Vid: Anal Probes Run Amok: Drug-Sniffing Dogs Must Be Stopped.

The case of Timothy
Young made
national headlines
 in 2012 when New Mexico police anally
probed him in search of drugs (no contraband was found). His
ordeal was the result of a false positive alert by a drug-sniffing
police dog. Incredibly, the same dog was involved in a case
involving another New Mexico resident that resulted in forced
rectal exams that uncovered no drugs. That case ended with
authorities paying a
$1.6 million settlement
 (Young’s case is still
pending). 

Watch the full video above or click the link below for
downloadable versions, full text, and associated
links. 

About 4 minutes. Produced by Will Neff. Additional camera by
Paul Detrick.

Subscribe to Reason
TV’s YouTube channel
 to receive automatic notifications
when new videos go live.

View this article.

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The “Calpers vs Hedge Funds” Debate In Just Two Charts

While some are shocked by Calpers’ decision to abandon hedge funds as an investment class (the first of many such “exits”), there really should be no surprise here. As we have said year after year after year (and so on), it was only a matter of time before limited partners said “enough” and stopped paying 2 and 20 to overpaid asset managers in a world in which central banks have “guaranteed” there is no longer any risk, just to underperform the market for a whopping 6 years in a row now. And to showcase where Calpers decision came from here are just two charts.

The first is from Goldman showing YTD performance by major asset class, with an emphasis on various hedge funds, and how for the sixth year in a row, hedge funds have underperformed the S&P.

 

Wait, six years? Impossible. Oh no, quite possible. The chart below shows that while the S&P is soaring into the stratosphere on the back of endless global liquidity injections (as a reminder, none other than JPM recently reported that global excess liquidity was at an all time high and going higher), as today’s latest news out of China definitively confirmed, hedge funds returns have yet to surpass their cycle highs.

 

And then of course, there’s this: “90% Of Hedge Fund Managers Are Overpaid Relative To “True Talent“”

The fees, which still make up as much as 2 percent of a fund’s assets, represent a disproportionately high share of the total remuneration unrelated to performance, said Nicolas Rousselet, head of hedge funds at Unigestion. To align managers’ pay more with performance, the fund industry should either abandon the management fee or combine it with a hurdle rate that one must achieve before collecting incentive fees, he said.

 

“The philosophy of the hedge-fund industry, as it should be, is to remunerate true talent,” Rousselet said in a telephone interview on Sept. 9. “Fund managers should be remunerated when they perform. They should not be remunerated for doing nothing.”

 

Fees are coming down amid efforts to win mandates in an industry that traditionally charges about 20 percent on performance and 2 percent on the total assets. Investors paid an average 1.69 percent last year, with the share of those who paid 1.5 percent or more at 79 percent, almost unchanged from 2012, according to a Deutsche Bank AG survey published in February.

 

“Hedge-fund managers should work harder to justify the fees that they earn.”

But while it is easy to bash hedge funds for consistently generating underwhelming returns (and being massively overpaid for it), it really is not their fault: the fault is not in our stars, dear Brutus, but in the Fed, and whoever the Chief Risk Officer of the “market” may be at any given moment. Because in a centrally-planned world in which markets are not allowed to decline, hedging as a concept is made obsolete.

After all, there is no risk.

Until there is. And the biggest irony will be that the Fed’s idiotic policies, now in their 6th year, will ultimately demolish the only asset manager class whose job is to “hedge” risk, and just as the market crashes, there will be nobody left hedging said crash.

Which, to some at least, will be poetically symmetric.




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The "Calpers vs Hedge Funds" Debate In Just Two Charts

While some are shocked by Calpers’ decision to abandon hedge funds as an investment class (the first of many such “exits”), there really should be no surprise here. As we have said year after year after year (and so on), it was only a matter of time before limited partners said “enough” and stopped paying 2 and 20 to overpaid asset managers in a world in which central banks have “guaranteed” there is no longer any risk, just to underperform the market for a whopping 6 years in a row now. And to showcase where Calpers decision came from here are just two charts.

The first is from Goldman showing YTD performance by major asset class, with an emphasis on various hedge funds, and how for the sixth year in a row, hedge funds have underperformed the S&P.

 

Wait, six years? Impossible. Oh no, quite possible. The chart below shows that while the S&P is soaring into the stratosphere on the back of endless global liquidity injections (as a reminder, none other than JPM recently reported that global excess liquidity was at an all time high and going higher), as today’s latest news out of China definitively confirmed, hedge funds returns have yet to surpass their cycle highs.

