Dust flux, Vostok ice core

Dust flux, Vostok ice core
Two dimensional phase space reconstruction of dust flux from the Vostok core over the period 186-4 ka using the time derivative method. Dust flux on the x-axis, rate of change is on the y-axis. From Gipp (2001).

Wednesday, October 30, 2013

Monday, October 28, 2013

This chart is meaningless

I am very sorry to be picking on this article, but others have been saying much the same thing so this may be worth a brief mention.

(I did look around sharelynx a bit, but didn't find it).

The contention is that the creation of new debt in the past couple of years must bring about an increase in the gold price. This conclusion is supported by an illusion which is fostered by the purely arbitrary choice of a scale for the gold price. Unfortunately I am too lazy to go and put the data for these time series together so you will have to follow along with the plots I have below.

We compare the production of bedknobs from broomsticks with the production of broomsticks from bedknobs.

From this graph, we can see that bedknob and broomstick production grew more-or-less in tandem, until recently, when bedknob production suddenly fell. You would use this graph to support your prediction of an increase in bedknob production.

Same data, but with a slightly different scaling for bedknob production. You could use this graph to support your contention that there was a bit of a blow-off top in bedknob production in the recent past, but it is now back in line with broomstick production, in which state you expect it to continue.

Same data, different scaling. Here, not only was there a recent blow-off top in bedknob production, but it is quite clear that bedknob production still has further to fall to come back into line with broomstick production.

You can do the same with the chart at top. Whatever story you want to push--gold to rise; gold to fall; gold to stay the same--all you have to do is change the scale accordingly. Hence the title of this post.

This graph is seductive because it does seem logical that increasing the creation of debt and money should increase the gold price. But we don't know what the correct relationship is, so have no real way of stating whether gold should rise, fall, or remain neutral from these data alone.

Friday, October 25, 2013

Darling, be home soon

I've been listening to this a lot lately, having just rediscovered my Lovin' Spoonful tape behind the desk. I had forgotten what a great song this is.

Wednesday, October 23, 2013

Economic policy and the price of gold

Then the rumour circulated that at night the Fed Governors neglected their sacrifices and prayers. A great depression seized everyone. One day the President said to the Fed Chief, "When will we celebrate the return of normal unemployment rates? I would like to make a journey and return in time for the feast. How long is it until the day of the feast?" The Fed Chief was embarrassed. It had been several days since she had looked at the moon and the stars. She had learned nothing more about their courses. The Fed Chief said, "Wait one more day and I will tell you." The President said, "Thank you. Tomorrow I will come to see you again."
The Fed Chief gathered the Fed Governors together and asked, "Which of you lately has observed the course of the stars?" None of Fed Governors answered, because they had all stayed to listen to the stories of Fiat-do-lar. The Fed Chief asked again, "Hasn't even one of you observed the course of the stars and the position of the moon?"
                                                 -- modified from The Ruin of Kasch

Economics isn't a science. It is a mistake to think it would be so. Science does not have schools. Only philosophies have schools.

The difference between a science and a philosophy is the difference between seeking truth while honestly admitting you don't know it and declaring that truth is something you define.

Ideally science is described by working hypotheses, which are constantly tested, and if falsified, replaced (unless pride is involved or money). In philosophy, you begin with axioms, which are untestable statements that are defined as being true. Each school of economics has its own set of axioms. From axioms, you apply rules of inference (logic) in order to generate new statements, which are also true. These generated statements are called theorems. Thus all theorems are true (within the school of philosophy) but not necessarily applicable to the real world!

In the early days of geology, there were competing schools: the Neptunists and the Plutonists being two that come to mind immediately. The Neptunists believed that all rocks formed in the sea, either as sediments, or by crystallization as salts (this was their central axiom). The Plutonists believed that all rocks formed from magma (as their central axiom). Debates between adherents of the two schools were rowdy, fruitless affairs, because the nature of philosophy is that it cannot be overturned by mere observations.

The distinction between science and philosophy with respect to economics is important because economists have an annoying ability to set policy--policy that affects the quality of your lives. It probably doesn't matter much to you whether some geologists can't decide among themselves whether a particular rock formed in the sea or on a volcano (or even on a volcano in the sea). But it does make a difference if some Fed official acts on her belief that bankrupting the elderly eliminating interest on savings is a cure for unemployment.

