Friday, 24 January 2014

Health of the EU Economy - Stagnation or Recovery?

Our quarterly analysis of Eurostat's macroeconomic data of the Eurozone for Q3 2013 has now been completed and published. The interactive Business Structure Maps of each member state may be navigated here.

Italy, together with the UK, Sweden and France have the highest resilience (approximately 80%), while Belgium, Ireland, and Spain score a low 60%.

It is interesting to note that when it comes to the entire region, there are clear indications of a slow but consistent recovery. The evolution of complexity (its increase) in the plot belows shows that clearly.

However, complexity remains dangerously close to critical complexity, denoting alarmingly high fragility. This means that the system is very much exposed and incapable of dealing with intense shocks, financial contagion or extreme events. Nevertheless, it is also evident how, based on the available data, we have hit the bottom around Q4 2011, i.e. approximately two years ago. As of today, the situation in terms of complexity is comparable to that of Q3 2010. In essence, overall situation of the Eurozone has not evolved over the last three years. This is in line with an evident lack of reforms and lack leadership at both EU and country level.

The evolution of resilience follows a similar trend and, although it is still alarmingly low.

Finally, it is interesting to notice how in terms of recovery the 15 core Eurozone states are outpacing the 13 new  member states.

While the crisis peaked in Western Europe in Q4 2007, it climaxed approximately one year later in Central and Eastern Europe. In terms of recovery things are different. While the EU15 group touched the bottom in Q1 2011, the EU13 did so in Q3 2012, i.e. 18 months later. What is also clear is that the complexity gradient (higher complexity means a more lively economy) in the case of the EU13 group is substantially lower than that of the EU15. This means that, based on the currently available data, recovery in Central and Eastern Europe will be significantly slower.                             

Thursday, 23 January 2014

Creating Fragile Monsters and When Failure Is An Option

Imagine the World as one big corporation, offering all sorts of products and services. If one observes the World, and recognises that most (if not all) things tend states of greater chaos and fragmentation, it may be difficult to reconcile both images. For example, the number of countries, is increasing. Look what happened to Yugoslavia and Czechoslovakia or the Soviet Union. Belgium and Spain will probably be next. Even the European Union itself is being questioned by growing numbers of its disillusioned citizens. The bottom line is that number of players is increasing, their demands and conflicting interests are going to be very difficult to deal with. There are centrifugal forces everywhere. Well, almost everywhere. In fact, as countries and societies tend to break up, there is an equally clear trend in the opposite direction in the corporate world. Consolidations are creating super-huge conglomerates of corporations and super-banks.

Let's look at consolidation in the US over the last two decades. First the media industry.

And the banking industry.

Such super-huge companies have been named as "Too Big To Fail" by Stewart McKinney when he  served on the Banking, Finance and Urban Affairs Committee in 1984. He was wrong. Super-huge companies and banks have failed and without early warning. Size, in this case, doesn't matter. The  problem, in fact, is not so much size as complexity. Excessive complexity to be precise. The new paradigm is "Too Complex To Survive". The enemy is excessive complexity. And why?

  • Highly complex systems are intrinsically hazardous systems.

  • Highly complex systems run in degraded mode.

  • Catastrophe is always just around the corner.

If we allow this mega-monster corporation to emerge, we need to be well aware of the three keywords appearing above: hazardous, degraded, catastrophe. Is this the world we want?

Today, complexity can be measured and managed. It is a fundamental and strategic Key Performance Indicator of any modern business. Ontonix is the first and only company to measure and manage complexity. Rationaly. Serious science starts when you begin to measure.

Tuesday, 21 January 2014

Just How Good Are Minimum-Complexity Portfolios?

In order to showcase the performance of minimum-complexity portfolios versus highly complex ones, two such portfolios have been built with stocks from the Dow Jones Index. A nasty period, which included the Internet Bubble, has been chosen: 2000-2004. We confronted the performance of both portfolios with that of the index itself. This has been done in four distinct periods.Here are the results.

