Sep

11

Trailing Stops

September 11, 2020 | Leave a Comment

Zubin Al Genubi writes: 

I would like some advice on trailing stops.  Lets say a guy took a trade, 3 down days, buy end of day, hold for expectation period of 1 day, sell half, set a trailing stop on balance.  Where?  low of day? break even? 20 period ema?  And how is best to move it up.  Low of day? Ema?  Fixed trailing?  I realize it is not efficient but selling at the expectation period would lose a run like last month from 3000 of 16%.   Things seem "trendy" now.  Appreciate any good ideas.  Can this kind of thing be tested?  I doubt it, because normal tests don't seem to catch trends as they tend to mean reversion.  Thanks.   

Sushil Rungta writes: 

I use a % trailing stop.  Usually, once I buy a stock, depending on the stock and the expected volatility, I place a trailing stop anywhere from 8% to 25%.  That way I do not lose any of the upside.  And the % trailing stop keeps moving higher if the stock keeps moving higher.

I am a novice and not meant to be advice.  Just shat=ring what I do

Ralph Vince writes: 

I think it depends on the particular market. For equities, I've found nothing worthwhile that constitutes a mechanical trend following methodology I would risk money on

I have a lot of experience looking for it though! Perhaps  a temporal solution is manifesting in the quities indexes right now, which will oly be evident at some future point in time?

Experience in the markets teaches us nothing, and I doubt it has any value whatsoever. If fact, there is a toxicity to it in that we begin to believe we know something that day one participants aren;t burdened with.

We are tasked with finding which of the 9 sections of the tic-tac-toe board a ball will (randomly) appear in. We choose the center. It comes up randomly in the NW corner. (It must like corners?). We choose the SW corner, it shows up in the NE corner. (see, it likes corners,) We select the SE corner. It comes up in the middle (Ah, two corners, then a middle…..) and on and on ad on. 

Forever.

"I have a good sense for where that ball will come up as I;ve been doing this for years." Or, better still, "I have a good sense of where that ball will come up - it;s mathematical! It;s somewhat deterministic," (as said the man walking into the convenience store to pony up for his next magic powerball number combination).

In markets, If you find something that works, and is working, it's about to evaporate. This is why I've migrated to longer and longer-term views on things, as it results in a longer time until things evaporate. Everything we think is true in the markets, is a delusion of our own making. Even the notion of drift: in equities, vanishes - first, for  decades or so, then, with the next fall of an empire. The probability of a drawdown, of any given magnitude, approaches certainty as the length of time given for it to transpire increases.

Most things in markets (as in all of life) that are real, often tend to be dull and tedious, require work to get our arms around,  and reside nowhere near where we are looking.

Ralph Vince writes: 

The point is everything we are looking at in terms of timing mechanism is ephemeral. I like longer-term models because they might outlive me (e.g. be long S&P500 when 90 day bills /  S&P500 div yield >1.8, which has batted 9 of 9 since 1980, below) before collapsing. The flipside is a much shorter-term model that will work, until it doesn't, then won't, until it does again!

I have never encountered anything in terms of equitisinexes that works in terms of trend-following, save for the notion of long-term, upwards drift. But as I say, once you are comfortable that something will always work, it is likely near-finished. The buy all dips / drift works in our favor mentality is not immune, but has had the good fortune of being a lugubrious beast.

Aug

25

Market

August 25, 2020 | Leave a Comment

Is really going vertical here.I remember some vertical markets in 99-2000. Tech then too.

Aug

20

Guides

August 20, 2020 | Leave a Comment

Zubin Al Genubi writes: 

Mountain guides are an elite group who guide people into the mountains and backcountry around the world.  They face high risk and uncertain conditions and their job is to mitigate risk while at the same time pushing the limits of their clients to reach higher heights.

A joke among the guides is that the most dangerous situation they can find themselves in is traveling in the mountains with a group of guides.  None of them want to speak up and point out the danger they are getting into for fear of stepping on the other guide's ego, or appearing foolish and other group dynamic issues.  In fact, group dynamics is one of the most dangerous elements in backcountry travel.  Such heuristic issues as who is the leader, fear of being considered scared (when in fact there is danger), fear of looking foolish, expert syndromes, group think, familiarity heuristics, get home itis, summit fever can contribute to disaster.

A lot of the new list members appear to be high level experienced market professionals from the looks of their intro cv's.  Chair is pretty laissez faire, but it's good to contribute without worry.  If you're wrong, someone will tell you how wrong you are here, or the market will, and that is good.  

Jeffrey Hirsch writes:

Eloquent summation Zubin and inspiring. I look forward to discovering and discussing my many flaws and errors

Aug

20

This mornings/last nights premarket bond run up, then closely followed by the spu opening run to  Chair's constructional round (eventually)… Similar to the big bond run, and the slightly lagged spu run up of Thursday: is it connected? regular?

Aug

19

3350

August 19, 2020 | Leave a Comment

Zubin Al Genubi writes: 

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/research_papers/9631.pdf

They say there is a correlation between yield curve term structure and volatility. 

Larry writes: 

Curve is still up and positive

Aug

19

Zomby

August 19, 2020 | Leave a Comment

Zubin Al Genubi writes: 

According to Chair's twitter theory the market should crash just before the election  to screw the incumbent. all the shorts (except Ralph) have gone bust. Ralph will hold and make another 400% on the break.

Covid should be bad and things will be shutting down again like Hawaii where government wants more control to convert business and get rid of excess foreign population. School kids will help the spread.

Localism and xenophobia trends should be strong and the China  cold war will depress business. Who will make our stuff? Not Detroit.

The 2-3 month away yield curve inflection reflects something about investors outlook in a negative vein short term. The inflections are new. The bull flattener scenario is in play and the long  yield continues to drop and the short end cannot.

This should give time meanwhile for  all time highs as the army of new daytraders and short covers buy at 9:45 everyday after the Euros sell US overnight. The 25 points swings are good  for daytraders.

Kevin Kirkpatrick writes: 

Regarding the supply chain in China, it is not just either China or the US. I don't have the latest update but perhaps the following article will provide some insight.

https://www.gartner.com/en/newsroom/press-releases/2020-06-24-gartner-survey-reveals-33-percent-of-supply-chain-leaders-moved-business-out-of-china-or-plan-to-by-2023

Cold war with China?!! It has moved beyond the stage of cold war. Trump administration has escalated its hostile actions against CCP but little has been reported by mainstream media and as a result most Americans have very little knowledge about what is going on around the world. I don't mean no disrespect but I tell it like it is. Trump administration finally realizes that talking to or so called negotiating with CCP will end up with nothing beneficial to the US. The most recent arresting of those CCP spies who have ties with People Liberation Army (PLA) is just the tip of the iceberg. I bet more arrests will happen. I can even say that most of the Chinese researchers coming from China in the major US research institutions have ties with the PLA and make them spies by definition. Will the escalation culminate in military conflict in South China Sea? The Jury is still out. I don't want war like many others. But sometimes it is a necessary thing to do to eradicate an enemy who is even much worse than Nazi Germany on many levels.

