Monday, June 19, 2017

Predictions on the Stock Market

A simple prediction about the US stock market - I am anticipating a crash in US equities especially those in the tech sector.  There are several underlying causes of a large concentration of investments in what are referred to as the FANG stocks (Facebook, Amazon, Netflix, Google).. in fact, the sector is responsible for a whopping 40% of the S and P's gains year to date.

As a consequence of this concentration, tech stocks, and this includes the semi-conductor sector, are highly overvalued, in some cases 20 or 30 times, on par with the crash of the nineties with the dot com bubble.

Meanwhile, other sectors have fallen, including energy, into far oversold territories (based on factors such as the Relative Strength Index, Earnings Per Share, and capital return on investment caluclations).

So why is this happening?

Among many factors, the one which I believe will cause a crash is the transition from institutional investing from humans to machines. 

Increasingly, machine learning is used on the stock market, to trade at extreme high frequency, and oftentimes on private, secret exchanges known as Dark Pools.

So how do these artificially intelligent traders work?  AI traders are concerned primarily with price movement, which is a lot of ways, is in the language of the machine - calculus.

Firstly, let's define the price of a stock.  A stock's price is the sum of all investor sentiment in the value of a business.

All that complexity, the factors the influence that sentiment and factors influencing those factors, creates a feedback hierarchy of immense complexity, where interrelated variables can have nonlinear influence on each other, making for a seemingly unpredictable movement in price, or what is commonly called the "random walk" hypothesis of price movement.

The opposite is true.  There are factors that influence the price, like the profitability of the company, or the number of media headlines it receives.  Machines can interpret this data of immense quantity with extraordinary speed, and using statistical regression methods, can identify - and appropriately incorporate correlations into its price predictions.

The price of a stock, at any given moment, can be thought of as analogous to a particle or object that has a bidirectional movement in one dimension (price), and a constant forward motion along the arrow of time, and this is important to why prices have long term dependencies, and why they possess underlying cyclical fractal shapes (self-similar repeating patterns). There are layers of invariant geometry nested in the price movement which are not decipherable by human thinking (nor, I should say, fully by AI  either).

Betting on an up or down movement is not like flipping a coin at any moment - momentum is conserved to an extent, which causes stocks to run up or down.

Catalysts from the world can be viewed as nonlinear disturbances which can reflect that price... but on a deeper level, there is an important threshold between price and value that when not maintained, can prime the system for a correction toward a greater equilibrium state.

Just as if you successively place pebbles onto a suspended piece of paper, eventually, the weight of the stones is too great for the paper to sustain its shape, or "morphology."  Interestingly, the most advanced of these quant funds is Renaissance Technologies, whose founder did pioneering work on the mathematics of algebraic topology.

This is important, because the machines read the price as a geometric object (a vector of price magnitude and direction) in an abstract topological space. The "paper" must achieve some morphism in under to accommodate the stress of so much "stone mass" or price movement on the system.

These AI systems are not just one kind of architecture either - they are a network of varying types and fucntions of AI that cooperate to justify an action to buy or sell. These modular neural networks are very sensitive to sudden shifts in the importance of variables, because they are trained on enormous quantities of data (several terrabytes per day of training data at Renaissance).  That makes the machines extremely good at reading price by evaluating price as a finite time-series, and making predictions.

However, chaotic events and historic shifts in technology, culture, and geopolitics are not factored in by these machines - events like these are stochastic probabilities which are uncertain in the language of mathematics by definition. Catalysts can therefore have more extreme effects as retail investors' react and prices move, and the AI flags a certain vector of price movement justifying a sell or buy order. 

The introduction of increasingly concentrated wealth in automated trading architectures has caused what's called "overfitting" (in AI engineering terms) to a bias. This means that all the machines are interested at looking at the same types of variables, and combined with increasing wealth pouring into what are called Quant funds (quantitative), this overfitting has become more dramatic, pushing the momentum of stocks into a positive feedback loop - and the machines can push a price way beyond its value (or below it) through Dark Pool accumulation, a practice of trading on secretive private exchanges in large blocks of shares. 

