An Introduction

Awkward Introductions

I find introductions to be so awkwardly myself. I have never really liked that moment in a conversation when someone asks, "So what do you do for a living?" As if what you do and who you are relate in some way. In my case, they often have not and that is, in part, what has led me here to be with you in this place (which is not really a place) and at this time (which is simultaneously the same time and a different time). As a child, I had a fascination with numbers. Actually, there were fascinations in disguise hiding numbers underneath. One of those fascinations was politics. At an early age the grade school I was attending had a book fair. One of the books I purchased was about United States Presidents. I was infatuated with the idea of great men (they were all men then and, as this is being written, still are) leading the country and altering the course of history. After studying presidential history for a number of years, I decided it was time to rank the presidents and created a somewhat elaborate system which assigned numerical values to accomplishments ranging from keeping us out of war, laws passed, territory acquired, etc. It seemed perfectly logical and natural to attach numerical values to each president's accomplishments in order to determine which one was the most successful. Another childhood passion of mine was Numismatics aka coin collecting. Inherent within collecting coins were many numbers - from the denomination - 1/2 cent, cent (1), nickel (5), dime (10, quarter (25), fifty cent piece, etc. But beyond that were the weights, measures and compositions of each coin, which also were just more numbers. This coin collecting hobby took place in the shadow of the 1970's economic crisis. Coins made of silver soared in price as interest rates and inflation jumped to highs not seen since then. I anxiously awaited each new issue of Coins Magazine presented another opportunity to check and re-calculate the value of my growing collection so generously financed by my Dad. On the surface my childhood hobbies didn't appear related to me at the time, but they were both strongly rooted in a growing interest in numbers.

A Head for Numbers

My Dad was very good with numbers. He could add a series of number in his head faster than you could add them together on a handheld calculator. Dad and Mom owned a small chain of variety stores in Washington state. He had risen through the ranks of several dime stores on the West Coast, eventually becoming a Vice-President, before deciding to venture out on his own. This experience made him very familiar with the concepts of mark-up, discounts, profit margins, sales tax, etc. - many of which he could do in his head and come up with either the exact amount or a very close approximation. So, I grew up in a world that revolved around numbers. Everything had a price - whether it was the purchase price (wholesale), retail price, sale price or closeout price. Everything went well until the late 1970's and early 1980's when the Federal Reserve Bank began ratcheting up interest rates in an attempt to extinguish rising prices. Eventually, the FED succeeded, but not until interest rates had risen to over 21% and my parents business failed. That failure was a lesson in numbers. The businesses had all grown on the back of bank loans. Loans allowed the businesses to expand from one store to multiple stores. This all required credit lines at the bank to purchase merchandise, open new locations, and to finance the credit lines that the business extended to some customers. When the economy was humming along, none of this was a problem. The business expanded, inventory turned, money flowed in and the banks always got repaid on time. But the circumstances of the late 70's to early 80's economy created the perfect storm that wrecked my parents business. There were a number of factors - first, the business mainly operated in locations where logging and lumber mills anchored the local economy. During much of the 1970's, with the housing boom, my parents' variety stores prospered. As interest rates rose, the logging and lumber industries were struck extremely hard. Housing starts collapsed as the interest rates climbed and this devastated logging and lumber mills. In the small town we lived in the lumber mill was the largest employer. That mill closed and was torn down all the way to the ground. Nothing was left - not a board, nut, screw, nail or machine. It all went away. But this wasn't the worst part for the business. Unfortunately, many of the business loans were extended at variable interest. As interest rates rose, and the economic situation grew more dire, the banks demanded to be paid in full. The loans were called in and there was no way to both pay the loans and keep the business afloat. Everything my parents and family had worked so hard for was gone. My parents also made the honest mistake of paying back many of their long-time vendors before paying the IRS. While their intentions were honorable, the end result was more pain. The IRS has many tools and a good deal of power at its disposal to collect unpaid taxes. By paying their vendors ahead of the IRS my parents unintentionally made a bad situation worse. It took years for them to pay the taxes owed, but they did eventually pay back what they had agreed to pay.