Aug

17

Laurel Kenner  writes: 

Gentlemen, your assistance is requested. As my son enters high school, I am earnestly seeding guidance on how to be a good mother during these next four crucial years. As I understand it, he needs validation and a clean house in all senses of the phrase, and not too much direct advice. I don't want him to become an adult with mommy problems, and I don't want him to go so wild that he spoils his later life. Specs, please share your thoughts. What are your most vivid memories of your mother during these years? How did she help or hurt? What makes a mother of a teenage son good or bad? 

kurtsskurtss writes: 

Avoid all lecturing/preaching/cajoling.  Instead, ask questions and try to act like a friend or confidante, way more than a parent.  If he trusts that you will not be judgmental, but instead will be a good listener and help him to recognize potential outcomes for various actions, he will be willing to share more of his life with you.  

Zubin Al Genubi writes: 

Give him well defined specific tasks he must do to get his allowance or a specified reward of his own choice. He can choose the tasks. Could be wash dishes twice a week or clean his room one a week. Could be all A's. Control behavior using incentives. Use of authority is useless as is an appeal to reason. Kids don't think. 

Write down the tasks on a calendar and check off performance as an agreed contract. Put in writing for bigger or long term rewards such as a car for no smoking or drugs till 16.  

Big AI writes: 

One thing i'll offer is this: once the average boy crosses the puberty

threshold, it's like somebody poured gas on him and lit him on fire.

most of his mental bandwidth becomes focused on girls and negotiating

all of that, especially in school where there are all these girls who

have crossed the threshold too.  and at the same time, this new

dynamic that is dominating his life is something he doesn't want to

talk to his mother about.

Paolo pezzutti writes: 

We are parents.  Not friends nor advisors nor confidants…..

Not even task organizers.  Our role in my view is to transmit values. Just that. Transmit values which are the main tools to live their life. They will then choose their objectives. Establish their priorities and tasks. Live their sex life. Values are the core issue.  

larry writes: 

Teach him to cook, wash clothes and iron.  It will make him self sufficient

Jonathan Bower writes:

I'll second this. Additionally, in Scouting many ideals are worthy of pursuit to round out a person's character and skills.

Jul

21

Hows the

July 21, 2020 | Leave a Comment

Haha.  I've been Foil Surfing on a foil board where you fly above the water at high speeds.  Its fun but the learning curve was very steep and it is the hardest thing I've ever done (except trading).  The wipeouts are brutal because you are high above the wave, which is also head high and moving about 20mph.  Kind of like jumping off the high diving board.  But since a foiler can ride a part of the wave no one else can ride, even though many people are out in the water surfing their regular old fashioned surfboards, I can have as many waves as I want.  It rides the rounded hump of the wave where it doesn't even break riding the energy of the wave which traveled 5,000 miles away from New Zealand.  

It goes to show that there is always a niche somewhere that is uncrowded just like in the markets.

Especially at the gravitational 3250.  I expect a crowd to gather there in the next few days.

Jul

21

Zubin Al Genubi writes: 

I heard an interview on NPR by a writer whose name I did not catch who agrees with Hernan's premise that China has surpassed the US. He attributes  to 2 really useless expensive US wars in Iraq and Afghanistan and failure to spend those trillions on infrastructure and education in the US.  China had no wars and spent extensively on infrastructure .  You can see immediately on landing in Beijing the beautiful, huge airport.  Compare that with the dump that is JFK Airport in NYC.  When I visited China ten years ago, I saw ribbons of highway stretching out into the distance way out in the hinterlands.  

larry writes: 

Yea but NPR is anti usa most always

Kim Zussman writes: 

Zubin is, as always, a devoted son of Mao

Jul

20

Hello

July 20, 2020 | Leave a Comment

Solid breakout above prior post crash highs. Bit low vol, and up bonds.  3250 in play.

Hate to mention the big triangle.

Jul

20

November

July 20, 2020 | Leave a Comment

Zubin Al Genubi writes: 

I rode a bike through Tibet and Western Szechwuan when China was taking it over.  I saw convoys of trucks 20 miles long that stretched for hours pouring troops into the region. They just replaced the Tibetians.   There are over 1.4 billion people in China!  Just the sheer numbers mean a lot.

How many on the list have been to China?  It was much different than what I had heard or imagined.

larry writes: 

I was first there in 1980—what a different china then than now. Been there 10 time or so and each time is different

Jul

17

Recently the intraday momentum has been good with quite large moves, if you could be there to catch them.  Even the last few days with the odd tight ranges had nice regular range bound swings making for good day trading. The large daily ranges are good.  If one is able to hang on for a few days and trail a stop or some such technique some nice moves could be captured.   Back in the turn of the century during the high vol at the century highs with high valuations on stocks, hundreds of points were crossed.  If you could capture 60 percent of a swing you did well. I think the same holds true now with the large moves.   When I say things like this I always keep in the back of my mind  that the cycle is probably about over since its become so obvious that if I can see it, so can everyone else.

Jul

16

Zubin Al Genubi  writes: 

The martial artist who trains to kill and maim full time ought to beat special forces guy who has to diversify his training with guns, navigation, comm, explosives etc.   To generalize, the one who trains most to maim, disable and kill should win. A good reference is Musashi Miyamoto's Ringo No Sho, The Book of Five Rings.  Fighting is not always about head to head combat, but deception, surprise, unfair tactics, doing the unexpected.

Hernan Avella replies: 

A few notes on fighting:

1. Unconstrained fighting (using objects, eye gouging, groin shots, finger manipulation) is too chaotic, and for obvious reasons has never been studied systematically.  In an event of this nature, size, endurance and relevant experience with the setting are the most important variables. 

2.  In the hypothetical case where a person is limited to learn only one "martial art".  It's been more than proven that said martial art should be Brazilian Jiu-Jitsu. For a high level excellent discussion on BJJ as a system, check the JRE podcast with the brilliant coach John Danaher.

3. The sport of fighting (MMA) is relatively new, it's as close as it can be to a real fight, a few constraints added to avoid catastrophic injuries and deaths, (and some nonsensical rules thrown in there to cater to the bureaucrats of the fighting commissions).  In it's short history you have seen the  quick evolution of the ruleset and the techniques.  Just like in markets, every little rule or artificial limit, causes an inefficiency to be exploited.

4. To be proficient at fighting you need to be able to understand all the intricacies of a fight in different planes:  Standing, on the ground, clinching. Each of these 3 planes have different details depending on the range of proximity to your opponent.  Additionally, fighting is not carried out in discrete steps along the different plains, so you have to develop a sophisticated game for the "transitions".  The number of scenarios quickly explode and a fighter needs to train so much to make a lot of this second nature. It really makes all the other athletic endeavors look easy.

5. Like in markets, the ever changing cycles are very important.  The key variable here is the different superior skills that are disseminated non uniformly. The video tape as a research tool has been instrumental to accelerate adaptation.  Since the early 90's, the sport has seen several phases, each one builds on the previous one:

    a.) Jiu-Jitsu is king. 

    b.) Wrestling and ground and pound and weight-cutting

    c.) The rise of the well rounded fighter

    d.) Sophistication of the striking game

 6. A few things have stood the test of time despite the quick evolution of the sport: 

      a.) Leg kicks, super debilitating they impede mobility and damage accumulates quickly.

      b.) Defensive Jiu-Jitsu (avoid getting blood flow to the brain from being stopped or your limbs twisted), it's easier to defend than to attack.

      c.) Takedowns and clinch game: He who can control the plain in which the fight takes place has an advantage

      d.) Genetic differences and/or performance enhancing drugs are always key.

