The Dark Heart of Centralized Power

This pathology is not the result of individual psychology or character; it is the result of centralized, concentrated power itself.

It's little wonder so many sociopaths end up in positions of power: power attracts the ruthless unencumbered by empathy. No wonder the phrase pathology of powerresonates: The Federal Reserve and the Pathology of Power (November 18, 2010).

There is an ontological darkness in centralized power, and it flows from the disconnect between authority, responsibility and consequence. A leader with vast centralized powers--a president, an emperor, a dictator--has the authority to send young citizens into combat in distant lands, but he does not carry an equal responsibility to ensure their lives are not lost in the vain glories of Empire. The consequences of his decisions do not fall on him; he is far from the combat and the loosed dogs of war. His concern is the domestic political squabbles of the Elites who support his centralized power.

All centralized power carries the same pathology: those with the authority are never exposed to the consequences of their authority, nor do they have any responsibility for the consequences. The president who launches an unwinnable war that chews up the nation's youth and treasure leaves office to fund-raise for his self-glorification, i.e. a presidential library.

The CEO whose strategies fail to revive the corporation and indeed send it to the brink of insolvency leaves with a "golden parachute" worth tens of millions of dollars.

This pathology is not the result of individual psychology or character; it is the result of centralized, concentrated power itself. Giving any individual or small group this kind of power--over war, over the nation's money and credit, over its healthcare--distorts the field of perception; even people who were once non-pathological become pathological once power takes hold of their being. Soon they believe they have god-like powers to "fix things;" indeed, they feel a responsibility to wield their god-like powers "to do whatever it takes."

But since there is no personal consequence of their rash policies, nor any responsibility for the devastation their powers unleash, the power becomes pathological.

When the multiple bubbles burst and the financial house of cards comes crumbling down, Ben Bernanke will be comfortably secure, far from the consequences of his policies. It is worth recalling, on today of all days, that only two U.S. presidents in the past 50 years had any experience of combat: John F. Kennedy and George H.W. Bush. Both men acted with care and restraint in matters of war and both sought a peaceful resolution to the Cold War. Was this merely a coincidence, or did experiencing combat inform their humility and sense of responsibility for the consequences of their choices?

The more power devolves to those who actually face the consequences of their actions and authority, the less pathological it becomes. This is the power structure of liberty: each person carries the responsibility and consequence of their actions, choices and words.


"But we are told that we need not fear; because those in power, being our representatives, will not abuse the powers we put in their hands. I am not well versed in history, but I will submit to your recollection, whether liberty has been destroyed most often by the licentiousness of the people, or by the tyranny of rulers.

I imagine, sir, you will find the balance on the side of tyranny. Happy will you be if you miss the fate of those nations, who, omitting to resist their oppressors, or negligently suffering their liberty to be wrested from them, have groaned under intolerable despotism!

Most of the human race are now in this deplorable condition; and those nations who have gone in search of grandeur, power, and splendor, have also fallen a sacrifice, and been the victims of their own folly. While they acquired those visionary blessings, they lost their freedom." (Patrick Henry)

"Of all the enemies to public liberty war is, perhaps, the most to be dreaded, because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes; and armies, and debts, and taxes are the known instruments for bringing the many under the domination of the few. In war, too, the discretionary power of the Executive is extended; its influence in dealing out offices, honors, and emoluments is multiplied; and all the means of seducing the minds, are added to those of subduing the force, of the people…. [There is also an] inequality of fortunes, and the opportunities of fraud, growing out of a state of war, and … degeneracy of manners and of morals.... No nation could preserve its freedom in the midst of continual warfare." (James Madison) 

CORRECTION: Correspondent Jeff W. reminded me that President Gerald Ford served multiple combat tours in the Pacific Theater of World War II as an officer on an aircraft carrier. President Ford's wise caution in foreign affairs further supports the notion that combat experience provides an irreplaceable context for decisions of war and peace. 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

Reconnecting higher education, livelihoods and the economy

With the soaring cost of higher education, has the value a college degree been turned upside down? College tuition and fees are up 1000% since 1980. Half of all recent college graduates are jobless or underemployed, revealing a deep disconnect between higher education and the job market.

