Error: I'm afraid this is the first I've heard of a "blog;_CCNA" flavoured Blosxom. Try dropping the "/+blog;_CCNA" bit from the end of the URL.
Modern Day Vikings
I don't have access to the paper, but the abstract looks interesting: Looting: The Economic Underworld of Bankruptcy for Profit. Sometimes I think that some companies do a business plan around this, or implement it through 20::20 hindsight. Back a few years ago, companies were laying fibre like crazy. Over capacity resulted. Many went 'under' and resurfaced with the assets but less debt overhead after writing investors off. #
Seasonalality Timing System
In Mark Hulbert's November 17, 2008 article called The long-term reasserts itself, he mentions the Seasonality Timing System (STS) designed by Norman Fosback of the Fosback's Fund Forecaster Newsletter.
The STS is designed around the fact that "the stock market has a bullish bias around the trading sessions immediately prior to each exchange holiday as well as those at the turns of each month." He indicates that "STS followers will not get back into the stock market until the close next Monday, so as to be fully invested for the sessions on Tuesday and Wednesday, the two trading sessions prior to the market's Thanksgiving holiday."
According to those remarks, trading for this upcoming week should give us a rebound.
The picture turns less rosy with Paul Farrell's November 19, 2008 article 30 reasons for Great Depression 2 by 2011. Basically he says more spending with little or no increased income is a recipe for further disasters.
Peter Brimelow in a November 20, 2008 article called Bears' glass half empty or half full?, writes about Dow Theorist Richard Russell indicates that the primary bear market has been reconfirmed, and things are headed lower, perhaps to around the 7286 (the 2002 Dow Low) and 7470 (half the bull market peak), which we touched Thursday and Friday, but were saved by the news of Timothy Geithner, now president of New York Federal Reserve, would be Obamas's Treasury Secretary.
Corey Rosenbloom has confirmation of the Interesting Fibonacci Development. We have a level of support at about 7500, and a trading range up to a level of Fibonacci and psychological resistance of about 10,000.
But then more bad news could be around the corner. Lots of interesting Economic news coming this week: Existing Home Sales on Monday, Tuesday with GDP and Consumer Confidence, and then the day before the US Thanksgiving we have Durable Goods, Personal Income, Jobless Claims, Consumer Sentiment, and New Home Sales. #
Receding Recession Indicator
The last time the Dow was at current levels looks to be back in May of 2003. But going back a bit more, it was May of 2002 that the Dow dropped below 10,000. It hit a low of 7600 during the beginning of October 2002. December and January were relatively 'happy' months before the Dow retested 7700 in March 2003. It took a steady rise till December 2003 to cross back above the magic 10,000. The year 2004 saw a few minor dips below 10,000, but nothing serious. October 2007 seeems to have been the recent peak at around 14,000. It declined bit by bit until September/October of this year when it bit the dirt.
In the last few weeks, it hit a low of 8451 around Oct 10, another lower low October 27 of about 8175, and retested with a mid-low at 8282 on November 12.
All this to say that we haven't made any recent lower lows. Yet. Leonard Novy says a symmetrical triangle is forming prior to a head and shoulders finalization at a still lower level. We shall see.
And if history offers any pattern for the future, we could stay at this level for six to twelve months. Things could improve over the next bit. Come next year, there are supposed to be more mortgage resets, which may cause another economy/financial hit, more people losing homes, and as a result jobs. After that, hopefully people's eternal optimism will start to kick in, and it is possible we could see a 10K Dow by the end of 2009 or first quarter 2010.
According to Donald Luskin, the bear market will be over when "stocks have rallied at least 20% from any given low point, over at least two calendar months". The pattern in December 2002 almost but not quite made the 20% criteria. It wasn't till after March 2003 did things conform to pattern.
Perhaps 2008/2009 may hold a similar pattern to 2002/2003. #
Interactive Brokers TWS on Linux
Installing Interactive Brokers Traders Workstation on Linux is relatively painless. It is probably best to stick with Java Runtime 1.5 rather than using 1.6. The IB forums mention problems with 1.6, and Think Or Swim does not like 1.6 either: apt-get install jre-java5-jre. This will require non-free and contrib in the /etc/apt/sources.list file. After installation, 'update-alternatives --config java' will get the right version set.
