[deMolay]

When you consider that most people are employed by small business, it will be devestating. And this is only one facet of the problem. Each facet has the same problem. It is erasing the big companies and the small guy at the same time. Now the Die Off. So let's say all the independant truckers go under, who delivers your food to the city? How about that facet.

[deMolay]

Keeping in mind that many of the small farmers and larger farmers went under as well just to compound the issue, of this facet of the crisis. Of Black Swan.

[Aaron]

It will all be fine folks... plenty of jobs will be available for everyone.

Well... everyone still here after we ship most adults overseas to fight the energy wars that is. It'll be just like 1941-1942... can't walk down the streets without getting hired.

[shady28]

I don't really think black swan has it right as to the causes, but rather they mathematically note the patterns that show up in economics.


If you want to take this to the next level, take a look at Fibonacci numbers. They are integral to Maldelbrot models. Most people recall these numbers from grade school - the "Golden Mean" or "Perfect Proportion" which Leonardo DaVinci used.

Phi (1.618) and its inverse (0.618). The ratios show up in the spirals of the galaxy, the spirals of the DNA helix, the spirals of a seashell, and the spirals in a pine cone.

And guess where else it shows up - major moves within the stock market, the best singular gage of current and future economic activity.

Why? Most believe it's because of the herding behavior of humans. Humans are emotional creatures, and their emotions create feedback loops with other humans. This in turn is reflected in the markets as sentiment goes from optimism to pessimism.

It's been found that, in most cases and at all degrees of trend, the ratio of one market move to another tends to be a Fibonacci ratio. This is why, if you ever mess with stock charting and analysis software, there is virtually always a tool that will take a market move and show you the possible price targets using 1.618, .618. and .382 the magnitude of the previous move.

Now, there are many degrees of trend (magnitudes). Most analysts will talk about, at most, the secular bull from around 1981 - present. A few will talk about the cycle from 1932 to present.

But, there is a lot of evidence there are larger cycles. One of them being the 'Grand Supercycle'. No one lives long enough to see a grand supercycle start and end - they are measured in centuries.

Below is a snippet on the supercycle degree patterns from Wikipedia. These are the cycles that take decades to complete.

Take note, this was written in 2006 :

Conventional Kondratiev analysis would suggest that the 2000s should represent a Kondratiev winter. The fact that it is thus far (2006) not occurring suggests either monetary inflation and pumping of global liquidity on a massive scale in an attempt to deny the business cycle, or that a cycle of a larger magnitude than the Kondratiev cycle is operative and that the Kondratiev winter has effectively been overwhelmed by this larger-degree up-thrust.

There is no credit-led expansion in recorded history that has failed to end in a dramatic credit crunch and economic catastrophe. See Financial Reckoning Day by Bill Bonner and Addison Wiggin, and The Great Reckoning by James Dale Davidson and William Rees-Mogg.

Kondratiev's own work showed a Winter beginning 1914-20. That would normally have ended around 1945, but most theorists would agree that it lasted until 1949, with a new Spring commencing in that year. Given the shortest time period for the K-Wave of 40 years that would mean a new Spring Phase beginning in 1989, and an Autumn Phase beginning in 1999, with the Winter beginning in 2009. With the longest time period for the wave of 60 years, then the new Spring Phase should begin in 2009, but that would mean the Winter Phase should have begun in 1994, and now be almost over. Given any time period between the shortest 40 year and longest 60 year span of the cycle it is impossible to arrive at a Winter Phase beginning in 2000 or thereabouts.

In fact, a Spring Phase beginning in 1949 and lasting around 25 years until the mid-70s does appear to conform with the post-War boom period, and the collapse of that boom into the slump of the 1970s, and protracted recessions of the 1980s and early 90s. Trying to connect this to periods of stock market performance is a corruption of Kondratiev's work which was to do with cycles in the real economy, not in the fictional economy of stock markets.

[Spanktron9]

I don't know why we are even listening to this guy! He has an ARAB NAME!!! Therefore he is clearly a TERRORIST!!! And thus hates us for our FREEDOM!!!

