Posts Tagged ‘efficient markets’

The Dominique Strauss-Kahn Case and Your Investments

By Brett Arends

There are some simple lessons from all this. The Dominique Strauss-Kahn case hammers them home.

We should never assume the crowd, or "everyone else," or the market is right or even rational. Five hundred ill-informed opinions don’t amount to a hill of beans.

We should always listen to what contrarians have to say especially when they sound most ridiculous, and especially when they are being shouted down. We should never trust any judgments reached quickly.

In reaching our own conclusions, we should fight the urge to join the crowd. We should take our time, do our own homework and make up our own minds. There is no hurry.

We should always be willing to change our minds if need be. This is the hardest thing to do. We constantly have to remind ourselves that we could be wrong.

Full article here: The Dominique Strauss-Kahn Case and Your Investments – SmartMoney.com.


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A MONKEY ECONOMY AS IRRATIONAL AS OURS

A MONKEY ECONOMY AS IRRATIONAL AS OURS

Courtesy of The Pragmatic Capitalist

Smiling Chimp

As markets have evolved over time and financial theories have progressed humans have become increasingly confident in the systems we create and the world we live in.  Entire generations of investors have become convinced that markets are stable and efficient. We have come to believe that computer models can accurately predict markets.  On the contrary I believe most of the systems we create are highly complex, inefficient and chaotic.  The markets are one of the last refuges of natural selection (see here):

“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 in tandem make efficient decisions all within the same system?  No, the majority of them will make highly inefficient decisions.  “Mistakes” as we like to call them.   We all make them.

If we have learned anything over the course of the greatest mean reversion in stock market history over the last 24 months it is that markets are HIGHLY inefficient.  Why? Because the humans that write the algorithms are using flawed theories and the emotions upon which these trades are placed are not psychologically efficient.”

Despite our evolutionary leaps and bounds I believe we are not so far removed from our animal brethren when it comes to survival instincts. When confronted with complex decisions we make mistakes, we panic, we turn to our animal instincts which scream: SURVIVE AT ANY COST.  And nowhere is this more apparent than it is in the most complex facets of our lives.  Markets are highly complex systems and have become directly tied to important facets of our lives.  In many regards it is the last place most human beings should be residing. …
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Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under Question

Scientific Proof That High Frequency Trading Induces Adverse Changes In Market Microstructure And Dynamics, And Puts Market Fairness Under Question

Courtesy of Tyler Durden

Up until recently, any debate between proponents and opponents of High Frequency Trading would typically be represented by heated debates of high conviction on either side, with discussions rapidly deteriorating into ad hominem attacks and the producer screaming ‘cut to commercial’ to prevent fistfights. Luckily, all this is about to change. In a research paper by Reginald Smith of the Bouchet Franklin Institute in Rochester titled "Is high-frequency trading inducing changes in market microstructure and dynamics?" the author finds that he "can clearly demonstrate that HFT is having an increasingly large impact on the microstructure of equity trading dynamics. Traded value, and by extension trading volume, fluctuations are starting to show self-similarity at increasingly shorter timescales. Values which were once only present on the orders of several hours or days are now commonplace in the timescale of  seconds or minutes. It is important that the trading algorithms of HFT traders, as well as those who seek to understand, improve, or regulate HFT realize that the overall structure of trading is influenced in a measurable manner by HFT and that Gaussian noise  models of short term trading volume fluctuations likely are increasingly inapplicable."

In other words, the author finds ample evidence that during the past decade (on the NASDAQ) and especially since the 2005 revision of Reg NMS (on the NYSE), stock trading increasingly demonstrates "self similar" fractal patterns, resulting in volatility surges, recursive feedback loops, and a market structure which is increasingly becoming a product of the actual trading mechanism. In the process, as demonstrated by a Hurst Exponent gravitating increasingly further away from 0.5 (i.e., Brown Noise territory), the Markov Process nature of stock trading is put under question, and thus the whole premise of an efficient market has to be reevaluated. Simply said: HFT has been shown to affect the fairness of trading.

The paper is, needless to say, a must read for everyone who has an even passing interest in stock trading and market regulation (alas, yes, that would mean the SEC, and Congress). And while one of the key qualities of the paper is presenting the history and implications of High Frequency Trading, and its rise to market dominance primarily as a result of the revision…
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Goldman’s Stock Crushed… All the Way to Last Month’s Level

Goldman’s Stock Crushed… All the Way to Last Month’s Level

Courtesy of Econompic Data 

By now, most of you have heard that Goldman Sachs was charged with fraud. So has Goldman’s stock taken a hit?

As of this writing they are down 14% on the day, all the WWWWAAAAAAYYYYY back to March 2nd levels.

goldman sachs

So is Goldman more valuable today after being charged with fraud (given the new economic / regulatory outlook) or last month pre-charge?

And people still claim the market is efficient… 


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Goldman’s Stock Crushed… All the Way to Last Month’s Level

Goldman’s Stock Crushed… All the Way to Last Month’s Level

Courtesy of Econompic Data 

By now, most of you have heard that Goldman Sachs was charged with fraud. So has Goldman’s stock taken a hit?

As of this writing they are down 14% on the day, all the WWWWAAAAAAYYYYY back to March 2nd levels.

