-
7/27/2019 jmc10-28-13.pdf
1/8
Monday, October 28, 2013 All highlights are mine. All times
ET.
Joan McCullough, East Shore Partners, 1-212-226-1223
Trading: 1-800-222-8723 [email protected]
Okay, so you already know that Japan has given themselves the go
ahead to print til it hurts.
This is on the heels of revelations from the ECB that excess
liquidity on their turf has fallen into
the skimpy zone, pushing up the price of money and generally
irritating Draghi et al. Natch, this
pesky detail has given rise to speculation that the ECB will,
like the Bank of Japan, cut loose
with more juice. Drama surrounding all of which, kiddies, is
heightened as the FED meeting
starts tomorrow (theyre all 2-dayers now).
Last I read, the geniuses who dominate our information sources
have decreed a nothin done on
tapering until March. Which new twist on uncertainty ... has the
major commodities between a
rock and a hard place, i.e., gyrating aimlessly as their usual
slammers and jammers try to discern
... whether to schmitt or go blind. Truly, there is nothin new
under the sun, is there?
Gone ... at the moment ... is talk that the rest of the world
would just love to ditch the greenback
as reserve currency. As in a fit oftold you so ... ha, ha, ha
... the buck has emerged on the top
of the forex dung heap once again. Timing, of course, remains
everything. As Treasury willauction $98 bil of 2s, 5s and 7s this
week, confirming that they have big brass ones, eh? You
bet. Whew.
Stocks, confused, have backed off some. Which is no surprise as
the behavior fits the profile.
Huh? Right. New highs. Back off. Head-fake the crowd. Make
another new high. Back off
again. Another head fake. Lather. Rinse. Adjust the envelope.
Repeat. Ad nauseam.
So screw that malarkey. Heres what were gonna talk about
today:
The normalization of deviance.
This is an essay which has been a long time comin, believe me.
Thoughts about it started way
back when the FED first crossed the lines of legitimacy. Your
call as to which zany program
they instituted during the crisis did it for you. And if the
answer is none of the above, then we
can go directly to the money-printing operation and pin the tail
on that abomination.
mailto:[email protected]:[email protected]
-
7/27/2019 jmc10-28-13.pdf
2/8
Of course, to this day, they deny that they actually print
money, willing to point out to any
jackwagon who will listen, that once they use a middleman such
as a primary broker, voila, they
havent printed so much as one, lousy sou.
Ballocks.
Anyhow, as mentioned on more than one occasion in this space,
the whispering of the word
monetization used to be enough to bring tears to the eyes of
grown men. Indeed, it was one of
those things, like incest for example, that was a totally taboo
subject. Particularly when ladies
were present. But somehow over the last several years, the taboo
restriction was lifted. And it
became an approved subject for polite ... and serious ...
business conversation. Right up there
with P/E ratios and ROE, talk of central banks ... in developed
economies no less ... became a
recognized, public topic of conversation.
And then it graduated to becoming ... the hallmark of US
monetary policy. OMAB.
Of course, there was an attempt to euphemize this action. So we
picked Quantitative Easing
and the Europeans picked LTROs. Does a rose by any other name
smell as sweet? You bet it
does, Sherlock. No sweat.
In short, over the years, it has vexed this writer no end how
something so diabolic could become
the acceptednorm.
Now I have to digress here a moment and admit that it was not
only printing money that got my
goat and forced me to think this through. Rather, the whole
syndrome plaguing our once-great
nation had me baffled. In terms of our seemingly willing
acceptance of the sweeping changes ...
the Affordable Care Act is paramount at the moment ... being
wrought by our leadership inWashington, DC. All of which
initiatives have been carefully engineered to put us firmly on
the
road to serfdom, turning us into a centrally-planned economy,
recasting us in the footsteps of
the failed European social model.
To this despicable litany of marching orders, we offer no
resistance.
And I wanna know WHY.
Could we be so simple as to be silenced by talk of what? Of DOW
20,000? 30,000?
100,000?
Charles Krauthammer has my utmost respect. The brilliance of his
mind is evident but what is
so startling about him is that hes ... never fresh out of
brilliance. Hes like a bottomless pit of
laser-like, precise thinking, IMHO.
In his new book, Things That Matter, he criticizes the folly of
the House taking on the repeal
of Obamacare. For which he has been branded a RINO by some. The
upshot to his position is
that it was folly to take on the Affordable Care Act by simple
virtue of the fact that the GOP does
-
7/27/2019 jmc10-28-13.pdf
3/8
not control the Senate as well. Thus it was an impossibility
which should not have been
attempted. As the failure was certain. As was the negative
fall-out which resulted.
