Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog(thefelderreport.com)
thefelderreport.com
Why It Might Be a Good Time to Revisit Ray Dalio’s 1937 Analog
https://thefelderreport.com/2018/07/25/why-it-might-be-a-good-time-to-revisit-ray-dalios-1937-analog/
33 comments
"There's a reason hedge funds aren't pitching clients on technical analysis based trading...it's because technical analysis is the astrology of the investment world." - Two Sigma, Jane St., and RenTech are just slightly more refined versions of technical analysis - like comparing modern astrophysics to Ptolemny.
"Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance." - everyone should be scared. For the typical person, recessions cause a chance of job loss, which for the majority is a far bigger financial disaster than a market crash.
"Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance." - everyone should be scared. For the typical person, recessions cause a chance of job loss, which for the majority is a far bigger financial disaster than a market crash.
Ultimately it comes down to semantics but I think there's a lot of confusion about the difference between traditional technical analysis and what a quant shop like Rentech or TwoSigma does. Quantitative strategies might use certain technical data as inputs, but it's not the same thing as drawing teacups on charts and publishing an article in Market Watch saying the world is going to collapse.
Nobody knows what RenTech is doing in the medallion fund, but I can tell you with certainty they do not have analysts drawing head-and-shoulders patterns (ie. traditional technical analysis). I think we could argue semantics here again but my point is ultimately that what this article is doing with that chart makes no sense.
I do agree that increased risk of job loss is of course bad and that recessions are bad in general, but this article is about the stock market.
Nobody knows what RenTech is doing in the medallion fund, but I can tell you with certainty they do not have analysts drawing head-and-shoulders patterns (ie. traditional technical analysis). I think we could argue semantics here again but my point is ultimately that what this article is doing with that chart makes no sense.
I do agree that increased risk of job loss is of course bad and that recessions are bad in general, but this article is about the stock market.
We do know that humans don’t do the trading. It’s all algorithms.
Didn’t Paul Tudor Jones overlay charts to predict the 87 Crash?
Saw something like this in the Trader documentary:
https://www.reddit.com/r/Documentaries/comments/4cke1z/trade...
Saw something like this in the Trader documentary:
https://www.reddit.com/r/Documentaries/comments/4cke1z/trade...
I've seen that used to sell a lot of cheesy "online trading school" e-courses but I can't speak to whether that was what ultimately drove him to make the trade.
This article seems to suggest Jones got the idea from a guy named Robert R. Prechter using Elliot Wave Theory: https://www.nytimes.com/2007/10/13/business/13speculate.html
Prechter called the '87 crash using wave theory, but he also called for "the end of the great bull market" in 1995. Which was 5 years too early (ie. flat out wrong).
The lesson here is there's always somebody calling for the next collapse. When it inevitably happens each time, there's always a fresh stock of people you can point to who "called it." Whether this is genuine smarts or just random probability, is questionable.
This article seems to suggest Jones got the idea from a guy named Robert R. Prechter using Elliot Wave Theory: https://www.nytimes.com/2007/10/13/business/13speculate.html
Prechter called the '87 crash using wave theory, but he also called for "the end of the great bull market" in 1995. Which was 5 years too early (ie. flat out wrong).
The lesson here is there's always somebody calling for the next collapse. When it inevitably happens each time, there's always a fresh stock of people you can point to who "called it." Whether this is genuine smarts or just random probability, is questionable.
"Prechter called the '87 crash using wave theory, but he also called for "the end of the great bull market" in 1995. Which was 5 years too early (ie. flat out wrong)."
He was in good company though - Greenspan's comment about "irrational exuberance" was in 1996, when the Nasdaq was around 1300 compared to its peak over 5000.
He was in good company though - Greenspan's comment about "irrational exuberance" was in 1996, when the Nasdaq was around 1300 compared to its peak over 5000.
Yes, i’m not sure how you’re suppose to use Elliot Waves but in the movie they compared charts to the Great Depression era.
when you keep overlaying charts, eventually, one of them will be right.
Don’t spend your entire life being ignorant.
When people are spending tens of millions of dollars on trades, maybe it’s worth asking if they know something you don’t.
When people are spending tens of millions of dollars on trades, maybe it’s worth asking if they know something you don’t.
For every market event you are always going to find someone who predicted it. People predict everything at every point in time.
Getting one prediction right doesn't prove anything. Getting a lot of them right also doesn't prove anything. No one has managed to show a streak of accurate predictions unless they silently purge their incorrect ones.
