Saturday, December 26, 2009

US debt ceiling up again to $12.4T

It’s a bit disconcerting to learn “The bill permits the Treasury Department to issue enough bonds to fund the government's operations and programs until mid-February. The Senate will vote again on the issue Jan. 20Yahoo News). At this point, the lack of any debt-reduction proposals has become sadly expected.

LAURIE KELLMAN (AP) then went on to say “Obama must sign the measure into law to prevent a market-rattling, first-ever default on U.S. obligations.” Given that Bernanke could literally create as much USD as he wants, American treasury debt would always make good on its obligations, the risk lies in speedy inflation.

So why would the Associated Press plant fear of default into the readers? It’s to probably rally support for the (reckless or intentional?) excessive borrowing by the few people who run American congress. How will this end? Badly I bet.

Thursday, December 10, 2009

Aussie bank raises interest rates (Outrage!)

This (shortened) video was meant to pacify bank customers regarding rising credit cost.

It failed to mention still something. While central banks, who lend to commercial banks largely, have kept interest rates significantly low, why does Westpac NEED improved returns, so urgently? hmm...

Saturday, December 5, 2009

Murdoch hates climate change folks

The usual pro-government FOX News has lately displayed an Anti-Global Warming (i.e. anti-establishment) agenda. What's going on here? Is it simply Obama Administration-disapproval trend following, or has FOX News decided to take a fair position in the climate-change debate?

Friday, December 4, 2009

837% return in 33 days (Poker)

Smasharoo, a pro poker player, documented a return of 837% within 33 days, with very little volatility (adequate bet size management), at That’s pretty amazing. I have learned a few things from his much appreciated shared experience.

Minimum volatility

Position size/bankroll management and playing strategy largely optimize return volatility. Basically, understand the statistics behind your strategy and make betting size decisions with respect to it for optimization. The Kelly Formula is a pretty good reference.

High frequency of compounding

This explains why successful day traders practically always outperform those holding longer positions. I have discussed that even with a small statistical edge; higher frequency of compounding makes a HUGE difference (see Slight Edge Butterfly Effect).

Poker and financial instruments

I see a lot of similarities. They both hold inefficiencies due to varying skill levels, i.e. more informed players will consistently profit over time. So the key then lies in becoming more informed, the part that requires diligence, critical thinking, and probably guts too amidst discouragement from fixed, traditional thinkers. Kinda cool huh!

Tuesday, December 1, 2009

Dubai debt questions

OK, so UAE has banned Sunday London Times from disclosing actual debt figures. The state's future appears bleak. Let's see how it affects the rest of the world.

UAE existing debt

Figures are from Zero Hedge,

United Arab Emirates (via Bank of America - Amortization figures only):

Total Debt: $184 billion

of which...

Dubai: $88 billion
Abu Dhabi: $90 billion


Due in:
2010: $12.0 billion
2011: $19.0 billion
2012: $18.0 billion
2013: $ 7.5 billion
2014: $ 5.5 billion

Abu Dhabi:

Due in:
2010: $ 8.5 billion
2011: $14.7 billion
2012: $10.0 billion
2013: $12.4 billion
2014: $ 9.4 billion


Due in:
2010: $22.0 billion
2011: $34.7 billion
2012: $29.0 billion
2013: $20.3 billion
2014: $14.9 billion

Of United Arab Emirates (By Entity via Credit Suisse, citing Emirates Bank Association):

HSBC Bank Middle East Limited: $17.0 billion
Standard Chartered Bank: $ 7.8 billion
Barlays Bank Plc: $ 3.6 billion
ABN-Amro (RBS): $ 2.1 billion
Arab Bank Plc: $ 2.1 billion
Citibank: $ 1.9 billion
Bank of Baroda: $ 1.8 billion
Bank Saderat Iran: $ 1.7 billion
BNP Parabas: $ 1.7 billion
Lloyds: $ 1.6 billion

Credit derivatives

Leo Wang, a former SEC Enforcement Attorney, states

The key question is whether we have another AIG--i.e., a financial institution that wrote a large portion of the credit default swaps, or insurance, for Dubai debt protecting debt holders in the event of a default... These crises always have secondary and tertiary effects. Some market participants are getting nervous about debt of other UAE members, and also the debt of certain nations in Eastern Europe and elsewhere. What if credit default swaps for the debt of these other nations were written by a major financial institution that also wrote a lot of Dubai credit default swaps?

This blow up clearly affects American and European economies, perhaps of epic proportions.

