10 April 2012

Housing Valuations, Forex and Company Growth

To what extent can we regard working aggregations of housing valuations to be inherently future valuations. That is, to what extent is the crisis a correct market event, to enable the finding of future valuations, exactly as valuations that are wrapped up in the set of past valuations. That is something which may be visible on day trading frames, pulses of future valuations that meld well with the propensity of parts of the market to value in a stable way.

We can regard each high point as a stable expressions in fact of this computational capacity. So why cannot these continue. Because such stability is highly inconsistent with the temporal validity of these points. What do I mean by this. Each point is valid, that is it has a pricing consistency only in relation to future pricing. These highs are effectively saying these are stable. But they cannot be.

If they were, then they would in effect be past pricing, which is so unstable that it sets up an inconsistency. Why are they so unstable. Because past pricings are entirely not what the participants in the market are interested in. Except as pointers to possible future pricings. That is a point of stability. But this in *inherently* unstable. Firstly, because for it not to be would imply a predictability or a stability of structure such that one does not need to predict.

This does not seem to exist in reality. However as humans we always assume it does, with the construction of predictive theory, or descriptive theory. In fact an assumption of dynamically re-built structure may be the best we can have, but this has deep problems in description or predictability, because one needs to be able to predict, in your prediction scenario, the non-existence or near non-existence of the basis from which one predicts. But in trading in markets this tends to be assumed stance, sometimes.

In market terms, randomness in the market makes these points unstable (but that randomness does not seem to be something we can construct stochastic models around, however it does seem to have order). That instability of course is almost an assumed a feature of forex.

It is a pure expression of an attempt to always value on those highs, in effect, and shows the clarity of such computations, and their instability. So we are looking for ways to delineate the construction/destruction of trading structure, in such a way that we can extend descriptions in time.

-> One might ask is this a reason forex functioned in the crisis. That is, there is no grounding and no start point and no end point, it can simply value. There are boundaries though, to do with government policy. In fact these can be directional changers. But one notes the randomness of the end points of that directionality. By that I mean that there is little predictability given inputs, including the way traders try and push a trend.

The fact this is a feature at small grain and very large grain may suggest that sense of a structure that is itself dynamic. A dynamic structure can adapt to a radical alteration in valuation such as the crisis. This can be contrasted with equities which is structurally grounded, and robust. The fact that valuations were retracted sharply down is not a sign of weakness but rather of robustness.

So is their capacity to rise from that abyss, considered as a whole. The problem in recent times is that unlike past times, there is has been a necessity for the victims of the re-valuations, financial stocks to recover, that is asking a lot in a short period of time, but arguably the Fed policy has helped this.

One way of looking at this is to assume that too big to fail represents a stable structure that eventually will attract funds. This not counter to the way tech behaved, as it did in the end attract funds, after the bust. The difference is the desire to target specific items.

But keeping the pool from which funds are to be attracted alive during the time when such companies may fail or go dead to the market is a logical approach. Now we can look at forex as precisely such an exercise in the normal run of events. Each patterns is a presentation of a desire, an auction itself form those funds which are always there.

But the lesson of forex is that this created a lack of directionality. Is this a lesson for equities. Not necessarily as the market can restart diserregardless of auction presentation, assuming that this does not sufficiently distort its functionality for this not to be the case. However we might assume that there is a long term structure to equities that may over-write this over time -->

Thus retracements are to be expected as a feature of forex, to such an extent as long term trends are systemically improbable.

To create this, needs a sustained input parameter of some kind, perhaps something recursive, but more particularly something that will unwind hard, but at a time that can be put off. The issue with a recursive function is that while stable, it will tend to destabilize the system it is introduced into.

Can we regard setting interest rates as such a function. Yes, if it sustains a cyclical order tight with the underlying order of the market. This brings us back to the issue of sustaining a high. If we try this we tend to get a destabilized market which cannot find directional order. Or produces such a market, given sufficient intensity of this function.

So how do we get it back. That is a product of long term processes. One may assume we only want the recursive function to unwind. And one hopes that the system has not been restructured in such a way that this cannot happen. One might surmise that removing interest rates as a factor may help this unwinding process. Which is exactly what has happened.

So what about housing valuations. They can now be seen as highly grounded and highly subject to inputs and highly subject to attraction. But are they responsive to this and more than anything in a market is. That is can we regard that aggregation as similar to a forex market.

However this may suggest that they are not necessarily finding future valuations, anymore than forex is (simply because it is not sustainable to do so). So they may re-start just like that, but it suggests a reason why the housing market and the equity market may be out of sync, despite being given the same or very similar treatment.

Houses tend to value on random events, related to the capacity and desire of the buyer to buy, related to mortgage rates related to interest rates and many other factors. Much like forex, where a similar factor is the capacity or desire of the buyer to buy or seller to sell. And they can rise as well, in sync.

In fact there is nothing like this kind of rise, for creating wealth, as it is grounded so well in the people. To expand the capacity to have one of these instruments, is to give the people the capacity to partake in this unrivaled instrument (as well as have a home of course, but that is part of its magic).

Is it an independent growth process, possibly at least to the extent that a forex growth process is. But when it falls, it seems to drag everything down, except forex, which seems to be able to find traction on assymetrical anti-growth. By functioning, I mean it finds order, expressed in patterns. This allows it to value.

Forex is like a mirror image to housing valuations as an aggregate. As such it attracts funds, in a non-intentional way. But even when everything else grows, it seems to do this as well, as it can dynamically find times to take such money flow, as it does not dis-function on falls (but could there be issues with extended lack of directionality, from complex movements). In fact it may benefit from such growth, simply because there is now so much more (possibly leveraged) money to flow.

So what is the continuity we can find in forex and housing valuations, over time. Well, their revaluation, which is itself useful from a trading perspective. That is, they move. To ask for anything more, is to want something other than a market, but it is more than something, it is opportunity.

Like all opportunity it is highly prone to failure, but exactly as a collapse of a temporal structure in forex is neither positive nor negative, it just is (assuming a lack of determinism in this market) so as well is such failure not really failure at all, it is action, to be expected, precisely (which is exactly the predictability one gets, over time).

So what is success, it is simply random confluence of action, even if guided by intention (but how does one be intentional about the unpredictable future), with chance events. Like trading it takes place in the context of intense arbitrage.

I am thinking more here of company success, and I might suggest that it may not be possible to engineer it. The arbitrage dissects any temporal stability, in effect. This may put a particular light on trading, whether automated or not. That is it may make no difference over time.

That touches on a fundamental question about trading and as the equity market has become more subject to retracements, investing over time. However trading has many motivations and goals and results and 'over time' leaves open vast space for these.

The dissection may not even out over time, so there may be temporally defined moments that may make for a bias of some kind. This then puts an interesting light on company growth itself, is it simply a waiting game, buffered by sales ?

What is the determinism in markets. If we assume it is determinism at the level of valuation, then it may not be the product of minds in action, because that seems to be unpredictable. Thus the determinism is a kind of systemic phenomenon, which is a basis for the exploration of this site.