Crude Indicator

With the current deflationary trend, oil is overbought above $50/bl.

Since the energy sector is a primary determinant of the current macro trend, the speculative volatility indicates that future trends will be strongly determined by this sector while pop analysts are focusing on the financial sector to indicate trends.

While the popular analysis is to focus on the probability of recovery, small investors need to keep in mind that this deflationary phase of the business cycle is a fully intended economic event that consolidates wealth and capital. It will be fully applied. Recovery will not occur until the capital is so consolidated that economic growth cannot occur without a distribution from the private sector. Public sector infusions tend to prolong the deflationary cycle with more capital to be consolidated, which will abate when the private sector supplies the liquidity with a return decided by the private sector alone.

Energy prices will indicate the intent to capitalize the recovery phase of the business cycle (a buy indicator). Financials will only serve to indicate a confirmation of the effect. Small investors will make more money and minimize the risk monitoring the causal factors rather than the effect indicators. That's why pop analytics tends to focus on the effects as leading indicators.

Rising energy prices dampens public sector infusions of capital to effect the recovery phase. Thus, the recent run up in crude prices. It allows the private sector ultimate command and control of cyclical timing. For the trageur, timing is everything, and on the macro scale, our economy is being shorted (classically arbitraged), setting it up to go long (see the article, "Shorting the Economy" at griffithlighton.blogspot.com).

Volatility of energy prices is a means of controlling the macro cycle. It also indicates the intent to keep the economy in a highly speculative, rather than a pro-growth, mode. Financials will profit and distribute the proceeds to shareholders. This "effect" will keep the economy in a stagflationary trend that analysts are currently identifying as indicating a protracted recovery phase. The long term effect will look like a long stagflationary period (high profit with low growth) on the long-term macro chart.

The buy-and-hold investor needs to realize that stagflationary economics will once again cycle to a deflation (consolidation) of accumulated value. The investor must be able to detect the macro indicators to sell and avoid once again being victim of a punctuated devaluation of net worth.

Chief among the macro indicators is energy prices..."crude" indications of classic economic modeling with highly predictable (low risk) results for those that can read the signs.

Indicators of Classical Economic Modeling

Independent investors need to determine the objective of current political-economic activity to protect their capital from the fully intended predations of classic economic modeling--to consolidate the capital (your savings and the value of your investments).

The intention to confirm practical application of the classical economic model well into the future is fully indicated by innovative political means that correlate directly with the innovations within the financial sector. Federal Reserve chairman, Bernanke recently refered to innovative financial instruments and practices as a healthy market efficiency that needs to be closely regulated to both prevent this deep recession from getting deeper and prevent innovation that is systemically destabilizing in the future.

Bernanke is confirming the intent to support the predatory results of allowing the capital to consolidate into innovative market mechanisms that are a function of massive money flows and momentum that CAUSE "bubbles" (extreme overbought conditions that lure investors into a false-positive with the valuation being speculative and not fundamental--like $135/bl for oil and eight years of false economic growth policies--only to burst the bubble and consolidate the monetized value). The next phase of the business cycle, neo-classically refered to as the "infusion" phase in which new capital is injected by monetary expansion (monetarism), is when the unconsolidated capital intended to restore liquidity with minimal redistribution from the consolidated value (the distribution phase of the cycle) is carefully regulated to that end and allowed to be innovatively consolidated later in the accumulation phase of the cycle. (Buy-and-hold is a good strategy at this point of the cycle when the Dow dips below 7500 which has become a false support beyond which the market is overvalued in the next six to twelve months).

Bernanke is applying the Hamiltonian model of ensuring the welfare of the rich in priority (what is too big to be allowed to fail) that CAUSES the systemic crisis, ensuring the organization and operation of the systemic risk in order to prevent it (?). Capital is allowed to consolidate, antithetical to the legitimate means of a free-market (pluralist) mechanics. Expert (elitist) adjustment of the negative externalities occurs at the end of the process since financials will innovate to avoid non-market regulation. The result is an ends-justifies-the-means legitimacy of a command economy with a false free-market legitimacy.

Causing crisis, and the systematic mechanism of predation, in the name of innovative technical management of the systemic risk by operation of careful regulatory authority (state capitalism) administered by a professional class of MBA's is a confidence game intended to conserve the consolidation of the capital and a defeat of the free-market mechanism it pledges to ensure. This is where the political economy becomes so complex, so difficult to understand and confirm, that the machinations of the elite easily achieve the consolidation of power with a false pluralistic legitimacy.

That the political economy is being reinvented (innovated) to ensure the fair and equitably legitimate outcome of a free-market economics by public regulatory authority just indicates one thing: the market is being rigged so that the small investor will always be at a systematic disadvantage with a free-market legitimacy by operation and declaration of public authority.

The practical philosophy that we must replace the free-market mechanism with the operation of a public authority is not paradoxical, it is a contradiction. It indicates a fraud, not the operation of a genuine civil service acting in the public trust, but a bureaucratic political economy of elits entrusted to conserve the distribution of wealth and power in a continuous crisis proportion that always demands its elite management and the "bonus" compensation of a sub-elite class of loyalists to administer it.

The bonus payments to retain the elite talent to administer state capitalism (to administer a non-free-market organizational technology with a free market legitimacy, or to perpetrate the fraud) buys the loyalty of what is otherwise a tendency to be free and fair, rewarding the most corrupt and morally incompetent. For the investor, this affects the bottom line. It is not just an ethological and ethical consideration. It indicates what the macro-economic model will look like despite the recent political changes, and I am sorry to say it is a faux political change that will not ensure the cure for what ails us: a regulatory authority that ensures a free and unconsolidated marketplace in priority (pluralism).

Recent political change is an innovation that conserves the consolidation of wealth and power by systematic predation and a means of managing the retributive value (the full value to be distributed to recover from, and prevent, liquidity crisis) shammed as technocratic management of systemic risk and punctuated crisis that will ensure the probability of its recurrent accumulative and distributional macro-economic value. The classical economic model of capitalism in which the measure of success is to defeat free-market mechanics as a function of organizational size is conserved with the pluralistic legitimacy neo-classically administered, and carefully measured in posteriori, rather than ensuring its legitimate means, and the probability of fair and equitable results, in priority.

Ensuring an organized deconsolidation, and the plurality of opportunistic investment that will naturally occur, is a pragmatic priority easily set to be accomplished in the first 100 days. The Democratic party executive and legislative leadership, however, do not understand the economics well enough to effect the needed change even if they could see beyond the self-satisified dictates of their ideology and the thrill of politically gaming for it despite the president's penchant for pragmatism.

The change we really need (pluralism) is highly improbable. So, load up and hold on to equities of companies that are too big to fail the liquidity crisis they are organized to cause both now and in the future with the very highest probability being very clearly indicated.