In the Spirit of the Quant King |
Wednesday, 15 May 2024 | By Callum Newman | Editor, Small-Cap Systems and Australian Small-Cap Investigator |
|
[3 min read] In this Issue: Callum Newman explains how he uses algorithms to detect stress, risk and trades in the market Kennedy cannot win in the normal way, by taking votes from Biden and/or Trump. |
|
Dear Reader, Today I’m going to introduce you to my friend Chewbacca. We call him Chewie for short. You might be thinking he’s a very tall, hairy, sidekick type of character. Well…he’s not that hairy…or that tall. But he’s certainly my sidekick — for trading the market. You see… Chewie builds algorithms to digest the gigantic data the stock market generates every day. There was another man that did that too — Jim Simons. He died last week at 86. Jim is Chewie’s hero. Why? Jim Simons is the greatest market player you’ve never heard of. His Medallion fund, part of his firm Renaissance Technologies, returned over 30% a year for 30 years. They called him the Quant King. And no wonder — Jim turned himself into a multibillionaire. Even more amazing, he didn’t really hit his trading straps until he was in his 50s. He didn’t follow in the classic footsteps of Warren Buffett or Phillip Fisher. Simons was a mathematician and a codebreaker before he took on Wall Street. Bloomberg had this to say… ‘Simons avoided employing Wall Street veterans. Instead he sought out mathematicians and scientists, including astrophysicists and code breakers, who could ferret out usable investment information in the terabytes of data his firm sucked in each day on everything from sunspots to overseas weather.’ Simons loved to smoke and fagged his way through life for 70 years. Suffice it to say…he trod his own path! Well done, that man. That brings me back to Chewie… We’d never claim he’s the next Jim Simons. No one can be! But Chewie’s algorithms are still very potent tools. Let’s take right now as an example… Should you be aggressive or defensive in your market positioning? You might be feeling a little wary given the news cycle. The next set of US consumer price data could be ‘make or break’, as the Australian Financial Review penned yesterday. That data is due this week. Indeed, there’s a whole list of worries that might be on your mind… Geopolitical tension The Australian federal budget High interest rates Depressed consumer spending High inflation Big debts And on and on I could go… It’s enough to freeze you into inaction. Sometimes it’s enough to put the stock market in the ‘too hard’ basket. That would be a mistake…at least as far as one of Chewie’s algorithms is concerned. One of its signals is a measure of stress in the market. It does this using volatility indicators. Contrary to the list above, and the way you might be feeling, Chewie’s algo is currently signalling very low stress. This is not to say it can’t change on a dime or go up tomorrow. But, right now, the market is not pricing in any calamity. A maths whiz like Jim Simons would say, I imagine, that probability suggests now is a good time to go ‘long’ the share market. Of course, no trader would use one indicator to make a move with their cash. It’s one brush stroke on a canvas. Is there another one we can see? Well, yes. The price of copper is breaking out. See for yourself… Some people say that ‘Dr Copper’ has a PhD in economics. It’s such a versatile metal used across the industrial economy that its price is a good barometer for conditions on the ground. It’s hard to get too bearish with copper moving like that. Again, it’s not to say copper can’t fall back, or the current rally won’t fizzle out. Only, it’s another signal that the share market is likely to be less volatile and risky to the downside than it’s been over the last few years. This is all part of the case I’ve been making to investors since last year. We’re moving away from the high volatility and uncertainty that plagued investors over 2022 and 2023. If you’ve been in the market, or following it, over this time, you’ll know what I mean. Last year I suggested the market was moving into a period called ‘reviving confidence’. Another way of saying this is ‘Stage 1’ of a new bull market. That’s what we saw with the big rally between November and March. Now we’re moving into what I call ‘Stage 2’. This is when the market is starts chasing stocks that can grow profits, market share and revenues. I mention copper breaking out above. Look at copper producer Sandfire [ASX:SFR] lately… The stock has shot up right alongside the copper price. Again, there’s no guarantee it will keep going up. But it’s been a bankable move — at least up until now. My subscribers had the opportunity to get on that trade…and it was thanks to another of Chewie’s algorithms. This one uses machine learning and artificial intelligence to find stocks exhibiting high momentum. It’s certainly not faultless. Nothing in the market is. However, it’s an example of how AI is impacting the markets today. And in similar way to Jim Simons pioneered over the last three decades. There are other ways to exploit AI on the index. That’s finding companies that can use its benefits in their operations. I put down five stock ideas in a recent report. There are no guarantees there, either. But I’m pretty sure Jim Simons would be curious to see if there was an edge he could exploit. It’s working so far. One of the stocks hit 52-week highs last week. Four out of five are up from their original recommendation. And while there are no guarantees this will continue… I’d like to think Jim Simons would be chuffed at that.
