Nemo's Findings week of 4/14/2013

(Course on chart pattern recognition is available now: http://www.realitytrader.com/111trades.html 

Well my thesis of this continuing onward and upward at least until earnings shows it hand, is still in tact.   Now, whether it's true or not...

SO.....the week that was:

 

I included back to the 5th to show the beginning of this most recent leg-up and how for the most part it's just been walking up a trend line.  Whereas the last two weeks we finished below the weekly pivots, we knew that couldn't last.  IWM was hemmed in by the Weekly R1.  The SPY got hung up on a fibonacci extension I'm tracking and finished the week on the Weekly R2 to the penny.  The finnies finished the week basically oscillating around  yesterday's pivot, touching support at the swing high of 3/15-old resistance becomes new support.  The VXX finished at the monthly S1-there is no fear in this market (repeat after me).   The central banks will keep printing.  As a matter of fact, they likely can't stop printing....ever.

Regarding earnings...so far they haven't been stellar.  I'm not tracking stats per se, but not hearing alot good so far, and of course it is early, but the market isn't selling and as I said...no fear.   BIG pomo day on Monday, big two weeks in earnings coming up, so unless N Korea does something drastic, no reason not to expect new highs on Monday. Oh, call me paranoid, but keep your accounts small...Cypress was the beginning.



Anyway, the week that is:

 


Confirmation Bias...I've been seeing a bit written about that lately, which made me think of something I have written for the next book on which I am working. Well the second next book on which I am working, the first next book is much further along, and a bit more esoteric....but, I digress. So, in killing two birds with one stone (maybe 3 actually)  I get to: 1. stroke my ego, 2. Provide a very old, eastern view on confirmation bias, and 3....well, maybe it was just two.

Anyway, some of you may know that I have a formal, lineage background in the Taoist disciplines-20+ years of continuing study under a master.  The following, as it stands will be the first  chapter in the logical follow-up to Essence of Tao,  and it's brother text Truth of Tao.  

I realize it says "81" at the top, but just go with it.  Now, this chapter is a larger look at confirmation bias in life, and literally how it has played out even in the translations of The Tao Te Ching.   Because it is of a philosophical nature, the discourse can be a bit on the academically dense side.  Of course, "dense" is a commonly applied adjective to describe me, and I'm not sure it's meant in a flattering light.

By the way,  Vad's course A Taoist Trader  is based on the aforementioned texts.  He didn't just go off and make it up as he went along because he liked the material he read.  I spent many an hour busting his balls about it all along the way so that he understood the source material around which he developed the course...now THAT, was fun  ;-).

One more thing, you will notice that I talk about verse 5 in the following text.  When you read that verse, think of which translation most represents the environment in which a trader operates... ;-)

81. 

True words are not fine-sounding;
   Fine-sounding words are not true.
A good man does not argue;
   he who argues is not a good man.
the wise one does not know many things;
   He who knows many things is not wise.

The Sage does not accumulate (for himself).
   He lives for other people,
   And grows richer himself;
   He gives to other people,
   And has greater abundance.

The Tao of Heaven
   Blesses, but does not harm.
The Way of the Sage
   Accomplishes, but does not contend.

In the introduction to this book we stated that we would break with the “conventional” approach in the hopes of better demonstrating the integrated nature, the oneness, of the Taoist philosophical system. To begin the journey through the Diamond of the Tao, we shall begin at the end. Conventional numbering finds the aforementioned verse last. Then again the end of a thing is just the beginning of something else. Archeologists have unearthed other copies of the Tao Te Ching where this verse was first. It truly matters not. However, as an introduction to the Tao, it's a fine place to start.

True words are not fine-sounding;
  

 Fine-sounding words are not true.

Remember those words. There may not be two more important lines to help you separate fact from fiction when it comes to the Tao Te Ching, or in life, which is what the Tao Te Ching is all about. Much of what is written and said about the subject is wrong, dangerously wrong. The words written and the pictures painted by these pseudo-sources create beautiful, appealing images in the mind of the reader. The purveyors of those words sell us on their perspective and point of view. Of course, this applies to phenomena in any walk of life. Irrespective of their intent and most importantly for the individual, why do their words necessarily sound good to you? Why, in a caveat emptor world, do you buy what they are selling?

Simply...it resonates with what we believe, would like to believe, the picture we hold of ourselves, the life philosophy we've developed, and how we see or would like to see, the world around us.

