- Caught On Tape: Russian Fighter Jets Destroy Huge ISIS Oil Convoy In Transit To Turkey
One month ago, after a farcial year-long campaign to “destroy” ISIS, which achieved absolutely nothing but made the Islamic State grow bigger and stronger, culminating with the numerous terrorist attacks in the month of November, former CIA deputy director Michael Morell told Charlie Rose on PBS that the reason the US had never actually gone after the lifeblood of the ISIS regime, its oil supply chain, infrastructure and products, was because “we didn’t want to do environmental damage, and we didn’t want to destroy that infrastructure.”
In other words, the threat of a CO2 emissions spike from bombarding a convoy of ISIS oil tanker trucks far outweighs the millions of dollars in funds it would bring and fund the teaching of hundreds of new terrorists how to blow themselves up in the middle of Paris.
As to not “wanting” to destroy that infrastructure, one wonders why: was it because a down payment had been made by the “president” of NATO-member Turkey?
Luckily as the clip below shows, the Russian military, which has had dramatic success in taking out not only the front end of ISIS (such as today’s elimination of the top “rebel leader” Zahran Alloush), but the all too critical back “infrastructure” end, has no such qualms.
So much success, in fact, that the “terrorists”, as the Russian Ministry of Defense bluntly calls them, have been forced to deploy new oil trafficking routes to escape the Russian airstrikes.
#SYRIA Terrorists changing logistics scheme laying new crude oil trafficking routes to escape Rus strikes pic.twitter.com/VnsWVzCZIo
— ?????????? ?????? (@mod_russia) December 25, 2015
So far, however, this is not helping, and while ISIS continues to transit as much oil as it possibly can to Turkey where it is subsequently processed and sold to the rest of the world, Russia is making sure that as little of this oil survives and can be monetized, incidentally something the US military should have been doing from day one and paradoxically, something it has yet to do.
Here is a clip released by the Russian Ministry of Defense demonstrating the most severe attack yet by Russian fighter jets on a massive ISIS oil tanker convoy.
And just in case it is still unclear where these trucks are headed, here is another clip showing ISIS oil trucks crossing the Syrian-Turkish border.
- What If Jesus Had Been Born 2,000 Years Later In The American Police State?
Submitted by John Whitehead via The Rutherford Institute,
“Two thousand years later … the memory of the revolutionary zealot who walked across Galilee gathering an army of disciples with the goal of establishing the Kingdom of God on earth, the magnetic preacher who defied the authority of the Temple priesthood in Jerusalem, the radical Jewish nationalist who challenged the Roman occupation and lost, has been almost completely lost to history.” ? Reza Aslan, religious scholar
The Christmas narrative of a baby born in a manger is a familiar one.
The Roman Empire, a police state in its own right, had ordered that a census be conducted. Joseph and his pregnant wife Mary traveled to the little town of Bethlehem so that they could be counted. There being no room for the couple at any of the inns, they stayed in a stable, where Mary gave birth to a baby boy. That boy, Jesus, would grow up to undermine the political and religious establishment of his day and was eventually crucified as a warning to others not to challenge the powers-that-be.
But what if Jesus, the revered preacher, teacher, radical and prophet, had been born 2,000 years later? How would Jesus’ life have been different had he be born and raised in the American police state?
Consider the following if you will.
Had Jesus been born in the year 2015…
Rather than traveling to Bethlehem for a census, Jesus’ parents would have been mailed a 28-page American Community Survey, a mandatory government questionnaire documenting their habits, household inhabitants, work schedule, and even how many toilets were in their home, etc. The penalty for not responding to this invasive survey would have resulted in a fine of $5,000.
Instead of being born in a manger, Jesus might have been born at home. Rather than wise men and shepherds bringing gifts, however, the baby’s parents might have been forced to ward off visits from state social workers intent on prosecuting them for the home birth. One couple in Washington had all three of their children removed after social services objected to the two youngest being birthed in an unassisted home delivery.
Had Jesus been born in a hospital, his blood and DNA would have been taken and entered into a government biobank without his parents’ knowledge or consent. While most states require newborn screening, a growing number are indefinitely holding onto that genetic material long-term for research, analysis and purposes yet to be disclosed.
Then again, had his parents been undocumented immigrants, they and the newborn baby might have been shuffled to a profit-driven, private detention center for illegals. There’s quite a lot of money to be made from imprisoning immigrants, especially when taxpayers are footing the bill.
Once in school, Jesus would have been drilled in lessons of compliance and obedience to government authorities, all the while learning little about his own rights. And if he dared to challenge school officials, he might have found himself suspended under a school zero tolerance policy that punishes minor infractions (such as doodling or talking in class) as harshly as more serious offenses (such as bringing a weapon to class).
According to scripture, Jesus, at the age of twelve, wandered the temple courts in Jerusalem alone and unsupervised. Today, had Jesus disappeared for a few hours let alone days, his parents would have been handcuffed, arrested and jailed for parental negligence. Parents across the country have been arrested for far less “offenses” such as allowing their children to walk to the park unaccompanied and play in their front yard alone.
Rather than disappearing from the history books from his early teenaged years to adulthood, Jesus’ movements and personal data—including his biometrics—would have been documented, tracked, monitored and filed by governmental agencies and corporations such as Google and Microsoft. Incredibly, 95 percent of school districts share their student records with outside companies contracted to manage the data.
If Jesus were to ever make contact with the likes of John the Baptist, he would have been flagged for surveillance because of his association with a prominent activist, peaceful or otherwise. Since 9/11, the FBI has actively carried out surveillance and intelligence-gathering operations on a broad range of activist groups, from animal rights groups to poverty relief and anti-war organizations.
Rather than being permitted to live as an itinerant preacher, Jesus might have found himself threatened with arrest for daring to live off the grid or sleeping outside. In fact, the number of cities that have resorted to criminalizing homelessness by enacting bans on camping, sleeping in vehicles, loitering and begging in public has doubled in recent years.
Had his travels taken him from community to community, Jesus might have been reported to government officials as “suspicious” under the Department of Homeland Security’s “See Something, Say Something” programs. Many states, including New York, are providing individuals with phone apps that allow them to take photos of suspicious activity and report them to their state Intelligence Center, where they are reviewed and forwarded to law-enforcement agencies.
Perceived as a dissident and a potential threat to the government’s power, Jesus might have had government spies planted among his followers in order to monitor his activities, report on his movements, and entrap him into breaking the law.
Jesus’ anti-government views would certainly have resulted in him being labeled a domestic extremist. Law enforcement agencies are being trained to recognize signs of anti-government extremism during interactions with potential extremists who share a “belief in the approaching collapse of government and the economy.”
Assuming Jesus used the internet to spread his radical message of peace and love, he might have found his blog posts infiltrated by government spies attempting to undermine his integrity, discredit him or plant incriminating information online about him. At the very least, he would have had his website hacked and his email monitored.
Had Jesus attempted to feed large crowds of people, he would have been threatened with arrest for violating various ordinances prohibiting the distribution of food without a permit. Florida officials arrested a 90-year-old man for feeding the homeless on a public beach.
Had Jesus spoken publicly about his 40 days in the desert and his conversations with the devil, he might have been labeled mentally ill and detained in a psych ward against his will for a mandatory involuntary psychiatric hold with no access to family or friends. One Virginia man was arrested, strip searched, handcuffed to a table, diagnosed as having “mental health issues,” and locked up for five days in a mental health facility against his will apparently because of his slurred speech and unsteady gait.
Without a doubt, had Jesus attempted to overturn tables in a Jewish temple and raged against the materialism of religious institutions, he would have been charged with a hate crime. Currently, 45 states and the federal government have hate crime laws on the books.
Rather than having armed guards capture Jesus in a public place, government officials would have ordered that a SWAT team carry out a raid on Jesus and his followers, complete with flash-bang grenades and military equipment. There are upwards of 80,000 such SWAT team raids carried out every year, many on unsuspecting Americans who have no defense against such government invaders, even when such raids are done in error.
Instead of being detained by Roman guards, Jesus might have been made to “disappear” into a secret government detention center where he would have been interrogated, tortured and subjected to all manner of abuses. Chicago police “disappeared” more than 7,000 people into a secret, off-the-books interrogation warehouse at Homan Square.
Charged with treason and labeled a domestic terrorist, Jesus might have been sentenced to a life-term in a private prison where he would have been forced to provide slave labor for corporations or put to death by way of the electric chair or a lethal mixture of drugs.
Either way, as I make clear in my book Battlefield America: The War on the American People, whether Jesus had been born in our modern age or his own, he still would have died at the hands of a police state.
- Pennsylvania, Illinois Usher In The New Year With Record Budget Impasses
We’ve written quite a bit this year about the fiscal crises unfolding among America’s state and local governments. Illinois became something of a poster child for the problem when, in May, the state Supreme Court struck down a pension reform bid, triggering a Moody’s downgrade for Chicago.
After that, the situation in Springfield worsened materially and before you knew it, the state was paying out lottery winnings in IOUs and missing hundreds of millions in pension payments.
The Illinois high court decision effectively set a precedent. “My reaction was, ‘Yeah, that’s going to play here,’ “ John D. McGinnis, a lawmaker in Pennsylvania, told The New York Times back in May. As the Times went on to note, Pennsylvania “has been diverting money from its pension system, setting the stage for a crisis as more and more public workers retire.”
“The judiciary in Pennsylvania has been solidly of the belief that there are ‘implicit contracts,’ and you can’t deviate from them,” McGinnis said. “If lawmakers in Harrisburg were to unilaterally cut pensions now, they could be taken to court and be dealt a stinging rebuke, like their counterparts in Illinois.”
Those comments underscore the extent to which Illinois is not alone in struggling to deal with fiscal mismanagement.
Indeed, Pennsylvania just broke a record for longest budget impasse in state history. “The current impasse is dragging on as Democratic Governor Tom Wolf and the Republican-led legislature can’t agree on a spending plan for the year that began in July,” Bloomberg said earlier this week, adding that “the delay is threatening Pennsylvania’s credit rating and has investors demanding higher yields on its debt.”
For his part, Wolf blames the evil Republicans. “A historic compromise budget that included the largest increase in education funding in history, reforms in public pensions, and a reduction in the deficit was within reach,” Wolf said on Wednesday, referencing the Senate’s move to shelve a complete spending bill in favor of kind of half-measure that included less funding for schools. “It is deeply disappointing that today the Senate has caved to those same House leaders and extreme interests to continue the failed status quo and harm our schools and children by denying them these critical additional funds.”
Wolf is alluding to the fact that, in a replay of what we’ve seen in Chicago, the partisan stalemate is beginning to threaten the state’s schools. As we pointed out back in August, Pennsylvania schools started the year “minus $1 billion” in funds.
“Tensions in Harrisburg have ratcheted up as warnings from nonprofits and schools that have gone without funding hit a new level,” WSJ wrote on Wednesday. “The head of the Philadelphia public school system, the nation’s eighth largest with 134,000 students, said this month that schools could begin to cancel classes on Jan. 29 if the budget impasse isn’t resolved.”
The Senate defended their “unexpected” move to pass the bill which contains less education funding by contending that it was the quickest way to get the ball rolling. “We were being the grown-ups in the room,” Jennifer Kocher, a spokeswoman for Republican Senate Majority Leader Jake Corman, said. “We wanted to get funding out for the schools and this was the fastest way to get something to the governor’s desk.”
