Pilipinas Forum 20: Turbulence, Chaos Theory and the Stockmarket

Another long exchange here (12 pages) in pilipinasforum yahoogroups more than 9 years ago, on turbulence and chaos theory, applied to business and economics, the stockmarket especially. Enjoy!
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Turbulence, Chaos Theory and the Stockmarket
Feb 2002

Our friend Fidel Nemenzo sent me this one related to Dr. Muriel's lecture tomorrow evening at WSPC, AIM re. "the application of turbulence theory in stocks trading". Fidel obtained his PhD Math from Sophia U, Japan; he's the only number theorist in this country. He's teaching now at UP Diliman.
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Pards, mukhang interesting ang lecture ni Dr Muriel sa AIM. Dr Muriel is known for his ideas on turbulence, the nature of which is one of the main problems of chaos theory. One of the characters in Jurassic Park, Ian Malcolm, was a chaos mathematician. Jurassic Park was an example of a non-linear dynam ical system. Conventional (or the common-view) science (Newtonian) says that the physical world is a machine, governed by equations. If one knows these equations, and all the "initial conditions" in a a given system, just plug in these "conditions" into the equations and you can predict what happens to the system. This is what the creator of Jurassic Park believed: if you know all the "equations" what govern everything in Jurassic Park and the behavior of its creatures, plus the most accurate observations of the system, then you can predict everything that can possibly happen, and maintain control over it. Sabi ni Ian Malcolm mahirap yan, at halos impossibleng i-predict kung ano ang pwedeng mangyari. Chaos can arise out of the most "orderly" situations. Which is what happened.

The central goal of chaos theory is the study of systems that exhibit chaotic or "random" behavior. Parang may contradiction dito: the search for order within disorder. May tula si Wallace Stevens, " ... A violent order is disorder, and a great disorder is an order. These two things are one." This describes what happens in most natural systems. (Or even "social" systems, like a crowd. The most orderly crowd can metamorphose into an unruly mob in an instant, just as the perfect storm may just be over the horizon of the calmest sea.)

Another example of a "chaotic" system is the stock market, thus the growing interest in the mathematical theory of chaos among economists. Stock brokers and currency traders know that prices quoted in any financial market can change unpredictably. Huge volumes of money are made or lost in sudden bursts of activity. Classical mathematical models of finance cannot explain this behavior, for volatility is central to the behavior of financial markets. Which is why new explanations of market behavior are being sought using ideas from chaos theory. Or even fractals-- pero saka ko na lang ito i-e-explain.

The way fluid flows, or the behavior of a plume of smoke-- these contain both order and disorder. The term physicists use is turbulence-- which is chaotic and unpredictable. The study of turbulence is a key problem in physics. Conventional theories may be able to explain the smooth flow of water when the tap is turned on lightly. But nothing explains the turbulent flow of water when the tap is strong. Dr Muriel has proposed a theory which explains such behavior. I guess that's what he hopes to do in his AIM talk-- to shed some light on the volatility and unpredictability (turbulence!) of financial markets using his ideas on fluid flow. Both types of systems exhibit essentially the same activity. I can't go to the lecture; kwentuhan mo na lang ako.

- Fidel Nemenzo

Chaos theory may well become one of the most important theoretical fields in the 21st century (aside from relativity and quantum physics). I have been fascinated with how seemingly innocous changes in the initial conditions can have multiplier effects which are often complex and unpredictable. The most popular example is known as the "Butterfly Effect" in which the flapping of a butterfly's wings for example in Germany (I'm still in a thrall with the "butterfly" ending in "All Quiet on the Western Front" flick. Thanks Gina!) could cause miniscule atmospheric changes and which, given a time horizon could affect weather patterns in Pampanga. And think of how a very small change in testosterone level of an individual could trigger a nuclear war (ala Dr. Strangelove). So it could be like goodbye mankind, hello dinosaurs kind of thing.

