19# Signal 2 Noise

In today’s issue:

• The SP500 Equal Weight Index joins the ATH party

• The Donald is so Back

• China becoming more dictatorial

• Musk is full of Grok

S2N Updates

Yesterday was the soft launch of Signal 2 Noise (S2N). The comments below are not what will be typical of this newsletter on a daily basis, but as it is the first, I think it merits some more commentary.

I was shocked to see that 95% of the people invited (2 hands full) thought they were signing up for the newsletter but instead signed up for the blog, which I call “Insights”. The blog is more of a long-form look at certain ideas, whereas the newsletter is daily, more informal, and has more immediate action points. To avoid disappointing those who are anticipating the newsletter, I will send this to both the blog and newsletter subscribers. I apologise if you are receiving the same post twice. I have updated the wording on the membership options below to try and make it clearer, but I think I might need to rethink the design.

I would also like to add a further comment under the housekeeping section.

The philosophical approach I have used with Signal 2 Noise is one where the newsletter and the research portal are symbiotic. You should use them both interchangeably. The newsletter is just a fraction of what is available on the portal. However, I can say that there are sections of the portal that have not been maintained and updated dynamically like I would like. For example, the one data vendor providing global economic data unexpectedly stopped its service to start-up’s. This means I need to replace the source of the data. I will get to it, but my priority is the newsletter for now.

A second example, which I am not comfortable with, is that I wrote all the code driving the charts, tables, and models in Colab. Which is a Google cloud-based infrastructure. The issue I have is twofold: this is slightly technical. When using a cloud infrastructure, it is sometimes difficult to run certain Python libraries. The other issue with Colab is that I found the ability to run scheduled automatic updates very tricky; there are so many restrictions. This means I am now running the code from my local machine that I push to the cloud. I have not completed migrating all my Colab code to cater for the change in infrastructure. This may make updates to the full site less regular than I want. I am working on it.

Performance Review

I try not to say too much here, as I like to think the dashboard tables above are pretty self-explanatory. What you will notice is that there are sometimes shaded colours. This is to help us identify if the change is worth taking notice of; a 3% move in Bitcoin is not the same as a 3% move in EURUSD. To learn a bit more about the Z-Score, which I use for the signal, read this blog post.

Economic News Today

New Signals

There will be more to say here when I revise the signal report. I am including it because I want to share what a typical newsletter format will look like. In the table below, I see noise, which I need to remove ASAP. The point here is to highlight a Signal across all the symbols I am monitoring, which is more than 100. It is impossible to know when a particular “screener” has been triggered, as there are just so many. For example, if there are 100 symbols and I am running 20 screeners on each symbol, that means you would need to check more than 2000 screens per day. It is impossible for a human. For a computer, it is a piece of cake. The idea is to go visit the screener section on the research portal and do a deeper dive to see if its worth taking action – capisce.

S2N Insights

The SP500 Equal Weight Index joins the ATH party

Many of you wouldn’t know how the widely followed SP500 index is calculated. It is weighted according to the market cap of a particular stock. So the larger the stock, the more it influences the index. Recently, we have had the magnificent 7 account for a very high percentage of the index movements. I forget the exact number, but it was like the top 10 companies accounted for 80%+ of the index.

In the chart below, you can see that the equal-weighted SP500 index (red line) only just made an all-time high, while the classic SP500 (blue line) has been making new highs more frequently over the last few months than I change my socks. What this means is that the rally is now becoming more broad-based.

In the 2 charts below, I wanted to highlight the difference between the 2 indexes 5 worst drawdowns, which I have shaded. It is quite interesting how the same top 500 companies in the US present 2 completely different pictures depending on how you calculate them.

The Donald is so back

Last night I was watching some CNBC, which is not something I do very often—almost never, to be honest. The next minute, they take a phone call from none other than Donald J. Trump. You will probably hate me for this, but I loved the entertainment. He is a true character. Cartoon like. He is so unapologetically boastful. Everything he does is the best, according to him. I don’t know what he will be like in his next term. I put money on his re-election, in case you haven’t accepted that reality. What I know is that he is going to provide the markets with a huge amount of uncertainty. It will be a very interesting time to be a global macro strategist.

China becoming more dictatorial

I have been writing quite a bit about the poor state of the Chinese economy. Last week, Premier Li Quiang (China’s No. 2) presented “the state of the nation,” the Chinese annual legislative address. What was noticeably absent was the Q&A they have had with journalists for more than 30 years. That is quite a symbolic move. Don’t question us if you know what is good for you.

Then one more thing worth mentioning is that yesterday, the Chinese legislature voted to change a four-decade-old law so it tightens the Communist Party’s grip on the cabinet, underscoring President Xi Jinping’s drive to give the party control over all the main levers of government.

My interpretation of all of this is that things in China are probably a lot worse than they are letting on, and Xi is getting all his ducks in a row to squash any challenges to his plans for the future.

I think the way the Shanghai Composite Index has underperformed for the last 2 years is very instructive.

Musk is full of Grok

Another interesting twist in the ongoing battle between Elon Musk and his ex-partner Sam Altman is his statement that his chatbot Grok is going to go open source. I think this is very interesting and in keeping with a lot of Musk’s open-source approach from the past. I actually have a lot more to say on this subject but will save it for another time.

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