Mar

24

Today's market was a perfect example of deception in all its forms. One could write a book about all the forms it took today.

Mar

23

 Bridgewater just published Dalio’s 61 page treatise on Populism.

In summary, populism is…

• Power to the common man

• Through the tactic of attacking the establishment, the elites, and the powerful

• Brought about by wealth and opportunity gaps, xenophobia, and people being fed up with government not working effectively, which leads to:

• The emergence of the strong leader to serve the common man and make the system run more efficiently

• Protectionism

• Nationalism

• Militarism

• Greater conflict, and

• Greater attempts to influence or control the media

Stefan Jovanovich writes: 

“In the period between the two great wars (1920s-1930s) most countries were swept away by populism” has to be one of the great howlers of all time.

The political parties and leaders which held and gained power in Britain, France, Italy, Germany, Austria, Hungary, Romania, Greece, Spain, Portugal, Belgium, the Netherlands, Finland, and Poland were all dominated by imperialists whose policies assumed that the nation took priority and that acquiring greater territory was the ultimate goal of warfare itself. There were exceptions among leaders and nations - Leon Blum, the Czechs, the Norwegians, the Swiss and Swedes; but these people had no control over events.

Mr. Dalio should stick to counting his and other people’s money and leave history to us paupers.
 

Mar

22

 As AG correctly notes, most military "news" is very, very old information. But it sometimes seems to take its own sweet time about arriving where the world of money is concerned.

"Beautiful Day For A BONE Flight"

"B-1B Deployments"

Chris Tucker writes: 

So these aren't Bones, but BUF's. (Big Ugly F**ckers), other wise known as B52's. But it's a cute story. And I made up the call sign.

Around about twenty four maybe twenty five years ago. I'm a fresh, new radar controller at ZNY. I'm getting "seasoning" time, working the radar on my own, in full command of the sector, but with a highly experienced old hand sitting next to me in the radar hand-off position (sort of like an assistant) to keep me out of trouble. Happily, the old hand on this particular day was one of the best, most naturally gifted air traffic controllers I've ever had the pleasure of knowing. And I've known a few. His name is Dominic.

We are working the Yardley Sector, Sector 55, a busy and complex departure sector that blends southwest bound NY Metro departure traffic from EWR and LGA area airports with west bound and northwest bound JFK departures from the south east. At the same time, we descend BWI and DCA arrivals from the northeast through the departures and sequence the bunch. It's a fun sector to work, some people don't like it because, and I'm serious here, the angles are funny. You have to understand aircraft types and decide, long before they cross, who is going to be on top in any merging situation. We love Boeings - they climb fast. We hate Airbus - they don't.

So I'm working my tail off and I have this great big gaggle of traffic in the southwest corner of the sector, everybody is crossing and I've used almost every single altitude available to me between Flight Level One Eight Zero and Flight Level Two Eight Zero (essentially eighteen to twenty eight thousand feet). I'm waiting for a few pairs of planes to deconflict so I can climb every body and ship them over to the next controller, so my attention is focused (too much so) on this area. A departure checks on the frequency off of LGA, up in the northeast corner of the sector, level at one seven thousand, itching for higher. Standard stuff. So as I'm dragging my eyes up towards him I've already begun speaking: "U.S. Air Seven Forty One, New York Center Roger. Cliiiimb aaaand (eyes not yet there) maiiintaaaaiiiin." And Dominic explodes with a resounding "NO!!!" Aah. Yes. Now, very nonchalantly, I say "U.S. Air Seven Forty One, disregard. Maintain One Seven Thousand. Traffic, twelve o'clock, four miles, opposite direction, a flight of nine B52's in the block, Flight Level One Eight Zero through Flight Level Two Zero Zero". "US Air Seven Forty One roger - we weren't going anywhere - we heard him!"

Mar

21

Certain readers have suggested that your correspondent's comparison of post Civil-War U.S. and post millenium China is, to put it kindly, all wet. They agree that the countries had similar explosions of industrial growth in these two periods; countries that were important but not major economies became, in a decade and a half, the leaders in annual accumulations of wealth throughout the world. But, to think there is not even the remotest comparison between what happened in the last third of the 19th century and what is happening now regarding international money and credit is nonsense.

I can't disagree with the readers' description of what happened 150 years ago. We all think that the broad adoption of the gold standard after 1875 was the response of both Europe and the Americas to the collapse of the gigantic (mostly real estate) credit bubble that developed in the 1860s and early 1870s on both sides of the Atlantic . The cascade of bank failures that is wrongly described as the Panic of 1873 brought the world's banks and national Treasuries to agree that they would all use gold coin specie as units of account and that all their exchanges of credit would be cleared using a single gold standard for all borrowers' and lenders' currencies.

That is, my kind readers point out, precisely the opposite of what is now happening. International exchanges of credit are now cleared using the foreign exchange markets' valuations of the respective monies. While central banks and national Treasuries continue to hold gold bullion as assets, there is no legal obligation of any country to convert their legal tender to specie. So, there is no reason for China or any other country to adopt a physical gold standard as the exchange price for their currency. That would not fix the price of the yuan for the rest of the world; it would only substitute fluctuations of the price of bullion for the managed variations in the official exchange rate of the currency.

But, say the readers, if the United States were to adopt the gold standard, it would be a different matter. The dollar is already a reference currency in open markets for commodities, and U.S. Treasury debts are held as official banking reserves by central banks, even China's. Guaranteeing an exchange rate for gold coin would produce the very golden fetters that Keynes found intolerable; whenever buyers of Treasuries found the rates unattractive or the Treasury's borrowing excessive, they could use the gold exchange guarantee to push back. That was, say the readers, precisely what happened after the end of the Franco-Prussian War. The U.K., France and the U.S. all ended any hint of bi-metallism; and, to its great surprise, Germany had to abandon silver and accept gold as the measure of its domestic currency. No individual Treasury could stand out against the international market's independent assessment of the soundness of its credit.

This was not at all what the believers in unlimited sovereign authority had wanted, and they did their best to find a way around the limitations on state spending that had resulted. The Germans adopted social insurance as a way to stretch the Empire's budget - money for guns and cavalry horses and ship building now, promises to pay pensions later. The British embraced imperial bimetallism - gold for foreign trade, silver for India and China and East Africa. But, in trade among themselves and with America, the books actually had to be cleared; and any country that defaulted lost its credit overnight (Argentina).

My readers are right. For China to establish the yuan as an open currency, it would have to join an already established international gold standard. Fat chance.
 

Mar

21

The recursive paradox of self-determination or: If you lack the skills to trade, then trade to acquire the skills you lack

I ask for strength,

trading presents obstacles to make me strong;

I ask for wisdom,

trading provokes my critical thoughts;

I ask for courage,

trading challenges me with it’s risk and uncertainty;

I ask for patience,

trading puts me in situations where I am forced to wait;

I ask for discipline,

trading tests my resolve and determination;

I ask for prosperity,

trading gives me the opportunity to profit;

I may not get everything I ask for,

yet, trading gives me everything I need.

Mar

20

One interesting thing occurs when a team tends to lose close games to an inordinate degree. Some sabermetricians cancel these games out saying it shouldn't count against. Others suggest that it means that the team is bad, like the Knicks who have lost more close games than any other team. It calls for a test. I used 3 out of the last 10 games, a win by less than a 1/5 of %, and 3 out of last 10 that were won by less than 1/5%. The results show that losing by a squeaker to an inordinate degree is bullish.

Michael Chuprin writes: 

I first noticed this happening in chess and have since been able to recognize it in other sports. I think this happens when the players are not playing their best but rather playing to keep up with their opponents. For example, sometimes a strong chess player will see that their opponent isn't strong, so he will not really engage in the game and then draw. Other times the chess player sees that his opponent is very strong, so he will "turn on his brain" to match his opponent and then draw. In both cases he is just playing to match his opponent and in both cases he isn't playing his best. He says to himself things like "I see my opponent is up a pawn over me, so I must get a pawn too." If he were to ignore the level of his opponent and play his best all the time, he would win more frequently. I think it is this mentality that plagues many skilled players in many different sports. 

Allen Gillespie writes: 

That's ironic. My favorite college sports team, Clemson University, which my father attended when it was a military school, was split on this question this year. In my opinion, it is unquestionably bad to loose too many close games. It precedes a collapse. Many close wins leads to Championships. Clemson won the national championship in football after struggling through but winning many close games (as detailed below). Meanwhile, the basketball team finished near the bottom of the league after loosing multiple close games and ended the season blowing a 20 point 2nd half lead at home.

From my observations, here is the difference between the two teams and coaches.

Football:

Auburn - won by 6 stopping Auburn Hail Mary at end, beat Troy by 6, recovering onside kick late. Louisville won by 6 after 5 turnovers stopping late, Louisville drive inside 20 Beat NC State in OT after NC State missed chip shot field goal, lost to Pitt on last second field goal. Beat FSU by field goal. Beat Alabama 1 second 1 Close loss where they were outplayed and outcoached. Pitt came in with a great game plan, lots of motion to neutralize Clemson's pass rush and won. Won several games in row and won 3 of 4 games before final in blow-outs.

