Thursday, August 28, 2014

The ISIS Recruitment Strategy

ISIS obviously has a recruitment program that is quite capable at convincing Westerners to join their ranks.  A glossy new English-language (among others) magazine, Dabiq, provides us with useful information when it comes to better understanding their modus operandi.  The name Dabiq refers the Battle of Marj Dabiq that took place near the town of Dabiq located near Aleppo in Syria on August 24, 1516.  This battle between the Mamluk Sultanate and the Ottoman Empire resulted in a victory that gave the Ottoman Empire control over most of the Middle East, particularly Syria.  The town of Dabiq was captured by ISIS fighters in mid-August 2014, a move that puts them very close to the border with Turkey as shown on this map taken from the Dabiq Twitter feed:

Interestingly, in the Muslim faith, Dabiq is also known as the place where an Armageddon-style battle will take place between "Rome" (better known as "The West") and Islam will take place.

The launching of Dabiq was announced on this Twitter account.  Here are the covers of editions one and two:

The Islamic States' official magazine is published with the purpose of calling Muslims to assist in the new Caliphate or that was declared on June 28, 2014, the first day of Ramadan.  The magazine also provides background information on how ISIS has gained success in Syria, provides readers with a list of the atrocities committed by its enemies and graphic pictures of violence against Shi'ites.  The magazine's focus is on legitimizing the Islamic States sovereignty to its readers, primarily, a young male Western audience.

The first edition sets the tone by opening with this photograph showing American (Crusader) soldiers being consumed by flames:

Here are a selection of pages from the first edition starting with this one announcing the arrival of ISIS:

On this page, ISIS calls to those with specific training including doctors and engineers to report for hijrah, referring to the migration of Mohammed from Mecca to Medina:

Here is a "news" page showing ISIS response to various issues that impact them:

Here are a selection of pages from the second issue including this page which is a call to arms for those who would join Califah Ibrahim (aka Abu Bakr al-Baghdadi, the leader of ISIS) in battle:

The overwhelming theme of the second edition is the story of Nuh (Noah) and the Great Flood, an Old Testament story that many Westerners are well acquainted with.  In this version, Dabiq references Noah and his Ark as being the new caliphate with non-believers being swept away in the flood.  Here are the key pages:

An edition of Dabiq wouldn't be complete without photos of destruction.  Here are photos showing the destruction of Shi'ite holy sites in Tal'Afar near Mosul:

Here is an article entitled "In the Words of the Enemy" discussing John McCain's "rantings" about ISIS on the floor of the Senate in June 2014:

Here is a photo of an executed commander and a captured member of the Badr Militia, an Iran-trained Shi'ite militia group, keeping in mind that ISIS is a Sunni group:

The launching of Dabiq in early July 2014 was prefaced with a rare public appearance by ISIS leader Abu Bakr al-Baghdadi (also known as Caliph Ibrahim) in which he states the following:

"Go forth, O mujahidin in the path of Allah. Terrify the enemies of Allah and seek death in the places where you expect to find it, for the dunya (worldly life) will come to an end, and the hereafter will last forever…By Allah, we will never be mujahidin as long as we are stingy with our lives and our wealth. By Allah, we will never be truthful as long as we do not sacrifice our lives and wealth in order to raise high the word of Allah and bring victory to the religion of Allah...So take up arms, take up arms, O soldiers of the Islamic State! And fight, fight! …O Muslims everywhere, whoever is capable of performing hijrah (emigration) to the Islamic State, then let him do so, because hijrah to the land of Islam is obligatory. ...We make a special call to the scholars, fuqahā’ (experts in Islamic jurisprudence), and callers, especially the judges, as well as people with military, administrative, and service expertise, and medical doctors and engineers of all different specializations and fields. We call them and remind them to fear Allah, for their
emigration is wājib ‘aynī (an individual obligation), so that they can answer the dire need of the Muslims for them. People are ignorant of their religion and they thirst for those who can teach them and help them understand it. So fear Allah, O slaves of Allah.” (my bold) 

Let's close with the last page of the second edition of Dabiq:
Dabiq is being used by ISIS to promote their grand vision for a new Muslim Caliphate.  By using a glossy, western-style magazine, ISIS demonstrates that they are not a "fly-by-night" shadowy group of terrorists but a group that is striving to be the legitimate leader of today's Islamic world.