Finally, practical advice.  If you are about to enter a physical confrontation and your future opponent has cauliflower ears. Don't walk, run!, your life is in danger

larry replies: 

Prison fighting is a separate art unlike any other as it must end instantly before guards come—perhaps the deadliest of all

Jul

13

3150

July 13, 2020 | Leave a Comment

was a mean reversion pivot since July 3.  

Jul

13

"When stocks are doing well but investors remain skeptical about how long they will do well, stock and bond prices can rise together. This is because investors continue to put money in stocks but also put money into bonds just in case the stock market drops. This spreads the demand among stocks and bonds, and that demand causes prices to go up for each type"  

Herman mentioned bonds are higher than last time stock were up here  (3150 level).  What does that mean?  Lower chances of continued stock rise?  

Stocks up, bond down only a little?

Stocks down, bonds up a lot?

Variations on Chairs stock bond calendar.

Higher bonds would be bullish as chair tweets. 

Jul

10

Zubin Al Genubi writes: 

I've been eating plant based for 8 months.  I feel great, lost all body fat, breath better, sleep better. 

BBQ veges are very good with oil pepper, garlic baste.  Eggplant, onion, asparagus, squash, mushrooms,zucchini are great.  BBQ browning gives them a great taste.  I love to put them in a bun salthered with lots of dill based vege mayo, tomatoes, pickle, lettuce.  Its easy to broil them if you don't want to start up the barbie.  We just harvested the first round of sweet corn and it was fun and delicious.  The corn can go on the barbie in their husk to a light burn outside.  We just planted the second round of corn which will be ready in 60 days

Christopher Cooper adds: 

Interesting. I’ve had pretty much the same results, over the same timeframe, from a combination of working out more and time-restricted feeding. No other change in diet, which is carnivorous but moderately low-carb.

I’m down to the weight I graduated from high school with, 50 years ago. In my case, it’s the fat loss and exercise that is responsible for the benefits, not the diet.

Jul

10

There is a lot of long term uncertainty, and it seems a lot of daytrading going on. The vol is good again, finally, for day trading. The overnight moves can be pretty wild, so the day session seems a bit more smooth. Also staying up all night is hard nowadays. All the stupid daytrading tricks seem to be possible, MA, the wave bs, 50's effect, momo, maybe even the oscillator's. The little dino vol thing I posted seems okay for about 10 bars. Buy any dip seems to be good. Now that I can see it, its probably about to end. Also its a good way to pick up pennies until the freight train hits you.

Jul

10

Free Will is a popular idea, but in reality not nearly as achievable as we would like.

First, nature controls many aspects of your life: your genes, how you look, male/female, your wiring, predispositions, psychological traits. I would say this accounts for 40% of what you do, who you are. Then you have habits and training from youth which have become patterns that are all but impossible to overcome. Give that 25%. Add legal laws, social responsibilities and we're already at 80% determination.

Another big problem is just being aware of what is going on around you. Here are a couple of examples. Ever misplace your keys or iphone even though two minutes before you had them in your hand? Here's another example. I have an infrared floodlight. You can't see it at all at night. But when you look through the night vision scope its lit up bright as day. We just don't sense a lot of what is going on around us. Do you know what your wife is thinking? Here's another example. Can you control what and how much you eat?

Okay, we're up to 90% of what you are and do is controlled or you are unaware of it. You have all these emotions pushing you around. Then add in your wife, kids, work. That leaves us with 3% free will to do as we wish. Sure you can overcome some of it, some of the time, but not many people can, and its really really hard to overcome any of it.

If we could, it would be easy to buy low and sell high. It would be easy to be slim and buff. It's not. Free will is more of an illusion and philosophical concept than a practical reality. As Ralph mentions - patience and nerve. Overcoming the pain of exercising free will. These are part of the elements of free will. It's hard, if not impossible.

Jul

9

Many companies and law firms are considering cutting office space, cutting costs, cutting commuting. People are bailing out from cities. I wonder if mass transit, the auto culture, and even cities will go the way of the post office and wither away.

May

10

The flip side or cause of an asset shortage was too much money and liquidity. Money is nothing more than confidence and optimism and both have taken a hit from propaganda and governmental mismanagement and uncertainty about what a handful if governing idiots will decide for the rest of the world. Froth, exuberance are the ideas. Money just disappears now and I'm not clear on the mechanism except for asset prices and credit.

Apr

30

I'm also wondering about real estate. Here there's a moratorium on evictions, a moratorium on foreclosures. Naturally no one will pay either rent, especially rent, or mortgage, because they are out of a job, and the unemployment fund is dried up.

That puts pressure on the banks, and so on down the chain.

Ralph Vince writes: 

Yes. This is why I think the virus is NOT a problem to be concerned about. Everything is downstream from everything else, in a giant circuit that is the US economy.

It cannot be started simply by reversing the order of operations form which it was stopped. Some fraction of the machine will inevitably be "amputated," I fear, and never re start.

I wish I knew what size that fraction is.

Peter St. Andre writes: 

The following is speculation, but it seems to me that much of the retail sector will not return to "normal" for at least 12 months and possibly as much as 5-10 years because apparently a vaccine will be difficult to create and distribute (the previous record for developing a vaccine - for Ebola - was 5 years [1]). You can write off theatres, music clubs, and the like. Museums and gyms and restaurants and salons and such will be severely challenged and perhaps unable to generate even 50% of their previous revenue because of persistent social distancing and the fact that many former customers will simply stay away. Some of this activity will move onto the Internet, but many of these organizations will cease to exist. Will anything take their place? That seems unlikely, which means it seems likely that retail rents will plummet ~50% too, leading to widespread bankruptcies in the commercial real estate sector. And this doesn't count factories, office buildings, and so on. What are the downstream effects on REITs, banks, pension funds, property managers, service companies, etc.? Others on the list are more expert in these matters so I'd love to hear their perspectives.

Peter Pinkhasov writes: 

If one had to throw darts I would think major consolidations in retail, airlines and O&G coming. Big winners are still middle-man removing; anti-cartel tech giants.

Ralph Vince writes: 

None of this stuff you fellows are discussing are part of the major backbone of American manufacturing though — what you are mentioning, even airlines, are not even complicated processes.

I'm talking about, say, large, design- engineered products, often one-offs like huge power transmission componentry involving oddball power transmission devices ( say, rotary actuators) that, say, operate in unusual environments, involve many complex comppnents and engineered upstream.

So if the more simpler services of the economy will struggle to reopen, how will the manufacturing backbone, comprised of it's own, interdependent, rather circuitous food-chain, stand up this decade, or ever? If things had been lost to globalism, the propensity for more of that will be far greater now by sheer necessity.

K.K Law writes: 

"COVID-19 is attacking our defense supply chains and our nation's security"

Gordon Haave writes: 

Covid 19 isn't attacking them. Human decisions are.

Julian Rowberry writes: 

Exactly Gordon, the same goes for the recovery. It won't be held back by complex physical limitations, it'll be limited in varying degrees in different segments by human decisions (red tape, regulations, access, sentiment etc).

The two areas I see that are going to do well are those with political clout to enforce the flow of decisions in their direction. These segments will be hard to swim along with because they will be able to front run, maintain and work their syndicates. The other is those who are who break the paradigm with new ideas, businesses & services, that the gatekeepers don't see coming until it's too late.

