Oct

19

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

Michael J. Edelman

TOP 500 REVIEWER VINE VOICE

5.0 out of 5 stars

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

August 17, 2018

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

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

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

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

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

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

Oct

19

The most sensible thing out of the Fed in years.

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

By Steve Matthews (Bloomberg) –

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

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

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

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

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

Cagdas Tuna writes: 

He can always find an excuse for not raising rates!
 

Oct

2

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

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

Sep

26

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

Steve Ellison replies:

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

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Sep

16

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

Sep

13

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sep

7

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

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

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

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

A good beginning makes a good end.

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

The only thing that never changes is that everything changes.

A ship does not sail with yesterday's wind.

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

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

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

"Yo Bolson"

May there be a road.

Sep

1

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

Steve Ellison writes: 

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

Sep

1

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

Anatoly Veltman writes: 

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

Cagdas Tuna writes: 

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

Bill Rafter writes: 

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

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

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

Aug

22

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

Kim Zussman writes: 

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

Stefan Jovanovich writes:

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

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

And now for another message from the past:

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

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

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

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

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

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

anonymous writes: 

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

Aug

22

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

Ecological Methods by Southwood and Henderson

Game Theory and Animal Behavior by Dugatkin and Reeve

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

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

Aug

15

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

Jim Sogi writes: 

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

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

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

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

Stefan Jovanovich writes: 

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

Plesiadapiformes

"Primate Origins Tied to Rise of Flowering Plants"

anonymous writes: 

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

Steve Ellison writes: 

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

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

 

Aug

13

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

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

Steve Ellison writes: 

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

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

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

Link and relevant excerpt below:

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

Jared Albert writes: 

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

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

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

Aug

4

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

Jul

23

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

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

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

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

Jul

9

1. He was a stock speculator and made successful trades in many railroad stocks as well as consuls.

2. He died with an estate of 700,000 pounds equivalent to 30 million today.

3. He spent his last years studying worms and the roots of plants and became a part of the nature that he loved.

4. He was a good father, husband, and master.

5. He kept double entry accounts of all expenditures and balanced books at the end of each year.

6. He played 2 games of backgammon each evening with the wife Emma and he was up by 2800 to 2600 in games when he died.

7. Emma and the son-in law played Mozart trios and Beethoven second movements to create harmony.

8. He had 10 children and they all contributed to his researches and books.

9. A Mr. Rich who he had never met bequested 15,000 pounds to the kids just as a gesture of tribute for the contribution that Darwin made.

10. He exchanged numerous letters with Wallace and arranged for Gladstone to give Wallace a pension of 500 pounds a year, which Wallace needed because he was a Hoodoo who whenever he bought a stock it was bound to crater.

Jul

3

The book The Last Cowboys by John Branch introduces us to the modern world of rodeo and the declining world of the old west. It cover the dynasty of the Wright family of John Branch. Introduces you to a vanishing way of life in the mid-sized cattle business and a very common way of life in mid sized professional sports, in this case saddle bronc rodeo.

The world of rodeo is like the world of satellite tennis and squash tournaments and many other sports where it costs almost 50% of the possible prize winnings to endure a season. But it is unlike any other because you are forced to overcome hundreds of injuries to compete. It is part Monte Walsh as it describes the current business of cattle raising for middle sized owners as they struggle with a declining opportunities and interference from the government as well as competition from the big operators.

It provides a vista to the Wright family, a Mormon family that has been operating a mid-sized cattle business for 150 years but is faced with the problems of making ends meet in modern times. The Wright have dominated saddle bronc rodeo competition with frequently 7 of the top 10 finishers descended from Cory Wright, two time world champion, his brothers and his sons and grandsons. Cory still competes at the age of 40 and is in the top ten.

There is a window provided to the bad refereeing in the tournaments and how you have to travel often for 72 hours and 20,000 miles to win $100. It is highly recommended to bring you to a vanishing way of life peopled by a heroic family.

Larry Williams writes: 

Tonight the Red Lodge Rodeo "Home of Champions" begins and I only wish I could ride bareback one more time. Certainly the toughest sport I ever tried. Each ride, and you have to ride to win, flirts with injury ft not death. But what an exhilarating feeling when that gate opens and all hell busts loose as you find that 8 seconds is much longer than you ever thought it could be.

In the back of the chutes tonight cowboys (some who do not ride, they just rodeo) will start stretching, then slip into leather gloves, light up rosin* to drip onto the gloves for sticking power, the climb up the chute to settle on top of trouble.

Speculators and rodeo stars are cut from the same cloth; we only get paid if we win. You get tossed off and you get nothing but the bumps and bruises and hopes you will hold on for the next ride. Where else to entertainers not get paid for performing?

Here are a few of the best rodeo songs I know.

* I had too much rosin on one time and could not get out of the handle (suitcase grip) horse dragged me all over the arena before I popped out; pretty embarrassing!

Let 'er buck!

Jun

23

I am reading Ken Follet's book Fall of Giants.

It is eye opening as to the mixups that caused the WW1.

It also has many facts that explain the particular weaknesses and strengths of the parties that led to the way.

It also contains a discussion of the fog of way, and the confusion that the Parties to it felt that is reminiscent of trading the market.

I would recommend the book to all who wish to be educated about war and people.

Jun

23

The idea that Peter Strzok while hoping and insisting that Hilary would win could make a impartial determination of whether Hillary violated the law is ludicrous. How often does one determine an activity of the one you are desperately rooting for is wrong. Consider a ball game and a close call. How often do the fans of the home team agree with a ref's close decision for the away team?

Jun

13

As usual and as predicted, no sooner was a deal with Korea made then every media rushed in to say that it was totally worthless and meaningless… what is the appropriate Aesop's proverb that captures this situation? Tom Wiswell always said something appropriate when a kibitzer told him how he could have won the game in a much easier fashion then he did.

anonymous writes: 

Hillary's first missed Nobel.

