Rian Nejar's Blog, page 18

Spot a Market Pattern Repeating Itself?

Fed intervention and market swings

The bull market appears to show no signs of ending anytime soon. Every recent attempt at a correction (defined commonly as a ~15% drop in the market) was foiled – this occurred thrice in recent months – with market drops of between 5 and 8% followed by rapid rises taking the market higher. The DOW recently swung back up in a range of ~1000 points in less than a week, and has convincingly broken 18,000. So where are we headed in 2015?

Is the exuberance in the market irrational, as ex-chairman Greenspan famously declared many years ago? The third quarter GDP for the United States grew by a whopping 5% – for the largest economy by far – and growth the next year is forecast to be 3%, or a factor of 1.5 higher than the typical annual 2% number desired by economic and fiscal authorities here. While other nations and economic unions appear to be slowing in growth at present, the US is accelerating. All standard measures – earnings, jobs, income, spending – seem to reflect a healthy economy. The market reflects this health, having climbed to all-time high values reflected by the various indices.

The dollar, which continues to be the currency of choice the world over, has been gaining in strength. Commodities – oil, natural gas, gold, silver, and copper have all been declining in price; some such as oil and natural gas plunging in fact. The PPI and CPI – producer and consumer price indices – have been falling. This is, no doubt, good news for a consumer economy, translating to lower costs for goods and greater buying and spending capacity for consumers.

Can you see it? The perfect market environment that can, and will, attract the most humble of investors, referred to pejoratively by seasoned market and media players as retail investors? This is the mantra spoken of with little hesitation by most such investors, that it is when retail investors pile on, in their vast numbers, that ‘smart money’ sells and goes to cash. For this is invariably the top of the market, the period of calm before the storm, the last surge upward before the stampede of such buying diminishes, the flood of buyers dries up, and the market in its entirety plunges. And they know this well, for this is a pattern that repeats decade after decade.

Is this a pattern that we – a plethora of small investors – can spot as well? Perhaps. One such is in the plot above. Look at the duration between 1981 and ’87, and the duration from 2008 to the present, ’14. The expectation of Fed Tightening (raising of interest rates, making bonds more attractive, constricting money supply in the market) invariably led to a fall in the year-over-year gain for the S&P500. More than this obvious indicator (we will soon see Fed tightening, predicted to be the middle of ’15), observe the similarity in the plot segment for the two six-year periods – a bit eerie, spooky, no? The Fed has been quite involved in the market in both these durations. For that matter, look at the ’03 to ’07, and ’09 to ’14 segments: the latter appears to be almost an amplified version (thus expanded in the time scale as well) of the former.

Are there any other signs that can shore up such an argument, of a possible plunge in the market? Note that the apparent prosperity seen in the US markets in recovery from the ‘great recession’ may not be anything fundamental, for the US Fed has been busy in maintaining a most accommodating interest rate environment and copious money printing (asset purchases with money created out of thin air, Quantitative Easing – another long discussion!) to assist the market and economy. Now all other large economies have, or are following suit, given the slowdown in their domains. How long can nations and economies PRINT their way out of slowdowns and recessions? By law or nature, and to balance their books, the Fed must sell their assets and destroy the money printed, reducing liquidity in the markets…and reverse their low-interest-rate approach to normalize it with what the market itself indicates. They will delay it, and do this gradually, but it must be done, or they risk being ‘behind the curve’ and becoming ineffectual – and, as the old adage goes, what goes up must eventually…you know.

In recent days, in the three head/shoulder fakes seen in the market, where it pretended to correct, I think there has been a heightening of sensitivity toward a market fall as well. A rise in the rapidity of fear, if you will. Also, in the most recent rise in the market, I did not see star equities reflect the rise. But that may only be a year-end characteristic; all those who wish to hold star equities into the next year may already have procured them. And, in a global market, slowdown in all other economies to which we provide goods and services is surely not helpful in the year ahead.

