US To Use Drones In Chris Dorner Manhunt

Update: this just in – Authorities offer $1 million reward for information leading to arrest of ex-LAPD officer Christopher Dorner

We were hoping to evade coverage of the latest mass distraction du jour, that of the former LAPD officer Chris Dorner who recently went rogue following a three man murder spree and who has vowed to kill again as per his 6,000 word manifesto, but the US government had made it impossible following confirmation
that the search for Dorner is now the first official drone-hunt in US history.

The Express reports:

Yesterday, as a task force of 125 officers, some riding Snowcats in the rugged terrain, continued their search, it was revealed that Dorner has become the first human target for remotely-controlled airborne drones on US soil.


A senior police source said: “The thermal imaging cameras the drones use may be our only hope of finding him. On the ground, it’s like looking for a needle in a haystack.”


Asked directly if drones have already been deployed, Riverside Police Chief Sergio Diaz, who is jointly leading the task force, said: “We are using all the tools at our disposal.”


The use of drones was later confirmed by Customs and Border Patrol spokesman Ralph DeSio, who revealed agents have been prepared for Dorner to make a dash for the Mexican border since his rampage began.


He said: “This agency has been at the forefront of domestic use of drones by law enforcement. That’s all I can say at the moment.”

And once Dorner is found by remote-control, it will be again up to drones to secure his “elimination.” If for no other reason than to perform a ground test of just how the recently enacted drone-facilitated extermination of US citizens sits with various instances of the US judicial system.

Inflation, Mean-Reversion, And 113 Years Of Bond & Stock Returns

The baby boomers now retiring grew up in a high returns world. So did their children. But, as Credit Suisse notes in their 2013 Yearbook, everyone now faces a world of low real interest rates. Baby boomers may find it hard to adjust. However, McKinsey (2012) predicts they will control 70% of retail investor assets by 2017. So our sympathy should go to their grandchildren, who cannot expect the high returns their grandparents enjoyed. From 1950 to date, the annualized real return on world equities was 6.8%; from 1980, it was 6.4%. The corresponding world bond returns were 3.7% and 6.4%, respectively. Equity investors were brought down to earth over the first 13 years of the 21st century, when the annualized real return on the world equity index was just 0.1%. But real bond returns stayed high at 6.1% per year. We have transitioned to a world of low real interest rates. The question is, does this mean equity returns are also likely to remain lower. In this compendium-like article, CS addresses prospective bond returns and interest rate impacts on equity valuations, inflation and its impact on equity beta, VIX reversions, and profiles 22 countries across three regions. Chart pr0n at its best for bulls and bears.

Over 113 years, the relative size of world stock markets has shifted significantly…

But the changes have been very cyclical…

The last 13 years have been somewhat special… as real yields around the world have collapsed…

and that has historically tended to mean low equity returns…

The busts of the dot-com era, LTCM & Russia, and Lehman/Credit Crunch had a very different profile to previous risk flares in VIX…

and while they suggest that mean-reversion has provided upside potential for stocks (in the past, staying in stocks at the start of the year when real rates are negative has proved a better bet that exiting), the concept of a shifted world paradigm (see VIX and global real rates) suggests perhaps it is different this time.

And the argument of equities as an inflation hedge is flawed due to its non-linearity

Though valuations at the current inflation expectations seems to be ‘cheap’, one can only question the actual inflation expectations… as the official spot data diverges from market expectations…

And as CS notes, extrapolating from such a successful market can lead to “success” bias. Investors can gain a misleading view of equity returns elsewhere, or of future equity returns for the USA itself.

until recently, most of the long run evidence cited on historical asset returns drew almost exclusively on the US experience. Focusing on such a successful economy can lead to “success” bias. Investors can gain a misleading view of equity returns elsewhere, or of future equity returns for the USA itself. The charts opposite confirm this concern. They show that, from the perspective of a US-based international investor, the real return on the world ex-US equity index was 4.4% per year, which is 1.9% per year below that for the USA.

