Cosmic Harmonies of Adam Hamilton
and the Friends of 321gold

Rock Gale
December 1, 2003

Many people study the stock market based upon the premise that we as humans react, as a group, fairly predictably, much like a system of machines, or electronic components. Some people - wrongly, I think - believe that the future movements of the stock market are random, like throwing dice, and that chartists are akin to Voodoo Priests. More intelligent people, such as Adam Hamilton, Jeff Kern, Clive Maund, Robert Prechter and Harry Shultz, to name only a few, examine the past to model stock and precious-metals market behavior in numerous ways, in order to predict what the markets will do next. (I'm sorry to all those other great 321gold systems analysts that I left out of my list, but my carpal-tunnel is acting up). They make a lot of money, and are most often right.

Myriad people refer to the stock market as having a long term cycle - on the order of several months, an intermediate cycle - a few weeks, and a short-term cycle - a few days. Often, when we look back through history, we notice that the same sorts of patterns repeat on an even longer time-frame and we call those Kondratief cycles, or K-waves. We use terms like "Fibonacci retracement," "market velocity," "momentum indications," not because we're trying to impress our friends, but because mathematics and physics seem to describe the day-to-day levels and movements of our stock market indices. It is not surprising that a few intelligent people have great success investing in the stock market using all, or combinations of, various technical - chart - analyses. We really shouldn't be so surprised when we have success. Adam Hamilton's last work is a case in point. Here's why.

Rhythms of the Universe
Twenty-five+ years ago I studied electrical engineering at the University of Waterloo. By far the most interesting course in third year was "Analogue Computers." Analogue computers are completely fascinating because they allow the modeling of system behavior using simple electronic components. The theory as I remember - way back to the troglodyte years - is that any system, from something simple like the bouncing of a ball, to complicated designs like the suspension system of an automobile, or even the sytem response of the stock market, can be represented by circuits built from three basic elements: resistance, capacitance, and inductance. I promise that I won't go into any greater technical detail since I would be unable to at this point in my life, and those few brain cells that remembered all that stuff have long since been destroyed by years of hard beer drinking.

What I remember most was the sublime philosophical concept that all systems in the universe react according to the same physical and mathematical laws. The second most interesting thing about analogue computers is that when you turn the machine on and supply some kind of electrical stimulus, the output comes out on a long graphical ticker-tape that can at times look very much like the chart of the Dow or the NASDAQ on any given day. There was a great feeling of power - much like what the FED must feel when it turns on the printing presses - in that you could, while the machine was running, actually adjust some or all of the parameters to change the system response characteristic, sometimes profoundly changing the shape of the output chart. If one was not too careful, the parameters could be changed such that the system response became unstable, making the output waveform shoot off the page. A system that was properly designed however, would not go unstable no matter what stimulus was applied to the input. A proper system always uses "feedback loops" and resistance to quickly damp out any large oscillations. This is very similar to the way Supply and Demand fundamentals work in a FED-free environment to create a smooth and uneventful marketplace. Increasing prices cause a reduction in demand and increased supply, which stabilizes prices. But as soon as the FED starts twisting the inductance knobs and cranking up the power, without really knowing what they are doing, watch out!

Harmonics
The rhythm of life. Bio-rhythms. Ups and Downs. The emotional roller-coaster. We know that our lives respond to various rhythmic vibrations, but how do all these things affect the stock market? It's just like plucking the string of a guitar or playing wine goblets. When you run your wet finger around the bowl of a crystal wine glass, the most beautiful pure sound is produced. We say that the glass resonates. Everything in the universe has its own resonant frequency or response characteristic. Some are simple, and some are more complex. A guitar string resonating at 200Hz sounds pure, but it is actually not a single pure tone. It also produces harmonic frequencies at multiples of the 1'st harmonic - or primary frequency. Notice in the picture below, that when all these harmonics add up, the resultant wave is not a pure sine wave any more. A single cycle of the wave can look very much in fact, like the Nasdaq Stock Market bubble!

If you don't believe me, take a look at Adam Hamilton's graph below, and compare it to the first cycle of the composite Waveform above.

(Read Adam Hamilton's full story here).

Surprised? They are very similar. So there's your answer Adam, as to why the NIKKEI of 10 years ago can look so similar to the NASDAQ of today. Of course they are not identical, because the harmonics are not always the same amplitude, and the average human is more complex than a guitar. You have to adjust for noise and distortion, internet feedback, different levels of human induction, inertia and momentum, resistance/stubbornness - the main damping force - capacitance/greed-and-fear, and a few other parameters, like the FED and the MEDIA twidling the knobs - whose effects in my opinion, cannot be discounted; however, in the end, the human economic system response characteristic is all there unchanged, superimposed on one waveform, the ticker-tape. The whole world it seems is just one big complex analogue computer. I didn't make this up. The real truth has already been revealed a quarter century ago in the classic, "A Hitchhiker's Guide to the Galaxy." (The universe's ultimate answer is of course 42).

There you have it. That's the music of the market. It's as much an extreme art form as it is a mathematical equation or a physics experiment. You can feel its resonance in your blood sometimes, for you and I are all a part of its melody. All the rhythms of the universe are in you, as they are in the stock market; likewise, as they are in a common guitar string. So, if someone asks you at a party if you play a musical instrument, its OK to reply, "Yes! I play the HUI long, and I play the NASDAQ short. What a beautiful golden tinkling sound it makes when I practice my art every day, and always do my math, physics and charting homework."

December 1, 2003
Rock Gale
Ottawa, Canada
email: rockgale@yahoo.ca
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