Archives January 2021

I grew up in “America as Founded.” Get used to hearing that new phrase, as it defines the “us” versus “them” (communist revisionists) mentality enveloping the cold, civil war in this country. Having grown up as such, and with traditional education, we were required to read books. One of those books was “Animal Farm,” by George Orwell. Upon reflection, Animal Farm seems the more appropriate analogy to our current demise than Orwell’s equally prescient book, “1984.”

Animal Farm was the story of the struggle between the animal kingdom and humans. Anyway, Snowball – an intelligent, though bit detached from reality pig, who shared the power with Napoleon and Squealer right after the Animal Revolution, came up with a short phrase to describe the animal community’s Seven Commandments issued by Old Mayor. The commandments were too long and too hard to understand for most of the Animal Farm (like the political mechanism or stock market is purported to be too complicated for the “little people” in our time). So, comparing the animals to people, Snowball came up with the simple phrase “Four Legs Good, Two Legs Bad.”

Snowball lets the least intelligent animals like sheep learn this phrase by heart and take it as their motto. He is right somehow: the pigs had to build their government and spread the ideas fast. They didn’t have the time to teach everyone to read beforehand. This phrase protects the farm population from the outer enemy – the humans who oppressed them and had two legs. Humans are bad, therefore not allowed to rule over the Animal Farm. But this simplification backfired spectacularly. The animals were perfectly protected from the enemy from outside, but when Snowball’s conflict with Napoleon reached the climactic point, he was proclaimed the “inner enemy” of the Farm.

The very existence of Snowball and his henchmen now allows Napoleon to change the Commandments, pretending that it is needed for the defense of the Farm. Snowball (who is long dead by that time and analogous to Trump exiting as President) becomes an excuse to do anything. Moreover, when Napoleon sees that the Commandments’ minor changes go almost unnoticed and is perfectly capable of shutting up the rare ones who protest, he changes this very phrase. Now it’s “Four legs good, two legs better,” and the change is made when the pigs start walking on their two legs. Orwell uses this image to mock the leaders of the Communist party who nominally were equal to any other citizen. Still, they lived in luxury and had almost unlimited power to use and oppress the rest. Sound familiar?

While not the most perfect introduction to the concept of corrections, most corrections have two legs. They have the first leg down like Tuesday, then a pause for a few days. The correction usually resumes to complete a second leg down equal to the first to finish the decline, and the market resumes its course. This type of correction is normal, healthy, and preferred. If that were to occur now, the chart below illustrates the possibility. The 100% projection of the first leg down is in the 3667 range on the S&P 500 futures chart below: