Is there a good empirical argument for the European Union? It started in 1999, and "from the cheap seats" (as Big Al says) it seems like things haven't gone all that well over the past 17 years. There have been two huge stock market crashes in 2001-2 and 2008. Immigrants have made large areas into havens for terrorists, off-limits to law enforcement. The "PIIGS" countries have had serial bailouts, and there is huge tension between them and the more responsible Germans. Are things supposed to be better than they were before, or better than they would have been otherwise?
Tesla's bid for Solar City should be interesting. SCTY is up 20%. I wonder if Chanos will roll his short over to Tesla.
Gordon Haave writes:
It's impossible to know which companies shareholders are getting screwed, but with this massive conflict of interest where neither board can really expect to be acting faithfully, you can be assured that one of the companies' shareholders is getting a raw deal.
Hypothetically, if SCTY was an Enron, then was this not a masterstroke in staying off the regulators? If there were no public shareholder or lender losers then there is nobody who is going to sue. They all got paid out at a premium. That action was far cheaper than a defense Musk would have had to have worked to defend his main entity. He paid cheap early without settling with regulators or losing his reputation. He also looks to have hurt the man who had it in for him.
Now Musk can turn around and sue for not knowing what he just bought and recoup some of the premium he paid. That will pay his costs when the shorts go after him again. He gained time and space.
Maybe the Chairman figured it right that shorting is a losing game that will lead to an early grave. Musk's server will not have email on it but Solarcity's will. I doubt you can sue for shortsale profits that you did not rightfully earn due to Musk's actions. There will have to be a roll as suggested.
Paul Marino writes:
The lesson for me is to not short bad credits like SCTY during a bull market in playgrounds where billionaires like Musk play unless you have Chanos' AUM.
I think the lesson should be "don't bet against those with fat wallets". The short game is not one about logic or company earnings, but about supply and demand for outstanding shares. A few years ago we saw a similar scenario play out between those shorting OPK and Phillip Frost, a very wealthy majority owner of OPK. Frost won.
Disclosure: I'm not an expert in this topic. However, I met with my physician. I took the test. The results suggested one critical deficiency. I'm currently on a 12-week prescription of Vitamin D (50,000 IU).
Dylan Distasio writes:
Based on the fact it's a script and that dose, I am guessing your doc put you on D2 versus D3. Not a biggie, but there is a fair amount of evidence D2 is inferior to D3. D2 needs to be converted by your body to D3. I would recommend just picking up a quality D3 supplement OTC once your script is done. My doc did the same thing as yours when my levels came back low. I don't think your average one is familiar with the nuance.
It's an incredibly important vitamin, the RDAs for it are way too low, and it is one of the few vitamins you are probably not getting near enough of especially during our winters. I don't take a multi but I am taking 12,000IUs of D3 a day divided in two doses. I'm not recommending that as your circumstances may vary.
Carder Dimitroff writes:
I checked. You are right!
Next visit I'll ask about D3.
Do you have recommendations for sourcing high quality D3?
Dylan Distasio writes:
I should add that the best source of D is the sun, and that monitoring blood levels regularly is really the best way to know what is going on (not that I am currently doing so). Regardless of D2 or D3, be sure to take them with some food that has fat in it, as neither is water soluble. In terms of a source, I use Kirkland but a lot have good test results.
Vitamin D follow up from a n of 1…
As mentioned, I had not been monitoring blood levels regularly, but have been religiously taking 4,000 units of D3 a day for a year+ as a conservative dose since I really don't get much sun, and was deficient even by conservative standards on my last physical.
I just got bloods done for a physical tomorrow, and even with 4,000IU a day, I am just barely at the low end of the normal range (>0 ng/mL) at 31 ng/ml.
I should add that through genetic testing, I've discovered I am likely prone to Vitamin D deficiency due to an issue at this SNP rs2282679:
This gene encodes for the vitamin D binding protein which affects the delivery of 25-hydroxyvitamin D (precursor to vitamin D hormone) and activated vitamin D (1,25-dihydroxyvitamin D) to target organs, as well as clearance of vitamin D metabolites from the circulation.
This genotype, rs2282679(A;C), is associated with an increased risk of vitamin D deficiency.
It is known that supplementing with 1,000 IU of vitamin D3 per day generally raises serum 25-hydroxy vitamin D levels by around 5 ng/ml. This may not be the case for people with the affected genotypes, rs2282679(A;C) and rs2282679(C;C), which may require higher vitamin D supplementation doses to achieve the same serum levels as individuals without these polymorphisms.
Blood levels of 25-hyroxyvitamin D below 20 ng/ml are considered deficient, less than 30 ng/ml is inadequate. Individuals with levels between 30-60 ng/ml are considered adequate. Meta-analyses have shown that people with serum levels between 40-60 ng/ml have the lowest all-cause mortality. Regardless of an individuals genotype for this particular SNP, a 25-hydroxy vitamin D blood test available from most health care providers can be useful for providing insight in how to optimize overall vitamin D levels.
I was at the Burj Khalifa last week. I am told even before the world's tallest tower currently got completed, the Royals of Dubai went bankrupt.
Yes! The Tower had to change its name from Burj Dubai to Burj Khalifa since the Royals of Abu Dhabi had to buy it out to ensure it reaches commercial delivery!
Now I am told the tallest tower of the world is coming up in Saudi Arabia! What can it do to crude oil? What can it mean for geopolitics?
Since the hubris indicator has a 100% hit rate, I shudder to think of the implications of Saudi Arabia choosing to embrace it now.
Could this arguably be different than the other towers as a hubris indicator (I'm aware of the dangers of "this time is different")?
I say this in that the other tallest buildings were built when things were seemingly remarkable.
In this case, it's known the issues of oil and the implications it causes. Instead of hubris is this a last ditch effort?
Gordon Haave writes:
My opinion is that it is not economics, but rather politics. The wind has been blowing strongly against the Saudis for the last few years. Meanwhile, the Saudis have noticed that the political class and the banks do, literally, whatever they want in the US without consequences. This is just an attempt to tie Aramco into the western financial system so that there will never be any embargoes or political actions against it.
The feds got word I was holed up at my Uncle Jimmy's farm in Bond's Crossing, SC. I had pole vaulted out of the Utah State Prison. Somehow they got a lead and eight police cars, a black Crown FBI sedan, and helicopter pulled into Uncle Jimmy's driveway. They rushed the front porch so fast the best strategy was to stand still with my newly dyed red hair.
'Do you know James Hydrick?' The FBI agent asked me.
'Shore,' I drawled, 'But I ain't seen him.'
The cop radioed the helicopter, 'Is Hydrick's hair black?' and they answered, 'Yes'.
Uncle Jimmy entertained them as I slipped into the house and got into my Ninja gear, and out the back door.
Before me lay a hilly woodland ten miles in diameter cross-cut with animal trails and streams that I knew like the back of my hand. I was wearing the Ninja black leotards, climbing claws and mask, and melted into the forest.
I ran like a deer for a mile before the baying of the bloodhounds started. I cross-cut my tracks to throw them off at the junctures, and waded in streams. That night I slept in a tree.
The next morning the barking of dogs and shouts of six divisions of law enforcement totaling about 100 filled the forest. The helicopter couldn't see me through the canopy except in meadows, and I risked going into a farmhouse because I was hungry. An elderly lady fed me scrambled eggs and I had just finished when the sound of the hounds drew near. I hid under the crawlspace and one of the bloodhounds came up.
'Nice doggie,' I whispered offering it my knuckles to smell. It licked my hand, and then backtracked me in the opposite direction that threw the police off, and I escaped.
I had taken some Cayenne pepper from the kitchen and sprinkled it on my trail. Otherwise the hounds had my scent from the clothes I had left at Uncle Jimmy's. When I heard the hounds sneezing like crazy I knew I was safe. That night I slept in a tree again.
On the third day I risked going to Uncle Jimmy's.
'Who's going to be Santa in church?' Uncle Jimmy bawled. It was Sunday, December 11, 1982, the Sunday before Christmas.
'I'm going to be Santa, Same as always.' I said.
They put me in my Santa pants and black boots, stuck a pillow under my shirt and donned the top, patted red rouge on my cheeks, and I put on the white beard, spectacles and a red cap. We drove Jimmy's jalopy to the Bonds Crossing Pentecostal Church.
I sat up near the alter in a high chair and one-by-one the kids came up and told me what they wanted for Christmas. Their parents in the pews listened closely.
One little boy tugged my beard and asked, 'Is that you James?'
'I'm Santa.' I replied. 'What do you want for Christmas?'
'Lordy, Santa. You stink!' he said. I hadn't showered from the manhunt.
The congregation chuckled and the door burst open. The FBI agent walked in and down the aisle looking for me.
'Ho Ho Ho' I laughed. What do you want for Christmas?
The assembly laughed and the agent and cops got red-faced and retreated out the church.
When I returned to Uncle Jimmie's a note was stuck in the front door with the agent's card.
'Hydrick. I know we're not going to catch you. Please call me and we'll work something out.'
I called, and promised to turn myself in after Christmas.
I did. It was the best Christmas I ever had, almost as good as the manhunt gift.
June 13, 2016 | Leave a Comment
Forgive the length, but I thought this was too good not to share:
Let's take their model, their parable, their most extreme case, and walk through it for a moment. It takes Frank Ramsey's basic model, in which savings equals investment equals capital growth, and extends it to a world in which capital can flow freely around the globe to wherever it earns the most interest.
If savings can flow across countries to wherever the interest rate is highest, and if people can borrow across countries without trouble (say, by mortgaging their home to a bank that borrows money from investors in Japan), then in the long run there's only one possible outcome: the most patient country owns everything. The most patient country owns all of the capital equipment in the world, all of the shares of stock, all of the government bonds, all of the mortgages, everything. What happens in all of the other countries? [the "Impatients"] Eventually they spend essentially all of their national income repaying debt to the most patient country. They literally mortgage their future through decades of high living, decades during which they borrow cheap money that is gladly lent by more patient countries.
…After years of enjoying a grand life of consumption, the average Impatient [country] eventually ends up spending its whole income on interest payments, forever.
Well then, who are the Patient countries? Those who lend and export. Who are the Impatient countries? Those who borrow to spend in the short term. Okay, that's definitional. But is there another way to define the Patients/Impatients? It turns out that national average IQ defines them well. And here's the shocker: The U.S. has an average IQ of 98. The U.K's. is 100. East Asia (i.e. China, Japan, South Korea, Singapore) have average IQs of 106. If we look say 25 years into the future, it's likely China's average IQ will have increased. What do you think will happen to the average IQ in America?
This is from "Hive Mind" an excellent book by economist Garett Jones of George Mason University.
Mr. Jones ignores a few minor problems. The first is default; the second is that Ramsey's equation only works in a world where Marx and monetarists are the only people who keep the tally sticks. The patient people may think they own everything but only until they discover that their debt claims are not going to be paid, that neither principal nor interest will be forthcoming. then there is all that investment in apartment blocks and bullet trains. they certainly cost a great deal; by labor theories of value they should be an enormous accumulation of wealth, except there are no actual tenants who can afford rents for the apartments and no travelers who want tickets for the trains. the last and worst fallacy of aggregation is the ranking of average IQs. the world tuns on the machinery and thought that the very smart people produce and the grunt labor that the rest of us do. we depend on the really smart people's discoveries and enterprise and the scut work done by people who stack the grocery shelves and vacuum the think tank carpets. Whether on average people score C+ or B on what is a school exam called an IQ test makes no difference, except, of course, to the people whose livelihoods depend on the rest of us paying ever increasing tithes to the priestly class of schoolies.
Blood on the streets in Europe…
TOP of oil…IMHO
Andy Aiken writes:
In Rothschild's dictum, isn't one supposed to BUY when there's blood in the streets? It didn't take much to turn everyone bearish.
When we research strategies, there is a need to measure performance. Some techniques like volatility targeting tend to improve more the equity based measures (e.g. Sharpe, Sortino) but damage or not improve the trade based measures (e.g. Profit Factor, Expectancy). Some techniques like term structure used in asymmetric sizing tend to improve more the trade based measures. Is there any clear argument for or against equity vs. trade based performance statistics?
Rocky Humbert writes:
Ed Seykota was fond of saying "Everyone gets what they want out of the markets."
That's an elegant way of saying that every investor has their own utility curve.
So an answer to your question is it depends on what portfolio/trade parameters that you are trying to maximize and minimize. Each of the approaches that you describe involves some sort of a trade-off. Academics will talk about optimally efficient frontiers, but for practitioners who are in the markets for the long run, I believe it's a function of what you and your investors want to achieve and most importantly, maintaining the discipline to consistently apply the tools that you mention.
There are many paths to heaven. There is no free lunch.
Bill Rafter writes:
We prefer equity stats. Our primary metric for longer term research is (Compound Annual ROR)/(Max Drawdown). For example, the equities markets depending on the period chosen tend to have a CAROR in the single digits, while having max drawdowns of ~55 percent. With work and diversification you can invert those numbers such that the ratio is greater than 1. Most of your success will come as a result of reducing losses.
In theory one might argue that if you take care of the trade stats, the equity stats will take care of themselves. As in, fight the battles and the war will take care of itself. This is most exemplified by HFT. If that is the trading time frame of your choice, then by all means go with that. However it is hard for the individual to compete in the HFT framework, meaning that you will probably have to lengthen your trading, gleaning greater gains, but also larger losses. Eventually I think you will come around to preferring the equity stats. But your choice is going to be subjective or trading-plan-specific, which agrees with Rocky's every investor having their own utility curve.
The conception of Seykota's quote as a utility curve is Rocky's. Seykota might have been making a point about market psychology more akin to a Deepak Chopra quote. That's not to say that Seykota did not make money trading. My sense was that his idea about everyone getting what they want from markets applied to those who might have hidden motivations in things other than in optimized financial gain according to a risk adjusted measure.
I'm convinced (*) that it's a great long term idea to just buy-and-hold IBB , the biotech etf. It's some kind of hybrid between market and equal-weighted, so that you do get a big slug of the big names like BIIB and AMGN, but it also saves room for the small and micro-caps. 25% of the portfolio is either small or micro, and another 19% is medium.
Fidelity's biotech fund has beaten the market since 1988, and I'd guess that biotech was more of a high-flier in 1988 and more reasonably priced now. Anyway the performance of the Fidelity fund is evidence that a fair number of biotech stocks tend to work out very well, well enough to overcome the duds.
* partly via reading Michael Brush, although he tends to recommend individual biotech stocks rather than the etf
Have you noticed how everyone starts all their phrases with, "So…" I hear it everywhere now. It has crept in, and I find my self saying it.
It's an example of how behaviors and patterns creep in, spread, and take over.
Ideas can be like that also. I get ideas into my head from random readings and sometimes they take over my life. Some ideas have taken over the world, such as what Chair calls "the idea that has the world in its grip".
Jim Lackey writes:
So, at the end of the day, is from Carnegie type PR training courses. Like is from the kids and FB. I have been training the children how to steer the conversation. Yea, that is a marketing rep. Problem with some Millennials is their inability to carry on a conversation. They will say "wait what" as you state some crazy half joke funny mumbo in between as they do the 1x a minute phone check.