At some point, a correction will occur, the S and P has acquired a tremendous amount of capital energy, with the Fed pouring out zero percent for the last decade and derivatives and ETFs soaring far higher than in the crash of 2008.

I predict a precipitous decline in the entire market, followed by (another) recession. During this time, the machines will be unaccustomed to a weaker, more balanced market - and will need to be re-trained. That means human-run hedgefunds may outperform the algorithms during the downturn.

I'm expecting a major catalyst, like a hack (Yahoo), or even a geopolitical event. Even the most innocuous perturbation could cause a steep selloff by the algos, who, all detecting a large shift in momentum, will exacerbate that momentum with unimaginably large selloffs (in trillions of dollars), which will quickly snowball as Markets reel and panic sets in. Bulls will become bears, and begin shorting the market (Warren Buffet already is).

 This is not an exaggeration. Algos control 70% of all institutional investing. Major institutions like Goldman Sachs, JP Morgan, Renaissance Technologies, and Blackrock are all moving to computerized trading, while simulatenously warning over the problems of overfitting.

Enter cryptocurrency - which itself is recovering from a massive shakeup to the record high Bitcoin, which had risen to near $3000 CAD, and the newer Ethereum, which also fell 25% last week.  This may indicate that algorithmic and trading volatility has become displaced beyond the confines of the market and that large institutions are claiming territory in crypto as well.  Crypto may not be the safe haven that it seems from market and economic turmoil.

That being said - the market always rallies after the inevitable bailout and quantitative easing. You could go long on the market and as long as you live long enough, make a decent profit of about 10% annually, averaged out. But it might be time to hold some commodities, utility equities, and physical assets - wait for the crash, then buy in those sectors where human investors are likely to go - where profits or hype are.  I see Amazon for instance seeing a 30% pullback, then reclaiming that 30% over 4 years.  I don't have any stakes in tech, but if I did, I would be selling right now, and buying again after the crash.  You can make a good 60% return if you do it perfectly.

 The crash will be over for Amazon when the RSI (weekly and monthly - 14 period) falls to the 30-40 range - that will mean a near 50% drop in Amazon's price to around $600 in the worst case scenario. 

I precict the time frame for this to occur will be sometime between now and the end of 2018.

For investors, defensive stocks are utilities, bonds, cash (to a lesser extent), and gold.

I am trading in the oil and energy sector, expecting a redistribution of capital after the crash, and an increase in oil prices to $60/bl by the end of 2018.

Of course, I don't hope this happens - I just think that it will.

Friday, June 16, 2017

Poem on the Fly

I am the watcher on the wall,
where everything moves but me,
time spinning
somewhere out of reach.

Oh my sweet omatadia
painting gray fields
of blurring abundant
sugarcubes and shitpots -
soaring and swooping
stupid into walls and windows,
and it's only by chance
that you opened the door,
let me in.

I'm drawn to you,
as a lover is pulled
by the eyes,
I fly to them
as though I could drink you.

I become
your specular black halo in a whir.
I touch your hair, and taste lavender.

You tell me to fuck off,
but I never understood a damn thing -
and it always sounds like screaming,
and everything moves but me,
as I watch all the pieces of light
gathering along your edges -
thinking surely, this is God,
and let the swatter fall,
your holy holey monolith
where all smudgy sacrifices
have gathered to pay your homage,
and a thousand eyes shut hopefully at once.

Thursday, June 15, 2017

Coming Out Evomonkey

There's been a lot of development in recent years regarding civil liberties among LGBTQ members, who gained victories in the US when gay marriage was passed under Obama, while at the same time, battling some of the more regressive states.

Progress in Canada has also been rapid, where same sex marriage is legal, and where hate speech in the context of gender is specifically forbidden by law (c-16). Canada is widely considered one of the most progressive countries on earth in terms of gender - and this is something I applaud and feel great pride over as a Canadian citizen.

