Chat with Quynh on trading

News sources utilized

  • Zacks
  • Motley Fools

Buy rumors and sell on news

  • rumors are not official news but signals that a news might be coming soon
  • continuous upwards movement of share price for few days means news might be announced soon
  • once news is out share price will adjust based on actual numbers

Buy on over reaction to bad news and sell on recovery

  • There is usually overreaction

The dichotomy between privacy and health

1984: Big Brother is Watching
Across multiple literature, its been stated privacy versus health will be one of the primary dichotomy societies around the world will need to juggle with as technological advances are made in the fields of artificial intelligence, communications (surveillance) and medical science (genetic research).
 
What is surprising was the rate at which the Corona pandemic catalyzed this change. In light of this, it is fascinating to observe how different societies position along the spectrum. Some societies has opted for surveillance to the maximum extend possible with current technology while others opted for its polar opposite going to the extend of staging mass protests against it use. 
 

Related readings:

  • The AI Economy, Roger Bootler
  • To Be a Machine, Mark O’Connell
  • Irrational Exuberance, Shiller, Robert J.
  • Life 3.0: Being Human in the Age of Artificial Intelligence, Max Tegmark
  • Mind Children The Future of Robot, Hans Moravec
  • The Singularity Is Near, Ray Kurzweil
  • 1984, George Orwell

Liar’s poker by Micheal Lewis

  • Michael Milken:
    • between perception and reality there is a gap
    • herd instincts: investors are constrained by appearance. A manager of a respectable financial institution will shun “fallen angels” so as to avoid appearing imprudent to his colleagues
    • forces wishing to keep a large company afloat are far greater than those that wish to see it perish
    • credit rating systems are flawed. It focuses on the past instead of the future. Ignore large fortune 500 companies in favor of ones with no credit standings to find a good deal.
    • The market which may be quick to digest earnings data was grossly inefficient in valuing everything.
  • Lessons from Solomon brother traders
    • I don’t pat myself in the back, because the next sensation is a sharp kick lower down
    • those who say don’t know, those who know don’t say
    • Despite the valuable lessons history can offer us, its shown that man does not learn any of these valuable lessons.
  • Benjamin Graham: The more elaborate the mathematics, the more uncertain and speculative the outcome. Avoid substituting experience with theory.
  • Key historic events:
    • 1933 Glass Steagall act: separation of investment banking and retail banking
    • July 1944 Bretton wood systems: World currencies agree to a fix exchange rate against the USD, USD agree to fix exchange rate with Gold.
    • 1971 Collapse of the Bretton Wood systems: US, faced with increasing pressure to maintain the USD gold exchange rates as its foreign reserves were depleted by a extended Vietnam war, went off the gold standard to prevent a run.
    • 6th October 1979 The Volcker Act : money supply will be fixed, interest rates would float
    •  12th Nov 1999: repeal of the Glass Steagall act: banks can now take use consumer deposits for investment purposes.

