Monday, August 21, 2017

Downside Position

You're looking good just like a snake in the grass
One of these days you're gonna break your glass
--Electric Light Orchestra

Took on my first downside exposure in some time last Friday. Environment feels pregnant with potential catalysts, and the technicals feel like they're running out of upside gas.

Token exposure, really, consisting of small index SPX short and some XLF puts. Relative value of out-of-the-money XLF puts seemed superior to SPY at the moment. Fundamentally, financial leverage will work against the banks, I believe, if prices get moving to the downside. Technically, just to retrace the Trump rally means that the banks need to fall 20%--which seems quite within the realm of possibility.

I like them out of the money right here as an expression of a potential melt.

position in SPX, XLF

Sunday, August 20, 2017

Monumental Hysteria II

"Well, I'm sorry if the truth offends you."
--Rhett Butler (Gone With The Wind)

Previously we discussed the loss of historical perspective possible when seek to remove or destroy historical monuments positioned in public places. However, there is a good argument that they should be removed. The argument is similar to the one made in favor of removing Confederate flags flying in public places.

By 'public places,' we mean government land, buildings, and associated infrastructure owned and operated by the government. This includes but is not limited to government buildings and public parks at the federal, state, and local levels.

The display of any monument or artifact of any kind--save perhaps national, state, and local flags which can be seen as a form of geographic affiliation--constitutes a form of speech. The government does not enjoy the same freedom of speech that we enjoy as individuals. If government was free to endorse an opinion, then it could employ its virtual monopoly of force to coerce others to abide by it. The entire purpose of the First Amendment is to keep government out of the business of speech.

Viewed from this perspective, all Confederate monuments should be removed from public places. But these monuments are just the focus du jour. This argument extends to virtually all public monuments currently standing that can be construed as expressing any opinion. The low hanging fruit would include shrines to religion, war, social issues, and particular groups including minorities.

That the logical extension of this argument includes consideration about the appropriateness of even the most basic of symbols, including the American flag, demonstrates just how little speech government should be engaged in.

A similar argument, btw, can be made for dismantling public schools as it is impossible to keep them value neutral.

Does that mean that all of the monuments to these groups and issues should be destroyed? By all means no. It means they should be privatized. As Ryan McMaken proposes, those upset with the removal of Confederate monuments from public grounds should lawfully obtain them from the government or their rightful owners (or make new ones, of course), purchase a chunk of private land--perhaps near a busy intersection, and put their statues there.

Saturday, August 19, 2017


"Do not judge, and you will not be judged. Do not condemn, and you will not be condemned."
--Luke 6:37

The popular word in politically correct circles currently is 'condemn.' As in "I condemn (fill in behavior)." There are also public outcries for others to condemn (fill in behavior).

Alongside Matthew 7 and John 8, Luke 6 above suggests that we be careful with how we sling that word around.

Friday, August 18, 2017

Monumental Hysteria I

Colonel Robert Gould Shaw: It stinks, I suppose.
Tripp: Yeah, it stinks bad. And we all covered up in it, too. Ain't nobody clean. Be nice to get clean, though.
Colonel Robert Gould Shaw: And how do we do that?
Tripp: We ante up and kick in, sir. But I still don't want to carry your flag.

Following the Charlottesville riots, progressives across the country are engaging in their latest bout of hysteria: seeking to remove or destroy all monuments that this group perceived as linked to the Confederacy and/or slavery. This can be seen as an extension of the left's Confederate flag fetish a couple of years back.

Of course, tearing down statues is the socialist way. Whether those socialists originate from communist or fascist sides of the spectrum, the idea is to erase symbols from the public mind that are inconsistent with the collective message. Also, being an intolerant lot, socialists seem to possess a strong urge to blot out words or symbols that cause them negative psychic income.

As many, including President Trump and Judge Nap, have argued, removing these monuments amounts to trying to erase history. And how far do you take it? The pyramids were built by slaves. The White House was built by slaves. Washington, Jefferson, Madison, et al were slave owners. Lincoln's racism. Slaves even worked in Lincoln's White House during the Civil War. Lots of infrastructure would have to come down to be logically consistent with this movement.