Christ, haven't you people been listening to your own president!!

[Aaron]

$this->bbcode_second_pass_quote('Hogan', 'H')ey look! It's Aaron! Someone take a photo quick before he disappears again back into the forest!

But seriously. Today's complex societies are so interconnected and interdependent on credit (debt) that they cannot function properly without it. Modern societies simply cannot function at all without credit flowing freely. The whole system was built on a house of debt cards. We are about to see a world-wide chain reaction economic implosion never witnessed before in history.

[Delphis]

I am very surprised this thread went dead? Nisser's candid tone and somber evaluation of our current situation are frightening at best!

The Fibonacci correlation is perplexing but I ask the forum to offer more insight into the fact that our fragile, contrived reality is very, very close to being thrown into the abyss of history...

My hope is that you have all heeded the knowledge strewn about on this forum...

Cheers!

[Sixstrings]

Holy cow, this man speaks the truth. It all makes sense. He pointed out that because our global system is so complicated, with just-in-time-delivery, with no room for error, that a very small shortage of oil pushed oil up from $25 a barrel to $150. A small shortage in food pushed prices way up as well.

He also makes the point that if hedge funds can't get loans from banks, then they must de-lever, and that will ripple out across the economy. From what I've been reading, the banks have just been sitting on the bailout cash, still aren't lending it out.

What he said also jives with what I've already been thinking, that crashes must happen and efforts to delay them only make them more catostrophic.

For those of you asking what this means for the real world, imagine Iceland, but world-wide. And nobody there to bail us out. So that means grocery stores can't get loans to make payroll and restock, and therefore shut down, and we all know that an average city has what? A few days worth of food?

If this comes to pass, we're talking about mass closures of everyday, vital businesses. A problem so huge and sudden that the government can't step in fast enough and big enough (see Katrina).

Yikes, I officially now know too much about what's going on, and need another hobby asap.

Excellent link, and good on PBS for their reporting.

[Ayame]

$this->bbcode_second_pass_quote('Hogan', ' ')Sixstrings, read the excellent book The Collapse of Complex Societies. All of this will make even more sense.

[deMolay]

http://www.youtube.com/watch?v=H3zZ6qNWeGw

[deMolay]

To explore his ideas some more here is his web page. http://www.fooledbyrandomness.com/

[deMolay]

The Black Swan: Quotes & Warnings that the Imbeciles Chose to Ignore



Nassim Nicholas Taleb: The Black Swan: The Impact of the Highly Improbable (April 2007)

For the last 12 years, I have been telling anyone who would listen to me that we are taking huge risks and massive exposure to rare events. I isolated some areas in which people make bogus claims --epistemologically unsound. The Black Swan is a philosophy book (epistemology, philosophy of history & philosophy of science), but I used banks as a particularly worrisome case of epistemic arrogance --and the use of "science" to measure the risk of rare events, making society dependent on very spurious measurements. To me a banking crisis --worse than what we have ever seen -- was unavoidable and NOT A BLACK SWAN, just as a drunk and incompetent pilot would eventually crash the plane. And I kept receiving insults for 12 years!





Quotes From the Black Swan (written b. 2003-2006) that the IMBECILES did not want to hear

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial Institutions have been merging into a smaller number of very large banks. Almost all banks are interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks – when one fails, they all fall. The increased concentration among banks seems to have the effect of making financial crises less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur ….I shiver at the thought.

Banks hire dull people and train them to be even more dull. If they look conservative, it's only because their loans go bust on rare, very rare occasions. But (...)bankers are not conservative at all. They are just phenomenally skilled at self-deception by burying the possibility of a large, devastating loss under the rug.

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events "unlikely".

There is no way to gauge the effectiveness of their lending activity by observing it over a day, a week, a month, or . . . even a century!

(...) the real- estate collapse of the early 1990s in which the now defunct savings and loan industry required a taxpayer-funded bailout of more than half a trillion dollars. The Federal Reserve bank protected them at our expense: when "conservative" bankers make profits, they get the benefits; when they are hurt, we pay the costs.

