Raging Bull in Greed and Abject Stupidity
Stock-Markets / Stock Markets 2010 Mar 22, 2010 - 07:49 PM GMTBy: Charlie_Tarango
We hear many talk of “Bull” and “Bear” Markets. But one thing seems to be settled: This “Bull” is either “Secular” or “Cyclical”- but it is a “Bull”. Take your pick, right ?
Yes indeed, there is a “Bull Market” – and it is raging. But it is a “Bull Market” in Greed and Abject Stupidity. The “Bear Market” is in Common Sense and Logic. And it is reaching New Lows – we’ve solidly taken out the 2007 Lows.
Should you go “Long” Greed and Abject Stupidity or Common Sense and Logic. That depends on if it is your Capital, or “OPM”, as Danny DeVito famously intoned in his film repertoire. Most look to the infamous “Smith” to give them the Answer to that question. We’ll get back to what “Smith” says later on.
Other People’s Money
The principal economic debate is between “Deflation” and “Inflation”. A few on the sidelines try to define the debate as a hybrid between the two, or something altogether different. It is thus important to understand who are the Participants in the Dialogue. Nowhere is Mediocrity, Incompetence and outright Failure more rewarded than in Markets. That’s because 99 % of those in Control of Capital are using “OPM”. The 1 % using their own Capital usually fail within 5 years or less – because failure has consequences when it is your own money and importantly, livelihood, on the line. You see, it simple: You don’t get paid even when you’re wrong.
Needless to say, virtually everyone debating the “Inflation” or “Deflation” is going to get their basic livelihood met, regardless of the outcome. So it easy to see why a “Bear Market” in Common Sense in Logic can be so fierce – and seemingly impossible to stop.
“Joe’s Wallet”
To hear the Dialogue in toto, is to believe the issues are extremely complex, and possible outcomes perplexing. Indeed there are many complexities, and much to apprehend in Markets. However, in reality, it is simple as Pie. Because it all comes down to “Joe’s Wallet”. That is the “Working Joe” – he doesn’t get paid for incompetence and failure. But as low as he is, it is his wallet that has the final say in Markets. And it speaking loudly and clearly.
Inflation Reality
We all know the myriad measures and gauges of “Inflation”. CPI, et al., on one end, John Williams of “Shadow Government Statistics” on the other end. Take your pick. I’ve got the best and most accurate measure in the entire World – approximately Ten Years of actual receipts, from a Jaguar Van den plas to a carton of Milk. Boxes of them – covering it all. A few Million Dollars spent on everything one can conceivably buy. And those receipts would make “SGS” blush – because the true Inflation is in triple digits – not double digits. And of late, “Necessities” have been outperforming.
But none of the above matters – because in “Joe’s Wallet” who has the best or most accurate measure is irrelevant. Reality is all that matters. There are three parts of “Joe’s Wallet”: Necessities, Obligations ( Debt & Taxes ), and Discretionary – and in that Order. There is no debate there.
Allocation not Estimation
Pundits can dance around in their insulated World of Delusions and diatribes, but for “Joe” Inflation is as real as can be – and is measured in finality, in Allocation – not Estimation. There is no Debate that Wages have not risen, and are not rising. Yet further delusional pundits cite the 1970’s – or even Germany’s Hyperinflation, etc. There are three words that unequivocally demonstrate the applied ignorance of these individuals, who sadly, control far too much “OPM”:
China, India and Globalization.
These three create what could be called “Ratio Attributes of Employment” that never existed in those previous times or situations. In that regard, it is indeed “Different this Time”. Forget for a moment, India, other so-called “Emerging Markets”, and Globalization generally. China alone can – and if we remain on this path – Will, consume every Job in North America and the Euro Zone – and still be hungry for more. And this is not even to discuss the Structural and Secular Unemployment now. The reality is simple: Wages cannot and will not rise against this backdrop. It is these “Ratio Attributes” that doom Globalization in its present form.
Never before in History have so many been competing for so few Sustainable Jobs.
The only pundit who seems to even grasp this concept is Bill Gross in his recent dialogue on the “Aggregate Demand ” gap. That “Gap” has been bridged as far as it could be through Inflation and Debt. That is what the 2007 Double Top really represented – the “Advance Notice” that we are reaching that inflection point. The “Peak” always occurs before the end reality becomes clear – and Denial Rules all the way down.
Inflation = Deflation
“Inflation” will now have the reverse affect. It’s all about Allocation, Allocation and Allocation.
Necessities, Obligations ( Debt & Taxes ), and Discretionary – and in that Order.
The answer to it all is so simple.
There is absolutely no question that “Necessities” are increasing in their allocation in “Joe’s Wallet” – and substantially so in the last 18 months. Further “Inflation” of “Necessities” equals less Allocation to Obligations and Discretionary. Further “Inflation” of Government Liabilities and Fiscal “Stimulus” equals less Allocation to Discretionary. And critically, even if all so-called “Stimulus” were to stop today, that which has already been incurred will operate as a Substantial Burden on Allocation going forward - with Interest of course.
Ergo, further “Inflation” of “Necessities” will operate secularly to reduce the Allocation available to Debt – more Inflation thus equals more bad debts. More Deflation of Debt equals less Allocation to Discretionary – viz., Demand Destruction. Circular and Secular Reality.
It is simple and inexorable: Inflation is Highly Deflationary going forward.
The mantra “Inflate or Die” is a fool’s errand. The actions of Governments and the “powers that be” 2008 and post, were not, and are not designed or intended to stop it – they cannot – only to lessen the impact, to wit, a Controlled Deflation. We’ve heard the tired refrain “Helicopter Ben” – funny, no 100 Bills have been dropping from Helicopters, now have they ? And they are not going to.