Easan Katir writes: 

Anecdote, pointing to a trend ahead:

A business-owning friend voluntarily quarantined on his yacht in Sausalito called to talk about money. He said he had just had a zoom staff meeting, and everybody said they liked working from home, and hoped it would continue.

So among other effects, the govt decision to shut down accelerates the work from home trend. #WFH
 

Apr

3

Some years ago during one of the golden years of the Speclist we had a discussion about data visualization. Edward Tufte's books about data visualization are among my favorites. Tufte described John Snow's map of the 1854 Broadstreet Cholera epidemic. Snow mapped each case and the location which ended up centering around the handle to the water pump everyone used. They removed the handle and the spread slowed.

I wish we had this data now which might lead to certain areas of disease spread that could help reduce infection transmission. More of a scalpel approach not a nuclear bomb.

Hernan Avella writes: 

Yes, this is the Taiwan and to some extent SGP approach. It's hard to predict if this is even an option in the west because allegedly #1 we can't get much more basic stuff done, and #2 it triggers the liberty/individuality ethos. At the same time, Mr. Snowden revelations show that #1 we can run a sophisticated surveillance system. #2 Most people don't care, not even the libertarians.

Mar

7

An erudite spec corrected my error: it's the arc sine function.

Victor Niederhoffer writes:

But this is a statistical thing and not predictive other than randomness at any time of day for subsequent movements. There are reasons to hold till end of day relating to vig and margin calls but nothing relates to arc sign law.

Larry Williams writes: 

Large range days—up or down–are most apt top close at the extreme of the range. A good reason to hold to the close.

Jeffrey Hirsch writes: 

Super helpful today in the fund, Larry.

Larry Williams writes: 

Glad an old man can still be of assistance!

Feb

28

I've heard people are buying out the toilet paper at Costco which seems to me to be panic behavior.

Jan

24

The Fed balance sheet ticks up.

Gary Phillips writes: 

And if institutions are all in, long to the max %tile, there's record low short interest, the Fed is beginning to shrink their balance sheet and buybacks are going dark, who is left to buy?

Market's reaction to the weak unemployment # may just be the beginning of a larger sell off.

Zubin al Genubi writes: 

Add a hundred billion here, a hundred billion there and pretty soon you're talking some real money.

Jan

22

"An algorithm that learns through rewards may show how our brain does too"

Zubin Al Genubi writes: 

You can shape a child's behavior through positive reinforcement of successive approximations of the desired behavior. Attention is the greatest re-enforcer. Unwittingly parents shape bad behavior by paying attention to bad behavior. "Now Johnny, don't hit your sister, that is not nice" is reinforcing.

Jan

18

ES sliced rather easily through round with under 4k buying in night sesh. Seems like half round have more crossings.

Ralph Vince writes: 

That's the thing that always gets me about shorts…it seems so, so painful waiting…but when they go they take your breath away, and take back days and days of gains in very short order.

I have to live like a monk. I can't afford any nonsense, distractions or second thoughts, my systems telling me to make the decision here, stay short, hang on suffer it out…it's coming.

Jan

18

 I am in Hokkaido Japan enjoying deep powder in the back country.

Japan is beautiful and the people can be friendly, but in many ways there is a stultifying social pressure to conform.

Lack of immigration leads to labor shortages.

There is a sense of slow decay out here in the backwoods.

Here is a 20 year sideways Japanese stock market going nowhere.

Jan

12

"Recent Balance Sheet Trends"

Gary Phillips writes: 

And, if institutions are all in, long to the max %tile, there's record low short interest, the Fed is beginning to shrink their balance sheet, and buybacks are going dark, who is left to buy?

Market's reaction to the weak unemployment # may just be the beginning of a larger sell off.

Jan

7

 I've been vegan for 2 weeks and feel great.

Low inflammation and congestion, clearer head, breathing and sleep is better.

Good recovery from surfing sessions.

Trying a large variety of new food, new recipes and new sauces. Will post some vegan BBQ ideas.

It might be one of the best ways to longevity.

Laurence Glazier writes:

In composing music the devil is in the detail. The final 5% can make the difference between the mundane and the ethereal.
 

Jan

5

It has been more than a year since the S&P 500 went down 10%. In the nearly 17 years since March 2003, there have been 19 declines of 10% or more. There have been 82 declines of 5% or more.

Drawdown  Qty    Trading days Days since last
     5%      82            4234              64
    10%      19            4234             298
    20%       5            4234             259
    25%       2            4234            2731
    33%       1            4234            2831

Zubin al Genubi writes: 

Survivorship status is helpful.
 

Jan

4

 I became a vegan a month ago, but realized that 95% gives you 99% of the benefits and makes it a lot easier. This is true for a lot of things. The old saw says give it your all, but sometimes that is not the best.

In trading, of course, you never get it all, and trying for the last 5% can be very harmful. You never should go all in on margin and be the mouse with only one or no hole. In athletics they say give it your all, but most of the time you hold something back. You save up for the last push, for the trip home, for reserve to avoid injury, to maintain the balance of control over speed.

Few things require 110%. Dropping into a big wave requires complete commitment and going for broke. I'm sure there are others, but I can't really think of any. The margin of safety always trumps complete commitment.

In environmental clean up, the last few percent can cost more than the first 95%.

Jan

4

 There were over 55 big GS 4 and 5's double stacked up at the Kona FBO.

The overflow goes to Maui or Oahu.

There is a big sign for a another new FBO.

I only saw a couple small jets, mostly big new ones.

They all must be feeling pretty good this year.

I even heard some Air Force fighter bombers roaring around deafening everyone and burning up millions of dollars of fuel.

Dec

10

 Crew costs of $3,299 a day account for about 44 percent of total operating expenses for a large container ship, according to Moore Stephens LLP, an industry accountant and consultant.

Rolls-Royce's Blue Ocean development team has set up a virtual-reality prototype at its office in Alesund, Norway, that simulates 360-degree views from a vessel's bridge. Eventually, the London-based manufacturer of engines and turbines says, captains on dry land will use similar control centers to command hundreds of crewless ships.

Jeff Rollert writes: 

As a sailor, I highly doubt that in my lifetime at least for the 0.02% of the time a ship is in a storm.

There's enormous sensory information that come from standing on a ship and feeling how it takes a wave. You'd have to create something akin to a flight simulator which would be really expensive.

Plus, if your comment link goes down, you have an unguided missile. 

Peter Grieve writes: 

Plus, there will be less damage control ability and motivation on the crewless ship.

Maybe it's just an old man talking, but these newfangled AI contraptions seem crazy. The deployment predictions seem wildly optimistic. As you imply, things can get pretty routine when the sun is shining and traffic is light, but I can't believe that the AI will be as flexible as the human mind in dealing with emergencies. Not for 20 years, anyway.

I just attended a colloquium on neural shrubs, a modification of neural nets. The main point was that we won't know how neural nets make their decisions. It will practically take psychiatry rather than software engineering to understand the machine.

I'm worried that there will be disasters which will be covered up, to retain the cost savings. And who takes responsibility for machine decisions? Someone with no skin in the game, because they're not in the car or on the ship. Do failed captains have to drown themselves in a special room in the control center?

