Aug

23

Tests for Pareto II heavy tail extremes using R software tests Kendall, Pearson

Aug

19

Wes Gray, who studied with Eugene Fama, runs a firm called Alpha Architect. In his most recent weekly newsletter, he mentioned a new academic paper that asks the question: Do Stocks Outperform Treasury Bills?

Here is the abstract summary of the paper and the link to SSRN's publication of the full paper:

Hendrik Bessembinder Fifty eight percent of CRSP common stocks have lifetime holding period returns less than those on one-month Treasuries. The modal lifetime return is -100%. When stated in terms of lifetime dollar wealth creation, the entire net gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks, as the other ninety six percent collectively matched one-month Treasury bills. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness arises both because monthly returns are positively skewed and because compounding returns induces skewness. The results help to explain why active strategies, which tend to be poorly diversified, most often underperform.

John Netto writes:

I was fortunate enough to have Wes, a former Marine Corps Officer and Iraq war veteran, write the foreword to my book. He's an inspiration. 

Larry Williams writes:

I thought this was common knowledge. Goldman did a studies years ago with the same conclusion and as I recall so did Edgar Lawrence Smith in the 1930s.

Ralph Vince writes:

Just go look at what happens to stocks when earnings yield and/or dividend yields exceed a certain multiple on t bill returns.

I have grown generally very skeptical of anything that emanates from U of Chicago. There is a philosophical problem there I have discovered, incongruent with real-world markets, but that is a subject for a different, future thread possibly.

And fwiw, these multiples of t bill returns, as metrics of valuation, are quite opposed here to the seemingly pervasive meme of being at or in a bear market's doorstep.

Stefan Jovanovich writes: 

Like Pat McAfee, I am now (and have been for a while) a fan of players, not teams. (The baseball Giants remain an exception because the old franchise at the Polo Grounds was my childhood home. Even the Mobile Shippers (the Negro team in Mobile, Alabama that nurtured Henry Aaron and Willie McCovey) never quite made me a die-hard.) So, I can offer no opinions about the University of Chicago or any other academic team. I am a fan of Eugene Fama because he seems to have been remarkably generous to his graduate students in encouraging them and their work, even when he thought they were "wrong". I also admire him for being the only person I know of who has questioned the utility of the United States having a central bank when the dollar, as currency, has no independent monetary existence.

As LW notes, Edgar Lawrence Smith put the case that, over any two decade period that he studied, "a diversification of common stocks has …, in the end, shown better results, both as to income return and safety of principal, than a similar investment in bonds." Professor Bessembinder's paper does not contradict that conclusion. His argument is that most stocks do no better than Treasury bills; the out-performance of "the market" is dependent on a very few spectacular winners. I thought this actually reinforced the belief of the List members that the Jack Bogle's advice - "Buy Everything and Keep It Forever" - was all wet.

Ralph Vince writes: 

As an aside but related data point on this discussion, as of Friday's close, the geometric multiple on the 30 year constant is at 35. It has NEVER been this high above the S&P P/E Multiple.

I want to drink in the bigger picture.

Kim Zussman writes: 

The only free lunch is diversification (including temporally, which means B&H).

Ralph Vince writes: 

It is the ILLUSION of a free lunch. 

Diversification works over long periods of time for the average investor because it creates a slight return asymmetry that compounds over time.

True. However, asymptotically, it is gone with the wind.

By way of a simplistic analogy. Consider the single proposition of a coin toss, heads you double, tails you lose all. So you diversify among 4 coin where the pairwise correlation between any two is r=0 (much better than you can find in capital markets, esp under conditions of extreme moves). Let's say you decide to play 4 coins simultaneously. So rather than a .5 probability of losing it all, you have a .0625 probability.

Eventually, everyone gets pasted. for whatever they have exposed to risk.

It is how you handle that - that inevitable lightning strike if you stick around long enough (and as I always say, if you live long enough, you'll get to experience everything - twice! if you live long enough). That is the only thing that ultimately matters in this primal arena. All other "edges," and supposed free lunches are only temporal.

Jonathan Bower writes: 

Ralph, you will be able to out math me so take all of this with a grain of salt. Maybe I can set up a simulation at some point that will prove my point…

But I think your assumptions may be not realistic for the case at hand, the average investor not skilled traders. While the 0 correlation gives an edge to your example because as you rightly point out that's not the case for capital markets. N of 4 is also not sufficiently diversified. However the double or 0 is possibly a far more restrictive constraint. In reality owning a basket of stocks the outcomes are more like 0 and 10x +. And while it is possible to go bust, going to 0 (without leverage) is actually an unlikely outcome as the stock will be sold before it gets to that point in most cases. The difference is you can (theoretically) come back from a 99% loss, not 100%.

I'm going to stand by my original comment and say that diversification creates return asymmetry which leads to long run higher compound returns than something less diversified.

Ralph Vince replies:

Jonathan,

I don't claim to be a mathematician, so to explain this sans math for both of our sakes……

The problem is that is that

For any portfolio, regardless of the number of components or the outcome parameters of those components sees a probability of drawdown of any specified magnitude approaches 1 as the number of holding periods gets ever-greater.

So yes, you can amend the parameters of outcomes, and you can increase the number of components (and clearly, doing so mitigates the effect on the portfolio from a disaster of any individual component, but the tenet above still holds, only the expected time until you can expect to see it grows longer. I would point out though, that we are dealing with components of perverse distribution and correlations among themselves that conspire against us when things go wrong; the time expected until we can expect disaster is much shorter than anyone realizes going in. Random events, even coin tosses of "double or nothing," are far more gentle and forgiving than the real world tends to bear out with regards to capital markets.

And none of this takes into account the effects of leverage, which is ubiquitous, and unavoidable — and misunderstood in that there is always leverage present.It may not be borrowing, but how much we do not borrow is also a matter of "leverage." To mt point in this regard, and again referring to the simple proposition of coin tosses, imagine the coin toss that pays 2:1. If we have a portfolio of one component, if we risk more than .5 of our stake, per play, we go broke with certainty as the number of compounding periods grows ever greater. Growth here is maximized at risking 25%.

If we have three coins paying 2:1 whose correlation between them is 0, we maximize our compound growth by wagering .21 on each coin, each component. However, if the correlations slip to +1, it is the same shape in leverage space as the individual component whose peak is at .25 (aggregate wagered among the three coins) not .63 (.21 x 3) which has us beyond the .5 point in the individual component portfolio, and insures are re going broke as we accumulate compounding periods.

It is quite insidious, and far more prone to danger than Markowitz ever envisioned I believe.

In fact, when one takes leverage into account, the surface of "leverage space" as I refer to it, presents potential danger from a single component (no matter how many components comprise the portfolio) that can wipe out the investor. In the following graph, figure 3 from the paper here you an see how, at a steep enough "leverage" (and these leverages are < 1) on any individual component (2 in this case, to demonstrate leverage space in 3 dimensions) any point along either of the two horizontal axes where the corresponding vertical axis is <1 is assured ruin as compounding periods accumulate (anything multiplied repeatedly by a number n, 0 >= n < 1 approaches zero with each successive multiplication).

