news – Page 26060

Lavabit Appeal to Set Email Privacy Precedent

Secure email provider Lavabit failed to surrender its encryption
keys to the government in 2013. It’s been paying the price. In what
some
call a landmark privacy case, the Virginia-based 5th U.S. Circuit
Court will decide whether or not Lavabit sufficiently
complied with the lower court’s orders last year. Three judges
listened to opposing arguments Tuesday.

The feds presented a search warrant to the company in the summer
2013, in what many believe was a hunt for the emails of NSA whistle
blower Edward Snowden. In response, encrypted email service Lavabit
suspended operations in August 2013.

The company faced a tough decision. If Lavabit had relinquished
its Secure Sockets Layer (SSL) private keys, it would have provided
the government unrestricted access to 400,000 users’
communications, not just the one user the FBI was looking for.
Since users expected privacy—whether from governments or
corporations—making the private key accessible undermines the point
of Lavabit’s privacy service. Rather than comply with court’s
orders, Lavabit founder owner Ladar Levison decided to halt
Lavabit’s operations completely.

Levison told BBC that
if he wins the appeal he filed last August, Lavabit could rise from
the dead. It would also set a precedent for future privacy
communication cases.

Brian Hauss, a legal fellow for the American Civil Liberties
Union (ACLU) told BBC News:

Mr Hauss hopes the case can “establish a principle that
governments can’t use a hammer when it should be using a
scalpel”.

“If the court does not find in Lavabit’s favour, technology
companies will look for new ways to protect user data,” he
added.

But judges seem to disagree about the focal point of the case.

PC World explains:

For the proceedings, the judges actively listened to and
questioned the arguments of both sides, though they seemed wary of
turning the case away from the specifics of why Lavabit did not
comply with court orders to turn over data on one of its users, and
towards the larger issues that Lavabit raised in its
highly publicized defense of what scope the government should
have over those parties who hold SSL (secure socket layer) keys to
encrypted data.

Last year, U.S. government meddling led to the closure of
privacy services like Silent
Circle and
CryptoSeal. Faced with a government hostile toward privacy
services, innovative, secure communication products are opening
outside of the United States.

Reason‘s J.D. Tuccille
argued in August:

Unfortunately, the government’s position seems to be
the same as that of the Mafia: If you’re told to do business with
the mob, you don’t get to decide otherwise.

We’ll see if the government continues down that path. A decision
could take a few weeks.

Here’s What It’s Like to Work for the TSA

Politico magazine is running
a long personal essay by Jason Harrington, a former
Transportation Security Administration worker, about his time
working the security lines at Chicago’s O’Hare airport. The tone is
confessional, and apologetic, and he reveals a lot about the
ugliness of the job. A few lowlights below:

The job was demoralizing: “It was a job that had me
patting down the crotches of children, the elderly and even infants
as part of the post-9/11 airport security show. I confiscated jars
of homemade apple butter on the pretense that they could pose
threats to national security. I was even required to confiscate
nail clippers from airline pilots—the implied logic being that
pilots could use the nail clippers to hijack the very planes they
were flying.”

The rules were nonsense: “Once, in 2008, I had to
confiscate a bottle of alcohol from a group of Marines coming home
from Afghanistan. It was celebration champagne intended for one of
the men in the group—a young, decorated soldier. He was in a
wheelchair, both legs lost to an I.E.D., and it fell to me to tell
this kid who would never walk again that his homecoming champagne
had to be taken away in the name of national security.”

Privately, TSA workers knew the agency’s full-body scanning
technology didn’t work: “We knew the full-body scanners didn’t
work before they were even installed. Not long after the
Underwear Bomber incident, all TSA officers at O’Hare were informed
that training for the Rapiscan Systems full-body scanners would
soon begin. The machines cost about
$150,000 a pop. Our instructor was a balding middle-aged man who
shrugged his shoulders after everything he said, as though in
apology. At the conclusion of our crash course, one of the officers
in our class asked him to tell us, off the record, what he really
thought about the machines. ‘They’re shit,’ he said, shrugging. He
said we wouldn’t be able to distinguish plastic explosives from
body fat and that guns were practically invisible if they were
turned sideways in a pocket.”

The body scanning machines may not have been able to catch
terrorists. But they provided TSA agents with plenty of fodder for
jokes about the passengers they were scanning: “Just as the
long-suffering American public waiting on those security lines
suspected, jokes about the passengers ran rampant among my TSA
colleagues: Many of the images we gawked at were of overweight
people, their every fold and dimple on full awful display.
Piercings of every kind were visible. Women who’d had mastectomies
were easy to discern—their chests showed up on our screens as dull,
pixelated regions. Hernias appeared as bulging, blistery growths in
the crotch area. Passengers were often caught off-guard by the
X-Ray scan and so materialized on-screen in ridiculous, blurred
poses—mouths agape, à la Edvard Munch. One of us in the I.O. room
would occasionally identify a passenger as female, only to have the
officers out on the checkpoint floor radio back that it was
actually a man. All the old, crass stereotypes about race and
genitalia size thrived on our secure government radio
channels.”