In exploring my own thoughts and feelings on the recent bill C-16, I came to a few conclusions about gender as it is understood in modern terms, and where I stand on gender and sexuality.  

This exploration has led me to the conclusion that I am genderless as a gender - note, this is not to mean that I am sexless - my sexual organ is male in nature, but many who also possess genetalia of one sexuality identify with various gender identities.

Firstly, let's talk about gender identity itself.

I looked for various definitions of gender identity, trying to get a uniform perspective. The best definition I found was "one's own experience of one's own gender." 

Gender is a social construct to a large extent. So how am I experiencing my own social construct?

I see society as a giant dominance hierarchy inherited from primates, and their progenitors from the sea, and this hierarchy propagates on our basest of urges. Awareness of this fact is a key deterrent for ape like behavior such as fisticuffs or hegemony.

Increasingly, as one examines gender roles in society, the bullshit meter becomes more sensitive. Tradiational narratives are boring social constructs designed to favor procreation and meekness before the overlords, like good like Protestant baby factories. Women, treated like cattle and exchanged with dowries, only given the vote, in relatively recent history.

Gender is the inheritance of a legacy of stupidity and regress - so why should I participate in such an absurd, failed act to categorize the nuanced nature of human sexuality and perception?

I dare say, I have no legal obligation to.

My own beliefs determine my gender, and they are as such:

1) Gender is a social construct designed as a meta-informational-technology to expand the dominance hierarchy.
2) Gender is not a spectrum of what are classified as "feminine" or "masculine" traits. I acknowledge only human traits.
3) Differences in gender identities are a function of differences in genetics and experience - no two genders can ever be the exact same.
4) Gender has increasingly become a political and ideological standpoint - one which I choose to abstain from. You cannot generalize a gender of one - good luck trying.
5) Gender evolves in real time and is immeasurable, an indeterminant value.

As such, I am henceforth declaring my new gender, Evomonkey.

Note:  the pronoun or categorical descriptor of my non-descibable non-categorical gender is subject to change in real time. 

My gender doesn't require you to use any special pronouns as I prefer the English language without even more gibberish inundating it every day. But if you call me evomonkey I won't mind either. I also accept Evo and Monkey. My girlfriend, a cis-norm, calls me monkey-bear - which is technically a hate crime but I'm not pressing charges.

If you aren't aware of my gender, and you assume I am male because of my physical appearance or your interpretation of maleness in my actions, I won't fault you and do not expect you to refer to me by my pronoun under the burden of ignorance. In fact, any recognition of my characteristics, whether you interpret them as male or female, is a compliment.

And when you refer to me as male, my gender (my experience of my own gender) interprets that as Evomonkey.

You say:  "Hey man, what's up tonght?"

I hear: "Hey Evomonkey, what's up tonight?"

Or

"Nice slam poem gurll!"

is heard as

"Nice slam poem Evomonkey!"


Evomonkey as a gender, acts as a sort of filter, transmogrifying all femininity and masculinity into a neutralized state, only considered in relation to each individual.

As such, if I say "he," or "she," or "him," what I actually mean is evomonkey. I choose to say these pronouns out loud, despite my gender identity, out of respect for those who identify within normative categories. 

So what's it like being Evomonkey?

Well, today, my particular gender has a sexual attraction to women, but an aesthetic attraction to men. For example, Ryan Gosling is handsome, however, I do not crave to suck his dick.

Since asexuality is a sexual identity, I am sexually attracted to women and asexually attracted to men.

I'm also asexually attracted to puppies, sunsets, Monet's paintings, and abstract geometrical forms, especially fractals.

My position on the advancement of gender rights, and the law, is to simply abolish or ignore gender altogether, it's such a waste of energy. If you want to be a woman, do it, be a man, do it, be yourself. Who cares? We're all special.

I'll be submitting for a revision to my birth certificate to declare me as either genderless or Evomonkey in the near future.