06 December 2011

VC for the People

This is another blog post which is looking at conditions for the Dow de-retracing, in a different way.

I have a collection of financial magazines from 2007. They make for interesting reading. It is the confidence, the certainty expressed within, not masters of the universe, but lords of the universe. But why not, they spoke from a quarter of a century of expansion, from the white heat of the Regan revolution.

Reagan can be seen as a VC for the people. In effect he gave people more money and believe they would do productive things with it. And they sure did. The US economy re-ignited, but more than that the quality returned, that innovative dynamo he believed in returned.

By the 90s and accelerating through the 00s, the US economy ruled where it mattered, and it suddenly seemed effortless, like it was in the 50s, in a different industrial landscape.

The Reagan logic as I interpret it could be seen as this:

a) there are special conditions in the US (its constitution perhaps) b) if you let them, the people will express these conditions in productive and innovative ways.

The conditions enable advanced productivity, if those who can, enable it (a justification for government).

So what is happening now, the people are here, the government is doing everything it can. Well, there is something else, that is Wall Street. Wall Street was the generator of that expansion. It made the difference between malaise and the New world of expanding assets.

But, Reagan enabled something else, he enabled that belief in a future. As we have noted that is important for price increases in the Dow. Malaise = no belief in a good future = bid/ask ranging = order books static = indicators random.

A belief in a future = bidding = stacking order = deep refreshed order books = technical indicator order = optimism. So that's another way of looking at technical indicators, they show the way, or lack of it.

This comes down to one thing, the optimism is that if you enable the economy, it will provide. The Reagan lesson is that it may need enabling in certain conditions. Once enabled it takes care of itself and everybody with it. But it needs a market which is capable of rising.

It may be that it can be enabled, but do we want what happened before, that is we want what Wall Street can do with a different kind of economy, something re-engineered not to retrace so harshly. Or we don't want that at all, we don't want that rushing economy, powered by Wall Street, what some in OWS seem to be saying.

For me it comes down to this, there seems indeed to be a special condition in the US, and that is the Dow. It seems almost uniquely to have a capacity to operate in its own internal systemic manner.

That is why it does what it does: it makes the order book ordered in a way such that assets rise, effortlessly. It makes industrial dominance, effortlessly. It is unique and special. However it comes as well from what Reagan saw, that dynamo of the people when freed to create.

What the Dow brings, is at worst realistic pricing and at best the American dream and a dream for some of the world, that is what lifted the EU, up till the crisis and funded its great dreams of unity.

Perhaps right now we need only one thing, that belief in the future. The problem with debt is that it constantly squashes any such belief, and this is true for an individual as much as a government.

However we now have:

c) a new way to express productive behavior, namely the Internet, which itself has special conditions.