Diversification tends to reduce period-on-period variance. Variance is not risk, but a diminution in returns.

Aug

16

 Just suffered an extreme event. One of the biggest ever. Canary? Peso/USD is .018! And you can charge on credit cards.

Argentina is great place to travel. Things are really cheap there, food is good. Airbnbs are $40!

Meanwhile, in US, the risk is the explosion to the upside like this morning if one was not positioned to collect after the shakeout. I learned a new acronym, FOMO, which means fear of missing out. I think it's a good motto for this market.

Jeff Hirsch writes: 

Thanks for the look on Argentina.

FOMO = Greed

Larry Williams writes: 

Double down on that Argentina is a great place—fish—hike—drink great wines and amazing food. Change your money in the blue market, or black. Lots of Casinos will also exchange at a 10% discount.

Mendoza is marvelous; eat at The Fort.

Aug

15

Watch "Bridgewater's Ray Dalio Discusses the Impact of China's Growth on the World Economy" on YouTube

Watch "Gordon Chang: On Hong Kong Protest, Chinese Economy, Trade War, & Trump's New Tariffs" on YouTube 

Very distinct views. What is yours? Btw, any news on Jim Chanos' latest China results? Seems like he backed out his short earlier?

Stefan Jovanovich writes: 

When Cantillon shorted "France" - i.e. John Law's system, he went to the Bourse in Amsterdam and bought gold with a promise to deliver assignats. The difficulty with shorting "China" is who are your buyers? Cantillon's counter-parties were not AIG fools; they needed Law's paper to pay their French taxes, which could only be done with Law's paper legal tender. But who outside the jurisdiction of the PRC has a need for the delivery of Yuan?

Mr. Chanos' shorts, to the extent he disclosed them publicly, were derivative bets against exporters to China that did not touch the currency at all. Kyle Bass' hints at his short position, which he has closed, involved the exchange between renminbi and the Hong Kong dollar. A question for the List: where, in fact, can a sizable bet be made right now that shorts Chinese legal tender? A bet against the dollar in BitCoin can be laid on in volume but not Yuan. The price CNBC puts on its screens is no more a market quote than the exchange rate for Venezuela's money. Or, have I answered my question already. A purchase of BitCoins in China with the domestic currency would seem to be, for now, as good as selling assignats for future delivery in Holland in 1719. 

Peter Ringel writes: 

Hi Leo, I don't see necessarily a contradiction between the two.

Dalio seems to highlight opportunities in the Chinese private sector. Chang points to the many issues and question marks, that arise from the behavior of the Chinese government.

Anecdotally, I only hear of foreigners exiting China's "physical" sector. I don't know what foreigners are doing in the financial sector in China.

Isn't Dalio concerned about the rule of law? Will he get his money out at some point? I believe Dalio talks a bit to his book and to ears in China. His historical analysis of past global powers, which was also posted on his blog a little back, is aimed in this direction. I do see contradictions mid and long term. With all due respect to China's culture and idiosyncrasies, how can an economic power house and a police state coexist? (Mainly corruption will rip any economy apart).

What do you think the prospects are (in case as an analogy)? The ear on the ground is always the best source.

anonymous writes: 

Hi Peter,

I have been quite negative since a few years ago, and so started long term traveling outside the country since 2015.

I feel quite the same that Dalio was talking to his book and the top ears in the country, and suspect that might be a precondition for him to take his money out now.

His data presentation looks convincing, but it seems dated without considering the country's abrupt shift to the far left in these few years. One may argue that he is looking at a trend on a century level and a few years time can thus be well neglected. Well, people in the West really lacks the experience of what "far left" means. That alone, not to mention about other big issues in the country, will cause a deep and likely long hiccup in the near term, which might well expire everything imagined for the long term.

Larry Williams writes: 

LTTIU

Never forget: the Long Term Trend Is Up…do not fear the future. Fear does not create death. Fear limits life.

Aug

8

“The Threat That Will Send Oil Down to $10″:

“We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors,” Mark Lewis, the global head of sustainability research at BNP Paribas Asset Management.”

Aug

7

The Cornucopian history of the last two hundred years will continue into the future.

"Impending Defeat for the Four Horseman of the Apocalypse"

Stefan Jovanovich writes: 

With friends like Mr. Bailey the odds of a decent future for our species already has enough reasoned enemies. Who else could write this - "(M)an-made climate change arising largely from increasing atmospheric concentrations of carbon dioxide released from the burning of fossil fuels could become a significant problem for humanity during this century." - yet fail, in an article about the to mention either nuclear weapons or pandemics? We should all pray that crowds in their wisdom remain as sceptical as possible. When the future gets so bright you have to wear shades, someone has just delivered a bomb.

Jul

30

 "The Mutual Fund Industry in 2003: Back to the Future", remarks by John C. Bogle, founder and former chairman of The Vanguard Group

We are all familiar with the impressive equity returns over the last century but I haven't seen any estimates for historical management fees for index funds. (Obviously not as important the last 50 years with dedicated index funds). I came across this article by Bogle that says the first mutual fund, Massachusetts investment trust 'MIT' back in 1924 had 3.2% management fee per annum. By 1950 the fee had gone down to .3% before going up again and today is sitting at the same spot - 33bps.

Jul

30

I have come to the conclusion that the only enemy of the wonderful long term equity (and bond) premium is inflation. Triumph trio also mentions it in their book; in fact the countries with the highest inflation shocks had lowest real returns and the ones with hyperinflation had obviously a break in data. Also many of the countries that don't have good historical data and weren't included they suffered higher inflation.

Inflation is not just a number you subtract from nominal returns but summarizes many forces like monetary and fiscal policies, people's trust in currency and policies etc. It contains valuable information. Countries whose currencies are undervalued in real terms have had the best forward returns. Very robust throughout history.

I am working on building a similar dataset for Greece for the last 30-40 yrs and one of the things that strikes out is that the 1970-1980 inflation killed real returns to an extend that they haven't recovered yet. Interestingly, the recent events with fears of country defaulting proved to be nothing both for stocks and bonds and both have made new highs.

Jul

12

Check out the London Mathematical Society's youtube channel. It has many fascinating lectures.

Jun

20

The Chair is selling a few things from his private collection. Please check it out and please feel free to share.

Jun

17

In Belgium right now. BNP Paribas Fortis will pay you 0.11% - 0.01% for interest and 0.10% for loyalty –on a savings account in Euros. For a U.S. dollar savings account Bank of America offers 0.03%. From the point of view of "the middle class" (sic) with money, thrift has been quantitatively loosened out of existence.

May

16

Given music generally reflects the psyche of the masses as opposed to leading it, this study might prove slightly useful:

"Is pop music really getting sadder and angrier?"

Apr

26

 Drudge has headline about Biden beating Trump in the polls, 42%/34%

Maybe so, but internals of the poll show 34% R's and 45% D's.

Alan Millhone writes: 

Karl Rove had President Trump defeated through poles he continually touted up to election night.

I prefer to wait and see till the dust finally settles.

Jeff Hirsch writes: 

Like statistics, polls can be torture and tell you anything you want them to.

However the down market in October prior to the election correctly projected incumbent party defeat.

