Productivity Gains

Recessionary trends reduce both purchasing power and net worth of consumers.

Readily apparent is that reduction of buying power makes for a worsening crisis begging for a technical correction. What is not so apparent is what happens to the net worth.

Reduction of purchasing power has a very near-term, deflationary effect, reducing inflationary pressure by reducing demand. As prices fall, monetary assets appreciate in a zero-sum relationship. Losing monetary assets--losing a job or a house that was leveraged into cash--by liquidation under deflationary pressure prevents participation in the benefit.

Reduction of net worth has a longer term effect that disconnects, and disassociates, the cost with the benefit. Net worth just seems to evaporate, and that is the way it is described by the vast majority of economists and analysts that have access to popular media outlets, reinforcing the apparent and popular understanding of it. However, the understanding is an affirmation and not a confirmation of the phenomenon.

Now that the Dow has retraced to 10k, the big question is, "What needs to happen to get the retail investor back in the market?"

When retail investors had a job, savings went into the house and the stock market. Where did all that value go?

Throughout the period of conservative resurgence small investors were told that trickle-down economics would trickle (retail) into an individual's retirement account and appreciate the value of homes. Small investors subsequently fell to the macro-economic reality of the business cycle. Rather than sharing in the wealth, they were providing it to be consolidated.

Sharing in the accumulation phase of the cycle, the retail investor was marked to market as the wealth to be accumulated, not to accumulate wealth. What would have happened if Social Security funds would have been put into the market, as conservatives strongly advocated, prior to the Great Recession as well?

The promise of sharing in the wealth by investing in it before it trickles down is not only seductive but also provides the productive incentive to generate the income to invest. It is the perfect retail marketing scheme evolving from a distrust of trickle-down economics touted to provide the greatest good for the greatest number. Wages and salaries can be leveraged into wealth rather than providing mere subsistence. That would give credibility to the beneficence of accumualting capital. Capital formation is then not simply an expropriation of value produced by labor.

Rather than being alienated from the wage and salary earner, productivity is value gained by labor in the form of capital. The value is being verifably appropriated, instead of expropriated, as the value of labor's investments tick up. The value is being reinvested for continuous accumulation (not economic growth) rather than retributed by a gamma-risk distribution, stabilizing the cyclical macro trend and avoiding crises. Socialism? No need for that. Free-market economics? No need for that. Consolidation of capital, industry and markets benefits everyone...it is the model of maximum efficiency!

The new and improved model of capitalism is a touted utopia with labor sharing in the capital gained.
Neo-conservative reconstruction is to demonstrate that the classical model of capitalism can be modified to be veridically utilitarian. That it is not verifiably utilitarian, but systematically yielding a highly exclusive benefit, is the perennial problem of capitalism and the systemic risk to be managed. Managing that risk is in full mode at this time with an estimated retributive value of approximately $10 billion by the year 2010.

The retributive value has been accumulating since the dawn of capitalism. Perennial (cyclical) liquidity crises keeps the capital consolidated and functions to mitigate the declining rate of profit, preventing deconsolidation and resisting the natural tendency to free-market pluralism.

If capitalism does not consolidate (accumulate) into "too big to fail," the capital will reorganize (resolve) into small, pluralistic entities that are both capable of succeeding and not too big to fail the system into a crisis mode if some do. The systemic risk is managed by process of a pluralistic, continuous improvement.

Since the improvement (the correction) is not allowed to happen, the declining rate of profit technically presents as productivity gains. The declining rate of profit is borne by wages and salaries--income that is not technically considered capital gained, but its primary cost. Distribution of the cost determines the accumulation--to whom the benefit accures.

In a consolidated marketplace, the cost accrues as a debt, and the benefit accrues as a profit. The result is the jobless recovery we have now with the declining rate of profit being absorbed by the vast majority of consumers in the form of reduced wages and salaries and working more for less--productivity gains.

The expropriation is described as "capital formation." The loss of net worth is gained in the form of productivity gains. Each member of the family having to work two or more jobs to pay the profit margin, like it has been for twenty years or more, will be considered an improvement over massive unemployment.

