While most of the US population drowns in a prolonged semi-conscious state for several days, with moments of alertness (they’ll know they are alive when they see the fireworks) – the remaining force of human intelligence on the planet, spends time trying to figure out ways to break through this vast blanket of social control that’s been thrown over the population like a sticky net, which is slowly eating away at the global standard of living, overall quality, lowering human genetic value. Each day, our money is worth less and less. Why? We explain this in Splitting Pennies – Understanding Forex.
The problem with much discussion on Zero Hedge and alternative media in general, is that it lacks a conclusion and proposed solution. So, we mostly agree that the USD is toast, there’s an insurmountable debt that cannot be paid back (because in a debt-based money system, if the debt is paid off, money will cease to exist). Gold is the go to alternative to stocks & bonds which are mostly overrated – but then what? So let’s say Gold hit’s $50,000 USD per ounce. Then what? Well for one, be sure that you have some good security because in a crisis, the only real currency is accelerated lead, as elaborated here eloquently.
So what is an investor to do? Fundamental analysis of markets is impossible, because of reasons outlined well on this site:
1) Market data is manipulated heavily. By the time any investor receives market information (unless he’s paying for a front running service) one can assume it’s been seen by leading market controllers, HFTs, directors of various unsundry government organizations, and George Soros.
2) The world changes too rapidly for any fundamental strategy to play out. Too many wildcard events can derail strategies such as value investing. Brexit is a great example – and there will be many more “Brexits.”
3) Even if the above 1 & 2 didn’t exist, an investor would need a carrying broker that was fair and honest, and would provide decent execution, and not go out of business. With investing strategies such as some which are discussed on this site, this is a big issue. For example, if Gold is $50,000 let’s say that GLD goes bust, and starts a chain reaction on exchange listed ETFs and ETNs, which can’t possibly fullfill their underlying liquidity obligations even in currenct conditions, not in extreme conditions. Could it bring down some BDs with them? SIPC is limited (..and if it were a TD Ameritrade, no insurance in the world can cover it). So with such extreme strategies, counterparty risk is very large – especially in such climates that would make extreme strategies flourish. Florida residents know very well how this works, when a big Hurricane strikes, the majority of underwriters for flood & Hurricane insurance go bust (FL law or mortgage policy sometimes require residents carry “Hurricane” insurance which doesn’t cover “flood” damage). If the markets melt down, as many claim – how many brokers would go bust? How many leveraged banks? Some big banks are not looking good (such as DB – $54 – $75 Trillion derivative bomb), even in this ideal banking climate.
Hoarding a 6 month supply of food, and living in an underground bunker, is not a real solution. Having a bug out bag, ammo, gold bars & silver coins, and other paraphernalia, it’s just survival. It’s not a strategy. Keeping Gold is the investing equivalent of being a prepper. And as we’ve explained in a previous detailed article, preppers have it all wrong.
Algorithmic Trading – The New Asset Class
This is one solution – and likely will soon be an entire asset class by itself. Robo-Advisors are becoming popular in securities, but on the surface it seems they are only SAS solutions that are replacing human office workers. They are just doing the job that the office worker RIA used to do; meet with clients and build a vanilla portfolio with 20% Utilities and 50% Technology and 20% “Growth” (whatever that ever meant) and 10% Dividend stocks. Currently, HFT is dominated by large institutional players that frankly, the public knows very little about. See one example Jump Trading. The problem is their inaccessability – investors will need many millions to start (consider $50 Million, for a good start). Also, having the $50 Million doesn’t qualify you for anything. Now you’ll have to develop your own algorithms, or hire another firm to do it. But this is the equivalent of hiring a consultant to tell you what business you are in (Consultants, and lawyers, will do this for a fee).
Then there’s the world of retail algorithmic Forex, not allowed for US investors (or at least, so highly restricted and regulated it makes any normally profitable strategy, barely profitable). As this chart shows, it really is “Magic:”
The above is a real live trading account over a period of 3 years. Not likely that an investor can find such performance in stocks, or ‘robo advisors.’
The point is that an algorithm can trade any market, and if the strategy is stable, and consistent, it can deliver investment returns above and beyond the average, that are not correlated to the market – and most importantly – NOT DEPENDENT ON HUMAN BEINGS. An algorithm isn’t perfect, but it solves the basic fundamental problems of human traders. And there are thousands of them. You can even evaluate FX algorithms for free, without investing a penny. Checkout http://ift.tt/1WXUVou as one example – there are many. To learn more about investing in Forex checkout Fortress Capital Forex here.
Algorithms give developers many abilities that simply wouldn’t be possible with human traders. Most importantly, in a sterile development environment, it’s possible to test, analyze, and optimize any trading idea relatively quickly, and then develop a robust strategy based on this process. It’s necessary to invest heavily in computing to do this, but many who have done this will offer their strategies for investors use. What’s good about this approach is that it’s an investment in a methodology, not in an asset class.
This is a fundamental mistake made by modern investors. Gold is great. But then what? During Brexit for example, it was possible to buy and sell the Great British Pound by more than 10 signficant moves, during a 10 hour period. That’s activity that an algo can capture. Just ‘investing’ in the US Dollar, or Great British Pound – is risky. If an algo is built with a robust risk management module, it’s the safest way to trade the markets. And one doesn’t need to become an expert in mathematics and algorithm development to do so – there are hundreds of algos available for use by any investor, big or small. But if one does want to take on a challenge and build his own investing system, there are literally thousands of free resources online to support that development. There’s companies that have built a business out of algorithm development. And certainly, this is only the beginning of a new blue ocean market. The reason algos are the future? Because they work. That’s all.
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