Continue Buying the Smoking-Hot Cigarette Stocks

The cigarette stocks remain hot as high yields and steady growth have led to strong stock gains. Many an investor has overlooked the sector due to perceived negatives of the industry, but for an investor looking for yields and growth the sector should not be ignored. Right now the leading domestic cigarette stocks of Altria (NYSE: MO), Lorillard (NYSE: LO), and Reynolds America (NYSE:

Spying Out of Control: NSA Bugs EU Offices, Gathers Routine Info On US Citizens; Is NSA Surveillance Legal? Constitutional?

Just to show how far out of line NSA surveillance has gotten, the US is gathering routine information on US citizens and has also been bugging EU offices.

Der Spiegel reports "Senior European Union officials are outraged by revelations that the US spied on EU representations in Washington and New York. Some have called for a suspension of talks on the trans-Atlantic free trade agreement."

Please consider Spying 'Out of Control': EU Official Questions Trade Negotiations
Europeans are furious. Revelations that the US intelligence service National Security Agency (NSA) targeted the European Union and several European countries with its far-reaching spying activities have led to angry reactions from several senior EU and German politicians.

"We need more precise information," said European Parliament President Martin Schulz. "But if it is true, it is a huge scandal. That would mean a huge burden for relations between the EU and the US. We now demand comprehensive information."

Schulz was reacting to a report in SPIEGEL that the NSA had bugged the EU's diplomatic representation in Washington and monitored its computer network (full story available on Monday). The EU's representation to the United Nations in New York was targeted in a similar manner. US intelligence thus had access to EU email traffic and internal documents. The information appears in secret documents obtained by whistleblower Edward Snowden, some of which SPIEGEL has seen.

The documents also indicate the US intelligence service was responsible for an electronic eavesdropping operation in Brussels. SPIEGEL also reported that Germany has been a significant target of the NSA's global surveillance program, with some 500 million communication connections being monitored every month. The documents show that the NSA is more active in Germany than in any other country in the European Union.

German Justice Minister Sabine Leutheusser-Schnarrenberger, who has been sharply critical of the US since the beginning of the Prism scandal, was furious on Sunday. "If media reports are correct, then it is reminiscent of methods used by enemies during the Cold War," she said in a statement emailed to the media. "It defies belief that our friends in the US see the Europeans as their enemies. There has to finally be an immediate and comprehensive explanation from the US as to whether media reports about completely unacceptable surveillance measures of the US in the EU are true or not. Comprehensive spying on Europeans by Americans cannot be allowed."

Elmar Brok, chairman of the Foreign Affairs Committee in European Parliament added his opprobrium. "The spying has reached dimensions that I didn't think were possible for a democratic country. Such behavior among allies is intolerable." The US, he added, once the land of the free, "is suffering from a security syndrome," added Brok, a member of Chancellor Angela Merkel's conservative Christian Democrats. "They have completely lost all balance. George Orwell is nothing by comparison."

Green Party floor leader in European Parliament Daniel Cohn-Bendit went even further. "A simple note of protest is not enough anymore. The EU must immediately suspend negotiations with the US over a free trade agreement," he said. "First, we need a deal on data protection so that something like this never happens again. Only then can we resume (free-trade) negotiations."

The US has thus far declined to respond to the revelations printed in SPIEGEL. "I can't comment," Deputy National Security Advisor Ben Rhodes told journalists on Saturday in Pretoria, according to the German news agency DPA.
Evidence Overwhelming

The US has not officially acknowledged that fact but nor has the US denied it. But the evidence is overwhelming. "I can't comment". is the best the US can do.

The Financial Times comments on the mess in EU demands answers over claims US bugged its offices
A diplomatic row over communications surveillance deepened as European ministers reacted with disbelief and fury to reports that EU offices were bugged by US intelligence services.

Der Spiegel said it had gained partial access to a NSA document dated 2010, which was obtained by Edward Snowden, the NSA contractor turned whistleblower.

