And The Band Played On...

Tyler Durden — Thu, 23 May 2013 02:26:14 +0000

Submitted by Jim Quinn of The Burning Platform blog,

A confluence of events last week has me reminiscing about the days gone by and apprehensive about the future. I’ve spent a substantial portion of my adulthood rushing to baseball fields, hockey rinks, gymnasiums, and school auditoriums after a long day at work. I’d be lying if I said I enjoyed every moment. Watching eight year olds trying to throw a strike for two hours can become excruciatingly mind-numbing. But, the years of baseball, hockey, basketball, and band taught my boys life lessons about teamwork, sportsmanship, winning, losing, hard work, and having fun. There were championship teams, awful teams and of course trophies for finishing in 7^th place. As my boys have gotten older and no longer participate in organized sports, the time commitment has dropped considerably. Last week was one of those few occasions where I had to rush home from work, wolf down a slice of pizza and head out to a school function. It was the annual 8^th grade Spring concert.

My youngest son was one of a hundred kids in the 8^th grade choir. I think it was mandatory, since none of my kids like to sing. As my wife and I found a seat in the back of the auditorium where we could make a quick escape at the conclusion of the show, neither of us were enthused with the prospect of spending the next ninety minutes listening to off-key music and lame songs. I’ve been jaded by sitting through these ordeals since pre-school. But a funny thing happened during my 30^th band concert. I began to feel sentimental about the past and sorrowful about the future for these Millennials.

The Millennial generation was born between 1982 and 2004. Therefore, they range in age from 9 years old to 31 years old. There are approximately 87 million of them, or 27.5% of the U.S. population. In comparison, the much ballyhooed Boomer generation only has 65 million cohorts remaining on this earth. The Millennials will have a much greater influence on the direction of this country over the next fifteen years than the currently in control Boomers. There has been abundant scorn heaped upon this young generation by their elders. In a fit of irrationality befit the arrogant, hubristic, delusional elder generations, they somehow blame a cohort in which 54 million of them are still younger than 21 years old for many of the ills afflicting our society. This disgusting display of hubris is par for the course among these delusional elders.

Are Millennials addicted to their iGadgets, cell phones and Facebook pages? Probably. Do they spend too much time on the internet and playing PS3 & Xbox? Certainly. Have they been indoctrinated in social engineering gibberish like diversity and planet worship by government run public school bureaucrats? Absolutely. Are they young, foolish, immature, irrational and not respectful towards their elders? You betcha. Teenagers have acted like this forever. You acted like that. The ongoing crisis in this country and our unsustainable economic system are in no way the result of anything perpetrated by the Millennial generation.

Can the Millennial generation be blamed for the $17 trillion national debt, $222 trillion of unfunded un-payable social obligations promised by corrupt politicians, $1 trillion of annual deficits, undeclared wars being waged across the globe on behalf of the military industrial complex arms dealer mega-corporations, economic policies that have resulted in 48 million people dependent on food stamps, tax policies that enrich those who write the code, trade policies that benefit corporations who gutted the industrial base and shipped jobs overseas to slave labor factories, or monetary policies that have destroyed 96% of the dollar’s purchasing power? They had no say in the creation of our untenable welfare/warfare state.

There are no Millennials among the 535 corrupt bought off politicians slithering down the halls of Congress. There are no Millennials running the Too Big To Control Wall Street banks. There are no Millennials in charge of the mega-corporations that buy and sell our politicians. There are no Millennials at the upper echelon of the Military Industrial Complex or in the upper ranks of the U.S. Military. But, and this is a big but, they have done most of the dying in the Middle East over the last ten years in our multiple undeclared preemptive wars of aggression. They have died under the false pretenses of a War on Terror, when they are truly dying on behalf of the crony capitalists who profit from never ending war. They have been fighting and dying to protect “our oil” that happens to be under “their sand”. If the energy independence storyline was true, why is our military perpetually at war in the Middle East?

The Millennials will also be required to do the heavy lifting over the next fifteen years of this Fourth Turning Crisis. The Silent Generation is dying off rapidly. The Boomer generation has done some hard living and some hefty eating and with the oldest of their cohort hitting 70 years old, their supremacy will begin to diminish over the coming fifteen years. At 87 million strong, and millions yet to reach voting age, the Millennials will become more influential by the day regarding the future course of this nation. The question is what will be left of this country by the time they assume control. They are saddled with $1 trillion of student loan debt, peddled to them by the government and Wall Street with the false promise of good paying jobs and the opportunity for a better life than their parents lived. They have obediently followed the path laid out by their elders, but they have been badly misled. This American dream has been shattered upon an iceberg of debt, delusion, deception and denial. The unsinkable American empire’s hubris and arrogance are leading to its demise. The Millennials are coming of age during a Crisis that will reach momentous magnitudes over the next fifteen years, and they had nothing to do with creating the circumstances which will propel the chaos and anarchy that ensues. But, they will bear the brunt of the dreadful consequences.

Generational Bridge

“The Boomers’ old age will loom, exposing the thinness in private savings and the unsustainability of public promises. The 13ers will reach their make or break peak earning years, realizing at last that they can’t all be lucky exceptions to their stagnating average income. Millennials will come of age facing debts, tax burdens, and two tier wage structures that older generations will now declare intolerable.” – Strauss & Howe - The Fourth Turning

The kids on the stage at the 8^th grade Spring concert were all around 14 years old. They are unaware they are in the midst of a twenty year period of Crisis. The boys are at that gawky looking stage with pimply faces and gawky limbs. The girls mature quicker than the boys at that age. These youngsters have barely begun their lives. I was amazed at their proficiency with a wide variety of musical instruments. They displayed poise and talent. The soloists exhibited composure well beyond their years. The performers were all musically endowed and proved that hard work and practice pays off. They were clearly enjoying themselves. They were all dressed in their Sunday best. I found myself enjoying the show despite my jaded attitude upon entering the auditorium. Even my son, wearing one of my ties, actually appeared to be singing during the choir performance. What I saw were hundreds of bright eyed Millennials with their hopes and dreams for a bright future intact. They have no idea what trials and tribulations await them.