Wolf says the Republicans just wanted to go home and sit by the Christmas tree: “It seems that the Republican legislature is intent on continuing the Harrisburg status quo and getting out of town to go on vacation.”
Meanwhile, Illinois’ long-running impasse is creating a particularly perilous situation for the state’s notoriously underfunded pension system. “Only one other state, Illinois, has failed to pass a budget for the 2015-2016 fiscal year,” WSJ continues. “There, Republican Gov. Bruce Rauner is pushing for curbs to public-sector unions as a condition to raise taxes to meet a projected $5 billion budget shortfall.”
Illinois pension debt totals some $111 billion of pension debt which breaks down to $8,000 per resident. Or, visually:
In October, Comptroller Leslie Geissler Munger announced that the state would “postpone” a $560 million retirement-fund payment next month, and could make the December contribution late. “The delay on the budget is definitely delaying anything being done about the pensions,” Dan Solender, head of municipals at Lord Abbett & Co. in Jersey City, New Jersey, which manages $17 billion of local debt, including Illinois general-obligation bonds told The Chicago Tribune. “The longer you wait to try to catch up on funding, the worse the situation gets.” Here’s more:
It’s been seven months since the Illinois Supreme Court rejected the state’s solution. Justices threw out the 2013 restructuring that took six attempts over 16 months to pass, despite one-party rule at the time. The measure was projected to save $145 billion over 30 years by limiting cost-of-living adjustments and raising the retirement age.
Illinois enters 2016 snarled in partisan bickering as Gov. Bruce Rauner, the state’s first Republican chief executive in 12 years, and the Democrat-controlled legislature can’t agree on annual appropriations, much less an overhaul of a retirement system that must withstand an inevitable legal challenge. The state constitution bans reducing worker retirement benefits.
Illinois is set to pay about $7.5 billion to pensions this fiscal year, and another $7.8 billion in the year that starts July 1, according to the Civic Federation, citing preliminary estimates by the retirements systems.
Even with the record budget impasse, about one of every $5 from the state’s general fund coffers is going toward pensions, according to a Civic Federation report that cites estimates from Illinois Senate Democrats published on Aug. 13. The state’s four plans are only 42 percent funded based on the market value of assets, according to the Commission on Government Forecasting and Accountability. That compares to 60 percent a decade earlier.
The lack of a budget forced the state comptroller to delay a $560 million November payment to the state retirement system. Illinois’s unpaid bills totaled $7.6 billion as of Dec. 18, according to that office. The November retirement payment will be paid in the spring when the state has more revenue from income tax collections, according to the comptroller’s staff.
And so, we see what happens with gross fiscal mismanagement meets petty partisan bickering. You’re reminded that all of this is complicated by the fact that public sector pension funds are allowed to use absurdly unrealistic return assumptions (i.e. discount rates) which means that the unfunded liabilities are probably orders of magnitude larger than what the official data shows.
Where Illinois and Pennsylvania go from here is an open question, but the sheer absurdity inherent in not having a budget for a fiscal year that started six months ago should be readily apparent to everyone and underscores how divisive American politics has become. Perhaps the good folks inside the Beltway need to start setting a better example because as anyone who follows politics is acutely aware, legislative gridlock is pervasive in Washington.
- Wall Street's Most Prominent Former Permabull Is Worried About Just One Number
One upon a time, back in early 2012, David Rosenberg was a prominent bear and deflationist, while his nemesis, Wells Capital’s Jim Paulsen, was one of Wall Street’s biggest equity bulls. The confrontation between the two culminated with a January 2012 article explaining “What (If Anything) The Bulls Are Seeing.“
Since then, Rsoenberg infamously flip-flopped to bullish (predicting incorrectly that wages would rise and TSY prices would tumble), while Jim Paulsen, almost exactly a year ago, threw in the permabull towel and warned on January 10 of 2015 that “stocks are massively overvalued.”
Paulsen laid out his skepticism in the following 8 bullet points:
- First, the valuations of U.S. stocks are much higher today than widely perceived or as suggested by the valuation of the popular S&P 500 Index. Moreover, today’s valuation extreme is not limited only to a subset of stock market sectors but rather is very widespread whereby nearly all P/E multiple percentiles are at or close to post-war records. Finally, the current valuation extreme is not the result of poor performance from a single valuation metric. U.S. stocks are broadly and richly priced compared to earnings, cash flows, and book values.
- Second, because valuation dispersion is relatively low today, there are not many areas to hide from overvaluation. In 1973 or 2000, investors could reduce extraordinary valuation risk by simply diversifying away from the Nifty Fifty or new era tech stocks. Today, because values are both high and tight, lessening valuation risk may not be possible except by allocating away from U.S. stocks.
- Third, this valuation extreme has only recently materialized. Charts 2, 3, and 4 show that until 2014, although median stock valuations were relatively high, they were not at the acute or record highs they are at today. Indeed, the current excessive valuation profile is a product of this recovery cycle. The median U.S. stock began this bull market below 12 times earnings in 2009. In the last five years, however, the median P/E multiple has risen by about two-thirds to slightly more than 20 times earnings. It is important for investors to fully appreciate just how much this bull market has already elevated the valuation landscape.
- Fourth, is the current widespread valuation extreme more dangerous than a concentrated extreme simply because concentrated extremes tend to be more obvious and eye-catching? When the Nifty Fifty or dot-com stocks exploded to outlandish P/E multiples, most investors realized the stock market was getting a bit frothy. Today, even though a larger portion of the overall stock market is aggressively priced, it has not garnered nearly as much attention. A concentrated valuation extreme tends to loudly announce itself whereas a broad-based valuation extreme seems more stealth and, therefore, perhaps more dangerous.
- Fifth, how important have record low bond yields and a zero short-term interest rate throughout this recovery been in producing the contemporary broad-based stock market valuation extreme? And, how will this highly valued stock market react should U.S. interest rates soon finally start to rise? Many believe since interest rates are so low today, they could rise for some time before negatively impacting the stock market. However, what if today’s widespread extraordinary valuations actually make the stock market much more sensitive to interest rates?
- Sixth, historically when the valuation of the median NYSE stock has been as high as it is today (e.g., from Chart 2 consider 1962, 1969, 1998, 2000, 2005, and 2007), the overall stock market has usually either suffered an outright bear market (i.e., in 1962, 1969, 2000-2001, and 2007-2008) or a correction (i.e., in 1998). Only in 2005, from a similar median stock valuation, did the overall stock market avoid a correction or bear market until 2008. At a minimum, this historic record suggests investors should proceed with greater caution.
- Seventh, the current valuation profile of the U.S. stock market argues in favor of S&P-like indexation. When the stock market is characterized by a concentrated valuation extreme (like during the early 1970s Nifty Fifty or the late 1990s dotcom eras), investors are best served by avoiding indexation. Often, however, during such stock market manias, investors become frustrated by being unable to match the strong advance in the S&P 500 Index and ultimately are enticed to simply index. For example, during the late 1990s, just as valuation risk became acute among the S&P 500 stocks, more and more investors piled into S&P 500 Index funds. Today, by contrast, some exposure to indexation seems reasonable. The S&P 500 Index may possess less valuation risk than does the median U.S. stock. While the median P/E in Chart 2 is at a post-war high, the S&P 500 market-cap weighted P/E multiple is still far from an extreme.
- Eighth, overweighting international stocks may be an approach to diversify away from the widespread valuation extreme evident in the U.S. stock market. Perhaps international stock markets also are highly valued today. However, since most have significantly underperformed the U.S. stock market in recent years, international markets are far less extended on a valuation basis.
To his credit, Paulson was right in 2012 (even if for all the wrong centrally-planned reasons), and he was right again this past January: as of this moment the S&P is lower then where it was when Paulsen decided to no longer be an unconditional permabull.
However, if valuations were stretched at the beginning of 2015, they are literally off the charts now that both revenues and earnings have posted annual declines, suggesting the median market multiple is now even more stretched than it was a year ago.
So now that the 1 year anniversary of Paulsen’s cautious – and accurate – forecast is almost upon us, is the Wells strategist back to bullish mode, or is he even more cautious?
The answer, according to this latest letter, depends on just one number: 5%, the so-called “full employment” threshold. Paulsen says that “not only have stock returns proved much less robust once the unemployment rate has reached 5%, but sector leadership has also undergone a fairly radical change.”
In the world of fiction, the most famous threshold may be that of 88 miles per hour. In the non-fictional world of economics and finance, however, an even more important threshold is that of 5% unemployment. At that moment everything changes.
Jim Paulsen explains.
During most of the post-war era, the economy was considered to be near full employment once the unemployment rate declined to between 4% to 5%. Reaching full employment marks an important shift in the economic cycle. Once slack in the economy is no longer excessive, further economic growth begins to pressure resource prices and other business costs, inflation risk increases, interest rates typically rise, and policy offi cials begin to lessen or reverse accommodation.
Chart 1 illustrates the U.S. unemployment rate. Since 1948, the unemployment rate has been at or below 5% (i.e., at full employment) only about one-third of the time. Most of the sub-5% labor markets were either prior to the 1970s or since the mid-1990s. Many compare the contemporary era of low inflation and near-zero interest rates with the 1950s and as this Chart illustrates, a sub-5% unemployment rate during the balance of this recovery seems likely to be yet another similarity.
Since the unemployment rate recently neared 5%, wage inflation has shown signs of quickening providing the underpinnings last week for the first Fed funds rate hike in this recovery. The contemporary recovery has seemingly reached full employment and if history is any guide, stock investors should be prepared for some key changes during the rest of this bull market.
Full employment changes the stock market
Exhibit 1 illustrates the performance of the overall U.S. stock market and its individual sectors during the post-war era when the unemployment rate was above 5% compared to when full employment was reached. The data for this comparison and the sector indexes (the defi nitions of the sectors are shown in Exhibit 2) are from the extensive Kenneth R. French data library. It has market capitalization weighted indexes which include all U.S. stocks on the NYSE, AMEX, and NASDAQ since 1948.
The charts in Exhibit 1 are based on average annualized total returns derived from all monthly data since 1948 comparing returns when the unemployment rate was above 5% to returns when the unemployment rate was 5% or less. Chart 1 shows that nearly every stock sector (except energy stocks) posts significantly lower returns once full employment is reached compared to when the unemployment rate is above 5%. Indeed, the annualized return of the overall stock market is 50% lower once full employment is reached and many sectors (e.g., Chems, Shops, Durable, Other, and NoDur) produce returns which are only about one-third of what they are when the unemployment rate is above 5%.
Chart 2 illustrates that full employment brings new challenges for the stock market. Continued economic growth typically produces cost-push pressures eroding profit margins and infl ation and interest rates usually begin to rise. Although full employment does not necessarily end a bull market, as Chart 2 shows, it does tend to signifi cantly lower future stock returns.
Charts 3 and 4 illustrate that full employment also typically brings a leadership change in the stock market. Chart 4 ranks the annualized sector returns in the post-war era when the economy was at less than full employment while Chart 3 shows the ranked sector returns once full employment is reached. Several points are noteworthy. First, before the economy reaches full employment, returns across the stock market are much higher compared to when the economy is at full employment. Overall, the annualized U.S. stock market total return averaged about 15% when the economy was at less than full employment compared to only about 7% once full employment is reached.
