Let the data tell the story. Remove human bias. Intuitive investment ideas may seem compelling, but more often, these ideas are time-consuming, inefficient, and inferior. Data and verification are more effective, and this approach has generated more successful investment strategies. Diverse thinking, diverse data, innovative approaches, and a willingness to be wrong and start over typically bring superior results. Trust the model. Data, discipline, and rigor win more often.
Automated trading strategies provide numerous advantages for implementing successful investment strategies. A rigorous and disciplined approach can lead to profitable strategies far superior to human discretionary trading.
Automated trading is disciplined trading. The strategy will do exactly as the underlying software is written. The software will enter trades based on the core logic of the strategy and likewise exit trades according to its exit logic. Irrational human behavior and biased decision-making do not interfere.
Risk is higher. Markets are more unpredictable, and valuations more volatile. So, when anyone says “this time it’s different” it usually makes good sense to stop listening. However, these days the markets have given us more frequent and intense volatility. The NASDAQ is down almost 30% so far this year, and shocks from the pandemic, the Ukrainian war, massive central bank interest-rate maneuvers, and China’s zero-covid policy, are all ongoing inputs for turmoil that will continue for some time. Persistent uncertainty creates higher costs of capital and less affordability, weakening business investment, slowing GDP growth, and reducing investment returns. Hyperbolic “this time it’s different” statements are turning out to be true. This time days look darker, uncertainty greater, economic growth lower, vulnerability to additional shocks higher, and investors fear many more dark days to come. More frequent and intense volatility will not be calmed anytime soon. It really may be different this time.
While most of Europe and the United States suffer sweltering heat, darkening economic skies and bitter winter of discontent are looming. Threats to the world economy are chilling. Rising interest rates are slowing activity for discretionary spending while rising prices for nondiscretionary spending are also slowing economic activity. It would be miraculous if the compounding of both effects would not lead to a recession in both Europe and the US. China’s growth has stalled. The Ukraine conflict will ultimately resolve itself to the West’s dramatic disadvantage and the West seems to be willing to let it happen – much to each economy’s long-term disadvantage. Don’t count on anything miraculous.
Interest rates are increasing, and bills are coming due for banks, taxpayers, and bondholders. More worryingly, rising interest costs will squeeze government budgets more than realized. Toss this onto the pile of higher energy costs, rising defense spending, aging populations, slowing growth, and the need to address climate change. As short-term interest rates rise, profits from quantitative easing will disappear (it was over $1 trillion from 2010 to 2021, for the US government).
More broadly, a full accounting of interest rate sensitivity is terrible news for the central banks in Britain, Japan, Europe, and the United States. Higher interest rate costs will impact budgetary flexibility, central-bank profits will be limited or disappear, and costs will be substantial, whether born initially by governments, the banking system, or taxpayers. Eventually, taxpayers will pay.
Government budgets will continue to be squeezed and economic flexibility will be limited or lost. That’s right, I don’t hear any music either.
A new vision for artificial intelligence is using smaller more relevant data sets for dynamic learning generating more effective outcomes and better predictions. This model uses cognitive architecture, learns, transfers learning, and retains knowledge – enabling more valuable and compelling artificial intelligence applications. Our approach is more closely related to the brain’s actual structures and much more effective than “neural networks,” which is a catchy name but the similarity to the brain’s actual functioning is in name only. Real advancement in artificial intelligence must live in reality, not theoretical marketing. This video discusses our perspective on the current state of artificial intelligence, the shortcomings of big data and trial and error approaches, and the most effective solution and its prospects. Smaller data sets, more relevant information, dynamic data, and algorithms will lead to more appropriate outcomes, better tools, and more effective applications, especially within Arcadia’s algorithmic trading.
The Fed’s latest projection was for annual inflation to fall from over 5% at the end of 2022 to about 2.5% by the end of 2023. At this point, we’re not taking the Fed’s projections seriously, and for good reason. They were spectacularly wrong when a depth of understanding and insight into critical future events was essential. In other words, the understanding of how the economy works, the Fed’s ability to predict the effects of economic shocks, and its policy actions have gotten no better over the last 50 years. More specifically, price stability doesn’t seem to be coming anytime soon because people simply don’t think it will. If we look at the combination of rising wages and inflation expectations for both consumers and businesses, it is these expectations that drive inflationary pressures more than central bank policy. Inflation levels will be stickier than first theorized by the Fed, and the time to resolution is likely longer. Expect more “surprises” that will be no surprise.
