NYT : The Stock Market Typically Rises After Midterm Elections. This Year Is Any

The Stock Market Typically Rises After Midterm Elections. This Year Is Anything but Typical.

There has been a deficit of cheerful news lately about American politics. And with the midterm elections looming, it may be difficult to think clearly about anything else.

So here’s a tidbit that may be diverting and even mildly comforting: The midterms have consistently been good for the stock market.

Remarkably, this has been true for every midterm election since World War II.

The data shows that it hasn’t mattered who won or lost or which party controlled the White House or Congress, either before the voting or as a result of it. Whatever the political configuration or the election results, the midterm election season has been an excellent one for stocks.

The pattern “gives a very positive message for the market,” said Ed Clissold, chief United States Strategist for Ned Davis Research. “It’s only part of the picture, but it’s a positive part.”

The numbers tell the story. Since 1946, in years with midterm elections, the Standard & Poor’s 500-stock index has gained a median of 18.4 percent in the nine-month period from Sept. 30, just ahead of voting, through June 30 of the following year, according to data compiled by Ned Davis Research. In that same period in nonvoting years, the index gained 4.9 percent.

Diving a little deeper into the Ned Davis data, the pattern is evident when presidential terms are broken down into three-month quarters. Each four-year presidential term has 16 quarters, and the best one has typically been the quarter we are in now, the fourth quarter of a midterm year.

In this midterm quarter, the stock index since 1946 has gained 7.5 percent on average. The next best two quarters in performance have been the next two quarters chronologically — the first and second quarters in the year after the midterm election — with average gains of 7.5 percent and 6.6 percent.

There have been declines within these periods — including one, in 1946, as large as a 15.4 percent loss — but in every case, the net result for the nine-month midterm season was a market gain.

But why? That’s the problem with this pattern: Because presidential motivations and actions aren’t sufficiently documented, there is no conclusive explanation, though a great deal of academic work has been done on this subject, as I’ve written just before the last two midterm elections.

The main working hypothesis is a cynical one: Presidents are politicians who care overwhelmingly about their own re-election. (And to a much lesser extent, two-term presidents look to ensure the election of their successors.) They stimulate the economy — and, indirectly, the stock market — for maximum effect as their own elections grow closer, or so the theory goes.

That implies that their first year in office is the best time to make politically painful moves, which won’t hurt them in the polls later. And it follows that it’s better to gin up the economy in the second half of their tenure, starting around the midterms. If the good times are going to roll, let them roll closer to a presidential election.

Cause and effect have been difficult to prove. The one case with a smoking gun occurred, naturally enough, in the Nixon administration.

Secret White House tapes, combined with the investigations of the special prosecutor and the House Judiciary Committee, as well as efforts by private individuals and researchers, are gradually giving us a more precise view of the internal workings of the government in that era than is available for other administrations.

Thanks to those Nixon White House tapes, Burton A. Abrams, an economics professor at the University of Delaware, has shown that in 1971 and early in the 1972 election year, President Richard Nixon secretly pressured the Federal Reserve chairman, Arthur F. Burns, to expand the money supply, with the goal of ensuring Mr. Nixon’s second term.

Mr. Nixon took other actions, including the imposition of wage and price controls to curb inflation, all aimed at improving his standing in the polls. And he crushed Senator George McGovern in the presidential election of 1972.


In some cases, however, presidents appeared to act against their own self-interest in economic matters. In retrospect, President Jimmy Carter’s appointment of Paul Volcker as chairman of the Federal Reserve in July 1979 may be seen in this light, as a public-spirited sacrifice.

Mr. Volcker’s tight monetary policy reined in the rampant inflation of the era, but also helped to start the recession that lasted from January through July in 1980 — and doomed President Carter’s bid for a second term. (The Iran hostage crisis didn’t help, of course.) Carter lost to Ronald Reagan in November 1980.

Still, the patterns in the stock market over a very long period appear to be persuasive. (Even for Mr. Carter, the stock market eked out a small gain, 0.4 percent, in the midterm election quarter.)

But even if the overall pattern is more than an elaborate series of coincidences, and even if presidential self-interest causes it, it’s possible that President Trump may be so singular that little of this applies.

For one thing, the administration’s timing on economic matters seems to have been off, as far as this stock market cycle goes. Last winter’s tax cut and the current, widening budget deficit have stimulated the economy, but way ahead of the typical schedule — so far ahead, in fact, that they may not help Mr. Trump’s re-election odds in 2020.

The Federal Reserve is already raising interest rates and is expected to continue through next year, which could slow the economy as the presidential election approaches. Despite the Fed’s independent status, Mr. Trump has repeatedly criticized the central bank’s moves, with no apparent effect so far.

The stock market often moves ahead of the economy, responding to changing expectations. Because the economy — and corporate earnings — have been so strong lately, year-over-year comparisons are widely expected be less favorable in 2019.

By 2020, many strategists say, the chances of a recession are mounting. And with the prospect of declining growth rates ahead, the market has given up gains lately, and bullish Wall Street forecasters have been lowering their targets.

Of course, the Fed could back off if the economy slackens. And the administration could engage in further fiscal stimulus after the midterms by enacting one of its campaign promises, a big infrastructure investment plan. But its ability to do so depends on the election results. So will its ability to meet another stated goal, further tax cuts.

Will the midterm pattern be sustained once more? Its overwhelming consistency is formidable. But so is Mr. Trump’s ability to shatter convention.

NYT : U.S. Law Enforcement Failed to See the Threat of White Nationalism.

U.S. Law Enforcement Failed to See the Threat of White Nationalism.
Now They Don’t Know How to Stop It.
For two decades, domestic counterterrorism strategy has ignored
the rising danger of far-right extremism. In the atmosphere of willful
indifference, a virulent movement has grown and metastasized.

The first indication to Lt. Dan Stout that law enforcement’s handling of white supremacy was broken came in September 2017, as he was sitting in an emergency-operations center in Gainesville, Fla., preparing for the onslaught of Hurricane Irma and watching what felt like his thousandth YouTube video of the recent violence in Charlottesville, Va. Jesus Christ, he thought, studying the footage in which crowds of angry men, who had gathered to attend or protest the Unite the Right rally, set upon one another with sticks and flagpole spears and flame throwers and God knows what else. A black man held an aerosol can, igniting the spray, and in retaliation, a white man picked up his gun, pointed it toward the black man and fired it at the ground. The Virginia state troopers, inexplicably, stood by and watched. Stout fixated on this image, wondering what kind of organizational failure had led to the debacle. He had one month to ensure that the same thing didn’t happen in Gainesville.

Before that August, Stout, a 24-year veteran of the Gainesville police force, had never heard of Richard Spencer and knew next to nothing about his self-declared alt-right movement, or of their “anti-fascist” archnemesis known as Antifa. Then, on the Monday after deadly violence in Charlottesville, in which a protester was killed when a driver plowed his car into the crowd, Stout learned to his horror that Spencer was planning a speech at the University of Florida. He spent weeks frantically trying to get up to speed, scouring far-right and anti-fascist websites and videos, each click driving him further into despair. Aside from the few white nationalists who had been identified by the media or on Twitter, Stout had no clue who most of these people were, and neither, it seemed, did anyone else in law enforcement.

There were no current intelligence reports he could find on the alt-right, the sometimes-violent fringe movement that embraces white nationalism and a range of racist positions. The state police couldn’t offer much insight. Things were equally bleak at the federal level. Whatever the F.B.I. knew (which wasn’t a lot, Stout suspected), they weren’t sharing. The Department of Homeland Security, which produced regular intelligence and threat assessments for local law enforcement, had only scant material on white supremacists, all of it vague and ultimately not much help. Local politicians, including the governor, were also in the dark. This is like a Bermuda Triangle of intelligence, Stout thought, incredulous. He reached out to their state partners. “So you’re telling us that there’s nothing? No names we can plug into the automatic license-plate readers? No players with a propensity for violence? No one you have in the system? Nothing?’’

One of those coming to Gainesville was William Fears, a 31-year-old from Houston. Fears, who online went by variations of the handle Antagonizer, was one of the most dedicated foot soldiers of the alt-right. Countless YouTube videos had captured his progress over the past year as he made his way from protest to protest across several states, flinging Nazi salutes, setting off smoke bombs and, from time to time, attacking people. Fears was also a felon. He had spent six years in prison for aggravated kidnapping in a case involving his ex-girlfriend, and now he had an active warrant for his arrest, after his new girlfriend accused him of assault less than two weeks earlier. On Oct. 18, the night before the event, Fears and a few others from Houston’s white-nationalist scene got in Fears’s silver Jeep Patriot for the 14-hour drive. Fears’s friend Tyler TenBrink, who pleaded guilty to assault in 2014, posted video from their trip on his Facebook page. There were four men, two of them felons, and two nine-millimeter handguns. “Texans always carry,” Fears said later.

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Gainesville would be Spencer’s first major public appearance since the violence of the Unite the Right rally two months before, and the city, a progressive enclave in the heart of deep-red north Florida, was on edge. Anticipating chaos, Gov. Rick Scott declared a state of emergency — prompting Spencer to tweet out an image of his head making its way across the Atlantic toward Florida: “Hurricane Spencer.” A few days before the event, the Florida Department of Law Enforcement sent out a small, bound “threat book” of about 20 or so figures, most of them openly affiliated with Spencer or with anti-fascist groups, which Stout knew from his own research meant they weren’t the people to worry about. Anonymous online chatter on sites like 4chan, meanwhile, described armed right-wing militants coming to Gainesville to test Florida’s Stand Your Ground law. Stout envisioned 20 white supremacists with long guns. We’re screwed, he thought.

By the morning of Oct. 19, a fortress of security, costing the University of Florida and police forces roughly half a million dollars, had been built around the western edge of the 2,000-acre campus and the Phillips Center for the Performing Arts, where Spencer and his entourage arrived that afternoon. More than 1,100 state troopers and local cops stood on alert, with another 500 on standby. There were officers posted on rooftops. Police helicopters buzzed the skies. The Florida National Guard had been activated off-site, and a line of armored vehicles sat in reserve. Hundreds of journalists from around the United States and abroad were in attendance, anticipating another Charlottesville.

Some 2,500 protesters had descended on the small area cordoned off for the event, where they confronted a handful of white supremacists, most of them Spencer groupies like Fears and his friends. “Basically, I’m just fed up with the fact that I’m cisgendered, I’m a white male and I lean right, toward the Republican side, and I get demonized,” Colton Fears, Will’s 28-year-old brother, who was wearing an SS pin, told HuffPost. TenBrink, also 28, told The Washington Post that he had come to support Spencer because after Charlottesville, where he was seen and photographed, he had been threatened by the “radical left.” He seemed agitated by the thousands of protesters. “This is a mess,” he told The Gainesville Sun. “It appears that the only answer left is violence, and nobody wants that.”

But Will Fears told reporters he came to Gainesville to intimidate the protesters. “It’s always been socially acceptable to punch a Nazi, to attack people if they have right-wing political leanings,” he said. “We’re starting to push back.” He went on: “We want to show our teeth a little bit because, you know, we’re not to be taken lightly.”

The Spencer speech turned out to be a bust, thanks to an audience so determined to drown him out that at one point they erupted in a chant of “Orange! Blue! Orange! Blue!” as if at a Gators football game. Afterward, the crowd left the auditorium and flooded back onto Hull Road, the long avenue leading toward the center of campus. Thousands of protesters surrounded the small group of Spencer acolytes. TenBrink, a sinewy young man wearing a black T-shirt and jeans, was particularly overwhelmed and jumped a barricade to escape the angry crowd. The police put him in handcuffs and escorted him into a parking garage. Then, for reasons that remain unclear, they uncuffed TenBrink and walked him out of the garage and toward the parking lot, and let him go. Neither TenBrink nor his friends were in the threat book.