Basketball:

UNC missed free throws to win, lost in OT by 3 Notre Dame/UVA by 5 and 4 after being tied with less than 2 to go, Virginia Tech (2x), Syracuse - lost 2x on last second three point shots by opponent, FSU/DUKE - lost by 2 missing last second shots. Finally, lost in NIT after loosing 20 point second half lead at home. Lost several in blow-outs in-between.

Dabo is constantly speaking about resilience. They make plenty of mistakes. In fact, the last two Clemson football teams have had the worst turnover margin of any national championship teams. Alabama was known for a scoring defense - at the start of the second half, Clemson turned the ball over and Hunter Renford (a small walk-on receiver) ran down the Alabama player and stopped the defining defensive score. It was something they had discussed in practice. In short, Clemson's offensive said the Alabama's defense–you will not beat us. Then the great players made plays. Clemson won with 1 second remaining. I am convinced Dabo read Daring Greatly by Brene Brown.

Basketball - team of transfers, one already thinking he could make the NBA, in short all the Knicks issues with players in the bright lights. No defensive intensity. Missed shots. Lost three games by allowing the other team to run the length of the floor to get good three point looks. Went for ties instead of wins. Finally, just folded up tent on the season in the last game. Having watch a lot of sports, I am completely convinced good teams can be defined by 1. Beating bad teams early and by 2. Winning late as these are signs of mental focus and fitness. Just ask Andy Roddick about Wimbledon 2009.

Mar

20

 The Democrats' success in establishing the first national party in American history was hardly the product of inspired military leadership. Jefferson and Madison's careers as CIC were, to be kind, complete failures; and, by the time the Democrats' genuine war hero (Monroe) became President, the party dominated American politics as thoroughly as Roosevelt's New Deal Democrats did in 1934. But, with opponents like Hamilton, how could the Democrats have failed? No one with even half an ear could fail to hear the absolute contempt that the Federalists had for the Republican notion of popular sovereignty. What is even more striking is how determined they were to ignore what Washington himself had said and done.

When, after the Revolution's success, Henry Knox proposed the establishment of the Society of the Cincinnati, the charter provided that membership would be hereditary, by rule of primogeniture. Washington was invited to become a member and was elected its first President; but, when he learned of the hereditary membership clause, he insisted on resigning. There would be no nobility in the United States of America. To keep Washington as President, the Society revised its charter to eliminate all clauses providing for hereditary membership. After Washington resigned to take on the slightly more important duties of President of the United States, the members reinstated the clauses providing for hereditary membership.

Mar

16

"I never bet on a horse in my life unless I trained the horse. I have to laugh when the boys look over the doe sheets, and say "This one looks right to win".

"I spent a good portion of my days when I was training horses, trying to get a horse to look as if he wasn't right to win, so that I could win some money on him myself. The trick is to get a horse right, but not to have him look right. You can get big odds on what looks like an also ran" -Frank Tarbeaux

Mar

16

 Very dramatic map: "The Global Extremes of Population Density"

Which made me think to look at this map, and remind myself that the Indus, Ganges, Brahmaputra, Irrawaddy, Mekong, Yangtze and Yellow rivers all originate on the Tibetan Plateau where the glaciers may or may not be retreating.

Mar

16

 It appears that outdoor recreation in Palm Beach area is trending up with a proposed wave pool now making the news. Kelly Slater's wave pool would be located near a large aerospace manufacturing facility that was once the largest employer in Palm Beach County. The wave-making business also appears to be doing well internationally:

"Nowadays, there are seven different wave generating systems in the market: American Wave Machines, CityWave, Kelly Slater Wave Company, Murphy's Waves, Wavegarden, WaveLoch, and Webber Wave Pools."

Mar

16

I found the article in the link quite thought provoking in relation to the rise and decline of tradeable regularities in markets.

"Evolution Runs Faster on Short Timescales"

anonymous writes: 

Here is another new paper that has similarly provocative ideas regarding evolution of science/technology and which was recently highlighted by Greg Mankiw as an explanation for the decline in productivity in developed economies.

The Stanford paper is not as gloomy (nor politically charged) as Robert Gordon's work.

All of these papers share a common theme: The low hanging fruit of technology and human progress has been picked. If you subscribe to this viewpoint, then you are probably not long the QQQ … or anything else that is bullish on humanity.

Regardless, the notion of diminishing marginal returns seemingly extends throughout the natural world…

Mar

15

 Why does Scholes say that option pricing is like crowd sourcing as opposed to the market itself? Also are option prices calling for a decline or rise? And are option prices generally right? If it were worth studying what Dr. Scholes wrote in detail, I would have many more questions but since he was well known I think as the weakest link in our program, I will not delve into it, possibly at my cost.

Alex Castaldo writes: 

The article in question is

"Return to 'Old Normal' Hasn't Begun Yet: Scholes and Alankar After Trump's election, option prices signaled greater inflation risk. That no longer seems to be true."
By Myron Scholes and Ash Alankar

I don't quite grasp what option markets are telling us, and how it relates to real and nominal rates.

Mar

15

 Frank Tarbeaux says that speed with the gun in the west like speed with a trade in the markets is a matter of success or failure. He was pretty high frequency with a gun and killed his first man at 14. Here's how he did it. "The cowboys filed down their triggers until they hung on a hair or until they wouldn't stay cocked at all, just being discharged by pulling back the hammer and letting go." Their adversaries are as easy prey as such as we who are not colocated and don't have innovations faster than then speed of light. "The soldiers guns were hard to pull, a necessary army procedure to prevent the greenhorns from shooting each other by mistake. Lots of soldiers were killed." I would add that many a time I place an order and a high frequency trader, (indeed all the time), a high frequency trader is there ahead of me, and if the market would have gone in my favor, I end up with dead in the water with no fill, but if the market is going against me, I am the first to enter a disastrous spiral.

J.T Holley writes: 

Makes me think of the John Wayne movie The Shootist!

Gillom Rogers: But how could you get into so many fights and always come out on top? I nearly tied you shooting.

John Books: Friend there is nobody up there shooting back at you. It isn't always being fast or accurate that counts. It's being willing. I found out early that most men, regardless of the cause or need, aren't willing. They blink an eye or draw a breath before they pull the trigger, I won't.

Mar

15

 A voice from past asks "what can we learn about markets from birds". Do you have any insights? I'll donate $50 payable at the spec party for each of the first 20 insights.

Alan Millhone writes:

Dear Chair,

Birds of a feather flock together…

I wonder to what degree that adage is driving the Market Mistress to rise?

Do stock traders like birds have a pecking order?

Sincerely,

Alan

Art Cooper writes: 

I've long been impressed by the extraordinary efficiency in flight obtained by many birds (the albatross is a great example), which they achieve by taking advantage of their environment, through such techniques as "dynamic soaring":

and taking advantage of "ridge lift":

For a speculator, dynamic soaring is analogous to easily changing trading style between different types of markets (e.g., shifting from trend-following to reversionary as the market changes), and ridge lift can be seen as holding leveraged long positions during a parabolic blow-off move, or long puts during a crash.

anonymous shares a link:

"why a crow will never forget your face"

Pitt T. Maner III writes:

A recently-released book by Jennifer Ackerman called The Genius of Birds contains many examples of
bird intelligence and looks to be a good read on the subject. 

For example, pigeons use all available information: "They have to process multiple, different types of information: the sun and the stars, magnetic fields, landscape features, wind, weather, even smells." 

I've also read an interesting article about optimal flight pathway calculations. Life and death decisions made by migratory birds with respect to energy output/budget–when to seek and glide with tailwinds, when to change directions to avoid headwinds, when to take advantage of thermals to gain altitude, etc. Yet to be completely figured out by the ornithologists. Perhaps bearing some resemblance to long-term drift and innate sense of beneficial flow patterns and efficient trajectory:

"These results lead to the inescapable conclusion that honey buzzards make large-scale detours in anticipation of favourable future wind conditions. It is clearly implausible that animals can forecast distant wind patterns, so how could these routes arise? The wind systems that the honey buzzards exploit are highly consistent across years, and so if flying further to take advantage of wind assistance does increase energetic efficiency and/or survival, then natural selection would tend to produce these more complex migration pathways."

Laurel Kenner writes: 

The single file affords birds the same benefit bicyclists get from drafting. The followers don't have to work as hard. Very similar to market groups.

One could also explore the ancestry of birds. They are living dinosaurs. Why do they survive after T Rex and the giant plant eaters died out? Innovation is one answer. Adaptability. Behaving outside norms.

Chris Tucker writes: 

For me, it seems that birds have a unique perspective on the world, their ability to fly above the fray gives them an ability to survey the entire landscape, giving them access to a "big picture" that land based critters will never have. It also gives them access to an exit from catastrophe that is unavailable to the rest of the crowd.

Greg Devaux writes: 

we can learn from the Murmuration also seen in fish. Use the herd to let most of the individuals survive.

Victor Niederhoffer writes: 

They learn to keep out of danger or else they get killed. The survivors have it in their DNA.

Whenever you take a break from watching a beautiful bird to take a drink of coffee, they fly away. Birds migrate like the market. Lobogola lives. 

Orson Terrill shares his thoughts on birds:

Apropos to the benefits of analogous studies in birds, and the question of whether or not the existence of a "Collaborative" cannibalizes the benefits:

Birds that eat fruit and seeds often forage for food in flocks, whereas birds foraging for insects tend to not forage in flocks. The nature of fruit and seed payoffs are spatially and temporally ephemeral, so the information costs are reduced while the negative costs of competition from your flock are also reduced (because the payoff of the targets are "patchy", there is no lasting benefit to those who now know of the location).

So, sharing a specific statistical anomaly, that you expect to use again and again is self defeating. However, collaboration over the discovery of a potential theme in the economy, sector, or specific stock; that is for a time, is specific to that area of exploration -this is exactly the situation where voluntary collaboration should have a higher payoff relative to the costs of increased competition for the discovered returns.

For instance, if we all decided a special situation that was worth our time was to investigate whether or not retail real estate was hitting a tipping point, and would generally implode in certain areas. Gathering intelligence that is required in person, knowing what financial instruments available to enrich ourselves from such plight, how those would work, and who/what will be affected; that is exactly the type of foraging activity that the foraging activities of birds implies is likely to have a higher payoff, a payoff greater than the increase in competition costs.

anonymous writes: 

We kill ducks by deception. That is site (decoy) and sound (call). Speculators everyday have their money separated by site (charts) and sound (tip).

anonymous writes: 

Briefly reading over the migration of Canadian Geese on google links that popped up there seemed to be similarities to speculating the markets.

- Fly on average 40 mph but can get up to 70 with tailwinds (volatility)

- migration is for food (profit and/or incentive)

- pattern is up and down coast (lobogalessque)

- V shaped pattern is to fight wind resistance. Each bird takes turns and rotates when tired (speculators together meeting bids and asks breaking through stops)

Victor Niederhoffer writes: 

Thank you all for your ideas about birds. Brings back the many pleasant days I spent listening to the Macquarie President of the old duck hunters society. I am happy to say that for spec party we have in NY Adrian Bejan talking on may 5th, Kino Ayaka singing on may 6  and a party in Conn at my estab May 7 all invited with partners and kids.

Mar

15

 The Sonora desert around Slab City has received the most rain in anyone's memory, as much accumulative this spring as in the last twenty years I've lived here. The result is a carpet of green clover where normally parched sand lies, and a zoo of animals on it – insect, reptiles, birds and mammals.

One of the most beautiful, while hiking this morning, I followed through the grass, flowers, and clover to a party. The Velvet Ant (Dasymutilla magnifica) looks exactly like a large 1" ant with a red velvet stole, but is actually a wingless wasp. It is ranked in the top three (among tarantulas, millipedes, scorpions, bees, etc.) for giving the most painful sting. I once watched adventurer Coyote Peterson subject his forearm to a Velvet Ant sting, and jump around on a video that went viral, and that was enough to make me want to want to verify it.

This morning I put my hand in front of a Velvet Ant again and again, but she scurried around it, intent on something else. I could guess by the aroma over the flowers and clover that she was going out for a drink, like the giant 3" Pepsis wasps that have flown into my chest, after sipping flower nectar, and fallen rolling to the ground in a drunken stupor.

My date the Velvet Ant climbed over my hand, and I followed her on hands and knees for a few minutes. First, she climbed up a stalk of clover, inserted her mouth parts, sipped, and fell over backwards on the ground, kicking her six legs in the air. Had I a microscope, there would have been a smile on her face. She recovered in a few seconds, turned over, and scurried to the next bar of clover for a drink of nectar, and repeated the act. Then three more times.

Nectar and honey from certain flowers and clover is psychoactive to insects and humans, and overindulging is called Mad Honey Disease. Even when honey is not produced from the nectar of these toxic plants, it can still ferment to produce ethanol, on which the birds and bees can become incapable of flight or other normal movement. The word for drunk in classical Greek is even translated as 'honey-intoxicated', and two Celtic goddesses have arisen from it.

The red Velvet Ant, after staggering from one clover to the next, climbed a tuft of grass and ate merrily until her abdomen bulged, stopped moving, and fell asleep under my nose.

These insects remind me of Thoreau's aphorism 'Most men lead lives of quiet desperation, and die with their songs still inside them.' But not me. I walked over to the Coachella Canal, jumped in, and kicked my toes at the sun.

Mar

15

Ralph, you and I were dropping the word "manifold" on this site a year or so ago. It got me wondering if it is either necessary or helpful.

For example, what cases are we cutting out? What kind of situations are not manifolds?

- manifolds with singularities (this is what we really meant, I think, since aberrant days are remembered by all)

- algebraic spaces (recommended on MathOverflow as a precursor to understanding stacks = 2-sheaves)

-verdier duality (a condition which fails for non-manifolds)

In the 19th century, manifolds were always subsets of R^n (quoting bill fulton, representation theory). They might have holes or handles and they might have curvature. The curvature I think is what interests us in finance. Most term structures are curved, and order books are irregular as well.

All in all, I am still up in the air about whether this is a useful word to use in finance.

Mar

15

Here is my review of a genuinely useful book that documents what actually works.

Mar

13

 "Reflections on the revolution in Middlebury"

by Charles Murray

A few months ago, AEI's student group at Middlebury College invited me to speak on the themes in Coming Apart and how they relate to the recent presidential election. Professor Allison Stanger of the Political Science Department agreed to serve as moderator of the Q&A and to ask the first three questions herself.

About a week before the event, plans for protests began to emerge, encouraged by several faculty members. Their logic was that since I am a racist, a white supremacist, a white nationalist, a pseudoscientist whose work has been discredited, a sexist, a eugenicist, and (this is a new one) anti-gay, I did not deserve a platform for my hate speech, and hence it was appropriate to keep me from speaking.

Middlebury College. Last Wednesday, the day before the lecture was to occur, I got an email from Bill Burger, Vice President for Communications at Middlebury. The size and potential ferocity of the planned protests had escalated. We agreed to meet at the Middlebury Inn an hour before the lecture so that we could go over a contingency plan: In the event that the protesters in the lecture hall did not cease and desist after a reasonable period, Professor Stanger and I would repair to a room near the lecture hall where a video studio had been set up that would enable us to live-stream the lecture and take questions via Twitter.

Here's how it played out.

Mar

13

After reading by courts leave the investment outlook of the Upside Down Man:

Kids, you should know one thing more. There's a concept in economics called opportunity cost. It's how much you lost by not doing something rather than the thing you chose. It's the return on the alternate lucrative investment– the return on what you chose.

To be fair, I can't remember very far back possibly because of all the troubles I'm having with Mommy, the courts, my former partners, and lawyers I've been having lately. But I've been saying stay out of equities pretty continuously since at least 1988 I think. The dow was 2000 then. Certainly since 2009 when I said "death of equities" when the Dow was 6000. As you know, the Dow is 21,000 now. So the opportunity cost of following what I've just told you and what I've been saying is $10,000 to $3,500 for each $1000 that you have in your accounts.

There is a group from Chicago and a group from London that has been calculating what a 1000 invested in 1900 and held to the present would have yielded. They find that 1000 indexed about that time would have grown to about $40 million today. It's been about that much for most countries including the Scandinavian one where it would have been more, England about the same, Japan, a lot more. Except for China and Russia (taking these into account would lower the return to about 30 million.)

Ask yourself. Are conditions so much worse today than what they were in England 100 years ago. They were decimated by two world wars, lost their entire empire, and lost their position as king of the financial world among other things. What would these returns have been like if all countries were to have engaged in a pro business, low taxed, low regulation, reduced income transfer society like the current thing in the US today versus the opposite type of thinking that took over much of the world during the past 100 years.

There's a creepy guy in Connecticut that calls me the Upside Down Man, because I like to hang upside down during my 1 hour Yoga sessions. He invests his children's money in index funds like Spiders and Vanguard Mutual funds. And they've duplicated the returns of the Chicago and London guys. So far, following my advice would have been disastrous to you, and it probably cost trillions to those who followed my advice in the past because I am somewhat revered as a legend, and appear on TV often, and was known to be King of the bond market. So take my advice with a grain of salt.

Mar

13

The article "Seeking the Latest Fear Trade" on p. B2 of the weekend WSJ describes the efforts of volatility pioneer NYU Stern School Prof. Menachem Brenner to derive an actionable gauge of ambiguity, to complement VIX.

Ralph Vince writes: 

Fascinating stuff. I am searching for a cached copy. Think of the rich complexity of a listed product, the spreads and just mere sentiment expressions something like a listed product on such a creature would afford.

Mar

13

 Why can't people like Noah on the Knicks shoot more than 30% free throws, while making 15 big a year. He reminds me of Lenny from Of Mice and Men. Don't they pay free throw coaches in the NBA for their players making a minimum of 10 big a year? I know they practice free throws each day. My friend was manager at Coach K's teams at Duke. And he said Coach K used to make all the players shoot 10 free throws in a row or else they couldn't go home.

