January - 2020
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
2
 S&P +28.00
 USB +0.22
3
 S&P -23.75
 USB +1.22
4
5
6
 S&P +7.25
 USB -0.17
7
 S&P -10.50
 USB -0.13
8
 S&P +23.75
 USB -1.01
9
 S&P +15.75
 USB +0.14
10
 S&P -11.25
 USB +0.26
11
12
13
 S&P +24.25
 USB -0.12
14
 S&P -1.75
 USB +0.21
15
 S&P +5.75
 USB +0.18
16
 S&P +23.50
 USB -0.12
17
 S&P +7.50
 USB -0.19
18
19
20
21
 S&P -5.75
 USB +1.10
22
23
24
25
26
27
28
29
30
31

Jan

18

Our type of guy: Max Brand

Jan

18

 Facial hair on 100% of Forbes top 30 under 30 millionaires as a predictor of individual stocks performance.

Ralph Vince writes: 

That facial hair on all these young guys (reminiscent of a rather 1850s look…hm), like those permanent cartoons on their skin…these things tell the world they never hitch-hiked from one end of I80 to the other.
 

Jan

18

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

Ralph Vince writes: 

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

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

Jan

18

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

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

Lack of immigration leads to labor shortages.

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

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

Jan

18

The contrarian in me and I think many readers of the site tend to buy when we see red on the screen, and sell after lots of green flashes. I've thought to conduct an experiment to turn the colors off on the trading screen to see if there is a bias and just go by the numbers. In the same way certain phrases evoke a reaction, like the words "all-time-high", but it is not symmetrical to "all-time-lows". In our lifetimes it is unlikely we will ever see an all-time-low in equities or bonds, maybe in some commodities and currencies. Yet, we see ATHs quite regularly, for example in the last four year on ES SP500. ( 2016 - 27 , 2017- 65 , 2018 -16 , 2019 -33), or roughly 13% of the time. I think like the colors on the screen ATH is a meaningless phrase. I think more important is market price "x" is high or low compared to what "y"? I would vote for bond yields to go in the y variable, but the possibilities are wide. Employment, GDP. The variable one chooses for "y" has everything to with the predictions for x.

Jan

15

 A Land Remembered is an excellent book I have read that describes the growth of Florida industry and heroic family interactions.

I find it very similar in its greatness to the Elmer Kelton histories of heroism in Texas The Good Old Boys and The Time it Never Rained.

I recommend the Audible version of all three books where the narrator George Goodell shows the harmony of these lives.

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Jan

14

Their sampling of 1,000 Likely Voters taken a week ago shows a slight edge to the Big Orange. 46% think the President will be re-elected; 33% think he will lose to the Democrat and 12% think he will be convicted by the Senate. 9% are unsure. The sample weights a Democrat preponderance 38% to 32% Republican with the remaining 30% as independent. PredictIt shows the same: 52 cents for the Republican candidate to win; 51 cents for the Democrat.

The London Bookies have a very different view.

From Oddschecker:

Donald Trump -110

Joe Biden +500

Bernie Sanders +750

Pete Buttigieg +2000

Elizabeth Warren +2000

Michael Bloomberg +2000

Hillary Clinton +5000

Andrew Yang +5000

Jan

12

 Sports statistics all show that you should go for it on fourth and short but going for it three times led to the Ravens loss. It provides a caution to those who follow market regularities religiously. There is a good thread on this at VicNiederhoffer@twitter.com.

Ralph Vince writes: 

Football is peculiarly about making the wrong mathematical decisions. I'm not sure why it is, but I suspect the rapid turnover in coaches and the fact that there is an unavoidable second-guessing in the press and by fans, helps coerce these mistakes.

The most glaring example of this is the (lack of) 2 pt conversions. Mathematically, there are a host of times where this should be taken though you'll never see it. When was the last time a tea in the lead ever took one in the first half?

Russ Sears writes: 

Besides second guessing by the press and the fans there's second guessing by their own teammates. The defensive team doesn't like the offense to take risk because they feel they could have stopped the other teams offense given the chance. It's like couples deferring to their partner's lack of risk tolerance.

Ralph Vince writes: 

Team sports, by our definition, should ipso facto be more inherently risk-averse than individual sports.

Alston Mabry writes:

Just re the NFL, I was listening to a roundtable interview with players, and the question was, "What's harder to play, offense or defense?" And I was surprised when the unanimous verdict was defense. The explanation was that the offense knows what's going to happen, whereas the defense doesn't, which adds an extra level of stress and is one reason why you hear about the defense "getting tired" by the 4th quarter but you never hear that about the offense.

Ralph Vince writes:

In terms of expected yards per play, because players at the pro level are so good, it;s hard to argue against the fastest receivers getting out ahead of of coverage, and not throwing the ball short; the potential interference call makes the average yards per play considerably higher.

In football gambling, it is ALL about average yards per play.

Jan

12

"Recent Balance Sheet Trends"

Gary Phillips writes: 

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

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

Jan

11

Motivated by the Saudi Aramco IPO, this study tries to answer the question: does the broad market rise into big IPO's (and then sell off after)? This is based on the theory that there is an effort to boost the market before the IPO to benefit the new issue ecosystem.

I'm surprised, but there doesn't seem to be an effect as the chart shows the usual upward drift. I took the 25 biggest US IPOs by proceeds and graphed the mean of LN changes of the SPY to the IPO date of the 20 trading days before and the 20 trading after.

LN changes 20 days before to IPO date

count    25.000000

mean     -0.009702

std       0.051080

min      -0.125424

25%      -0.029615

50%      -0.013882

75%       0.020232

max       0.075516

 

LN changes from IPO date to 20 days after

 

count    25.000000

mean      0.004976

std       0.032097

min      -0.069427

25%      -0.008863

50%       0.001278

75%       0.024553

max       0.065406

IPO data is from here

SPY date is from here

script is here.

Jan

11

 It does make one wonder: spurious correlation or not?

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Jan

11

 Neil Peart, legendary drummer for Rush and a self described "Bleeding heart libertarian" died Tuesday from complications due to brain cancer. He was a friend of liberty and one of the best drummers in the world.

Pete Earle writes: 

This one hits home in a way that few others have. I had listened to their music since the early 1980s and seen them live 20, 25 times. Words and music that inspired and lifted me in every phase of my life. Neil was one of the good ones. Devastating.

Jan

11

Sultan Qaboos of Oman dies

- Oman was a source of stability in the middle east.

- He was gay.

- Now his succession is in question. Or that is the fear.

Jan

10

 Though it is compelling to speculate, don't forget there are 1000s of possible scenarios that may have played out, none of which will we ever know with accuracy.

For example we are told the US had advanced knowledge of the attack, via "communications chatter". But maybe the attacks were pre-arranged / agreed to via back channels, in order to stage a revenge event placation without triggering a much bigger problem where both sides (and political leaders) lose. Not one casualty?

Its also possible the Iran regime was not as sorry about the terror general's passing as the photos showed.

Who knows?

Jan

9

 Don't fight the Fed: an expression another one of these REALLY good-lookin' kids hailing from the East Side of Cleveland, with just this past week starting to show contraction in total government issues outstanding.

Jan

9

 Alan Abelson's favorite adage was "the market hates uncertainty like nature the vacuum". Nothing could be more wrong and the current situation is a good example with the market succumbing 50 points to uncertainty and then bouncing back. Other useful idiots and friends of the Bad One are highlighted on my Twitter @VicNiederhoffer.

Ralph Vince writes: 

Agreed.

"The market is constantly seeking that point of equilibrium which induces the greatest uncertainty."

And that, at any given moment, is the greatest indicator I know of, along with drift.

Jan

9

Although the book A History of Interest Rates by Sidney Homer and Richard Sylla is dated, it still provides a good history of interest rates from prehistoric times, Mesopotamia, Ancient Greece etc, all the way to the 20th century. It makes for a very enjoyable read that will help fill in the gaps with one’s knowledge of the specific subject of interest rates, commerce etc. Here’s a free copy for you to enjoy.