Circular Logic of Fools
So if the “Inflate or Die” is a fallacy and “Joe’s Wallet” is either reaching or close to breaking point, then where are the Trillions going to come from ? The Answer is obvious – at least to the Market as a whole:
Political and Economic Suicide through Hyperinflation.
And that is because it is “OPM” – Common Sense and Logic need not apply. Recently a pundit cited “Record Short-Interest” – 5 % Short and 95 % Long – the math really adds up there. Like “Pavlov’s Dogs”, it is Long, Long and more Long. Don’t worry, they have the token “Short Position” – correlated to who knows what. Forget Common Sense and Logic.
The Iceberg
The “Iceberg” ahead is not Government Liabilities – or Hyperinflation – it is Corporate Profits. The “Money to pay for it all” is going to come from the only place it can: Corporate Profits. The “ Real McCoy ” began in 1982 and ended in 2007. Time will make this abundantly clear. It witnessed record expansion of Profit Margins and a record share of the Economic Pie. It was a great run. But it is over. They’ve Inflated as far as they could.
Now it is time to Pay the Piper. These Market Pundits and so-called “Managers” would have one believe in their twisted and circular logic that the “System” will be destroyed to sustain “Corporate Profits”, yet the endgame of that destruction will miraculously benefit “Corporate Profits”. They also collectively seem to believe that what ever, if anything at all, is due The Piper, they will skip out on the check safely into Yield Land. What do you think the mentality was the last time the Dow fell 89 % to its bottom ? Reversion to the mean – and below - of “P/E” ratios is never seen by the collective as it is unfolding. This time is no different.
Heliocentrics
Why is “Economics” such a “Dismal Science” as many have said ? Because as Copernicus taught, you must understand what is at the Center of the Universe before you can properly conceive that which follows. The Center of the Economic World is Geopolitics – and more so than ever, given the so-called “Globalization”. Events and outcomes revolve around that heliocentric. Some are now excoriating Paul Krugman, particularly those who never met a “Bubble” they couldn’t see or embrace.
But he is only acting ahead of the curve. “Protectionism” is the only Economic way out. And tacitly, he is acknowledging the Geopolitical Reality: We’ve milked China for all they are worth – and now is the time to cut them off at the knees. And we must do it now, while we still can. ( For a Primer on this see “King Dollar” ( August 2008 )). The unraveling of the Euro and Jobs – dictate that Europe has to follow along – and will out of self-interest, the ultimate driver of Geopolitics.
The Dollar and Gold have been telegraphing this message long before Paul Krugman. Do you really believe that US Policy is some happenstance ? Perhaps you haven’t heard the names Jim Jones or Robert Gates ? The most salient elements are bigger than any one Man. It is simply this: We’ve reached a point where someone has to implode – and that is either Europe and the United States– or China. Before you place your bets, remember ole JP Morgan’s words.
Perhaps the most valuable import from China is Sun Tzu: “Attack him where he is unprepared; appear where you are not expected”. In Geopolitics and Economics that is Protectionism and Deflation.
Mr. Smith: Meet The Tape
Jesse Livermore once said that “If I Buy when Smith tells me, I must Sell when Smith tells me – but what happens when Smith is not around ? ”.
There is never any shortage of “Mr. Smith” in the Markets. But expounding on Jesse’s wisdom, even Mr. Smith has a Mr. Smith. Smith has many incarnations, not only in people. The Yield Curve, New High and New Lows, Breadth, The Fed Model, P & E’s, Dividend Yield – the list and the individuals are endless. They all will advise on the clear course of action. But they all lack a critical component:
The ability to Perceive and Synthesize events as they are unfolding.
The best “Smith” of all is the proverbial “Tape”. The “Tape” has taught – and long before it was called or known as “Tape” this reality in all Markets and all places:
Absence of Sellers, not an Abundance of Buyers = Bear Market Rally
Abundance of Buyers, and Absence of Sellers = Bull Market
If you can’t find “Smith” within yourself in the “Courage of your Convictions”, as Jesse has said, then the most important “Smith” is Volume. And Mr. Smith’s message is unmistakable. It is only a matter of when – not if. Mr. Smith is only telling us what “Joe’s Wallet” already has.
The 2002 Lows were taken out for a reason – the beauty of the Market is that there is an innate fairness in it all, that no Manipulation, Deception or Fraud can overcome: The Market always warns in advance. And once again, in the here and now, it has.
As Jesse says: “The Market doesn’t beat people; they beat themselves”.
Mr. Smith, Meet the Tape.
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Bio
Carlos is American in his mid forties living in Mexico, Privately Managing Capital for select Clients.
He is a self-made Man who retired independently wealthy some 10 years ago,
using that wealth to buy the most valuable commodity in the World: Time.
With it he pursued his Vision of Mastering the Game commonly known as “Wall Street”.
He is a Man who has the Vision to see what is possible and the Confidence to make it a reality.
Through the teachings and principles of the Great Jesse Livermore, Time, and his own Capital as Tuition, he has achieved that Vision, doubling Capital approximately every 3 years with
no more than 20 % risk at any given time.
In addition to Observing the Game, Carlos is a Father, Writes, provides informal Political Perspectives to select Leaders here, is writing a book ”Ideology of Liberty”, and is working to implement a Project to amend the Constitution of Mexico through the Repeal of Article 117, Section 8.
This Repeal will shift political and economic power to the Governors of Mexico in order to
prevent the fiscal and social disaster of Oil Depletion.
This article can be downloaded in PDF Format @ www.talentseekscapital.comCarlos can be contacted @ tlggroup@hotmail.com
© 2010 Copyright Charlie Tarango - All Rights Reserved
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