January - 2019
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
2
 S&P -13.75
 USB +1.12
3
 S&P -63.25
 USB +1.29
4
 S&P +83.50
 USB -1.25
5
6
7
 S&P +19.25
 USB -0.12
8
 S&P +19.25
 USB -0.26
9
 S&P +9.75
 USB -0.07
10
 S&P +12.00
 USB -0.20
11
 S&P +0.75
 USB +0.16
12
13
14
 S&P -14.25
 USB -0.06
15
 S&P +25.00
 USB -0.01
16
 S&P +9.75
 USB -0.04
17
 S&P +22.00
 USB -0.04
18
 S&P +36.25
 USB -0.16
19
20
21
22
23
24
25
26
27
28
29
30
31

Jan

21

Stan and Ollie is a beautifully wrought depiction of coping with changing times, how fleeting is success, and the perils of lasting friendship.

Jan

20

  I have renewed my acquaintance with checkers in the last 2 weeks. I find checkers much more a real exercise in logic than chess. The moves of a binary nature right or left duplicate the logic gates that go into all arithmetic operations of computers. The rules are very simple and thus correspond with extensions to all binary decisions in life. We all know that Tom Wiswell has written 5,000 proverbs covering the relations of checkers to life and they are invaluable and worth an extensive publication and study. However, what I have learned is quite rudimentary and not for all posterity like Tom's. Briefly, here are some lessons:

1. Prepare before you play

2. Don't move in haste

3. Play only certain lines and leave off playing when you don't know

4. There is high frequency playing in checkers same way there is in our our markets. Don't play against the high frequency but play for the 30 minutes games/ the high freq people have better equipment that you can't compete against

5. Only play lines that you know and don't wing it

6. Write your major plays down before hand and play them only

7. There are some players much better than you. Don't compete with them

8. Your wins and losses tend to form clusters, i.e longer runs than expected. So don't play after two losses in a row 8. Exercise before you play for at least 10 minutes

9. Study the play that was good 100 years ago and use it

10. Don't do things by rote as things are always changing and your opp

11. The play in the morning is very different from the play in the afternoon. The players are different. I find checkers a good antidote to loss of memory and a good hobby which for me is resonant as my father played much with 10 Scotties and it brings back the glory days with my dad and Tom. Hobby for the old age.

Jan

19

 Humility, without a doubt, is a celebrated value for speculators. Not just here on Dailyspec but anywhere trading is a means to self-actualization.

A humble man is a learner. Taking responsibility for mistakes is the attitude that allows the flowering of the virtue of humility on the tree of cognition. But what if humility is the antidote to ego? Is humility the absence of ego?

No! Humility is a sub-set of the Anti-ego or Un-ego (kindly allow this word as anti- is an extreme and un- only a nullification).

A humble mind has only adapted to overcome one of the three primary perils of the human mind (hard wired over the journey from chimpanzee to man). That one peril is that the human mind is coded to prove its superiority.

The other two primary perils are that the human mind loves to posess and control on one hand and loves to enjoy. Those amongst the humble who haven't been working on addressing these two default states of the human mind are the Humbly Egoistic.

To overcome the desire to possess & control it seems one good approach is to be the custodian of the risk capital at disposal. Even if one is 100% shareholder of his firm, such a person sees the firm as a distinct entity from himself.

Such a person will be able to accord due respect to risk, risk capital and the human resources around. This creates a greater shift from ego towards un-ego than being just one who is quick at accepting mistakes.

The devil however, is the primordial wiring in each mind to enjoy. The pursuit of joy is not the same as pursuit of happiness. The pursuit of joy then naturally has to keep meeting with agony, disastrous drawdowns and such things. If one can start working on ignoring the neural circuits that motivate one to find joy one lays a conjecture the same neural circuits are the ones that create a sense of being evaluated, being judged, producing suffering. Abandoning a path that is sub-optimal is the iterative process to seek the optimal. For such a mind then work is a responsibility & fulfillment of this responsibility the stepping stone to satisfaction.

All the three states of humility, state of custodianship and abandoning the path of self-judgements combine together to create the ego-free man. The unegoistic trader (it's an asymptote obviously, of an idea and not the absolute ever) is then the one closest to reason. Any other man not working at freeing himself from each of the three primordial hard-wirings is then at risk of not acknowledging the most potent idiosyncratic risk, i.e. the self or the origin of ego.

Getting back to the first couple of sentences in this note now, the whole idea of self-actualization is a powerful oxymoron then. In actuating excellence the whole crux is in leaving the self aside! Is that what the Chair does when he leaves shoes outside his trading room?

Nature hasn't designed a single variety among the species with vision that can see itself. At most we can see our transposed mirror images. That's the natural design. So ego is a perception derived from observing with our three primordial mental lenses how the universe is treating us. That explains why traders prefer to trade alone, replace phone ring tones with beeping lights, mute the #NB# tubes etc. etc. No, its not being alone. Unegoistic state of mind is being without the imaginary perceived notion of the self.

For all the accusations of selfishness on a trader, the truth stands placed well thus, a trader has to be self-less to remain in the game. Neither humble, nor humbly egoistic and certainly not egoistic a trader true to his grain is self less. A trader is a state of mind where only a responsibility to capital and a focus on risk exist. Rest is left with the shoes, outside the dealing room.

Laurence Glazier writes:

Thanks for posting this. The question of ego is interesting, because it normally relates to expectations of society and colleagues, and in this sense it is a diversion, but a sense of self-worth would preferably not depend on the opinions of others.

Every work of art is in some way a self-portrait, and every trade reflects the trader, which makes the activity very useful for self-observation. And humility, aside from the basic truth (that, from a distance, we are dots living on a dot), helps remove noise from the signal. But beyond the floating bubble freed from ego, there needs to be direction and force, and it is there that resistance to progress is very helpful in developing the core, for without resistance can there be growth?

In fact, resistance appears to home in on every nascent growth, and tests our mettle. Ayn Rand had many rejections from publishers before Atlas Shrugged saw the light of day, though it should have been evident to them all that here was a fabulous book.

Sushil Kedia writes: 

Laurence,

Thanks for the thanks. But why only art? Every human output has some reflection of the self. That precisely is the point that the human mind has become hard wired with the 3 perils enumerated in the post. Goal for reaching a state that produces excellence is to overcome & bypass these three default factory states we come packaged with.

For example, the necessity of counting is to bypass the self. If counting validates a theses, a trade is fired. There is no self in this. The self is so tightly coded into our personages, for example, that soon a counting based trader will brag "I do not let any trade happen here that are not validated by counting". The I has to be cut down to the size it deserves to be. Not sure if many here give credence to NLP, it works out well at this end of the world. So this sentence when changed to "without validation from counting trades do not happen" removes the I.

In fact, with my EQ trainer who I have accepted as my Guru in every way, the pact is to avoid using three words in any conversation with him, "I, Me, Mine". Instead he has approved sentences such as "Sir, would you care to meet Sushil" and not "Sir, would you care to meet me".

As we practice being less and less conscious of the illusory perceived image of the self by not giving it so much importance the mind shifts closer to higher EQ states.

If it is the "I" that suffers fear, greed, lust, anger an endless spectrum of idiosyncratic emotions then this "I" is the most vulnerable piece of code that hangs around without due acknowledgment on the trading desk. Once acknowledged that it is the I that is the biggest source of idiosyncratic risk a trader starts getting trained to ignore it and focus on the defined processes.

