I guess we're FALLING INTO a recession...

DAX FLASH CRASH! Bonzai! Bonzai! BonZAI!

An Example of Pseudo-Isomorphism and Weak Adjunction in Nabokov's Gift

1. One of the flavours of current math wizards in Category Theory is that beyond the simplifying beauty of their commutative stick diagrams, they appear to be in agreement that not much of their art has any obvious applicability to other parts of life.
Since much of what they do is to find the widest possible brushstrokes -- universal properties -- it is not surprising that it is difficult to find examples in real life where uniqueness can be trusted to serve some general principle. Nevertheless, there is the odd inflection where Nature appears to be a failed or perhaps much more subtle mathematician, hoovering just out of reach of our theories and inviting us to step off the cliff into an abyss. Tempting, or just foreshortened?

Source: http://www.google.co.uk/imgres?q=Nabokov+the+gift&um=1&hl=en&client=safari&tbo=d&tbm=isch&tbnid=2gtZSYEoawJoaM:&imgrefurl=http://www.brainpickings.org/index.php/2011/07/01/nabokov-butterflies/&docid=H5txSi_bq0brTM&w=480&h=665&ei=KZc1To31NYGs8QPSqMWgDg&zoom=1&biw=768&bih=946



Here is an example by Nabokov on how even a reflective symmetry across plant and animal, suggesting communication across thousands and millions of generations is itself unique. This taking some elements of one world and BORROWING them for another world is exactly what Category Theory was originally meant to rigorously capture. The two different worlds remain as they are, and somehow they are transformed by the exchanges into resemblances of each other.

"In my vicinity some witch doctors with the wary and crafty look of competitors were collecting for their mercenary needs Chinese rhubarb, whose root bears an extraordinary resemblance to a caterpillar, right down to its prolegs and spiracles - while I, in the meantime, found under a stone the caterpillar of an unknown moth, which represented not in a general way but with absolute concreteness a copy of that root, so that it was not quite clear which was impersonating which - or why."

Source: Nabokov, Vladimir (1963) The Gift, pp. 116-117.

The beginning of the next line:

"Everyone tells lies in Tibet."

Source: http://www.google.co.uk/imgres?q=rhubarb+drawings&hl=en&client=safari&sa=X&tbo=d&tbm=isch&prmd=ivns&tbnid=fNc9cMBfY__jBM:&imgrefurl=http://daviddrawsandpaints.blogspot.com/2011/04/rhubarb.html&docid=e3qM48rphly6LM&w=609&h=479&ei=75Q1Tp2zKYbE8QOo5p2hDg&zoom=1&biw=768&bih=946

2. Maybe one of the functions of "lying" is to preserve or move towards an image which the liar cannot help but replicate for his own needs and for the sake of preserving his world in the midst of a foreign world.

False Dichotomies & An Aikidoist's Understanding How to Move The Mind of Opposites

1. One recurrent lesson about the US debt crisis, soon to become debt default, is to not underestimate the power of false dichotomies. Expect huge volatilities in US debt related markets--which means anything that sounds like "US Treasury related" will become pariah much like "asset-backed securities" became in 2007 when practically all qualified investors withdrew their support from what they thought was the plague. Imagine the disgust, the frightening laughs of those who would take advantage of such events. An old George Soros comes to mind, trading against the pound...

Source: http://www.metmuseum.org/toah/works-of-art/17.142.3


2. It's so much easier to move the body of another by realising how the "mind" of an individual continuously attempts to right itself in the face of stimuli. Ask an Aikidoist to demonstrate. By holding the edge of your shirt at hip level, she can flip you in any direction by jerking your shirt downwards and understanding that you will naturally try to adjust your balance by moving your body upwards. At this moment, the Aikidoist will help you upwards at which point you will immediately adjust your weight downwards. And it is at this point, the Aikidoist will help you to accelerate downwards so you cannot maintain your balance and down you go like falling timber. However, from your consciousness all the Aikidoist did was lightly tug the bottom of your T-shirt. The first time this happens, it is totally incomprehensible to the one thrown. But after a couple years of being thrown around like a rag doll, comprehension sets in. By being thrown thousands and thousands of times, one gets a feeling of how to throw. And the principle of throwing is reduced to a few words or gestures and becomes incorporated into a repertoire of mind-body behaviours that can be applied generally and to many seemingly different situations.

