The Big Picture

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• Military Waste and Fraud Are the Main Cause of Our Problems
• Open Thread: What Value is the Financial Media?
• 10 Thursday PM Reads
• (Paid) Intern Wanted!
• US Employees Furloughed During Shutdown (Interactive)
• S&P 500 at Inflection Points
• 10 Thursday AM Reads
• Melt Up, Government Shut Down / Debt Ceiling Deal Edition?

Military Waste and Fraud Are the Main Cause of Our Problems Posted: 10 Oct 2013 10:30 PM PDT Military Waste and Fraud Continue In the Middle of the Government Shutdown   Regular readers know that the government shutdown is caused by bad policies supported by both parties, including out-of-control military boondoggles. We wouldn't be in this crisis of hitting the debt ceiling in the first place if we hadn't spent so much money on unnecessary wars … which are horrible for the economy. But it goes far beyond actual fighting.  We could easily slash the military and security budget without reducing our national security. For example, homeland security agencies wasted money on seminars like "Did Jesus Die for Klingons Too?" and training for a "zombie apocalypse" instead of actually focusing on anti-terror efforts. Republican Senator Tom Coburn notes that the Department of Defense can reduce $67.9 billion over 10 years by eliminating the non-defense programs that have found their way into the budget for the Department of Defense. BusinessWeek and Bloomberg point out that we could slash military spending without harming our national security. Specifically, we could slash boondoggles that even the generals don't want: A devastating series by our colleagues at Bloomberg News shows that "the defense budget contains hundreds of billions of dollars for new generations of aircraft carriers and stealth fighters, tanks that even the Army says it doesn't need and combat vehicles too heavy to maneuver in desert sands or cross most bridges in Asia, Africa, or the Middle East." BusinessWeek also notes that redundancy wastes a lot of money: "One need only spend 10 minutes walking around the Pentagon or any major military headquarters to see excess and redundancy," former Defense Secretary Robert Gates said in September at an event organized by the Center for Strategic & International Studies in Washington. He should know. As defense chief in 2009, he culled 20 weapons systems he thought unnecessary or too expensive, including the F-22 fighter. One place to start thinning the bureaucracy: the staff of the Joint Chiefs of Staff. That office has more than tripled in manpower, to 4,244 in 2012 from 1,313 in 2010, according to the Pentagon's annual manpower report. (Fewer bureaucrats means fewer memos and fewer meetings. Win-win-win.) BusinessWeek provides a list of cost-cutting measures which will not undermine national security. American Conservative does the same. So why doesn't Congress trim the fat? Because politicians want to bring home the pork. As BusinessWeek notes: Why is sensible military budgeting so difficult? Because lawmakers, including small-government Republicans, protect defense business in their home states with the ferocity of Spartans. Even if the Pentagon offered up the cuts we've outlined here, Congress would almost certainly reject them. The senators and representatives don't have the political courage to face voters and tell them that the republic simply does not need the weapon under construction in their hometown. American Conservative reports: The cuts to the Pentagon budget will be only 7% or some $40+ billion, not the $500 billion they bandy about! Anyone who confuses the (unlikely) ten year cut with next year's cut is just promoting lies. A good example is the Wall Street Journal editorial, "The Coming Defense Crackup," warning that the cuts would create the smallest navy since 1914. It intentionally confuses next year's cut with the consequences of 10 year cuts. [In reality, the size of the proposed sequestration cuts aren't really that big.] Ok, but when every smart bomb and missile hits its target, why does one need as many shells as the old battleships where most shots missed? During the Korean war the Air Force tried futilely for months to bomb a bridge over the Yalu River. Today destroying a bridge takes one cruise missile from a hundred miles away. In Washington we find all the big media opposed to cutting defense spending, waste and all, even the Washington Post. Politico, usually a leftist paper, publishes articles also intentionally confusing 10 years of cuts with a one year cut. Today's congressmen can't oblige future congresses on what they will spend; defense apologists use the 10-year number to try to stop the sequestration for one year, 2013. All the big Washington newspapers are full of costly ads from defense contractors. Of course, this just scratches the surface. In reality, the military wastes and "loses" (cough) trillions of dollars.  See this, this, this, this, this, this, this, this, this, this, this and this. The former Secretary of Defense acknowledged in May 2012 that the DOD "is the only major federal agency that cannot pass an audit today."  The Pentagon will not be ready for an audit for another five years, according to Panetta. Billions In Wasted Defense Spending Are Continuing During Government Shutdown If you assume that the waste in defense spending has stopped during the government shutdown, you'd be wrong. Top military and constitutional law expert Jonathan Turley noted yesterday: We recently saw how [American politicians and military personnel] prefer to deliver bags of money to Karzai, buy Russian aircraft that Afghans can't fly or maintain, or build huge buildings to be then torn down unused. Of course, no one is ever fired for constructing massive buildings that no one wants only to tear them down. After all, these are contracts going to powerful companies with friends in the government. Now, we buying huge planes at $50 million a pop only to roll them directly from the factories into mothballs because no one wants them. To make this even more incomprehensible, we are not even making the cargo planes. Like the Russian helicopters that the Afghans cannot fly, we are buying the cargo planes from Italy . . . and we are continuing to order more as we struggle to find places to dump them. The dozen Italian-built C-27J Spartans have been shipped to an Air Force facility in Arizona dubbed "the boneyard." We are ordering five more, which are expected to be immediately sent with the others into mothballs. The Air Force has spent $567 million on 21 of the planes which will join some 4,400 other aircraft and 13 aerospace vehicles at the boneyard — more than $35 billion of unused airplanes. Why order planes to be immediately mothballed? Ohio's senators, Democrat Sherrod Brown and Republican Rob Portman wanted them to give a mission for Mansfield Air National Guard Base and to save 800 jobs. So we will spend $567 million to save 800 jobs. Wouldn't it have been easier to give half a million to each of their constituents and save the rest of the money? Of course, with citizens rising up against the latest effort of the Administration and Congress to intervene in another war, we could have a pile up of unused weapons . . . until we find a use for them. (Even in the middle of the government shutdown, the CIA is ramping up covert training program for Syrian rebels.) Ralph Nader points out this week: Now seems like an ideal time to turn the attention to the $716 billion elephant in the room. If we are going to shutdown non-essentials in our country, let us start by shutting down the waste and fraud in our military budget. And former FBI translator Sibel Edmonds wrote yesterday: To give you an idea I am going to provide a few examples: Afghanistan gets around $7 Billion= $7,000,000,000. Now, don't mistake this for our money spent on our war in Afghanistan. That's in the trillions of dollars. That's a separate deal. No, this money goes to Afghanistan's government – known for being crooks, criminals, heroin dealers, and terrorist breeders. *** Of course Israel gets quite a lion's share. That goes without saying. They get nearly $3 billion=$3,000,000,000, in military aid and another large sum as financial aid for …well, let's put aside all the diplomacy and political correctness and call a duck a duck: They get all the military and foreign aid so that they can turn around and spend those dollars through their powerful network and lobby here, to make sure we are all screwed up in developing and implementing our foreign policy…. They get all those billions of dollars in foreign and military aid, come over here, get us into wars so that we go spend trillions of additional dollars in wars …. Egypt gets its $1 billion of our tax money for … for what? Thank God it's been in the news lately so even the mass ignoramus population in our nation is able to have an idea: guns and bullets to kill political dissenters, tanks and tear gas to be used against civilians, helicopters to fire at civilians below … bring about a coup de tat, and then bring about another one …Okay, so that one we get. We know what they use our money and military equipment for. No brainer. *** Pakistan gets more or less $1 Billion. They get military aid to make sure they create desirable conditions so that our military can send its drones out there and bomb the hell out of them every day. *** So, yes. Our government, somehow, amazingly, has plenty of money, thanks to its limitless money printing authority with zero oversight or accountability. They have trillions to spend on target practice, killing, butchering, torturing, kidnapping. They have billions and billions to spend on spying on you and just messing around with you and me for the heck of it-too much printed money gives them that luxury, you know. And of course, as we see, they've got billions of dollars to give crooks, criminals, tyrants, despots, heroin dealers and producers, terrorists, terrorist supporters … The next time around when our government tells you we are miserably broke, believe them. It's a no brainer: we are a broke nation. However, don't let them give you bullsh.. about where they're going to cut and snip to make ends meet. Do not let them tell you we must go on this way, and just keep printing the green in order to survive. Give them the amount in trillions spent on wars and target practice-shooting around the world. Point to the billions of dollars yearly given to despots, torturers, criminals, and human target practice fields. Show them the hundreds of millions of dollars wasted by unaccountable agencies every single month. Just question, demand, and insist. Show that you matter and count. For once!

