Macroeconomics Finally Gets Interesting

By John Mauldin

Dec 07, 2014


“The future is already here – it's just not very evenly distributed.”

– William Gibson, Hall of Fame science fiction writer

Since I began writing this letter some 15 years ago, I’ve always done an annual forecast letter, generally in the first week of January. That letter is typically the most-read issue of the year, and I spend more time thinking about it than any other letter. I typically take the last week of the year off from writing just to concentrate on my research, and I often begin to compile my reading material the first week in December, which the calendar tells us is now. Helping me this year will be my associate Worth Wray and a few members of the Mauldin Economics team, and of course my many friends and readers.

This year I’m going to open up a little bit about the process of how I actually write a forecast issue. First off, I am not a model-driven guy. Over the years, I’ve come to have access to a rather amazing array of researchers and analysts who do deep dives on their particular topics, and their models are far more complex than anything I could create. I also make a point of reading conflicting viewpoints, especially those of people I know to be smart but whom I disagree with. If I can’t figure out why they’re wrong, then maybe I have to change my mind.

I take all of those models about different segments of the world and try to figure out how they fit together. Admittedly, that exercise involves a great deal more art than science. (And speaking of art, this letter will print a bit longer because there are lots of graphs at the end.)

One of the advantages I have is that when I encounter two or more conflicting opinions I can often pick up the phone and simply discuss the topic with the various authors to see if I can come to some clarity. Sometimes the most instructive things I can learn are the reasons why two very smart people disagree. I have learned over time that there is not as much black and white in economics as one would hope. There are lots of nuances and hidden connections within the global economy that are not obvious to the casual observer. The effort to understand requires me to absorb and distill the massive amounts of information I encounter – while constantly being aware of the biases, assumptions, and basic presuppositions of other writers.

Finally, it’s never just about economics, because history, geopolitics, and psychology are always part of the mix. I simply try to read and view everything I can, a far wider variety of material than most economic commentators tackle, and then choose the path that makes the most sense to me as a forecast.

I tend to be more macro-oriented than market-oriented, but I do at least attempt some market forecasts (if only to demonstrate how futile they are, at least in the short term). In general, I find that macro events eventually lead markets. This approach makes timing rough if you’re a short-term trader, but for those with a longer perspective the macro-driven view adds a great deal of value.

For the next two letters we’re going to look at the issues I’m researching as we approach the end of the year. No deep dives but just a general discussion of the topics and questions we should be thinking about. Of course, we’ll look at tail-risk events. What could go wrong? But we also have to ask ourselves the opposite question: what could go right? What might get even better? I can list several major countries where I think things will get structurally better in the short to medium term, and I’m optimistic about the future of numerous industries.

The research shows, and I’ve done letters about this, that being too negative is actually more harmful than being too positive. Cautious optimism is generally the most rewarding path. But you have to have a large dose of reality. If you live in Japan, the prospect for your currency is markedly different than if you live in Mexico or Norway (more on that later).

But before we begin the letter, let me briefly note that I will be doing a webinar with my friends Ian Bremmer and Jack Rivkin next Tuesday at 1:00 p.m. EST. We will be getting a sneak preview of Ian’s 2015 geopolitical forecast and Jack’s seasoned perspective (that’s a polite way of saying he’s been doing this for over 40 years) on implications for the markets. It’ll be a fascinating 30 to 40 minutes. You can find out how to listen at the end of the letter.
Now let’s jump in.

Macroeconomics Finally Gets Interesting

2015 may be the year that macroeconomics really becomes interesting again, if it hasn’t already. After a long period of relatively coordinated central bank policies and remarkably low volatility, the macro scene is becoming more dynamic. That’s great for those who live and die by dramatic long-term shifts in global markets, but it should be terrifying for emerging-market policymakers, currency carry traders, Texas oil men, and, frankly, the average investor. King Volatility is back on his throne.

A LOT can go wrong in this kind of environment, and traditional portfolio design (sloppy combinations of active managers in a 60/40, 70/30, or 80/20 framework) will simply not let you weather a major economic storm. Think 2008. Think 1937. Think 1998 if LTCM hadn’t been dealt with and banks and nations around the world had been a lot more levered – as they are today. The potentials for disruption are enormous, and not just for markets.

Let’s start with a general list of topics.

  1. The United States seems to be doing relatively well. Employment continues to improve at a 2% pace, more or less; GDP growth is more stable; and interest rates are likely to be low for some time. The equity markets are shrugging off anything negative. You can make a very reasonable case that this climate will continue for another year, so you have to start asking yourself, “What could go wrong?” On my short list is a potentially sharp reduction in capital expenditures in the oil extraction industry. Then US exports are hit by the rising dollar, which also hurts corporate profits of large internationals, which impacts stock market valuations – developments that have historically signaled a major short-term top. And we really need to think through the deflation equation, as energy prices will lower the inflation indexes.
  2. On the global level, there is the real possibility of a significant US dollar breakout and the unwinding of the US-dollar-funded carry trade. The policy divergence among the major central banks is on the verge of being very pronounced. That will have a far bigger impact on global markets than most of us understand. Such a divergence has traditionally not been good for emerging markets. Ironically, we also have to look at the possibility that the increased funding of global trade in Chinese renminbi may offset some of the impact. But will it be enough?
  3. We have to pay significant attention to the number-one macroeconomic driving force in the world: Japan. The rapid fall of the yen in recent months has been the topic of numerous conversations I’ve had in the past few weeks. Longtime readers know I fully expect the yen to go to 120, on its way toward 200; but this recent move seems too far, too fast, when accompanied by no correction or even a modest pullback. We have to ask ourselves what is causing this. Have the Japanese lost control of their currency? It’s way too early in the process for that to happen. That is a HUGE potential tail risk that must be analyzed.
  4. Europe is working its way into an outright deflationary recession. Draghi keeps talking a good fight but never seems to deliver. Will he be able to garner enough support to override German objections to quantitative easing? And even if he can, is €1 trillion really enough to drive a stake through the heart of deflation? Will QE somehow increase monetary velocity and the money multiplier in a system that is basically still dysfunctional? And what happens when Greece defaults again this year? Europe is a big question mark. Can Europe continue to muddle through for another year, or will the structural crisis they have been holding at bay finally force them to deal with the real problems?
  5. China is clearly slowing down, but by how much? How will slower growth impact its trade partners, especially those who have been providing basic commodities? China is also clearly overleveraged, with a monster shadow banking system that seemingly grew up overnight. Will they be able to manage the transition to a consumption-oriented economy rather than one dependent upon ever-increasing debt and foreign direct investment? How do they actually accomplish that? Does the Chinese desire to make the renminbi an international currency in conflict with the economic reforms that need to happen very soon?
  6. Emerging markets are now 50% of world GDP. They too have become overleveraged and generally dependent upon carry-trade currencies. The average emerging-market currency is back down to a level (against the US dollar) last seen in 2002, with many of them showing signs of even greater weakness. We’ve seen this cycle before, and the end result won’t be pretty.
  7. Energy prices are down, and that’s good for the energy consumers of the world; but low prices are going to create problems for various countries, including Russia and Iran. How will they react?
  8. The widening policy divergence among major central banks, noted above, is going to have a major impact on currencies and create the real potential for a currency war. We have to get our heads around whether the Fed will actually raise rates as currently advertised, and if so, at what pace?
  9. We need to pay attention to the significant and rising risk that a falling oil price poses for high-yield bonds. Depending on which side of the trade you’re on, this can either generate real profits or big losses.

But all of the above are negative tail risks. Where are the bright spots for the future?

If the proper stance really is cautious optimism, how does one consciously allocate capital today?

Those are nine bullet points off the top of my head, but I’m sure you could add a few.

What questions are on your radar screen? I would love to hear what parts of the big picture may be missing, and please feel free to suggest reading and research. I actually do read all the replies in response to each week’s letter. Now, all of the above is going to be more than we can cover in this letter, but let’s get started.

The US: A Bubble in Complacency

While all the data shows that this is the weakest recovery in 75 years in terms of renewed GDP growth and employment, the fact is that the recovery keeps progressing. Yesterday’s unemployment report was relatively strong, even if a significant number of the jobs were seasonal and of the lower-paying variety. The good news for me is that the number of people classified as working part-time for economic reasons fell by 177,000. Part of the true weakness in this recovery has been the marked rise in part-time employees. Clearly, some of that is due to Obamacare. Right now, the way I see the odds, it is likely that this soft recovery will continue.

For a recession to happen there would have to be some kind of shock. So what potential shocks are on the horizon? I can see several (and I’m sure if I go to Zero Hedge I will find a lot more).

  1. Energy prices are likely to go even lower for a period of time. This week, one gas station in Oklahoma started selling gas for two dollars a gallon. Others will soon follow. What price your state will see depends a great deal upon how much gas tax your state collects. This significant a drop in the price of energy acts in much the same way as a tax cut. It can only be good for consumers. I know that all my kids (all seven now drive and pay for their gas) are very happy when the price of gas goes down.

So where’s the downside? I have written in previous letters that much of the current recovery, as subdued as it is, is due to the remarkable energy renaissance that is being experienced in several states around the nation. At least a third of GDP growth now comes from the energy industry. An outsized proportion of job growth (and they’re good-paying jobs at that) is a direct or indirect result of increased energy production.

Texas has been home to 40% of all new jobs created since June 2009. In 2013, the city of Houston had more housing starts than all of California. Much, though not all, of that growth is due directly to oil. Estimates are that 35–40% of total capital expenditure growth is related to energy. But it’s no secret that not only will energy-related capital expenditures not grow next year, they are likely to drop significantly. The news is full of stories about companies slashing their production budgets. This means lower employment, with all of the knock-on effects.

Lacy Hunt and I were talking yesterday about Texas and the oil industry. We have both lived through five periods of boom and bust, although I can only really remember three. This is a movie we’ve seen before, and we know how it ends. Texas Gov. Rick Perry has remarkable timing, slipping out the door to let new governor Greg Abbott to take over just in time to oversee rising unemployment in Texas. The good news for the rest of the country is that in prior Texas recessions the rest of the country has not been dragged down. But energy is not just a Texas and Louisiana story anymore. I will be looking for research as to how much energy development has contributed to growth and employment in the US.

At the very least, low energy prices are going to be a headwind for growth. Has the rest of the economy picked up enough to offset a struggling oil industry? Attention must be paid.

  1. Grant Williams (you may know him as the author of Things That Make You Go Hmmm…) showed up for a surprise visit Thursday night. I threw a few more peppers into the chili I was making, and we shared a few bowls, talking all things macroeconomics and investing (and watching a little Dallas Cowboys football, to boot). I posed the question to him, “What could derail the US recovery?” His answer sounded like it came from my own playbook. If any two of the global trouble spots – China, Europe, Japan, and the emerging markets – have a crisis at the same time, we could easily see a global recession. It would be very convenient for the US if they could all manage to stage their corrections consecutively rather than simultaneously. Is that too much to ask?