Expropriation of the value--the zero-sum distribution of net worth from the bottom to the top income class (the constant, non-pluralistic accumulation of wealth and power)--appears as an unconnected cost and benefit. The cause and effect appears disconnected so it cannot be rendered a function of a problem/solution resolve.

Rising wages and salaries and full employment is considered to be the problem, therefore it is not the solution, which is what we have now. It is no accident.

The only reason the stock market is a leading indicator of recovery, and employment is a lagging indicator is because the capital gained (the consolidation of net worth--the formation of capital) has deliberate priority over employment (purchasing power and equitable distribution of net worth). It is what capitalism is intended to do and is supported in every way right down to the classification of wage and salaried employees.

Why is it that the controversial compensation of too-big-to-fail institutions are considered "bonuses" and not a typical laborer's wage or salary? Why is a medical doctor's pay considered in a different class than a typical laborer's fee for service? It is because it has an elite status with all the rights and "privileges" of achieving that status. Chief among the privileges is the exercise of power that is emblematic of status, like tyrannizing liberties, or expecting to be paid whatever fee is commanded for service in the name of public health.

The reason health care reform is so difficult is not because health needs to be determined a right or a privilege, which reduces to a matter of opinion, but whether it will be provided at an accumulative, and fully verifiable, cost. It is a struggle for economic power and political dominance.

The stakes for preserving the empirical measure of status are very high, as well as the costs for the vast majority of The People in which the choice is health care or bankruptcy and no reason to believe reform will change a system that supports accumulation over a distribution of power.

Relinquishing economic status is to relinquish and share power. The medical profession does not want to be subjected to the rigors of free-market economics because it "crudely" relinquishes status by disinflating the price (the profit) and the probable accumulation of wealth that confers status and power (health as well as wealth).

Health insurance companies want a special monopoly status and be allowed to consolidate to prevent free-market competition because a free market model means the firm MUST be pluralistically accountable in every possible aspect of public propriety. The firm is accountable on demand, which is a function of pluralism, rather than dictate the market on command, which is a function of elitist authority.

As long as the healthcare sector can function without being subjected to the rigors of free-market economics, it is more able to command the bid. The bid is whatever the provider asks and accountability becomes a function of litigation with high monetary awards from the deep pockets of the market's commanders.

The need to sue to get what the free market is likely to otherwise affordably provide indicates command economics and an elitist model in operation, not the failure of free-market economics.

Free-market pluralism provides accountability in the fullest and most immediately direct measure. It is inimical to market tyranny, holding would-be tyrants directly and immediately accountable by consumer bid in the marketplace.

Ensuring free-market economics provides tort reform beyond the consumer being left with no recourse, which only benefits the market providers--the economic elite--and will do nothing to control costs for consumers, only adding to the profit margin, and power, to command the bid on the bottom line.

In a free-and-open unconsolidated marketplace with no barriers to entry, a business enterprise, or a doctor, that has achieved a high status of profitability in the marketplace is an entity that consumers both want to do business with and invest in. Both can happen at the same time with the most direct, immediate, and easily verifiable accountability--exactly what litigious elitists, busily defining what is a right and a privilege, do not want.

One model is democratic, the other authoritarian. Which one do We choose to ensure freedom and liberty for all beyond the ephemeral determination of what is a right and what is a privilege?

A person does not have the right to, or the privilege of, anything if it is unaffordable. This is what a free-market economist refers to when describing and explaining the ontology of the distribution of power. Nature is completely ignorant of the right thing to do. There is nothing profane. All it knows is the truth. All We have to do is find it. There will be found the peaceful prosperity We are All looking for; and for the people that are more concerned with engineering the truth to a self-satisfaction than finding it, it will find you, much to your dissatisfaction. It is self-correcting, oblivious to propitiatory gestures and retributive rituals either ancient (like making sacrifice to the gods of providence) or modern (like retributing accumulated value in the form of a public debt).

The right to health and wealth is only verifiable by doing it, and the means to ensure it is the maximum pluralism, the maximum possibility beyond structured probabilities, free-market economics provides.

Who is Buying the Dip?

Any analyst that sees the Dow at 11000 anticipates professionals moving funds out of commodities into equities. The retrace in commodities will give equities a fundamental support because it supports economic recovery over the deflationary trend.

