November - 2016
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P -16.30
 USB +0.11
2
 S&P -11.50
 USB +0.06
3
 S&P -8.70
 USB +0.15
4
 S&P -3.60
 USB +0.20
5
6
7
 S&P +49.10
 USB -0.24
8
 S&P +6.40
 USB +0.16
9
 S&P +24.80
 USB -5.04
10
 S&P +7.70
 USB -0.24
11
 S&P -5.60
 USB -1.02
12
13
14
 S&P -1.20
 USB -0.24
15
 S&P +18.90
 USB -0.04
16
 S&P -6.50
 USB +0.24
17
 S&P +11.50
 USB -1.08
18
 S&P -3.50
 USB -0.20
19
20
21
 S&P +12.10
 USB +0.01
22
 S&P +7.40
 USB +0.02
23
 S&P +0.50
 USB +0.21
24
25
 S&P +10.50
 USB -0.03
26
27
28
 S&P -10.50
 USB +0.28
29
 S&P +3.00
 USB +0.14
30
 S&P -5.00
 USB -1.16

December - 2016
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P -6.70
 USB -1.25
2
 S&P +0.01
 USB +1.00
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

Dec

3

I don't have many views on markets, but one - and the most successful - concerns interest rates. It is that the Fed and government tend to have a bias which makes the bond markets trend either towards a long term bear market or a long term bull market at different times. However, politics is not the foundational cause of this.  Rather, it is society and "social" injustices caused by government involvement that drives the politics to reverse itself from time to time. Rocky deserves praise for his phenomenal calls starting in early 2016 about Trump's election and its impact on the market. I would agree with Rocky that Trump's election is a signal that the tides have turned on the bond markets. However, Trump's election is due to men's reaction at the ballot box after not being allowed to complain, or at least not politically correctly being allowed to complain.
 
Despite the fact that women now make up 60% of our college graduates, education, which government spends so much money on, has categorically failed men. You go to any public high school, look at the list of valedictorians and salutatorians in the last 10-15 years and almost all schools will show a statistically significant bias for the girls. Do this for the poorest communities and you will not even need to do the statistical calculations, it will be so glaringly obvious. Single moms have doubled since the last long term bear bond market. Children being raised by both biological parents are now the minority.  This has caused boys to have fewer nurturing father figures and less time with them.  This has destroyed a generation of youth. While a rising tide raises all ships economically, a lowering moral tide makes all ships less sea worthy. The young girls are suffering as well from dumbing down of their potential mates.  

What does this have to do with interest rates: well yes, Trump politics will drive rates higher most likely. But it is only a matter of time before the other side realizes why he got elected and joins the march. They will offer their inflationary version of how government can "solve" this crisis young men are facing, just as both sides offered their version of how to solve the crisis caused by the draft and Vietnam. Then the political cycle will again change and will keep driving interest rates up further..

Nov

30

Like the climax of a classical symphony, there are many spectacular moves today as November month ends with dollar yen, S&P at open, big big high. Gold, bonds at big big lows. Many others.

Nov

30

 On a trip I met a Swiss insurance guy and we had an interesting discussion. He said that the elites are shooting out way ahead of the masses and accumulating excess cash. They are not able to spend it, are are not really able to invest it productively leaving excess unused non productive capital. This seemed like a powerful idea to me. Negative rates, low interest are either causes or results of the glut. Some of the super rich are trying to use their excess wealth to change the world, such as Gates, or the FB guy in medical research. Chair likes to say capital goes to good use, but here is an anomaly resulting from too much cash. It's the idea that it just starts piling up….you just can't spend it fast enough. Like the scene in that movie about the drug dealers having all the cash sitting in basements and rotting away. It's like money in bank accounts, rotting away.

anonymous writes: 

Or finding its way to equities, despite rate-driven, developed pre-08 models. The ocean of money is coming down the canal, and ultimately must capitulate, having nowhere else to go but the certain, inexorable attrition of it.

Nov

30

OPEC, from Duncan Coker

November 30, 2016 | 1 Comment

 I grew up in the 70s and when I hear OPEC it always brings back vague, distant memories of waiting in the gas car line in our Pontiac LeMans, Nixon and the Bee Gees, sometimes all at once. What I did not know then which I know now, is that in some countries when a group of competitors gets together to set production and price levels it is considered an illegal activity, called collusion. Proving again when the crime is big enough it can go unfettered.

Fortunately, the arrangement is along the lines of a Puzo novel where enforcement and compliance are very difficult and the family business might not make it to the next generation. There are larger forces at work including cheaper alternatives, better efficiency, new reserves, and the technology to get at them. I predict in the years and decades ahead that OPEC will be looked back on with a wistful relevance somewhere between ABBA and frozen fish sticks.

Nov

30

 (North American focus)

Among the drivers behind minimally invasive medical device development were quicker surgeries and shorter hospital stays in response to ACA.

It appears that ACA will be eliminated with the new administration. Is there a chance the medical device market will rethink this strategy? What about video physician visits (now offered by my provider) or other cost savings approaches?

What are possible plays for speculators?

Nov

29

 Due to some unfortunate circumstances I have had occasion to spend much of the thanksgiving holiday alone. However I had a chance to read some great books which I can recommend.

John Dos Passos, U.S.A. Beautiful paen to America in its plenitude.

Tom Reiss, The Black Count. Amazingly well researched book about the real count of montecristo and a authors love for his n'er do well father who turned out in later life to be a man of principle. Also hybrid vigor.

Nicholas Higham, Princeton Companion to Applied Mathematics. How modeling, and mathematics are used in our everyday life and should be used in many more of our pursuits. Some chapters quite accessible and suggestive.

Stan Gibbilisco, Calculus Know It All. A very easy to read review of derivatives, integrals, and analytic geometry with a small chapter on differential equations. Simple and nicely formatted. Easy guide to math fall river press, very good for middle schoolers.

H.L Mencken, Prejudices. The best essay on Beethoven and capitalism I've ever read. Stirring. Magnificent.

One thing I've noticed at B and N is that their hard bound textbooks in most fields now sell for average of $275. Also that their spoken words section is down to about 25 titles out of say 100,000 titles in the store. Also, that most of their activity is in gifts and teen age reading.

Nov

29

The recent campaign was hardly reticent about "the Russian threat"; that was, along with Trump's pussy-grabbing audio tape, the Clintons' and the U.S. media's propaganda hole card. What is now scary for everyone invested in international crisis is that the American candidate who takes Foreign Affairs magazine seriously just lost because the U.S. electorate in the Mid-West and South no longer believe in the notion that foreign wars make money. (Only Wall Street does.)

Putin and Trump are likely to reach the same kind of understanding that the Americans finally reached with the British when Grant (there's that man again) and Hamilton Fish settled the Alabama claims. The U.S. would not invade Canada, the British and their sometime European allies would stop scheming to get control of Mexico, and both of them would establish economic control over the Caribbean and the South America and ignore whatever the Spanish had to say in the matter.

The Russians will not to invade the Baltic countries or change their western border, the Americans will promise to stop their adventuring in the Ukraine and other games of stupid chicken, and the U.S. and Russia will establish economic control over the Middle East to the exclusion of whatever the Eurozone has to say about it. The Muslims will be free to fight among themselves, as the South Americans did for the rest of the 19th century. The believers in the religion of peace will continue to buy arms from both the Russians and Americans, as the South Americans did from the British and Americans. But, the two major oil and gas producers outside the Middle East will be the ones who control what happens overall in "the energy market".

Nov

29

 Dr. Price's recent remarks: "the problem I have right now is that we are imprisoned by a system that doesn't provide high-quality care for many individuals in our society, especially at the lower end of the economic spectrum, because of the rules that have been put in place by the federal government. So, if we freed up the patients to select the kind of coverage that they want, we would get a model and a system that actually worked for them and not for government."

Here is his alternative to what became Obamacare.

Excellent piece in Washington Examiner: "Here's How Trump's HHS Pick Wants to Replace Obamacare"

Nov

29

 With all this give-and-take regarding the election and, primarily, the intellect (or, pejoratively, the lack of it) of the constituency that carried the day, has anyone stopped to consider that America (and many other Western "democracies) is experiencing its "Howard Beale Moment."

For those unfamiliar with the movie "Network", the imaginary key that unlocked a popular (but brief) revolt was when TV announcer Beale urged his audience to "get up out of your chairs, open the window, stick your head out, and yell, and say it: "I'M AS MAD AS HELL, AND I'M NOT GOING TO TAKE THIS ANYMORE!""

And going further: "Television is not the truth! Television is a God-damned amusement park! Television is a circus, a carnival, a traveling troupe of acrobats, storytellers, dancers, singers, jugglers, side-show freaks, lion tamers, and football players. We're in the boredom-killing business! So if you want the truth… Go to God! Go to your gurus! Go to yourselves! Because that's the only place you're ever going to find any real truth."

I've only posted once recently and that was to explain the unreported, under-appreciated anger that is prevalent in my part of the world– a county that went for Trump with 71% of the vote– an incredible plurality for an area that had long been Democrat.

It's all well and good to move Rosa Parks and representatives of similar victim groups to the front of the bus. But you'd better be real damn careful who you push to the back of it.

Nov

28

 You can almost hear the exhilaration in the "failing of Trump trades" after 15 of last 17 way up.

"Trump Trades Falter as Stocks Fall, Treasuries Rally With Gold":

By Eddie van der Walt, Sofia Horta e Costa and Rita Nazareth (Bloomberg)

The Donald Trump effect lost its sway over global financial markets as investors shifted to new threats including the future of Italy's government and fled to the safety of bonds and gold.

U.S. stocks slipped from all-time highs as investors speculated that gains sparked by expectations for brisker growth under a new administration went too far too quickly. Treasuries climbed, while gold pared its monthly decline. Italian banks led losses in Europe as Prime Minister Matteo Renzi faces a key referendum that may see voters reject his constitutional reform and prompt his resignation. A fund that holds stocks in companies that could gain if the U.S. lifts trade restrictions with Cuba had the biggest rally since December 2014 after former President Fidel Castro's death.

Yanki Onen writes: 

One thing that won't change for the foreseeable future is that people will take profit come month-end and the market will recover what it has given and then some before it is over.

Nov

28

 In its first Naturalization Act, passed in 1790, Congress required two years of residency and no "notice" time. "Notice" time was the delay imposed after a person formally declared their intention to become a citizen. In the Naturalization Act of 1795, the residency time was extended to five years and a 2 year notice time requirement was enacted; so, the total time to citizenship went from 2 years to 7 years.

John Adams then tried to literally slam the door shut on extensions of citizenship to immigrants. He and the Federalist majority enacted the 1798 Naturalization Act. That law extended the residency requirement to 14 years and notice time to 5 years, almost tripling total time for citizenship from 7 years to 19.

In 1800 the Democratic-Republicans ran the table, electing Thomas Jefferson President and winning 68 of the 106 seats in the House of Representatives - one of the great landslides in American political history. That led to the last change in the time requirements for naturalization for the remainder of the 19th century; the terms of the 1795 Act, adopted by George Washington, were restored: residency 5 years, notice time 2 years, total time: 7 years.

All Naturalization Acts applied only to "free white persons".

The only two changes after that were these:

(1) In 1855 alien wives of U.S. citizen husbands were granted automatic citizenship (but not, of course, alien husbands of U.S. citizen wives);

(2) In 1870 (yet again Ulysses Grant does the right thing) naturalization was opened "to persons of African descent". (Grant wanted all racial restrictions eliminated but Congress was unwilling to accept "Asians" for citizenship, only for immigration.)

Nov

28

 Readers of the Dailyspec who follow the trend should note the French presidential primary result:

From the WSJ:

Francois Fillion, a former prime minister who compares himself to Ronald Reagan and Margaret Thatcher, resoundingly defeated Bordeaux Mayor Alain Juppe in the runoff [election] primary Sunday, garnering 66.5% of votes.

Just two weeks ago, polls had shown Juppe, a centrist with bipartisan appeal with a comfortable lead.

Fool me once. Shame on you. Fool me twice. Shame on me.  Fool me three times, shame on the pollsters and media.

Scott Brooks writes: 

The pendulum is swinging hard away from the leftists.

Soon the non-leftists will screw things up and it will swing the other way.

The left (including the MSM) are like cockroaches…..not even the nuclear bomb of Trump can wipe them out.

