A silly article from Reuters

Reuters ran an article on the 19th titled “Wall Street’s ‘Buy Everything’ Sentiment Continues” which took as its premise that stock prices in the U.S. are rocketing upwards at an unprecedented pace, and that this, combined with low trading volumes and high levels on the VIX index, means that stocks are “due for a correction”. They quote only one person in the article, Paul Mendelsohn, sage of Charlotte, Vermont. He makes the specific claim that he has “never seen a market like this,” though he has been a “market watcher” for 35 years.

There may be reasonable explanations. Perhaps stocks were too low, so even rising rapidly, they may still be cheap. Or perhaps corporate profitability has increased significantly, so that stocks must rise rapidly to remain fairly valued. Mendelsohn does not consider such issues, saying “I’m showing, by every technical and quantitative standard I have, this market is at extreme levels. But no matter where we start out in the morning, buyers come in.”

Sadly, he doesn’t tell us what “technical and quantitative” standards he has, but the article does give us some clues of what might be worrying Mr. Mendelsohn. It claims that “Trading volume has been exceptionally low recently and the CBOE Volatility Index .VIX, Wall Street’s so-called fear gauge, is up on the week despite the gains in stocks. The index is usually inversely correlated to the S&P 500, and a rise in the VIX typically means a drop in the stock market.”

Hmm.. that sounds wrong.

normal volume

That goes back as far as Bloomberg has the data, and recent volumes don’t look unusually low to me at all. It looks pretty normal, and that volume data is from the New York Stock Exchange, which has been losing share to competing organizations like Liquidnet for years, so total recent volume is certainly higher.

How about the supposedly torrid pace of stock price increases? Reuters worries that “Wall Street posted its third consecutive week of gains with the S&P 500 now up 6.8 percent for the year and more than 20 percent in just six months.”

How weird is this? Let’s consider the 35 years of Mr. Mendelsohn’s expertise.

pretty normal
pretty normal too

It feels hard to panic over that; the current situation looks pretty much like any other bull market. Volume is normal, the pace of increase has plenty of precedent. Through most of the previous periods that looked like this, you’d have been very happy to continue to hold the market.

Oh, about the last claim, that an increase in VIX predicts a drop in the stock market? I have heard this from others, and rigorously testing it is complex (what is the proper lag between an increase in VIX and a drop in the market? Do we care about the absolute level of the VIX, or relative changes therein? etc.) However, as a quick check I just ran normalized VIX against normalized SPX (total return), since January 1990, since that’s when Bloomberg’s data for the VIX starts.

"negatively correlated?"

There’s no evident pattern there, but even the most mindless chart junky willing to trust a regression line however inappropriate has to accept that the Reuters has this one wrong — the best fit is a positive correlation.

All the graphs above come from Mathematica, using the Mathematica link to Bloomberg. The graphs with the superimposed pink rectangles were a little challenging to make; here’s the source code if you want to do something similar —

rangesAndScale =
Select[Table[{{spxDailyLong[[2]][[i]][[1]],
spxDailyLong[[2]][[i + 33]][[
1]]}, (spxDailyLong[[2]][[i + 33]]/spxDailyLong[[2]][[i]])[[
2]] - 1}, {i, 1,
Length[spxDailyLong[[2]]] - 34}], #[[2]] > .0679 &];


ranges = Transpose[rangesAndScale][[1]];

(* we want overlapping rectangles to be unified into a smaller number of wider rectangles, so we need the following *)

unifier[rangeList_] := Module[{i, outp}, outp = {};
For[i = 1, i <= Length[rangeList], i = i + 1, If[i < Length[rangeList], If[AbsoluteTime[rangeList[[i + 1]][[1]]] <= AbsoluteTime[rangeList[[i]][[2]]], outp = Append[ outp, {rangeList[[i]][[1]], rangeList[[i + 1]][[2]]}]; i = i + 1, outp = Append[outp, rangeList[[i]]] ], outp = Append[outp, rangeList[[i]]]] ]; outp ]

unifiedRanges = FixedPoint[unifier[#] &, ranges] ;


legendRects =
Map[{Pink, Opacity[.5],
Rectangle[{AbsoluteTime[#[[1]]], -100}, {AbsoluteTime[#[[2]]],
1600}]} &, unifiedRanges];

DateListPlot[spxDailyLong[[2]], Frame -> {True, True, False, False},
Epilog -> legendRects,
PlotLabel ->
"\"I've never seen a market like this\"\npink=markets just like \
this (6.78% rise in 34 trading days)"]

Sled Dog snow skates

Back in the mid 1990s, inline skating exploded in popularity. The number of people skating increased by 40% to 50% each year, and it seemed each season brought another new player to the market. First Rollerblade, then K2, Roces, Salomon, etc. etc. etc. In racing skates, you first saw Bonts, then Simmons and Miller, and people moved from 72mm wheels to 80mm to 100mm. Pressing the expansion of the market, some entrepreneurs incorporated a company called SnowRunner to introduce a Swiss innovation called snow skates to the U.S. market. In the words of the company, “Snow skates are . . . designed to permit travel across snow using a skating motion or gliding downhill like an alpine skier.” The devices looked like ski boots with a smooth base, and the action was a tiny bit like inline skating.

