Predicting the Short-Term Trend

Back in 2008 when it looked like Obama would be president and the economy languished in recession, I predicted that his election would indicate a bull market. The suggestion met with much disagreement from short-term analysts who were expecting the deflationary trend to be like all the others but with an Obama adminstration worsening the trend.

That was wrong. The bull market occured with a worsening deflationary trend because the money was there to support it and the Obama administration added to the money available to drive the bull market to its current level.

Probable deviation of the short-term cycle was indicated by the unprecedented amount of money accumulated into the top income class. This meant that the Obama administration was likely to add quick liquidity in an unprecedented amount (a gamma-risk distribution). The result was to support the contradiction of no purchasing power and too big to fail (the classical contradiction of the declining rate of profit caused by accumulation of the capital rather than a competitive disinflationary and distributional pressure on profits).

The support for equities is a false positive, however. The gamma-risk distribution has been focused mainly to manage the systemic risk, leaving the fundamental risk to continue accumulating with continued support for the accumulation phase of the business cycle.

An accumulating lack of purchasing power, of income consolidation, supports the deflationary trend. Stimulus funds have been largely captured by firms with earnings power; the funds did not trickle down, but were earned by firms big enough to survive this deeper-than-usual recessionary phase of the business cycle. The fundamental, alpha risk of supporting the deflationary trend, however, will eventually present as a declining rate of profit, precipitating another crash led by commercial real estate defaults which result from a lack of retail purchasing power (continued accumulation and consolidation of income). The pressure will then be overwhelming for a gamma-risk distribution targeted at the fundamentals, signaling a secular recovery.

Support and Resistance

If you trade equities, you probably notice that support more often than not becomes resistance. Popular analytics are full of this observation and refer to it as psychological modeling rather than identify it as the elitist model that it is to accurately predict price movements. Admitting an elitist model of consolidated wealth will not get you published.

While being psychologically tricked into a market position is licit, manipulation through a disproportionate amount of concentrated capital smacks of an illicit means for fixing the price.

The support-becomes-resistance technique of price manipulation forces the trader to buy-in to a ceiling in order to establish a predictable basis. The result is to manipulate the small investor into a constant wash. It is less important for the power of consolidated capital to profit from program trading--if "you" buy in at X THEN resist at X--than to consolidate the funds available to the market, like 401k funds. It is all important to acquire the means to consolidate, even if it means taking a loss, because it is THE formula for gaining power and keeping it.

Consolidating the value affords the ability to command it in the guise of predicting it; to, in other words, manipulate prices.

Support-to-resistance program trading triggers exchanges to automatically suspend trading to prevent a program collapse of the market. It is rather emblematic of our faceless, impersonal consolidation of wealth and power that, if left unchecked, could result in untold devastation, even for the elite of power, so it is programmed, fixed, to be technically impossible.

The countermove for the small investor is to average-in at the new support level determined by the short-interest program indicator. The bad part is that it requires the small investor use twice the capital to achieve the expected return on a typical technical indication. The indicator must be modified to account for the program trade manipulation of the price with the consolidated capital, which is at record levels. The trader cannot wait for the modifier, per se, and not spend the extra cash since whether a position is taken or not triggers the resistance program.

That record level of consolidation is the prime determinant of our current macro-economic status, in a crisis mode. Where the economy should be at a level of technical support, it becomes resistance. So, we are looking at interest rates getting resistance at historically low levels with high levels of inflation. The result is a highly arbitrary, unpredictable, bureaucratic macro model of command and control that is only predictable from the inside--the elitist model of power.

Command control of our economy is what ails us. It will be an Obama/Biden executive that will reverse the trend for command economy that comes with the over-consolidation of the capital. This reversal will not be socialism which preserves the consolidation of power. We will continue with the command macro if we have a McCain executive.

The progressive tax code Obama proposes will begin to deconsolidate the capital for a macro that will allow typical technical indicators to have predicitve utility without modification. That lack of a needed modifier will indicate that the progression of the tax code is working to deconsolidate the capital to build a more pluralistic economy and a model of power that does not consolidate the opportunity to grow your personal wealth, but fully allows for it!

Obama/Biden 2008!