Capitalogix

Here Are Some Links for Your Weekend Reading

You probably heard that Apple avoided $9.2 Billion in U.S. Taxes with its recent debt deal.  Here is one way to try and fix that ...

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The Wisdom of Psychopaths? What can you learn from someone without a conscience? (SciAm)
• How Many Friends Can You Realistically Have? The Dunbar Number answers. (Businessweek)
• Nate Silver: What Big Data Can't Predict. (Fortune Tech)
• United States Postal Service Is Losing $25 Million A Day. (HuffingtonPost)
• Where Mail With Illegible Addresses Goes to Be Read. Once at 55 centers, one of two remaining centers will close. (NYTimes)

 

Trading Links:

• Bill Gates is Back to Being the World's Richest Person. Remain calm and carry on ... (SeattlePI)
• World’s Richest Hedge Fund Managers & Traders. (Forbes)
• A New Era for Do-It-Yourself Investing. (Wall Street Journal)
• SEC Plans Tighter Oversight of Computer Trading. (CBS News)
• Startup Valuations Remain Strong, But 'Down Rounds' Increase to 28% of all VC Deals. (Geekwire)

The Rally Continues, Even Though Smart Money Expected a Short-Term Top

Traders are often confronted by mixed signals. 

Personally, when I have to choose between something straightforward or something complex - simple is better.

For example, when large "Smart Money" traders show their directional bias, it often pays to follow in their tracks.

Another technique would be to bet against the smaller retail "Dumb Money" traders (because, historically, they are often wrong at major turning points.

However, if I have to decide between following "Smart Money" or doing the opposite of what "Dumb Money" does ... then in the absence of other information, following Smart Money wins because it is more straightforward and simpler.

Here is an example.

Smart Money - Dumb Money Confidence Index.

The chart, below, compares the bets made by small traders (a.k.a. the "Dumb Money"), to those of large commercial hedgers (a.k.a. the "Smart Money").

In practice, Confidence Index readings rarely get below 30% or above 70% (they usually stay between 40% and 60%). When they move outside of those bands, it's time to pay attention.

Even more noteworthy is when there is a wide confidence spread with bullish bets by the Dumb Money and bearish bets by the Smart Money. This type of sentiment spread only happens a few times a year. We often get substantial bullish reversals when that happens.

So, early last week, I took notice of this chart from SentimentTrader. The confidence spread it shows was pretty close to extreme levels.

 

Conventional trading wisdom says that Crowds are usually wrong at turning-points.  That doesn't mean they are wrong all the time (yet, as discussed, it makes sense to notice when the Smart Money clearly disagrees). So, after such a strong rally, this is the kind of data that causes me to pay closer attention.

The Markets had been selling-off a litte.  Would this be  a trend-break or a buying opportunity?  Would Smart Money start actively making Bearish bets?

As the next chart shows, two days was all it took to get back to the status quo.

 

 

That is why trend following works.  Price is the primary indicator, and until it breaks down, dips will be met with buying.

Infographic: Is Your State's Highest-Paid Employee A Coach? (Probably)

Sports are Big Business.

You may have heard that the highest-paid employee in each state is usually the football coach at the largest state school. Don't believe everything you read ... Sometimes it is the basketball coach.

 

Deadspin via Flowing Data.

Remember, though, the bulk of this coaching money—especially at the big football schools—is paid out of the revenue that the teams generate (not your tax dollars).

It is not limited to big State schools.  I went to Duke, which is a small liberal arts college.  Their basketball coach, Mike Krzyzewski (better known as 'Coach K'), took home about $10MM.  Good work if you can get it.

Watch as Astronaut Chris Hadfield Covers Bowie’s ‘Space Oddity’ in Space

Life imitating Art.

Here is a version of David Bowie's Space Oddity, recorded by Commander Chris Hadfield on board the International Space Station.

Hadfield is not only an astronaut, he is a social media star who invited the world to experience space differently by sharing the photos and videos he captured during his stay on the International Space Station.

 

 

With deference to the genius of David Bowie, here's Space Oddity, recorded on Station. A last glimpse of the World. youtube.com/watch?v=KaOC9d…

— Chris Hadfield (@Cmdr_Hadfield) May 12, 2013

 

 

In the clip, Hadfield floats around the space station singing the 1969 track (with modified lyrics such as, “Ground control to Major Tom, lock your Soyuz hatch and put your helmet on,”) and playing an acoustic guitar while gazing at Earth from space.

Kind of fun to watch.

 

Here Are Some Links for Your Weekend Reading

If eating bacon really took minutes off your life ... I'd be in trouble.  Good thing I don't believe conventional nutritional theories.