I get that viewpoint 100%. Nevertheless, I cannot quite get to
the same spin. Possibly this is
because I am plagued by the notion that expressing the courage
of ones own convictions still has
merit. Despite any resulting loss of political capital. And
thats why many of us could nevermake it in politics! Geez.
Seriously though, that kind of altruism used to be considered a
virtue, as a matter of fact. Do you
rememberProfiles in Courage by JFK? Good. Then go back and
re-read the story of Edmund
G. Ross. Who bucked his party, casting theswing vote which saved
Andrew Jackson from
impeachment ... and which he knew would end his political life.
(He lost his seat in the next
election.) And see how you size that up against Krauthammers
assessment offolly. Myself,
I see that a case can be made either way. As what is politically
pragmatic does not always align
with personal standards! Which makes this exercise that much
more difficult to present.
So humor me as we digress, noting that the last straw prompting
me to venture into these dark
recesses was prompted by Fridays highly-publicized comments by
the CIO of Cumberland
Advisors who was evidently irked by Rand Pauls curve-ball aimed
at the Yellen nomination.
Paraphrasing, Mr. Kotok suggested that attempts to derail the
Yellen nomination kicked every
man, woman investor, 401-k owner, IRA owner, businessman,
borrower, in the gut. Adding
something along the lines of the FED needing consistent policy
so we ought to get off their
backs. Mention of a disservice to America and a the risk
ofscrewing up the economic
recovery was also part of the message. (For a verbatim version,
heres one of the many links
out there to the video clip:
http://finance.yahoo.com/video/rand-pauls-threat-block-yellen-
171444861.html)
I watched it and Im sure that you did as well. And I marveled at
the gusto with which it was
delivered. But what really stuck with me was the insistence in
particular that we shouldnt look
to be disruptive in a transitional period in which we now find
ourselves.
Really? The take-away I got from that ... and this is me talkin
only ... is that we should be
content to let the games continue. And so I take another leap
and assume then that whether or
not you want the games to continue ... depends heavily on your
opinion of what the games are.
Which, human nature being what it is, usually can be boiled down
to this question: Qui bono?
Right. Qui bono orwho benefits from the current games? And if
you want to take the word
games and interchange it with FED policy as the former is
heavily biased , then be my
guest.
Here, Ill do it for you: Who benefits from current FED
policy?
http://finance.yahoo.com/video/rand-pauls-threat-block-yellen-171444861.htmlhttp://finance.yahoo.com/video/rand-pauls-threat-block-yellen-171444861.htmlhttp://finance.yahoo.com/video/rand-pauls-threat-block-yellen-171444861.htmlhttp://finance.yahoo.com/video/rand-pauls-threat-block-yellen-171444861.htmlhttp://finance.yahoo.com/video/rand-pauls-threat-block-yellen-171444861.html
-
7/27/2019 jmc10-28-13.pdf
4/8
Bingo. Youve gone outside the box again, Skeezix. Because you
evidently asked the same
secondquestion that I did. Which is: Who is harmed by current
FED policy? (And should we
be equally concerned about that aspect as well?)
And in weighing the pros and cons, there is more than a handful
of us who have determined that
QE and all that goes with it ... is destructive, not
constructive. And therefore to pursue the sameor similar m.o. by
inviting the transition to a Yellen FED ... is the wrong way to go.
If you need
one glaring reason, well make it a poser: How do youscrew up the
likes of the economic
recovery that has been underway since 2009?
Which brings us back to the Krauthammer argument.
As follows: Since we, like a certain GOP faction, have nowhere
near the clout to stop what we
view as the hurtling towards extinction ... do we rock the boat?
Or do we sacrifice personal
conviction with a view towards maintaining
stability/fluidity/composure while the transition is
underway? When we know darn well where this freight train is
headed? From Bernanke toYellen.
... When I was a third-year medical student, I was observing
what turned into a very difficult
surgery. About 2 hours into it and after experiencing a series
of frustrations, the surgeon
inadvertently touched the tip of the instrument he was using to
his plastic face mask. Instead of
his requesting or being offered a sterile replacement, he just
froze for a few seconds while
everyone else in the operating room stared at him. The surgeon
then continued operating. Five
minutes later he did it again and still no one did anything. I
was very puzzled, but when I asked
one of the nurses about it after the operation, she said, Oh, no
big deal. Well just load the
patient with antibiotics and hell do fine. And, in fact, that is
what happened; the patientrecovered nicely.
...http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/
OMAB.
