Tuesday, March 11, 2014 - The Next Wave

The Next Wave

by Sinclair Noe

DOW – 67 = 16,351
SPX – 9 = 1867
NAS– 27 = 4307
10 YR YLD - .02 = 2.76%
OIL – 1.60 = 99.52
GOLD + 9.70 = 1350.50
SILV + .05 = 20.99

Stocks were higher for most of the day, with the S&P 500 looking at record territory. Prices dropped as the session wore on. Copper futures slid as much as 3 percent to the lowest level since July 2010 as signs of slowing economic growth in China sparked concern demand will slump. (We told you about that yesterday.)

Yesterday we marked the 5 year anniversary of the bull market and the 14 year anniversary of the bear market. Today, we remember the date 3 years ago, when the ground shook and a wave washed over the eastern shore of Japan. The Fukushima Daiichi nuclear plant, which exploded and underwent three core meltdowns, continues to spew radiation into the air and sea. Decommissioning is expected to take decades. Another earthquake could send radioactive fuel rods into another meltdown. There are still questions about whether to re-start other nuclear facilities in Japan that were idled following the disaster at Fukushima. Demonstrators have been marching by the thousands in Tokyo to mark the anniversary and to protest against nukes. Perhaps the most troubling thing is after three years there is no full explanation on what went wrong at Fukushima, and how to avoid a recurrence.

The situation in Ukraine remains on the verge of a meltdown. Diplomatic talks continue but there is no breakthrough. The US continues to look to sanctions to apply pressure; maybe it will have an effect, maybe not. Ukraine says Russia has almost 19,000 soldiers in Crimea, which holds a referendum on March 16 on whether to secede. Ukraine is trying to gather 20,000 troops to defend its border, or its new border. The European Union told Russia it must switch course in Crimea by next week or risk more sanctions as Ukraine’s deposed president warned of a possible civil war.

Keep in mind that when you hear news reports on Ukraine, the back story is about oil. In industrial civilization, the nation that controls the oil is king. Russia has a lot of oil and natural gas but to get it to market they have built a network of pipelines through Ukraine. The Eurozone relies on Russian nat gas to stay warm. The United States has ramped up oil and gas exploration like crazy; it’s supposed to launch a renaissance in American manufacturing, or it could just make a boatload of money for big oil companies, if they can put the nat gas in tankers and ship it over to Europe.

Remember the war in Iraq was about oil. We were told that Iraqi oil  would pay for the war; not yet. Alan Greenspan told at least one truth in his life: "I hate to have to admit what everybody knows. Iraq is about oil." Today, we can say that Ukraine is certainly about oil and nat gas, but it’s not just oil and gas. The 100 largest arms producers and military services contractors recorded $395 billion in arms sales in 2012. And military spending was down in 2012.

The problem is not just Ukraine; there were street protests in Turkey today after a 15-year old boy died; he had been in a coma after being hit in the head by a tear gas canister fired by police at a street demonstration almost 9 months ago. Don’t forget the problems in Thailand, Venezuela, Argentina, Egypt, Bulgaria, and of course Syria; and that’s just a partial list. Consider the massive, ongoing street protests, strikes and acts of civil disobedience in Spain, Portugal, Italy, Greece, and the Netherlands by the angry, austerity ravaged citizens fueled by near daily doses of political scandals and corruption.

The world’s youth are the fuel behind the protests; that’s what happens when unemployment gets too high; young people lose jobs or can’t get jobs; they are restless and distrustful and very energetic. Around the globe, growing class warfare is showing itself in a backlash against oppressive political power and a global economic system that is clearly rigged; everything is rigged. Part of the problem with a rigged system, is it has a tendency to spiral out of control. Today’s case in point, the CIA.