Jan

9

 Teddy Roosevelt did not win re-election in 1904 because he was a Rough Rider in the Spanish-American War. That war's political popularity had faded as the details of the Americans' actual fighting emerged. The woefulness of the Army's weapons and its rifle, in particular, had become a technical scandal. The Krag-Jorgensen's weak cartridge and stupid locking system had been an outright embarrassment compared to the Spaniard's 1893 Mauser rifle, with its higher muzzle velocity, greater accuracy, and ability to be modified for clip-loading.

What won it for Roosevelt was John Hay's rabble-rousing cable to the American consul-general in Tangier, Morocco: "We want Perdicaris alive or Raisuli dead. We desire least possible complications with Morocco or other Powers." Joe Cannon, the Speaker of the House, read the first sentence of the cable to the Republican National Convention, which was grudgingly accepting Roosevelt as its nominee. The convention went wild and "fighting Teddy" became the image for the campaign. The facts of the matter were, as always, rather different than what appeared in "the news".

Jan

9

Hello, Specs

A while ago I was asking directions and opinions about Artificial Intelligence and Machine Learning applied to the Markets, and the answers were quite discouraging.

Nevertheless, inspired by works such as of Marcos Lopez de Prado, (who is now Head of Artificial Intelligence at AQR, if I recall correctly), I started my Masters Degree at Computer Science, with focus on Machine Learning for trading (UFRGS - Universidade Federal do Rio Grande do Sul).

The reason I'm telling you this is because what I'm learning differs from the overall view I got from the answers to my previous query.

I now see that the answers were in line with the idea of webscrapping for "market humor", and news analysis (all int he field of Sentiment Analysis), etc.

There's no dispute that this approach is not available to retail investors such as I, nor for minor asset managers. In fact, I would argue that Bloomberg and Reuters (or any other news agency) would have dominance on that.

(The same is the case with the so-called "high frequency trading"… We simply can't compete with the major players).

But, I'm also learning that Machine Learning (and Artificial Intelligence) is much broader, and I'm starting to see its relevance for trading… Specially, automated trading.

My first model developed at the Masters used an algorithm called Support Vector Machine, which is a classification algorithm.

There are three main "approaches" do Machine Learning: Unsupervised Learning, Supervised Learning and Reinforcement Learning.

SVM (short for Support Vector Machines) is an algorithm in the category of "Supervised Learning".

That's because you give it some features to work with (and learn from). These features are our own market analysis filters, whichever they are.

The thing is, the main value in this model comes not from the SVM algorithm itself, but the "feature engineering", i.e., from "which data filters should the algorithm learn".

That's useful to any (of us) who has his own trading style developed from the experience of many years: we intuitively (or through massive research) know what would be useful or not to develop a trading strategy.

Anyway, I'm still in the process of getting this Masters Degree (in Computer Science), and it's my goal to develop a new trading model from each algorithm I learn.

If you, Specs, have interest in it, I can have you posted.

Kind Regards from Brazil,

Newton Linchen Certified Analyst (APIMEC, CNPI-T 2167).

Jan

8

Stefan Jovanovich writes:

Dec. 18, 1899
-11.99

1893, 1896, 1890, 1884, 1907, 1819 and 1873. Yet, at the time, the WSJ described the first two weeks of trading in December 1899 as "the most disastrous stock decline in the history of the New York Stock Exchange."

Russ Herrold writes:

The last pre 'Roaring Twenties' cited, 1907 would have been the bank panic quelled by J P Morgan. The quote offered from him was: The markets, they will vary.

Well, of course. This 1899 sour mood arose from heavy casualties in battles against Islamist rebels in the Philippines

"The combination of the M1911 pistol and the .45 ACP round were designed in reaction to U.S. experiences against the Moro tribesmen, fanatical (and sometimes drugged) Moslem insurgents in the southern Philippines in a 14-year rebellion immediately following the ten-week Spanish-American War."

'The .45 autoloading pistol was designed in 1904 by one of our most prolific firearms geniuses, the brilliant John Moses Browning, to be used in his newly designed Colt semi-automatic pistol.' Its predecessor, used in the 1899 rebellion, was a .38 cal, (revolver) chambered in 'Long Colt', a round originally designed during the transition from black powder to 'smokeless' nitrocellulose propellants

At the time, no general deployment pistol stopped a charging Moro like the .45 ACP. Bayonets and rifles also helped, but there had not yet been the cutover from earlier black powder designs to the Mauser inspired 1903 Springfield (which Springfield required an early engineering recall of 100 pct of fielded units, to case harden the receiver to tolerate the much greater pressure of the .30-06 cartridge)

– Russ herrold

Jan

8

 What rates are suggesting.

Ralph Vince writes: 

Lot of people thinking 2020 will be another monster up year, despite earnings having flatlined for the S&P in recent months, a curve that has inverted and a deteriorating employment situation.

I'm still thinking 2020 will be a big up year (unless employment starts to hemorrhage - a 50/50 proposition right now). I'm only short because I'm looking for a serious (and technical) correction.

Incidentally, that's whats going on here–a technical, not news driven one. If it were the latter, the market would have responded on news last night, instead, it didn't, it terjiversated on the news, and the technicals ruled the night.
 

Jan

5

 "A Clever New Strategy for Treating Cancer, Thanks to Darwin"

Relevant to big rises in a year in S&P?

Bill Rafter writes: 

This is a fantastic article for anyone with cancer, particularly prostate cancer. Thanks for posting.

K.K Law writes: 

A broader point is this is another excellent example of out-of-the-box thinkers and doers who create revolutionary innovations.

Dylan Distasio writes:

Unfortunately these innovations occur in spite of the current US system not because of it.

Gary Phillips writes: 

Not unlike market analysis, the key to effective clinical observation is how the scientist conceptualizes the problem, and how he uses the information gathered. The dilemma presented with molecular targeted therapy using chemotherapy, is the very process that induces cell death (aptosis) can also promote (chemo)-resistance.This is quite the recursive paradox. Chemo drugs activate multiple signal transduction pathways which can contribute to either aptosis or chemo-resistance. One of the ways to circumvent this problem is to use a combination of drugs; employing another drug that targets the signal pathways that contribute to resistance. Of course, treatment varies from one patient to another, and the major challenge is to develop individualized therapy options that are tailor made to the patient.

Ever changing cycles and evolving markets dictate that traders must be agnostic and and adaptive. A tested, multi-variate approach tailored to the intrinsic nature of the current market regime will provide the best assessment of the market's context and offer the best approach to trading that particular market.

Jan

5

What are the current presidential odds. I see estimates varying from 2 to 5 to 1:1. On the other hand the increase in tension recently is highly bullish as it throws the public off from the large differential that compound interest creates between the increase in book value from the rate of return on bus investments and interest rates.

Jan

5

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

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

Zubin al Genubi writes: 

Survivorship status is helpful.
 

Jan

5

 My main Christmas reading this year was Why We Lost, published in late 2014 by retired Lt. Gen. Daniel Bolger. Examining the ROI of US government spending has become a weird passion project of mine. What better place to start than the Afghan/Iraq campaigns, which have cost the US somewhere between $2.5 trillion (Pentagon) and $6.5 trillion (dedicated antiwar interest groups) over the past 17 years, all to turn Iraq into a restive Iranian satrapy?

I picked this book for several very specific reasons. One, Bolger is a prolific author with no apparent career agenda (he retired in 2013), political ambitions, or axes to grind–a combination that's unheard of within this subgenre. Two, it would've been written for publication before ISIS had really put itself on the map (late 2014/early 2015), which recast the Iraq debate into a finger-pointing exercise at the expense of dispassionate analysis. And three, the book's mere title takes the intra-military debate over What Went Wrong to a place most men in uniform won't go.