As Judge Nap questions, do we really want to pretend that none of this happened? He suggests that we're in a bad place when we erase and deny history. He argues that we should remember the awful so that the pain of those memories helps prevent those bad events from recurring. Quoting Orwell's 1984:

"Every record has been destroyed or falsified. Every book rewritten. Every picture has been repainted. Every statue and street building has been renamed. Every date has been altered. And the process is continuing day-by-day and minute-by-minute. History has stopped. Nothing exists, except an endless present in which The Party is always right."

The Judge fears we are getting there today. Me too.

Although I am sympathetic to this view, there is a good argument for removing these monuments from public places. We'll discuss it next time.

Thursday, August 17, 2017

Brandenburg Doctrine

William Roper: So, now you give the Devil the benefit of the law!
Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?
William Roper: Yes, I'd cut down every law in England to do that!
Sir Thomas More: Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast. Man's laws, not God's. And if you cut them down, and you're just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil the benefit of the law, for my own sake.
--A Man for All Seasons

Judge Nap adds legal perspective to our discussion (here, here) about the Charlottesville riots and the First Amendment. The First Amendment protects speech from government infringement. Government does not grant free speech. Free speech is a natural right derived from our humanity. Rather, the proper role of government is to protect speech from invasion by others.

The ink was barely dry on the Bill of Rights before the federal government moved to abridge freedom of speech--particularly speech perceived as threatening to government itself. Alien and Sedition Acts. Lincoln's War. Wilson and FDR during the World Wars. When those infringements were brought before the Supreme Court, sometimes they were rejected and sometimes they were upheld.

At a Ohio rally in the 1960s, a KKK leader named Clarence Brandenburg verbally attacked Jews and Blacks in the federal government and urged followers to travel to Washington and produce violence against them. Brandenburg was subsequently arrested and convicted under Ohio law that prohibited public expression of hatred as a means to overthrow the government.

Brandenburg's conviction was subsequently overturned in a unanimous decision by the Supreme Court in 1969. The court ruled that the entire purpose of the First Amendment is to protect speech that we hate and fear--lest, of course, it would not require protection. The right to decide what speech to consume is left to each individual--not to a group or the government. The court ruled that all innocuous speech is protected absolutely. Speech is considered innocuous when there is time for more speech to challenge it. Brandenburg's speech was innocuous because, while he suggested violence against government officials in Washington, there was reasonable time for speech to suggest otherwise.

The Court's 1969 ruling became known as the Brandenburg doctrine and has been consistently upheld since then.

Applied to the Charlottesville case, the Brandenburg doctrine says that the government cannot take sides in a public dispute. If it does so, then the government becomes a censor, thus infringing upon the free speech rights of those against whom it has taken a position. On the contrary, as noted in a previous post, government is obligated to protect the speaker's right to speak and the audience's right to hear and respond to the speaker.

When the police declined to maintain order in Charlottesville, government abdicated its responsibility to protect the right to free speech. They permitted the 'heckler's veto' where the audience silences speech that it dislikes. When the heckler's veto comes about as a result of government failure to protect the right to speak, then it is unconstitutional. It is equivalent to the government taking sides and censoring speech it hates or fears a la the early Alien and Sedition Acts.

Yet, I am aware of few mainstream media outlets headlining, or even investigating, this story: Government fails to uphold the First Amendment in Charlottesville.

Wednesday, August 16, 2017

Soft News and Pseudo Events

"A journalist makes himself the hero of the story. A reporter is only a witness."
--Jim Cleary (Deadline U.S.A.)

Yesterday these pages observed that there has been a lack of reporting and analysis by the mainstream of the actual Charlottesville riots--particularly with respect to First Amendment issues and how that process broke down.

Ryan McMaken provides an interesting follow up piece here. "Already," he notes, "the media has lost interest in analyzing the details of the event itself, and are instead primarily reporting on what Donald Trump, his allies, and his enemies have to say about it."

A good example is this WSJ piece this morning that focuses on what Donald Trump said yesterday during a press conference. The tone implies that Trump is wrong for claiming that both sides--the original assembly and the protesters of that assembly--shared blame for the violence. No reasonable mind should dispute Trump's claim given what facts have been made widely known about the events in Charlottesville, and not one shred of evidence is offered in the article that suggests otherwise.

McMaken links this situation to a phenomenon seen in the national media for many years: a shift away from who/what/when/where factual reporting about an event to a focus on what people who were not directly involved in the event think or say about it. Old school newspaper types would term this as a movement from 'hard' to 'soft' new. Historian Daniel Boorstin calls it an evolution toward 'pseudo events.'