The other thing we agreed on is that we are a little spooked by how fast the Japanese yen has fallen in the last few months. Both of us are serious Japanese bears and have been for years, but we would like to see a bit more control in the plunge of the yen, thank you very much. Or rather, ありがとう – arigatō.

  1. People ask me all the time what the trigger for the next equities bear market will be. My “stock” answer is that it typically takes a recession to generate a serious bear market correction. But Charles Gave (in a piece highlighted in this letter) recently asked whether in the current environment a bear market might be the trigger for a recession – the exact opposite of what we’ve experienced in the past few decades. Prior to World War II, however, a bear market was a common trigger for a recession.

And it’s not like there aren’t warning signs. Doug Short over at Advisor Perspectives did a fabulous and very thorough report this week on valuations and Tobin’s Q ratio, looking into all aspects of it. Let’s just use one of his great charts, which demonstrates that the Q ratio is clearly in bubble territory, outpaced only by the tech market bubble of 2000. (And as Doug shows, further appropriate refinements in the Q ratio result in an even greater current overvaluation.)

We could also look at Shiller’s P/E ratio, which is clearly signaling overvaluation and (except during the tech bubble) has always seen significant corrections from its current valuation. Note that small-caps are already in a bear market; the somewhat (but not always) useful leading indicator of high-yield bonds is clearly falling; and the commodity sector is taking a beating. Quantitative easing has ended. If QE3 was indeed the driver of the bull market, we should find out soon.

With that noted, we have a very supportive monetary backdrop, with the Fed unlikely to ease significantly for quite some time. Turmoil outside of the United States will only increase a flight to safety, which is generally supportive of a rising equity market for the currency of choice.

Further, the following chart of global valuations (hat tip to my friend Barry Ritholtz over at The Big Picture) shows that they are generally well within reasonable historical levels, except in Japan and the odd country here and there. As we will discuss below, Japan has a macroeconomic environment that is extremely supportive of equities (as in the massive amounts of equities that are being bought by their central bank and by large pension funds that are selling bonds to buy Japanese equities).

The Land of the Falling Yen

I got an email from Hideyuki Sano with Reuters News in Tokyo, asking me to respond to the following query:

Despite its snowballing public debts, Japan has so far managed to muddle through, avoiding a major punishment by “the bond vigilantes.” Shorting JGBs has rarely been profitable, and no one seems willing to do so now with the BOJ soaking up a huge amount of them. Yet, many people think this is a disaster waiting to happen. I would like to know [your] thoughts on how the whole thing could unravel and how one should trade on this.

That’s a very reasonable question. I’ve maintained for several years that I don’t think it’s practical to try to short Japanese bonds, but there are some very smart people who disagree with me. Let me see if I can lay it out for you.

Japan’s opportunity to make a good decision was lost many years ago. Your debt-to-GDP is now in the 250% range, although more and more of that is being soaked up by the Bank of Japan. However, if interest rates were allowed to rise, it would not be too long until interest-rate expenses consumed an unmanageable portion of your tax revenues. Therefore, it is clear to me, at least, that the Bank of Japan and the Ministry of Finance will not allow interest rates to rise. The Bank of Japan will not only continue to monetize Japanese government current debt but at today’s rate is monetizing in the range of 7 to 8% of GDP in addition. For all intents and purposes, the Bank of Japan is the bond market. Your pension funds (and I assume banks and other institutions) are slowly divesting themselves of Japanese debt.

A basic rule of markets is that you can control price or quantity but not both. Since the Bank of Japan is releasing massive quantities of yen into the market, the price of the yen is falling. It will continue to fall as long as the Bank of Japan is monetizing debt at such prodigious rates. I believe there is real potential for the yen to fall back to the rate of 200 to the dollar, which is only a retracement of about 50% from its all-time high (or at least its high in my lifetime). I have structured a 10-year options trade that would pay for half my mortgage if the yen does indeed get to 200. Arigatō.

By the way, since Japan is exploring brand-new territory (monetary policy-wise), it is not altogether clear how controlled the fall of the yen will be. There was a reason I bought 10-year options, as I think the odds are that this move will play out over a protracted period. But it is altogether possible that the currency market will simply throw up its hands at some point and yell “Enough!” And then the yen will fall too far too fast, and the Bank of Japan will feel it necessary to reduce its monetary easing. The question then becomes, what will happen to interest rates as a result? A drop of 10-20% from current accommodation? Probably not too much, and perhaps that would slow the fall of the yen. A 50% drop in accommodation? Shiruka (知るか – who knows?). One of the characteristics of unexplored territories is that there are always surprises as you come to the top of the next hill.

Although I do not believe it is their intention, the Bank of Japan has effectively launched what other countries will see as a currency war. Korea? China? The rest of Asia? Germany?! They will not easily give up their rights to be competitive.

You must understand this: currency wars are not logical. No one wins. The fact that the Japanese currency has strengthened against the dollar by something like 400% over the past 40+ years does not figure into the economic calculus of those countries whose businesses compete with Japan’s. That was so yesterday. I expect the situation will have a rather messy ending, Sano-san.

My advice to anyone living in Japan? As much as possible, reduce your holdings of yen and move into gold or other hard assets if you want to keep your assets in Japan. Holding bonds and currency accounts will erode your buying power over time. I think the “trade of the rest of decade” will be to short the yen and to be long Japanese “intellectual property” stocks. By that I mean companies that sell technological products as opposed to products whose main costs are for materials and commodities (including energy) that must be imported into Japan. There is a reason your pension companies are rotating out of bonds and into stocks. Most individuals and businesses have much smaller accounts and can move so much more rapidly. Take advantage of the time you have.

The Dollar Rises Again

For the rest of the world, let me provide a few charts. As I write this letter, the yen is 121.5 to the dollar. Interestingly enough, the euro is at $1.23. Those numbers will cross in the not-too-distant future as the euro drops and the yen continues to rise. The chart below from Bloomberg shows the rise of the trade-weighted US dollar as measured by the US Dollar (DXY) Index.

With such divergence comes the major macro risk that the US Dollar Index is breaking out in a big way. To anyone who believes in technical analysis (and skeptics should keep in mind that a lot of macro and currency traders DO), it looks as though the USD is ready to break out of a 29-year downtrend that began with the Plaza Accord way back September 1985. (“To keep that in perspective, it was less than two weeks after I was born,” says Worth Wray). Raoul Pal notes that this is the biggest downward-sloping wedge in the history of fiat money, and we may be very close to a BIG dislocation if it continues.

I wrote about this in a recent letter, “A Scary Story for Emerging Markets” (which Business Insider renamed “The Dollar Plays the Villain in the Emerging Markets Horror Story”), but this drastic strengthening of the dollar could not come at a worse time for our highly levered, highly interconnected global financial system. But this letter is already long enough, so we will start there next week.

Cincinnati, the Cayman Islands, and Florida

I am home for the rest of the month (with perhaps a quick trip to DC being the one outing), but the calendar for next year is beginning to fill up. I see Cincinnati, Grand Cayman, and Florida on my schedule. It has been a while since I’ve been in the Cayman Islands, and this time I will take a short hop over to Little Cayman to visit my friend Raoul Pal for a few days. A brilliant macroeconomist and trader, Raoul has now based himself in Little Cayman, although he frequently flies to visit clients. He is also a partner with Grant Williams in Real Vision Television, a fascinating new take on internet investment TV. I’ll be writing more about it in the future.

As I noted above, Jack Rivkin (CIO of Altregris) and I are going to be interviewing Ian Bremmer next Tuesday. We’ll be talking about the geopolitical situation all over the world and how it will affect our investments. I hope to steer the conversation to what is happening in Russia and the Middle East, with of course a nod to China; but we’ll see what Jack and Ian want to talk about. My goal is for listeners to walk away with greater clarity about the changing geopolitical landscape and an actionable perspective on global markets and the potential for diversifying investment alternatives in 2015.

My writing schedule has gotten quite crowded. In addition to Thoughts from the Frontline and Outside the Box, Tiffani and I are more than halfway through a book on millionaires; Worth and I are in the home stretch of a book on China; and Worth and I are continuing to forge our way through a book on the implications of a major dollar rally in the midst of sovereign debt corrections.

I am seriously considering only publishing the book on China in electronic form and for a much lower price than normal, mostly as an experiment. I literally have no idea what will happen if we do. I know that the explosive growth of e-books is beginning to look more normal, but they have already taken significant market share. I would like to know what you think. And if you have any experience publishing e-books on investing, I would like to talk to you.

Have a great week. My calendar seems to have filled up, just when I am trying to spend more time reading, thinking, and writing – and in the gym, of course. And we wonder where the time goes.

Your trying to figure out what to get the kids for Christmas analyst,
John Mauldin
John Mauldin

December 5, 2014 7:06 pm

Keep the monetary pedal pressed to the floor

Global growth could accelerate if policy is allowed to stay loose

 Pity the analyst forecasting today’s global economy. For every signal warning of stagnation there is another glowing green for go. But through this blur of clashing indicators it is possible to discern some consistent themes.
The clearest is weak inflation. The main cause is oversupply in the oil market where prices have fallen by one-third since the summer. With other commodities from cotton and hogs to wheat and soybeans similarly cheap, countries that rely on imported food and fuel have had a welcome boost.
American consumers in particular benefit from cheap fuel, which helps to explain growing momentum in the US economy. Strong jobs numbers on Friday confirmed a growing recovery.
These bullish spirits are mirrored on Wall Street where the stock market has rebounded by 10 per cent since the turmoil of October.
But any student of the Great Depression would caution against seeing disinflationary forces in a purely positive light. In Japan and Europe, the persistent downwards trend in inflation is also a reflection of weak incomes. If left unchecked, this threatens to entrench a low-spending, deflationary mindset. Outside of a big slowdown, wage growth in much of the developed world has never been weaker. Even the most ambitious monetary policy can be undermined if pay packets are not growing.

Instead of being spent, cash accumulates on the balance sheets of businesses unwilling to invest.

A further complication to the global picture is the growth of political risk, and not just in trouble spots like the Middle East and Ukraine. Many developed countries grappling with fiscal deficits lack the firm political direction needed for the task. The UK is a good example; while its economy is doing well, its political scene has never looked more murky. Next year’s election threatens to produce an indecisive result leading to a shaky alliance of mutually suspicious parties. Given the strength of the anti-EU UK Independence party, this could bring closer a chaotic exit of the UK from the EU.
Yet the UK appears stable compared with much of mainland Europe, where populist groups such as Podemos in Spain, Syriza in Greece and the National Front in France command record levels of support. Yet it is at the continental level that policy is most dysfunctional.

