Mish's Global Economic Trend Analysis

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• Extremely Late to the China Slowdown Thesis Party
• What Does a Surveillance State Look Like? New Photos from "The Intercept"
• Portugal Hopes to Find Underground Economy Tax Cheats by Giving Away Free Lottery Tickets
• Gallup vs. BLS Unemployment Differs by Nearly 3 Million Workers

Extremely Late to the China Slowdown Thesis Party Posted: 10 Feb 2014 07:02 PM PST Goldman Sachs CEO says China Growth to Have 'Huge Consequences' Globally Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein said China's economic growth will have "huge consequences" for global expansion prospects. "The China growth story is going to be the story of the next 30-40 years," Blankfein said in an interview with John Dawson from Hong Kong while attending the Goldman Sachs Global Macro conference. "There are going to be interruptions." Goldman Sachs will be careful not to "overfund" its own operations in China, Blankfein said. The New York-based bank will "scale our investments to the opportunities" there, he said. Blankfein is extremely late to the recognize the China slowdown implications. I have been discussing the implications of a China slowdown for 2-3 years at least. Here is a sampling. Note: Video no longer available for the first link below. October 29, 2011: Chanos Interview: China Slowdown Just Beginning January 2, 2012: Major Slowdown in Global Trade Coming Up; Think the U.S., China, Germany, or U.K. will Be Immune?  March 30, 2012: The Dating Game: Michael Pettis Challenges The Economist to a Bet on China  April 16, 2012: 12 Predictions by Michael Pettis on China April 9, 2013: Michael Pettis Interview with Lauren Lyster: Decade of Slower Growth for China July 15, 2013: "China Urbanization Growth Fallacy"  December 2, 2013: "Emerging Market Slowdown to Last for Years" $SSEC Shanghai Stock Index Was that Blankfein revelation news, or was it 20-20 late-to-the-party hindsight projected forward? One might also wonder if the Blankfein announcement is some sort of contrarian indicator. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

What Does a Surveillance State Look Like? New Photos from "The Intercept" Posted: 10 Feb 2014 12:30 PM PST Last October, Glenn Greenwald (who broke the NSA spy story on the Guardian), Jeremy Scahill, and Laura Poitras announced plans to setup an independent news agency. Part of their rationale for creating an independent news agency is the ongoing war on journalists (See 4th and 1st Amendments Under Fire; "Everyone Spies" a Favorite Cry of US Apologists; War Against Journalists; "We Hit the Jackpot") Today I am pleased to report their website, The Intercept is now up and running. As their first article, Greenwald, Scahill, and Poitras say Welcome to The Intercept. Their central mission is to hold the most powerful governmental and corporate factions accountable. The second Intercept article, NSA's Secret Role in the U.S. Assassination Program by Jeremy Scahill and Glenn Greenwald documents the NSA's use of highly unreliable methods to target individuals around the world for assassinations by drone, resulting in the deaths of innocent people. Here are some snips from the lengthy, well-written article. The National Security Agency is using complex analysis of electronic surveillance, rather than human intelligence, as the primary method to locate targets for lethal drone strikes – an unreliable tactic that results in the deaths of innocent or unidentified people. According to a former drone operator for the military's Joint Special Operations Command (JSOC) who also worked with the NSA, the agency often identifies targets based on controversial metadata analysis and cell-phone tracking technologies. Rather than confirming a target's identity with operatives or informants on the ground, the CIA or the U.S. military then orders a strike based on the activity and location of the mobile phone a person is believed to be using. The drone operator, who agreed to discuss the top-secret programs on the condition of anonymity, was a member of JSOC's High Value Targeting task force, which is charged with identifying, capturing or killing terrorist suspects in Yemen, Somalia, Afghanistan and elsewhere. Some top Taliban leaders, knowing of the NSA's targeting method, have purposely and randomly distributed SIM cards among their units in order to elude their trackers. "They would do things like go to meetings, take all their SIM cards out, put them in a bag, mix them up, and everybody gets a different SIM card when they leave," the former drone operator says. "That's how they confuse us." "Once the bomb lands or a night raid happens, you know that phone is there," he [the drone operator] says. "But we don't know who's behind it, who's holding it. It's of course assumed that the phone belongs to a human being who is nefarious and considered an 'unlawful enemy combatant.' This is where it gets very shady." The former drone operator also says that he personally participated in drone strikes where the identity of the target was known, but other unknown people nearby were also killed. "They might have been terrorists," he says. "Or they could have been family members who have nothing to do with the target's