Related references

The trouble with markets by Roger Bootle

  • Wealth is really a subjective reflection of how we feel about the current state of things.
  • Finance unimpeded by dealing with physical objects tend to respond faster to news and sentiment than physical operations which are tied to physical infrastructure
  • Credit which the modern economy is built upon trust. In times of uncertainty, trust evaporates credit becomes unavailable. Credit crunch ensues.
  • Austrian economics versus Keynesian economics
    • Austrians economists, subscribe fully to the Adam’s invisible hand theory, hold the view the market is always rational, crashes are a necessary catharsis and central banks should not intervene to prevent the crash in this process of creative destruction.
    • Keynesian economists believe the markets are rational most of the time but malfunctions somethings. In these exceptional times it is necessary to step in to fix the malfunction so as to avert unnecessary hardship. Central banks are the lenders of last resort.
  • Keynesian economics on handling market malfunction
    • All market malfunction usually stems from an economic shock
      • the IT revolution shock lead to heavy and ultimately unsound investment in software technology. The period of rapidly advancing DotComs share prices, the underlying manic optimism, the resultant excess infrastructure capacity and excessive use of leverage marks the initial phase of this malfunction
      • at the height of the euphoria, market participants start to come to their senses, share prices start softening as demand fails to catch up with excess capacity.
      • fear sets in when market participants start exiting the market. Panic ensues, rapidly declining share prices and triggered margin calls compounds into a vicious cycle.
    • The key challenge for central banks in such turbulent times is to act with resolve to provide dollops upon dollops of credit all the way to infinity if necessary to tame the turbulence and to restore proper market functions.
    • Japan’s 20 years of stagflation and slow recovery post 2008 are outcomes of mild central bank response to stimulate the economy due to concerns over inflation
  • The real economy
    • aggregate demand – consumer side
    • aggregate supply – production side
    • availability of credit – money supply in the market
  • Sources of low inflation rate – lack of demand or excess production capacity
    • East Asian behavior which tends towards saving a larger portion of their earnings compared to the west
    • Aging population world wide which results in lesser consumption versus a younger population
    • Automation which allows for higher throughput volume given the same amount of resources.

Related references

Minsky moment and the three types of borrowers

Types of borrowers

  • Hedge borrowers – cashflow can pay both debt and interest
  • Speculative borrowers – cashflow can pay only interest. Needs to regularly refinance to repay debt
  • Ponzi borrowers – believes future appreciation can finance both debt and interest

Crash happened when too high a percentage of borrowers in the system are Ponzi borrowers.

https://en.m.wikipedia.org/wiki/Hyman_Minsky

Observations on our news reporting system as well as investment bank forecasting.

On the quality news reporting

Good news reporting should seeks to inform rather than sensationalize with attention grabbing headlines. Its easy to appear data driven but still be misleading if you do not use the proper frame for understanding the numbers

An example of bad news reporting
An example of bad news reporting
An example of quality news reporting

On investment bank predictions

When on the receiving end of predictions made by external parties it is important to understand the underlying agenda they are trying to achieve. When examined thoroughly, predictions made by investment banks are so bad and contradictory, they should just stop making public declarations.

However if taking into account their objective is not to inform but to incite a trading decision by their clients so as to make a commission or offload losing positions on their trading books, it makes perfect sense.

Related references

The AI economy, Roger Bootle

Paradoxes

  • Polanyi Paradox
  • Moravec’s paradox

Key skill sets for the AI era

  • complex communication
  • Creativity
  • Strategic thinking / critical thinking
  • Empathy / humanity

Key themes

  • AI as labor cost versus AI as capital expenditure
  • Taxes on AI development versus edge in global competition
  • Labor versus leisure
  • Global positioning
  • Population size as advantage for big data

Chat with Johnson and Dad on CoronaVirus and crisis investing

  • A company is only likely to go bankrupt if its creditors recalls debts and it is not able to pay back.
  • In the event of a major wide spread disaster and there is no one around to take advantage of it, it is unlikely the creditors recall debts
  • creditors of airlines would more likely want to have all their clients continue generating revenue with the planes to pay off debt than to foreclose of them and take back planes which are at that point worthless inventory for them
  • Labor unions will not want to have all their union members laid off, they will likely go into negotiations to deal with salary issues.
  • Ships of cruises are likely to deteriorate fast and require Capex to upkeep
  • Credit lines and payment schedule can always be renegotiated if impact is industry wide
  • If creditors are not willing to recall debts, then what would be the cause of bankruptcy? Beware of fake news that preach doom and gloom with no underlying basis
  • If you bought too early into the dip and you are more than half way into the dip might as well hold on for the recovery. Trying to exit too late into the dip will only cause more losses to be unnecessarily incurred.
  • Oil specialists are either producers or consumers, it is hard to determine the demand unless you are an insider
  • Wait till all the bad news are out and sentiment has turned before entering into position. Its ok to only go into position after the company share price has advanced 100% from its lowest levels.