October - 2018
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P +11.00
 USB -0.21
2
 S&P -1.50
 USB +0.17
3
 S&P +3.00
 USB -2.00
4
 S&P -23.75
 USB -0.19
5
 S&P -15.00
 USB -0.23
6
7
8
 S&P -0.50
 USB -0.11
9
 S&P -5.25
 USB +0.24
10
 S&P -107.15
 USB -0.15
11
 S&P -35.50
 USB +1.19
12
 S&P +23.00
 USB -0.04
13
14
15
 S&P -19.50
 USB -0.14
16
 S&P +68.75
 USB +0.07
17
 S&P -1.60
 USB -0.11
18
 S&P -44.00
 USB -0.01
19
 S&P -4.70
 USB -0.13
20
21
22
23
24
25
26
27
28
29
30
31

Oct

21

RCP's current list of "Swing Districts" totals 49. This includes the following districts held by Republicans: 3 that are "Likely Dem", 11 "Lean Dem" and 31 "Toss Up". It also includes 4 districts held by Democrats: 1, "Toss UP", 2 "Leans GOP" and 1 rated "Likely GOP". So far, I have analyzed 31 districts, including the 5 reviewed today.

The total pick up for the Democrats so far is 6 seats. Adding that to the seats the Democrats now hold (193) gets them to 199 and reduces the Republican majority to 229. If the Democrats win all 15 of seats held by Republicans in the races I have not yet reviewed, the two parties would be EVEN, each with 214. Control would then be determined by the 7 remaining "surprise" districts. Those would be among the 56 districts I had not planned to review: the 18 Democrat seats that are "Likely" or "Lean" Democrat and the 38 Republican seats that are only (sic) "Likely" or "Lean" Republican.

My dedication to sloth leads me to pray that the Democrats will only pick up another half dozen seats from the 18 remaining to be reviewed. That would leave the Republicans with 223 seats - a loss of 18 seats from the results in 2016 - and not require any further labor on my part. The odds are in my favor. There has been only 2 elections since 1952 in which a Republican President had a majority in the House of Representatives during the mid-term elections of his first 4 years in office: (1) Eisenhower in 1954 and (2) Bush II in 2002. In 1954 the Republicans, who had an 8-seat majority, lost 18 seats. In 2002 the Republicans held a 9-seat advantage and gained 8 seats, increasing their majority to 24 seats. For the Democrats, since Eisenhower, their President's first mid-terms with them in charge of the House, have been these: Kennedy in 1962, Johnson in 1966, Clinton in 1994 and Obama in 2010. In 1962 the Democrats lost only 4 seats from their 87 seat majority; in 1966 they lost 47 but that was from a 155 seat majority. Clinton's first mid-term was a complete disaster. For the first time since the 1952 election, the Republicans won the House of Representatives - winning 54 seats and turning an 82-seat minority into a 26 seat majority. Obama's first mid-term was even worse; the Republicans gained 63 seats and a 49 seat-majority, destroying Speaker Pelosi's 2008 moment of glory when the Democrats had won an 87-seat majority. In that election the Republicans outpolled the Democrats by 6 million votes.

It may be that the Democrats' belief in a "wave" this year is a projection of what has recently happened to them. It is certainly not a dispassionate assessment of what happened to Ike and Shrub in their first mid-terms.

The List of Real Clear Politics "Swing" Districts: The 18 districts that remain to be reviewed are identified by *.

PA-1,PA-5, PA-6, PA-7, PA-14, PA-17 D+2  
NJ-2 D+1
CA-49 D+1
IA-1  
MN-3    
AZ-2 D+1
CO-6
KS-3,KS-2
NJ-11
MN-2 
VA-10 D+1 
CA-10
CA-45
FL-26
IL-6
MI-8
MI-11
NC-13*
NM-2*
NY-22*
TX-32*
VA-7*
CA-25*
CA-48*
FL-27
IL-12
KY-6
MI-11*
NJ-3 
IL-6
NV-3*
UT-4*
WA-8*
CA-39*
FL-15*
IA-3*
IL-14*
ME-2*
NC-9   
NJ-7
NY-19
TX-7
VA-5
MN-8*
MN-1* 
 
KS-3,KS-2: KS-3 has Kevin Yoder as the Republican 3-term incumbent; it is Cook R+4. Ms. Clinton carried it by 1 point; but Yoder beat his Democrat opponent by 11. That was a decline from Yoder's successes in 2012 (37 points) and 2014 (20 points); but hardly seems to justify the NY Times calculation that the Democrat challenger Davids is now ahead by 9 points. What does affect Yoder's chances is the 3rd party factor. The Libertarian candidate polled 8% of the total ballot in 2016; and 2018 will be the first of Yoder's races in which there will be both a Democrat and a Libertarian on the ballot. Still, it is hard to see how Emerson comes up with having the Democrat up by 6. It is equally mystifying trying to understand how Emerson manages to put the Democrat up by 4 points in KS-2, a district that is Cook R-10 and also has a Republican incumbent, Lynn Jenkins. Jenkins first won the seat in 2008 defeating the incumbent Democrat Boyda by 4.4 points in a race in which the 3rd party candidates won over 3% of the vote. Since then Jenkins has won 63,57,57 and 61 per cent of the total vote. Yet these two incumbent Republicans are a Toss Up at best in a state where the President is still popular and Trump won by 21 points. That conclusion becomes even weirder when you find that Emerson's affiliation data for its Statewide sample has party registration at R-52, I/O-20, D-28. (For individual Congressional districts they have only done "e-Polls"; and those do not offer sample data or any estimates for 3rd party candidates' likely vote total.) I am afraid that the Emerson poll falls into the PAGI-BWO category (Progressive Academic Garbage In=Blue Wave Out.). Whatever is wrong with Kansas continues to be wrong; Republicans win both races.

FL-26 is a district that, by all 538-style model calculations, should be a lock for the Democrats. It is Cook D+6, Obama carried it by 11 1/2 points and Clinton by 16. Yet, the incumbent Republican Carlos Curbelo managed to win 53% of the total vote against both a Democrat and Independent challenger. The Mason-Dixon poll has Curbelo up 1 point on his Democrat challenger; their sample shows Party Registration as R-33, I/O-30, D-37. Curbelo's incumbency is likely to prevail, especially since his challenger's surname is Mucarsel-Powell is unforgivably diverse in a district where 4 out of 10 likely voters self-identify as Cuban.

IL-6 is Peter Roskam's suburban Chicago district. Roskam matters. He is the Republican Chairman of the House Ways and Means Subcommittee on Tax Policy. He began in the House in 2006, when he beat Tammy Duckworth by 2 points. Since then, he has never been seriously challenged. His margins of victory have been 18 (2008), 26 (2010), 18 (2012), 26 (2014) and 18 (2016). Even the Times is gracious enough to concede that he is ahead by 1 point in their September poll. Republican wins.

 
MI-8 has a 2-term Republican incumbent Mike Bishop. The district is Cook R+4. Bishop won in 2014 by 12 1/2 points; in 2016 he won by 17 and Trump won by nearly 7. There is no sample data available for any of the polls; but they all (including the NYT) have Bishop defeating Elissa Slotkin the Democrat challenger. I agree.

Oct

21

 So I was looking at statistics around China and noticed a couple things.

Chinese GDP has reportedly over tripled since 2006 while Chinese markets in dollar terms are only up 40%. In the meanwhile the US markets have doubled while GDP is up only 40%.

Has all the growth been in the private sector? Have earnings been secretly paid out to the party? Or are the GDP numbers likely false? Or something else entirely?

Books/articles on the subject would be appreciated!

anonymous writes: 

Chinese GDP is tricky. There are 2 Chinese economies–the state economy and the private economy. The private economy follows short boom/bust cycles like the US economy in the 70’s/80’s, overall grows healthily but with high volatility and high frequency. The state economy is where the zombies are.

The PBOC believes that Chinese NPLs are effectively in the 15% range. They calculate this by counting all debt >180 days past due as delinquent, but crediting back about 20 cents on the dollar, because delinquent bank debt can be auctioned off to private investors at around 25c on the dollar.

Chinese gross debt is 250% of GDP. 15% of all debt as bad debt equals 37.5% of GDP. This was also true of other countries like Japan where for cultural reasons bad debt is not called bad debt.

Additionally, the bad 37.5% debt has grown at faster than the economy rate, as the private economy’s growth rate has slowed down and the government has effectively leaned harder on the bloated state sector to hit headline GDP growth numbers.

Michael Pettis has blogged a lot about this if you want to read the much longer academic version of this thesis.

Oct

19

 The history and events of the battle of Chosin during the Korean War has been described as the best depiction of a battle ever.

Michael J. Edelman

TOP 500 REVIEWER VINE VOICE

5.0 out of 5 stars

A superb, literate, popular history that illuminates the greatest battle of the Korean War

August 17, 2018

It's not often that you come across popular history that reads like good literature. On Desperate Ground follows the First Marine Division from their landing at Inchon to their legendary route at the Chosin Reservoir, and manages to be both detailed history and gripping narrative. Author Hampton sides provides a detailed look at the men, the commanders, the strategies, the terrain, and the politics for not just the Marines and allied Korean and UN troops, but also their North Korean and Chinese opponents.

If there's a hero in this book it is Marine General Oliver Smith, commander of the First Marine Division and architect of the Inchon landing. It was Smith who turned MacArthur's plan- "We will land at Inchon"- into reality, and it was Smith who led the breakout and retreat from Chosin, managing to extract the 100,000 soldiers of the American X Corps and Republic of Korea I Corps along with nearly 98,000 citizens, surrounded by 120,000 soldiers of the Chinese PLA. Smith's nemesis was his direct commander, Major General Ned Almond. Almond was one of MacArthur's inner circle of trusted aids, or as others often characterized them, toadies. Almond had an undistinguished career in WWII, and blamed his poor performance leading the 92nd Infantry in Italy- which he blamed entirely on his African American soldiers. His racism extended not only to his troops, but to Filipino troops who were part of the UN forces, and to the Republic of Korea troops, who had shown themselves to be fierce fighters in the battles to retake the South. Alexander Haig, who was an aide to Almond in Korea, wrote that "[Almond] was not a believer in the racial integration of the Army, and thought those of us who were, such as myself, were in the need of education, or perhaps something stronger, to wake us up to reality."

Having secured Inchon and driven the North Korean soldiers from South of the 82nd Parallel, MacArthur decided to push North to the Yalu, and chose Almond to lead that campaign, much to the dismay of Smith and others. Almond had his forces advance along narrow roads, making resupply or reinforcement difficult or impossible. Smith and others warned that Almonds plan was a dangerous division of forces, to which Almond maintained that North Korean forces would not put up a fight. Almond also echoed MacArthur's opinion that, contrary to intelligence assessments, China would not intervene, and even if they did, they were not a significant fighting force. Meanwhile, hundreds of thousands of PLA soldiers were preparing a trap for invasion forces.

The results of MacArthur's grand strategy and Almond's ground tactics are well known. UN forces encountered a massive PLA force, and despite superior tactics, weapons, and experience, found themselves outnumbered and encircled. Author Hampton Sides follows the progress of the battle and retreat through the eyes of commanders and individual Marines, soldiers, and airmen. It's a powerful, realistic, narrative and a book I recommend highly to anyone with an interest in the Korean war.

It depicts the arrogance of General Douglas MacArthur very well and provides a nice example of how arrogance and self promotion can lead to terrible consequences.

One anecdote is priceless. The US Marines called for ammunition which they nicknamed tootsie rolls. The headquarters in Japan thought they wanted the candy rather than ammunition. Tens of thousands of tootsie rolls were delivered and the tootsie rolls were used by the engineers to plug holes and as an adhesive and became the most desirable currency of the engagement.

Oct

19

The most sensible thing out of the Fed in years.

"There's a New Bullard Rule That Finds No Need to Raise Rates"

By Steve Matthews (Bloomberg) –

Federal Reserve Bank of St. Louis President James Bullard is proposing a new monetary policy rule — effectively the Bullard rule — that updates popular policy guidelines such as the Taylor Rule and concludes there's no reason to raise interest rates further.

Bullard's benchmark adjusted the Taylor rule for developments in the past two decades, such as the weak link between the unemployment rate and inflation, the aging of the U.S. population and low inflation expectations.

"Incorporating these developments yields a modernized policy rule that suggests the current level of the policy rate is about right over the forecast horizon,'' or the next several years, Bullard said Thursday in a speech in Memphis, Tennessee. The Federal Open Market Committee discussed raising rates to a "restrictive'' level, or a rate that would slow growth, at its meeting last month, according to a record of that debate released Wednesday. Fed officials projected that rates would rise to 3.4 percent by 2020, their latest forecasts show. The Fed has raised rates three times this year and has penciled in a fourth hike, which is expected in December.

Bullard has been the most dovish Fed official the past two years. He's argued that the U.S. economy has been saddled with persistently low growth, so there is little need to raise interest rates much. His development of a rule is an effort to provide some academic justification to his viewpoint. "The modernized version of the Taylor (1999) rule recommends a relatively subdued policy rate path over the forecast horizon — similar to the St. Louis Fed's recommended path,'' Bullard said.

The Taylor Rule was developed by Stanford University professor John Taylor, who has preferred his original rule as a guideline for policy, which suggests further rate hikes are necessary.

Cagdas Tuna writes: 

He can always find an excuse for not raising rates!
 

Oct

19

They say the market is upset about the jump in bond yields but maybe she's anticipating a premature return to socialism

Stefan Jovanovich writes: 

If I thought there was any reliable direct connection between elections and speculations, I would be tempted to join LW and you other clever traders and bet my "system" - which does better than average at guessing political horse races. I don't because, if there were any such link, I would not be able to pretend to be an expert in such company. You guys would already know the odds down to the precinct levels if that mattered.

I think, in fact, you all do know what matters regarding politics and money. Now that I am 60% of the way through the House "swing" districts, I are learning what the markets have already predicted: Jim Jordan is going to be the new Speaker of the House of Representatives. When that happens, the Federal budget and the Treasury's operations are going to be subject to the approval of the 21st century successor to John Sherman; and the shock is going to be that the national debt will be brought home. The taxpayers are going to become the Federal bond holders just as they did during and after the Civil War; and they are going to want tariffs and "sound" money to protect their investments, even as Confederate paper (aka Chicago municipal bonds) is allowed to evaporate.

Larry Williams writes: 

If the new speaker shrinks debt stocks will get hit hard. Deficits are very bullish for equities.

Alex Forshaw asks: 

Larry, why do you say that/how do you strip out correlation vs causation in this? The blowoff 1998-2000 top occurred among budget surplus and deficits are inherently counter cyclical i.e. generally low in late cycle/high in early cycle (deficit as % of GDP biggest in 1981-83, during/after 2 recessions or 1 severe recession; 1991-93 after a fairly deep recession; 2002-03 after a recession; 2009-10 after a severe recession.) To the extent that the deficit is high adjusted for its place in the economic cycle (2012, 2018 ytd) it doesn't seem bullish. To the extent that deficits are unusually low cyclically adjusted (late 90s, 2007 arguably, 2015 arguably) it definitely does not seem bearish. 

Larry Williams replies: 

I don't think it is correlation but causation. Large deficits means lots of money floating around the hood. That translates to expansion, building–which translates to jobs, and that to consumer spending, and that to corporate profits. I'm traveling so lack data. The "one and only" Mr Vince may wade into this with data.

