Weekly Musings 30 7-31-11
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For those who are new to the Musings: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights, and thank you for supporting the site.
Quick Note of Gratitude
Fifty of you went out on a limb and bought my new ebook "An Unconventional Guide to Investing in Troubled Times," and I want to thank you for your encouragement and support. My print books can always be deployed as doorstops or paperweights, and so it takes special courage to buy an electronic book which has no physical attributes to make use of if the intellectual content fails.
I also want to reiterate something I've said before here, which is the great pleasure the Musings afford me because I can write whatever I feel like addressing without the burdens of a possibly hostile and/or ill-tempered general public. I am among friends here or at least among those who are forgiving and tolerant--two immensely valuable virtues. Thank you for offering me both tolerance and financial support.
Your support helps me maintain my enthusiasm for providing freely offered content on the site. I am committed to keeping the Musings at $5/month because that is more or less affordable to anyone with a job or steady income--and it is less than a fancy "designer beverage" at Starbucks. The Musings may not satisfy your caffeine cravings, but they are zero calories....
The "Grand Story" of the Economy: Every Beginning Creates A Middle and an End
I hesitate to say this topic is one of the most important I have ever presented, because such statements usually dramatically lower the number of people who keep reading. As a result of this danger, I will simply say this strikes me as a very interesting and potentially profound subject.
What makes a story? It has a beginning, a middle and an end. What makes a trend? The same.
What if all trends follow the same pattern of slow growth, rapid rise, leveling off and decline?
That premise is answered in this remarkable paper by Cesare Marchetti, who modeled events from the spread of plague to the acceptance of technology, and found they all track a predictable S-Curve: slow growth, rapid rise, leveling off and decline.
Marchetti's key point is that the four-stage progression curveset doesn't change much, regardless of what is done to extend the trend to infinity. Once the trend accelerates in Stage 2, then it soon reaches a midpoint which then predicts the topping out and decline stages. In other words, Central State intervention, tweaking input parameters, introducing new policies and marketing--none of these change the curve or eliminate the topping-decline phases.
After reading the paper, I suddenly saw a great many such trends which are reaching their apex and leveling out, or are already in the decline phase:
-- Oil production, which is clearly in the leveling-off/topping out stage
-- Vehicle sales in North America and Europe: they've topped out and are in decline
-- China's economic growth based on construction, foreign investment and exports
-- Housing as an investment vehicle (in the decline phase)
If we really extend this insight, we can also conclude:
-- the entire consumer economy of the US has run its course and is in permanent decline
-- the post-war political consensus has run its course and is in permanent decline
-- Keynesian economic theory has run its course and is in permanent decline
The evidence for this is abundant: Keynesian stimulus has failed for structural reasons, the political consensus is unraveling, and economic "growth" has failed to respond to trillions of dollars in monetary and fiscal stimulus. In other words, all the intellectual models for the economy and governance have run their course and are in permanent decline. We need new models, which is what oftwominds.com is all about.
And now we come to the second profound idea, submitted by Cheryl A. and Jim S.:
I have often referred to the Pareto Principle of 20% influencing the other 80%, but this suggests the key number is smaller.
That is extremely significant, for 10% is not that big a number. I will have more to say on this next week, but if we add these two ideas together, we see that trends and intellectual frameworks like Keynesian economics run their course and are duly replaced with a new trend that enters Stage 2 - rapid growth - when 10% of the populace "gets it." I consider these insights deeply intertwined and very hopeful--we only need to change 10% of the minds to change the other 90%..
The One and Only Global Trade: the US Dollar vs. Everything Else
I have been contending since April that there is really only one trade in the global economy now: Everything (stocks, bonds, gold, oil, cocoa, etc.) on one end of a see-saw and the U.S. dollar on the other. If this is accurate, then the opportunity exists to reap a profit a thousand-fold the annual cost of the Musings. I am not sure if I can insert the chart in this email, but you can see the same thing in this 4-year chart of the DXY-Dollar Index:
Note the 12-month decline from 2007 to August 2008, at which point the global economy imploded and the dollar skyrocketed. Now look at the past 12 months of the DXY: it is eerily similar.
This is not a recommendation to buy or sell anything, but this similarity may prove significant. Or, it may merely be a figment of my fevered imagination. Be that as it may, other chartists have already noted the same pattern.
From Left Field
Feedback loops, diets and self-regulating systems: why do diets fail? Here's some insights.
"America is in love with Apocalypse. It always has been."
Alexander Cockburn
Thanks for reading--
charles