I reached a milestone on the age chart last week that had me ruminating about yesteryear and contemplating the future. I reached the half century mark. Birthdays generally do not faze me, but the intersection of the 8^th grade concert and my landmark birthday had me pondering my purpose for inhabiting this world. I’ve likely realized two-thirds of my life. The final third of my life will be spent trying to maneuver through the minefields of this Fourth Turning. I’m a father to three Millennial boys. I consider it my duty to defend and support them during this Crisis. Strauss & Howe wrote their book in 1997 and predicted a Great Devaluation in the financial markets around the time Millennials were entering their twenties. This Crisis began in September 2008 with the worldwide financial collapse created by Wall Street “Greed is Good” Boomers, as the oldest Millennials entered their twenties. It continues to worsen as more Millennials approach their twenties. We’ve reached a point in history when the elder generations need to sacrifice in order to insure younger generations have a chance at some form of the American dream.

I believe each generation has an obligation to future generations. We are bridge between preceding generations and future generations. We have a civic obligation to manage the resources of the country in a prudent manner. It’s our duty to leave the country in a financially viable condition so younger generations have an opportunity to live a better life than their parents. Every generation that preceded the Millennials has achieved the goal of having a better standard of living than their parents. I don’t believe my boys will enjoy a better life than I’ve lived. We’ve lived well beyond our means for decades. Government, Wall Street banks, corporations and individuals have run up a $56 trillion tab and are sticking the Millennials with the bill.

The $17 trillion national debt accumulated by elder generations to benefit themselves and $222 trillion of unfunded entitlements promised to themselves is nothing but generational theft. It’s immoral and possibly the most selfish act in human history. I’m ashamed that my generation and older generations have committed this criminal act of theft. Deficit spending today with no intention of repaying that debt is a tax on future generations. This egotistical abuse of power by the current and past regimes must be reversed voluntarily or it will be done by force. I’m 50 years old and will dedicating my remaining time on this earth fighting to create a sustainable future for my kids and their kids. The lucky among us get eighty years on this planet to make a difference. When did the definition of success become dying with the most toys and spending your life screwing your fellow man by accumulating obscene levels of wealth at their expense? If Boomers and Generation X have any sense of guilt about what they have done, they would be willingly offering to sacrifice their ill-gotten entitlements.

Not only are those currently in power not proposing to scale back their spending, debt accumulation, or entitlement transfers, but they have accelerated the pace of each in the last five years. An already unsustainable corrupted economic structure is being driven towards collapse by psychopathic central bankers and cowardly captured politicians. These are acts of treason against the youth of this country and larceny on a grand scale. It will lead to generational warfare and these crooks will pay for their transgressions. Strauss & Howe suspected in 1997 the elders might cling to their illicit profits acquired at the expense of the Millennials:

“When young adults encounter leaders who cling to the old regime (and who keep propping up senior benefit programs that will by then be busting the budget), they will not tune out, 13er – style. Instead, they will get busy working to defeat or overcome their adversaries. Their success will lead some older critics to perceive real danger in a rising generation perceived as capable but naïve.” – Strauss & Howe - The Fourth Turning

The elders who represent the status quo do perceive real danger in the rising Millennial generation. The initial skirmishes occurred in the midst of the Occupy protests. The young protestors initially focused on the true culprits in the crashing of the financial system and vaporizing of the net worth of millions – Wall Street bankers and their sugar daddy at the Federal Reserve. In a display of status quo bipartisanship you had liberal Democrat mayors in cities across the country call out their armed thugs to beat the millennial protestors into submission while being cheered on by Fox News and the neo-cons.

The existing status quo regime provides the illusion of choice, but both political parties are interchangeable in their desire to control our lives, flex our military might around the globe, indebt future generations and write laws to favor their corporate and banking masters. The establishment is showing contempt for the futures of our youth. Their solutions to the criminally created financial crisis have been to reward reckless debtors and bankers at the expense of future generations. Their doling out of hundreds of billions in student loan debt and artificial propping up of home prices has effectively made it impossible for millions of young people to get their lives started. Boomers have done such a poor job saving for their retirements they are unable to leave the workforce. Since January 2009, despite adding $400 billion of student loan debt, Millennials have a net loss in jobs, while the Boomers have taken 4 million jobs.

Strauss & Howe anticipated that older people would be anguished to see good kids suffer for the mistakes they had made. They thought the elders couldn’t possibly be shallow enough, selfish enough, or immoral enough to deny the Millennial generation a chance at the American Dream. They were wrong. The old regime has no plans to step aside or sacrifice on behalf of younger generations. The implications of this resistance will be dire.

“The youthful hunger for social discipline and centralized authority could lead Millennial youth brigades to lend mass to dangerous demagogues. The risk of class warfare will be especially grave if the 20% of Millennials who were poor as children (50% in inner cities) come of age seeing their peer-bonded paths to generational progress blocked by elder inertia.” – Strauss & Howe - The Fourth Turning

The social mood in this country continues to deteriorate as the sociopathic financial elite accelerate their pillaging of the working middle class, steal money from senior citizens through zero interest rate inflationary policies, and enslave our youth in the chains of crushing debt and promise of dead end jobs. When the next leg down in this ongoing depression strikes like an F5 tornado, the simmering anger in this country will explode in a chaotic frenzy of violence and retribution. The chances of class and generational warfare have increased exponentially due to the actions of the elderly regime over the last five years.