Macroeconomic measures are caught in a deadlock between the conservative instincts of Germany and the expansionary needs of everyone else. To illustrate this incoherence the Bundesbank on Friday downgraded forecasts of German growth at the same time as its president complained that money was too loose.

Monetary policy provides the best key to understanding the variegated global picture. The central banks of the US, UK and Japan all adopted easier policies and were rewarded with an upturn. Given weak wage growth and a lack of fiscal support, such stimulus ought to continue.

Europe is an unhappy exception. Despite German misgivings, low interest rates are no evidence that money is too loose: nominal GDP growth stutters along at less than 3 per cent, a clear sign that the stance is much too tight. In recent years the ECB twice made the mistake of raising rates too soon, and thereby punished Europe with a deeper recession and a worse fiscal crisis. If its president Mario Draghi cannot ease policy further, the consequences will be just as serious.
The welcome boost provided by cheaper oil may help the global economy accelerate over the next year. Even Europe could participate, if only its policy makers would stop confusing the brake with the accelerator.

December 5, 2014 7:24 pm

It looks like a duck, quacks like a duck, but it’s a secular bear

John Authers

The S&P 500 is at an all-time high. If this is not a bull market, what is?


Are we in a bull market, or are we still in a secular bear market? It is a profound question, and — at least when it is applied to stocks in the US — it also sounds like a stupid one. US stocks have more than trebled since March 2009. The S&P 500 is at an all-time high, and it has been rising, with only one interruption of any significance, for almost six years. The US labour market has now expanded for a record 50 months in succession, and the latest numbers outstripped the most optimistic projections. If this is not a bull market, what is?

Last week, an alert reader pointed out in a comment on that I am on record as saying that this is merely a cyclical rally within a bear market. After the last two years, that call has gone from looking sober and responsible, through a period of appearing eccentric to, now, looking downright wrong. So I must revisit it. What does it mean to say that we are in a secular bear market, and could the US really still be in one?

First, the chart shows that the market’s performance is not quite as great as it appears. Since it peaked during the 2000 tech bubble, the S&P 500 has badly lagged behind long-dated bonds and gold. It is still lower in real terms (after inflation) than it was in 2000 — although with reinvested dividends, its investors would have beaten inflation by 31 per cent.

Next, let us make what many will call a hair-splitting distinction. There can be cyclical bull markets within a secular bear. Secular markets are driven by long-term shifts in the valuation put on stocks, and they last for decades. Ed Easterling, of Crestmont Research, who has popularised the concept of secular market cycles, suggests that cyclical rallies differ in that they cannot be trusted. During bear markets, investors must think tactically, and join in with rallies when, for example, the Federal Reserve uses monetary policy that boosts stocks, whilst remaining wary.

Secular bears and bulls are marked out by peaks and troughs in the price/earnings ratio. To cut out the noise of shifts in the economic cycle, the p/e is cyclically adjusted, and compares share prices to average earnings over 10 years.

Bull market

As calculated by Yale University’s Robert Shiller, this measure hit historic lows, in single figures, in 1921, 1932 and 1981. Each time signalled a great time to buy. In early 2000, it hit an all-time high of 44, it bottomed in 2009 when it never quite got below 10, and it now stands at 26.5, as high as it has ever been outside the historic bubbles of 1929 and 2000. Ergo, the tripling since 2009 is still no more than a bear market rally.

If this sounds silly, think of the rally that started with the invasion of Iraq in 2003 and ended with the credit crisis in late 2007. US stocks doubled to reach a new high. But we can plainly see that this was just a bear market rally.

The current rally, though, has lasted longer, taking the S&P more than 100 percentage points further. It started amid the despair of early 2009, when some measures of investor optimism hit an all-time low.

To quote Liz Anne Sonders, chief US equity strategist at Charles Schwab, if it looks like a duck and quacks like a duck, it’s probably a duck — and this looks like a secular bull market. She suggests we are probably only in its “middle innings”.

If this is really nothing more than a cyclical bull market, then the p/e on the market must fall below 10 before the next secular bull market can start. This happens either through an increase in earnings (of 160 per cent or so) or a fall in price (of more than 60 per cent), or more likely a drawn-out combination of the two. That, I admit, sounds outlandish.

And yet, and yet, and yet. Valuations are stretched, and profit margins are historically high. Earnings owe everything to the low rates that have pumped this rally all along. Earnings before interest, tax, depreciation, amortisation and depreciation remain below their 2007 peak. Since 2009, unprecedented monetary policy has given US investors little choice but to buy stocks.

Yes I can believe that we face a few years when the stock market grinds down until it is historically cheap.

What would make me abandon that idea? Earnings quality has picked up recently, with non-energy companies’ revenues growing at a 5 per cent clip. If that accelerates, while the stock market swallows rising rates without significant falls, it would be time to admit that I was wrong, and that March 2009 was a secular turning point.

That test is imminent. Meanwhile, it still makes sense to treat this rally with extreme caution.

World Gold Council Rectifies 2013 Chinese Gold Demand

by Koos Jansen

Posted on 4 Dec 2014

The WGC has revised its estimate of China’s 2013 consumer demand to 1,275 tonnes, up from their initial estimate of 1,066 tonnes.

My research on the Shanghai Gold Exchange and the structure of the Chinese gold market was, inter alia, confirmed in September this year by the work of Na Liu (CNC Asset Management Ltd.). As myself Na concluded Chinese wholesale gold demand equals withdrawals from the Shanghai Gold Exchange and this is far greater than demand reported by the World Gold Council.

The World Gold Council (WGC) has never openly responded to my publications. However, Na met with the WGC Market Intelligence team, the discussion that ensued led the WGC to rectify their 2013 Chinese demand numbers. From CNC Asset Management, November 27 2014:
We are pleased to report that we just had an in-depth discussion with the Market Intelligence team of the World Gold Council (WGC). Our discussion focuses on how to explain the significant gap between China’s consumer demand of gold, as defined and reported by the WGC to be just over 1,000 tonnes in 2013, and China’s wholesale demand, as defined and reported by us to be about 2,200 tonnes based on the Shanghai Gold Exchange (SGE) vault withdrawals during 2013. The following are our takeaways from the discussion: 
First, the WGC has revised up its estimate of China’s 2013 consumer demand to 1,275 tonnes, up from their initial estimate of 1,066 tonnes.
Click here to read the full report.
The rest of the report from CNC Asset Management sums up, again, all the reasons given by the WGC that should explain the remaining difference between SGE withdrawals and WGC demand numbers. The WGC has published two reports on the Chinese gold market since April that both failed to clarify the difference. In fact, the reports led to even more speculation about why the WGC was withholding essential data about the Chinese gold market. In September I wrote:
…as time goes by and knowledge about the Chinese gold market is slowly spreading through the international gold space, the more pressure is building on WGC demand numbers regarding China.
According to the China Gold Association (CGA) demand in 2013 was 2,199 tonnes, which leaves a difference of 924 tonnes with the revised numbers from the WGC. The aggregated difference from 2007 until 2013 is 2,172 tonnes. The next chart is scanned from the China Gold Yearbook 2014, which is only published in hard copies written in Mandarin. It shows Chinese gold demand reported by the CGA.

Chinese gold demand by the China Gold Association 2004 - 2013
The blue bars represent demand in tonnes, the red line the yearly increase in percentages.
Chinese gold demand 2007 2013

Additionally, 2014 will at least add 900 tonnes to the aggregated difference. At year end the total aggregated difference will be well over 3,100 tonnes. 

In a forthcoming post I will once again share where I disagree with all the excuses the WGC presents in the CNC Asset Management report. A few more details I have to work out about the gold lease market, after which I can demonstrate the WGC is simply unwilling to accurately report on Chinese gold demand.

From the latest CNC Asset Management report:
…Both the WGC and we at CNC believe that more work needs to be done to understand China’s actual gold demand.
This is very hard to swallow, the WGC has been involved in the Chinese gold market since 1999 and they have two offices in China with numerous Chinese employees, yet they state “more work needs to be done to understand China’s actual gold demand”. 

Additionally, I will share my disagreement with Jeffrey Christian from CPM Group on SGE withdrawals. Mr Christian has recently send an email to, stating Chinese demand is lower than SGE withdrawals because scrap is higher than most are capable of understanding (including the CGA apparently). A quote from Mr Christian’s email:
…I assume anyone writing about fabrication demand levels for gold knows this, but thought I would mention it to you in case it’s news to you. I know that when I mention it in presentations to mining executives, institutional investors, Eric Sprott, the WGC, and other gold market participants or observers, they often have no idea of this, and sometimes cannot even understand the processes I am describing.
His reasoning reminded me of what he wrote on my blog earlier this year:
Over the years the ‘over-age’ of SGE withdrawals to estimated demand has ranged from 14% to 41%. People may say that one equals the other, but they simply do not. 
…I could bore you witless with examples of similarly cavalier use of language and statements from around the world’s precious metals market. I won’t. Many things simply are not as they seem to be, nor as they are said to be.
Meanwhile Chinese wholesale gold demand, measured by withdrawals from the Shanghai Gold Exchange (SGE), remains strong. In week 47 withdrawals accounted for 52 tonnes, year to date the counter has reached 1,813 tonnes.
Screen Shot 2014-12-04 at 11.53.13 PM
Blue (本周交割量) is weekly gold withdrawn from the vaults in Kg, green (累计交割量) is the total YTD.

Corrected by trading volume on the Shanghai International Gold Exchange (SGEI), Chinese wholesale demand in week 47 was in between 49 and 52 tonnes, year to date in between 1,795 tonnes and 1,813 tonnes. For the next chart I have used the most conservative estimate.

Shanghai Gold Exchange withdrawals 2014 week 47, dips

Pearl Harbor: Roosevelt’s 9/11

False flags do not stand alone. They are better understood – and more credibly explained to skeptics – when seen in history’s context.

On the morning of December 7, 1941, Japanese planes, launched from aircraft carriers, attacked the American fleet at Pearl Harbor in Hawaii, sinking or heavily damaging 18 ships (including eight battleships), destroying 188 planes, and leaving over 2,000 servicemen killed.

The next day, President Franklin D. Roosevelt denounced this “day of infamy” before Congress, from whom he secured an avid declaration of war.

Up until then, however, Americans had overwhelmingly opposed involvement in World War II.

