Finally…I understand the stock market.

And no, this is not some sarcastic screed on the “Wall Street Casino”. I finally found somebody who could explain the mysterious vagaries of the waxing and waning of the market terms that even an artist can understand. Probably because there are lots of pictures. And because the meat of the “book” is only about 50 pages long… in large type.

It’s more of a detailed pamphlet really.

The author, Daniel Arnold, is just a smart guy who wanted to know how to make his money work for him after he retired. He was an electrical and bio-mechanical engineer who had worked for GE for a number of years. He was good at understanding process and the importance of how the pieces fit together. So, with some time on his hands, he started looking at basic, publicly available economic information and began utilizing the data in a way that developed into a very interesting theory.

He started from the assumption that you always hear brokers and stock houses hammering home to investors. One shouldn’t look at how a stock does over a short period of time. Instead, they should look at the long range performance. But the people he listened to or read weren’t talking about long range trends. They were all focused on short term trends and short term results.

When one looks at long term economic flux, there are a lot of theories to choose from. One of my favorites is a long-range theory from a Russian economist named Nikolai Kondratiev. He was tasked with “proving” capitalism could not last because it was a flawed system. What he found instead was that the economies of capitalist countries waxed and waned; although he did not or could not offer a suitable explanation as to why this occurred.

These findings were seen as having the potential to undermine Stalin’s plans for the Soviet Union, so he was sent to the Gulag and sentenced to death. But, his findings align with Arnold’s findings quite nicely. But, Arnold’s prime cause for the fluctuations are a far simpler, more elegant and intuitive explanation than the ones offered by economists trying to find an explanation for the Kondratiev “Wave”.

Any artist or scientist or mathematician will tell you that there in a beauty, a “rightness” to certain solutions. The pieces all fit; like a puzzle. As I read this pamphlet, I kept having those “Ah, that makes sense.” moments that never came while I was studying other economic theories.

So I’ll give you the most basic and important part of his theory here and if you want to read more you can go to his website: The Great Bust Ahead

Let me say first though, as an artist, I will tell you now, the site screams “SCAM”, and if I had seen the site first it would have been easy for me to dismiss the pamphlet as sleazy profiteering. But I’ll give him a pass. He’s an engineer and may not realize how visual cues lead people to certain unconscious conclusions.

The data he presents is easily accessed through public files at the Bureau of Labor Statistics, the CIA fact files and the INS. So if you have doubt, get the information and crunch the numbers yourself.

Finally down to the nub of it.
In a nutshell:

  • The GDP (gross domestic product) is, in the simplest definition, You and I spending money.

Here he uses Fully Industrialized Democratic Nations (FIDN) as the basis of this data point. The more people, the more they spend, the higher the GDP. And it holds true.

  • If there is a group within the given population of a country that spends more money, they are the main driver of a “good” economy.
  • The age group comprising the biggest spenders in these FIDN is the 45 to 54 year olds.

Why? We are at our peak earning power at this age. We buy cars, we buy houses, we have kids with the attendant school, medical, college expenses. So we are also at the years of our peak expenditures.

  • The strength of the economy rises and falls as generational cohorts come into or move out of this peak earning/expenditure age.

He takes birth data and census data back to the 1920’s and follows the 45-54 year old cohort, correlating it with the rise and fall of the stock market. He has to make adjustments for inflation, but there is an incredibly tight correlation between the peak earning 45-54 demographic and stock market performance.

Until the 1960’s. It took him a while to suss out why the shift occurred. It was the Pill. It allowed women to forestall childbearing. And keeping it basic here, we won’t go into the economic ramifications. Suffice it to say that he adjusted for the data and the correlation resumed its lockstep behavior.

He found he also had to adjust for immigration. He notes that the average age of immigrants to this country is 30 years of age. And once they are assimilated, earning money, making families, they contribute to the upward trend of the stock market in the same way as a birth cohort.

This chart shows the correlations, but there seems to be some divergence in the data. My guess is that if he could find a way to account for illegal immigrants, who contribute to the economy as much as any other worker, it would, once again fall back into alignment.

Sorry about the smudge in the lower left....