Generational Sacrifice

“You got your whole life ahead of you, but for me, I finish things.” – Walt Kowalski – Gran Torino

A couple days after the Spring concert I was flipping through the 650 channels on my TV with nothing worth watching when I stumbled across the 2008 Clint Eastwood movie Gran Torino. This was the third episode within the week that had me thinking about the future of my kids. It was his highest grossing film in history. Eastwood played a bigoted tough guy Korean War veteran whose Detroit suburban neighborhood had deteriorated into a dangerous gang infested Asian war zone. The movie did not follow the standard Eastwood plot where he kills dozens of bad guys. He grudgingly befriends two young Millennial teenage Laos refugees who live next door. He had lost his wife of 50 years. He was in his 70s and dying from some undiagnosed illness. I viewed the movie as an allegory for the generational sacrifice that should be taking place now.

Eastwood’s character, Walt Kowlaski, decided to finish things his way. He realized the two Millennials would never find peace or have a chance at a better life until the criminal gang running the show in the neighborhood were confronted and defeated. He knew he was too old to kill six gang members singlehandedly, so he made a choice to sacrifice himself and be gunned down in cold blood in front of multiple witnesses so the perpetrators would go to jail and allow his Millennial companions to have a chance at a better life. He sacrificed his life for the good of young people who weren’t even related to him. This message has not connected with the elder generations who control the purse strings and political system in this country. The media propaganda machine supporting the existing regime continues to peddle a storyline that debt doesn’t matter, consumption is good, saving is for suckers, and passing the bill for unfunded entitlements to future generations is not immoral and cowardly. Walt Kowalski displayed courage, bravery, and valor that is sorely lacking in the elderly generations today.

At the age of 50 I have a choice with my remaining 20 or 30 years. I can choose to keep accumulating material goods with debt, voting for politicians who promise never to cut my entitlements, believing deficits growing to infinity are beneficial to the economic health of the nation, supporting the military industrial complex as they wage undeclared wars across the world, applauding the Orwellian fascist surveillance measures instituted to give the illusion of safety while sacrificing freedoms and liberties and selfishly looking out for my best interests. Or I can stand up to the corporate fascist old boy regime and lure them into a violent response that will ultimately lead to their downfall. I’m willing to sacrifice what is supposedly “owed” to me on behalf of my kids and all Millennials. They don’t deserve to start life in a $200 trillion hole created by their parents and grandparents. It is disconcerting to me that more Boomer and Generation X parents are unprepared, unwilling or too willfully ignorant to forfeit entitlements awarded them under false pretenses in order to preserve a decent standard of living for their children and grandchildren. The Bernaysian propaganda programmed into their brains over decades by the sociopathic central planning status quo has created this inertia.

The inertia will be replaced by frenzied activity when this unsustainable system ultimately fails. Time seems to be standing still. People have been lulled into a false sense of security even though history is about to fling us into a chaotic transformational period in history. How do I know this is going to happen? Because it happens every eighty years like clockwork. The best laid plans of the men running the show will be swept away in a whirl of pandemonium, violence, war and reckoning for sins committed against humanity. There will be no escape.

“Don’t think you can escape the Fourth Turning the way you might today distance yourself from news, national politics, or even taxes you don’t feel like paying. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted. The Fourth Turning necessitates the death and rebirth of the social order. It is the ultimate rite of passage for an entire people, requiring a luminal state of sheer chaos whose nature and duration no one can predict in advance. The risk of catastrophe will be very high. The nation could erupt into insurrection or civil violence, crack up geographically, or succumb to authoritarian rule. If there is a war, it is likely to be one of maximum risk and effort – in other words, a total war. Every Fourth Turning has registered an upward ratchet in the technology of destruction, and in mankind’s willingness to use it.” – Strauss & Howe - The Fourth Turning

Our country has entered a period of Crisis.

We may or may not successfully navigate our way through the visible icebergs and more dangerous icebergs just below the surface. The similarities between the course of our country and the maiden voyage of the Titanic are eerily allegorical.

The owners of the ship (Wall Street, Washington politicians, crony capitalists) are arrogant and reckless. They declare the ship unsinkable, while only providing half the lifeboats needed to save all the passengers in case of disaster in order to maximize their profits. The captain (Ben Bernanke) has been tendered the greatest cruise liner (United States) in history. The initial voyage across the Atlantic Ocean has drawn the financial elite ruling class (financers & bankers) onboard, occupying the luxurious state rooms on the upper decks. But, the lower decks are filled with young poor peasants (Millennials) who are sneered at and ridiculed by those in the upper decks. A maiden voyage should always be approached cautiously. A prudent captain would not take undue risks.

Our captain (Ben Bernanke) wants to make his mark on history. He considers himself an expert in navigating dangerous waters (Great Depression) because he studied dangerous waters at his Ivy League school. It doesn’t matter that he never actually captained a ship in the real world. He declares full steam ahead (reducing interest rates to 0% and throwing vast amounts of fiat currency into the engine room boilers). Midway through the voyage, the captain is handed a telegram warning of icebergs (potential financial catastrophe) ahead. If he slows down the vessel, he will not set the speed record and receive the accolades of an adoring public. He ignores the warning and steams on to his rendezvous (eternal disgrace) with destiny.

