The Big Picture

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• You Are The 98%
• Infographic Marketing: Better Creation, Better Promotion
• Web Analytics Review
• What caused the financial crisis? The Big Lie goes viral.
• 10 Weekend Reads
• Amazing 3D Facade Show in Berlin
• Lie Spotting: How to spot a liar
• CDS, Market Turmoil, Asset Allocation
• How to Honor Veterans on Veterans’ Day

You Are The 98% Posted: 12 Nov 2011 03:30 PM PST There is a fascinating discussion over at The Last Psychiatrist that warrants further discussion: You Are The 98%: Here is an excerpt: “What you don’t realize about those pictured as “the 99%”–what they have in common is not that they are young or college educated or indebted or white females, but that they were willing to put a picture of themselves on the internet, fully of the belief that they stand for something worth being pictured for. Bad move. You think marching on Wall Street gives you power, a voice; but it is a wholesale surrender to the media, you have signed a waiver allowing them to use your image any way they want, and they will tell the rest of us what to think of you and titrate our exposure and emotional responses, all while feeding us with marketing for the very things that got us into our predicament. The income disparities, the education pyramid scheme, the personal and public debt, the anxiety, brought to you by Revlon and the makers of CNN. Take a guess which side Fox, MSNBC, John Stewart chose. How did you know? Wrong: it isn’t their “bias” because it doesn’t matter what the protestors want, it’s because they predictably transmorph the protestors into what they need them to be. “Marching gets our message out.” No it doesn’t, it gets CNN’s message out. “We don’t watch CNN, we use the internet.” Yet given the infinity of the internet you still surf the same 5 websites, looking for and finding exactly what you want, like a baby playing peekaboo in a mirror over and over and over and over and over and over and… You are the 98%, you are totally without any access to the machinery of power and worse, much worse, you plug yourselves into the machinery of media and become a slave. “That’s why I don’t watch television!” Well, a) you mean TV dramas, and 2) it’s because you’re not a 45 year old woman, the target demo of TV. But maybe you’re proud that you skip the commercials and avoid the “mainstream media”, you don’t want to be part of the corporate consumerist machine and good for you, yet your independence is why Whole Foods knows you’ll buy anything wrapped in brown and you already have a subscription to The New Yorker, which has a curiously large number of ads for mental institutions. If you’re reading it, it’s for you. The New Yorker is also at the checkout counter in Whole Foods, along with Rolling Stone and Psychology Today and not along with Sports Illustrated and The Weekly Standard. You think you shop at Whole Foods because it has better quality food? It’s because of those magazines. Even the neocons who shop there– they don’t shop at Acme– shop there because of the branding: liberal=organic, so the more left wing magazines and the more dred locks the more it has reinforced the “liberalism” and therefore the “quality,” and so you go, “reluctantly”, shaking your head at the crazy commies stocking the store as you hand them 3x more than anything is worth. “Would you like to donate $1 to help Ethiopian refugees?” Son of a bitch, this apple is delicious.” The full piece is worth exploring . . .

Infographic Marketing: Better Creation, Better Promotion Posted: 12 Nov 2011 12:00 PM PST Infographic Marketing: Better Creation, Better Promotion View more presentations from Scott Cowley

Web Analytics Review Posted: 12 Nov 2011 11:30 AM PST I am a sucker for a good infographic: Check out this one from Search Engine Journal: > click for ginormous graphic