Jun

10

I have read the book Scale by Geoffrey West and I find many of the charts tautological and suffer from the part whole fallacy. I wonder how many of the scaling relations are predictive and not related to the physical dimensions of weight and height of the many species he approximates with algorithmic charts that are consistent with random numbers.

Leandro Toriano writes: 

West's stuff is poorly regarded among technical people–it pops, but power laws can be made to look like they fit too many things. (There are a few critiques on arXiv, iirc.)

Recently I came across Indra's Pearls by David Mumford, Caroline Series, and David Wright. They do hat-tip Mandelbrot's Hausdorff (fractal) dimension, but don't fall into trendy theory. Easily makes my top 100 of all time, and probably top 3 mathematics books for non-mathematicians. In it you'll find more reasonable discussions of this stuff than elsewhere.

Koebe 1/4 on youtube has a good video of Curt MacMullen speaking on Renormalisation.

Jun

7

What can we learn about the market from the recent playoffs?

1. A team that is behind near the end takes desperate shots and loses by an even greater score, i.e when the market is down near the close any rallies are ephemeral.

2. Ephemeral shots like those of Curry are very erratic compared to LeBron and Durant and can't be relied on… short term spikes are not sustainable.

3. A team with many scorers is much better than a team with a concentrated few and this will tell at the end of a game. The beard and the boaster from Cleveland both fell by the wayside in crucial moments at the end. A sustained move requires confirmation from related markets and will not stay if it is just its own.

4. Erratic players who have problems with the intake of substances will lose at crucial times, i.e. don't drink or take drugs while you are trading.

5. The difference between the winning team and losing team is like the battle between up and down. When a winning team is ahead near the close it is usually not overtaken. Indeed the lead tends to increase as the other team tries desperation shots.  

6. The stats on basketball are much more valuable than what we use for markets, i.e. the % of shots scored off the dribble versus catch and shoot and the % of hits from each sector of the court.

7. What else?

Jun

5

On employment day:

up at 820, up 820 to close: 17

up at 820, down 820 to close: 16

down at 820, up 820 to close: 30

down at 820, down 820 to close: 24

(Note: the announcement occurs at 830)

Peter Pinkhasov writes:

With the following, I am very much at risk of misunderstanding the Chair or to expose my ignorance. Yet I think Vic's numbers and my brief research suggest no leakage.

- The pre-release movements do not seem to anticipate the quality of the NFP headline number.

- A case for leaks can be made, if the quality of the NFP headline number is ignored, but then what was leaked? -> The Bond momentum starts during the globex session

- Maybe the leaker uses a sub-component of the report ?

- Potentially no NFP-day drift in equities similar to Fed-days

- (But: N is small)

- (But: I took the numbers by hand - potentially with some errors).

My table:

Victor Niederhoffer explains: 

My numbers suggest that there are leaks but that those who aren't privy to the leaks can't profit from them. The real problem is that so many people get the numbers in advance and that this creates a movement in the correct direction. This is an endemic and terrible problem.

May

24

Here are some interesting facts about Darwin.

1. He liked to smoke a cigarette to calm down from the politics of sustaining his views.

2. His greatest talent he said was in timing the swings of the long term gilts.

3. He liked to read novels about pretty girls.

4. He went to a watering spa often for relaxation.

5. After sleeping in the grass he heard the birds singing and saw the worms crawling and the insects buzzing about and he had never been so happy. His passage about "interesting to see the tangled bank of birds flitting about"…. must have come from this…

6. He liked to study worms and ants and trollopes. Nanny felt very sorry for him that he had nothing better to do.

These come from excellent book by Janet Browne Darwin: The Power of Place.

May

18

The mouse with one hole is quickly taken. This proverb maybe generalized to all sorts of market conditions.

It's why one should never take a half hour trade in markets no matter what the expectations… and it also applies to those big shots that can go against you 1 in 20 times like February 4th and other things.

May

8

Betting odds on the 2pm decision by the pres?

Kim Zussman writes: 

My bet is something other than complete abandonment. Trump has an upcoming heroic / legacy accomplishment possible with Kim, and won't want to give an example of US abrogating prior treaties.

Zubin Al Genubi writes:

Even if you knew ahead of time what the news will be, there is a theory that says it wouldn't help you trade what the market does.

Larry Williams writes: 

Fully agree based on 565 years of looking at news and the markets.

Other than, if news is supposed to be bullish and prices sell off there is trouble ahead and vice versa.

May

7

Shocking low range in bonds today (May 7th) of only 18 points versus usual average of 40 points… Much greater vol will occur soon so public can do the wrong thing. Believe that this is lowest range on a non-holiday in many months.

May

4

The book Something Wonderful by Todd Purdum is endlessly instructive as to the inner workings of the show business team of Rodgers and Hammerstein. Amazingly they didn't like each other after working together for 2 years. The book describes all the warts of rogers' personality but is very admiring of how he maintained boyish qualities in his melodies. Sondheim was taken in as a second son by Hammerstein and repaid him by saying Hammerstein was a mediocre talent with great soul and Rogers was a gifted talent with no soul. The stories of Rogers and Sondheim collaborate where Rogers couldn't countenance working with 3 people of a non masculine persuasion are interesting. Also, the many people that it takes to make a show including the set designer, the orchestrator, the rehearsal pianist, and the costume designer. The book contains the history and results and the formation of each show that Rand H did together and is particularly strong on the business aspects of how they financed it, and how they transformed their enterprise into a billion dollar machine but is somewhat weak on the musical and poetical aspects of the collaboration.

Apr

28

Watching the basketball playoffs I see quite a correspondence between the basketball scores and the market moves. Hopefully the market will get to the point where they have the bevy of statistics starting with the plus and minus for each man on the team that the basketball routinely has. They also have stats on the number of shots made from each position classified by number of dribbles which lends itself well to market action.

