Capitalogix

Events & The Stock Exchange (1990 - 2018)

We all understand that events affect the stock market. Predicting what events will affect the stock market is an entirely different beast. 

Christian Spreafico put together an infographic website that tracks one key event per month, and that events effect on the monthly closure of the major stock exchanges. 

Events are split into categories: Politics, War, Terrorism, Calamity, Economy, Sports. 

At the top of the infographic, you can see the indexes' performance. Below, you can see the effect of the categories over time. 

The infographic starts with the US invasion of Panama, and ends with the beginning of the Yellow Vests Movement (a political movement for economic justice in France. 

via Christian Spreafico

It's fun to look through month-by-month and track the movement. 

An interesting inflection point I found started in July of 2010. At this point, the effect of politics on the global indices was negative. Issues with the European Union and Obama's election both caused drops. Since 2010, the effect of politics on the economy has been staggeringly positive (excluding the December 2015 UN Climate Change Conference). 

That includes a massive spike in the NYSE, NASDAQ, and TOKYO when Occupy Wall Street started in September of 2011.

Interest aside, I struggle with sharing this infographic because it's a gross oversimplification of the various driving factors of both our economy and markets. The biggest event isn't the only event and we don't know on which metric Christian decided which event was the biggest. In other words, correlation doesn't prove causation.

Nonetheless, if you don't take this too seriously, it's an interesting look back through time. 

What caught your eye?

Here Are Some Links For Your Weekly Reading, February 2nd, 2020

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

Lighter Links:

• MIT Professors Sound Alarm on US Falling Behind on AI. (CA)
• Doomsday Clock Moves to 100 Seconds to Midnight - Closest Point to Nuclear Annihilation Since Cold War. (FoxNews)
• The Bill Belichick Trade Turns 20 on Monday. (ProFootballTalk)
• Incentive Competitions and the Challenge of Space Exploration. (Interesting Engineering)
• How Time-Travel Works in Fiction: a Concise Breakdown of How Time Travel Functions in Popular Movies, Books & TV Shows. (OpenCulture)

 

Trading Links:

• Peter Diamandis: in the next 10 Years, We'll Reinvent Every Industry'. (TheGuardian)
• 5,000 Years of Interest Rates. (DailyReckoning)
• Will We Ever Stop Talking about the VIX? (RCM Alternatives)
• How to Make a Billion Dollars on Horse Racing. (Bloomberg)
• Tesla is More Valuable Than GM, Ford CombinedDespite Selling 98% Fewer Cars. (Observer)

 

 

Gong Xi Fa Cai!

Chinese New Year happened this weekend.

So, Gong Xi Fa Cai … which translates to "Best wishes for a prosperous New Year!"

I went to Indonesia to celebrate with Jennifer's side of the family in Jakarta.

It was nice to see her parents.

 

 

Here's a picture of the immediate family at this year's gathering. Quite a group. 

 

 

It's interesting to think about how many New Year celebrations there are.  In addition to Chinese New Year, the Muslims have Hari Raya Idul Fitri; Jews have Rosh Hashanah; of course, there is January 1st (and there are many others).

Which is correct?  I think the answer is all of them. Regardless of your chosen New Year, it provides an opportunity to celebrate, share, reflect, plan, and commit to the right actions.

As I think about it, the same principle applies to trading. It's all a matter of perspective.

At some level, there really isn't a correct answer as to which trading style is best. The best style is the one that works. Trading styles go in and out of phase, and if you get too attached to the style of trading, you get detached from profit.  As any experienced trader can tell you, edges decay, people catch on, trends change.

It is a lot easier to go to a party when there is a party to go to... The trick is finding the celebration in the first place.

Here Are Some Links For Your Weekly Reading - January 26th, 2020

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

 

Lighter Links:

• 8 AI Trends We're Watching in 2020. (O)
• Navigation Apps Changed the Politics of Traffic. (CityLab)
• There's No 'Going Dark:' Always-On Surveillance Posing Risks to US Covert Operations. (TD)
• 6 Predictions About Data in 2020 and the Coming Decade. (Forbes)
• Data is Only the Beginning. Connecting the Dots Creates Knowledge. However, It is Wisdom Which Translates Insights into Impactful Decisions. (LinkedIn)

 

Trading Links:

• How 5 Big Tech Companies Really Make Money. (Infographic)
• Capitalism Draws Fire, Despite Strong Global Economy. (Wall Street Journal)
• Immune Discovery 'May Treat All Cancer'. (BBC)
• How to Raise a Billionaire: Maye Musk on Where Elon Gets His Drive. (Forbes)
• Toyota Invests $394 Million in Electric Air Taxi Company Joby Aviation. (Forbes)

 

 

Super Bowl 2020

A friend has two tickets for the 2020 SUPER BOWL — both box seats. He paid $2,500 for each ticket, but didn't realize last year when he bought them that it was going to be on the same day as his wedding. If you are interested, he is looking for someone to take his place — it’s at St. Dominic's Church in San Francisco at 3pm. Her name is Melissa . She's 5'7 about 140 lbs. She's a good cook, too. She'll be the one in the white dress.

