Oct

12

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

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

Now that is perma bull–shiess.

Oct

12

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

Oct

6

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

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

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

After that, I think, comes Europe. 

Trump and others hint at India FTA.

Sep

28

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

Sep

25

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

Sep

20

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

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

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

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

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

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

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

Sep

16

 A Tangled Tree: A Radical New History of Life

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

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

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

Sep

10

Serena, from anonymous

September 10, 2018 | 1 Comment

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

Sep

7

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

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

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

Most studies show that fresh air brings these benefits:

•    Boosts your immune system

•    Calms the nervous system

•    Cleans your lungs

•    Good for the digestive system

•    Strengthens the heart

•    Enhances brain health

•    Makes you feel happier

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

Sep

7

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

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

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

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

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

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

Mr. Isomorphisms writes: 

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

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

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

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

anonymous writes: 

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

Stefan Jovanovich writes: 

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

Henry Gifford writes: 

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

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

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

Aug

30

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

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

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

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

Aug

27

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

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

Aug

27

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

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

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

Aug

21

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

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

Stefan Jovanovich writes: 

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

anonymous writes: 

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

Aug

19

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

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

Other thoughts?

Aug

16

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

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

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

Zubin Al Genobi writes: 

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

Stefan Jovanovich writes:

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

Peter Ringel writes:

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

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

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

- labor is leveraged

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

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

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

- I see this accumulated knowledge as leverage.

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

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

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

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

Aug

16

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

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

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

anonymous writes: 

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

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

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

Aug

13

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

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

Stefan Jovanovich writes: 

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

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

Neither, for that matter, do the 2010 questions.

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

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

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

Mr. Isomorphisms writes: 

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

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

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

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

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

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

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

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

Hazzard of New Fortune, William Dean Howells

A HAZARD OF NEW FORTUNES.


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

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

Aug

13

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

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

Steve Ellison writes: 

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

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

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

Link and relevant excerpt below:

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

Jared Albert writes: 

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

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

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

Aug

13

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

Aug

13

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

Frank Dikotter on Mao's Great Famine:

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

Aug

3

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

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

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

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

Jul

31

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

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

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

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

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

Jul

27

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

Scott Brooks writes: 

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

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

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

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

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

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

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

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

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

anonymous writes:

"On the Payoff to Attending an Elite College":

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

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

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

Peter St. Andre writes: 

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

Russ Sears writes: 

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

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

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

Jul

18

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

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

Jul

18

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

Kim Zussman writes: 

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

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

anonymous writes: 

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

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

Gregory Van Kipnis writes: 

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

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

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

Russ Sears writes:

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

Jul

14

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

Hmm… what will they be.

The hunt is on.

Jul

12

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

Dylan Distasio writes: 

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

anonymous writes: 

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

Jul

12

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

anonymous writes: 

This is very true.

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

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

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

We are easily tricked by others and by ourselves.

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

Jul

3

Has anyone reviewed this work?

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

Maybe it is worth a look to debunk or confirm.

Jun

23

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

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

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

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

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

George Devaux writes: 

From Policy Options for Nuclear Waste Management:

Sustainable Solutions for Expanded Nuclear Energy

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

Jun

21

The Pax Americana is changing – substantially

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

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

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

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

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

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

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

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

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

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

UK understands this. They bring two super carrier.

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

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

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

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

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

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

Stefan Jovanovich comments: 

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

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

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

Jun

15

  During WW1, in 1917, the price of wheat went to a record $3.25 a bushel. Using an online CPI calculator(courtesy of the Bureau of Labor Statistics), that price in today's dollars would be $60.24. A far cry from the $5 and change wheat is trading today. Grains in general have had a long term decrease in price over the past couple hundred years. We owe this price decrease to improvements in technology. After all, in 1917 a farmer was lucky to get 14 bushels of wheat an acre while today a farmer can anticipate a yield of over 55 bushels per acre….and the cost of production in both time and labor has decreased substantially. One wonders what the yields will be like in another 100 years.

Brendan Turner writes: 

Gro Intelligence put out some interesting data points on fertilizer and pesticide use in the US.

From them:

"Sixty five years ago, harvested area of corn sat around 77 million acres, and average US corn yield was just 54 bushels per acre. Presently, corn acreage is at 82.7 million acres, and yield now sits at a median of over 170 bushels per acre. In the 1940s, soybean harvested area was at just 10.7 million acres. Today, there are around 89.5 million acres harvested, representing an increase of 736 percent. Soybean yield was less than 20 bushels per acre in the 1940s, but now averages 49 bushels per acre."

From me:

While the growth in US grain and oilseed production is no doubt impressive, the rise of other agricultural players in South America and the Black Sea have had the largest influence on keeping a lid on prices thanks to their explosive production.

Back home in Saskatchewan, every year, our family farms about 15,000 acres of pulse crops like lentils, peas, and chickpeas. The varieties for these crops were mainly developed by university and CDN government partnerships and the large majority of the harvest of these pulses have been shipped to India or the Middle East. However, for the last decade or so, these varieties have been exported to places like Kazakhstan and Russia and now, the Black Sea is replacing Canada as the staple exporter of pulses to these markets.

Simple equation: Lower costs of production by new players –> lower selling price points –> downtrend shift in margin for major producers –> potentially fewer acres planted by major producers (assuming demand isn't increasing proportionately to supply)

Of course, this thesis gets thrown out the window when there is a drought in a major producing country (or any commodity). However, In a drought situation, for markets like pulses where there is no futures market, speculation is a bit more suppressed. By this, I mean less volatility and thus, decreased opportunities to capture value within volatile markets like you might w/ corn or soybeans or wheat.

Stefan Jovanovich writes: 

$3.25 in 1917 is equal to today using the gold currency unit of account As the Watsurf notes, the BLS with its CPI calculation estimates today's nominal dollar price as 18.53 times the record 1917 price for wheat. If you use the 1917 dollar price as the gold currency unit of account (gold adjusted for the change in official price in 1933 and the changes in the open market price of the metal and the relative prices of the dollar against other major currencies since 1973), the change is even more dramatic. $3.25 becomes $133.90 - a multiple increase of 41.12. As always, the BLS CPI calculations fall far short of the actual price collapses of currencies against physical commodities.

For an average acre of land suitable for wheat growing the total yield in 1917 was $45.50 in gold currency units of account (gcus). At that time Kansas wheat acreage sold for roughly $200 (gcus). Today the same acreage produced produces a total yield of $6.67 (gcus) and sells for $50.87 gcus ($2100 in current nominal dollars).

