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(B)(N) Extreme Economics – Ichimoku Kinko Hyo (The Cloud)

January 20, 2016
The Bull Run and Bear Embrace

The Bull Run and the Bear Embrace

Drama. The North American markets are in a state of suspended disbelief – we don’t think that this is happening, they say – and that bodes well for opportunities of all sorts to acquire income producing properties at low prices if we know how to deal with the Bear Market and not just the Bull.

And we do because we know what we want – we want 100% capital safety and we want 100% liquidity guaranteed and we want a hopeful but not necessarily guaranteed return above the rate of inflation – and we know how to get it and that makes us quite different from the legions of investors who are now gazing into the future and trying to find reasons for a different outcome.

As investors, we have to accept that view of market uncertainty because there is a large disconnection between “economics” and “fundamentals” which have utterly failed to explain the nature of the markets and what investors actually do to obtain an income from money and the cause of it is the opportunism that pervades the application of the Capital Assets Pricing Model (CAPM) which doesn’t describe any market but creates one instead – the Bull Run and the Bear Embrace – as an alternative.

AmenWe don’t have a cure for that but it is our money and we do have a cure for that which respects those beliefs even if we don’t share them.

The Cloud is not the answer either but it can be reliably used for us to try to understand what the market thinks by demonstration but doesn’t know at this critical time; please see below for the weather forecast.

Ichimoku Kinko Hyo

Ichimoku Kinko Hyo is Japanese for the “one look equilibrium chart” or more commonly, The Cloud (Kumo), and we sometimes use it if we want some additional insight or confirmation of the worth of a stock price – is it more likely to stay the same or increase, or is there some selling pressure that we might be able to infer from what the market has done recently.

For example, we kept DGC Detour Gold Corporation in our (B)-class portfolio and the price is up +36% since December and (as we projected) we could raise the stop/loss price from $11.50 to $14 and it’s trading today at $16 – but what next? We don’t like gold per se but if they’re giving it away today, what should we do? Please see Exhibit 1 below (and click on it and again to make it larger as required).

Exhibit 1: (B)(N) DGC Detour Gold Corporation

TG DGC Detour Gold Corporation

Figure 1.1: RiskWerk and the Cloud

Is the future cloudy?

We don’t think so – it’s just raining a lot, so to speak – and the North American markets are bumbling their way to a vast transfer of wealth from the haves to the have nots if we know how to get it and have some money to invest.

But in case you don’t know it, we’re in a Bear Market and have been since June last year but we’re not in a recession nor is there a depression in our future and the markets look a lot like they did in 2012.

So, buckle-up and enjoy the ride; there isn’t anything new under the sun and all the charts below confirm what we just said. These charts are written in the Ichimoku Kinko Hyo and they are “songs without words” but for more information on how to read them, please see the Appendix below.

Exhibit 2: Ichimoku Kinko Hyo – The World Markets At A Glance

TCloud $DJA Dow Jones Composite Average

Dow Jones Industrial Companies

TCloud $SPX S&P 500 Large Cap Index

S&P 500 Large Cap Index

TCloud $COMPQ Nasdaq Composite Index

NASDAQ Composite Index

TCloud $SPTSE S&P TSX 60 Index

S&P/TSX 60 TSE

TCloud $DAX German DAX Composite

German DAX Composite

TCloud $FTSE London Financial Times Index (FTSE 100)

FTSE London Times Financial Index (FTSE 100)

TCloud $HSI Hong Kong Hang Seng Index

Hong Kong Hang Seng Index

TCloud $SSEC Shanghai Stock Exchange Composite Index

Shanghai Stock Exchange Composite Index

TCloud $NIKK Tokyo Nikkei Average - Nikkei 225

Tokyo Nikkei Average – Nikkei 225

Appendix: Ichimoku Kinko Hyo

The method has a fabled history that goes back several hundred years to the Japanese internal trade markets for rice and wheat but it was codified by a journalist, Goichi Hosoda, in the 1930’s and 40’s through trial and error and differs fundamentally from von Neumann-Morgenstern-type models (of which CAPM is one) because in the Cloud, utility is not a linear function but something to be discovered now and not merely in the past.

It’s best used on daily price and trading volume data, but weekly is not out of line whereas monthly is largely suspect because there are a lot of market-making factors that can actually occur over a one or two year period (which is the projection horizon from monthly data) that are simply not reliably known based on what we know now but those factors are less likely to change in the next week or the next month, notwithstanding that a stock price on any day is determined only by investors and how much money they have to spend on their idea (The Tao of Stock Prices) and the market is not for sale.

Exhibit A: Ichimoku Kinko Hyo – At A Glance

The Needle

 

For more information on the current Canadian market, please see our Posts “(B)(N) Extreme Economics – A Stock Chart, a Ruler, and a Good Eye” and “(B)(N) Extreme Economics – Plan Zero (Buy Canadian)“.

And for more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And for more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”). The Canada Pension Bond®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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