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2010 Aug 21 - Sat

The Once Very Valuable ARMS indicator

In 1989, Richard W. ARms, Jr. wrote a book called The ARMS Index (TRIN). In a nutshell, it makes use of various ratios of number of advancing and the number of declining issues. In some cases, it can (or could) be used as a leading indicator of equity market activity.

Oakshire Investment Research's Bourbon and Bayonets newsletter suggested that this may now need to be take with a grain of salt:

It could well be that the 'Hindenberg Omen' is a helpful indicator for those who compute it on a regular basis, but for our part, there are problems associated with it that make it vulnerable to an excessive number of false positives.

It's the same issue, in fact, that plagues the once very valuable ARMS indicator, and some of the McLellan indicators, both of which are reliant on a daily reading of advancing and declining issues in the market.

The problem is this: these systems were designed to work by making a computation of all the market's common stocks, but today there are so many securities that are anything but common stocks that are dressed up and packaged as such . and they comprise an ever increasing number of the total issues trading on exchanges today. That includes bond and money market ETFs, Closed End Funds (CEFs), sector ETFs and preferred shares, not to mention all the reverse ETFs and other derivative products masquerading as common stock.

So to maintain some semblance of usefulness, the calculations will need to be refactored:

In short, both high/low numbers and advance/decline figures are not what they used to be. Certainly, for those who are able to strip out the superfluous aspects and compute the indicators on the basis of common stocks alone, there's something valuable to be had. Otherwise, we wouldn't trust the data as a stand alone indicator.


2010 Aug 18 - Wed

Cygwin, Eclipse and Subversion Installation Notes

I have written several articles about Eclipse (the code editing UI) and it's integration with subversion. This is an update of a few things to watch out for with Eclipse, the Helios release. I do development on Linux as well as on Windows. In this case my primary machine is a Windows machine running VMWare with several guest Linux systems.

For the Linux systems with a GUI, I've used Cygwin to provide a mechanism of running the Linux interfaces on my Windows interface. I have tried the VMWare Unity mechanism, but on my multi-monitor system, it appears clunky and buggy.

When installing Cygwin, the key library to install is the 'xinit' library. This loads all other necessary X11 libraries. Also include mintty in the Shells category for an improved console experience.

As a side note for regular terminal operations in Cygwin, the following can be used with mintty. Start 'ssh-agent mintty'. mintty is explained at http://code.google.com/p/mintty/. Then use ssh-add to add a private key. The public key can be added to the ~/.ssh/authorized_key files on the destination machines.

Anyway, for getting the GUI experience, use startxwin to start an xwindow terminal window. Connect to the destination computer with 'ssh -l username -Y ipaddress'. At that point, I run eclipse with '/usr/sbin/eclip[se/eclipse &'. The '&' forks the process and allows further operations in the terminal window.

I've got ahead of myself here. To get eclipse installed, I downloaded the binaries from eclipse.org, expanded them to a directory called eclipse. I then moved the directory to /usr/sbin. Eclipse can then be started with '/usr/sbin/eclipse/eclipse'.

For version control, the Polaris subversion client is listed as a standard item in the Collaboration items in the Eclipse New Software. After trying that, I wasn't very pleased with the experience. It is not well integrated.

Instead, I removed the Polaris Subversive client and installed the Tigris.org Subclipose Client. The integration into Eclipse is much better. I used the SVNKit (Pure Java) connector so as to obtain the svn+ssh://... tunnelling capability with a private key based login.


2010 Jul 18 - Sun

Gold Manipulation, Deficits, Money Theory

Gold Manipulation

I've been accumulating a number of open browser windows, and need to get them closed. The only way I can close them is to write about them. So here is a mish mash of things I've collected.

The first collection looks at gold price manipulation. Many commentaters are saying that gold is a safe investment for protection against today's faltering fiat money systems. They are also saying that gold could reach highs of $1500, $2000, or even $7000. Various conspiracy theories are indicating that JP MOrgan is acting on Government orders to keep the price of Gold and Silver down. This could be one indication of why the price of gold has been trading sideways for the last fews months in direct defiance of all the money being thrown gold's way through direct investment, futures, and ETFs.