In the middle of the night, the lookouts (Ron Paul, John Hussman, Zero Hedge) cry iceberg!! But, it is too late. The great ship (United States) has struck an enormous iceberg (debt & currency crisis). At first, it seems like everything will be OK. The captain and crew assure the passengers that everything is under control and their evasive action has saved the ship. But below the waterline, the great ship (United States) is taking on water (toxic levels of debt, un-payable entitlement promises, trillion dollar deficits, political & financial corruption). The engine room (Federal Reserve) works frantically to alleviate the damage (QE to infinity). The captain is sure the compartmentalization of the ship will save it. One of the designers of the ship (David Stockman) sadly declares that the ship will surely sink. The captain orders the band (CNBC, Fox, MSNBC, CNN) on deck to distract the passengers from their impending fate with soothing music. The owners of the ship (Wall Street, Washington politicians, crony capitalists) aren’t worried. They collected their fees upfront and over-insured the vessel. They anticipate a windfall when the ship sinks. It worked last time.

To avoid mass panic, the crew (government apparatchiks) has locked the youthful poor peasants (Millennials) below deck. The captain and his crew are content to let them go down with the ship. They’ve decided the women, children, and senior citizens (Middle Class) can also be sacrificed. The financial elite ruling class (financers and bankers) are piling into the boats with the ship’s jewels, escaping the fate of the peasants. The captain (Ben Bernanke) has no intention of going down with the ship. In a cowardly act, he leaps onto the 1st lifeboat to be launched. We are on a voyage of the damned. The great cruise liner (United States) has a fatal wound and is headed for a watery grave. Are we going to let the owners, captain and crew dictate who will be saved in the few lifeboats or will we rise up and throw these guilty parties overboard?

It comes down to the abuse of power by a few evil men and their henchmen as they have centralized their control over our financial, political, economic and social institutions. The existing social order is an ancient, rotting, fetid swamp of parasites that will be drained during this Fourth Turning. The Millennials are rising and will be the spearhead of the coming revolution. As each day passes they will become a more powerful force and the power of the existing regime will wane. Meanwhile, the band will play on as the ship of state descends into the abyss.

Chinese Economy Enters Contraction With First Sub-50 PMI Print Since October

Tyler Durden — Thu, 23 May 2013 02:04:07 +0000

For the first time since October 2012, HSBC's China PMI (Flash) printed at a sub-50 level (49.6) missing expectations (50.4) quite notably. This is the worst two-month drop in 17 months. This is problematic for the PBoC who are being arbitraged left, right, and center and know that any stimulus will merely serve to exacerbate the problems they face (as we noted here that China simply cannot function with 'moderate' growth). Every one of the main index's 11 sub-indices is signaling 'problems' - from slower rates of output, slower new orders, employment dropping at a faster rate, stocks rising, and output prices falling. As HSBC notes, "The cooling manufacturing activities in May reflected slower domestic demand and ongoing external headwinds. A sequential slowdown is likely in the middle of 2Q, casting downside risk to China’s fragile growth recovery." Of course, none of this should come as any surprise to ZH readers - as we noted here, Chinese power consumption grew at its slowest rate since May 2009.

Charts: MarkitEconomics

They Better Pray There Is No Short Squeeze...

Tyler Durden — Thu, 23 May 2013 01:33:11 +0000

Well, they've finally done it.

As the following chart of the day from Bloomberg shows, as of this week, hedge funds have made "the biggest bet ever" against gold by taking Comex gold shorts to all time highs.

To their reflexive benefit, we will admit, they have managed to push the price of gold lower, not much... but it is lower (whether with the BIS' assistance or not is irrelevant). It is a different question if the price of gold is low enough to reflect such a record bearishness. But the biggest question is what happens if there is a catalyst to launch a covering rally: such as, hypothetically speaking of course, the People's Bank of China were to announce that it has in the past four years in which it provided no updates on its gold holdings (last is as of 2009), accumulated some 2000-4000 tonnes of gold.

Surely, that would be most unpleasant to all those record shorts, and the impact on the price would be most parabolic. Why, all those shorts better indeed pray there is no short squeeze now or any time in the future...

Present Shock And The Loss Of History And Context

Tyler Durden — Thu, 23 May 2013 00:55:28 +0000

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

In his new book, Douglas Rushkoff examines the telescoping of time and context wrought by ubiquitous digital technologies.

One of the few observers who is able to articulate a coherent critical account of American culture is Douglas Rushkoff. His new must-read book is Present Shock: When Everything Happens Now (print edition) and (Kindle edition).

I have long found inspiration and insight in Rushkoff's work, especially his keen understanding of the pathologies of consumerism. In my 2009 book Survival+, I wrote:

Rushkoff's reply to an interview question on the consequences of ubiquitous marketing reveals how media/marketing has created an unquestioned politics of experience in which one's identity and sense of self is constructed almost entirely by what one buys:

"Children are being adultified because our economy is depending on them to make purchasing decisions. So they're essentially the victims of a marketing and capitalist machine gone awry. You know, we need to expand, expand, expand. There is no such thing as enough in our current economic model and kids are bearing the brunt of that.... So they're isolated, they're alone, they're desperate. It's a sad and lonely feeling....The net effect of all of this marketing, all of this disorienting marketing, all of the shock media, all of this programming designed to untether us from a sense of self, is a loss of autonomy. You know, we no longer are the active source of our own experience or our own choices. Instead, we succumb to the notion that life is a series of product purchases that have been laid out and whose qualities and parameters have been pre-established."

In my view, this is a brilliant analysis of the rot at the heart of the American project.

In his new book, Rushkoff examines the telescoping of time and context wrought by ubiquitous digital technologies. We're always accessible, always connected and every channel is always on; this overload affects not just our ability to process information but our culture and the way media and marketing are designed and delivered.

The title consciously plays off the influential 1970 book by Alvin Toffler, Future Shock, which posited that our innate ability to process change was limited even as the rate of change in our post-industrial world increased. That rate of change would soon overwhelm our capacity to process new inputs and adapt to them.

