Apophenia, Collective Unconscious or …?

"Apophenia is the experience of seeing patterns or connections in random or meaningless data. The term was coined in 1958 by Klaus Conrad, who defined it as the "unmotivated seeing of connections" accompanied by a "specific experience of an abnormal meaningfulness".

Conrad originally described this phenomenon in relation to the distortion of reality present in psychosis, but it has become more widely used to describe this tendency in healthy individuals without necessarily implying the presence of neurological or mental illness.

In statistics, apophenia would be classed as a Type I error. Apophenia is often used as an explanation of paranormal and religious claims. It has been suggested that apophenia is a link between psychosis and creativity." (Source: http://en.wikipedia.org/wiki/Apophenia)

"Collective unconscious is a term of analytical psychology, and was originally coined by Carl Jung. He distinguished the collective unconscious from the personal unconscious, which is particular to each human being. The collective unconscious refers to that part of a person's unconscious which is common to all human beings. It contains archetypes, which are forms or symbols that are manifested by all people in all cultures. Some say that this borders on metaphysics: the difference in their conceptualization of the unconscious is one of the more conspicuous differences between the psychologies founded by Jung and Freud.

In his earlier writings, Jung called this aspect of the psyche the collective unconscious; later, he changed the term to the "objective psyche". The objective psyche may be considered objective for two reasons: it is common to everyone; and it has a better sense of the self ideal than the ego or conscious self does, and thus directs the self, via archetypes, dreams, intuition, and making mistakes on purpose, to self-actualization." (my emphasis)

The following chart of the goldollar index represents a breakout with potentially significant implications:

The index is derived by multiplying the gold price in dollars by the dollar index. In theory, if there was a 100% inverse correlation between the gold price and the US dollar - ie the gold price rose in EXACTLY the same proportion to the dollar's fall (and vice versa) - then the chart of the goldollar index would be a horizontal line.

What the above chart shows is that the gold price has been rising at a faster pace than the dollar has been falling (or the US dollar has been rising at a slower pace than the gold price has been falling). Importantly, yesterday - June 10th 2005 - the chart showed an upside breakout.

What might this mean?

It might mean nothing at all because it might turn out to be a false breakout. However, if it turns out to be real, there could be significant implications - given that the inverse linkage between the gold price and the US Dollar will have been severed:

1. Apophenia needs to be considered. Is there a logical inverse nexus between the two counters? If gold is genuinely the ultimate alternative currency to the US Dollar, then apophenia will not apply here. But the reader is urged not to jump to conclusions. Can we really envisage a situation where we walk into a grocery store and pay for a loaf of bread with a minute fraction of an ounce of gold? Clearly not! Gold in and of itself will never be a generally accepted currency again. That is a matter of objective impossibility. The only way forward for a currency linkage of some sort will be a gold (or other) "standard" - with some form of linkage between government issued pieces of paper and gold (or other). Should this situation eventually manifest, then the value of the piece of papershould depreciate relative to gold in the event that the pieces of paper become relatively more plentiful than the amount of gold to which they are linked. Thus, if we were ever to re-embrace a gold standard, the inverse nexus should not only remain; it should be precise - with gold rising by exactly the same proportion to the fall in price of the paper currency. It follows that the breakout of the goldollar index is not a sign that we are moving towards a gold standard; and to see this outcome as implicit in the goldollar breakout would indeed be the result of apophenia.
2. Collective Unconscious is incapable of being measured by formalised statistical techniques, and for this reason it is not (yet) taken seriously in scientific circles. Rather, it is regarded as more apposite to the field of metaphysics. But there is a priciple that flows from Quantum Physics, known as the "Correspondence Principle" - first proposed by Niels Bohr in 1923 - that may yet change this perception. "The conditions under which quantum and classical physics agree are referred to as the correspondence limit, or the classical limit. Bohr provided a rough prescription for the correspondence limit: it occurs when the quantum numbers describing the system are large, meaning either some quantum numbers of the system are excited to a very large value, or the system is described by a large set of quantum numbers, or both." (Source: http://en.wikipedia.org/wiki/Correspondence_principle . This may sound esoteric to many readers but, it is conceivable that the subject of Collective Unconscious may one day again be taken seriously. Through the Correspondence Principle - with very large numbers involved - its existence may eventually become demonstrably provable using mathematical techniques not available to classical statisticians whose activities are limited to measurement of the relationships of "hard" variables.

As emphasised above, one element of the Collective Unconscious is "Self Actualisation" and, from his own experience, this analyst has been observing a gradually increasing propensity of some individuals to behave in a manner that is independent of the "materialism/power" (ego) motivation that forms part of classic behavioural models. Admittedly from a limited viewpoint and from a small base confined to my own circles, it seems to me that "evolved" people are starting to grow in both numbers and as a proportion of the community. From my own perspective, it "feels" that the numbers of such people may be approaching some sort of critical mass.

In simple terms, what my (subjective) observations are telling me is that the Human Race may (at its core) be doing nothing more than evolving, or "growing up" which, as everyone knows is sometimes painful, often bewildering, but really just a normal experience.

So, what has all this psychological mumbo jumbo got to do with the breakout in the goldollar index - if, indeed, it was a breakout?

As demonstrated above, logic dictates that the breakout in the goldollar index does NOT imply a return to a gold standard, and neither does it imply a move to jettison the US Dollar and embrace gold as a currency.

Recently (perhaps through another of Jung's concepts which he referred to as "synchronicity") I happened upon a book that has been lying on my shelves for 23 years entitled "Paper Money" and written by one Adam Smith - a nom de plume for George J W Goodman, a magna cum laude graduate from Harvard and a Rhodes Scholar.

