Closing Thoughts on Left Turn

Look in the mirror
And see how you've been taken
You won't surrender
But now you heart is breakin'
--John Waite

Groseclose's Left Turn (2011) closes with some ideas on how to approach a more biased media. Because mainstream media is overwhelmingly biased toward the Left, the 'obvious' solution is to inject more conservatively minded journalists. The problem, of course, is that this commodity is in short supply.

Beyond that, Groseclose suggests that liberal journalists would be more objective if they expanded their network to include more independents and conservatives. This would provide better perspective from which to approach reporting.

I would not be optimistic about this idea, as confirmation bias suggests likes hang with likes. It's psychologically easier to do that.

Finally, Groseclose suggests that media outlets could provide more information to viewers as to the biases of their staff. Reported might report how they voted in past elections. Groseclose mentions that he's piloting a database of media political quotients (PQs) that journalists would voluntarily participate in. Outlets could also collect and report detailed descriptions of the political views of all its journalists.

Historically, when journalists have been asked to disclose their political biases, they are reluctant to do so. "I only report the news as it is." They say. "My political opinions do not influence how I report it."

As Groseclose has demonstrated, however, nothing could be further from the truth.

Imagine that when asked about their stances on gun control or deficit spending, Barack Obama, John Boehner, or Harry Reid replied, "I'm not going to tell you about my position. If I did, it would impair my ability as an objective lawmaker."

Such a response would incite ridicule from voters, most of which would question whether such politicians were worthy of office.

Why should similar standards not apply to the media, asks Groseclose? Good question to ponder...

Fringe Benefits

I can hear you coming
We know what you're after
We're wise to you this time
We won't let you kill the laughter
--Red Rider

More on the AAII sentiment data, this time showing some historical perspective. Note the general behavior in the SPX as this series hits extremes.

As noted yesterday, just one piece of the puzzle, but a piece worth noting...

position in SPX

Can't Wait for Recess

All for freedom and for pleasure
Nothing ever lasts forever
Everybody wants to rule the world
--Tears for Fears

Yesterday President Obama made several high profile appointments, including a czar of the newly created Consumer Financial Protection Board. Per Article 2, Section 2 of the Constitution, the Senate must confirm these appointments. However, a law has since been written (unsure whether it has been challenged in the courts) that gives the president authority to make unconfirmed appointments during Senate recess. Of course, presidents have been exploiting this loophole for years.

The eyebrow raiser here is that yesterday's recess appointments come in conjuction with increasingly loud presidential rhetoric that Obama is willing to bypass Constitutional process to enact his agenda. Indeed, using a I-can't-wait-for-them tone, the president rationalized his appointments yesterday, stating, "When Congress refuses to act and as a result hurts our economy and puts people at risk, then I have an obligation as president to do what I can for them."

As I am currently engrossed in a few books discussing the Great Depression and the New Deal, the president's rhetoric and actions have a deja vu feel to them, harkening back to FDR's eagerness to circumvent the Constitution whenever necessary.

We're still paying for those interventions today.

Sentimental Stretch

I can't turn to the left or the right
I'm too scared to run and I'm too weak to fight
But I don't care
It's all pschobabble rap to me
--Alan Parsons Project

Sentiment measures seek to reflect to extent to which market participants are optimistic (bullish) or pessimistic (bearish). When sentiment indicators reach extremes, they often suggest turning points. For example, if sentiment indicators suggest most market participants are bullish, then perhaps most of the buying has already occured, and supply/lower prices may be around the corner.

There are many measures of sentiment. The prudent market participant usually watches a bunch of these indicators for general trends rather than focusing on a single measure.

That said, the recent weekly AAII sentiment index numbers, which measures bullishness/bearishness of a group of individual investors, suggests extreme levels of bullishness versus historical levels.

As noted, only one piece of the puzzle. But one suggesting that optimism, at least among a particular category of investor, is getting stretched.

position in SPX

The Year of the Dragon

Sybilla: What becomes of us?
Balian: The world will decide. The world always decides.
--Kingdom of Heaven

Was emailing with a friend the other day about prospects for the new year. There are sizable problems out there to overcome, to be sure. But one small thing that we may have going for us is that 2012 is the Year of the Dragon.

The dragon occupies the fifth position in the 12 year cycle of animals that constitutes the Chinese zodiac. It is the only animal in the cycle that is imaginary, and is often viewed as the most powerful.

Now, lest you think that I'm coming out of the closet as an astrologer or mystic, let me say upfront that devination and the occult are not my bag. You will not find me pouring over daily horoscope pages nor drawing tarot cards.

The path I have travelled, however, has led me past legends of the dragon, particularly in Eastern cultures. While folklore paints dragons in both protagonist and antagonist lights, I have personally gravitated toward positive symbols that flow from dragon legends. For instance, the dragon is often portrayed as exercising good judgment during times of stress and conflict.

As such, I find myself drawing from dragon symbology periodically as a source of inspiration.

The last time the dragon made its appearance in the Chinese zodiac was the year 2000. Very fitting, it seemed to me, that the dragon's number came up at the changeover to the new millennium. The year 2000 was personally special in many ways. For instance, I completed graduate school that year. It was also the year that my niece was born who, along with my soon-to-be-born nephew, has graced my life in ways too extraordinary for words.

So, as we ring in the new year and face a mountain of challenges, I once again plan on tapping my serpentine friend for occasional inspiration.

If the dragon can help a few of us muster more strength, wisdom, and positive action in the face of difficulty, then it seems the prospects for 2012 have gotten that much better.

First Hand Ante

Luck and intuition play the cards with spades to start
And after he's been hooked I'll play the one that's on his heart
--Lady GaGa

The first trading day of the year saw some upside resolution to the reverse head and shoulders pattern forming over the holidays--although a late day pullback drained a bit of glory from the gains.

