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Ignore the Noise
In today’s comments from David Rosenberg (well worth the subscription) he presents a quote from Dr. Lacy Hunt of Hoisington Investment Management that struck me as particularly insightful. We would all be better equity investors, long and short, applying the same logic to company fundamentals. However, noise is plentiful in a High Frequency world and commotion drives revenue for service providers.

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If you ignore the noise you will never buy Us treasuries and WS stocks until reset. Very bad that for "pax americana". You run against the grain of those who run the world. However in debt they may be, they pass it on to the country BS to keep their own profitable. That is not noise thats a nuclear explosion; of capitalism. Your advice loses all meaning as the game itself is over.
Next game please, but first define the new rules as the old ones don't apply.
The markets work on information arbitrage, if you don't think you can bring "better" information to the table than the next guy you should stay out of the market or just buy and hold an index fund. I disagree that the short term moves are noise. The better information I think I bring to the table is that those moves are predictable to a degree. Anyone who has done programming knows that the algos, no matter how sophisticated they are will show signs of their programming in their actions. The big money players and PPT if it exists will have predictable actions, all to a degree of course.
-Algos like "up" but loath resistance levels.
-Someone is purposefully and successfully trying to drive volume down so the algos can play their game.
-The PPT hates Ron Paul and will do all it can to prevent his election.
-Banks are like vampires and just as hard to kill, don't bet on their demise.
-The purpose of most news reports is to get people to sell when the Big Boys are buying and vice versa. ZeroHedge is priceless in sorting out truth from fiction but in a backwards bizarre way Goldman is better. Someday they'll have to throw out some truth just to keep the contrarians honest but I'm still waiting.
-TPTB fear deflation more than inflation so in the end inflation wins.
My account balance testifies that I haven't learned all I need to, but the learning curve is flattening. If I ever become convinced that the short term noise is truly unreadable I'll quit playing with the casino because I think fundamentals are nearly worthless in this market. If I can see the fundamentals it's already priced in.
"If I ever become convinced that the short term noise is truly unreadable I'll quit playing with the casino because I think fundamentals are nearly worthless in this market. If I can see the fundamentals it's already priced in."
How about contrarian fundamentals? Here's an idea to consider - a lot of people work on short-term news, but fail to see long-term trends in an industry. For example in 2002, when a lot of tech stocks were crashing (short-term noise), I did some fundamental analysis and made some great returns. here's some of my thinking:
1) Wireless networks would be the way of the future in many emerging markets. Why? It's a lot easier to set up wireless networks than wired networks in a built up environment.
So who are the big infrastructure makers - turned out that Ericsson was the market leader. So I bought into them.
2) Building on (1) - who were the big handset sellers? Back then it was Nokia - they dominated then, and still dominate many emerging markets who can't afford the expensive smart phones. Bought into them.
3) OK, with all the increased network traffic what needs to grow next? The back bone network right? who dominates the optical fiber market? Corning. Bought into them
4) Well, who makes the routers? Cisco and Juniper.
5) You could see in 2002 that Dubya was on the war path. Didn't know who it was, but I picked 2 top defense contractors (LMT and RTN)
6) E-commerce was on the up. Selling was done through various portals. However, who was doing the delivering? UPS and FedEx.
7) Starbucks had taken off, but at the time, Peet's coffee was a small retailer which was beginning to take off. hard to value but I bought in.
I sold off a lot in 2005 - 2007, as I was making transitions in life and wanted to have cash in hand, then realised the problems with subprime etc and dumped. However, the approach is the same: What is the established thinking? Is there some long-term trend that many are missing? Why is this share so beaten down?
There are opps everywhere. For example, right now Nat Gas is at its lowest price ever, due to warm weather and oversupply. But with $100 oil and available nat gas conversion technology, isn't there an incentive for transportation companies to switch over into Nat Gas?
But stop and think for a minute: If $100 a barrel oil is hurting developed economies, what about emerging markets? Remember, often the first adopters of new technologies are not established countries, because there is a cost of tearing down exisiting technologies and putting in new technologies. It's usually emerging markets that make the first move, because they only have 'greenfields'. So aren't people in developing countries sitting there and thinking about nat gas technologies? Maybe. Worth a thought right?
Also, weather is random. This winter might be warm, next winter may be freezing.