What caused the financial crisis? The Big Lie goes viral. Posted: 12 Nov 2011 08:00 AM PST What caused the financial crisis? The Big Lie goes viral. Barry Ritholtz Washington Post November 5 2011 ~~~ I have a fairly simple approach to investing: Start with data and objective evidence to determine the dominant elements driving the market action right now. Figure out what objective reality is beneath all of the noise. Use that information to try to make intelligent investing decisions. But then, I'm an investor focused on preserving capital and managing risk. I'm not out to win the next election or drive the debate. For those who are, facts and data matter much less than a narrative that supports their interests. One group has been especially vocal about shaping a new narrative of the credit crisis and economic collapse: those whose bad judgment and failed philosophy helped cause the crisis. Rather than admit the error of their ways — Repent! — these people are engaged in an active campaign to rewrite history. They are not, of course, exonerated in doing so. And beyond that, they damage the process of repairing what was broken. They muddy the waters when it comes to holding guilty parties responsible. They prevent measures from being put into place to prevent another crisis. Here is the surprising takeaway: They are winning. Thanks to the endless repetition of the Big Lie. A Big Lie is so colossal that no one would believe that someone could have the impudence to distort the truth so infamously. There are many examples: Claims that Earth is not warming, or that evolution is not the best thesis we have for how humans developed. Those opposed to stimulus spending have gone so far as to claim that the infrastructure of the United States is just fine, Grade A (not D, as the we discussed last month), and needs little repair. Wall Street has its own version: Its Big Lie is that banks and investment houses are merely victims of the crash. You see, the entire boom and bust was caused by misguided government policies. It was not irresponsible lending or derivative or excess leverage or misguided compensation packages, but rather long-standing housing policies that were at fault. Indeed, the arguments these folks make fail to withstand even casual scrutiny. But that has not stopped people who should know better from repeating them. The Big Lie made a surprise appearance Tuesday when New York Mayor Michael Bloomberg, responding to a question about Occupy Wall Street, stunned observers by exonerating Wall Street: "It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp." What made his comments so stunning is that he built Bloomberg Data Services on the notion that data are what matter most to investors. The terminals are found on nearly 400,000 trading desks around the world, at a cost of $1,500 a month. (Do the math — that's over half a billion dollars a month.) Perhaps the fact that Wall Street was the source of his vast wealth biased him. But the key principle of the business that made the mayor a billionaire is that fund managers, economists, researchers and traders should ignore the squishy narrative and, instead, focus on facts. Yet he ignored his own principles to repeat statements he should have known were false. Why are people trying to rewrite the history of the crisis? Some are simply trying to save face. Interest groups who advocate for deregulation of the finance sector would prefer that deregulation not receive any blame for the crisis. Some stand to profit from the status quo: Banks present a systemic risk to the economy, and reducing that risk by lowering their leverage and increasing capital requirements also lowers profitability. Others are hired guns, doing the bidding of bosses on Wall Street. They all suffer cognitive dissonance — the intellectual crisis that occurs when a failed belief system or philosophy is confronted with proof of its implausibility. And what about those facts? To be clear, no single issue was the cause. Our economy is a complex and intricate system. What caused the crisis? Look: 1. Fed Chair Alan Greenspan dropped rates to 1 percent — levels not seen for half a century — and kept them there for an unprecedentedly long period. This caused a spiral in anything priced in dollars (i.e., oil, gold) or credit (i.e., housing) or liquidity driven (i.e., stocks). 2. Low rates meant asset managers could no longer get decent yields from municipal bonds or Treasurys. Instead, they turned to high-yield mortgage-backed securities. Nearly all of them failed to do adequate due diligence before buying them, did not understand these instruments or the risk involved. They violated one of the most important rules of investing: Know what you own. 3. Fund managers made this error because they relied on the credit ratings agencies — Moody's, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys. 4. Derivatives had become a uniquely unregulated financial instrument. They are exempt from all oversight, counter-party disclosure, exchange listing requirements, state insurance supervision and, most important, reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims. 5.  The Securities and Exchange Commission changed the leverage rules for just five Wall Street banks in 2004. The "Bear Stearns exemption" replaced the 1977 net capitalization rule's 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage leaves very little room for error. 6. Wall Street's compensation system was skewed toward short-term performance. It gives traders lots of upside and none of the downside. This creates incentives to take excessive risks. 7.  The demand for higher-yielding paper led Wall Street to begin bundling mortgages. The highest yielding were subprime mortgages. This market was dominated by non-bank originators exempt from most regulations. The Fed could have supervised them, but Greenspan did not. 8.  These mortgage originators' lend-to-sell-to-securitizers model had them holding mortgages for a very short period. This allowed them to get creative with underwriting standards, abdicating traditional lending metrics such as income, credit rating, debt-service history and loan-to-value. 9.  "Innovative" mortgage products were developed to reach more subprime borrowers. These include 2/28 adjustable-rate mortgages, interest-only loans, piggy-bank mortgages (simultaneous underlying mortgage and home-equity lines) and the notorious negative amortization loans (borrower's indebtedness goes up each month). These mortgages defaulted in vastly disproportionate numbers to traditional 30-year fixed mortgages. 10. To keep up with these newfangled originators, traditional banks developed automated underwriting systems. The software was gamed by employees paid on loan volume, not quality. 11. Glass-Steagall legislation, which kept Wall Street and Main Street banks walled off from each other, was repealed in 1998. This allowed FDIC-insured banks, whose deposits were guaranteed by the government, to engage in highly risky business. It also allowed the banks to bulk up, becoming bigger, more complex and unwieldy. 12. Many states had anti-predatory lending laws on their books (along with lower defaults and foreclosure rates). In 2004, the Office of the Comptroller of the Currency federally preempted state laws regulating mortgage credit and national banks. Following this change, national lenders sold increasingly risky loan products in those states. Shortly after, their default and foreclosure rates skyrocketed. Bloomberg was partially correct: Congress did radically deregulate the financial sector, doing away with many of the protections that had worked for decades. Congress allowed Wall Street to self-regulate, and the Fed the turned a blind eye to bank abuses. The previous Big Lie — the discredited belief that free markets require no adult supervision — is the reason people have created a new false narrative. Now it's time for the Big Truth.

