Market Tech Share Discussion Threads

[sbs] 22/10/2003 19:42

If even Energyi is now saying it won't happen soon,
I predict a crash - and soon ;-)

Edit PS Global warming has delayed the onset of autumn and winter,
so the psychological effect of October 1987 will probably arise in
early November...

[hooya] 22/10/2003 14:52

Whether or not they are predictable or not....how do ou know when one has started.....?...i.e what will stop one buy into a crash expecting a turn?

[niggle] 22/10/2003 13:30

of course you arn't that is evident. Thank you for your advice, I will try to do better in future.

[jdeltablues] 22/10/2003 13:26

The Web page that got me onto Vernon Smith was

This includes a graph of the Dow since 1950, adjusted for inflation: since the Web page will be updated in a few weeks, I'll include the graph in here for posterity.

[clem] 22/10/2003 12:38

Energyi. So since starting this thread and tracking him... whats your take on his predictions?

[niggle] 22/10/2003 12:37

jdeltablues
You are taking my response out of context. Read the other threads/respones. Your condescending and superscilious remarks add nothing to nothing.......

[goldstrike] 22/10/2003 12:03

Very interesting jdeltablues. Thanks for the link and to all others who have contributed to the thread.

[jdeltablues] 22/10/2003 11:48

Energyi, are you familiar with the work of Vernon Smith, winner of the 2002 Nobel Prize? He runs trading experiments to create market patterns (this can be done quite easily, even with only a dozen or two "traders") and has recently done a lot of work investigating bubbles. The three main factors he found that lead to bubbles are:

. Easy money
. Market dominated by inexperienced traders
. Deferred dividends (simulating loss-making stocks which are expected to make obscene profits at some unspecified time in the distant future)

He also found that making the order book of bid-ask prices available to traders reduced the risk of a bubble. Daily trading limits, or "circuit breakers", which many exchanges use to prevent excessive price movements, actually increase the likelihood of a bubble.

None of his papers appear to be available for free download, but
is a summary of his work. The most interesting part, which is not mentioned there, is his work on "double bubbles"; quoting from (NB both these links require ):

"The part of Smith's experiment that was most interesting to me was when he ran the experiment a second time with the same people. The second time the prices are not as irrational. The bubble starts to re-inflate but this time the participants, burned by their previous experience are more cautious and the values do not become as extreme. The third time the experiment is run the market has become educated and from then on the prices tend to track intrinsic value. In other words markets are not only irrational but they can learn."

The newsletter then goes on to discuss how Greenspan's "prevent a recession at all costs" approach has prevented this learning process from occurring by sucking in fresh streams of inexperienced traders.

[niggle] 18/10/2003 19:36

are we getting th emessage here?!?!?! yaawwwn

[energyi] 31/8/2003 20:24

From the SELL thread

Sornette's Latest:

...
NOW in Header

also this:

...
...SOURCE:

[goatbreath] 30/7/2003 05:50

Yield on Pru shares now only 3.8% ! I hope no-one was inspired by the ST article above to borrow money against one depreciating asset to "invest" in another.

[energyi] 23/7/2003 17:10

PBB transfer:
Stock Market Crashes Are Predictable,
Major Decline Is Coming In 2003 And 2004, Says UCLA Physicist

Successfully predicting stock market swings is as futile as searching for the fountain of youth, some people believe. UCLA physicist and complex-systems theorist Didier Sornette is not among them. Sornette, author of a new book, "Why Stock Markets Crash: Critical Events in Complex Financial Systems" (Princeton University Press), has found patterns that occur in market crashes dating back for centuries. Their statistical signatures are evident long in advance, he concludes.



Sornette has developed algorithms -- based on sophisticated mathematics, statistical modeling techniques and collective behavior theory -- that enable him to analyze more than two dozen stock markets worldwide. Applying techniques of physics to economic data, he has developed a quantitative model that can predict the signatures of a coming stock market crash.

"Economic forecasting is often not effective at predicting changes of direction, but our algorithms are very good at doing so," said Sornette, a professor of earth and space sciences, and a member of UCLA's Institute of Geophysics and Planetary Physics, who is also a research director at the University of Nice's National Center for Scientific Research in his native France.

Sornette cautions that his model allows him to make broad predictions, but is not able to predict where the stock market will be on any particular day or week. He disagrees with Alan Greenspan's Aug. 30, 2002, remark that it is "very difficult to definitively identify a bubble until after the fact," but Sornette is unable to predict whether the result of a particular bubble will be a rapid crash or a prolonged bear market.

TWO FORECASTS: Aug. 2002 ............ : .........Dec. 2002...........

MORE FORECASTS: Latest 2003 ......... : ......... Future ...........


Sornette and Wei-Xing Zhou, a postdoctoral scholar in his UCLA laboratory, present bad news for those who hope the bear market is over, in an article in the December issue of Quantitative Finance, a bimonthly journal focusing on the intersection of physics and economics.

"The U.S. stock market is not yet on the verge of recovery," Sornette said. "The bear market that started in July-August 2000 still has a long way to go."