It is no surprise everyone is asking: Where is the return on investment? Is the assumption that higher education returns greater prosperity no longer true? And if this is the case, how does this impact you, your children and grandchildren?

We must thoroughly understand the twin revolutions now fundamentally changing our world: The true cost of higher education and an economy that seems to re-shape itself minute to minute.

The Nearly Free University and the Emerging Economy clearly describes the underlying dynamics at work - and, more importantly, lays out a new low-cost model for higher education: how digital technology is enabling a revolution in higher education that dramatically lowers costs while expanding the opportunities for students of all ages.

The Nearly Free University and the Emerging Economy provides clarity and optimism in a period of the greatest change our educational systems and society have seen, and offers everyone the tools needed to prosper in the Emerging Economy.

Read the Foreword, first section and the Table of Contents.

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Things are falling apart--that is obvious. But why are they falling apart? The reasons are complex and global. Our economy and society have structural problems that cannot be solved by adding debt to debt. We are becoming poorer, not just from financial over-reach, but from fundamental forces that are not easy to identify. We will cover the five core reasons why things are falling apart:

1. Debt and financialization
2. Crony capitalism
3. Diminishing returns
4. Centralization
5. Technological, financial and demographic changes in our economy

Complex systems weakened by diminishing returns collapse under their own weight and are replaced by systems that are simpler, faster and affordable. If we cling to the old ways, our system will disintegrate. If we want sustainable prosperity rather than collapse, we must embrace a new model that is Decentralized, Adaptive, Transparent and Accountable (DATA).

We are not powerless. Once we accept responsibility, we become powerful.
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Thank you, Scott L. ($5/month), for your superbly generous subscription to this site-- I am greatly honored by your support and readership.

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ObamaCare: The Neutron Bomb That Will Decimate the U.S. Economy

ObamaCare will act as a neutron bomb on the U.S. economy for systemic reasons.

Longtime readers know I have repeatedly explained why healthcare, i.e. sickcare, will bankrupt the nation. ObamaCare simply speeds up the coming collapse. Here are two of the dozens of entries I've written on sickcare: 

America's Hidden 8% VAT: Sickcare (May 10, 2012) 

Can Chronic Ill-Health Bring Down Great Nations? Yes It Can, Yes It Will (November 23, 2011)

I have also explained why ObamaCare's "fixes" are simulacra reforms that don't even address the systemic costs arising from the cartel-fiefdom structure of sickcare: 

Why "Healthcare Reform" Is Not Reform, Part I (December 28, 2009)

Why "Healthcare Reform" Is Not Reform, Part II (December 29, 2009)


Sickcare is unsustainable for a number of interlocking reasons: defensive medicine in response to a broken malpractice system; opaque pricing; quasi-monopolies/cartels; systemic disconnect of health from food, diet and fitness; fraud and paperwork consume at least 40% of all sickcare funds; fee-for-service in a cartel system; employers being responsible for healthcare, and a fundamental absence of competition and transparency.

Please glance at these charts to see how the U.S. healthcare costs are double those of competing nations on a per capita basis. Japan provides care for a mere 36% per person of what the U.S. spends--yet millions of Americans remain uninsured or underinsured.

If you set out to design a corrupt, inefficient, wasteful, unfair, deranged and unreformable system, you would arrive at U.S. healthcare/ObamaCare.


ObamaCare ignores the structural causes of our ill-health:


86% of Workers Are Obese or Have Other Health Issue Just 1 in 7 U.S. workers is of normal weight without a chronic health problem.

The Patient Protection and Affordable Care Act (PPACA), i.e. ObamaCare, is a neutron bomb for employment. A neutron bomb is an enhanced-radiation thermonuclear weapon that famously leaves buildings, autos, etc. intact but kills all the people, even those inside buildings. vehicles, etc.

