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Minyan Mailbag: NEM / Complexity Theory



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Prof. Reamer,

As I've written before to you - I enjoy reading your theory and you have really been right on lately - look at the round trip on Ericsson (ERICY)!

However, I have had a question on applying some aspects of your work to stocks like Nemont (NEM). I am not going to be able to articulate this well but it seems pull and tug of events on a chart of NEM are far different than a chart on ERICY. NEM has no control over pricing, no different product differentiation, no short run ups or downs of production, and is far more influenced by currency markets and central bankers (and gold conspiracies!!!). ERICY can do so many more things to influence their future than NEM can.

A summary question thus would be:

Does your work uniformly apply to commodity driven names like NEM as well as the other companies you have illustrated so well lately? Or more simply a chart is a chart is a chart! "The Golden Mean" applies no matter what - to gold or anything else!

Minyan John,

The short answer is that markets and stocks are complex - that is they exhibit complex behavior and are thus governed by phi. Your words are correct: The golden ratio applies no matter what. Understanding why this is so takes a bit of research because it is not intuitive but complexity theory demands that this is the case. Just as there are an infinite number of factors that affect the price of ERICY, there are an equally large number of factors that affect GOLD, NEM, or any other negotiated financial instrument (commodity, currency or bond, etc.). It does not matter one iota what NEM management can "do" to affect their price nor what ERICY can "do". Their stock prices are not a function of what they can or cannot do solely (it plays a role but a highly minor one). Hope that helps...



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