This video is about an island in the ocean at 2000 km from any other coast line. Nobody lives, only birds and yet, you will not believe what you will see here.
Please don't throw anything into the sea. Unbelievable, just look at the consequences.
Saturday, June 8, 2013
Thursday, June 6, 2013
First Meaningful Pull Back.
It has been a while since my last post. It is simply a function of lack of time. In the mean time, I have somehow managed to send the Weekly newsletters to the subscribers.
I was hoping for a market TOP around 1st week of May and accordingly we went long VIX (UVXY) and short Emerging markets and other sectors including Finance.
However, there was an over-shot and the markets kept going up till May 22nd. Obviously, there were some doubts amongst the subscribers. I kept stressing that the correct has simply been delayed not cancelled. And we kept hanging on to the long VIX and short everything else trade.
Yesterday and today we closed our positions. We made a tidy little sum on UVXY and peanuts on others. But at least there was no big red anywhere.
Now we are taking a new position for a short term trade.
I think we are in the process of a giant TOP forming which will take us till the end of summer before we see any major correction.
For now, I think the short term correction is over and we will see another bounce soon. How far it will go is a question of time. But if it fails to make a new high, we have problem. Big problem or little problem, I am not sure at this time.
We stayed away from Gold and Silver because I think the cycles did not bottom. Nor for that matter the cycle for Apple and we will see more downside for Apple as well. We are waiting for more favourable time to go long PM sector.
We play the game by the seat of the pants. And we always correct the course of action as we go along. We cannot be correct 100% of time. For e.g. I am holding grain ETFs for few months now and I am under water, although not by much. But I am holding onto those positions for longer term. And that is where I find most folks have problem. Committing to a position for long term. May be we got brain washed by leveraged option trade, when we start expecting instant results. We get impatient and when a trade initially goes against us, we get scared. The cycle of fear and greed plays on.
Hope you guys are doing great.
Trade safe.
I was hoping for a market TOP around 1st week of May and accordingly we went long VIX (UVXY) and short Emerging markets and other sectors including Finance.
However, there was an over-shot and the markets kept going up till May 22nd. Obviously, there were some doubts amongst the subscribers. I kept stressing that the correct has simply been delayed not cancelled. And we kept hanging on to the long VIX and short everything else trade.
Yesterday and today we closed our positions. We made a tidy little sum on UVXY and peanuts on others. But at least there was no big red anywhere.
Now we are taking a new position for a short term trade.
I think we are in the process of a giant TOP forming which will take us till the end of summer before we see any major correction.
For now, I think the short term correction is over and we will see another bounce soon. How far it will go is a question of time. But if it fails to make a new high, we have problem. Big problem or little problem, I am not sure at this time.
We stayed away from Gold and Silver because I think the cycles did not bottom. Nor for that matter the cycle for Apple and we will see more downside for Apple as well. We are waiting for more favourable time to go long PM sector.
We play the game by the seat of the pants. And we always correct the course of action as we go along. We cannot be correct 100% of time. For e.g. I am holding grain ETFs for few months now and I am under water, although not by much. But I am holding onto those positions for longer term. And that is where I find most folks have problem. Committing to a position for long term. May be we got brain washed by leveraged option trade, when we start expecting instant results. We get impatient and when a trade initially goes against us, we get scared. The cycle of fear and greed plays on.
Hope you guys are doing great.
Trade safe.
Asset Class Returns As At 31 May 2013
This is highly interesting. As a test, if you were looking at the table what could you say or what kind of observations could you make. Not trying to be an asshole or "guru" here, but if you are honest about your knowledge of markets, the ability to synthesize data and tell a story, you should do well in financial markets. If you can't, then you shouldn't be, or are just plodding along. To be in the markets you can study, but you have to have passion for it. Make your own observations before scrolling down.
- The one month data does not tell us much.
- YTD, the equity markets have been well led by the US, in fact emerging markets have been trailing ... suffice to say that most of the Asian markets which have been surging so far this year have been an anomaly, which further depresses the real performance of other emerging markets.
