Nov

2

50 200 MAI don't want to touch off a quant vs tech battle, but was interested in thoughts about the use of moving averages. The claims are seen so often in the media for example as 50m/a has crossed the 200m/a as bullish or bearish. As quant this is easily testable, but is there some fallacy built into the assumption, checking once premise. As an average of levels over some period is this overly sensitive to a large event that may have happened at the beginning of the period, or as new data are added and taken away from 200 days ago. This seems a drawback. So on an unchanged day the 50m/a could cross the 200m/a, so it is a lagging measure. I have not used them much but interested in testing and what the merits might be if any. I am prepared to buy a round if venturing too far from our charter.

Craig Mee comments:

Normally people use exponential moving averages which put more weight on the most recent numbers, however it must be noted when looking at technicals from any of the major houses, one day they may be looking at the 50 day exp m/a, the next day the 20 day exp m/a, next day 16 and so on. There seems to be little uniformity and who's to say the market's in a 50 day cycle or 20 or whatever, no doubt this will change at any rate, it must be proven, as to the reason it's used , and this is never done. 200 day just constitutes a longer term trend number. Could be 167 or 198 for the purpose. They may have more of a chance to perform some sort of return in a slower moving stock or short-end rate market, but for futures markets, there is way too much given away on the turn (i.e. consolidating flat markets forever paying away the spread to get in and out.) It's much the same in running a moving average over your profit and loss on a trading system as a filter , normally what you'll find is that the major gains are made on the swing, for that's when markets are extending, and if you're not in then you're not in!

Victor Niederhoffer comments :

Not to mention that it is extremely spurious and dangerous to your wallet to see cycles in moving averages.This is due to the Slutsky-Yule effect, a consequence of regression to the mean, creating false cycles.

Anatoly Veltman suggests:

The best M/A use I know of has nothing to do with crossovers, or even with price charts' current levels vis-a-vis averages. It has to do with current slope of all averages in an optimized pitch-fork of three averages. The method was originally described by Stan Weinstein, as applied to longer-term stock strategies. I’ve had positive results applying the general overriding idea; and over the years, I’ve worked with people who did optimization and chose a pitch-fork of 14-, 30- and 50- day pivot simple M/As. Furthermore, a few effective signals were developed: dubbed Moving-Average Fake-Out Trade and Moving-Average-Divergence Trade, at the time…

Nov

2

RosieOne of my analytical speedbumps has been the subject of forecasting tax policy. Being a child of the incentives form of economic modeling, I cannot get away from the disincentivizing aspects of the probable 2010 and 2011 tax policy changes.

Based on my thinking, it would be natural to see a large exit of women from the workforce, as the after-tax income of working migrates closer and closer to childcare and tax-adjusted healthcare costs. This loss in demand for services would reflexively feed back in decreased demand for other services.

For fun, let's also note the popularity of Mad Men, a show of badly behaving men and their stay-at-home wives. Again, another show, Desperate Housewives, is wildly popular. Clearly this is in the forefront of women's thinking.

RBS also notes similar observations, in that the private sector gets it, while policy makers and the financial sector do not.

Considering the economics again, migration patterns between high-tax and low-tax states are increasing. That would support a change from a "two income" household  to a "one income" household. A lack of a certain activity would also "encourage" more risk taking behavior by men in the workplace.

Domestically speaking, the pie appears to be shrinking. I just can't tell if this is descriptive or predictive.

Art Cooper answers:

Tax incentives matter, but there is a more immediate cause of the shift from double to single income households: job loss. The U-6 unemployment, most recently reported at 17% nationwide, doesn't even include those who have given up looking for work. If a spouse loses his/her job, and can't find another, tax disincentives to working become irrelevant short term. Long term, such disincentives shift work to "off the books" employment, i.e., the underground economy. Because job losses have been worse for men than women (e.g., in the construction industry), the exit of workers from the workforce may result in more husbands than wives leaving formal employment. I wonder how many former construction workers turned "handymen" fully report their income?

J. Rollert replies:

I concur, but was not making the point [incentives] was a current causal factor, but a growing one. So, the ideas can run in parallel.

Point I forgot to add: am noticing conversations occurring where "older" mom commenting "one doesn't have energy for work and kids anymore" a lot. Yes, it may be a rationalization. But it's also accurate, as boomers had them later. I'm 50, and my kids just started middle school/junior high.

Was in San Diego over the weekend, and heard cash bids and mortgage bids are pretty close on residential auctions now.

Ken Drees writes:

John Williams of Shadow Government Statistics has current U-6 unemployment at 21% (including discouraged workers). I think job loss is the driver for these trends.

Construction and jobs surrounding building (residential and commercial) will be dead for years to come. Real estate jobs and banking jobs are tipped towards women. Car dealers have been decimated, which favors men losing jobs. So far this year over 1200 plus bank branches have been shuttered. So as real estate and construction have already liquidated many employees, banks will continue to close next year. Both genders are losing jobs in general. As states seize up, more government workers and education workers will be losing jobs in 2010. Education has more women, whereas government is mixed.

The movement from high tax to low tax states is affects wealthy individuals and business, rather than average families. For example, the exodus of the wealthy from New York, and the exodus of business from California. It is much more difficult to move from state to state now as a single family. If you cannot sell your home, you will not just abandon it and move, unless you are close to losing it already. Probably a lot of people who lost homes are the ones able to pull up stakes and go to lower tax states where the cost of living is more affordable and where jobs may be had. People moving to new states will probably rent first to test the waters, depending on how good the new job is — how confident they are in the job continuing. How about the person who wishes to take a higher paying job in a new state within their same corporation — you can't just sell your home in 45 days any more. The crisp housing market really made job hopping and movement within the country fast and efficient. That's over.

As the squeeze continues, tax avoidance strategies and migration trends will be more indicative of higher earners than 100k and below families. Tax avoidance and EPA/government restrictions will be the big business drivers out of states that hold these policies as important (blue states overwhelmingly).

Nov

2

NascarDuring the weekend, there were several auto-racing events broadcast. While briefly paused on one of these broadcasts, NASCAR I believe, a commentator referred to auto-racing as a "sport". The comment struck a nerve; does auto-racing fit the definition of a sport?

I broadly define a sport as a skilled activity where the fundamental kinetic energy is produced by the participating athlete's muscles, with locomotion sometimes augmented by the effects of gravity.

Therefore, I argue that although professional auto-racing requires extraordinary physical fitness, focus and skill, a sport it is not.

Tony Kinoue remarks:

As an avid "motorsport" fan, I have to agree. I presume many fellow fans might find it offensive to say auto racing isn't a sport, but I believe it isn't.

A good way of classifying different activities as sports or not, is the risk you face when practicing them.

What would happen if a soccer player failed to score a goal? The ball would not enter the arbitrary area defined by general convention. May the L_rd save us all. The same can be applied to most sports that involve balls.

On the other hand, activities such as auto racing carry with them a much higher probability of mistakes resulting in serious injury or death. Boxing also comes to my mind as an example. Does this make them more or less of a sport than ball sports? I don't know, but to me they aren't sports.

And what about those "sports" that ESPN often broadcasts these days? Domino, poker, billiards. Lots of skill and strategy no doubt, but where's the risk? Monetary risk is a component in all sports described before these.

I'm not trying to imply one is better than another, but they are all certainly different.

Steve Leslie replies:

ESPN is Entertainment and Sports Programming Network. Therefore just because some activity is shown on the channel does not define it as a sport.

If auto racing is not a sport then what category would it be? It is entirely impossible to compete in auto racing without a car. That is a given. So where does the driver and the team fit in? To be a driver one must have great endurance, maintain excellent physical skills, such as quick reactionary times, reflexes, excellent hand to eye coordination and other qualities. Further, the team must have great physical skills. There is plenty of picking up and moving heavy objects, tires are extremely heavy, pit stops must be performed in seconds and it must be coordinated in a fashion to ensure the shortest time spent in the pits. Strategy is essential. A pit stop is like running a play in football. There is vast preparation throughout the week, strategy sessions before and during the race and a few seconds to execute everything. Auto racing is most definitely a sport when seen in its entire context.

Poker, on the other hand is a game. There is hardly any physical activity required. Blind people and quadraplegics play the game. And it can be played online.

Other games as shown on ESPN are dominoes, scrabble, spelling bees…

Billiards, darts, bowling, curling, cricket and horseracing are definitely sports. They just happen to be more subtle than baseball, rugby, soccer, and the major sports — football, basketball and hockey.

Nov

2

A L D A"Applied Longitudinal Data Analysis" by Judith Singer and John Willett is simply the best book on longitudinal studies I have read.

It is pedagogical in the extreme, clearly written with the intention to teach something practical to the reader. There is very little math, and many real world examples. The authors even manage to explain maximum likelihood estimation in plain English, without formulas!

Actually, sometimes it is so didactic, so simple, that I couldn't help thinking "come on, I am not that stupid," and found myself wishing the authors were a bit faster and less detailed. But I'd rather have it this way, than some other books that read like the author is writing for aspiring Field Medalists. And clearly, the authors have some classroom experience. Where they are slow and repetitive must be where they found their students had difficulties.

So overall, an almost perfect book and I would be happy if all statistics books were like this one.

It is missing only three things:

- A chapter about combining longitudinal analysis with advanced time series methods, for instance what happens when the individual time series are GARCH or something. This book is oriented toward medicine or the social sciences, so it is lacking a bit on time series.

- Resampling methods.

- Some R examples. The book mentions almost every statistical software under the sun, except R.

But except for the R aspect, the other subjects are perhaps a bit too advanced and could be the object of a second book. In its present state, this book can be read by someone with very little math and statistics background. Some knowledge of regression is enough to start with, and the reader walks out with the capability to perform real-world longitudinal analysis. Adding advanced stuff would be for a second book, which I hope they'll write.

Nov

1

AA / SGThe story of the day is that Andre Agassiz's dad and Stefi Graf's are both hard driving. Andre's is known for driving the son crazy with a ball machine called the Demon. Graf's father comes to visit to congratulate the couple and see the Demon. The two dads start  jawing at each other about whether a two handed top is better than a slice on the backhand. They start circling and throwing punches at each other. Andre has to step in to prevent them from duking it out. I knew there was a market analogy. Marty Riesman always said he was the luckiest man in the world to have a father who was a bookie. I didn't have that luxury. My dad was on the boxing and wrestling as well as football team at Brooklyn. But he would thank the referee for calling the foot fault on him. "If you have to win by that margin you don't deserve it." Indeed. He'd call it on himself at a critical time in our doubles matches. The Palindrome, just the opposite. He often called foot faults on me when playing against me. What is the ideal father for a person who's going to win? I'm afraid that the bookie, and the hot headed one fit you more for the trading business than the kind hearted one. Fortunately, some with a wonderful, benevolent father marry a miserable scoundrel like the daughter that's likely to result from the bookie or the fighting fathers. They can counterbalance the naivete and gullibility of the ones raised by an Artie. It's all my father's fault and Susan's that I'm such an easy mark.

Jeff Watson suggests:

The genetic component of what we are cannot be discounted. Since 1860, having had at least two members of each generation of my family end up trading is more that an outlier. The funny thing is that nobody in my family was ever encouraged to trade, and many stumbled into it by accident. I have noticed that many successful speculators come from a background with parents who were very laissez-faire in many aspects of their childrens' development, myself one of them. Many other speculators come from an environment that celebrated and taught a touch of larceny. The very best traders I ever knew came from ag backgrounds, which isn't too surprising. Still, it would be an interesting study to see if genetics matter more that environment in the psychological makeup of traders.

Jeff Watson, surfer, speculator and art connoisseur, blogs as MasterOfTheUniverse.

Michael Bonderer extends:

I kindly refer all Speculators to Daniel Ammann's recent book, The King of Oil: The Secret Lives of Marc Rich. Superb! There is even stuff in their on Familial Predestination! What a cool guy. Better then Steve McQueen.

Reid Wientge muses:

Being an easy mark reminds of Poe's stating he wished he could experience dying and write about it at the same time. Being the mark: You are stuck in slow motion, watching the other act and speak, indeed, watching yourself and hoping for intervention, hoping for "sombody stop me." Is it cynical to wish that one had been trained to master this vulnerability? I think not.

Nov

1

While students at [US elite colleges today] are smart, gadget rich, and Internet sophisticated, they don't seem to use their opportunities in any meaningful way. — A 1971 Yale graduate.

In my recent experience, the university professor who is willing and able to encourage original thought and work (especially at undergraduate level) is exceptionally rare. I've found academic staff to be very supportive of extra-curricular academic effort, but they will not reward it on the test. The final grade is for depth of regurgitation and some ability to manipulate that knowledge to circumstances, never for originality or poking flaws in straw men and pet theories.

It's economics, though — all the employers at the most desirable jobs filter interview opportunities by grades. One's not going to get a gig at XYZ bank, firm, consultancy etc. unless he can pony up the threshold competencies as they see it.

This reinforces T@leb's argument that life is becoming over-optimised, reducing the slack in the system that's necessary to absorb the impact of the unforeseen. I have seen this myself recently, having interviewed a kid who was near top of his class at IIT and IIM, top of his class at a top tier MS in quant finance, straight As and a bonafide mathemagician. But he had zero intuition about the mechanics of the market, the vig or anything else. Everything was an equation to be solved where one simply cranks the wheel and spits out the answer.

We're getting more and more book smart kids, and fewer street smart ones. There's a happy balance between the two somewhere but, for now, society rewards following the formula…

Jeff Watson replies:

As long as there are streets, there will be street-smart people.

Apparently, every generation has had problems with the succeeding generations. This has been going on for thousands of years, and the obvious, upward drift of mankind has been missed by the elders. Somehow, I think the next generation will muddle through and the upward drift will continue.

"The children now love luxury; they have bad manners, contempt for authority; they show disrespect for elders and love chatter in place of exercise. Children are now tyrants, not the servants of their households. They no longer rise when elders enter the room. They contradict their parents, chatter before company, gobble up dainties at the table, cross their legs, and tyrannize their teachers."

Attributed to Socrates by Plato

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