Stefan Jovanovich writes: 

LW's point bears repeating. The sample itself is biased. If the pollster is honest and publishes their cross-tab data, it is not at all difficult to identify the potential weaknesses in the poll's particular results. Because the data does reveal itself, the new "modern" polls do their best to avoid giving any hints about their samples. Morning Consult, who did the poll LW refers to, does not usually reveal their cross-tabs.

I suspect they did in this case because Politico is still worried enough about their reputation to insist on the disclosure. Morning Consult's methodology is based on the assumption that people will volunteer to answer surveys online now that they no longer answer the phone. They describe it as follows: "The firm uses a stratified sampling process and sends a survey to multiple vendors, which it said gives it access to tens of millions of Americans. On average, the surveys are being taken by 1,000 people per day and can include questions based on video and images." The two questions that are not easily answered but are precisely the ones that matter are these: (1) what do the likely voters think, and (2) what will their turnout be.

In 2016 it was easy to predict Trump's victory because there were polls available for every battleground state that had current likely voter polling with cross-tabs and the turnout had no surprises. Last year, I was off by 1 seat in my Senate prediction and completely laid an egg in my estimation of what would happen in the House. I badly under-estimated how much Democrat turnout would be amplified by the revenge factor. I think that will be the question for this race: how much will the Democrat candidate be able to create and sustain the Hate Trump factor. Biden's announcement seems to me to confirm that this is the Democrat's strategy. The surprise may be that, instead of focusing on the Democrats' Socialist sins, Trump's campaign will focus on positive messaging about "the job that remains to be done" - i.e. "We Can Do More". Or, Helen Keller, "Alone we can do so little; together we can do so much."

Larry Williams writes:

Phone polls still work.

Just did a phone poll for Governors race in Montana (Gravis) had all we wanted to know in 24 hours. Same survey technique called last years elections perfectly.

Apr

19

"A Message From the Future with Alexandria Ocasio-Cortez"

K.K Law writes:

Amazing how many Dems would support these kinds of total communist/socialist nonsense that can't be executed in a merely sensible fashion. She did get a lot of air time for yielding very loudly and speaking tons of garbage that don't make the slightest logical sense. I just wonder what kind of people would vote her into the office. She is a total ignominy to this country.

Mar

15

"When You're Cold, You Make Decisions in the Heat of the Moment"

anonymous writes: 

Not the way SAC does it.

Feb

26

"Federal Trade Comission Oversight and the Need for Online Consumer Privacy Legislation"

However, if the idea is that "harder regulation" will somehow tame the big Silicon Valley platforms, the opposite has happened. The EU's General Data Protection Regulation (GDPR), along with similarly heavy-handed regimes such as California's Consumer Privacy Act, entrenches established platforms that have the resources to meet their onerous compliance requirements. Since the GDPR's implementation in May, the rank and market share of small- and medium-sized ad tech companies has declined by 18 to 32 percent in the EU, while these measures have increased for Google, Facebook, and Amazon. My new paper, "What the GDPR really does and how the US can chart a better course," documents these unintended consequences and argues for an innovation-based approach to data privacy and protection along with consumer education.

anonymous writes:

Thank you, Mr. Mabry, for sharing this fitting analysis of the EU Data law.

Regulation is always institutionalized corruption, collusion and state-sanctioned monopolization against small enterprises and citizens.

It is very hard not to rant about this topic; Hey Europe I recommend burning books next–surely books are more dangerous than allowing us to read American newspapers!

Feb

13

 I often say, "Nothing gets me in shape for skiing like skiing." I have an exercise regimen that is intended to keep me in shape in the off-season. Yet it often seems that no matter how much I run, bicycle, or lift weights during the summer, I still end up exhausted after a few runs on the first day I actually ski. I have learned to expect this and now make a point to ski on early-season days with poor snow quality in November or December. Mr. Sogi noted the importance of being "on it" in surfing in this 2007 post:  I believe a similar principle applies to trading. If I don't trade actively enough, I begin to lose my feel for the market. There is something very direct and personal about experiencing points up and points down in one's own bottom line.

Larry Williams adds: 

Oh yes, you have to stay in the flow of the wave to feel and read where it is most apt to go.
 

Feb

4

I struggle to find an instance of equities being overvalued. This link shows not only my model for real-return adjusted earnings' linear relationship to the S&P ("model") but of particular interest the P/E of the S&P with respect to the P/E of the 30 year constant.

Gibbons Burke writes: 

What caused the quantum jump and return excursion of the SP_PE line (red) ~2010?

Earth Link writes: 

Earnings fell precipitously, particularly in the financial, energy, and materials sectors, during the 2007-8 financial crisis, and rebounded beginning in mid-late 2009. S&P GAAP earnings were negative in Q4 2008, and were also significantly lower than previous levels in Q3-2008 and Q1-2009, but by Q1-2011 had recovered to pre-crisis levels.

Jan

30

 David Lillienfeld's marvelous (and sad) piece about Frank Robinson and the O's was a reminder of how much losses count more than wins. Decades later I still have memories in my sleep about pitches missed as a catcher; and I find myself jumping awake to turn and chase the imaginary ball as it skips away towards the boards of the backstop.

anonymous writes: 

I watched a documentary on Larry Bird and Magic Johnson yesterday. Bird mentioned that the losses haunted him years later. Even decades later, he is still haunted by the loss of Indiana State to Michigan State in 1979.

This made me think about my sports career. I, too remember the losses much more than the wins. The biggest one for me, was when I had the chance to win game from the free throw line for the league championship.

We were down by 1 and I got fouled with 1 second to play and went to the line for a 1 and 1 shot. Now, free throws were something that I prided myself on. I was a high 90% shooter. I once made 108 free throws in a row and had 75 and 50 in a row multiples times. Making 25 in a row was nothing to me.

There's a whole story and build up to this moment that I'll share with the group another time, but I can tell you that I went to the free line with supreme confidence that I was going to win that game in heroic fashion. I'll never forget that moment and that shot leaving my hands knowing with 100% certainty that it was going in…and I'll never forget the shocking disbelief when the ball bounced out.

It was a true turning point in my life and taught me a lesson that I have never and will never forget. In hindsight, it's clear to me that that miss and what happened just before and afterwards was one of the greatest things that ever happened to me.

So maybe if I've got some free time, I'll share the whole story with the group if there is an interest in hearing it.

anonymous writes: 

Behavioral finance studies suggest that pain of losses exceeds the joy of equivalent gains. This may help explain why the velocity of declines are often greater than equivalent gains.

Jan

26

Here is a great brief documentary of the horrors of socialism in east-Germany.

Jan

26

The key thing about markets is that as soon as the algorithm "solves" the problem and big players start trading off that, the trading itself changes the nature of the problem. It's not just that markets have a much larger "game space" than chess or Go, but that every move in the game changes that game space.

Julian Rowberry writes: 

Machine Learning is just optimizing a solution to a problem, but with a lot of data. The solution still needs finite data and to be solvable. There's just too much data in markets to plug some data into an algorithm that optimises what you're feeding it to predict where it's going.

