Feb

5

War story from an old air traffic control vet:

A controller is working at an old scope, laid horizontally with shrimp boats as target markers. There are assistants ("A men") standing around moving the boats to keep them over the appropriate targets. As a target leaves the sector, the boat is removed and the call sign that was written on it with a grease pencil is erased and replaced with a new one as a departure enters the sector. The radar is old broad band, so the targets are very large near the sensor (antenna) and get smaller as they move further away. When it gets busy and the New York airports are pumping 'em out, sometimes a single broad target will resolve itself into two or three separate airplanes. So the departure sectors could get extremely busy, identifying and separating airplanes.

This old vet is telling me a story about one of these "departure pushes" and explains how difficult it was to be busy when using shrimp boats. Controllers tend to become extremely focused when working busy pushes, and this time was no different. The old vet, "O", we will call him, finally gets up, rubbing the back of his neck. He tells the guy next to him that it was so strange, he kept feeling that his head was being pulled down into the scope throughout the push, it was the damnedest thing. The other guys laughs and says "that's cause the A men were using your tie to clean the boats!"

Feb

5

The citrus market is a sleeping giant. Brazil is the big boy on the block.

"Citrus: World Markets and Trade"

Feb

5

Rocky's looked at natural gas; I follow biotech pretty closely. While some of the real biotechs (the ones with products in the marketplace) are doing OK, Celgene looks a bit extended. Its PE is north of 30, and looking at its chart (and I'm nothing close to some of the technicians on this list), it looks like it finally broke down. Strange that Celgene broke but Regeneron did not.

Feb

5

A friend of Keely's writes:

Not sure if you'll like this, but check out this Camp Tramps, Loners and Hermits site about primitive wilderness skills. There's a series of articles about becoming a 'feral woodsman'. The writer includes stories of his encounters with interesting folks living in the bush. It's somewhat like rancho costa nada describing characters living in alternative ways like you or hippie jim or other sand valley residents. I like the pahrump guy in the trailer. if kingman doesn't work out (asthma) I will investigate pahrump. It reminded me of this Detroit guy off the grid in a trailer (you've prob seen it before).

Bo Keely writes: 

'Camp tramps' is a fine term. It describes the people of Sand Valley except they paid $50 a month rent (toward purchase) to keep the authorities off their necks. There's nothing quite like having a plot of land that as long as you don't do anything 'wrong' you can order anyone off. It's like ownership of mind. The Sand Valley camp tramps like JR, the Tuks & I have shifted properties multiple times to find the 'right place'. The definition of a good neighbor in Sand Valley is one who never visits until there's an emergency.

I've found I've become a drifter. Why wait for the world to come to you when you can go get the world.

The next link about the Detroit guy in his trailer retreat reminds me that hobos were the vanguard of this fleedom to a little camp in a quiet place, usually on a river. They tow in a trailer, or built a shanty, and lived contentedly. Often it was by a RR track so that when they got bored they could get away.

Loners are certainly the most interesting. They have become 'themselves', completely inner directed. A loner never finds you; you stumble on a loner in any part of the world. The last one I remember was a gent on Trinidad in a jungle concealed hut who slept under a 1' wasps nest. I think he talked to me because I kept only one eye on the nest and the other on him.

It takes all kinds.

Feb

5

One wonders if the stooges, the puppets from the centrals will be hauled out to make reassuring comments about the health of the economy and the resonance of the qe's. After all, small people in emerging markets might be hurt and the idea that has the world in its grip will come into play. Trading it from that cynical world view has not been entirely unprofitable the last two days. But it was entirely unprofitable on Monday. However, it often takes a day for the puppets to receive their marching orders.

Rocky Humbert writes: 

I note a Bloomberg news story from this morning that the INVERSE VIX ETF (XIV) had a record inflow of money last week — the largest amount since the ETF started trading in 2010. This tells me that the market has become conditioned to extrapolating the behavior of the past five years.

I believe that among the biggest challenges in investing and running one's models is figuring out when the game has changed (or "ever changing cycles").