Ralph Vince writes: 

I think we're witnessing something bigger than a pendulum swinging — I think we're watching a major, glacial, cultural shift going on now, around the planet large than politics, where the last vestiges of the last century are being slowly self-lulled into extinction, and many other things going on.

I think the "ZIRP minus minus" world, the survival of the ending of easing, and other "perfect storm" factors are colliding to make for an explosive rise in asset values sans a corresponding rise in rates, that may persist for decades.

The greatest free-market transference of wealth in human history is already upon is for those willing to assume risk, to be followed by legions of those who must assume ever-greater risk. Never has there been such powerful feedback and driving mechanisms that have fallen into place.

And as I've said here, I think most people are on the wrong side of this, which further buttresses the case. As I mentioned yesterday, the "Snowflake" generation (who I regard as the new "greatest generation") are modern-day Spartans of productivity, trained in it from birth. I have infiltrated their camps, I have gone in and worked with them for months at a time, wanting to learn this-or-that (and getting paid to o it) telling myself that when I leave, I leave knowing what they know (oh, yes indeed this coerced humility from me!) and I walked out the doors with heir brains in mason jars, amazed at their work ethic, embarrassed by my own in comparison. Every preceding generation had "no such thing as dumb questions," but theirs.

What an engine, what a perfect storm, what a cultural cusp we are upon.

Nov

28

 The so-called "snowflake" generation works much harder than we boomers did, is more educated, lives in their parent's basements and doesn't know what 4% growth looks like. They are extremely efficient, and put the rest of us to shame. When this gets going, for real, it's really going to cook.

A little kindling from someone who knows how to do it now, a 15 corp tax rate and the great repatriation, among many other factors, many of which were going to occur regardless of who was elected (the ultra-strong market, having not clinched with the termination of QE, the sideways, bear-market-in-time since 2014, the ocean of money which must seek risk to meet liabilities, etc.) but Trump would be fastest on the (inevitable, ultimately) repatriation (which, even at current spending and receipts levels, puts us at a balanced budget for the year of the repatriation, the first time since 2000), and trade (which is directly accounted for in GDP. 170 billion less in annual balance of trade outflows is 1% added to GDP, before the multiplier effect, which is X-fold in addition to this!) and we are at the start of what will ultimately be the bull of our lifetime, and likely outlive many of us. So whereas the markets and economy were bound to perk up, I thought Trump could get it going posthaste. (Plus, I like what he said about women.)

The snowflakes deserve a rocking economy, and will be fueling it.

Nov

28

 Over the busy Thanksgiving holiday, our house was filled with guests and great holiday cheer. Unfortunately, someone inadvertently stepped on a rat bait pellet and brought it underfoot, into the house. Our F1 Savannah cat and our wonderful Maine Coon decided to sample the delights of the tasty pellet. I didn't catch it until yesterday 4:50 PM when I discovered our cats vomiting and very sick. I took them to the 24 hour emergency vet in Sarasota. Long story short, Syd, our Savannah died around 7PM and Kitty Kitty our Maine Coon is still hanging on by a thread. However, the blood tests show that poison has destroyed Kitty Kitty's liver. In an hour or so, we are going back over to the emergency vet tonight to say goodbye to Kitty Kitty and put her down because that is the most humane course of action. We're so sad, words cannot describe what we're feeling at this moment. That being said, please keep an eye on your pets and watch what they do, where they go, and what they eat. Be on the lookout for potential hazards and if your pets go outside, keep an eagle eye on them. So many substances are toxic to cats and dogs…things like chocolate…and rat poison for that matter. We lost 50% of our household and maybe (I don't know how), it could have been prevented. Tonight, give your pets some love and an extra hug…..we won't be doing that again.

Nov

28

 In a second installment on Washington let me echo Mr. Jov's comments. Washington's story is not what he was in 1775, but what he became over the course of the next eight years. The Revolution started as grievances by the elite over restrictions on western land expansion, credit expansion and taxes. But these were primarily "rich peoples" problems. The taxes affected luxury goods for the wealthy or mercantile traders. It was initially a revolution for practical reasons not ideals.

The Revolution became great when Washington and others turned the fight into an ideological war described early on by Thomas Paine in Common Sense. The war turned on the higher ideals of Freedom, Liberty and a fight against the foreign tyranny.

What is most astounding about Washington is how he was able to keep a standing army in the field for those eight years of incredible suffering. The infrequent battles were difficult enough, but the real hardship came during the winters and years of deprivation. He lead an army with no clothes, shoes, weapons, pay, food, or shelter. The men, for good reason, enlisted for only very short periods, and Washington was constantly losing half his army to disease, desertion or end-of-enlistment . He somehow managed to keep them together and perhaps those higher ideals and his example of leadership were the glue. The average Continental had little to gain personally and truly was fighting for the greater cause of Liberty.

It was also a time where chivalry and honor still ruled the day. In an amazing gesture, after the bloody siege of Yorktown and the British surrender, Cornwallis and British officers were invited to a celebratory ball by Washington. The Revolutionary elite still respected the European elite. The 8000 British regulars however, were resigned as prisoners.

The larger point being the country has always grappled with leadership's elite status and the blood, toil and tears of the rest of us. Washington was able to convince the country by words and deeds he was of the people. A farmer, statesman, warrior, but not a ruling elite. He put his life on the line countless time to prove that. In my mind he did prove that. Very few of our leaders since who call themselves public servants have served anyone other than themselves. That is why Washington remains great.

Nov

28

First Brexit, then Trump, now Fillon in France. The political pendulum swings - a reader

I think we're witnessing something bigger than a pendulum swinging — I think we're watching a major, glacial, cultural shift going on now, around the planet larger than politics, where the last vestiges of the last century are being slowly self-lulled into extinction, and many other things are going on.

I think the "ZIRP minus minus" world, the survival of the ending of easing, and other "perfect storm" factors are colliding to make for an explosive rise in asset values sans a corresponding rise in rates, that may persist for decades.

The greatest free-market transference of wealth in human history is already upon us for those willing to assume risk, who will be followed by legions of those who must assume ever-greater risk to keep up with the times. Never have there been such powerful feedback and driving mechanisms that have fallen into place.

And as I've said here, I think most people are on the wrong side of this, are cautious and doubtful, which further buttresses the case. As I mentioned yesterday, the "Snowflake" generation (who I regard as the new "greatest generation") are modern-day Spartans of productivity, trained in it from birth. I have infiltrated their camps, I have gone in and worked with them for months at a time, wanting to learn this-or-that (and getting paid to do it) telling myself that when I leave, I leave knowing what they know (oh, yes indeed this coerced humility from me!) and I walked out the doors with heir brains in mason jars, amazed at their work ethic, embarrassed by my own in comparison. Every preceding generation had "no such thing as dumb questions," but theirs.

What an engine, what a perfect storm, what a cultural cusp we are upon.

Steve Jovanovich adds:

There is no pendulum. History has neither meter nor rhythm; there is only the sequence of events and the probabilities that those contain. Was it probable that the Europeans would have imperial civil war among themselves in the first decades of the 20th century? Absolutely; they had been practicing for one with mass armies for more than a century. Was it predictable that war would begin because of an assassination in the Balkans in the summer of 1914? Absolutely not. If Paddy Power had been offering odds, they would have been worse than Trump's were 2 months ago. AFTER hearing the news of Sarajevo, both the German Kaiser and the British Foreign Minister thought it was a good time to take their summer holidays.

As for Scott's theory about the MSM being permanently out of touch, they are what they have been ever since the Ochs family decided that they should get into the business of buying ink and paper - the voice of the people who own the cities. Their trouble is that, unlike the cockroaches, they cannot easily move to the country. "The news" of the Trump election is that, for the first time in 14 censuses, the areas of the country with above median population density are showing lower growth rates than those with below median density. The major urban cores and the near-in suburbs are losing the race with the towns, villages and exurbs. And, as our host and others have kindly taught us all, the trend is all.

Nov

27

 Rifle man stalking the sick and the lame

Preacher man seeks the same

Who'll get there first is uncertain.

- Bob Dylan, Jokerman

"Illness as an indicator: Local health outcomes predict Trumpward swings"

Interesting use of statistical analysis to show the real reason flyover went for Trump…

(Hint: It had nothing to do with poor jobs and wage growth, an explanation that was always suspect since both have been and are quite strong.)

Instead it may have much more to do with the all the illnesses that stem from eating disorders that cause epidemic level obesity (obesity correlates to higher rates of cancer, arterial diseases and interactions with the health care system, the three leading causes of death in the US), and the illnesses that stem from addiction to oxy and the poor man's substitute once the script for oxy runs out, or heroin, used rampantly in flyover now.

Nov

23

 Today is Ernest J. King's birthday.

Borrowed from StrategyPage:

One night, about two years before Pearl Harbor, young Ens. Arthur R. Manning was serving as communications watch officer of the carrier Saratoga. A message came in. After it was decrypted, Manning took it up to the ship's darkened bridge.

Stumbling about in the dark, Manning bumped into someone. Excusing himself, he asked, "Sir, are you on duty?"

The reply came swiftly, "Young man, this is the admiral. I am always on duty," said Rear-Adm. Ernest J. King.

Nov

23

Today I attended a lunch presentation with pension funds as the target audience. They defined risk as volatility and wanted reduced risk while maintaining much of the return. It was said that buying puts reduced return too much for most fund managers. The strategy presented was to reduce equity exposure from 100% to 50% and invest 50% in a low risk asset (short term bonds), at the same time sell both OTM calls and puts. They presented a back test of 10 years where the strategy outperformed index slightly while having a lower volatility (they outperformed during the 2008 crash and vol looked to be lower all along). I'd think they expose themselves tail risk by selling OTM puts, so was surprised they outperformed during the GFC and that they came out ahead. I still think they make it 'look' good during 'normal' markets but will get killed performance wise during sufficiently high upside and downside volatility– so I really think it is somewhat of an intellectual fraud to call this a 'low risk equity exposure' for pension funds.

Nov

23

Happy Thanksgiving to all our readers.  Here is our 2006 article about Thanksgiving, economics and freedom.

Nov

22

 1. After a decline in the prospects for a world state, the Palindrome, the upside down man, and the Sage will be bearish on stocks.

2. A reduction in the service rates will be treated as bearish by all pundits on the grounds that people don't care about having more disposable income, and they would much prefer to have entitlements and infrastructure.

3. The bonds will take a huge dive on the grounds that the Fed is likely to increase rates because output is increasing.

4. A chain letter to all economists from MIT and Yale, and all Nobelists over 90 years old will warn against putting conservatives on the Supreme Court.

5. All news about the cattleists health, hydration, and physical lashing out against her advisers will be eliminated from the blogosphere.

6. Gold will swoon whenever interest rates rise on the grounds that there is going to be more inflation and the dollar will rise.

7. Crude will hit a minimum before the OPEC meetings as news that one country or the other refuses to agree to an output restriction.

8. Stocks will go up on any seemingly bearish announcement that was preceded by a big fall.

9.  The longer stocks have spent without setting a x day maximum, the more bullish it is.

10. The prediction markets will badly miss the two biggest market events in history and cause tremendous losses to those who followed it.

11. The polls will all be biased against the republicans before an election by sampling fellow travelers to a disproportionate extent.

12.  A great uproar will ensue after an election if a conservative is appointed to the cabinet.

13. The Asian markets, especially Hong Kong will be the bell weather that foretells the subsequent moves in the Western Markets.

14. The PPI announcement will bail out holders of the bonds.

15. There will be a rise in the Stocks in the 5 days before expirations.

16. The economics announcements after the election will be much weaker than before the election on the grounds that there will not be as much reason to beat up those who say they are in bad straights, and similarly the Fed announcements will be much more bearish.

Please feel free to add.

Nov

22

 I grew up in New York City and its suburb Westchester County, but my home town is Mobile, Alabama where my mother's family lived I was born there and spent half of my first 5 years there (the other half in Denver, Colorado, with grandfather Jovanovich) while my father first struggled to find a job and then spent nearly all his time on the road selling books. I owe my passion for geography to having traced his journeys across the U.S. Before he stopped being the Professor Harold Hill of textbooks, he had been to every one of the 48 continental states, all by railroad. I owe my passion for baseball to Mobile. When I started going to the Polo Grounds on my own at age 7 1/2, it was already an old habit. I had been going to Hartwell Field to watch the Mobile Bears play ever since I could remember. (Of course, the nanny and I sat in the colored section.)

