INTUITION

We are not recommending anything here, just suggesting there is some wisdom here often overlooked when it comes to markets specifically and life in general.

We do not personally know or have any association with anyone mentioned here. Here are the words of a popular George Michael's song from some years back.

I feel so unsure
As I take your hand and lead you to the dance floor
As the music dies something in your eyes
Calls to mind a silver screen and all its sad goodbyes

I'm never gonna dance again
Guilty feet have got no rhythm
Though it's easy to pretend
I know you're not a fool

I should have known better than to cheat a friend
And waste a chance that I'd been given
So I'm never gonna dance again
The way I danced with you

Time can never mend
The careless whispers of a good friend
To the heart and mind ignorance is kind

There's no comfort in the truth, pain is that all you'll find

I'm never gonna dance again
Guilty feet have got no rhythm
Though it's easy to pretend

Market Music, from Patrick Schotanus

October 10, 2014
Good morning Mr. Niederhoffer:

In your bestseller, The Education of a Speculator, you wrote:

I need to know what is happening in the markets…I hooked up a music synthesizer to the computer, linked it to the interface between the computer and quote screen, and generated a program that would give a musical summary of the markets. I used piano tones for stocks, strings for interest rates, the cello for short-term rates, and the violin for the 30-year bond. The Japanese yen was registered with the high flute, corresponding to the favorite instrument in Japan, the shakuhachi. The English horn, the French horn, and the Alpenhorn stood in for the other currencies.

A lot has changed since then, particularly in terms of software tools becoming available to achieve this. In that spirit, the "music" in this video has been created by turning market data (prices, returns, volatility, and other time series) into MIDI-format (via our software tool) which subsequently was imported into what is called a Digitial Audio Workstation (DAW). The latter allows users to assign instruments (from a single guitar to a whole orchestra) to those data-sets and turn them into sound.

I created this video as part of my PhD research. The fact that it does, indeed, sound like music with a certain rhythm and timbre (rather than random audio-signals) is exactly what distinguishes my approach from earlier attempts at sonification of market data. In the final step, the resulting "composition" is linked to software which allows the creation of visuals that dynamically respond to the sounds (e.g. the small coloured spectra you see appearing against a backdrop of coloured fog).

The video captures a specific period in finance history. Usually I then ask watchers how they would allocate percentage wise a hypothetical portfolio across stocks, bonds, and cash based purely on this video (i.e. "Don't analyse the video but focus on how it makes you feel; what did it convey?").
What's the purpose of all this? Please allow me to share another quote, this time from Jack Schwager's The New Market Wizards:

"Every market has a rhythm, and our job . . . is to get in sync with that rhythm . . . There's no sense of self at all. There's just an awareness of what will happen. The trick is to differentiate between what you want to happen and what you know will happen. The intuition knows what will happen." 

Although some investors/traders have a natural ability to intuitively get a sense for market rhythms, others may need a little help. The investment research method I'm developing is aimed at that: offering a structured, disciplined approach (including advanced software) to train investors' intuitive abilities to sense the market mood in general and its rhythms (i.e. swings) in particular. Massive amounts of data can be efficiently transformed this way to benefit from the whole spectrum of the human-computer bandwidth. Perhaps you're familiar with the behavioural finance concept of System 1 and System 2 of the human mind (e.g. Kahneman, 2011)? Audiovisuals are particularly suited to appeal to System 1 abilities.

Why is this important? Because I believe we have gone way too far in quantifying markets, inspired by the flawed premise of the "market as machine". As a result, what we casually refer to as "the market's mind" has become imbalanced (at multiple levels). Apart from the obvious suspects like HFT, VAR, and flash crashes, monetary policy is also misinformed by this bias. Moreover, we try to understand market sentiment and moods purely analytically (e.g. put/call ratio, bulls/bears spread, etc.) while increasingly repressing our emotions by outsourcing decision-making to algorithms. By distorting the delicate process of discovery it is no wonder we're facing secular stagnation, for example.

Admittedly, this is just my opinion, but should you be interested in the background to all of this I would be happy to send you a short introduction (derived from my thesis + draft paper).
Happy to discuss and clarify.
Warm wishes,
Patrick
http://www.dailyspeculations.com/wordpress/?p=9719

The friend betrayed here is you when you fail to discover and listen intuitively to the market's rhythm, fail to honor your intuitive side.

Much of our lives is spent developing what is revered in society today, the intellectual side. This is not to play the importance of that down, just raise the question how much time have you spent developing the intuitive. In most cases the answer to that is clear--very little.

The rule is what one focuses on expands. This is not just some feely-touchy goodie from the world of self-help or improvement. It's part of the universal law like water seeking its own level. In medicine there's a parallel construct: If you listen to the patient he will tell you what's wrong.

One of the major criticisms of modern medicine is that there's very little listening going on. 

Learning to listen to the market is as much of part of it all as the palaver about stochastic oscillators, MACD, new highs versus new lows and so on.

t.man hatter

DISCRETION: WHO GETS TO DEFINE IT?

