The Daily Reckoning October 24th


Can Jury Slaves Say What’s True?

Until last week, I had managed all of my adult life to avoid jury duty. As a young adult in Topeka, Kan., I was never summoned. For my two decades living in Las Vegas, I was able to call in a couple times declaring economic hardship. Most of the time, I seemed to be off their radar screen. I always suspected it was because I hadn’t registered to vote.

But finally in my new home in this small Southern town, the state got me. There seemed to be no reasonable way out. Alabama finds its victims to serve by choosing from driver’s license records.


My plan was to show up, be asked a couple questions that reveal my hatred of the state, and especially the criminal justice system, be judged as unreliable for the jury box, and be sent on my way.

Unfortunately that’s not how the system works. I’m to serve a two-week hitch. That doesn’t necessarily mean I’ll be picked as a juror, but I’m on call with my local county court system, all for $10 a day and a nickel a mile. The jury coordinator was quick to inform us that we could sign a form and waive payment. “After all,” she said, “the state of Alabama requires that your employers pay you your normal wage for these two weeks.”

She pleaded her case by saying that the county had paid out a couple million dollars in expenses for jurors the previous year and it would be great if we could help them with their budget. Many staff members at the court had been laid off, and even the bailiffs worked on a volunteer basis.

I provided no such waiver.

I was part of a group that seemed to be around 80-90 people. The group was a normal cross section of occupations. I was struck by the half dozen or so self-employed truck drivers that were stuck working for the state for two weeks rather than hauling loads. They had no employer paying them their normal wage.

The largest employer in the city, the local university, was well represented, with various professors, maintenance people, and even the head track coach. They were working for the court, but still getting paid by the taxpayers — a double hit, if you will.

A young, blond woman eyed us impassively as we filed into the courtroom, chewing her gum at a slow, rhythmic pace. She turned out to be the head assistant district attorney. The judge administered the oath and asked some questions. Only in the South would a judge address a jury pool as “all y’all.”

Soon the assistant DA started asking questions to weed out inappropriate juror prospects, and I began to think that I was the perfect candidate. I didn’t know anyone involved in the case, anyone who worked for the DA or the defense attorney’s firm. I hadn’t heard about the attempted murder or the discharge of weapon in an occupied building. I was thinking I might just get selected. I was a blank slate.

Then the question was asked, “Do any of you believe marijuana should be legalized?” As I raised my card with my juror number, I’m wondering what does this have to do with an attempted murder? Shockingly, I was one of only five or six out of 80-90 who believed (or at least would admit it) marijuana use should be legalized. The follow-up question was then, “Those that answered yes just believe marijuana should be legalized, not other drugs, right?”

I quickly interjected, “No, everything should be legalized.”

“What was your number again, sir?”

Remember, 17 states have legalized marijuana for medical use. In a couple weeks, voters in Washington and Colorado will decide if recreational use of marijuana will be legal in their states. In the city of Denver, there are over 200 stores that sell medical marijuana, more than three times the number of Starbucks and McDonald’s combined.

I wasn’t selected for the attempted murder trial and was allowed to leave about 2:30 in the afternoon. “But make sure you call in after 5:00 to see if you have to report tomorrow,” the unselected were told.


The next day, I didn’t have to report, but the following day, I was to be at the jury waiting room at 9:00 a.m. About 9:30 (the court is always running late, it seems), they herded us into the courtroom for voir dire.

This case was a DUI charge along with assault. The questions were similar to cull through the pool to select 13 people (a jury of 12 plus an alternate) to decide guilt or innocence. For those not wanting to answer the questions in front of the other jurors, you are allowed to tell the court your answers without the other jurors present. Also, the judge can ask you to remain for follow-up questioning to clarify the answers provided during voir dire.

Again, I didn’t make the cut. “Please return at 2:00,” was the command.

About 2:20, we filed into the courtroom. The defendant, a small man in his 40s, calmly looked us over as we filed in, as did his attorney, who was nattily dressed in a brown suit accented with an orange tie and pocket scarf.

The assistant DA was again a young woman wearing what seemed to be the standard DA uniform, dark pantsuit with white blouse.

The defendant was charged with trafficking more than 2.2 pounds of marijuana.

The typical questions ensued, and then the big one came from the assistant DA: “Is there anyone here who thinks marijuana is no big deal and should be legalized?” I again held up my card with a half dozen others.

But the DA pressed on. “Of those of you who answered yes, will you be able to put your feelings aside and rule on the facts of the case, recognizing that trafficking marijuana is against the law in the state of Alabama?”