I would, all considered, be very cautious in the year ahead, and if I do invest, do so for the very short term. I would not, as a retail investor, rush into the market at present as smart money investors hope to see when they wish to sell.

Full Disclosure: I am short the market and long volatility as a retail investor.

On Consciousness, and Artificial Intelligence

Far too many search for simplistic, sequential, highly inadequate answers to phenomena such as consciousness, understanding, even perception. A habit cultivated by too much abstraction, practiced in languages, and symbolic representations of all forms, perhaps!

Some, for instance, are so much in love with languages as to claim that consciousness is closely related to linguistic structures such as the personal pronoun “I” and its use! In discussion and debate over years, I’ve labored to show that consciousness extends over a vast range of living entities, and is not by any means the domain of any language, or means for communication, but may, of course, be enhanced by such tools.

And some, centuries ago and to the present day, have hung their hats on thought as a foundation for consciousness – Descartes is an example looming large – which has, of course, been convincingly discredited, through logical type mismatch errors too. “[Dubito ergo] Cogito ergo sum” – is a grand declaration, for sure, but ails from extreme reductionism, human arrogance (of sentience claims), and a mismatch between a verb and a noun form linguistically. With all due respect to Descartes’s body of work, this declaration, which received so much attention over the centuries, falls flat in [almost any] comprehension of consciousness.

No, one must approach the phenomenon holistically. I think all of life’s processes are manifestations of consciousness; it is thus most complex. Yes, life manifests consciousness, consciousness is life; it is not poured into life in some mysterious way. One can design a complex machine that goes through its programmed motions, but that is an automaton, a simple self-directed system, an imitation of a sub-set of life, perhaps. Such exact determinism in responses isn’t natural, nor can it approach the heights of accomplishment that life, in the greatest of adversity and uncertainty, is capable of.

I think that it is our capacity for error and approximation, for conflict combined with resolution, for ambiguity faced with resolve, that we overcome limitations of linear thought or action. It is in a multitude of perspectives, in our imaginative abilities, by asking “what if?” and doing things somewhat differently, and with sentiment and emotion, that we overcome insurmountable obstacles. And sometimes, we arrive at answers in a “black box” manner, by gut feel and intuition, by what may be called quantum leaps in finding solutions…all of which are aspects of extremely complex, holistic, systems such as the temperamental, error prone, neuro-electro-chemical organs biological brains are.

So what does all this thinking mean in terms of the development of artificial intelligence and consciousness? It’s silly to think that we’ll develop such phenomena by writing millions of lines of code, or by means of the internet as some declare fearfully; all that may only be our habit of leaping to conclusions. Neural net simulations (such as the Restricted Hypersphere of Influence algorithm I worked to develop in ’94 that looked for lines and edges) have demonstrated a self-organizing capacity for approximation, for abstraction; such ability can perhaps begin to assist in motion management to start with. I recall that fuzzy logic – a related field of research – was (is?) employed in vehicles that automatically park themselves. I think such beginnings are far more practical; complexity may be built in gradually to lead to the development of consciousness.

Let’s not try to build any artificial being in our image, and scare ourselves with visions of demonic domination, before we build the simplest sub-parts…

What do you think?

Once More Unto The Breach, My Friends…

“What siege, and charge, is this?” you ask.

No, not for any city, as this cry was famed to have inspired. Nor a call to rally anyone… not yet. No, this is to muster courage, to strengthen the spirit, to once again attack the bastion of materialism that shelters the privileged few and oppresses the vast majority.

Overly poetic? Perhaps…but resolute. I’ve stayed away from capital markets long enough. This is the means – the vehicle – by which the 1% differentiate themselves from the rest of us all. It is this that we too must demystify, learn in full, and participate in with vigor. This is the dictator’s castle we must storm…and swarm, to open it up for everyone.

