multi-task. This study shows that skimming is actually not a great way to comprehend more. Speed reading removes “subvocalization” while reading, and it can be done while maintaining comprehension.

#12 Self-Defense

Both with and without firearms. It would include boundaries, situational awareness, and improvisation.

#13 Crash Course on How Government Works

People are told to go out and vote but a lot of them don’t even know much about the positions they are voting on. I wish School House Rock had kept up the government songs! “I’m just a bill…

#14 Creativity

Our linear-thinking and tech-driven world is rapidly extinguishing right-brain thought, and that is a travesty. Our creative force needs to be ablaze at all times and should never be downgraded or snuffed out.

#15 Household & Basic Car Mechanic Repairs

Why are these skills not taught to everyone? Learn to be handy and be independent from others while putting thousands of savings toward paying down a house. A lot of people are afraid to try, but only because they weren’t taught and may be afraid to ask for help.

#16 Time Management, Focus, and Productivity

Multi-tasking is a proven fraud. In a world driven to distraction, the art of focus is priceless in the working world. Maximized time is a maximized life.

#17 How to Read Literature With Deeper Understanding

Let’s face it: high school makes a lot of people hate books. Something tells me that’s the real reason why 1984 is mandatory reading. Who actually remembers the deeper message later in life? Curriculum: The Well-Educated Mind by Susan Wise Bauer is a straight-forward, wonderful guide through the classical education most of us never got.

#18 Entrepreneurship, Career & Starting a Business in a Gig Economy

This is a crucial skill desperately needed in a changing job landscape. It could teach sales skills for all different personality types. And hey, wouldn’t it be great to cultivate what your passions are instead of being wedged into categories by those career assessments?

#19 Etiquette

Seriously. Make. This. A. Class.

#20 Social Skills

Social skills are different than etiquette and manners. It involves picking up on cues and tone, and knowing how to appropriately respond in different situations. There is dating etiquette and there is also dating social skills. These are just as important as having social awareness on the job.

#21 Study & Deep Research

Why do 12 years of school without first learning this key element?

#22 How to Selectively Make Real Friends

An elective class to win GOOD friends and influence people. Networking. Watching out for red flags in relationships. School is basically a big bullpen where you’re with the same people every day for 12 years. And they think homeschoolers aren’t “socialized”? Sheesh! Plus, social media gives the false impression of connection without much selectivity.

#23 Effective Communication & Writing

So apparently this is being taught now, but…is it really?

#24 Resume & Cover Letters

Firstly, a lot of people do not know how to craft these. And secondly, most of them are thrown into the trash or get lost in cyberspace. The soul-crushing job application process needs a serious makeover, but until that happens, people need to learn how to write an attention-grabbing human-voiced resume that gets that foot in the door.

#25 Understanding Credit Cards, Bills, Taxes, House/Car Purchases, Student Loans, Insurance

This is a much-needed course, unfortunately. This class would help students avoid predatory financial practices instead of being ushered right into them. Day 1: teacher cuts up all credit cards in a class demonstration.

Last but not least….a bonus that is only being sort of taught apparently?

GEOGRAPHY!

If people want to let their government charge trillions to lob bombs into another country, then by Jove, they’d better be able to point it out on a map… I’m being darkly facetious, but seriously, geography is important.

It may even drive a wanderlust to explore, and the government doesn’t want that. We were always at war with Eurasia!

I was tempted to put some other electives on the list like “Relationship Skills by Interviewing Elderly Couples” or “Why TV Sucks” but I realize that these fall outside the realm of objectivity and belong in class #1: Individual Thought. 

Published:11/28/2018 11:37:54 PM
[World] BOOK REVIEW: 'The Virtue of Nationalism' by Yoram Hazony

THE VIRTUE OF NATIONALISM

By Yoram Hazony

Basic Books, $30, 285 pages

Nationalism — for many folks, that's bad enough. But the modifiers don't help at all. There's "Black Nationalism," and the still more frightening, to many, "White Nationalism."

The popular culture undergirds this aversion to nationalism — in any ... Published:11/28/2018 6:52:24 PM

[Entertainment] Netflix will create a ‘story universe’ based on the work of Roald Dahl Netflix and The Roald Dahl Story Company announced today that they’ve signed a deal for the streaming service to create a slate of animated “event series” based on a long list of titles by the classic children’s author, including “Charlie and the Chocolate Factory,” “Matilda” and “The BFG.” All of those books have already been […] Published:11/27/2018 11:14:38 AM
[Markets] Forget Jim Acosta, Matt Taibbi Explains Why You Should Care About Julian Assange

Authored by Matt Taibbi via RollingStone.com,

Forget Jim Acosta. If you’re worried about Trump’s assault on the press, news of a Wikileaks indictment is the real scare story...

Wikileaks founder Julian Assange, who has been inside the Ecuadorian embassy in London since the summer of 2012, is back in the news. Last week, word of a sealed federal indictment involving him leaked out.

The news came out in a strange way, via an unrelated case in Virginia. In arguing to seal a federal child endangerment charge (against someone with no connection to Wikileaks), the government, ironically, mentioned Assange as an example of why sealing is the only surefire way to keep an indictment under wraps.

“Due to the sophistication of the defendant and the publicity surrounding the case,” prosecutors wrote, “no other procedure is likely to keep confidential the fact that Assange has been charged.”

Assange’s lawyer Barry Pollack told Rolling Stone he had “not been informed that Mr. Assange has been charged, or the nature of any charges.”

Pollock and other sources could not be sure, but within the Wikileaks camp it’s believed that this charge, if it exists, is not connected to the last election.

“I would think it is not related to the 2016 election since that would seem to fall within the purview of the Office of Special Counsel,” Pollack said.

If you hate Assange because of his role in the 2016 race, please take a deep breath and consider what a criminal charge that does not involve the 2016 election might mean. An Assange prosecution could give the Trump presidency broad new powers to put Trump’s media “enemies” in jail, instead of just yanking a credential or two. The Jim Acosta business is a minor flap in comparison.

Although Assange may not be a traditional journalist in terms of motive, what he does is essentially indistinguishable from what news agencies do, and what happens to him will profoundly impact journalism.

Reporters regularly publish stolen, hacked and illegally-obtained material. A case that defined such behavior as criminal conspiracy would be devastating. It would have every reporter in the country ripping national security sources out of their rolodexes and tossing them in the trash.