ObamaCare will act as a neutron bomb on the U.S. economy for these systemic reasons:

1. It is immensely complex, and already-marginalized small business owners will shed employees or simply close rather than have to figure out what all those thousands of pages of regulations and statutes mean to the survival of their business.

2. ObamaCare's primary mechanisms of lowering costs, insurance exchanges and technocratic selection of "best care practices," do nothing to change the systemic flaws of sickcare.

Many other commentators have already outlined how ObamaCare is driving employers to replace fulltime workers with part-time workers to avoid having to pay outrageously expensive monthly healthcare insurance premiums.

I see this response as a Corporate-America strategy. Corporate America has the human resources infrastructure and financial heft to figure out compliance and exploit loopholes in the insanely complex law. Small business has neither the infrastructure nor the financial resources. Small business owners will rely on the same cartels that are currently providing insurance for guidance, and of course the ObamaCare offerings will suit the financial needs of sickcare cartels.

Once small business owners see the costs of their options, some may opt to pay the penalties and others may follow the corporate strategy of turning each fulltime job into two part-time jobs to avoid paying for coverage or penalties, but many will choose instead to call it quits: either downsize to a one-person/one-household business with no employees at all, or sell/close the enterprise and escape the burdens.

What the lobbyists and attorneys who wrote the Obamacare monstrosity do not understand (because they have no exposure to or experience in the real economy) is the fragility of most small businesses: costs keep rising but revenues are stagnant. The mental and financial stresses keep rising, and ObamaCare does nothing to mitigate either source of stress.

The inside-the-Beltway types who crafted this mess have no idea of the pressures facing legitimate (non-black-market) business in America, corporate and small business alike.

ObamaCare offers even more incentives for Corporate America to offshore operations, and it provides powerful incentives to millions of marginal small businesses to shut down or shed all employees.

I am not alone in simply not wanting to waste the time, money and energy required to understand the new law and its various impacts on my business. We will cling to our already insanely expensive private healthcare insurance, one of the few that has been grandfathered in: new self-employed entrepreneurs won't be able to buy the absurdly costly policy we have--they will be offered a range of even worse deals, with higher costs and less coverage.




3. Perhaps most cruelly, the bronze level of ObamaCare--the "affordable" care--is a mirage, a simulacrum of insurance rather than actual insurance. Bronze level ObamaCare features deductibles of around $6,000. In other words, you have to spend $6,000 before your insurance kicks in.

In an economy in which two-thirds of all households live paycheck to paycheck, this is the equivalent of no insurance. High-income sickcare lobbyists and millionaire politicos may look at $6,000 as no big deal, but for households with little savings or credit, that might as well be $60,000.

4. As many others have pointed out, the income levels that divide receiving a Federal subsidy from not receiving a subsidy are begging to be gamed. If $62,000 is the line in the sand that qualifies your household for a hefty subsidy on health insurance, the incentives to adjust earnings to fall just below $62,000 (or whatever the number is for the locale and household size) are immense.

People respond to the incentives and disincentives they are presented with, perverse or otherwise. The lobbyists, toadies and apparatchiks who wrote and passed ObamaCare could not have stuffed the bill with more perverse incentives if they had set out with that as their primary goal.

The neutron bomb has gone off, unseen by politicos and the Elites who wrote the bill. It is already undercutting fulltime employment, and it will soon add momentum to the free-fall erosion of small business growth and employment.
The strip malls and office parks will still be standing; there just won't be many employees in them.

Of related interest:

About Your $3.16 a Day Healthcare Insurance Plan... (February 21, 2013) MirageCare

What If ObamaCare, Too Big To Fail Banks and the State Are All the Wrong Sized Unit?(February 25, 2013) 

---

The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

If you want to understand:

Why higher education is failing students and the nation

The parts of the economy that are expanding

The future of higher education

How to get a practical education and a job without student loans

You need this book

Read the Foreword, first section and the Table of Contents.

print: $20           Kindle: $9.95 

---

Why Things Are Falling Apart and What We Can Do About It

If you want to understand:

Why the wheels will come off the global economy in 2014 - 2015

The five forces that doom the status quo

How to change your life and finances to prosper in the coming crisis

You need this book

Read the Introduction and the Table of Contents
Kindle: $9.95       print: $24 

Thank you, Daniel G. ($5/month), for your splendidly generous subscription to this site-- I am greatly honored by your renewed support and readership.

