The markets are Chaos...and Order

Interesting posts Sir O, so what you've effectively said is that based on news/current trends and what is happening with the economy, we can place these factors onto the 'clock' and find how what 'time' we are at as such? The attachments we're a bit small/hard to read.

Sir Osisofliver said:

I take no offense- did you see how I avoided the question? Let me ask you one. Given that I have said that the larger the data set the more accurate youcan become, do you think equities has the required characteristics I am looking for?

Given that there were only eight trades a week ( and there would be plenty more)That level of return just tells me that it's relevant.

Cheers

Sir o

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All very good but I see the markets as a place where vegetables grow.
I like to grow vegetables.
Depending on what’s in season I generally plant tomatoes in late spring and beet in Autumn.
Some vegetables grow all year round.
I am not a trader in vegetables, I just like to watch them grow.
I use no math to grow vegetables.
I grew a very nice patch of RRL vegetables two years ago, ended up with much more than I expected.
I kept the harvest all to myself of course.
My method is to check to see if there is a qualified gardener, soil is good, and there’s plenty of sun without too much wind, and no bugs, and well watered.
Currently got a good crop of golden beet growing right now, just seedlings but looking healthy, can’t expect to push things faster than mother nature will permit.
Am I missing out on something here?

I have been reading material that discusses the economic theory of equilibirium. Lots of discussion surrounds Walrus model and assertion that any market operating in a disequilibrium will in the long term not affect the ability to find equilibrium in another. To my mind this is utter hogwash, I cant see a point in any market in todays world where one can say ... equilibrium exists. Also touching on differential equations which is taking my brain some effort to get around, but then goes through E.N Lorenz model of turbulent flow which is easier for my brain to practically make use (and sense) of. Looking at his system actually makes a lot of sense to me and gives a good example of the impact of what can happen when just the tiniest divergence from a point of 'equilibrium' can have upon the model even with only a few variables.

Yet there is still structure. Cycles can clearly be seen. The key seems to be that an equalibrium is NEVER found. Another example given of this is Marx theory and Goodwins model of cyclical growth, demonstrating the relationship between employment and wages. The key is an equalibrium is never found.

My first thoughts upon thinking about this are ... can these patterns and any possible relationship/cycle be identified within the price points of commodities. ???

I think the markets are in a malaise at present and I cant see that changing except to accommodate a crash.

It's now boring, there is no way forward for growth, it's just a wait and see where the debt finally takes us.

MrBurns said:

I think the markets are in a malaise at present and I cant see that changing except to accommodate a crash.

It's now boring, there is no way forward for growth, it's just a wait and see where the debt finally takes us.

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Too right mr.b, it's a bloody mess and will be for years I imagine! Those bloody banker wankers have a lot to answer for. Gone are the days when you park your super safe in a cozy fund and watch it grow....now it's the great search for yield.

CanOz

Sir Osisofliver said:

Introduction
A good financial adviser might also learn some probability and how to apply it, standard deviation, variance, that sort of thing. Ultimately however this kind of math hasn’t progressed beyond Newtonian math, which is fundamentally flawed when dealing with chaos.

....

Just what the hell is Newtonian math?
Sir Isaac Newton’s development of calculus and the laws of classical mechanics began in the 17th century, where it became accepted dogma. It gave scientists and mathematicians tools to determine the dynamics of bodies by simple equations. How great was that!

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Hi Sir O
This article touches an interesting subject and I like the way you look at the Market and related phenomena, but I do not think you have some basic facts right.

There is no such thing like Newtonian math as opposed to Newtonian mechanics, Newtonian fluids etc.
You may say Newtonian math if you refer to his peculiar notation he used in his time. But Newton's mathematical concepts and proofs are universal infallible and timeless (!). The notation and terminology only changed since then and obviously new unexplored branches of maths have evolved.

In contrast Newtonian Mechanics is a model of physical world with limited scope, but the most successful one so far since it brought physics from nothingness to almost what we have today.
Newtonian Mechanics has later been complemented or generalised by other models such as Quantum Theory or General Relativity. There is noting flawed in Newtonian Mechanics. It is just a model that is incomplete.

Chaos from the mathematical stand point uses that "Newtonian math" in new context seamlessly, but exploring and expanding the knowledge and approach to a particular class of dynamic equations.

There is no fallacy in "Newtonian Maths" in economics or trading application, but there are simplistic mathematical models being applied to an extremely complicated beast which is the Marker.

"Newtonian maths" does not limit anybody to simple equations. You can make them arbitrary complicated. Whether you can solve them is another matter...

Cheers

What a great thread. It is a shame it is not continuing. I was thinking along these lines when I started a thread in the long term investing forum. I wished I had seen this before that.

Firstly Sir O, I although I have only briefly read all your posts on this thread, I get the gist of what you are trying to say. However I don't think you have the right terminology. While fractals and chaos are related they are not the same.