Senator Diane Feinstein today accused the CIA of spying on Congress. Feinstein, chairwoman of the Senate Intelligence Committee, said the CIA searched the panel's computers to find out how staff obtained an internal agency review of Bush-era interrogation and detention program that was more critical of the interrogation program than the official CIA report. CIA Director John Brennan denied the allegations. Feinstein also referred openly to recent attempts by the CIA to remove documents from the network detailing evidence of torture that would incriminate intelligence officers. She also alleged that anonymous CIA officials were effectively conducting a smear campaign in the media to discredit and “intimidate” Senate staff by suggesting they had hacked into the agency’s computers to obtain a separate, critical internal report on the torture practices.

Feinstein said the document, which has become known as the Panetta Review after then-director of the CIA Leon Panetta, was first discovered by committee staff using CIA-provided search tools in 2010. It became particularly relevant later, after the committee completed a 6,300-page report in December 2012, and the CIA sent its official response in June 2013. The committee's detailed report is still classified, but it is known to be highly critical of both the CIA's role in the torture regime and its campaign to deceive Congress about it.

Based on the CIA's extensive record of removal and destruction of evidence, which Feinstein detailed in her floor speech, committee staff decided "there was a need to preserve and protect" a copy of the review, which meant bringing it back from the CIA-leased offices in Virginia where staff had been forced to conduct their investigation to secure facilities in a Senate office building. Feinstein said in January of this year, John Brennan, the current director of the CIA, informed her that CIA personnel had conducted a search of the committee's computers in the Virginia facility, including the standalone network that contained the committee staff's own internal work product and communication.

Besides the constitutional implications, the CIA search may also have violated the Fourth Amendment, the Computer Fraud and Abuse Act, as well as Executive Order 12333, which prohibits the CIA from conducting domestic searches or surveillance.

Welcome to America. It’s bad news to hear that Congress is being hacked by the CIA, but hey, most regular citizens have come to realize the government is hacking everything we do online. That’s what big data is all about. Maybe you should call your Congressional representative and tell them welcome to America.

Send a check first; if you actually want to talk to your representative, that is.

Remember back in 2010, when the Supreme Court opened the door, hell they flung the gates wide open on big spending by outside groups, rejecting the argument that such unlimited contributions by corporations and other entities would tilt the political system away from average citizens. In his opinion for the majority, Justice Anthony Kennedy agreed with the view that "independent expenditures do not lead to, or create the appearance of, quid pro quo corruption. In fact, there is only scant evidence that independent expenditures even ingratiate."

Yeah, right. Well a couple of grad students finally put Citizens United to the test. And this might shock you, but they found that money truly does equal access. Their study found campaign donors are more likely than regular constituents to get meetings with lawmakers or high-ranking officials.

Another new study reveals why the Federal Reserve was totally unprepared for the financial crisis of 2008. The study says the Fed's policy committee is made up almost entirely of economists who study the world one piece of data at a time, cranking each piece into models that they think will magically predict how the economy is going to perform. They are unable to look beyond the data to see how seemingly disparate pieces of evidence might fit together into a bigger picture.

The study finds that policymakers dismissed worst case scenarios and basically stuck with conventional wisdom. The study authors wrote: "The relevant markets were not a product of the relevant models; to the contrary, there was a complete disjuncture between market and model, each seemingly operating according to its own logic."

And the study suggests the Fed might want to bring on some non-economists as policymakers, somebody who could rock the boat a little. But the study finishes on a slightly pessimistic or realistic note: “Not surprisingly, since the events of 2008, nothing has changed on the FOMC. The next time such a complex unraveling begins to occur, one can expect the same result."

What we do know is there will be another earthquake, there will be another bear market; we know that there will be more wars over oil; we know that spies spy on us and if they spy on us, they are likely to spy on Congress; we know that politicians have their hands out and they take bribes and they call it campaign contributions, and that bribery buys favors; we know that economics requires coming down from your ivy covered tower and actually getting your hands dirty from time to time to see how regular people live in a world that does not fit neatly on a spreadsheet. We know there will be another tsunami, we just don’t know when or where, and we don’t know how bad the fallout will be.