While waiting for the end of September...

I believe that we will witness some very interesting developments at the end of September, and the markets have been put on hold, by the powers to be, at least until the middle of September, when some policy changes will be made public to the masses.

The bathtub announcement, (Warren Bufet announcing his interest of buying into BAC in a relative repeat of the GS deal in 2008) seem to be a clear indication in that sense. It is very easy to be a visionary investor when you have a very good insight into the moral hazard aggregate which is Gov+Wall Street. Knowing in advance (or being to be able to accurately predict) what the Fed will do helps a lot your bottom line.

In other news, Michael Pettis has just wrote another interesting entry, making his predictions for the next decade:

We are so caught up in noise and market volatility – as the market swings first in one direction and then, as regulators react, in the other direction – that it is easy to lose sight of the bigger picture.

My basic sense is that we are at the end of one of the six or so major globalization cycles that have occurred in the past two centuries. If I am right, this means that there still is a pretty significant set of major adjustments globally that have to take place before we will have reversed the most important of the many global debt and payments imbalances that have been created during the last two decades. These will be driven overall by a contraction in global liquidity, a sharply rising risk premium, substantial deleveraging, and a sharp contraction in international trade and capital imbalances.

I happen to agree with that view and the handful of people who are reading this blog are already familiar with the coming deglobalization stage. I hoped Michael Pettis was going to talk about the global productivity readjustment and comment a little bit more on the causes of future rises in risk premium levels, but his line of thinking is quite obvious.

On an unrelated note I have had recently a lunch with an acquaintance who is an economic anthropologist at heart and the discussion went on the slope of trying to predict the potential of social unrest in America, resulting in some sort of Arab Spring equivalent. I don't believe there is a strong possibility to face a massive wave of social unrest in US, but there is always a good idea to check with experts the facts used as premises for your investment strategies.

I must say I have received a very enlightening lecture on the human nature and learned about a lot of things I was completely clueless before. While my acquaintance agreed that any situation of excessive debt has to be solved by war (acquisition by violent means of enough wealth to pay the debt), revolution (default imposed on the creditors by violent means, or jubilee (partial default agreed by creditors in order to conserve their future dominant position) he made some interesting observation pointing to some caveats in my mantra.

Human beings are a curious beast having evolved from an ancestor who was a pack oportunistic predator and pack scavenger. The social behavior of baboon troops, clubs of vultures or hyena packs offers some great insights in the social behavior of human beings.

We are trapped in a perpetual dynamic equilibrium between the benefits of belonging to a group-pack and the natural tendency to raise in the pack hierarchy and take advantage of the members of our own pack who are on an inferior position to us. In short we feel an instinctual need to belong to a group (family, clan, tribe, party, nation, etc) while at the same time we are ready to screw the members of our own group to the maximum extent as long as it doesn't have negative consequences on our own standing in the hierarchy.

As a result of this paradigm, the masses of enraged proles can be tricked into forgetting about rebellion/revolutions by several simple means.

A) Panem et Circenses. Bread and circuses. The Roman elites brought this method to the level of an art. It's fairly simple: offer a minimum level of subsistence (bread) and offer a distraction by association. The roots of modern social entitlements packages as well as mass entertainment should be obvious. These days it should be called "Watch TV in the trailer park and collect food stamps and unemployment benefits.

B) Create a false enemy. Hitler did that with the jews just before the start of WWII. The majority of Germans never stop to think that the power elites in the pre war Germany were the industrial capitalists who were German not Jews.

C) Rally against an external enemy. The instinct of defending yourself by defending your own pack structure trumps the instinct to rebel against your own hierarchy. I think the most recent example of this stunt was pulled off by GWB.

D) Invoke a catastrophic act of God. The terrible situation of the majority is blamed on nature or things which are not under the control of any human being. I would put in this category the Global Warming scam.

E) The Byzantine Method. This is a little bit more complicated. When the members at the bottom of a hierarchy rebel they start to fight against the members at the top of the hierarchy. The public anger needs a public immage to focuss on (like Mubarak in Egypt). If you leave the top of the hyerarchy without a figurehead to be blamed for fleecing of the majority, a rebellion is delayed/repressed by means of confusion.

What is happening in US with the bypartizan alternation of power is a clear example. Democrats are replaced at the top by Republicans, but nothing changes while the masses hope in vain that their vote counts and can bring some change.

The EU is another example closer to the Bysantine model since they have created a faces burocracy populated by expendable nobodies like Rumpoy. In case there is anger in the masses they will replace a Rumpoy with another Rumpoy and the show will go on.

F) False hope. Masses can be sold dreams, and accept to have a little patience if they can be convinced that next month/year things will improve.

I find it very ironical that Obama, who I believe is a sellout to Wall Street went to the White House on a ticket of Change and Hope.

That was a good one...