Jim Schatz, founder of the National Basketball Shooters Association, responds: 

Gosh, that's a long story but I'll try to be brief.

I forgot to mention the NBSA web site and membership has been inactive now since 2012 and I have been keeping it up in the hopes that some day I would be able to complete my mission. I direct two NBSA Championship format events, head to head competition, getting most of the top known shooters in October in Las Vegas and St. George Utah, every year since 2011.

I was able to form the NBSA with Chuck Leve's help. He was our original executive director. I wanted to improve shooting in game time and so did all the experts I was able to bring in as founders. My only mistake was not bring in enough money. Chuck left for a better offer three months later and he was the only one of the founders who understood what I was trying to do.

I was trying to set up basketball shooting events as a national sport and give expert instruction from the top NBSA ranked shooters who were also great teachers and coaches at all our events. Our core belief as a group was how can you teach free throw mastery if you can't demonstrate it.

Now to answer your question. The NBA is not really familiar with the mastery of shooting. Head coaches don't really know what to do because it's not their expertise and they do a lot of the hiring. There are many shooting coaches in the NBA that don't really know how to help. It's mostly friendships and seniority. The NBSA uses Noah Technology, www. noahbasketball.com among others technologies in our mastery of shooting instruction and the high school, college and pro teams that use this technology show the most improvement in shooting.

The real problem is the early instruction given to the kids. In basketball, the best players will have been coached by as many as 50 different coaches. It gets difficult to learn for some and eventually a player can adopt a negative picture of himself and that will unconsciously effect them.. It's also a mental shot so being able to relax at the line is paramount. Making shots is all based on confidence and that is developed in practice. There is a method to practice that works. It is not easy to come off the bench after sitting also. There is a term called "the drop off rate". That is the difference between your practice percentage and game time percentage. Players can drop off as much as 40-50% due to their inability to shoot with good fundamentals, a proven practice system and their inability to quiet the mind.

There is more but this is a good start.

Mar

13

My friend Jim Schatz, a raquetball player, started a free throw organization: "Dr. Tom Ambery shot 2750 free throws in a row at a gim, ending in a make, taking 12 hours to accomplish, stopping only because the gym was closing for the night". I repeat Joaquin Noah reminds one of Lenny from Of Mice and Men .

Mar

10

 I've taken many executive hobos on the rails around the country with all kinds of electronic gadgets, but this is the first journey that has been guided by mobile astrological devices.

Two Slab City women approached me with a wish to ride the fast freight…

'Anywhere!' they said.

The first hoboette is Breeze, a college grad from Massachusetts who ran cross-country and recently hiked the 2200-mile Appalachian trail. She boasts tattooed Popeye forearms from welding, and speaks poetry when she (rarely) talks. The second hoboette is a sister of the road from Michigan named Starr who is patching together a tapestry of alternative travel called, 'Hobo Culturenomics' in a series that has won Sundance and New York Film Festival awards . She was a five-sport champion in school, and resembles a Nile queen, regal and ebony at almost 6', with a photographic memory that law enforcement has offered to hire as a license plate reader (LPR).

Each tired of the American traditional treadmill in their hometowns, stuck out their thumbs on opposite sides of the country, and arrived independently a month ago at the mecca of meeting places in Slab City. Each was the fastest sprinter on her boys' track teams, and is still pretty enough to get away with it.

We drove in my Spark rental for two hours to the Colton RR Yard in San Bernardino, CA, which is a crew change yard and the portal for nearly all freights into and out of the greater Los Angeles.

We parked conveniently at the Arrowhead Hospital kitty-corner from the RR yard, and walked across the street to the Chevron station for liquids and snacks for a short trip. I got salted peanuts and V8 juice, while they, as vegans, shared lettuce and tomatoes. We stuffed ourselves and the 30-pound packs, as they chatted about fashion and astrology. They rolled their eyes when I said my sign was 'Feces'. With that, we slung our packs and walked out and up and over the Pepper Street Bridge, gazing like gods and goddesses over the Colton yard spreading toward the Pacific Ocean.

Like other classification yards around the country that build and break apart freight trains, this one is about five miles long, and shaped like a double ended funnel, with a breadth of about 40 tracks at its center, that dwindle to two main lines in and out each end. The west end is our hoboettes gateway into the grimy, greasy, noisy, exciting virgin territory under the Pepper Street Bridge. We crawled down the embankment and under the bridge at Colton Crossing.

We stood on the site of, in 1883, the most intense Frog War in railroad history. The crossing is the intersection for ATSF (now BNSF) and Southern Pacific (now Union Pacific) railroads. A frog is a switch at a junction to allow trains to pass one way or the other. At the 'Battle of the Crossing' citizens from Colton and San Bernadino gathered on each side of the tracks - San Bernadino residents on the north side and the citizens from Colton on the south – with the Southern Pacific locomotive between them.

Men on both sides carried, picks, shovels, sledgehammers, shotguns and revolvers. Virgil Earp stood in the gangway between the engine cab and tender facing the two mobs, his revolver in hand. California governor Robert Waterman posed on the cowcatcher between Earp and the mob, ordering the group to clear for the passage of the locomotive, and instructing Earp that if he made any move with his six-shooter, that his San Bernadino Sheriff and deputies were authorized to shoot. Tensions rose, and one of the bloodiest battles since Earp's Tombstone Shootout was sidetracked when Earp realized that further resistance was hopeless and would cause bloodshed. He holstered his weapon, and ordered the engineer to move the locomotive forward.

A hundred trains now use the crossing daily, where the two Hoboettes and I huddled near the frog for pre-game instructions.

I told them to keep their lights handy, dreadlocks bunned up under caps, double lace shoes, and secure every valuable. The blonde whispered to the other.

'I don't wear underwear.'

'Then pull out the bra.'

The blonde shrugged, and yanked a bra from her pack, raised her shirt, and strapped it on. Then she slipped her wallet and cell phone into the spare spaces.

Two huffing locomotives stood at ready, coupled to mile-long strings of cars, at 100 yards to the west, and shook the earth. We looped through the brush around the locomotives for 20 minutes to the midpoint of one of the freights. It whistled cannonball! and departed as we approached, and so we boarded the train on the adjacent track. Suddenly those engines 'dynamited' or separated from the string of cars, and left likely to fetch more.

So we crawled over five more sets of parked parallel iron strings, up and down ladders on each, until coming to another made-up- train ready for departure. Its engines rumbled a half-mile at the front end, diesel smoke drifted over us on an eastbound zephyr, and an electrical ticking from car-to-car along the entire line checking for connections cued an imminent departure. We climbed and hunkered in a box car … waiting … for 30 minutes. Unexpectedly, two yard workers screeched to a stop on the ballast on either side of the track, and the one on the right boomed, 'We seen your legs (under the cars)!'

'But they disappeared while you was walkin!' chimed his partner.

'We found you!' they tweeted like Tweedledum and Tweedledee. The girls cringed in horror at the twin bearded apparitions. However, one of the workers offered a 12-pack of Danone mineral water, and the other some dry advice that would change our astrological journey, 'Go to the main rail, and get on that BNSF fixin' to pull out.'

'What's your sign?' asked the blonde.

'Virgo,' they replied in unison.

'I knew it,' joined Starr. 'I attract Virgos.'

Eager in their beliefs, they leapt like superwomen over four strings on parallel tracks to the main line, so that I next saw aboard a curved-side hopper on the BNSF train. The curves indicate 8'x12' steel verandas at either end with a portal to a hobo hotel room the size of a pup tent, that is equipped with a bathroom hole in the car infrastructure over the ties.

A quarter-mile ahead, four red-and-black BNSF engines grumbled, wheels pawing the ties, for two minutes. The brakes released a whoosh, and the train lurched toward our destination.

A hobo never knows where he's rolling. The hoboettes seem satisfied with this. We slid under the Pepper Street Bridge, bent north at the Colton Crossing, and rode into the night. The girls bucked a chilly March wind, for a while naming the constellations, and then curled up in their sleeping bags, as I watched moonlight disappear under the 4' steel wheels.

No one could figure out if it was the sunrise or the stop of the wheels that awoke us the next morning. The locomotives abruptly dynamited off the freight, and since I had allowed the hobo faux pas of suggesting that everyone remove his shoes, we couldn't chase the locomotives to catch the continuing train. We were 'put out to the farm', as hobos say.

'First things first,' yawned the black-haired girl, pulling her Smartphone from her underwear. 'We're in Santa Fe Springs of north Los Angeles,' she said, keying the pad. 'And my online astrologer says that it's reasonable and permissible to exploit the past. We know what to do and how to do it.'

With that, the blonde offered, I hear freeway traffic.'

We had been set off on a spur track in an industrial park, and so any direction would be progress. 'Let's go!.' I agreed.