Steve Ellison writes: 

Plus-minus is a favorite statistic of more knowledgeable hockey fans. William Karlsson of the Vegas Golden Knights not only scored 43 goals and 35 assists this year, but he had the best plus-minus in the National Hockey League at plus 49 (meaning his team outscored opponents by 49 goals during the time he was on the ice).

There are counterexamples, too: players high in the scoring standings whose plus-minus is negative. Rather than name names, maybe it is best to leave their identities as an exercise for the reader.

Apr

26

Alfred Thayer Mahan is an estimable fellow who wrote 25 books and was considered the dean of naval strategists. His contemporaries railed against him for rehashing the English strategies in the age of sail while they were in the age of steam. But he was adamant the way we are about reading 100 year old books. He said "nothing could be more practical then formulation of the principles and methods by which war may be carried out to the best advantage through the study of history". He managed despite much opposition to the rehashing of Nelson's tactics in the battle of the Nile and Trafalagar to stay president of the war college for 7 years. His main principle was to prevent the enemy from engaging in commerce. His major strategic principle was "throw by strategic movements the mass of an army successively upon the decisive points of a theater of war and also upon the communications of the enemy without compromising your own". I believe this strategy for a money manager is very good and I aim to follow it in the main in the future.

anonymous writes:

If you believe in the Special Relationship's value for Americans' self-interest over time, then Mahan is your guy. If you think, as I do, that Britain's insistence on choosing the Ottomans over the Russians was the folly that produced the shames and greater follies of imperialism and led the Adams idiot brigade to reject Washington's Farewell wisdom, then Mayan is just another puffed-up fool who taught America's better minds to worship the warlordism known as strategic thinking.
 

Apr

26

The current broadway show Carousel was Rodgers' and Hammerstein's favorite show. The scene where Billy tells his wife that's he's a no good according to Sondheim was the turning point in modern theater…. The music was very good and the dancing was good also. However, the principal is a man of color and he sung and spoke the lines as if he was engaging in a rap contest or had recently been trained in that other nightmare Hamilton. Aubrey and I took in Carousel and My Fair Lady on successive days and we can recommend My Fair Lady as being timeless and having great songs and music including the second act where it was the custom of American composers to compose it during the tryouts in New Haven.

Apr

16

The use of deception by the US in the missile strike on Syria where they sent destroyers to the Mediterranean and had the Syrians thinking the missile strikes would come from there but in actuality they came from 3 other directions was similar to the market deceptions where they have a market that is usually associated with a move like bonds down which usually is associated with S&P up but then S&P tanks as it did on February 5th.

Anatoly Veltman writes: 

Interesting. Does anyone have good number: were 70% of Tomahawks shot down, or only 30%? 

Stefan Jovanovich replies: 

There are no "reliable" sources for such matters, but it is usually wisest to take the military reports first as "data".

As the report notes, the attack came from US Air Force bombers, Navy ships and a Marine electronic warfare suppression support aircraft. It is also careful to specify that there was no intrusion into "Syrian" air space by any plane. Only the munitions "invaded".

The reported "feint" is mostly Washington Post nonsense. The attacks came from every point of the compass except North. (Theoretically, the U.S. destroyers in the Black Sea - the Carney and Ross - could have launched their missiles; but that would have been a direct provocation of Turkey and Russia.) The French frigate and the British Virginia class submarine fired their missiles from the Mediterranean. The American attacks came from the Red Sea and the Persian/Arabian Gulf. The Syrian AA capacities, which are entirely Russian, were limited.

What I find notable is that this was very careful gunboat diplomacy on both sides. The Americans, French and British clearly warned the Russians and Syrians that there would be an attack; the buildings and their surrounding areas had been completely evacuated. The Russians, in turn, were careful to keep S-400 systems turned on but they did not launch their ground-to-air missiles while the attacks were underway. 

Anatoly Veltman writes:

Wow. Stefan's opinion, although carefully qualified, tends toward 0% (?) Russian Minister claims 71%.

Stefan Jovanovich responds: 

The truth is always the first casualty. My initial report had the British attack coming from a Virginia class submarine in the Med. Right weapon, wrong country. The sub was the U.S.S. John Warner.

The British Forces net has a detailed report of the weapons used.

Here is the report from TASS.

The Russian report says that the defensive weapons used were the S-125, S-200, Buk, Kvadrat and Osa air defense systems. The Pentagon referenced the S-400. The differences among these weapons is considerable.

The S-125 was introduced by the Soviets in 1961.

The S-200 also dates from the Cold War but is still in active service - hence, the Wikipedia page. The Syrian inventory dates from the 1980s.

The Buk, Kvadrat (Kub), and Osa are of a slightly more recent vintage; but none would be called "modern".

The question to be asked: Why would the Russians omit any mention of the S-400 when the Americans had identified it? The S-400 is the one system that is not a worked-over antique.

Apr

5

The book The Evolution of Everything is a hard-hitting and informative analysis of how unplanned activity in every field has led to greatness.

There are numerous eye opening facts in the book in the field of the economy, government, religion, science and the arts.

The market is shown to be Darwinian, and Smithism and Darwinism are shown to be complimentary forces in every field you can think of.

Mar

28

"The Death of Stalin" is a poignant sensitive movie that is well worth seeing.

Here is a good review. 

Mar

28

I have just read Nock's Mr. Jefferson and never was there a more gifted and dedicated man of politics, he died bankrupt and went around all of Europe while he was ambassador to Paris trying out and improving every mechanical invention of the day. Much insight concerning the egotistical Federalist Hamilton is given.

Mar

14

Interesting article on the cost of a loaf of bread in 19th century inspired by reading of David Copperfield where he bought a loaf of bread at 9 years old for a pence to stave off hunger.