RIP to one of the best. Best, Callum Newman, Editor, Small-Cap Systems and Australian Small-Cap Investigator Callum Newman is a real student of the markets. He’s been studying, writing about, and investing for more than 15 years. Between 2014 and 2016, he was mentored by the preeminent economist and author Phillip J Anderson. In 2015, he created The Newman Show Podcast, tapping into his network of contacts, including investing legend Jim Rogers, plus best-selling authors Jim Rickards, George Friedman, and Richard Maybury. He also launched Money Morning Trader, the popular service profiling the hottest stocks on the ASX each trading day. Today, he helms the ultra-fast-paced stock trading service Small-Cap Systems and small-cap advisory Australian Small-Cap Investigator. Advertisement: ‘Lock up the AI data. Lock in the profits...’ Any company with access to ongoing, unique, proprietary data...has just become a gold-dust Artificial Intelligence asset. The opportunity lies in finding such companies BEFORE the market realises the value of this hidden balance sheet item. Which leads us to THIS rather left-field ASX recommendation... |
|
| By Bill Bonner | Editor, Fat Tail Daily |
|
[3 min read] Dear Reader, ‘If voting made any difference, they wouldn’t let us do it.’ Mark Twain This just in, from the Baltimore Sun: ‘…Trump this past week posted a roughly four-minute video online in which he called Kennedy “fake,” a “Democrat ‘Plant’” and “Radical Left Liberal who’s been put in place” to help the Democratic president. Trump railed against Kennedy's family as “a bunch of lunatics.”’ Today’s subject is the upcoming elections. We will take a look at a ‘trap door’ into the White House, which is the only way RFK, Jr. might get in. Yesterday, we made our modest contribution to civic management. Historically, democracies are always perverted and corrupted as people use the government to gain power and money for themselves. We suggested a solution — giving up elections altogether, in order to have a more honest...even more ‘democratic’...government. A national lottery, where the winners are determined on the basis of pure chance rather than pure BS! No campaign speeches. No bribery by campaign donors... and no subsequent robbery of the masses to pay them back. No need for an ‘inflation tax’. Candidates wouldn’t be beholden to the Big Money...not to the Deep State, the firepower industry, Israel, Wall Street, or other Established Elite. And a Congress made up of randomly chosen citizens would be more representative of the public than a group of self-selected opportunists and political hustlers. Yes, of course, a Congress made up of ordinary citizens would be clunky and quirky...many of the members would hold exotic, knucklehead ideas. But they would be honest ideas, mostly harmless, which wouldn’t go anywhere anyway. Members of Congress could serve for a single year... and they would be bound by two rules: First, no conflict of interest; if they had a personal interest in the matter, they would have to recuse themselves. Second: they could only do things expressly allowed by the Constitution (all other powers reserved to the people and the states). But of course, we are dreaming...aren’t we? Not a ‘normal’ democracy Returning to the real world, let’s look at RFK, Jr.'s longshot bid for the White House. Will it prove that American democracy isn’t so bad after all? Will it show us that when the candidates are bad enough...and the corruption is pervasive enough...the voters really will revolt; they’ll throw the bums out...and get new bums in? Probably not. So far, the voters have shown little interest in genuine reform and only lukewarm interest in RFK, Jr. In a ‘normal’ democratic election, you’d expect the various candidates to present themselves to the voters in the primaries. Those most liked by the voters would go on to the run-off election. But when Robert Kennedy threw his hat into the ring, the insiders chucked it back at him. Kennedy, a life-long Democrat, was edged out by party honchos, so that the voters never got to meet him...and never got to express themselves. No debates. No ‘meet and greets’. And the mass media did everything it could to discredit him. He was a ‘conspiracy theorist’, they