ZeroHedge has a lateral reference to market manipulation via an article on the current Coco futures market sqeeze.

To profit from the market's manipulation of the gold market, some people have put together intraday average price charts which show some interesting entry and exit times.

In any case, it could be said that the bullion banks are manipulating the market technicals in order to obtain a market correction for getting rid of their disportionate shorts in the futures markets. The Market Oracle thinks that gold is going down, lots due to a broken wedge formation.

If gold is indeed going down, bullion bank's shorts could be cleared, and this could represent a buying opportunity for gold. It is unclear how far the correction could go. But in any case, most places I read indicate that getting into gold is a good thing. And to keep it for a while. Possibly a long while, as described by Dylan Grice Discusses When To Take Profits On Gold: Hint - Not For A Long While.

Even while gold is undergoing some weakness, the Wall St. Cheat Sheet figures that it has considerable upwards strength. Once the manipulation is taken away, the price of gold could quickly get out of hand.

Market Leading Indicator

ETF Daily News offers a possible leading indicator: Watch The 20+ Yr Treasury Bond ETF For Clues To Likely Stock Reversals? (TLT, SPY, IEF).

Hauser's Law

The government, any government, has an insatiable hunger for more and more money. On the US side of things, there is talk of instituting a value added tax (VAT). Will it do any good?

According to an article written by David Ranson called The Revenue Limits of Tax and Spend, there appears to be a limit to how much tax a government can collect through it's various mechanisms. Hauser's Law indicates that Federal tax receipts will always fall short of 20% of GDP. So... if the government ever became efficient, they would use the opportunity to close out other departments where taxes collected decrease.

The Canadian Government instituted their GST, which is a form of production pipeline tax. Both the GST and VAT could be seen as a form of consumption tax. If you don't consume anything, you don't pay taxes. I suppose that could be seen as the best of a bad situation.

Spending

As governments spend and spend like there is no tomorrow, they create larger and larger deficits. Deficits can be covered by printing more and more money. Because there is no physical basis on which money resides, it is called a fiat money. That is, governments can simply pay for things with money it prints electronically out of thing air. Because gold is a physical quantity, and can be traded, it's value should rise with the inflation of fiat money. But the markets are appearing to be manipulated. Big Money is holding things back. By inflating away the value of fiat money, governments have a slim chance of making good on the money they've spent. But with today's economy as slow as it is, some are warning we could go into a deflationary phase. Governments don't like that, as it makes it hard to cover their debts.

On the US side of things, it is said that The American Dream Is Quickly Becoming The American Nightmare. It is hard to cut back when so many expect so much for so little.

Keynesians would like to spend more and more to get out of the economic malaize currently existing. But that just doesn't make sense anymore. The tipping point has probably been reached. It would appear that even if there were to be a recovery, the recovery wouldn't be substantial enough to pay back even a small percentage of what is owed.

The blog Credit Writedowns has an article which provides some insight into Misunderstanding Modern Monetary Theory.

For a background on hyperinflation, Dylan Grice writes on Popular Delusions, Some useful things I've learned about Germany's hyperinflation.


2010 Jun 27 - Sun

The Reformed Broker

Joshua Brown, writes as the The Reformed Broker. He has a number of interesting entries:

  • The Periodic Table of Finance Bloggers, which is a list of blogs defined by categories such as Rocket Science, Rogues Gallery, The Establishment, Stock Operators, Peanut Gallery, and Baby Buffets.
Econ Gangs of New York: "The factions that are shaping the economic dialog these days are becoming every bit as colorful and distinct as the proto-gangs that once ruled New York's notorious Five Points area. Their leaders, every bit as bellicose and recognizable."


2010 Jun 12 - Sat

Real Time Black Holing (RTBH)

Here are some notes to self regarding real time blackholing configurations for dropping / analyzing packets that 'do not belong'.