There must have been something in the water. Even someone with my indifferent athletic talent was able to get good enough at the sport to be half good as a catcher. To this day Mobile has the glory of being the hometown of more members of the Baseball Hall of Fame than all but two places in America. (New York City and Los Angeles). Even now, the place is still basically a small town; the entire metropolitan area is barely 400,000.

I mention all this because you all will have to get ready for having another nut from Mobile in your lives - Jeff Sessions. Sessions was born there, but he also moved away. He grew up in Calhoun County, which is, even by Mobile standards, the back of the beyond. He can recall working in a hardware store in Minden, which is now a ghost town, and selling horse collars.

Get ready for it. "Jeff Sessions is all that the outlaws now about to be trundled out of town on the tumbrel are not. Above all, he is honest."

Greg Von Kipnis writes: 

By "another nut" and the quote at the end, it is unclear if you are supporting him or being sarcastic?

Nov

22

 I know gold bugs who thought Trump would be bullish because "he is going to reflate". But I remind them that the reason they went into physical, in the first place, was to keep their assets off radar. Trump policies, however, should encourage transparent economic activity via decreased rates of taxation. So I tell them that the main incentive to hold Gold has been removed. Is this correct?

Sam Marx writes: 

Not entirely. Trump is heavily involved in real estate and will be president with a 20 billion dollar national debt.

This indicates to me that he will be partial to an above average rate of inflation to enhance his real estate's value and a cheaper dollar to pay off the national debt and his mortgages. With an above average rate of inflation, investors will invest in real estate, REITs, gold and silver.

Nov

21

 "Navy SEALs explain how your ego can destroy everything"

I was a lifeguard at Coney Island beach and Brighton beach (Brooklyn) for 5 summers from 2008 to 2012. There are about 1000-ish lifeguards patrolling this 2.5-mile continuous stretch of beach. All lifeguards are selected based on a swim test which is being able to quickly swim 440 meters (about 18 laps in a 25-meter pool.) If you can swim that distance in less than 7:40 then you can work at a pool and if you can swim it in under 6:40 then you can work at a beach. This meant that most of the lifeguards were about 17-22 y.o. high-energy males and the location meant that you had a very wide range of personalities.

The 2.5-mile beach is split into 22 bays and each bay had a leader-lifeguard who had a few lifeguards under him. With reference to this video, I think the personality trait that I most often saw in the leaders was that they were always accepting responsibility for their followers and also they were always communicating and working with their superiors. Those who couldn't do that were quickly turned back into the followers and a new leader was selected. Those

It's rare for me so find such a good message in a video this brief so I really enjoyed it and thought I'd share. Does anyone have experience with this kind of blame-everything-away vs accept-all-responsibility attitude? Or does anyone have any critique of this guy's explanation? I would be interested in hearing.

Nov

18

We are very close to 100% of probabilities the Fed is going to increase interest rates. JY remarks triggered another wave of selling. If the threat is worse than the execution what else can we expect? May be we have seen a short term low on bonds?

Nov

17

 When a virtual tsunami hits, the markets tend to thrash around for a time until they figure it out. If you individually tend to be prescient, go with your instincts. But if your opinions first need some direction from the markets, how long do you wait? Put another way, how many time periods does it take before the detritus left by the tsunami clears? There are several guidelines.

Is the tsunami a one-off event, or is it a rolling event. For example, we all thought Brexit was one-off, but now with court challenges it appears to have legs. One-off events clear faster, obviously, since the rolling ones have the possibility of reversal or modification.

With more "professionally-traded" markets, detritus clears faster. Those who take positions in forex, futures and options (particularly the writers) do not have the luxury of time. Or more to the point, they do not have the margin money. If you look at market-derived information you must be conscious of intra-day movement, particularly that from the two most important times of the day.

The more amateur the market, the more time it takes before you get a clear picture. In this case of course we are talking bonds and stocks, but particularly stocks. But even though those guys tend to act slowly, the markets clear remarkably fast. How long? Typically between 4 and 8 trading days. So we are just now getting there.

Obviously the lesson for the spec is to watch the leveraged markets.

Now, a sidebar question for the "technicians": what do you do with the information (i.e. prices) that occurred during the tsunami? One of our favorite gurus, a CalTech AI expert we call BikerBoy says, "You never, ever throw away information."

Nov

17

So, in effect, the markets have tightened monetary conditions without the Fed acting. If the Fed raises rates in December, this will place some additional downward pressure on both M and V, and hence on nominal GDP. Thus, the markets have reduced the timeliness and potential success of the coming tax reductions.

Another negative initial condition is that the dollar has risen this year, currently trading close to the 13 year high. The highly relevant Chinese yuan has slumped to a seven year low. These events will force disinflationary, if not deflationary forces into the US economy. Corporate profits, which had already fallen back to 2011 levels will be reduced due to several considerations. Pricing power will be reduced, domestic and international market share will be lost and profits of overseas subs will be reduced by currency conversion.

Similarly, the unveiling of QE1 raised expectations of a runaway inflation. Yet, neither happened. The economics are not different. Under present conditions, it is our judgment that the declining secular trend in Treasury bond yields remains intact.

John Floyd writes: 

The conclusion they draw demands some merit in my view while we await further info. But, apart from recent media coverage the US$ is basically unchanged for the year, see attached chart of the TWI. While the Fed clearly considers the US$ by their own models the impact is not exceedingly large.

On the US I would ask this question. If corporations have not been confident to hire full time employees, expand in R and D, capital spending, etc. over the past several years is something going to change over the next few? Even with a HIA, tax cuts, etc.?

Outside of new info it is likely that the floor of rates has risen across the curve in the US but the secular trend not changed.

I think the more interesting and potentially profitable question is what does Brexit, the US election, upcoming geopolitical events, and macro imbalances outside the US imply for asset prices?

Nov

15

 Of course, the simplest way of apprehending "ARRIVAL" is of a realistic-looking sy-fy dramatic supposition. The disc-shaped on-edge pods ferrying unknown aliens arrive simultaneously above a dozen world cities, resembling truncated elms or sycamores, with free-floating animated roots, more or less. Any number of forerunner sy-fy flicks have featured similar beings, from "War of the Worlds" (2005) to any number of smaller, lower-cost cinematic visitors. This type of alien seems to be a popular concept for this mysterious stranger scenario.

So –Why have they come, all of a sudden?

A melancholy Amy Adams, playing college prof and top language maven Dr. Louise Banks– who appears without makeup throughout the proceedings—a talented linguist contacted by Forest Whitaker, as Colonel Weber (no first name), military official, to try to get through what it is the aliens may be trying to say. Except they don't enunciate—they splootch out finger-y type things that squirt out roundish inky ideographs.. Jeremy Renner, playing Ian Donnelly (what? No PhD? What are they saying here about credentialized scientists in the military mindset?) a recruited scientist, tries to be of collegial assistance, but does not have much to do aside from snappy retorts and functioning as a sanity foil brake on Adams' onscreen audacity.

On the deeper level, coming as it does moments after the election, my immediate link is that these alien beings, separated by a wall of impermeable glass inside the odd space vehicle with no interior furnishings but the separation barrier, represent the current president-elect. He too, to the LA [and DC] crowd, an alien being, apparently, as difficult to grok as an interplanetary essence. An arrival that is unheralded, appearing one day over the landscape, and something that requires 'translation' from the being to Earthlings. Since each culture perceives the aliens as their lens permits them to, most of them regard the appearances as threatening, and begin to act reflexively as if they were being attacked. Prior space films –especially in the 50s and 80s–usually feature US military sending in a fleet of fortified soldiers, blasters at the ready, shooting like gatling guns at the foreign spacecraft. Pre-emptively, before the aliens can exert their mysterious powers on the Earthlings for good or evil..

A hint that the aliens here are sentient and not intending evil comes when a slightly less misty screen capcha shows these trunky beings with warm, sympathetic eyes.

To be sure, world war is a looming possibility as each nation races to decipher what these arrivals want, mean or intend. Such threat also imperils the hard-working linguist and her scientific sidekick. And the continent, should war break out and the aliens turn out to be bad varmints with evil-intentioned trigger splootches. That would be macro-aggressions, we surmise.

It is noteworthy that the key figure sent to decode the language of these untoward visitors is a woman (hint, hint), but assisted by the sensitive and exophthalmic Renner (who also has Trumpish eyes), The drama inheres in the earnest efforts of the protagonists to decode the splotches emitted: Do they betoken threat? Do they mean something less than the imminent catastrophic end of mankind?

We are treated to linguistic theory, good for Indonesian jungle tribes as well as for intergalactic protoplasmic arrangements. Threading through the story are hints of tragic events residing in the Banks character's life, but we don't learn all that much until well into the film.

The acting is convincing, what you need to compel interest. The script is energetic enough. The movie audience with whom we watched the film seemed glued to the onscreen events, though it is more an intellectual effort than an actioner. Just as well.

So my guess is that "Arrival" is the Hollywood Dream Machine's emissary sent to unclued-in Democrats from higher-order Conservatives in order to translate/interpret the Donald Trump phenom creature to the administrators and groundlings of planet America and elsewhere on the globe, where leaders scratch their pates in wonderment and confusion. At just the time when the astonishing revelation of the 2016 US elections breaks worldwide, to the consternation and bafflement of all.

As an interpretive vehicle, it shows how earnest are those who seek desperately to understand this unheralded event and emergence. Who knows? Maybe the Amy Adams character is a stand-in for Martha Raddatz, intrepid and daunting Hildy Johnson-ish reporter. [Raddatz'es true tile: ABC network's Chief Global Affairs Correspondent…]

Nov

15

 Opposing new, better machinery is always and everywhere a complaint about productivity in the name of "the people".

See Ned Ludd.

When the self-driving vehicles actually take to the roads in numbers, someone somewhere will trash one; and it will be Big News. It isn't; neither will the political efforts to prohibit innovation be new. The English Crown started banning industrial machinery in the 16th century and they are still at it, thanks to the Princely idiot who is first in line.

As the Liberty lads o'er the sea
Bought their freedom, and cheaply, with blood,
     So we, boys, we
   Will die fighting, or live free,
And down with all kings but King Ludd!
When the web that we weave is complete,
And the shuttle exchanged for the sword,
   We will fling the winding-sheet
   O'er the despot at our feet,
And dye it deep in the gore he has pour'd.
Though black as his heart its hue,
Since his veins are corrupted to mud,
    Yet this is the dew
   Which the tree shall renew
Of Liberty, planted by Ludd!

Nov

14

 I applaud the prescience of those who made the [election] prediction and stuck with it these many months and hope they were well rewarded. Regarding the fall-out, I have some in my own extended family going through the stages of denial, anger,bargaining, depression, acceptance. My sister-in-laws are in the stage of anger. But as market participants and professional, the quicker we get to acceptance and beyond, the better. As the chair points out, the market got to acceptance around 2 am the mourning after the election. There are remarkable changes going on with bonds, crude, emerging markets all way down, Dow outperforming and big shifting of sectors. It is fascinating to watch the speed at which the discounting process unfolds in real time.

Somewhat related I am reading the Chernow's biography of Washington and highly recommend it. When I complete it, I will review it, but one thing I find interesting is the level of risk Washington was willing to take on. He had a great deal to lose when accepting the commission to lead the fledgling army, reputation and honor being the greatest. Also he was amazingly calm and brave under literal fire. In an early battle he emerged unscathed but with four bullet holes in his hat and garments. Qualities very fitting for markets and life.

Stefan Jovanovich writes: 

I boycott Chernow's work, probably out of envy. The man is incredibly industrious. But, he is also completely credulous. Washington had a great deal to prove as a soldier when he went to Philadelphia wearing his colonial militia uniform. He had participated in the greatest defeat of British troops in over a century of campaigning against the French - Braddock's massacre. He was guilty of having allowed a French officer - Ensign Joseph Coulon de Villiers de Jumonville - to be literally butchered by the troops under his first independent command after the officer had surrendered.