There are several versions of what happened after TenBrink was released. It was about 5:15 p.m. The Texans drove down Archer Avenue, the broad street bordering the south edge of campus, about a mile from the secured area. A group of protesters were sitting at a bus stop. The men in the Jeep started shouting “Heil Hitler!” according to the police report and several witness statements. “Do you know my friend Heil? Heil Hitler? Get it?” The men started throwing Nazi salutes.

One of the protesters had come to Gainesville armed with a retractable baton. When the Texans began to harass them, he grabbed his baton and struck a window of the S.U.V. “My life and the lives of those around me was at risk,” he told the police. Will Fears jumped out. “I’m about to beat this dude up with his own fricking expandable baton,” he later recalled.

Suddenly, witnesses said, a man later identified as TenBrink jumped from the vehicle holding a handgun. “Shoot them!” the Texans were heard yelling. TenBrink pointed the gun at the protester.

White supremacists and other far-right extremists have killed far more people since Sept. 11, 2001, than any other category of domestic extremist. The Anti-Defamation League’s Center on Extremism has reported that 71 percent of the extremist-related fatalities in the United States between 2008 and 2017 were committed by members of the far right or white-supremacist movements. Islamic extremists were responsible for just 26 percent. Data compiled by the University of Maryland’s Global Terrorism Database shows that the number of terror-related incidents has more than tripled in the United States since 2013, and the number of those killed has quadrupled. In 2017, there were 65 incidents totaling 95 deaths. In a recent analysis of the data by the news site Quartz, roughly 60 percent of those incidents were driven by racist, anti-Muslim, anti-Semitic, antigovernment or other right-wing ideologies. Left-wing ideologies, like radical environmentalism, were responsible for 11 attacks. Muslim extremists committed just seven attacks.

These statistics belie the strident rhetoric around “foreign-born” terrorists that the Trump administration has used to drive its anti-immigration agenda. They also raise questions about the United States’ counterterrorism strategy, which for nearly two decades has been focused almost exclusively on American and foreign-born jihadists, overshadowing right-wing extremism as a legitimate national-security threat. According to a recent report by the nonpartisan Stimson Center, between 2002 and 2017, the United States spent $2.8 trillion — 16 percent of the overall federal budget — on counterterrorism. Terrorist attacks by Muslim extremists killed 100 people in the United States during that time. Between 2008 and 2017, domestic extremists killed 387 in the United States, according to the 2018 Anti-Defamation League report.

“We’re actually seeing all the same phenomena of what was happening with groups like ISIS, same tactics, but no one talks about it because it’s far-right extremism,” says the national-security strategist P. W. Singer, a senior fellow at the New America think tank. During the first year of the Trump administration, Singer and several other analysts met with a group of senior administration officials about building a counterterrorism strategy that encompassed a wider range of threats. “They only wanted to talk about Muslim extremism,” he says. But even before the Trump administration, he says, “we willingly turned the other way on white supremacy because there were real political costs to talking about white supremacy.”

In March 2018, a 20-year-old white evangelical Christian named Mark Anthony Conditt laid a series of homemade I.E.D.s around Austin, Tex., in largely minority communities. The bombs killed two African-Americans and injured at least four others over the course of several weeks, terrorizing the city, yet the local authorities preferred to describe Conditt, who committed suicide, as a “very challenged young man.” Also last spring, another white man, 28-year-old Benjamin Morrow, blew himself up in his apartment in Beaver Dam, Wis., while apparently constructing a bomb. Federal investigators said Morrow’s apartment doubled as a “homemade explosives laboratory.” There was a trove of white-supremacist literature in Morrow’s home, according to the F.B.I. But local cops, citing Morrow’s clean-cut demeanor and standout record as a quality-control manager at a local food-processing plant, made sure to note that just because he had this material didn’t mean he was a white supremacist. “He could have been an individual that was doing research,” the local police chief said.

In this atmosphere of apparent indifference on the part of government officials and law enforcement, a virulent, and violent, far-right movement has grown and metastasized. To combat it, some officials have suggested prosecuting related crimes through expansion of the government’s counterterrorism powers — creating a special “domestic terrorism” statute, for instance, which currently doesn’t exist. But a report released on Oct. 31 by the Brennan Center for Justice at New York University Law School argues that the creation of such a statute could easily be abused to target “protesters and political dissidents instead of terrorists,” and that law enforcement already has ample authority to prosecute domestic terrorism: “Congress must require that counterterrorism resource decisions be based on objective evaluations of the physical harm different groups pose to human life, rather than on political considerations that prioritize the safety of some communities over others.”

The report also calls out the Justice Department for its “blind spot” when it comes to domestic terrorism and hate crimes, which Deputy Attorney General Rod Rosenstein conceded earlier in the week. During a conference on Oct. 29, Rosenstein said that according to the latest F.B.I. crime report, “88 percent of agencies that provide hate-crimes data to the F.B.I. reported zero hate crimes in 2016.” The Justice Department was reviewing the accuracy of the reports, he noted. “Simply because hate crimes are not reported does not mean they are not happening.”

In 2016, the latest full year of data available from the F.B.I., more than 6,100 hate-crime incidents were reported, 4,270 of them crimes against people (as opposed to, say, defacing property). And yet only 27 federal hate-crime defendants were prosecuted that year. “The F.B.I. knows how many bank robberies there were last year,” says Michael German, an author of the Brennan Center report and a former F.B.I. agent, “but it doesn’t know how many white supremacists attacked people, how many they injured or killed.”

More concerning to German, though, is that law enforcement seems uninterested in policing the violent far right. During the first year after Donald Trump’s election, protests and riots erupted across the country, often involving men with criminal histories who, by definition, were on the law-enforcement radar. During the so-called Battle of Berkeley in March 2017, for instance, a far-right agitator named Kyle Chapman became a hero to the alt-right after he reportedly pummeled an anti-fascist counterprotester with a billy club. Chapman was a 41-year-old who had two previous felony convictions. He proceeded to travel around the country, engaging in violence at other protests, now under the online moniker Based Stickman — a cheerful reference to the Berkeley attacks.

Chapman was one of a number of known white supremacists to align with the Proud Boys, a nationalist men’s movement founded in 2016 by the anti-immigrant “Western chauvinist” Gavin McInnes, a founder of Vice Media. There was also the Rise Above Movement (RAM), an alt-right group composed largely of ex-cons, many with ties to Southern California’s racist skinhead movement. Over the past two years, each group engaged in violent confrontations with their ideological enemies — a lengthy list including African-Americans, Jews, Muslims, nonwhite immigrants, members of the L.G.B.T. community and the progressive left — and generally escaped punishment. This changed to a degree over the past few weeks when, after a yearlong campaign by journalists at ProPublica and other media outlets, federal prosecutors filed charges against eight members of RAM, including two of its leaders. Similarly, after a pressure campaign on social media, the New York Police Department arrested and charged six members of the Proud Boys in connection with an assault after a speech by McInnes at a Republican club in Manhattan on Oct. 12. On his podcast, McInnes noted that he has “a lot of support” in the N.Y.P.D. (The police commissioner denies this.)

In at least one instance, the police have in fact coordinated with far-right groups. In 2017, a law-enforcement official stationed at a rally in downtown Portland, Ore., turned to a member of a far-right militia group and asked for his assistance in cuffing a left-wing counterprotester, who had been tackled by a Proud Boy.

“This is what public demonstration looks like in an era when white nationalism isn’t on the fringes, but on the inside of the political mainstream,” says Brian Levin, a former New York City police officer who now leads the Center for the Study of Hate and Extremism at California State University-San Bernardino. During the run-up to some of last year’s major events in places like Charlottesville or Berkeley, he notes, “there was an unending stream of violent themed chatter and an almost choreographed exchange of web threats between antagonists across wide geographic expanses” that earned barely a nod from law enforcement.

During a congressional hearing in the wake of Charlottesville, Christopher Wray, director of the F.B.I., told lawmakers last September that the bureau had “about 1,000” open domestic-terror investigations, roughly the same number of investigations the bureau had open on ISIS. The bureau has not provided information on how many of those investigations pertained to white nationalists or other far-right extremists, as opposed to left-wing or “black-identity extremist” groups, nor whether they are full-blown investigations, preliminary inquiries or “assessments.” The F.B.I. has also responded to criticism that it has failed to address hateful or threatening messages on social media. The F.B.I. said in a statement: “The F.B.I. does not and cannot police ideologies under the First Amendment.” But looking at prosecutions, German says, “it’s clear that many of the people targeted for investigation for allegedly supporting the Islamic State were initially identified because of something they said online.”

There are serious civil liberties concerns with any broad surveillance of social media, German says. What’s also true, he notes, is that the volume of white-supremacist-related content is overwhelmingly high. “There are relatively few Americans voicing their support for ISIS online. But there are millions of racists, anti-Semites, Islamophobes, homophobes and xenophobes who engage in eliminationist rhetoric about the communities of people they fear and hate every day on social media and radio talk shows. Even if the F.B.I. wanted to monitor this hate speech, they wouldn’t have the resources, or any way to distinguish between those who talk and those who act.”

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Photo

William Fears battling protesters during the Charlottesville rally in 2017. Credit Mark Peterson/Redux
Levin believes that the Justice Department could be more flexible in pursuing these groups without violating First Amendment concerns. Just as they do with ISIS supporters, law-enforcement agencies would be within their legal rights to monitor, analyze and share any of the publicly available intelligence on white supremacists or hate groups that suggests violent confrontations. “The problem is not that we rightly scrutinize violent Salafist extremism,” Levin says, “but that we do so while materially ignoring domestic white nationalists or those on their fringes who also represent a violent threat.”

When we first spoke this August, Levin noted the continued ascendance of the far right, even after many of its members went underground after Charlottesville. “The rocket ship is still twirling,” he said. Levin predicted that the next big wave of activity wouldn’t be around mega-rallies but around what he calls “aggressive maneuvers” by loners or small cells. A series of violent outbursts in a single week in October made his prediction seem prescient.

In just seven days, a Florida man who lived out of a van plastered with stickers, including one of Hillary Clinton’s face in cross hairs, is reported to have sent a series of pipe bombs to at least a dozen of Trump’s critics. Two days after the first package appeared, a middle-aged white man, having tried unsuccessfully to break into a black church near Louisville, Ky., reportedly shot and killed two elderly African-Americans at a Kroger. “Whites don’t kill whites,” the man reportedly told an armed white man who confronted him. Then, at week’s end, a man who posted on Gab, the alt-right’s preferred social-media site, about a “kike infestation” interrupted services at the Tree of Life synagogue in the Squirrel Hill neighborhood of Pittsburgh, armed with an AR-15-style assault rifle and several handguns; he was charged with murdering 11 people and injuring several more, including police officers. The Anti-Defamation League believed it to be the deadliest anti-Semitic attack in American history.

Law enforcement’s inability to reckon with the far right is a problem that goes back generations in this country, and the roots of this current crisis can be traced back more than a decade. With violent political messaging emanating from the White House and echoed throughout the conservative media and social-media landscapes, Levin only expects more attacks. “What we need to worry about is the guy who is riled up by this rhetoric and decides to go out and do something on his own,” he told me in August. “We have people who are ticking time bombs.”

