It's a Good Time To Buy Kangaroos

And Dollarydoos... šŸŽ¶

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Fink Money
October 11, 2023 ā€¢ Estimated Reading Time: 7 minutes

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šŸ§  The Big Brain
Time to Buy Some Dollarydoos?

Thatā€™s Australian dollars to you and I.

Nerd Alert: Back in 2015, over 7,000 people signed a petition to change Australiaā€™s currency to Dollarydoos.

A real shame they failed.

So, is the AUD a buy?

Thereā€™s a LOT of factors that could be bullish AUD, not least an unwind of the spec short position that showed up in the last CFTC reportā€¦.

But a decent trade idea needs more than positioningā€¦

So, weā€™ve pulled those factors together, and made the case for some more upside in AUDā€¦

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āš” The Spark
Cracking The Spreads

Or why fuel prices are heading lower and filling your car up will get cheaperā€¦

Grab a barrel of oil and try to run your car with it. Well, donā€™t because obviously that wonā€™t work (and where did you get a barrel of oil anyway?).

A barrel of oil goes through a refining process, to turn it into fuel products. Something like this:

Sometimes, supply and demand go all out of whack and refineries produce too little, causing prices to rise, or too much, causing prices to fall.

Refineries have been producing way too much gasoline (petrol), so the gasoline crack spread has plummeted by 68% in the past month alone.

Why did this happen and wtf is a crack spread?

The crack spread is simply the profit margin a refiner can expect when selling the products theyā€™ve processed from each barrel of oil.

Geekery: The process of refining crude oil is called cracking, because itā€™s literally breaking (cracking) unprocessed hydrocarbon molecules into smaller compounds.

So, the spread collapsed because refiners chased the higher profits available for distillates. Because they refine the whole barrel, (not just the bits they want most), excess gasoline/petrol was produced too, which weighs down prices.

Over time, that should feed through to the price you pay at the pump!

Hereā€™s David explaining on TikTok:

@fink.tok

#petrolcosts are about to get WAY cheaper over the next few months as #oilprices start to revert lower. We have already seen a big collaps... See more

šŸ’” The Lightbulb
75 IQ man more self aware than most smart people

This guy gives a lesson in humility and self awareness.

Seriously, watch this.

People tend to overvalue their intelligence, and put less value on other factors such as luck and/or tenacity.

But I also made a point which goes in line with a Yale study from 15 years agoā€¦

Not guaranteed: a high IQ is a small facet of ability.

From the Yale piece aboveā€¦

"A high IQ is like height in a basketball player," says David Perkins, who studies thinking and reasoning skills at Harvard Graduate School of Education in Cambridge, Massachusetts. "It is very important, all other things being equal. But all other things aren't equal. There's a lot more to being a good basketball player than being tall, and there's a lot more to being a good thinker than having a high IQ."

Just because you have a high IQ means nothing in terms of actual ability or success, especially when it comes to a profession.

What about in markets? Thereā€™s probably two different biased views of human traders vs quants.

Human traders (in my head anyway) tend to be aggy mental people who have balls of steel and can make a decision on a whim.

Whereas quants are nerds ā€” theyā€™re highly, HIGHLY intelligent, but need numbers.

Sorry, thatā€™s just the way I see it.

What is interesting though is over the last decade or two, there has been a bull market in quants and less of one amidst human-metal-ball traders.

And itā€™s becoming more and more clear that firms cannot keep competing on ultra low timeframes to capture 1/1000th of a tick in profit.

Have the quants factored this into their employment models?

And one of the other issues is that quants can tend to pool into similar positions ā€” the Flash Crash in 2010 is an example of this where they all effectively stepped out of the market at the same time, and 2007 had a lot to do with quant ā€˜herdingā€™ behaviour.

The July-August 2007 period is seen as "a dramatic departure from the normal" with a huge unwinding of positions run on quantitative models. The sums were substantial. It is estimated that there was $1.3trn invested in model-driven long-only (enhanced index and active) strategies and $800bn in hedge funds with high leverage.

The problems arose because quant managers held similar positions. As a result, there was too much money in short positions at a specific period of time, as Goldman Sachs explained to its investors.

Khandani and Lo noted a sharp rise in correlations between 1998 and 2007. The study indicates rising correlations as the most serious challenge to a quantitative approach in equity portfolio management.

Interdependence is also identified as one of the factors responsible for the spread of the contagion from the sub-prime crisis to the equity markets in July and August 2007. The crisis in liquidity - the possibility of finding buyers - began when problems began to affect the equity markets, the study suggests.

Herding - the tendency to copy what everyone else is doing - is also seen as a problem. "Everyone in the quant industry is using the same factors," one participant in the study remarks. "When you need to unwind there is no one to take the trade."

Market Research: I asked Twitter whether there are any herd-like quant factors right nowā€¦

Outcome: Momentum certainly makes sense to me, and even has the ability to explain the weirdness we see in equity ETFs where the market just gets bid up, seemingly forever.

But maybe itā€™s just volatility that blows up again?

Anyhow, I prefer to be the stupidest in the room here, as per.

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