Disqus - Latest Comments for scrillagorilla

Re: Equity Returns Following Extreme VIX and WVF Movements, Part 1

scrillagorilla — Mon, 31 Dec 2012 13:57:30 -0000

Great blog. Realize this is an old post but have a question. Are you using absolute changes or percentage changes when calculating the move in the VIX? You state that you are using percentage changes for the VIX, but you cannot use percentage changes for the WVF because it is frequently at 0, so I am assuming that you must be using absolute changes for the WVF, in which case the calculations for VIX vs. WVF are slightly different. (Not trying to nitpick, just want to clarify to try and replicate myself.)

Also, in your table breakdown for the percentiles of using both, to clarify does >99th percentile mean that both VIX and WVF must be above PRank of 0.99, or that the average of their combined PRanks must be above 0.99?

Thanks.

Re: Is VXX Ever a Buy? | Blog - Daily Options Report

scrillagorilla — Tue, 06 Apr 2010 14:22:43 -0000

Is there ever really a reason to trade the VXX. Unless you have <$10k in the account and <$40k in income, you can trade futures both long and short. All these ETFs are great, but for certain things trading the futures just makes more sense. Perhaps most retail investors shouldn't be trading volatility in any form (VXX or futures). But if they are, they should just trade the futures and be done with it. (Same applies to any front-month futures ETF such as USO or UNG.)

Re: What are the Best Charts for Gauging Extremes?

scrillagorilla — Mon, 08 Mar 2010 15:36:58 -0000

Full STO (parameters 14,3,3 on a daily chart)

Initiating/increasing shorts only when the STO is overbought and closing all shorts once it's oversold is a pretty good rule of thumb. It is not a holy grail, but definitely gets you in when the risk:reward is high and gets you out once the risk:reward is low.

Re: EU offers $3.1 billion for Energy Infrastructure (by OilPrice)

scrillagorilla — Mon, 08 Mar 2010 01:35:53 -0000

TK - Regarding your prior post ("Let's think this through"), why not just run a balanced or slightly net positive book, with 60/40 or 50/50 exposure? You say that your chart-reading on individual names has been good (I'd agree), but this has been hampered by your net short exposure resulting from your top-down reading of the market's overall direction (I'd also agree). So why not just eliminate the latter and stick solely to the former?

Regardless of how many short and long positions you have, try to keep your total book more-or-less balanced. You'll completely eliminate "overall market direction" from your trading and rely solely on your reading of individual charts, betting that your bullish picks will outperform your bearish picks (which is a bet I, personally, would take). Your portfolio probably won't have amazing runs like you've had when you've correctly picked market direction, and perhaps in the long run your returns won't be quite as good (although they could end up being better), but there's no doubt that your returns will become more stable (and less stress-inducing!).

No more getting whipsawed. No more bear traps. You just pick the charts that look like winners, pick those that are stinkers, and sit back to earn your paycheck as their returns diverge. You can still size the individual positions however you want, as long as the overall book is balanced.

So you go long what you want, and short what you want, and at the end of the day/week/whatever, if your net exposure is greater than 60/40 or less than 50/50, you simply do one of the following to get your book back into balance:
1) increase the position size of your favorite longs or shorts, or
2) simply go long/short the necessary amount of SPY or ES futures

Running this sort of long/short portfolio is all about assessing relative performance, which is your #1 strength. Will you have +20% months? No. But you should be able to have +1-5% months consistently, which in my opinion is much better.

P.S. If you still want to have some component based on picking market direction, then just do it with a single bet on the SPY/IWM/QQQQ and limit it to a small percentage (maybe 5-10%) of your portfolio. Meanwhile, keep the rest of your book completely balanced. This will also be an interesting experiment, because it will allow you to separate and track your ability to pick market direction vs. your ability to pick relative performance of individual stocks.

P.P.S. Only caveat is you have to be careful either to avoid inverse ETFs or to account for the fact that a long inverse position is actually a short position, and vice versa. IMO makes the most sense just to avoid them, since it's more straightforward just to take the opposite position on the non-inverse ETF.

Re: Raw and Uncut

scrillagorilla — Fri, 26 Feb 2010 15:46:36 -0000

"Since my beloved Slopers seemed to have turned bullish en masse..."

Capitulation, at last! The diehards have given in. This is the sign I've been waiting for the lay down the heavy lumber on the short side.

Re: Lifelong Bureaucrats

scrillagorilla — Tue, 24 Nov 2009 12:55:40 -0000

Extremely interesting, although to be fair, many of them were academics, not bureaucrats.

Re: Ratio Charts

scrillagorilla — Fri, 20 Nov 2009 14:48:41 -0000

Also, re: your last post: "if we're trying to look for stocks that are going to be weak in the future, doesn't it make the most sense to look for stocks that have been weak in the present?"

I think yes, but you have to be careful, because OB/OS indicators like RSI and BB are pretty accurate, even on true stinkers. I think the exception to your statement is if the stock has been very weak in the very recent present (in other words, oversold).

