aleatory

Equity Market Visibility

2010-07-20T18:09:01-07:00

It’s an oft-quoted heuristic that stocks are discounted out to 6 months ahead. That is, the price investors pay for a share is a bet on how that share will play out over the next half year.

We can use this to begin to discount factors affecting price movement if we can ascertain whether they will still be an issue in six months time.

Take housing as a simple example for instance. Now the majority consensus is that the market won’t pick up in the next 6 months for sure, with some going out to years. But there will be little scraps of the ‘green shoots’ mirage along the way.

We can vouch that these are diversionary as we learn there is a massive backlog of empty property not even being listed for sale in case the market tanks from an even greater oversupply than at present.

Hence if we see the market being moved upwards by housing data over the next few months we can trade against this knowing sentiment will surely return to it’s correct position at some point in the future.

Misrepresenting Culture

2010-07-16T17:20:58-07:00

Image courtesy Ardfern

The Derry~Londonderry bid has won the right to host the UK’s first City of Culture in 2013. Apparently one of the organisers trumpeted on the night of the announcment that she wanted to see ‘every child with a musical instrument’ by the time they get round to hosting it.

And that’s what irks me most about this notion of ‘Culture’ being bestowed on a city for a certain period:

Culture is surely one of the most incorrectly used words in the English language today.

What is Culture? Culture is ubiquitous. There is football culture, geek culture, urban culture and a truckload of subcultures in between. Culture is a description of society not a judgement on it.

Yet we keep seeing this crap debate about whether one city is more cultured than another.

The word these lunatics are really looking for is art. Use that phrase and they can then go round in circles arguing over which is more deserving of awards and luvvie attention all they like. As it stands we get creative fascists telling us how one social tradition has more merit than others, which seems to me to be wholly inappropriate. Is Birmingham’s R’n'B subculture more deserving of awards than the parading culture in Londonderry?

It’s an absurd notion. You might as well argue over who’s better, Blacks or Whites? And then further add to the damage by boxing the winner in a twee one-off event that gives their ‘culture’ – what should be a complicated & inate social structure and value system – some kind of artificially elevated status promoting nothing more than it’s commercialisation.

I guess we’re lucky Culture gets misinterpreted as art. At least then real culture will not be put at risk of contamination and freak show celebrity while the Marie Antoinette’s of this bid can get on with their instruments for every child gimmicks as the world trudges on regardless.

Opened my thoughts on ‘big society’ with this as it’s exactly the sort of government promoted social-engineering a society at peace with it’s own responsibilities should be avoiding.

Google & It’s Search For a Social Graph

2010-07-11T19:39:54-07:00

image courtesy Tantek

Techcrunch lead on a $100m investment by Google in Zynga the social network gaming company. It’s the latest in a long line of Google failures in a vital area of capturing web traffic – or, “organising the world’s information” as Google diplomatically puts it.

Canny move or desperation?

When examined in detail for such a blazingly successful company as Google are their record in social really is shocking: a near-continuous stream of failure with little apparent success on the horizon anytime soon. Something is playing up in non-evil algorithm land.

Dead

Dodgeball
lively
Jaiku

Not Dead

Latitude
Wave
Buzz

All are relatively unsuccessful on either Google or their own niche terms.

All elements of organising a user’s network around their infrastructure and not someone else. Each one concentrating on a certain social metaphor and each one failing in their own anonymous way. What will be different about gaming? What will make users skip their existing social accounts and networks that already have these games? While they tend to be pretty limited in depth what will Google do that will be different?

Obviously I’m highly sceptical but when you look at the stakes it’s vital for Google that they find a social something that sticks. Especially when the CEO has always seen them as a media company first and foremost.

Facebook with their über-targeted ads has a technology and reach that is arguably more powerful than Google’s. It is a big threat to continued adwords growth, which despite all the moves against Microsoft & Apple is surely Google’s #1 priority.

If gaming really is the leverage to unseat Facebook then Zynga may turn out to be a great choice – the 3 year old company is already rumoured to be projecting $1bn in revenue for 2011, signalling the undoubted importance of this much derided gaming sub-industry.

It may be blood from a stone attempting to get Google to admit it’s worried about anything – least of all a single web site – But putting yourself in their shoes it’s difficult to see Facebook’s rise as anything less than the #1 threat to their existing revenue model.

