2010 Mar 29 - Mon

Market Notes

Dow Theorists have seen one of their key market indicators become positive over the last couple of weeks. During the end of March, the Dow Jones Industrials Average closed above its previous closing bull market high of 10,725. The Dow Jones Transportation Average has also closed above it's previous January high. This, according to the theorists, is an indicator of an ongoing bull market. Recent daily volumes have been below average of the last 12 months, so it is not necessarily a strong bull market.

But then again, with so many people out of work (10% who are seeking, but 17% when added in the non-seekers), there is probably less money to be put in to the markets, and thus fewer shares traded.

The new Dow levels also represent a 50% retracement level of the recent bear market. This, too, would indicate a Bull market.

With a struggling stock market and decreasing house prices it is hard to determine where to put one's money for best appreciation. Even the price of gold is declining. But according to Zero Hedge, it could be total manipulation. The article mentions that the amount implicitly meant to be delivery is 100 times the physical amount that can be delivered. If you have an unallocated account, change it to physical really really soon. If people start demanding delivery, prices will then start to reflect reality.

For the subject of house pricing, Joel Bowman at The Daily Reckoning, made the following remarks about house pricing:

There's nothing wrong with someone wanting more than they can afford...it's when they get it that the cracks begin to appear. All over America, banks made loans they couldn't afford to make to people who couldn't afford to repay them. The solution ... would be to allow the market enough space to establish real world price discovery. Prices must be permitted to fall to "affordable" levels, in other words; levels that would inspire some level of market clearing.

Alas, what is good for the economy and what is politically expedient is rarely one and the same thing. The voting public, by and large, won't tolerate a "leave alone" government. They want their elected leaders to "do something," to step in and relieve them from the financial pains of a generation worth of overconsumption. In short, they want their government to force someone else - anyone else! - to pick up the tab for them.

I gather that is what the Obama government is doing, redistributing wealth for all its worth, or not worth, considering how much national debt is being run up. The phrase -- racking up debt like there is no tomorrow -- takes on a whole new meaning. But then, possibly, so do life experiences affect governing abilities: The Obamas. Personal Debt vs. Obama's, Demand That Americans Cut Back.

If you view a chart of the Dow from the 1920's to the present, you see what could be defined as a classic head and shoulders pattern... a pattern with definite bear feeling to it. But considering the time line, it could happen in the next days or years.

At Chart of the Day - How does the current rally rank?, they show that the current Dow Rally has entered the low range of the "typical" rally and would currently be classified as both short in duration and below average in magnitude.

I guess we'll have to see what the upcoming week's job reports have to say, and what they say after factoring out the hiring bump due to the employment for termporary census workers.

With the heavy debt which the US government is taking on, it is beginning to resemble the affairs of Greece. There are some writers who are saying the end of the US Empire is near. They draw comparisons with the Roman Empire during its rise and fall. Empires on the Edge of Chaos by Niall Ferguson is an interesting take on the situation. He references a series of paintings entitled The Course of Empire by Thomas Cole. "It is notable in part for reflecting popular American sentiments of the times".

There is an interesting chart at Nathan's Economic Edge, which represents debt saturation. With all the new US Debt, the chart shows that the debt is no longer serviceable. So... I guess we enjoy the bull market while we can, and start to buy puts or go short to catch the ultimate market downturn. Which might start to happen in the few coming months as commercial real estate loan renewals and the ARMS resets start to occur.

In the upcoming week we have:

• Monday: Personal Income and Outlays report for February
• Tuesday: Case-Shiller House Price Index (are house prices still declining?)
• Wednesday: ADP March Employment Report (not distorted by the Census hiring), Chicago PMI Index, Census Bureau February Factory Orders
• Thursday: Initial Weekly Unemployment Claims, ISM Manufacturing Index, Census Report on Construction Spending, Personal Bankruptcy Filings for March
• Friday: BLS March Employment Report (distorted by Feb snow storms and Census hiring)

The Census Bureau has recently reported that new home sales is still on the decline.

The Architecture Billing Index is a leading indicator for Commercial Real Estate (CRE) investment, and is still quite low.

Historically, according to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further significant declines in CRE investment through all of 2010, and probably longer.