In Rushkoff's view, we've reached that future: the speed of change and the demands of the present are disorienting us in profound ways.

We all know what stress feels like: it often causes our view to narrow to the present stressor, and we lose perspective and the ability to "make sense" of anything beyond managing the immediate situation.

Rushkoff identifies five symptoms of present shock:

1. Narrative collapse - the loss of linear stories and their replacement with both crass reality programming and post-narrative shows like The Simpsons.

2. Digiphrenia – digitally provoked mental chaos as technology lets us be in more than one place at any one moment. As Rushkoff notes in this chapter: Our boss isn't the guy in the corner office, but the PDA in our pocket. Our taskmaster is depersonalized and internalized.

3. Overwinding – trying to squish huge timescales into much smaller ones, for example, packing a year’s worth of retail sales expectations into a single Black Friday event.

4. Fractalnoia – making sense of our world entirely in the present tense, by drawing connections between things with weak causal relationships, for example Big Data, which excels at identifying correlations but is utterly incapable of identifying cause amidst the correlations.

5. Apocalypto – the intolerance for presentism leads us to fantasize a grand finale, the cultural equivalent of a "market-clearing event."

As Janet Maslin of the New York Times wrote in her review: "How do we shield ourselves from distraction, or gravitate to what really matters?"

Studies have shown that our innate ability to remember people and identify their relationships with others is limited to around 100 people--the size of a village or combat company. We undoubtedly have similar innate limitations on how many channels of input we can absorb.

Clay Shirky (author of Here Comes Everybody: The Power of Organizing Without Organizations) calls this filter failure, his term for what used to be called information overload. Our filters become overloaded and we lose the ability to "make sense" of what's going on around us.

As the phenomenologists discovered in the 20th century, our basic coping mechanism is to separate the world (and inputs) into three basic categories: the focal point, the foreground and the deep background. Being unable to sort out which input belongs in the three spaces leads to disorientation and poor decisions.

The parallels between filter failure and stress are not coincidental, as we handle filter failure and present shock the same way we handle stress: we limit inputs and make a concerted effort to reorient our awareness and context, what some call "be still and know."

Another troubling parallel to present shock is addiction. People now respond to texts, emails, alerts and phone calls like rats in the proverbial cage with the lever that releases another tab of cocaine: they over-stimulate themselves to death but are incapable of restraining their impulse for more.

The "obvious" solution is to turn off inputs as a way of restoring our ability to live in a present without novelty and distraction. This is akin to withdrawal from a powerful opiate, and so we should not be surprised that there are now treatment facilities for kids who need to detox from digital inputs.

Rushkoff is especially attuned to the distortions in our experience of time created by digital media-communication present shock: "Time in the digital era is no longer linear but disembodied and associative. The past is not something behind us on the timeline but dispersed through the sea of information."

In effect, change no longer flows linearly like time anymore, it flows in all directions at once.

History and meaningful context are both fatally disrupted by this non-linear flow of time and narrative. Is it any wonder that we now read about young well-educated people who do not understand the meaning of "policy"? To understand policy requires a grasp of the histories and narratives that led to the policy, and the linear, causally-linked way that policy is designed to solve or ameliorate a specific problem or challenge.

If the causal chains of history and narrative are disrupted, then how can anyone fashion a meaningful context for actions and narratives, and effectively frame problems and solutions? If everything is equally valid in a non-linear flood of data, then what roles can authenticity, experience and knowledge play in making sense of our world?

These are knotty, complex issues, and you will find much to constructively ponder in Present Shock.

Japanese Bond Market Halted At Open As Bond Selling Purge Goes Global

Tyler Durden — Thu, 23 May 2013 00:18:59 +0000

Japanese government bonds (JGB) futures have been halted once again this evening as the market opens down over 1 point. 10Y yields smash 11.5bps higher to 1.00% and 5Y yields add 6bps to 47bps. These are quite simply unprecedented moves in what 'was' a safe asset class and impresses yet another VaR shock on the market (as we detailed here). What this means practically is that Japanese banks push further into insolvency land (as we explained here) today's move wipes out another 1.5% of blended Tier 1 capital off the entire Japanese banking industry. Since the 10Y JGB yield lows of 32.5 bps on April 5, the move is rapidly approaching a full percentage point, or the parallel shift amount that the IMF warned would lead to 10% and 20% MTM losses for regional and major banks respectively. Today's jump in 10Y yields continues the post-BoJ regime of greater-than-six-sigma moves... something no risk model can withstand for three weeks. Just a good job the BoJ didn't have anything at all to say about this totally disorderly fiasco yesterday.

JGB Futures plunge to two-year lows...

leaving yields spiking...

10Y yields have now tripled from the post-BoJ meeting lows (in 7 weeks!!)

JPY is being sold like there's no tomorrow (which for the Japanese may well be true)

Meanwhile the Nikkei 225 is tearing hiugher once again - now up ovcer 85% from its Oct 2012 lows...

Charts: Bloomberg

IRS' Lois Lerner Re-Subpoenaed After Accidentally Waiving Her Right To Plead The Fifth

Tyler Durden — Wed, 22 May 2013 23:52:28 +0000

"Never attribute to malice that which is adequately explained by stupidity"

Robert Hanlon

Perhaps, when one gets down to it, there was no actual intent of malice or ill-will on behalf of the IRS to persecute conservative groups (there was of course), and the bottom line is that all of the administration's IRS apparatchicks were just bloody stupid.

Such is the conclusion one derives after watching today's attempt by embattled IRS official Lois Lerner to plead the Fifth before the House Oversight Committee, which blew up spectacularly in her face, after she made an actual statement protesting her innocence, which it appears, was in itself a waiver of the waiver.