A lot of anti-Trump reporting has involved high-level leaks. Investigation of such leaks has reportedly tripled under Trump even compared to the administration of Barack Obama, who himself prosecuted a record number of leakers. Although this may seem light years from the behavior of Wikileaks, the legal issues are similar.

Although it’s technically true that an Assange indictment could be about anything, we do have some hints about its likely direction. Back in 2014, search warrants were served to Google in connection with Wikileaks that listed causes of criminal action then being considered. Google informed Wikileaks of the warrants. You can see all of this correspondence here.

The government back then - again, this pre-dated 2016, Roger Stone, Guccifer 2.0, etc. - was looking at espionage, conspiracy to commit espionage, theft or conversion of property belonging to the United States government, violation of the Computer Fraud and Abuse Act and conspiracy.

The investigation probably goes as far back as 2010, in connection with the release of ex-army private Chelsea Manning’s “Collateral Murder” video. That footage showed American forces in Iraq firing on a Reuters journalist and laughing about civilian casualties.

While much of the progressive media world applauded this exposure of George W. Bush’s Iraq war, the government immediately began looking for ways to prosecute. The Sydney Herald reported that the FBI opened its investigation of Assange “after Private Manning’s arrest in May of 2010.”

Ironically, one of the first public figures to call for Assange to be punished was Donald Trump, who in 2010 suggested the “death penalty” on Fox Radio’s Kilmeade and Friends.

While Trump complained, Wikileaks became an international sensation and a darling of the progressive set. It won a host of journalism prizes, including the Amnesty International New Media Award for 2009.

But a lot of press people seemed to approve of Wikileaks only insofar as its “radical transparency” ideas coincided with traditional standards of newsworthiness.

The “Collateral Murder” video, for instance, was celebrated as a modern take on Sy Hersh’s My Lai Massacre revelations, or the Pentagon Papers.

From there, the relationship between Assange and the press deteriorated quickly. A lot of this clearly had to do with Assange’s personality. Repeat attempts by (ostensibly sympathetic) reporters to work with Assange ended in fiascoes, with the infamous “Unauthorized Autobiography” — in which Assange abandoned the anticipated Canongate books project mid-stream, saying “all memoir is prostitution” — being one of many projects to gain him a reputation for egomania and grandiosity.

Partners like the Committee to Protect Journalists, who had been sifting through Wikileaks material to prevent truly harmful information from getting out, began to be frustrated by what they described as a frantic pace of releases.

In one episode, an Ethiopian journalist was questioned by authorities after a Wikileaks cable revealed he had a source in government; the CPJ wanted to redact the name. “We’ve been struggling to get through” the material, the CPJ wrote.

Eventually, for a variety of reasons, the partnerships with media organizations like the New York Times and The Guardian collapsed. Add to this the strange and ugly affair involving now-dismissed rape inquiry in Sweden, and Assange’s name almost overnight became radioactive with the same people who had feted him initially.

It seemed to me from the start the “reputable” press misunderstood Wikileaks. Newspapers always seemed to want the site’s scoops, without having to deal with the larger implications of its leaks.

It’s easy to forget that Wikileaks arrived in the post-9/11 era, just as vast areas of public policy were being nudged under the umbrella of classification and secrecy, often pointlessly so.

Ronald Reagan’s executive secretary for the National Security Council, Rodney McDaniel, estimated that 90 percent of what was classified didn’t need to be. The head of the 9/11 commission put the number at 75 percent.

This created a huge amount of tension between so-called “real secrets” — things that really should never be made public, like military positions and the designs of mass-destruction weapons — and things that are merely extremely embarrassing to people in power and should come out. The bombing of civilian targets in Iraq was one example. The mistreatment of prisoners in Guantanamo Bay was another.

A lack of any kind of real oversight system on this score is what led to situations like the Edward Snowden case. In 2013, Americans learned the NSA launched a vast extralegal data-collection program not just targeting its own people, but foreign leaders like Angela Merkel.

Snowden ended up in exile for exposing this program. Meanwhile, the government official who under oath denied its existence to congress, former Director Of National Intelligence James Clapper, remains free and is a regular TV contributor, despite numerous Senators having called for his prosecution. This says a lot about the deep-seated, institutional nature of secrecy in this country.

It always seemed that Assange viewed his primary role as being a pain in the ass to this increasingly illegitimate system of secrets, a pure iconoclast who took satisfaction in sticking it to the very powerful. I didn’t always agree with its decisions, but Wikileaks was an understandable human response to an increasingly arbitrary, intractable, bureaucratic political system.

That it even had to exist spoke to a fundamental flaw in modern Western democracies — i.e. that our world is now so complex and choked with secrets that even releasing hundreds of thousands of documents at a time, we can never be truly informed about the nature of our own societies.

Moreover, as the Snowden episode showed, it isn’t clear that knowing unpleasant secrets is the same as being able to change them.

In any case, the institutions Wikileaks perhaps naively took on once upon a time are getting ready to hit back. Frankly it’s surprising it’s taken this long. I’m surprised Assange is still alive, to be honest.

If Assange ends up on trial, he’ll be villainized by most of the press, which stopped seeing the “lulz” in his behavior for good once Donald Trump was elected. The perception that Assange worked with Vladimir Putin to achieve his ends has further hardened responses among his former media allies.

As to the latter, Assange denies cooperating with the Russians, insisting his source for the DNC leak was not a “state actor.” It doesn’t matter. That PR battle has already been decided.

Frankly, none of that entire story matters, in terms of what an Assange prosecution would mean for journalism in general. Hate him or not, the potential legal consequences are the same.

Courts have held reporters cannot be held liable for illegal behavior of sources. The 2001 Supreme Court case Bartnicki v. Vopper involved an illegal wiretap of Pennsylvania teachers’ union officials, who were having an unsavory conversation about collective bargaining tactics. The tape was passed to a local radio jock, Frederick Vopper, who put it on the air.

The Court ruled Vopper couldn’t be liable for the behavior of the wiretapper.

It’s always been the source’s responsibility to deal with that civil or criminal risk. The press traditionally had to decide whether or not leaked material was newsworthy, and make sure it was true.

The government has been searching for a way to change that equation. The Holy Grail would be a precedent that forces reporters to share risk of jail with sources.

Separate from Assange, prosecutions of leakers have sharply escalated in the last decade. The government has steadily tiptoed toward describing publishers as criminal conspirators.