Second, the dispersion of sector returns within the stock market widens considerably once the economy reaches full employment. Before full employment, the stock market sector return diff erential is only 4.27% (i.e., from Chart 4 the difference in annualized returns between the best performing sector NoDur and the worst sector Utils is 4.27%). However, the sector return differential widens considerably to 9.31% once the economy operates at full employment. When the unemployment rate is above 5%, the most important investment theme is to be overweight the stock market. Individual sector or stock picking is less important (because sector/individual stock return dispersion is low) compared to the overall asset allocation decision. However, once at full employment, sector or stock picking prowess becomes much more important. Return dispersion tends to widen improving the potential to add signifi cant alpha from sector/individual stock selections.
Finally, the stock market has usually experienced a significant leadership shift once the economy reaches full employment. Chart 4 shows when the economy is at less than full employment it has been led mostly by consumer sectors (e.g., NoDur, Shops, Durbl, and Hlth). Conversely, at full employment, the stock market has been led more by industrial sectors (e.g., Enrgy, BusEq, and Manuf). While the leadership change is not perfect (e.g., historically, Hlth does well in both environments), Nondur and Durbl are among the best performing at less than full employment and the worst performing at full employment. Likewise, while Energy is among the worst performing at less than full employment it is the best performer once full employment is reached.
Paulsen’s conclusion: “Historically, reaching full employment has proved highly significant for stock investors. In the post-war era, once a 5% unemployment rate is reached, both the character and the performance of the U.S. stock market have been altered. While reaching full employment does not necessarily suggest an imminent end to the current bull market, it does suggest investors should anticipate significantly smaller future returns. Moreover, it has often led to much wider return dispersions favoring stock pickers over asset allocators, and finally, it has typically produced a major leadership change away from consumer toward industrial sectors.”
Will he be right? The only way to be sure is if Rosenberg issues another lenghty missive dismissing everything said above.
- The Christmas Spirit Of Staring Into Screens Together
Relatives Gather From Across The Country To Stare Into Screens Together
Turning on the television while unpacking tablets, iPhones, and laptops from their suitcases, members of the McPherson family communed from across the nation this holiday season for several straight days of staring into electronic screens while in the same room together, sources confirmed Friday.
“Nothing puts me in the Christmas spirit more than sitting down on the couch with my parents and siblings, turning on the TV, and then proceeding to either look at the screen or gaze down into my glowing tablet display for hours on end,” 28-year-old Andrew McPherson told reporters, adding that he always felt most connected to his relatives when they were both silently gazing into glowing screens of some kind.
“It’s just great to get home for a while and spend some quality time not speaking a single word to my relatives, whether that’s by sipping hot cocoa with my sister while we both check our emails, or by gathering the whole clan for a nice holiday meal where everyone is fixedly looking down at the text messages on their phones—’tis the season, you know?”
McPherson noted he was sad, however, that Grandpa Sam would not be there to stare into screens with them this year.
Source: The Onion
- Read The Letter That Turned Folk Icon Pete Seeger Into An FBI Target
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
All government, in its essence, is a conspiracy against the superior man: its one permanent object is to oppress him and cripple him… The most dangerous man to any government is the man who is able to think things out for himself, without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane and intolerable, and so, if he is romantic, he tries to change it. And even if he is not romantic personally he is very apt to spread discontent among those who are.
The notion that a radical is one who hates his country is naïve and usually idiotic. He is, more likely, one who likes his country more than the rest of us, and is thus more disturbed than the rest of us when he sees it debauched. He is not a bad citizen turning to crime; he is a good citizen driven to despair.
– H.L. Mencken
At 23-years old, Pete Seeger was an Army Private anxiously awaiting the opportunity to be deployed to fight fascism in the midst of World War II, when he became outraged by injustice in his own backyard. As such, he wrote the following letter to the California chapter of the American Legion:
Dear Sirs –
I felt shocked, outraged, and disgusted to read that the California American Legion voted to 1) deport all Japanese after the war, citizen or not, 2) Bar all Japanese descendants from citizenship!!
We, who may have to give our lives in this great struggle—we’re fighting precisely to free the world of such Hitlerism, such narrow jingoism.
If you deport Japanese, why not Germans, Italians, Rumanians, Hungarians, and Bulgarians?
If you bar from citizenship descendants of Japanese, why not descendants of English? After all, we once fought with them too.
America is great and strong as she is because we have so far been a haven to all oppressed.
I felt sick at heart to read of this matter.
Yours truly,
Pvt. Peter Seeger
I am writing also to the Los Angeles Times.
For this thoughtful expression of his First Amendment rights, Pete Seeger ended up on an FBI watch-list; a place he would remain for the next thirty years. Following a Freedom of Information Act request, we now have access to his shocking 1,800 page file (well most of it, with the exception of 90 pages which are apparently still too embarrassing for public consumption).
Mother Jones reports:
From the 1940s through the early 1970s, the US government spied on singer-songwriter Pete Seeger because of his political views and associations. According to documents in Seeger’s extensive FBI file—which runs to nearly 1,800 pages (with 90 pages withheld) and was obtained by Mother Jones under the Freedom of Information Act—the bureau’s initial interest in Seeger was triggered in 1943 after Seeger, as an Army private, wrote a letter protesting a proposal to deport all Japanese American citizens and residents when World War II ended.
Seeger, a champion of folk music and progressive causes—and the writer, performer, or promoter of now-classic songs, including as “If I Had a Hammer,” “Where Have All the Flowers Gone?,” Turn! Turn! Turn!,” “Kisses Sweeter Than Wine,” “Goodnight, Irene,” and “This Land Is Your Land”—was a member of the Communist Party for several years in the 1940s, as he subsequently acknowledged. (He later said he should have left earlier.) His FBI file shows that Seeger, who died in early 2014, was for decades hounded by the FBI, which kept trying to tie him to the Communist Party, and the first investigation in the file illustrates the absurd excesses of the paranoid security establishment of that era.
“Absurd excesses.” Kind of reminds me of another era.
In July 1942, Seeger was drafted into the Army. (“I was almost glad when I heard from my draft board,” he later wrote in a diary.) He was assigned to be trained as an aviation mechanic at Keesler Field in Mississippi. While in the Army, he kept up with the news, and in the fall of 1942, Seeger, who was then 23 years old, wrote a letter of protest to the California chapter of the American Legion.
How did the American Legion respond? It forwarded Seeger’s note to the FBI in San Francisco. And somehow this matter was brought to the attention of the Military Intelligence Service of the War Department. Within weeks, military intelligence was investigating Seeger—and soon updating the FBI on its effort. The official “reason for investigation,” as numerous military reports forwarded to the FBI noted, was that “Subject wrote letter protesting and criticizing the California American Legion’s resolution advocating deportation of all Japanese, citizens or not, after the war, and barring all Japanese descendants from citizenship.”
Seeger had become a target merely because he had objected to mass deportations. The secret investigation coincided with the completion of Seeger’s training as an aviation mechanic. He expected to be deployed to active duty. But while he was under investigation, those orders never came. He watched the rest of his training class be sent to airfields, but he stayed put. At first, he wasn’t sure why. He was frustrated.
The report concluded that Seeger was “an idealist whose devotion to radical ideologies is such as to make his loyalty to the United States under all circumstances questionable.” Seeger, this memo claimed, was “potentially subversive.” The document was sent to J. Edgar Hoover, the director of the FBI.
Another military intelligence report concluded that Seeger’s “Communistic sypmpathies.…and his numerous Communist and otherwise undesirable friends” rendered him “unfit for a position of trust or reliability.” A third report said Seeger is “intensely loyal at this time. He is eager to join the battle actively against Fascism, and is applying himself to improve his military and technical knowledge to be of greatest service.” But it added that if the Communist Party line shifted against the war, Seeger could be susceptible to “potential subversion.” This report also focused on his love for Toshi Ohta: “While this relationship appears on a high plane, this Officer believes it to be unorthodox and one which might lead to divided loyalty in the event this country’s treatment of the Japanese were not in accord with the views of himself or the woman he expects to marry.” It went on to point out that “as an entertainer, his songs have been colored subtly toward idealistic classlessness.” And this memo concluded, “Despite [Seeger’s] intelligence and desire to apply himself to the destruction of the enemy, this officer believes that enemy to be Fascism and not necessarily any enemy of the United States.” That is, Seeger was more loyal to an abstraction than his country. The recommendation: that he remain under surveillance as a “potentially subversive” person.
After the war, Seeger remained an FBI target. It was a time of communist hunting. Confidential informants had fingered Seeger as a party member or sympathizer, and throughout the 1950s the FBI generated hundreds of reports on Seeger. The bureau closely tracked his musical performances and his appearances at political events. It monitored his associations with groups and persons suspected of being linked to or controlled by the Communist Party. FBI agents called his booking agency and pretended to be people who wanted to arrange a Seeger performance in order to collect information on his travels within the United States and overseas. The burgeoning folk music world overlapped with the progressive movement (which the bureau saw as riddled with and dominated by commies) and Seeger was at the nexus.
In 1955, Seeger was called before the House Committee on Un-American Activities. Asked if he was a communist, Seeger defiantly replied, “I am not going to answer any questions as to my associations, my philosophical or religious beliefs or my political beliefs or how I voted in any election or any of these private affairs. I think these are very improper questions for any American to be asked.” He did not plead the Fifth Amendment. He took a stand, telling the committee, “I would be very glad to tell you my life, if you want to hear of it.” He added, “If you want to question me about any songs…I will be glad to tell what songs I have ever sung, because singing is my business.” Seeger told the committee, “I have sung for Americans of every political persuasion…I have sung in hobo jungles, and I have sung for the Rockefellers.”
The congressmen running the commie-hunting committee were not pleased. In 1957, Seeger was cited for contempt of Congress for not answering the questions about his political associations. Four years later, after much legal wrangling, he was found guilty after a three-day trial. Seeger was sentenced to a year in prison. He remained free on bail, and a year later, the conviction was overturned when a federal appeals court determined the original indictment had been defective. After that, the Justice Department dropped the case.
So the legal system set him free, yet the intelligence establishment did the following.
Seeger’s FBI files indicate the FBI actively monitored the contempt case against Seeger. Its agents stayed in contact with the prosecutors handling the case, as the bureau kept gathering information on Seeger’s connections to progressive organizations—civil liberties and civil rights outfits, peace groups, pro-labor entities, and the like—that it deemed subversive. It closely watched his use of his passport.
After the contempt case concluded, the FBI remained on the Seeger beat. When the folk singer traveled abroad, according to a 1963 FBI note from Hoover to the State Department, the bureau notified the CIA and asked for any information it might obtain on Seeger overseas. At one point, when Seeger played a series of concerts in Hawaii in 1963, the FBI collected information on the shows, noting that an audience member from an “avowedly anti-Communist organization” had reported to the bureau that Seeger had sung a song that was “low keyed propaganda to the effect that America is a land of conformity” and also played a song from Japan about nuclear bombs.
