Broker to Trading

Some have noted valuation issues vis a vis tech companies, partly because it is hard sometimes to project what they do into the future, in terms of sales, it is hard to see a structure for a stable moat, in effect.

I am using a more fluid concept of moat here, to try and take in tech and social companies. It is that buying network which persists in a stable way, focused on a provider. What it may be hard to see is that moat forming and persisting.

However a social company may have less visible, but conceptually more stable moats. It seems social companies exist as and in networks. This was the initial concept of a social network, but as these companies have moved through the start up phase, they have noted that sales can exist in a social environment.

This is a significant discovery. It seems contingent on sheer numbers and an environment, a tech created environment, plus a product and not losing sight of the fact that the users expect to be entertained and socially enhanced. Now that sounds familiar, it is the basis for interaction experiences with much media.

However, social media is highly interactive, if it is not, you may not get those effective numbers, in a stable way (with a caveat discussed below). It is perhaps more like a video game environment, where users will make huge efforts, than those who go to the cinema. But perhaps less tolerance of effort.

Is it perhaps more like going to a party ? In all these cases that social element in a network drives it, with the similar caveat, that much like the experience of a bad party, or a bad film, one may leave. But there may be a difference.

The question is, does interaction incidental to the product, that is throughput through the network, create numbers for the product. That is not necessarily a negative, the capacity to create demand, is a powerful concept. It does exist in more traditional entertainment settings, for example, demand can be created for products through marketing.

So far, there is not much marketing needed to drive products in social setting, you do it for social reasons and because the product keeps you entertained, in ways that fit many user's conception of entertainment. But that social element makes up for much.

Can targeting make up for numbers ? Well, that is a question for all who produce content. It may be something which technology can and is attempting to solve. So let us look for where instability may occur, assuming you have the numbers. I say this because it is apparent at smaller numbers, that there is great instability.

And it seems even with large numbers, this may exist as well. That is, instability may evaporate such a company even more quickly than a tech company. So the valuation issue may be partly that, the instability wreaks havok with projections, which assume stability.

Social moats are so new, it is hard to see if they have a capacity to re-form, which is what I am getting at, once they become unstable, even assuming any have yet become unstable.

Traditional companies, have have issues re-forming moats once they lose them, that may be a function of the stability. I would suggest there are issue in removing that control of the user base, i.e. one does may not necessarily want a social network to be too stable.

So can expect unstable but flexible moats may be more amenable to re-formation, that is what I am getting at. What I am considering is the tantalizing possibility, that a network can re-create moats and stabilize them. But can they advance them.

That is, no matter how much a network can shore up a moat, this is a highly competitive environment, and something else could be coming at that moat, that is not a problem for the network, in some cases.

But then again, it leaves open the possibility of a moat in such a circumstance adapting quickly, with network assistance, assuming that is there, and rising to greater heights.

A related question is to what extent competitive arbitrage on the novelty of social moats will reduce their comfort zone. But that is competition at work and leads to the formation of companies, which helps all those good things come back.

This all leads open the question of the pull of (relatively speaking) traditional media in social settings. That is, is this sufficient and is the addition of that moat, already existing plus novel social products, a big thing.

I must note as well that the lesson of even tech is that when moats go they go and this may be the case with social moats. It all comes down to the act of buying, and when a buyer loses faith in the provider, they go somewhere else. In a network this can be focused somewhere else.

But what I am looking at here is the power of that network to shore up and even re-form moats. But the network must have the faith and there must presumably be a cohesion between the network and the moat one wants to maintain, but there may be a structural advantage in symmetry between networks.

Now what creates that symmetry may be a function of the structure of the network and the adaptability of the provider, which may point to a possible competitive advantage for start ups.

However the issue is that what are relatively speaking traditional companies in this environment, are themselves innovative competitively honed tech companies. So the question is, is there an advantage being a social company, coming from this environment. Are tech moats sufficiently different from social moats such that a good social company can survive and thrive, even facing this competition.

Now all this ignores the stability of company structure, which can be regarded as the grounding for valuation. The question to ask is how much do these moats, tech or social show in company statements.

