I periodically discuss my take on how computer trading has influenced stock valuations and trading patterns.  The following is a link to  a short interview  with  one of the most successful investors of our time on algo’s.  Its more confirmation bias for me, Druckenmiller identifies some patterns that have been broken and he attributes algo’s as being the culprit.  While I agree, what they may mean is that algo’s are creating new patterns and eventually they will have to adjust to these patterns as will those who use our intellectual capital to invest also.  Algo’s are trend followers always on the outlook for something that will reverse or impact a trend.  How do we define trends?  Are they short term, long term, some combination of both?  Algo’s have contributed to bizarre valuations in various stocks.  I outlined one of those, Tesla,  yesterday.  There are many.  The question that is unanswered is what happens when the algo’s as a group turn bearish and their trading design is having them short and sell the bounces instead of buying the dips?  What could make that happen?  It could be one simple event—higher interest rates.  Higher interest rates induce investors to buy CD’s and bonds instead of stocks.  As rates climb more money is pulled away of the market as higher interest rates entice investors who have been risk adverse in the past.  Because interest rates dropped to historic lows as the Federal Reserve worked to liquefy the banking system following the 2007–2010 debacle investors who typically bought bonds and other yield focused securities went fishing for higher returns from stocks.  When they pull away from buying stocks it forces that money into investments that will not return to the stock market any time soon.  People crave comfort and comfort for those with pension plans and other risk adverse funds will flock to securities that are perceived to have less risk.
Here’s the third soundbite from the latest interview in the Kiril Sokoloff Series for Real Vision TV just released in full to 13D clients. This is a timeless conversation between these two great investors and is worthy of watching time and time again.

In this third soundbite find out why Stanley says “These algos have taken all the rhythm out of the market”.

Sign up today to hear the full interview and enjoy all the 13D content built over 35 years and be able to detect change before others.

Look out for Part 4 coming tomorrow.

Kind regards,

Britt Daoust
Senior Director
13D Global Strategy & Research
britt@13d.com  |  www.13d.com
m: +1 (502) 439-5318
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‘Despondent’ Musk’s Tesla resembles Lehman, Greenlight’s Einhorn …

NEW YORK (Reuters) – Hedge fund manager David Einhorn lambasted Tesla Inc (TSLA.O) and its “despondent” Chief Executive Elon Musk on Friday, comparing the electric car company to Lehman Brothers Holdings Inc, where he had flagged accounting problems several months before its 2008 collapse.

Report: Tesla ‘inundated’ with refinancing ideas

  • “SCOOP: Bankers are inundating @Tesla (NASDAQ:TSLA) w refinancing ideas as two major bond repayments near,” Fox’s Charles Gasparino tweeted, not saying where he obtained the information.
  • “One idea floated with be to raise about $5b in new senior secured debt to make payment etc on the notion the $TSLA battery brand and car are worth at least $10b in a worst-case bankruptcy.”
  • “My UNDERSTANDING is that this debt would essentially take out the existing shareholders and these bond holders (if this happens and thats a BIG if) wld essentially control the company.”