Similarly I don't think the market is chaotic, not at all time scales anyway. There are common macro economic principles and trends that drive them at the macro level anyway. It maybe at the daily and hourly levels but like you said the more information you have the more accurately you can model these.

More specifically the markets are highly nonlinear functions of many variables with many unknown variables and possibly many random variables (many of these variables are people!!!!). Does it make it chaotic? perhaps... but it is not deterministic to start with. However like many on the forums who guess why a stock went up by 10% on a particular day, we don't know what the person who bought the stock knows. These vague and unknown variables can be modelled with probability and/or fuzzy logic.

Another feature that is different is that the market is driven and damped. Perhaps under-damped which provides boom and bust cycles but damped non the less (we are all greedy creatures after all). Therefore generally, things don't oscillate wildly or shoot off into the distance.

You also mentioned detecting different curves. I think what you might find more useful is work related to basis function decomposition e.g Fourier series, principle component analysis, independent component analysis, wavelet decompositions etc. These are however data analysis techniques and you will need more modelling on top.

I do hope the tread continues as it is quite interesting.

Sir O,

Your first two posts and indeed this whole thread I've read with fascination.

As one barely schooled and unwise in the ways of *academia* I found the reading relatively easy to follow and more importantly, I understand what you are saying.

Would have liked to have read in full how you reached your eureka moment so;

+1 for continuing on in the style of those first OP's.

Great read, thanks.

Sir Osisofliver said:

Introduction
the peanut gallery and anyone that wants to contribute after each part and really hope to stimulate some interesting discussion.

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It was once said to me that "the more things change, the more they remain the same".
At the lowest common denominator, it's all about selling something to someone for more than it's worth, or, buying something for less than it's worth. Understand this, I understand that it is not chaotic, but, rather well organised.

While you may be able to model financial systems using a system other than a "Newtonian" system, ultimately (and without very much knowledge or authority on the subject) I feel that the problem you will encounter will be that of quantum vs classical.

Evolutionary processes produce outcomes that are on the edge of chaos. There is an associated concept called complexity theory which is a key focus on the Santa Fe Institute in New Mexico where such matters are examined in enormous depth in a multi-disciplinary way.

The guy who is probably the seminal publisher on this concept for financial markets is Professor Andrew Lo of MIT. The paper is:

Lo A; 2004; "The Adaptive Markets Hypothesis: Market Efficiency from an Evolutionary Perspective"; Journal of Portfolio Management; Vol 30; No. 5; pp 15-29.

A working paper is available at: http://web.mit.edu/alo/www/Papers/JPM2004.pdf

In my view, this is a very useful paradigm in which to think about the function of markets. It is vastly superior to to CAPM and so on, with no disrespect there given what they had at the time. The gross features are good approximations and outcomes display the characteristics as you might expect from an evolutionary model.

Enjoy the hunt, or be hunted...

Interesting video ?
https://pro.dentresearch.com/DOW10/LBNBT200?h=true

Appealing to the fearful. So sad.

Investors now on edge, looking for any reason to cut and run


https://www.abc.net.au/news/2018-10...ooking-for-any-reason-to-cut-and-run/10427464

SirRumpole said:

Investors now on edge, looking for any reason to cut and run


https://www.abc.net.au/news/2018-10...ooking-for-any-reason-to-cut-and-run/10427464

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Good $hit, great to get the stampede happening, bad moon rising. lol
Got to get that part pension ASAP. lol

A debt crisis is brewing, S&P warns, but don't expect a 2008 rerun

Debt is higher than before the global financial crisis, making the world vulnerable to economic and market shocks, S&P Global Ratings has warned.

Key points:

• The world's debt-to-GDP ratio has risen from 208pc in June 2018 to 234pc in June 2018
• Emerging markets now account for 31pc of global credit, more than double the proportion in 2008
• Chinese companies make up two-fifths of the riskiest corporate debtors

The debt-to-GDP ratio of 234 per cent in June 2018 was considerably higher than 208 per cent in 2008.

But even though the debts are bigger, the big three credit ratings agency believes the risk of a major credit crunch and financial crisis is smaller.

"Global debt is certainly higher — and in many cases riskier — than a decade ago," the report warned.

"Nonetheless, the likelihood of a widespread investor exodus is contained.

"The increased debt is largely driven by advanced-economy sovereign borrowing and domestic-funded Chinese companies, thus mitigating contagion risk."

In absolute terms, the US led the increase in government debt, with an extra $US10.6 trillion in borrowings. China was next at $US5 trillion, and the eurozone borrowed $US2.8 trillion more.

However, on a debt-to-GDP basis, China grew its indebtedness by 71 per cent — albeit from a low base — the US by 60 per cent, and the eurozone by 45 per cent.

