July - 2019
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P +23.50
 USB -0.19
2
 S&P +11.25
 USB +1.05
3
 S&P +20.75
 USB +0.18
4
5
 S&P -9.75
 USB -1.22
6
7
8
 S&P -12.00
 USB +0.04
9
 S&P +3.50
 USB -0.10
10
 S&P +15.00
 USB -0.17
11
 S&P +6.50
 USB -1.22
12
 S&P +10.25
 USB -0.06
13
14
15
 S&P +1.75
 USB +0.10
16
 S&P -10.50
 USB -0.08
17
 S&P -22.00
 USB +1.15
18
19
20
21
22
23
24
25
26
27
28
29
30
31

Jul

17

"The Rise of the Chinese-American Right"

Jul

17

 In the years before electronics, cash meant Federal Reserve notes. The Fed, in deference to the fact that it still needs to order currency to be manufactured by the Treasury, still reports how many of its notes are in the vaults of banks and "issued and outstanding" in the world. But that number no longer has much direct relevance to the question of banking reserves. When the banks report their Liquidity Coverage Ratios, the calculation is "net cash" but that number is composed of the following components:

(1) Unsecured wholesale funding - unsecured debt and institutional deposits

(2) Secured wholesale funding - repurchase agreements and securities lendings

(3) Retail deposits - brokered and transactions deposits, certificates of deposit

(4) Derivatives and commitments

(5) Contingent funding

Currency itself is no part of the "net cash" figure. For those of us in the bleachers enjoying the Giants' return from the dead, the focus on cryptocurrencies is as puzzling as the Dodgers' inability to acquire a bullpen. Why would cash in any form - digital or printed - be the financial problem that requires a brave new technological world for its solution?

anonymous writes: 

Strictly speaking, LCR is one of a long list of capital adequacy tests, and not a reflection the optimum amount of physical currency on hand at the branches. In any case, vault cash is now largely comprised of ATM lockboxes spread across a wide geographic area. If an institution needs to depend on vault cash to settle immediate capital calls, pay off depositor withdrawals, to maintain reserves, or to comply with any of the other testing regimes, then they've probably already failed one or more metrics, such as NSFR.

Incidentally, if you're wondering why any institution would purchase negative yielding instruments, the HQLA (high quality liquid assets) component of bank capital adequacy testing is the reason.

Jul

17

"Propagation of Error: Approving Citations to Problematic Research":

Abstract

Many claims in a scientific article rest on research done by others. But when the claims are based on flawed research, scientific articles potentially spread misinformation. To shed light on how often scientists base their claims on problematic research, we exploit data on cases where problems with research are broadly publicized. Using data from over 3,000 retracted articles and over 74,000 citations to these articles, we find that at least 31.2% of the citations to retracted articles happen a year after they have been retracted. And that 91.4% of the post-retraction citations are approving—note no concern with the cited article. We augment the analysis with data from an article published in Nature Neuroscience highlighting a serious statistical error in articles published in prominent journals. Data suggest that problematic research was approvingly cited more frequently after the problem was publicized. Our results have implications for the design of scholarship discovery systems and scientific practice more generally.

Jul

14

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

Jul

14

All episodes of the excellent TV series The Prisoner are now available on a new site. The show, starring Patrick McGoohan, has many libertarian themes. I recall someone quoting "The Prisoner does to film what Orwell's "1984" did to literature."

Jul

12

 Maxims from Ross Perot's father who apparently was a cotton trader.

The hit'n'miss ratio was higher than Wiswell's.

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Jul

12

Since 1980, when fisher effect prone SP 500 index is up in the 1st week of July, the next week returns (fri close to next week fri close) 
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Jul

12

Check out the London Mathematical Society's youtube channel. It has many fascinating lectures.

Jul

12

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

Zubin Al Genubi writes:

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

According to an article I read:

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

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

Stefan Jovanovich responds: 

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

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

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

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

Jul

11

 They can take turns looking through the large end of the financial telescope. In his comments yesterday Powell said that the Fed could "stabilize the dollar price of gold" but it might not want to do so. Shelton may disagree about what the Fed should do, but she shares the same delusion that the purpose of the gold standard is have a fixed dollar price for a piece of the metal.

They may have always been a native criminal class, but Congress really did no better. The Currency Acts stated the currency value of a full fine ounce of gold because even in 1791 a dollar's weight and measure would be so small a piece of metal that its coinage would be impractical. But the elected near criminals did not think they were "pricing" gold. They were defining what exactly the weight and measure of the nation's monetary unit of account would be, and they had every confidence that its "price" in wheat, horses and coal would be whatever the markets for those things would be. Bankers could no more set the price of gold than they could choose the length of a mile; bills of credit, bank notes, and U.S. notes were all to be priced by how far their nominal amounts had to be discounted against coin.

The "Gold Room" in the Civil War did not price gold. It stayed at par. The quotations were the prices for how many Greenbacks and other forms of paper were required to own an ounce of money.

As to why this mattered and MMT was not a sufficient answer…

Jul

11

"Facebook AI Pluribus defeats top poker professionals in 6-player Texas Hold 'em": Pluribus beat five other human players with an unconventional bet-sizing strategy

Jul

9

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.

Jul

9

"With 16 Months to go, Negative Partisanship Predicts the 2020 Presidential Election"

On whether the D side can find a candidate that will actually stimulate the turnout required:

The potential advantage they have is a long primary process, during which they hope a clearly strong candidate will emerge. And they will figure out what messages to focus on to get that turnout.

What 45 will do is try to time a great trade breakthrough with China so that it gives him max boost going into the election. That timing should be a tradeable opp.

Jul

8

 I think Ms. Shelton's odds for surviving the attacks by CNBC et. al. will improve significantly if she adjusts her Lafferite theology. In a old C-SPAN interview I watched this morning I saw her making the same claim that Boris Johnson made this week on his hustings tour: "lowering taxes raises more revenue".

Clearly, it doesn't; taxes are the government's revenue, and lowering them means that the government has less to spend. This confusion has been a chronic problem for "conservatives" ever since Professor Laffer first scribbled on his napkin. It seems to have created a fog even for Laffer. How else can one explain his support for a single tax rate across all income levels? As a policy and political platform "lowering taxes" is a pure folly equal only to the defense of "capitalism". (Ms. Shelton commits that sin as well; she is an advocate of "democratic capitalism" which is itself an oxymoron.)

Where the progressives are instinctively right is in their belief that the rates should increase as income brackets go up. Where the progressives are and always will be disastrously wrong is to believe that the fundamental purpose of a tax system is to inflict punishment on the rich, to be a collective act of revenge against those who make the most.

A flat tax rate ignores the common sense truth we all see around us: the successful are much better than the poor at making money and the rich are much better at making money on their money. All the babble about the American dream ignores the obvious fact that the power law applies to enterprise just as it applies to the ability to hit baseballs 400 ft. All of us who love the sport can play the game, but only a very few can make the All-Star Game roster. What produces more wealth for both the government and the people who pay taxes is the lowering of TAX RATES if you get the proper shape for the stair-step of brackets and rates. The current tax code has gone a long way towards achieving that result; that may explain the seemingly inexplicable–how both net wages and tax collections can continue to grow in the United States even as they flatten out elsewhere.

Rudolf Hauser writes: 

The Laffer curve idea that lowering marginal tax rates increases revenues only works to the extend that it makes it cheaper to pay the tax than the costs and losses incurred in trying to avoid the high tax rates. In regard to the incentive impact on growth, it is best not to focus on how much the tax rate is reduced than on how much after tax income is increased. The incentive impact of reducing the tax rate five percentage points is a lot more important when the initial marginal rate is 90%, thereby increasing after tax income by 50%, than it is when the initial rate is 50 and the increase in after tax income is only 10%. When the cut applies to the capital gains tax rate, there might initially be a larger increase in tax revenues, as many long term investors might tax advantage to sell their stocks that they only held for so long because of the tax consequences of selling and/or to repurchase the shares to establish a higher cost base should the tax rate be increased again in the future.

But beyond that, there is a conflict of interest between the wealth of the nation and the wealth of the government. Lowering rates does increase the incentive for greater growth. But if the average tax rate is only 20%, the growth in the economy has to increase five-fold for the tax cut to result in more revenues. That is unlikely in most cases. It also has to be remembered that many people are by nature game players, that is they are very competitive and like to win. Why would a billionaire have any incentive to work hard? After all, he has more money than he could ever need to satisfy his consumption needs? It's because gaining the most money is like winning the most points in the game. So even when the government takes a large share of the gain, there is still the competition to have the most points, that is after tax profits and wealth, even with the reduced incentives. Naturally, that only applies to some people. Many will behave like the British aristocracy of old and become a leisure class. But it does explain why we were still able to have economic growth when marginal tax rates were so high in the 1950's, along with the fact that the various loopholes, etc. reduced the actual tax rates that were paid. 

Stefan Jovanovich replies: 

I hate to disagree with RH, especially this week when I am enjoying a biography of Gresham that I owe to his recommendation. My view may be distorted by my experiences as a low-rent criminal, both with and without a law license. My direct observation of both clients and customers is that they all followed the Gompers rule where taxes and penalties were concerned. ("What does labor want? We want more schoolhouses and less jails; more books and less arsenals; more learning and less vice; more leisure and less greed; more justice and less revenge; in fact, more of the opportunities to cultivate our better natures, to make manhood more noble, womanhood more beautiful, and childhood more happy and bright.") Taxpayers want to pay LESS at every possible rate. When rates are confiscatory - at the rates that Democrats have traditionally favored - taxpayers literally stop being taxpayers. They find ways to categorize their wealth and income so that it is not subject to any rate at all. They don't look for marginal reductions; they look for escape.