So, based on P/Es measured in gcus, the prices for Kansas wheat acreage were a seeming bargain in 1917 (less than 5 times gross yield).

The difficulty is that P/Es do not seem to be very useful as predictors of what comes next. Kansas wheat land prices peaked at slightly less than $300 in gcus in the 1921; nearly a century later they are selling for less than 20% of that price using the same unit of account.

I defer to our expert and others for any speculations about what may happen to Kansas wheat land prices over the next century. The current P/E is - once again - a relative bargain: 7.6 times gross yield. 

Jun

15

Last night at dinner a former floor trader and very successful hedge fund guy told me, "The only news you want to trade on is the news you make up yourself".

Jeff Watson writes: 

My mentor taught me to look at the big news, and then look at the market reaction. And if the reaction is different than what one would expect from the news, then this in itself is a very important "tell" about the market. Even the reaction to every day little news is worth watching. In my case I watch things like country movement, exports, and yields. The market reaction in many cases is more important for trading than the actual "news" (at least in my time frame).

Doug Martin writes: 

That's the whole, "Bad News Good Action" concept. News and reaction, is most of the time too complex for me to analyze. I'm never correct in my analysis on that front and typically will look at the news only after observing/trading the move.

The only "tell" I can derive from news, is how FAST the effected market moves. Much of what I do revolves around observing/measuring the speed in which a market moves to tell me how significant traders interpret the event or non event.

For instance, yesterday the speed in which Euro and Aud moved was significant in the time frames I trade.

Jun

13

Like Stefan, I too dropped out of economics 101.

My marketing professor gave numerous examples of how he, as an advertising guy had increased prices of quite a few items and that cause an increase in sales. His point was it was about perception.

Somewhere during the first week of my economics class I was shown a curve that proved my advertising professor was wrong… As price goes down demand goes up. I argued with the professor that curve wasn't reality. He showed me reality… The door

Years later Jack Kemp summed it up best one day when we were talking, during his campaign in the middle of Iowa, about economics and he said just substitute the word incentive for the word economics and you'll understand it a whole lot better.

I have learned the more people talk about economics the more confusing it becomes, yet, it is easier to understand than understanding women is for me.

anonymous writes: 

One of the simplifying assumptions often made in basic economics is perfect information. That of course differs from reality. The basic curve assumes such perfect knowledge and that the product is the same regardless of the price. But with some items, like cosmetics, the price itself becomes a proxy for the assumed quality of the product. So a price increase leads enough consumers to believe they are buying a higher quality product, increasing sales. In essence in those cases the assumed product across different price ranges is no longer the same product in the eyes of the consumer.

Jun

13

 Why are we at war with Canada? According to the Trump Administration, there's a net trade surplus between US and Canada (goods and services):

"The U.S. goods trade deficit with Canada was $17.5 billion in 2017, a 59.7% increase ($6.5 billion) over 2016."

"The United States has a services trade surplus of an estimated $26 billion with Canada in 2017, up 8.0% from 2016."

Stefan Jovanovich writes: 

1. Cars and Auto Parts.

Canada manufactures 4 million cars. It buys 3 million and exports 1 million to the United States. It is also the largest auto parts exporter to the United States.

2. Marketing Boards

Canada uses the agricultural marketing board mechanism for controlling production and prices of domestic dairy and other "grocery" farm products. To support this mechanism the marketing boards restrict all imports by tariff and by quota while allowing Canadian "surplus" production to be exported at foreign market prices.

Question: Who would profit most from the shift of car and auto parts production to the United States? Whose domestic production of "grocery" farm products would be boosted by the exclusion of "surplus" Canadian production?

Answer: Agricultural and car and auto parts producers in the Great Lakes States of the Mid-West

Ain't the study of actual political economic events much more interesting than further refinement of marginal utility theory?

Geoge Zachar writes: 

The reports I've seen indicate Canadian dairy protectionism is driven by Quebec…something the the anglophone provinces deeply resent, as they're forced to pay up for dairy products.

So, in addition to being seen supporting important US constituencies, Trump is deepening political divisions north of the border.

Stefan Jovanovich writes: 

The Canadian Parliament decided to "stand with Canadian workers" when President Trump announced the steel and aluminum tariffs.

I doubt very much that they have examined their own history with regard to trade "wars". If they had, they might have been tempted to take President Trump at his word about the need for "reciprocity".

In the Elgin-Marcy Treaty, signed in 1854, the U.S. and London entered into a free trade agreement. As the Wikipedia article notes, the Canadian business interests threatened to ask the U.S. for annexation if Britain did not work to open the U.S. markets to Canadian exports. Under the Treaty timber and wheat and coal were admitted to the U.S. without duties or quotas; the existing 21% tariff was eliminated by the U.S. The reward for the Americans was open navigation on the Great Lakes and St. Lawrence and access to the Grand banks fisheries. The arrangement was broadly popular and hailed as the Canadian-American Reciprocity Treaty.

Within 4 years the Canadians decided that they needed to protect their manufacturers. The Cayley tariff of 1858 and the Galt tariff of 1859 raised the duties on imported manufactured goods 20 per cent. For the new Republican Party, this was an absolute Godsend. In 1860, as now, the United States had the lowest tariffs and least restrictive trade rules of any country. Why, Congressman Morrill asked, should American producers have to accept foreign competition but be shut out of foreign markets? Morrill shifted the discussion on tariffs from being a question about protecting Northeastern manufacturers to one for the nation as a whole. He introduced his bill by announcing this change: "In adjusting the details of a tariff, I would treat agriculture, manufactures, mining, and commerce, as I would our whole people—as members of one family, all entitled to equal favor, and no one to be made the beast of burden to carry the packs of others." The "free trade" Democrats did not have an answer.

By 1861 the U.S. had increased overall tariffs from 17% to 26%; by the end of the Civil War the average rate had increased to 38%. It was to stay there until the Underwood tariff (the Revenue Act of 1913).