Anyway, the latest experiment on the chaos theory involved sending a random signal to the Pioneer 10 spacecraft which is already in the edge of our solar system (before it will get blasted into smithereens by a Trekkie in the future, he he he). As Fidel pointed out, even the random dripping of a faucet has an order behind it. In other words, there's beauty in madness. or a method behind every madness.

- Glenn de Guzman

Pilipinas Forum 19: The CPP-NPA, Sison and Maoism

This should be the longest exchanges in the "Pilipinas Forum" series in this blog so far. Yes, this is 32 pages long :-) These were posted in PF yahoogroups in August 2002 or nine years ago. There should be some lessons here for those studying the Philippine communist movement.

An earlier related paper will be  Pilipinas Forum 3: Is Marxism Still Relevant?, August 30, 2011. It's 11 pages long. Enjoy.
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I cautiously welcome the GMA decision to redeploy forces to fight against NPA cadres throughout the Philippines. While I fully support the fight against criminal elements and include among these any revolutionary group who resorts to armed violence against the public or the Government, I also hope that corresponding efforts will be made to protect the human rights of peaceful political opposition.

I continue to believe that economic development and respect for human rights is the best way to counter various guerilla groups. But, when any group resorts to violence in a democratic system I feel the full force of law should be applied against them. If this requires the support and direct involvement of the AFP and even funds provided bythe USA, then so be it. I would far prefer to see funds spend for economic and infrastructure development, but such expenditures also require a peaceful environment to do any good. If businesses are being extorted by NPA groups and infrastructure is being destroyed in the name of countering the 'oppression' of the people, the other improvements do little good.

I strongly believe in the right of self defense. While I understand that the members of the NPA, CCP, NDF and others feel that their revolutionary cause is a legitimate self defense against oppression, I believe the overall right of the people of a democratic society have a greater right to defend themselves from those forces who seek to impose their belief structure upon them by violence. If the CCP, NDF or even the Mickey Mouse Club for that matter, manage to go out and get themselves elected into a position of majority in a barangay, municipality, or province, then that is the will of the people and they have just cause to defend that. Short of that, however, the use of armed violence against the people's legitimately elected government is no different that criminality and that government elected by the people should treat it as such.

While I would prefer disputes to be settled peacefully, to tell the truth, I welcome Jose Ma. Maria Sison's call for the NPA to launch attacks. Let them come out in the open, let them show the common people how they are 'defending' them against oppression by cutting off their electricity and by destroying the infrastructure that has been built by their hard earned tax money. Hopefully when they come out into the light of day and show clearly who they are and what they believe they can be dealt with effectively once and for all.

I have no disagreement with legitimate opposition to the existing government, hey, I probably even agree with a lot of their charges of corruption and waste of the people's resources. But, let that opposition be heard through the electoral process. Let that opposition be felt through the right to vote. As soon as one group decides to let their opposition be expressed by armed violence they have left the side of legitimacy and have no right to decry the acts of society to defend themselves.

–Cynthia Diaz

Cynthia, I do agree with you. Sison and his brood (not only armed communist rebels) are out of mind and touch of time. I also believe that force have to be met with force, but calibrated and selective of targets because of the Bill of Rights.

However, the real enemy is within, within the mainstream. These are those who give a bad name to democracy, freedom of enterpise -- businessmen retaining a feudal state of mind towards their employees; those at home who mistreat their household help, corrupt gov't officials, demo-crazy protesters, politicking clergy, greedy and power hungry politicians, indifferent citizenry, flying voters, ....

–Roy Picart

The CPP-NPA thinks they hold the solution to the country's problems. Yet, they are the biggest obstacle to progress. Sison's call for the destruction of public utilities-which as Cynthia mentioned are built with the Pinoy's pawis-at-dugo-is a clear sign that their real target is the country's progress, however small they claim these to be. Kapirangot na nga lang-sisirain pa nila! Who do they think will pay to rebuild all these again?!! Certainly not Sison! The fail ure of Filipinos to achieve progress under the current system is the NPA's success.

