"TURNING and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold."
- W.B. Yeats
Let's imagine you're building a business. At the beginning, you work exceptionally hard. You put in long hours to assure that everything is perfect for your customers. You sweat the details of each product to guarantee all are built to the same exacting standard. On those rare occasions your business makes a mistake, you correct it -- you pride yourself on "making things right" by your customers.
You firmly believe in the principle of integrity -- and for you, part of that means delivering what you promise. Part of it means treating your customers fairly, and with respect. Your company is a reflection of you. And you are a reflection of your core principles.
So you hold both your product and your customer service to extremely high standards, not simply because you want to get rich, but because you genuinely want to do right by people (who also happen to be your customers -- but the fact that they are customers is, in your mind, secondary to the fact that they are people, and people matter).
As a result of this founding principle executed with competence, your business booms. You have a consistent product, so people know what to expect from you; they know what they're spending their money on. And on those rare occasions your product falls short, you treat people with dignity and you fix their problems -- so customers feel safe with your company.
And they come back time and again, ultimately making your company outrageously successful.
You may think you've built your company on selling a product, but you haven't. Beneath that, at the core, you have built your company on an idea and a principle: In this case, on the principle of integrity.
But time marches on.
Your children have no interest in joining the business, so as you get older and can no longer put in the hours, you hire an outside manager to take up the slack. We'll call him "John." John does a reasonable job, but he doesn't bring the same passion you did. For him, this company isn't a labor of love, it's just a paycheck -- but he likes his paycheck, and he likes the success of the company, so he tries to mimic everything you are doing.
Eventually, it's time for you to retire, so you sell the business to John, making him the new owner. John keeps following the principles that you set out because he knows they work. He doesn't really understand WHY it all works, but that doesn't really matter at this stage.
So John lacks the principles, but he mimics your successful actions, and is thus successful himself. Said another way: Even though John lacks an understanding of the core principle ("integrity") that underpins the successful actions of your company, as long as he continues those actions, no one will notice that the principle is gone. Your company is, in effect, still embodying the principle of integrity, and that's what matters.
More time passes.
Eventually it's time for John to step back from the business, so he hires a new manager, named Fred.
And while problems can start at any stage, this particular situation is ripe for breeding a whole host of them.
Fred looks at the things John's doing with the company and says (for starters): "Customers are taking advantage of your policies! Why do you bend over backwards for these customers?"
"Well," says John, "that's just the way we've always done things around here. And it's always worked."
"But don't you see how much this is COSTING your bottom line?" replies Fred, passionately. "Handling customer service this way is costing this company huge amounts of profit!"
Now, because John is just mimicking your behavior, he doesn't really have an answer for this. He doesn't know WHY company integrity is important, he just knows "this" is what the company has always done.
This is relevant because it means John simply isn't equipped to debate the new manager -- which means he can't CONVINCE Fred of why the current way of doing things matters. John is "ambivalently right" (he's correct, but lacks understanding, and thus lacks conviction), while Fred is "passionately wrong" (he's wrong, but he holds strong beliefs). So John cannot sway Fred onto a different path. He can only reply: "Well, I appreciate that you have new ideas, Fred, but I'm still in charge around here, so things need to be done the way I say."
Except that's about to change.
Because, just like you, John can't go on forever. He takes sick and sells the business to Fred.
And Fred has very different ideas about how to run a business than you originally did. But, unlike John, Fred is quite convicted and passionate about his ideas -- which are almost all BAD.
Fred begins making changes. Small, at first. The first thing he changes is the company's customer service policy. He's no longer going to offer free replacements the way you did, because free replacements "cost" the company a lot of money (at least in Fred's myopic view).
Now, most customers don't notice the changes right away, because most customers don't have any problems and thus never need free replacements at all. The company has been around for decades now, and it produces a consistent product.
So, for a time, the company can coast on its reputation and past success.
But soon, a small percentage of customers do notice. They no longer feel respected and valued by (what was once) your company. In fact, customers who have problems now actually feel the exact opposite of "valued": They feel CHEATED.
And so, of course, those customers begin taking their business elsewhere. They also start spreading the word: "Don't deal with that company, their service stinks!"
Because Fred doesn't understand the core principle of integrity (and he sure doesn't understand WHY integrity leads to success), he's not wise enough to see the big picture. He views the old company policy of "free replacement" only on one level: The immediate bottom line impact. He doesn't consider or understand the impact at the next level (lost customers), or the level beyond that (word of mouth), or anything else.