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Have a Merry DeGrowth Christmas--Boycott Black Friday

The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless--it is profoundly misleading.

Counting on strong holiday retail sales to "boost the economy" is like eating triple-paddy cheeseburgers and fries to lose weight. The last thing a debt-dependent economy needs is more borrowing to buy excess consumption, and the last thing an economy that imports most of the junk being purchased needs is empty-headed economists declaring that the purchase of more low-quality, mostly needless junk is anything other than a waste of money and resources.

Since most of the junk (and it is junk--most Americans have either forgotten what actual quality is or they have never experienced it) is made overseas, the "boost" to the economy generated by rampant charge-card consumption flows to only one slice of the the U.S. economy: corporate profits.

U.S.-based global corporations skim most of the profits made when junk is made overseas; how much profit do you think the Chinese and Taiwanese suppliers of the iPad and iPhone components make? If you guessed 1%-2% of their part of the cost, you're right. So if a $300 device costs $100 to actually manufacture in China, the Chinese suppliers make a dollar or two. Apple skims about $100 and the distribution/retail channels skim the other $100.

I have covered this dynamic in depth over the years: for example:

Trade with China: Making Out Like a Bandit (March 30, 2006)
Much of China's manufacturing is owned and managed by foreign corporations. In effect, the companies aren't Chinese at all; only the workers are Chinese.

Trade and "Trade War" with China: Who Benefits? (October 5, 2010)

In effect, Black Friday is not about "deals," it's about padding already record-high corporate profits with excess consumption of 1) junk 2) needless stuff.

Please, Santa, Let This Be the Last Christmas in America (that's supposed to "save" the U.S. economy) (November 23, 2010).

The propaganda machine is cranking up to announce that a 2% increase in holiday retail sales means the U.S. economy is off and running. Santa, please, please, please order your reindeer to stomp the life out of the idiotic fantasy that Americans buying a few billion dollars more needless junk from China is any sort of evidence that the U.S. economy is "growing at a healthy clip."

The entire retail sector is 7.9% of the GDP compared to a 21.4% share for the FIRE tranch (finance, insurance and real estate) of the economy.

Santa, you have my deep gratitude if you could jam the propaganda machine so that this is the last Christmas in America where trivial retail sales are hyped as the bellwether for the $16 trillion U.S. economy.

The "aggregate demand is God" Keynesian Cargo Cult fetish of focusing on holiday sales is worse than meaningless--it is profoundly misleading. What the economy needs is not more mindless debt-based consumption (the "aggregate demand" that the cargo cult sees as a "folk cure" for everything that's wrong with the economy) but the exact opposite: paying down debt, reducing the share of the national income skimmed by a parasitic banking sector, a boycott of low-quality junk (i.e. 90% of what's bought on Black Friday) and an evolution beyond a model of "growth" that's dependent on ever-rising debt and consumption of needless junk made overseas to benefit Corporate America's bulging bottom line.

If you missed my recent entry on the Degrowth movement in Europe, please check it out: Degrowth, Anti-Consumerism and Peak Consumption (May 9, 2013)

The anti-consumerism Degrowth movement is gaining visibility and adherents in Europe. Degrowth (French: décroissance, Spanish: decrecimiento, Italian: decrescita) recognizes that the mindless expansion of mindless consumption fueled by credit and financialization is qualitatively and quantitatively different from positive growth.

Degrowth is based on a number of principles:

1. Consumerism is psychological/spiritual junk food (French: malbouffe) that actively reduces well-being (bien-etre) rather than increases it.

2. Better rather than more: well-being is increased by everything that cannot be commoditized by a market economy or financialized by a cartel-state financial machine-- friendship, family, community, self-cultivation--rather than by acquiring more. The goal of economic and social growth should be better, not more. On a national scale, the cancerous-growth measured by gross domestic product (GDP) should be replaced with gross domestic happiness/ gross nation happiness (GNH).

3. A recognition that resources are not infinite, despite claims to the contrary. Even if fossil fuels were infinite and low-cost (cheerleaders never mention the external costs), fisheries, soil and fresh water are not. For one example of many: China Is Plundering the Planet's Seas (The Atlantic). Indeed, all the evidence suggests that access to cheap energy only speeds up the depletion and despoliation of every other resource.

4. The unsustainability of consumerist consumption dependent on resource depletion and financialization (i.e. the endless expansion of credit and phantom collateral).

5. The diminishing returns on consumption. Investing in clean air and water, public transit, universally accessible knowledge/information--these forms of consumption yield high returns in public health, affordable mobility, etc. Buying clothing to wear once or twice and then throw away does not.

The investment in the rule of law, public infrastructure and universal access to clean air, water and education moves nations from developing to developed and greatly improves the material lives of the residents. Beyond this, consumption of resources offers diminishing returns up to a point of social/spiritual/ psychological derangement. Consumption beyond this point actively reduces well-being.

6. The failure of neoliberal capitalism and communism alike in their pursuit of growth at any cost.

Both the religion of growth and its Cargo Cult enablers are merely superficial facades masking the real force: the expansion of global finance via financialization. Expanding capital, profits and power is the key agenda, and the quasi-religion of growth is just the public-relations narrative that mesmerizes the debt-serfs, political toadies and media sycophants.

What does Degrowth mean in practical terms? Use the thing until it cannot be repaired. Don't ditch the mobile phone, auto, dress or digital device until it can no longer repaired. Buy local rather than than global-corporate whenever feasible. Crave less, need less, want less, resist the brainwashing of 24/7 marketing. Learn to become a person who does not need corporate-status signifiers for a sense of identity.

What if Progress requires less consumption, less debt, less shopping-gives-me-meaning?

A DeGrowth Christmas does not mean a "no gift" Christmas: it means either making gifts, regifting (making a gift of something that is perfectly usable or in many cases, still in the box), giving an experience (i.e. time with someone), or (at least in my opinion)giving a well-made tool or book that leverages new skills or new understanding.

Does excess consumption really add that much to our lives? Goodness gracious, people, look in the closets of America--they're stuffed to the gills with clothing, shoes, sporting goods, etc. etc. etc. Even "poor people" have endless gadgets, multiple TV sets, etc. etc. Look at the storage units crammed with excess everything.

There's a new documentary on DeGrowth: GrowthBusters: Hooked on Growth; free screenings are being held on Black Friday in select cities.

1:39 minute video on the documentary: Attack of the Zombie Shoppers.

Of related interest:

The Last Christmas in America (December 23, 2010) 

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The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

If you want to understand:

Why higher education is failing students and the nation

The parts of the economy that are expanding

The future of higher education

How to get a practical education and a job without student loans

You need this book

Read the Foreword, first section and the Table of Contents.

print: $20           Kindle: $9.95 

---

Why Things Are Falling Apart and What We Can Do About It

If you want to understand:

Why the wheels will come off the global economy in 2014 - 2015

The five forces that doom the status quo

How to change your life and finances to prosper in the coming crisis

You need this book
Read the Introduction and the Table of Contents
Kindle: $9.95       print: $24 

Thank you, Helen S.C. ($10), for yet another stupendously generous contribution to this site-- I am greatly honored by your steadfast support and readership.

Read more...

The American Model of "Growth": Overbuilding and Poaching

Why has this doomed model of overbuilding and poaching sales become so dominant? Look no farther than the cheap-money policies of the Federal Reserve.

The rising Gross Domestic Product (GDP) and other simulacra of "growth" are masking the real model of growth in America: overbuilding and poaching, as in poaching customers and sales from competitors.

