jueves, octubre 13, 2016

VACACIONES OCTUBRE 2016

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VACACIONES OCTUBRE 2016 (CLICK ON LINK)


The Banquet Of Consequences Is Being Served

By: Adam Taggart
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Prepared just for us by the central banking cartel
"Sooner or later everyone sits down to a banquet of consequences."  
~ Robert Louis Stevenson

Last week, the Federal Reserve decided to keep US interest rates unchanged, marking its 96th month of life at the zero bound. Apparently, for all of its "data dependence", the Fed feels the economy could still benefit from *just* a little more of its ZIRP happy juice.

But as anyone with a little common sense will tell you, More is not always better. It's quite possible to have too much of a good thing.

And in its pursuit to kick the can for a little longer, the Fed has crossed a dangerous line.

Dangerous not just to the health of our market economy (that line was crossed a long time ago); but to its own existence. A central bank's authority is based on faith in its power to effect its mandate. Last week's decision was so toothlessly passive that even the Fed's cheerleaders are beginning to question if it has any clue for how to escape from the corner it has painted itself into.

The Fed and its central banking brethren (most notably the European Central Bank, Bank of Japan, Bank of England and Bank of China), have decided to sacrifice investing for tomorrow (namely savings, and capital expenditure in productive enterprise) in favor of higher prices today for financial assets. By keeping interest rates historically low -- and increasingly negative -- around the world, they have pushed capital much farther out the risk curve than it deserves to be. All while adding trillions of more debt into an already dangerously over-leveraged economy, and lavishly rewarding the rich elite at the expense of everyone else.

As Stevenson wrote, sooner or later, the banquet of consequences must be supped on. And for the Fed, the dinner bell is ringing.

The Law Of Diminishing Marginal Utility

Last month, I issued a report titled The Marginal Buyer Holds The Pin That Pops Every Asset Bubble which explained how prices are set "at the margin" (meaning: above what the second-highest bidder is willing to pay). It's a very useful concept for understanding how prices rise to unsustainable heights during an asset bubble era such as the one we're in now, and how they can fall much more quickly than most expect when a bubble bursts.

Building further on this viewpoint at the margin, I want to examine the concept of marginal utility. Marginal utility is essentially how much benefit you derive from receiving more of something, usually one more additional unit of a good or service.

On the surface, most of us think: If a little is good, then even more is better, right?

Well, not always. In fact, in most cases not.

As this hokey short video from Investopedia shows, the satisfaction we gain from each additional unit diminishes, until a switchover point is reached at which each new unit is no longer experienced as a benefit, but as a cost:


The pizza example from the video is not dissimilar from the central banking cartel's intervention efforts over the past decade. With each additional month at historically low interest rates, the goosing effects of ZIRP/NIRP policy to the economy diminishes. Despite a planetary coordinated effort to dish out bigger and bigger pizza slices of monetary stimulus, the global economy can't manage to grow any faster than its current stumbling pace. World central bank balance sheets have now tripled in size since 2008, and yet global GDP growth has remained stuck at 2.5% for years:




Note the red line in the above chart. The liquidity efforts of the central banking cartel have flooded the world with $trillions and $trillions of debt incremental to the massive pile that existed before the 2008 credit crisis. (Remember, all central bank-issued money is loaned into existence.) As if we needed more: for those who haven't been paying attention, the world now has over $60 trillion more debt than it did at the end of 2007 (likely much more, as the data below is from Q4 2014):



Continued economic growth is requiring more and more debt. In fact, despite the recent jump in debt over the past few years, growth in world trade is petering out:
WSJ: World Trade Set For Slowest Yearly Growth Since Global Financial Crisis 
WTO cuts world trade growth forecast to 1.7% in 2016 
World trade will this year grow at the slowest pace since the global financial crisis, a development that should serve as a wake-up call given rising antiglobalization sentiment, the World Trade Organization warned Tuesday. 
The Geneva-based body responsible for enforcing the rules that govern global trade cut its forecast for the growth of exports and imports this year and next, and now foresees an increase of just 1.7% in 2016 and as little as 1.8% in 2017, having projected rises of 2.8% and 3.6%, respectively, in April. 
The WTO joined other international bodies -- such as the Organization for Economic Cooperation and Development -- in warning a slowdown in trade could weaken longer-term economic growth.

Simply put: We have reached the switchover point at which the costs of additional monetary stimulus exceed any benefits.