They had been thoroughly disillusioned by the First World War:
  • although they had been told they would be fighting for “democracy” in that previous war, taxpayers learned from the postwar Graham Committee of Congress that they’d been defrauded out of some $6 billion in armaments that were never manufactured or delivered1;
  • atrocity tales about German soldiers (such as cutting the hands off thousands of Belgian children) had turned out to be fabrications;
  • the sinking of the Lusitania – the central provocation that ultimately led to the U.S. declaration of war – had been committed by Germany not to kill women and children (as propaganda claimed), but to prevent tens of tons of war munitions from reaching the European front. (Click here for a debunking of the Lusitania myth.)
When the Maine sank, the proactive Assistant Secretary of the Navy had been Teddy Roosevelt. After the 1898 Spanish-American War he became governor of New York, and by 1901 was President of the United States. When the Lusitania sank, the Assistant Secretary of the Navy was his distant cousin Franklin D. Roosevelt – who likewise went on to become governor of New York and then President.

Just as coincident: during the Lusitania affair, the head of the British Admiralty was yet another cousin of Franklin D. – Winston Churchill. And in a chilling déjà vu, as Pearl Harbor approached, these two men were now heads of their respective states.

In a 1940 (election-year) speech, Roosevelt stated typically: “I have said this before, but I shall say it again and again and again: Your boys are not going to be sent into any foreign wars.”2

But privately, the President planned just the opposite: to bring America into the World War as Britain’s ally, exactly as Woodrow Wilson had done in World War I. Roosevelt dispatched his closest advisor, Harry Hopkins, to meet Churchill in January 1941. Hopkins told Churchill:

“The President is determined that we [the United States and England] shall win the war together. Make no mistake about it. He has sent me here to tell you that at all costs and by all means he will carry you through, no matter what happens to him – there is nothing he will not do so far as he has human power.”3 William Stephenson, who ran British intelligence operations in the U.S., noted that American-British military staff talks began that same month under “utmost secrecy,” which, he clarified, “meant preventing disclosure to the American public.”4

Churchill and FDR

The President offered numerous provocations to Germany: freezing its assets; occupying Iceland; shipping 50 destroyers to Britain; and having U.S. warships escort Allied convoys. Roosevelt and Churchill hoped to duplicate the success of the Lusitania incident. But the Germans gave them no satisfaction. They knew America’s entry into World War I had shifted the balance of power against them, and they shunned a repetition of that scenario.

As Admiral Karl Doenitz, commander of Germany’s U-boat fleet, stated during the Nuremburg trials:
A 300 mile safety zone was even granted to America by Germany when international law called for only a three mile zone. I suggested mine fields at Halifax and around Iceland, but the Fuehrer rejected this because he wanted to avoid conflict with the United States. When American destroyers in the summer of 1941 were ordered to attack German submarines, I was forbidden to fight back. I was thus forced not to attack British destroyers for fear there would be some mistake.5
After being pursued by the destroyer USS Greer for more than three hours, the German submarine U-652 fired at (but did not hit) the Greer. President Roosevelt bewailed this to the American public as an unprovoked attack:

FDR Fireside Chat 18: On The Greer Incident

But most Americans were unmoved. Not even another Lusitania would have motivated them to send their sons to die in another European war.

America First

It was going to take a whole cluster of Lusitanias, and since this would not come from the cautious Germans, it could only come from Germany’s Axis partner, Japan. As Interior Secretary Harold Ickes put it in 1941: “For a long time I have believed that our best entrance into the war would be by way of Japan.”6 This required three steps: (1) build anti-Japanese sentiment in America; (2) provoke Japan to the flashpoint of war; (3) set up an irresistible target to serve as a false flag.

Demonizing Japan

Americans were subjected to a stream of propaganda depicting Japan as bent on “world conquest” even though it is smaller than Montana. In the wartime government-produced film, Our Enemy: The Japanese, narrator Joseph Grew (CFR) told the public the Japanese believed it was the “the right and destiny of Japan’s emperors to rule the whole world . . . to destroy all nations and peoples which stand in the way of its fulfillment. . . . [Their] national dream is to see Tokyo established as the capital of the world . . . . world conquest is their national obsession.”


Grew neglected to mention that Japan had been a closed isolationist country until Commodore Perry compelled them to sign a trade agreement under threat of U.S. naval bombardment. Perry was the father-in-law of August Belmont, the Rothschilds’ leading financial agent in America during the 19th century.7

As proof of “Japan’s plot to conquer the world,” the American press played up Japanese troops entering Manchuria in the 1930s. But the fact that the Soviets had first seized Outer Mongolia and China’s northwestern province of Sinkiang drew no notice.  As Dr. Anthony Kubek, chairman of the history department at the University of Dallas, wrote in How the Far East Was Lost:
It was apparent to Japanese statesmen that unless bastions of defense were built in Manchuria and Inner Mongolia, Communism would spread through all of North China and seriously threaten the security of Japan. . . . But the Department of State seemed not to regard Japan as a bulwark against Soviet expansion in North China. As a matter of fact, not one word of protest was sent by the Department of State to the Soviet Union, despite her absorption of Sinkiang and Outer Mongolia, while at the same time Japan was censured for stationing troops in China.8


Dr. Kubek’s remarks highlight a policy consistent throughout the Second World War: condemn “fascist aggression” while tolerating – without limit – communist aggression. For example, when the Germans invaded Poland in September 1939, Britain and France declared war on Germany. Yet when the Soviet Union invaded Poland that same month, the West . . . yawned.

Tank crew
Above: Japanese tank crew rests during 1939 fighting against the Soviets near Mongolia.

To those who might contend Japan had no right to enter China to oppose communism, let’s remember that the United States sent its troops around the globe to Vietnam on the principle that stopping communism was in its national interests. By what logic, then, could Japan not oppose communism on its doorstep? A glance at a map shows how close communism was drawing to Japan, having methodically enslaved all the nations embodying the Soviet Union, and it was now boring southward into China. In sending troops to Manchuria and China, Japan was invoking her own version of the Monroe Doctrine.

Japan and mainland

The Soviets, for their part, wanted war between the United States and Japan, knowing that with Japan neutralized, Communism would engulf Asia. In 1935, U.S. Ambassador to Moscow William C. Bullitt sent a dispatch to Secretary of State Cordell Hull:
It is . . . the heartiest hope of the Soviet Government that the United States will become involved in war with Japan. . . . The Soviet Union would certainly attempt to avoid becoming an ally until Japan had been thoroughly defeated and would then merely use the opportunity to acquire Manchuria and Sovietize China.9
Benjamin Gitlow, founding member of the U.S. Communist Party, wrote in I Confess (1940):
When I was in Moscow, the attitude toward the United States in the event of war was discussed. Privately, it was the opinion of all the Russian leaders to whom I spoke that the rivalry between the United States and Japan must actually break out into war between these two.10
Gitlow I Confess

Roosevelt Provokes Japan

On June 23, 1941, Interior Secretary Ickes wrote in a memo to Roosevelt:
There will never be so good a time to stop the shipment of oil to Japan as we now have. . . . There might develop from embargoing of oil such a situation as would make it, not only possible but easy, to get into this war in an effective way. And if we should thus indirectly be brought in, we would avoid the criticism that we had gone in as an ally of communistic Russia. 11
The memo’s date is significant: the day after Germany and her allies (Italy, Hungary, Romania, Finland and Croatia) launched Operation Barbarossa: the invasion of the Soviet Unión.

Why did Ickes say an oil embargo would make it “easy to get into this war”? The answer lies in an eight-point plan of provocation toward Japan which had been previously drawn up by Lt. Commander Arthur McCollum of Naval Intelligence. The eighth of the eight-step plan was: “Completely embargo all U.S. trade with Japan, in collaboration with a similar embargo imposed by the British Empire.” McCollum’s next sentence was: “If by these means Japan could be led to commit an overt act of war, so much the better.”12

Ickes; McCollum

What McCollum, Ickes and Roosevelt envisioned was antagonizing Japan to the point that it would attack the United States. And thus – in the tradition of the Maine and Lusitania – America, as the “innocent victim of unprovoked aggression” – would go to war. Here is how War Secretary Henry Stimson (CFR, Skull and Bones) phrased it in his diary, after meetings with the President that autumn: “We face the delicate question of the diplomatic fencing to be done so as to be sure that Japan is put into the wrong and makes the first bad move – overt move.”13 “The question was how we should maneuver them [the Japanese] into the position of firing the first shot….”14

Between July 26 and August 1, 1941, FDR seized Japanese assets in America, closed the Panama Canal to Japanese shipping, and enacted the sweeping trade embargo that McCollum and Ickes had urged. Britain and the Netherlands followed suit with similar embargoes. For the Japanese, this constituted a death threat. Japan heavily depended on imports for raw materials, for 88 percent of its oil and 75 percent of its food.

The timing of these measures was again significant. In July 1941, all reports indicated the Germans and their allies were crushing the Red Army. Hundreds of thousands of Soviet soldiers were surrendering; as they did, many shouted “Stalin kaput!”  Stalin himself was nearly paralyzed with fear. He had only fought wars of aggression and was unprepared for defense. If Japan, Germany’s ally, joined Operation Barbarossa from the East, Stalin would be trapped in a vise, and communism – which was an Illuminati creation – destroyed.

Roosevelt’s trade embargo guaranteed that Japan would not join Operation Barbarossa, but would instead turn its attention south. No nation can prosecute war without oil. Tanks, trucks, ships and aircraft require it. If Japan attacked Russia through Siberia, there would be no oil to be confiscated.

But there was abundant oil to the south, in the Dutch East Indies. And Southeast Asia held many other resources the embargo denied Japan, such as rubber, tin and iron ore. 

Why Did Japan Go to War with America?

British historian Russell Grenfell, a captain in the Royal Navy, wrote In 1952:
No reasonably informed person can now believe that Japan made a villainous, unexpected attack on the United States. An attack was not only fully expected but was actually desired. It is beyond doubt that President Roosevelt wanted to get his country into war, but for political reasons was most anxious to ensure that the first act of hostility came from the other side; for which reason he caused increasing pressure to be put on the Japanese, to a point that no self-respecting nation could endure without resort to arms. Japan was meant by the American President to attack the United States.15

Grenfell Lyttelton
Grenfell; Lyttelton

On June 20, 1944, Oliver Lyttelton, Britain’s minister of production, said before the American Chamber of Commerce in London: “America provoked Japan to such an extent that the Japanese were forced to attack Pearl Harbor. It is a travesty on history ever to say that America was forced into war.”16 Why did Lyttelton make this startling accusation (for which he was later compelled to apologize)?

Following the U.S. embargo, Japan’s representatives in Washington earnestly negotiated for the embargo’s repeal, to no avail.  On November 26, 1941, the State Department delivered an ultimatum to Japan: sanctions would only be lifted if all overseas Japanese troops were withdrawn to Japan.