- We know the financial markets have been awashed in liquidity with QEs from various central banks, but where have they been headed. The YTD figures are again revealing, some have exited gold in a big way. Them taking money off gold may be just profit taking or likely to mean they are more comfortable that currencies won't be debased anymore, or that bailouts have finally went past a peak. The reduction of fear or volatility could be another reason.
- So where is the liquidity? They went largely into US stocks, US REITs and even foreign REITs. The REITs interest is but a reflection in a strong bottoming in property price correction and a resurrection of demand, and also a hint that people are more employable even now to take up new mortgages, and/or that a lot more PE/VC/vulture funds are taking advantage and making deals on distressed commercial properties.
- Look at crude oil, one month, YTD or 1 year even, that is a good reflection about the robustness (or lack of) of the global economic recovery. The recovery is benign and in patches still.
- Look at commodities, again the same conclusion as for crude oil, still working of excess inventory in the global system.
- Look at the emerging equity markets from 1 year ago, there has been a dramatic shift away from emerging markets back to US and possibly Japanese stocks. Again the robust performance of other Asian equity markets is very telling as it is viewed as largely unscathed and the equity markets there do attract sufficient interest compared to other emerging markets.
- The most important point one has to conclude is a drastic shift away from bonds of all kind. Bonds have been great on a 3 year basis but more funds are moving out. They move out because they either think there is a bubble there (too safe, and too many people willing to pay too high a price for low yields) and/or equity provides a better return even after accounting for risk.
From the above, I am quite confident that the current sell down in equities will be brief.
- The one month data does not tell us much.
- YTD, the equity markets have been well led by the US, in fact emerging markets have been trailing ... suffice to say that most of the Asian markets which have been surging so far this year have been an anomaly, which further depresses the real performance of other emerging markets.
- We know the financial markets have been awashed in liquidity with QEs from various central banks, but where have they been headed. The YTD figures are again revealing, some have exited gold in a big way. Them taking money off gold may be just profit taking or likely to mean they are more comfortable that currencies won't be debased anymore, or that bailouts have finally went past a peak. The reduction of fear or volatility could be another reason.
- So where is the liquidity? They went largely into US stocks, US REITs and even foreign REITs. The REITs interest is but a reflection in a strong bottoming in property price correction and a resurrection of demand, and also a hint that people are more employable even now to take up new mortgages, and/or that a lot more PE/VC/vulture funds are taking advantage and making deals on distressed commercial properties.
- Look at crude oil, one month, YTD or 1 year even, that is a good reflection about the robustness (or lack of) of the global economic recovery. The recovery is benign and in patches still.
- Look at commodities, again the same conclusion as for crude oil, still working of excess inventory in the global system.
- Look at the emerging equity markets from 1 year ago, there has been a dramatic shift away from emerging markets back to US and possibly Japanese stocks. Again the robust performance of other Asian equity markets is very telling as it is viewed as largely unscathed and the equity markets there do attract sufficient interest compared to other emerging markets.
- The most important point one has to conclude is a drastic shift away from bonds of all kind. Bonds have been great on a 3 year basis but more funds are moving out. They move out because they either think there is a bubble there (too safe, and too many people willing to pay too high a price for low yields) and/or equity provides a better return even after accounting for risk.
From the above, I am quite confident that the current sell down in equities will be brief.
Wednesday, June 5, 2013
The invisible hand made visible
My latest Bloomberg column just appeared (or will around 6pm EST today). It takes a look at a landmark economics paper from just over ten years ago, one that I am sure (or at least hope) every macroeconomist, indeed every economist, knows fairly well. Given it's fundamental importance, I'm guessing it is by now probably a staple of undergraduate economics education. I'm referring of course to this study by Robert Clower and Peter Howitt which, in comparison with traditional economic theories, took a major step in actually revealing the mechanisms by which Adam Smith's Invisible Hand might work.