Ralph Vince responds: 

25+ years ago I bought the Commerce Dept Database of 900 data items, and set u p a program (that would take two months to run, with a math coprocessor no less!) to examine each pairwise data set, and for each pairwise data set, to skew them +12/9/6/3/0…/-12 months, and record only those dataskew pairs with absolute value of correlation > some value (I forget which, but it was quite high).

One of the (many) dataskew pairs that filtered through very highly was that of federal deficits and economic growth (and broadly, we can stipulate that ROC of economic growth correlates to equity returns). The greater the deficits, the greater the market gains.

There were periods that did not fit this pattern, of course, it was not absolute (one out-of-sample period being the Robt Rubin era which was yet to transpire).

My guess is like the Senator's here; greater money floating around menas greater economic activity. I think it;s even a deeper causation than that. I would define it by saying that debt needs be repayed only once (if ever, it can also be perpetually rolled — the "problematic" nature of this is solely a function of rates. If manageable due to rates, it is virtually nothing. Further, even if rates become problematic, the yield curve itself provides an avenue of release — cue Rubin again), whereas the borrowed dollar can circulate multiple times.

So there is the multiplier effect of borrowed money vs the borrower's asset which is a one-time shot

If it weren't for borrowing, in particular the fractional banking system, we'd be in the year 1,000.

Oct

17

The generic ballot poll for the House of Representatives, which was, until this week, the best evidence for the predicted "Blue Wave", asks a sample of adults, registered voters and/or likely voters which major party they favor for "Congress" (the word of both the House and the Senate has, in modern parlance, come to mean only the House).

The logical flaw in using such a poll is that no office in the Federal government is determined by a national vote–not the President, not the Senate, not the House. But, the poll does have the great advantage of being easy. The only alternative is to go by individual House district; I am not even 30% of the way through the "battleground" House districts, and I am - for the first time in my sedentary life–beginning to have a sense of what long-distance runners mean when they discuss "hitting the wall". I promise to finish; but getting the data for each House race is a long slog.

That is why I am following 538 and taking the easy road for an hour this morning.

But, I can't be a complete cheat. No political poll, of any kind, avoids GIGO if it does not disclose its sample's partisan allocation. It will not surprise any of you to learn that the New York Times and the other most frequently cited generic ballot polls are scrupulous about not providing any such useful data. I did find one polling organization that has gone against the GIGO trend. The YouGov people have been remarkably forthcoming about how they get their numbers. In their CBS/You Gov Tracker poll, their sample data for party ID is R-42, I/O-15, D-43; for political affiliation it is Conservative-38, Moderate-32, Liberal-30. What they do not disclose is their methodology for converting these sample numbers into their overall prediction: R-48 and D-52.

I can explain how they get there, but I was not able to find any explanation of the why. The recipe for How works by taking the middle third of voters - the Moderates - and asking the Lean question in such a way that more than 3 to 1 favor of the Democrats. The result of their party ID inquiries is to assign 13 points to the Democrats and 4 points to the Republicans. That reduces the "middle of the road" share of the electorate to 1/7th. To get to their final D +4 result, their algorithm assigns 60% of the Independent/Other vote to the Democrats and 40% to the Republicans.

When YouGov did a second generic ballot poll for the Economist, they queried 1500 adults. Their bottom line result was similar to the one from their CBS tracking poll: D +6. But, here, too the How and the Why seem very much at odds. Their political affiliation numbers show a slight leftward variation on the common 1/3rd, 1/3rd, 1/3rd distribution pattern. Their sample has Conservative - 31, Moderate - 34 and Liberal - 35. But, that somehow shifts to a Party ID landslide for the Democrats: Republican - 23, Independent - 42, Democrat - 35. Where the numbers get really strange is in the data for 2016 voting. The 931 respondents who voted in the last Presidential election produce a sample that is divided Republican - 45.8 and Democrat 54.2.

But we know that the actual vote count was Republican - 62.98M and Democrat - 65.84M. That was Republican - 48.9 and Democrat - 51.1. Somehow a sample that should, to be representative of known ballot numbers, have a D +2.2 margin ends up with a D +8.4 spread.

No wonder the statistical affiliates of the party of Native American heritage prefer national algorithms above all else. They are not only easier but they always give the right answer.

Oct

17

 The hardest part is resting on your oars, but 58pts is a good time to ease off leverage. I think Ralph is right and there is more to go. Unlike RG I can't wait to learn patience.

Peter Pinkhasov writes:

Most of the close to close stats I'm seeing for such a decline are coming with the narrative that "but it has a potential to go lower" which I think takes away from being data and analytically driven to make decisions. I think with the large move in short term rates, it's better to use that as an independent variable for forecasting future returns given we have seen a new interplay in the last two weeks between stocks and bonds. 

Ralph Vince writes:

The upmove in st rates is and has been exceedingly bullish here.

Oct

15

Maine - The Suffolk poll is wonderfully detailed. They break down their registered votere sample into R, D, I and then add Green and Libertarian. They also distinguish between Unenrolled (which they include with Independent) and Undecided. R-28.6,I/U-33,R-28.6,G-1.2,L-.6,U-2.8. Eric Brakey, the Republican, has no chance, given the bias of the Democrats in favor of King, the "Independent" (sic).

Vermont - No one has bothered to take a poll. Socialism rules! Sanders is anointed again.

Rhode Island - The "conservative" news had a recent flurry of articles about how this might be a competitive race. It is not. The most recent UNH poll sample has the electorate R-28, I-24, D-48. Whitehouse in the usual landslide.

Connecticut - Quinnipiac has given up on telling us what its samples contain; but their estimate for the race is not going to be so far off as to give the Republicans an upset. When Gravis did a sample earlier this year, it was R-26, I/O-34, D-40. Murphy is re-elected easily.

New Jersey - The news may say that this race is close; but it is not. Fairleigh Dickinson's poll sample has the state: R-36,I-8,D-56 among Likely Voters; yet it has the race as a statistical "dead heat" between the incumbent Democrat Robert Menendez and the Republican Hugin. More than 1 in 5 Democrats (22%) and nearly half the Independents (42%) declare themselves undecided. The problem for the Republicans is that it is still New Jersey. The statistical "dead heat" is Menendez-43, Hugin-37; and the odds are beyond hope that Hugin can somehow win 2 out of every 3 of the votes from the 20% of the electorate that has not made up its mind. Menendez will win because New Jerkers, especially women, seem to loath the Donald. Prediction: Menendez +4/5.

Pennsylvania - Franklin & Marshall's sample is R-40, I/O-8, D-52. Casey will be re-elected easily.

Maryland - This state makes California look purple. The Goucher Likely Voter poll sample is R-27, I/O-12, D-61. Cardin will win, even if he is in a coma on election day.

Delaware - Gravis sample: Conservative-32, Moderate-45, Liberal-23. On its face that might offer the Republicans a chance; but the term "Moderate" is now code for Democrat-leaning Independent. The sample shows the party affiliation as R-32,I/O-21,D-47. Their Likely Voter poll was taken in July and had Carper +8. The most recent poll - from the University of Delaware - offers no sample and has Carper +37. Carper should win easily.

Virginia - The University of Mary Washington poll has R-29,I/O-35,D-31 and C-37,M-31,L-32. Kaine, the Democrat, is not an attractive candidate; but he has the advantage of running in a 3-way race. The Libertarian candidate is likely to get 5% of the vote. Prediction: Kaine +8.

West Virginia - This race is really a Republican primary in drag. Manchin, the Democrat, was clever enough to not commit political suicide by voting against Kavanaugh; and his personal popularity is distinctly higher than Morrisey's, his Republican opponent. Gravis's likely voter sample has the state R-35,I/O-22,D-43. Trump has been to West Virginia for several rallies, but he has been careful not to criticize Manchin harshly, except at the one held before the Senate vote on Kavanaugh. The Republican party in WV is very much as the Republican party in Alabama was in 2017 - fractured by internal scandals. Prediction: Manchin +6. Commentary: Manchin will become the White House favorite for "bi-partisanship". He is likely to campaign for Trump in 2020.

Ohio - Suffolk's poll sample: R-34.8,I/U/O-23.8,D-38.4. Sherrod Brown, the Democrat incumbent, polls consistently with a double-digit lead. That will be the final election result.

Indiana - None of the polls - Ipsos/Reuters, Fox News, NBC News/Marist - deigns to disclose their sample. The RCP Average has the Democrat incumbent Donnelly +2.5 over the Republican challenger Braun. They show the Libertarian candidate Brenton getting 7% of the final vote. In the absence of any usable data, I am relying on the judgment of the brains of the outfit - Susan, who was born and raised in Evansville and whose mother still lives there. (Margaret Mead: "Everyone knows somebody from Evansville, Indiana"). She thinks Donnelly's vote against Kavanaugh was fatal. I agree. I also think the Libertarian vote will be half the RCP prediction; and Braun will be get those votes. Prediction: Braun +2/3.

Florida - Mason-Dixon poll sample: R-37,I/O-25,D-38. RCP's current average is Nelson, the incumbent Democrat, +2.4. The governor's race is equally tight. Prediction: Genuine Toss-Up.

Tennessee - Gravis poll sample: R-40,I/O-29,D-31 and C-39,M-42,L-19. Gravis had Blackburn, the Republican candidate, at +4 in August; CNN, with their usual bias, had Bredesen, the Democrat, at +5 a month later. The NY Times/Sienna poll from this week (as always, no sample data) had Blackburn +14. That is likely an exaggeration. TN is a Republican state; but Republican states never reward their candidates with landslides. Prediction: Blackburn +7/8.

Wisconsin - Marquette University's Law School poll sample data is wonderfully precise. They not only include the historical data of their previous samples. The sample for the current poll: R-47,I/O-8,D-44; when the pollsters exclude "leaners" it is R-33,I/O-36,D-30. Wisconsin's electorate is true to its good government heritage; and I do not offer that as a snarky comment. Their voters are genuinely independent-minded and have no difficulty in splitting their tickets - i.e. voting for candidates from both parties for the offices on the ballot in a single election. That is not good news for the Republican Senate candidate - Vukmir. The voters are likely to reward the Republicans by re-electing Scott Walker as governor and Brad Schimel as Attorney General and then by "fair" by re-electing Democrat Senator Tammy Baldwin. Prediction: Baldwin +7/8.

Mississippi - At least the GOP has one state where RCP and 538 concede that their incumbent hold a "safe" seat. Roger Wicker will be re-elected. Cindy Hyde-Smith will also win and take the seat Thad Cochran held before his retirement. There have been polls taken in MS but only for the "jungle" primary. No one is bothering to talk to the voters for the general election. The Democrats have Vermont; the Republicans have Mississippi.

Minnesota - Klobuchar is an absolute lock; but the race to fill the comedian's seat could be interesting. The Star Tribune/MPR poll sample is R-31,I/O-32,D-37; and they have Smith, the DFL (Democrat Farm Labor) candidate at 44, Housley, the Republican at 37, Other - 4 and Undecided - 15. That is less than half the margin of the latest poll from NBC/Marist, which offers no sample data at all. What makes this interesting to me is that Smith's lead is almost entirely from "Da Yute". There has been a flurry of new registrations among voters 18-30; and they hate Housley - perhaps because the old people like her. Housley is definitely a longshot; but the Michael Moore effect could easily take hold, especially if Minnesota has one of its lovely blizzards. And, MN is very much like its Southern neighbor, WI - a good government, ticket-splitting state. If I did trade, the Housley win would be the black swan option I would buy. Prediction: Smith +3

Montana - Remington Research offers its sample data: R-42,Non-Partisan-30,D-28 and C-47,M-38,L-15. RCP has the incumbent Democrat Tester at +3. It is the contest of Marine haircuts; both Tester and his opponent Matt Rosendale sport buzzcuts. Trump's popularity is likely to be enough to defeat Tester, especially since he was foolish enough to vote against Kavanaugh. Prediction: Rosendale +2/3

Washington, California, New Mexico, Utah, Wyoming, Nebraska. These states will all return the incumbents who are evenly split 3-3.

Overall Forecast: Republicans gain 3 to 5 seats. They are nearly certain to win Indiana, Missouri and Montana without losing Arizona or Nevada. They have a good chances to win Florida and a longshot to win the open seat in Minnesota. If you include Manchin's conversion to being the President's new and permanent bi-partisan best friend, the election could be enough of a gain for McConnell to decide that the 60-vote filibuster rule has to go so that Tax Cut - 2 and Build the Wall funding can be passed, either during the lame duck session or in the next Congress (if the Republicans keep their majority).

That will be the question for the next 2 weeks when I plan to review each of the 41 House races that RCP lists as either a Toss-Up or a Republican incumbent in a Lean Democrat seat.

One last snark for the weekend: Using the Generic Ballot for the country as a means of predicting the results in the House is the polling equivalent of the Hillary Clinton campaign thinking that total votes is the way you keep score in a Presidential campaign. It is truly Garbage Data In = Nonsense Out.

Oct

12

 I'm very bullish. I can take the pain of that (and in truth this "pain" is something of a joke compared to what we went through in the 80s and 90s). I won't even attempt to trade the short side and such a strong bullish Market this move notwithstanding. That makes the current situation all the more juicy for getting or building long position–even if Kora's research manifests here and it goes on to seeing lower prices. Higher highs in the coming weeks and months are inevitable. This thing is nowhere near a high in price, in valuation or sentiment.

Russ Sears writes:

Perhaps I am too conspiracy and paranoid minded, but I see a parallel to Kavanaugh seated and Trumps election where market participants on the left saw a tragedy, and quickly exited only to miss out on a nice bull market. Not that I think Kavanaugh seat matter much to the economy or markets direction. But when people work themselves up into turmoil the markets reflect more volatility as it's made up of people's emotions
 

Oct

12

I've been pondering the big drop in bonds and the China moves and if they signal something was up.

Looking at bonds, I wondered why they dropped, who had the means and the motivation to cause such as drop. Looking at the move it appears concerted and done with virtually unlimited selling power. Game theory looks at means and motivation. Trump's recent lambast of the Fed gave me the clue. The Fed has the means and the motive to raise yields and they have expressly said they would use interest rates. They have a large inventory to sell, and rather than move the short end, moved the long end, maintained stimulus with the positive curve, but raised yields and thus put a bit of a damper on the works as we saw yesterday in the equities. The bond market is much bigger than equities so such a tectonic shift was bound to have repercussions. I was surprised how little comment resulted.

The other player who has the means and motivation is China. By raising yields, they strengthen the dollar by enough to offset any tariff, and encourage trade with China.

Oct

12

  Canes need to be walked out when blood in the streets is almost dried. I think cane talk now is a wee bit early.

The market has been up for 9 plus years on monetary steroids–and we go down half-hard one day and folks are extolling and faux strolling out with their bullish canes???

Now that is perma bull–shiess.

Oct

12

Perhaps it's a bit of a Halloween Trick by the Fed and the Treasury. Much like February this current selloff was triggered by the Jobs Report, all-time market highs and perhaps the Fed's need to unload a bunch of bonds. So if they talk down equities, and the market cracks, folks will run and gobble up all the bonds. What's the difference between 3.21% yield and 3.25% yield on the 10-year Treasury? Four beeps. Bupkes. A rounding error… What magically happened when the 10-year traded above 3.25% in early trading Tuesday? 3.25 is arbitrary. Why not 3.27 or 3.30?