From the c-nsp list, RTBH commonly used next hops are RFC based Test Networks:

  • IPv4 RFC3330 192.0.2.0/24
  • IPv6 RFC5156 2001:db8::/32


2010 May 27 - Thu

Oil Farming

It is only on rare occasions where one can obtain an elegant solution having positive ramifications for two differing economic sectors simultaneously.

These two guys are offering up an eco-friendly solution for squeezing oil out of water.


Naked Market Orders and the Market Meltdown

At Security Industry News, Tom Steinert-Threlkeld suggests that naked market orders helped escalate the 'flash crash' and subsequent recovery on May 6. I gather the market-makers, who provide liquidity through limit orders couldn't handle the deluge. And I think that we still don't know what the hair trigger was that set off the deluge of sell orders.

I learned a new lesson today. The best way of submitting market orders, in order to get the trade, is to use limit orders to create 'collars' around the price of a stock to reduce risks in trades. To go along with this, use algorithms that expressly include risk controls.

Speculation is that the naked market orders were used by the less experienced: some smaller high-frequency traders and some semi- professional traders.


2010 May 26 - Wed

Germany / Russia Working Together

I wanted to record this little snippet for something to check back on during some point in the future.

One writer is indicating that Germany is the real economic power in the European Union. Should the European Union break apart or evolve/devolve into something else, Germany can't go it alone. I have to take that assertion with a certain grain of salt, but perhaps the next idea fits in.

It is said that Germany's strength is it's manufacturing and export ability. Germany also has a decreasing population. A logical partner might be France, but they are typically highly competitive with each other, rather than cooperative with each other.

On the other hand, Russia has a large population with nothing much to do. Rather than being an exporter of raw materials, Germany could partner with Russia for manufacturing. Rather than increasing immigration towards Germany, which is something Germany does not want, they would send manufacturing to Russia.

In summary, it would be of interest to see how the European Union reorganizes around a possible Germany - Russion alliance.


Value Investing

When it comes time start living off dividends, it will be good to have some good value equities in the portfolio. These equities generate good dividends year and year out.

Good candidates for these types of equities are companies which are what one writer calls 'World Dominators'. These are companies which dominate their industries globally, each is Number One in its industry. They earn consistent high returns on their capital, and generate excellent cash flows year after year, through thick and thin. It is said there is one company which has raised its dividend every year for 54 years, another every year for 36 years.

With the market reaching a low, it might be good to pick up some of these companies. Some are indicated to be trading at less than 10 times free cash flow.

I think I'll generate a query through my DTN IQ live feed and look at the dividend fields and income fields to see what I can see.

As one example, one writer is suggesting NLY as a buy. It's chart may be reaching a bottom. I don't know if it satisfy the other criteria mentioned above, but I'm recording for posterity. It's close today is $16.40.


2010 May 25 - Tue

C++ Curiously Recurring Template Pattern

Through the years of maturing in software development, I have migrated through a series of technologies to solve various programming problems.

During the initial stages of my C++ usage, I used the tried and true run-time dynamic polymorphism, mostly known as virtual methods through class inheritance. To answer the question of when to use virtual destructors, Herb Sutter has an excellent article called Virtuality. For more virtual destructor information, Item 33 in Scott Meyer's More Effective C++ is helpful. Inheritance - virtual Functions FAQ has more useful information.

Class inheritance and virtual functions closely couple classes. I wanted start some decoupling, and do some event based coupling through C#-like events/delegates. C++ doesn't have a similar concept built-in, but there are various libraries available while supply a similar concept: Boost's slot/signal system, or the one I ended up using: FastDelegates. FastDelegates are supposed to be fast. And they do work well.

As I do some work on the Windows platform, I had been using the MFC classes for some GUI work. As I got more into multi-threaded designs, MFC started to show it's significant short-comings related to modular and mult-threaded designs. I came across the Windows Template Library (WTL) as a nice, fast, light-weight windowing library.

The WTL introduced to me the concept of the Curiously Recurring Template Pattern (CRTP). WTL and ATL make significant use of the CRTP pattern. A good introduction can be found at Wikipedia's entry for Curiously Recurring Template Pattern.