In April 2009, the Department of Homeland Security’s Office of Intelligence and Analysis issued a report warning of a rise in “right-wing extremism.” The department is the country’s largest law-enforcement body, created after Sept. 11 to prevent and respond to various threats, most specifically those connected to terrorism. While most of its counterterrorism focus has been on preventing Islamist terrorist attacks, the department is also supposed to examine domestic threats, like those coming from violent white supremacists, antigovernment militants and single-issue hate groups, like radical anti-abortion activists.

The author of the report was a senior intelligence analyst named Daryl Johnson, who ran a small Homeland Security domestic-terrorism unit. Two years earlier, in January 2007, Johnson was sitting in his bland second-floor office when he received a call from a contact at the Capitol Police. A first-term Illinois senator named Barack Obama was planning to announce that he was running for president. “Curious if you’ve heard any threatening chatter,” the officer said.

This was the first time Johnson had heard of Obama, and he didn’t know about any threats, but that didn’t mean there wouldn’t be any. Though white-extremist groups had been fairly quiet in the years since Sept. 11, Johnson saw this as a temporary lull. These people never truly went away, he thought; they just needed the right motivation to energize them.

“What do you think’s going to happen when the Ku Klux Klan and the neo-Nazis and other white supremacists get wind of this?” the officer asked.

Johnson didn’t skip a beat: “I think it’s going to be the perfect recruiting and radicalization tool for white supremacy.”

At 38, Johnson spoke with the earnestness of an Eagle Scout, which he was. He was also a registered Republican who grew up in a small Mormon community in rural Virginia where millennialism, or end-times theology, was a core concept. During the 1980s, when Johnson was still in high school, far-right separatists took to the Ozarks or to strongholds in rural Idaho, where they stockpiled food and weapons and conducted paramilitary training in preparation for the biblical “last days.” Some, like the Aryan Nations, whose members embraced the racist Christian Identity philosophy, spawned domestic terror cells like the Order, which waged a brutal campaign of bombings, armed robberies and murder, culminating with the June 1984 assassination of Alan Berg, the prominent Jewish radio talk-show host who frequently spoke of flushing out the latent anti-Semitism in Denver’s conservative community.

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Dan Stout, formerly of the Gainesville Police Department Credit Adam Ferguson for The New York Times
Years of law-enforcement investigation and infiltration of right-wing terror groups commenced, and by the early 1990s, many of the movement’s most violent members were dead or in jail. But the government standoffs at Ruby Ridge, Idaho, and Waco, Tex., energized a new generation of separatists, Patriot militias — the forerunners of today’s antigovernment militia groups — as well as individuals like Timothy McVeigh, who made his way through various antigovernment and racist ideologies and organizations under the radar of law enforcement, before the 1995 Oklahoma City bombing.

The deaths of 168 people, including 19 children, at the Alfred P. Murrah Federal Building brought the threat of domestic terrorism by white Americans into stark relief. In the aftermath, the F.B.I. added many more agents to work domestic terrorism cases, and Attorney General Janet Reno created a special task force to investigate domestic terrorism. But by the end of 2001, the dominant business of the F.B.I., as well as every other federal law enforcement body, was international terrorism. Years after the Sept. 11 attacks, the supposed threat posed by Al Qaeda and other Muslim groups continued to drive policy, notably at the Department of Homeland Security, which Johnson, who started his career in Army intelligence, joined in 2005. At the time, he later recalled, he was the only analyst exclusively working on non-Islamic domestic threats. By 2007, he had put together a small team of analysts who began to scour extremist websites and message boards. What they found alarmed them.

The militant far right was enjoying a renaissance, thanks to the internet. Hundreds of militia recruitment and paramilitary training videos had sprung up on YouTube, along with promotions for weapons training and, to Johnson’s horror, bomb-making manuals. Between October 2007 and March 2008, Johnson and his unit documented the formation of 45 new antigovernment militia groups, which he saw as highly significant given that before fall 2007, these sorts of groups had been on the decline. Some white-supremacist groups, seizing upon the anti-immigration rhetoric that was then fomenting, created violent video games aimed at exploiting public fear of “illegals” streaming over the border.

By the spring of 2008, Obama’s candidacy, just as Johnson predicted, had become a lightning rod for white supremacists and other hate groups. As the campaign moved into its final months, law-enforcement agencies intercepted at least two assassination plots against Obama. Other threats and racist posts flooded the internet, where Johnson’s team noticed a sharp increase in membership on Stormfront, the first major white-nationalist website. The site added 32,000 new users within the first three months after Obama’s inauguration, nearly double the number it added in 2008.

Johnson and his team compiled their findings into a report, which they were still working on when Obama tapped Janet Napolitano, formerly the governor of Arizona, as the new secretary of Homeland Security. Napolitano “got it” when it came to white supremacy, says Juliette Kayyem, who served as the department’s assistant secretary for intergovernmental affairs in 2009 and 2010. While serving as Arizona’s attorney general, Napolitano coordinated the investigation of one of Timothy McVeigh’s accomplices. Now, concerned that a reinvigorated white-supremacist movement could pose a threat to the country’s first African-American president and to citizens, Napolitano began asking her intelligence analysts about a rise in lone-wolf “right-wing extremism,” a term commonly used in the counterterrorism world to refer to the radical beliefs of fringe players on the right of the political spectrum.

In March 2009, Johnson says he and a few colleagues from the F.B.I. briefed Napolitano on their findings, theorizing that heightened stress because of the continuing financial crisis, coupled with the election of the first black president, created a “unique driver” for individual radicalization and antigovernment and white-supremacist recruitment. Military veterans, including those returning after multiple tours in Iraq and Afghanistan, might be particularly susceptible candidates, they noted, a prediction based on a 2008 F.B.I. assessment that found 203 individuals with military experience who had joined white-supremacist groups since Sept. 11, 2001. It was a tiny number given the overall United States veteran population, which at the time was close to 24 million. It was also a small percentage of the thousands of white supremacists the F.B.I. estimated were active. But the “prestige” that those with military or tactical skills held within white-supremacist groups made their influence much greater, the F.B.I. argued.

Johnson remembers Napolitano, sitting at the conference table, soberly flipping through the PowerPoint slides and thanking the analysts for the presentation. A few days later, the Department of Homeland Security released its report, “Rightwing Extremism: Current Economic and Political Climate Fueling Resurgence in Radicalization and Recruitment,” which was distributed across the government and local law-enforcement agencies.

On April 11, 2009, four days after his report was released, Johnson was at home in West Virginia when a PDF of the document was posted on the website of the syndicated conservative radio host Roger Hedgecock. A link to the PDF was also posted on a blog maintained by the Oath Keepers, the antigovernment group composed of numerous law-enforcement officials. “FORWARD THIS TO EVERY AMERICAN!” read the post, which Johnson suspected had been written by a member of the law-enforcement community. “YOU are now a dangerous terrorist according to the Obama administration.”

By the next day, news of a “chilling” report from the department was making its way through far-right message boards and the blogosphere, where it was picked apart by conspiracy sites like Infowars, which deemed it evidence of a deep-state plot. More mainstream right-wing pundits like Michelle Malkin considered it, in Malkin’s words, an “Obama D.H.S. hit job” on conservatives. Some progressives also had concerns about the report’s “dangerously vague and speculative” nature, as a Mother Jones correspondent, James Ridgeway, wrote, warning that “civil libertarians of all stripes” should be nervous and raising the specter of government surveillance.

From the perspective of many people inside the department, the report was “exactly what the department is supposed to do, which is inform and educate our stakeholders about what we see as a threat,” Kayyem says. “This was not a political document.”

‘The problem is not that we rightly scrutinize violent Salafist extremism, but that we do so while materially ignoring domestic white nationalists or those on their fringes who also represent a violent threat.’

Congressional Republicans, answering to a nascent Tea Party movement and the American Legion, soon took issue with the label “right-wing extremism,” which John Boehner, then minority leader of the House, charged was being used by the Department of Homeland Security “to describe American citizens who disagree with the direction Washington Democrats are taking our nation.” Boehner was particularly bothered by the report’s mention of veterans. “To characterize men and women returning home after defending our country as potential terrorists is offensive and unacceptable,” he said in a statement. Several G.O.P. lawmakers called for Napolitano’s resignation, as well as that of Johnson, who, in their view, equated conservatives with terrorists.

Johnson was appalled. “I never anticipated such an aggressive, vile backlash,” he told me recently. It was puzzling: Just a few months before his April 2009 report was published, the department released an assessment of the cyber threat posed by “left-wing extremists,” like the Earth Liberation Front and the Animal Liberation Front. Legislators, the media and the public at large — including progressives — had no objection to that terminology. But the political firestorm over “right-wing extremism” had caused such an uproar that the Department of Homeland Security ultimately avoided using ideological terminology like “right-wing.” A few weeks after the report was released, Napolitano formally apologized to veterans, and after intense pressure from veterans’ groups, the department withdrew the report.

Afterward, the administration tried to depoliticize the issue. Obama had been elected promising to improve relations with the Muslim world, though this soon provided an opening for conspiracy-minded Republicans like Representative Louie Gohmert, the Texas congressman who once insinuated that Mohamed Elibiary, an adviser to Obama’s national-security team, was a member of the Muslim Brotherhood. During the Bush administration, the word “terrorism” had become almost synonymous with Islam. Now, as one former policy adviser recalls, “the Obama people were adamant that it couldn’t just be about jihadis.”

They adopted a new, less ideological lexicon. Terrorism became “violent extremism,” which suggested behavior. The administration also came up with a new paradigm of “ideologically motivated violence” that ostensibly could apply to any form of extremism, not just Islamic terrorism. The Justice Department, the Department of Homeland Security and the State Department would develop “countering violent extremism” programs that focused on outreach and community engagement, not warrantless surveillance, though in practice they were still an effort to identify and root out jihadist elements from American Muslim communities, just as they had been during the Bush administration.

At the same time, most of the work exclusively focused on domestic extremism stopped at the Department of Homeland Security. “I blame an entire political apparatus led by Republicans that made calling something ‘right-wing extremism’ a political statement,” says Kayyem, who notes the paradox of G.O.P. leaders’ attacking Democrats for refusing to use the phrase “radical Islamic extremism.” “They’d say if you can’t say it, you can’t fight it,” she says. “But it cuts both ways. If you’re not allowed to say that white supremacy is a form of radicalization, then how are you going to stop it?”

Johnson’s 2009 report proved prescient. In February 2011, the Southern Poverty Law Center said that in the previous year, the number of domestic hate groups in the United States had reached more than 1,000 for the first time. The antigovernment Patriot movement gained 300 new groups over the same time period, a jump of over 60 percent. Every sphere of the far right was being energized at the same time. There was also an uptick in so-called lone wolves, who held extremist views but associated with no specific organization. In May 2010, a year after Johnson’s report was released, a father and son from Ohio, members of a little-known antigovernment movement called “sovereign citizens,” shot and killed two police officers during a traffic stop in West Memphis, Ark. It was the 12th attack or foiled plot by white-extremist “lone wolves” since 2009, almost all of which received little publicity.

The United States attorney from Western Arkansas, Conner Eldridge, was one of a number of Justice Department prosecutors who felt the department had given short shrift to domestic terrorism. Quietly, Eldridge began to network with United States attorneys from states with a history of white-supremacist activity. They pressed the Justice Department for more resources. “Our thesis was, hey, let’s focus on domestic terrorism at an equal level as we’re focusing on international terrorism, because they’re both terrorism,” Eldridge told me recently. “But we consistently confronted, at every level, a sort of lack of attention to domestic terrorism. The day-to-day focus was on the next potential ISIS attack.”