Peter St. Andre writes:

In his book The Glass Cage: Automation and Us, Nicholas Carr argues that if you don't stay engaged with the routine aspects of a task then you won't be able to handle an emergency.

For instance, perhaps you just sit back and watch your AI-powered car as it drives you around in clear weather on paved roads in a well-ordered city, but what happens if you end up on a narrow dirt road in a snow squall?

I suspect that, more and more, reality and the humans within it will need to conform to the expectations of the machines.

Zubin al Genubi writes: 

I’ve just experienced several VR experiences in LA. It is truly amazing. Very realistic.

Dec

10

 Each year Christmas trees arrive on our island in containers.

One year they ran out right after Thanksgiving and there was a scramble for trees.

The next year everyone brought in an extra supply of trees.

That year the lots were full of trees on Christmas.

And so it goes back and forth every year.

This year the prices shot up noticeably.

And so it goes with markets as well.

Dec

5

At the March '09 low, the S&P total market cap was about $5.3T (if I'm doing the math right).

Since then, according to Yardeni, the S&P has returned about >$4T to investors via buybacks and dividends.

Zubin al Genubi writes: 

Bonds moving with equity rather than opposite.

Dec

2

 Training for the Uphill Athlete: A Manual for Mountain Runners and Ski Montaineers by Steve House and Killian Jornet is a great book which discusses the necessity of long low intensity training to build up increased metabolic function.

Highly recommended.

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.

Dec

1

 A Go grandmaster has retired because he believes that computers can never be defeated. What does that portend for individual, human participation in the markets? Are humans who manually enter trades destined to go the way of open outcry? Can humans have an edge over algorithms?

Bill Rafter replies: 

The following is guesswork. Anyone with a different voice is welcome to comment. (i.e., no need to flame)

I believe that the AI trading of the markets to date has centered on trades that have an almost zero risk of failure. Thus they have mainly worked in the extreme short run, mostly by picking off the marketmakers or the spread. There are many trading shops who do not permit their traders to take a position overnight.

Therefore if you wish to beat the algorithms you must pick a different venue, specifically longer-term trading. Maybe that's 4 days, and maybe it's 400 days, but it must be different from what the AI shops use. That of course means greater risk, but specs are in the business of taking risks.

Sooner or later, some of the AI people will invade this longer-term space, and they will do so by picking portfolios rather than individual stocks. But they cannot eliminate risk, and as long as risk remains, profit opportunities remain for the individual.

Larry Williams writes:

The basis of all profits is trend.

Trend is a function of time.

The more time in a trade the more potential for profits.

As long as losing trades are stopped out so they are not turned to big ones by time/trend.

Zubin Al Genubi writes: 

I believe humans can still beat computers in trading. Maybe one human can't beat one computer, but the computers as a group will have a distinct behavior that can be regularized and gamed. Its the group dynamic, as even computers will tend to a group think. This is especially true if they are learning, and if they are reactive. The fixed systems are still pretty easy to beat because they are still beating the same old dead horses. I've found, as Larry mentioned, that a longer time horizon seems to work better now days. Hard to out speed the computers. Probably easier to out wait them. For example I seem to use 4 hour / day bars now rather than 5 min/30min bars in years past.

Laurence Glazier writes: 

Such factors lean me more seriously to composing music than playing chess. What defines us as human?

Ralph Vince writes: 

I posit that about 50% of all human action is a feint, a misdirection of the opponent, a lie. Camouflage is the dress code on the planet, and we have a several million year jump at the game of deception the machines must learn, must catch up on.

The machines are so-far, trusted–trusted not to lie or deceive. Once they do, how will they be able to compete with us i that higher arena?

Even in music, Laurence, a variation on them, a little bending around of a melody, is a feint, an indirect lie, as it were.

Laurence Glazier writes: 

I've found fractal mathematical techniques of structuring music that have a ring of truth, however writing from inspiration, like painting from nature, must be a battle and a humbling one, with no concession to vacuous prettiness - nature's colour schemes seem always to work in the visual world, and I posit also in music, though I try to figure out more accurate methods of transcription.

Oct

21

 A corollary to understanding the spaces and times between events is the art of doing nothing.

In survival situations, when uncertain or becoming lost, its is good to do nothing. Get reoriented. Resting in the wilderness is a good skill. In Deep Survival by Gonzales, he describes many deaths by running around in circles until injury, hypothermia or exhaustion kills the hapless adventurer.

In markets one of the hardest lessons I've learned is how to and when to do nothing. When waiting for a good situation, don't throw on a couple trades to pass the time, make a few bucks, wait. Don't do stupid little day trades. Do nothing. When finally in a good position in size, don't start selling to early. Wait, do nothing. Clews called it "resting on your oars". Wait for your expectation period, or the end of the day, or your target, or your overplus. Don't trade because you think its work, from boredom or from fear. Sometimes don't even watch, because that might cause inappropriate action. I remember years ago in Australia, Larry Williams telling me that he didn't even watch during the day. I was astounded at the time. Its taken me about 20 years to figure it out.

Jeff Rollert writes: 

I. Could. Not. Agree. With. This. More.

It is a sign of maturity in a trader. 

anonymous writes:

In the markets, and in life itself in a broader sense.

In the Johnson era (Lyndon), at the largest Catholic school in the city ("The Zoo") we would be forced to march, single file, at lunch each Friday, to the adjoining church 100 yards or so from the school.

Antagonizingly, but appropriately, whistling the tune to "The Bride Over the River Kwai."

Entering the church, in it's large vestibule, often still taken aback by the heavy smell of incense from a morning funeral, a janitors closet off to our right. We would fall out of line, half a dozen of us, one-by-one, into the closet in a blink as we marched by it, down a little metal ladder to a tunnel that ran under the street and came up in a student union lounge at a Jesuit University across the street where we would emerge, liberated from mass and the ennui of Friday afternoon class.

One of our half-dozen or so escapes was it kid named Oswald, which was a bad name to have in the sixties. He lived with his seemingly hapless mother, and, well, rumor had it that…well, you know.
"Was that really his father?"

Anyhow, Oswald was a kid with a big, curly, head of hair that had a giant grey streak in it at 10 years old. He was an astonishingly good chess player, always studying the game. No one could last half a dozen moves against him. As odd as he was, I found him to be very insightful and enjoyed his company.

A revelation to me one day in hat student union lounge, a moment that would last with me for the rest of my life, was conveying to Oswald that: "the problem with just sitting in this student union lounge over here was that I feel like I'm not getting anything done today."

Oswald shot back: "are you crazy? Nothing bad can happen when you're here. Most days, the best thing to do is nothing."

It was a moment I have never forgotten, and most regrets anyone has in life are from pro-active episodes, not from sitting still. It pertains further to the markets, and, in a very pure way to money management especially with regard to maximizing certain performance measures. But that is another discussion for another day.

Oct

21

The biggest fade trade was election night.

Kim Zussman writes: 

Which has subsequently been reversed to the tune of 1000 SPU points.

Oct

6

I prefer After Action Report or AAR to "Post Mortem". Less ominous connotations. Lol.

Oct

2

What is the significance if any of recent money market stress and Fed actions?

Larry Williams writes: 

If it is a mini QE-4, as I suspect, bullish.

Peter Ringel writes: 

I had decreasing excess commercial bank reserves as bullish factor for equities, because it is an indicator of optimism.

People are less in cash and invest more and more in other assets.