I’d like you to notice that after 2010 there is a precipitous drop in the number of people in the 45-54 year old cohort. The Baby Boomers are busting. They are no longer at peak earning power, the kids have gone to college (and come home) and there is a gap of quite a few years until another peak earning demographic comes into prominence.

So, what does that mean? Well, if the trend holds, it means a precipitous drop in the market. It means a long depression. It means a very long, very tough road for people over 50.

So, now that you understand how the stock market works, you can see that we have been trying to put the cart before the horse. Jobs and wages create disposable income. Disposable income creates a thriving economy. And that is simply all there is to it.

No magic. No fractal Elliot Waves. No Wall Street Wizards or brokers who can earn you lots of cash. If you want to get rich in the stock market, make sure people have jobs and money to spend. Then when a generational cohort hits age 40, get in the market. When they hit 50+, get out.

Simple.

The Royals are Reptilians and I’m an Alien-Human Hybrid

It’s times like this that it becomes abundantly clear that I am either a changeling or an alien-human hybrid. Somehow, against all the impulses of the herd I have been born into, I am completely disinterested in the social life of people who have status merely by dint of being the product of the chance meeting between a lucky sperm and egg.

Not only that, I have never been able to comprehend how regular people can be so engrossed in the personal lives of those whose existence is completely foreign to their own, in terms of power, wealth and privilege. Frankly, it wouldn’t occur to a Royal to look your way if gazes were air and you were suffocating to death.

We are not amused.

A couple of years back the Queen’s solution to the deficit in the Palace heating budget was to raid the fund used to feed the poor. She can’t put on another sweater like regular folks, she has to heat her Palace with the bodies of the starving. Her Ministers had to explain why this would be a bad idea.

I need you to think about this concept: Her Ministers had to explain why taking food away from poor people who would starve without it, was bad. In other words, the idea that it was morally or ethically questionable had never crossed her mind.

This is the group people around the world are obsessing over; waxing rhapsodic about? These people, who have never been particularly talented, intelligent, beautiful or industrious. From what I have observed, their sense of public decorum is about on par with the average “man on the street”. What merit affords them the attention of 1/3rd of the worlds population?

Given that the chances of a mere “commoner” interacting with them in any meaningful way is practically null, I would find it exceedingly helpful if someone could explain in clear, concise terms, exactly why anyone should care about anything they choose to do?

Daddy TeaBagger Weeps: My Tea Party Turned Corporate Whore! (how spoiling the Boomers broke America)

Which is what I’ve been suggesting for some time now.

Boomers, on the whole, just don’t get it. Because, sadly, they never really “got” it in the first place. From the moment their collective purchasing power was recognized way back in the 50’s, every speck of an idea rising from that generational cohort has been microscopically scrutinized in order to figure out how it can be sold to the public at large. They are the Co-opted Generation, brought to you by the makers of Pepsi. “It’s the Herd Mentality that’s GOOD. And so GOOD for you tm“.

If they had been self-aware enough to take control of their own message, they could have actually have been a force to be reckoned with. But having been raised in a bubble that catered to their every whim, they assumed all that corporate fawning meant Power and Money were actually in agreement with their ideals. The sad reality: Corporations were using the 900 lb gorilla as a social and economic wedge; handily stripping out the substance and selling the pre-packaged, easily digestible product to the public at large. And if the rest of the country didn’t like it, the collective ire of a massive generational cohort would rain down fire upon your head.

So we end up with McDonald’s. Because kids on long trips don’t like eating unfamiliar food in unfamiliar places. ad infinitum

Once the pattern was established, it was easily and handily manipulated – for profit of course. And as time went on, it became increasingly easy to steer groups with special interests into their own intellectual cul-de-sacs. After all, wasn’t every egoistic whim they ever had worth exploring in deep navel gazing, cash-costing detail, regardless of the price to society at large?

Whittling away the generational mass, fracturing it, was a simple thing really. By their late 20’s most people’s interests and life path have gelled somewhat. They are no longer a “puppy-pile” of mate-seeking, group-thinking, exploratory youth.

At that point, it was just a matter of seeing the broad trends within the cohort and nudging them a little farther along the path. And this is less conspiratorial than it sounds. Because, bottom line, it’s always been about the Benjamins.

