Important FINAL COMM HERE AS A COURTESY: This Side of the Horizon NOW

 Various Markets Globally are Self Organizing towards Criticality, and will shortly be susceptible to Six Sigma and Greater volatility events aka Crashes. Like many metronomes started separately and randomly, over time, they are coming closer to synchronization. 

I will repeat here what had previously been sent out in direct encrypted comms the past few weeks and months as I watched it develop, and warned that this cycle would be far shorter than the last two.

China's fall peaks Mid May, then US Nasdaq and S&P500 in following months.  Crash(s) It is now on THIS SIDE OF THE HORIZON. That's 50% of Global GDP.

Crypto's still highly correlated to Nasdaq, so any diversification affect is questionable.

Treasuries had a phase transition and have been on an increasing interest rate slope since.  There will be a flight to safety during the crash. Into Dollars and Treasuries. Temporarily.

Gold also had a phase transition and has been on a positive slope since.

The place to be is NOT in Stocks. Any bounces, I would reallocate to a "Protect what ya got" Capital preservation mode.  Rough seas ahead, and few places to hide this time.

After the crash Deep value with Dividends is prudent. Traditional Deep Value, Graham and Dodd and G.A.R.P methodologies usually do well. Commodities and "Things" will do continue to do well this cycle. Increasing interest rates are good for banks.  Industrials, Energy and Commodities might be the winners in this next cycle as well.

Expect crazy volatility in the months ahead.  After the crash there will be a temporary bounce, but then a retest of lows.  Reverse Alpha Adder will be informative on that retest, and the length of the tail.

Lastly, last phase of this twenty four, possible to even look at it as a thirty eight year project is done.  Important parts of AlphaAdder have been codified into software, custom Computers and Live Feeds are integrated and up and running. Not all is in the software though, so even if I'm completely hacked, its Not All There. I always assume I'm hacked.  The unique library grows daily.

Please prepare.  Don't make your "Water dam" to heights equal to previous water line high's. There will always be "New Highs".  Dry and Canned Goods as well.  Hard Cash. Precious Metals on hand. Be prepared for more "High Water Marks" never seen before as the Dutch learned, and do.

Welcome to a Glimpse of Systemic Risk Consulting's AlphaAdder's Fifteen Year Applied Complexity Experiment.

Dear Sir or Madam; 

Thank you very much for your interest.

I have temporarily put SystemicRiskConsulting.com to Public so you can view the relevant  posts related to the original Hypothesis. There are many more, but these are visible to help you hone in on the Important Points. 

The original Hypothesis proven: It was Indeed possible to Identify when the S&P 500 had self organized to the point of criticality and was susceptible to an unforeseen exogenous event causing a Crash. This was done in two different Economic Cycles, in vastly different circumstances, fourteen years apart. 

To Wit:

1.  Dated and Time Stamped Evidence of Statements of System Criticality Prior to Six Sigma plus Phase Transitions of 2008 and 2020. I wrote these entries for myself, to ensure I wasn't fooling myself. To be Epistemologically humble and transparent over two Economic cycles to observe the efficacy of the hypothesis in a real world application. 

.2. The Original Entry Monday August 22, 2005 is the Original Entry for Context.  It contains bits and pieces of Proprietary paper:  "Stock Market Endogenous Dynamic, 'Noise', and Crash Precursors", written 1998-2005. Inspired by Per Bak, and watching my Quotron melt in 1998 due to LTCM, and noticing similarities with my 1984 work at LANL.

Over the past fifteen years developed a "Very Pioneering" Complete Systemic Risk Management Suite for the S&P 500. "Reverse AlphaAdder". "IP"'s, "S^3", "P^3", "AlphaOmega", "Phase" and other useful non intuitive artifacts that are Distinct Competitive advantages tactically and strategically.

Ended Applied Experiment Successfully with the Correct Call prior to 8-Sigma moves in 2020. 

At the Urging of others I began to apply AA to a Global Pallet of assets where sufficient data was available, (One at a time) and it became evident that it's applicability was far greater than I had comprehended, as I was focused on the S&P500 because of its depth, breadth, and Importance. With the new massive implications of what can be done, I  Stopped Publication, and went back to school for Computers to build Infrastructure necessary to execute on a Global Scale. After School, and Six months in the Field, I, purchased the Global Data Streams, and I am currently designing the System to execute this vision incrementally towards a final goal. The End Result will be as, if not more significant than my work thus far. 

Thank you for your time and Consideration.

