Artha Tek

Isolate your edge; don't just gamble, trade

2009-03-30T04:06:00.004+02:00

The other night I was hanging out with some guy from the Gambia, talking about Reggae and dark-haired Danish girls, that kind of thing. His friend (probably Sengalese) was playing the slots. Hitting the button over and over again. He poured €170 into it, all gone. Sometimes he wins €200 so he wants that back. He even borrowed another €30 from the döner shop and poured that in. He was philosophical about it, but he just can't stop. The Turkish kids all gamble too, but he pointed out that they steal. At least he was honest and sold weed.

Some study [citation needed] showed that both humans and monkeys will find a game addictive when the result is erratic. If its predictable, then the game becomes boring. Even if the terms of the game are against you (its a slot machine, do the math) you will still play it because your brain rewards those sensations.

That reminds me of scalping, which I've told myself to stop doing, and yet sometimes I think I see an opportunity and pop a trade in there. More often I feel the DESIRE to make a trade (missed out on a rally) and then convince myself I see a move and then I'm in. Classic over-trading.

I do know what pieces of knowledge I need to become successful at it. I have in periods been focused and operated correctly and profited. I need market delta, to learn the corporate-bond/treasuries market (as a tell), to watch advancers/decliners and to watch the sectors more carefully. Mostly I just watch TICK and TRIN, and that's not enough.

As I've posted in this blog, I don't see any purpose in scalping other than to learn how to deal with the traders world of :

1. randomness (reacting correctly to unexpected events)

2. market tells (reading the market correctly, not just through price action)

3. focus amidst overwhelming amounts of information (isolating what I do know)

4. the most basic lesson : cut your losers fast, let your winners run

Learning this at a micro, real-time level prepares me for intelligently doing REAL trading which is actually investing.

I don't see any just or moral purpose to scalping, but investing allows an effect on the world.

Not all trading/investing requires having massive analytic and fast execution trading desks. But you have to understand what the little guy can do well and focus on that.

Lately I've been burying my head in fundamental analysis. I'm becoming a fundy. Its amazing : shitty books go down and good books go up. Its fucking magic.

why are we in the lemonade business ?

2009-02-12T14:20:00.004+01:00

Calvin (to Susie): Look at this glass of lemonade. You'll be able to sell it for 50 cents tomorrow, but I'll sell it to you for 25 cents today.

Susie: But I don't have the money.

Calvin: That's okay, I'll loan you the money. You can pay me back with interest... say... 35 cents. The lemonade will surely be worth 50 cents tomorrow... You can even drink part of it, sell the rest, and still be able to pay me back.

Susie: Well, I guess... you've been selling lemonade for so long, you should know.

Calvin: Here ya go.

Random kids: Wow, what an easy way to make dough! We'll take some of your lemonade too on exactly those terms.

Random kid: Hey, if I can get another kid to loan me money against the future value of this lemonade, I can invest it in lemons now and be a millionaire by the end of the day. Who knew getting rich is so easy?

(meanwhile just in eyeshot)

Moe 1 to Moe 2 (Rosalyn?, random kid?): I bet Susie won't be able to sell that lemonade tomorrow.

Moe 2: You're on.

Calvin to Moe 2: Say Moe 2, I just sold a bunch of lemonade and will get paid big time when they pay me for it, can I borrow some money to buy more lemons. I sure am glad lemonade's a fungible commodity.

Moe 2: Sure, I'll be making some dough when Susie won't be able to pay you back, so I feel comfortable loaning you more money now.

Mom: Geez, look at all that lemonade Calvin is selling... and if the Moe 2 is still lending him money, he must be doing something right. If I want to sell any lemonade I better do like he does so I don't lose any market share.

(next day)

Susie: Gee, I drank only a sip of that lemonade, and now no one wants to buy it. I won't be able to pay Calvin back completely. At least I got a sip... I'll pay him for that.

Calvin: Where's my money?

Susie: I couldn't sell your lemonade. But here's 15 cents... it's all I can pay.

Calvin: WHAT!?! But that beverage is so valuable... it's worth at least 50 cents.

Susie: Sorry, I know... I thought I would be able to make a fortune.

Calvin: Crap, me too. Well I'll have to take back what's left.

Susie: I don't think anyone else will want it.

Moe 2 (to Calvin): Where's my money?

Calvin: I don't have it. Here's some lemonade.

Moe 2: Don't have it? day-old lemonade? yuck.

Moe 2 (to Moe 1): see he doesn't have it, pay up.

Moe 1: I don't have any money, I was betting with those other kids that they'd be able to sell their lemonade, that was the only way I'd be able to pay you.

Moe 2: no money?

Moe 1: no money.

Calvin: Well I'd have some if you let me borrow some more.

Moe 2, Moe 1 and Calvin fall into a dust storm of fighting... Calvin narrowly escapes the fray

Mom: Geez things are hairy out there. I sure loaned out a lot of lemonade. I don't think I'm ever getting paid back. Now they'll all come whining to me about how they lost all their money and their lemonade.

Maybe Calvin's system isn't working out so hot, but If he has to shut down his lemonade stand, nobody will have lemonade ever.

Mom (to Calvin): Here, Calvin. This is 2 dollars. Buy some lemons and sugar.

Susie: I lost all my lemonade too, and my quarter, now I can't buy anything.

Mom (to Susie): Here Susie, this is 2 dollars, you should be able to plant a lemon tree with this, and you'll have all the lemonade you want. You can help me with chores if you want more.

(Mom continues paying out to all the neighborhood kids and the bullies for the blunder she and Calvin made.)

Mom: What the hell am I gonna do with all this day-old lemonade?

(later)

Dad: Where'd all our friggin money go? and What's with all this day-old lemonade. And why are you in the lemonade business to begin with?

Mom: What matters is that all the neighborhood kids have been made whole.

Dad: What do you mean... made whole‽ They took lemonade for free and then treated it as if it was worth a fortune to create an intricate web of bets and loans that ran the neighborhood economy into the ground.. and your answer is to dole out cash?

Mom: Well, we have to keep them occupied somehow or else they'll be in their houses bugging their parents and breaking things.

Dad: Well I guess you're right. We can't just do nothing

(elsewhere)

Calvin: MONEY MONEY MONEY MONEY!

Hobbes: Maybe you should try to just.. you know.. sell lemonade.

Calvin: But how am I supposed to make money doing that? I'm gonna sit on this wad of cash until Mom gets out of my hair, and then take Susie for all she has.

original posted on reddit

Quantitative Easing for Children

2008-12-31T02:42:00.003+01:00

Quantitative easing from Marketplace on Vimeo.

more reasons not to fuck with TBT

AFAIK the gov't isn't buying treasuries at this point, though they've said they could. they buy agencies (GSEs).

via
http://www.stereohell.com/door/

also check this wonderful artwork:
http://www.stereohell.com/door/strip/

leveraged ETFs are for gambling

2008-12-19T20:02:00.004+01:00

Now I'm just a little blog over here, but I've said several times in the past that ETFs are very wonky in how they work. They don't buy stocks they do things with warrants, futures and options and force other people to go buy or sell. Its stripped the PURPOSE OF INFORMATION out of the market.

The purpose of trading is to determine the correct pricing for an equity. Traders buy and sell the thing and keep the price accurate and realistic (theoretically) or at least go probe the depths and heights of prices to see where people are going to freak out.

Think about the tape during the day. Those aren't all individuals making decisions. Most of those trades are machine driven, and most of THOSE aren't related to the immediately occurring price "discussion". They are to cover options, or as part of pair trades and vastly more exotic trading strategies. They are to cover warrants, to refill market makers' inventories, and in some cases to just swoop up a bunch of shares and hide them until later. Shares trade in dark pools of liquidity (cue eerie black metal soundtrack here — I suggest Burzum)

This is why the stock market is broken. Its not investing, its gambling, and the derivatives have selfishly removed the information component from the main market. Of course right now the information is this: we're fucked, its all over valued, sell sell sell !! Which is correct and as it should be. Would've been better if it had started a few years ago.

The Fly (as much he wouldn't admit it) has morals too:

While it’s true, being long 10,000 SRS on a 9 point day can be fun; it also can twist your stomach into knots when the opposite occurs, going up. For the love of large intestines and sanity, in 2009, “The Fly” will “go old school” and start short selling individual names directly, rather than through proxies.

http://www.ibankcoin.com/flyblog/index.php/2008/12/19/no-more-volatility/

Of course I made loot off SKF 3 times this week, so ...

if treasuries and USD sell off, what gets bought ?

2008-12-04T13:20:00.004+01:00

if everybody decided to sell all of those treasuries and dollars ... what would or COULD they buy ?

the yuan can't handle it and wouldn't want to be pushed up that high. no currency buy itself can handle it. no equity market or sovereign bond market can handle it.

nobody wants the responsibility of all that investment. the problem in the world right now is too much "wealth" and no safe place to put it. (which reminds us how sad it is that poverty and resource-wars still plague the planet)

so reasons the sell off hasn't started:

1. if anybody flinches the game of confidence collapses and an amazing amount of "wealth" is destroyed in a sell off. nobody can step away from the table (except us little guys). any move has to be done very slowly and gradually.

2. there's nothing to sell this stuff off into

3. the big holders (esp. china, japan) benefit from a higher dollar for their export economies and the negative effect it has on commodities. they don't want the dollar to collapse. its in their best interests to keep loading up on this fictitious and nonredeemable wealth. everybody seems to think that the US is a real country with "balances" and obligations. its more like the bank in Monopoly.

disclosure: I gave up on TBT (short treasuries) with a small loss. the bubble gets bigger for now. it will move, the chart looks like it would move, but only as a trade. this is the age of VIX + 60. TBT is a long term move at some point. could be years.

and what a wicked world if everybody jumps on this one and bangs it into the ground. what would happen if the hedge funds put their momentum machines on treasuries and caused it all to squeeze out into some other unstable market ? greed is systematically destroying the financial world.

the world economy is electronically wired to fear and greed

2008-11-25T22:37:00.000+01:00

hey earth, this is a bad idea: let's take the entire economy of the world and hook it up to real time electronic casino and unleash fear and greed upon it.

yeah, that's it. I'm sure that with only fear and greed to act as inspiration, the men of earth will surely do the right thing with all of that human potential.

in the future we will see companies finding ways to avoid putting themselves public. like Porsche quietly buying up most of Volkswagen.

screw the gamblers, they have no sense of the history.

long: TBT, GLD

QLD QID quivering oddly

2008-10-28T01:57:00.000+01:00

I had this vision that it would be possible to toast all small time traders by making the bid/ask vibrate so horribly that nobody could scalp it. Longer term traders or those with bigger tolerance for risk (wider stops) could still trade.

I used to scalp QLD/QID. Don't ask why, it just seemed like the thing to do. Now (Oct 2008) the bid ask is vibrating all over the place like water on a hot skillet. The only thing you can do is place a target in the range of quivering and hope it gets hit. The QQQQ is much more sensible and liquid and tradeable. I am always very curious what the software looks like that drives these things. What inputs are they keyed off of ?

I have learned that QLD etc. do not buy the actual underlying components of the index. Rather they have warrants with other parties who deliver the components to them with a certain amount of time displacement (possibly hours or days ?). Either that or they never own the underlying and have some queer deal with these warrant people.

In any case, you don't express yourself in the marketplace by buying ETFs. You might as well just do spread betting (very popular in the UK so I hear) or just go down t' pub and wager with your mates. Its certainly not investing. Your capital was never used for anything legitimate like paying wages or buying raw supplies. Your profits are only non-sensical gambling in the sphere of derivitaves of fake value.

saw it coming... and yet ...

2008-10-28T01:45:00.001+01:00

I do feel bad that even though I've seen all this shit coming since the March and August crashes of 2007, but I didn't profit off it, and I didn't even avoid all of the damage.

I bought Euros dammit. Amazing (to even the experts) that it would take my head off like this. Nobody saw this massive dislocation coming, and when it came I thought I shouldn't over react, hold on, it won't last forever. and it won't. but....

and now ... to sell (ok, I did a bit) would be crazy because it will snap at any second.

or at least the dollar may snap, that doesn't mean the euro will surge.

what to buy ? honestly, I think about what physical objects have high resale value. Do you think my vinyl 12" collection is going up in value ? ah ... no.

the yen, dammit, I was just about to buy and got all scared (having lost all of my other bets) and now I feel its popped too much. the G7 state that they are worried, its shafting the Japanese who have already been shafted in their stock market and personal pensions.

I am tired of hearing the US citizens whining about their market. The rest of the world has suffered far worst. Actually it was all fake money, so its nice to see those annoying super-Russians cut down to size.

And, as through much of 2008, I feel like I should go short-and-hold because ... those valuations are so cheap now and greed will overwhelm fear any moment.

Not that we aren't fucked, mind. Earnings down the road, consumption and all of that.

Personally I am an immaterial girl (poetic license, I'm a dude of course). And I don't like money really. I think we will eventually evolve past money, but not in this lifetime.

I think we will defintely evolve past this casino-for-a-stock market mentality. Maybe THAT's the capitulation we are waiting for. When the whole generation of gamblers are put out to pasture (self included) and we go back to producing and getting paid for production.

2008-10-06T17:59:00.001+02:00

The next time you are thinking "well things seem ok, maybe we'll get out of this alive. thank god I didn't panic and sell back there when fear was pandemic" .... on that day .... sell something.

Me, I'm all "money" (whatever that is):

%40 euros (grrrrrrr)
%50 $ (the dollar will survive for a while longer. it has to)
%10 gold (who knows)

Wishing I had followed my impulse to buy JPY last week. I'm trying not to trade currencies. I don't really understand them enough.

I've enjoyed being all cash for a while now. but the demon of financial armageddon doesn't like cash either, and he will hunt me down and destroy that too.

How's this for scary: CPB Cambell Soup is holding up quite well today (with major world wide crashes going on). Now what could could savvy investors be thinking ?

Seriously folks, if you haven't thought about the consequences of a complete dislocation in the way that food and retail happens in the western economies ... and how you are going to cope with that dislocation, then do so now.

Have a month worth of food on hand just in case there are interruptions to banking or food. Better safe than sorry.

Re: "The Bailout" : I am officially recalling my benefit of the doubt

2008-09-25T00:30:00.000+02:00

They are clearly overselling it, pushing it through too fast, drumming up too much fear. I do believe the markets be fucked. I also believe this is a Shock Doctrine - style tactic to make moves at a time of crisis. Now the word is "wall street as we know it is over. end of an era" — which sounds like a whitewash.

But what are these moves worth for the US Treasury and Fed ? Do they expect to profit off of it ? Or is it Hanky Panky Paulson doing a favor for his former company GS and scraping some more shit off onto the taxpayer ?

But considering how much they SEEM to want to support the dollar (right ? or do these guys really want a weaker dollar ?) this is a dollar fucking moving.

And I have to admit, as much as I protested the War in Iraq during the run up, Colon kind of had me there for a minute thinking : "gee, maybe they really do know something about them WMDs."

I have been prepared to believe that all hell really has broken lose.

GLD gold how far up this time ?

2008-09-22T23:54:00.000+02:00

Sold some today at $89.60
Will repurchase on the next dip.

My thinking is that many people were caught when gold crashed down, but since they are gold buyers we know they are stubborn folk who, just like me, decided to wait it out. Then they got worried (in the last few weeks) and were looking for an exit. Underwater people looking to get out. BUT they are equally scared of the dollar.

So I expect a pullback from profit taking and just a general pullback from a historically massive pulse upwards.

But I don't expect much of a pullback, because everybody knows now that the dollar rally is done, inflation is inevitable and gold will now glitter again. that's seems a foregone conclusion now.

I told you so : SKF halted trading

2008-09-19T17:57:00.000+02:00

Previously I said that some kind of options market related accident will occur. ("with so many planes in the air, a collision is inevitable")

SKF was halted on friday because of the new short rules. Finally I figured out a bit more of how the internals work on these gadgets.

http://news.morningstar.com/articlenet/article.aspx?id=253823&pgid=rss

ProShares does not buy or short shares, they trade only in options, forwards and futures. So they need counterparties to these agreements, and those counterparties would almost certainly want to actually short the shares to gain the desired effect so that they can fullfil their end of the contract. So at the moment nobody can do that (especially GS MS MER show are ...whoops... were the primary writers/buyers of these contracts).

This means that when I scalp the frakking QID I am having no actual effect on the marketplace. You know I'm really concerned that my little 100 shares should stand up and say (as in a democracy) "you suck!" and everybody watching their screens would see the cumulative emotional cry of the land and the market will have spoken.

but no, it doesn't work like that. Everything is distributed in time in uneven ways through layers and layers of derivitives. So often times its these layers of obligations that occasionally burp because they have to and then stupid shit happens like buying up the financials as though the nightmare was over.

everybody down

2008-09-09T23:46:00.001+02:00

Does anybody think the massive commodities sell off is meaningful ? It seems like the machines that got stuck going up are now driving it down. Are they making money dragging it all down ?

I don't buy the "global slow down" therefore oil follows grains, gold follows oil. I get the feeling "THEY" are trying to kill gold just because it will prop the dollar up, and that's their last hope.

I don't see any basis for the big dollar rally. I wouldn't be surprised if a deal was struck with the Big Holders of US Debt that they would buy dollars (and why wouldn't they want the buck propped ?) in exchange for the US protecting Fannie and Freddie.

Now it isn't for share price that those holders needed to be protected, because the share holders got killed. Its the debt of F & F, right ? That's what the Chinese hold in weight.

None of this is good for nobody.

Market of Noise

2008-09-04T23:10:00.000+02:00

The momentum driven hedge funds have turned the market into a huge statistics and probability experiment. 60% + of trading is program driven. Many trades aren't even about the company in question; they are part of pair trades, index and ETF buys and sells. Hedge funds put together correlations expressing their ideas about relationships and this massive complex matrix is let loose on actual companies and investors. There's a lot of noise because many of the trades aren't direct statements of bullishness/bearishness regarding a specific stock, its just reactions to other shit firing off into the data space.

Everybody is feeling like the market has no memory day to day. Logical ideas and carefully considered thoughts about where capital should be moved are no longer rewarded. There is no such thing as a long trade; I don't even swing trade anymore. I sold every mutual fund and I don't like to hold ETFs overnight. I stubbornly hold gold, but the paper value via futures trading has totally abstracted the historical "gold is money" argument. Its a huge crapshoot.

That said I've been doing ok, and that's damn tough.