He was forced to surrender Fort Necessity to Jumonville's brother who made Washington include in the surrender documents an admission of his guilt in allowing Ensign Joseph to be slaughtered. For the rest of his life Washington tap danced around this fact, claiming that he had not known what the surrender document said because it was written in French. Like Churchill in his Boer War adventures, Washington was able to make lemonade out of lemons and wrote the story of his adventures; but, just as Churchill's own part had involved defeat and capture, Washington's actual campaigning experience had been a loser. This was part of the reason why his attempt to join the British regular Army was rejected. Governor Dinwiddie did his best to create the image of Washington as the hero of the Battle of Monongahela; but that is like Roosevelt's preserving Douglas MacArthur after he skedaddled from the Philippines. Political necessity required both men to be treated as war heroes after they had presided over military disasters.

Washington went to Philadelphia to redeem and establish his honor, not to "defend" it. He was the husband by second marriage to the richest woman in the colonies, but he was, in no sense, a figure of respect for his military prowess. But, judged among men who had never even fought duels, let alone served in wartime, he did have the virtue of having actually been shot at. Even so, he was chosen to be Commander in Chief for purely political reasons; Franklin knew that the Southern states had to become involved in the rebellion if it was to have any hope of succeeding. The New Englanders had begun the fight; but the merchant colonies - NY and PA - and the planters - VA and SC - needed to be brought on board.

What makes Washington a great man is that he did achieve his goal - he became the American Cincinnatus. His own personal courage is indisputable; he led from the front - always. His example was so dominating that it compelled men young enough to be his children to put their own lives at risk. Both Hamilton and Monroe were wounded, Monroe almost fatally, while serving under Washington's command.

But, to start the story with a tale of illustrious George is to fall into what Gary Gallagher rightly calls the Appomattox trap - i.e. of course, everyone in 1861, 1862, 1863 and 1864 knew the South would lose, their Ouija boards had already shown them what happened at Appomattox. Washington in 1775 was not the man he would become.

Nov

14

 Up to now the trade balance of the United States has been determined as a residual item, in other words it is not a target that policy makers and citizens look at but is the result of other variables like GNP growth, inflation, productivity, the value of the dollar, opportunities, preferences, etc. in the US and abroad.

If the Trump administration decides to target a reduction in the trade deficit (as seemed implicit in the campaign) that is a MAJOR change in how the economy operates and I wonder what consequences it would have. Is it even possible? Of course it is possible and many countries (such as Japan in the 60-70s, germany, china) have operated with such policies), but it is a big change in thinking for the US. My economics professors decades ago derided such policies with the epithet 'mercantilist' and refused to even discuss them ("it's not Pareto optimal, so forget it"). But at least some countries (esp. developing countries) have had some success with it as long as the ROW did not follow their example. We now understand such policies have some *benefits* as well as costs.

What form would the trade policy of the Trump administration take?

The most attractive would be an export promotion strategy, like the Asian Tiger countries. I have a friend who believes that the US should set up Special Economic Zones like the Shenzhen area in China, where special rules are applied to favor the establishment of new enterprises that are oriented to export. Low taxes, light regulation, waiver of union rules and so on would be targeted to a small geographic area (near an international transportation hub) with a view to boosting its productivity and export ability. It is a very Asian top-down approach and  have some doubts whether this could be done in the context of Western decentralized, democratic and rule of law traditions. But there is an even bigger problem: where would the exports go to, when there are no longer any large developed countries available as export destinations.

The other strategy would be an import compression or 'onshoring production' strategy. This can be accomplished via Tariffs such as Trump has proposed but would have the side effect of raising the cost of products to US consumers. In addition because one country's imports are another country's exports it would result in a decrease in international trade. Since the mid-2000s international trade has been stagnant (after a period of high growth) so it would not be surprising that after Trump, Brexit, etc, it would turn down. What would be the investment implications of a fall in international trade and investment? Historical periods of decreased international trade are not exactly bullish for the economy.

As you can see, although I do believe the Trump administration will be the greatest and best, I have trouble seeing how the policies can be applied without causing major changes and some kind of negative disruptions in the world economy. I would like to hear from you any ideas how we can analyze the situation in a clear and practical way. What asset prices will be affected and how.

Anonymous replies:

My sense is that the Trump trade policy would work through tax incentives (like the tax incentives now offered by states to businesses who locate or stay there) rather than through tariffs.

West coast dude suggests:

Future increases in prices of consumer products as a result of switching to domestic production are already being reflected in the price of bonds, which are falling in response to higher expected inflation.

Nov

14

 A lot of my liberal friends are bemoaning the fact that Trump won the EC but lost the EC and contend (or imply) that HRC would be president if it weren't for the EC.

This is the same logic that implies if a field goal kicker hadn't missed his kick in the first quarter that your team would've won and instead of losing by 2 points. The false assumption is that the game would have played out the exact same way after the fact.

If the EC didn't exist, then the candidates would have run a completely different campaign. For instance, none of the candidates campaigned in NY, CA, OK, etc.

If it were a straight popular vote play, Trump would've campaigned in CA and NY and HRC would have sought out votes in OK.

Nov

14

 My theory is that the general election was decided by the way the HRC-DNC axis betrayed the Bernie Sanders voters, especially particular groups of them. The argument, as a timeline:

(1) Pew Research releases a survey in late July but "mostly completed before Sanders announced that he would support Clinton on June 24". The survey generated a lot of headlines that basically ran, "90% of Sanders voters will vote for Clinton". The breakdown of the survey results were as follows:

Dem voters who consistently backed Clinton in previous surveys (Dec, Mar and Apr): 29% of all Dem voters: Now support in general election: Clinton: 98% Trump: 2%

Dem voters who consistently backed Sanders in previous surveys (Dec, Mar and Apr): 20% of all Dem voters: Now support in general election: Clinton: 90% Trump: 8% Neither: 2%

Dem voters who switched between Sanders and Clinton in previous surveys (Dec, Mar and Apr): 44% of all Dem voters: Now support in general election: Clinton: 88% Trump: 9% Neither: 3%

(7% were Undecided in surveys.)

What this shows is that 8.7% of consistent Bernie voters and switch voters favored Trump vs Clinton as of late June, with another 12% in the Neither/Undecided camp.

Pew doesn't break these numbers down by region or state, but the title on their demographics chart reads, "Consistent Clinton supporters were more likely to be black, older, better educated". Looking at the demographics reveals that consistent Bernie supporters were more likely to be young, white and male.

(2) WikiLeaks releases the DNC emails on 22 July, just before the Democratic Convention. The emails create a scandal because they paint a picture of the DNC as an active ally with the HRC campaign against the Sanders campaign and also disparage and deride the Sanders camp.

It's important to remember that the Sanders campaign started out from scratch and had no national organization at all, especially compared to the HRC campaign. Sanders did not create a SuperPAC for fundraising but instead just took individual donations and ran a largely grassroots campaign. Yet he received 43.1% of all Democratic primary votes nationwide. Those Sanders supporters were self-motivated voters who got themselves to the polls and felt strongly enough about their issues come close to giving the nomination to Bernie. So close, in fact, that they can't help but wonder if maybe Bernie would have won the nomination had not the DNC been indistinguishable from the HRC campaign.

The Democratic National Convention takes place July 25-28. Sanders supporters heckle the proceedings at various points and accuse the organizers of attempting to marginalize them through control of the convention access and seating. Debbie Wasserman-Schultz resigns as DNC Chair at the end of the convention (but only after a call from President Obama). Her resignation confims what the DNC emails exposed.

After the convention, the story of how the DNC worked against the Sanders campaign and voters fades from the MSM.

(3) The General Election

Here are some numbers for a model of the election where some Bernie voters either decide not to vote or decide to vote for Trump. (Hat tip to Stefan for suggesting that actual vote totals be included and not just percentages.) The model focuses on just a few states that were swing states with close votes. The thing to remember is that in a situation where Trump wins by 100 votes, that effect can be created by just 50 Sanders voters flipping, creating -50 votes for HRC and +50 votes for Trump. The model shows how many Bernie voters it would take - either just staying home on election day or actively switching to Trump - to create the margin by which Trump actually won each state.

The result: HRC loses EC when 53,667 Bernie voters (2.8%) out of 1,901,016 Bernie voters in MI, WI and PA, decide to vote for Trump.

So my claim is that the election was decided when the HRC-DNC axis betrayed the grassroots political engagement that the Sanders campaign created. What motivated me to define the issue so clearly is all the post-election bleating by the MSM about how they need to try to understand "Trump's appeal" and how they "got it wrong". What they need to understand is Bernie's appeal, and how people who were motivated to vote for Bernie could switch to Trump who, as a person, is almost an anti-Bernie. Which means that there is a core set of underlying issues that made the two men the same choice for a large enough segment of voters to decide the election.

The HRC-DNC axis presumed ownership of the Democratic Party and felt they could do whatever they wanted to ensure the desired outcome at their convention. At that time I posted that HRC needed to pick Bernie as her running mate, which idea was seen as too extreme or impractical. I thought it was her only chance, and now that seems even more clear.

Nov

14

 I thought I would share a couple of quotes I found back this spring in my father's papers that he had clipped from the Babson newsletter. I wrote them down as I thought they might come in handy.

From The Lessons of History by Will and Ariel Durant:

"In the Athens of 594 B.C., according to Plutarch, the disparity of fortune between the rich and the poor had reached its height, so that the city seemed to be in a dangerous condition, and no other means for freeing it from disturbances…seemed possible but despotic power. The poor, finding their status worsened with each year - the government in the hands of their masters, and the corrupt courts deciding every issue against them - began to talk of violent revolt. The rich, angry at the challenge to their property, prepared to defend themselves by force. Good sense prevailed; moderate elements secured the election of Solon, a businessman of aristocratic lineage, to the supreme archonship. He devalued the currency, thereby easing the burden of all debtors (though he himself was a creditor); he reduced all personal debts, and ended imprisonment for debt; he canceled arrears for taxes and mortgage interest; he established graduated income tax that made the rich pay at a rate twelve times that required of the poor; he reorganized the courts on a more popular basis; and he arranged that the sons of those who had died in war for Athens should be brought up and educated at the government's expense. The rich protested that his measures were outright confiscation; the radicals complained that he had not redivided the land; but within a generation almost all agreed that his reforms had saved Athens from revolution. History's lesson is to the country is that the moderates save the day. The extremists will always be pulling one way or another, but to yield to either is perilous."

and also

"The true worth of a man is to be measured by the objects he pursues."- Marcus Aurelius

Nov

14

 Marx was right about one thing: there is a constant tug of war between employers and employees over what he called "surplus value". The companies whose shares are traded in the U.S. stock market have been used to having the stronger hand on the rope. Even the best employees - the ones whose work actually produces the profits - have been in a relatively poor bargaining position since the last economic crisis in 2007/8/9.

But, the wheel has turned, once again. If a person has real skills, he or she once again has a choice of jobs. This is the first period in nearly a decade when skilled workers actually have some bargaining power. Even as the journalists continue to discuss the coming of mass unemployment because of automation, the actual market for people smart enough to do the automating was getting tight enough that employers had to get serious once again about stealing each other's employees.

"Uber gutted Carnegie Mellon’s top robotics lab to build self-driving cars"

The relative wage costs of capable people are the most reliable indicator of the ebb and flow of business operating profits. Anyone with any experience as a manager knows that the 80-20 rule applies to employees as much as it does to customers. The proof of this is the common experience of anyone who has had to meet a serious deadline; you give the work to the people who are already busy doing their jobs. Much of the extraordinary rise in profits for American companies since the credit panic of 2008/9 has come from companies being able to give more and more work to the people who are already busy. That leverage in operating efficiency has been enormous.

It has come to an end. The people with skills are not only going to get a larger slice of the pie; they are also going to be using a larger knife. The people old and skilled enough to know the difference between work and life are asking for more.

See Samuel Gomper's "What Does the Working Man Want?"

Now that quality people have, once again, gained some leverage in their bargaining power, the rate of corporate profit growth is going to decline significantly and with it, the prices of company shares.

Nov

12

 During the Apollo 11 flight, landing and return, the entire planet was absorbed. This election had that same feel. It was that important.

Of course the difference is obvious: In 1969 there were only winners, and of course America was truly great. At this time there are winners and losers. If America does in fact become great again, the only losers will be those whose political bent does not allow them to accept it.

What was really cruel was the fact that the pollsters, Hollywood, etc. (which were tools of the Ds – willingly or inadvertently) conned the Ds that the race was theirs. Most people can accept losses as part of the game. But the Ds were led to believe they could not lose, and they are in shock like the people of Mudville who never believed The Mighty Casey could strike out.