The document revealed the NSA had placed bugs and tapped into internal computer networks at the EU’s offices in Washington, as well as at the EU’s mission to the UN, according to Der Spiegel. The White House declined to comment.

In Germany, especially, where sensitivities over spying remain acute because of large amounts of snooping conducted before 1989 by the Stasi, the East German secret police, the revelations about extensive US surveillance have caused a political furore.

“It defies all belief that our friends in the US see Europeans as enemies,” Ms Leutheusser-Schnarrenberger said. “If EU offices in Brussels and Washington were indeed monitored by US intelligence services, that can hardly be explained with the argument of fighting terrorism.”

Although Germany and the US co-operate extensively on intelligence matters, the partnership is not as deep as that between the US and UK. Together with Australia, New Zealand and Canada, the UK enjoys a privileged status. However, Germany is classified as a “third-class” partner.

“We can attack the signals of most foreign third-class partners, and we do it too,” Der Spiegel quoted a passage in an NSA document as saying.

Meanwhile, Rafael Correa, Ecuadorean president, said on Sunday that Mr Snowden’s fate was in the hands of Russian authorities. The man who first brought the snooping allegations out in the open is thought to still be in a Moscow airport transit zone awaiting news of his asylum request from the South American country.

Legal But Unconstitutional

Washington Post writer Laura K. Donohue, professor at Georgetown University Law Center and director of Georgetown’s Center on National Security and the Law, says NSA surveillance may be legal — but it’s unconstitutional.
The National Security Agency’s recently revealed surveillance programs undermine the purpose of the Foreign Intelligence Surveillance Act, which was established to prevent this kind of overreach. They violate the Fourth Amendment’s guarantee against unreasonable search and seizure. And they underscore the dangers of growing executive power.

The intelligence community has a history of overreaching in the name of national security. In the mid-1970s, it came to light that, since the 1940s, the NSA had been collecting international telegraphic traffic from companies, in the process obtaining millions of Americans’ telegrams that were unrelated to foreign targets. From 1940 to 1973, the CIA and the FBI engaged in covert mail-opening programs that violated laws prohibiting the interception or opening of mail. The agencies also conducted warrantless “surreptitious entries,” breaking into targets’ offices and homes to photocopy or steal business records and personal documents. The Army Security Agency intercepted domestic radio communications. And the Army’s CONUS program placed more than 100,000 people under surveillance, including lawmakers and civil rights leaders.

After an extensive investigation of the agencies’ actions, Congress passed the 1978 Foreign Intelligence Surveillance Act (FISA) to limit sweeping collection of intelligence and create rigorous oversight. But 35 years later, the NSA is using this law and its subsequent amendments as legal grounds to run even more invasive programs than those that gave rise to the statute.

We’ve learned that in April, the Foreign Intelligence Surveillance Court (FISC) ordered Verizon to provide information on calls made by each subscriber over a three-month period. Over the past seven years, similar orders have been served continuously on AT&T, Sprint and other telecommunications providers.

Another program, PRISM, disclosed by the Guardian and The Washington Post, allows the NSA and the FBI to obtain online data including e-mails, photographs, documents and connection logs. The information that can be assembledabout any one person — much less organizations, social networks and entire communities — is staggering: What we do, think and believe.

To the extent that the FISC sanctioned PRISM, it may be consistent with the law. But it is disingenuous to suggest that millions of Americans’ e-mails, photographs and documents are “incidental” to an investigation targeting foreigners overseas.

Congress didn’t pass Section 215 to allow for the wholesale collection of information. As Rep. F. James Sensenbrenner Jr. (R-Wis.), who helped draft the statute, wrote in the Guardian: “Congress intended to allow the intelligence communities to access targeted information for specific investigations. How can every call that every American makes or receives be relevant to a specific investigation?”

