While we sleep, corporate execs strip-mine America

Summary: Nothing shows how America’s reins are held by the 1% than our out-of-control corporations, enriching their executives at the cost of the future of their businesses — and ours. Here’s another status report on this sad but fixable story.

Executive Pay

The Q2 Buybacks Report by FactSet is, as usual, sobering reading. During the 12 months ending in June, companies in the S&P 500 spent $555.5 billion repurchasing their shares. For the first time since October 2009, buy-backs exceeded free cash flow (cash flow after capex); they’re borrowing to buy back shares.

For the past two years buybacks have run at the fantastic rate of ~$120 B per quarter — the same rate as in 2006-2007, with tech companies the leaders. In 2014 they spent 95% of their profits on buybacks and dividends (building the future is somebody else’s problem in corporate America).

Investors applaud this as a boost to share prices. Surprising to the naive, a decade of buybacks has reduced the S%P 500’s share count by only 2%. Share buybacks are one part of the triangle trade that transfers vast fortunes from shareholders to senior executives using stock options:

  • executives exercise their options when shares rise (i.e., the company sells shares to executives at a discount to current prices),
  • the executive sells those shares to the public,
  • the company buys back those shares from the public.

Net result: the company has less money, their executives have more, the share count is unchanged.

This is an example of how America’s senior executives have learned to treat running companies — even running them into the ground, as Carly Fiorina did at HP — as a sideshow to their real job of financial engineering (for their personal profit). During their boom the Japanese called these financial games zaitech (cursing it after their crash in 1989). Stock options, tax avoidance, earnings manipulation, mergers and acquisitions (almost all of which fail; see articles at CBS and HBR) — these are the paths to success for execs in New America.

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China introduces us to the future of warfare (asymmetric)

Summary: This series about China’s perspective on geopolitics and strategy begins with an excerpt from one of the most important and most underestimated textbooks about modern warfare, published in 1999. The following posts have excerpts from a recent speech by one of the authors, now a Major General in the People’s Liberation Army. These give a glimpse into the future that the US military, glutted with money from the fantastic growth of the military-industrial complex, refuses to see.


One of the key texts describing 4th generation warfare is Unrestricted Warfare, published in 1999 by Qiao Liang (乔良) and Wang Xiangsui (王湘穗), both Colonels in the air force of the People’s Liberation Army. They describe the 1997 attack by western hedge funds on the currencies of Southeast Asia as an example of this new generation of warfare.

Not mentioned but fitting in their paradigm is America use of economic sanctions as a weapon, which we have done with increasing frequency: against Iraq, against Burma, against Russia, and especially against Iran — hampering its trade and cutting Iran off from the world’s financial machinery (e.g., the SWIFT interbank money transfer system).

America’s military has largely ignored this book, as hegemons usually do when rivals develop asymmetric tools to circumvent their power. We exult in the superiority of our super-sophisticated (and super-expensive) carriers and  aircraft, while they use their imagination to devise new paths to victory.


When people begin to lean toward and rejoice in the reduced use of military force to resolve conflicts, war will be reborn in another form and in another arena, becoming an instrument of enormous power in the hands of all those who harbor intentions of controlling other countries or regions. In this sense, there is reason for us to maintain that the financial attack by George Soros on East Asia, the terrorist attack on the U.S. embassy by Usama Bin Laden, the gas attack on the Tokyo subway by the disciples of the Aum Shinri Kyo, and the havoc wreaked by the likes of Morris Jr. on the Internet {in 1988 created the first computer “worm”}, in which the degree of destruction is by no means second to that of a war, represent semi-warfare, quasi-warfare, and sub-warfare, that is, the embryonic form of another kind of warfare. …

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The US economy flies into the “coffin corner”, but we don’t mind!

Summary: Every year Wall Street economists see a spike in a few indicators and announce an imminent boom. This slowly fades away, leaving another year of slow growth — preventing full recovery from the crash. Readers of the FM website have seen this accurately reported since the crash, avoiding the boom-bust cycle of of crushed euphoria. Here’s a new update, as we start another slowing cycle. Eventually, inevitably, we will hit a bump that pushes slow growth to outright decline. Then, when we no longer can prepare, economic news will become exciting.