Friday, November 27, 2009

Leading Indicators

Even though the below article focuses on trading frequencies, timesteps, they mentioned some interesting variables tested to forecast market moves.


... Now, let’s talk about ways to trade the S&P 500 on the basis of the U.S. Leading Indicators Index. The index is a composite of ten indicators that historically preceded peaks and troughs in the U.S. economy. The composition of the Index changes through time, and may include the following indicators: interest rate spread between a U.S. 10-year note and the Fed funds rate, average weekly initial claims for unemployment insurance, average weekly manufacturing hours, index of supplier deliveries (vendor performance), stock prices, and manufacturers' new orders for non-defense capital goods.

Next, to estimate the impact of the announcement on the price changes in the S&P 500, we conduct a regression analysis. This analysis can be performed using the regression functionality in the Excel. We regress the changes in the S&P 500 on different aspects of the event announcements.

From the regression results, we find that at the monthly portfolio rebalancing frequency, the S&P 500 moves in tandem with the previous month’s change in the leading indicator index with probability of 87%. Thus, if the leading indicator index increased in the previous month, S&P 500 is expected to rise this month.

At daily trading frequencies, such a relationship does not hold: neither prior nor concurrent changes in the leading indicators have any bearing on the daily changes in S&P 500.

At hourly frequencies, however, the price of the S&P 500 moves with the unexpected component of the announcement: if the actual figure announced is higher than the consensus, S&P 500 rises with 90% probability; else, if the actual leading indicator index shows lower values than the expected value, then S&P 500 is likely to fall. Our results are consistent with several academic studies written on the topic, including one published in 2003 in the American Economic Review, volume 93, "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," by T.G. Andersen, T. Bollerslev, F.X. Diebold and C. Vega.


Thursday, November 26, 2009

US job-count failures

Caroline Baum on effects of the US Healthcare reform, with respect to the Obama administration's claims of job creation. (Bloomberg)


How many small businesses are holding off on hiring additional employees until they know what additional burdens Congress will impose on them in the name of health-care reform? How are expectations of higher health-care costs affecting consumers’ current spending, which in turn affects output and employment? (Only in government la-la land can you provide more health care for less money.)

In the face of a 10.2 percent unemployment rate and growing doubt about government claims of jobs created, the administration is standing by its 640,329. After all, Devaney has “no doubt that there’s a lot of jobs being created.” It’s just a question of how many.

One million? 640,329? It’s close enough to zero for government work.


Having the above coupled with the coming "Climate-Gate" carbon-tax policies, no actual economic recovery would likely commence until the wrongs are put right. Here too, politics in NZ presently has largely followed American, Euro-centric influence.

Recent revelations on Climate-Gate,

Somebody must address these tough issues, and voice hard questions! Truth conquers all.

Wednesday, November 18, 2009

Textbook Theories vs. Reality

Real world experience often brings to light academic fallacies, especially when it comes to the financial markets. Right off the bat, many business students here (Auckland) are taught that inefficiencies do not exist, or impossible to exploit; which completely disengages from reality.

Textbook theories vs. empirical reality

Just because an idea shows up in a textbook does not make it absolute truth. A widely known phenomenon, while Black-Scholes PDE presents an elegant option pricing formula, the “volatility smile” noticeably points out the formula’s inaccuracy and hence unreliability. Some may say “well, it’s all I got, better than nothing right?” No, a wrong solution is often WORSE than nothing.

Remember how the stochastic finance stock pricing model completely ignores credit risk and actual rate of inflation? Models like this have simply no practicality in actual trading.

Textbook contradictions (efficiency vs. inefficiency)

They do not even agree among each other. While some academics keep pushing Efficient Market Hypothesis, top business schools like Wharton use texts specifically on exploiting market inefficiencies like Understanding Arbitrage: An Intuitive Approach to Financial Analysis. What is up with that?!

Searching for truth

Knowledge requires actual experience, not just sometimes subjective ideas off some random textbook. It takes work, like everything else in life.

Saturday, November 7, 2009

US unemployment 10.2%, "economy is rebounding"

"The economy is rebounding" What the heck, right? Do people really fall for this stuff?

Unemployment climbs in New Zealand

Just a few weeks ago they tried to sell the "recession's over..." rhetoric to Kiwis (New Zealanders), like their American counterparts. What is the point of this blatant deception? More importantly, how does one exploit this situation for a profit?

