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Wed, 23rd August 2017

Anirudh Sethi Report

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Archives of “expected value” Tag

The 14 Trading Lessons From “What I Learned Losing A Million Dollars”

  1. The potential of initial and temporary success only exists in trading. You can’t just call yourself a brain surgeon and get lucky while messing around in someone’s head. And just stepping on stage and trying to give a violin concert if you have never touched a violin before won’t end too well either.
  2. Right, wrong, win and lose are inappropriate terms for describing the participation in the markets. In 20/20 hindsight, decisions might be good or bad but not right or wrong. With regards to the markets, only expressed opinions can be right or wrong. Market positions are either profitable or unprofitable.Image result for What I Learned Losing A Million Dollars
  3. There are as many ways to make money in the markets as there are participants.  But there are only very few ways to lose.
  4. A light-bulb manufacturer understands that 2 out of 10 bulbs will not work; a fruit seller knows that some apples will be foul. Those losses are expected. In trading, we don’t expect to lose when we enter a trade. Unexpected losses are hard to deal with.  Acknowledging that losses are part of the game and accepting the losses are two very different things.
  5. In trading, losses are treated as mistakes and from early on, we have been taught that mistakes are bad and have to be avoided.
  6. If you know exactly how much you are going to win, but don’t know how much you can lose, you are denying losses.
  7. Trading is an activity without a beginning and an end. In an activity without an end, you can always make decisions and change your decisions based on the current situation. A football game, a roulette spin or blackjack have defined beginnings and endings; after the game is over, you can’t change anything. You have to accept the outcome. It’s not open for interpretation; you (your team) have lost or won. In trading, the “game” (activity) never ends and your trade (potentially) never ends. Because your trade doesn’t end, your loss is never final and it could always turn around.
  8. Rules are hard and fast. Tools have some flexibility. Fools neither have rules nor tools.
  9. A scenario might have been an acceptable trade based on someone else’s rules. Profitable opportunities will occur that you won’t participate in. Your rules will only enable you to engage in some of the millions of opportunities.
  10. You can’t calculate the probability of having a winner. You can only calculate how much you are going to lose. All you can do is manage your losses and not predict your profits.
  11. People usually pick the exit point as a function of their entry point and it’s usually some arbitrary Dollar amount.
  12. People rationalize a trade idea by expressing the trade in terms of the money odd’s fallacy – “it’s a three to one reward-risk ratio! I’ll risk $500 to make $1500”. The reward-risk ratio gives no information about the likelihood of winning a trade.
  13. People who ask, “Why is the market up or down?” don’t want to know why.  They only want to hear the reasons that justify their losing position.
  14. The last moment of objectivity for the roulette player is the moment before he places his bet and the wheels starts spinning. After that, he can’t do anything anymore to lose more money. For the market participant, the last moment of objectivity is the moment before he places his trade. But after that, he can still do a lot to lose more money. That’s why all your decisions and plans have to be made pre-trade.

RBOB Slides After Surprise Gasoline Inventory Build; New Record Glut In Crude

After a volatile day of White House rumors and denials, and OPEC headlines, WTI and RBOB ended the day lower ahead of tonight’s API data which showed a slightly smaller than expected crude build (+2.5mm against expectations of +3mm). However RBOB prices tumbled after an unexpected build.

API

  • Crude +2.502mm (+3mm exp)
  • Cushing +544k
  • Gasoline +1.84mm (-1.5mm exp)
  • Distillates -3.73mm

While crude built again (the 8th week in a row), it was the swing back to a build in gasoline that is most notable…

INDIA : GDP growth averts demonetisation impact

Contrary to all expectations, India’s economic growth stood at seven per cent in the third quarter of the current financial year despite demonetisation, keeping the projection for the expansion at 7.1 per cent for the year which is the same as was pegged in the earlier data by the government.

The data, which is bound to evoke criticism from independent economists, was released as second advance estimates by the Central Statistics Office after its first advance estimates did not take into account demonetisation effect.

The year 2016-17 was projected to show the same growth in the second advance estimates against the first one despite higher base effect. The growth in 2015-16 was raised to 7.9 per cent against 7.6 per cent estimated earlier, after the first advance data was released.

However, much of the growth was projected to come from agriculture which is expected to expand by 4.4 per cent in 2016-’17 against 0.8 per cent a year ago and government-supported expenditure that rose 11.2 per cent against 6.9 per cent.

Quarterly GDP growth
Q1 2015-167.2%
Q2 2015-167.3%
Q3 2015-167.2%
Q4 2015-167.9%
Q1 2016-177.2%
Q2 2016-177.4%
Q3 2016-177.0%
Source: Central Statistics Office

Elsewhere, electricity and construction were also projected to grow higher at 6.6 and 3.1 per cent in the current financial year against 5.5 and 2.8 per cent in the previous year respectively.