Application of economic policy follows the axiomatic approach. Some high priest of an obscure caste decides on a cure for economic woes. Perhaps he dances around like a medicine man. The evil spirits are expunged, so that unemployment levels will finally fall. Maybe.

Recently, The World Complex presented the inverse correlation between the unemployment rate in the UK and its "confidence ratio" (dollar value of public debt divided by the dollar value of gold holdings). The idea was that a high ratio could only be supported if bondholders had high confidence that the debt would be properly serviced (forget about repayment). The flip side is that a high ratio could be interpreted as a measure of a country's ruin.

In the article I had suggested that government economists might cheer a decline in the price of gold.

So today, we look at the same relationship for the United States.

Once again we see a strong inverse relationship between confidence ratio and unemployment.

One of the goals set out for the Federal Reserve is to manage the unemployment rate. Looking at this chart, the answer is clear--to reduce unemployment, increase the confidence. Confidence (as defined above) can be increased in three ways: 1) raise debt, 2) sell gold, 3) lower the gold price.

Of course we all know that correlation does not imply causation. But it doesn't have to in order to impact on Fed policy. That's the beauty of politics--reality and truth don't really matter when there are elections to be won.

There was a comment that perhaps I have too much time on my hands. I'm not sure if the intent was to say that only someone with a lot of time on his hands would notice this relationship. The economists at the Fed have far more PhD's and time on their hands than does this corner of webspace. So I'm sure they have already seen this.

So the question becomes--even if no causation can be established, can it be used to set policy? And what policies will be followed?

Raising debt is the old standby--but as we see in the clarified chart below, it doesn't seem to be working anymore.

Since the 2001 peak (on September 10, perhaps?), the increasing debt has been more than compensated by the rising price of gold. Don't be fooled into thinking the US is sinking into solvency--it is creating debt faster than any time in history. But the price of gold has been rising faster still (although we shall see about 2013).

It appears that policy #2, the sale of gold, is politically untenable. Officially at least. Selling gold is for lesser countries. So that leaves option #3--hope the price of gold falls. Perhaps they do more than hope.

. . . at first the story of Fiat-do-lar was like hashish when it makes wakefulness happy. Then the story was like hashish when it makes dreams delirious. Toward morning, Fiat-do-lar raised his voice. As the Nile rises in the hearts of men, so his words swelled. To some, his words brought serenity; to others, they were as terrifying as the appearance of Azrael, the angel of death. Happiness filled the spirits of some, horror the hearts of others. The closer morning came, the mightier that voice grew and the more it resounded within the people. The hearts of men rose up against one another like clouds in the sky on a stormy night. Flashes of wrath met thunderbolts of fury. When the sun rose, the tale of Fiat-do-lar reached its end. Ineffable wonder filled the confused minds of the people. For when the living looked around, their gaze fell upon the Fed Chief and Governors. They were stretched out on the ground, dead.
                                        -- modified from The Ruin of Kasch 

Monday, October 21, 2013

Why we face ruin

A nice compendium of UK economic data has recently appeared (h/t NESS). You are encouraged to download data sets for your own nefarious purposes.

As an example, I have decided to plot UK unemployment rate against the measure of confidence I proposed on these pages a couple of years ago. To recap, the confidence ratio is the ratio of outstanding public debt (in dollars) to the dollar value of the country's gold holdings. I chose "confidence" as presumably this ratio can only be high for a country in which investors have great confidence. For those of a different mindset, it can be viewed as a measure of a country's ruin (although it would be better to include other foreign currency reserves).

UK unemployment data from the site mentioned above. UK debt came from google public data. UK gold holdings came from the data sets available from the World Gold Council. To find the dollar value of gold holdings, I used averaged annual prices available at Kitco. Average conversion rate of GBP to USD available here (although I don't remember where I got it for the original posting, which was up to 2011).

That is a good-looking example of negative correlation. It tells us that the unemployment falls when the confidence ratio is high. Now, there are three ways for a government to increase that confidence ratio:

1) increase debt
2) sell off gold
3) pray for the price of gold to fall (obviously in a non-manipulative manner that doesn't direct profits to favoured entities).