The IB suggested command line has problems with hsqldb.jar. I use the following command line as an alternative:
#java -cp \ jts.jar:pluginsupport.jar:jcommon-1.0.12.jar:jfreechart-1.0.9.jar:jhall.jar:other.jar:riskfeed.jar:rss.jar:/usr/share/java/hsqldb.jar \ -Xmx256M jclient.LoginFrame . &
Market Notes for August 6, 2008
This article really isn't about today. Nor is it about yesterday. It is about Monday. But becuase I only read Mark Hulbert's colummn today, which he penned yesterday, which is about Monday's 332 point gain, I've dated my article for today.
Mark's point of the day revolves around another rule of thumb: the day was not a 9-to-1 up day. This type of day is when 90% of the volume of shares that rose or fell in price was in shares that went up. The term was coined by Martin Zweig, who used to publish several investment newsletters. On Monday, for the NYSE, it was only an 8.1-to-1 day.
According to his 1986 book called "Winning on Wall Street", Zweig states "Every bull market in history, and many good intermediate advances, [has] been launched with a buying stampede that included one or more 9-to-1 up days".
In Mark's article of yesterday, he mentions that valuations are still a little high. As such, a bull market may not be in the offing yet. So far July 15 is considered our low of the current bear market.
I think because of additional mortgage resets happening later this year, we may not be completely ready for bullish thinking. Maybe a nice little volatile rally, but we may see some more lows. #
SmartQuant QuantDeveloper & DataCenter Release
SmartQuant has released a revision to DataCenter and QuantDeveloper. DataCenter and QuantDeveloper are at the following revision levels:
#DataCenter Version 3.0.3 (30-Jul-2008) QuantDeveloper Enterprise Edition Version 3.0.3 (30-Jul-2008) QuantDeveloper Source Code Version 3.0.1 (21-Apr-2008) * Recent Versions available through version control
Market Notes: 2008/07/15
I guess the markets really are bearish about what is happening in the world. The Dow gapped
downwards on open and played with 10850 for a bit. It seems that with Bernanke's
Congressional testimony later in the morning being hard and to the point, the markets had
their edge taken off and rebounded to a little in the positive zone. OPEC indicated that
their demand forcasts are being reduced, which caused a $5 dollar drop in Brent crude in the
midst of a $10 high low swing for the day as traders took their profits. Usually the Dow
has an exact opposite swing, but
narry a blip occurred, and actually closed down for the day under 11000. #
Freddie Mac and Fannie Mae
The markets are not very patiently waiting for all the sub-prime mortgages to reset later this year and next year. I've always thought that it will be during that time period in which we'll find out if we are in a repression, depression, or a recession.
It seems we have lots of near term worries. Various and sundry resets must already be taking place. The financial system seems to be stressing all over the place. I'm curious to know just how leveraged the industry is. After all, in the end, the money has to be some place. If leverage is the problem, someone is going to be left holding the bag, and I guess that is starting to happen now.
This reminds me of the great internet expansion a number of years ago. Every who thought they knew what a fibre optic cable was, starting laying the stuff across land and under water. Most if not all of those companies reorgainized or got sold at pennies on the dollar. The smart guys on the sidelines smiled and spent their pennies on valuable infrastructure. Mean while the original investors and vendors probably didn't fair so well. in the end, after the market settled, we have high capacity bandwidth at reasonable prices (well for North America anyway, we in Bermuda still pay an arm and a leg for the privilege, although that should change with the new consortium laying new fiber later this year).
That story leads me into today's newsletter by John Mauldin. He is saying that sub-prime resets aren't our only problem. Orbourous is eating its tail. Lenders to lenders and lenders to corporate beings are starting to cause problems. A figure like $1600 billion dollars of losses in the international banking system are being bandied about. That is a terrific amount of business failure, residential collapse, and bad business judgement. Is there a figure somewhere that suggests what the equivalent of a world wide Gross Domestic Product might be? (I know that appears to be a contradiction of terms, but with the ever shrinking world, there is an element of realism there). With a WW GDP, this type of loss could be put in to perspective. Grasping at straws, I came up with one form of perspecitive. According to the US Federal Reserve Statistical Release, that is $300 Billion more than the M1 money supply and about 23% of the M2 money stock measure.
Anyway, his previous articles had some concrete examples as to what sort of numbers losses were based upon. In this article, there seems to be a bunch more hand waving going on. Perhaps the Bridgewater Associates report to which he refers offers up some concrete basis for their opinion.
