News Items

Comedian Rob Schneider – “America is Sliding Very Fast Towards Fascism”

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The writing on the wall is there for anyone willing to take a look and be honest with themselves. I always try to highlight when public figures have the courage to state what is really happening in this country (such as rapper Lupe Fiasco), rather than cower in a corner from fear of repercussions. Most … Read more

Is the Credit Bubble Popping? Carlyle Group Warns on Frothiness and Junk Bond Deals Get Pulled

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Given recent geopolitical and macroeconomic events we are surprised at how well credit markets have been in 2014. The world continues to be awash in liquidity and investors are chasing yield seemingly regardless of risk. Leverage levels in the United States are increasing and rose by almost a full third over the past year while spreads between IG and HY are ~250 basis points below the 20 year average. Thus, the market is not assigning a significant premium to riskier assets. We continually ask whether the fundamentals in the global credit markets are healthy and sustainable. Frankly, we don’t think so. 

– From Carlyle Group’s 1Q14 Earnings Conference Call yesterday

Over the weekend, I published a Guest Post on the bubble in the junk bond market titled: Is There a Massive High Yield Credit Bubble? If you haven’t read it already, I suggest doing so before reading the rest of this post.

The following piece builds on that prior one by highlighting some of the most absurd practices currently going on in the less creditworthy areas of the bond market. Signs that prove without question there is some sort of dangerous bubble already percolating throughout the credit markets.

The first of these are known as “dividend deals.” For those of you who are unfamiliar with them, you might not believe what they actually are. Basically, dividend deals are when companies owned by private equity firms tap the credit markets, and then a sizable percentage of the money borrowed is used to cut a check to the private equity owners themselves. Often times, the remainder of the debt is used to refinance existing debt.

Yes, you heard that right. The money earned from credit issuance isn’t used to expand operations, it isn’t spend on R&D, or anything productive whatsoever. Rather, funds are used to pay money directly to the private equity owners. From a private equity owner perspective, this is free money and of course they will take it. The insane thing is that creditors are willing to buy this garbage, and buying it they are. By the billions. In fact, you might own some in your mutual fund or pension fund. Who fucking knows, but this is insane.

The second sign of insanity is the increase in “payment-in-kind” notes. What this means is that interest on the debt can be paid back in, wait this is no joke, more debt! Even crazier, we are seeing examples of “payment-in-kind” notes being issued for the purpose of paying out dividends to private equity owners. I want to know which fund managers are buying these notes, and you should too.

Bloomberg recently covered the credit insanity in their piece: Dividend Deal ‘Epidemic’ Intensifies Junk Alarm. Here are some excerpts:

Companies owned by private-equity firms are borrowing money to pay dividends like it’s 2007, adding to concern among regulators that excesses are emerging in the riskier parts of the debt markets.

Borrowers including Madison Dearborn Partners LLC’s mobile-phone insurer Asurion LLC obtained almost $21 billion in junk-rated loans this year to enrich their owners, the most in seven years, according to Standard & Poor’s Capital IQ LCD. Some of the least-creditworthy companies are even selling notes that may pay interest with more debt, which BMC Software Inc. did for its $750 million payout to a group led by Bain Capital LLC.

“It’s kind of like an epidemic,” Martin Fridson, a New York-based money manager at Lehmann, Livian, Fridson Advisors LLC, who started his career as a corporate-debt trader in 1976, said in a telephone interview. “Once an investment banker sees that, he’s going to go to his clients and say, ‘Here’s a window of opportunity, you can take a dividend and get away with it.’”

That says it all right there. Why is private equity rushing to do these deals? Well, why does a dog lick its balls? Because it can.

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With 1 in 3 Homes Unaffordable, Freddie Mac Prepares to Enter the Trailer Home Loan Market

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I can’t say this is surprising. After all, with average peasants, I mean citizens, now priced out of the domestic housing market (Zillow recently showed 1 in 3 homes are unaffordable) due to billionaire financiers and foreign oligarchs buying up all real estate in cash purchases, American serfs now will find out where the “elites” … Read more

Can Police Search Your Cell Phone Without a Warrant? The Supreme Court is About to Decide

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Two very important cases related to the 4th Amendment protection of cellphone data went before the Supreme Court yesterday. At issue here is whether or not police can search someone’s cellphone upon arrest. As usual, the Obama administration’s Justice Department is arguing against the citizenry, and in favor of the (police) state. Let’s not forget that the “Justice” Department also argued in favor of the police being able to place GPS tracking devices on people’s cars without a warrant back in 2011. Fortunately, the Supreme Court ruled against it.