Re: Ratio Charts

scrillagorilla — Fri, 20 Nov 2009 14:45:17 -0000

That is an awesome feature. Many packages include basic 1:1 ratios (e.g. SPY:GLD), but most don't allow you to do mathematical transformations within the ratio, or include more than two instruments. Those two extras, I think, make it 10x more useful IMO. Nice.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 14:43:02 -0000

We may see inflation on goods with large exposure to global commodities like crude and metals, but that will be the exception. Although the monetary base has expanded greatly, the true monetary supply has still fallen significantly, because the velocity has dropped off a cliff. This won't change until people start spending, but people won't start spending until the employment situation improves, which will be years. In the meantime, the fact that people aren't spending will only make the employment situation worse, which will then put further downward pressure on prices and spending, which will in turn... Deflationary spiral.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 14:38:47 -0000

Agree and disagree. Although the actual government (i.e. Treasury) cannot "print" money, but must finance through debt issues, the central bank can and does "print" money at will. The Fed can then simply buy the debt issued by the Treasury, which is exactly what's been happening. I disagree to some extent that "printing isn't really unlimited". In fact, it is unlimited, but the Fed knows that the negative consequences of excessive monetary expansion get exponentially worse past a certain threshold. So the question is how many balls would the Fed try to keep in the air, and for how long, before it gives up?

Since all U.S. debt is denominated in dollars, the U.S. will not default, nor will it delay in paying obligations such as FDIC liabilities. But it can de facto default through massive devaluation of the dollar; we may be witnessing the earliest stages of such a process. For us savers this is a truly horrible prospect. For the country as a whole, though, it's probably the least awful of all the options. We are a nation of debtors, and quite frankly, the populace as a whole is too selfish and stupid to take the medicine needed to repay these debts (both public and private) without a devaluation. So devaluation it is.

Be mindful, though, that in a truly deflationary environment, just about every asset class does poorly. Fixed income and especially treasuries become extremely attractive, and I wouldn't be surprised to see yields on 10y and even 30y lower over the next 12-24 months.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 12:11:40 -0000

You talking about mortages? That is a very different interest rate than this, although the Treasury curve affects pretty much EVERYTHING, including mortgage rates.

But yes, I agree, defaults on even fixed rate mortages are pretty scary.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 12:05:37 -0000

Not sure about the one you're trading specifically, but I believe most of them just pay out the dividends on a monthly basis, just like an ETF would. Not sure if they typically reinvest by default or not.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 11:47:21 -0000

Tim - FYI, those leveraged mutual funds are actually excellent trading vehicles. Not sure how your broker works it, but if they are anything like the Rydex or ProFunds leveraged mutual funds, they do a better job of tracking the underlying (no leverage decay) with less transaction expense and no slippage. The only disadvantage is you have to call in the trade before market close (at least with Rydex and ProFunds). But don't knock them. Some interday quant traders use only these leveraged mutual funds.

Re: IRX - What Does It Tell Us?

scrillagorilla — Thu, 19 Nov 2009 11:43:44 -0000

Yes.

It is based on the most recent auction rate for the 13-wk treasury bills. Essentially, demand for the 13-wk paper is high enough to drive the rate down to 0.1%.

Part of this is China. While China has not significantly decreased overall treasury purchases, it has been lightening purchases on the long end of the curve and instead picking up mostly short-term paper like the 13-wk bills. China is willing to hold these notes and get essentially no interest.

As far as the inflation vs. deflation argument, there really is nothing to debate at this point. While the USD may be depreciating versus other currencies, domestically we are clearly in a deflationary environment. Period. Wages are deflating. Rents are deflating. And retail prices are deflating (except on those sectors with strong exposure to international-market commodities). Yes, the Fed has created a bunch of money out of thin air, but so what? The money is not circulating and thus not increasing the real money supply. Inflation in 3-5 years? Maybe. Inflation imminent? Delusional.

Re: Very Good Article on Looming Hyperinflation

scrillagorilla — Fri, 13 Nov 2009 20:52:24 -0000

Inflation = supply * velocity. Supply may be going up, but velocity is down and sinking faster. We will be LUCKY to get inflation in 3 years.

Re: Good and Evil

scrillagorilla — Fri, 06 Nov 2009 20:38:54 -0000

How can selling be evil and buying be good, when all purchases require a seller? The bulls are just enabling the bears!

Re: Watch Those Metals

scrillagorilla — Thu, 05 Nov 2009 21:54:28 -0000

Contrarian thinking can be wise or foolish, depending on WHO you're being contrary to and WHY? Running against the "crowd" makes sense, but only when its in its most mobbish and frenzied state. When the herd is just starting to move, it doesn't usually make sense to start going in the opposite direction just to be "contrarian".

IMO, gold is trapped in a vice between two competing and valid fundamental arguments.

