The Multiplicity and Complexity of Phenomena
By Barry Ritholtz - March 19th, 2009, 3:00PM
Your Quote of the Day:
The human mind cannot grasp the causes of phenomena in the aggregate. But the need to find these causes is inherent in man’s soul. And the human intellect, without investigating the multiplicity and complexity of the conditions of phenomena, any one of which taken separately may seem to be the cause, snatches at the first, the most intelligible approximation to a cause, and says: “This is the cause!”
-Leo Tolstoy
War and Peace
Book IV, Part 2, Chapter 1, first paragraph
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March 19th, 2009 at 3:13 pm
I think the only thing more erroneous than humanity’s pattern seeking is humanity’s belief that it can somehow do better. It’s like asking an oyster to fly.
March 19th, 2009 at 3:16 pm
BR: Didn’t know you were a follower of the sage of Yasnaya Polyana. I thought it was more the sage of Omaha. Both are right about a lot of things.
March 19th, 2009 at 3:22 pm
OTOH (or, at least, tangentially), Occam’s razor seems to work for many, if not most, situations.
March 19th, 2009 at 3:24 pm
Oh goody…as I speculated, the 10 day MA of total market put/call is down to .75…that is way below the previous 3 year low…does anyone have data going back further? It could be a 10 year low or more.
March 19th, 2009 at 3:26 pm
Are you smoking the hippie lettuce again, Ritholtz? The multiplicity and complexity of phenomena? Tolstoy?
We come here for the beer and chicken wings, Ritholtz. Sometimes, steak and a decent scotch. But you are rolling out foo foo and cognac.
What’s this gonna cost me?
March 19th, 2009 at 3:40 pm
Excellent post / quote. Tolstoy presaged Confirmation Bias, a psychological affliction suffered by followers.
March 19th, 2009 at 3:42 pm
“Causes” are like fractals in that the closer you look, the more you’re gonna find. That being said though, I am sure we could build consensus around a pretty solid “Top 10″ for the current mess…
March 19th, 2009 at 3:42 pm
VennData Says:
March 19th, 2009 at 3:40 pm
Excellent post / quote. Tolstoy presaged Confirmation Bias, a psychological affliction suffered by followers.
…Had to chuckle at this one.
March 19th, 2009 at 3:55 pm
On another note, I’m really sorry I dumped my GDX and GLD a while back.
March 19th, 2009 at 3:56 pm
Steve Barry @ 3:24
The SPX could still close above 800 before the rally loses steam… I’d like to see the VIX drop down to 39-40.
March 19th, 2009 at 4:08 pm
Furthermore, the human mind forces itself to expand upon discovery by layering new ideas and modifications upon the initial discovery in the name of “improvement” or “enhancement.” Usually this results in something commercially viable yet unnecessarily complex and bearing little resemblance to the initial discovery. This leads to man-made phenomena like our current economic malaise and the inability to unwind it properly. From nuclear arsenals to CDOs, the examples are everywhere.
Oh humans…
Humans found that skiing is exhilarating and fun. From skiing, snowboarding was born, also exhilarating and fun.
Humans found that jumping out of airplanes, when not associated with warfare, is exhilarating and fun.
The first time I saw someone jump out of an airplane with a snowboard on his feet I saw the beginning of the end of mankind. The examples are everywhere.
March 19th, 2009 at 4:13 pm
I think the steam is out of the rally- Thanks to BB. Why the market cheered the QE move of yesterday I don’t know. The Fed is slowly realizing that they are dangling a carrot in front of a dead horse. You can lay all the credit out there at the lowest possible rates but you can’t make people take out a loan.
March 19th, 2009 at 4:24 pm
@call me ahab: I think we have one last upward move in us. Maybe not tomorrow but next week. After next week, all bets are off. I think we begin the move downward at that point.
March 19th, 2009 at 4:25 pm
“The first time I saw someone jump out of an airplane with a snowboard on his feet I saw the beginning of the end of mankind. The examples are everywhere.”
For me, it was doggie hotels, play dates and day spas. Any society that treats its dogs better than its people can’t long endure.