I am not making a prediction about when the game will change. But the risk is rising substantially. Conditions precedent for the game changing are (1) "Everyone" is conditioned for the same behavior; (2) High leverage in the system; (3) Rich valuations and/or optimistic assumptions; (4) Subtle changes in monetary conditions and/or other related expectations; (5) A long period of time since things looked really scary. (FWIW NYSE December Margin levels are at records fwiw.)

Think back a few years — what were you thinking then? How many people laughed at "Green Shoots"? Why do people believe the bankers now? But they didn't back then? What is different? I'll predict that we don't have another financial calamity. But to quote the wisdom of Roseanne Roseannadanna, "If it's not one thing, it's another."
 

Bill Rafter writes:

For the next shoe to drop you may want to look at my post of last week.

Gary Rogan writes: 

When I said we'll see 5% down I was using every one of those reasons other than 4 that I don't understand other than slightly lower QE. The margin leverage chart is the scariest thing in the world if you are looking for scary things.

Feb

5

It's been long said that "the real trend" is not the direction of the price change, as much it is the duration of direction.

Thus, it is said that in the downtrend (current?), the rallies would be sharp but short-lived. It's no wonder that we had so far 3 rallies that didn't last over 24 hours

Feb

5

As diligent dailyspecs know, I recommended a long in natural gas a few weeks ago. The front contract has now risen about 40% and is currently making a new high (up about 15% over the past two days).

As a veteran of this market, I can say with wizened knowledge that Natural Gas is a market that V-tops. So if you followed my recommendation and bought some UNG or whatever, don't expect a graceful exit. I am NOT calling a top. There is some probability of further upside. Possibly massive. Rather, I am saying that you shouldn't expect me to announce my exit in the way that I did in gold.

Note to Dr. Z and the counters: There is always a bull market somewhere.

Ed Stewart writes: 

Amazing string of winning ideas. It seems that with the benefit of Rocky's calls doing one's own research is counterproductive.

Jim Sogi writes: 

In '05 and '08 natgas went over 15 and 10. What caused those run ups?
 

Feb

5

I'm just a poor businessman, and haven't the wherewithal this week to consider a rigorous study, but I often look to JB's Bollinger Band indicators for guidance on the persistence of moves in various financial instruments, indicies, and single stocks. When one looks at the S&P cash index with Bollinger bands overlayed (I use the generic/default settings on Bloomberg), one sees that in many cases over the past year (though also over longer periods), when the index crosses either band, there is frequently an opportunity to profit from a reversal.

That always struck me as a natural consequence of competition of private interests in a marketplace, in which panic or excitement tend to burn themselves out rather quickly. But look at the same Bollinger band charts overlaid on treasury futures. The trending seems to be much more pronounced than in equity markets. When the price crosses one of the bands, it does NOT, as of late, tend to be followed by a short-term reversal.

One wonders if the propensity for markets to obey an oscillatory behavior (like SPX) or to disobey (like USM4) implies that trend followers may actually have a discernible (not random) chance to succeed from time to time.

Feb

5

"(BN) Goldman to Fidelity Call for Calm After Global Stock Wipeout"

"That's why we think we are in a classic correction". One could write a sonnet about that one.

Anatoly Veltman writes: 

One thing bothers me somewhat deeply: even before current correction started two weeks ago, the Shanghai index was trading around 2000, which was some one-third off of its record two-plus years ago. Mind you, we're talking about the world's second most powerful economy in the world here. The one America counts the most to support its Treasury Bond Market!

So was that perfectly fine for US stocks to become dearer by an equal one-third in the same time period?? And the moment we deflated 5 percent off the record, was that perfectly fine to rely on one hundred statistical reasons to be an immediate buyer? I wish I had b@lls of brass, too. But I am just a little more cautious.
 

Feb

5

I just spent a week with a bitcoin millionaire in his low 20s.

I think I was previously missing out on the cultural revolution in all this. This guy and the others are utterly committed to a world of privacy and anonymous transactions.