The fall in confidence that we observed in the latter half of the last decade was entirely due to the rising price of gold. Look at what that did to the unemployment rate! Clearly the fault of gold-bugs and conspiracy theorists. The rising price of gold completely overrode the excellent work of the British Parliament in driving up the country's debt. As for Gordon Brown, he was a hero! His only flaw was in not going far enough. If he had sold all the UK's gold, imagine how low unemployment would be today!

This wouldn't be a post on the World Complex if we didn't do some kind of state space portrait, so here it is: unemployment rate vs. confidence ratio.

Policy decisions of British Parliament and their impact on unemployment can be followed from the above chart. Clearly the government in the 1970s laboured under the delusion that reducing debts would benefit the economy(1). They were rewarded for their imprudence by spiking unemployment in the early 1980s.

By the mid-1990s, they had discovered the golden ticket. With the rising confidence ratio, the UK was rewarded with a falling unemployment rate. Then came Gordon Brown's heroics--by aggressively selling gold he caused the confidence ratio to rise and the UK was showered with new jobs!

There was a small crisis in the latter part of the last decade. But since then--clearly back on track. If the forward evolution of the system follows a similar catenary to the period 1993-2005, then a mere quadrupling of the confidence ratio will restore the unemployment rate to about 6%. The most prudent way to achieve this would be to immediately sell off 75% of Britain's remaining gold (2).

I find this approach to finances inspiring, and am willing to give it a try. Here at The World Complex, the unemployment rate is unusually high (technically I am welcome to go to the office, but the treasury is empty). Looking at my finances, I see the problem--I have very little debt and high savings (although much lower than they were two years ago, thanks to the ongoing turmoil in the junior mining market). To rectify this oversight, I will be issuing bonds. For reasons of fiscal prudence, I will try to keep my confidence ratio below 100, and will begin an auction for $25 million in debt next Thursday (3). No cheap google ad payouts here!


(1) the rising price of gold may have had something to do with this. But this proves my point! Rising gold price = rising unemployment, you naughty gold bugs.

(2) in my opinion it would be too difficult to drive the gold price back down to $300/oz.

(3) securities officers and other sarcastically challenged individuals take note--this is intended as sarcasm. Your participation is welcome.

The World Complex attracts readers with taste

Potential advertisers take note.

The IP address was in Iran, so take that, Netanyahu!

I did verify that this site did come up as #1 on google searches using the given keywords, so I'm doing something right.

Saturday, October 19, 2013

Gold vs USD, one year

Today we look at the relationship between gold and the US dollar.

The annotations refer to the gold price. An investor in US dollars would no doubt reverse the terms. And this is important because there are a lot more people invested in USDX than in gold.

The graph supports the supposed inverse relationship between the US dollar and gold.

Here is some context (updated from here).

The white pane is the area covered by the first graph.

Note that the price movements between gold and the dollar are not always inversely correlated--there is a six month period from November 2009 to May 2010 when the two moved in tandem, each increasing about 20% (which was actually a double-win for holders of gold). Perhaps a lot of people were taking Richard Russel's advice (50% USD, 50% gold).

Since May 2010, there has been one large advance and decline (in gold relative to the dollar). The advance and decline followed distinctly different trends. I would note that the current price point for gold and USDX is the same as near the beginning of the last large advance that carried us to just shy of $1900 (weekly closing).

Tuesday, October 15, 2013

A Soviet joke

Item: Walmart shelves stripped bare as limits temporarily dropped on EBT cards.

For us poor Canadians--EBT cards replaced food stamps as a means of providing food aid to the poor. It is like a gift card that gets charged up with a fixed amount automatically every week (or month). On the weekend a glitch in the system prevented retailers from reading the amounts left on the cards, and the majority of retailers refused to accept them. Some Walmart stores decided to honour the cards anyway, and a frenzy ensued.

It reminds me of an old joke told by the Russians.

A man who lived in Belomorsk had a rich American uncle, who died and left him a fortune. The State Apparatus dropped by to visit him in order to convince him he should donate his new wealth to the State. At length, the man agreed, but pressed for one concession--he would give the State his fortune if for one day all goods in all the stores in Belomorsk would be given away at no charge.