Pete Earle writes: 

A colleague and I wrote an article about this two days back. "This is Not QE4, Yet"

Mr. Isomorphisms writes: 

If it's due to quarterly tax payments, why doesn't this happen every quarter?

Pete Earle replies:

It's not just because of taxes. Read the article.

Sep

10

 Dune by Frank Herbert, a classic

Children of Dune

Dune Messiah is a bit slow but you have to read it as part of the series

the Jon Reznick series, free on Kindle unlimited. He is a spy former Delta. Audio is free too.

the Scot Harvath series. Same spy military thriller suspense theme. Kick ass.

The Improbability Principle by Hand. Why do improbable events seem to happen so often. Large numbers, close enough, survivorship bias…

How to Take a Chance, Huff

Brief Answers to Big Questions by Hawking. I disagree with his Black Hole theory. I think they just infinitely compress space time and to a traveler into a Black Hole everything would seem exactly the same around him.

Sep

6

Here is a great article talking about how to model of extreme insurance claims with a much clearer explanation by using. QQ plot or frequency/magnitude plot to estimate thresholds. Market thresholds are easier to determine. What's your pain tolerance?

Aug

24

Friday's price action reminded me of the mountains where when the Orange-u-tan man twittered the market slid off 3 percent, rapidly at first at a vertical slope, and then as the day wore on, settling in at the angle of repose where no more loose debris slid off and the top of the sell off might have been at a lower angle than earlier in the day. Years ago Chair discussed vectors and some algos based on vectors that was promising, and this is somewhat similar. Better to stand in a place where further secondary avalanches or what is known as Hangfire doesn't threaten your position.

As I say in the mountains, as in the markets, you never know til you go.

Zubin Al Genobi writes: 

A mountainside with steep cliffs and loose scree below or snow tends toward the angle of repose which is the angle after which the loose material will no longer slide down the face. A pile of sand will have a certain angle of repose where the sand castle stabilizes for a time. For snow, typically slopes angled over 50 degrees tend to slough off. 38 degrees is the optimum angle for avalanches. A steep cliff will often slide down to where debris has piled up, and stabilizes at the angle of repose. When setting up a camp one wants to be at a point far enough away from the slide path that the run out of a avalanche debris will not bury the camp. A rule of thumb is that if the top of the slope is 17 degrees up by line of sight from the spot one might be relatively safe.

Aug

17

Some years ago we discussed bridges and their structure. Chair recently tweeted about diabolical swings. I see N's. Big bars (4hr) connected by diagonal structure then big bar in opposite direction. Sometimes they are upside down N. Been seeing them recently. Not sure what the natural structure would be.

Aug

9

We had extreme ranges and drops this week. A couple thoughts… Chair and Rocky argued about percent vs absolute points. Since each point is always $50, points matter most to the wallet. As the absolute value goes up, absolute ranges rise as well.

Questions arise about extreme events: clustering, duration, time between, distributions of returns. Pareto distributions are a key idea according to the book.

Peter Ringel writes: 

From a base of extremely less experience: I think in points. It is more intuitive. The market seems to move in chunks of points. E.g. NQ seems to like 30pts.

Jul

27

 "How Micro Expressions Can Make Moods Contagious"

I wonder what micro tells in the market predict bullishness or bearishness.

Steve Ellison writes: 

One-sided order flow, or toxic order flow as market makers call it, causes contagion as market makers widen spreads and take measures to reduce their inventory.
 

Jul

27

 Say something costs you 100 units of your currency in your residence country. Now you travel to the following countries where the cost of the same thing is listed in the local currency.

In country A, it costs 3 unit;

In country B, 20 unit;

In country C, 600 unit;

In country D, 10000 unit

Say that you know the costs are mainly caused by the exchange rates.

In which country would you, perhaps subconsciously, have more tendencies to buy the thing, and in which country would you have more hesitations to buy it?

In my travels in the past years, I sensed that I am in some way affected subconsciously by these numbers. The effect doesn't seem quite linearly related to the cost numbers. For instance, when it's 3 unit, I might want to buy more because it feels so cheap. When it's 20 unit, I may feel that it's too expensive given a good knowledge of the exchange rate in mind. And when it's 600 unit, it feels expensive because the number seems really big. But when it's 10000 unit, it may feel cheap given the knowledge that the currency is very cheap.

Zubin Al Genubi writes: 

I'm in New Zealand and the nzd/usd is .67. My thinking is that everything is 1/3 off so I spend like Everything is on sale. Many things are cheaper but most things aren't. So its a delusion. Services, hotels, food is cheaper absolutely but imported products are not. Tipping is limited so restaurants are cheaper. 

Jul

22

Word on the street is that the New York buyers come in and buy up all the prime fish for sushi and the restaurants and put it direct on the plane only a few miles away and fly it to NYC. The local restaurants in Honolulu have a tough time out bidding the better financed competition.

Jul

22

"How Micro-expressions Can Make Moods Contagious"
 
I wonder what micro tells in the market predict bullishness or bearishness. 

Jul

20

The May trade during the drop showed some interesting anomalies in execution. As the market dropped I decided that I would buy some Sept futures instead of the current June as I didn't know how long I would be stuck in the trade. Normally in a rapidly dropping market you can buy at bid, and that is great until the market drops another 50 or a hundred points through your fill. Some of the drops were some of the biggest. The September contract was still quite thin over a couple weeks before roll, and I was getting filled .5 below last which is pretty unusual now days, but worth noting. Then, I think it was a bit before roll day when the market started really shooting up, so I was letting out some September inventory and was getting filled at or occasionally .5 above last execution. You see that sometimes in fast markets also with crazy air drop fills, but I think that is just the result of delay in the data feed to the computer vs actual fills at the exchange. My impression of this last drop is that it was a fairly orderly drop, just steady drop. Maybe that is the computers doing their controlled selling in their mechanical way.

Roll is an odd period when everyone is forced to roll into the new contract creating an artificial market situation, and added to a rocket up market. I am not exactly sure why conventional roll date is 8 days before expiration, or why that is a convention for trading. It doesn't make sense to me, and my point is that it is a disadvantage to mechanically roll on the same day everyone else does. CME website says to you can roll whenever you want. Seems like waiting till you are forced to make a move when you may not want to make a move limits your options. I'm sure some market makers make money as the salmon come along.

Jul

14

This is a disturbing article: "The Books of College Libraries Are Turning into Wallpaper"

Zubin Al Genubi writes: 

I prefer reading Kindle on my phone to a book. I can carry 20 books at a time, and get them on the go. I can read at night, and low light. The print is bigger. I find books hard to read, hard to hold, smelly, heavy, print too small, expensive. I do buy some of Chair's technical book recommendations that are not available in digital format.

Jul

12

 The NY Fed has produced a marvelous interactive map of U.S. dollar funding.

Zubin Al Genubi writes:

I wondered: Where does credit card money creation fit in M1?

According to an article I read:

"In short, credit cards, debit cards, and smart cards are different ways to move money when a purchase is made. But having more credit cards or debit cards does not change the quantity of money in the economy, any more than having more checks printed increases the amount of money in your checking account"

That doesn't seem right to me. Credit cards are the universal payment method and create much much more liquidity than cash, is easier to spend. Often people buy beyond their ability to pay in one month, so liquidity is being created. And the US economy runs on consumer purchases.