The book is very readable, and gives the feel of being the middle of dozens of episodic life-or-death firefights, each of which illustrated a larger success or shortcoming of the American strategy. For me, this vivid episodic detail bolstered the author's authority, but grew repetitive after a while.

In his strategic analysis, Bolger is much more nuanced than the title suggests, comes to some interesting conclusions, and, along the way, highlights some very surprising facts. I was astounded to learn, for example, that "the US military did not torture anyone" at Abu Ghraib. (Bolger doesn't hesitate to highlight other episodes of US torture, intentional killing of civilians, etc.) US troops did photograph some prisoners in compromising positions, strip some of them naked, have some dogs bark at them, and intimidate them. In the most infamous case, a prisoner was put on a box with fake electrodes attached to his fingers, and was told they were real and he'd be electrocuted if he stepped off the box, but the electrodes were fake and nothing actually happened to that prisoner. All of these things would fit semiawkwardly into the US military's prescribed environmental manipulation for interrogating suspects without physically harming them or placing them under such duress that they'd say anything escape the situation. According to Bolger, the worst that could be said about what actually happened at Abu Ghraib was that some of these intimidation/degradation incidents weren't related to any specific interrogation.

Bolger also refuses to point fingers at the easy scapegoats. President Bush gets measured credit until the 2006 Iraq Surge, when every general who'd fought in the Iraq theater had told Bush to a) cut American losses and get out, or b) even if the US was to stay, in many respects the larger US footprint was becoming as much of a long term liability as much as it may be a short term asset. Bolger was ahead of his time in assessing the Surge to be both an impressive tactical success and a major strategic blunder. He's more critical still of Obama's subsequent "Afghanistan surge," which recycled the same mediocre Iraqi formula into a theater where it was even less effective, had no justifiable long-term value once bin Laden had been killed (May 2011), and was badly hamstrung by idiotically restrictive revisions to rules of engagement which, up to that point, had been generally OK.

Stan McChrystal's handling of the Afghan theater gets particularly terrible reviews: ridiculously restrictive rules of engagement; McChrystal holding himself/the Coalition hostage to a treacherously ungrateful Afghan president (Karzai) who never would've existed without American backup; and a blatant protection racket in which the US was getting extorted by every side of the Afghan conflict, worst of all by Karzai.

On the issue of Iraqi war rationales (terrorists vs. WMD), Bolger writes as if the military never took WMD seriously: everyone knew that Saddam had no real, functioning nuclear program, and while chem/bio weapons play well in Hollywood doomsday scenarios, in reality, they require circumstances far too specific and consistent (in terms of humidity, wind direction, extremely stable delivery or storage en route, etc.) to be really effective outside of massive artillery barrages of chemical weapons. In terms of capable terrorist organizations, on the other hand, Bolger repeatedly notes that Iraq hosted a genuine vipers' nest of capable, well-equipped Sunni terrorist groups which the Americans had largely liquidated by 2005.

With the benefit of hindsight, Bolger writes, the US had completed 99 percent of its job in the war on terror, at a fraction of the original cost, by 2004 (or even 2003, after the Taliban had been kicked out of major Afghan population centers). Al-Qaeda itself had been completely destroyed aside from bin Laden himself and a few couriers. Many separate groups did claim allegiance to al-Qaeda and attempt to imitate it, but they weren't operationally coordinated. Over time, the Coalition footprint became its own casus belli against the US. The Americans were always occupiers, regardless of how much money they threw around for victim compensation or reconstruction. This was compounded, in Bolger's view, by chronic Sunni Arab double-dealing (always shaking America's hand while stabbing it in the back) and Afghan cultural treachery, in the sense that honesty basically has no place in Afghan culture.

It's difficult for me to take some of this criticism seriously. Was the US supposed to call it quits in Afghanistan in 2003 without killing bin Laden or al-Zawahiri? Would al-Qaeda proper have remained infirm had the US stopped hunting him down? No way. At the same time, if not surging in Iraq in 2006, and getting out of Afghanistan in 2011, were strategically such obvious calls, where was the military criticism of Obama's Afghanistan strategy? Enlisted personnel couldn't make the criticism, but retired personnel could (and in the case of the Iraq surge, loudly did).

Anyway, I'd strongly recommend the book for students of contemporary US military history.

Stefan Jovanovich writes: 

If one looks at American deployments for what they are - largely bloodless training exercises, then Winning and Losing has to be evaluated by what the wargaming produced. In the first Gulf War, the U.S. military capabilities were larger in scale but no greater in technology or ability to engage at the sharp end than the French or British. The victory in Kuwait was greeted almost with relief - see, the Americans can actually win something. Now? The distance between the actual warfighting abilities of the U.S. and the rest of the world is now a chasm. The only comparison that fits is Nelson's Navy. The French, Spanish and Danish navies were still capable of challenging the British in the Caribbean and Baltic in 1780 and even 1790. By 1810 the British Navy was the largest physical and financial enterprise on the planet by a factor of 10.

I am not saying this is a good thing; I am saying this is what happened. The U.S. can win the war in Afghanistan tomorrow, as the President has said; we would just have to turn the place into Carthage. That we don't says nothing more about "victory" than the fact that the British Navy chose not to destroy every American ship on the Atlantic in 1813 because there was still the little matter of Napoleon's continental empire to deal with. Britain spent the next half century enjoying the financial dominance that its Navy had won. The dollar is the world currency now in large part because the Americans have that same military monopoly that Nelson and the Admiralty had created. 

Jan

5

SPY weekly close above 50-period upper Bollinger band is not bullish, but not bearish either for the following week.

Average                                   0.0%
Standard deviation                    1.6%
N                                             153
t                                             -1.39
Average of all weeks since 1993   0.2%
Looking ahead 50 weeks, results are consistent with randomness with only 17 non-overlapping occurrences since 1993.
Average                                   10.7%
Standard deviation                    11.8%
N                                              17
t                                               0.03
Average of all 50-week periods since 1993  10.7%
 

Gary Phillips writes: 

One thing about shorting es here (3241.00 - 42) is that the market will give you pretty quick feedback as to whether you are right or wrong.
 

 

Jan

4

 Reprising the analysis on page 47 of Practical Speculation with 17 years of new data, I compared earnings increases for the S&P 500 with the following year's net changes in the S&P 500.

Since full year earnings are not known until sometime in February, I used the 12-month earnings ending in September as the independent variable for a regression, with the dependent variable being the following year's net change in the S&P 500.

I found a negative correlation, but not significant as the t value was -0.7 and p was 0.49. Scatter graph is attached.

An outlier in the data was the fourth quarter of 2008 (counted as part of the 12 months ending September 30, 2009 in my analysis), in which massive bank writeoffs resulted in negative earnings for the quarter.

                             net earnings year-end        next year
Year      12-month earnings   change      S&P 500    S&P 500 change
   2001              28.31                 1148.08           
   2002              30.04    0.06          879.82             0.26
   2003              38.58    0.28         1111.92             0.09
   2004              57.77    0.50         1211.92             0.03
   2005              66.57    0.15         1248.29             0.14
   2006              78.57    0.18         1418.30             0.04
   2007              78.60    0.00         1468.36            -0.38
   2008              45.95    0.42          903.25             0.23
   2009              12.54   -0.73         1115.10             0.13
   2010              71.86    4.73         1257.64             0.00
   2011              86.98    0.21         1257.60             0.13
   2012               86.5   -0.01         1426.19             0.30
   2013              94.37    0.09         1848.36             0.11
   2014             105.96    0.12         2058.90            -0.01
   2015              90.66   -0.14         2043.94             0.10
   2016              89.09   -0.02         2238.83             0.19
   2017             107.08    0.20         2673.61            -0.06
   2018             130.39    0.22         2506.85             0.29
   2019             133.24    0.02         3240.02 (Dec. 27)

Jan

4

"Reasons to be Hopeful":

Today the life expectancy, healthcare, nutrition, available resources, and standards of living in the world's poorest countries largely exceeds that of the world's wealthiest countries at the onset of the Industrial Revolution. On the morning of January 1, 1800 in Britain, life expectancy was 36.6 years and GDP was just $3,430 per capita. Today, life expectancy in Zambia, one of the world's poorest countries, exceeds 50 years, and GDP per capita is greater than $3,800.

