Sunday, June 18, 2017

Anti-Social Media Bubble aka. Artificial Intelligence

Prechter has totally ignored the role of computers in driving markets and social mood. Conning a few million people is one thing, conning an entire planet requires social media. But with so many bots running amok, how would we know when markets have peaked?

Hint: Well after the economy...

The Social Media echo chambers:
"I think Trump has this all figured out"
"I'm in it for the impeachment"

You see Prechter got the human element right, but he ignored the extent to which Central Banks, robo-advisors, HFT, and Social Media could extend and expand this global mega bubble. 

While fundamental narratives explaining the price action abound, the majority of equity investors today don't buy or sell stocks based on stock specific fundamentals

Kolanovic's analysis attributes the sudden drop in big technology stocks between Friday and Monday to changing strategies by the quants, or the traders using computer algorithms.

Upward pressure on Low Vol and Growth, and downward pressure on Value and High Vol peaked in the first days of June (monthly rebalances), and then quickly snapped back, pulling down FANG stocks

I wonder how many gamblers realize that the Trump reflation trade has been unwinding for six months now. In other words, a bet on the S&P 500 (Facebook et al.) is a bet that Trumpflation will fail...

Speaking of fake reflation. This week in Barron's:

"The Fed is clueless, so buy Tech stocks. If you can't have real wealth, may as well have fake wealth"

Gilburt: With the advent and proliferation of computer-executed trading, what effect have they had on Elliott Wave analysis, other than the speed at which trading is done?

Prechter: Virtually none. People build their errors of thinking into their programs.

What experience with computer programming do you have? 

"Virtually none. I use a Smith-Corona for all of my editing..."

My point is that this cycle has been artificially prolonged, and in the meantime has created a chasmic gap between social mood and the underlying "fundamentals". Basically what the article above said.

I added the value of outstanding car leases to my favourite chart:

"We believe that the carnage we are creating by raising interest rates is transitory, so we are going to continue raising interest rates until it stops"

"We have no subprime in Canada"

Oh wait, we just found some this week:

"We all know that the ghost collateral is a huge deal, and we all know that the shadow banking and other Chinese influence in Vancouver is profound. The issue it that the ghost collateral ends up re-hypothecated and laundered. So by the time it shows up in Vancouver, it will likely just look like a rich Chinese cash buyer with a suitcase of money"

Wells Fargo


Northern Trust



Ironically, Social Media stocks are in their own bubble...

"Now imagine that you're in a room full of people from around the world, socializing and having a good time"