Tuesday, 30 June 2015

Playing it by the minute.

These are the sorts of markets I usually enjoy. I am pretty useless at the micromaths of investment, but that's ok, their are thousands of micromath geeks out there in investment land running every ratio possible to tell us what happened in the past and pretending it is the future.

The science of finance maths geekdom can be considered similar that of the astro-physicist. The astro-physicist is pushing back further in time to figure out what happened before the big bang, his time constraint being the big bang itself towards which he is ever slicing finer segments of time, but as with Zeno's paradox, never being able to get to the big bang itself. The financial maths geek/gonk is working it in reverse, analysing all data back to the beginning of time in order to model the future but can never ever quite get to working out the present because all his inputs are from the past, however close to the present that past is. In this respect all models are doomed to fail unless someone invents a way of harvesting data from the future (at which point you won't need to model it because you can see into the future anyway.. errrr).

But my point is that when we have markets like this, the game changes and using a highly polished rear-view mirror and a ridiculously accurate speedometer does not compensate for having the windscreen covered and you crash on a sharp bend. What you need instead is an overview of everything and much like a general in battle, those standing on the highest ground, with the most powerful telescope and greatest experience will win the day. Before I get too bogged down in analogy all I am trying to say is that  quants hate these markets, behaviourists love them.

Price action today. As you probably detected from the last post I cut all risk shorts, the ones that I could in the early hours and the others when Europe opened. So far so good and it panned out as expected, the media queuing at every ATM (if the Greek's imposed a levy on all foreign journos filing at ATM's it would go a long way to defying the crisis), and mainstream hooting and hollering about the financial worlds imminent collapse. And we bounced.

But then something happened that worried me, all was going swimmingly until we ran into RK's rule. RK's rule was developed by a good friend and it applies to the price action between 3.00pm London ( 10.00am NY) and 3.30pm. It basically says that the way prices move during that period will set the trend for another certain time period. There are of course nuances and caveats that have to be applied but me telling you all of those would be reducing it from  RK's rule to an AF's (Any F'ker's) rule and that wouldn't be fair.

At 3pm Ldn the market rolled by which time confident dip buyers were getting more confident  and my space of media fading was too crowded for comfort. So basically I got back short again in equities. As the US markets rolled some of the biggest moves were in sectors that could not be easily linked to Greece woes. The large fall in the Nasdaq was indicating more of a general unwind of leverage trades which is the healthiest sign of contagion panic there is. When these sorts of moves get going they find it hard to respond to minor headlines from the original stimulant.

The US find it very hard to do nuance, especially when it comes to Europe, and it now looks as though the "Europe is finished" school of thought is back in fashion. A dangerous belief however tempting. Schadenfruede should only be enjoyed after the event and should never be anticipated, as its anticipation ruins the chance of its outcome.  The 'Europe is finished' may have been the backbone of the US moves but the US became a generalised risk run and that is of concern

Coming into European time zone again US indices have put in a small bounce and appear more comfortable. They have effectively lifted a cheek, broken wind and settled back down again feeling more comfortable and less bloated. But Europe are now looking at the moves in the US and putting a new catalogue of factors into their reasoning. "US off? Tech off so much? Hang on the US is beginning to lead" And this is now the worry. Greece may have catalysed all of this but we now have to watch everything as the great leverage trade of the last 3 years 'could' unravel. It is only a small could at the moment but we must watch every crack in the building for further movement. If the US markets don't respond to nuances of good news from Europe as fast as they should then this is a good sign of a bigger shake down. But for now, everyone has had their chance to react, and though as I write european stocks are playing US catch up, Bunds are off and US is holding onto its overnight small gains. Turnaround Tuesday or at least 'Stabilising Tuesday' is at the moment and  I stress ' at the moment' where I place my money.

But I am currently watching every asset I can and their interactions with each other for signs of real contagion rather than just assumed contagion and am playing longs and shorts like a day trader. And why not? 2% daily swings in a market that pays yields of 2% per annum are hardly to be ignored.

And finally - I give you the ultimate Greece remover

1 comment:

Anonymous said...

Puerto Rico added to the mix