Bob Klapetzky 

March 4th 2020 Stating Criticality Call BEFORE 8+ Sigma Event

2019 View from 30,000 feet above. CHINA CHINA CHINA

HIGHLY CONFIDENTIAL NOT TO BE SHARED EXCEPT BY PERMISSION OF AUTHOR

2019 View from 30,000 feet by ALPHAADDER. January 1st, 2019

CHINA  CHINA   CHINA AS IN FXI

The endogenous dynamic driving the markets currently as verified by current and previous Volatility Cluster originates from CHINA.


INFLECTION POINT:  2/13/19

INFLECTION POINT: 5/1/19

SUSCEPTIBLE TO EXOGENOUS EVENT:  9/2/19


NOW LETS LOOK AT USA S&P 500 IN ISOLATION BELOW

THE USA AND CHINA ARE IN LOCKSTEP.  THE DATES ARE NEARLY THE SAME.

Current Phase and Context S&P 500 from 30,000 feet above. Continuing the Wall of Worry, until,,,,,

Textbook Wall of Worry.  You've already forgotten being worried during those dips, haven't you.

As I told you before it started to happen, we are continuing to climb the Wall of Worry.  We dip, you think we are wrong, it turns around and goes back up.  Again, and Again.

As it stands now.  Potential end of cycle contracting Mid 2020. Still.

Activity between now and then either confirms this, or sets up new timing.  Importantly, either way, volatility remains auto-regressive until that time.  Further setting in Anchoring Behavior, and a stronger and stronger feedback loop. Double Edged Sword.

I am reading more and more negative prognostications about impending doom.  This is really healthy, and holds off the Six Sigma Event.  Counterintuitive.

Further;  The signals are NOT as well defined and clear as they were in 2007.  This has direct bearing on the size and distribution of the future event.  Signals in 2007 were terrifyingly clear. Not as much currently- A good thing.

Going forward.  Volatility- Yes.  Expected, and of a an expected degree, that will make you cringe, and question your resolve, but in the end, will be a continued  Climbing of the Wall of Worry with stopping points in the graph above.

If I continue publishing, I will do it without the timing component you have seen here.  It is a distinct competitive edge/advantage that I will no longer keep in any computer.  I am applying solely within my proprietary trading going forward.  If I continue to publish here, I will clarify Phase, and Context.
Current Phase/Context:  Self Organizing towards Criticality, and will become Susceptible to an exogenous event causing a large Volatility Event in the intermediate future.  We are nearing the end of this second record long market run.  Enjoy the Runup to the end-DO NOT GET ATTACHED.  DO NOT ANCHOR.  BE AGILE.  PROTECT YOUR BALANCE SHEET.  DO NOT FOOL YOURSELF INTO THINKING YOU KNOW WHAT THE UNFORSEEN EVENT WILL BE, THAT TRIGGERS THE CASCADE.
Cheers!
Bob K

The Hidden Hand of Contextual Temporal Value Systems, and Perceived Priorities

     6/27/2018 Wall of Worry.  Asset Prices Extended by many measures
Doesn't matter at this point, (for a while) Adam Smith's Hidden Hand
is in charge.  Asset Prices are Temporal, Contextual and based on
Perceived Priorities-Review 8/22/05 Entry
     People, AND NOW MACHINES, are being conditioned.  Everybody is riding the predictable churn of autoregressive behavior by the market.  As it always does, it will work, until it doesn't, Catostrophically.  Of course, the other side of the coin is the old admonition to Short Sellers; That the market can stay irrational longer than you can stay solvent.
     The dearth of liquidity is being caused by the increasing integration of A.I. into High Frequency Systems, and its corresponding increasing rapidity of stepping away from the market.  This increases frequency of "Flash Crashes", from which we recover.  My concern is what will happen the next time the System has again Self Organized to the point of Criticality, and is Susceptible to a Six Sigma Volatility event, and the Machine Firepower is potentially overwhelming combined with the normal endogenous phase transition forces.

Return to current Endogenous Dynamic Slope.

I CHALLENGE YOU:  IS THERE ANY OTHER ENTITY OUT THERE WITH THESE RESULTS?  

Effects of China Cluster End Done. Despite Stretched Valuations we return to "Crawling wall of Worry"

China Dipped as predicted. Affected us as predicted. Change around 4/21

Right Again, which gives confirming info about future potential events.

Told you in 2007 what was going to happen in 2008.
Told you 2016 what was going to happen in 2017, and in 17 for 18. Jan for rest of year.
Added China in January 2018, and told you in advance how it would affect the US in Febuary through May.  (Halfway there)

2018 View from 30,000 ft. Both China and USA

China end of Vol Cluster. 2/10 Susceptible to exogenous event.  IF NO EXOGENOUS EVENT, THEN NO PHASE TRANSITION.

Close to our Inflection Point, not an ending point for us necessarily-a ways off.

