January - 2018
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
2
 S&P +16.90
 USB -1.08
3
 S&P +17.30
 USB +0.18
4
 S&P +12.90
 USB +0.01
5
 S&P +18.80
 USB -0.16
6
7
8
 S&P +4.20
 USB -0.03
9
 S&P +5.50
 USB -1.16
10
 S&P -1.70
 USB -0.05
11
 S&P +18.90
 USB +0.12
12
 S&P +19.20
 USB +0.02
13
14
15
16
 S&P -6.70
 USB +0.10
17
 S&P +21.10
 USB -0.16
18
 S&P -7.50
 USB -1.04
19
 S&P +14.80
 USB -0.14
20
21
22
23
24
25
26
27
28
29
30
31

Jan

21

 Women often do their eyebrows in a pattern I find somewhat provocative. Notwithstanding calculus, I recall that eye signals are very significant, and it follows that eye make-up is there for a reason.

And you are the reason.

Accentuated lashes are meant to accentuate pupillary coyness. Or deadly serious entrainment.

I was reminded of this looking at a video today of Russian lawyer Veselnitskaya's interview . She's not looking to exonerate Trump's team. Or brandishing Putin's position. She's looking for an oligarch.

Jan

19

For educational and history purposes 
Assuming DJIA closes where it is today on the coming tue
Here are the longest stretches of DJIA without 5% corrections from all time high closes  in terms of calendar days 

# rank by longest stretch since 1900 

Date first date of 5% correction 
DJIA value at the time of first 5% correction from all time high close 
Date , first date when DJIA came out from 5% correction zone ( i.e previous day DJIA close was below 5% from ATH close , while on this day its above (ATH close -5%)
# days , self explanatory 
returns self explanatory 

Jan

19

Peter Pinkhasov replies:

Mr. Partridge, I have just sold my Climax Motors”

Jan

17

I would note that the short, intermediate, and long-term consensus for inflation are all 2.0% +/- 0.5% — as found in the TIPS breakeven market — and this range has been in place for much of the past decade.

One of the larger risks is the growing interest, and calls for, a higher inflation rate (long time developing). They want roughly 4% (implicitly emanating through price level targets), the market thinks 2% inflation is some sort of magical target (it's not, so to that extent they are exposed to being blindsided) - Maybe 3% - 3.5% will be something that can be done.

Follow John Williams et al at the Fed. They have been, and may continue to be, influencing the future of monetary policy. If you're a bond trader, a decision tree may be useful: One branch is that the monetarists' ideas belonging to Williams et al, and what a shift inflation expectations means (the methods are open?), and other branch is that the current regime continues to "win" (quotes for it is apparent that the forces of technology, and some demographics, are deflationary and have wrestled control of inflation from the Fed).

Jan

17

 This was an excellent documentary on Teddy Roosevelt in the amazon in 1914.

Into the Amazon:

Into the Amazon tells the remarkable story of the journey taken by President Theodore Roosevelt and legendary Brazilian explorer Cândido Rondon into the heart of the South American rainforest to chart an unexplored tributary of the Amazon. Two of the most celebrated men from their respective nations, Roosevelt and Rondon set out with twenty other adventurers in 1914. Over eight eventful weeks in one of the most remote places on earth, the ill-equipped expedition navigated deadly rapids in crude dugout canoes. Hunger and exhaustion were compounded by the rainforest's unforgiving topography, which forced the men to carry heavy canoes long distances. What was anticipated to be a relatively tranquil journey turned out to be a brutal test of courage and character. Before it was all over, one member of the expedition had drowned and another had committed murder. Roosevelt would badly injure his leg and beg to be left behind to die. More than a dramatic adventure story, Into the Amazon shines a light on two of the western hemisphere's most formidable men, and the culture and politics of their two formidable nations.

Jan

15

 1. The changes in the lead in the last minutes in the Vikings Saints game as well as the Knicks game prompts one to see if there is an inordinate tendency in markets. I find that in the last 45 minutes of play the S&P futures change from minus to plus, 10% of the time and from plus to minus 7% of the time. Such changes seem random and consistent with previous periods.

2. I find it bracing and comforting to read old economic books. In reading Economic History Vol 2 from 1930 edited by Keynes I come across such articles as "The Finances of Tyrant Governments in Ancient Greece", "The Profits of the Guinea Trade", "The Housing of the Rural Population in the 18th Century", "Mason's Wages in Medieval England", "An Early Victorian Business Forecaster in the Woollen Industry".. all in all, the articles are more interesting to me and informative than the current articles in the major economic journals.

3. It is interesting that the upside down man seems to have the worst record of forecasting of the stock market ever, and now he is forecasting the bond market with the same techniques and I predict he will have a comparable record of accuracy in the fixed income markets since he uses trend lines and moving averages.

4. The book, The Perfect Bet by Adam Kucharski is amazingly interesting and useful. It contains a historical and analytical review of how Roulette, Lottery, poker, stock market and Horse Racing have used mathematical, physical and statistical methods to beat the house edge. Particularly interesting to me was the discussion of Roulette where Poincarre, Pearson,and Fisher are cited as important figures in the quest for winning.

5. It is always difficult for me to trade after holidays as I never never know whether the moves on the corresponding days were 4 or 5 days apart, and the stock markets all seem to have a positive bias.

6. I find the book Survival Analysis with Long Term Survivors by Maller and Zhou very helpful for studying market moves that are immune to normal failures.

7. The biography of George Washington by Ron Chernow which I listened to on compact disk leads you to the thought that Washington was a great man with tremendous military, political, financial and personal skills. We were lucky to have him as the leader of the Revolutionary War and the first president. There appear to be no liberal biases in the book as appear in other Chernow works except that there is am emphasis on Slavery and the Federalist case championed by Hamilton is lionized.

8. The stock market has had one of the biggest rises in the first two weeks in history and based on past years, it is due for a pull back.

9. When my 7 kids all asked me about forming internet businesses in 1999 I figured the bubble was about to bust. Now they are asking about forming crypto currency businesses and my 11 year old son has a job associated with mining where he makes more per hours than most people I know.

10. All the markets are influenced by the rise in the stock market. Crude, gold, cotton, the Euro, all the Asian Markets are at all time highs. When will the grains and coffee follow?

Russ Sears adds:

Regarding point 2, that is one of the reasons I value this site a key to my success. One hypothesis I have is that as printing costs have become cheaper, the value of the ideas exposed has not only become cheaper, but have turned negative. Now the cost is not in the printing, but in getting recognized. Hence value only exists for non-mainstream writers. But how to turn this hypothesis into more testable profitable idea?

Jan

13

 I sometimes wonder how big agrarian reformer traders like palindrome and drunk and upside down man and his twin can make money retrospectively outside of service loopholes and I think a large part of it is creating a buzz concerning their already held positions and another part of it is they made money in the past but haven't made as much as the market in the last x years? What do you think?

anonymous writes: 

Some time ago I corresponded with professor Malkiel about the WSJ dart-throwing contest. I pointed out that the pros had (slightly) beaten the darts. Dr Malkiel's response was that this was explained by the announcement effect: People reading the picks of experts (vs darts) bought the expert's picks at the next open - believing the experts were in fact experts. This publicity added to the the expert's returns. And controlling for this, there was no difference - like the thousand monkeys composition problem.

As far as upside down people and sages, in a world of lawyers surely it is malpractice not to advertise positively one's positions.

Peter Ringel writes: 

Two days ago the  center-most headline on drudge was:

"CHINA MAY HALT PURCHASES OF US TREASURIES –Markets Rattled" (It linked to articles on Bloomberg and cnbc.)

An emotional argument and IMHO not the real driver of the current leg down in bonds. Bonds made some sort of short-term low.

I thought: "Wyckoff Lives", because it seems to be Wyckoff-style news-manipulation.

Today, I read the first paper on Kora's list: Front Page News: The Effect of News Consumption on Financial Markets by A. Fedyk

and I think: "Wyckoff Lives!"

- The paper gives empiric to the fact, that front-page news on BBerg create higher volume and stronger drift in the minutes after the news-release – than non-front page news "of equal importance".

- The paper defines three categories of news PI("primary important"), SI_1("secondary important" on front page) and SI_2("secondary important" NOT on front page)

- The paper discusses the relation of SI_1 and SI_2

- The paper does not research the impact of PI-news - probably because we don't know what the control group (of news) would be .

I think it is an easy step to conclude that this behavior is gamed. E.g. if someone wants to exit a position, he will attempt to place news on BBerg's front-page, create a buzz and exit into that "artificial" volume.

The above describes a potential manipulation to exit a position and a resulting reversal (intraday).

Now I wonder if there are already papers that research news-buzz impact longer-term and for directional moves.

To research this I think a major problem is how to categorize and qualify the news and what would be the control group? E.g. for the "story stock Tesla" (the one with the buzz), what would be the "non-story Tesla"?

Stefan Jovanovich writes: 

The question about the last year's stock market rise is whether the gains are to be measured in dollars or Euros. In dollars it has been a big deal; in Euros it was an 8% net return, less than half what could have been earned without the stock market risk by simply being short the Almighty dollar and long the Euro. 

I agree FX impact & risk is often overlooked by the (global) public. We just had it in Poland, where a lot of private real estate debt was in USD. Then people were in trouble, because of the strong USD. The polish Gov ended up forcing the creditor to convert to zloties (the polish currency).

Jan

12

The Oriental Institute sponsored a dual address by an Egyptian and Hittite scholar about the first recorded battle in history–Kadesh.

I found it fascinating.

anonymous writes: 

I find the Hittites fascinating myself. They were very innovative. I think we still don't know how they got water into their mountain capital.

If I remember it correctly, for this battle they also had the innovation of better wagons. They moved the axis and were able to place more fighters in one wagon. The Egyptians had only two (?) per wagon.

Some months back I argued here that the military is a driver of innovation. I was in part thinking that because of the Hittites.

Jan

12

Dick Carpenter of the Institute for Justice and author of Bottleneckers talks with EconTalk host Russ Roberts about his book–a look at how occupational licensing and other regulations protect existing job holders from competition.

Jan

12

The UN provides a convenient table that ranks countries by you-know-what. Perhaps this was in the President's briefing book.

Jan

10

I just got back from shopping at Publix for our dinner. While going through the checkout line, I overheard two of the baggers talking about cryptocurrencies. One kid was giving market tips and advice to the other. An exact comment from the young tout: "buy Ripple today, it will never ever go down." Is there a school where they teach people to be tipsters?

Anatoly Veltman writes: 

Funnier yet: Ether did absolutely nothing the entire summer and fall while Bitcoin went bunkers. This winter, Bitcoin actually came down, while Ether is absolutely ballistic!

Andy Aiken writes: 

Has it occurred to you that there are fundamental reasons for these price movements? If you simply observed the movement of people as units or particles in the Concourse of Grand Central Terminal, it would be baffling.

But if you understand that these particles are individual people, each with a home and a workplace, each with a will and an intent, then the movement makes sense.

The intentions aren't incidental to the movement.

James Lackey writes: 

Your fantastic quote might be true for all public markets. That is all I see when I want to move. Path of least resistance ideal. 

anonymous writes: 

I agree with Lack on Andy's excellent observation. Is it true or useful to say that:

a) we often don't know the distribution generating price signals

b) better to go with empirical or nonparametric distributions when possible, as opposed to formula driven?

c) is there anything to simplified agent-based modeling?
 