activities." What's more, he adds, the NSA often locates drone targets by analyzing the activity of a SIM card, rather than the actual content of the calls. Based on his experience, he has come to believe that the drone program amounts to little more than death by unreliable metadata. "People get hung up that there's a targeted list of people," he says. "It's really like we're targeting a cell phone. We're not going after people – we're going after their phones, in the hopes that the person on the other end of that missile is the bad guy." The JSOC operator's account is supported by another insider who was directly involved in the drone program. Brandon Bryant spent six years as a "stick monkey" – a drone sensor operator who controls the "eyes" of the U.S. military's unmanned aerial vehicles. By the time he left the Air Force in 2011, Bryant's squadron, which included a small crew of veteran drone operators, had been credited with killing 1,626 "enemies" in action. Bryant says he has come forward because he is tormented by the loss of civilian life he believes that he and his squadron may have caused. Today he is committed to informing the public about lethal flaws in the U.S. drone program. During the course of his career, Bryant says, many targets of U.S. drone strikes evolved their tactics, particularly in the handling of cell phones. "They've gotten really smart now and they don't make the same mistakes as they used to," he says. "They'd get rid of the SIM card and they'd get a new phone, or they'd put the SIM card in the new phone." Relying on this method, says the former JSOC drone operator, means that the "wrong people" could be killed due to metadata errors, particularly in Yemen, Pakistan and Somalia. "We don't have people on the ground – we don't have the same forces, informants, or information coming in from those areas – as we do where we have a strong foothold, like we do in Afghanistan. I would say that it's even more likely that mistakes are made in places such as Yemen or Somalia, and especially Pakistan." For Bryant, the killing of Awlaki – followed two weeks later by the killing of his 16-year-old son, Abdulrahman al Awlaki, also an American citizen – motivated him to speak out. Last October, Bryant appeared before a panel of experts at the United Nations – including the UN's special rapporteur on human rights and counterterrorism, Ben Emmerson, who is currently conducting an investigation into civilians killed by drone strikes. Dressed in hiking boots and brown cargo pants, Bryant called for "independent investigations" into the Obama administration's drone program. "At the end of our pledge of allegiance, we say 'with liberty and justice for all,'" he told the panel. "I believe that should be applied to not only American citizens, but everyone that we interact with as well, to put them on an equal level and to treat them with respect." The killing of Awlaki and his son still haunt Bryant. The younger Awlaki, Abdulrahman, had run away from home to try to find his dad, whom he had not seen in three years. But his father was killed before Abdulrahman could locate him. Abdulrahman was then killed in a separate strike two weeks later as he ate dinner with his teenage cousin and some friends. The White House has never explained the strike. "I don't think there's any day that goes by when I don't think about those two, to be honest," Bryant says. "The kid doesn't seem like someone who would be a suicide bomber or want to die or something like that. He honestly seems like a kid who missed his dad and went there to go see his dad." Whether or not Obama is fully aware of the errors built into the program of targeted assassination, he and his top advisors have repeatedly made clear that the president himself directly oversees the drone operation and takes full responsibility for it. Obama once reportedly told his aides that it "turns out I'm really good at killing people." The president added, "Didn't know that was gonna be a strong suit of mine." At least we finally know what's Obama's strong suit is: killing people, including US citizens. New Photos from "The Intercept" Finally, please consider, the third Intercept article, New Photos of the NSA and Other Top Intelligence Agencies, by guest author Trevor Paglen. Over the past eight months, classified documents provided by NSA whistleblower Edward Snowden have exposed scores of secret government surveillance programs. Yet there is little visual material among the blizzard of code names, PowerPoint slides, court rulings and spreadsheets that have emerged from the National Security Agency's files. The scarcity of images is not surprising. A surveillance apparatus doesn't really "look" like anything. A satellite built by the National Reconnaissance Office (NRO) reveals nothing of its function except to the best-trained eyes. The NSA's pervasive domestic effort to collect telephone metadata also lacks easy visual representation; in the Snowden archive, it appears as a four-page classified order from the Foreign Intelligence Surveillance Court. Since June 2013, article after article about the NSA has been illustrated with a single image supplied by the agency, a photograph of its Fort Meade headquarters that appears to date from the 1970s. The photographs