As a result, committee Chairman Darrell Issa has ordered Lerner to be hauled back, and to answer the questions she evaded earlier today, after now having effectively waived her Fifth Amendment right in retrospect, or else be charged with contempt!

The farce is becoming so blatant it is almost as if someone is utterly desperate to make a complete mockery of the entire IRS scandal, and in the process shake the administration to the core, which more than anything is being exposed as utterly incompetent to boot. Of course, the real question is what is the public's attention being distracted from.

Politico reports:

The California Republican said Lerner’s Fifth Amendment right to avoid self-incrimination was voided when she gave an opening statement this morning denying any wrongdoing and professing pride in her government service.

“When I asked her her questions from the very beginning, I did so so she could assert her rights prior to any statement,” Issa told POLITICO. “She chose not to do so — so she waived.”

She appeared before Issa’s committee this morning under the order of a subpoena and surprised many by reading a strong statement to the panel.

“I have not done anything wrong,” she said. “I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any other committee.”... the committee may ultimately pursue a contempt charge if Lerner continues to refuse to talk.

And just so there is no confusion:

During the incident, Issa did not flat-out say whether or not Lerner had indeed waived her rights but instead tried to coax her into staying by offering to narrow the scope of questions.

By the afternoon, Issa was taking a harder stand.

“The precedents are clear that this is not something you can turn on and turn off,” he told POLITICO. “She made testimony after she was sworn in, asserted her innocence in a number of areas, even answered questions asserting that a document was true … So she gave partial testimony and then tried to revoke that.”

He said he was not expecting that.

“I understand from her counsel that there was a plan to assert her Fifth Amendment rights,” he continued. “She went ahead and made a statement, so counsel let her effectively under the precedent, waive — so we now have someone who no longer has that ability.”

Watch the entire exchange here, andfast forward to the sixth minute for the legal objection:

Modern Life Is Making Us Dumber

George Washington — Wed, 22 May 2013 23:38:20 +0000

Humanity Is Getting Dumber

Scientists say that we have much smaller brains than our ancestors had 20,000 years ago … and we might have gotten stupider since agriculture became widespread.

Indeed, Huffington Post reports that we’ve probably gotten dumber than even our Victorian ancestors:

A provocative new study suggests human intelligence is on the decline. In fact, it indicates that Westerners have lost 14 I.Q. points on average since the Victorian Era.

******

As for Dr. te Nijenhuis and colleagues, they analyzed the results of 14 intelligence studies conducted between 1884 to 2004, including one by Sir Francis Galton, an English anthropologist and a cousin of Charles Darwin. Each study gauged participants’ so-called visual reaction times — how long it took them to press a button in response to seeing a stimulus. Reaction time reflects a person’s mental processing speed, and so is considered an indication of general intelligence.

***

In the late 19th Century, visual reaction times averaged around 194 milliseconds, the analysis showed. In 2004 that time had grown to 275 milliseconds. Even though the machine gauging reaction time in the late 19th Century was less sophisticated than that used in recent years, Dr. te Nijenhuis told The Huffington Post that the old data is directly comparable to modern data.

Other research has suggested an apparent rise in I.Q. scores since the 1940s, a phenomenon known as the Flynn Effect. But Dr. te Nijenhuis suggested the Flynn Effect reflects the influence of environmental factors — such as better education, hygiene and nutrition — and may mask the true decline in genetically inherited intelligence in the Western world.

This new research was published in the April 13 issue of Intelligence.

There are several theories for why we are getting dumber, including the following (the first 2 come from the HuffPost article):

(1) Dr. Jan te Nijenhuis points to the fact that women of high intelligence tend to have fewer children than do women of lower intelligence. This negative association between I.Q. and fertility has been demonstrated time and again in research over the last century.

(2) “The reduction in human intelligence … would have begun at the time that genetic selection became more relaxed,” Dr. Gerald Crabtree, professor of pathology and developmental biology at Stanford University, told The Huffington Post in an email. “I projected this occurred as our ancestors began to live in more supportive high density societies (cities) and had access to a steady supply of food. Both of these might have resulted from the invention of agriculture, which occurred about 5,000 to 12,000 years ago.”

(3) Humans evolved to eat a lot of Omega 3s:

Wild game animals have much higher levels of essential Omega 3 fatty acids than domesticated animals. Indeed, leading nutritionists say that humans evolved to consume a lot of Omega 3 fatty acids in the wild game and fish which they ate (more), and that a low Omega 3 diet is a very new trend within the last 100 years or so.

In other words, while omega 3s have just now been discovered by modern science, we evolved to get a lot of omega 3s … and if we just eat a modern, fast food diet without getting enough omega 3s, it can cause all sorts of health problems.

So something just discovered by science can be a central fuel which our bodies evolved to use.

Omega 3s – in turn – boosts intelligence and help prevent cognitive decline.

(4) Exercise boosts intelligence … and our ancestors got a lot more exercise than we do!

In addition, high levels of cortisol – the chemical released by the body when one is under continuous, unrelenting stress – and poverty can physically impair the brain and people’s ability to learn.

On the other hand, relaxing activities like meditation and prayer have been shown to increase brain mass and connectivity in certain areas of the brain.

Hunter-gatherers had more leisure time – and a more playful attitude – than we do today.

(5) Toxic chemicals in the environment can reduce intelligence. Examples include flame retardant, lead (found in many lipsticks), certain pesticides (and see this and this), and fluoride.

Deleveraging, Releveraging And Finding The New Saturation Point

Tyler Durden — Wed, 22 May 2013 23:31:17 +0000

Submitted by F.F.Wiley of Cyniconomics blog,

Do you need a break from public policy buzzwords? Are you happy to go back to the days when cliffs were discussed occasionally on the National Geographic channel but not analyzed ad nauseum on CNBC? Are you tired of reading about austerity, austerians, anti-austerians and austeresis?