To many economists, this probably sounds crazy. What about Arrow-Debreu and all the thousands of later papers in general equilibrium theory in the same tradition? Don't those all establish how a decentralized market can act to organize economic activity in a remarkably efficient way? We'll, actually, no -- because only a very small fraction of those studies have even tried to model the messy dynamic process by which a huge number of independent people might, through trial and error, through learning, come to lead the market to its final organized state. And NONE, so far as I am aware, established by investigation a plausible dynamical story consistent with realistic human behavior. Hence, the nice story and metaphor of the Invisible Hand really has no plausible counterpart in standard economic theory; it remains no more than a metaphor, even if economists seem loathe to admit that.
But this isn't to say that something like the Invisible Hand idea isn't true and really interesting. The insight inspiring (the late) Clower and Howitt is that human economies probably self-organize into functional states coordinating the disparate activities of many individuals in much the same way ant colonies organize themselves. It's not due to the far-sighted rationality of any one agent (ant or person), but due instead to organizing structures that emerge to help us relatively unintelligent individuals cope with a very complex world. In the words of Howitt from this nice paper from 2007:
The idea motivating the approach is that complex systems, like economies or anthills, can exhibit behavioral patterns beyond what any of the individual agents in the system can comprehend. So instead of modelling the system as if everyone’s actions and beliefs were coordinated in advance with everyone else’s, as in rational expectations theory, the approach assumes simple behavioral rules and allows a coordinated equilibrium to be a possibly emergent property of the system itself. The approach is used to explain system behavior by “growing” it in the computer. Once one has devised a computer program that mimics the desired characteristics of the system in question one can then use the program as a “culture dish” in which to perform experiments.What Clower and Howitt showed in their 2000 paper -- and Howitt has expanded upon since in work with other economists -- is that autonomous agents of limited intelligence working on their own in an economic setting can readily self organize their activities into a functioning system with an intelligence far beyond their own. In their model, the coordinating infrastructure is a network of firms that emerges to make it easier for people to find the goods they need, vastly simplifying the problem of matching producers and consumers. I won't spoil the story. See some of Howitt and his colleagues' most recent papers, such as this one, for a nice summary of the original model and developments since then.
Now the first reaction of many economists upon first hearing about this methodology is that all economic models with an explicit micro-foundation, which is to say almost all models that one sees in mainstream macroeconomic theory, are “agent-based”. Some even have a multitude of heterogeneous agents (see Krusell and Smith, 1998 and Krebs, 2003, among others). So what’s the big deal?
The big deal, as Tesfatsion has emphasized on many occasions, has to do with autonomy. An agent in a rational-expectations-equilibrium model has a behavioral rule that is not independent of what everyone else is doing. In any given situation, her actions will depend on some key variables (prices, availability of job offers, etc.) or the rational expectation thereof, that are endogenous to the economic system. These variables will change when we change the agent’s environment, and hence her behavior cannot be specified independently of the others’. The household, for example, in a market-clearing model of supply and demand cannot choose what quantity to demand until told what price will clear the market. Likewise the agent on a Lucas island (a Phelps Island with rational expectors) cannot choose how much to sell until informed of the stochastic process determining aggregate and relative demand fluctuations.
The problem with assuming non-autonomous agents is that it leaves the model incomplete, and in a way that precludes a deep analysis of the coordination problem. For if the model does not allow people to act without knowing the equilibrium value of some variable, then someone must have computed that equilibrium value a priori. In such a model there is no way to describe out-of-equilibrium behavior, and the problem of reconciling peoples’ independently conceived plans is assumed to be solved by some unspecified mechanism that uses no scarce resources...