On one hand, if there is no recovery, and we're in a depression/"lost decade" type scenario:
1) BULLISH (sort of): all assets perform poorly, in which case gold could be the only safe haven
2) BEARISH: on the other hand, deflation could cause gold to drop in dollar terms
3) BULLISH CAVEAT: we could, however, see a domestic deflationary spiral along with dollar depreciation versus other currencies, in which case gold could perform very well in dollar terms even in a deflationary spiral

On the other hand, if there is a decent recovery...
1) BEARISH: Demand for "safety assets" in general will diminish, thus diminishing demand for gold
2) BEARISH: The pessimism over the potential fall of the dollar may wane, erasing another justification for owning gold
3) BULLISH: As monetary velocity increases, however, there is a very high chance we may see significant inflation, which should theoretically cause gold to appreciate in dollar terms as the dollar inflates
4) BEARISH CAVEAT: That said, gold historically has not performed all that well in inflationary environments, perhaps because in such environments yield is easy to find

That's the vise as I see it. Whether you see boom or doom, there are very good arguments both for and against gold in the long run.

Re: Watch Those Metals

scrillagorilla — Thu, 05 Nov 2009 21:22:01 -0000

If 99% of the public is crazy about precious metals, that means there's only 1% left to buy.

I would tend to agree about gold, except it seems like A LOT of the investors I respect the most have made the bet: Jones, Einhorn, Rogers, Soros (not sure if he still holds gold but he has invested in gold mining operations, essentially a leveraged gold bet). All of these investors have been wrong before on numerous occasions. But when they're all on the same side of a position, extreme caution is warranted.

And David Rosenberg, who IMO is the best fundamental analyst hands down, has made a point to advise a long position in gold. Quote: "Buy gold." End paragraph. On numerous occasions. And he is the furthest from a "bandwagon" analyst as it gets.

Perhaps both you (TK) and they are right. It's very possible we see a pullback in gold over the coming weeks and/or months. The guys like Rogers, Einhorn, Soros, etc., are operating in years or decades... A 10% pullback probably wouldn't shake them out of the position.

I am also seeing signs in numerous places that we may see a strong bounce in the dollar very shortly, which will probably be bad for gold. That doesn't change my opinion that the dollar may depreciate by another 20-40% over the coming decade.

One more tidbit. Traditionally the dollar, as a safety asset, did not behave like other currencies. It paradoxically went up in times of both economic stress and strong U.S. growth, but sagged in the middle. So the dollar could strengthen or weaken in response to both economic strength and economic weakness depending on the point in the cycle. As the dollar loses favor, we may start to see something similar happen to gold, potentially performing well (on a relative basis) in periods of both severe deflation and severe inflation but underperforming in a "normal" or "new normal" environment.

Re: The Oracle of Omaha

scrillagorilla — Tue, 03 Nov 2009 20:34:11 -0000

Who was the fool that paid $109? Buffet's paying $100.

How does that fit into the theory of "efficient" markets?

Re: The Power of Negative Thinking

scrillagorilla — Tue, 03 Nov 2009 00:46:54 -0000

He obviously has had some "good luck". When you're hot, you're hot.

When his luck turns, if he goes on tilt and starts doubling down, he will go to "0".

But there's no reason why that has to happen. If he takes a step back, resets, re-evaluates his strategy, and reduces his sizing, he can hang on to most of his gains. Tough to do? Yes. But certainly not impossible.

Re: Another Good Entry Point for UNG?

scrillagorilla — Tue, 20 Oct 2009 18:02:33 -0000

True. On the NG futures contract, made new 3-mo high today.

Re: Another Good Entry Point for UNG?

scrillagorilla — Tue, 20 Oct 2009 16:35:19 -0000

I agree UNG chart looks weak. But check out the chart for the Nov NG futures contract. Doesn't look nearly as attractive for a short.

Re: It's Still All About the Dollar

scrillagorilla — Mon, 19 Oct 2009 12:24:42 -0000

Against commodity currencies, USD getting especially killed. EUR up 0.37% against USD today, whereas CAD up 0.71%, AUD up 1.08%, NOK up 1.1%.

Re: A Bunch of Bullion

scrillagorilla — Thu, 15 Oct 2009 14:02:43 -0000

FYI on the USO trade -
DBO generally does a much better job of tracking the spot price of crude. Instead of buying only front-month contracts like USO, DBO buys a variety of contracts up to 12-mos out, which cuts down on roll yield and the effects of the futures curve. It isn't as highly traded as USO, unfortunately.

Not sure if you care from a purely technical perspective, but even then it might be better because it's not being affected by the roll yield (which could "distort" the price action).

Re: Our Own Worst Enemy?

scrillagorilla — Mon, 12 Oct 2009 23:32:33 -0000

I was actually thinking something similar to the letter's author. It seems like many on this blog (as well as a few other "bearish" blogs I read) have more-or-less capitulated. They may not be buying the rally, but they've "accepted" it and have given up the shorting.

Interesting...