'We jetted toward the highway noise, and in minutes were also listening to the patter of rain on the brims of our hats like the sound of 'A Hobo Don't Mind a Little Rain', until it started to pour. We asked a Good Samaritan for directions to the Metro-link that floats light trains on the same tracks that the big locomotives travel. Soon a light rail whisked us to Union Station in downtown LA where a Chinese Lantern Festival was underway under sunnier skies. We caught another light rail out to San Bernadino, and then a local bus back to square one at the Colton RR Yard.

The athletic hoboettes were effervescent, and spun pirouettes, skipped and strutted across the hospital parking lot to the car. They were baptized hoboettes, and would ride the rail again.

Mar

10

Landlords and hotel chains hate Airbnb; taxi and limousine services hate Uber and Lyft, and today we saw that the SEC is hostile to Bitcoin.

Thank goodness they're there to protect us from the ravages of these fiendish innovations, wholly unrelated to their constituencies.

Mar

10

"Sneaky beetles evolved disguise to look like ants, then eat them"

Mar

10

 Benjamin Peters (Old Hutch) Hutchinson was a legendary wheat speculator at the Board of Trade. At one time he was worth 10 million dollars. A few bad trades later, failed corners etc, he was forced to sell his seat for $900. A year before his debacle, he wrote a very compelling article describing the virtues and benefits of speculation.

Old Hutch's piece reminds me of the Chair's elegant "Speculator as a Hero" written for the WSJ back in the 80s. While the old man's article is a bit dated(1891), it's still a good appetizer for the elusive meal of a lifetime. Much more detail on the life of Hutchinson here. Beyond his personal biograph, some of this details the lot of old, broken down speculators. All in all, there is some excellent material here……One agrees with the Chair that most of the good works on markets and speculation were written over 100 years ago.

Old Hutch's 7 page article showed that he had a very clear grasp of the market. One wonders if hubris is what took him down. One can only speculate.

Mar

10

 I sent this to my politically opposite progeny:

Who can guess why the creekbeds on the upper right don't continue toward the lower left, and some appear displaced?

One answered "Obama" and the other "Moonbeam".

I wrote back:

OK X came closest and Y gets 2nd place.

The diagonal line going from lower right to upper left is the San Andreas fault, a hundred miles from here in San Luis Obispo county. As you can see, the dry creekbeds end abruptly at the fault - and some even jog up and left after meeting the fault. This is because the left (West) side is the Pacific plate, and the right (East) side is the North American plate, and the Pacific plate is moving northward past the NA plate. Over thousands of years, the creek beds to the West of the fault shift North. Water run-off runs down the creek beds until intersecting the fault, and there either follows the fault or goes underground - because the bedrock is pulverized along the fault. You can see how some of the older beds (more eroded) used to line up but are now displaced.

There is evidence that much of the movement occurs during large earthquakes. Recently there was a study indicating there are very large earthquakes along the San Andreas about every 100 years (very large = 10-100X Northridge energy). The last big one along the southern portion of the fault was the Ft Tejon earthquake of 1857…160 years ago. ie, we're overdue (with the caveat that it could be decades or even another 100 years, though the longest interval they found was 200y):

Why are your politically correct answers correct? Because politicians are attracted to self-aggrandizing emblematic issues, while neglecting critical infrastructure needs. There should be many structural upgrades to roads, buildings, power, etc to better prepare for the big one. And of course the recent California drought will continue - despite record rainfall in parts of the state - because 92% of the runoff is lost as there aren't enough good reservoirs. It is more important to protect the delta smelt than farmers (so we can buy produce from Mexico where they only protect drug kingpins), build a bullet train from Fresno to Modesto, save the planet from global warming (even though man's contribution is uncertain), and squander taxpayer dollars to fight the feds for the right to hoard illegal immigrants.

Mar

10

In less than a year and a half we will be into another political campaign. The odds do not favor the Democrats. They will have 25 Senate seats on state ballots; the Republicans will have only 9. Only 1 Republican is running for re-election in a state that Mrs. Clinton won (Heller in Nevada); 10 Democrats are on the ballot in states that Trump won (Nelson-FL, Donnelly-IN, McCaskill-MO, Brown-OH, Stabenow-MI, Tester-MT, Heitkamp-ND,Casey-PA, Manchin-WV, Baldwin-WI).

Mar

10

 After 20 years, my trusty Ford Explorer bit the dust. The Mrs had been on my case for years to get rid of this beater, but I loved it. It was very reliable, and great for hauling stuff as well as scaring patients at the office.

At first I was going to replace it with a used SUV because of the 20% loss you incur driving a new car off the lot. But searching the web I actually found better deals for new SUVs than low mile used.

I wound up with a new 2017 Chevy Tahoe LS. It is about 15% bigger than my departed Explorer, and much more. It is a computer wrapped in a vehicle. Even though it is the low-option model, the Tahoe is loaded with technology. Better safety features include backup video with virtual car position, too close sensor, and braking assist when a too-slow vehicle is detected ahead. The stereo fidelity is excellent, and there are many communication features. Fuel economy is not much worse than the Explorer (the V8 goes V4 with lower load demand, and the big lug gets 23 mpg highway).

The Tahoe has OnStar, with satellite internet and a WiFi hub. This links to your smart phone to allow voice-recognition hands-free calling, navigation, and emergency services. In lieu of OnStar (free period ends in 3mo), I use the "Android Auto" app. The phone links to the console via USB or Bluetooth, and Google maps (with traffic, directions, etc) are projected to the video console. (With both systems you converse with a female robot. Mrs OnStar sounds older and kinder than Ms Google, who seems a bit shrill and abrupt. Right away I could tell spot the liberal)

In 1997 I paid $32,664 including tax and license fees for the Explorer. I plugged this into BLS CPI calculator, and with inflation this becomes $49,420 in 2017.

Remarkably the bigger/better/more advanced Tahoe was $48,088 out the door.

Besides being a beater, the other advantage of the Explorer was that the government (CIA, NSA, KGB, Google, etc) never knew where I was. Initially I took comfort knowing I never do anything that should upset the government, until recalling this was the same though Jews in Zimbabwe had before Mugabe.

Mar

9

There are 2 basic reasons that "modern" portfolio theory is no longer "modern". While the basic idea is still golden, diversity lowers risk.

First, there has been an explosion of asset classes in which one can diversify into, which are traded. However, the data on these classes are not long enough to have stood the test of time. For example do high yield bonds diversify or are they simply a mix of bond risk and equity risk with liquidity risk thrown in?

Second there has been an explosion of ways to game the model to make the manager appear to have added Alpha, but really has loaded up on some other risk not measured in the model, like liquidity risk (real estate for example) or model risk (MBS for example) or simply taking other risk besides measurable volatility risk. When the MPT is taken as gospel it often is taken to extremes leaving one vulnerable to misinterpretation, like any other scripture, one should beware of those claiming to help one understand that scriptures fine points, especially when money is involved.

Ralph Vince writes: 

I think there's a bigger question here, and that is, why hasn't MPT been applied to other similar processes (as that of the equity curve of a trader in capital markets or gambler) in the natural world.

This is the question I find most baffling — why, 75 years later (at least with regards to the Markowitz subset or geodesic) are the models floundering solely in these equity curve style exercises. There are more exercises and more important exercises where this can and by now, ought be applied to, specifically exercises in the natural world with respect to many things — some of which I have mentioned here in the past such as deficit reduction sans tax hikes or budgetary cuts, chemotherapy or other pharmacological dosing, spread of pathogens, etc. etc. any growth-feedback function wherein we seek to diminish growth in the natural world.

Given that MPT resides in the Leverage Space Manifold, and that each axis along each dimension in that manifold (minus 1) varies in the domain 0..1 representing, in the exercises we are more familiar with, the percent of stake being risked on that component, MPT itself, at 75 years old could, conceivably, be applied to such growth-diminishing exercises. The axes which each range from 0..1 in value can be transposed to reflect the cosine of the variance to the mean growth of the data used for that axes. Thus, any growth-feedback function can be mapped to the Leverage Space Manifold, and in turn, mapped to Markowitz's Efficient Frontier (the geodesic) provided the variance can be altered by human intervention (such as dosings, national debt accumulation rates, etc. there are some functions, like Sir Ronald Fisher's fundamental theorem of natural selection, which states, "The rate of increase in fitness of any organism at any time is equal to its genetic variance in fitness at that time," maps to this model even though we are not seeking to tweak an organisms genetic fitness).

And yet, dosages are not considered under such a model (and contemporary medicine itself stands accused of dosing in manners opposite those which this model might often suggest) , deficits continue amidst a seemingly intractable tug-of-war between budgetary cuts vs. increased taxes, and all of these can be addressed, improved, through the implementation of some relatively simple mathematics. There are ample meals here and research ideas.

The tragedy of MPT, and more generally (and to me, personally), the hyaline manifold of leverage space, is not that it is not seeing full employment in financial markets, but that it is not being used for beneficial ends in other physical and social sciences.

I'll shut up about it now.

Orson Terrill writes: 

"The tragedy of MPT, and more generally (and to me, personally), the hyaline manifold of leverage space, is not that it is not seeing full employment in financial markets, but that it is not being used for beneficial ends in other physical and social sciences." Could you elaborate on this?