A trade or piece of art that doesn't carry the reflections of the self is super. Let us acknowledge the shades of grey and paraphrase this line. A trade or piece of art that reflects less of the self is superior. 

Laurence Glazier writes: 

I would agree with a lot of this, and we might indeed abandon use of the words me and I, and refer to ourselves by our names, and perhaps even them place them in quotation marks, like "Sushil" or "Laurence".

We live in an age of automation, which started long ago and develops now with AI. A trading system which is fully automated with signals for going in, adjusting, and coming out, can be done by a machine, and it is a special interest of mine to be less like a machine and be more essentially like a human.

Removing the I, if such a thing is truly possible, would create a tabula rasa. How much great art has come from such a state? If such a blank slate is achieved, one might prefer to inscribed it with new patterns, a new identity informed by inner qualities rather than influenced by the culture and education of our childhoods. But such a planned approach may not be as good as natural development. I am all for the "considered life", however.

While trading is for many people an art for its own sake, art - in the sense of painting, writing and composing - can be a transcending activity. Charles Rennie Mackintosh put it well:

"Art is the Flower - Life is the Green Leaf. Let every artist strive to make his flower a beautiful living thing, something that will convince the world that there may be, there are, things more precious more beautiful - more lasting than life itself."

Picasso thought that every child is born an artist. A plant may flower in nutritious light and soil. Leonard Cohen wrote - there's a crack in everything, that's how the light gets in.

Being in a comfort zone is not always a spur to creativity. Without resistance, how can the spirit progress? In my experience questions are of much more intrinsic value than answers. Some questions from me:

Would you rather buy a painting or paint it? In what sense can a painting be owned?

I'm always glad of the opportunity to reflect on these things!

Jan

19

The Mayor and other social journalists won't stop selling how bad good is.

"Wall Street Grows Antsy as Shutdown Threat to Stocks Intensifies"

Steve Ellison writes:

That's some antsiness: S&P 500 up 9 of 12 trading days for a 5% gain in 2019 to dfrate. Imagine what might happen if Wall Street ever calmed down.

Jan

17

It is wrong to think of the cryptospace uniformly, and I personally think the language is terrible - as very few are "currencies." Allow me to explain. One must think in terms of utility functions. I will start with the most basic.

1) Currency - there has always been a need for a stateless,reserve and neutral currency. Think gold, dollars, and Swiss franc until the gnomes recently lost their minds because of the Euro craziness.

Neutral State/Stateless/Reserve Currency Functions- Historically, the role has gone to the reserve currency and/or gold. You take dollars and if you don't want dollars you take gold - if you didn't want those you went to Switzerland and the private banks - until you couldn't. Just check the math of the compounded growth rate of gold over the last 119 years (3.6% per year). A inflation protection function but only over a generation. The issue now, however, is the relative size of China/US and the amount of free exchange of the currencies. There is once again a need for a neutral benchmark and gold is not really practical. The gold market today is roughly $7.5 trillion dollars. Crypto is $119 Billion. Even if it takes a generation, I don't think my kids will buy gold but they trade "VC" all day inside the video games and on the phone. Upload your neutral currency to the cloud then pick the country where you need to travel. Much better than diamonds or gold. It may take 30 years, but if it does nothing more than cannibalizes gold the crypto space would appreciate 14.6% per year at today's prices for the next 30 years. Amazon has compounded at 23% since its inception. Amazon is now 25 years old.

2) Software development supply chains - software code will do a certain amount of work (regardless of who programs it). The problem with state currencies is this - say I have sourced programmers in India and the Rupie value changes, I may shift the work to Latvia or Vietnam for no fault of the programmers. A stateless currency allows for a uniform means of payment for a uniform measure of work. It is much more democratic and free market.

3) Utility Coins - Smart contracting - if you have settled an estate lately, or own copywriters, IP, etc. I will let you figure out how to manage your digital property and deal with all your digital accounts - but a smart contract will be an executable. Practical law moved online. Title searches - $500 on a closing statement (a fraction of that a blockchain). These will trade more like commodities (up and down with supply and demand). Other way to think of these coins (software blocks that you pay to use) like a toll road, etc.

4) ICO crew - let's face it - this was securities fraud because the socialist have largely shut the public markets - in overprotecting investors capital markets are going dark to individuals (look at the number of public companies v. private equity back firms). Mr. Bogle passed today - active investors removed securities in part do to the free riding problem and over regulation. These will come back but as traditional equity positions.

5) Inflation Hedge - M1 = $4 trillion (2% inflation wipes out $100 billion a year in purchasing power). M2 = 14.5 Trillion (2%). In short, if crypto becomes the prefer inflation hedge (which once it is more mainstream accessible - watch out during the next inflation scare = I think people may be surprised at what happens.

6) Korea - crypto ran in part because S. Korea uploaded its money to the cloud - once the bombs stop - well the money came down - but you see the function and QE. The Fed got you back to neutral with the rate increases, but they won't only go up forever and they can go up when people loose confidence. Lots of foreign USD floating around out there. I foresee "official domestic currencies" and international currencies. Brexit night - British pound fell. This hurts import/export business depending on where one sits. Lots of volatility because of politicians - stateless currency pricing might become a preferred standard - like the old gold clauses.

7) Remember the forks - Google was not the first search engine. Bitcoin has forked - forks are code copies that then get developed differently - corporate spin-offs. Just something to remember.

8) Special word on Bitcoin - the price very much followed the Qualcomm pattern circa 1999. The reason I bring this up is that Qualcomm was a core technology set that the early internet, but other companies have subsequently written that infrastructure to greatness. Bitcoin might prove foundational, but others may one day surpass.

Final thought - if the top 1% hold roughly 38-40% of the wealth in the US and Crypto is $120 billion global market - you can be ultimately be in the top 1% of holders if it follows other asset patterns for roughly $1,500. You can be in the .1% for roughly 42x that or $63,000.

If the world decides dollars are not the standard - seems like a reasonably priced hedge.

Jan

16

 Conrad Leslie (d. 12/25/18) has been described as the nation's leading private crop/harvest forecaster. His numbers moved markets and were, in many cases, more accurate than those of the USDA.

1. Restrict your market position to those which are in keeping with sound basic market fundamentals. When season supplies are inadequate, relative to probable demand, trade only the long side of the market. When season supplies are excessive, trade only the short side. If you think the price level is correct, remain on the sidelines.

2. Never buck an established market trend. The market may know more than you know. Give up your opinion before you give up your money. Don't sell in an uptrend, don't buy in a downtrend.

3. Recognize that the greatest difficulty in trading is knowing when to liquidate. Most everyone knows when price moves are starting, but the point to identify is where they have stopped.

4. Mark price charts each day. Successful traders believe that visual pictures are an additional way to see and evaluate price.

5. Never establish a position in the market until you see the potential for a large profit as opposed to a small loss. Never trade in a situation where the possibilities are about in balance.

6. Be prepared mentally to make several attempts at boarding a major price move. A trader's major market approach should be that of carrying out probing attempts which will will result in his being on board during major price moves. Be prepared to take small losses. Avoid the common thought that to take a small loss will reflect poorly on your IQ.

