POITOU, FRANCE – Poor David Brooks…

This morning, while waiting for one dose of claptrap, we were whacked by another.

Fed chief Janet Yellen was scheduled to speak before the House Financial Services Committee on Capitol Hill at 10 a.m. Waiting, we read a column by Mr. Brooks in The New York Times:

Recently I took a friend with only a high school degree to lunch. Insensitively, I led her into a gourmet sandwich shop. Suddenly I saw her face freeze up as she was confronted with sandwiches named “Padrino” and “Pomodoro” and ingredients like soppressata, capicollo and a striata baguette.

I quickly asked her if she wanted to go somewhere else and she anxiously nodded yes and we ate Mexican.

Flattering Frauds

Mr. Brooks is making a very sensitive comment about how very sensitive he is.

He is also talking nonsense.

His lament is that there is a big gap between the elite and everyone else, illustrated by the divide between someone “with only a high school degree” and himself.

But what kind of higher education would you need to know what soppressata and capicollo are?

A degree in Italian cooking!

And what kind of person, high school degree or not, could possibly care?

That’s the problem with social codes: They are mostly a waste of time.

No matter how much education you’ve suffered, remembering the ingredients in every gourmet concoction in Manhattan is probably not the best use of brain capacity.

And it takes no PhD in psychology to see that Mr. Brooks has spent too many hours looking at himself in the shiny metal of sandwich shop counters. He needs to get some fresh air.

America’s elites are on top of the world – with more money, more power, and more status than any elite since 4th-century Rome, just before the barbarians arrived.

Studying themselves in the mirror, they wonder: How come we’re so great?

This naturally leads to a lot of flattering frauds. We’re smarter. We’re nicer. We’re the “indispensable nation.” We’re more virtuous. We have a better sense of humor and better air conditioning.

Success makes people vain. Then, vanity makes them stupid.

Dervish of Distractions

Every student of Economics 101 learns that markets work better than central planning. But Nobel Prize-winning economists insist on setting the price of credit – the most important price in the economy – by committee.

Meanwhile, billionaires ask for tax hikes… and give their money to charities – knowing full well that wealth is much more likely to fructify in private hands with profit motives.

Then there is Donald J. Trump – billionaire extraordinaire… capo di tutti capi.

Not only is he as rich as Croesus, but he also sits at the elite’s most powerful and prestigious desk.

Mr. Trump shrewdly recognized that voters were sick of people like Mr. Brooks and the elite they represent. They wanted a change. But there he is – up to the same limp tricks as Clinton, Bush, and Obama.

He’s not taking away the elite’s cushy privileges. He’s merely swapping one for another… fidgeting with the tax code, rustling around with Obamacare – a dervish of distractions, whirling from crisis to gaffe while remaining in the same place!

But the thinking elite – endlessly interested in themselves – look more closely. They find faults. Then they find solutions.

Ruining America

“They hate our freedoms,” said President Bush, vainly trying to understand how anyone could have a grudge against such wonderful people.

In the last few years, much has been done to correct this problem. Thanks largely to the Patriot Act, civil asset forfeiture laws, the Foreign Account Tax Compliance Act (FATCA), and other efforts, Americans’ liberties have been greatly curtailed.

But much remains to be done. The empire is aging and degenerating, with many new wrinkles appearing on the face of the ugly elite.

David Brooks, for example, thinks we are “ruining America”:

Over the past generation, members of the college-educated class have become amazingly good at making sure their children retain their privileged status.

They have also become devastatingly good at making sure the children of other classes have limited chances to join their ranks.

Mr. Brooks identifies the chief strategies used by the elite to keep their kids among the winners. They develop “behavioral codes.” They get tutors and internships for their children… and take them on resume-enhancing trips.

They also use the government as the elite always do: to exploit the common folk.

Zoning restrictions keep poor people out of good neighborhoods and out of good schools.

The public school system is also a tool for wealth-based segregation. The elites live in good areas with good schools. Their children are surrounded by other good students from good families… and they go to good universities, later getting good jobs.

Mr. Brooks singles out zoning restrictions for reinforcing class differences and lowering economic growth:

These rules have a devastating effect on economic growth nationwide. Research by economists Chang-Tai Hsieh and Enrico Moretti suggests that zoning restrictions in the nation’s 220 top metro areas lowered aggregate U.S. growth by more than 50 percent from 1964 to 2009. The restrictions also have a crucial role in widening inequality.

An analysis by Jonathan Rothwell finds that if the most restrictive cities became like the least restrictive, the inequality between different neighborhoods would be cut in half.

Now we’re getting somewhere.

