Some viewpoints on the growth of unrest

Nowadays Hong Kong has declined and create much ridicule, while the world is actually much more outrageous to derail from the norm constructed for so many decades, or even centuries. I just have some basic idea originated from the basic framework of aggregate supply and demand in order to postulate some scenario, possibly occuring in the society.

In an environment that the society cannot distribute and utilize resource efficiently, the aggregate supply side will get wrong. It will lead to a scenario that either vigorous fight for the limited opportunity and resource or immediate surrender. Expectation of the benefit is negative overall. Thus, after the youth see that, to seek happiness in the early age and ignore the low return's human capital investment may help for distinct group of youth. The inconsiderate action taken by the group will further deteriorate the aggregate supply side as this pessimistic group can be persistent to create a turmoil so as to undermine the overall society. Having this burden, it hardly sheds light on the improvement. Observing the endogenous variable side, we can see that price level can be unstable as it rises and then falls, and the output surely declines.

It is the expectation of considerable number of youth in many countries. Some governments emphasize on warfare. Some governments have too much redundant protection on a tiny and irrelevant group. Some governments can realize this weakness, but it is a game that they need to follow with a view to escaping from the irreversible total loss. The most proximate government has aimed at high, while it cannot easily control the hierachical structure. Furthermore, considerable number of people are somewhat insane or uneducated, which roots a bomb in the economic growth.

Rational rather than efficient and prudent, people prefer playing game and needless to say, it is the single period game (without considering the side-effect in the long-run).

To certain extent, when we compare the intensity of the social unrest among different regions, condition in Hong Kong is rather calm and mild indeed, despite the brewing of the adverse condition in progress.

My view on technical analysis II

- "Non-traditional" technical analysis should have been protected

Traditional technical analysis available in the public may erode the useful information by itself owing to efficient market trading, or becomes exploited and manipulated intricately by the big players. As I have described the traditional technical analysis, how about the "non-traditional" technical analysis?

I would like to define the non-traditional technical analysis as a kind of traditional analysis that the public cannot easily have access to it. Same as the traditional one, the purpose of this is to trace the trend with the help of historical price. Some of them are well-known, but the people have to acquire the knowledge through the courses. Therefore, this has the value protected by the patent (intellectual property right). In addition, if one can invent a method that can reliably explore the mechanism of price movement, it will be an undisclosed technical analysis which itself has hidden value. On the other hand, advanced statistical measure such as time series is a vigorous method to explore the price series of the stock prices. Despite academically being regarded as statistical measure, this kind of forecasting technique can be a non-traditional technical analysis that normal people cannot dig out the mechanism and utilize the power.

The non-traditional technical analysis can have property to avoid the over-exploitation happening in the traditional technical analysis since every individual cannot follow the disclosed signals to make decision, while the big players cannot manipulate the price level by using the non-traditional technical analysis since public do not know the signal and follow this.

Nevertheless, non-traditional technical analysis cannot ensure the victory comes.

- People attending courses on that should incur cost on tuition fee and leisure time.

- People spending time on research should incur opportunity cost, which is ultimately high for ordinary individuals due to lack of knowledge, technology and scale.

- Using technical analysis without testing the reliability can be costly.

- Like the traditional one, transaction cost takes an important role if this kind of technical analysis requires frequent trades.

In view of the first three points, non-technical analysis eventually comes to the professional hands. In addition, with regard to the last point, frequent transaction, which also occurs in traditional technical analysis, inevitably induces certain transaction costs. Ordinary individuals cannot afford to develop this kind of challenging technical analysis or pay tuition fee towards the professional, and in turn seek for traditional advices from the mass media and professional.

- Even if it works, it should not be alone

Regarding all the technical analysis researching the historical series, even if they can capture the trend of the market movement, it does not completely extract (and most often, extract little) information of the companies and the global environment. Thus fundamental analysis should also be considered. The success and failure of the companies should align with the performance of the companies' management and operation, which directly reflects the message on the stock price. The macroeconomic environment and policy are another fundamental information which can largely affect the whole market environment. Solely using technical analysis as advices would cause fatal consequence in the investment.

Overall, it seems the profit becomes zero in both cases, while the non-traditional technical analysis experts may have "congenital" advantage (in either wealth, knowledge, technology, or scale) to capture some rent.

My view on technical analysis I

As mentioned in the previous essays, I have said that technical analysis has been the main adversary of the academists. The test of the weak form EMH has proved to be true when the transaction cost due to frequent trading (where the technical analysis is used to doing that) is also included. Therefore, normally speaking, well-educated investors should avoid using the technical analysis.

However, in Hong Kong, it seems that the courses of technical analysis have been held widely in the universities and some schools for continual study. In mass media, technical analysis has been a simple and convenient explanation tool to illustrate the market environment towards the public. Ironically, the technical analysis has been adopted by the professional also. It concludes that the market of the technical analysis is still recognized and sustainable. What is actually the picture of this tool in investment?

- "Traditional" technical analysis is vulnerable

"Traditional" technical analysis is the ordinary technical analysis which does not have any patents owned by their inventors. In other words, everyone can see the information, or extract the advices easily. This includes those technical analyses shown in the newspaper and investment guides. As the world-wide-web enhances the proximity of the alien information, some advanced technical analysis can also be extracted freely through the world-wide-web. I would also like to regard them as the traditional technical analysis.

Some general critics contend that when the traditional technical analyses such as charts and MA generate signals, the investors immediately follow the signals to buy or sell stocks, in which the stock price rises or falls immediately so that the value of stock becomes not favorable at all (An enactment of EMH). With the lag and difference of information flow, this criticism may be too ideal to illustrate the malfunction of technical analysis. On the other hand, putting aside the belief of the EMH, I would like to give another common example faced by the current market practitioners to demonstrate the vulnerability of the traditional technical analysis.

The stocks, in general, are not held uniformly by the investors. The bulky investment should be mainly contributed by the large investment fund houses. Whenever the seller (buyer) of the stocks has contributed to significant market share, it can create temporary monopoly (or monopsony) for particular stocks. Price becomes controllable by solely one small group of companies (in the form of cartel sometimes) in this case.

By the definition stated above, the traditional technical analysis provides signals for all (or most of) investors (including big players and individuals in weak market position) to buy stocks or sell stocks. If the price can be solely controlled by the big players inside the stock market, it can virtually generate some fake signals to lure the investors doing actions guided by the technical analysis principles. The big investors thus buy the stocks sold by the individuals at the lower price (or sell the stocks to let the individuals buy at the higher price).

The recent example, that the HSI plunged in June and penetrated through the 250MA, nevertheless became resilient after a week, was initiated by the desperate short sell of the hedge funds. Until it slightly had a breakthrough on the 250 MA, the individuals sold out the stocks for fear that the trend would change from bull to bear, while the fund managers bought in at the low price. As market power exists, it can be a common practise for the big players. Unfortunately it induces high cost for the indivduals who follow the guidelines of the traditional technical analysis and sell their stocks at such a low level.

Theoretically, the market of this kind of technical analysis should not be sustainable owing to fully-exploitation leading to the inaccuracy of the prediction, yet lack of formal investment education in general public and the great propaganda focusing on this technical tools in mass media (This is also a phenomenon that the individuals count on the mass media) can fatally influence individuals to heavily immerse themselves in technical analysis and play this zero-sum game. Consequently, this kind of technical analysis maintains itself to be the popular tool although its so-called state-of-the-art approaches are questionable.

(Cont.)