Ralph Vince writes: 

We have a manifold of N+1 dimensions where N is any seperate set of outcomes affecting what we are observing (these could be individual stocks in a portfolio, or anything else for that matter) and bound in each dimension between {0,1} (or whatever scale you care to provide, where we scale it to {0,1}).

The N+1th dimension is the growth (after Q trials, or Q elapsed periods, Q{0, infinity} at each value for each of the N dimensions, and thuse gives as an N+1 dimensional "surface" in this manifold.

You look inside this manifold and you see some very interesting contours on the surface across it's field bound by each axis, but also as these contours chage with respect to Q. Tht's a description of the thing but here is what it does. In the context of capital markets, any portfolio construction mechanism (e.g. MPT, CAPM, portfolio insurance and levered ETF constructions, etc.) or "staking system" (e.g. Kelly, antimartinglae, "never risk more than 2% on a trade," etc") map to this surface in ths clear manifold. And from that, given the "chronomorphic" character of the curve (i.e. that it changes as Q gets larger) we can see the effects of these different applications in a manner bigger than the aplication itself. For example, we can see the effect of implementing MPT upon the countour of ths surface, and the benefit of this is that the counters, these geometrically significant points, give us information about our actions and how we might amend them to vastly improve what we seek to acheive, our "criteria." (Absent criteria, we are looking inside of a glass box, mouth agape, like Piltdown man - it is of no use to us despite the fact that all models map to the surface in this manifold).

Here is where there are great insights to be had in my opinion. Each axis, which, in caital markets orgambling parlance represents a percentage of risk, can also be mapped to the cosine of the mean outcome and standard deviation of outcomes of the sample used to construct inputs along that axis. Thus, for any growth function, we can look at what occurs with it with respect to changes mean or standard deviation (see the previous post re: Fisher's Fundaental Theorem) but far more beneficially, if we can affect the mean or standard deviation (as, say, with a nation's period-on-period borrowings, or biological growth rates) we can affect these systems in manners not yet even attempted (or perhaps dreamed of). For example, along the countour of the surface, along every axis, as we move towards 1, there is a point where the grwoth rate drops below 1. Always. This means there is a point, along any axis, where the aggregate growth rate at those values, insures the entire system cannibalizes itself (multiplying an account by a number less than 1 with each passing period, each increase in Q, and the account value approaches 0).

To the notion of MPT, it means that regardless of how may components you have in your portfolio, it takes only one component whose allocation is too high, regardless of he allocations to all others, to insure ruin.

In the natural sciences or other matters where we wish to diminish growth, or affect it in manners opposite those which our criteria call for in capital markets applications, the principles hold again. Any growth rate that has variance in it's growth or where variance may be induced, maps to the surface of this hyaline manifold, and the implications of where we are on that surface and its counters apply. If we can affect the mean and/or variance, we can position ourselves wherever we want on that surface and achieve whatever criteria we seek. If you are near Kalamazoo, Michigan on Thursday, I have to go there and speak about this at Western Michigan University and it is open to anyone.

Stef Estebiza writes:

I'm not sure I understand, but it seems you need a main manifold, for controlling, managing, the overall view, but also serves an independent process for each component of the mainfold, to handle exceptions, those situations where, contrary to the "market efficiency", a market, apparently in "harmony" that responds in a way related, to rule connected, it disconnects (singles part of it) … and every process must be able to manage themselves, monitored, to not degrade the performance of the "mainfold". to understand each other, regardless of the relationship, if a process is disconnected from reality (manifold idea), degrading the overall performance, it must be disconnected (you must atoscollegare) or managed (inverse relationship), or avoided, until he "recovers". .. the main manifold must provide the general idea of what you would like … but if the process is irrational and responsive to subjective rules, then any subjective process must have its own mainfold, "object", which defines the rules of the single object, and may depend on the general idea (mainfold). the main mainfold can provide the basic idea, the limits, but in reality, each "object" must be able to log out( or reverse) to prevent damage to the main idea(mainfold). especially in situations like this, where economic policies and "latency" in fiscal policy can fully determine "new situations", unforeseen, not covered by our "manifold".  

Russ Sears writes: 

If I am following the logic of Stef and Ralph correctly, I would add that if there is a space where the overall market is not aware of or such as a "new market" and one inputs this new market's data into the fixed system one finds an arbitrage advantage. If however, this new market and arbitrage is discovered by all using a similar fixed system, the market will form a "bubble" and hence is headed for ruin. A lack of dynamic inputs into a dynamic system can be worse than no system at all. Such is what appears to have happened with sub-prime loans. One of the biggest problems with the current stress testing system in my opinion is that one must "disclose" any relevant changes to your stress testing model. The regulators look at these disclosure more as an admission of bad modeling or model "error" than as a necessary part of a modeling system. Hence the modelers are not going to do this unless forced to.

Orson Terrill writes: 

Ralph, thank you for the expansive explanation. So, you feel that your work with the Leverage Space Model offers optimization beyond what portfolio managers are currently using? What is the hold back, learning costs?

Is there a video of your talk?

Ralph Vince responds: 

Orson, I'm afraid there's no video. Widespread acceptance is at least a generation away, and I see many depts now teaching it, their professor's sold on it. People remember what their nsteuctora believe and tend to accept it.

Most of the work in this manifold and what is going on in there at this point has not been done by me but quite a few academic others. I try to keep a repository of what they VW written on my website under
*related papers." Zhu and Maier-Ppaape are working now on the most amazing capital market applications of it and will likely publish it in the next year or three. I can understand the concepts…The actual symbol legardemain far beyond me

Mar

6

 Here's an alternate view of the Monte Walsh movie which I consider a loathsome comedy whereas the story is really a tragedy and the best business novel of all time.

Stefan Jovanovich writes: 

In the preface to the 1980 edition of the novel, Schaefer wrote: "among our nearest New Mexican neighbours was a young man named Archie West who to my mind was (and still is) in many respects, certainly in appearance and temperament and cattle-country capability and simple human decency, precisely my Monte Walsh."

An interviewer claims that the author's favorite was The Canyon (1953), "in which the protagonist is a lone Cheyenne warrior, Little Bear, who opposes war and must take his stand between the customs of his tribe, nature, and the necessity of community."

Mar

6

 1. There is more wisdom in the Ticker Magazine of 1907 and 1908 than in all the investment books and magazine in the last 110 years combined. Why?

2. The new guard of bond traders at Pimco is a credit to our profession and their attention to detail in the prospectuses and their emphasis on contrary trading has a pleasant resonance to our own inestimable and dearly departed Mr. E.

3. Every day the market swoons on some contrived piece of news to make the president look bad and create fear and churning and then closes the day at a new high. 64 of the last 293 days since year end 2015 the spu closed at a 20 day hi. Since year end 2008, its 489 out of last 2097 that closed at a 20 day high. It is a testimony to the wisdom of the triumphal trio and our own Williams and Vince.

3b. A 6' 11 inch giant who played for the Knicks and whose father could have a better + - record than the son, is not content to stay disabled and wishes to come back reminiscent in my opinion of Lenny in Of Mice and Men.

4. The three best books on investment are Bacon, Green and Tarbeaux but they are all only 90 years old rather than the usual hundred that the Markman edition of Reminiscences is also highly recommended.

5. A simulation of seasonalities in markets shows that there is a non-random seasonality in the bond market but not in stocks or gold I think.

6. When one has a very good hand in poker there is a very much elevated chance that another player has an excellent hand also. This of course is not random but a result of sampling without replacement. However in markets, runs of unusual moves in one market are often followed by runs of unusual moves in another market and this is a non-random regularity. For example, there were 5 red days in a row in Feb, 2017 and they were followed by 5 yellow days in a row.

7. The moves in the German Bunds often foretells the moves in the US bonds. The precious metals takes big positive moves to an inordinate degree around holidays and big announcement days.

8. The bonds like like it when the dollar is up, and the stocks like it when the dollar is down.

9. The ratio of the dax to the S&P stays remarkably close to 5 over time.

10. The stocks to bond ratio at 16 is at an all time high.

11. All news that is favorable to the current administration will be suppressed and all news that is unfavorable will be emphasized.

12. I challenge anyone to read the chapter in Monte Walsh on accounting for cattle profits and the race between the horse riders and the train without crying.

13. Any movie that wins a major academy award will of necessity treat business in a highly unfavorable way and lionize people of color, and will contain indirect negative references to Bush and Reagan to show that they are fellow travelers. 

14. The dominatrix beginning and end of the first episode of billions is very dramatic and realistic, but the fight between the agency in Washington and the NY state federal attorney seems contrived as is Axelrod's ability to spot block trades and take short positions based therein. Anyone who shorts stocks that are inside acquisition targets is likely to have a negative return much greater in absolute value than the triumphal trio's results.

Julian Rowberry writes:

A comment on point number 6 about poker: Interestingly this can work both ways as we break down a problem.