Sornette and Zhou predict the Standard & Poor's 500 (currently above 900) will begin dropping by the second quarter of 2003 and will fall to approximately 700 in the first half of 2004.

The U.S. stock market since 1996 has shown a "remarkable similarity" with Japan's Nikkei index from 1985 to 1992, which may reflect deeper similarities between the fundamentals of the two economies, Sornette and Zhou argue. The S&P 500 has not yet entered a "second phase" of decline, as the Nikkei index did some two-and-a half years into its steep decline.

"Our theory is tailored to identify anomalies, bubbles and their end," Sornette said.

How accurate are Sornette's predictions?

His previous predictions have often been quite accurate, especially his January 1999 prediction (co-authored with Anders Johansen, his former UCLA post-doctoral scholar) that Japan's Nikkei index would rise 50 percent by the end of that year, at a time when other economic forecasters expected the Nikkei to continue to fall, and when Japan's economic indicators were declining. The Nikkei rose more than 49 percent during that time. He also successfully predicted several short-term changes of trends in the Nikkei.

"We have strong supporters, and others who say this is impossible," Sornette said. "Scientists typically do not predict the future, but I'm optimistic. Complex-systems theory is a young science, and the predictions will undoubtedly improve over the next five years. We are not able to predict stock markets with anything close to 100 percent accuracy, but I have confidence in the predictions, and confidence that they will become more accurate as we refine our methods."

How do Sornette's own investments do?

"My research takes all my time; I do not spend even one percent of my time investing in the market," he answered. "However, I have invested with associates, who implemented this system, in particular in hedge-funds. We have done well, and are continuing to do so. This system alone, however, is not sufficient to profit in the stock market with active trading, especially not in the short term and must be complemented with other analyses."

In "Why Stock Markets Crash," based on 10 years of research, Sornette proposes his theory of how, why and when stock markets crash. He uses complex-systems theory to dissect market crashes, and a new set of computational methods capable of searching and comparing patterns.

While most attempts to explain market failures search for triggering mechanisms in the hours, days or weeks before the collapse, Sornette argues that the underlying cause can be found months and even years before -- in the build-up of cooperative speculation. He provides a step-by-step analysis, using cutting-edge statistical modeling techniques, as well as insights from physics.

Sornette analyzes historical precedents, from the decade-long "tulip mania" in the Netherlands that began in 1585, a time of great prosperity, and wilted suddenly in 1637, to the South Sea Bubble that ended with the first huge market crash in England in 1720, to the bubbles and crashes that occurred every decade in the 19th century, to the Great Crash of October 1929 and Black Monday in October 1987. He analyzes herd behavior and the crowd effect, speculative bubbles, and precursory patterns before large crashes, as well as the major crashes that have occurred on the world's major stock markets.

Sornette concludes that most explanations other than "cooperative self-organization" fail to account for the subtle bubbles by which markets lay the foundation for catastrophe.

"Collective behavior theory predicts robust signatures of speculative phases of financial markets, both in accelerating bubbles, as well as decelerating 'antibubbles,'" Sornette said. "These precursory patterns have been documented for essentially all crashes on developed as well as emergent stock markets."

Sornette sees a series of stages, beginning with a market or sector that is successful, with strong fundamentals. Credit expands, and money flows more easily. (Near the peak of Japan's bubble in 1990, Japan's banks were lending money for real estate purchases at more than the value of the property, expecting the value to rise quickly.) As more money is available, prices rise. More investors are drawn in, and expectations for quick profits rise. The bubble expands, and then bursts. (From the early 1970s to 2000, Hong Kong's stock market accelerated and crashed eight times -- a perfect illustration of his theory.)

"Stock market crashes are often unforeseen by most people, especially economists," Sornette added. "One reason why predicting complex systems is difficult is that we have to look at the forest rather than the trees, and almost nobody does that. Our approach tries to avoid that trap. From the tulip mania, where tulips worth tens of thousands of dollars in present U.S. dollars became worthless a few months later, to the U.S. bubble in 2000, the same patterns occur over the centuries. Today we have electronic commerce, but fear and greed remain the same. Humans are endowed with basically the same qualities today as they were in the 17th century."

Sornette, 45, also conducts research on earthquake prediction, which he says is much more difficult than stock market prediction, but which he believes will also be possible. A specialist in the scientific prediction of catastrophes in a wide range of complex systems, he has written or co-written more than 250 papers in scholarly journals.


Sornette's predictions are posted on his Web site:

Note: Sornette, Zhou and UCLA do not assume responsibility for investment decisions made by others.
- - - - -
...The idea is that... single isolated microcracks appear and then, with the increase of load or time of loading, they both grow and multiply leading to an increase of the number of cracks. As a consequence, microcracks begin to merge until a ``critical density'' of cracks is reached at which the main fracture is formed...
...As the damage increases, a new ``phase'' appears, where micro-cracks begin to merge leading to screening and other cooperative effects. Finally, the main fracture is formed leading to global failure...
- - - - -


Prediction:
Theory Paper:

(and thanks to:
Wageslave, who was first to point this out to me)

[energyi] 23/7/2003 17:10

transfer from PBB

[renda2] 23/7/2003 15:37

You may be right about that GB... the next financial scandal waiting to happen as we all know what can go down can plummet!