A royal screw-up in the OR. Nobody said boo. The surgeon did it
again. And again,
silence. The remedy was simply to load the victim patient up
with antibiotics. (And if you
cant make the correlation with what has gone on in this country,
then just do yourself a favor
and hit the delete button. Sheesh.)
This dangerous behavior was acceptable because ... simply
because they got away with i t.
Over time, things like this become normalized.
What I believe has confronted us is a sweeping environment where
we normalize
preposterously unacceptable behavior/conditions to the point
where out radar/barometer is
so wi ldly skewed... that we get to the tragic point ... where I
fear we have alr eady arr ived as a
nation... where we can no longer judge what is acceptable and
what is not.
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/
-
7/27/2019 jmc10-28-13.pdf
5/8
The mechanism is totally broken. Check. So the m.o. continues to
multiply like a bad virus.
Check.
Lets digress further. And expand this essay to include the basis
of the housing implosion. I
want to g back there and talk about the failure of our
regulators.
Why revisit such old hat? Because the regulators were derelict
in their duties back then. And we
are now repeating the same baloney again. Under pretty much the
same regulators.
And I wanna know WHY.
I think this is all part and parcel of the normalization of
deviance. Very much related. So that
it has been dubbed supervisor bias.
Let me give you an example of this which I can recall like it
was yesterday. Thats how awful
the situation was.
Rewind to circa 1995. A foreign stock which traded by
appointment only. The sales/trader who
covered the account had to go home for some reason. That was me.
So I passed the order to the
sales/trader who sat at my right elbow. The market-maker of this
stock sat directly across from
us, down a half-step in a pit.
Long story, short: The trader took vicious advantage of the
elbow guy, ripping the client a new
pie-hole in quick order. The magnitude of the client abuse was
eye-popping. Elbow guy was
oblivious/innocent. The client found out. The schmitt hit the
fan. They pulled the wire; they
had the ability to pay huge which made it all the more serious a
situation. I got called in the next
day. And was asked Do you think theyll ever trade with us again?
I stifled a laugh.
Upshot: elbow guy took the full blame from our supervisor. Was
excoriated. (And held in low
regard by this supervisor until the day he left the Firm.) What
happened to the trader/bandit?
Absolutely nothin.
Heres the reasoning: The trader was just tryin to turn a buck
for the house. And by this time,
there were no holds barred. That is how the morality of the desk
had deteriorated over time.
To where the supervisor exhibited bias towards one employees
actions over anothers. In
so-doing, he set the stage for further deterioration of the
standards of the entire desk.
I am sure that this bit ofnormalization of deviance began with
one, little transgression. Maybe
somebody nicked an eighth or a quarter ... and got a wink and a
nod. Which over time ... our
internal radar being skewed by the normalization of unacceptable
behavior ... became quite the
acceptable way to do business/treat clients.
PS the skank supervisor retired eventually, reportedly with
$millions. So that in and of itself is
another justification for the normalization of deviance. Which
off the top of my head, I feel
-
7/27/2019 jmc10-28-13.pdf
6/8
comfortable correlating with the relentless ascent of the stock
market. And an understanding of
those who rail against what they perceive is the interference
with this ascent. Do you copy? Ill
bet you do!
So with that digression we learn how the normalization of
deviance multiplies itself, noting that
it was the pondering of the regulators who were derelict in
their duties as much now as they werethen ... which brought about
the topic ofsupervisor bias. And the part that supervisor bias
plays in the normalization of deviance.
You know how it went down, right? I am certain that the
regulators were conscious of the fact
that the hot dogs had us all ... every man, woman and child ...
skatin on very thin ice. But
offered no objection. Because the hot dogs were makin hay. And
by extension, an economic
boom. Temporarily as it turned out.
Yet as soon as the US taxpayer was rousted from sleep and forced
to clear the decks of the
financials by taking on those losses within the confines of his
own yoke ... were the financialsfree to ... free to do it all over
again.
With the same supervisor bias as before.
http://www.kaycannon.com/risk-factor-2-normalization-of-deviance/
Some see any attempt to interrupt this chain of command and the
highly predictable, resulting
chain of events ... as a threat to the transition and by
extension, to the economic recovery.
Which has possibly been confused with the ascent of the stock
market.
Others view it as supervisory bias which reinforces the diabolic
nature of the normalization of
deviance.
Your call.