As we discussed in Essence when writing about verse 12: The Senses, as well as many other verses, throughout our lives we develop a series of internal, psychological programs as a result of the messages from the social structures in which we live, that form our beliefs. Through these programs we process the data we absorb through our senses. As passionate beings with the potential for rationality, we become emotionally invested in those beliefs. Look at the following translations of verse 5:

Heaven and earth are ruthless;

They see the ten thousand things as dummies

The wise are ruthless;

They see the people as dummies

Gia-Fu Feng and Jane English

Random House, 1972

Heaven and earth are impartial

They see the ten thousand things as strawdogs

The wise are impartial

They see the people as strawdogs

Gia Fu Feng & Jane English

Vintage, 1989

Heaven and Earth does not love mankind

and allows everyone to live there own life

The sage also does not love mankind

and allows everyone to live there own life

Yan Hin Shun

Heaven and Earth are not humane

Regards the ten thousand things as straw dogs

The Sage is not humane

He regards the common people as straw dogs

Robert G. Henricks

Ballantine, 1989

Heaven and earth are sentimental

They see the ten thousand things as straw dogs

The wise are sentimental

They see the people as straw dogs

John C.H. Wu

Heaven and earth are inhumane

they view the myriad creatures as straw dogs

The Sage is inhumane

He views the common people as straw dogs

Victor H. Mair

Bantam Books, 1990

So, which one is correct? If you've read Essence of Tao, or Truth of Tao, you know which one(s) would be more accurate, so try to remember how you would have judged it had you not read them. Perhaps the better question, exemplifying the aforementioned point, which one do you like? Which one appeals to the programming in your brain? Which one to you is fine sounding? Depending on your political or philosophical orientation, you will likely choose the one you like best, that which is more in keeping with your world view and your personal philosophy, and you will likely interpret based on that view regardless of it's validity. The translators and other untrained interpreters of Taoism, as humans more or less like you, will produce their translations the same way. In Essence of Tao, we referenced Paul Carus' 1913 translation, The Teachings of Lao-Tzu and, in his own words, how he imbued his beliefs on the translation of “Nature is unkind,” or alternatively, “Nature is ruthless,” from verse 5:

The question is whether Lao-Tzu did or did not believe that 

heaven and earth and the Tao were endowed with sentiment. An 

answer would be difficult, if not impossible. However, I am now 

inclined to think that he was more of a mystic than a 

philosopher, and thus he recognized in the dispensation of the 

world a paternal and loving providence.*

~Essence of Tao, Pg. 250

Here Carus, a philosopher/theologian, not a Taoist, decided he knew what Lao Tzu meant almost 2000 years before, as opposed to what was written, even though he said, “An answer would be difficult, if not impossible.” Yet, in pursuit of academic integrity we quote from the text The Guodian Laozi, which was a book detailing the findings of a conference held at Dartmouth College in 1998:

the transcription itself is not the place to include decisions as to 

what the editor thinks the “intended” character or word might be 

for a non-standard, rare, or anomalous character, or what the 

correct” character or word is for those characters that the 

transcriber deems “wrong.”

Carus read the character. He knew what it meant. He just couldn't believe that Lao Tzu actually meant what the character said, so he ignored the proper translation and gave it his own in accordance with his belief system. But it gets even more complicated. Returning to The Guodian Laozi:

The Texts, which more than lived up to our expectations, 

included three bamboo-slip texts with material corresponding 

to that now found in the Laozi but in a different order and  

containing many variations

The Guodian Laozi, pg. 3

The underlining is added for emphasis, but notice even the texts found had “variations.” So, even back then they had similar issues that could range from transcription errors, limited subject matter knowledge, or individuals coloring their work with their beliefs. Therefore even the “source” documents from which the translations have been written may have been tainted by the foibles of individuals' belief systems. What's worse, we don't know if the people who copied the texts were Taoists, or just people who were supposedly adept at copying.

So,our personal belief structure determines whether words are “fine-sounding.” Which then brings us to why, “Fine-sounding words are not true.”

The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.”

                                                                                                                         
                                                                                                                       ~ Stephen Hawking

It is the mark of an educated mind to be able to entertain a thought without accepting it.

                  

                                                                                                                       ~ Aristotle

Therefore the Sage: He gives them life, but does not take possession of them; 

                                                                                                                       ~verse 2

As we can see, the Taoists were not the only philosophers to consider this issue. Aristotle understood the need not to become so invested in an idea that it became a prison from which an otherwise rational mind could not escape. As we grow older, we become wedded to our beliefs (thus the saying, "you can't teach an old dog new tricks"), and frankly, this process starts with birth. Day by day they grow stronger at the core of our being. It becomes harder to question them, because we build our lives around them. To question them is to question how you've spent your life. When we hear words or ideas that threaten those models, those that are not fine-sounding to our ears, we often repel from them. The words grate against us emotionally and intellectually, much as fingernails across a chalkboard make our skin crawl, attacking beliefs we've held dear for many years, but that doesn't make them false. Of course in life, there are words that represent ideas, methods, and commitments, and there are actions that prove them. Some are relatively simple to verify, some are so large it is relatively impossible for us to understand or comprehend them completely, and others still, we are told, won't be verified until after death. Therein lies a problem. We can test those things which are easily tested, but how do we test the larger philosophical and metaphysical questions of life upon which we base our beliefs?