CRTP has brought me back tight-coupling of classes, but as a consequence, it offers up the ability to integrate a number of concepts together: slot/signals aka delegates, maintenance of strong typing, simulated dynamic binding aka static polymorphism, and fast execution.

The close-at-hand references don't mention one other refinement (I wish I could find the original source of this trick), and that is one of conditional static polymorphism. There is a way to conditionally make the polymorphism call: if the derived class doesn't over-ride a method, the calling code doesn't get compiled, it gets optimized away.

For example:

template <typename T>
class base {

  void implementation( void ) {};
  void interface( void ) {

    if ( &base<T>::implementation != &T::implementation ) {
      static_cast<T*>( this )->implementation();
    }
  }
};

class derived1: public base<derived> {
};

class derived2: public base<derived> {

  void implementation( void ) {};
};

In this example of the CRTP, the base class has a default implementation of the interface. In class derived1, as there is no implementation defined, no implementation gets called. In class derived2, where there is an implementation defined, it is called.


2010 Apr 23 - Fri

Common Representation of IPv6 Address Text Representation

Most everyone knows how to write an IPv4 ip address, and is easy and simple to understand.

As the world migrates to a new internet addressing system, which is known as IPv6, writing out the address becomes difficult. The difficulty is that there are multiple ways of writing an IPv6 address. As a consequence, when people need to perform text searches, no matches may result because the way in which it was searched doesn't match the way in which it was written.

A new document has been authored entitled A Recommendation for IPv6 Address Text Representation which helps to standardize the process of writing an IPv6 address.

In a nutshell, the recommendation is:

  • Leading zeros MUST be suppressed. For example 2001:0db8::0001 is not acceptable and must be represented as 2001:db8::1. A single 16 bit 0000 field MUST be represented as 0.
  • The use of symbol "::" MUST be used to its maximum capability. For example, 2001:db8::0:1 is not acceptable, because the symbol "::" could have been used to produce a shorter representation 2001:db8::1.
  • The symbol "::" MUST NOT be used to shorten just one 16 bit 0 field. For example, the representation 2001:db8:0:1:1:1:1:1 is correct, but 2001:db8::1:1:1:1:1 is not correct.
  • When there is an alternative choice in the placement of a "::", the longest run of consecutive 16 bit 0 fields MUST be shortened (i.e. the sequence with three consecutive zero fields is shortened in 2001: 0:0:1:0:0:0:1). When the length of the consecutive 16 bit 0 fields are equal (i.e. 2001:db8:0:0:1:0:0:1), the first sequence of zero bits MUST be shortened. For example 2001:db8::1:0:0:1 is correct representation.
  • The characters "a", "b", "c", "d", "e", "f" in an IPv6 address MUST be represented in lower case.
  • When writing port numbers with an IPv6 address, the [] style as expressed in [RFC3986] SHOULD be employed, and is the default unless otherwise specified -- [2001:db8::1]:80


Borrowing Money to make Money, Taxpayer Pays the Interest

Eric Fry, in teh Daily Reckoning, provides an interesting insight into the profitability of today's banking sector:

When it converted into a bank holding company back in 2008, Goldman became eligible to borrow cheap money from the Fed's discount window. Morgan Stanley did the same thing. As a result, Goldman, Morgan Stanley et al. may borrow billions of dollars from the Federal Reserve and use the proceeds to purchase higher-yielding government securities of longer duration.

In other words, Goldman may borrow from the government at 0.75%, then loan the money back to the government at 3% or 4%. All in a day's "trading." Not surprisingly, all the major financial firms have been reporting blockbuster profits. Yesterday, for example, Morgan Stanley wowed the Street by nearly doubling its expected earnings result. Bond trading provided most of t he juice, as Morgan's fixed-income revenue more than doubled from the prior year's first quarter.

Prior to Morgan Stanley's results, Bank of America, JP Morgan Chase and, yes, Goldman Sachs, h ad all reported record quarterly revenue from fixed-income trading. On the surface, these monster profits would seem like good news. But this silver cloud contains a very dark lining: without the Fed's low-cost financing, fixed-income profits will be much harder to come by.



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