Arcadia Capital announces its new digital token in partnership with Red Matter.
“Equity tokens issued on a blockchain platform are potentially the most disruptive threat to existing equity markets.” (World Economic Forum)
New digital platforms created by decentralized finance companies, such as Red Matter, integrate securities and other digital assets comprehensively. The platforms enable asset managers like Arcadia to issue, trade, settle, and provide custody services for digital assets, usually consisting of digitally native equity tokens (ICOs). This innovation is exemplified by Arcadia Digital Token Arcadia’s Digital Token.
Digital asset platforms, such as Red Matter, exist in parallel to existing market infrastructure and securities markets. Arcadia’s offering is an alternative digitized version of a typical standard asset management investment in Arcadia’s investment fund. Arcadia Capital is taking advantage of this transformative technology to present an opportunity to any qualified investor anywhere in the world to invest in our digital token.
The illusion that one can either predict or get ahead of cycles, or predict when they will end is why most investors underperform the market. Markets are driven by human emotion, and it is human emotion combined with the supply and demand dynamic that determines price. Therefore, pricing is independent of anyone’s perspective about “intrinsic value.” Markets are based on price, price is based on supply and demand, and that dynamic is subject to abrupt changes based on the whims of small numbers, and sometimes exceptionally large numbers, of investors. Human behavior controls the markets. Optimism, pessimism, psychology, fear, conviction, and resignation all play a role in adding to volatility and uncertainty. Frequent and intense volatility is here to stay. Market movements really can’t be predicted unless they are at extremes when prices are at absurd highs or lows. But, picking the high or the low is a fool’s errand. Understanding and profiting from volatility, managing risk, and believing in a sustainable investment model is still the best strategy.
Cryptocurrency staying power has certainly been challenged these last few weeks. There is been a general market drop (even correction), but crypto has been collapsing in value and, to many, is in a death spiral. Of course, reality is more nuanced, and with more detailed analysis, a broad brush hardly seems appropriate. Certainly, the weakest and, honestly, craziest portions of the crypto world have been exposed to be nothing more than silliness. But some components remain resilient. The market is quite effective at sorting the specifics of an otherwise overgeneralized sector. There is no such thing as “crypto.” There are stable and valuable digital assets, globally exchangeable and disruptive. Others have nothing but fluff. Of course, government should insist on more reliable information, and institutions should guard more effectively against fraud. But, there is wheat among the chaff, and it continues to have the potential to be disruptive, create substantial value, and enhance global prosperity.
Arcadia Capital Group, a proprietary algorithmic investment fund, is proud to announce that our world-class software development team has launched Arcadia’s new proprietary trading platform. This platform focuses its strategies on public securities, including equities, derivatives, futures, and crypto. The team’s scientific and technological background, investment, and entrepreneurial experience enable it to develop our disciplined, algorithmic, and proprietary approaches that both manage risk in increasingly and more intense volatile markets, and profit disproportionately from this volatility.
Transformation, or euphemistically, “disruption,” creates great opportunities to capture newly created wealth. But, as industries are transforming and strategic disruption is occurring, quite a lot of absurdity and certainly enough terror are associated with some of these extraordinary opportunities to require much greater analysis and understanding.
There are extraordinary risks associated with anything disruptive and transformational. The first disruptor isn’t always the one who creates the most value or is even a sustainable competitive entity.
Innovation does not mean competitive sustainability. Digital platforms, ranging from the internet to digital assets and cryptocurrency are transforming industries globally. But, along with that comes a lot of hyperbole and typically that is followed by very little substance. Great companies use technological disruption, innovation, and transformation to establish themselves and thrive. But they rarely last. Every company, even the most valuable companies such as Apple, Apple, Amazon, Facebook, Netflix, etc. must dynamically transform to stay competitive and valuable.
Transformations are certain. New entities will become very valuable, legacy companies will diminish, and a handful will transform and thrive.
Transformation and sustainability create and capture great wealth, but are far more challenging to identify, and even more challenging to sustain.