Hey dude! What is going on in the world? Huh ( I can't take huh), my reply is Huh, duh, what? Hey dude, you were just in the cyber space, somewhere else in the world, anything important going on in the WORLD….WIDE… WEB? Surprisingly, the kids will have some fantastic story to reply with. Other times it was a ghost text auto reply, NLP reaction on their 1 minute phone check. Ghost text, that is when you physically feel your phone vibrate on your leg, from your pocket, but it did not!
This thread is a few years old. I know it is greater than two, yet less than three years old because I feel pain. That is the sting of loss in the markets.
"What is interesting". That is the new conversational or transitional word replacing "so" for the past year.
What is interesting is I found a new way to judge if you're ready to trade. Play blackjack, count play basic strategy 5/10$ for four hours. If you can remain cool under fire, you're good for trading.
What is interesting is… I have zero business trading the markets. I found that the jacklegs on the table, dragon lady dealer and a bad run of cards pissed me off. I bet wrong once and the second I did it, I knew it and thank goodness I lost. That made me laugh. I got up tossed the dragon lady a 20 which was the best money spent. I went back to the bar and watched the Cubs destroy the competition. I trust I will not visit another casino for more than a decade.
Back to the kids. My age Gen X and above you mirror what the customer is doing with their phone. If they have it out, you put yours on the table. They feel comfortable. Perhaps they are waiting for a very important call. Ask.
Kids, when working with the 20's, you are well served to ask to see their phone. Then show them yours, which is funny. Then set yours out and every time they touch their phone grab yours and flop it back down with a dannng… Or best, if they have theirs out and do not touch it as it is turned over out of some sort of respect. Do the same.
Kids blow a fuse if they lose or leave their phone at home. Hey dude I understand. With out my dirtbikes I was hurting. The second we hit the road trip I wondered did I leave the iron on? Just joking, I wondered if I brought enough Extra Long MX boot socks and extra tear off lenses for my goggles. These kids today need their music, headphones and their computer in their pocket. I wish I had one when I was 12.
by Lawrence Summers
On June 23, the UK will vote on whether to remain in the EU. On November 8, the US will vote on whether to elect Donald Trump as president. These elections have much in common. Both could lead to outcomes that would have seemed inconceivable not long ago. Both pit angry populists against the political establishment. And in both cases, polling suggests that the outcome is in doubt, with prediction markets suggesting a probability of between one in four and one in three of the radical outcome occurring. It is interesting to contrast the way that financial markets are reacting to these uncertainties. The markets are highly sensitive to Brexit news: the pound and the British stock market move with every new opinion poll. Analysis of option pricing suggests that if Britain votes to leave the EU, sterling could easily fall by more than 10 per cent and the British stock market by almost as much. It is widely believed that the uncertainties associated with Brexit are consequential enough to affect the policies of the US Federal Reserve and other major central banks.
It would in all likelihood be economically very costly for Britain to leave the EU and would raise questions about the future cohesion of the UK. It would also threaten London's role as a financial centre and curtail British exports to Europe.
What I find surprising is that US and global markets and financial policymakers seem much less sensitive to "Trump risk" than they are to "Brexit risk". Options markets suggest only modestly elevated volatility in the period leading up to the presidential election. While every Fed watcher comments on the implications of Brexit for the central bank, few, if any, comment on the possible consequences of a victory for Mr Trump in November.
Yet, as great as the risks of Brexit are to the British economy, I believe the risks to the US and global economies of Mr Trump's election as president are far greater. If he is elected, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States. First, there is a substantial risk of highly erratic policy. Mr Trump has raised the possibility of more than $10tn in tax cuts, which would threaten US fiscal stability. He has also raised the possibility of the US restructuring its debt in the manner of a failed real estate developer. Perhaps this is just campaign rhetoric. But historical research suggests that presidents tend to carry out their major campaign promises. The shadow boxing over raising the debt limit in 2011 (where all participants recognised the danger of default) was central to the stock market falling by 17 per cent.
Ralph Vince writes:
What is not addressed is the question of what would be the economic consequences (and contrary to Dr. Summers musings, let;s keep it something measurable, like GDP growth) of another negative 100-500bln/yr in further deteriorated balance of trade over the next several years?
Are we willing to suffer another 2.5-3% drag on YoY GDP growth?
John Floyd writes:
Yes, as with another winner of the John Bates Clark award in the year prior the reasoning leaves much out and is ingrained in a certain hue. Nonetheless I find the tack interesting as we approach UK referendum, FOMC, US elections, Italian referendum, etc. in the coming months and the potential impact and opportunities in markets. Not quite up to Patton's statement to Rommel, but along the same battle lines.
Ralph Vince replies:
This is a period that is a serious test of traders and nerves now, more so than the usual, more than the past four or five hours at the bridge table. With this hand, it gets particularly interesting now, for those who haven;t dozed off and know what the t the contract is now.
As an extension to this line consider that one of the key tools in forecasting Bernanke’s reaction post 2008 was knowing his previous writings and statements as well as direct words including something very close to “a Japan type situation will never happen on my watch”. To that line of reasoning consider and read Yellen’s work at SF Fed on the US economy and the influence of housing, etc. and I think that is a good roadmap to her speech today and actions coming in the future.
It is interesting to consider whether certain month's employment announcements tend to be consistently bullish or bearish. A former employee, writes to me that the May employment numbers have been quite bearish for stocks.
Bill Rafter writes:
The NFP report is always murky to me. It always needs "interpretation" which is why it looks different several days after its release. The big interests (from the media, at least) are the unemployment rate and the number of new jobs. Both are the result of rather obtuse calculations. I prefer the growth of payroll tax receipts which require no interpretation. The source is the Daily Treasury Statement, effectively the bank account of the government. Attached is the data from last week; no change in appearance since. It may not agree with the early or late interpretation of the NFP report, but it speaks truth about the actual job situation.
Stef Estebiza writes:
Employment data are smoke and mirrors, are more a political need to do to accept further cuts/taxes and justify these policies. The new jobs are precarious and at reduced wages.
I suspect that I read about the Chair's views on the unemployment rate in years past, but is it safe to presume that the numerator smoke/mirror terms cancel out the denominator smoke/mirror terms?
Or does the science of people counting treat the employeds different than the idleds at the tabulation level?
I've generally treated the unemployment rate as a good bit more reliable than the overall jobs number.
John Stuart Mill wrote 150 years ago: "I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage."
I hope the topic of hobos remains fair game for the Specs, in the same manner as commodity pit hand signals and tip sheets and various other anachronistic and tenuous links to rudimentary communications of the past:
Phillips had uncovered a peculiar, almost extinct form of American hieroglyphics known as hobo graffiti, the treasure trove discovered under a nondescript, 103-year-old bridge spanning the Los Angeles River. At the time, she was researching her book, "Wallbangin': Graffiti and Gangs in LA."
"It was like opening a tomb that's been closed for 80 years," the Pitzer College professor of environmental analysis said of finding the writings and occasionally the drawings of people who once signed their names as Oakland Red, the Tucson Kid and A-No. 1.
"There's an A-No. 1, dated 8/13/14," she said, pointing to a scribbling during a recent visit to the bridge just around the bend from a modern-day homeless encampment.
Although all but forgotten now, A-No. 1 was the moniker used by a man once arguably America's most famous hobo, one of the many itinerant wanderers who traveled from town to town in the 19th and 20th centuries, often by freight train, in search of brief work and lasting adventure.
"Those little heart things are actually stylized arrows that are pointing up the river," Phillips said, pointing to markings next to the name. "Putting those arrows that way means 'I'm going upriver. I was here on this date and I'm going upriver.'"
Upriver would have been in the direction of the city's sprawling, wooded Griffith Park, in those days a popular jumping-off point for hobos looking for a safe, common gathering spot.
Bo Keely writes:
There are many groups having the adjectives you describe of subculture, anachronistic and tenuous, but hobos step out from the rest in learning to survive a harsh environment on the rails. Therefore they are also self-sufficient, hardened, and deal instantly with new bends in the road.
My hobo sign since 1985 has been the blue head of a mouse with a toothy smile and a teardrop in the corner of one eye. I got it at Tattoo Pete's in Denver. My mentor, Hobo Herb, suggested I slip myself a Mickey at a a local bar since I didn't drink, and to stagger into Tattoo Pete's for a discount and to cut the pain of the needle. However, I walked in sober and gladly selected a mouse head from a stencil album and had him add the smile and drop. The left shoulder tattoo became my symbol across America, where you may still find it written in chalk, charcoal or magic marker at the Denver BNSF yard on a then sapling, a wooden bridge strut at the Salt Lake DRG yard, a bridge pillar in the Roseville, CA RR yard, and some peoples' basements to form a colony of mice from coast to coast.
One of the central tenets of this list being counting, I note with curiosity the many posts regarding various anti-aging regimes. A brief scan of the literature suggests that the only such regime to have substantial statistical support is calorie restriction, or dietary restriction as it is referred to in many papers. Am I missing something?
In a similar vein, I note the discussions of various dietary regimes to lose weight. Here too it seems that beyond the obvious less calories/more exercise regime there is little counting to support the effectiveness of the wide variety of diet regimes we hear of. Am I missing something here too?
Finally, there does seems to be good support for what you eat being important. With the weight of the evidence pointing to eating a wide ranging diet being a good idea.
Wrapping those three ideas up, the idea of eating a widely varied diet (foraging in its best sense), and not too much of it, as a general prescription for good health and long life suggests itself.
Dr. Shantanu Nagarkatti writes:
Last summer a client commissioned me to take a study tour of all the major research centers and practitioners clinics on Anti-aging in the US.
Currently Metformin and Rapamycin are the most popular options. Quercetin and Dasatinib in a senolytic cocktail (single dose) will definitively reverse the age (and consequently the function) of every organ in your body by 15 years. Expect to repeat this course in 3-5 years.
It works and is now in human trials on Progeria patients.
None of the above are US FDA approved but could be taken as an off label use at your own legal risk.
The yoga investor was on Bloomberg the other day pitching his book and commented on how the central banks have created an asset bubble in stock and bonds. He felt it wasn't sustainable, and that something will trigger a decline. He's moving his book short duration and short exposure, or so he claims. With negative rates, its better to stash cash in the mattress.
I tend to agree, but as long as every one is admiring the emperor's new clothes it's hard to do otherwise. And the new clothes might be some new technological thing that you'd never think would work, like Amazon, or Google, or Apple that spins gold out of thin air.
One more interesting thing the upside down man said was that currencies will be the first to show some seismic shift, the canary so to speak.
The various central banks are using monetary techniques to stimulate their economies and its creating unbalanced pressures. The bubble pressure has to flow somewhere. It seems like its been coming to the US recently, and possibly when the rates go up, the flow might go even faster to the US. This would be in line with Larry's new high scenario, and we are pushing there now. That stats show a new high often leads to new highs. Remember the blowoff highs in the 2000's? Heady stuff. That the other scenario few talk about. Volatility at highs can be a different creature than volatility heading down.
Venezuela's currency is breaking down, but probably for different reasons. Yen has been active. EU is range bound. Be interesting to see what Brexit brings. Probably a big nothing like in Scotland.
Are there any Brits that can comment?
John Floyd writes:
I did not see what Bill Gross said, I assume that is who you are referring to. I would view this from a somewhat broader perspective and consider the many canaries that sing in coal mines all over the world and in many markets over many time frames. Consider that since mid-2007 the 30 year yield is down from around 5 percent to 2.65 percent currently. Consider that since the pre-2008 economic peak the US economy has risen by 10% and the Italian economy has shrunk by 6%. Consider what Milton Friedman said when the Euro was introduced. Consider the global debt binge across both developed and emerging markets. Consider commodity prices and credit prices now and circa 2008. The currencies are singing now, yes, but that must be taken in a broader context. Importantly, currencies are not anchored by any "intrinsic value" or "floors" and liquidity globally in all markets has changed. Currencies are one of the last equilibrating mechanisms in this broader picture and all involved should be able to imagine scenarios and extremes others cannot.
The central bank PBoC has set July 1st as the deadline for the new regulation to take effect. The new regulation requiring a lot of ID verifications looks not only to largely eliminate the dodgy P2P financing operated by small firms (there are thousands of them), but also to cause third party online payment and fund management by large companies (such as Alibaba and Tencent) to step back quite much.
It separates Internet financing into 3 categories: I. online payment in small amounts; II. online payment in medium amount (like less than 100K yuan per year); and III. online payment in large amount plus fund management. Users of the services will have to verify their ID's with the service providers. Under category I, a simple upload of ID card will suffice. For category II, one has to provide three ways to verify one's identity. Various providers require different ways. Alibaba requires uploading of personal ID, taking live facial shot, and providing 2 verifiable banking accounts from different banks. For category III, it is said that one has to provide 5-7 ways to cross identify oneself, which people say are very difficult to do.
Take Alibaba's service for example (before the new regulation), as one opens an account online, one provides one verifiable mobile phone number, links one bank account so that funds can be transferred. One can choose to transfer any amount of money into the Alibaba account. The default account is interest free. Alibaba provides a couple interest paying vehicles (one money market fund very popular) under the account which one can instantly transfer money to and from. The latter has been the best banking service in China that no other state banks offer with the ease of money transfer together with a high interest generation. When one makes an online payment, one provides the phone number registered with the account and a preset password, then confirms it with an instant passcode received through SMS. The money of the payment can be from Alibaba's default account, and/or an interest paying account, and/or the linked bank account.
With the new regulation, category I will be small payments from the default account and/or the linked bank account. Category II will be medium payment from the default account and/or the linked bank account, however, one time money outflow from the default account is limited to 5000 yuan with the rest having to come from the linked bank account. Category III relates to all the interest paying vehicles.
The government and PBoC say the new regulation is to make Internet a safe place. Many people say it is more focused on protecting the business of state banks.
I found this to be a very interesting article with plenty of relationships to markets, brokers and price magnets here.
When foraging, pollinators have to balance their energy expenditure against their energy gain to maximize their reproductive success. Through these energetic economic decisions pollinators are not only influencing their own ecology, but do also alter their evolutionary relationship with the flowers they pollinate
I wonder if there is a certain density of trades that need to be completed to provide the necessary pressure or density within a given time frame. Early today there was a big bar fast drop, but that did not provide the requisite number of trades, so over the day, gradual filling provided the density. It's a way to quantify the idea that gaps fill, long bars re fill.
The Dow Theory, Big Cap, little cap, SPY/Russell, 2 factor theories are well tested on a variety of divergences. I think they work somewhat with interest curves as well. I'm wondering about currencies, and countries. Would global/US, or small/big two factor model be predictive at all?
Bill Rafter writes:
Two factor models work best when the two variables/inputs exhibit at least some negative correlation (obviously with changes, rather than levels). Equities v. Debt is a good example.
Also, we have noticed that in a competitive 2-horse race the overtaker is usually the first to move. That is, the buy signal in A is given before the sell signal in B. We have surmised this is because the smarter players start to acquire A while the complacent participants are reluctant to dump B until late in the game. Impossible to prove, but it makes some sense. This coincides with the experience that assets move up slower than they decline. As Matt Ridley puts it (Evolution of Everything), "Good things are gradual; bad things are sudden."