The quarter — October-December– which was supposed to have worst hit by the demonetisation– saw manufacturing growing by 8.3 per cent against 6.9 per cent in the second quarter. Similarly, agriculture rose by 6 per cent against 3.8 per cent.

However, trade and financial services were impacted much as these rose by just 3.1 per cent in the third quarter against 7.6 per cent in the second quarter.

Credit Suisse Announces Another 6,500 Layoffs After Reporting 2016 Loss

After Credit Suisse reported yet another significant loss for the full year 2016, amounting to 2.35 billion Swiss francs, more than the CHF2.07bn expected, the Swiss banking giant said it was looking to lay off up to 6,500 workers and said it was examining alternatives to a planned stock market listing of its Swiss business.

“We’re setting a target now of between 5,500 and 6,500 for 2017,” Chief Financial Officer David Mathers said in a call with analysts on Tuesday after the bank published earnings. The bank did not specify where the extra cuts would come but said this would include contractors, consultants and staff, Reuters reported.

For the fourth quarter, Credit Suisse reported a 2.35 billion franc net loss, largely on the back of a roughly $2 billion charge to settle U.S. claims the bank misled investors in the sale of residential mortgage-backed securities.  Despite the loss, Credit Suisse proposed an unchanged dividend of 0.70 francs per share, in line with market expectations.

CEO Tidjane Thiam, who took over at Switzerland’s second biggest bank just over 18 months ago, is shifting the group more toward wealth management and putting less emphasis on investment banking. As part of his turnaround plans, the bank is looking to cut billions of dollars in costs and cut a net 7,250 jobs in 2016 with more to follow this year.

Rolls-Royce confirms largest ever loss of £4.6bn

Image result for Rolls-RoyceRolls-Royce has confirmed the largest headline loss in its history, as a weak pound which affected its hedge book and a £671m settlement for historic corruption claims drove it to a pre-tax loss of £4.6bn.

However, the drop in profit did not affect the company’s dividend, and underlying profits before tax declined by much less than earlier analyst forecasts, down by 49 per cent to £813m, compared to expectations of £687m.

Rolls chief executive Warren East previously softened the blow of the settlement announcement by simultaneously reporting that profits and particularly cash would be ahead of earlier expectations.

Rolls said the difficulties in its marine business are expected to continue this year, but said it expects to nonetheless report “marginally higher” revenues, with “a modest performance improvement overall” and free cash flow “similar” to this year’s £100m.

How’s that oil demand picture looking OPEC? – India’s demand at the lowest for 13 years

One part of the OPEC production deal isn’t going according to plan

The main reason for the OPEC deal was to freeze production so that demand eats into the glut of supplies. That’s all well and good until the glaring floor in the plan comes home to roost, i.e demand doesn’t grow or worse, it drops.

So when one of the fastest growing countries sees oil demand fall the most in 13 years, there should be alarm bells ringing at OPEC.

Bloomberg has noted the drop which has seen India’s use of diesel drop 7.8% in Jan. Diesel accounts for around 40% of total fuel use. India also imports around 80% of it’s oil and the IEA said it will be the fastest user of oil through to 2040.

The drop is being tied in with the recent policy crackdown on high value bank notes, which is expected to shrink economic growth. One analyst expects that this is a one off and demand will pick back up in Feb. We’ll see whether he’s right no doubt. If he’s not then this could be a bigger issue for OPEC who will start to think about what to do with the current deal in a couple of months or so.

For me, the demand part of the OPEC puzzle was always the weak link and if demand doesn’t match expectations in relation to this deal, there’s going to be strong calls to expend it.

Overnight US Market :Dow closed +118 points ,Dow, S&P 500, Nasdaq blow past old records

Stocks were in rally mode Thursday as all three of the major indexes jumped to new all-time closing highs.

The Dow Jones industrial average jumped 118 points, or 0.6%, to 20,172.40.

Up by the same percentage were the S&P 500 and the Nasdaq composite — to their new highs of 2307.87 and 5715.18, respectively.

Investors weighed earnings from a batch of companies, including Twitter, Kellogg and Viacom. Energy stocks led the gainers as the price of crude oil headed higher. Utilities were down the most.

Benchmark U.S. crude gained 66 cents, or 1.3%, to $53.00 a barrel in electronic trading on the New York Mercantile Exchange, while Brent crude, the benchmark for international oil prices, added 40 cents to $55.52 a barrel.