The Smart Dog

So, growing up, numbers had both their enjoyable, and not so enjoyable, aspects. As a student, I was both pretty good with numbers and pretty awful at the same time. During that time, the way math was being taught to students was changing. Parts of it were still pretty traditional - multiplication tables, memorization, etc. Other methods were, at least in my young mind, more abstract. There was a fair amount of time spent discussing concepts like number places - ones, tens, hundreds, thousands, etc., that makes much more sense now than it did then. I picked up math in bits and pieces. The pieces I managed to capture stayed with me. The pieces I missed were largely lost only to be learned much later - or never. In high school I was one of the better students - not the best, but quite good. Then subjects I was interested in I applied myself to with a great deal of energy. When that interest and / or understanding was lacking much less effort was applied. I did well with any subject that applied real numbers - not abstractions. Algebra and Geometry were not my strong suits. I found the idea of proofs frustrating. Proving something which visually appeared obvious seemed like a wast of time. Anyhow, at the time, I dreamed of studying law, entering politics, and eventually becoming President of the United States. No need for Algebra or Geometry in the Oval Office. Our high school math teach, Mr. West, was a bit of a smart aleck. I was told a number of times - when I didn't know the answer to some question - that his dog was smarter than me. Not exactly an ego boost. Later, in college, I studied Political Science, but did attempt several times to pass an accounting class. Both times I dropped the class. For whatever reason, the concept of the double entry system didn't click. It wasn't that difficult a concept on its face, but it always seemed just out of reach. After spreading out my four year degree over six years (took one year off), I eventually graduated. However, I did not attend law school. Took the Law School Admission Test (LSAT) twice, but never did very well at it. Tripped up mostly on the logical reasoning section. Frustrated, I gave up on the idea of attending law school. 

Airborne Parabookkeeper?

Disappointed, I returned home to my parents' home to decide what to do. Went to work with them for a while in their new business servicing convenience stores, drug stores, and gift shops with merchandise - basically a combination sales and jobber type of position. This involved quite a bit of traveling over parts of Washington state, Oregon, Idaho and Montana. I wasn't too bad at it - not as good as Dad was. However, I was pretty young at the time - 24 - and the job was pretty isolating. Spending long stretches driving and being alone didn't appear to be a good long-term career. Also, no matter how much you love your family, it still isn't always easy to work with them. That goes both ways I'm sure. Eventually, I decided to talk to a Military Recruiter and joined the U.S. Army as a 37F - Psychological Operations Specialist - aka propagandist. The job was an interesting cross between advertising and marketing, except if your audience didn't like your message they might try to kill you. In reality, the work itself was very enjoyable. My training required that I go to Jump School to become an Airborne Paratrooper - jumping out of perfectly good airplanes. I overcame my lifelong fear of heights. Additionally, it required me to learn a foreign language - Spanish. I was a mediocre soldier and a somewhat dangerous parachutist, but I survived. Fortunately, I was a much better Spanish linguist. This gave me the opportunity to deploy to Guatemala as part of a Military Information Support Team (MIST). We worked with the U.S. Military Groups (USMILGRP), the Narcotics Affair Section (NAS) of the U.S. Embassy, the Guardia de Hacienda (Guatemalan Treasury Police), and local vendors to create anti-drug campaigns ranging from children's coloring books with anti-drug messages, to radio spots, billboards, advertising a national anti-drug hotline and more. All of this, you would think, took me a long ways away from any numbers. It did not. As fortune had it, while in college I had been the treasurer of both my residence hall floor and later, the Residence Hall Association - the student government group over all of the residence halls on campus. Somehow, despite my spotty understanding of math and failure to ever pass an accounting class, I managed to keep the books balanced to the penny as treasurer. So, when I deployed to Guatemala, the Officer in Charge (OIC) tapped me to keep the books. Over the course of approximately 24 months, I kept records and balanced the books on approximately $250,000 for a government - that despite its wastefulness - still frowns on accounting errors. And yes, my books always balanced to the penny. Even as an anti-drug propagandist in Guatemala, I couldn't escape numbers. In Guatemala, I met my wife Silvia through a cartoonist we hired to create anti-drug coloring books, billboards, etc. for us.  My wife was and is a very talented graphic designer. The military life was not terribly appealing to her. I deployed for about 4-6 months at a time - up to 180 days. We made the decision that she would stay in Guatemala when I returned stateside to Ft. Bragg, North Carolina. This allowed her to be close to family and continue her career in familiar surroundings. It allowed me to enjoy Ft. Bragg living in the barracks, passing the time anxiously awaiting my next deployment to Guatemala to do the work I loved and be with the women I loved and still love.

