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Dazed and Confused

Updated: Jul 20, 2023

“All propaganda is a lie, even when it is telling the truth.” George Orwell

I get dozens of responses to Insights every week. Not hundreds, but several dozen anyway. Frankly, I like it that way— our business model is a full-service banana split for a few as opposed to a single scoop of vanilla for the masses.

That model means that all of the feedback we get is meaningful. So, when I recently got a single email suggesting that I should leave politics out of Insights, I thought it was interesting… and impossible.

Because, in my job, I don’t see how you can ignore politics. Economics, which is the social science that studies the production, distribution, and consumption of goods and services, is ruled by incentives. According to Steven Levitt and Stephen J. Dubner of the University of Chicago, there are three incentives in particular that explain almost any kind of human behavior. (You can read about them in their altogether fascinating book, Freakonomics.) If there is any measurable change in human behavior—a crime wave, a decrease in abortions, a spike in movie ticket sales, etc.— it must be the result of a change in one of the three incentives. Those three incentives are financial, social and moral.

The financial one is pretty straightforward; people want money and material things. As it pertains to incentives, for example, people would avoid walking on the grass if the government passed a law fining people for walking on the grass, and that would be due to the negative financial incentive of the fine.

There are also social incentives; these are incentives based on human beings’ desire to be accepted and liked by other people. People are less likely to steal when they’re with others because, if they were with their friends, they’d face the negative social incentive of ridicule or even jail.

Finally, there are moral incentives that are based on people’s desire to “do the right thing.” Many people give to charity, at least in part, because there is a positive moral incentive to feeling good about one’s behavior.

Politics is all of that— the science of the interaction of ethics, greed, morality, legislation, finance, benevolence and power. Ergo, if you don’t understand politics, I’d argue that you don’t stand a chance of successfully managing your money.

Besides, no one has called this market better than we have since the inception of Insights (exactly) four years ago, and Insights is designed to let our clients understand the lens through which we’re viewing the world. It’s not intended to be opinionated, although it is most certainly intended to get your attention. Whatever you think of it, the rationale behind it has been highly profitable and its accuracy difficult to ignore.

Plus, as you can see from this column, I sort of revel in being able to discuss politics, economics, pop culture, and any other general vulgarity that I think will help me to get my point across to investors.


My uncle is Sam Brown, Jr. Besides being fabulously wealthy, he is morally steadfast and intellectually sound. He founded the Vietnam Moratorium, ran the Department of ACTION under Jimmy Carter, developed large amounts of low-income housing before it was cool, served as our Ambassador to the Conference on Security and Cooperation in Europe under Bill Clinton and raised some of my best friends. He’s also a very good cook and mixes up a mean negroni.

(PBS recently ran a very well done documentary called The Movement and The Madman that prominently features Sam; check it out.)

Sam’s and my dad’s little brother, Jim, is gay and was one of the first activist promoters of gay marriage. He currently runs an all-gay nudist “guest house” in downtown Palm Springs and is unlikely to be joining the NRA anytime soon.

On my mom’s side, we’re fifth generation Californians— by way of Oklahoma, of course, because all good Californians were Okies first. We’re an interesting combination of scientists and farmers. My generation of kids grew up tossing shotguns into the back of pickups the same way we tossed baseball bats after getting walked. My grandpa served in the Navy before he was a pharmacist, and he attended one of California’s most conservative universities, the University of Southern California. My aunt worked in the State Department when George Bush said that the only food he didn’t like was broccoli, so she had T-shirts made replete with the State Department seal that said, “Everybody in the State Department Loves Broccoli.” For years, every time I’d go tearing down the road to my cousins’ farm, my great aunt would come running out to meet me, cigarette and Coors Light in one hand, waving with the other, “Hey, city slicker, what are you doing out here?” My mom was a Goldwater Girl and graduated from Richard Nixon’s alma mater, Whittier College.

So, in my position between Mom’s and Dad’s respective sides of the family, when anybody suggests that my writing is politically biased, I have to laugh. Idealogues have a tough time at my family’s Thanksgiving table.


Along with family influence, I suppose many of my own political interpretations can be traced back to the town where I grew up, little San Luis Obispo, California. SLO for short.

SLO basically has two populations in town-- the old-money settlers and the middle class newcomers. The middle class is everybody from someplace else, and since SLO is exactly halfway between San Francisco and Los Angeles, that means Nor Cal hippies and So Cal wannabee-celebrities mixing in with a bunch of ranchers. Flip flops meet ropers.

I was somewhere between the settlers and the newcomers, born in Southern California to a mom whose family had been around the Central Coast longer than anybody, which may have been helpful since San Luis Obispo County has a well known history for not putting up with any s*** from outsiders. (Except for Cal Poly students, of course—they get to do whatever they want, but that’s another story.)