It's much easier to believe what we like. To think the way we want to think. To just look at our side of the story, but to do so is to violate one of the primary principles of Taoism: Yin/Yang. All phenomena are made up of a pairing of polar opposites. Therefore, to understand completely a given phenomenon we must study and understand it's underlying components, both the Yin and the Yang, otherwise our understanding is incomplete.

We are often told to think positively, that to think negatively is bad, and true, a bad attitude can negatively affect your ability to execute. So, does that mean when we plan a large project or complex activity we shouldn't study what could go wrong (negative/yin), or what scenarios could result beyond that which we consider the optimum(positive/yang) outcome? Of course not. We must constantly study the negative to understand what could happen and practice how we would handle it. It also sensitizes us to changes in metrics or parameters that indicate a less than optimum path giving us the chance, as Lao Tzu said, to “Deal with the difficult while yet it is easy; Deal with the big while yet it is small...Therefore the Sage by never dealing with great (problems)Accomplishes greatness.” So we have to think about what bad could happen.

So you have to decide, are you seeking truth and reality, or are you content living within the comfortable confines of your beliefs-in the illusion of reality in which we all live? That is, as we said in Essence “the border between what we know and what we think we know,” -the illusion of knowledge. If the latter is your goal, then read no further. If the former, then you must constantly challenge and test your beliefs and listen to the harsh words that make us question what we hold dear from the time you enter this life, until you cross the threshold into the next. Simply....honestly ask the question “Why?” Seems simple enough, but it is the relatively rare individual that can consistently, and with brutal honesty, question their most closely held beliefs. How many of us play devil's advocate to our beliefs? How many of us truly and honestly make the time and the effort required to understand opponent point of views and arguments.

Lets face it, handling the “good” in life is relatively easy. Getting up when it has knocked you down, and it will knock you down...repeatedly...is what it's all about. Understanding both the positive and negative aspects of a phenomenon can be vital to contentment, because ignorance of half the phenomena is only to give yourself half a chance. Remember, upon entering an authentic Taoist temple the visitor is greeted by a rack of weapons and battle standards, symbolic of the war, or if that word is not fine sounding enough for you, the struggle that is life. The greatest struggle, and definitely the most constant we are likely to face is with ourselves, to have the courage, perseverance and fortitude to seek clarity and reality throughout our lives. As Lao Tzu said:

Those who dream of the banquet, wake to lamentation and sorrow.

Those who dream of lamentation and sorrow wake to join the hunt.

—The Wisdom of Laotse, 236

A good man does not argue;
   

he who argues is not a good man.

The most savage controversies are those about matters as to which there is no good evidence 

either way. 

             ~Bertrand Russell

People think differently. One need only look to the eternal paradox represented by the relationship between a man and a woman to understand this. If you find yourself laughing under your breath, then the point is made. Tomes have been written about the difference in the way the sexes think about a given subject, and if there is that much difference between two individuals that know each other and “accept” each other, how much greater can the divide be between strangers. In The Truth of Tao there is an entire section, led by the stanza above, which addresses the issue of argument, and as the quote by Bertrand Russell intimates, as the subject matter becomes more abstruse, arcane, or shrouded in the fog of uncertainty, the more vehement the disagreement. Chuang Tzu wrote concisely on the subject in his essay, The Futility of Argument:

Granting that you and I argue. If you get the better of me, and not I of 

 

 you, are you necessarily right and I wrong? Or if I get the better of you 

and not you of me, am I necessarily right and you wrong? Or are we 

both partly right and partly wrong? Or are we both wholly right and 

wholly wrong? Since you and I cannot know, we all live in darkness.

Whom shall I ask to judge between us? If I ask someone who takes your

view, he will side with you. How can such a one arbitrate between us? If 

I ask someone who takes my view, he will side with me. How can such a 

one arbitrate between us? If I ask someone who differs from both of us,

he  will be equally unable to decide between us, since he differs from 

both of us. And if I ask someone who agrees with both of us, he will be 

equally unable to decide between us, since he agrees with both of us. 