FBI surveillance of Seeger continued into the early 1970s. A 1971 FBI report listing evidence of his “CP Sympathy” noted that Seeger had entertained at a benefit concert for three soldiers who had refused to serve in Vietnam because they believed the war there was illegal, immoral, and unjust. Also, it pointed out that he had raised money at a Los Angeles concert for a group called Southern Californians to Abolish the House Committee for Un-American Activities. A 1972 FBI memo reported that Seeger “has manifested a revolutionary ideology.” The message: He still needed watching.
Of course, none of this should be the least bit surprising to anyone who has followed the FBI throughout its history, including modern day witch-hunts, such as the targeting of late internet prodigy Aaron Swartz.
Importantly, the FBI isn’t always on the wrong side of history by accident, it is a reflection of the fact that the organization is little more than an enforcement arm of the status quo, as opposed to a protector of the people.
Here are just a few examples I’ve covered in the past:
The New York Post Reports – FBI is Covering Up Saudi Links to 9/11 Attack
FBI Moves to Broaden Hacking Authority – Google Says it Poses “Monumental Constitutional Concern”
The Full Letter Written by the FBI to Martin Luther King Has Been Revealed
- Russia Kills Top Rebel Leader Zahran Alloush In Airstrike Near Damascus
A suspected Russian airstrike east of Damascus has killed Jaysh al Islam chief Zahran Alloush, Retuers reports.
According to the London-based Syrian Observatory of Human Rights (so, according to Rami Abdulrahman’s on the ground sources), five other commanders were also killed when Moscow’s warplanes targeted one of the group’s meetings in Eastern Ghouta, the site of the infamous chemical attack of 2013 that nearly resulted in the launch of a US air campaign against the Assad government.
Unconfirmed reports that Alloush’s deputy and spokesperson were also killed in the #RuAF air raid in East Ghouta
— Hassan Ridha (@sayed_ridha) December 25, 2015
This, allegedly, is footage of the strike:
Alloush, the son of Saudi-based Salafist cleric Abdallah Alloush, commands an army of thousands and as Reuters notes, “has been effectively running the administration of Eastern Ghouta.” He was suspected in the 2013 kidnapping of Razan Zaitouneh, an award-winning Syrian human-rights activist, charges he denies. Alloush’s soldiers have fought ISIS in Ghouta and Qalamoun among other places.
Earlier this month, he granted an interview to The Daily Beast. Here are some excerpts which should give you some idea of where Jaysh al Islam stands vis-a-vis the hodgepodge of rebels, militants, and extremists fighting for control of the country:
TDB: In one of your prior interviews, you said that you do not have any differences with Jabhat al Nusra, the al Qaeda franchise in Syria. You said that your Sharia adviser does not disagree with the Sharia adviser of al Nusra. Does that mean that you have no ideological differences with al Qaeda?
ZA: Back then, I was referring to Abu Maria al-Qahtani, one of [al Nusra’s] Sharia advisers. We saw that Qahtani was showing a moderate face and we wanted to encourage those efforts. Now al Nusra has different Sharia advisers, and ours have many disagreements with them, ideologically and intellectually.
TDB: How is your relationship with Ahrar al-Sham, the powerful Salafist rebel group in Syria? Why were you excluded from its new coalition against Assad called the Army of Conquest?
ZA: Jaysh al-Islam stands alongside Ahrar al-Sham and all revolutionary forces that fight Assad and refuses ISIS’s takfiri mentality. You should ask them this question. We have heard that one component of the army which has ties with ISIS is the one that lobbied against us.
TDB: Do you apply Sharia law in the areas you control? What are your views on democracy and the future of Syria?
ZA: Jaysh al-Islam does not intervene in the judiciary body in our areas. We have representatives in the judiciary councils. The judiciary councils include many sheikhs and jurists who represent the diversity of our community. We believe in the rule of institutions.
When I criticized democracy, I was referring to the manipulation of people through lies covered by attractive colors. The democracy of Assad, the pluralism of the Baath, and the Islamism of ISIS are a few examples. The Western double standards are also applied to democracy. While democracy is used to serve people’s interests in the West, democracy is manipulated in our countries to bring villains to rule as agents for outside powers. We believe that the future of Syria after Assad should be governed by a technocratic body which has the skills and the qualifications. We do not believe that Syria should be ruled by sectarian or partisan rule, but by a technocratic body that represent the diversity of the Syrian people. We do not see ourselves as Islamic. We are Muslims.
TDB: Unlike many areas of Syria, ISIS was not able to recruit or control any area in Ghouta. Why is that?
ZA: Although most of the people in our area are conservative, they aren’t radical. We have many Muslim scholars who belong to civic and moderate schools of religion. People of Ghouta are fortified from radicalization due to these facts. The West intervened after ISIS took control of Mosul in Iraq. We fought ISIS early on when we discovered their deviation from Islam and the danger they pose to our revolution and people. The West knows well that Jaysh al-Islam and other revolutionary forces are not terrorist, but the wish to reproduce the regime may affect its designation policy.
According to Joshua Landis, Oklahoma University’s Director for the Center of Mid-East Studies, Alloush’s ideology calls for the eradication of Shiites and Alawites:
This is an anti-Shiite tirade and “bring-back-the-Umayyad-Empire” propaganda piece. It shows how sectarian Alloush is. He refers to Shiites, and reduces the Nusayris into this grouping, as “Majous”, or crypto-Iranians. “Majous” is the old term for pre-Islamic Persians or Zoroastrians. Arab Christians use the term in Christmas carols about the Magi, or “three kings from the Orient” (or east) who come to pay homage to Jesus—Magi are Persians or Easterners. Here it is an Islamic term of abuse meant to suggest that Alawites and Iranians not only have the wrong religion but also the wrong ethnicity—they are not Arabs, but crypto-Iranians. The term Majous is used in many rebel videos to refer to the Assad regime—”al-nizam al-majousi”—or simply to refer to Shiites (or Alawites) generally. It demonstrates how demonized the Alawites are in the propaganda of the new Islamic Front.
Zahran calls for cleansing Damascus of all Shiites and Nusayris. (“Nusayris” is the old term that referred to the Alawites prior to the adoption of “Alawite.” It is considered a term of abuse by Alawites.
The “tirade” to which Landis refers can be found in the following video:
#Reminder; In 2013 ‘Moderate’ rebel leader Zahran Alloush threatened a #sectarian genocide against #Shia muslims pic.twitter.com/IV4QY4GNPI
— Mojtaba Ali (@MojAliMasood) December 25, 2015
On a lighter note, Alloush is also known for a viral video which appears to depict him preaching in full military garb with a Hello Kitty notepad lying on the desk in front of him:
Syrian state media has confirmed his death of and says several other group members were also killed in the strike.According to al-Arabiya TV, ten rockets hit the compound.
Jaysh al Islam was invited to attend a Saudi-brokered opposition summit in Riyadh earlier this month, where rebel leaders were set to discuss a common position from which they could seek to bring about a change of government in Damascus.
In short, Moscow has just eliminated a powerful and exceptionally influential figure who, although he has fought ISIS and apparently now has ideological differences with al-Nusra, was violently anti-Shiite and anti-Alawite. In other words: this is a major blow for the opposition and an important symbolic and strategic victory for Assad. We close with one last exchange from the Daily Beast interview excerpted above:
TDB: Is the Russian air force targeting Jaysh al-Islam? And will you cooperate with Russia if it restricts its targets to ISIS?
ZA: Russia bombed Jaysh al-Islam positions for a time, and then stopped.
- The Number Of Young Adults Living With Their Parents Has Never Been Higher (But It Could Be Worse)
Back in 2012, the bullish thesis for US housing (the one everyone was hoping for, instead of the fake housing “recovery” driven by the parking of dirty foreign oligarch money in NYC triplexes aka the new Swiss bank account, the private equity distressed rental property bid, and bank subsidies courtesy of the delay in the foreclosure pipeline) was that all those millions of young Americans aged 18-34 would finally move out of their parents’ houses and start households of their own.
We mocked the idea for one simple reason: those very Millennials, who as everyone now knows can’t find any well paying jobs and have zero job security and on whose back the housing recovery was supposed to take place, couldn’t afford rent let along to buy a house, and as such would be stuck living in their parents’ basements well into their 30’s, if not 40’s, and why not forever.
Three years after 2012, Goldman has finally admitted that all the talk about a major exodus of your Americans from parental houses and into the harsh crony capitalist world, was nothing but hot air.
As the chart below shows, the share of 18-34-year-olds living with their parents has never been higher:
The Share of 18-34 Year Olds Living with Parents is 4 pp Higher than Historical Averages
This is how Goldman’s economist team, which three years ago was among the biggest proponents of the now completely debunked “outward migration” thesis, tries to unveil this all too unpleasant finding:
The share of young people living with their parents increased 4 percentage points (or 3 million individuals) from 2006 to 2012 and has not declined recently despite a much better job market.
Funny how they snuck that part about a “much better job market.” Dear crack Goldman economic team: here is where your “much better job market” comes from.
And since the ivory towers of your 200 West headquarters do not allow you to visit the world of the mere mortals, let us clue you in on a big secret: one can’t buy – or rent – anything on minimum wage, the same wages which the “booming” sectors of the US job market are getting. In fact, it is precisely due to the abysmal jobs market for young people (those 55 and over have nothing to worry about) which, together with millions of young Americans raking in tens of thousands of dollars in unrepayable college loans, is precisely what is forcing so many young men and women to pay rent to their mom and dad.
Ok, but this is Goldman, surely it won’t simply admit it was wrong and move on? Of course not. It will instead create the biggest straw man we have ever seen. To wit:
The share of young adults living with their parents has risen about 4 percentage points (or 3 million individuals) since house prices peaked in 2006. The share of “children in the basement” has not come down recently despite significant improvements seen in the job market (Exhibit 1). The higher youth at home rate has depressed household formation and housing demand. In today’s note we take an international perspective on the drivers and outlook for young adults living with their parents.
In other words, yes – it’s bad… But if one looks at Europe, hey – it’s actually great! No really:
We use Eurostat and US Census data to compare the rates of children living with parents in the United States and Western Europe. Exhibit 2 shows that there are large differences across countries in the share of young adults living with their parents. For instance, fewer than 20% of Finnish young adults live with their parents while more than 55% of their Italian counterparts do. The US share of youth living with parents is still relatively low in the international context. Among the 19 developed economies, only young adults from Finland, France, the United Kingdom or the Netherlands are less likely to live with their parents than young adults in the United States.
The US Share of Youth Living with Parents is Relatively Low
from a Global Perspective: Goldman SachsIn other words, when it comes to the US, it has never been worse, but don’t despair – at leas the US is not Italy where 60% of young adults spend every night with their parents. Yes, this is what now passes as Goldman economic analysis.
But maybe, just maybe, if one ignores the structural and cyclical factors inherent to every other culture – something which makes any comparative analysis absolutely idiotic – the fact that the US rate is soaring has something to do with the abysmal and quite full of slack US labor market.
Not at all, claims Goldman, which was wrong about everything so far, but is confident it will get this right.
Consistent with our earlier work, a decomposition analysis suggests that underemployment alone cannot account for the increase in the rising living with parents share post-crisis. For example, Exhibit 5 shows that about ¾ of the rise in the share of 25-34 year olds living with parents can be explained by the higher stay at home rate among the underemployed. How much of the difference between pre- and post-crisis is cyclical vs. structural is difficult to say. In the past, we have found compelling evidence for cyclical factors. However, if cultural factors play an important role—as suggested by the international evidence—cyclical upturns could turn into structural shifts if living with parents becomes more socially acceptable over time.
