Tail Wagging The Dog

Not sure whether I have mentioned this previously but was thinking about it this morning and figured I'd put the thought down.

Funds flow has all been into indexing and ETF vehicles over the past 3 or 4 years. ETFs are now the primary vehicle for many financial advisor and trader playbooks. This begs the question is the tail wagging the dog.

With investors hitting the ETF vehicle (sector, country, or other) before they worry about the underlying, markets are being buffetted by dull signals. Arbitrage keeps things in place, but the weight of money is coming from the macro side and it seems in keeping with the adage "shoot them all and let God sort them out."

Declaring Failure and Moving On

This is a very rough note. I think it could be fleshed out into a very meaningful article, but for right now it is just some top of mind reflections.

My underlying framework post-GFC was one where the business/investment cycles going forward was going to be more compressed (timewise) and more volatile. I was also heavily influenced by the new normal meme and how the economy was going to be stagnant as it worked through a balance sheet recession.

If I were to attribute a reason to that belief I would ascribe it to my ideological bias toward market economics and the belief that the market had not been allowed to clear properly due to significant artificial interventions. It was also heavily influenced by the recent traumatic past and the idea that modern markets/economies were more integrated, interrelated, more complex than ever before, and were consequently prone to momentum and cascade effects.

Financial marketwise this has not played out and I must declare failure and move on. I think the reason why financial markets have not reflected those beliefs is due in large part to hindsight bias and the massive trauma effected upon the psyche of market participants who endured the brutality and existential angst of a market implosion that could have gone even further. Investors have been fighting the last war. They have been overly pessimistic. They have been unwilling to give the Fed (or the govt) credit for stimulus. The market has climbed a massive wall of worry the whole way.

We are now at a point where the market is coming around to the idea that the Fed may have steered us over the canyon and to other side. The economy may be gaining sufficient strength to be self-supporting and a new cycle of more normal growth is going to ensue (even as the stimulus disappears).

That is the hope. We shall see how things pan out in practice.

More Than Just the Folly of Forecasting

"We have reached that time in the year where everyone is speculating about the prospects for equities in the year ahead.  As usual the consensus is that the market will be up 10% in 2014.  I have been an observer of strategists' estimates for half a century and I can tell you that as a group they always think the market will be up 10% in the following year whether stocks were up 20% or down 20% in the previous year."

- Byron Wien

There is something even more insidious here than just the folly of forecasting. The Mercenary Trader cuts to the chase in his breakdown of the mallady.

Think about the magnitude of what Byron Wien -- a guy who has been in markets longer than most traders have been alive -- is saying here. The collective Wall Street strategists who are bullish for the coming year are ALWAYS bullish. EVERY year. By an amount just enough to be respectable without getting them in trouble. So why should anyone care what they say or think? Their two cents isn't even worth two cents. It has negative value because it's a waste of time. They should be laughed out of town.

And why aren't consensus strategists laughed out of town? Why does the same crap get play year after year? Is there anything more irrational or lame than paying attention to utter bullshit, that has proven itself worthless, year in and year out, over and over again? Why do investors do it? Why do investors care about predictions that virtually never deviate from a standardized norm, and thus have almost zero information value?

A pet theory: It is in part because institutional investors are not the savvy, sharp group that biased product promoters and academic apologists would have us believe. To a large degree they are a group of underpaid (relative to the size of assets they manage) identikit MBAs in matching suits and ties, trying hard to avoid career risk while making decisions that don't get them fired. In the process of making those decisions, sticking close to the herd, or the established norm, is generally the safest thing -- and this "don't make waves" attitude is generally weak-minded, which leads to a weak-minded embrace of useless predictions as a pastime and a crutch. It's the same thing for establishment forecasters, by the way, which is why their predictions always cluster. The nail that sticks out gets hammered. Our general view is that, with a handful of notable and important exceptions, the supposedly high and mighty money management environs of Wall Street are actually closer to a bunch of drunks propping each other up via consensus embrace of mutually poor solutions and broadly irrational practices, not unlike the historically hidebound and sclerotic Japanese zaibatsu or Korean koretsu (big dumb corporate managements entrenching each other through cross-holdings of shares).

When You Least Expect It...Expect It

The market hasn't provided an opening for a nice buy the dip all year. It has been incessant and merciless to the uncommitted...