Bill Rafter writes: 

Let me assume that the costs of making bread by hand in 2018 is somewhat equivalent to making bread commercially 200 years ago. Since the bread of Victorian times was "wheaten", I will compare it with today's whole wheat.

I know these things because I make virtually all the bread we eat because it tastes better, looks better and is undoubtedly healthier.

When you make bread by hand (no electric mixers) you always make two loaves because it is more efficient. If the second loaf is more than you need, you will have no trouble giving it away and make a friend by doing so.

You start with 1000 grams (2.2 lbs.) of flour. If that is the supermarket brand it might cost you $1.25. To that you will add say 750 grams of water (free), 22 grams of salt (nominal) and ¾ teaspoons of yeast (~10 cents). You don't need to buy yeast, as you can make your own (that's what they call sourdough), but the latter is only efficient if you make bread daily. So all-in, your raw material cost for two loaves is less than $1.40, or 70 cents per loaf. To that add the cost of the oven, 475 degrees for an hour and you are probably looking at a dollar per loaf.

The result will be great-tasting with a nice crust, a fantastic peasant-type bread that is highly nutritious. The two loaves will weigh about 1040 grams, or 570 grams per loaf. You would think more, but all that water steams off. So for comparison to Victorian times, the two loaves will weigh about ¾ of the mentioned quartern loaf meaning that the quartern loaf today would cost you $3. BTW, The largest loaf I have made myself was 3 kilos (6.5 pounds) and a real pain (pardon the pun) to handle.

I have not included the cost of labor. although making bread requires skill, it is easily mastered. After all, everyone in the third world knows how to make great bread, and there's a company here that uses prisoners to make great bread. In Dickensian times the baker's assistant was probably not paid, but given bread as wages, which is contrary to the article. Note that a lot of the time involved in creating bread is in waiting, during which the breadmaker can be doing other things. For example, I can easily bake bread while trading the markets. Thus the cost of labor is somewhat hard to quantify.

Aside 1:

The above is the basic plan for great homemade bread. But limits can be pushed. For example, my personal favorite is adding 450 grams of Kalamata olives to the kilo of flour and substituting beer for water. My family's favorite adds 400 grams of chocolate bits, 200 grams of walnuts and uses pear cider instead of water. It's not too hard to imagine a loaf of homemade bread costing in the vicinity of $10. But of course, the taste is incomparable.

Aside 2:

The article mentioned "wheaten". In Victorian times the bread in England most likely included a fair amount of barley flour, which was more common and cheaper. Today, barley flour is not as common and more expensive. I like the addition of barley as it gives a sweeter flavor.
 

Mar

1

Fake doc Alan Greenspan's tenure at Fed began August 11th, 1987, with S&P at 330. On December 30th, 1987, market was 240. Paul Vollker's tenure began August 6th, 1979, with S&P at 1014. It closed the year at 1010. Janet Yellen saw a rise in S&P when her tenure began in Feb 2014. It seems that there is a tendency to test the new Fed chair as he begins his tenure.

Chair Bernanke's term which began on February 1st, 2006, the market only dropped 3% during the next few months. The point being that the market likes to test the new Fed chair to see if he will be bullish.

Feb

21

The book Gotham by Burrows and M. Wallace details the changes in the fortunes of the American economy and New York from 1600 to 1900. As it moved from Dutch rule to English rule and from whig control to republican Jeffersonian control. It is amazing how many panics and complete major depression in the economy came almost every several years. All the depressions were recovered in the next year or two.

A recent visit to Muir woods shows the same dynamics to the growth of trees after fires although the fires were not as frequent. Indeed there hasn't been a major fire there in 150 years. Apparently the trees have developed resistance to fires.

Feb

3

An interesting question arises now. The market has declined 115 points in last 5 days. That's incredibly bullish up 2.5% next two days, but on the Fridays it happened one of them was down 101 points the next days on 8/21/2015. How to combine?

Alston Mabry writes: 

Here is a take, using the SPY daily data, calculating the 5-day move into the close as a %, and then the 2-day forward move, and then sorting all the days by 5-day moves and getting means for the deciles. 

Jan

28

I noted that the 2 day S&P has been up 20 days in a row and this is a record. Whether it is predictive is another question. Such forays into immunity or increased hazards are interesting to keep in mind.

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

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.

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

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.

.

.

.

.

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

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.

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

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

13

Stocks looking pretty vulnerable in here.

Victor Niederhoffer writes: 

Yes. But remember the senator's golden apple and Vince's admonition that you have to be crazy if you're not long and refresh the dimsonian 40,000 a century and see how it works in Nov and Dec.

Nov

11

1. Gann's son says rumors about his dad's fortune are false

2. Heiby didn't trade much but had a printing bus that paid bills

3. Senator is bullish but finds it harder to make the triple digit returns any more

4. A certain bear has 30 people writing bearish things for his followers

5. It was hard finding a place to trade during the hurricane in St. Croix

6. Arthur Merrill was a barbershop singer

"The Senator" Larry Williams writes: 

Heiby's business was selling printing presses or other industrial items as I recall, not printing business as such. Trying to locate him and may have a lead. He would be close to 100 now.

Gann's son said he "never saw all the money dad was supposed to have made, we lived simply and in a simple house; dad was a chartist". I also knew WDG's promoter, FB Thatcher. He had the best Gann stories.

Yes bullish long term may have a correction here, but no bear market in sight. Had a good run early this year but equity keeps going up to old highs and backing off–need a break out here but still treading water with equity curve.

Art Merrill was very much gentleman as is VN. Unlike me, Art was very good with details. Details are one of my great weaknesses.

