Avoiding the 2,040 Battle: Tainter and Financial Terror

(Missoula, MT)  A couple of months ago, I told you about what I saw as a major battle to come at S&P 2,.040 because that would be where things could begin to get “interesting” technically.

Obvious, since that column, the averages have continued to move up and yesterdays low, just over 2,044 was just below the 200-day moving average.  The simple 200 DMA is about 2,055 right now.

This morning, we look for Plunge Protection Team types to be wiring in positions via options to lever the market out of panic mode, which we’re verging on, but not quite there, yet.

The reason is simple:  Markets can’t crash from the top – they crash from major support zones and bottoms of trends.  We’ll go through some of my wonky chart ideas for Peoplenomics readers on Saturday (or Sunday, depending on weather and getting home), but the main point is that there are a lot of reader of UrbanSurvival and PN who don’t understand what’s really going on here.

Ure-Think 101

If you’ve just started reading UrbanSurvival, there is some important background you need to know in order to be on the same page, around here:

The first is that we have a very odd (as in peculiar) view of markets.

You see, there are two ways to look at markets.

One way – the hook, line, and sinker most people have swallowed, is that “the numbers are what they are.. .”

While this is (nominally) true, the “numbers” are very misleading unless you bore down into the detail layer.  For example, look at the number of people employed in manufacturing in the United States.

Horrible nominal number – and since 95% of everything is made elsewhere – this means we have a circular shopkeeper economy going on (and the concurrent digital diaspora) which means if your job can be done by a smart English-speaking Latvia, good luck holding it:  No reason for an employer to keep an expensive you around, especially with high healthcare costs, so….

Still, everyone was touting the markets hitting new highs, just a couple of weeks ago.

The Nominal Numbers said “time to party.”

But the problem with nominal numbers is they don’t reveal the truth of total purchasing power in the economy.

On  the Peoplenomics.com side of the house, we have been using a metric for years now, that attempts to quantify a RELATIVE VALUES APPROACH.

Easily done:

Simply take equal numbers of dollars in 1999 and put them into the Dow, S&P 500, and the NASDAQ Composite.

Thanks to the last time $7-trillion (or whatever) of assets were deflated (the Internet bubble crash, remember that?) we have not seen a real positive return on investing.

To underscore the point, I will show you this chart that we don’t usually mention, but it’s the Aggregate Index.

Assuming we want our hard work to result in some positive gains, let’s see what the aggregate index in 2000 should be at today.  Remember, in 2000 it was 13,091.93…and if you can’t trust the Fed’s inflation calculations, who can you trust?

OK, fine…so let’s lay this out on a chart, then, shall we:  Only, I’m too lazy to actually do an inflation adjusted chart at this hour, so I’ll take the slipshod way out so I can get to the airport:  I’m simply going to rotate the Aggregate Index chart so you can see where things need to be and where things are…

The point is that “compounding inflation” is something that no one talks about.  All that makes the nightly snooze headlines is the nominal (non-adjusted) number.  And since no one talks about the bloodbath in American high tech stocks in 2001-2003, well, it must not have happened.

Except, that it did.

Now, when you throw in the effects of personal wealth destruction caused by the Housing bubble collapsing six years ago, what do you come up with?

The Tainter Problem

Joseph Tainter wrote a fine book titled The Collapse of Complex Societies (New Studies in Archaeology) which will set you back $50.  Here’s the key part from Wikipedia in case you’re too time compressed to wise up in-depth:

Tainter says when a society has a negative return on harder and harder work, at some point, people give up on cooperation (and government) and just walk away from the mess…

Tainter begins by categorizing and examining the often inconsistent explanations that have been offered for collapse in the literature.^[4] In Tainter’s view, while invasions, crop failures, disease or environmental degradation may be the apparent causes of societal collapse, the ultimate cause is an economic one, inherent in the structure of society rather than in external shocks which may batter them: diminishing returns on investments in social complexity.^[5] Finally, Tainter musters modern statistics to show that marginal returns on investments in energy, education and technological innovation are diminishing today. The globalised modern world is subject to many of the same stresses that brought older societies to ruin.^[5]

However, Tainter is not entirely apocalyptic: “When some new input to an economic system is brought on line, whether a technical innovation or an energy subsidy, it will often have the potential at least temporarily to raise marginal productivity” (p. 124). Thus, barring continual conquest of your neighbors (which is always subject to diminishing returns), innovation that increases productivity is – in the long run – the only way out of the dilemma of declining marginal returns on added investments in complexity.

And, in his final chapters, Tainter discusses why modern societies may not be able to choose to collapse: because surrounding them are other complex societies which will in some way absorb a collapsed region or prevent a general collapse; the Mayan and Chaocan regions had no powerful complex neighbors and so could collapse for centuries or millennia, as could the Western Roman Empire – but the Eastern Roman Empire, bordered as it was by the Parthian/Sassanid Empire, did not have the option of devolving into simpler smaller entities.

And, I suspect, if he lives long enough, he and others (Like Jared Diamond’s fine works) will conclude that technologically based mechanized society will have been one more wildly unsuccessful attempt to rule the planet.

The Fourth Reichers and Globalistas and NOW’ers and such have about as much chance at persistence as an Aztec leader would have day-trading the market.

But hey!  Don’t listen to me on this – read the history, the experts, the data and decide for yourself.

A minimum this perspective has kept Peoplenomics focused and tasked with how to come out the “other end” of all this for 14-years now.  Though it may not be for you, the perspective is important and useful, above all.

The reason we need terrorism is to keep society from recognizing the deep levels at which we are being “played” by leaders.  The reason we need mini-crashes is that there hasn’t been a net positive gain on the total spectrum of investments taken as a whole.

And most important of call, enough NuTech has come along to keep people from asking the hard questions.

Instead, we get a trading interruption on Wall St. Monday that will no doubt be cause for the inexpensive fees for stock trading to be raised.  And that’s how things work.

The fact that front-running customer trades with high-frequency trading scams is immoral won’t be questioned.  It’s been around long enough now that it is accepted as “the way business is done.”

But, if you listen closely, around here, you’ll here a little voice go off once in a while that will say things like:

If you put your net worth (assets minus liabilities) into loaves of bread in 2000, how many loaves of bread would you have today?>

And, if you took your n et worth today and bought bread, would you have more, or less?

Millions of people would have less.

The data shows it.  The mood shows it.  The distractions in headlines make the case.  The, collapse of domestic manufactures proves it.

As do the higher tax rates, the mandatory insurance tax, the serial wars to pump employment and to keep young people out of the workforce…

It’s all part of the latter-day Financial Chaocan leadership maneuvering to keep everyone working while total social returns drop and world population soars among those least educated and most violent.

So yeah, there was a mini-melt and a computer glitch.  But today we will rally and the cost of trading will go up over time, and no one will be the wiser.  Only those at the top will get richer.

Not that it matters:  The Peoplenomics Trading Model went negative last week.  And today, gee, gosh, here we are, huh?

Off to the airport, more tomorrow when we get down the road a piece…