It is said to be a rigged game – a massive Ponzi scheme by some – but is nevertheless a dominant aspect of global society today. Leaders and governments come and go, groomed by the resources held by those who’ve established themselves at the top of this unnatural mountain. These shadow dictators determine how society runs. The rest of the process – democratic exercise – is but an illusion; the past many years firmed my conviction of this reality. This is the game I too must play, and play to win. And I am resolved to play it guided by ethics long discarded by most in this game.

“But what does the chart show,” you ask with diminishing patience.

It’s a plot of an index…of the volatility of volatility of the broader market, plotted for the past year in blue with VIX (orange, volatility) and SPX (green, broader market) from a CNBC information page.

SPX, or the S&P500 index, you do know. VIX is related to an exchange traded note (VXX, a paper you can buy and sell in the ‘free’ market) whose price is determined by what investors are willing to pay to insure themselves against a market fall. Hence VIX is called the fear index; as investors become more concerned about the market rise and its sustainability, they buy more of this insurance. VVIX is the rate of change of VIX, a derivative of what may be called a sentiment derivative of the market. A complex derivative, an aspect of today’s markets I’ve alluded to in Humbling and Humility.

“Spare us the details, the complexity!” you say? I’ll summarize…

Now note that VVIX is stronger (peaked higher) most recently, and its moving average (a measure averaged over a moving window of a number of days, not plotted) is rising. A divergence – market term for a trend that does not follow the expected course – to note is that the recent peak in VVIX is higher, though both the VIX and SPX extrema are lower. Though the market, and fear, moved less, the speed with which fear rose increased.

Fear in the markets appears to be rising more rapidly. And subsiding similarly too. Traders are jittery, on edge, perhaps. And since VIX reflects insurance against a market fall, the recent VVIX action could imply a heightened sensitivity to the possibility of a fall in the market. Yes, with a bull market having run on for more than six years now, and despite what seems to be a strong economy and good prospects ahead, a consolidation, and possibly a deep correction, is what is anticipated in the year ahead.

Full disclosure: I hold a small quantity of TVIX (an amplified exchange traded note based upon the VIX) at present…in market terms, I am long VIX.

A Humble Gift From An Author

Humbling and Humility, a complex novel about contemporary Indian American lives, struggles, and culture, is made available free of cost this week at Smashwords as a year-end gift dedicated to all readers.

You may need to create a user account at Smashwords to obtain the book. Upon initiating a purchase transaction, enter coupon code LD99A and the site should not ask you for any financial information with the book price dropped to zero. You will then be able to always access various file formats of the book, compatible with your electronic reading devices, at the site. Please note that the coupon expires on December 26, 2014.

If you find the book intriguing, thought provoking, or enlightening, please provide a corresponding review at Amazon, Smashwords, or your other favorite online retailer, and recommend it to your friends…that is the only gift I hope for.

Happy Holidays, and best wishes for an interesting, enriching New Year ahead!

-rn

A Mother Protecting her Little Ones

Excerpt from “Small Measures of Peace” of Humbling and Humility

I learned so much from Lucy, the feral cat mother, who adopted us and our home. I learned from her, and her alone, that in Wariduna’s dry air, bedeviled by static electricity, it is good to brush your body against walls and other items in the house often. This helps dissipate charge accumulated, and lessens static shocks. I learned this watching her rub her fur all over the place rather than just on us. It is a habit I have now adopted zealously despite not having as much fur as she does.

Did I tell you about how she came to live with us? Not in any detail? Let me do that now, before I tire of penning my many stories. Lucy is important to my little family. She is family too, and taught us much about being family. So much so that my daughter and I have begun to write a kids book about her, about what she taught us.

Cleaning my backyard, many years ago, I happened upon a young black cat watching me. She was standing on the gravel spread along the side of my house. With no pet collar visible on the cat, I walked around and looked for a broom to shoo it away. Back with the broom, I proceeded to make loud noises, but the cat stayed in place, standing between me and a lawn mower lying beside the house.