Naturally, the feds in the current case will discuss all of the criminals they were able to bring to justice as a result of these privacy violations, but they will certainly not point out America’s current epidemic of unlawful arrests, as well as arrests for petty non-violent crimes that happen each and every day. For instance, let’s not forget statistics that came out last fall from the FBI that showed police make an arrest every two seconds in the USA. I covered this in detail in my post: Land of the Free: American Police Make an Arrest Every 2 Seconds in 2012.

That translates to 12.2 million arrests in 2012, only 521,196 of which were for violent crimes. So should cops be able to search cellphones of millions of Americans being arrested for non-violent crimes such as drug possession? Or what about the street artist in NYC who was unlawfully arrested for putting on a puppet show? Or the guy who’s house was raided by police for a parody Twitter account. Allowing cops to search cellphones upon arrest in a trigger happy police state seems barbaric, immoral and downright stupid to me.

Furthermore, isn’t it interesting that the feds appear so obsessed with taking away your civil liberties to catch petty criminals, yet they couldn’t put a single banker behind bars for the far more egregious crime of destroying the U.S. economy and ruining millions of lives?

Here are some excerpts from a The New York Times article to help you get up to speed on what’s at stake:

WASHINGTON — In a major test of how to interpret the Fourth Amendment in the digital age, the Supreme Court on Tuesday will consider two cases about whether the police need warrants to search the cellphones of the people they arrest.

“The implications of these cases are huge,” said Orin S. Kerr, a law professor at George Washington University, noting that about 12 million people are arrested every year, often for minor offenses, and that about 90 percent of Americans have cellphones.

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Stunning Quote – Larry Summers to Elizabeth Warren in 2009: “Insiders Don’t Criticize Other Insiders”

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A couple of weeks ago, Princeton and Northwestern released a very important study that proved statistically what many of us already knew about the American political process. It is nothing more than an oligarchy.  It’s one thing to read an academic study showing how cancerous the political system is, it’s quite another to hear a … Read more

Hacker “Weev” is Released from Prison, Starts Hedge Fund Called TRO LLC, Appears on CNBC

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CNBC just got very surreal. I have been following the release from prison of well known hacker and troll “Weev” for several weeks now. What has really captured my attention is his effort to get the world’s smartest hackers to find vulnerabilities in companies, short the shit out of them, and then release the vulnerability to … Read more

Vermont Becomes the First State in the U.S. to Require GMO Labeling – Why This is a Very Big Deal

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I don’t spend too much time on GMO labeling here at Liberty Blitzkrieg, but that doesn’t mean I don’t hold a strong opinion on the matter. I completely and without question think that consumers have a right to know whether or not the food they put into their bodies has been engineered with biotechnology, and I certainly think it’s beyond ridiculous that genetically modified foods can still be labeled “natural,” as is the case currently. Apparently, I am not alone, as a New York Times poll late last year showed that a stunning 93% of respondents support such labeling.

Despite such support, GMO labeling bills have been tried and failed in several states in recent years, most notably in California and Washington state. However, Vermont just made history with the passage of H.112. The bill, which requires all GMO foods sold in Vermont to be labeled by July 1, 2016, will now head to the desk of Governor Peter Shumlin who has said he will sign it into law.

At this point, I want to congratulate the great state of Vermont for what they have just done. The passage of this bill is a huge deal on multiple levels, and not just when it comes to food choice and GMO labeling. While it is hugely significant that Vermont will now become the first state in America to require labeling (Maine and Connecticut already passed such bills, but they do not go into effect until a certain number of surrounding states pass similar laws), its significance is even more important when it comes to the states rights movement.

People who say things can’t be changed are fighting on the wrong battlefield. Fuck the feds and fuck Washington D.C. Use the state legislatures to get things done. Already in the past year, two states have ended marijuana prohibition and now the states approach is taking the lead on GMO labeling. The states are doing what the feds never could or would. This fits in with the overall macro trend of decentralization taking over as a means of societal interaction away from centralization. We have the power, it’s time to exercise it. Go Vermont.