The last of the first Waikiki beach boys, Rabbit Kekai, died today at the age of 95. Rabbit was an original, started surfing when he was 5 years old. His mentor was the great Duke Kahnamoko, who was an Olympic swimming champion and father of modern Hawaiian surfing. He surfed the original boards, then easily made the transition to the modern boards Rabbit surfed better than anyone his age group from the 1930's-1990's. He was still surfing at the age of 90. Rabbit ran a surfboard rental concession at Waikiki beach until a couple of years ago, and it was a rite of passage for any Haole surfer to rent a board from him and afterward he would willingly talk story all afternoon long. Today is a very sad day for the surfing tribe.
Thanks Jeff. He will be missed. Had the pleasure of surfing Boca Barranca, Costa Rica a few years back. The site of the annual Rabbit Kekai Toes on the Nose Longboard classic. Arguably one of the longest lefts on the planet. Pura Vida!
Pretty much not what they used to mean, for sure. Let's see though…the market still moves on the announcement news of labor stats. And, mostly, people have digested the faux reality of the numbers (e.g., that those who want jobs but have given up looking aren't included in the unemployed number), and still react as if there is real meaning here. Politicians, economists, and the markets seem to key on these statistics to some degree, but in the same old ways.
What isn't communicated by the numbers in proportion to their importance is how greatly and quickly the economy's employment base seems to be changing in terms of two variables: 1. the replacement of labor by technology; and 2. the work attitude/ethic of the potential workforce.
Each variable is visible in daily news. Each story of a rise in the minimum wage in a given city can be matched to McDonald's bringing in technology to replace burger-flippers or the use of medical tests to replace visits to a human physician or health tech, or to another variation of the same theme.
These same technology stories do show effects on the availability of jobs ––both in number and type—-for those graduating from high school, college, or professional programs.
Other stories indirectly identify and estimate effects of societal vectors determining labor trends. For example, the stories of the rising fentanyl opioid epidemic show deeper effects of the lack of jobs due to technology displacement. Hope, ambition, confidence, a sense of self worth are essential to careers. Perhaps the susceptibility of the addicts could be correlated to despondency in white, lesser-educated, working-class males whose once-valued role in society has been significantly eroded by political-correctness, feminist doctrine and affirmative action in recent decades leaving this population group bereft of the attitudinal pre-requisites for successful working careers, as well as fewer target areas for employment.
Are these factors usefully or accurately monetized in trading or investing? Currently, they do not seem to be in shorter-term actions and for predictions. Yet, employment and employability speak to the ability of the society to create demand…without jobs, there is no money to consume. Traditional use of these stats may be because they really don't matter in the short-run, or because we don't know how to interpret the data well. Or is this because neither cause-effect nor correlative relationship information is conveyed by what we call employment news?
We seem to key easily and deeply on earnings reports, M&A proceedings, commodity production / shipments — is this a result of a reality that these stats are more meaningful, or is it that the presentation of these numbers obscures our ability to see the essential shallowness of our understanding of the meaning they hold for imputing "value?"
The earnings beats/misses game is one of the greatest cons out there. It is a total distraction from the underlying economic trends or performance - a company can be in terminal decline but have 10 "beats" in a row which generates positive "momentum" - each one generating enough optimism for the better informed to liquidate into, including an opportune share issuance by the failing company itself.
Victor Niederhoffer writes:
One is sure that a broker would espouse such a strategy. How about writing a box. That way 4 commissions and no way to win.
It is imperative to the con that a study is done on markets with monstrous bid/ask spreads and a few contracts traded per day. Similar to the "small cap" effect where the companies that juice the return in many cases started the period with a sub $20M market cap and 2k of daily liquidity.
I was listening to someone from the top level of the private wealth department of a big bank, and this person, when asked for financial rule #1, said that staying invested in the market was the crucial thing, highlighting that rule with this claim: If you missed the best ten S&P days since the March, 2009 low, you lost half the gain you would have otherwise had.
A disclaimer: This post is *not* arguing against buy and hold, or staying invested.
However, this claim is made frequently, that if you missed the best X days since such and such a date, then you missed most/half/all of the gain since. Here is an analysis of the latest version of the claim, about the S&P since March, 2009.
Using SPY daily data:
SPY % change, Close 8 March 2009 to Close 6 May 2016: +197.40%
SPY % change after removing the ten Best days (by % change) from the series: +89.72%
So the claim, on the face of it, is true: The gain is more than cut in half by removing the ten Best days. But what if we remove the ten Worst days?
SPY % change after removing the ten Worst days (by % change) from the series: +360.60%
There would definitely be an advantage in avoiding the ten Worst Days. What if we remove *both* the ten Best and Worst days?
SPY % change after removing both the ten Best and ten Worst days from the series: +193.82%.
Pretty much right back where we started. But realistically, how would one miss the Best ten days or avoid the Worst ten? Here is a graph of the distribution of those days over the indicated time period:
(also: http://i.imgur.com/xzvhkkC.gif for a larger version)
Of course, because of volatility regimes, the Best and Worst days are clustered together - you can't have one without the other. Just to count it another way: There are a total of 1804 trading days in the study, so with 20 Best and Worst days total, you might expect one to come along about every 90 trading days if they were evenly spaced out. But when we examine the dates of the Best and Worst days and measure the distance from each one to its nearest opposite-type day, we get:
Date - B/W - Distance to nearest opposite-type day
Aug-26-15 Best 2
Aug-24-15 Worst 2
Nov-30-11 Best 21
Nov-9-11 Worst 13
Oct-27-11 Best 13
Aug-18-11 Worst 7
Aug-11-11 Best 1
Aug-10-11 Worst 1
Aug-9-11 Best 1
Aug-8-11 Worst 1
Aug-4-11 Worst 5
Jun-4-10 Worst 25
May-20-10 Worst 10
May-10-10 Best 10
Apr-20-09 Worst 11
Apr-9-09 Best 10
Mar-30-09 Worst 7
Mar-23-09 Best 7
Mar-12-09 Best 18
Mar-10-09 Best 20
mean distance: 9.25 days
So it might make more sense to say, "Stay invested so you don't miss the next 2013." Or something like that. But the "ten Best days" claim implies a model of the market where it just sits there doing nothing and every once in a while has a great day - more like a lottery than a time series.
Coda: From March 2009 through this week, the S&P gained about 1360 points. If you look at the daily minimal path - just the absolute number of points the S&P traverses as it moves from the previous Close through the Open, High, and Low, to the next Close - then over that same time period, the S&P traversed about 58,000 points, or approximately 42.8 points traversed for every 1 point gained. Maybe that is a simple mathematical angle on "risk aversion".
Bill Rafter comments:
A very good study and worthy of discussion.
Yes the best days and worst days cluster, implying that volatility is symmetric. Ergo, why worry about it; just stay long. Except that looking at the chart (admittedly not a good way to do research) you can see that the clustering occurs at times when the equity market probably should be avoided altogether. Of the 5 periods of clustering, 4 of those periods fit that description. The exception is March 2009, but that was THE bottom of the market, occurring after a 50+ percentage decline. So the big bank wealth management guy has a little start-date bias in that the period chosen demonstrates that buy-and-hold is profitable without worry, whereas choosing a start-date in 1997 would drop the compound annual ROR considerably and have substantial worry.
Since equity markets are volatility-averse, a volatility screener should enable the investor to be out of equities (and possibly long bonds) during the clustering. The wealth management guys will identify that as "timing" which they say pejoratively, although most financial decisions are made with some timing in mind. One may buy a home, renegotiate a mortgage, open a business or even marry based on whether the "time is right". Those bottom up decisions of everyday life filter up to the market.
I dare say the big bank wealth management guys stayed long during the 2000-2003 and 2007-2009 declines, and the buy-and-hold argument provides them with the cover they need for those flubs.
Let me posit a side question to illustrate the volatility point. Suppose you knew the stock market would be higher over the next 12 months. What stocks should you own? Logic would suggest that since the market is going up, the more volatile stocks (i.e. high beta) should go up the most. But at most times that is incorrect, as investors pay a premium for lower volatility, and those high beta stocks were yesterday's high betas, not tomorrow's.
Ralph Vince writes:
You don't want to miss the ten worst days, they offer opportunity (as a buyer) as the ten best days do as well (as a holder, or seller).
The days you want to miss are the ten dullest days. Or maybe the thousand dullest days of the period in question. Those are the days where the office is a prison cell, the weather out the window looks glorious. Then the guy with the thing that blows leaves and grass and all that, is rummaging around outside the window for twenty minutes, and you realise days like this simply waste your life.
No, please, give me volatility, there's money in those days.
From 10 years ago (August 2006 SpecList):
"Mr. Cassetti wrote, "Suffice to say, many studies now show that missing the worst days is more important that participating in the best days."
I was intrigued about what this meant, and if true, what it says about the distribution of returns. To analyze this, SP500 weekly returns since 1950 were ranked, and the compound final return calculated. (weekly returns since less cumbersome than daily) Then compounded returns for an hypothetical/supernatural trader who managed to be in the market for all but the *best* and *worst* week-pairs out of all 2950 weeks. The next trader was in for all but the best 2 and worst 2, and so on, for a total of about 1477 ranked returns. (trader 1477 was only in the market for the middle-return two weeks out of 55 years, which seems implausible enough that I might try it)
Here is a chart of the compound returns found by successively eliminating [X*(top,bottom)] week pairs, neglecting transaction costs:
The pink line corresponds with a final return for B/H of about 75 (7500%). One notes that while it is true that compound return improves by removing BOTH top and bottom weeks, further successive removal actually hurts returns. After X>363, removing additional top and bottom weeks reduces return. And since only 363/1475 top+bottom week-pair eliminations improve returns over buy and hold, if (without skill) you try to eliminate such weeks, you have about a 75% chance of under-performing.
This exercise is a successive subtraction of the extreme tails from the returns distribution, and shows that unusually large down weeks are greater in magnitude than unusually large gains. In 75% of the week pairs (just over +/- 1SD), the corresponding ranked gainer weeks are larger than losers. Another curiosity is the kink in an otherwise smooth curve around (elimination of) weeks 36-54, which could result from some kind of asymmetry in the tails."
One way to reduce exposure to volatile regimes is to be in-market only when long moving averages are up, which can be done in real time.
Monday May 9, 2016
As a long-time strategy/management consultant to corporations and government, I am often approached by newly-declared consultants on their first rodeo. Today, one of these lamented the lack of success in developing new business. His take:
"I do not know about you, but it has been profoundly quiet. I am getting the sense that nobody wants to make any commitments because they do not know what is going to happen next. Perhaps this is a reflection of the Clinton/Trump fear. As I read recently somewhere, 'the problem with this election is that somebody has to win.'"
The Clinton / Trump point is, I believe, a quite common rationale adopted these days for the condition of the economic muddle. In fact, this is only a minor factor distinguishing current times from previous events of the larger predictable cycle.
This is the situation at every election I have known as a professional consultant. It isn't just the two candidates, it is the contest itself, and the surety that policy will change, yet the direction is unknown, as well as the magnitude. The election cycle is predictably disruptive.
The need is to hunker down, endure, not worry. An expenditure of more than nominal business-getting effort isn't worth it, and can be harmful, for to do so is to declare oneself in directions that are predominantly unlikely to unfold.
Exceptions to this course have primarily to do with whether one is (or is not) "going political" in an attempt to bet on joining a new administration….long shots at best. This would include attempts to contribute to one campaign or another, or to issue-based SuperPacs.
For future directions (and investments): at high-risk are most certainly all of Obama energy directions, science directions, defense policies/priorities, health imperatives, …. etc. The hubs (i.e., "centers of excellence" focused on selected technical areas, such as batteries, renewables, et al) are a doomed concept.
Even the best of these (e.g., CASL – a collaborative effort among industry, regulators, and R&D labs to model and simulate light-water nuclear reactors) is unlikely to continue through a third round of funding in the present incarnation….a new name / rationale / policy / etc will need to be found if it is to survive. Holding on to the old policy configuration is a slide toward fiscal / policy death. Each administration must conceive of its own emphases, names, priorities.
I think exoscale efforts (building the next size of high-performance computing power), while not bullish under BHO, are likely to decline in favor of simplified concepts for computing power escalation, or greater emphasis on use of existing resources to extend application to other problem-solving ventures — in the longer run. This could build confidence in simulations to the point that later renewed exoscale pushes could launch at a steeper climb, … building on coalesced confidence in the scientific community —- READ THIS TO MEAN that efforts at collaborative problem-solving are more politically uncharged, more fundable…i.e., best action is to seek a problem for collaborative problem solving and get funding under the problem area, not under money for hardware.
Nuclear is obviously in danger. It can only be successful under strong national / Federal policy commitment, the kind unseen since the 1970s. However, world events may be conspiring to position a Federal change in attitude toward nuclear. NEI is useless in the main.
"Innovation" is safe, but quite abstract. Money can be found for this, but I think primarily from the foundations of the super-rich tech (& other) barons, and in corporate self-investment; government for the time being is, and should be, tapped out.
Just trying to read the cards, find an interim play, survive, and be resurrected in a revitalized economy. Clinton offers no chance for this. Trump is completely unknown. The power money seems behind Clinton. The voters more energized for disruption on both sides.
Welcome to "interesting times."
The NYC Junto will meet on Thursday May 5, 2016 at the General Society Library, 20 West 44th Street, NYC (between 5th & 6th Aves). Open discussion at 7:30 PM. The featured speaker will begin at 8 PM.
The featured speaker this time will be Marty Lewinter, Ph.D., on the subject of "the joy and utility of mathematics. He is a professor of mathematics and computer science at Purchase College (SUNY). He’s the author of The Saga of Mathematics: A Brief History with William Widulski and of A Friendly Introduction to Graph Theory with Fred Buckley. All Dailyspec readers are invited!
A cursory note of garden observations on today's walk to check the chickens. The dogwoods and redbuds are in full bloom and the fiddleheads of many fern varieties appear. It is interesting that the young dogwoods seems to be saving something and are not quite showing all the flowers they are capable of, compared to the more effusive dogwoods who are in the last half of their lifecycle. Similarly, a redbud which has been dying off is fully intent on procreating to maintain its lineage and is profusely dropping its seed.
I wonder the parallels with human life that may both be innate and extrinsic. For example, what can we learn from recollections of those at they approach or fear death? The life that flashes before the eyes of jumper who survives a plummet from the Golden Gate bridge. The person who is approaching death for whatever reason. The lessons from a man who studied 1,000 deaths to learn how to live, BJ Miller. The travels of many of a man and woman to the romance of a nubile partner.
I also wonder the parallels in markets at the end of market moves at the ends of market moves of varying magnitudes. How might they be quantified, observed, and monetized? A change in price momentum and direction after moves are exhausted. Particularly when they may not be supported by perceived or actual macro fundamentals. What are the timing mechanisms and linkages? For example, how might the recent move in oil be connected to moves in commodity currency pairs? Where might the CHANGE occur to be a catalyst, or not?