“No,” I said.

“If the facts show that the defendant did indeed traffic more than 2.2 pounds of marijuana, will you be able to rule on the basis of Alabama law, complying with the judge’s order, recognizing that trafficking marijuana is against Alabama statute?”

“No, I believe in jury nullification.”

“OK,” said the DA as she jotted something in her notes.

I figured that would be it. I was wrong again. The questioning was completed and the respective counsels conferred with the judge, who then rattled off a series of numbers: jurors who needed to stay behind for further questioning. My number was among those called, and we were ushered into the hallway.

Waiting in the hallway, I heard one of the jury veterans say to someone, “They’ve got us for two weeks. You might as well find a case you like and shut up, ’cause eventually you’re gonna get picked. You might as well serve on a case you like.”

One at a time, each of us was called into the courtroom for follow-up questions.

When called in, I walked to a designated spot that faced the judge, from which I was to answer questions.

The judge began. “Mr. French, you answered that you couldn’t serve as an impartial juror in this case, is that correct?”

“Yes, your honor. I don’t believe the defendant did anything wrong, even if he did what the state alleges.”

The defense attorney quickly said, “I want this guy.”

“You understand that it is against the law in the state of Alabama to traffic marijuana. Are you saying you cannot uphold the law?”


“I would say, using a famous quote, the law is an ass.”

Once those words left my lips and no rebuke came from the judge, I kept going.

“I would remind this court that if it weren’t for jury nullification, we would still have slavery in this country,” I said while spinning around directing the comments to the defendant and his attorney, both African-Americans, and the district attorney’s team. “I will not be the juror, and this will not be the case, but one of these days a jury must nullify these crazy drug laws.”

This comment produced a wide smile from one of the court’s staff.

The judge was unmoved by my outburst.

“Have you ever served on a jury?” the defense attorney asked.

“No, of course not,” I said. “I’ve never made it this far before. There is nothing she can say,” I said, pointing at the assistant DA, “that will change my mind.”

“I dunno, I’m pretty good,” she replied.

“I’m sure you are, as are your colleagues,” I said. “But the defendant did nothing wrong.”

The judge interjected again, “Are you sure you cannot listen to the evidence and judge the innocence or guilt of the defendant applying the law of the state of Alabama.”

“No, your honor. That man,” I said while pointing to the defendant, “did not do anything wrong. I assume if he did what the charges allege, he was only carrying out a commercial transaction with a willing buyer or seller. It is no different than if he were selling popsicles on a street corner.”

The defense attorney winced and asked, “What do you mean commercial transaction?”

Before I could explain, the judge directed me out of the courtroom.

I waited patiently in the jury room to be excused for the day. After half an hour, the jury coordinator rattled off 13 numbers. None was mine.

“Please call after 5 and see if you must report tomorrow.”

A couple days later, it was front-page news that the defendant in this case was found guilty. He had never laid eyes on or touched the reported 154 pounds of marijuana seized during the police investigation. He accepted delivery of packages delivered via UPS. The packages would remain on his porch and be picked up by a friend. He said he thought the packages contained auto parts. He was merely doing his friend a favor.

“Y’all ever hear of partners in crime? That’s what we got there,” the assistant DA told the jury, according to the local paper.

A police narcotics officer posed as a UPS driver, and when the defendant signed for the delivery of 70 pounds of what turned out to be marijuana, he was arrested and charged with trafficking.

“We’re here because UPS got suspicious,” the assistant DA said. “This is because normal, everyday people smelled something funny.”

The state never proved the defendant wasn’t ignorant of the boxes’ contents or that he had opened a box. They didn’t need to. The state found a dozen normal, everyday people ready and willing to do the state’s drug war bidding.

In his book For a New Liberty, Murray Rothbard questions the legitimacy of compulsory jury duty. “What is this but prison and involuntary servitude for noncriminals?” Rothbard asked. Plenty of people believe jury duty to be a vital civic function. After all, judges are part of the same justice system that the prosecutors are and thus will tend to be biased. Therefore, a fair system depends upon being judged by one’s peers.

But Rothbard points out that slave labor is not efficient labor. Compulsory juries stand the division of labor on its head. Since when would you pick people randomly to do something as important as weighing evidence and determining guilt and innocence? This is a job someone should be trained in. To pick people randomly gives the appearance of being unbiased, but in fact, it accentuates the state’s advantage in the courtroom.

Douglas French

Original article posted on Laissez-Faire Today

Can Jury Slaves Say What’s True? appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Earthquakes and Economic Forecasts

“The verdict is perverse and the sentence ludicrous,” the respected scientific journal Nature writes in disgust.