10 Weekend Reads Posted: 12 Nov 2011 05:00 AM PST These are the long form reads I simply did not get to this week. They are my weekend reading: • Researching Equity Managers and Mutual Funds (Litman Gregory) • Europe's Banks Turned to Safe Bonds and Found Illusion (NYT) • Why the Rich Get More Time With Congresspeople (WSJ) • Swallowing Austerity Turns Into Irish Way as Strikes Grip South (Bloomberg) • Obama's Flunking Economy: The Real Cause (NY Review Of Books) • A Gold Rush of Subsidies in the Search for Clean Energy (NYT) • Steve Jobs’ Liberal, Hippie Education (Forbes) • Google's Chief Works to Trim a Bloated Ship (NYT) • Americanisation survey: the results (Economist) • Eddie Murphy: The Rolling Stone Interview (Rolling Stone) What’s on your Instapaper? >

Amazing 3D Facade Show in Berlin Posted: 12 Nov 2011 04:45 AM PST LG Hyper Facade event in Berlin

Lie Spotting: How to spot a liar Posted: 12 Nov 2011 04:00 AM PST On any given day we’re lied to from 10 to 200 times, and the clues to detect those lie can be subtle and counter-intuitive. Pamela Meyer, author of Liespotting, shows the manners and “hotspots” used by those trained to recognize deception — and she argues honesty is a value worth preserving. Social media expert Pamela Meyer can tell when you're lying. If it's not your words that give you away, it's your posture, eyes, breathing rate, fidgets, and a host of other indicators. Worse, we are all lied to up to 200 times a day, she says, from the white lies that allow society to function smoothly to the devastating duplicities that bring down corporations and break up families. Working with a team of researchers over several years, Meyer, who is CEO of social networking company Simpatico Networks, collected and reviewed most of the research on deception that has been published, from such fields as law-enforcement, military, psychology and espionage. She then became an expert herself, receiving advanced training in deception detection, including multiple courses of advanced training in interrogation, microexpression analysis, statement analysis, behavior and body language interpretation, and emotion recognition. Her research is synthetized in her bestselling book Liespotting.