No matter how many outlets a company has, there's always room for a few hundred more somewhere. Now that there's a Starbucks on every corner, you might think the opportunities for expansion are limited. No way--now there are Starbucks in bookstores, Safeway supermarkets, subway stations (BART), etc.

Not only is there a coffee outlet of some sort everywhere you look (hey, how about a Starbucks in every Home Depot?), Starbucks is getting into everybody else's business as well--even occasionally hawking music CDs, for example, at least until CD sales plummeted to the point it wasn't worth poaching the declining sales.

Dollar stores are proliferating at a phenomenal rate, as are drug stores in various sizes and iterations--all aimed at poaching customers from WalMart and Target. There is a certain irony in this, as WalMart and Target expanded rapidly by poaching customers from the entire spectrum of retail competitors--supermarkets, department stores, drug stores, sporting goods, and so on.

Everybody's getting into everybody else's business. If there is a profit to be made, suddenly every gas station mini-mart is stocking the line of goods, as are dollar stores and drug stores coast-to-coast.

In the department store/luxury outlet space, the scrimmage for the top 10% and "aspirational" consumers is fierce. Macys, Nordstrom, et al. successfully poached the upper-middle class and "aspirational" consumers with credit (if they could buy luxury brands with discretionary cash, they wouldn't be aspiring to look wealthy, they would bewealthy) from mid-range retailers such as Sears and J.C. Penny.

Countless catalog retailers have opened discount outlets while still poaching customers from other bricks-and-mortar retailers with blizzards of catalogs pitching "crazy low prices" to the marginalized middle class who cannot afford luxury outlets but seek brands above the WalMart level.

Look no further than the enormous success of surf-watersports brands as evidence that an "active youth" brand can sell millions of units to paunchy shark-bait couch potatoes, effectively poaching customers from other sectors on the middle-class retail spectrum.

Specialty retailers are busy poaching customers from competitors, and if that fails then they merge. Witness the absurdly overcapacity office supply space. The fleeting success of BBQ World quickly spawns BBQ Galaxy and BBQ Universe, a manic cycle of overbuilding/poaching that ends in ruination of all three retailers, which then merge and close hundreds of (mostly empty) stores.



That is the operative model of "growth" in America: rapid expansion/overbuilding in pursuit of poaching customers from existing competitors, a strategy that leads to massive overcapacity/redundancy and declining profits that then leads to mergers and shuttering hundreds of redundant outlets.

This overbuilding is especially nonsensical given that the "Brown Truck Store" delivers virtually anything you want to your doorstep: The Inevitable Decline of Retail(September 19, 2012).

Why has this doomed model of overbuilding and poaching become so dominant?Look no farther than the cheap-money policies of the Federal Reserve: Take It To The Bank (The Burning Platform):

This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income.

If this is the engine of "growth" in America, a period of degrowth will be needed to clear the system of unprofitable deadwood and Fed-incentivized malinvestment. 

---

The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

If you want to understand:

Why higher education is failing students and the nation

The parts of the economy that are expanding

The future of higher education

How to get a practical education and a job without student loans

You need this book
Read the Foreword, first section and the Table of Contents.


print: $20           Kindle: $9.95 

---

Why Things Are Falling Apart and What We Can Do About It

If you want to understand:

Why the wheels will come off the global economy in 2014 - 2015

The five forces that doom the status quo

How to change your life and finances to prosper in the coming crisis

You need this book

Read the Introduction and the Table of Contents
Kindle: $9.95       print: $24 

Thank you, Robert M. ($5/month), for your supremely generous re-subscription to this site-- I am greatly honored by your support and readership.

Read more...

Hey, Is It a Problem That We're All on One Side of the Boat?

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water.

Gee, we're all on one side of the boat now--long the S&P 500, NASDAQ, Dow, Eurozone stocks, the Nikkei, not to mention rental housing, junk bonds, bat quano, 'roo belly futures and the quatloo--basically every "risk-on" trade on the planet--is that a problem?

