Happy Holidays! Of Course This Time Is Different

This time is different. Nothing changes until it does and it just did this year.

Allow me to start with a story.

In the summer of 1999 and during the dot com frenzy I was trading mostly bond and currency futures and I was kind of addicted to systematic trading. One of my friends, who was in the art business, invited me to join him to visit his wealthy friend in Genoa, Italy. We left for Italy, first to Milan and then on a limo his friend sent to pick us up to Genoa. Then we stayed in one of the mansions his friend has inherited from his very wealthy parents who were pioneer industrialists in Italy.

I had my trading systems programmed in my laptop computer and I could enter the daily prices and check for signals. My broker was providing the daily prices and I would call him if there were any entry or exit signals to place the orders.

At some point during the visit we were asked if we wanted to go on a boat trip for a week of cruising along the beautiful Italian cost. In the beginning I hesitated because trading was more important to me and I knew due to cellphone network blind spots there  could be no signal to call my broker. But I accepted the invitation anyway.

After about three days of cursing and fun, due to strong winds the captain of the boat had to find a safe anchor place behind a cliff that offered a shield and we stayed there for about two days. But there was no cellphone signal and I had to trade. I could not get the prices to run my models and so I decided to climb up a steep cliff and get to the top in hope that there would be signal. That was a dangerous climb but I finally made it because I had to trade. I got a signal but I got no answer from the broker who was usually in the office around 7:00 AM EST and it was about 1:00 PM in Italy. No one else answered, even his assistant or the office secretary. I immediately thought: “crash, there is a market crash”. I started shaking while the strong wind was hitting me at the top of a cliff in the middle of nowhere.

I decide to call the broker at home to see if his family knew what happened. He answered the phone, no problem. I said with a trembling voice “Hi Shane, is everything OK?” And this is the reply I got: “Everything OK Mike, enjoy your weekend.” That was a truly embarrassing moment save the fact that when I got back to the boat everyone was laughing hard at me but fond of my climbing skills.

This time is different because:

a) The new blockchain mania, which is largely unjustified, and its digital certificates, trade 24 hours a day, 7 days a week, 365 days a year. No one will laugh at you if you climb up a steep cliff so you can send your order in. This is a 24-7-365 mania that elevates addiction to new heights. The blockchain insiders have bots that can serve the addiction of tulip chasers non-stop.

b) Valuations are irrelevant. How can equity market valuations mean anything when we have digital certificate prices climbing to $20K? How can anyone say stocks are overvalued when the price of a digital token rises from one cent to $20,000 in a few years? It makes no sense when many of these companies some people claim are overvalued have billions in cash reserves, millions of employees and more importantly offer many useful products or services. If software tokens are worth so much, how high should be the price of a stock like AAPL or AMZN? Valuations may help when there is no real value but when there is value they are not very useful. In my opinion valuations have been used to induce equity market cycles so that the sell side could profit from the turnover. In a period of nine years since 2000 there were two major bear markets with more than 50% drawdown and yet the stock market is at new all-time highs now. People start to understand the dirty role of insiders, brokers and their academic accomplishes in inducing these bear cycles. For this reasons they do not pay attention to valuations but to simpler facts, such as what products or services are there, the future prospects in a globalized economy and cash positions. Only the sell side and its accomplishes struggle with valuations for their own reasons.

This time is different in some respects. Unexpected events may and will probably cause market corrections but not in the same context as before. Soon you will be able to enjoy 24-7-365 equity trading if blockchain mania finds its way into exchange infrastructure. You may decide to climb mountains to place your orders. Just make sure you do not fall and become a victim of a new mania.

Happy Holidays!

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