Since you and I and other men cannot decide, how can we depend upon 

another? The words of arguments are all relative;...The right may not be

really right. What appears so may not be really so. Even if what is right is

really right, wherein it differs from wrong cannot be made plain by

argument. Even if what appears so is really so, wherein it differs from 

 what is not so also cannot be made plain by argument....

~The Wisdom of Laotse, pg. 54-55

Take the time to read and digest it slowly. When asking those bigger questions about life, or trying to make correct decisions about ambiguous problems or situations about which all may not be understood, these dynamics often come into play. One need only look at the problems of the day, be they political, legal, environmental, or... to see this dynamic in action. One of the clearest examples brings us back to the Greeks. Socrates to be specific, about whom we said in Essence: 

 

Socrates was told by the oracle at Delphi that he was the wisest man in

all Athens. By following an exhaustive process of questioning other

great thinkers of supposedly profound knowledge, he found displays of

vanity and ignorance instead of genuine wisdom. Socrates finally

concluded that the oracle meant he was wise because he understood that

he lacked knowledge and was willing to honestly test his beliefs, not

because of the knowledge he actually possessed.

~Essence of Tao, pg. 42

Unfortunately for Socrates things went downhill from there, which, as a result, gave us the literary and philosophical classic, The Death of Socrates. After Socrates spent all that time with the philosophical elite demonstrating their ignorance for all to see, they decided, after all that insult and damage to their egos, Socrates was a danger to society. He was tried, convicted, and sentenced to death. So much for the elite mind's ability to enact and accept dispassionate logical discourse. So, that begs the question, do you think the relatively uneducated mass of humanity can do better? Argument can be fatal.

At it's core argument is a conflict. It can be a relatively cordial exchange of ideas between friends, or it can escalate, depending on the parties involved, all the way to full-fledged war. There is a reason for the saying, “There are two subjects one does not discuss in polite company. One is politics, the other religion.” They tend to be lightning rods for passion. Any idea that is passionately held is generally off limits to debate within the mind that holds them, especially in subjects “where there is no good evidence either way.”

Therefore, you have to decide, in any given argument, discussion, dialogue, you are entering, are you teaching or are you learning? Can you play both roles? Can the other person play both roles? Are they in the discussion to teach you? What may be the end result of a positive and negative disposition vis a vis your relationship with your argument partner, be it a romantic partner, friend, colleague, etc.?

Since we are passion-driven beings with the potential for rational behavior, as opposed to rational beings with the potential for passion-driven behavior it is better not to engage in argument. As we can see from Socrates' pyrrhic victory, the cost, although rarely that extreme in daily life, can be a source of discord that plants its own malignant seeds with which the individual may have to deal over time. So why engage in argument unless absolutely necessary.

the wise one does not know many things;  

 He who knows many things is not wise. 

 

First, what does it mean to be wise? That is, to possess wisdom? From the Oxford Dictionaries we derive the following meaning: 

 

the quality of having experience, knowledge, and good judgment; thequality of being wise. the soundness of an action or decision with regard to the application of experience,

As we reach adulthood we must decide on a profession to pursue. Becoming profoundly skilled in any profession requires innate talent, proper teaching, passionate practice, and the ability to continually refine the practice of the discipline to the point where it becomes an organic, self-propagating component of our being, so that we may continue to improve the outcomes of our target activities. As a rule it takes many years to become profoundly skilled in a given discipline. Whether it be as a doctor, lawyer, musician, carpenter, plumber, or Taoist priest, the years of training and then the additional years in the vocation required to reach mastery, can be significant. To become a Taoist priest, it usually takes 20 years of devoted training across multiple disciplines. This process of training-to-mastery gives us a method of learning to continually improve and make ourselves better, which we can then apply to other activities in our lives as well. Unfortunately, the ability to master a discipline can be a two-edged sword. 

 

Whereas we may, in our lifetimes, become profound in a given skill or profession, we likely only have the time and ability to truly master that one discipline, to know one thing, and frankly, we should be quite grateful if we can. True polymaths are few and far between. Time and time again, pride and arrogance rear their ugly heads as the universal human affliction they are, causing us to reach in the belief we possess knowledge that is unknowingly beyond our grasp. In this case, they lead us to believe that we can master, or become expert in other disciplines, to think we know more than we actually do. Looking again to the example of Socrates, he literally debunked the supposed single area of knowledge other great thinkers and teachers of Athens believed they possessed.

Of course there are exceptions that prove the rule, but in the vast majority of cases, which likely means you, it doesn't work. Unfortunately, true words are not fine-sounding.