The ratings agency said it was not overly concerned about the increase in public debt because investor demand for it remained strong, despite those government debts now being a lot higher than they were back in 2008.

Chinese corporate debt binge
The overall increase in debt has been largely driven by Chinese corporations.

"Emerging markets now contribute 31 per cent of global credit, compared to 15 per cent in June 2008. This was largely driven by China," S&P noted.

Looking at almost 12,000 companies, S&P found 61 per cent of firms had "aggressive or highly leveraged" financial risk levels, up slightly from 58 per cent.

It warned that while defaults in recent years have been low, this could change.

"Chinese corporates now make up about two-fifths of the world's aggressive and highly leveraged debt," S&P observed.

"China has the highest-risk corporate sector among the major economies."

However, S&P is also relatively unconcerned about the build-up in Chinese corporate debt.

"The Chinese corporate debt build-up represents a very high credit risk, but a substantial portion of debt is owed by state-owned enterprises, China's economy remains centrally managed and the Government has levers to pull," it argued.

"Most Chinese debt is domestically sourced, implying a limited direct external contagion risk."

Other analysts, such as global real estate firm CBRE's chief economist Richard Barkham, are even more confident that Chinese authorities are already acting to stem last year's economic slowdown.

Mr Barkham described some recent analysis around the global economic slowdown as "a little bit overexaggerated".

"The US is in robust good health, China did slow in 2018 but it's stimulating again, so we think that will pick up, there is a little bit of a slowdown in Europe, but it seems to be associated with the auto sector, and we see a bounce back there," he told The Business.

S&P put the risk of a US recession over the next year between 20-25 per cent, an event that would undoubtedly shake global markets

https://www.abc.net.au/news/2019-03-12/debt-crisis-brewing-but-dont-expect-2008-rerun/10892270

Well the ASX over 6400 for the first time since 2007, obviously the looming cloud, has been blown away.

sptrawler said:

Well the ASX over 6400 for the first time since 2007, obviously the looming cloud, has been blown away.

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The next step is to rise above its 2007 peak.

Stocks markets are roiling again as Trump steps up his trade attack on China and now opens a new front on Mexico to force them into "action on asylum seekers..

Stocks end rocky month lower as Trump widens trade war

The stock market stumbled Friday to its first losing month of 2019 in May, primarily due to President Donald Trump's decision to broadly wield his tariff powers, first against China over trade and then against Mexico over immigration.

During stocks' month-long slide investors wrestled with the potential impact that the U.S.'s escalating trade war with China could have on corporate and economic growth. Friday's losses came after Trump announced plans via Twitter to impose tariffs on Mexico in a bid to compel the nation's third-biggest trading partner to crack down on migrants attempting to enter the U.S.
Watch Now

Dow plunges another 500 points, massive sell-off extends into 2nd day

Stock market plunges, negative for the year
The move shocked investors and spurred a broad sell-off that sliced more than 350 points from the Dow Jones Industrial Average. The selling left the benchmark S&P 500 index 6.6% lower for the month, and up 9.8% for the year so far.
https://abcnews.go.com/Business/wireStory/stocks-slump-us-expands-trade-war-mexico-63399646

Serious troubles in Straits of Hormuz coming.
Whoever is responsible the risks of a collapse in oil trade through the ME is heightening.

Oil tanker attacks will inflame conflict between the US, its allies and Iran
The explosions, on a vital passageway for the world’s oil supply, may prove Trump’s policy of coercion has backfired

The explosions were bigger and the damage more extensive. But the message and its means of delivery have some similarities.

Thursday’s attacks on two oil tankers in the Gulf of Oman caused jitters in global markets and unease across a region that has been bracing for conflict throughout much of the year. As with the earlier attacks on 12 May, news of the latest strikes was again broken by media outlets aligned to Hezbollah in Lebanon and Iran, who broadcast images of the attacks within minutes of them taking place.

Pictures of both ships ablaze spoke volumes about what is at stake in one of the world’s most strategic waterways, as a regional player withering under ever tightening sanctions stares down a global superpower determined to impose its will.


Two oil tankers attacked in Gulf of Oman
Read more
Even the hint of obstruction in the strait of Hormuz, where ships pass each other like cars on a four lane motorway, is enough to upset oil markets. Frequent, and seemingly random, bombings of tankers, however, takes fears over energy security to levels not seen since the tanker wars, a byproduct of the Iran-Iraq war of the mid-80s, which sunk or damaged 543 ships in nearby waters and caused three years of turmoil in energy markets. By Thursday afternoon, two large shipping companies had suspended bookings from the Gulf oil ports.
https://www.theguardian.com/books/2...e-conflict-between-the-us-its-allies-and-iran

Can the markets keep rising forever in the face of declining economies ?

Some think not.

https://www.abc.net.au/news/2019-07...t-may-unsettle-booming-stock-markets/11354772