Friday, January 25, 2008

Wikipedia Errors

Wikipedia has been said to have fewer errors than Encyclopedia Britannica but, as one of my co-workers said, "I bet Encyclopedia Britannica doesn't have errors like this!"

I stumbled on this as I was surfing the web this morning. I was searching for ideas of potential names for a new R bundle I'm working on. It literally made me laugh out loud.

UPDATE: I think my previous image was deleted because of the 'content'. Here's the image, censored. And yes, it's a four letter word; but you can say it on television... I guess just not in front of those two words (I'm not sure what the phrase means).

Thursday, January 24, 2008

TTR version 0.14-0 on CRAN

The coolest change is the Fortran implementations of the running/rolling analysis and moving average functions. They are blistering fast: a 20-period SMA on 1 million observations takes about 30 seconds on my 2.8Ghz processor. I don't know if that calculation would even finish when written only in R code.

You can find the source/binaries here, or on your preferred CRAN mirror. Be sure to check out the charting capabilities in quantmod!

Here are the highlights of the new features:

  • Added Fortran implementations of all moving average functions
  • Added Fortran implementations of all running/rolling analysis functions, which include runSum, wilderSum, runMin, runMax, runMean, runCov, runCor, runVar, runSD, runMedian, and runMAD
  • Added of Stochastic Momentum Index and Williams' Accumulation/Distribution functions
  • Changed MA-type arguments for: RSI, ADX, ATR, CCI, DPO, EMV, RSI, BBands, chaikinVolatility, stoch, SMI, TRIX, MACD, and KST. This allows cleaner syntax when specifying moving averages.

Wednesday, January 23, 2008


The Fed's inter-meeting 75 bps cut yesterday came as a complete surprise (at least to me). I've previously noted that Fed Funds expectations were for a 50-75 bps cut at the next meeting on January, 29-30.

The statement cited a weakening economic outlook, increasing downside risks to growth, continued deterioration in broader financial markets, tightening credit for some businesses and households, and a deepening housing correction as the reasons for the target rate change.

That said, what's the point of cutting rates inter-meeting a week early? One week will hardly make a difference, given the lag of monetary policy. My only hypothesis is that the FOMC had already been discussing the action - which was mostly based on economic conditions - and they released the statement early, in response to overseas and overnight US futures trading. However, that begs the question of why the FOMC was swayed by equity market conditions.

In addition, and possibly more interestingly, Fed Fund futures still assign a 40% probability of the FOMC cutting another 25 bps next week...

Tuesday, January 22, 2008

Do the opposite

That's probably the best advice I can give, since US stock futures are currently off about 5% from Friday's close.

Slowly increase over the next week or two... fall off a cliff the very next trading session; same things, right? At least I didn't open any positions based on my "thoughts"...

Sunday, January 20, 2008

Monetary and Fiscal Stimulus

There was plenty of talk about fiscal stimulus packages last week. The White House wants tax cuts to help a wide range of individuals and businesses. Privately, it has floated a plan that focuses on rebates of up to $800 for individuals and $1,600 for married couples.

In addition to tax cuts, congressional Democrats say they also want spending targeted at specific groups such as the unemployed. They have also discussed denying rebates to taxpayers who earn more than $85,000 and offering them to those who don't pay income taxes at all.

Despite the market's disappointment, the plan President Bush announced Friday, which is equivalent to about 1% of gross domestic product, came in at the high end of expectations in Washington.

In addition, Fed Funds futures and options show a 40% probability of 50 and 75 bps cuts, and almost a 20% probability of a 1% cut. The jump in the odds of a 75 bps cut was near Bernanke's speech on 1/11 and the wholesale trade and retail sales reports. The probability of a 1% cut increased near the consumer sentiment report and Bernanke's Congressional Testimony.

None of this will ward off a recession in the United States. The slowdown in growth isn't purely a liquidity problem. It's a confidence problem causing a lack of liquidity. Banks won't start lending to one another again until they have a better idea of who owes what. Until then they're going to continue to horde cash to shore up their balance sheets to prepare for the worst.

Further, this isn't just a subprime or even a mortgage problem (we have yet to even reach the pinnacle of the option ARM wave). Issues are beginning to surface in the commercial real estate, auto loan, and credit card secondary markets. Who knows what other credit products will follow?

The actions of the Fed and Washington won't stop the stock market's decline, or the oncoming/current recession, since this current slowdown is a confidence problem, not a liquidity/stimulus problem. And, unfortunately, the problem is likely to get worse before it gets better.

I expect the market to slowly work its way up - with a few relief/short-squeeze rallies - over the next week or two, sending major indices near their August lows (about a 5-6% gain from Friday's close). I will enter a short position in the NASDAQ 100 and/or Russell 2000 near the August lows if they are attained before the Fed meeting next week, since I expect the catalyst to the next major move down to be the outcome of the meeting.

Sunday, January 13, 2008

Predicting Recessions

John Mauldin's Outside the Box newsletter released last Monday discussed many of the current issues facing the stock market. One paragraph in particular stood out to me, since I had read a portion of it elsewhere.

Last week's poor ISM and employment reports add further confirmation to this expectation, particularly given that total non-farm employment has grown by less than 1% over the past year, less than 0.5% over the past 6 months, and the unemployment rate has spiked 0.6% from its 12-month low (all of which have historically indicated oncoming recessions). The ECRI Weekly Leading Index is now clearly contracting as well. The expectation of oncoming recession may be gaining some amount of sponsorship, but it is still far from the consensus view, and is therefore most probably far from being fully discounted in stock prices.
I had read before that a reliable indicator of oncoming recession is when the unemployment rate rises 0.5% from its recent trough. I had not seen the other two predictors of recession, although they are probably true by virtue of being correlated with one another.

These measures are good indicators because they proxy future consumer spending. They would be less reliable when predicting recessions caused by decreases in investment. Your thoughts?

Minding the Hinges on Pandora's Box
By John P. Hussman, Ph.D.
John Mauldin's Outside the Box, 1/7/2008