WARNING: I'M NOT TELLING YOU TO INVEST IN NAT GAS. I'M SAYING THAT IT'S SOMETHING TO THINK ABOUT.
You almost have to learn to think about trends rather than stocks. A top-down approach sometimes works better because it's easier to look at trends in an industry as a whole. And sure, people have agendas when they present info. ZH itself has an agenda, the difference is Tyler openly admits to an agenda. But you have to seek out the info yourself and apply strong filters and do the due diligence yourself.
You're better than a bot on picking long-term trends, believe me. And believe me, a bot cannot outperform a human being on research and developing new ideas.
Right now - I'm long cash because I don't like what I see in these markets. But now and again, I'll make some investments when I see longer-term opps.
Long term = stagflation, biflation, hyperinflation. Eventual rate raises despite the consequences. Euro defaults and European regression. QE to infinity until the insanity ends (?). Pay off debt. PM's, polish individual physical and emotional skills as mental and moral and ethical defects reign supreme in places of power.
Great post,
Most of the noise is intentionally fabricated with an eye to driving the sheep into the arms of the shearers of Wall Street. Much of the vidiot financial press is continually engaged in this enterprise, and it used to work, over and over again, until recently that is. Retail is largely gone for a variety of reasons and that just leaves the bots and algos and the pensions in the arena. If you have a pension, as I do it would not be totally paranoid to worry a little bit because pensions are one of the only remaining resources for Wall Street to plunder and pension managers do rely on the "Boyz" quite heavily while paying a huge premium for their counsel. Remember what GS and JPM et al were doing to their clients in 2007-08? IF Europe does eventually rattle the debt markets again there are going to be huge holes in balance sheets needing mending at someone elses expense. Pensions imperiled? Possibly, along with bank deposits and other assets of the inconsequential.
Wish that were the case. They are skinning them instead.
As the old sage says: You can shear a sheep many times, but you can only skin him once.
That surely explains low volume!
Remember Jon Corzine!
So, Rosemberg is good at being ultimately right in the long term, with poor to no timing in the short term, claiming that this is enough to make money.
And that it is feasible only through fundamentals...
Everybody can be right if considering that bad timing is ok (you were right, it is just that in advance of 10 weeks to a few months...).
What is even worse: If fundamentals are counterintuitive, why are they still being called fundamentals?
Typical economist excuse.
This is a sad HFT playground. Anyone still trading should be able to compete with them instead of merely acknowledging that they are destroying the market for everybody else.
If what he says is true, everybody should be tolerating equity swings of what? -60% to be ultimately "right in the long term"?
No thanks.
Still not a word about what this distant eventual future that is predictable via "counterintuitive-fundamentals" can be.
"...Still the dragons reign supreme
Breathing fire till we scream
They leave us nothing but our dreams
No shield can save us
It's gonna take a miracle..."
So we need to figure out what TPTB are after, which of course would be complete control of everything at any cost. That would probably include wiping out, oh, maybe 2/3rds of the population of the planet, which would still give them plenty of slaves to keep them amused and in the manner they want to be pampered in.
Do I have that about right? So what does that do for commodities? The Dow? The $ ??
thanks for the large print. the latest iteration of the TBTB torture of me is my vision. this "war to the death with Islam" will be something to behold since apparently is one of their "ways to winning." anywho Rosenberg's top shelf. He got shafted on the Street for pointing out the obvious...as did everyone else for that matter. His quote of a "jobless prosperity" is EXACTLY what has trasnpired...and of course closely followed by a PERMANENT increase in commodity prices cuz "we gotta get these real estate prices moving higher." As if that's in the interest of anyone on Capitol Hill! HAHAHAHAHAHA! Pathetic. Anywho Dr. Lacey Hunt is "the King of Zero Coupon bonds"--he's made a fortune if he held that trade through this year. Top shelf investor...who happens to be an economist as well. Great combination!
I'm giving this a big ol' raspberry - tthhhpppppp!
The only problem with this is, to use a counter-quote, "The markets can remain irrational for longer than you remain solvent"??
"..the only knowledge we think we have pertains to these long term fundamentals.."
Kodak?
Xerox?
MF Global?
If you can't grasp short term fundamentals there's fuk-all chance you'll be able to grab long term fundamentals
But good luck with your "value investing" ...you can join Warren 'Back (Stop Loss?) America' Buffet on food stamps in a few years