I have suggested that to value this way, one may need to think of the company in a ranging market, that is to project valuations, you are projecting through a more complex future structure than with other companies. That is, we come back once again to the difference between equities and forex.

And indeed some pairs like some tech, will show stable growing share value. But the question is, like with those pairs, is this grounded in company statements in the same way it is grounded in traditional moats. Will this growth turn off and on in surprising ways, but not perhaps surprising in a more complex future elaboration of structure.

It is the instability in valuations, but it is not an unstable structure, in fact it can be regarded as a very stable structure, and is like the basis for valuations of strong companies, in more usually functioning equity markets. But it comes back to making investing decisions like trading decisions.

Blog Posted by Broker to Trading at 3:52 PM

On my Twitter on Sunday a link popped up in my feed, which I checked out, a photo of a view in Southern California. It looked like earthly paradise (perhaps closer to paradise itself) a delicate and not so delicate interplay of the complexity of variation of a rich, living ecosystem, the sky, the sea, the flowers. Right now it is so cheap, the view that is.

I have been watching Southern Californian property values, as I have picked this as part of a set of possible bellweathers for the very source of the problems, the decay of housing valuations, which points directly to the stock market. That extraordinary recent investor interest in Las Vegas, added this to it, indeed I ask if one could see this as a possible pointer to a bounce situation.

The logic is this, that here we can strip away something as well as apply some differentiation. There is no questioning these parts of So Cal are desirable. Yet prices in the bellweathers don't rise, they don't even bounce, but here perhaps we have a less fine grained structure than usual in financial markets. So something else is needed (demand and a structure for it).

House orders stacking is perhaps a much coarser grained version of a financial market. This is not about liquidity. Less liquid markets evidence disordered movements. It is not about longevity, long lived markets can evidence great order. It is perhaps about the order of the connectivity of the components of the system.

Something is needed to connect each component, each bidded house into a liquid whole of demand. That is we simulate the connectivity that a liquid market has.

The bubble was partly contingent on the mass of house prices, those not inherently desirable, but wanted, being fused with the financial markets, where liquidity trades and finds a value for anything. It was an easy route to order. That was as well the source of the collapse as the equity market was then highly contingent on house prices.

The extent to which this was like a valuation contagion is interesting, that is the extent to which some stocks were fused back into housing markets, in term of that which was the focus of valuation efforts. This comes back to the layered way stocks responded to the crash, in sets of relative re-valuation.

The market is effective at trashing valuations to earth. As well, a market was made to make want, and getting, closer than usual. That is demand was enabled, then turned off.

So to get that hard momentum, to re-establish the set of those entities that were caught up in the housing bubble nearer the point at which they increase, perhaps we need to fuse again, but in a well founded way. But it may not be possible to approach this in a well founded way, that freewheeling way of life, may be crucial to that focus, that concentration, that stacking.

Reagan talked about common sense in his book "An American Life". It comes across to me as clarity, in the economic realm anyway. By economic realm I mean that which a president can effect change, for a desired goal.

For his job, he needed clarity to be effective. It may be now, a longer term view is needed to fix the economy. That is something crucial has decayed and it needs re-building. Whether this is the case, is a key question for now - that is, would a Reagan approach be effective now.

Reagan perhaps needed to cut through a lack of clarity and find what was still there. Now perhaps certain structures need to be created, that is a different kind of effort, but it is possible. Why they might have decayed is another question. What Reagan seemed to have unleashed was that freewheeling spirit, on Wall Street. At the same time a renaissance of US industry seemed to happen.

Whether he caused this or not is not the question here, more the freewheeling spirit, since that has come under criticism recently. It as well seems not to be possible to bring it back in such a way as it pushes the Dow up to its former heights, so far, even with very cheap money for a long time and other massive stimuli.

This raises the question to what extent is the freewheeling spirit responsible for long bull markets and to what extent the market exists apart from its participants.

However one could note that Reagan helped unleash that dynamo by doing the opposite to recent policy. There are reasons why this is but I am interested in the effect, not the cause of these policies. To me it looks like a valuation issue. And it does seem that there is plenty to value. That is an issue partly for the market, as a system to value.