Looking more carefully, I saw three tiny heads poking out from behind the mower. This was a new mother looking for a place to raise her young! What could I do, now knowing the reason for her resolute presence in my yard? I went into the kitchen and came out with a bowl of milk, for the kittens and the cat, that I laid beside the boundary wall.

My children, quite small in those days, were the first to notice the presence of the cat. They brought it to my attention, and now were most pleased by the turn of events. Needless to say, replenishment of the bowl of milk became our daily family activity. Over time, the kids’ mother also involved herself in this pursuit. She insisted that milk could be bad for the kittens, and replaced it with kitten chow. This changed things somewhat. We now began to cater to their needs specifically, buying whatever was required. Looking after them now became a chore to plan for. The kids named the mother cat Lucy, and her kittens, Black Panther, Brave Heart, and Recluse.

 

Another Innocent Man Dealt Extreme Prejudice

Shot dead, because he was holding a gun. John Crawford, shopping at a Wal-Mart, holding a product he’d taken out of a box on their shelves. His girlfriend, who was in the store (but perhaps not at his side when he was shot dead by the police), was interrogated later – aggressively – for anything the cops could use to justify their deed.

I’m sorry, but this is murder, plain and simple, of an innocent man. And the interrogation of a devastated companion, who was not told of her boyfriend’s death until after this questioning was complete, a reflection of your presumption of guilt. Not innocence, but guilt. But you – cops who shot an innocent man with no cause – are the guilty ones…

And yet, a “grand jury” failed to indict the police for excessive force! Your protection – the people’s prosecutors – have undue control of the grand jury process…isn’t the justice system failing the people and society it must heal?

CNN on Wal-Mart killing of John Crawford

Being Human…not “People of Color”

Some years ago, watching my junior high son play league basketball, another parent, a mother, engaged me in pleasant conversation. She pointed to her son in the ongoing game, and I reciprocated; we exchanged compliments about both children, and continued chatting.

After many minutes and exchanges, she popped an unusual question: “I’m Christian, what are you?”

“I’m Human, what are you,” I shot back in return.

She managed a smile in her dumbfounded state, and I turned to the game. We did not speak any more after this rather loaded exchange.

This isn’t the first time I’ve had to field such a question that attempted to “classify” us as I saw it. All because of Aristotle and his classification of living things, perhaps, and his ideas on prime movers as forces in nature that influenced all sorts of theological derivations. But I digress…no, this isn’t the first time I’ve been asked to classify myself. It was in the completion of an enrollment form for a largely professional company in India that I’d been asked to disclose my religion – two and a half decades ago. I responded with “Human” there as well…comforting that nothing much has changed in me since then.

To the topic at hand. We are, one and all, HUMAN. Not white, yellow, red, brown, black, or green/blue from Mars/Venus. Not Christian, Muslim, Jew, Buddhist, Hindu, Jain, Zoroastrian, Heathen, Pagan… We have all evolved from Humanity originating, per much fossil and genetic evidence, from the heart of Africa. I am an African. So are you. And you. And everyone else. And – we are all connected, through blood, through biology, through nature, to all life. Don’t believe me? Please – look through research in video documentary form – The Journey of Man.

So why did this thought pop up again? I am disturbed by the regular use, by those with genuine grievances, of the term “People of color.” It is offensive, and rather unhelpful. Why do people pit themselves against others by such classification? It smacks of a group or mob mentality. Hey – look at us – we are people of COLOR. Red, Brown, Yellow, and we are all different from you, White. You have NO color. You are NOT like us. See what I mean?

Such references are divisive. They perpetuate differences amongst ourselves. There is no denying that human failings bring in the influence of such differences in how we deal with each other. And that government systems, run by humans, with their known failings, may be unfair in spirit toward those viewed differently. Yes, minorities in America may find such treatment their lot. And yes, we must highlight such injustice…but we must also build bridges at the same time. We do not improve relationships by differentiating ourselves, by divisive classification. This is not the path toward a new Civil Rights advancement. Such distinction only perpetuates inter-group friction, distrust, and continued violence.

