I came across this interesting paper (which can be found in its entirety below) the other day, while perusing Paul Kedrosky’s website, regarding uncorrelated returns. The basic premise of the paper was that there is no such thing as uncorrelated assets. The author conveniently cherry picks the last 36 months to prove his point. Of course the last 36 months can easily be described as unique if not an outlier. Many have been quick to come to the conclusion that the last 36 months not only disprove the efficient market hypothesis, but also disprove the theory of uncorrelated assets. This is highly flawed in my opinion.
Let me begin to dissect this issue from the beginning (without getting bogged down in too much mundane theory). Anyone who is a regular reader has likely taken the time to read the “about us” section on the site. If so, you know that my investment theories aren’t just some cookie cutter “fill the Morningstar box” approach. I believe the efficient market hypothesis is one of the greatest tricks ever played on the investment community. Any market is nothing more than the summation of the decisions of its participants. Markets, by definition are highly complex dynamic systems that are susceptible to chaos. To assume that the summation of these decisions is somehow efficient would mean that the decision makers as a whole are efficient. While this might be true to some extent, human beings (and even the algorithms written by humans) are guaranteed to be inefficient decision makers in a chaotic system.
The investment world is the civilized version of natural selection. It cuts to the core of every emotion imaginable. When Joe Schmo goes to work for 25 years straight in an attempt to create a better life for his family and suddenly sees his life’s savings going down the tube because Lehman Bros went bankrupt you can’t possibly expect him to react rationally in such an environment. This is no different than the man whose family is attacked in the middle of the night. Do you expect that man to react rationally when everything he lives for is suddenly in harms way? Do human beings make rational and efficient decisions in chaotic scenarios? Even more important, will 1 million humans working…
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Is it time to short the dollar? Saxo bank chief economist Steen Jakobsen thinks so. Via email from Steen ... What is wrong with changing your mind because the facts changed? But you have to be able to say why you changed your mind and how the facts changed. Lee Iacocca
My biggest call all year has been for global lower rates, and in particular lower core country (Germany, Denmark, and US) yields led by this magic trinity of factors:
1. China and Asia rebalancing growth away from nominal to quality growth 2. US current account deficit reduced by 50% (see chart below) 3. A Europe where Germany will pay the price for the first two factors with a lag of six to nine months.
The headline call was and remains that Germany will be close to recession by Q4-2014 or Q1-2015 setting up a desperate ECB and a E...
The Department of Energy's Energy Information Administration (EIA) data on volume sales is over two months old when it released. The latest numbers, through mid-May, were published today. However, despite the lag, this report offers an interesting perspective on fascinating aspects of the US economy. Gasoline prices and increases in fuel efficiency are important factors, but there are also some significant demographic and cultural dynamics in this data series.
Because the sales data are highly volatile with some obvious seasonality, I've added a 12-month moving average (MA) to give a clearer indication of the long-term trends. The latest 12-month MA is 8.8% below the all-time high set in August 2005, a new interim low.
Options volume on the provider of futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals and alternative investment products is well above average on Thursday morning, due in large part to a sizable put spread initiated in the 19Sep’14 expiry contracts. Shares in CME Group (Ticker: CME) are up slightly on the day, trading 0.25% higher at $74.34 as of the time of this writing.
The largest trade on CME today appears to be a bear put spread in which roughly 1,500 of the 19Sep’14 74.0 strike puts were purchased at a premium of $1.44 each against the sale of the same number of t...
As many investors enjoy the final weeks of summer, some optimistic bulls seem to be positioning themselves well ahead of Labor Day in anticipation of a fall rally. Indeed, last week’s action was impressive. After only a mere 4% correction, investors continued to brush off the disturbing violence both at home and abroad, and they took the minor pullback as their next buying opportunity. But was that really all the pullback we’re going to get this year? I doubt it. But I also believe that nothing short of a major Black Swan event can send this market into a deep correction.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then ...
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Author Helen Davis Chaitman is a nationally recognized litigator with a diverse trial practice in the areas of lender liability, bankruptcy, bank fraud, RICO, professional malpractice, trusts and estates, and white collar defense. In 1995, Ms. Chaitman was named one of the nation's top ten litigators by the National Law Journal for a jury verdict she obtained in an accountants' malpractice case. Ms. Chaitman is the author of The Law of Lender Liability (Warren, Gorham & Lamont 1990)... Since early 2009, Ms. Chaitman has been an outspoken advocate for investors in Bernard L. Madoff Investment Securities LLC (more here).
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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