The market is in turmoil and BNP is complaining about liquidity issues. I went back to look at an interview from Scholes (author of Black-Scholes pricing) for an opinion on the situation.
As a result, “decision time becomes elongated” and speculators hold back their capital just when their services are most in demand. The lack of liquidity itself then becomes a factor in asset pricing, leading to swift, sharp drops in values.
At iTulip they had an interesting posting regarding the currency markets.
“We are fast reaching a stage at which elegant quantitative models won’t determine who survives, in fact, those that tend to rely on models in this environment may be most likely to be shining shoes sooner rather than later.”
Really, you mean you CAN’T PREDICT? Who would have thought? Seriously, I have been talking about this time and time again (1,2,3). I might be a newbie at this, and I might not have all the credentials of a full time quant. BUT, after a year of doing algorithmic trading I have learned that you cannot and should not predict the market.
I was puzzling and thinking if I were Bernake what would I do? Many are crying raise the darn interest rates. Many are saying lower to give the companies a break. Bernake though does not strike me as an individual that leaves a statement. He strikes me as an individual that tries to do the right thing.
So if I were Bernake and his personality here is what I would do:
I think Jim Cramer lost it, and I don’t quite understand what Jim Cramer is recommending.
In his “Stop Trading” segment on Street Signs today, Cramer said the nation’s central bank is “asleep” and should immediately “relieve the pressure” on financial firms and the nation’s home owners who are facing big increases in their mortgage payments as ‘teaser’ rates expire. Many thousands will “lose their homes,” he warned. “This is not the time to be complacent.”
He predicted a big rebound for the major stock market averages if the Fed does indeed lower rates
We are told time and time again that you can’t predict the market. And time and time again people try to predict the market. Many model the market using stochastic principles, and use it to predict the market. I find this completely amusing (stochastics is about multiple destinys based on a single context.)
TraderFeed a favorite blog of mine had the following to say (Are We Making a Bottom).
There is both the sense that we could go much lower in a washout (a “Black Monday” scenario) and that we could be seeing an important bottom in the making.
Fair enough, good point we might be at an inflection point.
Do you buy or do you sell? Steve says the following:
Here’s the deal, if you felt Apple was a good buy at $130 and it drops to $120, why would you sell? Unless some really bad long term news came out, this is a buy trigger to me. Not only does it lower the cost basis of your original purchase, but it increases your holdings at a price better than you thought was good before.
That is a very dangerous game to play since if the stock drops again you now lost double the amount. And you cannot predict whether a stock will go up or down since it is a general crapshot. Easy come and easy go is quite common in the market.
In the middle of March I had an inkling that all was not well with my thinking. My thinking was that the market would pullback and that the global economy would slow down. Well I was wrong, and in the referenced blog entry I talked about what my head told me, and what my gut was telling me. It seems that my gut was telling me the right thing. As a result I have become a bear in bull’s clothing. This means I grudgingly accept the bull rally, but I don’t like it one bit!
The problem is inflation and getting it under control. Yes we can argue about how to measure inflation, but the reality is that there is inflation and I see it everyday in our pocket books. Low inflation, or virtually no inflation is good for the economy because it keeps the economy efficient. I had a gut feeling that Bernake was an inflation dove and cared more about the well being of the individual people.
A little birdie was telling me that recently London has become the largest exchange hosting foreign companies. It is now bigger to New York and preferred to simpler regulations. The WSJ talked about this about a year or so ago as did International Tribune this year. . The little birdie said, “point the finger at (more…)
I was reading a blog entry on CPPTrader that was referencing an article from Bloomberg. I am a newbie with respect to trading, but with respect to AI I have been a few times around the block. It was something that I studied in University and have had an attraction to for a long time. I guess I am lazy and would love to write a program that “thinks” for me. As a sidenote I am using AI in my algorithmic trading software, but in a different context.
Colin brought up the following point:
Christian, it is extremely interesting to read your thoughts on neural nets. I’ve been looking at Neural Nets in a piece of software called Merchant of Venice – http://mov.sourceforge.net/ . Beyond that, what’s interesting is that as humans, we can look at current day situations and have an innate sense that history is repeating itself, yet there are these outlying situations that break those rules – like Amazon’s recent performance.
How to put that “sense” into code and avoid getting burned by the outliers is the real rub