Re-reading this book produced an eerie feeling, in that it could have been written yesterday. It contains charts of the spectacular growth of debt in the 1970s, bemoans the fact that the world is running out of oil, and has one rather amusing fictional passage which refers to a $27,000 cab ride from the airport to New York City - with $27,000 being roughly equivalent to 3 Petrofrancs.

One chart (reproduced below) demonstrates how houses changed from 1970 onwards - from being a place to live, to a "way to borrow"

One chart I found particularly interesting was the following - which forecast an end to the housing boom as baby boomers reached retirement age:

Note the last sentence: "So the incremental demand for first time housing will diminish" (forecast by the computer to occur in the late 1990s)

It would be easy to heap scorn and ridicule on Professor Jaffee's conclusions, but the argument here is intended to be neither humorous not vindictive. Such criticism would not be valid in any event. Through this particular model, we can appreciate just how wrong computer based forecasts can turn out to be because - in hindsight - they often get the drivers wrong. However, at that time, what may have been an argument based on tightly controlled and formalised statistical validation techniques was probably econometrically "true".

All of which goes to prove that Economics is by no stretch of the imagination a "science"; and any attempt - through econometrics to reduce economics to a series of tightly correlated mathematical models will, eventually, be doomed to failure. We should not be blinded by numbers and "precision", because with computers it is possible to be precisely wrong to a large number of decimal places.

In the end analysis, any system involving living, breathing, thinking and feeling humans is an "organism". It has a life. It pulsates to an ever changing rhythm. Yes, the throbbing may appear to occur with a predictable pulse rate but, by definition, growth needs to be seen in context from outside the system. An organism of 6 billion people probably does not behave identically to one of 3 billion people.

The population of the world has virtually doubled within a generation. Who could have foreseen that within that time China would become a mainstream player in the world economy? (China and the US weren't even speaking to each other 25 years ago). Who could have foreseen that multiple dwelling ownership would have become a feauture of Western life? At what point, do these variables become "statistically quantifiable" in terms of provable correlations? Does the very act of proving the correlation render it invalid because of biofeedback? Why didn't the price of bread reach $195 a loaf as was being forecast in the fictional story in Adam Smith's book, Paper Money? These and other maddeningly unanswerable questions flow from a lack of clear understanding of the "Big Picture"; and an inadequate gut understanding that no biological system can exist independently of its external environment. For example, in the grand scheme of things, the planet Earth - which itself is a biological entity - does not exist independently within a multi dimensional Universe.

So, if mathematics, numbers and science won't by themselves cut it, what's left?

What's left is "empathy" - the ability to recognise and understand the states of mind, including beliefs, desires and particularly emotions of others.

Now, turning once again to the breakout of the goldollar index. If all we have is empathy, what is it that other people may be thinking and feeling if there is not to be a move back to gold as a currency?

The following chart (courtesy stockcharts.com) shows the relationshiop between gold as a commodity and the $CRB.

What it shows is:

1. The MACD gave a buy signal as it crossed above the Moving average, and the histogram peeked into positive territory
2. The price chart itself gave a buy signal as it bounced up from a double bottom and crossed upwards through its 50 day Moving Average - indicating that the gap at 1.425 is likely to be closed
3. The RSI gave a buy signal as it crossed upwards through the 50% resistance fulcrum.

The weekly chart below shows that gold may have bottomed relative to commodities, because:

1. There is a non-confirmation of falling bottoms in price and rising bottoms in both the MACD and RSI
2. The ratio is bouncing off its lows - as are both the RSI and the MACD

 

 

 

 

From the perspective of a 28 year distance, gold's potential as a commodity begins to emerge (chart courstesy Decisionpoint.com)

As a commodity, gold appears to have a maximum upside potential of around $800, with a more likely short term maximum upside potential of around $500.

This is confirmed by the following Point & Figure Chart (desensitised to exclude trading static) which shows a "measured move" upside target for gold of approximately $495 based on the horizontal count technique.

Finally, when we look at the ultra long term chart of the US Dollar, it hardly looks like a chart that wants to collapse.

The PMO is showing a strong buy signal from a 17 year low, and the price is bouncing "up" from a low that has not been significantly penetrated in 20 years.

Conclusions

The upside breakout of the goldollar index seems to be pointing to:

• The retention by the US Dollar of its status as an acceptable fiat currency - contrary to conventional wisdom that has prevailed since the late 1970s that "excessive" debt build-up and "excessive" incremental money supply would lead to its demise.
• The emergence of gold as a commodity whose price will be allowed by the authorities to become free of ongoing outside interference.
• A short term (less than one year) upside potential of the gold price to reach $500 an ounce.
• A world economy that seems likely - despite all conventional logic to the contrary - to continue evolving; and for reasons that cannot be explained by conventional economic theory which, in any event, has proven itself to be inadequate to the task.

Author's caveat

The above conclusions do not imply that there will be "smooth sailing" in the economy; merely that "the markets" are saying that the world's financial system will probably survive intact.

By contrast, the chart below (courtesy Decisionpoint.com) shows that the equity markets in the USA are seriously overvalued, and have significant (30% - 50%) downside potential within the confines of a rising trend.

Further, the improved probability that the system (and therefore society) will survive does not imply a sign off by the community at large that its leaders are performing acceptably.

To the contrary, if there is to be any across-the-board improvement in the quality of life, it seems to this writer that a condition precedent will be to throw out the testosterone burdened egomaniacs who typically strut the corridors of power. Life will carry on despite these individuals and, hopefully, the system's antibodies will conspire to eject them even as the human body excretes toxins and other systemic contaminants. The world simply has no need for leaders who are prepared to "fight for peace". Such a concept should be seen for what it is: An oxymoron whose "use by" date has long ago expired.