Oct

9

If I was a gambling man, I'd be getting very long here.

6-week weekly coefficient of variation in SPX calling for a major move.

Volume Thurs and Fri say to be a buyer on weakness.

A certain alliteration in the way prive & volume work on the short term is occurring here. OooOooOO this is hard!

Thurs SPY volumes on and Friday SVXY volumes - indicating to be a buyer on weakness in the coming day or two, followed by a little weakness this morning, and I'll double down on the gambling man proposition. (I have other signals too confirming this, but not going into the long-winded diatribe here at this time).

It;s hard because that 6 week weekly coefficient of variance, calling for a good, prolonged market run in one direction or the other, could be signalling a drop much further from here. But the odds favor the upside, so does the nose.

Oct

8

8/10/2018! 
What inspiring ideas do speculators derive from palindromes and the Palindrome?

Oct

6

I attached the latest calculation for the yield on TIPS. The prices across the board have dropped rapidly in the last few days to the point were greater than 1% real yields can be realized above the CPI on Treasuries for maturities as short as 2022. I find this quite surprising. Any thoughts about the pros and cons of this opportunity which hasn't been seen in years.

Treasury Inflation-Protected Securities 
 
Friday, October 05, 2018 
 
Treasury Inflation-Protected Securities, or TIPS, are securities whose principal is tied to the Consumer Price Index (CPI) . The principal increases with inflation and decreases with deflation. When the security matures, the U.S. Treasury pays the original or adjusted principal, whichever is greater. TIPS pay interest every six months. Figures after periods in bid and ask quotes represent 32nds; 101.26 means 101 26/32, or 101.8125% of 100% face value; 99.01 means 99 1/32, or 99.03125% of face value.
 
Maturity Coupon Bid Asked Chg Yield* Accrued
principal 
2019 Jan 15 2.125 100.10 100.12 + 1 0.770 1173
2019 Apr 15 0.125 99.15 99.17 + 2 1.022 1075
2019 Jul 15 1.875 101.08 101.10 unch. 0.160 1180
2020 Jan 15 1.375 100.22 100.24 + 1 0.791 1165
2020 Apr 15 0.125 98.20 98.22 + 1 0.989 1076
2020 Jul 15 1.250 101.01 101.03 unch. 0.622 1155
2021 Jan 15 1.125 100.14 100.16 unch. 0.898 1152
2021 Apr 15 0.125 97.25 97.27 unch. 0.998 1063
2021 Jul 15 0.625 99.17 99.19 - 1 0.771 1118
2022 Jan 15 0.125 97.09 97.11 - 1 0.950 1113
2022 Apr 15 0.125 96.28 96.30 - 2 1.014 1036
2022 Jul 15 0.125 97.09 97.11 - 1 0.845 1095
2023 Jan 15 0.125 96.14 96.16 - 2 0.966 1091
2023 Apr 15 0.625 98.09 98.11 - 2 0.999 1014
2023 Jul 15 0.375 97.18 97.21 - 3 0.880 1082
2024 Jan 15 0.625 98.03 98.06 - 3 0.981 1080
2024 Jul 15 0.125 95.13 95.16 - 4 0.927 1061
2025 Jan 15 0.250 95.06 95.09 - 4 1.031 1064
2025 Jan 15 2.375 108.03 108.06 - 6 1.024 1337
2025 Jul 15 0.375 95.30 96.01 - 6 0.982 1062
2026 Jan 15 0.625 96.27 96.30 - 7 1.065 1060
2026 Jan 15 2.000 106.15 106.18 - 7 1.060 1269
2026 Jul 15 0.125 93.08 93.11 - 6 1.019 1051
2027 Jan 15 0.375 94.11 94.14 - 7 1.080 1043
2027 Jan 15 2.375 110.04 110.07 - 8 1.080 1249
2027 Jul 15 0.375 94.11 94.14 - 7 1.041 1030
2028 Jan 15 0.500 94.21 94.24 - 9 1.098 1021
2028 Jan 15 1.750 105.21 105.24 - 9 1.097 1203
2028 Apr 15 3.625 122.18 122.23 - 12 1.104 1558
2028 Jul 15 0.750 97.00 97.06 - 9 1.056 1004
2029 Jan 15 2.500 113.11 113.16 - 12 1.106 1173
2029 Apr 15 3.875 126.31 127.04 - 14 1.131 1533
2032 Apr 15 3.375 127.21 127.26 - 17 1.147 1419
2040 Feb 15 2.125 116.28 117.02 - 34 1.216 1166
2041 Feb 15 2.125 117.16 117.22 - 37 1.219 1150
2042 Feb 15 0.750 90.04 90.09 - 34 1.231 1115
2043 Feb 15 0.625 87.03 87.08 - 35 1.233 1096
2044 Feb 15 1.375 102.29 103.02 - 38 1.234 1081
2045 Feb 15 0.750 88.29 89.02 - 38 1.238 1070
2046 Feb 15 1.000 94.10 94.16 - 41 1.238 1063
2047 Feb 15 0.875 91.06 91.12 - 40 1.238 1044
2048 Feb 15 1.000 94.03 94.08 - 46 1.234 1022
*-Yld. to maturity on accrued principal.

Oct

6

The NAFTA/USMCA success is significant for the US economy.

Note how Canada was played against Mexico and negotiated between the two. A success for the Trump camp (& staff).

Next on the calendar are trade negotiations with Japan and China. They will be seemingly independent events, but there is an interrelation, since both compete for the US market and both will watch the deal of the other side.

After that, I think, comes Europe. 

Trump and others hint at India FTA.

Oct

2

The moves from the open to key afternoon hours can be thought of as a lever. The fulcrum would be say, the 1:00 pm price. We can either be above the fulc or below the fulc.

Effort is the move from the open to key afternoon price.

Oct

1

Took a pilgrimage to a hallowed place.

Best,

Steve

[The plaque reads: Sir Francis Galton, 1822-1911, explorer statistician, founder of eugenics, lived here for fifty years].

Sep

29

 Whoever is running the vote counting at the White House is really good. The Flake compromise is artful. The nomination is now on the floor of the Senate, and he and Coons, Flake's bi-partisan comrade, have agreed that the FBI will investigate only the 3 current allegations and no new ones and that the investigation will take only 1 week or less.

The President has announced that he will do whatever the Senate and the Judiciary Committee want to do, that the goal is to bring the country together. So, the FBI will prepare a report that will be kept in a secure reading room, like the FISA warrants, the Senators will pretend to study them, and McConnell has a free No Vote to offer to either Collins or Murkowski (or 2 if Manchin does a deal and follows the West Virginia Governor's example and goes over to the dark side).

Even yesterday the odds at Victoria University's New Zealand casino were that Kavanaugh would not get out of committee. Now, the probabilities have completely flipped. If the present news flurry keeps the odds at or below even money, bet the good Catholic boy and get ready for the Notre Dame professor to replace Margaret Hamilton.

Sep

28

An interesting new book has been released: Can You Outsmart an Economist? by Steven Landsburg has about 150 puzzles and brainteasers, most of which are designed to teach lessons about economics, and all of which are designed to be fun.

Sep

26

 The great Sam Eisenstadt ran a predictive regression with the future S&P changes highly correlated with the direction and magnitude of the preceding 12 months cumulatively. Right now he'd be forecasting another 10% rise or so for the next 3 months. I did something like this last year where I looked at the performance of the last 3 months based on the previous 9 months. As I recall it was very indicative of a good Oct to Dec when the first 9 months were up substantially… could someone update that study? I don't have the resources and haven't unpacked my books from my move from NY to Conn yet so I can't look at the S&P Security Price Record.

Steve Ellison replies:

Using SPY (adjusted for dividends) data since 1993, I find a
positive slope for the regression of the previous 9 month's net change
with the next 3 months' net change with a t score of 0.79 and p=0.43.
The scatter diagram is attached. Here is the data I used.
Date        Adj Close  9-month change   next 3-month change
 12/31/1993  29.473475           5.2%             -3.7%
  3/31/1994  28.371059           0.8%              0.4%
[.....]
12/29/2017 263.41486          14.9%             -1.0%
  3/29/2018 260.79306          10.4%              3.6%
  6/29/2018 270.0575           9.5%              7.7% (to 9/25/2018)

 .

.

.

.

.

.

.

.

.

.

.

Sep

25

I would suggest that one can usefully take the fasting model of diet and benefit from applying it to one's overall consumption of everything, i.e., set aside periods of time to voluntarily minimize food, drink and all forms of mental and physical stimulation except perhaps some exercise. It cleanses the whole system and provides new and interesting perspectives.

Sep

20

 Because of wireless toll payments, the choke points at toll booths have disappeared.

A 15 to 30 percent reduction in vehicle counts will eliminate most choke points.

The levelized cost of a private car is about $0.75 per mile (the IRS allows you to deduct almost $0.60 per mile). Your private car provides you with door-to-door service on your schedule. The cost of parking is extra (whether at your home or destination).

Large public transport systems cost about $0.50 per mile. Half of this is provided by fares and the balance by taxes of one sort or another. Service is not door-to-door and the service is not on your schedule.

A large, autonomous van can easily accommodate 12 passengers. At a levelized cost of $1.00 per mile, the cost per seat mile is just $0.08. There will be no parking costs.

Assume that each car carries 1.5 passengers. Each fully loaded van (autonomous, non-unionized, minibus) displaces 8 cars. A 15% reduction in 4,000 vehicles per lane per hour, requires only 60 vans. For two lanes, double the number. For a 30% reduction, double the number again. The result, 240 vans, is the equivalent of expanding the two lanes to three.

If public policy allows private, mini-buses the public investment in infrastructure will be zero. The public subsidy for the additional transport will be zero. Initially the routes can be from suburban parking or assembly areas to urban dropoffs. Later, a system similar to uber can be used for timely, pickup and dropoff at user selected locations.

Sep

20

 A friend jocularly asked if I was going to Stockholm to receive a Nobel Prize. Actually, the idea is not as far-fetched as it sounds. The Nobel outfit's choice of categories is somewhat random. Why Literature but not Music? Why Physics but not Geology? Why not High Yield Bond Research?

Given that they generally hand out these things every year (aside from suspending the Peace Prize for world wars) I believe they'd get around to me eventually if my discipline were not arbitrarily excluded.

Really, these people remind me of the joke about God's response to man who complains that despite praying fervently each day for many years, he has never won the lottery: "Help me out; buy a ticket."

Anyhow, I did the next best thing to accepting a Nobel myself: I took the guided tour of the Stockholm City Hall, where they hold a banquet and a ball each year for the Nobel recipients.

The banquet is held in the Blue Hall, which is not blue. The architect's original plan to color it blue was so widely publicized prior to construction that the press stuck with the name. The Blue Hall must accommodate 1,300 Nobel banquet guests in 1,500 square meters. Each guest is consequently allocated just 57 centimeters (22.4 inches) of space at the banquet table. Except for Sweden's monarch, who gets 61 centimeters. As Mel Brooks said, "It's good to be the king."

There appears to be no basis in fact for the widespread belief that Alfred Nobel decided against establishing a prize in Mathematics because of a romantic rivalry with a mathematician. He apparently preferred branches of science with practical applications and didn't consider Mathematics one of them.

Let me point out that High Yield Bond Research, with its emphasis on avoiding financial ruin through corporate defaults, is eminently practical.

The Peace honorees receive their laurels in Oslo. So if you're very ambitious but still at the stage of choosing a field, think about which Scandinavian capital you'd prefer to visit one day.

Sep

20

A very interesting read: The University We Need by Warren Treadgold

Sep

19

I will keep to my promise not to make any predictions before October 9th; but - like the Penguins (who have replaced the Peyton Manning Broncos as my favorite winter team) I have to get ready for the real political prediction season by working through the necessary exercises and drills.

There are two big things for political prediction: (1) getting the sample - like trades - correctly sized and (2) guessing the turnout - what those you who trade call the trend.

Last year's Senate race in Alabama taught me a lesson that I should have already learned from reading what LW and the other pros have said about trends. The only proper times for guessing turnout are when people are going to the polls; anything but recent "history" is, by itself, no guide at all.

What you can do early on, before the political season starts for real, is being figuring out what the proper allocation of the actual voters (Republican, Democrat, Independent) will be. Trump's odds in 2016 were far less of a longshot bet than the "expert" journalists and pundits said, once you at the cross-tabs in the polls. In an national election in which the Republicans controlled both the House and Senate and a clear majority of statehouses and governorships, the respectable polls and pundits were still allocating to the Democrats and Democrat-leaning Independents over 50% of the likely voters.

The drill this week is to read all the recent polls that are NOT about the elections but include cross-tabs that define party affiliation. First up is one from Harris surveying "Blue Collar" workers.

Their unweighted sample shows a break-down of 1049 respondents as 353 Conservative, 444 Moderate and 252 Liberal. This is hardly surprising, given that the sample is heavily weighted toward males (628 Men, 421 women). Yet, even before we get to the pollsters own weighting, the thumb begins pressing down on the scale. Somehow, when the question of party affiliation is asked, 80 respondents disappear from the sample base and the remaining 969 report themselves as being 333 Republicans, 327 Independents, and 309 Democrats.

A sample that was 33.7% Right(Conservative), 42.3% Middle (Moderate) and 24% Left (Liberal) magically becomes 34.3% Right (Republican), 31.9% Middle (Independent) and 33.8% Left (Democrat). The party of segregation, slavery, racial quotas and unConstitutional naturalizations finds its allocation increased by 40%.

Harris' weighting of their sample show comparatively minor bias. The weighted sample for Party affiliation does add back 36 respondents and give them all to the Democrats; it also finds 19 respondents who, in going from unweighted to weighted sampling, have magically changed their affiliation to the Democrats (10 from the Republicans, 9 from the Independents). But these are - compared to the slight of hand in the unweighted sample from political sentiment to party affiliation, relatively minor changes; in percentage terms the Democrats only gain 1 point and the Republicans and Independents shares only lose a half point each.

To their credit, the Harris people do keep the complete survey data for their weighted sample of political sentiment; yet even there the Conservatives find themselves losing 30 respondents, while the Moderates gain 7 and the Liberals 23.

Preliminary conclusion: If 2016's numbers were distorted by sample bias, the ones for this year are trending towards being being actual works of fiction.

anonymous writes: 

Some good thoughts there.

Mr Market has already made a pretty hard-and-fast prediction though, and, rather cryptically says "Nothing changes, it;s the same bull market we've been seeing since early 2016, just a little noise in Feb and March of this year, and back to the same chorus."

Whether or not this means the party in power in the various chambers change is uncertain, but the bass line will remain the same.

Sep

16

  The Count of Monte Cristo has numerous financial data and speculations in it that shows that during the Napoleonic years there was active speculations. For example when Villefort learns that Napoleon has escaped from Elba he immediately tells his wife to sell french government bonds. Eventullly the count destroys the betraying Danglars by selling all the stocks he owns short. I am listening to the Bill Homewood reading of the story and his narration makes the story exciting.

