Month: June 2014

NSA Compiling Secret, Massive Database for Facial-Recognition Program. Relax, It’s for Terrorists Only!

Add this to the latest
revelation about secret government programs that have come to light
thanks to Edward Snowden (what
a year it’s been since the contents of his thumb drive, iPod
Nano, or whatever he used to transfer his cache of documents).
Turns out that the NSA is hoovering up huge amounts of pictures and
images of people from every possible source, the better to
identify, track, and capture terrorists, persons of interest, and,
well, just about everyone else on the planet.

From
The New York Times:

The National Security Agency is harvesting huge
numbers of images of people from communications that it intercepts
through its global surveillance operations for use in sophisticated
facial recognition programs, according to top-secret documents.

The spy agency’s reliance on facial recognition technology has
grown significantly over the last four years as the agency has
turned to new software to exploit the flood of images included in
emails, text messages, social media, videoconferences and other
communications, the N.S.A. documents reveal. Agency officials
believe that technological advances could revolutionize the way
that the N.S.A. finds intelligence targets around the world, the
documents show. The agency’s ambitions for this highly sensitive
ability and the scale of its effort have not previously been
disclosed.

The agency intercepts “millions of images per day” — including
about 55,000 “facial recognition quality images” — which translate
into “tremendous untapped potential,” according to 2011 documents
obtained from the former agency contractor Edward J. Snowden. While
once focused on written and oral communications, the N.S.A. now
considers facial images, fingerprints and other identifiers just as
important to its mission of tracking suspected terrorists and other
intelligence targets, the documents show.


Whole thing here.

Back in the October 2002 issue
of Reason, David Kopel and Michael Krause of Colorado’s
Independence Institute wrote about
facial-recognition technology (FRT). At that stage, FRT didn’t
work very well (if at all) and was spooky enough to most people
that its widespread implementation seemed unlikely.

Ultimately, the future of face scanning will depend on the
political process. There is almost no chance that the American
public or their elected officials would vote in favor of tracking
everyone all the time. Yet face scanning is typically introduced
and then expanded by administrative fiat, without specific
legislative permission.

So there is a strong possibility that future Americans will be
surprised to learn from history books that in the first centuries
of American independence citizens took for granted that the
government did not and could not monitor all of their movements and
activities in public places.

Read the
whole thing.

Of course, if FRT is conducted in secret, uses social media and
Web sources in addition to surveillance cameras, and is used “only”
on “terrorists,” well, it may be hard to see how politicians would
ever vote against such a system. Or, even scarier, that
they would even be required to vote on the matter.

Here’s a scene from Blade Runner
(1982), in which the replicant named Leon gets touchy about his
mother while being undergoing a high-tech test to establish his
humanity (or lack thereof). This story reminds me of that for some
reason. Blade Runner is set in 2019. What does it mean if
the only thing director Ridley Scott and crew got wrong about the
future is an inability to anticipate vaping? 

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Supreme Court Rules 9-0 Against Obama Administration’s ‘Boundless’ Interpretation of Chemical Weapons Law

The U.S. Supreme Court ruled unanimously today
against the Obama administration in a major case testing the reach
of federal power.

At issue in Bond v. United States was the conviction of
Carol Anne Bond, a Pennsylvania woman sentenced
to six years in federal prison under the Chemical Weapons
Implementation Act after she smeared two toxic substances on the
door knob and car door of a woman who had been carrying on an
affair with Bond’s husband. According to Bond, the federal
government exceeded its enumerated powers by making a federal crime
out of her purely local offense. Today, the Supreme Court ruled in
Bond’s favor.

The Obama administration’s “boundless” interpretation of the
chemical weapons law, declared the opinion of Chief Justice John
Roberts, “would transform the statute from one whose core concerns
are acts of war, assassination, and terrorism into a massive
federal anti-poisoning regime that reaches the simplest of
assaults.”

Joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Sonia
Sotomayor, and Elena Kagan, Roberts found that the federal law
simply had no application to “an amateur attempt by a jilted wife
to injure her husband’s lover, which ended up causing only a minor
thumb burn readily treated by rinsing with water.” The power to
prosecute such acts rests entirely in the hands of the states, the
Court concluded. “There is no reason to think the sovereign nations
that ratified the [Chemical Weapons] Convention were interested in
anything like Bond’s common law assault.”

Writing separately, Justices Antonin Scalia, Clarence Thomas,
and Samuel Alito concurred in the view that Bond’s conviction
should be overturned, but argued that Roberts’ narrow ruling did
not go far enough. In contrast to Roberts, these three justices
argued that the chemical weapons law did cover Bond’s
conduct, and therefore the law should be struck down on
constitutional grounds. “As sweeping and unsettling as the Chemical
Weapons Convention Implementation Act of 1998 may be, it is clear
beyond doubt that it covers what Bond did,” wrote Justice Scalia.
“So we are forced to decide—there is no way around it—whether the
Act’s application to what Bond did was constitutional.
I would hold that it was not.”

The opinion in Bond. v. United States is available
here.

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Epic Fail: ISM Re-Releases May Data, Says Applied Wrong Seasonal Factor, Boosts Headline Print To 56

One can’t make this up.

Remember when the ISM’ Holcombe explicitly said moments ago in its 10 am release that “The May PMI registered 53.2 percent, a decrease of 1.7 percentage points from April’s reading of 54.9 percent” Turns out he lied, and moments after the ISM released its data, it “realized” it had used a wrong seasonal adjustment factor. Wait: one applies seasonal adjustments to survey data?

We can only imagine that the ISM received a very unpleasasnt phone call.

From Bloomberg:

  • ISM CORRECTS MAY FACTORY INDEX TO 56 AFTER ADJUSTMENT ERROR
  • ISM INITIALLY REPORTED U.S. MAY FACTORY GAUGE FELL TO 53.2
  • S&P 500 ERASES LOSS AFTER ISM CORRECTS FACTORY DATA

In other words, blame the complete data revision on the warmer weather.

And just like that, we have even more confirmation that all the “data” is nothing but Garbage In, Garbage Out.

Here is the before garbage, and after garbage:




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How To Avoid Being Wiretapped: The Carl Icahn Case Study

One thing is certain about the much discussed investigation into possible insider trading involving Carl Icahn and Phil Mickelson – it is guaranteed to go exactly nowhere and fast. Not just because it would not help the already crumbling image of “fair and efficient” markets that one of the most prominent investors of the past several decades had to resort to such illegal gimmicks, but because by the time Carl Icahn’s army of lawyers is done with the SEC (assuming there even is a formal probe to begin with), the corrupt regulator (has Mary White recused herself yet?) will be left in a heap of smouldering rubble.

Reuters explained why the SEC’s case is so very weak:

After accumulating a 9.1 percent stake in Clorox, Icahn made a bid valued at more than $10 billion to buy the consumer products company, which sent stock soaring.Even if Icahn did leak information about his plans regarding Clorox, he may not necessarily have violated the law. Prosecutors would have to show he had breached a fiduciary or confidentiality duty by disclosing material, nonpublic information that was later traded on.

 

“A true quirk of insider trading rules is that the person who creates the information that’s material and confidential has the freedom to use that for themselves and to authorize others to use it,” said James Cox, a professor of securities law at Duke University.

 

“That’s part of our capitalistic spirit, that people who create the ideas should be able to exploit them,” he said, noting that this could complicate a potential government case.

* * *

Roland Riopelle, a former government prosecutor, said Icahn may have had a duty to his own investors to keep certain information confidential. If that duty was breached, the government could argue he violated insider trading laws, he said.

 

“It could come down to whether (Icahn’s fund) had written rules that would prohibit this kind of disclosure or conduct,” Riopelle said. “If they didn’t have any rules, then (they) are not going to have a case.” “Every case of this kind really comes down to the granular facts,” he said.

 

Icahn sent a letter in July 2011 to Clorox’s chairman offering to purchase the company for $76.50 a share and saying he could arrange debt financing for the deal. He later raised the bid to $80.