Although the ultimatum or “Hull note” was officially credited to Secretary of State Cordell Hull, it is now known that it was drafted by Assistant Secretary of the Treasury Harry Dexter White, a Soviet operative.

Harry Dexter White

The White/Hull ultimatum was a deliberate catch-22. If the Japanese refused it, the embargo would continue, and they would collapse from economic strangulation. If they complied, and withdrew all troops from the mainland, communism would sweep Eastern Asia (exactly as happened after the war, resulting in Communist China, and the Korean and Vietnam wars).

The Japanese were thus given a two-headed coin: die by starvation, or die by communism.

They decided to reject both options, and fight instead.

To have any hope of success in a war against the mighty USA, Japan would need an edge. Franklin D. Roosevelt made sure they got one in the form of attractive bait.

The Decision to Base the Fleet at Pearl Harbor

In 1940, President Roosevelt decided that the Pacific Fleet should be based indefinitely at Pearl Harbor in Hawaii, instead of its usual berths on the U.S. West Coast. This was a bad idea for many reasons:
  • In the middle of the Pacific, Hawaii is surrounded by uninhabited waters, making it susceptible to surprise attack from 360 degrees. By contrast, no surprise attack could have been launched if the fleet was kept on the West Coast; assailants would have encountered innumerable commercial vessels before reaching it.
  • At Pearl Harbor, the fleet was boxed together like sardines, making them ideal targets for bombers.

Pearl Harbor map
  • In Hawaii, oil and others supplies had to be brought across 2,000 miles of the Pacific.
  • Pearl Harbor lacked adequate fuel and ammunition storage facilities, dry docks, and support craft (such as tugs and repair vessels). The fleet could have been maintained on a superior war footing if kept on the West Coast.
  • 37 percent of Hawaii’s population was ethnically Japanese, rendering the fleet vulnerable to espionage and sabotage.
  • Basing the fleet in Hawaii would separate sailors from their families, creating morale problems.
U.S. Fleet Commander Admiral J. O. Richardson was outraged by Roosevelt’s decision and met with him on October 8, 1940 to protest it. Richardson presented the President with a list of logical reasons why the fleet should not be based in Pearl Harbor. Roosevelt could not rebut these objections and simply said that having the fleet there would exert a “restraining influence on the actions of Japan.”17

Richardson said: “I came away with the impression that, despite his spoken word, the President was fully determined to put the United States into the war if Great Britain could hold out until he was reelected.”18

Richardson 2

On February 1, 1941, Richardson was relieved of his command without any explanation. Richardson met with Navy Secretary Frank Knox to inquire about it, and related: “When I saw the Secretary, I said, ‘In all my experience in the Navy, I have never known of a flag officer being detached in the same manner as I, and I feel I owe it to myself to know why.’ The Secretary said the President would send for me and talk the matter over.” However, Roosevelt never sent for Richardson; the only explanation the admiral ever received were these words from Secretary Knox: “The last time you were here you hurt the President’s feelings.”19

Roosevelt’s sole pretext for basing the fleet in Pearl Harbor – that it would deter Japanese aggression – was resoundingly discredited on December 7, 1941. Nevertheless, as we shall see, Roosevelt was never held accountable for his action. All blame was instead leveled at the Navy, especially Richardson’s successor as Pacific Fleet Commander, Admiral Husband Kimmel, who accepted the position believing Washington would notify him of any intelligence pointing to a threat.

This trust proved misplaced. As Washington watched Japan prepare for the attack, it kept Kimmel and his army counterpart in Hawaii, General Walter C. Short, well out of its intelligence loop.

Kimmel 3 Short
Kimmel and Short

The False Flag Foreknown (1): “Magic”

The Japanese used a code called “Purple” to communicate to their embassies and major consulates throughout the world. Its complexity required that it be enciphered and deciphered by machine. The Japanese considered the code unbreakable, but in 1940 talented U.S. Army cryptanalysts cracked it and devised a facsimile of the Japanese machine. As the result, U.S. intelligence was reading Japanese diplomatic messages, often on a same-day basis.

US Purple decoding machine
A U.S. Purple decoding machine

Copies of the deciphered texts, nicknamed “Magic,” were promptly delivered in locked pouches to select individuals, including President Roosevelt, Secretary of State Cordell Hull, Secretary of War Henry Stimson, Army Chief of Staff General George Marshall, and the Chief of Naval Operations, Admiral Harold Stark. Copies also went to Harry Hopkins, FDR’s shadowy advisor who held no cabinet position.20

Hopkins Hopkins and Roosevelt

(It is worth digressing for a paragraph about Hopkins, who lived in the White House; he has been aptly compared to Woodrow Wilson’s Wall Street controller, Edward Mandell House, who also lived in the White House. Like House, Hopkins acted as a special emissary, paying visits to Churchill and Stalin. After the war, it was revealed that as head of Lend-Lease, he secretly shipped both the materials and blueprints for the atomic bomb to the Soviet Union.

This was documented by Lend-Lease expediter George Racey Jordan in From Major Jordan’s Diaries. Some may find interesting John T. Flynn’s remarks in The Roosevelt Myth on the favors bestowed upon Hopkins by British press tycoon Lord Beaverbrook and bankster Bernard Baruch on the occasion of Hopkins’s third wedding.)

Jordan From Major Jordan's Diaries

Although Hopkins had access to “Magic” intercepts, our commanders in Hawaii did not. And what did these intercepts reveal?
  • that Tokyo had ordered its Consul General in Hawaii to divide Pearl Harbor into five areas and, on a frequent basis, report the exact locations of American warships there. Nothing is unusual about spies watching ship movements – but reporting precise whereabouts of ships in dock has only one implication.
  • that on November 29th (three days after the U.S. ultimatum), Japan’s envoys in Washington were told a rupture in negotiations was “inevitable,” but that Japan’s leaders “do not wish you to give the impression that negotiations are broken off.”
  • that on November 30th Tokyo had ordered their Berlin embassy to inform the Germans (their allies) that “the breaking out of war may come quicker than anyone dreams.”
  • that on December 1st, the Japanese had ordered all of their North American diplomatic offices to destroy their secret documents.21 (Once war breaks out, the offices of a hostile power lose their diplomatic immunity and are seized.)
In the 1970 movie Tora, Tora, Tora, a Hollywood depiction of the events surrounding Pearl Harbor, Japan’s ambassadors are shown presenting their message breaking relations (meaning war) to Secretary of State Cordell Hull, after the attack on Hawaii, and Hull reacts with surprise and outrage.

Tora Tora Tora Cordell Hull

In reality, however, Hull was not shocked at all. On the previous day (December 6), he had already read the translated intercept of Japan’s declaration – 13 parts of the 14-part message – as had President Roosevelt.

The False Flag Foreknown (2): East Wind, Rain

An additional warning came via the so-called “Winds” message. A November 18th intercept indicated that, if a break in U.S. relations was forthcoming, Tokyo would issue a special radio warning. This would not be in the Purple code, as it was intended to reach consulates and lesser agencies of Japan not equipped with the code or one of its machines. The message, to be repeated three times during a weather report, was “Higashi no kaze ame,” meaning “East wind, rain.” “East wind” signified the United States; “rain” signified diplomatic split (war).

This prospective message was deemed so significant that U.S. radio monitors were constantly watching for it, and the Navy Department typed it up on special reminder cards. On December 4th, “Higashi no kaze ame” was broadcast and picked up by Washington intelligence.

The False Flag Foreknown (3): Personal Warnings

During 1941, the Roosevelt administration also received several personal warnings regarding Pearl Harbor:
  • On January 27th, our ambassador to Japan, Joseph Grew, reported to Washington: “The Peruvian Minister has informed a member of my staff that he has heard from many sources, including a Japanese source, that in the event of trouble breaking out between the United States and Japan, the Japanese intended to make a surprise attack against Pearl Harbor with all their strength. . . .”22
  • Brigadier General Elliott Thorpe was the U.S. military observer in Java, then under Dutch control. In early December 1941, the Dutch army decoded a dispatch from Tokyo to its Bangkok embassy, forecasting an attack on Hawaii. The Dutch passed the information to Thorpe, who considered it so vital that he sent Washington a total of four warnings. Finally, the War Department told him to send no further warnings.23
  • The Dutch Military attaché in Washington, Colonel F. G. L. Weijerman, personally warned U.S. Army Chief of Staff George Marshall about Pearl Harbor just days before the attack.24
  • Dusko Popov was a Yugoslavian double agent whose true allegiance was to the Allies. Through information furnished by the Germans, Popov deduced the Japanese were planning to bomb Pearl Harbor. He notified the FBI; subsequently FBI Director J. Edgar Hoover warned Roosevelt.25
  • Senator Guy Gillette of Iowa received information from Kilsoo Haan of the Sino-Korean People’s League that the Japanese intended to assault Hawaii “before Christmas.” Gillette briefed the President, who said the matter would be looked into.26
  • U.S. Congressman Martin Dies of Texas came into possession of a map revealing the Japanese plan to attack Pearl Harbor. He later wrote:
As soon as I received the document I telephoned Secretary of State Cordell Hull and told him what I had. Secretary Hull directed me not to let anyone know about the map and stated that he would call me as soon as he talked to President Roosevelt. In about an hour he telephoned to say that he had talked to Roosevelt and they agreed that it would be very serious if any information concerning this map reached the news services . . . I told him it was a grave responsibility to withhold such vital information from the public. The Secretary assured me that he and Roosevelt considered it essential to national defense.27
Popov Martin Dies
Thorpe (on the left); Popov; Dies

The False Flag Foreknown: (4) Naval Intercepts

In his book Day of Deceit: The Truth about FDR and Pearl Harbor (2000), Robert Stinnett proved, from documents obtained through the Freedom of Information Act, that Washington was not only deciphering Japanese diplomatic messages, but naval dispatches also.

Stinnett Day of Deceit

It had long been presumed that as the Japanese fleet approached Pearl Harbor, it maintained complete radio silence. This was not the case. The fleet observed discretion, but not complete silence. U.S. Naval Intelligence intercepted and translated numerous dispatches, which President Roosevelt had access to through his routing officer, Lieutenant Commander McCollum, who had also authored the original eight-point plan of provocation. The most significant message was sent by Admiral Yamamoto to the Japanese First Air Fleet on November 25, 1941:
The task force, keeping its movement strictly secret and maintaining close guard against submarines and aircraft, shall advance into Hawaiian waters, and upon the very opening of hostilities shall attack the main force of the United States fleet and deal it a mortal blow. The first air raid is planned for the dawn of x-day. Exact date to be given by later order.28
Here is more on the interception of this message.