Through the end of the Obama years, presidents had only prosecuted leakers twelve times. Nine of those came under Obama’s tenure. Many of those cases involved the Espionage Act.

In one case, a Fox reporter was an unindicted co-conspirator in a leak case involving a story about North Korea planning a nuclear test in response to sanctions.

In another incident, then-New York Times reporter James Risen spent seven years fighting an attempt by the Obama government to force him to compel his sources in a story about Iran’s nuke program.

A more recent case, from the Trump years, involved NSA leaker Reality Winner, who was given a draconian five-year prison sentence for leaking to The Intercept.

Despite Trump’s more recent cheery campaign-year comments about Wikileaks, and his son’s now-infamous email correspondence with Assange, Trump’s career-government appointees have not deviated much from the old party line on Wikileaks.

Trump’s security chiefs repeatedly called for a prosecution of Assange, with then-Justice head Jeff Sessions saying it was a “priority.”

Current Secretary of State and then-CIA director Mike Pompeo called Wikileaks a “non-state hostile intelligence service” and added, “Julian Assange has no First Amendment freedoms… He is not a U.S. citizen.”

It’s impossible to know exactly what recent news about an indictment means until we see it (the Reporters’ Committee for the Freedom of the Press has already filed a motion to unseal the charges). If there is a case, it could be anything in the federal criminal code, perhaps even unrelated to leaks. Who knows?

But the more likely eventuality is a prosecution that uses the unpopularity of Assange to shut one of the last loopholes in our expanding secrecy bureaucracy. Americans seem not to grasp what might be at stake. Wikileaks briefly opened a window into the uglier side of our society, and if publication of such leaks is criminalized, it probably won’t open again.

There’s already a lot we don’t know about our government’s unsavory clandestine activities on fronts like surveillance and assassination, and such a case would guarantee we’d know even less going forward. Long-term questions are hard to focus on in the age of Trump. But we may look back years from now and realize what a crucial moment this was.

Published:11/25/2018 4:32:41 PM
[Markets] Has California's Green Ideology Left It Burning?

Authored by James Pinkerton via The American Conservative,

The state didn't invest in infrastructure and so the fires rage...

Once upon a time, the U.S. government looked ahead to a growing population - and looked to make sure that people would be safe and productive where they lived.

It was understood that while the familiar elements of nature—earth, wind, water, and fire—could be life-giving, they could also be death-bringing. And so, as part of the modern social contract, the state stepped in to aid growth and curb destruction.

Yet today, as wildfires engulf much of California, that social contract has been incinerated. That is, at least 79 are dead, and perhaps 1,000 are missing, yet officials seem mostly helpless to stop the damage. Indeed, the entire state seems to be de-modernizing, as air quality plummets, refugee camps are built, and fears of epidemics re-emerge.

But here’s a bet: that can-do spirit that once aided human flourishing will make a comeback. That is, it’s only a matter of time before Californians—and all Americans—demand that the government once again start putting people first.

Why this confidence? Because it happened before.

Back in 1900, Uncle Sam, having just enumerated the 76.2 million people living in the 45 states plus various territories, could see that more land would have to be opened up for settlement. There were two reasons for this realization, both of which can be found in the life of one man, Theodore Roosevelt.

As a young New York politician, TR could see that urban proletariats, huddled in their misery, might cause societal trouble. As he wrote in 1883, “An uprising might come that will overwhelm innocent and guilty alike.” So something had to be done to stave off radicalism. One obvious solution was social reform. TR was in favor of that, yet he also saw value in spreading out the population.

Indeed, he took his own advice a few years later, when he set out for the badlands of North Dakota. There he noticed a permanent natural phenomenon: it rained a lot less than in the East. He could see that if the population was going to thrive in the West, it would need additional sources of water.

We might note that in those days, providing water was a bipartisan goal. For instance, the Democratic Party platform of 1900 declared, “We favor an intelligent system of improving the arid lands of the West, storing the waters for the purpose of irrigation, and the holding of such lands for actual settlers.”

So in 1902, Roosevelt, by now our 26th president, found Congress receptive to the idea of reclamation—that is, reclaiming desolate land for productive use. Needless to say, such reclamation was to be done without anything like environmental impact statements; such paperwork would only come decades later.

TR established the Bureau of Reclamation within the Department of the Interior. As he declared in 1902, “Few subjects of more importance have been taken up by the Congress in recent years than the inauguration of the system of nationally aided irrigation for the arid regions of the far West.”

The urge to build public works for water reached its apex during the presidency of TR’s cousin, Franklin D. Roosevelt. Most notably, FDR launched the Tennessee Valley Authority (TVA), which transformed the South. We might note that the TVA did far more than provide low-cost hydropower, important as that was—the Manhattan Project, at Oak Ridge, Tennessee, relied on TVA power—and is. In addition, TVA projects regularized water flows, preventing flooding and draining swamps, thereby all but eradicating malaria and yellow fever.

TVA was so popular that decades later, Democrats were still campaigning on it. For instance, the 1964 Democratic Platform pledged to “continue the quickened pace of comprehensive development of river basins in every section of the country, employing multi-purpose projects such as flood control, irrigation and reclamation, power generation, navigation, municipal water supply, fish and wildlife enhancement and recreation, where appropriate to realize the fullest possible benefits.” (We might note that this was at a time when the Republican presidential candidate, Barry Goldwater, was musing aloud about privatizing TVA—a foolishly ideological non-starter.)

Yet Democrats’ ardor for infrastructure eventually cooled. The first Earth Day was in 1970, and it was then that they found a new love. In 1972, the word “reclamation” fell out of the Democrats’ platform (they lost that election). They never did return to the old ways of the New Deal. Instead they went green—and, of course, NIMBY.

Interestingly, around this same time, the Republican Party, too, began to de-emphasize public works. To some extent, the GOP had also gone both green and NIMBY, but for the most part, Republicans had a different motivation—they wanted to spend less. That is, the old TR-ish approach of building out the country was giving way to a new emphasis on bean-counting.

The result was a tacit alliance of greens on the left and libertarians on the right, united in a “green scissors” approach to snipping infrastructure spending.

Without a doubt, this left-right combo has been effective in shrinking public efforts. As the Bureau of Reclamation’s history page tells it, “The heyday of Reclamation construction of water facilities occurred during the Depression and the thirty-five years after World War II. The last major authorization for construction projects occurred in the late 1960s.”