Bayan Muna's "New Vietnam" scare is ridiculous. In the first place, the existence of the NPA is the cause of the very arrangement they are opposing. The NPA-and the armed violence they have continually brought society-is the root problem, then (maybe) the Americans. Before the American issue was even raised had they condemned the NPA's first (along with other terrorist groups) then maybe we won't ever need American "meddling".

Why do we need communism? Capitalism, though far from perfect, has evolved considerably from the 18th century capitalism of the industrial revolution. Even in the very countries that have adopted and spread communism, the ideology has proven to be more oppressive than capitalism. In so many years, it did not make the lives of their people better if not make them even worse. Now, China is relying on capitalism to compete in the global economy (ex., state-ownership of industries is being replaced by IPOs). As neo-capitalists, they may yet become the biggest threat to the Filipino worker and farmer... perhaps even more than the Americans ever did.

–Gilbert Cunanan

Pilipinas Forum 16: On Rice Trade Liberalization

Here's another long discussion (16 pages long!) from different people, on liberalizing rice trading in the Philippines, made in pilipinasforum yahoogroups. As usual, get your popcorn or other favorite snacks while reading the exchanges 10 years ago.
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On Rice Trade Liberalization

August 2001

Theory: there is gain from trade. Trade allows people of countries who do not produce certain commodities cheaply, access to these products through imports; at the same time, trade allows people who efficiently & cheaply produce certain commodities to export these goods, giving them the foreign exchange revenue to finance their imports. Thus, countries' welfare increases.
NEDA favors early liberalization (convert present import quotas into tariffs, and later on, lower tariff rates) of rice trade since trade protection to the sector is time-bound. But DA wants to keep the quantitative restrictions (QRs) on rice.

Before, only the state-owned NFA imports rice from abroad. Starting this year, private traders will be allowed to import rice up to 20,000 MT. But they must pay a minimum "equalization fee" of P3,240/MT or P3.24/kilo for the March 2 auction, on top of the 50 percent tariff.

Current World Rice Prices. Prices as of end-February range at $190/ton for white Thai rice (5% broken, "class A") down to $150/ton (35% broken). At P48/$, this is equivalent to only P9,120/ton or P9.12/kilo for class A rice, and P7,200/ton or P7.20/kilo for lower class rice (vs. P14-P22/kilo local prices).

There is net gain from trade. The clear winners are the rice consumers, fisher folks and non-rice farmers, users of important agricultural inputs like machinery and fertilizers (the farmers themselves), among others. The losers are some Filipino rice farmers who cannot compete price-wise despite lower imported cost of agricultural inputs.
We need to hasten agricultural trade liberalization. Though the country still has 4 years to further prepare (aside from the last 6 years of preparation) for such liberalization, the perennial production deficit, and consistently high prices, of local grain and sugar, mandate that we should hasten the liberalization. The benefits generally outweigh the costs.

Rice "self-sufficiency" does not mean that we should grow all the rice that we need. Rather, we only need to ensure that rice will be made available at sufficient supply and cheap, stable prices for our consumers. This would imply a good combination of domestic production and importation. If we do our assignment well, meaning the efficient laying of important safety nets, particularly infrastructure and technology support system to our farmers, coupled with trade liberalization plan, we shall help improve our farmers' productivity and output.


-- Nonoy Oplas


Nonoy , et al,


I also strongly go for the liberalization of rice trade for the following reasons: (a) import quotas or quantitative restrictions (QR) only breed corruption, and politicking; and (b) shortages and steep local price (retail) of the stuff is imminent because its trading becomes speculative; this has happened time and time again. The unscrupulous traders and corrupt gov't officials benefit, while both the farmers and consumers suffer.


Instead of "self sufficiency," the policy and strategy should be "self-reliance" i.e. having the purchasing power. Thus the farmer may be assisted with alternative sources of income, and better infrastructure and management services. (Thanks for the facts and figures).


-- Roy P.


