| Patriot Act Vote Coming Up: Google joins Apple, Others Requesting Spying Controls Posted: 27 Mar 2015 06:40 PM PDT The Patriot act expires in June, and anyone in their right mind would wish the entire concept to go away entirely. NSA Spying has a 100% perfect track record of failure. Sadly, the answer to the question Would NSA Data Surveillance End With Patriot Act? is a resounding "No". The National Security Agency would lose its legal justification for collecting data on Americans' phone and email activity if Congress does not reauthorize the Patriot Act by June 1, but privacy advocates are skeptical about whether that would mean the end of the controversial surveillance program.
President Barack Obama has called on Congress to pass a bill that would end the bulk surveillance program while keeping certain spying powers intact for national security reasons. The clock is ticking, however, as the NSA loses its legal authority for domestic surveillance provided by Section 215 of the Patriot Act in June. If Congress does not renew that provision then the Obama administration will not push to continue the program, although its absence would damage America's national security, says Ned Price, a spokesman for the National Security Council.
"If Section 215 sunsets, we will not continue the bulk telephony metadata program," Price tells U.S. News. "Allowing Section 215 to sunset would result in the loss, going forward, of a critical national security tool that is used in a variety of additional contexts that do not involve the collection of bulk data."
The NSA, however, could invoke other legal powers to continue the data collection program without Section 215 of the Patriot Act, says Harley Geiger, senior counsel for the Center for Democracy and Technology advocacy group. The government has also conducted bulk collection of email metadata in the past using Section 214 of the Patriot Act, for instance, which is also called the Foreign Intelligence Surveillance Act "pen trap statute," Geiger says.
"The FISA pen trap statute does not have a sunset and would not be affected by a sunset of Section 215," he says. "For these and other reasons, we believe that legislation to end bulk collection would be more effective than merely letting Section 215 sunset. However, we believe Congress should sunset Section 215 if effective reform is not possible."
Passing surveillance reform may be difficult in a Congress controlled by Republicans, considering it failed last year while Democrats controlled the Senate. Senate Majority Leader Mitch McConnell of Kentucky is among the Republicans who say the NSA powers are necessary to ensure national security.
"I will vote for the Freedom Act as long as it doesn't include reauthorization of the Patriot Act," Paul told U.S. News recently, adding that he will not vote to reauthorize Section 215.
Paul told U.S. News he will also partner with Sen. Ron Wyden, D-Ore., on a bill to amend the Patriot Act when it comes up for reauthorization.
A bill introduced on Tuesday by Reps. Thomas Massie, R-Ky., and Mark Pocan, D-Wis., would abolish legal powers for surveillance programs, including the entire Patriot Act and the FISA Amendment Act of 2008. Google joins Apple, Others Requesting Spying ControlsCNET reports Google joins Apple, others in calling for spying controls, as Patriot Act vote nears. With an important surveillance-related section of the USA Patriot Act up for reauthorization this year, Google has teamed with other tech firms in sending a letter to lawmakers and others that spells out needed changes to US spy policies.
On Wednesday, Google revealed in a blog post that it has joined the Reform Government Surveillance coalition, civil rights groups and trade associations in sending the letter, which promotes transparency, accountability and an end to the bulk collection of data.
The letter (PDF) -- addressed to government figures including US President Barack Obama, Director of National Intelligence James Clapper, National Security Agency Director Michael Rogers and various House members -- underscores the need for reform that will both protect national security and preserve the right to privacy. Google also posted a page online where people can add their name in support of the reforms.
The catalyst for the letter is the USA Patriot Act -- specifically Section 215, which the NSA points to as the legal basis for its bulk collection of data. Section 215 is set to expire June 1, and lawmakers must vote before then on whether to reauthorize the section or allow it to "sunset."
The letter outlines what it says are "essential" elements to surveillance reform, mentioning Section 215, as well as Section 214 -- another part of the Patriot Act that the NSA could invoke to justify its bulk collection and one that's not set to expire this year.
The companies say it has been nearly two years since the first news stories revealed the scope of the NSA's spying, and that "now is the time to take on meaningful legislative reforms" that maintain national security but also protect privacy, transparency and accountability.
The Reform Government Surveillance coalition now counts Apple, AOL, Dropbox, Evernote, Facebook, LinkedIn, Microsoft, Twitter, Yahoo and Google among its members.