Jan

4

How can anybody in their right mind go home long spooz, over the weekend?

Cagdas Tuna writes: 

I can say there is no panic or risk in this market. Spooz, Nazzy all at the levels where they were yesterday. 

Ralph Vince writes: 

Lot of people thinking 2020 will be another monster up year, despite earnings having flatlined for the S&P in recent months, a curve that has inverted and a deteriorating employment situation.

I'm still thinking 2020 will be a big up year (unless employment starts to hemorrhage - a 50/50 proposition right now). I'm only short because I'm looking for a serious (and technical) correction.

Incidentally, that's whats going on here - a technical, not news driven one. If it were the latter, the market would have responded on news last night, instead, it didn't, it terjiversated on the news, and the technicals ruled the night.

Gary Phillips writes: 

Not so sure if complacency is a compelling reason to feel good about a long position, unless we're talking about bonds or gold.

Tuesday, (NY+4) has fairly good bearish seasonality, and could be another day where we see a geopolitical type catalyst

At least, my dark passenger is hoping so.

Ralph Vince writes: 

I think you just have to be patient on his one. It;s a Miami landing in a July thunderstorm. Just keep the seat belt really tight and enjoy the bouncing around as it comes in.

Jan

4

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

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

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

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

Jan

4

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

The overflow goes to Maui or Oahu.

There is a big sign for a another new FBO.

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

They all must be feeling pretty good this year.

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

Jan

3

 Romance before athletic contests lowers performance. I also believe that one reason the Knicks are so terrible is that they succumb often e.g. Smith and Carmelo.

Gary Phillips writes: 

A friend of mine from the Bond pit befriended Michael Jordan when he first arrived to Chicago while M.J. was looking for a golf partner at Evanston. C.C. Fitz used to accompany M.J. and Charles Barkley to the NBA All-Star game every year. Fitz would always return with some hilarious tales of their antics and quotes from the outspoken Sir Charles. I can remember one distinctly that I believe is emblematic of their attitude, at least at that point in their lives. "Fitz, if you aren't thinking about pussy all the time, you're not concentrating hard enough."

Mr. Isomorphisms writes: 

Do they succumb more often than the other side? ESPN had an article about the erosion of home/away advantage in the instragram era. Apparently instagram is where NBA players receive sexts and set up dates.

Jeff Rollert writes: 

There's a number of Greek and Roman stories supporting the no romance before a battle concept.
 

Jan

2

 Observe good faith and justice towards all nations; cultivate peace and harmony with all. Religion and morality enjoin this conduct; and can it be, that good policy does not equally enjoin it? It will be worthy of a free, enlightened, and at no distant period a great nation, to give to mankind the magnanimous and too novel example of a people always guided by an exalted justice and benevolence. Who can doubt that in the course of time and things, the fruits of such a plan would richly repay any temporary advantages, which might be lost by a steady adherence to it? Can it be that Providence has not connected the permanent felicity of a nation with its virtue? The experiment, at least, is recommended by every sentiment which ennobles human nature. Alas! Is it rendered impossible by its vices?

In the execution of such a plan, nothing is more essential than that permanent, inveterate antipathies against particular nations, and passionate attachments for others, should be excluded; and that, in place of them, just and amicable feelings towards all should be cultivated. The nation which indulges towards another an habitual hatred, or an habitual fondness, is in some degree a slave. It is a slave to its animosity or to its affection, either of which is sufficient to lead it astray from its duty and its interest. Antipathy in one nation against another disposes each more readily to offer insult and injury, to lay hold of slight causes of umbrage, and to be haughty and intractable when accidental or trifling occasions of dispute occur. Hence, frequent collisions, obstinate, envenomed, and bloody contests. The nation, prompted by ill-will and resentment, sometimes impels to war the government, contrary to the best calculations of policy. The government sometimes participates in the national propensity, and adopts through passion what reason would reject; at other times, it makes the animosity of the nation subservient to projects of hostility instigated by pride, ambition, and other sinister and pernicious motives. The peace often, sometimes perhaps the liberty, of nations has been the victim.

So likewise, a passionate attachment of one nation for another produces a variety of evils. Sympathy for the favorite nation, facilitating the illusion of an imaginary common interest in cases where no real common interest exists, and infusing into one the enmities of the other, betrays the former into a participation in the quarrels and wars of the latter, without adequate inducement or justification. It leads also to concessions to the favorite nation of privileges denied to others, which is apt doubly to injure the nation making the concessions, by unnecessarily parting with what ought to have been retained, and by exciting jealousy, ill-will, and a disposition to retaliate, in the parties from whom equal privileges are withheld. And it gives to ambitious, corrupted, or deluged citizens (who devote themselves to the favorite nation), facility to betray or sacrifice the interests of their own country, without odium, sometimes even with popularity; gilding with the appearances of a virtuous sense of obligation, a commendable deference for public opinion, or a laudable zeal for public good, the base or foolish compliances of ambition, corruption, or infatuation.

As avenues to foreign influence in innumerable ways such attachments are particularly alarming to the truly enlightened and independent patriot. How many opportunities do they afford to tamper with domestic factions, to practice the arts of seduction, to mislead public opinion, to influence or awe the public councils! Such an attachment of a small or weak, towards a great and powerful nation, dooms the former to be the satellite of the latter.

Against the insidious wiles of foreign influences (I conjure you to believe me, fellow-citizens), the jealousy of a free people ought to be constantly awake, since history and experience prove that foreign influence is one of the most baneful foes of republican government. But that jealousy, to be useful, must be impartial; else it becomes the instrument of the very influence to be avoided, instead of a defence against it. Excessive partiality for one foreign nation, and excessive dislike of another, cause those whom they actuate to see danger only on one side, and serve to veil and even second the arts of influence on the other. Real patriots who may resist the intrigues of the favorite, are liable to become suspected and odious; while its tools and dupes usurp the applause and confidence of the people, to surrender their interests.

The great rule of conduct for us, in regard to foreign nations, is, in extending our commercial relations, to have with them as little political connection as possible. So far as we have already formed engagements, let them be fulfilled with perfect good faith. Here let us stop.

Europe has a primary interests, which to us have none, or a very remote relation. Hence she must be engaged in frequent controversies, the causes of which are essentially foreign to our concerns. Hence, therefore, it must be unwise in us to implicate ourselves, by artificial ties, in the ordinary vicissitudes of her politics or the ordinary combinations and collisions of her friendships or enmities.

Our detached and distant situation invites and enables us to pursue a different course. If we remain one people, under an efficient government, the period is not far off when we may defy material injury from external annoyance; when we may take such as attitude as will cause the neutrality, we may at any time resolve upon, to be scrupulously respected; when belligerent nations, under the impossibility of making acquisitions upon us, will not lightly hazard the giving us provocation; when we may choose peace or war, as our interest, guided by justice, shall counsel.

Why forego the advantages of so peculiar a situation? Why quit our own to stand upon foreign ground? Why, by interweaving our destiny with that of any part of Europe, entangle our peace and prosperity in the toils of European ambition, rivalship, interest, humor, or caprice?

It is our true policy to steer clear of permanent alliances with any portion of the foreign world; so far, I mean, as we are now at liberty to do it; for let me not be understood as capable of patronizing infidelity to existing engagements. I hold the maxim no less applicable to public than to private affairs, that honesty is always the best policy. I repeat it, therefore, let those engagements be observed in their genuine sense. But, in my opinion, it is unnecessary and would be unwise to extend them.