A Number of Careers

 After serving four years in the regular army I got out and returned to civilian life. My wife and I eventually moved to the United States to be near my parents. My Dad was sick and passed away in 2000, but we had several good years with Dad, as well as with my Mom who is still with us (thank God!). In my post-military years I have had a number of different careers. The longest one was working as an International Sales Representative for a motorcycle parts distributor. It allowed me to use my Spanish language skills. It also required a fair bit of math - calculating shipping costs, pallet dimensions, less than container loads, dimensional weight, etc. Yet again, I found myself in a job that, despite surface appearances, heavily relied on numbers to be successful. An incorrect calculation of shipping an international order could result in a substantial loss to my employer and / or customer. At the same time I was working in international sales, I also had an online business selling knives and outdoor equipment online. I learned many skills such as Search Engine Optimization (SEO), e-commerce, building a website, working with product photos, building a site by uploading information on Excel Spreadsheets, online marketing, customer service, credit card fraud prevention, building quotations, and the importance of cash flow. The business stayed afloat for about 8-9 years, but was largely based on a model of drop-shipping orders paid for by credit cards. It was a bit of a hamster wheel - running as fast as you could but largely staying in place. Plus, as a small business, even a handful of credit card fraud, customer disputes of charges, etc. can be devastating. It was a good learning experience, that I later translated into a multi-year business selling products through Amazon's Fulfillment by Amazon Program (FBA). While the FBA Program was, for me, a vast improvement over running a drop-shipping business, it had its good and bad points. On the plus side, Amazon handled shipping, processed customer payments, returns, and customer service. The downside was that storing product in Amazon's warehouses tends to increase in price over time. If you make mistakes and purchase products that don't turn quickly enough you can end up paying additional storage fees. Amazon also takes a pretty good cut of your business and competition with other FBA sellers can be very cutthroat. You are also subject to rules that change frequently. You have to play by Amazon's rules. One day it may be fine to sell a certain product and the next day that product is restricted. If you have a niche product that is unique and not easy to duplicate or source, there is potential to build a good business. If you are selling a more common product, then it's highly probable that your price is going to get arbitraged by other sellers or Amazon itself. Finally, Amazon has been very clever setting up the FBA program. You are essentially doing market research for Amazon. They have access to your sales numbers and can see what items sell well and what ones don't. And yes, if an item sells well Amazon will either find the wholesaler of that product or find a way to manufacture it for less and undercut your price. It's a brilliant model - for Amazon.

The Great Financial Crisis (GFC)