Given recent price moves in markets, upcoming economic data, geopolitical events, and market positions this may be a propitious moment to consider such factors. What about the cycles in the markets like those of certain animals, insects, and plants that only occur very few years. In that realm I would put a few broader macro-economic cycles and events. Consider most recently the Asian and LTCM events of the mid and late 1990's, the US crisis of 2008, and consider the current period and what might be happening and what is different? What might be reminded in Anna Karenina Tolstoy said "Happy families are all alike; every unhappy family is unhappy in its own way."
So what might be unhappy in today's markets in their own way? I would note that there are any number of factors to be aware of and to name a few: the comparative size of the GDP of emerging economies, the debt dynamics globally, the growth of the credit cycle in China compared to the US(2008) and Japan(1990's) and Thailand (1990's), the flexibility of EM exchange rates, the gross number of hotspots today versus previous crises, the populist political landscape and the causes thereof, the monetary and fiscal ammunition that is left and the willingness and know how to employ it, etc..
It's a wrestling match today with bonds up a half from 7 down days and a 2 month low, and crude at a 4 month high, up another 2%. It is interesting to note that somehow the Fed believes that moves in oil are ephemeral and have no effect on inflation.
Here is a paper presented by Vineer Bhansali at JOIM : "Beyond the Quant Model" [36 page pdf]
I got a lot out of it even when I couldn't follow the physics examples.
Alex Castaldo replies:
I see that in late December 2015 Vineer Bhansali left Pimco to start his own firm LongTail Alpha:
LongTail Alpha is named after its strategy that "sustained portfolio performance comes from expecting the unexpected, and positioning portfolios to earn yield while maintaining convexity," according to a statement he issued. Bhansali said he is initially funding the firm himself. He earned a Ph.D. in theoretical physics from Harvard University in 1992 after receiving bachelor's and master's degrees in physics at the California Institute of Technology. He […] worked at Pimco for 16 years.
It would seem he is a convex combination of The Professor, The Upside Down Man and the Derivatives Expert.
The talk is billed as a light talk rather than a technical one. He discusses lessons learned from hobbies and other fun activities and summarizes them in 10 points:
1. Focus on Structure (and on the one idea that supports the structure)
2. Let the data speak (and be Bayesian when you listen to it)
3. Use proper coordinates and units
4. Know the types of errors (and correct for them)
6. Look for scaling rules (and anticipate the possibility of sharp/sudden transitions)
7. Simulate freely (especially if you suspect path dependence) and use Gedanken (thought) experiments
8. Identify tradeoffs (and deal with imbalance by owning free or cheap options)
9. Don’t fight momentum (look for it and ride it)
10. Pay heed to the environment (and be flexible in adjusting to it)
Reminds me of John Law and his Mississippi Scheme. Banque Royale was the central bank. What happened to France afterwards is well known…. The money supply of France was inflated to support share prices. When the collapse came many people were ruined. It also contributed to the French Revolution.
BOJ should study history.
April 22, 2016 | 1 Comment
Seals are the most rugged and dependable of the military branches. The primary reasons are they are selective, draw mainly from swimmers (vigorous and smart), and their training is the most demanding with the highest attrition rate. Hence, we are protected by the best evolution offers from the U.S. military. Still, in looking over their '6 Lessons from Seal Team 6', improvement is possible. Here are the Seal lessons, and my upgrades (in italics) from experience in the jungles, streets, rails, mountains and deserts.
1. Consider a weapon not just by the traditional description but in terms of all the tools you can train and deploy, particularly your mind. Willpower is a powerful weapon.
– Willpower is a poor substitute for ability. I'm reminded of the Special Forces soldier who jumped from a plane, and his parachute didn't open. 'So far, so good,' he reminded himself. Then his emergency chute didn't deploy. 'So far, so good,' he said to himself…
2. Never attack from the same place more than twice at most, keep your opponent off-guard and move around.
– Never attack from your strength first, I might add.
3. Minimize emotions or you will have difficulty maintaining a focused mind.
–Do not attach emotion to the things you do in life, is key to the military, sports, and even business.
4. Assume there is no back up and control your risk accordingly.
- Always keep a back up, is better, implying to enter a situation without considering support, and remember it if the position sours.
5. Think outside the box, but don't chase things you can't see.
- A clearer way to phrase it, Think inside the box of tricks you've been taught, and if those tricks fail, think outside the box.
6. Nerve, stand for something every day and remember the SAS creed "those who dare win"
– Given the choice of cowardice and violence, always choose violence.
Most families make the journey to DisneyWorld or Disneyland soon after they judge that "the kids are old enough now." "You haven't been to DisneyWorld?!" has the force of a shaming epithet in elementary school peer groups. Parents who have not "made the trip" are often considered poor providers.
I have concluded that Disney is a deep threat to American society. Visiting these parks is a training system for the America-to-come (and other countries where the movement has gained traction)…an America I don't think I will like.
Disney visits teach two things:
1. be an observer, not a participant …. a Disney trip is way down on the interactive scale, most "rides" are passive excursions through a terrain or story or experience over which the guest has virtually no control or input. And
2. how to wait in line politely and passively for long periods of time with tethered, exhausted, sugared children tugging on the parent…perhaps an apt experience for preparing us to endure the DMV or the post office
Disney's contribution is to make this otherwise awful experience into something that cannot be passed up. The best people mover of all time consults other companies and organizations on crowd management and control.
Is there a place for Disney in fighting terrorism?
Rocky Humbert writes:
I thought the original post about Disney was tongue-in-cheek — as it left me ROFL — but I'm starting to wonder whether it was a serious anarcho-anti-establishment rant?
Without opining on the misery of standing in queues under the Florida sun, Disney sells a professional, well engineered, family-friendly entertainment product. It is difficult to fault their franchise, execution and profitability. I have found critics of Disney are the same folks who hate the American Flag, Mcdonalds, baseball and apple pie. That Disney has a slightly left of center political bias is a reflection of its market research rather than agenda — I am certain that they would shift their bias quickly if it suited their profitability.
I have not been to a Disney park in many years, but it is a right of passage for most every parent with young children. My memory of it was pleasant. My primary complaints about the experience were the cost and the food quality.
If you are going there to glean a deep understanding of history, science, environmental studies, etc., it will be disappointing But if you are going there to have your youngsters smile and not be exposed to vulgarity, profanity and things that many of us consider the dark side of the work, then it is a great place.
Again, every detail of their product is micro managed and they should be saluted, not pilloried, for providing consumers an interactive product that they want and pay for. Good luck to the parents of young children who think they should go "rock climbing." See you at the ER.
Russ Sears writes:
While I concur with Rocky's sentiments that Disney leaning left is most likely due to the leaderships belief that the left will win the future. What bothers me is not the left or right side of their politics but their marketing preference towards girls and capturing a large segment of the young girls and their mothers. I have only daughters and they loved Disney. But when 60% of the college graduating class is female, and 40% is male, a figure that was reverse in the male chauvinistic 70's, it hurts to think that the young boys' futures are so bleak that Disney doesn't market too strongly to boys or their fathers and knows where the future is. While it maybe the future, is such an accelerating trend sustainable for the next 30 years or is there a limit to how bad this can get?
Jim Lackey writes:
Disney world is fantastic. It is expensive, yet worth it. There are some good points that strong women and some men point out. Life is not a fairy tale and you're not a princess. However, once that statement is out of the way the experience is best if you look at it as purely entertainment and have fun.
Nothing for the boys? My best memories are when my dad said: NO RACING this vacation son! We are going to Florida. I am taking your sister to Disney. Your brother wants to do the water park. Son, I want to fish in the Keys. It is your job to navigate. Here is the map, the compass and my cc card. Plan the trip. P.S your sister will refuse to stay in a hotel without a diving board. Your mother needs, we need, for your mother to have a car and a place to shop. Love Dad.
Yes, that was a note he was off to work 7/12's to raise the funding for the trip.
I lived in Fla from July 91 until June 2006. In that 15 years I went to Disney countless times. We also hit Busch gardens, when Budweiser still owned it. I had fond memories of that park from a kid. It wasn't in the parking lot of the ball park of Disney. Once a year I was kicking and screaming about a summer Disney trip, again for my wife and small children. My wife set me up. She had paid for a full day of me driving the Richard Petty driving experience (12-1 compression aaah about 550 HP stock car.) I had to follow the instructor for 15 laps (2 cars.) Then he realized I could drive the car. They had a speed limit of about 150 on the strait so we had to coast, then right before you slam on the brakes to corner he had us go full throttle for one thousand one one thou, SLAM the brakes…. right before the apex of the turn, which is quite unnatural, you went back to full throttle. I noticed the slight delay from the full throttle to the power band of the engine. Actually I noticed a puff of fuel come out of the lead race car's header or exhaust pipe before the car slammed the apex, where a driver would normally go full throttle. Then we had it wired.
I upset him by pushing him down the strait when he was waiving his arm frantically (which meant slow down back off 3', we were 150 mph about 100 feet into the strait. I dunno if I did 50 or 60 laps. All I can tell you is I wanted out of that hot box on the 95 degree Fla day so bad the final 10 laps were work. I though damn these stock car drivers must train very hard on long distance bicycle or run many miles a week to drive 500 miles in this hot box. They must have full focus in real racing for that 3 hours and that takes endurance. I walked into Disney and the wife said, "so? Are we trading the Drag car for a stock car?" No way baby, I'll never be a stock car driver.
Disney rocks. If you can't find something to do there…send me a note. Few realize all there is to offer.
Disney is my retirement plan. That will be my job from 62-82. I'll be rebuilding engines, motors, hydraulic pumps and training young men, how to work. Did you ever notice how they take out the trash restock the concessions, or how the leaf blower/ vacuum exhaust smells but doesn't stink like your gasoline lawn mower?
I remember as a 11 yo kid asking dad, are they running vp racing gas in that leaf sucker? Pops can you smell that exhaust? That's the same sweet smell of fuel burning at the dragstrip. Only you'd notice, son. Did you wonder where does all the trash go? We could never figure out how is it that every kid that works there for the minimum is so happy. My wife, the UCF grad explained it to me. Talk to the management. Where are they? Exactly!
Stefan Jovanovich writes:
A trip to Orlando's theme parks would not be complete without a trip to Florida's own surf city, Cocoa Beach. We make a day trip over to CB at least 7-8 times a year, usually in spring and summer, and sometimes stay a few nights at the surfer friendly Wakulla Suites.
A typical day trip begins at 3AM with a stop at our local 7/11 for coffee and donuts. Boards strapped and secure on the top of the car, we race up I-75 until we hit I-4, take a right to Orlando where we exit and take the 528 over to Cocoa Beach. Our excitement is palpable when we get close on the 528 causeway, and one can smell the Atlantic Ocean. Pulling into Cocoa Beach on A1A, if all goes well, usually happens around 6:15-6:30 AM. Our ritual is to always stop at the Waffle House for a greasy breakfast, some good country tunes on the juke box, while rubbing elbows with working people and an eclectic mix of tourists and surfers. I love the waitresses at Waffle House, the way every customer is referred to as "Hon."
After breakfast, we find our parking spot, unload the car, set up the tent, and paddle out for a nice dawn patrol. Since we always take a couple of local kids along with us, they get the job of setting up our site. The kids are always good sports, and "Get the Joke" as Lack would say. Generally, we will surf for a couple of hours, taking time to stay hydrated (one loses a lot of water in the sun and surf), then relaxing with a quick siesta under the shade from the little tent. Waking up, we'll put on sunscreen (Bullfrog) and go back out for a couple hours.
My wife will make a run over to Publix for some excellent deli subs, some salad and fruit which we will eat for lunch right on the beach. Usually after lunch is another short siesta, then back to the waves. Since my wife learned to ride a longboard, she will paddle out for a few after lunch. Otherwise, she is content to stay under the tent, watching us surf while reading.
If the surf is really good, we'll stay out until 4-4:30 or until exhaustion takes it's toll. I have found that using a waterproof ipod is just the ticket for adding the enjoyment of good music to a surf session. My son does the same, and while my surf music tastes tend to gravitate towards Coltrane and Monk, his is more geared towards punk and hip hop. The difference in musical tastes is very common between old guys like me on longboards, and young guys who ride those potato chip shortboards. Either way, the good tunes extend the length of a surf session and make it much more fulfilling and spiritual.
After surfing all day, late afternoon creeps up quickly and we feel a tired sense of satisfaction and accomplishment. Wrapping up the day, the groms know their duty is to pack up the boards, tent, coolers, etc. We always make it a rule to park near Ron Jon's. We wander into their huge 2 level surf shop, gawking at the lobster burned tourists, the cheap "Made in China" trinkets and other souvenirs of questionable repute. We always head upstairs to look at the huge selection of surfboards, talking story with the board sales staff, who are usually grisly old guys who have as much surfing experience as Gerry Lopez. I always buy the groms something useful, as they generally come from very limited circumstances and things like no-name wetsuits, leashes, rashguards quite inexpensive at Ron Jon's. Sometimes Ron Jon will have good deals on Hawaiian shirts, the kind that I live in 360 days a year. My wife will always ask, "Are you sure you need another 5 shirts?" She's always a good sport, lets me have the shirts, and I make sure to find something good for her as well.
After an hour or so taking in the spectacle that is Ron Jon, we walk across the street to "The Shark Pit Bar and Grill," at Ron Jon's main competitor, the Cocoa Beach Surf Company. Their meals are quite delicious, with generous portions, an attentive waitstaff, and are quite filling. After dinner, we'll check out the boards and equipment at the CBSC shop, then drag our way back to the car.
Leaving Cocoa Beach around dark, we always stop at a Starbucks, where I like to get a quadruple venti cappuccino, drugging myself in order to make the 3.5 hour drive home. We usually make it home before midnight, barring some horrible traffic on I-4. The drive home finds everyone in the car passed out, leaving me to enjoy my thoughts, sense of accomplishment, and the love that I have for everyone around me.
Dropping the groms off, we make our way home, to the comfort of our beds. The car is never unloaded until the next day, usually in the late afternoon. I never unload the car myself, preferring to delegate the job as there are more pressing things on my mind, like sleeping in all day long. Still, one cannot have a day trip to Cocoa Beach without suffering one major unintended consequence, which usually manifests itself as an ear to ear smile that lasts for a couple of days. If you have never been on a surf run to Cocoa Beach, or it's sister New Smyrna Beach, your life is sadly incomplete.
April 16, 2016 | 1 Comment
Slab City girls are different. They're seasoned, leery, and well-traveled. So the approach to ask for a date is different:
1. Show her your tattoos.
2. Say you've been on the road for a year or more.
3. Claim to get a monthly dole.
4. Keep the chat to a minimum.
5. Pull out a condom.
6. Don't be surprised if she doesn't have underwear.
7. Let her brag about having more stab wounds than you.
8. Let her choose a position.
9. Expect intense swiftness.
10. Accept after her speech, 'I'm sorry, I have to go get more sex.'
"Forever stamps" are not forever. They just lost 4%. A long time ago a reader mentioned (in jest) investing in forever stamps as an inflation hedge. What does this deflationary move say? Are they way behind the curve as usual with everything else starting to inflate a bit now? They are us 500% since 75, so that is fairly consistent with inflation. Here is the price chart.
In Hawaii, real estate is getting hot. No rentals, immediate sales at asking. In Cali real estate has been super hot.
Bill Rafter and I have discussed for years the steadily growing discontinuity in the BLS's employment data versus that implied by payroll tax receipts.
A few years ago the staff economists at the Atlanta Fed got so fed up with the nonsensical BEA GDP reports that they started issuing their own report anticipating the GDP release wit their GDPNow report.
Although the media has since glommed onto the report it is treated in similar fashion to the ADP employment release.
The differences between the two is important however.
The ADP report is distinct from the BLS data and uses inputs chosen by ADP.
The GDPNow report is designed to mirror the BEA's data inputs to anticipate not what what GDP is but what the BEA will report that it is.
The Atlanta Fed staff are putting the manipulators on notice, and those in the media and at the FOMC willing to go along with it, that there are consequences.
The actions by the Atlanta Fed staff have also helped to embolden other Fed staff members to do similar work and make it public.
The Richmond Fed staff economists have now produced a model of unemployment called the non-employment index that challenges the accuracy of the BLS data.
The importance of this is that it challenges the usefulness of the U3 unemployment rate and the FOMC natural rate of unemployment (NROU) predicated on it.
The point is that data is being willfully corrupted by providers and this has engendered, finally, a push back by others.
Being aware of the totality of this, especially for a group focused on clean data is important.
Readers of Dailyspec normally speak of picking spots to trade S&P for brief statistically anomalous moments they identify. They do no try static timing approaches to beat the S&P by only trading the S&P. A weasel could put out predictions and escape scientific judgement by evading the selection of a benchmark for comparison of results. Since legitimate reasons exist for not using the S&P as a benchmark for taxable investors in a trading account, the skewer arrives as a dull blade. The Thomson Reuters Eikon idea holds more interest.
What strikes me is that as the competition increases, events could go the way of the cellphone data provider model. They get rid of the business model of the non-negotiable onerous bi-annual contracts first, and then they offer to pay the remainder of the competitor's contract to get clients to switch. Will that cut the margin projections for all of them and make it a lower margin business generally? The new tax inversion rules cannot help US based business valuations and might lead to foreign based lesser-market share competitors gaining in their relative profit margins as well.
Russ Sears writes:
Much time is wasted looking for static rules to sell stocks, but the converse is where the static rules apply, what time to buy stocks. I believe many investors confuse the potential to time individual stock sell indicators with the market as a whole. My battles have not been finding static ideas or getting institutions to implement ideas that beat the market. If it is static, it is not labor intensive enough to give investment department credit beyond luck. Static market ideas are simple by their nature, and therefore its easy to label them as luck rather than sophistication, and when they are 10/ 20 baggers to cash them in once someone decides they need money to lessen the "risk" because it was just lucky. The same goes with long term stock holders. The kids find a nice portfolio of stocks that the wise old deceased patriarch held forever, which made the family rich. The kids are told to sell into something with less risk because the portfolio just got lucky.
Dr. Garth Davis writes:
There is a new study following over 500,000 people since 2004. HUGE study. This latest analysis in the prestigious New England Journal of Medicine is fascinating. Those people that ate fruit daily had lower blood pressure, lower blood sugar, and consequently a lower risk of heart disease. Impressive results given they did do multivariate regression analysis. Large studies like these try and control for confounders but hard to do. Regardless, this is strong evidence that fruit does a body good.
It only stands to reason that where there's sacrifice, there's someone collecting the sacrificial offerings. Where there's service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.
What is the difference between the "smart-beta" index built around "momentum factor" (offered by Russell or some other index provider) and a trend-following CTA? It seems to me like a lot of smart repackaging (trend-following is now called momentum since more academic research is about momentum, trading is now asset allocation, etc.)….
Aside of fees, of course
Ralph Vince writes:
All trading systems can be represented as indexes. (even your simplest, go long here, flat there, short here, has aggregatge weightings of 1, 0,1 on the various positions — cash always 1-position weight).
All portfolio models, can be represented as indexes.
Trading Systems ~ Portfolio Models ~ Indexes (~ representing "equivalent to")
It's a matter of packaging.
And further building on this edifice scratched in the walls of my darkened cave….
And all long positions ~ short put + long call of same series.
And all of this occurs within the hyaline manifold of leverage space, which readily explains things that are often not so evident on the surface (such as why a short etf will have a long-term downward drift, as well as all leveraged ones, just as with any form of portfolio insurance) and on and on and on and on.)
Rocky Humbert writes:
Ralph articulates this well.
I would add one point:
We know as a logical syllogism that the overall return from an entire market (to all participants) is the overall return from an entire market. Putting aside the mark to market paradox, if I were the sole market participant and I owned the entire market, then my return would be the intrinsic market return (i.e. cash flow, profits, dividends, etc). And if there were two market participants, then the intrinsic return is shared between those two participants. Again, mark to market paradox notwithstanding, just as it is impossible to squeeze blood from a stone, one cannot produce a total return that exceeds the intrinsic market return. The only question therefore is how to allocate the return — which, beyond the intrinsic return, resembles a zero sum game. (Some people here call the intrinsic return, "drift", but it is really dividends, retained profits, etc.)
An academically pure index must capture the entire market's intrinsic return. And it would do that by owning the entire market capitalization of that market. The S&P500 doesn't do this exactly — the index owners exercise nuance and discretion — and that process might give some opportunities to the smart-beta crowd. That the S&P is market cap weighted further gives rise to the mark to market paradox (i.e. the starting point when one purchases the entire market cap).
But if one could actually purchase a piece of the entire market on the day of the market's creation — and own it until the end of the world — that investment will produce a return that will, after taxes and expenses — beat holding any given smart beta strategy for the same duration. This is a purely theoretical point — because during any given holding period, some particular smart beta strategy will surely outperform. Again, it's a mark to market issue. So the goal is to figure out which one will and which one won't. (Assuming that this is possible!)
So yes Virginia — there is a pure index. But it is theoretical ideal.
I used to trade and develop "smart beta" strategies back at the fund.
I don't think there is an established "this is smart beta and this is not," but I can tell you as to what people expect. The momentum strategies are a bit different than typical CTA trending strategies (not using crossovers for example). Instead momentum is tracked by other measures such as relative performance across sectors and going long/short the best/worst performing ones.
The implied idea of smart beta, which is not exclusive to CTAs, are the other benefits of using these strategies amongst others in a way that utilizes portfolio construction or a dynamic weighting strategy (like monthly rebalancing on vol).
The goal with smart beta is to not produce alpha outright, but to accept that the majority of alpha has been "sapped" and you are now using diversified strategies that have a known cyclical alpha. This is where you get into gray area but I differ the two by saying:
alpha means the sharpe significantly deteriorates as others discover the method smart beta means the sharpe has already significantly deteroriated, but because it has, you can more easily predict the regimes in which they work/don't work. For example, AQR's paper: value and momentum everywhere discusses the idea that momentum (continuation) and value strategies (mean-reversion), tend to have negative correlations, albeit both strategies have lower sharpes (0.4 to 0.7).
Assume, all flows as dividends etc produce an intrinsic market return of zero over some point. Trader A loses 10. Trader B gains 9 (dont forget the vig). Ok till this syllogism its a zero sum game
A sold at 100, B bought at 100.
A stopped out at 105.
B stopped out at 95.
There must be a C or a CDE.. and so on and so forth.
Still sounds like zero sum.
But if over a length of time some stay in the game, majority keep dropping out. Then it becomes a series of zero sum games.
Next, If A,B,C,D,E…. et al become very large numbers then its a zero sum game between those who stayed in the game up to the point the non participants came in. This also explains the Lobogolas.
Market therefore is a variable sum game. People vary their exposures, they vary even their presence for prolonged periods of time. No one rides an investment bus permanently the way sage does. Normal people buy stocks with an "intention" to sell at some point.
The drift in equities is explicable by a fact that it is the only asset class where reinvestment in growth occurs. For Indian equities I have had calculated in the past it mimicks the curve of (1+GDP growth)*(1+inflation). Perhaps true for other markets too. Given in the long run supernormal profits dont exist, its the ability of businesses to pass on inflation to their customers that produces the drift in their cashflows and thus stock prices.
This pic shows Vic Niederhoffer with Andrew Romay (born in Hungary in 1922) at the 50 Year birthday party for Roy Niederhoffer.
Andrew Romay survived the Mauthausen concentration camp in March-May 1945, then came to the United States where he became well known as an investor and lawyer in the Hungarian emigre community.
So careful was his due diligence work that the famous phrase was often heard "OK, I am willing to invest if I can come in pari passu with Andy on this deal".
I gave in and rented An Honest Liar documentary about James Randi the other day. A rather decent documentary/biography. "The Amazing" Randi seems to have been an icon back in the 70s and 80s? Sorta the Father of Magicians and Illusionists following in Houdini's foot steps.
The movie opens and closes with Randi saying "no matter how smart or well educated you are, you can be deceived". A lot of what has already been discussed about deception over the years on this site is in the movie. Well worth watching even if for a refresher.
Through age and an almost tragic accident Randi is basically forced into retirement. He then becomes a crusader to expose those that deceive for profiting without being honest about their deception! Backwards I know. Hence the title of the movie.
He completely helps Johnny Carson foil and ruin Uri Gellar, the so-called famous psychic.
Randi exposes a Southern Evangelical that holds himself out as a "healer" fleecing crowded Civic Centers.
Randi feels that the practice of magic/illusion should be one that the crowd knows it is paying to see entertainment. To practice deception for the sake of conning and stealing is ironically morally unethical to The Amazing Randi.
The movie ends with Randi sharing personally that he was deceived and the impact it has had on him.
I feel it is worth the hour to watch. Countless market implications were in my thoughts while watching and thinking about the movie afterwards.
Clark uses historical records to track surnames and social status over generations, and finds that rates of social mobility are surprisingly similar—and surprisingly slow— across societies as diverse as feudal England, modern Sweden and Qing Dynasty China.
Most social scientists estimate that it takes about three to five generations for a family's wealth or poverty to dissipate, but Clark says it takes a staggering ten to fifteen generations—300 to 450 years—and there's not much the government can do about it. According to his calculations, if you live in England and share a last name with a Norman conqueror listed in the Domesday book of 1086—think Sinclair, Percy, Beauchamp—you have a 25 percent higher chance of matriculating at Oxford or Cambridge. If you're an American with an ancestor who graduated from an Ivy League college between 1650 and 1850, it's twice as likely that you're listed in the American Medical Association's Directory of Physicians.
Numberphile has done a nice vid on the Hawkes process and applications:
Here is a presentation that dives a lot further into the math:
The NYC Junto will meet on Thursday March 3, 2016 at the General Society Library, 20 West 44th Street. The open discussion will begin at 7:00 PM and the featured speaker begin at 8:00 PM. This event is free and open to the public.
The featured speaker will be Gregory F. Rehmke , who will speak on the topic of economic freedom and its benefits. Mr. Rehmke is the Program Director for EconomicThinking.org, a Teaching Fellow at the Independent Institute, and has directed educational programs at the Center for the American Idea, Reason Foundation, and the Foundation for Economic Education. He co-authored of The Complete Idiot’s Guide to Global Economics.
Yesterday was one of the best days of my life. I was healed enough to be able to go surfing for the first time in months, Ceres treated me well in the market, and The Eddie went, and I watched it on a screen.
The Eddie Aikau Memorial is the most important contest in surfing. It is the World Series, Superbowl, NBA Final, Kentucky Derby all wrapped up in one. The Eddie is so important that it is not run every year, only running when the conditions at Waimea Bay are perfect. The contest was named in honor of Eddie Aikau, the Hawaiian big wave surfer and lifeguard who lost his life in 1978 during an ill fated canoe voyage from Honolulu to Tahiti. The 9-man canoe capsized around 15 miles from shore, and Eddie tried to paddle to Molokai to get help. The people on the canoe were rescued by a Coast Guard cutter, but Eddie was never seen again.
In 1985, surf giant Quicksilver put together a big wave invitational contest in memory of Eddie Aikau. First held at Sunset Beach on Oahu's North Shore, the second year brought it to Waimea Bay where Eddie was the lifeguard for many years. In 31 years, the contest has been run only 9 times, despite having a 90 day window. The last time it was run was in 2009. The surfing tribe started getting excited last week when the models showed a huge El Niño swell showing up this week. Not only was it a huge swell, it was one of the biggest, with waves reaching 30-40'+. The conditions were perfect, and the waves were well formed, Waimea at it's finest.
The contest consists of 28 invitees each surfing in two rounds of 60 minute heats with only 6 other surfers. Each contestant was only allowed a maximum of 4 waves per heat. There were 5 judges that scored each wave 1-20, with the sum of their scores being the total for the wave. The contest started at 8AM Hawaiian Time and was finished in a little over 8 hours. It was the best big wave contest I've ever seen. The contest was very therapeutic for the surfing tribe and the contestants who last week lost a popular big wave surfer, Brock Little, to cancer. Much mention was made of Brock, and the Hawaiians attributed the good swell to him, naming it the "Brock Little Swell." Thousands of people were at the beach and the Kam Highway, watching the spectacle.
The heats were very exciting, with many good rides, and very scary wipeouts. The waves were so big that big sets would blow out the entire bay, sending jet skis racing to shore to avoid the 20' whitewater.
All the usual suspects like Kelly Slater, Peter Mel, Shane Dorian, Tom Carroll, et al, were competing. A bonus and the crowd favorite was 66-year-old Clyde Aikau, past winner and younger brother of Eddie. Clyde put on a great show, totally ripping up the waves in a very old school Hawaiian style. Ultimately, John John Florence won the contest, bringing the title back to Hawaii. Florence is billed as the next Kelly Slater, and his performance was spectacular. Incidentally, Slater came in 5th. Clyde Aikau came in 20th place. A horrible wipeout from Mason Ho deserves a look. And here are some highlights of the best waves in the contest.
The 9th running of the contest was spectacular, and was a great time for for all contestants and spectators.
Gut feelings matter, but not the way you think. An individual’s gut feeling is anecdotal. Chances are that even he cannot statistically study his sympathies. However many of us model the gut feelings of investors at large, and those can be statistically studied. Here are a few examples:
Commitments of Traders of futures. Many researchers ply a theory and then try to find data to support it. And their theory typically revolves around following the large (reporting) traders and mimicking them. The trouble is that not even the big guys are right all the time. A better approach is to examine the data without a preconceived theory. In doing so you will find that the small (non-reporting) traders are more consistently wrong than the big guys are right. That is, winners rotate, but losers are consistent. Further analysis reveals that the little guys tend to be even more wrong when they are short. And the best combination is when the little guys are short and the big specs are long. Following the hedgers should be avoided as the hedgers speculate, but on the basis, not the actual price. If you don’t know what that means, don’t play in that venue.
Options data. This usually takes the form of the putcall volume ratio. Excessive levels tend to occur at market turning points. And by the way, the smart money bets against the excessive level. One problem to be mindful of is that most researchers look at CBOE data, which typically only constitutes a third of all option data. If you want to get it all, get the Options Clearing Corp data, which is free just as CBOE data and more reliable.
While you are looking at option data, go a step further and look at the open interest levels. I assure you that if you like putcall volume data, you will value the open interest data more. The latter also tends to give less ephemeral signals.
Is there any way to combine the two? You betcha! In any given period the number of New Positions (NP) equals the volume plus the change in open interest. Further, the total open interest divided by the backward cumulative NPs identifies a number of trading days which can be described as either the age or average holding time of those positions. On a very broad scale that data gives a view significantly different from putcall volume, and one that is quite reliable.
Polls? There used to be a newsletter which purported to measure contrary opinion for futures. What the publishers (Mr. James Sibbet and Earl Hadady) did was rank the bullishness of various newsletters and take a percentage. The theory was that if every publication was bullish, the market was overbought. The trouble was (paraphrasing Keynes) opinions could stay bullish for longer than you had margin money for picking the top. However if a market was up in the high 90s percent bullish for several weeks, the first downturn in opinion to even mid-80s presaged a price selloff. It wasn’t the same people each time, but when the collection of gut feelings changed its momentum, the price tended to go along.
While on the topic of polls, VIX and its offshoots are surveys that are very reliable.
Price alone. What do you do about a market without telltale derivatives or surveys of newsletters? If you run a regression fit of the price data and extend it, you have a forecast. The deviation of the actual price from the forecast provides a measure of the combined opinions of professionals regarding that price. Small deviations go hand in hand with low volatility which is bullish on prices of assets that go into portfolios. Large deviations are scary which manifest themselves in price discounts.
So all in all, Virginia, gut feelings matter.
February 24, 2016 | Leave a Comment
Larry Williams writes:
I've always thought the reason for resistance around round numbers is simply when traders decide where to place stops, targets and such they round up. The human mind naturally goes to round numbers. So it's not some mathematical magical thing happening, just how humans function. It was very clear in the old days when brokers would ask where a client wanted to place her stop that the reply, based on my research with several brokers, was always round numbers or .50.
The paper offers nothing new. They apply the exact same methodology that Donaldson and Kim (1993) applied in the Dow (you can read it for free here). The majority of the academic papers I've seen on rounds focuses on the index levels and not on futures prices. Also most of them approach the subject from the scope of clustering of particular digits whose applicability in real trading is limited instead of looking at market behavior around those levels.
Now there is an announcement by the MFMP group which has been performing Live Open Science, which means that all of their methods and results are published, as well as live interaction with observers who can criticize and make suggestions. The announcement is that they have a replicable method of demonstrating the production of heat due to what used to be called "cold fusion" and is now referred to as Low Energy Nuclear Reactions.
Since many people will be able to test it, it won't be long before the effect is either confirmed or falsified. Take a look here for a trailhead. And here is an email that they just sent out, with more to come on Wednesday. Maybe they are mistaken, but it is very unlikely that they are scammers.
During ICCF-17 in South Korea, shortly following the sad death of Dr. Martin Fleischmann, it became abundantly clear to a group of fresh attendees that the old approach to science, combined with the ostracisation of the great minds that had worked in the face of ridicule, was not delivering on the promise of of what we immediately called, "The New Fire".
It also was clear that there was something to investigate and we were morally bound to do it.
We said that people would not believe, until they could experience it as if they were doing themselves and so the idea of Live Open Science was born. That was not enough, it had to be an effort that was free from commercial or government interests and that result and so it had to be conducted by the people, for the people. Our journey was made possible by the courage of Francesco Celani and we thank him profusely.
Your donations played a critical role in realising this vision, but you know that, what we know you will want to hear is what we have to share tomorrow.
We have been running and analysing an experiment live over the past Month. First for us in this experiment were:
- Parkhomov Baking of Ni(correctly done)
- Pre Hydrogenation of Ni
- Proper baking out of cell under vacuum
- Parkhomov pressure
- Piantelli de-oxygenation
- Piantelli 'loading' + proper dwell times
- Piantelli capture analogue
- Use of free Lithium
- Use of calibrated NaI
- Cycles attempting to create nano Ni distillates (inspired by "Bang!" discovery of dissolved Ni)
- Long Run
You can see that there are steps in there that came about only because of activities that were made possible by donations. The critical visits to Piantelli and Parkhomov.
Around the beginning of the month we saw what appeared to be up to a COP of 1.2, not earth shattering, but sustained and robust and in line with both observations by others and the Lugano report when adjusted for correct emissivity. Over the next weeks we tried various bookend calibrations which supported this finding.
We have said that only two paths would satisfy us:
Statistically significant Isotopic or elemental shifts from Fuel to Ash Statistically significant emissions commensurate, correlating, or anti correlating to excess heat We are happy to tell you that we believe we have satisfied our condition 2, yet of course we'd like to replicate ourselves. Actually, though, it goes much further than that. What we will share is that the way in which we discovered it and the journey of analysis that makes it virtually impossible to say that Rossi does not have what he claims. It also shows that, whilst he may have been optimistic in how fast this would play out, he has been telling the truth, quite openly for years. Not only that, nature itself has been telling the same story and it told us too.
By the 16/02/2016 we had given up trying to destroy the *GlowStick* 5.2, part of a long lineage of =Project Dog Bone= experiments. After the reactor was turned off, Alan shared the remainder of the data files from the NaI scintillator kindly donated by a project follower called Stephen (Thankyou Stephen, really).
Project follower and open science legend, Ecco, first took a look at the data and found some anomalies - one SO striking that we thought there had been an equipment failure. We did not know the time that the anomalies occurred and had to wait until Alan woke to explain the time stamps so we could correlate it with the thermal and power data published live to HUGNet (Thankyou Ryan and Paul Hunt).
To our extreme surprise, the onset of excess heat followed the massive anomaly in emissions and the minor anomalies were during and only during excess heat.
This led us on a path of discovery, the sequence of which explains:
The massive count signal discovered by Francesco Celani during Rossi's first public demo
How Rossi knew his reactor had started
How the E-Cat generates excess heat
How it self sustains
How it can scale easily
That it is safe
It also showed us how replicators can know they have succeeded in triggering the New Fire and how to enhance the excess heat.
Subsequent to this, we found out Rossi had traveled the same design journey and had publicly shared it in the past.
The irony is - this was all being conducted live in the open, including discussions and graphing, whilst people were distracted with news of the end of the 1MW 1 year test. Same day…
In the past week we have been checking, cross checking to verify and this morning we cleared our last serious doubt, again live, with shared data. Because this is already in the open we want people to know so that they can start replicating based on what works, moreover, the insight will allow people to immediately start improving on our results.
Thank you for making this possible.
We did it.
We lit the New Fire Together!
Dunbar's research says that on average there are 5 friends close to us and this number grows by a rule of three as we include people not so close to us, reaching 150 for casual friends. Is there a similar number for the number of relationships between markets? What is the number of markets we need to forecast cross-sectional relationships?
A good article is "The Limits of Friendship":
The Dunbar number is actually a series of them. The best known, a hundred and fifty, is the number of people we call casual friends—the people, say, you'd invite to a large party. (In reality, it's a range: a hundred at the low end and two hundred for the more social of us.) From there, through qualitative interviews coupled with analysis of experimental and survey data, Dunbar discovered that the number grows and decreases according to a precise formula, roughly a "rule of three." The next step down, fifty, is the number of people we call close friends—perhaps the people you'd invite to a group dinner. You see them often, but not so much that you consider them to be true intimates. Then there's the circle of fifteen: the friends that you can turn to for sympathy when you need it, the ones you can confide in about most things. The most intimate Dunbar number, five, is your close support group. These are your best friends (and often family members).
February 12, 2016 | 1 Comment
I solicit DailySpec members to write one interpretation of the phrase "ever changing cycles". Let's see what gets compiled.
My favorite one line description of what ever changing cycles are reflected most in is that the correlations of no contracts remain the same, they keep changing and often in gradual non erratic "tendency". (No please don't kill me, I didn't use the equally vague word 'trend', but only said tendency).
I also request, our generous host, the chairman of the list, and the one who coined the phrase ever changing cycles, helps elicit as many responses as he can and then shares with us his own notion of the mystical ever changing cycles.
Gibbons Burke writes:
Two words: random walk.
Are the cycles ever changing?
I'm not certain, I think the cycles are always there but they get accentuated from one time to another. It is what causes them that is the great mystery which has caused me to pound my head into the wall many times late at night. That helps, occasionally I get a glimpse of something going on that is causing this.
However no clarity yet on that point.
Paul Marino writes:
Mr. Mac, the most practical thing that you ever did in your life would be to shut yourself up for three months and read twelve hours a day at the annals of crime. Everything comes in circles – even Professor Moriarty. Jonathan Wild was the hidden force of the London criminals, to whom he sold his brains and his organization on a fifteen per cent commission. The old wheelturns, and the same spoke comes up. It's all been done before and will be again.
- Sherlock Holmes
The Valley of Fear, Arthur Conan Doyle
I see ever changing cycles inside the big cycles, demographics, interest rate regimes, etc.
The President of the Old Speculator's Club writes:
The inability of law enforcement to police the streets effectively provided Wild with the perfect conditions in which to build his new business. Victims of theft generally had little chance of getting back what was stolen from them, let alone catching the thief. Through Wild's new service, however, owners of lost or stolen property could apply to him for help in recovering their possessions for a fee that fell below what it would cost them to replace the objects. His business proved to be extremely popular.
Wild benefited from this policy by collecting a fee every time he was able to prosecute a criminal. His office, then, essentially served as the de facto "Scotland Yard" of the day. Jonathan Wild, the man supposedly responsible for clearing the streets of criminals, was in point of fact the head of a vast criminal empire and a well-oiled criminal machine. Wild's Lost Property Office was actually a clearinghouse for stolen goods that members of his own organized gang had themselves acquired. The thieves he apprehended, supposedly for the good of the community, were fall guys; they either belonged to rival gangs, or were members of his own gang who had tried to double-cross him, quit his business, or ceased to be more valuable than the 40-pound reward given by the government for capturing and convicting a criminal.
This new [Transportation] Act gave judges the option of removing felons from the streets and jails without having to take away their lives in the process. As a side benefit, the Act seemed to offer help with the American colonies' desperate need for cheap labor. Settlers in America faced the problem of securing labor at a cheap enough price for them to grow their businesses, mainly because anyone who had sufficient means to make the trip overseas from Great Britain to start a new business in America had no intention of working for anyone else…convict transportation killed two birds with one stone: It rid the Isles of unwanted criminals and provided cheap labor for the American colonies.
A provision in the draft of his Transportation Act aimed specifically at curtailing Wild's organized criminal activities. This provision made it a crime for anyone to take a reward for returning stolen goods to their owner without at the same time capturing and giving evidence against the thief. Failure to turn in the criminal could subject the person taking the reward to the same punishment as the thief, assuming the latter was ever caught. This provision was so clearly aimed at Wild that the Transportation Act also became known as "The Jonathan Wild Act."
Since the Transportation Act made it a crime to collect a reward for returning stolen goods without turning in the perpetrator as well, Wild shielded himself by using transported convicts to return stolen goods and collect the reward from their owners. Returned convicts not only provided Wild with protection from the provision in the Transportation Act aimed directly at him, but if they ever tried to betray him, he could easily turn them in for a large reward, and they would receive an automatic death sentence.
From Bound with an Iron Chain (The Untold Story of How the British Transported 50,000 Convicts to Colonial America) by Anthony Vaver
February 11, 2016 | Leave a Comment
Gold is glittering one more time.
The question that comes to mind and one not normally asked in popular press is is gold only a super currency or does gold behave sometimes as super currency, sometimes as a super asset and often in normal times as another asset, which many pundits love to dismiss as a latent unproductive asset.
If one were to run correlations of gold across these varying regimes, how can we have a logit or a probit model where a probability distribution of risk-off factor is included.
When risk is a bad word in the markets, does gold first behave as a super currency and only later as a super asset or is it vice versa? Or there is a more likely scenario that the super currency vs super asset status also has a localised idiosyncracy that can be modeled using another function?
It is a manipulated asset. Study the structure of the Futures market, the term "Paper Gold", and the dominance of the handful of bullion banks in the delivery process. Look at the international shifts in holdings, and question the "reality" of the Ft. Knox inventories.
More importantly, who do you trust? Central bankers, governments, and economists all have biases, some with monstrous financial incentives to have bases for their pronouncements.
You might want to describe what you mean by super asset, since that is not a term used around gold that I know of.
AUDUSD = 0.71
NZDUSD = 0.67
Also, US treasuries are making big moves up today, with 30Y yield hitting an all-time low.
February 8, 2016 | Leave a Comment
Like many on this site, I have created economic, trading, and predictive price models. Therefore I have an appreciation for the work that goes into building them. Donald Trump's "Superlatives without Specifics" (SWS) political model is pure genius. It is structured to be multi-faceted and applicable to nearly any interview situation. Not only does he not provide specifics but in many ways he makes that one of his strengths. Like any good tease in a sales process, you find out the answer only after you have made the purchase.
Another key point and what I love even more is that it completely contradicts conventional election wisdom about what it takes to win over the electorate. While I don't know how this will ultimately play out, this has a certain air of "money ball" aka Billy Bean of the Oakland A's, who actually analyzed the player stats in a different way and signed free agents as well as drafted accordingly. My suspicion is that this algorithm of Trump is no mistake and most likely the byproduct of rigorous modeling of both semantics and exit polling data of past elections.
The NYC Junto will meet on Thursday February 4, 2016 at the General Society Library, 20 West 44th Street. The open discussion begins at 7:00 PM and the featured speaker begins at 8:00 PM. Acclaimed writer and sociologist Charles Murray ("Losing Ground" (1984), "The Bell Curve" (1994), "Coming Apart" (2012)) will be speaking about his latest book "By the People".
February 4, 2016 | Leave a Comment
The Global Burden of Disease Study published in 2012, is the most comprehensive and systematic analysis of causes of death undertaken to date, involving nearly 500 researchers from more than 300 institutions in 50 countries, and starting with almost 100,000 data sources. What did the researchers find? Here in the U.S., they determined that our biggest killer was our diet. Number 1 on their list of the most important dietary risks was not eating enough fruit, responsible for an estimated 4.9 million deaths a year around the world.
February 4, 2016 | Leave a Comment
The gravitational constant, G, is 6.7 x 10^-11 N-MM/kg. Is there a similar G in financial markets for the super hot stocks? It is conventional wisdom that information is analyzed faster and better today than 20 years ago. If that is true, then G has increased. But is it true? Or is the constant really human nature?
Iomega, the (in)famous disk drive manufacturer that was going to take over the world, ipo-ed in June 1996. It went parabolic. And then flamed out. It took 22 months to trade back at its IPO price before descending into oblivion and a takeover by EMC for about 3$/share in 2008.
GoPro, the hip portable camera manufacturer (with a surfing dude for a CEO) was going to take over the world (and was the next BIG media company), ipo-ed in June 2014. It took 17 months for this stock to trade back at its IPO price amidst a flameout — and with yesterday's news of a loss, is on its way to oblivion — to be acquired by Sony? for about $3/share in about 5 years?
Based on this non-scientific study, the market is indeed moving someone faster. But still plenty slow enough that if you strap a gopro to your forehead and point yourself in the direction of the major slow trend, you'll still make plenty of money (and have a nice video to upload too).