Nov

10

 We have no way of knowing, but I would be willing to bet that Trump's foul mouth is what gave him the 12K edge in Michigan. The conclusions that some want to draw - that a respectable Republican could have won - are based on a sample taken in August of roughly 2000 people who were reached by random digit dialing. In an actual campaign 2K polled over a week would be a useful sample size for a large state like Michigan or Ohio; as a sample from which to derive general observations about the entire country…

Garbage in = garbage out.

Anonymous writes:

The last GOP presidential standard bearer not framed as Lucifer, was Ike the war hero.

The Dodgers were still in Brooklyn during his re-election campaign.

Nov

10

Here are my takeaways on this election from my POV:

1. The very strong Obama endorsement of Hillary Clinton proves one my first rules of politics; endorsements don't really matter. Politicians are so intent on getting endorsements, but in actuality they don't mean much at all to the voter.

2. Don't trust the major media polls.

3. It seems intensity behind the candidate may be the tipping point. I had written about this earlier incredible intensity I noticed of signs, I saw in Michigan this summer, homemade ones not preprinted campaign material. Same thing goes for turnouts for Trump/Pence versus Hillary and Kane.

4. I also posted on the Google searches of Trump versus Hillary where he was leading. Another tipping point?

5. Three of my children live in the Bay Area and all voted for Hillary; they are despondent. I believe their vote is largely a function of the media environment they live in. And that is true of us all. Now maybe the media in San Francisco isn't biased but is certainly one-sided. Is a Drudge Report biased? I don't know but it certainly is one-sided. So we've all become a product of the media we expose ourselves to. We have to be on guard for that.

6. There are major investment opportunities because of the election and I'm going to get back to focusing on those.

Nov

8

 I was reminded of the 2006 presidential election in Nicaragua that I witnessed while working in Managua on environmental projects for a large oil company. Indeed a Nicaraguan voter at that time could lose their job if they expressed or held allegiance to the wrong party. And many did.

Deception was key–a voter might publicly pledge allegiance to Daniel Ortega and the Sandinista Party (socialists) but in private despise him and vote for the other party. For a country of 6 million people the labyrinthine complexity of party and sub-party affiliations and associated colors (red, green, yellow, rainbow), flags, and territorial graffiti was impossible for any gringo to comprehend. Many flavors of candidates to choose from on but in reality only one possible outcome.

After the election was over the winning Sandinistas fired off enormous and deafening Chinese firecrackers (muy macho M-80s) for days on end and at all times of night. Raucous celebrations were held by Daniel supporters. The losers mostly cried and spent sleepless nights at home mourning the election loss and newfound unemployment. Well since that eventful 2006 election Daniel Ortega and his wife of many bracelets and bangles (La Chamuca, "the She-Devil or Witch" as called by the now powerless opposition) have taken control of and own most of the media stations, along with multiple businesses, much cattle, and of course all branches of the government. Irksome term limits have been dispensed with in homage to Hugo Chavez.

Ah, the power, the corruption…but somehow things move along in the Land of the determined Pinoleros. A friendly country to visit and one producing the finest rum, cigars and coffee. Nicaragua always carries in its heart the azurine dreams of its poet Ruben Dario and the charming waltz music of composer Jose de la Cruz Mena.

1) By coincidence, mas o minos –the current situation in Nicaragua:

"Ortega's grip on Nicaraguan politics opens the door to greater levels of corruption, as it weakens the independence of state institutions and puts a vast amount of power in the hands of a few elites. The president has been criticized for his control over congress, the police, the military and the courts. His family members and allies reportedly control fuel companies, television stations and public works, and his wife is now set to become the vice president."

2) The number of extinct Nicaraguan political parties is quite impressive.

anonymous writes: 

Your story is a good replica of the situation in Turkey. If you post it to anywhere and change Nicaragua with Turkey, hardly anybody will notice it.

Nov

8

Two conditions:

1) when $SPY posts its biggest gain in 62 days (i.e 3 months)

2) after $SPY closed at its lowest close in 62 days, the prev day

Nov

7

Biotech, from anonymous

November 7, 2016 | 2 Comments

 Suntrust claims that on average biotechs drop 18.8% going into elections and then rebound 14.9% into EOY.

Here's a quick look just to run some numbers. IBB is a Biotech ETF, SPY is one of the ETFs that tracks the S&P 500. EOY refers to the end of the year shown.

Nov

6

 The Institute for Energy Research (IER) is not an objective organization. It has been described as a front group for the fossil fuel industry. Even if they were objective, this argument against solar is distorted and against free market principles.

Yes, it's true. Solar ITC is important to corporate investors. However, that credit does not work as many believe. Specifically, I'm guessing Mr. Trump may lack understanding of how environmental, energy and tax policies work together.

Let's begin with tax policies. It turns out; solar ITC's net cost to taxpayers is zero. It's less than zero. It's zero for two reasons. Companies claiming ITC must reduce their asset's tax basis by half the ITC's value (to 85%). Since solar qualifies for five-year ACRS, taxpayers retrieve half their ITC almost immediately.

Recovery from basis adjustment is half the story. Because of ACRS rules, after four years of operations, solar owners find they have almost zero tax deductions. Their largest expenses are land leases and interest payments. The lack of deductions is because depreciation expenses have been consumed and production costs are nil. At year five, solar farm owners jump to the maximum federal and state income tax brackets. Consequently, federal, state and local governments have a new tax base and new tax revenues, which are so large that they cover any remaining ITC payouts and more. Thus, if ITC stimulates new investment, taxpayers fully recover their ITC and earn additional tax revenues year after year for 20 years.

While the federal ITC may be an incentive, it's not enough for most businesses. If it were, solar would be deployed in all 50 states. It's not.

As evidence, consider North Carolina. This state has massive investments in business-owned solar farms. Compare North Carolina with Virginia, South Carolina, Georgia, Florida, and Mississippi. The differences are significant.

The reason ITC helpful but not sufficient is because of environmental policies. The primary incentives to build solar is provided by individual states. If a state declines to offer incentives, no solar will be deployed.

Solar's main driver is state environmental and energy policies. State's primary motivation is the Clean Air Act. Many states are non-compliant with National Ambient Air Quality Standards. Other states are in violation of cross-border pollution policies. In either case, non-compliant states cannot offer businesses new air permits. Without new permits, it's difficult for a state to grow their economy.

If mitigating pollution is not enough, states have other motivations. It turns out solar power will reduce states' electricity prices. Solar reduces the need to build new transmission lines across the state. Solar also reduces the need to construct more central power plants. Considering everything, some states find solar brings more winners than losers. Free markets win, consumers win, politicians win, local distribution utilities win, and businesses win. Generating utilities lose, coal miners lose, and rails lose.

Mr. Trump may find revoking solar tax credits has unforeseen consequences. Should he convince Congress to move in this direction, they may be surprised by bipartisan pushback from key states. Should Trump and Congress persevere, they may be forced to revoke coal credits, nuclear credits, and do away with all other energy development incentives.

Mr. Trump may have cross-threaded his goals. He wants to develop more energy from all sources. At the same time, he's advocating the removal of costless incentives that stymie energy development, business growth, tax bases, and new jobs. He should ignore any advice from IER. They appear to have an agenda.

Nov

6

There have only been 8 US presidential elections in the history of S&P 500 futures. In 7 of the 8 instances, the S&P 500 had a net gain in the 10 trading days ending on Election Day. With 8 of the 10 days complete this year, the net change of the S&P 500 is -58.

The S&P 500 declined on the day after Election Day in 6 of the 8 instances with an average loss of 11 points or 1.1%.

10 days ending     Net change       Day after election Net change
      11/6/1984      1.30     0.8%        11/7/1984      -2.80   -1.6%
      11/8/1988     -9.00    -3.2%        11/9/1988      -1.00   -0.4%
      11/3/1992      4.20     1.0%        11/4/1992      -3.65   -0.9%
      11/5/1996      6.30     0.9%        11/6/1996      14.00    2.0%
      11/7/2000     41.00     2.9%        11/8/2000     -30.70   -2.1%
      11/2/2004     27.10     2.5%        11/3/2004      14.50    1.3%
      11/4/2008     43.90     4.6%        11/5/2008     -45.20   -4.5%
      11/6/2012     18.40     1.3%        11/7/2012     -36.10   -2.5%
 

Nov

4

I agree that the BLS number will be bullish tomorrow [2016/11/04]. Why was there recently an article from NYT singing the praises of impartiality of the BLS? Seems suspicious to me, who considers BLS nothing but a bunch of cronies.

The payroll taxes are shown. Not really bullish. However the recent rise covers the exact period that will be sampled in the Jobs Report. The subsequent downturn is not in that sample.

Note: this view of the payroll taxes views the [consequences for the] employment scenario. If we targeted the impact on GDP we would get a more bullish picture.

Nov

4

 Here's a great article how sabermetrics solved baseball…..for now.

Stefan Jovanovich writes: 

People have been doing sabermetrics forever. They just didn't have the mathematical tools. Exit velocity - which is the best measure of a hitter's "power" - was the first thing scouts looked for, but they had to judge it by the sound of the ball leaving the bat. That is why the first thing a good scout would do is show up early and check the wood on the bats of the team he was scouting. Theo Epstein is a bright, bright guy; and he deserves nothing but praise; but his reputation still rests in large measure on Dave Robert's ability to steal bases and Bill Mueller's pure grace.

Nov

3

 The first of the month rolled in and the monthly Slab City poker players gathered in a shantytown trailer and pulled $100 bills from their pockets.

They had just collected their first-of-the-month government checks making it the big night out on this outlaw town on sand in southern California. Each swallowed or shot methamphetamine, and anted one hundred.

The night after Halloween is when the real ghouls came out to trick and treat.

A kitchen timer in front of a kerosene lantern before a broken window was set for one hour, and began ticking.

Eight men circled the poker pot on a spool table, as their pupils enlarged to saucers. At Go! they wedged through the trailer door in a land rush sprint. The goal was each to work his way under the cloak of darkness undetected across the town of 300 souls stealing whatever they could get their hands on.

Whoever returned with the most loot before the timer rang would win the pot.

The strategies were to go light and carry everything in covering the most ground; most took backpacks, bags, or suitcases. But Irish Adam would return the winner with a shopping cart (at the sacrifice of speed and risk of detection) full of booty.

When the timer rang, the stolen items were tallied. Irish gathered the dough, and shouted, 'Meth on the house!'

Amarillo Slim said, 'Seldom do the lambs slaughter the butchers,' but a posse is forming to put an end to the first of the month poker games.

Nov

2

 How would you define uncertainty in a market context? The market seems to maximize its closes and opens and other bench market prices so as to maximize uncertainty among all the players so as to maximize trading of all systems and beliefs?

Pete Earle writes: 

The market is the kind of fighter that either jumps on you at the bell in the first round, testing your defenses and seeing if it can catch you cold ("dry"). It is also the type to, in the last round, or last minute or so of the last round, burst forth with brutality and attempt to catch you while you're tired or confident about a win. 

Nov

1

 Eddy's Mom is the brains in the family so, like Vic, Russ, Rocky and the other smart people, she does her best to ignore politics. She tolerates my historical obsessions because, as she said to Eddy the other night, "it keeps your father off the streets". Now that it is only a week before the election, she has relented enough to listen to my data babble. I went over the polls from early last week - to remove all possibility of their results being tainted by "the news".

What I was looking for were the thumb prints, where the pollsters had done their best to skew the results based not on the survey responses but on the sampling assumptions. I looked at 3 polls: ABC, IBD and CNN and went far enough into the footnotes to find out how they weighted their samples among Democrats, Republicans and Independents.

ABC's electorate: 36D, 27R, 31I IBD: 37D, 29R, 34I CNN: 37D, 31R, 32I

The Gallup people have stopped doing election campaign polls, but they continue to do periodic surveys of the registered voter party affiliations. The most recent one, taken in December 2015, showed 42/43R, 35/36D, 21/22I, and 1 3rd Party. I trust those numbers for one very simple reason: they reflect the actual distribution of elected representatives among the 3 party groups. Measured by solely by ballot box results, the country is 7/5 Republican.

