Trading the Indices on Fundamentals

Laissez Faire said:
If so, aren't you really saying that the markets are inefficient most of the time? And if so - are markets really efficient then?
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Point taken, perhaps "efficient" is a misguiding word because it is not meant to infer that markets are efficient only when priced at fair value. Put it this way... markets are elastic, the anchor point is the fair value (which itself is in constant motion), sometimes they stretch above, sometimes they stretch below, the further away from the anchor point the grater the pull towards it. What makes markets efficient is is the pull towards the anchor, not necessarily when they're priced at the value itself. To emphasize the point, while day-traders trade ticks, longer-term traders consider 50 DOW points rounding errors.

Laissez Faire said:
started a long-term fund based on fundamentals/long term trends and it underperformed their main fund by a wide margin
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I believe you are referring to the long period Medallion tried to apply it's proven algos to the S&P500 but failed because there was a mistake in one line of code (the comparative S&P price was fixed instead of being a moving average), that fixed, the S&P algo outperformed all others. Medallion does not classify its funds as short-term or long term... they let the objective reach regardless of the time it takes.
 
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FXtrader8911 said:
I believe you are referring to the long period Medallion tried to apply it's proven algos to the S&P500 but failed because there was a mistake in one line of code (the comparative S&P price was fixed instead of being a moving average), that fixed, the S&P algo outperformed all others. Medallion does not classify its funds as short-term or long term... they let the objective reach regardless of the time it takes.
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No. I do not. Didn't you read the book by Zuckerman?

The main Medallion fund as I understand it is mostly geared towards short-term trading. Hence, my prior post.

In 2005, long after the original Medallion fund was launched and had established its success, they launched the RIEF fund which were focused on longer holding periods and long-term trading. Additionally, it was open to outside investors.
 
Wikipedia:

Renaissance Institutional Equities Fund (RIEF)

In 2005 Renaissance Institutional Equities Fund (RIEF) was created.[22] RIEF has historically trailed the firm's better-known Medallion fund, a separate fund that only contains the personal money of the firm's executives.[23] Renaissance also offers two Renaissance Institutional Diversified Alpha (RIDA) to outsiders.[11] Simons ran Renaissance until his retirement in late 2009.[12] Renaissance Institutional Equities Fund had difficulty with the higher volatility environment that persisted throughout the end of the summer of 2007. According to an article in Bloomberg in August 2007,[34]

James Simons's $29 billion Renaissance Institutional Equities Fund fell 8.7% in August 2007 when his computer models used to buy and sell stocks were overwhelmed by securities' price swings. The two-year-old quantitative, or 'quant', hedge fund now has declined 7.4 percent for the year. Simons said other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.

— Bloomberg 2007

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https://www.institutionalinvestor.c...hes-Explanation-to-the-Limit-Professor-Claims

The theory that Medallion’s strategy is capacity-constrained could also explain why Renaissance Technologies’ other hedge funds — Renaissance Institutional Equities Fund and Renaissance Institutional Diversified Alpha — don’t follow the same strategy as Medallion, as Zuckerman reports. The two funds, which unlike Medallion have allowed outside investments, have delivered returns that are “relatively mundane and in no way comparable to Medallion,” according to Cornell’s paper. (For example, the Financial Times reported that RIEF and Diversified Alpha were up 8.5 percent and 3.2 percent, respectively, in 2018; Medallion was up 76 percent.)
 
Market's resilience and the ignoring of all news that could downgrade earning continues to baffle me. Just looking at the big ones... 1.The Fed is withdrawing liquidity, 2.Biden, the only non-socialist candidate, is losing support and 3.The coronavirus has now caused more deaths than SARS & Zika which brought markets down by 13%

the coronavirus, now called something else so as not to castigate a species nor region, still has no cure, no vaccine and, in some cases, no symptoms. Medical experts say the figures coming out of China, Thailand, Philipines, etc. could be understated X 20. For those that have been to China or most of the Asian countries, would know that the shiny new buildings and growth in the numbers of $b is not a good guide to the overall development of regions outside the cities, most of the population, infrastructure and life standards outside the shiny cities is still 3rd world. One can safely say that the authorities in these countries are looking at chaos, within which, cases & death exist that are unknown to the authorities (perhaps conveniently so).