Taking care always to keep ourselves, by suitable establishments, on a respectable defensive posture, we may safely trust to temporary alliances for extraordinary emergencies.

Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing; establishing with powers so disposed, in order to give trade a stable course, to define the rights of our merchants, and to enable the government to support them, conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary, and liable to be from time to time abandoned or varied, as experience and circumstances dictate; constantly keeping in view, that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors; and yet of being reproached with ingratitude for not giving more. There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion, which experience must cure, which a just pride ought to discard.

George Washington's Farewell Address, 1796

Jan

2

One should never dismiss information without reason, especially if it's information which contradicts one's preexisting beliefs in some way. Like Dexter, I have always had a "dark passenger" when it comes to trading, a diametrical tension between reason and reinforcement. It is not difficult to hold two contradictory beliefs about the direction of the market. It's the nature of the beast, not unlike Cerberus, the multi-headed dog that guards the gate to Hades.

But I'm afraid I may be addicted to this sense of being at odds with myself. Conflict can easily become a narcotic. When I attempt to forecast the future, my biases assume control and expose the flaws in my decision process. Luckily when I am trading my instincts and discipline assume control and rein in my ambiguous emotions. Somehow I still mange to make money in spite of my dichotomous self.

They say not to allow your strengths to become your weaknesses, but in my case, the real challenge is to transform my weaknesses into my strengths.

Jan

2

The only successful American military tradition - the one established by Generals Washington and Grant - is very straightforward: the U.S. should have a volunteer force that can move faster, with more force than any other military in the world and that force should only be committed under a formal declaration of war by Congress that identifies the specific enemy and seeks unconditional surrender. Any other policy/strategy/call it whatever buzzword you choose is and always has been folly.

When Eisenhower gave his warning about the military-industrial complex, he was not arguing against absolute American superiority. On the contrary, his forebodings were that strategic plans for defense were being set aside in favor of pork barrel procurement for "limited" warfare - troop deployments and weapons programs designed to match the needs of Congressional districts for Keynesian spending on activity for the sake of activity and "engagement". Those would, he feared, have the U.S. promising to help the world because, if you had the Green Berets, you would have to find places to send them. He knew, from direct experience, that counter-insurgency would always be a dismal failure. The U.S. had been, by his count, 0 for 3: in the Southern Philippines, in Haiti and in Honduras. Had he lived another half century, he would have seen us strike out again: in the Central Highlands, Iraq (excluding the initial conventional success) and now Afghanistan.

Grant had the same shrewd understanding of what was necessary in war and what the political pitfalls were. His Frontier policy remains our only successful counter-insurgency precisely because Americans stopped trying to win hearts and minds. As President Grant allowed the Army to fight without allowing either the Quakers, the land-grabbers or Sheridan to have their wishes come true. Grant succeeded in disappointing them all and in keeping the broad citizenry from forcing Congress into a policy of annihilating "the savages", even after Custer's defeat. The Sioux were defeated but neither they nor the Blackfeet nor any of the other Plains tribes suffered the absolute genocide that the Mariposa, Monache and Snake had a decade earlier. The Army did so well that, within a decade, they had to add gardening to their duties; they become directly responsible for our first national Park - Yellowstone.

Thanks largely to Grant the United States has the enviable record of having its populations of native Indians and former slaves become full citizens without their having to deny or abandon their heritage; that has happened in no other "civilized" (sic) country - not Brazil, not Mexico, not Australia, not New Zealand, not Canada. Yet, somehow, the very accomplishment that no other country in the world has managed to achieve within its own borders is one we modern Americans think we can successfully export to countries that have neither our faith nor our tolerance. As our 3rd great President/General put it: "There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion, which experience must cure, which a just pride ought to discard."

Peter Saint-Andre writes: 

Stefan, would you mind expanding on your point about native Americans and African slaves not needing to abandon their heritage, as such people did in Brazil, Mexico, Australia, New Zealand, and Canada? An argument for this position seems important in the light of the 1491 and 1619 crowds.

Dec

27

What are the chances by randomness that a market with 55% up days and 250 trading days will end at the high, and does that have any evolutionary significance e.g. the battle of males to be at a maximum relative to competitors in other fields?

Gary Phillips writes: 

The "unsinkable" S&P is reminiscent of Molly Brown. Her husband's fortune made in silver was lost, but resurrected in his discovery of gold. She even survived the sinking of the Titanic! If disaster were to befall the S&P, it would most certainly survive; and present one a buying opportunity, once again.

Ralph Vince writes: 

It will have 3 1/2 market days to recover what it will give up tomorrow in order to do that.

Alston Mabry writes: 

Just to see some stats on the SPY days YTD:

249 trading days
149 Up days, or 59.8%
mean Up day: +0.57%
mean Up day: 1.61 pts
sd: 1.32

mean Dwn day: -0.57%
mean Dwn day: -1.63 pts
sd: 1.83

Jared Albert writes:

Using  with gratitude Big Al's numbers:

up =np.random.normal(1.61, 1.32, 138)
down = np.random.normal(-1.63, 1.83, 112)
Total number of max high finishes divided by total runs:      0.1357 on 10,000 runs

from random import sample, seed
import numpy as np
seed = 10
#55% of 250 give 137.5, so to avoid half days went with 55.2% up days
'''249 trading days

149 Up days, or 59.8%
mean Up day: +0.57%
mean Up day: 1.61 pts
sd: 1.32
mean Dwn day: -0.57%
mean Dwn day: -1.63 pts

sd: 1.83'''
up =(np.random.normal(1.61, 1.32, 138))
down = np.random.normal(-1.63, 1.83, 112)
total_days = list(np.concatenate((up,down)))
win_count = 0
total_runs= 10000
for _ in range(total_runs):
    m=0
    running_total = []
    test_population = sample(total_days, len(total_days))
    #print(test_population)
    for i in test_population:
        m = m + i
        running_total.append(m)
    #print(f'running_total,{running_total}')
    if max(running_total) == running_total[-1]:
        win_count += 1
        #print(f'win_count: {win_count}')
print(f'Total number of max high finishes divided by total runs: \
     {win_count/total_runs}')

Dec

27

Along with all my other shortcomings, I have a very strong tendency to aggressively add and hold onto my winning positions for what I believe is "the really big move". Most traders exit their winning trades too early because they trade for average and lack the discipline to watch their profits erode. Markets usually do go further than one thinks, however these excesses can evaporate quickly also.

For me at least, managing a losing trade isn't fraught with much angst. I don't overstay my welcome. I just get out! Paradoxically managing a winning trade is much more emotionally demanding and realizing a large winning trade can be more emotionally destabilizing than a losing trade.

Dec

24

 This is one of my favorite stories. I hope you enjoy it, and I wish you a Merry Christmas. — Victor Niederhoffer

High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.

[For the entire text of the story, please follow this link].

Dec

24

Here's a story I like almost as much as Stubby Pringle.

Dec

23

Given that the S&P is up big with approximately 7 days remaining and 2 that S&P has been up 10 of last 12 days, both events can be independently quantified with very positive expectations until end of year.

Gary Phillips writes: 

Difficult to argue against that kind of momentum. I would expect to see dealers come in buying tomorrow a.m., to hedge their deltas on options positions, rolled up-in-strike and out-in-time. But I also see a possible bearish divergence in Ralph's most-watched SVXY and an uptick in implied correlations.

Dec

23

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

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

Good recovery from surfing sessions.

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

It might be one of the best ways to longevity.

Dec

23

1. My favorite articles on Daily Speculations are not about trading. They are the Chair's recollections of his father Artie.

2. New Jersey's only redeeming quality is the full service gas stations

3. Large families are more than worth the expense and attendant tribulations.

4. I miss the hackneyed, but fervent pitches, from the Long Island penny stock hustlers.

5. The shorter the time-frame (when trading), the more random the price action, the greater the capacity issues, and the greater the model risk.