Source: http://www.bridgemanart.com/Media%20library/Images/News%20and%20Features/EN-US/Artist%20and%20Collection%20Highlights/Aug%2009/Da%20Vinci%20Code%20story_72634-1.jpg

Does Buying Protection Against US Default in the Form of a CDS constitute an Anti-Patriotic Act of Supreme Rationality?

1. Is there such a thing as rational terrorism in the the financial markets? I'd say no. Markets should be left to their own devices, otherwise they tend to bite the arm off of their supposed masters. Let us not try to be too cunning when it comes to the US DEFAULT scenarios. If the markets don't see a realistic plan for BUDGET DEFICIT reduction that can simply be translated into NATIONAL DEBT reduction (please God teach the US Senators, Congressmen and President to use the same interest rate, years, and future values in their NET PRESENT VALUE calculations!) so the biggest systemic risk in the world today does not go crazy by July 28th (technical default coming for sure) and by August 15th (when the US really runs out of money to pay its bills). End of Prayer. Look at the chart below.

Source: http://www.zerohedge.com/news/step-aside-unicredit-and-italy-us-number-one-monthly-risk-bets

The chart means that US Debt is now the target of the speculative short bets. It scores higher than Greece, Italy, Spain. Translated into the Queen's English: Obama and Boehner looking over each other's shoulders, saying simultaneously, "I say, wee Jock, we are in a spot of trouble."

Remember the Market has not yet PANICKED because it cannot believe that the people's elected officials of the Republic are acting like squabbling children of the spoiled Empire.

Bond Markets As Bonzai Pipeline

The more I examined this graph, the more it made me laugh

1. Courtesy of the famous Dick Bove who recommended buying Lehman Brothers 2 days before it crashed:

Source: http://www.zerohedge.com/article/afternoon-humor-dick-boves-histoerical-bank-america-price-targets

2. Look closely at the buy ("B") recommendations. Hilarious, no? Dick Hove's recommendations remind me of brokers' calls shovelling the latest pump and dump. A mature person knows this happens all the time, and laughs it off when the con tries it on.

Best Introductory Lectures on Category Theory - The Catsters

There are 79 (!!) lectures on category theory here: http://www.scss.tcd.ie/Edsko.de.Vries/ct/catsters/linear.php

If you've done a bit of Lawvere & Schanuel on Conceptual Mathematics or Tom Leinster's lecture notes on Category Theory, then The Catsters is a very relaxing listen, except that Eugenia Cheng whispering secrets and emphasizing concepts with the lilt of her voice wake and whip your mind up a bit.

A Collector's Item

83rd Session of Philosophical Foundations of Law and Finance

1. Is social evil organised with malicious intent by a group of people in power (eg, the Exchange Stabilization Fund of the US Treasury sitting inside the New York Fed since 1934) or is social evil simply disorganised incompetence (as St Augustine famously argued in his City of God)?

2. For the 83rd session of the Philosophcal Foundations of Law and Finance we will examine both theses. The ESF has recently been unearthed as the biggie committee behind the dark ops. And for a contemporary view of how to solve the whole host of disorganised structural problems, see http://www.zerohedge.com/article/what-both-sides-are-missing-debt-ceiling-debate.

3. Afterwards, we'll probably pop into the very chi-chi Artisan Bar at the Langham's on Regent Street...hang out for media personalities and very rich Africans, Arabs and Chinese.

Middle Class Anarchy

1. What is the result of Euro risk contagion and US debt politicisation? The failure of institutions which the middle class believes in. The immediacy of anxiety and doubt is compounded with normalcy bias followed closely by angry rejection and then self-piteous cries for help. As Dostoevsky showed in the Grand Inquisitor, the death of the spirit of anthropos corresponded to the Church expanding its pity for the masses which in turn enslaved them by unnatural codes of moral dependency. Since Constantine attempted to bring the secular and the divine together from 800 AD, the spirit of free thought and courage were submerged into the grand euro-ritualisation of symbolic power. These ritualisations reinforced the hierarchy of power through the discourse of discretionary mysticism. What were before humble limited abilities of the human became supernatural constructs of control (eg cults of virginity were simply a form of sacrifice and repression of the intergenerational impulse, racism another grouping which destroyed the individual by resurrecting caricaturisation in place of intelligence, and then of course, money controlled by the theodocy of the elite was perverted into instruments for the prosecution of terror, war, systematic rape and infant-genocide).

