Rhody Trader

On this side of things I work with a professor friend on a trading system project. It’s neural net based. Don’t ask me about the specifics of it. He’s doing on the heavy lifting on his side. My role in all this is to provide the real world perspective, to poke and prod and challenge things.

Right now the focus is on stock trading, and the results look very good. The system is in a kind of beta period, running live but not in a public fashion as bugs get worked out in the underlying systems. It’s not really ready for prime time in any case, as while it’s been running since about March, we haven’t done any testing on data further back as yet to get a view on how it would perform in different market conditions.

But I digress. What I really wanted to talk about is the kind of academic/practioner battling I do with this prof. It can get intense at times. He gets caught up in the mechanics of the models and things and I try to get him to think about it from a prospective user’s point of view. This discussion on The Big Picture blog really rang true with me. I particularly loved the quote “..the result of very smart people falling prey to the psychology of idiots and refusing to actually think about a problem …”

Here’s another good article: How Scientists Helped Cause Our Financial Crisis.

Up until yesterday, I was extremely sceptical about capitulations and all the bottom calling that’s been going on since March. Everyone’s been asking or answering the question “Have we made a bottom?”. A great many folks with very high profiles have been very wrong. Kramer said the financials had seen their lows. Bob Doll thought we’d seen the worst of it back in March (and/or later). There are plenty of others as well. 

That whole focus has been what’s led me to hold the view that we probably hadn’t.

Yesterday, however, I saw something different. The folks on CNBC were looking haggard. Clearly they hadn’t been prepared for what happened over the last few sessions. It beat them up and left them rattled, for sure. You didn’t hear them talking about value or opportunity like they have been for months.

Now maybe we’re getting somewhere!

Not that I’m picking a bottom here. I don’t develop views like that. My approach is more about trading what I see on the charts right now and looking for opportunities where the analysis says the opportunity is skewed in one way or another.

The RSS readership of my trading education blog has been rising fairly steadily of late. I’m not talking leaps and bounds here, but even a couple here and there adds up over time. As of the reading this morning it’s now at over 600, which I’m happy to see. It lets me know people are getting something out of what I’m posting. That’s the whole point, isn’t it?

Actually, from the figures I’ve seen so far, November could end up being a record month for overall site readership.

That said, I’ve been struggling a bit with some things. In particular, the “related posts” functionality related to the RSS feed isn’t working right, nor is another plugin that’s supposed to allow me to add an additional note or whatever on to the end of the feed posts. It’s frustrating, to say the least.

I received a package yesterday, one that I’ve been waiting for. Part of it was a new batch of books I’d ordered. I read on my commute, sometimes around the house, and almost always before going to sleep each night. As a result, I got through them quickly, so I have to refresh the supply frequently. Mostly it’s fiction to shift my mind to a different place for a while.

But that’s not the problem.

The other thing in that package was a new game for me. It’s Sid Meier’s Civilization IV. I used to play a prior version (I think it was II). These strategy type of games (sims I suppose you could call them) can really get their hooks in me. I decided to get this one – and one for soccer management – as a little splurge when my book royalty payment came in. Call it a little pre-holiday gift to myself.

I played the game a bit last night and boy did it remind me how much time you can lose once you get going. Hours go by in a blink. You don’t get tired. You don’t feel hungry. This could cost me days of productivity!

But it’ll be fun.

Looks like I’ll soon be back on the market!

I mean that professionally, of course. My employer has decided to sunset the equity market analytic service I write for. The sales have just not materialized, and in a tight environment like this one they are being very cost conscious. Too bad, though. If they really had wanted to, we could have used this as an opportunity to bury the competition. Our content is top notch. The sales staff just never got the job done.

I’m not wining, though. When you join up on a new project like this one you take the risk of something like this happening, and the writing was on the wall.

Oh, well.

It sounds like I’ve got at least a couple of weeks left before the lights are finally turned out. Time to figure out what’s next. There might be some internal opportunities worth exploring, but I’ll also be looking externally. My experience and skill set puts me in a position to pursue any number of different paths.

One potential plus out of all this is that I might get out from under the restrictions of working for a Registered Investement advisor. It puts a real crimp on what I can do externally when talking about the markets and trading.

