Anticipating Recession, Hedge Funds Shorting Stocks Like Crazy

According to the most recent Goldman Sachs Hedge Fund Trend Monitor (I'd provide a link, but I can't the report online), funds have been taking large short positions in bellwether U.S. companies, an ominous sign for both the market and the economy. Business Insider was kind enough to rank the shorted stocks by total value of short interest, or, in layman's terms, the amount bet that the stocks will go down. The results fortify my argument that we're facing a mild recession: the list includes iconic American companies across various industries.

In order to determine how much funds are expecting the following stocks to drop, it's important to consider the companies' market caps. For example, a $1 billion short bet against a $10 billion company would anticipate a more precipitous decline than a $1 billion bet against a $100 billion company. Nevertheless, funds' positions anticipate an overall decline in stocks from well-known companies representing most segments of the economy.

Hedge Funds' Top 10 Shorts

Intel Corp. (INTC): $4.3 billion of short bets (semiconductor industry)

Verizon Communications (VZ): $2.1 billion (telecom)

Gilead Sciences (GILD): $2 billion (pharma)

Chevron Corp (CVX): $1.8 billion (petroleum)

Walt Disney (DIS): $1.8 billion (media/entertainment)

AT&T Inc. (T): $1.7 billion (telecom)

Ford Motor Co. (F): $1.6 billion (automotive)

Wal-Mart Stores, Inc. (WMT): $1.6 billion (retail)

Caterpillar Inc. (CAT): $1.5 billion (construction equipment)

Intuitive Surgical, Inc. (ISRG): $1.5 billion (medical equipment)

ECOMINOES Radio With Free Market Healthcare Expert Dr. Keith Smith

Join ECOMINOES Radio at 3PM ET on KineticHiFi as Eric and I speak with Dr. G. Keith Smith of the free-market Surgery Center of Oklahoma. In addition to his duties as a healthcare provider, Dr. Smith is a prolific blogger specializing in free markets in medical care. The conversation will be especially interesting given the certainty that Obamacare will be fully-implemented. Don't miss this episode!

Young Professionals Only Finding Menial Jobs

I've repeatedly reminded my readers that the MSM forget that jobs have both a quantity and quality component. Even though hiring may have slightly increased in recent months (if you believe the BLS's data, which haven't exactly been reliable as of late), the majority of new jobs created during this economic depression have been part-time, low-wage positions filled by seniors. Indeed, 20-something college degree holders in California, a fair sample of the country's young professionals, are still finding professional jobs extremely hard to come by more than 3 years after the Great Recession officially "ended". At 15%, the U-3 unemployment rate for California's college grads under 30 is nearly twice the national rate, and the most common jobs for those "lucky" enough to secure employment are depressingly menial: retail, clerical, and food service positions. According to the Sacramento Bee, more than half of California's half-million degree holders in their 20's are underemployed! The most popular job for the most populous state's young professionals? Floor sales in retail stores. Long live the recovery!

Thanksgiving Also Celebration Of Birth Of Free Enterprise

Professor Richard M. Ebeling reminds us that the pilgrims were thankful for not only their escape from religious persecution, but also for the birth of free-market capitalism:

This time of the year, whether in good economic times or bad, is when Americans gather with their families and friends and enjoy a Thanksgiving meal together. It marks a remembrance of those early Pilgrim Fathers who crossed the uncharted ocean from Europe to make a new start in Plymouth, Massachusetts. What is less appreciated is that Thanksgiving also is a celebration of the birth of free enterprise in America.

The English Puritans, who left Great Britain and sailed across the Atlantic on the Mayflower in 1620, were not only escaping from religious persecution in their homeland. They also wanted to turn their back on what they viewed as the materialistic and greedy corruption of the Old World.

In the New World, they wanted to erect a New Jerusalem that would not only be religiously devout, but be built on a new foundation of communal sharing and social altruism. Their goal was the communism of Plato’s Republic, in which all would work and share in common, knowing neither private property nor self-interested acquisitiveness.

What resulted is recorded in the diary of Governor William Bradford, the head of the colony. The colonists collectively cleared and worked land, but they brought forth neither the bountiful harvest they hoped for, nor did it create a spirit of shared and cheerful brotherhood.

The less industrious members of the colony came late to their work in the fields, and were slow and easy in their labors. Knowing that they and their families were to receive an equal share of whatever the group produced, they saw little reason to be more diligent in their efforts. The harder working among the colonists became resentful that their efforts would be redistributed to the more malingering members of the colony. Soon they, too, were coming late to work and were less energetic in the fields.

