Author: shyam

Japan: Wild-Wild East

The Nikkei Stock Average closed down 5.2% today, hitting a four-week low (but up 30.7% so far this year.) The market there has been on steroids ever since the launch of Abenomics: an aggressive easing program to rid the world’s third-largest economy of over 15 years of deflation. Its goal? To get inflation up to 2%.

But how much can a central bank do? Its 10-year bond yield is already sub 1% and debt-to-GDP ratio is expected to hit 245% this year. Its probably got the world’s worst demographics: average age is around 47 years… and shrinking: the fertility rate is 1.4 children per woman, vs 2.1 that is needed to maintain a stable population.

In fact, Japan’s economy collapsed into deflation just as its demographics ‘rolled over’ in the mid-1990s.

 

Japan - demographics

Back in 2010, Dylan Grice had predicted Abenomics:

So the path of least political resistance will presumably be to keep yields at levels which the Japanese government can afford to pay, and to stabilise JGBs at levels which won’t blow up the financial system. This will involve the BoJ buying any/all bonds the market can no longer absorb, probably under the intellectual camouflage of a quantitative easing program aimed at breaking Japan’s deflationary psychology. Economists might applaud such a step as finally showing the BoJ was getting serious about Japan’s problems. In fact, it will be the opening chapter of a long period of inflation instability.

 

Grab a box of popcorn, the show is just getting started.

Source:
Rethinking Abenomics
Dylan Grice on Japan

 

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A dose of realism

When the markets keep going up and to the right, it is easy to forget that most of the momentum in the markets is built on quicksand, or so says Ambrose Evans-Pritchard:

 

Interest rates are already near zero across the developed world, public debts are much higher than in 2007, unemployment is already at a post-EMU high in Europe and 27% in Spain. And HSBC says that they “see building evidence of a cyclical downturn.”

 

The last time, the BRICS were in the mid stages of a roaring boom, strong enough to weather the Lehman shock. China responded with what is probably the greatest loan spree in history – $14 trillion of extra credit in four years. None of this can be done again. The BRICS are now nursing post-bubble hangovers as well, and China’s Politburo has no intention of repeating what it deems to have been a serious error.

 

So if this is right and if OECD economies are headed for a cyclical downturn, then all this talk about “tapering” by the US Fed is just that – talk. The Fed is unlikely to risk premature tightening that might plunge the US economy back into a recession. And if reduced Chinese demand for commodities keep raw material prices down, then as Jefferies’ strategists said recently, its almost a global “goldilocks” from the Indian viewpoint.

 

Source: No saviour in sight as world credit cycle rolls over

 

 

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Intraday Scanner

StockViz tracks more than a thousand different equity based variables and metrics on a daily basis. Our Intra-day scanner is based on our Anomaly Detection Algorithms that are constantly scouring stock-market action to surface trade ideas.

Average True Range (ATR) Anomalies

Stocks trade within a daily range. The range, per se, is dependent on liquidity and intrinsic volatility of the stock. However, occasionally, a stock starts trading outside of its typical daily range, as measured by ATR. This gives an opportunity to traders to either bet on mean-reversion or continuance. Our ATR Anomaly Detection Algorithm surfaces stocks that break-out both on the upside and on the downside.

Bollinger Band Anomalies

Bollinger bands are volatility bands placed above and below a moving average of a stock’s daily close. When stocks break-out above its upper band or below its lower band, it signifies that “something” is afoot. Savvy traders can now step in and either bet on mean-reversion or continuance. Our Bollinger Anomaly Detection Algorithm surfaces stocks that break-out both on the upside and on the downside.

You can see these algorithms in action at stockviz/Scan

 

Do you use a scan that we can help you automate? Let us know in the comments below!

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Grit, Rules and Determination

Francisco Dao has an interesting post over at Pando Daily about what sets apart dreamers from successful people.

 

In study after study, it’s been shown that discipline and impulse control are the primary traits of successful people and the best predictor of future achievement. In contrast, unwarranted, overinflated self esteem is often a sign of future failure. Compared to discipline, even legitimate measures of intelligence have very little bearing as predictors of success.

 

Discipline is hard. And trying to be dispassionate about the decisions you take is harder. In fact, successful people try and reduce the number of decisions they take daily. For example, US President Obama has tried to eliminate the trivial decisions that most of us face on a daily basis. Michael Lewis, who profiled the president for Vanity Fair, explains that:

 

The president started talking about research that showed the mere act of making a decision, however trivial it was, degraded your ability to make a subsequent decision. A lot of … the trivial decisions in life — what he wears, what he eats — [are] essentially made for him. He’s actually aware of research that shows that the more decisions you have to make, the worse you get at making decisions. he analogizes to going shopping at Costco. If you go to Costco and you don’t know what you want, you come out exhausted, because you’re making all these decisions, and he wants to take those decisions out of his life. So he chucked out all his suits except his blue and grey suits so he doesn’t have to think about what he’s going to put on in the morning. Food is just arranged for him and he’s not making any decisions about what he’s eating. What most people spend most of their life deciding about, he’s had those decisions are removed from his life. He does this so he creates an environment, a mental environment, where he’s got full energy for the decisions that are really important decisions.

 

The take away: follow a routine that reduces the number of decisions you take. Have rules that prevents you from being impulsive. And most importantly, invest without emotions.

 

Source:
The importance of grit, rules, and discipline
Obama’s Way

 

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Improving Consistency

Stumbled on an awesome post at KirkReport on improving one’s trading consistency. Six things you need to do to improve your consistency:

  1. Have A Consistent Daily Routine
  2. Adopt And Maintain A Consistent Strategy
  3. Simply, Simply & Simplify More
  4. Track What You Do Everyday
  5. Flowchart Everything
  6. Set Your Rules & Follow The Rules

Read the whole thing here.

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