Illegal And Unconstitutional

New York Times op-ed contributors Jennifer Stisa Granick and Christopher Jon Sprigman make the case that the NSA Actions are both illegal and unconstitutional in their article The Criminal N.S.A.
THE twin revelations that telecom carriers have been secretly giving the National Security Agency information about Americans’ phone calls, and that the N.S.A. has been capturing e-mail and other private communications from Internet companies as part of a secret program called Prism, have not enraged most Americans. Lulled, perhaps, by the Obama administration’s claims that these “modest encroachments on privacy” were approved by Congress and by federal judges, public opinion quickly migrated from shock to “meh.”

 It didn’t help that Congressional watchdogs — with a few exceptions, like Senator Rand Paul, Republican of Kentucky — have accepted the White House’s claims of legality. The leaders of the Senate Intelligence Committee, Dianne Feinstein, Democrat of California, and Saxby Chambliss, Republican of Georgia, have called the surveillance legal. So have liberal-leaning commentators like Hendrik Hertzberg and David Ignatius.

This view is wrong — and not only, or even mainly, because of the privacy issues raised by the American Civil Liberties Union and other critics. The two programs violate both the letter and the spirit of federal law. No statute explicitly authorizes mass surveillance. Through a series of legal contortions, the Obama administration has argued that Congress, since 9/11, intended to implicitly authorize mass surveillance. But this strategy mostly consists of wordplay, fear-mongering and a highly selective reading of the law. Americans deserve better from the White House — and from President Obama, who has seemingly forgotten the constitutional law he once taught.

 Edward J. Snowden, the former N.S.A. contract employee and whistle-blower, has provided evidence that the government has phone record metadata on all Verizon customers, and probably on every American, going back seven years. This metadata is extremely revealing; investigators mining it might be able to infer whether we have an illness or an addiction, what our religious affiliations and political activities are, and so on.

The law under which the government collected this data, Section 215 of the Patriot Act, allows the F.B.I. to obtain court orders demanding that a person or company produce “tangible things,” upon showing reasonable grounds that the things sought are “relevant” to an authorized foreign intelligence investigation. The F.B.I. does not need to demonstrate probable cause that a crime has been committed, or any connection to terrorism.

Even in the fearful time when the Patriot Act was enacted, in October 2001, lawmakers never contemplated that Section 215 would be used for phone metadata, or for mass surveillance of any sort.

Representative F. James Sensenbrenner Jr., a Wisconsin Republican and one of the architects of the Patriot Act, and a man not known as a civil libertarian, has said that “Congress intended to allow the intelligence communities to access targeted information for specific investigations.” The N.S.A.’s demand for information about every American’s phone calls isn’t “targeted” at all — it’s a dragnet. “How can every call that every American makes or receives be relevant to a specific investigation?” Mr. Sensenbrenner has asked. The answer is simple: It’s not.

 Let’s turn to Prism: the streamlined, electronic seizure of communications from Internet companies. In combination with what we have already learned about the N.S.A.’s access to telecommunications and Internet infrastructure, Prism is further proof that the agency is collecting vast amounts of e-mails and other messages — including communications to, from and between Americans.

The government justifies Prism under the FISA Amendments Act of 2008. Section 1881a of the act gave the president broad authority to conduct warrantless electronic surveillance. If the attorney general and the director of national intelligence certify that the purpose of the monitoring is to collect foreign intelligence information about any non­American individual or entity not known to be in the United States, the Foreign Intelligence Surveillance Court can require companies to provide access to Americans’ international communications. The court does not approve the target or the facilities to be monitored, nor does it assess whether the government is doing enough to minimize the intrusion, correct for collection mistakes and protect privacy. Once the court issues a surveillance order, the government can issue top-secret directives to Internet companies like Google and Facebook to turn over calls, e-mails, video and voice chats, photos, voice­over IP calls (like Skype) and social networking information.

Leave aside the Patriot Act and FISA Amendments Act for a moment, and turn to the Constitution.

The Fourth Amendment obliges the government to demonstrate probable cause before conducting invasive surveillance. There is simply no precedent under the Constitution for the government’s seizing such vast amounts of revealing data on innocent Americans’ communications.