Buy Vol shortly before 2/10 related to CHINA FXI (with greater than 30 day expiration to remove time decay risk.)

THE INFLECTION POINTS IN CHINA AND THE USA ARE DIFFERENT.  THE INFLECTION POINT IN CHINA IS AN END OF VOLATILITY CLUSTER.

We have an inflection point around 4/21, but it is not an end of cluster point.  It is a point, of a change of direction.  If China starts to pull us down starting around 2/10, we will have a persistency to go down also until around 4/21, at which time there will be a change of direction/persistency to flat, and or up.

If accurate than it gives confirmation of when we will have a Six Sigma Volatility event in the future.  I am keeping that to myself, for now.

UPDATE: Moving up timetable. Inflection point is around 8/21

Stumble into September, dragging Uber Smart Bears along longer

Many "Bears" are among the "Smartest" among us.  Their education, analytical skills and research are top notch. They bring to light things we did not see, fundamentally. In fact, they are correct most of the time regarding the issues that will be our downfall--- eventually, after a while.  Problem is they are a tiny, tiny minority in relation to the "Hidden Hand" of the masses, that are naturally more optimistic.  The Bears will be right eventually, but the opportunity cost is high waiting for the masses to flip. Wasted money on untimely unnecessary hedging.  Missed returns due to not being allocated correctly. It will not be a straight line, could be quite volatile as we continue to climb the "Wall of Worry".

One last time. Thank You to Dr. Robert Engle's Volatility Institute

First, Thank you to Dr. Robert Engle's Volatility Institute at Stern Business School NYU and its supporters, for allowing me this venue, and the ability to interact with my academic friends during meetings I attended there and at the NY Fed.  Wonderful experiences and people.  Keep up the great work.

S and P 500 sideways to up from here, approaching recent highs.

Look what showed up in the Bradbury Museum in Los Alamos. I honor my late father A.J. Klapetzky

If you would, please kindly allow me this one time, to deviate from the market. This is BEAR, as it was leaving Los Alamos National Laboratory on its way to White Sands Missile Range. It is now I understand at the Bradbury Museum back home in Los Alamos.  It was shot into space, tested and recovered.  A "Star Wars" Strategic Defense Initiative project from Los Alamos National Laboratory.  At its core is a  particle beam device that I watched my father tinker with in his Lab at LAMPF, and eventually get to work- to everyone's surprise. He was deservedly proud of this accomplishment, and I of him.  Never thought I'd be able to talk about it. Strange coincidence that I found this out the same day I found out that Voyager 1 is about to leave our Solar System.  Data from Voyager was what I was looking at as an 17 year old intern in the Astrophysics division at LANL at the same time (1984).  A cosmic yin yang it seems.  73-s Dad.

I TOLD YOU SO... i told you so. 12/1/08

Volatility incredibly high. It will end in the near future. There will be a relief ralley of sorts, then we will have a sucker punch come out of left field seemingly. That will be the end of the phase transition; and we will have a new market with new leaders, and the rational optimizers will be in charge for a while.

1/7/08 System "Critical" and susceptible to six sigma event.

As I said volatility was expensive and there would be an explosive move. It happened, a head fake ralley and volatility cheapened. Well the New Year arrived, and volatility has once again increased, and the system is critical.

The market is susceptible to a six sigma crash currently, at any time from some unforseen event. The biggest risk is the unforseen risk, as always. Interesting times globally. Cash is king in my book, even if it is a weak dollar.

SECOND PHASE PEAKING. ITS A HEAD FAKE.

SECOND PHASE PEAKING AS I ORIGINALLY DESCRIBED THE CHAIN EVENTS IN PREVIOUS POSTS.

SHORT TERM REVERSAL COMING UP. ITS A HEAD FAKE. THE LEMMINGS WILL BE DRAWN IN AGAIN FOR THE SIX SIGMA EVENT AHEAD.

IT IS THE FINAL REVERSAL BEFORE THE CRASH. TIME NOT DETERMINABLE, BUT IT IS TIME TO SHIFT THE RISK TO OTHERS. VOLATILITY AT THIS POINT IS EXPENSIVE. THAT WILL CHANGE IN A RAPID VIOLENT MANNER.

Even a unforeseen surprise , will not surprise.

Volatility to continue, within slightly elevated levels. Not a high degree of correlation with participants. "Rational Optimizers" in charge of this market. The real estate market here in Florida is another issue. LOL! It is funny to watch how people chase returns after the fact, and leverage up with an asset that has already run up. Sound familiar? Reasonably valued Cash generating assets, with good balance sheets are king. Find cash flows that you can quantifiably confirm have the fundamentals beneath them to confidently, and consistently generate expected cash returns.