Read the whole thing
here.

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UMich Confidence Drops Most In 3 Months

Previous month's epic miss and hurriedly revised expectations from UMich confidence was 'baffled with schizophrenic bullshit' when the Conference Board printed at near record post-crisis highs earlier in the week. It is perhaps not unexpected that despite a drop MoM, following the huge miss last month that UMich confidence would very modestly beat expectations. As in the last 2 cycles, we saw an echo surge in confidence and that has now (just as in the last two cycles of confidence) begun to fade. Both current conditions and economic outlook fell MoM.

The cycle is once again echoing – 4year 4 month rise, echo bounce and now fade…

Of course, confidence remains crucial in the reflation of market multiples and hope-fueled exuberance but – as we reiterate below – the cycle once again appears to have peaked…

As a gentle reminder, as we have noted previouslyUMich Confide – this move in confidence is key…

But, it's all about confidence… investors will not be willing to pay increasing multiples unless they are confident that the future streams of earnings are sustainable and forecastable… And simply put, the current levels of Consumer Sentiment need to almost double for the US equity market tp approach historical multiple valuation levels…

[18]

and the cycle appears to be shifting…

Via Citi,

Is consumer confidence set to turn?

[19]

Consumer Confidence is once again following a dynamic where we see it move higher for 4 years and 4 months before beginning to collapse

Moves higher from 1996-2000 with a smaller dip halfway through in October 1998
Moves higher from 2003-2007 with a smaller dip hallway through in October 2005
Moves higher and so far tops out in June 2013. Also sees a small dip halfway through in October 2011.

Higher yields do not help confidence…

[20]

A sharp rise in mortgage rates has a negative feedback loop to consumer confidence. For those families and individuals that were now looking/able to enter the housing market, the recent spike in rates acts as a headwind.

In addition to the economic backdrop, there is plenty of tail risk as we head into the end of the year. Oil prices have been rising since the summer began (and in reality since the Summer of 2012), partially due to geopolitical risks which are very much “top of mind.” A bigger spike due to a supply shock would choke the economic recovery.(In our view)

In the US, the appointment of a new Fed Chairman and the upcoming budget/debt ceiling debates are likely to bring added volatility. Tapering itself can also induce concern as the “Bernanke put” is being removed from markets.

In Europe, many of the structural problems related to the single currency union have not actually been addressed and the peripheral countries could still create turmoil going forward (see Fixed Income section focusing on Italy in particular for more on this). There has also been little concern with both the German elections and the German Court decision on the constitutionality of the OMT program. A surprise in either of these could be cause for concern.

Emerging Markets are still not out of the woods yet as growth has been weak relative to expectations and countries with current account deficits are beginning to feel pressure in their FX and Bond markets. This is an issue we believe is only starting to develop which we will continue to expand on at later dates.(We have also looked at this in our EM FX section this week)

Overall, the weak economic backdrop, poor housing recovery and potential for tail risk events over the next few months suggest that we have topped out in Consumer Confidence, a warning sign for equity markets.

[21]

The relationship between Consumer Confidence is clear, and IF June did mark the high and Confidence continues to decline, then we would expect to see that translate to weakness in the equity markets. The removal of the “Bernanke put” only adds to this concern.

A major turn has taken place in equity markets on average four months after Consumer Confidence turns, which would point to a decline beginning around September-October. As we have previously expressed, we remain of the bias that a correction in equity markets on the order of 20%+ is likely this year/ into 2014 and the current dynamics support such a move.

Should we see a decline of that magnitude, it is almost certain that yields would move lower in a rush to safe assets.

For now the mid-year highs are holding as confidence cannot escape its secular downturn.

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Chicago PMI 59.6 Beats Despite Decline: Employment Drops Most Since April

The worst news that could happen for stocks today was a Chicago PMI beat – after all it is becoming all too clear that the market is begging for a tapering of the tapering, and any and every bad news will be welcome. Alas, the Purchasing Managers Institute did not get the memo, and moments ago MNI-Deutsche Boerse reported (to subscribers first), that the January print was 59.6, below the revised December print of 60.8 but above the expected 59.0. This was thje third consecutive monthly fall following October’s jump to the highest since March 2011. The only silver lining for stocks was that the Employment component slipped into contraction for the first time in nine months, printing at 49.2, down from 51.6. Must have been the fault of that horrible polar vortex in January then.. Or Bush of course.