Useful for stuff with limited data like; where to route orders to which exchanges and when, setting a postal route, or self driving cars efficiency and safety. Perhaps the best way make money out of it in markets is to look at which companies are using it smartly with limited data sets and avoid those who are trying to use it for things it can't do, or using it as PR, and avoid them. There's something you could test.

Larry Williams writes: 

The take away from my efforts in this was there is too much randomness in the data for anything to be learned.
 

Jan

16

 Conrad Leslie (d. 12/25/18) has been described as the nation's leading private crop/harvest forecaster. His numbers moved markets and were, in many cases, more accurate than those of the USDA.

1. Restrict your market position to those which are in keeping with sound basic market fundamentals. When season supplies are inadequate, relative to probable demand, trade only the long side of the market. When season supplies are excessive, trade only the short side. If you think the price level is correct, remain on the sidelines.

2. Never buck an established market trend. The market may know more than you know. Give up your opinion before you give up your money. Don't sell in an uptrend, don't buy in a downtrend.

3. Recognize that the greatest difficulty in trading is knowing when to liquidate. Most everyone knows when price moves are starting, but the point to identify is where they have stopped.

4. Mark price charts each day. Successful traders believe that visual pictures are an additional way to see and evaluate price.

5. Never establish a position in the market until you see the potential for a large profit as opposed to a small loss. Never trade in a situation where the possibilities are about in balance.

6. Be prepared mentally to make several attempts at boarding a major price move. A trader's major market approach should be that of carrying out probing attempts which will will result in his being on board during major price moves. Be prepared to take small losses. Avoid the common thought that to take a small loss will reflect poorly on your IQ.

7. Do not trade many commodities at any one time. Some traders have so many irons in the fire that they are unable to devote a reasonable amount of attention to any one of them. Two or three are enough.

8. Do not attempt to trade in commodities about which statistical information is vague or difficult to obtain. It is preferable to trade US commodities.

9. Do not develop an overextended market position. To take either an individual or total position larger than the risk of failure justifies is to invite disaster. Plungers trade rashly and usually self destruct.

10. Restrict your trading to commodities which consistently return profits. Confine your trading to those commodities at which you are a success.

11. Commodity traders who transact business through brokerage firms should direct their efforts towards capitalizing on major price moves. Professional traders earn their livelihood by capitalizing on hourly news developments. Anyone earning a living another way should not attempt to compete in this type of day-by-day trading.

12. Go with the market as it makes new highs or new lows. The act itself indicates a basic change is taking place. Though the reasons may not be clearly recognized by the public, they are of sufficient force to establish a new price record.

Jan

16

 I had a weird dream last night. The chair likes to compare the various commodities to picking horses on the day. We analyze the turf, weather and prior runs of each horse to speculate on the best pick. However the turf is flat and the markets are not a linear process.

For some reason I saw a lot of mountain goats climbing up the side of a very steep cliff. Some fell off, got back up but chose the wrong path to get back up and had a hard time returning to the herd. The ones who are up high are subject to winds and other predators like eagles or rifles.

I think the ecology here has some parallels to how prices move. Sometimes one goat falls and picks the wrong path, i.e like bonds are down a lot but crude has been up ten dollars in the past week. Or the stocks have climbed so high away from the pack that they are susceptible to predators. There seems to be some kind of harmonious equilibrium about the movement of a herd in my dream.

Jan

15

My view is that most algorithmic trading success is based on payment for order flow arrangements… meaning regulations have, as ever, dictated winners and losers. I point to the ratio of lit/dark trading (US, MiFID 2, Australia) as evidence.

Dec

27

 Has anyone analyzed these two moves:

Swiss Franc - 1/15/15 (Abrupt stance on decoupling from Euro) Pound - 10/6/16 (sterling flash crash)

I don't trade Swiss Franc Futures, but I do trade Pound Futures at times. (CME FX futures products, front month)

My question that I'm trying to get answered is what would a 50 or 100 lot Stop Loss look like as far as fill? Would it have even been filled? I'm typically using about 50 tick stop losses on those products, so if I placed the stop would I have been filled at a decent price.

Any insight would be appreciated.

Thank you

Jeff Watson writes: 

It would look like a very nice morsel to those hunter gatherers who trade the Swissie. 

John Netto replies: 

Call the Globex control center. What you're asking actually pertains to a banding issue and is something that can be a real factor in a fast market.

Jonathan Bower writes: 

I used to trade most CBOT/CME/ICE products using stops for entries and exits for a decent sized fund. Typically I would stagger the order with slightly different entry points with varying limits, typically a 5 to 10 tick backruns. But when we knew energy reports or economic releases were coming out those back runs would be extended and we'd drop a few of the limits on some portion of the order to guarantee to get some chunk executed.

All that to say is there were times in pretty much all markets, but especially energies, where it could move 100-200 ticks in a blink of an eye and I'd have partial and no fills on lots of orders. So very big slippage events. We found that most of the time that was actually preferable because the market would typically come back to original levels.

However, sometimes you would just know that you should puke and do so quickly…

When I filled orders on the CBOT floor we always told our customers to expect to get filled at the high or low tick… It was probably 50/50 to be the case in the pits. I'd say it's 80/20 now if you use a stop market.

anonymous writes:

There are horror stories about Swiss Franc stops, hundreds, hundreds of ticks away getting filled. I think any speculation about how you will get filled on your stops is just banter. Lets say the next 'black-swan' event is a malicious program inside the CME data center placed by CN hackers. You could have a situation 50x swiss franc debacle. You cant beat nanosecond market making with stops so the only solution is to broaden your risk and time horizon or accept the risks associated with leverage and short-termism. 

Dec

21

 Last nail in the coffin kind of thing last month in California, with everything going full-on socialist. OK I get it: drive all the small businesses out, and all that's left is google, fakebook, apple, and other bigist lefties fulfilling their virtue-signalling duties while filling the state with illicit Mexicans who pull their levers.

As one small businessman it was sad until realizing they now own it. Every bit of the upcoming economic sh*tstorm debacle THEY OWN. Even Moonbeam knows it.

The land of fruits and nuts. Coming to your town soon.

Dec

19

I Suspect, from anonymous

December 19, 2018 | 1 Comment

 I suspect that a hard Brexit is likely for two reasons:

1. May's inability to get anyone completely on the same page as her;

2. German stubbornness. Brussels has become like Washington, where to paraphrase Kennedy "the efficiency of the French combines with the diplomatic skills and courtesy of the Germans." (For the record, my background is German)

It is not in Trumps best interest to have London fall out of bed from financial stress during this window of at least six months. Therefore, I expect serious back channel conversations between his team and the Fed to take the pressure off. That means focus on the front end curves for both countries.

If the Fed becomes tone deaf, look for back channels with the big banks and the ABA.

It's getting more pressing to do more than pause. It also gives May ammo to clean out MI5/MI6 of deadwood and clowns.

The U.K. needs to remember their place in the scheme of things.

anonymous writes: 

I subscribe to the following thought: There will be a trade deal–the mutual trade volumes are simply too big. A hard Brexit (an exit of the UK from the EU without a trade deal) will cause bilateral trade agreements, later. This would severely weaken the EU as a institution. This places UK in the stronger negotiation position today. The EU negotiates for its existence–the UK "only" negotiates for trade.

