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From 9/11 To PRISMgate - How The Carlyle Group LBO'd The World's Secrets

The short but profitable tale of how 483,000 private individual have "top secret" access to the nation's most non-public information begins in 2001. "After 9/11, intelligence budgets were increased, new people needed to be hired, it was a lot easier to go to the private sector and get people off the shelf," and sure enough firms like Booz Allen Hamilton - still two-thirds owned by the deeply-tied-to-international-governments investment firm The Carlyle Group - took full advantage of Congress' desire to shrink federal agencies and their budgets by enabling outside consultants (already primed with their $4,000 cost 'security clearances') to fulfill the needs of an ever-more-encroaching-on-privacy administration.

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BoJ Disappoints! Nikkei Drops 500 Points From Earlier Highs

UPDATE: Nikkei futures now -500 from US day-session highs

In what must be quite a surprise to Goldman (as we discussed here), the BoJ has decided not to give in to the market's demands:


The market's angry reaction... NKY -400 from US day-session highs, USDJPY gapped down 80 pips to 98.00, JGB Futs closed, JGBs unch. Full statement to follow:

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"Will Obama See Out His Full Term?"

It seems the question on many people's minds, as scandal after scandal crashes on the shores of Obama's White House is best summed up by The Telegraph's Damian Thompson. Yet another non-US paper asks, will Obama last the duration of his second term in a surveillance context where what has been revealed is said to be worse than Watergate.

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Capital Markets Volatility: Surveillance And The Psychology Of Observation

All the news recently about the U.S. government’s telephone and online surveillance programs got ConvergEx's Nick Colas thinking about a rich academic field: the psychology of observation.  How do observers differ from actual actors in their explanations of events they either witness or in which they actually participate?  Scores of academic studies point to a key difference.  Actors tend to attribute their decisions to situation-specific inputs.  Those observing these actions, by contrast, tend to ascribe their ultimate cause as tied to the personality of the actors involved.  Same destination, but radically different interpretations of the journey.  Even the process of being watched can change human behavior.  Bottom line – observers and actors are rarely on the same planet, let alone the same page, when it comes to explaining a given event.  Keep that in mind as you try to understand Fed policy, or a company’s management, or even your own family.

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Inside Story: Gold, Trust, And The Federal Reserve - The Video Documentary

From the inside of the Federal Reserve's gold vault (where we are told one quarter of the world's bullion resides) to NYC's diamond district and the gold-dealers on the streets, this NatGeo documentary is a fascinating walk through the reality of trust, money, and gold. As the narrator notes, "the Fed's discretion is so trusted that few depositors have ever asked to see if their gold is still here," except of course Germany now that is, adding (from the exact opposite perspective to the man that runs the building) that, "for thousands of years people used gold as money... it's the perfect recyclable money...." The must-watch video then progresses to the reality of our financial world where he explains, the trillions in money that is transacted every day "used to be backed gold, but is now supported by the promise of our government... The fact that it all works based on trust alone is simply taken for granted," leaving the ominous question of "who is in charge" of that 'trust'? Cue Ben Bernanke - who answers the question of what the world would look like without a Fed... bank runs, stock market crashes, and financial chaos.

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Revolution 2.0: If History Is Any Guide, It's Only Going To Get Worse

The list of egregious offenses by current governments reads like a modern day version of the Declaration of Independence, in which Thomas Jefferson so eloquently lists the British King's "long train of abuses", including:

  • He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.
  • He has obstructed the Administration of Justice
  • He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny
  • For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments

Sound familiar? History shows that desperate, insolvent nations almost INVARIABLY resort to vain attempts at despotic control - capital controls, wage and price controls, border controls, people controls. And the worse things get, the more destructive the tactics become.

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For Anyone Who Still Thinks Earnings Matter

As Mike Tyson once ominously noted, "everyone has a plan until they get punched in the face," and it seems the rampage of equity bulls have some plan that many more prosaic fundamental analysis-based investors are unaware of (as we showed here). The 'punch' in the face will come; but in the meantime the following chart may be just the 'jab' that softens them up. As ThomsonReuters notes, of the 116 second-quarter earnings pre-announcements given by S&P 500 companies, 93 of them have been negative, while only 14 have been positive. The resulting 6.6 negative to positive guidance ratio is the most negative since the first quarter of 2001. Nothing to see here, move along.

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Guest Post: Social Security: The New Deal’s Fiscal Ponzi

The New Deal social insurance philosophers thus struck a Faustian bargain... To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse. The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. The puzzling thing is that 75 years later - with all the terrible facts fully known - the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.

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Monday Humor #1: It's Funny 'Coz It's True

When you just have to laugh...