Wednesday, August 27, 2014

Corporate Managed Earnings - Don't Believe Everything That You Read

Updated April 2015

A paper by Ilia Dichev, John Graham, Campbell R. Harvey and Shiva Rajgopal entitled "Earnings Quality: Evidence from the Field" provides investors with some interesting insights into the quality of earnings statements from publicly traded companies.  Given that we always seem to be in the middle of one earnings reporting cycle or another, this study shows us that we can't always believe what we read.

Earnings statements form the heart of internal data used by most savvy investors to pick and choose their equity investment portfolio.  Since most of us invest in companies (and sectors) that we have no internal knowledge about, we rely heavily on the honesty of Chief Financial Officers and their fellow executives; we assume that because the data they release to the public has been verified by accountants, that it is trustworthy.

The authors of the report surveyed 169 CFOs and had in-depth interviews with 12 CFOs.  The authors selected CFOs rather than CEOs or other senior executives because CFOs are the direct producers of earning data and they "intimately know and potentially cater to consumers of earnings information such as investment managers and analysts."  CFOs usually have formal training in accounting which allows them to determine the quality of their own earnings statements.

The authors found the following:

1.) CFOs believe that quality earnings are sustainable and repeatable.  This viewpoint is consistent with the view taken by investors who believe that a given firm is a long-lived profit-generating entity and that corporate value is based on estimating and discounting a long stream of future profits.

2.) CFOs believe that reporting discretion has declined over time and that current GAAP (Generally Accepted Accounting Principles) standards are a constraint in reporting high quality earnings.  CFOs would like to see standard setters issue fewer rules and take the viewpoint that financial reporting has become a compliance activity rather than a means to innovate to deliver the best possible information to stakeholders, in other words, to be self-policing and self-determining.

To me, this is the most interesting find:

3.) CFOs estimate that in any given reporting period, roughly 20 percent of firms manage earnings and that the typical misrepresentation for such firms is about 10 percent of reported earnings per share.  They believe that 58.8 percent of earnings management is "income-increasing" and 41.2 percent is"income-decreasing" also known as cookie jar reserving or cookie jar accounting.  The cookie jar method of accounting is used during periods of good financial results to shore up profits in poorer performing years, giving investors a misleading impression that a company has a never-ending stream of increasing earnings.   CFOs of private firms believe that the proportion of private firms managing earnings is 30.4 percent compared to 18.4 percent for public firms.   This is often done using one-time charges and other special accounting items.  CFOs feel that earnings misrepresentation takes place for three main reasons:

1.) In an attempt to influence stock price.

2.) Because of internal pressures to meet or exceed earnings projections.

3.) Because of external pressures to meet or exceed earnings projections. 

Most CFOs that were interviewed agreed that there was "unrelenting pressure from Wall Street to avoid surprises" because "you will always be penalized if there is any kind of surprise.". 

As well, and even more importantly from their perspective, CFOs believe that by managing earnings, companies are able to avoid negative compensation and career consequences for the senior executive team.  This follows from the fact that many corporations now hinge their executive compensation, particularly stock- and bonus-based compensation, on meeting some arbitrary earnings threshold.  CFOs believe that the odds of getting caught managing earnings are relatively low because most outsiders (i.e. investors) would not be able to detect earnings adjustments.

Here is a summary table showing how CFOs perceive the rationale behind managed earnings:

For those of us that are small investors, here is an interesting look at what red flags CFOs believe will provide investors with a clue that a given company is managing its earnings:

1.) Earnings are inconsistent with cash flows:  For example, earnings grow continuously but cash flow deteriorates for a number of quarters.

2.) Deviation from industry or peer norms: For example, a given company sees its earnings grow continuously while its peers see their earnings contract.

3.) Consistently meeting or beating earnings projections.

4.) Frequent one-time or special items on a balance sheet.

5.) Earnings patterns that are very smooth when compared to the fundamentals for the industry.

6.) High turnover rate among the company's executive team.

7.) Using non-GAAP measures to make results appear better than they may be.

Here is a chart that shows all of the red flags that may indicate earnings management: 

With this study in mind, looking at the endless quarterly crop of earnings announcements should cause us to wonder which companies are among the 20 percent that deliberately misrepresent their earnings to influence their share price and provide tangible benefits to those who dwell on the executive floors.  Unfortunately, as millions of investors in some of North America's largest companies like Enron, Worldcom and Nortel found out, you should believe only a fraction of what you hear from the corporate world when it comes to earnings.