As Governor Bradford explained in his old English (though with the spelling modernized):

"For the young men that were able and fit for labor and service did repine that they should spend their time and strength to work for other men’s wives and children, without recompense. The strong, or men of parts, had no more division of food, clothes, etc. then he that was weak and not able to do a quarter the other could; this was thought injustice. The aged and graver men to be ranked and equalized in labor, and food, clothes, etc. with the meaner and younger sort, thought it some indignant and disrespect unto them. And for men’s wives to be commanded to do service for other men, as dressing their meat, washing their clothes, etc. they deemed it a kind of slavery, neither could husbands brook it."

Because of the disincentives and resentments that spread among the population, crops were sparse and the rationed equal shares from the collective harvest were not enough to ward off starvation and death. Two years of communism in practice had left alive only a fraction of the original number of the Plymouth colonists.

Realizing that another season like those that had just passed would mean the extinction of the entire community, the elders of the colony decided to try something radically different: the introduction of private property rights and the right of the individual families to keep the fruits of their own labor.

As Governor Bradford put it:

"And so assigned to every family a parcel of land, according to the proportion of their number for that end . . . This had a very good success; for it made all hands very industrious, so as much more corn was planted then otherwise would have been by any means the Governor or any other could use, and saved him a great deal of trouble, and gave far better content. The women now went willingly into the field, and took their little-ones with them to set corn, which before would a ledge weakness, and inability; whom to have compelled would have been thought great tyranny and oppression."

The Plymouth Colony experienced a great bounty of food. Private ownership meant that there was now a close link between work and reward. Industry became the order of the day as the men and women in each family went to the fields on their separate private farms. When the harvest time came, not only did many families produce enough for their own needs, but they had surpluses that they could freely exchange with their neighbors for mutual benefit and improvement.

In Governor Bradford’s words:

"By this time harvest was come, and instead of famine, now God gave them plenty, and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God. And the effect of their planting was well seen, for all had, one way or other, pretty well to bring the year about, and some of the abler sort and more industrious had to spare, and sell to others, so as any general want or famine hath not been amongst them since to this day."

Hard experience had taught the Plymouth colonists the fallacy and error in the ideas that since the time of the ancient Greeks had promised paradise through collectivism rather than individualism. As Governor Bradford expressed it:

"The experience that was had in this common course and condition, tried sundry years, and that amongst the Godly and sober men, may well convince of the vanity and conceit of Plato’s and other ancients; -- that the taking away of property, and bringing into a common wealth, would make them happy and flourishing; as if they were wiser than God. For this community (so far as it was) was found to breed confusion and discontent, and retard much employment that would have been to their benefit and comfort."

Was this realization that communism was incompatible with human nature and the prosperity of humanity to be despaired or be a cause for guilt? Not in Governor Bradford’s eyes. It was simply a matter of accepting that altruism and collectivism were inconsistent with the nature of man, and that human institutions should reflect the reality of man’s nature if he is to prosper. Said Governor Bradford:

"Let none object this is man’s corruption, and nothing to the curse itself. I answer, seeing all men have this corruption in them, God in his wisdom saw another course fitter for them."

The desire to “spread the wealth” and for government to plan and regulate people’s lives is as old as the utopian fantasy in Plato’s Republic. The Pilgrim Fathers tried and soon realized its bankruptcy and failure as a way for men to live together in society.

They, instead, accepted man as he is: hardworking, productive, and innovative when allowed the liberty to follow his own interests in improving his own circumstances and that of his family. And even more, out of his industry result the quantities of useful goods that enable men to trade to their mutual benefit.

In the wilderness of the New World, the Plymouth Pilgrims had progressed from the false dream of communism to the sound realism of capitalism. At a time of economic uncertainty, it is worthwhile recalling this beginning of the American experiment and experience with freedom.

This is the lesson of the First Thanksgiving. This year, when we, Americans sit around our dining table with family and friends, we should also remember that what we are really celebrating is the birth of free men and free enterprise in that New World of America.

The true meaning of Thanksgiving, in other words, is the triumph of Capitalism over the failure of Collectivism in all its forms.

Wrong, GOP: Bush-Era "Compassionate Conservatism" Not The Answer

As I predicted, the Republican establishment is busy fighting the party's future as friendly to the liberty-minded. Despite the fact that rational minds have pegged the GOP's 2012 electoral embarrassment on the Republican Party's anachronistic social conservatism, the establishment is calling for an even greater shift to the right, the "right"--according to them--the domain of big-spending Bush-Era "compassionate conservative" morality legislators and wealth "redistributioners". (Remember Medicare Part D and the expansion of the ETIC? Those were the brainchildren of "compassionate conservative" Republicans.)