7. Do not trade many commodities at any one time. Some traders have so many irons in the fire that they are unable to devote a reasonable amount of attention to any one of them. Two or three are enough.

8. Do not attempt to trade in commodities about which statistical information is vague or difficult to obtain. It is preferable to trade US commodities.

9. Do not develop an overextended market position. To take either an individual or total position larger than the risk of failure justifies is to invite disaster. Plungers trade rashly and usually self destruct.

10. Restrict your trading to commodities which consistently return profits. Confine your trading to those commodities at which you are a success.

11. Commodity traders who transact business through brokerage firms should direct their efforts towards capitalizing on major price moves. Professional traders earn their livelihood by capitalizing on hourly news developments. Anyone earning a living another way should not attempt to compete in this type of day-by-day trading.

12. Go with the market as it makes new highs or new lows. The act itself indicates a basic change is taking place. Though the reasons may not be clearly recognized by the public, they are of sufficient force to establish a new price record.

Jan

16

 I had a weird dream last night. The chair likes to compare the various commodities to picking horses on the day. We analyze the turf, weather and prior runs of each horse to speculate on the best pick. However the turf is flat and the markets are not a linear process.

For some reason I saw a lot of mountain goats climbing up the side of a very steep cliff. Some fell off, got back up but chose the wrong path to get back up and had a hard time returning to the herd. The ones who are up high are subject to winds and other predators like eagles or rifles.

I think the ecology here has some parallels to how prices move. Sometimes one goat falls and picks the wrong path, i.e like bonds are down a lot but crude has been up ten dollars in the past week. Or the stocks have climbed so high away from the pack that they are susceptible to predators. There seems to be some kind of harmonious equilibrium about the movement of a herd in my dream.

Jan

16

Professor Damodaran's updated date set for 2019 is now available.

Jan

16

400 free Ivy League university courses you can take online in 2019.

I sometimes explore online courses looking for interesting lecture videos that I can either watch or convert to mp3's and use as podcasts.

Mr. Isomorphisms writes:

Their list doesn't have a couple of my favourites. Aiken's compilers course at Stanford and MIT's xv6 lions commentary on unix.

Recent mathematical finds:

-a locus with 25920 linear transformations by H F Baker (archive.org)

-ikosahedron by Felix Klein (archive.org)

-slodowy: platonic solids, kleinian singularities, and lie groups

-Elie Cartan: theory of spinors (more readable than you might think; written in the autumn of his life)

-Park & Yang: yang-baxter equations. (on arXiv, written for an encyclopedia)

The A-D-E stuff is probably the most interesting mathematics ever found. (Mathematicians get to leverage the enormous and relatively obvious differences between platonic solids to make inferences about other structures.)

I'll say this, MIT OCW (started ~2002, no productivity gains so far) is higher quality than Sam's Teach Yourself C++ at Barnes & Noble.

Competition in general has benefits, but 30 cold medicines yet none of them work is just more confusing things to try. Speaking of cold medicines that don't work and competition/markets, I would contrast Guatemala to the U.S. in this way. Guatemala has genuine markets–small merchants who will negotiate on price–whereas the U.S. has CVS (posted-offer, negotiations behind the scenes by eg Procter & Gamble vis-a-vis CVS). CVS will carry fewer cold medicines but they will work.

Back to education and MOOC's: delivery of a higher-quality product happens online than Barnes & Noble (or public library), with youtube (Federico Ardila), PDF's hosted on someone's site (Andrew Ranicki), or Rails/post-Rails MOOC's. More people know about more stuff because of youtube documentaries; that's already happened. It just won't improve work output, other than–we've yet to see how this pans out–millennials deciding that programming is the only decent career, and that they can teach themselves (including 25-year-olds who have held 1-9 jobs teaching for General Assembly).

Jan

15

My view is that most algorithmic trading success is based on payment for order flow arrangements… meaning regulations have, as ever, dictated winners and losers. I point to the ratio of lit/dark trading (US, MiFID 2, Australia) as evidence.

Jan

9

In the appendix of Irving Sprague's Bailout, Sprague lists all FDIC bailouts up to Continental Illinois by size. Continental Illinois was the largest rescue at only $41 billion. Second largest was First Penn at $8.4 billion. Bank of the Commonwealth, near Detroit (a chapter about the shady dealers of that bank's ownership) required only $1.2 billion in 1972. Bailint out Farmers Bank of the State of Delaware cost $360 million in 1976. No other bailouts are tabulated, although 7 other kinds of action (assisted mergers and payoffs) are tabulated.The minimum size of a G-SIFI today is $100 billion.

Jan

7

There are 400 free Ivy League university courses you can take online in 2019

I sometimes explore online courses looking for interesting lecture videos that I can either watch or convert to mp3s and use as podcasts.

Mr. Isomorphisms writes: 

Their list doesn’t have a couple of my favorites, including Aiken’s compilers course at Stanford and MIT’s xv6 lions commentary on unix.

Recent mathematical finds:

-A locus with 25920 linear transformations by H F Baker (archive.org)

-Ikosahedron by Felix Klein (archive.org)

-Slodowy: platonic solids, kleinian singularities, and lie groups

-Elie Cartan: theory of spinors (more readable than you might think; written in the autumn of his life)

-Park & Yang: Yang-Baxter equations (on arXiv, written for an encyclopedia)

The A-D-E stuff is probably the most interesting mathematics ever found. (Mathematicians get to leverage the enormous and relatively obvious differences between platonic solids to make inferences about other structures.) 

Jan

5

 Quite a few of the richest people on earth have houses here in the Kona area.

Each year I like to count the number of private jets to get an idea of how the rich people are doing, and what they think of the the coming year.

This year I counted only 45 private jets, and there were a number of empty spots.

In prior years the parking lot was overflowing with over 75 jets and being sent to Maui.

This year the jets are mostly bigger jets like G5's or larger which leads me to believe that the poor guys flying the small lears are suffering.

According to this indicator things don't look so good.

Jan

5

 Just a follow up to see how this has tracked the past week to see if we're in a 'predictable' market regime. Sometimes when the media is flailing around saying markets are chaotic and unpredictable, I test to see if markets are behaving similarly to the way they have over the past 10 years or so. If not it can be prudent to reduce risk. I don't like taking risk down when vol goes up because my transaction cost to pnl ratio improves. How do other specs tend to size up/down? PNL? Market conditions? 

I just broke into Ralph Vince's book (which came highly recommended from my mentor) because my position sizing feels fairly novice.

If a risk unit is a 10 vol targeted unit and weights were as of the 24th and total capital is 14 units:

spy    0.02
xlu    0.66
eem    0.42
fxi    0.40
vxx    0.20
ief    1.29
shy    1.69
fxe   -0.27
fxb   -1.10
fxy    1.24
gld    0.89
gdx    1.20
uso   -0.87
ung   -1.92
 
- so you'd be short 2 risk units of UNG, so a $240 position on $1000 of capital whereas you'd need $2,900 of 10 year futures for a 1.29 unit posi

- Hit Rate: 71%
- When right, made avg of 1.4%
- When wrong, lost .36%
- Portfolio return of .86%
- Qualitative bets: long Gold, Yen (+1%) vs Sterling -.25% = Actual return of .75%

So despite media complaints we've been in a predictable market.

Jan

5

 Deep Survival by Laurence Gonzales. I'm re-reading it, and I'm glad I was, especially over Christmas eve, which was a survival situation. The book is a classic and must read for outdoors adventurers and investors.