Okay, I may have made up the last one, but you’ve come to the right place.

Well, sort of.

I won’t do away with buzzwords altogether, but I’ll recycle an old one that’s faded from public discussion. Before cliff took its new meaning and austerity spawned a new branch of etymology, we had deleveraging.

It wasn’t that far back that everyone wanted to know: How much longer will deleveraging constrain growth? And the presumption seemed to be that deleveraging was a good thing. Most people agreed on these two points:

With debt having reached a saturation point during the housing boom, deleveraging needs to occur.
The economy will be on a stronger footing once it’s behind us.

Today, it still seems reasonable to ask how much longer deleveraging will play out. But after four years of painfully slow expansion, we should start by asking how much progress has been made. Is deleveraging well on its way, just getting started, or somewhere in between?

Or, as stated in the Length Fallacy Challenge that I introduced in March (see diagram): How long have we been deleveraging?

As in the other articles in the Challenge, I’ll share data that helps to answer the question, and then I’ll choose from the options on the right-hand-side. In later articles, I’ll explain how the answers tie together and offer my interpretation on what they mean for our economy.

Tracking economy-wide debt from the Great Recession to today

To keep it simple, my charts consider only three points in time:

December 2007 (the beginning of the Great Recession)
June 2009 (the end of the Great Recession)
December 2012 (the most recent data)

Chart 1 shows that households and nonfinancial businesses reduced their aggregate debt from 175% of GDP in December 2007 to 163% in December 2012. But this fall in private sector borrowing was more than offset by increased government borrowing. Total debt for households, nonfinancial businesses and government is now significantly higher than it was at the start of the Great Recession. It jumped by 19% of GDP while the recession was underway and then edged up another 6% through December 2012, for a total gain of 25%.

(This is a slightly bigger increase than you would find if you worked with only the Federal Reserve’s oft-cited Flow of Funds Accounts, with the difference explained by the government category. The Fed’s total excludes IOUs awarded to government trust funds – following the precedent set by the Office of Management and Budget – even though these IOUs fit every reasonable definition of debt, as I discussed here. I’ve added the IOUs back into the totals.)

If we relied on these figures alone, we would say the economy has more debt than it did five years ago.

But what about the financial sector, which isn’t included in the first chart?

Financial institutions have clearly reduced leverage since the end of the housing boom, primarily by cutting back shadow banking. As shown in Chart 2, their debt fell from 116% of GDP in December 2007 to 88% in December 2012.

Once again, though, the drop in private debt is at least partially offset by the public sector. And the public sector is comprised of the one bank that the Fed doesn’t include in its financial sector totals: Itself. In other words, the most powerful bank of all.

Now, you may question my aggregation of the Fed’s liabilities with private bank debt, on the basis that the Fed doesn’t issue traditional debt when expanding its balance sheet. But the Fed’s increasing leverage is every bit as powerful as traditional debt issuance, and more, since it allows private banks to increase their leverage. The excess bank reserves that the Fed creates out of thin air are economically similar to callable loans. They even pay interest these days.

The Fed’s balance sheet expansion has lessened but hasn’t prevented a drop in financial sector leverage, which is now lower than it was at any time in the Great Recession. But from the first chart, we saw that debt for the rest of the economy is now higher than it was during the Great Recession. This leaves us one more step: adding up the figures from the two charts.

Here are the totals across all sectors:

I can see two possible interpretations for Chart 3. The first is that debt fell after the end of the Great Recession, and therefore, the economy has slowly deleveraged. The deleveraging began in the fourth quarter of 2009, and since then, debt fell at an average annual rate of 6% of GDP. This interpretation is mildly encouraging, but I don’t agree with it.

Consider that the leverage added during the Great Recession is almost entirely explained by public policies, including unprecedented amounts of peacetime deficit spending and central bank balance sheet expansion. And that these public policies were intended as emergency and temporary measures. At least, that was the story at the time and it remains so today, even though both the government’s deficit and the Fed’s balance sheet are still abnormally large.

What I’m saying is that the economy hasn’t fundamentally deleveraged by simply reversing the jump in debt during the Great Recession. That increase in debt was reactive and intended to be short-lived. A better test is whether debt is lower today than it was when we hit the wall at the start of the recession. The last chart shows that it’s not.

Finding the new saturation point

According to this second interpretation, the discussion about deleveraging is far from over. Debt reached its saturation point in 2007, and we resolved that predicament by pushing the saturation point higher, which is what happens when you replace private with public borrowing.

Today, we’re relying more than ever on the “full faith and credit” of the U.S. government – the last line of defense when it comes to preserving our hugely levered economy. We’ve made room to take on more debt, but we don’t know how much room.

I’ll put it in Hollywood terms by taking you back to the 1979 classic, Alien (but don’t click on the links if you’re squeamish):

You’re standing with Warrant Officer Ripley (Sigourney Weaver) and the rest of the Nostromo’s crew and you’ve just had your first encounter with the “facehugger” alien. That was the global financial crisis. You’re now recovering and planning your next move. The alien’s still out there, you just don’t know exactly where it is and in what form. In other words, the next crisis could be worse. (But you’re hoping the alien doesn’t reappear in the same way as the facehugger’s spawn.)

I know, overdramatic, but it seems to fit. And you have to admit: If there were an alien version of the financial sector, or at least our too-big-to-fail banks, the facehugger might be it.

In other articles in this series, I’m taking a shot at locating the alien, by estimating the point where public debt reaches saturation. (See here, for example.)

