Capitalogix

The Machine Age: IBM's Watson Wins on Jeopardy. What Does this Signal?

Image by Getty Images via @daylife

So, here is a new Jeopardy Question?

"The name of the machine that first won on Jeopardy."
Answer : What is IBM Watson ?

You probably heard that IBM's supercomputer Watson crushed human champions Ken Jennings and Brad Rutter in Jeopardy this week.

Here is a link to The Jeopardy Watson minisite.

Jon Stewart joked last night that "Apparently they have run out of qualified human contestants for Jeopardy."  Video below.

 

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Intro - Watson Competes on Jeopardy
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

 

The pace of technology is quickening ... The future is so close you can build it.

Related articles

• Hot-Buzzer Topic: Did IBM's Watson Have an Advantage on 'Jeopardy!'? (dailyfinance.com)
• Engineers applaud as Watson beats humans in Jeopardy! (newscientist.com)
• IBM's Watson Gets a Beating on Conan (mashable.com)
• Why Watson's Win Doesn't Make Humanity Obsolete ... Yet (mashable.com)

Capitalogix Commentary 02/14/11 - Insider Transactions Show Lots of Selling

While markets continue higher. Questions remain about how much of the recovery is manufactured.

 

Good thing it's Valentine's Day and we can share our true feelings with each other.

Insider Transactions Show Lots of Selling.

According to Mark Hulbert, corporate insiders have been selling for more than a few weeks while the market has been going up.

While that means the people with the most inside knowledge are selling ... it hasn't changed the fact that stimulus continues to push prices higher. Price is the primary indicator.  While the torrent of insider selling is unmistakeably bearish, the market has ignored the less important measure.

Here is the insider transaction ratio based on data from Thomson Financial:

Meanwhile, while corporate insiders as a group are busy selling their company’s shares as fast as they can, they have no qualms about issuing buy backs of those same shares with the corporations money. According to Trader's Narrative, US share buybacks are at the highest level since the fall of Lehman Bros. Last week, $27.3 billion buybacks were announced – the highest since September 2008. Companies are continuing to use their massive cash hoard to repurchase shares.

This may make shareholders happy and drive per share earnings growth but many fret that this is a sign that performance is once again being artificially manufactured instead of earned through profitable performance or growth. According to research from Citigroup, 37% of the per share growth of earnings in the S&P 500 may be traced back to buybacks if they match last year’s pace.

Business Posts Moving the Markets that I Found Interesting This Week:

• A Major Top is Unlikely Soon. (Barrons)
• Is Financial Innovation a Good Thing? (Economist)
• Will Intelligent Machines Revolutionize the World's Economy? (Post-Gazette)
• Is the Fed's Meddling Only Prolonging the Financial Crisis? (DailyReckoning)
• What Grows An Economy? Start-Ups That Grow to a Billion Dollars in Revenue. (Forbes)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Mental Muscle - Six Ways To Boost Your Brain. (Science&Tech)
• The Next Hacking Frontier -- Your Brain? (Wired)
• What Online Ad Companies Know About You?  Everything. (Newser)
• The Pentagon's New Cyber-Warriors (Reuters)
• Power Vegans: What do Steve Wynn & Bill Clinton and have in Common? (BWeek)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• What's Behind the Share-Buyback Binge? (dailyfinance.com)
• S&P 500 Stock Buybacks Up 128% (crossingwallstreet.com)
• Intel Adds $10 Billion for Buybacks as Profit Rises (businessweek.com)

Capitalogix Commentary 02/07/11 - The FED's Response to a Perpetual Cycle of Weakness

As Markets continue higher, more people wonder how that reflects the real economy?

Meredith Whitney's Perpetual Cycle of Weakness.

Why is Meredith Whitney so bearish on things?  Business Insider has some insights on the subject. Perhaps it is because she sees the economy as a perpetual cycle of weakness.

Basically, as she sees it, job destruction leads to increased foreclosures, which in turn leads to lower real estate values, which then leads to lower tax revenues, which causes state budget gaps, etc.



For more, see "The Meredith Whitney Muni Bond Report That Insiders Have Been Passing Around".

So, What's Keeping the Market Moving Higher?

In short, the answer is that the Fed is printing money.

Officially the Federal Reserve System has a dual mandate, promote price stability and maximum employment. Now it has admitted to a third one, pushing stock prices higher via its quantitative easing policy.