Simply put, either stay out of trouble or find what it takes to survive.

Your amygdala and other hard wired parts can overcome your conscious and rational mind and get you into trouble or make a situation worse. They prevent you from perceiving the obvious. You do stupid things. Learn to understand and overcome the emotional pitfalls. Overcome fear, confusion, hesitation, and confusion.

Get skills to stay out of and get out of trouble. In trading maybe it's lowering your basis in a falling market or controlling your leverage. Have a plan, have a backup system and platform. Take decisive action, but avoid impulsive behavior and don't hurry. Know your odds, your niche, your market. Have the right information. Ignore the news. Learn from others mistakes. Be humble.

Bail out before dying.

When in trouble have a positive mental attitude. All survivors engage in a self talk dialog, as do traders. Get your self a good mantra and get yourself out of trouble. On Christmas eve my mantra was not, "you're stupid for getting into this mess", instead my mantra was, "you're smarter than the masses; you're doing the right thing and you'll make a good profit when this thing jumps back up". That helped a lot. Have fortitude.

Celebrate your successes. Believe in your success. Surrender to the pain.

Never give up.

Jan

5

Dec

27

 Has anyone analyzed these two moves:

Swiss Franc - 1/15/15 (Abrupt stance on decoupling from Euro) Pound - 10/6/16 (sterling flash crash)

I don't trade Swiss Franc Futures, but I do trade Pound Futures at times. (CME FX futures products, front month)

My question that I'm trying to get answered is what would a 50 or 100 lot Stop Loss look like as far as fill? Would it have even been filled? I'm typically using about 50 tick stop losses on those products, so if I placed the stop would I have been filled at a decent price.

Any insight would be appreciated.

Thank you

Jeff Watson writes: 

It would look like a very nice morsel to those hunter gatherers who trade the Swissie. 

John Netto replies: 

Call the Globex control center. What you're asking actually pertains to a banding issue and is something that can be a real factor in a fast market.

Jonathan Bower writes: 

I used to trade most CBOT/CME/ICE products using stops for entries and exits for a decent sized fund. Typically I would stagger the order with slightly different entry points with varying limits, typically a 5 to 10 tick backruns. But when we knew energy reports or economic releases were coming out those back runs would be extended and we'd drop a few of the limits on some portion of the order to guarantee to get some chunk executed.

All that to say is there were times in pretty much all markets, but especially energies, where it could move 100-200 ticks in a blink of an eye and I'd have partial and no fills on lots of orders. So very big slippage events. We found that most of the time that was actually preferable because the market would typically come back to original levels.

However, sometimes you would just know that you should puke and do so quickly…

When I filled orders on the CBOT floor we always told our customers to expect to get filled at the high or low tick… It was probably 50/50 to be the case in the pits. I'd say it's 80/20 now if you use a stop market.

anonymous writes:

There are horror stories about Swiss Franc stops, hundreds, hundreds of ticks away getting filled. I think any speculation about how you will get filled on your stops is just banter. Lets say the next 'black-swan' event is a malicious program inside the CME data center placed by CN hackers. You could have a situation 50x swiss franc debacle. You cant beat nanosecond market making with stops so the only solution is to broaden your risk and time horizon or accept the risks associated with leverage and short-termism. 

Dec

27

Looking at six different factors, Quarterly Changes (rolling) in

  1.  inflation (TIP vs IEF)
  2. risk (SPY)
  3. stimulus (IEF)
  4. leverage (HYG)
  5.  dollar (UUP)
  6. Oil (USO)
Our current market condition is:
 
Negative Inflation, Negative Risk, Positive Stimulus, Negative Leverage, Negative Oil
Notably, this happened in the financial crisis, but also happened in other periods: These are the number of market days in each year where we saw an environment like this one
2007-12-31      0.0
2008-12-31    103.0
2009-12-31      2.0
2010-12-31     28.0
2011-12-31     69.0
2012-12-31     19.0
2013-12-31      0.0
2014-12-31     16.0
2015-12-31     60.0
2016-12-31     39.0
2017-12-31      0.0
2018-12-31     15.0
Expectancy for major assets in this environment since 2007:
  • S&P (SPY):               .02 Sharpe, +1%
  • Utilities (XLU):          .66 Sharpe, +31%
  • EM Equities (EEM):    .42 Sharpe, +36%
  • China (FXI):              .4 Sharpe, +35%
  • Volatility (VXX):         .22 Sharpe, +19% 
  • 7-10 Treasuries (IEF): 1.29 sharpe, +16%
  • 2 Y Treasuries (SHY): 1.69 sharpe
  • Euro (FXE):               -.27 sharpe, -5%
  • Sterling (FXB):           -1.1 sharpe, -21%
  • Yen (FXY):                  1.24 sharpe, +23%
  • Gold (GLD):                  .89 sharpe,+35%
  • Gold Miners (GDX):      1.2 Sharpe, +117%
  • Oil (USO):                   -.87 sharpe, -64%
  • Natural Gas (UNG):      -1.92 sharpe. -124% 
I personally like the long yen and gold positions versus sterling currently as the most sensible given global politics.

Dec

27

The alarm goes off and I am in automatic.

Bathroom 
Drink of water
Put on 3 layers of clothing 
     with a ski mask and knit gloves
Head out the door.
It’s then, it hits me,
Time to run 
To beat the cold 
To chase the wind 
Breathe in, Breathe out 
Smell the clearness of the frozen air
Crunch through the grass
The sight of the gray trail stretches on 
As far as the cloudy darkness allows
But the path is worn 
Its depth goes beyond my hour allows
There’s pain, There’s strife 
No ones to save me, I am alone 
Stillness surrounds me
Yet I am never more alive 
There is balance in my full clip 
My heart goes to its top without tipping 
The cold air brings power to my legs 
The myriad of pains can be overcome by tapping fingers together to feel the soft knits web between them
Many lonelier pioneer than me risked all to laid down this path for me.
Today’s my day to keep my path from the wild.
The miles are all mine.
The cold, the wind, the darkness with the endless vast expanses 
There are always possibilities 
To go on.
When the long night is over and the sun is back
I’ll give it back to you.
When the flowers are in bloom 
The path will be shared by many others 
While most wait for dawn, it was all mine
To test me, to keep me going on this longest night.
Merry Christmas to all the lonely traders on this long night,
Russ

Dec

27

It's definitional that you only know the "low" in hindsight. I can't remember ever seeing a "one day bounce" after a puke of this sort–rather, the first green close produces additional up moves — since there are a ton of people waiting for the first green close to pile on (or cover shorts). All of this is short term stuff–but it will very likely result in a 4 to 8 percent rally off the low. Then you'll hear all of the pundits talking about the "retest". Blah blah blah.

I never own enough when it's going up. And I always own too much when it's going down. But I have my discipline and I stick to it. Kind of like always picking Choice B on a multiple choice exam. Always better to be consistent than to be smart. And it's only lunch time–so today's green could easily still fizzle.

Dec

26

Here’s a holiday gift, an hour-plus presentation from Carnegie Mellon on Libratus:

Superhuman AI for heads-up no-limit poker: Libratus beats top professionals

Wiki on Libratus

One interesting thing that is clear from human vs computer poker is that a key advantage the computer has is lack of emotional response to risk, i.e., the computer never goes on tilt.