The Rise in the Share of Underemployed Living with Parents
Explains ¾ of the Aggregate Rise in the Share Living with ParentsIn other words, please ignore the fundamental error in our hypothesis because soon it will be cool to live with your parents. “Just look at Italy.” This, again, is what passes for “analysis.”
Finally, considering that the exodus of young Americans from the safe (and rent-free) cocoon of a parental basement and into the harsh reality of the US housing market is one of Goldman’s top catalysts for a bullish bet on US housing, does the Goldman economic team retract said outlook on this admission that it was just a little confused when making predictions which have now been exposed as a gaping error of judgment? Absolutely not:
If most of the young adults currently living with their parents do not move out anytime soon, does it threaten our optimistic outlook for homebuilding? Not really. As we explained before, population growth alone is likely to contribute about 1 million households per year over the next few years. Population aging may add another 100k households per year as older individuals are more likely to live independently than younger individuals. Therefore, our baseline forecast of 1.1-1.2 million household formations—which should lead housing starts to 1.4-1.5 million assuming 300k annual demolitions—does not depend on many young adults moving out of their parents’ homes.
So Goldman was wrong about about the whole “young people exiting basements” theory, but is confident this is not an issue because population growth – i.e., more young people ending up in their parents’ basements – and of course tens of thousands of Syrian refugees to add to household growth, will fix the first error by adding even more errors to it. Sheer analytical brilliance.
And we wondered where China got the just as brilliant idea to fix its housing market by forcefully uprooting 100 million farmers and transplanting them into China’s ghost cities, a plan which is brilliant… until one realizes that those 100 million farmers will promptly start a revolution once they find no jobs waiting for them in their brand new centrally-planned experiment habitat. Maybe they hired a Goldman consultant on retainer.
At least there is no risk of US Millennials starting anything ever, let alone a revolution: America’s biggest generation is far too busy looking at its iSomething.
- These Are The Top 20 Companies By Market Cap Over The Past Decade
There are many observations to be made about the dramatic shifts shown in the chart below which demonstrates the top 20 companies by market cap over the past decade, but what, to us, stands out the most are two things:
- after a decade of being either the world’s biggest or second largest market capitalized company, Exxon has tumbled to 5th spot, something it did not do even during the peak of the financial crisis; and
- after five years of being in the top spot, it is time for someone to finally dethrone the world’s most popular smartphone maker.
- Islam & The West – "Moving Towards A Head-On Collision"
Submitted by Erico Matias Tavares via Sinclair & Co.,
Kevin Hulbert is the Founder and President of XK Group, LLC. Prior to that, Mr. Hulbert held a variety of high-level jobs in the Central Intelligence Agency (CIA), becoming an expert on counterterrorism, counter proliferation, non-traditional operations, and covert action. He finished his career as Senior Advisor for Counterterrorism at the Federal Bureau of Investigation (FBI). As an accomplished senior leader in the Directorate of Operations at the CIA, he served around the world and worked with many foreign liaison partners, leading some of the most complex counterterrorism operations abroad. He holds an MBA degree from Georgetown University.
E. Tavares: Kevin, thank you for being with us today. It is difficult to discuss terrorism these days without talking about Islam, or better put, how it is being used for certain political purposes. This has become a hot topic in the West, even featuring in US immigration and presidential debates.
We recently watched a video clip from 1958 of Gamal Abdel Nasser, then President of Egypt, laughing with a large audience at the idea of forcing women to wear the hijab. In the decades that followed, this has become common practice in many Middle Eastern countries as stricter Muslim leaders rose to power. The once secular societies of Afghanistan and Iran have become just a footnote of history. In fact the more extreme versions of Islam now constitute its mainstream orthodox ideology.
We in the West believe that the march towards secularism and freedom is inevitable, and yet for the most part the Muslim world is going the other way. What do you make of this?
K. Hulbert: I think you are right, the march towards secularism and freedom is not inevitable. In fact, it’s problematic because we have a situation where every year the West becomes more secular, open, tolerant and liberal while many parts of the Muslim world, as you say, are going the other way. So it would seem that we might be moving towards a head-on collision of some sort.
As to what I make of it, in most Muslim countries the majority of people are tolerant. They want to live in a more inclusive society and have a more liberal religious doctrine. The problem is that Islam seems to have been hijacked by a vocal minority of people who are prepared to use violence to advance their very intolerant and conservative version of Islam.
ET: It appears that the spread of that version of Islam across the Middle East has two similar Islamist ideologies at the core: the Muslim Brotherhood out of Egypt and Wahhabism out of Saudi Arabia. They propose an Islamic version of society which in a sense is remarkably similar to fascism, regulating every aspect of people’s lives.
Over the last decade our Western leaders have given space for that movement to expand as a consequence of taking out the most prominent secular leaders who had been fighting against it in the Arab world. The US State Department even endorsed the Muslim Brotherhood when it rose to power in Egypt after the Arab Spring. The West’s close business and political ties with Saudi Arabia are well documented (even if some prominent Western politicians have recently started to question the Saudis’ support of terrorism in public).
Are we inadvertently helping to spread the most radical versions of Islam through our foreign interventions and policies? Do our leaders really understand what they are dealing with here?
KH: That’s the million dollar question. There’s a lot of shared credit for bad policies that created bad outcomes both in the Western world and in the Muslim world. And yes, Saudi Arabia is more responsible than anyone for the spread of Wahhabism over the last couple of decades. As you know, that doctrine is considered to be the most conservative form of Islam. While the majority of their followers want to live peacefully with their families, you have a minority that don’t necessarily believe in these things.
And so we have a conundrum in that while every conservative, Salafist, or Wahhabist is not a terrorist – and the vast majority aren’t – But, on the other hand, we have had a lot of terrorist acts committed by guys who are self-proclaimed Muslims who invoke religion to justify their actions. This presents us with some challenges, I think, in the West.
ET: Why then do we seem so keen to repeat the same mistakes in Syria? After seeing what happened in Iraq and Libya, it should be abundantly clear that the resulting power vacuum will likely be filled by radical Islamists, unless we are willing to put boots on the ground in large numbers. Instead, could we not use the war in Syria as an opportunity to shift policy towards a more constructive and sustainable strategy and dialogue across the Region?
KH: You raise a very good point because our policies seem to have taken out more secular regimes in places like Iraq and Libya, and then these places morphed into very intolerant, conservative regimes where the rule of law and a lot of other things went by the wayside.
One thing that many people don’t understand is that the conflict in Syria started as a very simple civil war. Many people were not content with the government of Bashar al Assad and the Alawites and emboldened by things they saw in the Arab Spring, rebelled against them, with the hope that they perhaps could change their own destiny. The Alawites after all only make up 10-15% of Syria’s population and yet they have ruled that country for decades.
But now that situation has deteriorated into about five different wars: You have the civil war that I just talked about, then you have the broader Shi’ite versus Sunni conflict, now you have Hezbollah drawn into the conflict via Iran, in the north you have the Kurds fighting the Islamic State and on top of all that you have Saudi Arabia which is very concerned about the expanding reach of Iran and so this has turned into a huge proxy war between Saudi-backed Sunni forces against Iranian-backed forces. In short, it’s a mess and there are not any easy solutions.
ET: We know people who died on 9/11. The headquarters of our employer at the time were obliterated. The US government put the blame on Al Qaeda and spent hundreds of billions of dollars chasing them out of Afghanistan and Iraq, with the loss of many brave soldiers and countless civilians.
So we were shocked to hear General Petraeus advocating this past summer that the US should be arming Al Qaeda to fight the Islamic State. As a former senior CIA operative, how did you react to that? Does this reveal a lack of strategic options on the ground in Syria? Or have we completely lost focus and objectivity in the war on terror?
KH: That’s a good, but complicated question. I am not intimately familiar with General Petraeus’ comments and the context in which they were made so I really don’t feel comfortable commenting on them.
But, I think his comments do possibly reflect a real lack of good options forcing us to choose between a bunch of less than perfect options. It also reflects the fact that the US has a big reluctance to again deploy any sort of a “boots on the ground” type of approach to these conflicts, where you have a really slippery type of enemy, radical Muslim extremism, and no clear idea of what might constitute success. We definitely do not want to be in the business of nation building again.
So, I think we are looking at different types of options and General Petraeus surfaced that one. He’s certainly no apologist for Al Qaeda and in fact there aren’t many people in the US who have done more than him in the fight against terrorists and extremism. He spent years of his life in harm’s way doing important work all over the Middle East.
Again, I don’t know the context when he made that statement, but there’s that old saying that the enemy of my enemy is my friend.
ET: As a result of this radicalization, minorities across the Middle East are being persecuted, even annihilated in some regions. The president of the Europarliament recently stated that Christians are now the most persecuted group in the world. That is a stunning revelation. We are also seeing a new wave of anti-Semitism raging across Europe, largely as a result of Muslim immigration. What do you make of all of this?
KH: This goes back to what we discussed earlier, the spread of Salafism, Wahhabism, the Muslim Brotherhood and so forth. This has led to a loss of tolerance all across the Muslim world. But again this is a perversion of Islam because the vast majority of Muslims believe in tolerance and history is full of examples of Muslim, Christian, and Jewish communities living together in peace.
Islam has never condoned the killing of non-Muslims simply because they are not Muslim. Unfortunately you have some radicals that have perverted some verses of the Quran to justify their actions, but that is not right.
I think everybody has to do a better job in confronting this sort of thing. Muslim countries in particular probably need to do a better job in promoting inclusiveness and tolerance, because this isn’t a concept that lands well when it’s an ideal thrust upon them by the West or the US. They also need to do a better job internally because the level of sectarian violence within some countries has nothing to do with the West. When you look at the Sunni on Shia violence, as well as Sunni on Christian violence, it is staggering. So, yes, it’s a big issue.
ET: You talked about the Middle East by we are dealing with that radicalization in the West. How can we counter this? France has finally decided to close radical mosques – up to 160, a shocking number – but in the digital age there is an abundance of internet and TV alternatives to promote a radical message. What will happen in the decades ahead to the West, moderate Muslims and lovers of freedom if we fail here?
KH: You are right, this is a complicated issue because we in the West believe in freedom of religion and freedom of speech– but we don’t believe in terrorism and someone’s right to incite violence. We will have to confront these issues.
Like I said, everybody is entitled to worship as they see fit. Most thinking people believe in freedom of religion. But, if a mosque, or madrassa or a website encourages a rejection of these ideals and is contrary to our laws and our constitutions then the West will have to stand up and defend themselves. And that’s a tricky balance because while we believe in free speech, that doesn’t mean you have the right to promote terrorism. Individual countries will have to draw that line as they see fit.
ET: Speaking of individual countries, the San Bernadino shooters seem to have been radicalized in the US or at least despite living seemingly normal American lives. Are you aware of any radical mosques being shut down by the US government in order to stop the promotion of their ideology? It seems to us that the government is very reluctant even to use the word “radical Islam”…
KH: I have not heard of any discussion of closing any mosques in the US. But, there are some efforts underway to address radicalization on line. For example, there was language introduced by Senator Feinstein in the 2016 Intelligence Authorization Act that would have required social media companies to report “any terrorist related activity on their sites”. That shockingly passed by an 8-0 vote – and I say “shockingly” because you don’t find many bipartisan things happening in the US Congress, so very little passes by a unanimous vote. But, then the proposed legislation got derailed when it came to a vote in the broader Congress because some social media companies and others spoke up to note that the language was very vague and the line was unclear as to what might constitute free speech and what might constitute terrorist activity. The sheer volume of social media postings also made people unsure of how to implement the proposed legislation and so, for now, the proposed legislation was withdrawn.