  1. Seeing the US economy as it is
  2. What might spark a crisis?
  3. Graphs: see the pulse of America’s economy
  4. For More Information

(1)  Seeing the US economy as it is

Slowly economists see the dilemma facing the Fed’s governors): they’re desperate to raise interest rates, but the US economy can grow only slowly, and so remains vulnerable to a shock that knocks it into a recession (probably a severe downturn, given its weakness).

Seven years of the Fed’s Zero Interest Rate Policy (ZIRP, since December 2008) have distorted America’s large and dysfunctional capital markets. Not just in the obvious bubbles in the stock market (e.g, biotech and social media stocks), in equity investors’ mad belief that bad news is good news (small cap stocks up 5% after the ugly jobs data), but also in ways we can only dimly see today.

Worse, ZIRP means that in the next recession the Fed will have to take America to negative interest rates — with consequences impossible to foresee (so far only small nations have crossed this Rubicon). Long experience in the US, Europe, and Japan has proven the ineffectiveness of their only other tool, quantitative easing.

On the other hand, the data suggests that raising rates now would be insane: near-zero inflation, a too-strong US dollar (already depressing exports), and slow growth (even slower on a per capita basis).

We’re in the coffin corner: can’t accelerate, can’t continue at this speed, and can’t afford to decelerate. All that maintains public confidence is the happy talk of the Fed governors and Wall Street’s gurus, at the long-term cost of destroying their credibility when it proves false. The only hint the Fed has given us is the slow downward ratchet in their forecast of US long-term growth.

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The US military’s #1 challenge in the 21st century: recruiting a few good people

Summary: The US military faces many problems in the 21st century, but perhaps none more serious than the need to recruit sufficient numbers of the high quality people it needs. They face two kinds of difficulties. This post discusses not just the small problems that get all the attention, but also the large but seldom mentioned ones. At the end are links to a wealth of research about these matters.

“If we put the Pentagon’s personnel managers in charge of the Sahara Desert, they would run out of sand in five years.”
From an analysis by John. J. Sayen (Lt. Colonel, USMC, retired). He is author of 2 books about US army infantry in WWII (1942 – 1943, 1944 – 1945).

Women for the USMC


The news often surprises us because we don’t see the years of preparation laid for it. Like today, with conservatives baffled that the US military, among the most conservative of American institutions, is determined to recruit homosexuals and women. Has Obama purged the officer corps of real Americans, substituting leftists? (Spoiler: no.)

The answer is simple and obvious: these are desperate measures in response to the shrinking pool of eligible young men. The problem has been masked by the economic weakness since 2007 and the reductions in force following our failed wars in Iraq and Afghanistan.

However, studies since the 1990s have warned of the problem (see the links at the end). Or rather, they have warned about the two problems imperiling recruitment to the US armed forces.

The small problem

The small problem is that too few young Americans meet the standards of the armed forces. Generations of public policy have given American a large underclass, whose children are poorly educated, swept through our criminal injustice system, and turn to drugs (since they have so little opportunity). This gets the attention, as in this week’s “Here’s why most Americans can’t join the military” by Blake Stilwell in the somewhat megalomaniac-named website We Are The Mighty.

For a good summary of this see “How Do We Recruit, Train and Retain the Right People for the Future Force?”, Panel Discussion at Transformation Warfare 2007 Conference on 20 June 2007.  Excerpt from the Air Force Times

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Donald Trump leads us back to the future, to the dark days of US history

Summary: Every election gives us the opportunity to shape America. We do not choose the specific national policies of the next four years, since Presidents often don’t do what they promised. Rather we give a nudge to the evolution of America; we influencing what we become. Those who vote make that decision. The choices, however unappealing, are unusually clear in 2016.

On September 22 Donald Trump attended at 45-minute long rally at Rochester, New Hampshire, speaking to about 3,000 people. Anyone who believes America is not in serious trouble should read these remarks as reported by The Hill.

“We have a problem in this country, it’s called Muslims. We know our current president is one — you know he’s not even an American. But anyway, we have training camps growing where they want to kill us. That’s my question, when can we get rid of them?”

Trump responded: “We’re going to be looking at a lot of different things, a lot of people are saying bad things are happening, we’re going to be looking at that and plenty of other things.”

A second man stood and made the same claim. “I applaud the gentleman who stood and said Obama is a Muslim born abroad and about the military camps, everyone knows that,” he said.