March 19th, 2009 at 4:28 pm
@Curmudgeon: I love my dog to death and have no kids (would like ‘em though) but I agree with you there. Although for many, dogs are easier to love than people.
March 19th, 2009 at 4:33 pm
I’m always harping about how it’s foolish for the Federal Reserve to be trying to promote economic growth by changing a number like interest rates, or injected x amount of liquidity, buying so and so’s bonds, etc.
In part I say this from experience – as somebody who’s worked extensively with technology including interfaces between software and manufacturing systems (as well as other business systems), I can say there’s nothing more humbling or eye-opening then trying to control a large system that you didn’t create from some central location or with some specific goal in mind.
I think this is particularly a problem in post Industrial Revolution societies where the complexity is so great and so much of it has been emergent (i.e. created by the aggregate of individual actions) rather than planned and orchestrated.
It’s tempting to point to war time economies as an example of a “managed” system, but I think that ignores their resource intensive nature as well as the fact that it’s the peacetime economies that produce much of the wealth we go to war over.
I think much of what our government is trying to do today to “fix” our problems is simply beyond their cognitive and operating capacity.
Our proposals for the central government to make the economy work right ignores the fact that they didn’t make it in the same way they human brain didn’t make the body that contains it. The government is largely a product of the economy that acts as a regulating entity. It did not, however, build that economy. It merely governed the granular actions from which some higher-level construct emerged.
March 19th, 2009 at 4:34 pm
DL Said:
March 19th, 2009 at 3:56 pm
The SPX could still close above 800 before the rally loses steam… I’d like to see the VIX drop down to 39-40.
comment:
————————–
On these quick turn rallies, my inner monkey channels Goldilocks (hell of a sight) and I sometimes miss the turn. What do you think of it hitting 825 or past that before it dips significantly again? One part of me thinks the drips and drabs of good news will keep it going past 850 over the next couple of weeks.
March 19th, 2009 at 4:38 pm
EAR
“The first time I saw someone jump out of an airplane with a snowboard on his feet I saw the beginning of the end of mankind. The examples are everywhere.”
certainly does sound fun though. I think people naturally seek out excitement or adventure and they will invent it if necessary.
Curmudgeon-
“doggie hotels” is that all- out here in DC there is Doggie Daycare- no kidding- you drop off your spoiled little piece of shit dog before going to work then pick him up after work. Talk about decadence. Maybe, just maybe (and this is just a suggestion) someone shouldn’t own a dog if isn’t allowed do what dogs do naturally- like hang outside in a yard- you know- being a dog.
March 19th, 2009 at 4:41 pm
Mannwich Says:
March 19th, 2009 at 4:28 pm
@Curmudgeon: I love my dog to death and have no kids (would like ‘em though) but I agree with you there. Although for many, dogs are easier to love than people.
Agreed. But you better get w/ the kiddie program–I don’t reckon the dogs are gonna pay all these trillions back! I did see that we produced more babies in 2007 than ever in our history. Bully for the economy. Bully for the fed.
But once you have kids and they become teenagers, then you will really know why dogs can be easier to love than people:)
March 19th, 2009 at 4:44 pm
I do that all the time…….critical thinking is too hard……….why not jump to conclusions?
March 19th, 2009 at 4:45 pm
That’s very deep for this late on a Thursday afternoon, Barry.
SO what you’re trying to say is: the market went down because people sold stocks. :-)
March 19th, 2009 at 4:51 pm
I have a great idea. It’s called The Jump to Conclusions Mat! Get it?
March 19th, 2009 at 5:02 pm
Transor Z–
“I’m a free man and I haven’t had a conjugal visit in six months… ”
roughly quoted from one of the best movies ever.
–for a cubicle dweller.
March 19th, 2009 at 5:03 pm
I suspect parts of the problem is tha they can’t imagine how to fix it with out doing what they are doing. they could have seized AIG, but the insurance regulators would have been lots with what to do with the part that killed, and could have fixed it that way. The FDIC could have seized Citi and BOFA but they couldn’t afford it (not enough cash. and of course not collecting premiums for a while didn’t help. nor do they have enough staff to deal with it). so since they couldn’t do those things they tried plan b. or was it plan 9?
