Positive Indicators

Looking for signs of recovery, investors want to see strong, positive indicators. Instead, investors are besieged with a negative ideological struggle, volatility, and false positives.

There is no reason to go long (buy and hold). Everything is near-term, not because there is uncertainty, but because it is profitable.

The margin is all but uncertain. It will continue to rise as long as the income is there to support it. Reaganomics, however, does not distribute income to the middle and lower classes. Income consolidates into the upper class, which causes large amounts of public and private debt. Eventually, income is so consolidated that the rate of profit can do nothing but decline. That is when markets crash, and we have every indication that will happen if the Fed is not accommodating the rate of profit (by increasing the supply of money).

Remember that as a practical, economic philosophy, trickle-down economics does increase the number of millionaires. Reaganomics, for example, by increasing the demand for (and supply of) money (known as "supply-side" economics), provides for a sub-class of upper-class elites that politically divides and conquers the population. That America is roughly half "liberal" and half "conservative" is (monetarily) no accident.

Although reaganomics fulfills its promise of prosperity, it only goes half way. Trickle-down economics otherwise suffers from small numbers since having accumulated wealth to be distributed as you see fit is, by definition, an exclusive function. Such an exclusive account of liberty expects to have an accountability problem, which is mitigated by splitting the nation ideologically in half.

Without a significant degree of deprivation, class is not exclusive, yet too much accumulates political risk. Instead of ensuring there is a distribution that fully diffuses the risk proportion, whether Democrat or Republican, the risk proportion is only partially consumed, which always maintains an exclusive degree of deprivation that conservatives argue provides the incentive to produce and innovate.

In order to provide, so the argument goes, it is necessary to deprive, and since being productive requires being excluded from its reward, the deprivation (the accumulated value of the risk) must be ideologically, rather than materially, maintained as generally beneficial since it is an obvious contradiction. Resolving the contradiction, keep in mind, according to conservative philosophy, requires an exclusive depth of intelligence--secret knowledge revealed to those who successfully innovate and accumulate wealth. Thus, acceptance of the ideology rewards sharing in the wealth whether you actually believe it or not. In order to be exclusive, however, that number is technically limited to the best and the brightest, implying if you aren't conservative, you must not be too bright because it increases the probability you will share in the wealth.

The best and the brightest are the power elite who Ayn Rand, for example, identifies as those exercising liberty to its fullest advantage, and in a free-market environment, they represent the utilitarian ideal--the measure to which we all aspire. The elite earn the privilege of power and naturally--legitimately--exercise the liberty it endows. Defying this natural law--this principle of exclusive numbers--is literally, according to conservative philosophy, counter-productive.

While the numbers to maintain elite privilege (what conservatives refer to as "liberty" constitutionally endowed) are by definition lacking, conservatives "only need fifty-plus-one to prevail" as Vice President Cheney, for example, explains it.

Ideology is absolutely critical for "liberty" to prevail as "privilege," and roughly half the population makes a career of supporting the principles that rationalize the benefit of deprivation. If allowed to go fully deflationary, however, the practical philosophy they support will deprive them of the privilege. The more ideological the debate becomes, the more exclusive the system is likely to be, turning more and more equity into more and more debt.

The current ideological struggle bodes bad. It is a highly negative indicator. There is also a highly visible disconnect between public sentiment and public policy as more and more Americans feel the fear of their financial fate determined at an ever-higher frequency. Proper principles provide pale protection when confronted with the technical truth.

When the accountability function of government breaks down, it is a sure sign of an impending crisis proportion. Beneficiaries of "the way it is" resort to raw power to keep it that way.

Hard power is necessary to maintain the status-quo ante, and for investors, this is a very bad sign.

Trending into a hard-and-fast, republican form of government can be reversed, however. It is critical, for example, to not maintain the current House majority with the Tea Party being co-opted by both major parties to scapegoat policies and programs that have a high degree of deflationary risk. Keep in mind, for example, the President sustained tax cuts for the rich despite having campaigned that they were deflationary. According to Democrats, the devil is making him do it while well-healed liberals haul off a boatload of booty with their conservative colleagues. This does not mean that a third-party element is always a false positive, but it has been easily co-opted to move the center to the right, which has strengthened the deflationary trend and expanded the debt proportion.

Turning out the current majority will be a very clear indication of recovery. The new majority will have a clear economic mandate. The current crisis of accountability will resolve and provide a strong-positive indicator.

To the contrary, as well, keep in mind, maintaining the current majority is strongly negative--it is deflationary, and deflation is negative for everybody, even, if not especially, for a power elite.