Now under certain assumptions about common information, someone endowed with enough information could figure out on her own what the market-clearing price is going to be, or what the rational expectation of the price level is, and in this sense could act autonomously even in a rational-expectations equilibrium framework. But an economy full of agents that were autonomous in this sense would not be decentralized in the Hayekian sense, because no market would be needed to aggregate the diverse information of heterogeneous people, each of whom can do the aggregation in her head. Each would be capable of acting as the economy’s central planner, although in this case the planner would not be needed. Moreover, such an economy would have no need for macroeconomists, because everyone would already know as much as could be known about the macroeconomy. The coordination problem would be trivial. So by “autonomous” agents I mean agents that are endowed with behavioral rules that can tell them what to do in any given situation, independently of each others’ rules, even when no one has access to a correct model of the economy.
One of the most important things emerging from this work, in my opinion, is a way to look at the mechanisms behind economic coordination in a much more specific way. When an economy gets hit by a crisis and goes into recession, things happen which cannot easily be reversed, and certainly not instantaneously. Firms go out of business and then do not exist. This leaves gaps in the coordinating network which puts additional stress on other firms or individuals. An economy, like a broken bone, has suffered real damage that requires both time and the consumption of resources to overcome. Of course, you cannot even begin to understand how the key coordinating infrastructure can be damaged, or how it might be repaired, if you have no theoretical apparatus to describe that coordinating structure in the first place -- this is the position of modern mainstream (neo-classical) economics.
Hence, it's important to remember when confronting the rhetorical arguments of the OpEd pages -- for or against "austerity" or "fiscal stimulus" or some other policy -- that the economist you are reading has either based his or her views on a theoretical model that doesn't even try to model the key mechanisms of self-organizing coordination, or has come to a belief for other reasons, perhaps (in the best cases) a deep reading of history. There are other possibilities, of course.
I must say, this whole thing seems amazing to me. I would have thought that Clower's and Howitt's lead would have immediately been picked up by any macroeconomist eager to make progress. It would have swept in a new approach to understanding macroeconomic dynamics, displacing the older approaches; after all, it actually describes how the Invisible Hand works, whereas they do not. Obviously, this hasn't been the case, which in itself says something disturbing about the state of today's economics. It's clearly not all about seeking a better understanding.
Tuesday, June 4, 2013
Wednesday Podcast S&M Show
http://www.bfm.my/snm-show.html
Long term investing vs short term ..... and Llorando by Rebekah del Rio.
Long term investing vs short term ..... and Llorando by Rebekah del Rio.
The Fears Of The End Of Quant Easing
Markets everywhere have been shaken over the last two weeks. First was the correction in the Japanese equity markets. It has lost substantial ground over just the last couple of weeks. Next came the Bernanke's testimony which led all to conclude that QE would be ending soon.
If an article in Monday's Wall Street Journal is anything to go by, the U.S. Federal Reserve is getting ready to unwind its massive monetary stimulus program. So, is that prospect as alarming for financial markets as feared?
Fed officials have mapped out a strategy to wind down its $85 billion-a-month bond-buying program in careful steps, although the timing of when that will start is still being debated, noted Fed watcher Jon Hilsenrath wrote in the WSJ.
Any unwinding of the Fed's quantitative easing (QE) program, which has fueled a rally in equity markets and other risk assets, is generally viewed as negative and any indication of this happening has been highly anticipated in the U.S. since late last week.
"Having spent two New York sessions pricing in a sharp change in Fed stance, it is not obvious that the article was worth the wait," analysts at Westpac said in a note. "The timing of the unwinding of QE remains data-dependent, not a serious prospect until perhaps late U.S. summer at the earliest."
Analysts say that in essence, the Fed appears to be managing market expectations that its quantitative easing program will not last forever. The Fed has said that it would maintain its key interest rate between zero and 0.25 percent until the unemployment rate fell to 6.5 percent. It has also committed to monthly purchases of bonds until labor market conditions improve substantially.
And it is the recent signs of improvement in the jobs market that has renewed talk about a possible end to the quantitative easing. The latest non-farm payrolls report showed the U.S. economy created 165,000 new jobs last month, much more than expected, helping push the unemployment rate down to 7.5 percent. Data last week meanwhile showed jobless claims at their lowest level in almost 5-1/2 years.