The ability to escape explains the seeming paradox of the 1950s when private incomes and wealth grew even though the legacy tax rates of WW II remained in place. Thanks to the magic of non-recourse debt financing, the effective tax rates paid in the 1950s were no higher than they were in the 1980s after Reagan's tax cut. The 1954 Tax Act became the bible of the 1950s whiz kids in Beverly Hills whom I was lucky enough to go to work for in the 1970s and it made their fortunes. (The reference is deliberate: Tex Thornton's Litton Industries offices were just down the block on Little Santa Monica.) 

When Jerry Ford, the economic moron who succeeded those other economic morons Johnson and Nixon, signed the 1976 tax reform act, he not only did me out of a job (no more 8-1 write-offs on real estate, oil & gas and movie deals); he also raised the effective tax rates on the wealthy to where they had been in the late 1940s. It produced exactly the same kind of inflation that Truman's vetoes and price freezes had done. The Federal government collects roughly 21% of the national income. The individual income and employment tax share is about 17%. It is rumored that Kevin Hassett's magic calculator at CEA produced a Laffer ziggurat (it is never a curve) that begins at 5% and ends at 30% for all personal incomes; its output was 20% of the national income - 3% more than the current collections. The result was never published because it would be the ruin of the Republican Party.

Integrating Social Security and income taxes would be even worse than Bush's "privatization"; and they would never be able to get it through the Rich's brains that their loss of exemptions and carve-outs would be more than offset by a simple 30% top rate. But, to be fair to the Rich, they know - from long experience that a simple stair-step is a Congressional impossibility. What would Representatives do is they could not offer special rules for wool growers and weavers? Still, as a thought experiment, it is intriguing. 

Alex Forshaw writes: 

Getting back to Stefan's original post, I don't understand how anybody can take seriously someone who for tight money in 2011-13 who's simultaneously in favor of loose monetary policy today. (Stephen Moore, Shelton, others) You can be for one or the other but not both, unless you 'evolved' to a completely different philosophy… which rarely happens honestly in my observation.

Stefan Jovanovich writes: 

Let's go back to RH's point as well. If monetarists think that "money supply" is both the fulcrum and the lever for Archimedesian economics, we taxistas tend to have the same certainty that tax rates move everything. They don't.

For me Ms. Shelton's heresy is the belief that legal tender in any form can be a "store of value". I also find her giving Jefferson and Madison credit for putting the U.S. dollar on "the gold standard" the worst kind of Ron Paul historical fiction. If credit is to be given to Virginia Presidents for fixing the dollar by weight and measure, it has to go to the first and last of the Founders - Washington and Monroe.

Rudolf Hauser writes: 

The monetarist point is simply that an excess of money ( the accepted means of exchange and those liquid assets held that are considered reasonable means of quickly obtaining the means of exchange at minimal cost) results in an attempt to dispose of the excess, which initially results in more nominal purchases of other assets and goods and services and subsequently inflation as the sellers of those goods and services realize that the increased production was not really economical. When there is a deficit of such liquidity, the opposite happens. If income and nominal wealth gains go to those who have a low propensity to consume, the increase may mainly be reflected in higher prices of existing asset, both physical and those financial claims behind such assets. If monetary policy is erratic and causing erratic inflation, the increased uncertainty as to the future might deter future real economic growth potential. Aside from that, monetary policy has negligible impact, if any, on real growth potential. Another mechanism is the increase in money driving up prices of financial assets, thereby lowering interest rates. That in turn can shift some purchases of durable goods financed on credit and investments likewise financed on credit to be shifted forward, whereas a deficiency of money can work in the opposite direction. Stefan believes that the central bank can control interest rates. But a central bank can only keep interest rates low when it has created an inflationary situation by continuing to accelerate the rate of monetary growth. When that stops or the public expectations catch up with what is really happening, those interest rate will rise. As the central bank is not the only creator of near forms of money, the demand for money created by the banking system can change for numerous reasons such as opportunity costs, the speed of transaction settlements, inflation expectations, and financial uncertainty. One impact of financial uncertainty is reduced access to quick credit and less confidence in the ability to convert such assets as commercial paper into money that can be used to settle transactions quickly and at minimal cost is diminished. Shifts in the demand for money depend on public desires for the amount of money they wish to hold and are not well understood or necessarily constant.

In contrast the main impact of tax policy is on economic growth potential. There are both temporary shifts as changes and expectation of changes in tax policy can drive income recognition forward or backward and the far more important permanent effects. To the extend producers try to pass on tax increases to consumers, it might have some inflationary impact as industry shifts the tax burden on to consumers, but since the income of consumers is not increased, eventually it should mainly have a real impact on the purchases of goods and services.

Jul

4

Two Duke to be students in med school and law school celebrate their wedding two days before the constructal 3000 is hit.

Appropriately, the constructal theory was invented at Duke by our friend Adrian Bejan: "Dr Adrian Bejan: How Cooling Laptops Led to the Constructal Theory"

Doubtless there is constructal confirmation in this as Dr. Bejan introduced this to us two years ago when the S&P was 2000 and the youngest progeny going to Duke at S&P 3000.

There is also a branching constructal in progeny ending at Duke and never even considered.

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Jul

4

Calvin Coolidge Speech on the 150th Anniversary of the Declaration of Independence

Jul

3

 Along comes a history of tennis from its beginnings in 1870 when Major Walter Wingfield invented and patented it until 1996 shortly before the author's death. The author believes that the upper class is necessary for a good civilization and good tennis. He deplores the growth of pro tennis and modern stadiums especially Flushing Meadow and believes that the quality of the game has declined form the glory days of the 19th century when the twins Renshaw, Doherty and Battersly won 80% of the Wimbledon singles and doubles titles during the first 30 years. Particular mention should be noted of Arthur Wentworth Gore who entered Wimbledon 35 times and won the singles title 3 times and again in 1908 at the age of 40 and won his last singles match there at 55 years.

The author was a sociology professor at Penn who deployed quantitative analysis and his analysis and predictions of the declining level of the game and the declining sportsmanship has proved completely wrong as have most of his analysis. Yet he should have known better because he was number 1 man on the Penn team in 1937 when Tukdeb was at his height.

The book was fascinating to me as many of the tennis players moved over to squash after their tennis career had waned and I knew many of them, and there are more interesting anecdotes and record in this tennis book than any other. Some examples: shortly after tennis's founding Oxford had 66 grass courts and they were all occupied by students. The Doherty brothers won Wimbledon singles and doubles 10 times in the 1900s and probably are the third and fourth best tennis players ever. The Sears family won the US national championships 12 times and Eleonora Sears, their daughter, won the national doubles 6 times. Tilden won a 6 and under championship at the age of 8 (with future national champions entered into it). The Titanic had two two survivors who played Davis Cup for the US Narsi Williams and Karl Behr who played the one and only squash match on the boat before the water reached the tin.

*Baltzwell considers Tilden the best player ever and there are some beautiful anecdotes of how the French 4 horsemen studied his game in the 1920s and then beat him soundly by hitting the ball on the half volley. They were helped in the Davis cup when Coceh was a referee of the Tilden Lacoste game and refused to call a Lacoste shot out in the win for France. The Dwights and Davis and Fred Taylor (the founder of scientific management were the best American players in the 1900s and ruled the game Perezs of the USLTA for 30 years. They lived across the street from each other on Beacon Hill and always wore bachelors button.) The Newport tennis casino was founded by William Bennet after he was thrown out and fought a duel with his would be bride's brother for drunkenness on the wedding day. (to be continued)

Jul

3

 Massachusetts abolished slavery during the Revolutionary War.

The Pine Tree was it's naval ensign.

Jul

3

 The Revenue Act of 1926 never appears in any historical discussions about what the U.S. did right after the Great War. When Andrew Mellon and Calvin Coolidge succeeded in getting the conventionally-minded Republicans in Congress to adopt this truly "radical" legislation, they established the most successful tax regime in American history. To this day the surcharge rates of the 26 Act remain the most effective soaking of the rich; had the wealthy actually handing over enormous amounts of money to the Treasury while at the same time persuading them to go out and make even more money and pay even more taxes. That is, of course, the reason why it has disappeared from history. To remember it would call into question the central assumptions of almost all modern economic doctrine - that neither money standards nor tax rates and structures matter.

America's entry into the Great War depended on the notion that great nations were built by collective sacrifice. Without that religious assumption - which also drove the push for Prohibition, the Zimmerman Telegram might not have been enough to persuade Congress to vote for mass conscription and nationalization of the railroads. For Americans to take a side among the European powers in their struggle for territory, they had to believe that the Great War was really a sacred Crusade to establish fairness in the world. To an extraordinary extent, that belief carried forward through the 1920 election. Harding was able to secure a modest reduction in tax rates, but his 1921 Revenue Act only removed the excess profits tax and lowered the top rate by 1/5th. But a lowering of the top rate from 73% to 58% did very little to defeat the presumption that the rich should hand over most of their income to the government for the sake of the public good.

1926 changed all that.

Jun

20

The Chair is selling a few things from his private collection. Please check it out and please feel free to share.

Jun

17

I have published a book.

I would say about 44% of it I learned from spec-list readings, even before I joined the list.

Apply the code speclist to get the e version here: $SPY High Probability Trading Strategies

And if you insist for a paper back here it is on amazon and make me rich!

Jun

17

In Belgium right now. BNP Paribas Fortis will pay you 0.11% - 0.01% for interest and 0.10% for loyalty –on a savings account in Euros. For a U.S. dollar savings account Bank of America offers 0.03%. From the point of view of "the middle class" (sic) with money, thrift has been quantitatively loosened out of existence.