Maximizing the Risks

MSM historians have traditionally censured the Hawaiian commanders, Admiral Kimmel and General Short, for failing to detect the approaching Japanese carriers. What goes unsaid: Washington denied them the means to do so.

During the week before December 7th, naval aircraft searched more than two million square miles of the Pacific29 – but never saw the Japanese force. This is because Kimmel and Short had only enough planes to survey less than one-third of the 360-degree arc around them, and intelligence had advised (incorrectly) that they should concentrate on the southwest.

There were not enough trained surveillance pilots. Many of the reconnaissance craft suffered from lack of spare parts. Repeated requests to Washington for additional patrol planes were turned down. As George Morgenstern noted in Pearl Harbor: The Story of the Secret War: “While the Hawaiian air commanders were clamoring for planes to safeguard the base, 1,900 patrol planes were being lend-leased to foreign countries between February 1 and December 1, 1941. Of these, 1,750, or almost ten times the number which would have rendered Oahu safe, went to Great Britain.”30

Rear Admiral Edward T. Layton, who served at Pearl Harbor, stated: “There was never any hint in any intelligence received by the local command of any Japanese threat to Hawaii. Our air defenses were stripped on orders from the army chief himself. Of the twelve B-17s on the island, only six could be kept in the air by cannibalizing the others for spare parts.”31

Radar, too, was insufficient. And when General Short attempted to build a radar station on Mount Haleakala, Harold Ickes’ Interior Department withheld permission, stating that it would harm the beauty of the landscape.32

Advance Damage Control: the “War Warning”

It was clear, of course, that once disaster struck Pearl Harbor, there would be demands for accountability. Washington seemed to artfully take this into account by sending an ambiguous “war warning” to Kimmel, and a similar one to Short, on November 27th. This has been used for years by Washington apologists to allege that the commanders should have been ready for the Japanese.

Indeed, the message began conspicuously: “This dispatch is to be considered a war warning.”

However, it went on to state: “The number and equipment of Japanese troops and the organizations of naval task forces indicates an amphibious expedition against the Philippines, Thai or Kra Peninsula, or possibly Borneo.” None of these areas were closer than 5,000 miles to Hawaii (that is further than the distance from New York to Moscow). No threat to Pearl Harbor was hinted at. It ended with the words: “Continental districts, Guam, Samoa take measures against sabotage.” The message further stated that “measures should be carried out so as not repeat not to alarm civil population.” Both commanders reported the actions taken to Washington. Short followed through with sabotage precautions, bunching his planes together (which hinders saboteurs but makes ideal targets for bombers), and Kimmel stepped up air surveillance and sub searches. If their response to the “war warning” was insufficient, Washington said nothing. The next day, a follow-up message from Marshall’s adjutant general to Short warned only: “Initiate forthwith all additional measures necessary to provide for protection of your establishments, property, and equipment against sabotage, protection of your personnel against subversive propaganda and protection of all activities against espionage.”33

Short testifies before Congress after the war.

On December 1, Naval intelligence sent Kimmel its fortnightly intelligence summary entitled “The Japanese Naval Situation.” It stated: “Major capital ship strength remains in home waters, as well as the greatest portion of the carriers.”34 Contrast that to the diary of Captain Johann Ranneft, the Dutch naval attaché in Washington, who was awarded the Legion of Merit for his services to America.

Ranneft recorded that on December 2nd, he visited the Office of Naval Intelligence (ONI). Ranneft inquired about the Pacific. An American officer, pointing to a wall map, said, “This is the Japanese Task Force proceeding East.” It was a spot midway between Japan and Hawaii. On December 6th, Ranneft returned and asked where the Japanese carriers were. He was shown a position on the map about 300-400 miles northwest of Pearl Harbor. Ranneft wrote: “I ask what is the meaning of these carriers at this location; whereupon I receive the answer that it is probably in connection with Japanese reports of eventual American action. . . . I myself do not think about it because I believe that everyone in Honolulu is 100 percent on the alert, just like everyone here at O.N.I.”35

Admiral Kimmel testifiying after the war.

Strange Activity on December 7

On the morning of the Sunday the 7th, the final portion of Japan’s lengthy message to the U.S. government (rupturing relations, effectively declaring war) was intercepted and decoded. Tokyo added two special directives to its envoys. The first, which the message called “very important,” was to deliver the statement at 1 PM. The second directive ordered that the last copy of code, and the machine that went with it, be destroyed. The gravity of this was not lost in the Navy Department:

Japan had a long history of synchronizing attacks with breaks in relations (e.g., in the Russo-Japanese War of 1904-5, it had attacked Port Arthur on the same day it notified Russia that it was declaring war). Sunday was an abnormal day to deliver diplomatic messages — but the best for trying to catch U.S. armed forces at low vigilance; and 1 PM in Washington was shortly after dawn in Hawaii.

Admiral Stark, Chief of Naval Operations, arrived at his office at 9:25 AM. He was shown the message and important delivery time. One junior officer pointed out the possibility of an attack on Hawaii; another urged that Kimmel be notified. But Stark refused; he did nothing all morning. Years later, he told the press that his conscience was clear concerning Pearl Harbor because all his actions had been dictated by a “higher authority.”36 As Chief of Naval Operations, Stark had only one higher authority: Roosevelt.

Stark and FDR

In the War Department, where the statement had also been decoded, Colonel Rufus Bratton, head of Army Intelligence’s Far Eastern section, understood the message’s terrible significance.

But the head of intelligence told him nothing could be done until Chief of Staff General Marshall arrived. Bratton tried reaching Marshall at home, but was repeatedly told the general was out horseback riding. The horseback ride turned out to be a very long one. When Bratton finally reached Marshall by phone and explained the emergency, Marshall said he would come to the War Department. Marshall took 75 minutes to make the 10-minute drive. He didn’t come to his office until 11:25 AM – an extremely late hour with the nation on the brink of war. He perused the Japanese message and was shown the delivery time. Every officer in Marshall’s office agreed these indicated an attack in the Pacific at about 1 PM EST. The general finally agreed that Hawaii should be alerted, but time was running out.

Marshall had only to pick up his desk phone to reach Pearl Harbor on the transpacific line. Doing so would not have averted the attack, but at least our men would have been at their battle stations. Instead, the general wrote a dispatch, which was not even marked “priority” or “urgent.” After it was encoded it went to the Washington office of Western Union. From there it was relayed to San Francisco. From San Francisco it was transmitted via RCA commercial radio to Honolulu. General Short received it six hours after the attack. Two hours later it reached Kimmel. One can imagine their exasperation on reading it.


Despite all the evidence accrued through Magic and other sources during the previous months, Marshall had never warned Hawaii. To historians – ignorant of that classified evidence – it would appear the general had tried to save Pearl Harbor, “but alas, too late.” Similarly, FDR sent a last-minute plea for peace to Emperor Hirohito. Although written a week earlier, he did not send it until the evening of December 6th.37 It was to be delivered by Ambassador Grew, who would be unable to receive an audience with the emperor before December 8th. Thus the message could not conceivably have forestalled the attack – but posterity would think that FDR, too, had made “a valiant, last effort.”

Pope book
Marshall BUSTED

As for Marshall’s notorious “horseback ride” which allegedly prevented him from warning Pearl Harbor in time, that cover story was unintentionally blown by Arthur Upham Pope, in his 1943 biography of Maxim Litvinoff, the Soviet ambassador to the United States. Litvinoff arrived in Washington on the morning of December 7th, 1941 – a highly opportune day to seek additional aid for the Soviets – and, according to Pope, was met at the airport that morning by General Marshall.

The Coverup

Pearl Harbor’s secrets had been successfully preserved before the fact – but what about after? Many people around the nation, including some vocal congressmen, demanded to know why America had been caught off guard.

President Roosevelt said he would appoint an investigatory commission. Supreme Court Justice Owen Roberts – a pro-British internationalist friendly with FDR – was selected to head it. Also appointed to the group: Major General Frank McCoy, General George Marshall’s close friend for 30 years; Brigadier General Joseph McNarney, who was on Marshall’s staff and chosen on his recommendation; retired Rear Admiral Joseph Reeves, whom FDR had given a job in Lend-Lease; and Admiral William Standley, a former fleet commander. Only the last seemed to have no obvious fraternity with the Washington set.

Roberts Commission
The Roberts Commission. L-R: McNarney, Standley, Roberts, Reeves, McCoy

The commission conducted only two to three days of hearings in Washington. Admiral Standley, arriving late, was startled by the inquiry’s chummy atmosphere. Admiral Harold Stark and General Marshall were asked no difficult or embarrassing questions. Furthermore, all testimony was taken unsworn and unrecorded – an irregularity that, at Standley’s urging, was corrected.

The commission then flew to Hawaii, where it remained 19 days. When Admiral Kimmel was summoned, he brought a fellow officer to act as counsel. Justice Roberts disallowed this on grounds that the investigation was not a trial, and the admiral not a defendant. Because Kimmel and General Walter Short were not formally “on trial,” they were also denied all traditional rights of defendants: to ask questions and cross-examine witnesses. Kimmel was also shocked that the proceeding’s stenographers – one a teenager, the other with almost no court experience – omitted much of his testimony and left other parts badly garbled. Permission to correct the errors – other than adding footnotes to the end of the commission’s report – was refused.38

The Roberts Commission laid all blame for Pearl Harbor on the Hawaiian commanders: they had underestimated the import of the November 27th warning; they had not taken sufficient defensive or surveillance actions; they were guilty of “dereliction of duty.” On the other hand, it said, Stark and Marshall had discharged their duties in exemplary fashion. Remarkably, the report’s section declaring this was first submitted to Stark and Marshall for revisions and approval. Admiral Standley dissented with the findings but did not write a minority opinion after being told that doing so might jeopardize the war effort by lowering the nation’s confidence in its leaders. Standley later called Roberts’s handling of the investigation “as crooked as a snake.”39 Admiral Richardson, Kimmel’s predecessor as Pacific Fleet commander, said of the report: “It is the most unfair, unjust, and deceptively dishonest document ever printed by the Government Printing Office.”40

Roberts brought a final copy of the report to FDR. The President read it and delightedly tossed it to a secretary, saying, “Give that in full to the papers for their Sunday editions.”41 The words “dereliction of duty” were emblazoned in headlines across the country. America’s outrage fell on Kimmel and Short. They were traitors, it was said; they should be shot! The two were inundated with hate mail and death threats. The press, with its ageless capacity to manufacture villains, stretched the commission’s slurs. Even the wives of the commanders were subjected to vicious canards.