According to Todd Harrison at MarketWatch, savvy investors continue to monitor corporate credit as a timing mechanism for an equity downturn. In the same article, he makes mention of "10 reasons why we're witnessing a cyclical bull market in the context of a prolonged and painful secular bear stretch. "

One of his indicators is the VIX (Volatility Index), which is at a comparative low. VIX is cyclical, sometimes it is a large value and sometimes it is a small value. with it being currently small, it means it could smaller, but at some point, it is going to get bigger. When it gets bigger, the market will be moving in one of two directions, up or down. Because it is already going up, albeit slowly and with great difficulty, we will most likely find some really bad news, and the market will drop again, quickly. Dropping quickly, or going up faster, means the VIX will expand, and is therefore a slightly trailing indicator. Be ready with shorts and puts when the VIX expands with a dropping market.

The market volatility could change in a big way or in a small way. It is hard to tell. John Mauldin, in one of his newsletters has this to say on Ubiquity, Complexity Theory, and Sandpiles:

Well, in 1987 three physicists, named Per Bak, Chao Tang, and Kurt Weisenfeld, began to play the sandpile game in their lab at Brookhaven National Laboratory in New York. Now, actually piling up one grain of sand at a time is a slow process, so they wrote a computer program to do it. Not as much fun, but a whole lot faster. Not that they really cared about sandpiles. They were more interested in what are called nonequilibrium systems.

"To find out why [such unpredictability] should show up in their sandpile game, Bak and colleagues next played a trick with their computer. Imagine peering down on the pile from above, and coloring it in according to its steepness. Where it is relatively flat and stable, color it green; where steep and, in avalanche terms, 'ready to go,' color it red. "

"What do you see? They found that at the outset the pile looked mostly green, but that, as the pile grew, the green became infiltrated with ever more red. With more grains, the scattering of red danger spots grew until a dense skeleton of instability ran through the pile. Here then was a clue to its peculiar behavior: a grain falling on a red spot can, by domino-like action, cause sliding at other nearby red spots. If the red network was sparse, and all trouble spots were well isolated one from the other, then a single grain could have only limited repercussions. "

"But when the red spots come to riddle the pile, the consequences of the next grain become fiendishly unpredictable. It might trigger only a few tumblings, or it might instead set off a cataclysmic chain reaction involving millions. The sandpile seemed to have configured itself into a hypersensitive and peculiarly unstable condition in which the next falling grain could trigger a response of any size whatsoever."

Something only a math nerd could love? Scientists refer to this as a critical state. The term critical state can mean the point at which water would go to ice or steam, or the moment that critical mass induces a nuclear reaction, etc. It is the point at which something triggers a change in the basic nature or character of the object or group. Thus, (and very casually for all you physicists) we refer to something being in a critical state (or use the term critical mass) when there is the opportunity for significant change.

Buchanan concludes in his opening chapter, "There are many subtleties and twists in the story ... but the basic message, roughly speaking, is simple: The peculiar and exceptionally unstable organization of the critical state does indeed seem to be ubiquitous in our world. "

So what happens in our game? "... after the pile evolves into a critical state, many grains rest just on the verge of tumbling, and these grains link up into .fingers of instability' of all possible lengths. While many are short, others slice through the pile from one end to the other. So the chain reaction triggered by a single grain might lead to an avalanche of any size whatsoever, depending on whether that grain fell on a short, intermediate or long finger of instability."

"In this simplified setting of the sandpile, the power law also points to something else: the surprising conclusion that even the greatest of events have no special or exceptional causes. After all, every avalanche large or small starts out the same way, when a single grain falls and makes the pile just slightly too steep at one point. What makes one avalanche much larger than another has nothing to do with its original cause, and nothing to do with some special situation in the pile just before it starts. Rather, it has to do with the perpetually unstable organization of the critical state, which makes it always possible for the next grain to trigger an avalanche of any size."

Relating this to our sandpile, the longer that a critical state builds up in an economy or, in other words, the more fingers of instability that are allowed to develop connections to other fingers of instability, the greater the potential for a serious "avalanche."

It's all connected. We built a very unstable sandpile and it came crashing down and now we have to dig out from the problem. And the problem was too much debt. It will take years, as banks write off home loans and commercial real estate and more, and we get down to a more reasonable level of debt as a country and as a world.