It looks like the markets are just grabbing at excuses to do a bit of sell down after a spectacular run in most equity markets since the beginning of the years. The timing is still a bit uncertain, but seriously folks, the end game only looks to peter out by December this year. It is very good that markets are readying itself for the end of QE.
The Fed officials are not going to raise interest rates until unemployment comes down to 6.5 percent, and could only come earliest by 1st quarter of next year. What is likely to happen is when unemployment dips below 7%, we may see a scaling back from the $85 billion buyback figure to maybe halve that.
The knee jerkers would be better off looking at the positives:
- That [an easing of QE] would be good for U.S. stocks because it would mean the U.S. economy is doing a lot better.
- That at least markets are already trying to price in the end of QE, instead of a surprising one off massive sell down.
The last part is very important as we can easily reference to the 1994 massive sell down, just because Alan Greenspan never gave any indication as to the imminent rise of interest rates in the US. That experience probably forms the backdrop for Bernanke's communication strategy. He is managing expectations very well. By putting it out there with the 6.5% unemployment target, it allows all to see the looming horizon.
I still think halving the buyback when unemployment dips below 7% would be an excellent strategy to manage expectations further. Everyone knows QE cannot be there forever.
I like the equity markets now more than in the beginning of the year. Japan has corrected substantially even though Abenomics will still be in the works. This will drive Japan to retests its high this year soon enough. I believe the sell down was a good profit taking exercise and actually allowing a lot of stale bulls (i.e. those holding onto Japanese shares for over 20 years) to exit - all that will come back to the market place for sure.
The local Malaysian equity market has held up better than the rest, and confidence breeds confidence. Having said that, Malaysia is only up 4.6% so far this, thanks to the uncertainty over the elections period. Other Asian markets have risen a lot more, and hence had more room for downside: Indonesia 15.2%, the Philippines 16.4% and Thailand 10.6%.
If an article in Monday's Wall Street Journal is anything to go by, the U.S. Federal Reserve is getting ready to unwind its massive monetary stimulus program. So, is that prospect as alarming for financial markets as feared?Fed officials have mapped out a strategy to wind down its $85 billion-a-month bond-buying program in careful steps, although the timing of when that will start is still being debated, noted Fed watcher Jon Hilsenrath wrote in the WSJ.
Any unwinding of the Fed's quantitative easing (QE) program, which has fueled a rally in equity markets and other risk assets, is generally viewed as negative and any indication of this happening has been highly anticipated in the U.S. since late last week.
"Having spent two New York sessions pricing in a sharp change in Fed stance, it is not obvious that the article was worth the wait," analysts at Westpac said in a note. "The timing of the unwinding of QE remains data-dependent, not a serious prospect until perhaps late U.S. summer at the earliest."
And it is the recent signs of improvement in the jobs market that has renewed talk about a possible end to the quantitative easing. The latest non-farm payrolls report showed the U.S. economy created 165,000 new jobs last month, much more than expected, helping push the unemployment rate down to 7.5 percent. Data last week meanwhile showed jobless claims at their lowest level in almost 5-1/2 years.
It looks like the markets are just grabbing at excuses to do a bit of sell down after a spectacular run in most equity markets since the beginning of the years. The timing is still a bit uncertain, but seriously folks, the end game only looks to peter out by December this year. It is very good that markets are readying itself for the end of QE.
The Fed officials are not going to raise interest rates until unemployment comes down to 6.5 percent, and could only come earliest by 1st quarter of next year. What is likely to happen is when unemployment dips below 7%, we may see a scaling back from the $85 billion buyback figure to maybe halve that. The knee jerkers would be better off looking at the positives:
- That [an easing of QE] would be good for U.S. stocks because it would mean the U.S. economy is doing a lot better.
- That at least markets are already trying to price in the end of QE, instead of a surprising one off massive sell down.