It was the Corporate sycophants in politics who saw the possibilities of using those differences for both corporate and political ends. They married Richard Nixon’s ground breaking political strategy of “us disenfranchised slobs” vs. the “elites” to the Corporate consumer group micro-marketing.

Minor personal digression: Ol’ Dicky Nixon was not attractive, he was not from a wealthy or politically connected family and he was not charismatic. But was incredibly intelligent. And most importantly, he was a political shark. He never stopped moving and he was a vicious bastard when crossed. In the end, I loathed him a bit less and respected him a bit more because of these things. But only a bit.

Fast Forward: Tea Party. The perfect blend of the Boomer ethos of “ME, ME, ME and to hell with how it affects other people” wedded to a political platform, funded by Corporate dollars.

Here’s the interview with Daddy TeaBagger “himself “. And since he’s not a Corporatist, unlike 99% of Washington, he’s pretty pissed that his brainchild has been Frankenfurtered to keep boot-licking Corporate butt-monkeys in power.

“In short, The Tea Party was and is about the the corruption of American Politics and the blatant and outrageous theft from all Americans that has resulted. It is about personal responsibility and enforcement of the law against those who have robbed, financially ****d and pillaged the nation.”

Ahem….. Excuse me. That’s “WAS.” No longer “IS”. Welcome to the real world, where you and what you want are irrelevant. Enjoy your stay. And please remember: It’s a Class War and the Rich are winning.

Drug/Money Death/Taxes Class/War

When I first read about the practice of large pharmaceutical companies paying smaller producers of cheaper generic drugs to keep their product off the market, I can’t say I was surprised. I can’t even say it registered as a blip on my “Disgusting Lack of Morals” scale.

I mean, after all, big Pharma sees an increase in profit because they can continue to sell the higher priced name-brand drug.  And the producers of generics don’t lose any money even though they’ve stopped manufacturing a lucrative, yet lower cost to the public, product. So it’s all good. Right?

TPMMuckraker: Drug-Makers Paying Off Competitors To Keep Cheap Generics Off Market

I was, however, amused by the accuracy of the tag: sleaze.

And my lack of surprise continued when, a few days later I came across a story in the Seattle Times Newspaper by Danny Westneat about a woman living in Seattle with her 2 children. She makes about 18, 000.00 a year. And for that, the IRS decided to audit her.

Because after looking over her tax information, it seems the IRS decided it is impossible to raise 2 kids on 10.00 an hour. Well, no kidding. No pun intended.

Even though they aren’t talking, the IRS seemed to come to the following sage conclusion: She is either lying about having 2 children or she is hiding extra income in order to take the Earned Income Tax Credit.

And when her dad hire someone to look over her tax returns and speak with the IRS on her behalf, the IRS decides that the parents need an audit too. A very thorough audit.  Can’t you just hear the menacing sound of rubber gloves snapping into place?

As far as I could tell, they were just two more stories of money and abuse of power from different ends of the economic spectrum. They seemingly have little else in common.

So, imagine my surprise when each of them kept nudging me. At first gently; like the puppy when he first figured out that the table plus people equaled food. And since he was a puppy and he was cute, he felt his chances of scoring a nibble were quite high.

Unlike the pup, who has long since learned that there are no table treats, the stories did not stop their gentle nudging. In fact, I began to find myself pondering them in tandem.

So what was I missing? What connected these two stories together beyond money and an abuse of power? Late yesterday, the phrase Mafia Model sprang unbidden into my mind.

The Mafia Model, as I explained in an earlier post, is just about all that’s keeping the world economy from following the 2nd half of the plumber’s gospel: Hot always goes on the left and shit flows down hill. The monied people, the financiers, the bankers, the billionaires, the rulers of nations; they are all tied together. Their lives are staked, quite literally to the mountain of money known as the economy. If support breaks and one of them goes down, they all go down.

But let’s expand that universe beyond the power players of finance. Let us develop an internal logic in order to create a consistent reality. In that scenario the Mafia Model plays out like this; Big Pharma pays off Little Generic to throw the fight. Everybody wins. Big Pharma bets heavily on their name-brand guy and rakes in the cash because odds were heavily in Little Generic’s favor. The name-brand winner takes the pot. The loser, little Generic from South Jersey, gets a pay off that keeps him happy and out of traction.