According to the report, “the Employment component fell sharply for the second consecutive month to the lowest since April 2013. The majority of companies said their workforce was unchanged with some of them reporting higher productivity of their employees.” And now we look forward to more baffling with bullshit from both ADP and the BLS, which are sure to also contradict each other in an economy where every print is now certifiably made up by goalseek-o-trons.

The other components of note: price paid modestly higher at 64.9 from 63.3, as well as Production, New Orders and Order Backlogs which also increased slightly, having fallen for the past two months.

Prices Paid rose to the highest level in more than a year as suppliers continued to request price increases.
Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “Business activity continued to ease in January but remained at a relatively high level. Production and New Orders remained firm, and while Employment fell back into contraction, this doesn‘t appear to be indicative of current demand conditions.”

“There have been concerns that putting the brakes on monetary easing could damage business. Most respondents, though, thought that the Federal Reserve’s decision to begin tapering their bond purchases in December would not have a significant impact on their business”, he added.

Let’s refresh that in a month or so…

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Summing up Ben Bernanke’s reign in four numbers

January 31, 2014
Sovereign Valley Farm, Chile

First of all, a very Happy New Year to our many Chinese readers.

According to the ancient Zodiac, today we are shedding the coils of the year of the Snake in favor of the Horse.

Given this symbology, it is perhaps a very small irony that today is also the final day in office for Ben Bernanke, chairman of the US Federal Reserve. Let’s review the statistics:

1) When Mr. Bernanke took office in 2006, the Fed had $834.6 billion in assets, the vast majority of which were US Treasuries.

As of Wednesday, Mr. Bernanke’s Fed now counts $4.1 trillion in assets. And the balance sheet is stuffed full of mortgage debt ‘guaranteed’ by insolvent government agencies.

2) When Mr. Bernanke took office, the Fed’s capital ratio (net equity divided by total assets) was 3.22%.

This capital ratio is a hugely important number in banking that represents a sort of ‘margin of safety’. In a severe crisis situation, banks with a higher capital ratio are able to withstand major financial shocks.

Candidly, 3.22% is not high; this means that the Fed would effectively be rendered insolvent if its assets lost more than 3.22% of their value. So the Fed that Mr. Bernanke inherited was not exceptionally healthy.

But today, Mr. Bernanke leaves office with the balance sheet in far worse condition. The Fed’s capital ratio is just 1.34%. And it’s deteriorating rapidly.

Three years ago, the Fed’s capital ratio was 2.17%. A year ago it was 1.82%. Six months ago it was 1.54%. And now today just 1.34%. It doesn’t take a rocket scientist (or a PhD in economics) to see how quickly this is unraveling.

The Fed now has a razor thin margin of safety to guarantee a bloated balance sheet crammed full of questionable assets. This is not exactly the height of responsible stewardship.

Has it helped? I suppose that depends on whom you ask.

3) When Mr. Bernanke took office, the Dow Jones Industrial Average stood at 10,954, and the US government could borrow money for ten years at 4.57%.

Today the Dow is at 15,569, and the 10-year note is 2.65%.

So this has been a pretty good run for folks who have thrown money in the stock market or have heavily indebted themselves.

Yet over 50% of Americans don’t own a single share of stocks. And as of 2010, 10% of Americans own 81% of all stocks.

Then there’s the Federal government, which has been able to pass off trillions of dollars of debt to a willing central banker, as well as generate tax revenue from all the stock investors’ capital gains.

4) Most folks, however, have seen a different side of the Fed’s expansion. The FAO food price index, for example, has increased from 122 to 207, and the labor force participation rate declined to its lowest level in decades under Mr. Bernake’s tenure.

It’s fairly clear if you look at the data objectively that Mr. Bernanke’s policies have left the Fed (and consequently the global financial system) in far more precarious condition than when he started, yet disproportionately benefited the US government and small percentage of society at the expense of everyone else.

This is not to say that Mr. Bernanke is some evil mastermind bent on nefarious ends.

When I listened to him explain his decision-making process at a dinner in Washington a few months ago, it became clear that he is very well intentioned and honestly believes that his policies help.

Unfortunately the road to ruin is almost always paved with good intentions.

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Sheldon Richman Says Obama and Kerry Jeopardize Peace With Iran

President Barack Obama and Secretary of State
John Kerry should make up their minds: Do they want war or peace
with Iran? We should hope for peace, but Sheldon Richman believes
Obama and Kerry make optimism difficult. Ideally, the Obama
administration would simply exit the Middle East, taking all its
military and economic aid with it. The U.S. government cannot
micromanage events there, especially when it is no honest, neutral
broker. But, this doesn’t seem like it will happen anytime
soon.

View this article.

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Anything Not Permitted Is Forbidden: Code Camp Edition

"And then you fill out form 543E72 in triplicate ... " Learning to code is the future
for today’s emerging labor pool. Even President Barack Obama
says so.
But more important than learning how to code is learning that it’s
illegal for anybody to do anything at all without the permission of
the appropriate government agency.