The local political bureau was reluctant to agree, but as the fortune was so vast and the stores so poorly stocked, they agreed. The announcement was made, and the next day immense crowds stormed the markets. People came from all the surrounding villages and even distant cities. The crowds surged through the stores, and within seconds the shelves were stripped bare. Fierce battles broke out everywhere over the scarce goods--it looked like Walmart during Black Friday. By noon the hospitals were filled to overflowing--and by evening, so were the morgues.

When at last the riot ended, the police descended on the man's house, demanding to know why he wanted such a terrible thing to occur. His answer: "Please, comrades--I only wanted to see what true Communism would be like!"

KSLA News 12 Shreveport, Louisiana News Weather

Friday, October 11, 2013

A song for junior exploreco longs

The mark of regulatory failure

It isn't news that the market for junior mining companies is bad.

And we all have our reasons for it--ranging from poor performance in commodities in general to extreme and horrifying fears of a general collapse in society into barbarism. But if the latter were imminent, wouldn't we expect to see everything else performing just as badly? The rest of the market isn't great, but it isn't as awful as the junior golds.

After the Bre-X affair (portions of the Bre-X files are here), regulatory officials created a set of regulations to guide technical reports. The goal was to make the type of fraud that Bre-X represented impossible.

Unfortunately, there are still types of fraud that go on in the markets, which are not affected by the regulations.

There are good companies run by competent management, with competent geologists and good properties. Sadly, these are in the minority. There are companies with well-meaning, but incompetent management or poor properties. These are more common. They raise money, spend it properly, but lose your money. Maybe you don't feel so bad because the guys were at least trying.

Then there are the criminals. There are lots of these. The current regulatory regime has eliminated some of them--the ones that manipulated their share prices by faking their sampling results by numerous methods which need not be elaborated here.

But the regulations have done nothing to eliminate the more insidious criminals which run companies purely for the benefit of raising money through share issuances and directing the proceeds to themselves either as salaries or as private billings. Arguably, the regulations have enhanced these companies, because they provide a checklist by which diligient, but criminal, management can maximize their credibility on the markets for a minimum of exploration expense.

If your plan is to raise a whole lot of money in order to pay yourself, the blessing of Canadian market regulators officials gives you the credibility you need to keep at it. Such companies can be called "lifestyle companies"--as they exist solely to maintain the lifestyle of their management.

How did it come to this? The regulations were designed to solve a different problem--one of criminal management expressing its criminality through manipulation or misreporting geological information (although see this). As for the lifestyle companies, as long as they satisfy the various listing requirements, the regulators have plausible deniability, and the exchanges can happily collect their fees.

A lot of money came into the junior mining sector since the advent of the new regulations. A lot of money. And there has been little exploration success to show for it.

The poor performance of the junior exploration sector is a crushing indictment of the regulatory regime in the Canadian markets. The retail investor has judged the NI 43-101 regulations and they have been found wanting.

Sunday, October 6, 2013

Syria and the decline

This certainly feels different from previous run-ups to war.

I don't know what's going to happen any more than you do. Certainly I am gratified to see that there is no immediate attack, but we still have miles to go.

The biggest difference I see between now and ten years ago is the immense skepticism the American people are showing towards possible action in Syria. Even the comments in the Washington Post are far more anti-war than I've ever seen them (also very anti-Kristol and anti-Krauthammer). Yes, there are still comments in favour of war--but they are a notable minority.

It is depressing to see our foreign minister express that Syria should not be given time to comply with the demand to hand over control of its chemical weapons to the international community. It's as if the Harper government wants to see an attack go ahead, even as they have not appetite to join in.

All of this gives me more hope than I've had these last few years.

- - - - - - - - -

Internet at casa Mickeyman will go dark for a few days as we've exceeded our bandwidth. I'll be in the local hotspot intermittently this next while.

Friday, October 4, 2013

Should Canada and the US merge . . . (updated)

. . . like Diane Francis asks?


Sure, I could use the money. But I think in her calculations she has neglected to consider the extra costs to Canadians, like having to roughly double our per capita medical expenditures. Not to mention we might have to start pulling our weight in military adventurism around the globe. We might have to close our embassy in Cuba.