...and it has proven Al Funt's maxim "when you least expect it, expect it."

Market Avalanches by Jim Sogi

Great analogy

Avalanche prediction requires the study of the snowpack both historically and how the snow structure has metamorphosed over time. One of the prime causes of avalanches are weak layers and slab formation. Weak layers in the snow pack are layers in the snow that cause the snow on top of it to slide off it and down the hill causing an avalanche. Weak layers can be low density snow or an ice layer or hoar frost flakes. Slab avalanches are created when higher density snow bonds together then slides on a weak on steep hill. Avalanches can kill.
Avalanches remind me of markets. You can study market structure historically by looking at the number of trades at a price. Over time the density may change. Market order depth structure is not available in full but could be inferred to some degree. Some parties have access to full book.
The theory is there are weak layers in the market structure that might cause a market avalanche or rapid rise. There may also be dense layers in the market structure. An example is a long bar with big price change but low number if trades. Time may change the number of trades at the prices or depth of orders might affect the reactivity of the bar. And a gap is also an example of a weak layer.

Backfire

Taken from a SeekingAlpha article:

This phenomena is called 'backfire', and has been studied extensively by behavioral psychologists. The basic premise is that when confronted with facts that prove them wrong, opinionated individuals react very differently from the uninformed. Basically, instead of changing their minds and acknowledging the correct facts, they entrench themselves even deeper into their existing view.

Turn Off The Noise

Great advice from Charlie Munger:

"For decades I read almost all of The Wall Street Journal each day—and considerable portions of both The New York Times and The Los Angeles Times. I listened to the news on my ride to and from work, and at least a few times a week caught the national news on TV. By most common measures, I was clearly informed. But I was no wiser from it. All my wisdom came from my life experiences, my on-the-job observations, and the many books I started to read. Our job as investors is not merely to know what’s happening. We need to have appropriate context and perspective to understand the implications of what’s happening in order to make sensible choices."

Why The Market Pays Up for Growth

Great comment from Jason Cohen.

"The market rewards growth over profit ONLY WHEN the market also believes there's a lot more growth ahead of the company AND when the other mechanics in the company are sound, eg. good gross profit margin and high long term value: CAC. Once a company is large and simple market expansion isn't how it will grow, they're betting on the development of stronger business models. This is the current bet on FB, P & TWTR."

I had always intuited this and so liked when I saw it articulated. Not rocket science, but sometimes stating the obvious is good. 

Philosophy - Existentialism

Existentialism

- the fundamental difference between phenomenology and existentialism is whether the stress is placed upon existence or essence.

- existentialists accord precedence to existence.

Christian existentialists or neo-orthodox = Karl Barth, Paul Tillich, Rudolf Bultmann, Heinrich Emil Brunner, Rheinhold Niebuhr, Martin Buber

Soren Kierkegaard (1813-1855) - three stages of life   1.) aesthetic   2.) ethical   3.) religious

Aesthetic stage: hedonist in search of pleasure or an intellectual interested in abstract philosophical speculation.

The emptiness of ennui is an enigmatic inexplicable spiritual ailment which brings man to the abyss of nothingness, entirely discontent with his existence.

Genuine self-hood is not found in externals, but within, in passion, freedom, decision and commitment, that is, in subjectivity.

The chief distinguishing feature of the inwardness of the religious life is suffering and faith

existence precedes essence

Christ is the Absolute Paradox (God incarnate)

Kierkegaardian philosophy is fundamentally in direct antithesis to Hegelianism.

For the existential individual all is in the state of :Becoming.

Martin Heidegger (1889-     ) - dasein (being there, human Being)

- the basic mood of man is dread (anxiety), and the fundamental structure of man is care (concern).

- anxiety is caused by man’s encountering indefinable nothingness, evidence of his finitude

Jean-Paul Sartre (1905-    ) - dealt with dualism between subjective consciousness and objective Being

Man lacks Being because there is no God to create Being.

- man’s essence is freedom

“God is dead” therefore we must rely on ourselves alone.

- man is a useless passion vainly striving in a universe without purpose

Man seeks to become more than Being-for-itself, he also desires to be Being-in-itself.

- the fundamental project of man is determined by his desire to be God.