Well right now everything is going down, so that makes things easy. I scalp, sometimes both sides of the market (that is until I got caught on a QLD downdraft and decided to only scalp the QID dammit). DIG and DUG. I proudly extracted small change from LEH. QQQQ is below July lows today. March lows coming soon ? A bounce ? Seems logical, but logic hasn't been of much use lately.

I watch the components, TRIX, TRIN, VXN, oil, currency. Some day I will code up my ideas into cross market indicators. Or spend it all on a herd of yaks and return to the mountains where I belong.

The nature of holding investments has been steadily changing. Buy and hold is disapearing, we just scalp it as if to say in passing "yes, this guy ! great company !" or "due for a hair cut here" and then we are gone by the end of the session. We aren't going to get in a relationship. OK, that's a small segment of the capital. Retail investors (mom and pop) should leave already.

Maybe the next age of finance will be like cloud computing: money is allocated to investment vehicles and it swarms around in the most evolved and logical fashion. Humanity acheives an unsurpassed efficiency of application of capital.

Or more likely, the greedy are going to keep trying to suck the alpha out of the whole planet. Then they will leverage it further and suck the alpha out of the future (erm... aka debt) and then maybe progress to sucking the alpha out of yet to be discovered worlds and universes.

The age of human traders will soon draw to a close. It will only be algorithms. Now I would like to see algorithms with more meaninful inputs than momentum. It seems like once something starts to move it keeps going with a lot of force ("hey Long Oil Short Financials isn't working ! reverse hard !!!!").

I look at Oil and Gold and Solars going back up. Forget logic, the holdings and programs and churnings of hedge funds are more significant. We might as well direct all of our financial analysis to what THEY hold and when THEY are going to have to liquidate or reverse.

Did the PPT start the dollar rally ? Yes, and they pushed at exactly the right moment.

America turns on a dime

2008-08-14T02:41:00.000+02:00

Don't forget that America is a dynamic country that turns on a dime. It likes trends, and as they always say: America loves a comeback. While we all know there is more downside coming (after this little [how little ? most important question] rally), it is slowly sinking in that perhaps the world won't end.

I foresee the coming of a very enthusiastic alternative energy bubble ... erm I mean trend.

TRAVERSE CITY, Mich (Reuters) - Chrysler LLC on Wednesday outlined plans to launch a new car-based SUV modeled after the Jeep Cherokee, as other major automakers took the spotlight at an industry conference to pitch their own hurried responses to the surging demand for more fuel-efficient cars.

http://www.reuters.com/article/businessNews/idUSN1331201920080813

Which reminds me, Americans are cowards who will only do what the market says it wants. If the customer wants fat stinky cars, then we got 'em priced to move until the oil is gone.

The United States now leads the world in the amount of electricity it generates from wind energy, according to the American Wind Energy Association (AWEA). The trade group's second-quarter market report, released on August 5, finds that the wind industry installed a total of 1,194 megawatts (MW) in the second quarter, bringing the total installed U.S. wind capacity to 19,549 MW.

http://media-newswire.com/release_1070628.html

Yeah, but you can't fuck with the Dutch for style.

and I'm still shorting the shit out of the US every single day until the finance industry is bled dry (and into the hole) and we stick all of that capital into new energy. then and only then may you resume shopping.

and don't think that we don't know that the dollar will resume down (maybe later) and oil and commodities will resume back up.

again I will say : the best thing about the short term exuberant top in oil (part of its bull run) is that it woke everybody up to the need to invest in alternatives now.

Solar will probably resume very shortly. In the last "oh we don't have to worry about oil" pullback Solar has been hated and I've been elsewhere. An industry like solar needs many phases of boom and bust in order to shake out the weak companies and to keep the brutal analysis trained on them to see who will become MAJOR producers.

MOO ! GROWL ! MOO ! GROWL !

2008-07-31T14:10:00.000+02:00

What a hilarious week in the market. We have some determined cows out there. Nobody can tell which way its going to run. This sideways movement : bear trap or is it going to get some traction ? The dollar is the same thing : rally to uh... 1.50 ? before we resume ?

Seems to me its not ready for a real run up (before the inevitable fall back). But I remain hedged both ways. In fact I've been fairly well by simply collecting moves in either direction. Eventually (like right now?) I'm going to get caught holding something the wrong way.

In scalping you learn certain movements. Quivering, lurching up and then selling off hard. Some call them head fakes, and if the market is controllable (small float, big money) then it could be a real head fake by a real person. People love to personify the market or say that smart money will do this or that. And they will, but its also true that its a lot of guys staring at computer screens desperately trying to figure out which way it will go.

There is an attitude now that we should just get the selling over with sharp and quick. OK, are we done now ?