Once again, recall the story of banks hiding explosive risks in their portfolios. It is not a good idea to trust corporations with matters such as rare events because the performance of these executives is not observable on a short-term basis, and they will game the system by showing good performance so they can get their yearly bonus. The Achilles’ heel of capitalism is that if you make corporations compete, it is sometimes the one that is most exposed to the negative Black Swan that will appear to be the most fit for survival.

As if we did not have enough problems, banks are now more vulnerable to the Black Swan and the ludic fallacy than ever before with “scientists” among their staff taking care of exposures. The giant firm J. P. Morgan put the entire world at risk by introducing in the nineties RiskMetrics, a phony method aiming at managing people’s risks, causing the generalized use of the ludic fallacy, and bringing Dr. Johns into power in place of the skeptical Fat Tonys. (A related method called “Value-at-Risk,” which relies on the quantitative measurement of risk, has been spreading.)

Please, don’t drive a school bus blindfolded.

Owing to [...] misunderstanding of the causal chains between policy and actions, we can easily trigger Black Swans thanks to aggressive ignorance—like a child playing with a chemistry kit.

My war since 1996 against "Value at Risk" in this interview.

[phaster]

$this->bbcode_second_pass_quote('deMolay', 'C')ould this be the Great Die Off rather than the Great Depression starting? http://www.pbs.org/newshour/video/modul ... 2008&seg=5

[mkwin]

I really like his work and have read his book twice now.

The central problem with connectivity and interrelation is when an event occurs it can cause an unforeseen feedback into the system, which in turn causes more unforeseen feedbacks.

I do not (hope maybe) think that the scenario he foresaw will now come to pass. While there may be a forced liquidation on going and this may be creating a negative feedback, i.e. it causes more margin calls and more liquidation; those liquidating are not the majority of the investment universe. Life insurance companies, pension funds and mutual funds still account for the vast majority of the financial assets in the world. These institutional investors are set-up for the long-term; many of which will probably start buying in a big way in 2009. The 'Sage from Omaha' has already declared equities will outperform cash over the next decade and has put his money where his mouth is. He is very influential in the institutional investment industry.

The black swans have already occurred, Bear Stearns, Lehman Brothers, AIG the counter party risk of these organisation was eye-watering and with the aid of government their failure has not brought the system down. What else could happen that could be more disruptive to the financial system than that that has already happened? The only thing I can think of is a deflationary spiral. Where all assets prices continue to deflate so they become unuseable for secured lending, which, of course, has a further negative feedback ad infinitum.

I have most of my wealth in deposit accounts of well capitalised major banks things will have to reach a new level before I withdraw the physical cash and lock it in a safety deposit box in the basement of the bank.

[RacerJace]

Another author worth checking out is Thomas Homer Dixon. His book The Upside of Down is another perspective on the complexity, over optimisation, connectedness and loss of resilience of many of the systems in the world we live in including the environment, global economies, population, access to energy and infrastructure.

[galacticsurfer]

Nice PBS video. I like fractals, explains a lot. Self similarity at different levels. Statistics is a very simplistic concept. When a system gets out of its normal level you go to a self-similar different fractal level via a black swan event. We saturated our current level with super optimized globalized interconnected resource destroying universal system. It seems stable to the controllers in business and government but say you are driving your rocket or suped up car or revved up PC at very high speeds. It has a damn good chance of blowing up as everything has to be just right. You need lots of slack in a system to maintain a system at the same level. Once it goes the extreme it can only collapse to an earlier self similar level or survive by ratcheting up to a much highe level where there is again much more slack. The differences between the various self-similar levels are resource availability. If we had 10 times more resources available jsut before blow up then our globalized optimized system could loosely expand into the new environment efficiently and effectively. Otherwise we will collapse into a system of a magnitude less resources (10 times less) needing and utilizing much less optimization.

Back to the stone age or middle ages or into the singularity.