But getting back to the question, “How long have we been deleveraging?” – I’ll answer “zero years.” As in, what deleveraging? We haven’t even gotten started yet.

Try This Experiment Yourself...

Tyler Durden — Wed, 22 May 2013 22:48:13 +0000

Submitted by Tim Price via Sovereign Man blog,

James Montier’s bible on behavioural finance, ‘Behavioural investing’, points out two recent discoveries by neuroscientists that have relevance to all investors:

1) We are hard-wired to think short-term, not long-term
2) We also seem to be hard-wired to confirm to the herd mentality

A particularly intriguing experiment used by Montier to illustrate these points relates to our tendency towards ‘anchoring’.

In his words, anchoring is “our tendency to grab hold of irrelevant and often subliminal inputs in the face of uncertainty.”

Feel free to follow the experiment yourself:

1. Write down the last four digits of your telephone number.
2. Is the number of physicians in London higher or lower than this number?
3. What is your best guess as to the number of physicians in London?

The idea of this experiment is to see whether respondents are influenced by their phone number while estimating the number of doctors in London. The results of the experiment can be seen below:

As the chart indicates, respondents with last-four telephone digits above 7-0-0-0 suggested, on average, that there were just over 8,000 doctors in London. Those with telephone digits below 3-0-0-0 suggested 4,000 doctors.

As Montier concludes, “This represents a very clear difference of opinion driven by the fact that investors are using their telephone numbers, albeit subconsciously, as inputs into their forecast.”

So our thesis goes as follows. In the absence of reliable knowledge about the future, investors have a tendency to anchor onto something – anything – to help them predict future market returns.

And what better anchor to use for future market returns than prior ones?

This is where the story gets more intriguing.

When looking at the UK stock market in discrete 20-year blocks, the period from 1980-1999 is the only one in the last 300-years in which inflation-adjusted returns averaged between 8% and 10% per year.

We think the story gets more intriguing still, because a good part of those returns was somewhat illusory in nature.

More specifically, given that they occurred during a once-in-a-century period of extraordinary credit creation, those market returns were in large part borrowed from the future.

This is the same way that governments have been funded, and their colossal bond markets serviced– by essentially loading the ultimate cost and the final reckoning onto the next generation.

So it seems that investors are not anchoring their predictions of future market returns to the past, because, as the data shows, long-term real returns have been quite low.

Instead, investors are anchoring their predictions to the very recent past that they have direct experience with, i.e. the twenty-year period between 1980 and 1999, even though this period was an anomaly compared to the last 300-years.

If this thesis is even half correct, investors piling into stocks now on the premise of recapturing some of those 8% – 10% real annual returns, are being at least somewhat delusional.

The credit bubble has burst. Messily. The stock market has not necessarily woken up to the fact. This does not detract from the sensible analysis of equity market opportunities.

But for any investment, its most important characteristic is its starting valuation. Buy attractive equities at sufficiently undemanding multiples and you should rightly expect to do well.

Investors, however, seem to be anchoring their market predictions to recent returns of the past, therefore buying ‘the index’ expensively, inclusive of a grotesque bubble of credit. One can expect this to end in a train wreck.

Eric Holder Admits To First Americans Killed By Drone Strikes

Tyler Durden — Wed, 22 May 2013 22:04:42 +0000

In a letter to Congress (below), AG Eric Holder admitted that the administration deliberately killed American Anwar al-Awlaki (the radical Muslim cleric) in a drone strike in September 2011 adding, as the NY Times reports, "the decision to target Anwar al-Awlaki was lawful, it was considered, and it was just." As RT notes, there was collateral damage, as it has been widely reported but rarely acknowledged in Washington that two other US citizens - Samir Khan, and al-Awlaki's teenage son, Abdulrahman al-Awlaki - were executed in that same Yemen strike. With Holder’s latest admission, however, a fourth American - Jude Mohammed - has also been officially named a casualty of America’s continuing drone war; bringing the total 'known' Americans killed under the US Drone War to 4 since 2009.

Via NY Times,

One day before President Obama is due to deliver a major speech on national security, his administration on Wednesday formally acknowledged that the United States had killed four American citizens in drone strikes in Yemen and Pakistan.

...

The American responsibility for Mr. Awlaki’s death has been widely reported, but the administration had until now refused to confirm or deny it.

The letter also said that the United States had killed three other Americans: Samir Khan, who was killed in the same strike; Mr. Awlaki’s son Abdulrahman al-Awlaki, who was also killed in Yemen; and Jude Mohammed, who was killed in a strike in Pakistan.

...

According to former acquaintances of Mr. Mohammed in North Carolina, he
appears to have been killed in a November 2011 drone strike in South
Waziristan, in Pakistan’s tribal area. Mr. Mohammed’s wife, whom he had
met and married in Pakistan, subsequently called his mother in North
Carolina to tell her of his death, the friends say.

...

“These individuals were not specifically targeted by the United States,” Mr. Holder wrote

...

Via Russia Today,

“The administration is determined to continue these extensive outreach efforts to communicate with the American people,” continued Holder. “To this end, the president has directed me to disclose certain information that until now has been properly classified..."

...

As part of the vaguely defined ‘War on Terror,’ the US has reportedly waged drone strikes outside of Afghanistan where the Taliban once harbored al-Qaeda. In recent years, those strikes have targeted towns in neighboring Pakistan, as well as Yemen, Somalia and perhaps elsewhere.

But despite growing criticism over escalating use of drones, the president and his office has remained adamant about defending the operations. It’s “important for everybody to understand that this thing is kept on a very tight leash,” Obama said last January, adding that his administration does not conduct "a whole bunch of strikes willy-nilly.”

Full AG Letter:

ag-letter-5-22-13