The company changed its name to Sled Dogs and came public in 1994, projecting millions of people would adopt their new sport. “The Company believes that snow skating not only appeals to the new winter sports enthusiast (active individuals who enjoy the outdoors and are eager to find a winter activity that is quick and fun to learn) but also will appeal to a broad segment of the nearly 31 million in-line skaters in the U.S., primarily the 20 million who, according to the Company’s marketing studies, currently do not have a winter sport of choice. The Company also believes its products and the new sport it is creating will be an alternative for infrequent skiers and snowboarders in the U.S.”

Snow skates were slower than skis, and tedious on a traverse, but otherwise a lot of fun. Some friends and I were prominent inline skaters at the time, and were given demo units. We would do things like link arms and spin around in circles as we plummeted down a run. Technically difficult terrain was often a lot easier for us than for people on skis. Our snow skating got some press; the photos below appeared in an inline magazine.

I’m in the back here:

And here I am again:

They had a great logo, produced some television commercials, enlisted “Top Dog” demo skaters around the country, and got rental and demo units into hundreds of ski resorts. However, the business was doomed. The inline skating boom ended and management of Sled Dogs got desperate. They chased the snowboarding market with an ill-conceived brand extension called “K-9s” that had a larger base than the original skates, and were much harder to control (especially when the base detached and went shooting ahead of you down the mountain, as these were wont to do). The company soon went out of business. They sold their licenses or patents to a Norwegian company that developed some later models, but which seems to produce only a small run each season and is usually out of stock.

One of my skating buddies took his original Sled Dogs out of the closet this weekend for the first time in over ten years, and hit the slope. Unfortunately, the company seemed to have used a cheap plastic in their design, and the age plus the cold was too much for them:

The skates exploded.

So we’re looking for replacements. We’ve found a canadian company selling 20-year-old Snowrunners, and a Korean company with a much too expensive snow-base for actual inline boots. I’ve gotten my old Sled Dogs out of the basement (both model sd250 and a pair of K9s the company sent me), and I’ll take them into the mountains next weekend, trying my hardest to blow them up the way Gary blew up his. Wish me luck.

February 21, 2011 update — my skates survived. I will try again to destroy them next week.

Youth in 8 bit

One of my sons discovered the Apple ][e this morning. He likes keyboards, and pounded on this one for a bit.

Youth with Apple //e

2009 youth with 1983 Apple //

I thought it would be amusing to render the image in Apple ][ hi-res graphics. I think it would come out something like this:

Youth with Apple //e, in 8bit

8bit Youth

replacing the i/o card in the Apple IIe

It worked.

Bank Street Writer - Apple II

Bank Street Writer

It’s in black and white only; I don’t know whether to blame the computer, the TV, or the cable. Also, one of the disc drives seems to be shot and I can’t find a functioning copy of AppleWorks. The copy I have crashes when trying to put new files on the desktop. Amusingly, it has saved the date it was last used for use in time stamping new files — May 14, 1986. I suspect that was the day we got our Mac Plus. I didn’t touch the Apple II for another 25 years.

Pirated Apple II games. I feel a little guilty.

Archon worked, as did a number of other games. I found the pirate-added splash screens more interesting than the games. Was there anything to be gained from these other than prestige? Where is “The Burglar” today?

Connecting an Apple IIe to the TV set

When I was young, my parents purchased an Apple IIe. My sisters and I played some games on it, and I did classwork on it after I figured out what a word processor was (intuiting the need for such a thing, I had attempted to program my own in Apple Basic. Imagine my simultaneous delight and disappointment to discover Apple Writer II).

Last year, I found the old machine in my parents’ garage, along with its disc drives. The monitors and dot matrix printer had not survived. I did not want to buy a replacement “composite” monitor, and it was unclear to me which, if any, of the “VGAbox” type devices on the market might allow it to talk to one of my computer monitors, so the Apple IIe sat in the basement until I realized today that it could probably be attached to our television via the RCA jack on the front of the screen. Indeed —

Apple //

Apple //e on a large high definition screen

Unfortunately, while the machine booted and the drives spun up, they would not load an operating system. I pulled the disk interface card and tried to reseat the chips, but this ended up frying the card entirely. Sigh.

A question you don’t want to hear from your wife when tinkering with old hardware —

“What’s that smell?”

A replacement card is coming, courtesy eBay. It would be nice to salvage some of the files on my old 5 1/4″ discs.