Jun

10

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

Leandro Toriano writes: 

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

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

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

Jun

10

 "Dust rising - Salton Sea's toxic dust to get worse and worse"

Bo Keely writes: 

Bill, u forget how intelligent u are. u hit it on the head a year ago in Slabs saying the alkaline air makes the climate here almost intolerable. it isn't the heat, nor the Salton Sea, but the alkaline soil that is absorbed into the air creating a 'coal-miner lung' effect. i can feel the sapping effect of alkaline dust on my skin and lung lining walking any day over 100F. at that temp the air is also rarefied to provide less pressure making it more difficult to breath like being at altitude. i can walk anywhere else in the world at that temp w/out a problem, but not here at 120' below sea level where the air is alkaline.

last weekend it was only 105F but i walked too long following century-old brass survey markers and the remains of the surveyor's camps into the Chocolate Mt. gunnery range and ran out of water and got discombobulated. i sat on my hat during a rest stop to keep off the hot ground and forgot it. that left me walking hatless six more waterless hours into the sun and i suffered for it. finally, i could walk no more, not a step to save my life, and collapsed in the scanty shade of a Palo Verde for two hours til after sunset to recover. the problem was that after the sun went down i couldn't see where i had parked the motorcycle, which meant more hiking but by then my tongue had shrunk from it's previous dry swelling that nearly blocked the oral passage. you'll be able to hear of similar exploits in Texas Ranger 'Big Foot Wallace'.

Jun

7

From hamsters to dogs to elephants to whales, the number of heartbeats per lifetime is nearly the same, namely about 1.5 billion

— Geoffrey West, Los Alamos National Laboratory, and the Santa Fe Institute

Zubin Al Genubi writes: 

This sound a bit too deterministic. While genetic disposition is a large factor, conditioning, good diet, exercise, lifestyle must play a substantial part. Moderation must help. 

Russ Sears writes: 

While I cannot give the source because it been 35 years since I read it. This heart beat speculation was part of why doctors up until recently did not recommend running for health benefits. If g-d had designed us that way, why should we even test it with statistics.

It's only been since 80s women ran a marathon in the Olympic because of these types of simple reasoning.

The statistics speak volumes about the benefits of cardio exercise especially running. However that benefit declines the more you train and it's not surprising that one could design a study which shows overtraining can lower life expectancy. As I've aged the difference between training and over training has become much harder to draw a line… hence I suspect many of the negative life expectancies are from older endurance athletes over training.

And I suspect these shocking to unsuspecting readers are in much more demand too produce due to click-baiting of journalists than real science.

Also many of theses studies one can use a simple test if they are legitimately looking at the issues. If the study is look at average age at death or actually deaths to expected. Average age of death is heavily influenced by the start of running boom and early outlier deaths. It will take many more year before averaging age is valid In other words most serious endurance athletes are still living so their positive effects not seen in average age at death. Opposite of survival effect in stock market historical studies.

Jun

5

 "A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines." -Ralph Waldo Emerson

From his "Essay on Self Reliance" (At 10,000 words, this essay is worth a read. (It measures at a 7.4-grade level on the Flesch-Kincaid method in Word. I struggle to get below 12 in my writing.)

"The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function." -F. Scott Fitzgerald

Whenever I turn to an analysis of China, I ultimately realize that I also need to consider India. This duality causes me difficulty and the two quotes above indicate that I require a mental prosthetic.

Therefore, I created a new word by inserting "di" into China. The result - ChIndia.

Would other mental prosthetics for dichotomies be useful in investing? For example, buy and hold vs. buy low, sell high.

May

31

 Did Kurzweil upload his brain and forget the password??!

I recently drilled down on a lot of his work and speeches.

He basically only ever says four or five things, for the entire past 1-2 decades.

Here are the top ten things Kurzzzweil needs to never say ever again, in his entire life.

1. "I am so smart, I made all these brilliant predictions."

2. "I may not have invented the Web. But I predicted it. And I did it back when no one else did or could. Only I was so smart. (See below.)"

3. "Everything increases exponentially in tech and only I was able to perceive this. My critics could not which is why they were so wrong and I was so right, so often. (See # 1.)"

4. "I invented a device that reads books to the blind. (Did I mention how smart I am and how much smarter I am then everyone else? Mainly because I understand the power of exponential growth in anything tech, and nobody else did, especially my critics who were horribly wrong while I was so brilliantly right.)"

5."Nanobots will eventually circulate inside our bodies, correcting all our ills."

6. "One day brain implants will allow us to extend our frontal cortex into the cloud allowing us to upload our brains, and we will be so much smarter. Especially me. I will still be smarter than everyone else."

7. "Did I mention I went to M.I.T., a few dozen times in this speech alone?"

8. "Nanobots."

9. "Exponential growth is awesome."

10. "…and it's usually why I am so right and my critics were always so wrong, and why I am so much smarter than them."

What an insufferable bore.

He is mostly and mainly a self marketing machine masquerading as an intellect. But the sad thing is, people fall for it. It works. Google fell for it.

I think some people here have, too.

Sad!

May

24

Apologies if I have asked this one before. Mr Jovanovich's post reminded me of B.S., about whom I've a longstanding puzzle.

Why don't Case-Shiller indices see more volume?

There is exactly one market-maker for all of the Case-Shiller indices. He lives at 123 Maple St in Greenwich and has decades of bank experience. To me there are natural shorts (everybody with a mortgage in Indianapolis should short Indianapolis) and natural longs (everybody without a mortgage in Indianapolis should long 1/20th Indianapolis). For hot coastal markets there are even more natural longs.

And yet they see such low volume. B.S. is quite famous, and so are his indices. (Major US newspapers cite them.) What gives?

May

20

We use the 72 hour rule: family, friends and fish should never be together for more than 72 hours at a time.

May

9

I'm sure you have read articles like this, but I found it hard to believe at first. Buy the close and sell the open since 1993 returns just under 600%. The reverse flat.

anonymous writes:

Along comes an article BUY THE CLOSE SELL THE OPEN. Since 1993 with 5280 observations the average move at the open is 0.2 that's 20 points on 1000 base, i.e, 0.02 % it's unchanged from open to close. 

Alston Mabry writes: 

SPY, for the last 250 trading days:

mean Close-Open:  +0.17
sd Close-Open:   0.9839755

mean Open-Close:  -0.06
sd Open-Close:   1.88

anonymous writes: 

transaction costs….
 

May

8

Betting odds on the 2pm decision by the pres?

Kim Zussman writes: 

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

Zubin Al Genubi writes:

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

Larry Williams writes: 

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

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

Apr

28

Here are monthly rankings in S&P 500 points 2006 to 2017. Two summer months in bottom quartile, but one summer month near the top. The best month to avoid last 12 years is Jan.