Sep

16

 A Tangled Tree: A Radical New History of Life

That is the new and excellent book by David Quammen, here is one summary excerpt:

We are not precisely who we thought we were. We are composite creatures, and our ancestry seems to arise from a dark zone of the living world, a group of creatures about which science, until recent decades, was ignorant. Evolution is trickier, far more intricate, than we had realized. The tree of life is more tangled. Genes don't move just vertically. They can also pass laterally across species boundaries, across wider gaps, even between different kingdoms of life, and some have come sideways into our own lineage — the primate lineage — from unsuspected, nonprimate sources. It's the genetic equivalent of a blood transfusion or (different metaphor, preferred by some scientists) an infection that transforms identity. "Infective heredity." I'll say more about that in its place.

My favorite part of the book is the section, starting on p.244, on bacteria that are resistant to antibiotics that have not yet been invented.

Sep

16

538 version:

HOR: 5 in 6 the D side wins control

Senate: 2 in 3 the R side maintains control

Stefan Jovanovich writes:

538 offers us their assurance of the accuracy of their 3-headed model by telling us how successful it has been. After all, their accuracy score in actual election predictions has been between 95.7% and 96.9%. Or, to put is another way, their inaccuracy score has been between 3.1% and 4.3%; on average, they have been wrong in only 3.7% of their predictions.

That looks wonderfully impressive until you remember that, in House of Representative elections in the United States, you have to look through the small end of the telescope. Since the passage of the Permanent Apportionment Act in 1929, only 22 of the 44 elections have seen a change in either party's seats that was greater than 538's strikeout average.

If you limit the sample to the current period in which the House changed hands between the two major parties - i.e. 1994-present, there have been only 4 elections out of the 12 that have seen a change greater than 3.7%.

Their astounding "accuracy" is built into the game. Since 1929 the mean change in the number of seats has been 1 (.2%) and the median change has been 3 (.6%). Even when you look only at the "wave" elections - those whose changes are greater than 538's inaccuracy percentage, the mean change has been 44 seats (10.2%), the median gain by the Democrats has been 37 seats (8.5%) and the median gain by the Republicans has been 46 seats (10.6%).

I trust Big Al's and others' math more than my own; but these spreadsheet calculations suggest to me that we are playing the 95% confidence interval game.

In any case, this seems to me a bit like forecasting the pennant based on teams' records in spring training. The primaries are only now ended and even "well-informed" citizens barely recognize the names of the candidates the parties have chosen. The one survey that no political polling firm will ever take is the name recognition one where citizens are asked to match their local candidates with their party affiliations; even among likely voters the results are wonderfully bad. It will not be until 4 weeks before election day that a majority of them will be able to guess the names of the people on whom the fate of the Republic depends.

At that time guessing about the likely results becomes less like propaganda and more like the speculation that we all enjoy.

Back on October 9th.

 

Sep

14

"The A Cappella Sea Shanty Playlist"

Interesting and catchy–that it increased productivity and ship morale seems right. 

Sep

13

 1. All non-scheduled announcements will go against the trend of the stock market, i.e. if the market is going up the announcement will be bearish.

2. Big market declines on Friday have an inordinate tendency to continue as gov over the weekend don't have time to get their act together.

3. All the fact checking reports are biased to say what the fact checkers wish politically. The fact check on the senator who passed away is a case in point.

4. The lynch pin of the market and the economy is corporate profits. Profits get back to consumers via capital spending, dividends, stock market increases, higher salaries, more hiring, and other areas.

5. The market is at a very halcyon state as 30 year yields are near 3% and the forecasted earnings price ratio is way above.

6. Markets that are up in the first 8 months of the year tend to have a fine last quarter the four musketeers take turns in joining the fray.

7. The Westerns of Louis L'Amour all have a boxing match by a man who has the build of Louis, and there is always some sign reading and advice to read books, especially Plutarch and Blackstone.

8. The rules against spoofing tend to prevent the deception in order placement price and size that are necessary for an active trader to overcome the vig from front running by the high frequency firms.

9. The second best trader I know recommends that all his people start out by reading The Godfather. I would suggest Monte Walsh and Atlas Shrugged and a good book on survival statistics and ecology.

10. The move of down 150 on Monday, February 5th was twice as great as ever had happened before and for those who didn't have one or two days to meet the margin calls it was catastrophic.

11. The real estate market in New York and London is forecasting hard times for the stock market as it tends to lead.

12. The idea that core price indexes which take out energy and food are better at describing and forecasting the economy is un-tested and wrong.

13. There is hardly any lobbyist who deals with foreign clients who would not have similar rule infractions to Manafort.

14. It is highly unlikely for someone with a strong bias to make an impartial finding nor can an individual who knows of an acquisition to be announced to sell the stock or advise others to do so. The refraining from selling is enough to create an imbalance on the buy side.

15. The idea that it is better to wait for a down day to buy rather than an up day is invalid for many markets for all time and for most markets in recent times.

16. The movie Papillon is very well acted and exciting and is worth seeing.

Sep

11

Thank you Dr. Borlaug: "How Humanity Won the War on Famine "

Sep

10

The word 'lodestar' was an early hint, and seemed to indicate Vice President Mike Pence, who has since claimed his innocence. Some now think this could be either the work of a speechwriter or something meant to misdirect any possible investigation.

Pence is not the only administration member who uses the word 'lodestar,' either.

As Cillian Zeal, a fellow writer at Conservative Tribune, found, sitting director of the National Economic Council Larry Kudlow once penned an article called 'Look to the Lodestars.'

This puts Kudlow as the prime suspect for many. As of the writing of this article, he has not denied the claims. With the few clues we do have, Kudlow seems to fit the bill.

George Zachar writes:

Kudlow is a New York/Wall Street guy. The op-ed writer patted himself on the back for being a part of Washington's 'steady state,' as opposed to its 'deep state.' I doubt it was Kudlow.

To me, what's significant is that the times happily validated the deplorables' contention of a willful, obstructionist GOP deep state, working against its base.

Peter Ringel writes: 

My first thought after this article came out was the following:

If I want to poison the relations and working climate of your group - I will tell you that I placed a spy in your midst. Then it does not matter if I really have a spy or not.

Also the next election seems near and the wave of banning of "multipliers" from twitter and other social media happened simultaneous.

Andy Aiken writes: 

My first thought was that the editorial was written by a NYT staff writer, making do with scraps that didn't make the final edit of Woodward's book.

What evidence has the NYT provided that their claim has more veracity than that of other opinion journals?

Let me know when they give the Pulitzer back for Walter Duranty's reportage that the purges, show trials, and famines in Stalin's USSR are fairy tales manufactured by fearful plutocrats.

Stefan Jovanovich writes:

Thx to the list, I have become fascinated with the facts of how information has actually been shared by people so they could try to answer the political economic questions that troubled/fascinated them. It has been a wonderfully encouraging study. I find, for example, that the effectiveness of the hub-spoke model for the transfer of political economic information is almost entirely an academic myth. Under that model the New York Times (and, as T. S. Eliot reminds us, once upon a time the Boston Evening Transcript) is the hub; and we the voters and Congress and (when he was a properly educated lawyer) the President were the spokes. If only. AA is right about Walter Duranty; his lies were truly awful. But, I think we can all take heart from realizing that they never persuading anyone in Congress to change their vote. You can study the budgets of the Roosevelt Administration in great detail and not find a single appropriation that sent a nickel to the Soviet Union before December 11, 1941 (the date Germany declared war on the United States).

The present nonsense from the "name" bureaucrats (fascinating how many of them are - like Joe Crowley - aging good Catholic boys with Irish ancestry) is yet another retelling of the same hub-spoke story. If you want to believe that paid-for published political opinions greatly matter - like televised speeches about "Black Lives", it is a comforting fairy tale; but it has very little relation of electoral reality.

Ms. Ocasio-Cortez won her 4,138 vote margin over Joe Crowley because Thomas Manton's Queens Democrats got out of the business of winning elections once the last faint whispers of the Republican Party on Long Island died away. Her "Socialism" mattered not as a question of policy but as an indication of how effective the Sanders campaign had been in creating its own lists of precinct captains.

We have been here before.

Sep

10

Serena, from anonymous

September 10, 2018 | 1 Comment

The “but for” moment was her breaking her racket. Whatever provoked that conduct, it was not a comment or penalty ruling from the Chair umpire. Without that intervening conduct, no game penalty, only the loss of a point. Those of you who know racquet sports are qualified to judge. To this at best semi-pro baseball catcher, it looked like a pitcher choosing to fight with the umpire so that he could be excused for having grooved one to the last batter.

Sep

7

 The story of fresh air in hospitals ends in 1942 when a leading New York City hospital architect named Charles Neergaard published a layout for a hospital inpatient department that was so innovative it demanded copyright. The plan was two patient rows in a single building wing separated by a corridor that was conveniently serviced by one nursing station. One wing joined another wing - like an airport - and patients arrived, in many cases, healthier than they were released. The feature that made his plan so innovative was most of the patient rooms had no windows.

 A windowless patient room today hardly seems daring, but in the 1940s it was a shocking proposal! It violated the centuries-old medical practice of the central role of hospitals in providing fresh hair to promote health. For hundreds of years, hospital designers had based their layouts on the foundation that in order to remain disease free and health giving, hospital spaces required direct access to fresh air and sunlight.

Neergraad's idea, however, won out. It was cost efficient, reduced the square footage required, saved nurses' sore feet, and has been followed to this day in nearly every modern hospital around the world. Today, a hospital room is to be endured, not enjoyed. I have often sneaked out in the cloak of the night, after paying the bill at the night cashier, to sleep in the woods, returning during the day for out-patient care.

Most studies show that fresh air brings these benefits:

•    Boosts your immune system

•    Calms the nervous system

•    Cleans your lungs

•    Good for the digestive system

•    Strengthens the heart

•    Enhances brain health

•    Makes you feel happier

Mother Nature always seems trying to tell us she has some great secret. And so she does. Open the window, and the next time you feel a sniffle coming on, go to the country side.

Sep

7

 Never go back on a trail the same way you entered.

When defending against an enemy stay away from the same place.

Where it's most unlikely to be an ambush, the Apache and others will attack.

There will come a time when you believe everything is finished. Yet that will be the beginning.

A good beginning makes a good end.

A wise man fights to win, but he is twice a fool who has no plan for possible defeat.

The only thing that never changes is that everything changes.

A ship does not sail with yesterday's wind.

I really learned how to write from Robert Louis Stevenson, Anthony Trollope and de Maupassant.

Knowledge is awareness one is led by something felt in the wind, something seen in the stars, something that calls from the wasteland to the spirit.

To receive the message, the mental pores must be open.

"Yo Bolson"

May there be a road.

Sep

7

Today is my (our, I guess) 29th anniversary. To celebrate, we decided to go the day before up to San Francisco. Sunday rather than Monday since the parking is better. One of the first places in San Francisco we went when we first met and came out west to visit friends was Union Street. It's a nice shopping district. Lots of nice cafes. Perfect for a Sunday. (Granted, it's summer, so the city was a tad cold, and the stiff breeze didn't help, but still, it's San Francisco. The place of lonely hearts (well, they're out on a hill, so they must be lonely. Or at least alone.)

Something seemed strange to me though. In 5 blocks, I counted 12 stores available for lease and 5 available for sale. Empty stores. That's unusual for this street. Three years ago, it was bustling. Today , not so much. Not many people walking on the street either. Schools reopened a couple of weeks ago, but maybe everyone is coincidentally taking off at the same time. Probably not, though.

I made a similar observation in May on upper Madison Avenue in Manhattan. Both are places where traditionally, it's been pretty easy to fill an empty store. Sure, those are places that are a bit expensive, but in San Francisco at least, there's lots of money floating around the city. That money is going somewhere. It's not all for 80 inch monitors. Union Street tended to get its "fair share" in the past. Consumer confidence is at record highs. I know that Amazon and the rest of the net has taken over much of retailing, but there's still a need for neighborhood shops for impulse purchases—as in, " forgot it's our anniversary." Or "If I don't do something for her birthday, it'll be a week of sleeping on the couch."

I have to wonder, then, as the Fed drones on about the need to hike, if the economy really is as healthy as many suggest. After all, 20 years ago, when the same measures used today were in use, it wasn't a gig economy. The Fed may have hiked, but it wasn't concurrently selling off its portfolio of debt instruments. And while there are lots of "for hire" signs out, the wages of a given job may not be what they once were. Just some observations and speculations.

Peter Drucker used to note that if what you see doesn't agree with the data at hand, maybe the data at hand are misleading. I have to wonder if the same thing is going on here. The numbers look good, but is the economy really as good as the numbers suggest? If it is, why are the shops now empty? 6 mos to a year ago they weren't. Did Amazon move that fast? Maybe, but somehow, that just seems unlikely. The disruption in retail has already hit the bricks and mortar stores. Except for Sears, which seems to have missed the memo.

Or is the Fed really justified in raising rates, as it did in 2007 and 2000 and 1990?

Mr. Isomorphisms writes: 

Low interest rates benefit only those who have access to them (established firms). Another decade of QE wouldn't help America's poor; only change can do that.

Alan Wolfe, in "the seamy side of democracy", argues that the USA is a story of conflict between stability and freedom–and that stability has always taken precedence. This was 1973.

Yes, people can and do take dogsh__ companies public (doesn't make their bonds good), but that's still different from healthy capitalism. Dynamism requires failure. With regard to everything being expensive but empty, I posted a note about Al Jazeera east 101's takes on paper holdings of China's million millionaires. As a simplistic story, ask yourself where the USA's lost manufacturing wealth 1980-2010 went. Then ask where they park their money. Vancouver is one answer for Chinese wealth. London/NYC are an answer for Saudi money. Qatar had the good sense to make their own BBC, investing in people instead of buildings.

Then turn in your copy of Sidney Homer's history of interest rates to the part where a Swede buys California ranching property based on figures, with no knowledge of how to run the thing.

anonymous writes: 

It is easy to get caught in the echo chambers of the two coasts. I've often heard, but only recently, recently how "nice" people are in the Midwest and South. Foreigners here in Los Angeles are frequently replacing locals who are leaving for many reasons. My town's Chinese population has jumped dramatically in the last 18 months. 

Stefan Jovanovich writes: 

Data from IHL: "Grocery, drug stores, mass merchants/supercenters, and convenience stores are adding a net 2,694 stores in 2018 on top of 3,115 net new stores in 2017. Department stores, specialty soft goods (apparel, shoes), and specialty hardgoods (DIY, electronics, sporting goods, books, furniture) are closing a net 682 stores in 2018 on top of 2,557 net closings in 2017."

Henry Gifford writes: 

High end retail areas in New York City, such as Madison Avenue (as mentioned on this site a couple of days ago) have higher vacancy rates than last year. But, retail rents outside of the 6 or 8 fanciest areas went up since a year ago, and vacancies remain fairly low.

All I've written above is to be taken with a grain of salt, however, as nobody really knows what retail rents go for, and even vacancies are hard to track with the increasing popularity of temporary (pop-up) stores. Apartment rents are easy to track, but retail leases usually include the building owner spending some money on repairs/buildout, and the owner usually gives some months of free rent. Owners used to bring electricity and water and sewer into retail spaces, and maybe nothing else, but now more and more owners pay large sums of money toward the cost of building out a space.

The reason is that the more money the owner pays, the higher the rent will be, and thus the larger the mortgage the owner can get on the building - based on the reported rent. If/when mortgage rates change, or mortgage availability changes, owners will pay more or less toward buildouts, and the retail rents will change accordingly, making any effort to track retail rents very difficult.

