Month: March 2014

One Reason the Ukrainian Revolution May Yet Succeed

Ukraine is in crisis. There are
reasons to question the staying power of its revolution: the lives
and infrastructure lost in the process, the legitimacy and savvy of
the interim leadership, the hobbling economy, Crimea’s separatist
movement, and most recently Russia’s invasion.

What could keep the nation on a path toward a stable, democratic
governance? “A revolution of the mind,” says Oksana Romaniuk, the
executive director of a free speech and media-focused NGO. She
departed from Ukraine earlier this week to attend a human rights
conference in California, and spoke with Reason about the
situation in her home country.

Romaniuk contrasts the current Euromaidan revolution with the
nation’s last “revolution” in 2004. “The Orange Revolution was
easy. People came out to the streets, stood out for a month, and
everything was solved in court. The problem was that people left
the streets and there was a big credit of trust to the Yushchenko
administration,” which promised to turn toward western, liberal
policies. But, the public and the press “didn’t check his
activities. The first criticisms of Yushchenko came maybe eight
months after his appointment. It was wrong,” she says, and real
change never materialized. 

The Orange Revolution failed to change what Romaniuk describes
as Ukraine’s “paternalistic society,” but “now we understand that
everything depends on us and we are ready to take responsibility.
The biggest difference is that we put demands to the new government
from the very beginning.” She suggests that the current leadership
is subject to much skepticism from constituents. Even as Russia
geared up for invasion, the Kyiv Post found time to

criticize Ukraine’s opposition installed-leadership.

Romaniuk highlighted the case of former Prime Minister Yulia
Tymoshenko. Although she aligns herself with the opposition and
receives sympathy for having been a political prisoner, Tymoshenko
“didn’t pass through that transformation with us. She doesn’t
understand that the situation has changed and we won’t fall for
emotions.” A recent polls
shows Tymoshenko would receive only 10 percent of the vote if
the presidential elections were held now.

As one protester
told Reason in January, “People support the opposition
leaders,” but “no one among the leaders can control Maidan,
because… the people control their leaders.”

Although seriously constrained leadership may be a handicap
while Russia flexes its military might, Ukraine’s revolutionary
mindset may be key to resisting foreign rule.

“It’s a mistake to say the Russian speaking community is happy
with Putin. They do not want him,” believes Romaniuk. “We just got
rid of our own corrupt government” and aren’t looking to submit to
another one.  

Indeed, a recent poll “found there is not a single region in
Ukraine where there is a majority in favour of unification with the
Russian Federation. In Crimea, where pro-Russian sentiments are the
strongest, 41 percent were in favour of unification with Russia,”

notes former Reason contributor Guy Bentley at
City A.M.

Read more Reason coverage of Ukraine here.

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Staples Celebrates The Recovery With 225 Store Closures, Sales Plunge

Nothing says global ‘economic recovery’ like a major retailer drastically missing revenue expectations, slashing earnings projections and announcing it will shutter 225 stores nationwide. Staples, the largest US office supplies retailer, hit the triple whammy and didn’t blame it all on the weather as the CEO notes “our customers are using less office supplies.” Or maybe there are just less office workers? Isolating Staples is a little unfair but as the largest (and most belwhether-ish), it is perhaps time to question the constant meme of escape velocity, improving fundamentals, and cleanest-dirty-shirt growth…

 

The results:

The company forecast earnings of 17-22 cents per share for the first quarter. Analysts on average were expecting 27 cents per share, according to Thomson Reuters I/B/E/S.Staples’ revenue fell 10.6 percent to $5.87 billion in the fourth quarter ended Feb. 1, below the average analyst estimate of $5.97 billion.

 

Excluding the impact of an extra week in the year-earlier quarter, sales declined 4 percent.

 

Same-store sales in North America, excluding sales through Staples.com, fell 7 percent as Staples sold fewer business machines, technology accessories, office supplies and computers.

 

Revenue at the company’s international division fell 13 percent, hurt by weakness in Europe and Australia.