“Right,” Trump responded, before quickly moving to the next questioner.

… {A woman in the audience} told him that there is a “new holocaust” in New Hampshire and that people are being loaded into boxcars and beheaded by members of the Islamic State of Iraq and Syria. “I just wanted you to know that,” the woman said. Trump moved on without addressing the woman’s claim.

The remarks from the people are unexceptional; every society has people on the fringes with such views. Hatred of people different from ourselves is a sad but widespread phenomenon around the world and across history. It is an endemic “disease” that has errupted again in America, as reported by the NYT: “New Poll Finds Anti-Muslim Sentiment Frighteningly High“.

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The stock market gives us its 2 classic warnings. Will we listen?

Summary: Again the US stock market skates on the edge of an abyss, this time without the Fed holding a safety net. We’ve seen this combination of peaking economy and overvalued stocks; it never ends well. Too bad we don’t learn from history. But I suspect we’ll soon get another opportunity.

The Fed is like the chaperon who orders the punch bowl removed just when the party is warming up.”
— Attributed to William McChesney Martin Jr., Chairman of the Fed from 1951–1970. Those days are long gone.

Pigs running off a cliff

(1)  The biotech party

Here’s the weekly StockCharts view of the exchanged traded fund for the S&P Biotech Index (XBI). The heart of the bubble, it has the classic parabolic rise of an investment mania. Now down almost 30% from its July record high. Propelled by vapors and dreams, we need not consult Nostradamus to guess at what comes next. For details see Don’t ask if there’s a biotech bubble. Ask why we have another bubble.

EFT of the S&P Biotech Index

(2) The social media mania, and Tesla

The stock media stocks are the frothy edge of the bubble. Their boom began with the IPO of Facebook (FB) on 18 May 2012 at $38. It peaked at $99 in July, now at $89 (down 10% from peak). While Facebook has carved out a dominant and profitable niche, most of its scores of competitors remain little but dreams given form by Venture Capitalists — many doomed to die as independent companies when Wall Street has squeezed the last drips of juice from the mania.

Here’s the weekly chart of the Global X exchange-traded fund for the social media industry (SOCL), now fallen 20% from peak to its long-term support — with nothing below but the void. For details see The advertising glut dooms the social media industry.

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The Castle season opener shows our divorce from our police

Summary: The TV show “Castle” shows how the police have become a strange tribe that TV explores, like National Geographic used to write about central Africa.  The season 8 premier episode shows how far TV has evolved from the 1950’s idealized portrayals of Dragnet and Highway Patrol to today’s dark fantasies.  Spoilers!


Warning: spoilers to the first episode of “Castle” season 8

Today’s police procedurals show how we’ve become accustomed to our New America, and disconnected from the government and its security services. Police procedurals tend to idealize police, but modern ones tend to accept their corruption and see police as Lone Rangers fighting evil despite their organization. While immersed in correct details, overall they make early procedurals — like Dragnet (1951 – 1959) — look like documentaries (there are exceptions to this, of course).

Who knew in 1971 that Dirty Harry would become the model for 21st century policing in US fiction?

The law-breaking cop Danny Reagan (co-star of “Blue Bloods” (especially criminal in the first 2 season) is one example; we should root for Internal Affairs to get him fired. The Gestapo-like agents of “NCIS Los Angeles” are another. Last week we saw an extreme version of this problem in “XY”, the Season 8 opener of “Castle”. Like the film Independence Day, every scene was bizarre in its own way — but unlike that great film, it was not funny.

Toks Olagundoye.

Richard Castle (Nathan Fillion) is a licensed Private Investigator (PI), consultant to the NYPD, and the husband of a Captain in the New York Police Department. Hayley Shipton (Toks Olagundoye) is a PI with whom he partners in season 8, although she freely admits she is a criminal — and immediately demonstrates it.

Castle: “Hayley, we can just walk through the front door. There’s no bolt cutters required.”
Hayley: “Oh, you’ve been playing at being a cop too long, Rick. As a P.I., you don’t have a badge, don’t have search warrants. You’ve got to get creative. Lie, cheat.”
Castle: “And the occasional B&E {breaking & entering}, apparently?”
Hayley: “Yeah, if that’s what it takes.”

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