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It’s time to buy real assets with loan financing

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The picture is very clear. There is little choice for European Central Bank (ECB) as to print money and keep interest rates near zero. And it is what they are doing and will keep doing. So called “Draghi’s bazooka”. There are hard reasons for that and money printing is probably the least evil way to handle the situation. Full story here.

Draghi, ECB


Written by A.S.

March 15, 2015 at 10:05 pm

Posted in Uncategorized

Barcelona: impressions revisited

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Barcelona, the host city of the World Mobile Congress taking place from 2-5 March, 2015.

Disclosure: I’ve never liked the city before. Difficult to drive in pre-navigator era, pickpockets, and little else as just a big city.

Nevertheless, a business project brought me here.In somewhat inopportune moment when the the congress takes place. 90.000 persons come to the city for the congress. My neat hotel raised prices an exact 2.3 times for the exact days of the congress and back to regular price just as from evening of the day the congress ends. And I have nothing more to do with “mobile” than any other everyday person.

Well, I should not complain too much. This time I somewhat even enjoy the city. Reminds me of London. Spanish-speaking London. Ok, Catalan-speaking!? Not really. 80-90 per cent of time the language I hear is the language I understand. And I understand Spanish, but not Catalan [at least, not yet]. And, yes, Catalans are 100 per cent bilingual. Actually, more than that – my feeling is that most Catalans have some functional level of English as well – a big difference from the rest of Spain.

What are the impressions? What instantly comes to mind are episodes like a man in suit and tie going on “motto” with a backpack. Motto is a scooter. And, of course, the scent of the city. What is the scent of Barcelona? Marijuana, what else. One call smell it almost everywhere. The pollution from cars in the city is not that high. You can breath most of the time. Its a privilege, not in every big city one can breathe.

What else? A lot the cafés run by Chinese. The only ones open at night. Often stinky, but surprisingly not ignored by locals. Think about movie Biutiful, the movie with Javier Bardem. No proof that reality is any better than the movie. Take a jarra, i.e. a pint of beer, in a bar. Then check Wikipedia for “hepatitis C” — is it true one can contract “C” from dirtiness.

But this is very subjective. I have a friend here. Drives €150k+ car, lives in an apartment with nice sea view, goes snowboarding to Andorra every second weekend, speaks almost no Spanish or Catalan. His perspective is probably very different from mine. Or may this is the way to go. In Barcelona, or elsewhere … Well, lived like this before in a different climate zone, it brings you down, although may be not in Barcelona … Barcelona is still a part of Spain where the average life expectancy is 82 years (ok, 79 yrs for men). And Spain has always impressed as it seems to be the only country in the world where it looks like everybody drinks and smokes all the time and, nevertheless, lives longer than almost in any other country in the world.

Written by A.S.

March 5, 2015 at 12:08 am

Posted in Uncategorized

Good Governance is the Key to Prosperity

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imageThere is an excellent piece of work Great Companies, Great Nations by Richard Chandler of Chandler Group on governance issues. Available as free download.

Good governance, both on company and country level, goes hand in hand with prosperity. The book supports the message with plenty of stats.

I highly suggest this as a weekend read or before you decide on a major investment.

On the odd side, out of Top 5 the most corrupted countries listed (page 6), Russia is by far the most prosperous. On the corruption perception index Russia is marginally worse than Vietnam, Mozambique and India while with $18408 GDP per capita it is about 12 times more prosperous than India ($1540), 28 times more than Mozambique ($650) and 10 times more wealthy if compared to Vietnam ($1896).

Written by A.S.

July 5, 2014 at 8:45 am

Bitcoins: a version of tulipomania

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ImageBitcoin value will crash, even if it goes through bubble phase of tulipomania scenario first. Bitcoin (or BTC) is worth something just because of market participants believe it is worth something. Why people keep buying BTC? Fun of participating in something novel plays a role for some. Greed should be present as the price increase looks like no-brainer to others. Certainly some of BTC value derives not from what it is, but rather what it is not.  What it is NOT: is not a fiat currency that may devalued by “printing press”, authorities can’t [yet] track down or block every single transaction, storage of the value is not dependent on solvency of any particular institution etc.