Philosophy - Neo-Scholasticism

Neo-Scholasticism, Neo-Thomism

- most contemporary Neo-Thomist philosophers are :Catholic

- constitutes one of the largest philosophical schools in the world (administered usually under Jesuit or Dominican orders)

Jacques Maritain (1882-    ) - existence without essence would be impossible.

Humanism secularizes by deifying man without admitting the necessity of God; it portrays evil as an imperfect stage which will be overcome in the evolutionary process.

Weltanschaaung - Christian worldview

Etienne Gilson - the revealed truths of the Christian bible agree with Greek rational thought

Christianity is an optimistic not pessimistic philosophy: instead of denying the existence of evil it sets out to regulate ,combat and destroy evil because the universe at its base is good not evil.

Philosophy - Analytic

Analytic Philosophy

20th Century school of thought, rejected traditional points; contend that the entire business of philosophy is analysis, philosophy consists of linguistic activity designed to eliminate problems arising from intellectual confusion and this to clarify the knowledge which we already possess; a non-metaphysical school of thought; a reaction against Idealism.

G. E. Moore - method of posing questions or problems to be analyzed, instead of postulating answers and solutions.

Most difficulties in philosophy are caused by “the attempt to answer questions without first discovering what question it is which you desire to answer”

- the task is to analyze and clarify ordinary language.

- the search for truth and discovery was replaced by the search for meaning and clarification and the examination of language.

Bertrand Russell - founded logical atomism, theory that the world consists of a number of simple facts, each independent of all the others yet related externally to the others.

Not facts, but propositions are true or false; proportions are symbols, not facts.

Ludwig Wittgenstein - in his later life he broke away from previous thinking (picture theory: basic analytic philosophy) and expounded a language-games theory.

Tractatus - a proposition is a picture of reality...a picture is a model of reality...a picture is a fact...the world is the totality of facts...the totality of true thoughts is a picture of the world; thus language is a picture of reality.

Later life - emphasised that the way in which a word is used, not its meaning as a name for some object, gives language and statements their validity.

John Wisdom - philosophy is essentially therapeutic activity designed to clarify the uses of language.

- philosophers present us with old facts in anew light, but do not discover new facts.

Oxford Philosophy - incorrect use of ordinary English is responsible for philosophical problems, and these can be solved only by “pointing” out the normal usage of the words employed and the normal grammatical form of the sentence in which they appear.  Ordinary language is correct language.

- concerned with the “elucidation of concepts” and the “logic of expressions”; dualism is the “dogma of the Ghost in the machine.”

Philosophy - Logical Positivism

Logical Positivism

Logical Positivism - Moritz Schlick founder, active between the two world wars, known as Vienna Circle, Scientific Empiricism, majority of members were mathematicians and scientists, “Philosophy is a logical syntax,” “the meaning of a proposition is the method of its verification,” Wittgenstein’s Tractatus Logico - Philosophicus was a foundation.

Verification principle - to understand a proposition means to know what is the case if it is true; the meaning of a proposition coincides with its truth-conditions

- anyone who wishes to understand a proposition must first know the conditions under which it is true.

- sense observation is necessary for verification

philosophy was redefined as a mental activity which seeks to analyse or clarify the meaning of scientific propositions (it is an active attempt to clarify thought).

- the propositions of logic and mathematics are tautologies, that is, uninformative assertions which state nothing factual about the world (empirically void).

- a metaphysical proposition has no meaning because it is without truth-conditions.

Alfred Ayer - empirical evidence is necessary to determine the meaning of a statement or proposition, consequently the nature of ultimate reality is not a legitimate topic for philosophical consideration.

- it is interesting to note that the verification principle is not itself verifiable

* value judgements are not permissible, therefore we cannot judge one act morally right and another morally wrong.

philosophy = search for meaning,    science = pursuit of verifiable truth

Schlick - knowledge must consist of structural relations which we all have in common as a consequence of our private experiences.

Otto Neurath - sense experience is a biological process, not a mental state.

Correspondence theory of truth - an idea is true if it corresponds with its real object.

Coherence theory of truth-ideas are true if they consist of logical, integrated, consistent, interrelated statements.

Rudolf Carnap - protocol statements (referring to immediate facts of experience).

- philosophy is to be replaced by the logic of science, and the logic of science is nothing more than the syntax of the language of science.

