Wednesday, September 17, 2014

Derivative Active Substitutes

On the horizon, changes to passive investing.  

"Pimco in May said that interest rates in the U.S. will remain lower than they had been before the financial crisis, as the economy enters a “new neutral” characterized by global growth converging toward lower, more stable speeds. The Newport Beach, California-based firm is recommending that clients consider strategies implemented with futures, options and swaps to lift subpar returns." By Miles Weiss and Susanne Walker , Bloomberg. 

To "lift" returns across all asset classes, the increasing trend will be for traditional passive management operations  to turn to trading strategy derivative firms using black box and grey alpha generators. 

Saturday, September 13, 2014

Risk Is Always On

If you are an investor, risk is always on.  How do you cover that risk.  How you cover that risk is what we do at very well.  But besides the plug, if risk is off then you lack two elements of risk, uncertainty and utility.  Risk off means you have no risk and as such you are not an investor.   A trader can have risk off or a flat position, but an investor has uncertainty and the utility of possible expected returns or even better, alpha, excess return. 

 If we reduce an element of risk as to how we measure the utility it brings us, we have to look at in terms of money.  Units of money and how it is applied to become a per unit risk (PUR) function.  AAPL is a stock owned for various reasons and we need to cover risk when owning a unit of AAPL.  We also have to look at the PUR in terms of time or in this case the investor's dimension of market time which is quantified as each end of day based on the closing price.

More to come.

Just Lie There

Chances are you are a saver of stocks not an investor in stocks.  Chances are you will be assaulted by a great bear again like you were in 2007.  Investors in stocks and markets alter their risk profiles and try to not time but adjust to perceptions of opportunity and danger.  Savers of stocks just lie there.

The great creator of the Vangaud Group John Bogle is correct in that it is hard to beat the market when trying to time the top and the bottom.   But who does that.  The passive industry wants to build a straw man and declare market timers and or active managers as incapable of beating a simple benchmark stock index.  The fact is however active managers of adaptive non macro absolute return strategies beat the market all the time.   On a scaled basis they beat nearly all the traders all the time.

To be a great investor you need to rely on systematic algorithmic approaches which remove the fear of investing by consistently utilizing unbiased decisions in all market conditions.  These absolute return strategies are based on an ability to quantify the risk in terms understandable in dollar terms.  Great decisions are made on price and not the story about the stock, commodity, or fixed income product.  

Friday, September 12, 2014

Blogs and Week Ahead

I look at various financial blogs every so often if they come up by topical search.  There are a few I will look at to get a mainstream view, Big Picture, and others such as Zero Hedge to get the crazy conspiratorial almost useless view.  All these bloggers work way to hard spinning  verbiage about what they believe is going on in the markets. Great energy.

So week ahead will be about the Fed and the direction of interest rates and any Braveheart decision coming out of the UK.  Index futures have a slight negative bias at work according to our data.    Models are at all time highs and when long still have a larger long bias overall but continue to work both sides with lighter position  shorts like today.

Tuesday, September 9, 2014


The data continues to say the overall collective bias of CR algorithms are up and that has not changed this year since February. 

Macro strategies or star hedge fund managers have taking a beating again this year as stocks and bonds continue their march.   Large single views of a market can have big pay offs but require little talent just longevity.  Secular bull markets make money for investors but not as much as long/short absolute return strategies.

 Overall I am a bear on stocks as a sporting view against an industry supporting notions of value based on p/e ratios, multiples, and cable business news mantras.  But being a bear about the limits of promoted upside vs the algorithms which year over year pile up excess returns, I'll go with the algorithms.   When the algorithms start being shorter than longer, then stocks will begin the trip lower. 

Tuesday, August 26, 2014

Investing and Trading Decisions

Most professional and non-professional trader/investors do not have a clue on how to look at market data and make choices without cognitive biases rationalizing insignificant information.

Investing is not easy. Improving the probability of success in trading and investments requires having strategies which are adaptive to price direction. Shortcuts and attempts to simplify wealth management by herding investors into passive ETFs is part of a narrow approach.  Broader more adaptive algorithmic solutions improve the probability of success.

The lack of success of most investors is due to perceptions of risks and misconceptions on how they apply to investments. Most investors are risk adverse. They would rather avoid a loss than seek a gain. Most investors act as if small risks are the same as big risks. This near proportionality identifies the flaw in modern portfolio theory where notions of market efficiency expose investors to large downside events.

Thursday, August 14, 2014

Stock and Interest Rate Markets

Where are we.  Stocks, interest rates. 

Still uncharted territory as far as Fed intervention.  Bears in both markets have been repeatedly face planted and have had to rely on global macro events to rescue them from bull charges.

Somethings are obvious however and consumers have developed a supported bias where they perceive the future economic world to be one full of jobs that don't pay.  Economies of declining opportunities blunted by advancing technologies reshaping traditional employment.    

Random events will intersect at the point of where investments seeking return will reach well beyond where risk has value.   

Saturday, August 9, 2014

Volatility like 2011

There is a similarity between our strategic model performance currently and that of the same period in July - August 2011.  In 2011, the SP500 had started out at 1253, ran up to 1373 in the first week of May only to fall over 21%  to 1077 into the first week of August.  While the volatility is not nearly as dramatic as 2011, strategic model performances can pick up patterns in price discovery where chart patterns look comparatively different.  

The pick up in recent volatility may have to do with the potential significant impact anticipated from the Jackson Hole conference stating August, 21. 

Back in 2011, the market had rolled over and was gaining downside momentum.  Bernanke's speech from the conference then was the hand tipping in front of the Fed's September move in what would come to be known as Operation Twist.   And while the markets initially reacted negatively to OT, new lows (1068), that low became the foundation of the current rally. 

Yellen is facing a different market with much higher price levels in the SP500, yet she has used much of the same dovish analytics as Bernanke did back in 2011.  Rates at that time had just fallen to around 2% in the 10 year so the game of choice in yield then as now favored equities. 

Look for volatility to pick up with swings from one end of the range to the other beyond Yellen's speech.  Direction will come in October.

Friday, August 8, 2014

Where you should be on your investment return today?

Markets have been tentative with a big bear tease going on since July 24th.  Global events beating up the bulls but any good news brings in short covering.  The underlying bid has been there just like the past which shows continued interest in owning the Bernanke/Yellen carry trade. 

Hedge boys continue to have tough time in general. 

So where should you be on each $20,000 slice of your investment equity index pie; net +30% to +45%.

CoverRisk, the business arm of QRiskValue and this blog says that it where you should be, not much different than the last 6.5 years.  

Tuesday, August 5, 2014

Q8 Latest

Last 95.12 15.00 565.07 169.42 187.10 43.08 16.87 28.41
Change -0.47 -0.05 -8.08 -2.27 -2.54 -0.29 -0.15 -0.34
YTD 14.97 -0.57 4.72 -7.84 -0.47 5.67 1.44 -2.22
%YTD 18.68% -3.66% 0.84% -4.42% -0.25% 15.16% 9.33% -7.25%

Q8 once again has 4 of the 8 stocks lower on the year with GOOG hanging on.