If you take the data from the ABC,IBD and CNN surveys and allocate the results using Gallup's distribution of party affiliations, you get ABC: Clinton - 40, Trump - 39 IBD: Clinton - 37, Trump - 37 CNN: Clinton - 39, Trump - 41

The announced results by the pollsters, using their own distributions, were quite different:

ABC: Clinton - 50, Trump - 37 IBD: Clinton - 41, Trump - 41 CNN: Clinton - 51, Trump - 45

When I showed these numbers to Eddy's Mom, she was not surprised. Neither was I. But, what she said was something that I have heard only from Pat Caddell among the public figures; and he made the remark tangentially, in discussing the "undecided" voters. This is, announced the EMom, an "undisclosed" election. In public here in Tar Heel land, Vic's wardroom rules generally apply; people don't think it is productive or polite to discuss politics in public gatherings. But, this year that is overwhelmingly the case. The only people who think they have an open invitation to discuss "the election" are the Democrats' hard-core patronage constituents: the professional academics and the people of color who are on the dole.

In 1980 a week before the election the "undisclosed" were 12-15% of the electorate; this year they may be closer to 20%. If the "undisclosed" split evenly and the decline in black turnout in Virginia does not continue (their early voting is down nearly 50% from 2012), Mrs. Clinton will squeak through. If the "undisclosed" vote the way Independents have polled (6/7 out of 10 for Trump), the incumbent party will lose as badly as they did in 2008.

Nov

1

 This forgettable book by Adam Kucharski attempts to examine the science of betting, and how to beat the game. It promises a lot but doesn't deliver. The sciences include math, physics, statistical analysis, probability theory, biology, and artificial intelligence. Kucharski discusses, at a very high level, the attempts and methods of Poincare, Tharp, Markov, Galton et al to predict future outcomes. There is much discussion of the original attempts to beat lotteries, roulette, blackjack, horses, sports, and other games. He wasted too much time covering the methods of the turf groups and syndicates that play in Hong Kong. Also, his description of beating blackjack by various people put me to sleep, with nothing new to add. Many of the rudimentary card counting and computer schemes have been banned in casinos and are irrelevant. There is much discussion of brilliant minds try to exploit flaws in games, but much too anecdotal, too historical. I found no probability equations to be found in the book. Lots of talk about science and math, but no actual science or math.

As far as the science, he makes a big deal out of the Kelly Criterion, the Monte Carlo principle, Poisson Distributions, Markov chains, and others but good only for a high school history student. I found his discussion of Galton's work on inheritance to be quite strange to be included in this tome, and it added nothing. He told a lot of stories about those who worked on beating games, but little else. One could find better, more complete information from Wikipedia.

The Perfect Bet was not written for gamblers, casinos, players or scientists, it was written for the general public. I felt like this was more like a history book and was sadly disappointed with the unevenness of the writing. Kucharski also jumped around in the book, and it was due to his fond use of questionable digressions and tangents he went off on. It will probably go on the back shelf of my large gambling book collection, or maybe end up at Goodwill.

If one wants to read something good about the science and methods of gambling, try John Scarne's New Complete Guide To Gambling. Actually everything Scarne wrote is a meal for a lifetime and I recommend reading his entire library. It's all on Amazon and quite reasonable in price. FYI, Scarne was a world class card mechanic, and if you ever watched the movie, "The Sting," you've already seen his excellent handiwork in the card game on the train.

Oct

31

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What is "The List"? It is often a window on the souls of its members. And a window on our own souls is often opened when we read what others write here. It is lessons on life. Chess strategies. Investment in markets, life, family, nation and the future. It can be and often is profound and superficial; deep and shallow and always enlightening, even when a writer may not be. It sends out tendrils seeking answers and finds them, coiled about ideas we would never have found alone. The List lives and throbs with the insights, prejudices, wants and experiences of the members. There is a selection process at work here, as some find an intellectual home … others move in for a while and then move on. Those who remain don't always agree and contention boils up, simmers and fades, sometimes leaving a residue of hostility but never, never boredom. The List is ephemeral. Although there are rumors that somewhere everything ever posted on the web is archived, the sheer quantity of material generated makes that less than credible. So our moving fingers write, and having writ move on, leaving little more than fading memories, but building new ideas and broadening the thinking of we who read, and answer, and ponder, blending what is read into a tapestry that, but for the List would never have been woven. Surely we, the weavers are much the better for it, and must acknowledge the debt each of us owes to each other, and to the two who first spread the warp and the woof.

Oct

31

 This is a paper by Victor Haghani of LTCM fame on bet sizing observing and analysing how people place bets on a coin flip that is biased to come up heads 60% of the time.

Ralph Vince writes:

It's a very interesting paper, and to many might be surprising. A couple of comments:
1. It assumes someone's criterion in wagering on this is to maximize what someone makes. This is certainly not the case in capital markets, where (the rather nebulous) risk-adjusted return is king, specfically: "Optimal F: Calculating the Expected Growth-Optimal Fraction for Discretely-Distributed Outcomes"

2. Even what the authors and Thorp himself claim are the amounts to wager so as to maximize expected gain, their answer is not quite aggressive enough! The amounts the refer to are asymptotic, as the number of trials ever-increases. The author himself points to a horizon of 300 plays in half an hour, and the actual optimal wager (which would, int hat time period, yield a greater return than the authors or Thorp point to) is slightly more aggressive, and can be determined from the above paper.

Not trying to toot my own horn (it needs no tooting, and besides, my horn will do a lot, but tooting it won't do) but the paper is inaccurate on these two points.

Jim Sogi writes:

Thank you for the interesting article. The other night at our band practice, the bass player's wife, who works at a public school, asked me if I was taking my money out of the market. She had heard a number of people were worried about the election and a market drop if either candidate was elected. I told her the market would probably go up, though it might jump around a bit. I thought that was interesting. Its an example of the public doing the wrong thing, for the wrong reasons. It reflects peoples fear about uncertainty about the election. It helps explain some of the market action recently. 

Rocky Humbert writes: 

Mr. Sogi's anecdote and conclusion is a textbook example of Confirmation Bias — which is the tendency to search for, interpret, favor and recall information in a way that confirms one's preexisting beliefs or hypotheses.

To wit: On what basis does Mr. Sogi conclude that the bass player's wife represents the "public" — as distinct from Mr. Sogi himself being the "public" ??!!

How the stock market will perform over the next 30 or 60 days has very little to do with the study of a coin that is heavily loaded to land on heads. At best, the stock market's performance over the next 30 days is only slightly better than 50:50. 

Alston Mabry writes: 

Just had to do a quick sim of their betting game.

Oct

31

 Swifts have an amazing ability to stay aloft.

1) 'Lead researcher Anders Hendenstrom, professor of biology at Lund University, said: "It's mind-boggling that they can stair airborne for 10 months without needing to come down. "Most of the time there is a trade-off between energy use and life: live hard and die young. "But these birds live quite long, up to 20 years, so somehow they have beaten this rule."

and

2) Why come down when it is safer to stay aloft? "So, what are the main selective forces leading to such an extreme aerial lifestyle as found in swifts? One factor could be that specializing in high-altitude aerial insects as a main food source requires the suite of adaptations for efficient flight shown by swifts which compromises terrestrial locomotion and make swifts vulnerable to predators and parasites had they been landing more often. Our data suggest that even if common swifts settle to roost occasionally, which has been observed also in young swifts if the weather is bad their predominant element during the 10-month non-breeding period is up in the air."

Oct

31

 I find it interesting the difference in public and private thoughts on fracking by the cattle trader. And also the price trajectories of the proppant companies. Sand companies (increased amounts now being used per well) have rebounded. On the other hand a leading ceramic (more useful in higher pressure/deeper wells) proppant producer hitting rock bottom. A tough business to be in.

"Chesapeake Energy Declares ‘Propageddon’ With Record Frack":

'The super-sized dose of sand — known as "proppant" — is able to prop open bigger and more numerous cracks in the rock for oil and gas to flow. Output from the well increased 70 percent over traditional fracking techniques, Jason Pigott, vice president of operations, said during a presentation.

"What we're doing is unleashing hell on every gas molecule downhole," Pigott said.'

Oct

31

The idea of systematic trading was not generally accepted 10-15 years ago. Markets were mostly viewed as efficient at that point. Or mostly efficient and any excess returns were just a compensation for risk taking – still efficient in a loose definition of efficiency. Today, trading systems are everywhere. Systems are now called "indexes" or "smart beta". Different strategies are now called "factors". Is 2/20 fee structure going the way CD, Dodo, floor broker, etc. If outperformance can be replicated by some "factors", who needs an expensive trader/manager?

Peter Pinkhaven writes: 

"Strategies that have reasonable sharpe ratios are usually cyclical" - Asness

I believe AQR were one of the pioneers of the recent systematic factor investing.

Bill Rafter writes: 

The automatic trading systems make the markets more efficient and more liquid. They are not predictive but extremely efficient in their reactivity. What the spec should do is view that as an advantage rather than a problem. It would only be a problem if he were a scalper. There is a very good solution to this for the spec (professional or near-pro), and it revolves around knowing which games to play and which to pass.

There will certainly be some professional specs who outperform, and they will be worth the fee. However that fee may continue to be 2&20 on the basis of value, or it may work lower for any number of reasons. Full disclosure: "someone we know" charges 1&10, as they want to keep clients forever rather than have the fee level be an issue in the future.

Oct

31

 One likes to use Israel open to close for prediction of US markets the next day over the weekend. This must be counted out. Strange to see it down 7% year to date versus our S&P up 4% year to date.

Anatoly Veltman writes: 

A few considerations:

1. A short term indicator - intraday trend Sunday morning as predictor of the intraday trend Sunday evening - may well be valid. One better know make-up of participation "over there". Are foreign "actively trading funds" significant participants?

The above notwithstanding, and to address the second observed anomaly

2. Longer term trends may be cyclical, and they may also be lagging. Being "surprised" with 11% discrepancy is not everything (yet). What was the delta in FX for the same period? (I'm assuming their index is in shekels). Maybe shekel also depreciated 11%, and under-performance is actually 22%…Interest rate differentials and trends are another variable. Finally, U.S. aid and geopolitical threats loom huge over any Israel forecast.

I wonder if anyone can weigh in on "Dem vs. Rep" impact on Israel's future.

Rocky Humbert writes: 

Please. Two stocks, Teva Pharma and Perrigo Pharma account for 20% of the TA-100 index. Both stocks have declined massively over the past 12 months and can account for the index underperformance.

As anyone who is sentient should know, the bio, pharma, and generic drug stocks have performed horribly over the past twelve months — beginning with Valiant and Shkreli and Hilliary's tweet — and more recently on bad R&D and earnings news and speculation about the end of price-hike-led earnings growth. When I was buying the drug stocks during the last Hillary-scare, the pe multiples were 9x to 12x. The multiples today are 15x to 23x — even after the declines.

Someone should tell the "public" …

TA-100 Index: The TA-100 Index, typically referred to as the Tel Aviv 100, is a stock market index of the 100 most highly capitalised companies listed on the Tel Aviv Stock Exchange…

David Lillienfeld writes: 

It seems likely to me that the generic manufacturers are going to come under a lot of pricing pressure moving forward. The ethicals? I'm not so sure. Yes, there's looking to be a potential product failure on Regeneron's cholesterol drug, likely partly because of price, but almost half of all drug development today is for orphan drugs—and I haven't seen much in the way of push back from the market with regard to them. Lots of kvetching, no changes in purchases.

One of the "wake-up calls" for the industry has been what happened with Gilead's Hep C franchise. (When Gilead bought Parmassett, from whom it got this franchise, everyone thought they grossly overpaid—not unlike Pfizer and Wyeth for Lipitor. It was the deal of the century thus far—for Gilead.) It made a lot of money—short term. There was lots of grousing about the high cost, never mind that it was curative in ways that existing treatments were not, i.e., it was cost-effective even if insurers didn't appreciate the fact immediately. What few understood was that most of that revenue—and profits—resulted from a backlog of patients, now emptied, through which Gilead had to recover its costs and pays the piper for past failed efforts. Did it overcharge beyond that? Depends whom you ask.

There were other viral diseases (Gilead's specialty) it was supposed to have turned its attentions to, as well as (finally) some performance from its oncology unit. About 6-7 weeks ago, though, I noticed that construction on the Gilead campus had slowed. Not stopped, though. I tried speaking with people that I know there, make that knew there, and heard that a couple of retired and have fallen off the grid. One was pretty disgusted and turned up at Genentech—and was unwilling to talk except to say that he was still detoxing.

