Submitted by David Stockman via Contra Corner blog,

Carly Fiorina proved at least one thing last week. Namely, you don’t have to be a career GOP politician to come across as a war-mongering neocon and abortion-bashing statist demagogue. She took the stage fully formed as a frightul modern-day Torquemada, threatening to bring fire and brimstone down on anyone running afoul of her righteous indignation and crystal clear grasp of the Truth.

That included about everyone on the world stage, save for the presumably sainted Bibi Netanyahu. As for the others, Putin was to be given the silent treatment and a stiff dose of NATO encirclement, while Iran was to be occupied by US inspectors at “every military and every nuclear facility…….. anytime, anywhere……”

In trying to sound like she actually knows something about national security policy there was not a single neocon shibboleth that she didn’t name check, nor any possibility for bolstering Washington’s military might she failed to mention:

Having met Vladimir Putin, I wouldn’t talk to him at all. We’ve talked way too much to him…….What I would do, immediately, is begin rebuilding the Sixth Fleet, I would begin rebuilding the missile defense program in Poland, I would conduct regular, aggressive military exercises in the Baltic states. I’d probably send a few thousand more troops into Germany. Vladimir Putin would get the message…..We could also, to Senator Rubio’s point, give the Egyptians what they’ve asked for……..We could give the Jordanians what they’ve asked for…bombs and materiel. We have not supplied it…We could arm the Kurds.

Yada yada. If you thought Fiorina was actually running for CEO of the military-industrial complex, you would not necessarily be wrong. After the above riff, she was just getting warmed-up:

We need the strongest military on the face of the planet, and everyone has to know it. And, specifically, what that means is we need about 50 Army brigades, we need about 36 Marine battalions, we need somewhere between 300, and 350 naval ships, we need to upgrade every leg of the nuclear triad…….we need to reform the Department of Defense, we need as well… …to invest in our military technology, and we need to care for our veterans so 307,000 …aren’t dying waiting for health care.

Ok, Carly has a distinct facility for memorizing flash cards. But here’s one she missed. Contrary to her suggestion from the debate transcript below, the Russians did not just show up in Syria last week because Iranian General Suleimani recently flew to Moscow.

Actually, the Russians have been in Syria since the CIA’s abortive coup attempt in 1958. That was exactly one year after the General was born and while his country was being ruled by the brutal tyrant the CIA installed on the Peacock Throne to keep watch on the Persian oilfields:

By the way, the reason it is so critically important that every one of us know General Suleimani’s name is because Russia is in Syria right now, because the head of the Quds force traveled to Russia and talked Vladimir Putin into aligning themselves with Iran and Syria to prop up Bashar al- Assad……….Russia is a bad actor……. the only way (Putin) will stop is to sense strength and resolve on the other side, and we have all of that within our control……We could rebuild the Sixth Fleet. I will. We haven’t.

Had enough? It’s not just that Fiorina didn’t get the memo that the Cold War ended 25 years ago, and that the massive military build-up she name checked would blow the current generous $523 billion sequester caps on Pentagon spending sky high. By my estimate, Fiorina’s senseless armada and new force deployments would cost at least $800 billion per year.

But that is just plain nuts. After all, at the peak of the cold war in 1960, the great General Dwight Eisenhower not only warned the nation about the dangers of the military-industrial complex, but also affirmed that a defense budget of $400 billion in today’s (2015) dollars of purchasing power was more than enough to contain the Soviet Union.

And that’s when the latter was run by an erratic dictator who said he would bury us; had taken the lead in the space race; had 4 million men under arms, upwards of 50,000 tanks and an immense nuclear arsenal at its disposal; and had not yet eviscerated its economy during the final decades of socialist plunder and asphyxiation.

So why in heavens name would a quasi-bankrupt America need to spend 2X more than Ike’s budget? That is, in a world in which the Soviet empire is no more, and in which we have no industrial state enemy left on the planet, why would you propose to pour hundreds of billions more into that swampland of waste otherwise known as the Pentagon?

Surely it is not because Putin’s Russia is a threat to the safety and security of Lincoln NE or Worcester MA or any other place in America. For crying out loud, the Russian GDP at $1.86 trillion last year was 25% smaller than the $2.3 trillion GDP of California.

