OK, that title was not exactly the Sermon on the Mount. But it is Matthew – seriously.
As much as the Sermon on the Mount, Matthew is also known for the “Matthew Effect”
The Matthew Effect of Accumulated Advantage is sometimes summarized by the adage “the rich get richer and the poor get poorer“. The concept is applicable to matters of fame or status, but may also be applied literally to cumulative advantage of economic capital.
Before getting into $COMP, let’s talk about Matthew a bit. He was an interesting guy.
In the beginning (so to speak – sorry, couldn’t resist that one), the Matthew Effect is about the inequality in the way scientists were recognized for their work. Norman Storer of Columbia University discovered that the inequality was common in a range of disciplines (see https://www.jstor.org/stable/10.7312/rign14948).
The term was actually coined by sociologist Robert K. Merton in 1968 and takes its name from the parable of the talents or minas in the biblical Gospel of Matthew. Merton credited his collaborator and wife, sociologist Harriet Zuckerman, as co-author of the concept of the Matthew effect.
In case your memory of Matthew is a bit, uhh, “rusty”, try this from his Chapter `2:
10The disciples approached him and said, “Why do you speak to them in parables?”
11 He said to them in reply, “Because knowledge of the mysteries of the kingdom of heaven has been granted to you, but to them it has not been granted.
12 To anyone who has, more will be given and he will grow rich; from anyone who has not, even what he has will be taken away.
13 This is why I speak to them in parables, because ‘they look but do not see and hear but do not listen or understand.’
14 Isaiah’s prophecy is fulfilled in them, which says: ‘You shall indeed hear but not understand, you shall indeed look but never see.
As a poet, Matthew has a lot to offer when you put him in context of his time. Recall Matthew wrote after “Mark” and before the more Greco “John” – he was writing somewhere between AD 80 and 90. Matthew stood on the margin between traditional and non-traditional Jewish values, and was clearly familiar with technical legal aspects of scripture being debated in his time.
I think of Matthew as having a bit of Tom Wolfe in his time.
Anyway, writing in a polished Semitic “synagogue Greek”, Matthew sources from the Gospel of Mark. He also draws from the hypothetical collection of sayings known as the Q source (material shared with Luke but not with Mark) and material unique to his own community, called the M source or “Special Matthew”.
And his story is heroic – Jesus as the Jewish “superhero” amidst Roman subjugation:
- the Messianic son of David
- the prophet who surpasses Moses
- the seed of Abraham that blesses all the nations
Real superhero stuff.
But I’m digressing – let’s get back on point.
The wisdom of Matthew is that you will see things right in front of you and still be clueless.
I can easily do that one – when I was a hockey referee some claimed I missed a lot “right in front of me.” But, again, I digress.
His Chapter 13 is part of the Third Narrative in which Matthew tells the Messiah story using a set of parables about truth and wisdom. Check him out.
Which brings us to the Matthew Effect – rich get richer, poor get poorer – a central tenet of econophysics.
Who else but a Monetary Politburo to drive a Matthew process, right?
Tim Knight (Slope of Hope) is witness to the Matthew Effect in markets. In his “Characterizing the Indexes””, Tim marks the $COMP’s ever-rising wedge: https://slopeofhope.com/2021/04/characterizing-the-indexes.html).
Check out $COMP – “The Dow Jones Composite, as is the habit of so many assets lately, hit yet another lifetime high. That wedge has tidily confined prices for over a year now.”
Kinda like those GDP reports PBOC prints month after month, year after year, celebrating the “glorious rise” of the socialist paradise otherwise known as the “Red Ponzi.”
Need to see more?
Sure – Tim lays them all out for you:
The NASDAQ Composite isn’t quite in lifetime high territory quite yet. It wouldn’t take much to do so, particularly with a tidal wave of earnings coming from huge tech firms next week and, even more so, the week after.
The more narrow NASDAQ 100 did, however, reach a lifetime high.
There are those two words again – – Lifetime High – – for the S&P 100. Optimism abounds! [My emphasis – not Tim’s]
Small caps, however, are still being left out in the cold (relatively speaking). This has been meandering for months now, with no clear direction and certainly no gusto, either bullish or bearish.
Rich get richer – poor get poorer
As you know, the H&S on the semiconductors got wrecked a couple of weeks ago, although it is still beneath its broken uptrend.
The charts above are pretty much just the past year or two, but I’ve deliberately selected a much longer period of the Dow Utilities, below, to illustrate what might be an important shift in trend.
Volatility, naturally, has been getting the life strangled out of it for many months, as we sink directly into the mid-teens.
Lastly, the final bastion of bearish possibilities – – the last ursine creature standing – – is the oil sector.
Let me add one more diagram driving all of this – the mark of the “beast” – err, I mean the Monetary Politburo.
“To anyone who has, more will be given and he will grow rich; from anyone who has not, even what he has will be taken away.” Matthew 13:12.
And our Federal Reserve will certainly see to that.
Wisdom, kids – straight from the Holy Spirit.
Econophysics2020 