If we take a hand of poker, the decisions made during a hand over the flop, turn and river will reduce ranges (possibilities of different hands people can have) players have, i.e. folding bad ranges, continuing with strong ones. Resulting in stronger ranges as we approach the end.

But sampling without replacement will decrease the odds of another player having an excellent hand. If I have 2 hearts in my hand on a board that has made a flush, that is 2 hearts that no one else can have. Which by the end of the hand, where ranges are significantly reduced, there is a very much elevated chance an opponent won't have a flush. When bluffing, in this situation it's good to have one heart, thereby reducing the possible flush combinations opponents can have.

Maybe there's an opportunity with similar behaviour in bonds & stocks? I don't know.

Where a more detailed look involves some behaviour that opposes the stronger over riding behaviour. The stronger overriding behaviour is often more well known and understood. Making hard to remove the ideas out of the boxes we have put them in and think of them differently. Group think markets seem ripe for this type of oversight.

Victor Niederhoffer writes: 

Thanks for your erudite answer. Presumably when you have 4 of a kind, the chances that the opponent will have 4 of a kind are improved. There is also the chance that your opponent has stacked the deck. Much too often it seems one has a full house and the opponent has 4 of a kind?

Julian Rowberry responds:

Tricky question, like a lot of things, it depends. Ignoring stacked decks and rake, there is no one size fits all answer. I can give a general answer of why strong hands clashing appears to happen often. ANd much more often than optimal.

The nature of most poker games, we have pros versus 'recreational' or 'fun' players' (that's the modern PC term for fish, sucker, donkey or mark!).

In general, Pros when playing recreational players are are going to fold vastly more than optimally with their weaker holdings early on in the hand. Recreational players are going to continue on in hands vastly more than optimally with their weaker holdings.

This continuation increases the combinations of hands the weaker player can have towards the end. Which increases the combinations of 2nd, 3rd, 4th best hands for the weaker player against a increased combinations of 1st best hands for the pro. So the result is we see more strong holdings versus strong holdings showdowns. Where inevitably the pro wins what's left, if anything, after rake in the long run.

If two pros played each other, it is much rarer to have very strong showdowns from each player.

Orson Terrill comments: 

It seems that if you sample without replacement from a disordered arrangement of a well ordered system, and you draw a well ordered hand, then you leave a more ordered system on deck as a result.

The complement of order is not disorder.

I've played poker less than 5 times, but if the combined hands of the prior game were well ordered cards of lower value, and I received a well ordered high value hand, the assumption would be that the same situation for my opponents is even more likely.
 

Mar

5

 Like all movies that win an Oscar, Manchester by the Sea was very anti business. The funeral director was a fraud and tried to exploit them. They showed Joe's boss exploiting him by keeping all the money his plumbers should have shared in and working him beyond the law. Middle class women of non-color behaved depraved with the lower class janitor. There was so much funeral stuff in the movie and a wishy washy conclusion.

Gregory Van Kipnis writes: 

The anti-business elements are just incidental trite caricatures. This story is about the consequences of guilt in the tradition of Dickens and Dostoevsky. The bigger point than the slice of life details of people gaming each other (trite caricatures), is that he wanted to be exploited and he didn't care to be liked anymore. His willingness was born out of unshakable guilt. Drugs and alcohol caused him to let go of his normal commonsense precautions. He screwed up and he realized it. Despite being mush-headed from the excesses earlier that night he chose to not go back and double check the replacement of the fireplace screen. That overwhelming guilt destroyed his life and his desire to have relationships. At one moment he wanted to kill himself then he shifted and chose to live out life time of self imposed punishment.

Mar

5

 Studying politics as a sport is really a stupid move. You can't get any good bets down, the venues have the ambiance of failing dog tracks, and the contestants are neither physically nor morally attractive. The only place where politics matches, say, baseball or American or international football is in the journalism; the people who get paid to write about it are equally ugly and ignorant.

So, of course, it remains my passion. If I am still unable to kick this habit, my only excuse is that the team Ulysses Grant organized has been winning once again, in much the same way Al Davis' Raiders did during the Madden and Flores years.

This is still news to most of the world press. Even now, if you read and watch "the news", the underlying presumption is that the Democrat Party just had some bad luck (caused entirely by the Russians). The current prediction among the smart money wise heads is that the current scandals will bring a new Watergate and the investigations will bring a return to power for the party of permanent government employment.

I can understand why CNN and the Times see things this way. Even two Presidential election cycles ago, the Democrats still were the majority party in the United States. They had 29 of the 50 Governorships.

They controlled nearly twice as many legislatures: 27 vs. the Republicans' 14.

And, thanks to the election of President Obama, they had absolute control of the Federal government, owning the Senate - 59 to 41 - and the House - 257 to 178.

It certainly made sense in 2008 for the then Dean of political sports writers to predict that this was the beginning of another Roosevelt sweep: "A growing number of political scientists, analysts and strategists are making the case for a realignment of political power in the U.S. to a new Democratic majority based on two trends: 1) the increasing numbers of black and Hispanic voters, and 2) a decisive shift away from the Republican Party by the suburban and well-educated constituencies that once formed the backbone of the GOP."

Yet, two years later, the Republicans, led by John Boehner (John Boehner!@#!!!!!!), somehow managed to gain 63 seats. This was the largest gain in the party's entire history. The only comparable event is the Democrats' success in 1948 under Truman when they won 75 seats.

Within the next 6 years, the Democrats somehow managed to lose all control; and the Cubs won the World Series.

This is not what happened in the 1930s.

What happened this time around is simple; events did not provide the glue to bind together the elements of the Roosevelt coalition. What cemented (yet another adhesive metaphor) the Roosevelt majority was Pearl Harbor and the spontaneous surge of patriotism that followed.

What happened after President Obama's first election was the opposite. The Democrats' control over "the groups" - "blacks" - 90%, Hispanics and Asians - 65-70%, women and young people - 55-60% - came at the expense of their appeal to everyone who still put American before the hyphen of their ancestry and gender.

This was not supposed to matter because the white people were going to die off. What no one expected was that the declining white majority - still 70% of the total electorate - would be joined by renegades from the groups who - traitors - put their being American first.

Trump, the Mexico-will-pay wall builder, did better among Hispanics than the candidate (Romney) who was fluent in Spanish and promised to support "immigration reform".

Musa al-Gharbi, who is the Paul F. Lazarsfeld Fellow in Sociology at Columbia puts it this way:

"Democrats may try to assure themselves that things are not so bleak. The party still pulls in nearly 90 percent of the black vote, two-thirds of Hispanic or Asian votes, and majorities among racial and ethnic "others." They continue to capture a majority of women and young people. While the exit polls show that Republicans have been consistently chipping away at this coalition, the trend does not suggest the GOP will actually win majorities from any of these groups anytime soon. But here's the rub: Republicans actually don't need to outright win – or even come close to winning – any of these demographic categories in order to come out ahead. If minority turnout is low, Republicans win. If Democrats fail to capture 2012 levels of black, Hispanic and Asian votes, they lose. It doesn't really matter if lost votes go to Republicans or independents – the outcome is the same."

His study of the exit poll demographics is fascinating.

Mar

5

 An interesting search for new antibiotics from Komodo dragon blood is taking place. The lizards thrive in local Florida zoos.

1) 'We set out to investigate the blood of the Komodo dragon, to try and find out more about its antimicrobial peptides, referring to small proteins that are part of its immune system," Barney Bishop, a professor at Virginia's George Mason University and lead author of the paper, told Digital Trends. "Komodo dragons have a reputation for having robust immune systems that allow them to live in very difficult environments, and be unaffected by bacteria that can cause all types of disease. They also recover very effectively from injuries and wounds inflicted by other dragons.'

2) "Komodo dragons are the largest living lizards and are the apex predators in their environs. They endure numerous strains of pathogenic bacteria in their saliva and recover from wounds inflicted by other dragons, reflecting the inherent robustness of their innate immune defense. We have employed a custom bioprospecting approach combining partial de novo peptide sequencing with transcriptome assembly to identify cationic antimicrobial peptides from Komodo dragon plasma."

Mar

5

 One my way home from work one evening, I was flipping through some of my favorite channels on SiriusXM and came across theme night on the "60s on 6" channel.

It was "Spoken Word" night. For those of us old enough, you may remember the phase during the late 60s and through the 70s where spoken word music was popular (well, I'm not sure "popular" is the correct word, but we'll go with it).

The first song I heard was by some group called "Think". The song was "Once You Understand".

The song was horrible. But…it was so horrible that I couldn't stop listening. I wanted to hear what stupidity they were going to say next…and they never disappointed.

So here is a sampling of the songs that I heard last night.

Once You Understand

Teddy Bear

Teddy Bear's Last Ride

To a Sleeping Beauty

The Man in my Little Girls Life

I am going to warn you in advance, the songs are horrid, but you may find yourself compelled to listen to just to hear the "lyrics" that are so trite and only exist to elicit an emotional response from people who really don't have a life or the ability to create real emotion on their own…or maybe they're designed to get people like me to listen and the artist is secretly laughing with me because we get the joke.

