Influence Ripples + Tipping Points

I was doing some prep work for my panel appearance on next week’s MoneyTech conference, when I came across David Armano (Critical Mass) and his neat illustration below.

He created this after reading Clive Thompson’s "Un-Tipping Point."

David’s supposition? While the Tipping point may be an overstatement, there are many different levels of influencers — A-listers, Mainstream Media, ordinary bloggers — but each can influence the other, as well as the general public.

Add to that George Soros’ theory of Reflexivity

(1) Reflexivity is best observed under special conditions where investor bias
grows and spreads throughout the investment arena. Examples of factors that may
give rise to this bias include (a) equity leveraging or (b) the trend-following
habits of speculators.

(2) Reflexivity appears intermittently since it is most likely to be revealed
under certain conditions; i.e., the equilibrium process’s character is best
considered in terms of probabilities.

(3) Investors’ observation of and participation in the capital markets may at
times influence valuations AND fundamental conditions or outcomes.

Back to David Armano: he visualizes the MSM/Blogosphere/Social Network Universe as shown below. I don’t know how to visualize this (4th dimension? different color dotted lines?) but if we were to add Market Reflexivity into the illustration, we would then see another layer of how the market (5? or 1A, 2A, 3A, etc) influences the various parties (1, 2, 3, 4), and how they in term feedback into the market.

Visual Thinking 


graphic courtesy of  David Armano of the Logic + Emotion blog



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  1. MAS (Seattle) commented on Jan 31

    Since I own the domain (with one s), I get some of his traffic spillover. …Or maybe he is getting mine? :)

  2. Marcus Aurelius commented on Jan 31

    In light of this graphic, i think I may have caused the crash of the housing bubble when I posted on-line, in 2004, my observation that the fundamentals of the mortgage and housing industries didn’t make sense.

    Sorry for crashing the economy – unintended consequences, and all.

  3. crg commented on Jan 31

    dows getting closer to the 14000 mark. everything has been solved thanks to the rate cuts. economic fundamentals have always been sound, and this is proof.

  4. michael schumacher commented on Jan 31

    shame on you MA….;-0)

    BTW good solid info on CR you post.


  5. cinefoz commented on Jan 31

    Interesting, but way overcomplicated.

    If you can’t put it in simple terms that a reasonably interested and reasonably intelligent person in the target audience should be able to understand, then the theory is too complicated or just plain screwed up.

    For example, if you can document the cause and effect trail from A to B to C to D in simple terms, you have done a good job. If you can show a resonance and magnification in the interaction along the trail, then you have a pretty good idea.

    Your challenge above is to explain the resonance effect. Basically, explain economic biorhythms and demonstrate their predictive validity. Or, to put it in Engrish, once the match got lit, how did the fire spread and why did anyone care about it.

  6. cinefoz commented on Jan 31

    Don’t forget the feedback loop! If you don’t have one, all you have is gobbledygook. And you need an equilibrium state where energy is managed efficiently.

    Manias feed on themselves as validation for the initial spark. Eventually, the energy dissipates, ending it.

  7. D.H. commented on Jan 31

    Reminds me of the first time I took an econ class and I thought, “wow. amazing how much time they spent creating visual aids to depict common sense.”

    With ubiquitous tech (e.g., internet, blogs, social networks, etc.) and telecom, the web of information flow and effects of said flow should be COMMON SENSE.

    Negative finance headlines in the media reach Joe. Joe sells some stock. The market continues to go down on selling. Joe talks about his fears at the water cooler. Joe’s friends sell some stock. The market continues to go down. Etc.

    Call it ripples or nipples. This has been going on in a slower fashion since the first human opened his/her mouth and pontificated their sentiment about a certain object in reality …

  8. cinefoz commented on Jan 31

    If this were an electrical circuit, you would need

    a power source,

    a resistor / capacitor arrangement that fast charged the capacitor

    followed by a resistor that slowly discharged that capacitor,

    followed by a branch: 1) the feedback loop and 2) an outlet for the energy.

    A good mania would have a somewhat rechargeable power source.

  9. dukeb commented on Jan 31

    So a Roman popped the housing bubble? Well, it could have been worse; Marcus could have been French.

    As for the illustration; (how best to say this) no brainer unless I’m missing something. Take a handful of pebbles in assorted sizes & shapes and toss them into a puddle or pond and watch. Organic info porn. The synthetic stuff being pumped out by finance geeks lately is starting to stink of all those goofy/sloppy/duh patents granted for things like hyper-linking and one-click-check-out, and putting a photo image on a web page.

    Oh, off topic but related in a way, did it sound to anybody else like Bush (in his state of the union) was implying that DNA and such should not be patentable by the bio firms? I know it’s Iraq and the economy stupid, but that bit sounded big (though vague) to me.

  10. Marcus Aurelius commented on Jan 31


    Thanks. Coming from you, that’s quite a compliment.

  11. odograph commented on Jan 31

    Have you all seen the amazing moving graphs done by Gapminder?

    I’d think animation is the key to visualizing Market Reflexivity (and other feedback).

  12. Adam commented on Jan 31

    cinefoz, I thought you were leaving TBP community? Or have you decided to stick around until the next selloff gets you frustrated?

  13. Pat Gorup commented on Jan 31

    Hey, maybe Kudlow’s right and “we are talking ourselves into a recession”. lol

  14. Vermont Trader.. commented on Jan 31

    I think there might be a little window dressing going on today…

  15. michael schumacher commented on Jan 31

    with that I can agree with you Vermont….