Interest rates will likely lower in the near term future in NZ, to uphold the "recovery" facade. Real estate will likely fall some more, as increasing number of folks will default on mortgage payments, etc. Low-profile listed companies will experience reduced earnings, obviously, if they are willing to sacrifice staff (profit producing capacity). Short selling high credit risk businesses sounds quite viable at this time.

Sunday, November 1, 2009

ARMA(p,q) forecasting

ARMA, or Autoregressive Moving Average, offers a relatively simple time series forecasting model. So what about non-stationary financial time series without much autocorrelation, would it perform well?

ARMA(p,q) basics

Forecasting model or process in which both autoregression analysis and moving average methods are applied to a well-behaved time series data. ARMA assumes that the time series is stationary-fluctuates more or less uniformly around a time-invariant mean. Non-stationary series need to be differenced one or more times to achieve stationarity. ARMA models are considered inappropriate for impact analysis or for data that incorporates random 'shocks.' See also autoregressive integrated moving average (ARIMA) model.

Source: Business Dictionary

Autoregressive Model, AR(p)

where are the parameters of the model, c is a constant and e is white noise. The constant term is omitted by many authors for simplicity.

Moving Average Model, MA(q)

where the θ1, ..., θq are the parameters of the model, μ is the expectation of Xt (often assumed to equal 0), and the e, e,... are again, white noise error terms.

Source: Wikipedia

Some thoughts off empirical findings

As ARMA was created to address stationary processes, ARMA forecasting resulted much more reliably with percentage returns (of equal length time steps) instead of raw financial time series. Practical application for trading strategies could surface with more analysis of conditional error distributions. Reliability however remains an issue until conditional volatility management. Over all, this simple method presents some promising capabilities!

Saturday, October 24, 2009

Protein powders over-valued

Having interest in natural bodybuilding, I visited a local supermarket today and checked out some protein source prices, with unexpected results. Typically “top of mind” protein supplement powders actually presented highest costs per gram of protein, and many came with undesirably high sugar content. What the heck right?

Prices broken down

OK, these are the rough unit prices available at the local supermarket (all generic brands).

Blanched Peanuts: $0.02/gram

Canned Mackerel: $0.03/gram

Eggs: $0.04/gram

Ground/Minced Lamb: $0.05/gram

Protein Powder: $0.10/gram

So what gives? Some may suggest that the protein supplement adds value with convenience. Does it really take that much work to open a can of fish or bag of nuts? They don’t even require a blender.

The high sugar content seen in the supplement product does not help either. Keeping simply sugar intake minimized remains one of few critical means to keep the body relatively lean while putting on muscle.

Therefore, while some folks may find protein powders helpful, I’d say not.

Wednesday, October 21, 2009

The economy is so bad...

  • I got a pre-declined credit card offer in the mail.

  • Exxon-Mobil laid off 25 Congressmen.

  • Parents in Bevery Hills are considering raising their own children.

  • I saw the CEO of Wal-Mart shopping at Wal-Mart.

  • Dick Cheney took his stockbroker hunting.

  • A prostitute asked me if she could borrow $20 until she can get back on her back.

  • I saw a van full of legal immigrants illegally crossing the border into Mexico.

  • I saw four CEOs playing miniature golf.

  • Even people who aren’t in Barack Obama’s cabinet aren’t paying taxes.

Thursday, October 15, 2009

banks put 63 percent of their new cash into euros and yen

Noticed this at the NY Post,


Over the last three months, banks put 63 percent of their new cash into euros and yen -- not the greenbacks -- a nearly complete reversal of the dollar's onetime dominance for reserves, according to Barclays Capital. The dollar's share of new cash in the central banks was down to 37 percent -- compared with two-thirds a decade ago. 'Bernanke's other choice is to keep rates at zero, print even more money and sell more debt, but we'll see triple-digit inflation that could collapse the economy as we know it.'


The above article generalizes the immediate past, with no empirical evidence of likelihood for continued actions for the immediate future. And, the coming destruction of USD backed credit instruments still makes inflation/deflation immediate future uncertain.

Tuesday, October 6, 2009

America on sale

This is In-Your-Face deflation that has not eased for a while now.
AP News, by Rachel Beck

" Prices on everything from clothes to coffee to cat food are dropping, some faster than they have in half a century. Items rarely discounted - like Tiffany engagements rings - are now. The two biggest purchases most people make - homes and new cars - are selling at steep price reductions.

Traditionally, manufacturers and retailers lowered prices to clear inventory. Today, they're cutting prices because consumers are demanding it. If it lasts, the ramifications will be wide-ranging.

