A Look At This Week’s Show:
- Maintaining financial vigilance
- Fighting the National Defense Authorization Act
- Calibrating your personal strategy for 2012
The McAlvany Weekly Commentary
with David McAlvany and Kevin Orrick
Kevin: David, Happy New Year! It’s a strange one, though, I have to admit. We were sitting here talking about 2011. But, as we look into 2012, we have people right now actually looking at numbers and saying, “Hey, the recession is over. Was that really a recession? There are people who said it was greater than the Great Depression. Was that really greater than the Great Depression?”
David, I don’t know that we have really felt, yet, the default of the world sovereign system.
David: Kevin, this is what is so fascinating. Coming into the new year, there is, again, sort of a bifurcation, two different views, two very different camps – one that says, “Look, we have record earnings from the S&P.” Of course they are ignoring the fact that the majority of Dow 30 stocks have actually lowered expectations for the fourth quarter, and are looking at an incredibly slower start to 2012.
Kevin: 2011 was a loss year for the S&P, so for people who are thinking that this is a recovery, where was that in the stock market?
David: But there is also, on one hand, the sense of greater nervousness that the policy makers are really up against it. They don’t have many tools to use. The ones that they have tried using have at least kept us above water, but we are not returning to a healthy environment. Unemployment is still high. Those are the defined concerns of one crowd.
The other crowd is on the other side saying, “Hey, if we will just think more positively, we will be above this, and beyond it, in a New York second.”
Kevin: But for those who can print money, like the United States. We have exorbitant privilege, according to Barry Eichengreen, and I agree with that. We don’t necessarily feel the pain, though we can see what is on the news. Let’s face it. We’ve witnessed more social unrest last year than any time since the late 1960s.
David: Kevin, I think this is just an important recollection. Looking at 2011, and thinking about all the things that changed in terms of political power structures, it was a year of almost uninterrupted drama in the news headlines. We began in December of 2010 with the gentleman who immolated himself in Tunisia, set himself on fire, in response to sugar prices being too high.
Kevin: That reminds me of the 1960s. We were seeing those same images at that time.
David: It was in Tunisia that we saw the beginning of the end, if you will, for that regime – Tunisian riots, followed by a new government, then Egyptian rights, and a new government, then Libyan riots, along with western support, and a new government. We have Syrian riots, and the government now hanging by a thread. We had riots last year in cities like London, New York City, Moscow. Actually, throughout countries like China, Chile, Israel, and India – we are talking about mass riots, even on a larger scale, last year, than India normally sees – there are generally 70,000 instances of civil disobedience, not full-blown riots, but protests of one sort or another. In China, last year, it was even greater.
Kevin: Think about Greece and Italy, and the European countries, especially what we call the PIIGS countries – that’s not a very flattering title, but it includes Portugal, Ireland, Italy, Greece, and Spain.
David: Again, Kevin, if you look at 2011 and consider the political power structures that were upset – as you mention, we have Greece, which had a new government put in place in 2011, we have Italy, and a new government put in place in 2011, we have the same thing in Portugal, and we have the same thing in Spain, both with new governments in 2011.
It appears that whatever is in the air, frankly, is not very good for incumbents, or frankly, anyone at the end of a populist whip. It just depends on what issues they are focused on. And frankly, it doesn’t matter what your belief system is. If you are in charge during this period of stress and strain, you will be held responsible, or the finger is going to ultimately be pointed at you.
Kevin: David, there is something that has occurred in the last week that has almost sneaked under the radar. Back in 1913 we had the passage of the Federal Reserve Act, and it was probably the greatest change in U.S. history. It changed our entire monetary system, yet we don’t understand it, still. Many people don’t understand the Federal Reserve.
But what occurred during this particular holiday season, and in 1913 they also sneaked it in during the holidays, is that we have lost our constitutional rights. Congress voted for something, almost across the board, that takes away our constitutional rights. They can jail us right now, any of us, without any constitutional reason.
David: Kevin, just to give a preview, this is the kind of thing that can lead to civil war, and I am saying that in a strange way, because if you look at the causes and the causal chains, if you will, there are many other things, of course, that have to be in the mix. But when you take away the rule of law, and the defense of individual liberties by the rule of law, you have done something that creates an incredible amount of political and social instability and insecurity, and leaves everything on the table that would normally not be on the table in a law-driven society.