Jun

14

These days I find I will do almost anything to avoid getting down to the necessary paperwork of selling our last operating business or the much promised scribbling of fiction.

The Report can be summarized as follows (Caution: I have already seen abbreviated versions of this kind of remark actually attributed to ranchers living in Wyoming and Montana):

"Mr. Trump did not steal any cattle, and there is no evidence that he conspired with anyone else to steal cattle. In fact, there is no evidence of any cattle having actually been stolen. Nevertheless, under the new Federal presumption rules for guilt and innocence, we Special Prosecutors are convinced that the President is obviously guilty of trying to resist being hanged for it; and we only wish we had jurisdiction to provide the rope."

Jun

13

 The Best Books by Adventurers recommended by Alastair Humphreys

Alastair Humphreys is a British adventurer, author and blogger. He spent over 4 years cycling round the world, a journey of 46,000 miles through 60 countries and 5 continents. More recently Alastair has walked across southern India, rowed across the Atlantic Ocean, run six marathons through the Sahara desert, completed a crossing of Iceland, busked through Spain and participated in an expedition in the Arctic, close to the magnetic North Pole. He has trekked 1000 miles across the Empty Quarter desert and 120 miles round the M25—one of his pioneering microadventures. He was named as one of National Geographic's Adventurers of the Year for 2012.

The best books on Victorian Adventures
(though the selections may seem to stray) recommended by Stephen Evans

The Best Travel Books recommended by Paul Theroux

The best books on India, Ancient and Modern
recommended by William Dalrymple

The award-winning writer selects five books on India and says that the Mahabharata, eight times the length of the Bible, is one of the great works of literature of mankind - and every bit as good as it's made out to be.

Jun

13

 Flew from San Francisco to Charlotte last week —at SFO there was a Yoga area, meditation room and a Penelope of signs offering wide variety of gluten free, organic, plant based, vegan dining choices.

In Charlotte I was greeted with signs for the NASCAR Bar, Ribs and Southern Fried Chicken, nobody there looked "cool", they did look much less self-absorbed.

Happy flying to all.

Admin writes:

Much less self absorbed to think of animals that are slaughtered for a throwaway meal and be vegan or plant based in order to reduce the amount of totally unnecessary violence to innocent beings–simply by choosing a great tasting plant based meal. Picture is the most non graphic slaughterhouse image I could find.

Jun

13

Mary Meeker's annual slide deck here!

Jun

13

 "The worst thing you could do is judge the world by what you believe. Everyone will act only on their own reasoning and belief system." -Martin Armstrong

Craig Feldspar writes: 

A belief system provides an operating metric, which, we all need, and which if adequate enough (it damn-well better be) can help you navigate. Absent knowledge of the specifics of a data point, a man is restricted to generalizations from the distribution of which the data point is drawn.

The problem with operating metrics is that they do not capture the complexity of reality. "In which direction does the Dardanelles flow?" The question itself, a reduction of reality to the point of uselessness.

Jun

13

The markets take money from the impatient and give to the patient.

Ralph Vince writes: 

There are plenty of mega-institutions whose horizon is longer than the human life expectancy.

They are plenty patient.

They're just slow, and adding into market drops must be done by committee. An individual, with adequate grit and nerve, can take advantage of that.

We live in an era of incredible fear. The multiples on stocks are further evidence of that - the world staggering around as though recovering from a good bonk in the head, the periods, roughly, 2001Q3 - 2016Q3, by many metrics worse than the Great Depression.

There's SO MUCH FUEL out there.

Russ Sears adds: 

While I will agree that there are many institutions that should have an infinite time horizon they are run by humans that have a finite political power over them. And generally the more politically charged the leaders must be, the shorter the patience shown.

Ralph Vince writes:

Russ, yes, in the West.

But some Middle Eastern SWFs have no such pressure–one's "position" determined at birth, the possibility of screwing up diminished via indexing.

Stefan Jovanovich writes: 

NASRA says their members collect 2,850 billion dollars annually in state employer and employee contributions. That averages out to 7.8 billion daily, not 750.

Jun

10

Dr. Morton, a Hartford dentist, developed the first practical use of anaesthesis and went to Dr. Warren who is generally classified as the first man of Harvard Medical schools having founded Mass General and Brigham…but he was quick to lead a chorus of "Bah Humbugs" for Dr. Morton when he presented the discovery at a round at Harvard medical. But 5 years later he amputated a leg and Dr. Warren cried knowing that he had been all wrong in opposing this life saving technique: "this isn't humbug" he said and cried.

Jun

10

 There is a popular new baseball book.

It is making the internet rounds.

It mentions updated and enhanced data analysis techniques.

Excerpts discussing weighted baseballs looked interesting.

Perhaps there are applications to other sports and skilled endeavors.

Leg weights were brought to mind.

Jun

10

"VERDICT: Jury awards Gibson’s Bakery $11 million against Oberlin College"

Jun

10

 There is in my opinion a great similarity between the problems provided by the mysterious behavior of the atom and those provided by the present economic paradoxes confronting the world. In both cases one is given a great many facts which are expressible with numbers, and one has to find the underlying principles. The methods of theoretical physics should be applicable to all those branches of thought in which the essential features are expressible with numbers.

I should like to suggest to you that the cause of all the economic troubles is that we have an economic system which tries to maintain an equality of value between two things, which it would be better to recognise from the beginning as of unequal value. These two things are the receipt of a certain single payment (say 100 crowns) and the receipt of a regular income (say 3 crowns a year) through all eternity. The course of events is continually showing that the second of these is more highly valued than the first. The shortage of buyers, which the world is suffering from, is readily understood, not as due to people not wishing to obtain possession of goods, but as people being unwilling to part with something which might earn a regular income in exchange for those goods. May I ask you to trace out for yourselves how all the obscurities become clear, if one assumes from the beginning that a regular income is worth incomparably more, in fact infinitely more, in the mathematical sense, than any single payment? In doing so I think you would then get a better insight into the way in which a physical theory is fitted in with the facts than you could get from studying popular books on physics.

Paul Dirac said this at the banquet for the Nobel prize winners in 1933. If you bother to search the net on this topic, you will find the usual harrumphing of the Economics degree holders (Tyler Cowen offers his usual Berkeley snot rockets) about how Dirac was a genius but not as smart as they are about their subject.

Dirac never again discussed economics in public or private. He had thought about what the fundamental principles could be and offered his quiet suggestion about where so far they had failed to pass the test that physicists were required to apply to their work. The theory of discounting did not compute successfully as a prediction of future events. In pointing out the infinitely greater value (in a numerical sense of that tricky word) of a time series (which is how the math works out even for us village idiots) versus a single payment, Dirac was telling his audience what physicists were struggling with - those bothersome infinities that keep destroying the mathematical truths and beauties of our thoughts about nature.

Jun

7

 Does anyone have some tips for teaching a 9 to 11 year old checkers and chess from a beginner/intermediate level? Thanks.

Victor Niederhoffer writes:

I would suggest checkers as much better relevance to logical thinking and binary decision making the crux of all electrical circuits as a foundation for decision making in life. Chess is a contrived world relating to warfare in the old days. As to how to learn checkers, I would load checkerboard program onto their computers and play against the engine. Tom Wiswell wrote 22 books that are good and some of them are for beginners. You might read Edspec the chapter on Tom's proverbs of life: "Checkers and Markets". Playing with one's father or mother is very resonant in life. Good luck.

JayJay Hales writes: 

Go is a nice boardgame as well. Although in general not as popular in the west, it has a bit of a foothold among mathematicians.
 

Jun

7

Center for American Progress: "Ending Special Tax Treatment for the Very Wealthy"

Kim Zussman writes: 

(Cue Sonny and Cher "The Beat Goes On")

In the US the top 10pc pay most of the taxes, and a large portion of low income pay no income tax. Maybe we need leveraged taxes, like SPU: the top must pay 300pc and the bottom pays -200pc. This will not only be fair to the poor, but will also importantly maintain governing apparatchik's vig and fiefdoms.

Stefan Jovanovich writes: 

The analysis has the usual academic corruption; it only examines the facts that support its conclusions. There is no mention of the other direct and indirect taxes that are levied in the U.S. against people, property, spending and incomes. The people with "low" incomes pay almost all the employment taxes collected. If the authors were serious about taxing the rich, they would have spared us the elaborate discussion and simply advocated removing the income ceiling on Social Security and other employment taxes. That alone would make Social Security's pay-go financing secure for this century. Those of us who have fond memories of our anarchist grandfather would be happy to add a further adjustment in the name of having one big tax. (The Wobblies platform was "one big union"). Abolish all confiscations of income from savings (interest, dividends, pass-through distributions, capital gains, "excess" Social Security) and tax those incomes as further employment income. That alone solves the inequality of the Federal tax system and the unfunded liabilities for Medicare as well as Social Security.

So, why don't Lefties offer this alternative - which would be simple and avoid all further adjustment of the income tax? Because "fairness" is about assuring that the rich use the Buffett Dodge to subsidize the non-profitistas. Keeping high marginal rates at the top guarantees a continuing flow to foundations.

That motivation explains the authors' other glaring omission. They do not discuss the Federal estate tax. All the subsidies for income on securities (the special rates for interest, dividends, long-term capital gains) are more than successfully recaptured by the estate tax. If, instead of the current system, estates had a single flat rate equal to the employee share for Social Security, net collections from the estate tax would go up ten-fold. But, that would crush the rake-off by recipients of the deductible bequests. Can't have that either.

Jun

2

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

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

Jun

2

 PredictIt offers its predictions for 2020.

