Posts Tagged ‘neoclassical economics’

Enron, stock price manipulation, and organized piracy

November 20, 2011

Enron was sacrificed. The people who ran it used it for their own private gain and then sacrificed it.

That may not even be totally true, but to the best of my knowledge, it has been openly admitted that Enron was engaged in manipulating the prices of high-leverage investments simply to redistribute wealth toward particular recipients. They bought certain investments, then took actions to increase the value of those investments.

In that regard, the behavior of the leaders of Enron is not at all unusual. They were just trying to make their own investments be profitable, like the owners of most any business. It was just their methods that were distinctive.

Enron was involved in the electrical power business in California. Enron had the authority to turn off it’s own electrical plant operations in a sudden sequence that would create huge shifts in the supply of electricity to the region. By suddenly reducing the supply of electricity during a time of steadily high demand, Enron could start price spikes in electricity that could then escalate in to huge speculative frenzies.

Because they could trade those predictable price rises for great profit (through investments like leveraged futures and “call options”), they may have intentionally created those price spikes by cutting off supplies of electricity from their own power generating stations. The price spikes were predictable to them because they knew that they were about to reduce production at a bunch of their plants all at once (even if they blamed it on technical problems or whatever). Even if Enron was eventually bankrupted, if the leaders behind Enron made huge private profits by manipulating prices using their instrument (Enron), their instrument served it’s purpose and perhaps then was discarded rather like a piece of used toilet paper (with Enron’s filing for bankruptcy).

Now, it does not matter really to me if anything I just said is specifically true. It could be that Enron was not influencing the supply of electricity, but was more involved in influencing the supply of oil or toothpaste or silver (like the Hunt Brothers in the late 1970s). Controlling supply is the best way to control price.

“I could care less what puppet sits on the throne of this empire. The one who controls the money supply controls the empire and I control the money supply!”

– Mayer Von Rothschild, paraphrased from what he apparently said back in the late 1700s

There are two primary ways of influencing price: influencing supply of something and influencing demand for something. Demand involves PR and marketing and legal subsidies and things like that. Supply can simply be cut off (or suddenly increased, like when Walmart “floods a market” to drive a competitor out of business by selling something for less than what a competitor can sell it, even at a loss to Walmart, but then taking over the competitor when they are weak).

Economics is war. War is economics.

Many people do not understand the issues and risks involved in things like the real estate mortgage industry or the insurance industry. They will be “milked. They have been drawn in through advertisements and PR and hype shows and commission-earning salespeople (AKA realtors etc) who actually know very little about the core purposes of the industries in which they may be employees, just like the average person working for Enron had no idea how much money the leadership of Enron was privately collecting through the mechanism of Enron. Even when leaders simply embezzle money from a corporation, they are obviously doing that as a sacrifice of the corporation’s financial stability.

So, the masses are duped in to pouring their investments in to real estate and stocks (for instance) and then the masses are “milked” through the mechanisms of markets and legal systems and so on. The first stage is the PR or propaganda stage, with propaganda about a particular legal system being central to the entire scam, and then the concentrating of control of supply, then cutting off supply (like supply of oil or supply of credit/mortgage financing).

If the conspirators can convince people that the conspirators are trying to “rescue” the masses from some other conspirators, that is perfect. Blame “the foreigners.”

Or, perhaps there are no conspiracies and the leaders of Enron are just as innocent and ignorant as the masses. I doubt it, but again that does not really matter to me at all.

The point is that people may vastly underestimate the potential for a supply chain to collapse. It could be because of a technical oversight. It could be because a CEO at Enron called a few plant operators and gave a “mysterious” order to halt production, perhaps for an “unexpected safety test” that happened to be initiated at 50% of their electrical plants within 60 seconds of each other. It could be because a Central Banker like Rothschild manipulated public perception and public behavior for personal gain- kind of like an owner of a business might “manipulate” or organize the activities of their employees.

So, everyone knows that prices can come down faster than they can go up. The day that Enron announced that they were filing bankruptcy, how many years of rising prices vanished overnight?

I mention all of this, again, with no particular interest in Enron. I just know that some people are hysterical about stock price manipulation and other forms of corruption. I ask “why be hysterical?” Be realistic.

Stock markets are systems for the organized redistribution of affluence from certain parties (the masses) to certain other parties (the attentive). Be attentive. Why not?

Stock markets in the US (and beyond) may be about to plunge. Why do I say that? Well, I have been publishing that warning for many years (long before the 2007 peak in US stocks).

But why do I repeat it now? Because the US stock market has formed a series of what I call “shelves.” These shelves are also visible on several scales of time.

Consider the image below and the most notable features of the visual pattern in that image:

I made that image very small so that very little detail would stand out- only the most obvious things. I consider it obvious that there is a big sudden drop about 1/5th or 1/4th of the way from the far left, then a “shelf” after that. By shelf, I mean that prices kept coming down to a certain range “like a magnet was attracting them” (or like a bouncing ball after being dropped by gravity and then coming to stillness). Let’s look now at the same image, but larger:

That is the last two days (Thursday 11/17/2011 and Friday 11/18/2011) of prices in the US SPX (S & P 500) broad stock market index. Late Thursday, prices formed a “shelf” at about 1210, with 1215 or so being the upper range of prices. Friday, prices moved very little, mostly forming a shelf a little higher over 1215, with a brief dip around mid-day in to test the level around 1210.

There was a “shelf” or (support level) at 1210 on Thursday and a bit higher then next day. Now let’s look at the SPX chart for a longer period of time (the last 6 months):

Again, we see a big drop, then a “shelf,” then a slightly higher shelf. Here it is bigger:

In the middle two months shown, prices mostly stayed between 1100 and 1200. In the last several weeks (since mid-October), prices formed a shelf around the 1200 level. Let’s look at an even larger time period now (4 years):

There is a steep drop on the left of the stock price chart, then in the middle of the chart a shelf above the 1000 level, and then the same shelf around 1100 on the right. That is the same shelf that is shown closer-up above.

So, what does all of this mean? Does it mean that prices for the US SPX must do any particular thing next? Does it mean that stock prices are inherently steady and that economic trends are inherently permanent?

Or, does it mean that it is a good time to own cash rather than stocks or- perhaps even better than cash- to own put options and positions in inverse ETFs? This is a good time to be attentive, like any other time. This is just an ESPECIALLY good time to be attentive to the potential for predictable and sudden drops in prices which produce huge transfers or redistributions of affluence to a certain few participants relative to the vast majority of participants.

Why not be one of the receivers of the transfer? Why not be one of the attentive?

why adapting is too wrong

July 12, 2011


Warning: you should never adapt. For instance, adapting is often fatal. Adaption is also the leading cause of species going extinct. Adapting is what brought down the USSR and Napoleon and the Mayan Empire and Enron and AIG and Yugo and LTCM Hedge Fund and the Houston Oilers.

Instead of adapting, you should keep complaining about how other people should adapt, but haven’t yet. For instance, certain politicians should be how they are not. Also, certain foreigners obviously should be how they are not.

In particular, foreign politicians should not be foreign politicians. Clearly, they should all suddenly quit politics and immediately move to where you live, no matter where that is- yes, all of them.
Further, several other people in particular should adapt, starting with your grandparents, parents, children, spouse, ex-spouse, neighbors, co-workers, classmates, casual acquaintances, but also the media, teachers, unions, minorities, majorities, and, now that I think about it, absolutely everyone else but you. Again, you should not adapt- not now, not in the past, and certainly not in the future.

According to licensed government statisticians, adapting is the root of one hundred and twenty percent of the evil in the world today. Also, a recent survey of a random sample of four really cute caterpillars indicate that caterpillars universally condemn adapting, and, according to the same licensed government statisticians, caterpillars are infallible, especially the cute ones.