The mass movement of this wholesale capital is short term, however. It creates a sucker's market at the retail level, then it will be time to massively move back into commodities and support the deflationary trend.

Key to predicting the trend and the timing is who owns what when.

Who is buying the dip is critical to predicting the movement of mass capital (capital that is consolidated into "too big to fail" and thus becomes the predictor of a trend's direction and timing).

For the professional, the retail money is whatever is added to the pot. The retail money is easily indicated and signals a buy or sell reversal to consolidate that money.

Predicting rather than following the trend is a winner for the small, independent investor and also indicates the efficiency of democratic, demand economics.

A free market system is not the consolidation we have now, and that concentration of power and wealth is falsely attributed to free market mechanics to justify the inequitable, and destabilizing, outcome.

The instability we have now, whether banking, energy, health care, is attributable to the lack of a free-market mechanics in operation. The proponents of consolidation argue the value of minimizing risk when, empirically, the risk was systemically maximized. Technically correcting for the high risk probability of 100 percent required a $15 trillion government investment to "save" the system the way it is; that is, supporting the risk into the future and clearly indicating the long-term trend.

Who is buying the dip? The question begs to ask, who is in control? Without ensuring a democratic plurality in the marketplace, the economy fails the free market legitimacy. The failure is empirically indicated by the cost (benefit) figure of controlling the externalities, the largest of which is the systemic risk, and the most beneficial dimension of incurring that risk to the consolidation of the capital is high unemployment.

What would trillions of dollars to directly bail out the millions of unemployed rather than assist the consolidation of the financial sector do for economic recovery? The reason it does not happen that way is not because it MUST come down from on high, but because unemployment provides for the consolidation of the wealth. This is where the accumulation is paid for and, subsequently, the employed pay for the distribution--the cost of the recovery--as well.

Wages and salaries finance the retrace of the macro cycle (the crises) of accumulation and distribution that consolidates the wealth, and political power. The People finance, empower, the secular gods who decree "the way things are," or the natural order of things, from on high with the force and legitimacy of public authority. Questioning that authority is tantamount to a secular heresy worthy of a popular inquisition of fundamental values in which righteousness is decidedly conservative.

Just because the benefit, the payoff, of the risk taken is not analytically recognized to be connected in a causal relationship does not absolve the analyst, or society, from the truth. The truth persists in spite of its perception and a false sense of pluralism will assuredly, empirically, result in crises.

Identifying the trend is everything to do with recognition of the truth. Who is buying the dip and supporting the bullish trend in equities? If it is a consolidated capital looking to further consolidate the wealth, it is not a bullish trend at all but an extension of the accumulation phase of the business cycle.

Small, technically shrewd investors that have avoided consolidation of net worth, the time is nigh. False technical indicators will be the small investors' undoing unless they are willing to recognize that pluralism, not consolidation, ensures the profit of their long-lived prosperity and the production of wealth.

Organizational Modalities Indicates Probable Trends

When investment banks reorganized into commercial bank holding companies to take the TARP funds, they traded the alpha and beta risks for the gamma risk.

Being too big to fail and the highly leveraged, unregulated organizational type indicated the probability of the Great Recession (and the gamma risk) we are now experiencing long before it presented.

At the outset of the organizational changes made to bank regulation that allowed for horizontal and vertical integration of the industry and markets (networking the externalities), political economists who raised red flags were villified by both Democrats and Republicans as anti-free-market doommongers.

These political economists were merely identifying a technical indicator, an organizational typology: consolidation of industry and markets that, by recognition of the empirical evidence, always causes (indicates) the recessionary trend (and the necessary management of the systemic risk) we are in now.

There is a very clear cause-effect relationship. Getting to the Great Recession was no random walk.

The alpha and beta risk is so well commanded and controlled in the short and intermediate term by being too big to fail that the only probable risk is gamma. Managing the gamma predicts a merger (consolidation) of public and private function into an organizational typology with predictable trend indicators.

Macro sector consolidation to manage the sytemic risk immediately indicates that too big to fail is a confirmed efficiency to be conserved. This is the leading, trend indicator suggested by organizational type.