As times have changed, these types of songs have gone away (thank goodness). But they've been replaced (IMHO) with a 24 hour news cycle of bad news and economic blathering designed to distract us from what is really important in the world.

I listened to my conservative friends babble on and on about how Obama was a Kenyan born Muslim Manchurian Candidate destined to destroy the country

I listen to my liberal friends drone on now about how Trump is an evil racist, misogynist planted by Russia to bring down the US.

I hear "economic and investing experts" on the radio and TV sounding really intelligent, but in reality, at best, they're not giving out any good information, or at worst, they're just talking their books.

So enjoy, as best as you can, the horrible songs linked above…and while you're listening, think about what distracts you on a daily basis from being the best trader you can be.

Mar

4

I have what is probably a naive question related to volatility products. Is there any direct effect on equities markets caused by so many people piling into volatility? I'm not talking about the fact it reflects an underlying fear.

I was wondering if the buying of volatility ETFs (and behind the scenes transactions to maintain them) would either somehow dampen actual volatility or help compress the spring further and accentuate any moves when the dam finally does break.

Just something I've been wondering about.

Kim Zussman writes:

A related question is whether correlation of implied volatility with underlying security price varies, and if so what this means. I noticed VIX was not making short-term lows when SP500 made all time highs on Wednesday.

A related related question is whether there is predictive value in the variation of correlation between implied and realized volatility.

Russ Sears writes:

Clearly I am not smart money, but I am naive. And perhaps the following statements will prove how naive I am and that I mistake the complexity of the question, but trading in general is honorable because it brings price discovery to all. Hence in general it decreases volatility. However, Hull from his book on options states that volume of trade increases volatility. I would suggest that trading makes volatility clear. For an counter argument of extreme- real estate is not liquid and therefore on accountant books it nice and stable, but that illiquidity has a big volatile price if one is forced to liquidate. 

Mar

4

 Qiji Jim Zhu [bibliography ] has very pronounced, chiseled facial features as is often the case with men of Northern Chinese genetics, features that further seem to augment the aggressive way he assails the blackboard. He is physically fit for a man 20 years his junior as he attacks the chalkboard in his office to his audience of another gifted mathematician and myself, who has no business in their company, only the good sense to know it.

It is an explosion, a seemingly violent yet joyous expression, and with both men, this seems to be the case even though I think it is lost on them. I witness in awe, trying to absorb and understand the math as it is "carved" into the board, trying desperately to keep up.

Zhu attacks the board, aggressively, pausing not even to take a breath, his voice losing the race with the symbols he agressively carves into the blackboard with harsh, audible slashes and bangs. He begins to run out of blackboard space, and without skipping a beat in the slashing and banging of his chalked hand and accompanying voice, begins to erase ahead of where the chalk is going with his bare other hand. The expression visually, audibly, is as aggressive as any entirely serious Chinese gambler visiting Vegas, and he finishes abruptly, throwing his shoulders and head back as his hands come forward as he turns to us now smiling, the rapture of his expression only now evident to us.

Stani Maier-Paape [bibliography ] stands, walks toward the board, chalk in hand, rolling his head about his neck as he approaches, exactly as a very relaxed boxer approaches his opponent at the start of a new round, tapping his gloves as he rolls his head, the way such a boxer might do before coming into range of his opponent. He is in no hurry whatsoever, as though time no longer exists - he is lost in the moment, in his mathematical expression, and I notice his near-accent-less English now returns to a very German-sounding accent, which the man caught up entirely in what he is focused on is seemingly oblivious to.

He stops between each line, each phrasing, turns to his small audience and makes certain they are with him (me, in particular), in stark contrast to his Chinese counterpart, both men recognized from childhood in their respective countries as prodigies of mathematics, their contrast very evident and enigmatic to me.

I had the pleasure of being invited to meet with these two at Western Michigan University late this past week, and it was difficult for me to focus on the mathematics — as it is meeting any great man, where you are lost absorbing their persona, inadvertently, at the expense of trying to understand their expression of their mastery of their field.

As with most things in life, I found myself wondering what I was doing there, and "Hey, I gotta find a way to stay here," overwhelmed by the joy in their work, and how just being in the vicinity of that joy, is a drug in its own right. I felt like I was at "Baseball camp," where those of pedestrian existence get to spend a few days on the field with the big leaguers.

Mar

4

 Is it wrong to argue that since future returns are unknown, future volatility is higher than in the past? If that's right, what does this imply about using historical data to trade in the present and future?

If you were to compare the modern economies to the distant past you would find that there is much more diversity in the economy, for example, a potato blight would hardly be noticed. However, this diversity is offset some by complexity. A modern corporation, even at the simplest level, is much more complex. In general this complexity increases productivity but it also increases potential for fraud and incompetency. I believe this would favor an investment strategy that is heavy on technology and innovation and light on those that rely on central planning, such as banks and highly regulated industries. But as one only has one future and one past to compare it to in hindsight, this is more philosophical than counting.

Mar

4

“Your own man” lives by Jeff Greenfield regarding Sessions. Politics aside, I chuckled at the eternal NYC playground rules as seen on DailySpec forever and still believe in myself.

Stefan Jovanovich writes: 

Jeff Sessions had no choice if there is going to be even a pretense of “legality”. He cannot investigate himself any more than Senator Cruz could pretend that he was a natural born citizen; a person cannot, under the common law, be the only person who examines his own testimony.

What Mr. Greenfield has not considered is the fact that, having recused himself, the Attorney General is now free to order his deputies to make a complete investigation of “foreign influences on the Presidential campaign of 2016″. He can insist that the scope of the investigation be as broad as possible in order to remove any chance of bias or favor to him.

The Watergate investigation worked precisely because Nixon and his fools for lawyers kept trying to limit the scope of the investigation and thereby narrowed it to only the Watergate burglary. Senator Sessions is not a fool; neither is the President, at least where litigation is concerned. Senator Schumer may want to investigate “the Russians”; the actual investigation will be sufficiently broad that the Democrats will wish the Senator had kept his NY playground smarts to himself.

Mar

2

 I struck a vein of precious books along my shelves this month. The first nugget is Leonard Clark's The Rivers Ran East.

Former Army intelligence officer Colonel Clark arrives in Lima in 1946 with $1000 and a secret map of El Dorado, the legendary gold strike deep in the jungle. The most gripping exploration begins that disturbs me so often that I must take walks between chapters. (I moved to this desert after being lost in that same jungle.)

Clark is arguably the greatest explorer of the 20th century, an accurate naturalist, and unique, refreshing writer. He didn't question situations; he just charged ahead with nothing more than open eyes and the shirt on his back, overhanging a secret belt like batman.

Mar

2

 The French Foreign Legion states that no soldier may 'ring the bell' and resign during the mandatory five-year contract. But a Slab City resident claims to have quit a second time, in disguise, just to prove them wrong. It reminds me of Simon Murray's Legionnaire, easily the top military personal account I've come across in that venue.

The young Englishman enlists in the Foreign Legion in the early 1960s when Algeria is a hot spot in the French umbrella. Five punishing years in the Legion are relived in an honest, captivating diary from which the reader concludes that the author is a charmed soul.

This book is special because it spans the transformation of the old brutal Legion into the more tepid modern. Henceforth, British enlistees were referred to as SMS's (Simon Murray specials).

Mar

2

 My favorite cartoon has two thought balloons.

One floats above a man with chin in hand: 'What's it all about?'

The second balloon is above an amphibian's head struggling from water to land: 'Think, reproduce, survive.'

I grew up in a sweep of states contiguous with the Canadian border and my main memory is snow. I broke out and walked the lengths of Death Valley and Baja California, only to fall in love with the desert.

The final straw was in 1999, when I was abandoned by a guide in the Amazon rain forest and nearly died paddling lost on rivers running high under rainstorms harboring pink dolphins in a hand-hewn canoe to civilization.

I was wet and ready for something dry and warm when I met a 300 lb. canoeist in the California Sierras who claimed Slab City and Sand Valley as his bases, sketched a map on a paper towel, and the rest of the story is sand down the hourglass.

Still, it only partially addresses "Why am I here?"

I was raised in the thought balloon above the man's head and wanted to explore the one above the amphibian.

I wished to learn heat as well as I knew cold. I knew from the hikes that the every living desert plant and animal is to be revered for its evolutionary past and adaptive present, and I craved their knowledge first-hand. In parallel, there was a lifelong compulsion to homestead from the ground up.

The desert has a quiet, clean solitude that would require self-sufficiency and, if by chance there were neighbors, they'd accept me for it.

So, I shrugged off society and moved to Sand Valley, and on across the hills to Slab City.

The rewards have been as astronomical as the evening sky.

Why else am I in Slab City? A month before the Amazon rainforest, in walking the length of Death Valley and discovering the years-old bleaching bones of a hiker who ran out of water and luck, I reported it to the authorities. The funny California cop mentality labeled me a murder suspect, so I told the sheriff goodbye and remember the police dog staring as I fled to the Amazon rain forest and then to Slab City, holding those thought balloons.

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