Jan

4

Many markets are in a parabolic upward move with new highs and current prices well above the 20 day average, i.e they're trending… is it bullish or bearish and what is the affect on other markets that have not gone up big?

anonymous writes: 

The move has been underway for several weeks, most recently with CL edging above 60 and GC breaking above 1308. In the midst of the NYC blizzard, the markets smell the long-forgotten florid boughs of the K-spring.

The rallies of the past decade were driven by geopolitical tensions, or fears of debt default in Europe. But the economic backdrop is qualitatively different now.

The question is whether the Fed can get ahead of it, or not, and it ends in a crack-up boom. Or, is it even a sustainable rally? It's difficult to get too confident with softs not joining in the fun.

Jan

4

 A great article about a fascinating group of intelligent birds.

Bernd Heinrich has written several books about them. 

"13 Surprisingly Weird Reasons Why Crows And Ravens Are The Best Birds"

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Jan

2

I checked SP500 weekly closes for new all time highs per year, back to 1951.  2017 was second highest total weekly ATHs in the series (also see attached plot):

year  Count
1951     14
1952     13
1954     25
1955     20
1956      6
1958     10
1959     13
1961     20
1963     10
1964     23
1965     12
1966      3
1967      7
1968      9
1972     10
1973      1
1980     11
1982      1
1983     13
1985     20
1986     13
1987     18
1989      7
1990      2
1991     12
1992      6
1993      9
1994      3
1995     28
1996     14
1997     20
1998     16
1999     13
2000      1
2007      4
2013     18
2014     20
2015      6
2016      8
2017     27
   

And the outlook? Sorting years with at least 20 new weekly ATHs, here is comparison of mean returns for years following these years - along with mean returns for all years:

One-Sample T: nxt yr, all yr

Test of mu = 0 vs not = 0

Variable N Mean StDev SE Mean 95% CI T P

nxt yr 7 0.111 0.137 0.051 (-0.015, 0.237) 2.14 0.076

all yr 65 0.085 0.162 0.020 ( 0.045, 0.125) 4.24 0.000

so the return is +11% vs +8.5% for all years. No bearishness here.

Jan

1

Kirkus Reviews:

Best 2017 Books of Disturbing Yet Necessary History

THE SECOND WORLD WARS: How the First Global Conflict Was Fought and Won

by Victor Davis Hanson

Not just another account of World War II, but a thoughtful overview of the battles that were "emblematic of the larger themes of how the respective belligerents made wise and foolish choices about why, how, and where to fight the war."

According to veteran military historian and Hoover Institution senior fellow Hanson (The Savior Generals: How Five Great Commanders Saved Wars that Were Lost—From Ancient Greece to Iraq, 2013, etc.), the war began during the 1930s as a series of fairly straightforward border conflicts—e.g., Germany versus its neighbors, Japan versus China. Suddenly, in 1941, as the result of poor decisions around the world, it exploded into a global conflict that the so-far-victorious Axis Powers were guaranteed to lose. Beginning with its cause, Hanson dismisses the time-honored denunciation of the Treaty of Versailles, which was softer than the peace Germany imposed on France in 1871 or the Soviet Union in 1918. It was the humiliation that nagged. Neither Germany nor Japan was endangered or impoverished; both believed that their honor had been slighted and that their racially superior citizens deserved better than their decadent neighbors. "The irrational proved just as much a catalyst for war as the desire to gain materially at someone else's expense," writes the author. Four long chapters on weapons deliver a few jolts. Everyone knows that infantry wins wars, but Hanson maintains that strategic bombing probably persuaded Japan to surrender. High-tech weapons—the B-29, proximity fuse, and atomic bomb—unquestionably helped the Allies. Vaunted German technology (rockets, jet planes, guided missiles) merely wasted money. Unique in its 50 million to 80 million deaths—the great majority of which were civilians and included far more Allied than Axis soldiers—and worldwide extent, WWII broke no rules. Hyperaggression and ruthlessness win battles; resources and stubbornness carry the day.

An ingenious, always provocative analysis of history's most lethal war.

 

Alex Castaldo adds:

The author gives an overview of his book in two interviews:

https://www.hoover.org/research/part-i-second-world-wars-victor-davis-hanson

https://www.hoover.org/research/part-2-second-world-wars-victor-davis-hanson

Dec

30

 The lede: Bitcoin drops 11% as South Korea moves to regulate cryptocurrency trading

Instead of the more relevant (other crypto did not drop commensurately): "Bitcoin drops as Snapshot Block for the Segwit 2x Fork Passes"

Boris writes:

Still acting as directional magnet for all other cryptos, at least for the larger ones - Only Ripple not following.

Heck of a run for Ripple (XRP) in the last 24 hours - now the third largest (71B) crypto by market-cap. Was second largest for couple of hours. Going from 1.16 (yesterday noon) to currently 1.67 USD - Market chatter of becoming the winner of 2018. Great pattern behavior to capitalize on. Stay tuned.

anonymous writes:

I would note that XRP is not a cryptocurrency, and is the opposite of the vision of a trustless, decentralized peer-to-peer transaction network. The XRP token itself has little utility in the Ripple network, and is just a demo token for Ripple, Inc.'s Hyperledger tech. Even if banks choose to use XRP to defray costs of using the network, the amount of XRP required is trivial. Ripple leadership has said that it would amount to about USD 10 worth of XRP for an institution's entire year of network fees. The futile attempts to explain that to XRP "investors" could merit a scholarly article by the scholarly disciples of Leon Festinger. The Ripple tech does have value, and the best way to play it (i.e. lowest risk:reward ratio) is through equity investment in Ripple. Ripple, Inc. holds 65% of the outstanding Ripple tokens, and starting in January will unlock these tokens, distributing them on exchanges.

Of course, the pumps in XRP are astounding due to new dumb money that regards a USD 1.70 token as "cheap" (there are 100B XRP tokens total) compared to ETH at 750 (95M coins) or BTC at 14500 (16M coins). Because not driven by changes in fundamentals, the dumps are dramatic too.

Speculative profits are profits, and making money from the oblivious greed of others is just as good as any other profit; no question.

Andy Aiken writes: 

Life isn't like the golden days, when there was one phone company, the top marginal tax rate was 91%, stock brokerage commissions were hundreds of dollars per trade, and a heart attack or aneurysm had 95% mortality. Remember the placid days of yore, when people worked 6 days a week, 10 hours a day, and nonetheless spent 70% of disposable income on shelter and food? Those were good times, much better than letting people have money to fritter away on ringtones and vacation homes. When times were still good, people didn't die of fancy illnesses like Parkinsonism or Alzheimer's, they died of proper diseases like cholera and tuberculosis! Or they consumed a bit too much of the botulinum toxin that was omnipresent in the food supply. Sure, a few slipped through and died of things like ALS, but they were exceptions.

Dec

30

 Quick summary from Tyler Cowen: "The Rate of Return on Everything"

Here is what I learned from the paper itself:

1. Risky assets such as equities and residential real estate average about 7% gains per year in real terms. Housing outperformed equity before WWII, vice versa after WWII. In any case it is a puzzle that housing returns are less volatile but about at the same level as equity returns over a broader time span.

2. Equity and housing gains have a relatively low covariance. Buy both!

3. Equity returns across countries have become increasingly correlated, housing returns not.

4. The return on real safe assets is much more volatile than you might think.

5. The equity premium is volatile too.

6. The authors find support for Piketty's r > g, except near periods of war. Furthermore, the gap between r and g does not seem to be correlated with the growth rate of the economy.

I found this to be one of the best and most interesting papers of the year.

The NBER version says you can have it for free if you live in a "developing" country or are an establishment drone of various types, but in **big red letters** says that I can't have it, so here is the working paper version.

Federal Reserve Bank Of San Francisco Working Paper Series

The Rate of Return on Everything
, 1870–2015 "scar Jordà Federal Reserve Bank of San Francisco, University of California, Davis et al

December 2017 Working Paper 2017-25

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

Dec

29

 Today is the anniversary of their deaths, Albertini in 1941 and Macmillan in 1986.

Between them they explain everything that needs to be known about The Great War. Albertini's work–the Origins of the War of 1914– is the best single work of history I have ever read. Macmillan's experience as a young man says it all.

From the Telegraph: "In his year at Balliol, 28 students went to the Western Front. Only Macmillan and one other came back."

Dec

27

A general observation: Reading various market analyses, it seems the modal form now is this:

(1) The market is over-valued versus some metric such as CAPE.

(2) Therefore, the market is going to crash.

As opposed to:

(1) The market is over-valued versus some metric such as CAPE.

(2) Therefore, it's reasonable to expect below-average returns going forward for some time period.

We seem to be very "crash sensitive".

Dec

27

Bitcoin, from Anand

December 27, 2017 | 3 Comments

 The more I read about this market the more Bitcoin and its offshoots look like Railroad stocks in the late 1800s. Behind the shadows there are ‘whales’ who own large blocks with the credulous public chasing the market higher. Every time there is a mini panic these guys come in and support the market like a modern version of Jay Gould. For the time being they are seen as kind benefactors with some kind of wispy greater goals in mind (to save the market/solve global poverty/give humanity its freedom etc). I reckon they are pushing the market up together to liquidate their holdings on the gullible public. A couple of days ago LiteCoin founder said he’d liquidated his whole holdings as he didn’t want a conflict of interest. When it all crashes and the publics savings are wiped out there will be wailing and hand wringing but who are they going to complain to? After all, bitcoin buyers think the establishment is out to get them which is what drew them to go ‘off piste’ in the first place!

I don’t think many people are ‘trading’ bitcoin. We know the stress trading financial markets with a fraction of the volatility. Anyone who tries to trade these tokens is going to have a heart attack within a month. They are a mixture of ‘real money’ (money launderers/criminals gangs and rogue states like N Korea doing off the system transactions) and ‘long only investors’ most of whom are investment neophytes. The latter are the second coming of the silver brigade we saw a few years ago. In fact I think the Silver tin hat lunatics have migrated to Bitcoin and other tokens and picked up other followers along the way. Check the Silver price vs. Bitcoin movement (people have mentioned Gold but I think Silver is the one which is inversely correlated although I need to test it).

Andy Aiken writes:

The volatility is a profound boon to a trader, not inherently a nerve-wracking experience. It’s unclear what you think a trader actually does.

The concentration of ownership of BTC is not dissimilar to present-day ownership of US stocks or real estate.

As for the smear of an inherent criminality, this has been debunked here numerous times. It’s almost always the final argument of those who would prefer that humanity have no economic freedom at all.

Dec

26

To what extent are the performance of the companies with the highest market values forecasting the future performance of the market? This was a 1930 hypothesis of Edgar Lawrence Smith on common stocks as long-term investments.

Dec

25

Here's a story I like almost as much as Stubby Pringle.

Dec

23

 This is one of my favorite stories. I hope you enjoy it, and I wish you a Merry Christmas. — Victor Niederhoffer

High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.

[For the entire text of the story, please follow this link ].

Dec

23

For all the new members of this site and for anyone who never got a copy the first time around, here's a copy of Bacon's book, "Secrets of Professional Turf Betting". The Chair and I both agree that this is one of the best books out there about markets. Since it's out of print, it goes for around $100 on Amazon or eBay, so look at this as a nice little Christmas lagniappe. Happy holidays to y'all and may the next year have all your trades winners, and may GS be on the other side of all your trades.