2. From the Declaration of Independence, we have known very precisely and can without any appreciable academic effort understand immediately that bad banking is the morphism from business education to war and is the main construct of control in the imagination which binds the middle class throughout the world. Money is the substratum of the stream of middle class consciousness. It feeds on the false and tragic-comic of formal desires of civilisation.

3. Talk to an anthropologist about money, about global phosphorescence on the screens, and she will tell you that such will always be (1) used to short circuit the normal physical trading pathways ("hedge arbitrage is normal amongst traders") and (2) those outside the magic chrematistic circles will treat the insiders as suspect and immoral. And how about government officials in this game? Always "weak, despotic, captured and blamed."

4. So what is THE solution to middle class anarchy? Put differently, how much would you pay to alleviate the pain?

The Big Kahuna - When Ponzi's Unravel

1. I heard the folks in DC have agreed on a $1.5 Trillion debt reduction and the US CDS spread widened to 56 basis points. Oh oh, the jig's up. The market says such measures aren't good enough. If the spread widens further tomorrow after an official announcement that the Republucans and Democrats have kissed and made up, then we are in a PERFECT STORM.

2. Once the bond market no longer believes in debt reduction legislation then we have the beginnings of the great unwind, where promised relief is simply met with violent disbelief.

3. The following are some wavelets in front of the Big Kahuna.

Thanks to zerohedge at: http://www.zerohedge.com/article/us-cds-jumps-highest-february-2010-debt-ceiling-worries

n-Financial Theology: Quantum Clouds and Financial Trading

1. Spooky action at a distance happened with the Fed buying US treasuries. Although Ben Barnanke and Blinder (1988) wrote an academic article that argued the money multiplier effect does not exist where there are external sources of funding, the same Bernanke 21 years later shreds his academic reasoning by doing exactly that which he had argued would not work. To get the economy started, just reduce the fed fund rate (ie overnight deposit rate of the primary banks) and inflate the Fed balance sheet by having the Fed buy US treasuries in open market--the so-called POMO. After $1.6 trillion ($600 billion of QE2 from November 3, 2010 to late May 2011), the open market laboratory Rats and lemmings tests show that interest rates are creeping up and banks and major corporations are simply hoarding about the same trillion plus dollar amount--which amount is probably composed of retained earnings and insanely cheap borrowed capital. See chart below:

2. Why is this a quantum mechanical event? Because in theory (besides Bernanke and Blinder 1988, see Carpenter and Demiralp 2010 at http://www.federalreserve.gov/pubs/feds/2010/201041/201041pap.pdf) and any common understanding of how trading works ("Gee, Bud, how does blowing up the elephant make those flowers blue on the other side of the street?" "Beats me, must be some kind of set up or magic or something.") There is simply no way the buying (and later someday selling) by the Feds of treasuries should instantaneously support the Russell 2000, S&P 500, ES, and all the other major equity indexes around the world. This has happened without any conceivable PHYSICAL explanation except that it is some kind of ENTANGLEMENT. Traders will call it positive correlation. But correlation DOES NOT explain the events which are across markets where no financial instruments exist which would allow some kind of physical coupling of markets! Is there an invisible financial instrument which links all these instruments in various markets together? Plain answer: No.