 

If Icahn had launched a formal tender offer, it would have triggered a different standard of disclosure rules under the SEC’s 1968 Williams Act, said John Coffee, an expert in corporate governance at Columbia Law School.

* * *

 

Prosecuting Mickelson and Walters would present a different set of challenges, the experts said.

 

A case against them could hinge on a pending decision expected from the 2nd U.S. Circuit Court of Appeals that could make it harder for the government to prosecute insider trading cases.

Naturally, should the SEC determine it has a case against Icahn, it would then have to prosecute all powerful, market-moving entities that can move a market with an announcement or research report, and which either sell or give out for free advance notice that such an event is coming in the near future.

Furthermore, one must also remember that when it comes to US justice, just like the HFT-dominated markets, there are two tiers – one for everyone, and one for the uber rich. This is doubly true when one considers that Icahn is not only uber-rich but also angry, and the last thing anyone wants to see (ask Ackman) is an angry Icahn. This is what he told Bloomberg in regard to the investigation:

“We do not know of any investigation. Further, we are always very careful to observe all legal requirements in all of our activities. We believe that making inflammatory and speculative statements, especially when we’ve had an unblemished record for 50 years, is completely irresponsible on the part of the Wall Street Journal.”

Count IEP as one party that will not be renewing its WSJ subscription. Which is ironic: as the WSJ – which broke the news of the inquiry in the first place – reported, “a snag has hit the insider-trading investigation of investor Carl Icahn, golfer Phil Mickelson and sports bettor William “Billy” Walters: News of the probe derailed government efforts to secretly deploy wiretaps, which have been key components of many successful insider-trading cases.”

Uhm, doesn’t this mean that Icahn should be grateul to the WSJ, not accusing it of “irresponsible inflammatory statements” – without the WSJ’s report, the SEC could have proceeded to tap all three implicated parties.

However, there was one specific aspect of the Icahn investigation pertaining to the possibility of wiretaps, that will likely soon become a staple when it comes to SEC inquiries into hedge fund malfeasance. From Reuters:

The investigators believed it was hard to wiretap Icahn without him finding out because he owned a stake in a telecommunications company through which surveillance might have to be conducted, the Wall Street Journal reported, citing one of its sources.

So the take home lesson is simple: want to avoid being wiretapped in some SEC probe? Just buy a telecom company.




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The Destroyer Of Fake “Recoveries”: Unintended Consequences

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Destroy the market's ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions.

A correspondent recently summarized why unintended consequences eventually destroy all politically expedient strategies that temporarily prop up a systemically unsustainable Status Quo:

"Unintended consequences almost always equal or exceed the benefits of whatever your temporary gains were in a complex system. We see this over and over again, in all sorts of different complex systems."

In other words, all the "kick the can down the road" strategies being deployed across the globe by central states and banks will inevitably backfire because central planning fixes always trigger systemic consequences that were unintended by the planners, who are fixated on minimizing the political pain of powerful constituencies, not understanding or repairing the real problems.

Example #1: The Federal Reserve "saves the Status Quo" by lowering interest rates to zero, eliminating mark-to-market valuations of collateral and opening the credit spigot to banks and financiers.

Intended consequences: A) transfer wealth from savers who once earned substantial interest on their savings to the banks, which can borrow money for near-zero and loan it out to businesses and consumers at fat spreads, reaping billions of dollars that once flowed to savers.

B) By making cash into trash (i.e. it earns no interest, effectively losing value in a 2% inflation environment), the Fed intended to push everyone with cash and/or credit to put their money in risk assets such as stocks and real estate.

Unintended consequences: A) Now that everyone has been pushed into stocks and real estate, valuations are once again at bubble heights–and bubbles always pop, destroying every participant who has been lulled into believing this bubble will never pop because "the Fed has my back."

B) By allowing mark-to-fantasy valuations of collateral, the Fed hasn't cleared the credit system of impaired debt: it has enabled an expansion of bad debt and eroded the fundamental credibility of the system.

C) By enabling the wealthiest slice of America to borrow essentially limitless sums for free, the Fed has fueled wealth disparity, as the super-wealthy can buy rentier assets for nearly free with Fed-created credit, outbidding everyone in the 99.5%.