It's at moments like this when the credit-engorged system can no longer be sustained and breakages occur. To put it more visually, the next unit of stimulus is likely to operate as Monty Python's "wafer-thin mint":

 
Yellen Rings The Dinner Bell

Fundamentals don't pop bubble markets, shifting sentiment does. Bubbles breed off of confidence: confidence that prices will be even better tomorrow than they are today.
 
For nearly a decade now, the Fed has cultivated an aura of omnipotence; that it has the power to boost economic growth and reduce unemployment -- while simultaneously 'creating' wealth by elevating the prices of stocks, bonds and real estate. Speculators have loved the security promised by Greenspan/Bernanke/Yellen "put", trusting that the Fed is working hard to keep the party rollicking. And they've been rewarded for their faith: percentage gains across nearly all financial asset classes between 2010-2014 were tremendous.
 
But since then, things have flattened out. Price appreciation has become harder to come by and the price action has been more choppy. Our central banking high priests and priestesses perform more rain dances, but the rains don't fall. Despite nearly $200 billion in stimulus being pumped into the global economy each month by the ECB and BOJ alone, growth remains anemic.
 
Given this failure to boost growth, the natives are growing worried. So it's little surprise that all eyes were on Janet Yellen last week, as market investors hoped to receive signs that the Fed had a winning card to play. Yellen's decision to stand pat (really more of a 'non-decision' to do anything) gave no such signs. More important, it appears to have stretched the Fed's credulity to the point where market analysts -- even its biggest cheerleaders -- are beginning to voice doubts that the Fed has any control left over the situation anymore.
"This is a disaster in terms of credibility," says Dan North, chief U.S. economist at Euler Hermes. Investors "don't think there's any credibility in what [Fed officials] say because there's too many voices." (CNNMoney)
"Credibility is out the window and forward guidance is dead," said Michael Ingram, a market analyst with CMC Markets, based in London. (TheStreet.com)
After the Federal Reserve decided to leave interest rates unchanged, bond guru Bill Gross told CNBC he was barely able to speak. 
"I'm choked with emotion and hardly able to speak," the portfolio manager at Janus Capital Management said in an interview with CNBC's "Power Lunch."
"After hawkish talk at Jackson Hole from [Fed Chair] Yellen and [Vice Chair] Stan Fischer, who even said there'd be two hikes in 2016, they've chosen to defer once more a necessary hike to normalize short-term interest rates and provide savers, in my view, with at least a bit of thin gruel to work with to provide for education, retirement and health-care needs." 
He believes the contradiction between what Fed officials have said leading up to the meeting and the outcome of the gathering is leaving investors "very confused." (CNBC)

More and more people are beginning to feel that perhaps our position here at Peak Prosperity has indeed been the correct one all along. That, by intervening with loose monetary policy to prevent the markets from correcting naturally, the Fed has re-blown a series of asset bubbles that have concentrated wealth in the pockets of the top 0.1% at the expense of nearly everybody else, particularly savers and those on fixed incomes. In doing so, it made the financial markets addicted to its cheap and voluminous liquidity, to the point where they threaten to nose-dive every time the Fed or its collective brethren attempt to tighten the stimulus spigot.

Yellen and company have reached the point where they are damned if they tighten, and damned if they don't. So their best play is to simply stall for time -- which, in retrospect, looks like pretty much what the Fed has been doing since the end of QE3 in late 2014.

So the Fed can't afford to raise rates. But by not doing so, it's now in violation of the very "data dependent" rules it claims publicly to be bound by. By its own admission, the unemployment rate is now extremely low, "economic activity has picked up from the modest pace seen in the first half of this year", and household income has jumped. Yet the Fed is still triaging the economy with life support measures. Something is clearly amiss in the gap between the confidence the Fed projects and the desperation of its actual measures.

The dinner bell for the Fed's banquet of consequences has been rung. It's credibility is becoming increasingly stretched among mainstream audiences, and should it actually raise rates in December (forget about November, I don't think there's anyone left who still believes the Fed is not politicized), it will be vilified by the ensuing market drop. Attacks to its reputation from fringe voices like Ron Paul were easy to deflect, but public shamings on the worldwide stage of the US Presidential election from the Republican nominee are much more threatening:


The Banquet Of Consequences


So, the big question of course is: How will this all end?

In his excellent report last week, Hell To Pay, Chris laid out how once faith in central banks is lost, their power to delay the deflationary day of reckoning goes with it. The stupendous amount of debt they have helped heap onto the financial system since 2008 will start going into default and the only question that will matter is: Who is going to eat the losses?