The group's principles are based on the idea of placing "sensible" limitations on government surveillance powers and introducing strong checks and balances when governments are granted the power to spy -- to prevent abuse and keep the concept of privacy intact. In addition, the group promotes transparency concerning government demands for data imposed on technology companies, as well as respecting the free flow of information across borders. Congress Must Reform Our Surveillance LawsOn the Google Public Policy Blog, David Drummond, Chief Legal Officer, Google, states Congress Must Reform Our Surveillance Laws. We have a responsibility to protect the privacy and security of our users' data. At the same time, we want to do our part to help governments keep people safe. We have little doubt that Congress can protect both national security and privacy while taking a significant, concrete step toward restoring trust in the Internet.
Google has been working hard for the last two years to reform government surveillance laws, and we will continue to push for broader surveillance reforms in the months ahead.
We invite you to join us in asking Congress to enact surveillance reform by adding your name at google.com/takeaction. Bill of RightsAs far as I am concerned, any law that does not pass muster with privacy restrictions in the Bill of Rights, should be done away with entirely. Here's a refresher course on the Fourth Amendment to the United States Constitution, part of the Bill of Rights. The right of the people to be secure in their persons, houses, papers, and effects,[a] against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.
The Fourth Amendment was adopted in response to the abuse of the writ of assistance, a type of general search warrant issued by the British government and a major source of tension in pre-Revolutionary America. Dear CongressI find it galling that Republican hypocrites voted for the Patriot Act and any of its extensions. I believe the Patriot act should not be amended but rather abolished in entirety. Thus, I am torn over half-measures that allegedly will do what is needed. Google says " We have little doubt that Congress can protect both national security and privacy while taking a significant, concrete step toward restoring trust in the Internet.I have high doubts. Once rights are taken away, history suggests it is damn hard to win them back. The only question at hand is whether or not partial restoration of rights merits your consideration or not. On the theory that half a loaf is better than none, but also with plenty of reservations, please consider Google's Dear Congress Petition. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Earnings "Beat the Street" Manipulation Underway as Profit Warnings Mount Posted: 27 Mar 2015 01:17 PM PDT Of S&P 500 companies providing first-quarter outlooks, MarketWatch reports 84% have been negative as Profit Warnings Pile Up. Ahead of the start of earnings reporting season, which unofficially kicks off when Alcoa Inc., reports results on April 8, about 84% of the companies that have provided first-quarter outlooks gave negative outlooks. That's above the 81% that warned Q1 2014, and the five-year average of 68%. I believe that yellow highlight I added should say Q3. More importantly, it would have been nice for MarketWatch to actually link to FactSet because it contains some interesting charts and analysis. Earnings InsightLet's dive into the FactSet Earnings Insight Report for first quarter of 2015. Key Metrics
- Earnings Growth: For Q115, year-over-year earnings for the S&P 500 are projected to decline by 4.6%. If the index reports a year-over-year decline for the quarter, it will be the first time since Q 3 2012 (-1.0%).
- Earnings Revisions: On December 31, the estimated earnings growth rate for Q1 2015 was 4.2%. All ten sectors have lower growth rates today (compared to December 31) due to downward revisions to earnings estimates, led by the Energy sector.
- Earnings Guidance: For Q1 2015, 85 companies have issued negative EPS guidance and 16 companies have issued positive EPS guidance.
- Valuation: The current 12-month forward P/E ratio is 16.7. This P/E ratio is above the 5-year (13.7) average and the 10-year (14.1) average for the index.
- Earnings Scorecard: Of the 16 companies that have reported earnings to date for Q1 2015, 14 have reported earnings above the mean estimate and 10 have reported sales above the mean estimate.
Earnings vs. Price
Q1 2015 Earnings Season: By the Numbers Overview
Analysts and corporations continue to lower expectations for earnings for the S&P 500 for the first quarter. On a per-share basis, estimated earnings for the first quarter have fallen by 8.2% since December 31. This is the largest decline in the bottom-up EPS estimate for a quarter since Q1 2009.