Dec

25

 If there were ever a contrarian indicator of a down market in 2019, this may be it. The number of analysts predicting a down market in 2019: zero. (From Twitter)

Ralph Vince writes: 

My numbers call for at LEAST a 40% move from here (closer to 50% really, but even that sounds crazy to me), and no prospect of a recession until at least 2021 more likely at least 2022 at this point.

David Lillienfeld writes: 

With a tightening Fed (not the discount rate, the inventory)?

Stefan Jovanovich writes: 

Yes.

Sentiment, by any measure I keep, is as bad if not more so than it was in 08 — but the backdrop, not just in the credit markets but in terms of energy, corporate profits, etc., profoundly different than 08, and the drop is minor by comparison. Further, unlike '08, earnings continue to grow, even over this past week.

Capital must find a home, must seek a return. Cash is a temporary placeholder, cover for the rainstorm, and for liability-driven fiduciaries, a very temporary one when you have >4% annual liabilities. How would you manage a pension in Germany or Japan? The US capital markets, with our rich return on treasuries across the maturity spectrum and equities markets that have increasing earnings are the most viable place on the planet.

And all this has come about as QE has ended, ZIRP has snuck out of it's hole to viable, st rates, and a divided congress, who needs to spend and screech like a middle-aged woman who is about to cough up her gizzard, will only find common ground on a pending transportation bill (think QE4), so "yes," to your question.

Dec

21

 Last nail in the coffin kind of thing last month in California, with everything going full-on socialist. OK I get it: drive all the small businesses out, and all that's left is google, fakebook, apple, and other bigist lefties fulfilling their virtue-signalling duties while filling the state with illicit Mexicans who pull their levers.

As one small businessman it was sad until realizing they now own it. Every bit of the upcoming economic sh*tstorm debacle THEY OWN. Even Moonbeam knows it.

The land of fruits and nuts. Coming to your town soon.

Dec

21

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

Jim Sogi writes: 

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

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

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

Dec

19

I Suspect, from anonymous

December 19, 2018 | 1 Comment

 I suspect that a hard Brexit is likely for two reasons:

1. May's inability to get anyone completely on the same page as her;

2. German stubbornness. Brussels has become like Washington, where to paraphrase Kennedy "the efficiency of the French combines with the diplomatic skills and courtesy of the Germans." (For the record, my background is German)

It is not in Trumps best interest to have London fall out of bed from financial stress during this window of at least six months. Therefore, I expect serious back channel conversations between his team and the Fed to take the pressure off. That means focus on the front end curves for both countries.

If the Fed becomes tone deaf, look for back channels with the big banks and the ABA.

It's getting more pressing to do more than pause. It also gives May ammo to clean out MI5/MI6 of deadwood and clowns.

The U.K. needs to remember their place in the scheme of things.

anonymous writes: 

I subscribe to the following thought: There will be a trade deal–the mutual trade volumes are simply too big. A hard Brexit (an exit of the UK from the EU without a trade deal) will cause bilateral trade agreements, later. This would severely weaken the EU as a institution. This places UK in the stronger negotiation position today. The EU negotiates for its existence–the UK "only" negotiates for trade.

The British domestic debate dominates the news–because they have free exchange of thoughts. The media on the continent is brought into line–there is no Brexit debate. (How can a topic be so controversial within UK–and on other side of the channel–all are of the same opinion?)

For Germany the EU is very important–again this places the UK in the stronger position. As usual in Europe–the timing is the big question mark–most likely drawn out. It would be not unusual to first have a hard Brexit and later a UK-EU trade deal (again with the same power distribution) There is already an US-UK trade deal in the pipeline.

Dec

19

I've never seen so many under 100 bucks.

Dec

18

 One part of the Civil War that escapes almost all notice is how the United States paid for a war with a debt explosion that dwarfs everything done since 1940 - Congress and Roosevelt's first war budget. The current crisis is trivial by comparison. By 1861 year-end the Treasury was spending in a day what it had spent in two weeks the year before. But where did the money come from? Murray Rothbard and many other believers in whole number banking say Greenbacks and Jay Cooke. Er, not quite. The total issuance of Greenbacks was 8% of the total war cists, and Jay Cooke was the underwriter, not the final purchaser. The surprising answer is the people of the U.S. The public bought the bonds.

My wacky thesis is that we are seeing the beginnings of a similar event: U.S. savers will fund the Treasury's borrowings. They may, as Mr. Gundlach predicts, demand 6%; that was the peak rate for the 10/20s that Cooke sold. But, the demand will be there from domestic holders of dollars.

"Who Exactly Mopped up $1.33 Trillion of New Us Government Debt Over the Past 12 Months?"

Dec

18

With regard to fundamental (macroeconomic data), none suggest recession.  If there is any suggestion, it would be for a market correction.  That specific data (a longer-term view of Treasury tax revenues) is complicated because there are only four historical examples, not enough for reliability.  However even that data seems to have run its course, as a short-term view of Treasury payroll tax receipts has turned up, meaning that the December Jobs Report will be more positive than expected.  You might wonder how we know that when we are only halfway through December, but in reality the end date for that data collection is last Friday (the 14th), which is already available.  So, expect some bullish data.

A quasi-fundamental piece of data we examine is the relationship between debt and equity.  Specifically, we monitor the moving correlation of stocks with bonds.  We view this as a fundamental item rather than a technical one, although it originates within the markets.  The most bullish scenario is when both stocks and bonds are moving higher, which is not currently happening.  But it is not convincingly so; it could reverse in a heartbeat.

Our technical picture is weighted more on the bullish side.  Of particular interest is the calm being exhibited by the volume in options, both that of individual equities and indices, the latter being particularly used to hedge bets.  In short, there is no panic there.  So the players there are either foolishly complacent or simply not worried.  We also monitor the sentiment difference between professionals and amateurs.  It is quite clear that the amateurs are those who are in panic mode.  

If we were to go further and examine breadth, specifically the advance-decline series of both issues and volume, that data has turned upward.  

Our long-term experience is that whenever there is a disagreement between fundamental and technical factors, go with the technical.  The technical items measure decisions having been made by real players, which does not always describe the fundamental items.

The real problem is political.  We have a much different journalistic environment that we have ever experienced.  Not only does the press hope to bury the President, but also the economy.  Hence the rise of Socialist “stars”.  We do not know how to deal with that, other than it is wishful thinking on the part of the Fourth Estate, a group that historically never invests.  We would expect such wishful thinking to go unrewarded.  

My apologies for the lack of charts proving my points, but there is just too much data to represent.

Dec

18

"Investors Have Nowhere to Hide as Stocks, Bonds and Commodities All Tumble"

Certainly not our Mr Brush…bonds, grains and meats have rallied.

Ralph Vince writes: 

Several months ago, the major news organizations, in a fit of grotesque hubris, announced their joint commitment to intensifying their efforts to malign the current administration.

We have watched this play out in the realm of financial news as well (which has been further diminished in recent years by the loss of some greats, e.g. Abelson, etc., to be replaced with vaccuous amateurs). Specifically, the notion of "The longest expansion in US history," (the definition of which has never been provided despite my prodding, directly and personally and off-the-record), the recent yield curve "inversion" fallacy, etc.

Has anyone seen a comparative study of the years 1929-1940 and 2005-2016?