There is the recognition that we have a serious issue with radicalization on the internet and we need to do something to address it, but there is great debate on how to do it. In the future, we are going to have to do something to confront this radicalization head-on. We cannot afford to cede this social media space to the Islamic State.
ET: Let’s go back to the Middle East. With Russia getting deeply involved in the Syrian conflict, on top of the skirmishes already taking place in the Ukraine, can this signal the start not of a new Cold War but of a full blown World War III? In the nuclear age great powers cannot face each other directly, but terrorism and proxy conflicts could be with us for many years. It is hard to see how anyone can emerge victorious here, especially as innocent civilians become the primary targets. Do you think we are at the start of a global conflict?
KH: I don’t think that Syria will approach anything on the scale of a world war, even by proxy as you mentioned. That said, it is a conflict that will be with us for many years and it is probably going to get bigger. You may even see expanding theaters of conflict – whether that’s in Western Europe, the US, or parts of the Middle East. So it’s yes and no; it’s likely to become a bigger conflict, but not really something I’d characterize as on the scale of a world war.
Interestingly, right after 9/11, former Director of the CIA James Wolsey compared the fight against Al Qaeda to World War IV. He referred to the Cold War as World War III and suggested that the next one would be fought against three enemies: Iran, the fascists of Iraq and Syria and Islamic elements like Al Qaeda. I thought that his characterization was pretty solid in describing that conflict, although I differ on it being called a world war.
The short answer is that there will be a long twilight struggle and you can call it what you want, but it probably doesn’t rise to the level of engagement of World War II, for example.
ET: So a more prolonged but less intensive conflict…
KH: Exactly. There’s no silver bullet to this. You will not be able to eliminate terrorism by putting boots on the ground in Syria, or pacifying Afghanistan, or fixing Pakistan, or anything like that. It’s complicated.
ET: Last question. You worked for the CIA for many years. What would have happened if you had used your personal email to, say, share sensitive information…?
KH: Well, we had certain structures so that nobody could use personal emails to correspond with others in the Agency. So, that would have been impossible…
ET: … But if that had been found out, would you still have a job?
KH: Probably not…
ET: Thanks again for being with us today and sharing your valuable insights. All the best and Happy Holidays!
KH: Thank you, it was a pleasure.
- France Changes Constitution To Protect "Emergency" Police Powers From Court Challenges
Back on September 11, Zero Hedge accurately predicted not only the terrorist events which unfolded in Paris on November 13, but also the resulting aftermath with uncanny accuracy.
We said that “as the need to ratchet up the fear factor grows, expect more such reports of asylum seekers who have penetrated deep inside Europe, and whose intentions are to terrorize the public. Expect a few explosions thrown in for good effect” and we added that “since everyone knows by now “not to let a crisis go to waste” the one thing Europe needs is a visceral, tangible crisis, ideally with chilling explosions and innocent casualties. We expect one will be provided on short notice.”
It was provided exactly two months later. But it was the “fine print” in out forecast that was most troubling:
… the second key role of ISIS is also starting to emerge: the terrorist bogeyman that ravages Europe and scares the living daylight out of people who beg the government to implement an even more strict government apparatus in order to protect them from refugees ISIS terrorists.
… Certainly expect a version of Europe’s Patriot Act to emerge over the next year, when the old continent has its own “September 11” moment, one which will provide the unelected Brussels bureaucrats with even more authoritarian power.
All of this is coming true.
First, just a few days after the November 13 terrorist attack The European Commission announced it had adopted a package of measures to strengthen control of firearms across the European Union and meant simply to make it “difficult to acquire firearms.”
Second, as part of the sweeping “emergency powers” implemented by France in the aftermath of the Paris mass shootings, civil liberties were promptly trampled, giving the local authorities a carte blanche to arrest anyone with or without cause: as we said “it is sufficient is for someone, somewhere in the chain of command to suggest any one individual is a potential threat, and they will be promptly removed from society for an indefinite period of time. As such, French “civil rights” have completed a full cricle and are now back to the infamous “Law of Suspects” drafted originally by Maximilien Robespierre during the French Revolution.”
Then, a few days later, Europe which clearly wasn’t letting this crisis go to waste, and certainly wasn’t wasting time, decided to quickly seize state border sovereignty by forcing EU members to submit to a Brussels-controlled standing border force, one which would act even if a government objects. As the FT said, “the move would arguably represent the biggest transfer of sovereignty since the creation of the single currency.”
And now, in the latest incursion of personal liberty and privacy, the Socialist government of President François Hollande has proposed to amend the French constitution to allow authorities to strip some natural-born citizens of their nationality if they are convicted of terrorism, the WSJ reports.
And the punchline is that just as expected, Europe’s Patriot Act has finally taken shape: according to a proposed amendment, the French state-of-emergency police powers, such as to conduct warrantless searches and order house arrests, will be unconditionally shieleded from court challenges.
In other words, a handful of government bureaucrats will soon be above any and all legal “checks and balances“, and will be provided absolute power to decide the fate of virtually any French citizen without due or any process. This is precisely what took place for decades in the Soviet Union, and why the west was so proud to provide its own citizens with those core civil rights which the soviets never enjoyed. And now it is the turn of the “democratic” western powers to unleash their own mini USSR on their citizens. You know, in the name of “preventing terrorism.”
Some in France are appaled by this blatant trampling of the most basic of human rights:
“Stripping citizenship from people born French—who have belonged to the national community since their birth—raises a substantial problem on a fundamental principle: the right of soil,” Justice Minister Christiane Taubira told a radio station in Algeria.
On Wednesday, the government said its proposal to strip convicted terrorists of their French nationality would apply only to people with dual citizenship. Still, many French Muslims are also citizens of Algeria, Morocco and other North African countries.
“We are creating two categories of citizens in our constitution,” said Patrick Weil, a prominent French historian and political scientist, warning the new amendment threatened “social cohesion.”
No worries there: just look at the US which is nearly 15 years ahead of France – after adoping the Patriot Act, there has been no problems with “social cohesion” under Obama. Of course, one should probably exclude the now daily mass shootings, the record gun ownership, and the unprecedented polarization of society along race, gender, wealth, and ideology for that statement to be even remotely true.
The WSJ adds that the changes, which parliament is expected to approve next year, are a measure of how the French state is adapting to the threat posed by Islamic State and other extremist groups. With a solid dose of sarcasm it also adds that the French state was founded on the ideals of liberty, equality and fraternity.
The time has come to quickly and quietly sweep all those ideals under the rug.
- Pets Suck But Jewelry Rocks – The Best & Worst Gifts (And Gift-Givers) Of Christmas
"Anyone who has studied microeconomics knows… that an income transfer, as opposed to a gift in-kind, gets you to a higher level of utility," but as WSJ reports, putting theory under the tree is another matter. After years of studying the economics of gift-giving, economists have found that some gifts are valued more highly than others, and that some gift-givers seem to be better than others…
Pets appear to be the worst gifts. Travel, the best. The recipients of jewelry and computers seem pretty happy, too.
They also analyzed the best and worst gift-givers.
In fact, as The Wall Street Journal reports, economists’ arguments against presents have deep roots. Some evoke Adam Smith, who espoused rational self-interest, or Milton Friedman, who praised the efficiency of spending money on oneself.
A 1993 paper, “The Deadweight Loss of Christmas,” gave the notion its first real academic ballast. The author, Joel Waldfogel, then at Yale University, calculated yuletide waste by asking 86 students to estimate the cost of presents they received. Average answer: $438.
He asked how much they would have been willing to pay for the same gifts. Average answer: $313. Recipients valued gifts at 71.5 cents on the dollar, a significant economic inefficiency.
Gifts, Mr. Waldfogel wrote, “leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.”
Since then, economists have enriched the Grinch school of economics.
A 2009 Journal of Socio-Economics paper measured gifts across the holiday catalog, from books (which recipients valued at 74% of the amount spent) to footwear (92%) and kitchen gadgets (77%).
“We find no evidence of significant welfare gains in any gift category,” the paper concluded, calling gifts a “considerable market failure.”
Finally, some scholars have examined which relatives give the worst gifts, economically speaking.
Two economists in 2012 surveyed German students on gifts from relatives and on perceived value.
“The efficiency loss of Christmas presents,” they concluded, “is highest for gifts from grandparents.”
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Bah Bloody Humbug!! - Rand Paul's Festivus Airing Of Grievances Against Government Waste
U.S. Senator Rand Paul today released a special ‘Festivus: Airing of Grievances for 2015’ edition of ‘The Waste Report,’ which is an ongoing project cataloguing egregious examples of waste within the U.S. government.
The ‘Festivus: Airing of Grievances for 2015’ edition highlights over 30 examples of wasteful spending, misplaced priorities, and bad management in the federal government that have cost the taxpayer more than one billion dollars.
Of the 31 examples amassed from the past year, a few high-points of the ‘The Waste Report’ include:
- an $850,000 foreign made-for-TV cricket league in Afghanistan,
- a $150,000 federal government agency yoga classes,
- a $450,000 climate change video game,
- a $250,000 trip for Pakistani children to attend Space Camp and Dollywood in the U.S., and
- a $104 million subsidization for millionaires to live in public housing.
Full Grievance Report below…
- Chinese State Firms' Debt Hits New All Time High, As Profits Tumble
Overnight China’s finance ministry reported the latest data on state-owned firms profitability. At a cumulative CNY 2.04 trillion (or $316 billion) for the January-November period, this was another nearly double digit decline, or -9.5% from the year ago period, following a -9.8% drop for the 10 month period the month before.
State-backed financial companies, which in China is redundant as all financial companies are state-backed, were responsible for roughly a third of the cumulative profit decline: excluding financial firms, combined revenues of state-owned firms fell 6.1% in the first 11 months from a year earlier to 40.7 trillion yuan, the ministry said.
According to Reuters, companies in transportation, chemical and power sectors reported a rise in profit in the January-November period, while firms in oil, petrochemicals and building materials – or a vast majority of them – saw a drop in earnings. Firms in steel, coal and non-ferrous metal sectors continued to suffer losses.
“The downward pressure on economic operations remains relatively big, although there are signs of warming up in some indicators,” the ministry said.
This optimism is, however, entirely baseless and we are confident that Chinese corporate profitability is set to go from bad to even worse. The reason for that is that at current commodity prices and production, virtually all of China’s steel industry is loss-making, while over half of commodity companies with debt do not have the funds to make even one coupon payment.
While the logical response to plunging profits would be for the government to enforce a strict discipline for excess capacity reduction, Beijing has been unwilling to do this, afraid of the outcome from the resulting surge in corporate defaults.