I threw out all my arguments about why bitcoin might fail. In addition to some good technical answers his basic idea was "so what, we will just move on to the next one, we are never turning back."

I suppose the relevant question for those of you with college ages kids is whether or not they are adopting this mentality.

Feb

5

Listening to Gay Ravenal in Showboat trying to induce Magnolia to live the life of ecstasy with a gambler, it reminds me of all other cons one is exposed to in market.

And one notes that Edna Ferber is the greatest writer for women who wish to love business and see how strong woman prosper in business.

Giant, and Chicago, as well as Showboat are all great for strong women to be, and those who wish to eschew gamblers.

Feb

4

One notes that music on the radio often coincides in tempo and volume with the market movements. That's because of changing stations at the hour. Certain music mirrors the market. The funeral march or the second movement of the Third Symphony is always playing when one is about to be sent to Davey Jones's Locker. That's because one's colleagues put that music on when the reaper appears.

My dentist asks me to let him know in advance when I have an appointment because the market always goes way down on the day of the appointment and he'd like to sell short. The reason is that I see him on Mondays. I make the appointment after a lull in the market. But the market reverses. So after it's up and I make an appointment it's likely to have a day like yest.

A little woman was known to have romance with a poor speculator. She says, "are you sure we can afford it? We always lose when you are indulged." The reason is that one requests the possibility on those rare occasions when the market has not had a big down day in a few months. That's always the time for it to stick in the big decline.

One occasionally attends to the necessaries in the chamber. The market is always likely to drop 7 figures against you during that time. The reason is you choose the relaxed moment. Always expect an ambush from the Apaches when you would never expect it.

Certain hoodoos always call asking for money when the market is in a terrible tailspin. They need money badly during that time. Other people do also. The lack of liquidity causes them to ask for money and also causes the market decline.

One never makes money in the evening the same way. The market knows you can't stay up 48 hours straight. Only 24 hours. By the time Europe has digested yesterdays' move, they can consult with the other centrals and take corrective action.

A vacation is always the time for a drastic reversal in your fortune your appointments during market hours will always have to be canceled because it will turn way against you. Same reason as above.

Whenever you have a big positions, the headlines on the tv and screen will have a story drastically against you. The news follows the price. Your brother or you will always have either the best or worst year. The principle of ever changing cycles.

What other unusual consiliences that really are due to logic and probabilities illuminate and enliven your market days?

A brother writes: 

Good hypotheses possess four qualities:

1) Falsifiable (can be easily proved wrong)
2) Causal (if possible there should be a reasonable causal link between independent and dependent variable)
3) Parsimonious (few variables)
4) Robust (as broad as possible)

It would be interesting to rate your many hypotheses above on these characteristics.

Feb

4

"I felt like if it went into overtime, we would have got the win".

Exactly. How many times has one stared at the screen at the end of the day with the same thought. If only—- the screen wants to move. It couldn't be stuck there. But of course the real problem is Smith. He scored some lucky shots that kept them in the game, and then when they needed him, he lost the game for them as he always will while he's on the team. The regression fallacy again. But in basketball not markets.

"Falling to Bucks, the Knicks Continue a Pattern of Not Having One" by Ben Strauss

Feb

4

I'm rather nervous about the ability of the EUR to hold on after much gain against the likes of the aussie, cad and old mate yen. Maybe like golf we can work back from the putting green, and others can drive home a more macro view why this may indeed be the case.

Besides rates, the last x period has taken out any overdone goodwill built into the Aussie-China trade partnership during the commodity boom. Now it's back into a form of value, but whether against EUR or USD, that's open to debate.

Today EUR/AUD RBA announced no cuts with the sign off: "In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates."

So at least on the aussie side this is conductive to the pair continuing to flatten.