Apr

21

Quoting Anatoly Veltman:

DB 90% off its record doesn't scare me. I'd buy that before any lottery ticket in the world. But back to EUR/CHF's first touch of 1.2000 since SNB had refused to prop that Maginot line January 2015–this is a market significant event.

about CHF: (I have been wrong before – more often than right.) But I think the SNB wants a weaker franc (e.g =eurchf goes up). So they will love the eurchf up here–the same on all the other CHF-crosses.

The break in 2015 was a failure of their intervention.

On the other hand, there is the chair's round number phenomena. I don't know how to play this.


about DB: The DeutscheBank chart is scary to me, because:

- I think investors can not value the bank.
- by now other EU countries have more successfully managed their failing banks (like Italy)
- I think some sort of strategy of betting for time is going on in Germany
- this strategy seems to fail, because the stock does not participate in the recovery in EuroLand or the world.
- some might bet on a bailout
- there is a strong anti-capitalistic sentiment in Germany and any bailout will trigger one more annoying socialist debate – hence the betting on time (by the government)

The chart attached is the ratio DB(in USD) vs SP500 financials (via XLF).

Apr

20

 The chair wrote about the movie "The Death of Stalin".

I watched it the first time, as a comedy, and did not like it. I found it is not funny. I watched it a second time as a drama/documentary–and now it is an excellent movie to me.

Another book about Russia, that recently impressed me a lot is Former People: The Final Days of the Russian Aristocracy by Douglas Smith.I don't know if this book was introduced to the site before.

The background about Lenin resonated the most with me. An entitled aristocrat started out to better the world and killed millions in the process.I think this happened multiple times in history.

From google-books:

Former People - Epic in scope, precise in detail, and heart-breaking in its human drama, Former People is the first book to recount the history of the aristocracy caught up in the maelstrom of the Bolshevik Revolution and the creation of Stalin's Russia. Filled with chilling tales of looted palaces and burning estates, of desperate flights in the night from marauding peasants and Red Army soldiers, of imprisonment, exile, and execution, it is the story of how a centuries'-old elite, famous for its glittering wealth, its service to the Tsar and Empire, and its promotion of the arts and culture, was dispossessed and destroyed along with the rest of old Russia

Apr

18

 Chart of USPS annual mail volume from the USPS website.

Carder Dimitroff writes: 

I'm wondering if it makes sense to sell US Postal System assets. 

anonymous comments: 

There are basically three different theories on what to do with the post office.

Theory 1: The post office is dying. The solution lies in free markets which means privatizing it which may or may not mean ultimately the sale of many of its assets and properties.

Theory 2: Yes first class mail is dying, but package delivery is increasing. We can't privatize the post office because nobody will ever be able to put together this package of assets/distribution again. The post office just needs to re-purpose it's assets the way it has already started to do and get into same day package delivery. This of course is supported by the postal union and its political allies.

Theory 3: (This was once the position of the postal union, and is now relegated to weird, out of touch leftists): The postal union is an American institution that connects us all into a society. Yes, you don't know anybody who hangs out at the post office, but believe me, if we close a lot of post offices it will devastate small communities where people hang out at the post office. Again, you don't know anybody who hangs out at the post office, but millions of people do.

It's an interesting debate between theories 1 and 2, but unfortunately the debate is always mixed up with a bunch of people lobbing Theory 3 stuff into the conversation.

anonymous adds: 

New Zealand's experience: "history of new zealand post".

Apr

11

In the last few days one of the economic talking heads commented on how he has "not seen volatility like this since" sometime in the past. I forget whether the former time was 1998 or 2008, but it doesn't matter, as there are many periods in the past with greater volatility.

My quick look at past volatility consists solely of looking at the height and duration of VIX in earlier periods. I took the standard measure (VIX) because of its relatively universal acceptance. I could use some of my own measures, but not without the risk of being flamed for subjectivity, despite the fact that they compare with VIX on a relative basis.

Question: Is there something I am missing? Is there some measure of vol that I am unaware of? Could the high volatility simply refer to the gentleman's equity balance? Could this simply be an effort to gain a headline, i.e. fake news? Any thoughts?

Gibbons Burke writes: 

The VIX seems skewed to being more sensitive to downside volatility and not so much to upside volatility, and it is based on one instrument: the S&P 500 index calls and puts and their ability to speak to the volatility of the underlying index.

The standard Historical volatility calculation of the same underlying instrument used as the input for option pricing models is somewhat more flexible in that it can be applied to any instrument since all it requires is daily closing prices, and the S&P 500 retroactively before the VIX was created.

The two measures, VIX and SPX historical volatility correlate closely—and most interesting is when they depart from that correlation, which shows that the options market is anticipating something which has not shown up in the movement of the underlying. You know all this of course, and have developed some very interesting work on options and their open interest already as it relates to the underlying, no?

In technical analysis realms, average range, and Wells Wilder's Average True Range (which considers the previous day's close as part of the day's range if it is above or below the high or low of the day, which captures post-close volatility and gap moves) has been used as a volatility measure for input into risk allocation components in trading systems, and as breakout bands for trading systems like one made famous by Larry Williams and others like Steve Notis.

A newer volatility measure which came out of chaos theory ideas when they became popular measures the total range (or true range) over some n-period window of previous market activity, and measures the sum of all the individual period ranges (or true ranges) as a ratio. Two instances of this volatility measure are Adam White's VHF index (vertical-horizontal f-something) and CTA Ed Dreiss' Choppiness Index. Both are solid conceptually, easy to calculate, and are already implemented in many systems.

anonymous writes: 

For the S&P, here is the mean daily High-Low range as a % of the Open, for each year since 1962:

year  /  mean daily H-L as % of Open

2018 -  1.44%
2017 -  0.51%
2016 -  0.95%
2015 -  1.10%
2014 -  0.86%
2013 -  0.85%
2012 -  1.06%
2011 -  1.62%
2010 -  1.36%
2009 -  2.00%
2008 -  2.74%
2007 -  1.17%
2006 -  0.85%
2005 -  0.88%
2004 -  0.95%
2003 -  1.41%
2002 -  2.08%
2001 -  1.75%
2000 -  1.84%
1999 -  1.54%
1998 -  1.58%
1997 -  1.42%
1996 -  1.01%
1995 -  0.72%
1994 -  0.82%
1993 -  0.71%
1992 -  0.82%
1991 -  1.11%
1990 -  1.31%
1989 -  0.95%
1988 -  1.22%
1987 -  1.77%
1986 -  1.12%
1985 -  0.79%
1984 -  1.00%
1983 -  1.01%
1982 -  1.60%
1981 -  2.03%
1980 -  2.21%
1979 -  1.55%
1978 -  1.60%
1977 -  1.37%
1976 -  1.60%
1975 -  2.16%
1974 -  2.58%
1973 -  2.06%
1972 -  1.53%
1971 -  1.54%
1970 -  2.09%
1969 -  1.74%
1968 -  1.78%
1967 -  1.62%
1966 -  1.77%
1965 -  1.26%
1964 -  1.16%
1963 -  1.26%
1962 -  1.73%

Sushil Kedia writes:

​VIX measures the price of volatility all are wagering on. Price is the weighted mean/vector sum of all individual values of volatility the various have for themselves. 
Combining a few well accepted ideas, here & everywhere else: 
Depending on where one is in the market food chain there are different versions of what is noise and what is tradeable information content. 
So a simple and effective & consistent to calculate the value of volatility for oneself is to objectively write down what is the minimum movement size below which you dont act. For a HFT robot it could be every tick & for "markets cannot be timed behemoths collecting only other people's money, a.k.a. long only passive funds" it could be 5%. Whatever it be define your sensitivity and lets call it your sensitivity unit move. 
Then each occurence of a move of a unit size is counted — as in counting by toes or a computer programme over any observed length of data. Count the absolute vaues of the Unit sensitivity. Divide the net change over the same length of data with the sum of absolute values of unit sensitivities observed. 
A straight line move would thus give you zero volatility or noise and a perfectly tradeable information content. If however over the observed length of data, on the other hand, net change is zero then there is only noise. 
I remember, many years ago Bill & few others had discussed here how Point & Figure method from the university of mumbo jumbo is an approach that is very similar to this thinking and a fantastic way to separate signal and noise relevant to each as per their forebearance within the food chain. 

Apr

11

The other day, I wrote/postulated the equation:

MTM Impact of Long Ins - MTM impact of short Ins = = - (Opportunity Impact of Outs + Opportunity Impact of Virgins)

(details here)

Transposing this symbology:

<=> MTM Impact of Long Ins + (Opportunity Impact of Outs + Opportunity Impact of Virgins) = MTM impact of short Ins

Interesting perspective comes by:

Given that the present moment monetary value of gains and losses made by long and shorts must be equal in value, the insertion of Opportunity cost (which has infinite degrees of freedom for value of time) in this equation is more a logical symbolism than any arithmetical thing (which is only derivable by focusing on the present moment).

If markets are falling & the shorts are gaining, it is not only the suffering of the existing longs but a much larger mass of the Virgins is stacked in along with the Outs to fight with the Longs in their war with the shorts!

If markets are rising however, the self fulfilling prophecy of trend-following works much more given financial markets follow the economics of giffen goods (ownership is the utility, there is no physical use of the financial asset).

In simpler language what it implies to this back-bencher in the class of counting is that its not tough to visualize a mirrored convexity working in the markets. The present moment, defined in terms of change in prices, is where the Outs and Virgins appear to have the minima. But either which ways the price changes, the Outs and the Virgins are on the side of the longs!

The short seller is the loneliest animal in the food chain of the market wilds (you can see him here). He is not lonely only in the long run due to the drift, but at each change of the tick!

Apr

11

We are at a point where MA 50 day is crossing down the 100 MA…

Sure, we are in a low, and maybe we will see a bounce to retest higher values, but the point is, use this rebound to lighten up, thanking God for giving us new highs from which to sell, or are you really aiming for new highs ?

What should push the markets to new highs in your point of view? Better express it now than later…

Adam Grimes writes: 

Is there any statistical edge to the 50 day MA crossing the 100 day? This is something that is easily testable, and if you have tested it and found no edge (beyond the baseline drift, of course)… then the only reason to be talking about it now is that we must be convinced "this time is different" and it matters this time, right?

If so, why?

Unless there are good answer to those questions, isn't all discussion of moving average crosses just noise?

Apr

6

Nice interview with Dimson:

Episode #100: Elroy Dimson, "High Valuations Don't Necessarily Mean That We're Going To See Asset Prices Collapse"

Apr

3

So hobbling down on all fours motivated by the waves and the counts that I am used to looking at from the old university of mumbo jumbo.

Wondering what the erudite quants are seeing at this hour….

A cane it out moment? At some points surely all religions are unanimous. Is this that moment?

Mar

21

 I've been doing a lot of back country skiing and ski mountaineering these past few years. Each day the avalanche forecasters put out an advisory with colors: green for low, yellow for moderate, red for high. This is kind of like the DS calendar in a way. But when you get into the field there are several different areas of focus for decision making a route finding. There are the big mountains, their aspect and shape. Typically we climb up a ridge because nothing can fall down on you as you are at the high point of the local terrain. But within the bigger picture there is what mountaineers call micro terrain. Even on a safe day, a small cliff can kill you or cause severe injury. People fall into tree wells and die. We always look for the safe route up and down. Always look for an exit strategy, a 'zone of safety'. We nibble into big terrain bit by bit, never committing all the way. We test, both the big picture, and the little using techniques such as avalanche pits to test snow, ski pole pokes, ski cuts. Always gathering information during the day, ready to pull back if the micro terrain does not look good. We are always ready to, and often do, turn around.

I've been pondering this for years in markets. Even in a bull market, a micro down draft can cause havoc with a trade. Within an up day, there are down legs. These, both in markets, and in skiing are some of the hardest to see, understand and get a handle on and can be the difference between a great day and some severe problems.

The main key is to survive. Make every trip a round trip. Returning home is not optional.

Mar

19

 Apophenia has come to represent the human bias and tendency to seek patterns in random information. Our brains crave patterns and to make sense out of things. It’s looking at a random cloud and remarking how it resembles a duck with a bill. It’s the man in the moon, the Jesus toast, etc.

Luke’s “randomania”, on the other hand, is the flip side of the coin. It is the tendency to attribute chance probability or randomness to what is actually patterned data. It is the bias of thinking there is nothing to be seen or discovered, when there really is. It’s rather rare to catch ourselves doing this, because once we think that something is just “noise” we tend to ignore it and walk on by, never to return.

anonymous writes: 

An interesting thing about markets is at one level of focus one has noise, but in the same time period, in a higher level of granularity, there are regularities.

In an apparent anomaly, the physical laws may be different at sub atomic levels, than at larger levels. 

Mar

17

This IBD article proves how easy it is to manipulate the press with hyperbole and misdirection.