 One of the most conservative justices on the Court, Samuel A. Alito Jr., wrote that where even public information about individuals is monitored over the long term, at some point, government crosses a line and must comply with the protections of the Fourth Amendment. That principle is, if anything, even more true for Americans’ sensitive nonpublic information like phone metadata and social networking activity.

We may never know all the details of the mass surveillance programs, but we know this: The administration has justified them through abuse of language, intentional evasion of statutory protections, secret, unreviewable investigative procedures and constitutional arguments that make a mockery of the government’s professed concern with protecting Americans’ privacy. It’s time to call the N.S.A.’s mass surveillance programs what they are: criminal.
Criminal is Correct Viewpoint

There is no doubt that actions by the NSA are both illegal and unconstitutional.

Yet, instead of going after the perpetrators of crimes, the US is going after Edward Snowden, the former U.S. intelligence contractor who leaked the documents detailing the illegal surveillance to various news agencies.

Rand Paul on Snowden

Finally, please consider Rand Paul: Clapper Lied, Snowden Told the Truth.
Senator Rand Paul told CNN yesterday that NSA whistleblower Edward Snowden will be historically viewed as a truth teller whereas Obama national security director James Clapper will be judged as a liar for telling Congress that the NSA was not spying on Americans.

“I would say that Mr. Snowden hasn’t lied to anyone,” Paul told CNN’s Candy Crowley. “He did break his oath of office, but part of his oath of office is to the Constitution, and he believes that, when James Clapper came in March, our national director of intelligence came and lied, that he [Snowden] was simply coming forward and telling the truth that your government was lying. This is a big concern of mine, because it makes me doubt the administration and their word to us when they talk to us, because they have now admitted they will lie to us if they think it is in the name of national security.”

Paul is referring to Clapper’s March testimony in front of the Senate intelligence committee, during which he claimed that the National Security Agency did “not wittingly” collect data on Americans’ communications.

Following Snowden’s revelations about the PRISM program, Clapper tried to clarify his remarks by stating, “I responded in what I thought was the most truthful, or least untruthful, manner by saying ‘no.’”

“Mr Clapper lied in Congress in defiance of the law in the name of security – Mr. Snowden told the truth in the name of privacy, so I think there will be a judgment because both of them broke the law and history will have to determine,” added Paul.
So, who is the criminal here, and who is the hero? One is wanted on charges of treason, the other is not wanted or charged with anything.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Immigration, Class, & Ideology

I'm still catching up and recovering from recent events, so I'll turn the microphone over to Chris Dillow:

Immigration, Class, & Ideology: ...the effects of immigration take place in a class-divided society. For those in power, the benefits - high profits - are quick and easy. But for those at the bottom end of the labour market, they are less pleasant.

But it needn't be so. Imagine our retailer were a full-blooded worker coop. Workers would then think: "Isn't it great we don't have to that dangerous job now, so we can do nicer jobs and get a share of higher profits". And if redundancies are made, they'll be on better terms. (And of course, in a society not disfigured by class division, unemployment benefits would be higher).

In this sense, it is obvious that immigration - insofar as it does worsen the condition of some workers (which is easily overstated) - is a class issue. Rather than ask: "why are immigrants taking my job?" Dave could equally ask: "why are there class divisions which prevent the benefits of migration flowing to everyone?"

So, why is one question asked when the other isn't? The answer is that capitalist power doesn't just determine who gets what, but also what issues get raised and which don't. As E.E.Schattschneider wrote in 1960:

Some issues are organized into politics while others are organized out. (quoted in Lukes, Power: A Radical View, p20)

In this way, it is immigrants who get scapegoated rather than capitalists.