That is does the market need repairing and is what Regan did, something that helped repair it ? Repairing a market is probably not possible or necessary, so perhaps what happens is more like it regenerates itself, but maybe with input required from those who can effect structural change on the market.

If the path is creating structure then one could note that economic systems seem amenable to this kind of effort, as the Celtic Tiger and other examples have indicated. With the right moves, an economy grows as if from nothing, but it is not nothing, it is enormous effort.

Again, does this happen without the effort. In the case of Reagan and the Irish government, we have tantalizing suggestions that it may not. Which is positive, because it shows that something can be done.

The Irish economy was in ruins in the 80s, now it appears to be leading the way in recovering from the mess in Europe, after its long bull run.

Back to the Californian view, it is not possible to create the structures of natural systems in a meaningful way, to restore them, when in ruins, yet.

But what do I mean by so cheap, that wonderful Californian view still costs a very great deal, if you want to enjoy it when you wake up in the morning. It's that ecosystem, that corner of beauty which is part of a greater whole. That is the concern, destroying the parts, will decay the whole, and no fortune on earth, or great President, can replace that.

It comes down to what it is that is valued. One can create value in housing by fusions with the equity market, or one has value that is partly hard wired in natural beauty. It seems an argument to protect that beauty, but that hard wiring may be systemically fragile. But if the market does not function to value it is hard to fuse anything with it.

So what is the systemic health of the market. It has recovered from destruction in the past, if one can see its state post '74 in this way, but this brings us back to Reagan and what happened from '82. What I am getting at: is the systemic health of the market, taken in a broad sense to include the housing market, such that it now needs and can be responsive to structuring input from governments (instead of enabling money flow).

Is this a medium-long term effort, or short term and to what extent has this already happened with the combination of the efforts of the previous and present administration.

Blog Posted by Broker to Trading at 5:51 PM

This post looks at certain consequences of freedom. There is what is regarded as a landmark judgement in the common law, made a long time ago in England. In this, Lord Camden said this:

"[those acting on some kind of warrant are]...bound to show by way of justification, that some positive law has empowered or excused him. The justification is submitted to the judges, who are to look into the books; and if such a justification can be maintained by the text of the statute law, or by the principles of common law. If no excuse can be found or produced, the silence of the books is an authority against the defendant, and the plaintiff must have judgment" (Entick v Carrington).

Impressive wording aside, it was revolutionary. The US constitution took this much further and delineated areas where no law can be made. Is this part of the dynamo of US business. Well, one can certainly see such a license for liberty as such a generator. It is as well a license for the individual, to act as an individual.

Put together it seemed to have unleashed this enormous, powerful regenerative creative culture, motivated by the fact that the individual can create value with ideas. But the missing element in this description as noted is the fact that there has since the 20s, been a system which will short cut that value adding, if one sees it in terms of monetary value added. It brings creative output and cash rewards together.

We can even view VC funded companies as part of this, that is the motivation is getting that company into the share market and seeing what that amplification force will do with it.

But can this work in a ranging market. I suggest it can. It just needs that market to be traded. In fact it needs that market to be seen like a VC company. That is you assume a loss. One can see trading as fishing for the good trade. But one can as well see trading as a value adding act in and of itself.

This is assuming that VC functioning itself helps create a larger economy, or the basis for one, and perhaps the basis for a new rise in aggregations of companies. That is a stimulus, but a really healthy, precise one.

Well, the problem is that as an individual act, one wants the cash reward from this and judges it as such, though the reality may be different. That is one is exposed to the fact that the economy moves on credit and credit trading is deeply problematic, or at least very obvious, in what it shows of the downside of trading, the randomness in the markets.

However let us assume that a good understanding of the forex market brings a sense of the structure of the market. That is, it is helpful for the equity market, where that ranging market can be curtailed by times of asset expansion, by way of share price increases.

That is one lessens the difference between trading and investing and makes oneself one's own VC, in terms of the relation above.