Stefan Jovanovich responds: 

ZAG has asked the questions that, in one form or another, American law and banking practice have done their best to avoid answering, ever since the country was founded: where is the boundary between money and credit and what is the definition of the U.S. dollar? The U.S. Code is no help; its only definition of the U.S. dollar is that it is legal tender. "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts." 31 U.S.C. 5103. But what "it" is remains wonderfully vague. So, too, do the Treasury's own practices. It does not require payment of legal tender for taxes; you can use your credit card.

There is a good reason for all this seeming confusion. The country needed it in order to get started. When the war veterans met in Philadelphia in 1787, they had to establish a national unit of account that was not a fraud while, at the same time, borrowing enough money to pay the veterans' promised pensions and the government's own expenses. Their solution was an elegant finesse. Money would be defined, by weight and measure, but any Coin, foreign, private or newly-Minted by the U.S. government, would be legal tender currency. The United States would not issue paper money, as the British had; and there would be no national bank. Congress could borrow Money, but there would be no Bank of England that could use its own notes for repayment. Congress would be responsible for defining the unit of account to be used as the yardstick for measuring foreign and domestic currency, but U.S. law would only specie as Money. And, the States of the new United States would be specifically prohibited from doing what they had done during and even before the Revolution - turning their own bills of credit into money. This was so important that the Constitution goes far beyond its usual tact is pronouncing where Federal sovereignty would be supreme. The States would NOT issue bills of credit and would NOT go to war. For the veterans of the Revolutionary War, who had seen what the States had done to the country's money and what Tories had done when they had control of state government, those were the two rights the States would never be allowed to have. It worked. Before Washington left office, the U.S. had a perfect record of borrowing and paying back the money lent by its Dutch bankers.

There was only one problem: people were hot to buy more and more land, and the U.S. and most state governments were insisting on being paid, in money. Clearly, this would not do. The solution was for the States to get into the credit business. By creating banks, they could find their way around the Constitution's prohibition on bills of credit; the banks could issue notes, and those notes could be accepted by the Federal and state Treasuries as payment for Federal and state lands. The arguments over the Second Bank of the United States was not, as Schlesinger says, over "hard" money; it was over whose bank notes would be considered sufficient payment for the land sales. When Jackson decided that only gold coin would be accepted, he was creating the very paradise that Ron Paul wishes for - a country with only 100% gold-backed bank notes and, therefore, very little, if any, private credit.

A correspondent reminds me that the land sales were very much like the Treasury auctions in the good old days of guaranteed spreads. The land was sold to primary dealers at fixed prices per acre; the dealers then resold the property purchased at auction. When and where the auctions would be held became a matter of public record only after they were completed, and the funds paid to members of the House and Senate for what was truly inside information were worthy of the bribes that Vanderbilt and others paid to the New York State legislature. "There is no distinctly native American criminal class except Congress." 

Jun

2

 Statistical Analysis of Extreme Values cited by Chair is useful for risk analysis. I've used survival stats on when to expect the next hi vol event and Vince's binomial analysis for leverage analysis.

Reiss and Thomas use a number of methods and begin analyzing the probability of exceeding a certain value in a given time. For example a daily range of over fifty SP or 100 in a year. They use Pareto distributions as a parametric model among other methods. They state Poisson distributions fit binomial distributions in smaller data sets. The book includes software. I'd be interested to do an analysis of expected high vol events in a year or number of days in a month in an event. I think adding weekly or monthly occurrences of extreme highs would be useful as in the last and current hi vol events.

May

20

I've been long the motorcycle investor's ag fund for what seems like years as part of an asset allocation program. The fund and commodities in general have sucked wind for a long time. However recently it seems to have turned a corner some months ago. Along with some bonds a four class allocation seems to buffer swings in equities fairly well. It's what I recommend to young friends who ask me how they should invest long term with an annual or quarterly review.

Larry Williams writes: 

Mr. Motorcycle has not been wearing his helmet in a crash.

There is little if any long term drift to ag prices; they boom and bust. That is why his ag fund has been as dynamic as Joe Biden.

Mar

18

 Barry Lopez writes in his book Arctic Dreams about how eskimos hunt and perceive their environment and prey with different eyes, perception, and spirit than do Western scientists. They have an intimate relationship with their world and with their prey.

Chair opened my eyes to perceiving the spirit of the market. The public reads the news and looks at charts. We speculators see the natural spirit behind the market, more than the sum of the participants. It has a living spirit: Panicky, ebullient, overconfident, deceitful. Our tools go beyond math to see deeper meaning in the relationship between the market and our world.

Make no mistake about it: speculators are hunters, and to survive we must be one with our prey, know where it is, where it is going, and what its habits are. We must understand the interconnectedness of the markets as in the natural world. Hence the beauty of Chair's natural models.

Dec

21

  I hope everyone is alright in this another of this year's crashes and cane events. I want to send a thanks to R. Vince and his work on risk management, which is the most important part of trading and for his comments on the subject here on Dailyspec. While one always likes to buy near the bottom, it is too easy to get over leveraged, especially in these multiple sigma events, and get hurt before the inevitable bounce comes.

Jim Sogi writes: 

But you must, MUST be loading up here. You have to.

New highs will come and be well-exceeded, and likely in 2019. Every major market crack has been exceeded. This is pure emotion, Mr. Market making hay out of the imminent impeachment 6 months away.

This is not a game of brains but of patience and nerve. I hate it. I would have been happier as a bad priest.

Dec

9

From a NYT article:

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

anonymous writes: 

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

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

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

Peter Ringel writes: 

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

Probably all a campaign.

Ralph Vince writes: 

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

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

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

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

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

Russ Sears writes: 

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

anonymous writes:

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

Kora Reddy writes: 

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

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

  

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

  

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Nov

28

Ralph or anyone else. I need help with Ralph Vince's optimal f.

Take any one of Kora's excellent sample trade systems in SP with for example N0 Classical expectation is 60% winners, T=2.2, max historical drawdown 50pts, avg gain 4 pts avg loss 4 pts, with a million dollar stake; max acceptable drawdown 2%, a one year horizon rather than normal asymptotal assumption. R=risk free rate. Time horizon is close to close one day.

Traditionally one would use 8 contracts to limit loss to 2% on the max loss, or a fraction of .4 of stake.

What is the Optimum f use to achieve max TWR? Also what is appropriate n to compute optimal f: the 3 expected trades in the year, or the 30 over the history of the trade? Assume the current historical volatility in SP of 18. How does f change if vol is 9? Also how does the Vince bounded expectation differs from the classical unbounded expectation over a one year with 3 one day event horizon?

The solution in Vince, Risk Opportunity Analysis, p 171 is a 3 dimensional copula. (Escaping Flatland!). Is there a simple R routine or spreadsheet to compute this? The late Seattle Phil uses max drawdown as the main factor In his allocation formula. I think risk management is the most important aspect of investing.

Ralph Vince replies: 

Zubin,

So your criteria, from what you describe, is to maximize your gain over this period of time, all else be damned, withing a given (but unidentified) risk constraint. So you are talking about being at the peak of the curve (there are other points, or paths through the space, for different criteria), and you;re talking about a portfolio of one item.