  

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• No Bias Here? Bill Gates Thinks iPad Is ‘Frustrating’ To Use [VIDEO] (RedmondPie)
• Entrepreneurship According To Drucker. Your 12 Keys To Success (Forbes)
• Free Reprints of Steve Blank's “Why the Lean Startup Changes Everything”. (HBR)
• Fake Meat for the Masses? (Inc.)
• Are Superstitions Rational? (WhyWeReason)

 

Trading Links:

• So If The PC Is Dying, What Happens With Microsoft Next? (Forbes)
• Colorful Microsoft Infographic Shows Company's Divisions. (NeoWin)
• Silicon Valley North? Canada’s New ‘Startup Visa’ Program Could Start Talent War. (VentureBeat)
• The Class of 2013 is Seeing the Highest Salaries Since the Great Recession. (QZ)
• Forbes Real-Time Billionaires. Track the biggest gains and losses of the day for the major public holdings of a select group of billionaires. (Forbes)

Are You Surprised By What Has Happened in the Year After Facebook's IPO?

A year ago, investing in Apple and Facebook seemed like 'smart' choices.

Back in February 2012, when Facebook announced its plans to go public, the tech world went crazy. The hype was enormous over what many believed would become one of the biggest IPOs of all time.

On May 18, Facebook started trading at $38, giving the company an implied valuation of $104 billion. Unfortunately, what was supposed to be a sure shot investment, hasn't turned out that way. On its first trading day, the stock closed just above its IPO price but only thanks to the company’s underwriters, led by Morgan Stanley, who bought heavily to keep the stock above its offering price.

The next week, Facebook’s stock began crashing, and it did so until it hit rock bottom at a price of $17.73 on September 4th. Those who had bought shares at the offering price of $38 had lost 54 percent of their initial investment in less than four months.

After Facebook’s biggest lockup expiration in November did not trigger the feared fire sale, Facebook’s stock slowly started to recover. Carried by decent results and the introduction of mobile advertising products, the stock gradually climbed back up; but as of yesterday it was still closer to its all-time low than it is to its IPO price.

Those who bought Facebook shares at $38 are still down 30 percent, and there are countless investments that would have yielded better results over the past year.

Remarkably, even AOL and Yahoo, both Internet companies of the first generation, which had already been pronounced dead, would have been much better investment choices than the much hyped Facebook IPO.

 

 via Statista.

Had you invested $1,000 in Yahoo shares a year ago, you would have $1,787 today, instead of the $688 that Facebook’s early investors have left.

Who knew?

Related articles

One Year Later, What We've Learned from Facebook's IPO

See? A Year Later, No One Cares About Facebook's IPO Flop

Morgan Stanley's happy Facebook anniversary

Tableau Software's IPO Pops Big: Shares Skyrocket Up ~60% (DATA)

Out with the Old ... In with the New. This Is What Creative Destruction Looks Like.

The chart below shows how an industry leader got replaced by an upstart.

 

No surprise here; you have seen it happen before.

Given enough time, the victor of many battles is still likely to lose the war.  Positions of strength (which were won through hard work and much strategy) are often wiped away in what seems like an instant.

Successful companies are not immune to competition or entropy.  As proof, the capitalist landscape is littered with the corpses of established products toppled by newer, cheaper products that (over time) got better and became a serious threat.

What Causes An Established Leader to Falter?

A closer inspection might suggest a deeper truth.  Perhaps this marketplace shift happens when the established player places too great an emphasis on satisfying their customers' current needs (for example, myopically focusing on what got them here, rather than 'skating to where the puck will be ..."). 

In other words, companies are lulled into a false sense of security (by their progress, talent, infrastructure, etc.) and fail to adapt or adopt new technology that will meet customers' unstated or future needs.  Consequently, such companies eventually fall behind.

The Chart Above Shows Only One of the 'Ripples'.

The chart in this post shows AOL (which was the first mass entry point to the Internet and e-mail) and how 'Broadband' was captured by someone else (Netflix).  But it didn't just happen here.  What about Blockbuster? Don't you think their executives saw Netflix coming?  Still, somehow, a smart group of people chose to stick with their 'bricks and mortar' business model ... and lost billions in shareholder value.

This creative destruction is a tectonic force in our marketplace. There have been books written on it (like Clayton Christiansen's the "Innovator's Dilemma"), and yet it's often surprising what happens.

Huge Shifts Are Happening All Around You.

When the Internet first gained popularity, who suspected a whole generation of Americans would 'cut-the-cord' and still be able to watch TV and movies on portable devices? Neither of my sons owns a TV. Many in that generation don't subscribe to cable at their house. Why?  Because they take for granted that they are able to stream the content they want to the device of their choice.

That means someone is winning and someone is losing.

The 'Old Way' Is Constantly Fading Away.