There was great outcry for courts-martial – which was exactly what the two officers sought: to resolve the issue of Pearl Harbor in a bona fide courtroom, using established rules of evidence, instead of Owen Roberts’s personal methods. The Roosevelt administration, of course, did not desire that – in an orthodox courtroom, a sharp defense attorney might start digging into Washington’s secrets. So the issue was sidestepped by again invoking security concerns due to the war effort. It was announced that courts-martial would be held – but postponed “until such time as the public interest and safety would permit.”

Sufficient delay would also cause the three-year statute of limitations that applied in such cases to elapse. But that was the last thing Kimmel and Short wanted; court-martial was their only means of clearing themselves. Thus they voluntarily waived the statute of limitations.

Their Day in Court

By 1944, the Allies were clearly winning the war, and national security would no longer wash as a barrier to courts-martial. A joint Congressional resolution mandated trials. At last, the former Hawaiian commanders would have their day in court.

In August, the Naval Court of Inquiry opened. A source inside the Navy Department had already tipped Kimmel and his attorneys about the scores of Magic intercepts kept from the admiral in 1941.

One of the attorneys, a former Navy captain, managed to get at the Department’s files, and authenticated the existence of many. Obtaining their release was another matter. Obstruction after obstruction appeared – until Kimmel tried a ploy. Walking out of the courtroom, he bellowed to his lawyer that they would have to tell the press that important evidence was being withheld.

By the next day, the requested intercepts had been delivered – 43 in all. The admirals on the Court listened to them being read with looks of horror and disbelief. Two of the admirals flung their pencils down. More than 2,000 died at Pearl Harbor because those messages had been withheld. Navy Department officers gave additional testimony. After nearly three months, the inquiry finished. The verdict of the Roberts Commission was overturned. Admiral Kimmel was exonerated on all charges.

Admiral Stark — who had rejected pleas of juniors to notify Hawaii on the morning of the attack – was severely censured.

Naval Court of Inquiry
The Naval Court of Inquiry

News of the intercepts leaked to the Army Pearl Harbor Board, convening at the same time.

The Board secured copies of Magic from War Department files. The Board’s conclusions still expressed modest criticism of General Short, but found overwhelming guilt in General Marshall and his Chief of War Plans, General Gerow. Its report bluntly concluded: “Up to the morning of December 7, 1941, everything that the Japanese were planning to do was known to the United States.”42

Direct criticism of the President was forbidden to these proceedings as beyond their jurisdiction. But FDR held ultimate responsibility for Pearl Harbor, and the warnings he had received – some of which only later came to light – far exceeded anything they might have dreamed.

The verdicts wrought dismay in the Roosevelt administration. But a solution was swiftly concocted. It was announced that, in the interest of national security, the findings would not become public until the war’s end. (This would give Washington time to conduct “new” investigations.) Navy Secretary Knox told the press that the Naval Court of Inquiry had marked its conclusions “secret,” and therefore nothing could be published. A stunned Admiral Orin Murfin, who had presided over the Court, protested to the Secretary. It was true that the breaking of Japan’s diplomatic code was not for public knowledge – but, he pointed out, the Court had only marked part of its determinations secret. Charles Rugg, Kimmel’s attorney, telegrammed Knox demanding to know how the “innocent” verdict granted the admiral could be deemed classified. Nevertheless, the reports were suppressed.

Damage Control

Washington now explained that it would conduct additional investigations supplementing the courts of inquiry. Henry Stimson picked Major (later Lieutenant Colonel) Henry Clausen – known to disagree with the Army Board findings – to carry out the War Department’s investigation. The Navy Secretary appointed Admiral W. Kent Hewitt. Hewitt’s role, however, was largely titular; most of the operation was carried out by Lieutenant Commander John F. Sonnett.

The ventures were without precedent: a major was to investigate (and overturn) a verdict rendered by generals; a lieutenant commander was to challenge a verdict of admirals.

The game rules were reminiscent of those of the Roberts Commission. Kimmel and his attorneys were refused permission to attend the Hewitt Inquiry, which operated under this directive: “Except that the testimony you take should be taken under oath so as to be on equal status in this respect with the testimony previously taken, you will conduct your examination in an informal manner and without regard to legal or formal requirements.”43

Not surprisingly, witnesses who had testified against Washington now reversed themselves. Colonel Rufus Bratton had informed the Army Pearl Harbor Board that on December 6, 1941, he had delivered the first 13 parts of Japan’s terminative message to General Marshall via his secretary, and to General Gerow, Chief of the War Plans Division. Now in Germany, Bratton was flagged down on the Autobahn by Clausen, who handed him affidavits from Marshall’s secretary and Gerow denying the deliveries were ever made. Confronted with denials from the Army’s highest levels, Bratton recanted, signing a new affidavit.44

Other officers, their memories similarly “refreshed,” retracted their statements about seeing the “Winds” message; now, it seemed, the message never existed. These individuals faced a dilemma. They were career military men. They knew telling the truth would pit them against the Army Chief of Staff and end all hope of promotion.

But one man wouldn’t bend – Captain Laurance Safford, father of naval cryptography. Safford had overseen that branch of naval intelligence for many years. He personally invented some 20 cryptographic devices, including the most advanced used by our armed forces. For his work, he was ultimately awarded the Legion of Merit.


Safford, who had testified before the Naval Inquiry that he had seen the “Winds” message, was confronted by Sonnett. Safford wrote of this meeting: “His purpose seemed to be to refute testimony (before earlier investigations) that was unfavorable to anyone in Washington, to beguile ‘hostile’ witnesses into changing their stories. . . .” In a memorandum written immediately after the encounter, Safford recorded some of Sonnett’s verbal prods, such as: “It is very doubtful that there ever was a Winds Execute [message]”; “It is no reflection on your veracity to change your testimony”; and, “It is no reflection on your mentality to have your memory play you tricks – after such a long period.”45

Safford realized a colossal coverup was underway, but was not surprised. He had already discovered that all copies of the “Winds” message in Navy files, along with other important Pearl Harbor memos, had been destroyed. Just four days after Pearl Harbor, Rear Admiral Leigh Noyes, director of naval communications, told his subordinates: “Destroy all notes or anything in writing.”46 This was an illegal order – naval memoranda belong to the American people and cannot be destroyed except by Congressional authority. Stories circulated of a similar information purge in the War Department. Some files, however, escaped destruction.

The Clausen and Hewitt inquiries pleased Washington. Equipped with fresh sophistries, the administration produced highly revamped versions of the Army and Navy inquiry findings. The dual Army/Navy announcement came on August 29, 1945 – the very day American troops arrived in Japan, when a rejoicing public was unlikely to care about Pearl Harbor’s origins.

The War Secretary’s report shifted the blame back to Short, while saying of General Marshall that “throughout this matter I believe that he acted with his usual great skill, energy, and efficiency.”47 It admitted the Army Board had criticized Marshall, but said this was completely unjustified. The Navy Secretary’s statement again imputed guilt to Kimmel, while asserting that Washington had not been negligent in keeping him informed. It did acknowledge that Admiral Stark should not be given a future position requiring “superior judgement.”

Consequently, Americans didn’t learn what the original inquiries had determined. Of course, anyone wanting to find out for himself could do so when the government released the official record of the hearings connected with Pearl Harbor – if he didn’t mind wading through 40 volumes.

Congress Enters the Act

Only one obstacle remained to burying Pearl Harbor. Congress had long made noises about conducting its own investigation; with the war over, it was sure to do so.

To nip any threat in the bud, the administration sent a bill to both the House and Senate forbidding disclosure of coded materials. It was promptly passed by the Senate, whose members had never heard of Magic and had no idea that the bill would hamstring their forthcoming investigation.

Admiral Kimmel read about the bill in the papers. He and his attorneys notified the press and congressmen about the measure’s implications. As a result, the House voted it down and the Senate rescinded it.

Capitol Hill’s Pearl Harbor probe began in November 1945, when the Joint Congressional Committee assembled. It comprised six Democrats and four Republicans. A split along party lines quickly emerged. The Democrats knew that, even though Roosevelt had recently died, a Pearl Harbor scandal could devastate them at the ballot box. But so long as all six Democrats maintained unswerving party loyalty, a majority decision favoring the administration was inevitable.

Admiral Richardson testifies before Joint Congressional Committee

The Democrats used their edge to jockey things their way. The counsel chosen for the committee was a Democrat who previously served with Henry Stimson; his assistant was a former New Dealer working for the law firm of Dean Acheson, the Under Secretary of State. A majority vote determined what evidence the committee would review. Several witnesses Kimmel wanted introduced were never called.

Coercion prevented others from testifying. Major Warren J. Clear, who had warned the War Department in early 1941 that the Japanese were planning to attack a series of islands including Hawaii, was ordered not to appear before the committee.48 So was Chief Warrant Officer Ralph T. Briggs, the man who had originally intercepted the “Winds” message at a United States monitoring station. He was summoned before his commanding officer, who forbade him to testify. “Perhaps someday you’ll understand the reason for this,” he was told. Briggs had a blind wife to support. He did not come forward as a witness.49

The treatment of Lieutenant Commander Alwin Kramer was cruder. Kramer, who had been in charge of the Navy Department’s Translation Section at the time of Pearl Harbor, and had once testified to having seen the “Winds” message, was confined to a psychiatric ward at Bethesda Naval Hospital.

Representative Frank Keefe, a committee Republican, learned of this and vigorously protested.50 Kramer was told that his testimony had better change or he’d be in the ward for the rest of his life. The officer went before the committee, but gave a confusing narrative that essentially denied existence of the “Winds” message.

Captain Laurance Safford, however, remained fearless in his revelations. A campaign to “nail” him was soon evidenced among committee Democrats. Congressman John Murphy, a former assistant DA, put him through a wringer of cross-examination. Safford’s personal mail was read aloud before the committee in an effort to humiliate him. Artful polemics made the captain – naval cryptography’s most eminent man – look forgetful on one hand, vindictive toward superiors on the other.

Safford was accused of being the only one to believe in the “Winds” message. In fact, no less than seven officers had acknowledged seeing it before having their memories “helped.” Perhaps the browbeating of Safford helped inspire Colonel Otis Sadtler of the Signal Corps. During the Clausen investigation, Sadtler had recanted his testimony about the message. Now he came forward and corroborated Safford. (Any doubts about the “Winds” affair have since been dispelled. As historian John Toland reported, both Japanese assistant naval attachés posted at the Washington embassy in 1941, Yuzuru Sanematsu and Yoshimori Terai, have verified that the message was transmitted on December 4th, exactly as Safford said.)51


The Congressional investigation battled on for over six months. In the end, all six Democrats held to the party. One Republican (Congressman Bertrand Gearhart) signed the majority report, reportedly for political reasons,52 and a second, Representative Frank Keefe, signed in exchange for modifications in the findings. An 8-2 majority decision was handed down on Pearl Harbor assigning most of the blame to the Hawaiian commanders, some blame to the War and Navy departments, and none at all to Roosevelt and his civilian administration.