But apart from that – it was great:

Staples Inc, the largest U.S. office supplies retailer, forecast another quarter of sales decline as it loses customers to mass market chains and e-retailers, and the company said it would close up to 225 stores in North America by 2015.

 

The closures represent up to 12 percent of the company’s 1,846 stores in the United States and Canada.

 

“Our customers are using less office supplies…

 

Staples said it had initiated a multi-year cost reduction plan that was expected to generate annualized pretax cost savings of about $500 million by 2015.

So less Capex, fewer stores, less sales… time to announce a dividend hike and massive buyback program?

The stock is not happy…at 15 month lows… (-16% today)


    



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Ukraine Update: Pro-Moscow Leader Arrested In Donetsk, Russians Block Border Cross Points

While the biggest strategic news of the day is that the Crimean parliament voted to join Russia with a done deal referendum to be held in a few days, as well as collapse of the anti-Russian sanction lobby with Germany and others getting cold feet against boycotting Russian goods, the tactical developments continue. Of note: earlier today the leader of the most persistent pro-Moscow protest movement in eastern Ukraine was arrested at his home in the city of Donetsk on Thursday, a Reuters journalist who was with police on the raid said. Around 10 members of the SBU security service arrested Pavel Gubarev at his apartment in a five-story Soviet-era block in the eastern city, on charges of “infringing the territorial integrity and independence of the state”. He did not resist.

Gubarev, a Donetsk businessman, had led protesters who blockaded the regional administration building and flew the Russian flag until they were removed on Thursday. He had called himself the “people’s governor” and demanded lawmakers sever ties with Kiev and put him in charge of the police force.

So if Russia needed yet another pretext to claim there is repression of pro-Russian individuals, Kiev gladly obliged.

Perhaps this explains why, as Bloomberg reports, the Russian military is restricting access of Ukrainian border troops to check-point buildings, border service says on its website. Bloomberg cites the Ukrainian statement as saying that Russian military use ultimatums to urge Ukrainian border troops to move and take side of self-proclaimed Crimean government. Blocked points include those near Massandra and Yevpatoria.

And some other re-escalation news: also according to Bloomberg, Russian military sank Ochakov ship in the Black Sea near Donuzlav on the eastern coast of the Crimean peninsula. Passage to Donuzlav lake is now blocked and Ukrainian navy ships are locked inside the lake. Bloomberg cited a defense ministry statement.

Still think Putin was de-escalating?

But here is the punchline:

  • RUSSIAN FOREIGN MINISTRY, IN REACTION TO U.S. STATE DEPT “PRESIDENT PUTIN’S FICTION”, SAYS WASHINGTON UNABLE TO ACCEPT THAT THINGS IN UKRAINE ARE NOT DEVELOPING AS THEY EXPECTED THEM TO

Which is why we fully expect John Kerry to make some more hollow threats and call it a day.


    



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Feds No Longer Trying to Convict Journalist for Hyperlinking

Barrett BrownJournalist-Activist Barrett Brown is one of the
lesser-known victims of the federal government’s war on journalism.
Brian Doherty
highlighted his case last June. In short, Brown, a supporter of
Anonymous, was targeted for prosecution because he hyperlinked to a
website containing material hacked from intelligence firm Stratfor.
To be clear, he did not himself hack Stratfor – a member of hacking
group AntiSec has already pleaded guilty. He linked to an online
dump of the materials in order to try to crowdsource research into
the documents.

But he was targeted by the FBI (along with his mother) and faced
17 criminal charges related not just to the hacking but his
emotional response to being targeted, which included a YouTube
video naming and threatening retaliation against an agent. He faced
a maximum penalty of 105 years in federal prison (though he would
be unlikely to ever be sentenced that much time).

