I just arrived 3 days back to Delhi. It started well with the Airport shuttle to the centre of the city. But then the dry and hot Delhi is prompt, “welcome to the extreme climate city”. Distance keeps my love alive for India.

Talking about love, listening or reading news about India from Europe is different than coming here and tuning in. I have never felt such an anti-state wave before. There was hardly an objective comment about the state. The state is bad, the leaders are corrupt, the laws are poor and “India kabhi change nahin ho sakta”.

Then there are open forum debates, be it between Air India vs. its pilots, the state vs. telecom majors, finance minister vs. Mauritius, the debate about productive investment in gold or about Kingfisher or Reliance. The regulators recommendations are criticised and labelled as arbitrary, regressive and inconsistent. Thought leaders have started using words like destroyed and collapse. There are of course counter opinions, “seven reasons why India will not collapse”. It seems like an ever ending debate fitting the description Amartya Sen gave us as ‘argumentative Indians’

I don’t have a pro state stand neither I am against the state. Maybe I am judging the state relatively and not absolutely. For me messing up a pensioner’s life, losing his pension in risky investments is a bigger sin than trying to restrain a kind of laissez-faire. We are in tough fiscal times and controls has helped India on prior occasions, but maybe it’s poor timing and lack of diplomacy (India has lesser diplomats than New Zealand). And after a secular fall from Nov 2010 the negative market sentiment only fuels up the debate further.

As an investor, trade or money manager I have a choice whether I want to indulge in the blame game or think of a solution for risk management. What if these negative sentiments exacerbate and take us 20% lower from here. What then? Nifty is already down 20% since Nov 2010 another 20% may lead to further pain. Owing to geographical bias or portfolio allocation rules, going cash or cutting out losses is simply not an option. Is there a way of superior stock selection? Is there a way to identify 10% of the market which can outperform and sustain despite any broad market drop and continued negativity.

This article was written for Business Standard

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

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Cycles can sometime evoke a shocking response. The reason is that they assume a historical seasonality to continue. This is hard for a section of the market which believes that only new information drives the future trends. New academic work has given credit to economic historians and seasonality has been given more importance than earlier. But even if seasonality does get accepted academically the ‘Madness of crowds’ as MacKay mentioned in his work in 1850’s will continue to disbelieve that an order like cycles work.

Starting 2009 Indian Sensex has outperform Chinese SSEC by 25%. We first wrote about it on 23 Feb 2009. 

We were forecasting performance cycles for 2009-2010 and 2012-2015 time windows. Our findings reinforced our initial hypothesis that BRIC is more polarized than the Goldman Sachs’ model assumed. Within BRIC also Russia should outperform Brazil, and India should outperform China over the next decade.

Our Jiseki cycles have captured the essence of relative performance between regional Indices. As you can see in the image below, India underperformed China till 2008 lows and after that India has outperformed China. This seasonality will change again sometime in the future. When it does, the Jiseki pair cycles will turn in sandy colored again.

Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.

Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

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Most of the time we make a buy or a sell case, rarely do we look at stock market trends from a consumption point of view. Markets work with a multitude of external factors, consumption is one of them. But if the broad consumption trend is up, the society will not just gobble up cars, burgers and films, it will also gulp down stocks and investment ideas.

But then one may say that such connections are not linear, consumption is also about basic needs. Out of the 10 broad economic sectors around half are linked with direct societal consumption. The consumer discretionary sector includes stocks that sell products (or offer services) that consumers do not necessarily need (like consumer staples), but that they want. The consumer discretionary includes auto related, entertainment, home appliances, homebuilders, retailers etc.

Auto, FMCG, BSE Consumer Durables were the top performers since 2009. And this has not been just an isolated case for India. Even globally the consumer discretionary or retail ETF SPDR is the top performing sector. This means that society is not only consuming, it’s on a consumption spree.

A society does not consume because …

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In the age of information, quotes become books and books become religion, almost. Robert Shiller’s Irrational Exuberance was a voice of caution that appeared in March 2000, before the start of a decade long sequence of negative fluctuations. The book itself was written about economic bubbles and investor psychology.

Shiller’s based his work on his 1981 research paper in the American Economic review, where he showed the divergence between fundamentals and market prices. He took the present value (PV) of dividends paid on S&P composite stock price index discounted by a constant real discount rate for the period (1871-2002). He illustrated that PV behaves remarkably like a stable trend. In contrast, stock price index gyrates, wildly up and down around this trend. Shiller’s contention was that the divergence was much larger than what valuation could explain. Price change was driven by psychology not by fundamentals. He suggested feedback dynamics between human interactions as the explanation for excessive volatility or bubbles.

Who owns the truth?

