Operation Oblivion airs tonight

Promo video below, more information here.



Thirteen Chinese Canadians volunteered to go behind enemy lines to organize Chinese resistance against Japanese occupation. Although their principal mission was cancelled due to political infighting, their actions were instrumental in acquiring the rights of citizenship for Chinese Canadians.

My great uncle is the last surviving member.

The recent stability of silver

It's been a few months since my last posting on silver in phase space--let's see what's new.

As before we have reconstructed a phase space portrait from weekly closing prices of silver, using a lag of six weeks. Such a graph as we have indicated before is topologically equivalent to a plot of the silver price against its rate of change.

The three white circles show the areas of attraction that were identified prior to the middle of 2013. The yellow circle near the centre represents the totality of the system states since June of 2013.

I should point out here that I have reversed the axes with respect to the earlier silver plots. I am trying to make this consistent with other plots I have done with the principal axis being vertical rather than horizontal.

There is nothing special about the dates listed in blue--it is just difficult otherwise to label points that are not at the extremes of the function.

When silver broke down from the highest area of attraction (in the $30 range), I had forecast it to fall to the middle area of attraction (<$20). As we saw last time, it just missed, and since then has been filling in a zone of attraction which looks to be centered at just over $20.

The current work of filling in a basin of attraction is similar to the notion of gap-filling in standard TA, which seems to be the obvious interpretation. If the silver market as a whole is probably smarter than a lot of individual investors, then there may be another interpretation. The yellow area and the middle white one are the same attractor, but appear separate because of inflation.

The last time the system occupied the middle white attractor (centered at $18) was mid-2010. We entered the yellow attractor (centered at $22) in mid-2013, three years later. A price rise from $18 to $22 is an increase of 22%, which over three years compounded is a whisker under 7%.

Is 7% a good estimate of annual inflation (that is in the commonly accepted definition of a rise in prices, not the correct definition of increase in money supply)? It feels truer than the official pronouncements, but I have seen both higher and lower estimates.

Going forward--my gut feeling is that we haven't finished filling in this area of attraction yet. We could easily spend another six months here, although hopefully in the higher part of the range (up to about $24). Afterwards, the higher white area of attraction comes back into play. Will we see another adjustment for inflation at that time?

There is still an obvious looking gap between our present state and the higher area of attraction beyond, and it wouldn't be surprising to see the silver price state fill that gap before moving higher.

Contrasting notions of risk in the developing and undeveloping world

Today's topic is risk. Not financial risk. Personal risk.

Last year I and our financial adviser had a meeting at the Canadian offices of an international engineering firm to discuss a project in Africa. We were a few minutes early for the meeting, but to my surprise, we were informed we would not be allowed to go into the conference room until we watched a safety video. The safety video represented about thirty minutes of my life I will never get back. Worse, it implies that other, similar, losses are likely in my future.

The film advised us that if we saw anyone fall, we had to report it, even if there were no injuries. All injuries, even paper cuts, also had to accompanied by a sheaf of reports to the appropriate authority.

The excess regulation of risk is a defining characteristic of a country that has passed the developing stage and is entering the undeveloping stage. It is mirrored by a changing time-preferences of money from leading a society from civilization to decivilization.

Now in Africa, on the other hand, I once had to find local operators and a local fishing vessel (dugout canoe) to run a small sidescan sonar survey. So I hit the local fishing harbour, found a crew that had been operating daily for more than two years, hired them, and started work.

One of our company executives was an engineer, and he was horrified by my quick decision--hiring these local fishermen to do the job (unless they first had appropriate safety training, which appeared to involve a lot of lifeboat and man-overboard drills). Besides, he asked, how do you know these guys can operate the boat safely? My answer was that they have been going out to sea every day for two years and are still alive. In any event, we completed a series of missions over the next two months without mishap.

About fifteen years ago, I was tasked with finding some local Ghanaians to be trained as commercial divers. We brought a diving instructor from Canada, and I advertised for people who could swim. There were many applicants. I went into town on some errands and left the diving instructor and his assistant to vet the applicants at a local hotel swimming pool. When I returned that evening they were exhausted--they had spent all day rescuing applicants. When told to swim across the pool, they jumped in without fear and sank straight to the bottom.

At length we found some good swimmers, and they completed their training. But at the end of their training, the instructor in good conscience could not pass them--for without exception, they refused to believe in the "bends". I think it was because they were all experienced free-divers, and in free-diving there are no consequences to a rapid rise. During the pool practice dives, they would always ascend by inflating their BCDs, sending them rocketing to the surface. No amount of explanation could convince them to do otherwise.

At around the same time, we rented a vessel and hired our first ocean-going crew. Our first gift to them were life jackets. Every day we arrived at the village, they would put on their life jackets, as they brought all the equipment to the boat. Then as we set sail--their life jackets were gone. Where were they? One of them told me that they didn't want to risk anything happening to them while at sea, so they left them at home.