Retail sales remain sluggish, and more than half of the people surveyed recently by America's Research Group and UBS said they are shopping less.

Homes in parts of Detroit are cheaper than a new car.

Overall, prices are tumbling at the fastest rate in decades. The government's Consumer Price Index, which measures the average price of goods and services purchased by households, has fallen 1.5 percent over the last 12 months. The reading for July showed a 2.1 percent annual decline, the biggest since 1950 "

The world, lead by US, remains in a credit/monetary contraction phase, while inflation has remained positive in New Zealand. This really hurts over here. People are losing jobs left and right, and everything just keeps getting more expensive (as inflation kicks in).

Saturday, October 3, 2009

Philosophers Stone: The True Story

No, this isn't about Harry Potter. Alchemy played a big role in the lives of many European researchers, including Sir Isaac Newton (founder of calculus and mechanical physics).

" the Middle Ages, the very real search for the Philosophers Stone was second only to that of the Holy Grail. It was believed that this mysterious stone which one had to concoct from secret ingredients could turn base metals into gold, and reveal the secrets of immortality.

Some have claimed to have succeeded in creating this substance, supported by European nobles, while heavily veiled in secrecy. The truth remains to be seen (or hidden). Enjoy the documentary,

Part 1/5

Part 2/5

Part 3/5

Part 4/5

Part 5/5

Wednesday, September 30, 2009

Brits selling kidneys to pay off debt

Whoa, this kind of stuff used to happen in third world regions, exclusively. Nice to see that Times Online still has the courage to tell stories as they are, against Bernanke's late message of "recovery".

British victims of the credit crunch are offering to sell their kidneys for £25,000 or more to help pay debts... One person willing to sell a kidney is a 26-year-old mental health nurse who said he needed the money to pay debts after a business he set up went bankrupt. Another is a 43-year-old taxi driver from Lancashire, who wants to raise cash to pay off some of his mortgage and buy a new kitchen.

Of course, some of these folks got into so much debt due to reckless borrowing and spending. Past mistakes do not just go away, decisions result in consequences. What happened to the contingency plans? Or did they all have the same standpoint, "K, I'll just sell a kidney to pay it off some day, how bad could it be?" It's bad.

Monday, September 28, 2009

Global shipping decline 2009

The Canadians have the courage to uphold truth, instead of the "recession is over" rhetoric from American and New Zealand central banks. The credit contraction phase has not eased in any means, reality bites.

Sunday, September 27, 2009

More bank loan losses coming

US bank large-loan (>$20Million) losses have reached $53Billion USD in 2009, according to Yahoo Finance AP.

The report said total identified losses of $53.3 billion in 2009 surpassed last year's total of $2.6 billion, and nearly tripled the previous peak in 2002, when losses totaled $19.1 billion...

While the economic downturn was first pegged to residential mortgage loans, banks and lenders are now having problems with commercial real estate...

So... what about the derivatives like CDOs and CDSs riding on these loans? If a paltry $2.6Billion loss wrecked such havoc in 08, what the heck will $53Billion unleash, eternal damnation?!

Keep in mind the S&P500 remains quite over valued, PE ratio at Aug 31st 09: 129.19

Friday, September 25, 2009

NZ Recession over! (sarcasm)

Apparently, the same day that he declared the recession "technically" over, New Zealand bankers paraphrased it within the hour. I suppose this means that the escalating GDP decline is "technically" a sign of Happy Days returning.

... and that the unemployed folks are "technically" all just dirty liars.

Even the part time jobs have diminished. The question is then, why do the central banks want average folks to believe in a come back? More likely than not, the banks are preparing to take large short positions, and need liquidity from the "mom & pop" investors stupid enough to repeat the finance company mistakes.

Monday, September 21, 2009

Prime credit score= 50% more likely to default

Conventional thought concludes that folks with good credit score will likely struggle to keep making payments, and then reality hits creditors with "strategic defaults". It makes sense, those with adequate understanding of finance and discipline would find it desirable to transfer losses to lenders while sacrificing "credit".

The LA Times agrees with the below,

Research using a massive sample of 24 million individual credit files has found that homeowners with high scores when they apply for a loan are 50% more likely to "strategically default" -- abruptly and intentionally pull the plug and abandon the mortgage -- compared with lower-scoring borrowers.

* Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore -- a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion -- are far more likely to default strategically than people in lower score categories.

* People who default strategically and lose their houses appear to understand the consequences of what they're doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters 'are clearly sophisticated,' based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.