That was the last major official inquiry into Japan’s attack. The lie of Kimmel and Short’s guilt was perpetuated and Washington’s secrets sealed. Congress did conduct a “mini-probe” in 1995, at the urging of the families of General Short (died 1949) and Admiral Kimmel (died 1968). The families hoped to restore the ranks of their libeled, demoted fathers. The 1995 probe requested that the Pentagon reinvestigate Pearl Harbor in light of new information. However, on December 1, 1995, Undersecretary of Defense Edwin Dorn concluded his own investigation with these comments: “I cannot conclude that Admiral Kimmel and General Short were victims of unfair official actions and thus I cannot conclude that the official remedy of advancement on the retired list is in order.”53

Collaboration Pays

Those who cooperated with the Pearl Harbor coverup were generously rewarded. As to the men who served with Owen Roberts on the Roberts Commission:
  • Though he had been retired since 1936, five months after signing the commission’s report Rear Admiral Reeves was advanced to full admiral for “eminent and conspicuous service in the Spanish-American war,” his gallantry discovered by Roosevelt 44 years after the fact.54
  • In January 1942, the same month that he signed the commission’s report, Brigadier General McNarney was promoted to major general, and subsequently lieutenant general, full general, and after the war commanding general of American occupation forces in Germany.
  • After signing the report, Admiral Standley received the Distinguished Service Medal, and the following month (April 1942) was appointed ambassador to the Soviet Union.
  • Retired General Frank McCoy became chairman of the Far Eastern Commission.
As to other major figures in the coverup:
  • General Marshall was made America’s first five-star general (no such designation had previously existed). Subsequently he enjoyed stints as Secretary of State and Secretary of Defense.
  • Brigadier General Gerow was made a lieutenant general and commander of the 15th U.S. Army.
  • Lieutenant Colonel Henry Clausen, who oversaw the inquiry that revamped the findings of the Army Pearl Harbor Board, went on to spend 16 years as the Sovereign Grand Commander of the Scottish Rite in the Southern Jurisdiction, same position Albert Pike held. In other words, he became the highest-ranking Freemason in America. (Given that President Roosevelt was a 33rd degree Freemason, and that Marshall was a Freemason as well, it is perhaps not surprising that Clausen’s report absolved Roosevelt and Marshall of any wrongdoing. One would not be unjustified in wondering if Masonic handshakes and countersigns preceded the launching of the Clausen investigation.)
  • Secretary of State Cordell Hull received the 1945 Nobel Peace Prize.
As to men who sought to tell the truth about Pearl Harbor, such as Captain Laurance Safford, Colonel Otis Sadtler, and Colonel Rufus Bratton, their careers did not advance.

Some postscripts

On May 25, 1999, the U.S. Senate approved a resolution that Kimmel and Short had performed their duties “competently and professionally” and that our losses at Pearl Harbor were “not a result of dereliction of duty.” “They were denied vital intelligence that was available in Washington,” said Senator William V. Roth, Jr.  Senator Strom Thurmond called Kimmel and Short “the last victims of Pearl Harbor.”55

Former Justice Dept. official Daryl Borgquist discovered from examination of the drafts of Roosevelt’s “Day of Infamy” speech that work on it was begun on December 6, the day before the actual attack. And from Helen E. Hamman, daughter of Don Smith, who directed the Red Cross’s War Service before World War II, we have the following quote which appeared in the June 2, 2001 Washington Times:
Shortly before the attack in 1941, President Roosevelt called him [my father] to the White House for a meeting concerning a top‑secret matter. At this meeting, the president advised my father that his intelligence staff had informed him of a pending attack on Pearl Harbor, by the Japanese. He anticipated many casualties and much loss; he instructed my father to send workers and supplies to a holding area. When he protested to the president, President Roosevelt told him that the American people would never agree to enter the war in Europe unless they were attacked within their own borders. . . . He followed the orders of his president and spent many years contemplating this action, which he considered ethically and morally wrong. I do not know the Kimmel family, therefore would gain nothing by fabricating this situation, however, I do feel the time has come for this conspiracy to be exposed and Admiral Kimmel vindicated of all charges. In this manner perhaps both he and my father may rest in peace.

Pearl Harbor and 9/11

Pearl Harbor begs comparison to 9/11:
  • Both events were carefully orchestrated false flags (although Pearl Harbor differed in that the attack itself was genuinely undertaken by a provoked foreign power);
  • Both involved massive death and violent destruction;
  • Both resulted in war and transformed American society;
  • Both were followed by official commissions that concealed the truth;
  • Both inspired “truthers” who were ridiculed by mainstream media because, “after all, our own government would never do that to us.”
Pearl Harbor attack 9-11

Not forget Pearl Harbor never forget 9-11

avenge pearl harbor Never forgive 9-11

Colors don't run Pearl Harbor Colors don't run 9-11

Remember Pearl Harbor Remember 9-11

History is largely a continuum. This is because most of the world’s wealth is concentrated in a few hands: a satanic oligarchy that has progressively gained control over banking, industry, media and governments. This consolidation of power has enabled the oligarchy to generate geopolitical events which have served its agenda over many decades. For a comprehensive picture of the continuum that Pearl Harbor and 9/11 fit into, see my new book Truth Is a Lonely Warrior.

Recommended Reading on Pearl Harbor

George Morgenstern, Pearl Harbor: The Story of the Secret War (1947).
Robert A. Theobald, The Final Secret of Pearl Harbor: The Washington Contribution to the Japanese Attack (1954).
Husband E. Kimmel, Admiral Kimmel’s Story (1955).
John Toland, Infamy: Pearl Harbor and Its Aftermath (1982). (my personal favorite)
Robert B. Stinnett, Day of Deceit: The Truth about FDR and Pearl Harbor (2000).
George Victor, The Pearl Harbor Myth: Rethinking the Unthinkable (2007).
Percy L. Greaves, Pearl Harbor: The Seeds and Fruits of Infamy (2010). (Despite the recent publication date, this 937-page book concentrates on earlier revelations; Greaves served on the staff of the joint Congressional Committee that investigated Pearl Harbor during 1945-46.)

Recommended viewing:

BBC, Sacrifice at Pearl Harbor (1989). Watch it on YouTube:

See also the Pearl Harbor Archive.


  1. Ferdinand Lundberg, America’s Sixty Families (New York: Citadel Press, 1937), 190-201.
  2. Robert Dalleck, Franklin D. Roosevelt and American Foreign Policy, 1932-1945 (New York: Oxford University Press, 1995), 250.
  3. Winston Churchill, The Grand Alliance (Boston: Houghton Mifflin, 1950), 23.
  4. William Stephenson, A Man Called Intrepid (New York: Harcourt Brace Jovanovich, 1976), 157.
  5. George Morgenstern, Pearl Harbor: The Story of the Secret War (New York: Devin-Adair, 1947), 94.
  6. John Toland, Infamy: Pearl Harbor and Its Aftermath (New York: Doubleday, 1982), 318.
  7. Deanna Spingola, The Ruling Elite: The Zionist Seizure of World Power (Trafford, 2012), 337.
  8. Anthony Kubek, How the Far East Was Lost: American Policy and the Creation of Communist China, 1941-1949 (Chicago: Henry Regnery, 1963), 3, 25.
  9. Ibid., xiv.
  10. Benjamin Gitlow, I Confess (New York: E. P. Dutton, 1940), 485-86, as quoted in Kubek, 24.
  11. Harold Ickes to Franklin D. Roosevelt, 23 June 1941,
  12. Robert Stinnett, Day of Deceit: The Truth about FDR and Pearl Harbor (New York: Touchstone, 2000), 8-9, 275.
  13. Toland, 262.
  14. George Victor, The Pearl Harbor Myth: Rethinking the Unthinkable (Washington, DC: Potomac Books, 2007), 257.
  15. Russell Grenfell, Main Fleet to Singapore (New York: MacMillan, 1952), 107.
  16. Morgenstern, 116.
  17. Ibid., 58.
  18. Stinnett, 18.
  19. Morgenstern, 63-64.
  20. Ibid., 261.
  21. For a summary of transcripts of these and many other relevant intercepts, see Robert A. Theobald, The Final Secret of Pearl Harbor: The Washington Contribution to the Japanese Attack (Old Greenwich, Conn.: Devin-Adair, 1954) 42-74.
  22. Theobald, 43.
  23. Victor, 48; Toland, 281-82; 290-91; interview with Thorpe, Sacrifice at Pearl Harbor, produced by Roy Davies (London: BBC, 1989); 41:48-42:56.
  24. Toland, 317.
  25. Victor, 35-36, 50-51.
  26. Toland, 261; see especially the paperback edition (New York: Berkley Books, 1982), which contains an additional postscript, pp. 349-50.
  27. Martin Dies, “Assassination and Its Aftermath,” American Opinion (April 1964): 33.
  28. Stinnett, 46.
  29. Husband E. Kimmel, Admiral Kimmel’s Story (Chicago: Henry Regnery, 1955), 65.
  30. Morgenstern, 77.
  31. Edwin T. Layton, with Roger Pineau and John Costello, “And I Was There “: Pearl Harbor and Midway – Breaking the Secrets (New York: William Morrow, 1985), 217.
  32. Morgenstern, 71.
  33. Percy L. Greaves; Bettina Greaves, ed., Pearl Harbor: The Seeds and Fruits of Infamy (Auburn, Ala.: Mises Institute, 2010), 174.
  34. Kimmel, 51.
  35. Toland, 282-83, 298.
  36. Theobald, 26.
  37. Stinnett, 179.
  38. Kimmel, 147-48; Toland 33-35.
  39. Toland, 321.
  40. Stinnett, 255.
  41. Toland, 37.
  42. “Top Secret Report, Army Pearl Harbor Board,” Hearings before the Joint Committee on the Investigation of the Pearl Harbor Attack (Washington, D.C.: United States Government Printing Office), 230.
  43. Kimmel, 165.
  44. Toland, 141-42.
  45. Ibid., 135-36.
  46. Stinnett, 255.
  47. Greaves, 609.
  48. Toland, 261.
  49. Ibid., 197-98.
  50. Greaves, 764; Toland, 153.
  51. Toland, Infamy, postscript to paperbound edition, 346-47.
  52. Toland, 241.
  53. Edwin Dorn, “Memorandum for the Deputy Secretary of Defense,” stamped Dec. 15, 1995,
  54. Morgenstern, 399.
  55. “Walter Short,” Wikipedia,; Philip Shenon, “Senate Clears Two Pearl Harbor ‘Scapegoats,’” New York Times, May 26, 1999,