And Lord Camden ? Well, it is all about freedom, but a kind of structured freedom, which is what participating in a free market and a minimalist, well justified book of good laws can be seen as.

Blog Posted by Broker to Trading at 7:55 PM

This is another blog post which is looking at conditions for the Dow de-retracing, in a different way.

I have a collection of financial magazines from 2007. They make for interesting reading. It is the confidence, the certainty expressed within, not masters of the universe, but lords of the universe. But why not, they spoke from a quarter of a century of expansion, from the white heat of the Regan revolution.

Reagan can be seen as a VC for the people. In effect he gave people more money and believe they would do productive things with it. And they sure did. The US economy re-ignited, but more than that the quality returned, that innovative dynamo he believed in returned.

By the 90s and accelerating through the 00s, the US economy ruled where it mattered, and it suddenly seemed effortless, like it was in the 50s, in a different industrial landscape.

The Reagan logic as I interpret it could be seen as this:

a) there are special conditions in the US (its constitution perhaps) b) if you let them, the people will express these conditions in productive and innovative ways.

The conditions enable advanced productivity, if those who can, enable it (a justification for government).

So what is happening now, the people are here, the government is doing everything it can. Well, there is something else, that is Wall Street. Wall Street was the generator of that expansion. It made the difference between malaise and the New world of expanding assets.

But, Reagan enabled something else, he enabled that belief in a future. As we have noted that is important for price increases in the Dow. Malaise = no belief in a good future = bid/ask ranging = order books static = indicators random.

A belief in a future = bidding = stacking order = deep refreshed order books = technical indicator order = optimism. So that's another way of looking at technical indicators, they show the way, or lack of it.

This comes down to one thing, the optimism is that if you enable the economy, it will provide. The Reagan lesson is that it may need enabling in certain conditions. Once enabled it takes care of itself and everybody with it. But it needs a market which is capable of rising.

It may be that it can be enabled, but do we want what happened before, that is we want what Wall Street can do with a different kind of economy, something re-engineered not to retrace so harshly. Or we don't want that at all, we don't want that rushing economy, powered by Wall Street, what some in OWS seem to be saying.

For me it comes down to this, there seems indeed to be a special condition in the US, and that is the Dow. It seems almost uniquely to have a capacity to operate in its own internal systemic manner.

That is why it does what it does: it makes the order book ordered in a way such that assets rise, effortlessly. It makes industrial dominance, effortlessly. It is unique and special. However it comes as well from what Reagan saw, that dynamo of the people when freed to create.

What the Dow brings, is at worst realistic pricing and at best the American dream and a dream for some of the world, that is what lifted the EU, up till the crisis and funded its great dreams of unity.

Perhaps right now we need only one thing, that belief in the future. The problem with debt is that it constantly squashes any such belief, and this is true for an individual as much as a government.

However we now have:

c) a new way to express productive behavior, namely the Internet, which itself has special conditions.

Blog Posted by Broker to Trading at 5:07 PM

This post heralds a slight change in direction. The conceptual views (that is, all the blog posts prior to this one) generated a certain approach to forex trading which I am working through myself. As I develop it I am placing updates to the other webpages on this site.

But let's keep the blog going taking paths already mapped in the previous posts and when necessary I may restart the conceptual views. Here I am looking at foundations of wealth generation, which can be seen as similar to what happens in a market. What makes the good life for many...it's a hard problem.

In a near pure symmetrical market like forex, the flow of money may not necessarily start a stable growth structure (like a well formed Elliott Wave) and I have argued that the cause of these may lie in other markets. It seems that the equity market has experienced such a problem since the crisis and it did not seem to before.

This is the question which has become a huge political issue of whether Wall Street is a problem. Because that flow of wealth since the crisis has not restarted stable growth structures and people complain about that focus of money. However that complaint has widened into a general complaint about monetary inequality. But the focus of course is Wall Street.

But note that this post-crisis market takes as much as it gives, a bull market gives and gives, and to so many. It may hide inequality, for which there may be other causes, but it does hide it.

