Thursday, April 17, 2014 - The Growth Industry for the Next 20 Years

The Growth Industry for the Next 20 Years

by Sinclair Noe

DOW – 16 = 16,408
SPX + 2 = 1864
NAS + 9 = 4095
10 YR YLD + .08 = 2.72%
OIL + .83 = 104.59
GOLD – 7.60 = 1295.60
SILV + .02 = 19.75

Stocks ended a holiday-shortened week with mixed results. Stock markets will be closed tomorrow in observance of Good Friday. The S&P 500 had its best week since last July. For the week, the Dow rose 2.4%, the S&P 500 added 2.7% and the Nasdaq advanced 2.4%.

With less than one-fifth of S&P 500 companies having reported results so far, about 63% have topped earnings expectations and 52% have topped revenue expectations. Of course that’s part of the dance between corporations and analysts, but it does move stock prices. For example, Goldman Sachs reported an 11% drop in quarterly profit and revenue fell 8%, but the results were better than estimates and share price was higher on the day.  Among the other earnings related movers today, Google, IBM, Mattel, and United Health were down on poor earnings news, while Morgan Stanley, GE and Pepsi moved higher.

The number of Americans filing new claims for unemployment benefits rose less than expected in the latest week and came near pre-recession levels. The Labor Department also reports weekly earnings of the typical full-time worker rose 3% in the first quarter compared to a year earlier, the fastest pace since 2008. Median earnings came in at $796, that’s the point where half of all workers made more and half made less. This means that earnings growth is now outpacing inflation in consumer prices, which increased at 1.4%. Earnings that rise faster than costs mean workers will have more money to spend on discretionary purchases, or maybe to shore up their personal finances.

This might indicate that the labor market is getting tighter, or at least working through some of the slack, as companies have to pay a bit more to retain or attract workers. Consumers that spend more, boost business profits, which means companies respond by producing more, which means more hiring and an even tighter labor market, which leads to higher worker earnings. Of course, this is just one report, and one report does not make a trend.

One of the reasons it might not be a trend is that the income is not evenly distributed. Recent Labor Department research shows that the top 20% of earners accounted for more than 80% of the rise in household income from 2008-2012. Income fell for the bottom 20%. That had a direct impact on spending. The top households increased spending by about $2,300 from 2008-2012, notably on health care, transportation and education. The 20% of households with the lowest incomes cut spending by about $150.

Top diplomats from Ukraine, Russia, the European Union and the United States have agreed on a set of measures to ease mounting tensions in eastern Ukraine. In Geneva today, Secretary of State John Kerry said the measures include disarming pro-Russian militants occupying buildings in eastern Ukraine and the return of the buildings to their legitimate owners. A joint statement from the four powers says amnesty will be granted to protesters who surrender weapons and leave the buildings, except for those found guilty of capital crimes.

Speaking at the White House, President Obama said he hopes Russia will honor the agreement but he also said that given past practices, there are no assurances of cooperation from Moscow. He said the administration is holding talks with European allies about possible new sanctions if Russia reneges on the deal.  The agreement does not specifically require Moscow to withdraw 40,000 troops massed on its border with Ukraine, and does not reference Russia's annexation of Ukraine's Crimean peninsula last month. It also does not obligate Moscow to hold direct talks with the interim government in Kiev. Peace monitors will be put in place and dialogue will continue, but this is a very real diplomatic move toward de-escalation. That’s good.

This has been a most unusual geopolitical act of aggression in Ukraine; it has revealed the use of sanctions as an economic weapon going up against the threat of cutting off natural gas supplies as an energy weapon.

In Russia, the economic costs have been masked by recent patriotic fervor but could soon haunt the Kremlin, as prices rise, wages stall and consumer confidence erodes; the major Russian stock market index dropped 10% in March; by some accounts, more than $70 billion in capital has fled the country so far this year; key interest rates jumped to 7% from 5.5% to combat inflation and support the ruble, a step that could slow growth; and unemployment has spiked. Beyond the whipped up patriotic fervor there isn’t much reason for Russians to feel good about their situation. The only thing positive for the Russian economy is its energy supplies.

And when Russia intervened in Crimea, they threatened to turn off the energy supply to Ukraine and Europe. The clock is ticking. Europe has about 6 months before the cold weather returns, to wean themselves from dependence on Russian nat gas.

One way to replace Russian gas is through home-grown renewable energy production. Today, the Ukrainian embassy in Washington DC hosted officials from the renewable energy industry to try and lure investment in green energy such as solar, wind, and biofuels. It will be interesting to see where this goes.

The oil industry would like to take the crisis in Ukraine and use it as an opportunity to flood the European market with fracked-in-the-USA natural gas. For this ploy to work, it's important not to look too closely at details. Like the fact that much of the gas probably won't make it to Europe because any gas fracked in the US would actually be sold on the world market to any country belonging to the World Trade Organization.

Plus, it would require massive infrastructure bailout in Ukraine and Europe; a single LNG terminal can cost $7 billion and it still requires massive infrastructure beyond the terminal. There could be a couple of very cold winters in Europe before those massive industrial projects are up and running.

Plus, there is the environmental problem of even more fracking in the US; Americans might put up with fracking in their own back yard if it results in energy independence and more jobs, but when you switch the argument to energy security for Ukraine and Europe, it becomes a tougher sell.

Plus, there is the concern about expanding fracking in light of the recent studies coming out in very plain and blunt language stating the climate is changing and fracking and burning carbon based fuels is a huge culprit. The gas industry itself, in 1981, came up with the clever pitch that natural gas was a "bridge" to a clean energy future. That was 33 years ago. That’s a long bridge.., to nowhere.

The answer is in renewable energy sources. If Russia wasn’t threatening to take away the nat gas, nobody would pay any attention to Putin. Real energy independence is also energy security, and it will be impossible to achieve as long as we rely on the oil and gas industry. So, how long would it take to become energy independent? Less than you might imagine.

It would take a big change in thinking and in political will, but we’ve done it before. During World War II, the US retooled automobile factories to produce 300,000 aircraft, and other countries produced 485,000 more. In 1956 the US began building the Interstate Highway System which eventually extended more than 47,000 miles and changed commerce and society. Clean technology is the answer, and not just because fossil fuels are cooking the planet but because the clean tech is more efficient.

Today the maximum power consumed worldwide at any given moment is about 12.5 trillion watts, according to the US Energy Information Administration. The agency projects that in 2030 the world will need almost 17 trillion watts of power as the global population and living standards rise, with almost 3 trillion watts being consumed by the US. That forecast is based on the idea that we continue with the current mix of energy sources we use today, which is heavily dependent on fossil fuels.

