Exogenous Variables in Capital Flow Analysis: New Leadership
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Watch the Horsemen!
Yet Another Example: John Kerry in 2004
We don't need to look back seventy years to find leaders who telegraph their punches, warning the people what they are going to do.
When running for president, Senator John Kerry said at Georgetown University on April 7, 2020:
"I will … lower corporate taxes by 5% …. but for Americans making more than $200,000, we will … roll back the Bush tax rates … The top 2% will pay more."
In other words, Kerry said he would coddle Big Business that had been distributing capital through stock buybacks for a generation.
Corporations were the best tax collectors for Big Government and their executives generously give money to politicians that belongs to investors in 401(k) plans.
Kerry wanted, however, to raise taxes on small entrepreneurs and independent businessmen, waving the old liberal banner of class warfare by claiming that "the top 2% will pay more".
Since Kerry, a limousine liberal like Roosevelt, had access to assets of over a billion dollars through his wife, he clearly was not going to tax the wealth of the truly rich — only the income of those who tried to become rich.
The economic recovery that had been spurred by the Bush tax cuts would have been halted.
Despite this clear signal, Wall Street executives donated millions to the Democratic party and financial pundits said that it didn't make any difference who became president of the United States.
Barriers to Understanding
These examples of political forewarnings illustrate the difficulty in anticipating how new leaders will impact flow of funds and capital markets:
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The noise: Just as political speeches are made before cheering crowds, with few actually paying attention, evidence of the intentions of new leaders is often drowned in the noise and babble of irrelevant and extraneous events.
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The interpreters: We are distracted from the most important clues of the Five Horsemen by the intervention of interpreters, pundits, explainers, spin-doctors, and all manner of experts who tell us that what we hear or see is not really as it appears. If John Kerry says he will raise taxes, he really doesn't mean it; he just said it to gain votes; once in office he will recant, and so forth.
The tree that falls alone in the forest makes no noise -
The unseen and unnoticed: Just as the tree that falls alone in the forest makes no noise to those not there to hear, a politician's speech that is not fully reported, or reported erroneously, or not read or noticed, can not be interpreted. Everyday, important things are happening that we will never hear about. The daily news is extremely narrow, biased, and full of puff pieces of little importance.
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The uncomprehended: Even when we hear through the noise, dismiss the interpreters, and actually notice an event, we simply may not have the background or knowledge to comprehend — to connect the dots, as it were.
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The incredible: Just as many Jews did not believe that Hitler would really send them to concentration camps, most of us tend not to believe portents of dire consequences. We are more likely to believe fanciful good news, like the "paradigm shift" that supposedly drove the Dot.com Bubble of the 1990s, than we are to take seriously more somber information.
The Art of Open Intelligence
Now more than ever, due to the Internet, there are clues to portents of the Five Horsemen within our grasp.
However, the obstacles to retrieving and understanding this information are still formidable.
If the Central Intelligence Agency, with billions of dollars at its disposal, was unable to warn of the attack on the World Trade Center and the Pentagon, how likely are we to see the signs of imminent change in the vastly complicated capital markets?
The answer is that we can do surprisingly well, without spending much money, because there is an impressive amount of valuable open source intelligence (OSINT) available for free on the Internet.
Capital Flow Analysis helps us to focus on the essential items.
If we use public information in an organized and disciplined manner, paying attention to issues that, through analysis, we have identified as critical in a particular market, we can sift and isolate key information rather quickly.
For example, if we know that the U.S. trade deficit is key to forecasting the bond market and that the trade policies of China, Brazil, and the U.S. are important to follow, as are matters dealing with the security of U.S. ports, we can focus on these issues when searching the web.
To facilitate this search, on this site we have posted five sets of specialized links to news and information sites dealing with war, changing leadership, economic theory, demographics, and technology.
You may start with these links and add your own bookmarks to useful sites. You may also share your sources and information with other capital flow analysts by posting to the Capital Flows Forum.
Before proceeding, check your progress:
Self-Test
In April 2004, Senator Kerry said he would:
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We might not be aware of important information that signals a change in market direction because:
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OSINT is:
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