Why The Market Keeps Going Up?
From Flecks latest Recession Isn't an If and Market Hackers Running Out of Ammo.
I have a sneaking suspicion that the bizarre action in tech stocks is a function of quant funds.
It seems they don't operate as they once did, when stocks were picked based on fundamental statistics.
These days, the characteristics (volatility, correlation, membership in an index, etc.) of stock-price movement are all that matters.
A well-placed friend in the quant world pointed out that on any given day, 50% to 70% of stock trading is probably done using a quant strategy of some form.
He suggested that folks should think about stocks as financial instruments, looking at volatility, correlation to other stocks, membership in an index and other such characteristics that pertain only to price action.
That's what the computer-driven models at quantitative funds do, setting aside the fundamental questions of what a company actually makes or does and what that business is really worth.
If all that is the case, it explains why, at the margin, the market seems to have become more of a commodity than it has been in the past.
My friend believes we're getting closer and closer to a moment when quants no longer rule daily trading, as their universe is losing participants that underperform.
The ones that remain are desperate, trying feverishly to chase what's working. He contends that the higher the market goes and the faster it rallies, the more certain and ugly the collapse will be.
He went so far as to suggest that when this unwinds, some big Wall Street firm will essentially go out of business and that the building it occupies will be, in his choice word, depopulated.
When I responded by saying, wow, you're more bearish than I am, he replied: No, it's not about being bearish. It's just a fact.
What I expect to unfold is a recession and severe weakness in the equity market.
GMO Chairman Jeremy Grantham... was unequivocal in his belief that housing prices will revert to the mean.
Likewise profit margins in corporate America (which are at a record) and price-earnings ratios -- implying stock prices were going down a fair amount or, as an asset class, would generate negative real returns for an extended period.
I have a sneaking suspicion that the bizarre action in tech stocks is a function of quant funds.
It seems they don't operate as they once did, when stocks were picked based on fundamental statistics.
These days, the characteristics (volatility, correlation, membership in an index, etc.) of stock-price movement are all that matters.
A well-placed friend in the quant world pointed out that on any given day, 50% to 70% of stock trading is probably done using a quant strategy of some form.
He suggested that folks should think about stocks as financial instruments, looking at volatility, correlation to other stocks, membership in an index and other such characteristics that pertain only to price action.
That's what the computer-driven models at quantitative funds do, setting aside the fundamental questions of what a company actually makes or does and what that business is really worth.
If all that is the case, it explains why, at the margin, the market seems to have become more of a commodity than it has been in the past.
My friend believes we're getting closer and closer to a moment when quants no longer rule daily trading, as their universe is losing participants that underperform.
The ones that remain are desperate, trying feverishly to chase what's working. He contends that the higher the market goes and the faster it rallies, the more certain and ugly the collapse will be.
He went so far as to suggest that when this unwinds, some big Wall Street firm will essentially go out of business and that the building it occupies will be, in his choice word, depopulated.
When I responded by saying, wow, you're more bearish than I am, he replied: No, it's not about being bearish. It's just a fact.
What I expect to unfold is a recession and severe weakness in the equity market.
GMO Chairman Jeremy Grantham... was unequivocal in his belief that housing prices will revert to the mean.
Likewise profit margins in corporate America (which are at a record) and price-earnings ratios -- implying stock prices were going down a fair amount or, as an asset class, would generate negative real returns for an extended period.
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