If, however, the planet were powered by clean technology, with no fossil fuel or biomass combustion, an intriguing savings would occur. Global power demand would only be about 11.5 trillion watts and the US demand would drop to only about 1.8 trillion watts. That means that in 2030, we would need less wattage than we need today; and that decline occurs because, in most cases, electrification is a more efficient use of energy. For example, less than 20% of the energy in gasoline is used to move a vehicle and the rest is wasted as heat, whereas 85% of electricity delivered to an electric vehicle is used to provide motion.

Of course clean technology would require massive infrastructure investment as well. The good news is that it is not money handed out by government or consumers but rather an investment that is paid back through the sale of electricity and energy, and because of the efficiencies and the advances in the technologies, it is cheaper than fossil fuel based energy. Energy will be the growth industry of the next 20 years; it is essential for a growing population and a standard of living; and as Putin’s intervention in Crimea has reminded us, it is essential for geopolitical stability.

Monday, March 03, 2013 - Carry On

Carry On
by Sinclair Noe

DOW – 153 = 16,168
SPX – 13 = 1845
NAS – 30 = 4277
10 YR YLD - .05 = 2.60%
OIL + 2.20 = 104.79
GOLD + 21.70 = 1351.30
SILV + .18 = 21.51

Manufacturing expanded at a faster pace than projected in February. The Institute for Supply Management’s (ISM) manufacturing index rose to 53.2 from 51.3 in January. A reading above 50 indicates expansion in manufacturing activity.

Consumer spending in the US climbed more than forecast in January, reflecting the biggest increase in services in over 12 years. Household purchases rose 0.4%, after a 0.1% gain the prior month. Disposable income, or the money left over after taxes, rose 0.3% after adjusting for inflation. It dropped 0.2% in the prior month and was up 2.8% from January 2013. The saving rate was 4.3% in January, unchanged from the prior month. Wages and salaries increased 0.2% after dropping 0.1% in December.

The big economic report this week will be the monthly jobs report on Friday.

Faster than you can say “the Russians are coming”, they invaded Ukraine. Moscow now has operational control of the Crimean Peninsula, with about 6,000 airborne and ground troops. Russia has military bases on the Red Sea, but the troops have gone off base. The Russians have just taken over without any real fighting; indeed, many Crimeans are sympathetic to Russia.

Ukraine has a large Russian ethnic minority, which it inherited mainly as the result of Soviet policies, including a re-drawing of the inner map of the Union by giving members like Ukraine territories, which historically had little connection to Ukrainians. The end result is that roughly one in four Ukrainian citizens speaks Russian as their mother language. Given that these people were there before an independent state of Ukraine emerged, they are what is considered an historic minority.

 The new government in the Ukraine says the Russians have demanded that Ukrainian forces in Crimea surrender within the next couple of hours or face an armed assault. The Russians deny any ultimatum, but they are in control in Crimea.

Investors sought safe havens in government bonds, pushing down yields of US and German government debt. The dollar gained against the euro and against the British pound, while the yen gained against the dollar as Japanese investors sold overseas investments and repatriated their funds. The Russian central bank announced a temporary 1.5% increase in its benchmark interest rate target, to 7%; the Russian ruble took a big hit, along with the Russian stock market, which dropped about 10%.

Global stock indices were down today with the Nikkei 225 stock average dropping 1.3%. The Hang Seng Index in Hong Kong fell 1.5%. The Euro Stoxx 50 index of euro zone blue chips closed down 3%, while the London benchmark FTSE 100 ended the day 1.5% lower. Companies that have business relationships with Russia and Ukraine were down today. European banks with exposure to Ukraine also fell. UniCredit, the Italian lender, fell 5%, while BNP Paribas of France declined more than 3%.

The MSCI Emerging Markets Index lost 1.7%.

The interim Ukrainian government is negotiating with the European Union, the United States and the International Monetary Fund for a bailout of as much as $35 billion to get it through the next two years. Ukraine has some fairly serious debt problems, and there is concern the International Monetary Fund will seek haircuts on the value of Ukrainian government debt, forcing bond holders to take big losses. 

Ukraine makes up only about 0.2% of global gross domestic product, but we know GDP is an imperfect measure of an economy. For example, it does not take into account that Russia has major pipelines that run through Ukraine, and the Ukrainians get half their natural gas supply from Russia, which has been offering the cash strapped Ukrainians a big discount. That could end or Russia could just cut off the supply altogether; and that could also cut supplies to the European Union. Gazprom supplied about 30 percent of Europe’s gas last year. Out of the roughly 14 trillion cubic feet the EU consumes per year, about 5 trillion cubic feet comes from Russia, and a large volume still flows through Ukraine, with no prospect of this changing for some years to come. If Russia ends contracts to supply Ukraine, it may have a knock-on impact on European supplies.

Secretary of State John Kerry will fly to Kiev on Tuesday, to meet Ukraine’s new government and display “strong support for Ukrainian sovereignty” Kerry, Obama and other senior officials spent the last 24 hours frantically attempting to rally an international coalition of countries to condemn Moscow over the Crimea invasion, and commit to economic sanctions in order to prevent a further advance into other pro-Russian parts of Ukraine. Obama spoke by phone with the British Prime Minister, David Cameron, Polish president Bronislaw Komorowski and the German chancellor, Angela Merkel.

The EU is saying that it will revise its relations with Russia if there is no de-escalation. European foreign ministers threatened to freeze visa liberalization and economic cooperation talks with Russia and boycott a Group of 8 summit in Sochi if Moscow did not take steps to “de-escalate” the situation by the Thursday summit. On the flip side, Moscow is so dependent on gas revenue that it will have little choice but to try to keep the fuel flowing; for the EU it would be foolish to see this escalate to conflict because it’s hard to fight with the lights and the heat turned off.

Entire countries can be paralyzed if the gas stops flowing for a prolonged period. There are no new projects meant to further lessen EU dependence on gas transiting through Ukraine coming on line for the next few years, and there are few viable alternatives to replace such a large volume of gas. The only option that remains if and when this gas flow is lost is to suffer the consequences. Given the EU's fragile economy, the consequences of taking another major hit would be disastrous.

It is expected that 2014 will be the year when the EU economy will finally return to sustained steady growth. It is not much, but given the economic environment of the past few years, growth in the 1-2% per year became something to be celebrated. Such a fragile economy cannot hope to withstand even minor energy supply disruptions.

Things could further escalate, and an economic war can easily take shape between Russia and the West. What this means for the global economy is potentially the loss of as much as 6 million barrels per day of Russian fuel. Russia will be hurt by it for sure, but so will the global economy.

And that’s just the Ukraine today. Look around the rest of the world: Venezuela, Turkey, Thailand, Syria, Libya, Sudan. It seems like a big disorganized mess. So, how will it be resolved?

Here’s the answer;

Vladimir Putin will do something belligerent. (Already done.)