Oct

23

Red Notice by Bill Browder is a true life story of present day Russian capitalism and the murder of Magnitski. The author's father was chair of the mathematics department at Chicago, and the two sons were chair of math at Princeton and Brown. Bill Browder inherited the parents intelligence and applied it to becoming the biggest investor in Russia. He found that Russian assets were being sold at 5% of their value and got Salomon to invest 25 big at the lows. The funniest part is how all his colleagues approached the news. "What's the spread between bid and asked?" "What are the advisory fees we can get out of it". He describes the market where the chits to buy the properties were sold and it's like an early version of the commodity exchanges with armed guards every where since all the transactions had to be in cash.

There are many intelligent observations he makes- eg Russians love children and it's the only place in world where you can bring a crying child into a restaurant and people will smile. That led to the importance of the adoption restriction we've heard so much about. When Magniski was murdered, Kerry refused to sign off on a bill to censure Russia but Browder put so much of a full court press on that finally it passed after the election when Kerry was going to become secretary of state anyway. So Putin in retaliation banned the adoption of Russian kids by US families.

It wasn't such a innocuous thing that the kids were involved in when they met with the Russian Prime minister but a cause celebre in Russia. It was amazing to see that Browder gave up his business to get vengeance for his lawyer Magniski who was beaten with a rubber hose shortly before he died. Above all, it the story of a very smart businessman and how he became a billionaire by buying headlong into an undervalue assets.

Anatoly Veltman comments: 

I assume Browder took a lot of profits out of Russia. And he lived, too.

Look, something had to be paid. He didn't. His employee did…

Vic started this thread with an ode to the wonderful risk taker/capitalist. Part of the truth was that privatization drive resulted in the wealth of the populace ending up in just a few hands. Browder included. Many a babushka in the vastness of Siberia have taken a cut in their $60 social security to buttress Browder's retirement. Browder's brand of capitalism was a lil' too much for the majority rank and file in that land. Yes, he did pay for that nation's former assets 5c on the dollar.

Oct

20

Yes.

Oct

18

I am asked, "what were you doing 30 years ago Oct 19th, 1987".

I got very long bonds and stocks at the close. And had a huge profit in bonds at 5 pm. But then I hedged it in the cash market. I walked home with the palindrome that afternoon and asked him if he wanted to borrow some money from me. He sold all his stocks Thursday at the opening and made fortunes for all the guys who took the other side. We played tennis on Saturday at the columbus racket club with the head bond guy at Morgan Stanley. He had a good overhead. And Susan said, "at least we won't have to truncate the prices when we put them in the trs 80 again. The German market rallied Thursday at noon, when everything was down the limit, and that fixed things. A big options trader bought 2 S&P futures and held them for 10 years, and made a million bucks on it. Jim Lorie had been short from 200 pts lower in SPU and covered at breakeven on the limit down open. My broker on the floor was filling orders for a fee for others during the crash and I fired her because she could have been hit with an out and bankrupted us. I did not get much sleep that week as I often don't now, 30 years later. I didn't realize that prices were locked limit in the morning with a big overhang to sell at the limit. And I bought at the limit when it reopened around noon, to find myself holding a huge immediate loss as the real price was much lower. Baker did it by saying we had to weaken the dollar which caused bond prices to fall. I met his daughter and showed her an article about King Canute realizing he couldn't control the waves, and told her that's what her father should have done. She kept calling him Daddy and she called me up afterwards to chat but I hung up on her because I thought she was a salesman.

Oct

17

On my way with Aubrey on Grand street at 4:00 pm, I notice a line of 100 people waiting at the entrance of a store.

What were they selling—- pickles.

I believe they were the Pickle People store.

Right adjacent to a bagel store in China town with about 25 people waiting outside.

Also noted, I had  Penguin ice cream and it was the second or third best banana ice cream I've had in 50 years.

Oct

12

I recently got conned also about my books which I love and are part of my soul. Out of clear blue sky like Mr. Grain's mom, I get a call from a letter dealer. He's been refraining from contacting me the past 25 years because he's such an ethical guy and didn't wish to compete with the other dealers he sells letters to and then I buy them.

He comes to my house. And he sees lots of rare books. Well he can recommend a great book dealer who can give me a great deal, a special deal. But because there is some mold on some books, and they can't tell the condition until they see them, I am recommended to ship all my books to the dealer.

"Okay, I say, but don't send any books worth 2,500 or less. I go to the book dealer and I'm thinking about my trades and Aubrey is there. They offer me 350,000 for 200 books and I say I'll reflect. They raise the offer to 400. I wasn't thinking and because the books are part of my heritage, I didn't look at the list of books they took. I like to do a deal, and since they're recommended by my letter dealer as special and I've done much business with the book seller before, I say yes.

Then I realize that I sold 200 books with min of 2,500 and max of 20,000 for about 1200 a book. I immediately write back that I'll pay them a 100 break up fee if they cancel the transaction. "You see, they can't do that because the books are already in play. The letter dealer then tells me that "how did you expect me to be compensated. Of course I was partners with the book seller".

Every day, I make a mistake like that in the market. But it doesn't hurt as much because the books were part of me as my parents had more books from the book sellers dump than I had and I loved the books. I still think about it every night, and haven't gone into my library in the 3 weeks since the con.

Aside from Mr. Grain's mol, I am the easiest to con in the world.

Another con is to involve the victim in some wrongful behavior so that he doesn't wish to bring in the police. Frank Perdaux was great at that in the railroad con where the confederate whispers to the mark that he can see the hole card and therefore they are sure to win. The confederate also shows empathy with the mark by joining him in fleecing the southern rube who is so brash and naïve and saw the women in scanty clothes.

One of the most reprehensible things to me in the recent con played on me is that the con man read my book and knew I loved and admired my dad. The con man sent me a video of his father who supposedly was a colleague of my dad, to show me how he respected his father just as much. To add icing on the cake, he told me how his son was a great basketball coach and had the integrity of Cato refusing to bow to the rough and tumble unethical behavior of the other coaches. It was a very nice touch but it still rankles. 

