+1
Fooled by Randomness
- Thread starter johnny88
- Start date
+1
The only thing that could improve this thread is some commentary by one of NT's more sage fans-- Maestro. I guess he wasn't kidding, when he said, "hasta la vista," to ET.
âSo let us begin anew - remembering on both sides that civility is not a sign of weakness, and sincerity is always subject to proofâ JFK
MartinGhoul ...
I have paid some high prices for the experience you mention -- superior or not. It's nice of you to recognize that the content of my post was/is the result of being in some interesting places at just the right moment.
I am at a loss to figure out where we are in this "bull" run for as impressive as the run has been it is too soon to call it a bull market. The bear may or may not be dead and without knowing it is mighty dangerous to assume he is.
I urge us all to spend some time with charts from the 30's. There were no fewer than five major bull runs in the 30's. And in '32 the market doubled in less than four months and, after a sell off, came back to rally again; this time 117% in again under four months. All of this astonishing market action/reaction/action took place in a one year period that coincided with the darkest days of the '30s ... the depth of the great social and economic dislocation we call The Great Depression.
Here are some of the things the great minds of the era were saying:
http://www.gold-eagle.com/editorials_01/seymour062001.html
Contrary to what some on ET seem to believe I am quite impressed with the actions of both Paulson and Bernanke from the point at which Lehman went down. Their activities prior to that point were just extensions of a dozen post war administration's smoke and mirror show playing in the main ballroom.
Once Lehman was gone it was either replace two trillion in liquidity or brush up on the history of the Dark Ages. They moved quickly and with great skill to avert the mother of all panics. They had both the balls and brains to treat congress like the whorehouse it is. They not only lied to them they shoved the lies down their throat in record time. Not pretty but eas there a choice? I think not.
Forget about what guys like Jimmy Rodgers say about cleaning out the system all at once. It's important to note that Rodgers claims to have sat through a 70% decline in crude because it was only a correction. He pretends that copper's ride down was also a correction. Markets simply don't decline 60 and 70% over the course of a few months because it's a pullback.
The system has been in decline for about 40 years and not even the dusting gets done regularly. That said it was/is the only system we have and if it is going to be repaired -- which is VERY unlikely or impossible -- it will take an attention span of decades not the rhetoric of "one quick chop".
I am truly at a loss to have any opinion of the technical strength (or weakness) of this market so I continue to learn to trade intraday and hope to stick to basics.
I do however have one guiding principal that I have believed for 30 years. The US Government will face a choice within the next decade or two ... maybe sooner: It will either have to reorganize much as an entity would in Chapter 11 or it will be forced to watch the dollar collapse. The unfunded liabilities of Social Security and Medicare are now so large that there is no way to pay them with money that has anything close to today's value. They will inflate. No politician wants to preside over default.
A man or woman who lives to 2030 just 21 years from today will see crude trade at over $1,000 a barrel and gold at over $10,000 an ounce. And not because of an extreme shortage of either.
Door number one has default behind it and door number two has rampant inflation. There is no door number three.
Do any of us believe there will be an American leader with the balls and prestige to lead us through door number and admit to the world -- and ourselves -- that we need to reorganize in what would be in effect the Chapter 11 of an Empire in order to preserve a shred of continuity and order?
Door number one is the lesser of two evils. Every Washington player from Barney Frank to Richard Shelby ... from Pelosi to Chuck Grassley knows the alternatives are that limited and every last one of them intends for the inflationary unraveling to come after their gone.
I hear them playing taps in the distance. I just don't know if that distance is five years off or 15 years off. But I do know as we get closer it will be obvious to those who see both the forest and the trees.
I have paid some high prices for the experience you mention -- superior or not. It's nice of you to recognize that the content of my post was/is the result of being in some interesting places at just the right moment.
I am at a loss to figure out where we are in this "bull" run for as impressive as the run has been it is too soon to call it a bull market. The bear may or may not be dead and without knowing it is mighty dangerous to assume he is.
I urge us all to spend some time with charts from the 30's. There were no fewer than five major bull runs in the 30's. And in '32 the market doubled in less than four months and, after a sell off, came back to rally again; this time 117% in again under four months. All of this astonishing market action/reaction/action took place in a one year period that coincided with the darkest days of the '30s ... the depth of the great social and economic dislocation we call The Great Depression.