But what is clear from the above charts, in the 50 years since 1963, Bond and Stock returns are far more similar than different, no matter what your RIA tells you..


Because, it’s fiscally – for the USA – very different this time…


2013 Yearbook Final Web by

Google Moves to Destroy Online Anonymity … Helping Authoritarian Governments In the Process

Governments Move to Destroy Online Anonymity

Gene Howington reported last year:

The history of anonymous political free speech in America dates back to our founding. The seminal essays found in “The Federalist Papers” were written by Alexander Hamilton, James Madison and John Jay under the nom de plume of “Publius” although this was not confirmed until a list of authorship complied by Hamilton was posthumously released to the public. As previously discussed on this blog, the right to anonymous political free speech has been addressed by the Supreme Court. Most notably in the cases of Talley v. California, 362 U.S. 60 (1960) and McIntyre v. Ohio Elections Commission, 514 U.S. 334 (1995). In Talley, Justice Hugo Black writing for the majority said that, “Anonymous pamphlets, leaflets, brochures and even books have played an important role in the progress of mankind. Persecuted groups and sects from time to time throughout history have been able to criticize oppressive practices and laws either anonymously or not at all.” In McIntyre, Justice John Paul Stevens writing for the majority said that, “Anonymity is a shield from the tyranny of the majority. [… ] an author’s decision to remain anonymous, like other decisions concerning omissions or additions to the content of a publication, is an aspect of the freedom of speech protected by the First Amendment.” That seems clear enough in defining that citizens do have a Constitutionally protected right to anonymous political free speech.

Tyler Durden of Zero Hedge points out (with slight editing):

Though often maligned (typically by those frustrated by an inability to engage in ad hominem attacks), anonymous speech has a long and storied history in the United States. Used by the likes of Mark Twain (aka Samuel Langhorne Clemens) to criticize common ignorance, and perhaps most famously by Alexander Hamilton, James Madison and John Jay (aka publius) to write the Federalist Papers, we think ourselves in good company in using one or another nom de plume.

Particularly in light of an emerging trend against vocalizing public dissent in the United States, we believe in the critical importance of anonymity and its role in dissident speech.

Like the Economist magazine, we also believe that keeping authorship anonymous moves the focus of discussion to the content of speech and away from the speaker – as it should be. We believe not only that you should be comfortable with anonymous speech in such an environment, but that you should be suspicious of any speech that isn’t.

But governments – especially authoritarian governments – hate anonymity.

A soon-to-be-released book by Google executive Eric Schmidt –  called “The New Digital Age” – describes the desire of authoritarian governments to destroy anonymity.  The Wall Street Journal provides an excerpt:

Some governments will consider it too risky to have thousands of anonymous, untraceable and unverified citizens — “hidden people”; they’ll want to know who is associated with each online account, and will require verification at a state level, in order to exert control over the virtual world.

Last December, China started requiring all web users to register using their real names.

But the U.S. is quickly moving in the same direction.  Gene Howington explains:

Do you have a right to anonymous political free speech?


According to the Supreme Court, you do. According to the Department of Homeland Security, you don’t. They’ve hired General Dynamics to track U.S. citizens exercising this critical civil right.




The full DHS policy statement regarding its activities can be viewed in the <a href="” target=”_blank” title=”DHS Compliance Review of the NOC Media Monitoring Initiative (November 15, 2011)”>DHS Compliance Review of the NOC Media Monitoring Initiative (November 15, 2011), but’s summary spells out the basics:

“Under the National Operations Center (NOC)’s Media Monitoring Initiative that came out of DHS headquarters in November, Washington has the written permission to retain data on users of social media and online networking platforms.


Specifically, the DHS announced the NCO and its Office of Operations Coordination and Planning (OPS) can collect personal information from news anchors, journalists, reporters or anyone who may use “traditional and/or social media in real time to keep their audience situationally aware and informed.”