Back in Washington, weeks would go by with the daily national threat briefings rarely if ever discussing possible domestic threats from the far right. At the F.B.I., counterterrorism agents candidly admitted that domestic terrorism was seen as a backwater and that the only path to advancement was through international terrorism cases. In a recent report on law enforcement’s evaluation of Muslim versus right-wing extremism, a team of researchers at the University of North Carolina, Chapel Hill, noted that in 2008 and 2009 — the only years for which figures were made public — fewer than 350 of the F.B.I.’s 2,000 counterterrorism agents were assigned to domestic terrorism.

After a series of violent attacks by white supremacists, including on a Jewish community center and a nearby retirement home in Overland Park, Kan., Attorney General Eric Holder announced in 2014 that he was reconvening the Justice Department’s Domestic Terrorism Executive Committee. The group hadn’t met in 13 years. “It wasn’t the same as it had been before, but it was something,” says Eldridge, who was tapped to head the committee, which included representatives from about 15 law-enforcement agencies and five Justice Department divisions, including the F.B.I. and the U.S. Marshals. “But we had no budget, no staff, and we had no person whose sole job was to run the committee.”

The ceaseless focus on ISIS and Al Qaeda filtered down to local law enforcement. The administration’s much-touted “countering violent extremism” agenda was directed at various threats. But “the language heavily focused on recruitment and radicalization by ISIS and Al Qaeda,” recalls Nate Snyder, a counterterrorism adviser to the Obama administration at the Department of Homeland Security from 2009 through 2017. As early as 2010, he says, his office was receiving calls from police officers asking for help in many Southern and Midwestern states. “They’d be like, ‘Thanks for that stuff on Al Qaeda, but what I really need to know is how to handle the Hammerskin population in my jurisdiction,’ ” he says, referring to the white-supremacist skinhead group.

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A supporter of the far-right group Patriot Prayer at a rally in Portland, Ore., in September 2017. Credit Mark Peterson/Redux
In 2011, the White House described the threat of Al Qaeda and its affiliates as the “pre-eminent security threat to our country.” By 2013, a new threat had emerged: so-called homegrown violent extremists, or H.V.E.s, a category of people who, though born in the United States, were inspired by a nondomestic ideology to commit violence. H.V.E.s, who tended to be Muslim, were not to be mistaken for domestic terrorists, who by definition were not only Americans but also driven by a domestic ideology like white supremacy. And yet the two were often conflated, and therefore “homegrowns” were also perceived as domestic terrorists: the Tsarnaev brothers, responsible for the Boston Marathon bombing in 2013; the perpetrators of the San Bernardino massacre or the mass shooting at the gay nightclub Pulse in Orlando. Dylann Roof, born in South Carolina, whose homegrown racism was nurtured on neo-Nazi websites like The Daily Stormer, was not, in this context, a domestic terrorist, nor were any of his beliefs seen as indicative of “violent extremism.” His shooting spree in a church in Charleston, in which he killed nine African-Americans, was interpreted as something else. What drove him, authorities said, was hate. He was a murderer.

This dichotomy plagued Representative Bennie Thompson, the Mississippi Democrat who served as ranking member of the House Homeland Security Committee. For years, Thompson pressed both the administration and fellow members of Congress to be more outspoken on domestic terrorism. “The silence was almost deafening when it came to raising any of those issues in Congress,” he says. “And the administration had this do-nothing approach. They kept telling us, well, we see that white supremacy is a problem, but there’s no way we can get ourselves involved in this because they won’t talk to us.”

It was a curious response from an administration whose “C.V.E.” agenda supposedly addressed all types of ideologically motivated violence. “I really suspect they did some polling and found out that there were certain things an African-American president couldn’t talk about,” one former adviser said. “I think they didn’t want to poke the bear.”

This approach was most evident with Obama’s second Homeland Security chief, Jeh Johnson, who came to the department in 2013, after a three-year sojourn as general counsel to the Defense Department, where he provided legal authority for the drone-strike program. During Johnson’s tenure, Nate Snyder says, his office received calls from evangelical pastors worried about far-right recruitment in their congregations. There was also concern about reports of white supremacy in the military.

Johnson, who told me that fear of another ISIS-style attack kept him up at night, held regular round tables with imams and other members of the Islamic community. He resisted the pressure from some members of his staff, and some in Congress, like Thompson, to make similar overtures to communities concerned about antigovernment or white-supremacist groups. He thought it would be absurd to hold round tables with sovereign citizens and white supremacists. “I didn’t think that would have been a very effective use of my time to try,” he told me.

Johnson never called Dylann Roof a domestic terrorist, a phrase commonly applied to Timothy McVeigh. “If there was ever an opportunity to define white extremists as domestic terrorists, Dylann Roof was it,” Snyder says. “But people went back and forth, and it went down the same careful deliberation that happens with active shooters: Maybe it was a mental-health issue. Maybe he was ‘disturbed.’ Maybe he had a predisposition to violence.”

When I spoke to Johnson, he felt it was not his place to call Roof a terrorist. There isn’t a crime of “domestic terrorism” to charge someone with. “There is a certain type of violent extremism that is by nature more of a matter for law enforcement, and another that is about engaging communities at the local level,” he said. But the country’s chief law-enforcement official at the time, Attorney General Loretta Lynch, also didn’t call Roof a terrorist — though she did note that his mass shooting, which she was prosecuting as a hate crime, seemed to meet the definition of terrorism. “Hate crimes are the original domestic terrorism,” she said. James Comey, then director of the F.B.I., wasn’t sure. Terrorism, he stated in June 2015, was “more of a political act,” and he didn’t see the Charleston shooting as political. Even after a racist manifesto Roof penned surfaced online stating his intent to “protect the white race” by instigating a race war, Comey still wasn’t sure it met the definition. “I only operate in a legal framework,” he told HuffPost.

The refusal to name the attack as “terrorism” was, in some critics’ eyes, a crucial misstep that would have far broader implications. “I was very pleased when the Obama administration started and said, We’re not going to use the phrase ‘war on terror,’ ” says Erroll Southers, a former F.B.I. agent and now director of the Safe Communities Institute at the University of Southern California. “I think the Obama people decided, O.K., we’re not going to call it ‘terrorism,’ thinking it was a good thing. The problem was they didn’t realize how much it emboldened the other side and gave them political cover.”

In the months following Donald Trump’s inauguration, security analysts noted with increasing alarm what seemed to be a systematic erosion of the Department of Homeland Security’s analytic and operational capabilities with regard to countering violent extremism. It began with the appointment of a new national-security team. Like their counterparts now running immigration policy, the team came from the fringe of conservative politics, some of them with connections to Islamophobic think tanks and organizations like ACT for America or the Center for Security Policy, whose founder, Frank Gaffney, was Washington’s most prominent peddler of anti-Muslim conspiracy theories.

In addition to Gaffney, whose biased and statistically flawed data on the “Muslim threat” became the premise for Trump’s so-called Muslim ban, there were other ideological fellow travelers like Sebastian and Katharine Gorka, the husband-and-wife national-security team. Sebastian Gorka became a senior White House adviser, and Katharine Gorka became a senior adviser to the Department of Homeland Security. During the transition, Sebastian Gorka predicted the demise of “C.V.E.,” which he suggested was a fuzzy, politically correct approach to a problem — terrorism — that needed a better fix. Shortly afterward, Katharine Gorka, who once criticized the Obama administration for “allowing Islamists to dictate national-security policy,” made it clear, Nate Snyder recalls, that she didn’t like the phrase “countering violent extremism.” From now on, the mission would be focused on “radical Islamic terrorism,” the White House’s go-to phrase, which, as Sebastian Gorka later explained, was intended to “jettison the political correctness of the last eight years.”

A surreal scene, replicated in nearly every department and agency, soon began to play out inside the Department of Homeland Security. George Selim, a longtime national-security expert in both the Bush and Obama administrations who headed the Office of Community Partnerships, which worked with local government and civic groups on C.V.E. efforts, noted that as the months passed, “it was clear that there were fewer and fewer of the career civil servants at the table for critical policy decisions.” Some political appointees seemed to have virtually no experience with the issues they had been tapped to advise on. Katharine Gorka, as her own LinkedIn biography notes, had never held a public-sector job before joining the department, nor did she seem to have any practical experience in national security, or law enforcement, or intelligence. Another new senior Homeland Security official, the retired Navy officer Frank Wuco, had made a career of lecturing to the military about the jihadi mind-set, often while role-playing as a member of the Taliban in a Pashtun hat and kaffiyeh. “That’s who was trying to tell me he understands the threat,” an official said dryly.

By February 2017, after the Trump administration issued its first executive order trying to ban citizens of Muslim-majority countries from entering the United States, several American Muslim groups decided to reject federal C.V.E. grant money they were awarded under the Obama administration out of concern over the new administration’s framing of the issue. That March, the White House froze the $10 million the previous administration had allotted for the grants, pending review. While that review was underway, the Department of Homeland Security and the F.B.I. issued a joint intelligence bulletin, dated May 10, warning that white supremacists might pose “a threat of lethal violence” over the next year. The report, which some analysts said reflected a fraction of the actual numbers, said that white supremacists “were responsible for 49 homicides in 26 attacks from 2000 to 2016 . . . more than any other domestic extremist movement.”

At the end of June, the Department of Homeland Security withheld grant money from several previously approved applicants whose focus was on studying extremists’ online networks and helping both white supremacists and Muslim extremists leave their movements. Though the total budget for C.V.E. was minuscule given the department’s overall grant budget, rejecting those programs nonetheless produced “a real chilling effect,” as one policy analyst recalls. Some researchers withdrew from plans to brief lawmakers on far-right extremism.

In July 2017, Selim tendered his resignation. Not long afterward, a senior official on the interagency task force running C.V.E. efforts withdrew. More departures followed. The Department of Homeland Security renamed the Office of Community Partnerships the Office of Terrorism Prevention Partnerships. At the department’s Office of Intelligence and Analysis, analysts specifically looking at domestic terrorism and coordinating with local law enforcement were reassigned as public-affairs liaisons, Snyder says. “So no one is looking at the intelligence and connecting the dots, which is what the Department of Homeland Security was created to do.”

In the lingo of the counterterrorism world, the department’s responsibility is anything “left of boom,” meaning all the pre-emptive steps that might prevent an attack, from securing the borders to synthesizing and sharing intelligence to working with community leaders and local law enforcement to help them better identify risks. Today, at least for the federal government, Snyder says “left of boom is dead.”

William Fears was born in 1987 and spent his childhood in Jasper, Tex., a tiny and deeply segregated town about 130 miles northeast of Houston. East Texas is Klan country, and Jasper holds a notable spot in the racist history of the region as the town where, in 1998, when Fears was 10, three white men lynched a black man named James Byrd Jr., chaining him to the back of a truck and dragging him to death.

Early in his life, Fears, searching for identity, cycled through a long list of ideologies. He was 14 on Sept. 11, 2001, old enough to absorb the patriotic fervor of that moment but too young to enlist. For a year or two, he was a Michael Moore-style populist, having been “red-pilled on ‘Bowling for Columbine.’ ” Then, having spent a great deal of his spare time stoned and watching YouTube, Fears embraced the Sept. 11 “truthers” movement. As he spent more and more time on sites like Infowars, he was exposed to notions that the government, backed by the Illumi-nati, the globalists, the Freemasons — Jews, but not “the Jews” as he would later come to see them — had blown up the towers, crashed the financial markets and plunged the country into economic crisis. This led to his next great obsession: the candidacy of the G.O.P. presidential hopeful Ron Paul, a libertarian who had amassed a large grass-roots following of what The New York Times then called “iconoclastic white men.”