When they were hired, they had assured me that they had abundant experience at sea. Unfortunately, their experiences were limited to hauling in fishing nets. They had never been to sea on their own before. We had a few exciting adventures in the first couple of weeks getting the vessel through the surf zone (especially landing), but after that they got the hang of it, and we completed the project without issue.

The view of personal risk in the developing world is clearly different than back here.

Significance of the $1000 isoquant in gold

When last I mentioned isoquants, I suggested that the 1000-isoquant would be an important level for the next few months. A common thread of the commentary (after the etch-a-sketch comments) on ZH today was the difficulty of following the chart. So today I present two short segments involving the 1000-isoquant level to show why I think it has some importance.

The last year has consisted of a dizzying drop in the price of gold, a bounce in mid-summer and a lot of hard work in the last six months. The rapid fall in early 2013 bounced from the 1000 isoquant. There was a second small bounce in October, followed by a slight penetration of the 1000 isoquant last month. Friday's close is just above the 1000 isoquant.

The last time the gold x USDX was near the 1000 isoquant was in 2010, when it stayed there for nearly six months. Note that even though gold x USDX was nearly constant for that time, the gold price itself varied from less than $1200 to over $1350. This is the way we normally expect the price of gold to act--as the anti-dollar.

Over the last six years, sustained improvements in gold x USDX require the gains be digested for a time. Usually we see six or so months at one isoquant, before a move to a new one 100-150 points higher, which then needs six months or so before another move is sustainable. When gold spiked to $1800 in 2011, gold x USDX moved from just over 1100 to just over 1400 in too short a time--the result was the collapse we have just lived through back to the 1000 isoquant.

The significance of the isoquant is that changes in the price of gold that are offset by changes in the US dollar do not change the marginal economics of gold mine operations (that is costs in the country of operation, provided it is not the US). They do influence the ability of the company to repay debt, which is normally denominated in US dollars--however, many (I don't know if it is all) loan covenants include a gold-hedging component which in theory reduces the dollar risk to the producer. The company then only has to worry about producing x hundred thousand ounces of gold each year (if they can't deliver on their promises, well, that's another problem).

Video for upcoming PDAC

PDAC has a new video for the upcoming meeting.

I particularly like the tour of all the empty booths.


PDAC 2014 Convention Video – A Guided Tour from The PDAC on Vimeo.

Cycles of dengue in Singapore

The last time I posted on this, the numbers afflicted were in decline, during the the normal seasonal drop-off. I assumed the number of cases would return to about 100 per week.

Weekly dengue cases in Singapore, 2011-2014. Adapted from here.

I am a little surprised to find that the outbreak is still raging. The rate of new cases is running at more than double this time last year, which was already a record. At first glance it looks like something new might be happening.

Only three years of records is too short to support such a hypothesis. Can we do better?

Dengue in Singapore, 1966-2005. DHF - Dengue hemorrhagic fever; 

DF - Dengue fever (only reported from 1977). Screen cap from here.

Given the population of Singapore in 2005 (4.4 million), the number of cases per 100k would give us an estimate of 14,300 cases that year. The number of cases of dengue reported in 2013 was over 22,000, and given the population estimated to be about 5.4 million, that would equate to over 400 cases per 100,000, which would be off the top of the above graph.

There are two things we note on the above graph: first is the extreme variability of the numbers of cases of dengue fever over a cycle length of approximately 8 years; secondly, the incidence of cases appears to be increasing since the late 1980s. The cycle lows are generally before 1985, around 1993, 2000, and (from the recent data) perhaps around 2011.

When I see cyclicity in epidemiological data, I look for climate oscillations. For the Pacific, we have the Pacific decadal oscillation (PDO), which alternately warms and cools the western Pacific (and many other areas, as well as changing the distribution of rainfall).

Schematic of PDO and effects on sea surface temperature from here.

During the positive phase of the PDO, we see the sea surface temperature around Singapore is a little warmer than usual. A common epidemiological argument is that warmer temperatures favour mosquitos, so if the PDO is influencing dengue cases, then we would expect to see more cases during the positive phase, and fewer cases during the negative phase. So let's combine the record from 1966 with the PDO oscillations over the same interval.

Although there is some agreement between the curves, particularly over the last 20 years, the small peak in the early 1990s corresponds with generally cooler surface temperatures--and the incidence of dengue was very low during the warm spell from the late 70s through to the 1980s.

One factor may be overturn of the strain of dengue encountered--for instance, the dominant strain in 2007 was different than that of 2005 (pdf). The strain in 2005 was similarly different from the dominant strain previously.

But I think the major factor in the general increase is the changing culture in Singapore. Look at the population growth of the place.

A snip from Google.