What then happens? We proceed into these other areas under the assumption our applied skills elsewhere allow us to succeed in our new endeavors, or render us able to speak intelligently and with great confidence about other subjects. Unfortunately, the results are often less than optimal. Which explains why the wise one does not know many things. Or, returning to the quote regarding Socrates, “Socrates finally concluded that the oracle meant he was wise because he understood that he lacked knowledge.” In other words, the antithesis of “He who knows many things ...” Socrates understood the limitation of his knowledge. That all important demarcation between the fantasy and reality of our perceived knowledge and abilities, which Lao Tzu echoes when he says...

Who knows that he does not know is the highest; 

Who (pretends to) know what he does not know is

sick-minded. And who recognizes sick-mindedness as

sick-mindedness is not sick-minded.

However, he takes the analogy even further describing the mind that does not understand the demarcation between what it knows and does not know as “sick.” Which then brings us back to what we said about fine sounding words. “So, you have to decide, are you seeking truth and reality, or are you content living within the comfortable confines of your beliefs-in the illusion of reality in which we all live? That is, as we said in Essence "the border between what we know and what we think we know.'”

The Sage does not accumulate (for himself)

The Sage understands the power of emotion to bind him not only to things, but also ideas. As Aristotle said, “It is the mark of an educated mind to be able to entertain a thought without accepting it.“ As we've been saying, the ability to seek reality is limited by one's ability to question one's beliefs. As for material things, there isn't a philosophical/spiritual doctrine that doesn't warn of the antithetical trap the pursuit of material gains can be to personal contentment. Lao Tzu says this often, and perhaps most eloquently when he said:

If peace, order, and the pursuit of happiness are invisible things,

obviously they can not be really obtained by visible means.

~The Wisdom of Laotse, 157

So whereas the Sage, and Taoism in general, is not adverse to the ownership and use of material things, placing faith or emotional energy in their ability to provide contentment in life is a fools errand. Everything is temporary, you can't take it with you, not even your body. History is replete with jarring incidents that tear apart the world to which individuals have become accustomed. Then what do you do? How do you carry on, when all you have is what you carry inside your heart and soul and perhaps the clothes on your back? He therefore strives to understand the difference between material necessity and material desire. What is the difference between needs and wants? Does what I possess serve me, or do I serve it?

He lives for other people,  

And grows richer himself;

The character translated here as “for” can also be translated as “among,” or even “off of.” Our life is governed by self-interest. We strive in life to lead as personally content a life as possible. We may do things for other people, especially those close to us such as family, and dear friends, but what we do for them is in the context of making our life better, in that helping them brings us joy and reward, or at least less pain. As we stated in Essence,

Contrary to some interpretations, this does not imply that Taoism seeks a 

return to a mythical prehistoric world of idyllic bliss. It does not promote

living in caves without heat, hunting for our dinner, and fighting off

predators. Instead, the purpose of Taoist philosophy is to help us

maximize contentment within the conditions in which we live.

                                                                                                               ~(Essence, Pg. 167)

Taoism is a model of reality that looks at the interrelationships between the individual, the social structures (society) in which they live, and Nature. We look to Nature to understand the underlying principles that govern the Universe and therefore the world around us. We study societal structures to understand where the values of society diverge from those principles of Nature, to better understand the conflicts that arise within ourselves in pursuit of contentment within the society in which we live and grow richer.

He gives to other people,   

And has greater abundance.

When we see the word “abundance” we think of a great amount of something, but remember, the abundance for which the Taoist strives is contentment. He gives to those within his circle, because relationships are exchanges in accordance with the principle of Yin/Yang. You must give to receive, there must be harmony of exchange between the individual and those with whom he has a relationship. It can't be one-sided, else the relationships will die, which, obviously, is the opposite of abundance. Now what we give or receive does not have to be material, but it must provide value to the exchange between individuals to maintain the virtuous circle.

The Tao of Heaven  

 Blesses, but does not harm. 

The Way of the Sage   

Accomplishes, but does not contend.

Whereas the first line is somewhat allegorical, the second line describes the result of a Taoist adept's life. He accomplishes maximizing contentment in life. He does not contend, in that he does not interfere in the lives of others, in violation of the principle of Wu Wei. Knowing his values may be contrary to those around him, he does not flaunt them, living quietly and peaceably among neighbors who may not share his values. His actions are optimized for the trials and tribulations with which he must deal throughout his life. Looking back on the definition of wisdom:

the quality of having experience, knowledge, and good judgment; the quality of being wise.the soundness of an action or decision with regard to the application of experience,

In other words, the right actions in the right time. Wu Wei is the principle best described as non-interference, but it can also be described as right action in the right time. To contend is to be in conflict, therefore, to minimize contention, the Sage must make the right decision as often as possible throughout life.