There is a lot of happiness in the US this morning. I even think those who weren’t supporters of Obama aren’t overly upset at the result. This is quite the contrast to 2004 when I saw a great deal of anger when Bush was re-elected. The mood strikes me as a good thing, but I actually think the situation would probably be fairly similar if the results fell the other way. It strikes me that today the country breaths a collective sigh of relief that the Bush years are finally over and done.

I’m not generally one to place the blame at the foot of the president for everything ill which happens during his tenure. Nor do I heap praise on him when things are going well. There are a great many currents and events which drive things, some of which have roots going back decades. I will say, however, that our outgoing president did not aquit himself particularly well during his term in office. He was strong in the days following 9/11, but after that I start having some serious problem with his decision-making, particularly in terms of international relations.

For the record, I did not support either Obama or McCain as I never saw either one being well positioned to lead this country in the manner I’d like to see it lead. Obviously, Obama is now in a position to prove me wrong, and hopefully he does. I really haven’t liked the way things have been going in a lot of areas of the country. Maybe the change in administration and the potential change in the mindset of the country to go along with it will alter that course.

At this point, I need to say I’m very disappointed with black voters. The numbers I saw this morning said Obama won the black vote 95%-5%. You cannot possibly tell me that 95% of black voters agree with Obama’s policy ideas over McCains. That strikes me has highly improbable. If the balance were more along the lines of the 65% of other minorities which voted for Obama, I would find it a bit more realistic. That 95% number, though, tells me it was a race thing – that black voters were voting for the black candidate. It makes me sad. It also sets Obama up for a negative backlash in the black community when he doesn’t pursue policies a large portion of them want to see.

Now we get into the really telling part of things. Over the next couple of months we are going to see the composition of Obama’s cabinent, which will tell us some things. We’re probably going to see just about right off how he’s going to handle the economic situation and what he’s going to do about Iraq, as in the latter case there are some immediate decisions he’ll have to make.

You could almost say Obama’s first 100 days start now.

Congress is also on the clock. They’re approval rating was worse than Bush’s, but they still picked up seats in both the House and Senate. They better produce or it’s almost guaranteed that the brooms will be coming out in 2010 to sweep them right back out of power.

There’s a theory in economics which is known as the Crowding Out Effect. In simple terms, this Effect is what’s supposed to happen when the government borrows a lot (like it is now) whereby the quantity of government debt increases interest rates, hurting private sector borrowers (individuals and businesses). Brett Steenbarger brought up the subject in a recent post of his where he talks about the prospects for government and corporate bonds.

Here’s the rub, though. The effect doesn’t happen. It’s simple money mechanics and supply & demand.

When the gov’t borrows it means it’s doing one of two things. It’s either spending more or it’s taking in less in taxes (or both). In either case the result is more capital in the private sector. That, in turn, leads to either less borrowing demand or better creditworthiness (lower rates) for individuals and businesses. So we have the supply of gov’t debt rising, and the supply of private sector debt falling and/or the quality of that debt improving. The net result is going to tend to be narrowing of the spread between gov’t rates and private sector rates (like corporate bond yields).

That’s why in a situation like the one we’re in now where the gov’t is pushing out debt paper all over the place to pay for the TARP and other programs I fully expect corporate bonds to outperform Treasury debt in the intermediate to longer-term.

I’m hardly going to call my trading education blog one of the big trading sites on the web, but it definitely is growing rather nicely. This chart from Google Analytics shows February 2007 through the end of October of this year (monthly readings).

That spike in April of this year was the result of my The Secret to Trading Success post becoming popular on StumbleUpon, generating loads of traffic to the site.

That said, though, the new high in visitors hasn’t yet produced a new high in page views.

This reflects a reductiong in pages view per visit. My thought is that this might be a function of increased search engine traffic, which definitely tends to bounce more readily than other types. For example, there were 316 hits on the search term “commercial paper”. Needless to say, a blog focused on trading isn’t going to be a rich source of information on something like that.

Even still, I’d like to improve the stickiness of the blog and get that page/visit figure back above 2.0 where it was last year.