As Credit Suisse notes, “although we have seen more default announcements since (including three SOEs) [the March 2014 first ever corporate default of Chaorisolar], both the number and magnitude of Chinese defaults are lower than one would expect (only seven this year) given the size of the corporate sector, Chinese debt market and scale of uneconomic production, particularly in basic material industries. Of 17 bond defaults since then, only four involved SOEs. In fact we only find three unresolved defaults (Tianwei, Yingli and Sinosteel), and of these only one (Tianwei) resulted in a closure of capacity.”
CS’ conclusion is that China, like Japan back during its peak bubble days, is operating a policy of employment maximisation at the expense of profit maximisation, and therefore appears unwilling to shut down excess capacity. This assures a continued decline in profits.
Meanwhile, as SOE profits continue to deteriorate at the expense of maximizing jobs and employment (recall the biggest threat facing China is a working class insurrection, or simply said, “lower and middle-class revolution”) debt at these same SOEs just hit a new record high: according to the same FinMin numbers, total SOE debt rose by CNY393 billion to CNY78.3 trillion, or over $12 trillion – well above 100% of total Chinese GDP.
While hardly as dramatic as the unprecedented CNY5.9 trillion surge in September (duly noted in “Did Something Just Snap In China: Total SOE Debt Rises By $1 Trillion In One Month“), the trend of declining profits (and cash flows) coupled with debt rising to new record highs month after month, assures a head-on collision with financial reality which will leave many debtor and creditor casualties, both metaphorically and literally.
The question, just like the main question involving the US stock market, is how much longer can this unsustainable divergence continue?
- "America's Equity Markets Are Broken" Yale CIO Admits "Rigged Markets" Hurt Individuals
Authored by David Swensen (Yale CIO) and Jonathan Macey, Op-Ed via NYTimes.com,
America's equity markets are broken. Individuals and institutions make transactions in rigged markets favoring short-term players. The root cause of the problem is that stocks trade on numerous venues, including 11 traditional exchanges and dozens of so-called dark pools that allow buyers and sellers to work out of the public eye. This market fragmentation allows high-frequency traders and exchanges to profit at the expense of long-term investors.
Individual investors, trading through brokers like Charles Schwab, E-Trade and TD Ameritrade, suffer first as the brokers profit by hundreds of millions of dollars from selling their retail orders to high-frequency traders and again as those traders take advantage of the orders they bought.
Market depth, critically important to investors who trade large blocks of securities, also suffers in the world of high-frequency traders. Startling evidence for the lack of robustness in today’s market comes from a 2013 Securities and Exchange Commission report that found order cancellation rates as high as 95 to 97 percent, a result of high-frequency traders’ playing their cat and mouse game. Market depth is an illusion that fades in the face of real buying and selling.
Securities markets work best as a central clearinghouse where all buyers and sellers of stocks come together. Not so long ago, when the New York Stock Exchange and the Nasdaq operated as virtual monopolies, American equity markets were the envy of the world. Until 2000, Nasdaq was wholly owned by a nonprofit corporation; the New York Stock Exchange was nonprofit until 2006. To ensure that they would operate in the public interest, they were treated much like public utilities.
The unfairness of trading markets became a subject of intense focus with the publication in 2014 of Michael Lewis’s book “Flash Boys: A Wall Street Revolt,” which describes the way these markets are rigged in favor of high-frequency traders. Fortunately, Mr. Lewis provides a hopeful ending, predicting that the book’s hero, a trader named Brad Katsuyama, would save the day by forming his own exchange to serve real investors.
Mr. Lewis was right. Mr. Katsuyama’s company, IEX (in which Yale has a small indirect investment), has filed an application to become a national securities exchange. Exchanges are the key to price discovery — the determination of the true price of an asset — because the National Market System requires brokers to route trades to the exchange displaying the best price. Right now, brokers and their larger exchange competitors can ignore IEX and other regulated alternative trading platforms, even if they display the best prices.
Its exchange competitors, which include the New York Stock Exchange, Nasdaq and BATS, cater to the interests of high-frequency traders, which typically provide more than 50 percent of all trading volume. In addition to trading fees, exchanges charge fees for high-speed proprietary data feeds that provide privileged access to market data.
Exchanges advance the interests of traders by sponsoring esoteric order types, which for hard-to-understand reasons receive the approval of the S.E.C. An example is the New York Stock Exchange Day Intermarket Sweep Add Liquidity Only Order. Regular investors have no idea such an order type exists or what it means. Yet order types like these are essential to the dirty work of the high-frequency trader.
High-frequency traders pay to locate their computer servers inside of exchanges’ order execution centers, where they get early access to trade information that they use to jump in front of — front run — other clients. These co-located computers detect orders to buy and sell on one exchange and then rapidly send cancellations and orders to other venues where their servers are also co-located. Does this sound like a fair system?
IEX’s plan is to forgo the high profits earned by the major exchanges from selling speed advantages on the theory that they can make money more ethically by attracting long-term investors.
Its strategy is simple. IEX will not allow traders to reap the benefits of speed, instead slowing down all participants by 350 microseconds. This prevents the front-running facilitated by exchanges, which has led to vigorous and vitriolic opposition from groups that profit from the current arrangement.
An unholy alliance of exchanges (including the New York Stock Exchange, Nasdaq and BATS) and high-frequency traders like Citadel have petitioned the S.E.C. to reject IEX’s current application. In essence, the petitioners argue that it is consistent with commission rules for an exchange to sell certain customers an advantage over others, but IEX should not be allowed to remove these advantages.
The New York Stock Exchange, Nasdaq and BATS seek to block IEX from competing, when they collectively own 10 of the 11 national stock exchanges. By creating (and receiving S.E.C. approval for) so many exchanges, the current infrastructure fragments the market without providing the benefits of real competition.
Maybe IEX’s business model will work and maybe it won’t, but the S.E.C. should act in the public interest. Approval of IEX’s application will not fix America’s equity markets; it will make them less broken. The commission should not succumb to the special interests of competitors and their fellow travelers. It should approve IEX’s application and provide a real alternative for long-term investors.
- Ho Ho Hobama
- Oil Bankruptcies Hit Highest Level Since Crisis And There's "More To Come", Fed Warns
“Two things become clear in an analysis of the financial health of US hydrocarbon production: 1) the sector is not at all homogenous, exhibiting a range of financial health; 2) some of the sector indeed looks exposed to distress [and] lifelines for distressed producers could include public equity markets, asset sales, private equity, or consolidation. If all else fails, Chapter 11 may be necessary.” That’s Citi’s assessment of America’s “shale revolution”, which the Saudis have been desperately trying to crush for more than a year now.
As Citi and others have noted – a year or so after we discussed the issue at length – uneconomic producers in the US are almost entirely dependent on capital markets for their continued survival. “The shale sector is now being financially stress-tested, exposing shale’s dirty secret: many shale producers depend on capital market injections to fund ongoing activity because they have thus far greatly outspent cash flow,” Citi wrote in September. Here’s a look at what the bank means:
Of course this all worked out fine in an environment characterized by relatively high crude prices and ultra accommodative monetary policy. The cost of capital was low and yield-starved investors were forgiving, allowing the US oil patch to keeping drilling and pumping long after it should have been bankrupt. Now, the proverbial chickens have come home to roost. In the wake of the Fed hike, HY is rolling over and as UBS noted over the summer, “the commodity related industries total 22.8% of the overall HY market index on a par-weighted basis; sectors most at-risk for defaults (defined as failure to pay, bankruptcy and distressed restructurings) total 18.2% of the index and include the oil/gas producer (10.6%), metals/mining (4.7%), and oil service/equipment (2.9%) industries.” As Bruce Richards, chief executive officer of Marathon Asset Management told Bloomberg last week, “the price of a barrel of oil could fall below $30 due to a “glut of supply,” and as many as a third of energy companies will default over the next three years.”
“This is the the worst non-recessionary year we’ve ever had for high yield,” Richards said. New York-based Marathon has added to short positions on energy bonds, he said.
This week’s gains notwithstanding, and a likely misguided assumption about the impact the lifting of America’s crude export ban will have on WTI aside, the fundamentals here are a nightmare. Iraq is pumping at record levels, Iranian supply is set to ramp up starting next month, once sanctions are lifted, and OPEC is completely disjointed. Furthermore, producers are bumping up against the limits of how many jobs they can cut and how much capex can be slashed (ultimately, you have to retain enough human capital and capacity to remain operational). The takeaway: the bankruptcies are coming.
As the Dallas Fed notes in its latest quarterly energy outlook, bankruptcies in the space are now at their highest levels since the crisis and things look bleak going forward. Below, find excerpts from the report.
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From The Dallas Fed
West Texas Intermediate (WTI) crude oil prices have fallen around 23 percent so far in the fourth quarter. Expectations have shifted toward a weaker price outlook because sanctions against Iran are likely to be lifted in early 2016, the Organization of the Petroleum Exporting Countries (OPEC) has scrapped any pretense of a production ceiling, and U.S. production declines have slowed. Supply Glut Drives Oil Prices to 10-Year Lows The imbalance in global supply and demand has led oil prices to slump to levels last seen over 10 years ago. World petroleum production will exceed consumption by an average of 1.7 million barrels per day (mb/d) in 2015, according to December estimates by the Energy Information Administration (EIA). This excess supply is higher than during the Asian financial crisis and the Great Recession. OPEC supply has bloated markets with nearly 1 mb/d more this year than what the EIA initially predicted in November 2014. In 2016, global supply is expected to exceed demand by 0.6 mb/d on average (Chart 1).
At OPEC’s December meeting, the impending lifting of sanctions against Iran contributed to increasingly vocal dissonance within the cartel. The meeting ended in disarray, and oil ministers abandoned any pretense of a production ceiling for the first time in decades. A strong divide appeared to develop between Saudi Arabia and its Gulf allies on one hand and Iran and remaining OPEC members on the other. These divisions are driven by three underlying causes. First, there is strong disagreement on how to accommodate Iranian oil supply once sanctions are lifted as Saudi Arabia, Iraq and others seek to maintain market share. Second, heightened tensions in the Syrian conflict have deepened regional rivalries. Third, low oil prices affect member countries differently because of their different fiscal positions.1 These underlying causes will make any agreement on reinstating production ceilings or other coordinated action by OPEC unlikely in 2016.
Oil and gas sector bankruptcies have reached quarterly levels last seen in the Great Recession. Lower oil prices have taken a significant financial toll on U.S. oil and gas producers, in part because many face higher costs of production than their international counterparts do. At least nine U.S. oil and gas companies, accounting for more than $2 billion in debt, have filed for bankruptcy so far in the fourth quarter. If bankruptcies continue at this rate, more may follow in 2016. Upstream firms have also adjusted to low oil prices by slashing capital expenditures; spending is down 51 percent from fourth quarter 2014 to third quarter 2015 (Chart 5).
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As Goldman put it earlier this month, “…we reiterate our concern that ‘financial stress’ may prove too little too late to prevent the market from having to clear through “operational stress” with prices near cash costs to force production cuts, likely around $20/bbl.”
- 'Dear Santa' – An Activist Hedge Fund Manager Addresses St. Nick's "One Long Party"
To: St Nicholas Enterprises
From: Counting House Capital
Dear Santa Claus,
I am an activist investor in your company who has been infuriated for many years by your wilfully eccentric approach to capital allocation, pricing, brand strategy and supply chain management. Some of your devotees have urged me not to criticise your strategy in the season of goodwill, to which I reply: “Bah, humbug!”
