From Marketwatch.

As it turns out, during so-called rate-hike cycles, which we seem set to enter into as early as March, the market tends to perform strongly, not poorly.

In fact, during a Fed rate-hike cycle the average return for the Dow Jones Industrial Average DJIA is nearly 55%, that of the S&P 500 SPX is a gain of 62.9% and the Nasdaq Composite COMP has averaged a positive return of 102.7%, according to Dow Jones, using data going back to 1989 (see attached table). Fed interest rate cuts, perhaps unsurprisingly, also yield strong gains, with the Dow up 23%, the S&P 500 gaining 21% and the Nasdaq rising 32%, on average during a Fed rate hike cycle.

Penny Brown wonders:

Very surprising. I am wondering why there is a mantra: "don't fight the fed." And "three hikes and a stumble."

Vic adds:

not mentioned is that the average fed rate increase cycle lasts 5 years. there have only been 13 of them since the fed was founded in 1910. usually these is a run of 15 increases once they turn from red to black.

i believe that the fed will not raise until the S&P is much stronger. a very nice close today (18 Jan.)

Nils Poertner comments:

the more talk about rising rates (and neg impact on stocks) the better it is for stocks. to a point of course.

everything is taking to the extreme these days. said to my cousin "eating apples is good for health" - and he replied "eating 10 apples isn't." of course not, but for now it seems so wrt rates.

Paolo Pezzutti writes:

Over the next few days option expiration this month can be an issue for stocks in terms of volatility. Not rising rates in my humble view.

Jeffrey Hirsch agrees:

Performance during January’s option expiration week

Big Al writes:

The Fed has never been sitting on a balance sheet like this, along with the other major CB's. Plus, the aggregate amount of debt is quite high after all these years of ZIRP. This will not be a "normal" rate-hiking cycle.




June 8, 2021 | Leave a Comment






Go Make

September 4, 2020 | Leave a Comment

“The hubris of the defeated” “The game is flawed”

 A Beautiful Mind - "The Challenge" - A Game of Go




Stefan Jovanovich writes: 

Although mechanistic studies support the potential effect of hand hygiene or face masks, evidence from 14 randomized controlled trials of these measures did not support a substantial effect on transmission of laboratory-confirmed influenza. We similarly found limited evidence on the effectiveness of improved hygiene and environmental cleaning. We identified several major knowledge gaps requiring further research, most fundamentally an improved characterization of the modes of person-to-person transmission.


Jeffrey Hirsch   writes: 

Wow! So then what was responsible for flattening the curves or slowing the spread? Nothing? Time?

Stefan Jovanovich writes: 

JH: The answers that the mask and shield-wearing medico who earns here daily bread by examining and diagnosing people at non-social distances offers are these: (1) no one knows exactly how viral infections "spread", (2) no one knows how or why they grow and then decline among populations, (3) people with poor health suffer more than people with good health, but, as with lung cancer and heart disease (to take the 2 most common examples), some people escape the likely consequences of their bad profiles and others who should be fine sicken and die, (4) exchanging the air and scrubbing it with filters AND requiring both patients and medical personnel, including office workers, offers the best odds of reducing general risks of infection because it increases the oxygen levels and reduces the "carbon" levels and that, in almost all situations, helps us human air-handling machines.  But the masks need to be changed almost as frequently as surgical gloves to be effective; wearing the same mask for hours at a stretch has zero likelihood of restricting any kind of airborne infection and is guaranteed to have the same kinds of adverse consequences that people get from not changing their water filters within the time limits of their functional capacities.  

What she and her Dad think was and is monumentally stupid is to have shut down and continued to reduce  access to doctors and medical treatment in the name of keeping emergency rooms free. That is what we have decided to call General Staff thinking of the first order - the same kind that discouraged the development of automatic weapons for soldiers on the grounds that they would "waste" the ammunition.

Henry Gifford writes: 

Part 4, about “exchanging” the air and scrubbing it with filters and increasing Oxygen levels and decreasing “Carbon” levels sounds flawed to me.

Most modern commercial buildings in North America, including office buildings and hospitals, typically have systems that gather air from many rooms and put it into a common tube (“duct”) from where it goes through a filter and then a fan and then something to heat or cool the air, and maybe mix in a small % of outdoor air, then return it to all the rooms the air was removed from. Described another way, any airborne viruses in one room will be distributed to all the rooms served by that system, with a small % sent outdoors. Just how many people get sick this way is something that is politically incorrect to discuss or research in the buildings or building design industries, as these systems are the most expensive and profitable to design and install.