Republicans will demand that we show strength in the face of Putin's provocation. Whatever it is that we're doing, we should do more.

President Obama will denounce whatever it is that Putin does. But regardless of how unequivocal his condemnation is, Bill Kristol will insist that he's failing to support the democratic aspirations of the Ukrainian people.

Journalists will write a variety of thumbsuckers pointing out that our options are extremely limited, what with Ukraine being 5,000 miles away and all.

John McCain will appear on a bunch of Sunday chat shows to bemoan the fact that Obama is weak and no one fears America anymore. (Already done.)

Having written all the "options are limited" thumbsuckers, journalists and columnists will follow McCain's lead and start declaring that the crisis in Ukraine is the greatest foreign policy test of Obama's presidency. It will thus supplant Afghanistan, Egypt, Libya, Syria, Iran, and North Korea for this honor.

In spite of all the trees felled and words spoken about this, nobody will have any good ideas about what kind of action might actually make a difference. There will be scattered calls to impose a few sanctions here and there, introduce a ban on Russian vodka imports, convene NATO, demand a UN Security Council vote, etc. None of this will have any material effect.

Obama will continue to denounce Putin. Perhaps he will convene NATO. For their part, Republicans will continue to insist that he's showing weakness and needs to get serious.

This will all continue for a while.

In the end, it will all settle down into a stalemate, with Russia having thrown its weight around—just like it always has—and the West not having the leverage to do much about it.

Ukraine will....

Actually, there's no telling. Maybe Ukraine will choose (or have foisted on them) a pro-Russian leader that Putin is happy with. Maybe east and west will split apart. Maybe a nominally pro-Western leader will emerge. Who knows? What we do know is that (a) the United States will play only a modest role in all this, and (b) conservative hawks will continue to think that if only we'd done just a little bit more, Putin would have blinked and Ukraine would be free.

Keep calm and carry on.

Friday, September 27, 2013 - Swords to Plowshares

Swords to Plowshares

by Sinclair Noe

DOW – 70 = 15,258
SPX – 6 = 1691

NAS – 5 = 3781

10 YR YLD - .02 = 2.62%
OIL - .16 = 102.87
GOLD + 12.40 = 1337.20
SILV + .05 = 21.88

The war hasn't started,... yet.

And it looks like it won't start any time soon; I refer, of course to US military intervention in Syria; the Syrian Civil War is ongoing, but the US didn't jump into that quagmire. A funny thing happened in New York last night, the five permanent members of the United Nations Security Council have agreed on a resolution that will require Syria to give up its chemical weapons; yes, that means Russia and China signed off on the deal, but there will be no automatic penalties if the Syrians fail to comply. If Syria fails to comply, there would need to be further UN agreement on what measures to impose for noncompliance. Still, it is a remarkable turn of events considering that a few short weeks ago we had destroyers in the Mediterranean and it looked like bombs would fly at the drop of a hat.

The diplomatic breakthrough on Syria came as Iran’s foreign minister, Mohammad Zarif, said progress had been made toward a resolution of the nuclear dispute between his country and the West, suggesting it could happen in a year. Zarif met face to face with Secretary of State John Kerry in one of the highest-level discussions between the two countries in more than 30 years. Then, this morning President Obama revealed he had talked by phone with President Hassan Rouhani of Iran, the first direct contact between the leaders of Iran and the United States since 1979. Obama said they discussed Iran’s nuclear program and said he was persuaded there was a basis for an agreement.

Mr. Obama added: “A path to a meaningful agreement will be difficult. And at this point both sides have significant concerns that will have to be overcome. But I believe we’ve got a responsibility to pursue diplomacy and that we have a unique opportunity to make progress with the new leadership in Tehran.”

So, the war hasn't started, and that's good. War is hell, and it's expensive. War, the military industrial complex, and the national security state that accompanies it can cost and arm and a leg, literally. And for many years, that is where American taxpayers' dollars have gone. Trillions of dollars. The Iraq war has cost somewhere north of $3 trillion, depending on the source for the numbers. And just to have the Tomahawk missile program sitting idle on the sidelines, waiting for potential deployment – that costs about $36,000 per hour. About $600 billion a year gets pumped into the Department of Defense, and that doesn't include the civilian intelligence community or the Department of Homeland Security. And we've recently learned there is more money being pumped to the civilian contractors than we previously imagined.

Budget cuts at the Pentagon were long considered an impossibility and a formula in Congress for political suicide. Now, the austerity movement’s first major initiative in Washington, known as sequestration, those mandated, take-no-prisoners, across-the-board cuts in federal spending instituted by Congress, have in fact accomplished what nothing else could: the first downsizing of our defense spending in this century. Sequestration cut about $40 billion from the Pentagon's funding this year. It's a start.

If we were smart, we should be able to get some credits for not starting wars, because that would have pushed military expenditures into the stratosphere. For example, no military intervention in Syria should result in at least $80 billion extra that could be spent to hire teachers or build bridges or public transit or to help veterans or green energy; whatever.

There should be a process for converting from a war economy to a civilian peace-time economy. Consider the Norfolk Naval Shipyard in Portsmouth, Virginia, a vast facility that repairs and rebuilds submarines. It spans 800 acres, contains 30 miles of paved roads and four miles of waterfront, employs 6,750 civilian workers, and has its own police and fire departments. Examining the current job categories at the shipyard reveals a skills base ready to be tapped to develop and produce green-energy technology. From electrical engineers and chemists to machinists, metal workers, and crane operators, there’s plenty of overlap between existing man- and womanpower in military industry and what’s needed for the robust growth of this country’s green energy sector.

For now, though, the shipyard is still doing submarines. And it will keep doing them until Congress makes new and different plans for this country. That's just one example; there are plenty more all around the country. Taxpayers have invested billions of dollars over decades in developing inventive technology, building infrastructure, and training skilled workers to fulfill military contracts for the war economy. It’s time for the American public to start seeing all this harnessed to new purposes.

Right now lawmakers are loath to cut funding if it means erasing military jobs in their districts, and the military-industrial complex has been particularly clever in the way it has spread its projects across every state and so many localities. Converting military contracts into green energy contracts would make redirecting wasteful military spending more politically feasible, and the federal government already operates an array of programs, including the Pentagon's own Office of Economic Adjustment, that could be expanded to help businesses and communities make the transition.

Moving public dollars into this country’s renewable energy sector could begin to lay the groundwork for a vibrant economy in the second and third decades of this century, while creating good jobs in a growth sector, working toward energy security, and helping this country reduce its reliance on fossil fuels. Like the construction of our interstate highway system in the 1950s, it’s an investment that would pay dividends for decades to come.

Maybe there is a better use of our time, energy, and money than to launch the next war.

