Tuesday, August 28, 2012

Dow Theory: A Political Perspective

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises

The validity of this basic tenet of the Austrian School of Economics will now be tested. The von Mises position stands at odds with the far more widely accepted Keynesian Economics view of the world, as I have mentioned before. To the extent that great economic theories are being contested this is an interesting time to be alive. To the extent that von Mises might be correct it does not bode well for avoiding economic pain ahead.

Long-time readers know of my interest in Dow Theory, which has nothing to do with the Austrian School per se. The oldest stock market timing method, pioneered by Charles Dow himself, has come under criticism in recent time. Some feel the relatively simple approach to the markets is now outmoded.

I disagree, though I admit there are other methods such as technical analysis, Elliott Wave Theory, etc. that have some validity. Dow Theory has served me best since I discovered it back in 2001 when I was losing money and didn't know why after doing so well in the late-1990's.

A quick review of a basic Dow Theory teaching: If both the Dow Industrials and the Dow Transports averages close above their most recent highest high (time period could be months or years) or, conversely, if the both close below their most recent lowest low, then this signals a Bull or, in the latter case, a Bear primary market trend. If, on the other hand, one average closes above the high or below the low but the other average (it doesn't matter which one) does not follow suit in a brief span of days or weeks then this is called a Dow Theory non-confirmation.

Confirmation signals validate the primary trend. Non-confirmations usually mean caution or pay attention, because the primary trend is subject to change. No matter how long it takes, Bulls are always followed by Bears which are, in turn, followed by Bulls. Dow Theory sees this and has a long history of measuring it. There is, of course, more to Dow Theory (but not a huge amount more, there are only a handful of overarching tenets like confirmation) but this one aspect is sufficient for where we are today.

On August 17 the Dow average closed near its most recent highest high, which it recorded back in May. It did so by shooting up some 20 points in the last hour of trading before backing off six points at the close. This placed it four points below the most recent highest high in May. In other words, if the Dow had closed 10 minutes earlier it would have closed at a new most recent highest high.

But, "close" does not count in Dow Theory. Everything is valid based only on how stocks close at the end of the day. (English is strange, note the spelling of "close" in the very different words of the last two sentences.) So, there was no potential confirmation signal given on that Friday. Meanwhile, the Transports closed up but still 50-odd points away from their May peak. If the Dow could manage the last few points and if the Transports followed suit then that would have been a Dow Theory Bull signal.

Since then, however, both the Dow and the Transports have retreated. Nothing has been decided except the markets are overbought and won't break to new highs this time. Of course, eventually, there will be another run up. The question is how far will the two averages retreat from their recent flirt with new highs before making another attempt at rallying. Until then, things are just kind of meandering along caught in a trading range.

The current primary trend is Bearish. Though not all Dow Theorists agree on this, the theorist I have followed most since 2001 is 88-year-old Richard Russell who says the trend is Bearish until the markets exceed their May highs. A Bull Signal failure would be indicative of a belief by the markets in continued sluggish economic times ahead.

My feeling is that this failure to change the primary trend from Bear to Bull is symptomatic of, frankly, rather disturbing undertones of the economy. Barring further government stimulus stocks have topped out for now. Most people don't realize how bad the economic situation is. This grey-toned economy could last for many years. We are choking on both public and private debt. Employment will likely remain sluggish or worse. Consumer confidence is at a 9-month low. We are confronted with a "fiscal cliff." Europe is already in a new recession. The Federal Reserve is seriously considering intervening yet again to prop up the economy.

Intervention by the Fed will not work any better now than the first two times it was attempted. The Bear must be allowed to fully express itself. This is the fundamental meaning of the von Mises quote at the beginning of this post. The current economic recovery after the Great Recession has been anemic. Some think we might still be in a recession. I don't know about that but I do know that unemployment remains at a point where historically US Presidents do not get re-elected.