Companies have also lowered the bar for earnings fo r Q1, as 85 companies in the index have issued negative EPS guidance, while just 16 companies have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 84% (85 out of 101), which is well above the 5-year average of 68%. As a result of the downward revisions to earnings estimates, the estimated year-over-year earnings decline for Q1 2015 is -4.6% today, down from an expectation of growth of 4.2% at the start of the quarter (December 31). There is much more in the report. Inquiring minds may want to take a look. Earnings Manipulation UnderwayIn spite of these downgrades (rather, because of these downgrades), when actual earnings are announced, expect a huge majority of companies to "beat the street". Every year, whether earnings are going up or down, companies guide analysts to numbers low enough they can beat. Don't Be FooledPlease consider this CNBC report from April of 2014: Companies are Beating Earnings Estimates But Don't Be Fooled. Of the 85 S&P companies that have already reported their first-quarter earnings, 67 percent have beaten analyst estimates on the earnings side, and 51 percent have beaten on the revenue side, according to FactSet. That sounds pretty good—until one considers that over the past four years, 73 percent of companies have tended to beat earnings estimates, and 58 percent have tended to beat revenue estimates. As with MarketWatch, CNBC did not have the decency to link to FactSet either. Failure to Beat the StreetThe last time companies failed to "beat the street" was third quarter of 1998. At the earnings trough in third quarter of 2008, 58% of companies in the S&P 500 still managed to "beat the street". Don't Worry Companies Will Still "Beat the Street"In spite of those downgrades, history suggests corporations will still "Beat the Street". even in 2008 and 2009 the majority of firms beat estimates. Here is the way the process works: - Corporations give analysts "tips" regarding profit expectations.
- Those profit expectations are purposely low.
- Wall Street analysts lower estimates, if necessary, as the quarter progresses such that corporations can "beat the street".
- If corporations are going to miss and need an extra penny, they change tax assumption or make other "one time" adjustments as necessary.
- Corporations beat the street by a penny with "pro-forma" (after adjustment) reporting.
Mind the GapBy the way, that's one hell of a gap between earnings guidance and stock price. The 10-year smoothed PE at the end of this earnings season is set to soar. The 10-year PE is already one of the three most expensive in history. Doug Short at Advisor Perspective takes a look at the 10-Year PE in his March 2, 2015 post Is the Stock Market Cheap? Stock are only cheap compared to 1929, the dot-com bubble, and the housing bubble. Given the plunge in earnings estimates, this market will soon pass the housing bubble in amplitude. The 1929 peak may even be in sight. And in many ways, this bubble is worse than the dot-com bubble, as during the tech wreck one could find many companies with good valuations. It was predominately technology with PE extremes. Doug Short notes ... The historic P/E10 average is 16.6. After dropping to 13.3 in March 2009, the ratio rebounded to an interim high of 23.5 in February of 2011 and then hovered in the 20-to-21 range. The latest ratio is at a new interim high -- the highest since December 2007.
A cautionary observation is that when the P/E10 has fallen from the top to the second quintile, it has eventually declined to the lowest quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 550. Of course, a happier alternative would be for corporate earnings to continue their strong and prolonged surge. Equities and junk bonds globally are now in massive bubbles. Nonetheless, expect analysts to focus on the number of companies that "beat the street" because that is one of the key ways they use to convince you "stocks are cheap". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Misunderstanding "Peak Gold"; Gold About to Run Out? Posted: 27 Mar 2015 12:12 PM PDT Is gold about to "run out"? The correct answer to that question is the likelihood of that happening is precisely 0%. However, that is not the conclusion one would come to from the Zerohedge headline Peak Gold? Goldman Calculates There Is Only 20 Years Of Gold Supply Left. Zerohedge supplied a couple of charts. Peak Gold Diamonds Aren't Forever Gold About to Run Out?Zerohedge comments ... If the "known reserves" of gold plunge in the coming decade, no matter how many gold futures and GLD short sales are conducted by the BIS, the price will have to go up, and it will go up high enough to where a new surge of gold miners will come online and find thousands of new tons of gold reserves around the globe.
Unless they don't, and Goldman is correct that "peak gold" may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.
The answer is unclear, but what is certain is that like the price of oil over the past decade and until last fall when price discovery finally became somewhat credible, what happens in the physical realm has absolutely zero marginal impact on the price of commodity which has about 100 ounces in deliverable paper contracts for every ounce in underlying. It will be only after the gold price distortions via the derivative market are eliminated that such trivial price-formation forces as supply and demand are once again relevant. Gold Not About to Run Out Gold is not about to run out for the simple reason that nearly every ounce ever mined is still in existence. In that regard, mining supply, central bank buying, jewelry demand etc. are essentially meaningless. Misconceptions About GoldI discussed jewelry demand and other topics in 2007, in Misconceptions about Gold. The article says written by Trotsky, edited by Mish. "Trotsky" was a spoof name at the time for who is now better known as Pater Tenebrarum at the Acting Man blog. Gold Supply and Demand
If gold's price were determined by fabrication demand alone (jewelry and industrial uses), it could not possibly trade at a price of $650 oz.