But Fears eventually grew bored with Paul, just as he had grown bored with Michael Moore, and it was in this state of vague political disillusionment, and heavy drug use, that Fears kidnapped a former girlfriend in 2009 and stabbed her in the face, legs and neck before she managed to escape. In 2010, he was sentenced to seven years in prison.

Fears doesn’t like to talk much about his sojourn in the Texas state-prison system, though like many young men who went from the penitentiary to the far right, he was introduced to the basic tenets of white supremacy there. “White guys got to stick together,” he says, referring to an admitted friendship with members of the Texas branch of the Aryan Brotherhood, one of the most notoriously brutal white-supremacist gangs in the country. But he dropped those friendships after prison, he insists. “I didn’t like the whole Nazi skinhead thing with tattoos on their face and beating up minorities for no reason,” he says, implying that they represented an earlier generation: “They’re like 1.0s.”

Six years later, Fears was paroled and emerged from prison drug-free but otherwise largely the same. He was still a conspiracy theorist, though he was less obsessed with the government, his friend John Canales noticed when they reconnected that summer. “Now it was all about the Jews,” Canales says. At home in the Houston suburb of Pasadena, Fears submerged himself in what to him was the new, hyperconnected world of the internet, where every YouTube video he watched algorithmically directed him to others with increasingly far-right political agendas. He was fascinated by men like Richard Spencer, who fashioned himself as the second coming of George Lincoln Rockwell, the founder of the American Nazi Party. He was also intrigued by Donald Trump, the troubadour of a new generation of angry white men, the alt-right movement — white supremacy 2.0 — with its in-jokes and symbols that were mostly lost on U.S. law enforcement.

‘The administration had this do-nothing approach. They kept telling us, well, we see that white supremacy is a problem, but there’s no way we can get ourselves involved.’

Fears believed in the power of memes, though alt-right memes, while dripping in irony, were also, in essence, hate speech, part of a propaganda war arguably intended to spread terror just as much as any ISIS execution video. Fears, his friend Canales says, was one of the first people Canales knew to understand this and promote the memes as broadly as he could, standing on street corners and “sieg heil-ing” at passers-by or waving a swastika-laden Pepe the Frog sign reading “Free Helicopter Rides,” an allusion to the murder of political enemies, notably leftists.

In December 2016, less than six months after getting out of prison, Fears went to his first Richard Spencer event, on the campus of Texas A&M. More so-called free-speech events followed, where young white men in red MAGA hats and polo shirts descended upon college campuses or progressive enclaves in otherwise blood-red states: a clean-cut Trumpian army, marching in formation or hurling insults at activists who, outraged by their very presence, would try to fight them.

Sometimes the police would intervene, or not. Fears, for one, always felt safe with the police in Texas, though he said “they work for ZOG” — the so-called Zionist Occupied Government. “They’ll take their paycheck over the country.”

Cops would stand watch at events, sometimes on horseback, and while they might not have been ideologically aligned with the alt-right, they still tolerated them. Fears said the cops were far less forgiving of Antifa, a catchall term that has been used to describe dedicated anti-fascists and so-called anarchist extremists, as well as animal rights activists, immigration rights activists, members of the local Socialist movement, environmental protesters like those who had recently been blasted by water cannons and rubber bullets at Standing Rock, and Black Lives Matter supporters, whose protests have been met by dozens of cops in riot gear, as well as sometimes members of a paramilitary support unit. One Houston activist, who went to high school with Fears, recalls a rally where the police posed for pictures with members of the alt-right. “Very buddy-buddy,” he says.

The same essential scenario played out across the country. At a rally in Sacramento in June 2016 organized by the white-supremacist Traditionalist Worker Party, a throng of counterprotesters showed up. “The police didn’t step in really at all,” a police observer and representative of the National Lawyers Guild later told The Sacramento Bee. “They basically just let people do what they wanted to do,” the observer said. “In this case, someone made a decision just to let them fight it out.” Ten people were hospitalized, at least five for stabbing wounds and other lacerations, most of them left-wing counterprotesters, some of whom were later charged with assault. Only one white supremacist was arrested, though court records originally acquired by The Guardian mentioned at least four T.W.P.-affiliated men who came armed with knives to the rally but were not charged. “We’re looking at you as a victim,” an investigator with the California Highway Patrol reportedly assured a member of the T.W.P. after the rally.

One domestic-terrorism expert who conducts hate-crimes training for law enforcement was baffled by the pushback she received from police officers who didn’t seem to view white-supremacist groups as a law-enforcement problem. “They’d say things like, ‘Why aren’t you calling Black Lives Matter or Antifa a hate group?’ The answer is, because they’re not hate groups! But they didn’t see it that way.”

It was in this atmosphere that Fears made his progress through various protests. He traveled to Charlottesville with a backpack of dystopian gear: goggles, gloves and a helmet, though he disguised himself as a Trump supporter in a suit. It was war. It was also fun. By the summer of 2017, the media had begun to cover more far-right events, leading more people to show up in protest, which furthered the right’s victimization narrative, which in turn led to more events and more violence, all of which was packaged into neat selling points for a movement whose actual real-life followers may have been far fewer than they appeared.

A person’s willingness to brawl was a point of pride. Some of the most ardent fighters, many of them felons, became celebrities in their own right, offered speaking slots at rallies, where their V.I.P. status earned them police protection. The Rise Above Movement, led in part by a gang member who had gone to prison for an attack, turned beat-downs into an art form, which they promoted on YouTube, drawing recruits. Nathan Damigo, a former Marine who was incarcerated for five years for armed robbery, used footage of his punching a young woman in the face during a Berkeley protest as a recruiting video for his white-nationalist organization, Identity Evropa. The Proud Boys went as far as to create an entire culture around gang-style rituals, including initiation beatings.

On Facebook, various white men were stating their intention of going to Charlottesville for what they understood would be a huge gathering of the tribes, making plans of whom to meet up with and what to bring. Fears initially advised against carrying weapons, but he suggested keeping them close by. “It all comes down to police,” he said on Facebook. “If they leave us to fight for ourselves like in Berkeley, we know to get ready for bricks to start flying.”

In private communications on the chat service Discord, posted online by the progressive watchdog Unicorn Riot, organizers of Unite the Right spent weeks discussing tactics. The F.B.I. itself was limited in its surveillance capacity (though many left-wing groups argued that this did not prevent the bureau from monitoring their activities), and in the absence of comprehensive federal scrutiny, right-wing activists trawled through left-wing websites, shared photos of leading anti-fascist and racial-justice activists and infiltrated real-life gatherings. In advance of the event, leaked chats documented potential attendees openly advising their comrades to take note of any threats of violence so they could share them with the police. Erroll Southers later remarked on the sophistication of advising their followers not to bring cellphones, and sharing information among small cells of affinity groups: “From an intelligence perspective, it was very impressive.”

From a law-enforcement perspective, it was chaos. Rarely did a white-supremacist event draw more than 60 people before 2016; 100 was remarkable. But Charlottesville was another galaxy, both in the sheer number of marchers and their diversity. Southers notes, “You had factions of white nationalists, white supremacists, Klan members, neo-Nazis, neo-Confederates — which was like having ISIS, Al Qaeda, Al Shabab and Boko Haram at the same rally. And they were all rallying together, shoulder to shoulder, while the police watched these people go toe to toe sort of like a modern-day ‘Game of Thrones’ battle.”

“I put my baton on the ground and hands in the air,” the protester later said of the moment when Tyler TenBrink pointed his gun directly at him. The man was terrified. TenBrink took aim and fired. One of the other protesters hid in the trees. Several more crouched behind a small wall, screaming. The bullet missed. The men jumped back into Fears’s Jeep and, with Colton behind the wheel, sped away toward Interstate 75 — but not before a witness wrote down the license-plate number.

Lieutenant Stout learned of the shooting later that night, and while no one was hurt, his heart sank. In all his preparations, Stout hadn’t considered that violence might occur outside the secure perimeter they had so carefully set up. That night, the Florida state police caught up with the Jeep on the highway and arrested the Texans. The city officials breathed a sigh of relief and lauded the day as a success.

Will Fears spent more than 40 days in the Alachua County Jail on $1 million bail. Depending on whom he is talking with, he and his brother and TenBrink, who both remain in the Alachua County Jail, were the “celebrities” of the jail, or maybe just Fears was. He portrayed his stay as fairly cushy, and one in which he was a very big deal, which of course he wasn’t to the authorities who picked him up in December, after Texas ordered him extradited back to Houston to face charges in the supposed assault of his girlfriend last October. Along the way back to Texas, Fears tried to make conversation. “I was on the news, you didn’t see that?” he remarked. When Fears arrived back in Houston, he spent two nights in the Harris County Jail, then appeared before a judge, who promptly released him on $5,000 bail.

Fears returned home to Pasadena and resumed the same life he had always led. Apparently unconcerned about exposure, he had posted his cellphone number on social media. Earlier this year, I called him. We met at a Belgian cafe in a rapidly gentrifying part of Houston. When I arrived, Fears was sitting at an outside table, drinking an Arnold Palmer.

Fears told me he had spent most of the past year celebrating the alt-right’s covert domination of the news cycle. He seemed thrilled that Donald Trump tweeted about a so-called migrant caravan, which, like the supposed “white genocide” in South Africa, was mostly fiction. Yet it was effectively promoted by alt-right websites like The Daily Stormer and Breitbart, and now right-wing celebrities like Ann Coulter and Tucker Carlson were talking about it. “This idea that the alt-right is falling apart and is going to go away, it’s not true,” he says. “The alt-right formulates all these ideas,” he went on. “What Tucker Carlson talks about, we talked about a year ago.”

It was a few days after the massacre of 17 people in Parkland, Fla., and Fears had been considering the spate of school shootings in America. He repeated the rumor, widespread on 4chan and Gab, that the shooter, Nikolas Cruz, was Jewish, and so were many of his victims. It’s unclear if this is true. But if it were, it would make no sense to Fears, who, if he believes in anything, believes in the essentially tribal nature of all human beings. Jews, he said, “have a biological need to look out for their own.” He had spoken a bit about what he called the J.Q., or Jewish Question, as successive generations of anti-Semites have referred to the debate over how Western nations should handle the presence of Jews in their societies. “I don’t hate them for it, but I realize that their interests aren’t the same as mine.”

Fears’s views aren’t unique — roughly 22 million Americans call it “acceptable” to hold neo-Nazi or white-supremacist views, according to an ABC News/Washington Post poll taken in the wake of Charlottesville in August 2017. Roughly the same number of people, about 10 percent of Americans, said they supported the “alt-right”; about half of those polled said they were against it. Driving around Fears’s neighborhood one day, I saw Confederate flags, and American flags, and sometimes a Blue Lives Matter flag, and the black-and-white “Don’t Tread on Me” flag waving from shiny new trucks. I also saw row after row of McMansions, many of them with swimming pools. There were new S.U.V.s parked in the driveways, and boats: signs of money made and money spent. One former high school classmate of Fears’s described the culture as “wannabe redneck.”

Fears says that unlike him, the bulk of the alt-right prefers to stay in the shadows. “I see a lot of people and talk to a lot of people that people would pay a lot of money to find out who they are,” he says. Some of them, he suggests, take part in his weekly Thursday-morning “fight club,” practicing mixed martial arts. Some have white-collar jobs or are veterans, groups that make up a large part of the movement.