Humans have a tendency to focus on the successes and ignore all the failures. It's in human nature and it's very hard to avoid it.
Getting one prediction right doesn't prove anything. Getting a lot of them right also doesn't prove anything. No one has managed to show a streak of accurate predictions unless they silently purge their incorrect ones.
Humans have a tendency to focus on the successes and ignore all the failures. It's in human nature and it's very hard to avoid it.
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> The correlation between the S&P 500 over the past four years (black and white candles in the chart below) and the four years leading up to the 1937 top (blue candles) is roughly 94%.
Please tell me you didn't just correlate two price series :/
Please tell me you didn't just correlate two price series :/
Why is that a bad thing?
Prices aren't stationary, which means (essentially) that they move around and compound on themselves. Correlation assumes that the two time series being correlated are stationary. If you want to correlate two price series, you do so using returns (e.g. +1%, -2%, ...), which are a stationary series. If you run a correlation on price series, you'll get silly high values like 94%.
I'd go further and suggest using changes in the logs of the price over time.
My understanding is that using the first difference of the log is just an approximation of % change that is in common usage primarily because it was computationally faster and because it's closed form is smooth. I could be wrong though. Is there some advantage to doing that that i'm unaware of?
In unsophisticated terms, I think it's basically that you can probably play with nearly any two time series graphs and then manipulate the data such that you find correlations.
Of course, that doesn't mean there actually is any correlation.
Of course, that doesn't mean there actually is any correlation.
No, it's a specific issue with price series. The correct way to do it is to correlate the return series.
I agree that's a bigger fundamental issue, but I still think that if you take two different arbitrary windows from two time series of pricing data and then adjust the scaling of one to "match" the other, one can "find" many of these "correlations", even within the same pair of time series.
Ya, you're right. That is an issue as well, though I think it's a second order one here. His correlation likely disappears if he does it on the returns. But spurious correlations, even done mathematically correctly, abound.
This article predicts a coming crash of markets, essentially.
It attempts to make some parallels to history and show similar graphs from the past and today.
Of course, if this information were truly accurate, they wouldn't tell anyone and they'd just start shorting all the things...
It attempts to make some parallels to history and show similar graphs from the past and today.
Of course, if this information were truly accurate, they wouldn't tell anyone and they'd just start shorting all the things...
Shorting and then telling the herd is exactly what’s done. Once you take the short position, you want to scream at the top of your lungs and bring about that catalyst/trigger asap. Spread rumors, write hit pieces, etc... Observe the half-baked hit pieces on TSLA by Chanos and co.
When right, these people will dampen the bubbles and falls preventing catastrophe of greater magnitudes.
When right, these people will dampen the bubbles and falls preventing catastrophe of greater magnitudes.
Chanos kept his short on TSLA secret for 3.5 years.
No, not 1937. Very different situation. The US was slowly coming out of the Great Depression with massive Federal spending and jobs programs. Union membership had doubled in the previous five years. Complete opposite to today.
We might be looking at a similar situation to the 1930s again, but with the USA closer to 1930s Europe and China closer to 1930s USA. China has had a recent speculative stock bubble.
Also, the Smoot-Hawley Tariffs took effect in 1930 (we're just threatening trade war now).
Ray Dalio said the same thing in 1982, pushing him near bankruptcy to the point where he was forced to let go of all his employees—there's no doubt he learned since then but keep in mind he also made the same error in 2011.
https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nea...
https://www.cnbc.com/2017/09/15/ray-dalio-went-broke-and-nea...
That broken clock may never be right, he's been saying the same thing since 2011:
https://twitter.com/EconomPic/status/1022191087589314561
https://twitter.com/EconomPic/status/1022191087589314561
A broken clock is right twice a day, but a running-but-off clock can be wrong forever ;-)
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Jesus, why does their garbage jerberscript break ctrl+click?
With current tax cuts, I can see a delay in down turn compared to what happened before
what was interesting was trump's comment the other day regarding paying down the debt using the gained taxes in gdp growth. I haven't done the math myself, but it's an interesting scenario to thing through if it's possible because I don't think it's one that many people are thinking about.
Also, everybody seems to be scared about the yield curve, but the problem with using an inverted yield curve as an indicator is that...while it may be a good recession indicator, recessions are a bad indicator for market performance.
Capital Minded (http://capitalminded.com) did an interesting chart in one of their recent briefings that showed stock market performance through the last 9 recessions. I'll try and dig it up and edit this comment.
But essentially half of the time, the market is net positive by a lot during recessions.
Hence why market timing is a fool's errand.