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2010 Mar 28 - Sun

A Collection of Quotes

Seduction is part of my stock in trade in the diplomatic service. Public lies are shouted in councils and courts, but secret truths are whispered in beds. -- The Miocene Arrow

"Everything will be okay in the end. If it's not okay, it's not the end. -- an email footer

"You see, wire telegraph is a kind of a very, very long cat. You pull his tail in New York and his head is meowing in Los Angeles. Do you understand this? And radio operates exactly the same way: you send signals here, they receive them there. The only difference is that there is no cat." -- Albert Einstein

<< One of the really cool things about the camera is its cooling system. >> -- One would hope so. -- email foot from Dan Drasin

Holmes opined "It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts".

"Undecidable by reduction to the halting problem in general, though apparently possible for straight-line code (no loops/recursion) through the brute-force method of generate all paths and send them to a theorem prover to prove equivalence." -- email foot from Scott McMurray

"The American dream is not owning a house; it.s every individual having the opportunity to achieve their full, God-given ability, and each generation having the responsibility to leave the country better off and better-positioned than the next so that our children and grandchildren can have a better way of life than we have" -- former U.S. Comptroller General David Walker

"It's is not, it isn't ain't, and it's it's, not its, if you mean it is. If you don't, it's its. Then too, it's hers. It isn't her's. It isn't our's either. It's ours, and likewise yours and theirs." -- Oxford University Press, Edpress News

"If you don't do it right the first time, you'll just have to do it again." -- Jack T. Hankins,

"The more sophisticated the technology, the more vulnerable it is to primitive attack. People often overlook the obvious." -- Dr. Who,

"Everything should be as simple as possible, and no simpler" -- Einstein

"Common sense is not so common" -- Voltaire

"Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits." -- Hyman Minsky

"Never appeal to a man's 'better nature,' he may not have one. Invoking his self-interest gives you more leverage."

"Unfortunately, inefficiency scales really well." -- Kevin Lawton

"Davenport answered with a lift of his own glass, sniffed, then sipped. Tantalizingly delicious, deliciously tantalizing. He saw that it could be dangerous--a taste too easily acquired for something not so easily acquired." -- Foundations Friends.

"Let me state the obvious and posit the known--nothing is so overlooked as the obvious and nothing is so mysterious as the known" -- Foundations Friends

"It is what you do in life, not what torments you in your soul, that matters. And who you are in life, not who you fear you might become." Bast to Herzer in There Will Be Dragons

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2010 Mar 18 - Thu

2009 Christmas Panto, 2010 Dad's Army

I havn't been writing much in the last while. I should have been. The least I could have done is keep a diary of what I've been doing. Coulda, shoulda, woulda.

My excuse has been that I've spent quite a bit of time doing two things: designing, tuning, and running lighting for two recent shows at Bermuda Musical and Dramatic Society (BMDS), and then when not lighting, doing videos of the shows.

November and December were taken up with designing the lighting for BMDS' annual Panto at City Hall. This year we had a visiting director put on his work called Robin Hood.

For January and February, we had a local-up and-coming director put on a terrific production of Dad's Army. Dad's Army was a regular series on BBC TV, and was popular with the local crowd. We really didn't need to do any advertising, the show sold itself. After pre-sale tickets to patrons, cast and crew, there were only 9% of the tickets remaining for the general public. I'm not sure if this is a first for the theatre, but we ended up running an extra three nights. Tickets for those nights were sold out within 90 minutes.

I ended up shooting some video over several nights of Dad's Army as a keep sake with my new Panasonic HVX-200A. With that footage, plus a bunch of pre-production footage, I have a bunch of editing to do. Lots of editing.

Our next show is called 'A String of Pearls', with lighting design by one of my mentors. I get to take some time off and catch up on stuff I havn't been doing. Hopefully the updates here will now be more frequent as I catch up on my reading and projects.

I need to take a break when I can as I've been requested to design lights for this year's Panto. The script has been written by the local actress, writer, director Carol Birch. It is loosely based upon the story of Firebird and promises to be challenging from a lighting perspective... I guess me complaining that lighting for recent shows has been too easy, so she going to let me try out some new concepts. Our lighting inventory has been expanded with additional colour changers and moving fixtures, so we should be able to try out a more technically oriented show.

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