There's an old song I remember hearing from way back. The words used to be on the internet years ago, but I can't find them now. Unfortunately, on my copy the first line is garbled, so I'm not sure of the wording.

There's a fine country called America don't you know,
Just take a look at your atlas, it's the one that's down below.
There's fifty states in the union and something should be done,
To forget the war of 1812 and make it fifty-one.

There'll be colour television,
Social security,
Racial segregation and the Birch Society;
You can take the fifth amendment,
You can vote for LBJ,
You can even burn your draft card when we're Canada, USA.

Now some folks think we're English, which isn't true at all;
And some t'ink we're a colony that's run by Charles de Gaulle;
But we're looking up to greater things upon the glorious day,
When the capitol of our little state is Ottawa, CA.

There'll be colour television,
Social security,
Racial segregation and the Birch Society;
You can cheer for Jimmy Hoffa,
You can join the Klan today;
You can even be a Commie when we're Canada USA.

There's a bunch of stripes and fifty stars upon the Yankee flag,
There's gonna have to be fifty one when Canada's in the bag,
But when we see the flag unfurl, we'll know we've won the fight,
We'll be just before Connecticut in the third row from the right.

There'll be colour television,
Social security,
Racial segregation and the Birch Society;
You can take the fifth amendment,
You can vote for LBJ,
You can even burn your draft card when we're Canada, USA.

We'll all be much more affluent in the Great Society,
Their buck is worth $1.10 in Canadian currency,
The economy's going to get a boost for it's very evident,
That it costs us more to feed a Queen than pay a President.

There'll be colour television,
Social security,
Racial segregation and the Birch Society;
You can cheer for Jimmy Hoffa,
You can join the Klan today;
You can even be a Commie when we're Canada USA.

There'll be no more selling prairie wheat to all the commie crew,
There'll be no more Cuban sugar--that's very naughty too,
But think of all the benefits that surely have to come
When we're citizens of a country that's got the atom bomb!

There'll be colour television,
Social security,
Racial segregation and the Birch Society;
You can take the fifth amendment,
You can vote for LBJ,
You can even burn your draft card when we're Canada, USA.

Update: Just need to update that last chorus a bit:

There'll be welfare cheques and foodstamps,
Homeland Security,
The NSA on Google
And the end of privacy,
You can take the fifth amendment,
Get Obamacare today,
You can even shoot Iraqis when we're Canada, USA!

One more time--the distinction between human- and algo-trading

The markets do not act like they once did. The trading in certain stocks is operating on time-scales so small that they cannot be in response to human thought. Not only are certain individuals able to access key information before others and so respond to news releases faster than the speed of light, but certain entities have free range to post and cancel orders on a microsecond basis, and queue-jump by shaving off (or adding on) tiny fractions of a penny from their orders.

Stocks traded by humans tend to make significant moves on a timescale of minutes to days. Even when there is a news event that radically changes the apparent value of a company, if there are only humans in the market, the move takes time to occur. Below we a couple of charts for Detour Gold (I currently have no position in this stock)

Normally, when looked at on a ms timescale, the graph is not really distinguishable from a straight line.

The little squares occur because all the price-changes I saw in the course of the day were a penny. On this scale it scarcely matters which axis is the current price and which is the lagged-price.

Once the algos get involved, the millisecond phase space plots get a lot more interesting. Some of them are works of art! Below, some plots for Century Casinos (I have no position in this one, either). Data here.

Algos playing tug-o-war.

Nice to look at, but maybe not so nice to trade against.

Remember the adage about playing poker: If you don't know who the sucker is . . .

Tuesday, October 1, 2013

Arctic sea ice in phase space

Another September has passed, and with it the annual minimum extent of Arctic sea ice. This year we saw a minimum of 5.1 million sq km, which is quite a bit more than the minimum of last year.

As noted before, there is a distinct break just after 1995.

I still haven't seen anything that would lead me to reject the possibility that we are tracing out a new area of stability (hashed circle). The lag means that the state in 2014 will lie along the lower blue line (exact position will depend on next year's area) and in 2015 will lie along the higher blue line.