What are we talking about? Going back to what we saw in 2011, Kevin, we have seen people, by and large, act with decorum, and the idea here is that we certainly hope that frustration does not smolder into anger, or any greater violence. We have seen things fairly well controlled with Occupy Wall Street. We have seen the riots in London and Moscow, where we are not talking about bloodshed at this point – it was in North Africa, and perhaps in the Mediterranean region where we have seen a lot more violence and indignation.
If there is, in 2012, an escalation, if you will, of greater anger, greater anxiety, and greater violence, that would only serve to justify the entrance of police state tactics – intimidation, counter-violence, things that, frankly, we hope we never see. Particularly dire consequences, are even, as you mention, now in the mix here in the United States after the weekend signing of the National Defense Authorization Act.
Kevin: Which basically says that they can jail anyone, does it not, if they see them as a threat to the country? And they can hold them indefinitely.
David: Kevin, as far as I understand the presidential signing statement, which went along with the signing of the NDAA, he said, “Under my administration, my interpretation will be different, and this is what it will be,” and that essentially comes due at the end of 2012. So, if he is re-elected, I don’t know if the presidential signing statement is in place, or if he has to actually create another one, but the reality is that this is changing the structure of the relationship between the governed and the governing, in a very unhealthy way.
Kevin: And of course, it is in the name of safety, and I have to think back to what Ben Franklin said. “When the governing bodies have decided that safety is more important than liberty, we actually deserve to lose both.” Does that not happen? All these things are passed on best intention, are they not?
David: Certainly, and that is, I think, one of the issues here, that you are really talking about a subnote, wherein American citizens deemed to be a threat by the president, can be indefinitely detained without any due process whatsoever. There is no call to your lawyer, there is no court hearing. You could sit and rot in Gitmo for the next 30 years, and there is absolutely no recourse for you. That, Kevin, is expressly unconstitutional, and as such, my feeling is that every legislator who voted for it should be thrown out of office in any ensuing election.
This is the kind of accountability that needs to be appreciated between the governing and the governed. It is our job as citizens to voice concern. We talked about the book, Exit, Voice, and Loyalty, and it is one of those things where a citizen, or any member of a body, whether that is a company, or what have you, will either, out of a sense of loyalty, stay connected, give a voice, and that is like letting off steam and thus remaining connected to that body, or they will simply exit.
Exit, in terms of a body of business, means that you will no longer do business with a company that you don’t like, or you will leave as an employee because you don’t feel it is a just situation. But that exit, in terms of citizenship – I’m not talking about a mass exodus of people renouncing their citizenship – is protests. That’s why I started by saying, the document that was signed by the Executive Branch, if not addressed by the judiciary, would be the first in the causal chain of things, which five, ten, or fifteen years from now, could lead to civil war here in the United States.
Kevin: When the U.S. citizens lose the defense of the rule of law, they have lost everything that the constitution grants them, and at that point, they are at the whim of whatever leader is in power.
David: Right, because you are essentially having to live in fear of the arbitrary use of power against you. So, if you lose every reason to honor the powers that be, and in turn, fight, because you feel threatened by them, again, looking back to the causal chain of what originally got this going, the destabilizing event, which maybe only finds traction five, ten, or fifteen years later, Kevin, I think this is just it: The National Defense Authorization Act is just such a thing, and you were right to quote Ben Franklin, because we don’t deserve liberty, or safety, if we are willing to so superficially sacrifice liberty for something as surface-oriented as safety.
Kevin: Well now, David, where do go from here? This has been passed by Congress, and it has been signed by the president. When you are talking about exit, voice and loyalty, what do we do? We have to speak up somehow, and the only way, constitutionally, that we are allowed to speak up, at this point, is at the polling place, and with our freedom of speech.
David: I think there are two places to press that. One is that the current mix of Republicans and Democrats will have, with this act, destroyed the social contract with the stroke of a pen. I think, to communicate that back to them, again, just letting them know that they have lost your vote, and that you are pledging monetary support to anyone, anyone, that opposes them in the next election on the basis of this issue.
Kevin: David, that means throwing them all out.
David: I’m okay with that. It was almost a universal consent that we needed the NDAA, even with the baggage that came with it, and this is where legislators need to know that they are crafting laws that are supposed to be consistent with the constitution, and here is something that is so grossly anti-constitutional. Again, I am hurling an insult at both the Republicans and Democrats for being so small-minded in this way.
