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China and Free Markets: How Do You See It?

Feedback in:

Hi Michael,

I hope this emails finds you well, and that all is good in Saigon. As always feeling grateful for all the insights and content you share for FREE!

In a recent episode you mentioned China’s greatest achievements in eradicating poverty as a result of free market reforms. With the intention of thinking efficiently, this is my question to you: Do you consider China a “free market” after they arrested dozens of short sellers for shorting the Shanghai Stock Exchange?

I appreciate your answer.

Thanks,
[Name]

China is a very big operation. I can’t define it or position it on one event. From a big macro perspective though … they would not have their success without some semblance of free markets and capitalism. You would surely agree? And beyond government, the people are with a doubt “traders”… going back centuries.

Michael Covel in China
Michael Covel in China


Listen to Jed Rothstein views on China in Podcast episode 649.

Ep. 445: Parag Khanna Interview with Michael Covel on Trend Following Radio

Parag Khanna
Parag Khanna

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Michael Covel interviews Parag Khanna. Parag is an international relations expert, a CNN Global Contributor and Senior Research Fellow at the National University of Singapore. He is also the Managing Partner of Hybrid Reality, a geostrategic advisory firm, and Co-Founder & CEO of Factotum. Parag’s new book, “Connectography: Mapping the Future of Global Civilization” recently came across Michael’s desk. The concept of connectivity does not just relate to mobile phones and Skype. There is a very physical and tangible evolution of connectivity that can be boiled down into three categories; transportation, energies and communications.

Michael and Parag start the podcast off touching on what connectivity is and then dive into the relationship between cities and states. Parag says that there is not one single successful state that is not built upon the stability of their successful cities. We have more mega and viable cities than states in the world. Cities are the drivers of growth. More mayors are sitting heads of states or presidents nowadays than any other time in history and think of themselves as CEO’s rather than politicians.

Next, Parag elaborates on supply chains. The diversity of products available today is truly global. A product can have digital design from Silicon Valley, assembly in China, and a call center for product customer support in Vietnam. As a business, the combination of infrastructure investment and connecting through supply chains to global markets makes you a real player in the economy. Michael brings up the economical impact that globalization has made, in particular to taxes. Apple is working with Ireland to keep their investments outside the U.S. More and more companies are realizing that they can operate over “the cloud.” Markets are everywhere and sales are everywhere so investments should be able to be everywhere as well. American politicians have been counter productive in trying to capture taxes from some of the biggest companies in America.

Michael brings the conversation back to China and their infrastructure. China has made a global plan to help counties boost their infrastructure. They are spending their own money to help gain trust and also smooth the flow of goods in and out of developing countries by building railways, airports and shipping ports. Most of the world trade growth is happening across the Indian Ocean because of the Chinese.

Next, Michael brings up country borders and the reservations citizens may have about immigrants. No country has gained more from accepting immigrants into their society than America Parag argues. Parag says that unfortunately people are acting more with their hearts rather than acting on the data. There are far more benefits to welcoming immigrants into societies as opposed to shutting them out. People talk about globalization doing us wrong. It is not. It is political governments that are failing. Policies in politics are the problem.

Michael and Parag finish up discussing the booming rise of Dubai, and how the city is a perfect example of infrastructure growing a city. Dubai has thought strategically about all their expansion, from their roads to their buildings to their education system. It’s a place that represents a leap in quality of life for people who are on the move and doing different things.

In this episode of Trend Following Radio:

  • Supply chains
  • Connectivity
  • Cities vs. State
  • Chinese infrastructure growth
  • Trade
  • Trust among China’s neighbors
  • Territory borders
  • Globalization
  • Winners and losers in the 21st century
  • The idea of “not in my backyard”
  • Growth of Dubai

“The truth is that winners and losers in the 21st century will be determined by old versus new. Not any of these ideological things. Who has newer and better stuff and is able to maximize the utility of that stuff to improve the welfare of their population.” – Parag Khanna

Mentions & Resources:

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More Feedback on the China Experience

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Hi Michael,

I enjoyed your monologue 358 on Beijing visit very much and could not agree more on being on the ground and be more sensitive to the local customs and norms. I would like to get a copy of the free DVD and would appreciate it if you could send to my address below: (I am a subscriber to your website but it seems to reject me sending feedback message).

[Address]

Best regards
[Name]

Thanks!

“Good grief Mike… What did you tell our Chinese friends?”

Feedback in (heavy sarcasm):

Good grief Mike…

What did you tell our Chinese friends?

Buy all time highs… with a stop!