This cessation of ambitious new public works—stopped by legislation in the ’70s and by litigation ever since—is regarded as a triumph of green thinking. Red ink-minded budget cutters, too, are probably pleased.

Yet here’s the thing: even if virtually all water development projects have been stopped—as detailed here by Fresno resident Victor Davis Hanson, who’s seen the desiccation first hand—population growth has not stopped. In 1970, Americans numbered 205 million; they number more than 326 million today.

So what do we do with all these people? Where should they live? That’s a question that nobody seems to want to answer. And so, in the absence of policies that permit the continued dispersion of the population to reclaimed land, the default has been to pack folks into increasingly crowded conurbations.

For instance, a look at a population map of California shows that its people are jammed into just a few clusters.

The result of this dense packing has been runaway housing costs: the median home price in Los Angeles County—a place of 10.1 million—is $615,000. One might ask: how do ordinary people afford that? Answer: they don’t.

Yet whenever Californians seek to venture outside of the built-up cores, the lack of protective infrastructure haunts them—and burns them.

That’s the unmistakable signal of the recent fires, which most grievously impacted small towns such as Paradise, California, in faraway Butte County. The town’s former residents—all 27,000 of them—will have to think hard before they return to the charred remains of their homes, knowing that they face the prospect of another inferno in a few years.

In reaction to all these fires, California’s leaders have shown a curious, albeit purposeful, passivity. Just last week, Governor Jerry Brown mused aloud, in his wistful green way, “Our indigenous people had a different way of living with nature. For 10,000 years, there were never more than 300,000 [people living in California]. Now we have 40 million and we have a totally different situation. …It’s people. …And the truth is…things are not going to get better.”

We might pause over those last words: things are not going to get better. To put it mildly, this is not the can-do, pro-growth spirit of TR and FDR, to say nothing of past California governors from both parties, from Hiram Johnson to Brown’s own father, Pat Brown.

So what should we do? How do we protect rural Californians? We could start by pointing to little things—that aren’t so little if it’s your house—such as the need for more paved roads so that fire equipment can get to the fire.

We might also realize that water is not only the staff of life, but also the stuff of putting out fires. And if there’s not enough fresh water occurring naturally, well, we can make more. Yes, we can desalinate seawater, as this author has written about.

If the leaders of California wished to do so, they could make rural California safer and more hospitable to human development. To anticipate the inevitable criticism, nobody’s talking about paving over Yosemite. The state is almost 164,000 square miles, so there’s plenty of room for parks and people.

Of course, it’s perfectly obvious that California’s current leaders want no such such thing as exurban or rural population growth, because it conflicts with their green agenda.

Yet in politics, nothing is permanent, and anti-people political arrangements are even more fleeting. So one day, the dispossessed people of California—that is, the many millions dispossessed by green-imposed land scarcity—will wake up. We should hope that they will peacefully assert their right to shape their own destiny, that they will realize that if spreading out and owning a piece of land was a good idea for Americans in the 18th, 19th, and 20th centuries, it’s a good idea, too, for Americans in the 21st century.

If so, then the old social contract, the one that guided so much of our economic development, will be revived. Or, one might say, reclaimed.

As before, it will be all about making land and water available to all.

Published:11/24/2018 6:26:58 PM
[Markets] Doug Casey On Why Gold Is Money

Via CaseyResearch.com,

It’s an unfortunate historical anomaly that people think about the paper in their wallets as money. The dollar is, technically, a currency. A currency is a government substitute for money. But gold is money.

Now, why do I say that?

Historically, many things have been used as money. Cattle have been used as money in many societies, including Roman society. That’s where we get the word “pecuniary” from: the Latin word for a single head of cattle is pecus. Salt has been used as money, also in ancient Rome, and that’s where the word “salary” comes from; the Latin for salt is sal (or salis). The North American Indians used seashells. Cigarettes were used during WWII. So, money is simply a medium of exchange and a store of value.

By that definition, almost anything could be used as money, but obviously, some things work better than others; it’s hard to exchange things people don’t want, and some things don’t store value well. Over thousands of years, the precious metals have emerged as the best form of money. Gold and silver both, though primarily gold.

There’s nothing magical about gold. It’s just uniquely well-suited among the 98 naturally occurring elements for use as money… in the same way aluminum is good for airplanes or uranium is good for nuclear power.

There are very good reasons for this, and they are not new reasons. Aristotle defined five reasons why gold is money in the 4th century BCE (which may only have been the first time it was put down on paper). Those five reasons are as valid today as they were then.

When I give a speech, I often offer a prize to the audience member who can tell me the five classical reasons gold is the best money. Quickly now – what are they? Can’t recall them? Read on, and this time, burn them into your memory.

Money

If you can’t define a word precisely, clearly and quickly, that’s proof you don’t understand what you’re talking about as well as you might. The proper definition of money is as something that functions as a store of value and a medium of exchange.

Government fiat currencies can, and currently do, function as money. But they are far from ideal. What, then, are the characteristics of a good money? Aristotle listed them in the 4th century BCE. A good money must be all of the following:

  • Durable: A good money shouldn’t fall apart in your pocket nor evaporate when you aren’t looking. It should be indestructible. This is why we don’t use fruit for money. It can rot, be eaten by insects, and so on. It doesn’t last.

  • Divisible: A good money needs to be convertible into larger and smaller pieces without losing its value, to fit a transaction of any size. This is why we don’t use things like porcelain for money – half a Ming vase isn’t worth much.

  • Consistent: A good money is something that always looks the same, so that it’s easy to recognize, each piece identical to the next. This is why we don’t use things like oil paintings for money; each painting, even by the same artist, of the same size and composed of the same materials is unique. It’s also why we don’t use real estate as money. One piece is always different from another piece.

  • Convenient: A good money packs a lot of value into a small package and is highly portable. This is why we don’t use water for money, as essential as it is – just imagine how much you’d have to deliver to pay for a new house, not to mention all the problems you’d have with the escrow. It’s also why we don’t use other metals like lead, or even copper. The coins would have to be too huge to handle easily to be of sufficient value.

  • Intrinsically valuable: A good money is something many people want or can use. This is critical to money functioning as a means of exchange; even if I’m not a jeweler, I know that someone, somewhere wants gold and will take it in exchange for something else of value to me. This is why we don’t – or shouldn’t – use things like scraps of paper for money, no matter how impressive the inscriptions upon them might be.