 

As for the Super Bowl, it seems like this will be a good matchup. The KC Chiefs are in it for the first time in 50 years (and have an amazing offense), while the 49ers are coming off a series of tough seasons (but have an amazing defense). It will also be a Super Bowl without Bill Belichick's scowl gracing our screens. 

It's not just the fans that are excited about the matchup, it's also the bookies. Two years ago, gamblers set a record by placing $158.6 million in Super Bowl bets. Expect more of the same with gambling now legalized in an additional 13 states beyond Nevada. 

 

If you're still looking for a bet – there's another wishful thinking approach you could take to find one ... it is called the "Super Bowl Indicator."

 

 

The theory is that a Super Bowl win for a team from the AFC foretells a decline in the stock market and a win for the NFC means the stock market will rise in the coming year. So, if you're hoping for a strong S&P you'd be rooting for 49ers. 

There's one big caveat ... it counts the Pittsburgh Steelers as NFC because that's where they got their start (or as a data scientist would caution ... they did that to fit the data better). 

With that "adjustment," at one point the SBI was "right" 33 years out of 41 - an 80% success rate. Sounds good, right?

Come on ... you know better. It's been wrong four of the last four years ... another sign of spurious correlation if you weren't sure. 

Here are some other "fun" stock market fallacies:

• January Indicator
• Aspirin Count Theory
• Hemline Indicator
• Sports Illustrated Swimsuit Indicator
• Men's Underwear Index

 

Back to Reality

Rationally, we understand that football and the stock market have little in common, and we probably intuitively understand that correlation ≠ causation. Yet, we crave order and look for signs that make markets seem a little bit more predictable.

The problem with randomness is that it can appear meaningful. 

Wall Street is, unfortunately, inundated with theories that attempt to predict the performance of the stock market and the economy. The only difference between this and other theories is that we openly recognize the ridiculousness of this indicator. More people than you would hope, or guess,  attempt to forecast the market based on gut, ancient wisdom, and prayers.

While hope and prayer are good things ... they aren’t good trading strategies.

As goofy as it sounds, some of these "far-fetched" theories perform better than professional money managers with immense capital, research teams, and decades of experience...

I have a thought experiment I sometimes ask people. 

What percentage of active managers beat the S&P 500 any given year?

... Now, what percentage beat the S&P 500 over 15 years?

Recently, the answer is about 5% (and that's in a predominantly bull market).  For the record, that's significantly worse than chance. Perhaps that means something they're doing is hurting, not helping. 

 

 via Gaping Void

There's simply too much information out there for us to digest, process, rank, and use appropriately.

Every second you spend looking at a market is a second wasted.

There are people beating the markets — not by using the Super Bowl Indicator ... they're doing it with more algorithms and better technology. 

There will never be less data or slower markets. A good reminder that if you don't know what your edge is ... you don't have one!

Onwards.

Here Are Some Links For Your Weekly Reading - January 19th, 2020

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

Lighter Links:

• Artificial Intelligence: How to Measure the I' in AI. (TheNextWeb)
• Samsung Sheds Light on Its 'Artificial Human' Project. (EnGadget)
• Secrets from a Former FBI Negotiator on How to Get What You Want. (TheLadders)
• Here's the Advice Mark Cuban Would Give His 20-Year-old Self. (CNBC)
• Want to Grow 10X? Here are 17 Books about Business and Life You Should Read in 2020. (TheLadders)

 

Trading Links:

• The Decade of the "Young Old" Begins. (WorldIn)
• 2019 A Year to Forget for Hedge Funds. (Benzinga)
• Fortnite Made $1.8 Billion in 2019. (CNN)
• Amazon Partners with Lamborghini, Rivian to Offer Alexa Voice Assistant in Vehicles. (CNBC)
• Apple Made Investors Half a Trillion Dollars Last Year. Time to Hedge Your Bets. (Barrons)

Law of Diminishing Returns

At some point, more of the same stops paying off ...

 

via Sketchplanations

Nature (and common sense) reminds us that equilibrium is important. For example, when you exercise too much you get injured, when you drink too much water you get poisoned, etc. 

This concept applies almost everywhere.