Here are some of the things the great minds of the era were saying:
http://www.gold-eagle.com/editorials_01/seymour062001.html
Contrary to what some on ET seem to believe I am quite impressed with the actions of both Paulson and Bernanke from the point at which Lehman went down. Their activities prior to that point were just extensions of a dozen post war administration's smoke and mirror show playing in the main ballroom.
Once Lehman was gone it was either replace two trillion in liquidity or brush up on the history of the Dark Ages. They moved quickly and with great skill to avert the mother of all panics. They had both the balls and brains to treat congress like the whorehouse it is. They not only lied to them they shoved the lies down their throat in record time. Not pretty but eas there a choice? I think not.
Forget about what guys like Jimmy Rodgers say about cleaning out the system all at once. It's important to note that Rodgers claims to have sat through a 70% decline in crude because it was only a correction. He pretends that copper's ride down was also a correction. Markets simply don't decline 60 and 70% over the course of a few months because it's a pullback.
The system has been in decline for about 40 years and not even the dusting gets done regularly. That said it was/is the only system we have and if it is going to be repaired -- which is VERY unlikely or impossible -- it will take an attention span of decades not the rhetoric of "one quick chop".
I am truly at a loss to have any opinion of the technical strength (or weakness) of this market so I continue to learn to trade intraday and hope to stick to basics.
I do however have one guiding principal that I have believed for 30 years. The US Government will face a choice within the next decade or two ... maybe sooner: It will either have to reorganize much as an entity would in Chapter 11 or it will be forced to watch the dollar collapse. The unfunded liabilities of Social Security and Medicare are now so large that there is no way to pay them with money that has anything close to today's value. They will inflate. No politician wants to preside over default.
A man or woman who lives to 2030 just 21 years from today will see crude trade at over $1,000 a barrel and gold at over $10,000 an ounce. And not because of an extreme shortage of either.
Door number one has default behind it and door number two has rampant inflation. There is no door number three.
Do any of us believe there will be an American leader with the balls and prestige to lead us through door number and admit to the world -- and ourselves -- that we need to reorganize in what would be in effect the Chapter 11 of an Empire in order to preserve a shred of continuity and order?
Door number one is the lesser of two evils. Every Washington player from Barney Frank to Richard Shelby ... from Pelosi to Chuck Grassley knows the alternatives are that limited and every last one of them intends for the inflationary unraveling to come after their gone.
I hear them playing taps in the distance. I just don't know if that distance is five years off or 15 years off. But I do know as we get closer it will be obvious to those who see both the forest and the trees.
One of the ways we differ in viewpoints, is in making such rigid assertions. There have been very bright prognosticators along the market's journey that have drawn similar conclusions in the past. Ravi Batra, for instance comes to mind. Remember this book from the late eighties? I do.
http://g-ecx.images-amazon.com/images/G/01/ciu/fa/27/c522225b9da0681174ba1110.L._SL500_AA240_.jpg
Batra didn't count on some fancy bailout mechanism engineered with Japan.
I would simply argue: never say never, when it comes to markets. The more convincing I have found these types of arguments, the more specious they've tended to appear in retrospect.
I'm a bit confused: as I noticed you were seeking guidance on TA books ('by bar'). You seem to be a bit more experienced in markets than that. I think as you delve more into TA (assuming you haven't dived too deep--yet), the more you'll begin to appreciate some of our views on anecdotal 'cherry picking' in hindsight, and numerous path trajectories that might actually unfold in the future. Start counting permutations on future events; the number of potential paths begin to grow astoundingly large over a short period of time.
----------------
Technical analysts... go wrong in making dramatic predictions. The best you can do in the market is to make some very strong tendencies and some direction.
L.Birinyi Jr. 'The heretics of Finance.'
But he does, quite explicitly. His position is that one should discard the entire family of black-scholes-like "replication" type pricing models and move to something not unlike a sports-betting pricing model, where the assumption is hold-to-expiry, no hedging, no greeks, and use straight-up "actuarial" stats to figure out when OTMs (in *either* direction!) are worth buying.
He's been pretty darn clear on this.
Batra didn't write a serious book ... he "wrote to sell". I write here to provoke interesting discussion where people can talk about their mindsets and not convince themselves that they can't "trust yourself when all men doubt you yet make allowances for their doubting to"
There is a huge difference between expressing a mindset, identifying it as such, and what Batra did: I expressed my view based on long observation as we passed some points of no return on the road to ruin. I did it in clear language knowing that I am not God or even a fortune teller. It is what I believe is almost a near certainty.