Bo Keely writes: 

I enjoyed your post on being conned. You have read as many books as I about getting conned, but the most important point they omit is that a smart person is conned when he is rushed or tired. I have tried to solve this in my daily transactions that are susceptible to cons at Slab City by mentally causing myself to pause before saying, or signing something. When money is flashing, I reinforce the pause by stepping back. I only make mistakes when I'm compromised, and imagine you are about the same. Regards to your rare letter man. 

Oct

10

The Columbo series showed a different kind of detective mystery.

Instead of starting out with uncertainty and finding the perp, it starts out with a carefully documented murder, and then the plot is "how to catch him" rather than "who did it".

For a linear difference equation there are only 9 shapes that the dynamic solution can take. Depending on the y(t) = b(y(t-1) + a how are these two paths to the solution related.

Right before I go to sleep I like to play with a good difference equation preferably second order. It's often a fibonacci.

Oct

10

They vet you in Stockholm to see if you're a fellow traveler before giving you the Nobel, and I guess this imposter passed the test.

Pitt T. Maner III writes: 

The lack of overreaction must be very puzzling.

Of possible interest–NNT has been very critical via tweets and made note in retweet feed of Swedish/Dr. Nudge affinity for a "cashless society". Perhaps risks/dangers of… With that it must be time for a Fika.

Oct

8

Interesting paper (Capital Structure Dynamics and Stock Returns, 2006) on debt ratio as a predictor of stock returns relating to companies issuing equity reducing debt ratio when stocks too high and against signaling theory that companies issue debt when they are sure they can pay the interest back. Calls for an update.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=685462

Oct

6

Victor Niederhoffer writes to David Hand:

I am good friend of Steve Stigler and recently read and recommended your book. I came across an interesting coincidence in our mutual field. Every day I post a colored graph of 4 possible outcomes of directions of bond and stocks previous day. 11 of the last 16 occurrences have been yellow days with stocks up bonds down. The binomial prob of that is 1 in 10 million or so. I point out that events have to happen. And this is one of many billions of starting stopping pts and outcomes. Still it seems like an anomaly as I point out, the more important question is what does it portend for future. What's your view? Random or not?

David Hands replies:

Hi Vic,

Thanks for recommending my book!

Can I first check the basis for your calculations. (I may have misunderstood what you meant.) If we take a simple model in which the probability of each of the four types of up/down pairs is equal, and the days are independent, then the probability of getting 11 out of 16 having (stocks up; bonds down) is Choose(16,11)*(0.25^11)*(0.25^5) = about 1 in 4000?

But you presumably chose (to comment on) the pattern (stocks up; bonds down) after having seen the data. So if instead we say what about the probability of any one of the four patterns coming up 11 out of the 16 times, then we have four times the probability. So, now it's 1 in 1000.

That sort of calculation would be ok if we simply had a set of 16 days to look at. But, of course, we are scanning across time. The longer we go on, the more we should expect apparently anomalous sequences to crop up. For example, we should ask not 'what is the probability of getting 11 out of 16 the same?' but 'what's the probability of getting 11 out of 16 consecutive days the same over the past 1000 (or however many) days?'

I really liked your website, which I had not seen before.

All the best

David

Professor David J. Hand Imperial College, London

Pitt T. Maner III adds:

A 1 hour lecture by Prof. David Hand on this subject (2014) is available here.

I was watching Professor Hand's lecture and thought it amusing that he found himself in a situation where a man with his same name was staying at the same hotel at the same. This reminded me that at the University of Alabama about 39 years ago I had, if my memory is right, a Professor Hand for an advanced, introductory chemistry course who was a Harvard graduate. Ironically, the chemist Dr. Hand liked to grade on a curve and on his first test the grade for a "C" was 35% instead of the normal 70%! The first question on this first test involved multiplying/dividing two large numbers and determining the number of significant digits–this took about 15 minutes of the allotted 1 hour test time to do with a calculator but was only worth 5% out of the 100% perfect test score– such a tricky fellow. Now the professors get rated online by the students!

Oct

3

Toria my 4th daughter's boyfriend is a dealer in the Bellagio. He was dealing there when the shooting started. As predicted, the poker did not stop, thereby replicating the situation on the titanic where the gentleman continued their backgammon game until they sunk and the band continued playing.

Stefan Jovanovich writes: 

The White Star Line invoiced the heirs and family members of the ship's band–for the cost of the unreturned company uniforms.

anonymous writes:

The sinking of the Titanic was a harbinger of change — for some things. (Below is an excerpt from the book And the Band Played On by Christopher Ward. Ward's grandfather was the Titanic's Violinist.)

But the Titanic revealed changing social attitudes, as well as atavistic ones. Andrew Hume, for instance, did not pay the bill for his son's uniform. He forwarded it to the Amalgamated Musicians Union, which published it without comment in its newsletter. Public opinion was beginning to assert itself. More than 30,000 people lined the streets of Colne in Lancashire for the funeral of the liner's bandmaster, Wallace Hartley, who, with the rest of the band, had heroically played until the end to maintain calm.

If White Star learned nothing from the consequences of its recklessness, its employees did. A week after the sinking, 54 stokers and firemen, most of whom had lost a father, a son or a brother, walked off the White Star liner Olympic when they discovered there were insufficient lifeboats to accommodate the passengers and crew. They were arrested for mutiny, but the magistrates discharged them. They returned to the Olympic, whose departure had been delayed by a fortnight, to find 16 additional lifeboats.

The captain and crew of the Mackay-Bennett also discovered that the old order was changing. Having risked their lives sailing more than a thousand miles into ice fields, they might have expected to return to Halifax as heroes. Instead, they were the subjects of a public storm, for they had come back with only 190 corpses, having buried 116 at sea. What made the difference between a body being tipped overboard and one being brought ashore? The purser's conscientious descriptions provided the explanation: tattoos or a foreign-sounding name.