This makes it all-the-more imperative now to do one's own homework, maintain one's own statistics, disregard the shrill sirens and observe, distinguish and conclude.

anonymous writes: 

It's been slight loss of wealth YTD across all assets with real estate markets softening up. It's been an up market for 9 years straight and that failed inverse head and voodoo failure in the SPX after China gap fade in a time where most asset managers are down only fueled the frustration aggression theory which I think makes this year end tough but ultimately will manifest into a great opportunity. My two cents with no quantification.

Dec

18

India, Australia, Canada, Italy and France (and their banks) are coming off their rails:

"Australian House Prices Fall Most Since Global Financial Crisis"

Sydney's property downturn accelerated in November, propelling nationwide house prices to the biggest monthly drop since the global financial crisis, as credit curbs and buyer nerves continue to bite.

Nationwide home values fell 0.7 percent last month, led by a 1.4 percent drop in Sydney and 1 percent in Melbourne, according to CoreLogic Inc. data released Monday.

The drop takes the total decline in Sydney since the July 2017 peak to
9.5 percent, on the cusp of overtaking the 9.6 percent top-to-bottom decline recorded during the last recession 27 years ago. This decline is even steeper than the 1989-91 fall, showing how quickly sentiment has flipped.

Stefan Jovanovich comments:

The declines in the gold currency prices of wheat, coal, rail and water-born freight and lumber that were the "deflation" of the growth explosion of the 19th century came to be seen as "normal". They became so obviously the way things are that rising prices seemed not only the exception but also the product of conspiracy. How can urban land prices keep increasing–despite their recurring temporary panics–if it is not some kind of manipulation, asked Henry George. Even the prices of luxuries like diamonds (thank you, Mr. Rhodes) keep falling.

We are in an age in which credit has seen the same explosion of volumes that the steel industry saw with Carnegie and Krupp. The presumption has been that these loans were prudent for the same reason expansions in industrial capacity were willingly financed at fixed rates for as much as half a century. What called those industrial loans into question was the collapse in foreign exchange that was the financial carnage of WW 1. My presumption is that this crisis is not about the collapse in FX; Germans and Chinese will be able to pay for imports in 2019 in a way neither was able to do in 1919. But, what will collapse are the expected incomes of the civil service and other government pensioners (other than Social Security recipients) and their ability to borrow against their houses. It will be like the farming crisis of the industrial age–a devastation to the small holders that was unable to be softened because the political majorities would not pay for the bailout.

Dec

16

December 2018

Dear son:

At twelve years old you are on the verge of adulthood with many years of a productive life ahead of you. You are a good boy now and I want you to become a good man. I love you very much and are very proud of your many accomplishments and interests and wanted from my 75 years vantage point for you to have a permanent reminder from me as to guide lines as to how to make your life good for the future. While you may not find many of these points of immediate value, I hope you will go back to them from time to time and find them of value.

Perhaps most important is to realize that conditions are always changing. To be successful, you have to be ready to adjust your activities to take account of the changes that have occurred and  that will come in the future. In business, that means don't go with the same trades as the past. That means be ready to quit while you're far ahead. And never make the same trades two days in a row.

Books going back to Greek and Roman times and from around the world will show you that people have always had the same problems and opportunities as in the present.  The books will make you fly to different places and time thereby expanding your horizons You can and should learn from them by reading widely and often. There has always been a big library in the Niederhoffer families and I hope you will continue the tradition by reading, widely and often. You should maintain a big library of your own.

There are also certain books that you should read as a foundation and beacon that will be resonant throughout your life. You were named after a hero of Patrick O’Brian who was modeled after Nelson and Darwin. He is said to be the best historical novelist of all times and you have a complete set of his books and it is a good place to start. Atlas Shrugged is a good book to give you a grasp of what the world is like.

Any list of the 100 greatest books is good. Here are some of my additions that I have found useful and resonant Memories of My Life by Galton, The Good Old Boys by Elmore Kelton, Atlas Shrugged, The Selfish Gene by Dawkins, The Far Side of the World by Patrick O’Brien, Count of Monte Cristo, The Eye of the Needle, Gone with the Wind, Tom Sawyer and Huckleberry Finn, Monte Walsh by Jack Schaefer, Triumph of  the Optimists, Don Quixote, I, Claudius, Les Miserables, stories by Chekhov, Moby Dick, Candide, Call of the Wild, Hamlet, The Great Gatsby, Gulliver’s Travels, The Aeneid, How to Win Friends and Influence People by Carnegie, The Power Elite by Mills, The Structure of Scientific Revolution by Kuhn, Tale of Two Cities. To learn about Asia read Wild Swans and Shogun.

I would recommend biographies of successful people as an inspiration and a model. Biographies of the following greats are a good place to start. Beethoven, Caesar, Carnegie, Churchill, Darwin, da Vinci, Edison, Einstein, Feynman, Franklin, Galton, Jefferson, De Kruif (Microbe Hunters), Madame Curie, Pasteur, Shoenberg (Life of the Musicians), Steinbeck, Twain, Vasari (Lives of the Artists), and Washington are all inspiring and educational.  You can always profit and be inspired by reading them again.

All areas are connected and in order to be a complete and competent person you should have a knowledge of and study textbooks in accounting, astronomy, biology, chemistry, geology, geography, investments, law, mathematics, music, physics, spatial relations, and statistics.

Try to learn as much as you can. You never know when you’ll be able to use a subject that you could have learned when you were young. You never can tell when a subject that you have learned will enable you to be productive and gain insights. Events tend to repeat and the same goals and problems arise whether in ancient or modern times so it’s good to know history. Historical novels are a good way to get a foundation.

Many of the things below are based on good and bad things that have happened in my life or those of my friends. I hope you will profit by avoiding the bad and emphasizing the good.

A good life should encompass a love of children, women, nature, books, music, sports, and art. To have a good life you should combine many areas of interest. Study computers and all of their aspects.

Don’t give up on things that you’re not expert on. Try to find a good mentor.

Listen and learn should be one of your guiding principles. Don’t argue about politics or religion.

Put in that extra effort when you’re good at something and emphasize it.

Take lessons from experts whenever you can. Research online to find out expert advice in fields you’re interested in.

It’s nice to have hobbies: checkers, chess, food, music, shells, a sport like squash or tennis, trees, mechanical things are good ones.

Read. Read a lot. Lots of topics, fiction as well as non-fiction. When in doubt, read.

At a fairly young age read L'Amour’s Education of a Wandering Man, Churchill (My Early Life) and Richard Feynman’s What Do you Care What Other People Think?

HEALTH:

Exercise every day. Keep your blood pressure down with a systolic below 110. Get a CEA test at 40 years old. Brush your teeth and waterpik twice a day. Don’t eat smoked food. Eat four times as much fish as meat. Get out in the sun at least 30 minutes a day. Get to sleep before 12 midnight. Don’t eat food after 9 pm. Try to get up with the sun when possible. Don’t be tempted to smoke or do drugs. A little exercise in the morning to start your day will make you more productive and healthier. Keep your weight down to under 3.4 pounds per. Cut down on eating red meat. A mile a day of exercise every day should be your goal. When traveling jog in a park or in the hotel exercise room.

Find a good doctor and treat him/her very well so that you receive special attention and advice.

Learn to breathe and run properly, especially on the balls of your feet.

