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This Is Not Your Father's Market
Here are the 10 biggest things Doug Kass learned from yesterday's Wall Street action:
1. In a market dominated by momentum-based algorithms, buyers live higher and sellers live lower. With price swings exaggerated by computer trading, the value of charts and technical analysis have lost some relevance.
2. As a result, the market has no memory from day to day.
3. Risk happens fast.
4. As David Tepper said two months ago on CNBC -- when the flow changes, disruptions and bad things often happen. Note: The flow is changing.
5. Whoever thinks the market hasn't advanced since 2012 to a large degree thanks to Federal Reserve largesse is loco.
6. Ignore the business TV "talking heads" who are self-confident and glib in view. They don't recognize that we live in a world where the only certainty is a lack of certainty (and they're probably trying to sell you something). There's no "secret sauce" on Wall Street.
7. We're not nearly as safe as investors and citizens as markets presume.
8. Our dependence on central planners and central bankers represents a slippery slope for markets and global economic growth. Planners and bankers are human and often make mistakes, particularly in forecasting.
9. A period of substandard global economic growth likely lies ahead. As such, worldwide growth is more susceptible to a "black swan," or even "baby swan" events.
10. A period of substandard investment returns could also lie ahead.
This is not your father's market. Rather, it's a random walk -- and nearly unplayable from day to day unless you're very fleet of foot.
These spastic daily market moves are in a large part governed by quant strategies that are agnostic to underlying values and have partly invalidated the interpretation of price charts and trends. They've also rendered technical analysis far less valuable than it was in the past.
From yesterday:
As I discussed in a recent speech in New Orleans, many are misinterpreting daily market swings as a real price trend that they can interpret technically. But I see that as incorrect, as gamma hedging, risk-parity strategies and other quant actions have ruined our markets. In fact, I think these trends have negated not only some of the value of stock charts, but to some degree the value of technical analysis in general. This places many market participants in the position of having a false sense of security.
As I've previously written:
We live in a dystopian investment world, whose markets have morphed into an Orwellian backdrop of omnipresent government intervention and manipulation that is increasingly dictated by the quant community -- who worship at the altar of prices and price momentum (and are agnostic on values).
To understand that risk, we have to wrestle with the investment strategies that few of us see but all of us feel ... strategies that traffic in the invisible threads of the market, like volatility and correlation and other derivative dimensions.
Regardless of what the Fed does or doesn't do, regardless of how, when or if a 'lift-off' in rates occurs -- it is impossible to ignore derivative market dimensions and the vast sums of capital that flow along these dimensions.
Remember, price trend following strategies, risk-parity portfolios and volatility-managed strategies based solely on past price performance and volatility. They are agnostic to company balance sheets and income statements. Intrinsic value is not in their vocabulary -- fundamental investors like Warren Buffett are an anathema to them. But they are far more dangerous than portfolio insurance, which put an exclamation point in the 1987 market crash.
As we saw on the downside at September's end, there's a positive feedback loop between all of these strategies. Gamma hedging of derivatives caused higher market volatility, which in turn led to selling in risk-parity portfolios -- and the resulting downward price action invited further shorting by price-trend strategies.
And more recently, we've seen this feedback loop to the upside.
No wonder financial asset prices seem to no longer correlate with the real economy. This is a market with no memory from day to day.
-- Doug's Daily Diary, A Market Without Memory from Day to Day (Dec. 2, 2015)
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This is not my Father's USA either....
Lessee, the markets are fake, the news is fake, the people are fake, governments are fake, we can only hope the nuclear missiles about to be unleashed are fake too?
"This is not my father's USA...."
Nope, it's OURS. Yours and mine, my fellow Americans. Do what your fathers did, and their fathers before them - OWN IT.
Nukes are fake so don't sweat it. Just worry about the economic collapse.
http://heiwaco.tripod.com/bomb.htm
They aren't fake, they just aren't what everybody thinks they are. Think battle field preparation and we're in the air strike and artillery phase. Unfortunately none of the generals are competent to command and Gallipolli is the outcome......
Amen, Brother
and just like that the s&p is up 20.
I'm Dougie!
I'm Dougie!
[/dr. evil]
It is indeed a new world with the fed and other central banks actively supporting asset prices such as equities and bonds. Inside information being openly relayed to key investment banks and hedge funds with no threat of repurcussion, and HFT's buying not only faster access to data than the rest of us, but buying the order flow itself in order to front run and trade around it, using "adding liquidity" as their rationale, which everyone but the SEC knows is a false premise.
Preach the gospel, brother. I tell everyone who'll listen to get out of capital markets and stay out.
Invest in yourself - invest in brick and mortar assets that you can see and control.