Pareng Nonoy and All,


I agree with the merits of rice trade liberalization, and I have to say as well that I am impressed by the neatness of the methodology used in quantifying the demand-supply gap.
Just some thoughts/views alongside the last paras of Pareng Nonoy's paper:


* Trade liberalization in general, as experienced in Latin countries (Chile, Argentina & Mexico?, 1994-1995) created some shocks esp. on the balance of payments. Often, econ analysts would suggest that long term policies like trade liberalization should be coupled with short term reforms to avoid the shocks. I hope that the government is doing some short term fine tuning as we edge towards the 10th year for rice trade lib.

* The rice trade lib should not be an excuse for government not to pursue efforts that would maximize yield of cultivated/irrigated rice lands. Land parcels are /should be classified according to best use. Those which are declared best suited for rice should be protected from conversion, and supported with infrastructure and support services to ensure productive efficiency. The demand-supply gap may be bridged by importation of cheaper rice, and the competitive price of imported rice should force local farms to be more efficient. But a widening gap through the years must not be relied more on bridging it with imports but more on achieving greater farm efficiencies. A slow adjustment to rice trade lib may kill "best-use" rice farms and force conversions. I'll make mention here the ill effects of the "impermanence syndrome". This is one of the primary killers of cultivated lands in Australia, and this syndrome has been the reaso behind major conversions in Laguna and Batangas.

Pilipinas Forum 13: On Zero or Minimal Government

These are the exchanges in pilipinasforum yahoogroups in the middle of October 2001 or 10 years ago. Enjoy the 11-pages long exchanges and debates. The pictures and cartoons, I just added them here. Cheers.
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May I ask this question: "What the origin of zero government?"

"State of nature", according to social contract theoreticians Hobbes, Locke and Rousseau.

"Primitive communal" mode of production, according to Karl Marx.

"Invisible hand/perfectly competitive market", according to classical economists like Adam Smith.

"Invisible nature", according to Nonoy Oplas. he he he.

-- Nonoy Oplas

Noy, am interested on zero government. Sat down a few weeks ago with some friends on a single issue: getting rid of government and replacing it with the "market" as a mechanism to provide the social services which many governments, particularly in developing countries, have been remiss with.

One fellow argued eloquently how everything can be privatized: armed forces and defense, education, health, foreign affairs, infrastructure . . .

He argued that in the case of the Philippines, he does not agree with the passage of the 1987 constitution but he it is imposed upon him anyway. He queries if one did not vote, his dissent is ignored. and the budget deficit of the government is imposed upon him.

Inflation, which he describes as the worst kind of taxation is the fault of government. in the private sector, if you make wrong business decisions and the business collapse, you pay for it. but the government despite all its horrible acts does not pay for its mistakes.

I must admit i agree with him. but i argued that because of the political economy we have, the "market" is the first thing we have to establish, while contending with the powerful political forces and interests. unless we recognize the dynamics of forces present, we will get trampled by them. I added that his idea will only work if:

1. there is a limited universe of participants to the market bounded by some common parameters, e.g. all bettors in a cockpit locked inside

2. the market is more or less homogenous, e.g. again all of them sabungeros (cockfight gamblers).

3. penalties are stiff, e.g. you don't want to not pay your bet in the cockpit arena

then we will all have to be sabungeros.

who took the cookie from the cookie jar,

-- Harlequin

I have just survived two days in the pig pen we call the House of Representatives and listened to Congressmen heckle us while they look here, there in the budget for where they can find their swill (CDF). Talk about black holes and nothingness. Looking at them strut and preem reminds of the need for a big bang to shake these pools of primordial soup into some higher life form. They shall pay for making me miss Ally Mcbeal and ER and Survivor 3! Fortunately, I am home in time for Star Trek Voyager on the Hallmark Channel.

I find it amusing that these sanctimonious cretins (are they eligible to be called life forms?) talk about issues like the world depression and the deficit and all they want to know is where is their money??

What is the rationale for these posts? You want to find the origin of zero - of nothingness? Look no farther than there in the House of Representatives. Unfortunately, these black holes are supposed to be the representation of the sovereign will and wisdom(????) of the people.

-- Ricky Sunico