The US appears very rich what with all the developments and shopping centers and displays of corporate wealth . Now we have to imagine/realize that a large amount of that HAS to go under and physically disappear before the accounts are balanced. Cause its borrowed and fictitious. And that will take much longer than 2008. Bennigans/Steak-and-Ale just went down. The look of the country will change by the time its over.

Its a game of musical chairs. The smartest players will still have chairs when the music finally stops, but we go through these rounds. The realization is spreading that there are less chairs than was assumed.

Traders don't mind this. People and banks holding significant amounts of worthless paper would like another round to maybe shift some of this into somebody else's pocket.

Look at the market after 2001. What is now started cannot possibly be less than 4 years. Look at the sideways 70s. That's the optimistic turnout.

what happens when the shorts really getting going ...

2008-07-22T17:52:00.000+02:00

For once I'm going to agree with The Cramer on this one. What exactly is going to happen when more and more of middle class America all start piling into short funds ? (oh right, by then we will have sold off enough for a good rally) Its creating a nasty environment, although the current market does need to be sold down (still). There's a lot of fictitious wealth in there. I'm just trading, making money up and down during the day, so no, "I don't care" or to be more accurate I'm disconnected from the underlying businesses that I'm several layers of abstraction away from.

I think the shorts are now heavily favored because they can instill fear and panic that the longs don't have the ability to do. They can destroy businesses -- the ultimate goal -- and the longs can't. I don't like that, I don't like it because the great history of the stock market shows that it works better if we regulate the shorts, to make it so they can't overwhelm the longs. The creation of wealth, not the destruction of wealth, is what the market is supposed to be about, it is why it is worth participating in at all, otherwise the mattress or bonds -- only good for the most solvent of operations -- make more sense.

http://www.thestreet.com/s/cramer-shorts-are-not-and-should-not-be-equal

But the Uptick rule is irrelevant in this day and age. A short ETF, in its internal implementation, can simply be programmed to sell harder on the first uptick. (I really wish I knew exactly how these things execute their buys/sells of the underlying)

And how exactly is the entire or frightened America going to sell dollars for GLD ? Many of these new fangled ETFs are constructed with derivatives and futures strategies. What happens if the derivatives market undergoes a major collapse due to parties not being able to pay ? With this many robot driven planes in the sky, eventually something is going to collide, no ?

High Oil Price a very good thing for earth

2008-06-25T00:08:00.001+02:00

The good thing about high oil prices is that its spurring attention towards peak oil and alternative energies right now.

I also think its inflated and pushed and now maybe even peaked. I don't have the guts to short it right now. (any trader that thinks that's guts is just stupid. and people that stupid deserve to lose. I'm not that stupid.)

The talk in Mom and Pop-ville is that those damned oil speculators have caused the price to go so high and now The Damned Congress is going to do something about it. But the speculators didn't do it, they were just along for the ride. Its Big Oil itself that did it.

And as I said, its not a bad thing. Its made people think and it may get the US to reduce consumption. And it will probably come back down, maybe to the 90s (but what do I know).

America knows how to party

2008-01-22T18:39:00.000+01:00

Worldwide Markets Crash ! For days on days without end ! The decoupling theory is dead ! Everybody panic !

The US markets were closed Jan 21 (MLK day). Last week and the week before I said I would sell off some Asia funds. I was just ... waiting for that bounce. I hate mutual funds. I wonder what the NAV will be today. Not pretty. Forget bounces. You can always find safer conditions to make that 4% or whatever bounce. If the thing is moving down, its likely to keep moving down. Yes, there will be a bounce, but only after you sell it. (they can sense fear).

So, the US will crash today. Futures screaming down. Foregone conclusion. Here we go.

On Jan 5th when the jobs report came out way under expected levels (5% unemployment) I just knew what would happen that day. Its would go down. I bought QID (double short the NASDAQ 100) on the open, sold it at the end of the day peak and made $650. Very pleased with myself.

Today, Jan 22nd I figure I'll do the same thing, but you can never be sure. The market opens screaming red, QID already +8%, SKF (short the financials) is +10%. Damn, its already priced in.

Then, Uncle Ben gave us 75 points so we can all go out and get drunk on cheap credit for a little while longer. I understand, he needed to. The stock market may be overvalued, and it may need to move lower, but it can't move lower that fast. That instability will cause financial institutions to fail, and that cascades into the whole economy. Still, I want to short the financials. Just out of ... shadenfreude.

So the market opens and begins to rally.

SKF went from +10% on the open to -10% at one point ! (MBIA) is up +40% because Barrons said "well, they aren't nearly as fucked as Ambac" ! LDK was -15% pre-market, -4.3% by lunch. I did not make any money on these moves.

But now where ? Its lunchtime. Nobody really knows. The VIX (CBOE volatility) is high which means shit is choppy. Right about now I would prefer a nice soft undulating wave in a quiet industry.