The posted prices compute as these odds:

Trump - 7/5, Biden - 19/5

Trump to win - 42 cents; Democrat Party to win - 56 cents.

Net gain: 2 cents on a bet of 98 cents (2%) that will pay off in 17 months if Trump is the nominee.

Biden to win - 21 cents, Republican Party to win - 47 cents.

Net gain: 32 cents on a bet of 68 cents (47%) …

Jun

2

 Automobile Production in US vs. Mexico, by brand:

Toyota - 1.4M, .089M

Volkswagen - .3M, .825M

Charles Sorkin writes: 

I believe that the supply chains are far more complicated than a simple production tally would lead one to believe. There is an enormous volume of intermediate goods and finished auto parts which are assembled and transported across the border in a multitude of ways (some more than once) before delivery of finished vehicles in the US.

Stefan Jovanovich writes: 

This may help.

"Toyota Production in North America Nearly 2 Million in 2017"

Jun

2

 David Epstein is a writer who had a NYT bestseller in 2014 called The Sports Gene.

His new book is called Range.

In this podcast interview, Epstein discusses the book.

Lots of interesting topics, including some nice statistical points, and also a few lagniappes for Gladwell h8rs:

Epstein mentions this online discussion between him and Gladwell.

Jun

2

The paradox of "modern" land warfare is that it is now settling into a convention that is more than a century old. Artillery and aircraft are the only two means of killing and breaking things that do not require engagements by line of sight. The political tolerance for casualties is now so low that having men and women stand within rifle range of each other and exchange fire is no longer acceptable as a tactic, except, of course, in fictional dramas. Armies will continue to train for such fighting because it preserves the necessity of large headcounts (officers need subordinates); but the Second U.S.-Iraq War and the subsequent "surge" will be the last times infantry divisions take the field for the U.S. in foreign wars. There will still be the need for blowing things up and terrorizing the enemy, but that can now be done more safely and efficiently using bombs rather than bullets. Since the physics of taking bombs and carrying them into the air is so much more expensive than shooting them out of breach-loaded barrels, cannons are much, much cheaper as a solution. Thanks to GPS-guided shells, artillery is now flawlessly accurate. Give a battery a coordinate and within less than a minute it will be gone.

May

31

 Causes of death versus media coverage of the same.

Presumably they're trying to show that media over-emphasizes terrorism and murder, and that we worry about the wrong things.

But the vast majority of medical mortality is not caused by others, and to a large extent is, at least eventually, unavoidable.

You have to die from something, and the two most common things are cardiovascular disease and cancer.

Actually, that would have been an excellent title for it:

"You have to die from something"
 

May

28

 Just to scratch a quantitative itch, here are correlations for the S&P quarterly.

One hopes it's clear as presented.

Slightly larger magnitudes in bottom 2 rows one assumes is mostly from smaller sample sizes.

And btw, the Q on Q R, or autocorrelation, is +0.07.

May

28

 The accidents of time and circumstance make this a day when John Finn's comment about heroes always comes to mind.

And that, in turn, brings up the name of Hank Greenberg, who was one.

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May

20

 Nelson Lichtenstein wrote interesting books about $WMT, noting that Sears was excluded from the initial 1955 Fortune 500 list "simply because it was a retailer".

His "retail revolution" is the transfer of power from manufacturers down the line and closer to the consumer. WMT now significantly controls the supply chain "up" the line.

(Nike and Starbucks have been noted in this regard, but not so far in this book.)

There is a second reason why Burger King management has put the federal Equal Employment Opportunity Commission (EEOC) statement at the very top of the application. Americans consider workplace discrimination on the basis of race and religion and creed un-American. For nearly a third of a century we have had a national debate over the definition of such discrimination and the remedies that are useful and legal to eliminate it. But there is practically no debate about the need to stop it and compensate individuals for it, when discovered.

The overwhelming majority of workers, employers, and politicians believe that the government has a right to insist that active discrimination not take place against anyone covered by Title VII of the 1964 Civil Rights Act or those many statutes that followed in its train. This seems so commonplace and common sensible, that we forget the radical character of this law. If you own a restaurant or a factory or a motel or run a college, you can't make use of your property as you wish. The state mandates you to hire, fire, promote, and otherwise deal with your employees or clients according to a set of rules laid down in Washington and refined by the EEOC and the courts. If litigated, the courts will force an employer to pay real money in compensation and rehire or promote a worker if management is found to have transgressed this new kind of labor law.

Peter Ringel writes: 

Yes, the "point of sale" has the dominant power position.

Like the US has it towards China: US is the point of sale.

Mr. Isomorphisms writes: 

I think this was a point made by Michael Pettis (shows up on twitter.com/jaredwoodard feed) as well.

Stefan Jovanovich writes: 

Some of us are happiest as counter uppunchers. But for I's and PR's wonderful (as always) comments, I would not have spent the first part of the morning rummaging through my books and pestering the wife about her encyclopedic knowledge of employment law. So, I pray these remarks will be taken as merry grumbling, not smart-ass smugness.

1. The EEOC placard is like putting In God We Trust on the Money. It does no harm but it is not proof of anything real. Companies put it up for the same reason water fountains in my birthplace and the nation's capitol once had labels that said colored only; the law made them do it.

2. Labor Union's flourished in the 1930s for the same reason the water fountains had the signs; the Federal law made companies do it. What it did not do, of course, was make the labor unions allow memberships to be open to people regardless of gender and race. On the contrary, those awful capitalist employers had shown a shocking willingness to allow women and Negroes and Mexicans to come to the same workplace. They had, of course, shown the same terrible openness to letting rich black and Creole people in Louisiana ride in the same passenger carriages as white people. In both cases the law put a stop to the dreadful egalitarian idea that anyone could be a source of profit.

3. One should be careful about drawing any inferences from the Fortune List. When Henry Luce ran Time-Life editorial selection had a simple rule: our advertisers are the news. Sears was not a major advertiser in expensive magazines in the 1940s and 1950s. They did not need to be any more than Google (forgive me: Alphabet) needed to buy ads on television in the 1990s and 2000s.
 

May

20

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

Larry Williams writes: 

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

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

May

20

A sign hangs in prolific romance novelist Danielle Steel's office:

"There are no miracles. There is only discipline."

Interestingly, Steel has 9 children. 

May

20

 Here's an interesting — and for Democrats, ominous — statistic: since the election of 1896, a political party has been denied control of the White House after four years only once. That was in 1980 when incumbent Democrat Jimmy Carter lost his re-election bid to Ronald Reagan. And since 1953, only one party has stayed in office more than eight consecutive years. The Republican administrations of Ronald Reagan and George H.W. Bush lasted from 1981 to 1993. A lot of voters may be reflexively throwing out the bums after eight years, with rare exceptions.

Stefan Jovanovich writes: 

The 19th century was even more fickle. After the first broad expansion of the franchise in the 1820s, only Jackson, Lincoln and Grant were 8 year Presidents in 2 consecutive terms.

May

20

 Here are the official links to part I and part II of the Mueller report.

Not strictly to do with markets, but what on the site is these days?

Stefan Jovanovich writes: 

If telling people with badges and law degrees that you do not want to talk to them is "obstruction of Justice", then Trump is guilty. That is clearly Mueller and his minions' reading of "the law". They found it impossible to state that conclusion in their report because they could not get Trump to say anything at all while being directly interrogated. Obstruction is the new catch-all crime, even better than conspiracy. With conspiracy you have to make positive statements; with obstruction you can answer "I do not recall" and be found guilty because someone else has a recollection that proves you could have recalled or in the first, fifth or sixteenth answer to the same question you said something that was a recollection. There is no reason to volunteer to say anything, ever, to the people who can put you away if they want to. 

May

17

 Thirty years ago when I was just about finishing high school and entering college, the idea of professional speculation fascinated me. A few of my classmates were sons of established stockbrokers and their forays would cause me a confusion if I should consume several several more years into structured education or just drop out of the classroom routine to hang around the curbs of the Jute Forwards market at 5 Clive Row in Kolkata (Modern Speculation in India arose really from a very active derivatives market in Jute futures almost a 150 years ago & until my college years the Jute traders were the best & biggest in this country).

So I would often go and hang around the curbs of this commodity exchange where even in the deep after hours of the formal closing bell of the exchange there would be torrential trading on the pavements and the street outside. Not just testosterone but one would distinctly feel dopamine rushes in these jaunts.

On these visits I used to notice the biggest trader in Jute in perhaps last 50 years frequently pull out a small (very small) diary like pad to look into it, jot something and keep it back in his pocket, while his trading log was always spread on a table as bulky as him. I was intrigued what was that special tiny diary.

Then six years later I had networked enough to know the CEO of one of his companies and at my earnest request to meet with the big man I was introduced to him. I asked him after having had a chance to hear him on many things, whats that special small diary he seems to maintain so well.

He said its my ledger book of time. I got totally intrigued whats a ledger book of time. He said I do a double entry accounting for my time. Each transaction with any other person or object has two elements: (1) the task or goal (2) the other is timeline. So I have dedicated pages for people I continuously and regularly deal. That's the ledger/account of key individuals. Then I have a Sundry Account where I put all other individuals. I keep 30 pages for a month extra in this tiny diary and soon as I have decided upon, agreed upon or have been given a commitment for something I enter it in two places: on the page for the date ahead and a double entry on the page of the individual.

If I have to deliver something to a person I mark him credit and if I have to receive an outcome from a person I mark him debit. My date pages with corresponding contra debits and credits provide me a quick view of how much profit I am making on my time for each day. Any time left on any page is the amount of life I am left with for that day.

I am wondering now that everything is digital, how can we put this simple idea to code and have an efficient time management weapon.

