Control-theory perspective for crash period?
Updated
Are conventional [short, mid]-term [trading, fundamental] analysis tools anachronistic for this crash period? Given the huge [Treasury, Fed, Government] influence on the current market, and their [social, economic] policy perspective, I wonder if an engineeering-control perspective is actually more appropriate, and may describe what they are doing.
If we take the [Treasury, Fed, Government] perspective, and I am plainly incompetent in these areas, key objectives may be :
- to reduce the "avoidable" [short, mid, long]-term damage to [markets, economy, jobs, public confidence, psychological side effects]
- to compensate for investor [fear, indecision, cash-hoarding] behaviour that naturally arises during crashes, but that can exaggerate greatly the damage
- to accommodate "necessary" changes to the [markets, economy], balancing "creative destruction" with "social impact" and [mid, long] term growth
- to use this opportunity to develop longer term [policies, tools], extending what has been done in previous crashes (particularly 2008)
- to immediately apply an approach to [stabilise, underpin] investments that will help to positively adapt the economy
- to minimise the debt [growth, mid-to-long term] impact related to the Keynesian support
- "invisible hand" - the [Treasury, Fed, Government] cannot simply control the market by stated formulae, as they do need to see "real investor reactions". Otherwise everybody is flying blind (or more blind than usual).
It seems that the [Treasury, Fed, government] have already injected a substantial portion of the total market captilisation (say ~30 T$?). Guessing that this already amounts to >3-5 trillion$ of [cash, loan guarantees, interest rate cuts], combined with [municipal, state, federal] government "Keynesian" spending plans, this ~10%+ level should be sufficient to exercise significant "control" over the market status. Furthermore, there are clear indications that much more support will be provided if needed. In a sense, we are not in a period of "free markets", but rather state-[supported, controlled] markets. As shown in the linked chart, since ~07Apr2020, it seems that there may be a "flexible" S&P500 control zone of ~2770-2915, corresponding to Fibonacci levels 0.5-0.618 from the ~24Mar2020 bottom (to date). Just like [baby, momma, papa] bear, for now this would seem to be a comfortable compromise control zone, requiring minimal support (give and take) to achieve about the right results relative to their objectives? This would also be a [familiar, expected, comfortable] band for traders?
From a control theory perspective, the tools could go far beyond simple "trading bands", and could include :
- stability analysis to avoid un-intended overshoots or un-neccesarily small control actions (for non-linear systems, perhaps even Lyapunov-style math)
- optimisation - maxium effect for minimum bucks (possibly self-[learning, evolving] controls based on Approximate Dynamic Programming (ADP) or reinforcement learning that adds-in ADP)
I am wet behind the ears, and likely my comments are off-base, influenced by what I am more familiar with than markets.
BillHowell.ca/economics, markets/200505 SP500 [Fed,%20Treasury,%20Govenment]%20control%20zone%20possibility,%20TradingView%20graph.png
If we take the [Treasury, Fed, Government] perspective, and I am plainly incompetent in these areas, key objectives may be :
- to reduce the "avoidable" [short, mid, long]-term damage to [markets, economy, jobs, public confidence, psychological side effects]
- to compensate for investor [fear, indecision, cash-hoarding] behaviour that naturally arises during crashes, but that can exaggerate greatly the damage
- to accommodate "necessary" changes to the [markets, economy], balancing "creative destruction" with "social impact" and [mid, long] term growth
- to use this opportunity to develop longer term [policies, tools], extending what has been done in previous crashes (particularly 2008)
- to immediately apply an approach to [stabilise, underpin] investments that will help to positively adapt the economy
- to minimise the debt [growth, mid-to-long term] impact related to the Keynesian support
- "invisible hand" - the [Treasury, Fed, Government] cannot simply control the market by stated formulae, as they do need to see "real investor reactions". Otherwise everybody is flying blind (or more blind than usual).