In the mid 1800’s, immediately following the Mexican American War, my town was notorious for lawlessness. Robberies and murders that left no witnesses were carried out along El Camino Real and around San Luis Obispo for several years until a gang of eight members of the Pio Linares gang committed a robbery at Rancho San Juan Capistrano del Camote on May 12, 1858. They murdered three victims and kidnapped one but, unusually, left two surviving witnesses, and their escape resulted in the formation of a vigilante group that proceeded to lynch seven members of the gang, including its leader, making it the most lethal vigilante action in California history. In terms of how that speaks to the culture of the community, it is significant to note that members of the vigilante group, such as Walter Murray, who went on to become a judge and the founder of the local newspaper, and Romauldo Pacheco, who went on to become the Governor of the State of California, remained influential members of the community for decades.

Alex Madonna was born sixty years later, and his legacy is for serving as the bridge between the old farm-and-ranch mentality of the past and the new limited-growth, eco-aware mentality of the present. I grew up as a good friend of the Madonna family, and I believe Alex is the single person who best represents San Luis Obispo in an historical sense.

Madonna’s construction company built most of Highway 101 from Salinas to Buellton. He also built or repaved massive sections of Highways 1, 46, and 41. He built the final "Golden Spike" stretch of Interstate 5 that connected Canada and Mexico. He built the Salinas River Bridge on Highway 58 and an award-winning bridge on Highway 166 (off of which I used to bungee jump). Locally, he built homes, the Marsh Street parking garage, the feed mill at Cal Poly, the San Luis Obispo County Regional Airport and, of course, the Madonna Inn.

As “Shredder” from SLO’s local rag, New Times, wrote about Alex’s relationship with the city of San Luis Obispo, “The bickering will go on. Forever. Alex is a relic of that ribs-and-coleslaw era of San Luis Obispo's yesterdays, where you nailed some timbers together the way you damn well liked them, popped a brewski, scratched your sunburn, and admired the house you'd just built for the wife. Building permits? We don't need no stinking building permits.”

Now, you might be thinking, Oh, boy, a bunch of vigilantes , Alex freakin’ Madonna and a bunch of rednecks made San Luis Obispo… and yes, there are, and have always been, a lot of real cowboys in town. But here’s a compilation of SLO city ordinances that will express a less libertarian attitude than what you might expect:

  • San Luis Obispo banned drive-through restaurants in 1980.

  • In 1990, San Luis Obispo became the first city in the world to outlaw smoking in all indoor places, including restaurants and bars.

  • Billboards are completely prohibited within the San Luis Obispo city limits, and cannabis-related billboards are prohibited throughout the county.

That’s where I’m from. A bunch of dazed and confused kids, wearing Wrangler jeans and Quiksilver T-shirts in the 1980’s. (I continue to wear Hawaiian shirts with jeans and Red Wings.) Not sure if we’re ranchers or surfers, we’re members of both the NRA and The Sierra Club, still tithe at church and keep a few bucks around to pay the neighbors’ electric bill whenever they run into a hard time. …’Cause it’s still a small town, and that’s what neighbors do.


I write this column to help communicate what we’re doing to help investors, and if that requires some political analysis, so be it. However, wow, these Bud Light numbers are ugly:

This is on the heels of Budweiser’s campaign with transexual Dylan Mulvaney, and it illustrates pretty clearly that there is a price to businesses getting involved in politics.

However, a discussion of politics is certainly in order this week; there's no getting around it. Between the Fed stepping in to rescue another failed bank over the weekend, negotiations in Congress over the debt ceiling, and the Fed’s meeting on Wednesday, this is a very big week for investors on the political front.

Consensus is for the Fed to hike another 25 basis points with talk of a pause. Since I don’t think they should have hiked at the last meeting, I don’t see why they won’t raise rates 25 bps, and the move looks to already be priced in.

The problem with bank failures is that the government caused them. The stress testing based on the scenario devised by the Federal Reserve Board never incorporated interest rates at higher levels, and the central bank hiked us all the way into a situation where many banks’ collateral suffered double digit declines in value.

The issue with the debt ceiling is volatile at best. If the Republicans’ vote is successful, will it bring Biden to the table for serious negotiations? Or will both sides dig in their heels due to their confidence that they have the support of the voters? More importantly, are they confident that they can get voters to blame the other side for any failure to pay?

The United States 5-year credit default swap (CDS) value is 41.96 as of this writing. That value implies a 0.70% probability of default on a 40% recovery rate, which is obviously very low, but the CDS value was up a whopping 38.34% last week and 174.25% over the last year. The market is watching Congress very closely.

And while it does, we expect choppy trading. Given that there has never been a BTFD generation like this one, we may not set new lows, but I don’t see a lot of impetus for moving significantly higher, either. In the meantime, the Fed will clarify what the end of the rate hiking cycle will look like, the debt ceiling issue will be addressed, and bank depositors will be bailed out.

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