• It's why diversification is so important in portfolio construction theory. 
• Or, why you don't want to put all your eggs in one basket (concentrating your risk).
• And, my favorite, it's also why you shouldn't only eat vegetables.

 

A related nugget of wisdom from the extreme ... too much of a good thing is a bad thing. 

Here Are Some Links For Your Weekly Reading - January 12th, 2020

As the Australian wildfires rage on - an inestimable number of animals have died.

If you wish to donate to help relief efforts, you can do so with any of these trusted sources. 

• The Australian Red Cross
• GIVIT - Donating Essential items to Victims
• St. Vincent De Paul Society
• The Nature Conservancy Australia

 

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

Lighter Links:

• 20-year-old McDonald's Burger Still Looks Brand New, Smells like Cardboard. (FoxNews)
• Japanese Woman Turns 117 Years Old, Extends Record as World's Oldest Person. (Reuters)
• China Quietly Confirms a Third CRISPR-Edited Baby Has Been Born. (ScienceAlert)
• Pope Francis Apologizes for Losing His Patience after Slapping Woman's Hand. (FoxNews)
• Fresh Cambridge Analytica Leak Shows Global Manipulation is Out of Control'. (TheGuardian)

 

Trading Links:

• Jeff Bezos is Still the Richest Person in the World. (CNN)
• 4 High-Potential Sectors for AI and ML Startup Success. (Readwrite)
• Tesla Delivered 367,500 Cars Last Year. (CNN)
• The Market Surged Last Year. Don't Expect the Same in 2020. (New York Times)
• It Was a Dismal Year for Hedge Funds: Here Are 2019'S Fund Closures and Family-Office Conversions. (ZeroHedge)

 

A Debt You Can't Pay

The concept of "Debt" can be confusing to a layman. Most people understand what it means when they take on debt with a local bank, but it can be harder to understand the role debt plays in global economics.

Compounding the confusion, the implications of debt change on a macro level. 

Many worry that our "excessive" government debt levels impact economic stability, the strength of our currency, and unemployment. The national debt can only be reduced through five mechanisms: increased taxation, reduced spending, debt restructuring, monetization of the debt, or default. 

The idea behind our current global debt structure is that if two nations are mutually obligated and dependent on each other, they are less likely to go to war. And that has held relatively true so far. Of course, it's not a perfect system, and it can break down, but as yet, it's working compared to previous systems such as the balance of power.

In some ways, it's fake money, so paying off our debts seems insurmountable. Yet, our economy is reliable so we're allowed to continue borrowing. Debt is also an important part of the economic machine - it can be argued that we wouldn't have money without debt. 

Ray Dalio created a simple (but not simplistic) and relatively easy to follow 30 minute animated video that answers the question, "How does the economy really work?"  Click to watch.

 

via Ray Dalio

To learn more about Dalio's Economic Principles visit: http://www.economicprinciples.org.

The global economy has hugely increased in size in the last 50 years as developing nations prosper. The average global GDP per capita has gone from ~$1000 to over $10,000 in my lifetime.

So it makes sense that the amount of debt is also increasing with the size of the money supply required to conduct all the transactions in the global economy.

The U.S. tops the list with debt to GDP at 104.3% and almost $22 Trillion in debt, but is dwarfed by #2 Japan's debt to GDP rate of 237.1%. 

via Visual Capitalist 

 

Meanwhle, China has increased its indebtedness by $2 trillion in the last two years. 

The market is not the economy. Meaning, the performance of markets is not necessarily linked to the performance of the economy (and the converse is true as well). Even though you may be more interested in trading, economics is still important to understand and follow. 

If one thing is clear, it's that 2020 will be an interesting year for markets and the economy. 

There is a lot of opportunity in crisis and chaos.

 

A Serendipitous Moonshot

Hope you’re enjoying the New Year!

On January 2^nd, 2020,  after many years of hard work, we launched the Capitalogix Absolute Return Fund.

It’s been a long and hard road ... but also a labor of love.

On a related note, I’ve talked about moonshots, playing a different game, and getting comfortable being uncomfortable.   These themes come up because they define what we do at Capitalogix and what was necessary to create the technology platform that runs the fund. 

Speaking of getting comfortable being uncomfortable, I spent the last week on a family cruise through the Caribbean.  

 

 

We celebrated many important events including my mother’s 80^th birthday, my sister’s 50th birthday, and Jennifer and my 12^th wedding anniversary.

We happened to be in Grand Cayman on January 2^nd, the day fund launched.

  

 

I had a chance to stop by Walker’s (our fund lawyers) to commemorate the day with them as well.

 

 

It was a great start to my year!

Let me know how your year started too.