I remember thinking, as I was studying plane geometry in high school, this is all very nice, but nothing is shaped this way. The world is not made up of circles, rectangles and triangles as pure forms. But, I enjoyed geometry because for some reason that I couldn’t identify everything made intuitive sense. How could that be? It turned out that the real geometry was a little mor complicated, but related.
The Sound of PHI
Many of us claim to be miserably inept at mathematics and yet our world from the design of the atom to the design of galaxies and the universe are expressed in a mathematical ratio variously called Fibonacci’s number, the golden mean, the golden ratio and PHI. We are at our core mathematically constructed beings, and we see PHI in everything and appreciate it without realizing it.
The reason we don’t realize it is summed up in a joke. A fish runs into a scuba diver. The diver asks, “How’s the water?” The fish replies, “What’s water?”
Fibonacci’s sequence is 1,1,2,3, 5, 8, 13, 21 etc. where each number is the sum of the previous two numbers. The ratio is 1 + √5)/2 or roughly 1.618 and it is seen in everything in nature.
When I first learned of this ratio I was dubious. I learned it from an artist, and we all know about artists. She claimed it described the shape of a nautilus shell, the shape of people’s faces we think of as beautiful, that it was everywhere and she couldn’t believe I got through college without knowing about it. I told her that I got through college without knowing how to draw beer from a keg, too.
I constructed graph paper and drew out the spiral that is present in snail shells, studied the proportions of people’s faces, and other examples, and found as claimed that our concept of beauty is based on PHI.
The relationship between PHI and Chaos:
“In modern mathematics, the golden ratio occurs in the description of fractals, figures that exhibit self-similarity and play an important role in the study of chaos and dynamical systems.” ~ Encyclopedia Britannica
I am fascinated with economics, so forgive me if I spend a lot of time on the large and small movements of markets.
In a recent article on technical stock trading and the use of PHI, further examples of the innate nature of PHI were given. The ratio of female bees to males in a hive is 1.618. The seeds in the concentric rows of sunflowers are arranged according to PHI.
PHI is used to analyze the movement of a stock by technical traders in order to anticipate a sustained movement in one direction allowing them to make trades for profit. Unfortunately, PHI does not predict the beginning or end of a trend; that depends on another mathematical approach.
It has been known for a long time that the movement of the entire stock market is based not on value, but on emotion, that is on “investor confidence”. Paul Krugman, Washington Post editor, predicted the collapse of the stock market if Donald Trump was elected president. That hasn’t happened yet. The ups and downs of markets; that is the periods of expansion and contraction, don’t follow PHI at least in any way that I can see. I looked at the average length of expansions – 38.7 months – and the average times of contractions – 17.5 months – the relationship to complete cycles, the lengths of the longest contraction (the Great Depression) the second longest contraction (the Great Recession) the longest expansion (the Clinton Years) and can’t find anything that looks like PHI.
Economic cycles follow another mathematic model; chaos. Chaos does not mean randomness. Chaotic systems like the markets and weather systems are affected by a great many factors, any one of which, over time, may make predictably large differences in the outcome. It is what has been termed the “butterfly effect”. The problem is that in order to predict an outcome all of the infinite number of variables must be known and measured at inception.
In simple harmonic systems like a vibrating guitar string amplitude is determined by how hard one plucks the string. Frequency, which determines pitch, is determined by the length of the vibrating string. Changing the pitch involves changing the wavelength by fretting the string at a different point. Thus amplitude and frequency are unrelated.
However, in markets it appears that they are in some way;
“Economist Claudio Borio of the BIS has shown that boom-bust cycles are increasing in amplitude over time; thus we should expect an even bigger crisis by 2020 than 2008 was.
Technically the frequency is decreasing while the amplitude is increasing, similar to what you might see in a (sic) Inverse Sornette wave.
Financial imbalances have been exacerbated by overly accommodative monetary policies run by the big central banks like the Fed, PBOC, BOJ, and ECB.” ~ from seekingalpha.com
Didier Sornette’s book, “Why Stock Markets Crash: Critical Events in Complex Financial Systems” looks not at the “triggering event” in the hours or days before a crash, but at the years and months prior to the crash. He attributes what he calls “collaborative speculation” as the culprit that causes prices to rise at an accelerated rate creating a bubble. The results look like this:
Oversold Market, 1929 crash, and Years Following.
Markets depend on optimism and fear for their movements, not cold analysis. In large systems like markets and weather the degree of predictability becomes less over time. The “cone of uncertainty” meteorologists use in tracking the path of hurricanes expresses this characteristic very well.
As previously stated their behavior (chaotic systems) in nature is impossible to predict because these systems are extremely dependent on initial conditions, and there is no way to know all of the initial conditions. The oddity of chaos is that on a large scale it appears to be very orderly. By setting the initial conditions chaos can be demonstrated using fractal geometry in very beautiful images.
The mathematics in chaotic systems is not that complicated, but they are strange. They depend on the use of imaginary numbers and the concept of partial dimensions. We are used to thinking of a line as having one dimension, a square as two dimensions, and a cube as having three dimensions. In the math of chaos a dimension may be something between a line and a square, or a square and a cube.
The first people to find what became known as fractal geometry were British cartographers trying to determine the length of the coast of Britain. They found that the more detailed the map, the longer the coast line became. However, the visual expression of chaos depended on the use of computers because the equations depend on repeatedly reentering the product of the last equation. Benoit Mandelbrot, an IBM worker was able to display the first example of a fractal in what has become known as the Mandelbrot set.
This fractal, which appears very ordered, is actually the product of chaos. The small details in fractals express the golden ratio.
Fractals and chaotic systems are everywhere in nature. Mountain ranges and coastlines are the result of chaos. The beauty of nature seems to lie in the mathematics of large systems.
Returning to Markets:
The increasing amplitude and frequency of economic boom / bust cycles may be spurred by two factors. One factor is the continued effort by big banks to eliminate any management of economies and by protection of banks when they come up short during economic contractions.
Speculators, especially large banks and the extremely wealthy that can actually manipulate investor confidence and produce bubbles, stand to make large profits by selling toward the end of expansions, and buying at the bottom of contractions. Being insured against the failure to get out of the market before a bust cycle begins effectively makes large investors immune to the risks of speculation.
Managed economies should flatten the curve and decrease the frequency of expansion and contraction.
An economic system that depends on growth may also be fueling the increasing amplitude and frequency of booms and busts.
Predictions by some economists are that the economic system that has existed through recent history that depends on continual growth will come to an end by 2050.
Two South African researchers have proposed that 1.618… describes not only the shape of the nautilus shell, the shape of Hurricane Katrina, the shape of an elephant’s tusk or the horn of a kudu, and the organization of the solar system, but is the “constraint of space time topology”. In short, it is the constant that describes the universe.,
Fractals are based on chaotic equations, but the individual elements are based on PHI.
And, just in case you are not yet convinced of the omnipresence of PHI, this is the DNA double helix:
Information on Fractal geometry can be found here.