 
 Here's quote from a story today about the impact of falling gasoline--i. e.--energy prices. The real important part of this quote is it shows how much energy prices affect consumer purchasing power, yet energy is not a part of the Consumer Price Index's gauge of inflation.

If you're starting to feel officially BS-ed to, you're on to something.

Gasoline is no minor expense for U.S. households. Indeed, it accounts for around 11% of discretionary U.S. household spending (that’s money spent outside of essentials like food, housing and health care) annually, said Thomas Lee, the former J.P. Morgan chief equity strategist who co-founded independent research firm Fundstrat Global Advisors this year.

Note that gas is listed as discretionary household spending. So here's a question: How discretionary is getting to work every day? Like it's not essential to get to work daily. This is just one of many reasons to view these economic numbers with, shall we say, for want of a better term, discretion.
t.man hatter

 http://www.marketwatch.com/story/stock-market-bulls-are-celebrating-oil-price-crash-2014-10-13

THE BIG PICTURE

Well, if you read much of the financial media today, their rolling out all the negative numbers in high style.

For weeks negative news rolled into the stock market without roiling it much or ruffling many feathers.

In today's Financial Times citing concerns about slow growth and "the new normal,"we read this:

Growth in emerging markets is at its lowest ebb since the aftermath of the financial crisis due to a combination of China's fading dynamism, a sputtering of performance in eastern Europe and Latin America.

Now as most investors by now know that the IMF brought it's dog and pony circus to Washington last week where Christine Lagarde made her belly dance statement with her greedy hand out for more U.S. money for the International Monetary Fund.

Lagarde and a few of her comrades leveled some comments about a landscape change in emerging markets that spells slower and lower growth for emerging markets.

Though the GDP numbers for the third quarter are not out yet, here are some of this projected hand wringing concerns. China's GDP expected to fall to 6.8 percent from 7.5. Brazil's growth is expected to be a measly 0.3 percent for the year, off from 2.5 percent last year.

And then there is Russia and Germany and the spill over to eastern  European countries, not to mention the Federal Reserve's over-announced end of QE. As a kid growing up there was this well-known guy in the neighborhood who went around for months telling everyone he was leaving until one day there wasn't anyone left to tell and, to save face, he had to leave.

The whole idea behind the so-called new normal is its scary threat of permanence.

But as one economic wag in the Times' piece points out, the IMF's track record of accuracy is not one you want to bet the farm on, saying,"the IMF had revised downward it forecasts for EM growth on six occasions since late 2011."

But here's our view and it's not anything about "new normal" nonsense and everything about cycles. Broaden your horizon a bit and place some money on these geniuses being wrong. Take what the market is giving you. Nearsighted, short-term folks never see the big picture.  
t. man hatter

BORDERING ON THE CRIMINAL

Now that we have International Monetary Fund leader Christine Lagarde threatening to belly dance if Congress tosses more money to the IMF, you can pretty much rest assured the bottom is near.

"Efforts to pass IMF reform, MarketWatch writes, "have floundered in Congress since they were adopted by the international agency in 2010."

You have to love the arrogance of European bureaucrats who privately despise the United States yet come here with their hands out. Lagarde reportedly called this boondoggle at a news conference "an absolute must."

Giving any more taxpayer money to these bureaucratic scoundrels is akin to leaving a two-year old poolside in the backyard unattended, bordering on the criminal.














http://www.marketwatch.com/story/lagarde-says-shell-belly-dance-if-congress-passes-imf-reform-2014-10-09?dist=countdown

FRANCE AND THE POLITICAL WILL TO DELIVER

If France is the high water symbol of socialist egalitarianism, forget the Queen. God save the rest of us. France is an ugly, stumbling, bumbling mess as is much of Europe. And the U.S ain't far behind.

People who constantly lament and blame political gridlock in America for many of its ills completely miss the bouncing ball. Without gridlock America by now would be sharing a front row seat with France in its economic, socialistic theater of the absurd.

In a recent New York Times interview with French President Francois Hollande's new cabinet member to oversee the the French economy, 36-year-old Emmanuel Macron, we get a look at the task ahead and some idealistic enthusiasm characteristic of youth.

Here are some excerpts from that October 3, 2014 Paris interview

A decade ago, Mr. Macron might have seemed out of place in these halls of power, which have tended to be run by elder statesmen focused on bolstering the vaunted French welfare state. But as one of the youngest people ever to hold a cabinet position, he has quickly become the face of France’s New Socialism, a pro-business technocrat bent on modernizing the country’s social model.

Despite his youth, Mr. Macron has been a major force behind a recent shift by the politically struggling Mr. Hollande toward a more centrist economic policy for France. The economy is essentially stagnant and mired in what Mr. Macron describes as “mass unemployment” — around 10 percent, just shy of the 11.5 percent eurozone average.