So what of our little Italian family in Seattle? Well, it’s no stretch to see that when you want to set an example, the easiest targets are women, children and small business owners. Don’t like how some people aren’t paying their due because they are protected by Earned Income Tax Credits? Send your goons in to lean on them a little. And when old Pop steps in to protect his daughter and grandkids? Smack him down a peg or two. You don’t need to break any bones, just run them into the ground with fines and fees and legal bills. Folks in the community will get the message. Capice?

Where is Elliot Ness when you need him?

The Mafia Model

In mid-2007 I finally revealed to the Spousal Unit that, over the past year, I had been developing an increasing anxiety over the state of the economy. By any measure available to the layman the economy looked healthy; robust even. High-end developments were blossoming like endless fairy rings on open meadows and newly deforested woodland. This meant construction trades and every sector associated with them were booming. The Mister was working for an architecture office as the job captain for the home office and resident code wonk for both branches of the firm.

But deep in my gut something was wrong. It just wasn’t adding up. In part, because the Mister and I kept looking around us and saying: You can’t build houses forever. At some point there has to be market saturation. Then what happens? Has a history replete with Tulip Mania and Beanie Babies taught us nothing?

We kept trying to have rational conversations on the subject with our social circle, but most of them were in the trades to some degree and didn’t want to hear it. And you know what happened to Cassandra. One theory was she didn’t bring cookies.

Someone once described me as having “a tinker-toy model of the universe” in my brain. I will chance upon a quandary and somehow, I can’t let it go until the pieces fit. They don’t have to fit perfectly or beautifully, they just have to fit. The effect is like having a hangnail in your consciousness. Or like those pop ditties with a hook that runs mercilessly through your head, and nothing short of a near overdose of prescription sleeping pills can shake it.

So at some point in 2006 I started cruising business and economic sites on the Internet. MSNBC, Wall Street Journal, Bloomberg and various political sites that included economic fora. I read, I researched and what I didn’t understand I plugged directly into a search engine. I wasn’t going to chance asking tenderfoot questions on an open internet forum. No0bi3s are often targets of derision and harassment, even when they ask sensible questions. I wasn’t inclined to add the humiliation of virtual swirlies to the very real anxiety I was already experiencing.

After a year of lurking and researching I knew just enough to be dangerous. And I had learned enough to know that the Mister and I had not been too far off base in our concerns. The way it looked, the housing market was probably going to tank and tank badly.

The pieces of my tinker-toy model had re-arranged themselves to the point that I could now future pace what was likely to happen in the broader economy when housing slowed down. In my head it looked like beautifully crafted concentric rings of Dominoes, with the housing market as the center starting point and staggered sectors like overlapping petals surrounding it.

When housing reached saturation, I theorized, all the trades associated with it would slow as building slowed. This only made sense. Framers can’t frame, plumbers can’t plumb, roofers can’t roof and electricians can’t…electrify, if they don’t have new construction. So the basic trades would be forced to cut employees. Interestingly, some of those jobs would not even show up as losses in employment because a number of the crews working in North Carolina consisted entirely of illegal aliens with an English speaking foreman. Yet the loss of those “non-jobs” would impact other sectors of the business economy.

The next ring of Dominoes to fall would be the businesses that supplied materials to the building trades, including the literal tons of heavy equipment used to clear the lots. Services like landscaping, painting crews, concrete and paving companies would find themselves with too much equipment, too many employees and not enough work to go around.

People buying new quarter million dollar homes see an opportunity to “try something new” with their “look”. For that reason, businesses providing everything from décor to guest room linens on to basic pots and pans would find fewer customers buying their (frankly overpriced) products.

Now because the Dominoes aren’t perfectly aligned, we have to move back to our first ring which has secondary effects on the wider market. Yes, the high-priced homes, the services and all the 2nd ring attendant purchasing have fallen because the market has stalled. But so have the 3rd ring blue-collar jobs supporting those trades and businesses. This means the laborers like linen store workers, paint mixers, people who make furniture, the lawnmower repairman; all these people have been forced to cut back on spending. The same holds true for 4th ring business supplying finished goods and supporting 3rd ring stores and laborers. Best case scenario for most, a reduction in hours with a tighter spending budget. Worst case: they have been laid off due to the slowdown in the housing market and have no money to spend.