The Intergovernmental Panel on Climate Change (IPCC), released the first chapter of its fifth assessment on global warming this morning, and the unequivocal message is that human beings are the “dominant cause of observed warming” that’s been seen since the mid-20th century and we must take action to cut greenhouse gas emissions. This is not news; while the certainty around the scientific case for man-made climate change has tightened somewhat, much of the new report reiterates the conclusions reached in the last IPCC assessment,which was released in 2007. 
The new report says that even if the world begins to moderate greenhouse gas emissions, warming is likely to cross the critical threshold of 2C by the end of this century. That would have serious consequences, including sea level rises, heatwaves and changes to rainfall meaning dry regions get less and already wet areas receive more. The IPCC warned that the world cannot afford to keep emitting carbon dioxide as it has been doing in recent years. To avoid dangerous levels of climate change, beyond 2C, the world can only emit a total of between 800 and 880 gigatonnes of carbon. Of this, about 530 gigatonnes had already been emitted by 2011. We're two-thirds of the way there. That has a clear implication for our fossil fuel consumption, meaning that humans cannot burn all of the coal, oil and gas reserves that countries and companies possess. In other words, we are fast approaching a tipping point, a point of no return.

Each of the IPCC’s last five big reports found that climate science has gotten increasingly certain that the planet is warming, and humans are the main cause. Scientists have a 95-100 percent certainty (“extremely likely”) that humans are causing temperatures to rise. Directly from the report: “It is extremely likely that more than half of the observed increase in global average surface temperature from 1951 to 2010 was caused by the anthropogenic increase in greenhouse gas concentrations and other anthropogenic forcings together.” The report in 2001 was 66 percent certain, and the 2007 report was 90 percent certain. Scientific conclusions that cigarettes are deadly and that the universe is about 13.8 billion years old have similar levels of certainty.

The science finds that the atmosphere and ocean have warmed, the amount of snow and ice has diminished, the global mean sea level has risen and that concentrations of greenhouse gases have increased. The central estimate is that warming is likely to exceed 2C, the threshold beyond which scientists think global warming will start to wreak serious changes to the planet. That threshold is likely to be reached even if we begin to cut global greenhouse gas emissions, which so far has not happened.

The IPCC assessments are important because they form the scientific basis of UN negotiations on a new climate deal. Governments are supposed to finish that agreement in 2015, but it's unclear whether they will commit to the emissions cuts that scientists say will be necessary to keep the temperature below a limit at which the worst effects of climate change can be avoided. And the worst effects of climate change are scary; livelihoods across the planet will be affected, the sea levels will rise, major changes in the sources and availability of drinking water, massive displacements of hundreds of billions of people, the acidification of the oceans, raging forest fires, famine, starvation, and more.

The science grows clearer, the case grows more compelling, and the costs of inaction grow beyond anything that anyone with conscience or commonsense should be willing to even contemplate. 

Wednesday, September 11, 2013 - Twelve Years After

Twelve Years After

by Sinclair Noe

DOW + 135 = 15,326
SPX + 5 = 1689
NAS – 4 = 3725
10 YR YLD - .04 = 2.92%
OIL - .08 = 107.31
GOLD + 2.50 = 1366.80
SILV + .25 = 23.32

The war hasn't started..., yet.

The war with Syria hasn't started yet. We're still at war; troops still in Afghanistan, slowly exiting; but, we're still at war, 12 years after.

The Dow Industrials have climbed for 6 out of the last 7 sessions, which coincides with the announcement by Obama to seek a Congressional vote on Syria. The Dow has added over 500 points since then. The price of oil hit highs for the year in the buildup to war. We've grown averse to war. Even on Wall Street, the idea of not going to war is a good thing. Maybe that is something we've learned from the last 12 years. War is bad; not going to war is good.

And so last night we listened to the president trying to sell the necessity of more war, this time in Syria. He called it military intervention, but whenever you drop bombs on another country, it is war. I'm still not sure what the objective would be. I'm not sure what the cost would be, but the cost of the past 12 years has been much higher than anyone thought at the time. And then, halfway through the speech last night, we heard the possibility of a diplomatic solution. Today, diplomatic efforts intensified. France drafted a resolution for the UN Security Council to have Assad give up his chemical weapons. Secretary of State John Kerry meets with Russian foreign minister Sergei Lavrov tomorrow in Geneva

It will be very difficult to reach a diplomatic deal, and even if that happens it will be tougher to enforce and verify. The chemical weapons complex of Syria includes factories, bunkers, storage depots and thousands of munitions, all of which would have to be inspected and secured under a diplomatic initiative that President Obama says he is willing to explore. And there is a civil war in Syria, which makes things more difficult. We didn't hear many details last night but a confrontation has been postponed for a while. The Senate formally ended its consideration of a resolution authorizing military force against the Syrian government. We'll give peace a chance.

And if that doesn't work out, then we'll bomb the hell out of the place, and it won't be a little pinprick strike. A few senators have already started work on a bill that would authorize US military force in Syria if the Security Council can’t pass a workable resolution, or if Syria fails to comply with it.

So, that's where we stand, 12 years later.

The whole thing has a certain, as yet unidentified stench. The US and France are going to bomb Russia's only Middle East foothold? What are the odds? Russia was willing to start World War III over Syria? What are the odds? Someday we'll follow the money trail and it will all make more sense, or at least some sense. It's understandable that we are all very wary of warfare, but we shouldn't forget that such levels of wariness can be easily used to play with our minds, and to focus our attention away from other events.

So, today let's look at something that should be capturing our attention. There is a great article from Nobel prize winning economist Joseph Stiglitz. His argument involves a narrow issue, but it looks like a blueprint for future action. We’re seeing a lot of these attempts lately. In that vein, the way the Detroit bankruptcy is handled will in all likelihood have profound ramifications for other municipalities across the US. And this spring’s Cyprus bail-in model is the likely blueprint in Europe’s periphery. If it worked in Cyprus, it'll work in Greece, or Portugal, or Spain.  I've cross posted it on my blog:

We need a fair system for restructuring sovereign debt

A recent decision by a United States appeals court threatens to upend global sovereign debt markets. It may even lead to the US no longer being viewed as a good place to issue sovereign debt. At the very least, it renders non-viable all debt restructurings under the standard debt contracts. In the process, a basic principle of modern capitalism – that when debtors cannot pay back creditors, a fresh start is needed – has been overturned.

The trouble began a dozen years ago, when Argentina had no choice but to devalue its currency and default on its debt. Under the existing regime, the country had been on a rapid downward spiral of the kind that has now become familiar in Greece and elsewhere in Europe. Unemployment was soaring, and austerity, rather than restoring fiscal balance, simply exacerbated the economic downturn.

Devaluation and debt restructuring worked. In subsequent years, until the global financial crisis erupted in 2008, Argentina's annual GDP growth was 8% or higher, one of the fastest rates in the world.