March 19th, 2009 at 5:03 pm
much along the line of Super-Anon’s post, this, the QOTD:
“If we knew what it was we were doing, it would not be called research, would it?” —Albert Einstein,
I think, provides a key to unlocking what Tolstoy was getting after..
The Hubris that leads to the il-/de-lusion of control, stems from our fear of falliabilty.
We should grow up.
past that, trw makes a good point, too..
March 19th, 2009 at 5:13 pm
Occam’s razor is one thing. Reveling in superficial explanations as an ego boosting exercise is quite another.
War and Peace is actually worth reading if one is a risk manager, because it does a magnificent job of showing how little is really under human control. So much more is a matter of chance than that which is controlled, that one might as well say its really up to God. Which, as memory serves, is Tolstoy’s grand pattern to things.
March 19th, 2009 at 5:13 pm
you know, these movie quotes give me the perfect bailout idea for all of these toxic assets…
when payroll checks across the country are calculated, they usually produce fractions of a penny, right? what if we take all of those fractions and instead of writing them off, deposit them into Helicopter Ben’s account?
You’re welcome, Mr. Geithner and Mr. Bernanke.
March 19th, 2009 at 5:14 pm
dead hobo @ 4:34
I would bet very heavily against the SPX getting to 850. Even 825 is pushing it.
I’m more or less with Mannwich (@ 4:24) on this.
March 19th, 2009 at 5:15 pm
@Transor Z
One of the best movie lines ever-
“they say you’ve been missing a lot of work lately”
“I can’t say I’ve been missing it Bob”
March 19th, 2009 at 5:17 pm
“the logic of failure” is an interesting book that spends some time on this topic
March 19th, 2009 at 5:22 pm
Mannwich,
I think you unwittingly proved the point. Any society that can produce people that love dogs more than people is destined for failure.
However, most societies are destined for failure, not because of the above, but because the wants of one have outweighed the needs of the many. Thank you, Spock!
BTW, I reckon that we are destroying a generation of savers and renters at the benefit of a few reckless heloc abusers and spendthrifts. What do I know, though?
Chuck Ponzi
March 19th, 2009 at 5:32 pm
Chuck Ponzi @ 5:22
Yeah, the renters are getting screwed the most by all these bailouts.
The politicians seem not to realize that foreclosures create wonderful opportunities for some people.
March 19th, 2009 at 5:33 pm
I work with a gentleman (yeah, I have a job, yuck it up) who told me today: “The average person today is bombarded with more data (or data points) every day than a person living in the 15th century received iin his entire life.” Paraphrasing of course and clearly and unknowable but it made me wonder if the complexity of our social order and interpellation with the physical world exceeds limits of our physiological capacity to understand it. Are our biological limits going to leave us unable to contend with the world we have fashioned?
(my use of interpellation is not intended to drag Althusser into this but rather due to a physiological limitation which impairs my Broca’s area or is it the Weinerschnitzel area?
This is not me:
http://4.bp.blogspot.com/_Di1HzTLtBlM/SEANZhw3jvI/AAAAAAAADGM/lcEcCgTXHTk/s400/dual-mind.jpg
March 19th, 2009 at 5:35 pm
Mannwich says:
“I think we have one last upward move in us. Maybe not tomorrow but next week. After next week, all bets are off. I think we begin the move downward at that point.”
I wonder why?? This whole QE/BB stuff has got me somewhat scared- causes damage to the US all the way around and really projects weakness- why do you think we’ll have another advance- always willing to listen.
March 19th, 2009 at 5:42 pm
@ ahab:
If they trash the $, the theory is you try to buy other stuff as an inflation hedge – stocks, TIPS, commodities.
Hell, buy MBS, CMBS, junk bonds, McMansions, Big Macs, Hummers, anything.
That is the theory behind these helicopter drops. Don’t fight the Fed. Yet.