CDS, Market Turmoil, Asset Allocation Posted: 12 Nov 2011 03:30 AM PST CDS, Market Turmoil, Asset Allocation David R. Kotok November 12, 2011 ~~~ Let us consider this week's credit default swap (CDS) debacle in the following manner. People purchased CDS with the understanding that they had a type of insurance policy against the default of a sovereign debtor. Now they have learned that what they thought they had is something they do not have. The European Greek debt deal and the International Swaps and Derivatives Association, www.isda.org (ISDA) have clarified that. What do they do? They must realign their positions. First, they have to face the reality that they were misinformed or misadvised. They must accept that their position has changed. Second, they must take action. The spike in yields on sovereign debt of Italy was attributable, only in part, to the Italian political turmoil we are witnessing. The other aspect dealt with CDS on Italian debt. Those holders thought they had one type of CDS protection. They realized from the events in Greece that they had something else. This is true of other sovereign CDS as well, and this change has roiled the markets. Interest rates have risen as bond prices have fallen. The cost of finance for Italy has gone up to levels that are deemed unsustainable. This is what one would expect with CDS realignment. Does that mean the world is ending? No. In fact, there is a considerable possibility that the current stock market rally has the outlook correctly discounted, after this turmoil runs its course. If you examine Italy's budgetary characteristics, you realize the country is headed for a primary surplus in 2013. "Primary surplus means after you deduct interest payments." Will Italy be able to complete the plan? Will they be able to implement it? What is going to happen? What about other exogenous shocks? All these questions are fair and they are additive to the uncertainty premium. Italy may have a difficult issue when it attempts to roll its present debt, and that debt roll of maturities is coming up very quickly. However, with the help of the European Central Bank (ECB) Italy is likely to have some market access and be able to roll that debt on the heels of budgetary action How will it roll? What will the yields be? These and more questions await answers. Another crunch is coming up on for the debt roll of Greece. That is why the referendum threat dates were December 4 and December 11: the second half of December is when Greece must roll billions of euro-denominated debt. The authorities in Europe know they need sufficient structure in place so that this debt can roll without market access by Greece. Greece has been shut out of market access. The market believes it is an insolvent sovereign. In addition, there are the continuing operational demands for cash by the Greek government. This money will be provided with institutional lending, through one of the forms we presently see discussed. Does this mix of European debt roll condemn the US to a recession? We think not. The United States is not in recession. It is in a very slow-growth environment. Uncertainties are very high and uncertainty premiums are large, but decisions about US portfolios are based upon whether you are betting on recession, or slow growth. If it is slow growth, stocks are inexpensive and markets are headed higher. That is the position of Cumberland Advisors. If a double-dip recession is coming, then stocks are headed lower and you should not own them. The course of action to take in global portfolios is a different matter. In our global multi-asset class, we have taken our precious metal positions to 6% of the total deployment. That is very, very high and it is a considerable overweight for us. Precious metals are a tiny weight in global asset allocation under normal circumstances. We use several ETFs to reach that position, and they reflect an amalgamation of precious metal exposure. We have this precious metal weight very high because, we are able to see a monetary policy transmission effect that reaches into precious metals. That supports our view that precious metals are likely to be priced higher in US dollar terms in the future. There is a considerable time lag between central bank actions and monetary effects and resultant higher precious metal prices; we measure that somewhere between nine and eighteen months. We do not find the same relationship with commodities. Commodities are driven by other extensive factors in addition to liquidity flows from the creation of credit. Central bank balance sheet expansion has a weak link to commodities in this current environment, where central banks are attempting to provide as much liquidity as possible to avoid systemic meltdown. When it comes to global stock markets, our international positions in Europe are far below the 24% weight that Europe holds in the benchmark index. Our exposure is limited to Germany, France, the Netherlands, and a broader-based international ETF. For Europe as a whole, we are very much underweight. In our international models, that weight is 11%, with all of it in Northern Europe. In our global multi-asset class, we have only 3% exposure to the Eurozone stock markets. So clearly, we have a bias against Europe and in favor of other locations around the world, as well as other asset classes. In our global multi-asset class, we have 6%, or twice the exposure, in precious metals than we do in the stock markets of the Eurozone. That is a remarkable statement to make. It reflects the high degree of uncertainty given the times we are experiencing. ~~~ David R. Kotok, Chairman and Chief Investment Officer