According to the Department of Homeland Security’s own definition of personal identifiable information, or PII, such data could consist of any intellect “that permits the identity of an individual to be directly or indirectly inferred, including any information which is linked or linkable to that individual.” Previously established guidelines within the administration say that data could only be collected under authorization set forth by written code, but the new provisions in the NOC’s write-up means that any reporter, whether someone along the lines of Walter Cronkite or a budding blogger, can be victimized by the agency.


Also included in the roster of those subjected to the spying are government officials, domestic or not, who make public statements, private sector employees that do the same and “persons known to have been involved in major crimes of Homeland Security interest,” which to itself opens up the possibilities even wider.


The department says that they will only scour publically-made info available while retaining data, but it doesn’t help but raise suspicion as to why the government is going out of their way to spend time, money and resources on watching over those that helped bring news to the masses.” –

This question about the right to anonymous political free speech is also asked over the background of the Electronic Information Center filing a FOIA request against the DHS to find out the details of the agency’s social network monitoring program.




As part of recent disclosures related to the EPIC suit, it is revealed that the DHS has hired and instructed General Dynamics to monitor political dissent and the dissenters. The range of websites listed as being monitored is quite impressive. Notably, is not on this list [Howington’s essay is a guest blog on constitutional law professor Jonathan Turley’s website], but equally of note is that this list is by the DHS’ own admission “representative” and not “comprehensive”.




Some of the more high profile and highly trafficked sites being monitored include the comments sections of The New York Times, The Los Angeles Times, Newsweek, the Huffington Post, the Drudge Report, Wired, and ABC News. In addition, social networking sites Facebook, MySpace and Twitter are being monitored. For the first time, the public not only has an idea who the DHS is pursuing with their surveillance and where, but what they are looking for as well. General Dynamics contract requires them to “[identify] media reports that reflect adversely on the U.S. Government, DHS, or prevent, protect, respond government activities.” The DHS also instructed General Dynamics to generate “reports on DHS, Components, and other Federal Agencies: positive and negative reports on FEMA, CIA, CBP, ICE, etc. as well as organizations outside the DHS.” In other words, the DHS wants to know who you are if you say anything critical about the government.


Anybody thinking of the name “Goebbels” at this point is not out of line.

Indeed, valuing online could even get you labeled as a <a href="” target=”_blank” title=”potential terrorist”>potential terrorist.

Google Moving to Help Destroy Anonymity

Google’s motto is “Do No Evil“.   And Google notes in a patent application:

When users reveal their identities on the internet, it leaves them more vulnerable to stalking, identity theft and harassment.

So you might assume that Google is fighting to protect anonymity on the web.

But Schmidt’s new book reveals that Google will support the destruction of anonymity (via Wall Street Journal):

Within search results, information tied to verified online profiles will be ranked higher than content without such verification, which will result in most users naturally clicking on the top (verified) results. The true cost of remaining anonymous, then, might be irrelevance.

Search Engine Journal explains:

[Passages from Schmidt’s book] confirm what many industry writers have been passionately clattering away about for months now.  Google+ is an identity verification network.  As the network continues to grow, content associated with a verified identity will rise to the top of Google search rankings.

(Google+ is now the world’s second most popular social network.)

In other words, Schmidt acknowledges (in the first quote above) that authoritarians want to destroy anonymity … and Google will help them do so.

We are not saying that Google likes authoritarians. True, there are potential ties between Google and the government.  For example, the head of DARPA now works for Google, and Internet powerhouse Vint Cerf has worked at both institutions.  Wired reports:

Long before it reportedly enlisted the help of the National Security Agency to secure its networks, Google sold equipment to the secret signals-intelligence group. In-Q-Tel [the CIA’s investment arm] backed the mapping firm Keyhole, which was bought by Google in 2004 — and then became the backbone for Google Earth.

And a former high-level CIA officer alleges that the CIA funded Google with seed money.

However, the focus of this essay is on Google’s profit motive.  Specifically, Google will do business with anyone … and will cowtow to authoritarians they happen to do business with.