Finding the headwaters of investment sources is what John Mauldin's friend David Kotok specializes in. In a recent newsletter, he is saying that Freddie and Fannie (F&F), between them, hold about $5000 Billion in mortgages. Me, coming from the outback, think that a $150,000 mortgage is big. Having one of that size, and if I've used the correct number of zeros in my calculations, that could mean about 30 million mortgages. To stretch the statistic even further, that would be a mortgage for 1 out of every 10 US residents. That is a lot of cash flow to them and to their holders of sub-paper.
Both of the authors tend to agree that holding paper from F&F is not too risky being that the mortgages that they do hold are reasonably sturdy, and they both agree that holding shares is valueless. So, so long as the cashflow meets payment expectations, things shouldn't be too bad.
However, all this is contrary to what the notable publications such as WSJ are publishing, so no wonder we bounced off the Dow 11,000 level yesterday. I think Mauldin even joked about the 9XXX level not being too far off the mark in his article.
One other thing Mauldin mentioned is that he is doing a survey. As a reward for filling out his survey, he provides a link to speech in which he talks about how the markets might re-arrange themselves. Perhaps this might be similar to what happened with the post fibre-laying companies... will the new credit/debt institutions be valuable because of what they got for pennies on the dollar?
I wrote this article in order to set a baseline of expectations of what is to come. Will we, indeed be seeing more losses, more than what the subprime fiasco has caused directly? In which direction are the markets headed and what will be their prime motivator? Will it be more credit problems? I'll be able to look back here and hopefully see what happened when we start our descent into the 10K category. #
Alpha Generation Platforms
Sometime ago, SmartQuant sold their QuantDeveloper code to QuantHouse. I now see in an article at Wall Street & Technology, QuantHouse listed as one of five vendors who have Alpha Generation Technology. QuantHouse must have done some additional work on the platform. QuantDeveloper definitely fit the defintion of a workflow platform:
Alpha is defined as "excess risk-adjusted returns measured above a benchmark".
Key attributes of the packages reviewe included items such as:
QuantDeveloper did offer up all those features but that last one. QD is actually a C# development environment disguised as an Alpha Generation Platform.
I'm not promoting or demonting QD here. I did use the package for a couple of years and have since migrated to a custom C++ platform, which I think, in the end, is going offer very similar capabilities. What with QuickFix tested against OpenFix, QuantLib for the math, and a myriad of other integrated abilites, it may just have a chance to be seen in the big leagues.
Yes I do spend much of my time day dreaming. But there is a drop of reality there somewhere.
As a side note, the article threw out a bunch of names. I'll have to follow up on what these do sometime: "real-time high performance databases such as Vhayu, KX and OneTIck. On top of that, analytics and statistical packages are required, such as MATLAB, S+ and R, as well as optimization tools like Northfield, BARRA, Morningstar, Ibbotson, etc., and EMSs/OMSs like Portware, FlexTrade, OrcSoftware, Aegis Software and Tethys, etc.". #
Mean Reversion Thoughts
While still putting together the code for a trading solution, I've been thinking about what algorithms to implement for a trading strategy. I have access to live intra-day tick and quote data, so mean-reversion aka contrarian strategies seem like interesting candidates.
In the course of manual trading, I've learned that one needs to keep track of a number of items: current portfolio costs, current holding costs, existing profit/losses, expected market direction, current market location, external influences. This is a lot to do manually. Hence the desire to implment tools to automate, or even semi-automate the process.
A paper by Subramanian Ramamoorthy called A strategy for stock trading based on multiple models and trading rules discusses a state space mechanism for determining how to manage the portfolio composition. Another item he brings to the foreground is a description of the Sharpe Ratio, a ratio which helps one to keep profit consistent rather than widely dynamic.
Using different terminology, the makers of NeoTicker have a blog with an article called Counter-Trend Trading with Simple Range Exhaustion System. The key point, which could be hard to do, is "most counter-trend traders will try to time their entries as close to the extreme reversal points as possible to maximize the profits and minimize the risk exposures". Using multiple time frame charts, and reading the tape, along with some possibly helpful technical analysis tools, it might be possible to home in on the zones of reversal.
Working my way into a little scalping in the futures, an older article at Interactive Brokers explains the birth of the Dow Mini Futures. Some interesting points: