Understand the Numbers Game to Win – Fat Tail Daily

In today’s Fat Tail Daily, I’ll talk about something that is brewing in rural NSW and Victoria. Something called the ‘Riverina State’ concept may give you insights into how the price of gold is set. It’s an analogy, with a takeaway. Read on to find out more!

I just spent my weekend in Albury attending The Triple Conference.

What’s that?

It’s a conference that brought together Australians from all walks of life. The theme of this conference was ‘Big Ideas for a Better Australia’.

Those who attended are largely concerned about the overreach of government, a loss of our cultural heritage and those wanting to preserve their liberty and autonomy from what some may feel is a ‘nanny state in the making’.

Those presenting hailed from a diverse background from politics, medical and healthcare, social welfare, church leaders, media personalities and business professionals. They covered specific issues including:

The need to curb government power.

Improve due process for government bureaucracies, especially since the global virus outbreak in 2020–22.

Dealing with wealth inequality.

Fostering representation of different people in the country’s governance system, and…

Combating the decline of societal mores.

Now I’m not going to explore all these issues in any great detail today.
What I do want to explore further is something interesting that links to the price of gold.

So, let me explain.

Improving rural representation — The Riverina
State concept

One of the most interesting topics from the conference related to something called ‘The Riverina State’.

Those looking for the full details can find out in this site, particularly this document.

Most of you are aware that our country’s electorate system divides regions so each electorate has around the same population.

For several decades, urbanisation gained traction thanks to businesses and commercial enterprises flourishing. This led to more people moving to the bigger cities. As a result, the city folks gained more electorates and parliamentary representatives.

Therefore, residents across rural New South Wales and Victoria have lost their representation and a voice in the parliament.

Here’s some figures to give it context. The state has 93 electorates, with the vast majority coming from the Greater Sydney region that encompasses the Central Coast, the Illawarra, Blue Mountains and the Southern Highlands. There are only 22 rural electorates in the New South Wales State Parliament, comprising around 550,000 voters.

Similarly, Victoria has 21 rural electorates out of 88 in the State Parliament. Rural voters number around 420,000 voters.

The sheer imbalance of representation is made worse given almost as many city voters in both states support policies that may work to harm the interest of the rural voters.

Without going too deep into this, the fate of rural NSW and Victoria appears to be in dire straits. Many who live in these areas feel this way.

No doubt, that’s having an impact on social inequalities and things like suicide rates which are higher across rural areas versus cities, especially among teenagers and adult males.

The Riverina State concept has a movement that proposes starting a new state to exclusively represent these people. Their aim is to have its own state government elected by their people without the city dwellers cancelling out their voice.

Now this is just a concept. It may take some time before it could happen, should there be sufficient momentum to move this forward. But I thought I’d bring it up as it’s relevant to what I’m going to talk about next.

The parallel with the gold and commodities markets

In a sense, there is a parallel between the plight that rural NSW and Victorian residents face and that of gold investors in the market.

Some of you are aware that the price of gold is set by the market in a counterintuitive manner.

By that I mean the amount of gold bars or coins that is physically exchanged in the market doesn’t drive the price of gold.

For those who aren’t familiar, I’ll quickly explain how it works.

Based on Gold.org, the daily trading volume for gold in 2021 was around US$120 billion (note that it’s since increased to around US$160 billion as of late last year). The figure below shows the breakdown of where they’re traded:

As you can see, over 80% of the gold trading volume occurs in London and the New York and Chicago Commodities Exchanges. And the vast majority of the exchanges’ transactions were digital contracts rather than physical contracts.

In other words, these trades are merely notional. That is, these trades don’t involve an exchange of gold bars. They comprise contracts used for risk management and speculation.

So, institutions seeking profits at the margin have an undue influence in moving the price of gold. The supply and demand of the metals hardly move the dial.
(is that correct because supply and demand are two things rather than being one?)

You may conclude therefore that relentless destruction of fiat currency is pushing gold higher.

But it isn’t THAT simple.

Let me show you the price of gold in US dollars, adjusted by the intrinsic value of the US dollar as represented by the US Dollar Index [DXY]:

The figure shows that the rise and rise of the price of gold in the long-term points to the decline of the petrodollar system.

But you can see that the price of gold can fluctuate in the short-term. These are from day-to-day trading of the gold contracts and physical metals, with the former comprising the vast majority of trades.

The short-term price movements don’t reflect the state of the financial system or the actual physical supply. They’re the result of institutional trading for profits.

Put simply, the activity in the western gold exchanges has muddied the waters.

The Achilles heel of the Western market manipulators

And that goes back to my point of the Riverina State concept.

Like the rural NSW and Victorian voters, gold enthusiasts and the sceptics of the petrodollar system are looking to gold as their champion in shifting away from a crooked system.

But those wishing to see an end to the petrodollar are fighting an uphill battle.

There’s some good news in this. Those who run the system are slowly destroying themselves by their own machinations.

Keep in mind that they manipulate the price of gold (and other commodities and even the broader market, for that matter) using a system driven by debt.

Their fiat currency thrives on the growth of debt. Their aim is to make it ‘just right’ to perpetuate this game.

However, they’re painting themselves into a corner. After all, keeping this game going requires unlimited capital.

And that capital comes from…you guessed it, debt. They’re drowning in that already, with more to come.

And we know they want high interest rates to retain the value of the US dollar (because the dollar pays interest to its bearer). At the same time, debt and high rates squeeze the system starving it of productive capital.

This is a self-destructive system and is doomed to fail.

The only question remains… When will this happen?

I don’t want to play the mug’s game of guessing when the system crumbles in a heap.

However, make no mistake that is inevitable.

Now gold has enjoyed a good jump since the start of the year. It could pull back to around US$2,100 an ounce to form a base before it continues the rally.

My point is, don’t let price deter you from accumulating gold or gold stocks, the latter requiring you to shoulder significant risk. The rising price of gold reflects declining purchasing power of the dollar, rather than gold becoming more expensive intrinsically.

To find out more on how you can prepare for this, please check out my gold investment newsletter, The Australian Gold Fund.

You can learn more about what I have to offer in this newsletter with this video where I explain the market conditions positioning for a favourable setup for gold and gold stock investors.

God bless,

Brian Chu Signature

Brian Chu,
Editor, Gold Stock Pro and The Australian Gold Report

Brian Chu is one of Australia’s foremost independent authorities on gold and gold stocks, with a unique strategy for valuing big producers and highly speculative explorers. He established a private family fund that only invests in ASX-listed gold mining companies, possibly the only such fund in Australia, putting his strategy and research skills to the test under public scrutiny. He currently writes two gold-focused investment advisories.

In his Australian Gold Report, Brian shows you a strategy for building long-term wealth in physical gold, along with a select portfolio of hand-picked stocks, mainly producers with proven revenue streams, chosen for their balance of risk and reward.

In his more specialised Gold Stock Pro service, Brian helps readers trade some of the most exciting, speculative gold mining plays on the ASX. He uses his proprietary system — based on the famous Lassonde Curve model, which tracks the life cycle of mining stocks. His aim is to help you get ready to trade the next phase of gold and silver’s anticipated longer-term bull market for opportunities to benefit.

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Vantagepoint AI Market Outlook for March 18, 2024

Welcome to the Artificial Intelligence Outlook for Forex trading.

VIDEO TRANSCRIPT

Okay, hello everyone, and welcome back. My name is Greg Firman, and this is the Vantage Point AI Market Outlook for the week of March 18th, 2024. Now, to get started this week, we’ll begin with the S&P 500, with an accurate measurement of the weekly performance and where the bulk of the trading has occurred, using the Vantage Point indicators.

S&P 500 Index

This previous week, we can see we’ve closed last Monday just slightly above the weekly opening price, a very important level on a week-over-week basis. Because again, we see on Tuesday, Wednesday, and Thursday, we have strong buying in the S&P 500, and then we return basically right back to where we started. So, I would expect more of the same this coming week, but it was slightly weaker on the equity side.

Now, when we look at this, we’re above our T Cross Long, we’re above our yearly opening, and our monthly opening prices, and even the weekly for that matter. This is a recurring event, as you can see. This happens in most weeks. If we close below the weekly opening after the close on Monday, the bulk of the week is down. Then, at the end of the week, we get the reversal.

So, for now, our T Cross Long is coming in at 5102, is where we’re going to start the week, but the indicators are turning modestly bearish. Our short-term crossover has occurred, but our medium and long-term crossovers have not, and we don’t have any momentum with a breakdown below that very important 40 level on the predicted RSI.

So again, watch where we finish on Monday. But again, the SPYs is the same, but it’s very, very important that we’re looking at the structure of the market from the start of the week to the end of the week. We don’t want to use a rolling performance of a random 5 days, a random 30 days, or even a random 365 days. We want to look at the structural bias of the market, and the equity markets, at least for now, are still strong. But I do anticipate some further dollar strength before the end of the month.

SPDR SPY ETF ($SPY)

Now, when we look at the SPYs, we see the exact same scenario here. The SPY slightly weaker, down 1.9%, but the S&P 500 again, the market was basically flat or just up a mere 0.11%, but it was not negative on the week, and that’s where I think the confusion comes in when we start moving around our anchor points, and what the true week-over-week performance actually was.

So, with that close on Monday above the weekly opening price, I’m above my T Cross Long, then I’m going to look to buy Tuesday, Wednesday, Thursday this coming week. If we close Monday trading below the weekly opening price, then on we would sell Tuesday, Wednesday, Thursday, and look for the reversal to come around on the Friday. That’s the way we would look at it.

U.S. Dollar Index

Again, the SPYs look exactly the same thing here, but all eyes have been on the Dollar. So, when we look at the actual performance measurement of the Dollar this past week, it’s actually up .75%. And again, you can see we’ve closed above the weekly opening price on Monday, but we’re below the Vantage Point T Cross Long. So, in actual fact, this is a retracement back to exactly on our T Cross Long.

So, to start the week next week, if we can get above and stay above 10344, and we’re still above that level by mid-early Tuesday trading, then Dollar Longs are still on the table here. The indicators from Vantage Point do support that. We are at 62.1 on the predicted RSI. Our predict… we do have a medium-term crossover because our predicted difference, this pink line, has crossed the zero line.

So, the way we would look at that, if we click on our F7 in our software, we can see that a crossover is trying to take place right at this very time. But we must clear 10344. The actual trend in the Dollar remains to the upside as long as we’re holding positive on the calendar year.

Again, if I move these anchor points around, then we’re not going to see these numbers, and it would be far more difficult to identify what the current actual trend is. The trend is indisputably up on the Dollar until such time as we break down below 101.37. But again, we must clear that T Cross Long in order to remain long because I anticipate Dollar weakness either way, once we get into the earlier part, first second week of April, potentially even by the end of this month.

Gold

Now, when we look at Gold Contracts, again Gold backing away, and this is a classic retail trader mistake, where they look at conventional tools and look to continue—or not to continue, excuse me—but to get into a trend that’s actually getting ready to turn the other way. This large red area, the verified zone, that was identified when a lot of recommendations were made to continue buying Gold, but there is very significant resistance at this 2192-2193 area now.

So, that’s the area we have to take out. Gold usually does very, very well in March and April, but I suspect that maybe this got a little bit ahead of itself with the FED comments, or the very confusing FED comments from week to week. But the inflation data slightly hotter on the PPI and the CPI this past week. But I will point out that the CPI is a lagging economic indicator. But what the market, I think, is focusing on, is the fact that you’ve got a bit of a base there around 3.7 on that CPI.

But for now, Gold remains in an uptrend as long as we’re above 2066, and our T Cross Long is coming in at 2117. That is the area to watch because I believe Gold will hold its value, but we’ve just got to get through this corrective move lower before the buyers come back in.

Crude Oil

Now, when we look at Light Sweet Crude Oil, this past week, another big winner, 3.84% on the upside for the week. Once again, we can see, and this is a strategy you can replicate very easily. When most people are jumping into the markets on Monday, you may want to just take a step back and let things settle. See where it closes.

So, Oil was definitely a tricky one. We closed at 7748, but as you can see, the weekly opening price is 7735, so we closed just above that, and then that turned into basically a 4-day rally. So, when most people are jumping into the market, sometimes, a lot of times, I would argue, it’s best to just let Monday play out because usually, Monday is just the hangover from whatever happened on Friday. So, keep an eye on that.

But Oil remains bullish while we hold above our T Cross Long at 7847. The indicators here, a little bit mixed, so possibly a slight corrective move lower, but Oil remains firm. But I would like to see us get above this verified resistance high at 8055 and stay above this particular level.

Bitcoin

Now, with Bitcoin, once again, when we look at the actual week on Bitcoin, this week actually starts on the previous Saturday, Sunday. So, Bitcoin‘s still, you know, still very strong. It was down 1.19% on the week.

But again, you can see that the bulk of the trading was still to the upside, and it lost its value in the last couple of days. Now, we’ve come down on Friday, kissed the T Cross Long to the number at 65,870. In my respectful opinion only, Bitcoin is a firm buy in a dip while above the T Cross Long. That area, again, 65,870, our monthly opening price at 61,337, and our yearly at 42,0501, anywhere in this area is a buy on this particular asset class. Because again, we’ve got the Bitcoin halving coming up, but that’s irrelevant to what Bitcoin has done over the last 10 years, and with the inception of all the ETFs. Very similar situation to what I saw in 2004 when gold went from about a one or two trillion dollar market cap to 16 trillion when they introduced ETFs. This has recently also just happened with Bitcoin, so we would look for this to actually continue.

DAX

Now, with the European Equity markets, I’ll just focus on the one this week. I think it tells us what we need to know. When we look at this, once again, not a bad… It really does point towards the European Equity markets are stronger, particularly the DAX. So, when we look at the weekly, the accurate weekly performance, not that lagging model over random 5 days, guys, very important that I stress that, so we can assess this, 1.31% the DAX is up. But once again, we’ve got to be a little bit cautious with this because if that S&P turns lower on arguably one of the last bull moves on the dollar, then that could push this down.

Volatility Index ($VIX)

So, the way we would then cross-reference this is actually to the VIX. So again, with the VIX, if we’re looking at this, the VIX has now made a very important move that very few people see. We’ve cleared the yearly opening price, that’s at 15.1. Now, it still had a down week at 3.7%, but I would look for the possibility of this turning around. Because again, getting above and staying above that yearly opening price has been difficult, and we do still have some strong verified resistance. But these indicators are pointing that there could be some momentum building here on the VIX, which would indirectly push the DAX, the S&P 500, the Nikkei, a number of these global indexes, it could push them down. So, we’ll keep a close eye on this, but our T Cross Long at 1551, we are closing slightly above that number, but there are signs of momentum building here. The predicted RSI is now sitting at 63, our neural index strength, and the neural index, but again, the monthly opening and the yearly opening prices, those are the areas you want to watch very, very closely, down around this, I would argue, right down here at approximately the 14.8, 1485 mark, is where I would keep a very, very close eye on this.

Euro versus U.S. Dollar

Now, when we look at some of our main Forex pairs for this week, Euro coming under pressure again. You can see that we approach the accurate yearly, the current and accurate yearly opening price. The Euro, again, a number of analysts extremely bullish on this over the last week or two, but they failed to see that we’ve never been positive on the calendar year on the Euro/US pair. So, unless we can get above 1.1038, then there is still a slight bias to the downside. But as you can see, this red area of 1.0805, we have turned positive on the month. So, if we can hold above 1.0805, but the immediate support level which we want to keep our eye on is 1.0874, the Vantage Point T Cross Long. We need to remain above this if this has any chance of challenging 1.1038. But again, we’ll also look for that, the current monthly opening price is very seldomly discussed in the financial world, but it’s very important, guys, because it gives us an objective viewpoint as to who’s in charge here, the buyers or the sellers. Well, in the calendar year, the sellers are in charge, but in the month of March, the buyers are hanging in there. So, we’ve got our sellers up here near the yearly opening, and we’ve got our buyers down here near the monthly opening price. So, that’s basically what you’re dealing with, is a range between 1.1038 and 1.0805. In my respectful opinion only, a break of one of these two levels will trigger a trending move. Right now, this pair is not trending; we’re running sideways between the current monthly and the current yearly opening price.

U.S. Dollar versus Swiss Franc

Now, when we look at US/Swiss Franc, again, it’s been a while since the Swiss Franc has seen this kind of weakness against the dollar. But right now, the dollar is unable to push above the current monthly opening price at .8846; that’s the area we want to keep our eye on. But we are still bullish on the year, with that yearly opening at .8410. Our T Cross Long at .88, our indicators here are still showing signs of life with the dollar against the Swiss Franc, with our predicted differences moving above the zero line, neural index positive, a bit of a reverse checkmark there in the predicted RSI, but not too concerned with it. But again, the seasonal pattern in the dollar, usually the dollar strength comes to an end by late March, early April, so be very mindful of that.

British Pound versus U.S. Dollar

Now, the British Pound/US Dollar tried to recover here on Friday. It didn’t do a horrible job, but at 1.2732, we’ve closed the week at 1.2734, we are on the yearly opening price. So, if the Pound/Dollar right now, we basically got a make-or-break situation with the Pound/Dollar: either it’s going to go higher, or it’s not. So, right now, it is very much this chart is very similar to the Euro/US pair, where above the monthly, but struggling with that yearly opening price. Our T Cross Long at 1.2729, I strongly recommend, as what I’ve stated at the beginning of this presentation, that you let this pair settle until the close on Monday at 5:00 p.m., and see if we’re closing above or below the current weekly opening because that will likely set the tone for the remainder of the week.

The Vantage Point signals are saying that this pair is going to break lower. So, if we’re holding below 1.2729, then we should see shorts, at the very minimum, down to about the 1.26 mark.

U.S. Dollar versus Japanese Yen

Now, the Dollar/Yen, again, starting to recover. We’re still positive on the year, but we’re getting tangled up in the Vantage Point T Cross Long at 148.87. Then we have our monthly opening price at $149.98. If the market believes the FED will not be able to cut, then the carry trade remains intact, meaning a weaker Yen and a stronger dollar. And that’s also a weaker Yen against the Euro, the CAD, the Swiss Franc, all those other pairs. So, I’ll monitor this, but right now, the indicators in Vantage Point point to further strength.

I will warn every Forex trader out there, every single week, guys, be careful on a Sunday night trading. The Bank of Japan has been on the prowl here for several months, and they’re simply looking to leverage some type of verbal intervention. That spooks me with buying or selling the Yen right now, but we could have some good opportunity once we get confirmation from the FED. And we do have the FED speaking on Wednesday, the press conference. Nobody’s expecting a cut on Wednesday, but we’re looking for verbiage as to when it’s coming, a more definitive answer. Now, with this most recent data, the FED could spin this, saying, nope, too early for a rate cut. If that’s the case, Dollar/Yen goes higher.

U.S. Dollar versus Canadian Dollar

US/Canadian pair, once again, not even oil is helping the Canadian dollar here. The political climate in Canada continues to deteriorate, carbon tax, a lot of problems, high interest rates still. So again, we’ll monitor things, but with oil prices pushing $80 a barrel and a strong stock market, I would have expected the Canadian dollar to do a lot better than this, but it’s not happening. So, the Canadian dollar, or the US dollar, is firmly up against the Canadian dollar, but I, but nothing goes straight up, and nothing goes straight down. 1.3579, we’ve got some pretty strong verified zones up here around the 1.3605 area. So, for me to buy this up here at these levels, I’m going to need a break of 1.3605 because, again, I am anticipating the real seasonal pattern in Canadian dollar strength is more towards the mid-April, May point. So, a little bit more weakness to the upside, and then we start to look for shorts.

So, each week, I’ll be talking about this pair, and hopefully, we will start to see the opportunity for shorts on this in the coming weeks. But right now, it’s still saying we’re going higher with our MA Diff Cross. We’re running a little bit flat with the predicted RSI, but it is showing upward momentum, and of course, we’re above our T Cross Long, so 1.3514, that’s our pivot point for next week. And again, watch this because if the Monday-Tuesday reversal is the strongest in this particular pair, meaning whatever it does on Monday, it often does the exact opposite on Tuesday. It’s a phenomenon that’s been going across a number of these markets: oil, gold, S&P 500, multiple Forex pairs, individual stocks. So, keep an eye on this one, but be careful. And again, waiting until Monday night at the close is not a bad thing.

Australian Dollar versus U.S. Dollar

The Aussie/US pair, going into next week, once again, the Aussie still struggling here, guys. As I discussed the other week, we’ve been net negative on all year long. The Aussie is starting to turn back down again, but I am anticipating dollar weakness coming, as I’ve mentioned multiple times, this month and in this presentation alone. So, we’ll watch $0.6498, the current monthly opening price, see if we can hold above this. But right now, if we can get back above our T Cross Long at 0.6569, then we should see some upside. But I think we’re going lower first because we’ve got an MA Diff Cross to the downside, neural index strength is breaking, and the predicted RSI, with a nine-period predicted RSI and a 60/40 split, this is pointing towards downward momentum. This indirectly tells me that if this is correct, then stocks are going lower next week, as is gold, and the dollar likely higher.

New Zealand Dollar versus U.S. Dollar

We’re not going to see a lot of difference between that and the Kiwi, guys, where you can see the almost the exact same signal, except it’s more pronounced, saying that

the Kiwi is already broken down and it’s challenging the current monthly opening price. So, if the Aussie turns, it’s possible that the Kiwi is better value buying down here than the Aussie. So, if you wanted to short the between these two, Aussie/US has better value. If you want to play the reversal, then I would argue New Zealand/US is a better buy here at these particular levels.

So, we will have a very, very choppy week again next week, but with that is opportunity. Just be very, very cautious when the FED speaks on Wednesday.

So, with that said, this is the Vantage Point AI Market Outlook for the week of March the 18th, 2024.



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Delhi Capitals vs Royal Challengers Bangalore Live Score, WPL 2024 Final: Smriti Mandhana Departs, RCB Two Down In Chase Of 114 vs DC | Cricket News

Delhi Capitals vs Royal Challengers Bangalore WPL Final 2024 LIVE: RCB are chasing 114 vs DC.© BCCI




DCW vs RCBW Live Score, WPL 2024 Final: Royal Challengers Bangalore are two down in the chase of 114 runs against Delhi Capitals in the Women’s Premier League final. Ellyse Perry has been joined by Richa Ghosh at the middle. Earlier, Shreyanka Patil picked four wickets as RCB bundled out DC for 113 runs. The Meg Lanning-led side got off to a flying start, thanks to Shafali Verma’s 44 off 27 but once she departed, RCB bossed the game onwards. Sophie Molineux provided the turnaround with three wickets, including that of Shafali, in a single over. Patil and Asha Sobhana made sure DC never bounced back. DC skipper Lanning won the toss and opted to bat first. (Live Scorecard)

Here are the Live Updates of Delhi Capitals vs Royal Challengers Bangalore, WPL 2024 Final –







  • 22:23 (IST)

    WPL 2024 Final: RCB need 28 in 24

    Alice Capsey has bowled a four run over and Royal Challengers Bangalore Women now need 28 runs in 24 balls. This chase is still in RCB’s hands unless they decide to give it away to their opponent.

    RCBW 86/2 (16)

  • 22:19 (IST)

    WPL 2024 Final: Mandhana is OUT!

    A breakthrough for Delhi Capitals but is it too late for them now? Smriti Mandhana wanted to go for a big shot but edged the ball high in the air. Arundhati Reddy ran couple of steps at mid-on and took the catch comfortably. Royal Challengers Bangalore Women need 32 runs in 30 balls.

  • 22:12 (IST)

    WPL 2024 Final: FOUR!

    Ellyse Perry jumps out of her crease and lofts the ball over the mid-off fielder for a four. Jess Jonassen gave the flight and Perry accepted the offer. Royal Challengers Bangalore Women need 36 runs in 37 balls.

  • 22:06 (IST)

    WPL 2024 Final: RCB need 53 in 48

    Two runs came off the Shikha Pandey over. Royal Challengers Bangalore Women need 53 runs in 48 balls. RCB are still in the driving seat but Delhi Capitals are only a couple of wickets away from making a comeback in the game. 

    RCBW 61/1 (12)

  • 21:56 (IST)

    WPL 2024 Final: End of 10 overs!

    RCB are way ahead in this game but a couple of wickets can really give DC some hope. Royal Challengers Bangalore Women need 58 runs in 60 balls.

    RCBW 56/1 (10)

  • 21:52 (IST)

    WPL 2024 Final: OUT!

    Shikha Pandey gets the wicket of Sophie Devine. It was a loud shout for LBW and umpire raised his finger in approval. Devine went for a review and wasted it as the ball was found to be hitting the middle stump. Devine is out for 32 off 27.

    RCBW 49/1 (8.1)

  • 21:41 (IST)

    WPL 2024 Final: SIX!

    A flighted delivery from Radha Yadav and Shophie Devine accepts the challenge. She jumped out of her crease and slammed the ball over Radha’s head for a big six. What follows is another four from the bat of Devine and RCB are bossing this chase now. 18 runs came off the over. Royal Challengers Bangalore Women need 71 runs in 78 balls.

    RCBW 43/0 (7)

  • 21:40 (IST)

    WPL 2024 Final: FOUR!

    Radha Yadav starts with a fuller delivery down the leg stump and Sophie Devine has swept it for the second four of the over. 8 runs have come off for RCB in the first 3 balls.

    RCBW 33/0 (6.3)

  • 21:38 (IST)

    WPL 2024 Final: End of powerplay!

    Royal Challengers Bangalore Women need 89 runs in 84 balls. They have scored 25 runs in the first powerplay but the best thing for them is that they have not lost any wicket so far. Delhi Capitals need a breakthrough to stay alive in the game.

    RCBW 25/0 (6)

  • 21:33 (IST)

    WPL 2024 Final: Economical over

    Only two runs came off the 5th over bowled by Shikha Pandey. Royal Challengers Bangalore Women need 94 runs in 90 balls.

  • 21:26 (IST)

    WPL 2024 Final: Good bowling from DC

    Only three runs came off the Shikha Pandey over. DC bowlers have managed to keep it tight so far.

    RCBW 11/0 (3)

  • 21:23 (IST)

    WPL 2024 Final: Slow start for RCB

    Both Smriti Mandhana and Sophie Devine are taking their time at the start. They can do so as the target is small. What RCB need at the moment is good start without losing much wickets. Three runs came off the Alice Capsey over.

    RCBW 8/0 (2)

  • 21:18 (IST)

    WPL 2024 Final: RCB start their run chase!

    Smriti Mandhana and Sophie Devine both looked comfortable playing the first over of Marizanne Kapp. Devine also hit a four off the third ball. A total of five runs came off the over.

    RCBW 5/0 (1)

  • 21:02 (IST)

    WPL 2024 Final: Delhi Capitals all out!

    Delhi Capitals have been bundled out at the score of 113. Shreyanka Patil took four wickets for 12 runs in 3.3 overs. The target for RCB is 114 runs. It’s not a big ask for the side to claim its maiden title. A lot will depend on how they play the first powerplay, that is the first six over.

    DCW 113 (18.3)

  • 20:57 (IST)

    WPL 2024 Final: OUT!

    Arundhati Reddy has played the ball on her stumps. It was an off-spin delivery from Shreyanka Patil. The ball hit the bat of Reddy, then hit her pad and crashed onto the stumps.

    DCW 113/9 (18.2)

  • 20:56 (IST)

    WPL 2024 Final: DC struggle!

    Delhi Capitals are fighting hard to post a competitive total here. The Meg Lanning side is eight down. More two overs remaining. Can they add more 10-15 runs to their score. 

    DCW 111/8 (18)

  • 20:52 (IST)

    WPL 2024 Final: OUT!

    Radha Yadav is run out! Arundhati Reddy hit the ball on the off-side and a miscommunication in running forced Radha to return to the non-striker’s end. A direct throw from Sophie Molineux rattled the stumps at Radha’s end before the batter could even reach close to the crease.

    DCW 101/8 (16.2)

  • 20:47 (IST)

    WPL 2024 Final: 100 up for Delhi Capitals!

    Delhi Capitals have raced to the mark of 100 runs in 15.5 overs. They must add another 20 to 25 runs at least in the remaining 17 balls if they wish to stand a chance in this game. This pitch has definitely slowed down but DC at least need 120 runs on the board to make a game out of it.

  • 20:35 (IST)

    WPL 2024 Final: WICKET!

    Another one bitest the dust and Royal Challengers Bangalore are doing a clinical job here with the ball. They are not letting Delhi Capitals batters settle. Marizanne Kapp is the latest one to depart after hitting an Asha Sobhana delivery high in the air. Sophie Devine took the catch coming forward from long-on.   

    DCW 80/5 (13.1)

  • 20:31 (IST)

    WPL 2024 Final: 43 balls since last boundary

    This would explain Delhi Capitals’ poor situation better that their last boundary came 43 balls back, more than 7 overs. This is a brilliant turnaround from RCB. DC scored 64 runs in first 7 overs and the next 6 overs saw them scoring only 16 runs. As per the pitch report, a score of over 140 would be a fighting total and that too looks tough for DC from this point.

    DCW 80/4 (13)

  • 20:27 (IST)

    DC vs RCB, WPL 2024 Final: Good start for Asha!

    Asha Sobhana conceded only two runs off her first over in the game. Delhi Capitals have not only lost four wickets but their scoring rate has also dipped down. 

    DCW 77/4 (12)

  • 20:21 (IST)

    DC vs RCB, WPL 2024 Final: OUT!

    No relief for Delhi Capitals. Meg Lanning has been given out LBW but the batter has reviewed it. Shreyanka Patil boweld an off spin delivery that hit the front pad of Lanning. No bat involved confirms UltraEdge and ball tracking shows that it would have hit the middle stump. Lanning departs for 23 off 23 and DC are in all sorts of trouble. 

    DCW 74/4 (10.4)

  • 20:11 (IST)

    DC vs RCB, WPL 2024 Final: Another WICKET!

    7.4 – Alice Capsey is also gone. There is the third wicket for Sophie Molineux and DC are all at sea by losing three wickets in only four balls of this over. RCB are bossing this game at the moment. What a turnaround for the bowling team this is!

    DCW 65/3 (8)

  • 20:07 (IST)

    DC vs RCB, WPL 2024 Final: Rodrigues is OUT!

    Big-big wicket for Sophie Molineux and RCB. She wanted to play a sweep shot but has been bowled for zero.

    DCW 64/2 (7.3)

  • 20:07 (IST)

    DC vs RCB, WPL 2024 Final: OUT!

    Shafali Verma is gone! There is the much-needed wicket for RCB. Sophie Molineux bowled it fuller to Shafali and the batter has hit it right into the hands of Wareham at deep mid-wicket. Shafali is out at the score of 44 off 27.

    DCW 64/1 (7.1)

  • 20:01 (IST)

    DC vs RCB, WPL 2024 Final: End of powerplay

    The first powerplay has ended and Delhi Capitals have scored 61 runs in it. This is a superb start in the final from the side. Shafali deserves more credit for such a start as she is the one who is taking the RCB bowlers to the cleaners.

    DCW 61/0 (6)

  • 19:55 (IST)

    DC vs RCB, WPL 2024 Final: 50 up for DC!

    What a start for Delhi Capitals this has been so far! They have raced to 52 runs in just five overs. Shafali Verma has been the wrecker-in-chief with 37 not out off 18 balls. 

    DCW 52/0 (5)

  • 19:52 (IST)

    DC vs RCB, WPL 2024 Final: SIX!

    That’s a rocket down the ground from Shafali Verma’s bat. It was bowler fuller from Ellyse Perry and Shafali went down town. The ball comfortably sailed over the ropes for yet another six. It is the third from the bat of Shafali.

    DCW 47/0 (4.3)

  • 19:50 (IST)

    DC vs RCB, WPL 2024 Final: Shafali on fire!

    This is superb batting from Shafali Verma. She started the over of Renuka Singh with a six and ended it with two consecutive fours. A total of 19 runs came off the over and DC are on a roll at the moment.

    DCW 41/0 (4)

  • 19:47 (IST)

    DC vs RCB, WPL 2024 Final: SIX!

    Renuka Singh bowled a fuller delivery to Shafali Verma outside off stump and the right-handed batter slammed it over long-off for a six. This is poor bowling from Renuka as the long-off player was inside the circle.

    DCW 28/0 (3.1)

  • 19:46 (IST)

    DC vs RCB, WPL 2024 Final: Good over!

    Good start for Ellyse Perry. She conceded only three runs off her first over.

    DCW 22/0 (3)

  • 19:40 (IST)

    DC vs RCB, WPL 2024 Final: SIX!

    1.5 – That came right from the middle of Shafali Verma’s bat. There was flight on offer from Sophie Molineux and Shafali hit it down the ground for a six.

    DCW 19/0 (2)

  • 19:37 (IST)

    DC vs RCB, WPL 2024 Final: Good over for DC!

    Not only they escaped a run-out, Delhi Capitals also got nine runs of the first over.

  • 19:35 (IST)

    DC vs RCB, WPL 2024 Final: A run-out chance!

    There was a run-out chance and Lanning nearly got herself out. She nudged the ball towards gully fielder, took a couple steps forward and then tried to deny Shafali a single. The Indian batter was already cross the halfway mark and Lanning had to take the run. The throw came to Renuka Singh at non-striker’s end but she failed to hit the stumps in time and Lanning was safe.  

    DCW 2/0 (0.2)

  • 19:32 (IST)

    DC vs RCB, WPL 2024 Final: A dot ball

    Renuka Singh bowled a good length ball that swung into Lanning and hit her front pad above the knee. It’s a dot ball to start with.

  • 19:31 (IST)

    WPL 2024 Final: Match starts!

    Renuka Singh has the bew ball in hand. Meg Lanning is on the strike and Shafali Verma is at the other end. Here we go!

  • 19:18 (IST)

    WPL 2024 Final: A look at head-to-head stats –

    It is interesting to note that both Delhi Capitals and Royal Challengers Bangalore have faced each other a total of four times in Women’s Premier League and DC have won all of them.

  • 19:12 (IST)

    WPL 2024 Final: In case you missed it –

    The Delhi Metro Rail Corporation has extended its timing for train operations in view of the Women’s Premier League (WPL) cricket tournament’s final on Sunday.

  • 19:06 (IST)

    DC vs RCB, WPL 2024 Final: A look at playing XIs –

    Delhi Capitals Women (Playing XI): Meg Lanning(c), Shafali Verma, Alice Capsey, Jemimah Rodrigues, Marizanne Kapp, Jess Jonassen, Radha Yadav, Arundhati Reddy, Taniya Bhatia(w), Shikha Pandey, Minnu Mani

    Royal Challengers Bangalore Women (Playing XI): Smriti Mandhana(c), Sophie Devine, Sabbhineni Meghana, Ellyse Perry, Richa Ghosh(w), Sophie Molineux, Georgia Wareham, Shreyanka Patil, Asha Sobhana, Shraddha Pokharkar, Renuka Thakur Singh

  • 19:06 (IST)

    DC vs RCB, WPL 2024 Final: Here’s what Mandhana said –

    “We would have batted first as well, but I think it doesn’t really go well, we will have to bowl well, stick to our plans and play some good cricket. We’ve had a lot of ups and downs so far, but we need to be at our best tonight. This is the 4th match on the same wicket, the last game, it played slow. We’ve one change – Meghana comes in for Disha Karat.”

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Top NBFC Penny Stocks in India – Watchlist Gems Revealed?

Top NBFC Penny Stocks in India: The headline reads, “Penny stock turns multi-bagger.” We realize after reading the news that it is no longer a penny stock. A novice investor keeps hoping to buy low-quotation stocks or a value-hunter among small-caps. One thing is clear: such stocks can be a rags-to-riches story.

How do you go about picking profitable companies from this risky pool? What filters should I use: revenue growth, profitability, debt-to-equity ratio, or something else? In this article, we bring to you the top penny NBFC stocks. So without further ado, let us jump in.

Top NBFC Penny Stocks in India

Top NBFC Penny Stocks in India #1: Sakthi Finance Ltd

Sakthi Finance Ltd

Top NBFC Penny Stocks in India - Sakthi Finance Ltd Logo

Sakthi Finance was established in 1955, headquartered in Pollachi, as the Pollachi Credit Society Private Limited. Sakthi Finance was started with the intent of catering to the hire-purchase requirements of the TELCO dealerships of the Sakthi Group.

Over the past six decades, the business has transitioned and grown into one of the leading NBFCs in South India, specializing in financing the purchase of commercial vehicles and construction equipment. The company has a presence of more than 50 branches in the Southern states of Andhra Pradesh, Karnataka, Kerala, Tamil Nadu, and Telangana

During the financial year 2022–23, it disbursed Hire Purchase Advances to the extent of Rs 821.52 crore, as against Rs 596.66 crore in the previous financial year 2021–22. The gross stage 3 assets of the company stood at 5.8% as of March 2023. Its provision coverage ratio on stage 3 assets stood at 51%.

The company’s financial statements reported a 5.2% increase in revenue from operations, from Rs. 175.67 crore in FY22 to Rs. 184.77 crore in FY23. The net profit stood at Rs 12.49 crore, increasing 31% from Rs 9.52 crore in FY22. The 3-year average RoCE and RoE stand at 9.86% and 5.33%, respectively.

Top NBFC Penny Stocks in India #2: Baid Finserv Limited

Baid Finserv Limited

Baid Finserv Limited Logo Image

Baid Finserv Limited (formerly known as Baid Leasing and Finance Company Limited). It is a non-deposit-taking NBFC carrying out the business of providing car loans, commercial vehicle loans (new and used), MSME loans, loans against property, and other asset-backed loans.

The company has deeply penetrated the semi-urban and rural areas with its 40 branch offices in Rajasthan and has started operations in Madhya Pradesh. It has targeted providing loans to the underserved in semi-urban and rural areas as there is a lack of bank credit and the market is more or less unorganized.

Baid Finserv’s portfolios include NBFCs, PSUs, and banks like SBI. UCO Bank. IDFC First Bank, Shriram Finance, Chola, Tata Capital, etc.

The company’s financial statements reported a 9.8% increase in revenue from operations, from Rs 49.94 Cr in FY22 to Rs 54.85 Cr. in FY23. The net profit stood at Rs 55.73 crore, increasing 11.3% from Rs 50.05 crore in FY22. The 3-year average RoCE and RoE stand at 9.86% and 5.33%, respectively.

Top NBFC Penny Stocks in India #3: Capital Trade Links Ltd

Capital Trade Links Ltd

Capital Trade Links Ltd Logo Image

Capital Trade Link was incorporated in 1984 in New Delhi, India, and is a non-deposit-accepting, non-banking financial company registered with the Reserve Bank of India. It obtained a certificate of registration in 2001. In 2017, it was registered as a mutual fund distributor and also started financing vehicle loans.

CTL is an organization providing monetary advantage to individuals and organizations in low, medium, and high ranges that require finance. Similarly to banks, it extends credit facilities to individuals and business entities, whether proprietorships, partnership firms, companies, or any other legal entity. The money is advanced for both personal and commercial purposes.

Capital Trade Links diversified its funding sources by adding seven new lenders in FY23, including the leading PSU Bank, i.e. the State Bank of India, taking the total lender count to 21 as of March 2023.

Capital Trade  Portfolio Composition
Source: Annual Report

During the financial year 2022–23, its asset portfolio increased by Rs 101 crore as against Rs 42 crore in the previous financial year 2021–22 to Rs 143 crore in FY23. The gross stage 3 assets of the company stood at 2.3% as of March 2023. Its provision coverage ratio on stage 3 assets stood at 13%.

The company’s financial statements reported a 78% increase in revenue from operations, from Rs. 7.83 crore in FY22 to Rs. 14 crore in FY23. The net profit stood at Rs 2.50 crore, increasing 1.2% from Rs 2.47 crore in FY22.  The 3-year average RoCE and RoE stand at 9.46% and 7.88%, respectively.

Top NBFC Penny Stocks in India #4: Emerald Finance Ltd

Emerald Finance Ltd

Emerald Finance Ltd Logo Image

Incorporated in 1983 Emerald Finance Limited (formerly Emerald Leasing Finance and Investment Company Limited) is an NBFC registered with the RBI in 2018 engaged in the business of commission income, interest income, and dividends.

It offers a spectrum of banking products and financial services, especially to traditionally underserved customers, focusing on micro, small, and medium enterprises (“MSMEs”) and retail customers through a variety of delivery channels.

Emerald has entered into an agreement with Rainpay India Pvt. Ltd. (“Rain”), which is a wholly-owned subsidiary of the American company Rainpay Technologies Inc. This partnership has enabled it to diversify its portfolio by entering the salaried employee segment and providing loans linked to the salary of the customer. These loans are low-ticket in nature and provide the company with high volumes every month.

It mainly funds known and credit-worthy clients. Mostly these clients are such with whom it had long relationships. The effectiveness of this marketing strategy can be seen from the fact that it had very negligible bad debt from the recently sourced portfolio. In FY23, Emerald reached 33 states and UTs and served more than 11,000 people. Salary advances worth INR 18 crore were processed.

The company’s financial statements reported a 36% increase in revenue from operations, from Rs 8.46 crore in FY22 to Rs. 11.51 crore in FY23. The net profit stood at Rs. 3.45 crore, increasing 40% from Rs. 2.47 crore in FY22. The 3-year average RoCE and RoE stand at 12.5% and 8.92%, respectively. The promotor’s holdings increased from 33.12% in FY18 to 67.80% in FY23.

Top NBFC Penny Stocks in India #5: Comfort Fincap Ltd

Comfort Fincap Ltd

Top NBFC Penny Stocks in India -Comfort Fincap Ltd Logo Image

The Comfort Group was founded by Mr. Anil Agrawal (CA, ICWA) in 1994. The group is a well-diversified financial services organization available on all the essential platforms like BSE, NSE, MCX, MCX-SX, Merchant Banking (category 1), and nonbanking finance activities covering primary markets, investment solutions, debt services, capital markets, equity, derivatives, currency derivatives, depository services (CDSL), project financing, wholesale financing, and other segments to the client community.

Comfort Fincap Ltd. was incorporated in 1982 and is registered as a non-systemically important non-deposit non-banking finance company. It is focused on providing inter-corporate loans, personal loans, loans against shares and securities, loans against properties, mortgage loans, home loans, trade financing, bill discounting, trading in shares and securities, and arbitrage business in the stock and commodity markets.

The company’s financial statements reported an 18% increase in revenue from operations, from Rs 12.42 crore in FY22 to Rs 14.66 crore in FY23. The net profit stood at Rs 4.88 crore, an increase of 10% from Rs 4.42 crore in FY22. The 3-year average RoCE and RoE stand at 12.6% and 10.4%, respectively.

Other NBFC Penny Stocks in India

Conclusion

This article covered some of the top NBFC penny stocks. Such small-cap companies hold the potential to offer multi-bagger returns. However, they can also result in heavy losses for the shareholders as their stock prices are very volatile. Thus, investors should approach such companies with caution. Understanding risk and return characteristics and suitability is also important.

As a retail investor, what investment approach do you follow? Do you prefer small-cap, mid-cap, and large-cap companies, or keep a balance between them? Let us know in the comments below.

Written by Ashish Agarwal

By utilising the stock screenerstock heatmapportfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investment.


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What’s the Downside Risk for QQQ?

KEY

TAKEAWAYS

  • A bearish momentum divergence and declining Bullish Percent Index suggests rough waters ahead for the QQQ.
  • The 50-day moving average and Chandelier Exit system can serve as trailing stops to lock in gains from the recent uptrend.
  • If stops are broken, we can use Fibonacci Retracements to identify potential downside targets for the Nasdaq 100.

The Nasdaq 100 ETF (QQQ) is beginning to show further signs of deterioration, from bearish momentum divergences between price and RSI to weakening breadth using the Bullish Percent Index. How can we determine whether a pullback could turn into something more disastrous for stocks? Let’s look at how the 50-day moving average, Chandelier exits, and Fibonacci retracements can help anticipate downside risk for the QQQ.

To kick things off, we need to acknowledge how the QQQ has a place of distinction on the growing list of charts showing bearish momentum divergences.

This classic sign of a bull market top is when price continues to trend higher while the RSI (or some other momentum indicator) begins to slope downwards. Think of this pattern as a train running out of steam as it reaches the top of a hill. This weakened momentum usually occurs at the end of a bullish phase, when buyers are exhausted and there just isn’t enough momentum left to push the markets much higher.

But it’s not just about weakening momentum. Breadth conditions, which remain fairly constructive for the broader equity space, have really deteriorated in the past ten weeks.

Here, we’re showing the Bullish Percent Index for the Nasdaq 100. This is a market breadth indicator based on point & figure charts, and basically measures how many stocks in a specific index are currently showing a bullish point & figure signal.

Note how, in late December, this indicator was around 90%, meaning nine out of every ten Nasdaq 100 members were in a bullish point & figure phase. This week, we saw the indicator finished just below 50%. This shows that about 40% of the Nasdaq 100 members generated a sell signal on their point & figure charts in 2024.

What’s very interesting about that particular development is that point & figure charts usually have to show quite a bit of price weakness to generate a sell signal. So names like TSLA, AAPL, and others are breaking down, which suggests that further upside for the QQQ would be limited until this breadth indicator improves.


Are you prepared for further downside for the QQQ and leading growth names? The first item in my Market Top Checklist has already been triggered. Join me for my upcoming FREE webcast on Tuesday, March 19th, where I’ll share the other six items on the checklist and reflect on what signals we’ll be watching for in the coming weeks. Sign up HERE for this free event!


So what if the Nasdaq 100 does continue lower? At what point can we confirm that a corrective phase has truly begun? I like to keep things simple, so, in terms of an initial trigger for a tactical pullback, I always start with the 50-day moving average.

The 50-day moving average currently sits about $6 below Friday’s close, and also lines up pretty well with the February swing low around $425. So as long this level would hold, the short-term trend actually remains in good shape. A break below that 50-day moving average would tell me there is a much higher likelihood of further price deterioration.

But the 50-day moving average, while a simple and straightforward situation, is perhaps not the most effective way to gauge a new downtrend phase. Alexander Elder popularized the Chandelier Exit system in his books, and it represents a more nuanced version of a trailing stop because it is based on Average True Range (ATR).

Look back at the price peak in July 2023, and notice how the price remained above the Chandelier Exit through that price high. Soon after, the price violated the trailing stop to the downside, suggesting the uptrend phase was over and a corrective move had begun. Since the October 2023 low, the QQQ has consistently remained above the Chandelier Exit on pullbacks, as the price achieved higher highs and higher lows into March. After Friday’s drop, the Nasdaq 100 remains just above this effective trailing stop indicator.

So what if the Chandelier Exit is violated next week, and the QQQ begins to drop to a new swing low? What’s next for the Nasdaq 100?

Fibonacci Retracements can be so helpful in identifying assessing downside risk, because they measure how far the price may pull back in relationship to the most recent uptrend. Using the October 2023 low and the March 2024 high, that would give an initial downside target around $408. Further support could be at the 50% level ($395) and the 61.8% level ($382).

Note how well these levels line up with previous swing lows, especially the 61.8% retracement level. That last support level lines up with the swing low in December 2023, as well as the price peak in July 2023. I refer to that sort of level as a “pivot point” because it has served as both support and resistance, and these are often important levels to monitor.

A number of the mega-cap growth stocks, such as TSLA and AAPL, have broken down in recent weeks. But the latest patterns of bearish momentum divergences and declining breadth conditions tell us that there may be further downside in store for the Nasdaq 100. By keeping a watchful eye on trailing stops and potential support levels, we can perhaps navigate choppy market waters using the power of technical analysis.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!


David Keller, CMT

Chief Market Strategist

StockCharts.com


Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at StockCharts.com, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
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Episode #525: Grant Williams & Peter Atwater: The Market is ‘Long Abstraction, Short Reality’ – Meb Faber Research – Stock Market and Investing Blog


Guest: Grant Williams is the author of the newsletter Things That Make you Go Hmmm… and host of The Grant Williams Podcast. He was also a co-founder of Real Vision. 

Peter Atwater teaches confidence-driven decision-making at William and Mary and the University of Delaware, writes the Financial Insyghts newsletter, and is the author of the book, The Confidence Map: Charting a Path from Chaos to Clarity.

Recorded: 2/29/2024  |  Run-Time: 55:48  


Summary:  Today’s episode is a masterclass in how to analyze market sentiment, which seems particularly timely given how the market has been lately. Peter shares his framework for looking at the world through the lens of certainty and control and how that drives consumer confidence. Then he and Grant kick around a bunch of topics, including the relationship between natural gas and Nvidia, Elon Musk and the velvet rope economy, gold and Bitcoin, the opportunity in Japan, and much, much more.


Comments or suggestions? Interested in sponsoring an episode? Email us [email protected]

Links from the Episode: 

  • (1:40) – Welcome to our guests, Peter Atwater and Grant Williams
  • (2:28) – Confidence and vulnerability’s role in financial market
  • (6:18) – Elon Musk 0 – 60mph Tweet
  • (10:21) – Peter’s take on natural gas and Nvidia
  • (13:17) – Class versus wealth
  • (17:30) – Thoughts on gold and Bitcoin
  • (22:38) – The world of luxury
  • (28:43) – The UK stock market
  • (33:10) – Why Grant is excited about the Japanese stock market
  • (37:14) – Who would Grant want to interview today?
  • (38:23) – Modern-Day Asset Management Business w/ Anthony Deden
  • (44:29) – Peter and Grant’s most controversial opinions
  • (48:59) – Peter and Grant’s most memorable investments
    Learn more about Peter and Grant: Grant-williams.com; Grant’s Twitter; Peteratwater.com; Peter’s Twitter 

 

Transcript:

Meb:

Peter and Grant, welcome to the show.

Peter:

Thanks Meb.

Grant:

Hey, Meb. Peter, good to see you mate.

Peter:

Likewise.

Meb:

Listeners, we got two of my favorite writers on the show for reasons I’ll detail here momentarily, but Peter, I was thinking of you last night because I was rereading your book and I think once you read your book, it’s like one of these books that’s hard to look at the world through the same lens. It keeps popping up in your head when you think of these things, thinking about confidence, we talk a lot about sentiment on the show, but there’s two comments and then I’ll let you take this. The first being, when people think of confidence, they often think of self-esteem, but often it comes down to vulnerability. I think my wife would like that word more than I do, when it comes to actual actions in financial markets. Did I mess that up? Does that sound about right? Give us a little overview of what I’m talking about,-

Peter:

Yeah, I think you nailed it. Yeah. We think of confidence as being inward, how do I feel about my own abilities and everything else, and it has everything to do with the outside world. If Covid showed us anything, it’s that self-esteem doesn’t matter when there’s a pandemic, but what I had to figure out was, so if confidence is all about having certainty and control, what’s the opposite? And ultimately I settled on vulnerability, that when we’re vulnerable we have neither certainty nor control. We feel powerless, things feel weird. And market behavior to me is driven much more by those feelings of vulnerability than they are necessarily confidence. Although we can look at the markets today and there are lots of places where overconfidence is playing out, but vulnerability becomes a really useful tool, particularly when people start to freak out because you can really begin to see what they’re doing as a reflection of the vulnerability that they’re feeling.

Meb:

There’s a lot going on in markets currently with sentiment and I don’t know if vulnerability is the emotion I would think of when I look today on some of the things going straight to the moon with Bitcoin and others. We’re recording this one day before leap year, the end of February. And by the way, I skipped over how do you two know each other or have you guys met in the real world? Is there a support group for people that don’t own Tesla?

Grant:

No, Peter and I met eight, nine years ago probably, I guess.

Peter:

Yeah, way back in your Real Vision days.

Grant:

That’s right. A long time ago. I think Steph Pomboy was a mutual acquaintance and we had a couple of others as well.

Peter:

Yeah, I discovered that Grant is the Kevin Bacon of this whole finance social media world. He knows everybody.

Grant:

Not Footloose Kevin Bacon. Sadly.

Meb:

Grant’s definitely got the most luxurious voice on podcasts.

Grant:

Listen, not while Jesse Felder still lives and breathes and walks among us. No way. I’m not having that.

Meb:

But I very distinctly remember a presentation you gave. The name of something was like The Land of Animation. No.

Grant:

World of Pure Imagination.

Meb:

Thank you. Let me see if we can find a show note link, but a great presenter as well. But the beauty of Grant is you get things like you read his newsletter, you learn things like this is the first time I’ve ever seen a reference to the act for the more easy recovery of debts in his Majesty’s plantations and colonies in America, British Parliament 1732. How do you even come across such a thing?

Grant:

I don’t know. I’m a voracious reader and I’m a curious guy and so I think whenever I’m trying to put one of these pieces together, I’ll start with an idea of what I’m going to write about, whether it’s Elon or whether it’s commercial real estate, or Japan, or whatever it is. I just started digging into what’s going on now and historical parallels are really helpful to people and Peter’s written about this as well. If we understand history, we can actually make sense and contextualize the present sometimes. So I often try to use that as a way to show people, look, this stuff has happened before. It’s not the same, but it’s happened before. There’s nothing new under the sun and this is how it kind of played out last time. Here’s how it’s different and it’s always different, but as we all know, the echoes are so similar every time.

And Peter’s work for me has been, to your point earlier, Meb has been absolutely invaluable and once you do listen to Peter and read Peter and look at the world through his lens, it does completely change. I think Peter and Ben Hunt, both of them, the four quadrant map that Peter’s got and Ben Hunt’s line about why am I reading this now? Those two simple things, if you embrace them and you take a beat when you read that all caps headline, if you just take a beat and you ask yourself those two questions, is this about confidence or vulnerability and why am I reading this now? I’ve felt that it’s improved my own process dramatically. Both of those things.

Meb:

Where do you guys want to jump in right now? I have about seven topics that I would like to talk about. I mean, we got Bitcoin ripping and roaring. We got Elon today talking about a car that can go zero to 60 in sub one second, and that’s the least interesting thing about the car, which might be the most interesting tweet I’ve seen all year. What’s burning on you all’s brains? Where do you want to dig in?

Peter:

You sowed the seed with Grant on Elon, so I think we need his take.

Grant:

I wrote a piece recently about Elon and I’ve covered Elon for a long time now, and again this probably comes back to, and Peter and I have talked about this at length over the years. People think I’m an Elon hater, but I just think there is so much wrapped up in his ascent and what I suspect will be his eventual demise because he encapsulates FOMO, and technology, and green, and hubris, and celebrity power. Every single little kind of facet of our age is wrapped up in some way shape and form with Elon. And as we’ve seen him become this moonshot in terms of his public visibility and the adoration he’s had from everybody and the way his style was in the ascendancy, it’s been really interesting to watch as that started to turn.

And it hinged I guess around Twitter and his pivot to the right, but you can now see that the bloom is off the rose for a lot of people who are again taking a step back and not just taking him at his word, and this was the thrust of my most recent piece about him and are starting to question. And when you start to question some of the things that Elon has said over the years, you start to get a very different perspective and that again plays into this idea that we just read the headlines, we’re too busy to read the article. Now we see the headlines, Elon Musk says sub one second Roadster. No one sits back and thinks, well, okay, let’s think for a second if that is actually possible in a road street legal car because as soon as you take that one second, you think there’s no way that’s going to be street legal. The same way some of the other things that he’s talked about, the specifications for the Tesla Semi, the mileage is impossible with the kind of weight of the battery pack it would take, for example.

I think Elon is worth focusing on because I think he is going to be the kind of tent peg in this circus that we’re watching wrap all around us and when the tent peg falls, the whole tent is going to come down. So I’m not fixated on him. I find him a fascinating case study. I don’t believe the hype, but more importantly to me, he is a beacon of the upward trajectory and I suspect when he peeks, a lot of things peek. And Peter, please jump in because I know that you and I have spoken about this and you’re far more erudite about it than I am.

Peter:

Yeah, I mean he is at the center of the Venn diagram of everything that’s cool in this cycle, as you said, add crypto and space and all of these things. And I think he is a master of illusion. When you talk about somebody who is extraordinary with a narrative of possibility and we fall all over ourselves for that when confidence is really high and embrace it and exaggerate it. You can see echoes of it in AI today, but to me there’s another element of this and this is going to rub people the wrong way and I say this not to move into politics, but throughout his existence he has been referred to as the Donald Trump of Silicon Valley in the same way that Trump was referred to as the Elon Musk of Washington. Those are other people’s words, not mine. But I think that those connections are so critical as we think about what’s ahead because culturally their careers mirror each other really well. And so I expect that the ebb and flow for both of them is likely to move in parallel.

Meb:

Peter, you talk a lot about using some tools for sentiment checks like Google search. You talk a lot about Nat gas, so I would love to hear a little bit about why you’re so fixated on this particular energy commodity, but also why and then how you kind of work in some of these sentiment checks and analytics that you use.

Peter:

Yeah, so 2021 meant to me was all about abstraction, futuristic, fanciful. It was this wild world of possibility and that to me is always an indicator of froth because that’s what we embrace. We get as far away from reality as we can. What we’ve started to see is a retreat. What distinguishes 2024 to me from 2021 is that in 2021, everybody was betting on unborn folds, the Lordstown Motors, these SPACs, these things that didn’t exist yet, but if you look at 2024, it’s all about the thoroughbreds. It’s the biggest, most proven horses in the stable, Microsoft, Apple, Google. And interestingly to me that’s a less confident investor than in 2021, even though the cap-weighted indices have gone to new highs and even within crypto, where’s the excitement? It’s in Bitcoin. It’s not in any of the (beep) coins that we were talking about endlessly in 2021.

Meb:

You had a great quote, “Peaks are a process in which confidence is tested over and over before investors ultimately concede that they were suffering from hopeful delusion.” Do you see any of that today? Because you wrote this piece on NVIDIA and Nat gas and I think NVIDIA and Nat gas have continued to go even further opposite.

Peter:

Yeah, it’s a pair trade from hell. If you were short NVIDIA and long on natural gas, you’d go out on a stretcher. But NVIDIA to me is all about abstraction, possibility that’s geared to the future. But look at the commodity space. Nobody wants the real stuff, corn, wheat, Nat gas. The only thing that’s exciting is cocoa, but that’s for all sorts of other reasons. I see in that trade the underlying aspects of investor sentiment, that nobody is worried about abundance in the real world at a time that they’re focused on extraordinary abstraction in this netherworld of AI. And I think there’s a reconciliation that looms.

Meb:

You both have kind of talked about and alluded to as we talk about this abstraction in the real world, a little bit of two different experiences people are having. So whether it’s Peter, you talk about doing Google searches for food banks near me, meaning there’s people despite all the boom and despite all that’s going on are having a big ramp up in food insecurity and costs of, Wendy’s was big in the news this week, but cost of food. And Grant, you’ve written about this too where you have these different experiences based on where you sit in the socioeconomic ladder, less about maybe class and more about how much money you have. How does that begin to change?

Peter:

I think we’ve had two very divergent experiences coming out of the Covid experience. Those at the top have been saved and then some. The market’s gone on to new highs. Those at the bottom continue to fall way behind. And I think when we start to talk about inflation, what we’re really talking about is vulnerability. It’s the psychology of inflation that matters, not the economics of it. It’s the stories, it’s the feelings. And so the fact that people feel as bad as they do about food prices, Paul Krugman’s writing about it, there’s a big Washington Post thing that Heather Long wrote today.

People are pissed and if you think they’re pissed in the US, imagine the concerns if you happen to have a collapsing currency, that all of these dollar denominated commodities are paying a real toll. I’m worried about Nigeria, I’m worried about Turkey, I’m worried about Argentina. It’s the places where inputs are denominated in somebody else’s money that I think we’ll see the compounding consequences of inflation hit first. Right now, America’s saved largely because energy prices at the pump have gone down. But if you start to see prices at the pump go up, it’ll move beyond (beep) and moaning.

Grant:

One of the cycles that we see just not just in markets but in society is trust. And this kind of cycle of trust is so fundamental to functioning society, functioning markets, functioning politics, and it’s all based on trust and knowing more so than money, and I’m sure we’ll get into that at some point in this conversation. But this cycle of trust, you can see it everywhere, that the trust that people have placed has been broken everywhere you look, whether it’s in inflation. And the trust component of this inflation scare is that you’ve been telling me for years that inflation was only 2% and suddenly I don’t believe you anymore because you’re still telling me it’s three, but I know it’s 10 in my world or 20 if I look at my health insurance or my school fees.

And so that trust is now gone. The Trump years caused a rip in the trust. The Biden years have widened it further, but this plays out over and over again over time. And unfortunately for that trust to be rebuilt, A, it takes an awfully long time and B, it generally takes the complete breakdown of trust and Neil Howe has written at length about this in his terrific book, The Fourth Turning Is Here. And so these are just things that happened. In the 90s, you were perfectly free to trust because everything was great. We had balanced budgets, if you remember what those were, Google them if you’re too young to remember. We had markets that were going up, we had a low debt. There were plenty of reasons to trust that everything was good. Post 2000, the trust moved more away from reality and trust was placed in people, regulators, politicians, the Elons of the world. People place their trust in them and we’re now starting to see that that trust has also been misplaced.

So I think it’s important to understand the nature of trust and what it does to a functioning society and functioning markets and what happens when it starts to fray. And I think we’re seeing that now and I think Bitcoin is a great representation of that loss of trust as is the gold price, as is the Central Bank purchasing of gold, that’s all about trust in America, not to weaponize the dollar. So everywhere you look, you are seeing signs that trust is breaking down and that’s a real problem for markets. But more importantly, I think for the kind of societies that we’ve all learned to live in over the last 30, 40, 50 years.

Meb:

One of the things though, as we think about trust, you have this weird situation where gold is near all-time highs, in all-time highs in some currencies, ditto for Bitcoin, but at the same time the US dollar is kind of hanging in there. Now to us on most of the quantitative measures, it looks overvalued by quite a bit versus certain currencies like Japan in particular was just over there on a purchasing power parity basis, but it’s been hanging in there. What do you guys think about that? Grant, I know you’ve talked at length about gold in particular and also Bitcoin. Are those things to think about in this environment to be bullish? In general, what’s your perspective?

Grant:

It’s interesting you use the term bullish. That adjective to me is wholly dependent upon the problem we’re trying to solve or whether you’re speculating on these things. Bullish is such a speculative term to me. Let’s start with gold first because we’ve all seen the Central Bank buying numbers, and that goes back to what the Treasury did in terms of freezing the Russian Central Bank assets when they invaded Ukraine. And they basically said to every Central Bank in the world, if you hold your reserves in dollars, this could happen to you. And whether your friend or foe right now, you need to have a plan as to what might happen if we cross a line or we don’t sign up to an invasion or we refuse to sanction somebody, we need a plan B. And that plan B needs to be a neutral reserve asset and gold offers that.

So on this one hand, it is the solution to a problem of how to hold your reserves. And I think for a lot of people, me included in terms of personal finances, that’s what gold provides. It provides a means of storing your wealth in a way that is protected from confiscation by debasement, and the price will do what the price will do. And over time it should allow you to purchase the same amount of stuff as you can now. And that’s really a good way to store your wealth. This was one of the narratives around Bitcoin, and it’s funny. I had a long conversation about Bitcoin recently, and I don’t do that because it’s just not my thing. And apologies to any Bitcoin people. I don’t hate you, I wish you all the luck in the world. It’s just not my thing.

But I posted a chart and in the conversation I talked about gold at length with Natalie, and if you listen to the conversation, what I said was that there’s this chart that shows from 2001, which is when I started buying gold because of what the response to 2000 was. It was clear that the debasement of the currency was going to be the solution to problems going forwards. So going back there, and here’s why I chose this period of time, and I understand that people can accuse me of cherry-picking the period of time. This is my own personal window, but if you go back to 2000, 2001, gold has outperformed the S&P on a total return basis by 50%, 600% to 400% give or take. And it was just fascinating to me to see that chart get posted in isolation without the context of the conversation.

And of course everybody piles in. You’re cherry-picking here, you’re picking the note. I went to great lengths to say here’s why I’m choosing this window, and you could absolutely accuse me of that, but here’s the reasoning behind it. And I think we’re in this place now where Bitcoin offers tremendous speculative returns. The store of value argument for the time being is kind of coming back, but it’s not really a store of value if it can go from 64 to 13 to 64 again. That’s not a store of value, but we’re starting to see the FOMO froth up again.

And so this idea of protecting your purchasing power through Bitcoin has been left in the dust and it’s now a number going up again, which is interesting because again, Peter, I’d love to hear your thoughts on this. It feels like, again, that feels peaky to me, that that’s the reason again, it feels peaky. It’s a long-winded, roundabout rambling. Frankly, I’m not even sure if it answers your question, but I just think it’s important for people to think about if they’re interested in gold or Bitcoin, what do you want from it? If you want price appreciation, then right now all the risks it entails, Bitcoin is probably going to perform much better if you are a pure speculator. If you’re looking to store value and retain purchasing power, I would argue in my experience, gold is a much less risky way to do that.

Peter:

We’ve ETF’ed Bitcoin, which now makes it even easier to speculate in it. You have new chips to play with at the casino, which you’re seeing now. It’s again that retail enthusiasm hitting, which it inevitably does near peaks and sentiment. I mean, and it’s again, it’s abstract. It’s all about possibility. To me, it’s the perfect currency complement to AI. In the work that I do, I don’t take fundamental views. I’m agnostic to everything, much to the frustration of many of the people around me.

Meb:

It feels like such a much more pleasurable way to go about life than what we do.

Peter:

I wonder, particularly with the dollar, if I look at the clear correlations that exist between stocks and bonds today, they both peaked in terms of sentiment within moments of each other. Trillions of negative yielding bonds at the same time you had that euphoria in 2021. I just think of the dollar as being the tail that goes with that very large two-headed dog because stocks and bonds feel like conjoined twins to me at the moment. They’re moving as one and from a diversification standpoint, that’s a terrifying thought, but at the same time, it leaves the dollar as playing this offsetting part to what they’re doing.

Meb:

As someone who thinks about sentiment Peter and kind of ways about that, what are you thinking about today? This doesn’t have to be about bonds. You mentioned NVIDIA, Nat gas, what else is on your brain? What else have you been writing about recently that you think is particularly of note?

Peter:

The world of luxury broadly. There’s a huge Venn diagram of luxury, celebrity, sports that I think is all one trade when it comes to mood. And what fascinates me about luxury is the reflexivity of it. The buyers of the stock are the buyers of the product. It’s this very incestuous financial turducken of owners and clients. And I think it’s a wonderful proxy, LVMH of how those at the very top feel. And we’ve created this, to borrow Nelson Schwartz’s term, this velvet rope economy that feels just completely uncoupled from the reality of the world around it. And I struggle to see its future given just how conjoined the mood is between owners of sports, owners of money management, owners of luxury and what happens to that in a time when reality sets in and nobody can afford Taylor Swift tickets at $2,500 a pop or Super Bowl tickets. It’s lost its connection to the mainstream.

Meb:

What do you think the kind of in-game situation and trend is?

Peter:

I think the overcapacity, I mean, the over-serving. If you go into New York City and you look at the amount of real estate dedicated to luxury, if you look at just the debt levels, I mean, it’s stunning to me. If you go back to the bottom of the financial crisis, J.P. Morgan had about three times the private banking loans in credit cards. So it was like a three-to-one ratio. Today, J.P. Morgan, I think now has more private banking loans outstanding than it does credit card debt. Those at the top, to me, have been over-served in everything. And I don’t think people are focused on the debt element that has fueled that.

Grant:

I think Peter, when you talk about luxury, luxury was always about scarcity and luxury has become anything but scarcity. Well, everyone feels entitled to their Balenciaga handbag, et cetera, et cetera. And I think if you go back to the, I guess it would be the late 90s, early 2000s, and the story of Burberry is really illustrative of this. Burberry was a very exclusive brand in the UK, had that distinctive brown tartan check stuff, and it suddenly became kind of affordable luxury. People couldn’t afford the raincoats because they were too expensive, but they would buy anything with a little brown tartan pattern on it. And Burberry decided to retool and make Burberry luxury available to as many people as possible. And they pumped out a whole bunch of stuff and suddenly everybody was wearing Burberry. And there’s a famous photograph of a girl who was an actress in a British soap, kind of a Days of Their Lives type soap, pushing her Burberry pram with a Burberry baseball cap and a Burberry raincoat and Burberry leggings and a baby wearing a Burberry outfit.

And that was it. Gone. Just poof. And everything about that luxury brand jumped the shark and it had become a laughing stock and it became a sign of naffness, as we call it in the UK. It’s not a luxury anymore. “Oh, my God, you’re wearing Burberry. Oh, God.” And so it’s fascinating to watch Peter, what you talk about, this idea that luxury is deserved by everybody and we all deserve luxury. And when you start to see signs of that tipping of everybody buying the Tiffany blue box stuff, right, when you start seeing that become every day, it’s no longer scarce. It’s no longer luxurious.

Something I’ve been looking at really closely with this in the UK particularly just because I noticed it when I was growing up, there are luxury cars. When I was growing up in the UK, if you saw a Mercedes drive past, it was like, oh, Mercedes. Wow, look at that. The same way today it’s Lamborghini’s, it was Mercedes back then. You go back to the UK now and every second car is an Audi, BMW, Mercedes. And if you look at what’s happened to auto financing rates and then you do a bit of digging, you’ll see that the percentage of new automobiles financed in the UK fluctuates between the mid 80% and the low 90%. And so this idea that I’m going to drive a luxury car because I can afford the monthly payments, and I’m just using the UK as an example because it was so noticeable to me there. It’s the same in the US, and can be the same everywhere.

Meb:

Same in the US. It’s just the big trucks.

Grant:

Yeah, yeah, exactly right. And at some point, the sales of BMW and Mercedes and Audi are going to, I suspect, do what Burberry did and people are not going to be able to afford a BMW anymore. They’re not going to afford a new car every three years because the payments don’t work out. And so this idea that Peter talks about, about luxury, is why it’s so important to pay attention to these little things that Peter is so great at noticing because they are absolutely canaries in the coal mine.

Peter:

I mean, the fact that the head of LVMH was the wealthiest man in the world recently, that’s a sign you just can’t ignore.

Grant:

Right. The 1%. By definition, he’s catering to the 1%, right? How do you get to be that rich?

Peter:

Yeah.

Meb:

Speaking of the UK Grant, what’s the boots on the ground review? This has been an equity market for as long as time, has kind of been neck and neck with the US. There’s been quite a divergence in the force over the past cycle. I remember visiting during Brexit and everyone seemed very dour even in the pubs. But recently our good quant buddy Robert Knott was saying UK stocks might be the trade of the decade. So saying there’s some opportunity there, some shoots perhaps. Any general thoughts on what’s going on on the other side of the pond?

Grant:

I don’t follow it too closely, so I won’t talk about anything specific because I don’t have the knowledge to back it up. But from a boots on the ground perspective, the UK has gone through an awful lot of political and social upheaval. Brexit was a perfect example, and when you went to the UK and everybody was so dour, I suspect you were in London the entire time. And it’s funny because the feeling if you go to certain parts of the UK is anything but that. People are just delighted to have their country back again. So again, this idea that Brexit was a dumb idea, that’s to be debated and time will tell whether that’s the case or not. And we had a little period of time where the people who voted for it were gloating because the UK was doing better. We’ve had a period of time where the UK is not doing so well and the people saying we should never leave the EU, but that’s going to carry on and Europe is in flux as well.

So we’re going to have to wait and see to get the full scorecard on that. There are some phenomenal companies in the UK. No doubt about it. And as you said, it’s an equity market that’s been there forever. So given the fact that it has fallen so far behind, there is definitely opportunity in the UK. But I think the important thing to understand here is this comes back to another trend that I’ve been looking at, and again Peter, I’d love your thoughts on this. The idea of having to do less to be more successful, i.e, we talked about the Bitcoin ETF. It would be easy from this part of our conversation to be able to say, oh, the UK’s cheap. I’m going to buy the UK. And that is kind of where we’ve come to. We buy these abstract ideas. We buy countries. We used to buy companies, we used to buy a share in a business and now we buy stocks.

And the difference in mindset for that is extraordinary because if you’re buying a stock, you just own a number and you’re buying it because it’s going to go up. You haven’t done the work to understand the business. You haven’t gone into it feeling like an owner of a series of cash flows, which is what this used to be all about. And it changes your mindset. You’re not a long-term holder. We’ve seen that the average holding time data, we’ve all seen that and how that’s created in the last 20 years. Again, this is a real change in mindset that I suspect is going to start to go back the other way. I.e, if you do want to make money in UK stocks, you will be able to make some terrific money in UK stocks. But the trade-off is you’re going to have to go back to work again.

You’re going to have to sit there and start to find individual companies instead of buying the UK ETF if you want to outperform. And I think that’s a great thing, to be honest with you. I think it will bring back the talents of these extraordinary managers who’ve been marginalized by ETFs and the Vanguards or the BlackRocks of the world, and the idea that you make money by working hard. I mean, what a great idea that is. Right. What a great idea. And again, to Peter’s point about luxury, it’s the antithesis of that. It’s not that we deserve to make money in the stock market, it’s that we’re going to have to work to earn money in the stock market. And that to me is where this will always go back to over time when the froth and the entitlement dissipates.

Peter:

I’m going to dogpile this because if you invest in a UK ETF and you look at what makes it up, you’re not betting on the UK. You’re betting on companies that happen to be headquartered in the UK, but it’s not a UK bet. The same way the France ETFs. I mean, to me that’s in essence a luxury ETF in drag.

Grant:

Very high couture drag though, Peter.

Peter:

Yes. High couture drag. Yes.

Meb:

An area that I think is interesting with cash flows, I think it’ll be interesting to hear both of you guys talk about this because in my mind you’re starting to see both a shift in the underlying attractiveness of the businesses, and see if you can guess what I’m talking about, a shift in the governance of this country on how the CEOs approach their companies and stock. You’re interesting enough to me to see cultural relevance again. I mean just last night I watched Shogun, which has a 100% rating on Rotten Tomatoes. You have the new Godzilla movie, which was like 97% on Rotten Tomatoes, but I haven’t seen that one yet in Japanese. Tokyo Vice is coming out. All of these relevant Japanese cultural all of a sudden start to emerge again when this stock market has been nothing but a burger for 30 years. Grant, I know you’ve written about this. Peter, I’d be curious to hear your thoughts on Japan as a market that’s coming back to relevance quite a bit lately.

Grant:

I started my career in Japan, so I’m biased and nostalgic about Japan because as I say it was where I began my career a long, long time ago.

Meb:

Did you catch any of the euphoric 80s or were you after the fact?

Grant:

No, no, no. I started my career in the mid 1980s.

Meb:

Good. So you got the fun part too, not just the after.

Grant:

I had all the fun. I got all the fun I could handle for 20 odd years. Let me tell you, it was wild. And I was living in Tokyo at the very peak and working out there, so I saw it up close. And it’s funny because you say it’s been nothing burger for all this time and you’re absolutely right except it’s very quietly finally surpassed its 1989 peak. And you’re right, I hadn’t thought about this, but I just downloaded Shogun. I haven’t watched it yet. So you have to tell them if it’s worth doing because I read the reviews too, but I hadn’t thought about the place of Japan in popular culture again. But you’re absolutely right. I now see that. But the change in Japan has been very real in terms of what they’ve done over this period when no one’s really been looking at the country.

Corporate governance has improved dramatically. Balance sheets are in tremendous shape. That companies have had to get lean to survive and they have been largely ignored. And it’s been a place where the story has been all about the Bank of Japan and the JGB markets and the Yen. Have really paid attention in Japan and there’s been this kind of quiet revolution in the stock market and again, coming back to researching companies as opposed to buying stocks. There are so many companies in Japan now that are trading at book value or below or trading on single-digit PEs. I mean, if you are a stock picker, Japan is a great place to go. Now this has been true for the last couple of years. Now it’s passed all time highs and it’s sucking all this attention in. You’re going to see a lot of kind of late money coming in.

So I would caution anyone piling in right now, but it is a place where you can actually go and practice the art of investing. I mean, who would’ve thought? You can go and you can screen companies, you can find businesses that are world-class businesses that are cheap. I mean, not just cheap in price but cheap in valuation. And that’s a really good thing. Warren Buffett went to Japan a couple of years ago and bought all the big five trading companies. He’s done tremendously well with those.

A lot of other investors have been kind of nibbling away at Japan in the last couple of years. And I’ve had some terrific conversations with people in recent years because I realized that I’d been writing about Japan a lot. It wasn’t something that I even noticed I was paying much more attention to. But when I realized, wow, I’ve written about Japan a lot in the last couple of years, that’s telling me something. And so you start digging in further and it is, it’s a really interesting place for people to go. But again, I would caution buying the WisdomTree. Japan Hedge ETF is probably not the smart thing to do. It’s to do some work and find those terrific companies.

Peter:

Yeah. And if I can just add, we got Mark Zuckerberg making swords over there. So your point about it falling into the culture is absolutely right. What I think is interesting is the renewed respect for Toyota, this notion that the tortoise versus the hare. People are really appreciating this sense of certainty and control, to use my favorite two words, that Toyota is bringing discipline. In different conditions, it would be thought of as plotting, and late, and slow, but I think it speaks to how the bloom is off the rose in the EV space and their prudence is now being rewarded and recognized and praised versus the, “Hey, look over there. I’ve got a new thing in the EV space.”

Meb:

I think the fun part of this show when we have two people is you guys get to ask each other a question.

Grant:

I’ve always got questions for Peter. How do you get sick of them?

Meb:

Yeah. As you sit down for a brew or coffee, what would you ask the other guy right now? Say, I got something for you, or just, it could be a topic in general, but what do you guys want to talk about?

Peter:

I’ve got one for Grant because you’re such a good interviewer. The question is today, who’s the person that you’d love to have seated on the couch across from you that you could pepper with questions?

Grant:

Oh boy, how do I narrow that down? There’s so many Peter. There are so many people I would love to sit and talk with. One of them would be my friend Tony Deden again. Every time I spend time talking to him, I come away with so much wisdom and so much more to think about. And so I never turn down a chance.

Meb:

Can you tell the audience who that is?

Grant:

Well, no one will know who Tony is because that’s how Tony wants it. He has an investment practice. I’ll choose my words carefully as he does because he deserves that. He has an investment practice based in Zurich. Well, he’s based in Zurich and the companies headquartered in Jersey I believe. And Tony is a very private man. He’ll hate me talking about him, but I’m going to because he deserves all the plaudits. And about six years ago now, I’ve convinced him to do an interview with me for Real Vision in January of 2018. And we sat down, we spent a number of hours sitting and talking, and we ended up with a two and a half hour interview, which was groundbreaking at the time as we weren’t putting anything out for more than an hour at most.

And we put this video out in full. I had a big fight to release it in full because everyone said, this is too long. No one’s going to watch for two and a half hours. I won that fight and we put it out at its full length and the response was just tremendous. And it’s still up on YouTube and if anybody listening to this hasn’t seen it, just Google my name and Tony Deden, D-E-D-E-N. It’s up there. I think it’s had two and a half million views now. But the extraordinary thing, and this really is the extraordinary thing about this conversation, you guys both know what a cesspit the comment section of a YouTube video is. It’s no more than four or five comments in before it’s turned into either a white supremacy march or a slanging match against pronouns. Who knows these days? It’s just crazy. But you could scroll for a week in the comments of that conversation and not find a negative comment about what people listen to.

And that’s the beauty about talking to thoughtful people. Tony’s always one of the people at the top of my list, but I have to say after listening to Bill Ackman, I’m really curious to spend some time talking to Bill because I’ve listened to him talk about stocks before, but never have I seen him given a platform that was so broad and allowed him to really dig in. And I think that’s really the key, Peter, is to give people time and space to talk about whatever it is they want to talk about. This is what I do. If you give people time and space, talk about what’s important to them versus what you want to ask them, you will often find some extraordinary things buried in there.

Meb:

Now you have to turn the mic around.

Grant:

I’ve got two for you, Peter, because it’s just my nature I’m afraid. And let me ask you both so I don’t forget the other one when I get engrossed in your answer. The first one is about Trump and Biden, and that is what the fact that we have two 80 octogenarian candidates for president, what does it tell us about the cycle of trust and confidence and all that kind of stuff? And the second thing coming back to your point in Toyota, which I wanted to ask you as you were talking about it is Toyota has very quietly just got on with its business, while all the attention has been on Elon and all the brick pats have come at them for being yesterday’s news and yesterday’s media. They’ve just carried on being a car company, having auto sales margins and doing all the things that car companies do. So what does their kind of resurgence in the court of public opinion mean for excessive valuations for things like Tesla?

Peter:

So to your first question, I think the fact that we have two octogenarians speaks to dramatic change ahead, that there is a generational shift that is about to happen across leadership. And I think that’s one of the things that people overlook when we go back and look at the 60s and the early 70s, which is where, and certainly in Biden’s case, his career was born. And he was the young buck to a group of octogenarians at that point. So I think that this is indicative of dramatic social change where the baton is going to be passed, or taken, or blown up. But there’s a cycle change here. I would also put out that I’m not convinced that one, maybe both of them will not be on the ballot come November.

Pay attention to how we think about age. It wouldn’t take much in terms of a tipping point to push people to a collective belief that old is feeble, unstable. When confidence is high, old is well-worn, battle tested. We have a whole different series of adjectives that we use to describe the elders. When confidence is low, they’re old and feeble and that’s both of their risks. And then the question is, who fills the vacuums? And I’ll give that to others to decide.

On the Toyota front, I think this is a really significant change in viewpoint and could have lasting implications. To me, it’s a similar thing that we’re seeing in AI where there is a preference for bigger, more established enterprises because we see them as having greater capability. The threat is that they don’t. That they are as prone to wildness and excesses as the startups that surround them. But I think that as it relates to Tesla, this is a real changing environment and we see that so often where the incumbent comes in, overplayed their hand and the quiet older organization ends up gaining big benefit. And I think we forget that the greatest traction is made, not at the highs, but in the lows. That’s when field advantage moves dramatically. It’s who picks up the pieces.

Meb:

Peter, you mentioned somewhere one of the better election indicators is how the broad economy and the perspective of people coming into the election, and we talk about the stock market too, it’s like the three to six months coming into the election tends to have a pretty outsized impact. At what point does the incumbent party start to need to start pumping this thing up? Is it like June? What sort of lag time do we need to get everyone feeling warm and cozy?

Peter:

I think the Biden administration overplayed their hand early with the announcement of Bidenomics. You only say that, you only draw people to your connection to the economy when you think the economy is humming. And that to me was one of the early warning signs of economic trouble ahead is when you hug it intensely as president. And so I think they’re going to struggle and I think that with energy prices at the pump being probably the best real-time sentiment indicator for Main Street, if you start to see gas prices move up, the incumbents have a big problem on his hands.

Meb:

All right, you’re in a group with your professional peers, so the three of us are down in Cayman having a rum drink, or a coffee, a meal, and we’re with about 10 other money managers or just pros in our kind of sphere. What’s a belief you hold that if you said this out loud, most of the table is going to shake their head at you guys and be like, I don’t agree with you whatsoever?

Peter:

Your opinion doesn’t matter, your view doesn’t matter. Ultimately, your price is a function of what the crowd believes, wants, hates, loves. And rather than focusing all of your tension on what you think is right, spend much more of your attention on what do they want, what is the group around you choosing to be excited about and to run away from? Because ultimately my belief, Meb, is that’s what’s going to make you successful or bite you in the butt at the end of the day, is what the crowd decides to do.

Meb:

All right, Grant what you got?

Grant:

Yeah, A week ago, my outlying opinion would’ve been that Fulham were going to beat Manchester United at Old Trafford. No one would’ve believed me then, but they sure have to believe me now. And this is something I’ve talked about periodically over the years, but I sense a real point in time here where these things are so unloved and they’ve disappointed so many people for so long that I just get laughed out of the table and that’s always a really good sign and that is gold miners. I think gold mining equities have become, I mean they’re so beaten down. They are such a tiny part of the investment spectrum and if you bring them up, people will laugh at you. But we’ve seen some pretty serious and pretty sophisticated and pretty experienced investors start dipping their toes into the gold mining space in recent weeks and months. And whilst they will break your heart again, they are approaching a point, I think where you can buy gold mining stocks with money you can afford to lose with your eyes closed and just put them away somewhere.

Because if we do end up with the kind of problems that we’ve been setting ourselves up for a long time in both the financial system and with the kind of finances of the US and other Western democracies, gold is going to play a role again in the leverage in the mining companies, particularly from where they’re going to start. That particular cycle is just crazy. There’s no fever like gold fever as they say. And like I said, while they will still break your heart between now and then, I suspect if you’re smart about it and you pick the right ones, whilst I would get laughed away from that table, I think I may get a couple of phone calls later from people who away from the crowd might say, “Let’s have a chat about this.”

Meb:

Peter, as we look out the horizon, so 2024, anything in particular you’re writing about? Anything in particular your students or just people, followers in general are confused, excited about, what’s keeping you up at night? What’s on your brain as we look out to the horizon?

Peter:

I’m really focused on the real world and what’s happening to real people, real goods in real time. I think that there is an enormous disconnect between what people are paying attention to in the investment space and what’s happening in the world around them. I think far too much attention is being paid left versus right rather than up and down. And I think that the opportunity to coalesce across party lines is staggering if you reconfigure this as an up versus down issue, not a left versus right issue.

Meb:

Grant, give us a preview of the next issue. What are you working on? The next 50-pager? Any candidate so far?

Grant:

I think I’m going to be writing about private credit. I think this is something that I’ve been kind of looking at for a while now and it’s just interesting. I looked at commercial real estate a couple of months ago and it’s been fascinating to watch that situation accelerate. Now coming back to your point about the bonds, Meb, we talk about trust and trying to wrap the bond market into what Peter does. And it’s pretty clear that the reason that people weren’t panicking out of those bonds was because we all knew that the narrative was it doesn’t matter if their money is good or we won’t have to market them to the market. So you don’t have to panic.

And this is of course the narrative around private credit. This is the feature, not the bug, is that you don’t have to mark these things to market. You can rely on the marks and of course that works really, really well in a bubbly, confident market. But once the confidence goes and people start to feel vulnerable, suddenly the questions are all around, well, are the marks any good? And that 75 mark is actually the midpoint of the 58, 82 market price. So I think I’m interested to dig into private credit for the next couple of weeks and look at that because I think it’s a real confidence sentiment indicator.

Meb:

One more question, gents. One of my favorite questions we ask people, what’s been their most memorable investment? So it doesn’t have to be good, it’s just the one that’s seared into your brain. Who’s got an idea what they want to talk about first?

Peter:

So I’ll embarrass myself. My most memorable is a loss. It’s short financials in March of 09, and if I attribute what I do today to anything, it’s trying to understand how everybody thought the end of the world was coming, including me, markets can go up and we learn more from our losses than our gains. I’m proof of that. No question.

Meb:

The funny thing is, that concept is even for a quantitative investor and trend follower like myself, when you’re in a position and it’s working, so you’re long in video right now, your short things when they’re going down, you don’t really want the party to end. Things are going in your favor. And I remember one of the challenges so many people in the world of trend falling, for example, that try to transition from discretionary to rules-based and have a really hard time with it, they get signals.

I mean, I remember originally like REITs, it would’ve been in 2007 because REITs was one of the early ones that started to roll over. And I remember thinking, I was like, “Man, it doesn’t seem to time yet. It seems like we got plenty of time for this to happen. Maybe I’ll just wait a month. Maybe I will wait for the next signal.” These thoughts and doubts that come into your head and the same thing on the opposite side. Even when you start to see some of the signals and changes, you’re like, “Well, it doesn’t seem like it could finish.” The turning point when you have a winning position is always tough. So hopefully you were short then for a while, then got face ripped. Hopefully you didn’t just put on the short in March.

Peter:

It was good for a long time.

Grant:

And then it was very bad.

Peter:

And then it was very bad.

Grant:

Very bad. What you just said, Meb, that’s what Peter talks about in a nutshell. That’s the book, right Peter? You’re confident and you’ve got no confidence and that’s why you ignore the signals in each direction. It’s crazy. We all do it every time.

Meb:

That was like a hard right box. The bottom left is just like a straight teleportation.

Grant:

Every time. I think for me again, it’s pretty easy and that would be my investment in Real Vision when we started that. I’ve just learned so much over the course of that journey for those four or five years I did that. I got to meet so many cool people and just learned an incredible amount. It was just like, I hate using the drinking from a fire hose and analogy, but it’s perfectly apropos in this case. So for me, in terms of investing in my own education and my own improvement, what I do and how I understand the world around me, nothing even comes close to that for me.

Meb:

Whatever you do, listeners, go subscribe. And if you do, whatever you do, do not look up the interview with me because on Real Vision, I had been jogging in the Caymans before I did the interview and for the life of me could not cool down and sweated like you’ve never seen anyone sweat. I mean, talking about emerging markets is not something that usually makes me sweat, but it’s kind of a foul video. So if you listen to it, cut off the video, listen,-

Grant:

Now hey, nothing says, trust me like a guy talking about finance who’s sweating profusely.

Meb:

Gentlemen, man, I’m going to take a breath. I didn’t even get to my notes. Where do we find out, keep up with what you guys are doing, best places? Grant, you first.

Grant:

Easy. Grant-williams.com. And on Twitter @TTMYGH, which is the acronym for Things That Make You Go Hmmm.

Peter:

Peter Atwater at PeterAtwater.com. And they can find me at @peter_atwater on Twitter.

Meb:

Gentlemen, it’s been a whirlwind. It’s been a blast catching up with you guys. Thanks so much for joining us today.

Peter:

Thank you.

Grant:

Meb, thank you. Really enjoyed it. Peter, great to see you bud.



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Arafura [ASX:ARU] Shares Explode After Govt Backs NT Project – Fat Tail Daily

Rare earth hopeful Arafura shares jumped an incredible +76% in trading, what spurred the jump?

Arafura has seen its shares jump by over 70% in trading this afternoon as the government announces $840 million in aid for its Nolans Project.

Australia’s critical minerals sector has received a major boost as the Albanese government announced an $840 million financing package for Arafura Rare Earths [ASX:ARU] to develop its rare earths mine and refinery project in NT.

The Nolans project, located 125km north of Alice Springs, aims to produce crucial rare earth elements like neodymium and praseodymium used in electric vehicles, wind turbines, and defence applications.

Once developed, Arafura claims the Nolans Project will supply around 4% of the world’s demand for these high-tech minerals.

After the announcement today, the company’s share price jumped over 76% to trade at 26.5 cents per share. The move reversed the company’s considerable downtrend since peaking at 62.5 cents back in February 2023.

Is today’s move the beginning of a bull run, or are investors getting ahead of their skis?  

Source: TradingView

Strategic Resources

The decision from the government will mean a good day for billionaire Gina Rhinehart, who has a 10% stake in Arafura.

The decision comes just a day after the federal government announced another $230 million loan commitment from taxpayers and $320 million from others for another Rinehart-backed player, lithium developer Liontown Resources [ASX:LTR].

The Arafura funding comprises $495 million in loans from the Critical Minerals Facility, $200 million from the revamped Northern Australia Infrastructure Facility, up to $115 million in export financing, and around $30 million in grants.

This financing effectively increases the federal government’s exposure to rare earths mining and processing by over 50% to well above $2 billion.

Federal Resources Minister Madeleine King said the investment in the project was to ensure Australia could capitalise on its vast deposits of rare minerals.

The main consideration is that we compete on the world stage with our natural resources … principally this is about competition,’ she told ABC Radio National on Thursday morning.

For too long, we have sent some of our raw minerals out to be processed in a competitor nation, but now we believe we should do more of that here.’

With an estimated cost of $1.68 billion to fully develop the mine, Arafura hopes to leverage strategic partnerships like the one with South Korea’s export credit agency KEXIM, which has indicated a willingness to lend a further $226 million.

Trade Minister Don Farrell said the government will encourage more international investment in Australia’s critical minerals opportunities while building partnerships with major economies to diversify global supply chains.

The funding comes at a crucial time for the company as it’s seen its share price slide as the price of critical minerals has struggled with weaker demand and ramping up supply from China.

This month, prices for neodymium and praseodymium fell to a three-year low at US$50 per kg. The benchmark price for NdPr in China was US$139.3 per kg in early 2022.

Despite the critical minerals sector facing headwinds from falling global prices, the government funding aims to bolster domestic supply chains and reduce dependence on China, which currently produces over 80% of the world’s rare earth oxides.

Outlook for Arafura

This is not the first time Arafura has seen extreme moves in its share price. For investors who’ve been in the stock for some time, the volatility will likely be a welcome change from the falling doldrums.

However, new investors should be wary of jumping in too early. With such a solid single-day jump, some of that price movement will likely come back down to earth in the coming weeks.

In the medium term, the hefty price tag on the development of the Nolan Project and progress in its early roll-out stages will be crucial to pick its next stock movements.

The announcement is also a boon for the Northern Territory, with the project expected to create over 300 jobs, including 200 in construction. Arafura targets securing full funding by March and aims for first production around December 2026.

Arafura remains a speculative play, as the technical challenges involved in mining and refining these minerals should not be understated.

Longer-term rare-earth prices could recover as the demand for goods such as advanced magnets, wind turbine parts and specialised alloys is projected to grow in the coming years.

However, the clear party to watch is China, whose stranglehold on rare-earths oxides makes the future of this company an exciting story to watch.

Another Commodity Breakout

Something BIG is happening in the gold market right now.

If you haven’t followed along, it’s probably because not many major news organisations are discussing it.

We are hosting a special event premiering today where you can figure out what is changing in the market.

And importantly, how you could benefit from it.

From 2015 to 2022, this insider’s private family office fund beat the Australian gold stock index for seven years running.

And when gold last broke out between 2019 and 2022, his fund beat the index by more than seven times over.

So when he is making new gold predictions, then it’s worth listening to his latest ideas.

There are three key signals that give me great cause for optimism right now,’ this insider says.

The alignment of these signals could be the perfect storm for the gold sector this year…’

And the biggest beneficiaries of this new bull market won’t be those holding physical bullion or coins. Instead, it will be the Australian companies who dig gold out of the ground. And more importantly, the investors who own these companies’ shares.’

Our event is called ‘GOLD FEVER 2024’.

Click here to secure a spot and join our event that opens today.

Regards,

Charlie Ormond

For Fat Tail Daily

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Sapphire Strat Maker – Insights on strategies optimization and efficiency (part. IV)

1. Introduction

This is the continuation on Sapphire Strat Maker and Sapphire Strat Maker Alt (Free) expert advisor – an EA which allows you to create your own strategy without coding. This is the beauty of this Expert Advisor: create your own strategies – be creative – and don’t be locked to a single strategy anymore. Optimize the parameters you want to find the best sets and you’re ready to go!

Before continuing, check out the other blog posts:

2. Insights when/after optimizing your strategy

From my experience, optimizing a strategy is not as easy as it looks like. You could just set a big range for the parameters being optimized, wait for the optimization to finish and choose for the best profitable one. This may not be the best choice for the user, though. Finding the best parameters can actually be quite dangerous due to overfitting. In portuguese there’s a saying that literally could be translated to something like this: “the perfect is the enemy of the optimal; the optimal is the enemy of good”. This means that you can even find the perfect parameters, but it may be so overfitted to the backtested period that it just ends up losing way more than winning.

But what is overfitting? Overfitting means that you optimized your strategy so much that it only works well for that specific period of time and can not generalize when new data comes.

Avoiding overfitting is quite a really hard task, but there’re a few simple things we can do to reduce its effects. Let’s see a few of them – as I said, simple stuff can reduce your risks of overfitting – and other ideias on how your strategy can be pushed to its maximum efficiency.

This is an non-exhausting list on this topic. More blog posts about this may come.

2.1. Forward tests

Metatrader 5 offers excepcional functions for Expert Advisors; forward tests being one of them.

Forward tests reduce the chance of overfitting by doing blind tests with parameters found on a previous test on a certain period forward in time (thus the name). But to get maximum efficiency from forward tests, you need to define a good period in time – remember, market conditions change with market cycles, so the market today is not the same as the market from 10 years ago, nor are the players.

I defined my own rules from my tests, you can define your own. But my backtesting period is basically defined like this:

Timeframe Period
M1 to M10 1 year backtest + 1 year forward test (total = 2 years)
M12 to M20 1,5 year backtest + 1,5 year forward test (total = 3 years)
M30 to H2 2 year backtest + 2 year forward test (total = 4 years)
H4 to D1 2,5 years backtest + 2,5 years forward test (or more) (total = 5 years or more)

With this we can define reasonable periods with a good amount of data, not too few, not too much. Of course you can adapt it with your experience aswell.

Another idea is using a second forward test. MT5 doesn’t provide this, but you can manually do it. I don’t do it usually, but if you want to feel safer, it’s a good idea – just note that it may be harder to find a working strategy due to changing market conditions over the years.

2.2. Range of optimized parameters

Price movement tends to a certain logic. The challenge is to identify this logic when it is happening, considering it may change due to market conditions. A certain instrument in a specific timeframe may respect a certain moving average as support/resistance, while the same instrument on another timeframe may not, for example.

Regardless of anything, the players are composed by humans and robots (developed by humans). Their strategies may vary, but they always follow a certain logic. The majority of quantitative strategies follow logic numbers.

What is the most probable to happen: a price to respect a 20-period moving average as support/resistance or to respect a 279-period moving average? Of course the first. There’s a reason: it is a logic number, used by a large amount of traders/robots. It is expected that the price hits that level and reacts in any way – either breaking it or reversing. 

Always apply a logic when chosing your parameters – although this is not always possible.

Let’s say I’m chosing the optimal parameters from a moving average. How should I do it? Just set the range of the period parameter from 1 to 300 with a step of 1 and hope for the best?

No. Think logically. Do you really need such a big range? Usually not.

The best option would take rounded numbers, such as 10, 20, 30, 40, etc. These numbers are the most probable to have an effect than a non-sense 134-period, for example. Also, even though not possible by the MT5 optimization feature, you could choose parameters values via Fibonacci numbers (1,2,3,5,8,13, etc.).

By limiting the possibilities of the optimization, you reduce the risk of overfitting, since all you want are good parameters, not the perfect ones for the testing period.