In terms of numbers we have the following results:

While the Dow has reported a total loss of 4.2% during the entire 4-year period, the high-complexity portfolio produced gains of 6.3% and the low-complexity one an impressive 24.1%. In turbulence, simpler is better.

Minimum-complexity portfolios may be obtained at

Sunday, 12 January 2014

Just How Healthy is the US Economy?

We know that 2013 has been a great year for stock markets, US markets in particular. People are openly talking of "stock market recovery". We also know that the FED has been pumping paper into the system. But what has this really done to the economy, apart from increasing the values of market  indices?

Since Nature offers no free lunch (the economy probably doesn't either) printing money must have its consequence. If you make markets rally based on steroids you inevitably end up paying for it somewhere. We claim that such policies create fragility. Hidden fragility. Well, hidden to conventional pre-crisis analytics technology and to those that are concerned with numbers and numbers alone.

Assetdyne analyzes the major US markets every two weeks and publishes the results here. The focus of the analyses is resilience - the capacity to resist impacts, shocks, contagion, extreme events and, ultimately, sustained turbulence. The results are far from exciting, revealing mediocre levels of resilience. Here they are:


S&P 100 - OEX

Dow Jones Composite Average - DJA

Dow Jones Industrial Average - DJI

PHLX Semiconductor - SOX

A two to three-star resilience rating. Nothing to celebrate. The S&P 100, in particular, has an alarming two-star (64%) rating. We leave the comments to the readers.

Navigate Interactive Complexity Maps of the indices here. Just click on an index and move the mouse. More soon.

Monday, 6 January 2014

Complexity Science Helps in Early-detection of Fibrillations and Tachyarrhythmia

The main goal of ONTONET-CRT™ is to reduce detection times as well as unnecessary ICD shocks. ONTONET-CRT™ adopts new model-free technology which does not rely on traditional math models. Instead of conventional analysis ONTONET-CRT™ processes the EGM and computes its complexity. Its sudden fluctuations generally anticipate events such as fibrillations or tachycardias.

ONTONET-CRT™ processing of EGM data indicates that fluctuations of complexity generally precede tachycardias or fibrillations. This means that it is possible to gain precious time in properly detecting and classifying the event and even preventing it altogether.

Analyses of EGMs shows that in over 80% of the cases ONTONET-CRT™ is able to anticipate commencement of tachycardias and fibrillations by a significant number of heart beats. This opens news avenues in terms of dealing with these events even before they commence.

Below is an example of how a sudden increase in complexity precedes a Ventricular Tachycardia.

Read more here.

Sunday, 5 January 2014

Casino Capitalism: Legitimizing the Derivatives Soup.

In 2000, the Commodity Futures Modernization Act (CFMA) passed, legitimizing swap agreements and other hybrid instruments, a massive move towards deregulation and ending regulatory oversight of derivatives and leveraging that turned Wall Street more than ever into a casino. At the same time the first Internet-based commodities transaction system was created to let companies trade energy and other commodity futures unregulated, effectively licensing pillage and fraud. (Enron took full
advantage of this until it all imploded.)  Further, it launched a menu of options, binary options, forwards, swaps, warrants, leaps, baskets, swaptions, and unregulated credit derivatives like the now infamous credit default swaps, facilitating out-of-control speculation.

This deregulatory madness caused unprecedented fraud, insider trading, misrepresentation, Ponzi schemes, false accounting, obscenely high salaries and bonuses, bilking investors, customers and homeowners, as well as embezzling and other forms of theft, including loans designed to fail, clear conflicts of interest, lax enforcement of remaining regulatory measures, market manipulation and fraudulent financial products and massive public deception.

This slicing and dicing of risk-reducing derivative securities is still going on, creating a time bomb waiting to explode with catastrophic consequences.  According to the latest BIS statistics on OTC derivatives markets there was a whopping $693 trillion outstanding at the end of June 2013. That is more than 10 times the GDP of the entire world and equivalent to $100,000 for each of the 7 billion inhabitants of our planet.