In conclusion, beware of conspiracy theorists who allege that adapting is adaptive. Nothing could be furthest from the truth.
Adapting is immoral, illegal, sinful, and completely ineffective. Adapting is a leading cause of several incurable diseases, such as scurvy, hypochondria, dehydration, leprosy, obesity, public intoxication, ugliness, multiple orgasms, and drowning in self-pity.
If you are forced by unavoidable circumstances to eventually adapt, at least make sure that you are the very last one to do so. People who adapt early tend to benefit most and that is the too wrong thing to do. Your adapting could drag other innocent people in to an addiction to adapting, condemning you to an eternity of punishment in Helsinki, Finland.
Always avoid focusing on identifying relevant changes. If something is changing and you notice that it is changing, immediately pretend that nothing ever changes.
Therefore, the following sequence of sounds is explicitly forbidden to be spoken. Please, I beg of you, forgive me for traumatizing you with the following quotation of someone who obviously has no credibility whatsoever:
“Focus on identifying relevant changes. Notice early. Adapt first. Benefit most.”
Note that the author of that statement was probably the mortal enemy of all people fluent in the English language, Dr. Hubbert, who was a geologist with the USGS. He computed in the 1950s a series of mathematical projections about when the United States would peak in it’s production of crude oil. However, he was off by nearly an entire year, so all his other calculations can easily be dismissed as naive and ignorant and adaptive. Okay, maybe he was not off exactly by nearly an entire year, but he did not specify the specific date and time, so his vague estimates about the peak of oil discovery worldwide being somehow related to the peak of oil extraction and refining are clearly the insane ramblings of a raving madmanic, even though those calculations have also been recently established as true.

But his speculations about how global demand for crude oil would continue rising exponentially while new supplies of refined crude oil plateaued and then fell, that is clearly impossible. Further, prices cannot just change all of sudden based on obviously unrelated factors such as supply and demand. That is just plain silly.

Dr. Hubbert, in his extreme arrogance, apparently did not realize that politicians could simply alter the geological facts to rescue humanity from economics by occasionally tripling the amount of crude oil on the planet with the stroke of a pen (or even just by clicking the “submit” button on their computers). Further, the Federal Reserve has publicly promised with a written guarantee signed, dated, notarized, and stamped with a 1st grade gold star sticker to intervene and rescue the USSR, the EU, and the Mayan Empire from the rising costs of non-renewable fossils fuel as global reserves are depleted faster and faster by advancing technology such as disk drives. 

So, budgets of businesses, households, and governments worldwide that are in no way effected by rising fuel prices will all be bailed out by AIG’s insurance policies, which are backed by the full faith and credit of both the USSR and the entire League of Nations. In summary, Dr. Hubbert was wrong and just because he implied that crude oil deposits could be correlated to things like economic prosperity, military power, and geopolitical prominence, the simple and clear facts are that the US and USSR rose to power not because they were the biggest and second biggest producers of oil on the planet in the 20th century, but because they both shared one unique quality in common: cheese.

Further, the increasing geopolitical influence of Saudi Arabia and other areas of the Middle East (that just coincidentally happen to have most of the rest of the crude oil left on the planet) is also exclusively attributable to not just cheese in general, but shredded cheese in particular. All that the rest of the world needs to do to easily avert any changes whatsoever from ever happening is, of course, to shred their cheese just like the Arabs do. That way, they will not only be adaptive, but they will be adaptive without at all adapting.

This and only this assures the very best of all impossible outcomes, according to the same licensed government caterpillars. And next time that the gas tank of your automotive vehicle is nearing empty, remember to urgently call your elected caterpillar- yes, even if it is the middle of baseball season- scream antagonistic demands in a language to them that they intelligently adapt on behalf of your abdicated complacency by passing a law that your gas tank will magically refill instantly for free every time it is half full, with all expenses paid by our fair-weather friends at the infallible insurance company AIG, which is permanently reliable because they have nearly twice as much money as they actually have.

In conclusion, if ten people who are skilled at mountain-climbing attach themselves to each other and then climb a mountain together, they are obviously stupid and deserve to die slow and horrible deaths for gambling their lives on trusting nine other competent mountain climbers to each act in their own self-interest. In contrast, if millions of people all blame caterpillars for being way too adaptive, that is obviously only because when millions of people with no skill at mountain climbing all attach themselves to each other to climb a mountain together, they can count on the USSR and AIG to save them from gravity. That is of course because one of them once read a book on mountain climbing and has an advanced degree in treating incurable ill will by not adapting ever.

the DominOil Effect

January 5, 2011

“The DominOil Effect” is a term that I first used in the following article in 2004, titled “…The REAL US Deficit: Oil.” You can read it here:

The video below is my new presentation of 1/5/2011, with a few visual aids below that. First, here is some background on my use of the term DominOil Effect, which is a variation of “the Domino Effect” in which it is easy to predict a sequence of events.

Here is a section of that article in which I suggested a parallel between the recent history of the city of Houston after the oil industry declined there to the future of the US (and UK and EU etc). See how well it fits with the developments of the years since I wrote it in 2004.

“…reviewing the details of what happened in Houston, consider the following “snowball effect” as a potential “drop in the bucket” of what could be coming soon.


First, the oil companies in Houston merely cut a few expenses. They spent less money with local businesses. A few at a time, oil employees lost their jobs and thus they also spent less money at local businesses, causing the loss of more income. Many businesses and families went deeper into debt, expecting things to improve soon. Some people even refinanced their homes to pay other bills.


But the oil boom did not resume in Houston. Growth had slowed, then stopped, then reversed. As more and more former oil company employees were looking for work, they were willing to accept jobs for less and less. As the economy slowed, more related businesses shrunk or closed. Just after finding a new job, many people were laid off again.

Eventually, more delinquency on mortgages led to more foreclosures. With so many foreclosure auctions, most local housing prices dropped. People who had just refinanced their homes suddenly owed more than their homes would sell for, plus many had even less income than before.


Bankruptcy rates increased. Divorce rates increased. Crime rates increased. Illness rates increased.

People moved away. Fortunately, Houston is next to lots of places that are not so dependent on the oil industry.


Some moved from Houston all the way to booming Silicon Valley. There, the same thing happened involving the high technology industry in the last few years: companies closed, incomes dropped, borrowing increased [temporariliy], mortgages defaulted, real estate prices dropped, etc….”

inflation-adjusted oil prices worldwide (above in red) have led inflation-adjusted gasoline prices in the US (below in green)

more of Fibonacci‘s sequences:

rising gas prices and your future

December 30, 2010

note: my charts are primarily for “illustrative purposes,” though I included some precise data below as well.

According to the US DEPT OF ENERGY, gasoline was more two times as expensive in Germany and Denmark than the US in 2008, but prices in oil-rich Venezuela were barely 3% of the US price… or about ten cents per gallon! In between the extremes, prices in Mexico have been around 20% less than in the US, and prices in Indonesia have been around 80% below US gasoline prices.


Regular Unleaded Gasoline Prices in 2008
Country        US Dollar price PER LITER
United States
Venezuela 0.0260

Note that inflation-adjusted prices of gasoline in the US went from an all-time LOW in 1998 to a new HIGH by 2007:

source for image above: US DEPT OF ENERGY:

So, why did US prices of gasoline and oil keep dropping in the 1980s and 1990s? Obviously, the main reason was increasing oil production worldwide even as US production declined (see charts below). Another big factor was innovation in the systems used to extract oil, featuring a relatively new technology known widely as “computing.” Extraction of crude oil was much cheaper in the last few decades because of computer technology and related advances in engineering. However, in the absence of any major advances in the operating technology of the oil industry in the last decade, prices soared. Why? Perhaps because global demand for oil is still soaring, while the rate of global extraction of oil peaked in 2006 and may begin to decline at an accelerating rate as more and more oil wells are emptied faster and faster.

The decline of US oil production looks about the same whether or not we include the oil extracted from Alaska and the Gulf of Mexico (either way, about a 50% decline in the US’s output of oil from 1970 to 2010):

now, global oil production rates:

Those charts are just for oil, so now back to gasoline. Note that from the all-time low of inflation-adjusted US prices of gasoline and oil in the late 1990s, gas prices are up only about 100% so far, while oil prices rose by over 1000%! If gas prices rose that much, that would be over $16.50 per gallon of gas in the US (and around $30 per gallon for most of Europe). So, why are European economies de-stabilizing? Couldn’t gasoline prices soaring already above $6 and even $8 per gallon possibly be a MAJOR factor?