said, as if that should disqualify him for public office. Horrors...he thought the COVID vaccine should have undergone normal testing and trials before being rolled out to hundreds of millions of people. He thinks the CIA may have been mixed up with the death of his uncle, JFK. And even his own kith and kin don’t want him in the Oval Office, we are told. Shut out of the democratic party primaries by the party jefes...and spurned by the media that had previously regarded him as a hero of the greenish left...he now runs as an Independent. And now, the press insists that he is a ‘spoiler’. That is, if you vote for him, you are ‘throwing your vote away’, because he can’t win. If so, whose victory party is being spoiled? Will he take more votes from Trump or from Biden? The Democrats say he is in league with Trump, siphoning off votes that would otherwise go to their man, Joe. Trump, meanwhile, says he is a ‘democratic plant’ who hopes to throw the race to Biden. Spoiler Alert But Kennedy’s real plan, we believe, is to spoil the fun for both of them. According to an analysis done by our friend, David Stockman, he might even win...but not by getting more votes. The only way possible for Kennedy to win is by opening the same ‘trap door’ to the White House used only once in US history, exactly 200 years ago by John Quincy Adams, another contender from a famous political family. Here’s the situation. There are 15 ‘Blue Wall’ states that aren’t going to be moved from the Biden camp — WA, OR, CA, CO, IL, MD, NJ, DE, RI, CT, MA, NY, VT, HI, DC. And there are 20 ‘Red Wall’ states that are solidly pro-Trump: AK, AR, ID, IN, KS, KY, LA, MS, MO, MT, ND, OK, SC, SD, TN, TX, UT, WV, WY. It takes 270 electoral votes to win the race. To get that many, Biden and Trump must each take votes from the remaining 16 ‘swing states’ — AZ, GA, NV, NH, NM, WI, ME, NE, MN, IA, MI, OH, PA, VA, NC, FL. Between them, those states have 188 electoral votes. So, even if Kennedy were to win all the remaining ‘swing’ states...he still wouldn’t have enough electoral college votes to win the White House. What this means is that Kennedy cannot win in the normal way, by taking votes from Biden and/or Trump. All he can do is to try to prevent Biden or Trump from getting enough swing state votes to reach the winning number. Logically, Kennedy should emphasise his ‘conservative’ positions in those states most likely to go for Trump...and his ‘liberal’ positions where the votes are more likely to shift to Biden…taking enough votes from each of them to deny them victory. Not easy to do. But if no candidate gets 270 electoral votes, the race goes to the House of Representatives, as it did in 1824. There, each state delegation gets a single vote; it is not proportional to population. And there, the anti-Trump delegations may never agree to another Orange Man term...and the anti-Biden factions may never agree to let the president remain in office for another four years. That would leave only one candidate on whom both sides might compromise: Robert Kennedy. Likely? No. Possible? Yes. Desirable? Stockman concludes: ‘As a practical matter, the only route to that end is a hung jury in the Electoral College, thereby paving the way for an epochal deal in the U.S House of Representatives. That is, a grand bargain that would enable a Kennedy presidency to dismantle the Empire and return America’s cratering fiscal affairs to some semblance of sustainable order.’ More to come... Regards, Bill Bonner, For Fat Tail Daily All advice is general advice and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. |
|
Advertisement: Will this no-name stock rule the ‘Aussie Mining Boom 2025’? It’s showing all the traits, ambition and foresight that Andrew Forrest’s Fortescue Metals had in the early 2000s. Market cap just $270 million. And a gameplan that’s addressing many of the same challenges Fortescue Metals Group faced in the 2000s. This very small company is about to unlock a very big deposit. The largest of its kind IN THE WORLD. Its potential has arrived from nowhere, busting into ‘Tier 1’ status and attracting mining behemoths…including Rio Tinto. This has all the makings of a classic rags to riches story. Click here for the full take. |
|
|