  16. Estragon commented on Jan 31


    I think the wave analogy is quite apt, in that waves interact in different ways. Sometimes they interfere with each other, sometimes they reinforce each other.

    What’s also interesting is the level 2 and 3 ripples, at least in their current magnitude, didn’t really exist a decade ago. Levels 1 and 4 are limited feedback, one-to-many channels, whereas 2 and 3 are many-to-many. Level 1/4 ripples tend to be normally “in phase” and self-reinforcing, whereas level 2/3 ripples may be more likely to be normally out of phase and interfere with each other. Normally is the key though. If level 2/3 become in phase, the results could be startling.

  17. David Armano commented on Jan 31

    Thanks for the shout out and sharing the visual. Yes, it illustrates a common sense perspective, but sometimes it takes a visual like this to simplify our own thought process.

    Visuals help stimulate conversation.

    Good luck on the show.

  18. Justin commented on Jan 31

    You have to know that the FED, etc., have been studying this sort of thing for years and probably feel that they have figured things out – jerking us around, getting us off balance and then coming in with their rate cuts. My question is: when will market participants figure out that they are being mis-lead? Within 3 months is my prediction.

  19. michael schumacher commented on Jan 31

    I disagree with you Justin……the market participants do not care what passes as real or not….they are interested in one thing….UP. The banks are set up only for “UP”….when the collective process of “thought” (i use that term VERY loosely with regards to analysts and the like) arrives at the same conclusion-that may be obtained from different patterns of thought- but arrive at the same conclusion what difference does it make??

    They do not care what the information is as long as it is in their own self-interest.

    Currently the entire financial system can continue in it’s present form ONLY if the direction is appreciating asset flow……another nice term for “UP”

    Down is still a four letter word if you are a bank. Today is yet another exercise in “up” because all those statements that go out with today’s print on them will most likely placate the holders of said assets until the next month…and so on…


  20. Justin commented on Jan 31

    I put my money were my mouth is: just loaded up on puts… If I’m wrong it is back to my day job, if I’m right it is, well, bugging the shit out of longs! (when you shouldn’t be long i.e. I’m not a perma-bear.)

  21. worth commented on Jan 31

    I love the visual representation of info here – without visual rep., things that could/should be “obvious” are really not as easily grasped.

    I would speculatively add this: the influence that each level has on an individual is inversely related to that level; i.e., someone “feeling” a Level 4 ripple via a CNN headline is less influenced by it than if he had received an email discussing the same matter from a friend (a Level 1 ripple).

  22. michael schumacher commented on Jan 31

    so you load up on puts……congratulations (some of us have done that too) but don’t address comments aimed at your original comment…..

    I’m still trying to see what you are saying by telling us “I put my money where my mouth is”…

    Chest thumping is not a strategy….


  23. Steve C commented on Jan 31

    There’s been an increase of optimism the last few days and we’re close to the resistance of the DJIA. We’re bound to have a retest of the lows (plus or minus of course) and my guess the process will start soon.

  24. Gary commented on Jan 31

    I’m not sure of the point to Armano’s circles; they confuse what Watts was saying. Watts readily agrees that Influencers have influence, what he questioned was their ability to start a trend. His conclusions are that mass marketing is as effective as viral marketing / marketing to Influencers.

    “Watts believes this is because a trend’s success depends not on the person who starts it, but on how susceptible the society is overall to the trend…”

    So while your addition of Soros theory to Watts’ ideas is interesting, Armano’s circles aren’t adding information. His conclusion “Treat everyone like an ‘A-lister'” sounds a lot like mass marketing to me.

    What came to my mind was swarm theory. But unfortunately none of this will tell me what the trend (bull/bear) is really going to be. And the graphic just gives me flashbacks.

  25. Don commented on Jan 31

    Didn’t need a “tipping point” or “influencer” or really anything to figure out in 2005 that real estate was bound to crash soon. All I needed was the daily experience of closing residential transaction after transaction where 1) the borrower/buyer brought no money, and 2) every appraisal was higher than the one before.

    If only I’d had John Paulson’s smarts(but he couldn’t have been the “tipping point” or influencer–he kept his opinion a secret) about how to short real estate at the time. Oh well, Uncle Ben is re-inflating things, so maybe I’ll do better the next go around.

  26. donna commented on Jan 31

    The drop becomes the ocean – but the ocean also becomes the drop…..


  27. Koba commented on Jan 31

    Speaking of influence ripples…If the markets are up 2% tomorrow and the shorts are feeling some pain, I 100% guarantee you another AMBAC/MBIA spook story will be dutifully rolled out by the media at the peak of the rally. Some powerful shorts are playing the dopes in the media like a violin.

  28. dukeb commented on Jan 31

    Donna’s getting into fractals. Very fancy.

  29. wunsacon commented on Jan 31

    >> cinefoz, I thought you were leaving TBP community? Or have you decided to stick around until the next selloff gets you frustrated?

    >> Posted by: Adam | Jan 31, 2008 1:33:56 PM

    Oh, c’mon, Adam. Cinefoz has been around a while and makes some good posts. I don’t know if he’s right on his latest call. But, there’s no reason to needle him about it. Is there?

    Indeed, with apologies to some permabulls who don’t seem to post here lately, I understand cinefoz’s arguments much better.

    Let’s please avoid belittling minority opinions, because that leads to group-think. (And we can all get that on MSM.)

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