Moreover, the kleptocracy that Putin has built is every bit as disabling as the rickety façade erected by the Soviet commissars. In fact, nearly the entire Russian economy is a bloated artifact of the central bank driven global credit boom that is now coming to a screeching halt. Subtract oil and gas, minerals and metals, fertilizer and wheat, and like and similar natural resources and industrial commodities from the Russian economy, and you do not have much left.

Stated differently, the Soviet Union perished not because Ronald Reagan threatened a bad joke called Star Wars or wasted countless billions on a 600-ship Navy, 10,000 new tanks and fighting vehicles, 18,000 new aircraft and helicopters and hundreds of billions more on weapons of power projection like cruise missiles and amphibious landing craft.

No, the Evil Empire collapsed on its own weight; it was a victim of the very central planning and socialist statism that Fiorina claims to oppose.

Yet Putin’s kleptocracy is now falling victim to just another form of statism and its deflationary aftermath. That is, monetary central planning as it has been practiced by the Fed and most of the world’s central banks for the past two decades. The fact is, the Russian ecomomy is sinking like a stone, and has no prospect for recovery in a world in which $35/bbl oil and $0.70/ lbs aluminum are here for an extended duration.

Besides that, if Fiorina wants to wonk it up about alleged “aggression” she needs to review her flash cards on Russian history. The fact is, Catherine the Great paid the Ottomans good money for Crimea; and that was 65 years before Washington “annexed” California at the end of some bayonets in 1846.

The Russian “black sea fleet” has been home ported in Crimea ever since at the Russian built naval base in Sevastopol—–under czars and commissars alike. It ended up in Ukraine only after Kruschev gifted it to his fellow Ukrainian apparatchiks during a drunken night of map-jiggering in the old Soviet Union.

And Putin appeared to be happy to make payments on his 40-year rental agreement on Russia’s naval equivalent of San Diego until he was unexpectedly called from his box at the Sochi Olympics in February 2014. Thereupon he learned that a Washington funded coup had deposed the constitutionally elected President of the Ukraine, and that the latter had been replaced by a putsch consisting of anti-Russian, neo-fascist political adventurers, ruffians and plutocrats.

There was surely some “aggression” involved in all of this, but it originated with Fiorina’s neocon tutors, not the current incumbent of the Kremlin. Indeed, the flash cards which apparently fell out of Fiorina’s briefing deck also failed to mention that Crimea has been the epicenter of Russian nationalism since the Charge Of The Light Brigade in 1854, and was 90% populated with Russian speakers who were not about to be ethnically cleansed by the upstart regime in Kiev.

Likewise, another missing flash card failed to note that the Donbas was Russian, not Ukrainian, and that the history was painted in iron and blood.

The Donbas was Russian after the 1930s because Stalin sent its native Ukrainians and Cossacks to the Gulag in order to make room for “reliable Russians” in the coal mines, steel mills, chemical plants and machinery works located there and which were the backbone of Soviet heavy industry. And it was temporarily Nazi controlled after Hitler’s Wehrmacht, along with the Ukrainian nationalist collaborators, brutally occupied it on the way to Stalingrad—–only to have the carnage revisted upon the west of Ukraine when the Red Army came through in hot pursuit of the retreating Germans.

The inhabitants of the Donbas and Crimea thus have reasons for enmity and distrust of the Ukrainian nationalist who have seized power in Kiev—-deep historical reasons that couldn’t have been put on a simple flash card, even if Fiorina had memorized it.

Indeed, the dangerous untruth of Fiorina’s bluster—–and that of the rest of the GOP candidates except for Rand Paul——is that Moscow has invaded an innocent neighbor. In fact, the Ukrainians and their Russian-speaking countrymen have resumed a civil war that has been underway for centuries, most of which time no such nation as the Ukraine even existed. It could be solved with no more risk to America’s security than the partition of the Czech Republic and Slovakia are few years back.

So in proposing that American spend itself silly arming-up for threats that even Eisenhower couldn’t have imagined, who else did Fiorina have in mind?