Google is doing this to make money.  Remember, Google <a href="” title=”gathers information across all of its platforms”>gathers information across all of its platforms, and personalizes search engine results based upon what you’ve looked for in past searches.

After all, Google is primary an advertising company … not a search company. See this, this, this and this.

As the Daily Mail reported last year:

A former Google executive has lambasted his ex-employer … claiming that the search company has been turned into an ‘ad company’ obsessed with harvesting people’s private information.

James Whittaker, a current Partner Development Manager at Microsoft and ex-Engineering Director at Google, posted the 1328-word attack on Google on his Microsoft blog this week.


‘Perhaps Google is right,’ writes Whittaker, ‘Perhaps the future lies in learning as much about people’s personal lives as possible.


‘The Google I was passionate about was a technology company. The Google I left was an advertising company.’




The move comes in the wake of Google’s controversial new ‘ policy’, which allowed the search giant to ‘pool’ information from 60 separate services including Gmail, Google Search and Android phones, to create ‘personalised’ advertising.

The bottom line is that anonymity reduces Google’s ability to monetize personal information and sell it to its advertisers.  So Google is on a campaign to destroy anonymity … and unintentionally helping tyrants in the process.

As INeedHits laments:

We knew a day would come when was a thing of the past, but Schmidt clearly spells out that day is sooner than we had expected.

Goodbye Fourth Amendment: Homeland Security Affirms "Suspicionless" Confiscation Of Devices Along Border

Slowly but surely the administration is making sure that both the US constitution, and its various amendments, become a thing of the past. In the name of national security, of course. And while until now it was the First and Second amendments that were the target of the administration’s ongoing efforts to eavesdrop on anyone, all the time, in order to decide who may be a domestic terrorist and thus fit for ‘droning’, coupled with an aggressive push to disarm and curtail the propagation of weapons in what some perceive is nothing more than an attempt to take away a population’s one recourse to defend itself against a tyrannical government, the time may be coming to say goodbye to the Fourth amendment – the right to be free from unreasonable searches and seizures – next. But only in close proximity to the border at first. According to Wired, “the Department of Homeland Security’s civil rights watchdog has concluded that travelers along the nation’s borders may have their electronics seized and the contents of those devices examined for any reason whatsoever — all in the name of national security.”

More on America’s quest, by a very select few, to one by one extinguish its civil liberties from Wired:

The DHS, which secures the nation’s border, in 2009 announced that it would conduct a “Civil Liberties Impact Assessment” of its suspicionless search-and-seizure policy pertaining to electronic devices “within 120 days.” More than three years later, the DHS office of Civil Rights and Civil Liberties published a two-page executive summary of its findings.


“We also conclude that imposing a requirement that officers have reasonable suspicion in order to conduct a border search of an electronic device would be operationally harmful without concomitant civil rights/civil liberties benefits,” the executive summary said.


The memo highlights the friction between today’s reality that electronic devices have become virtual extensions of ourselves housing everything from e-mail to instant-message chats to photos and our papers and effects — juxtaposed against the government’s stated quest for national security.

And before this becomes yet another red vs blue scream fest, where the underlying fact is ignored in the name of proving the validity of one’s ideological convictions, the reality is that the eradication of the Fourth Amendment started with Bush, and has merely accelerated under Obama.

The President George W. Bush administration first announced the suspicionless, electronics search rules in 2008. The President Barack Obama administration followed up with virtually the same rules a year later. Between 2008 and 2010, 6,500 persons had their electronic devices searched along the U.S. border, according to DHS data.

What does this decision mean in principle:

According to legal precedent, the Fourth Amendment — the right to be free from unreasonable searches and seizures — does not apply along the border. By the way, the government contends the Fourth-Amendment-Free Zone stretches 100 miles inland from the nation’s actual border.

100 miles today, 1,000 miles tomorrow, and the entire nation the day after.