On the Perpetual Decline of Things, and Niall Ferguson: Answering Ashok Rao’s Request Weblogging

Ashok Rao calls for help via the Twitterphone:


Screenshot 6 30 13 9 11 AM

Needless to say, Ashok needs no help. If he wished, he could certainly say, in the immortal words of Darth Vader:

I've been waiting for you, Niall Ferguson. We meet again, at last. The circle is now complete. When I left you, I was but the learner; now I am the master…

Nevertheless, I will answer the Twitterphone…

When in 1842 Thomas Babbington Macaulay published his Lays of Ancient Rome--his attempt to write down the poems that the poets of the Roman Republic would have written had they been Scotsmen--he knew damned well what he was doing when he had the narrative voice of his poems lament the fact that the narrative voice's today was an Age of Degeneration:

Then none was for a party;/Then all were for the state;
Then the great man helped the poor,/And the poor man loved the great:
Then lands were fairly portioned;/Then spoils were fairly sold:
The Romans were like brothers/In the brave days of old.

Now Roman is to Roman/More hateful than a foe,
And the Tribunes beard the high,/And the Fathers grind the low…

For Macaulay understood that for the Old Fogies of every generation (and for the Young Fogies who seek their patronage), things are always worse. And, indeed, for the Old Fogies, they are: they can remember how forty years ago their backs didn't hurt, and they could see, and the world seemed full of possibility.

And Macaulay also knew that this is merely how the Old Fogies view the world, and not a description of reality. Therefore he has his narrative voice continue the passage contrasting the civic virtue of Horatius's Rome with modern degeneracy by writing:

As we wax hot in faction,/In battle we wax cold:
Wherefore men fight not as they fought/In the brave days of old…

Reading this, everybody is supposed to recognize that it was the Romans of the narrator's day who conquered the Mediterranean Basin in a fit of absence of mind, while the Romans of Horatius's day were repeatedly paying tribute, ransoming their city from the Gauls, and seeing entire armies of theirs pass sub jugum, and to understand the gap between the narrator's perception and reality.

But what Thomas Babington Macaulay knew, [Niall Ferguson apparently does not…]

From "Horatius":

"Horatius," quoth the Consul,/"As thou sayest, so let it be."
And straight against that great array/Forth went the dauntless Three.
For Romans in Rome's quarrel/Spared neither land nor gold,
Nor son nor wife, nor limb nor life,/In the brave days of old.

Then none was for a party;/Then all were for the state;
Then the great man helped the poor,/And the poor man loved the great:
Then lands were fairly portioned;/Then spoils were fairly sold:
The Romans were like brothers/In the brave days of old.

Now Roman is to Roman/More hateful than a foe,
And the Tribunes beard the high,/And the Fathers grind the low.
As we wax hot in faction,/In battle we wax cold:
Wherefore men fight not as they fought/In the brave days of old.

Moment of Truth

Well, GLD hit my downside target of 116 (big fib line) on Thursday, and I believe selling has exhausted itself.        If that Thursday low does not hold, we have major deflation issues in front of us, but if you reference my post from last week Ben and company will not allow that to happen without throwing the kitchen sink at the problem.

I also think the miners have exhausted themselves to the downside.  The fact traders were buying Friday before quarter end is a tell for me.  Lazy traders who read the news that the bull is dead in gold were caught flat footed on the reversals.  The Central Bank knows, and smart money has been positioning for the liquidity to continue and we will start seeing the money flow into commodities.  What will help is some disappointments in employment on Friday and Q2 earnings, and Q3 outlook.  This will pressure the broad markets and we will see some of the long equity and short metals/miners/commodities trade unwind.

Believing that,  I give the stock market one more week to break through the 50 again and try for new highs.  If yes, I will stay in my XIV trade, if no I will close it, and buy TZA/SH.  At any rate I will start building a short position again next Friday for a multi-month correction in the stock market.

Related, I believe bond yields have peaked.  China will relent and provide liquidity, and Ben will keep on keeping on.  When stocks roll over, there is no other liquid haven for big money to hide.

Finally, I have been watching and trading the solar stocks of late, and they are waking up.  China will resolve its differences with Europe, prices will firm, giving them higher margins, and electricity prices are going up (11-25% in CA for 2014).  I have some inside insight as I am a Solar dealer and installer.  My neighbors and friends have been getting the SDGE letters telling them how much their bills will rise, and I never had more inquiries since I started this business 6 years ago.  At the same time my distributor is warning me prices on equipment will rise 10% this fall.   Seems like a recipe for higher revenue and margins for the industry.





