Thursday, December 3, 2009

Looking at the right side of yield

When we last left the subject, the relationship between economic yield and Fourier, I said, a yield curve, as a spectrum, will be DC (zero centered) normally distributed, the time series is zero centered gausian noise, at equilibrium. I mentioned the negative terms in Fourier, they were hidden terms in the economy.

We should use Fourier sign convention, and the right side of the yield curve are negative value going up. So, the yield at infinity, zero frequency, has positive yield on the left and negative yield on the right. The normal distribution is symmetrical with growth and decay processes.

But, the right side of the published economic yields is vacant, unknown. They can be recovered in hindsight with forensics, or recovered in real time by the likes of Zero Hedge and are observed in revision histories. The right side terms are held within the firm and are accounted for by command and control of internal inventory flows. The right side terms may include fraud, or potential stimulus actions by a monopoly.

The economy is risk averse, so it operates its aggregate yield curve to the left, such that the tail risk, the right side of yield, is small. We want slightly more growth processes than decay processes. But that puts the center of yield at or near 20 year, so we are Gaussian about a cycle because we are overly cautious. However, because of quantum affects we only measure yield from its peak to zero as a straight line, so it is not clear where the peak of yield actually lies.

Summary. We are cautious. We over produce to keep stockpiles high. As time flies, the reserves losses do not occur, so the reserves are moved from the right to the left in profit taking, the curve obviously peaks at the 20 term, the portion in the right dwindles, we relax, deflate and shift economies of scale for a while.

The theory tells us exactly when a deflation is going to occur, when the peak is noticeably at the 20 year point, for that means we get it, the past had been saved.

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