Just when we’d though we’d seen it all…our War on You file goes international today with a story that’s so unreasonable it surprised even our most cynical sensibilities.

“Six Italian scientists and a government official,” Sky News reports, “have been found guilty of multiple manslaughter for underestimating the risks of a killer earthquake in L’Aquila in 2009.”

Seven men were sentenced six years in jail and ordered to pay more than $11.5 million in damages to the survivors in L’Aquila… for not having sufficient psychic abilities.


“This is a historic sentence,” one proponent and lawyer Wania della Vigna said, “above all for the victims.” Well, she got the first part right.

“It also marks step forward for the justice system,” an obviously confused Vigna goes on, “and I hope it will lead to change, not only in Italy, but across the world.”

“They are not guilty of anything,” the surprisingly more sensible government lawyer Carlo Sica said, “the earthquake’s no one’s fault.”

Unfortunately, Mr. Sica, there’s no place for logic when it comes to pointing fingers.

On the other hand, the sentence sets an interesting precedent.

What might be a fitting punishment for failed forecasts along the lines of “It’s a pretty unlikely possibility — we’ve never had a decline in housing prices on a nationwide basis”?

Among other whoppers, compiled here for the historical record…

Click the video to see more “Prophecies of the Beard”

Dave Gonigam

Earthquakes and Economic Forecasts appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

The Case for Hotels

The housing bubble affected more property types than just housing. Take hotels, for instance.

Back in the heyday of the bubble, people could (and did) buy hotels and put big mortgages on them. Just as with housing. Now those loans are coming due. And guess what? Borrowers can’t afford them anymore. They have to come up with cash or sell, much like troubled homeowners. So an extraordinary opportunity exists to buy hotels today. Let’s take a look.

From about 2005-2008, you could say the market was in a drunken, debt-fueled stupor. Bankers funded lavish loans to buy hotels based on a sunny outlook that turned instead to rain. The terms of these loans usually had maturity dates of five-seven years from issuance. In 2012, about 27% of these loans from the boom years come due.

According to Morningstar, this pool of hotel loans was about $70 billion at the end of 2011. About 10% of them are already delinquent. About a third of them are on a “watch list” — which is banker talk for “I’m worried about the ability of the hotel to pay.” In short, there are a lot of troubled hotels.

Banks hatched these loans on rosy assumptions, as I’ve said. Banks made the loans at low interest rates and funded a high percentage of the properties’ then-inflated value. The current hotel market is not as strong as it was in 2007. Property values have come down. Many hotels are 20-40% less profitable than they were at the peak. Plus, today’s lenders are more sober about credit risk. Today, you probably couldn’t finance a hotel by borrowing more than 65% of the now-depressed value. In addition, banks charge higher interest rates for such loans than in 2007.

So what’s happening is that those maturing loans from that bubbly era can’t support the debt based on today’s lending standards. If you are a borrower, you have two choices. You either cough up the cash to pay the debt down or you sell.

If a borrower chooses the latter, then there is a great opportunity for a well-funded buyer to come in and get a deal. The best deals come from people who have to sell.

Beyond the loans coming due, we’re in a good part of the cycle for hotels. To understand hotel cycles, you have to think about hotel supply and demand.

When Lehman Bros. went belly up in September 2008, it pretty much froze the credit markets like Old Man Winter’s icy breath on Lake Superior. It doesn’t happen often, but when it does, it is a crusher. Borrowing money for anything was almost impossible.

As a result, new hotel construction slowed to hardly anything at all. Normally, the hotel industry adds about 75,000 rooms per year — a roughly 2% growth rate. By 2011, hotel supply grew by fewer than 25,000 rooms. The chart below gives you the ebb and flow of hotel rooms from 1988-2011. You want to be in hotels at the troughs. You want to sell hotels at the peaks.

New Hotel Room Growth

You can see we’re in a good place today. Some say the market has yet to trough because net new supply for 2012 could be lower still than it was in 2011. Looking at the pipeline for new hotels beyond 2012, there is not much new supply on the horizon. Over the next five years, the number of new hotels that could open represents less than 7% of total supply. To put that in perspective, consider that in boom years hotel supply can grow 4% in just one year.

So supply looks tight. Now, what about demand?

Demand for hotels generally follows the economy. If times are good, hotels fill up. If times are bad, they go half-empty. Easy enough. It is this rubber band action that makes hotels cyclical.

