Musings Report #8 02-19-12:
10 minutes after the Titanic hit the iceberg
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Has the stock market topped? (Part 2)
Three technical analysts I follow have posted some interesting charts, if you are into timing the stock market or want to avoid getting crushed if a steep decline actually occurs at some point (as impossible as that seems):
We seem to be at a point where either the market breaks toward new highs or it rolls over. Technically, there are plentiful signs of weakness.
10 Minutes After the Titanic Hit the Iceberg
In rewriting my next book "Resistance, Revolution, Liberation: a Model for Positive Change" I hit upon what I think is an apt analogy to the present: 10 minutes after the Titanic hit the iceberg.
As we all know, the "unsinkable" Titanic suffered a glancing collision with an iceberg on the night of April 14, 1912. In those first 10 minutes, it was not at all apparent that the mighty vessel had been fatally wounded, as there was no visible evidence of damage except to those below decks in the 6 watertight compartments (out of a total of 16) that had been damaged.
But some rudimentary calculations soon revealed the truth to the officers: the ship could survive the first 4 watertight compartments being compromised, but not five. Water would inevitably fill the fifth compartment and spill over into the sixth, and so on in a domino-like fashion until the ship sank.
We can sympathize with the disbelief of the officers, and with their confused reaction, both reassuring passengers and attempting to goad them into the life boats. As we know, with the mighty ship only slightly down by the bow and the interior still warm and bright with lights, it seemed far more dangerous to clamber into a lifeboat and drift into the cold Atlantic than it did to stay onboard. As a result, the first lifeboats left the ship only partially full.
Only when it became undeniable that the ship was doomed did people attempt to "make other arrangements," but by then it was too late.
The tragedy was a cruel mix of human error (entering an ice field at nearly top speed, 23-25 knots), hubris-soaked planning (only enough lifeboats for half the passengers and crew) and design flaws: the high-sulfur iron hull plating did not bend when struck by the ice, it shattered like china, as did the rivets.
I found this interesting engineering report on this materials failure. As noted above, the watertight compartment design was also flawed; indeed, some studies have found that the ship would have lasted an additional six hours had there been no watertight compartments, as water would have sloshed evenly along the entire length of the vessel.
I think this perfectly describes the present. Our financial system seems "unsinkable," yet the reliance on debt and financialization has already doomed it, whether we are willing to believe it or not.
In effect, our expenses and new debt are rising at a rate far above the actual expansion of goods and services. This is like a household that increases its debt by 10% a year and its expenses by 6% a year, yet the household income is stagnant. Just as with the Titanic, default or insolvency are the only possible end-states.
We have no idea when the death-spiral of financialization will gain speed and become undeniable. We know the Status Quo will pull out all the stops to maintain the illusion of "growth" and that the rising debts of the Central State, corporations and consumer are sustainable. They are not, and tricks will only "extend and pretend" to a certain point.
Maybe the illusion that the ship is unsinkable can be maintained for another year or two, but we must note that the ship was visibly breaking up in late 2008. So the illusion of solvency, stability and permanence has already been conjured for four long years at staggering expense: $2 trillion added to the Fed balance sheet, $1.2 trillion in secret giveaways to the banking cartel, and $6 trillion in additional Federal debt/spending, to name just a few of the costs.
Those who anticipate the inevitable foundering will be better placed to survive and prosper. They will also be better placed to design a truly sustainable model after our corrupted financial and political systems dissolve in default or insolvency.
From Left Field
I am sorry that the "History of Iron Age Britain Episode 1" was not available--it turned out the free video was only available in Australia.
How Companies Learn Your Secrets (free registration with the NY Times required). A long, fascinating exploration of the modern marketing machine.
When a County Runs Off the Cliff: Jefferson County, Ala., is a place where government finances, and government itself, have simply broken down.... and so has the municipal bond market, though nobody is willing to admit it yet. (via Joel M.)
These are the results of structural flaws in funding, pensions and governance. These cannot be "fixed" with the minor policy tweaks the Status Quo offers....
"Ms. Pries said it took two years to open the ice cream parlor, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.
“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”
Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water."
"The enemy of the conventional wisdom is not ideas but the march of events."
- John Kenneth Galbraith
Thanks for reading--
charles