Meanwhile, you know this movement is scaring the living shit out of Monsanto, which is why Rep. Mike Pompeo of Kansas just introduced a desperate bill, which activists are referring to as the DARK Act, that would ban states from requiring labeling. That’s Congress for you. Criminals on the Potomac.

The Wall Street Journal covered the story well last week. Here are some excerpts:

The movement against genetically modified crops scored a signal victory Wednesday, as the Vermont legislature passed a bill that would make it the first state to require food makers to label products made with the technology.

The Vermont House voted 114-30 to adopt a state Senate labeling bill. Gov. Peter Shumlin has said he plans to sign the bill, whose requirements would take effect in July 2016.

While Vermont is one of the smallest U.S. states, the legislation marks a victory for activists who have campaigned for GMO labeling, saying consumers have a right to transparency over the widely used technology. Food and agriculture industry groups, which have lobbied aggressively to block similar measures in other states, blasted the Vermont decision, saying it was driven by faulty science and would hurt consumers.

The vast majority of corn and soybeans grown in the U.S. are GMOs, and food companies estimate that about 80% of U.S. packaged-food products contain GMO ingredients in some form.

GMO advocates note that the U.S. Food and Drug Administration has approved their use, and argue that the technology has no proven human health threats and has increased crop yields and helped lower food prices.

For those of you somehow still under the impression the FDA has consumer interests in mind, I suggest you read the following: Fraud Alert: FDA Allowed Drugs with Fraudulent Testing to Remain on the Market

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Guest Post: Is There a Massive High Yield Credit Bubble?

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A friend of mine and former fund manager has recently launched a blog, called LarryLarry, where he intends to write musings on the markets and finance, amongst other things. I greatly respect his thought process and I intend to republish some of his work going forward. This will serve as a great compliment to Liberty Blitzkrieg considering I no longer focus my attention on financial markets. So without further ado…

Read The Fine Print To Find The Bubble
by LarryLarry

Here are some snippets from the prospectus for the “Investment Grade Bond Fund” at one of the largest mutual fund complexes and buyers of credit in the country:

The Fund may invest up to 20% of its net assets (plus any borrowings for investment purposes) in any combination of non-investment grade instruments (commonly known as “high yield” or “junk” bonds)…… The Fund may invest in securities rated C and above or determined by the management team to be of comparable quality.

Who would have ever thought a vehicle marketed as investment grade could have up to 20% of its assets in junk? Probably not many people that own these funds.

There is a bubble in higher-risk credit. It is being missed by many because the wrong qualifications for what makes a bubble are being used. When there is debate about bubbles, it almost always centers on the price of an asset category. There is often no mention of the volume of assets in that category trading at that price.

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Say Goodbye to “Net Neutrality” – New FCC Proposal Will Permit Discrimination of Web Content

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The concept of “net neutrality” is not an easy one to wrap your head around. Particularly if you aren’t an expert in how the internet works and if you don’t work for an ISP (internet service provider). In fact, I think that lobbyists and special interest groups make the concept intentionally difficult and convoluted so that the average person’s eyes glaze over and they move on to the next topic. I am by no means an expert in this area; however, in this post I will try to explain in as simple terms as possible what “net neutrality” means and what is at risk with the latest FCC proposal. I also highlight a wide variety of articles on the subject, so I hope this post can serve as a one-stop-shop on the issue.

The concept of “net neutrality” describes how broadband access across the internet currently works. Essentially, the ISPs are not allowed to discriminate amongst the content being delivered to the consumer. A small site like Liberty Blitzkrieg, will be delivered in the same manner as content from a huge site like CNN that has massive traffic and a major budget. This is precisely why the internet has become such a huge force for free speech. It has allowed the “little guy” with no budget to compete equally in the “market of ideas” with the largest media behemoths on the planet. It has allowed for a quantum leap in the democratization and decentralization in the flow of information like nothing since the invention and proliferation of the printing press itself. It is one of the most powerful tools ever created by humanity, and must be guarded as the treasure it is.