Elites always try to protect their status and privileges. They do whatever they can get away with – from sumptuary laws and taxes to subtle language codes and foreign-language menus. (The Romans used Greek as an elite language after Sulla’s victory over the Greek army in 86 BC).

But if Mr. Brooks really wants to know what separates the elite from everyone else, we suggest he stop looking at himself and begin looking at the fake-money system.

It has done far more damage than zoning. And you can’t fix it with Botox.

More to come…

Regards,

Signature

Bill

P.S. Recently, we introduced you to our newest colleague, Jeff Clark. Unlike your editor – an old fuddy-duddy when it comes to investing – Jeff is a trader. And very different from our Diary’s “big-picture” view, Jeff believes you can spot short-term trading opportunities by studying the numbers alone.

It’s not our usual fare here at the Diary. But it’s a good counterbalance to the public spectacle we discussed above.

 

Market Insight: A Bearish Signal Rears Its Head


By Jeff Clark, editor, Market Minute


Jeff Clark

Last month, I pointed out to readers of the Market Minute that the iShares iBoxx High Yield Corporate Bond Fund (HYG) was on the verge of breaking down from a bearish rising wedge pattern. And since HYG typically leads the broad stock market, I argued that if HYG started to sell off, then the stock market wouldn’t be far behind.

Since then, HYG has stubbornly refused to break down. But the chart still looks ominous. And we could see a sell-off any day now.

Take a look at this chart…

HYG broke down from its rising wedge pattern shortly after I wrote about it last month. The stock then found support at its 50-day moving average (MA) line – which is a logical spot at which to expect a bounce.

Since then, though, HYG has just been chopping back and forth. It’s just like the recent action in the stock market – all it’s doing is frustrating bulls and bears alike.

But it now looks like HYG is about to make a large move lower.

Look at the red circle on the chart. Notice how the 9-day exponential moving average (EMA) is declining and on the verge of crossing below the 50-day MA. This “bearish crossover” – if it happens – should kick off an intermediate-term decline phase for HYG. I expect that decline will be similar to the action in HYG last November.

That would likely create some selling pressure for the broad stock market.

Of course… there has to be some sort of a catalyst for that sort of move. Perhaps that catalyst will come from Fed Chair Janet Yellen when she offers her testimony today and Thursday.

We’ll see…

Jeff Clark

P.S. Every trading day, my free Market Minute newsletter tells readers where the action is headed for the day… including which sectors to watch and which to avoid.

Click right here to subscribe to the Market Minute, and you’ll receive your next issue at 7:30 a.m. ET tomorrow.

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Mailbag

In today’s mailbag, Monday’s Diary, “How America’s Wealth Is Drained,” has gotten some readers thinking…

Your examination of how wealth is drained from the economy is so right on and so succinctly put it says it all. I, being just an average guy, see this convoluted mess. But how can it be addressed to refloat the ship of the USA? We’re only in this mess because people vote for the clowns who systematically rot the inner soul of the country. I personally do not see a positive outcome.

I hope I am very wrong, but I doubt.

– Earl P.

You seem to have a way with words and those in this article really hit the nail on the head. Too bad those in government are not inclined to agree. Well, maybe Mr. Trump sees it that way… but he’s not getting anybody else to “play along.”

– David P.

Meanwhile, another reader wonders if the Fed may actually have the right idea.

“How dumb is the Fed?” I read today’s missive as I always do, with much interest and as always satisfied, and glad that I did. I am having a bit of trouble with one word though – “Dumb.” While I agree that if Yellen moves interest rates back to what the market would call “normal” would be political suicide for her and the Fed. But I’m not sure that the word “dumb” is correct, “honest” would be a good word. “Farsighted” would be another.

Neither would be a perfect replacement in the context that you use, but again, I’m not sure that it is “dumb” to wake up and realize that you have made a HUGE mistake and that it is better to take your beating now than to stay the course and get killed later.

Do I think that the Fed will raise interest rates because they gained a brain and a conscience overnight? Heck no! For that matter, do I believe that they will quickly do an about-face rather than continue to raise interest rates once they see what happens after two or three minor bumps and the market starts to tank? Heck NO!

But to try and get the nation back to something called “normal,” no matter how brutal the consequences in the near and midterm, would not be “dumb,” continuing on our current path of destruction would be. Thus, I’m at a loss for the correct word that you need for your article, but “dumb” isn’t it.

– Joe J.

In Case You Missed It…

Recently, Ted Benna – the man that Forbes, The Wall Street Journal, and Barron’s called the “father of the 401(k)” – sat down with our colleague for an interview.

His message: “I’ve created a monster.”

If you hope to retire in the next few years, you need to hear what this man has to say. Watch the interview right here.