Look at pharma companies like BioMarin and Ultragenyx and you might find companies with lots of pricing power. Also lots of waiting-to-be acquired power. Will they be hauled in front of a Congressional committee? Perhaps, but I doubt it. That's the nature of an orphan drug—and I don't see that changing anytime soon. The costs of development (fixed costs) are almost as high as for those intended for more common conditions. Yes, there are fewer patients, but they may also be harder to find (= expense). And there are the drug failures. Go ask Bristol-Myers Squibb about the impact of those—BMS is in the process of hacking off a good portion of its R&D department after a major failed trial/program.

Two thoughts: First, stay away from cancer immunotherapy. Yes, someone will win big there—maybe. No one has any clue as to whom/if. In 5 years, probably a different story, but at the moment, not ready for prime-time. (If you like to gamble, go to Vegas or Macau.) Think of this area as the equal of NASH. Maybe Intercept will be a big winner. I'm not so sure. One thing is clear—there's an increasing amount of roadkill on that highway.

So yes, Rocky, the generic manufacturers are challenged—and given the size of the generics marketplace and some of the price hikes that have taken place, I don't see that ending any time soon.

But the pharma space still offers opportunities, just not with the larger companies.

Oct

31

 "I have noticed that 538 are quite incompetent (and aggressively so)– they don't grasp something basic about an election probability as an estimator of a future binary outcome. The more uncertainty, the closer the estimator to 50%. But let us 'price' it as an arbitrage-free option."

I think that Taleb is correct here. The point estimate of an election probability is far more unstable than the 538 model portrays. Also, on the betting markets, the uncertainty should be reflected in wide bid-ask spreads, which is not the case in these markets either.

Stefan Jovanovich comments: 

The poll numbers are not trades that must be cleared; they are, at best, applied social science research.  There is no penalty for getting the estimate wrong; no one ever gets fired for having missed the spread.  When you all lay on a single trade, there is actual money at stake - far more serious money than anything these D List celebrities on the tube ever put at risk. (Reminder: "Politics is show business for ugly people.")  The stuff fascinates me because it is the random walk of actual history, but why do any of you serious punters pay attention to it as anything other than a minor sports bet - like wagering on Columbia basketball in Casino (the movie)?

For all the supposed money at stake in politics and the outcomes of political elections, the actual net expenditures - the money spent that goes outside the bubble of the campaign organization itself - are trivial.  There is more money spent by GEIGO and its rivals on pitching auto liability coverage than all the net payments to television for Presidential campaign ads for both parties. 

The poll numbers being reported, even this morning, are for samples taken before Friday's revelation about the Danger Man's laptop.  They "changed" because the pollsters decided to use a sample that was a statistical probability rather than one that was completely bent in favor of Mrs. Clinton.  ABC News had a headline that says it all "Shift in the Electorate's Makeup Tightens the Presidential Contest".  Yeah, right.  The makeup of the electorate over an entire campaign season does not change.  If it did, the Democrats would not be so passionate about enacting same day registration and voting. 

A week ago ABC News had a poll that showed Mrs. Clinton up by 12 points and at the magic number of 50.  The poll with the headline had her at 47 and Trump at 45.  What "changed" was the weighting of the sample.  The earlier poll divided the electorate as 36% Democrat, 27% Republican and 31% Independent.  The more recent one splits it 37, 29, 29. 

So, Stefan, how does this prove your thesis?  Easy.  The folks at ABC decided that 81% of the registered Republicans are now going to vote, as opposed to only 75% a week ago.  They also decided that 5% fewer registered Democrats were actually going to vote.

Who is in the electorate does not change.  Who is going to be foolish enough to waste their time to actually vote is always the question.

The enduring paradox of representative government is the fact that there is no statistically valid reason for any individual to bother with voting.  Your individual vote NEVER counts.  It is a pure act of faith.  That is the reason that the countries that are actual democracies are wise enough to make voting have a real cost; it is only in autocracies that voting is free, easy and compulsory.

As for who will win next week, I still favor the Harold Macmillan prediction.  When asked by a journalist (who else?) what will determine the coming Parliamentary election, he replied: "Events, dear boy, events."

Oct

25

I am reading here Ripley's Believe It or Not: Book of Chance and find it amazingly accurate and interesting. It gives ideas for inventions that are very useful and came to be, and has a million interesting things about luck and skill, and gambling.

Oct

25

This weekend, the BTC/USD has traded back up to equal its precise level of July 31, 2016–the day that the most outrageous hack in crypto-currency history started to filter through to global news domain…What an unbelievable recovery, and what an unmistakable indicator that even the worst known fears of man today are not feared as much as the unknown, or the ones that may be quietly swept under the rug. Might this be one illustration of what precarious world we are living in today, and an indication of how conventional personal property is becoming deemed less and less organically "secure"?

Oct

25

What it cost to see the cubbies play:

Standing room only ticket prices at Wrigley = 2.5K

Standing room prices at Progressive Field (really?) is 650

Cubs behind home plate = 18K each

Progressive field = 3K

Oct

24

 A symptom of what's wrong with America, economics, and the cattle trader's economics is this sentence in Robert Gordon The Rise and Fall of American Growth. If the stock market continues to advance, we know that inequality will increase, for capital gains on equities accrue disproportionately to the top income brackets". The book predicts that "the outlook for future growth in the standard of living is not promising" because of this predicted inequality (and slowing innovation, the baby boom, increased debt, and poor education). "We face headwinds that are stronger barriers to continued growth than were faced by our ancestors a century or two ago". Yes, the barriers are economists like Gordon and policies like those of the cattle trader. A totally flawed book suffering from the English and Pickety disease that could have been great if not suffused by collectivist fallacies.

Jim Sogi writes: 

Take a look at the Nikkei chart for the last 50 years. They had decades of tremendous growth. In 1989 it peaked, and crashed. Then for the next 25 years until now, its been in a range. Their population is declining. Young Japanese people, increasingly, are not attracted to the opposite sex. When you go to Japan, you really notice a lot of 60 year olds. There is a big population bulge at that age. Those are their boomers. There are no immigrants. There is no diversity. Diversity causes innovation.

Technology has a hard time increasing productivity in the face of large demographic shifts. The cell phone brought huge increases in productivity, but there is a plateauing zombie effect going on with increasing screen addiction.

Both the above are presented in support of my theory about long term market ranges.

Alex Castaldo writes:

Sogi-san's idea about the importance of demographic trends finds some support in a recent paper by Fed economists:

The United States, like other advanced economies, is undergoing a dramatic demographic transition related to the unfolding of the post-war baby boom. As a consequence, the growth rate of the labor force has declined and should remain low for the foreseeable future. In this paper, we investigate the extent to which demographic changes, especially those related to the baby boom, can explain the currently low levels of real interest rates and GDP growth.

We build an overlapping generation (OG) model that is consistent with observed and projected changes in fertility, labor supply, life expectancy, family composition, and international migration. The model allows us to explore the extent to which demographic changes, in and of themselves, can explain the timing and magnitude of movements in real interest rates and real GDP growth during the post-war period and beyond. […].

We find that demographic factors alone can account for a 1.25 percentage-point decline in the equilibrium real interest rate in the model since 1980 - much, if not all, of the permanent decline in real interest rates over that period according to some recent time-series estimates, such as Johannsen and Mertens (2016b) and Holston et al. (2016). The model is also consistent with demographics having lowered real GDP growth 1.25 percentage points since 1980, primarily through lower growth in the labor supply; this decline is in line with changes in estimates of the trend of GDP growth over that period. Interestingly, the model also implies that these declines have been most pronounced since the early 2000s, so that downward pressures on interest rates and GDP growth due to demographics could be easily misinterpreted as persistent but ultimately temporary influences of the global financial crisis.

Larry Williams comments: 

Amen! Especially now that everyone owns stocks in one form (retirement programs,etc) or another.

Like JFK said, "a rising tide lifts all ships".

John Floyd comments: 

I first arrived in Japan in 1985 in the midst of the boom. Reservations were necessary well in advance to have a sit down lunch anywhere and the likes of Maiko Kawakami were more than willing to pay me $40 an hour to teach them, English. But after many years of a palpable buzz that included the Plaza Accord, expanding money supply, real estate price increases, etc. came the arrival of a new BOJ Governor Mieno in December 1989. Mieno believed the gains in asset prices was a bubble and "undermined the stability…of Japanese society by weakening the ethos of labor…" and immediately began tightening monetary policy. Equity markets began a decline and with a lag of a year or so did real estate prices.

In thinking about Japan I would consider some of the following, Further I would consider how it relates to what is happening in Europe, US, and China at the moment, to name a few.

Why has the "great hedge fund trade" that began in the mid 1990's of shorting Japanese bonds not worked?

Is there something inherent in Japanese culture that has prevented the open restructuring of debt that is more prevalent in Western societies? Why can you drop $1,000 of your English teaching money in a restaurant and have someone return it to you the next day gift wrapped?

Does an aging population save or spend more and what might that influence be on the economy and markets?

How does the rise in China debt levels over the past few years compare to both the Japanese(circa 1980 area) and US debt (circa 2000 area) expansions?

Do you believe the Japanese will stick on the path of the 3 arrows which have been partially successful? Might they expand their arsenal?

What is happening to the stock of JGB's and the ownership there of and thus the subsequent interest rates demanded?

What about this new 10 year yield target and how does it square with inflation and the Yen?

Is there a debt write off as that is the ultimate solution? General government gross debt has gone from about 50% of GDP in the late 80's to about 250% now.

What happens to the JPY, stocks, and bonds if debt is restructured given the impact on growth, inflation, etc.? I was last in Japan a few years ago and remarkably the prices had not changed much since the 1980's for hotels, noodles, beer, coffee, etc. But, alas I did not price out the demand for young English teachers.

Oct

24

 The cast of characters that goes along with the Zacharian "your own man" and the proverbial "useful idiot" is large in our field. I see "the captain", "the pessimist" (perhaps the bearometer), "the cheat" (perhaps a bio executive from Boston), "the complainer" (perhaps Steve Jobs), "the sanctimonious scoundrel" (from Nebraska). I am seeing the boy (market) who plays "lady I did it" with a big spike overnight then a return to unchanged at the open. What other characters from the playground do you see? Do you feel this is a useful type of thinking?

Oct

24

 I am quite certain stocks lift off here, immediately, and the beneficiaries are those who are long before the election should she win. It's going to be very hard to step into it once it goes for most who aren't in beforehand. We're on the long road to 1% long rates and similar numbers for unemployment according to my calculations.

As for the election, Trump lived to fight another day when everyone reacted in seeming horror to what he said about accepting the election results. He was so pathetic at the last debate, and the spotlight shifted, to his fortune, as a result of his "horrifying(?)" statement. As Pat Buchanan, who bears the furrowed brow I recognize and expect of all those who have tortured by Jesuits, puts so poignantly in his most recent column:

"The establishment is horrified at the Donald's defiance because, deep within its soul, it fears that the people for whom Trump speaks no longer accept its political legitimacy or moral authority."

I don't think this election is a foregone conclusion or can be measured anymore than we can know what a jury's verdict will be at this point. As difficult to predict as the market may be, it is a much simpler calculus than this election.

Oct

24

 You all will be saved from any future lectures about Ulysses Grant next week. That is when Ron White's biography becomes available on Amazon. It is, by far, the best ever written.

Apologies for not adding the appropriate "but". White comes closest among all the biographers to understanding who Grant was, but he still falls far short of understanding what he thought. The biography's treatment of Grant's economic ideas avoids repeating Henry Adams' lies; but it falls far short of understanding why Grant's pushing through Resumption was the key to the United States' extraordinary rise to wealth and power after for the last century and a half. That part of the story still remains to be written.

P.S. The best single modern volume on Grant, though not a full biography, is Mark Perry's book on Mark Twain and the man he admired more than any other.

Oct

24

On this date in 1775 the Second Continental Congress adopted, with modification, the motion that Edward Rutledge had first proposed in July. Rutledge had been appalled that the Continental Army and its predecessor the New England Army had black-skinned soldiers. (Under the Crown "blacks" had been excluded from all formally-established state militias, but the rebellious colonists in Massachusetts had accepted all comers.) Rutledge moved that all negroes be immediately discharged from the Army; the Congress, with its usual talent for Paul Ryan spreadsheet logic, decided that it would not discharge serving soldiers who were black-skinned but would not recruit any new "blacks".