The daisy chain of bubbles in stocks, real estate, and the mother of them all -- the bond market -- will pop, adding additional losses to the growing bloodbath.

All this will weigh on the already-sluggish growth in the economy, sending us into deep capital-R Recession, or worse.

Wall Street's Best Minds

What’s the Best Safe Haven for Investors?

A hedge-fund manager rates the merits of four instruments including gold, Swiss francs and Treasuries.

By Mark Spitznagel

 

We are living through truly unprecedented, risky times for investors. Certainly, global markets have never been more distorted by central bank manipulations than they are today, and investors can only hope that such manipulations will miraculously avoid ending in yet another catastrophic financial crisis.
 
It is natural that so-called safe haven investments currently seem to be on everyone’s minds, and it is timely to ask the question: Just what makes a safe haven a safe haven? And what’s the best one out there? As someone who’s spent his life trying to create just that, here’s my take.

Mark Spitznagel Universa Investments

           
Clearly, the point of any safe haven investment comes down to one thing: protecting real economic value in a portfolio against economic catastrophe. This is both a defensive measure to avert future loss, and an offensive one to exploit future opportunities (with “dry powder”). While we often think of safe havens as merely protecting the capital invested directly in them, they are actually meant to do so much more. Rather than a well-timed place to hide away most of a portfolio, most investors appropriately think about a safe haven as a rather small, tactical allocation that indirectly provides protection to capital invested elsewhere in a portfolio. This requires a lot of bang for the buck from that small allocation. So a safe haven needs to be a highly nonlinear, insurance-like hedge that explodes in value whenever systemic markets crash.
 
In fact, the better a safe haven is at providing this insurance-like protection payoff, the better it serves its purpose. Specifically, the best safe havens both provide the highest and most reliable protective profit in a systemic crash, as well as have the greatest difference between their range of crash profit and their range of non-crash loss. The key here is, the better this insurance protection, the less capital is needed for the safe haven, the less portfolio drag from any of its losses, and the more return is available during more benign times from presumably more productive investments elsewhere in the portfolio. Paradoxically, what makes a safe haven the best safe haven is how much of it you don’t need in order to stay safe.
 
Let’s take a look at the historical ranges of profit and loss in various safe haven investments through different environments in hopes of determining the best safe haven out there. I’ll use the S&P 500 stock index as a proxy for the systemic risks that investors will likely want protection from with a safe haven, and I’ll bucket historical annual returns of different safe havens by corresponding annual S&P 500 total returns. (I’m using less statistically-significant annual returns because higher frequency data tend to obscure the economically meaningful nonlinear relationships I’m looking for here.)
 
Below are the conventional time-honored safe havens of gold, the Swiss franc and US treasuries, as well as a less conventional and somewhat more exotic safe haven of an equity tail hedge. Look at the high, low, and average of each bucket.



Notice that, since 1974, whenever stocks were down by over 15% in any given year (a “tail event,” as there were only three such occurrences), gold returns ranged from about +70% to +5%, with an average of just over +30%—by far the best protection of the lot. In all other years, its returns ranged from +125% to -30%, with an average of under 7%. These are pretty good insurance-like returns, especially the average returns. The problem seems to be the volatile ranges around these average returns, particularly considering the amount of gold needed in our portfolio for an effective hedge. If we expect gold to make about 30% in a -20% stock market crash, we would need a gold allocation of two-thirds the size of our equity allocation in order to fully protect that equity position. With this size, we would actually be adding noise and potential drag to our portfolio in non-crash years, and even in the crash years, gold might do very little this time around. (I doubt it, but who knows?) This is like skydiving with a parachute that may or may not deploy; you’d be better off having no parachute at all, so a more informed decision can be made whether or not to jump. You can see how the degrees and reliability of the protection and insurance-like feature are the keys to the safe haven.
 
Still, gold looks pretty golden among the first three safe havens in our group. In fact, by our insurance protection criteria, it’s the only safe haven among them. The others show meager protection or meager to non-existent insurance-like payoffs or both. I needn’t even mention the obvious transformations over the years that have left their safe haven status even more unreliable—such as low treasury yields with little room left to fall (though lots to rise) and the sad monetary degradation of the Swiss franc. Gold’s millennia of safe haven attributes, however, remain very much intact.
(I am ignoring many other so-called safe havens, such as high dividend-paying stocks, hedge funds, fine art, and US farmland, because their crash returns are very low—in the case of the first three, even negative; they simply do not provide any insurance protection.)
 