May

16

 Jaquith Industries is a 100 year old company in Syracuse that has saved many lives. They produce the support poles for all lights at all 2000 airports. The poles buckle at the slightest test and yet can withstand hurricane winds of 150 miles an hour. They also produce the barriers concrete forms on highways. Their high tech poles recall a time I bought a lunch with Wilbur Mills at the congressional offices which were very Southern in wait staff. Wilbur had just returned from the scandal with Fanny and all the congressman came to see him. I bought the lunch because he was chair of the tax writing committee and I wanted to get him to tax unrealize profits from a high basis. The day I came back to NY was a stormy one and the plane just missed one of the poles. Everyone on the plane clapped for the escape. The next day a plane crashed into the same pole and all 250 passengers were killed. Thus became the mandate for Jaquith Industries.

May

16

The NY Fed has an excellent article about the correlations between "economic expectations" and voting behavior in the recent Congressional election.

"Did Changes in Economic Expectations Foreshadow Swings in 2018 Election?"

May

16

Given music generally reflects the psyche of the masses as opposed to leading it, this study might prove slightly useful:

"Is pop music really getting sadder and angrier?"

May

16

If one googles "is volatility dead?" there are ample articles, multiple pages, etc. However, if you restrict the search to the past year the question seems to not have been asked.

May

16

 Russia collapsed. Did anyone anticipate it? Not many!

Why did Russia collapse? Common sense is uncommon. Russians kept selling commodities for more than two decades below cost of production. They were burning an enlarging hole in their real income statement but covering it up with managing artificial strength in their currency (balance sheet pumping).

What is similar to that scene of 1987 and the coming couple of years?

China has been selling everything, not just commodities, at a deep discount to cost of production. Whether this is to gain market-share or there will be another trader who may receive a presidential pardon in the last five minutes of the second term of a US President for having maneuvered the communists yet again to dig their own grave will be known later. The Chinese pegged the "volatility" of their currency to the Volatility of the US Dollar.

The Russian Communists had played the game of hiding their grave by pegging their IOU or their currency to US Currency, the Chinese have pegged the volatility of their currency to US currency. Everything else is same.

Complex explanations need not be better as we know adding more and more variables to a regression doesn't improve the R Squared. Commonsense of business is no one could avoid going broke selling below cost. All dandy accounting or engineering the books or currency can prevent the basics of business to play out.

Even while the CFA Institute taught in its curricula for the last 20 years that China and India will be amongst the top 3 economies of the world in terms of GDP as their growth rates due to demographics were sustainably superior while the western hemisphere was going the Japan way in demographics, the fact remains if you over stretch the binge to grab marketshare and keep hiding the real losses through balance sheet jugglery a day comes when Full Monty happens.

While I do anticipate their will be strong reactions to this simple post, likely in disagreement as much as in agreement I seek the minds of those who are able envision deeper and farther than a mere commonsense guy What If China indeed goes belly up at some point forebodes for the rest of the world since China is the largest holder of the US Bills? Can Great Britain that's getting out with a Brexit be the next bull run? Will the British Pound fetch 2.0 US Dollars in say by 2025 or 2027?

Has anyone ever heard the name of what the Chinese Intelligence Agency is even called? If not, are the very clever Chinese doing deep, detailed, deviant work world over? Is this going to remain merely a trade war? Where are the next big proxy battles going to be fought? Will it begin with the breaking up of Pakistan into a number of smaller states? Oh how badly I miss our all time giant Mr. E a.k.a. Krisrock! I hope he sends some of his intel that was always ahead of almost everyone else. But without him around implies we may have an even more onerous task to imagine more intensely. All forecasting is only imagination modulated, tempered and restrained with study of history.

Greg Van Kipnis writes: 

In a well ordered capitalist economy if a company is not covering its variable costs they will be bankrupt quickly once they exhaust their reserves and their credibility. The same is true for a country. From what I know, China is different from Russia in several important ways that gives them greater staying power. They have a positive trade balance, they have large currency reserves and there is little sovereign foreign debt. In the case of Russia the state was bankrupt and it could no longer afford to maintain the Soviet Union because most of the Republics were a drain on the treasury.

In the case of China I know little about the dividing line between the state and the personal financial interests of the mandarins (or whatever the heads of the party are called). These mandarins will be the first to rebel when their sources of income and borrowing from state entities dry up. The government can keep expanding domestic money and credit as long as the mandarins don't want hard currency and inflation doesn't explode (which it sure will after a time).

I believe internal financial stress has begun. I read that private borrowing in dollars is quite large and exceeds privately held dollar balances. This is good for the dollar and bad for the Yuan. Another indicator of private stress that is already starting to happen is the drying up of Chinese buyers of luxury real estate in the New York.

Sushil Kedia writes:

Keeping large forex reserves and maintaining a positive trade balance at the cost of selling everything below cost of production is the hope of the mandarins too that they can stay afloat longer. Irrespective of the length of survival time, a losing trading strategy is a losing trading strategy.

So a simple question whose answer needs imagined on priority now is: if there were continued losses in this trading strategy where are those losses hidden? Or China did not lose by selling everything below cost of production as the Mandarins would like us all to believe?

This is the known unknown, where are the losses hidden? Now coupled with this if capacity utilization dwindles the fixed cost of putting up the gargantuan cities, factories and everything else will weigh in down faster. 

May

15

If we imported goods from, say, the Gaza, would that be a good thing?

Peter Ringel responds:

Please allow the kraut to interject:

Hamas bombed Israel with >1200 missiles (and counting) during the last 3 weeks.

Hamas tries to trick Israel into a broad attack because Hamas is losing support in Gaza fast.

Israel showed tremendous restraint so far. Something politically extremely costly during an election year.

It is on the shoulders of the Palestinians to get rid of Hamas. Economic sanctions help with that IMHO.

Then we will see.

May

13

 I'm still astounded by the actions of China last weekend. It seems we can count on them to make the stupid move, nearly every time.

I'm astounded by how amateur and clumsy that tactic was, the "11:59, sorry man this is all I have in my pocket," move in turning around after 15 months and saying they can;t live up to anything that has been tentatively agreed to as it violates their sovereignty.

To they really think President Bigmouth hasn't seen this move before, hasn't heard this tune before or did have contingency plans in pace for such a stunt? It looks like they do things by committee, this is typical non-US, by committee amateurism to "see how they respond to this."

To Bigmouth's credit, in a move of negotiation jiu-jitsu, the biggest leverage in any negotiation– time–he flipped from being against him to working now in the favor of the US.

No further talks are scheduled. Why would Bigmouth be in ANY hurry to talk to them until 2021, 22 or beyond or if ever?

So what do they do? They antagonize with pipsqueak threats on 25% on 60 bln–the full amount of which Trump is prepared to absorb having announced the grain buyback program in recent days.

My hope is that Bigmouth really is as sharp at negotiating as he is reputed to be, ad says nothing further. Nothing on the additional 300 bln in tariffs today (the anticipation of which is what the markets are reacting to this morning, not the pisqueak retaliation).

Yes, if he escalates, markets will temporarily tank further. OTOH, if he says he's going to leave things alone for now, keep that powder dry, we could have one of these 9/21/87, "Oh sh**, Oh Sh**, OH SH***," -type runaway rallies today.

May

11

 When I torture the rest of you with comments about Ulysses Grant's genius, I usually neglect to point out the obvious. Grant understood what had happened in the Civil War better than anyone else in American history because he was counting up what was happening in plain sight. He saw Haupt's railroads reduce the unit costs of supplying the Union armies by 1865 to a fifth of what they had been in 1861/2. What changed was what Amazon with its earnings reported today: things can be done better, cheaper, faster with declining capital costs.

Larry Williams writes:

Back about 1967 I had a fellow ask me, "How many days are in a 10 day moving average?" I replied, "Whose buried in Grants Tomb?" to which he replied, "Why are you getting smart with me, I don't even know where that tomb is let alone who is in it".

Apr

27

 Books I have read recently while waiting for the ideal time to reconnoiter:

Elmer Kelton's Sandhill Boys: The Winding Trail of a Texas Writer is his bio and his best novels are The Good Old Boys, The Time it Never Rained, Cloudy in the West, Bitter Trail. I read them all and listen to them on audible. He was voted the best western writer 5 times by his colleagues and he rivals Jack Schaefer in his insights into family life. He served as a sheep and cattle reporter for 25 years and knows his subject perfectly. Speaking about authors who know their subject well, I always reread and listen to Master and Commander by Patrick O'Brian. It was dubbed the best historical novel ever. And you don't have to be nautical to be amazed with the skill of Jack Aubrey and Stephen Maturin–modeled after Horatio Nelson and Charles Darwin.

The Statistical Analysis for Extreme Value by R.D. Reiss: A nice practical intro to how to use extremes in insurance and engineering.

Branch Rickey: Baseball's Ferocious Gentleman by Lee Owenfish: the best baseball mind ever who brought Jackie Robinson into the league and started the farm system, and more unimportant, took checker lessons regularly from Tom Wiswell.

Charles Darwin: The Power of Place by Janet Browne tells how Darwin prepared for and followed up writing the Origin. Gives a good insight into a true scientist and scholar and his friends.

A Splendid Exchange by William Bernstein: how the urge to trade created wealth and adventure Throughout the Ages.

The Economic Mind in American Civilization by Joseph Dorfman: how Ben Franklin and Hamilton created the economic world of the 18th century that we still live with today.

The Marketplace of Revolution by T Breen: how material good created the American revolution by creating trust and betterment.