Video: You Really Should be Buying Bitcoin (a good explanatory video on BTC)

Without any central institution to destroy the value, no oppressive body to track and/or tax it and, generally, ease of transactions, for many BTC certainly is an attractive alternative to money. At this stage, BTC can perform the essential functions of money — medium of exchange, store of value, measurement of value, no question about it.

There is one trait what sets BTC apart from any other money equivalent: the amount of BTC in circulation capped at 21 million. Even reaching this limit will take some time, as the cost of mining BTC is already higher than their current market value.

We can certainly imagine that in near future an infrastructure is in place to make transactions easy. Easier than cash. Like to make payment with NFC phone and Mastercard Paypass installed, for example. In fact, the technology is in place already. It is just the matter of adaptation by users.

So with all the wonderful specs why BTC is just another bubble? Something free from malaises of fiat money, something quantitatively more limited than gold or diamonds, as anonymous [yet] as gold or diamonds, no storage cost, ease of transaction and at price what is less than production cost.

The reasons BTC as a currency are doomed:

  1. Non-debaseable money – true, but it is not unique and for BTC serves no purpose
    The number of BTC is limited by its algorithm at 21 million. However, so can be any other crypto currency (like litecoin), it is a question of mathematic algorithm. To a certain extend non-debasable are gold, silver, land etc. as well – all of which have gone through boom and bust. What is worse, 21 million BTC in circulation is a setback for development as money. If BTC was to replace all the fiat money in circulation, any single BTC would be worth millions (imagine global GDP of about US$71 trillion to be serviced by 21 million of BTC in circulation) and price of cup of coffee would be expressed as 0.000001 or less BTC – not very practical.
  2. Easy replicable by other crypto currency algorithms
    It is a crypto currency. BTC is based on one specific mathematical algorithm. Similar algorithms are easy to create. Litecoin is one example. Other crypto currencies may appear in endless variations. Such other crypto currencies are likely to be suitable for transaction using the same infrastructure as BTC. For all practical purposes, if somebody creates a crypto currency with global ambition to replace fiat money, for all practical purposes it is better to create something with 71 trillion rather and 21 million units in circulation.
  3. Anonymity will disappear
    Several governments have moved to bring BTC under regulation. US has recognized it as “virtual currency”, Germany as “financial instrument” – whatever the name, in any case BTC is an asset, which is subject government surveillance for anti-money laundering, licensing and tax purposes. All BTC transactions leave a trail on internet. BTC anonymity is not there to stay. In a sense, BTC is a victim of its own popularity as it attracts government scrutiny.
  4. Momentum will fade
    The momentum of novelty will fade. Probably most people on retail level get involved in BTC for fun. This factor will wear off eventually. Speculative interest will disappear after first crush. If all that backs BTC is confidence, then confidence may easily be highly volatile factor. Particularly when people recognize that behind BTC there is nothing else but the confidence.
  5. Technological risks
    The technology of mining, transacting and storing of BTC is new and critical flaws may appear.

All said, the key lesson from BTC is that interest (demand, need) for an alternative currency is strong and I expect that some properly backed, non-national currency will be invented.

Is it a sensible thing to invest money in BTC? I do not think so. The thing of BTC funds with 1000% annual returns may be the thing of the past. Have people made money of it. Absolutely. Early miners, for example. Today mining is not profitable. Will value of BTC increase? No idea, but tulipomania scenario is quite probable. I guess, there are people who know how to trade through bubbles. Is there any practical value of BTC? Apart from entertainment and promoting a novel idea, BTC actually can help to move funds cross-border below government radar scrutiny (something one cannot do with any major national currency). At least by now, but knowing government dislike for it as showed by Liberty Reserve case and having US$11b budget and 35k persons to go after it, it is unlikely the loophole will persist for long.