6. Is there a way to keep the current generation from repeating "Sure" instead of "Yes, Please", and "No Problem" instead of "Your Welcome"?

7. "A happy wife IS a happy life". Place her on a pedestal and keep her there!

8. Sitting will kill you just as assuredly as cigarettes!

9. The attitudes of today's athletes have ruined my love of sports.

10. Try your best to avoid…getting stuck driving behind a Prius!

Dec

23

After a 4 year hiatus from trading, #7 is now four; and as Steven Tyler (and yes, Sleepy Joe), Gene Autry once sang, "I am back in the saddle again". Not much has changed. News and algos drive the market in the short term; and as a prominent spec-lister once stated, "momentum and sentiment" drive the market in the long term. Of course, so do stock buybacks and an acommodative Fed!

The current trend among marketnistas, academics, and dilettantes in social-media, appear to only "view the market through the lens of volatility". Short vol strategies are nothing new, but the obsession with dealers' counter-party options positions and their attendant gamma exposure, is herd like. But, nothing has really changed. It's still the drift driving price, albeit on steroids.

The transition back was nearly seamless. Trading is forever ingrained in my mind, my heart, and my soul; which is why I couldn't keep from returning to the screens. Unfortunately, all my bad habits appear to be ingrained in my psyche, also. Once again, nothing has really changed! Confirmation bias, and fomo/over-trading, systematically pervades my decision making.

Emotionally-neutral, logic based reasoning is the ideal we all seek. But, climbing out of that valley between perception and reality has always been a trek for me. Even after +45 years of trading, I am still fighting those cognitive demons.

Nevertheless "my get up and go hasn't got up and went"… quite yet. And trading is still my "Sweet Emotion".

Dec

17

Amazingly the probability of the Prez winning the election is still less than 50% according to betting markets. It's a bet of 100 that gives you 125 profit.

Dec

16

It often happens (although not tested) that a sports team (like the Knicks last night) makes a comeback only to lead to a heartbreaking loss. I tested this for S&P and found that moves from noon to 3:30 of 10 points or more, but still a deficit or small lead of 4 points or less, leads to victory in the market, i.e. continuation. Thus another seeming a dramatic comeback in the second half from a big deficit in the first half and moves out to close to a lead or a small lead. And then they lose. A comeback that leads to a loss just the same. I tested this for the market for comebacks of 10 or more points from noon leading to a small deficit of 4 or a small lead of 4. I found that in the market unlike my supposition of sports these comebacks lead to victories or continuations.

Dec

13

It's useful to think about things being more or less predictable, with mathematical chaos being an extreme limit and a Gaussian being relatively certain (and very smooth) about a particular point.

Dec

13

America sees the absurdities—she sees the kingdoms of Europe, disturbed by wrangling sectaries, or their commerce, population and improvements of every kind cramped and retarded, because the human mind like the body is fettered 'and bound fast by the chords of policy and superstition': She laughs at their folly and shuns their errors: She founds her empire upon the idea of universal toleration: She admits all religions into her bosom; She secures the sacred rights of every individual; and (astonishing absurdity to Europeans!) she sees a thousand discordant opinions live in the strictest harmony

Dec

13

 In Egypt, Tunisia and Morocco alike, they come to you with the most determination. As you wave, they go around and still come to you from other angles. On you, even when you shake, they don't fly away simply. It's very different from elsewhere.

Not getting it this time? — No problem, I will do it again!

What if not again next time? — No problem, I will do it again!

What if not getting it all the times? — I will get it eventually!

What if getting killed? — I will die anyway!

So they have in instinct what we humans learn about success?

How did they get that?

Well, maybe because they take you as a cow or a sheep who pose no danger to them.

Or maybe because there have simply been far more cows and sheep than humans in the region.

Or maybe because the people here have not been active in battling them.

Or because the people here are not as determined.

Or simply because they are enlightened.

On another perspective, look at the statuses of the flies around the globe, maybe we can learn something more. In developed world, flies are very much suppressed. In other somewhat less developed areas, Asia or East Europe for instance, flies are very wary. Is that an indication factor of human success? Can't we say on an evolutionary basis that the determinicity of the people vs that of the flies in the region reflects the success of the people (or of the the flies).

Dec

12

Firehouse Strategies has released a new poll for Michigan, Wisconsin and Pennsylvania. They are more than good news if you are a MAGA fan and very, very bad news if you are loyal to the party of the Great Society. Firehouse is a Republican-leaning consulting firm so their data deserves to be viewed with even more than the usual scepticism. On the other hand, they are far more forthcoming about their methodology than most of the "non-partisan" polls that get most of the media attention.

Dec

10

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

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

Jeff Rollert writes: 

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

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

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

Peter Grieve writes: 

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

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

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

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

Peter St. Andre writes:

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

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

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

Zubin al Genubi writes: 

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

Dec

10

 The Mexicali tunnels are the Grand Canyon of Human Underground Dwellers. They extend for miles beneath the city and under the border to the USA. The network makes the Manhattan subway tunnels and Michigan State Steam tunnels I have also visited diminutive in comparison. They support more HUD's than the San Francisco underground Chinatown and the Paris catacombs.

I entered with the wife of a building owner through a back room, and down steep steps to the first level. On the north side she pointed to a vertical slab of fresh concrete over an earlier entrance that coursed beneath the border to the U.S.

Our entrance, among dozens throughout the city, is unique in housing Central American immigrants who have arrived and are waiting for a coyote to sneak them into the Promised Land. They live beneath the streets and businesses cheaply and undiscovered for days or weeks in queue for their coyote. It costs about $5000 just to get to the other side, and up to $8000 for guaranteed delivery to the American cities of their choice.

The Central Americans I saw were on drugs, as seems anyone who enters the tunnels. Their tastes range from marijuana to a preponderance of methamphetamine slammers with a needle. Mattresses were strewn off the main tunnels in small cul-de-sacs while the occupants wandered zombie-like in the network. 

It is safe because they pay $.50 a day rent to the owner, my guide.

She speaks fair English in relating the history of the tunnels. ‘The Chinese immigrants from the 1920s into the 1970s built the tunnels to house the immigrants. Like now, they lived here safely waiting to escape into the USA. It was a subterranean town with homes, bars, and a casino with still roulette wheels and empty card tables. Now…’

 

She pulled aside a square of rotting plywood into a dark so black it was as though the little light around us was consumed. I whipped out my flashlight. Before me lay miles of passages piled with stinking garbage and hopping rats. I wanted to continue, but she demurred, ‘Not without someone with a gun.

‘Last year a man entered to scavenge the tunnels. He went in night after night for a month. Each time he brought out something or a story. Once it was human bones. Another time it was the report of a large room with dozens of concrete beds that used to house the Chinese refuges.  One night he didn’t exit and was found thrown on the streets from another entrance a half-mile south of here. He had wandered too far into La Chinesca. He was bound and had been hung by his feet and tortured.’

The Chinesca is a neighborhood located five blocks from here that is home to about 15,000 people of Chinese origin, historically the largest Chinese community in Mexico. Early in the 20thcentury Mexicali was numerically and culturally more Chinese than other immigrant groups. Even today, anyone on the streets above will tell you that China runs the town.

The Chinese arrived to the area as laborers and political refugees. They were hired to dig the Coachella Canal that feeds from the Colorado River past Slab City that is our Nile of the Sonora desert. With that thanks to China, we descended to another level in the network beneath Mexicali.

I don’t know how anyone’s eyes could adapt to that dark. A few people stumbled away when I shined the penlight. The lady said she was nervous, and I was glad to hear it. We ascended to the bright streets.

 

I’ve visited other entrances including one a mile to the south from a restaurant that led from the kitchen down steps into the network and to this place where the door to USA was cemented up two years ago after the Border Patrol discovered its exit a half-mile to the north in a Calexico sympathizer’s basement.