Boorstin suggests that the need to create more copy led reporters and editors to realize that they could 'create' news by focusing on how people respond to a particular narrative that often first requires creation by media types themselves. That response constitutes the pseudo event. It is particularly 'news' when individuals defy the narrative in some way. Trump, of course, is a media dream in this regard.

McMaken suggests that what passes for news coverage today actually involves pseudo event journalism that, when you break it down, involves far more opinion than fact.

Tuesday, August 15, 2017


We'll be fighting in the streets
With our children at our feet
And the morals that they worship will be gone
--The Who

The sad events last weekend at Charlottesville once again motivate review of issues related to political speech--particularly with respect to people who show up to protest that speech.  When political speech takes place in a public place, the speech rights of both the speakers to speak and any present protesters to peacefully protest must be upheld.

Protesters toe a fine line, however. They cannot lawfully interfere with political speech, however innocuous it might seem to them, in a manner that drowns out the message to the audience (a.k.a. the 'heckler's veto'). Physical force against the speaker or the assembly at large is also illegal, of course.

Moreover, it is the affirmative obligation of the police to protect the speaker's right to speak and the audience's right to hear as well as to protect the protester's rights to peacefully protest.

In all of the accounts that I have seen/read/heard about the Charlottesville incident I have yet to encounter one that clearly lays out the related facts related to both party's First Amendment rights. What is clear is that the process described above broke down badly.

The Charlottesville case also reinforces a previous observation. Demonstrating in the midst of someone else's political rally is like a spark in search of tinder. Whether intended or not, the likelihood of violence increases dramatically when opposing protesters show up at political rally.

Stated differently, if you intend to protest at someone else's assembly, then you are unnecessarily escalating a potentially violent situation.

Rather than protest, why not walk away? Graduate from the playground and let juvenile minds with small thoughts talk themselves into the ground?

Better yet, pray for them.

Monday, August 14, 2017

Poverty is the Natural State

"Ghettos are the same all over the world. They stink."
--Williams (Enter the Dragon)

Sage insight by Prof Bylund. People asking about the causes of poverty are asking the wrong question. Because scarcity is the default condition of the world, poverty is man's natural starting point.
Prosperity is the alleviation of poverty. The more salient question is what causes, and advances, prosperity?

Sunday, August 13, 2017

Tariffs Without Bounds

Everybody's kicking sand
Even politicians
We're living in a plastic land
Somebody give me a hand
--Steve Miller Band

Rothbard suggests a useful way to think about tariffs: forget about political boundaries. While country borders may be important for other reasons, they can be seen as arbitrary from an economic perspective and having little significance.

Imagine that each state in the US were a separate nation. Inevitably, there would be complaints from some states about unfair, cheap labor in other states undercutting inefficient producers on prices. Calls for tariffs would follow to protect essential local industries from that unfair competition.

Indeed, such trade wars between the original 13 states provided motivation for the Constitutional Convention of 1787. The idea was to have a central government to regulate--in the sense of making regular and free--trade between the states. And so it is today--an American free trade zone where it is illegal for states to levy tariffs on other states.

To push the tariff 'logic' to completion, why stop at country borders, asks Rothbard? Why not tariffs at state, city, or even the family level in order to shield producers from unfair external competition?

The answer, of course, is that such nonsense would cast the world back into the dark ages, where each producer would need to diversity in attempts of being self-sufficient. As trade dried up, division of labor and the productivity gains that it confers would disappear.

As history reminds us, tariffs protect squalor, not prosperity.

Saturday, August 12, 2017

War Drumming Markets

"'War is a continuation of politics by other means.' Von Clausewitz."
--Captain Frank Ramsey (Crimson Tide)

Markets took a hit on Thurs on back of North Korea situation--although not as much as one might have expected. Muted downside market response marks the time we live in--although that could change quickly, of course. Currently the SPX is not quite down to support defined by the multi-month uptrend line.

Volatility indexes did seem to take an outsized jump compared to the move in stocks. VIX was up nearly 60% in two days.

I happened to look at put schedules mid-week before the jump in vols. Despite historically low index vol levels, out of the money index puts did not look cheap to me--certainly nowhere near 'Simon' levels. This suggests significant option 'skew,' and is consistent with market participants scooping quantities of downside 'insurance.'

Sitting on my hands for now, and will see how things unfold.

no positions