Steve Ellison writes:
Anecdotally, when I started working at Hewlett Packard in 1992, I worked in a division that manufactured hard disk drives. It was a very dysfunctional organization (that was shut down by the company a few years later because of excessive losses). The production lines were especially dysfunctional. To ensure quality, the drives were tested in a "burn-in" process that took more than 24 hours. Only a minority passed the tests and were shipped; the rest went into a rework queue. The lines prioritized producing new drives over troubleshooting and fixing those that had failed burn-in. This tactic kept revenue flowing, but resulted in ever-growing inventory.
Fast forward to 1995. The division was drowning in red ink. Over a few months, nearly all the manufacturing managers left the company to go to Iomega. Imagining the practices I had seen being implemented at Iomega, I had an idea that Iomega was going down.
February 1, 2016 | Leave a Comment
This article is quite thought-provoking; although my amazement probably results from my somewhat novice understanding of quantitative finance; although I've learned quite a bit over the last year and a half (in large part due to this site, and of course The Chair, who has greatly inspired my relentless study of statistical analysis, and computational finance).
This article discusses a study conducted by Poland's Institute of Nuclear Physics who studied 100 works of classic literature using advanced statistical techniques. They discovered that the works that have stood the test of time are actually fractals, an ideal mathematical pattern found in nature. Some are actually multifractals.
Among the works analyzed in the study include those from authors like Sir Arthur Conan Doyle, Honre de Balzac, Charles Dickens, Fyodor Dostoevsky, Aleaxander Dumasn, Umberto Eco, George Elliot, James Joyce, Victor Hugo, William Shakespeare, JRR Tolkien, Leo Tolstoy and Virginia Woolf. One particular book mentioned is War and Peace.
This is seeing the data before the actual data is announced. The rice example leads me to think that the same can be done with corn, wheat, cotton, coffee, poppy, coffee, and any other crop that has color change that is visible from satellite imagery.
It definitely gives a leg up for this to those that get to see the commodity of choice they trade or hedge.
Is it really for the common good of the world or is it to be a tool for a heroic trader?
Jeff Watson writes:
I've been using satellite data since the 80s.
Didn't they do this in the 80s as well? Was this on the Commercial and Industrial (C&I) loans in the 80s?
John Floyd writes:
10 year government yields tell you the story [quote]. Factor in the deflation, lack of growth, and JPY move [link]. More recently look at the shifts in the Balance of Payments in large part driven by oil and nuclear issues [link]. But the core of the question is best summarized by asking what are the likely policy actions going to be and how might markets react given where the macro story is likely to move to. For example, consider the sovereign debt levels [link], demographics trends and their influence on consumption, etc., where is future inflation likely to be, and then factor in Japanese stoicism [link].
After some practice, a kid can throw a ball and compute the trajectory on the fly. It becomes internalized. Mathematically it is a complicated computation. Normally people don't think statistically unless say after 45 years of doing it it is internalized.
My question to Chair and others is whether after trading for many years using statistically based evidence you have internalized the data and math such that a trade is similar to throwing a ball. Computations of course help reject ideas, or deflate misconception, or identify newly arising cycles but what percent is intuition? Even system traders identify new systems by eyeballing data or plots or using analogies.
Stefan Jovanovich writes:
If we are talking baseball, the throwing equations have their own internal derivatives. To throw a ball well enough to play the game at even a semi-professional level as a pitcher requires a great deal more than "some practice"; for the people who make it all the way to "the show" the internal computations get down to the questions of how much pressure you place on the joint of each toe. The calculations about how you hold the ball for each pitch are maddeningly complex; then there is what you do with your biceps, elbows, trunk, etc.
I suspect surfers have the same kind of subtlety in their thinking about what they do. But, I don't know: can't pitch, wouldn't dream of surfing. What I do know as a catcher is that pitcher's internalization process is never finished; they are flakes because they have to be.
When surfing at the home break, most of the good locals have it pretty well wired. Knowledge of the bottom, how the surf breaks on different tides, swell direction, currents, winds, and where the wave will peak allows a local to successfully get waves. When traveling for waves, new breaks tend to present a host of different challenges. While I will never have another place wired like my local break, when visiting a different one, I'll catch a few waves, but the locals will catch many more. I find injuries are more common at other breaks, mainly because of the lack of knowledge of the wave and the lineup. An outsider never knows all of the quirks, inside rules, players, and forces at a beach.
Seems like a good time to present a market analogy. A competent local surfer generally gets more waves than a competent outsider, just like an insider or specialist in a single market generally has more opportunities than outsiders for good trades. The insider/specialist knows his market just like the surfer knows his home break.
Jeff Watson writes:
Surfing is a good example of an intuitive process internalizing complex multiple variables. At my big wave spot I know the secret line up markers: a grass spot on the mountain, the tops of certain palm trees, a rock, some foam. It puts me in a 6 foot square in the ocean. I can see the waves in the distance, sit in a certain spot, and the wave come right to me. Someone 6 feet to the right is in the wrong spot. Newbies often get slaughtered. For example, there was a big crowd out two days ago with medium size waves when a HUGE set came thru and washed almost everyone out who were sitting on the inside.
On the rare occasion that I hit it right, I enter a trade at a good spot and ride it on most of the full move. You can feel the variables, the amount the market has fallen, its speed of trading and movement, the way its trading. The price location in relation to the last week, the last few days, the last few hours give info. When to go out and not watch. Seems like there is a lot of info being processed internally, somewhat unconsciously that has valuable input. Ideally one could quantify all these and have a computer do it with AI better than a human. The multiple variables make it hard to quantify though. I suppose some simple rules apply: after multiple 2% drops is a good time to buy or after a 50 point down move in a day on the third or fourth down day, after fake bad news, on on some stupid announcement like FOMC and the market dives 50 points for no reason. I'm sure there are more rules of thumb that one always keeps in the back of your mind, including all of Chair's caveats, and all Wiswell's proverbs. Maybe that's the point, over time one internalized all the rules, the basic setups, the data, even more complex set ups, without having to count on the fingers as its happening.
I first learned about Thompson's On Growth and Form at a talk back in the late 80s by Benoit Mandelbrot, who referenced the book as an influence. I think Thompson's book has relevance to equity markets, philosophically as well as on more practical terms. Thompson simply observed nature and described relationships of form to function. He didn't attempt to infer an evolution process. In this sense the book is an early precursor of Bejan's Constructal Theory.
Examples: Thompson shows that the speed of a fish or ship is proportional to the square root of its length, and that the kinetic energy exerted by an organism is proportional to its mass to the fifth power. Thompson considered form as the product of the dynamic forces acting upon it. Logarithmic spirals reflect a constant proportional growth rate. The logarithmic spirals in pine cone scales or sunflower seeds result in a Fibonacci expansion in the number of scales or seeds. The Fibonacci sequence is just a discrete version of the continuous logarithmic curve.
It's not unrealistic to think that logarithmic spirals and Fib sequences crop up in equity prices. Daily returns are often assumed to be lognormally distributed. The relationships are probably not as simple as "stock x should drop to 38.1% Fib level and bounce".
One of the forces acting on the form in this case is human perception of emerging patterns. One of the more powerful conclusions drawn by Thompson is that many species share features that are invariant under simple linear transformations. So the shape of a gorillas skull and skeleton is the same as a human's through a "stretching" deformation.
If we make an analogy to stocks, this could imply self similarity in price patterns (fractal relationship) or the idea that we need to adjust for both price and time transformations when using historical analogs to predict future returns..
This is very good writing starting with The Hateful 8. Economic theory with current events considered.
Andy Aiken comments:
"So what if we conceive of the Cologne incident…as a carnivalesque rebellion of the underdogs?"
To dismiss what happened in Cologne as a droll little Rabelaisian episode is forgetting that the middle class they deride keeps the lights on at the universities. The Euro and US left intellectuals will be surprised at how swiftly they find themselves on the losing end of a cultural counterrevolution, how adamantly the return of Volkish horrors defies their browbeating.
But they have created the preconditions for this. The social sciences have become as detached from the tradition of free inquiry as University of Freiberg was in the 1930s. They have thrown away the weapons that could have fought it.
My friend's bearish posture toward Stocks stems from deflationary signs. Yes, they are pronounced. Wage growth has been non-existent. There is no pricing power anywhere. Currently you can't give away raw materials world-wide. Copper at $1.95, Brent led WTI to below $30, grains/fertilizer are cheap. Coal must be given away: just look at US's largest coal Peabody (BTU), down from $1100.00 in 2011 to below $4.00! Uranium is shunned: I notice UEC down from $7 in 2011 to .72 cents! World's largest miner FCX is $4.35 from $60+ in 2011. No wonder credit is being pulled from under most of Canada's enterprises, with Canadian currency depreciating 50% during the same time frame. Investors dread holding the bag over the weekend, as increasingly more corporate treasury shenanigans may need to be disclosed/announced.
Yet Chair reminds us that all of that is (eventually) Bullish, as the lower input prices should act to improve margins. But how do you re-ignite demand and revive pricing power? Surely not by interest rate hikes via the lift-off. So what policy actions can we anticipate nowadays, as Bullish weekend surprises?
The usual quibbles:
FCX is not the "'world's largest (copper) miner"; SCCO is. Its price has fallen by half from its peak at the end of 2012 and by a third since its recent high in May of last year. Hardly wonderful performance but nothing extraordinary for the copper business. The decline in FCX is a comment on its woeful balance sheet. The company has a quick ratio of .6 and current ratio of 1.7; SCCO's numbers are 2.5 and 3.5.
Even two years ago, none of the public U.S. coal companies had a balance sheet that was anything but a joke, especially if you included the pension liabilities. Peabody was bankrupt 2 years ago; the stock market just didn't know it.
As Carder has patiently explained for over a year now, in the U.S. coal now suffers from having direct price competition from natural gas. Those of us who lost a third of the money we put into a coal mining equipment stock (JOY) last year bought the company because, unlike all the U.S. public coal companies, it had a decent balance sheet. It still does; and if we were not busy trying to lose more money in the refiners, we would be tempted to try for being a 3-time loser now that the private owners of coal reserves (the Lexington KY gang) have gotten some wonderful news.
For those who are looking for possible speculations, the Stowe Coal Index is the best source.
In carbon-based energy, demand is not the problem, even for coal; supply has been. The dramatic increases in output from new production techniques (fracking, continuous miners to name 2) have created a surplus. The question now is how much of a surplus. The EIA now says it will be a year before supply and demand in oil match each other.
January 18, 2016 | Leave a Comment
While the world was mesmerized with China currency "manipulation", and played hot potato with equities worldwide - the Japanese retail and institutional investors decided over the weekend that they've had it enough with chasing South African yields. The result was a 10% gap opening that produced a new all-time low in that country's currency. Of course, the opening was overdone, and the extreme quotes were way too wide to deal any substantial size. Yet, the signal went out - even if it was little noticed.
So the South Africa Reserve Bank will have to deal with run on their currency. Indeed, no Central Bank will allow overly rapid devaluation - so they'll have to be buying Rand in the open market, daily. With what? Obviously, they can't spend their meager reserves of US Dollars doing that - and they'll have to auction off or pledge some of their Gold reserves (I believe they hold Platinum bricks as well).
Now, when I pointed that out at last night's CME open, Gold was still up much bigger than Silver - on pure speculation. Speculation based on standard notion that Gold would be more valuable than Silver "during Stock Market uncertainty". That's pure speculation. The dynamics I point out about the South African Central Bank is less of a speculation - they are rather the actual procedural transactions in these kinds of circumstances. Thus buying Silver futures against a sale of Gold futures was a smart thing to do right from the Sunday night open. And that's as close to easy money as one can come!
Just read the South African Reserve Bank's annual report and appendix: "Management of gold and foreign exchange reserves." They don't have any platinum. Their forex reserves have increased to over $60 Billion (according to this document). So they've got plenty of ammunition to intervene if they want to.
Markets will do what they want to do. However, if the gold and silver markets are behaving based on Anatoly's theory, the mkts are wrong on the facts.
John Floyd writes:
My African Grey parrot has learned to whistle the beginning of the Rocky theme song. I would frame the opening two rounds between anonymous and Anatoly more broadly by considering the following.
1. To what extent does the move in the South African Rand last night portend for future pockets of illiquidity, for example the stock flash crash, the fixed income flash rally, the Chinese currency devaluation, etc. ? How might that be best handling offensively and defensively?
2. Why has the decline in oil and gasoline prices not transpired to a more robust pickup in consumer spending?
3. Why are corporates generally more willing to buy back stock than increase capital spending?
4. Is it an issue that according to the BIS emerging market debt has risen from $15 trillion in 2010 to $25 trillion today?
5. What happens to domestic risks when foreign currency denominated debt has increased from $1.5 trillion to $5 trillion?
6. What happens to inflation when emerging market currencies plunge and how do central banks respond in an already weak domestic economy?
7. If the Fed was concerned about global risks in September how might this change their behavior?
8. In 2008 troubles in the US$10 trillion mortgage market had broad implications, are there parallels today?
9. What might occur to cause present market themes and trends to reverse?
That is enough for 9 rounds and hopefully we can all make a victory run up the Philadelphia Museum of Art steps and perhaps make enough to buy van Gogh's Sunflowers inside.
We all must acknowledge that the stock market (and subsequently bond markets) seem connected at the hip with the crude price right now. Does this make sense? I don't know. But it is what it is.
This oil discussion got me to finally run some quick numbers. I'm sure similar numbers have been in the press, but I like to look things up for myself.
In my cheap-seat view of the world from my gopher hole, I've been thinking about how there are certain crucial parts of the global equilibrium that have gone through important changes, and that part the current volatility is a process of finding the new equilibrium.
The various QEx/on-off moves are part of this. And also China, in that they are (slowly [probably]) moving away from the mercantilist import/currency/capital control system, which created the macro-financial jet stream effect where we bought their stuff, and they sent the dollars back to their Fed account, to the tune of a few hundred billion a year, while they paid off their exporters with new yuan and thus created a global inflation sink.
But the biggest, quickest change has been oil. Some nice rounded numbers, referring to the change in $/bbl from June 2014 to present:
global avg daily consumtion: 90M bbl price change: -$77/bbl loss of revs to oil producers: $6.93B/day annualized loss: $2.53T
A big chunk of that money flows into Saudi (about 1/9 of global oil revs), and they have some kind of pattern of spending and investment. Used to be the Saudis spent a big piece of it on gold. Probably not so much now.
They are like one of those deep-sea hot-water vents where the life grows around it. There has been an equilibrium for a long time with that money flowing into oil producers and providing the hot water for those vents. In a very short time, ~$2.5B of flow has shifted away from that system, not to mention all the downstream segments like the integrateds, mids, E&Ps, etc.
I remember when big numbers had an M. Then we moved to B. Now to be big, a number has to have a T. I figure a $2.5T change in the global equilibrium is going to take a while to digest, not to mention the unrealized political consequences in the Middle East and elsewhere.
Again, without being overly precise, subtract US oil exports from imports, and you wind up with 9.2M bbl/day, which translates to a little over $700M/day in payments, which annualizes to $260B. Which, all other things being equal, should be less downward pressure on the USD.