Dec

23

"The automakers and high-tech companies spending billions of dollars on developing self-driving cars and trucks tout the idea that autonomous vehicles (AVs) will help create a safer, cleaner, and more mobile society. Politicians aren't far behind in their enthusiasm for the new technology. "This is probably the biggest thing to hit the auto industry since the first car came off the assembly line," Senator Gary Peters (D–MI) told a cheering audience of researchers and executives at a recent computing conference in Washington, D.C. "It will not only completely revolutionize the way we get around, but [AVs] also have the potential to save hundreds of thousands of lives each year."

Such predictions, however, turn out to be based on surprisingly little research. While developers amass data on the sensors and algorithms that allow cars to drive themselves, research on the social, economic, and environmental effects of AVs is sparse. Truly autonomous driving is still decades away, according to most transportation experts. And because it's hard to study something that doesn't yet exist, the void has been filled by speculation—and starkly contrasting visions of the future. "The current conversation … falls into what I call the utopian and dystopian views," says Susan Shaheen, co-director of the Transportation Sustainability Research Center at the University of California (UC), Berkeley."

source

Dec

22


The Best Audiobooks of 2017 from Phillip Pullman

Dec

21

A general observation: Reading various market analyses, it seems the modal form now is this:

(1) The market is over-valued versus some metric such as CAPE.

(2) Therefore, the market is going to crash.

As opposed to:

(1) The market is over-valued versus some metric such as CAPE.

(2) Therefore, it's reasonable to expect below-average returns going forward for some time period.

We seem to be very "crash sensitive".

Dec

20

Please excuse my ignorance.

Grain traders know how many cents a certain size order can move the market, and bond traders know the effects of big orders. For those trading Bitcoin, how much will the cash market move on an exchange if one is selling 1 coin, 50 coins, 100 coins, 1000 coins? Is the market thin, how liquid? Is the b/a spread narrow in the futures? Does the b/a spread vary during different times a day? Are any retail business allowed to go short yet? How many BTC's are for sale (real orders) at any given time? What constitutes a "Big order" in both cash and futures BTC? What time of day offers the most liquidity? Thanks.

Dec

20

 Brink Lindsey of the Niskanen Center and Steven Teles of the Niskanen Center and Johns Hopkins University talk with EconTalk host Russ Roberts about their book, The Captured Economy.

Lindsey and Teles argue that inequality has been worsened by special interests who steer policy to benefit themselves.

They also argue that the influence of the politically powerful has lowered the overall growth of the American economy.

Dec

18

 Vic Niederhoffer and Bill McCarthy at the Arthur and Elaine Niederhoffer bench at the Bronx Botanical Gardens. Bill was head of undercover police and bomb squad and student of Artie, authored Vice Cop, the best true life crime novel. Bill and Vic are equally immobile now.

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Dec

17

 "Vampires, Zombies and Hooking Up: 37 Examples of College Courses That Are Just too Crazy to Believe"

Stefanie Harvey writes: 

In fairness #20 looks interesting. Very few young people have much experience with the Judeo-Christian texts and their influence on Western culture.

The titles are pithy to attract enrollment yet I think there are likely several good courses listed.

I am currently designing a course on wearable (skin) sensors for health monitoring and will choose the course title wisely. 

Dec

16

 Here's a link to a Ted talk titled, "What Can We Learn From Expert Gamblers? " He discusses the difference between expert, casual, and problem gamblers. He discusses the risk intelligence that all successful gamblers (and specs) have. The speaker then directs you to his website where there is a risk intelligence test that is very illuminating, and very fun to take. The test consists of 50 statements and one gives a percentage that the statement is true. Please don't game the test by answering 50% on everything.

Here's the risk intelligence test.

This website does offer another, more "accurate" risk intelligence test for a fee.

Dec

15

 There has been much comparison between the BTC rally and the tulip bulb bubble back in the 1630's. Zero Edge has proclaimed the BTC "bubble" as the biggest bubble in history. Whether it is or not, none of that matters to me. What does matter is all the mention of tulips and the effect they had contributing to my family's considerable folklore.

Back in the late 1960's. my great aunt became rather batty, as most women on that side do. Since she was well off, people referred to her as an eccentric, rather than hanging the crazy moniker poor people would get. One day, my great uncle(by marriage) dug up a bunch of tulip bulbs and put them in their pantry's onion storage box. Apparently, he never told my aunt that he put them in the box. For the record, my aunt was arguably the worst cook in Illinois and it's lucky they never had kids as she would have probably poisoned them. My mom and dad jokingly called her refrigerator the ptomaine box and we were instructed as kids to always politely refuse her offers of food.

One day she was making him dinner and mistakenly used the tulip bulbs from the pantry instead of onions and shallots. That night, he ate the dish, got stomach cramps later in the evening, then dropped dead the next day. She said she didn't have any dinner because she wasn't feeling well. Because he was in his 80's, had chronic medical issues, and was an old man, no autopsy was ever performed, so we'll never know the exact truth of what killed him.

At any family gathering, we still like to joke that my great aunt got away with murder. It gets a lot of laughs, 50 years after the fact. Personally, I don't think she was a murderess or had any intent to murder him, as her brain was rather addled by that time. Furthermore, although tulip bulbs contain a few toxic glycosides, there are no recorded deaths from ingesting tulip bulbs. Still, it makes a great story.

Every time I hear about tulips, bubbles, onions, and shallots, I get a mental image of my great uncle eating that food and keeling over.

anonymous writes: 

My mother was a child in Holland during the Hunger Winter of 1944-5; tulip bulb soup was commonly served because eating that was better than starving.

Dec

15

 Printed 715 USD or 597 EUR–close to 50% in two days. Not a bad move in my investment book.

So whats next–Do we listen to naysayers? Do we look at the yield curve? Do we look at ECB buying bonds? Do we look at FED raising rates? Do we look at sales for the local pizza store, or how much 3-D printing there is out here?

By now, one has understood, that none of the above matters at this point in-time, and may never do. No, what works is the behaviour of price action as there are (clear) enough with clues of directional moves. Buyers&Sellers are watching price points, breakouts, momentum, retracement levels, sentiment chatter and possibly overbought/oversold territories.

Depending on your time-horizon, you could buy&hold, or take off some betting chips in the very short term. The crypto train will have retracements along the way, but the fundamental question is, whether this asset is a good way of adding diversification or some portion of spice in the portfolio for the long haul. Is this the beginning of a wide spread alternative investment vehicle that will outshine the internet boom era between 95-00?

Perhaps. For now we ride the trend until proven wrong and we don't resort to all kinds of mumbo jumbo, explanations of the past (even though good lessons can be learned) or general "I missed the move" and therefore this crypto thing is bogus. Spare the bullshit, eh. Everyone has their way/style of increasing the value of their investments, and that's the only thing that matters. You can talk, or you can act.

Dec

15

Centralized, broken hash function, aggressive developers, highly questionable PR, rolling their own crypto. Avoid like the plague. Happy to be proven wrong.

Chris Cooper writes: 

Yes, that's the FUD, as they say. It pays to investigate deeper.

Centralized — a temporary measure only until the network reaches adequate scale.

Broken hash function — supposedly on purpose, never led to any loss of coins, corrected without subsequent issue.

Aggressive developers — true…but what I care about is extremely competent developers, and they have that.

Highly questionable PR — founders don't care about PR, which means that it gets little attention.

Roll their own crypto — true, and it was good…but when they got feedback about potential issues, they changed to standard crypto. They will likely change back at some point.

You could add these negatives:
* Crappy wallet
* Protocol designed for machines, not humans
* Uncertainty in confirmation time, though it's faster than most others

All these negatives, and still the coin is worth 12 billion USD at this writing. Why?
* Zero transaction fees, enabling micropayments
* Zero miners
* It scales

Dec

12

 To what extent have the movements in bitcoin been predictive of gold the same day from the open of bitcoin and gold coterminously as well a bitcoin on gold over subsequent days. I've given up on using standard interrelations that I've taught half of the list to predict bitcoin because there is so much drift in bitcoin…everything is bullish. I feel like the jerks at Salomon who asked red dawn what the spread was in Russia when he showed them the assets were undervalued by a factor of 100. A blast from the past is that Viola the former head of the NY Merc has sold his apartment, the most expensive in NY for 100 mill.

Dec

12

Grant's reputation for "corruption" is based entirely on his committing two sins: (1) he insisted that the government actually keep accounts, and (2) he called the bluff of the St. Louis Germans who were furious at his being willing to allow the accounting to include a review of the excise tax accounts that had been their own private slush fund.

Trump seems to be going down that same path towards academic reputational hell. He is actually going to audit the DOD.

Vince Fulco writes: 

Reminds me of that sub-plot in the movie last emperor when Pu Yi asked for an audit of the family's warehouses since he didn't trust the eunuchs who had been administrators to the family for decades (centuries?) and suddenly a day later, everything went up in flames.

Jim Lackey writes: 

Mr. Stefan's point is this, Ralph. I was a rookie trading the Nazz. SOES, Daytek and my first backer now in heaven.

We had an amazing edge, in execution. There was five 25 year olds sayin, "this can't last! How do I pay the rent much less support my Austin, Lack?" Magic words… "The warehouses are full" Hugs tech bubble. Limit up every week. We make selling them only when we are certain. That was the point. You made the call. Plz. Never call the turn. We all know.

Dec

12

 Doug Irwin on US Trade Policy

Tyler Cowen thinks Douglas Irwin has just released the best history of American trade policy ever written. So for this conversation Tyler went easy on Doug, asking softball questions like: Have tariffs ever driven growth? What trade exceptions should there be for national security, or cultural reasons? In an era of low tariffs, what margins matter most for trade liberalization? Do investor arbitration panels override national sovereignty? And, what's the connection between free trade and world peace?

They also discuss the revolution as America's Brexit, why NAFTA is an 'effing great' trade agreement, Jagdish Bhagwati's key influence on Doug, the protectionist bent of the Boston Tea Party, the future of the WTO, Trump, China, the Chicago School, and what's rotten in the state of New Hampshire.

Dec

12

 Loving Vincent is a visually stunning movie and highly recommended. The production is a blending of animation and art as each frame has been hand-painted in the style of Van Gogh often using one of his actual works as a base. The film tells the story of the last years of his life introducing us to the characters of a small French town where he lived and painted; they include his friends, benefactors, doctors, contemporaries as well as the countryside which inspired his work. The story puzzles over the mystery surrounding his death as the narrator seeks to deliver a final letter from Vincent to his brother. It moves very slowly but this is welcome as the unfolding art is so enjoyable to watch. In his short 8 years as a painter Van Gogh produced 800 works. Though he sold but one, he never waivered from his singular devotion to his craft. This films reintroduces us to his work. It is like gazing at one of his painting for 90 minutes and really absorbing the impact. Would love to hear Marion's review.

Dec

12

To the extent that Bitcoin has any fundamental value other than speculation it is as an alternative private means of transaction payment. One of its main attraction is the limited amount of bitcoins that can be created. From what I have read the validation process relies on complex computer programs that become more expensive to run over time running up more costs for electricity, etc. for those maintaining the records. Eventually the finite limit is reached when no more coins are created.

What then will be the incentive for any players to continue to run the block verification system? And even before then, if the value of bitcoins does not increase sufficiently, will it still pay so many to try to mine bitcoins. If transaction fees become necessary and if the cost of validation is not linked to the value of the transaction, will it not become uneconomical to engage in modest sized transactions? And if that is the cast would not its real purpose of another means of paying for transactions be defeated?