For those still confused, luckily there is a case study:

A lawsuit the ACLU brought on the issue concerns a New York man whose laptop was seized along the Canadian border in 2010 and returned 11 days later after his attorney complained.


At an Amtrak inspection point, Pascal Abidor showed his U.S. passport to a federal agent. He was ordered to move to the cafe car, where they removed his laptop from his luggage and “ordered Mr. Abidor to enter his password,” according to the lawsuit.


Agents asked him about pictures they found on his laptop, which included Hamas and Hezbollah rallies. He explained that he was earning a doctoral degree at a Canadian university on the topic of the modern history of Shiites in Lebanon.


He was handcuffed and then jailed for three hours while the authorities looked through his computer while numerous agents questioned him, according to the suit, which is pending in New York federal court.

First they came for your notebook at the Canadian border, and nobody said anything…

In other news, the rest of the world now openly hates America for its relentless and ever accelerating loss of freedoms. All “in the name of the national security” bogeyman of course.

How A Previously Secret Collateral Transformation With The Bank Of Italy Prevented Monte Paschi's Nationalization

The endless Italian bailout story that keeps on giving, has just given some more. It turns out Italy’s insolvent Banca dei Monte Paschi, which has been in the headlines for the past month due to its role as political leverage against the frontrunning Bersani bloc, and which has been bailed out openly so many times in the past 4 years we have lost track, and whose cesspool of a balance sheet disclose one after another previously secret derivative deal on an almost daily basis, can now add a previously unannounced bailout by the Bank of Italy to its list of recent historical escapades.

WSJ reports that in the summer of 2011, when Europe was as it tends to do in recent years, imploding and head of the ECB was still Jean-Claude Trichet, and before Goldman was set to control the troika of key world central banks (via NY Fed’s Dudley, ECB’s Draghi and BOE’s Carney), and more importantly when the ECB was being accused of not being a credible lender of last resort, it was the Bank of Italy that secretly bailed out Italy’s third largest lender with a €2 billion loan. From WSJ:

The €2 billion ($2.7 billion) emergency liquidity loan the Bank of Italy extended to troubled lender Monte dei Paschi di Siena in 2011 was a “classic” central-bank move, although it didn’t appear on the European Central Bank’s balance sheet and no other Italian bank entered a similar deal, a senior Bank of Italy official said Saturday.


“The Bank of Italy acted on its own” said Fabrizio Saccomanni, the deputy governor of Italy’s central bank, when asked about the at-the-time undisclosed securities lending transaction with MPS.

The Bank of Italy, having found itself in the middle of the BMPS derivatives scandal and particularly its lack of oversight and disclosure under former head Mario Draghi, is in full damage control scramble.

Italy’s central bank arranged the loan in October 2011 because MPS was running short of liquidity and had largely exhausted its ability to keep borrowing from the ECB. The loan was aimed at staving off a liquidity crisis at a key Italian bank at a delicate moment in the country’s economic history.


The loan wasn’t disclosed at the time by either the Italian central bank of MPS. In a conference call shortly after receiving the emergency loan, MPS executives described the bank’s liquidity position as sound.


Mr. Saccomanni said that, with its loan to MPS, the Bank of Italy—which was led at the time of the loan by current ECB President Mario Draghi—didn’t violate any rules. The loan was “utterly normal central bank behavior,” he said. He added, however, that no other Italian bank was party to such an arrangement.

Then again, the Bank of Italy said there would be no more secret derivative losses to emerge at BMPS a few weeks ago when the firs two of BMPS’ previously unknown balance sheet Easter eggs were reported (while also lying at the time it had no idea of BMPS’ balance sheet horrors). This was followed promptly by revelations of two more (for now) such arrangements, one of which with US Bank of New York which “allowed the Italian bank to mislead authorities and smoothed through its acquisition of rival Antonveneta, according to a report by the financial police in Italy.”

Therefore one can be excused for believing absolutely nothing that any European banker, whether they have worked at Goldman previously or not, has said.