But I get the feeling this is the turning point in the plummeting.

The markets (US and Asia) are oversold. Its certainly not the time to short the market. It would be the time to happily take your shorts off the table.

The smartest thing to do now is to buy, but just a bit. The next few days could go up or down. Things may be cheaper later, but they are cheap now. Either way things will go up at some point, and they may even rage up for the rest of the week. So its time to accumulate.

Ron Paul and the Gold Bugs

2008-01-10T12:32:00.000+01:00

I am bemused by Mr. Ron Paul. Let's just say more bemused than I was by Ralph Nader, and for that same reason I'm glad that RP is a Republican and not a 3rd partier.

http://www.thestreet.com/s/ron-paul-get-back-to-gold/markets/marketfeatures/10397859.html?puc=_dm

The problem with going back to the Gold Standard (which is not going to happen) is that the global economy dwarfs the amount of physical gold. I think they used to use a factor of "9 times the amount of physical gold". So what would they do now ? 1000 times ? Inflation would still exist.

In the interview, the congressman also said he thought different currencies backed by precious metals should be legalized and allowed to compete with each other. In particular, he suggested that the exchange-traded funds that hold inventories of bullion, streetTracks Gold Shares (GLD) and iShares Comex Gold Trust (IAU), could issue certificates that could be spent as money.

Competing currencies would also legitimize Liberty Dollar, an Evansville, Ind., company that got in trouble with the FBI and the U.S. Mint for making its own solid silver coins, some stamped with the image of Paul. The firm was raided just before Thanksgiving and all materials were confiscated, including the Paul dollars.

Paul acknowledged that competing currencies could only occur with substantial changes to the criminal law and the tax code. Currently, it's illegal to try to spend precious metals coins as if they were currency, he said. The tax code also means that the changing dollar price of gold creates taxable capital gains. That's something which would need to be repealed, he says.

None of that is going to happen. I think he is only running to publicize ideas, which is a good thing.

Maharishi Mahesh Yogi (International Transcendental Meditation, friend of the Beatles) has issued his own Raam currency for many years. It is tolerated in the Netherlands as a small scale alternative currency, though the gov't occasionally warns against its stability.

Hedge funds suck the alpha out of the mutual funds

2008-01-05T18:51:00.000+01:00

The crazy volatility we have been seeing over the last year has, I think, been amplified by hedge funds that react very quickly, by automated trading strategies that don't mind taking any trend (up or down) and running with it hard. The quants and the agile and the traders have been making money, and the effect of this is that volatility is increased and encouraged.

Long only mutual funds, buy and hold strategies and index funds are going to suffer badly. Hedge funds will take all of the alpha out of the system. Owners of antiquated mutual funds (the mom and pop retail investors out there) are going to suffer.

But then the market is going down, so they will expect to suffer. They (average people) may not realize until its too late that this really going down.

Traders (like me) will make money. I hold very few things right now. On friday (Jan 4th, 2008) I bought 350 shares of (QID) (double short the NASDAQ) on the open and sold it at the very end of the day at its peak. +$589 for the day. That paid the rent.

I have two asian mutual funds, and I will be selling some of that off. Personally I expect further pullback in China, though the longer term is obviously still up. I'll be there in an ETF when that restarts.

Relatively safe ETF picks for the start of 2008 :
(SKF) short the financial sector
(SRS) short the real estate sector

The Central Banks, how money is created

2007-12-29T01:42:00.000+01:00

Here's another must see, a 5 part animation and narration about the history of money, how money is really created and what the dangers are of our current money system.

Suitable for all audiences. If your a free-market-at-any-cost freak, then this will annoy you. Watch it anyway.

The odd thing is that money is created from debt. If you get a mortgage, that money is created by your obligation. The gov't only creates coinage, the banks create the money. Without all this debt, the world would have less money in circulation. So Bush is thinking, "OK, let's make money ..." and gets out Uncle Sam's credit card again.

(Sidenote: serval hundred billion physical US dollars are outside of the US. most virtual US dollars are definitely outside of the US, right ?)

The clincher is when it is explained that this debt only creates the money in the world to pay the principal, and then we all have to squabble to find the money to pay the interest.

So the existence of interest demands the economy grow (or inflate) to meet that. Which means the world has to continually grow its economy. Oh wait, then there's all the fucking, and that 's what creates all these people and really creates the need for growth. Hmm. OK, we have to find new worlds to inhabit.

2, then 3,4,5 :
http://www.youtube.com/watch?v=hfXavRTM4Fg

Market makers vs. the scalpers

2007-12-29T01:29:00.000+01:00

This is a demo of FutureScalper software. It reminds me of Harold and the Purple Crayon.