Despite only producing 1.2 babies per woman, the population of Singapore has grown by over a million in the last seven years. Obviously, this has been through immigration.

Singaporeans will no doubt complain that these newcomers don't share their cultural values--in particular, their cultural values regarding cleanliness and public order. I know, I married one. In Singaporean culture, the vacuum cleaner is not a labour-saving device, it is a device that allows you to use the same amount of labour to make the house cleaner than before.

When we were there last year, we stayed with one of my wife's relatives. They were having troubles with their new neighbours, who had recently immigrated from China, and were in the habit of tossing used diapers and tampons off their balcony.

But the reason may be more basic than that.

Image of Singapore.

That snaking body of water near the top of the image is the straits of Johor, which separates Singapore from Malaysia.

Singapore is a small place. To cram in more people requires dense construction in increasingly marginal lands, which are mainly in the north and western portions of the island, and on reclaimed land, which is primarily on the southern margin. Common to all of these marginal lands is that they tend to be wet and low-lying.

The population graph has a notably higher slope (population growth) starting in the late 1980s. I assume this is the beginnings of the major influx of immigrants. Also note that this period correlates to the interval where dengue fever outbreaks begin on the chart of dengue vs the PDO. Even though conditions at the time favoured cooling, if you bring in a lot of people (a few of whom have dengue) and place them in mosquito-infested swampland, you soon have a lot of people with dengue.

The increasing incidence of dengue in Singapore looks to be a reflection of government policy, which requires greater numbers of people to be stationed in close contact with mosquitos. And given that the Singapore government is pushing to increase the population by another million or so, we can only expect the trend of dengue infections to increase.

Isoquants of gold

Today's plot shows a six-year scatterplot of the gold price (in USD) vs the USDX index.

The blue curves are hyperbolae of a constant level of gold x USDX. I have placed these for two reasons. Firstly, if gold and the USDX are inversely related, then the time-evolution of the scatterplot will follow one of these curves. Secondly, for companies operating gold mines outside of the US, the product of the gold price and the USDX indicates the real price they are getting for their product.

These equal-product curves, or isoquants, appear to be of some importance in constraining the evolution of the gold price over the past six years. Generally speaking, the price tends to migrate along an isoquant for an extended period of time, before jumping up (or down) to another one, typically in only a few weeks.

For much of 2008 the plot is constrained between the 600 and 700 isoquants, but the system shifted to the 800 isoquant in early 2009. The gold price advanced along the 800 isoquant until about October 2009, before shifting up to the 900 isoquant. The system then evolved along the 900 isoquant for a few months, with the gold price falling and USDX rising, until shifting to the 1000 isoquant near mid-2010. The gold price rose along the 1000 isoquant for nearly a year, whereupon it shifted to the 1100 isoquant, and after battling at that level for two months or so, advanced rapidly, ascending above the 1400 isoquant in September 2011.

A major battle was fought between the 1300 and 1400 isoquants until March of 2013, whereupon the system plummeted to the 1000 isoquant--a level at which it has remained since. The yellow circle near the middle of the plot shows the last month where we dipped below the 1000 isoquant; however today we crossed above it again.

For the time being it looks as though the 1000 isoquant will be the line in the sand for the gold-USDX system. For the gold price to go to $1000, the USDX would have to go to 100. Not impossible, but the world would have to be in pretty dire shape for us to see that, methinks. If the USG is successful in debasing the dollar to win the trade war, we might see a little advance in gold, but I'd expect it to follow the 1000 isoquant for the next six months at least. 

A system doomed to fail

In the broadest sense, there are three types of systems in the world.

The first are simple systems which are characterized by only a few variables or agents, and which can be described by perhaps a handful of equations (or even one).

The second are systems which are characterized by disorganized complexity. These may consist of huge numbers of agents or variables, and their interactions cannot be described by simple equations; yet the overall system is well-described statistically through averages and can be described as being stochastic. Such systems are typically characterized by a stable equilibrium, provided there are no external shocks to the system. They are incapable of generating internal shocks or surprises. For example, you might consider the distribution of air molecules in a room. You may not be able to predict the motion of any particular air molecule, but you can be reasonable certain that the global population won't do anything unexpected (like all move into one side of the room leaving a vacuum on the other side).

The third type of system is characterized by organized complexity. As the systems above, one may consist of many variables or agents, each of which is simple, but the system's behaviour does not lend itself to statistical description because instead of the activities of each component dissolving into a background equilibrium, large-scale (even global scale) structure "emerges" instead of seething chaos. Along with these "emergent properties", common features of such a system include multiple equilibria, adaptive behaviour, and feedbacks. There is no simple way to describe its behaviour, as much of the system's history is bound up in its behaviour (what economists call "long memory").