below – which are being published for the first time – show three of the largest agencies in the U.S. intelligence community. The scale of their operations was hidden from the public until August 2013, when their classified budget requests were revealed in documents provided by Snowden. Three months later, I rented a helicopter and shot nighttime images of the NSA's headquarters. I did the same with the NRO, which designs, builds and operates America's spy satellites, and with the National Geospatial-Intelligence Agency (NGA), which maps and analyzes imagery, connecting geographic information to other surveillance data. The Central Intelligence Agency – the largest member of the intelligence community – denied repeated requests for permission to take aerial photos of its headquarters in Langley, Virginia. These new images of the NSA, NRO, and NGA are being placed in the public domain without restriction, to be used by anyone for any purpose whatsoever, with or without attribution. They can be found on Creative Time Reports, which commissioned this piece, as well as on Flickr, Wikimedia Commons and The Intercept. Download high resolution images of these photos: NSA, NRO, NGA. NSA NGA NRO Video on the Above Images All involved with this project are true American heroes. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Portugal Hopes to Find Underground Economy Tax Cheats by Giving Away Free Lottery Tickets Posted: 10 Feb 2014 10:20 AM PST With value added tax on services exceeding 20%, much of Portugal's economy is cash-based with no receipts. Instead of admitting the VAT tax of 23% on services and restaurants is so high that it encourages fraud, Portugal Tries its Luck with Tax Lottery. The secret to good citizenship, Portuguese tax authorities believe, could lie in giving away luxury cars. In April, they will begin holding weekly lotteries in which 60 "top-range automobiles" a year will be offered as prizes to consumers who do their civic duty by asking cafés, restaurants, car mechanics, hairdressers and other businesses for receipts that include their personal tax number. The aim is to enlist the help of ordinary citizens in combating tax evasion, unfair competition and the black economy, estimated in Portugal at the equivalent of almost a fifth of official national output. By converting sales receipts into lottery tickets, the government believes it can clamp down harder on tax dodgers as part of an effort to meet ambitious deficit targets set under the €78bn international bailout agreement. The cost to the taxpayer of buying the cars – unofficially estimated at about €90,000 each – will be far outweighed by the increased tax revenue from previously undeclared earnings, the government argues. Key Question  Would you rather have a free lottery ticket which you have to hassle someone  to get, or would you rather split the VAT with your plumber or the waitress? "If someone needs a plumber or an electrician, I suspect they'll still be attracted by the discount resulting from not being charged VAT," said John Duggan, a Portugal-based tax adviser. "They'd be able to buy a lot of ordinary lottery tickets with the money they save." Rational Behavior The underground economy thrives because taxes are simply too high. That's where the real problem is. A chance to win a €90,000 luxury car does not change that picture, nor will it do much of anything to raise revenue. The lottery program might even cost money. The rational thing for consumers to do is ask for receipts on small purchases like a cup of coffee or a can of pop, but bargain over cost reductions on larger items. Fraud might even enter the picture. If the expected return on a lottery ticket is high enough, store owners would have an incentive to create bogus sales receipts for tiny transactions that did not even take place. Suppose you could get a cup of coffee for 50 cents. A 23% VAT would collect 11.5 cents. In the above example, 1,000 lottery tickets would cost the coffee shop owner about $111.50. Is that a good deal? It depends on how many people turn in their receipts. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Gallup vs. BLS Unemployment Differs by Nearly 3 Million Workers Posted: 09 Feb 2014 11:37 PM PST Inquiring minds note a huge discrepancy between Gallup measured unemployment and BLS reported unemployment. Please consider the Gallup Daily: U.S. Employment report. Gallup Unemployment Rate Not Seasonally Adjusted Gallup says "Because results are not seasonally adjusted, they are not directly comparable to numbers reported by the U.S. Bureau of Labor Statistics, which are based on workers 16 and older. Margin of error is ±1 percentage point." However, the BLS maintains both seasonally-adjusted data and non-adjusted data. Gallup data is comparable (or at least should be) to BLS unadjusted data. BLS Unemployment Rate Not Seasonally Adjusted Unemployment Rate Comparison BLS: 7.0% Gallup: 8.9% The non-seasonally adjusted Civilian Labor Force is 154.381 million. Thus, the 1.9 percentage point difference in the unemployment rate equates to about 2.93 million employees. Something is wrong with at least one of the above data series. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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