While the amount of bitcoins may be limited, what is to stop other players from coming up with their own systems? While there is a limit to the amount of bitcoins and newly created coins, there would appear to be no limit to the number of cyber coins that can be created, in essence creating many competing currency. What then is to prevent cyber coin inflation that reduces the purchasing power of all such coins. And if cheaper verification methods are not created would not that increase the cost to sellers of goods and services of transacting in so many different currencies whose relative values might fluctuate violently?

Might not this wild speculation turn out to be the tulip bulb bubble of the 21st century eventually?

Andy Aiken writes: 

Rudy, yes, new cryptocurrencies and digital assets may be issued, but there is no reason to expect that this will weaken the value of bitcoin. Digital assets are unique and non-fungible. When the Venezuelan government hyper-inflates the bolivar, it doesn't affect the purchasing power of a dollar. In fact, it may even bolster the dollar's value, and we see a similar phenomenon in cryptocurrency. During times of relative risk aversion, the % of the total crypto market cap that bitcoin represents (referred to as bitcoin dominance %) increases.

There are different types of digital assets:

1. Platform coins

Ethereum is an example of a platform, but there are others. Companies can issue tokens on the platform easily and use them for governance or stakeholder management. Although the most visible type of token issuance is through ICOs, there are many companies that will use them internally/privately only. The growth of usage of the platform will necessitate the use of the "gas" that powers transactions, which in the case of Ethereum is ether. Demand for ether will rise as the network grows, but in my view upside from here may be limited until some of the companies/apps based on the platform start delivering on their promises. Ether isn't a strict cryptocurrency like bitcoin, although it may be used as a currency. It is the transaction token for the Ethereum platform. The rise of this platform has led to the emergence of prominent competitors, each with a similar transaction token. Some of these are EOS, NEO, Aeternity, and Lisk. In my view, purchasing a platform token is a way to benefit as an investor from the success/growth of the platform. But this is a messier/more volatile investment due to the inherent risks.

2. Tokens used within a specific blockchain-based application

There are specific tokens/coins that allow participation in a unique blockchain use case. For example, Augur is a decentralized prediction market launching next year. The tokens entitle the holder to a share of all transaction fees from the prediction markets, as well as voting rights to settle disputed prediction outcomes. Users of the platform can create markets at will, and operate as market maker. The blockchain basis ensures privacy/anonymity for participants while ensuring quick, accurate settlement. There are other interesting applications of the technology with an associated token, such as Golem (distributed computing), Air and Civic (identity verification), Storj and Sia (distributed storage).

Many of these business models will fail, and the associated tokens will decline to zero. Those that succeed could increase in value significantly, perhaps even surpassing the value of the associated platform token.

3. Currencies

Bitcoin itself is the reserve currency for cryptocurrency, and I believe it will continue to play this role indefinitely. There are others that intend to play the strict role of currency, such as a. Privacy coins (DASH, Monero, Zcash). The networks for these coins use strategies to obscure sender/receiver of transactions, or blind the transactions themselves. b. Credit system coins (Maker, X8currency (not yet released), Decred). These coins attempt to build a non-debt based credit system for cryptocurrency. The business model is of critical importance here, so much DD is necessary before investing here.

Dec

7

 I was just notified by a historical foundation that there are no longer any court clubs in San Diego.

They've all been leveled or converted to doughnut shops and Crossfits.

The IRA cannot hold any tournaments in San Diego, and for the first time no player in the top 50 hails from the mecca.

There are no courts to play on.

That's a feather in my cap.

Dec

7

 The handful of SpecListers who have had investments in crypto are well past 30 (no offense intended, you don't look it).

But yes, many of the enthusiasts are millennial. Having come of age in the depths of the financial crisis, they have a keen distrust of the banking system and the political establishment that reinforces its oligopoly power and socializes its risks.

I have cut and paste the answers I got from a very good friend who really can hack the math and the digital mysteries of cryptocurrencies. He is 30.

My contribution is the choice of a sound track.

Stefan Jovanovich writes:

"A Brief History of Bitcoin Hacks and Frauds"

Sum up the number of stolen bitcoins just from the 7 hacks mentioned by that article and multiply by current price. Adds up to greater than $13B.

Out of all the bitcoins ever mined, 6.6% of them were stolen from just those 7 hacks.

And that is with bitcoin basically only used by tech savvy people. Imagine how much worse it would be if bitcoin went mainstream?

This site offers a retrospective on 45 different hacks.

Dec

7

"Researchers find bacteria tied to esophageal cancer"

December 1, 2017

David Lillienfeld writes:

There was a Nobel award in the early part of last century for the discovery of the bacterial cause of cancer. The work was subsequently found to be deficient.

anonymous writes:

If they give Nobel Prizes for common sene then my Grandfather should receive one. As a nine year old boy I was heartbroken when my Granddad told me that our black Lab Duke was sick and not going to get better. I asked him what was wrong and he told me he had cancer, a sickness where the body turns against itself with healthy tissue being taken over by the disease. "Why? What causes this?" I asked. "Well it was probably from his food (diet) or on the instructions he got from his mom and dad since he was a puppy (ie. Genes)".

So why do humans get cancer? Same reason: our diet and our genes. Why do elephants not get cancer? Going out on a limb here… their diet and their genes.

The highest rates of cancer outside of humans in higher order species are the very ones in which we human control the diet: livestock and pets. Given that dog's frequently consume the scraps of their human family's meals one would EXPECT to see a significant correlation to diet induced disease. Veterinarians note that cancer has become much more prevalent in man's best friend in the last half century and again–Captain Obvious–it has also increased discernably in man.

Dec

5

Today, the fund that trades as GBTC is down over 25% on the day. Yet BTC itself is up 2%. I attribute the drop to the impending launch of BTC futures on the CBOE, CME, and Nasdaq. So Anatoly was right, in a way. The effect on BTC itself remains to be seen.

This fund, which is not an ETF, has traded at a premium as high as 100% over NAV, and was trading at an 80% premium yesterday. A more sophisticated investor could have invested directly in the Trust by buying shares at NAV. After a 1-year lockup, one could have a GBTC share cert issued, and sell the shares at the premium. But people were foolishly buying shares of this product, perhaps so they could have BTC exposure in a tax-advantaged account.

Dec

4

"The power of Groups is that they're where people go to have conversations about specific topics. So, in the context of conspiracist or highly partisan communities, they can become incredibly powerful echo chambers; few people join a group to start challenging the prevailing opinion, and those who do typically get kicked out."

-"Fake News and Rabbit Holes: Radicalization via the Recommendation Engine"

Dec

4

"The Secrets of the Wave Pilots":

What seems clear is that our ability to navigate is inextricably tied not just to our ability to remember the past but also to learning, decision-making, imagining and planning for the future. And though our sense of direction often feels innate, it may develop — and perhaps be modified — in a region of the brain called the retrosplenial cortex, next to the hippocampus, which becomes active when we investigate and judge the permanence of landmarks. In 2012, Maguire and co-authors published their finding that an accurate understanding of whether a landmark is likely to stay put separates good navigators from poor ones, who are as apt to take cues from an idling delivery truck as a church steeple. The retrosplenial cortex passes our decisions about the stability of objects to the hippocampus, where their influence on way-finding intersects with other basic cognitive skills that, like memory, are as crucial to identity as to survival.

Recently, Maguire and colleagues proposed a new unified theory of the hippocampus, imagining it not as a repository for disparate memories and directions but as a constructor of scenes that incorporate both. (Try to recall a moment from your past or picture a future one without visualizing yourself in the physical space where that moment happens.) Edvard and May-Britt Moser have similarly hypothesized that our ability to time-travel mentally evolved directly from our ability to travel in the physical world, and that the mental processes that make navigation possible are also the ones that allow us to tell a story. ''In the same way that an infinite number of paths can connect the origin and endpoint of a journey,'' Edvard Moser and another co-author wrote in a 2013 paper, ''a recalled story can be told in many ways, connecting the beginning and the end through innumerable variations.''

Dec

4

Bubbles Excluding Tulips

Andy Aiken writes:

Since bitcoin is one of these emotionally freighted subjects that permits otherwise serious investors to unironically post charts that juxtapose data from highly disparate eras, contexts, and time frames, I might as well contribute one too.

Stefan Jovanovich writes: 

It is not emotional, Andy. If it were, I and others would not have complimented you, both on the List and privately, on a great call. What the professionals on this List have taught me is that price movements are themselves information, independent of the units they denominate. The difficulty with your chart is that it is not a display of prices over time. What I find paradoxical about cryptocurrencies is that their growth in popularity and transaction volumes has been accompanied by a rise in price that is independent of any increases in outputs or payouts. All other mines in history that have seen dramatic price rises in their asset values have seen even greater increases in outputs even as the output prices dropped–salt, silver, gold, coal and even diamonds all followed this pattern. The asset prices for the leaseholds for the essential commodity of the modern age–oil & gas energy–have confirmed this same pattern. Rockefeller became the wealthiest man in history by owning the distribution and production of a product whose price plummeted even as consumption soared.

Clearly, cryptocurrencies, like Tesla's newly imagined giant batteries, defy all the known rules. Congratulations on the unprecedented and profitable levitation. 

Andy Aiken replies:

I didn't mean to say that your points, or the discussion on the List, were emotional. It's been a rational discussion here, although I do think dismissing bitcoin as a bubble similar to the South Seas stock bubble shows an insufficient understanding of bitcoin as well as the South Seas affair.

My "emotionally freighted" reference had performances such as this recent Joseph Stiglitz interview in mind. "We ought to just go back to what we have always had" (i.e. the state prints money at will and deliberately impoverishes the middle class over multiple generations) One of the B'Berg commentators even chips in with his pathetic misunderstanding of Marx, as if to red-bait libertarian viewers who might consider buying a few satoshi.

I was thinking as well of this chestnut from Paul Krugman, another courtier to the flexions:

When I have been in doubt about how to live or invest, doing what Krugman and Stiglitz consider evil has always been a rewarding choice.

What is unique about bitcoin is that unlike diffusion of earlier technologies, in which investors participated by investing in representations of the technology (startup companies), in the case of bitcoin and a handful of other platform cryptos, the coin is definitionally equivalent to the technology.

The dynamics driving the price are aligned with Brexit and the "surprise" election of Trump. Bitcoin is a Cassandra for our age.

The price could of course drop by 50% or 90%. As Jayson points out, it has dropped by this magnitude several times previously. It's the nature of innovation that isn't "managed" by the state.

Dec

4

Articles from Goldman paint a bearish picture and they are so flawed in their analysis. This is what the CFA stuff has led to. Gresham's Law.

anonymous writes: 

Does "the CFA stuff" mean the attempt to certify critical thinking and standardise which facts are important?
 

Dec

4

One of the pleasures of a long lived affinity group like this are the little improvements to one's life that occur not planned but arising out of a little something of friendship. 15 years ago I met Vince Fulco on the list. He was a good man and had a wonderful wife who tragically succumbed. Vince was a can do guy who always could be counted on to do the little extra that goes beyond dollar or clock.