On one side Shiller and other new age experts highlighted the weakness in the assumption of efficiency, but on the other hand was it correct to swing to total irrationality (inefficiency)? Why could we not give benefit of doubt to earlier thoughts on rationality (normality)? After all there were no tera-bytes of data and real computing power. In hindsight the rationalist argument might have gaps, but how do we think tomorrow would judge the “irrationalists”?

A recent award winning paper by David N. Esch in the Journal of Investment Management addresses the…

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I was invited to give an inspiration talk at the Startup Weekend for the global Jade network. KJ, a friend of mine, an international expert on e gaming and netpreneur could not avoid a smirk, “Mukul and inspirational talk”. He knew me well and was much updated about the contrarian me and our idea of glorifying the worst. Unmindful of KJ’s de-motivation, I went ahead and delivered the following talk.

It was sometime in June 2005, I was with my partner in an art museum looking at the picture of a Salcia tree. Salcia’s are a predominant species here in Cluj. She told me about the Greek tragedy (Death of Eurydice) linked with Salcia, popularly known as ‘The weeping willow’. We were looking for a name for our company and after hearing the tragedy I started toying with the idea ‘The Weeping Willow Inc.’ I foresaw an economic tragedy and saw a perfect fit. But then we are in the age of euphemisms, hard truths can be bad for business. This is how we chose ‘Orpheus’ as a name for our company.

Now 7 years later, sorrow seems to have transcended from the painting on the wall to austerity and debt worries driving Greek pensioners to suicide. We are living tragic times where more than 40% of Spanish youth from 15-24 are jobless. One might say India is another world. It’s an illusion. Almost half a billion India is young. You should read the recent TIME story on ‘Children of the New India’. Disappointments rarely make headlines, till it creates Mohammed Bouazizi or the Tibetan youth immolating himself in Delhi, protesting Chinese interference in Tibet.

This could also seem disconnected to the economic reality. But it’s not. Economics 101…

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Odysseus has traditionally been viewed in the Iliad as Achilles’ antithesis. Unlike Achilles whose anger is self-destructive, Odysseus is renowned for his self-restraint and diplomatic skills.

While passing through the land of sirens, known for their luring fatal songs, he orders his men to stop their ears with beeswax and ties himself to the mast of the ship. Recognizing that in the future he may behave irrationally, Odysseus limits his future agency and binds himself to a commitment mechanism (i.e. the mast) to survive this perilous example of dynamic inconsistency.

In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-maker’s preferences change over time in such a way that what is preferred at one point in time is inconsistent with what is preferred at another point in time.

A simple analogy to investing and time preference would be trading gains and losses. It has been observed that that the investing community is more eager to cut out gains faster than a similar amount of loss. This can be explained from a temporal perspective also. When choosing between $100 or $110 a day later, individuals may want to wait a day for an extra $10. Yet after a month passes, many of these people will reverse their preferences and now choose the immediate $100 rather than wait a day for an additional $10.

The eagerness to consume, or instant gratification compared to deferred gratification is what differentiates the investing majority from the Odysseus minority. Investing is a lot about self restraint. Humans give more importance to today compared to tomorrow, the idea of “now” is more important than to the idea of some distant time in the future.

Temporal discounting refers to the tendency of people to …

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Proportion is mathematical. This is why Elliott beautifully illustrates the proportional structure on markets. In this update we question some Elliott assumptions and highlight some observations on Dow Jones Industrial and the overall market structure.

Fig. 1: This is a classic five wave structure from 1789 to 1990. The 1990 highs seemed like a top, but markets continued to extend more than a decade after the respective high well into 2000.

Fig. 2: Elliott Wave structures give 2000 top a high importance. This importance rests on the super cycle fourth wave low at 1982. If that low is assumed to be in 1975 and not in 1982, the count would change. This would suggest that the all time top is still not in place and markets could extend higher above 2000 all time highs.

Fig. 3: This is the five wave structure from 1932 lows.

Fig. 4: This is the five wave structure from 1975 lows. As one can see the time taken by the second wave is marginally smaller than the time taken by the IV cycle wave (3300 days). The difference appears large on a visual chart with an arithmetic scale, but on a log scale both price and time suggests that the Dec 1974 and Aug 1982 price structure (1 and 2 cycle wave) can be compared with the Jan 2000 and March 2009 structure (III and IV cycle wave).

Fig. 5:  All the above cases suggest that if we extend the channel high of the supercycle count (Fig. 3) the DOW structure can see an extension till 20,000. Terminal waves are very tricky and this is not any terminal wave. This is a terminal wave of all available history of markets. Two decades of error in a history of pattern watching and Elliot counting from Dark Ages in 1330 should be acceptable.

Till 12,000 and 11,000 supports  stand firm on DOW, this preferred stands firm for us.