Check…

Let’s hope the Chinese government will honor those STOPs. There’s a lesson there somewhere. I’m really enjoying your podcasts. Personally, I’m having trouble managing my clients’ monies in this whipsaw market. My STOPs are going off like firecrackers and then I watch the market spring back up. Most of my clients are in fee accounts so commissions aren’t killing them but the whipsaws are. Frustrating, but it ain’t supposed to be easy is it? I clearly need to use more non-equity ETFs. My model is way too seat-of-the pants and I need a true system.

I do appreciate you understanding that there do exist financial advisors like myself who do not subscribe to the buy and hope, multi-mutual fund nonsense propagated by the big bank-owned firms. I’m trying like crazy to use trend following as a bedrock approach to managing the risk of my clients and capturing the maximum gain. I suspect there’s a much higher percentage of trend following advisors at independent firms like [name] vs. Merrill Lynch. As a former [name] (I’m originally an [name] advisor) advisor, I know first-hand the amount of Kool-Aid being swilled.

Thanks again for all you do,
[Name]

Thanks!


Read about Fund Advisor Mark Kritzman.

Trend Following Feedback from China

Feedback in:

Dear Michael Covel:

您好!我读了您的趋势戒律 和趋势跟踪感觉非常震
撼 ,让我明白了为什么我之前总是亏损!我是一个初学者,对金融投资一点不
懂,但是我有一颗上进的心!想通过自己的努力摆脱目前的经济困境!非常的感
谢您!我 英语不是很好,不知道您能否收到我的邮件,我看了这两本书后 疑惑
很多 ,感觉趋势是有 但是它就像空气一样摸不得看不到,很让我纠结!来自中
国青岛的读者–感谢您!希望能在不就的将来见到您,继续聆听您的指导!谢谢
谢谢 GOOD LUCK!

Thanks for the nice words. Google translate helps! Have you read my books in Chinese? See here.

Ep. 360: Pas de Dough with Michael Covel on Trend Following Radio

Pas de Dough with Michael Covel on Trend Following Radio
Pas de Dough with Michael Covel on Trend Following Radio

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A May 25, 1959 Time Magazine article called “Pas de Dough” was recently forwarded to Michael Covel. It was about a professional dancer named Nicolas Darvas, who had made two million dollars trading stocks. This was probably one of the first trend following articles to appear in a major publication.

Sports metaphors when it comes to trend following work great, but there are clearly others. For example, both trend following and dancing judge the public’s enthusiasm and use that as the indicator for the next move.

In this monologue, Covel talks about the article and Darvas’ book, breaks down the fundamentals of trend following, and explains why the philosophy behind trend following still applies today. He also comments on how trend following can be applied to the current black swan economic situations in China and Greece.

In this episode of Trend Following Radio:

  • What trend following and dancing have in common
  • The philosophical foundations of trend following
  • Stock trading and location independence
  • Why relying on “fundamentals” is fool’s gold
  • What being a silent partner in the trend means
  • Why Darvas’ thinking from 1959 still applies today
  • The importance of having no ego when it comes to trading

“The only sound reason for my buying a stock is that it is rising in price. If that is happening, no other reason is required. If that is not happening, no other reason is worth considering” —Nicolas Darvas

Mentions & Resources:

Listen to this episode:

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Have a question or comment about this episode? Post it below.

New Trend Following Chinese Trader

A recent exchange:

Yuhui: When knowing that if someone strictly uses a trading system that its mathematical expectation is positive in a long time then he will get profit, but a question suddenly came to my mind: What will happen if everyone trades like this? Although in your book[s] you have listed several reasons why there are always many people won’t be the trend traders, but [a] positive math expectation trading system can be easily written to the computer and automatically executed by the computers now. Meanwhile, It’s said that this kind automatic trading system is already generally used in the futures market. I want to know what do you think how trend-trading will [perform] when in this condition. What’s more, I’m wondering about how your life is currently. As a successful trader are you living a free and relaxing life, or busy in dealing with the matter of your company. Finally, if possible, expecting the trend-following DVD, my address is [address] and my telephone number is [#], and my name is Yuhui (喻 辉).

Covel: My five books outline why not everyone will become a trend following trader. It’s often against human nature and people dislike drawdowns. They seem more comfortable with black swans that wipe it out all (their accounts that is). You can follow my life here: podcast.

Yuhui: Thanks for replying. Have read your books again and again and some story impressed me very much. Also read the reason you list why not everyone become a trend following trader. But once upon a time I read a book and remembering that the introduction of the author saying that his average income of programming automatic futures trading system can be up to 8% per month. So I just have an idea that what if everyone trades like him in the market? Maybe this condition will never happen because people are easy to be influenced by the cognitive bias in the trading, but somehow I still feel confused about this. And here is my address in Chinese and English.

Covel: 8% a month? Not a wise goal. That will not happen on a consistent basis that you can count on.

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