Thoughts about the markets, automated trading algorithms, artificial intelligence, and lots of other stuff

  • Capitalogix Commentary 02/27/09

    This drawing made me smile, even though the market continued down.
    Intersection of Doom Gloom and Insanity

    Sentiment is bearish; not surprising since we're at market lows not seen in 12 years.  You know it's bad out there.  But to put it in perspective, Bespoke presents some sobering stats in "Ugly Stock Stats From an Ugly Bear."

    Adding to the market's concerns, here is a chart showing that Goldman Sachs slashed their S&P 500 Earnings Forecast.  They are expecting a peak-to-trough decline of 56% (behind only the Great Depression and WW1).

    GS Research on SP500 Earnings Decline
     

    And here is a chart showing the deterioration of major bank market caps since 2007. The Blue Bubbles show market value in Q2-07, while the Green Bubbles show recent values.

    Bank-circles

    (hat tip to Phil's Stock World)

    Regardless of the data, the real question is whether it will get better or worse from here?  

    Here is a positive sign. Smart Money is starting to get more bullish (while retail investors continue to get more bearish).  We are not yet at the levels that often signify rallies, but we are closer.  

    As we get closer to intermediate-term lows, I pay more attention to Sentiment measures. So I'll be keeping an eye on Trader's Narrative because they have lots of good content.

    I added a feature to the website this week.  A place where I link to the news that catches my eye.  I'll continue to post the best links here, and I'll have a bunch more for you on the blog.

    Here are a Few of the Business Posts I Found Interesting This Week:

    • VC's Top-Ten Reasons Start-Ups Fail. (Tim Draper)
    • What Warren Buffet Told His Shareholders? (CNBC)
    • PDF of Buffet's Berkshire Hathaway 2008 Annual Letter to Investors. (BH)
    • The Smart Growth Manifesto – It's Time to Reboot Capitalism. (Harvard Business)

    And, Here are a Few More Lighter Ideas and Fun Links:

    • A Nice Collection of Ancient Greek Wisdom and Quotes. (MSU)
    • Nation Instinctively Forms Breadline – Gallows Humor. (The Onion)
    • India Patenting Yoga Move to Protect Them from Western Pirates. (Neatorama)
    • A Site for Amazon Kindle Users. (Kindle Nation)

  • Capitalogix Commentary 02/27/09

    This drawing made me smile, even though the market continued down.
    Intersection of Doom Gloom and Insanity

    Sentiment is bearish; not surprising since we're at market lows not seen in 12 years.  You know it's bad out there.  But to put it in perspective, Bespoke presents some sobering stats in "Ugly Stock Stats From an Ugly Bear."

    Adding to the market's concerns, here is a chart showing that Goldman Sachs slashed their S&P 500 Earnings Forecast.  They are expecting a peak-to-trough decline of 56% (behind only the Great Depression and WW1).

    GS Research on SP500 Earnings Decline
     

    And here is a chart showing the deterioration of major bank market caps since 2007. The Blue Bubbles show market value in Q2-07, while the Green Bubbles show recent values.

    Bank-circles

    (hat tip to Phil's Stock World)

    Regardless of the data, the real question is whether it will get better or worse from here?  

    Here is a positive sign. Smart Money is starting to get more bullish (while retail investors continue to get more bearish).  We are not yet at the levels that often signify rallies, but we are closer.  

    As we get closer to intermediate-term lows, I pay more attention to Sentiment measures. So I'll be keeping an eye on Trader's Narrative because they have lots of good content.

    I added a feature to the website this week.  A place where I link to the news that catches my eye.  I'll continue to post the best links here, and I'll have a bunch more for you on the blog.

    Here are a Few of the Business Posts I Found Interesting This Week:

    • VC's Top-Ten Reasons Start-Ups Fail. (Tim Draper)
    • What Warren Buffet Told His Shareholders? (CNBC)
    • PDF of Buffet's Berkshire Hathaway 2008 Annual Letter to Investors. (BH)
    • The Smart Growth Manifesto – It's Time to Reboot Capitalism. (Harvard Business)

    And, Here are a Few More Lighter Ideas and Fun Links:

    • A Nice Collection of Ancient Greek Wisdom and Quotes. (MSU)
    • Nation Instinctively Forms Breadline – Gallows Humor. (The Onion)
    • India Patenting Yoga Move to Protect Them from Western Pirates. (Neatorama)
    • A Site for Amazon Kindle Users. (Kindle Nation)

  • The Anxiety Antitidote

    090227 Pigs at Trough

    "When the trough gets smaller … the pigs get meaner."