Intervention of the gamma risk will be managed co-operatively, indicating the recessionary trend will be long and slow with public authority now in a position to take the blame for the negative effects of the trickle-down economics of a consolidated capital.

The organized modality indicates a money flow. The flow is the relative trend, the probable path, of the economy. Since the organizational type necessitates a trickle down flow, the strength or weakness of the recovery will be determined by "control" of that flow. That is what this modality is intended to do--control the gamma risk intervention and the distributional value of the accumulation.

How the accumulated value is distributed determines what balance sheets and income statements look like and when. So the organized modality not only indicates the probable strength of the macro economic trend, but the valuations of sectors and markets over time. It has a market timing determinant.

Whether from the public or private sector, or both, command of the economy from the top down will have a mean frequency of both time and money. The small investor needs to keep in mind, however, the ability to be unpredictably arbitrary and capricious is not only an emblem of power but a means of technical manipulation.

Being able to dictate what the technicals look like tends to position investors to fall for false indicators.

In the short term epspecially, small investors looking for that technical hedge on the risk are easy victims to the law of large numbers. Flash trades and large volumes at the last minute of trading can present false indications. The frequency distributions can be arbitrarily distorted till the favorable condition for the consolidation presents for execution. While the short term indicators look noisy in retrospect, the long term may present as a normal distribution.

Organized consolidation of the capital allows for this trending by directive. Goldman Sachs predicting that energy prices will retrace record levels, for example, sets up a trage. It positions investors for surprising reversals all dependant on their position at any particular time.

While the aggregate position, the threshold, that triggers an execution to consolidate the accumulated value has the appearance of being a legitimately organized process of self-determination (a pluralistic, free-market mechanics), the director is always the probable winner with the risk almost entirely eliminated. Being "free" of risk is the stock in trade of hedge funding with a large volume of capital (the law of large numbers).

The law of large numbers can also act positively from the bottom up. It is a trend the current organizational mode does not indicate occurring anytime soon but would do much to facilitate the time of recovery. The money used to drive futures contracts at the top would drive the recovery from the fundament if it were used as liquidity at the root instead of waiting for it to inadequately trickle down, with or without a gamma risk intervention. The price of energy would then be fundamentally driven, but not at a rate that delivers that magnified, exponential hedge-fund return that entails high gamma risk and indicates support of the deflationary trend. Rather, the profit on the demand pressure very simply indicates recovery.

Goldman Sachs' prediction for energy prices indicates support of the recessionary trend, largely determined by the organizational modality.

The small investor will be sure to hear big financial analysts, and pop media analysts generally, touting indications of recovery, but it is a way to position the retail investor for a trage consolidation.

Given the indicated organizational modality, the recovery will not be indicated till the retail volume has been consolidated. At that threshold, the capital has no where to go to make a profit but to finance the fundament and economic recovery. It is the classical model of capitalism in which markets are allowed to consolidate and the long wave shows a normal distribution. While the process looks "largely" normal, unfortunately this modality operates at the very highest cost to the vast majority to provide, to finance, the benefit.

Energy prices will not, then, retrace peak levels at the time of recovery as Goldman Sachs suggests. Prices will be generally deflated. The peak price of energy indicates deflation given the organizational model in operation, and will consolidate the value positioned for recovery.

Weak energy prices, and a gamma risk that controls the speculative demand--a public-private organizational modality, will signal a near-term recovery.

Peak energy prices will not be an indicator of recovery.

Surprise!

It is absolutely critical the small investor understand that market sentiment (the irratonal exuberance) is driven to absurdity by non-free-market forces.

The historical tendency to attract investment and overvalue assets to an absurdity is an organizational problem.

For example, grappling with healthcare reform, providers want to talk about everything but price. If controlling the cost is the goal, it is necessary to talk about the price, not just lifestyle choices and the accumulation of capital needed to drive technological innovation.

Talking about everything but the price rigs (organizes) the market to command it.

If, for example, consumers talk about "organizing" a healthcare co-operative, the consumer empowers a democratic organizational typology in which to demand the price in a disinflationary, free-market fashion instead of the inflationary command-model fashion that accumulates value and deflates the economy.

The determining variable is the organizational modality.

What's the Difference?