Actually, there’s a sixth reason Aristotle should have mentioned, but it wasn’t relevant in his age, because nobody would have thought of it... It can’t be created out of thin air.

Not even the kings and emperors who clipped and diluted coins would have dared imagine that they could get away with trying to use something essentially worthless as money.

These are the reasons why gold is the best money. It’s not a gold bug religion, nor a barbaric superstition. It’s simply common sense. Gold is particularly good for use as money, just as aluminum is particularly good for making aircraft, steel is good for the structures of buildings, uranium is good for fueling nuclear power plants, and paper is good for making books. Not money. If you try to make airplanes out of lead, or money out of paper, you’re in for a crash.

That gold is money is simply the result of the market process, seeking optimum means of storing value and making exchanges.

Published:11/24/2018 2:00:35 PM
[Markets] Ten Reasons Why Governments Fail

Authored by Anthony Mueller via The Mises Institute,

When politicians and bureaucrats fail to deliver what they promise - which happens a lot - we're often told that the problem can be solved if only we get the right people to run the government instead.

We're told that the old crop of government agents were trying hard enough. Or that they didn't have the right intentions. While it's true that there are plenty of incompetent and ill-intentioned people in government, we can't always blame the people involved. Often, the likelihood of failure is simply built in to the institution of government itself. In other words, politicians and bureaucrats don't succeed because they can't succeed. The very nature of government administration is weighted against success. 

Here are ten reasons why:

I. Knowledge

Government policies suffer from the pretense of knowledge . In order to perform a successful market intervention, politicians need to know more than they can. Market knowledge is not centralized, systematic, organized and general, but dispersed, heterogeneous, specific, and individual. Different from a market economy where there are many operators and a constant process of trial and error, the correction of government errors is limited because the government is a monopoly. For the politician, to admit an error is often worse than sticking with a wrong decision - even against own insight.

II. Information Asymmetries

While there are also information asymmetries in the market, for example between the insurer and the insured, or between the seller of a used car and its buyer, the information asymmetry is more profound in the public sector than in the private economy. While there are, for example, several insurance companies and many car dealers, there is only one government. The politicians as the representatives of the state have no skin in the game and because they are not stakeholders, they will not spend much efforts to investigate and avoid information asymmetries. On the contrary, politicians are typically eager to provide funds not to those who need them most but to those who are most relevant in the political power game.

III. Crowding out of the Private Sector

Government intervention does not eliminate what seem market deficiencies but creates them by crowding outthe private supply. If there were not a public dominance in the areas of schooling and social assistance, private supply and private charity would fill the gap as it was the case before government usurped these activities. Crowding-out of the private sector through government policies is constantly at work because politicians can get votes by offering additional public services although the public administration will not improve but deteriorate the matter.

IV. Time Lags

Government policies suffer from extended lags between diagnosis and effect. The governmental process is concerned with power and has its antenna captures those signals that are relevant for the power game. Only when an issue is sufficiently politicized will it find the attention of the government. After the lag, until an issue finds attention and gets diagnosed, another lag emerges until the authorities have found a consensus on how to tackle the political problem. From there it takes a further time span until the appropriate political means have found the necessary political support. After the measures get implemented, a further time elapses until they show their effects. The lapse of time between the articulation of a problem and the effect is so long that the nature of the problem and its context have changed - often fundamentally. It comes as no surprise that results of state interventions, including monetary policy , do not only deviate from the original goal but may produce the opposite of the intentions.

V. Rent Seeking and Rent Creation

Government intervention attracts rent-seekers. Rent seeking is the endeavor of gaining privileges through government policies. In a voter democracy, there is a constant pressure to add new rents to the existing rents in order to gain support and votes. This rent creation expands the number of rent-seekers and over time the distinction between corruption and a decent and legal conduct gets blurred. The more a government gives in to rent-seeking and rent creation, the more the country will fall victim to clientelism, corruption, and the misallocation of resources.

VI. Logrolling and Vote Trading

The public choice concept of ‘ logrolling ’ denotes the exchange of favors among the political factions in order to get one’s favored project through by supporting the projects of the other group. This conduct leads to the steady expansion of state activity. Through the ‘quid pro quo’ of the political process, the lawmakers support pieces of legislation of other factions in exchange for obtaining the political support for their own project. This behavior leads to the phenomenon of ‘legislative inflation’, the avalanche of useless, contradictory and detrimental law production.

VII. Common Good

The so-called ‘ common good’ is not a well-defined concept. Similar terms, such as that of the ‘public good’, which is defined by non-excludability and non-rivalry, misses the point because it is not the good that is ‘common’ or ‘public’ but its provision when this is deemed more efficient by collective than individual efforts. However, this is the case with all goods and the market itself is a system of providing private goods through cooperative efforts. The market economy is a collective provider of goods as it combines competition with cooperation. Any of the so-called ‘public goods’, which the government supplies, the private sector can also deliver, and cheaper and better as well. In contrast to the state, the cooperation in a market economy includes competition and thus not only economic efficiency but also the incentive to innovate.

VIII. Regulatory Capture

The term ‘ regulatory capture ’ denotes a government failure where the regulatory agency does not pursue the original intent of promoting the ‘public interest’ but falls victim to the special interest of those groups, which the agency was set up to regulate. The capture of the regulatory body by private interests means that the agency turns into an instrument to advance the special interests of the group that was targeted for regulation. For that purpose, the special interest group will ask for extra regulation to obtain the state apparatus as an instrument to promote its special interests.

IX. Short-Sightedness

The political time horizon is the next election. In the endeavor that the benefits of political action come quickly to their specific clienteles, the politician will favor short-term projects over the long-term even if the former bring only temporary benefits and cost more in the long run than an alternative project where the costs come earlier and the benefits later. Because the provision of public goods by the state severs the link between the bearer of the cost and the immediate beneficiary, the time preference for the demand for the goods that come apparently free of charge by the state is necessarily higher than in the market system.

X. Rational Ignorance

It is rational for the individual voter in a mass democracy to remain ignorant about the political issues because the value of the individual's vote is so small that it makes not much difference for the outcome. The rational voter will vote for those candidates who promise most benefits. Given the small weight of an individual vote in a mass democracy, the rational voter will not spend much time and effort to investigate whether these promises are realistic or in a collision with his other desires. Thus, the political campaigns do not have information and enlightenment as the objective but disinformation and confusion. What counts, in the end, is to get votes. Not the solidity of the program is important but the enthusiasm a candidate can create with his supporters and how much he can degrade, denounce, and humiliate his opponent. As a consequence, election campaigns incite hatred, polarization, and the lust for revenge.