Syntactical statements are those dealing with form or order of the symbols rather than the meaning of the statements.

Alfred Tarski - truth is predicated on sentences as a meta-language (a language which makes symbolic assertions about another language).

Philosophy - Neo Realism and Critical Realism

Neo-Realism and Critical Realism

Benedetto Croce (1866-1952) - reality is thought (a progressive development which is both active and creative: Neo-Hegelian) and philosophy is history (reality is identified with historical processes as it undergoes its evolutionary course creatively and with freedom).

- identified reality with self-creating mind; a self-creative mind alone exists.

- four aspects of reality (art, logic, social activity, evaluation of the past) inasmuch as reality is self-consciousness, philosophical activity itself creates reality.

Neo-realism - objects exist and their existence is not dependent upon any mind which happens to be conscious of them; emphasised Epistemological monism (based on the theory that the knowing process and the thing known are one and the same).

Naive realism - the belief that real things are precisely as they appear to us in consciousness

egocentric predicament - the “difficulty of conceiving objects apart from any consciousness”

- they attempt to separate metaphysics from epistemology by proving that the nature of real things is not found simply in the nature of knowledge.  Thus the emancipation of metaphysics from epistemology is seen as the “most notable” feature of Neo-realism; they have adopted a metaphysical pluralism (the existence of a variety of real objects possessing external relations to one another).

Critical realism as opposed to neo-realism advocated an epistemological dualism (the representative theory that the knower and the thing known are two distinct, separate entities, namely material objects and ideas or mental states).

George Edward Moore (1873-1958) - made a sharp distinction between consciousness and the thing perceived as the object of consciousness; the object known cannot be separated from the knowing process.

Bertrand Russell (1873-1958) - aim of Principia Mathematica was to verify the statements that all pure mathematics utilises concepts definable in logical terms only and that pure mathematics follows from purely logical premises.

- the existence of a real world beyond sense data cannot be proved.

Correspondence theory of truth - a belief is true if it agrees with the fact with which it is supposed to correspond.

Scientism - doctrine that all valid knowledge is attained through use of the scientific method and that whatever cannot be known scientifically cannot be known at all.

- values lie outside the domain of knowledge, they represent merely the venting of emotions.

Alfred North Whitehead (1861-1947) - reality consists of a multiplicity of objects; the universe is always in process.

concresence - process whereby this world of many things acquires integration or unity

Philosophy - Idealism

Idealism

Idealism - the universe is the embodiment of mind; reality is of the nature of mind; ultimate reality as an entity transcending phenomena.

Metaphysical Idealism - a system which emphasises the analysis of the entire universe as a psychic reality, postulating an ideal element permeating all things, and philosophies depicting ultimate reality as consisting of consciousness, mind or personality.

Epistemological Idealism - system which emphasises the identification of reality with the “mentally knowable” data, the perceptible truths.

Platonic Idealism - ultimate reality consists of ideal constructs which are real.

Personalism - essentially American, originated in the works of George Howison and Borden Parker Baone, “the doctrine that the ultimate reality of the world is a Divine Person who sustains the universe by a continuous act of creative will”

- the conception of human personality as the key to reality, stating that the ontologically real is personality: “life is deeper than logic”

empirical coherence is the criterion of truth.

Epistemological dualists = the knower and his ideas are distinct from the object of his knowledge.

Absolute Idealism - the view of reality as the embodiment of the mind

Thomas Hill Green (1836-1882) - Hegelianized Kantian thought, doctrine of relations (the reality of any object depends exclusively upon its relations to other objects).

self-consciousness - “the quality in a subject of being consciously an object to itself”

Francis Herbert Bradley (1864-1924) - British, fondness for paradox and contradiction, philosophy was a means of obtaining intellectual satisfaction through discovery of ultimate truth.

- the self is the sum of its experiences; “the real, to be real, must be felt”

- defined reality as the Absolute; appearance is fragmentary, relational, changing; reality must be understood by combining appearances with awareness of the whole reality in our experience; the ethical goal is fulfilment of the self.

Josiah Royce (1855-1916) - American, posited a real world “of outer and ideal truth, a world of mind,” the Absolute is an all-embracing and overruling spiritual Being.

- unless there were Absolute Truth, there could be no error.