March 19th, 2009 at 5:47 pm
leftback-
that makes sense- however what about the Fed’s tacit admission that the economy is moribund and that we are in for a long gruelling slog a la Japan.
March 19th, 2009 at 5:49 pm
ahab,
could be the theory of the Qtr-end paint-brush, so that the MutFund Complex won’t have buy as much red ink to report their sterling results..
MR–
w/this: “Are our biological limits going to leave us unable to contend with the world we have fashioned?”
slow it down, the ‘world we have fashioned’, came from w/in our biological limits, to begin with.
can we OD on ‘data’? sure, but that’s been happening since the dawn of ‘data’..
past that, I find “the world is too complex”-theory to be high-grade Prole Feed. IOW, a nice way to tell peep: “Shut Up, and Sit Down, Stupid–you couldn’t understand.”–really, an aide to the Idiots who believe themselves to be ‘in control’/ a crutch used to beat those, supporting them, into submission..
March 19th, 2009 at 5:50 pm
Chart Porn for Barry!
27 Visualizations and Infographics to Understand the Financial Crisis
March 19th, 2009 at 6:00 pm
“could be the theory of the Qtr-end paint-brush, so that the MutFund Complex won’t have buy as much red ink to report their sterling results..”
MEH knows the way the System works..
March 19th, 2009 at 6:28 pm
My preferred inflation-protected purchase this week may be new windows for the house. Negotiating hard and hope to get a good deal.
March 19th, 2009 at 6:29 pm
@Hoffer: That’s what I think. A little quarter-end paint brush for the mutual funds. Same thing happened at end of December. We’re seeing a replay.
March 19th, 2009 at 6:36 pm
What say you folks about the theroy by some that mark-to-market and the BIS in Switzerland, Greenspan, the creation of the CRA, repeal of Glass-Stengell, Paulson and Geitners influences have created the perfect storm so as to create a worldwide financial crisis to dislodge the dollar as the primary conduit of commerce and replace it with a global currency?
Tin-foil cap speak or could there be some there, there?
See, The Financial Crisis: A look behind the wizard’s curtian (Written by Wiseman)
March 19th, 2009 at 6:39 pm
Alex,
I heartily agree. I tend to believe Tolstoy had recently read Ecclesiastes. He patiently sets about to show how the “smaht guys” are always outsmahting themselves. But they never learn. Just ask a few who comment here that think hubris is a virtue. They crash and burn but they never learn.
March 19th, 2009 at 6:46 pm
Hoffer,
Good one from Einstein!
It reminds me of a sign we had on the door of the Intelligence section in our Air National Guard Unit in the 60s: “The nature of our job is so secret that we do not know what we are doing”.
March 19th, 2009 at 6:55 pm
Composer Modest Moussorgsky to Nikolai Rimsky-Korsakov in a letter dated 8/15/1868:
“…When a German thinks, he reasons his way to a conclusion. Our Russian brother, on the other hand, starts with a conclusion and then might amuse himself with some reasoning.”
Seems “our Russian brother” is not alone in this regard.
March 19th, 2009 at 7:01 pm
Attention loyal readers, critics anf foul mouthed bufoons everywhere:
I have and announcement to make.
I believe that next week there will be a greater market dislocation than the one we had in September. I don’t think it will start here. It will be triggered in Asia (China, Hong Kong, South Korea, Singapore or/ and Japan.
Sorry, it’s an intuitive thing. I can’t put my finger on it but I’m getting this feeling that the implosion Nixon caused by closing the gold window is about to repeat in some iteration and on steroids. I wish I could offer more concrete advice but all I can suggest is to watch the Asian financial news with all the energy your beady bubbles have. Next week is going to be ugly. No, I don’t think the mess will last longer than a week.
March 19th, 2009 at 7:12 pm
Well, this phenomena seems to be clear enough. Apparently, newspapers are in such poor demand that they are building a brand new printing press to to print them. The difference between the new and old is that the new one is non-union.
http://thetyee.ca/Blogs/TheHook/Media/2009/03/18/chronicle-canadian-firm/
So once again the economic slump seems to be the excuse for union busting and the imposing of Walmart labor values on the common man. No surprise there I suppose
March 19th, 2009 at 7:14 pm
<i.I have a great idea. It’s called The Jump to Conclusions Mat! Get it?