Sep

1

 US Market Cap/GDP

Data sources

Steve Ellison writes: 

This indicator was also mentioned in Mark Hulbert's article in the Wall Street Journal on Sunday. People who cite it as an indicator usually implicitly assume that the aggregate value of the stock market should grow at the same pace as GDP over the long term.

I believe this assumption is flawed for two reasons. Privately held companies are not counted, so changes in the relative percentages of public and private companies affect the ratio. More importantly, the traditional capital structure of 50% debt and 50% equity, in which all upside value goes to equity holders, is a good reason why stock valuations should increase faster than GDP, especially over very long periods. Indeed the inflation-adjusted compound annual growth rate in the S&P 500 between the generational lows of 1982 and 2009 was 4.4%, significantly more than GDP growth during the same period. So I don't lose any sleep over this ratio being higher now than in 1929.

Stefan Jovanovich writes: 

In a recent speech Jorg Meuthen made a simple point: GDP calculations assume that civil servants are somehow as magically "productive" as the people who have to do work for a living and successfully sell their work for cash.

No one in the "mainstream" (sic) wants to do calculations that remove all the recipients of government payments from political economic calculation. It is, from the point of view of modern economics, heresy.

I took Big Al's elegant calculation and found its "private sector" derivative.

The results are precisely what spec and others see in their views of the data. Not at all a pretty picture. If you take private earnings from wages net of taxes as a proxy for the country's additions to wealth, the 5 years up to and including 2017 only recovered the amounts lost from 2007 through 2011. From the point of view of people to do work that other people actually pay for, the last decade has been a complete wash. It is only the gains for this year and beyond that can be counted as actual increases in wealth.

Mr. Isomorphisms writes: 

Thanks for doing the work for this calc. I would argue your characterisation of government work is overly harsh. Shuttering IndyMac took real work, was productive, and experienced a boom during the decade in question.

There was a boom in useful work for bank regulators around the time of Continental Illinois as well. Stefan, as you pointed out with regard to an economic historian's writing, details matter. Even if on average government employees are worse, that varies across time and across agencies/remits.

More importantly certain kinds of useful work are not privatised. In fact anything that was privatised (parks management, penitentiary management, utilities) by construction used to be a government job that accomplished something. Furthermore various government initiatives do often produce private benefit–I'm thinking of the stories of Bureau of Land Management and Army Corps of Engineers in Marc Reisner's Cadillac Desert. Whether irrigation ditches are dug on Brigham Young's holy command, on debt-financed speculative capitalist entrepreneurship, or bureaucratic mandate, water changes course.

Sep

1

Notice how the bearish announcements that are uncertain as of time all come after a good to great stock market.

Steve Ellison writes: 

I wonder if there will be mischief related to Turkey or Argentina during the extended US market closure this weekend.

Sep

1

The flexion of the day stayed in Germany [8/30/2018]. Note how the Dax is down 110. Apparently they left for beer at 11. And the bunds are up 78.

Anatoly Veltman writes: 

Note the reluctance to discuss or contemplate LEADING indicators that actually present economic sense. For example: everyone knows that EUR currency is associated with economic development and "order". While Swiss currency is associated with defensive posture and "calamity" hedge. The EURCHF pair doesn't move as much as other pairs in FX, because both currencies in the end are European currencies. Yet the pair has reversed since yesterday's SP record, and managed a straight 1% drop since…Now(?) Steve here is raising a possibility of a calamitous announcement over the weekend, but he wasn't raising it "before" the SP moved lower?

Cagdas Tuna writes: 

Average short interest % to floating shares in FAANG is 1.64% and if we exclude Netflix it is 1.07% Does that kind of statistics provide any hint to market tops or bottoms? 

Bill Rafter writes: 

In our shop we have done a lot of work with short interest (SI). First, we noted that THE expert on SI (Erlanger) first identified "stocks to buy" and then screened them for any added benefit that could come from SI. Next, we worked the research from the opposite angle. That is, we first identified stocks with good SI potential, and then went on to screen them.

We were wrong. Apparently half of the stocks with high SI are truly good shorts. Of the remaining a relatively small percentage became good short-squeeze candidates. The others just went nowhere.

However we went further, studying stocks with extremely low SI. The theory is this: If you have a stock that even a damn fool idiot will not short, it probably means something. Assuming that certain fundamentals are unknown, we came to believe that it reflected on the quality of management. Of course we have no way of proving that, but still consider extremely low SI as bullish sentiment. That's intuitive, but at least we have some research to back it.

Aug

30

 Jerrold Fine has written a novel which should be of interest to dailyspec readers:

This debut novel, Make Me Even and I’ll Never Gamble Again, follows a young man who, hoping to achieve financial independence, finds himself drawn to the stock market.

By the early 1970s, Rogers Stout is only 16 years old, but his father, Dr. Charles Stout, wants his son to live up to his potential. The Ohio teen is bright but putting minimal effort into high school studies. This changes the summer before his senior year with an internship at Prescott & Prescott, a stock brokerage and investment banking firm. Rogers becomes fascinated by the stock market and sets his sights on a finance major at Penn-Wharton in Philadelphia. He closely follows the market all through college, gradually developing abilities, such as how to deconstruct a company’s financials and analyze its prospects.

As an exceptional poker player, courtesy of regular sessions with his dad, Rogers equates his investment philosophy with the card game. He plays while winning and stops to reassess his strategy after he’s lost. Rogers hard work pays off, as he lands a gig at a research and money management firm in New York. But his subsequent plan to invest in a small company is an unquestionable risk, and life, like the financial markets, can change instantly and unexpectedly. Despite the desperation implied by the title, the levelheaded protagonist is rarely distraught. (The title is derived from a line that a losing poker player “not Rogers” utters.) Still, Fine’s coming-of-age tale is engrossing. The historical backdrop, for one, is an enhancement: Rogers witnesses the 1973-74 stock market crash and worries about his girlfriend, Charlotte Marks, who, in 1977, is in a war zone in Cambodia for Doctors Without Borders. There’s also turmoil in the protagonist’s personal life, as banker Elsbeth Aylesworth fills the void created by his geographical separation from Charlotte. Prose is detail-laden, including poker and baseball games as well as investments, while financial terminology is adequately explained. But there’s still room for humor: Rogers description of his job is to read and think and then occasionally make a bold decision. A leisurely paced but ultimately absorbing story of an aspiring Wall Street trader.

Aug

27

 I have the audiobook version of this book The Little Book of Talent and find it to be something I re-listen to because of the density of useful and interesting ideas:

The Little Book of Talent is an easy-to-use handbook of scientifically proven, field-tested methods to improve skills—your skills, your kids' skills, your organization's skills—in sports, music, art, math, and business. The product of five years of reporting from the world's greatest talent hotbeds and interviews with successful master coaches, it distills the daunting complexity of skill development into 52 clear, concise directives. Whether you're age 10 or 100, whether you're on the sports field or the stage, in the classroom or the corner office, this is an essential guide for anyone who ever asked, "How do I get better?"

Aug

27

 Meteorology Today by Ahrens is a text book and provides an antidote to the news hype surrounding Hurricane Lane and market moving weather events.

Add actual data readings and a more accurate picture forms clearing the news fog and fear Mongering.

Our late friend Mr E and I would talk late into the night during major hurricanes and monitor data that could and did swing markets.

Aug

22

The market is amazingly resilient today [8/21/18] vis a vis the two decisions on cases. All the Asian Markets are strong as a stone wall. And eminis are down only 7. We will see if the European markets can hold up especially since they have been very strong the last two days. I would posit that a bad market would show that Trump is good for markets and this would keep him in the battle.

Kim Zussman writes: 

A hostile deep state bringing felony convictions (with ridiculous sentences compared to violent youth's) of associates in order to upend the presidency in the name of Russian collusion will bring great succor to the Russians. And it would seem to put the finishing touches on anyone who isn't completely cynical toward all forms of aggressive government.

Stefan Jovanovich writes:

KZ's basic point is incontrovertible. Manafort was and is guilty of the counts on which he was convicted (tax evasion, bank fraud, failure to report himself as a lobbyist); but the sentencing is out of all proportion to what other taxpayers would receive in a "normal" case.

One of the many, many things the List and our Host have taught me is to trust the verdict of the markets. What they seem to be saying today is that Mueller has yet to lay a legal glove on the Great White Hope.

And now for another message from the past:

"The Tenure of Office act, it will be remembered, was passed in 1867 for the express purpose of preventing removals from office by President Johnson, between whom and the Congress a quarrel at that time raged so bitter that it was regarded by sober and thoughtful men as a national affliction, if not a scandal.

An amusing story is told of a legislator who, endeavoring to persuade a friend and colleague to aid him in the passage of a certain measure in which he was personally interested, met the remark that his bill was unconstitutional with the exclamation, "What does the Constitution amount to between friends?" It would be unseemly to suggest that in the heat of strife the majority in Congress had deliberately determined to pass an unconstitutional law, but they evidently had reached the point where they considered that what seemed to them the public interest and safety justified them, whatever the risk might be, in setting aside the congressional construction given to the Constitution seventy-eight years before.

The law passed in 1867 was exceedingly radical; and in effect distinctly purported to confer upon the Senate the power of preventing the removal of officers without the consent of that body. It was provided that during a recess of the Senate an officer might be suspended only in case it was shown by evidence satisfactory to the President that the incumbent was guilty of misconduct in office or crime, or when for any reason he should become incapable or legally disqualified to perform his duties; and that within twenty days after the beginning of the next session of the Senate, the President should report to that body such suspension with the evidence and reasons for his action in the case, and the name of the person designated by the President to perform temporarily the duties of the office. Then follows this provision: "And if the Senate shall concur in such suspension and advise and consent to the removal of such officer, they shall so certify to the President, who may thereupon remove said officer, and by and with the advice and consent of the Senate appoint another person to such office. But if the Senate shall refuse to concur in such suspension, such officer so suspended shall forthwith resume the functions of his office."

On the 5th of April, 1869, a month and a day after President Johnson was succeeded in the presidency by General Grant, that part of the act of 1867 above referred to, having answered the purpose for which it was passed, was repealed, and other legislation was enacted in its place. It was provided in the new statute that the President might in his discretion, during the recess of that body, suspend officials until the end of the next session of the Senate, and designate suitable persons to perform the duties of such suspended officer in the meantime; and that such designated persons should be subject to removal in the discretion of the President by the designation of others. The following, in regard to the effect of such suspension, was inserted in lieu of the provision on that subject in the law of 1867 which I have quoted:

"And it shall be the duty of the President within thirty days after the commencement of each session of the Senate, except for any office which in his opinion ought not to be filled, to nominate persons to fill all vacancies in office which existed at the meeting of the Senate, whether temporarily filled or not, and also in the place of all officers suspended; and if the Senate, during such session, shall refuse to advise and consent to an appointment in the place of any suspended officer, then, and not otherwise, the President shall nominate another person as soon as practicable to said session of the Senate for said office."

Grover Cleveland (Ma, Ma, Where's My Pa) made this speech to the Princetonians after leaving Presidential office (for the 2nd and last time).

anonymous writes: 

A hostile deep state bringing felony convictions (with ridiculous sentences compared to violent youth's) of associates in order to upend the presidency in the name of Russian collusion will bring great succor to the Russians. And it would seem to put the finishing touches on anyone who isn't completely cynical toward all forms of aggressive government.

Aug

22

 By using the same techniques and statistics that are generally used to describe and forecast markets, i.e. means, measures of variation, and bootstrap estimates, based on prices, and balance sheet and income sheet data, you will be beating down a well traveled path. There are approximately a hundred articles a quarter, and numerous textbooks that use these methods. Chances are that as soon as a paper is published, the non-random effect will be dissipated by copying or the theory of ever changing cycles. Thus, I have turned to methods that are used to study the dynamics of insect and vertebrate populations. In particular, I have found the following books very helpful for thinking out of the box:

Ecological Methods by Southwood and Henderson

Game Theory and Animal Behavior by Dugatkin and Reeve

Individual-Based Models and Approaches in Ecology by DeAngelis and Gross

I will review some of the novel methods and approaches in this books when a calm in markets prevails.

Aug

21

 So the traditional way of trade wars is to levy high tariffs on goods imported from the opponent country. The logic is that the higher tariffs result in higher prices in the market for those imports, so the compatriots will buy less of those, resulting in less exports by the opponent country, and hence damaging the economy of the opponent country. A critical condition for the traditional way of fighting is that there is sufficient competition in the market for the targeted imports. Otherwise, the compatriot consumers will end up paying more and get hurt. In many cases, this latter case is true. This is why many say there is no winner in a trader way.

So can't a trade war be fought better with a better strategy? Instead of imposing tariffs alone on the imports, the policy is to force reduction of import prices on goods from the opponent country, and then levy the tariffs. The percentage of reduction can be deviced according to market conditions in the imposing country and in the opponent country. Should we term this as "managed pro-dumping"? With the price reductions and tariffs, the prices of the imported goods will likely stay relatively the same as before in the market. This way, the compatriot competing indutries don't get hurt much, the compatriot consumers don't get hurt as much, but the opponent country bleeds if they continue to export.

Stefan Jovanovich writes: 

There tariff question was one of the 3 issues that Americans disagreed about enough to make them a constant political argument. The others were (1) the expansion of slavery to new states and the Federal territories and (2) the currency question which was about everything from internal improvements to national banking. Neither side argued that there should be no tariffs, just as neither side argued that all slavery should be instantly be abolished. The question was whether tariffs could be protectionist or had to be for revenue only. In the current debate the revenue question has been largely ignored. I doubt that it will be much longer. For 2016 total U.S. imports were roughly $2.25 trillion. The average rate for the Walker tariff - written and passed by the revenue only side of the debate -was 25%. Applied to total imports a modern Walker tariff would produce $550 billion - 55% of all the employment taxes collected last year. I doubt very much that I am the only person who has made this back of the envelope calculation, and the geezers among us remember the last time a non-establishment Republican President considered tax changes based on numbers that could be scribbled on a napkin. What no American in the 19th century disagreed about was that foreigners should pay the taxes and leave Americans to worry about the costs.

anonymous writes: 

All taxes are (pick one or more) fascist, communist, democratic socialist, Gaullist, Whig…..They are, as the Libertarians justly remind us, enforced at the point of a gun. The question that must always be asked is which official theft is least threatening to citizens' individual liberty. Direct taxes are everywhere and always the worst because they are imposed on people directly (hence the name) and not simply on their transactions and property. That is why the Constitution did not allow them until the party of slavery, segregation and socialism and the theocrats (aka Prohibitionists) made their evil bargain. Tariffs work, for the same reason sales taxes do; the rates can, in a political economy not wholly corrupted by wage bribery, be set low enough that cheating is not worth the bother - as Amazon's recent conduct illustrates. (Collecting sales taxes has not affected their volume of trade, contrary to what do many analysts once feared.) The fundamental point to be understood is this: income taxes and employment taxes, in particular, demand the greatest oppression because individual extortion is built into the process of collection. People will cheat much more on direct taxes because they reward cheating. The rate differential is enormous (25% is the minimum) and the taxpayer has the "freedom" (sic) to characterize his/her/its transactions. (Contrast the enduring simplicities of the Uniform Commercial Code with the exponential mushrooming of every income tax law.). Like the drug laws and other forms of outright prohibition, direct taxes are guaranteed to be an abomination. No wonder Marx loved them.