The election is extremely close right now. A few swing-states will probably decide the whole thing between Barack Obama and Mitt Romney. The economy will trump all issues as usual. Gay marriage, abortion rights, and Obamacare are not going to be the driving issues, though they will certainly color things and you cannot discount such secondary issues when the election seems anybody's to lose.

Since the economy tops every other issue, I am paying especial attention to Dow Theory right now. It has the dual significance indicating how the economy and, in turn, the presidential election will most likely go. Most economists seem to think the Federal Reserve will not launch QE3. As of today, nothing of conviction has been established about our close proximity to a Bull Signal. It could be that the Dow is simply overbought right now and is just building support for a higher rally.

I find it hard to believe that this will happen but, according to Dow Theory, we are (or were) on the verge of a Bullish near future. Of course, that would be great for Obama and, of course, Romney does not want to see the possible Dow Theory confirmation, even though neither candidate probably thinks about it in those terms at all. But Dow Theory is fundamentally about timing the market. You invest with the Bull. You remain skid-dish or in cash with the Bear. The Bull helps Obama. The Bear helps Romney.

Last week Romney might have made the most serious mistake of his campaign. He stated that he had no intention of renominating Federal Reserve Chairman Ben Bernanke for another term (his current term ends in 2014). Now the question becomes, how much does Bernanke want to hang on to his job?

The Federal Reserve is an unconstitutional entity. I believe all central banks should be abolished. But this is not a post about political truth. It is about political reality, which is rarely the same thing. The reality is that there is no more powerful economic person on the face of the Earth than the Federal Reserve Chairman of the United States of America.

So, Romney has (unwisely in my opinion) stated to the world that he wants to fill the expanse of such power with someone else. This has given Obama a possible opening. If Bernanke wants to keep his job then he obviously wants Obama over Romney. If the economy can be propped up well enough then Obama will likely get re-elected.

By a slim margin, most analysts think QE3 is not a foregone conclusion. Bernanke realizes that another round of quantitative easing might not work. Bernanke is not an avid Obama supporter. He is, rather, an advocate for the integrity of the Federal Reserve itself. If the Fed embarks on QE3 and it fails to yield positive results, then the Fed has suddenly lost an enormous amount of its perceived power. That, perhaps, is ultimately more important to Bernanke than his own reappointment.

Romney says he wants a strong dollar. I guess almost every presidential candidate has postured himself thusly. The problem is that a strong dollar is the last thing we need. The stronger the dollar the greater the debt feels. It is only by weakening the dollar that we can avoid deflation, which also increases the effects of the debt. So Romney is flat-out wrong.

This does not make Bernanke right, however. The ideology behind QE-whatever is equally flawed. It will not work. Nevertheless, contrary to the majority of wise economists, I think the Fed will step in at some point, probably in September. The stock market will likely rally, perhaps even to the point of giving a new Dow Theory Bull Signal. This will be an artificial stimulus but it will be a rally nonetheless.

Ironically, the people most likely to profit from QE3 are all on Wall Street, one place that hates Obama most. The rally that could come and possibly give Obama the re-election will sucker-in many investors who will probably lose money as Wall Street profits upon the event that could give the president they hate four more years in office.

Another consequence of QE3 is that it should send my primary investment upward. Gold will rise as the dollar is devalued. If the economy isn't going to grow (which it isn't) then the only other way to deal with the weight of the US debt (which is growing at an unsustainable pace) is to devalue the dollar. That makes the debt feel cheaper but it simultaneously threatens the currency system, as von Mises predicted. Gold has recently moved up too far too fast, however, and is now overbought. I will likely add to my position (or perhaps even add to my Silver position) with the next pull-back.

Everything I have just written, of course, seems like a tangled web of almost contradictory occurrences. There is very little clarity ahead.  Still, I will attempt to make money off this situation though, in the end, none of it will make the least bit of difference to the US economy. The Bear will have his say - otherwise von Mises is wrong about the ultimate consequence of massive and extended credit booms such as what we have experienced in the last 40 years and their inevitable effect on the currency system which supported the booms in the first place.