Fred doesn't realize that by making this one, seemingly-small change (which initially only nets him about 1% more to the bottom line anyway), he has set the company on the path to bankruptcy. Because in trying to save the company 1%, Fred has inadvertently cost the company 5% through lost customers -- and he's now going to have to start cutting corners in other places to make up that lost revenue. And that corner cutting is gong to lead to even more lost revenue, which will lead to more corner-cutting, putting Fred into a downward spiral.
Fred doesn't recognize his initial core mistake, so instead of correcting back to the old way, he continues to compound his mistakes.
The decline of your company has begun.
And it's begun because the core PRINCIPLES that made your company successful are no longer valued AND no longer practiced. John never really understood the principles to begin with, but at least he acted in accordance with them, which kept things running smoothly and successfully.
The core success of your company was, unbeknownst to John, entirely predicated on bringing those principles into the realm of action.
Fred not only doesn't understand, but he has ideas of his own that are diametrically opposed to your principles. Sadly, Fred doesn't even understand the whole picture well enough to comprehend what is occurring. To him, a company is bricks and mortar and profit and loss -- it's not "ideas."
In Fred's view, a company is a tangible thing, products are a tangible thing, money is a tangible thing -- and that's that. Everything for Fred begins and ends on the material level.
But Fred is wrong.
Because ideas are the birthplace of action: Action is simply the outward manifestation of an idea.
Which is why at the center of every successful endeavor -- be it personal, corporate, political, or otherwise -- lie GOOD IDEAS.
As we just saw, endeavors can continue their success even if no one understands what the good ideas actually are -- as long as they continue the actions those ideas spawned.
So the fundamental point is this:
1. All action begins in the realm of ideas/principles.
2. Action without understanding of the principles will still work, as long as that action is still based on those good core principles.
3. However, the further one gets from true understanding of the core good ideas, the more one grows irresolute, and thus susceptible to adopting bad ideas.
4. Bad ideas always lead to destructive action (that's what makes them bad!).
5. And without some way to reassert sound core ideas and principles, destructive action begets more destructive action.
Okay. So why have I taken all the time to draw this analogy?
Because this is exactly how I view America right now.
Our country was founded on solid principles. Those principles led to our success. They predated it; they created it. As we grew in stature, we began to forget the underlying principles, but we continued to live in the systems those principles created, so we continued to grow stronger: We were embodying the core principles, whether we understood them or not.
But over generations, we've drifted further and further from those principles. Few in the modern world seem to even understand those principles -- and we certainly won't value what we don't understand. And just as Fred did, some are actively rooting for destruction though they do not and cannot realize that's what they're rooting for; they bear destruction in the name of "progress" (because, just as Fred, they truly believe in what they're doing).
We have, in essence, discarded the very principles that brought us success in the first place.
Since we, as a nation, are (as with all entities) merely the sum total of our ideas, this deterioration of our core principles cannot and will not continue without consequence.
The center cannot hold.
This, I suspect, is the last thing we see as a Supercycle Peak approaches.
*****
A few weeks back, I penned a piece titled:
Why I Haven't Joined the LONG-TERM Bear Camp Just Yet -- I haven't changed my view in that regard yet. But I do believe the next peak will be incredibly significant. And while it might still be a few years off, I wanted to discuss it now, because I think we can all see how it's being set up by massive government debt, Federal Reserve intervention, and a political class that seems increasingly detached from reality.
This is looking more and more like "our last hurrah."
I sincerely hope I'm wrong. I have three children, and I would prefer they grow up in the stable situation that I grew up in. But that situation looks farther and farther away every time I glance in the rear-view mirror.
Maybe we can change that. Maybe we'll have some sort of mass awakening, and a return to the ideas that brought us success. In many cases in life, there can be no further progress without a return.
When you're headed down the wrong road, pressing on the accelerator merely gets you farther from where you actually want to be. "Progress" NEVER means "simply marching forward in a straight line." Quite often it means stopping the damn car, turning around, and driving back the complete opposite direction.
I don't know if we have the will to do that. We seem to triage poorly in modern society. We're more concerned with being popular and seeming "cool" than we are with substance. (Or sometimes worse: Concerned with conveying the appearance of virtue, while at the same time lacking any actual virtue.)
Just something that's been on my mind for a while, so felt I wanted to share it.
For reference, Supercycle III might look something like this:
In regards to where we are right now -- on April 13, I noted that if we cleared 2882, then next resistance would be 2950-3000. SPX tagged that zone on Wednesday, and has since reversed. There are still a few hurdles bears need to clear, but it's a good start:
Incidentally, NYA rallied right up to Red 1 (as drawn last update) and reversed:
That's all I've got for today. Trade safe.