Published:11/23/2018 8:53:18 PM
[Constitution] Our cold civil war (Scott Johnson) Our friend Charles Kesler is the Dengler-Dykema Distinguished Professor of Government at Claremont McKenna College, editor of the Claremont Review of Books and a recipient of the 2018 Bradley Prize. I wrote briefly about Charles and posted the text of his Bradley speech along with the video here on Power Line. Imprimis has now adapted Charles’s lecture at Hillsdale this past September 27 into the essay “Our cold civil war.” Published:11/23/2018 7:51:10 AM
[Markets] Retail Investor Demand For Italian Bonds Drop To Lowest On Record

There is a very simple reason why in recent months Italian banks have been "forced" to buy near record amount of Italian debt (which for now at least is backtopped by the ECB): because nobody else wants them.

As frequent readers will recall, back in July we reported that during the first Italian bond crisis this year in May, when BTP yields soared after the populist government came to power, Italian banks purchased over €28.4BN in Italian government bonds, the largest monthly amount ever and higher than at any time seen during the 2012 sovereign debt crisis.

Two months later we showed the flip side: while domestic banks - still backstopped by the ECB - were scrambling to buy up all the BTPs they could find, foreigners were dumping it with bond hands. As the chart below shows, holdings of Italian debt by foreign investors declined by a net €38bn in June, eclipsing the previous month’s net fall of €34bn, which was itself a record.

So while we have known for a while that Italian banks were buying up all the Italian bonds that foreigners had to sell, an outstanding question is how did Italian retail investors feel about buying (or holding) the country's debt?

We finally got an answer earlier today, when Italy held its first offering of inflation-linked bonds targeted at the retail segment since the market turmoil in May. The answer: a disaster.

As Bloomberg notes, "Italy’s domestic investors have given a resounding thumbs-down to the populist government’s funding efforts", because retail demand for the bond offering saw the lowest number of orders for a BTP Italia issue since they were introduced in 2012.

Retail investors’ orders for the BTP Italia bond totaled €864 million at the end of the third day of the sale: a record low. That compares with the previous low of €974 million in 2012, and an all time high of €17 billion in 2013.

After raising €480m on Monday, investors signed up for €241m of bonds on Tuesday. The Wednesday balance was even smaller.

BTP Italia were first sold in 2012, shortly after Italy's sovereign debt emerged from a near-death experience, and have since become a fixture on the Italian Treasury’s issuance schedule every six months. Each sale takes four days; books open first for individual investors, and institutional investors are then able to join in on the final day.

While normally the sale of the bonds - which pay a coupon of 1.45% for four-year debt - would be deemed a failure, the Italian Treasury may still raise an estimated €5 billion ($5.7 billion), with the bulk of it coming on Thursday, the last day of the fund-raising exercise, which is open only to institutional investors. Alas, as of 9am London time, the prospects were looking bleak with institutional order books only at 660 million euros, well below the previous low of 762 million euros that professional investors bought in 2012, and very, very short of the 10.5 billion-euro high in 2014.

Davide Iacovoni, director-general of Italy’s debt management office, blamed the volatility in Italian bond yields for the low level of demand for the new BTP Italia.

“Higher volatility weighed on the BTP Italia offer like it weighed on other government bonds and the sale is below expectations,” Mr Iacovoni told Reuters in a phone interview. “Market volatility has encouraged caution especially among wealthier investors who rely on private bankers and asset managers.”

In the past 6 months, Italian 10-year yields have soared 150 bps this year to 3.50%, while the closely watched spread over German bunds has more than doubled to 315 bps. The Italian government recently hinted that a spread of 400 bps could result in deposit runs and bank failure. Yet while the higher bond yields should have made them more attractive to retail investors, the recent price fluctuations most likely put many investors off the sale, according to NatWest Markets Plc.

“The spread is in the Italian press daily, so there is a good deal of awareness of recent volatility among Italian savers,” said Giles Gale, an interest rates strategist. “Their support is important symbolically.”

The vote of no-confidence by local retail investors - who unlike Italian banks don't have the benefit of an ECB backstop - will be a major worry for Italy’s leaders as they look to borrow more money to finance their policy proposals, which as is widely known are the basis for an unprecedented standoff between Rome and Brussels. The government of Italy, whose $2 trillion in debt makes it the 2nd most indebted European nation, has penciled in a jump in the budget deficit to 2.4% of GDP, putting it in conflict with the European Union’s spending rules, and resulting in the historic launch of an Excessive Deficit Procedure by the European Commission, meant to punish Italy for its high-spending ways.

It only gets harder from here.

On Wednesday, the EU took the first step toward imposing fines  on the region’s fourth-largest economy after stating the coalition administration’s spending plans violate the bloc’s rules, and calling for the launch of the infamous Excessive Deficit Procedure (whose bizarre, bureaucratic event flow is listed below).

Despite the trigger of the EDP, on Thursday Italy’s Deputy Prime Minister Matteo Salvini said that he won’t back down on the budget in an interview with RAI television. He added that he was “concerned” about the nation’s bond yield spread with German securities, but added that it cannot be controlled by the government. And while his stance may not be popular with investors, support for his party has grown in recent months, according to polls, putting Brussels in the tough position of risking to alienate the Italian population further should it push the populist government too hard; at risk could be the future of the Eurozone because should Italy decide to quit the common currency, the European experiment is over.

For now, the tense standoff between Rome and Brussels is mostly in its jawboning stage, however as the next chart below shows, the time for action is coming soon, and while neither side wants to take definitive action and would much rather resort to harsh language and posturing, that will not be possible for much longer.

"The Italian Treasury has seen little more than lukewarm retail demand for its inflation-linked BTP Italia issue,” said Marc Ostwald, global strategist at ADM Investors Services. It serves “as a reminder that while the public may be applauding the government facing down the EU, investors are clearly voting with their pockets."

And with retail investors boycotting their country's sovereign debt, there are just 40 days until the  biggest risk facing Rome becomes reality: on January 1, 2019 the biggest - and realistically only  buyer - of Italian debt, the ECB...

