The families of quantitative signals

 

The paper, "A Taxonomy of Quantitative Signals: One Normalization, Many Mechanisms" by SQV3 is an interesting way to place the type of quant signals used into some type of context. It is not yet posted on ssrn, but it is worthy of a discussion.

The multiple years of double-digit returns

We still have two and a half months before year-end, yet we might see another year of double-digit equity returns. It is important to look at the before and after surrounding these periods. The before is usually a strong equity sell-off. The double-digit returns are a catch-up, and the after sees a strong decline to reverse the excess. Call this a revision to the mean. 

We often get big stories wrong - be a skeptic?

 

Big stories that media and analysts got wrong from a number of sources. Here are some highlights, yet we have to ask the question - should you be a skeptic? What is the cost of being a skeptic? 

Enron (2001)

Global Crossing (2002) 
WorldCom (2002)
New Century Financial (2007)
Bear Stearns (2008) 
Lehman Brothers (2008)
Luckin Coffee (2020)
Wirecard (2020)
Silicon Valley Bank (2023)
First Republic Bank (2023)

| 1 | Lehman Brothers | ~$691 billion | September 2008 | Investment Banking |
| 2 | Washington Mutual | ~$328 billion | September 2008 | Banking / Savings |
| 3 | WorldCom | ~$104 billion | July 2002 | Telecommunications |
| 4 | General Motors | ~$91 billion | June 2009 | Automotive |
| 5 | CIT Group | ~$80 billion | November 2009 | Commercial Lending |
| 6 | Enron | ~$65.5 billion | December 2001 | Energy / Trading |
| 7 | Conseco | ~$61 billion | December 2002 | Insurance / Finance |
| 8 | MF Global | ~$41 billion | October 2011 | Brokerage / Derivatives |
| 9 | Chrysler | ~$39 billion | April 2009 | Automotive |
| 10 | Thornburg Mortgage | ~$36.5 billion | May 2009 | Mortgage Lending |
| 11 | Pacific Gas and Electric | ~$36 billion | January 2019 | Utilities |
| 12 | Texaco | ~$35.9 billion | April 1987 | Oil and Gas |
| 13 | FGIC | ~$26 billion | August 2010 | Bond Insurance |
| 14 | Refco | ~$33 billion | October 2005 | Brokerage / Futures |
| 15 | Bed Bath and Beyond | ~$4.4 billion | April 2023 | Retail |

Dislodging the dollar - Not likely

 

There has been significant talk about the dollar’s fall, but it often ignores how important the dollar is to global trade and finance on a number of metrics.  

As US global hegemony declines, dollar dominance will deteriorate, but we are still a long way from the rise of an alternative. The EU needs a safe asset, and China must be willing to allow open capital flows. 

After seeing a decline earlier in the year, it is now near year highs. It is certainly off the 2022 highs, but it is still higher than five years ago.