The fourth safe haven in our graph, the equity tail hedge, demonstrates what an extreme case of explosive protection and nonlinearity can look like. This generic tail hedge strategy—a cartoonish simplification, for sure—just spends a fixed amount of capital each month on way-out-of-the-money four-month puts on S&P 500 futures (with a straightforward constraint to avoid the priciest options) and mechanically “delta-hedges” them; the puts are kept until expiration or sold if they explode to a ridiculously high level. Pretty basic stuff, really. The data in the buckets are the annual returns on total capital invested in puts over any given year. (VIX futures might have been a simpler alternative to this tail hedge strategy, though it just started trading in 2004 and furthermore its popularity has lead to a very costly, steep “roll”, making it a real stinker of a trade.)
 
We don’t need to allocate much capital to these puts to protect our equity allocation—less than a couple percent of that equity allocation per year, since they make over 1500% when the S&P is down over 15%! When there’s no crash, the capital you expect to lose on these puts when they expire worthless is much smaller than what you’ve likely gained by allocating more to other more risky stuff like equities. This superior insurance protection profile of the tail hedge shouldn’t be too surprising, since we’re bucketing by the very same underlier of the puts. But it shows the benefits of being direct and not too cute in our choice of a safe haven. This parachute is the most likely to deploy.
 
Not all safe haven investments are created equal. Based on our insurance protection criteria, there are but two safe havens truly worthy of the name: gold and an equity tail hedge. They are in many ways functionally equivalent, as both hedge the same systemic tails—specifically bursting bubbles. This is really good news for mom-and-pop investors, as they have ready access to gold , if not so much to derivatives.
 
((There are gold ETFs such as the SPDR Gold Trust GLD (GLD), however they come with significant risk of not enough physical gold backing the paper; there’s also physical gold itself of course, which comes with the complexities of storage.)
 
What I’ve shown is just that, my own bias aside, an equity tail hedge (in the specific form depicted here) happens to provide much more explosive and reliable insurance-like protection; it is the one safe haven that is as good as—and even better than—gold.


Chung Kuo

by Doug Casey




This article is entitled Chung Kuo, which means Middle Kingdom.

The Chinese have long seen themselves as superior to every other race (like almost every race does) and the center of the world. It's because they were so confident of this that they never ventured out as Europeans did, with a brief exception in the 15th century when a gigantic Chinese fleet, composed of ships vastly superior to those of Europe, ventured as far as Africa. Since dropping the ball on world conquest back then, or at least exporting their culture wholesale, they've been in stasis, and on the receiving end of what Europe had to dish out.

The Chinese resent the “gweilo”, or “laowai” (loosely translated in Cantonese and Mandarin respectively as "foreign devil") for appropriating places like Hong Kong, Macau, Shanghai, and numerous other enclaves. They resent episodes like the Opium Wars, which resolved whether they were to be used as a market for narcotics. They never learned to appreciate lots of foreign soldiers running around their countryside, even though Westerners felt it was a birthright.

Rent 55 Days at Peking for the conventional European view of imperialism during the Boxer Rebellion. Better yet, buy or rent The Sand Pebbles, in my opinion one of the best movies out there—and the book is even more entertaining and educational.

The Chinese absolutely resent the U.S. government parading its aircraft carriers off the China coast as if it owned the place. The U.S. government is not showing strength, it's displaying arrogance and stupidity by antagonizing a sleeping dragon. And the thought of American politicians—which is to say an assortment of insular lawyers, eggheaded wannabe social engineers, and refugees from Arkansas trailer parks—negotiating with people who've been through what the Chinese have, is just scary. The U.S. government may feel like it can call the shots now because it has a dozen aircraft carriers and a couple thousand fighter planes. But it's making a serious enemy while it's going to bankrupt America in a counterproductive projection of force to the other side of the planet. And that's not all. Because the day will go to the people with the most wealth, not the ones that have the most expensive military hardware.


The Future in China

I can give you a dozen credible scenarios describing what might happen in China over the next couple of decades. But the trend that seems certain to continue is the rapid rate of wealth increase there. I don't credit official figures with any great accuracy, but if we take them as being approximately right, then the U.S. economy is growing at 2%, and China's at about 7%—but with a base of about four times the population. What this means is that the largest economy on the planet will soon no longer be America's—but China's.