The British domestic debate dominates the news–because they have free exchange of thoughts. The media on the continent is brought into line–there is no Brexit debate. (How can a topic be so controversial within UK–and on other side of the channel–all are of the same opinion?)

For Germany the EU is very important–again this places the UK in the stronger position. As usual in Europe–the timing is the big question mark–most likely drawn out. It would be not unusual to first have a hard Brexit and later a UK-EU trade deal (again with the same power distribution) There is already an US-UK trade deal in the pipeline.

Dec

18

"Investors Have Nowhere to Hide as Stocks, Bonds and Commodities All Tumble"

Certainly not our Mr Brush…bonds, grains and meats have rallied.

Ralph Vince writes: 

Several months ago, the major news organizations, in a fit of grotesque hubris, announced their joint commitment to intensifying their efforts to malign the current administration.

We have watched this play out in the realm of financial news as well (which has been further diminished in recent years by the loss of some greats, e.g. Abelson, etc., to be replaced with vaccuous amateurs). Specifically, the notion of "The longest expansion in US history," (the definition of which has never been provided despite my prodding, directly and personally and off-the-record), the recent yield curve "inversion" fallacy, etc.

Has anyone seen a comparative study of the years 1929-1940 and 2005-2016?

This makes it all-the-more imperative now to do one's own homework, maintain one's own statistics, disregard the shrill sirens and observe, distinguish and conclude.

anonymous writes: 

It's been slight loss of wealth YTD across all assets with real estate markets softening up. It's been an up market for 9 years straight and that failed inverse head and voodoo failure in the SPX after China gap fade in a time where most asset managers are down only fueled the frustration aggression theory which I think makes this year end tough but ultimately will manifest into a great opportunity. My two cents with no quantification.

Dec

9

From a NYT article:

In the past 60 years, every recession has been preceded by an inverted yield curve, according to research from the San Francisco Fed. Curve inversions have "correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession," the bank's researchers wrote in March.

anonymous writes: 

Cleveland Fed has a dedicated website on the YC. Lately the probability of recession in the next year has increased to 20%+ some good literature on the subject by the NY Fed.

While historically it has been a solid predictor, the timing is tricky and not stable (can you afford to be short the market at least a year before a recession) and its predictive power has decreased over the years. The evidence in foreign markets is also mixed (look at the UK in 2000s where a decent portion of the time the YC was flat/inverted). It is what someone will call a weak predictor. One would think that you might find a better forecast in specific industries/sectors (eg financials) than the market as a whole.

It's worth mentioning that inverted yield curves were the norm before 1900. Most academics attribute that to wars; if a country survived in the short-term (wars), it had less risk over the long term. Similar to the VIX term structure during sell-offs. 

Peter Ringel writes: 

We had so many bogymen on the news-wire today.
Everyone is free to choose the fear he or she desires:
- yield curve 
- Russia military aggression (old news- but displayed as new)
- Italy risk (old news)
- Brexit fail
- Trump-China back paddling ("China is puzzled" <- this one is real IMO )
- FED talk
- IRAN war (old news)

Probably all a campaign.

Ralph Vince writes: 

Alright, since the media is yield curve obsessed, I'm copying what I posted to another list, expletives deleted.

This talk of an inverted curve by taking segments out is the most ignorant discussion in the media on the topic i have ever seen. When there are inflection points in the curve, which are COMMON, historically, there are portions of inversion, of course.Throughout the late 90s, when the 20 was above the 30 year, was anyone calling it an INVERTED YEILD CURVE!!!!! (and screaming about it, as they do now?)

In late 1998, there were at least FIVE inflection points using the main maturities on the constant curve, and three segments that were inverted. Things were pretty strong in the economy until hints of slowness in 2001Q2.

This is more bull***it financial writing, along the lines of "longest expansion in history," etc.

Who knows, maybe a slowdown is upon us (not evident in any numbers I keep - yet) but the yield curve is NOT inverted.

Russ Sears writes: 

Perhaps they have learned after Trump's election that making the first move instills confidence in the dip buyers Trump optimism. But selling after a big up Trump day the opposite.

anonymous writes:

It would seem that those that believe Trump knows what he is doing now move regularly before those who doubt him.  

Kora Reddy writes: 

1. When T10Y2Y goes below zero for the first time in 250 days (one year) and forward $SPX index returns:

 .

.

.

2. When t10y3m goes below zero for the first in a yr:

  

.

.

3. When T10YFF goes below zero for the first time in a year:

  

.

.

.

.

.

Dec

6

A friend said to me: "I was in Chicago for a quant conference (with Bitcoin PhD's, unbelievable. for $3000/head.) and saw large numbers of desperate urban homeless. In one case a young man was bypassed by people in expensive clothing on their way to expensive drinks, who then looked at their phones while he was staggering, helpless. (I think the drinks signs were like $30/drink.) That kind of stuff is more pervasive than I remember in the US."

No one is claiming this ubiquitous phenomenon is not tragic. The argument is about who, if anyone, should pay. Let's say you are 5 stdev smarter than him, and perhaps we agree you should pay for him. I am not so smart, but my simple father taught me to fight. If you want me to pay we will fight over it.

That is the argument. Against nature.

anonymous replies:

I would disagree with the question "who should pay". It's not a lack of people paying or amount paid. Lack of money is not causing these problems to grow. It is where the money is going before it gets to those needing a hand. The government has ever incentive to keep those receiving money dependent on them and without any tough love for those that refuse to meet them the best they are capable of to receive aid.

We are so afraid of someone falling in the cracks that we make it ok to make terrible choices without any real consequences for so long until many are hopeless. We have made the cracks huge by building these costly safety nets on the edges.

The last mile problem of charity can only be solved by those nearest the situation not those pandering to voters. 

Nov

28

 Exploring the data:

Rolling 10-yr % increase in GDP (in nominal dollars, hence the peak value occurs in Q2 1981)

Nov

28

 Victor Niederhoffer writes to Bo Keely:

Can we have your reaction to the Smithsonian article on Slab City.

Bo Keely responds: 

Slab City is an anarchist psych ward in a sand box that used to be General Patton's desert headquarters. Hence we citizens have immunity from pretty much everything. I held my neighbor's skull (minus the body) in my hands a couple weeks ago, a knife sharpener who made the mistake of robbing the wrong person. Yet, the population has doubled since last year, and shows signs of continued growth. People read about it online and arrive for the freedom, free land, and independence, but find it's also an outlaw town. I've been doing a study of the peculiar, and cannot point to one citizen who is not. Therefore there is a lot to be learned about human nature and consciousness.

My motorcycle broke down two months ago, stranding me here, walking, hitching, and tracking bad guys. Because of that, I've met most of the newcomers. The population is high IQ and stoned across the board. My new neighbors, two lesbian ex-military, are the only two besides me who don't indulge in drugs. Our introduction was a couple days ago as they chased me across my own property with four snapping dogs, horn honking, and gun under the seat. The other arrivals are young roadies, freight hoppers, anarchists, divorcees, retirees, many musicians and artists, and a few unemployed professors and executives.

All hail Slab City as the last free place, but most succumb to meth to make it a hotbed of any abnormal activity you can think of. It's paradise to a behaviorist like me.