FUEL PRICES ACROSS Europe, 2001-2008:

Gasoline and Diesel Prices for Selected Countries 2001-2008 (Dollars per gallon)
France Germany Italy
Year Gasoline Diesel Gasoline Diesel Gasoline Diesel
2001 3.51 2.71 3.40 2.79 3.57 2.95
2002 3.62 2.75 3.67 3.00 3.74 3.05
2003 4.35 3.39 4.59 3.79 4.53 3.75
2004 4.99 4.16 5.24 4.41 5.29 4.41
2005 5.46 4.81 5.66 5.01 5.74 5.21
2006 5.88 5.13 6.03 5.30 6.10 5.53
2007 6.60 5.66 6.88 6.06 6.73 6.03
2008 7.51 7.03 7.75 7.37 7.63 7.43
Spain United Kingdom
Year Gasoline Diesel Gasoline Diesel
2001 2.73 2.35 4.13 4.25
2002 2.90 2.46 4.16 4.29
2003 3.49 2.97 4.70 4.82
2004 4.09 3.55 5.56 5.68
2005 4.49 4.20 5.97 6.25
2006 4.84 4.50 6.36 6.63
2007 5.36 4.96 7.15 7.34
2008 6.13 6.25 7.42 8.14
Source: Energy Information Administration, “Retail Motor Gasoline Prices in Selected Countries, 1990-2009” and “Automotive Diesel Prices for Non-Commercial (Household) Use, Selected Countries, Recent Years.”

As demand soars, what has been happening with supply (available inventory)… and prices?

US prices of alternative fuels for 2005-2008, from:

EZ Gains (and a “conspiracy theory” about the burning of fuels leading to warming)

November 9, 2010
EZ Gains… and a conspiracy theory about burning fuels leading to warming



Because some profits are easier than others.

Aren’t some people older than others? Aren’t some people smarter than others? Aren’t some people braver than others?

How about this: aren’t some companies older than others? Well, even if a company may not be very old, it can still work very well with smart people, especially if those people are brave, too.

Back in 2003, when many old companies were ignoring the risks of the global lending market (including the subprime mortgage market) as well as ignoring the geological realities of things like oil and natural gas and coal, some people were smart enough to look closely at the behavior of investors worldwide… plus brave enough to admit the obvious. One of the most obvious things is that fossil fuels are finite resources.

Another obvious thing was that if humans burn more and more fuel for decade after decade, then eventually there will be much less of those fuels. For economies dependent on oil, that dependency could get very expensive- and not just in terms of dollars, but also in terms of social stability, human welfare, quality of life, and even national security.

Another obvious thing is that all that burning of fossil fuels might heat things up a bit, right? Still, lots of people choose to argue about things like the possible causes of global warming, with some activists maybe protesting against sunlight and others protesting against empty oil wells. 😉

Smarter people might actually predict in advance that burning huge amounts of fuel worldwide might result in a measurable rise in heat. However, it can take a lot of bravery to stop arguing about who to blame and admit that billions of people are involved in the global economy.

By the way, the global economy is just a phrase that actually means the actions of a whole bunch of humans. The global economy is not something that happens to us. It is something that we do.

Anyway, in early 2003, I published an article about the future of the global lending market, which just means the lending and borrowing of a whole bunch of people. I specified in particular the increasing risk in the real estate market of countries like the US, which had become so dependent on borrowing. I also forecast a continuing surge in global prices of commodities like oil and gold, contrasting that with the diminishing opportunity for gains in the US stock market.

In 2004, I published “The Real US Deficit: Oil.” In 2005, I published “Worth it’s weight in… Oil,” noting the practical priority of oil over all other global markets, as evidenced by the price increase of over 1200% from 1999 to 2008, while other commodities of lesser current importance, such as gold, went up “only” by a few hundred percent. So I took the old phrase “worth its weight in gold” and replaced gold with the commodity that everyone who has ever waited in line 5 minutes to get gas knows is far more important than gold: oil. Most people also know that oil is the source not only of gasoline and kerosine and so forth, but also plastic and many pharmaceuticals and pesticides.

As the years went by, myself and others continued publishing articles and giving lectures about the easily predictable future of things like oil prices, the US real estate market, the US stock market, and even things like the fact that the burning of fuels can result in the melting of ice, as in the case of oceans rising faster and faster. In addition to lots of publications and lectures, I recorded a video in 2006 (and uploaded it to the internet) which detailed the sequence of events that would predictably result in the collapsing of major financial institutions like banks, brokerages, and insurance companies. In 2008, that precise sequence of events was frequently referenced in the mainstream media as “surprising.” Major banks in the US, Europe, and elsewhere were facing similar troubles to those faced in similar circumstances, such as in Japan in the 1990s.

Of course, in Japan in the 1980s, many smart forecasters had been brave enough to publicly forecast what developed in the following years, too. As often happens with unpopular forecasts, when those precise developments which had been forecast did arise in the 1990s, the mainstream media in Japan called those developments “surprises.” Soon, the public poured their hopes in to promising reforms and then desperate rescue packages and then eventually a string of politicians with shorter and shorter periods between receiving public confidence at first and then later being blamed as incompetent or even as traitors.

Some things are easily predictable. For instance, burning fuel raises the temperature.

Also, smart people recognize what is obvious. But perhaps only smart people that are also brave would be willing to accept responsibility for adapting to what is obvious. Others may be surprised by the surge of heat in the summertime or in the direct sunlight at noon, and then may look for someone to blame for the surprising heat, such as certain politicians. In fact, that may just be the first stage of adapting. Making personal adjustments may come eventually for them, such as embracing the most obvious opportunities to make easy gains.

So, aren’t some people smarter than others? Further, aren’t some people braver than others? Well, aren’t some results more valuable to you than others?

worth its weight in oil PART 2

October 29, 2010
The shift of influence from the USA to the Middle East
Shifts in influence and power are inevitable, and even constant. Let’s focus first on one of the most obvious developments of the last one or two hundred years: the rise to global prominence of the USA.

Of course, the USA is only a few hundred years old, but it has been a very distinctive emergence. In particular, an enormous shift of influence away from Europe to North America, particularly the USA, has developed in the last hundred years or so.

After several prior centuries in which European empires have been prominent worldwide (such as the Roman Empire or the colonization of the Americas by the British, Spanish, and French), for at least the last one hundred years, European authority has been receding. The USA is widely identified as the subsequent center of imperialism, with the only major competition to the imperial dominance of the USA in the 20th century coming from the USSR.

In the 20th century, what distinguished the USA (and the USSR) from the previously dominant regions of Europe? How about the most important new commodity in the world: oil?

The USA was the home of the development of the oil industry. The USSR was the host of some of the largest deposits of oil discovered in the early 20th century. By the 1940s, Germany and Italy, two of the last of the old European powers, surged across Europe into the USSR. The UK and later the USA partnered with the USSR to oppose the advance led by Germany. By the end of the conflict, Germany and the UK (and France among others) were ravaged and receded from global prominence.

The USSR had 22 million casualties, yet still emerged as a primary global influence, second only to the USA (or first, depending on who is ranking the two). But beyond the rivalry of these two, no other rivals were even close as of the 1950s or 1960s.

Русский: Марка СССР English: June 14, day of A...

Image via Wikipedia

So, oil brought the USA and USSR to global prominence. By the mid-20th century, the world’s two leading producers of oil were the USA and the USSR, which were military allies in World War 2. These two countries were also the leading exporters of oil.

Countries that produce and export oil can be called “oil producing and exporting countries,” as in O.P.E.C. By 1973, the term OPEC became associated not so much with the original leaders in the oil industry (the USA and USSR), but with Middle Eastern nations such as Saudi Arabia and Iran, where recent discoveries of oil- indeed a majority of the world’s remaining oil deposits- catapulted that region into global prominence. That brings us to a predictable shift in the near future: the continuing rise to global prominence of the Middle East, with the foundation for riches and influence still being oil and the associated petrochemical industry (including gasoline, plastic, pesticides, medicines, etc).