Sunday, September 20, 2009

Smaller class advantages

Sometimes higher rated schools do not necessary guarantee satisfying college/university lives. Due to smaller classes, the administration folks at School of Computing & Mathematical Sciences, AUT, have provided personalized and productive experiences for everyone.

Interaction and enthusiasm

It allows students to interact much more freely and timely with each other, and the professors. This means more active participation, no more one-sided lecture and furious note taking drills. Reducing boredom, the whole learning thing becomes that much easier.

Social perks

Due to the frequent dialogues between students and professors, everyone has a better chance at making new friends and connections. Having friends in the school administration means timely scholarship application information, potential course changes, and maybe even casual campus or outside job offers. It is all quite rewarding.

Higher marketing spending does not mean better experience

I have met some people who had attended Auckland University, and found the experience unsatisfying, largely due to packed classrooms, tedious lectures, having little direct contact with professors, and etc. Sure, some schools have awesome reputation and it means little if they offer nothing but dry, mind-numbing talks.

Unconventional as it sounds, schools with smaller enrollees could present better learning experiences because the management (potentially caring) folks are capable of taking things from a ground up level. Instead of some statistic at a massive university, it feels nice to study at a smaller campus, and treated as a unique individual.

Saturday, September 19, 2009

Credit crisis humour

Yep, gotta put on that smile!

Tuesday, September 15, 2009

Nassim Talen on quantitative risk

Author of the very informative. The Black Swan, comments on the banking industry.

Basic summary: Value at Risk, known by many professional traders, utterly ignored by large banks due to consequential socialist, bail out efforts.

More comments on stimulus packages and free markets.

Friday, September 11, 2009

Corporate insider selling climbs

CNN Money mentioned this today.

'It's not a very complicated story,' said Charles Biderman, who runs market research firm Trim Tabs. 'Insiders know better than you and me. If prices are too high, they sell.'
Interesting how mainstream news hasn't stressed this little noteworthy detail. Sooner or later, volatility will jump again.

Tuesday, September 8, 2009

Slight-Edge Butterfly Effect

Roulette, with a paltry 1/37, or 2.7% edge, makes casinos serious profit over time, financial trading sits on very similar ground. Having a statistical edge does not necessarily result with positive expectancy, though it definitely helps. This calls for an empirical test.

Empirical analysis

Forecast Model- Multilayer Perceptron Neural Network

Input/Predictive Variables- Various commodity and Dow Jones indexes

Output/Dependent Variable- Next Day Return of the S&P500 Index (Next Day Open price – Next Day closing price)

Training Period- from Jan. 2002 to Jan 2005

Test Period- from Jan 2005 to Aug. 2009

Focused only on next-day direction, the predicted values offered a winning rate of just about 54%. Keep in mind this stands quite superior to the roulette casino edge. Then out of curiosity, I wanted to see how hypothetical trades off these forecasts would have resulted, basically buying/shorting at the open and liquidating positions at the NYSE close. Virtual trading equity starts at 1, or 100%, and would compound daily, winning or losing. See chart below.

I know- it’s pretty cool, 400% plus return in roughly 4.5 years. It also appeared that the mid 2007 volatility jump pushed performance up tremendously. This brings the thought that maybe with volatility based position size adjustments; return over time could become smoother and even higher. Imagine what a higher hit rate could achieve…

Credit ratings incentive-based. Surprised?

It has been pretty obvious that subjective credit ratings offer little real confidence, they simply lag behind markets. Now the plot has thickened, and appears more than simply utter incompetence.

Washington's Blog pointed out some interesting details,

Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or "sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators.

This instant message exchange between two unidentified Standard & Poor's officials about a mortgage-backed security deal ... :

Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right...model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it.

Issuers will would pay more money for a good rating than a bad one, and issuers are very clear what kind of ratings they want. This is a straight-forward way to pay bribes without ever violating the law


Oh and as a bonus,
One of the untold scandals of this country is that our museums are stuffed with fake old masters because the people who authenticated paintings for the Mellons and Morgans of this world were paid a percentage of the price for the authentication.

Moral of the story- "Fair" games do not exist in real life.

Saturday, September 5, 2009

Innovation investments hold more risk

According to Warren Buffet (The Snowball), while technological novelty has advanced mankind in general, its investments usually end badly. He mentioned some empirical evidence of this at a private talk, from cars to airplanes.