Aug

21

 There are some wonderful market lessons contained within this short video.

.

.

Aug

19

 I speculate that if Dems take the house this will be bearish for stocks, to the extent this would damage the current pro-business regime.

On the other hand, it doesn't seem like congress does much anymore, and for the past decade or so regulation and de-regulation is via executive orders.

Other thoughts?

Aug

19

 For those on the list following the Birds, they are finally above .333 on their win-loss percentage. But I have great faith in these boys of 2018, and if they make an effort at it, I'm sure they will continue to pursue and exceed the 1962 Mets record for the most losses in a season (at least I think it's the Mets). After all, those arms are only going to get weaker with the further along we go in the season. Not that they were ever strong to begin with. Actually, pretty weak to begin with.

There is one upside to this season of ignomy: It is almost impossible (though I'm sure there may be only a non-zero (read: epsilon) chance) to imagine the GM Danny Duquette surviving into next year. Even Peter Angelos will be hard pressed to excuse the miserable team that goes under the name of the Baltimore Orioles.

And when the end of the season comes and the Os have successfully displaced the 1962 Mets, I suggest noting the epicenter of the strongest earthquake experienced on the East Coast of the United States in millennia. It will be at Earl Weaver's grave.

Aug

16

 Arm waving aside, whenever they advocate about officials deciding about who should get what, I think of Czech or Hungarian limp bodies swinging from lamp posts.

Laborers don't want their good efforts expropriated. As do not those smart and industrious enough to create profitable systems in the first place.

There is a zero sum sense short-term, but the battle is positive sum and unending. The problem lies in subsidizing profiteering champions of your cause when you wind up on the wrong side.

Zubin Al Genobi writes: 

Under capitalist theory, the purpose of capitalism is to use workers labor to provide a return to those whose capital is being utilized. Labor cannot really be levered, and is limited in a way that capital is not. I suppose productivity is a leverage of labor but does not grow exponentially in the way capital does. The worker does not reap the benefit of productivity. Capital has mobility. Labor is less mobile.

Stefan Jovanovich writes:

Discussing commerce using the academic Marxist term "capiatalism" is like listening to a former communist explain why freedom is a good idea. They mean well, but they never quite escape the notion that liberty has to have an underlying dialectic. It doesn't. Money is movable only in the abstract; in practice, it's owners have to go with it. If they don't keep an eye on where it is parked, both digitally and physically, it has a terrible likelihood of disappearing. Labor can be levered; that is precisely what enterprise is - the ability to get people and machines to work together better, faster, cheaper. And cheaper is measured by unit costs of outputs, not individual rewards. The reason American and most other progressive countries' labor laws outlaw payment by piece work is that it rewarded the people who could work faster and smarter. The unacknowledged part of U.S. labor history is the struggle between the home grown craft guilds and the mass unions promoted by the (mostly) German immigrant believers in syndicalist labor organization. Of course, workers reap the benefits of their greater skills and productivity. The question is whether the law, in the name of social justice, will allow them to do so. My Polish grandmother figured out in 6 weeks how to work two looms at once and more than doubled her wages (she said her work had better quality when she could follow the rhythm of 2 machines). She then learned how much of poverty is about people acting like crabs in a barrel and preventing anyone from being able to climb out. A Socialist comrade complained that Hedwiga was not showing proper solidarity and that was that.

Peter Ringel writes:

Stefan's great reply saves me from a rant. He checks all the boxes. Some additions (not well sorted):

- there are leverage winners and leverage losers. More or less a zero-sum game.

- leverage facilitates the animal spirits, which is an important driver of an economy (H/T G.Gekko)

- labor is leveraged

- I agree with ZAG & Stefan: productivity is a form of labor leverage, especially the work-time saving aspect.

- we are all highly specialized workers with specialized skills, standing on the shoulders of earlier generations.

- In my whole lifetime I could not build a machine, that brings you this email. I can not pump the oil to build a PC, and If I could, I can not build the wafer or the chips, and if I could, I can not build the undersea cable or the satellite, and so on, yet I produced this email in a few minutes.

- I see this accumulated knowledge as leverage.

- by many measures, my wealth is greater than the historical wealth of British royals. I have a car. They had a horse (or two)

- "they" call it capitalism. "We" call it freedom. It's about where to move and apply spare capital most efficiently.

- Smith's invisible hand moves the investor and the laborer (and the politician). Every laborer is also an investor.- the German immigrant communists in America were an embarrassment. Something is wrong with us. An analysis would bring us back to Kafka and his characters.

- Stefan's Polish grandmother is exemplary: I believe the urge for freedom of the Polish people where always stronger compared to the Germans. I grew up in East Germany. In the 1980s from an age of ~8 to 12 my father took me to Poland each Summer. It was the Poland of Solidarność and it was the land of freedom for me. My definition of freedom back then was: CocaCola, Pepsi and arcade Games. None of this existed at my home. This was all that counts.

Aug

16

 The worst feeling in the world is the feeling of fear and anxiety in the pit of your stomach. I can ball up from discomfort into pain and nausea. It is the thing that can make trading so hard. It's the ugly side.

This bad feeling arises in many circumstances and I'm sure everyone has had it.

Different forms of training can help cope with the feeling, or alleviate it. Sports, yoga, practice, exercise might help. But its there, and sometimes its forces you out of a trade just to alleviate the pain. Having fixed criteria and contingency plans help avoid pain inducing situations, and help with decision making in times of crisis.

anonymous writes: 

On my short term operations, that particular account I have blocked the account balance. This is a recent experiment that I am going to keep and turn into a habit. The amount of time just observing up's and down's was a waist and caused improper decisions at times.

The last two weeks I've done pretty well, and I have only a slight idea of the amount of my gains.

This account I don't hold positions over the weekend, and on Fridays I simply call my broker to double check if all my positions are closed.

Aug

15

 The book Biological Invasions by M. Williamson contains many topics of interest to market people interested in the impact of one major move in one market on other markets. The book case studies of invasions of fulmars, rabbits, and impatiens. It describes the spread with chronological maps. Topics covered are the process of spread, contagion, diffusion, rate of natural increase, pests, spread, and interaction with the food web. There is a brief introduction to the mathematics and statistics of invasion. I find the book relevant to big moves in one market, say, wheat and its effect on say, the stock market, and the effect of an usual move in one market on another. The book is full of examples of invasion with their ecological effects; Williamson posits a rule of 10% to describe the 10 % of invasions that last, and describes the reasons that they fail and diffuse. The framework could be very useful for thinking about invasions in life and markets.

Jim Sogi writes: 

I live in Hawaii. About 8 years ago a handful of coqui frog came on some plants in a container and landed in Hilo about 90 miles away. A nursery 5 miles away brought to this side of the island. Over the next years they slowly but surely moved down and have invaded my land by the hundreds. They are very loud at night. In the dry season, they dry up and go dormant. As soon as it rains they return.

About 80 years ago a friend's grand father, who was a missionary, brought a few seeds of tussock grass from Africa. When he planted it and saw it spread, it tried to burn it, only to discover burning is what it needed to germinate. About 30 years ago, it only appeared in a few spots along the road. Within the last ten years, what was one bare black lava, is now completely covered by this grass as far as the eye can see over the entire West Hawaii region.

Amazon might be a good analogy. Available in 2008 for $8 its now taken over the entire retail landscape and a global shift. Look a Apple and iphones, valued at over a trillion, and the largest cap ever. It grew until now as far as the eye can see, everyone has one in their hand and is mesmerized by the device. These invasive ideas have the potential to change the world.

Several billion years ago, small microbes that ate carbon and produced oxygen changed the atmosphere to an oxygen rich environment where life as we know it began.

Stefan Jovanovich writes: 

The precursor to our species relied on a similar invasion–the rise of flowering plants.

Plesiadapiformes

"Primate Origins Tied to Rise of Flowering Plants"

anonymous writes: 

Although I don't agree with deep ecologists that humans are an invasive species, the spread of humanity over the earth's surface is impressive.

Steve Ellison writes: 

Cheatgrass, which originated in Russia, similarly displaced many of the original native grasses in the US Mountain West. Cattle grazing of the original grasses by early American settlers weakened those grasses and encouraged the spread of cheatgrass, which was unappetizing to cattle. Cheatgrass's high flammability also aided its spread once established.

When my daughter had a project to collect seeds of original native grasses for the local university, she went to the cemetery in Virginia City, Nevada, once a silver boomtown and now a tourist trap with a small fraction of its 1860s population. The sacred ground of the cemetery had never been grazed, and the original grasses were still flourishing within its fence.

 

Aug

13

 I found this article about Gustav Born quite fascinating.

Gustav Born was a physician and pharmacologist who taught the world about blood clotting. In 1945, he was posted as a British army doctor in Hiroshima, and noticed that most of the survivors of the atomic bomb suffered from chronic bleeding. He demonstrated that exposure to radiation destroys the body's platelets to cause bleeding and laid the basics for treatment of bleeding and clotting disorders, some of which are still used today.

In a lifetime of research, he made major breakthroughs in histamine, stomach acid secretion, how involuntary muscles work, how adrenaline works and much more. He demonstrated how aspirin helps to prevent heart attacks and strokes, how high blood pressure can cause heart attacks, and how plaques break off, which causes clots to form resulting in heart attacks. He showed how white blood cells help to prevent infections.

Brilliant achievements often come from having outstanding genes and being exposed to brilliant people. The number of famous and brilliant people in Gustav Born's family is impressive and the creative genius of their close friends and colleagues is almost unbelievable.

Refugees from Nazi Germany, Gustav was the son of physicist Max Born, who received the Nobel Prize for his work on quantum mechanics and whose friends included two of the greatest physicists of all time, Werner Heisenberg and Albert Einstein. In 1933, when Gustav was 12 years old, Hitler came into power in Nazi Germany and his father lost his job as physics professor because he was Jewish. Gustav Born remembers his classmates refusing to play with him and hitting him because he was Jewish.

Albert Einstein told them to leave Germany immediately. These were horrible times, but some non-Jews showed great courage. Nobel prize winner Max von Laue, who was not Jewish, suffered greatly for supporting his Jewish colleagues. World famous and Nobel Prize winning physicist Max Planck went to see Hitler in person to ask him to let Jewish scientists keep their jobs, but Hitler "foamed at the mouth and wouldn't let him talk any more". Sixteen Jewish refugees who fled Nazi Germany went on to win Nobel prizes.

The Born family moved to Cambridge University in England, then to the University of Edinburgh where Max Born became professor of physics. Gustav was a brilliant student who could have studied anything, but his pacifist father encouraged him to go to the university's medical school so he could avoid having to kill anyone in the coming war with Germany. His grandfather was also a physician.

Stefanie Harvey writes: 

It would be 17 if Lise Meitner had not been excluded in 1944 (the prize for Chemistry went to Otto Hahn exclusively.)

Aug

13

 Crumb & Mairovitz's book about Kafka argues that 1. Kafka has been reduced to a single adjective by those who haven't read him thoroughly 2. Jewishness, Jewish mysticism, and the mystical experience of the Jewish ghetto where Kafka spent almost all of his life, are the real takeaways from his work.

The second piece was strongly coloured by a father who always called him a failure, who frightened him even as Kafka tended to the old man in his dotage. The US census shows that more 20 somethings are living at home (with more degrees than ever). Pace Charles Murray, changes in living arrangement particularly the American (versus, eg, Saudi, Surinamese, Pakistan, Burkina Faso) seem to me a likely change if the U.S. jobs picture stays bad.

Stefan Jovanovich writes: 

It is difficult to tease out of the census how many "children" lived at home while working in the 19th and early 20th centuries. Our present world only began with the Fair Labor Standards Act which Congress and the President enacted in 1938. It made employment of anyone under the age of 16 a crime; but the Census had not bothered tabulating the numbers for the problems that the Progressives were solving.

The 1900 Census questions
, for example, do not ask how many children are working.

Neither, for that matter, do the 2010 questions.

The American Community Survey–the "long form" questionnaire–does ask the question; but it has only been used since 1998.

It may be a scandal that people are living at home; but it may be that people are sensibly concluding that, in "average" residences that are 3 times the size they were in 1950, there is no more reason for the "children" to move out before they get married than there had been when most people still lived on farms.

I don't have the answer; but, then, neither does Charles Murray. He just likes the idea that there was once a golden era when all Americans were "normal".

Mr. Isomorphisms writes: 

Freud lived at home until a wealthy patron set him on his course of nervous therapy, setting him up with enough wealth to afford a home in which to put himself and Martha Bernays.

So did D'Alembert (inventor of the wave equation)–with his adoptive mother–until his 40s.

Early US video, eg the "Brooklyn ghetto fish market" (and you can cruise around on loc.gov or getty images to see more), shows a lifestyle much like what Mairovitz tells of Kafka's upbringing. As for people who neither would be worthy of depiction by Ms. Austen nor influenced the course of intellectual history–information on their lives is scarce indeed.

I'm not sure it's scandalous for families to share houses. For whatever reason, that became Americans' expectation, even though only a couple generations ago flophouses, boarders, county poorhouses, and many other arrangements were common. It's still an open question how money and jobs link to fertility and housing arrangements. Chinese migrant workers come to mind. I heard there is a law that children who work in factories MUST return on certain dates to their parents in the country. 

The part of Murray's most recent book that I like to focus on is the geographic segregation of rich and poor. He contrasts Manhattan in the 1950s to the 2010s. The point was made by Tom Wolfe as well (Bonfire of the Vanities is now 30 years old, if you can believe that).

It was a ten-dollar ride each morning, but what was that to a Master of the Universe?

Sherman's father had always taken the subway to Wall Street, even when he was the chief executive officer of Dunning Sponget & Leach. Even now, at the age of seventy-one, when he took his daily excursions to Dunning Sponget to breathe the same air as his lawyer cronies for three or four hours, he went by subway. It was a matter of principle. The more grim the subways became, the more graffiti those people scrawled on the cars, the more gold chains they snatched off girls' necks, the more old men they mugged, the more women they pushed in front of the trains, the more determined was John Campbell McCoy that they weren't going to drive him off the New York City subways. But to the new breed, the young breed, the masterful breed, Sherman's breed, there was no such principle. Insulation! That was the ticket. That was the term Rawlie Thorpe used. "If you want to live in New York," he once told Sherman, "you've got to insulate, insulate, insulate," meaning insulate yourself from those people. The cynicism and smugness of the idea struck Sherman as very au courant. If you could go breezing down the FDR Drive in a taxi, then why file into the trenches of the urban wars? (The same review critiques Mr Wolfe for drawing characters for whom he has no sympathy.)

Howard Gillette Jr's book on Camden, NJ, begins with a similar outlook from even earlier.

Hazzard of New Fortune, William Dean Howells

A HAZARD OF NEW FORTUNES.


At Third Avenue they took the Elevated, for which she confessed an infatuation. She declared it the most ideal way of getting about in the world, and was not ashamed when he reminded her of how she used to say that nothing under the sun could induce her to travel on it. She now said that the night transit was even more interesting than the day, and that the fleeting intimacy you formed with people in second and third floor interiors, while all the usual street life went on underneath, had a domestic intensity mixed with a perfect repose that was the last effect of good society with all its security and exclusiveness. He said it was better than the theatre, of which it reminded him, to see those people through their windows: a family party of work-folk at a late tea, some of the men in their shirt sleeves; a woman sewing by a lamp; a mother laying her child in its cradle; a man with his head fallen on his hands upon a table; a girl and her lover leaning over the window-sill together. "What suggestion! what drama! what infinite interest!