During a recent CNBC interview, Steve Liesman asked Bernanke how he could claim QE2 was a success even though both interest rates and commodity prices have risen considerably since he first announced it.  Bernanke’s response:

“Policies have contributed to a stronger stock market just as they did in March 2009, when we did the last iteration of this. The S&P 500 is up 20% plus and the Russell 2000, which is about small cap stocks, is up 30% plus.”

Permanent Open Market Operations.

According to the NY FED, Permanent Open Market Operations, or "POMO", are purchases or sales of securities on an outright basis that add or drain reserves and change the size of the System Open Market Account ("SOMA").  As you know, on November 3, 2010, the FOMC decided to expand the Federal Reserve’s holdings of securities in the SOMA to promote a stronger pace of economic recovery.

The chart below, from the McClellan Report, shows how well that technique has worked.

The Fed’s POMO actions are keeping the financial markets flush with cash, and the Markets are responding. However, Bernanke says he’ll quit QE2 in June.  What happens then?

In the meantime, be vigilant and enjoy the ride.

Business Posts Moving the Markets that I Found Interesting This Week:

• Smoke and Mirrors, or a Solid Market? Is the Economy About to Stall? (NYTimes)
• Deal-Making Returned in 2010. (McKinseyQuarterly)
• Chinese Banks Follow Their Customers to Europe (FT)
• Krugman Says the Road to Economic Crisis Is Paved With Euros. (NYTimes)
• Illinois Passes a Huge 66% Tax Hike. (BusinessInsider)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Visualization: Run Your Business the Way Aaron Rodgers Runs His Offense. (TES)
• Interesting Article: The A.I. Revolution Is On. (Wired)
• The Head of Content for Amazon's Kindle business Talks about the Future. (LATimes)
• Why Old Dogs Are the Best Dogs. (TheWeek)
• Gallup Poll: Top 5 Men and Women Admired By Americans. (CSMonitor)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• Putting the Gold Decline in Perspective (pragcap.com)
• Terrified Investors Sold Out Of Munis At Record Pace Last Week (MUN) (businessinsider.com)
• "I have seen this movie before," says Rosenberg (investmentpostcards.com)

Video Puts the World's Population of 7 Billion People in Context

With 24 hour a day news coverage and the Internet, the world seems to be getting smaller.

Population, however, is growing quickly. 

One-in-a-Million is one thing ... one-in-Seven-Billion is another.

 

With the worldwide population expected to exceed seven billion in 2011, this National Geographic magazine video provides a broad overview of demographic trends that got us to today ... and will impact us all tomorrow.

 

It is interesting, fast-moving, and made me think.  Worth the click.

 

 

 

Here is a link to photos from the 7 Billion series.

Check-Out more National Geographic Videos.

 

Related articles

• 7 Billion: Discussing Overpopulation (darkroastedblend.com)
• You: Debate 2.0: Is sustainable development still relevant? (ourworld.unu.edu)
• Oliver Uberti at TEDxNASA "Smash The Design Button" (chrisabraham.com)
• Amazing pictures of the world around us (mirror.co.uk)
• Want to Live With 42 Million People in a Megacity the Size of Switzerland? [China] (gawker.com)

Fox News Playing Where's Waldo With Egypt

Does Fox News know where Egypt is?

That country is actually Iraq. Egypt is in Africa. That's not even the same continent. Granted, most of us wouldn't know that either. That's why we occasionally watch the news — in the hopes that they know where countries are. (via SomeEcards)

Taking it a little further, here is another place Fox may think Egypt could be hiding.

Related articles

• The Egyptian revolution, as told by Fox News (salon.com)
• Interview With Hillary Rodham Clinton, Fox News. (jwitness.wordpress.com)
• Egypt: Breaking News Sources (ritholtz.com)

Capitalogix Commentary 01/31/11 - The State of the Union and the Market

The Economist has a funny map on its cover this week.  It shows the troubled state of our Union.

President Obama used different words to describe the State of the Union from his perspective.  Here is a Word Cloud.

According to CBS News, President Obama's State of the Union speech included more than 6,500 words, led by variations on "America," "people," "new" and "jobs," with "future," "work" and "years" also high in the word count. While word repetition doesn't offer any deep analysis of the speech, the broad message is clear: "American people need new jobs and work in future years."

Market Commentary

The Markets were ripe for a pull-back.  I say that only because the climb higher has seemed un-relenting, in the face of good or bad news.  Recently, technical indicators showed some underlying weakness, but price marched forward. Finally, this past week, we saw some selling pressure.

The real question isn't whether buyers will step back in, rather, it is whether sellers will apply some pressure.