Late note: Friday, August 31 - Fed Chairman Bernanke delivered what the NY Times called "a detailed and forceful argument for new steps to stimulate the economy" today.  This sent the stock markets and gold higher.  No specific policy was mentioned, however.  So, now we wait until September to see if QE3 actually happens.  Again, I wonder if Bernanke wants to keep his job under a re-elected Obama as opposed to lose it under a newly elected Romney.  As if to reinforce the political nature of this matter, the Romney camp reacted negatively to the Bernanke statement.

Sunday, August 12, 2012

On Proust and My New Olympic Body Aesthetic

The aesthetic of the "Olympic body" dates from the beginning of the sporting event itself in Ancient Greece.   Certainly, the experience of a physical aesthetic is an abstraction of reason, emotion, and instinct.  We might not all agree on which Olympic body best represents our personal tastes - or even if that the bodies are attractive at all.

I am somewhat athletic.  I jog regularly.  I do light weight workouts.  Lots of stretching exercises.  I used to play tennis and softball.  I would not say I have an athletic mindset.  My focus on nutrition, for example, is more with regard longevity and prevention rather than enhancing strength and performance.  But, while I would certainly not call myself an athlete, I am nevertheless drawn to athletic types.  My first girlfriend was a lifeguard.  My wife plays a lot of competitive tennis and goes to state tournaments.  There were several similar stories in between.

In past years, I have generally looked forward to watching the gymnastics events in the Summer Olympics.  I think gymnastics is the most athletically demanding of all sports.  It requires equally outstanding prowess of strength and gracefulness.  The American Olympic Gymnastics Team performed terrifically at the 2012 London Olympics.  Watching their bodies and talents in competition was wonderful, such great form.

It reminded me of a passage from Proust that impresses me in his long novel.  When, as a late teen, the narrator meets a grouping of late teen girls at an elite beach resort of the French coast, he describes the experience as follows...

“…thanks either to its growing wealth and leisure, or to new sporting habits, now prevalent even among certain elements of the working class, and a physical culture to which had not yet been added the culture of mind, a social group comparable to the smooth and prolific schools of sculpture which have not yet gone in for tortured expression, produces naturally, and in abundance, fine bodies, fine legs, fine hips, wholesome, serene faces, with an air of agility and guile.  And were they not noble and calm models of human beauty that I beheld there, outlined against the sea, like statues exposed to the sunlight on a Grecian shore?”  (Proust, Within a Budding Grove, page 506)
The Olympic bodies I saw these past couple of weeks are in the spirit of Proust's description of an aesthetic experience.  But, this year it was not the gymnasts that impressed me most.  I found the pole-vaulters and the long jumpers to be more attractive.  But, beyond them, the divers truly caught my eye and sensibilities.

Both male and female athletes displayed the most splendid bodies (though their faces sometime looked pretty rediculous in certain dives).  Their frequent, brief, dives into water seemed more like moments of sculptured flight.  It was more than a sport to me.  It was an Art form.  Several divers cauight my eye.  Mexico's Paola Espinosa and China's Wu Minxia are great examples.  Of particular note, for me, was Brittany Viola.

Brittany is a good Olympic story because, like the vast majority of athletes participating in London 2012, she did not win a medal.  She advanced to the semi-finals in the 10-meters.  Then she failed to qualify for the finals.  End of her Olympic story, this time.

But, all that conditioning and practice that she put into her art/sport, was so evident on her body.  The Proust quote above applies, to me, directly to her.  She is at the summit of human physical suppleness and symmetry.

Though, as I said, you might find another athlete to have stronger aesthetic appeal, it would only be a different version of the same appeal I experience when I watch Brittany in performance.   Which, of course, recalls my understanding of Platonic Beauty in a previous post.

Of course, Brittany did not train to possess Beauty.  She trained to win at competition.  But, the wonderful by-product of her scientific and disciplined approach to her sport, is that not only does she possess a wonderful body but she gets to display it in a one-piece bathing suit that is, by most standards of western culture, a sexy accessory.