         – Dan Sullivan


    Likewise, in uncertain times, it is natural for people to worry that there will be less for them. 

    But it doesn't have to be that way.

    All We Have To Fear Is Fear Itself.  I keep talking about market psychology and human nature. The reason is that markets are really a reflection of the collective fear and greed of its participants. And people tend to get paralyzed during scary times like these.

    But it's not the economy that makes people feel paralyzed.
    People feel paralyzed because of their reactions and their beliefs
    about the economy.

    A little examination reveals that most fear is based on a "general" rather than a "specific" trigger. In other words people are afraid of all the things that could happen and are paralyzed by the sheer scope of possibilities. These things don't even have to be probabilities in order to scare them.

    Your Antidote to Anxiety.  You gain a competitive advantage as soon as you recognize that it's
    simply human nature when you "make things up" to scare yourself.  Why? 
    Because as soon as you distinguish that fear is just an automatic
    response and not necessarily "true", you can re-use your energy and
    insights to focus on things that move you forward.

    It's easy to be a lot more resourceful by simply dealing with the specific items, and coming up with a plan to deal with them or transform them into opportunities.

    Even a tough environment, like this, presents you with opportunities if you watch for them … or even better, if you create them.

  • The Anxiety Antitidote

    090227 Pigs at Trough

    "When the trough gets smaller … the pigs get meaner."

         – Dan Sullivan


    Likewise, in uncertain times, it is natural for people to worry that there will be less for them. 

    But it doesn't have to be that way.

    All We Have To Fear Is Fear Itself.  I keep talking about market psychology and human nature. The reason is that markets are really a reflection of the collective fear and greed of its participants. And people tend to get paralyzed during scary times like these.

    But it's not the economy that makes people feel paralyzed.
    People feel paralyzed because of their reactions and their beliefs
    about the economy.

    A little examination reveals that most fear is based on a "general" rather than a "specific" trigger. In other words people are afraid of all the things that could happen and are paralyzed by the sheer scope of possibilities. These things don't even have to be probabilities in order to scare them.

    Your Antidote to Anxiety.  You gain a competitive advantage as soon as you recognize that it's
    simply human nature when you "make things up" to scare yourself.  Why? 
    Because as soon as you distinguish that fear is just an automatic
    response and not necessarily "true", you can re-use your energy and
    insights to focus on things that move you forward.

    It's easy to be a lot more resourceful by simply dealing with the specific items, and coming up with a plan to deal with them or transform them into opportunities.

    Even a tough environment, like this, presents you with opportunities if you watch for them … or even better, if you create them.

  • First Impressions of the New Kindle.

    090227 Kindle

    Frankly, I didn't think I would love it. I was wrong.  Perhaps more important than just "loving it", I like using it.

    It's thin, light, and easy-to-read. At first I wasn't sure it felt right … But, at first, I didn't buy the leather cover. Believe it or not, that made a big difference. I like that it now feels like a "book" in my hands. There is a lot to like, and I got used to it very quickly.

    A Mini Feature Review:  Here are the basics.

    • Terrific Display: it uses fast and crisp E-Ink technology;
    • Huge Capacity: it will hold over 1,500 books;
    • Wireless: it has built-in free access to Sprint's data network;
    • Great Battery Life: it lasts for more that 4-days worth of reading, even with the wireless on;
    • Built-in Keyboard: to annotate text, or to use search capabilities and the Internet;
    • Text-to-Speech: surprisingly well done and useful while driving or doing things.

    Looking Good Is A Good First Step.  While I was waiting for my Kindle to come, I guess the thing I questioned most was whether I'd actually read on it.  Right out-of-the-box, my first impression was that the Kindle had a great display.  I took it outside, and it still looked terrific, even in the bright sunlight. I did have to adjust the font size for it to feel "right" to me. However, it was easy to figure out what felt
    natural (and here is a hint for the older readers … at night, a slightly bigger size is what feels natural to
    me).

    090227 Kindle Is Pencil-Thin
    Having Lots Of Things To Read Is Nice Too    . Carrying a bookcase full of books in pencil-thin package is pretty cool.

    There's over a quarter million books available for the Kindle, and that number is growing rapidly. Many best-sellers are just $9.99, which is much cheaper than the paper versions.  In addition to books, Amazon has made it easy to read web and blog content with the built-in browser and free Sprint data network. Also, you can convert and transfer Microsoft Office and PDF files by e-mailing them to your Kindle's e-mail address.