But you do not know what this one-year future time window has in store for you, and I've found the best approximation for where the peak is to divide the percent of profitable compounding periods (in this case, since you have only one component, a compounding period we can say is the same as a trade) by 2. I won;t go into the math for why this is hte best guess aside from saying it will minimize the price you pay, worst-case, between this best-guess point and where, after the year, the actual point turns out to be. So in this example, it starts out at 60% winners, so

.6 / 2 = .3 ad therefore, the best guess point to use as the peak is .3, asymptotically. But you;re talking about only 3 trades over the course of the year, and since the expectation, if you make one play, is to be positive, then if you were to quit at 1 trade, your f would be 1.0, at two trades, the best guess is (f one play less-the asymptotic f) / 2 + the asymptotic or (1-.3)/2 + .3= .7/2+.3=.35+.3 = .65 and for three trades (.65 - .3 ) /2 + .3 = .175 + .3 = .475

So that;s an approximation, that .475, and that;s how I would arrive at it, absent knowledge of the future. It is a good, robust approximation and mathematically sound. I prefer robust approximations as opposed to the exact mathematical answers based solely on past data

Software for this can be found at Josh Ulrich's R implementation for it. I do not have the link offhand. The paper you cit gives the exact formula for determining the landscape and optimal fractions therein, but that is on past data. In the foxhole looking at tomorrow, or next year, I prefer robust approximations that will mimic what the actual formula might provide.

Next, you need to determine a worst-case loss situation. Perhaps you are going long, and you could use the value of 0 for your worst case. or maybe you have a stop in there, and you can use that plus some ridiculous amount of slippage for worst case or perhaps you are using options, etc. But you really need a worst case situation. Dividing the worst-case dollar amount by .475 will tell you how many units (the same quantity you determined the worst case dollar amount on, say, 1 contract 100 shares, whatever) to have on.

Understand, however, that when this worst-case is hit, you will be hit for 47.5% of your stake! So my point is, I think you need to rethink your criteria as it is unlikely what I paraphrase it to be in my first paragraph here. Perhaps you want to allocate a smaller percentage of your capital to this endeavor such that 47.5% is akin to 2% or your total capital. Maybe your criteria actually has you traversing a path in the landscape this curve in 2D space.

Orson Terrill writes:

Is Ulrich, or anyone, still maintaining quantmod? I still have some code that runs on parts of it, that I'll refactor to save time, but hadn't seen much activity around it.

Ralph Vince writes: 

I'm certain there is a robust community around it.

Nov

28

"The stock market usually bounces from Thanksgiving to Christmas":

The Dow has averaged a gain of 1.93 percent in that time period since 1990, while the S&P 500 and Nasdaq gain 1.77 and 1.66 percent, respectively.

The S&P 500 was positive between Thanksgiving and Christmas 78 percent of the time since 1990, according to Kensho.

Kora Reddy writes:

This is very easy… from the engine we created, from the close of mon after thx giving till close of the last trading before x-max, since Y2K :

 
 
 
 
 
 
 
Let me do this for all SP500 tickers and send it across.

Nov

1

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

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

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

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

anonymous writes: 

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

Not in the article:

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

Oct

17

 The hardest part is resting on your oars, but 58pts is a good time to ease off leverage. I think Ralph is right and there is more to go. Unlike RG I can't wait to learn patience.

Peter Pinkhasov writes:

Most of the close to close stats I'm seeing for such a decline are coming with the narrative that "but it has a potential to go lower" which I think takes away from being data and analytically driven to make decisions. I think with the large move in short term rates, it's better to use that as an independent variable for forecasting future returns given we have seen a new interplay in the last two weeks between stocks and bonds. 

Ralph Vince writes:

The upmove in st rates is and has been exceedingly bullish here.

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.

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.

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.

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.

Aug

17

 Admitting you are wrong is very difficult. I've noticed that almost no one can do it. I haven't seen or found any real studies of this behavior. It would be interesting to see how often people are wrong about something objective, why they are wrong, how they do or don't admit being wrong, and if they can change their opinion. Once a person make some declaration, there is some heuristic or bias that makes them cling to that even when they're obviously wrong. Often rather than admitting being wrong people will rationalize some external reason why their declaration is not right. People will actually change their memories to avoid being wrong. It's a powerful effect.

Traders need to be able to quickly admit being wrong and get out. It's one of the keys to successful trading. One needs to be able to reassess.

In expeditions and adventure travel, one needs to be able to change one's plans, admit a mistake, turn around, and give up goals. You need to have fall back plans. These are all techniques to alter one's mind, even if they fall a bit short of admitting one is wrong. I think this approach is a the way to work around the heuristic.

Another problem is the social reinforcement problem. Once a person makes a declaration of say, a trading position, it makes it harder to change. That's one of the reasons why Chair says, don't disclose your position or state your bias. Also, there is the social problem of who in the group wants to say the group is wrong. I'll call this the lemming effect. There is the expert effect, where no one in the group wants to contradict the self proclaimed expert. The effect can be more subtle, such as the first to speak in a group takes on a guru like Auro, making it hard to correct mistakes in a group.

Russ Sears writes: 

Professor Haave has a law which I will paraphrase as "90% of people spend 90% of their time trying to prove that they are not wrong". I would add that most of this wasted effort is spent trying to blame someone else for things that go wrong, rather than simply admitting a bad decision and moving on. I try to be friends with those that can admit a mistake. I would add that this is paramount in picking a mate or a boss. Otherwise I am bound to be blamed for their problems. Besides wasting money on bad investment decisions. Time is wasted and perhaps the biggest cost to personal happiness can be wasted relationships and heart break.

An insight as I've aged is if I truly want to get close to and attach with my spouse, I must be willing to admit to to my spouse that much the lack of feeling attached is because of my insecurities rather than her problems or lack of compassion. It's a paradox that the compassion is only as deep as one allows themselves to admit being vulnerable to the other. 

anonymous writes: 

Ego exposed is certain to be defeated. It is the fastest and easiest way to do it. The resultant facts make the ego indefensible. The ego becomes unimportant to the individual. He or she is liberated of it.

It was the most valuable lesson the Senator ever taught me.
 

Aug

16

 The Literary Digest was once the microphone through which that mythical beast "public opinion" spoke to America

The mass media - newspapers, movies, radio - were careful not to offer political opinions on the sensible theory that favoring one party over another would cost them money. Political opinion was limited to print and, within print, almost entirely to magazines.

In 1927 the Literary Digest had 1 million subscribers; by 1938 it was gone.

It fascinates me how the formerly mass media are well on their way to becoming the voice of minority opinion because of their one-sided politics.

Zubin Al Genubi writes: 

With 500 TV channels, and a thousand news sites, information and political views have become Balkanized. Will political parties soon follow and breakdown like the parliamentary systems in Europe.

Stefan Jovanovich replies: 

The Parliamentary systems in Europe may have political deadlocks but they are hardly breaking down. Brussels has authority that was Napoleon's dream. There are not 500 channels if by TV you mean mass audiences similar to those held by the 4 networks in the U.S. Britain has 5 channels, France has 3. What I was trying to point out was the obvious. Netflix, Amazon Prime and hulu–none of which offers any political "news" - have become what the movies and radio were in the 1920s and early 1930s. The audience that elite opinion thought it had literally melted away, much as it is doing now. Trump is "unpopular" only if one believes the modern Literary Digest audience represents a clear majority of the American electorate.

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