The conventional (and convenient) answer is "nah--stocks can only rise from here." So what if market bears have fallen to 15% or less? So what if 85% of investors are on the same side of the boat? You'd be nuts to leave the winning side, the trend-is-your-friend side, the "don't fight the Fed" side, the side with all the "smart money."

It may appear to be safe for everyone to be on the same side of the boat, but the gunwale is awfully close to the water. With the sea remarkably calm (i.e. no waves of turbulence or volatility), the fact that the boat is overloaded doesn't seem dangerous.

But once the sea rises even a bit and water starts lapping over the gunwale, the "guaranteed safety" of the bullish trade might start looking questionable.
When the boat takes on water quicker than anyone believes possible and capsizes, it will be "every punter for himself." But few longside punters are wearing lifejackets.

This is all Investing 101: be wary of extremes of euphoria and confidence and being on the same side of the trade as everyone else. Yet everyone continues adding to their long positions without adding portfolio protection (puts, etc.):



Three indicators suggest this move will reverse shortly, either in a "healthy correction" or a reversal of trend--which one cannot be determined until the downturn is underway.

The rapid rise of the market has traced out a bearish rising wedge. This pattern usually leads to some sort of correction. The MACD histogram is divergent, dropping to the neutral line as the SPX has soared ever higher.

 Lastly, price has pulled away from both the 50-day and 200-day Moving Averages, suggesting the rubber band is remarkably stretched.

Round-number attractors are close at hand. The SPX at 1798 is two measly points from the round-number attractor of 1800, and the Dow at 15,961 is a coin-toss away from its round-number attractor of 16,000. This level will invite great cheering ("new all time high," never mind adjusting for inflation) and also present an opportunity for the imbalanced boat to capsize.

Even more astonishing, the crowd is also betting on volatility declining from extreme lows. Look at the put and call options on the VXX, a security that tracks the short-term volatility of the VIX: at the money December calls (bets volatility will rise by December 20) number 311 while puts (bets volatility will decline some time between now and December 20) number 11,265.

Hey, you 311 bears! Join us 11,265 longs on the guaranteed winning side of the boat! Uh, thank you for the kind offer, but no thanks. Though the uncrowded side is uncomfortably above the water at this point, with 11,265 fattened Bulls on the side close to the waterline, the few on this side are less likely to be trampled when physics trumps psychology.

Hey all you PhDs in Behavioral Economics: perhaps you could investigate the "how many angels can dance on the head of a pin?" nature of this psychological conundrum:the market can only do what few expect of it, so if everyone is looking for bubbles, there can't be any bubbles. But what else do you call a market that rises 10+% in a mere 6 weeks?

In other words, if people are looking at the market and realizing it is dangerously close to capsizing, then it can't capsize because the market can only capsize if nobody expects it. The absurdity of this argument is revealed by turning it around: if Bulls confidently expect the market to keep rising, then how can it rise when everybody expects it to rise?

The answer to the question "how many angels can dance on the head of a pin?" is the same as the answer to the question, "How many Bulls can crowd on one side of the trade without capsizing the boat if there are 311 Bears on the other side?" The absurdly concise answer is 11,265--at least for now. 

---

The Nearly Free University and The Emerging Economy:
The Revolution in Higher Education

If you want to understand:

Why higher education is failing students and the nation

The parts of the economy that are expanding

The future of higher education

How to get a practical education and a job without student loans

You need this book

Read the Foreword, first section and the Table of Contents.

print: $20           Kindle: $9.95 

---

Why Things Are Falling Apart and What We Can Do About It

If you want to understand:

Why the wheels will come off the global economy in 2014 - 2015

The five forces that doom the status quo

How to change your life and finances to prosper in the coming crisis

You need this book

Read the Introduction and the Table of Contents
Kindle: $9.95       print: $24 

Thank you, Ron E. ($5/mo), for your superbly generous re-subscription to this site-- I am greatly honored by your steadfast support and readership.

Read more...