I am not excited about indices, but even at this point we are not in a "phase" that would be susceptible for a large catastrophic avalanche of volatility. No six sigma or greater events on the horizon within the S&P 500.

Short Term Volatility within expected bounds

Yesterday Dow down 140+. This morning futures down big. To be expected with current news. Market will absorb it and behave within expected volatility parameters; system is not critical and will not "crash" at this point.

I repeat, remember the ABC's that I mentioned earlier. A rigorous application of traditional deep value metrics is, and will be the way to go.

Clarification: Nobody will ever be able to say with certainty that a complex dynamic system will have a six sigma or larger event in a specific time period; the best one can do is understand if the system has reached a point of "self organized criticality" and is then susceptible to a large event. The latter in of itself is of great value as you can hedge, and in parallel the system has reached a point of diminishing returns and decisions regarding asset allocation can be made more effective.

The large complex dynamic system we call the Stock Market is not self-organizing at this point. The system is far from critical. Value has done well as I said it would, and it will continue to do so for as far as I can see. There is no danger of a catastrophic >six sigma failure. A large unforeseen event even equivalent to 9-11 would not have the same effect.

As far as the stock market. Traditional valuation metrics with a priority placed on strong balance sheets and strong cash flows, enabling one to buy a future dollar at a discount today are, and will be the way to go. Stay away from momentum/greater fool concepts.

Taking this into account, passive diversified low expense ETF's come to mind also, if they are exposed to above mentioned parameters. I will be more specific shortly.

Stock Market endogenous dynamic.

Empirical observations of the U.S. stock market and of agent based models show catostrophic “avalanches” of volatility that could not be explained by existing financial models. - J.P. Bouchaud

1963,97- B. Mandelbrot
“The variation of certain speculative prices”
“Fractals and Scaling in Finance”
Stock price changes have fat tails deviating from the Gaussian distribution.

1989- R. Shiller
“Market Volatility
Fat tails correspond to avalanches of volatility that could not be explained by fundamental economics.

1994 - P. Bak and M. Paczuski
“Complexity, contingency, and criticality”:
Large dynamical systems tend “to organize themselves into a critical state, with avalanches” of all sizes.
“biology, history, and economics can be viewed as dynamical systems”
“In the critical state, events which would otherwise be uncoupled become correlated”.
“General equilibrium theory” has not been explicitly formulated for biology”, and this is why the avalanches of volatility could not be explained.
a non-equilibrium theory of economics can be constructed and it “will not be beautiful; it trivializes all the nuances and details that make complex systems exciting for humans”

1997 - P. Bak, M. Paczuski and M. Shubik
“Price Variations in a Stock Market with Many Agents”:
“rational optimizer” behavior is driven from economic analysis.
“noise traders” behavior is driven by market dynamics.
When the RELATIVE number of rational traders is small, “bubbles” often occur.
When the number of rational traders is larger, the market price is generally locked within the price range they define.

1999 - P. Bak, S. F. Norrelykke, and M. Shubik
“The Dynamics of Money”:
“in reality, agents usually make decisions locally and sequentially”
“money stores value between transactions”
“money is essentially a dynamical phenomenon, since it is intimately related to the temporal sequence of events.”
“Thus, the value of money is a “strategic variable”, that the agent in principle is free to choose as he pleases.

2005 - Albert-Laszlo Barabasi in
“The origin of bursts and heavy tails in human dynamics”
human nature is bursty
“a consequence of a decision based queuing process”.
“when individuals execute tasks based on some perceived priority, the timing of the tasks will be heavy tailed”

People do not behave in a random manner. 8/22/2005 RGK

People with the emotional self-discipline to consistently and effectively execute a “rational optimizer” strategy are the minority, whereas a noise trader’s barrier to entry is much less. Seeds are planted by “rational optimizers”, but “noise traders”, and their market driven perception of their stored value within the market drive bubbles and crashes.

Stocks are a temporary store of value.

Stock value is a PERCEIVED value; local, temporal and transitional based on market dynamics. PERCEIVED priority is greed/gain or fear/loss.

Greed drives the market up and out of control of the “rational optimizers”, and attracting ever more “noise traders”, self organizing until critical, highly correlated, and highly susceptible to a perceived shift in value and hence a fear driven crash.

A complex dynamic system self- organizing towards criticality. At criticality, events that during “rational optimizers” time in charge would be uncorrelated become highly correlated.

The complex dynamic system self-organizing is not the market.

The market is a derivative of what is self-organizing; noise traders. Greed or fear is their perceived priority; driven by a perceived, temporal, transitional, market dynamic value.

The biggest risk is the unforseen risk. (In finance) The same event in two different time frames can have dramatically different consequences. Literally a six sigma event, or larger, or not.
COPYRIGHT 2005