Fears was wearing a baseball cap adorned with a red, white and blue patch known as the “whomster” flag. It’s “kind of a racist joke,” he said, albeit one that most people won’t get, as they probably have no clue what “whomster” means (it’s a common meme that refers to the supposed, if baseless, fact that African-Americans say “whomst” a lot). The flag featured the Texas lone star against a backdrop of 14 red and white stripes, an allusion to a signature white supremacist slogan addressing their goal of preserving the white race. The star is centered on a large blue sonnerad, or black sun, an ancient symbol favored by white supremacists, who see it as less obvious than, say, a swastika. In recent years, even longtime neo-Nazi groups like the National Socialist Movement have rebranded by dropping the swastika for less “triggering” symbols like sonnerads or runes. The meaning is the same.

‘I think it’s easy for our generation, or the youth, the way society is now, to feel victimized. It’s like with your back against the wall, you know what I mean?’

Fears has said that he was upset that his little brother, who in September pleaded guilty to accessory to attempted murder, got in so much trouble. “He’s not really a white nationalist that much,” he said during an interview with a right-wing podcast. “He’s really only involved in anything as a result of being my little brother.”

It was a bit like the little brother-big brother Boston bombing duo, Dzhokhar and Tamerlan Tsarnaev, whom Fears identifies with. He agreed to meet with me, he said, because I had written about them. “I think it’s easy for our generation, or the youth, the way society is now, to feel victimized. It’s like with your back against the wall, you know what I mean?”

In the Tsarnaevs’ case, this led to terrorism, and for Dzhokhar, the surviving brother, it led to a stretch on death row. Fears, drinking his iced tea-lemonade concoction, considered this. “Maybe he saw a lot of things in the world that bothered him and just didn’t know how to deal with it,” he said. “I can sort of relate to that.”

Fears munched on some bread. “You’re Jewish, right?” he said pleasantly.

In fact, I am. And while I happened to be sitting across the table from an admitted fascist who admires Adolf Hitler and has advocated (he says trollishly) “white Shariah,” I didn’t feel threatened by Will Fears. Like so many of the movement’s vague anymen, he presented himself as polite, articulate and interested in cultural politics, and though his views are abhorrent, he stated them all so laconically you might forget that he actually believes in the concept of a white ethnostate. And that’s the point: The genius of the new far right, if we could call it “genius,” has been their steadfast determination to blend into the larger fabric of society to such an extent that perhaps the only way you might see them as a problem is if you actually want to see them at all.

The purpose of the F.B.I.’s Joint Terrorism Task Force is to investigate terrorism and share information from those investigations so that the law-enforcement community is able to identify the most dangerous individuals. State and local law-enforcement “fusion centers” were set up with this same goal in mind. There are perhaps half a dozen information-sharing and threat-assessment networks available to law enforcement. In an alternate universe, these networks would function efficiently. In reality, German says, “far-right violence remains a blind spot. It just isn’t properly tracked or understood.”

On Aug. 31 this year, his 25th anniversary on the force, Dan Stout retired from the Gainesville Police Department, in part because of the stress and fatigue he endured from the Spencer incident. “The level of resources and financial impact these types of events are now costing communities to prepare for and manage, it’s just unsustainable,” he says. “How much of our city do we literally turn into a quasi-police state to manage this?” Stout’s study of the alt-right and left-wing movements made him an “expert,” at least in the eyes of federal and state law enforcement, who, he says, began to invite him to visit their jurisdictions to share what he had learned. “They were soaking it up like a sponge,” he says. And yet, in reality he feels that they had collectively dodged a bullet — “no pun intended,” he says. “Just another inch to the right or the left and we’d have had a very bad situation.”

In May, I called up the Harris County district attorney’s office to ask why someone who had been in jail in Florida on $1 million bond had, upon extradition, been released on $5,000 bond. Joshua Phanco, a prosecutor who at the time was in charge of Fears’s case, was alarmed by the call. He vaguely recalled that Fears had been in prison in Florida, but he wasn’t aware that Fears had been charged with attempted murder, or that he had anything to do with white supremacy. “This is the first I’m hearing this,” he told me. (Fears’s charge in Florida has since been dropped.)

Phanco, who has since moved on to the district attorney’s major-crimes division, spoke with me for two hours. He diagramed the byzantine system that is the Harris County criminal-justice system, one of the nation’s largest, and a study in dysfunction. There is no central database, no way to share information among all the tiny police departments that feed into the clerk’s office, which then divvies up crimes among 22 criminal courts, now scattered across the entire county. Basically, he said, unless someone tells him about a guy he’s prosecuting, he has no clue.

“I mean, how come I didn’t know what happened in Florida?” he said. “Is it my fault? Is it Florida’s fault? How come there wasn’t an officer in Houston watching this? How come he was on nobody’s radar?” Houston has an aggressive gang task force whose investigators have deep knowledge of everyone from the street-level drug dealers to the cartel bosses. “If a fairly high-up guy from MS-13 sneezes, I get a call at 10 p.m.,” he said.

If Fears were on someone’s radar, Phanco doubted he would ever get off it. “But who’s responsible for keeping track of these alt-right guys in Houston? Nobody. For me the question is, well, how come? If you want to look at these guys as terrorists — which I think it is when they’re firing guns out of cars at protesters,” he noted, “then the question remains: Who or what will prevent him from committing more crimes? And, from my chair, nobody,” Phanco said. “Nobody’s watching it, nobody’s tracking it. And that’s what’s got me scared.”

WSJ : Facing iPhone Troubles, Apple Tries to Change the Story

Facing iPhone Troubles, Apple Tries to Change the Story
The company plans to stop reporting unit sales as it pushes its services business

When Steve Jobs took a swipe at Amazon.com Inc.’s Kindle in 2009, he pointed to the online retailer’s decision not to report unit sales of its reading device as evidence it wasn’t selling many.

Nearly a decade later, Apple is following a similar path. The company said it would stop disclosing data on the number iPhones, iPads and Macs it sells, eliminating a performance metric it has provided since the 1980s.

The change comes as growth in the number of iPhones sold slows, with customers increasingly holding on to smartphones longer. Apple has responded by promoting software and services across its devices and raising prices on new gadgets.

Investors balked at the reporting change, and at revenue projections that fell short of Wall Street estimates. On Friday, the elimination of unit-sales data contributed to shares falling 6.6% as the company shed $71.19 billion in market value in a single day.

Apple’s “privacy commitment now extends to iPhone unit disclosure,” Amit Daryanani of RBC Capital Markets wrote in a note to investors. In an interview, he said the change means many shareholders now believe Apple is hiding something. “It’s a monkey on their back,” he said.

Mike Levin, co-founder of Consumer Intelligence Research Partners LLC, a market-research firm that surveys Apple customers, said the change shows Apple executives are thinking about their business in ways they haven’t wanted to say aloud.

“When Apple was doing great, unit sales told a wonderful story. Now that the story isn’t so good, they’re saying, ‘Let’s change it,’” he said.

Mr. Jobs might agree. “Usually, if they sell a lot of something, you want to tell everybody,” the Apple co-founder told the New York Times nine years ago when criticizing Amazon’s Kindle.

Apple remains an immensely profitable company and rode recent price increases to its best year ever. Chief Executive Tim Cook told analysts Thursday the change better reflects how Apple’s business has evolved in the wake of its new pricing strategy. When a cashier rings up a shopper, the register doesn’t show how many units the shopper buys—only what the shopper spends, he said.

Other companies also have altered the way they report longstanding business metrics.

In April, General Motors Co. abandoned a decades-old practice of reporting monthly vehicle sales and joined Tesla Inc. in reporting such figures quarterly. Walmart Inc. and Target Corp over the past decade have moved to reporting same-store sales quarterly instead of monthly to eliminate volatility.

“This is new territory,” said Peter Bible, chief risk officer at accounting advisory firm EisnerAmper LLP and former accounting chief at GM. “Whether it be monthly unit sales of cars or unit sales of iPhones or iPads, are they afraid it’s not going to be favorable?”

Apple finance chief Luca Maestri, who previously worked at GM, said Apple would continue to provide “qualitative commentary,” such as noting that unit sales of flagship iPhones are strong and attracting customers with new features.

Apple will now report gross margins separately for its hardware and services.

How gross margins perform between hardware and services will become an important metric, said Gene Munster, managing partner at Loup Ventures, an investment and research firm.

Investors will look at the margins in hardware to determine the health of iPhones. “All Apple needs to do is keep hardware gross margins stable,” said Mr. Munster, who thinks the reporting changes are positive for investors because of the recurring revenue the services business offers.

The change also forces Apple’s fast-growing services business to center stage.

Apple has 1.3 billion iPhones and other devices in active use and earns an estimated $30 for each device annually from app sales, music subscriptions and other offerings, according to Morgan Stanley. The firm expects services to account for about 60% of Apple’s revenue gains over the next five years. By contrast, the iPhone accounted for 86% of sales growth in the previous five-year period, it estimates.

Over the past year, services grew by 24% to $37.19 billion. Still, they represented only about 14% of Apple’s total revenue of $265.6 billion in fiscal 2018. Apple hasn’t broken out revenue for its various services.

Pushing the business forward will test Mr. Cook, an operations expert who turned Apple into a profit-spewing machine by controlling hardware costs and inventory. Now, the company’s direction increasingly will depend on the leadership of Eddy Cue, who is in charge of internet software and services, and Phil Schiller, who oversees the app store.

It could take a year or more before Mr. Cook’s team shows services and higher-priced devices can make up for flat or declining unit sales, said David Yoffie, a professor at Harvard Business School, who has written Apple case studies. “Apple obviously wants to change the narrative on the Street, but lower transparency will reduce confidence in the short run,” he said.

Reuters - Qatar reshuffles cabinet, boards of Qatar Petroleum and Qatar Investme

Qatar reshuffles cabinet, boards of Qatar Petroleum and Qatar Investment Authority


DOHA (Reuters) - Qatar appointed the heads of its biggest bank and state-run oil firm to two key ministerial posts in a cabinet reshuffle on Sunday which comes amid a protracted dispute with Arab states.

The country’s ruler issued decrees restructuring the boards of state-run Qatar Petroleum (QP) and Qatar Investment Authority (QIA), the world’s ninth largest sovereign wealth fund with about $300 billion in assets.

It was the first government reshuffle in Qatar, the world’s top liquefied natural gas producer, since early 2016. The tiny but wealthy country has been facing a diplomatic and economic boycott by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt since June 2017.

The four countries accuse Qatar of backing terrorism and cosying up to Iran. Doha denies the charges and says the boycott aims to impinge on its sovereignty.

Qatar National Bank (QNB) CEO Ali Ahmed al-Kuwari was appointed to a new portfolio which combined commerce and industry under one ministry in the cabinet reshuffle which also included changes to the justice, labour and social affairs ministries.

It was not clear whether Kuwari would retain his post at QNB, the Middle East’s largest lender by assets. The bank, which is 50 percent owned by the country’s sovereign wealth fund, did not immediately respond to Reuters’ request for comment.

Saad al-Kaabi, the chief executive officer of QP, joined the cabinet as Minister of State for Energy Affairs, according to a decree published by the royal court.

Al-Kaabi, a U.S.-educated engineer, rose through the ranks to become chief executive of QP in 2014 and also sits on the board of the Qatar Investment Authority.

He has gained a reputation among executives of the world’s energy majors, such as Exxon, Shell and Total, as a reliable counterpart for energy projects that have made the tiny nation of 2.6 million people the biggest exporter of liquefied natural gas (LNG) on the planet.

>>> Barrons weekend summary: Cover on new arms race with China that could benefi

Barrons weekend summary: Cover on new arms race with China that could benefit defense contractors; Positive feature on AMZN, GOOGL and MSFT; Positive feature on IR and LII

* Cover story: China’s development of a new weapon called a hypersonic missile could render current defense systems obsolete, drive a new arms race, and keep money flowing for military contractors such as LMT, NOC, and RTN.