Kevin: It would be wrong to blame the Obama administration.
David: Absolutely not. This does not rest on his shoulders. He may have signed it into law, but guess how many hundreds of people, from all across this land, who purport to represent you and me, signed it into law first, who wanted it as an ideal?
Kevin, this is why we have three parts in our governmental system. We have found two that are lacking. We hope and pray that the judiciary will see this as unconstitutional and throw it out. If they don’t, then we need to make our voices heard at the polls. So as we come into this next year, Kevin, an election year, it is very important that we focus the attention of the governing on the real interests of the governed, and that is, that we have our constitutional rights respected.
I could care less about the issues raised by Occupy Wall Street, or the Tea Party, as it concerns fiscal issues. Those things will come and go, with long-term business and credit cycles. As much as I care about the solvency of this country and the stability of our dollar, nothing compares in significance to our constitutional rights being sacrificed for something as silly as safety.
Kevin: David, in this particular case, I know you don’t agreed with the ACLU very often, but the ACLU actually agrees with what you are saying right now.
David: They came out with a statement immediately after the signing, and we are talking about within minutes of the presidential signing on the 31st. While we were toasting with champagne and bringing in the New Year, the president was signing something that, as even the ACLU said, “This is an abomination in terms of our civil rights.”
Kevin: David, I’ll tell you something. After going out and talking to the guys at Occupy Wall Street, which we have talked about on this program before, and I wasn’t impressed, but one thing that I have seen about the protests here in America, maybe even in Western Europe, that is different as we look east, is that these people right now are focusing on “capitalism” and they are blaming the financial markets and they are blaming the big bankers. Of course, the big bankers should take some blame. But they seem to be completely leaving out blaming the politicians, and what we saw on December 31st means we should be looking at the politicians, not capitalism.
David: Kevin, that is exactly right. I think what we have allowed politicians to have is a free pass in 2011, at least in the U.K. and in the United States. The emphasis has been much more on the money mandarins, and I think, actually, we will see that change as we move into 2013 and 2014.
Kevin: When I talked to people in Occupy Wall Street, no one cared anything about protesting in Washington. They just wanted to protest in New York, because it must be the guys in the suits.
David: Kevin, I think that is a critical distinction between the global protestors and the emphasis placed on politicians, the pressure for real political change, and the protestors here in the “West” who are putting more of an emphasis on changes in banking, changes in fairness, changes in redistributive policies.
I think that is the real critical difference. The rest of the world seems to be going straight for the political class, and that on a wholesale basis. We would say that social unrest on a worldwide scale, not only was seen in the 2011, but it is going to continue in 2012, because we have newly enfranchised politicians who are being given the impossible task of maintaining stability in a totally destabilized world.
The great de-leveraging, or unwind, of 50-60 years of credit domination in the marketplace is what these politicians are up against, and as the West takes its three steps back, the developing world, the emerging markets, they take their steps back, as well. They take their lumps, as well. And regardless of who is in political power today, the same question is going to be asked by their constituents: “What are you doing for me today?” – even the ones who put them in power, rejecting the old power structures, because they didn’t feel like they were being tended to.
Kevin: David, sometimes we have a myopic mindset. We were just talking about constitutional rights. We have certain things that we value here in the West. As you look east, people don’t value the same types of things. When you have a society that has been ruled by a dictator or a tyrant, and they have been kept in order, be careful what you wish for, because that voting public may not have the kind of values that you would want to have running the country.
David: I think this is the illusion that we have when we think of a “democratically elected government” – that all of a sudden that is going to bring the virtues and full representation of the people. Again, bringing back this idea of the rule of law and how important that is to our democratically elected government in the United States, law is paramount. The constitution is paramount.
If you go back to Czechoslovakia, and Vaclav Havel, after the Velvet Revolution, what was the first thing that he did? He said, “I will not be in office in the next election, and I am setting my limit. I am setting my own term limit to two years. That is the time frame we have to create a constitution, something that will endure through the generations.” And that is, in fact, what gave Czechoslovakia its great success.
Kevin: I remember the patriots, the founding fathers, who did the same thing here in America. George Washington – they were trying to make him King George, and he set his own standard, and said, “No, I’m not going to do that. You don’t want another King, you want transitory power.”