Written by A.S.

August 30, 2013 at 7:47 pm

Is trend following still alive?

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Attain Capital Management has put out a quality piece of research named Is Trend Following DeadBasically, the argument goes that trend following programms are in noticable drawdown and historically this has been a good entry point to invest in such programms. And an implication that nothing has changed, trend following is live and kicking and as sound investment approach as ever.

I would like to add shades of grey to plain black and white picture. Obviously, trend following is not dead. Many traders and asset management companies still use it as one of their principal strategies. Then there is the issue of the definition of trend following which is vague at best. Ed Seykota, probably the best known and the most respectable trend following apologist, says that the difference in price necessary to create the profit implies a trend. But, hej, this is true about any investment approach, not just trend following.

In Attain’s case the question of the definition is more straighforward — they consider the investment programm as trend following if the asset manager labels it as such. However, the question remains open what exactly are the  trend following strategies those asset managers use. Technically speaking, the only difference between high frequency trading and trend following may well be just timeframe. None provides a detailed description of the models used and  those may well have evolved beyond recognition from the original ones. In that sense trend following may not be dead but the inner workings of the system may well be a completely different from the classic notion of trend following.

Then there seems to be sufficient evidence that the returns from trend following systems are declining. This is a trend in its own right. If to draw a trendline on the chart (see below) from Attain’s research, the returns are in obvious downtrend and this may well be a secular trend which is not going to change.


The Turtles are widely considered as the posterboys of trend following. They have been successful beyond doubt, but the returns from their system have diminished with time to reach a point where the returns are not competitive anymore. I’ve written about it before here.

Trend following is not dead. Traders still widely use it. But the inner workings of the system have changed over time beyond recognition and trend following today may well be something totally different from what it was decades ago. In terms of performance, the “classic” trend following has stopped working long time ago as can be seen from “the Turtle system” test results. And the chart from the Attain’s research may well serve as another evidence that the returns from trend following systems are on secular “downtrend”.

The trend following is not dead but in its classic form has decayed into useless and the modern version of trend following may be  different from other investment approaches in name only. However, nothing said here invalidates Attain’s suggestion that a bet on trend followers may be a good move now. Those asset managers are smart and rebound is highly probable.

Written by A.S.

November 7, 2012 at 8:30 am

The lesson from Knight’s Capital Group’s $440m loss in 45 minutes

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There is no lesson. Software is mission-critical part of almost every modern business or social activity. In planes, cars — your life may depend on it, in trading as a business — your finances may depend on it.

In the old times, before IT, usually one could tell immediately, if a tradesman has done a good job. Today, not always one can tell that — if the “tradesman” is software engineer or coder, the quality of their work may be hidden to outsiders.

We got to accept the reality that today it is possible that a software glitch may bring down companies and who knows what else.

The original link:

Written by A.S.

August 5, 2012 at 9:14 am

Posted in Uncategorized

Substantial profits expected from investing now

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By travelling and talking to various investors, I recently see that many are actively investing the cash through purchasing various assets — rental properties in prime locations, land, production assets … In many cases such assets already generate cash flow, often as high as 10% p.a. of the amount of invested. The purchases are often made in property auctions, from banks and other distressed situations but sometimes just made possible because of subdued valuations due to general market situation and sense of crisis. The situation is substantially different from a year or so ago when most preferred to stay in cash or equivalent.

Those are low-tech, mundane assets which I feel will get revalued in the marketplace during the next 3-5 years, often doubling the investors’ money. Once the crisis is over [and the investing activity suggests it may be over sooner than generally expected], the assets will get revalued again to yield 5% rather than 10% today with the same nominal cash flow. As well, once the global economy stabilises, the consequences of the quantitative easing should filter through to show up as inflation — no doubt that there will be no reverse quantitative easing and this should mean more debased paper money in general. 

Written by A.S.

July 31, 2012 at 7:38 am

Posted in Uncategorized