Cui bono? The American consumer, of course. Again, June 2014 to present:
avg gas price/gal:
June 2014: $3.766
Dec 2015: $2.144
US est daily gas consumption: 375M gal
Daily savings: $608M
That's our piece of the action, and it has to be really good for somebody.
I can't think of a clever summary, so there it is.
January 14, 2016 | Leave a Comment
Silicon Valley-centric but a very quick read: "The State Of The Startup: Fundraising Market In 2016"
- $42B invested in start-ups in 2015
- 34% in seed or series A.
- Substantial shift to consumer investments
"The late stage market may witness a different phenomenon. More than 40% of the dollars invested in Series B and later rounds originating from corporate venture capital, mutual funds, hedge funds and family offices. This money isn't committed to startup investing. Investment strategies for these types of investors can change quickly. If suddenly all that capital were to disappear and everything else were to remain the same, about $10B would leave the startup ecosystem - a drop of 25%. That would surely be felt across Startupland."
Author is a VC at Redpoint.
It feels a lot like dot-bomb in these here parts…
All the best, Stefanie Harvey
Why chart reading is confusing: "When a Circle is a Straight Line"
January 8, 2016 | Leave a Comment
On January 27, shareholders of Royal Dutch Shell will vote on the company's plan to buy BG Group PLC (the upstream remnant of Margret Thatcher's privatized British Gas).
If you are a merger arbitrageur, you are praying that the RDS shareholders will shoot themselves and vote yes, as the deal spread is very wide.
If you are a shareholder in RDS and have carefully studied the assets, forward prices, and assumptions, you have concluded that this deal is likely to be remembered among the largest destructions of shareholder value in the history of the world. I reached this conclusion several weeks ago. Today, Standard Life, RDS' 11th largest shareholder concluded the same thing and said they will vote "no."
Perhaps if you are the analyst at Institutional Shareholder Services (ISS) who recommended that shareholders vote in favor of the deal, you might be assured of a future job at Goldman Sachs, JP Morgan or Rothschilds after the deal closes — as the investment banking success fees will likely be extraordinary.
But — where are the activists? They can easily and rightly point out that there are numerous other assets around the world that RDS can buy at much better prices ; with a better risk/reward…
THIS DEAL IS EERILY REMINISCENT OF BANK OF AMERICA'S KEN LEWIS BUYING MERRILL LYNCH DURING THE FINANCIAL CRISIS OF 2008. The day that this RDS deal closes, billions of RDS equity will be destroyed.
Are we witnessing the downside of billions of dollars of passive index money blindly following the ISS pied piper over a cliff?
Carder Dimitroff writes:
This deal is complicated. Most shareholders lack enough information to form an opinion. While I'm on record as being concerned about the liquefied natural gas industry as an investment, I have no opinion on this deal.
This deal is about BG and RDS's natural gas portfolios and forward values of any combination. To know future values requires a full understanding of their book of contracts, their hedges and their speculative accounts. It also requires the analyst to be certain about future market conditions.
Here's what I know:
1) By definition, liquefied natural gas is an international commodity. There are few to zero domestic markets for this commodity.
2) RDS will likely become the <production> cost leader in Western Pacific's liquefied natural gas markets.
3) BG could become a cost leader in the Atlantic liquefied natural gas markets. BG bought 20 years of supply in the US market and must sell in another market. Those markets are not correlated. It's likely BG's 20-year purchase agreement is unhedged. Nevertheless, the deal currently has a substantial gross margin. If oil prices increase, their margins will likely increase.
4) Combining portfolios can sometimes offer surprising results (good or bad). Combining Pacific and Atlantic portfolios could create substantial value. It also could create interesting hedging opportunities, which in turn create value. Without understanding details of RDS's portfolio strategies, it would be difficult for most shareholders to correctly value the combined portfolio.
5) Liquefied natural gas can be used as a substitute for coal. Under current market and political conditions, natural gas is currently an economic alternative to coal.
6) Finally, there is a speculative element to liquefied natural gas industry. Consider the pressure to reduce coal consumption. Also, consider desperate gas markets. If Europe and Asian markets can replicate UK and US markets, indexing natural gas to oil prices could be defeated. If defeated, international natural gas markets could open up with RDS as the clear leader.
Apparently, people looked at portfolio details and they have concluded the BG-RDS merger is a good deal. Other experts looked at the same data and concluded the merger is a bad deal. I don't know.
I noticed at the drug store today a modern devices like a wrist watch that reads your blood pressure, heart rate, and oxygen use. Some years ago Dr. Brett Steenbarger, a trading psychologist, talked about monitoring your vitals as you trade for beginner traders trying to get a hold of the excitement which might detract from decision making. Seems like these might be helpful for a beginner trader getting used to the stress of trading and practicing relaxing a bit under uncertainty.
Brett Steenbarger comments:
Yes, and the Fitbit devices can also be effective in helping people become much more data driven in their workouts.
The Revenant has been seen and is the most boring 3 hours one has ever spent in a movie, as I didn't leave early this time as had to escort some daughters home. No survival skills or tension whatsoever, and much pc stuff concerning the evilness of business, and the virtues of the men of paint.
I agree with Victor on this.
I was looking forward to seeing the movie and was quite disappointed.
The action scenes are good, but they were too few and far in between.
In my youth, I felt that I was born in the wrong century. I should have been born in the time of Lewis and Clark and been an explorer. After researching it more thoroughly, I came to the conclusion that it would have been very uncomfortable to have lived in that era (I like my two showers a day). And I don't know how far I would have gotten back in that day due to some relatively easy to fix health problems that I've had that were not easy to fix back then.
The stress on the body of living out in the wilderness (as portrayed by the movie) makes me wonder how any of those people survived back then. Maybe they were just the toughest of our lot.
The scenes of intense cold that involved DiCaprio's character getting into the water, staying in the water for extended periods of time and then getting out of the water with all his clothes completely wet were hard to accept. Especially considering that he had recently been mauled by a grizzly bear.
I guess the drive for revenge can be a strong motivating factor.
The cinematography in The Revenant is the best part of the flick. Otherwise, it was a disappointment.
Stefan Jovanovich comments:
Hugh Glass was not the only one of these tough frontiersmen. In a bit earlier age you have the likes of Simon Kenton, who survived at tomahawk blow into his skull and before that had a journey through the wilderness naked and without weapons after he barely escaped an Indian attack while sleeping. After that he always slept with a loaded rifle next to him. (See The Frontiersmen by Allan Eckert.)
When they proposed the four day work week, a number of workers exclaimed, "Hey, we don't mind working the extra day!"
Jokes aside, I've noticed a number of recreational retail companies closing for Black Friday (REI), closing over the holidays (Oakley), even doctors offices. Is this a sign that the younger generations do not feel the need to show up early, and wait until the boss leaves, that they value their independent lives over work, that there is more to life than money?
Speaking of overwork, this year I've made fewer trades, with months off between some, yet made more than in years were I've overtraded. It can be debilitating and negatively affect judgement to stare at the screen all day. My best trade was when I entered a position and went camping, but forgot my security device and was unable to sell. I sold when I got home, whereupon the market continued up for several more days. The few times I looked just happened to be when the market was up, and I did not look to see the dips.
I think there is a lot to be said about not working to much, about working to make work to look busy. Americans are prone to this in the US. After all health is your best wealth in the end. How much money do you need? After a while it starts piling up unspent.
There is a tremendous amount of wisdom is this post.
The only thing that I would add is that the ITOT (Ishares Core S&P Total US Market ETF) now charges an expense ratio of 0.03%. If you have a Fidelity Account, it can be purchased commission free. 3bp and no commission. This is not a typo.
Here comes the crucial twist. In all of the examples so far, we assumed that everyone had instant knowledge of what everyone else was wearing. People knew exactly what the mainstream trend was. But in reality, there are always delays. It takes time for a signal to propagate across a brain; likewise it takes time for hipsters to read Complex or Pitchfork or whatever in order to figure out how to be contrarian. So Touboul included a delay into the model. People would base their decisions not on the current state of affairs, but on the state of affairs some number of turns prior.
What Touboul noticed is that if you increase the delay factor past a certain point, something amazing happens. Out of what appears to be random noise, a pattern emerges. All of the hipsters start to synchronize, and they start to oscillate in unison.
Gibbons Burke writes:
The same phenomenon could be observed in the allegedly non-conformist Hippie fad, of which the Hipsters are a cultural echo. Before that, the rebelious spirit of the Jazz-age flapper era or the 1920s was another.
I live in a place where the rich and famous like to have second homes and take vacations. Each year around this time I like to do a hand count of the private jets lined up on the runway. This year there were 78, which the capacity, and the overflow goes to Maui or Oahu. More were on their way in. These are almost all big 16 or more passenger jets, not the little Lears that you have to bend over to get into. A new twist is the Kukio jet 'bus' where people buy a book of tickets to share a private jet.
The theory here is that the captains of industry and finance have some sort of read on where the economy is going and the money piling up in their coffers. If its tight, the jets are fewer, and smaller.
The prediction is that the coming years looks good.
December 28, 2015 | 1 Comment
Our Maverick Resort is technically in Ormond Beach. The tide was up (early morning), as I walked out South - ankle-deep, no phone or watch. Not a single sea shell and very soft white sand, so the entire way felt like a carpet. My only company were thousands of seagulls and an occasional crane. No cars on the sand early on, and not many people - as the sun was struggling thru early clouds. A few teams of women conspicuously preferring women, here and there, testing the shallow surf… I made it all the way to Daytona Pier in probably an hour, and checked out Joe's Crabs plotted on maps "off shore"!
Turned around, and sun was barely up now, and in my back. Hilton was just awaking, and so were Ocean Walk condo twins, The Regency and the Plaza. Mid-morning tide was noticeably inching back in, uncovering Daytona's trademark copper-color spliced sand micro dunes. It was only at this stage that I began noticing that most of my walk occured within the areas of Fourth Wave "correction", having been continually mesmerized by unending powerful Third Waves. Many waves still produced the Fifth, momentarily kissing sandy flats of the vehicular lanes. But barely now… I observed an increasing number of Failed Fifth - the ones that never made a new high…Somewhere in the vicinity of Americano Beach Resort, I noticed a first sudden Extended Fifth. Reminded the stupendous spike up to $130 on the outgoing September Crude futures in 2008, way after the Crude bear had deflated the prompt contract from $147 all the way down to $110. A few pipers, caught by surprise, were hurrying just ahead of the wave on their tall thin legs (an analogy of Small Traders progressively cutting excess Shorts in response to relentless daily margin calls). Only huge fat seagulls seemed unfettered. They just stood there against the nuisance wave, which eventually receded and retraced all the way back into the ocean. Reminded me how Jimmy Rogers shorted Gold over $600 early in 1980, only to watch her spike to $875 in utter horror. But then, she dropped off all the way back to $500, allowing Jimmy the hard-fought profit!
Passing by Beach Bucket, Daytona Beach Resort and Aliki Towers at morning's tail - I now observed fewer and fewer Impulsive Wave sequences. There was more and more resistance found in deeper dunes, and a variety of shells showed - yet not nearly enough to ever step on one. This was definitely Bear phase in the cycle, although it did have Bullish splashes, and never went to total zero. I took a refreshing long swim on approach to my Resort, and rushed to my suite 618(!) to pen this report near the surf's noon lull. On to Hull's seafood market to stock up for the festive BBQ!
Vic, some time ago you made a comment about the market's drift and the analogy with Bacon's cycles, in that the entrepreneurs require a 10% return over the long-term and the public as a whole must always lose the vig. Intuitively it makes sense, and it's hard to argue with Dimson et al's data too, but my thinking breaks down when I try to define the parametres in the market model. At the racetrack we know who collects the vig and how, but what's the equivalent in the market? The crowd selling to the point of 10% in expectation? But then how do you capture it if you held, since the new entry point is lower? Could you shed some light on this, or it was just an off-hand comment and I should stop wrecking my brain?
Victor Niederhoffer replies:
Thanks for your thoughtful comment. The return on capital is 15% for most companies and that compares to a 2% 10 year rate. That's enough to give a 10% return especially since companies grow profits by 5% a year. Dimson always questions whether the future can be comparable to the past because of dividend yields low. I don't buy that. Compounding the difference between 15% and 2% is enough. The companies are smart. They know how to get handouts from the government. As for the vig, there is no vig is you buy and hold. I like to buy spiders whenever there is disaster in the air, and that often gives me the vig.
December 23, 2015 | Leave a Comment
I haven't been to a casino in many years. Here in the seaside city of Sihanoukville, Cambodia, there are many casinos. There is one at the 5-star Sokha Beach Resort.
On a sunny and hot late morning after swimming at the superb private beach, my wife and I walked in the big windowless building cross the lawn from the hotel's main restaurant. At the door, the rule says the followings are not allowed into the casino: sunglasses, hats, bags, cameras, and certainly knifes and guns.
Just as we got in, a waitress gave us each a $10 coupon, saying that we could use $10 cash and the coupon to get $20 credit. Asked about the conditions, she said that with the coupon we could only take away wins above $60.
The big hall was very quiet. In fact, there were only a few guys sitting at one poker table. Of course there were many waiters/waitresses around.
We walked to the slot machines area. Not sure how much we could win, we decided not to use the coupon. With the help of a waitress, we put a $5 bill in one machine and started playing. After about 30 minutes, we got it to $15. Then we wanted to take the money and go to another slot machine. Here is what is different from Las Vegas: you don't press a button and get the chips or bills and go. We had to ask the waitress for help. She came to the slot machine, photoed the machine screen and wrote down a bill, she then walked to the cashier to get us $15.
We then walked to another slot machine and put in $5. This machine gave us very little chance and we lost it all in not much time.
Then we walked to another machine and put in $5. After about 20 minutes, we got it to $10. So in about 1 hour, our $5 turned into $15. Unbelievable to me, so we decided to leave.
As the waitress handed our wins to us, she informed us that we could eat the casino buffet lunch for free. We walked to check about the food. It was not bad, though not too fancy. I tried to stay cautious with these mostly gang (Chinese mostly) controlled casinos, so decided to not have the lunch and left.
I wonder if the wins can be attributed to our strategy, which was to largely vary bet sizes. Didn't Ed Thorp advocate this idea in his Beat the Dealer?
The slot machines give one significant leeway to bet at different sizes. The minimum bet is 1 cent on a single play. One can choose up to 10 times the minimum bet. One can also choose to play up to 10 simultaneous plays. With these options, one's bet size can be anywhere from 1 cent to 1 dollar. We tried to bet small after a win and bet large after many losses.
Or perhaps, they tweaked the machines to give us some initial advantage in order to attract us to bet big. It is not impossible.
Anyhow, Sihanoukville is a fun place: the nice beaches (some are getting ruined though), beautiful islands, and the food (a lot of world cuisines). Hotel rates go way up since Dec. 24, so we will stay away from the crowds.
Happy holidays and new year!
December 13, 2015 | 3 Comments
This is one of my favorite stories. I hope you enjoy it, and I wish you a Merry Christmas. — Victor Niederhoffer
High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.
Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.
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