3. Because of the lack of traditional physical explanation (neither mechanics nor dynamics is sufficient here), we as mirror-neuronal n-categorical carbon based self-replicators need to find at least the lowest level isomorphism of these events, or we will throw the whole series of events into the wheely bin called "an act of God." What we assert with a positive name for that which defies our sense of unique material extension covers up our ignorance of that which must be an intensionality. Intensionality as the lineage of great philosophers have provoked through the centuries is that from which creativity comes. Modernly with a pinch of fractal inspiration, what the common conventional thinking attribute as a given unique thing is an ignorant illusion-- for those things which appear to have primary being are merely transitory vessels of various degrees of emptiness. Look at the clouds and not these words to understand! The pure potentiality of Aristotle, the Demiurge of Timean Plato, the Intelligent Oneness of Plotinus, the dependent co-origination and nirvana of Buddha, these and more are morphisms, adjunctions and natural transformations of n-.

n-Gold as Global Reserve Currency

1. Check the time of my previous blog.

2. Now check this out:

n-Default Invariance in the [B][B]

1. Please note default invariance which is a universal property of the financial markets means we have a morphism across two domains, and where we move from greater structure to lesser structure we have a forgetful functor and where we move from lesser structure to more structure we have a free functor.

2. Yesterday, one of my colleagues whose immediate insights I very much respect challenged me to state something about the financial markets in categorical theory terms that is surprisingly inobvious. Not just fundamental crap, but something you could bet your mother's mortgage on.

3. OK. If default is invariant then since no central bank can ever hope to save entire countries, the following are rather obvious predictions from a categorical theory approach:

(1) Basel III definitions of risk free sovereign bonds will need to be changed as
(2) Countries default, and
(3) All asset classes will need to re-referenced against some mutually agreed to convention

(1) will occur within 1 to 2 years after (2). And as a matter of course, (2) will include the usual suspects, PIIGS and any other country borrowing in fiat without its own energy resources. Such countries only borrow to consume.

(3) is simply gold.

It all sounds so simple now. Happy?

Financial Wars 110712: mirabile dictu murders Euro and rapes 10-year Italian bond

"Video meliora proboque, deteriorate sequor." Ovid Metamorposes vii.20. Medea suddenly understands she should not betray her father and assist Jason, with whom she has fallen hopelessly in love, to gain the Golden Fleece, but she cannot help herself. [See, Morewood, J. (1998) A Dictionary of Latin Words and Phrases, pp. 185-186.]

1. We presume the new head of the IMF Christine Legrande is a highly trained lawyer who carefully chooses her words for rhetorical effect. For what is a lawyer who is witness to the truth and cannot convince the jury of such?

2. Last night, she is quoted as saying, "nothing should be taken for granted on Greece," and the USDEUR immediately lost 60 pips. [See: http://www.zerohedge.com/article/eur-plunges-after-lagarde-intimates-greek-bankruptcy.]

3. On the Italian front, short selling has been curbed after its 10-year bond hit 305 basis points over the comparable German bond. This is a record high spread since joining the Euro. [Ibid.]

4. One more day or so of financial war managed badly by the IMF and the ECB, and you know who the major beneficiary is of all this "n-Lehman-cubed" panic will be? Have you ever heard of the ESF? The Exchange Stabilization Fund? I dare not give you references because it all sounds like nutty fruitcakes. Even without the ESF, the relative-beneficiary of relative-chaos is the good ole USD. Yes, the same one where the theatre of Obama the great conciliator makes the Republicans and Democrats hold hands, kiss, and then do unnatural acts to each other under a raised debt circus ceiling, so in the end the Greatest Ponzi Scheme the World Has Ever Seen can continue a few more months.

5. Moral lesson: curb your exposure to nonsensical fiats and fascistic monetary policies for they kill our children. Do the obvious good thing and perform a random act of kindness today.

n-CDS spreads indicate de facto financial war

Wow, it looks like Europe is under attack. These spreads are braying for regime change.

Good luck, everybody.

N-Default Analysis - The PIIGS Cluster Bomb

With greater than 2/3 national debt to GDP, free trading debt is not exactly what he authors of the Treaty of Rome had in mind.

n-Systemic Collapse - The Most Probable is Driven By New Regulation

1. Anyone who reads the history of banking and systemic collapses knows a few things about the trajectory of human populations, information flows, symbolic exchanges and synchronic alignments of digital beliefs as the last nth step before criticality is breached and the sandpile slips catastrophically in a beautiful avalanche. These drawdown events have been modelled by Professor Didier Sornette, a geophysicist of first rank who sees fractal signals before financial collapse. Check him out: http://www.er.ethz.ch/people/sornette He is part of a growing brood of "econo-physicists" who believes market prices provide something more than a random pattern.

