2/16 Daily Commentary

I exited DX when an hourly M/A was violated.  I have an order buying back at 78.06 March futures.

I exited TLT when a 5 down formed on a 1-minute chart.  I want to re-enter on a rally 8 ticks above the blue M/A or a 118'11.

In the stock market I'm waiting on I1 to peak or critical support to break.  The break point is currently 12,075.  I will go short at that point and wait for a bounce to short more.

I currently hold no positions.

I'll post another few paragraphs on the crisis in America and the western world.  Our problem is not monetary and not fiscal, it is conceptual.  America has been held in thrall of a concept born of a socialist mind in the 1930's and America will slowly burn it from our institutions, out of ever-growing necessity.  This process of changing generational thought will accompany markets falling from low to low.

John Maynard Keynes was an academic out of Cambridge.  He published his General Theory in 1936, although informal versions circulated in academia prior to that.  In the 1920's he was a neo-classical economist, utilizing Marshall's neo-classical Quantity Theory of Money to explain economic activity, unemployment, price levels, and interest rates.  He changed his orientation due to British economic stagnation and high unemployment from 1918 through the 1920's, which was unexplained by neo-classical theory.
To understand why the United States and Europe in general seized upon Keynsian theory one must understand the desperation that drove these countries and many others far to the left.  At almost any other time in history Keynes would have been dismissed as a loon.  The tenets of Keynes' theory follow:
First, Keynes advocated interest rates as close to zero as possible.  His rationale was that interest hits the poor disproportionately and discourages marginal investment projects.  Once set close to zero they should never be raised.
Second, Keynes felt that an economy with no savings would function more efficiently with government directing investment rather than the rich investing their savings.  Thus zero interest rates fits right in to discourage saving and thus encourage consumption. 
Third, Keynes advocated debt creation by government to the extent that full employment does not exist.  His definition of full employment was literally that anyone wanting a job had one.
Fourth, spending by government is investment and there is little or no distinction given to the target of the spending.
Fifth, taxation should be progressive just out of fairness.  Once the economy was freed from the rich directing investment there was little need for the rich to accumulate savings, which were mal-directed especially during economic slumps (they just sat there due to fear).
Sixth, Keynes had no fear of inflation because he believed that government boards should exist to control the pricing of commodities and import restrictions on nonessential products.
Yet, according to Keynes, state planning was not to be confused with Fascism or Communism.  There was still plenty of room for the private sector to operate.  "I believe the right solution will involve intellectual and scientific elements which must be above the heads of the vast mass of more or less illiterate voters."
Seventh, the stock market was a pernicious influence because it was a casino and could not properly direct investment in the real economy.

Bernanke is the perfect Keynsian. He espouses all of the principles by applying them to our hides to the extent that his mandate allows. Zero interest rates, unlimited credit creation, what more evidence is required to acknowledge his profound allegiance to a fellow academic.  We mere mortals cannot hope to understand or administer the brilliant theories of the elite.
What is outside of Bernanke's scope Congress fulfills.  I posted previously about the ego of legislators and how Keynesian economists dove-tailed with them.  Congressmen and senators get scored in elections based on how well they satisfied their constituents' desires.  In addition, bringing home the bacon aids re-election even if nobody asked for that particular pork.  Finally, a senator waking up is like a CEO, preening in the mirror and reaffirming god-like status.  To be reminded by classical and neo-classical economists in committee meetings that the public accounts must be balanced is castigation and therefore insulting to their image. 


This destructive cycle is rapidly coming to an end.  As long as the electorate, the unwashed, the illiterate fools outside the halls of the elite were willing to swallow the application of theory and the implementation of unbridled power then the game could go on forever.  Even during Republican majorities in the past the Keynsian ideal held sway because the bitter fruits were not apparent.  The stagflation of the 70's was due merely to a too liberal application of Keynsian medicine.  Presto!  The neo-Keynsians promised that another interruption of eternal prosperity would not occur.  Then the factories faded and the tech miracle faded and the service economy faded.  What was laid bare was the fact that there was a shortage of actual physical product that America could export.  Without building "things" then permanent, good-paying jobs disappeared, replaced with pseudo-jobs and government jobs.  Now there is no place to hide.  QE3 is an impossibility.  Stimulus is an impossibility.  The options were squandered by the latest ratchet down the rabbit hole.  Each crisis comes quicker than the last and tacks another "0" on the price tag.  Finally at 100% debt/GDP the Tea Party was voted in and Congressional oversight of the Fed is in the hands of it's mortal enemies.
Changes in generational paradigm signal profound changes in markets.