- the very denial of truth constitutes an admission that truth exists

- since error exists, there must be truth from which it errs; and since there is truth, there must be a mind which possesses conscious knowledge of it  eg. God

- consciousness is knowledge aware of itself; since only ideas are knowable, then that which is absolutely unknowable cannot possibly exist.

supreme good (loyalty) - “the willing and practical and thoroughgoing devotion of a person to a cause”

Philosophy - Pragmatism

Pragmatism

Charles Peirce (1839-1914) - founder of Pragmaticism, an essentially American philosophy

Pragmaticism = “the whole function of thought is to produce habits of action”

- the rational meaning of a word “lies exclusively in its conceivable bearing upon the conduct of life”  ie. speculative thought cannot be divorced from action

- regarded pragmaticism as the logical application of Jesus’ principles “by ye fruits you will be known”

- the function of doubt is to stimulate thought and the purpose of thought is to arrive at belief.

- a belief is “that upon which man is prepared to act”

- Peirce believed in a metaphysics postulating ontologically real objects.

Williams James (1842-1910) - anything that is meaningful or real must have some influence on practice, on our experience, and everything that has a practical effect must be acknowledged to be meaningful and real.

- abstract truths are meaningless unless they make a difference in concrete facts.

- the theoretical has value only when it bears upon the practical

pragmaticism is both Nominalistic in that it stresses the concrete particular over the abstract universal, and anti-intellectual in its stand against rationalism.

- there is no room for metaphysical speculations (ie. God).

Truth must possess consequential characteristics, truths are created in a manner similar to the creation of health and wealth; truth is a system of verification (relative).

- religious belief is good only if it has a direct positive affect upon our life and actions.

- evidence for God’s existence (truth) is to be found in one’s personal inner experiences

John Dewey (1859-1952) - built his system of Instrumentalism on the foundation of Behaviouristic psychology; his views reflected those of organic evolution and a faith in man’s capacity to achieve moral progress and a more nearly ideal social environment primarily through improvements in education.

- the proper ethical goals are the fulfilment of human needs and desires, the continuous growth of human beings in moral sensitivity and human progress in the practical realization of a better social world; absolute goods or evils do not exist.

meliorist- believing that the world can be made better solely through man’s initiative in bringing about desirable consequences.

- theory divorces from concrete action is sterile, empty and vain; moral responsibility is social, “all morality is social”

God = the “active relation between ideal and actual”; the ideal ends  Humanism = an extreme form of Pragmatism based upon the concept of the Greek Sophists that man is the measure of all things.

Philosophy - Dialectical Materialism

Dialectical Materialism- Communism

dialectical materialism: refers particularly the social philosophy known as Communism, synthesis of Here’s dialectic and Feuerbach’s materialistic doctrines.

Ricardo’s labour theory of value became the fundamental thesis of Marx’s Das Kapital.

Karl Marx (1818-1883) - wrote the Manifesto of the Communist Party (1848) with Friedrich Engels (1820-1895), participated in the revolution of 1848.

- communism as the ownership of the means of production, abolition of private property, labour theory of value (“surplus value”); inevitability of profiteering and exploitation of labour, scientific socialism, violent revolution, class struggle, dictatorship of the proleteriat, achievement of a classless society, religion as opium of the masses

- Marx applied Hegel’s dialectic to socio-economic history  ie. bourgeoisie  (thesis), proleteriat (antithesis) leading to classless society (synthesis).

- His economic interpretation of history is known as historical materialism, is based upon the doctrine of economic determinism.

- a particular society’s mode of economic production determines the nature of its culture and social structure (Feuerbach had applied this materialistic concept to social problems and cultural evolution).

- owing to the dialectical nature of history [stages: slavery-->feudalism-->capitalism-->socialism-->communism) each historical period carries within itself the “germ of its own destruction”

- the mode of production of material goods determines the political, social, intellectual and religious life and institutions of a given people in each era of history.

“it is not the consciousness of men that determines their being, but, on the contrary their social being that determines their consciousness.

communism - an ideal system to be achieved by shifting control over economic resources from the capitalists to the proleteriat.

- since the labour of many workers is required to support a single capitalist, members of the capitalist class are parasites living at the expense of the exploited workers.

