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Time for this one again....


The devices came from manufacturers of TVs, webcams, home thermostats, remote power outlets, sprinkler controllers, hubs for controlling multiple devices, door locks, home alarms, scales and garage door openers.

All of the devices included remote smartphone applications which were used to control them.

It was found that 90 per cent of the devices collected personal information, 70 per cent transmitted that data on an unencrypted network and 60 per cent had insecure user interfaces. Eight out of ten failed to require a strong enough password.

Good luck folks.  As soon as you start bringing this crap into your home you are giving criminals access to the most-intimate portions of your life and worse, you may be putting your safety at risk -- as I recently warned.

The obvious -- being able to open your garage door and thus gain access to the house and rob it, is only the beginning of the vulnerabilities.

No, manufacturers will not fix this.  They have no incentive to do so; indeed, they have every incentive not to do so as they want and use that data themselves!

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Things that make me smiley in the morning.....

The latest warning comes from Paul Singer’s Elliott Management Corp., a $24.8 billion hedge-fund firm based in New York. Singer warned investors, in a letter obtained by Bloomberg News, of what he sees as the gravest threat: an electromagnetic pulse from the Sun that knocks out the grid for months or longer.


Let's talk about what Singer is referring to -- a CME.

CMEs, or "Coronal Mass Ejections", are effectively a "storm in space."  The Sun's corona is comprised of highly-charged particles.  Every now and then (quite often, in fact; it is not uncommon for them to happen daily) a bunch of this highly-charged material is ejected from the Sun and heads outward at a high rate of speed.

If this material intersects the Earth's orbit (when it's there) and the material interacts with the Earth's magnetosphere it causes large shifts in that magnetic "bubble" -- a bubble that, incidentally, is utterly necessary for life on Earth.  This is one of the reasons life is possible on Earth -- the magnetosphere protects the planet from ordinary charged particles in the solar wind and cosmic rays; were it to not be present the upper atmosphere would be stripped off over time by those particles, ultimately destroying the ability of the planet to support life.

In any event the disruption in the magnetosphere presents a problem.  When a conductor (in this case long-distance wires used to carry power) is present in a magnetic field changes in that field induce a current in the wire.  This is how a generator works; a coil of wire is (intentionally) moved through a magnetic field, transferring the rotational energy of the coil to electrical energy.  The amount of induced electrical energy is determined by the amount of conductor so-exposed, the strength of the field and angle of incidence of the change in field to the conductor.

The field in this case is huge and in the case of long-distance electrical transmission lines the wire is very long -- ergo, the induced current would be very large.  Large enough to destroy transformers and switching gear. 

Thus, the warning.

Here's the problem -- CMEs are not something that sneak up on you.  At least not in the modern era; we have satellites that watch the Sun all the time, and we see the CMEs.  Having seen one we know which direction it was pointed and can compute whether a collision with the Earth's magnetosphere will take place -- before it happens.

So if we were to see such a thing coming we'd have quite a bit of notice -- typically one to five days of warning, and in any event (even for really fast-traveling ones) many hours.  And therein lies the solution -- disconnect the lines.

See, the risk isn't to the wire, it's to the connected equipment that can be arced over and shorted out.  No connection, no arc-over.

So what would happen if a really big CME were detected headed straight for us?  The long-haul and medium-distance part of the grid would be shut down.  This would result in most areas of the nation being blacked out, but damage would be somewhere between minimal and none.  After the storm passed, which doesn't take very long, those generating stations left running would be reconnected and used to restart the rest.

In short you'd have an "electrical holiday" for a day or two -- but not an event that would leave the nation blacked out for months due to massive damage.

In other words, relax.  Yes, CMEs are real.  Yes, there will be another one that is both very large and impacts the Earth.  Smaller ones happen all the time; indeed, CMEs are a nearly-daily thing, but space is vast and the Sun is a 360 degree ball; only a very few of these CMEs are "aimed" at the orbit of the Earth and at a time we will intersect it.  Those that do threaten to do so are detectable, and will be detected -- before they get here.  And yes, the next time one does come this way it will cause quite a bit of inconvenience -- but not the end of our civilization.

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I wonder who's paying attention to the internals....

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.9 percent in the second quarter, compared with an increase of 1.4 percent in the first. Excluding food and energy prices, the price index for gross domestic purchases increased 1.7 percent, compared with an increase of 1.3 percent.

Real personal consumption expenditures increased 2.5 percent in the second quarter, compared with an increase of 1.2 percent in the first. Durable goods increased 14.0 percent, compared with an increase of 3.2 percent. Nondurable goods increased 2.5 percent; it was unchanged in the first quarter. Services increased 0.7 percent in the second quarter, compared with an increase of 1.3 percent in the first.