Rick "sex should only be for procreation" Santorum recently penned an editorial incorrectly contributing the GOP's poor performance in campaign 2012 to a "lack of message". According to Santorum, if Republicans could only convince the electorate that they "care", they would win elections. Only a fool would believe that modern Americans would warm up to a party that "cares" so much about them that it seeks to seize even more wealth from the productive economy, usurp more civil liberties, and further violate the 10th Amendment in order to condition behavior. Younger whites certainly don't bigger government telling them how to live, and apparently Santorum missed the memo that American Hispanics are becoming more secular.

Santorum's editorial was ridiculous, but The Week's Matt K. Lewis takes the taco for being obtuse. In his recent editorial on the future of the GOP, Lewis actually called for Bush-era "compassionate conservatism" by name. Apparently, Lewis isn't aware that attempting to sell an idea by citing one of the most unpopular presidents in history, George W. Bush (who still gets negative approval ratings), probably isn't the best idea.

WashPost: The GOP’s Growing Libertarian Problem

The Washington Post noted today that, running on Ron Paul's coattails, Gary Johnson received the most votes ever as a Libertarian Party candidate, and the 1.2 million votes he received likely hurt the Romney campaign and the GOP in general in this election cycle. Indeed, the Daily Kos noted that in 9 races the Libertarian candidate's share of the vote was larger than the Democrat's margin of victory.

But electoral sabotage isn't the greatest threat libertarianism poses to the GOP. The greatest "threat", from the establishment's perspective, is the liberty movement fundamentally changing the Republican Party from within. The GOP, like the country itself, is facing a significant demographic shift. The next generation of "conservatives", fiscally conservative but socially liberal, are more akin to classical liberals than aging social conservatives or neoconservatives. "Values" figures such as Rick Santorum and Michele Bachmann will have less and less clout in the GOP as the party slowly becomes more libertarian, and more freedom-minded figures such as Rand Paul will rise to prominence (perhaps as early as 2016). The Republican establishment will undoubtedly fight this paradigm shift tooth-and-nail, but, in time, it will find that it cannot stop the future.

CBO's Fiscal Cliff "Solution": 72% Taxes, 28% Cuts

Surprise, surprise. The drones of the State in the CBO say that tax increases would carry the heaviest weight in the "optimal" solution to the so-called "fiscal cliff" conundrum. Never mind that many economists have gone on record saying that allowing the Bush tax cuts to expire would have a negative impact on the economy, and it appears that we're already heading into a 2nd recession. But we couldn't expect obedient government workers to call for spending cuts over tax increases, now could we?

Indicator Of Indicators Indicating Recession

A little-known indicator known as the Philly Fed ADS Business Conditions Index gives an excellent insight into the performance of the economy. The index, which takes into consideration six key factors, tracks much of the same data the NBER, the organization that officially calls recessions, tracks. The ADS takes into consideration:

• weekly initial jobless claims         
• monthly payroll employment         
• industrial production         
• personal income less transfer payments         
• manufacturing and trade sales         
• quarterly real GDP

As you can see in the following chart, the ADS has been on a negative trajectory since 2010 and is currently in recessionary territory.

Indeed, this second chart, a historical snapshot of ADS covering 50 years, shows that the ADS has never had a clear long-term negative trajectory without the NBER officially declaring recession: (Recessions shaded in gray.)

The ADS is only the latest indicator that suggests to me that we will experience a brief, relatively mild recession beginning in Q1 of next year.

Ron Paul: Free People Must Be Able To Secede

As I was saying yesterday, Ron Paul is more influential in American politics retired than Mitt Romney and Gary Johnson are as future office-seekers. Yesterday, Dr. Paul penned a beautiful piece on secession, an important--albeit controversial--topic that neither Romney nor Johnson would touch with a 10-foot pole. When many Americans think of secession, they unfortunately think of redneck Southerners holding onto a fleeting dream of antebellum Southern glory. (I'm a Southerner, so I can say that.) But the topic of secession is relevant in these challenging economic times; it's a topic that should be discussed intellectually now, lest it be "discussed" at the point of a gun in the future. After all, the Civil War may have temporarily ended the debate on secession, but it didn't determine with certainty what the Constitution says on the matter.

Like him or loathe him, you have to admit that the elder Paul isn't afraid to address difficult subjects. Writing in the Albany Tribune, he tackled the subject of secession head-on. Not surprisingly, he concluded that, to be truly free, one must have the ability to secede:

Is all the recent talk of secession mere sour grapes over the election or perhaps something deeper? Currently there are active petitions in support of secession for all 50 states, with Texas taking the lead in number of signatures. Texas has well over the number of signatures needed to generate a response from the administration, and while I wouldn’t hold my breath on Texas actually seceding, I believe these petitions raise a lot of worthwhile questions about the nature of our union.