(YM)

The interesting thing to note here is his commentary on what the market makers are doing and how much they are controlling these 10 minute oscillations. They are filling inventory and then selling it out again. They are aware who the retail people are, and yet many of the retail traders can't follow the market maker's intentions. FutureScalper seems to have some way to pick out who is who. I'm not sure how yet.

A friend of mine— a well known acid house producer — surprised me by telling me he used to be a runner at the CBOT. Like actually running back and forth, making markets. He explained that if you had any math skills like say any average drug dealer might, then it was pretty easy to make loot.

Scalping isn't the most glamorous end of the financial industry. They are essentially bandits, enabled by the electronic trading networks. They don't really serve a purpose in the eco-system other than providing liquidity. None of them has any opinion on the things they trade, they go with their friend the trend.

The market makers well organized bandits. They also provide liquidity, and they charge dearly for it by maintaining the bid-ask spread. And they keep things difficult for the scalpers which is good for everybody else. It shouldn't be easy or everybody would be walking off with the world's financial resources. They do maintain order in the markets, but I'm sure they do plenty of dirty work too.

Most stock traders do a lot of analyzing, arguing and fretting. The company's weaknesses get exposed and tested, and that's good. Its like having a lot of very motivated amateurs checking your work for you. Its probably annoying too, but these guys can also get all irrationally exuberant on your behalf, and then you get market cap. Then they sell and walk away.

OK, here's another thing scalpers do: most of them fail or take a long time learning. Many of them fail to beat the market. So the market takes their gambling cash.

In the end the hedge funds siphon off all the alpha anyway. ;) right ?

How big money manipulates the market

2007-12-29T01:03:00.000+01:00

Jim Cramer — at least he's honest. I usually see stocks plummet shortly after he gasses them up. Here's a classic clip; he's explaining how some hedge funds operate. If they have options expiring and the underlying is not at the right price, they would try to talk the stock down, and spend some money shorting it ($5 million he says) or get some analysts and press to play up some bad gossip.

He also notes that for not too much money you could get the future market to go up or down in the morning so that the obligatory "futures up, stocks set to open higher" headlines can get run. So pay no attention to those. In fact it might be just to get things optimistic, get the buyers in there and then whoever is running the operation for the day can pull the plug on the market and suck down all the suckers.

Moral:

If big money is doing something, get out of the way or find a way to ride the wave.
Don't take news at face value.
Even if you are only trading equities, you should know what the options markets are doing. A lot of big money is there and it has a deep effect on the underlying. More on that later.

Artha - the pursuit of wealth without attachment

2007-12-25T18:38:00.000+01:00

The name Artha comes from one of the four goals of life in Hinduism. It is the pursuit of wealth. Wealth is necessary to live. Splendid things are splendid. Mankind has pulled off some amazing things through Wealth. Good and positive things can be achieved with wealth.

This is a blog about finance, stocks, options, day trading, markets, issues, morals, implications, technique and specifics.

Artha is the pursuit of wealth without attachment; without losing your mind and soul in that pursuit. Greed is not the pursuit of wealth, it is another concept entirely. Greed causes you to make mistakes in a trade because you lose perspective.

Wealth is good. Desire and the pursuit of wealth is good. Its the driving motivating force behind many of the amazing achievements of mankind.

Greed is not good.

One of my favorite slogans: "You don't have to fuck people over to survive." This doesn't mean you don't compete or even aggressively compete. Struggle and competition is part of human existence. If you install a market into a small agrarian economy it dramatically increases the wealth. Trading is everywhere, even in art.

But you don't have to destroy somebody else just to obtain slightly better margins. And you certainly don't need to run an economy based on short term margins while setting the stage for massive financial disaster once you move onto your next job. The finance industry naturally attracts lots of people who really don't get that.

And in case you are wondering, the other 3 pursuits in the life of a Hindu:

Kama - desire, especially sexual desire. There is a book called the Kama Sutra. Perhaps you have heard of it. Desire can also get out of control and transform into lust and make you do all kinds of stupid shit. But sex and desire are a strong component in Love, and people ... Love is good.

Dharma - in this context it means religious duty, or the path that you are obligated to follow to transform your life and your world. It also refers to the technology of freeing yourself from attachment.

Moksha - salvation, the cessation of delusion. aka Nirvana. In the classical life of a Hindi you focus on Moksha in your later years; sometimes even taking a vow of poverty (leaving the Artha to your wife and going wandering with a begging bowl). The experiences of wealth and desire teach you why you need to be unattached, why your head and soul need to be clear. In the world of stock trading this means getting your ass burned by your own attachment and stupidity. That is one reason why involvement in the world is necessary during your life. You can not immediately go for nirvana, you have to live a little, get burned a little, get your heart broken a few times and understand how the mechanism of desire works. Only then can you escape it.

Wealth is not an impediment to self-realization, but attachment to wealth is.