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Musings Report #37 9-13-14 To Fix Anything, Start by Fixing the Basics
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For those who are new to the Musings reports: 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. Thank you for supporting the site and for inviting me into your circle of correspondents.
To Fix Anything, Start by Fixing the Basics
Much of modern life is based on the idea that the way to fix any problem is to control all the inputs to reach the desired output--in other words, micro-managing to move the needle of the chosen metrics.
For example: to achieve better health results (i.e. lower rate of death), prescribe medications that lower cholesterol and blood pressure, because these are metrics we can measure and they correlate to lower risk of death.
If we want to boost "growth" in an economy that depends on "growth" for its prosperity, boost borrowing and spending--metrics we can track--by lowering the cost of borrowing and flooding the banking system with "free money" from the Fed.
But these micro-managing fixes don't actually restore health or the economy: they move the dial of metrics we think are correlated to health/prosperity, but that doesn't actually fix what's wrong.
Health involves a lot more than blood pressure or cholesterol levels: it includes diet, fitness, and mental health ("the mind and body are one"). An overweight, unfit person who can barely climb a few steps is not "healthy" because he's taking medications that lower cholesterol and blood pressure. These might lower his risks of dying, but these are not actually restoring health.
I have been thinking about this since reading an article in Scientific American magazine: Less Is More When Restoring Wetlands "Many wetland recovery programs have failed by trying to re-create the original ecosystems. Recent successes have focused on one or two limited goals and have let nature take it from there."
The basic idea here is that Nature--a complex set of interacting ecosystems--is self-healing, in the sense that imbalances are addressed and a new equilibrium is reached as a result of enabling the system to "do its thing."
In other words, rather than trying to engineer a specific output that we can measure and then declare success, the goal here is to just restore the water flow to destabilized wetlands, and let Nature do the rest.
In terms of human health, the parallel course is to change the diet to only natural, less processed foods and engage in a variety of sustained physical activity every day. If we do these two things, many ailments go away, not as a result of medications targeting one specific metric, but from a systemic restoration of health.
In education, the basics are: teach children to read, give them access to learning materials, and teach them how to learn on their own in a series of confidence-building steps. Once children can learn on their own, self-learning throughout life is enabled.
It's always easier to pick a metric and a target and micro-manage our way to the specified goal, but picking what we can measure is not a substitute for systemic health or a high-functioning, self-sustaining, stable system.
This leads to the idea that the way to fix anything is to take care of the fundamentals, and then let the system adapt and advance on its own.
Summary of the Blog This Past Week
The Hidden Value of Gardens 9/13/14
What If the Easy Money Is Now on the Bear Side? 9/12/14
Why Has Classical Capitalism Devolved to Crony-Capitalism? 9/11/14
How the China Boom Unravels: One Person at a Time 9/10/14
Could the Alibaba Model Undo the Wal-Mart Model? 9/9/14
The China Boom Story: Alibaba and the 40 Thieves 9/9/14
Best Thing That Happened To Me This Week
Correspondent Robert E. sent me this note:
"Charles, again I wish to thank you for being a mentor to me of sort. Your way of writing is special, it gets to the message, is clear and opens the mind more easily for critical thinking than most all writers that I read. I have said this to you many times at Peak Prosperity and your Blog site for years now. My donation is a direct gift to you for giving me hours of enjoyment as learning is so very important to me right now. I love the world I live in now and you are a huge reason for this. Again, thank you...." I am humbled by such high praise.
Market Musings: Breakdown--will the Gates of Heck open?
The "risk-on" trade has lasted almost three years, interrupted only briefly by short-lived spikes in the VIX and modest downturns in the stock market (SPX).
If the VIX moves above 14 and the SPX drops below 1,980, that would open the door to further declines. If the VIX moves decisively above its 200-week moving average at 17.56, a drop below 1,900 on the SPX become possible. Let's call this "the gates of Heck opening."
Shorter term, I've marked up a chart of the past 10 days of trading on the SPX. The SPX traced out a classic topping pattern (megaphone), which broke to the downside. The SPX then traced out a wedge (higher lows, lower highs) which also broke to the downside.
Now the SPX is in a clear down channel.
What could cause the Gates of Heck to open and the market swoon 10% - 15% (200 to 300 points on the SPX)? A VIX that spikes above its 200-week moving average (17.56) and then moves higher, and a break in the SPX below 1,980.
What could cause such a reversal in "risk-on" to "risk-off"? How about a failed IPO by Alibaba, or a Fed meeting that disappoints the "more free money" expectations of Bulls?
The point, I think, is that the Fed's cycle of expanding the "risk-on" trade has ended, and now we're on the other side of the mountain (tightening). The market has yet to price this reality in, but it looks like it's finally starting to do so. Add in geopolitical risk and a soaring dollar, and you have a recipe for "risk-off" by the overly leveraged crowd.
A decline of 10+% is long overdue, and the makings of such a decline are certainly present.
From Left Field
Instrument Shopping for Mason Bates's symphony "Alternative Energy" (2:56) -- the way music gets made... first, search a junkyard....
Laotian Love Song and Dance (via John F.) (3:53) -- exotic setting and costumed young women... enchanting.
From Chocolate to Beer, Shrinkflation Hits the Supermarket -- confirming what we all know first-hand...
China’s Education Gap (via Maoxian)
"While China has phenomenally expanded basic education for its people, quadrupling its output of college graduates in the past decade, it has also created a system that discriminates against its less wealthy and well-connected citizens, thwarting social mobility at every step with bureaucratic and financial barriers.
A huge gap in educational opportunities between students from rural areas and those from cities is one of the main culprits. Some 60 million students in rural schools are “left-behind” children, cared for by their grandparents as their parents seek work in faraway cities. While many of their urban peers attend schools equipped with state-of-the-art facilities and well-trained teachers, rural students often huddle in decrepit school buildings and struggle to grasp advanced subjects such as English and chemistry."
How do Unschoolers Turn Out? -- very interesting: not as bad as you might expect, given that school is considered "essential"...- worth reading.
I GHOSTWRITE CHINESE STUDENTS' IVY LEAGUE ADMISSIONS ESSAYS telling it like it is....
"I’m a black market college admissions essay writer, and over the last three years I’ve written over 350 fraudulent essays for wealthy Chinese exchange students. Although my clients have varied from earnest do-gooders to factory tycoon’s daughters who communicate primarily through emojis, they all have one thing in common: They’re unable to write meaningful sentences."
Why I Just Can't Become Chinese: The contributions of Chinese Americans underscore a great U.S. advantage—and the limits of China's rise.
1950s Hong Kong Captured In Street Photography By Fan Ho -- why there's no substitute for black-and-white photography...
The Dying Russians -- 15,000 deaths from alcohol poisoning annually....
Updated Maslow Pyramid -- funny!
Evidence Grows That Online Social Networks Have Insidious Negative Effects -- no surprise here...
7 Rules That Keep My Life Simple -- some good ones, others sound boring....
Stop and seize: Aggressive police take hundreds of millions of dollars from motorists not charged with crimes (via Chad D.) -- don't carry large amounts of cash for any reason....
Why Musk Is Building Batteries in a Desert When No One Is Buying (via John D.) -- the next step for Tesla-- the battery factory will be powered by solar: Musk is a smart fellow....
"Every election is a sort of advance auction sale of stolen goods." H.L. Mencken
Thank you for your financial support, and for reading the Musings--
charles |
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