Many gold analysts, from the mainstream to fringe groups such as the Gold Anti-Trust Action Committee (GATA) claim that they can predict what the gold price will do by adding up annual fabrication and investment demand (as well as dehedging demand by miners) and contrasting the resulting total with annual supply (mine supply, central bank selling, disinvestment and scrap). In short, they analyze the gold market in the same manner as they would analyze the copper market.
It should be immediately obvious that this can't be correct. After all, nearly the entire gold ever mined (approximately 150,000-160,000 tons) is still here. In short, the total potential supply of gold is some 97-98% greater than the gold produced every year (approximately 2,600 tons).
On that basis it makes no sense to apply traditional commodity supply/demand analysis based on annualized trends in the gold market.
Simply put, there is a big difference between commodities that are effectively used up (aside from scrap residual returning to the market every year) and a commodity the indestructibility and durability of which inter alia made gold the 'money commodity' in the first place.
Jewelry Demand vs. Monetary Demand
One can further illustrate gold's unique nature as money with a study of gold prices vs. jewelry demand. If record fabrication demand for gold (jewelry) must be good for the price of gold, then a historic high in jewelry demand should in theory coincide with a high gold price.
However, record high jewelry demand in 1999 - 2000 in actual fact coincided with a 20 year bear market low in the gold price - the exact opposite of what traditional commodity supply/demand analysis would suggest.
We can therefore conclude that there must be a source of gold demand that is of far greater importance than the jewelry and industrial demand components, and that demand constitutes the true driver of the price of gold in terms of fiat money.
Indeed, there is. This demand component is called 'monetary demand'. Monetary demand and the supply of gold is actually best described as the 'degree of reluctance of the current owners of gold to part with their gold at current prices' since, as mentioned above, some 160,000 tons are owned by somebody already.
De facto gold acts in the markets as if it were another currency rather than a commodity. It often keys off other currency cross rates, such as dollar/euro , and has a strong tendency to ignore all the typical supply/demand analysis thrown at it by the mainstream (including the World Gold Council which should know better).
A rising gold price usually begets falling jewelry demand, which is exactly what the theory of price elasticity would suggest. But at the same time, rising prices actually tend to stoke investment demand, just as a developing uptrend in the stock market tends to invite more demand rather than less. What's the Real Long-Term Driver for Gold? Most analysts are totally clueless about gold and gold markets. They cite jewelry, mining production, central bank sales, and all sorts of other irrelevant factors in their analysis. In an interview on Gold Switzerland Robert Blumen discusses " What's really key for the price formation of gold?" Gold is an asset. People buy it in order to hold it. The price of gold is set as people balance, at the margin, the amount of additional units of gold they want to hold against additional units of other assets or cash they want to hold, or consumption.
If you think of the possible gold buyer as the guy who is saying, "Do I want to hold one more ounce of gold or this $1,800 that I have?" The answer to his question is going to be different for each person and for each additional ounce. You might say "yes, I want one more ounce of gold instead of $1,800". Now, you have an ounce of gold and if I ask you the question again you might say, "No, now that I have bought that additional ounce, I've got enough gold".
On the supply side, are the people who own gold. From their point of view they have to answer the question, "Do I want to keep holding this ounce of gold or do I want to sell it on the market and have $1,800?" That $1,800 might stay in cash or maybe they have another use in mind for it. The supply side is everyone who has any gold and the buy-side of the market is anyone who has any money that they might want to put into gold.
The people who already own gold, they could be active on either side of the market as a buyer or a seller. I want to emphasize that everyone who owns any gold at all is part of the supply-side of the market, not all at the current price, but at some price.
Many of the people who have bought gold in the last few years are not remotely interested in selling at the current price or even double the current price, but there is always a price or some combination of price and circumstances where somebody would put some of their gold on sale — maybe not all of it but some of it. And people on the money side of the market are asking the same question in relation to gold. The market balances all of those choices out and you have a price that brings out the quantities on both sides of the market into balance.
Maybe that's not totally true, maybe some gold is held by people who wouldn't sell it for any reason. But I think that the concept of the gold bug who plans to take it all to the grave is over-stated. I asked a person the gold business whether gold retail trade is all selling and no buying. He told me, "No of course not, there are always buyers and sellers". After all, what is the point of having a store of value if you never use the value?