* Features: 1) Positive on AMZN, GOOGL, MSFT: Top software and Internet companies could become defense-sector players because they spend vast amounts of money on research, much of which is relevant to the Department of Defense; 2) Neuroscientists and behavioral economists say erasing hard-wired biases isn’t possible; many institutional investment firms are hiring coaches to them better understand how emotions affect investing; 3) Donald Trump says that stocks will go down if Democrats are elected in the midterms, but if the market is forward-looking, why hasn’t a crash already happened?; 4) A broad selloff in the housing market has left a few stocks looking like bargains, and the HVAC sector can still deliver upside despite housing concerns; IR and LII look poised for a rally.

* Tech Trader: Cautious on IBM: Company’s acquisition of RHT has been met with mixed reviews, and is “not a game changer for anybody but IBM,” which lags AMZN, MSFT, BABA, and GOOGL in the cloud; IBM is touting the deal as a path to a new “hybrid cloud,” but there’s no industry consensus about what that is.

* Trader: “The fact the market sold off so abruptly on Friday is just one more reason for investors to use rallies as opportunities to sell, rather than buy”; With interest rates certain to go higher, investors need to focus on companies that won’t feel the pinch from higher borrowing costs; Positive on REZI: The HON spinoff gives investors exposure to the Internet of Things, and even if it doesn’t live up to its potential, is appears to be trading at a discount to its fundamentals.

* Interview: Jim Callinan, manager of the Osterweis Emerging Opportunity fund, looks for company management teams who “stretch goals” and then deliver on them.

* Profile: Adam Weigold, manager of the Eaton Vance Municipal Opportunities fund, has a team of 16 analysts who carry out deep credit analysis to find undiscovered gems; they’re currently looking for possible takeover candidates in the municipal hospital sector.

* Follow-Up: GE’s move to cut its dividend is not a good sign for shareholders, and while buyback programs are easily adjusted with little fallout from investors, that’s less true with dividends.

* European Trader: Positive on RIO, Glencore, Anglo American: With copper prices down, investors have an opportunity to buy shares of mining giants with generous dividends, but their long-term prospects will depend on how the global transition to electric vehicles plays out.

* Emerging Markets: Mexican president-elect Andres Manuel Lopez Obrador’s decision to abandon construction of a $13B airport outside Mexico City spooked investors, who may have oversold the country based on that single policy decision.

* Commodities: “The oil market has had nearly six months to assess the possible effect of U.S. sanctions on Iranian oil exports,” but the prospect of significantly tighter global supplies has resulted in lower prices.

* Streetwise: The basic problem with so-called ESG investing is that there is no standard legal definition, leading various funds to approach it in their own way, and it has yet to produce demonstrable proof of its efficacy on long-term shareholder returns.

>>> Reportedly PM May has secured private concessions from Brussels that will ke

Reportedly PM May has secured private concessions from Brussels that will keep the whole of Britain in a customs union, avoiding a hard border in Northern Ireland; also on track for a “future economic partnership” (FEP) agreement with EU - UK Sunday Times
- The agreement is expected to placate remainer Tories and win over some Labour Party MPs
- Appeasing the Eurosceptic side, May is also reportedly making progress toward securing a political deal on a “future economic partnership” (FEP) with the European Union that will allow Britain to keep open the prospect of a Canada-style a free trade deal agreement with Europe.

Barron's : Software Companies Could Become Important Partners With the U.S. Defe

Software Companies Could Become Important Partners With the U.S. Defense Department

Software is eating the world, tech investors like to say. As artificial intelligence, autonomous flying and driving, and cybersecurity play larger roles in warfare, software is likely to nibble away at the defense budget, too. Over the long term, that could mean U.S. funds traditionally spent with tank, plane, and missile makers are shared with the likes of Amazon.com (AMZN), Microsoft (MSFT), and Alphabet (GOOGL).

That thought might be jarring to some U.S. investors, but it isn’t controversial elsewhere. “We must grasp the historical opportunity of the current information-technology transformation and new transformation of military affairs…” said Xi Jinping, the leader of China, at a conference last April. China has reduced its ground forces, while boosting its navy and air force in an effort to modernize its military. Just as important, it is fostering what defense analysts call civil-military fusion, or CMF, with its top tech companies.

One reason that software and dot-com companies could become important defense players is their control over one of history’s most powerful weapons: cash. The five largest U.S. tech players together will probably spend more on research than the Department of Defense next year. Another reason is that some of the technologies relevant to both consumer devices and warfare benefit from powerful network effects. For example, autonomous vehicles teach themselves by logging miles and communicating with one another.

Last year, the Department of Defense launched Project Maven, also called the Algorithmic Warfare Cross-Functional Team, with the goal, according to the Pentagon, of making “computer-vision algorithms needed to help military and civilian analysts encumbered by the sheer volume of full-motion video data that DOD collects every day in support of counterinsurgency and counterterrorism operations.” Participants included Alphabet’s Google, Amazon, and Microsoft.

This past April, thousands of Alphabet employees signed a letter of protest published in the New York Times. “We believe Google should not be in the business of war,” it read.

In September, the DOD appointed former Symantec chief Michael Brown to lead its fledgling Defense Innovation Unit, tasked with, among other things, fostering relations with Big Tech. And although Alphabet has walked away from competing for a $10 billion defense cloud-computing contract called JEDI, there is no shortage of bidders, including Amazon and Microsoft.

“We want the people of this country, and especially the people who serve this country, to know that we at Microsoft have their back,” wrote Microsoft president Brad Smith in an Oct. 26 blog post. That came less than two weeks after Amazon chief Jeff Bezos told a conference, “If big tech companies are going to turn their back on the Department of Defense, this country is going to be in trouble”

Barron's : A Scary New Missile Could Start a New Arms Race

A Scary New Missile Could Start a New Arms Race

Starry sky 2 sounds peaceful enough, and when China’s top aerospace scientists announced in August that they had successfully tested a device of that name, they described it as an aircraft. But the details of this flight—sustained speeds between five and six times that of sound, combined with abrupt changes in direction—delivered an unmistakable message to Pentagon analysts. China is close, perhaps just several years away, to fielding a fearsome new weapon called a hypersonic missile. That could make today’s missile defense systems obsolete, drive a new arms race, and keep money pouring in for military contractors.

Understanding the hypersonic threat, and America’s rising rivalry with China more broadly, is one way for investors to make sense of the outlook for defense stocks. After six years of outperformance, they’re slumping. With U.S. budget deficits ballooning, and Democrats predicted to win control of the House on Election Day, investors seem to anticipate that a two-year surge in defense funding under President Donald Trump will give way to a slowdown. From the Reagan peak to the Clinton low, a 13-year stretch, the defense budget shrank by 35%, adjusted for inflation. During President Barack Obama’s tenure, it declined by 30% over five years. In a budget crunch, it’s easier to find cuts in weapons procurement than in categories like personnel and maintenance, adding to volatility for weapons makers.

In reality, the chances of deep cuts from here look overstated. Already agreed-upon spending will increase revenue briskly enough for the likes of Lockheed Martin (ticker: LMT), Northrop Grumman (NOC), and Raytheon (RTN) through the end of the decade. Beyond that, it seems likely that budgets will remain flat, perhaps rising with inflation, during what some industry analysts describe as a shift from a war-on-terror footing to Cold War 2.0, with rising investment in futuristic weapons offsetting declines in legacy programs. Longer-term headwinds include fiscal strain and a potential deflationary effect from new technology, including software.

Climbing Back
Military spending is on the upswing after inflation-adjusted declines during the Obama administration. Defense budget in 2019 dollars, 1950-2019
For now, however, the selling in defense shares appears overdone. Lockheed stock is down 7% this year, not counting dividends, versus a gain of 2.5% for the S&P 500 index. Earnings are soaring. Wall Street predicts a 32% rise this year, to about $17.50 a share. That puts the stock, recently around $300, at 17 times earnings, on par with the S&P 500, and down from 24 times earnings a year ago. By 2020, Lockheed’s profits are expected to hit about $24.50. The stock trades at just 12 times that figure, with a 2.9% dividend yield. All of this points to potential for double-digit annual returns over the next few years, no matter how the midterm elections shake out. The outlook is similar for other defense heavyweights.

Hypersonic missiles provide a useful example of why budgets look secure in the near future, but also why they could come under pressure over the long term. Broadly defined as maneuverable missiles that can travel at five times the speed of sound or faster, they combine the strengths of cruise and ballistic missiles with the weaknesses of neither, and add capabilities all of their own.

Cruise missiles can be guided during flight and delivered to precise targets, but typically fly close to, but not over, the speed of sound, or Mach 1, which is about 770 miles an hour. A typical Tomahawk missile, for example, flies at 550 mph. Last year, the U.S. launched 59 Tomahawks targeting a Syrian airfield in response to a chemical attack on civilians by that country’s government. Ballistic missiles can fly much faster, but mainly follow a gravity-defined path, like a baseball thrown from center field to home. These include intercontinental ballistic missiles, or ICBMs, which exit and re-enter the atmosphere. Among them: the Trident II, which can deliver nuclear warheads anywhere on Earth from U.S. submarines, and can reach a terminal velocity of Mach 24.

Hypersonics promise ballistic-like speed with cruise-like maneuverability, plus the ability to fly at low altitudes. The result is a weapon that can penetrate any of today’s missile defense systems, and keep its target unknown until minutes before impact. Like other missiles, hypersonics can theoretically be equipped with a variety of warheads, but they can also do profound damage with no warheads at all, due to their high kinetic energy. A 500-kilogram projectile that hits a target at Mach 8 delivers the destructive power of three metric tons of TNT. Put differently, a hunk of metal moving that fast can be as deadly as six Tomahawks. That raises the possibility that these weapons can one day be deployed cheaply to counter the world’s most expensive military assets. “Imagine a $500,000 Chinese missile that can neutralize a $20 billion U.S. carrier group,” says James Cross, a portfolio manager at Franklin Templeton Investments, who specializes in aerospace and defense.

Research on hypersonic flight is decades old, but the subject is suddenly front-of-mind in defense circles. In March, Russian leader Vladimir Putin touted “invincible” hypersonic missiles, and in July, days after he and Trump held a meeting, the Kremlin’s ministry of defense released videos of hypersonic tests. U.S. officials are well aware of the threat from China and Russia. “I’m sorry for everybody out there who champion some other high priority,” said Michael Griffin at a March conference, shortly after he was confirmed by the Senate as undersecretary of defense for research and engineering. “But there has to be a first, and hypersonics is my first.”

Hypersonics don’t change the threat of mutually assured destruction in the event of an all-out nuclear exchange between superpowers. But they could make smaller-scale or regional conflicts riskier by sharply reducing decision-making time in the event of an attack, and encouraging adversaries to strike first. In a report last year, Rand Corp. urged a hypersonics nonproliferation treaty among the U.S., Russia, and China, warning of “hair-trigger states of readiness.” If a pact is in the works, it isn’t obvious from Trump’s recent announcement that the U.S. will withdraw from an arms-control treaty with Russia that dates back to the Cold War, or from battling China over trade.

In September, JPMorgan defense analyst Seth Seifman estimated that U.S. spending on hypersonics will multiply four times, to $1.5 billion, in the current fiscal year, and exceed $5 billion a year—perhaps much more—in the next decade. “Historically, technologies like this can lead to action and reaction, and maybe an arms race,” says Richard Aboulafia, an analyst with defense researcher Teal Group. “Russia has more intellectual property, but China has more resources. And China has more reason to change the game.”