Moment of Truth

Well, GLD hit my downside target of 116 (big fib line) on Thursday, and I believe selling has exhausted itself.        If that Thursday low does not hold, we have major deflation issues in front of us, but if you reference my post from last week Ben and company will not allow that to happen without throwing the kitchen sink at the problem.

I also think the miners have exhausted themselves to the downside.  The fact traders were buying Friday before quarter end is a tell for me.  Lazy traders who read the news that the bull is dead in gold were caught flat footed on the reversals.  The Central Bank knows, and smart money has been positioning for the liquidity to continue and we will start seeing the money flow into commodities.  What will help is some disappointments in employment on Friday and Q2 earnings, and Q3 outlook.  This will pressure the broad markets and we will see some of the long equity and short metals/miners/commodities trade unwind.

Believing that,  I give the stock market one more week to break through the 50 again and try for new highs.  If yes, I will stay in my XIV trade, if no I will close it, and buy TZA/SH.  At any rate I will start building a short position again next Friday for a multi-month correction in the stock market.

Related, I believe bond yields have peaked.  China will relent and provide liquidity, and Ben will keep on keeping on.  When stocks roll over, there is no other liquid haven for big money to hide.

Finally, I have been watching and trading the solar stocks of late, and they are waking up.  China will resolve its differences with Europe, prices will firm, giving them higher margins, and electricity prices are going up (11-25% in CA for 2014).  I have some inside insight as I am a Solar dealer and installer.  My neighbors and friends have been getting the SDGE letters telling them how much their bills will rise, and I never had more inquiries since I started this business 6 years ago.  At the same time my distributor is warning me prices on equipment will rise 10% this fall.   Seems like a recipe for higher revenue and margins for the industry.





It’s time to be afraid…..


Hello friends!

I post only one chart today because the 10 year bond is all that matters.  I haven't posted much because things have become rather calm, but I am afraid things regarding the stock and bond markets are about to heat up again.

So everyone is talking about the Fed's tapering so let me give you my take...

The Fed has basically backed themselves into a corner via QE.  The Bernanke is basically screwed either way,  Zero Hedge had a great piece explaining why he is being tortured:

 OK, I'll add a second chart:


Here is the Fed's dilemma.  If they continue to buy bonds at the rate they have been buying they risk owning nearly all of the bond market within 6 years.  The reason for this is because the deficit has been shrinking and fewer MBS have been created following the housing crash in 2007/2008.  This means there are fewer and fewer bonds that the Fed can buy. 

As a result, the Fed has no choice but to taper.  I say this because if they don't taper they risk owning the whole bond market(or close to it).

If this happens then the risk for volatility dramatically increases because there will be fewer and fewer bonds that are traded as the Fed continues to buy.  For example:  If they owned 90% of the market then the 10% that was left  would be spooked and would likely flee or perhaps during tough times in the stock market they would come back.  Either way it creates a situation where volatility would surge and the markets would eventually panic because the float would be so small. 

The Bottom Line:

I think the Fed is hell bent on tapering even though they don't want to because they know Wall St. will hate them for it.  The problem they have is if they continue on their QE path they eventually risk owning all of the bond market.

By doing so they would essentially be monetizing our debt which Bernanke has promised he would never do.  We all know Ben is leaving next year so I believe he is concerned about his legacy. He doesn't want to be the guy that printed money until he crashed the dollar.

In the long run I believe the person that replaces him will do exactly that.  In the meantime, I think it's smart to play the taper trade.  Get out of the bond market, short treasuries, and go long the dollar.  I have personally bailed on most of my bond positions and have gone to cash and the USD.  I remain invested in blue chip stocks and gold because I see nowhere else to hide. Be careful out there folks.  The Fed's antics have created an environment where owning bonds are more risky than owning stocks IMO.

If rates continue to rise as I expect it's going to get really ugly in both the stock and bond markets. 

Stay tuned...


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