Archive for June 12th, 2012

The Friedman Flat

We are in divergent times. A part of Europe is on the football field watching the Euro cup, while another part is protesting on the streets. I don’t know if Friedman would have seen it coming, how despite his vision of virtues linked with flatness, the world has somewhere descended into a vicious un-flatness. Not because the flattening drivers have not brought in efficiency but because flatness runs on bumpy Time.

The great leveller internet itself is not enough to hedge the cycles of inflation or ease the cycles of consumption or balance the allocation of resources. Mandelbrot’s fractal coastlines had an amazing geometrical rule attached with it. The geometrical rule of proportion said that more the number of neighbours a country have, higher the chances of a conflict. In context of what’s happening in Europe today one wonders how the flatness did not ease Europe’s geometric propensity to disagree. The idea of a consensus on spending or currency models was geometrically flawed, from the start.

Moreover, at the end of the day do we really have to go to war to prove discontent? Society has evolved. Now we can find new ways of disruption. Let’s destroy value of money by pumping more or let’s teach people how to consume. Flatness was always a utopia. If only efficient systems, sharing information, sharing workflow, objective and robust processes could have taught society to build on the virtues of flatness. There would be no need for risk management then. A society is prone to vices. The phenomenon is called hyperbolic discounting. We humans are too myopic in our approach to really value tomorrow. We discount tomorrow more than today.

You can read the complete article in 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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Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.


INDIA 30 ORMI © - Updates and Risk Metrics

12 Jun 2012 has a historical significance. National Stock Exchange launched the derivatives instruments on the Nifty Index. Derivatives instruments were derived from underlying indices. The indices values that are disseminated today are broadly based on market capitalization methodology. Market capitalization methodology has been challenged globally for a few broad reasons. 1) As an asset strengthens it is given more weight 2) As an asset weakens it is given lesser weight. This on one side captures momentum but on the other side suggests investors to focus more on growth compared to value. This increases portfolio risk when market growth slows down or reverses, as has been the case since 2007. When markets contract, the erstwhile top performers push into red for extended period of time causing large drawdowns and emotional pain.

The Orpheus Risk Management Indices has a different construction methodology. The India 30 ORMI © is based on the idea that investing is about value picking and extremes are prone to reversion. The ORMI Index extends and fine tunes the idea first mooted by De Bondt and Thaler in their 1981 paper suggesting that 3 year worst losers portfolio tends to outperform the 3 year best winners portfolio. The ORMI construction methodology is also based on the statistical idea of extreme reversion i.e. extremities tend to reverse.

The illustration below is a simulation of the portfolio from 2009.
The latest ALPHA Indices carries the running signals and related risk metrics.

To read the latest report download it from our Reuters Store or mail us for subscription details.

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.

Domnita Pascut is the founding member of Orpheus Capitals.  Her interest in charts and market patterns was an extension of her keen understanding of social mood and sentiment. How charts could say so much intrigued her. She worked on market patterns, economic research, cyclicality and economic history. It was her liking for history which helped her see the cyclical natures of markets and patterns. Domnita gives more weightage to conventional technical analysis, channels, trendlines, market patterns and Fibonacci. She combines all this with basic Elliott structures, performance cycles and high low close bars.