Office Upgrade

2010-07-07T04:35:14-07:00

Old ‘Chair’

New Chair. Not quite there yet

Lies, Damned Lies & Stats

2010-06-30T12:20:14-07:00

Spotted a strange conviction-based FT article from a week past today. The author believes we’re in the middle of a new bull market (’stage 2′) and it’s really just a question of when we begin the next move up…

In conclusion he says we shouldn’t panic because of the following 3 ‘key positives’:

In recent decades there has never been a US recession, or double dip, when US companies have been throwing off spare cashflow nor when the yield curve is steep (signalling an ongoing recovery). US recessions are driven by the retrenchment of the corporate sector in response to shocks. When companies are cashflow rich, they are resilient to shocks.

We already had the recession. What we are in now is a period of long drawn out malaise in which businesses that have cash use it defensively (before governments find a fiscal method of extracting it to service their own debts) and those whose job it is to supply the credit grease that keeps the system ticking over – decline from doing so to meet similarly austere measures from a government with nothing left to give.

Despite some renewed balance sheet stress, credit conditions globally are easing, especially outside Europe, as banks have recapitalised in recent quarters and as evidence of the turn in the credit cycle continues to emerge

The credit default markets still tell us it is more likely Greece defaults than not. Euro banks non-take up of ECB emergency funds notwithstanding, looking at the corporate market new issues have dropped off dramatically of late. The fact is credit conditions are abnormal and no sane person is saying this will go away overnight.

Growth in emerging markets remains robust – in particular in China; Chinese leading economic indicators, whilst slowing, remain in an uptrend; most importantly Chinese monthly lending growth rates have picked up from the slowdown in the second half of 2009.

One of these leading indicator’s was revised down sharply before yesterday’s opening, highlighting the difficulty not only in interpreting this data but it’s integrity. Is it just me or are revisions to prior data readings becoming increasingly pronounced?

Granted it may well be a sign of uncertain times.

So I’m sceptical of the case for the bulls, if the above is it. But pertinently if what a lot of the optimists are saying is true – that corporates have got rid of their supply overhang and are preparing for a new cycle – where are all the jobs?

Debt Disconnect

2010-06-29T03:47:45-07:00

On Friday I questioned the validity of relying on a single, relatively unreliable and untested measure as a leading indicator. At the risk of sounding like an economist that is not to say I disagree with the conclusions made.

Indeed watching the UK consumers’ response to their emergency ‘austerity’ budget may be a useful predictor for the likely US retrenchment, whenever Obama decides (or more likely, is forced) to follow suit.

Though rather than being a function of the consumer, there is a case to be made that the next major index movement will come from a government’s inability to pay it’s bills and hence stopping the stimulus-led consumer ‘growth’ story in it’s tracks.

Debt Induced Recession

First off is an article from Sunday’s Telegraph that points out the cost of hedging against Greek default is more expensive now than at any time since the current crisis began. And that’s with massive European intervention.

Then there is the US itself, where in California alone spending must be reduced by a sum greater than Greece, Portugal, Ireland, Hungary, and Romania combined. 45 other US states have budget deficits to cut by this time next year. Obama at the surprisingly low key G20 summit appeared to bow to pressure from other world leaders to move to cut budget deficits by half inside 3 years.

Does anyone really believe this will happen?

Gross American debt is predicted (by the government) to hit 100% of GDP by 2011 – over 15 trillion dollars. The painful fiscal tightening that any attempt to reduce this – no matter how hollow – will when taken with similar tax objectives from individual states, likely precipitate a substantial fall off in GDP growth. Hastening such a scenario is the ending of the existing Bush-era stimuli such as extended benefits in July. Housing has already been shown to have retrenched following the New Home Sales tax credit scheme shutting down.

Lack of demand points to deflation and this points to more expensive debt servicing and a final slip from recession into acknowledged depression. But the longer Quantitative Easing is pursued, the longer the money is printed, the bigger this final reckoning will become. Ultimately the Fed’s unwillingness to accept the Business Cycle is the chief obstacle in this war against the inevitable.

But all the signs are there that the market thinks we’re closer to that tipping point than is currently being reported.

UK as a Leading Indicator for US

2010-06-27T20:27:18-07:00

“When America sneezes the UK catches a cold.”

Such has been the accepted logic in financial markets for decades now. The logic being that as our largest trade partner outside of the EU – together with it’s sheer scale – it’s health directly affects the well being of companies on this side of the pond. A one-way heuristic that may well be about to be reversed at least temporarily.

With Obamaland now inevitably looking at austerity measures similar to the other nations with unsustainably high budget deficits, the fact the new UK coalition government has already embarked on an emergency cost-cutting budget will perhaps be useful in analysing future US index movements.