How to Honor Veterans on Veterans’ Day Posted: 11 Nov 2011 05:00 PM PST How to Honor Veterans on Veterans' Day: End the Wars and Restore Liberty, Justice and Opportunity for the 99% Soldiers Want the Wars to End I wrote the following on Veterans' Day 2008: Today, I sincerely and passionately honor our veterans. So many have endured unimaginable hardship, trauma or injury. Some have paid the ultimate price to defend our country. Veterans are Against the Iraq War You might assume veterans of the Iraq war support the war. Overwhelmingly, that is false. Talk to some of the veterans. By and large, they think that the invasion of Iraq, or at least our continued occupation, is wrong. They have seen first-hand the killing and maiming of innocent Iraqi civillians. They have heard the cries of those falsely accused, who were shipped off to Abu Ghraib. They have woken up in the middle of the night in a cold sweat, reliving the nightmares they experienced. They know that the chicken-hawk civilians who started the war and their yes-men in the military leadership are wrong, that the war should be stopped, and the troops brought home. Renewing My Commitment That's why on Veterans' day, I am honoring the brave men and women who served in the military by renewing my commitment to end the Iraq war. The Iraq war might have been forgotten by the mainstream media, but I will not forget the troops and veterans. I will fight to end the war . . . for them. Indeed, many active-duty service men are opposed to the endless wars, which only weaken our national security and increase terrorism. See this, this, this, this, this, this and this. (The troops want to come home, and the American public want them to come home as well.) Veterans' Day Began as a Pledge to End ALL Wars David Swanson notes that Veteran's Day began as a pledge to end all wars: Believe it or not, November 11th was not made a holiday in order to celebrate war, support troops, or cheer the 11th year of occupying Afghanistan. This day was made a holiday in order to celebrate an armistice that ended what was up until that point, in 1918, one of the worst things our species had thus far done to itself, namely World War I. *** A ten-year campaign was launched in 1918 that in 1928 created the Kellogg-Briand Pact, legally banning all wars. That treaty is still on the books, which is why war making is a criminal act and how Nazis came to be prosecuted for it. "[O]n November 11, 1918, there ended the most unnecessary, the most financially exhausting, and the most terribly fatal of all the wars that the world has ever known. Twenty millions of men and women, in that war, were killed outright, or died later from wounds. The Spanish influenza, admittedly caused by the War and nothing else, killed, in various lands, one hundred million persons more." — Thomas Hall Shastid, 1927. Given that war is a racket that only benefits the 1%, we should honor the original intention of Veterans' Day. Veterans Are Part of the 99% I pointed out last week: Veterans from every branch of the military – and across 3 generations – are coming out to support the "occupy" protests. But they are not just outsiders supporting the protesters … they are part of the 99%. As AP notes today, the veterans fighting the imperial wars for the 1% are part of the 99% who are hurt by the never-ending-war-for-profit-model: U.S. military veterans … [say] corporate contractors in Iraq made big money while the troops defending them came home – and can't make a living now. "For too long, our voices have been silenced, suppressed and ignored in favor of the voices of Wall Street and the banks and the corporations," said Joseph Carter, a 27-year-old Iraq war veteran who marched Wednesday to Zuccotti Park, the epicenter of the movement that has spread worldwide. *** Their unemployment rate outstrips the national average and is expected to worsen. [See this.] They worry about preservation of First Amendment rights. And they're angry. *** "For 10 years, we have been fighting wars that have enriched the wealthiest 1 percent, decimated our economy and left our nation with a generation of traumatized and wounded veterans that will require care for years to come," said Carter, who leads the national Iraq Veterans Against the War group. *** In New York on Wednesday, police circled the veterans as they stood in formation in front of the New York Stock Exchange, chanting, "We are veterans! We are the 99 percent!" and "Corporate profits on the rise, soldiers have to bleed and die!" *** "I swore to defend their freedoms, and they were being taken away. It's very unconstitutional," said McBride, who said he was less than honorably discharged for medical reasons. McBride said the Occupy Wall Street protest is exactly the kind of civil disobedience protected under U.S. law. "They wanted to kick us out. This is a peaceful assembly," he said Thursday. "In the Constitution, the people have the right to peacefully assemble. It's plain and simple. That's why I'm here, to defend the Constitution of the United States." Back in New York, Bordeleau blamed some financial institutions for U.S. involvement in Iraq and Afghanistan. "Wall Street corporations have played a big role in the wars in Iraq and Afghanistan," said Bordeleau …. He said private contractors have reaped big profits in those countries "in pursuit of corporate interests that have had a devastating effect on our economy and our country, benefiting only a small number of people." "The 99 percent have to take a stand," Bordeleau said, to rectify the biggest income gap between rich and poor since the Great Depression, fueled by what protesters say is Wall Street's overblown clout in Washington politics. *** "Halliburton and Bechtel think these wars are swell," they chanted, invoking the names of American companies that received federal contracts for work rebuilding Iraq. They say those who risked their lives fighting for their country have the right to protest economic policies and business practices that give them a slimmer chance of finding jobs than most Americans. Police have been beating and harassing veterans. If we want to honor veterans, we should stand with them as they fight for liberty and justice for the 99%.

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