Starve the beast
What you're talking about is actual investment. What most people today consider to be "Investment" is actually gambling. Pure speculation.
Spot on! It puzzles me why nobody (almost) understands this.
Who wants to send their kids into the military to participate in the elitist international game of political chess?
Does anyone else get the feeling that anything that can be used as a positive, no matter how small is used by the cartel to eliminate the prior day's losses?
Any thing positive? Boy, I say boy, pay attention here boy! Haven't you seen the headlines? The more bombs dropped the more people killed the bad housing numbers, jobs data, crashing BDI, truckers loosing 45% job losses, hyperinflation, terrorists attacks, etc. forfvkinevah is ALL bullish.
Yes. But only the most criminal sinister soul acts in harmony with it....They know who they are and that they are soon to take painful ownership for their actions....
This is not a market.
The stock and bond markets are gambling for anyone not fairly high up at boa, goldman, citi, etc.
Their collusion must be absolutely stunning by now.
So, forcing everyone into government securities has begun. I just received this email today from Fidelity (emphasis added are mine):
Fidelity Announces Fund Name and Strategy ChangesEffective December 1, 2015, the Fidelity(R) Cash Reserves and Fidelity(R) Money Market Trust Retirement Money Market Portfolio investment policies and names will change, as approved by the funds’ Board of Trustees and fund shareholders.These changes will enable each fund to operate as a government money market fund.
The funds will adopt a principal investment strategy normally to invest at least 99.5% of the fund’s total assets in cash, U.S. Government securities and/or repurchase agreements that are collateralized fully (i.e. collateralized by cash or government securities). The funds will no longer be permitted to invest more than 25% of total assets in securities issued by the financial securities industry.
The fund names will change to reflect each fund’s transition to a government fund. Fidelity(R) Cash Reserves will be renamed Fidelity(R) Government Cash Reserves. Fidelity(R) Money Market Trust Retirement Money Market Portfolio will be renamed Fidelity(R) Money Market Trust Retirement Government Money Market II Portfolio.
I received this email today, December 4, 2015. Note the effective date of this policy is Dec 1, 2015. So, it has been applied retro-actively without any option for me to consent or opt out.
EVERYONE at Wall Street is worshipping at the wrong Altar.
That is precisely why this country has a big problem.
It is worthwhile to go back and read the stories of the War of Independence for the USA. George Washington almost LOST that war. It was very close. He had soldiers marching through the snow with no boots on ... their feet were frozen. Those men believed in something better for America. That "something better" did not include greed, backdoor political contributions, and deceit.
the devil took Him to a very high mountain and showed Him all the kingdoms of the world and their glory; 9and he said to Him, "All these things I will give You, if You fall down and worship me.
Now, think. who owns all the kingdoms to be able to offer them? When it comes to worshiping and bowing down, those that are in the .01% know damn well who is running the show and who is master.
Again I say to you, it is easier for a camel to go through the eye of a needle, than for a rich man to enter the kingdom of God.
Interesting is-int it?
Jesus probably laughed because he knew the Devil only had a Paper ETF proving Ownership.
"We live in a dystopian investment world, whose markets have morphed into an Orwellian backdrop of omnipresent government intervention and manipulation that is increasingly dictated by the quant community -- who worship at the altar of prices and price momentum (and are agnostic on values). "
Ummm, Doug, you have to learn how to talk like a normal human being again. You are kinda in love with hearing yourself speak and probably very impressed by yourself.
I disagree with some of the conclusion reached by Kass. He indicated that technical analysis has lost relevance, this is not true. Even though I agree that the market has no memory day to day and risk happens fast, quant trading platforms rely on technical analysis exclusively. It is just not the same technical analysis and conditions that have prevailed in the market before. How can computers make trading decisions if they are not based upon a 'technical' foundation ... they cannot. So instead of lamenting the loss of the old days, one should be asking: how can I outgun the quant.
Bear - you lack of market knowledge is showing. When the Exchanges custom build their trading rules to give HFT / quants the advantage, then one must become a HFT / quant in order to hope to compete.
Technical trading as defined within the confines of the trading community does not include quant driven information and analysis provided by the Exchanges solely available to HFT traders.
Your comments are terribly naive and uninformed. You are NOT helping !
KLaatu Barada Nikto.
Like everything else it's all fake virtual reality created for us by those of means. With the markets, media, education, centers of religion and politics controlled we are steered like a ship a sea.And most of the control comes from our fear of terrorism which itself was planted.
Think Patriot Act. A despicable law that purports to nullify the Constitution.
Think MATRIX: Multi-State Anti Terrorism Information Exchange. Here's the history
https://en.wikipedia.org/wiki/Multistate_Anti-Terrorism_Information_Exch...