Even former creditors benefited from this rebound. In a highly innovative move, Argentina exchanged old debt for new debt – at about 30 cents on the dollar or a little more – plus a GDP-indexed bond. The more Argentina grew, the more it paid to its former creditors.

Argentina's interests and those of its creditors were thus aligned: both wanted growth. It was the equivalent of a "Chapter 11" restructuring of American corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

Debt restructurings often entail conflicts among different claimants. That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes.

Once upon a time, such contracts were enforced by armed intervention, as Mexico, Venezuela, Egypt, and a host of other countries learned at great cost in the nineteenth and early twentieth centuries. After the Argentine crisis, President George W. Bush's administration vetoed proposals to create a mechanism for sovereign-debt restructuring. As a result, there is not even the pretence of attempting fair and efficient restructurings.

Poor countries are typically at a huge disadvantage in bargaining with big multinational lenders, which are usually backed by powerful home-country governments. Often, debtor countries are squeezed so hard for payment that they are bankrupt again after a few years.

Economists applauded Argentina's attempt to avoid this outcome through a deep restructuring accompanied by the GDP-linked bonds. But a few "vulture" funds – most notoriously the hedge fund Elliott Management, headed by the billionaire Paul E. Singer – saw Argentina's travails as an opportunity to make huge profits at the expense of the Argentine people. They bought the old bonds at a fraction of their face value, and then used litigation to try to force Argentina to pay 100 cents on the dollar.

Americans have seen how financial firms put their own interests ahead of those of the country – and the world. The vulture funds have raised greed to a new level.

Their litigation strategy took advantage of a standard contractual clause (called pari passu) intended to ensure that all claimants are treated equally. Incredibly, the US Court of Appeals for the Second Circuit in New York decided that this meant that if Argentina paid in full what it owed those who had accepted debt restructuring, it had to pay in full what it owed to the vultures.

If this principle prevails, no one would ever accept debt restructuring. There would never be a fresh start – with all of the unpleasant consequences that this implies.

In debt crises, blame tends to fall on the debtors. They borrowed too much. But the creditors are equally to blame – they lent too much and imprudently. Indeed, lenders are supposed to be experts on risk management and assessment, and in that sense, the onus should be on them. The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

The repercussions of this miscarriage of justice may be felt for a long time. After all, what developing country with its citizens' long-term interests in mind will be prepared to issue bonds through the US financial system, when America's courts – as so many other parts of its political system – seem to allow financial interests to trump the public interest?

Countries would be well advised not to include pari passu clauses in future debt contracts, at least without specifying more fully what is intended. Such contracts should also include collective-action clauses, which make it impossible for vulture funds to hold up debt restructuring. When a sufficient proportion of creditors agree to a restructuring plan (in the case of Argentina, the holders of more than 90% of the country's debt did), the others can be forced to go along.

The fact that the International Monetary Fund, the US Department of Justice, and anti-poverty NGOs all joined in opposing the vulture funds is revealing. But so, too, is the court's decision, which evidently assigned little weight to their arguments.

For those in developing and emerging-market countries who harbor grievances against the advanced countries, there is now one more reason for discontent with a brand of globalization that has been managed to serve rich countries' interests (especially their financial sectors' interests).

In the aftermath of the global financial crisis, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System urged that we design an efficient and fair system for the restructuring of sovereign debt. The US court's tendentious, economically dangerous ruling shows why we need such a system now.

Tuesday, September 10, 2011 - Infinite Monkey Diplomacy Theorem

Infinite Monkey Diplomacy Theorem

by Sinclair Noe

DOW + 127 = 15,191
SPX + 12 = 1683
NAS + 22 = 3729
10 YR YLD + .06 = 2.96%
OIL – 2.29 = 107.23
GOLD – 23.20 = 1364.30
SILV - .75 = 23.07

The war hasn't started..., yet.

We had an off the cuff comment from Secretary of State John Kerry that set off a new peace plan. Kerry told reporters in London that President Bashar al-Assad of Syria could avert a strike if he turned over his chemical weapons stockpile within a week, adding that such an outcome was unlikely. This is apparently a new diplomatic policy based upon the infinite monkey theorem; which postulates that if you had a roomful of monkeys with typewriters, the monkeys would almost surely, eventually type out the complete works of William Shakespeare.

In this context, the monkey is not an actual monkey but a metaphor for an abstract device or perhaps a Secretary of State, and given enough time to talk he would almost surely, eventually stumble across a peace plan. Last night his apparently off-the-cuff proposal had gained broad support, including a warm welcome from both Syria and Russia, which said it would bring Syria’s chemical weapons under international control. France has introduced a proposal with the UN. Kerry has denied the whole thing, calling the remark nothing more than a rhetorical exercise. Methinks he doth protest too much; for what is politics but a rhetorical exercise?

If you don't like the infinite monkey theorem, then perhaps we are seeing an extremely impressive 3D chess match, and the Grand Masters are trying to pass it off as a game of checkers. Remember that Obama just returned from the G20 meeting in Russia, and there was a private meeting between Obama and Putin. We don't know the details but it is fairly certain the Syrian situation was discussed. We will know more in the richness of time.

Or, more precisely at about 6PM Pacific time. President Obama delivers a State of the Strike Speech from the Oval Office. White House speechwriters have been revising their drafts. Obama is now expected to say that the threat of military action has led to the diplomatic opening, and to urge Congress to keep the pressure on Syria even as his administration examines whether the Russian proposal is serious or a way to obstruct military action. Negotiations are more effective with the threat of cruise missiles. And this leaves fewer excuses for Congress to vote against granted the president authority for military intervention, if Assad were to reneg on the peace proposal. And all this may come to naught; calls for peace so rarely silence the drums of war; but there seems to be a moment here where sanity might prevail.

It has been a blast to watch. On cable news, everything is breaking; breaking news; breaking updates; breaking coverage; breaking developments; huge developments; breaking huge developments.

While all attention is focused on Syria, we almost forgot that this week five years ago there was a meltdown on Wall Street. Lehman Brothers went bankrupt. The biggest banks were so terrifyingly big that they had to be bailed out by the US government in order to survive a financial crisis, lest they obliterate the global financial system. Today, the big banks are even bigger.

The four biggest US banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) today have about $7.8 trillion in assets, or about 47 percent of U.S. gross domestic product, up from $6.4 trillion, or 43 percent of GDP, at the time of the crisis in 2008. The six biggest banks, a group that now includes Goldman Sachs and Morgan Stanley, now have $9.6 trillion in assets, or nearly 58 percent of GDP.

The Dodd-Frank rules designed to stop banks from betting with the insured deposits of ordinary savers are still on the drawing boards, courtesy of the banks' lobbying prowess. The Volcker Rule has yet to see the light of day.