... will stop purchasing and backstopping its debt. And should foreign and domestic retail investors still refuse to buy the bonds, with banks now out of the picture (as their purchases will no longer be implicitly guaranteed by Mario Draghi), it is anyone's guess who the current Italian government will fund itself. The lack of a definitive question is why two weeks ago, Fitch warned that Italy's populist government may not survive. However, with popular support for the League and 5-Star near 60%, the likelihood of a smooth political transition to a technocratic, or even more centrist, government, is virtually nil.

Published:11/22/2018 3:17:45 PM
[Markets] Deutsche Bank Lost $60MM On Trade Meant To Minimize Risk

While Deutsche Bank may have a far greater headache now that it has been implicated as an accomplice in Danske Bank's giant money-laundering efforts, helping some $150 billion in funds transit out of Europe illicitly, in an amusing tangent showing how the biggest, and most troubled, German lender can seemingly get nothing right these days, the most troubled German lender had put on a hedge to minimize risk at its U.S. equities business. Instead, the company lost tens of millions on the trade.

According to Bloomberg, Deutsche Bank's New York traders pooled billions of dollars of positions into one portfolio, known as a central risk book, in an attempt to avert losses and potentially make more money (or maybe in hopes of recreating JPM's London Whale "hedging" behemoth). Alas, it did not work out quite as expected, and the trade backfired leading to a $60 million loss, and forcing Deutsche Bank to slash the book’s size.

A reversal of the "pod" or silo strategy popularized by such hedge funds as Millennium and SAC, central risk books have become a trend at some of the world’s biggest investment banks which have been seeking to minimize risk exposure. As Bloomberg explains, instead of dozens of workers across numerous desks working to limit possible losses, trades are transferred to a single CRB where they are managed by a small team, often with the help of complex algorithms.

But at Deutsche Bank, part of that strategy "didn’t perform as well as desired"... which considering the bank's recent "successes" in equity trading was to be expected, and judging by the bank's response, desired:

“Looking at isolated losses in central risk books is misleading since it does not take into account other related trading books or offsetting factors such as commissions earned,” Kerrie McHugh, a spokeswoman for Deutsche Bank in New York, said in an e-mail. She declined to elaborate on specifics.

While the size of the loss was manageable for one of Europe’s top investment banks, it represents a new glimpse into Deutsche Bank’s problems both at its equities business, which has reported quarterly declines in revenue since 2015, and in the U.S., where the Fed has been scrutinizing its controls.

Adding insult to injury, CEO Christian Sewing has targeted the stocks division for cutbacks since he took the top job in April.

Some more details from Bloomberg on the evolution of Deutsche's CRB:

Executives at the firm started increasing the size of the CRB for the U.S. equities business in late 2016 and continued until this year, when it contained about 2 billion euros ($2.3 billion) of trades, the people said. One person said the pool contained positions in both common stock and equity derivatives, complex contracts that derive their value from shares.

While CRBs are meant to allow banks to cut costs, improve profit and bolster risk management, this particular strategy floundered, partly because of issues with the CRB’s technology, the sources said, and as Bloomberg explains, one of the problems was how well the team’s algorithms analyzed the trading success of counterparties. Another source said that the CRB may also have become "too big to manage properly."

Deutsche Bank executives have since shrunk the size of the CRB to about several hundred million euros, the people said. 

Ryan O’Sullivan, a trader who helped oversee the strategy, moved to the role of global co-head of electronic equities in May of this year, according to his LinkedIn page. Amusingly, according to McHugh, the DB spokeswoman, "he was promoted" confirming that all one needs to do to get to the top at the German bank is lose tens of millions.

And so with this latest failed attempt to prove to the world that its equities trading desk is competitive now safely in the rearview mirror, Deutsche Bank can focus on what truly matters: defending itself from the upcoming accusations that it helped Russians launder - by way of Danske Bank - some $150 billion in "hot money" into the US.

Published:11/21/2018 10:05:35 AM
[Markets] Zbigniew Brzezinski's Geopolitical Strategy For US Global Hegemony

Authored by Vladislav Sotirovic via Oriental Review,

"If we have to use force, it is because we are America.

We are the indispensable nation."

(Madeleine K. Albright, February 1998)

Madam Secretary

As a matter of very fact, regardless to the reality in global politics that the Cold War was over in 1989, Washington continued to drive toward the getting the status of a global hyperpower at any expense for the rest of the world.

The Balkans undoubtedly became the first victim in Europe of the old but aesthetically-repackaged American global imperialism. The US’ administration is a key player during the last 25 years of the Balkan crisis caused by the bloody destruction of ex-Yugoslavia in which Washington played a crucial role in three particular historical cases:

  1. Only due to the US’ administration (more precisely due to the last US’ ambassador to Yugoslavia, Warren Zimmermann), a Bosnian-Herzegovinian President Alija Izetbegovic (the author of the 1970 Islamic Declaration) rejected already agreed Lisbon Agreement about peaceful resolution of the Bosnian crises which was signed by the official representatives of the Serbs, Croats and Bosniaks in February 1992. Alija Izetbegovic was one of those three signatories. The agreement was reached under the auspices of the European Community (the EC, later the European Union) that was represented by the British diplomat Lord Carrington and the Portuguese ambassador José Cutileiro. However, under the US’ protection, a Bosnian-Herzegovinian Bosniak-Croat Government declared independence on March 3rd, 1992 which local Serbs decisively opposed. Therefore, two warmongers, Warren Zimmermann and Alija Izetbegovic pushed Bosnia-Herzegovina into the civil war which stopped only in November 21st, 1995 by signing the Dayton Accords in Ohio (Slobodan Miloševic, Bill Clinton, Alija Izetbegovic and Franjo Tudman).

  2. It was exactly the US’ administration which crucially blessed the ethnic cleansing of the Serbs from the Republic of Serbian Krayina committed by Croatia’s police and army forces (including and neo-Nazi Ustashi formations) on August 4-5th, 1995. For the realization of this criminal operation (under the secret code Storm/Oluja) Washington gave to Zagreb all logistic, political, diplomatic and military support. As a consequence, around 250,000 Croatia’s Serbs left their homes in two days which were quickly occupied by the Croats.