Objectification One
I read recently where there is a fundamental difference in western culture over how the general population views the body of a man versus the body of a woman.  Most people always see the man's body as a whole.  But, we tend to view the woman only in her objectified parts, exactly as Proust did to a large extent in the passage above.
Objectification Two

She has wonderful calf muscles and thighs.  Her feet are perfect.  The curve of her side, her breasts, shoulder, toned arms, face, hair, etc. are all accessible in a way that we generally do not achieve with him.  A "him" might have great abs or biceps or chest.  His legs, in their way, could be as fit and symmetrically appealing as hers, but we apparently do not see him as easily this way.  It is, perhaps, our cultural prejudice toward a woman that allows us to take parts of her instead of the whole.
Objectification Three

But, when Brittany Viola was diving, I saw all of her.  The dive itself, with the physical contortions and crispness and precision, made her athletic body a piece of installation art for a brief time as it fell into water with a regimented fashion that seemed, for her, a natural extension of herself.  That was a simple wonder to behold even if it didn't win a thing.
Brittany Viola performing an Olympic dive.

Monday, August 6, 2012

Curiosity Lands on Mars: Something of a Miracle

Well, they did it. In one of the most challenging engineering feats in the history of space exploration, NASA’s Mars Science Laboratory (a robotic rover named Curiosity) successfully landed on Mars after a 9-month journey to the Red Planet. Apparently, the landing was a complete success although it might require a bit more time to determine is everything if fully operational on the rover.

Nevertheless, this is a historic moment for human space exploration. Several robotic rovers preceded Curiosity over a period of decades, but all of them were small by comparison and have nowhere near the capabilities of the newest robotic probe. It is hoped Curiosity will greatly broaden our knowledge of Mars, gather information for ultimately a human landing on the planet probably several decades from now, and possibly determine if there was ever life on Mars, albeit probably only microscopic life.

But today all that seems almost irrelevant to me compared with the fact the spacecraft actually landed safely. It required dozens of individual stages or components to work flawlessly in slowing the spacecraft down from roughly 13,000 miles per hour when it first entered the Martian atmosphere to a gentle set-down on the surface some seven minutes later.

Dubbed with the clever marketing slogan of “The Seven Minutes of Terror”, Curiosity had to perform everything automatically, with systems it carried into space with it, and without any direct human intervention. The reason for this is space itself or, rather, the distance of space. At the present (always fluctuating) distance between Earth and Mars it takes seven minutes to send a signal there…and seven minutes to receive one back. Another example where “time” is really just another way of looking at space and is, in my opinion, a human-inflected illusion of space.

I told a number of my friends when I first learned of the complexity of the landing a few weeks ago that it would be a “miracle” if everything worked according to plan. But, it did. And it does seem a bit miraculous to me even if it can all be broken down into neat segments of dozens of bits and pieces that worked by design. Just because you can explain the complete minutia of an event, natural or human-made, does not make it any less of a wonder. Among the many “firsts” in this mission was the successful deployment of a supersonic parachute and the lowering of the rover by a "sky crane", firing thrusters, which then had to release the rover on the ground before detaching itself and flying away so it wouldn’t crash into the very thing it was depositing so gingerly. All pretty cool stuff really.

At $2.5 billion, this mission really had a lot riding on it. With budgeting tighter than ever for NASA, a failure might have spelled doom for any immediate further exploration of Mars. Now, depending upon the functionality of Curiosity and what we discover, human destiny to eventually go to Mars seems very much alive and attainable. Whereas, a big splat into the Martian surface would have crushed hopes of future funding, even though it remains iffy how much more money will be allocated in these times of austerity to such non-essential (i.e. not consumer-driven, nor money-driven) matters.

Even with the success of the landing, the exploration of the planet – the taking of visual images and physical samples from the surface itself for rudimentary analysis with a tiny laboratory inside Curiosity, - will be a long and tedious process. Even though the probe’s mechanical arm is designed like a human arms so that it rotates and twists and bends according to the human shoulder, elbow, and wrist, it will still take 14 minutes all total to tell Curiosity to “pick up that rock” and have the action confirmed.