He taught me to roll the tennis courts with a circular path rather than perpendicular among countless other things. One thing he did was to set us up on the bloomberg so that we received spot prices free for the metals rather than the costly futures. For 10 years we saved money by using spot rather than the futures. Certain adjustments had to be made since there was a 3 and a half hour difference in their closing times… but now gold trades as much as bonds, 300,000 contracts a day. And it's become viable to trade in size as is bunds rather than bonds. So we bite the bullet after 12 years and get the future prices and recall all of Fulco's contributions to our life and are not surprised at all that he is doing so well in China. We thank him and wish him well in his pursuits. He's a good man. I could write a similar story about many on this list– but it's a little lugubrious after a stroke and it takes a meaningful % of my remaining life expectancy to type a long memo these days.

Dec

3

 Ever since the CFA exams I have noticed a tendency for Wall Street research to deteriorate. A Gresham's Law appears to be operating. The articles like the white shoe one I mentioned are chock full of seemingly sapient stuff that are scientifically flawed amid reference to Shiller p/e data with their 10 year averaging and data when no earnings were reported etc. They refuse to take account of interest rates and use technical analysis and charts for suggestive but random conclusions. It is sad to see this deterioration as literacy increases as predicted by Nock.

Alston Mabry writes: 

I find that if I'm really serious about an individual ticker, one of the few places where I can get at least trailheads to research is the earnings conference call, not for the company's answers but more for the analyst's questions, assuming there are analysts on the call who are at least somewhat skeptical. Not that I dig into individual tickers that much anymore.

anonymous writes: 

Vic's point of Gresham's Law happens everywhere, but especially in situations where there are credentials given that appear to have value. IMO the CFA society exists (as does the CMT) primarily to enhance the status of its anointed ones (for a price), and for the side benefit of providing income to the society heads.

Al is right: There is no original thinking and virtually no research. But there is a benefit to us thinking ones: If all of what passes for research is bot-written drivel, released over some time period, a case can be made for trends to exist based on the gradual release of the drivel. That would support the contention that what really drives certain markets is momentum and sentiment.

Never complain about the weaknesses of your opponents; exploit them.
 

Allen Gilespie adds:

In an effort to defend free thinking CFAs from the white shoe firms, I have attached and included a link to my most recent annual analysis on the Dow Jones Industrial Index built on Ben Graham's method's with an added modern twist and nod to Richard Russell in a world of QE. I have also include my white paper on Bitcoin, Banking, and Bernanke in a World of Monetary Chaos from 2013. Prior year reports available to those with a Bloomberg under DIA US equity. Given that the economy now includes industrial businesses and network/software type businesses like MSFT and V I think there is a delta between book value, average ratio and earnings methods due to network value theory and excessive monetary inflation. I am calling this new valuation framework my Gold, Bitcoin, Dow Theory whereby one bitcoin plus one gold coin = one Dow share. Obviously, figuring out the key ratios is key, but in short, the theory is that gold and tangible book on the Dow should trade on a ratio. There will then be the goodwill book value which gets measure by crytpo, so in combination they will equal the value of shares in fiat. In short, there is value but that value is dependent on the value of money, assets, earnings, and interest rates. We live in a world of fiat, hard, and crypto currencies. In short, I think QE is the same as John Law effort to demonitize gold but then cryptos broke out - you can inflate values but the market will find a way to make proper measurements. I have started making all price targets in dollars, gold and bitcoin equivalents - when money is mispriced it is hard to know the value of anything and all secular bear markets are the result of a breakdown in the monetary system (greenbacks - bi-metal system - gold standard - Bretton Woods - Quasi-Free float - Crypto) - bear just don't understand how they play (sometime values decline (deflation) (1929-1932), sometimes they inflate (1966-1982) so nominal prices hold but you loose purchasing power, and sometimes you hyperinflate your values go up but you gotta find a better currency (cyrpto).

The Dow Jones Industrial Average - Fintrust Investment Advisors

Bitcoin, Banking and Bernanke - Fintrust Investment Advisors

Rocky Humbert writes: 

Spurious correlation. The first CFA exam was administered on June 15, 1963 to 278 men and 6 women. In 2017, the pass rate for CFA-I was 43% out of 189,000 candidates. The average starting salary for most CFA's is under $100k.

See page 55 of From Practice to Profession: A History of The Financial Analysts Federation and the Investment Profession

"CFA Says Pass Rate for Level 2 Climbs to 47%, Highest Since 2006"

Russ Sears writes:

While I agree with much of what Rocky states, what appears to be missing from the thread is that the motive for much "rresearsh" is often CYB (cover. your. behind) Designatona helps but the real cause and effect of such proliferation is litigation and regulation.

Gordon Haave writes: 

I'm a CFA and I agree with Vic and Jeff. Almost anything written by a CFA is formulaic and uninteresting.

I get an email once a week from the CFA society linking to all the things on Seeking Alpha that were written by CFA's and they are almost universally worthless.

Rocky Humbert writes: 

Wait a second. The hypothesis proffered by Vic was that "ever since the CFA exams I have noticed a tendency for wall street research to deteriorate. A greshams law appears to be operating."

We are in agreement that virtually all of the research is unhelpful or rubbish. But it is incorrect to to attribute this to the CFA exam or to suggest that this is anew phenomenon. At the very least, it is due to the fact that customers of wall street firms do not pay for the "product." And the price of the product has finally converged to the value. Do you remember Henry Blodgett? Mary Meeker? That was 20 years ago. This isn't news.

Additionally, back in the early 1990's and long before the front-running scandals, David Silfen formed an internal prop group to invest based on GS analyst research. The results were abysmal and the group was disbanded. 

Russ Sears writes: 

While I agree with much of what Rocky states What appears to be missing from the thread is that the motive for much "rresearsh" is often CYB (cover. your. behind) Designatona help but the real cause and effect of such proliferation is litigation and regulation.

Paul Marino writes: 

I agree with you Russ, but in a world where you can pay to know if Fed Powell likes his morning egg hard boiled or over easy I'm a little over easy myself. Bernanke was an oatmeal man. This is Flexionic activity written by Gov's and the Operator's will take every advantage over the common man.

Allen Gillespie writes: 

In an effort to defend free thinking CFAs from the white shoe firms, I have attached and included a link to my most recent annual analysis on the Dow Jones Industrial Index built on Ben Graham's method's with an added modern twist and nod to Richard Russell in a world of QE. I have also include my white paper on Bitcoin, Banking, and Bernanke from 2013. Prior year reports available to those with a Bloomberg under DIA equity. Given that the economy now includes industrial businesses and network/software type businesses like MSFT and V I think there is a delta between book value, average ratio and earnings methods due to network value theory and excessive monetary inflation. I am calling this new valuation framework my Gold, Bitcoin, Dow Theory whereby one bitcoin plus one gold coin = one Dow share. Obviously, figuring out the key ratios is key, but in short, the theory is that gold and tangible book on the Dow will normalize and the delta goes to crytpo, so in combination they will equal the value of shares in fiat. In short, there is value but that value is dependent on the value of money, assets, earnings, and interest rates. We live in a world of fiat, hard, and crypto currencies. In short, I think QE is the same as John Law effort to demonitize gold but then cryptos broke out - you can inflate values but the market will find a way to make proper measurements. I have started making all price targets in dollars, gold and bitcoin equivalents - when money is mispriced it is hard to know the value of anything and all secular bear markets are the result of a breakdown in the monetary system (greenbacks - bi-metal system - gold standard - Bretton Woods - Quasi-Free float - Crypto) - bear just don't understand how they play (sometime values decline (deflation) (1929-1932), sometimes they inflate (1966-1982) so nominal prices hold but you loose purchasing power, and sometimes you hyperinflate your values go up but you gotta find a better currency (cyrpto).

anonymous writes: 

David Simon made a related point to all this with regard to journalism. (He worked for the Baltimore Sun before writing The Wire.) As seasoned journalists who knew their beat were replaced by cheaper fresh faces who can still write words, skepticism and quality deteriorated.

Dec

2

Infographic: Visualizing the Journey to $10,000 Bitcoin

How did Bitcoin jump 10X in value in the matter of just 11 months? This timeline visualizes the events in the journey to $10,000 Bitcoin. After dotcom popped, many companies lost 98% market cap - yet an operating concern remained (YHOO comes to mind). What's behind Bitcoin? I have removed 2000-3000 as an area of support following this weekend's madness. Clearly, she'll end below 1 Alas, as I always said, the hi print is likely prior to CME debut.

Andy Aiken writes: 

"Clearly" and yet Anatoly claims to have no position. Evidently his net worth is tied up in airline vouchers.

anonymous writes: 

Actually the "right" trade during the dotcom bubble was to be long and own low delta, far out of the money puts. The same was true during the silver bubble, the nat gas bubble and all exponential moves. What I find astounding is that some people never learn from their past mistakes. If you don't know who the sucker is at the poker table, look in the mirror…. Of more interest than calling the "top" or "bottom" in bitcoin (or anything else) for bragging rights and which are worthless, what do intelligent people expect the opening futures yield curve/implied interest rate for Bitcoin futures to look like? There is no real borrow market; so should futures be in backwardation? Or should it be upward sloping like a regular currency with a positive interest rate? My guess (based on learning from experience) is that speculative flows will swamp arbitrage flows and so it will be in backwardation so long at the market is rising strongly — and once the price has topped and it starts declining, the yield curve can/will go positive. My instinct is that the shape of the futures yield curve will provide a better clue about the status of the bear/bull debate than pulling numbers out of the air — and it's options on futures where the real fun will be had. Does anyone have a better perspective on this?

Andy Aiken writes: 

Finally an interesting question on this subject. There could be some good spread trade opportunities, since I expect the term structure to move wildly in the initial stage of market development.

I expect it to be mostly in contango at first, but move to a modest backwardation that reflects an implied yield.

Bill Rafter writes: 

From the cheap seats, bubbles tend to coexist with inversions (backwardation). Current uncertainty places a premium on the near month while the distant months play with the expectation of mean-reversion. Isn't that exactly what Bitcoin is all about? So you would expect Bitcoin futures to show backwardation. The only problem is that you cannot build an economically rational model for such a price structure. Thus it seems as though momentum and sentiment will rule the day. Appropriate quote from the Senator: "It is conjecture. When a researcher lacks hard evidence, conjecture is his greatest tool. Some conjecture better than others. Some conclusions are more conclusive than others."

Dec

1

I posted on a friend a while back that started out with 50 servers a year ago mining BTC. He recently found some investors and is scaling up to 2000 servers. Some metrics he follows; on his variable costs (electricity, rent, etc), he budgeted it would take 15 days of mining each month to cover, last month it took 5 days. Return of capital he budgeted 6 months, actually taking 3 months. Break even prices for BTC (marginal mining cost) is $1000 to $1200. Says scale is important, bigger processing capability of 2000 servers allows more profitable transactions. They will soon be #2 in their "pool". He has a good relationship with largest server producer in China and negotiated a power deal in the US with decreasing marginal cost based on usage. On ICO and cryptos in general he would not know a crypto-fork from a salad fork, but knows how to run a business and will ride this wave for as long as it goes, with a good cushion above BTC $1000.

Jim Lackey writes: 

Why isn't Google Amazon or the valley locking this biz? Good question or as usual I'm last to know.

Anatoly Veltman writes: 

I could never understand the ethics of crypto mining "biz". You certainly use up resources–to produce "what"??

J. Hales writes: 

Would your friends ROI be positive without the rally? Or more simply: would his investors have done better simply just buying Bitcoin outright?