My Years with General Motors by Alfred Sloan: the story of Durant, Chrysler, Nash and Ford and how they created the car industry that was making hundreds of millions of profits by the 1930's.

Also Tom Wiswell's books on checkers, My Best Games and Ten Easy Lessons. The former has commentary by Tinsely that is Bronsteinian in its mastery. A few others later.

Apr

26

 Drudge has headline about Biden beating Trump in the polls, 42%/34%

Maybe so, but internals of the poll show 34% R's and 45% D's.

Alan Millhone writes: 

Karl Rove had President Trump defeated through poles he continually touted up to election night.

I prefer to wait and see till the dust finally settles.

Jeff Hirsch writes: 

Like statistics, polls can be torture and tell you anything you want them to.

However the down market in October prior to the election correctly projected incumbent party defeat.

Stefan Jovanovich writes: 

LW's point bears repeating. The sample itself is biased. If the pollster is honest and publishes their cross-tab data, it is not at all difficult to identify the potential weaknesses in the poll's particular results. Because the data does reveal itself, the new "modern" polls do their best to avoid giving any hints about their samples. Morning Consult, who did the poll LW refers to, does not usually reveal their cross-tabs.

I suspect they did in this case because Politico is still worried enough about their reputation to insist on the disclosure. Morning Consult's methodology is based on the assumption that people will volunteer to answer surveys online now that they no longer answer the phone. They describe it as follows: "The firm uses a stratified sampling process and sends a survey to multiple vendors, which it said gives it access to tens of millions of Americans. On average, the surveys are being taken by 1,000 people per day and can include questions based on video and images." The two questions that are not easily answered but are precisely the ones that matter are these: (1) what do the likely voters think, and (2) what will their turnout be.

In 2016 it was easy to predict Trump's victory because there were polls available for every battleground state that had current likely voter polling with cross-tabs and the turnout had no surprises. Last year, I was off by 1 seat in my Senate prediction and completely laid an egg in my estimation of what would happen in the House. I badly under-estimated how much Democrat turnout would be amplified by the revenge factor. I think that will be the question for this race: how much will the Democrat candidate be able to create and sustain the Hate Trump factor. Biden's announcement seems to me to confirm that this is the Democrat's strategy. The surprise may be that, instead of focusing on the Democrats' Socialist sins, Trump's campaign will focus on positive messaging about "the job that remains to be done" - i.e. "We Can Do More". Or, Helen Keller, "Alone we can do so little; together we can do so much."

Larry Williams writes:

Phone polls still work.

Just did a phone poll for Governors race in Montana (Gravis) had all we wanted to know in 24 hours. Same survey technique called last years elections perfectly.

Apr

22

"There's No Safe Place to Hide from the Biggest Bubble Yet"

If one looks at the differences in the chart between now and 1999 from this article, stock plus real estate don't seem to add up to the total wealth. Americans now seem to have more assets beyond stocks and real estates. What are they?

Apr

22

 A lagniappe on socialism vs capitalism:

"Why the U.S. Should Adopt the Nordic Approach to Private Roads"

Many view the United States as a free market capitalist state and Nordic countries such as Sweden and Finland as socialist due to their extensive welfare system. Yet, in the United States, most roads, highways, and other transportation infrastructure are publicly owned and operated. Meanwhile, the vast majority of roads in Sweden and Finland are operated by the private sector and maintained by local communities. Examining Sweden and Finland's public-private road model may give us insight into how private roads can operate in the United States.

Apr

19

"A Message From the Future with Alexandria Ocasio-Cortez"

K.K Law writes:

Amazing how many Dems would support these kinds of total communist/socialist nonsense that can't be executed in a merely sensible fashion. She did get a lot of air time for yielding very loudly and speaking tons of garbage that don't make the slightest logical sense. I just wonder what kind of people would vote her into the office. She is a total ignominy to this country.

Apr

15

 The town of Srirangam is on a river island adjacent to the city of Trichy in the state of Tamil Nadu in south India. The central function of Srirangam is the thousand-year-old temple Sri Ranganathaswamy Temple dedicated to Vishnu, a principle deity in Hinduism, the preserver in the Hindu trimurti that includes Brahma, the creator, and Shiva, the destroyer. The temple is said to be world's largest functioning hindu temple with seven enclosures, and is on the list of becoming a UNESCO site. On the other side of the river in Trichy there is a rockfort with 7th century temples dedicated to Shiva and his son Ganesha.

For our Trichy visit, we decided to stay in Srirangam as there appear to be a few good housing choices on Airbnb. We booked a two-bedroom apartment that is probably within the fourth enclosure of the temple. The hosts are two young fellows probably in their upper twenties. Upon our arrival, they welcomed the two of us in the apartment, and while introducing the space, they informed us that this is a complex of brahmin families, and thus as a rule non-vegetarian food should not be consumed on the premises. Well that was fine with us and we respected it. They also told us that when we meet a guard at the gate we just needed to tell him that we are the guests at this apartment. So, that's noted. The two hosts also belong to the brahmin class.

The two-bedroom apartment with a living area, a dining area, a kitchen, and two bathrooms is on the second floor of a three-storey building. The interior decoration and furnishing was basic but neat and clean and enough for all living needs. There are windows on three sides. The design is that the windows mostly face into the shades, or gaps of walls, making the interior relatively cool but sacrificing any view. There are ceiling fans in all areas, and there is an AC in each of the bedrooms. Actually, AC's were not quite necessary even when the outside temperatures falled between 25 and 38 degrees celsius.

Inside, we were not seen by anyone, and though at times we heard conversations from other homes and as a matter of fact, some women did talk quite much, we did not make much noises to be heard by others. We did quite some reading and browsing in the apartment. The hosts prepared us a 4G wifi dongle that worked very well.

Out from the door of the apartment is a half open corridor with homes fully lined up on one side and half on the other side which has the open stairs. There is an elevator by the stairs but it was not in use. Outside the building there is not much yard space, just a walkway to the gate between the wall and the building. The ground floor apartments have doors open to the walkway. That was where we often saw some mid-aged women sitting outside. Every time, we gave greetings and a genuine smile. That is my attitude first acquired when studying in northern New England but fortified three years ago travelling in Sri Lanka where the buddhists believe authentic smiles giving other people happiness will also gain oneself credits for future lives. We are not buddhists but took this as a good way of life because smiling while giving other people a happy sense also at the same time makes ourselves happy on the subconscious level.

In the Srirangam complex, it was our first time discovering that smiles do not always give other people happiness. The women, though fixing their eyes on us while we passed by, had very numb eyes and faces. There were no reactive expressions to our smiles and greetings. I tried a bit to discern if there was any happiness behind the expressionlessness and actually found none. It just so appeared that happiness is not in their desire, "Is it perhaps a stage of enlightenment?", we questioned ourselves. We didn't know the answer, but kept doing our way of life during our limited times going in and out.

At times, we also saw men, the brahmins, always shirtless, riding motorcycles going in or out, not as idling as the women though. They generally ignored us, giving us not much chance for interaction, although during a couple times when we forcibly greeted some of them with our hands firmly folded, they did give us a nod back.

Coming back in the first evening from outside, we met the guard at the gate for the first time. We greeted him while walking in, but he stopped us. He did not speak much English, but appeared in a way that we the tourists were going into a place that is not for tourists. We explained in English that we were the guests at an apartment inside, but he didn't understand it, then we had to show him the key, though not marked with anything, he started to understand though still feeling confused that we stayed in there. He hesitantly let us in. As we walked past him, he showed a gesture much like a thumb up but with his thumb at his mouth while looking at us in a confused expression. We saw that similar gesture from Laos police while driving in Laos. It meant asking for a bribe for drinks. We couldn't believe that this man drinks, so just shaked our heads and walked away. At some later occasions and even at the time of our departure, he made the same gesture again, and I still don't understand what he meant.

We booked for four nights at the apartment. In the third morning at about 7am, someone rang our bell. I didn't have proper clothes on, so having said "coming", I went to put on my shorts and t-shirt. Before I finished with the clothes, there was the second ring. Then I hurried to the door. It was a man probably in his sixties, shirtless, (why did I hurry to put on my shirt?), certainly a brahmin, with a face not too happy, a bit angry actually, Just as I opened the door, he said to me simply "who are you?" with the three words nearly equally toned but a bit accent on the "you". What a question?! By a stranger? How should I best answer it? (Can anyone here make a suggestion?)

A thousand answers then came up to my mind. Leo Jia, probably the most obvious. But I knew then he would ask "who is Leo Jia?". So that wouldn't do. An investor? A speculator actually? A quant trader? He won't understand it, I am sure. A doctor of philosophy? A former business executive? Well, does he really care? A world traveller? A life-long learner? Well, that sounds too broad to him. A Gandhi ji admiror ("Live as if you are to die tomorrow, learn as if you will live forever" is my motto)? Well what if he doesn't like Gandhi ji (I was shocked to learn some Indians don't)? A Shiva enthusiastic (been through a third into the wonderful TV series "Devon Ke Dev Mahadev", we were deeply touched by Shiva)? Well, he is most likely a Vishnu devotee. A newbie Vedanta learner? Well, does he learn the Vedanta? Or do I have enough to talk with him about the Vedanta? I just got started.

Or just to be dangerous enough, as Vedanta teaches: "A god, just as you are one"? I actually have been learning about the question "who am I" since many years ago, and recently came to realize that this is the most proper answer: I am a god. Well, that's very likely too dangerous there. He doesn't seem enlightened enough. Or he wouldn't have asked this question, and he definitely wouldn't show anger in his face.

So I chose a most practical answer: "I am the guest of this apartment".

As if not understanding my answer, he asked again, in the same way, "who are you?"

I answered again: "I am the guest of this apartment".