So is Goldman more valuable today after being charged with fraud (given the new economic / regulatory outlook) or last month pre-charge?

And people still claim the market is efficient…


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THE UNCORRELATED RETURN MYTH?

THE UNCORRELATED RETURN MYTH?

Courtesy of The Pragmatic Capitalist

Dragon painting

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…
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Zero Hedge

Here's What NatGas Bulls Are Betting On In The Next Month

Courtesy of ZeroHedge View original post here.

Weather models continue to suggest warmer than average temperatures this month across much of the US from the South to the Northeast. Warmer trends could continue next month, pressuring natural gas prices as demand crumbles. However, natgas bulls are closely watching the Polar Vortex and Madden Julian Oscillation for any shifts. 

Kirk Hinz, meteorologist in charge at US-based ...



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Phil's Favorites

The Stock Market and Crypto Market Are The Ultimate Platform and Game

 

The Stock Market and Crypto Market Are The Ultimate Platform and Game

Courtesy of Howard Lindzon

When I was a kid I played ‘Pong’ and ‘Space Invaders’ and Coleco Football and Mattel ‘Intellivision’.

In college I stopped.

Maybe if there were smartphones and no women, I would still be a ‘gamer’, but my generation was looking up not down.

I found the markets because I needed a first job and I was hooked.

It has been a battle of wits and behavior since. The markets have brought me to panic and fear on many occasions but most...



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ValueWalk

Aviation Lawsuit Filed Against Boeing Regarding Hard Landing in Turkey

By Jacob Wolinsky. Originally published at ValueWalk.

(Chicago IL, January 21, 2021) Today, lawyers representing victims of Pegasus Flight 2193, announced that a lawsuit was filed against The Boeing Company and the aircraft owner. The lawsuit asserts claims of Negligence, Product Liability, and Breach of Warranty regarding a Boeing aircraft that crashed in Istanbul, Turkey.

Q4 2020 hedge fund letters, conferences and more

Hard Landing Of Pegasus Flight 2193

On February 5, 2020, a commercial flight operated by Pegasus Airlines was scheduled to depart from Izmir Adnan Menderes Airport and arrive in Istanbul-Sabiha Gökçen ...



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Kimble Charting Solutions

A Repeat Of The 2000 Dot.com Highs In Play?

Courtesy of Chris Kimble

Since the 2000 tech bubble and crash, tech stocks have regained their leadership form. Especially large-cap tech stocks.

Headlines have varied in focus from the “4 horseman” to “FANG” and “FANGE”, but one thing remains: Large-cap tech stocks have been the bull market leader.

So what about when large-cap tech lags the market? Not so good.

In today’s chart, we look at a “monthly” chart of the performance ratio of the Nasdaq 100 Index to the Nasdaq Composite. It’s basically a look at how large-cap tech stocks perform against the broader tech stocks world.

As you ca...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Saturday, 11 July 2020, 05:26:16 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: This is lack of liquidity means support is likely to break if it is tested hard!



Date Found: Saturday, 11 July 2020, 09:51:58 PM

Click for popup. Clear your browser cache if image is not showing.


Comment: Nasdaq losing momentum.



Da...

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Politics

What is the 'boogaloo' and who are the rioters who stormed the Capitol? 5 essential reads

 

What is the 'boogaloo' and who are the rioters who stormed the Capitol? 5 essential reads

Rioters mass on the U.S. Capitol steps on Jan. 6. Samuel Corum/Getty Images

Courtesy of Jeff Inglis, The Conversation

In the wake of the insurrection on Jan. 6, the U.S. is bracing for the possibility of additional violent demonstrations and potential riots at the U.S. Capitol and state capitol buildings around the nation. W...



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Biotech/COVID-19

The simple reason West Virginia leads the nation in vaccinating nursing home residents

 

The simple reason West Virginia leads the nation in vaccinating nursing home residents

By mid-January, only about a quarter of the COVID-19 vaccines distributed for U.S. nursing homes through the federal program had reached people’s arms. Paul Bersebach/MediaNews Group/Orange County Register via Getty Images

Courtesy of Tinglong Dai, Johns Hopkins University School of Nursing

The urgency of vaccinating nursing home residents is evident in the numbers. The COVID-19 pandemic has claimed the lives of mo...



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Mapping The Market

The Countries With The Most COVID-19 Cases

 

The Countries With The Most COVID-19 Cases

By Martin Armstrong, Statista, Jan 12, 2021

This regularly updated infographic keeps track of the countries with the most confirmed Covid-19 cases. The United States is still at the top of the list, with a total now exceeding the 22 million mark, according to Johns Hopkins University figures. The total global figure is now over 85 million, while there have been more than 1.9 million deaths.

You will find more infographics at ...



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Digital Currencies

Bitcoin: why the price has exploded - and where it goes from here

 

Bitcoin: why the price has exploded – and where it goes from here

B is for blast-off (but also bubble). 3DJustincase

Courtesy of Andrew Urquhart, University of Reading

Bitcoin achieved a remarkable rise in 2020 in spite of many things that would normally make investors wary, including US-China tensions, Brexit and, of course, an international pandemic. From a year-low on the daily charts of US$4,748 (£3,490) in the middle of March as pandemic fears took hold, bitcoin rose to ju...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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Promotions

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Feb. 26, 1pm EST

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Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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