In California, the Bureau for Private Postsecondary Education
(BPPE) is going after “coding bootcamps,” specialized private code
training programs. VentureBeat
reports:

These bootcamps have not yet been approved by the BPPE and are
therefore being classified as unlicensed postsecondary educational
institutions that must seek compliance or be forcibly shut
down.

“Our primary goal is not to collect a fine. It is to drive them
to comply with the law,” said Russ Heimerich, a spokesperson for
BPPE. Heimerich is confident that these companies would lose in
court if they attempt to fight BPPE.

Heimerich stressed that these bootcamps merely need to show that
they are making steps toward compliance: “As long as they are
making a good effort to come into compliance with the law, they
fall down low on our triage of problem children. We will work with
them to get them licensed and focus on more urgent matters,”
Heimerich said.

VentureBeat notes, “The bootcamps fear that they will go
bankrupt as regulatory processes can take up to 18 months.”

But we need that oversight as fraud prevention, right? Without
the government’s protective regulations, people will be bilked out
of their life savings and end up in debt, unlike those students at
major public universities who come away with valuable degrees in
art history or what have you. Beyond that weak logic, government
oversight doesn’t stop private education programs from occasionally

failing miserably anyway.

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Alternative Asset Managers Fueling Credit Bubble, US Regulator Warns

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

This isn’t the first time in recent months we have heard serious warnings of a new and potentially quite dangerous credit bubble. Recall back in September, when Blackstone’s head of private equity proclaimed that “we are in the middle of an epic credit bubble… the good times will not last forever” Well they should know, because according to the article below from Reuters, Blackstone and many other private equity firms are the “alternative asset managers” directly responsible for its creation.

I don’t know about you, but I just can’t wait for another bankster bailout!

From Reuters:

(Reuters) – A U.S. bank regulator is warning about the dangers of banks and alternative asset managers working together to do risky deals and get around rules amid concerns about a possible bubble in junk-rated loans to companies.

The Office of the Comptroller of the Currency has already told banks to avoid some of the riskiest junk loans to companies, but is alarmed that banks may still do such deals by sharing some of the risk with asset managers.

These clowns never learn, and why should they when society just bails them out from their stupidity.

“We do not see any benefit to banks working with alternative asset managers or shadow banks to skirt the regulation and continue to have weak deals flooding markets,” said Martin Pfinsgraff, senior deputy comptroller for large bank supervision at the OCC, in a statement in response to questions from Reuters.

Among the investors in alternative asset managers are pension funds that have funding issues of their own, he said.

“Transferring future losses from banks to pension funds does not aid long-term financial stability for the U.S. economy,” he added.

No, but it’s a great way to transfer risk to the muppets.

Regulators are eyeing a number of risks to the financial system as they aim to prevent a repeat of the mortgage bubble that spurred the 2008-2009 financial crisis. They are not comfortable with different players sharing risk if the total level of risk in the system is getting dangerously high.

That may be happening with leveraged loan issuance, which hit a record $1.14 trillion in the U.S. in 2013, up 72 percent from the year before, according to Thomson Reuters Loan Pricing Corp (LPC).

A measure of the riskiness of these loans has also been rising – the average size of the debt for companies taking these loans in 2013 was 6.21 times a form of cash flow known as EBITDA or earnings before interest, tax, depreciation and amortization, up from 5.86 times in 2012 and the highest since 2007, LPC said.

Have fun cleaning up the mess again serfs.

Full article here.

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NFL Cornerback Chris Carr Talks About Ron Paul, Reason, and the Underappreciated Tolerance of NFL Locker Rooms

Chris
Carr is a 30-year-old well-traveled NFL cornerback and kick
returner whose career ended in December with the New Orleans
Saints. He’s also a loyal subscriber to Reason, and we had
him on The
Independents Wednesday night to talk about his political
evolution, tolerance in the locker room (his answer may surprise),
and his prediction for Super Bowl Sunday. Check it out:

Follow him on Twitter @triplcarr. And stay tuned
tonight for a full episode devoted to the Super Bowl, including
crazy superstitions, marijuana agitprop,
hangover cures, a conversation with actress Katie Aselton of the
hilarious football fantasy show
The League, and brutal guac-off between myself and that
earrings lady. Tonight at 9 ET!

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WTF Is Going On: Real Disposable Income Plummets Most In 40 Years

We may not know much about “Keynesian economics” (and neither does anyone else: they just plug and pray, literally), but we know one thing: when real disposable personal income plummets by 2.7% from a year ago – the biggest collapse since the semi-depression in 1974, something is very, very wrong with the US consumer, and not to mention the entire US economy…

And longer-term chart:

Source: BEA

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