PERSONAL:

Be good to Susan and your mother, be guided by Roy, and try to be friendly and appreciative with all your sisters.

Never count on friends when you are in a crisis.

Stay away from hoodoos.

Romance Advice:

Marry a woman who you like in everyday things. Be solicitous to your romantic partners. Always let your partner have a climax first. Never force your partner to do something she doesn’t want to do. All romance should be at least 10 minutes. When the brain in your penis and your head differ, go with your head. Always give your girlfriend more than she gives you. A good test of a girlfriend is to think about how you think she’ll behave in adversity. Never say anything bad about a friend’s girlfriend.

Look at your girlfriend’s mother before marrying her to see what her character and looks are when she’s 50 or 60.

Don’t spend more than an hour a day on computer games.

The best friends you’ll have are your relatives. They are the only ones you can count on.

Try to stay close in business and personal life with people who good things happen to.

You are not what you eat, or what you drive or where you live. You are you. And if that is not working out for you, changing your diet or car or home will not fix the problem.

Video games may not make you violent, but they certainly do not make you a better son, student or friend. Play them sparingly.

You only get out of something what you put into it, so are you spending time now on something that will give you back what you want?

Sleep will not solve all of your problems, but not sleeping will create new ones.

Never let your sisters down, they are irreplaceable and will be your longest friendship in life and, one day, will be the only people who remember your childhood.

Be the kind of boss, teacher, father, and friend that you had, or wish you had.

Choose your friends wisely. If they are jerks, you will not be far behind.

Try to spend your time with friends that you admire                                                                                                         
Calling your parents for no special reason is always a good idea.

Never assume anything about another person’s wealth, health or happiness.  All too often one is mistaken.

Remember that other people are the same as you. They have the same feelings and the same thoughts.

There are bad people. Avoid them. Don't let them engage you. Walk away.

It’s not enough to be smart. Work harder than the next guy, practice more, try harder.  When you’re young and smart everything seems easy and it can breed complacency.

Clean up your own house before you start criticizing anyone else or the world.

Remember not everyone thinks the same way you do: This isn't about opinions. It's about the ability to process information, debate, discuss. It's important to remember your mind may work differently than everyone else’s.

Life is 10% what happens to you, and 90% in how you react. Be agile, open, and willing to understand that things don't end up how you might plan.

Don’t care what other people think. Live based on your value system and beliefs and ignore what other people think.

Pick a baseball team. Stay a fan through good, bad and ugly. Learn to love the game as it has much to teach you if your listen.

Be good. That’s what my father wrote to me on my 13th birthday. The Boy Scout creed, is a good place to start. Be trustworthy, loyal, helpful, friendly, courteous, cheerful, thrift, brave and clean. If you follow these guidelines along with the advice in this letter you will grow up to be a productive, healthy, and successful man.

FINANCE:

Never get in over your head. Never sell short. Buy and hold is the best strategy. Stocks have gone up 50,000 fold in the last 110 years so it’s a good place to put any savings. Get up early in the morning. Don’t do anything illegal. You’ll never be able to get restitution if you do. Always keep something in reserve. Beware of down Fridays. Count whenever you can. Be mindful of stopping when you have a good gain rather than what most people do in stopping at a big loss. Remember that you have to get out of an investment as well as getting in. That means that you have to take account of the liquidity of your position. When there is little liquidity the other side will often form pools and cliques against you. Take account of the vig or rake on all investments. That’s a constant. And you can’t overcome a big rake or vig of say more than 1/30 the of your expected gain or loss. Be mindful of ever-changing cycles. Read Bacon (Secrets of Professional Turf Betting). Remember deception is everywhere. Things are seldom what they seem. The spider and plants have a million ways of hiding the true or emphasizing the false. Human have all these deceptions plus what they have learned from nature, war, and politics.

Remember to put all deals in writing. Take account of the potential worst case scenarios and put what you’ll do (for example a buyout agreement) in writing.

Negotiate everything.

Don’t be concerned about the dollar or the clock but think for the long term.

When you lend money to a friend, don’t expect to get it back.

Don’t settle your disputes with litigation or lawyers as the bills will be greater than any expectation of recovery.

A good accountant is very helpful and knowledge of accounting is very useful.

When you buy collectibles as investments, always buy the best. Usually it pays to buy the more expensive items rather than the cheapest.

When you are way up, have a point where you would liquidate after you’ve lost a certain amount.

Make sure you value your time when taking into account the cost of any activity.

Learn about real estate as well as stocks.

Be generous and fair. Never cheat.

If a man can beat you, walk him, i.e. don’t play poker with a man named Doc.

Covering your tracks reveals a faulty character. Real men own up to their mistakes, apologize and try to put things right.

Boldness always trumps brilliance. Just make sure you can back it up – at least most of it.

It's okay to fail. Take lessons away from every failure and use it in future endeavors. All the best athletes have learned more from their defeats than their victories. See edspec on Lacoste for this.

Avoid local bias - remember that if two or three people tell you something, doesn't make it so.

Travel is good. It widens your perspective and give you new ideas. Leave the United States for at least a week every two years.

If you don't like your job, quit. Quit the moment you feel like you're only doing it for money. Don't waste your time and life (especially youth) on things that do not interest you. You'll find money elsewhere.

GET EVERYTHING IN WRITING. Don't start any job without a contract with terms in place. If someone owes you a debt, get a promissory note. Hard lesson to learn because you'll probably get hit once or twice before you learn this one, as I did.

Always ask “What’s in it for me?” Saying NO leaves you more power than YES as you can change a no to a yes much easier.

It's okay to fail. Take lessons away from every failure and use it in future endeavors.

The one thing that is constant is change. Be ready to adjust.

Remember, even though it sometimes I expect too much of you, I am proud of you and I love you very much.

Dec

16

"Insiders Are Buying Heavily as the Crowd Continues Selling"

Steve Ellison writes: 

Attached is a graph of the Vickers insider ratio. They consider any insider sell:buy ratio under 2:1 to be bullish. The current 8-week average ratio is 1.46:1. Given that an 8-week average is mathematically equal to a centered moving average 3.5 weeks ago, this suggests insiders have been buying since last month.

Leandro Toriano writes: 

This has been a tough year, much tougher than the mere declines in the broad markets would indicate. Yet, throughout this year, every metric I keep has remained positive. Each week, I watch the EPS on the S&P 500 tick upwards (something that was not occurring from 2014Q4 through 2016Q1).

It's a correction in a bull market, of the 1984 or 1994-type (and, politially, more like the latter).

In the past few weeks however, the major sentiment gauges - the contango structure of Vix futures and the AAII sentiment data have reached levels rarely seen, and when they have been to these levels, protracted market run-ups lasting of at least a year ot two have followed. I think recession is entirely off the table in 2019, perhaps even 2020, and fits more in the 2021 camp (which is about the earliest we can see it manifest given the 7-year liquidity cycle).

You're not going to time this perfectly. It's a great era to be a buyer of stocks here, despite what might transpire tonight and tomorrow.

Dec

14

I received a correspondence from a friend entitled "is this useless shit index signaling S&P declines?"

It prompted me to try to count something I had been wondering about:

US Median gross rent

1940: $284

2000: $602

Annualized rate of inc: 1.26%

2000: $602

2017: $982

Annualized rate of inc: 2.93%

(Data
sources)

Dec

9

1. While the returns are not statistically significant during the periods of death cross since 1970, it could have avoided all but one bear markets (except 1987, when death cross came after everything is over). Bear markets references can be found here.