Gillette compares this to himself as a suburb-dwelling commuter living the good life whilst gawking at the commoners in the United States' favored image of its post-industrial failure. 

Aug

13

A case study in multiple comparisons and a warning against using cart for market prediction:

"Exercising for 90 Minutes Or More Could Make Mental Health Worse, Study Suggests"
by Sarah Knapton, Science Editor

Steve Ellison writes: 

A statement by Mark Hulbert in Sunday's Wall Street Journal raised my suspicions. He said that the percentage of household financial assets invested in stocks had an R-squared of 61% since 1954 in forecasting the net change of the S&P 500 over the next 10 years.

There have only been 6 non-overlapping 10-year periods since 1954. I have not gotten around to getting the data for household financial assets, but how could any factor possibly have an R-squared of 61% with any significance after 6 observations?

I will grant that the indicator makes some intuitive sense from the perspectives of "copper[ing] the public play" and waiting to buy until the old men are hobbling on canes, but I question the statistics.

Link and relevant excerpt below:

The most accurate of the indicators I studied was created by the anonymous author of the blog Philosophical Economics. It is now as bearish as it was right before the 2008 financial crisis, projecting an inflation-adjusted S&P 500 total return of just 0.8 percentage point above inflation. Ten-year Treasurys can promise you that return with far less risk.
Bubble flashbacks
The only other time it was more bearish (during the period since 1951 for which data are available) was at the top of the internet-stock bubble.
The blog’s indicator is based on the percentage of household financial assets—stocks, bonds and cash—that is allocated to stocks. This proportion tends to be highest at market tops and lowest at market bottoms.
According to data collected by Ned Davis Research from the Federal Reserve, this percentage currently looks to be at 56.3%, more than 10 percentage points higher than its historical average of 45.3%. At the top of the bull market in 2007, it stood at 56.8%.
Ned Davis, the eponymous founder of Ned Davis Research, calls the indicator’s record “remarkable.” I can confirm that its record is superior to seven other well-known valuation indicators analyzed by my firm, Hulbert Ratings.
To figure out how accurate an indicator has been, we calculated a statistic known as the R-squared, which ranges from 0% to 100% and measures the degree to which one data series explains or predicts another.
In this case, zero means that the indicator has no meaningful ability to predict the stock market’s returns after inflation over the next 10 years. On the other hand, a reading of 100% would mean that the indicator is a perfect predictor.
Since 1954, according to our analysis, the Philosophical Economics indicator had an R-squared of 61%. In the messy world of stock-market prognostication, that is statistically significant. Our analysis begins in that year because that is the earliest date for which data are available for all of the other indicators that we studied.

Jared Albert writes: 

As I understand the statement, the R**2 is generated from the correlation between the end of one ten year period and the end of the other.

Is this a fair model:
1) Use the annual returns for the SP500 for the period 1954-2014 broken in the 6 decade buckets.
2) Use the standard deviation of returns for each of those 10 years periods (STD calculated on only 10 yearly values for simplicity).
3) Generate a random return value from a normal distribution for the end year of each period
4) repeat the above for cash and bonds
5) create the portfolio ratio of stocks:bonds:cash
6) calculate the r**2 value between every 10 year period for stocks
7) do this 1000 times and calculate the summary stats for the R**2

Is this the way to build the model? I may do this later, if I can quickly find the cash and bond return. Thank you,

Aug

13

Nice summary vid with stats for the impressive Mr. Trout: "Mike Trout is the God Of WAR"

Aug

13

 "Payroll Tax Receipts Growth"

Reconciling macroeconomics and "job chatter", understand that the data do not support the enthusiasm of the news. Everywhere there are reports that the number of job openings outweigh the numbers of those looking to be employed. That may be the case, but the fact is that they are not being employed. Not yet at least. Maybe it is because the prospective American workers are unqualified (e.g. cannot pass the drug tests).

Whatever the reason, the jobs are not getting filled. That will change, but it may require some technology to assist the new workers. The trick is to make the job simpler for the unqualified, but no so much so that their jobs can be taken over by robots.

There are countries that have significant growth, and it is usually where the education system has provided the students with more than a sense of entitlement. Pardon my pessimism. We are actually quite bullish, but we would appreciate it if the numbers confirmed. Soon.

Aug

13

 Immeasurably tragic but fascinating story of social engineering and the unintended, and often bizarre consequences.

Frank Dikotter on Mao's Great Famine:

Historian Frank Dikötter of the University of Hong Kong and author of Mao's Great Faminetalks about the book with EconTalk host Russ Roberts. Dikötter chronicles the strategies Mao and the Chinese leadership implemented to increase grain and steel production in the late 1950s leading to a collapse in agricultural output and the deaths of millions by starvation.

Aug

13

This could be a game changer: "The Corn of the Future is Hundreds of Years Old and Makes its Own Mucus"

Aug

13

 The dollar is strong and looks like its getting stronger. CAD is .76 NZD is .66, Eur is down to 1.14. Not sure if this is good or bad. Using the big mac scale, prices in Canada were high, but their economy is suffering. They rely on resource extraction, and its a losing economy, because once the resource is gone, the place is ruined, the multinationals leave, and the local get the shaft. Land is cheap in Canada. By the way, the Okanogan wines are fantastic.

I'm heading to New Zealand, and will report, but its getting really popular down there with Chinese. Busloads of very loud and arrogant acting tourists with expensive clothes fill tourist spots. Land used to be quite cheap but has boomed over the last few years. Gas was over 8/gal.

Last year, Japan was really cheap. Cars are cheap. Hotels are under 100, meals are cheap. People work incredibly long hours there. You see the same people working the restaurants early in the morning and late at night. They are polite, but there is a weird underlying tension. in Japan, French wine is $7 a bottle from the prime regions.

Someone once said if there are major tectonic shifts occurring, look to the currencies. With rising rates, one can understand the strength of the dollar.

Aug

9

 Slab City is a school for the unorthodox, and a suggestion to traditional education, in a nod of gratitude to famous educator John Gatto for laying my own techniques as a sub-teacher of ten years. It won't do to tinker with schools and try to make them better. We have to start from the ground up in a free market place like Slab City and reconsider what education is.

The most enjoyable teaching is on a thick carpet or outside under a shade tree with no furniture, no blackboard, no textbooks, and no purpose. The discussion follows free flow thinking, with questions asked and answered, and I've never seen so much learning take place, for me and my students, anywhere else.

I tried to create the same feeling in the traditional classroom by literally throwing the text across the room to get attention, lecturing off the cuff on the topic of the day, rewarding paperclips for original thinking, and paying for projects in a capitalistic ploy that worked. It earned me the highest praise from students and faculty, while the third crafty side of education called administration fired me for being a maverick. I hit the rails, then the city streets of thousands of world communities, narrowed the best learning spots to a handful of utopias, and that was my passport to higher education in Slab City.

School is a major actor in the recent failure of America. The school crisis is an even greater social crisis. Our nation ranks at the bottom of the world's 35 industrial countries in reading, writing, and math. At the very bottom! My observation from the trenches is that our schools are designed to produce formulaic human beings whose behavior can be predicted and controlled.

Some form of free market in public schools is the likeliest place to look for answers to education. The free market would include family schools as at Slabs, homeschools, small entrepreneurial ones, crafts schools, vocational, and I favor the old man with a dunce cap behind Ronald McDonald fielding life's most mysterious questions easily from his vast learning, to compete with the government schools.

Students can volunteer for the kind of school they wish, even if it means self-education.

Whatever education is, it should make you a unique individual, not a conformist, and energize your spirit to tackle big challenges and achieve. It should make you a morally rich person who enjoys whatever you're doing. The better classroom for this for a child or adult is a rolling boxcar, city barbershop, hiking trail, doorstep of an uncharacteristic mentor, or weird town.

A walk through Slab City is going from slab to slab, that is, class to class, and talking to people. If they won't talk, just observe. Bring them an iced soda to open the can of worms of their lives that equal the most worthy biographies at Amazon.com.

Education is not the filling of a pail, but the lighting of a fire by the right person.

Aug

9

 Steve Ellison writes:

This indicator was also mentioned in Mark Hulbert's article in the Wall Street Journal on Sunday. People who cite it as an indicator usually implicitly assume that the aggregate value of the stock market should grow at the same pace as GDP over the long term.

I believe this assumption is flawed for two reasons. Privately held companies are not counted, so changes in the relative percentages of public and private companies affect the ratio. More importantly, the traditional capital structure of 50% debt and 50% equity, in which all upside value goes to equity holders, is a good reason why stock valuations should increase faster than GDP, especially over very long periods. Indeed the inflation-adjusted compound annual growth rate in the S&P 500 between the generational lows of 1982 and 2009 was 4.4%, significantly more than GDP growth during the same period. So I don't lose any sleep over this ratio being higher now than in 1929.

Stefan Jovanovich writes: 

In a recent speech Jorg Meuthen made a simple point: GDP calculations assume that civil servants are somehow as magically "productive" as the people who have to do work for a living and successfully sell their work for cash.

No one in the "mainstream" (sic) wants to do calculations that remove all the recipients of government payments from political economic calculation. It is, from the point of view of modern economics, heresy.

I took Big Al's elegant calculation and found its "private sector" derivative.

The results are precisely what spec and others see in their views of the data. Not at all a pretty picture. If you take private earnings from wages net of taxes as a proxy for the country's additions to wealth, the 5 years up to and including 2017 only recovered the amounts lost from 2007 through 2011. From the point of view of people to do work that other people actually pay for, the last decade has been a complete wash. It is only the gains for this year and beyond that can be counted as actual increases in wealth.

Aug

4

From Jan to April 10th there were 46 half hour moves of 15 big points or more in S&P, from April 10th to July month end there have been 3 moves of 15 big points or more.

Aug

3

Say you start with equity amount A and lose x percent every day (or year, doesn't matter). After number of days N1, your equity reached to B. From that day, you start to gain x percent every day and after number of days N2, your equity gets back to A.

Surprisingly to me, the difference between N1 and N2 almost does not depend on x. The second surprise to me is that the difference is not very big at all. It's not surprising though that N2 (on the gain side) is larger than N1 (on the loss side). And it depend on A and B, but not by a whole lot.

The same applies when you inter-change words "gain" and "lose" in the first paragraph.

Example: 
A=100000, B=50000, then N2-N1 is about 0.7, to be precise:
when x=0.01 (1%), N2-N1=0.6931529570463937
when x=0.2 (20%), N2-N1=0.69550029741854
A=100000, B=10000, then N2-N1 is about 2.3, to be precise:
when x=0.01 (1%), N2-N1=2.3026042820666532
when x=0.2 (20%), N2-N1=2.3104019779971665
A=100000, B=1000, then N2-N1 is about 6.9, to be precise:
when x=0.01 (1%), N2-N1=6.907812846199931
when x=0.2 (20%), N2-N1=6.931205933991492
Interchanging "gain" and "lose", and N1 and N2
A=1000, B=2000, then N2-N1 is about 0.7, to be precise:
when x=0.01 (1%), N2-N1=0.6931529570463937
when x=0.2 (20%), N2-N1=0.69550029741854
A=1000, B=10000, then N2-N1 is about 2.3, to be precise:
when x=0.01 (1%), N2-N1=2.3026042820666532
when x=0.2 (20%), N2-N1=2.3104019779971665
A=1000, B=100000, then N2-N1 is about 6.9, to be precise:
when x=0.01 (1%), N2-N1=6.907812846199931
when x=0.2 (20%), N2-N1=6.931205933991492

Jul

31

It occurred to me lately that a key to reviving a depressed economy, contrary to many theories, is actually to raise prices of most essential goods. This could be done by fixing the prices through an authoritative government or monopolizing institutions, or by raising taxes on these goods. This way, the amount of such goods sold will no doubt be lower (but not too much as these are mostly essential goods), but sales numbers will go up, and moreover, profits/taxes will go substantially up. Then re-distribute the profits/taxes to the most associated parties, who then will make large spending, thus giving boosts to the economy. Clearly, inflation will go up, but this will stimulate members of the society to work much harder, in order to survive as a first motive obviously. Then as the economy wakes up, ensure always to keep prices of many things high, so continued stimulation continues.

So the secret here is to jack up prices! Lowering prices won't work because it's more like welfare, which contributes little back to the economy, as the receivers only consume it.

Obviously, in order for this to work, a pre-condition is that the country stays fairly closed up from the rest of the world.

So haven't we seen proof of this through the past 40 years?

So the question is when and how this will all end? Any comments?

Jul

31

 Tens of thousands of Peruvians and Brazilians live alone or with a few others in the Amazon. They're usually in a group of two or more huts on stilts and live comfortably with full bellies with Jurassic Park in their back yard. The further out you go, the fewer the number of huts, until you reach the sole hermit.

That was my intent in going to the Amazon in 1999, after being accused by the Bishop, CA sheriffs of homicide of a dead body I stumbled over while hiking the length of Death Valley. I found it quite easy to hunt and fish and live in the Amazon, where water was a relief after Death Valley.

All you do is get on a triple-deck boat from a major port at the rate of $10 a day, and travel the Amazon River for three days to a confluence. There you transfer to a double-deck boat up the smaller river for a couple days until it narrows and the boat cannot pass. Flag down a single deck fishing boat that doubles in carrying passengers and mail for a couple days. When it stops in too shallow water, sit on the bank in the mosquitos for a day looking at where no white flesh has crawled, pink dolphins jump, and the people wear rags or nothing, filing their canines to points, and you hope they don't invite you to dinner. Wave your shirt until a peca canoe comes by, and ride with it for a day to the last outpost of a couple of huts on stilts at the end of the stream. Pick a melon from their patch, eat monkey brains, the kids will knock down coconuts to drink, and hire a canoe to paddle deep into the bush for a day, and find someone living alone. If there is none, just have him drop you there w/ a fishhook, matches, machete, and bugnet.

The reason I returned is the jungle is the most inhospitable place on earth. It makes the Slabs in 130F feel like a child's cradle.

Jul

27

 The top 10 of the lower tier colleges and grad schools make as much if not more than the bottom tier of the top ten schools. There are some reasons for this statistic. The competition is harder in the top ten schools so many smart people who can't make the top tier give up. They could have thrived in a less competitive institution. Or so says Malcolm Gladwell in his rambling book, David and Goliath.

Scott Brooks writes: 

Isn't it fair to say that attending a top 10 school gets you into the "good old boy" network of those schools?

If you attend a lower tier school, you don't get that benefit. Even the alumni of your lower tier school don't care about the fact that you attended SEMO (Southeast Missouri State University), too.

I also find (anecdotal) that those that attend the lower tier schools that go on to be successful are "under the radar" with their success. They may live in a nice house, but it's rarely an ostentatious house, and for the most part it's a boring small town or located in a city in "flyover country".

They also have less glamorous businesses than those that went to a top tier school or work for a less glamorous company.

You'd be surprised how many people in flyover country that went to Mizzou, or Missouri Science and Technology (formerly the University of MO, Rolla) or to SEMO that have a successful small business or worked at Boeing for 30 years that are doing just fine.