Do you have or can you find any paper currency from the year ONE or the year 1,000 that has value beyond that as a collectable (SP)? For an awful long time the depreciation of paper currencies to zero was as reliable and almost as quick as the sun rising in the East. I believe that this long run we have had of late ... a run where currencies depreciate at rates that seem manageable (but only barely) are the off the curve of events .. not what I'm talking about. I'm only talking about what I view as the an event akin to the sun rising in the East.
I believe many of the "others" are fooled by the fact that paper currencies (as bad as they have been as a store of value) have been on a fairly good multi-century run. Admittedly any good bookmaker looking at my prediction with such a short fuse (even though it has somewhat of a window and not a date) should and would say --
................wanna bet.
I would say I want to, I have in small ways and intend to increase the size of the wager as more confirmation -- market generated information -- becomes observable. I would also tell him that I can get very fine odds from the 'others" and I believe I can continue to find huge "overlays" months, maybe even weeks or even quite possibly hours before it gets called an "out bet". But most importantly I will have many betting opportunities priced very cheaply in my opinion after the starting bell has rung.
What Batra did -- predicting the who, what when, where, how and the date and time -- is fine if that is what he wanted to do ... but it is in no way what I did.
I appreciate that you (and I'm sure others) think it foolish to predict as I have. You (and they) should then not do it!
That said, deep in our hearts we all know they can't pick up the outstanding unfunded liabilities with a hard currency. The last shred of real equity was blown on the purchase of a big screen TV last fall.
Yet I wish you guys would say what you feel deeply about. Maybe it is more productive for us to talk about what we really see happening to the foundations of this republic. I really believe it is late in the game. I'm not suggesting this slump might not have already run its course but we have all had a glimpse of the abyss. If you listen closely you can hear the two minute warning. Its close and getting closer. This republic is not going to shrug off the structural damage for fifty or a hundred years ... it is those of us that have 20 more years here that will see big doins'.
You mention my posts and questions about TA and express the opinion that I seem to be more experienced in markets than one might infer from my fairly simplistic questions about PA.
I was involved as a manufacturer, packager and wholesaler of securities with a brilliant partner from the age of 22 to about 30. I broke up the partnership when I realized that his huge ambitions were frustrating him to the point where he need the big successes right there and then regardless of the risks.
It was sad visiting my former partner in a Federal Prison two years later.
I learned the ins and outs of an aspect of the investment banking business with great precision and was churning out paper -- slicing and dicing and lipsticking the pigs -- night and day. But I was not committing capital to public markets almost ever. There have been decades in my life that I did not have an open account to buy and/or sell securities or futures outside my day to day business.
I saw an add from Solomon Brothers & Hutzler in 1970 on the back page of the Times or Journal bagging that they turned over their capital 12 times a day. BTW they were THE force in the trading of debt instruments at that time and their equity capital was $8,000,000. That's million with and M. It struck me that was not exactly a buy and hold strategy and I decided when I had the time I would teach myself to trade intraday. Well ... here I am learning to trade one NQ contract for intraday swings as a way to learn without incurring high risk.
If you reread my main TA post carefully (or even casually) I think you will agree that it wasn't written by a man who ignored the realities of "cherry picking" or had no respect for those who test. I am by nature a skeptic/cynic. I think it has been three or even four decades (if ever) since I could be thought of as a Poly Anna.
Having written one unoublished nove; I respect the effort put in to write Brooks' BAR BY BAR (although I really do wish it were written in English), think Joe Ross has interesting things to say (I have five of his books) but believe that nexus between art and science that these guys are sometimes at is difficult real estate to find and even more difficult to occupy long enough to make it pay.
Yet it is that real estate -- the discretionary short term of two minutes to two months -- that I believe has enormous value and in the right hands much lower risk than is commonly perceived.
Once you have watched a real tape reader work from the NYSE "slow tape" for a six hour stretch you never ever forget it. And those techniques that bring me closer to that -- particularly in the currency and indexes on the CME and someday crude -- interest me greatly.
My favorite from Kipling... Nice to hear from an erudite poster, and hope you stay around the boards for a while to share your journey as it unfolds.
Batra wrote a more recent tome that I find rather interesting; dealing with different eras and major class based power shifts. He believes we are on the precipice of such a major shift. While he's had his share of gaffes; he's certainly pretty intelligent.
I hope I stay in the business for awhile ... lol. I always perceived trading as a demanding end of the business but frankly I have a new found respect for those who wrestle a solid living or better from the markets year in and year out, dt.
My view is that I am back in the financial arena just in a different end of the business. Whether I stay on the boards is wholly dependent on whether I either learn things that help me succeed or I find exchanging views this way fun.