Small investors need to recognize the differences between today's economics and the past. Identifying false indicators is key to successful investing and preservation of net worth.

The economy undergoes innovation to maintain control over the determinants (the indicators) of value and the distribution of the value. The innovation is largely driven by gamma risk--public sector intervention that affects value and its distribution (see the article, "Assessing the Value," and "Indications of Recovery" at griffithlighton.blogspot.com).

Gamma risk innovation occurs mainly to avoid and recapture payment of the retributive value (the distribution of capital that relieves liquidity crisis and reverses a deflationary trend). For example, the dip in the price of crude oil, oversold to nearly $30/bl signaled a recovery. The recent spike in the price, overbought over $50/bl reverses the trend.

The causal relationship between the price of the energy benchmark and the directional trend of the economy is quite clear. In spite of political measures to infuse liquidity to cause a sustained distribution that will stop and reverse the deflationary trend, the price of crude is being used to effect (command) the trend posteriori. The gamma risk is being effectively managed by the private sector.

As the retributive value is politically infused, energy prices increase, consolidating the infusion and reversing the trend. The portion of the capital infusion that does trickle down inches the economy toward recovery with a highly measured pace determined by the private sector.

The political element of the political economy can claim being in control to satisfy the demand for public action while, at the same time, the private sector commands the pace of recovery. The gamma risk has then been successfully managed and the distribution of value (the retributive value) legitimately conserved both publicly and privately. It is an ingenius application of the Hamiltonian model of power and political economy that maintains a strict class distinction as the result of the naturally endowed freedom of each individual to equally pursue life, liberty, and happiness without intervention of the sovereign (government).

Equal pursuit does not ensure equal results, thus the need to manage the retributive value and the gamma risk to the reward.

Self-determination of "The People" (the legal sovereign) obtains by a long and complex process of illusion in which both wealth and power are consolidated and conserved with the force and legitimacy of public authority.

The Hamiltonian model survives by innovative means. The main threat to its success is a progressive tax code that will not allow the capital infused to pluralize the economy to be consolidated and the elitist model conserved. Changing the model is not mere normative sentiment, but a descriptive analysis that accouchers the practical understanding of trend indicators and predictive utility.

Identifying what the difference is, the innovation, that gives meaning to the old adage, "past performance is no indication of future performance," and why economic data and trends are too often reported as "unexpected" by analysts, allows the small investor to manage the risk with the certainty of current means to ends that must predictably conform to old legitimacies (normative legal parameters).

Buying an oil futures contract is certainly not illegal, but if capital is allowed to consolidate and massively move into futures contracts, the effect determines the direction of the economy. The cause-effect relationship lacks the normative pluralistic legitimacy of free market economics. Technically correcting for it (the gamma risk) is where the innovation occurs and the predictive utility of the difference obtains.

Notice that the recent rise in the price of crude correlates with the "unexpected" trend back to deflation. It is a causal relationship that will keep the economy in a stagnant state (see the previous article, "Crude Indicator" at griffithlighton.blogspot.com).

Until there is a more progressive tax code in place, rising energy prices will falsely indicate a definitive SAR recovery point as long as it is a speculative means of directing it by reversing the trend.
A more progressive code will make pluralism more profitable. Energy prices will then rise on the health and wealth at the fundament (on demand and not command). The recovery phase will otherwise be weak and stagflationary with a strong deflationary tendency that will appear unexpectedly only by those that do not know the difference.

The precipitous drop in the price of crude late last year signaled the beginning of the recovery phase of the current business cycle. Recovery will be expressed with a positive, long and linear slope when the noise (the deflationary tendency: the short-term effect of the recovery indicator) is regressed from the oscillation.

At this point, falling energy prices is a means of controlling the depth and breadth of the deflationary trend and the amount of retributive value accrued, manageably spreading the gamma risk on that value over time. Each peak above or below $50/bl is a short term accumulation and distribution within a stagflationary macro model.

The cycle of boom and bust is innovated into more frequent, short-term events favorable for arbitrage and leverage finance that cultivates a take-the-money-and-run mentality. A more progressive tax code is a sure cure with a level of certainty that can be measured by the level of resistance to it if not the carefully deliberate ignorance of it.

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!