D) In becoming the buyer of last resort for Treasury bonds and home mortgages, the Fed has destabilized the bond and mortgage markets and undermined the U.S. dollar. As a result, the Fed has to taper its buying lest it end up owning the entire short-term Treasury market.

E) By buying $2 trillion in mortgage-backed securities, the Fed (in conjunction with Fannie Mae, Freddy Mac and the Federal housing agencies such as FHA) has essentially socialized the mortgage market in the U.S.– virtually all home mortgages are now backed or issued byh the government. less than 5% of all mortgages are privately issued and not guaranteed or owned by the government.

Destroy the market's ability to price assets, risk and credit, and you take away the essential information participants need to make rational, informed decisions. By crushing the market's ability to generate accurate pricing information to save the Status Quo from necessary repricing and reforms, the Fed and the Federal government have generated enormously destructive unintended consequences that will not respond to additional politically expedient fixes.

All the other central planning fixes around the world share the same fatal flaw.




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ISM Manufacturing Tumbles – The Weather Bounce Is Over

The weather-bounce is over. After 3 months of bounce-back from January’s plunge, ISM Manufacturing dropped to 53.2, significantly missing expectations. Across the board the sub-indices were disappointing with rising prices paid (lower margins), falling new orders, falling employment, and falling production. Once again the “meteoroconomists” have outdone themselves as this print was below the lowest estimate (and at the total opposite of Joe Lavorgna’s highest of all expectations at 57.0)

 

The actual print was below the lowest Wall Street estimate:

 

Here is what everyone’s favorite weatherman said on Friday:

And this:

So… what happens to GDP now?

The component breakdown:

From the report:

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. “The May PMI® registered 53.2 percent, a decrease of 1.7 percentage points from April’s reading of 54.9 percent, indicating expansion in manufacturing for the 12th consecutive month. The New Orders Index registered 53.3 percent, a decrease of 1.8 percentage points from the 55.1 percent reading in April, indicating growth in new orders for the 12th consecutive month. The Production Index registered 55.2 percent, 0.5 percentage point below the April reading of 55.7 percent. Employment grew for the 11th consecutive month, registering 51.9 percent, a decrease of 2.8 percentage points below April’s reading of 54.7 percent. Comments from the panel reflect generally steady growth, but note some areas of concern regarding raw materials pricing and supply tightness and shortages.”

The respondents, as usual, focus on the silver lining:

  • “Increasing demand for product is creating supply and sourcing challenges.” (Food, Beverage & Tobacco Products)
  • “Steel bars required for automotive applications are in high demand. Supply is very tight and prices are increasing.” (Fabricated Metal Products)
  • “Aviation is recovering and outlook is optimistic.” (Transportation Equipment)
  • “The improving gas prices are positively impacting our short term drilling plans.” (Petroleum & Coal Products)
  • “Political issues in Russia are not yet impacting our supply of raw materials from Russian suppliers.” (Computer & Electronic Products)
  • “Volumes picking up in some sectors, but profitability still elusive. Suppliers indicate similar difficulties in getting price increases.” (Chemical Products) 
  • “Business has remained steady. However, this month has a more subdued disposition by comparison. Price escalation has leveled off with even a few decreases on selected items.” (Wood Products)
  • “Semiconductor, oil & gas are very busy.” (Electrical Equipment, Appliances & Components)
  • “Business slightly up as anticipated; holding.” (Machinery)
  • “Defense industry contracts are shrinking, customer is exercising minimum options, or less than minimum.” (Miscellaneous Manufacturing)

Finally, the commodities up in price – pretty much most of them:

  • Aluminum (4);
  • Aluminum Products;
  • Ammonia;
  • Beef;
  • Butter (2);
  • Copper;
  • Electronic Components;
  • Foam;
  • Integrated Circuits;
  • Lumber (3);
  • MRO Supplies;
  • Natural Gas;
  • Nickel (3);
  • Packaging Materials;
  • Plastic Resins (6);
  • Rice;
  • Stainless Steel (3);
  • Steel (6);
  • Steel — Cold Rolled (2);
  • Steel — Hot Rolled (2);
  • Sulfuric Acid;
  • Wood Pallets (2).