"Theranos Founder Known as Next Steve Jobs' Pays $500,000 to Settle 'Massive Fraud Charges'"

"The next Steve Jobs"

Uh huh.

One should be less biblical in their retorts when another person questions the next tech craze or the sanity of capital pouring into an idea that is too good to be true on the surface, and transparency issues around data make it impossible to reach a solid conclusion.

I find this one especially close to another big name in the tech space whose promises continue to under deliver… yet his moonshot ideas allow him to burn through other peoples money…

Thanks, CNBC.

Henry Gifford writes: 

I don't think Theranos is a scam.

As soon as I heard about the company's plans to sell blood tests that are much less expensive, and easier to do, and maybe better in other ways, I thought about all the companies that would be hurt by them, and how heavily regulated those companies are, and how hard those companies will fight back, presumably using regulations as part of their defense.

Then I looked and saw the founder has three strikes against her: she's female, she's good looking, she's young. This shouldn't make any difference, but when combined with being an industry outsider, the jealousy factor can be expected to go up, and the ease with which entrenched companies can create doubt and negative publicity is I think greatly increased.

An early battle the company lost was when the regulators declared that the small container they collect blood samples in is a "medical device," and therefore subject to all sorts of regulations, thus they are not allowed to use it. Sure smells to me like regulators looking for something to start a fight about – how many years could the regulators cut off the company's cash flow while they consider the regulatory merits of a small plastic container which will not contact the body? I didn't hear anything about blood collection containers having previously been regulated, so this is extra perfect – it will take a few years to write the regulations….

When the gloves came off and the regulators cut the company down to being allowed to sell one test only – for herpes – I thought that was perfect – the company from Stanford and Palo Alto with the young founder is now associated with a sexually transmitted disease, but barred from testing for glucose, etc.

Looking at the recent press gives me many reasons to be skeptical that the recent reports of fraud are accurate, or have any merit at all.

One article entitled something like "Patients get different test results with Theranos vs. hospital labs" quoted one patient as claiming a potassium test was about 11.3 with Theranos and 9.6 (or so, as far as I remember) with a hospital lab (implied as being the gold standard). Nothing about what they normal variation is, which I understand is significant, or what period of time elapsed between tests, or what the results might have been with 10 or 100 tests done with each technology. The other patient quoted said she got a glucose reading of 103 in a hospital, and 96 (or 99?) from Theranos. Glucose levels in blood can be expected to change by at least that much after a patent walks across a parking lot, even if every test was going to give the same result every time. No article I saw had any other "bad" numbers quoted, but they still made this sound horrible.

The actions of the regulators were described in one article as "State and federal authorities started investigations into the accuracy of the company's blood testing work. In 2016 the Centers for Medicare and Medicaid Services, which oversees blood testing labs in the U.S., banned Holmes from operating a lab and revoked Theranos' blood testing licence." The first sentence describes the beginning of the process, and the second sentence described the end of the process. There was no mention of anything in the middle – did they find anything? If so, what did they find? Was the suspension of the blood testing license related to anything they found other than non-compliance with the declaration that the sample container was a medical device that should be regulated? If they found anything wrong, why was this not mentioned in this article or any other I've seen?

The company, in their defense, claimed to have offered to demonstrate the machine in the offices of The Wall Street Journal, and provided or offered to provide thousands of test results and etc. evidence that their technology worked, but reportedly got no response.

Most recent articles quoted several people as not having been able to find out anything about how their new machine works. Neither journalists at The Wall Street Journal nor anyplace else could find out anything, or find anyone who knew anything. This is consistent with the box the company came up with being a hollow cardboard box, or some other fraud. But, I know how to find out what is inside the box, and what is inside the company's labs. With a quick search I found about 190 patents assigned to Theranos, all for technologies related to what they claim they are doing. I know a thing or two about patents, and a couple of years ago I read some of the patents assigned to Theranos, including some whose inventor was the company founder (there are many of those). The patents are complex but I think mostly well written – this I think says a lot in a field where I think most patents are so poorly written they are worthless. Theranos hired an expensive law firm that specializes in bio patents – a good sign. The US Patent and Trademark Office makes about as many mistakes as any other large organization, but probably not more, and is not quick to grant patents that do not meet the standards, including not being anticipated by prior art – someone else's idea that came first. Getting patents means they probably came up with something. The patents are mostly different enough from each other to not be minor variations on the same theme. Getting about 190 patents, a huge number, means they are apparently working hard and really coming up with things. Many things, probably very valuable. But, most importantly, anyone who works in bio or writes regularly about bio and claims they have no idea what Theranos is doing, and has no way of finding out what Theranos is doing, is not making any mistake – they are lying. They are surely lying because bio is a field that is very dependent on patents. All the articles I've read are consistent with 100% of the people quoted knowing the company has many patents in their core area, but playing dumb and lying by claiming to have no idea what is going on. The existence of the patents means that if they are good patents, which I expect they are, Theranos really has a lock on much better blood tests for years to come. I think it is quite possible that Theranos came up with much, much better blood tests, so much better that they could dominate the field for decades to come (as old patents expire then-current and evolving technologies are covered by newer patents). All evidence I have seen points to this being possible, and not unlikely. If this is the case, then the real story is as follows:

Young dropout comes up with much better blood testing methods, gets strong patents, raises money and actually brings the technology to market fairly quickly – patents, company, and sales, the unusual dream come true, actually done at lightning speed in an industry where patents are almost expired when products come to market (drugs, frequently). Founder stacks the board with powerful people that are not industry insiders, to help defend against the inevitable attacks from the entrenched competitors. Regulators and competitors in one of the most regulated industries can't find any real problem, so they invent a technicality related to exactly what makes the company special – the small collection container. Then they allow the company to test only for a sexually transmitted disease. Fill in the details after this.

Then they find the founder guilty of fraud – but no news reports explain the nature of the fraud, or mention any law or regulation that was broken. Perhaps the fraud was using the small sample container without approval before the approval was required?

I don't know the real story, but none of the stores I've read ring true.

I suspect the real fraud is what the regulators have done, and what the competitors continue to sell while better technologies exist.

anonymous writes: 

I always love a good contrarian position, so thanks for posting yours. Here is what I don't get:

She wasn't doing this on a shoestring budget. She has hundreds of millions.

If the thing works, couldn't she just show the world?

If the thing works, wouldn't Walgreens be out there saying "no wait, this thing works everybody, we of course tested it before we entered into an agreement with Theranos"?