David: And that is the nature of democracy, Kevin. Unfortunately, if you don’t have the substructure of the rule of law, you are really not talking about the greatest number of people who get to vote, you are talking about the loudest voices that get heard, and that is what becomes a representation of the people.
Kevin: So, in the years 2012 to 2103, we may begin to wince. It may really be painful, because what we are seeing is that these new democracies are really just old extremists now regaining power.
David: That is certainly the case, if you are looking at the Middle East, and this is where we see the Muslim Brotherhood in Egypt already asserting its power, and what was viewed as a charitable organization looking for peace and generosity, we find, that they, in fact, are having to reassert power, reassert dominance. All of the riots in Tahrir Square are happening again, already, because people are not having their expectations met. We are already seeing sectarian differences expressed. And while it worked last time – show up in the square, and if you are loud enough, people will respond – now they are being loud and the Muslim Brotherhood is saying, “If you are not quiet, we are going to shoot you.”
This is an issue where, again, Kevin, your comment is appropriate. The new democracies, which the West is so keen on seeing enfranchised, are really just the old extremists that have received the blessing of the West because the process involved “democratic elections.” But their priorities and their intentions were never questioned, and that should have been done at the front end.
Kevin: You know, David, we live in such a complicated time, too. Think of the James Bond movies. That is probably one of the best meters as to who your enemies are. Back in the old days, my son and I were talking about it. He is only 21, so he doesn’t really remember the Cold War, but in a weird way, the Cold War was comfortable, because you just had Russians who were the bad guys, and you just had two sides. But at this point, and we talked about this before, there is a lack of headship and we have old extremists coming into power, old tyrants being either shot or taken out of power. Nobody likes a Mubarak, necessarily, or a Khadafy, or a Saddam Hussein, but let’s face it, from a geopolitical standpoint, things are being destabilized.
David: It was just a simpler world. I’m not saying it was a better world, but it was easier to make judgments and define relationships in that Cold War polarity. There were the good guys and there were the bad guys, and everybody lined up accordingly. You were a friend of the good guys, which made you a good guy, or you were a friend of the bad guys, which made you a bad guy.
Kevin this is the point: Those who are democratically elected – and for us that is a moral victory, as we have seen democracy spread throughout the Middle East – now may, in fact, behold things, or believe in things, that we find very morally objectionable.
Kevin: David, let’s face it. Not everybody has a religious directive for world domination, but there are some of the people who are running some of these countries who believe that they have, because of their god, a reason to take over the world. So, yes, democratically elected, and we are talking about relationships based on trade or security, or what have you, but they may have a motivation that is far beyond what we can imagine.
David: Kevin, I think, as an indication of that, consider the al Qaeda-linked group in Nigeria that, over the weekend, was responsible for several bombings. It’s a militant group whose name translates “western education is sin.” That’s the literal translation.
Kevin: So it’s good to know the language if you want to know what the motive is.
David: And as long as we are talking about multicultural expression and a greater globalized, homogenized world, listen. You want to be homogenized with this? Great! Western education is sin. That would include everything that isn’t directly out of the Koran. Basically, we have excluded, by defining the only source of education as the Koran. That is problematic, I think, for many in the West. That is problematic for many in Europe. That is problematic for the whole world. But we have this flashpoint, Kevin, and I think this is something that we need to remain sensitive to – Iran, of course, with their nuclear rods and their surface-to-air missiles, and their saber-rattling over the Strait of Hormuz.
Kevin: And now, our drone.
David: Yes, of course, they have our drone, which they shot down. Of course, that’s not what happens when you shoot something down. It usually ends up in a thousand pieces.
Kevin: It sure looked like it landed well to me. There is an old saying when you are a pilot, “Any landing where you walk away from the plane is a good landing.” Well, there was nobody to walk away from the plane, but they could have.
David: Humpty-Dumpty – this would have been a magical Humpty-Dumpty story, where you definitely got it put back together again.
We have growing tensions in the Middle East, and I think this is one of the things that we will have to explore in 2012, the irony of destabilization by getting what we wanted. We chose safety, and we ended up with what? We chose democracy, and we ended up with what? There are probably about ten different themes which we can explore this year, Kevin, where we thought we were saying yes to one thing, and we got something else completely different.
