Thursday PM reads
- As the stories that follow show, many investment pros are passionate game players and puzzle solvers. What they get from their pastimes varies widely. Poker teaches risk management and emotional regulation. Crosswords are exercises in pattern recognition and understanding how other people think. Sports, too, can be a mental training ground. Finance is not actually a game. It’s pensions, clients’ savings and transactions with counterparties who may forgive you for outsmarting them but not for tricking them. Gamesmanship can cause traders to lose sight of the real world behind their screens. (Recall how FTX fraudster Sam Bankman-Fried stayed glued to video games.) But for as long as investing means taking chances, a good gamer is likely to have an edge. BB
- Powell said that Fed staffers believe that federal data could be overestimating job creation by up to 60,000 jobs a month. Given that figures published so far show that the economy has added about 40,000 jobs a month since April, the real number could be something more like a loss of 20,000 jobs a month, Powell said. “We think there’s an overstatement in these numbers,” Powell said in a press conference following the central bank’s two-day policy meeting. WSJ
- Analysts predict shortages of high-end chips to persist for at least another few years. It is unclear how many of Nvidia’s H200 chips China will buy, and how much the change in export restrictions will change the situation. China’s government has said it is committed to developing its own advanced chips. “For the near term, China’s lack of leading-edge chip capacity is a tighter constraint than the U.S.’s power bottleneck,” said Qingyuan Lin, a semiconductor analyst at Bernstein. China’s power capacity, he said, at least keeps it in the game. “The longer the AI race lasts,” Lin and his colleagues wrote in a report, “the more opportunities there will be for China to close the gap.” WSJ
- Oracle raised its forecast for capital expenditure this financial year by more than 40 per cent to $50bn. The outlay, largely directed to building data centres, climbed to $12bn in the quarter, above expectations of $8.4bn. Its long-term debt increased to $99.9bn, up 25 per cent from a year ago. Oracle has launched an aggressive bid to catch up to much larger cloud players such as Google, Amazon and Microsoft in the race to supply the vast amount of computing power that AI groups including OpenAI and Anthropic need to train and run their models. FT
- With fewer unemployed persons, there were still more vacancies than the number of job seekers in September, the Ministry of Manpower (MOM) said in its quarterly report for the July to September period. The ratio of job vacancies to unemployed people stood at 1.49 in September, up from 1.35 in June. The number of unfilled jobs has continued moderating from the highs observed in 2022 and is moving towards pre-pandemic levels, according to MOM. CNA
- One simple strategy (besides holding cash) is to purchase longer-term put options when the S&P 500 falls below a key moving average, such as its 21-day EMA. The logic for this is crashes typically occur from oversold conditions, not all-time highs; therefore, it is prudent to apply hedges once initial weakness appears. Six Sigma
- A useful tip is to only invest when there is an extreme dislocation, or if the chart shows signs of basing and an emerging uptrend. Specifically, look for a base accompanied by moving averages cross-over such as the 5 EMA crossing over the 20 EMA to confirm a possible trend change. Furthermore, consider taking smaller initial positions and ideally buying on the ‘right side of the V.’ Lastly, it can’t be understated how important it is to wait for market conditions to become favourable before sizing up.
- Diversification, when done correctly, can be useful. The simple idea is to have exposure to different, uncorrelated factors so that not every position acts the same, ensuring some positions are working when others are not. As an example, if you own five data centre stocks, then in reality you own one position, as they are likely all correlated. Beyond a certain point however, the benefits of diversifying erode quickly.