However, there are many contrasts between the rise of the USA and USSR compared to the rise of the Middle East. Note that Middle Eastern countries have a single dominant language, Arabic, and the populations are overwhelming of the Muslim traditions (Shi’ite in particular).

That internal consistency constrasts sharply with the previously dominant regions of the world, the USA, USSR, and Europe. In those areas, populations are predominantly of Christian heritage, even if not actively religious. But even more dramatic is the tremendous variety of languages across the regions prominent in the 20th and 19th centuries. Even the written alphabets vary considerably, ranging from Russian with Cyrillic characters to vowels with a variety of complex accent marks across Europe.

If the USA and USSR had a more harmonious heritage and a common language, perhaps they would have remained allied beyond the 1940s. What if the advancing oil-rich Middle Eastern countries unite their influence under their common language and cultural heritage? Consider further that the USSR and Japan (another major economic force) deteriorated quickly as of the late 1980s. More recently, the USA, UK, and EU have also been reeling economically, perhaps heading for the same fate as Japan and the USSR.

Notice also the increasing criticism by the West toward Islam. Islam is not only a prominent part of the Middle Eastern nations, but also of the emerging economic powers of India, Indonesia, Malaysia, and so on. Should Westerners be concerned about the rising economic influence of the growing Islamic populations of the world?

The West is de-stabilizing economically and internal tensions are escalating. There is conflict between Greeks wanting to be bailed out by Germans, riots within italy and Mexico, and new animosity between political parties in the USA. At the same time, there is also a growing religious bias that is reminiscent of the beginnings of the Spanish Inquisition against the Muslims (or the Nazi crusades against the Jews). Is that all a coincidence?

Consider the issue of the treatment of women in Islamic countries. In some countries, it is about the same as it has been for quite a while. In other Muslim countries, treatment of women has shifted toward equality.

However, only recently (as distinct from in the 1930s or 1950s when this issue was ignored), Westerners are more frequently making critical references to the treatment of women in certain parts of the Middle East in particular. Is there much criticism of the treatment of women in Asian sweatshops? Walmart shoppers do not ask about the treatment of the garment makers much, yet the treatment of women in the Middle East may suddenly emerge as a target of scorn and moral outrage.

Could it be that the oil reserves of the Middle Easterners are attracting more and

Traditional definition of the Middle East G8 d...

Image via Wikipedia

more attention from Americans and Europeans and Russians? Could it be that some of that attention is openly belligerent or at least condemning (“passive aggressive”)? Could there be new fear about cultural differences that simply were not relevant for the USA or USSR in 1930 or 1950, when those were the oil-rich nations on which importers like Germany and Japan depended for exports? Note that German and Japanese belligerence eventually was targeted at the USSR and USA, who were, by the 1940s, the world’s new emerging superpowers as “oil-producing and exporting countries.”

Are Westerners now organizing their attention on justifications for exerting military influence in the Middle East? In the mid-20th century, the US championed the Shah of Iran, marking a new level of direct involvement in Middle Estern politics by the USA. Western support for the formation of Israel is also distinctive, as well as lesser-known involvements such as in the case of the island of Diego Garcia. More openly admitted was the so-called civil war in Afghanistan in the 1980s, which was largely a conflict between the USSR and USA.

Western countries today may be overly dependent on imports of oil. If these western countries implode economically in debt crises (similar to that of Japan and the USSR by the early 1990s), will suburban populations begin to focus more on access to oil? Will westerners divide against themselves politically? Will they realize that cheap Chinese imports (from sweatshops or otherwise) are insignificant practically when compared to access to oil?


Will the baby boomers realize that oil is far more valuable to them than gold or any paper contracts, including any contracts relating to future possibilities involving gold or real estate or even oil itself? Thinking back to the oil shortages of 1973, would you rather have a paper coupon that might be redeemable for a gallon of gasoline… or the actual gallon of gasoline?

P.S. Note that the above is something of a follow-up to my article of five years ago in which I connected the idea of US dependence on foreign oil imports to a coming spike in oil prices and associated de-stabilizing of the US economy (which was headline news by 2008).
Navigating the New Economy, Lesson 1: “Worth its Weight in OIL”




J.R. Fibonacci
September 9th, 2005

That article was further cited in an MBA thesis by a Columbia University student:

promoting economic prudence

September 7, 2010

this video is a spontaneous summary of the below commentary:

Taxing of land ownership could encourage stewardship rather than hoarding. Taxing of land ownership (rather than taxing of spending and profit) could have the effect of encouraging private owners of land, especially of unused land, to either use the land productively or to sell it to others who may be willing and able to use it profitably.

Instead of investing in owning as much land as possible (concentrated hoarding), people might favor investing in using land as well as possible. Rather than simply hoarding land and even facing penalties for improving or developing it, land owners could be given an incentive to invest in the use of the land. That incentive corresponds to a reduction in the taxes on productivity, (income taxes) including the economic productivity possible with a certain portion of land.

Recently, revenues from income taxes have been plummeting in many parts of the world. I was one of many forecasters who anticipated the economic shift underway as well as the implications on government revenues worldwide and the likely reactions of governments to the predictable developments, which many governments apparently failed to predict.

Also predictably, taxes on spending (sales taxes) have also been generating decreasing revenues. Rather than penalizing people for productivity or spending, perhaps the decision-makers now have the will to try something rather radical: to tax the hoarding of unused land. Since the amount of land does not fluctuate, tax revenues could be forecast with precision as distinct from when taxing productivity (income) or spending (sales).

By imposing penalties (taxes) on spending and productivity, governments are also favoring the hoarding of unused real estate by those already wealthy. The wealthiest landowners do not need to earn additional income, as they can spend out of hoarded savings. While purchases are penalized by rates such as 5% (sales tax) and productivity is penalized by rates such as 38% (income tax), there is no similar penalty of the hoarding of unused land- just a tiny tax proportionately. There is also no penalty on hoarding wealth, but indeed that is given tax favoritism with income tax deductions for IRAs and 401Ks and so on.

In other words, the US currently has a tax structure that disproportionately favors the hoarding of unused land and savings, while penalizing spending (with sales taxes) and severely penalizing economic productivity (with income taxes). The penalizing of all spending and especially prudence (profitable activity) would predictably produce a severe instability in a nation’s economy.

Penalizing spending reduces spending. Rewarding hoarding encourages hoarding. With current economic conditions, to reward hoarding and penalize spending (especially profitable investment) seems not just negligent but malicious or even suicidal. However, that is the system we are inheriting. That is the system that the baby boomers have supported. It may have been wonderful in many ways. However, it may no longer be viable.

Penalizing prudence and profit reduces socio-economic mobility. Favoring hoarding discourages economic activity in favor of complacence.

Government spending is not economic stimulus. Government spending just means that spending that would have been done privately is being taken from private decision-makers and being implemented by bureaucrats.

For those who favor economic stimulus, private spending must be encouraged. Hoarding must be penalized- or at least not specifically rewarded as with current tax structures. How could the government stimulate economic productivity? First, reduce or eliminate rewards for hoarding of unproductive assets and then remove or reduce penalties for foreign and domestic investment (income taxes). By increasingly taxing the ownership of land, prudent stewardship of the land would be promoted.

Note that many people focus on how various governments spend money. I am not ignoring that subject, but simply focusing for the moment on what stimulates economic activity and what penalizes it. Different governments (local, federal, and so on) can adjust their spending in accord with the values and priorities specific to the various places and circumstances.

As a competent economic forecaster witnessing a variety of inaccurate and even illogical forecasts and promises, I simply note that penalizing economic productivity never stimulates economic productivity. The anti-productivity and pro-hoarding tax system currently popular in much of the industrialized world will either continue to stifle economic productivity or that productivity-penalizing system will be discontinued, slowly or suddenly.

Rather than penalizing spending (and the profits that result from prudent spending), why not reduce or remove the penalties against some or all spending? Why not penalize hoarding or at least remove tax advantages for those who hoard?