I too am guilty of highlighting some differences, in Humbling and Humility, even apologizing for references to ethnicity in places. I too have pointed out significant differences in this difficult journey of life – but those are human differences, distinctions of character and culture, common throughout the world. And I have not, and will not, refer to our suffering as that of “people of color.” I do declare that such references, as in the Open Letter from the Howard University School of Law, are divisive, not inclusive; we must shed them as we march on toward the justice sought.

Howard University School of Law Open Letter

EIT (Enhanced Interrogation Techniques), Torture, and Murder… tools of the trade?

“EIT – sounds so Orwellian, doesn’t it?”

“But it’s not really about them. It’s about us. It’s about who we are.“

– Senator John McCain, “Face The Nation,” 12/14/2014

For the second time in my humble life, I was impressed by the words of a politician. The first was when I’d heard then Senator Obama declare his candidacy for the presidency of the country, in late ’07. But that impression, shaken by what seemed to be an unwarranted award of a Nobel Peace Prize very early in his first term, has waned greatly over the years. Senator McCain seemed most sincere today. His words, in the “Face The Nation” program this Sunday morning, resonated with my thoughts.

A Republican politician of the good old US of A? Approving of the recent release of a Senate Intelligence Committee report on CIA actions after 9/11 that is vociferously branded by most Republicans here as constructed principally by ‘Democrats‘ and released before their hold on the senate ends? Ah, but we must recall that John McCain is a true war hero, a veteran of the Vietnam war, where he was a badly injured POW from ’67 to ’73, undergoing episodes of torture…

“Those operating our drones express their great concern: ‘We are now called torturers. Will we be called murderers for drone strikes?’…” Comments conveyed by another participant in the same program.

But what are we, really? The richest nation in the world. Arguably the most powerful. How did we (our corporations and the 1% mostly) grow so rich? And we are, by many measures, apparently the most charitable as well, for our contributions to helping others – countries and people all over the globe – exceed a good few 100’s of billions of dollars. Granted that is only a tiny fraction of a ~17.6 Trillion (source: Wikipedia) economy, but it is larger than the GDP of many nations. And yet there is something not quite right in this picture. Revelations of recent years – the leak of Diplomatic Cables a few years ago, and more recent leaks by Edward Snowden of the NSA – have raised firestorms of criticism and accusations. What of our activities of the past many decades? What do past revelations tell about us?

Could it be that the tragedy of September 11, 2001 simply made us lose control as a nation, and engage in overt actions of brutal aggression? Have we engaged in extraction of information, torture, and murder in the past as well, but without as much publicity, both through leaks and now through official recognition, as we see today? John Perkins’s Confessions of an Economic Hitman provides compelling details of activities we’ve carried on with relative impunity…

Plainclothes police: composure and minimal response

In the uproar against excessive force by cops, their measured and controlled actions often go unnoticed. Here are two situations, one from a few weeks ago, and the other just a few days ago, involving plainclothes (undercover?) cops…

Some weeks ago, on a quiet southwest fall evening, browsing the web in my bedroom upstairs, I heard – “OH MY GOD!” A man’s voice, loud enough to penetrate walls and closed double-pane windows…it couldn’t be my widowed neighbor in the house nearby, for she’d bought herself a $100K Jaguar and had stopped entertaining men at her place.

A few seconds later, “OH MY GOD!” The cry did not diminish in its intensity. And again, “OH MY GOD!” And again…and again…

Concerned, I moved out onto the first floor balcony, listening carefully. A tragedy in the home beyond my neighbor’s, a child gravely hurt, perhaps? A father lived with his young daughter in that place. Straining to hear what was going on, a child’s voice could be discerned, one that did not seem disturbed. The man’s cries appeared to diminish, and then stopped altogether. I moved back inside. Not knowing that neighbor well enough, any further investigation was postponed.