Years ago when Bitcoin was trading around $50 I did a lot of research on mining operations almost every single one was essentially equivalent to: long bitcoin - expenses of maintaining servers and operations. None the less, they were extremely popular 'investments' as people liked the cachet of being a technologically sophisticated 'miner.' 

Nov

30

 WSJ featured a chart of BTC vs other bubbles. Usually there is a correlate–such as the desk top computer and tech stocks, gold and political uncertainty (sic), etc.

The only things I can think of that correlate with BTC's trajectory are the frequency of NK nuke tests and due-process free salacious executions of key members of the deep state.

Others?

Andy Aitken writes: 

A key characteristic of a bubble is that the people in it don't recognize that they are in it.

The bubble proclamations about bitcoin seem to come from those who have missed out (i.e., they're "too smart" to participate), as well as from those that stand to lose something. Despite Anatoly's misquoting of me, in response to Jamie Dimon calling bitcoin a fraud, I did not call Jamie Dimon a fraud. I wrote that bitcoin said that Dimon is a fraud. Bitcoin is still less than a $150B market cap, less than a third the size of one company (Cisco) at the height of the internet craze. Which turned out to have not been a "craze". The most chiliastic augurs of a connected humanity, portents of Teilhard de Chardin's noosphere reified, were too conservative. Just 15 years later, there are quite a few tech-oriented companies that have surpassed CSCO's peak valuation, and everyone is tied to the net 24/7 through pocket supercomputers.

In my view, the bubble that is barely acknowledged is the vast scope, size, and scale of the state (not just the government), and its rapacious intrusion into our private lives. This precarious bubble continues to inflate on the premise that there is no diminishing marginal utility of additional units of state power. The gap grows between the linear growth in expectations and the logarithmic returns. If this is a bubble, then bitcoin represents its antithesis.

Rocky Humbert writes: 

Andy, Bubble schmubble. There are sardines for trading and sardines for eating. I submit that the most important trait for successful investors/speculators is knowing the difference. And not becoming an idealogue, philosopher or believer. I suggest that you read the Harvard paper that I posted two days ago a bit more carefully. As the paper reports and I've learned from experience, these moves go much further and last much longer than reasonable people expect. Especially for bitcoin (and real estate markets) since the supply/new issuance is very limited. And since you mentioned Cisco, I believe its high tick war around 85; 17 years later the stock is trading at 38. During its final blowoff phase, the stock appreciated by about 800% and the only trade was to be long. Until it wasn't. And then the only trade was to be short — for about two decades (with most of the move occuring during the first 24 months). Same thing with the Nikkei in 1990. Gold in 1979. Etc. And I feel comfortable predicting that the same thing will be true for BTC but from a final blowoff top of who-knows-where. Lastly, here's a rocky challege: Name one major currency whose value routinely moves around by 20% intra-day? (Other than a government engineered revaluation, of course.) Anyone? Anyone? Of course, it's Bitcoin.

Andy Aitken replies: 

I've been emailed personally by several people on the List who asked what I guess they thought were questions I hadn't considered or couldn't answer.

I've responded with thorough emails with numerous academic and non-academic references, and never received a "thanks" or even an acknowledgement of my time spent. The fact is that I have pulled out many times my investment, and yet those with the strongest opinions have nothing at stake (at least in terms of money, the need to be right is very much in evidence), with no more relevance to the market price than a bucket shop price shouter. I have less certitude about the future price than they do. But what do I know?

I really don't care if people think I am ridiculous or stupid. I'll take my profits while they opinionate. Your benchmark of price stability (USD) has declined in purchasing power by 99.5% since the creation of the Fed just over 100 years ago. This was after a long period of purchasing power stability, or even of productivity-driven deflation. Ah, but those fluctuations in prices (e.g. 1907)! They drove a free people to put the management of their currency in the hands of technocrats. My grandfather retired as a bank vice president about 55 years ago, never having earned more than $10K a year. And yet he and his family lived an upper middle class life, with no mortgage on the brick house on a tree-lined street, cars bought with cash, and a child who went to an expensive private college.

What sort of price stability is this? I hold gold and trade it, and even expect a rally in it, but I think we all know that the CBs would kill any "bubble" in gold, though such a "bubble" might be very much justified. If the state and its extension, the CME, kill bitcoin as Anatoly hopes, then another cryptocurrency (or something like it) will replace it.

There are already several that could replace it. It is a mistake to equate bitcoin with cryptocurrency.

There is the beginning of something here that all lovers of freedom should welcome, even if its name is not bitcoin.

Jason Pilfer writes: 

Victor had a quote about Dimon I recall that sums up many of these bitcoin bubble threads.

"Sounds like one of the non-falsifiable predictions from the adventurous traveler or so many of his ilk that don't have the constraint of having to make a profit with trading.vic"

I admire Andy's instructive tenacity and hope to see more. There remains quite a chasm to bridge. I've argued in the past that cryptos are an ongoing disruption rather than simply a new currency coming into an old framework. Many of the predictions would be more relevant if bitcoin were simply a global fiat currency.

The chartism and top/bottom calling entirely misses the reason why cryptos came into being, are incredibly popular and accelerating in adoption and appeal.

The bubble discussion is weary and likely tied to the ongoing global FOMO effect, yesterday I ran across this Fortune link from two years ago about how to short the megabubble when bitcoin was 1/10th today's price

Not much has changed.

The higher level discussion about CME impact is insightful and appreciated.

Nov

30

These are two extremely important papers in Nature that have big implications longer term. Both of them solved a problem using quantum computing that classical computing cannot currently address even at the supercomputer level.

Obviously, no impact to cryptocurrencies yet, but it is something to keep in mind for the long game in terms of potential disrupters to encryption in general:

Probing Many Body Dynamics on a 51-Atom Quantum Simulator

Observation of a Many Body Dymanic Phase Transition with a 53 Qubit Quantum Simulator

Nov

29

 Change Research has just released their 3rd poll on the Alabama Senate race. They show Roy Moore at 49%, Doug Jones at 44%, with 7% undecided and 4% planning to write-in another candidate.

The partisan allocation is - for Alabama - extremely cautious; it may understate the overall Republican share of the electorate, but it is - by far - the most scientific weighting of any of the polls taken for this race. They use the 2016 Presidential vote tally, as self-reported by the sample.

Donald Trump, the Republican 58.4 Hillary Clinton, the Democrat 32.5 Gary Johnson, the Libertarian 4.6 Did not vote 2.9 Jill Stein, the Green Party 1.5

Their sampling was done over the weekend so their data is - right now - the only survey information that is current. RCP and others are using what is very stale data. Nate Silver and Co. - the usual Leftist suspects - seem to be unusually slow in incorporating the results into their data. That could be taken as a sign.

The cross-tabs for the Change Research poll are fascinating and wonderfully detailed.

Nov

29

I heard a lot of excitement around the bubble in bitcoin, blockchain, and how the precious metals will turn around soon. I'm quoted in the article reviewing the landscape, from a old conference I used to speak. Jim Rickards, Frank Holms, Doug Casey.

"Quotes, Gloats, and Anecdotes from the Silver & Gold Summit"

Nov

29

 USDA reports the year corn production first reached these milestones:

Bushels/Acre          Year achieved

30                             1896

40                             1948

50                             1958

60                             1961

70                             1965

80                             1967

90                             1972

100                           1978

110                           1982

120,130                    1992

140                           2003

150,160                    2004

170                           2014

180*est                     2022

190*est                     2027

*USDA forecast

85% of the US corn crop is planted in rows 30 inches apart, according to Pioneer Hybrids. This allows for a population approaching 40,000 plants per acre. Narrowing the distance between rows to 20 or 22 inches has shown a significant increase in yields in many trials. There's a school of ag scientists who predict that the development of new hybrids and GMO's combined with narrow rows will allow for ultra high plant populations of up to 80,000 plants per acre. The huge populations will be achieved without causing undue stress to the plant. Scientists are working on future root systems that will adapt to the narrow rows, allowing for the more efficient collection of water. In some hybrids, they are tinkering with the shape of the plant, making them more Christmas tree like to maximize exposure to light. The effect of sunlight cannot be underestimated, as any sunlight that hits the ground is effectively wasted. To further increase yields, scientists are tinkering with the size and shape of the ears, going from the biggest/longest ears to shorter more modest size ears with many more ears per plant. After all, huge ears require more support and that translates to wasted, non-essential plant structure. One envisions a time in the future when corn yields will average 200+ bu/ac. Science and modern agriculture methods and practices have increased yields by 466% in a little over a century.

Nov

28

 In "Strange Pursuit", a Bowdrie story by Louis L'Amour, the author says that the first law of reading signs is to look for the unusual–the direction of the grass after a man or horse has recently trodden –its opposite for a horse or a displaced rock. How can this be applied to predicting markets?

One idea is to take the longest failure of an event and study what happens afterwards. For example, the failure of bonds down and stocks down on a single day. I have been listening to L'Amour short stories as an antidote to stroke lately and have found them highly entertaining and soporific. You will excuse my bad typing recently as my brain makes my fingers off by at least two keys.

Nov

28

 Very flawed but interesting depiction of Churchill's in 10 days around becoming prime minister. For some reason they spent half the picture on the secretary. They made up a scene on the underground where a man of color told Churchill what to do. They pictured Halifax as a McCain type and made the king into a potent figure in the war but he wasn't. Good depiction of Clementine. Made 3 Churchill sound like waffling all the time rather than strong upholder of western civiliziation/ left out all the cravenness of the French for sights of Churchill looking at typist. Right out of Ellsworth Touhie.

Nov

28

"U.S Mint's Silver and Gold Coins Turn to Lead":

The government currently is selling the gold-coin proofs at a 25% markup over per-ounce gold prices, a premium that can run as high as $360 per coin. The silver coins carry a more than 200% premium over market silver prices. That might be well worth it for coin collectors and hoarders—or for stashing in a post-apocalypse bunker along with the guns and freeze-dried macaroni. But some unhappy investors have deposited them into retirement accounts, where the shiny gold and silver coins have performed like lead sinkers. Paul Rumage, a 64-year-old retired software engineer from Michigan, said he was looking for a haven from stocks for his individual retirement account in 2013. A private dealer persuaded him to buy 45 four-coin sets of American Eagle gold proofs, and 979 ounces of silver Eagle proofs, records show. The 1,135-coin treasure of gold and silver cost him $308,000, which included a 6% commission for the broker. Less than a month later, his IRA statement valued the coins at $212,000. "I knew something was wrong," Mr. Rumage said. After filing a lawsuit against the dealer and broker, he sold the coins back at a loss. He since has given up on gold and instead bought land in Arkansas.

Nov

28

Change Research has just released their 3rd poll on the Alabama Senate race. They show Roy Moore at 49%, Doug Jones at 44%, with 7% undecided and 4% planning to write-in another candidate.

https://tinyurl.com/yb739e9z

The partisan allocation is - for Alabama - extremely cautious; it may understate the overall Republican share of the electorate, but it is - by far - the most scientific weighting of any of the polls taken for this race. They use the 2016 Presidential vote tally, as self-reported by the sample.