The complexity and high potential risk associated with derivatives requires innovative risk assessment procedures and strong technical knowledge. There are tools to measure and monitor complexity of these financial products. One can be  found here.

With this innovative tool you can classify, rank and rate the complexity and resilience of derivatives, and establish maximum allowable levels of complexity and minimum allowable resilience. Products with low resilience contribute to making the system (economy) more fragile.  Once the most complex (dangerous) derivatives have been identified, they should be withdrawn progressively from circulation.

Submitted by Hans van Hoek


Saturday, 4 January 2014

NASDAQ 100 Resilience Rating Analysis - January 2014, (1/2)

The first of two fortnightly NASDAQ 100 Resilience Rating Analysis reports in January 2014 is now available for downloading here.

The second January 2014 report shall be available after January 15-th.

The NASDAQ 100 Resilience Rating Analysis provides a ranking of the 100 stocks composing the index based on stock complexity and resilience. The report is offered free of charge.

Reports can be generated on a daily basis or in real-time. For more information contact us.

Which is the Most Reliable and Trustworthy Rating Agency?

One can never really trust a third party 100%. A lot has been written about the unreliability, lack of transparency and conflicts of interest of the Big Three Credit Rating Agencies. And yet, the entire economy uses and depends on ratings. It's a bit like those who smoke knowing that smoking causes cancer.

Even though the rating agencies have been said to be the "key enablers of the financial meltdown" ratings are necessary. Sure, ratings are necessary but they must be reliable and trustworthy. Because nobody is really 100% transparent and 100% independent, the term "reliable rating agency" sounds like an oxymoron. A radically new approach is needed.

The only person you trust 100% is yourself. So, if you want a 100% reliable rating, you must do it yourself. This is why we have built the "Rate-A-Business" platform, so that you can rate any business yourself. This is how it works:

1. If you want to rate a publicly listed company, you download its financials from its website and you process them at

2. If you want to rate your own business, you already have the financials. You use data you trust. You trust the result.

In the first case we still have the problem of  trusting the financials that public companies post on their Investor Relations pages. But, at least, the mechanism for rating those numbers which is used by Rate-A-Business remains the same. For everyone. All the time.

Ratings must be democratised. This means they must be in the hands of those who use them. They must become a commodity. Not a means of deception.

Thursday, 2 January 2014


Wall Street claims markets move randomly, reflecting the collective wisdom of investors. The truth is quite opposite. The government’s visible hand and insiders control them, manipulating them up or down for profit—all of them, including stocks, bonds, commodities and currencies. The public is none the wiser.

It’s brazen financial fraud like the pump and dump practice, defined as “artificially inflating the price of a stock or other security through promotion, in order to sell at the inflated price, then profit more on the downside by short-selling. This practice is illegal under securities law, yet it is particularly common, and in today’s volatile markets occurs daily to one degree or other. My career on Wall Street started out like this, in the proverbial "boiler room."

A company’s stock price and true worth can be highly divergent. In other words, healthy or sick firms may be way over- or undervalued depending on market and economic conditions and how manipulative traders wish to price them, short or longer term. During a trading frenzy, a stock price increases and so the capitalization of a company is suddenly more then just a few minutes or hours before? What non sense that is!

The idea that equity prices reflect true value or that markets move randomly (up or down) is nonsense. They never have and more than ever, don’t now. It is therefore crucial to circumvent the regular analysis hype, look at a company and find out the risk and complexity as a top analysis tool. There is no manipulation here, the data gives the company, stock or portfolio a face, and it is not a pokerface. The system developed by Assetdyne allows users to compute the Resilience Rating and Complexity of single stocks, stock portfolios, derivatives and other financial products.

Hans van Hoek
Partner at Assetdyne