Labour theory of value - price of a product is determined by the amount of labour expended on its production.

capital = accumulated surplus value; surplus value = the difference between the actual cost of manufacture and its selling price (net profit) or the unjust process of profiteering by using money to earn money instead of working for such earnings.

profit = exploitation of labour.

- the capitalist is unnecessary but the worker is indispensible for production.

- the worker sells himself at a subsistence wage instead of the proper reward which should include the surplus value.

- as a result an inherent class war between the proleteriat and the capitalist exists which can only be resolved through the overthrow of the capitalist by violent revolution when “all of the workers of the world unite”

-communist motto “from each according to his abilities, to each according to his needs”

- all events in human consciousness are physical reactions aimed at satisfying the economic and material needs of mankind.

- morality is contingent upon the social class, and the social class along with its moral code is in turn the product of the mode of production.

“human essence has no true reality”   “matter thinks”

- industrial and scientific work constitutes the highest form of activity, the goal of which is the production of material goods for the enhancement of human well-being

- religion is an illusion, with the illusory happiness based on it needing to be condemned.  Religion functions as a bourgeoisie police force, a technique to dissuade the masses from revolting by promising them a better, happier life after death.

Vladmir Ilich Ulyanov (1870-1924) - aka Nikolai Lenin, disciple of Marx, exiled to Siberia, formed Bolshevik party in London, a staunch defender of metaphysical materialism, his was a philosophy of history.

- revolution was the leap from one stage to the next.

Mao Tse-Tung (1893-1976) - placed great emphasis upon  (1) practice (the pragmatic element of communism) and  (2) contradiction (conflict and revolution).

- without conflict, there can be no progress   “All political power grows out of the barrel of a gun”

- the only valid criterion of truth is man’s social practice (condemned philosophers for  speculating, whereas the task of man is to change the world).

- contradictions among communists may be democratically resolved (“unity==>criticism==>unity”)

Philosophy - Classical Positivism

Classical Positivism

Epiphenomenalism- the belief that consciousness and mental phenomena are dependent upon and produced by physical processes, but that the converse is never the case.

Henri Bergson (1859-1941) - French biologist, most influential exponent of the evolutionary school during contemporary times.

Bergson’s vitalism- life is an autonomous function controlled by its own laws instead of the laws of physics and chemistry.

- attempts to arrive at logical explanations of reality are ineffective because reality is always in a state of Becoming and never stationary or at rest.

- man’s intellect can grasp nothing except static truths (mathematics, logic, etc) but his intuition can discern the ever changing life process itself.

- the élan vital (vital impulse) is unpredictable and perfectly free.

Dualism permeates every phase of Bergson’s philosophy: in his metaphysics (mind and matter), in his epistemology (intelligence and instinct), in his ethics (open and closed morality), in religion (static and dynamic).

Static religion - set of myths devised by human intelligence as a means of defense against the depressing experiences of life.

Dynamic religion = prompted by the elan vital, mysticism

Samuel Alexander (1859-1938) - born in Sydney, neo-realist (objects of knowledge and of sense experience are externally real in their own right and are not dependent upon consciousness for their existence), the ontological real is space and time.

Five levels of emergent evolution (1) space time and the categories   (2) primary qualities  (3) secondary qualities  (4) life  (5) mind  (6) deity

- values do not exist independently of the individual; relationship between subject and object.

- truth must be the coherent ordering of reality as the mind understands it, for truth does not exist apart from the mind’s knowing it, nor does the mind create  it.

Auguste Comte (1798-1857) - sort to revamp society for the sake of all classes, societies salvation was to be contingent upon scientific knowledge; theology to be replaced by a “Religion of Humanity”; sought a natural law of the history of society; founder of sociology; God is humanity.

Anthropomorphism - attributing human qualities to natural objects.

- metaphysical causes or substances are not real; only the facts of sense phenomena exist.

- for us to attain immortality it is necessary to survive in the memory of those who follow us.

- a scientific law is a condensed statement about repetitive experienced facts (Ernst Mach).

- since “metaphysical realities” are assumed to go beyond the boundaries of sense experience, they must be considered nonsense, nonexistent.

The Market and the Economy Re-tethered

After a long period of apparent dislocation, I think the market is now re-tethered to the economy. As such it will rise and fall with the credit/economic/business cycle (all of which have reserves to go higher or improve).