Regards

Andy

[goatbreath] 22/7/2003 00:23

What about this from yesterday's ST for a sell signal:

The Sunday Times - Money



July 20, 2003

Investors buy shares with house price gains



ADVENTUROUS investors are being tempted to unlock equity tied up in their home to invest in the stock market, writes David Budworth.
Falling mortgage rates mean it is now possible to borrow money for less than the dividend payment on many shares. A portfolio of high-yielding stocks can therefore pay a regular income that will cover the extra interest on your borrowing — and also offers the potential to make a profit.

Hugh Hendry of Odey Asset Management, a fund manager, says: “If you use money you have borrowed at a cheap rate to buy shares that have a high and sustainable dividend yield, you can make a profit even if they don’t go up in price.”

Britannia building society is offering a mortgage fixed at 3.94% for five years, with a £299 arrangement fee.

Dividends are usually paid net of basic-rate tax, so most taxpayers should look for shares that yield about 4% — excluding dealing fees — to match mortgage costs. The dividend yield is the percentage of a company’s share price paid out as dividends over a year. Details of yields can be found in national newspapers.

Higher-rate taxpayers pay extra tax equal to 25% of the dividend received. They would need a yield of about 5.25%.

Many shares and income funds are currently yielding more than 4%. The average dividend yield on equity-income funds is 4.05% net of basic-rate tax, according to Bates Investment Services, a financial adviser.

It is harder to find companies that yield more than 5.25%, but it is not impossible. On Friday, for example, Prudential, the insurer, was yielding 6.2%, and Sainsbury, the supermarket, was paying 6.1%.

Most income funds cannot top 5.25%. Those that do tend to be riskier.

Borrowing to invest in shares is a high-risk strategy. The danger is that dividends and share prices will fall and mortgage rates rise. You may then find that the yield on the shares you have bought does not cover your outgoings. You would therefore have to fund your debt out of your own income; you could also lose a large slice of capital.

[ben gunn] 21/7/2003 11:28

energyi
I think that you can see the signs of a major market turn all around you if your antenna are working.
After the 73/74 oil crisis and property crash I developped the idea that evidence of excessive optimism appears as a warning to those who are awake-e.g. the Daily Mail extolling the virtues of investment in housing On ITS Front Page where such speculation does not belong days before the crash. Other examples are similar to J P Morgan selling out of eqities in 1929 when the lift boy asked him to confirm a tip. (my jaundiced antenna would include seeing people best employed as lift boys becoming chairmen of financial companies as a uniquely strong indicator).

But, to attempt to be useful to your readers two 2000 indicators:
1) Finding yourself boasting about your luck in the financial martkets
2) Meeting a friend who is a civil servant and only owns shares in his own bank giving me a tip at dinner to buy Oracle at $84.
In my case the first happened more than once and I am deeply ashamed. The second happened just the once but it was on 27th March 2000 and, yes, I have kept the receipt as a souvenir.

[gedy] 19/7/2003 14:17

energyi - I don't mind if you cut and paste parts of my ramblings from here to your new China thread, which is very interesting and timely. I do not cliam any copyright on what I have put here, it is in effect in the public domain.

[energyi] 19/7/2003 08:05

Gedy,
Interestin thoughts.
Can you share them on the China thread?

[gedy] 18/7/2003 21:10

Downsizing, will people do it? We have a culture in the western world that has for so long been based on consumerism. As you (energyi) point out buying branded goods does not bring happiness, it gives a "quick fix" lasting maybe ten minutes. Probably most people know this, but they are in a state of denial. When the majority of people in the west can face the truth we will have a better world, the average Occidental mind cannot understand or rather can't be bothered to make the effort to understand the Oriental mind. The Occidental mind has been corrupted by materialism and most don’t even know it. This is one of the reasons I believe that the China will eventually become a more prosperous nation than the USA. My hope is that the Chinese will not become seduced by consumerism and use the earth’s resources at the same high rate as the Americans and will not pollute the world the way the Americans do. I do foresee a clash between the two cultures, possibly leading to war, but there will be competition for the earth’s remaining resources, perhaps when oil gets scarce some time after 2010.

Sorry for going on a bit , I would appreciate the challenge if someone wants to argue, or you might even persuade me to a different viewpoint.

[energyi] 18/7/2003 08:15

G,
useful thoughts and advice.

About the coming depression:
I think people should consider "downsizing" their lifestyles to what
really matters. The most rewarding things in life are not the most
expensive. Discover what those are, and enhance them. Brand names
do not buy happiness

[energyi] 17/7/2003 16:27

Gedy's Posting on "SELL" thread:
"The 29th. July is the date given by the Chris Carolan Spiral Calendar for a stock market crash of the order of 1929 or 1987 ie. +20% fall in one day. He uses such things as fibonacci figures on the dates of emotionally significant events like the market crashes of 1929 and 1987, the Israeli bombing of the Iraq nuclear plant in 1991 etc.



See what you think."

WOW!
I respect Carolan's work.
Very original, and a decent track record.
I will study it more closely