Whether I stay in the business at all will depend on if I think that within three years or so I can be comfortable and profitable trading 50 ES lots or similar size in CL.
This effort is in financial terms stepping into the ring everyday and facing the title holder in your weight class. And I am only absorbing the blows of a fly weight!
Never followed up on Batra but he is clearly a bright guy and I'm not surprised he wrote something interesting.
I saw a guy on Charlie Rose (I'm a big fan of Rose's) forget his name but he was either the former (or maybe current) Singaporean ambassador to the US or the UN.
Very impressive man to listen to and it was his contention that the US and Western Europe would be well advised to think through and be proactive in bringing the emerging powers India, Brazil etc.to the "big table" where decisions are made and the deals that count are cut.
I'm not adequately conveying his ideas but his belief that the shift we are in right now occurs maybe once in 500 years and those at the table can either look at parochial interests and play the holding game or think much, much broader and properly grease the ways and help position the new seats.
I am told that when the Chinese tell you "may you live in interesting times" it is a curse and not a concern that you might be bored. If I am told correctly than we are all cursed ... lol.
Does anyone else find that trading five days in the week is a real strain or am I just getting old? I'm taking the day off for no other reason than the trading is tough for me to do five days in a row. Four seems my limit for now but maybe you develop more "trading stamina" as you get more experience.
I'm not conversant with the swap market yet I do recall it being said at the time that the reason the spreads went negative (I think I understand that market just well enough to understand what makes that seem impossible) was that there was massive short covering in that market and that although it was possible to more or less create the position synthetically and avoid the gaffe, creating the position that way only worked if you wanted to hold that position. It created a comparable position but not a deliverable.
Frankly, I don't know if any of that was reality but I can say that some mighty strange things not only can happen but become likely to happen when a specific deliverable is in short supply or even perceived to be.
In the 70's every academic (and anyone else who thought about such things -- of which there were few) believed that it was impossible for interest rates to go negative regardless of the currency, conditions, politics etc. After all it was said, why would someone make the deposit and let them take a rake off the top as if they were renting storage space for the funds? They would move the funds and/or change to another currency.
I believed what was said. And then the small bank we dealt with in Zurich told us that in accordance with new directives from the government all demand deposits were immediately subject to a 2% negative interest rate unless the depositor was a Swiss national or the business entity was majority Swiss owned.
Since almost all of our transactions were settled in dollars it was nearly irrelevant to us. We kept under $10,000 in the Swiss for a few operating expenses. We used that bank as our agent for stock sent from American and other non-Swiss sources to our account on a delivery versus payment basis (DVP). In a very bare bones and simplified sense they were our prime broker. And, since there was no way to know precisely when international stock deliveries would be made, we needed to keep fairly substantial funds (substantial to us) on demand. But as I say those were dollar denominated.
Yet others had large Swiss denominated demand accounts that they couldn't keep in dollars if they wanted to run their business. The paid the two points because the deliverable their suppliers, employees and others need to get was Swiss. They couldn't be and stay short what they needed to deliver every day.
Frequently when something happens in markets that seems like it mathematically can't happen it has to do with the squeeze players feel to deliver what they don't have as it becomes increasingly difficult to buy or borrow.
And that is precisely what happens near the peak of a panic. And that is why being short equities which get easier and easier to buy/cover at those moments is profitable in a measure that is simply incredible. I'm not saying that 30 Year Treasury Swaps react this way in panics but I am saying it is predictable that those type of short squeezes will pop up to distort markets and cause correlations to go haywire in panics and pretty much only in panics. Part of what makes panic so damn dangerous.
In the words of the scoundrel Dan Drew from a different era "He who sells what isn't his'n must buy it back or go to prison".
It is almost always the short covering scramble in specialized markets that creates anomalies that seem impossible yet are quite natural. So natural and to some even so predictable that the size of the spikes tend to be largely engineered by those most familiar with the mechanics of that piece of the market once the phenomena begins to happen. The engineering is almost never caused by manipulation yet is almost always an exacerbation of the natural "tightness" the market is experiencing and for a pro to turn that screw just an additional half turn is easy and so profitable he'll be retired in a warm clime for two years before the SEC asks him a few questions and tells him if he ever steals an extra $18,000.000 million dollars like that again they will make him sign a consent promising not to do it a third time.
I can't imagine how much I might have to say on 30Y swaps if I knew something about them ... lol. But I do know something about panics.