But the problem is that it does not continue and by continuing it, problems may occur with valuations, which then get retraced. Then you get to see what the ebbing tide has left behind. And what was there has sparked a revolution.

I do not believe Wall Street is the problem, there is nothing wrong with a market enabled by vast aggregations of wealth, it is efficient at wealth creation. But we need a bull market for this to be possible, without it the business of Wall Street all that can be seen, on that shore. But that business is how wealth gets generated in a bull market.

I see Wall Street as something built around a system which can amplify wealth and that historically it is a solution and an accelerator and to be protected. That is most gets retained through the valuation retracements.

This system exerts a gravitational pull on money which has been aggregated, but it is the people's money, pensions funds and so on as much as the 1%. Especially in forex there is a kind of level playing field already.

The system rewards those in the system, but outside as well, but we need a bull market. Forex indicates just how hard it is to trade a symmetrical market, in such a way as wealth is compounded in any way.

But money flow is not sufficient, there are clear limits to what money flow can do. Just as money flow generates the kind of wealth that some may disapprove of, it takes it away.

In essence it makes an equity market like a forex market, which does this to capital (it retraces valuations in ways which may at least approach randomness) though I note there are approaches now to change this effect. I may hazard that this ebb and flow is what has been happening since the crisis.

I am skipping over what restarts a bull market, I discussed this in the previous posts. The issue is now about what a bull market does.

So for the future we need support to try and smooth over retracements. I suggested in my ideas lab that perhaps that growth up till the crisis, that support that evidenced large scale equity valuations, upwards, was partly simulated and controlled, at least towards the end, but may not have been from the beginning to middle.

It is perhaps a novelty that this could be done and indeed such engineering may have saved the day after the crisis, that is a great justification for developing it before. The past is the past, it is what is to be done now that counts. That is I do not see such engineering as usefully the cause at all of the situation now.

It seems the market is valuing partly now on no future for credit, and I regard that future valuation as that which enables growth to be expressed as an increase in valuation. But for that to happen there needs to be something for it to be believed that it can.

This is where simulation and company growth are similar. The issue is the extent and randomness of the retracements. So let's assume that the retracements from a market flourishing on company growth are more stable, less hazardous to capital.

I certainly can see that flourishing small business is an antidote to market malaise, as President Reagan believed and made happen. The issue is sustaining it, which is what 1982-2007 can be seen as. But it did sustain itself, it is just the crisis choked off credit. But here what was exposed was not a stony shore, it was a economy blessed with companies, to my eyes anyway.

But company growth such that it supports sustained equity rises needs credit and a certain kind of credit. And the source of that credit is in practice Wall Street and partly the valuations usually given to bank stocks.

But non well founded and perhaps simulated structures to generate it, may be partially causal on massive retracements, which is exactly what a well founded credit system cannot handle.

Hence the crisis. So we need more stable growth exactly to restore that credit system. Small business is a focus for it, what may feed back into the system itself.

But is that systemic property of the Dow, that which amplifies wealth and creates a pleasant life for so many, is it such that can be more stable, no matter what its source.

Well, let's see, with the assumption that many flourishing businesses are a good thing (which is one way of looking at healthy small business) and therefore a focus of political encouragement. It worked for Reagan and for everyone.

Another way is to use the market itself in more efficient and clever ways, which comes down to those who participate in Wall Street and that can be nearly everyone. That is taking the revolution of tech itself into Wall Street, every which way.

I will almost end with this, that forex to me is something which always takes place on that shore. Everything is exposed and it generates that complaining as a way of life. But nonetheless, it goes on, gets more popular, and businesses respond to make it a better playing field. That is what I see, other may not.

What I mean by all this is that wealth concentration in all its forms is part of wealth distribution, in a bull market, (but it may erode equity over time). In a bear market it may not be part of this in such a direct way.

But there may be lessons from a bear market in how to find novel ways to distribute that wealth more fairly, over time. That is the market, which is neutral to distribution, may show the way to make its bounty more widely available, and indeed there may be much in the way of business generation in that.

Blog Posted by Broker to Trading at 1:09 PM