Last week we got a GDP number that wasn't great, but it wasn't terrible either.  Combine that with the political unrest in Egypt, and some less than stellar earnings reports ... and the pull-back seems mild.

Let's look at the Volatility Using Bollinger Bands.

 

Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s. They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time.

The purpose of Bollinger Bands is to provide a relative definition of high and low.

Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band. The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average.

 

This chart shows that when price tests the 2 SD Band of the S&P 500 Index and comes back down ... the move can be significant.

 

Price is still the primary indicator.  This chart is just an early warning to pay attention.

So, What is Jim Rogers' Advice? ... One Word: "Commodities".

“If the world economy gets better, commodities are going to make a fortune. If the world economy does not get better, commodities are the place to be because they are going to print more money, and that’s how you protect yourself,” investor Jim Rogers told Larry Kudlow on CNBC.

“This is the time when you should own real assets, not stocks and bonds. Throughout history, go back and look, you know we had huge inflation in the 70s, stocks were not in a good place to be,” he said.

 

"Given the uncertainties surrounding the global economy, investing in commodities is your safest bet," says Rogers.

From my perspective, I'm watching where smart money asset flows point.  There is always something working in the markets.  Our job is to find what's working and avoid the rest.  Easy, right?

Business Posts Moving the Markets that I Found Interesting This Week:

• Hedge Funds' Pack Behavior Magnifies Market Swings. (WSJ)
• Just Re-Branding? Why Are High-Frequency Traders Getting a New Name. (Forbes)
• The Overconfidence Problem in Forecasting. (NYTimes)
• Twelve Things John Hussman Believes. (HussmanFunds)
• How Bloomberg Gets Earnings Reports Before They're Publicly Released. (BizInsider)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Lessons From the World of Aikido (PresentationZen)
• IBM's Watson Jeopardy Supercomputer Beats Humans In Practice. (CNN)
• Infectious Moods - How Bugs Control Your Mind. (NewScientist)
• Top 6 Private Sale Sites for the Best Travel Deals. (Mashable)
• Why Chinese Mothers Are Superior. (WSJ)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• Beware the word cloud (economist.com)
• State of the Union Word Cloud: Jobs, America, People, New (whitehouse.gov)
• Looking For Tops is as Easy as 1-2-3 (slopeofhope.com)
• Comparisons to the April 2010 Top (by Runedge) (slopeofhope.com)
• Three Things to Know About the GDP Report (yelnick.typepad.com)

Two Perspectives on China's State Visit

Sometimes humor tells a story official sources have trouble conveying.

Here are two political cartoons that put China's State Visit in perspective.

The first highlights the Agenda from the US point-of-view.  It is from Bruce Beattie, in the Daytona Beach News-Journal.

The second cartoon is perhaps more realistic, given that China is our biggest creditor. It is from Nate Beeler, in the Washington Examiner.

Related Articles

• China's Hu arrives in U.S. for state visit (reuters.com)
• No news from Hu Jintao's state visit - Jeremy Goldkorn (chinaherald.net)
• Watch Live: The China State Visit (whitehouse.gov)
• Powell sees improvement in ties between US-China (seattletimes.nwsource.com)

Capitalogix Commentary 01/24/11 - Market Tops Are Like Orgasms ...

As the markets hover in the rare air of their recent advances, there is a quote I've thought about several times recently.  It is a little colorful ... yet, it gets the point across.

Market Wizard, Ed Seykota, reminds that:

“Market tops are like orgasms. You have a sense its coming. Pulling out is the last thing on your mind. And then you go unconscious.”

 
Hat-tip to Michael Covel for finding that gem; even if I might want to re-phrase it a little, it is a good reminder.

 

Another Good Reminder Comes from David Einhorn.

BusinessInsider had an interesting piece on David Einhorn's criticism of Ben Bernanke in his fourth quarter letter to investors.  Here's what he wrote:

On August 27, 2010, Fed Reserve Bank Chairman Ben Bernanke gave a speech in Jackson Hole, Wyoming where he hinted that the Fed would provide additional monetary easing. At the time, the S&P 500 was down more than 3% for the year. From that point through the end of the year, the s&P rallied 19%. At the same time, oil prices rose 16%, copper prices rose 32%, coffee prices rose 34%, corn prices rose 43%, and cotton prices rose 57%.

In front of Congress, Mr. Bernanke credited his policies for "significant improvements in stock prices" which are "contributing to a better outlook for the economy." Mr. Bernanke also said his policies are not to blame for the sharp increase in the price of oil, which he claimed is the result of strong demand from emerging markets. Does Mr. Bernanke really believe anyone buys that? Ostensibly, it's a coincidence that many of the necessities of life came into simultaneous shortage and shot up in price just as Mr. Bernanke promised additional monetary stimulus.