Even the ACLU doesn't buy into the BS:
https://www.aclu.org/matrix-myths-and-reality
Think Fusion Centers:
https://en.wikipedia.org/wiki/Fusion_center
Think REAL ID:
https://en.wikipedia.org/wiki/REAL_ID_Act
Think needing papers to travel state to state:
http://money.cnn.com/2015/10/14/technology/passport-license-domestic-fli...
A cashless Society,,, brought to you by that well known vote flipper Diebold:
http://fee.org/freeman/toward-a-cashless-society/
This was not my fathers market,,, This was not my fathers country. Hell, this is not my country!
EDIT: None of this existed a mere fifteen years ago. Think another fifteen years.
EDIT: 'None of this existed a mere fifteen years ago. Think another fifteen years.'
It looks according to the word of God and we have reached, as a nation, the point of no return and it gets much much worse as you have implied:
And because they (the MAJORITY) did not think it worthwhile to have God in their knowledge, God delivered them over to a worthless mind to do what is morally wrong.
They are filled with all unrighteousness, evil, greed, and wickedness. They are full of envy, murder, disputes, deceit, and malice. They are gossips, slanderers, God-haters, arrogant, proud, boastful, inventors of evil, disobedient to parents, undiscerning, untrustworthy, unloving, and unmerciful. Although they know full well God's just sentence-that those who practice such things deserve to die-they not only do them, but even applaud others who practice them. -Romans 1You are going to hear of wars and rumors of wars. See that you are not alarmed, because these things must take place, but the end is not yet. For nation will rise up against nation, and kingdom against kingdom. There will be famines and earthquakes in various places. All these events are the beginning of birth pains. - Matthew 24
Note, the beginning of birth pains, which implies two things for certain: 1) the "baby" is due & 2) the next phase is more painful than the first and the third is the real pain)
Much like a church the country is the people, not the bureaucracy. We still have an underlying common culture of freedom and individuality no matter how much the oligarchy tries to stamp it out.
They are living on borrowed time, not us. Fear is the devil at work.
It is not people that people need to fear; it is the wholesale rejection of the true gospel that kills both the body and the soul. The true church is yet to be revealed, for many meeting that have a building with a cross have no real Christianity; in fact the majority. see Matthew 7 & Romans 8:19 "For the creation eagerly waits with anticipation for God's sons to be revealed." Lord bless you!
We are whoring for Wall Street.
http://www.showrealhist.com/recDJIAtoRD.html
A rather nicely written whine as these things go.
But the essential question is only how best to use that to advantage.
"quant strategies that are agnostic to underlying values and have partly invalidated the interpretation of price charts and trends"
Are you kidding? The arbs have distorted markets by creating even greater disparities than one could normally expect to find in markets. That is one of the huge benefits of technical analysis: finding market disparities and divergences. Due to increased volatilies, you may need to adjust trading strategies (e.g., wider stops, smaller trades, longer horizons), but the value of technical analysis is just as relevant as ever!
Dow up 200+. Today feels like a Road Runner cartoon day. Road Runner runs up the hill, steps off the cliff, looks around, sees his dire predicament, then falls. This feeble rally looks doomed. (No I am not currently short.)
Wasn't that the Coyote? Roadrunner always defied gravity and all other real world phenomena.
You are correct! And Mr. Coyote is doing a damn good job - so far.
http://tinyurl.com/pbnf2n2
I'm OK with the "market" this week. Quite nice to see the market didn't rocket up when Draghi spoke. You can't fire that many times with a bazooka! :)
It's a good point that the people making decisions have decided to ignore value and focus on second and third order metrics to divine what to do next. But the more salient question is, "What is the goal these propaganda tools serve?".
This explains why they ignore value (facts, truth) and focus on momentum and other derivatives of curves on a chart. They can control the setting on the analytical tool, but they can't control truth.
This is called lying.
It is, however, your Fuhrer's market - Heil Yellen!
I came to ZH awhile back and have attempted to build upon my financial knowledge, which was pretty low.
I've learned more from articles and posters here than I ever did anywhere else. And while I still do not feel comfortable posting about financial issues, I am more than happy to keep my mouth shut and learn as much as possible from here.
I've also been red-pilled and that started with ZH.
We live in a dystopian investment world, whose markets have morphed into an Orwellian backdrop of omnipresent government intervention and manipulation that is increasingly dictated by the quant community -- who worship at the altar of prices and price momentum
Wrong Dougie, they worship at the altar of FED LEAKS & former employee insider trading, 2/20 theft of accounts, frontrunning, spoofing, should i continue?