 

And then of course, there’s this: “90% Of Hedge Fund Managers Are Overpaid Relative To “True Talent“”

The fees, which still make up as much as 2 percent of a fund’s assets, represent a disproportionately high share of the total remuneration unrelated to performance, said Nicolas Rousselet, head of hedge funds at Unigestion. To align managers’ pay more with performance, the fund industry should either abandon the management fee or combine it with a hurdle rate that one must achieve before collecting incentive fees, he said.

 

“The philosophy of the hedge-fund industry, as it should be, is to remunerate true talent,” Rousselet said in a telephone interview on Sept. 9. “Fund managers should be remunerated when they perform. They should not be remunerated for doing nothing.”

 

Fees are coming down amid efforts to win mandates in an industry that traditionally charges about 20 percent on performance and 2 percent on the total assets. Investors paid an average 1.69 percent last year, with the share of those who paid 1.5 percent or more at 79 percent, almost unchanged from 2012, according to a Deutsche Bank AG survey published in February.

 

“Hedge-fund managers should work harder to justify the fees that they earn.”

But while it is easy to bash hedge funds for consistently generating underwhelming returns (and being massively overpaid for it), it really is not their fault: the fault is not in our stars, dear Brutus, but in the Fed, and whoever the Chief Risk Officer of the “market” may be at any given moment. Because in a centrally-planned world in which markets are not allowed to decline, hedging as a concept is made obsolete.

After all, there is no risk.

Until there is. And the biggest irony will be that the Fed’s idiotic policies, now in their 6th year, will ultimately demolish the only asset manager class whose job is to “hedge” risk, and just as the market crashes, there will be nobody left hedging said crash.

Which, to some at least, will be poetically symmetric.




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Scottish independence: they love democracy so much they’re trying to subvert it

Scot Cover Scottish independence: they love democracy so much theyre trying to subvert it

September 16, 2014
Santiago, Chile

The polls in Scotland will close this week on one of the more important elections in recent history… perhaps one of the only elections that actually matters.

Rather than a typical vote to see who the captain of the Titanic will be, Scots are deciding whether they want to be free and independent from the UK.

Every eligible voter has a say, and a simple majority decides the outcome for everyone else.

By definition, this is the PUREST possible form of the democratic process.

What’s ironic here is that ‘democracy’ is typically held up as the hallmark of free society.

Western nations have spent years (and trillion of dollars) force-feeding representative ‘democracy’ down the throats of developing countries at gunpoint.

Opening his second Presidential term in 2005, George W. Bush famously told the world that “it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture. . .”

Given the west’s big love for democracy, you’d think this instance in Scotland– the most fundamental example of the democratic process– would be able to take place free, unfettered, and uninfluenced by government.

Government, in fact, is supposed to be the responsible steward to protect and champion democratic rights. At least, that’s the BS they’re constantly selling us.

But that’s not what’s happening.

British politicians are scared to death that Scotland will file for divorce. So they’re doing everything they can to influence the outcome of this supposedly impartial democratic process.

They’ve spent an incalculable amount of money trying to influence the outcome, effectively subverting a democratic election.

Their claim is that the government knows better than you do. They say they’re doing this for your own good. If Scotland breaks away, your children and grandchildren will suffer immeasurably as a result.

In other words, you NEED US TO TAKE CARE OF YOU. You cannot function without us being in charge of you.

The British government is spreading untold fear, paranoia, and propaganda to drive this point home, all in an effort to influence the outcome of a supposedly free and fair election.

It’s incredibly hypocritical. And the government’s desperation drives home how fragile this system really is.

They know how much weaker and impotent they’ll be if Scotland becomes independent. And they’re terrified of it.

But here’s the thing– this isn’t even the real story. The outcome of the election is irrelevant.

The real issue here is that this election is even happening at all.

Bear in mind that human nature is highly resistant to change. This is the way of the universe.

Sir Isaac Newton told us that an object at rest tends to stay at rest unless acted upon by an external force of sufficient enough to overcome the object’s inertia.

In chemistry, activation energy is defined as the minimum energy needed to be input in order to produce a chemical reaction.

A wooden log in a fireplace doesn’t spontaneously combust. You must first add sufficient energy (heat) to the system before the wood will burn.

Until that activation energy is reached, no reaction will occur.

Humans are the same. Our natural state is to remain at rest. Overcoming our inertia is incredibly difficult. Doing so requires tremendous energy. And motivation.

The fact that millions of people in Scotland are even considering rocking the boat and radically change is very telling.

It shows there is a deep, deep dissatisfaction with the status quo. People are sick and tired of the way things are. The system has completely failed them. And they want change.

This is huge. And it’s a sign of things to come.

The dissatisfaction is growing worldwide. As I reported yesterday, the latest Gallup numbers show that only 23% of Americans are satisfied with the direction of the country.