Then he said: "no foreigners are allowed in this building". (Well, should I have chosen a different answer? And I hadn't come up with the answer as a foreigner) Anyhow, I told him then I need to contact our host, then he nodded and left.

The young host came very shortly, and apologized repeatedly for the old mind. The older man turned out a leader of the community.

So we agreed to leave. As we were waiting for our Ola auto outside the gate, the guard showed up with his mouth-thumb gesture again, and we had to ignore him on that.

It was an exceptional experience. However one can make out of it, I chose to believe that God sent the old man to quiz me. Even though I didn't give the correct verbal answer, the answer in my mind leads to the correct one.

Apr

13

 "The absolute worthlessness of the theory of conventional pursuit in life is indisputably written in the lives of great men who succeeded in their work in spite of all the dire predictions of conventionalists."

-William Ryan, in describing how a world class checker player in this case Yates became a third class doctor rather than a great checker player.

He uses the example of Audobon who spent three quarters of his life as a workman and only when he was 60 started painting.

Mar

24

"If the best horse always won, this stuff would be so easy," the Old Frenchman used to tell me.

But it sure helps when the best horse is running against a field of nags. Similarly, I don't recall, in forty years, what appears to be a easier setup than right now in equities.

Not even close. Ever.

Let's start with the backdrop, which is decidedly negative at least in terms of recent news - global slowing, yield curve inverting, earnings trailing off etc.

Great.

Now, let's just look at the reality. In terms of what's going on with rates–a contrived situation on the short end, entirely inconsistent with quality spreads which have narrowed in the past couple of months, considerably, even with respect to junk.

Whatever global slowing was going on in 2018 has decidedly and abruptly turned. Since the first of the year, Shanghai is up 24%, Oil is up 27%. Global Slowdown?

To think we're still in a slowdown period is to miss what's already going on.

Employment in the US is very strong, evidenced again by this past week's jobless claims, and should be evermore evident after the next monthly jobs number where it should become clear the February number was a shutdown-induced aberration.

In fact, the basic indicator I keep (and many others do, of essentially the same thing, in various forms) of commodities prices relative to employment has again turned up–and at already high levels. This is very strong.

Earnings, here we are, end of Q1 and month-on-month S&P earnings are still growing. That;s right, despite the 21 1/2% growth in earnings on the S&P 500 last year, and the fact that they were to be contracting by now, are STILL growing, month-on-month.

The sentiment is still quite negative, and there are actually people out there who, for whatever natural-glass-half-empty they harbor, think the December lows will be challenged here. In December, we saw sentiment readings in surveys, in the press, in put/call ratios and in VIX futures that were negative along the lines of what we saw in late 2008! Such readings occur, typically, before protracted gains, bull runs that last many months. The following chart shows the 13 week rate-of-change of the S&P, as percentage, as of this Friday's close.

We haven't seen a move this vigorous, up and outta here, since 2009 Q2. Does this look like a market about to roll over? All of this backdrop, historically, set the stage for a prolonged bull run–which we are again in the early throes of it would appear.

"Roy's Red" –the six week coefficient of variance (I call it that after my late friend and fellow trader, Roy Klopper, who cooked it up with me years ago trading value line futures on hourly data) has again dipped below .10, indicating an imminent move (i.e. we're coming up and out of this congestion we've been in the past month or so–a congestion which has had an upward bias, indicative of strength coming when we break up out of it). The last time we had a reading this low in Roy's Red, this imminent of a move, of an impending and imminent trending move, was in early October last year.

The volume bars of Friday (tight, profitable-quarter-ending-stops being played) indicate one should be a buyer on weakness Monday - even if things collapse Monday, you gotta be a buyer. ESPECIALLY if you can be a buyer below Friday's close (I don't know if we'll get this chance, or if Monday is a further collapse, on heavier volume–I doubt it, the setup is such that Friday should be made up and then some in the coming week). Even if things work a little lower, the bigger picture is so strong right now, that backdrop story so counter to what's actually going on in the numbers, and the forecast so strong here, and the daily so set up for a buy I just don't recall things ever being easier than right now.

Could I be more unequivocal?

Alex Forshaw replies:

Ralph,

A few devil's advocate arguments:

1. Shanghai composite was trading at 10x forward earnings 3-4 months ago with aggressive supply side government stimulus. that has historically always been a good time for a trading bounce. There hasn't been a material shift in on the ground economic fundamentals in China.

2. By my math the SPX is trading at 17x 12m forward EPS. The range has been 15-18x in the past 3 years. The SPX traded over 18x forward earnings 4 times in the last 100 years — 1929, 1936, 1999, and january 2018. In each of those occasions, the SPX's sharpe ratio for the following 12-36 months ranged from quite bad to historically atrocious. so unless there's a massive expansion in earnings in the near term, the SPX is not valued attractively right now.

3. Earnings season just ended. There won't be material movement in the "E" for another month.

4. While the yield curve doesn't historically correlate with fwd 12m equity returns, how do forward 12-month returns look when we are at least 6 years into an economic expansion and the yield curve has flattened? It's one thing for the yield curve to flatten 2 or 3 years into a bull market. but 10 years? Seems like the context is materially different from a lot of the past contexts around this statistic, although I haven't studied it closely.

5. Employment is a coincident to very slightly leading economic indicator, but hasn't it decelerated very markedly recently?

6. Europe is clearly slowing down dramatically again. China has had a valuation bounce but economic activity there is still quite weak judging from company earnings reports and anecdotal. The US has managed 3.1% GDP growth with a 5% deficit/GDP that dwarfs the OECD average.

7. Why would you pay 17x ftm eps for 3-5% estimated earnings growth? 17x for 20% eps growth (12% organic), a la 1h18, is one thing…

8. Given the volume of corp borrowing and debt issuance, and the peaking of the current rate cycle, why wouldn't the next downturn be much worse than the 2008 one? I think the "next downturn" risk is maybe 20% in next 6-9 months, but even if it's 20%, why would you pay 17x for that?

Ralph Vince writes: 

Alex,

All good points.

I'm considering valuations with respect to competing assets more so than historically, the notion being the investment dollars move someplace. Is the the "right" way to asses these? I don't know, it's how I usually try to look at it, but time will tell.)

Consider the long bond which is selling at a "multiple" of about 35 here vs the S&P 500 (whose earnings, as I say, are STILL rising; actual earnings, not future prognostications of events which have not transpired) of 21.48 (S&P500 PEs were riding above the long bond "multiple," dipped down and touched it around 88 and again in 95, by mid '05 the S&P500 PE dipped below the bond multiple, and has remained there ever since save for a period in 08-9 where the PE for stocks went haywire for several months. So one cannot say that the bond multiple naturally belongs above stock PEs, but they have for nearly a decade and half).

That's with the VERY rich US yields, relative to the rest of the world. The Bund, of course….a different animal here. Investment dollars flow someplace, the US, with earnings still gaining (despite the incredible gains of the past 14 months or so) look very attractive by comparison.

Employment is extremely healthy, so much so that wage pressure is finally returning. By my measures, last month was an aberration caused by the shutdown. A more accurate assessment, a proprietary one with respect to equities prices reveals: We're not even close to a sell by my employment measures.

On the more near-term, the next few weeks should see an end to this congestion we've been in for a month or a little longer in equities prices, per Roy's Red. Whereas it COULD be to the downside, I don't see it, the technicals (and sentiment) are acting far more lie 2009 Q2 here. Further, the pattern of volume (which is no different than how one might have read the tape 35, 40 years ago or before– only now we have the benefit of seeing bigger swaths of time, e.g. I look at yearly, monthly, weekly volumes as well) are ALL bullish here, all buy any weakness here. If I had to rely on jut one indicator, this would be it.

Alex Forshaw writes: 

To me, the S&P 500 is trading at almost the same valuation as it was in January 2018, except

1) S&P estimated earnings growth is 3-5%, instead of 20%
2) the 1yr/10yr spread (the most predictive of all the yield curve spreads) is slightly negative today, vs +80bps a year ago
3) all macro fundamentals have decelerated everywhere, and the rate of negative surprise has dramatically accelerated
4) SPX earnings yield minus 10 year yield (attached) is inline with its average over the past 10ish years, although if you go back further, it looks more favorable
5) there is no prospect of further policy stimulus until after the 2020 election, which remains a complete wild card, and seems like a "lose/no-win" coin toss for investors (the possible outcomes being untethered socialist idiocy or the dysfunctionally mediocre status quo)

In my experience, stocks-vs-bonds valuation logic is not very useful when stock valuations are rich by their own historical standards. It would have said to be aggressively buying through 2017/1h18 (if you were looking at the past 20 years of data) and the sharpe ratio would have been quite poor. It only takes 1 bad stretch to seriously derail one's financial career…

Ralph Vince writes: 

Re: "there is no prospect of further policy stimulus"

The transportation bill, likely to be proposed very soon, and highly stimulative. Think QE5. Giant barrel of uncooked pork.

China, among other things, agreeing to buy 500bln/yr ag and etc over next 6 years(my cheap seats guess), highly, HIGHLY stimulative (2 1/2% yr on a 20 trln economy, before any kind of a multiplier, which is at least 2, as that is just export, but goes into either consumption or investment 1x over 12 months, and that accumulates going forward).

Effects of "New Nafta" not yet felt online. We could go on and on hereon these various recent changes all of which are stimulative.

If you take away energy, and go back to our being a net importer of oil, and take away the repatriation effect of the recent tax bill (and AAPL agreeing to invest 350 bln, and Foxcon, and etc) , we would likely be at a GDP deficit here. Things haven't really gotten going yet is my point, but these are real numbers coming online. I don't for the life of me understand Atlanta Fed GDP projection.