‘This is the northernmost entrance of the Chinesca complex,’ she said. ‘Since they cemented up the tunnel to the US the human trafficking has taken to the fences. It’s more expensive and riskier. The underground Chinesca has become a holding tank for the immigrants.’

As near as I can figure, the Chinese arrived to find a thriving downtown with basements beneath their hundreds of shops and restaurants. They dug and connected some forty basements that eventually led north to the border. As the settlement grew, the subterranean Chinatown extended. Some archivists have speculated that the tunnels were also used to supply alcohol to the U.S. during prohibition. It housed brothels and opium dens.

There was an earthquake a week ago beneath my feet where I type that sounded like a lightning crack through the concrete tunnels.

The pursuit of this Chinese puzzle led me above to Chinesca near the Chinese 8 restaurant. The food is authentic and cheap. I ate with a San Felipe fisherman who asked the waitress if they served Totaba. She replied with an inscrutable grimace. Totaba is endemic to the Sea of Cortez and is on the endangered species list. It grows to 7-feet and one pulled my tablemate out to sea after he had bear-hugged it and refused to let go. He nearly drown for the swim bladder that fetches $13,000 USD from Chinese smugglers who serve it as a delicacy. ‘It makes your dick four inches longer, for starters,’ he said. Five months ago, Chinese ‘tourists’ were caught on the U.S. side with $3.7 million of fish bladders from Mexicali.

I still had a yen for the HUDs but the waitress refused us entrance. There are about forty basements that make up La Chinesca and each of the buildings has a different owner. The Chinese underworld is still a doorway away.

Dec

10

 Each year Christmas trees arrive on our island in containers.

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

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

That year the lots were full of trees on Christmas.

And so it goes back and forth every year.

This year the prices shot up noticeably.

And so it goes with markets as well.

Dec

10

One of the great history 'what ifs' is what Reconstruction would have been like if Lincoln hadn't been assassinated.

Dec

10

I can understand why Austrian school economists love sociological explanations for the origins of money. If, as von Mises presumes, capitalism is the a priori wiring of our species (like a kind of Chomskian embedded grammar), then money had to evolve out of the rational need for a medium of exchange. The difficulty is that there is absolutely no historical evidence for the notion that "money emerges as a consequence of economic actors being better off using a medium of exchange than engaging in direct barter"; and there is a great deal of evidence for the fact that money develops as the unit of account for the people with edge weapons who collect bribes aka taxes from people who do not have them.

People in authority needed money to buy things that they could not extort and to bribe the supporters who might otherwise become rivals. The negotiations between authority and the people who could not be wholly intimidated, who had some degree of personal freedom, were the beginnings of trade and money. The promises to pay and to obey made by the parties were the beginnings of credit.

The struggles ever since have been about the quality and quantity of money and credit and the limits, if any, on the monopoly authority has over the question of what will be the unit of account for taxes.

Dec

5

"These Guys Just Drove an E63 AMG Across America in a Record 27 Hours 25 Minutes"

It's amazing the high tech that is used to smash the cross country speed record. This article provides a look at that most illegal race in the country and the massive preparation and planning it takes to break records.

Chris Cooper writes: 

I wonder…has anybody ever seen evidence that experts at video driving games are any better (or worse) drivers than their non-expert peers? For that matter, are race car drivers any safer on the roads than non-racers?

Dec

5

"Financial Transaction Taxes - the ghost in the machine"

Mr Hurd, who made markets in KOSPI options, knows a bit about US hft as well.

2 points:

+ the USA already has a financial transaction tax, SEC self-reg fees of $2000mmm last year.
+ Virtu's quarterly revenue is "only" $127mm. This puts a heavy limit on what an HFT tax could be estimated to raise. And, to Mr Williams' point, speed isn't everything. The total amount people make in the markets makes $half a billion usd of yearly revenue look small.

(sorry, I saw an estimate of the total size of the asset management industry on some slide somewhere not very long ago, but I'm too lazy to look it up.)
 

Dec

5

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

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

Zubin al Genubi writes: 

Bonds moving with equity rather than opposite.

Dec

2

 The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution is a great book. 

In addition to this book, I'd recommend taking the time to watch the MIT fireside series feat James Simons.

The link is the 2nd in a three part series which cover the following:

Talk 1. His academic and personal history

Talk 2. Focuses on RenTec

Talk 3. Discusses his interests outside of finance.

Dec

2

I'm late on this, but Alexandre Laumonier's next book 4 has been out for practically a year.

Dec

2

A recent study receiving some attention on this Black Friday weekend looks to find the optimal parking strategy in a lot without full visibility. The paper in the Journal of Statistical Mechanics compares an optimistic strategy of driving past empty spots straight to the ideal entrance area to look. The pessimistic strategy parks in the first empty space spotted. The prudent strategy looks to pass an empty spot before taking a subsequent open one en route to the ideal entrance area spots. Hope some on the list intuited the solution and got to their prizes before the stores ran out.

Dec

2

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

Highly recommended.

.

.

Dec

1

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

Bill Rafter replies: 

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

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

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

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

Larry Williams writes:

The basis of all profits is trend.

Trend is a function of time.

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

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

Zubin Al Genubi writes: 

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

Laurence Glazier writes: 

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

Ralph Vince writes: 

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

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

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

Laurence Glazier writes: 

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

Dec

1

 Rich Wagner was one of the early racquetball pioneers to make his way from Anywhere, USA by thumb and bus to the San Diego racquetball mecca. The only private club in the USA at the turn into the 1970s was Mel Gorham's Sports Center on Turquoise Street … a forehand with the small racquet from the Pacific beach. Wagner, and dozen of others, gathered at the club in the morning, ran the beach at low tide, partied late into the night, and slept in their vehicles or crammed into beach flats.

Handball legend Paul Haber was the club manager. There were no money tournaments but hospitality provided girls in bikinis and banquets. The draw sheets reached out the club lobby into the street with up to a thousand entrants. This is called the Golden Era of Racquetball spawned by its three originators: Bud Muehleisen, Carl Loveday and Charles Brumfield, all San Diego world champions of various racquet sports.

I started an anonymous sponsorship for arriving players like Wagner and hooked the superior ones up with the two budding racquet manufacturers Leach and Ektelon. Bud Leach and Bud Held, respectively, were cranking a handful of racquets per week out of a garage and shed. Wagner signed with the Leach stable and ran 4th-8th nationally through the Golden Era 70s. His style was dive and shoot.

(From the upcoming book 'Racquetball Stars of the Golden Era'. Photo by Art Shay with permission.)

Dec

1

Usually around Christmas and New Years I like to count the private jets at our Kona airport on the theory that the captains of industry have a good read on the economy. Surprisingly, and not the norm, is the large number of private jets (over 50) currently parked at the FBO for Thanksgiving. I saw lots of overflow jets flying to Honolulu to park. Of course with all time highs in the market, their options are giving the rich the wealth effect. Charles Schwab, Roberts of KKR, Go Daddy guys, Bill Gate, Paul Allen, and many other of the richest have homes here. It is a nice place!

Kim Zussman replies:

Agree completely. The hungry contractors that gave good deals a few years ago don't return calls now. This week I delivered some gifts to a few referrals, and even the usually unpopular ones have full parking lots.

The man in the White House knows how to stay there.

Nov

23

I recently ran some tests to see if using % adjustments were better than absolute. You will recall we had a heated debate on this. I found that the number of declines more than 10 S&P were as frequent during the early years of the last decade as during the recent years.

Nov

21

"Top 10 Emerging Technologies Of 2019: World-changing technologies that are poised to rattle the status quo"

Nov

21

 I walked through the Mexicali Plaza Hotel where I have previously stayed in the modestly run-down cheap place. But, since one year ago, it has turned from a flophouse into a rather elegant hotel. The reason comes from India.