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Change is coming. And not just any change. Deep, radical change– a fundamental reset in the way we do business, the way we organize ourselves as societies, and the way we view money.

There’s tremendous opportunity for people who understand this trend and stay in front of it. And frankly I think this makes it a very exciting time to be alive.

I invite you to spend some time with me this afternoon exploring this incredibly important issue in our latest Podcast episode.

Click here to listen to more of this

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019: Scottish independence: they love democracy so much they’re trying to subvert it

Podcast 019 Cover 019: Scottish independence: they love democracy so much theyre trying to subvert it

The polls in Scotland will close this week on one of the more important elections in recent history… perhaps one of the only elections that actually matters.

Rather than a typical vote to see who the captain of the Titanic will be, Scots are deciding whether they want to be free and independent from the UK.

I invite you to spend some time with me this afternoon exploring this incredibly important issue in our latest Podcast episode.

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The FBI Unveils its Controversial Facial Recognition Database with 52 Million Photos to be Stored

Screen Shot 2014-09-16 at 12.25.38 PMIn April of this year, I highlighted the FBI’s disturbing and Orwellian plan to launch a massive biometric database known as the Next Generation Identification (NGI) System in the post, FBI Plans to Have 52 Million Photos in Facial Recognition Database by 2015. In that piece I noted that:

The latest article from the EFF that caught my attention was published a couple of days ago, and shines light on the disturbing push by the FBI to create an extensive facial recognition database, which will include criminal and non-criminal photos alike. The information received by the EFF via a Freedom of Information Act (FOIA) request, demonstrates that the feds may have a mugshot database with up to 52 million photos by 2015.

The program is called Next Generation Identification (NGI), and the aspect of it that bothers the EFF most is the fact that non-criminal and criminal photos will be combined in the same database. So someone who has no criminal record can suddenly be flagged as a suspect just because an algorithm says so. What’s worst, research shows that the potential for false positive identification increases as the dataset increases.


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California Destroys Winery Over Use of Volunteers

Enough a drive a guy to drink. Oh, WAIT!Apparently your labor is the opposite
of your sexuality in California: You can sell it, but you can’t
give it away for free.

California has a state law that prohibits for-profit companies
from using volunteer labor. Anybody who knows anything about
employment economics knows that this isn’t going to hit those big,
dastardly corporations that people hate. No, it’s going to end up
destroying small wineries like Westover Winery in Castro Valley.
From the
Mercury News
:

A small-time vintner’s use of volunteer workers has put him out
of business after the state squeezed him like a late-summer grape
for $115,000 in fines — and sent a chill through the wine
industry.

The volunteers, some of them learning to make wine while helping
out, were illegally unpaid laborers, and Westover Winery should
have been paying them and paying worker taxes, the state Department
of Industrial Relations said.

“I didn’t know it was illegal to use volunteers at a winery;
it’s a common practice,” said winery owner Bill Smyth.

So instead, the place will shut down. It was open only 10 hours
of week and earned about $11,000 a year in profits for the owning
couple. The story notes that half of these volunteers were actually
students taking a class about making wine and were benefiting from
what they were learning. Essentially they were interns:

This was an incredible opportunity for me,” said Peter Goodwin,
a home winemaker from Walnut Creek who said he dreams of opening a
winery with some friends. “I got to learn from someone who knows
the business.”

The winery sometimes asked Goodwin if he wanted to assist in
different tasks.

“That’s what I wanted, to be as involved as much as possible —
it was all about learning,” he said. “I don’t understand the
state’s action. It was my time, and I volunteered.”

A state spokesperson’s response was to whine about what might
happen if there were a “catastrophic accident” (lawsuits?) and that
it wasn’t “fair” for wineries that have to pay employees to compete
with wineries who don’t. I don’t think anybody was worried that
this $11,000-a-year empire was going to put anybody out of
business, and it’s the state that mandated this system in the first
place. Whenever anybody who works in government talks about
creating a level field for the marketplace, you know some small
business owner somewhere is about to get screwed over. The story
notes that there are many small wineries like this one in the area
who rely on volunteers. They had to send them all home.  

(Hat tip to Hit and Run commenter Old Man With Candy.)

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Conference on ISIS Excludes Syria, Iran; Iran, U.S. Reject Idea of Cooperating Militarily

Map of ISISThirty
countries
met in Paris yesterday at the invitation of the
French president, Francois Hollande, to talk about the threat posed
by the Islamic State in Iraq and Syria (ISIS) Among them were the
U.S., Russia, China, and the U.K. and several Arab countries but
not Syria, one of the countries in which ISIS is operating, nor
Iran, which borders Iraq and, as every country in the region,
considers ISIS a national security threat.

