Archive for October, 2013

You have seen on the newspapers these two recent attacks, one successful and one not.

Quiet a bit of talking, but the media at large missed one important point. This is the new US Strategy.

With the withdrawal from Afghanistan, the Special Force attack will be the weapon of choice for the US as a “hunt and kill” or “hunt and capture”, together with increasing usage of drones.

This kind of deployment has important consequences

– It is cheaper than an invasion

-it is faster so it can act better on intel

-the various special forces are much better skilled than normal soldier and can better achieve objectives (in the case of the Somalia failed attempt, apparently, they came under heavy fire and became impossible to capture the target – other information were that there were children in the compound)

– Special forces are more apt to use the new development of robotic assistance* that the US is developing.

– The big draw down is that the special forces operate behind enemy lines so, once spotted, they are seriously outgunned, at least for now.

*Apparently DARPA (the special weapons developments agency) is actually quite advanced in prototypingcombat ready “terminator”, probably 5 years away (the main issue is, as usual, the battery). The idea is to have a soldier linked to an avatar “hunter killer” machine

US Congress and Game theory

Posted: October 14, 2013 in Uncategorized
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President Obama almost won the battle with the Republican and he is almost cocky about it.

Game theory says that now he should concede some wins to the Republican, in order to allow them an honorable defeat.

But President Obama stance is very uncompromising at the moment “My way or the highway”. If it keeps like that he could get

a default for real.

Also in  the Republican Party is starting to appear a serious crack between the moderate “pro business” Republican and the Tea Party members.

The latest from Washington say that a deal is not even close…the various factions just agreed to talk.

Market rallied on the news of the plan…but Breaking News from New York Times says Obama rejects the deal!

 

Sincerely, too scary. Let’s keep on looking!

The market analyst in general are very blase’ about the potential of a technical default of the US (technical means that you are defaulting as you do not want to pay, not because you do not have money – as the US can print it!).

Everyone is very calm and convinced of a very last minute “as usual” deal. It is just a feeling born from over 13 years of market experience that when everyone agrees the market does completely the opposite of what is supposed to do.

It also is how the Congress work….now there is no pressure from the Tea Party support base onto their senators to make a deal as they are not suffering any economic pain.

Also the Volatility Index is still hovering around 20 (the last crisis, August 11, was double that number).

Logically there are word of dissent. Fidelity, one of the largest US investment manager, sold all of its US Treasury position due in October/November.

 

I think the most realistic view is the one of Potomac Research (one of the more politically conscious US Research House), after talking with the Tea Party senators. it estimates the chances of a US Default at 20%. If you think what is a US Default it is not such a low number.

The market is setting itself up for a kill (like the old James Bond movie). As you can see it has attacked three times Area 1,670. Usually it takes three to five times to take on a strong support. There is also a different action this time. The other two times, the last 5 minutes someone saved the boat (green lines) …this time the last 5 minutes  someone sank the boat.

The market now, to tell you the truth, is in neutral now. But below 1,670 there are the algorithm based machines programmed for automatic sell with target 1,625 (for Australian ASX200 4,927).

Personally I think that the market has been very complacent with the US Congress and their stupid squabbles and now is just to sound a wake up call. A view to a kill..as the graph shows 

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Well today we have the first day of an extremely strong “end of rally” market signal. The SP500 broke its 50 days moving average. Now if tomorrow the market close under 1,670 (or DJ30 14,920)there is 80% chances we go and see at least 1,627 again -very fast.

The issue is as usual is the Tea Party in  the US Congress. The very big issue is that the political position of the two factions is even farther apart than in August 2011 and that the Republican Party is not anymore a cohesive structure with Boher at ransom of of the Tea Party “Taliban”.

The “Tea Party” is a far right accolade that is against the “big business” (including the share market, logically) as they see the 2008 “Mother of all bailout” a bailout of the culprits of the crisis (big business and banks) and let down of the normal people.

As you can see it yourself, they have a point as it was exactly that. But you can say you cannot save the normal people unless you save the institutions that make our economy work. Unless you want to change the system entirely.

I found this beautifully written article on The Game Theory and Washington, well worth a read and explain very well that, as in a proper US Movie, the countdown to financial apocalypse is 17 October. Will the US President save us. Probably so!

http://blogs.reuters.com/anatole-kaletsky/2013/10/03/game-theory-and-americas-budget-battle/

This is a graph of the Institutional Index. This is not a real index, but the SP500 cleaned from retail and Fed intervention. It tells you in reality what the institutions are thinking. It is daily. It went under support around the 25 Sept.Image

So they tell you that this is the free market …the reign of the capitalism!

As usual they tell you lies. Two weeks ago someone sold at market minute and 30 seconds after the close of the US market a position worth 1/3 of the volume of the previous day. As the index was closed it has not been registered.

Yesterday happened the inverse as it shows in the graph posted below. In the last 5 minutes someone bought so much that moved the entire US index by 0.4%. Long live the free market.

So what we do about it? Play the game. This (and also the looming real battle on the Ceiling Debt) will be a buy opportunity. Probably not now…let the US Debt Ceiling pass.

But be wary that soon or later someone (if you think about the size of the move you can find the guilty) will lose control of the markets. Not now, not soon…but it will happenImage

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