Why?
The negatives and the positives seem pretty evenly balanced. Positives: strong momentum from wealth effect, sense of confidence flowing back into the system, no real signs of overleverage in the system, high earnings level, high profit margins, improving economic indicators (housing, unemployment, PMI, fiscal, output), low inflation, low interest rates, strengthening bank capital, strong credit growth, reasonable valuations, cash on sidelines, no real signs of hubris or greed, still a pessimistic undertone, Fed accomodation, low gas prices, China stabilizing, Japan recovering, Europe recovering. Negatives: political stalemate, above trend profit margins, slowing earnings growth, high earnings expectations next year, growing inequality, market up big, taper not far off, an underlying fragility, corporate leverage increasing, artifice masking underlying weakness, potential reversal of labor/capital trade-off, fiscal exit, stagnation.

The strong move in the market over the past year (with little pullback) indicates a market looking to the future positively.

Philosophy - Evolutionary Naturalism

Evolutionary Naturalism

- Philosophical naturalism - based on the theory that all phenomena may adequately be explained by means of physical laws.

Nietzsche applied the concept of evolution to ethical theory, Marx adapted it to his socio-political philosophy, Huxley humanized it.

- evolutionary naturalism attributes a teleology (cosmic purpose) to nature itself.

Jean de Lamarck (1744-1829) - French zoologist, believed that all forms of life undergo structural changes when individual members repeatedly use their organs to cope with the changing environment and that the modified characteristics thus acquired by the individual are passed on to the offspring.

Darwin argued that not use or disuse, but the struggle for survival us the decisive factor.

- there is a process of natural selection whereby those individuals best fitted to overcome obstacles survive so that their superior characteristics are inherited by succeeding generations.

Charles Darwin (1809-1882) - Origin of Species (1859), doctrine of natural selection (or survival of the fittest).

Darwin’s theory of evolution explained the design or purpose evident in organic life by reference to the mechanical laws of nature and the process of natural selection; agreed with Hegel as to the necessity for a historical perspective in order to understand the nature of things (man must be understood in the light of his animal ancestry).

- Darwin accepted the theory of Ethical Intuitionism (ethical principles are innate).

Herbert Spencer (1820-1903) - developed agnosticism as a central doctrine of evolutionary theory, accepted the reality of the Unknowable; evolution is a process of natural changes governed by law and manifesting a mystic force which he considered beyond man’s comprehension.

- we know that God exists, but we cannot discover specific facts about his powers or characteristics.

- the entire universe develops from relative simplicity to complexity as it seeks to establish equilibrium of all its forces, but once equilibrium is reached they dissipate and return to an unbalanced state.

- Spencer defined life as “the continuous adjustment of internal relations to external relations”

- justice, courage and sympathy have persisted as innate moral principles because they protected society and contributed to social survival, and were transmitted to succeeding generations.

Friedrich Nietzsche (1844-1900) - basic philosophy of value theory - “a revaluation of all values”.  The Judeo-Christian system of moral ideals constitutes an inversion of natural life giving instinctive values, and should be replaced by nature’s values ie. the Master race.

- Nietzsche substituted an ethic of power for Judeo-Christian principles; “ethics of power”: might makes right was a logical consequence of Darwin’s survival of the fittest.

- advocated competitive striving to fulfill egoistic instincts and personal achievement

Two types of morality accompanying two corresponding cultures (1) master morality  eg. the Romans  (2) slave morality  eg. the Jews

- aristocrats have become rulers through the exercise of the natural superior abilities

- on the other hand the slave or subject class have adopted an ethical code emanating from resentment at their inability to combat the aristocratic class  ie. democracy, the principle of equality, religion with its concept of sin and evil, with the object to reduce the aristocrat down to their own level.

- Nietzsche’s “Superman” rejects belief in God (“God is dead”)

Thomas Huxley (1825-1895) - two processes in nature  (1) cosmic process of natural evolution  (2) ethical process of human evolution [ethical superior to the cosmic].

- the moral goal is not “survival of the fittest” but the education of as many as possible so that they will become worthy of survival.

Nietzsche’s individualism is naive in the face of man doing better as a society.  Huxley coined the term agnosticism: a doctrine stating that neither the existence of God nor the character of ultimate reality is knowable (neither affirms or denies).