19 August 2010

Cycles, The Market and Computability

When academics say a certain market has evidence of chaotic processes what are they looking for. Chaotic systems have certain attributes, one of which is strange attractors, these give rise to cyclical processes. But unique to chaotic systems is the fact these attractors have non-integer dimensions (there is a tool, based on correlation dimension for measuring the dimension of strange attractors).

The blog has talked about this structure before. It is a feature of the natural world, the natural world does not seem to have perfect forms Plato saw in his mind.

However certain ideas of Penrose and others suggest they may have an existence in the natural world. But not the natural world as you experience it, which is supremely fractal, but with that which you experience it, your mind interacting with the world. The computation of the mind itself may be connected with the world of Plato.

164317_2012 Raw Spin Wedges

The fractal non-periodic cycles in a chaotic system produce some of the effects one sees in financial markets. That sense of being able to see structure very clearly, after the effect, because predicting the effect is impossible.

Those cycles in markets except perhaps in commodities do not come from the natural world they probably come from the action of attractors, which are computational processes, with no predictability. That issue is the problem of prediction based on structural analysis working sometimes and not others.

But the markets may be a bridge between the natural world and the world of Plato. The processes Penrose talks about may be connected with certain technologies in the mind, and thus consciousness itself. The market is the intense application of the mind in an incredibly focused manner, the focus provided by $$$. If it is anything in this world, then it is there.

One could explain crashes in the market by this feature of chaotic systems: that disorders happen when changes are accumulated to a certain point. The market has chaos in it, there is no question of it, but there are minds in it as well.

The determinism in chaotic system, is a kind of negative determinism, the system will act as it acts until it has to reorder itself. But the mind has intentionality. This is a kind of theoretical back up for the ideas of revaluation this blog has been discussed.

The revaluations of the crisis were not chaotic they were accurate, once it was clear that the millions of mortgages underlying asset values were in fact debt not assets. It could be conjectured the actions of minds triggered a chaotic re-organization. Intentionality uses processes, it is just the market may to an extent be a way for the mind to use chaotic processes.

Everything matters in investing, every intentional creative act in society. But one does not need to take account of these, one just needs to look at the financial statement, because they show up there. The economy itself is referenced in working capital and more broadly in revenue (but reference this to cash, particularly working capital, to more precisely value revenue).

But one needs to look at what is actually happening in the economy, how money flow is being used to float those assets values and how the market has been rejecting this.

But what else could it do, it is there to correctly value and it is incredibly precise and accurate at doing this. This is partly the reason why some investors have got incredibly rich by their ability to pick these companies before the market gets to value them. The *market* never really predicts that is why those companies are there to value.

It is true projections get made, but these tend to be inaccurate and get discounted as they are made, thus their effect dissipates (another source of the time decay this blog has talked about). They tend to be least discounted at market tops, which is why they are market tops.

But this is when they should be most discounted. It calms the view of the market to say there is no predictability, because there cannot be. One does not need to worry about whether the mind can predict or not, one can say the market does not have the structure to allow this. So you must take account of what is happening now, it is one reason why the year on year comparisons in the financial statements are so powerful.

Why should you do this, well the analysis of financial statements has produced this great wealth. What this is really saying is those intentional processes are showing in the financial statements.

© 2010 Guy Barry - All Rights Reserved.