Source: ISM




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Construction Spending Growth Misses By Most In 14 Months

But… the pent-up demand? The post-weather spend-a-thon? US Construction spending rose a mere 0.2% MoM – missing the 0.7% expectations by the most since March 2013. Aside from January’s plunge, this is the lowest growth in spending since August of last year.

 




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US Manufacturing PMI Jumps; New Orders & Employment Flat

The headline Market PMI data beat expectations and jumped to 3-month highs with the production output sub-index at its highest since Feb 2011. However, this exuberant production sees no change in employment and a drop in new orders. Perhaps even more worrisome is the margin crushing concerns of a soaring input price index and dropping output price index. Of course, economists note that “this is not simply a weather-related rebound. Companies are reporting that their customers and feeling more confident, restocking, expanding and investing,” in all but jobs and new orders… it seems.

 

Output at Feb 2011 highs…

 

But under the surface things are not quite as rosy…




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Jacob Sullum on Growing Republican Support for Marijuana Federalism

Last
week, by a vote of 219 to 189, the House of
Representatives approved an amendment aimed at stopping
federal interference with state medical marijuana laws. Similar
measures have failed in the House six times since 2003, but
this year the amendment attracted record support from Republicans,
49 of whom voted yes, compared to 28 last time around

Yet Republicans still overwhelmingly opposed the amendment,
while Democrats overwhelmingly supported it. Given the GOP’s
frequent lip service to federalism, says Jacob Sullum, the party’s
lack of enthusiasm for letting states set their own policies in
this area requires some explanation, and so does the need for this
amendment under a Democratic administration that has repeatedly
said it is not inclined to use Justice Department resources against
medical marijuana users and providers who comply with state
law.

View this article.

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Photos From The Ukraine Civil War: Casualties Reported In City Of Lugansk After Fighter Jet Attack

Considering that even German publication Spiegel is now reporting that that “Vladimir Putin has won the propaganda war over Ukraine and the West is divided“, it is hardly surprising that western coverage of the Ukraine civil war has ground to a halt: without a coherent agenda, the western propaganda machine is unsure of just what the right angle is in its coverage of Ukraine events, which is why as in the case of last summer’s Syrian conflict coverage, the “free media” has simply decided to push back events in east Ukraine to the page 8, if cover it at all.

Unfortunately, for the locals in the separatist regions, while the west may now chose to simply close its eyes to the consequences of its intervention the civil war is all too real and deadly: as RIA reports, there were multiple casualties after a fighter jet attack struck the eastern city of Luhansk. “The assault was followed by heavy gunfire on the ground, causing panic among civilians.” RT has more:

At least five people have been killed in the attack, according to RIA Novosti. Many wounded are still trapped inside the administration headquarters, which caught on fire. The death toll may rise.

 

The building façade has been seriously damaged. The wounded are being evacuated from the administration HQ. About six ambulance vehicles have arrived at the site.

 

Large blood stains inside the HQ could be seen on live-streaming video from the area, with pieces of glass and stones also visible on the floor. The camera operator was choking with smoke. On the outside, many windows are shattered, shell fragments covering the nearby area and dark plumes of smoke are coming from the fourth floor.

 

“The fire has engulfed the third and fourth floors of the building, and the windows have been blown out. There are shards of glass everywhere. I saw paramedics carrying people out of the entrance,” a witness told RT.

 

Minutes earlier, heavy machine-gun shooting was reported in the center of Lugansk, as fierce fighting between the local self-defense squads and Kiev forces renewed after a brief truce.

Kiev officials were quick to deny that Ukraine had launched a fighter jet attack against its own people: something which caused a quick and violent condemnation of the former Ukraine president and his even more prompt ouster.

  • UKRAINE FORCES HAD ONLY WARNING FLIGHTS OVER LUHANSK: OFFICIAL

So what is really going on in Lugansk? The following just released pictures should provide some perspective.




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