Donald Trump, the Republican    58.4
Hillary Clinton, the Democrat    32.5
Gary Johnson, the Libertarian    4.6
Did not vote    2.9
Jill Stein, the Green Party    1.5

Their sampling was done over the weekend so their data is - right now - the only survey information that is current. RCP and others are using what is very stale data. Nate Silver and Co. - the usual Leftist suspects - seem to be unusually slow in incorporating the results into their data. That could be taken as a sign.

https://www.mediaite.com/online/will-roy-moore-actually-win-an-running-analysis/

The cross-tabs for the Change Research poll are fascinating and wonderfully detailed.

https://tinyurl.com/yaldfxby

Nov

26

From what I gather, the pretensions of moral philosophy to be "scientific" were laughed at when the term "social science" was coined.

Say what you will about the 21st century, one thing that is getting better is that social-science authors have the ability to, and feel some obligation to, post their code and data sources where readers can access them.

EqualityofOpportunity.org/data

^ This warms my heart.

Jeff Watson writes: 

Your post reminded me of an engaging article I read this morning. The article is about the increased bullshit that is being strewn across workplaces worldwide. It describes the origins and history of the bullshit, then examines and illustrates the many different kinds of bullshit being tossed about from the boardroom to the classroom. Well worth the read.

Nov

26

I got it completely wrong! VT covered the line and there were only 10 points scored in the whole game.

Russ Sears writes: 

Gamblers fallacy. Just because your luck has been "good/bad" doesn't imply it must change if the events are independent. In fact, "it" (calling randomness good/bad) implies that your perception of the odds are wrong. 

Nov

25

 I was thinking about TSLA the other day after seeing the new promotional video with the truck and sports car. It's business trajectory reminds me of many tech business models, such as Uber. Which is create an app for an existing product that bypasses laws, regulations and taxes and then abuse ones competitive advantage.

The traditional car companies ceased to be car production businesses and became finance companies a decade or two back. Will TSLA cease to be a car company and become an energy company? TSLA can bypass consumption taxes on fossil fuels and god knows what else, while setting up 'refueling stations' to resell energy. They'll have a repeat business where they buy energy in bulk and resell it . To their clients and others. Being the first guys in, they'll set up a monopoly where they can. Energy will turn into their main business. The cars made will become rubbish and they'll exist like a business such as Verizon. How long will it take governments to cotton on? And when they do, will it be too late?

Jim Lackey writes:

Lack sees shades of 1999 when E brokers became higher market cap than brick banks. My buddies were 6 months too early. If or when AAPL trades 1/20th of US GDP it may be the csco of the year. One realizes no one ever made selling them. From the bleachers there is only tracking stocks missing from a lesson I do not wish my son to learn like dad, the hard way. Musk after pay pal was cut off by banks and the street in 2008. We were all busy fighting for our lives. The first guy through the door always gets bloody. I'm sure he does not care about his stock owner partners. He's said time and again, do not buy. Interesting why anyone would own this paper when they are fiduciary. I know why my old trading friends are caught short. Tis the season to squeeze. 

Nov

25

Bitcoin passed a milestone today, although it has gone unrecognized and unheralded.

Those who hold BTC, and have held it prior to July 24 of this year, received an equivalent amount of Bitcoin Cash and Bitcoin Gold in their wallets. For example, one who held 5 BTC would have received 5 Bitcoin Cash (BCH) on August 1 and 5 Bitcoin Gold (BTG) on October 24 in the wallet.

Today, the combined value of Bitcoin, Bitcoin Cash, and Bitcoin Gold surpassed $10K.

Currently, BTC + BCH + BTG = 8184 + 1655.10 + 391.50 = 10,230.60

Nov

25

Black was right: Price is within a factor 2 of Value:

J. P. Bouchaud, S. Ciliberti, Y. Lempérière, A. Majewski, P. Seager & K. Sin Ronia Capital Fund Management, 23 rue de l'Université, 75007 Paris, France

Abstract:

We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black's intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types of behaviour in financial markets: "chartists", who act as trend followers, and "fundamentalists", who set in when the price is clearly out of line. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance of financial markets.

See also: "the holy hand grenade"

Doc Castaldo writes: 

"Black was right: Price is within a factor 2 of Value"

This goes back to a famous difference of opinion between Robert C. Merton and Fischer Black.

In trying to explain Efficient Markets to a student audience, Merton said that to him an Efficient market was one where prices are within 5% of true value 95% of the time. This was his subjective estimate of how efficient he thought the stock market was, and a way of communicating the idea of high but not perfect efficiency to the audience.

Fischer Black had a looser concept and said that to him, efficiency only meant that prices are within a factor of 2 of true value at least half the time. The rest was what he called "noise", i.e. random divergences from true value.

The problem of course is that these are only analogies and no one knows what the "true value" is and therefore how far away from it the market is.

Nov

24

 Thanksgiving is about sharing prosperity, and it's a good time to think about where prosperity comes from. The Pilgrims figured it out in 1623. We'll retell that story as we celebrate the way it lives on in countless U.S. families and companies today. And in particular at one company, McDonald's (MCD, news, msgs), that in its humdrum way beautifully demonstrates the source of prosperity and the American way of life.

The Pilgrims started with so little. They had to hide in England because the authorities considered them dangerous. They fled to Holland but found themselves compelled to take menial jobs. On the way to America, many of the company died. They lost their way to Virginia and landed in Massachusetts just as winter set in. The Virginia Co., their backers in London, went bankrupt and couldn't send relief supplies.

To cope with want, the Pilgrims made the same mistake that so many countries do even today: They divided all their land, efforts, supplies and produce in common, to each according to his need.

As always in such systems, need surpassed supply.

The Pilgrims spent their first three years in America suffering from hunger, illness, cold and infighting. People stole from the common stores "despite being well whipped," according to William Bradford's "Of Plymouth Plantation."

Bradford, governor of Plymouth Colony, records what happened next: "They began to think how they might raise as much corn as they could, that they might not continue to languish in misery. After much debate, the Governor decided that each settler should plant corn for themselves."

Under the Land Division of 1623, each family received one acre per family member to farm. That year, three times as many acres were planted as the year before. Prosperity was not long in coming.

The Pilgrims turned from their Old World system of common ownership to incentives. They didn't go that way out of ideological conviction, but because they didn't have the luxury of waiting for support to come to them.

How many families in America tell the same tale? "When we came here, we worked hard and our lives were better."

But that wasn't the end of the story. Before the switch to incentives, the hungry settlers were at each other's throats. Hard workers resented receiving the same portions of food as those who were not able to do even a quarter of the work they did. Young men resented having to work without compensation to feed other men's wives and children. Mature men resented receiving the same allotments as did the younger and meaner sort. Women resented being forced to do laundry and other chores for men other than their husbands. Many people felt too sick to work.

But when they were allowed to farm their own plots, the most amazing thing happened. Everybody — the sick, the women and even the children — went out willingly into the fields to work. People started to respect and like one another again. It wasn't that they were bad people, Bradford explained; it's just human nature. Adam Smith came to the same conclusion later, and Friedrich Hayek updated Smith's ideas for the 20th century. But we don't need to go back to New England for understanding. Similar outcomes can be seen at McDonald's every day.

For centuries, people on the lower rungs of the social ladder weren't able to eat meat. They ate grains and beans. But people like beef. And chicken.

When McDonald's started popping up in every neighborhood, all of a sudden there was an affordable place for families to eat. Previously, one of the main differences between the upper and lower classes was that the rich could eat out. Even if the poor could afford the tab, they couldn't hire baby sitters, and they couldn't bring their kids to the elegant establishments designed for the rich because they would have disturbed the other diners.

Most kids don't like fancy restaurants anyway. They want fries, not polenta with wild mushrooms. They want fried codfish, not turbot. They want burgers, not lamb chops.

How many people has McDonald's made happy? How many families has it brought together? How many Happy Meals have been eaten there? How many kids have enjoyed the playgrounds? How many tired workers have been able to catch a quick meal? How many women are able to pursue careers and other productive activities and dreams because McDonald's has freed them from the task of having to cook every night?

The Pilgrims might have served 200 or 300 American Indians at their Thanksgiving feast. McDonald's serves 26 million customers a day at 13,700 U.S. restaurants.

For the traveler, McDonald's is a home away from home, offering so much for so little. The restrooms are clean. And McDonald's serves hot strong organic coffee in smooth cups of some wonderful material that keeps liquids hot without burning the hand, shaped to fit into the cup holders that just happen to be in your car, with carefully designed tops that permit just the right amount to be sipped.

No regulator, no fascist dictator, no socialist planner decreed sip tops or cup holders. But how many late-night drivers have died for the lack of a good cup of coffee? What could be more munificent than saving lives?

And the story doesn't end there. Consider the employees of McDonald's. How many people have worked there and learned the most important lesson in America: The customer is always right?

The anti-this-and-that people who demonstrate against profit incentives and free markets like to single out McDonald's as a symbol of modern capitalism. (They don't mean that in a nice way.) As the McLibel Support Campaign puts it: "(McDonald's) has pioneered many business practices that have been taken up by others, and have come to represent a symbol of the way that society is going –'McDonaldization.'" But when have you ever seen an unhappy customer at McDonald's? There couldn't be too many of them, because about 10% of America eats there each day. Given the choice of cooking at home or going to other restaurants — and competition ensures that there are other restaurants — people go to McDonald's because they trust they'll find good food, quick service and value for money. What could be more munificent, more representative of sharing the fruits of hard work than McDonald's?

McDonald's and the Pilgrims are the essence of America. The people work hard, motivated by the chance for profits. They provide a welcome to others, whether to Indians joining in harvest celebrations, or to customers looking to satisfy their hunger. Their work results in high quality, low costs and family togetherness.

Those humdrum, everyday attributes are what makes America great. That's what we should be celebrating. It's the source of all our munificence, from the first Thanksgiving to today.

Nov

20

One, from Bill Rafter

November 20, 2017 | 1 Comment

Seeing the news of Mugabe being deposed reminded of the scene in The Count of Monte Cristo in which Caderousse is the first of Edmond Dantes' tormentors to die. On that occasion the Count simply says "One".

Who will be "Two"? Maduro? Kim? A few years ago I would have included Assad, but not now. And what about the de facto coup in Saudi. That was nicely engineered.

These are exciting rather than scary times, IMO.

Nov

20

 The biggest yachts in the world are in town for the holiday season and the grill run by Mr. Lembke was on at Mar-a-Lago yesterday in anticipation of the President's visit for Thanksgiving. Cranes and construction crews are everywhere busy as things locally are on a rapid up and up.

And a da Vinci was sold by a local property owner

Nov

20

Dear Friends,

Does anyone have primer like material recommendations in the areas of CLOs/Distressed Debt Funds/Structured Credits? My guess is anything by Fabozzi or like minded authors would be too technical at this juncture.

I have stepped away from finance the last few years working on my "lemonade stand" venture, a career and academic coaching/advisory firm in Shanghai. I have a client who is an emerging international tax/fund administration expert and is now starting to have discussions with some of the premier buyside firms in the world re: the areas above. She's about to finish the CFA and start CAIA but the material is generally too rudimentary. She's looking to upgrade her lingo abilities.

I would appreciate a few ideas.

Nov

20

 Outlaws use game theory.

Game theory is the math connected with the analysis of strategies for dealing with competitive situations. The outcome of the participant's choice of action depends critically on the actions of the other participants,

Outlaws, being the majority in Slab City, make this town an apt place to study game theory.

The other anomaly of the population is the individualism. Being individuals, there is primarily non-cooperative game theory. Unlike other games, small town outlaws operate better alone, under the radar, and satisfied with continued repeated small profits toward an eventual fortune, without getting caught.

