Trend Following-Trend Commandments

<strong>Synopsis</strong>: Have you noticed with equity markets at all time highs there are starting to be justifications again? It reminds Michael Covel of... The “this time is different” routine. Covel moves on to talk about Timothy Geithner’s new book, and how Warren Buffett approached him after bailouts. Covel talks about crony capitalism on both sides of the aisle. Rigged markets at all-time highs are not fun. It may feel great at the time, but there’s a hangover. Covel shifts gears and talks about classical economics. It’s all about assumptions that become axioms. Covel discusses the Black-Scholes option pricing formula, and how the edges are indeed important. Covel can’t predict or tell you when or how, but he can tell you that if you’re in a position with a system to take advantage of price movements, you can benefit on the upside, the downside, and the black swan side. Next, Covel gives an example of someone who was mugged outside of a bar and became a mathematical savant after brain injury. Given these gifts, will he work for Wall Street? There are too many variables to make a prediction, he says. Next, Covel moves onto a TED talk. He’s thought they’ve always been enjoyable--until now. It turns out the TED operation operates like a cult, as evidenced by a clip from the Joe Rogan podcast. Covel wraps it all back to classical economics--it’s a cult, too. Want a free trend following DVD? Go to <a href="http://trendfollowing.com/win" target="_blank">trendfollowing.com/win</a>.

<iframe style="border: none" src="//html5-player.libsyn.com/embed/episode/id/2851151/height/45/width/325/theme/standard/direction/no/autoplay/no/autonext/no/thumbnail/yes/preload/no/no_addthis/no/" height="45" width="325" scrolling="no" allowfullscreen webkitallowfullscreen mozallowfullscreen oallowfullscreen msallowfullscreen></iframe>

<img src="http://www.michaelcovel.com/wp-content/uploads/2014/05/keep-calm.png" alt="Keep Calm, The Fire Rises" width="550" height="642" class="alignnone size-full wp-image-14426" />

 

Michael Covel speaks with <a href="http://en.wikipedia.org/wiki/Jean-Philippe_Bouchaud" target="_blank">Dr. Jean-Philippe Bouchaud</a>. Bouchaud is Chairman of the multi-strategy quantitative hedge fund <a href="http://en.wikipedia.org/wiki/Capital_Fund_Management" target="_blank">Capital Fund Management</a> (5B+ AUM) and co-supervisor of the research team. He is a well known authority in the field of Econphysics, co-author of "Theory of Financial Risks and Derivative Pricing", a Professor of École Polytechnique where he teaches Complex Systems and has his Ph.D in theoretical physics from École Normale Supérieure. Covel and Bouchaud discuss Bouchaud's physics background and how it collided with the world of classical economics; the Black-Scholes model, and it’s still use; experimenting with simulation; Bouchaud and his colleague's paper, "<a href="http://arxiv.org/abs/1404.3274" target="_blank">Two Centuries of Trend Following</a>"; the efficient market hypothesis; why the existence of trends is one of the most statistically significant anomalies in financial markets; how trends predate trend following; why classical economics has no framework through which to understand "wild markets"; benign randomness vs. wild randomness; accepting uncertainty; and differences between physicists and economists. For more information on Jean-Philippe Bouchaud, visit www.cfm.fr. Complimentary trend following video from Michael Covel: <a href="http://trendfollowing.com/win" target="_blank">trendfollowing.com/win</a>.

<iframe style="border: none" src="//html5-player.libsyn.com/embed/episode/id/2859035/height/45/width/325/theme/standard/direction/no/autoplay/no/autonext/no/thumbnail/yes/preload/no/no_addthis/no/" height="45" width="325" scrolling="no" allowfullscreen webkitallowfullscreen mozallowfullscreen oallowfullscreen msallowfullscreen></iframe>

<img src="http://www.michaelcovel.com/wp-content/uploads/2014/05/jean-philippe-bouchaud.jpg" alt="jean philippe bouchaud" width="534" height="267" class="alignnone size-full wp-image-14461" />

 

Reuters talking up TF today.

 

BTW, looks like Mike Covel recently made BBG View -- congrats!

 

Very nice debit, thank you.

 

Huh? Earlier you were crying to the mods to ban me...