Is it treasonous to want to secede from the United States? Many think the question of secession was settled by our Civil War. On the contrary, the principles of self-government and voluntary association are at the core of our founding. Clearly, Thomas Jefferson believed secession was proper, albeit as a last resort. Writing to William Giles in 1825 he concluded that states “should separate from our companions only when the sole alternatives left are the dissolution of our union with them, or submission to a government without limitation of powers.”

Keep in mind that the first and third paragraph of the Declaration of Independence expressly contemplate the dissolution of a political union when the underlying government becomes tyrannical. Do we have a government without limitation of powers yet? The federal government kept the union together through violence and force in the Civil War, but did might really make right?

Secession is a deeply American principle. This country was born through secession. Some thought it was treasonous to secede from England, but those “traitors” became our country’s greatest patriots. There is nothing treasonous or unpatriotic about wanting a federal government that is more responsive to the people it represents. That is what our revolutionary war was all about and today, our own federal government is vastly overstepping its constitutional bounds with no signs of reform. In fact, the recent election only further entrenched the status quo.

If the possibility of secession is completely off the table there is nothing to stop the federal government from continuing to encroach on our liberties, and no recourse for those who are sick and tired of it. Consider the ballot measures that passed in Colorado and Washington state regarding marijuana laws. The people in those states have clearly indicated that they are ready to try something different where drug policy is concerned, yet they will still face a tremendous threat from the federal government. In California the feds have been arresting peaceful medical marijuana users and raiding dispensaries that state and local governments have sanctioned. This shouldn’t happen in a free country!

It remains to be seen what will happen in states that are refusing to comply with deeply unpopular mandates of Obamacare by not setting up healthcare exchanges. It appears the federal government will not respect those decisions either.

In free country governments derive their powers from the consent of the governed. When the people have very clearly withdrawn their consent for a law, the discussion should be over. If the feds refuse to accept that and continue to run roughshod over the people, at what point do we acknowledge that that is not freedom anymore? At what point should a people dissolve the political bands which have connected them with an increasingly tyrannical and oppressive federal government? And if people or states are not free to leave the United States as a last resort, can they really think of themselves as free? If a people cannot secede from an oppressive government they cannot truly be considered free.

Ron Paul Embarking Upon 2013 College Tour

While the Republican establishment is busy eschewing calls for the party to jettison social conservatism and adopt ideas that would prevent future electoral embarrassment and the Libertarian party is wondering why its failed 40-year-old strategy of running for high political office didn't work again this time, recently-retired Ron Paul is busy growing the movement he started. Dr. Paul, even more influential in American politics in retirement than Mitt Romney or Gary Johnson as future office-seekers, will embark upon a nationwide tour of college campuses next year, creating excitement and recruiting the next generation of libertarian activists. Establishment Republicans and Libertarian partisans will scoff at the elder Paul's efforts, but those who don't have an axe to grind with the good doctor will marvel in the size and energy of the crowds he'll attract. Says Paul of past events on college campuses:

The same week I went to Texas A&M, which is conservative, I got like 4000 [students]. They thought that was good, but we went out to Berkeley and they said that [crowd] wouldn't have happened in the 60's.

An estimated 8,500 attended Paul's presidential primary rally at U.C. Berkeley earlier this year. The Paul campaign visited 36 college campuses this primary season.

French Economy: Ticking Time Bomb

Some French political elite have their baguettes in a bunch over the recent Economist story characterizing their country's economy as a "ticking time bomb". The French think very highly of themselves and their country, but it is true that the land of Marianne is facing a number of serious economic challenges. The Economist names quite a few (h/t JW):

• Public spending is 57% of the nation's output.
• Debt-to-GDP is 90%.
• No new company has entered the CAC-40 stock market index since 1987.
• Nobody gets fired. Unions protest over any reforms.
• France still has a high standard of living, and has some of the best companies in the world, but growth has stalled.
• Unemployment is 10%. Youth unemployment much higher.
• France can still borrow cheaply, but it's also resting on past laurels (it's still a gigantic tourist destination).
• New President Francois Hollande is ostensibly powerful, but his approval rating has plunged.
• He refuses to really acknowledge France's economic challenges.

Europe's economic challenges, by the way, influenced my call for a brief, "mild" recession here in the U.S. beginning in Q1 of next year.