November 7, 2011- Debrouillards

“Greed is like sea water.  The more you drink, the thirstier you get.” – Big Money, Japanese drama series

*****

Philippine Markets

Okay, quick disclosure.  I’ve already went ahead with a lot of long setups last Friday.

My assumption is that any weakness in the broader market in the days ahead will be used to consider long positions.  Stocks won’t be going up in a straight line, and the pauses will be just breathing rooms.  Take advantage of price drops when weakest hands such as traders become panicky.  This is a market where one has to go shopping.  Do note that extreme leverage or too large of a position size leaves very little room for error (drawdowns.)  While sentiment will walk on a very thin ice these next few days, and we live in a renter’s market where few are really willing to commit serious capital for longer term positions, it’s really hard to have a negative view for more than a few weeks ahead with Thanksgiving, and the Santa Claus rally coming soon.  Act accordingly.

Evidences Shown from the Market:

1.) PGOLD’s tremendous 15% rally off of 12.50, and closing at 14.48 indicates a strong risk appetite in the markets.

2.) SMC’s strong volume and wide bullish range last Friday indicates quite huge buying interest popping 115-116 just too easily, with more buyers at the 118 close.

3.) Most stocks refused to go down their lows, and simply consolidating within 5-10% range of their past 2 weeks of daily setups indicating only slight profit taking, rather than total liquidation of positions.

4.) ZHI just in a resting pause state.

5.) MEG beautiful correction, and good risk reward levels (for tsupiteros)

Below was my homework made on the eve of Thursday, prior to the market’s advance on Friday and my thoughts as we go along:

I just tried to check whether Thursday’s close could have been at least the low for the next 3 days, and their distance from some levels of supports that I see.  Below is not an encompassing list, as some stocks like ones indicated above (ZHI,SMC) weren’t mentioned, but noted for their good price action.

****

US Markets & Interesting Stories

With US momentum stocks, being very strong such as $ULTA, just one of the many beautiful setups breaking into new highs and $GRPN having its IPO debut done quite successfully up 40% durign the open and still closing above 30% , risk is undoubtedly on, although volatility will definitely be in the details.  Let’s not talk about whether Groupon can actually be worth its $20Bil market cap.  If you do want to read much about Groupon as mere entertainment value, I’d suggest reading Business Insider

Business Insider: Inside Groupon The Truth About The World’s Most Controversial Company.

Notable Lines:

After the third quarter numbers came out, Forrester Research analyst Sucharita Mulpuru told the Associated Press: “Groupon is a disaster. It’s a shill that’s going to be exposed pretty soon.”

Groupon bulls, meanwhile, like to point out that many analysts said all the same things about Amazon, which struggled through its own transition from light-speed growth to squeaking out a profit.

******

“There are three acts in the American drama,” says this source.

“Act one is young kid comes out of nowhere, surprises the experts, wins big –  he’s the hero.”

“Act two is a public fall from grace.”

“Act three is the comeback.”

*****

Interesting Finds:

1.) I loved reading this article about Apple and its Supply Chain Secrets.

“They have a very unified strategy, and every part of their business is aligned around that strategy,” says Matthew Davis, a supply-chain analyst with Gartner (IT) who has ranked Apple as the world’s best supply chain for the last four years.

The bottom line: Apple plans to double spending on its supply chain, to $7.1 billion, continuing its focus on streamlining and controlling manufacturing.

Comments: In this article, you will realize why Steve Jobs gave Tim Cook the role of CEO, and Jony Ive instead being the right hand man.  We realize how cut throat and evil Apple can be, playing their $1 Bil cash upfront in order to secure all the components for their electronics, leaving every competitor out in the dust.  It reminds me of how big stack poker players tend to bully the short stacks, and clearly Apple has been doing this.

2.) The Black Market Global Economy is the Biggest Economy (Foreign Policy)

System D is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is.

This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy. A number of well-known chefs have also appropriated the term to describe the skill and sheer joy necessary to improvise a gourmet meal using only the mismatched ingredients that happen to be at hand in a kitchen.

In 2009, the Organisation for Economic Co-operation and Development (OECD), a think tank sponsored by the governments of 30 of the most powerful capitalist countries and dedicated to promoting free-market institutions, concluded that half the workers of the world — close to 1.8 billion people — were working in System D: off the books, in jobs that were neither registered nor regulated, getting paid in cash, and, most often, avoiding income taxes.

We need to change our attitude and to salute the achievements of those who are engaged in this alternate economy. “We only revere success,” she said. “I don’t think we honor the struggle. People who have no access to business development resources. People who have to work two and three jobs just to survive. When you are struggling in this economy and still you commit yourself to having a better life, that’s really something to honor.”

3.) Emanuel Derman Talks About the Physics of an Economic Crisis (Reuters)

It’s a wonderful article, and below are my favorites:

For better or worse, humans worry about what’s ahead. Deep inside, everyone recognizes that the purpose of building models and creating theories is divination: foretelling the future, and controlling it.

Any assurance economists pretend to with regard to cause and effect is merely a pose. They whistle in the dark while they write their regressions that ignore the humans behind the equations. I was similarly unsurprised by the failure of financial models. Sensible people don’t forecast with financial models; they use a model to transform one’s forecasts of future parameters into present value. Everyone should understand the difference between a model and reality and no one should be astonished at the inability of one- or two-inch equations to represent the convolutions of people and markets

Given the inevitable unreliability of models and the limited truth or likely falseness of the assumptions they’re based on, the best strategy is to use them sparingly and to make as few assumptions as possible when you do

To confuse a model with a theory is to believe that humans obey mathematical rules, and so to invite future disaster. Financial modelers must therefore compromise. They must decide what small part of the financial world is of greatest current interest to them, describe its key features, and then mock up only those features. A successful financial model must have limited scope and must work with simple analogies.

 4.) Robert Sinn’s The Lessons of the Last Three Months

My favorites—

  • When the market shows you a profit quickly, let the market prove you to be right and show you an even larger profit – in volatile markets one home run can pay for 10+ small losers. (I particularly remember PGOLD).
  • In volatile, news driven market environments the moves will almost always be larger than you expect.

5.) Great Illustration Courtesy of  rpseawright:

Obviously, I’m a trader.  How about you?  Know who you are because that will affect how you trade.

*****

Parting Words:

Wait for the casino to wake up and change the odds of the game.

When volatility ramps up, reduce position size, widen your stops and targets.

It’s going to be a bumpy ride, but I still think it’s a buy on the dips.

The market will rapidly change its mind, and you must have a strategy and a fixed exit (when you go long) to acknowledge when you’re wrong so that you can stay in the game.  Allow yourself to have small sizes to tolerate wider stops.

– Faceless Trader is a debrouillard (i.e. unemployed and part of the blackmarket economy).

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3 Responses to November 7, 2011- Debrouillards

  1. Ben says:

    Faceless Trader is a debrouillard (i.e. unemployed and part of the blackmarket economy).

    same here! 🙂

    Nice Article FT.

    Like

  2. Mich Ayon says:

    One of the perks of the black market economy. Little or no taxes paid. 🙂

    Like

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