Nov

18

Despite Tel Aviv being up today (this has been a very strong market this year) the spread between the broad Market ETFs and in particular svxy and their net asset values is just too wide in favor of the ETFs, but usually signals a pullback of one to three days, indicative of just a little too much short-term optimism at the moment.

Nov

18

 Gotham and New York: the Novel make a fine pair of telling the history of a great metropolis with many financial insights contained within. Both books are very informative and tell you everything you should know about the hi-ways and byways that led to current times. However, both books spend an inordinate amount of time on the plight of the 1% who did not prosper with the rising tide.

Henry Gifford writes: 

To the list of New York City books I recommend The Island at the Center of the World by Russell Shorto.

Basically, in the 1970s, some government employees were throwing out boxes of junk from the basement of the NY State capital building in Albany, NY, and someone looked to see what was in the boxes and found old documents written in a language nobody could understand. Turns out the documents were written in old Dutch, which very few people can understand, but someone found a translator and a non-government-employee wrote some checks to get the translation done.

The documents were basically the history of NY City when it was a Dutch trading post.

As a trading post it wasn't a country or a colony, but something that perhaps doesn't have a well-matching modern equivalent. New Amsterdam, as it was called then, was run by a governor, but many people from all over passed through or lived there. One description from the time said something like:

"Mine eyes hath never seen such a place so full of people from all over - Africans, Europeans, Natives, Christians, Jews, Mohammedans, etc., each of which has a place where they worship and at least one place where they eat (and I think drink) - all living in harmony. Such happiness and prosperity I have never seen anywhere else."

Maybe still a decently fitting description.

Not many people liked the governor, who was a bit of a jerk, and who broke the law requiring doing what can be done to avoid war with the natives - the law required fair trade, whatever that meant. But, he was appointed by the powers that be in Holland, so there wasn't much anyone could do.

But a Dutch lawyer by the name of Adrien van der Donk, who was living in New Amsterdam, formed an advisory council, elected I think, who advised the governor. They had no official power, and the governor had no obligation to listen to them, but he didn't get to be governor by not being an astute politician.

I won't spoil the rest of the story for anyone, but the book makes a good case that democracy started in New York City, while the pilgrims who landed in Massachusetts were interested in anything but freedom.

anonymous adds: 

The Plymouth Pilgrims were very much interested in liberty. They were superceded by the Massachusetts Bay Colony that had the Royal Charter and, therefore, the sole legal authority; but they never surrendered fully to the Puritans belief in witch hunting and one almighty pulpit. The Mayflower Compact is the foundation of the American notion that the People, as individuals and not merely as a class or estate, are Sovereign. The Pilgrims and the Hugeunots and the Jews - refugees all - brought their ideas of freedom to Holland. They and the native Dutch created the amalgam of open outcry trade and commercial credit by contract whose rewards we all live by and exported it to the New and Old Worlds.

As Shorto's book and others demonstrate, New York became the center of Amercan commerce rather than Boston because, as Harvard daily reminds us, the Bay Colony was more interested in theocracy than free enterprise. The Anglicans in the Duke of York's Crown charter wanted the same monopoly for New York that the Congregationalists had established in Boston, but they always had to struggle against the melting pot that the adventurers from Holland had already set to a rolling boil. To the extent that the Royal authority did take hold in NY, the city lost out to Philadelphia (Franklin, with his eye for the main chance, chose Philly, not NY, when he left Boston). How Gotham became #1 again is the story of how the Dutch and others took hold once again after the British Crown was evicted.

Nov

18

 I'm starting to see multiple points popping up along the constant mat treasury curve. When this has happened, historically, the existing trend exacerbates.

Given that the curve is entirely of bull-market shape (i.e. a positive-but-slowly-flattening curve) I have to take this to be a very bullish omen for the next few weeks to months.

Jim Sogi writes:

Read some of Ralph's books for some "secret sauce". They are quite mind boggling.

I've gotten a glimmer of the concepts. For example, his idea of using discrete math and decision trees rather than the normal continuous calculus curves for making decisions. The market is discrete prices with discrete beginnings and ending points giving the decision tree methodology a good practical basis for making decisions in real time.

The yield "curve" also has discrete points and beginning and endings for the bonds each with a discrete term and rates.

I've only heard brief mention of this idea elsewhere.

Nov

18

 A few follow up tidbits after returning from Antarctica via Argentina. I hear interest on Bak accounts is 50%! And interest on credit cards is 100%.

However commerce seems to running along ok. People seem to be okay and happy, and there is no strife.

As elsewhere around the world it's a cashless society and a credit card worked everywhere except taxis. Paypal didn't work in Uber but a credit card did.

Nov

18

 Enlightenment Now by Steven Pinker, I reckon, may become one of Chair's favorite books.

Pinker describes the fantastic improvements in health, life spans, and happiness since the Enlightenment of the 1800s.

Despite widespread denial by many the world has seen an explosive increase in health, lifespan, wealth, productivity, reduction in crime, poverty, disease and he cites the statistics.

Truly a record to inspire optimism.

It's a quirk of human nature not to be able to recognize the improvements.

A must read!

Nov

11

 Charlie Cook got it right. Here is his firm's analysis of what the election says about the future:

"Democrats wanted this election to be about more than just winning the House or the Senate. They wanted 2018 to be a total rebuke of Trump. A wipe out of epic proportions all across the country. That didn't happen. What we saw instead was more of a retrenchment. Red areas stayed red; blue areas stayed blue. The only real movement was in districts that were purple — districts that had voted for Hillary Clinton, Barack Obama or had narrowly supported Trump- tipped overwhelmingly to Democrats. As my colleague David Wasserman pointed out, Democrats didn't flip any district that Trump had carried by 55 percent or more."

anonymous writes: 

It would appear it is going to be a long, hard slog for the D's in that regard. The economy, though hotter than a hotel Coke, and acknowledged by the media is not yet being felt and celebrated on Main St to the extent it seems it should have been.

Half of America, and the other 96% of humanity outside of America, still believes we are in the darkest of times. Of the un-retired, everyone in the private sector, is still shuffling about in a glossy-eyed PTSD-like state from the protracted period of essentially no economic growth, despite substantial population growth in that period. Women in their late 40s to early 60s and older probably in the worst shape from it if they are single.

Millennials, in the main, still hunkered by the tens of millions in their parents basements with their incredible dildo collections.

We have not emerged culturally from the past depression. This is going to take a while, this will not be like the 1980s or it's brother, the 90s, and the reason I believe that not only do the D's have an uphill battle, needing to find a new voice, a new platform–a new direction, but the distance between where we are in terms of economic optimism and where we have been in times past (where the backdrop, sans anything going on policy-wise, has been nowhere near as rosy as now) in terms of euphoria, is a gaping chasm still. More reason why I believe this thing will run longer and go farther than any of us think it will.

Nov

6

Peter Schiff was the first one where I realized there is an actual gloom-and-doom industry full of people who consistently predict disaster, and then every X years there is a big market downturn, and they can claim to have been right all along, and the cycle starts again.