That is the same strange irony that we have with the derivatives market. We have someone who is willing to leverage their balance sheet. If you look at the average U.S. financial institution, or global financial institution, and they are willing to leverage their balance sheet 10-to-1, 12-to-1, 17-to-1, 25-to-1 – massive leverage. Of course, massive profits, with very little capital involved. And they are willing to take that risk because they have taken out insurance policies to mitigate some of that risk.
Kevin: Which are called credit default swaps.
David: Credit default swaps is one of the key varietals. And guess what? We discovered in 2011 that credit default swaps aren’t worth the paper they are written on, if you get politicians involved. Why? Because most politicians have a legal background, and if you have a legal background you know that words are subject to interpretation, and we just discovered the reality that the word default is subject to interpretation. A 50% haircut is not a default as long as it is done on a “voluntary” basis. A curious loophole for the whole world of finance, which is leveraged to the gills on the basis of this insurance component that allows them to be “safe.” And again, the things that we asked for are not necessarily what they seem.
Kevin: That’s what I don’t understand, Dave. We have talked over the last couple of years about the danger of all these derivatives sitting out there that could be triggered at any moment if we saw a default. What we have seen instead of “default” – maybe it’s default with a small “d,” not with a capital “D” – these guys have basically said, “Let’s not call it default, let’s call it something else, so that those insurance policies don’t trigger.” These guys still took a 50% haircut, but David, that credit default swap cloud is still out there, and all it would take is the right word being used, and it would still be triggered. Isn’t that the case, or are the CDSs gone?
David: No, the CDSs are not gone. They are still there. There is very little reform that has taken place since 2008. As in our conversation with Rick Buchstaber, this was an amazing discovery from someone who is going before Congress and saying, “We have to change this, we have to regulate the market, we have to have these things traded on an exchange. And if we don’t, you have no idea what you are staring down the barrel of.”
Kevin, this was the question that was asked on Fox News last night, in the interview that I did with them. They asked, “2008, reasonable problems. What do we see in 2012?” And my response was, “2008 was a crisis, but 2012, 2013…”
Kevin: Is maybe the crisis.
David: The crisis.
Kevin: Now that scared the commentator a little bit, David Asman, and he even said that.
David: I think the issue here, Kevin, is that we think that we have gotten past the worst, when, in fact, we have changed nothing. And the things that have changed are actually creating other areas of destabilization, and now we are talking about politics and geopolitics. But as we discussed, negative feedback loops from one of these areas – politics, geopolitics, finance, economics – can end up having a negative influence on all, as they come back around and surprise.
Kevin: Let me ask you a question, David. This is 2012-related, but it is actually bringing it down to a more personal level, because we have been talking about the state of the world. You and I are not going to change the state of the world, but we are talking to people who are saying, “Okay, I have a family, I have a household, I have savings. Are we going to coast through 2012?” Granted, 2011, was pretty turbulent, but, for the most part, we have coasted through an entire year without really feeling the effects of these things. 2012 is different.
Let me ask you. From a personal point of view, for the people who are listening, who say, “Okay, what do I do right now? What should I look at with my finances?” Gold. Let me just take it to the base of the triangle, to start with, David. Gold had a good year, from $1300 to close to $1600 by the end of the year, but it also had fallen from $1900 in the last quarter. What are we looking for on gold at the base of the triangle, and maybe the rest of the triangle? Would you comment?
David: I think that applies specifically to the financial, and we could certainly talk about the social and political, as well, because these are areas, Kevin, where, as we suggested last week, we will see extreme regime change. We are coming into a period in time where, as Franck Biancheri suggested, in the context of crisis, time gets shrunk and compressed, and the amount of things that do change in a very short period of time will shock and amaze you.
2012 and 2013 will see social unrest, and will see political change as a result of that. But certainly, we also focus on the financial element. We sent out a news alert to everyone on our email list on Friday. Gold hit the 65-week moving average. This is a technical range that gold has recovered from every time over the last ten years. If we are still in a bull market, and we have good reason to believe that we are, then, as a buying opportunity, as a place to be reallocating, as a place to look and say, “Okay, well, now that that asset class has been fully compressed, what can we expect?”