To me, this is not a moral issue. This is a very simple practical issue.

Governments and people who are willing to encourage stewardship and prudent investment will predictably attract economic activity away from governments and people who penalize stewardship and prudent investing. In a time when many governments are facing bankruptcy and motivated to do whatever it takes to attract lenders to buy new bonds from them, perhaps investors will direct their financial support to any government that promises secure tax revenues by rewarding prudent investing and responsible stewardship of the land within their jurisdiction.

the secret to safe prosperity

August 12, 2010

The purpose of this communication is to introduce you to an opportunity to experience a breakthrough in prosperity as well as in clarity. I promise that, by the end of reading it, you will be grateful for having read it- even changed forever. I am grateful for the clarity that brings me to share this introduction with you, and I am also grateful for your interest in this opportunity which is temporarily available to benefit us enormously, if we are willing.

Simply, there is an immense transfer of wealth emerging. Of course, there is always a shift in wealth toward particular recipients and away from particular sources. In particular, what we are in the midst of in recent years is a shift in an unusually large amount of affluence flowing away from an enormous number of people toward a relatively small number of beneficiaries. This is a transfer of distinctive opportunity, as well as distinctive urgency.

The practical difference is vast between adjusting promptly to the emerging shift or neglecting to adjust. Enormous and easy gains are temporarily available and, once the fastest portion of the shift is complete, those who have neglected to adapt will in many cases be financially ruined.

Next, I’m going to give a few simple examples. Let’s start with one of the most obvious economic developments of recent human history: the rise of the affluence of North Americans.

This chart shows the relatively small but notable advance toward economic prominence of North America from the year 1800 to 1900, followed by the huge advance from 1900 to 2000 toward uniquely disproportionate affluence. The graphics are not statistically precise, nor even close approximations, but only extremely rough estimates for illustrative purposes. However, I do not expect the basic trend would be disputed by anyone.

The simple point of this chart is that North America went from being an emerging market to a developing market to a well-developed market and finally to the leading regional “superpower” in the world. In other words, the percentage of the world’s resources controlled and owned by the North American population has ballooned in recent centuries, especially since the rise of the oil industry in Texas as early as the 1860s.

In contrast, the percentage of the world’s population that inhabits North America has not changed very much in the last few centuries. However, North America went from global distinction in the export of agricultural commodities to global leadership in fuel extraction and refining and then to global dominance in things like the technology of war (nuclear missiles and satellite networks and the internet and so on).

But what is the future of this trend? The trend toward a greater and greater portion of global affluence being controlled by North Americans may have already ended.

In fact, as North America has been gaining in global affluence, it has also come to lead the world in borrowing (indebtedness). While it took centuries for the singular economic dominance of the North American global empire to develop, the recent rise to 50% of global affluence could very quickly fall to 30% or even 10%, as has been the case of many prior empires of singular global dominance.

Note for comparison the last 30 years of the price of the Japanese stock index, which fell by 2/3 from late 1989 to 1992:

I show the chart of Japan’s stock market because Japan also rose to distinct economic prominence in the 20th century. At the time of it’s peak prominence, it had similar affluence to Germany, another leading nation in the manufacture of automobiles. Only Japan and Germany were anywhere close to the disproportionate affluence of the USA.

What if the USA experiences a decline similar to the decline for the last two decades in Japan? How would that compare to the Great Depression?

As shown on the prior chart, 20 years after the peak of the Japanese stock bubble in the late 1980s, prices are nowhere close to a new high. Stock prices in Japan are currently dropping back toward the price levels of the early 1980s.

However, as shown below, stock prices in the US took only 25 years to recover from the 1929 peak to a new high in 1954. Given the current economic situation of Japan, there is no sign of a pending recovery to new all-time highs in the next 5 years to produce a 25-year recovery, as was the case with the US previously.

Japan’s disproportionate percentage of global affluence has never returned to the peak levels of prior decades and shows no signs of recovery, as new emerging powers such as China and India gain in relative economic prominence. So, if the next few decades for North America are anything like they have been for Japan recently, that would be obvious as an enormous decline in the singular global economic dominance of the USA.

We can compare the 1929-1932 decline of 89% in the US stock market to the 66% decline from 1989-1992 in Japan. Given the speed of the decline in the US, I suggest that US stock market investors were even more willing to purchase excessively over-priced stocks than investors in Japanese stocks by 1989.

I also assert that most of today’s investors in the US are even less concerned about investment security than investors in Japan in 1989 or the US in 1929. US speculators today demonstrate with their investment behavior an overwhelming faith (a blind faith) in the future of the US economy, plus the interventions of the Federal Reserve, the US government in general, and, in particular, “socialized” insurance schemes like the FDIC (as well as the Social Security Administration, FHA, etc etc etc).

By the way, I could list extensive data comparing the stability of various US markets today with 1929 (when US stocks began a fall of 89%) or 1987 (the year in which the US stock market fell 29% in one day). I could also compare the stability of US real estate trends or of borrowing trends or of the prior acceleration of the overall affluence of the US economy relative to the rest of the world.

Consider that what is really odd though is not just what the data would show. What is odd is that the vast majority of investors have never explored how to specifically measure or even vaguely approximate the risk of their investments. Their confidence in the US economy, the FDIC, the Fed, the SEC, and the US Government is so incredibly high that they borrow huge amounts of money to invest in real estate, then paycheck after paycheck dump money indiscriminately into the US stock market and accounts with banks whose finances they have never studied. In other words, most people do not even consider what I am inviting you to consider. By the way, they probably never will.

Most people- at least in the middle class of North America- have a very limited sense of personal responsibility for the results produced by their own financial choices. The herding masses leave it to the government to assess and approve the financial risk of various investments, various banks, various insurance companies, and so on.

They want the government to protect them from financial risk and rescue them from danger as well as save them from personal consequences for their actions. They are unaware that they are gambling on their investments, with increasing confidence each time governments announce a new program for the average taxpayer to bail out the average taxpayer.  😉

Now, all of that was the first set of “simple” examples. Let’s simplify even further.

Imagine an investor named Mr. J.P. Lee. He has earned huge amounts of money speculating on real estate and dumping money indiscriminately paycheck after paycheck into many popular stocks, especially in the high technology industry, just like so many of his neighbors. Mostly from “flipping” real estate, his net worth has grown in only 10 years from 1 million yen to 60 million yen.

He is extremely confident in the economic future of his nation and in the government and in the insurance industry and so forth. He does not even think “can the insurance company actually fulfill the promises that they are making me in this contract?” He just presumes that because the insurance industry is regulated by the government, insurance companies must be very safe.

He presumes the same things about banks and about savings and loan institutions, which he knows are also insured by taxpayer guarantees. He is not especially concerned about personal responsibility for his own investments because he has faith in the nationalized social security insurance program and the pension plan from his prior work in the insurance industry.

He is 45 years old. It’s the end of 1989.

By 1992, in only 3 years, his Japanese stock market investments are down over 50%. His real estate portfolio has gone from a net positive equity of 30 million yen at the peak to 10 million yen now. He still owes 200 million yen in mortgages.

However, remember, he has tremendous confidence in the future of his government and the various investment markets and he has never heard of the “deflation” of the Yen currency from a credit bubble, so when he reads about it online, he thinks “I don’t know what deflation is, and if it was important, I’m sure that the media or the government would handle it for me and then let me know that it is already handled.” The chairman of the Japanese central bank says that it is patriotic to keep investing in stocks and keep speculating in real estate on borrowed money, and Mr. Lee is a proud military veteran, a direct descendant of the Samurai class, so he keeps holding his old investments that did so well in prior decades.

Year after year, the government proposes incentives and rescue packages. Year after year, people get excited, support the latest proposed solutions, then eventually blame the latest politicians, then get angry at some new executive scandal, then get excited about the next proposed solutions and elect some new politicians to go for it one more time again and again.

By 2010, he’s 65. He has been trying to come out of a forced retirement, but the job market in Japan is… not what it used to be. He lives in a tiny government-subsidized urban apartment complex, for which he is very grateful. He’s facing bankruptcy.