JPMorgan Chase is the biggest of the banksters, and may well be the baddest. Last year it lost $6.2 billion by betting on credit default swaps tied to corporate debt - and then lied about it. Evidence shows the bank paid bribes to get certain counties to buy the swaps. The Justice Department is investigating the bank over improper energy trading. That follows the news that the anti-bribery unit of the Security and Exchange Commission is looking into whether JPMorgan hired the children of Chinese officials to help win business. The bank has also allegedly committed fraud in collecting credit card debt, used false and misleading means of foreclosing on mortgages, and misled credit-card customers in seeking to sell them identity-theft products.

They've set aside $6.8 billion for legal; which sounds like a lot; it is a lot. But for JPMorgan it is just the cost of doing business; they weigh the probability of getting caught; they weigh the probability of being prosecuted; they weigh the cost of fighting regulators; they don't even worry about the possibility of criminal charges; they tally the cost of penalties; and they still have a hefty profit. That's all that matters.

And the guys running the banks five years ago, well they got while the getting was good. Richard Fuld presided over the collapse of Lehman. and sent a tidal wave of panic through the global financial system, Fuld is living comfortably.

He has a mansion in Greenwich, Conn., a 40-plus-acre ranch in Sun Valley, Idaho, as well as a five-bedroom home in Jupiter Island, Fla. He no longer has a place in Manhattan, since he sold his Park Avenue apartment in 2009 for $25.87 million. Other bankers such as Jimmy Cayne (Bear Stearns), Stanley O’Neal (Merrill Lynch), Chuck Prince (Citigroup) and Ken Lewis (Bank of America) are also living in quiet luxury. The five ultra-rich former Wall Street chieftains have simultaneously faded into luxurious obscurity while the survivors — Jamie Dimon of JPMorgan and Lloyd Blankfein of Goldman Sachs — have only consolidated their power.

Last year a federal judge approved a $90 million settlement of a class action suit brought by Lehman investors against Fuld and several other company executives and directors. The judge, Lewis Kaplan, questioned whether the settlement, which will be paid entirely by Lehman’s insurers, was fair given that none of the individuals would pay out of pocket. He agreed to the deal, however, because litigation expenses for a trial were likely to deplete the funds available for compensating the investors. The cost of doing business.

Five years and the situation is more dangerous than ever. The big banks are bigger than ever, more ungovernable than ever; and the economy still hasn't recovered. Now, think about what might happen if we had a repeat of five years ago; or Act II if you prefer. What happens if there is another bank failure and we are again presented with the option of bailing out the banks or watching our 401ks slip away like sand through the hourglass. The big banks are ungovernable - too big to fail, too big to jail, too big to curtail. They should be split up, and their size capped. They should be chopped into small pieces, easily digestible pieces. When a small bank fails, we don't even burp. Chop them up into bite size morsels. There's no need to wait for Congress to do it; the nation's antitrust laws are adequate to the job. There is ample precedent. In 1911 we split up Standard Oil. In 1982 we split up Ma Bell. The Federal Reserve has authority to do it on its own in any event. 

We could do it. Things change. Happens all the time.

Today, the Dow Industrial Average announced a change. In the biggest shake-up of the Dow Jones industrial average in nearly a decade, Goldman Sachs, Visa and Nike will join the 30-stock index, with Bank of America, which just two years ago was the largest US bank by assets, one of the names exiting the Dow. Also leaving the Dow, Hewlett-Packard, and Alcoa. The changes will take effect at the opening of trading September 23.

Bank of America's run in the Dow was not one for the history books. The stock joined the index in February 2008. The stock is down more than 65 percent since it joined the Dow. The company was engulfed by the financial and housing crisis after it acquired sub-prime mortgage originator Countrywide Financial in January 2008. The bank said being removed from the index "has no impact on our business or our strategy for providing solid returns to shareholders." True enough, the moves don't affect the bottom line of the companies. With a market value of about $157 billion, BofA becomes the biggest US company not included in the average, other than Apple and Google

Monday, September 09, 2013 - The Problem Is We Do Get It

The Problem Is We Do Get It

by Sinclair Noe

DOW + 140 = 15,063
SPX + 16 = 1671
NAS + 46 = 3706
10 YR YLD - .04 = 2.90%
OIL – 1.56 = 108.97
GOLD – 2.30 = 1387.50
SILV - .13 = 23.82

The war hasn't started..., yet.

A funny thing happened today; for a few moments the constant drumbeats for war were quieted, and there was talk of a diplomatic solution; fleeting, nothing concrete, hypothetical, could disintegrate in the flicker of a butterfly's wing.

Russia jumped on a remark by Secretary of State John Kerry, who said Syria should save itself by handing over its chemical weapons. Kerry was quick to dismiss as hypothetical his own comment that Syrian President Bashar al-Assad could avert U.S. strikes by surrendering his chemical arsenal to international control. But Assad's ally Russia quickly turned it into a firm proposal that was "welcomed" by Damascus and echoed by the UN chief Ban Ki-moon. The White House said it was "seriously skeptical" but would take a "hard look" at the proposal.

Russia's foreign minister said he would push Assad to place Syria’s stockpile of nerve gases, blister agents and other chemical agents under UN supervision for eventual destruction. He said Russia also would push Syria to sign the Chemical Weapons Convention, the international treaty that prohibits use of poison gas. The Syrian government quickly put out a statement saying it would cooperate.

Can you trust Russia to broker a peace deal? Hell no. Over the last weeks, since the inception of the demonstrations in Egypt for president Morsi's ouster, to the sarin gassing of innocents in Syria these past days, the price of oil has skyrocketed more than 15 percent for WTI crude from near $95/bbl in June to over $110/bbl and Brent crude closing this past week at over $116/bbl.

After Saudi Arabia, the most immediate beneficiary of this spiking of oil prices is Russia -- now, together with the Saudis, the world's largest oil producer, with 7 million barrels/day being shipped into the export market. In no other big economy do oil and gas play such a vital role as in Russia. They account for two-thirds of its exports, half its budget revenue and nearly one-third of economic output. In a real sense, the history of Russia's oil industry since the collapse of communism is the history of the country itself. Clearly the higher the price of oil, the greater the benefit to Russia and the largesse of the Putin government, whose domestic economic policies and well being are principally funded by oil revenues.

To keep the pot boiling in the Middle East, the Russians have been the long-standing and grievously irresponsible defenders of Iran and its nuclear program, while freely arming Syria's Assad government with a full array of weaponry including highly advanced anti-aircraft weapons system. This while forever rendering meaningful UN action moot through threat of a Security Council veto. Clearly the price of oil has become a strategic imperative of Russian foreign policy. But it's also important to know when to ease off the gas and tap the brakes; like maybe right before you go flying off a cliff.