In the context of a $700 billion U.S. defense budget, hypersonics alone won’t move the needle greatly for defense contractors, even Lockheed, an early winner of development contracts. But hypersonics are one example of what industry experts describe as a shift from counterterrorism as an investment priority to competitiveness with near-peer nations. Adjusted for local purchasing power, China’s total military spending now probably comes close to that of the U.S., according to Credit Suisse analyst Robert Spingarn. One source of ongoing tension is China’s interest in projecting strength in its nearby waters, including the 110-mile-wide Taiwan Strait, which separates the mainland from Taiwan, which China considers a breakaway province. In October, the U.S. sailed two warships through the strait in a show of force.

Beyond hypersonics, the Department of Defense is eager to keep up with China in emerging fields, such as artificial intelligence and the ability to deploy vast swarms of unmanned drones. Defense companies are having to learn from Silicon Valley about how to innovate and take risks with their research, says Franklin’s Cross. And there’s a rising role for America’s tech titans. “In China, the biggest tech companies have already been recruited by the government and have been given assigned portfolios like A.I., bioengineering, and autonomous vehicles,” says Cross. In the U.S., the Department of Defense announced that former Symantec CEO Michael Brown will head a new innovation unit in Silicon Valley, which will try, among other things, to persuade tech outfits to work with the military.

Technically, the U.S. defense budget remains subject to steep cuts triggered in 2013 and running through 2021—the so-called sequester. But Congress has passed three budget agreements to help neutralize the sequester, the latest covering the budget through the current fiscal year ending in September 2019. A $717 billion defense authorization act signed by Trump in August paves the way for one of the largest funding increases in recent decades. Much of the spending will go toward weapons procurement after a yearslong lull. Top programs include F-35 Lightning II jet fighters from Lockheed; Virginia-class submarines, Ford-class aircraft carriers, and Aegis destroyers from General Dynamics (GD) and Huntington Ingalls (HII); and KC-46A tanker planes from Boeing (BA).

‘ Imagine a $500,000 Chinese missile that can neutralize a $20 billion U.S. carrier group. ’

—James Cross, a portfolio manager at Franklin Templeton Investments
The plan for next year’s funding was recently thrown into uncertainty. The Pentagon has been preparing a $733 billion budget. On Oct. 26, Deputy Secretary of Defense Patrick Shanahan announced at a conference that he had been asked by the White House’s budget director to come up with a $700 billion plan instead. Shanahan mentioned hypersonics research as a target for cuts, and said he would proceed for now with preparing two budgets. “It comes down to a judgment call of how fast we modernize,” he said.

One reading of this is that, to spur a compromise, the Pentagon is floating the prospect of program cuts that would be unpopular in Congress. Adding to the uncertainty is the need for one more budget deal to head off what is left of the sequester. Another wild card: It has become common over the past two decades to top off base budgets with supplemental funding for “overseas contingency operations,” and to use these to pay for long-term operations, not just unanticipated events.

Byron Callan, managing director of Capital Alpha Partners, which supplies defense research to investors, sees a 1% base budget increase next year. Credit Suisse’s Spingarn notes that fiscal 2018 and 2019 spending was driven by a push to replenish the military. He predicts that this focus will dissipate, but be replaced by an emphasis on China, with the likely result being a tailwind for defense companies, but not a big rise in outlays beyond current levels.

If that’s the case, shares of defense contractors could have another leg up after next year’s budget is resolved. Over the past decade, Lockheed has traded at an average of 15 times near-term earnings projections, so if the 2020 consensus holds, that implied price of 12 times earnings is likely to look low to investors. Likewise, Raytheon and Northrop fetch 13 times projected 2020 profits. Raytheon’s focus on missiles, like Lockheed’s expertise in flight, makes it a likely key player in hypersonics. The same goes for Northrop, which completed an acquisition of Orbital ATK in June, gaining new exposure to rocket propulsion systems. Mergers and acquisitions could increase, as large research-and-development budgets become more important in vying for futuristic weapons contracts. In October, military communications specialists L3 Technologies (LLL) and Harris (HRS) agreed to combine. Raytheon and Lockheed collect about 30% of their revenue from exports, which provides insulation from U.S. budget cuts, but carries other risks. Graphic images out of Yemen, where a U.S.-backed Saudi coalition’s war against Houthi rebels has put 14 million civilians at risk of starvation, could prompt a backlash from Congress.

Long term, the clearest risk for defense companies is that the U.S., following hefty tax cuts, returns to trillion-dollar yearly deficits. Debt held by the public, recently 78% of gross domestic product, is expected to hit 96% within a decade. Defense is about half of discretionary spending, so fiscal hawks seeking cuts outside of entitlement programs are likely to look there. Over time, it’s also possible that new technology will replace pricier legacy systems. “If you can get hypersonics down to $2 million a copy, that could cut into spending on conventional weapons and air-defense systems,” says Capital Alpha’s Callan. Artificial intelligence could be even more disruptive, letting swarms of cheap drones overcome pricier battlefield assets. “Pilots cost $1 million to train and need housing, but not A.I.,” says Callan.

For now, however, the recent shakeout among defense stocks seems extreme, and election risk, overstated. “Historically, a mixed Congress has been good for defense,” says Teal’s Aboulafia. “A Republican at the top and a Democratic Congress has been really good.”

TechCrunch : A long and winding road to new copyright legislation

A long and winding road to new copyright legislation

Back in May, as part of a settlement, Spotify agreed to pay more than $112 million to clean up some copyright problems. Even for a service with millions of users, that had to leave a mark. No one wants to be dragged into court all the time, not even bold, disruptive technology start-ups.

On October 11th, the President signed the Hatch-Goodlatte Music Modernization Act (the “Act”, or “MMA”). The MMA goes back, legislatively, to at least 2013, when Chairman Goodlatte (R-VA) announced that, as Chairman of the House Judiciary Committee, he planned to conduct a “comprehensive” review of issues in US copyright law. Ranking Member Jerry Nadler (D-NY) was also deeply involved in this process, as were Senators Hatch (R-UT) Leahy (D-VT), and Wyden (D-OR). But this legislation didn’t fall from the sky; far from it.

After many hearings, several “roadshow” panels around the country, and a couple of elections, in early 2018 Goodlatte announced his intent to move forward on addressing several looming issues in music copyright before his planned retirement from Congress at the end of his current term (January 2019). With that deadline in place, the push was on, and through the spring and summer, the House Judiciary Committee and their colleagues in the Senate worked to complete the text of the legislation and move it through to process. By late September, the House and Senate versions had been reconciled and the bill moved to the President’s desk.

What’s all this about streaming?

As enacted, the Act instantiates several changes to music copyright in the US, especially as regards streaming music services. What does “streaming” refer to in this context? Basically, it occurs when a provider makes music available to listeners, over the internet, without creating a downloadable or storable copy: “Streaming differs from downloads in that no copy of the music is saved to your hard drive.”

“It’s all about the Benjamins.”

One part, by far the largest change in terms of money, provides that a new royalty regime be created for digital streaming of musical works, e.g. by services like Spotify and Apple Music. Pre-1972 recordings — and the creators involved in making them (including, for the first time, for audio engineers, studio mixers and record producers) — are also brought under this royalty umbrella.

These are significant, generally beneficial results for a piece of legislation. But to make this revenue bounty fully effective, a to-be-created licensing entity will have to be set up with the ability to first collect, and then distribute, the money. Think “ASCAP/BMI for streaming.” This new non-profit will be the first such “collective licensing” copyright organization set up in the US in quite some time.

Collective Licensing: It’s not “Money for Nothing”, right?

What do we mean by “collective licensing” in this context, and how will this new organization be created and organized to engage in it? Collective licensing is primarily an economically efficient mechanism for (A) gathering up monies due for certain uses of works under copyright– in this case, digital streaming of musical recordings, and (B) distributing the royalty checks back to the rights-holding parties ( e.g. recording artists, their estates in some cases, and record labels). Generally speaking, in collective licensing:

“…rights holders collect money that would otherwise be in tiny little bits that they could not afford to collect, and in that way they are able to protect their copyright rights. On the flip side, substantial users of lots of other people’s copyrighted materials are prepared to pay for it, as long as the transaction costs are not extreme.”

—Fred Haber, VP and Corporate Counsel, Copyright Clearance Center

The Act envisions the new organization as setting up and implementing a new, extensive —and, publicly accessible —database of musical works and the rights attached to them. Nothing quite like this is currently available, although resources like SONY’s Gracenote suggest a good start along those lines. After it is set up and the initial database has a sufficient number of records, the new collective licensing agency will then get down to the business of offering licenses:

“…a blanket statutory license administered by a nonprofit mechanical licensing collective. This collective will collect and distribute royalties, work to identify songs and their owners for payment, and maintain a comprehensive, publicly accessible database for music ownership information.”

You “Can’t Buy Me Love”, so who is all this going to benefit?

In theory, the listening public should be the primary beneficiary. More music available through digital streaming services means more exposure —and potentially more money —for recording artists. For students of music, the new database of recorded works and licenses will serve to clarify who is (or was) responsible for what. Another public benefit will be fewer actions on digital streaming issues clogging up the courts.

There’s an interesting wrinkle in the Act providing for the otherwise authorized use of “orphaned” musical works such that these can now be played in library or archival (i.e. non-profit) contexts. “Orphan works” are those which may still protected under copyright, but for which the legitimate rights holders are unknown, and, sometimes, undiscoverable. This is the first implementation of orphan works authorization in US copyright law. Cultural services – like Open Culture – can look forward to being able to stream more musical works without incurring risk or hindrance (provided that the proper forms are filled out) and this implies that some great music is now more likely to find new audiences and thereby be preserved for posterity. Even the Electronic Frontier Foundation (EFF), generally no great fan of new copyright legislation, finds something to like in the Act.

In the land of copyright wonks, and in another line of infringement suits, this resolution of the copyright status of musical recordings released before 1972 seems, in my opinion, fair and workable. In order to accomplish that, the Act also had to address the matter of the duration of these new copyright protections, which is always (post-1998) a touchy subject:

For recordings first published before 1923, the additional time period ends on December 31, 2021.
For recordings created between 1923-1946, the additional time period is 5 years after the general 95-year term.
For recordings created between 1947-1956, the additional time period is 15 years after the general 95-year term.
For works first published between 1957-February 15, 1972 the additional time period ends on February 15, 2067.
(Source: US Copyright Office)


(Photo by Theo Wargo/Getty Images for Live Nation)

Money (That’s What I Want – and lots and lots of listeners, too.)

For the digital music services themselves, this statutory or ‘blanket’ license arrangement should mean fewer infringement actions being brought; this might even help their prospects for investment and encourage new and more innovative services to come into the mix.

“And, in The End…”

This new legislation, now the law of the land, extends the history of American copyright law in new and substantial ways. Its actual implementation is only now beginning. Although five years might seem like a lifetime in popular culture, in politics it amounts to several eons. And let’s not lose sight of the fact that the industry got over its perceived short-term self-interests enough, this time, to agree to support something that Congress could pass. That’s rare enough to take note of and applaud.

This law lacks perfection, as all laws do. The licensing regime it envisions will not satisfy everyone, but every constituent, every stakeholder, got something. From the perspective of right now, chances seem good that, a few years from now, the achievement of the Hatch-Goodlatte Music Modernization Act will be viewed as a net positive for creators of music, for the distributors of music, for scholars, fans of ‘open culture’, and for the listening public. In copyright, you can’t do better than that.