The Bubble Composite

"As Mark Twain said, 'history does not repeat itself, but it does rhyme' There is a certain rhythm to secular bear markets in that they often take a similar shape in magnitude and duration. Secular bear markets can last anywhere from 10-15 years and I have created a bubble composite based on three well known bubbles and secular bull market tops. The bubbles I used were the Dow Jones from the 1929 peak (Great Depression), gold’s 1980 top (beginning of The Great Moderation), and the Nikkei’s 1989 top (Japan’s Lost Decade). Taking the average path of the three bubbles and overlaying the data with the NASDAQ’s 2000 market top showed that there was a likelihood that 2010 would contain the next major market peak and that we would then have a long slide into the next low in 2013. The bubble composite has been uncannily accurate and projected a market peak in the first half of 2010 followed by a short snap back rally before plunging back to the 2009 lows. Given the bubble composite is an average of three paths the day to day noise is a bit filtered out though the declining trend for the next few years is as clear as day and is not the least bit encouraging."
Chris Pupluva

A very intriguing analysis:
http://financialsense.com/contributors/chris-puplava/when-the-market-speaks-listen

My intrigue with fractals is well known.
http://randomroving.blogspot.com/2001/09/chaos-fractals-and-complexity.html

Sierpinski's Triangle and The U.S. States

In February 2009, I made a post referencing Sierpinski's Triangle for a theory on the fractal nature of this calamity. The New York Times reports today about "the state of the States":

"California, New York and other states are showing many of the same signs of debt overload that recently took Greece to the brink — budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay. And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis. New Hampshire was recently ordered by its State Supreme Court to put back $110 million that it took from a medical malpractice insurance pool to balance its budget. Colorado tried, so far unsuccessfully, to grab a $500 million surplus from Pinnacol Assurance, a state workers’ compensation insurer that was privatized in 2002. It wanted the money for its university system and seems likely to get a lesser amount, perhaps $200 million. Connecticut has tried to issue its own accounting rules. Hawaii has inaugurated a four-day school week. California accelerated its corporate income tax this year, making companies pay 70 percent of their 2010 taxes by June 15. And many states have balanced their budgets with federal health care dollars that Congress has not yet appropriated."

The entire article:
http://www.nytimes.com/2010/03/30/business/economy/30states.html

Cold and Hot

I often find microcosms great places to learn and to understand the larger picture. A microcosm, like a fractal, provides a smaller scale of the larger structure. Fractals, being self affine, provide the opportunity to observe and understand a structure on any scale.

Recent developments in Iceland and Zimbabwe provide "microcosm opportunities" that could guide us for the future. Iceland, a country of 300,000, appears to be suffering the financial crisis on an extreme level. The Prime Minister just terminated his entire cabinet. The commerce minister also resigned. Our country appears to believe that the politicians can save us while history will prove that Iceland is leading the "politician exodus". A mob of 7000 people protested in front of the parliament building calling for the government to step down.

Zimbabwe is experiencing 11,200,000% inflation, the highest in the world. No, I didn't accidentally type too many zeros. Can you imagine what a meal costs there now? Basic necessities to live? A loaf of bread costs 1.6 trillion Zimbabwe dollars up from 200,000. Political chaos continues to reign.


Iceland

http://www.cnn.com/2009/WORLD/europe/01/26/iceland.government/



Zimbabwe

http://edition.cnn.com/2008/BUSINESS/08/19/zimbabwe.inflation/index.html

http://www.reuters.com/article/latestCrisis/idUSLQ010015

Chaos, Fractals, and Complexity

Ten years ago I was spending the days studying geologic information and the late evenings analyzing stock charts. One day it occurred to me that well logs and sea level curves had similar patterns. It later became obvious to me that the patterns on the geologic information resembled the patterns on stock charts. What did these things have in common? Nothing that I've ever determined except "sameness in form". This made me curious.

In 1987, James Gleick published a book called Chaos. This book brought knowledge of a new science to the masses. An excerpt.....
"Where chaos begins, classical science stops. For as long as the world has had physicists inquiring into the laws of nature, it has suffered a special ignorance about disorder in the atmosphere, in the turbulent sea, in the fluctuations of wildlife populations, in the oscillations of the heart and the brain. The irregular side of nature, the discontinuous and erratic side---these have been puzzles to science, or worse, monstrosities. But in the 1970s a few scientists in the United States and Europe began to find a way through disorder. They were mathematicians, physicists, biologists, chemists, all seeking connections between different kinds of irregularity."
http://www.around.com/chaos.html

Chaos theory and complexity are being studied in every imaginable field integrating science and mathematics.
http://www.santafe.edu/sfi/organization/vision.html

In 1988, I attended a seminar on chaos theory. From that point on, I was forever curious about the relationship between "things" and mathematical algorithms. The most interesting to me has been the "s-curve" or logistic equation. We've all seen S-curves representing many things. Its first breakthrough was in studying population growth in various species.
http://thesaurus.maths.org/dictionary/map/word/2129?PHPSESSID=2d169eb0cb114d58ebca8a2a51675771

This pattern seemed to appear constantly in stock charts.... especially on "moving averages".

Fractals are similar patterns that repeat in a variety of scales. Fractals appear naturally
in living and non-living things. Heartbeats create fractal patterns...snowflakes, clouds,
and the stock market.
http://library.thinkquest.org/3493/

This self-study of chaos and complexity has led me through over thirty books on the subject. I can't say I understand more than 10% of it, but it continues to be fascinating.