Even the fanciest filters have only a small chance of trapping something as small as a virus. People’s respiratory systems expel viruses coated with some water and other materials, in droplets of widely varying sizes, some of which fancier filters can catch, many of which even the best filters will unlikely catch. And retrofitting the fancy filters requires greatly increasing the size of the fan and the motor and the wires that supply electricity to the fan, which almost never happens. A normal air filter is there mainly to keep the equipment free from clogging by relatively large dust particles.

As for adding Oxygen and removing “Carbon,” (Carbon Dioxide exhaled by people), normal leaks in a building provide sufficient Oxygen replacement and Carbon Dioxide removal. Actual ventilation is beneficial for other reasons, but is not necessary for adding Oxygen or (generally) removing Carbon Dioxide. Submarines in WW2 had zero ventilation when submerged, yet running out of Oxygen was never a problem – poisoning with Carbon Dioxide was a problem long before Oxygen deprivation. Absorbent chemicals were used to absorb Carbon Dioxide. Some research in modern buildings has advocated higher ventilation rates as a result of supposedly finding correlation between higher Carbon Dioxide levels (>1,000 PPM) and lower worker performance, but I haven’t heard any talk about adverse health implications at Carbon Dioxide levels found in buildings.

Systems do exist that provide 100% outdoor air to buildings of any type and size, but these systems use very little energy and save space and are quieter, but are inexpensive and simple to design and install and maintain, thus they are not very popular. Even with all the talk about ventilation now, nobody seems to distinguish between “exchanging” used air or new outdoor air – not even a part of the conversation so far.



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!



In checking the old saw that a big rise through the first 6 or 9 months of the year is bull for the remainder of the year, I find an inverse relation i.e. the bigger the rise in the first 6 months the more bear it is. Conversely when big declines the first 6 or 9 months it's very bull for the remainder of the year. Of course there have been only 1 or 2 declines in the first 6 months during the last 20 years… would someone check the relation going back 75 or so years. Of course for once, you will probably see % changes rather than algebraic changes.

Jeffrey Hirsch writes: 

I ran the numbers on this for the blog.

Here's the copy. Check the tables on the link.

The market just put on its best first half performance for the Dow since 1999, the S&P 500 since 1997 and NASDAQ since 2003 – and that's a pretty decent omen that market will tack on additional gains. Performance below following first-half Dow and S&P 500 gains greater than 7% and NASDAQ Composite gains greater than 10% shows a solid history of gains for the second half – after a tepid market action in Q3.

Modest gains of about 1% continue into July, but gains little ground during the rest of Q3, which should come as no surprise given the infamous negative history of August and September. On average the market was unable to match first half gains during the second, though the across-the-board 7+% gains over from July to December is still solid. The Dow's second half win ratio following jumbo gains like 2019 is a rather impressive 85.3% – S&P's win ration is 80.0%, NAS 73.9%. Full-year gains are virtual lock.

But The Chair has a point the biggest gains – the handful or so larger than this year had rough second halves.



"In life the intelligent man looks beyond the immediate effect he desired to produce to the more and more results that are likely to follow and studies them calmly and dispassionately" -Ben Boland, Famous Positions in the Game of Checkers.

Very good advice for the market in establishing a position. What if things go wrong and you are cornered. The roach motel, etc.

Jeff Hirsch writes: 

"Moses Shapiro (of General Instrument) told me: "Son, this is Talmudic wisdom. Always ask the question 'If not?' Few people have good strategies for when their assumptions are wrong." That's the best business advice I ever got."

- John C. Malone (Liberty Media, TCI, Fortune, 2/16/98)



From my blog today:

Historically, next week has been horrendous for DJIA, S&P 500 and to a slightly lesser degree NASDAQ. DJIA has dropped 24 times in 28 years during the week after June option expiration. DJIA's average loss is 1.06%. S&P 500 is somewhat better with 20 losses and an average loss of 0.73%. NASDAQ has the best record since 1990 and yet still has 15 loses since 1990 and its average performance is -0.21%.