It seems the feds have finally recognized some level of
absurdity in their behavior. They are dropping 11 of the 17 counts
against Brown, the counts that essentially accuse Brown of being
responsible for hacking Stratfor or stealing from Stratfor simply
by posting a hypertext link to the contents. The Guardian

notes:

The US government’s decision to drop counts one and three to 12
in the indictment relating to the Stratfor hack came just a day
after lawyers for Brown filed a legal
memorandum calling for those counts to be dropped.
Brown’s attorneys argued in the memo that the prosecution was a
violation of the First Amendment right to free speech, saying that
“republishing a hyperlink does not itself move, convey, select,
place or otherwise transfer, a file or document from one location
to another”.

Federal prosecutors have given no further information about why
they decided to drop the counts, and a request for comment was not
immediately returned. One possible explanation is that government
lawyers assessed the steep hill they had to climb overcoming First
Amendment protections and decided instead to focus on the other
charges still facing Brown.

The activist, who wrote for the Guardian and other publications
before his arrest in September 2012, remains accused of count two
in this indictment – that he committed access device fraud relating
to the credit card details released in the Anonymous hack. He also
faces two separate indictments, one for obstruction of justice by
allegedly attempting to hide laptops, and the other for allegedly
making threats in a YouTube video against an FBI officer and
disclosing information about an FBI agent and his family.

So of the charges that remain, all but one are an outcome of the
FBI targeting him for something they now acknowledge is not a
criminal act. He still faces a maximum possible prison sentence of
70 years (though again, he would be very unlikely to get that much
time).

In February, J.D. Tuccille took note that the federal
government’s treatment of Brown contributed to America sliding down
13 spots in the
World Press Freedom Index.

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Newsweek Claims to Have Identified the Creator of Bitcoin – Satoshi Nakamoto

I have very mixed feelings about the accuracy of today’s article from Newsweek regarding its claim to have discovered the identity of Bitcoin creator Satoshi Nakamoto. On the one hand, you’d think a major magazine would not make such a bold claim without extensive research and a high degree of certainty. Then again, this is Newsweek.

At the end of the day, since no one can really prove the story right or wrong, it’s certainly possible the magazine merely agreed that it sounded plausible enough and decided it was worth the risk given the page views it would generate.

I tend to have decent intuition on these things, and as I was reading it, something appeared to be off. Perhaps it was the writer’s style, or perhaps just the strangeness of this guy’s personality, but it read a bizarrely to me. The way the guy calls the cops when she shows up to his door. Why would the person who created Bitcoin respond in that way? Also, while on the surface it might seem clever to use your real name in an attempt to remain anonymous, it isn’t really. Everyone trying to figure out who you are will start with searches of Satoshi Nakamoto no matter how stupid it seems.

The one thing that is causing many to speculate that this story is accurate, is the following tweet from Bitcoin core developer Gavin Andresen:

This definitely reads as if Gavin is confirming the article, but it is still unclear to me whether Gavin himself knew Satoshi’s identity, or if he was just communicating with a digital person while working on Bitcoin.

From my perspective, something seems off in this article.

Nevertheless, here are some excerpts, come to your own conclusion:

Two police officers from the Temple City, Calif., sheriff’s department flank him, looking puzzled. “So, what is it you want to ask this man about?” one of them asks me. “He thinks if he talks to you he’s going to get into trouble.”

“I don’t think he’s in any trouble,” I say. “I would like to ask him about Bitcoin. This man is Satoshi Nakamoto.”

“What?” The police officer balks. “This is the guy who created Bitcoin? It looks like he’s living a pretty humble life.”

Tacitly acknowledging his role in the Bitcoin project, he looks down, staring at the pavement and categorically refuses to answer questions.

Ok, this is the first sentence that reads strangely. How did he acknowledge his role? By staring down? Not convincing.

I’d come here to try to find out more about Nakamoto and his humble life. It seemed ludicrous that the man credited with inventing Bitcoin – the world’s most wildly successful digital currency, with transactions of nearly $500 million a day at its peak – would retreat to Los Angeles’s San Bernardino foothills, hole up in the family home and leave his estimated $400 million of Bitcoin riches untouched. It seemed similarly implausible that Nakamoto’s first response to my knocking at his door would be to call the cops. Now face to face, with two police officers as witnesses, Nakamoto’s responses to my questions about Bitcoin were careful but revealing.