Feb

3

Using SPY (93-2013), here is comparison of return for 1st day of month (close last day of prior month to close first day of new month) vs. all days in the period:

Two-sample T for 1DOM ret vs all dat ret

                      N    Mean    StDev  SE Mean
1DOM ret      250  0.0029  0.0136  0.00086  T=2.8
all dat ret     5270  0.0004  0.0122  0.00017

For 1DOMs following a down month as we just had, checked 1DOM returns when the prior 20 trading day return was down more than 2%.  Here again compared to return of all days in the period:

Two-sample T for 1DOM <-2% vs all dat ret

                           N    Mean   StDev  SE Mean
1DOM <-2%      60   0.0012  0.0200   0.0026  T=0.32
all dat ret        5270  0.0004  0.0122  0.00017

>>not as good

As to whether 1DOM has become DUM, attached is a chart of mean 1DOM return by year.  Recent years 2008 and 2011 have undermined the pattern (the last year on the chart is 2014, which represents one data point = 1st day of January)

Gary Rogan writes: 

A steep multi-year rise making equity values fairly expensive, buying on the dips always having worked in recent past, and then a reduction in liquidity. Three was no other specific catalyst for the equity markets to unravel, but it was an end of an era: the enthusiastic dotcom era, and this is the beginning of the end of the era of "the market goes up because the Fed will always save the day, so any bad news is good news".

Steve Ellison writes: 

 Three years ago, I posted on a variation of this idea that was published by Norman Fosback in 1976 and added stats from 2005 to 2010: http://www.dailyspeculations.com/wordpress/?p=5867 . When an idea has been known this long, it would be surprising if it worked at all. There was even an ETF a few years back that was only going to be invested on the 1st of the month. I don't know if it has survived.

I found that, over a very long period of time, this idea could still lead to good returns, but there were periods lasting a year or more when it did not work. As Steve Irwin found, the crocodiles hate you and might be waiting for you at the same spot you jumped in last time.

Feb

3

Much ado has been made on this site regarding music and markets. Sometimes the markets are playing Brahms, sometimes Frank Zappa, or whatever. Today the equities are not playing music so much as making this sound.

Feb

3

1. When mentioning HFT in any discussion, people will mean different things. Chiefly, because thousands out there claimed at one point to be engaged in HFT. My neighbor introduced his collegiate athletics son the half-miler. And then there is David Radisha…There is great deal of "champion" checker mention on our list (of course the 8×8 board, 12×12 piece, no jumping back and no flying kings). This is truly "tic-tac-toe" compared to international checkers (10×10 board, 20×20 piece, jump backwards, flying kings). Believe Wiswell and Moiseev the checker kings? Do yourself a favor and google my friend Ton Sijbrands, a study subject in human memory. Most people can't even sit in front of one 10×10 board with 20×20 pieces on it, and see the whole board at once; Sijbrands sat in the room with no boards for 28 hours, completing 28 defeatless games (92% total score due to a couple of draws against all opponents with boards) blindfolded!! Each of those 28 simultaneous 50+ move games involved strategies with quintillion possible variations. Brutally honest: Wiswell the checker player might as well be challenging Kobe to a one-on-one.

2. Now: HFT, brokers and the Exchanges. The Exchanges set up rules for order priority, halts, etc. In addition, rights are reserved (for example: to arbitrarily, selectively cancel trades). Plus there may be hacking issues we'll never even get to hear. A few member entities are allowed collocated spots…Brokers are allowed to route in their way…To judge whether laws or rules get broken, one would have to be as sophisticated as the perpetrator, or at least have access equal to the Exchanges'. By definition, there can be no such overseer. There were a few whistle blowers in re: to perverted priority - but really, who with the level of access to proof will ever blow whistle?

3. Which brings me toward encrypted currency protocols. I'm just thinking that two hundred enthusiastic (read: known to work without sleep) phd's within one firm are not there to just be paid 8-figures and research nothing. And not to single out any one firm - there are in fact a number of ubersophisticated entities… In case of bitcoin currency - the whisper has at least some components legislated out sooner than later. (First DOJ arrests, although at core drug-related, are likely watershed nonetheless). Exchanges require licensing, etc… But but but, the protocol concept is something beyond just the currency. Eventually, I understand, the concept will be embraced and implemented for currency and more. Now, I'd love speculation as to how the process might be going at the oval and at the committees, and of course within secretive branches with untold resources. All powers must be summoning qualified advice on the protocol matter. How do they do it, and how will the legislature evolve? Also, how does international officialdom deal or co-operate on projects involving world web?