Open Thread: What Value is the Financial Media? Posted: 10 Oct 2013 04:10 PM PDT During the TBP conference this week, several of the commentators noted how little wisdom gets disseminated by the financial press. As we noted this morning, we see lots of noise, and very little signal. Indeed, that has been a theme in my press criticism — too much useless filler. So, what us your beef about the financial press? TV, radio, newspapers, magazines, blogs — what works and what doesn’t? I don’t want only bashing — We know there is lots of junk — but what is worthwhile? (I am working on a column, and this is my open source research) ~~~ What say ye?

10 Thursday PM Reads Posted: 10 Oct 2013 01:30 PM PDT My afternoon train reading: • Why It's So Tough to Short This Market (Moneybeat) see also Bear trap in S&Ps and Dow should lead to new all-time highs (Brandt) • At Risk: The Dollar's Privilege as a Reserve Currency (NYT) • Handicapping the 2013 Economics Nobel (Real Time Economics) • “We are watching a train wreck in slow motion, but eventually there won't be a crash” (MoneyBeat) • Janet Yellen Big User Of Vanguard Funds (Index Universe) see also How to Get Your 401(k) Ready for Retirement (WSJ) • 20 Simple Questions About The Federal Reserve (Slate) • Why U.S. Health Care Is Obscenely Expensive, In 12 Charts (Huff Po) • GOP moderates in tough spot in swing districts (MSN Money) see also Inside the Republican Suicide Machine (Rolling Stone) • What Twitter knows that Blackberry didn't (MarketWatch) • The Best Things Kanye West Said to Jimmy Kimmel Last Night (Vulture) What are you reading?   Bear trap in S&Ps, Dow should lead to new all-time highs Source: Brandt