  3. South Serbia’s Autonomous Province of Kosovo-Metochia was firstly occupied in June 1999 by the NATO/KFOR’ forces and later in February 2008 politically separated from its motherland when Albanian-dominated Kosovo’s Parliament proclaimed the formal independence primarily as a direct consequence of the Serbophobic policy by the US’s administration of President Bill Clinton and his warmongering hawk Secretary of State Madeleine K. Albright. Today, Kosovo, except its northern part, is ethnically cleansed from the Serbs and transformed into a mafia state with a silent blessing by Washington and the rest of the Western gangsters from the NATO and the EU who recognized its quasi-independence.

Here is very important to stress that, basically, during the Bill Clinton’ administration, the US’ foreign policy in regard to the Balkans (ex-Yugoslavia) was primarily designed and directed by Madeleine K. Albright who became a chief US’ war criminal at the very end of the 20th century.

Who was Mrs. Albright – the author of Madam Secretary: A Memoir, New York: Talk Miramax Books, 2003, 562 pages. Madeleine K. Albright was born in Czechoslovakia in 1937.

Former U.S. secretary of state Madeleine Albright

She was confirmed as the 64th US’ Secretary of State from 1997 to 2001. Her career in the US’ government included positions in the National Security Council and as US’ ambassador to the United Nations. The highest-ranking warmonger female hawk in the history of the US’ Government was telling an unforgetable whitewashed story of lies in her memoirs of the US’ imperialism at the turn of the 21st century. She was the first woman in the US’ history to be appointed to the post of Secretary of State (Minister of Foreign Affairs).

For eight years during the first and second Bill Clinton’s terms, she succeeded drastically to ruin America’s image of a democratic and freedom fighting country mainly due to her direct and crucial involvement into the US-led NATO’s aggression on the Federal Republic of Yugoslavia (the FRY) in 1999 composed by Serbia and Montenegro that was the first aggression of this organization in its 50 years long history of the preparation for the invasion of Russia. The aggression lasted for 78 days from March 24th to June 10th, 1999 and was one of the most brutal and barbaric in the modern history of the world breaking all international laws, rules of war and, most important, the Charter and principles of the UNO.

Madeleine K. Albright tried in her memoirs to whitewash her extremely important and even crucial participation in the post-Cold War US’ policy of imperialism but primarily her focal role in the preparation and conduction of the US/NATO’s unprecedented war on the FRY as being one of the most influential policy-makers in her adopted country. The Madam Secretary’s memoirs are firstly the story of a woman of great warmongering character with a fascinating talent to lie and whitewash the truth. Her memoirs are surely a valuable contribution to the political history of aggressive diplomacy of the project of the US’ global hegemony after the collapse of the USSR.

But who was her mentor?...

If we are speaking about the US’ foreign policy, the fundamental question is what are the US policy’s interests and its implications in both the Balkans and Europe.

The US’ involvement in the Balkans and Europe

The achievement of a New World Order after 1990 is being tested for some time in Washington. We have to keep in mind that for some first 20 years after the end of the Cold War, the strongest military and economic power, the leaders of the NATO and the UNO, the initiators of the international peacekeeping missions and negotiations in the regions of „failed states“ in which they provoked the crises and wars, especially at the Balkans, the champions against the international terrorism and crime that was a reaction to their dirty foreign policy of unmasked imperialism and global hegemony, were the USA. Nevertheless, the US’ interests in the Balkans cannot be understood apart from a larger picture of the American interests in Europe in general.

There are many American scientists and politicians who argued that a leadership in Europe will either be American or it will not be, since France and Germany (the axis-powers of the EU) were not too strong to take over and Germany was still in the 1990s too preoccupied with the consequences of its reunification (i.e., the absorption of the DDR). However, the recent (on November 11th, 2018) French President Emmanuel Macron’s initiative to create a joint European Army shows that probably the Europeans finally became enough matured to maintain security in their own home by themselves but not anymore under the umbrella of the US-led NATO. The question, in essence, is not if, but what kind of leadership the US has and will have in the case that the current post-Cold War’s international relations are not going to be drastically changed?

In this respect, the US need to be aware that the best leadership is the one shared with other partners, in this case with the EU/NATO, more specifically France, Germany, and Britain but, of course, Russia have to be seriously taken into the consideration too. With the involvement of Russia into a common European security system on the bases of equal reciprocity, friendship and partnership, the final aim will be to obtain a common vision and an efficient coordination in conflict management, as well as in political and economic cooperation. At such a way, the cases of violent destructions and civil wars, for example on the territory of ex-Yugoslavia, will be avoided for sure.

U.S. Marines escorting Yugoslavian soldiers in Kosovo to be handed over to Yugoslavian authorities

The US’ political analysts are keen to suggest that the American presence in Europe should not be regarded as a competition, but rather as a part of the transatlantic partnership between the two continents, as well as a necessity demonstrated by the sad experience in the former Yugoslavia. According to official Washington, the NATO’s intervention in both Bosnia-Herzegovina in 1995 and Kosovo in 1999 (in both cases against the Serbs) under the US’ leadership was the only credible action along with many initiatives taken by the international community. However, on the other side, military intervention is in many cases creating more political and security problems for a longer period of time. It is understandable that the US cannot assist apathetically to the collapse of countries vital to their own interest but such principle is valid to be applied for any great power too. Besides, regional instability only expands, engaging other areas and creating new confrontations. Thus, the economic support offered to some countries, and the military one offered to others shows that the US formally believe in the regional stability as an enforcer of the international stability but in reality only if such stability is put under the umbrella of Washington’s interests and benefits. The case of Kosovo is, probably, the best example of such practice: by bringing a formal stability this province of Serbia is put at the same time under the full Western (primarily American) political control and economic exploitation.

In supporting the NATO’s expansion, there is a hesitation in treating all aspirant countries in a non-discriminatory fashion. And that, because interests are more important than global security, can be the reason. The advocates of the „Pax Americana’s“ view of the global security would publically say that they are not propagating the US as the savior of the world, or the world’s policeman, but they are just the most fervent supporters of the global peace and stability. However, in the practice they are working oppositely: as many as conflicts and insecurity issues in the world, there are more chances and practical opportunities for Washington to become the regional policeman and global savior of the order. In their relationship with other NATO’s countries, the USA regard the process of integration in the Euro-Atlantic space (i.e., the area of the US’ control and administration) as a two-way street in which each partner needs to accomplish its tasks. An addition to those is, of course, the geostrategic position (Turkey instead of Greece, for instance, in the 1974 Cyprus crisis) and short, medium and long-term declarative promises like the economic gratification of security which can at the end to be turned to its opposite side. For instance, the US’ offering military, political a