David Lillienfeld writes: 

I'll go beyond that: Not everyone in the valley was pushing to get into the company. There were many who weren't. That's in contrast to, say, 23andme a decade ago or Gilead a couple of decades ago.

The first BoD was stocked with major names in American politics–with absolutely little if any healthcare expertise. Maybe that makes sense to some, it doesn't to me. George Schultz may have been a great SecState, but I fail to see the value add for healthcare. Maybe because it's simply not there. It's not always a matter of hearing the right answer as even knowing what are the right questions to ask.

As for shoestring budget, the office bldg. (I pass it every day) sits on a commanding bluff on Page Mill and Porter. It's hardly low-cost. The company may not have spent like drunken sailors, but low budget doesn't seem to have been its thing either. Not Brooks Brothers, not Jos A Banks, maybe Paul Stuart. I guess the finance people could be grateful it wasn't Savile Row.

Now, let's look at the founder. She has little knowledge of the deeply regulated environment that is healthcare in the US. Rage against those regulations all you want, they define much of the marketplace. Her age means she hasn't lived through the inevitable crises in the healthcare world, for which knowledge of FDA, EMA, ECs, IRBs, etc is invaluable. Think it's an accident that there are very few young CEOs in the biotech world–start-ups or otherwise?

Think surgeons. Do you want the surgeon who just finished her training to do your Whipple procedure, or the chief of surgery? I'll take the latter, just as I'd prefer the former for my appendectomy. Theranos was a Whipple–high risk, big potential reward. Age wasn't in her favor. Enough said.

I'll leave aside the scientific basis for Theranos's products–it simply wasn't there.

As I put it to someone else on the list who asked me for an evaluation of Theranos a few years back when this person had been approached about making an investment in the company, if something looks too good to be true, it probably is.

Mar

17

 I have been back country skiing in British Columbia and Japan recently. Skiing in trees is a good strategy because there is less wind and the snow is soft. The trick is to find well spaced trees. A young friend commented that you don't ski "trees" you ski the spaces between the trees.

On the long hike up the hills I have lots of time to think about things like this. Applied to trading, the spaces would be the time between volatility events. Survivorship analysis gives some good info especially when we press into historical record territory as we did a bit ago. Another idea of spaces is the gaps that appear in overnight trading, or even things like the "Cohn" gap. I think trading abhors a vacuum and low volume areas like to be revisited.

Larry Williams writes:

And trees can be dangerous. My friend and excellent skier did not miss one.

His memory lives on with this trail. Also former Miami Dolphin great Doug Betters did the same thing and today lives in a wheelchair.

Never confuse boldness with recklessness.

Mar

14

 Re: Xi life-long chairman

I think this is a significant event.

The rule of law within China is in question more than before.

Because of this development, I expect the money-flows out of mainland china to continue or to accelerate.

People will publicly laud Xi, but will privately move money out.

The prime final receiver will be US assets (equities, bonds & real estate). Intermediate receivers are Australia, New Zealand, Mexico, some Europe and maybe Africa (re-branded as investment).

Since major private outflows are banned by the Chinese Gov.– creativity is applied.

I assume, some on this list have better knowledge about the tools applied. Maybe crypto currencies are used as an intermediate tool.

Some data, that supports above: The "outflows" of millionaires out of mainland China into the rest of the world.

Mar

11

I missed out on a couple good trades this week during a power outage/internet outage.

Now I am thinking redundancy at an affordable level. The way I trade does not demand intense computer power and latency. Just general connectivity works fine. Losing power/internet is not devastating to me either. It's just painful when I miss opportunities that proved successful.

Curious if anyone has any input or recommendations. Thanks.

Current set up with zero redundancy:

Primary Computer (Laptop) - Connected to Broadband Internet Access and general commercial power

No Secondary Computer

Remote Access to Computer - TeamViewer

Potential future set up:

Primary Computer (Laptop) - Connected to Broadband and commercial power with Battery Backup/Surge Protector

Secondary Computer (Laptop) - Connected to Broadband with Battery Backup/Surge Protector
- 4G Connection

Remote Access to Computer(s) - TeamViewer

Generator

Larry Williams writes: 

Cloud computer you can access via phone works here in Hurricane land.

Mar

8

 Dear Specs,

I am very late in writing about the Consumer Electronics Show in Las Vegas. It was held in January and I attended to staff the booth for a few hours and go to two conferences: digital health and smart retail.

Will recount my experience bullet style; please contact me privately if you'd like more info.

- Nothing new in hardware
- Buzzwords were AI, Blockchain, and to a lesser extent robotics
- The "smart home" exhibit was HUGE. Many different players, still too fragmented and not yet plug and play.
- IoT is here but the margins are non existent for consumer
- The start-up area was wholly uninspiring
- Digital health will be dominated by big players: medical device companies, telecommunication companies, and insurance companies. They will buy out or simply push out anyone smaller.
- Smart retail is creepy; many cameras, geo-location indoors, brick and mortar is transforming into more of a display (and possibly Virtual Reality (VR)) play.

Places where there is good money to be made in the short term, for industrial, health, and consumer: augmented reality (part of VR).

Mar

8

Robots were going to strike terror into the hearts of all workers and devastate incomes and the economy. They were cited as a reason to sell stocks back in 2009-11 by our resident robot pundit, actually one of the best times ever to buy stocks.
Where they at, though?!

Did they go the way of "peak oil?"

Stefanie Harvey writes: 

One of the issues with robotics and automation is that designers frequently anthropomorphize their construction and use cases.

This is silly (with the exception of "companion" robots.)

Effective robotics enhance or extend human competency. Lift more, survive harsh environments, no need for down time.

The technology needs a bit of improvement but one driving factor is that human life is cheap. As we near 8 billion people we are the ultimate commodity; there is no cost driver for widespread adoption. Yet. 

Stefan Jovanovich writes: 

Stefanie is letting the mad Rover down easy. No one whose enterprise must do things better, faster and lower price has paid any attention to the Department of Labor statistics since public employees became unionized. No one who cares at all about people having better lives thinks "robots" (sic) threaten anything. If applying the labor theory of value really worked to produce wealth, ditches would be dug with teaspoons instead of mini-backhoes.

anonymous writes: 

Based on capital investment, it appears businesses are not even bothering to build the robots. Check out this tweet with chart from Adam Tooze:

"Historically, tighter labour markets in US drive wages and capital substitution —> higher investment. Since 2014 that pattern has uncoupled. @CapEconUS @SoberLook"

Feb

27

 We are in Ventura county, CA. As you have read, there were two major disasters in Ventura and Santa Barbara county beginning in Dec 2017. The Thomas fire in December, and the Montecito mudslides subsequent to a January downpour. Neither of these affected us directly, though we could see the fires clearly from our hill (the Mrs cried), and the mudslides destroyed the beautiful place we were married.