    Cheap Is Good, Free is Better.  To get you used to reading on the Kindle and using Amazon's store to get the content, they've made an impressive amount of books free. The first book I downloaded was a free copy of the Bible. I heard it was a Good Book. That's good business on many levels.

    Download Sample Chapters To Make Sure You Like It.  Taking that concept a little further, Amazon also makes it easy to download a few sample chapters of many books to your Kindle before buying. This has already changed how I use Amazon, and it adds a key benefit that the storefront bookstores relied on, browsing several books to find the one that suits me. Now, I can do that anywhere and anytime.

    And once the sample is on your Kindle, it's only takes one-click to get the whole thing. It's all very fast, very convenient, and very clever marketing.

    Yes, I sense
    it's the future. And I'm a gadget guy who loves to play with the future
    early. However, I'm also a gadget guy who has a pretty big gadget graveyard for
    things that didn't work so well. The Kindle works well. I can tell
    because I'm using it more, not less.

    All-in-all, I'm impressed.  Next time, I will talk about the business implications of the Kindle on Amazon and its customers, competitors, and suppliers.  Till then, here are a few other links worth exploring.

  • First Impressions of the New Kindle.

    090227 Kindle

    Frankly, I didn't think I would love it. I was wrong.  Perhaps more important than just "loving it", I like using it.

    It's thin, light, and easy-to-read. At first I wasn't sure it felt right … But, at first, I didn't buy the leather cover. Believe it or not, that made a big difference. I like that it now feels like a "book" in my hands. There is a lot to like, and I got used to it very quickly.

    A Mini Feature Review:  Here are the basics.

    • Terrific Display: it uses fast and crisp E-Ink technology;
    • Huge Capacity: it will hold over 1,500 books;
    • Wireless: it has built-in free access to Sprint's data network;
    • Great Battery Life: it lasts for more that 4-days worth of reading, even with the wireless on;
    • Built-in Keyboard: to annotate text, or to use search capabilities and the Internet;
    • Text-to-Speech: surprisingly well done and useful while driving or doing things.

    Looking Good Is A Good First Step.  While I was waiting for my Kindle to come, I guess the thing I questioned most was whether I'd actually read on it.  Right out-of-the-box, my first impression was that the Kindle had a great display.  I took it outside, and it still looked terrific, even in the bright sunlight. I did have to adjust the font size for it to feel "right" to me. However, it was easy to figure out what felt
    natural (and here is a hint for the older readers … at night, a slightly bigger size is what feels natural to
    me).

    090227 Kindle Is Pencil-Thin
    Having Lots Of Things To Read Is Nice Too    . Carrying a bookcase full of books in pencil-thin package is pretty cool.

    There's over a quarter million books available for the Kindle, and that number is growing rapidly. Many best-sellers are just $9.99, which is much cheaper than the paper versions.  In addition to books, Amazon has made it easy to read web and blog content with the built-in browser and free Sprint data network. Also, you can convert and transfer Microsoft Office and PDF files by e-mailing them to your Kindle's e-mail address.

    Cheap Is Good, Free is Better.  To get you used to reading on the Kindle and using Amazon's store to get the content, they've made an impressive amount of books free. The first book I downloaded was a free copy of the Bible. I heard it was a Good Book. That's good business on many levels.

    Download Sample Chapters To Make Sure You Like It.  Taking that concept a little further, Amazon also makes it easy to download a few sample chapters of many books to your Kindle before buying. This has already changed how I use Amazon, and it adds a key benefit that the storefront bookstores relied on, browsing several books to find the one that suits me. Now, I can do that anywhere and anytime.

    And once the sample is on your Kindle, it's only takes one-click to get the whole thing. It's all very fast, very convenient, and very clever marketing.

    Yes, I sense
    it's the future. And I'm a gadget guy who loves to play with the future
    early. However, I'm also a gadget guy who has a pretty big gadget graveyard for
    things that didn't work so well. The Kindle works well. I can tell
    because I'm using it more, not less.

    All-in-all, I'm impressed.  Next time, I will talk about the business implications of the Kindle on Amazon and its customers, competitors, and suppliers.  Till then, here are a few other links worth exploring.

  • Capitalogix Commentary 02/20/09

    090220 Political Cartoon Will Hope for Work
    When America voted for Hope and Change – I don't think they expected to be hoping for a dollar and settling for two dimes, a nickel and a penny.

    Market Hits New Crisis Low:

    It has been ugly.  One sign that the Markets are having trouble is that Gold touched $1,000 for first time in a year.