What is troubling about the Bank of Italy loan, which only took place because the ECB had in fact been a perfectly qualified lender of last resort, only Monte Paschi had no more eligible collateral against which to receive cash from Europe’s central bank, is that it was forced to seek a domestic bailout from the BoI as a true lender of last resort against the most worthless collateral the Siena bank could find. “Under the deal, MPS swapped loans and mortgages for some €2 billion of mainly Italian government bonds.

BMP then proceeded to use the Italian bonds with the ECB and to get Euros in exchange, in effect engaging in precisely the kind of collateral transformation alchemy we described previously in painful detail in “Modern Market Alchemy Explained: Converting Junk Debt Into Supersafe Treasurys Out Of Thin Air“, only instead of converting Junk into “money good” Treasurys, Monte Paschi used the Bank of Italy as an collateral transformation intermediary converting just as worthless impaired loans and mortgages in the first step, and then using the repo proceeds, Italian bonds, as collateral with the ECB, and thus once again evading nationalization.

What the above episode highlights is the fundamental distinction in collateral transformation processes between the US and Europe: while the US has the $35-40 trillion shadow banking system as a conduit for preliminary junk-to-hunk “alchemy”, in Europe it is the regional central banks that serve the role of a decentralized shadow bank (which Europe does not have). The only problem is that while the US shadow banking system is largely a private sector construct, in Europe it is the taxpayers who will be fully impaired when the real value of the worthless rehypothecated collateral is exposed.

Yet one major similarity is that just like in the US, where as we explained collateral transformation takes place entirely off the books, in Europe this step too was completely secret.  “The loan wasn’t disclosed at the time by either the Italian central bank of MPS.” At least in the US whenever the Fed provides direct bailout funding via the Discount Window or through excess reserves, it keeps a track of how much (if not who the beneficiary is of course) and discloses this publicly every week. Not so in Europe, and where it gets even worse is that in a conference call shortly after receiving the emergency loan, “MPS executives described the bank’s liquidity position as sound.” What they didn’t describe is why their liquidity position was sound: because the bank had just engaged in a collateral transformation with the Italian people, who were handed off risk that not even the ECB wanted to touch!

Of course, had the conference call participants known the truth, it is very likely that BMPS would have been long since nationalized.

Yet the worst part of this whole story, is the Bank of Italy’s painfully sad attempt at justification of its actions: First – the bold faced lie that only BMPS was engaging in such “shadow” transformations, which will be true until some other bank is revealed to have engaged in an identical junks-for-hunks repo with the Bank of Italy. And second, the BoI’s childish explanation that because others in Europe do it, it’s fine:

Anyone can do it,” Mr. Saccomanni said, adding that similar transactions have been carried out by other national central banks in the euro area. Some central banks, such as those of Greece and Ireland, have used their own balance sheets for such lending to domestic banks, under the Emergency Liquidity Assistance, a special dispensation from ECB protocols.

Yes, of course others can do it: the point is that all of them disclose it. The weekly updated balance of Greek and Irish ELA loans has been widely used as an indicator of liquidity and funding pressures in Europe.

What Italy did is engage in an identical operation with an insolvent bank, but undisclosed. That the head of the Italian central bank is so naive, gullible or plain stupid, to not realize the difference, is precisely why, as we reported a few hours ago, the Fed has now injected a record amount of dollars into foreign, i.e., European, banks in the last month.

Because if “other national banks in the euro area” do it, the implication of course is that they do so undisclosed. Which also means that nobody has any clue just how insolvent Europe truly is, but one does know that the situation now is as dire as it has always been. Otherwise Monte Paschi would not be set to receive yet another bailout in the form of a €3.9 billion state bond to raise it capital for “regulatory requirement” purposes. And the Fed would not have to use all the reserve proceeds created from QEternity to fund European banks.

Our advice to all depositors, who we can only hope can be counted on one hand, in Monte Paschi – take your money to a safe bank, and since in Italy that is an oxymoron, it is probably wisest to just park what money one may have in the local Banca dei Materassi.

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