WELCOME TO F***IN DEADWOOD

One of the finest television series ever produced is on HBO. It is “Deadwood”, a gritty, realistic, vulgar and violent look at the formation of Deadwood, SD.[i] It is unparalled television. Fine writing, expert direction, great acting and accurate art direction. But it is more than that. It is a history lesson, indeed a look at 19th century capitalism at its rowdy, rapacious, and sometimes murderous best. Don’t like your business rival or business partner? Shoot ‘em. No EPA or any government of law. Get yours before it runs out. Labor problems? Kill the organizers.

Deadwood takes place in the 1870s, the decade that birthed the Gilded Age and the Age of the Robber Barons in America. Advancing industrial technologies, disposable immigrant labor, increased agricultural productivity and corrupt government policies that permitted robber barons to steal with impunity all came together to cause an explosion of economic activity and wealth creation.[ii]

Prior to the Civil War, there were two Americas. There was the North of small farms, a few large cities, craftspeople and small manufacturing. And there was the Deep South, a putrid aristocracy of a few landowners operating large concentration camps working black slaves. The Civil War helped eliminate one of those Americas. (It took the rise of black America through Northern cities in the early 20th century, the centralization of America in post-World War II, and the Civil Rights Act to take the biggest cuts at American Apartheid.) It took another revolution to destroy the North of small farms, craftspeople and small manufacturing. The Industrial Revolution[iii].

PLENTY OF JOBS IN THE “DARK SATANIC MILLS”.[iv]

The Industrial Revolution replaced labor with machinery, skilled craftsman with standardized tooling and industrial processes. And the productivity gains in agricultural lessened the need for agricultural workers. Measured in human terms, the cost of the disruption was substantial. But the Industrial Revolution is history. Yet it is history that we can draw upon for insights of today.

Deadwood was founded when gold was discovered. In the 1870s, Deadwood was part of the Sioux Indiana nation. It was an “illegal” settlement that the government(s) did not first recognize. It was settled by the wildest and most lawless. People who could not make a living (or at least an honest one) elsewhere. But it was also part of the closing American frontier. It was place to make a strike, start a mercantile business, or gamble. No preachers, no temperance women.

DEADWOOD INDUSTRIALIZES

New forces are at work in the Third Season of Deadwood. Underground mining operations, with their stamping mills and cheap labor, have replaced the one-man claims. Mining baron George Hearst is in Deadwood and intends to drive the few remaining operators out of business and consolidate all operations in his sordid grasp. Yep, civilization, the amalgamation of capital, and waves of immigrants have replaced the “rugged individualists” of Deadwood and the American frontier.

BUT DEADWOOD IS JUST A SHOW, AND HISTORY IS JUST HISTORY, RIGHT?

The same industrial forces that made the British Industrial cities the centers of 19th century production, and which made the United States the clearly dominant industrial power of the mid-twentieth century, have moved eastward. The Asian Tigers are the centers of industrial and emerging technological development. It is a pattern that repeats itself. Additional economic revolutions have followed the industrial revolution, and will continue to do so. The radio revolution, the electronics revolutions, and the computer and Internet revolution, all fell in line behind the Industrial revolutions. And there will be more.

But for now, make Sunday evenings a time to watch Deadwood and see how a little piece of the American Industrial Revolution played out.

DEADWOOD IS A SIGNPOST IN THE DESERT OF THE REAL!

[i] http://www.hbo.com/deadwood/
[ii] http://desertoftherealecononomicanalysis.blogspot.com/2006/06
/freakoutonomics-or-why-economic.html
[iii] http://en.wikipedia.org/wiki/Industrial_Revolution
[iv] “Dark Satanic Mills” is a line from the Romantic poet William Blake’s poem “And did those feet in ancient time”. This line was almost certainly a reference to the emergent factories of the English Industrial Revolution. Some critics see the line “Dark Satanic Mills” as a reference to the church or the English universities. An interesting irony, beyond the scope of this post. http://en.wikipedia.org/wiki/And_did_those_feet_in_ancient_time

STOCK MARKET RALLY? WHAT MARKET RALLY?

2006 began the year on a positive market note. The indicators turned positive and January saw positive movement in both the S&P 500 Index and the NASDAQ index. This positive movement continued in both indices until about Mid-May. Then the indices began precipitous declines. Below this Post are graphs of the S&P 500 and NASDAQ that show the action for the last 6 months. They roughly indicate that the positive moves of January-May have been reversed and the indices stand approximately where they did five months earlier.

GO SHORT?

The Author currently has no positions in individual equities and all of the market indicators he follows are negative. The NASDAQ index, gauged through its proxy QQQQ, the NASDAQ Exchange-Traded Fund (ETF), has lost near-term support and the Author has effectively shorted the NASDAQ. When the Author wishes to take short positions against the major market indices, he purchases shares in the RYDEX mutual fund family inverse funds. Rydex offers several funds that perform inversely to a targeted index. Additionally, some of these inverse funds operate 2 times inversely to the targeted index.

DOUBLE YOUR LEVERAGE, DOUBLE YOUR FUN!

The Rydex Inverse Dynamic OTC fund operates 2 times inversely to the NASDAQ index. So if the NASDAQ coughs up 1% of its value on a given day, the Rydex Inverse Dynamic OTC fund (RYVNX) will RISE by 2%. If the NASDAQ falls by 2%, this RYDEX fund is up 4%.

Inversely, of course, when the NASDAQ is up, this RYDEX fund will fall by 2 times the NASDAQ gain. RYDEX also markets funds that move equally inversely to several indices. So why would an investor go with a double-inverse fund?

Let’s say an investor has $100,000 in her portfolio and wants to take a 20% short position on the NASDAQ. She only need buy $10,000 shares of the RYDEX Inverse Dynamic OTC fund to accomplish this $20,000 short position. This leaves her with $90,000 to invest elsewhere, or leave in money instruments that are paying about, or a little over, 5%.

SO WHAT ABOUT THE S&P 500?

The S&P 500, as measured by its proxy, SPY (SPIDRS ETF) has not broken medium-term support. It is close, however. When it does lose support, the Author will advise.

SO WHAT ABOUT EVERYTHING ELSE?

Further market weakness can be capitalized upon with short positions and the purchase of puts. The Author is a little busy right now so he will stay in cash and short appropriate indices with the RYDEX funds. And anyway, it is summer. The Author is spending his free time at the pool, in the garden, at the movies, and of course on his Ducati. You have some fun too! When the market indicators reverse, we will let you know.

And in a day or two, the Author will repost some materials about using long puts to make money with a falling stock (Or index). Dip a toe or take a cannonball jump!

EVERYONE GETS A FEW DAYS OFF IN THE DESERT OF THE REAL!


IMPORANT DISCLAIMER: This weblog is offered for informational purposes only. Sources of information provided are believed to be reliable, but are not guaranteed to be complete or without error. Opinions and suggestions are provided with the understanding that readers acting on information contained herein assume all risks involved. The Author may or may not buy or sell securities discussed on this website.

S&P 500 Six-Month Trailing Return

Trailing Six-Month NASDAQ return