The fast-moving events presented at least the possibility of a diplomatic and political solution, even if everybody seems to have just stumbled on the idea. And the whole idea of a peaceful resolution could fall apart very quickly. We'll find out more over the next two evenings as President Obama hits the airwaves; tonight he'll speak with six major American news networks as part of his sales pitch to build support and he'll go directly to the people Tuesday.

In the background, his aides have been heavily lobbying Congress while seeking support from other nations; so far, some countries , such as Germany, have said they support the idea of military action, but they want no part of it.  Senate Democratic Leader Harry Reid set a test vote for later this week, but it was unclear whether the measure would attract enough backing to clear anticipated procedural roadblocks. Most counts show that the Congress is reluctant to back force, and constituents have been vocal in opposition. In town hall meetings during the congressional recess and in polls, most Americans don’t accept that the humanitarian argument is sufficient to justify a military strike.

According to a CNN poll, nearly 6 in 10 Americans think Congress should not authorize limited military action in Syria, with roughly 7 in 10 saying that airstrikes against Syria would not achieve any significant goals for the United States and that the US does not have any national interest in Syria.

Obama’s upcoming media blitz, to include interviews on six television networks and a primetime Oval Office address, is not going to rally the public to support military action. The president faces strong competition for the public’s attention, and most people are not attentive to him. Barely a tenth of the population watched Obama’s 2013 State of the Union address. Moreover, many people who do pay attention miss the president’s points, and the less people know, the more confidence they have in their pre-existing beliefs and resist factual information.

So, should you bother paying any attention to the media blitz? In decisions of war, bravery is needed in knowing when to be humble, in listening for one’s biases and evaluating new evidence. Or as Winston Churchill once said: “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.”

Most people distrust government, especially on issues of war, especially when they are complex and their consequences are uncertain; and this certain qualifies as uncertain. But it's not that this situation is too complex for simple-minded voters to grasp the significance. The population is not stupid. We get it. We understand that the complexity is often just a cloak against honesty. We understand that the path to peace can be more than bombing people. The problem isn't that we don't get it. The problem is that we do get it.

More than four years after the recession officially ended, 11.5 million Americans are unemployed, many of them for years. Nearly 4 million have given up looking for work altogether. If they were actively looking, today's unemployment rate would be 9.5 percentinstead of 7.3 percent. The participation rate is at the lowest level in 35 years. It's now pretty well understood that of the two ways you can reduce unemployment, we got the bad one Friday. That is, the jobless rate can fall because more jobseekers land jobs -- good; or because they give up looking -- bad. Some of that decline is demographic -- our workforce is comprised of a growing share of workers on the cusp of retirement. But most of it -- I'd say about two-thirds based on the analysis I've seen -- is due to weak labor demand. People have given up and dropped out of the labor pool.

The median wage keeps dropping, adjusted for inflation, and incomes for all but the top 1 percent are below where they were at the start of the economic recovery in 2009.

Deficit hawks in both parties don't want you to know this but the federal deficit as a proportion of the total economy is shrinking fast: It's on track to be only 4 percent by the end of September, when the fiscal year ends. The non-partisan Congressional Budget Office predicts it will be only 3.4 percent in the fiscal year starting October 1. To put this into perspective, consider that the average ratio of the deficit to the GDP over the past 30 years has been 3.3 percent. So the deficit is barely a problem at all. Still, it's amazing how politicians can justify spending billions of dollars to drop bombs, but we can't afford to spend money to build a bridge, or make sure a hungry kid, right here in America, has food for the school day. A decent society would put people to work, even if this required more government spending on roads, bridges, ports, pipelines, parks and schools. War, however is not the answer.

Wednesday, September 04, 2013 - Not Yet but Closer

Not Yet but Closer
by Sinclair Noe

DOW + 96 = 14,930
SPX + 13 = 1653
NAS + 36 = 3649
10 YR YLD + .05 = 2.90%
OIL – 1.24 = 107.30
GOLD – 20.60 = 1392.60
SILV - .82 = 23.56

The Senate Foreign Relations Committee approved a resolution on authorizing limited military intervention in Syria, setting the stage for a debate in the full Senate next week on the use of force.

The committee voted 10-7 in favor of a compromise resolution that sets a 60-day limit on any engagement in Syria, with a possible 30-day extension, and bars the use of troops on the ground for combat operations. The compromise is more limited than President Barack Obama's original proposal but would meet his administration's goal of..., well, actually, I'm not sure what the goal is, except that it would be limited and narrow, and now it would be even more limited.

Yesterday we talked about some of the challenges or headwinds facing the economy and the markets. Today, the Federal Reserve released its Beige Book, and apparently things are better than they look. Conditions continued to improve over the past quarter. The central bank said growth was moving at a "modest to moderate pace" with improvements coming across all the Fed districts.

The Fed said in its Beige Book report: "Consumer spending rose in most districts, reflecting, in part, strong demand for automobiles and housing-related goods."

Increased activity also was reported in travel and tourism, nonfinancial services and manufacturing, which the central bank said had grown "modestly." For most occupations and industries, hiring held steady or increased modestly relative to the prior reporting period," the Beige Book said. "Upward price pressures remained subdued, and prices increased slightly during the reporting period. Wage pressures continued to be modest overall."

Last week, the Thomson Reuters/University of Michigan index climbed to 85.1 in this month’s report, from 84.1 in June. It is the highest level since July 2007. More Americans feel better about the economy. The survey showed they expect interest rates to rise, and that they doubt the economic improvement can keep up the pace. Fear of higher rates has caused many to buy now what they otherwise might buy later. And that would just point to continued expansion of consumer spending in the months and year ahead.

Up, up and away. What could go wrong?

First, Congress returns from recess Monday, September 9, to consider whether to put the government's operations on hold on October 1 because it no longer has an operating budget. Current Federal budgetary authority to spend, Sequester and all, expires at that time (although the Sequester plan nominally carries forward for another nine years).

Democrats want to pare down the Sequester for fiscal 2014, and make up the difference with targeted spending cuts and tax increases. Republicans want to continue the Sequester and make other cuts as well.

Second, some Republicans also want to cut all Federal funding to implement Obamacare, as a price for agreeing to any budgetary plan at all; i.e., they are willing to shut down the government on October 1 unless Obamacare is cut from any spending authority going forward. Even if Democrats and Republicans could find some “continuing resolution” compromise on the mix of spending and taxes, these Republicans would hold out for elimination of Obamacare. They realize the Senate Democrats would not initially go along but believe ultimately Obama will blink, as he did in the 2011 debt ceiling crisis, when he agreed to the doomsday Sequester device as a way to satisfy Republican calls for budget cuts equal to any increase in the ceiling.

