Archives of “January 7, 2019” day

rss

Larry Hite on “Being Wrong”

  
  Education
#  #  #  #  #  #  #  #  #

One final important gem from Larry Hite is that being wrong is okay. He says he was never very good in school and not much of an athlete either. But he turned that to his advantage because he was able to grasp the idea that he could be wrong. In fact, it came as no surprise to him when he was wrong. Hite recalls with pride: “I’ve always built in an assumption of wrongness [in my trading]. I always ask myself: What is the worst thing that can possibly happen in this scenario? Then I use that worst-case scenario as my baseline. I always want to know what I’m risking, and how much I can lose. And sometimes, when you really look at it, there’s really not all that much risk [which is why you can get rich].”

How to Spot a Market Top

  
Analysis, Education
#  #  #  #  #  #  #

This is via an article in the Wall Street Journal title: How to Spot a Market Top

It begins generically enough with the sort of stuff you hear all the time:
  • A da Vinci sells for $450 million
  • one bitcoin is worth $7,700
  • 99-year-old Austria issues a 100-year bond at an interest rate of 2.1%
  • Clearly there is too much money in the world. That isn’t new, but how long can it last?
  • With central banks scaling back stimulus, investments that appear attractive when interest rates are near, or below, zero suddenly look silly.
Then, some, errr … wisdom:
  • The end may come soon, or the current investing nirvana could go on.
K, thanks.
But, then it gets better:…  walks through the risks and likely scenarios for markets in the coming months. It is ungated (I think), co check it out while we await Europe/UK action:

I Say Lower Rates Below 0%!

  
Analysis, Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Richard Russell can write:

“The big advance from the May 2009 lows was a bear market rally. The good economic news of the last few months were a mixture of hopes, BS government statistics and rosy propaganda from bleary-eyed economists and the administration. There’s no point in my going over all the damage — the plunge in the NASDAQ, the crash in the Stoxx Europe 600 Index, the smash in the Morgan Stanley World Index, the gruesome fact that at 1071, the S&P 500 is 24% below its level of ten years ago. The damage in dollar terms is reported to be $5.3 trillion. That sounds to me to be a sh– load of money. And the tragedy is that our government has spent two trillion dollars in a vain attempt to halt or reverse the primary bear trend of the market. I said at the beginning, “Let the bear complete his corrective function.” One way or another, it’s going to happen anyway. Better to have taken the pain and losses — than to push the US to the edge of the cliff. Now with the stock market crashing, the national debt is larger than ever. In fact, it is so large that it can never be paid off, regardless of cut-backs in spending or increases in taxes. Had Obama or Summers or Bernanke understood this, they never would have bled the nation dry in their vain battle to halt the primary bear trend. As I’ve said all along, the primary trend of the market is more powerful than the Fed, the Treasury, and Congress all taken together. Our know-nothing leaders have boxed the US into a situation that is so difficult that, for the life of me, I don’t see how we’re going to get out of it. Well, there’s always one way — renege on our debt. Can a sovereign nation renege on its debt and in effect, declare bankruptcy? Sad to say, I think we may find out. One basic force that the world will have to deal with is deflation. This is the monster that Bernanke is so afraid of. To fight inflation is easy — you just raise interest rates and cut back on the money supply. But deflation is a totally different animal. Interest rates are already at zero. The money has been passed out by the trillions of dollars. The stimuli have been issued. What can Bernanke do in the face of deflation?” (more…)

Richard L. Peterson -Trading on Sentiment :Book Review

  
  Education

We all know that sentiment is a critically important ingredient in the pricing of tradable assets. But it is extremely difficult to move from this general and somewhat amorphous principle to a trading/investing edge. Richard L. Peterson takes up this challenge inTrading on Sentiment: The Power of Minds Over Markets (Wiley, 2016).

Peterson is the CEO of MarketPsych, a firm that in 2011 joined forces with Thomson Reuters to produce the Thomson Reuters MarketPsych Indices (TRMI), sentiment data feed covering five asset classes and 7,500 individual companies that Thomson Reuters distributes to its clients. As the Thomson Reuters website explains, these indices use “real-time linguistic and psychological analysis of news and social media to quantify how the public regards various asset classes according to dozens of sentiments including optimism, fear, trust and uncertainty.”

Odds are that, unless you’re a bank or hedge fund employee, you won’t have access to TRMI. Peterson’s book is the next best thing, although you have to realize that if you want to incorporate sentiment (not some proxy for sentiment) into your trading decisions and can’t do big data analysis yourself, you’re working with one hand tied behind your back.

Trading on Sentiment is divided into five parts: foundations, short-term patterns, long-term patterns, complex patterns and unique assets, and managing the mind.

To give a taste of this book (and to address something that affects everyone’s investments) I’ll focus on the chapter on sentiment regimes. As Peterson writes, “Context matters in financial markets. In the academic literature, differences in context are said to be a product of market regimes. A market regime is—in its most simplistic terms—a bull or a bear market. Recent academic research demonstrates that the performance of common investment strategies differs across market regimes, and these differences may be rooted in the divergent mental states of traders in each context (e.g., optimism in a bull market versus pessimism in a bear market).” (p. 270)

(more…)

Go to top