Nov

5

 The chair wrote about Macintyre's new book about A. Gordievsky. That book references the autobiography of Victor Cherkashin, the KGB Spy master on the other side (co-written by Gregory Feifer Spy Handler, 2005).

I can recommend that book–at a minimum for it's epilogue, "Lessons of Cold War Espionage":

"With Russian and American intelligence agencies again gearing up after the brief if partial truce following the Soviet collapse, what lessons can be learned from the Cold War espionage game?

Anyone who has read this far knows my conviction that intelligence work is less politically important than it may seem. During the Year of the Spy, CIA and KGB operations represented little more than intelligence games. Their connection to real issues of national security, such as stealing military/technological secrets—let alone to the larger national interest as a whole—was often peripheral. Mostly they tried to ferret out moles and recruit enemy intelligence officers."

The Gordievsky episode seems to confirm this.

The other thing about Macintyre's book is I noticed that Gordievsky accused his 1985 KGB interrogators of Stalinist Terror tactics, while interviewing him, under drugs. That angered and confused his ex-comrades and finally helped saving Gordievsky's life.

Maybe there is a trading lesson here. Make your opponent emotional.

Nov

4

I missed this book Factory Girls: From Village to City in a Changing City back in 2008, but can now recommend it to dailyspec readers. There were 130 million Chinese migrant workers at that time, and this is the story of two. Sex differences, family trade-offs, freedom, outsourcing–all the meat of life and capitalism is there. Cheers.

Nov

1

I'm in Argentina on the way back to Antarctica on a ski expedition. The dollar is 36 pesos which is a 450% increase from the official rate two years ago and 250% increase from the black market rate. Things are quite cheap in dollars: a cappuccino is $1.50 and a beer is $2!

I wonder what the effect is. Cash has depreciated. Imported goods inflated. What about real estate? Goods and assets held and debt is better than cash. Prices for food don't seem to have increased much so the core inflation doesn't seem to have jumped. Hotel was very cheap.

There are a lot of tourists, including the ubiquitous Chinese in buses. Formerly stalled building projects are completed. The government floated the peso which got rid of the black market and presumably enabled building loans to go forward.

I've never experienced an exchange rate change this extreme. It's an interesting study for a student of currencies. Our site has a currency martial arts expert and am curious on his take.

anonymous writes: 

Scott Grannis posted an optimistic & compact article on Argentina last month: "If Macri and his new central bank leadership team can stay the course, the upside potential of this struggling emerging market economy is HUGE."

Not in the article:

- I think Argentina has the most usable shale oil of all South American states- Argentina was once the leading country in South America
- (if they can shake the socialism)

Oct

21

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

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

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

Books/articles on the subject would be appreciated!

anonymous writes: 

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

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

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

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

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

Oct

12

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

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

Now that is perma bull–shiess.

Oct

12

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

Oct

6

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

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

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

After that, I think, comes Europe. 

Trump and others hint at India FTA.

Sep

28

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

Sep

25

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

Sep

20

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

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

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

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

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

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

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

Sep

16

 A Tangled Tree: A Radical New History of Life

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

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

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

Sep

10

Serena, from anonymous

September 10, 2018 | 1 Comment

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

Sep

7

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

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

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

Most studies show that fresh air brings these benefits:

•    Boosts your immune system

•    Calms the nervous system

•    Cleans your lungs

•    Good for the digestive system

•    Strengthens the heart

•    Enhances brain health

•    Makes you feel happier

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

Sep

7

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

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

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

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

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

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

Mr. Isomorphisms writes: 

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

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

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

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

anonymous writes: 

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

Stefan Jovanovich writes: 

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

Henry Gifford writes: 

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

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

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

Aug

30

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

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

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

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

Aug

27

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

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

Aug

27

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

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

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

Aug

21

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

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

Stefan Jovanovich writes: 

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

anonymous writes: 

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

Aug

19

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

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

Other thoughts?

Aug

16

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

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

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

Zubin Al Genobi writes: 

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

Stefan Jovanovich writes:

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

Peter Ringel writes:

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

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

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

- labor is leveraged

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

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

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

- I see this accumulated knowledge as leverage.

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

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

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

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

Aug

16

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

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

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

anonymous writes: 

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

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

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

Aug

13

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

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

Stefan Jovanovich writes: 

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

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

Neither, for that matter, do the 2010 questions.

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

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

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

Mr. Isomorphisms writes: 

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

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

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

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

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

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

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

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

Hazzard of New Fortune, William Dean Howells

A HAZARD OF NEW FORTUNES.


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

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

Aug

13

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

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

Steve Ellison writes: 

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

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

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

Link and relevant excerpt below:

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

Jared Albert writes: 

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

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

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

Aug

13

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

Aug

13

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

Frank Dikotter on Mao's Great Famine:

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

Aug

3

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

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

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

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

Jul

31

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

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

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

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

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

Jul

27

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

Scott Brooks writes: 

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

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

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

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

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

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

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

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

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

anonymous writes:

"On the Payoff to Attending an Elite College":

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

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

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

Peter St. Andre writes: 

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

Russ Sears writes: 

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

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

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

Jul

18

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

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

Jul

18

I've been aggravated for most of my adult life with slow drivers in the left lane. I notice the slow drivers the most during working hours, 8-5. It's very frustrating to have someone going 40 in a 55 while the right lane slowpokes are passing by. Looking at the dawdlers in the left lane, I cannot help but see that many of their vehicles are government owned cars, corporate vehicles, or delivery trucks of large companies. It occurred to me that those slowpokes are on the job, and can go slow because they're paid by the hour, or are on salary. There is no need for them to go fast, or even the speed limit for that matter because they're getting paid no matter what. In their case, time is not money. The small plumbing, lawn, and heating/air conditioner workers are paid by the job, and one never notices them going slowly, they seem to be in a hurry all the time. They will get on my bumper if I'm not going fast enough. In their case, time is money and they have to hustle. Thoughts?

Kim Zussman writes: 

I have the impression that drivers in expensive cars speed more and drive more aggressively. Not just hot-rodding BMers, but Mercedes, Lexus, and Range Rovers.

Time is money. To wealthy people that translates to high productivity, whereas hourly employees might take the opposite view.

anonymous writes: 

Kim will have his own opinion, since this is a comment about California and LA, in particular. My daughter Nora, a UCLA Med School graduate (and fan of Leonard Nimoy for his wonderful remark to the administration when they asked him to teach for a semester: "My price is an assigned parking place") thinks the rule for all traffic is simple: "Most expensive car goes first".

To be clear, the rule is what SoCal drivers do as Nora observed in 4 years of driving to the hospitals in the Basin. It is not her own approach, especially now that she lives in North Carolina where the rule is that everyone should practice for NASCAR by driving as close to the rear bumper of the car in front of them (they call it "drafting"). 

Gregory Van Kipnis writes: 

Worthy of a study. What are the underlying determinants of slower drivers sticking to the fast lane?

Several states have determined this behavior itself leads to more accidents as other drivers become impatient and outflank the offender by passing them on the right. These left lane turtles are subject to moving violations. Further there are TV public announcements criticizing this behavior.

Is there potentially useful market related information from such a study? A preponderance of people who try to slow down trading, markets, and decision making betray a distinct value system. I believe it has something to do with wanting to exercise control over others. 