The effects in the UK of increases in tax – VAT – and the cutbacks to runaway public spending will be watched keenly by the market to see it’s effect on consumer demand. Sentiment shows a nervous market – the FTSE has dropped 200pts since the budget accouncement last week. But it will be a few month before the effects begin to filter through from the consumer frontline.

This will still be a long time before any related measures are taken on the other side of the Atlantic – commentators and government alike seen the UK cutbacks as ‘unnecessary’ despite their own dire financial situation – so it seems natural that the first port of call for insight on likely equity movements will be towards the FTSE back in the UK.

Newspaper Paywalls

2010-06-25T09:34:36-07:00

Interesting analysis on the viability of newspapers online from local political commentator Owen Polley over at 3k Versts.

Correctly Polley points out this is in a way make or break for print media,

It’s a commonplace that newspapers, almost universally, are now struggling to return a profit, simply because people have become so used to receiving content for free, over the internet.

This is indeed true, as even the most cursory of glances at circulation trends over recent years will attest to.

He contends –

Any blogger will acknowledge that, while blogs can analyse, it is still main stream journalists who gather the raw material for most content which finds its way unto the internet.

And it’s here where I would find fault. The idea is that news, in the pure meaning of the word, is something that depends on mainstream media to be communicated effectively.

Indeed by rushing to make people pay for content that while timely is editorially lighter than the not-so-mainstream yet heavier than free sources such as the BBC, papers risk exposing their business model as extinct before they can truly understand how to provide an online service consumers will pay for.

For example, let’s look at who has gone before.

FT.com has implemented a profitable paywall for a few years now. People subscribe to a service that provides analysis and informed commentary not seen elsewhere. In business 101 parlance they have a USP for their online content and it works. By contrast consumers do not care what source they get for a general news story online. Indeed aggregators make the destination less important, and with the same syndicated news often being published verbatim across news sites, the trend is for the distinction to lessen even further.

Whereas in the IrishNews.com’s experience, a site that previously received millions of hits in traffic prior to their paywall going up, I recently spoke to a marketing consultant who was doing some work for them at the time they introduced a paywall. A standard, if polished, regional news title – and one which has the added ‘benefit’ of attracting the loyalty of a particular political tribe in NI – their attempts to monetise this loyalty online has met minimal success.

In the presence of the choice luxury that the web offers, consumers are unwilling to pay for what is an inherently commoditised product. Nor do Rupert Murdoch-inspired ideas that “things can’t stay free forever” wash particular well, with the permanence of the BBC and other state broadcasters offerings.

With Murdoch forcing the issue though, it remains to be seen whether newspapers will differentiate themselves in time for consumers to give paywalls a chance. If they don’t they will have sped up – not slowed down – their rate of attrition.

Fooled by Randomness, part 1

2010-06-25T03:19:49-07:00

I don’t read too much into Mark Hulbert’s commentary over at Marketwatch. Although a contrarian he chooses to place a large emphasis on correlations that simply do not stack up imo.

Take for example the Dow Theory, a dated system that makes judgements based indicators one of which is divergence of Dow Transports Index from DJIA – begging the question why would Transports nowadays have advance knowledge of the market demand any more so than the producers they service? Producers have whole departments dedicated to forecasting demand for their goods. By the time a profits warning comes in at Transports you can be sure producers have already given appropriate guidance on their expectations. It’s part of market listing regulations.

Obviously when the Dow Theory was being developed markets were not quite as developed. So why use it today? Smacks of column filler rather than serious financial insight.

However he’s completely correct when he calls out the current chorus of praise by analysts for a leading indicator known as the ECRI WLI. It’s not the value itself that’s being lauded as ‘prescient’ by the investment community but the growth rate – which currently stands at -4.7% with a value of -10 a near certain sign of recession (and in this market’s parlance, the advent of the 2nd downer in the double dip).

Never mind the fact only 3 out of the last 7 -10 readings has the WLI actually succeeded in being a leading indicator of government recognised recession, Hulbert makes a more pertinent point. That relying on a metric that only has been backtested 7 times is completely useless in a statistical analysis. It’s one of the fundamental problems with market analysis today. The other – seeing correlation in numbers regardless of relationship – being Hulbert’s main weakness, but more about that another day.

Browse with Confidence?

2010-06-20T18:00:51-07:00

Perhaps, when attempting to convince users your browser is rock solid haxor-proof, it’d be advisable to demonstrate to them that your sites can detect which browser they’re currently running?