Oct

3

1. The moon moves slowly but it crosses the town
2. By the time the fool has learned the game, the players have dispersed
3. It is the calm and silent waters that drown you
4. The fools sheep break loose twice
5. Don't test the depth of water with both feet
6. You cannot build a house with last year's summer
7. Around a flowering tree one finds many insects
8. A white dog does not bite another white dog
9. If a dead tree falls it carries with it a live one
10. There is no cure that does not cost
11. An eel that was not caught is as big as your thigh
12. Cross the river in a crowd and the crocodiles won't eat you
13. He who wishes to barter does not like his own property
14. A wealthy man will always have followers
15. If you run from the white ant you may stumble upon the stinging ant
16. When the mouse laughs at a cat, there is a hole near by
17. If you rise too early the dew will wet you
18. If you climb up a tree you must climb down the same tree
19. Events follow one another like the days of a week
20. Everything has an end
21. Darkness conceals the hippopotamus
   

All from African Proverbs compiled by Charlotte and Wolf Leslau

Jefferey Hirsch writes: 

When an old man dies, a library burns down. — African proverb

This is one of my favs. Wish I knew if it was from Kenya or Congo or Sudan or Somalia, but I don't. 

Sep

28

The NY Times and Bloomberg wrote about this new paper (August 2017) that purports to show that Tbills outperform almost all stocks over the long run–and that a tiny number of stocks account for all of the returns. I just read it. I recommend that you read it too–since it is counter intuitive.

I see several unrealistic/unspecified methodologies in this paper including (1) equal weight holdings from IPO to delisting of every stock; (2) no clear explanation for how the capital from mergers, acquisitions and spinoffs are handled; (3) where the new investor capital comes from to buy fresh IPO's and where the cash goes when a company is acquired for cash. I also didn't study his statistics carefully. Since most every company goes through a life cycle, it's intuitive that most will disappear or be acquired/acquire, so I need a better explanation for the investor's portfolio management/cash to really understand the practical. What other problems or unique insights do you see in this paper? Something just feels wrong here.

Do Stocks Outperform Treasury Bills?

Hendrik Bessembinder, Arizona State University. Revised August 2017.

Abstract:

Most common stocks do not. Slightly more than four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns, inclusive of reinvested dividends, less than those on one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed companies. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness of multiperiod returns arises both from positive skewness in monthly returns and because the compounding of random returns induces skewness. The results help to explain why active strategies, which tend to be poorly diversified, most often underperform market averages.

Victor Niederhoffer writes: 

This ridiculous paper from anti stock which I haven't read and goes counter to the carefully worked and accurate work of the triumphal trio duly reported in all their yearbooks is an absurdity. Of course most stocks will underperform. That's the nature of cross sectional returns. The distribution has quite a few good winners. It's probably true of a normal distribution also. Certainly for the kind reported in the NYSE year book. Certainly for the stocks in any variant of the pareto distributions. How far will they go to undermine the value of equities. It's so absurd I can't begin to say how it would apply to most any real life distribution in any field like IQ's.

Stefan Jovanovich writes: 

Index investing works because it allows people to avoid the risks of trading; and most of us are lousy traders.

Enterprise ownership beats public investment in terms of ROI (not "Radio on Internet"); but the public markets offer the only way for entrepreneurs to cash out. We still own one of our start-ups; its annual payout as ROI has been greater than 40% annually for the last 38 years. But, we cannot not "cash out" by selling it to someone else. The actual market for private businesses that makes hundreds of thousands, not millions, does not exist. We have been able to "retire" - i.e. extend the life of the business beyond the time we directly manage it - by doing a private variation on an ESOP; our former employee now runs it as a part owner.

As for the tug of war between "capital" and labor, we have been lucky enough to escape Marxism almost entirely. The cash flow from the business is distributed using the New England whaling ship model of "shares". Keith, the captain and part owner, sails out into the unknown every month and we get our cut on what the barrels that he lands in New Bedford. What we all share - Keith, Eddy and her Mom, your pontificating correspondent, and everyone else in the crew - is a 19th century American sense of equality. We are all equal members of the enterprise in dignity and responsibility and everyone understands that what people "make" is a function of talent and timing, not innate worth.

P.S. Every business failure in my life has been a situation where the people in charge (including me) thought that talk about the business as "family" and a mission statement on the web site would do the trick. It didn't; it can't. 

Rocky Humbert writes: 

I read his paper again and was able to tease one critically important fact out of it.

Page 15 and table 2A/Panel C: 70.5 % of the stocks that are in the largest decile by market cap outperformed the Tbill with a 1 decade horizon. And 81.3% of those stocks had a positive return. It's only for the smallest market cap groups that a substantial percentage substantially underperformed Tbills. Look at that table carefully and you can look at your own portfolio and it all makes sense.

In essence — if you own the biggest companies, you have beaten the Tbill (as we know from experience), but if you own the smallest market cap stocks, you have not. This makes intuitive sense since there are only two kinds of small cap stocks — those that start small and end up big. And those who were once big and are on their way to 0. It's a rare and bizarre company that starts small and always stays small!

The press reports and paper abstract are written in a bearish sensationalistic manner. For whatever reason, he chose not to include the key point mentioned above in his abstract. Now that I found this fact, I feel like everything else is noise — except for reinforcing one lesson that I've discovered anectodally: individual price momentum on the way down matters. If you have a stock that was once a $100 billion market cap and is unfortunately now a $10 Billion market cap, you should take your tax loss and reinvest whatever is left in another stock. And not wait for it to go to zero…and definitely not keep averaging down. In contrast, if you bought a $50 Billion market cap stock and it's now a $100 Billion market cap stock, don't sell it because it went up a lot. The skew and history suggest that it will continue to do well. (Until it doesn't).