Cars and planes

They are no doubt a couple of seriously significant inventions from the last century. Around 2,000 car companies existed at one time, and out of those, only a handful (Ford and sort of GM?) stands today. The rest have pretty much all gone belly up, taking shareholders down (enriching short sellers).

No single air travel business has generated greater-than-actual-rate-of-inflation returns for its investors, notably the ones who have gone bankrupt. Given that business schools, parents, and TV preach creativity, industrial revolutions and stuff, naturally the question comes, “what gives?”

Good ideas still have limits

Management conflict of interest, miscommunications, competition, idealistic albeit inadequate budgeting, are but some profit making hurdles an innovative product/service idea itself can not overcome. Another point from Buffet, as these “new technology” firms push for esoteric products/services, the complexity in estimating their actual, intrinsic value does nothing but increase UNCERTAINTY.

The negative correlation between VIX and major stock indexes advocates that uncertainty leads to price drops. It is pretty clear cut, and again mainstream belief took the wrong side.

Wednesday, September 2, 2009

More physicists getting on the financial engineering ride

Physicists successfully predict stock exchange plunge

Their model, which employs concepts from the physics of complex atomic systems, was developed by Didier Sornette of the Financial Crisis Observatory in Zurich, Switzerland, and Wei-Xing Zhou of the East China University of Science and Technology in Shanghai. The idea is that if a plot of the logarithm of the market's value over time deviates upwards from a straight line, it's a clear warning that people are investing simply because the market is rising rather than paying heed to the intrinsic worth of companies. By projecting the trend, the team can predict when growth will become unsustainable and the market will crash.

A "logarithm of the market's value..."? What the hell does that mean?

It's old news. The books My Life as A Quant and The Predictors (1999) had already given us a glimpse of how advanced mathematics, paired with the right brain, could result in very profitable market inefficiency exploitations. In fact I do research in the same field, hmm...

Sunday, August 30, 2009

Neural Networks for High Accuracy Forecasts

In USING NEURAL NETWORKS: AN ANALYSIS. OF METHODS AND ACCURACY, Jason E. Kutsurelis accomplishes some really amazing empirical runs, predicting 10-day returns of the S&P500 index. It seems incredible that he would make this awesome literature freely available to the world, and yet very few have yet to embrace the concepts successfully simply because it takes some brain labor.

Key points from his Neural Network model 10-day forecast tests:

Condition Probability of predicting a market rise: could reach 93%
Condition Probability of predicting a market decline: could reach 88%

When compared to traditional multiple regression, the NN outperformed it in several ways. Lower error bounds and higher accuracy.

Predictive daily variables used for forecasting 10-day future SPX closing price:
1) SPX Day-High Price
2) SPX Day-Low Price
3) SPX Closing Price
4) DWT, DOW Transportation Index Closing Price
5) DWU, DOW Utilities Index Closing Price
6) XOI, AMEX Oil Index Closing Price
7) CRB, Commodity Research Bureau Closing Value
8) XAU, Gold and Silver Mining Index Closing Value

A lot of mathematical or statistical software today have capability to do neural network work, SPSS and Matlab have pretty user-friendly interfaces. Lots of stuff to play with!

*Quick note, a lot of theoretical stuff goes behind the above, and some studies have found Support Vector Regression to outperform Backpropogation Neural Networks in financial forecasting. This area of research has still got a long way to go.

Friday, August 28, 2009

IT Outsourcing

I attended Manda J.’s Girl Geek Dinner last night, and encountered some interesting points regarding outsourcing issues in the industry today. As computer science graduates diminish, partly due to fear of declining demand at home, those in the industry must create and embrace some added value to make outsourcing undesirable.


A distance in communication naturally results in efficiency sacrifices. E.g. issues requiring a day to resolve locally may linger unaccounted for, unclearly defined, or incorrectly relayed by an outsourced party for weeks or months.

Aligned perspectives

This presents a big issue dealing with 3rd world manufacturing facilities. With large cultural, language discrepancies, misinterpretations on product/service looks, functions, core values occur, sometimes at relatively high cost.


Under the table transactions occur at all times. Having conducted business in China, everyone is hungry to make a buck, and everybody speaks in cryptic tongue with lots of implications. Needless to say, conflicts of interest surface and expand inevitably over time.

Making outsourcing undesirable

Notwithstanding the foregoing, many firms remain willing to make the said sacrifices in pursuit of greater profit margin. The job then comes to the next generation of IT people to convince industry leaders that the risks, the necessary sacrifices, outweigh gains off higher paid local minds. With accurate incentives, anyone can be influenced.