The Great Financial Crisis of 2007-2008 made the recession of the late 1970's and early 1980's that destroyed my parents' businesses look like a church bake sale. It stirred within me a new interest and appreciation for business, economics and the economy. Additionally, it shifted my political views to a decidedly more distrustful point of view - not just in politicians, but in the press as well. Certainly too, my work as a military propagandist has shaped my distrust in the news media as simply mouthpieces for the interests that stand behind them. The GFC came extremely close to collapsing the world economy. Along with 9/11, the GFC transformed the role and power of government in a direction decidedly away from economic freedom, individualism and local control and towards increasing centralization of government power, an all-encompassing surveillance state, and seemingly never-ending war. None of these trends are positive for liberty or a growing economy over the long-term. However, the current Trump Administration has made good progress in reviving the steel and energy industries which are vital to U.S. national security. The financial crisis sparked my interest in technical analysis (TA) - the study and analysis of price patterns to predict future movements either up or down in gold, oil, stocks, currencies, etc. My early efforts in this field were hit and miss. I generally have very good intuition and pattern recognition abilities. However, TA is both a hard and a soft skill. There are extensive books, training, and software available that have created a systematized and semi-scientific method to analyze prices. Programming wizards create algorithms to buy and sell stocks far faster than any human could ever dream of. At the same time, not every perceived chart pattern is significant. Patterns in and of themselves require the inclusion and exclusion of certain information to arrive at the pattern. Often the pattern is helpful and allows investors to buy and sell for a profit. Other times, the pattern is the product of some bias. Yes, it's a pattern, but it doesn't mean anything - or at least it doesn't mean what the investor who sees the pattern thinks it means. All of this doesn't even take into account the vast chasm between investors who believe in fundamental analysis and scoff at TA. While I consider myself solidly in the camp that tilts towards analyzing price as the primary factor to forecast future price, fundamental analysis vs. technical analysis represents the yin and yang of forecasting. Neither can exist without the other. In my view, price is simply the product of fundamental analysis plus all other known / unknown information, emotions, etc. boiled down to a single number.

Dissatisfied with TA (Technical Analysis)

While my journey to forecast price began with technical analysis, over time I was increasingly dissatisfied with the tools offered by technical analysis. While there is an almost embarrassing abundance of very good programs that will allow investors to analyze price movements and patterns much of it is not better than what can be accomplished with an Excel Spreadsheet. Furthermore, the more sophisticated technical analysis becomes, in my opinion, the more it beats the data to death. Whether it's the latest algorithm or high end program to analyze price data, each step away from the actual price data potentially loses some valuable bit of information. In skilled hands and minds that look beyond the surface, TA programs can be excellent tools. In unskilled hands, and less experienced investors, these tools can create a false sense of confidence and can speed the time taken to incorrectly analyze the market and lose their capital. On top of these weaknesses, price charts are often quite good at revealing where support and resistance levels have been, but aren't as useful for determining where potential levels exceed - either to the upside or downside - historical levels. Where is the next resistance level when the stock market make a new high? Yes, you could use Fibonacci, but it does require a fair amount of artful application to be truly useful. So, what's the solution? Glad you asked.

Back to Numbers, Beyond Our Current Conceptions

I believe the practitioners of TA have been somewhat deceived by the quality and ease of the current tools into relying too heavily on available technology. Again, these tools in skilled hands, are excellent. Not every set of hands or eyes is equally skilled. Newer traders / investors often rely on these tools more heavily than they probably should. Over the past several years I have been working on an idea that is fairly simple in terms of revealing support and resistance levels and understanding potential turns / reversals, as well as the extent of price movements. While the idea, its presentation, and rules are not difficult to understand, what it is based on is not nearly as easy to explain. In fact, I'm not going to attempt to explain it in this post, but will instead introduce the concepts one by one and then weave them together over time in an effort to reveal that the apparent randomness of numbers is, in all probability, not nearly as random as many would have you believe. The argument can be made - and I will make it - that numbers represent a kind of programming language. As we become more familiar with the programming language of numbers price movements that appeared random and nonsensical will take on a more orderly and understandable character. It is a language with binary and non-binary elements. It sets limits that current technical analysis sees, but carries over into areas not so easily seen by our common understanding. It touches on somewhat mundane concepts such as balance. It can be used to accurately project which candidate will win an election based on polls by correcting for errors and encapsulating probability better than margin of error. It can lead us to a concept of time and creation where at the moment of the Big Bang the beginning and end of time are created simultaneously - with time running in from beginning to end and from end to beginning. It can potentially unlock the mysteries of cyclical and linear time co-existing together from the beginning to the end and back to another beginning and end in a place where the expansion of space made time possible and another place where an infinitesimally small exists without time. That's the journey I offer you. Now if I can just get this thing out of this tight spot.