    Another sign the markets are having trouble? The Dow Jones Industrial Average now has lost
    nearly half its value, breaking to a new six-year low.

    On one hand this seems to confirm people's fears that  stock
    declines aren't over, and dashes
    hope for a quick market recovery.  On the other hand, things don't bounce till they hit bottom.

    Will dry powder ignite the stock market? One bullish argument rests on the
    piles of cash sitting in bank accounts and money-market funds earning
    next to no interest.  As deal-maker's fingers get itchy and companies
    get more desperate for cash, many expect a flurry of deals.

    This Week's Chart:

    Unlike the Dow, the S&P 500 has not made new lows.  It did, however, just break a clear trend-line.

    090220 SP500 Gaps Down Out of Triangle Pattern

    Most major US equity indices have been in a "Triangle" consolidation pattern (like the one shown in the chart above).

    You can think of the Triangle as a well-contested battle between the bulls and the
    bears.  Neither side has given-up much ground, yet.  Soon, though, one
    side will have had enough and the market will surge again. If it is a move up, then we get the relief rally people were looking for.  Even if you get a minor move down in the short-term, it can be constructive.  Here is why.

    The bear-swing down, from October through November, had a lot of
    momentum.  The consolidation worked-off a lot of that.  Consequently,
    another move down would result in many positive divergences – and would
    likely be strong support for the next rally.

    That doesn't mean the Bear Market would be over.  But an intermediate term rally would not surprise me here.  Especially as an OOPs trade.

    Here Are A Few Of The Business Posts I Found Interesting This Week:

    • Can This Be True? Federal Obligations Exceed GDP of Entire Planet. (WorldNet)
    • Pledge of $275 Billion to Cut Mortgage Payments & curb foreclosures. (Bloomberg)
    • Soros Sees No Bottom For World Financial Collapse, And Volcker Agrees. (Reuters)
    • Economists' Droopy Outlook for the US. (WSJ & Bloomberg)
    • Harvard Prof’s Plan for Saving the Financial System. (Creative Capital)
    • Is Starbucks a Leading Indicator of the Economy? (Inquirer)
    • Be Leery of Dow Theory – Does It Still Mean What It Used To? (Barrons)

    And, A Little Bit Extra:

    • Nature Versus Nurture: The Dynamics of Success. (TraderFeed)
    • Clever E-Cards For Many Occasions – Very Funny Stuff. (Someecards.com)
    • The Biology of Dating: Why Him, Why Her? (Time)
    • Psychologists' Worry: Medication May Erase Bad Memories. (MSNBC)
    • "Deliciously Gross" Heart-Attack Inducing Food. (This Is Why You're Fat)
    • Vintage Tobacco Ads; Apparently They'd Do Anything To Sell You Cigarettes. (Click)

  • Capitalogix Commentary 02/20/09

    090220 Political Cartoon Will Hope for Work
    When America voted for Hope and Change – I don't think they expected to be hoping for a dollar and settling for two dimes, a nickel and a penny.

    Market Hits New Crisis Low:

    It has been ugly.  One sign that the Markets are having trouble is that Gold touched $1,000 for first time in a year.

    Another sign the markets are having trouble? The Dow Jones Industrial Average now has lost
    nearly half its value, breaking to a new six-year low.

    On one hand this seems to confirm people's fears that  stock
    declines aren't over, and dashes
    hope for a quick market recovery.  On the other hand, things don't bounce till they hit bottom.

    Will dry powder ignite the stock market? One bullish argument rests on the
    piles of cash sitting in bank accounts and money-market funds earning
    next to no interest.  As deal-maker's fingers get itchy and companies
    get more desperate for cash, many expect a flurry of deals.

    This Week's Chart:

    Unlike the Dow, the S&P 500 has not made new lows.  It did, however, just break a clear trend-line.

    090220 SP500 Gaps Down Out of Triangle Pattern

    Most major US equity indices have been in a "Triangle" consolidation pattern (like the one shown in the chart above).

    You can think of the Triangle as a well-contested battle between the bulls and the
    bears.  Neither side has given-up much ground, yet.  Soon, though, one
    side will have had enough and the market will surge again. If it is a move up, then we get the relief rally people were looking for.  Even if you get a minor move down in the short-term, it can be constructive.  Here is why.

    The bear-swing down, from October through November, had a lot of
    momentum.  The consolidation worked-off a lot of that.  Consequently,
    another move down would result in many positive divergences – and would
    likely be strong support for the next rally.

    That doesn't mean the Bear Market would be over.  But an intermediate term rally would not surprise me here.  Especially as an OOPs trade.

