That’s the title of my article that’s going to be published in Future’s magazine, tentatively this November. I got confirmation a while ago and now I’m just waiting on some release forms. I’m very happy because getting published is a big feather in my cap! Yeah to me!
I’m taking tomorrow off for the long holiday! Have a great Labor Day all, see you Tuesday!
Here’s an interesting little fund that showed up on my 52 week high mutual fund scan, Arbitrage R! It did have a rough patch a few weeks ago as the subprime mess started to unravel (and continues to unravel).
What does Arby R do? Emphasis mine.
The investment (fund) seeks to achieve capital growth by engaging in merger arbitrage. The fund normally invest at least 80% of net assets in equity securities of companies (both domestic and foreign) that are involved in publicly announced mergers, takeovers, tender offers, leveraged buyouts, spin-offs, liquidations and other corporate reorganizations. Equity securities include common and preferred stock. The fund may engage in active and frequent trading of portfolio securities to achieve its principal investment strategies. [via Google Finance]
Some wise words about the economy from my friend, the MarketDoctor (emphasis mine).
What happened to the Gold-Locks economy? Just a few weeks ago it was in full force as the major Stock Indexes posted exuberant gains. Could it be that this Goldi-Locks scenario actually resulted in requiring the US Fed and EURO Zone counterpart to inject billions of currency into the financial system to maintain liquidity in the banking sector? And if the US economy was naturally so strong, why is it that the Federal Reserve needed to cut the Discount Rate some 50 basis points to avert potential calamity in the marketplace? Is that what the Goldi-Locks scenario is all about? Is it that the Goldi-Locks scenario requires an asset bubble in Stocks or Real Estate to prosper? How strong could the Gold-Locks scenario be if only a 5.25% Fed Funds rate sent it to crash into flames.
I think he hit the nail on the head, if our economy is so strong why is a 5.25% FF rate causing all this calamity?
Note to the Doc: Get a Blog!
I have some issues with Christian’s post, Should the Fed Ease for the Sake of the USD, and wanted to analyze his hypothesis that US interest rates have no correlation to currencies over the long term.
I downloaded daily closing data for the GBP, CHF, JPY, and the 90 day Fed Fund Rate index from late 1989 through yesterday. Note, a Fed Fund Rate index of 100 = 0% interest rate and an index number of 95 = 5% interest rate.
Although my data doesn’t reach back past 1989, I do see correlations to the interest rates and the various currencies. Most of the time there are lagged effects in the currencies as the 
Although I disagree with your analysis Christian, thanks for the brain tease!
I used to flip foreclosure properties leading up to the height of the RE bubble. It was tough work finding these properties, marketing to them, and then screening the potential sellers. Since I didn’t have the capital to buy the properties myself, for cash, I had to get an investor involved and made a few bucks at it. I learned a lot but realized that it was too time consuming so I stopped.
Once I found a property, I would go to my real estate investment group and search for a buyer. Right before the top in the market, the message board would be filled with 100′s of daily posts. People looking for this, selling these deals, investors with cash, flipping, etc. Then about 3 months before the peak, the post frequency started to lessen. I thought to myself, hmm this is something to watch. Little did I know that the top was about to be made and since then the RE activity in the group has been a quarter of what it was.
I know a lot of the people on that board, either I met them in person or have corresponded with them. They’re shrewd business people and they have their ears to the ground. The word on the street is that bottom is NOT in yet and their waiting to swoop in on the carnage when banks and lenders are saturated with foreclosed houses. Why bother dealing with crazy homeowners when you can just go to the bank and make a deal?
My wife and I are estimating late 2008 for a possible bottom but it remains to be seen. Probably September of next year we’ll be going to our local banks and asking for their REO lists (Real Estate Owned). These are the properties the bank owns and typically tries to unload fast. Sometimes they get Realtors to sell them for them but since no one is likely to be buying, you can go in there and negotiate rock bottom prices. When I mean rock bottom prices, I mean really rock bottom prices. Our goal is to pick up a nice little Jersey Shore house. :)
Ouch, another volatile day in the markets. My model’s volatility indicator didn’t issue a BUY today but it did jump higher. We’re almost ready to cross the 1.0 threshold again which means more volatility games in the market. For some strange reason, we’re making lower highs and maybe lower lows on the S&P500. Hmm, what could that mean? :)
I’m thinking that September, and possibly October, will be very rough months so we should put in our stops and start building cash. Maybe take some cream off the top. In the long run, it could present some buying opportunities but some pain in the short term. Oi Way!