2. Unfortunately, none of the econo-physicists understand the law and none I know have modelled the fundamentals of law and finance. So, here's the trick. If you understand a bit of the law, a bit of deal mechanics so you can see how trades flow in the financial system, and overlay this vision with category theory diagrams so you can be assured that the multi-dimensional mapping you have in mind is at least an isomorphism in substance and therefore, a testable hypothesis with exact determinants in reality, then you can suggest or propose solutions to problems which are only barely perceptible on the horizon.

3. One problem for sure that is at the level of self-crucifixion is the OTC derivatives rules of the Dodd-Frank Act. The said rules know not what they are unleashing on the people. If we take the rules seriously then $200 trillion or so of financial contracts will need to come under the fold of organised exchanges. This will no doubt immediately accelerate the demand for US Treasuries. See: http://www.zerohedge.com/article/real-margin-threat-600-trillion-exchange-derivatives-moving-central-clearing-multi-trillion- And a very large, uncontrollable chain reaction will begin. Tempting to quote Oppenheimer's loose translation of the Vedas. Instead, please, let's not go there--note the distinction: even though default is invariant, systemic collapse need not be.

n-September 18, 2008 -> How a Valuation Rule Can Cause Global Financial Collapse in 16.67 minutes

1. Under Rule 2(a)7, the definition of a money market fund is simply the value of its amortised cost over 12 months. This means each day the MMF must re-adjust its trading books so that it can deliver exactly what it says it is going to be able to deliver in 12 months time. If it is out by 50 basis points then it must report this fact to the Securities Exchange Commission, which constitutes a self-admission of a violation of a securities law. If the MMF is out by 25 basis points, it (the trader) must report to the board.

2. I have been long informed by private sources that August 7th 2008 was the day that all MMF fund transactions stopped, (they unaimously withdrew from the Asset-Backed Commercial Paper (ABCP) market, which in turn, supported ALL the privately issued Real Estate Mortgage Backed Securities (RMBS) markets) and that they stopped for about a day and a half.   That was a $600 billion market screeching to a dead stop.

3. And the following reportage is consistent with the August 7th day of emptiness-- that on September 18th (3 days after Lehman declared bankruptcy) individuals (moms and pops) started to withdraw from the MMFs. Least we forget how the world's financial markets can crash suddenly (that is, in about 63 minutes) I reproduce in part Tyler Druden's blog of February 8, 2009:

"SUNDAY, FEBRUARY 8, 2009

How The World Almost Came To An End At 2PM On September 18
Posted by Tyler Durden at 12:56 PM
LiveLeak has caught a scary moment of previously undisclosed insight by Paul Kanjorski where he reveals some facts that have not been captured by the media previously. At 2 minutes and 20 seconds in the video below, Democratic Representative Kanjorski explains how the Federal Reserve told Congress members about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occurred over the period of an hour or two. And it gets worse. Kanjorski paraphrases the following disclosure by Bernanke and Paulson:
On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.

We are no better off today than we were 3 months ago because we have a decrease in the equity positions of banks because other assets are going sour by the moment.

Interestingly, Kanjorski, and likely more and more Democrats, are starting to shift to the camp that more time is needed to make a correct decision this time (which may explain Geithner's decision to postpone the "bank-rescue" announcement by one day to Tuesday), instead of rushing into another half-baked plan. Very scary stuff.

Update - for all who claim that Kanjorski is yapping with a few screws loose upstairs, take a look at this clip: http://financialserv.edgeboss.net/wmedia/financialserv/hearing092408.wvx
and fast forward to the 1 hour, 50 minute and 48 second mark.
....Regardless of when it ws announced, the increased guarantee to $250,000 did not go into effect until Oct 3rd...

http://www.fdic.gov/news/news/financial/2008/fil08102.html

http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html?_r=1&hp&oref="

3.  Now, imagine how long will it take a couple High Frequency Trading Algos to disrupt the planetary financial markets.  At 10 to the minus 6 seconds per trade,  for 10 billion trades, the ENTIRETY of the World's Financial Structure would go down in about 16.67 minutes.  OK?  Suppose I'm off plus or minus by 150%?  a 1000%?  Ha, ha, ha.  Hilarious computation.