Since that downpour there has been no rain here, and it seems we're on track for one of the lowest rainfall seasons on record. This sounds horrible, but our drip irrigation is enough to keep the vines happy and create a good crop. You may also have read that 2017 was record high rainfall for many parts of California. Here it was about 50% over the average, and the vines showed it. Vigor was so high we wound up hedging the vines (with a lithium battery electric hedge trimmer), and dropping quite a bit of fruit to try to equalize ripening rates. Still, there was a large crop and I'm not sure what we're going to do with all the good wine we made.

Tonight's work on trellis repair is what led me to write this. A few years ago I read that Western Bluebirds were beneficial for vineyards because they are insectivores. In this area there is epidemic Pierces' disease - a bacterial grapevine infection that is always fatal, very contagious, and spread by the locally ubiquitous glassy-winged sharpshooter. We do try to control it by various means. I hung lacewing-egg cards in the vineyard 3 years ago because a lacewing instar is known to eat sharpshooter eggs. We also spray imidacloprid and use systemic granules. (A natural approach guy nearby lost his entire vineyard to PD two years ago. I am all in favor of organic/sustainable…..but this is war).

Back to Bluebirds. About 2 years ago I bought nesting boxes and mounted two at either end of the vineyard. The males are colorful and showy and the females are drab. The literature says the boxes should be a fair distance from each other because competing families will fight. Last year the box at the end of the Syrah block was never used, but the one at the end of Grenache hosted a nesting pair. Mom and pop were cute and I enjoyed them. When I was in the vineyard they both would sentinel on various nearby vine posts, and were alert but peaceful when I checked their nest. I'm not sure if they hung around because they were worried about me or if I scared up insects they could eat. I any case we got to know each other. I talk to them. "Get to work!' "Why aren't you hunting?". These birds went wild when there was a bloom of mayflies in various stages of dying. Protein paradise (I hope they see the sharpshooters but who knows).

This couple nested and produced young which I think fledged. Later in the summer I noticed the same or another pair again nesting in the same box. Only this time the babies were killed by the horrible heat of Aug/Sept 2017.

I cleaned the apartment and it is ready for new tenants.

Tonight there were at least 3 pairs of bluebirds flitting around and watching me. At first there appeared to be a particular male corresponding with a particular female, but I couldn't be sure. And it seemed early for nesting. But after a while there was a possible clue. Usually they fly and land in pairs - a male with his female. But tonight there wasn't as much pairing. In fact I saw two males perched on adjacent vine posts, chirping at me gregariously, for quite a long time. I also noticed that in spite of the sparse vegetation (and subsequent insect) growth, they were both pretty fat. How could this be, so early in the season, with record drought and slim insect pickings? Then I looked further and noticed both males were puffing their chest feathers to make themselves look bigger.

Shit! I did this same thing in high school.

So it looks like the pairings are still in process. I plan to still encourage them. And I plan to irrigate as much as it takes to make the vines grow, and hope this year's drought will still be kind to our little blue friends.

Feb

14

The current VIX is priced above both the first (F1) and second month Vix futures (F2). I looked at times  when Vix>F2 and the subsequent moves of SP500 holding until Vix<F2, since 2012, non-overlapping.


Nbr of trades             :  40
Total points              :   475.00
Avg points                :    11.88
Stdev                     :        26.92
Z                         :              2.79
Pct Win                   :        0.73
Max Trade P&L             :    81.00
Min Trade P&L             :   -81.25
Avg PL Win Trades         :    24.09
Avg PL Lose Trades        :   -20.32

The average length of the trade is 3 days.  The current trade was entered on 1/31, 9 days ago and down -160  points and not included above because it is still open.  After this long it is another 11 days on average before the term structure flips back to contango and this trade would be exited.

Feb

10

 “Inflation is About to Appear ‘With a Vengeance’ Paul Tudor Jones Says”

Larry Williams writes: 

I’d defer to Hoisington Capital over PTJ on inflation.

anonymous writes: 

Hoisington has an interesting comment about the low savings rate now vs the normal 8%. Ancedotally I’m seeing lots of consumer spending and travel due to the “bull market” euphoria.

Feb

3

 Markets can experience contagion. I remember from trading futures (nee commodities) that a crash in one market tended to bleed through to others. We would always remember it as though someone who had a great position in beans would sell it out to meet a margin call in silver that should have been dumped. That is, cutting your profits to let your losses run.

In that vein I wonder how much the recent hit in Bitcoin contributed to the equities decline.

Jim Lackey comments: 

Ben K Green Horse Trading.

Bitcoin the gypsy trade
Currency Rebel Commander 
Nazz Maniac Mule

Feb

1

"Are Longboat Key Cameras an Invasion of Privacy?"

A scary advance of the state surveillance apparatus. Don't let this fool you, these cameras are a printing press of revenue. Don't drive in this town if you ever even jaywalked, they will use anything as a pretext to detain you and search you and your car. There is a bright side, just think how safe you will be.

Jan

27

Not sure how to count it, but it sure seems that the remarkable magnitude of weekly gains in SPX are correlated with the number of slanderous articles about Trump in the gossip media (BBG, NYT, CNN).

One fears the day they cut him 1mm of slack, in their pink hats.

Jan

27

Dear Universe,

I have just posted my 2018 walking tour schedule on my website www.indepthwalkingtours.com.

Also, I am nearing completion of a memoir called BOND, SPOCK, GALT AND ME: GROWING UP NERD IN THE SIXTIES. Should be fun to read for those who remember those times.

See you on the streets!

Fred

Jan

19

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

# rank by longest stretch since 1900 

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

Jan

19

Peter Pinkhasov replies:

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

Jan

13

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

anonymous writes: 

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

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

Peter Ringel writes: 

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

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

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

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

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

and I think: "Wyckoff Lives!"

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

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

- The paper discusses the relation of SI_1 and SI_2

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

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

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

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

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

Stefan Jovanovich writes: 

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

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

Jan

12

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

Jan

4

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

anonymous writes: 

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

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

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

Dec

30

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

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

Boris writes:

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

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

anonymous writes:

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

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

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

Andy Aiken writes: 

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

keep looking »

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