His positive equity in real estate did not recover back to 30 million yen after 1992 and instead it then went to a negative equity of being upside down by 80 million yen. He does not have 80 million yen left in his stock market portfolio.

In fact, he does not have a stock market portfolio anymore. When he did, he never had anywhere near 80 million yen in it either.

He never thought, when signing his mortgages: “what will I do if the Yen credit bubble deflates and my real estate drops in value by 50% or more? How will I come up with the money to pay off these mortgages?” He had bought a book from a TV ad about flipping real estate and the book did not mention anything about any of this.

Also, the insurance company he used to work for is now out of business. They got involved in insuring some sub-prime mortgage securities in the USA and went bankrupt in 2008.

So, his life insurance policies have been canceled, plus his health insurance. His pension fund fell 80% from the two-decade Japanese stock market decline and then in 2008 was apparently embezzled by a government bureaucrat who was supposed to protect the pension fund from embezzlement. However, that information is dangerous to mention, so please pretend that you did not just read that.

It is safe to openly say that the government accused some former employees of the insurance company of causing the demise of the pension fund, but the accused were let off with only a civil fine of a billion Yen, which is a fraction of what they were accused of taking. This all happened during the massive central bank rescue program of the insurance industry. A lot of money changed hands very quickly and the records of the transactions unfortunately were all lost in what was reported as a terrorist bombing.

Mr. Lee trusts the mass media in Japan because he went to public school and there he was taught to trust the mass media in Japan. Also, his parents trusted the mass media in Japan, so why wouldn’t he trust them?

Every day, he watches the TV news, sometimes seeing that same old advertisement about flipping real estate. The sexy young lady on TV says that the future of Japan is going to be better than ever before because of the last two decades of dropping prices and corporate bankruptcies and economic de-stabilization and rampant corruption. He says to himself “I like the way she laughs.”

Now, what about that lady on TV? She is 30. What else did you want to know about her?

Yes, she is married. Why do you ask?

Oh yes, of course: her newest husband is that one famous investing guy. He is 45 and he made A LOT of money selling books about flipping real estate, which helped bring buyers in to the real estate market while he was selling out of his real estate investments.

He also exited Japanese stocks in 1989, noticing that the “relative strength index” for Japanese stocks (shown on the middle chart above) was not making new highs by the late 1980s. He looked for stocks that were a better opportunity as indicated by their RSI levels, among many other indicators and statistical correlations that he studied diligently.

So, in the early 1990s, he invested in the US high tech stock sector and the stock market of Mexico. He made immense gains, especially in Mexican stocks: 2,588% (shown here as compared to a popular US stock market index: the S & P 500).

In 1999, he shifted out of US tech stocks to oil. His oil investments rose from $11 in 1999 to over $140 by 2008.

He also diversified into a US stock sector for companies that mine gold and silver (HUI). That made well over 1000% from 2000 to 2008.

He read this article in 2007:

So, after reading that, he began to sell out of commodities and stocks, investing in things like the US Dollar foreign exchange market and US treasury bonds, which rose dramatically in 2008. Then he read this one by the same author in 2008:

So, he also took some positions “short-selling” the US stock market and made 100% on that as the market dropped more than 50% in about 15 months. He read this update in early 2009:

After making 70% in 3 weeks as indicated in that article, he went on to make a few hundred percent in the next several months in FAS and BGU. Today, August 11, 2010, he made 12% on TZA in a single day.

He hopes that all the people reading this stay in their real estate investments and stock market investments. He hopes that they remain confident in their government and the central bankers at the Federal Reserve and the insurance industry and of course the real estate market. He hopes that they focus on sports and sitcoms and personal dramas and Alex Jones and do not consider the future of the singular economic dominance of North America.

He does not just hope, though. He is confident, because he is monitoring the relevant data closely, and indeed he is investing directly in the hopefulness of you, dear reader. He has spent a lot of money advertising in the US mainstream media, plus political lobbying and making campaign contributions through a few US companies that he owns. He was one of the designers of the tax credit for first-time homebuyers. On a related note, his book sales on flipping real estate, after weakening sales in Japan in recent years, have also been doing very well in the US, with sales of the book especially strong right after the initial announcement of the tax credit.

In fact, our old friend Mr. Lee (the one who used to work for the insurance company and who grew his first 1 million to 60 million in only 10 years) has an autographed copy of an old Japanese edition of the book which he bought in 1992, which he recently sold on e-bay to someone in the US for $3, which at current exchange rates is close to the price he originally paid in Yen. It was one of the best returns on an investment that he has made in the last few decades: – 5%.


order, natural consequences, & justice

July 30, 2010

All of life is orderly. The orderliness may be perceived correctly or it may not be correctly perceived, but there is no actual randomness or chaos inherent in any aspect of life.

There is simply either the presence or absence of correct perceptions of order. The absence of the correct perception of order does not constitute the presence of a chaos or a randomness.

Similarly, a week with seven days does not have an absence of more days than seven, but simply has exactly seven days. So, there are only variations in the presence of hair, but no such thing as the presence of a baldness; there are only variations in the presence of saltiness, but no such thing as the presence of a saltlessness; there are only variations in wetness, but no such tangible thing as the presence of a dryness; there are only variations of heat, but no such thing as a coldness; there are only variations of sound, but no such tangible thing as a silence; there are only variations of light, but no such thing as a darkness, there are only variations in sight, but no such thing as the presence of a blindness; there are only variations in hearing, but no such thing as the presence of a deafness.

In other words, the absence of a particular thing does not constitute the presence of something else. The absence of a certain process is not the presence of a nonprocess. The absence of certain standard of development is not the presence of an underdevelopment. The absence of a certain orderliness is not the presence of a disorder. The absence of a certain functionality is not the presence of a dysfunction.

Thus, there are even only variations of health, and no such thing as an illness. Either the immune system and overall organism is functional and sufficiently nourished, relative to whatever waste is present, or else the functionality is inadequate. However, the absence of a sufficiently functional immune system or organism does not equate to the presence of an illness. Likewise, inadequate nourishment is not the presence of a starvation or of an undernourishment, while inadequate hydration is not the presence of a depletion or of an underhydration.

Further, just because humans do not hear the same range of sound as a typical dog, is the variation in the capacity to perceive sound the presence of a deafness? Dogs typically can hear very high-pitched whistles which we humans might, for our convenience, call “silent” (meaning that the sounds of the whistle are imperceptible to unaided human hearing), but still we do not say that all humans have an ultrasonic deafness or a deficiency for hearing ultrasonic pitches. We simply have exactly the range of hearing that we have.

The fact that human eyes do not perceive infrared light does not mean that humans have the presence of a blindness for the infrared spectrum. Similarly, dogs may not be able to perceive color, but that is not the presence of a color-blindness. That is just the presence of a certain capacity for vision.

Going even further into a sillier example, a black-and-white television mechanism does not have “a color impairment.” A sentence with 8 words does not have ”an absence of 9 words,” but simply the presence of only 8. A monophonic audio recording does not have a deficiency of stereo sound.

A deficiency is not the presence of something, but the relative absence of something. In other words, there is no such thing as having a deficiency, nor of having a disability, nor of having an absentness. Rather, we simply have the presence of the exact ability that we have. We only have the precise range of perception that we have- whether of sounds or sights or orderliness. There is no such thing as the presence of an absence of something.

Again, all of life is orderly. The orderliness may be perceived correctly or it may not be correctly perceived, but there is no actual randomness or chaos, but only the presence or absence of correct perceptions of order.

Therefore, all consequences are natural. Some developments may be recognized as the consequences of particular causes and other developments may have unrecognized causes.

An awareness that does not currently include a recognition of causality is not the absence of causality, but the relative absence of awareness or recognition. For instance, just because human hearing might not hear the vibration of a dig whistle, that does not mean that there is no reason that the dogs reliably start barking when they hear what humans may not hear.

Any one organism’s ability to predict natural consequences in any particular case never constitutes the absence of natural consequences. There is no such thing as the absence of natural consequences. There are no other kinds of consequences except natural and orderly consequences. Humans are part of nature, so consequences imposed by humans are not unnatural.