Instead, the American and Iranian governments used the
opportunity to exchange barbs. Iran’s supreme leader, Ayatollah Ali
Khamenei, claimed his government refused a “private
request
” from the U.S. to cooperate on ISIS. Iran already
assists Iraq militarily, as does the U.S., and also assists the
Syrian government in its ongoing civil war with ISIS and various
other rebel groups.

The Syrian government, meanwhile, has insisted airstrikes in
Syria without its permission would be a “big mistake,” blaming the
U.S. and its allies on helping to create ISIS. “Those who would
like to fight terrorism cannot fight terrorism in Syria or in Iraq
without coordinated actions with both governments and without a
broader international coalition,” Syria’s deputy foreign minister
said, according to the
Tehran Times
. “That should also take on board Russia,
China, the Islamic Republic of Iran, and all other countries. You
cannot fight terrorism when you collaborate with those who created
these terrorist groups, including Saudi Arabia, Qatar, Turkey, and
others.” 

ISIS declared itself a caliphate in July, its dominion over all
Muslims and territory reaching from Turkey to Saudi Arabia, the
site of Islam’s holiest city. While some American politicians warn
that ISIS (like the big bads that came before it) could send agents
across the porous U.S.-Mexico border. ISIS has far closer borders
to penetrate in Saudia Arabia to the south and Turkey to the
north.

In the meantime, only the United States has conducted air
strikes in Iraq so far, and it is
looking
for other countries to commit combat troops. France,
which called the ISIS conference last month, only began
surveillance flights over Iraq after receiving permission from the
Iraqi government at the conference.  Gen. Martin Dempsey, the
chairman of the joint chiefs of staff, said ground troops in Iraq
would be possible if airstrikes “fail.” As the U.S. prepares to
escalate its military campaign against ISIS, it only provides
regional powers more threatened by ISIS’ operations
less incentive to act on their own
.

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Goldman’s Take On China’s “Stealth QE”

From Goldman’s Yu Song:

Domestic media (Sina) reported that the PBOC conducted RMB 500bn of Standing Lending Facility operations with the big 5 commercial banks (ICBC, BOC, BoCOM, CCB, ABC). The reports note that the duration is 3 months and the RMB 500 bn is evenly split among the banks. This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis (though the impacts of RRR cuts tend to be larger because they have ongoing effects).

 

There is no official confirmation from the PBOC yet. Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus (see China: Sharp slowdown in activity in August, September 14, 2014).

 

We expect monetary conditions to loosen modestly, which will provide some much needed support for demand growth. Other policies may follow. Front-loading of fiscal expenditure is one possibility–a disproportionate share of fiscal outlays (close to 20%) occurs in the last month of the year– and could reduce recurring criticism of the year-end rush to spend. The government may also step up pressures on government agencies and local authorities to maintain momentum on investment growth. However, we see no indication of these measures yet.

 

Given policymakers have shown a willingness to loosen in the face of weaker data, we believe growth will rebound in the coming months and the government will be able to reach the “around 7.5%” full year GDP growth target for 2014 (after positive effects of the expected GDP methodology adjustment to include R&D.

* * *

It will rebound… for one quarter, then tumble once more as we explained yesterday in “Why China’s Latest Mini-Stimulus Failed Again, In One Chart”  thanks to the magic words: “Credit Impulse”




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Goldman's Take On China's "Stealth QE"

From Goldman’s Yu Song:

Domestic media (Sina) reported that the PBOC conducted RMB 500bn of Standing Lending Facility operations with the big 5 commercial banks (ICBC, BOC, BoCOM, CCB, ABC). The reports note that the duration is 3 months and the RMB 500 bn is evenly split among the banks. This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis (though the impacts of RRR cuts tend to be larger because they have ongoing effects).

 

There is no official confirmation from the PBOC yet. Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus (see China: Sharp slowdown in activity in August, September 14, 2014).

 

We expect monetary conditions to loosen modestly, which will provide some much needed support for demand growth. Other policies may follow. Front-loading of fiscal expenditure is one possibility–a disproportionate share of fiscal outlays (close to 20%) occurs in the last month of the year– and could reduce recurring criticism of the year-end rush to spend. The government may also step up pressures on government agencies and local authorities to maintain momentum on investment growth. However, we see no indication of these measures yet.

 

Given policymakers have shown a willingness to loosen in the face of weaker data, we believe growth will rebound in the coming months and the government will be able to reach the “around 7.5%” full year GDP growth target for 2014 (after positive effects of the expected GDP methodology adjustment to include R&D.

* * *

It will rebound… for one quarter, then tumble once more as we explained yesterday in “Why China’s Latest Mini-Stimulus Failed Again, In One Chart”  thanks to the magic words: “Credit Impulse”




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