Republican leadership certainly favors repealing Obamacare, having taken 40 fruitless votes to do so already. However, they fear the linkage of defunding it to a government shutdown. Speaker Boehner has let it be known he would like to buy time with some sort of continuing resolution to allow time to maneuver later in the fall when the debt ceiling issue is expected to come up again – maybe around Thanksgiving.

Turns out the government will run out of room to do its routine borrowing to finance its Congressionally-agreed deficit under its current budget just one month after Congress reconvenes.

It would be a misleading oversimplification to say that our national credit limit kicks in October 15. But because our national revenues from budgeted taxes and fees come in “lumpy” over the course of a fiscal year, we need to borrow operating funds to cover our not-so-lumpy bills as they come due.

Congress has already agreed that we must pay each of those bills, including Social Security, military pensions, Medicare, and principle and interest of U.S. Treasury securities, but has added a spurious debt ceiling law that purports to deny the government access to credit markets beyond a fixed amount that has no actual relationship to the debts we have incurred. Any corporate board of directors that imposed such a restraint on its executive officers would be successfully sued for malfeasance. But we’re stuck with this preposterous financial lunacy as a nation because it’s the law.

There is little the executive can do if the debt ceiling is reached other than what you or I would in our own financial dealings: prioritize our creditors and use whatever current revenues we have. Some in the House want to legislate that prioritization in advance, but that would be trying to make sense of insanity.

So Republican leadership plans to duck a government shutdown but kick the Obamacare issue over to late-year “leverage” on the debt ceiling issue. They’ll do this on the same theory that Obama will surely cave again as he did in the 2011 fiasco so as not to be the president who presides over the first U.S. default on its “full faith and credit.” But the president has drawn a red line against negotiating again on the debt ceiling extension.

So the financial markets could face both a government shutdown and a debt ceiling expiration just two weeks apart. And the Fed also has its own moment of truth the week of September 15 as well, as it decides whether to begin dialing back its purchases of mortgage-backed securities and Treasury bonds because the economy has been growing enough of late to survive a gradual, tapered withdrawal of such unconventional stimulus. Putting aside recent mixed-to-poor economic data, especially on the pace of housing recovery, can the Fed risk starting to taper in the face of a fiscal collapse like a shutdown and default at the same time, weeks before its next meeting?

While the events relating to Syria have spurred a modest flight to safety in US government debt, those trading waters are bound to be roiled in the coming weeks by the gathering clouds of shutdown and default. The Fed has the first chance to help avoid a market meltdown by postponing its tapering decision until the fiscal “hurricane watch” is lifted. Congress and the President have a chance to make the storm blow over by negotiating a budget deal (which would be consistent with Obama’s red line on direct debt ceiling negotiations) that satisfies enough Republicans to lift the debt ceiling separately.

Past experience with the TARP legislation and the “fiscal cliff” resolution just months ago shows that Congress doesn’t act these days until it feels the harshest winds – in this case, a stock market meltdown out of frustration with the lawmakers’ willingness to tempt fate by seeing what a few days of shutdown and default actually are like.

So, what could go wrong?

Squirrels.

Maybe not squirrels, we don't really know, but we do know the Nasdaq Stock Market had a brief outage, but the problem was resolved and trading was not affected. Nasdaq OMX, the parent company of the Nasdaq Stock Market, said the outage lasted six minutes – from 11:35 a.m. Eastern Daylight Time to 11:41 a.m. The outage is the latest technical difficulty to hit the exchange, which endured a three-hour trading outage on August 22. That outage was also blamed on the exchange's price quote disseminating system. Back in the late 90s the Nasdaq had a few power outages, blamed on squirrels chewing through cables. We don't have those problems anymore. Thanks to advances in technology we have new problems.

So, what could go wrong?

Well, we can't forget the banksters. The Federal Bureau of Investigation and prosecutors in Manhattan U.S. Attorney's office are conducting a criminal investigation into whether several employees of JPMorgan Chase tried to impede a regulatory investigation into alleged manipulation of power markets. It comes after a JPMorgan subsidiary agreed on July 30 to pay a $410 million penalty to settle a manipulation case brought by the Federal Energy Regulatory Commission.  investigators aim to determine whether individuals at JPMorgan - including three Houston-based employees - gave regulators all the information they needed to investigate JPMorgan's power market deals in California and the Midwest. Deliberately withholding information from investigators or lying during interviews conducted as part of an investigation is considered obstruction of justice, a criminal offense.

Will an attack on Syria make anything better? The case has not been made, not yet anyway. Appearing before a Senate panel yesterday and a House panel today, Secretary of State John Kerry and Defense Secretary Chuck Hagel struggled at times to frame a proposed military strike on Syria as tough enough to be worthwhile but limited enough to guarantee that the United States would not get dragged into another open-ended military commitment in the Middle East. Nonetheless, they assured lawmakers that the administration was not asking for congressional backing to “go to war,” as Kerry put it. I almost expected John Kerry from 1971 to walk into the hearing room and throw his medals at himself.

The human rights atrocities in Syria are real, and should be offensive and horrifying to anyone with a pulse. So the "do something, anything!" impulse isn't "liberal" or "conservative." And it isn't silly, stupid or war-mongering. It is simply a sign that you are human. What can be silly, stupid and war-mongering is to assume that the "do something, anything!" impulse is proof that one course of action - a military attack - is the only proper or humane thing to do.

The real question should be when it comes to military action, especially the kind publicly predicated on humanitarian concerns. The question is not whether you love or hate a particular dictator, because if that was the question, then the U.S. government has a lot to answer for in its alliances with many dictators. No, the question when it comes to wars of choice ostensibly waged in defense of human rights should be far more straightforward: namely, will military action result in a net increase or decrease in human suffering?

The question of U.S. military action against Syria becomes far more thorny because it is not at all clear that military action will make anything better - and that's putting it mildly. As McClatchy notes, military and geopolitical experts are telling us that the kind of military response being discussed by the Obama administration would be "symbolic and fall far short of eliminating Syria's chemical capabilities." Likewise, the Guardian's headline says it all: "Obama strike would not weaken Assad's military strength, experts warn." And Foreign Policy reports that one of the U.S. military planners who designed Syria strike blueprints "has serious misgivings" about the idea that bombing will improve anything. Even the president himself admits that "we cannot resolve the underlying conflict in Syria with our military."

Again, what is the goal? What is the objective.

Predicating military action exclusively on a chemical weapons "red line" doesn't only say to the world what the Obama administration suggests it does; more specifically, it doesn't just say that the use of such unconventional weapons is unacceptable. It also rather explicitly suggests that in the U.S. government's eyes, atrocities committed with regular old conventional weapons are fine, or at least not atrocious enough to warrant a military response. In other words, it seems to tell other dictators that as long as they kill and maim their own people with conventional armaments, they will remain on the acceptable side of the "red line" and therefore they don't risk a U.S. response.