There will always be variations in the capacity to accurately recognize and predict patterns of cause and effect. For instance, dogs will never be intellectually equal to humans and humans will never be perceptively equal to dogs, even if using hearing enhancement technology!

No two things are literally equal. If two things are distinguishable from each other in any way, they are not absolutely equal, even if they may be generally equal in some quality, such as being very equal in weight or in height or in age.

All developments are just. In fact, all developments are just what they are, and none of them is anything else. There is no such thing as the presence of an injustice.

There is no such thing as the absence of anything. There is no such tangible thing as the absence of order, nor the absence of natural consequences, nor the absence of justice, nor the absence of awareness, nor the absence of infrared sight, nor the absence of health, nor the absence of equality, nor the absence of a deafness. There are only variations in presence, in order, in perception, in functionality, in intelligence, in health, in consequences, in curiosity, in clarity, in language patterns of conversation, and so on.

above average intelligence

June 30, 2010

I’m presenting a very broad presentation about the emerging shift in economics and finance. I’ll start with a few simple definitions, and just these definitions may already be quite distinctive and insightful to you, even though you may already know all of this. You may have never thought of it this way, though….

Economics is the study of human behavior in regard to prioritizing different activities (basically, possible uses of one’s time). Finance is just a system of measuring economic patterns of behavior using prices (as in counting or accounting).

More specifically, economics addresses questions of priority: like what outcome to target first, what next, then what after that… as well as what methods to use and who will do what (and when/by when). Thus, economics is a primary realm of activity for housewives, farmers, breeders, choir directors and pirate captains as well as merchants and bureaucrats.

Finance may address questions of how to actually produce the priority results, and is particularly focused on counting the costs, including of time, involved in doing any particular thing. Finance tends to be a tool for comparing various methods to use to accomplish a selected outcome, but also informs which outcome to value as a priority.

Accounting is the field of activity in which people may focus most on time (like when a debt is due) and one very rudimentary form of accounting is taking inventory as in the counting of raw materials in stock, while finance is the specific type of accounting particularly concerned with prices and cash flow. At least that is how I will be using those terms.


Economics addresses questions of why, what, who, when and how. Almost everyone explores those questions and more or less continuously.

Accounting and finance are tools used to inform choices regarding who, when and, in particular, how. Not everyone uses accounting or finance to explore those questions, or perhaps only occasionally.

There is one big distinction about finances as distinct from all of the rest of economics. Finances involves voluntary exchange.

Economics can involve all forms of piracy as well as hurricanes and earthquakes and bombs damaging infrastructure and interrupting plans. Farmers may deal with practical issues of soil chemistry, weather, transportation, insects, pollution, animals, thieves, war, natural disaster, employee management, as well as market prices.

Market prices are the only element of economics that involves voluntary exchange. Finance, as I use the term, is about the voluntary aspect of economics, including barter. That is actually a rather small part of economics, but it can be an important part, at least occasionally.

So, prices, generally speaking, refer to an actual agreement of a buyer and a seller to voluntarily exchange one thing for one or more other things. When two agree on an exchange rate between the two things to be exchanged and then actually exchange them, that exchange rate for a real transaction is called a price.

Of course, price can also refer to an offer to sell (like the asking price of a home that has not sold for 6 months, perhaps by a seller who may not be particularly motivated to produce an actual transaction) or a bid (like an offer to do a certain job or to buy an item at an open auction, which is basically what a stock market is: an open auction in which people buy and sell shares of ownership of private companies). Note that prices of actual transactions are generally much more relevant than recent prices of similar investments (AKA “comps“) or than “outlying” bid prices or ask prices. By outlying prices, I mean prices that lay outside the range of actual market activity- so far from the actual value to qualified buyers or sellers that the outlying offers may go weeks or months without producing any actual transaction or agreement.

Note further that there can be a lot of “involuntary” influences on prices. There may be extensive interventions beyond the voluntary realm and into the realm of mafia rackets and other forms of government. Note that any coercive activity to influence the behavior of other people involuntarily is what I mean by the term “government,” so thugs and warlords and the mafia and even churches may all fit within my definition of a governing operation.

If any system persistently influences or governs human behavior, especially involuntarily or coercively or deceptively, that is a form of governing AKA government. All forms of advertising and commercial media thus are also within my definition of government.

Free markets” evidence patterns of voluntary exchange (buying and selling as well as borrowing and lending). Governments, as I define them, have the singular purpose of coercively influencing, inhibiting and redirecting the voluntary exchange of individuals and groups. Governments manipulate economic behavior with methods ranging from subsidies to prohibitive taxes, or from licensure requirements to criminal penalties for marketing or even just possessing certain materials, such as censored books or nuclear weapons or psychedelic plants.

Note that to many people, governments are no more heroic or villainous than the weather or soil chemistry. Government is just another reality to be considered in economic questions of priority results and methods. Obviously, a relatively small number of people form and direct governments to influence the behavior of other people.

In other words, this is the conspiracy theory of government, which is that all government is conspiracy (though a conspiracy that is as conspicuous and overt as any conspiracy could be). Of course, given that most private businesses also have trade secrets or exclusive copyrights and patents (and thus set up governments to protect the interests of those private businesses), it is equally true to say that all business is conspiracy and government is just the business of coercion, as distinct from retail businesses that target voluntary exchange.

So, commercial advertising, while designed to influence behavior, is not nearly as coercive as foreign militaries and the occupying forces of law enforcement. While there is clearly a spectrum of variations, there is really no clear distinction between what is a legitimate government of organized coercion and any other system of human activity. However, governments universally publicize claims of the legitimacy of their organized violence. Perhaps that is ultimately the only distinction: the open claims to legitimacy.

Withdrawing from such potentially challenging or even controversial questions about coercion and claims about legitimate coercions, let’s focus on voluntary exchange.

Voluntary exchange is the primary behavior that is of interest in the realms of finances. Again. the primary purpose of governments is to systematically interfere with voluntary exchange. Economic behavior includes voluntary exchange, but also includes any other way of acquiring or accessing or even just claiming something, as well as all sorts of non-financial things like building a house, repairing a house, tearing down a house, or even just composing this essay.

Even the gathering of twigs into a nest by a bird could be considered an economic activity. While the organized violence of governments is inherently economic, so is most everything else, including the organizing of a choir or orchestra or the creating of a work of visual art. Economics is simply doing anything “on purpose” – that is, consciously or with awareness, as in pre-meditated. Even if I spontaneously create two pieces of artwork, the choice to display one or both or neither is an economic choice.

So, all of that was background to clarify common misconceptions as preparation for the following. Now, I’m going to compare three broad categories of economic value. Here are three broad categories that people may value differently at different times:

1) raw materials (things like oil, food, cotton fabric, and bricks)

2) human ingenuity, technology, and voluntary exchange (the value of other people in general)

3) governments which openly and systematically take things by force (the value of the organized violence of law enforcement and militaries)

I’m proposing that global commodity prices reflect the voluntary and spontaneous human valuations of various raw materials. That is uncontroversial. I’m also proposing that global stock market prices reflect the voluntary and spontaneous human valuations of private commercial business based on voluntary consent. Again, that is not especially controversial.

We can compare price valuations of commodities and stocks and presume that those prices tell us something about the voluntary and spontaneous behavior and preferences of humans worldwide in relative to the priority they give to raw materials relative to the ownership of private businesses in general. Of course, the fluctuating valuations of certain businesses may be distinctive, such as AIG or Microsoft (United States) or Sony (Japan) or BMW (Germany), just as are the fluctuating valuations of a few tangible materials, such as oil or gold or sugar or paper (or the most famous original ingredient of Coca-Cola: cocaine).

Again, none of that is especially controversial. What I have never before directly stated, at least not in a published format like this, is that government bond markets may reflect the voluntary and spontaneous human valuations of the priority value of operations of organized violence.

To be quite direct, governments collect debts with the use of force. That is a primary function of the court systems of modern governments: the systematic collection of debts using force. That includes foreclosures, garnishments, levies and repossessions as well as evictions and bankruptcies.