2.3. The best is not the best

Continuing from the last paragraph and as I said a few times here, you may not want the perfect parameters. There’s a high chance they’re overfitted to the testing period. If you still want to use the best, reduce the expiration time of your strategy described in the next section.

Take this from the strategy I’ll show later in this post:

The highlighted was the best result in the backtests (1 year). Let’s take a look at its result in the forward test (1 year):

Although still profitable, its results are way inferior from the backtest – period in which it was almost perfect according to the Complex Criterion. If we wouldn’t have used a forward test, after a single year backtesting period, we would have profited, but way less than before – the strategy was clearly overfitted to the backtest period.

What we do then is to look at the Forward test tab and compare the results with the backtesting tab results. From what we can see on the next image, there’re a few good results, but one caughts my attention:

When using Complex Criterion, a value above 75 is pretty good. A value above 90 can be considered overfitted, but still nice. A value above 95 is probably overfitted and should not be used. The highlighted result shows a backtest result of 81.65/89.65 and a forward test of 83.11. The similarity  of the results is an indicative the strategy is consistent and may be good to use.

Finally, know the Optimization criterion you’re using. I find it best to use the Complex Criterion. If you use balance, drawdown, recovery factor or any other, be sure to not choose the best among the results.

2.4. Strategies stop working with time

Who wouldn’t like a strategy that would work forever? That kind of holy grail, if it even exists – and I won’t enter this topic here – is really hard to accomplish. 99.99% percent of the strategies will have an expiration date.  The other 0.01% are not available for mere mortals and are designed by geniuses who won’t really share their secrets (Jim Simons). Someday they will stop working – they ‘die’ just like they’re born. Just like humans, we don’t know when it’ll happen, although we can define objective conditions to bury or rework a strategy. 

Firstly, you can specify an expiration date for that specific strategy. Let’s say you want to use the table shown above to optimize your strategy. After you find the optimal parameters, you can put it to work for 1/2 the time of the testing period (for example, if you created a strategy for M10, it should work for at least 1 year). This can be changed according to the strategy results (for example, if the strategy makes too many trades, this time can be reduced to 1/4). After this period, do not trade with it anymore until it is re-optimized or find another strategy.

Secondly, define a maximum drawdown for the strategy when in real life trading. A safe decision would be to limit its lifetime by the maximum drawdown taken by the tests. If the strategy has a really low drawdown, you can define its live trading drawdown to 2x the DD in the backtests. With this you define a condition to stop taking a possible bigger loss.

Thirdly, also define a maximum profit for the strategy. As said, the strategy will not may not work forever. If a certain profit is reached, take it and find another strat/re-optimize it using the new data collected from the period. Don’t use the market as a casino.

3. Creating and optimizing a strategy

Let’s put those ideas to work.

Firstly, we define the instrument and the timeframe. For this experiment, I’ll choose the NZDUSD pair in the M10 timeframe.

Secondly, let’s choose our indicators. In this case, a moving average (to define the trend), a Commodity Channel Index (CCI – to define possible reversion levels) and an ADX (to define the trend strength).

Since we want to define the trend, and for now I don’t care if the trend is a short, medium or long trend, I’ll set the range for optimizing the MA period between 20 and 200, in steps of 10.

The most common CCI value is 14. It’s fair to use the range for optimizing between 8 and 20 – 6 periods below, 6 periods above -, in steps of 1.

The most common ADX value is also 14. Let’s use the same logic of CCI.

We’re dealing with a simple strategy: when the CCI reverses upwards while it is below the 0-level, if the closing price is above the moving average and if the ADX is above the 35-level, we open a long position. When the CCI reverses downwards while it is above the 0-level, if the closing price is below the moving average and if the ADX is above the 35-level, we open a short position.

Also, we stop trading if in a month we reach a certain profit/loss. These shall range from U$ 10.00 to U$ 100.00.

Our take profit is defined by a certain number of ticks to the entry price level that shall range from 50 to 500, in steps of 25. The stop loss is defined by a risk from the take profit and shall range from 0.25x to 1x the tp, in steps of 0.05.

The parameters for the indicators would be like this:

The entry conditions are set like this:

Notice that we also optimize the minimum level of the ADX, which ranges from 20 to 50, in steps of 5.

Take profit and stop loss levels are defined like so:

Finally, the money/risk is defined like this:

After optimizing for 2 years (1 year for backtest and 1 year for forward test) with the Complex Criterion in the Fast genetic based algorithm optimization type, I found this interesting result (yours may be different due to different brokers + due to how the fast genetic algorithm works):

As you can see, these are some good parameters:

Moving average period = 100;

CCI period = 9;

ADX period = 18;

ADX minimum level = 35;

Take profit ticks from entry price = 350;

Stop loss risk (1:x from TP) = 0.85 (this means that stop loss is 350 * 0.85 ticks);

Stop period after profit/loss = Stop monthly

Maximum profit = U$ 20.00

Maximum loss = U$ 40.00

These are the results for this:

But these parameters can be a bit more logical. Let’s see.

The ADX period could be 20 – closer logical parameter that I can see.

The 9-period for CCI is already a good number.

It makes little sense to leave the stop loss risk as 0.85. Let’s round it to 0.8 or 0.9. I’ll set it to 0.8.

The maximum profit/loss were set in a reason of 1:2. That’s actually reasonable, but if we have a risk of 1:1 or lower it’s better to assure we have a winning strategy. Let’s either set both to 20 or to 40. I’ll set them to 40.

These are the new results:

We got a better profit, but the tradeoff was that the drawdown also increased. It’s fine, since it looks like we really got really good parameters and there’s a good chance this strategy will work for a while. AGAIN, THIS IS NOT A RECOMENDATION. THIS STRATEGY MAY OR MAY NOT WORK IN LIVE TRADING. THIS IS JUST AN INSIGHT/IDEA ON HOW TO HAVE A CHANCE TO CREATE A GOOD STRATEGY.

Next blog post I’ll take about my type of strategies and the process of thinking about a strategy.

If you have any questions, feel free to reach out to me.

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Vantagepoint Stock of the Week Garmin ($GRMN)

This week’s a.i. Stock Spotlight is Garmin ($GRMN)

Garmin Ltd. ($GRMN) stands as a notable leader in the realm of global technology, particularly within the sectors of GPS navigation and wearable technology. Founded by Gary Burrell and Min Kao in 1989, Garmin has etched its name in the annals of tech innovation, primarily through its GPS devices tailored for automotive, aviation, marine, outdoor, and sports activities. The company’s journey from inception to becoming a cornerstone in GPS technology mirrors the ingenuity and foresight of its founders.

Garmin generates its revenue through a diversified portfolio spread across several profit centers, essentially segmented into five main categories: automotive, aviation, marine, outdoor, and fitness. Each of these segments caters to specific market needs, from navigation systems for cars and boats to wearable devices that monitor health and activity levels.

The company is headquartered in Schaffhausen, Switzerland, with operational headquarters located in Olathe, Kansas, and employs 16,000 people worldwide. This global footprint has allowed Garmin to maintain a strong presence in key markets around the world, leveraging local expertise while steering innovation from its central hubs.

Since its founding, Garmin has demonstrated an exceptional knack for innovation and market adaptation. The company became profitable shortly after its inception, a rare feat in the technology sector, underscoring its founders’ strategic vision and the universal appeal of its product offerings. Financially, Garmin has maintained a robust balance sheet with minimal debt, a reflection of its prudent financial management and strong cash flow generation capabilities.

Garmin’s main competitors include tech giants like Apple, Fitbit, and TomTom, among others. These companies vie for market share in the GPS and wearable tech spaces, pushing the bounds of innovation and consumer engagement. Despite the fierce competition, Garmin has managed to carve out a unique niche for itself, particularly among outdoor enthusiasts and professional athletes who value precision, reliability, and durability in their devices.

The biggest opportunity for Garmin lies in the expanding wearable technology market, where health, fitness, and outdoor activities continue to gain popularity. The integration of smart features and health monitoring capabilities in wearable devices presents a lucrative growth avenue. Conversely, the primary risk stems from the rapid pace of technological advancement and competition. Staying ahead in innovation, protecting intellectual property, and responding to consumer preferences are paramount challenges.

Over the past decade, Garmin has strategically acquired several companies to bolster its product lineup and technological capabilities. These acquisitions have enabled Garmin to expand its reach into new markets and enhance its product offerings, from fitness trackers to advanced navigation systems.

Garmin operates specifically within the scientific and technical instruments industry and is known for its innovative products in GPS technology and wearable devices. Achieving consistent sales growth in the technology hardware sector presents a significant challenge due to intense competition and rapidly evolving consumer preferences, factors that contribute to the frequent shifts in brand popularity. Garmin, however, has proven its capability to navigate these hurdles successfully.

In 2023, Garmin reported revenue of $5.23 billion, marking a 7.57% increase from the previous year’s $4.86 billion. The company’s earnings saw a significant rise of 32.46% to $1.29 billion, showcasing strong financial health and profitability.

Garmin has shown remarkable resilience and growth, boosting revenue in nine out of the last ten years, with 2022 standing as the lone exception where revenue slightly dipped by 2%. This success story is a testament to Garmin’s diverse and innovative product range. Investing in Garmin means gaining exposure to a spectrum of tech niches, from consumer wearables to aviation navigation solutions, offering shareholders a safeguard against downturns in any single market segment. In 2023, three out of Garmin’s five operational sectors achieved their highest sales records.

Garmin’s shares have experienced noteworthy growth, reaching a new 52-week high of $148.89 as of March 2024. This indicates a 54.7% price increase in share price over the last 52 weeks, reflecting investor confidence and the company’s robust market position. The company’s Price-to-Earnings (P/E) ratio stands at 21.66, with an earnings per share (EPS) of $6.71, suggesting a valuation that factors in its growth prospects and profitability.

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Garmin also maintains an attractive dividend yield, with an annual dividend of $3.00 per share, translating to a 2.00% yield, which is appealing for income-focused investors.

Garmin has been proactive in expanding its product portfolio and entering new markets, evident from its recent announcements and collaborations. These initiatives are likely to support future revenue streams and strengthen its position in the competitive technology sector. The company’s ability to innovate and adapt to changing market demands, coupled with its strong financial performance, underpins its potential for sustained growth. In the third quarter, the company reported significant growth in its fitness segment, driven by strong demand for wearables, and introduced new products such as the Venu® 3 smartwatch and the vívoactive® 5. The outdoor segment saw growth led by adventure watches, while the aviation segment grew due to OEM product categories. However, the marine segment experienced a slight decline in revenue​​.

In summary, Garmin exhibits solid financial health with promising revenue and earnings growth. Its strategic initiatives point towards an ongoing commitment to innovation and market expansion.

Wall Street analysts have historically viewed Garmin as a resilient and innovative company, often praising its ability to navigate market shifts and maintain profitability. As a leader in the GPS and wearable tech niches, Garmin has consistently outpaced many of its competitors, attributed to its strong brand, diverse product range, and commitment to quality.

Analyzing Garmin’s revenue and earnings over the last ten years reveals a trajectory of consistent growth and stability, underscoring the company’s adaptability and strategic acumen in a dynamic market. Significant investments in R&D, a keen focus on customer needs, and strategic acquisitions have been pivotal in driving this growth.

In conclusion, Garmin represents a fascinating study in sustained innovation, strategic growth, and financial acumen. From its origins as a pioneer in GPS technology to its status as a diversified tech conglomerate, Garmin has navigated the complexities of the global market with remarkable finesse. As it continues to explore new frontiers in wearable technology and beyond, Garmin’s journey is a testament to the enduring power of vision, adaptability, and relentless pursuit of excellence.

In this stock study we will look at the following metrics and indicators.

Wall Street Analysts’ Estimates

52-week high and low boundaries

Vantagepoint A.I. Predictive Blue Line

The Best Case – Worst Case Scenarios

Neural Network Forecast

Daily Range Forecast

Intermarket Analysis

Our Trading Suggestion

We don’t base decisions on things like earnings or fundamental cash flow valuations. However, we do look at them to better understand the financial landscape that a company is operating under.

Wall Street Analysts’ Estimates

Based on 7 Wall Street analysts offering 12-month price targets for GARMIN in the last 3 months, the average price target is $148.50 with a high forecast of $175.00 and a low forecast of $139.00.

We typically like to look at the variance between the most bullish and bearish forecasts and use that as a gauge for future expected volatility. Currently this variance is 24% or $36 which is considered moderate in comparison to other high performing stocks.

We find this variance valuable as often rallies and declines are confined to this level of volatility.

52-Week High and Low Boundaries

Over the past 52 weeks $GRMN has traded as high as $148.89 and as low as $94.33.

The annual trading range was $54.56. These numbers provide us with an accurate perspective of historic volatility which we can calculate by comparing the annual trading range to the current price. Over the last 52 weeks the historic volatility was 37%, which is moderate. This value tells us that based upon the recent past it would be perfectly normal to expect prices to trade in a 37% trading range over the following 52 weeks.

Equally of importance is the fact that $GRMN is trading at its 99th percentile of the last 52 weeks.

The 52-week boundaries of a stock—its highest and lowest price over the past year—are like our navigational stars. They’re crucial for spotting trends and making smart decisions about where to invest and trade. These boundaries give us a glimpse into a stock’s stability and potential. Highs might signal strength or overvaluation, while lows could indicate a bargain or trouble ahead. By analyzing these extremes, traders choose their markets wisely, seeking the best opportunities while managing risk. It’s about reading the market’s map, identifying where the opportunity lies.

Now, think of the stock market as a season of your favorite TV series, full of ups and downs, twists, and turns. The 52-week boundaries help us understand the plot so far – showing us how high and low the stock can go under current conditions. This is like having a preview of potential future episodes, giving savvy investors clues about whether the next season might hit new highs or drop to unforeseen lows. By studying these trends, traders can make educated decisions about the stock’s next moves, deciding whether to ride the wave or wait for a better entry point.

Is the stock you are studying moving with the broader market? Or is it moving counter to the prevailing market trend? It is outperforming or underperforming the market? These questions are of paramount importance when we begin a trend analysis of any stock we are looking to trade or invest in.

Moreover, these boundaries influence the psychological mindset of traders and investors alike. A stock nearing its 52-week high might be seen as a winner, gaining momentum, and attracting more interest. Conversely, one nearing its low could be viewed as undervalued, ripe for a comeback, or as a warning to steer clear. By analyzing these extremes, traders select markets not just based on numerical analysis but also on market sentiment and investor behavior. This dual approach, combining hard data with psychological insight, empowers traders to make more nuanced and informed decisions in the ever-changing seas of the stock market.

When we zoom out further, we can see on the 10-year chart that $GRMN is up 152% which is less than the S&P 500 Index which is UP 178% over the same time frame.

Best Case – Worst Case Scenario

Before entering a trade, it’s essential to thoroughly understand the risks involved. This understanding can be achieved by analyzing the magnitude of past rallies and declines within the year, offering insights into potential best and worst-case scenarios. This analysis allows traders to gauge the stock’s volatility and prepare for possible outcomes, ensuring decisions are made with a clear understanding of the risk/reward ratio. By comparing these extremes, investors can determine if the potential return justifies the risk, enabling them to enter trades with their eyes wide open and expectations grounded in reality.

Further refining this approach involves examining external factors that could influence the stock’s performance, such as market trends, economic indicators, and company-specific news. This comprehensive analysis helps in identifying not just historical patterns but also potential future triggers for price movements. Engaging in this level of detailed review ensures that traders are not caught off guard by sudden market shifts, allowing for more strategic decision-making.

Ultimately, this best case and worst-case analysis forms the backbone of risk management in trading. It encourages a disciplined approach to investing, where decisions are based on thorough research and a balanced assessment of potential outcomes. This methodology does not guarantee success in every trade but significantly enhances the ability to navigate the market’s inherent uncertainties with confidence and strategic foresight, aiming for long-term investment growth while minimizing exposure to undue risk.

This exercise transcends mere market analysis; it’s an exploration into common sense, uncovering the raw essence of risk and reward that pulsates through the veins of the stock market.

This pragmatic approach demystifies analysis by quickly allowing you to see the best case and worst-case scenarios.

First, we perform the best-case analysis:

Followed by the worst-case analysis:

The simple conclusion we can draw from this exercise is that the bulls are clearly in control and that over the past 52 weeks declines have been very meager in comparison to the rallies.

The spotlight then shifts to volatility, measured through the lens of Beta—a metric that quantifies a stock’s volatility in relation to the overall market. With a Beta of .98, GARMIN ($GRMN) emerges as being 2% less volatile than the broader market.

