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David Stafford
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Student of markets, enjoys following their course.
My book:
Around the World in Several Pieces
  • The "Chop" Continues. 0 comments
    Jun 27, 2012 12:31 PM

    I was thinking to myself last night how I would describe this market. The best analogy I could think of involved "chop" and a jet ski.

    I'm not a jet skiing "rake" or something, spending my free time trolling the canals of Miami on a jet ski, but if someone is, all the power to them, it must be an awesome time. Either way, on several occasions in the past I have had the opportunity to ride a jet ski/waverunner.

    Since, jet ski's are relatively low mass high speed vehicles, one will have a tendency to kind of have a "hoppy" ride around chop. The water is at a relatively even level, but the little waves (usually stirred up by the wind) can give on kind of a funny time on a jet ski. Depending on the size of the wave, and the way one hits them, one can kind of pitch up or down, and yet still maintain a relatively strait course(unless the concussive force of hitting the chop cause you to turn your hands, and hence the jetski, but a "perfect jet ski rider" would not experience this hehe).

    This market is a lot like riding a jet ski over chop. Today for example, MPW, is up at right around 9.11. Yesterday it was lower. It will probably go lower back to its moving average of around 8.9-9.00 on the announcement of some bad new of one shape or another in the none too distant future.

    Is this volatility warranted. Is their some new groundbreaking technology whose synergies have yet to be understood and which is in turn causing different opinions in future cash flows? No. Is their some sort of Medical related legislation which is causing people to rethink the value of Medical real estate and service? No. So then why is this happening? It might be happening because as is kind of clear at this point, our markets, and the securities listed on them are being stirred up like wind stirred up chop on the ocean, by external-macro events involving countries as seemingly unrelated to a US-medical real estate investor as Cyprus.

    Now, I love Cyprus. I'm intrigued by its small town feel, ancient architecture, and its connection to various chivalric orders, but this does not make its economy in any way related to MPW. Yet, MPW is just another patch of water, in today's completely connected ocean of financial networks, and hence, odd news half way around the globe will make chop for MPW investors.

    Hence, this in a way relates to the posting from yesterday. For this volatility is not really volatility. If there is chop on the surface of one of the incredibly deep regions of the Gulf of Mexico, does this mean that the massive mass of water below the chop is in turmoil? No, it does not; and hence we come back to the odd short term, short amplitude volatility, that could confuse overly quantitative investors unaware of it, yet which is qualitatively negligible.

    And, just for the sake of vicarious living experience, here's a video(at end of post) of someone else on a water vehicle riding a round on some chop.

    You'll notice the rider and his vehicle will sort of "slap, slap, slap" over waves sometimes but remain relatively level throughout the process.

    I guess now all we need is some fun named "JET", or "SKI", investment to make this kind of a more fun investment climate. There probably are JET and SKI, already too, but what they are who knows, hehe.

    Anyway, I hope everyone continues riding merrily over this chop, and doesn't let it give them a sore behind, as chop will have a tendency to do.

    http://www.youtube.com/watch?v=nD63We51Yuw

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