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#193: Trying to Remove Subjectivity

#193: Trying to Remove Subjectivity

micksonmatch
December 04, 2024

S2N Spotlight

Hat tip to Mark Ungewitter for the idea for the chart below. He used 3 conditions to help identify a market top in the S&P 500: (1) an all-time high (2) > 25% rolling 1-year (3) > 50% rolling 2-year. His data went back further than mine and caught the 1929 Great Depression crash. I have made the Y-axis log scale to make it easier to see the proportionality of the exponential growth of the index. I think the result looks pretty good.

What bothered me a little about the conditions chosen was why 25% and 50%? I think they are probably fair thresholds to apply. However, one of the most important philosophies I like to apply is to try and avoid as much subjectivity as possible with model parameter setting. I prefer a one-size-fits-all approach, even if the fit is tighter than my jeans at the moment or looser than Alexander Mashinsky’s morals.

I have simply used 1-sigma Z-scores for conditions 2 & 3. I feel this is less curve-fitted and more robust. Either way, we are seeing a clear sell signal.

S2N Observations

I have always been a bit confused how some of the newer ETFs and mutual funds are able to replicate for investment, hedge funds and CTA indexes. The biggest expert in this space is Andrew Beer. I came across this on his feed yesterday, which I thought was interesting and highlighted why I remain confused.

I am a big fan of investing in indexes to avoid the extra fees that come usually with active managers sub- index performance. The coloured line, if you can see it, is the Credit Suisse Managed Futures Liquid Index. Credit Suisse were leaders in this space creating one of the first index’s and then making it investable. See the white line, it pretty closely tracked the index for years. Then UBS took over Credit Suisse, and the guy running it for CS took ownership of the fund under the name, Manteio Capital. Performance now has completely diverged from the index and $100’s of millions of capital have been yanked leaving only $8m under management. One has to wonder if being part of a major investment bank gave some sort of insider advantage.

The bottom line is I don’t know how one is able to closely replicate a proprietary system in real-time?

This is a good segue to showcase a friend’s fund that continues to outperform most. I identified Alex Rabinowich in 2012 as an emerging manager I wanted to allocate capital to based purely on 2 years of daily time series of returns. The supporting story matched and probably surpassed the numbers and bolstered my interest, which has never waned. Alex was a world junior chess champion, and his partner was and still is, I think, a chess grandmaster. By the way, I am not getting anything for sharing this. They use their brilliant tactical skills to manage a stock index by using options. The rest is history; -0.02%, their only negative year, in 2011?

I have to come back to the MicroStrategy story; Saylor is still very much out there cheerleading like a man possessed by the Holy Spirit. The table below is the average cost of Bitcoin for MicroStrategy since 2021. The average cost to the company only goes up. This is like a diver climbing higher up each year and diving into the same shallow end of the pool. This strategy only works if Bitcoin continues to continuously go up. This just reinforces my trade idea of shorting MicroStrategy and going long Bitcoin. There are a million things that can go wrong with the execution of that idea, so only attempt it if you know what you are doing.

Many indexes made new all-time highs yesterday. I stumbled on an old chart I created and got a bit of a buzz; the S&P 500 and the ASX (Australian) 200 both made new ATHs on the same day.

$TSLA’s 3rd largest shareholder, Leo KoGuan, sells his shares, citing the need to hedge his portfolio against a possible market crash reminiscent of 1929.

Finally, I think there is a strange Japanese feeling to China’s 10-year bond yield trading below 2%.

S2N Screener Alerts

South Korea is in the news at the moment with martial law then no martial law. Kind of like a whipsaw on a chart. Needless to say, the currency is weak. I am sure today’s numbers will be even weaker. In the charts below, ignore the legend where it says 52-week high; it should have read low. I am too lazy to change it today.