Surely, not the red capitalists of Beijing. They long ago gave up Chairman Mao’s doctrine that communist party power comes from the barrel of a gun in favor of Mr. Deng’s theory that it can be better had from the end of a printing press.

Having pursued Mr. Deng’s path for 25 years now, they have succeeded in erecting the greatest Ponzi in human history. The resulting $28 trillion pyramid of debt and the vast excess of everything which it funded will collapse on itself as surely as did gray statism of the Soviet Union.

In any event, the suzerains of red capitalism may have no compunction about stealing intellectual capital from Intel or constructing pointless artificial islands in the South China Sea, but they are not even remotely stupid. They know that were they to bomb America’s 4,000 Wal-Marts, China would plunge into an economic dark age, and not before the entire central committee of the CPC was hung from the rafters of the Imperial Palace Museum.

So exactly who is it that is threatening to invade the Mediterranean Sea and that necessitates the “rebuilding” of the 6th Fleet? On the order of the President any day of the week, it can already be pulsed to an armada of two aircraft carriers, 40 escort ships, 175 aircraft and 21,000 people, which is to say, a mini-navy with more lethal power than any other navy in the world, except for America’s eight other carrier battle groups.

What is this soap-box warrior talking about? And hasn’t the 6th fleet already done enough damage in its purportedly under-funded condition? The failed states of Libya and Iraq are among its recent accomplishments—–so what other middle eastern nations need to be bombed and tomahawked into anarchy?

Surely not Syria. There is already nothing left after the regime-changing neocons in Washington and their allies in the Persian Gulf financed and armed the sundry armies of the Sunni jihad. That is, savage fanatics who promise to rid the world of Bashar al-Assad, his Alawite heresy and the sundry Christian, Druse, Kurd and Yazidi minorities, among others, that have been aligned with Syria’s secular rulers for 40 years.

The point is, there is already massive 6th Fleet firepower off the coast of Syria. What is missing is any reason of American national security whatsoever to bring it to bear in a civil war between the Sunni and Alawite/Shiite confessions of Islam, which have been warring for 13 centuries. And most especially not in behalf of the grasping gluttons of Qatar, who are looking for gas pipelines across Syria, or the Wahhabi coddling tyrants of Riyadh, who behead citizens for insulting the King.

Then there is always Iran. Never mind that its entire defense budget is just $14 billion or the amount that the Pentagon spends in a week, not counting Sunday. Ignore the fact that even the US intelligence agencies confirm that it has had no nuclear weapons program since abandoning a small research effort in 2003, and that its entire defense force and doctrine is strictly defensive. And forget that Iran has invaded no one in the last 100 years and has supplied fewer lethal arms to its Shiite allies in Syria and Hezbollah-Lebanon than the Pentagon left behind in Mosul and elsewhere for ISIS.

No, Carly said that on day one in the White House she would tell the Aytollah and Planned Parenthood a thing or two and all in the same breath:

I would like to link these two issues, both of which are incredibly important, Iran and Planned Parenthood……..One has something to do with the defense of the security of this nation. The other has something to do with the defense of the character of this nation.

No they don’t—not in the slightest. In linking rank demogouery about an issue the Supreme Court settled 43 years ago, and which is a matter of personal liberty, not state edict, with a mindless trashing of the Iranian nuclear deal, which is the best chance for peace in the middle east in a generation, Fiorina proved why she was an abysmal failure in business. Namely, that she is a whiz at memorizing flash cards, but has no clue as to what they really mean.

And that gets to her flimsy reason for even being in the race for the White House. Fiorina claims to be roaring business success and thereby the very CEO that America needs.

C’mon. Fiorina was a bubble finance rider at both Lucent and Hewlett-Packard, and to this day has no clue about the reasons for the carnage she left behind.

But in what is surely an unintended bit of irony, she explained to Jake Tapper during the debate why her business experience is exactly the last thing America’s debt and bubble besotted economy actually needs. Like the politicians she ridiculed, she didn’t know she was a fish, either.

Jake, I’ll tell you — I’ll tell you why people are supporting outsiders. It’s because you know what happens if someone’s been in the system their whole life, they don’t know how broken the system is. A fish swims in water, it doesn’t know it’s water.