It's already been something of a psychological smack upside the back of the head for Americans to realize that they're far less powerful than they were in the ‘50s and early ‘60s, when America was wealthier than the rest of the whole world put together. What will it mean when it's only a fraction as wealthy as China alone?

Of course, the average American will still be living far more comfortably than the average Chinese; he'll still have a bigger house, more gadgets, cars, and consumer goods. But he may actually have considerably less investment capital and savings. And there will be vastly more wealthy Chinese, and they'll have vastly more wealth than wealthy Americans.

There are a number of reasons for this. One is that Chinese culture is ingrained with the Confucian work ethic, which is quite similar to the Protestant work ethic that helped the West get where it now is. The difference is that the West has become a group of flaccid welfare states, morally weakened by its own prosperity, pretty much as Joseph Schumpeter predicted. While I'm philosophically averse to believing that success must necessarily lead to dissipation, that certainly seems to be the historical record. And it also seems pretty clear that a society, a government, a corporation, or an organization of any type is pretty much like a human body in at least one way: As it gets older, it gets weaker and more corrupt, approaching its inevitable death.

Another element of Chinese ascendance is just the sheer number of people that share a common culture and language. Upwardly mobile Chinese all learn English, the world's language, as well as Mandarin. So they can access everything from the West, but very few people in the West will ever learn Chinese, making it hard to reverse the flow.

Further, just as every other people from a given culture tend to prefer associating and doing business with themselves—Jews, blacks, Arabs, Irish, Italians, you-name-it—the same is true of the Chinese. But they're an order of magnitude larger than most any other cultural grouping. From a financial point of view, it's just arithmetic.

Take an American and a Chinese, each with a dollar. Say both are equally smart and hardworking, and each is able to double his dollar every year—2, 4, 8, 16… The only difference is that the American pays 35% in taxes and the Chinese pays nothing. Actually the American is paying close to 50% and the Chinese is paying something, but the difference is about the same. With only that differential, by the time the American has one million dollars, how much does the Chinese have? The answer is that by the time the American has a million dollars in 28 years, the Chinese has 268 million.

Actually the situation is even grimmer. The Chinese will probably work harder. He's in an environment where, if only because of minimal regulation, he'll make his capital grow faster. If Herrnstein and Murray are right in their book The Bell Curve, the Chinese guy is smarter (105 v. 100 average IQ for Europeans). And then, when the American dies, the government will take half of his piddling million dollars for estate taxes, so his kids start with no meaningful financial capital. And probably minimal intellectual capital, if the obvious dumbing down of American schools has anything to do with it. Meanwhile, the scions of the Chinese will have an untaxed $268 million, and probably a much better education and stronger work ethic to help them deploy it.

The situation was best summed up by my friend The Great Winfield, the famous commodity speculator, who, when I asked him how he was going to deal with the eventuality, commented "After I kick the bucket, I'm going to come back as a young, good-looking girl. That way, maybe I’ll get a rich Chinese boyfriend, and at least I'll eat regularly."

And I'm not overdoing the tax angle, either. The average American has been so brainwashed that he thinks he has a moral obligation to give the government whatever it asks for; he thinks he's being dishonest and cheating if he puts his own and his family's welfare above the demands of the State. At the same time, he thinks the State has a moral obligation to provide for his health, education, welfare, and retirement.

The average Chinese, however, recognizes the government as his adversary and feels no moral obligation at all towards it, only to his family. He knows the guy calling himself "the government" is just a successful warlord, and a successful warlord is just a major league criminal. He considers it his duty to deny resources to the State because he knows he can't feed the beast and his family with the same grain of rice. And he has no concept of the State taking care of him; that's something his family does.

Where will it all end up? In the short run, more of the world will surely resemble British Columbia, with its majority Oriental population. In the long run, the world portrayed in David Wingrove's Chung Kuo novels, in which the Chinese dominate the world as thoroughly in the 22nd century as the Europeans did in the 19th, isn't at all out of the question.

Editor’s Note: With America in rapid decline, China will soon become the world’s biggest and most important economy. And it could happen faster than most people think.

China wants to unseat the U.S. as the dominant world power…

To do this, China is spending billions of dollars to develop the “New Silk Road.”

The New Silk Road is the world’s biggest infrastructure project. If all goes according to plan, it will give China a huge economic advantage over the United States.