In other words the increase was largely durable goods -- if you believe it.  I'm not at all sure I do.

In addition:

Real nonresidential fixed investment increased 5.5 percent in the second quarter, compared with an increase of 1.6 percent in the first. Investment in nonresidential structures increased 5.3 percent, compared with an increase of 2.9 percent. Investment in equipment increased 7.0 percent, in contrast to a decrease of 1.0 percent. Investment in intellectual property products increased 3.5 percent, compared with an increase of 4.6 percent. Real residential fixed investment increased 7.5 percent, in contrast to a decrease of 5.3 percent.

I don't buy this one either; the durables report certainly doesn't bear that sort of increase out.

The change in real private inventories added 1.66 percentage points to the second-quarter change in real GDP after subtracting 1.16 percentage points from the first-quarter change.

That's a very large inventory increase -- and it's only good if you sell it through.  We'll have to see what the following quarter brings in that regard.

The markets loved the number, but the revisions that will come to Fed expectations from it should not be ignored.

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Why does anyone tolerate this sort of intentional and, it appears, knowing misdirection and worse?

Nine reasons to love your mortgage?  I'll give you the first one, it probably is the cheapest way for you to borrow.  But the others?  Well, let's look.

2. It's a negative bond. 

That's bad, not good!  Why would you want a negative bond?  That this clownface nearly led with this reason is all you ought to need to know to go find him, warm up the tar and find the bag of feathers.

3. It leverages your entire financial life.

How is that good?  Oh yes, he does note that leverage multiplies both losses and gains, but then he makes a statement that while factually true is radically misleading -- while a brokerage can call a margin loan that is underwater, your bank can't on a mortgage.  

That doesn't matter, however, because the loss is still yours, and what's even worse is that you get to pay interest on lost money and you're locked in and forced to do so.  There is a ying for every yang; your brokerage will typically call your margin loan at the point it goes into negative equity -- while you've then lost everything you had in the account the bleeding stops there.  With a mortgage this is demonstrably not true!  If you put 5% or 10% down and the house goes down in value by more than that amount you are now paying interest on lost funds and unless you have the deficiency you cannot sell because you cannot extinguish the note, so the loss is yours on both a present and continuing basis, not the bank's!

4. It's a backup source of emergency money.  

No it's not, really.  If you have a job and other assets you can sell the assets or borrow against them.  If you lose your job getting a home equity line will be virtually impossible.  Further, see #3 -- increasing your leverage is always dangerous and with a mortgage due to the relative illiquid nature of real estate the risk is very-much tilted toward you.

5. It makes inflation your friend.

The hell it does.  The payments on a fixed-rate mortgage may stay the same but the value of the home does not if rates rise because the buyer has to finance with today's rates, not yesterday's.  There is no free lunch -- the premise of "inflation being your friend" is a false one, stoked with a 30-year trend of decreasing interest rates.  We're at the lower boundary for that and any pickup in inflation is either going to result in no benefit in that regard or worse, higher rates that destroy value and render your mortgage "upside down."

6. It lets you profit from falling interest rates.

Yes, but not really as this guy suggests.  Refinancing resets the amortization clock and since most of your payment in the first few years on a mortgage goes to interest doing this, even at lower rates, is a huge lose for you if you have a number of years into the original mortgage.  So the truth is that this only helps you if you just got the loan, where the clock reset doesn't hurt much.  Where falling rates do help is that they make it possible to finance more house with the same payment, and this tends to drive up prices.  Now tell me -- which is more likely over the next 20 years -- lower or higher rates?

7. It's an effective way to build wealth.

No, it's not.  As noted the actual appreciation in price barely outstrips inflation.  The problem with "forced savings" is that it's a chimera; you cannot both have forced savings and a home equity line, for example, nor can you have forced savings and constant refinancing.  So which is it, *******?

8. It's your default investment.

And a poor one at that.  Next.

9. Paying it off can drastically reduce your cost of living.  

Well, yes.  And not having it in the first place can do so sooner.  This is particularly true when you consider that the average $200,000 mortgage costs you nearly $150,000 more in interest (assuming a 30 year, 4% loan.)  People will often claim that due to inflation the "real cost" is much lower, but that's false; the problem with the claim is that most of the interest cost is front-loaded due to how amortized loans work (that is, the early years are mostly interest) and you lose the purchasing power immediately, along with the inability to invest those funds in something productive.  And no, that's not necessarily a bubbly thing like the stock market either!

So all-in Jonathan has 1 out of 9, with the other 8 reasons to "love" your mortgage really being reasons to hate it instead, along with pelting him with rotten tomatoes wherever you may see him for trying to goad you into destroying your financial life.

PS: Once you're out of the plane you will discover that "parachute" you were handed is in fact a knapsack.  

Bon voyage.

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