In earnings news:

Amazon Tumbles: Misses Revenues, AWS Disappoints, Guides Lower

Jeff Bezos magic may be running out, because one quarter after the stock plunged when the company missed earnings (with revenues in line) and guiding lower, moments ago AMZN did a twofer, and despite beating the bottom line, it posted a big miss on the top line. As a result, the reason why Amazon is tumbling some 4% after hours is because despite reporting Q4 EPS of $1.54, on expectations of $1.40, or a 55% increase in profit, is that Q4 revenue of $43.7 billion in its strongest quarter missed expectations of $44.9 billion, if 22.4% higher than a year ago.

Amazon’s operating income of $1.26 billion was just above the high end of its guidance of $1.25, and beat Wall Street estimates of $1.13 billion. Also troubling: Amazon’s “holy grail”, AWS, reported sales growth of 47%, however, it was not enough and led to $3.54 billon in high margin sales, below the $3.61bn in consensus estimates, suggesting that the cloud wrs are finally starting to impact Jeff Bezos too.

The guidance was also troubling, with the company now expecting Q1 operating income between $250 and $900 million, below the street’s expectation of $1.3 billion, on revenue of $33.3 to $35.8 billion, below the street’s consensus of $36 billion.

with the company now expecting Q4 operating income between $0 and $1.25 billion, below the street’s expectation of $1.7 billion, on revenue of $42 to $45.5 billion, roughly in line with consensus of $44.6 billion.

The full guidance:

Facebook Surges To Record High After Smashing Expectations On 1.86 Billion Monthly Users

So much for worries about tech companies rolling over.

After yesterday’s AAPL beat which nonetheless resulted in one of the biggest intraday jumps in its stock in history, sending it highest over 6% today, moments ago Facebook reported results which crushed expectations, and have sent the company higher as much as 3%. The street was expecting $8.81 billion in revenue and EPS of $1.34. Instead it got revenue of $8.81 billion, a 51% increase from 2015 – 84% of which came from mobile – and EPS of $1.44, a 78% increase.

It achieved this with Daily Average Users of 1.23billion, above the 1.21billion expected, up 18% Y/Y, while Monthly active users soared to 1.86 billion, also above the 1.84 billion expected, and up 17% from a year ago. This means that as of this moment more than a quarter of the world’s population logs in to Facebook at least once a month.

Putting Facebook’s results and unprecedented user growth in context, in one year, Facebook added some 269 million monthly active users, roughly all of Twitter’s user base, in just the past year.

Here are the details reported by Facebook.

  • Daily active users (DAUs) – DAUs were 1.23 billion on average for December 2016, an increase of 18% year-over-year.
  • Mobile DAUs – Mobile DAUs were 1.15 billion on average for December 2016, an increase of 23% year-over-year.
  • Monthly active users (MAUs) – MAUs were 1.86 billion as of December 31, 2016, an increase of 17% year-over-year.
  • Mobile MAUs – Mobile MAUs were 1.74 billion as of December 31, 2016, an increase of 21% year-over-year.

Finally, the biggest factor was Mobile monthly users, which soared to 1.74 billion as of Dec. 31, an increase of 21% Y/Y.  Also, if there was any concern about ad revenue slowing down, that too can be ignored for now: Mobile advertising revenue represented approximately 84% of advertising revenue for the second quarter of 2016, up from approximately 80%  in Q4 2015.

Apple to slice iPhone production 10%

Apple will trim production of its iPhone family around 10% on the year in the first quarter of 2017, according to calculations by The Nikkei based on data from suppliers.

This comes after the company slashed output in January-March 2016 due to accumulated inventory of the iPhone 6s line at the end of 2015. That experience led Apple to curb production of the iPhone 7, introduced in September, by around 20%. But the phones still have sold more sluggishly than expected. Information on production of the latest models and global sales suggests cuts in both the 7 and 7 Plus lines in the coming quarter.

 The larger iPhone 7 Plus, which features two cameras on its back face, remains popular. But a shortage of camera sensors has curbed Apple’s ability to meet demand for the phones.
 U.S. research company IDC forecasts global smartphone shipments in 2016 on par with the 2015 level. Even Apple has had difficulty creating appealing new features, stifling demand from customers who otherwise would look to upgrade to the latest device.

Japanese demand for the iPhone 7 line is strong, thanks in part to the phone’s compatibility with contactless IC chip readers, commonly used for services such as payment. But this country makes up just 10% or so of the global smartphone market, and cannot compensate for sluggishness overall.

Japanese component producers will again feel pain from the coming cuts. But orders from Chinese smartphone makers, as well as growing demand for automobile technology linked to automated driving, will soften the blow. A source at a major parts producer called Apple’s production cut “within expectations,” saying the company has reduced the role Apple plays in its overall business.