 1. The moon moves slowly but it crosses the town
2. By the time the fool has learned the game, the players have dispersed
3. It is the calm and silent waters that drown you
4. The fools sheep break loose twice
5. Don't test the depth of water with both feet
6. You cannot build a house with last year's summer
7. Around a flowering tree one finds many insects
8. A white dog does not bite another white dog
9. If a dead tree falls it carries with it a live one
10. There is no cure that does not cost
11. An eel that was not caught is as big as your thigh
12. Cross the river in a crowd and the crocodiles won't eat you
13. He who wishes to barter does not like his own property
14. A wealthy man will always have followers
15. If you run from the white ant you may stumble upon the stinging ant
16. When the mouse laughs at a cat, there is a hole near by
17. If you rise too early the dew will wet you
18. If you climb up a tree you must climb down the same tree
19. Events follow one another like the days of a week
20. Everything has an end
21. Darkness conceals the hippopotamus

All from African Proverbs compiled by Charlotte and Wolf Leslau

Jefferey Hirsch writes: 

When an old man dies, a library burns down. — African proverb

This is one of my favs. Wish I knew if it was from Kenya or Congo or Sudan or Somalia, but I don't. 



 What is this thing called vig?  See old man vig from Mr. Grain.

"Bored Traders on Tinder Are a Symptom of Wall Street Revenue"

By Laura J. Keller (Bloomberg)

One bond trader says he's been slipping out early to watch his kids play sports. A fund manager says his office just staged a golf retreat. A trading supervisor at another bank confides he's swiping through a lot of profiles on Tinder, the dating app. Welcome back, Wall Street, to the doldrums. After four straight quarters of rising income from trading, the biggest U.S. investment banks spent the past few months in a renewed slump. Shareholders will soon see how dull it's been. Analysts estimate the five largest firms will say their combined revenue from trading dropped 11 percent from a year earlier to $18.4 billion — the smallest haul for a second quarter since 2012. The banks start posting results July 14. Behind the scenes, traders grouse about a lack of market- moving news. Congressional gridlock is eroding optimism that President Donald Trump can enact a sweeping, pro-business agenda. Other geopolitical frictions have yet to jolt markets. The Federal Reserve is sticking to its interest-rate path. Among the hardest hit are fixed-income traders. Combined, the five firms are likely to say revenue from that business fell 16 percent to $11.2 billion, according to estimates gathered from nine analysts. At Goldman Sachs Group Inc., it probably tumbled 23 percent to about $1.5 billion, the estimates show. At JP Morgan Chase & Co., it likely fell 17 percent to $3.3 billion. In equities trading, analysts estimate total revenue slipped 2 percent to $7.2 billion. Stock-trading leader Morgan Stanley may post the sharpest decline, about 6 percent. Spokesmen for the five banks declined to comment.

Jeff Hirsch writes:

It's seasonal….

Victor Niederhoffer writes:

The market needs vig regardless of the season. 

Jeff Hirsch writes: 

Of course. But vig has seasonality too and that may be part of what drives market seasonality. It is clearing repetitive collective human behavior at work.



 I tested the old Jewish trader axiom "Sell on Rosh Hashanah and buy back on Yom Kippur?".

Andy Aiken writes:

Historically, returns between the two holidays are negative, but not often enough so to be a reliable calendar trade. Average returns are distorted by 2008.

Year    SPX change (%)
2000    -2.40%
2001    -1.94%
2002    -0.32%
2003    3.76%
2004    -0.92%
2005    -4.06%
2006    1.26%
2007    3.68%
2008    -17.76%
2009    -0.50%
2010    2.43%
2011    0.38%
2012    -2.21%
2013    1.77%
2014    -2.03%
2015    0.31%

% negative      56.3%
average return  -1.16%
median return   -0.41%

A 2004 paper suggests that the negative returns during this period may be due to lower-than-usual volume.



Following the usual Holiday/Valentines gold run-up (which was magnified by the flight to safety during the now official NDR bear market), the seasonal winter gold short is set up well this year. There is a weak price period for gold from mid-February until mid-March. Entering a short position on or about February 17 and holding until March 15 on the April contract has been a successful trade 25 times in the past 41 years for a success rate of 61.0% with a cumulative profit of $43,860 per futures contract. However, in recent years holding onto the short position established in February longer has been more profitable.

The chart below is a weekly chart of the price of gold with the exchange-traded note (ETN) DB Gold Double Short (DZZ) overlaid to show the inverse price correlation between the two trading vehicles. The line on the bottom section is the 41-year average seasonal tendency showing the market’s directional price trend with seasonal weakness highlighted in yellow.



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