The way they don't get caught is what I call subconscious game theory. Almost zero of the participants have math skills beyond arithmetic, and yet their IQ's are much higher than the Americans norm. This provides an enormous subconscious space for lightning calculations of game theory.

Some of the finest criminal minds have lived or vacationed here in the past three years. There has been the kidnapper of Patty Hearst, road partner of the JFK shooter, girlfriend of 'El Chapo' Guzman, point man of the Jonestown massacre, principal in the World Trade Center bombing, and an early executioner for Hell's Angels.

Crime is like sport, business, politics, gunfights, or any other competitive setting where what I call the three elements of game theory interact: Game, Play, and Analysis. The Game is the well-defined mathematical setting, the Play is the recipe of action, and the Analysis is the best recipe.

Some examples of game theories that occur daily in Slab City are War of Attrition, Cake Cutting, Truel, Stag and Hare, Chariot Race, Pirate's Party, Peace-War, Dictator, Restaurants, Companies, Coordination, and Brinksmanship.

In War on Attrition the game theory is a dynamic timing contest involving a pause. Slab City Poker players meet at a central table where a timer is set, as each sets off about town in a stealing contest. The various strategies are to go by foot or bicycle, carrying a pack or pushing a cart, and so on. At the end of the timed 'hand' they return to the table to compare loot, trade strategies, and get high, before going out on the town for another hand. The conclusion drawn is there is no value in the pause in Slab City poker because they are all liars, and keep their higher value articles 'in the hole' somewhere so they're not stolen during the next hand.

Slab City is wild with adventure, and a hotbed of lawless game theory. It reminds me of the old west Dodge City where the citizens said, 'Leave me alone, and let me go my own route to hell.' A wicket little town, indeed, its character is so crystal clear that one might conclude is marked for special providence.

Nov

17

The price price of BTC is unlikely exceed 8,000 by much - a reader

Do you play poker? If so, have you ever made money from listening to the people watching the game?

The top call is interesting, but it would be a lot more interesting if you put money on it instead of making paper trade calls, as you have been since BTC was trading at 400.

I suggest 3-6 months of consolidation now that the 2x fork threat has passed (today) without drama.

The rest of the crypto market (i.e. alts such as ETH or app utility tokens such as REP) has been pounded indiscriminately in both BTC and USD terms since August. The attention has been entirely on BTC and its forks, with BTC dominance (market cap of BTC as a % of all crypto) climbing from 40% in June to briefly over 60% last week. The alt bear market has been relentless, taking 75% - 90% off the value of coins for solid, valuable projects with serious PE/VC backing.

Several of these apps will launch on the mainnet to great fanfare in the next few months, and will lift the price on many alts, including some that are undeserving. Coinbase/GDAX will begin allowing trading of some of these in January. Currently they only allow trading in BTC, Ether (ETH), and Litecoin (LTC). Coinbase is all that many new crypto investors know of the market (USD and crypto deposits are insured).

Also, now that Coinbase/GDAX has launched a custody program for digital assets, competitors will follow suit. Soon, institutions will have no compliance barriers to holding crypto and hedging with futures (launching this month on CME) or options (January on the CBOE).

But Wall Street and the CME are latecomers to this party, and with a few exceptions, haven't yet had the opportunity for many "liquidity events" such as what an equity IPO represents. I don't see a close analogy here. Most of the BTC that can exist has already been mined and is available to trade. Anecdotally, I know quite a few serious investors who are clueless about crypto who are champing at the bit to "short the bitcoin bubble" via futures. They haven't bothered to read any of the educational materials I have sent them, don't understand the market beyond what they read in the WSJ and Barron's, and have little but rock-ribbed certitude to justify their position. I expect them to get their education the hard way. IMO in the near term the debut of futures and options will create a tug-of-war. What someone treating it as just another financial asset does not understand is the degree to which network growth, miner hashpower, and difficulty adjustments have on the price. There are, in other words, fundamentals that are reflected in the long-term price trajectory, and complex stakeholder relationships.

I don't call tops (or bottoms), but I do expect a trendless consolidation period for BTC. Consider that following its 4000% run to 420 in June, ETH has traded in a range of 130-380, with trading action concentrated in the high end of that range. I expect ETH to rally while BTC stalls. Price growth has lagged network growth by a significant margin since June, and several of the closely watched use cases/apps are about to launch, which will increase network utilization significantly.

Nov

17

Today we had four people ask us about the likelihood of a current liquidity problem. Someone out there in Financial Journalist Land remembers the last line of the journalist in The Man Who Shot Liberty Valence: If the legend is more interesting than the truth, print the legend.

Here was our response (it's very short). As pictures and charts often do, these compel belief.

Mr. Theo writes: 

Thanks Bill. I would also add that historically the flattening of steep yield has been the best environment for equities.

Nov

17

 All the Slabs rest on these three words:  Might is Right. 

I will try to describe life here in a rational and straightforward manner. Human rights are not determined by justice, but my might. Hide it as you may, the naked fist rules and makes or breaks kings, as of yore. All of the other theories are lures and lies once you enter the town limit. 

It is the greatest human example of the Law of the Jungle that I have ever visited. The expression means ‘every man for himself’. I’ve been in every type of jungle around the world, and the code of survival is the same in Slab with reference to the superiority of brute force or self-interest in the struggle for survival.  

The phrase was used in a poem by Rudyard Kipling to describe the behavior and obligations of a wolf in a pack. In ‘The Law for the Wolves’:

Now this is the law of the jungle, as old and true as the sky,

And the wolf that shall keep it may prosper, but the wolf that shall break it must die.

For the strength of the pack is the wolf, and the strength of the wolf is the pack.

Every great Slabber is a lone wolf, for individualism runs strong in this anarchist community. But, when he must, he banks with others, to fight other packs on the trail. Everywhere Might is Right.

The Slabs consists of a warren of trailers and shanties on the dark squares of a checkerboard of WWII cement. The town rises in honor of Woodstock along the open road that Kerouac wrote about. It offers freedom lovers unmatched profoundness in contrast to the surrounding America.

A lion’s share of that freedom is accepting its tenet of social Darwinism. The term is used to refer to various ways of thinking and theories that emerged in the second half of the 19th century. It applied the evolutionary concept of natural selection to human society, especially in isolated ones like Slab City. Scholars still debate the extent to which the idea provisions opposing aggressive individualism. To roll it out into the open, Slab City believes that power, strength and superiority are the mark of a moral human being. Inherent human rights are nonexistence. Human rights instead are the spoils of the conquering man, and only to be enjoyed when they are taken and defended. 

The core Might is Right gives the superior brain and brawn an excuse to take control, and the weaker a reason to violent revolt. ‘And, that’s the way it is,’ as Walter Cronkite might sum the town’s morals. 

Moral values undergo a rampant change on passing the abandoned guard shack outside Salvation Mountain. They are the standards of good and evil which govern an individual’s behavior and choices. Individual morals are sure to differ inside and outside this town, and a visitor who stays long almost always undergoes a paradigm shift toward social Darwinism. There is no middle ground in defending yourself and, either, rising or falling. Strong personalities are built and broken here. 

The key is how to manage to live together? It is an outlaw town in the sense that there are no laws, and every disagreement that I have ever seen – thousands – have been solved by the threat or execution of the sword of principles defined in the Victorian book Might is Right by Ragnar Redbeard. Published posthumously in 1890, it heavily advocates egoistic anarchism, individualism, amorality, consequentialism, and psychological hedonism. Egoistic anarchism is particularly interesting in upholding extreme individualism without regard to how well or ill humanity may fare. It rejects conventional ideas of human and natural rights and argues that only strength of mind or physical might can establish moral rights. The response to the book has been nothing more or less than either love or hatred, which is the same reaction of every visitor to Slab City. It is regularly featured on the most-banned book lists, as this outlaw town is denounced as the most desperado to be shunned. 

The book and town are a veritable political and philosophical earthquake, marking the collapse of a false and depressing ideology that has held sway for 2,000 years. The thought is positively startling. Little of what you know is true. They may take who have the power. They can keep who can. 

Some Redbeard quotes echo what I see daily in Slab City:

‘If a man smite you on one cheek, smash him down; smite him hip and thigh, for self-preservation is the highest law.’

‘The natural world is a world of war; the natural man is a warrior; the natural law is tooth and claw.’

‘Nothing so lowers a lover in a virile maiden’s estimation, than for him to be whipped in a personal encounter with a rival.’

‘A condition of combat everywhere exists. We are born into perpetual conflict.’

‘Every man’s hand against every other man: except where living individuals have formed temporary partnerships. When one partner breaks the mutual agreement, the combine is necessarily dissolved, and all become enemies as before.’

‘Every organism, every human being, must conquer or serve. This is an ultimatum.’

‘Sociology is a biological problem and nations are herds of cattle.’


Slab City supplants the ideal of what is right, beautiful, and pleasant by the terrible consequence that Might is Right. It is fearful to think of what would befall humanity if such were to spread among the masses of people. And it has already begun to spread. 

The Law of the Slabs is that those who are strong and apply ruthless self-interest are the most successful. This is a zoo of predators offering contrast to the rest of USA. It urges us to face reality and deal with life as it really is rather than what we wish it was. The town is not what it should or must be but the way it is. 

I’m open to the idea of the Law of the Jungle having survived it in as many desperate situations as the spots on a leopard. There has been nothing else since stepping into the Slabs. However, it may take others a week to acclimate to Might is Right.

There are a lot of terms thrown around here – ‘Law of the Jungle’, ‘red in tooth and claw’, ‘survival of the fittest’ and ‘social Darwinism’ – but the waffle reduces to Might is Right. The town asks no questions and gives its reward to the strong.

Nov

17

 Slab City is the most recycling city in America. Recycling is converting waste into reusable material. The town is a giant recycling plant where the machines are the people on a desert surface, ever sifting, until the final unusable trash covers the town like volcanic ash. 

The types of recycling are:

For human waste, there are homemade porta-potties or dug holes in the ground, with some compost. One gentleman moves a tripod latrine around, sits and shits, with a blanket modestly covering him, to camouflage his droppings with the dogs’. 

There is no infrastructure of electric, sewage, or water. Everything is hauled in. There is no need for recycling bins.

Basically, the town looks like a checkerboard dump of scrupulously clean slabs kitty-corner to heaps of trash. It’s well picked through because one Slabber's trash is another's treasure. Light trash blows into the desert on weekly westerlies called the ‘garbage delivery’, and the heavier stuff has accumulated like slag over the decades.

No one can afford nor has the transportation to go to the county dump. There is no need to haul discards to the Goodies (Goodwill’s) and Sallies (Salvation Army’s) because Slabbers would have to bus long distances to retrieve them. 

The year-round population of about 200 are the have-nots. The snowbirds arriving by the droves each fall are the haves to dilute the disadvantaged population by 5:1. They put their discards on a 5-acre plot called Walmart, where everyone walks along somewhat organized aisles among cactus and creosote to pick what they like.

Sunday Madness is when the weekend tourists leave behind their valuables. My strategy is to radiate out from Walmart into their vacated campsites and collect items to redistribute among the worthy. I’ve given away a piano, motorcycle, car, bicycles, camping gear, food, clothes, bow and arrow, and musical instruments. 

One man stood at Saturday open mike at the Music Range and declared the town was a garbage dump. The audience knew better, and dragged him from the stage, beat him, and tossed him in the bushes.


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