Richardcyoung.com

The Online Home of Author and Investor, Dick Young

  • Home
  • How We Are Different
  • About Us
    • Foundation Principles
    • Contributors
  • Investing
    • You’ve Read The Last Issue of Intelligence Report, Now What?
  • Your Survival Guy
  • The Great Reset
  • COVID-19
  • My Rifles
  • Dividends and Compounding
  • Your Security
  • The Swiss Way
  • Dick Young
  • Debbie Young
  • Key West
  • Paris
  • Dick’s R&B Top 100
  • Liberty & Freedom Map
  • Your Health
  • Ron Paul
  • Bank Credit & Money
  • Dick Young’s Safe America
  • Your Survival Guy’s Super States
  • Critical Race Theory
  • NNT & Cholesterol
  • Work to Make Money/Invest to Save Money

The Butterfly Effect and Chaotic Markets

March 3, 2022 By Richard C. Young

By Anton Khrupin anttoniart @ Shutterstock.com

Securities markets endure any number of threats each day. Sometimes news that appears dire isn’t necessarily so. Other times, the market overlooks the little signals that portend a rout. After the 2005 revaluation of the yuan by China, I discussed how such seemingly small developments could create major change via the “butterfly effect.” I wrote that September:

I’ve written over the years about Chaos Theory, a subject on which I have read extensively. Of the scads of neat books on Chaos Theory on my shelf, I would send you first to Chaos—Making a New Science by James Gleick (author of the Life & Science of Richard Feynman). In his prologue, Gleick tells us, “When the explorers of chaos began to think back on the genealogy of their new science, they found many intellectual trails from the past. But one stood out clearly. For the young physicists and mathematicians leading the revolution, a starting point was the butterfly effect.”

Richard Feynman (groundbreaking research for the atom bomb, a Nobel prize for this theory of quantum electrodynamics, and his shocking expose regarding the Challenger space shuttle disaster) once said physicists like to think that all you have to do is say, these are the conditions, now what happens next?

Errors & Uncertainty

Gleick writes, “By the seventies and eighties, economic forecasting by computer bore a real resemblance to global weather forecasting. The models would churn through complicated, somewhat arbitrary webs of equations, meant to turn measurements of initial conditions (i.e., a yuan revaluation) atmospheric pressure or money supply—into a simulation of future trends. The programmers hoped the results were not too distorted by the many unavoidable simplifying assumptions. If a model did anything too obviously bizarre— flooded the Sahara or tripled interest rates—the programmer would revise the equations to bring output back in line with expectations. In practice, econometric models proved dismally blind to what the future would bring, but many people who should have known better acted as though they believed in the results…. Computer modeling had indeed succeeded in changing the weather business from art to science…but beyond two or three days the world’s best forecasts were speculative and beyond six or seven they were worthless…the butterfly effect was the reason. For small pieces of weather—and to a global forecaster, small can mean thunderstorms and blizzards—any prediction deteriorates rapidly. Errors and uncertainties multiply, cascading upward through a chain of turbulent features, from dust devils and squalls up to continent size eddies that only satellites can see.”

Gleick offers perspective that helps clarify a number of issues for us. (1) “A butterfly stirring the air today in Peking (now Beijing) can transform storm systems next month in New York.” Think of China’s mini yuan revaluation as the butterfly flapping its wings, and contemplate the future with considerable reservation. (2) Ponder the head faking of today’s complex hedge funds, and ask yourself how the butterfly effect may be the logic behind the explosion of multitudes of these highly leveraged time bombs.

Markets are stirring today. If you haven’t already counterbalanced your portfolio with a mixture of interest paying investment grade bonds and dividend paying, blue-chip stocks with long records of increasing dividends, I encourage you to do so. If you aren’t sure how to proceed, and would like to read more about such a strategy, sign up for the monthly client letter produced by my family run investment counsel firm, Richard C. Young & Co., Ltd. You can sign up here, and it’s free, even for non-clients. Don’t wait for chaos, prepare for it.

Originally posted on Young’s World Money Forecast.

If you’re willing to fight for Main Street America, click here to sign up for my free weekly email.

Related Posts

  • Are You Investing in the Armored Truck of Financial Markets?
  • The Devastating Effect of Obamanomics
  • Markets Reflect Weak-Kneed Politicians
  • Author
  • Recent Posts
Richard C. Young
Richard C. Young is the editor of Young's World Money Forecast, and a contributing editor to both Richardcyoung.com and Youngresearch.com.
Latest posts by Richard C. Young (see all)
  • Americans Are Abandoning ESPN and Woke Professional Sports Leagues - May 26, 2022
  • Harvard Professor Calls Homeschooling a “Threat to Society” - May 24, 2022
  • Why Does Joe Biden Put Americans Last? - May 24, 2022

Dick Young’s Must Reads

  • Can Ginger Combat Heart Disease and Improve Circulation?
  • Are You Prepared to Run Out of Water?
  • Why Some Kids Won’t Go Back to School, Ever
  • The Clock is Ticking: You Must Protect Your Family
  • Stunned Democrats Against “Defund Police”
  • Paris, The Palace Hotels: Part I
  • Concentrate on Dividend Record and Compounding
  • Is Rutin Useful in Preventing Blood Clots?
  • My Key West Garden Office
  • Government Should Be Small, Laws Unobtrusive, and Men Left Alone

Our Most Popular Posts

  • Jean-Pierre: Economy "Not Something that We Keep an Eye on Every Day"
  • Consequences of Biden Killing the Keystone Pipeline
  • Harvard Professor Calls Homeschooling a "Threat to Society"
  • Tucker Carlson Interviews My Favorite Florida Farmer
  • PRIMARIES: Trump Endorsed Candidates’ HUGE Night
  • PARTY'S OVER JOE: Republicans Crush Democrats in Local Elections
  • Are You Suffering from One of These Nutrient Deficiencies?
  • Our Daily Bread Threatened?
  • President Joe Biden’s Good Question
  • BUY THE DIPS? Can You Catch a Ginsu Knife?

Disclosure

RSS Youngresearch.com

  • If You Have a Plan, I Believe You’ll Get to Where You Want to Go
  • There Are Tech Companies “Still Dreaming of Boundless Growth”
  • Nowadays, Everyone Is Getting Some Dividend Religion
  • How Can the Fed Prevent Stagflation?
  • How to Avoid the Restrictions of a Target Date Fund
  • Now You Can Own Your Vacation and It Doesn’t Have to Be a Time Share
  • Watch Out for Your Worst Enemy
  • Big Banks Adopting Blockchain for Short-Term Trading
  • Job Market Survival Advice for Graduates and for Those YOU Love
  • BULLWHIPPED? Inventory Overhang Could Slow Growth in Certain Sectors

Americans Are Abandoning ESPN and Woke Professional Sports Leagues

If You Have a Plan, I Believe You’ll Get to Where You Want to Go

President Joe Biden’s Good Question

Georgia Proves All Politics Are Local

VIDEO: DeSantis: America “Cannot Have a Ministry of Truth”

Can America Cut It’s Spending in Half? YES! It’s Been Done Before

Copyright © 2022 | Terms & Conditions | About Us | Dick Young | Archives