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Majority Of Americans Don't Mind Being Spied Upon, Pew Study Finds

In what is likely the most disappointing, if not unexpected, news of the day, we find that according to a just released Pew Research study, a substantial majority, or 56% of Americans, "say the National Security Agency’s (NSA) program tracking the telephone records of millions of Americans is an acceptable way for the government to investigate terrorism." Only 41% object to having every phone conversation intercepted, investigated, analyzed, and recorded for posterity. Sorry Edward Snowden: you just threw your life away for nothing. The sheep have been properly and thoroughly conditioned and brainwashed, which is why they continue to get precisely the government they so rightfully deserve.

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Charles Gave Warns: "Should The Fed Lose Control, The Downside Move In Markets May Be Terrifying"

"By propping up asset markets, the Fed has created an illusion that wealth is being created. The next step, according to Bernanke’s plan,  should be for growth to follow. In fact, there is no reason why the rise in prices of financial assets should lead to actual investments or a rise in the median income. So far, it has not. There has been no real increase in the private sector propensity to borrow, and the danger may be that any further public sector borrowing will hasten the decline because of our “permanent asset hypothesis”. This means that, should the Fed lose control of asset prices (is this what is now happening in Japan?), then the game will be up and the downside move in markets may well be terrifying."

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Bank Employee Falls Asleep On Keyboard, Transfers €222,222,222.22 By Mistake

Think only coked up and hyper hedgefund traders pose a systemic risk? As this AFP story reveals, somnolent, undercaffeinated tellers can be just as threatening to the global flow of funds. A "German bank employee fell asleep on his keyboard and accidentally transformed a minor transfer into a 222 million euro ($293 million) order, a court heard Monday. The Hessen labour court heard that the man was supposed to transfer just 62.40 euros from a bank account belonging to a retiree, but instead "fell asleep for an instant, while pushing onto the number 2 key on the keyboard" -- making it a huge 222,222,222.22 euro order." Nearly a third of a billion mistake blamed on a "sleepy finger?" That's a new one...

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Stocks Pop And Credit Markets Drop As Hindenburg Omen Re-Appears

The cluster of Omens is starting to build - now 3 in the last 7 trading days. This cluster is now the most frequent since the 2007 highs - more 'clustery' than the 2010 signals. Volume today was dismal - among the lowest of the year in both futures and cash. Equity markets were bid out of the gate on the back of Japanese exuberance - and JPY carry - which oddly hadn't helped European risk markets. Credit markets, which decoupled from equity's reality around lunchtime Friday - were on a one-way street wider today - entirely ignoring equity's efforts at exuberance. The USD saw earlier (JPY weakness-driven) gains entirely unwound by the close and ended unchanged but gold (small gain) and silver (+1.1%) outperformed as WTI limped modestly lower. Treasuries added 3-4bps in yield (up around 16bps from Friday's low yields). VIX also didn't play along with equity's general lack of direction and rose 0.5 vols to 15.5%. Homebuilders are underperforming once again but financials remain the best performers off Friday's lows (for now). Nikkei futures did nothing all day - hovering at last week's dead-cat-bounce highs.

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The 4 Charts Your Friendly Equity Hedge Fund Manager Does Not Want You To See

A funny thing happens when there is only one driver of economic market growth, any chance of intelligent fact-based, logic-induced, fundamental-biased investing becomes reduced to the rubble of momentum-chasing leveraged beta. No matter how much your 2-and-20 taking manager explains his 'process', the charts below show that the thundering herd of 'dumb' money that used to be so useful in identifying the extremes of market hubris and dysphoria appear to have overwhelmed the world of 'smart' money. Hedge funds have never been more net long US equities; hedge fund returns have never been more correlated to the market; hedge funds have never produced so little alpha; and hedge funds are as leveraged to this beta as they were at the top in 2007. This will not end well...

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The New Normal America: A Country Where Eating And Drinking Is The New Manufacturing

For a long time we have been seeking a chart that captures the pure essence of America's transition into its "new normal" mutant clone, in which record high stock markets coexist with record high foodstamp usage; in which record public debt amounts coexist with record low interest rates; in which the Fed is responsible for 20% of the US GDP but which is forgiven if it means the second coming of a housing bubble giving people the false hope of another "flip that house" get rich scheme. We believe we have found it. On the chart below we show the number of US manufacturing workers over the past decade (currently at levels first seen in 1941) on one axis; and the number of bar and restaurant employees - currently at an all time high - on the other. For those asking, in the past year the US has added 366,700 "food service and drinking places" employees and a whopping... 41,000 manufacturing workers.


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