I will only add this, noting that it is yet another example
referencing the medical industry. But
feel that this is extremely appropriate given the normalization
of deviance factor which has
been, IMHO, key in the ability of the Administration to foist
the Affordable Care Act on this
country. Check it out:
... an expert witness involved an anesthesiologists turning off
a ventilator at the request of a
surgeon who wanted to take an x-ray of the patients abdomen
(Banja, 2005, pp. 87-101). Theventilator was to be off for only a
few seconds, but the anesthesiologist forgot to turn it back
on,
or thought he turned it back on but had not. The patient was
without oxygen for a long enough
time to cause her to experience global anoxia, which plunged her
into a vegetative state. She
never recovered, was disconnected from artificial ventilation 9
days later, and then died 2 days
after that. It was later discovered that the anesthesia alarms
and monitoring equipment in the
operating room had been deliberately programmed to a suspend
indefinite mode such that the
http://www.kaycannon.com/risk-factor-2-normalization-of-deviance/http://www.kaycannon.com/risk-factor-2-normalization-of-deviance/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R3http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R3http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R3http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R3http://www.kaycannon.com/risk-factor-2-normalization-of-deviance/
-
7/27/2019 jmc10-28-13.pdf
7/8
anesthesiologist was not alerted to the ventilator problem.
Tragically, the very instrumentality
that was in place to prevent such a horror was disabled,
possibly because the operating room
staff found the constant beeping irritating and annoying.
...
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/
Making an analogy surely hits home on many levels, doesnt it?
You bet.
The bottomline of this essay?
Whenever there is deviation from what have been established over
a long time as appropriate
practices or protocols ... in todays essay, that protocol is the
avoidance of monetization of the
debt by respectable central banks ... we ought to be preparedto
view this these deviations which
then become normalized ... as harbingers of inevitable, massive
devastation.
... Mega disasters such as Chernobyl, Three Mile Island, Bhopal,
and the ill-fated Challenger
and Columbia space missions all witnessed system flaws and
protocol violations that antedated
the disasters by years (Gerstein, 2008;Perrow, 1999;Predmore,
2006;Reason, 1999). For
example, NASA knewfor at least 5 years priorabout the rocket
booster O-ring failures that
led to the Challenger disaster. Debris shedding from the
external fuel tank, which damaged the
wing of the space shuttle Columbia and caused the vessel to
break apart on its atmospheric re-
entry, had been a recognized design flaw for 20 years; indeed,
debris shedding had occurred on
every space shuttle flight (Predmore, 2006). The catastrophe at
Bhopal, Indiawhere more than
2,500 people were killed and more than 200,000 were injuredwas
preceded by six prior
accidents that witnessed no safety improvements, a continued and
heavy reliance on
inexperienced operators, ignored inspectors warnings, and
malfunctioning equipment (Reason,
1999). ...
We can further easily make a case that the normalization of
deviance can be seen in areas such as
medicine ... and business ... and borrowing ... and investing
and in the governance of a once-
great nation ... we can also take it right on down to a story
about a dysfunctional family. Where
one spouse, for example, normalizes the unacceptable behavior of
the other, how this foments
over time. To where the children are prone to repeat this
behavior later in life, having been
guided by supervisor bias.
Indeed, current FED policy IMHO is a recipe for disaster. It
should not be viewed as acceptable
at any level. And needs to be changed. Even if this means that
the stock market will respond
viscerally. And 401-k holders, investors, borrowers and the
economic recovery wont like it.
Normalization of deviance is facilitated when we continue to
exercise bad behavior ... because
we get away with it.
One day, we wont get away with it. And who can gauge the size of
the disaster we will face at
that point? Its likely to make Three Mile Island look like a box
of chocolates.
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R9http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R9http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R9http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R17http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R17http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R17http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R19http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R18http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R17http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/#R9http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2821100/
-
7/27/2019 jmc10-28-13.pdf
8/8
And thats what this essay is all about.
Soap box away. As I now retreat to read the tea leaves of the
economic data.
Later.
This report is issued for informational purposes only and is not
intended to be an offer, or the solicitation of any offer, to buy
or sell the securitiesreferred to herein. Any recommendation made
in this report may not be suitable for all investors. This report
does not take into account the
particular investment objectives or financial circumstances of
any specific person who may receive it. Moreover, although the
informationcontained herein, and the opinions, forecasts or
estimates based thereon, has been obtained from sources deemed to
be reliable by East ShorePartners, its accuracy and completeness
cannot be guaranteed and should not be relied upon as such. Past
performance is no guarantee of futureresults. Under no
circumstances should any of the information contained herein be
changed or reproduced without the express written consent ofEast
Shore Partners, Inc. East Shore Partners, Inc. does not engage in
investment banking activities, nor does it make markets in
securities ortrade for its own account. East Shore Partners, Inc.
does not maintain any relationship with any issuer of securities.
East Shore Partners, Inc.,Member FINRA, SIPC. Copyright 2013 East
Shore Partners. All rights reserved.