And those ripples affect the “petals” food stores, restaurants, mid to low priced clothing stores, white goods (appliances) luxury items like electronics, toys and games and most surprising to me in hindsight, spending on healthcare.

In another way, the effect is completely un-like Dominoes. It’s more like being on the freeway, going home at 5 o’clock on Friday during a horrific thunderstorm. The freeway is packed with cars, covered in water, saturated. One car slows down to avoid hydroplaning. Then, traffic jam. Standstill. It’s that quick. And if you aren’t paying attention, it can be devastating.

So, early one Saturday morning in mid 2007 I call the Mister to the table and ask him to hear me out. I proceeded to lay everything out as calmly as I could. I explain that my main cause for concern was, once the trades and supporting businesses slowed down, so would new business construction; hotels, shopping centers, travel centers. These were businesses his firm looked to for clients. As a last hire, I was afraid his job wasn’t entirely secure. For that matter, based on the range of possibilities I had come across in my research I wasn’t entirely sure we weren’t in for an economic collapse.

The Mister gets a certain look when his brain is processing a chunk of novel information. It’s not exactly “deer in the headlights”. It’s more like a young indoor cat seeing a mouse for the first time. There is initially, a blank incomprehension; a vague fog, lasting from a few seconds to minutes. Then comes a danger assessment. Then cogs begin to turn; possibilities and strategies come into play.

And that almost instinctive understanding of strategy is one of the many reasons I love the Mister; his understanding of game theory is phenomenal.

We began to discuss possibilities in earnest. After a year of silent fretting, I am sitting at the table, practically vomiting stored up anxiety.  The Tinker Toy model in my brain is limited in its ability. I need concrete facts, pieces to fit into the model. No pieces, no clarity. Beyond that it’s down to conjecture. I suck at conjecture.

The Mister is now on his feet. He thinks best when he’s doing something. He goes to the kitchen and begins to clean. And as he comes to understand the depth of my fears surrounding an economic collapse, he uses a phrase so succinct and yet so descriptive that the clear genius of it is startling to me. “They won’t let America’s economy collapse.” he says, “It’s the Mafia Model.”

“What?” The incongruity of the phrase has kicked me out of my physical anxiety and back into my head.

“The Mafia Model. You know…. ‘It’s bad for business.’.” He turns to face me from the kitchen. “Back in the 30’s and 40’s the turf wars between the mob bosses had gotten out of hand. Drive by shootings, bombings, murders. Civilians getting killed. Finally, the Feds along with local police agencies started cracking down on them, interrupting their ability to do business. The mob bosses started losing money.”

“So they get together, decide that the all out wars are ‘bad for business’ and the way to make money is to make peace. Support each other. Syndicate”

“If America goes down, it’s not good for anybody else’s economic health. They literally can’t let it happen. It’s bad for business. And by the same token, we can’t let any other large economy go bust either.”

In a perverse sort of way, I found the thought comforting; even a little heartening. The economic ecosystem was in the midst of its own crisis. It seems they were being forced to take a lesson from that other struggling ecosystem: Adapt or Die.

And so far, the Mister has been right. Over the past 2 years I’ve been watching them; the world leaders, the financiers, the billionaires. Now, I see them clearly, as they are; all tethered as one, clinging to the side of a cold, heartless mountain of money, while the storm of a century rages around them.

As they struggle to gain purchase, I can only image that they pray fervently to what gods they comprehend. Because they surely know what we know; if one falls, the rest will surely follow.

Center on Budget and Policy Priorities: Top 1% Reaped 2/3rds of Income Gains in Last Economic Expansion

Analysis of  IRS data by  Thomas Piketty and Emmanuel Saez.

Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.

During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

The last economic expansion began in November 2001 and ended in December 2007, according to the National Bureau of Economic Research, which means the Piketty-Saez data essentially cover that expansion. The last time such a large share of the income gain during an expansion went to the top 1 percent of households — and such a small share went to the bottom 90 percent of households — was in the 1920s.