The truth is that Fiorina was a once and failed CEO only because she rode the Lucent Bubble to undeserved fame during the blow-off phase of the massive 1990s tech bubble. Its peak market cap of $250 billion at the time of her departure for Hewlett-Packard in 1999 was not due to her business prowess as head of its major division or that ATT’s gussied up maker of prosaic equipment like switchgear had invented anything new under the sun.

Lucent’s giant but fleeting market cap was entirely a product of the Greenspan Bubble and the fact that its leadership including Fiorina had no compunction about goosing its sales by lending billions to its customers, many of who were tech era start-ups rapidly burning off their VC supplied cash.

In any event, Lucent’s stock crashed and eventually plummeted to less than $10 billion after it took multi-billion write-offs for its bad debts, laid off more than 50,000 employees and confessed to the SEC that it had doctored its accounting. More importantly, Fiorina had gotten out of dodge just in the nick of time.

In a book about her disastrous tenure at HPQ, Rakesh Khurana, a Harvard professor who studied her Lucent years minced no words:

“It’s unlikely she would have been considered for the HP job once it became clear that Lucent’s success had more to do with loose credit terms and creative accounting than any reinvention of the company as the Second Coming of Cisco”.

But it was at HPQ that her immersion in the destructive financial engineering that has become endemic in the C-suite of corporate America went full frontal. Even Donald Trump called Fiorina on her phony claims about the company’s spectacular growth during her tenure—–claims which the company’s SEC filed financial results don’t remotely support.

Despite those difficult times, we doubled the size of the company, we quadrupled its topline growth rate, we quadrupled its cash flow, we tripled its rate of innovation.

As shown below, what the company actually doubled on Fiorina’s watch was its debt. By contrast, its net income remained dead in the water for five years:



HPQ Total Long Term Debt (Quarterly) data by YCharts

But the above mismatch is not the half of it. Fiorina was a C-suite huckster, constantly appearing on CNBC and elsewhere in the financial press touting HPQ’s stock based on its non-stop financial engineering and deal-making. As her most trenchant critic, Yale Professor Jeffrey Sonnenfeld, noted,

It was Fiorina’s failed leadership that brought her company down. After an unsuccessful attempt to catch up to IBM’s growth in IT services by buying PricewaterhouseCooper’s consulting business (PwC, ironically, ended up going to IBM instead), she abruptly abandoned the strategic goal of expanding IT services and consulting and moved into heavy metal. At a time that devices had become a low margin commodity business, Fiorina bought for $25 billion the dying Compaq computer company, which was composed of other failed businesses. Unsurprisingly, the Compaq deal never generated the profits Fiorina hoped for, and HP’s stock price fell by half. The only stock pop under Fiorina’s reign was the 7 percent jump the moment she was fired following a unanimous board vote. After the firing, HP shuttered or sold virtually all Fiorina had bought.

That’s the patented story of corporate America in the age of cheap tax-deductible debt and the serial falsified stock market bubbles generated by the Federal Reserve. Trillions of M&A deals are made at vastly inflated prices that provide Wall Street’s fast money traders with 25-50% windfall rips on takeover announcements—–market moving events which they have an “uncanny” ability to sniff out in advance.

Then in a few years the advertised synergies are lost in the shuffle and the expected economies of scale become diseconomies of clashing corporate cultures, product and market incompatibility and countless other frictions and shortfalls.

But never mind. Giant goodwill and asset write-offs are taken and the CEO is paid $100 million to disappear and flush his or her failed acquisition strategy down the corporate memory hole. Meanwhile, Wall Street’s sell side analysts dismiss the resulting destruction of corporate resources as non-recurring expense, and get on with their two-year forward ex-items hockey sticks that everywhere and always point steeply higher.

That’s exactly what happened with Fiorina’s disastrous tenure at HPQ, including the $100 million walkaway. What’s worse she also pioneered the toxic financial engineering strategy which is rampant in corporate America today. Namely, the expedient of flushing more cash into the stock market than companies actually earn in order to goose stock option winnings in the C-suite, especially through massive stock buybacks with borrowed funds.