Later in the letter, Einhorn continues the tirade against Bernanke for, among other reasons, that Bernanke told "60 Minutes" that he was 100% certain that the Fed could control inflation. Einhorn's take: "As for the future, we are 100% certain of nothing."

It will be interesting to watch what smart money does at these levels.  Policy often has Unintended Consequences.

Business Posts Moving the Markets that I Found Interesting This Week:

• Can Apple Become the Most Valuable Company In The World? (BusinessInsider)
• Apple Should Have $100 Billion in Cash by end of 2012 (Barrons)
• Is The Smart Money Right About China? (DianChu)
• Investors Poured $33 Billion Into Emerging Markets During Q3 2010. (Forbes)
• 10 Questions for Ben Bernanke. (Time)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• Approximately Correct Is Better than Precisely Incorrect. (HBR)
• Let’s End the Myth that Ideas are Worthless. (AssetMap)
• Research Proves Thinking Can Make You Thinner. (WSJ)
• Top 10 Greatest Mathematicians: Lots of Other Lists Too. (Listverse)
• Sex and Marriage with Robots by 2050? Not an Ex-Spouse Joke. (LiveScience)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• When does the Fed take away the punch bowl? (humblestudentofthemarkets.blogspot.com)
• QE2 and the Commodities That Cause Riots (minyanville.com)
• Revealed! The Stock-Picking Secrets Of David Einhorn (businessinsider.com)

The Law of Unintended Consequences Video

This video does a good job of explaining the unintended consequences of government programs that attempt to “solve” what is perceived as a problem, yet the solution causes more problems than it solves.

  via.

I don’t know anything about the National Inflation Association which produced this video, so it isn’t an endorsement of them. Just thought it was interesting.

Related articles

• Unintended Consequences Will Cause Bernanke's QEII to Fail (seekingalpha.com)
• Reason.tv: Great Moments in Unintended Consequences (reason.com)

Capitalogix Commentary 01/17/11 - The Stat That Proves Bears Can't Catch a Break

Beware What You Wish For ...

Bears just can't catch a break. 

The Market is holding up well.  By that, I mean it isn't going down well.

The Smallest "Biggest" Decline in 50 Years.

According to Bespoke, the Dow Jones Industrial Average hasn't had a 1% down day since before Thanksgiving; and Monday's 0.32% pullback is the biggest decline the index has had since the start of December. 

 

It is nearly unprecedented to go this long without having a one-day decline of at least one-third of one percent.  Over the last 50 years, Bespoke found just three other 30-trading day periods where the index had a maximum decline of just 0.33%. 

 

Back in April and May of 1965, the Dow went 30+ trading days without declining more than 0.15%.  Later on that same year, the Dow had another 30-day period where its biggest down day was just 0.32%.  And in 1963, the Dow's maximum one-day decline was just 0.33% over a 30-day period.

Can you really blame investors for being bullish when it's hard to remember what a down day feels like?

Until the Markets have a meaningful correction, Smile ... and stay watchful.

Business Posts Moving the Markets that I Found Interesting This Week:

• Top 10 Worst Moments in Fiscal Policy 2010. (CSMonitor)
• Algorithms Take Control of Wall Street (Wired)
• McKinsey Released Its Economic Conditions Snapshot. (McKQuarterly)
• John Bogle Warns That E.T.F.’s Are Risky for Market Timing. (NYTimes)
• RIM Thought iPhone Was Impossible In 2007. (iPhoneHacks)
• More Posts Moving the Markets.

Lighter Ideas and Fun Links that I Found Interesting This Week

• The Perils of the Prediction Game. (BusinessWeek)
• AI Defeats the Hivemind: How a Machine Learning Algorithm Beat the Masses. (TechReview)
• Extreme Fitness For a Hardcore Economy (Forbes)
• Check Out "If the Internet Had Always Existed". (CollegeHumor)
• Timelapse Video of the Recent Blizzard.  See it all in 20 seconds (Vimeo)
• More Posts with Lighter Ideas and Fun Links.

Related articles

• Sunday links: reverse brokering (classic.abnormalreturns.com)
• Sector Relative Strength: Recent Rotation (bespokeinvest.com)
• Weekly Sector Report | 01/14/11 (by Leisa) (slopeofhope.com)
• Is McKinsey still top dog? (blogs.freshminds.co.uk)