It’s one of the biggest investing stories in the world. Yet the U.S. media barely mentions it. Maybe because it’s too big and complex of an idea to fit into soundbites.

If China succeeds, it could overtake the U.S. to become the dominant global superpower. This could trigger the biggest shift in global power since the end of World War II.

But it’s a huge opportunity for investors who know how to profit from it.


The Pentagon

The space between

As the distinction between peace and war has become blurred, the Pentagon has become a one-stop shop to solve global problems           




IT SEEMED simple enough. The White House wants a surveillance drone to monitor an evolving showdown over human rights in Kyrgyzstan. A member of staff at the National Security Council calls the author, Rosa Brooks, at the Pentagon to tell her to send it on its way. Ms Brooks explains that this is not how the chain of command works in the military. Where would the drone come from? Which job would it no longer be doing? Who was going to pay for it? Whose airspace would it operate from? The incredulous response: “We’re talking about like, one drone. You’re telling me you can’t just call some colonel at CentCom and make this happen?”

The story illustrates two themes in an interesting and worrying book, “How Everything Became War and the Military Became Everything”. The first is the growing tendency of politicians and bureaucrats in Washington to turn to the armed forces when something, almost anything, needs doing. The second, despite or perhaps because of this, is the gulf in understanding that is making civil-military relations increasingly fraught. But Ms Brooks has a wider purpose, which is to examine what happens to institutions and legal processes when the distinctions between war and peace become blurred and the space between becomes the norm, as has happened in America in the decade and a half since the attacks of September 11th 2001.

Ms Brooks, a law professor at Georgetown University and a columnist for Foreign Policy, has direct experience of what she writes. Not only did she marry a lieutenant-colonel in the army’s special forces, but she went to work for the “vast, bureaucratic death-dealing enterprise”, otherwise known as the Pentagon, in 2009, serving for two years as an adviser to the formidable Michèle Flournoy (who would probably be defence secretary in a Clinton administration).

What she found there is that as the money available for conventional diplomacy and development aid precipitately declines, so the armed forces with their relatively inexhaustible resources are called upon to fill the gap. As one general puts it, the American military is becoming “a Super Walmart with everything under one roof”. Because its culture is proudly can-do, it gets on with the demands made on it without much complaint.

One consequence is that actual fighting has become something that only a small minority of soldiers do. Ms Brooks finds that through the recent, long wars most soldiers have spent their time supervising the building of wells, sewers and bridges, resolving community disputes, working with local police, writing press releases, analysing intelligence and so on. In many ways, Ms Brooks finds this admirable. The problem, she says, is that soldiers are not necessarily the best people to do this kind of work, lacking the inclination, the training or the experience to be much good at it.

The hope in the Pentagon nowadays is that it can return to its core purpose of deterring and preparing for proper, high-tech state-on-state wars. Counter-insurgency and nation-building have fallen out of fashion. Hillary Clinton has recently echoed Barack Obama in promising no “boots on the ground” in Iraq (despite the fact that there are about 5,000 pairs of them there and twice as many in Afghanistan). The reality is that you do not always get to choose the kind of wars you fight or how you fight them.

The muddying of the lines that normally exist between peace and war also has implications for what happens at home. Laws may be suspended or passed during a war that has a clear beginning and end without too much lasting damage. But when a state of semi-war becomes more or less permanent, the erosion of basic legal and democratic principles becomes a greater danger. The difficulty in closing down Guantánamo; the continuing arguments over where the line between vigorous interrogation and torture lies; the legal murkiness of using drones to carry out the targeted killing of America’s enemies are all reasons for concern.

Ms Brooks struggles to find solutions to these intractable problems. But she suggests that a more phlegmatic approach to the limited threat that terrorism really represents, along with an acceptance that eradicating it may not be possible, would allow people to think more clearly about how far they want to sacrifice civil liberties in responding to it.

She also calls for better understanding by politicians and national-security civilians of what the armed forces can and should be used for. Yet while she deplores the tendency to “dial 1-800-Military” whenever there is a problem, she sees no way out of the continuing expansion of the army’s role. If that is so, she argues, perhaps the best option is to start recruiting into the armed forces more of the kind of people who can respond effectively to a wide range of “complex and often inchoate threats” from refugee flows driven by climate change, ethnic conflicts, cyber-attacks or terrorists intent on developing biological weapons. In other words, military skills would be integrated with civilian skills “within a single large but agile organisation”. It is a nice idea. But one guaranteed to annoy almost everybody.