Tuesday, August 26, 2014

Modern Police Tactics and the Third Amendment

Updated December 2015

It's pretty easy to find statistics about crime online; there's an entire FBI crime statistics website dedicated to providing us with reports on violent crimes, financial crimes, gang violence, drug crimes and hate crimes among others.  What's not so easy to find is a thorough listing of nationwide police misconduct, an issue that, on the surface at least, appears to becoming more common as local law enforcement becomes increasingly militarized.  Fortunately, the CATO Institute tracks police misconduct on a nearly daily basis on their Police Misconduct website.  On the website, there is an interesting interactive mapping feature that provides readers with a map showing botched paramilitary police raids where non-violent offenders and innocent bystanders were killed or where raids took place on innocent subjects.  I'm going to look at a few sample maps starting with the police raids on nonviolent offenders that ended up with the death of the offender since 1985 keeping in mind that many of these raids are of the variety that involve police use of a battering ram or other device that is used to gain entry without identification:

There were 27 raids since 1985 that ended up with the death of a nonviolent offender.  Here is an example:

"Police storm the home of Jeffery Robinson, a 41-year-old gravedigger in South Memphis, Tennessee. Robinson lived in a small building on the site of the cemetery that employed him. Police conducted the raid based on an anonymous tip that someone was selling marijuana on the cemetery grounds. Raiding officers kick in Robinson's door and immediately shoot him in his bedroom, putting a bullet through Robinson's neck. Robinson would die three weeks later. Police said at the time that Robinson charged them with a box cutter. They also found a small amount of marijuana near a camper in Robinson's backyard. Immediately after the raid, Robinson was charged with possession, even as he lay in a hospital, fighting for his life. A review by the Memphis police department's internal affairs unit and the Attorney General's Office found no wrongdoing on the part of the police. For two and a half years, the officers who participated in the Robinson raid remained on the Memphis police force. In October 2004, the jury in a federal civil suit brought by Robinson's family made some striking findings. The jury concluded that the box cutter police say Robinson charged them with -- which was never fingerprinted -- was planted on Robinson after the raid. During the trial, a medical examiner and blood spatter expert also testified that the shooting couldn't possibly have happened the way police say it did. Furthermore, the shirts worn by Robinson and the officer who shot him vanished after the raid. Trial testimony revealed that police bought a new polo shirt, still in its wrapper, and booked it as the shirt Robinson wore the night he was shot. The federal jury concluded that the officers shot Robinson without justification, then tampered with the evidence to cover up their mistakes. The jury also cast doubt on the ensuing investigation by the police department's internal affairs division. In February 2005, the eight officers involved in the raid were finally suspended, more than two years after the raid. Robinson's family won a $2.85 million verdict against the officers, and negotiated a $1 million settlement from the city of Memphis."

Here is a map showing the police raids that ended up with an innocent party dying:

Since 1985, 44 innocent parties have died in a police raid.  Here is an example:

"On March 26, 1987, police in Jeffersontown, Kentucky raid the home of Jeffrey Miles, 24 on an informant's tip. During the raid, Officer John Rucker shoots Miles, and kills him. Police would later discover that Miles wasn't a suspect. The raid had been targeted at the wrong home."

Here is a map showing police raids on innocent suspects since 1985:

Since 1985, there have been well over one hundred police raids on innocent suspects including this one:

"Police in Horn Lake, Mississippi raid a home after a tip from an informant that someone's operating a meth lab inside. Once the paramilitary unit arrives at the scene, however, they find two houses on the property instead of one. They decide to pick one, and conduct the raid anyway. They end up waking up, terrorizing, and injuring a couple in their 80s, leaving the man with bruised ribs and the woman with a dislocated shoulder. They find the meth lab in the other house. Police chief Darryl Whaley insisted that his officers "acted properly" and "followed procedures" in guessing which home was correct before commencing with the raid."

Last, let's look at the number of police officers that have been killed or injured while on a police raid since 1985:

Since 1985, 29 police officers have been killed or wounded while on a police raid including this event:

"In August 1996, Tulsa police raid the home of 68-year-old Mary Lou Coonfield on a drug warrant. Coonfield awakes to find a man in black standing in her bedroom, holding a gun. She grabs a .22-caliber pistol and fires, wounding Tulsa County Deputy Sheriff Newt Ellenbarger. The warrant for the raid on Coonfield's home would later be thrown out, ruled in both 1996 and 1997 to be illegal. In 1999, a jury acquitted Coonfield of assault and battery with a dangerous weapon and feloniously pointing a weapon, due to Oklahoma's "Make My Day" law, which states that "an occupant of a house is justified in using physical force, including deadly force, against another person who has unlawfully entered the house if the occupant reasonably believes that the other person might use any physical force, no matter how slight, against any occupant of the house." Coonfield, who's both hard of hearing and has poor eyesight, says she didn't hear police announce themselves before entering, and thought she was being robbed."