Russ Sears writes:

For most traffic offenses it is easy to imagine a valid reason a driver would be agressive or have a momentary lapse of judgement. It occurs to me that the reason left lane turtles are so irritating is that there is no "good" reason for it besides passive aggressive malevolence for the productive such as suggested: their employer or other drivers. But as the rule goes its usually incompetence before malevolence. As the boomers age I expect this to increase. Perhaps this bodes well for Tesla and Uber.

Jul

14

40 more gene therapies to be approved in the next four year, MIT.

Hmm… what will they be.

The hunt is on.

Jul

12

 Starting Aug. 1, 2018, USDA will end the media lockup for crop reports. According to Ag Secretary Perdue, this "Will level the playing field and make the issuance of the reports fair to everyone involved." Call me skeptical.

Dylan Distasio writes: 

Thanks for this. Are you skeptical they're actually going to do what they claim, or is it something else? 

anonymous writes: 

Government reports have always been leaked and I'm sure insiders and other interested parties will continue to get their info early.

Jul

12

It's a common thing, when people either witness a dramatic event or watch video of the event, that they see things they think are anomalous and insist on some nefarious interpretation. It's similar to the statistical mistake of not knowing the base rate of an event. I remember times when people would show me video of the WTC collapse and point out aspects that "proved" there were explosives in the towers. And I would ask them if they had seen so many skyscrapers collapse after being hit with fuel-filled commercial jetliners that they knew what it *should* look like and therefore that the WTC situation presented clear anomalies. Not that they gave up the argument, but at least I tried.

anonymous writes: 

This is very true.

It's another cognitive bias. We tend to try to match the cause of an event with the severity of an event. (I hope I recall it correctly) List of biases.

We are brilliant apes. Thankfully brilliant, yet apes nonetheless.

Larry Williams posted a discussion with his son a while back. At the end they refer to the Baloney Detection Kit by Carl Sagan. Michael Shermer published an updated Baloney Detection Kit. Great every day tools.

We are easily tricked by others and by ourselves.

In the end even Carl Sagan was tricked by the Russians about nuclear winter.

Jul

3

Has anyone reviewed this work?

"Cambridge Judge Business School Academic: Tennis Scoring System Boosts Underdog Chances at Wimbledon"

Maybe it is worth a look to debunk or confirm.

Jun

23

 This may seem like an under the radar issue, but it's a big deal.

In Carter administration, the US decided that civilian spent nuclear fuel should not be recycled. Instead, it was to be stored and buried in deep geologic repositories.We can have some fun criticizing Carter's decision, but there were reasons for making the disposal decision. The decision paved the way for the construction of Yucca Mountain, which is funded by utilities (not taxpayers).

I'm in favor of recycling. Burying spent nuclear fuel in a cave is like burying a car because the battery died. As a car can be recycled after a new battery installed, nuclear fuel can be recycled after the fuel has been processed.

In the end, recycled fuel will need disposal. However, the volume is dramatically reduced (from a car to a used battery), and the ultimate disposal becomes less costly.

Recycling is an expensive process. Facilities cost billions to build. But, Yucca Mountain has already cost $12 billion, and the project is far from finished.

George Devaux writes: 

From Policy Options for Nuclear Waste Management:

Sustainable Solutions for Expanded Nuclear Energy

"Reprocessing technology has the ability to decrease the volume of HLW by a factor of 4 while at the same time decreasing the required storage timeframe from hundreds of thousands of year to less than 1,000 years. The HLW produced from reprocessing is also vitrified in glass, to produce a stable, homogenous waste product. Reprocessing and recycling SNF could require only one Yucca Mountain-sized repository this century and decrease the amount of fresh uranium fuel required by 25 percent."
 

Jun

21

The Pax Americana is changing – substantially

I want to bring this model to the attention of the readers of this site-– because it helps (me) understand many of the recent geopolitical events and the markets by extension.The model is as follows:

America is the most benevolent empire the world has ever seen–but an empire it is.

What changes now, is that this empire wants less from the world–than the world wants from the US and less than the US wanted from the world in the past.

The main reasons for this are good US demographics, US energy independence (shale), superior geography, the winning of the cold war and a dominant navy–by far.

If you are a country leader today and you want something from the emperor–you better bring gifts.

This is a substantial change. Previously the US gave the gifts (economical gifts and gifts as security guaranties ).

The Chinese in Xi Jinping and Japan do understand this – both currently compete for the love of Trump (and the love of America) and both bring gifts. China just pressured NK's Kim into submission and has probably stopped to oppose a Korean unification. Japan brought lot's of FDI.

(A brief excursion: This is a result of Trump's policy of maximum pressure It also shows Trump is well informed, active and not a fool regarding Korea. "Maximum pressure" most likely also includes some juicy stuff - like allowing NK to steal attack plans, exaggerating Warmbier, using MOABs nearby and high level defections )

Russia in Putin understands this. Putin is a player. He plays a weak hand excellently– as Russia always has.

Israel understands this. Besides many other things–this is why they are schmoozing up to Russia and KSA.

UK understands this. They bring two super carrier.

I thought France in Macron understands this–but after the G7 I am not sure.

Germany in anyone does not understand this change. (Lots to say here, but I am currently enjoying meine Schadenfreude about this.)

Canada in Trudeau does not understand this–though the eyebrow might know and left . Canada and Mexico are special cases, because they are hard-wired into America' s economy.

One can go around the globe and watch how players act against this new reality of America's shift.

What is great about Trump is: a) He is a tweeting Tom–his tweets make geopolitics nicely transparent b) He acts according to the model (consciously and unconsciously).

(The above is heavily influenced by a series of texts by Peter Zeihan - I Think They Get It Now, Part I).

Stefan Jovanovich comments: 

The U.S. is no more benevolent than any other empire run by popular election. Like the Athenians and the English and the Republican Romans, we have always let majority self-interest define the morality of our decisions. The dominance of our Navy is as fragile as the superiority of the British was after World War 1. Our aircraft carriers are now as technologically and financially obsolete as Jackie Fisher's battle cruisers were ib 1919. But for the German decision to commit their limited shipyard capacities to the building of turret armed battleships and cruisers instead of submarines and carriers, "the Allies" would have lost the Battle of the Atlantic. The Chinese seem to be making the same mistake by putting their efforts into carrier battle groups instead of stealthy drone/sea to sea missile platforms. The British should know better; for the cost of these 2 Mary Rose show projects, they and the Germans could have developed silent running submarines that would dominate the sea lanes from the Gulf of Arabia to the Baltic and Arctic Circle.

None of this has any relation to Trump's cleverness about shifting tax burdens from U.S. wage earners to American corporate importers of goods and foreign workers. That is, as P R notes, truly brilliant political economic thinking as apt for the U.S at this time as Lord Salisbury's were for Britain after the disasters of the previous perverse reformer (Gladstone then, Obama now).

The Admiral (actually a retired Navy Captain who shares David's cursed condition of being a lifelong Orioles fan) tells me I am half wet about the Germans in WW 2. Submarines–yes, aircraft carriers– never. Land-based 4 engine bombers were a far better choice.

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