Sometimes I buy fitness supplements from a small nutrition shop next to the gym I attend. It would be cheaper and easier to buy it online; but, I want to support a local merchant (and have someone to talk to if I have questions). But how long will that last?  I certainly don't buy computers at a computer store (or books at a book store).

Likewise, when I first started trading, I talked to my broker often. It was comforting to know that I wasn't alone in the dark. But when was the last time you called a broker truly expecting a tradable insight or a real edge?

Electronic trading is driving prices down, and I don't see how traditional financial service institutions can avoid the creative destruction of their old business models. I'm not just talking about how they interface with customers, even how they trade and manage risk has to change.

That doesn't mean that a new business model won't arise. Of course it will. The point is just because something's been done a certain way for decades, doesn't imply it's right. In fact, it is a neon sign pointing to a strategic danger or opportunity (depending on your perspective).

It is often by standing on the shoulders of the past that we are able to gaze into the future.

A change is coming.

Here Are Some Links for Your Weekend Reading

Love this illustration of Thinking versus Doing.

 

 

Here are some of the posts that caught my eye. Hope you find something interesting.

 

Lighter Links:

• The 12 Things That Successfully Convert a Great Idea Into a Reality. (Forbes)
• What Will You Create to Make the World Awesome? (Harvard Business Review)
• Lost In the Cloud. How safe are your online files and secrets. (NewScientist)
• Humans Can Feel Empathy Toward Robots. That's just what SkyNet wants us to do. (Popsci)
• Iron Man 3 to Get Smell-Enhanced Screenings in Japan. (Wired)

 

Trading Links:

• 20 Dramatic Predictions for 2030. (Staff.com)
• What Nassim Taleb Misses About Technology and Innovation. (Forbes)
• Why You Should Care Cybersecurity Lobbying Doubled. (Mashable)
• How Big Data Is Changing the Whole Equation for Business. (Wall Street Journal)
• Data Leak Reveals Big Secret Trove of Global Wealth in Offshore Bank Accounts and Shell Companies. (NYTimes)

SNL Parody of Early Google Glass Use

Sometimes it pays not to be an early adopter.

Here is a Saturday Night Live parody of early Google Glass use.

 

 

or try this version (because the SNL link was down for a while).

 

 

 

The Google Glass Stare does not seem natural yet.  Not sure how long it will take to get used to.  For example, imagine having someone like this in a meeting dealing with sensitive data. A little creepy?

 

via White Men Wearing Google Glass.

Are you getting a pair?

Are the New Market Highs the Start of Something Bigger?

The Markets are in rarefied territory.

Have you been waiting around to "buy the dip" on this latest stock market rally? If so, you have been waiting a long time. 

The Dow and the S&P 500 surpassed their all-time highs.

How Strong is the Up-Trend?

 

The chart below compares equity markets to their three year highs. Thus, if a market is shown to be at 100%, then it's currently at a new three year equity high. If not, then the percentage number indicates how close it is to reaching a new equity high. 

Looks pretty strong, globally; doesn't it?

 

Also visit the Drawdowns Metric page to view historic equity high watermark charts.

 

Does the economic, valuation, and political background support the budding euphoria? It just doesn't matter.  Traders know that when Markets go up on bad news ... that is bullish.

 

No Pull-Backs to Speak Of - That is Bullish Too.

 

Risk can be defined in many ways ... the two Russell 2000 charts below focus on a variety of drawdown risk measures that provide prospective on past risk and potential opportunity.

The Russell 2000, shown as a black line in each chart, is making new highs. In the chart below, the pink curve, shows the draw-downs from prior high water marks.  The green diamonds (at the zero line) show new highs.  This chart shows the past three years.

 

Drawdown Definitions

• Current Drawdown: Open loss since last underwater equity high.
• Maximum Drawdown: Largest peak-to-valley loss.
• Underwater Volume Index: Accumulation of all drawdown periods.
• MAR: A ratio that compares Reward, defined as Compounded Annual Growth Rate (CAGR)
  to  Risk, defined as Maximum Drawdown.

 

To get a different perspective, the next chart smoothes the Under-Water Index (drawdown curve), by taking a twelve week moving average of it.  It is a good way to identify potential turning points for the Russell 2000.

 

The Blue circles and Green squares signify possible tops and bottom for the market.

One of the ways to use the rolling UVI chart is as a longer-term trend based indicator by watching the general direction of the UVI. If it's moving higher we might expect bullish systems to fare better, while if it's trending lower we might look for bearish systems to trade more effectively.

Right now there is a negative divergence.  It is underwater while the market makes new highs.  This is where buying should come in ... if not, then this is an early warning.

To see this indicator on other markets, click here.

The Trend is your friend ... until it isn't.  But that is pretty easy to tell based on support and resistance levels and indicators like this.  Till then, enjoy it while you've got it.