With these examples in mind and the ongoing militarization of local law enforcement, it is interesting to note how little attention is paid to the Third Amendment of the Constitution or the "A Man's Home is His Castle" amendment which reads:

"No soldier shall, in time of peace be quartered in any house, without the consent of the owner, nor in time of war, but in a manner to be prescribed by law.” 

Only one case involving the Third Amendment has ever made it to federal court; the United States Court of Appeals in Engblom v. Carey.   Two New York State corrections officers took action against the State's governor, Hugh Carey, in a case where they were evicted from their state-provided housing during a state-wide strike by corrections officers in 1979.  Their residences were then used to house members of the National Guard.

While it is important to "out" bad police practices it is even more important to expose bad policing policies.  It is key that voters convince government policymakers that there is a problem and that they will pay a political price for ignoring it.  In general, it appears that most politicians of all stripes and jurisdictions are choosing to blindly believe whatever law enforcement tells them is the truth, a situation which may explain why the current Vice President has chosen to remain silent on the subject as shown here:

Monday, August 25, 2014

The Cosy Relationship Between the NSA and Israel

Updated June 2015

The long history of hostilities in the Middle East between Israel and Hamas reminded me of something that I had read some months back, particularly because it concerns the United States, Israel and the privacy of Americans.

As we all recall, last year, Glenn Greenwald, Edward Snowden and the British newspaper, the Guardian, released a great deal of information about the National Security Agency and its infringements on our privacy.  Acting in conjunction with the United Kingdom's GCHQ and Canada's CSEC, the NSA supplies Israel with signals intelligence (SIGINT) that it can use to help it when it attacks its enemies, particularly the Gaza Strip and the West Bank.  The NSA supplies data to the Israeli SIGINT National Unit (ISNU) also known as Unit 8200, part of Israel's Intelligence Corps, that allows Israel to monitor its Palestinian neighbours.  This sharing is done under a top secret Memo of Understanding between ISNU and the NSA as you can see here:

 While much of the document is unreadable legalese, there is one important sentence right at the beginning of the document:

"This agreement between NSA and The Israeli SIGINT National Unit (ISNU) prescribes procedures and responsibilities for ensure that ISNU handling of materials provided by NSA - including, but not limited to, Signals Intelligence (SIGINT) technology and equipment and raw SIGINT data (i.e. signals information that has not been reviewed for foreign intelligence purposes or minimized)..." (my bold)

Note the use of the word "minimized".  As we've been reminded again and again, the NSA and  the communications security establishments of America's Five Eyes partners (Canada, the United Kingdom, Australia and New Zealand) are not allowed to spy on their own citizens.  This means that any data gathered by the NSA, for example, should technically be stripped of any communications between Americans (i.e. minimized) in order for the NSA to be operating within its supposed legal bounds, that is, protecting the privacy of American citizens.  According to this agreement, however, we can see that the raw data that the NSA supplies to Israel's ISNU is NOT minimized.  In other words, it is entirely possible that our personal information that is collaterally collected by the NSA (and its fellow Five Eyes partners) in its sweeping of data from the internet, telephone and cell phones, is shared with Israel.  In fact, the agreement states that the raw SIGINT includes, but is not limited to "...unevaluated and unminimized transcripts, gists, facsimiles, telex, voice and Digital Network Intelligence (DNI) metadata and content.".  Not only is the NSA sharing American's metadata with Israel, they are providing them with the content of our communications.

This document also proves that the Obama Administration's stance of "standing with its hands in its pockets" while thousands are injured and killed in the Gaza are disingenuous at best, particularly in light of this 2013 document from the Central Security Service at the NSA which outlines the exchanging of information between the NSA and Israel's ISNU:

Notice that the second paragraph outlines the potential strategic threats to the United States and Israel; these include the countries of North Africa, the Persian Gulf, South Asia, the Islamic republics of the former Soviet Union and the Middle East.  A "dedicated line between NSA and ISNU supports the exchange of raw material as well as daily analytic and technical correspondence.".  Once again, note the use of the words "raw material".

Here is a page outlining the "Success Stories" of this data exchange:

The next time you hear about another targeted attack on the Gaza, perhaps you'll keep the very cozy relationship between the NSA and Israel's ISNU in mind...and worry a bit more about your  own lack of privacy.