However, we again come at the scene after the storm has done its work. The two-year drop in demand from 2008-09 was the steepest and largest in the history of the lodging industry. The last two years have been strong on the demand side such that occupied rooms at the end of 2011 were the highest ever. So while it is true that room demand follows the economy, demand has always recovered and moved higher. The chart below shows you room demand since 1988.

Hotel Room Demand Over the Long Term

Mix the growing demand with the bulge of bad loans coming due and tepid supply growth and you get a good recipe for rising hotel occupancy rates and room rate increases. This brings us to a final piece of evidence.

The long-term hotel occupancy rate is somewhere around 62%. It tends to peak at 64-65%. The last bottom, in January 2010, was about 55%. That’s your range. Where are we now? Somewhere right around 60%. When occupancy rates crest 60%, the hotel industry as a whole tends to be able to push rate increases through. So we’re at a key inflection point right now.

Anyway, room rates don’t tend to go backward for long. Over the last 20-plus years, we’ve had only three years when the average daily rate for the industry fell.

For all the above reasons, I told the subscribers of Capital & Crisis a few months ago that they should get back into the hotel business by investing in selected hotel stocks. I had not recommended a hotel stock to my subscribers since October 2004. Back then, I recommended Orient-Express Hotels below $17 a share. One year and a half later, I suggested selling it at $35.19 per share — a gain of more than 100%.

Once again, similar values are emerging in the hotel sector. Funny how if you are around long enough, you see market cycles and opportunities repeat. I think investors could do even better this time around.

As with the US housing bust, so with the hotel bust. There is extraordinary opportunity in the rubble.


Chris Mayer
for The Daily Reckoning


The Case for Hotels appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Gold’s Buyable Bounce?

Your reasons for owning gold don’t matter to me. Maybe you want to use gold to protect yourself from the declining dollar. Or perhaps you believe foreign demand will increase prices.

Either way, it’s important to time your purchase in order to get the most out of the investment.
That’s why I decided to write about gold today. If you’re bullish on the yellow metal, right now could be a great opportunity to buy — whether you consider yourself a short-term trader or a longer-term investor.

Shortly after gold started to move higher in September, I told you about three new buying opportunities you could exploit before gold attempts to make new all-time highs. Despite its recent breakout, gold moved too far, too fast. That’s why I thought you should wait for a better-timed entry, instead of getting caught chasing the price.

Here’s what I wrote in September:

“Gold is running out of gas as it approaches resistance at $1,800. It will probably need to rest or retrace before attacking $1,800…

If and when a pullback occurs, give gold several days to a couple of weeks to move down and/or sideways. Eventually, the price will tell you where and when support will be.

Once gold moves higher from its new support level, you will have found your low-risk entry point. If I had to guess right now, I would say you might have an opportunity to buy near $1,725…”

Let’s turn to a chart to see how this idea is playing out:

Gold indeed turned back at $1,800. As you can see from our momentum gauge under the price chart, we were given clear indication that overbought conditions would probably cause the spot price to drop (red arrow).

Now that gold has had the chance to blow off some steam, we can see a potential buy price right around original guesstimate: $1,725. In the above chart, I added a 50-day moving average in blue to supplement the horizontal support/resistance annotations. As I type, the spot price is oscillating right around the 50-day moving average. That’s great news for gold bulls — and a sufficient low-risk entry if you’ve been looking for the right time to make your move.

For shorter-term traders, you can feel confident that the bounce is intact as long as the spot price continues to respect the rising moving average. If you’re a longer-term investor, you might want to opt to use recent lows near $1,550 as your sell signal.

Another Way To Look At Gold…

Looking ahead, it’s important to keep an eye on the performance of stocks to guide your gold trades. While it’s true that gold has outperformed the S&P 500 over the past three-plus years, the two have essentially traded in the same direction, with the exception of the late 2011 correction:

The arrows mark where stocks and gold diverged. However, as of the beginning of 2012, the relationship returned to “normal” for the time being.

If the gold and stocks’ relationship remains intact, the yellow metal could correct with the stock market. If you’re thinking about making a buy right now, you need to respect the possibility that slumping stocks could drag gold down with them. Only time will tell.

Trade your plan — and always have a stop loss in mind. It doesn’t’ matter what your investing time frame is, you must be prepared in case the market moves against you. After all, you can always buy back a position at lower prices if the market gives you the opportunity.


Greg Guenthner, CMT

Original article posted on Daily Resource Hunter

Gold’s Buyable Bounce? appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

avatarThe Daily Reckoning - The Daily Reckoning posted Wednesday, October 24th, 2012.

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