Complex systems, for all their unpredictability are remarkably resilient. The resilience arises from the way in which this type of system interacts with its environment--through the individual actions of its simple components, the system is able to gather information about its environment and modify its operations to adapt. Yet this adaptation and evolution all occur in the absence of central control.

The above descriptions--and characterizations of three types of systems--go back to 1948. Unfortunately it appears that Dr. Weaver was too optimistic when he recommended science develop an understanding of the third type of system "over the next 50 years". Here we are 65 years later and we have made only basic improvements in our understanding of such systems.

What has gone wrong? I think it is partly due to the limitations of the Newtonian paradigm on which science has rested over the past few hundred years.

Back to Weaver. He asks,

How can currency be wisely and effectively stabilized? To what extent is it safe to depend on the free interplay of such forces as supply and demand? To what extent must systems of economic control be employed to prevent the wide swings from prosperity to depression? These are also obviously complex problems, and they too involve analyzing systems which are organic wholes, with their parts in close interrelation.

The Fed has answered.

Sixty-five years ago, economics was known to be a complex, organized system. Yet today, the Fed continues to set policy as if the economy were a stochastic system that could be sledgehammered into whatever equilibrium state is deemed politically expedient. I would further argue that the Fed has not managed to succeed even in hammering the economy into a desirable equilibrium, but rather has mastered the ability to create artificial statistics to "justify" its actions.

The system is doomed to fail, because the resilience of natural complex systems requires freedom of action for its individual components. We do not observe resilient complex systems with central control. Yet central control is the dominant ideology of our present political and economic systems. Total control, with a vanishingly thin veneer of democracy, ephemeral as the morning dew.

Vignette

Twenty years ago; a woman I adored. She said, "I keep wondering how long this nightmare will last. If we hadn't left Iran, [her brother] would still be alive."

We were always happy. In pictures of us from my early years we are always laughing. My father used to teach at the university of Tehran, and he often treated patients who could not otherwise afford treatment at home, late at night.

But the nightmare has gone on and on. It goes back to 1979. The Revolution.

Those were great days, exciting days, when we overthrew the Shah. We were so optimistic. We knew that democracy was in reach. Khomeini, the Ayatollah, was not the first choice of everybody, but he was someone that nobody could have objected to. But he said he would not come to Iran unless everyone wanted him.

My father was a political moderate. He wanted democracy. His faction agreed with the choice of the Ayatollah, although privately they had reservations. But you do not know the mood that prevailed. We were so carefree, so we agreed and I remember him saying if the Ayatollah becomes a problem we will remove him as well! We were so optimistic.

But on the second day, we found out how it was going to be. My father's group made an application to appear before Khomeini, and the Ayatollah said he would not see us because we were--we were . . . religiously unclean. 

 It was purely because of our political stance, not our religion.

After that, in all our pictures I am in a shawl. We still wore jeans underneath. But it showed we were not one of them. 

From then on, we were in danger. I was young then--too young to be suspected. But as years passed, one by one my friends began to disappear. Some were arrested; some died. We could not remove Khomeini. 

When he announced a cultural revolution, the universities were closed for three years. In Iran, the university has always been an important part of the community. For meetings. For theatre. For organizing. The movement to overthrow the Shah began in the universities.

We went underground. We moved from place to place. I do not know how we survived. In 1988, we finally decided to leave. Why did we stay so long? It was our home, and we did not want to give up on it. For so long we believed if we could only bear a little more, it would all come to an end.

I had the easiest time of it. I had a passport, so I flew to Turkey. My parents got there too, but they never really told me how. My brother had the most difficult time. My parents had paid a merchant a lot of money to smuggle him across the border, which he did, but then he abandoned him in the mountains. He had to walk hundreds of kilometres to reach us. When we were reunited, we could not recognize him.

We were in Turkey for a year, but things became dangerous for us there, too. I loved Turkey.

My parents tried to get a tourist visa into Canada, but they were denied. It is too easy to apply for refugee status once you arrive. They did get one into the United States, so they went there and applied for refugee status--which is still ongoing. My brother and I were placed in Canada by the UN High Commission on Refugees, which tried different countries until one agreed to accept us. So we came here. 

Some stats for the blog in 2013

Happy New Year.

This year there was pretty good agreement between google-analytics and statcounter (at least for page views).

Top cities were Toronto, New York (tied), Singapore, London (England), Sydney, Gistel (Belgium), Melbourne, and Vancouver. Singapore actually led for most of the year, which was fitting as the first month's postings were from there, but fell back in November.

Most viewed site was once again Atlantis lost and found again; followed by The magic ends, part 2; Why we face ruin; Economic policy and price of gold; Gold guarantee blowing up in Singapore; and Evolution of the Case-Shiller index. You see, this is why the climate stuff has almost disappeared from the blog.

Judging by the number of visits, Captain Bernanke's adventures in the black hole will move down the list and possibly vanish from the most visited sites later this year.