The British responded immediately by publishing what became known as Dunmore's Proclamation, offering freedom to slaves who agreed to fight for the British. On November 12, 1775 General Washington had entered in the Army's Orderly Book Congress' formal instruction that negroes no longer be enlisted in the army. He then wrote to Congress to tell them what they had done: "the free negroes who have served in this army are very much dissatisfied at being discarded . . . it is to be apprehended that they may seek employ in the Ministerial [British] Army."

Simon Schama, who hates Americans almost as much as he despises Israelis, claims that as many as 100,000 slaves ran away from plantations as the result of Dunmore's Proclamation. (General query: What is it about this particular number that makes it a source of rhetorical magic? One is reminded of the first President Clinton's 100,000 cops, for example.)

The number was, according to the one scholar who has tried to do the actual counting, somewhere between 800 and 2,000. Roughly 250 of these became members of the Ethiopian Regiment. Another 300 embarked with Dunmore in 1776 when he fled Williamsburg. There is, with all of this, the usual irony. Like every man of property in the colonies, except for Quakers and the odd free-thinker, Dunmore himself was a slave owner.

People with extra melanin did continue to fight in the War for Independence. As the war dragged on, the "manpower shortage" (lovely phrase that only perfumed princes can use without gagging) forced even Virginia to accept negroes and mulattoes, when necessary.

The best summary of the full story is here.

Its author, Noel Poirier, now runs the National Watch and Clock Museum, which a wonderful antidote to all the worship of the dead at Gettysburg, if you find yourself in that part of the world.

Oct

24

The greatest single demographic change of the last 20 years among people born in the United States has been the collapse in the relative rate of growth of the "black" and Asian populations. (The growth rate for Hispanics born in the United States has not changed from what it has been for the last 50 years; what catches people's attention are the numbers that come from steady compounding.)

Sometime in the 1990s the production of new "white" people who do not have Hispanic surnames and new "black" and became the same; and the birth rate for new "Asian" people fell below that of non-Hispanic whites. The nomination of Barack Obama in 2008 did a great deal to hide this fact because registration and voting - turnout - by black people surged; that higher level of participation continued in 2012, even though there was no further increase.

The best evidence for this is the shameless weighting of the current political polls. No public pollster offers racial breakdowns of their party weightings. They tell you how many Democrats and Republicans and Independents they have but not how many members of each Census racial category make up the partisan groupings. If, as the networks clearly do, you want Mrs. Clinton's numbers to be up, you can do what I explained in my piece about ESPN polling: you can overweight Democrats slightly in relation to Republicans and then dramatically underweight Independents. You can then double down by overweighting the number of black and Asian Democrats and underweighting Hispanic and non-Hispanic white ones. (Note: Asians have replaced Jews as the second most reliable Census category of Democratic voters; it is the historical gift of Earl Warren that keeps on giving.)

Those of us who still profit shamelessly from selling services to "the media" are amused by the hand-wringing over the decline in the NFL's ratings. Your most popular player retires, and his famous rival is suspended and you wonder that your ratings go DOWN? Yet, the grieving and lamentation in network TV land may also be the recognition of the fact that, in terms of present and future ratings, neither blacks nor Asians now offer the prospect of more and more eyeballs. Soccer - i.e. the "real" football - anyone?

Oct

24

Rate Hike?

The trend has been for lower rates since the early 80s. It is precisely the "zirp minus" world that is one of the factors (the biggest factor) that will drive things farther and longer than anyone dreams. This condition has persisted far longer than anyone ever expected, and as I;ve said before, all money must now seek risk - and that exists in equities, private and public, real estate and "wild things" (art, sports teams, etc).

The world has been soaked in cash, so much so that there is seemingly no demand for it, and the pensions hunger grows evermore desperate each year.

What is too high a PE when the alternative is a certain loss? The world has changed, profoundly, as a result of this, and I would speculate it may get even stranger. For example, to be long equities is to be short volatility, and vice versa, and that relationship too, is not as cast as the sun rising in the East. That relationship too could flip.

Adaptation is the first rule of survival. Look at the hedge fund industry.

Oct

24

 One is thinking of retiring and setting up a radio flyer wagon on Wall Street, and selling guidance on markets for 5 bucks a query. One has given up studying the factors that determine the bull or bear of individual stocks., especially since no studies are valid unless they use a compustat as is file and according to Andy Lo, even those are adjusted. One wonders if there is any systematic way of dividing stocks into good and bad that works these days? A related query is whether the Value Line rankings of stocks into group 1-5 have held up now that the great Sam Eisenstat has been eased out. Do you think I could be as good as Kramer?

Jim Sogi writes: 

Years and years ago I read Value Line regularly in the binders at the brokers office and generally followed it during the bull market. It did well. Later, I subscribed, but found that by the time I got my issue, first by mail, then electronically, that the chosen No 1 stocks already had made their move making it impossible for me to get in with any hope of profit. I always wondered how that worked.

Larry Williams writes:

We tested value line ranking is Q&A software (Thompson/Reuters) about 2006-2009 time frame and were not able to come up with much that rolled into/out of top ones or bought and held for 6 to 9 months. Maybe need a long hold time. 

Oct

20

In a rather simplistic and limited analysis this is the first time after a debate or "election news/event" that was deemed to favor the Dems that the Mexican Peso is lower on the day.

Oct

20

On the way to the office today I was blasted by Bloomberg from so many angles and reporters about Trumps "I will keep you in suspense".

A little context to remember is that during the Republican primary debate, all of Trump's opponents solemnly raised their right arm to pledge to support the Republican nominee, whoever it might be. Trump was the lone holdout, and he took heat for it.

Then more than half of them reneged on their pledges, including Jeb! Bush and St. John Kasich.

The truth is that if any candidate seriously suspected fraud, or a miscount, or whatever, they would field an army of litigatin' lawyers, as did Al Gore. Trump's the only one honest enough to acknowledge that.

Rudolf Hauser writes: 

You may recall that Nixon did not do that in 1960 despite the likelihood that the Chicago vote was rigged and that winning Illinois would have given him the presidency. He did not want to put the nation through such a crisis.

Stefan Jovanovich writes: 

It is a nice story, which Nixon did his best to promote; but the numbers do not support RH's assertion. Nixon only got 219 votes; adding Illinois and its 27 would have left him 24 short. Subtracting those votes from Kennedy's total of 303 would have left him with 276, 6 more than he needed. What few people mention about the election is that it was the last time a 3rd candidate won electoral votes. Harry Byrd won 15.

Oct

20

Who are the most resonant useful idiots in our day that can always be counted on to say something idiotic? I find it useful to look at El Erian and Gross, as both are never bullish on stocks.

Steve Ellison writes: 

Anything on zerohedge

Oct

20

Fairness, from anonymous

October 20, 2016 | 1 Comment

 My daughter Eddy used to be interested in the question of Fairness. Not any more. "Since it is not a question of whether but only one of where and when, why bother?"

But we do still talk about it with regard to taxes. We still laugh over her reaction to her first paycheck (issued for cleaning the animal cages at the local vet's office on the graveyard shift). "Who is this bitch FICA and why is she getting my money?"

The best that the two of us have come up with for a "fair" tax system is our own variation of the Major League Baseball "luxury tax" and revenue sharing model. Under the collective bargaining agreement that expires this year, each team in MLB puts roughly 1/3rd of its own revenues into a pool. The money in the pool is then divided up and distributed equally to each team. In 2016 the richest teams (those in the 15 largest markets) no longer received their share as a payout but instead received a credit against their revenue share to be paid the following year. (This was, IMHO, an artful way of assuring that the rich teams would agree to have revenue sharing as part of the next CBA.)

The Eddy and I conclude that FDR's unerring political instincts were wise policy. (When his Marxist academic advisers wanted Social Security to be means-tested, he told them to get real. The American people would only support a program that had a fundamental equality; if you paid into the system, you got something out of it.) We would like to see all government benefits to have the same recognition of the Constitution and its equal protection clause; if a benefit is paid to someone simply for breathing, then everyone gets it. If the government collects taxes, then everyone pays the same rate.

Eddy's final word: "Never going to happen, Dad. Too simple and too fair."

Alston Mabry writes: 

This reminds me to recommend an excellent recent EconTalk:

How are those in favor of bigger government and those who want smaller government like a couple stuck in a bad marriage? Economist John Cochraneof Stanford University's Hoover Institution talks with EconTalk host Russ Roberts about how to take a different approach to the standard policy arguments. Cochrane wants to get away from the stale big government/small government arguments which he likens to a couple who have gotten stuck in a rut making the same ineffective arguments over and over. Cochrane argues for a fresh approach to economic policy including applications to growth, taxes and financial regulation.

Oct

19

 We are listening to Rigoletto here, and it occurs that the theme of 90% of the operas before 1870 are with Trump like rich men taking advantage of poor beautiful women before receiving their retribution. Would that be correct?

Stefanie Harvey replies: 

This is also a war rallying theme. I just finished SPQR: A History of Ancient Rome by Mary Beard. Many a campaign began after a rape or attempted rape of an elite or community of women.

Short book review: a bit of slog due to excessive detail but wonderful humor and a light tone in writing.

Oct

19

 Many full moons ago Mr. Bollinger asked me if I could find the source for the remark about Joplin that I quoted. I don't remember what I wrote then, but the gist of it was that Joplin was the only one of the ragtime players who had the guts to write down what he had improvised the night before on the piano. I still have not found the source of the remark; but I have no doubt that it was true.

I also have no doubt that we are not going to be seeing Bollinger and Joplin's kind of candor about methods of thinking - where "public opinion" is concerned. The current response rate for telephone polling is - allegedly - 9%. That is the number the Pew people disclosed about their own polling in 2012; and it is now taken as current gospel. In 1997 when the Pew people also disclosed their response rate, the number was 37%. It is likely that the actual response rate now is roughly 1 in 20; but that is a mere guess. The actual polling may be even less.

But, have no fear, the Pew people assure us that their numbers are still good because the results track with the data acquired by the government in its census and other surveys, where the response rate is unquestionably high enough to be accurate. "Pew Research Center devotes considerable effort to ensuring that our surveys are representative of the general population. For individual surveys, this involves making numerous callbacks over several days in order to maximize the chances of reaching respondents and making sure that an appropriate share of our sample are interviewed on cellphones. We carefully weight our surveys to match the general population demographically."

Thurston Trowel III replies: 

What is your point on low response rate?

A low response rate merely means the polling outfit has to make more phone calls to get the requisite representative sample.

It does not reflect negatively on the scientific accuracy of a poll in any way, if this is what you were suggesting. No idea if that is the case but it seemed to be where you were going and apologies if wrong.

As to Joplin writing down improvised ideas, musicians everywhere for decades have recorded sketches as part of the creative process of developing ideas. I do this all the time. Whether one does so on paper, magnetic tape, hard drive or cell phone is largely irrelevant, and a matter of personal preference and convenience.

Stefan Jovanovich retorts: 

Dear Third Shovel: Joplin had the courage to share his method at a time when the people playing ragtime were selling it as magic. They were not sharing the tricks of their trade. Mr. Bollinger remains exceptional in much the same way. The solution you offer– the polling people just have to make more calls - sounds logical until you ask the question the broker posed to his client. Who are the new people going to be? The reliability of opinion polling has been founded on the assumption that the sample will be homogeneously responsive, that the response rates will not vary no matter what the respondents answers are. But that is no longer the case. Making greater effort becomes a statistical frontal assault; the added costs gain no ground. Then there is the further issue of outright bias. How do you know what the proper weighting should be if you choose to ignore the only data that you have– the results of the most recent elections before this one? 

Oct

19

 Like any relationship, correlations have life cycles which can vary over time; increasing, decreasing, or even disappearing, depending on the steady or changing market environment. There was a time when there was a positive relationship between yield movements and stock returns, especially when the 10 year treasury yield was below 5%. Rising rates were historically associated with rising stock prices; but when the 10 year yield was above 5% a negative relationship between yield movements and stock returns existed. Since '09 the S&P rallied from 666 to near 2200 while 10 year rates fell from ~4% down to ~1.3 due to central bank monetary policies. However, the Fed's actions may result in changing the correlation between treasuries and equities once again, ushering in a secular regime change where rates are rising and are positively correlated with rising equity returns.

Oct

19

 This is a fascinating book of 1848 by an exacting character who writes like Galton: "Eight Years' Wanderings in Ceylon" by Sir Samuel White Baker

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