Would think technicians are eyeing the late October highs of 1285ish as a more definitive indicator that a new leg higher is underway.

By early afternoon, pundits predictably started trotting out the old saws about how the first few trading days of the year often 'forecast' the tape's annual performance. One tidbit I've picked up over the years: Don't succumb to early year urban legends designed to whip the masses into a bullish frenzy.

position in SPX

The Unusual Society

Benjamin Martin: May I sit with you?
Charlotte Selton: It's a free country. Or at least it will be.
--The Patriot

In 1776 two ideas built on previously percolating thought were published that shaped the future of what became the United States. Adam Smith published his economic treatise An Inquiry into the Nature and Causes of the Wealth of Nations. Throughout the ages, it was generally assumed that government regulation of economic activity was an absolute must. It was widely believed that economic chaos would result if government did not direct the economy, and that the poor would be especially hard hit without an umbrella supplied by the State.

The dominant economic design in effect in the 1770s was mercantilism. Government regulated economic activity at the most granular level. Price/quantity controls, tariffs, laws prohibiting speculation, no middlemen permitted in commodity trade, taxes, licenses granting monopoly status to the priviledge few, etc.

Much of this intervention was rationalized in the name of helping the poor. Standard of living was pathetic, with average life expectancy in the 20s. It is also important to note that standard of living, particularly near the bottom of social pyramid, had largely been stagnant with little improvement for centuries. Big families were common--in hopes that out of, say 12 children born, a few would survive to advance the family's progress.

Adam Smith concluded that the squalor which had persisted for centuries was caused in large part by the heavy hand of government. Smith posited that general standard of living would advance much more rapidly if government got out of the way, and let the 'invisible hand' of individual buyers and sellers acting in their own best interest drive economic progress.

Stated differently, Smith was suggesting that a primary reason why people remained mired in poverty was government's war on poverty! This was a revolutionary thought at the time which, frankly, remains revolutionary today. In 1776 Smith's work greatly influenced the Framers who were already envisioning a nation where people could pursue their interests unencumbered by the State.

The other idea was published in Jefferson's Declaration the same year. The conceptual basis for Jefferson's work was not exactly new; it had been percolating for more than 100 years via the work of Enlightenment scholars such as John Locke and in pamphlets/writings such as Cato's Letters. As British rule tightened on the colonies in the late 1600s and early 1700s, oppressed colonists became increasingly receptive to the notions of natural law and self-determination. By Jefferson's time, these ideas had been widely diffused in Colonial America.

The ideas that Jefferson wrote into the Declaration, that man's right to life, liberty, and pursuit of happiness came from nature and not from government, and that people were justified in throwing off governments that trampled on these rights, were radical only that they were published in a document that set the course for a new nation. Locke et al's thoughts were no longer theory. They were being operationalized on a truly revolutionary scale.

By the time the Constitution called the federal government into existence in 1787, these two ideas, one economic and one political, had gripped the hearts and minds of the American people.

Thus was birthed a most unusual society. One where it was envisioned that people would manage their own lives with minimal government intrusion. One in which the powers of centralized government were explicitly limited. One in which the principle of individual liberty trumped collective security.

Such a sight the world had never seen.

Economic Liberty and the Constitution

I was halfway home, I was half insane
And every shop window I looked in just looked the same
--Style Council

Here is a well written series on economic liberty and the Constitution, with an emphasis on important Supreme Court decisions that first upheld, then supressed free market principles in the United States.

I plan to summarize some of the cases in other missives, as they dovetail nicely with other works that I have been reading.

The author's overall conclusion is similar to the one reached by Judge Andrew Napolitano's (2005) book Constitution in Exile. For the first 150 years of the United States, the High Court upheld (with a few notable exceptions such as Slaughterhouse 1872) economic liberty as central to the Natural Law concepts embodied in the Constitution.

However, this all came tumbling down during the FDR administration. A court that was barely able to stem mounting socialist sentiments in a series of 5-4 rulings in favor of economic liberty lost it when a swing justice, Owen Roberts, turned his hat around and began siding in favor of New Deal legislation that was constantly making its way thru the courts.

The opinions written by the socialist majorities of the court are truly comedies in flawed reasoning. The opinions written by the dissenting 'Four Horsemen' read like masterpieces in the understanding of natural law and original intent. They would also prove quite prescient in their forecasts of what the New Deal rulings would lead to--as we now know today.

It's essentially been a one way street to depostism and its spoils since.

IP and Scarcity

Watch me clinging to the beat
I had to fight to make it mine
That religion you could sink in neat
Just move your feet and you'll feel fine
--Culture Club

The author makes a cogent point early in this missive. Laws that protect property rights are only necessary if property is scarce. Taking scarce property away from the owner denies the owner the use of the property.

Tangible goods fit this requirement. If an infinite amount of a particular good existed, or if a machine were present to infinitely reproduce the good, then the scarcity problem disappears along with the need for laws that protect property.

Intellectual property does not meet the scarcity requirement, as IP can be infinitely reproduced. All the while, that infinite reproduction does not deny use of IP by the owner (or originator).

Laws that grant monopoly power over ideas and their expression limit progress, and can even be seen as a form of censorship.

IP laws restrict emulation and improvement of ideas--a central mechanism in improving standard of living for all.

Slip Slidin' Away

We work our jobs
Collect our pay
Believe we're glidin' down the highway
When in fact we're slip slidin' away
--Paul Simon

2012 leads off with the president signing into law the NDAA act--despite his "serious reservations." Almost lost my lunch on that one...

The threat to liberty posed by this bill first birthed Thxgiving weekend is now reality. Due process, I knew thee well.

As we slip further into tyranny as we open 2012.