Some minutes later, there was a loud pounding at my door downstairs. Irritated by the rude knock, I knew it must be cops, and my widowed neighbor who probably called them. But why were they at my door? Despite being clothed in pajamas, as in the misfortune that befell me in Humbling and Humility, I did open the door, and found an officer who informed me that a neighbor had reported loud cries.

Confirming that I’d heard the cries as well, I walked out to the driveway, and sidewalk, to guide him to the house it seemed to have come from. Pointing it out to him, I turned back…to see two more cops in the yard lurking in the shrubbery. One was uniformed, and the other was in plainclothes, some distance behind. They followed the officer who obtained directions; I walked back into my place.

Three cops to attend to a call about loud cries from a home? And one in plain clothes? Seemed overboard to me, but this is the city of Dilbut in the state of Wariduna. Some minutes later, I walked out and saw two more cops loitering in the yard. They stopped to address me, and mistaking them for more bored cops joining in the excitement, I redirected them. But they clarified that the cries were from a man who consumed one too many beers, and watched his favorite football team lose their game. I thanked them; they moved to their vehicles parked in the street some distance away.

Upon meeting my widowed neighbour some days later, talking to another, I made sure to update them about the excitement she’d caused, and the rather undesirable encounter forced upon me. She said she’d apologized to the man who’d been visited by cops…and that he thanked her for caring enough to do it. Another perspective to the event.

In recent days, we see large crowds protesting, and vandals taking undue advantage of transient disorder in the streets. Here, cops are compelled to adopt what may seem to be a most unpleasant tactic: plainclothes officers mingling with such crowds undercover. Here’s one such incident in the link below – you may draw your own conclusions – but I cannot fault them for their controlled exercise of cunning and force.

Undercover cops attacked by a mob in Oakland

A Legal System, Not a Justice System

An excerpt from Humbling and Humility

“I don’t think we have a justice system,” Sid declared, back with his notes. “We have a legal system.”

Nods of agreement from some in the group, confused looks from others. What do you mean, Sid? Isn’t that the same thing, and aren’t you just playing with words? Sid said what he meant is that the system isn’t necessarily designed to mete justice as we expect it to do. Because justice is, in most cases, relative; what is just for one may not be so for another. It is simply a system of laws and enforcement, with courts serving to officiate over determinations regarding laws broken and the manner of such infraction. In short, it is, like any other government system, prone to manipulation and corruption, though it has been designed to be impartial and fair, more or less, with checks and balances built in.

“Honesty is not always the best policy within the legal system,” ventured Sid.

I could attest to that from personal experience. Consequences of my honesty with law enforcement included arrest, prosecution, and this re-education program. The police report filed, and conversations with Mindy, my lawyer, helped confirm that for me.

I recall, when questioned by officer Gormon Grigorevic prior to my arrest, telling him everything that I knew had transpired: my wife’s absence until late in the night, her lack of response to repeated calls to her cell phone, her return past 10pm, and my requests that she and I discuss that disagreement downstairs. She had ignored my repeated requests and those of my son as well. I entered the kids’ bedroom, pulled on her arm as she lay on the bed, insisting that she come down to discuss the matter. I described the ensuing emotional discussions downstairs, in the course of which she repeatedly called a non-emergency police number, disconnecting the line at each instance. I had no qualms in describing everything that happened to Gormon as comprehensively as could be recalled. It’s fair to say I trusted the police then.

It was Mindy who told me that Gormon, who expressed surprise in his conversation with my wife, had told my spouse that with what I was telling them, they’d have no problem arresting and prosecuting me. It was as if an adversarial side was chosen by law enforcement personnel, and honesty by the other side then became helpful ammunition for the system. The other cop, of Hispanic ethnicity––from Feliz, his name––who accompanied Gormon, had looked at me sympathetically as matters unfolded that night. Gormon was in charge, and I had been deemed the criminal. Judge-jury-executioner mode again.