Not only does it seem implausible, it seems absurd to me. You are just asking for attention and to be outed by doing that.

Far from leading to a Tokyo-based whiz kid using the name “Satoshi Nakamoto” as a cipher or pseudonym (a story repeated by everyone from Bitcoin’s rabid fans to The New Yorker), the trail followed by Newsweek led to a 64-year-old Japanese-American man whose name really is Satoshi Nakamoto. He is someone with a penchant for collecting model trains and a career shrouded in secrecy, having done classified work for major corporations and the U.S. military.

continue reading

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‘Bail-in’ Risks See Europe Banks Get Downgrade Warning

Today’s AM fix was USD 1,334.25, EUR 971.57 and GBP 798.00 per ounce.
Yesterday’s AM fix was USD 1,333.50, EUR 971.94 and GBP 799.84 per ounce.    

Gold rose $2.30 or 0.17% yesterday to $1,337.40/oz. Silver fell $0.02 or 0.09% at $21.17/oz.


Gold in U.S. Dollars, 1 Year – (Bloomberg)

Gold traded below the highest level in more than four months as investors weighed the crisis in Ukraine against the weakening U.S. economy.

Prices rose 0.3% after a report showed that U.S. companies added much fewer workers than projected in February. The metal climbed to $1,354.87 on March 3, the highest since October 30, as tension between Ukraine and Russia escalated. Bloomberg reports that gold in Singapore  for immediate delivery was at $1,334.86/oz at 2:30 p.m. in from $1,336.90/oz yesterday.

Must read guide to and research on Bail-ins can be read here:
Guide: Protecting your Savings In The Coming Bail-In Era

The move towards “bail-ins” and away from government “bailouts” continues to evolve
and yesterday credit rating agency, Standard and Poor’s  (S&P) warned that this could lead to credit ratings for European banks being slashed by one or two notches.

Following similar moves in the U.S., European banks could see ratings downgrades if regulators continue to move towards depositor and bondholder “bail-ins.” S&P signaled that it would review its ratings on banks by the end of April this year.

In the future, rather than banks becoming insolvent and being liquidated and wound up as has happened throughout history, “bail-ins” will force losses on bank’s creditors including depositors as was seen in the testing ground for bail-ins that was Cyprus. Central banks and regulators now think that rather than governments and taxpayers bearing the cost of rescuing failing banks, now creditors including depositors will suffer losses.

“Bail-ins” target both depositors and bondholders. In some cases, bondholders are asked to defer repayment deadlines and can even agree to reduce their claims. If this becomes practice, it could drive up the interest charged by bondholders and have a negative feedback loop.

Some have warned that bail-ins could also damage the wider economy as it could mean that banks have to charge higher interest on their lending as a result. In our research, we have highlighted that bail-ins may have a very negative impact on consumer and business confidence as people’s life savings and cash balances of companies are confiscated as seen in Cyprus. 

S&P said developments in the U.S. towards “bail-ins” meant that its rating outlook on eight U.S. banks had already been impacted and now they are turning their focus on European banks.

The coming bail-in regimes will pose real challenges and risks to investors and of course depositors – both household and corporate. Return of capital, rather than return on capital will assume far greater importance.

Evaluating counterparty risk and only using the safest banks, investment providers and financial institutions will become essential in order to protect and grow capital and wealth.

It is important that one owns physical coins and bars, legally in your name, outside the banking system. Paper or electronic forms of gold investment should be avoided as they could be subject to bail-ins.

Must read guide to and research on Bail-ins can be read here:
Guide: Protecting your Savings In The Coming Bail-In Era


    



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Factory Orders Miss 3rd Month In A Row As Inventories Hit Record High

For the 3rd month in a row, US Factory Orders missed expectations with a major downward revision to December’s data (-2%) and has fallen two months in a row. Inventories continue to rise – up nine of the last ten months to the highest level since records began. Better just hope for all that pent-up demand to flood back or we have a problem.