Sep

25

40 years ago when one first fooled around with the idea that there was a web of interconnections between markets like the web between producers and consumers in biomes of nature, one concluded that there was always a web between markets, what I called the ecology of markets, i.e. when stocks went up it caused bonds to go down, et al–but the problem was that the web was always changing. In looking back at that hypothesis and observation, doing many recent rests, one concluded that problematically that the observation was correct, and the main problem as far as opportunity is that that the web is always changing. Perhaps this is because of ever changing cycles, but perhaps due to homeostatic activities by the central banks and flexions.

anonymous writes:

1. Most of the money today is managed by AI methods.
2. AI data input is biased toward current decade, to substantial degree.
3. Within current decade, most intraday moves had Bonds suppressed by Equities strength.
4. Bonds are still not far off their ultimate record high valuation; and Equities are on their records.

It would make a hard sell to modern asset allocators to point that 40 years ago Stock fortunes were in lockstep with Bond fortunes. Will ancient history make abrupt comeback? This would make for utter disruption.

anonymous writes: 

How many markets or asset categories make up the web? Just trying to keep it simple here is what I came up with:

1. Equities
2. Fixed Income (Bonds)
3. Commodities
4. Currencies
5. Real Estate
6. Arts & Collectibles

Did I leave anything out? 

Stef Estebiza writes: 

American markets steadily, slowly, go upwards…the markets are opportunistic pathogens…until a bad note of any nature happens, they continue to do what they were doing, in this case they are going up, using the most illicit systems to do so exp-multiple. Panic has been abolished by law…what is it that still has to happen to cause a change? A random nuclear explosion? When you have liquidity and infinite ability to handle any "indicator" as you like (even the debt) what can you expect? The only one would be a collapse of consumption…one of those non-controllable costers from central banks. For now the sun shines, navigates upwards…waiting for Trump…and in the meantime, all the MINCHIATE on artificial intelligence, bitcoin etc…can also stay. 

Russ Sears writes: 

"panic has been abolished by law". Please define "panic" and put some numbers to this. It would seem to me that "panic" implies some over-reaction During the election when it was clear that HC would not win..There was panic…S&P futures down 100… then a reversal by end of day. It would be hard for me to put a market impact number on a nuclear attack, because it would be huge, and probably would be some "panic" at some point. But lack of big down days implies that the market believes it essentially has got it (the future) right. Not conclude that it is being manipulated. It's much easier to get people to believe a malicious falsehood about someone/thing than it is to get people to believe in benevolent falsehoods. 

Sep

22

David Hand's The Improbabiity Principle should go along with a book on multiple comparisons and a simulation program should be on all speculators desks.

Sep

20

An old time book well worth reading is A Century of Prices by Theodore Burton and G.C Selden.

It suggests that high commodity prices are bearish for interest rates
because it requires more capital for all inventory and investments with
high prices. I wonder if this could be tested.

The book is very suggestive of many hypotheses. From 1919.

Sep

19

After each missile test by North Korea, the reaction changes slightly. On the first ones, there is a big decline overnight, then a rally. On the second not so big an overnight decline. On subsequent ones, hardly a blip overnight with the rally in US trading the next day a little less. Can this reaction to information be generalized and quantified, and can predictions be made? Will a subsequent missile test actually lead to a rally overnight? The theory of information bits is relevant I think.

Gary Phillips writes: 

Recursive events sans any consequences has resulted in the market becoming desensitized to the disruption, the resulting effect much like a diminishing return. The same phenomenon can take place when one takes his first bad hickey, and realizes one's world hasn't come to an end. Becoming de-sensitized to risk or large losses can be very destabilizing to a trader.

Kim Zussman writes: 

"The market's like an aging lothario that continually needs its balls fluffed (by cb's) to get and stay erect."

-Fun Zayn Moyl in Gots Oyer

Sep

14

"After a big thunderstorm, you will find that people become more friendly and sociable" from The Lost Art of Reading Nature Signs by Tristan Gooley. Does the aftermath of hurricanes and floods bring bull?

Sep

13

When will pseudo economists and foolish people at the Fed realize that low inflation is good as it increases the stock of wealth that individuals have, and stop trying to increase inflation on the absurd idea that the higher the rate of inflation the lower the rare of unemployment.

Sep

6

This is a very naive question, but if gasoline is way up doesn't this mean that buying crude would be profitable since gasoline is a reasonable proportion of the refining of oil and shouldn't this make crude go up with crude at a 6 month low at 46 a barrel? Does the flooding in Houston cause demand for crude to fall by that much to offset it, and is there an effect from the reduction in crude supply that shutting down drilling and possibly refining would cause?

John Netto writes: 

Vic, my apologies in getting this to you so late. I consulted my colleague who actively trades the US-Europe energy complex and he broke down how this situation with the rise of gasoline has very little impact on the price of crude oil.

Flooding in Houston depresses all kind of demand, both electricity and gasoline (no driving), but the impact on electricity is larger. Mostly this is a supply issue for gasoline alone.

The refineries are offline for awhile, so timespreads blow out (Sep/Oct and Oct/Nov go ballistic) because the gasoline supply is not there. The timespreads strengthening opens up the arbitrage to bring over European gasoline from Europe (via ship). So the arb guys sell US gasoline, buy European gasoline, and book a ship. So the supply is coming regardless of what happens to the refineries.

Crude doesn't necessarily move because crude is not being used while the refineries do not run.

More refinery downtime = no crude demand.

Once the refineries go back online, there isn't really much of an "overdrive" option to run even faster (individual refinery runs can go up and down marginally, but usually don't vary that much to matter vs off)

I hope this clarified your question.

— keep looking »

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