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Paulo Santos
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I am a Portuguese independent trader, analyst and algorithmic trading expert, having worked for both sell side (brokerage) and buy side (fund management) institutions. I've been trading professionally for about 16 years and also launched www.thinkfn.com in 2004. Thinkfn (Think Finance) carries... More
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  • News Can Mean Something And Its Opposite

    Sometimes you're expecting a given piece of news, or interpreting a piece of news that just came out. And amazingly, the market does the precise contrary of what you'd expect it to do under the circumstances.

    Putting aside the very usual fact that markets quite often turn on news events (the so-called "buy the rumor, sell the news"), there is also something else at work here.

    Put simply, the market can quite often interpret the same piece of news on completely contradictory ways, for no particular reason.

    Take for instance the Japanese Yen (NYSEARCA:FXY) and the U.S. Dollar (NYSEARCA:UUP)

    In the past 6 months, the Yen is down heavily. The reason? The Bank of Japan is printing left and right, and as everybody knows, printing money leads to currency weakness. It's thus no surprise that the Yen is imploding.

    But wait. The Federal Reserve is doing exactly the same! And guess what, in the last 6 months the U.S. Dollar is up strongly, not down. On precisely the same kind of policy, to boot. So why is currency printing bad for the Yen but good for the Dollar? Well, the rationalization would be that the printing in the U.S. is making the economy better, so the Dollar strengthens. Obviously, any kind of rationalization is just that … a rationalization. The true driver is just one of supply and demand, and on the same piece of news people have decided to sell Yen, but to buy Dollars.

    This even applies to stocks

    All along its ascent, Apple (NASDAQ:AAPL) carried low earnings multiples. Why? Because with each conquest, the fear was that it would be the last conquest, that the summit had been reached. And when the summit was indeed reached (at least for a while), then Apple got punished yet again.

    At the same time, each time Amazon.com (NASDAQ:AMZN) presented horrid earnings -- and this repeated itself quarter after quarter for two and a half years - the posture was different. The posture was always "well, yes, these were horrid, but they're investing and soon they'll be producing huge earnings!". Never mind that just getting to where Amazon.com was during 2010 would already be like climbing the Everest.

    Not just a game of expectations

    The first thing someone would say here was that it's all a game of expectations. That, too, wouldn't quite capture it. Amazon.com's expectations always went down along with earnings. Apple's mostly went up. Plus nobody really believes the Federal Reserve is doing anything to build a sustainable future, or Bank of Japan for that matter (but at least there the currency implodes).

    Demand and supply, allocation

    Whatever the reasons, it all comes down to demand and supply for the assets. That's pretty obvious. But what dictates demand and supply is the allocation that all investors want to any given asset. That allocation can be influenced by fundamental factors where news would be relevant, but it can also be influenced by what investors think other investors will do in those assets.

    This perhaps gives credence to the phrase "you have nothing to fear but fear itself". The reason why the Yen drops is because everybody dumps it. The reason why the USD climbs is because people don't dump it, at least not yet. At least until they fear others might dump it themselves.

    In the markets, this applies to almost everything and can explain why everything is dandy regarding Greek and Portuguese debt one day, and nobody wants to touch it the next day. The reasons not to hold it -- the news saying one ought not to hold it - were certainly well-known years ago. But as long as others hold it, nobody sees a problem in doing likewise.

    This is perhaps something which should be kept in mind when holding, say, U.S. Dollars or Amazon.com stock. The reasons not to hold those are well-known now, but since others are still holding, nobody has a problem with them. This won't last forever.

    Conclusion

    While taking place, many news can be used by the market to run either way. Indeed, the same piece of news can be used to run both up and down. But at some point, if a given development has deep fundamental implications, it usually ends up having an effect. This effect usually comes when those, sedated by the others' willingness to hold a given asset, see such willingness melting away.

    Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    May 23 9:50 AM | Link | 2 Comments
  • Bitcoin Is An Amazing Show Of Capitalism Strength

    By now everyone has heard about bitcoin, the digital money anyone can create. Bitcoin prices have been on a tear lately in a surge of speculation. This surge began even before the Cyprus crisis but got much more media attention because of it.

    But this article is not really on how expensive the bitcoin has gotten, or how they might be some kind of alternative money or something like that. Instead, it's on something much more amazing. It's about how bitcoin showcases the incredible strength of Capitalism.

    Mining bitcoin

    To produce bitcoin, a user must solve a complex algorithm. Also, this algorithm gets increasingly difficult to solve.

    To solve this algorithm, programs were first conceived which ran on a computer's CPU (Central Processing Unit).

    Then, as people sought ever more efficient and faster ways to mine, miners started using the massively parallel power of GPUs (Graphical Processing Units) typically used for gaming to solve the bitcoin algorithm. This allowed for an order of magnitude improvement in speed and efficiency in mining bitcoin.

    Afterwards, the more enterprising miners turned to using FPGA-based (Field-Programmable Gate Array) systems. These are systems which use ICs (Integrated Circuits) which can be configured after manufacture for a given application. They turned out to be an order of magnitude faster than GPUs.

    However, it didn't stop there. A few even more enterprising companies went even further. They designed and produced systems based on ASIC (application-specific integrated circuits) chips. That is, these companies went as far as using chips designed specifically to handle part of the bitcoin algorithm! Why? Again to get more speed and efficiency. ASICs turned out to be as much as an order of magnitude faster than FPGA systems.

    The power of competition

    Given a task which was already being handled by fast computers and a money incentive, the bitcoin community, through sheer ingenuity and the clever use of technology, accelerated the process of generating bitcoin at least 1000 times.

    Such is the power of Capitalism and competition. It's this power that's at work every day in every sector that's open to competition.

    Conclusion

    More than being an alternative form of money or a safe asset, bitcoin is a display of the power of competition and the fruits it can bear when there's a decent monetary incentive.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: economy
    Apr 09 12:04 PM | Link | 9 Comments
  • Portugal Might See Its Government Quit Over The Weekend

    This might constitute some kind of insight for those not in Portugal. In a few hours, Portugal's Constitutional Court will announce its decision regarding Portugal's 2013 Budget. In this decision, it's likely that the Court will find several measures as being against the Constitution.

    This decision by Portugal's Constitutional Court might lead Portugal's Government to call it quits. The Court's decision will mean that the Government would have to drop several measures affecting the country's best-paid pensioners. This in turn would mean that other cost-cutting measures or tax increases would have to be found.

    This development has had little media exposure outside Portugal. Tomorrow, the Government will convene after the decision is known today. So it's possible that the government could fall during the weekend, possibly prompting elections.

    This, in turn, could have a negative impact on the Euro (NYSEARCA:FXE) and maybe on the equity markets as well. I must say, however, that I'm broadly positive on the Euro, and regarding the equity markets after a session like today's -- which opened with a gap down - the odds are 2/3rds favorable for a gap up on Monday.

    Conclusion

    In a little-known development for those outside Portugal, Portugal's Constitutional Court will announce its decision regarding the constitutionality of Portugal's 2013 Budget in a few hours' time. This might lead to Portugal's Government calling it quits over the weekend.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: FXE, forex
    Apr 05 2:42 PM | Link | 19 Comments
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