Steve Ellison writes: 

Since 2010, the S&P 500 has not strayed too far in either direction from the level implied by a 2% dividend yield (see attached chart). From this perspective, the S&P got a little ahead of itself in 2017, and the 2018 correction overshot. In fourth quarter 2018, there was a plausible argument that the required dividend yield ought to adjust higher (implying the trend line should be pushed down lower), but the recent move in 10-year yields to multi-month lows seems to have taken that possibility off the table for now.

Dividends have been growing at roughly 8% per year recently.

Mar

24

A belated answer to the questions I have received about how "this time" can be different regarding the yield curve. My hopeless antiquarian bias tells me that the present trading in "fiat currencies" acts very much the way London, Paris and New York's exchanges behaved in the era of what academics call the gold standard. In actual commerce 150 years ago, "the money supply" was, as it is now, the amount of "good" credit that traders were happy to clip, shave and discount to each other. Gold and silver coin - what was, in the fantasy of Rothbardian history, the only money that mattered - had so little importance that it was shunted off into a room of its own away from the open trade and regular order spaces of the NYSE. Credit was all. Gold was not even the unit of account for the U.S. Prices for stocks, bonds and gold itself were quoted in "paper" dollars, not the dollar equivalent of sterling. The prices on the slate at the gold room were the premiums to be paid in greenbacks for an ounce of "real" money. Our present world does not have an absolute monetary standard; but it shares completely the circumstances of that period: all credit paper being used in trade and government borrowings was actively discounted against one another using prices set by an integrated foreign exchange market. In that period - the 40 years up to 1914, the term structure of U.S. dollar borrowings spent almost all of its time being "inverted". The commercial paper/call loan rate was equal to or higher than the railroad bond yields.

If, as is predicted, the world's extraordinary population growth of the last two centuries is coming to an end, then the primary driving force for what academics call inflation is being removed from the global political economy. If, because of the renewables and greatly improved drilling and transportation technologies, the supply of energy is expanding faster than its demand, the inescapable component cost of all goods and services is likely to decline - as it did in the last third of the 19th century. Quantitative easing and tightening matters to markets because "everybody knows" that central bank credit is the regulator of consumer borrowing and business investment, even though the correlation between the amounts of private borrowings and bank reserves has disappeared. In Europe government bond interest rates can be negative because the primary risk is not that governments will default but that government debt will be the only place where private savings can safely hide in plain sight without fear of tax collection amounting to confiscation. In Japan it is not the tax man savers fear but longevity itself. In a world of negative returns the incentive is to keep more and more money on hand. Against these deflationary forces, there is the threat of MMT, not theoretically but as practiced in China. But their credit expansions cannot be exported to the rest of the world; like QE in the West the lending is a perpetual motion swap of old bad debts for new never to be paid off ones.

If inversions were, in fact, a certain indicator of "recession" (in the 19th century they were not precise; declines were called "slumps" and "panics") the United States could hardly had managed a per capital economic growth that still outpaces China's remarkable record for the past quarter century (even if you take their numbers at face value).

Mar

24

The Atlanta Fed has done a very good job of explaining why "the poor" are literally trapped by the tax code. The marginal rate someone pays for leaving public assistance and working for a living is higher than the maximum "progressive" tax rate that a rich person pays on an extra dollar of income.

The Economic Report of the President (see Chapter 3) also makes this point.

If progressives really cared about "the poor", they would end this confiscation of the rewards of labor. Benefits would be taxed just like other incomes and the transition from public assistance to work incomes would be treated the same way retirees' incomes above the Social Security limit are taxed.

There is nothing inherently wrong with the idea of what the Brits call a "universal credit". In a system where everyone receives the same stipend and the stipend is subject to tax, "fairness" becomes a rhetorical question. What made Social Security and Medicare so attractive as a social program and what makes them the one part of the Federal budget that only a political fool talks about "cutting" was the fact that literally everyone with an income was treated the same way. In Stefan's magic system the universal tax rate would be 12%.

It would apply to all incomes people received of whatever kind, from whatever source. That one rate would replace all other Federal taxes, including Social Security, Medicare, unemployment, et al. The maximum rate would be 32%. The brackets can be left to the whims of the CBO. This would eliminate the massive frauds of the current Earned Income Tax Credit and reduce the administrative costs of Federal public assistance to the levels of the Social Security benefit administration, which are an order of magnitude lower than all other programs' costs (HUD housing, WIC, et al.).

It would also eliminate unemployment insurance taxes and benefits because EVERYONE would be on the same dole. Most important, it would end the absurd posturing about "entitlements" - i.e. Social Security and Medicare - by having the society integrate the costs of the deserving with the undeserving instead of uselessly trying to separate them. If everyone is entitled to "universal" coverage, there is no incentive to try to separate society into categories of relative need. There is also an enormous incentive for people to save money so they can afford "more" than the universal minimum.

The greatest advantage of all would be that the rich - those evil people - would "pay more" even though their tax rates would be reduced. When societies genuinely honor people's rights equally and remove the threat of future confiscation, incomes literally soar. That explains the seeming illogic of PERMANENT reductions in tax rates producing PERMANENT increases in tax collections. It is truly amazing what risks people will take if they have confidence that they will, in fact, reap most of the rewards and have the government only collect on the same rate schedule that everyone has already agreed to pay.

Mar

22

 First, what Thucydides actually wrote (courtesy of someone who actually reads Greek):

The "aitia" (real cause) of the war was the Spartans' fear of the Athenians' growing power."

If Thucydides had wanted to make Allison's point for him, he would have used the word "aphourme", the excuse. He would also have substituted the word "Pericles" for "the Athenians". The Spartans were not the only Greeks who came to fear the Great Man's ambitions. Thucydides neglects to mention this; but then, he had already learned the first lesson of a popular historian: never, ever blaspheme the public saint. Thucydides does hint at the obvious - that Athens' democracy was very much like the Soviet Union's and China's today and "the people" were only allowed to have one voice; but he is careful to offer only praise for the Supreme leader. That survival tactic for a writer of history remains as valid as always. In a People's Republic only praise is worthy of being spoken. To this day, no one has published a biography of Stalin in Russian or one of Mao in Chinese that comes anywhere close to judging the men for what they did. If Thucydides had chosen to describe Pericles' follies in anything close to the painstakingly accurate detail with which German historians have now examined Hitler's, we would not have his history. It - and the historian - would have been destroyed; and Will Durant would have no hero for his saga of progressive civilization.

In his superficial comparisons Professor Allison is right: if one is looking for comparisons with the distant Greek past, it is appropriate to offer China as the analog to Athens. China's "Golden Age" is indisputable; its gleaming skyscrapers, high-speed trains and brand new airports are the modern equivalent of gleaming white marble buildings and heroic sculpture. But, contrary to Thucydides' narrative, the Spartans did not see themselves as being like the Kaiser and his General Staff in 1914 - who had to go to war before they were overtaken by the Russians' growing military strength. Having defeated Xerxes, they disagreed with the Athenians' belief that the Greeks could continue to occupy the western shores of Asia Minor. It was the Athenians who were determined to continue with military adventuring and Empire building.

In that regard, Trump's decision to change NATO into a hemispheric alliance and leave the Europeans and Russians to work out their coexistence and the Chinese to build their belt and road has a direct comparison with the Spartans' choosing to end their struggles against Persia.

Partisan footnote: One hopes, for the Republic's sake, that Trump's legacy has a happier outcome.

Mar

22

(Housing has higher returns than equity with half the variance)


The Rate of Return on Everything, 1870–2015

Oscar Jord, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, Alan M. Taylor

November 2017

Abstract

This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

Mar

18

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

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

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

Mar

15

India election commission today announced that India will go to polls between 11th April to 19th May with election results to be announced on 23rd May 2019.

Mar

15

"When You're Cold, You Make Decisions in the Heat of the Moment"

anonymous writes: 

Not the way SAC does it.

Mar

12

 Larry Sabato's Coven at UVA has released their first prediction for 2020. It is surprisingly rational. It predicts Arizona's 11, Wisconsin's 10, Pennsylvania's 20, New Hampshire's 4 and 2 Nebraska's 4 electoral votes as Toss-Ups; and assumes that Trump enters into the contest for those 5 states having 248 EVs in hand.

The challenge for the Democrats is to somehow duplicate the "black" turnout in the Midwest that won for President Obama. They have to recapture Pennsylvania, Michigan and Wisconsin. The question is how.

After the Civil War, the Democrats were able to re-establish local and State political parity using the minority group identity grievance doctrine that has always been at the heart of their party's electoral appeal. But, with the exception of Grover Cleveland's hard money reform machine and Woodrow Wilson's luck in being able to run in a 3-way race, they were unable to find a candidate between 1868 and 1932 who could successfully appeal to every identity group within the coalition. The solution at the national level only came when they chose a candidate whose upbringing was patrician enough to allow him to be the ultimate minority.

If the Democrats can find another candidate as thoroughly and unashamedly preppy as Roosevelt, Kennedy and Obama were (and are), they will win. That is the key to Ms. Ocasio-Cortez's appeal; she is without any doubt about her democratic superiority and the power of enlightened togetherness.

Mar

9

Since 2000, what is the return the next week (SPY):
One-Sample T: NXT WEEK 
Test of mu = 0 vs not = 0
Variable       N  Mean  StDev   SE Mean  95% CI            T
NXT WEEK  29  -0.00  0.019  0.003  (-0.007, 0.007)  -0.00

Mar

9

"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)

Mar

9

I theorize 50's are penumbral centers. 100's are attractors and not so much barriers.


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