What people may be saying when they choose to direct their investments toward government bonds instead of raw materials or the ownership of private businesses is that the investors value the promises of government to use force, including to involuntarily collect debts and repay claims of debt ruled to be valid by that governing operation, over the prospects of human voluntary exchange (ownership of commercial businesses through stock markets) or the value of tangible materials. In other words, people who are investing in government bonds want accountability and practical security, not more stuff or more ideas.

Ideas are the business of businesses. Sometimes people want more of that. Stuff is always valuable, too, but sometimes people want more protection for whatever they already have- more armed security- not more stuff. When people are investing their trust not in more ideas and not in more stuff but in more organized violence, they may voluntarily and spontaneously choose to buy more government bonds.

Yes, these patterns may also correspond to baby boomers retiring and ballooning the population of elderly people who systematically liquidate their pensions and sell their stocks to pay for their retirement, favoring the bonds of the governments that they perceive to be most stable… over the much less stable investments of stock markets (and who want young and healthy people to provide for them with the intervention of coercive governments through taxation). However, an awareness of such demographic trends is optional. The fluctuating valuations of price charts are clear enough, and anyone with access to the internet can confirm the relevant data.

So, I’m proposing the above interpretations on the following information. I’m reporting to you that there has obviously been a major shift in the overall values of humanity in the last 10 or 11 years. I’m also proposing that it is clearly evident in the following chart:

That is a chart of the last 11 years of prices for a bundle of commodities priced in US Dollars (in blue), the red Dow Jones Index of global stock market prices (not to be confused with the more popular but much less comprehensive Dow Jones Industrial Average of 30 leading US companies), and the green line of yields (interest rates for the lending of money to the US Treasury for 30 year periods, also known as “buying government savings bonds“).

Obviously, the most remarkable thing about that chart is the huge surge in the US Dollar prices of commodities from 1999 to 2008, followed by the sharp drop in 8 months from 10942 to 3105, a decline of about 72%. (People worldwide wanted a lot more stuff, then basically changed their minds abruptly and dramatically.) Here is a close-up of the last few years of that Commodity Index:

Note that the 8-month rebound which peaked in October 2009 only recovered about 21% of the losses of the prior 8 month period. In other words, there are now two clear pieces of evidence that we may have seen the end of the prior multi-year trend of increasing demand for raw materials in general. First was the historic collapse in commodities prices, and second was the weak rebound.

Since October 2009, prices have twice approached the prior high (see yellow highlights below). After faltering from the shelf or plateau in April 2010 (the yellow line), prices fell in May to approach the level of several prior reversals (blue line with four reversals in purple). So far, the subsequent rebound across June 2010 has been quite small and may have already ended.

Next, let’s look at global stock prices compared to that same price index for commodities:

You may notice that the prices of stocks and commodities generally have moved in the same direction. In 2001, they came down together. In 2003-2005, they went up together, and did so again in 2007. In 2008, they came down together. In 2009, they went up together. Note the arrows below showing the periods of consistent price movement.

However, many of the times that both price lines reversed, the reversals were preceded by an obvious divergence (that is, one price index reversed before the other). Note the orange marks below showing periods of diverging trends, when global commodity prices and global stock prices moved in opposite directions.

Those are the divergences that are easy to see. Not so easy to see on the above chart is the following brief divergence.

In early 2009, global commodity prices rose in late February while global stock prices continued down for a few more weeks. That was a signal to me to look for a rebound in stock prices. (Note that I publicly forecast most of the reversals shown above and, for those interested, I can document that.)

Further, note again that the commodity index topped in October of 2009, months before stocks, but now both are dropping together. There was a period of divergence, perhaps marking a destabilizing of the prior trend, and then stocks, which had been continuing the prior trend of rising prices beyond October 2009 into early 2010, then joined the downward trend of commodities.

Again, these price charts are simply measurements of the voluntary behavioral valuations (buying and selling) of investors worldwide. In summary of the chart above, we can conclude that global investors across the last 10 or eleven years were relatively stable in their behavior and valuation regarding the publicly-traded stock share ownership of private businesses. I say relative in regard to their behavior and valuation in relation to commodities, which favored commodities over stocks from 2002 through 2005 as well as 2007 and much of 2008.

However, as of late 2008, global investors not only dramatically decreased their valuation of global stocks, but decreased their valuation of raw materials even faster. In 2009, global investors continue to relatively favor stocks over commodities (as they had during 2008 when commodity prices plummeted 72% while stock prices fell only 59 percent). In 2009, the rebound in stocks was a 59% reversal of the prior decline of 59%(!), while commodities rebounded only 21% and that rebound lasted only 8 months, while stocks continued rebounding. (Top to bottom was 320 to 130, a change of 190, with a rebound of 112 points: 59%)

I’m going to briefly devote some time now to the geometric pattern of the above chart. Look at what geometric patterns you can notice by yourself before going to the next page.

What I have highlighted above is two double zigzags (separated by another shorter double zigzag). Since the latter part of the second zigzag is about the same size as the first zigzag, we could count these as two zigzags or as three.

Note that the rebound also forms a triple zigzag with momentum clearly declining as of late 2009, highlighted below:

By declining momentum, I simply mean that the slope of the line of rising prices is steepest in the early part of the rebound. Further, each of the three segments of the rebound is smaller than the one before, which is another sign of decreasing momentum.

Now, having looked at the prices of commodities and stocks (representing the relative priority of stuff and ideas), let’s look closely at the most stable of the three lines from the first chart: the interest rate (yield) of long-term US Treasury bonds. Again, consider that this line may represent the perceived valuation of organized violence (though a declining interest rate means an increasing confidence in the organized violence of the US Treasury to collect debts from it’s underwriters, which is the US citizenry including private businesses, and repay it’s lenders, which are the people who lend money to the US Treasury by purchasing bonds, which are just written promises to repay a loan.)

Here is the most obvious thing I see when I look at this chart, a steady trend (see blue line below) of declining interest rates:

Again, looking at the geometric patterns, I see two double zigzags (note that this chart is for 11 years).

Again, they are also divided by a double zigzag in the middle (ending at the second touch to the blue line), plus the first zigzag (of 1999 – 2005) can be further subdivided into more double zigzags:

Finally, the last year or so has formed another double zigzag (and this chart also highlights the double zigzag in 2006 and 2007):

In other words, there are a lot of double zigzags showing up in these charts, as well as occasional oddities such as the blue trendline above. While some people might speculate that these zigzag patterns (or the three peaks that form a straight line) are somehow random, consider that they simply reflect clear trends in human behavior and valuation, that is, the priority that people give to various alternatives. These trends sometimes form waves and they sometimes form straight lines.

In other words, they might not be random at all. They might be an orderly transition forming over a period of time.

I propose that the last 11 years has clearly evidenced a global shift toward human investors voluntarily prioritizing of the operations of organized violence, organized coercion, organized force, an organizing of the involuntary transfer of affluence and influence. While there have been continuing increases in demand for stuff and for ideas, the demand for action (or for a certain type of action in particular) has been increasing rather steadily in zigzags of fluctuation across the last 11 years.

Further, as of 2007, the demand for ideas has dropped. In 2008, the declining demand for stuff joined and surpassed the declining demand for ideas. Now, we are ripe for an accelerated shift in demand away from stuff and ideas toward action (or a certain type of action in particular).

I first published forecasts of the shift of the last several years in early 2003, and detailed the precise sequence of events in later years. The “capitulation phase” has already begun. Soon, even those most resistant to acknowledging what is developing will admit that investors worldwide have demonstrated the shift in their priorities. They have demonstrated that shift in priorities or values through their behavior, including of buying and selling as well as of borrowing and lending.

Consider, last, that none of these conclusions are actually at all controversial. Of course, history will let us know one way or the other.

Change equals opportunity. Are you willing to experience all change as opportunity?

Note that certain private businesses may not decrease in demand. Are you willing to be part of the exception?

By the way, not everyone can be above average. Are you willing to be above average anyway?

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