A year ago, India started running junkets of migrants on one-way tickets to Mexico with the intent of entering USA on political asylum. The Plaza brimmed with young male Indians for four straight months and the hotel reaped a fortune. Not so for the migrants. They are hiring a coyote on this side whom I talked to who takes them to a place at the nearby fence to jump with the guarantee that on landing they will be instantly nabbed by the US Border Patrol. If not, they keep trying or get their money back. In the turnaround, the US detention center occupancy has rocketed with 60% Indian people living free with three squares and a roof over their heads. The US may not deport them for they could be killed on return to their country and they can admit only so many over time.

The Plaza used the windfall to remodel the hotel from top to bottom as a tax break and raised its prices. However, the the hotel is empty, and no longer affordable to tourists like me. The Indians speak no Spanish so a Slab City resident has been hired as their interpreter and may soon may be able to afford a room at the Plaza.

Nov

17

 There was a variation of "your own man says you're out" with Yovonavitch's testimony that The Pres could fire her at any time for any reason. Notice also that The Times ran an 8 column banner headline that she was devastated by the firing. Who wouldn't fire an ambassador that was actively working against you and said not to listen to boss now that there are about 3 banner headlines a year all of significance of outbreak of war or 9-11 or assassinations. But time banner was "she was devastated". I know I'm not hitting nail on head with "your own man". It's more like "I called the previous shot out" so don't accuse me of cheating. How would you describe the street game analogy of the crocodile tears for this corrupt ageist woman?

George Zachar writes: 

I'm reminded of the soccer players who are famous for pretending to be grievously injured by the slightest contact.

 

Nov

15

 Since learning French for over a year, I needed to read a book in French. Somewhere on the net, L'Étranger was recommended as an easy and good book to start with. I read briefly that it's a story taking place in Algier, which intrigued me because I travel around that country, in Tunisia and Morocco. So I decided to read the book and started without first reading any in-depth introductions. It did turn out that the vocabulary and sentences are relatively easy in most parts, so I could grasp the ballpark meaning (80% perhaps). But I must say that it's not like any easy novel I am familiar with that usually tends to have a clear theme and story line.

L'Étranger starts with the protagonist Meursault going to his mother's funeral, where he did not look at his mother (a first striking feature to me), but rather conversed with some staff members of the retirement home, had some smoke and coffee near his mother's corpse, and observed in detail the elder attendants' behavior at the funeral. It's a very strange instance, so I tried to anticipate what might develop from this.

Then, it's a story the next day back near his work place where he met a former female co-worker during swimming. They then had some romance. Later when she asked him if he loved her, he surprisingly said that if she would like him to love her then he would love her. Unrelated to the previous story. But OK, then, I felt, then it will be a love story.

Then about his work place where his boss intended to send him to work Paris, for which he was not too eager. Then he encountered his neighbor, an old man who constantly abused his disobedient dog. Again, all unrelated stories.

Then another neighbor, Raymond, invited him for a meal and drink. Raymond wanted Meursault to help him to deal with his unfaithful Arab mistress. He agreed to invite the girl to Raymond's apartment where Raymond had sex with her and insulted and beat her. The police intervened on the violence, and then Raymond asked Meursault to testify in court that she was unfaithful, and he agreed. Another unrelated story.

So it was now more than a third into the book and I had no clue what the book is all about. So I started researching on the net and learned that it's a classic with profound meanings. Absurdism!

According to wikipedia: "the Absurd" refers to the conflict between the human tendency to seek inherent value and meaning in life, and the human inability to find any in a purposeless, meaningless or chaotic and irrational universe. The universe and the human mind do not each separately cause the Absurd, but rather, the Absurd arises by the contradictory nature of the two existing simultaneously.

So Meursault was a natural dweller of Absurdistan, where things are purposeless, meaningless and irrational!

Later on, Meursault killed an Arab, brother of Raymond's mistress, and was thus jailed and tried for murder. He was sentenced to public decapitation mainly due to his unsocial nature and lack of remorse.

With the philosophy behind, it's a very interesting book.

The Absurd exists on a broader extent as we think.

The human mind is not wired for understanding randomness and probability.

Quantum physics revealed the random nature that contradicted to the belief that the physical world is supposed to be deterministic.

Haven't we had enough debate on market efficiency: i.e. humans are rational or irrational by nature?

What about the fights between fundamental analysis and technical analysis? What are the mumbo jumbo?

Is the market predictable or on a random walk?

Nov

15

An excellent book by Harry Steele Morrison entitled How I Worked My Way Around the World appears to be free online or you can get it on amazon.

Nov

15

 One of the advantages of living in a town of dashing outlaws is their lonely pretty molls after the men go to jail. It is a moment to meet and talk with them without being suspected of having sex.

I visited one who related that her boyfriend had just revealed on the phone from Folsom that he missed her and to prove it she should go to Walmart wash and, 'Look for a tree with a chain and a spiral of branches. Dig under the point of the spiral for a surprise.'

Thinking it was a gun or booty, she enlisted me to guide her to the wash. We walked at dusk to three trees within a mile of my shipping container that during frequent hikes I had noticed had chains and straps hanging uniformly from limbs about 6.5 feet off the ground. These are S&M trees open to the public who stumble on them. Someone should tack a coin machine to the trunks like a car wash for high profits. The lady grew more excited at each, but there was no spiral of ground branches, and so I dropped her disappointed at sunset in the High Rent District.

The following day while scouting, I found a new Mesquite with two chains hanging like a trapeze without a bar from a horizontal limb 6.5 feet off the ground and around it a spiral of branches. A peculiar odor wafted on a westerly from the tip of the spiral, and I began pulling out the branches. Three feet down and I rocked on my heels!

Who, I thought, is missing with blonde hair? Everyone with his ear to the ground in Slab City keeps a mental catalogue of missing persons for one day, such as this, to find and identify a body, and become a hero. The protocol is to tell the Elders who decide whether to leave it lay to eternity or jerk the coroner's chain.

Silky blonde hair a foot long reached out from under the end of the spiral. In a terrible stench, I grabbed two big handfuls and tugged. There was a crack and I fell backward on my ass thinking I had snapped off the head. I held the carcass to the sunlight and slowly turned it end-for-end to see the face of a dog. It was a Yorkshire cross with hair that had grown after death to great lengths.

I took a strand back to the moll and told her she had been duped by her boyfriend. 'My ex!', she shouted, and ordered me to take her to the tree, which I did, but it wasn't to see the blonde.

Nov

15

I flunked out of college 3 times all by myself. Too much pinball, too much poker, too much basketball, too much drugs, too much sex…all excuses, when the real cause was too little self-discipline. Still, I managed to learn a few things each time they let me re-enroll, and finally graduated. With a little more motivation, graduate school turned out better.

I don't think there is much difference between video games for this generation and whatever excuses we used decades ago.

Nov

15

The walking cure: "Walking Might Be the Best Exercise There is"

After trying it all… jogging is the best exercise there is.

Larry Williams writes: 

BFR or blood flow restriction has good data on it for improving strength w/out heavy weights, etc…

James Goldcamp writes: 

In bang for buck I would look at the high intensity interval work of Martin Gibala. The name "one minute workout" evokes charlatagnism, but the book is a good reference on short protocol workouts with real data. For me if you had only one tool (and your body) at your disposal I'd use an airdyne fan bike (you can generate a lot of intensity in all limbs that is easy on joints) and pushups.

Nov

7

Just returned from a 10 day trip to Japan and the major insight I have I got from the wonderful book The Princeton Guide to Evolution [free pdf found here]. The market has developed some exquisite adaptions in last 50 years and anyone who doesn't take account of its evolution is a doomer. 

Nov

7

This looks like the Frontline documentary that Ralph recommended: "Betting on the Market (1997)".

James Goldcamp writes: 

Plus you get a pre Lenin Cramer. This was before he was ubiquitous on CNBC. As Ralph says it's a beautiful time capsule. I was even working for fido when they ran advertisement in the documentary and Vinik got the boot.


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