People have been worried about internet censorship in the USA for a long time. What people need to understand is that censorship in so-called “first world” countries cannot be implemented in the same manner as in societies used to authoritarian rule. The status quo in the U.S. understands that the illusion of freedom must be maintained even as civil liberties are eroded to zero. In the UK, the approach to internet censorship has been the creation of “internet filters.” The guise is fighting porn, but in the end you get censorship. This is something I highlighted in my post: How Internet in the UK is “Sleepwalking into Censorship.”

In the U.S., it appears the tactic might take the form of new FCC rules on “net neutrality,” which the Wall Street Journal first broke earlier this week. While the exact rules won’t become public until May 15th, what we know now is that the FCC intends to allow ISPs to create a “fast lane” for internet content, which established content providers with big bucks can pay for in order to gain preferred access to consumers on the other end.

This is truly the American way of censorship. Figure out how those with the deepest pockets can smother the free speech of those with little or no voice on the one medium in which information flow is still treated equally. The nightmare scenario here would be that status quo companies use their funds to price out everyone else. It would kill innovation on the web before it starts. It’s just another example of the status quo attempting to build a moat around itself that we have already seen in so many other areas of the economy. The internet really is the last bastion of freedom and dynamism in the U.S. economy and this proposal could put that at serious risk. Oh, and to make matters worse, the current FCC is filled to the brim with revolving door industry lobbyists. More on this later.

So that’s my two cents. Now I will provide excerpts from some of the many articles that have been written on the topic in recent days.

First, from the article that started it all in the Wall Street Journal:

WASHINGTON—Regulators are proposing new rules on Internet traffic that would allow broadband providers to charge companies a premium for access to their fastest lanes.

If the rule is adopted, winners would be the major broadband providers that would be able to charge both consumers and content providers for access to their networks. Companies like Google Inc. or Netflix Inc. that offer voice or video services that rely on broadband could take advantage of such arrangements by paying to ensure that their traffic reaches consumers without disruption. Those companies could pay for preferential treatment on the “last mile” of broadband networks that connects directly to consumers’ homes.

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Meet AISight – The Artificial Intelligence Software Being Installed on CCTV Networks Globally

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If you thought that CCTV cameras tracking your every move in public was bad enough, you’re going to just love AISight (pronounced “eyesight” of course). The invention of a Houston, Texas based company called BRS Labs (which stands for Behavioral Recognition Systems) is headed by former secret service special agent John Frazzini, and this Orwellian surveillance platform brings artificial intelligence to all of those creepy cameras that have been installed everywhere around you.

Apparently, this system is currently being installed in Boston, and has already been implemented in Chicago and Washington. In the event you live in these cities, I bet you’ve never heard of AISight, and more importantly, I bet there’s been little to no public debate.

The most disturbing part about this platform is that this artificial intelligence defines what is “normal” behavior and anything that falls outside of that narrow band can be flagged for “pre crime” potential. Ultimately, if these things are allowed to proliferate, it will condition humans to behave like zombie automatons fearful that anything interesting or creative might be viewed as criminal.

The NYPD recently engaged in such behavior when it arrested a street artist unlawfully. Now imagine if a computer could do the work the work without human involvement.

The entire sad incident was caught on video. See below:

The “War on Street Artists” – Puppeteer Unlawfully Arrested and Harassed in NYC Subway

For more details on AISight, we turn to ITProPortal:

Imagine a major city completely covered by a video surveillance system designed to monitor the every move of its citizens. Now imagine that the system is run by a fast-learning machine intelligence, that’s designed to spot crimes before they even happen. No, this isn’t the dystopian dream of a cyber-punk science fiction author, or the writers of TV show “Person of Interest”. This is Boston, on the US East Coast, and it could soon be many more cities around the world.

Behavioral Recognition Systems, Inc. (BRS Labs) is a software development company based out of a nondescript office block in Houston Texas, with the motto: “New World. New security.”

BRS Labs’ AISight is different because it doesn’t rely on a human programmer to tell it what behaviour is suspicious. It learns that all by itself.

The system enables a machine to monitor is environment, and build up a detailed profile of what can be considered “normal” behaviour. The AI can then determine what kind of behavior is abnormal, without human pre-programing.

Just what the world needs.

Oh, but wait, it gets even better…

What’s more, AISight permanently learns and registers when changes in normal behavior occur, so no ongoing programing is required from human operators. In order to do this, it employs a technology known as “artificial neural networks”, which mimics the function of the human brain.

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