And it is important to understand the cost of owning gold is not necessarily the amount of money you could get by selling it. Prices are only a way of quantifying true costs. The cost of owning an ounce of gold is whatever other sort of economic opportunity that you are sacrificing by owning the gold instead. People who own gold are every day looking at "what other economic opportunities am I giving up by holding this ounce of gold?" and then "Do I want to shift the next ounce of gold somewhere else that will give me a better return or a better consumption experience?". If you could swap an ounce of gold for one unit of the American Dow Stock Average that was at the time yielding 12% then the cost of owning an ounce of gold is not owning a unit of the DJIA. The cost of owning gold is the opportunity cost, of which holding cash instead is only one possible choice. How Much Gold Is There?Here are a few charts courtesy of Sharelynx Gold from my November 2014 article Swiss Gold Referendum in Perspective in which I presented the case the referendum was meaningless except perhaps from a psychology standpoint. Annual Gold Production Cumulative Gold Production Since 1835
 Central Bank Holdings vs Cumulative Production Of the 2013 total (a bit higher now), central banks hold about 31,877 tons. SNB Purchases IrrelevantOne must exclude central bank holdings from the amount of gold available for central banks to buy. And as stated earlier, one can subtract various other items like rare coins, but the overall numbers show that it's safe to conclude " buying 1,800 tonnes of gold over 5 years" is essentially irrelevant from a " gold available" for purchase standpoint. IrrelevanceDiscounting short-term psychology factors, mining is irrelevant, central bank purchases and sales are irrelevant, jewelry demand is irrelevant, and coin sales are irrelevant as factors in the price of gold. Finally (and much unlike oil) because nearly every ounce of gold ever mined is still in existence, the entire concept of " peak gold" cannot happen until mining grinds to a total halt. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| SNB Warns of "Temporary Deflation", Promises Further "Unconventional Measures" Including Forex Interventions to Achieve "Stability" Posted: 27 Mar 2015 12:30 AM PDT Unconventional YieldsSwiss Bonds are negative out to 10 years. They briefly went negative out to 15 years in the wake of the sudden removal of the Swiss National Bank peg to the euro back on January 13 as shown in the following chart. Swiss 15-Year Bond Yield  Yield on 20-year Swiss bonds plunged to 0.10% on January 13 as well. Today, you can get 0.19% for 15 years or 0.31% for 20 years. That's how crazy things are. SNB Warns of "Temporary Deflation"Please consider SNB Warns of 'Difficult Times' as Currency Move Hits HomeSwitzerland is facing "difficult times" and a short period of deflation following January's abrupt unwinding of a currency peg, one of the Swiss National Bank's most senior policy makers said on Thursday night.
The comments from Fritz Zurbrugg, one of three permanent members of the SNB's governing board, show the impact of the January 15 currency move on an economy often regarded as a safe harbour during the eurozone crisis.
The Swiss franc has shot up in value since the removal of the peg that capped it at SFr1.20 per euro, making Swiss exports and Swiss holidays more expensive. A euro is now worth SFr1.05.
Mr Zurbrugg said that the fall in prices that Switzerland faces is "temporary" and would not threaten price stability in the medium term. "A damaging deflationary spiral is not expected."
Swiss inflation is already in negative territory, with prices falling 0.8 per cent in February — worse than the 0.3 per cent fall in prices across the eurozone in the month.
The SNB complemented January's currency move by reducing deposit interest to -0.75 per cent in an effort to prevent a wave of cash flowing into Switzerland in anticipation of the Swiss franc's rise in value.
"The introduction of negative interest is already having the desired effect," said Mr Zurbrugg, pointing to falling interest rates across the board.
"It is important that the negative interest rate be allowed to take effect and help to bring about a weakening of the Swiss franc," he said. "Efforts to circumvent negative interest rates by obtaining exemptions or shifting to cash are not in the interests of Switzerland as a whole in the current climate."
Speaking at the same event, Dewet Moser, an alternate member of the SNB's governing council, said the central bank had more tools it could use to make sure it achieved its policy objectives.
"If required, the SNB will continue to deploy unconventional methods for monetary policy implementation," he said. "Equally, it will continue to take account of the exchange rate situation and, if necessary, will intervene in the foreign exchange market." Unconventional MeasuresIt is rather amusing (a word I am using a lot lately) to watch competitive efforts of central banks to destroy their currencies to ward off what should be a welcome event - stable to falling prices. Instead of welcoming stable prices, the Swiss National Banks promises to deploy more " unconventional measures" including another attempt at currency intervention, to achieve what they already have. Let's take a look at the " stability" of the last peg and what happened the day it was removed. Swiss Francs vs. Euro If that's not the epitome of stability, what is? If by some chance that does not look like stability, don't worry. Alternate member Dewet Moser says the central bank has " more tools" to achieve desired stability. Heaven forbid should any currency ever become a " safe harbour". Clearly, " safe harbour" is nothing but a wart on Cinderella's nose. No central banker could ever allow that to happen. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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