Thus, during the approximate six years of her tenure between 1999 and 2005, HPQ earned net income of $12.6 billion, but pumped $16.4 billion back into Wall Street in the form of stock buybacks ($11.7 billion) and dividends ($4.7 billion). Needless to say, distributing 130% of net income to shareholders is a mathematically unsustainable strategy, but most especially in the investment and innovation driven world of big tech.

Indeed, distributions to shareholders greatly in excess of net income are rarely a formula for long-term financial health, but in this case were especially counterproductive because Hewlett-Packard was also underfunding its fixed-asset base and sharply curtailing R&D expense relative to its acquisition bloated sales.

Thus, HPQ recorded $12 billion of depreciation and amortization charges during Fiorina’s tenure, compared to just $11 billion of capital expenditure, notwithstanding that it was the largest high tech equipment manufacturer in the world and faced brutal East Asian competitors who did not usually play by capitalist rules, and spent drastically higher amounts on CapEx relative to sales.



HPQ Total Depreciation and Amortization (Quarterly) data by YCharts

At the same time, R&D investment dropped by one-third——from 5-6% of sales to barely 4% by the end of Fiorina’s term as CEO. HPQ fell behind its ferocious global competition and never caught up.



HPQ R&D to Revenue (TTM) data by YCharts

As it happened, the Board eventually got rid of Fiorina, but not the financial engineering strategies by which she launched one of America’s storied tech companies on the road to Wall Street driven ruin. In fact, HPQ became a serial M&A and stock buyback machine that rewarded executive with periodic options winnings and fast money traders with endless opportunities to front-run stock buyback and deal announcements.

To that end, HPQ spent $76 billion on stock buybacks and dividends during 2005 through the most recent quarter of 2015, but that amounted to nearly 160% of what it earned. Not surprisingly, rising debt and under-investment in its operating business made up the shortfall.

In all, America’s once premier technology engineering company was ruined by corporate fish swimming in a bubble they did not even recognize, which enabled financial engineering strategies that defy logic and common sense.

During the entirety of the period 1999 to 2015, HPQ spent $93 billion on stock buybacks and dividends, but only earned a cumulative $61 billion in net income. At least it can be said that Fiorina comes from a corporate deficit finance school that is well suited for Washington duty.

Likewise, during those same 16 years HPQ spent upwards of $70 billion on M&A deals including the allegedly giant transformative deals in the form of Compaq, Electronic Data Systems and a British company called Autonomy.

The abysmal failure of Hewlett-Packard’s serial M&A deals became starkly evident, however, when it was recently forced to write-off nearly $20 billion of goodwill and assets for just the last two of these acquisitions. What was also evident is that in massively overpaying for bad deals, the company had wrecked its balance sheet.

During the last decade long spree of financial engineering, Hewlett Packard has spent nearly $120 billion on shareholder distributions and M&A deals, but has generated only $83 billion in operating cash flow after capital expenses.

Notwithstanding all this destructive financial engineering enabled by the falsified financial markets of modern central banking, the proof is in the pudding. The market cap of Hewlett-Packard is no greater in nominal terms than it was 17-year ago in 1998——even before Fiorina showed up to launch its relentless decline as a leader in the global technology market.



HPQ Market Cap data by YCharts

Here is powerful testimony against the Fed’s “wealth effects” policy and the consequent propping and juicing of the stock averages attendant to it. Owing to these machinations, the stock markets are now crawling with speculators capable of powerful hit-and-run forays that encourage CEOs and boards to do their bidding; that is, feed the speculative mob with another stock buyback or M&A deal. Great companies like Hewlett-Packard are now being run not by adult professionals but day-trading punters.

Carly Fiorina was one of the latter. She excelled at mastering her flash cards and pitching financial bubbles from the time of the misbegotten Lucent IPO, to her campaign for the Compaq acquisition, to her final days at Hewlett-Packard.

What she didn’t excel at was learning a single thing that qualifies her to be President of the United States—-not the least of which is humility. Indeed, having helped to destroy two once great American companies based on flash card salesmanship, it is unthinkable that she should be given the opportunity to try her flash cards again—this time with charge of the lethal power of Washington’s massive imperial machinery of war and intervention.