Market's disregard of the probability of lower-earning caused by disruption of 50% of the world's supply chains and by the probability of an election shock are showing carelessness, add a lowering of liquidity to that and participant going long now need to be labelled dumb.
 
Total Market Cap has reached 158% of the GDP, surpassing the previous high of 150% reached in 2000. If sentiment was to turn neutral and GDP stayed on the 2019 trajectory, markets' fair value would be 5% below current prices.

The Shiller P/E at 32% also indicates market P/E is 7% above the past high and 15% above the historical average. It is clear that market participants are factoring a substantial increase in earning for the 1st & 2nd quarters of 2020, if the next reporting fails to deliver, a correction in March or April is likely.
 
President Donald Trump has a new proposal to push equity prices even higher... he's contemplating a new tax cut that would see a portion of household income treated as tax-free for the purposes of investing outside a traditional 401(k).

Sounds like Greenspan's push for homeownership which resulted in the property crash that started the great recession. I hope the proposal is just a tax-cut carrot being dangled for the purpose of boosting his election chances.
 
This is interesting... German courts had to issue an order to stop Tesla from clearing trees in a forest area where Musk wants to put his new German plant. The interesting part is that the green and environmentally minded Musk was actually intending to destroy the forest to pursue profit... quite a shock for me, both towards Musk and the Berlin council for initially approving the DA.

It should be noted that Germany electricity production is still predominantly done with fossil fuel (coal) and expected to increase rather than decrease as more nuclear plants close. As far a Germany is concerned, the push towards electric cars is, therefore, a matter of shifting the air pollution source from the city to elsewhere with no net gain.
 
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CNBC’s Michael Santoli writes "U.S. stocks may be getting a boost as overseas investors flock into American markets as a type of safety trade in the face of the disruptions the coronavirus might bring" However, he adds "This puts U.S. stocks at risk of stretching themselves to extremes"

I'll stick my neck out on this and say that although the timing can't be pinpointed, US markets are heading for a 17% to 19% correction... giving up their current 5% overvaluation (related to market cap v GDP) plus at least 12% in increases earnings the markets have factored in the price, increased earnings which are unlikely to pan-out due the supply chain disruptions and lost revenue within the travel and supporting industry. Past history shows that epidemics such the coronavirus do have a substantial effect on earnings down the road. Mar/Apr/May is the probable period for a sell-off. Europe is likely to tie itself at the hip with the US and likewise have a sell-off possibly x 1.5 that of the US.
 
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Blackstone Group was one of the few Wall Street firms that did well through the financial crisis mainly through the foresight of one of its founders, the billionaire investor, Stephen A Schwarzman. Schwarzman is a keen observer of market cycles, having seen seven major recessions and market crashes in his career. He recently released his book, ‘What It Takes: Lessons in the Pursuit of Excellence’ The book covers the methods of picking market tops and bottoms. Schwarzman believes that market tops are relatively easy to recognise (much easier than market bottoms), he believes that a surplus of cheap debt, relaxed loan covenants, and overconfident buyers are some of the best indicators a top is near, he goes on to say "Investors are deluding themselves.... they think they want to make money, but in reality, they just want the psychological comfort of investing with the crowd"

These words appear to be very relevant to where markets are now.
 
I am setting my exit levels on current longs to:

18-Feb-20 Rez
ASX200 7,230
NIK225 23,842
FTSE100 7,533
DAX30 14,020
MDAX50 29,779
CAC40 6,206
MIB40 25,534
IBEX35 10,231
EU50/STOXX50 3,930
DOW 29,872
RUSSELL2000 1,713
SPX500 3,434
NDAQ100 9,791


Estimate for the VIXFeb Futures: 13.09
 
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