 

 

Charts: Bloomberg


    

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Sheldon Richman on How American Hawks Risk Escalating the Ukrainian Crisis

With Russia and the United States confronting
each other over Ukraine, the world is at a dangerous juncture.
While the chances of war between the two behemoths seem small—these
are nuclear powers that have avoided war for over 60 years—nothing
can be taken for granted, Sheldon Richman writes. Governments are,
after all, run by human beings who are tainted by arrogance,
vainglory, and the fear of humiliation. What Russian President
Vladimir Putin is doing in Crimea and threatening to do in eastern
Ukraine in troublesome. But what’s most worrisome, says Richman,
are the actions of the U.S. government, which could aggravate the
Ukrainian conflict.

View this article.

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Barack Obama’s List Of “20 Things Kids Need To Know” About Using Money

The following charts are a summary taken from the “Money as you Grow” presentation prepared by the President’s Advisory Council on Financial Capability (created by executive order). What it highlights are “20 Things kids need to know to live financially smart lives” and is Barack Obama’s personal advice to children ages 3 through 18+ on how they should spend their money. The list, which includes among it such brilliant advice as “you may have to wait before you can buy something you want”, “it can be cost and dangerous to share information online” (with the NSA), “putting money in a savings account will protect and pay you interest“, “the sooner you save, the faster your money can grow from compound interest”, “your first paycheck may seem smaller than expected since money is taken out for taxes“, “you should use a credit card only if you can pay the money owed in full each month”, and of course “you need health insurance” has been pulled straight from Bizarro Day, and literally redefines New Normal humor since everything it recommends is the opposite of how the real world now works.

So who is issuing this indispensable advice?

The President’s Advisory Council on Financial Capability (PACFC) was created by Executive Order 13530, which was signed by President Barack Obama on January 29, 2010. Its charter is to advise the President on promoting and enhancing financial literacy and capability among the American people. While the President’s Advisory Council on Financial Capability cannot by federal statute become operational, it is charged with providing financial capability policy recommendations for the nation to the President of the United States. One of the key objectives of the President’s Advisory Council on Financial Capability is to find ways to improve the financial capability of young Americans.

The purpose of this website is to inspire families, community organizations, nonprofits, and businesses to embrace Money as You Grow as a tool to promote financial literacy. This website serves as a guide to learning about and using Money as You Grow. It is intended for reference only, and is not meant to endorse or promote specific initiatives.

QUESTIONS? COMMENTS? WANT TO GET INVOLVED? Email us: info@moneyasyougrow.org


    



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Why Is Our Government (And Deep State) So Incompetent?

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Why is our government so incompetent? Short answer: because incompetence has been fully institutionalized in every branch, every agency and every nook and cranny of the state.

Though many may reckon the U.S. government (and its Deep State) are not so much incompetent as merely evil, I suggest incompetence sows the seeds of evil consequences.

It's easy to lay the responsibility for the state's incompetence on its staggering size and complexity, and there is much truth in the notion that no system of this scale and complexity can possibly be governable or accountable.

But I think we owe it to ourselves to dig a bit deeper than this to understand why our visible government (executive, Congress, regulatory agencies, the Federal Reserve, etc.) and the Deep State (everything that's decided and run behind closed doors) is so monumentally incompetent.

The policies and decisions of the past 15 years can be reduced to three catastrophic blunders: the discretionary war in Iraq and "nation-building" in Afghanistan; allowing those responsible for the 2008 financial meltdown to become even more invulnerable and predatory, i.e. enabling a "too big to fail" banking sector, and Obamacare, the Orwellian-named Affordable Care Act (ACA).
Each of these policy decisions has been enormously destructive to the nation, and the opportunities lost in their wake are irreversible.

I have covered the systemic reasons for incompetence and failure many times.These boil down to the accumulating sclerosis of bureaucracy and the ratchet effect.