Delving into Beta reveals its layers: a Beta of 1 mirrors market movements; above 1 suggests more volatility, offering a roller-coaster experience; below 1 indicates a smoother, less market-sensitive path. Analyzing $GRMN through this lens, we uncover a performer that has elevated its revenue, earnings, and stock value with slightly less market volatility than the broader market.

Beta, our trusted “risk-o-meter,” helps shape a portfolio that matches our risk appetite and financial goals. This knowledge empowers informed decision-making in portfolio management, making understanding Beta essential for navigating the market’s ebbs and flows.

Next, we compare the performance of $GRMN against all of the major stock indexes across multiple time frames to judge performance and better understand risk.

Clearly, $GRMN has outperformed across all major time frames.

Vantagepoint A.I. Predictive Blue Line Forecast.

Our guiding principles are as follows:

– The trajectory of the predictive blue line dictates the trend forecast and overall trajectory of $GRMN.

– Ideally, the VALUE ZONE is determined to seek buying opportunities at or below the predictive blue line or selling opportunities above it during a downtrend.

– Naturally, as the predictive blue line slopes downward, traders anticipate lower prices, either retreating to the sidelines or hedging their positions.

In the ever-evolving world of trading, the search for innovative tools remains constant. Enter VantagePoint Software, a standout in the fintech landscape, leveraging artificial intelligence to forecast market trends. It introduces the “A.I. predictive blue line,” akin to a financial North Star, guiding traders with insights on market directions and identifying the ‘value zone’ for optimal trading decisions. This technological marvel, powered by neural networks and intermarket analysis, delves deep into price determinants, unveiling the intrinsic worth of assets and shaping strategic trading moves.

The essence of VantagePoint’s predictive blue line transcends mere market direction, guiding traders towards the ‘value zone,’ a pivotal area in an uptrend signaling a stock’s true worth. This is no mere speculation but a result of sophisticated A.I., blending neural networks with intermarket analysis to uncover intrinsic values.

Furthermore, the black line, reflecting the 10-day simple moving average, offers historical context of what prices have done in the recent past, enriching the predictive insights of the blue line. The synergy between these lines, blending past and future, crystallizes opportunities for traders, a testament to VantagePoint’s innovative fusion of neural network prowess and market analysis for those navigating the financial markets’ velocity.

In essence, one glance at the chart unveils the forecast of artificial intelligence.

Neural Network Indicator (Machine Learning)

A neural network for traders is a form of artificial intelligence that mimics the human brain’s ability to recognize patterns and make predictions. It’s constructed by layering nodes (neurons) in interconnected networks, where each layer processes inputs and passes them to the next, refining predictions at each step. These networks are developed using vast datasets, teaching them to recognize market patterns and trends. Traders and financial analysts use them to analyze market data, improving decision-making by forecasting market movements, identifying trading opportunities, and managing risks more effectively.

But Power Traders don’t put all their eggs in one basket. No, they’re strategists, combining the insights of the Neural Network Indicator with other tools like the Predictive Blue Line. It’s this blend of technology and strategy that elevates their trading game.

In the high-octane world of trading, where every second counts, traders, especially those new to the game, are always scouting for that game-changer. Enter the neural network, a tool not just of the future, but of now, offering a peek into the market’s mind. These digital brains feast on data, learning, evolving, and getting sharper with each trade. They’re the secret weapon for traders, minimizing errors, and spotting patterns that are invisible to the naked eye, keeping them one step ahead. It’s not just about data analysis; it’s about making that analysis work tirelessly for you, ensuring that when the market moves, you’re moving first, armed with insights that are as precise as they are profitable. This blend of technology and strategy? That’s the trader’s new best friend.

The arrows on the chart above are all the times when the Neural Index and the Predictive Blue Line were both pointing in the same direction. We refer to this as the “double confirmation setup” which is a very high probability trade.

Earnings for $GRMN were released on February 21, 2024. The expectations were for $1.40 a share. They came in 22% better at $1.72 per share. The artificial intelligence and neural index both turned positive one week earlier on February 14th. Since the neural network and ai both turned positive $GRMN has rallied 21.29%.

This is how artificial intelligence keeps traders on the right side of the right trend at the right time.

VantagePoint Software Daily Price Range Prediction

Finding the perfect moment to dive in and out of the market is a puzzle every short-term trader wrestles with. In this fast-paced arena, even a split second can separate a win from a loss. Imagine harnessing the power of AI, machine learning, and neural networks—our modern-day technological marvels. These tools sift through historical data, picking out patterns and predicting market moves with astonishing accuracy. For traders, this isn’t just data analysis; it’s a strategic edge, turning the unpredictable market tides into navigable waters, and setting the stage for informed, precise trading moves. It’s about making the unseen seen, turning risk into calculated strategy.

Consider, if you will, the average trading ranges—daily, weekly, monthly—over the past year.

Yet, herein lies the challenge: mere knowledge of these ranges is not enough. How do you pinpoint the exact price levels to buy and sell?

Behold the Daily Range Forecast chart, crafted specifically for the short-term swing trader. This isn’t just another chart; it’s a guide illuminating the likely course of each trading day. With the integration of Vantagepoint A.I., this tool surpasses traditional analysis, decoding the market’s rhythm. It serves as a trusted navigator for Power Traders, enabling them to navigate the market’s volatility with precision, identifying optimal entry and exit points with unparalleled clarity.

Intermarket Analysis 

Intermarket analysis is a method used by traders to understand the relationships between different financial markets (like stocks, bonds, commodities, and currencies) and how they influence each other. This approach is important because it provides a comprehensive view of the global financial landscape, helping traders to identify trends, correlations, and potential trading opportunities across various asset classes. It improves trading results by allowing for more informed decision-making and better risk management through diversification and timing trades based on the interconnected dynamics of the markets. Typically, intermarket analysis is calculated using statistical methods to identify correlations and causations among different market indicators.

In a world where financial markets are intricately linked, grasping the complex web of relationships that drive market dynamics is crucial for trading success. Intermarket analysis stands out as an indispensable tool, offering a structured approach to decoding the intricate interactions among various asset classes. This analytical strategy reveals the correlations and dependencies across financial instruments, shedding light on broad market trends and unveiling potential trading opportunities. Its holistic perspective on market dynamics is key to forecasting trends across asset classes, thereby enabling traders to navigate the market landscape with enhanced insight and strategic acumen. Through the pioneering work of Louis Mendelsohn in integrating intermarket relationships into trading strategies, traders are empowered with a multifaceted analysis tool, significantly refining their trading approach.

Here are the 31 key drivers of $GRMN’s price.

We advise traders to study these drivers as often hidden gems will be uncovered in parallel markets. Intermarket analysis is utilized by a broad range of market participants, including individual traders, financial analysts, portfolio managers, and institutional investors. These users apply intermarket analysis to enhance their understanding of market dynamics, improve their trading strategies, and manage risk more effectively by identifying correlations and predicting trends across different asset classes.

Our Suggestion

The next earnings call for $GRMN will occur on May 1, 2024. The majority of Wall Street analysts are optimistic based on recent revenue and earnings growth.

The company is no longer undervalued which requires that traders place even a greater attention on the artificial intelligence for daily trading guidance.

Here are the important metrics:

Garmin has declared a proposed dividend increase of 3% and the authorization of a $300 million share repurchase program by its board of directors, underpinned by the company’s robust cash flow. This financial maneuvering underscores Garmin’s strong financial health, allowing it to return value to shareholders while sustaining its operational and strategic objectives.

Technically speaking the stock has broken a new 52-week highs regularly over the past 4 weeks. For those who are already positioned this is the type of environment traders dream about where you sit back and enjoy the ride.

For traders looking to get in utilize the daily range forecast for guidance.

We continue to think that $GRMN will continue to offer great tremendous opportunities in the coming year. Pay close attention to the 52-week high for resistance and when it is consistently breached it will function as support.

$GRMN deserves to be on your trading radar.

Garmin’s growth in product sales across its divisions, coupled with the prospect of increased dividend payouts, positions the stock appealingly for both growth and income-oriented investors. This dual potential is a significant factor behind its impressive outperformance of the broader market.

We advise that you practice good money management on all of your trades and that you follow the A.I. forecast for your trend analysis to determine optimal entries and exits.

Let’s Be Careful Out There!

Remember, It’s Not Magic.

It’s Machine Learning.

Disclaimer: THERE IS A HIGH DEGREE OF RISK INVOLVED IN TRADING. IT IS NOT PRUDENT OR ADVISABLE TO MAKE TRADING DECISIONS THAT ARE BEYOND YOUR FINANCIAL MEANS OR INVOLVE TRADING CAPITAL THAT YOU ARE NOT WILLING AND CAPABLE OF LOSING.

VANTAGEPOINT’S MARKETING CAMPAIGNS, OF ANY KIND, DO NOT CONSTITUTE TRADING ADVICE OR AN ENDORSEMENT OR RECOMMENDATION BY VANTAGEPOINT AI OR ANY ASSOCIATED AFFILIATES OF ANY TRADING METHODS, PROGRAMS, SYSTEMS OR ROUTINES. VANTAGEPOINT’S PERSONNEL ARE NOT LICENSED BROKERS OR ADVISORS AND DO NOT OFFER TRADING ADVICE.



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Buying vs. Selling Options: A Risk Perspective

Options trading represents an intriguing aspect of financial markets, offering both the potential for profit and the risk of loss. Understanding the nuanced differences between buying and selling options is crucial for traders at all levels. This article delves into the inherent risks and strategies associated with both buying and selling options, aiming to provide a comprehensive overview for investors.

What Are Options?

At their core, options are financial derivative contracts. They grant buyers the right, but not the obligation, to buy (call options) or sell (put options) an underlying asset at a predetermined price, known as the strike price, on or before a specified date. This underlying asset could range from stocks and bonds to commodities and indices. The flexibility and potential leverage options offer make them a valuable tool for investors looking to hedge, speculate, or gain exposure to specific market segments.

Buying vs. Selling Options: A Risk Perspective

Buying Options: Defined Risk

When you buy an option, you’re essentially paying for the possibility to execute a transaction in the future at today’s price levels. This transaction could involve purchasing a stock at a lower than the market price or selling it higher if the market moves in your favour. The cost of this opportunity is the premium paid upfront. Therefore, the risk is inherently capped at this premium. Should the option expire worthless (meaning it’s not advantageous to exercise the right to buy or sell), the maximum loss is 100% of the investment in the premium.

However, it’s critical to understand that buying options is not without its pitfalls. The risk of losing the entire premium is real, especially for options that are out of the money—where the current market price is far from the strike price. Time decay also plays a significant role, eroding the value of options as they approach expiration. Moreover, options are susceptible to volatility fluctuations, affecting their price independently of the underlying asset’s movement.

Selling Options: Undefined, Potentially Uncapped Risk

Conversely, selling options involve a higher risk level. Sellers, or “writers,” of options collect the premium upfront but face the obligation to buy or sell the underlying asset if the buyer exercises the option. This exposes sellers to potentially unlimited losses, especially in a volatile market where the asset’s price can move significantly against the position. For instance, selling a call option without owning the underlying asset (a naked call) can lead to substantial financial risk if the market price soars above the strike price.

Understanding the Risks and Rewards of Selling Options

The primary allure of selling options lies in the premium collected upfront, offering an immediate income stream. However, this comes with the caveat of potentially significant, though not always unlimited, risk. The fear of “unlimited losses” often stems from scenarios where market conditions dramatically change, pushing the underlying asset’s price far beyond the strike price of the sold option.

Mitigating Risks Through Strategic Approaches

Experienced traders mitigate these risks through various strategies. One common method is the use of stop-loss orders to limit potential losses. More complex strategies, such as selling options within spreads or writing covered calls, also serve to cap the downside. Covered calls, for instance, involve selling call options on stock already owned, thus providing income while also hedging against potential stock price decreases. However, it’s crucial to remember that such strategies also limit upside potential, a trade-off that traders must consider.

Selling Options vs. Shorting Stocks: A Comparative Risk Analysis

Comparing selling options to shorting stocks illuminates fundamental differences in risk profiles. Shorting a stock—borrowing shares to sell with the hope of repurchasing them at a lower price—exposes traders to potentially unlimited losses, as stock prices can theoretically increase indefinitely. In contrast, selling options provide the seller with a premium and a clearly defined obligation, whether to buy or sell the underlying asset at the strike price. While selling call options can expose one to significant risk if the stock price surges, the risk from selling put options is substantial but not infinite since a stock’s price can only fall to zero.

Advanced Strategies: Combining Buying and Selling Options

For those looking to navigate the risks and opportunities of both worlds, combining buying and selling options in strategies like spreads, butterflies, and iron condors can be effective. These approaches allow traders to hedge risks, exploit volatility, or generate income. However, they require a more profound understanding of options trading and can introduce increased complexity and transaction costs.

Navigating Expiration and Early Exit Strategies

A crucial aspect of options trading is understanding the outcomes as expiration approaches. If an option sold expires worthless, the seller retains the premium, ending their obligation. For options buyers, an option expiring out-of-the-money means the loss of the premium paid. Traders have the flexibility to exit positions before expiration, allowing options buyers to sell for a profit or limit losses potentially and enabling sellers to close positions to secure gains or prevent further losses. However, early exits involve additional considerations, including transaction costs.

Understanding Short Selling

Short selling is essentially a speculative strategy where an investor bets on the decline of a stock’s price. The process involves borrowing shares from a brokerage, selling them at the current market price, and then buying them back later at a lower price. The short seller profits from the difference between the sale price and the repurchase price after returning the borrowed shares to the lender.

The Mechanics of Short Selling

The procedure for short selling is a two-step process:

  1. Borrow and Sell: The investor, believing that a stock’s price will decline, borrows shares from a broker and immediately sells them at the current market price.
  2. Buy Back and Return: The investor anticipates a drop in the stock price. When it decreases, they repurchase an equivalent amount of shares at this reduced price and return them to the lender. The difference is kept as profit.

Example of Short Selling

Imagine an investor speculating that the shares of XYZ Corporation, currently priced at $50, are due to fall. The investor borrows 100 shares and sells them at the current price, receiving $5,000. If the share price drops to $40, the investor then buys back the 100 shares for $4,000, returns the shares to the broker, and realises a profit of $1,000 (minus any fees or interest charged by the broker).

Risks Involved in Short Selling

While short selling can be lucrative, it comes with significant risks:

  • Unlimited Losses: Unlike buying stocks, where the maximum loss is the initial investment, short selling can lead to losses that exceed the initial sale proceeds if the stock price rises.
  • Margin Calls: Short selling involves using leverage, which means you’re required to maintain a margin account. If the stock price rises, you may face a margin call, requiring you to deposit additional funds to cover potential losses.
  • Regulatory and Market Risks: Short selling is subject to regulatory scrutiny and can be affected by market mechanisms designed to curb excessive volatility, such as trading halts or short-squeeze scenarios, where a rapid increase in the stock price can cause significant losses to short sellers.

Strategies for Successful Short Selling

To navigate the complexities of short selling, investors employ various strategies:

  • Thorough Research: Successful short sellers conduct extensive research to identify overvalued stocks or sectors showing signs of weakness.
  • Risk Management: Employing stop-loss orders or options can help limit potential losses. Effective risk management is crucial in short selling due to the potential for unlimited losses.
  • Timing: Timing is critical in short selling. Investors must carefully choose when to enter and exit positions, taking into account market sentiment, upcoming events, and financial reports that may affect the stock price.

Ethical and Economic Considerations

Short selling often faces ethical scrutiny, with critics arguing it can exacerbate market declines during times of financial instability. However, proponents contend that short selling provides liquidity, aids in price discovery, and can help correct market inefficiencies by penalising overvalued stocks.

Risk Management for Sellers

Given the higher risk, option sellers need to employ meticulous risk management strategies. These include setting stop-loss orders, using spreads to limit potential losses, and closely monitoring market movements and positions. Additionally, sellers should have a thorough understanding of the underlying assets and the factors that may influence their price movements.

Options trading offers a spectrum of strategies. These cater to different risk tolerances, investment goals, and market outlooks. Buying options presents a way to engage in the market. It comes with limited risk. This is suitable for those looking to speculate on price movements without the commitment of holding the underlying asset. Conversely, selling options can be a more advanced strategy. It offers income through premiums. However, it requires a greater understanding of risk management. This is to mitigate potentially unlimited losses.

While buying options limit risk to the premium paid, selling options opens up the possibility of unlimited losses. Therefore, the choice between buying and selling options should be based on an individual’s risk tolerance, market experience, and strategic goals. With careful consideration and strategic planning, traders can navigate the complexities of options trading to align with their financial objectives.



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