Kevin, I think we are actually standing on a loaded spring when we are talking about the precious metals, coming into 2012 and 2013, again, because we have both the political change, and the social unrest, in the background, 2011 being a precursor in that regard. We have had a preview of coming attractions. We have seen it in sort of the fringe world, and coming to a theater near you, is Washington D.C., New York, San Francisco, Seattle, and if we are talking about Moscow, then throw in half a dozen other cities. If we are talking about London, then throw in half a dozen other cities in the U.K.
Kevin, where we are seeing social unrest, we will see social unrest on a more frustrated scale, on a more out-of-control scale, and the response to that, is a much more controlled, and frankly, unfortunately, more violent response. Those are the issues, Kevin, which I think serve now as the structure, the undergirding, for people making a decision like this.
I could choose dollars, and why would I? Because I see the systems, as they are, being called into question. I don’t know who is going to be in power next year. I don’t know, even if we have a free and fair election in 2012, that they will maintain power for six, or twelve, months. Those kinds of questions will emerge in the context of an unstable social environment.
Kevin, remember, the last time we had this much social unrest, and you brought up the 1960s, we have not seen that kind of social unrest in the U.K., or in Moscow, and I don’t think that is a Putin concern today, or a concern for this current administration, nor should it be. Because again, I think people can, and should, act with the requisite decorum, to pursue the rule of law, the application of the rule of law, and the healthy expectation of the governed, stating their opinions to the governing, in a healthy way.
But Kevin, this is the context where investors say, “All bets are off. All bets are off on the dollar. All bets are off on Treasuries. All bets are off on a healthy, functioning stock market. All bets are off in terms of free trade.” We can very easily see this morph into what was also the summer of 1931, where a regional banking crisis in Eastern Europe became a banking crisis in London, became a banking crisis in the U.S., and what was a severe recession became a major depression.
That is the environment, and whether you are looking at the political, whether you are looking at the economic and financial, it is a period of extreme dysfunction and chaos, and in that environment, Kevin, people scramble for control. I look at gold being at the 65-week moving average, and say, “If not now, when?” There is only one instance in the last ten years where this level was breached, Kevin, and it was in the fall of 2008. And by the way, the asset did recover by the end of the year, so in spite of a 30% decline, it did recover to a 5-6% positive return by the end of the year.
Kevin: David, wouldn’t you say, for the person who is saying, “All right, there may be chaos in your life, but my life is just perfect. Don’t worry about it, I think maybe it’s a recovery. You guys are just crying wolf. That’s all you’re doing, just crying wolf.” So let’s just say, we say, “Yeah, okay, that’s it, just crying wolf.”
David: Kevin, that’s the value of the perspective triangle, because it allows you to be right and wrong, regardless of the outcome. If it is a deflationary vortex that we get sucked into, and everything gets sold down to zero, guess what you have a third of your assets in? The one thing that people want the most – cash. Great! You’re a hero! Your cash, in terms of purchasing power just expanded a multiple, and you can buy the world for ten cents on the dollar, making the other two-thirds of the portfolio, which may have been hit hard, inconsequential.
Kevin: But let’s say it’s inflation.
David: In that case, your cash is worth nothing, your equity values succumb to the pressure in the market of an earnings crisis, and guess what? Your insurance policy in the form of physical metals pays off, and it doesn’t matter what happened to your cash, and it doesn’t matter what happened to your equity portfolio. It becomes inconsequential.
And if, on the other hand, the Pollyannas of the world today are saying that yes, we are in recovery, the recession is past, we have a bright future today and tomorrow; if they are right and we are wrong, guess what? You are leveraged on the upside and a third of your portfolio will, probably, over a 5-7 year period, make up for any losses that you have had in the cash position, and in the metals position, in your portfolio.
Kevin: So the answer to the question that I posed a few minutes ago, as to what a person should do with their own finances, still doesn’t change. It is a third in gold, a third on the left side for growth, and a third on the right side for cash, or at least something where you are aware of those percentages.
David: 2012 requires that you take a balanced approach to the markets. There are these different views, as we pointed out when we began the conversation today, Kevin, of extreme concerns and extreme happiness, that, in fact, the worst is behind us. When people have the facts all lined up on both sides, and they happen to be opposing and contradictory, you realize that no one knows what is going to happen next.
Taking a balanced approach, a diversified approach, which we find the perspective triangle to be … yes, I think that is the best way to approach this year – a most conservative one – certainly, in light of the facts as we see them.