It seems that the [Treasury, Fed, government] have already injected a substantial portion of the total market captilisation (say ~30 T$?). Guessing that this already amounts to >3-5 trillion$ of [cash, loan guarantees, interest rate cuts], combined with [municipal, state, federal] government "Keynesian" spending plans, this ~10%+ level should be sufficient to exercise significant "control" over the market status. Furthermore, there are clear indications that much more support will be provided if needed. In a sense, we are not in a period of "free markets", but rather state-[supported, controlled] markets. As shown in the linked chart, since ~07Apr2020, it seems that there may be a "flexible" S&P500 control zone of ~2770-2915, corresponding to Fibonacci levels 0.5-0.618 from the ~24Mar2020 bottom (to date). Just like [baby, momma, papa] bear, for now this would seem to be a comfortable compromise control zone, requiring minimal support (give and take) to achieve about the right results relative to their objectives? This would also be a [familiar, expected, comfortable] band for traders?
From a control theory perspective, the tools could go far beyond simple "trading bands", and could include :
- stability analysis to avoid un-intended overshoots or un-neccesarily small control actions (for non-linear systems, perhaps even Lyapunov-style math)
- optimisation - maxium effect for minimum bucks (possibly self-[learning, evolving] controls based on Approximate Dynamic Programming (ADP) or reinforcement learning that adds-in ADP)
I am wet behind the ears, and likely my comments are off-base, influenced by what I am more familiar with than markets.
BillHowell.ca/economics, markets/200505 SP500 [Fed,%20Treasury,%20Govenment]%20control%20zone%20possibility,%20TradingView%20graph.png
Note
At frequent points in my posting, I referred to the Fed, Treasury, Government, but enclosed in square brackets, which I also used for other expressions. I was unaware that square bracketed expressions are remove from postings, so the commentary is a mess. Oh well, a lesson for future postings...Note
Update without square brackets, so original lists can be read (clumsy) : Are conventional (short, mid)-term (trading, fundamental) analysis tools anachronistic for this crash period? Given the huge (Treasury, Fed, Government) influence on the current market, and their (social, economic) policy perspective, I wonder if an engineeering-control perspective is actually more appropriate, and may describe what they are doing.
If we take the (Treasury, Fed, Government) perspective, and I am plainly incompetent in these areas, key objectives may be :
- to reduce the "avoidable" (short, mid, long)-term damage to (markets, economy, jobs, public confidence, psychological side effects)
- to compensate for investor (fear, indecision, cash-hoarding) behaviour that naturally arises during crashes, but that can exaggerate greatly the damage
- to accommodate "necessary" changes to the (markets, economy), balancing "creative destruction" with "social impact" and (mid, long) term growth
- to use this opportunity to develop longer term (policies, tools), extending what has been done in previous crashes (particularly 2008)
- to immediately apply an approach to (stabilise, underpin) investments that will help to positively adapt the economy
- to minimise the debt (growth, mid-to-long term) impact related to the Keynesian support
- "invisible hand" - the (Treasury, Fed, Government) cannot simply control the market by stated formulae, as they do need to see "real investor reactions". Otherwise everybody is flying blind (or more blind than usual).
It seems that the (Treasury, Fed, govenment) have already injected a substantial portion of the total market captilisation (say ~30 T$?). Guessing that this already amounts to >3-5 trillion$ of (cash, loan guarantees, interest rate cuts), combined with (municipal, state, federal) government "Keynesian" spending plans, this ~10%+ level should be sufficient to exercise significant "control" over the market status. Furthermore, there are clear indications that much more support will be provided if needed. In a sense, we are not in a period of "free markets", but rather state-(supported, controlled) markets. As shown in the linked chart, since ~07Apr2020, it seems that there may be a "flexible" S&P500 control zone of ~2770-2915, corresponding to Fibonacci levels 0.5-0.618 from the ~24Mar2020 bottom (to date). Just like (baby, momma, papa) bear, for now this would seem to be a comfortable compromise control zone, requiring minimal support (give and take) to achieve about the right results relative to their objectives? This would also be a (familiar, expected, comfortable) band for traders?
From a control theory perspective, the tools could go far beyond simple "trading bands", and could include :
- stability analysis to avoid un-intended overshoots or un-neccesarily small control actions (for non-linear systems, perhaps even Lyapunov-style math)
- optimisation - maxium effect for minimum bucks (possibly self-(learning, evolving) controls based on Approximate Dynamic Programming (ADP) or reinforcement learning that adds-in ADP)
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