The last part is very important as we can easily reference to the 1994 massive sell down, just because Alan Greenspan never gave any indication as to the imminent rise of interest rates in the US. That experience probably forms the backdrop for Bernanke's communication strategy. He is managing expectations very well. By putting it out there with the 6.5% unemployment target, it allows all to see the looming horizon.
I like the equity markets now more than in the beginning of the year. Japan has corrected substantially even though Abenomics will still be in the works. This will drive Japan to retests its high this year soon enough. I believe the sell down was a good profit taking exercise and actually allowing a lot of stale bulls (i.e. those holding onto Japanese shares for over 20 years) to exit - all that will come back to the market place for sure.
The local Malaysian equity market has held up better than the rest, and confidence breeds confidence. Having said that, Malaysia is only up 4.6% so far this, thanks to the uncertainty over the elections period. Other Asian markets have risen a lot more, and hence had more room for downside: Indonesia 15.2%, the Philippines 16.4% and Thailand 10.6%.
Monday, June 3, 2013
My Life's Aphorisms
Readers of my blog will notice that I haven't been updating my blog lately ... usually I am pretty not that busy ... now I have to go to Singapore every week for a couple of days ... and then there are the many meetings that suddenly crop up and classes that I have to give for Murasaki ... blah blah ... I miss writing my blog, I love it because its like a diary of sorts, I cannot ignore my blog cause its now 6 years of my life. If anyone reads it carefully, they would know me very well cause I never write to create a false persona, if you think I am an asshole, you are probably right. I don't like to be busy, it makes time flies, and I don't get to sit and relax and enjoy. My Monday nights drinks sessions are sacred, those of you who are part of it knows too well. We all have to slow things down and take stock of what we are doing, whether they correlate to fulfillment of your goals in life, so I think its time to re-look my own aphorisms in life, making sure I stay centered amidst the noise.
--------------------------------
Don't aim just to be rich, aim to create wealth, create better lives, create better livelihoods for people, create jobs where others can contribute to society and be a useful participant.
Use your wealth to fund your passions and causes, and don't forget to enjoy yourself in the process.
Stand up for injustice, for the downtrodden, for those who cannot help themselves. Aim for equality for all, in all.
Have a zest for good things, finer things in life, its OK to to enjoy.
Surround yourself with positive people. Make sure your life partner is enthusiastic, have energy for life, and empathy for people, friends and family.
Don't wait for fate or destiny to affect your life, its your life, make it happen.
Finding something or someone that/who means more to you than yourself.
Make a conscious effort not to hold onto people who don't love us or people who hate us or people who make us mad or people who take us for granted ... we also care too little for the people who love us unconditionally, the people who adore us, the ones who still stick around in spite of all your shortcomings.
Make an effort to to live healthy for yourself and the people who care for you. Live long but more importantly live well.
Make a conscious effort to better the lives of the people around you, your family and circle of close friends.
Bloom where you are planted, not whine about why you are where you are.
--------------------------------
Don't aim just to be rich, aim to create wealth, create better lives, create better livelihoods for people, create jobs where others can contribute to society and be a useful participant.
Use your wealth to fund your passions and causes, and don't forget to enjoy yourself in the process.
Stand up for injustice, for the downtrodden, for those who cannot help themselves. Aim for equality for all, in all.
Have a zest for good things, finer things in life, its OK to to enjoy.
Surround yourself with positive people. Make sure your life partner is enthusiastic, have energy for life, and empathy for people, friends and family.
Don't wait for fate or destiny to affect your life, its your life, make it happen.
Finding something or someone that/who means more to you than yourself.
Make a conscious effort not to hold onto people who don't love us or people who hate us or people who make us mad or people who take us for granted ... we also care too little for the people who love us unconditionally, the people who adore us, the ones who still stick around in spite of all your shortcomings.
Make an effort to to live healthy for yourself and the people who care for you. Live long but more importantly live well.
Make a conscious effort to better the lives of the people around you, your family and circle of close friends.
Bloom where you are planted, not whine about why you are where you are.
Subscribe to:
Posts (Atom)