As part of the Hollande government’s newly stated resolve, last week it issued a “no austerity” declaration of budgetary independence from the German-led orthodoxy that has been widely blamed for making economic growth hard to achieve in much of the eurozone. Even as it announced 50 billion euros ($63 billion) in spending cuts over the next three years, the government said it would not meet the deficit targets overseen by the European Union until at least 2017

Essentially daring Brussels, the Hollande government indicated it intends to start charting its own economic course, in ways meant to retain many of the country’s social programs, while sharply increasing its global competitiveness.

On Monday, news reports suggested that the European Commission might be preparing to censure France when it reviews its new budget. But Simon O’Connor, a commission spokesman, said it was premature to say how Brussels might respond, until after France formally submits the budget, which is expected on Oct. 15.

In many ways it is Mr. Macron’s job to help sell the Hollande administration’s new approach — not only to corporate France but to a French public worried about its future.

“France is a strong, wealthy country,” he said, citing a strong research and development base, universal education, large foreign investment and world-class companies. “But we are always obsessed by our own weaknesses,” he continued. “It’s sort of a French state of mind." 

As the French economy continued to flag, Mr. Hollande made Mr. Macron his main economic adviser at the Élysée Palace in 2012. This time, he pushed the president hard to break with the “old socialism,” helping to draft a so-called Responsibility Pact that increased flexibility in France’s rigid labor market and promised companies €40 billion in tax breaks in exchange for pledges to do more hiring. 

Now, what is important, Mr. Macron said, as a late train from the nearby Gare de Lyon rumbled beneath his window, is that France continue to streamline and modernize the welfare state.

“For me being a Socialist today is about defending the unemployed, but also defending businessmen who want to create a company, and those who need jobs,” he said. “We have to shift the social model from a lot of formal protections toward loosening bottlenecks in the economy.”

That will be no easy task. Numerous French presidents have rolled out reform plans, only to fold after the French took to the streets. Last week, thousands marched against Mr. Hollande’s plans to reduce social spending and open the economy to greater competition.

What if Mr. Hollande, already the most unpopular president in modern French history, now decides to retreat?

Mulling the question, Mr. Macron lifted a glass of Burgundy wine, a pleasure that he permitted himself given the late hour, then grew suddenly serious. “The deal I had with the president and the prime minister was to deliver. If they decide not to deliver, I will move.”

BROKE AND DESPERATE

The International Monetary Fund speaks and Wall Street in its confusion listens.

Here's a quote from today's front page Wall Street Journal.

Stocks tumbled on escalating concerns about global growth prospects, especially in Europe, as new data showed deepening stresses in the continent’s economy and remarks from a leading policy maker highlighted the lack of consensus in dealing with the slowdown.

The Dow Jones Industrial Average slid nearly 273 points, or 1.6%, its worst daily decline since July and fourth-biggest point drop of the year. The slump in U.S. share prices followed big losses in German, French and U.K. stock markets.

Long known for its harsh austerity leanings, the IMF for years made loans to strapped countries many believe with conditions as strict as those repayment reparation liens on Germany following WWI many again believe led in part to WWII.

According to today's Financial Times, the IMF claims "there is an almost 40 per cent chance of a eurozone recession in  the next six months, and downgraded other countries outside North America."

That the IMF is now calling for monetary stimulus should strike you as strange and it just might be a clear signal the economic bottom is in.  This bureaucratic outfit's had to change its forecasts more often than someone with a bad case of IBS changes underwear.

Much of this doom and gloom stuff over shadows another drag on things. Bureaucrat-laden places like Brussels and Washington have declared open season on alleged corporate and state wrong doers, "EU's Amazon probe steps up pressure over tax deals," reads another Times headline.

There are two ways to treat over burdensome taxes, tax avoidance and evasion. Until recently only evasion was illegal.

 The political climate in Brussels--and across Europeans capitals--has hardened towards US  companies in recent months, especially in the technology sector.

The decision to probe such tax rulings is not just putting the spotlight on individual companies. By targeting governments alleged to have facilitated corporate tax avoidance, iths opened up another front in the global battle against tax avoidance.

To even the most insensitive nose this has more the smell of money to it than illegality. Toss in the not so small payback motive for how a greedy band of Washington regulators treated certain European banks. And going after U.S. technology is no accident, either. 


Basic translation: Governments are desperate and broke.











 

OVERNIGHT

Investors will be looking at the debate minutes between the hawks and the doves in the latest Fed report to be released today in an attempt to get a handle on when interest rates will head up.

Meanwhile, overnight stocks in Asia took a dive with Japan's Topix (.TOPX) shedding 1.1 percent and the Nikkei (.N225) down 1.0 percent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 1 percent, while Australia's main index (.AXJO) lost 0.9 percent.

China's markets  after a week-long break from moved up slightly with Shanghai (.SSEC) up 0.5 percent. But trouble, though many believe it is subsiding, in Hong Kong (.HSI), sent the market there down 0.7 percent. Meanwhile, oil absorbed another hit with Brent losing $1.18 to $90.93 a barrel and West Texas Intermediate down $1.07 to $87.78 as deflationary concerns continue to rule the day.

The International Monetary Fund's report released earlier apparently didn't do much to bolster investor confidence about a quick end to the global slowdown either.