Sort of. But who’s Mat?
March 19th, 2009 at 7:22 pm
MH-
I certainly don’t want to spread any Prole feed, just harmless musings punctuated by weak attempts at humor. I am asking myself questions and cruelly subjecting the handful of readers and commenters here to my process. My comments don’t occupy so much space as to cause real distress so please understand that you needn’t feel compelled to respond with all the force of your intellect…
That said, I appreciate what your intent(s) is(are) but, tell me, you must become exhausted on occasion, right?
March 19th, 2009 at 7:41 pm
drewburn Says:
March 19th, 2009 at 4:44 pm
I do that all the time…….critical thinking is too hard……….why not jump to conclusions?
Because every time you “jump” , you are dancing to the tune some PR hack with a degree in psychology is playing. The moment you turn on the radio, step into a mall or walk into an store or office, you are being gamed. Someone wants to make some money off of you. That’s all right as long as you ARE NOT buying on impulse. See what I mean. Don’t let them them game you. Critical thinking can be quite intoxicating and fun as well.
March 19th, 2009 at 8:18 pm
I really think SPX 1000 is not out of the questions here.
March 19th, 2009 at 10:07 pm
MR,
sorry about that, I thought that that may have been mis-read/understood..
I think I was responding, in general, to the many times I’ve heard similiar ideas, to the one you expressed, pontificated..
that said, I hear the, underlying, wonderment, it certainly can/does seem, at times, bigger than “we” can manage, but, hasn’t it always been thus?
http://www.thefreedictionary.com/pontificate
March 19th, 2009 at 10:28 pm
AGG Says: March 19th, 2009 at 6:46 pm
yes, that is a good one, BR put it up, it was the QOTD..
though, the anecdote about the Intel chaps is funny, some of those cats really are ‘off the hook’ ..
March 19th, 2009 at 10:34 pm
I don’t get it.
No one has mentioned the notion that the oligarchy is doing all it can to juice the market as much as possible before Q1 earnings reports come rolling in. I think it was B in TN that first mentioned the impact of Alcoa’s report.
What this tells me is I know nothing about near term (next week) up or down. But the earnings reports are going to generate lots and lots of down. I was actually in a office supply box store where they were playing “let’s make a deal”. Well, hey, I got a flash drive at less than 1/3 retail.
Unless BB starts delivering $1m checks to every American. Which at this point is not beyond possibilities. I struggled with the word choice “possibilities”. What’s the right word? Reason, logic, precedent?????
March 20th, 2009 at 12:47 am
Barry quotes the Pope of Christian Anarchism….
another contradictory indicator maybe ? lol
March 20th, 2009 at 8:05 am
“I know that most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truth if it be such as would oblige them to admit the falsity of conclusions which they have delighted in explaining to colleagues, which they have proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives.”
- Tolstoy
March 20th, 2009 at 8:55 am
“I know that most men, including those at ease with problems of the greatest complexity, can seldom accept even the simplest and most obvious truth if it be such as would oblige them to admit the falsity of conclusions which they have delighted in explaining to colleagues, which they have proudly taught to others, and which they have woven, thread by thread, into the fabric of their lives.”
Especially if you’re getting a check from it ;)
March 20th, 2009 at 8:59 am
DL Said:
March 19th, 2009 at 5:14 pm
dead hobo @ 4:34
I would bet very heavily against the SPX getting to 850. Even 825 is pushing it.
I’m more or less with Mannwich (@ 4:24) on this.
reply:
———————————
Thanks. Unless there is a lot of real or potential momentum that comes out of nowhere, I think I will look hard at cashing out when it passes 800 smartly. That might be a couple percent early, but I’m sure it will drop deep into the 700 range in a few weeks. Except for Energy Services. I think the inflation and commodity nuts will carry that up a while longer before it crashes again.