I have always regarded your recourse to fourth century philanthropy and wasteful use of working capital as characteristic of an entrenched founder whose energy has been devoted to delighting underage customers at great expense while ignoring all management discipline. You have displayed little interest in covering your cost of capital, let alone exceeding it.
Life at St Nicholas is one long party. Free food for your elves, who receive generous compensation to make bespoke, non-standardised products. Presents offered to anyone who writes you a begging letter and has been “good” according to some vague metric. Jingle bells, rides in one-horse open sleighs, eggnog cocktails: Oh, what fun you have with my money.
Your entire enterprise exists to supply presents one day a year, yet everyone is on the payroll for 365 days. You will not even extend your franchise to Black Friday, which is a blatant missed opportunity. Meanwhile, you insist on delivering down chimneys, ignoring the fact that only one segment of your target demographic lives in a house. What is wrong with doors?
In short, St Nicholas is one of the least innovative companies I have ever encountered. It is as fat and happy as its chief executive, sticking religiously to an ageing business formula that exposes it to being disrupted. I know of several technology start-ups that are raising capital to create applications on which children could bid for presents that would be made by contract artisans and delivered by unicorns.
Given your lack of research and development, I have consistently argued that any surplus capital should be returned to shareholders as one-off tax-efficient distribution close to the year end — on December 25, for example. You have ignored my requests, choosing to brighten up children’s lives at random, rather than rewarding investors whose interests are aligned.Since you are too busy to engage in constructive dialogue, I held discussions this year with other hedge funds. We devised a plan for a merger of your business with related companies, followed by a series of spin-offs and initial public offerings to create more focused corporations. The structure was approved by several investment banks and law firms that are paid by the deal.
By combining St Nicholas, Walmart, Macy’s, WPP and Federal Express, and then splitting them up, we would create a set of vertical businesses in the gift making, fulfilment, merchandising and events spaces. They could license the Father Christmas brand and be incorporated in Lapland for tax purposes.
Recently, however, I was visited at home by three ghostly analysts, bearing fundamental research into your business. They warned me that, although I base my investment model on dividends flowing into my counting house over three to five years, the intrinsic value of St Nicholas can only be grasped on a panoramic view of the past, present and yet-to-come.
Santa, I have listened to many conference calls and seen many presentations, but none has struck me with the force of these insights. It is not an exaggeration to say that I have undergone a complete conversion in my view of St Nicholas. Warren Buffett advises investors to seek exceptional managers and I now see that few achieve your longevity.
You embodied the new economy before the idea had been conceived. St Nicholas is a global business, receiving signals from far corners of the earth and delivering packets over an integrated network. It works at super-high speed, faster than broadband in South Korea, and knows no boundaries. The internet is antique by comparison.
Your lack of interest in profitability struck the traditionalist in me as foolish but I have come to understand the virtues of reinvesting revenues over several centuries in order to dominate your market and entrench your monopoly.
Jeff Bezos, your closest logistics competitor, has copied your tactics but, although Amazon crushes small shops, department stores and big box retailers, it cannot topple you.
This has helped you to build the biggest social network in the world, putting Facebook to shame. Everyone includes your messages in cards and parents pretend the gifts they buy for their children come from you — you outsource many deliveries at zero cost. By combining a jolly presence with sophisticated viral marketing, you have expanded your reach everywhere.
Since these revelations, there has been a spring in my step. Coca-Cola once used your image in advertising, prompting rumours that it had invented Father Christmas, but it has nothing to teach you about branding and consumer appeal. My investment in St Nicholas has even greater potential than Mr Buffett’s stake in Coke, and I intend to hold it in my portfolio indefinitely.
It used to be cold, bleak, biting weather outside, but now it feels quite warm for the time of year.
Merry Christmas to one and all,
Ebenezer Scrooge
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- "Unstoppable" California Gas Leak Now Being Called Worst Catastrophe Since BP Spill
Since initially reporting on California's Alison Canyon gas leak, more details have emerged on the scale (and potential for no solution) of the problem as the infamous Erin Brockovich writes, "the enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping," as according to the California Air Resources Board, methane – a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide – has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now.
New infrared footage exposes the massive leak..
Infographic of leak (and potential solution)
As TheAntiMedia.org's Claire Bernish details, methane gas continues spewing, unchecked, into the air over southern California from a fractured well to an underground storage site — at such an alarming rate that low-flying planes have necessarily been diverted by the FAA, lest internal combustion engines meet highly volatile gas and, well, blow the entire area to hell.
This is, indeed, the biggest environmental catastrophe since the BP Deepwater Horizon oil rig exploded in the Gulf of Mexico in 2010; and for now, there is no way to stop it.
This methane disaster is worse than can be sufficiently described in words, because while it’s estimated well over 100,000 pounds of methane spew into the atmosphere every hour, the leak can’t be halted, at least until spring. Even then, that stoppage depends entirely on the efficacy of a proposed fix — which remains a dubiously open question.
According to the California Air Resources Board, methane — a greenhouse gas 72 times more impactful in the atmosphere than carbon dioxide — has been escaping from the Aliso Canyon site with force equivalent “to a volcanic eruption” for about two months now. So far, the total leaked gas measures somewhere around 100,000 tons — adding “approximately one-quarter to the regular statewide methane emissions” during that same time frame.
“The relative magnitude of emissions from the leak compared to other sources of methane in the State underscores the urgency of stopping the gas leak. This comes on top of any problems caused by odor and any potential impacts from exposure,” states the initial report on the Aliso leak by air quality officials.
“The enormity of the Aliso Canyon gas leak cannot be overstated. Gas is escaping through a ruptured pipe more than 8,000 feet underground, and it shows no signs of stopping. As the pressure from the weight on top of the pipe causes the gas to diffuse, it only continues to dissipate across a wider and wider area,” explained Erin Brockovich, who spent time in nearby Porter Ranch investigating the leak.
Officials and experts are concerned, and they can’t recall another leak of this magnitude in decades — if ever. “I asked this question of our staff of 30 years,” said Steve Bohlen, who recently left his position as state supervisor of oil and gas. “This is unique in the last three or four decades. This is an unusual event, period.”
Though methane, itself, has no odor, the addition of odorants methyl mercaptan and tetrahydrothiophene — a safety measure to alert people by smell to the presence of natural gas — has made the enormous methane seepage impossible to ignore. Thousands of households have evacuated the area, despite little help, much less information, from the gas company about when they might be able to return. As reported by the Los Angeles Times, SoCalGas spokesperson Michael Mizrahi claimed the company had paid to relocate and house 2,092 households — but that effort is severely lacking, says Los Angeles City Attorney Mike Feuer.
Yesterday, the city attorney’s office sought a restraining order to mandate SoCalGas relocate residents in the affected area within 48 hours of their request; and it is also seeking a “special master” to oversee the entire relocation operation, which is currently being handled by the gas company. Not only does the present relocation lack speed and coordination, but a housing crunch has resulted in surrounding areas — in some cases landlords, who prefer year-long leases to shorter terms, have driven rent as high as $8,500 per month. Hotels are operating at capacity, and in “some of those hotel rooms there are not enough beds for the people who are being moved,” explained chief deputy to the city attorney, James P. Clark.
“It’s time Porter Ranch residents had direct and complete answers about all facets of this leak,” Clark continued, “including what caused it, how to stop it, and what will be done to assure it never happens again. They should receive better, quicker, and completely adequate relocation assistance.”
On Thursday, Los Angeles Unified School District board members voted unanimously to close two Porter Ranch schools and relocate their 1,900 students and staff to different locations for the foreseeable future. A local emergency has been declared by the Los Angeles County Board of Supervisors.
Multiple lawsuits have now been initiated against SoCalGas and/or its parent company, Sempra Energy. A Los Angeles firm representing three of the families, who filed their suit Friday, described in a statement that the well has been “leaking noxious odors, hazardous gases, chemicals, pollutants, and contaminants due to a massive well failure and blowout. However, SoCalGas failed to inform residents of neighboring communities of the disastrous gas leak in a timely manner, putting the health and well-being of thousands of families in jeopardy.” Those suits allege “negligence, strict liability of ultra-hazardous activity, private nuisance, inverse condemnation, and trespass.”
A class-action lawsuit has also been filed on behalf of the Save Porter Ranch group; and City Attorney Mike Feuer filed a civil suit earlier this month due to the leak’s continued threat to residents’ health and damage to the environment, alleging failure by SoCalGas to prevent the leak and further exacerbation of “the effects of that failure by allowing the acute odor and health problems faced by the community to persist for more than one month, to say nothing about the indefinite time it will persist into the future,” state the court documents. “No community should have to endure what the residents of Porter Ranch have suffered from the gas company’s continued failure to stop that leak,” Feuer stated.
SoCalGas insists there will be no long-term health effects resulting from the persistent leak; but as Brockovich pointed out, “no one really knows the potential long-term side effects of benzene and radon, the carcinogens that are commonly found in natural gas.” In an email to the Los Angeles Daily News, SoCalGas stated they were “providing air filters for people’s homes” and “have established a claims process for those who feel they may have suffered harm or injury. And our top priority remains stopping this leak as quickly and safely as possible.
“While the odor added to the leaking gas can cause symptoms for some, the gas is not toxic and county health officials have said the leak does not pose a long-term health risk.”
But what’s making this massive leak so difficult to stop pertains to the storage ‘container,’ itself. “We have the largest natural gas storage system in the world,” boasts Chris McGill, vice president of the American Gas Association. In the United States, old underground oil fields are often put to use as storage vessels for natural gas — because, hey, that geology worked just fine to hold oil for millions of years, so why not natural gas?
In fact, there are some 300 such depleted subterranean oil fields being employed this way around the United States. Aliso Canyon, a natural gas storage site since the 1970s, has one of the largest capacities: 86 billion cubic feet. During the summer, gas earmarked for winter heating is pumped into these underground cavities by SoCalGas — and the process is reversed with the turn of the seasons. However, this year, workers encountered what quickly became evident was anything but a typical hiccup. As Wired reported:
“On October 23, workers noticed the leak at a 40-year-old well in Aliso Canyon. Small leaks are routine, says Bohlen, and SoCalGas did what it routinely does: put fluid down the well to stop the leak and tinker with the well head. It didn’t work. The company tried it five more times, and the gas kept leaking. At this point, it was clear the leak was far from routine, and the problem was deeper underground.”
Beginning December 4th, SoCalGas crews began drilling a relief well to intercept the fissured pipe. Cement will then be poured into both to seal the wells permanently. Of course, for this to work, crews must locate that original pipe, which is a mere seven inches in diameter, thousands of feet underground — without accidentally creating any sparks, whatsoever. Work near the leak site, therefore, has been prohibited after nightfall, when lighting equipment could potentially cause such a spark; though drilling for the relief well is situated far enough away to continue nonstop.
Flaring, or setting a deliberate fire to burn off excess gas, simply isn’t an option. The mammoth scope of this leak means a flare would ultimately complicate matters even further.
“There is no stone being left unturned to get this well closed,” Bohlen stated. “It’s our top priority.”
In the meantime, it will be months without any possibility of halting this disaster-in-motion. Sickened, uprooted, and furious residents can rest assured, though, because even as methane spews nonstop into the air, SoCalGas did have this consolation:
“We are deeply sorry for the frustration.”
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