Feb

3

December Low Indicator:

When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January's first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday-shortened week. Instead, said Hooper, "Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!"

Feb

3

After a long down turn the ag commodities seem to be turning around or bottoming. Just looking at the charts.

Feb

3

In case you missed it, there were two interesting developments in the power markets last week.

1. Dominion Resources wants to write off North Anna nuclear unit 3. Dominion invested $600 into this paper power plant. It wants to start over without the burden of carrying these costs.

The implications are three-fold. First, it appears Dominion will have a bad bottom line in Q1. Second, consumers can expect a rate increase. Third, Virginia's legislature wants another nuclear power plant built.

2. Texas plans to do nothing about their capacity shortfall. Again, there are three-fold implications. First, the grid operator [ERCOT] believes future demand growth is lessening. Second, the state is willing to accept rolling blackouts if blackouts are infrequent and for short durations. Third, the state is gambling there will be no major retirements.

I would not want to take the state's gamble. However, it does throw a red herring at federal regulators (NERC).

Feb

2

While this band of brothers has taken a turn to the bearish camp, I can think of 100 quantitative reasons that one is in the bullish camp, starting with the stock bond ratio being at a 3 month low.

Feb

2

It would be wise to review prior periods of Fed Chair transitions, for their equity and bond moves and overlay that on election years.

But I am not sure I'm wise.

anonymous writes: 

Date              Chairman                        DJIA     CAGR         t    t+1    t+5    t+10    t+20    t+62
13-Aug-14    Charles S. Hamlin               Market Closed till end of year ??           
10-Aug-16    William P. G. Harding           90.05    1.17    -0.23    0.3    2.07    4.2    2.49    16.77
01-May-23    Daniel R. Crissinger             97.4     17.49    -1    0.67    -2.04    -2.05    -1.41    -8.21
04-Oct-27    Roy A. Young                     198.88    6.15    -0.45    0.17    -4.95    -6.07    -8.65    1.03
16-Sep-30    Eugene Meyer                   237.22    -32.86    0.25    0.22    -6.09    -10.41    -19.06    -21.81
19-May-33    Eugene R. Black                 81.75    14.23    -0.99    -1.88    2.42    8.99    15.95    15.11
15-Nov-34    Marriner S. Eccles               99.72    4.51    0.3    -0.33    -0.25    2.67    3.05    1.28
15-Apr-48    Thomas B. McCabe             180.27    11.15    0.64    0.2    0.61    0.39    1.24    5.7
02-Apr-51    William McChesney Martin, Jr. 246.63    6.05    -0.53    -0.25    1.48    3.29    3.29    2.91
02-Feb-70    Arthur F. Burns                  746.44    0.07    0.32    1.48    1.24    0.97    5.49    -1.72
08-Mar-78    G. William Miller                750.87    9.04    0.55    -0.12    1.03    0.89    1.74    15.4
06-Aug-79    Paul A. Volcker                  848.55    15.42    0.28    1.33    3.15    4.47    2.84    -3.35
11-Aug-87    Alan Greenspan               2680.48    7.91    1.69    -0.42    -0.96    1.56    -4.9    -26.91
01-Feb-06    Ben Bernanke                10953.95    4.72    0.82    -0.93    -0.87    0.96    0.65    4.22
03-Feb-14    Janet Yellen                  ~15848.61                       

avg        0.13    0.03    -0.24    0.76    0.21    0.03
stdev        0.73    0.85    2.66    4.67    7.78    12.68
t-test        0.63    0.14    -0.33    0.59    0.10    0.01
 

Feb

2

The two books that inspired me to go to the only two places on earth that I return too are:

Into a Desert Place by Graham Mackintosh (into Baja)

Rivers Ran East by Leonard Clark (into the Amazon)

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