March 2020 market storm has been an important test of the I-System model and the way it navigated the unforeseen events. The results have been very encouraging and the system has done well in all affected markets. Last week I summarized its performance on Brent crude oil, Silver and US 30-year Bond. Here we take a look at how it performed in Russell 2000, S&P500 and Palladium markets. Continue reading
Recent weeks brought severe price shocks in many markets. Their timing and severity took most participants by surprise. In these circumstances, I-System strategies performed superbly well. As this post shows, a few strategies sustained negative results, but this is to be expected. This is why, rather than formulating a trading strategy, we built a stable knowledge framework so that we can formulate and implement literally thousands of strategies within that framework. In this sense I-System holds potential to entirely transcend uncertainty by supplanting it with a more predictable risk class: a swarm of consistent, intelligent and emotionless trading agents, each in charge of a small fraction of portfolio risk. The current experience was an important test for the I-System. The results speak for themselves. Continue reading
This is a personal story, and it may seem a strange one to share given the difficult days we are living through. But I think it could not be more relevant. Here goes:
Years ago I read “The Hiram Key” by Christopher Knight and Robert Lomas. Not a memorable book, but one thing I vaguely remembered about it was the authors’ alternative explanation for where the name “America” came from. Over the last few weeks, a very remarkable experience unfolded in relation to this question… Continue reading
UPDATE: I have followed up on this post including an important interview with Dr. Shiva Ayyadurai, MIT epidemiologist whose authoritative perspective is important to consider: Reject Fear! Your immune system is robust and resilient…
Today I learned that schools in Monaco and all of France won’t open on Monday morning and will remain closed at least until early May 2020. This is the authorities’ emergency response to the Corona virus pandemic that engulfed much of the world.
Whether this response is appropriate or overkill, I cannot say but I think it is important that we not succumb to irrational fear of Corona virus – or any other disease. To put things into proper perspective, consider what we know about pathogens like the poliovirus, TB and malaria: Continue reading
Today global capital markets opened to unprecedented price dislocations. ZeroHedge captured the mood: “Panic Purgatory: Oil Crashes to $27%; S&P Futures Locked limit Down, Treasuries Soar Limit Up Amid Historic Liquidation.” Over the recent months I’ve posted many articles on this blog and on SeekingAlpha, basically along two themes:
1) Warning that the markets would experience great turbulence in the near future (see here: “Perfect Storm Gathering…” and
2) Suggesting that the best way to navigate through the storm is by using high-quality systematic trend following strategies (see here, “Trend Following Might Save Your Tail“).
It may be that the time of reckoning has begun But if you followed my advice and used systematic trend following, most likely you’d be having a good day today. The chart below illustrates the net positioning of my 493 I-System strategies at market open this morning: Continue reading
In January last year, Reuters polled 1,000 oil market experts who basically agreed that oil would remain anchored in the $65-$70/bbl range through 2023. Only 3% of these experts thought that oil might rise to $90/bbl or more in 2020. I posted my analysis at this link: Market Fundamentals and Forecasting Groupthink. Later that year I published my own analysis, “Next Move in Oil Prices: $5-$10 Lower,” concluding that, …oil price will likely see another leg down… with Brent falling toward high $40s and WTI toward low $40s. Continue reading
Bursting of an asset bubble can have grave consequences for the economy and the society at large – so grave, it’s worth paying attention at this point. I’ll elaborate.
In only six trading sessions from the 20th February peak, the S&P500 shed more than 12%, one of the fastest declines on record for the index (only the 1987 black Monday was worse). Only a week before this event I posted the article, “Bubbles Always Burst…”on SeekingAlpha, warning about the risk of this happening.
Whether last week marks the beginning of the bubble’s bursting remains to be seen, but this is only a matter of time. Bubbles always burst, no exceptions. But what’s important to understand is this: bubbles are meant to be burst! For guidance, let’s look again at the bursting of Japan’s own everything bubble of the 1980s. Continue reading
In the near future, we are likely to experience severe consequences of three converging disruptions:
- Stock market crash
- Oil price shock
Since the last recession we’ve enjoyed the longest ever period of economic expansion with low interest rates, low inflation and subdued commodity prices. But this all could be coming to an end.
Bursting of the “everything bubble”
Throughout the west, unprecedented government and central bank stimulus programs helped inflate the current “everything bubble.” This is not a new phenomenon; monetary expansion always creates asset bubbles. The one thing we know is that without exception, asset bubbles ultimately burst. The examples are many and some of them made a mark in the collective conscious of entire generations, from the 1630s Tulip Mania to the 1990s dot-com bubble. Continue reading
Last few years saw something of a gold rush into quantitative investment strategies. Their appeal is obvious as a way to put discipline into trading and take the emotion and stress out. Quantitative strategies might even help improve performance. Here’s how Black Rock President Rob Kapito articulated the industry hopes:
“As people get the data and learn how to use the data, I think there is going to be alpha generated and, therefore, will give active managers more opportunity than they‘ve had in the past to actually create returns.” 
In pursuit of the great expectations, Black Rock assembled more than 90 scientists, 28 of them with PhDs and even went as far as poaching one of Google’s leading scientists, Bill McCartney to develop the BlackRock’s machine learning applications. In practice Black Rock’s and other firms’ results have proven to be a mixed bag at best and it seems that most quantitative strategies have tended to underperform or even generate losses. The question is, why? Continue reading
During the night on Sunday, 26 January, five Katyusha rockets were launched on the heavily fortified U.S. Embassy in Baghdad. Three of them allegedly made a direct hit with at least one striking the embassy dining hall. This event followed the massive demonstrations in Baghdad demanding the U.S. troops to leave Iraq. Indeed, the tensions in the Middle East are unlikely to dissipate any time soon… Hopefully however, they won’t lead to the “horrendous” and “devastating” world war that a bi-partisan panel commissioned by the U.S. Congress predicted might break out within four years. Continue reading