(Paid) Intern Wanted! Posted: 10 Oct 2013 01:00 PM PDT We have an opening for a paid intern position. The ideal candidate will be familiar with WordPress and Instapaper, and have lots of experience with blog posting. (Excel not required but a plus). Strong writing & editing skills a must. Early riser is required — work is at all hours throughout the day but starts unGodly early. Send info to Kris -@- Ritholtz Wealth.com, with Subject line Intern!

US Employees Furloughed During Shutdown (Interactive) Posted: 10 Oct 2013 11:30 AM PDT click for interactive tool Source: Flowing Data

S&P 500 at Inflection Points Posted: 10 Oct 2013 09:00 AM PDT click for ginormous chart Source: Standard & Poor's, First Call, Compustat, FactSet, J.P. Morgan   Its time for the update of one of our favorite massive charts, via the quarterly Market Insights JPM puts out. (Yeah, I criticize Dimon but that doesn’t mean he doesn’t have some insightful people working for him). As you can see, we are about 3 S&P points below where the quarter ended, despite all of the noise. This is why I suggest investors tuen out the short term, and focus on the longer term trends.   (You can download the full JPM Guide to Markets here).

10 Thursday AM Reads Posted: 10 Oct 2013 07:00 AM PDT My morning reading: • A Tale of Two Dows (or why we invest globally) (The Reformed Broker) • Imagine the Fed bought defaulted Treasuries (FT Alphaville) see also 5 countries with bonds safer than Treasurys (MarketWatch) • The Toughest Task in Investing: Picking an active manager (Morningstar) • Euro Bonds Gain Favor Overseas (WSJ) see also The Wide, Wide World Of Bond ETFs (Capital Spectator) • Twitter vs Tweeter: Extraordinary popular delusions (Marketwatch) • Business Groups See Loss of Sway Over House G.O.P. (NYT) see also Republican Party Favorability Sinks to Record Low (Gallup) • Why are some scientists unhappy with the Nobel prizes? (Economist) • We spent 224 years building our credit. Only Congress can act to protect it. (Wonkblog) see also The GOP rewrites its ransom note (Wonkblog) • The battle to destroy Wikipedia’s biggest sockpuppet army (Daily Dot) • Elected governments should worry less about voting lobbies and more about how to govern well (Economist) What are you reading?   Treeing the full faith and credit Source: FT Alphaville

Melt Up, Government Shut Down / Debt Ceiling Deal Edition? Posted: 10 Oct 2013 04:31 AM PDT click for updated futures     A touchstone of my investing philosophy is the importance of investors tuning out what is unimportant. Lose the News is the counter-intuitive way I first expressed this idea back in 2005. However, since then, I have repeated several variations on this theme: Whether its The Price of Paying Attention or advising people to Avoid the Noise or simply counseling investors to focus on What They Can Control, these overall themes have been very consistent. The signal to noise ratio as of late has been nearly overwhelming — all noise, no signal — which, in no particular order, includes: Syria as the potential flashpoint, then the Summers/Yellen horse race, followed by more European Bank problems, then the US political situation, yet another dust up between Greece and Germany, then the Tea Party war on ObamaCare, no wait government shutdown, no wait the debt ceiling, grabbing center stage. While the market’s up/down, back and forth make it appear over the short term that these things are oh so important, the simple reality is they are utterly meaningless. There is ALWAYS going to be some crisis, some news event, some MOST IMPORTANT THING IN THE WORLD RIGHT NOW, and always has. I am here to tell you that all of these “earth shattering events” each end up being tears in the rain — a momentary emotional blip of little consequence, mostly international back fence gossip, with next to no significance to the overall global economy. They are all noise, no signal, at least in terms of what matters to the intelligent investor’s perspective. As an example, consider the simple truth that despite this immense distraction, we are spitting distance from all times highs on S&P500. So much for trading the macro news flow. This theme was repeated by lots of very smart and insightful people at our conference this week. Regulars on FinTV admit how unimportant most of what goes on air actually is (I call it useless filler); our flawed cognitive views leads us to putting way too much emphasis on these unimportant issues,, especially when they are more recent. The charming and delightful Art Cashin even told the lesson he learned early in his career as to why a reports of a nuclear attack offered the smart trader a buying opportunity. Thus, while I am not suggesting we are past whatever idiocy the jackals in Washington DC have dreampt up — and there always exists the possibility it all comes tumbling down in a disastrous Mad Max canned food and bottled water dystopia — I doubt thats the likely outcome. Indeed, investing history has taught those who pay attention to such things, however counter-intuitive it may seem, that tuning out the noise, and staying with the higher probability, most likely outcome is the way to go. I suggest you consider doing the same. Remember, the end of the world bet has been a money loser since the beginning of time.

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