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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Square_Dealings who wrote (20093)	10/17/2004 2:25:17 PM
From: Canuck Dave	Read Replies (1) \| Respond to of 110194

I did a piece for FSO on the coming instability. financialsense.com A perfect example this week was the action in copper and nickel. The plunge protection team has done too good a job stabilizing markets, and massive imbalances are manifesting themselves in ever more common break outs. I used to use fractal scaling of turbulence for research purposes, and as the article you posted points out, chaos theory explains in a statistical way, but does predict. 99.99% of the time, it provides good statistics on the limits of future behavior. Another thing we did was "extreme event" analysis for climatological (global warming) purposes. Unfortunately, the models were too coarse to properly represent the totality of climatic interactions. The storms just couldn't get intense enough in the models given their lack of small scale features. Thus, the model extremes were fairly modest even in a "normal" climate. There are three implications to all this. First, the real financial world is probably now too complex for the risk models to properly represent. Second, there are times in all real world turbulent ("chaotic") systems where random fluctuations give way to secular change, often going to a new equilibrium with different "normal" statistics. Third, human emotion will play a part when a "10-sigma" event begin to unfold, probably making it a possible 20-sigma event. "It" happens. Just my opinion. CD