    Here Are A Few Of The Business Posts I Found Interesting This Week:

    • Can This Be True? Federal Obligations Exceed GDP of Entire Planet. (WorldNet)
    • Pledge of $275 Billion to Cut Mortgage Payments & curb foreclosures. (Bloomberg)
    • Soros Sees No Bottom For World Financial Collapse, And Volcker Agrees. (Reuters)
    • Economists' Droopy Outlook for the US. (WSJ & Bloomberg)
    • Harvard Prof’s Plan for Saving the Financial System. (Creative Capital)
    • Is Starbucks a Leading Indicator of the Economy? (Inquirer)
    • Be Leery of Dow Theory – Does It Still Mean What It Used To? (Barrons)

    And, A Little Bit Extra:

    • Nature Versus Nurture: The Dynamics of Success. (TraderFeed)
    • Clever E-Cards For Many Occasions – Very Funny Stuff. (Someecards.com)
    • The Biology of Dating: Why Him, Why Her? (Time)
    • Psychologists' Worry: Medication May Erase Bad Memories. (MSNBC)
    • "Deliciously Gross" Heart-Attack Inducing Food. (This Is Why You're Fat)
    • Vintage Tobacco Ads; Apparently They'd Do Anything To Sell You Cigarettes. (Click)

  • Is Genius Something You Have or Something You Are?

    090220 Light of Inspiration Framed By Hands
    Some of my greatest accomplishments seemed almost effortless when they happened.

    Some people call it "Flow" while others call it "Being-In-The-Zone". You've probably experienced the same thing.

    Genius may be related to that. As I think of it, some of my best ideas seemingly came to me fully-formed.

    For example, in 2003 I had a breakthrough discovery resulting in an algorithm now used in a series of trading systems. Leading up to that point, I had spent quite a long time thinking about every little aspect in detail; and the progress had come slowly and painfully. Then, whoosh, it's like the whole thing came all at once.  I say (and I believe) that it came to me, through me, and from me.  But I still don't know how or why it happened.  It is almost like I was television
    or radio receiver that somehow got turned into a channel broadcasting something worthwhile.

    Since then, I've tried to re-create the environment, my work process, anything to bring back that feeling of inspiration, innovation and progress.  And I have had moments like that from time-to-time.

    The Ted Talk Video on Genius:

    This video is about the process I described above.  It is about "Genius" and whether it's something you "Have" or something you "Are".

    While this video does not provide answers, hopefully it will stimulate a thought process and provoke some ideas and discussions that you find helpful and enjoyable. I know it did for me.

    Here is the direct link.

    Elizabeth Gilbert, the author of Eat, Pray, Love, muses on the impossible things we expect from artists and geniuses — and shares the idea that, instead of the rare person "being" a genius, all of us "have" a genius.

    Also, here's a link to a website that lists the daily routines and work process that
    various famous people have used. I found some interesting things there.

  • Is Genius Something You Have or Something You Are?

    090220 Light of Inspiration Framed By Hands
    Some of my greatest accomplishments seemed almost effortless when they happened.

    Some people call it "Flow" while others call it "Being-In-The-Zone". You've probably experienced the same thing.

    Genius may be related to that. As I think of it, some of my best ideas seemingly came to me fully-formed.

    For example, in 2003 I had a breakthrough discovery resulting in an algorithm now used in a series of trading systems. Leading up to that point, I had spent quite a long time thinking about every little aspect in detail; and the progress had come slowly and painfully. Then, whoosh, it's like the whole thing came all at once.  I say (and I believe) that it came to me, through me, and from me.  But I still don't know how or why it happened.  It is almost like I was television
    or radio receiver that somehow got turned into a channel broadcasting something worthwhile.

    Since then, I've tried to re-create the environment, my work process, anything to bring back that feeling of inspiration, innovation and progress.  And I have had moments like that from time-to-time.

    The Ted Talk Video on Genius:

    This video is about the process I described above.  It is about "Genius" and whether it's something you "Have" or something you "Are".

    While this video does not provide answers, hopefully it will stimulate a thought process and provoke some ideas and discussions that you find helpful and enjoyable. I know it did for me.

    Here is the direct link.

    Elizabeth Gilbert, the author of Eat, Pray, Love, muses on the impossible things we expect from artists and geniuses — and shares the idea that, instead of the rare person "being" a genius, all of us "have" a genius.

    Also, here's a link to a website that lists the daily routines and work process that
    various famous people have used. I found some interesting things there.