Most of these people have no debt, they have a decent 2,500 sq. ft. home with a 1/4 acre lot, a two car garage that is paid off, and between their pensions and social security, they've $6k - $10k per month coming in each and every month. They live very comfortably on that and travel the world.

But they also have $1m - $5m in their investments that they rarely, if ever, even touch.

And let me tell you what…95% of these people are very happy and satisfied with their lives.

So I guess the definition of success depends a lot on where you live and how you've come to live your life. 

anonymous writes:

"On the Payoff to Attending an Elite College":

"Students who attend colleges with higher average tuition costs or spending per student tend to earn higher incomes later on."

It's easy to imagine a selection bias there: Students who come from families that can afford expensive schools may already be networked into superior lifetime earning opportunities.

Regarding "Students who attended more selective colleges do not earn more than other students who were accepted and rejected by comparable schools but attended less selective colleges", this could be partly a legacy effect, i.e., children of alumni get, to some extent, preferential treatment and occupy spots in the incoming class that must then be denied to non-legacy students who may well be better prepared and more motivated. Those students get denied and then attend schools with lower requirements, where they excel.

Peter St. Andre writes: 

The most exclusive schools can choose students with the highest standardized test scores, which measure general mental ability or GMA; and GMA is strongly correlated with career success and lifetime earnings. It's not the education at the exclusive schools that helps you, but the fact that you were smart to begin with. 

Russ Sears writes: 

I wonder if athlete or academic scholarship students have a different distribution of future earnings depending on "cost" versus "eliteness", and if so, what does this say about the education quality or the student's quality that they bring to the table before going to the college?

I believe Malcolm Gladwell argues in his book David and Goliath that you should choose to be a big fish in a small pond in youth so you will be brave enough to try something new.

I found this true in my case. I maybe one of those people in flyover country that fit Scott's retiree profile exactly. But I am interested in other opinions.

Jul

27

 A con is intentional deception to cause a person to give up property or some lawful right. Con games are crimes of persuasion and deception. The victim always trusts the swindler in some way. 

The stealing is accomplished by false pretense, false promise, tricks, scheming - and that’s where the Slabber cons enter.

The Slabs are a con artist’s playground. Each slab is a concrete classroom where you may learn from experience in the same way a clinical psychologist enters an insane asylum.  

The three distinct types of con artists you’ll bump into on the slabs, in ascending order, are:

The essential elements of all of their scams are two people: the con and victim, though other parties may get involved. The mark is the target of a con man. The word comes from the carnival world – people who fell for rigged games were marked with a piece of chalk by slapping them on the back, so other game operators could pick a sucker out of the crowd. I had this done to me in Laws, CA with invisible paint and a sniper in the bush. In the Slabs the same thing happens, only a sucker is marked by texts circulating faster than chalk. 

I love cons, as every red blooded American should, and studied them primarily for self-defense, like martial arts. My mastery is extensive from having built the Confidence Shelf in the ‘grandest library in New England’, and more significantly, after that, in having been conned hundreds of times in over one hundred countries around the world. 

Con games can be broken down into two general types: scams that target individuals, and ones that aim at institutions and businesses. Individual cons are interesting and educational. Institution cons, such as engaged by 95% of the Slab population in bilking the government for welfare and SSI benefits, are boring and dropped now. We are a nation of individuals, which is why it makes sense to study them.

There are two types of individual cons: the short and the long. By far the most prevalent in Slabs are the shorts because the longs require groups and no one can trust anyone else for long here. The short con is a ‘hit-and-run’ requiring a small number of meetings with the mark to set up the swindle. The meetings are like five a five-step that you will recognize on your next stroll through town: the motivation, the come-on, the shill, the stress, and the block. It’s all so simple and fast that only the last needs explanation. The block at the end of the sting is meant to dissuade a mark from going to the police.  

In Slabs, when one Slabber stings another, it’s almost certain the police will not be notified because nearly every citizen is wanted or has no ID. This makes it a con town by logic. A short con occurs in Slabs every five minutes around the clock, and one in a hundred gets reported to the cops. As I am writing the rough of this, a police scanner report blurt that a ‘live YouTube broadcast of a man being beaten by one stick by many individuals in Slab City is taking place’, and the sirens wailed by. A fellow had hit a dog with a stick, and the owner rallied her friends to take the stick, con him that they were beating him to death, while being livestreamed, with the dog barking revengefully, and the owner screaming to turn himself in to the cops because he had a warrant.

The opposite of a short con is the big store. These are long con games that can take days, weeks, even months to set up, but for all the work the payoff is astronomical. The only long cons I know of in the history of Slab City are the police and snitches, the military arms for drugs exchange next door, and the battle for Salvation Mountain.

The pros of cons are simple. Collectively, con artists amass billions of dollars every year in the USA, compared to a paltry few million dollars stolen annually by bank robbers. In the same thinking, the estimated 90% con artists in Slabs is so greater than the national average as to be laughable. The sky is the limit for a Slab con artist. A lone wolf can be wildly successful with a profit margin as large as his imagination. He’s not a criminal; he’s simply playing smart. It’s a game that is his livelihood, like a sports pro rather than a nine-to-fiver. Con artists commit crimes because it pays and is more exciting than working for a living. There’s no real effort and he doesn’t pay taxes. 

Do you want to know what the average con artist looks like? Take a look in the mirror. You can tell a con by his looks – average. But certain psychological factors set con men apart. The profile of a Slab conman is composed of a few murky traits that add to form a clear picture. The traits are:

There are certain muscles especially of the face that can make you attractive to a con artist. I learned this in veterinary phrenology. The first is the ‘good deal’ set. The jaw is thrust, the eyes stationary but irises circling a dream, and the nose lengthened over time in sniffing cheap goals. That’s not the only mindset that causes muscular sets that con artists find attractive. If you are a wild dreamer, it will be defined by a certain look. A gambler? Slightly greedy? Somewhat desperate? Take a short course in Animal Husbandry to learn the physical features that reflect a mindset, or got to the bar without drinking for 3,600 straight nights, as I did, and just watch under your developing Cro-Magnon brows.  

Con men are as American as apple pie. Keep that in mind as you look in their faces. If you look at any successful professional – a salesperson, marketer, trader, real estate agent – they all have the same qualities as the con man. The only difference is that one side uses the talents and collects sales tax, and the con man is taking the easy way out. 

Con artists are everywhere, and in particular they pop out of the concrete cracks at Slabs. Don’t think you can be conned? Congratulations, you just became the perfect Slab mark. The trick, therefore, is to avoid putting yourself in the position of the victim. Every con artist uses one simple tool – the victim’s confidence in the con artist. When you trust the con artist, it’s all over. In Slabs, he’ll be able to take what he wants, when he wants, and as often as he wants until you’re squeezed dry.

How do you avoid becoming a mark and having it spread around Slabs that you are a sucker? The answer is skepticism. I’m talking about a healthy skepticism of everyone and everything, without becoming jaded to all the good things in life. The philosophical skepticism that I prefer questions the possibility of certainty in knowledge until the last shred of evidence is evaluated, and then take action. Skeptic philosophers adopt fresh principles in stagnate atmospheres, and are catalysts to change. So, when you suspect something is a scam, look at it from every angle, come to a conclusion, and in Slab City the assumption must default to a scam. This doesn’t mean that you, the skeptic, should walk away from it, but quite the opposite. You are fleeced every time you get on a Disneyland ride or enter a movie theater, and this is the attitude to take on entering the town limits.

Where to go if you’ve been scammed? Most people in more civilized places think local, state, federal. In Slabs, you only think local, and this dodges the sheriffs who stepped out the silver screens of silent movies as keystone cops. Few Slabbers have ID’s while many have warrants which preempt admission as a citizen to the police theater. 

Instead, when someone is appallingly conned, it strikes the social media, the cell grapevine hums, and a punitive con is leveled at the instigator. It is a con of the con, following the desert creed of 2:1 consequence for cause. I believe there should be a watchdog group for pending cons, and a welcome group to warn newcomers of the pitfalls in the first week’s baptism by swindle. I know of no permanent resident who has not been conned, and let the months pass to laugh it off. 

The thing that separates con artists from their criminal brethren is they almost never use violence. This is particularly warming in Slab City, and is credited to the town demography of higher IQ, individuality, and ability to take care of oneself. Slabbers are great with their brains and mouths. Slab criminals are in the top ten percentile of the nation’s criminal masterminds, and the lower bracket ten percent come here for further education, and to matriculate to teaching for a cut of the profits. 

Willie Sutton said he robs banks because that’s where the money is, and for the same geographic reason you should come to Slabs because that’s where the cons are. You can do much worse in life than to get an education. Come enjoy some of history's most notorious con artists. 

Like a stage magician, the con artist misdirects suspicion. While everyone’s watching for him to pull a rabbit out of the hat, he is actually sawing a Slabber’s mind in half. You think he’s doing one trick when actually he’s doing another. You think I’m dying, but I’m laughing at you. 

Jul

27

You cannot find a single textbook that suggests that World War I was a "big deal" in terms of the history of the causes of the Great Depression. There are literally a thousand references in the academic literature to Smoot and Hawley's awful tariff for every one that suggests that maybe all that spending that started in 1917 had something to do with it.

So, as my final rant for the day, let me share a few numbers. All of these are based on the Constitutional system of accounting, i.e. the U.S. dollar as the same fixed measure and weight of gold.

From 1791 through 1849, the cumulative budget surpluses and deficits of the U.S. Federal government resulted in a net revenue surplus of $70 million. From 1850 through 1916, the result was a cumulative net revenue deficit of $925 million– almost all of which was the result of the extraordinary expenses of two wars– the Civil War/War of Rebellion and the Spanish-American War.

From 1917 through 1919 (3 years), in the War to end all Wars, the U.S. Federal government had a net cumulative revenue deficit of $21,238 million.

As spenders, Obama and the Congress were pikers. In their 8 budgets they did manage to double the outstanding Federal debt; but Wilson and his boys (good male bipartisans all; there were no women in Congress) were able to increase the outstanding IOUs 20-fold in less half the time.

Jul

26

 It has long been suspect that the "crazy" in the "crazy cat lady" is not a far fetched concept. A parasite in cat poop has long been suspected of affecting the brain function and personality of anyone who contacts the parasite. This article states that the parasite, toxoplasma gondii, greatly reduces fear among other things.

I suggest that someone undertake a study of speculators and try to see if there is any correlation with having the parasite and success, risky behavior, or whatever. This would be a great study for big pharma, because if they did find any gold, they might develop a pill made from the parasite that would give one courage. Of course, big pharma will probably need to develop a pill for all those nasty side effects, the kind of side effects that are always at the bottom of the advertisements.

Jul

25

 I've been in Montana and Wyoming the last month. Today I'm in Michigan and keep seeing the sign

HELP WANTED.

Often with this added:

Pays Bonus for signing up today.

You can say whatever you want about Prez Trump but you cannot deny the economy is rocking like we have not seen for many, many years.

My view of him is the reverse of "love the sinner but hate the sins".

I don't like him a great deal as a person but what he's done is off the charts.

anonymous adds: 

I've been traveling in northern British Columbia. (Trying to fly fish) Up north, the towns are nearly deserted and dying due to the apparent death of the lumber and fishing industries. The cities in the middle are struggling. The Canadian dollar is really weak and the USD buys $1.32 CAD. It sure is less crowded up there. The US is really getting crowded.

Jul

23

 Listening to Gunsmoke: 50 selected episodes on radio is a pleasant divertiment from the market and statistics and teaches one about aspects of life. The series was the longest running show on radio and television and spanned almost 50 years. Most of the time it was the #1 rated show. The episodes were written by John Meston who wrote about 200 episodes for radio and tv.

The shows depict a very high minded and fair Marshall Dillon, very loyal to his friends the doc and Katie. Most shows start with Matt or one of his friend being caught by bad men or falsely accused of some crime. The criminals are usually overconfident or too eager for a quick kill, and Dillon by being careful and methodical and usually with some trick catches the criminal.

Dillon hates shooting and tries to solve all the crimes without bloodshed. He approaches the bad guys without guns most time. The shows are augmented by good sound effects that are very realistic and good music. There is a museum in Dodge, the Boothill Museum that has many of the relics of the shows. It provides a good window to a simpler time in the last half of the 20th century when people admired and empathized with a good man who did his job well without ambivalence.

The one defect of the shows is that often a rich cattleman turns out to be evil and greedy and takes advantage of a poor farmer who can't defend himself against the businessman.

Jul

21

 Here's a New Yorker video about professional poker players replaying their most memorable hands. You can find many similarities between trading and the game of poker. Many market lessons are offered in this short video.

Alston Mabry writes: 

This book is short and well done:


Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts
by Annie Duke

"Poker champion turned business consultant Annie Duke teaches you how to get comfortable with uncertainty and make better decisions as a result".

Jeff Watson replies:

This is a good interview with Duke. It's long but worth it. 

Alston Mabry writes: 

I recorded most of the Main Event at the World Series of Poker that was just played and I have been catching up on it off the dvr.

There was a very dramatic hand that decided the last seat at the final table (video here), where out of ten players, three of the players had these hole cards:

AA

KK

KK

All three went all in, and the aces won the hand.

They keep replaying that hand and then showing a graphic that explains that the odds of having three players with those hole cards at a 10-player table are 70,688:1.

The irony is that if you consider seeing, for example, these pairs of hole cards at a 10-player table:

7h, 4c

10d, 6s

Jd, 2c

the odds are even higher, because in the Aces and Kings example, the suits of the Aces aren't specified. But we usually don't take note of the combinations that seem "random", i.e., that don't create a meaningful-for-us pattern.

Likewise, the chances of flopping a Royal Flush of Spades is no greater than flopping, for instance:

2s, 3h, 7c, 9d, Jh

or any other 5 cards specified by both rank and suit. The irony there is that if you're watching Texas Hold'em tournaments, the odds of seeing somebody flop a Royal Flush of Spades are actually better than the odds of seeing somebody flop that specific junk hand, because players who start with components of a royal flush are more likely to stay in the hand, whereas those with junk hole cards are more likely to muck them and nip the possibility in the bud.

Of course, the WSOP is a TV show, and they want as much drama as they can get.

Mr. Isomorphisms writes: 

Brian Lee Yung Rowe recently posted about a game he invented for training staff in quantifying confidence/uncertainty: Fermi Poker.

Jul

21

 Petty crime is a way of life, and if you don't contribute you may be called John Law and run out of town as I nearly was in the first months for driving a rental car and refusing to use it to boost thefts and haul brass from the gunnery range.

The FBI crime clock shows one about one aggravated assault every minute, one burglary every 15 seconds, and one motor vehicle theft every thirty seconds across the country. The crime clock for the Slabs is about the same for the first two talents, but there is only one vehicle theft per week.

A walk through Slab City is like watching an episode of 'Dragnet', but there is so little violence that it becomes a habit. It's the best incentive for the walking cure for disease in the country.

Jul

18

Just got this observation. Mr ____ is a huge trader there.

Meanwhile, Mr. ____ asks me to let you know the situation about a share market. It has issued so many IPOs in recent years. Now only 10% of the shares are in circulation. 90% of the shares have not been lifted the ban on circulation yet. As soon as the ban get lifted, most shareholders want money instead of stocks. Their cost of shares are basically only a few cents, so there will be a big amount being thrown at the market. Anyone dares to pick up the shares?


Archives

Resources & Links

Search