The last time I was in Macau, I stayed at my brother in-law’s place. Outside his balcony I watched the construction of what was to become billionaire Sheldon Adelson’s Venetian casino. It looked really cool and was massive in size compared to its neighbor, Sands.
The Venetian boasts what it claims to be the world’s largest gaming space of 550,000 square feet (50,000 square meters), housing 3,400 slot machines — with room to expand to 6,000 — and more than 800 gambling tables.
It has 3,000 rooms, a 15,000-seat sports arena, retail space for 350 stores, 1.2 million square feet (108,000 square meters) of convention space, fine dining and a Cirque du Soleil-produced show.
Its decor aims to replicate the beauty of Venice — with a Chinese touch. Chinese-style sampans as well as gondolas will sail down canals. The resort also features a replica of Venice’s St. Mark’s Square. [via Yahoo]
What blew me away was how busy all the casinos in Macau are. You could go in one at 2AM on a Wednesday morning and all the tables would be packed. Did I play when I was there? Sure, I played the slots and promptly lost after being solicited by a lady of the evening. Bad luck. :)
The conspiracy nut jobs are out in force this week and they’re all saying that a “Bin Laden” option’s trade was placed. According one site (they won’t get my link), they claim someone sold 61,730 September SPX Calls at strike 700 because this person or people know that there will be another terror attack on the US before Sept 21 (option’s expiration).
What they fail to tell you is that 61,740 September SPX Puts at strike 1700 were also bought (I assume bought) [via CBOE]. I’m no option’s expert but this looks like some sort of spread that a large institution is using to move money around.
I guess we’ll have to wait till September 21st to see who was right and who was the dumbass.
Related: More Investors Are Betting on Major Selloff in Stocks
It’s all about China these days and it probably will be leading up to the 2008 Olympics, who knows what it will be after that? Anyway, the Powershares Golden Dragon ETF (PGJ) is not a chain of restaurants, rather its an ETF that’s making a new 52 week high. Will she continue to break out and soar higher like a mighty dragon? Only time will tell! :)
A scan of new 52 week highs on the Nasdaq brings Mr. Biogen Idec Inc (BIIB). I usually don’t trade the Biotech sector but it does have its Black Swan positive charm, perhaps I should invest some money in it for the long term. Anyway, BIIB starting testing its old highs back in June and then broke out touching new highs almost every week. Breakouts have a tendency to do that! :)
In my personal opinion, no. As long as there is market inefficiency, there will always be some quantitative strategy out there trying to capitalize on it. Some people believe, because of recent market events, that the quantitative based investment strategy will likely go away. That might be true for some quantitative hedge funds who got caught with their pants down but not for whole of the industry. If it did, then I’d be out of business! After all, modeling market trends using neural nets is very quantish indeed!
The difference between the failed hedge funds and what I do is that I’m always concerned about risk and realize that in high volatile times, the markets tend to go against your position and your models get out of whack. My guess is that those troubled funds did think about risk but maybe didn’t or couldn’t quantify all of it.
I previously wrote,
Quantitative models are fallible in turbulent markets because they can’t adapt fast enough to changing conditions. Their fallibility lies in the mathematical analysis that assumes turbulent markets can be rationally modeled. Everything works fine as long as the market operates fairly smoothly and during low volatile periods.
I believe this 100% true but the markets do return to “order” after a period of high volatility. Its then that those remaining models start to magically work again. They cycle repeats itself as money pours back into those funds and every works again until the next shake out. The trick for the survivors is to prepare for the next shake out, create a plan to deal with it, and carefully understand and manage your risk. If history serves as a guide, chances are the majority won’t and there in lies your opportunity.
My guess is that we’re just seeing the cusp of market volatility, the subprime mess isn’t over yet…
Is that it’s too damn volatile! I’ve been working on the next gen version of a directional volatility model and its been both frustrating and rewarding at the same time. As long as the model is re-optimized on a weekly (or daily) basis, the predictions tend to have a 60-70% accuracy.
The problem is that you can’t forward forecast it 1 year into the future because volatility is, well, “unpredictable!” :)
Gasp, I said unpredictable (Christian please feel free to jump in)! Yes, its true volatility is unpredictable far out in the future BUT in smaller time frames the “stickiness law” works nicely. Noble prize winner, Robert Engle, proved (link coming) that volatility tends to cluster and that times of low volatility seem to be followed by more periods of low volatility. The same “pattern” exists for times of high volatility and I call this the stickiness law.
So predicting the direction of volatility is feasible, based on my findings, as long as you continually update your model. Since we just saw a period of high volatility recently, we’re likely to see additional periods of high volatility soon. Guess that makes sense since September and October is coming!