I have addressed The Lifecycle of Bureaucracy on a number of occasions:

Our Legacy Systems: Dysfunctional, Unreformable (July 1, 2013)
The Way Forward (April 25, 2013)

When Escape from a Previously Successful Model Is Impossible (November 29, 2012)

Complexity: Bureaucratic (Death Spiral) and Self-Organizing (Sustainable) (February 17, 2011)

The ratchet effect can also be visualized as a rising wedge, in which costs and inefficiencies continue rising until any slight decrease in funding collapses the organization.

Dislocations Ahead: The Ratchet Effect, Stick-Slip and QE3 (February 14, 2011)

The Ratchet Effect: Fiefdom Bloat and Resistance to Declining Incomes (August 23, 2010)

I think we can add a few other factors:

1. That which is cheap and abundant will be squandered until it is no longer cheap or abundant. Our default programming is to squander what is easily available and abundant. This is true not just of resources such as food and energy but of health, trust, power and all sorts of other intangibles.

For example, when the Soviet Union collapsed, the U.S. was left with an abundance of soft and hard power on the global stage. The natural response was to squander it on misadventures instead of investing it wisely.

When we're young and healthy, we squander this reservoir of vitality rather than invest it wisely in habits that will maintain our health as we age.

There are countless examples of this dynamic. The irony of this dynamic is tragic: by the time we realize we've squandered an irreplaceable resource, it's too late.

2. The prime directive of any bureaucracy is to eliminate all accountability. The raison d'etre of bureaucracy, the very reason for its existence, is not to manage complex affairs but to dissipate accountability into a formless cloud so that no member of the bureaucracy will ever face any consequences for his/her actions.

In other words, the prime directive of any bureaucracy is to enforce the perfection of moral hazard, i.e. those making decisions suffer no consequences when the decisions are disastrous.

The entire structure of a bureaucracy boils down to this: we followed the rules, and therefore we are blameless.

Obamacare and the Pentagon are both perfections of this purposeful loss of accountability. I recently saw a video clip of a journalist who had asked 12 different government functionaries who was in charge of implementing the Obamacare website before its flawed launch and he'd received 12 different answers.

In other words, accountability had already been extinguished well before the site was even launched.

3. Bureaucracies are intrinsically prone to group-think. The more closed the bureaucracy, the greater this tendency to eliminate skeptics, heretics, independent thinkers, etc.: Who Gets Thrown Under the Bus in the Next Financial Crisis? (March 3, 2014).

The foundational group-think concepts behind each of the three policy disasters listed above have all been discredited, but only after group-think insured the destruction of vital national interests: for example, the neo-conservative "failed-state" concept that guided a decade of foreign policy misadventures: The Rise and Fall of the Failed-State Paradigm: Requiem for a Decade of Distraction (Foreign Affairs).

4. As correspondent Lew G. has pointed out, bureaucracies are not designed to be fail-safe; their complexity and lack of accountability lead not to resilience but to fragility and vulnerability.

5. One systems-level consequence of tightly connected, interactive complex systems is that they generate routinely failures known as "normal accidents," catastrophes that result from seemingly small miscalculations and miscues that cascade into systemic crises. When accountability has been lost, there are no feedback loops left to correct these "normal accidents," so the damage piles up within the organization until it collapses in a supernova model of accumulated incompetence.

6. The moral-hazard-riddled leadership of bureaucracies will choose whatever short-term politically expedient fix reduces the immediate political pain (also known as "kicking the can down the road") rather than risk shaking up the organization by imposing accountability and clearing out the deadwood. This dependence on short-term politically expedient "fixes" that ignore the real problems piles up more moral hazard, failed policies, ineffective deadwood and cost, increasing the system's fragility and vulnerability to any shock that cannot be dissolved with another short-term can-kicking "fix."

Why is our government so incompetent? Short answer: because incompetence has been fully institutionalized in every branch, every agency and every nook and cranny of both the visible state and the Deep State.


    



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