But, science probably doesn’t mind the slow slog ahead. After all, we are there. We can touch and experience Mars as never before, thanks to a successful launch last November, a long journey, and an incredible seven-minute ride to the surface. Figuring out something like this is the best case for human reason which, despite its many abuses and limitations, can still produce marvelous moments of complete wonder.

Sunday, August 5, 2012

Carl Jung: Being Happens

Carl Jung was the first psychologist to influence my life.  I read him extensively in the period before I went to India.  Among his many accomplishments was the understanding that myth is alive in a massive, collective unconscious.  Also, he identified the anima and animus as specific aspects of human personality.  Today only one of his books, The Archetypes and the Collective Unconscious, remains in my library.  Keeping it company are works by other Jungian-like authors such as Joseph Campbell and Erich Neumann.

Jung lingers within my spiritual journey, as I indicated in my recent word doodle on Being.  For me his work represents the closest science comes to touching the face of god.  Here are some select quotes from his book on Archetypes that inspired his inclusion in my post on Being.  I think they point in the direction of Being and perhaps lead to another glimpse of what I mean by Being, even though Jung's use to that word and my use of it are likely not the same.

Read these quotes with the Platonic Ideas in mind and you might see what I intent about art and intuitive reason versus, say, logic and scientific reason as being a better approach to the appreciation of Being.

"Contents of an archetypal character are manifestations of processes in the collective unconscious.  Hence they do not refer to anything that is or has been conscious, but to something essentially unconscious....There is no longer any question whether a myth refers to the sun or the moon, the father or the mother, sexuality or fire or water; all it does is to circumscribe and give an approximate description of an unconscious core of meaning.  The ultimate meaning of this nucleus was never conscious and it never will be.  It was, and still is, only interpreted, and every interpretation that comes anywhere near the hidden sense (or, from the point of view of scientific intellect, nonsense, which comes from the same thing) has always, right from the beginning, laid claim not only to absolute truth and validity but to instant reverence and religious devotion.  Archetypes were, and still are, living psychic forces that demand to be taken seriously, and they have a strange way of making sure of their effect.". (page 156)

This quote, of course, points not to just the Being of Archetypes but to an "effect" in the world, which gives it a tinge of Karma as well.  In fact, I consider Being and Karma to be closely related.  But that is for a future post.

"In view to the intimate connection that exists between certain psychic processes and their physical parallels we cannot very well accept the immaterial of the psyche.  As against this, the consensus omnium insists on the immateriality of the spirit, though not everyone would agree that it also has a reality of it own.  It is, however, not easy to see why our hypothetical 'matter,' which looks quite different from what it did even thirty years ago, alone should be real, and spirit not.  Although the idea of immateriality does not in itself exclude that of reality, popular opinion invariably associates reality with materiality.  Spirit and matter may well be forms of one and the same transcendental being." (page 212)

"Nothing produced by the human mind lies absolutely outside the psychic realm.  Even the craziest idea must correspond to something in the psyche.  We cannot suppose that certain minds contain elements that do not exist at all in other minds.  Nor can we assume that the unconscious is capable of becoming autonomous only in certain people., namely in those predestined to insanity.  It is very much more likely that the tendency to autonomy is a more or less general peculiarity of the unconscious....Love and hate, joy and grief, are often enough to make the ego and the conscious change places.  Very strange ideas indeed can take possession of otherwise healthy people on such occasions.  Groups, communities, and even whole nations can be seized in this way by psychic epidemics.

"The autonomy of the unconscious therefore begins where emotions are generated.  Emotions are instinctive, involuntary reactions which upset the rational order of consciousness by their elemental outbursts.  Affects are not 'made' or willfully produced; they simply happen." (pp. 278-279)

My take on the above passages is that they point you in the direction of understanding that Being happens.