Here are death and golden crosses since 1970:

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

.

Dec

9

 I recommend the Pbs documentary The Ghost Army

War, deception, art and glory come together in the documentary film "The Ghost Army," the astonishing true story of American G.I.s — many of whom would later have illustrious careers in art, design and fashion — who tricked the enemy with rubber tanks, sound effects and carefully crafted illusions during WWII. Filmmaker Rick Beyer tells a remarkable story of a top-secret mission that was at once absurd, deadly and amazingly effective.

I'm particularly fascinated by the game of traffic analysis.

NSA article on traffic analysis in WW1.

Dec

9

From a NYT article:

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

anonymous writes: 

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

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

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

Peter Ringel writes: 

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

Probably all a campaign.

Ralph Vince writes: 

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

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

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

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

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

Russ Sears writes: 

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

anonymous writes:

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

Kora Reddy writes: 

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

 .

.

.

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

  

.

.

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

  

.

.

.

.

.

Dec

7

 The Hawaii surf report this morning was for 15-20 foot waves and the conditions were good. I got some big ones, but it was a tricky take off. Some really big ones were coming through, so it did not work sitting waiting for the smaller 15 footers because if you sat inside, the big ones would wash you all the way to the inside for a four or five wave thrashing. The best bet was to have a big wave board like my 9 foot Barry Kanaiaupuni big wave gun and drop into the bombers. I had almost a perfect day by catching some big ones on the outside that came right to me where I was sitting and I dropped in and rode all the way on the big wall to the inside. Quite the thrill. The pack on the inside was getting hammered by the big set and got washed in and took a thrashing. I've surfing there for 40 years and know the spot well.

The market report, though not advertised was similar to the day before with 100 point waves. A volatility cluster, or a big wave swell. Before the big waves started, the lack of vol made trading almost a waste of time, and actually especially dangerous. With the narrow range, one tends to pile on the leverage to get some returns, but after months of 7 point ranges, with each passing day of low vol, the survival stats tell you that your time is running out and a big blow out is on the horizon. The other thing is when the big waves come, got to be ready to charge, as well as being prepared for a thrashing.

Dec

6

I recommend to the group the TV show on Netflix Turn: Washington's Spies. It's based on the book Washington's Spies: the Story of America's First Spy Ring I believe. I enjoyed the series very much!

Ralph Vince writes: 

Turn is excellent. I second Scott's motion.

Dec

6

A good disguise book:

The Master of Disguise: My Secret Life in the CIA

Dec

6

A friend said to me: "I was in Chicago for a quant conference (with Bitcoin PhD's, unbelievable. for $3000/head.) and saw large numbers of desperate urban homeless. In one case a young man was bypassed by people in expensive clothing on their way to expensive drinks, who then looked at their phones while he was staggering, helpless. (I think the drinks signs were like $30/drink.) That kind of stuff is more pervasive than I remember in the US."

No one is claiming this ubiquitous phenomenon is not tragic. The argument is about who, if anyone, should pay. Let's say you are 5 stdev smarter than him, and perhaps we agree you should pay for him. I am not so smart, but my simple father taught me to fight. If you want me to pay we will fight over it.

That is the argument. Against nature.

anonymous replies:

I would disagree with the question "who should pay". It's not a lack of people paying or amount paid. Lack of money is not causing these problems to grow. It is where the money is going before it gets to those needing a hand. The government has ever incentive to keep those receiving money dependent on them and without any tough love for those that refuse to meet them the best they are capable of to receive aid.

We are so afraid of someone falling in the cracks that we make it ok to make terrible choices without any real consequences for so long until many are hopeless. We have made the cracks huge by building these costly safety nets on the edges.

The last mile problem of charity can only be solved by those nearest the situation not those pandering to voters. 

Dec

6

 We are now 2 decades into the electronic world that does not require people to be at keyboards or to speak and listen to others. Even those of us who never trade now understand that "the bond market" for U.S. Treasuries is not an organized exchange but an over-the-counter market in which all interdealer trades are handled through interdealer brokers (IDBs).

As the post on Liberty Street Economics reminds us, "(u)ntil 1999, nearly all IDB trading occurred through voice-assisted brokers, in which dealers executed trades via phone. In 1999, the eSpeed electronic trading platform was launched, and in 2000, BrokerTec, a rival electronic platform, began operations. These fully electronic platforms paved the way for high-frequency trading, in which traders rely on speed to identify and act upon trading opportunities. The platforms soon accounted for nearly all interdealer trading of the on-the-run notes and bond(s), the most recently issued notes and bond(s) of a given maturity.."

"(I)nformation in high‑frequency markets no longer pertains to only the active side of a trade. Algorithms and dynamic trading strategies enable traders to chop a large order into smaller ones and hide them in the limit order book at various layers. They subsequently show up on the passive side in resultant executions. Thus, estimates of price discovery based on solely trade data are likely to be unreliable."

The Subject Line is a quotation from Numbers 23:23. It was the first message ever sent and received by Samuel Morse's telegraph. (May 24, 1844). Without that invention there would never have been an American Civil War because "the news" of state secessions and Fort Sumter would not have been what "social media" claims to be now: instant and universal.

It seems to me that the paradox of the present situation is that even the loudest news items are now squeaks in the Shannon transmissions of information. "The public" and its money is no longer captured by any single headline.

Dec

5

 This is very nicely done and I wish it were even longer, like a Ken-Burns-style series:

The Circus

This four-hour mini-series tells the story of one of the most popular and influential forms of entertainment in American history. Through the intertwined stories of several of the most innovative and influential impresarios of the late nineteenth century, this series reveals the circus was a uniquely American entertainment created by a rapidly expanding and industrializing nation; that it embraced and was made possible by Western imperialism; that its history was shaped by a tension between its unconventional entertainments and prevailing standards of respectability; and that its promise for ordinary people was the possibility for personal reinvention. For many Americans, the circus embodied the improbable and the impossible, the exotic and the spectacular. Drawing upon a vast and richly visual archive and featuring a host of performers, historians and aficionados, The Circus follows the rise and fall of the gigantic, traveling tented railroad circus and brings to life an era when Circus Day would shut down a town and its stars were among the most famous people in the country.

Nov

30

 This article predicts the impeachment odds near 50% for next 2 years

What are the obvious stocks/commodities/currencies that would directly benefit from an impeachment, if any? Which would decline?

The private prison stocks used to trade somewhat as an impeachment proxy but with the ousting of sessions and change in tone re: reform, no longer intuitive.

My thought would be putting on an appealing spread trade to hedge the odds market which feels very aggressive

Ralph Vince writes:

First things first.

I don't see Trump and Xi bypassing an opportunity to goose their markets. Expect a statement from both of them, jointly, to the effect of "we're working on a deal, we're getting close, it's complicated, there are lots of issues, but it's coming."

Nov

30

 I've been sucking wind on these commodity etfs for it seems like years.

I'm starting to wonder if they are like an outdated unchanging index. When a commodity gets expensive, technology just figures a way to use something else and bypasses a hard to get resource. That's why we haven't run out of stuff and Malthus was plain wrong. Peak oil was wrong. I think I'm wrong.

My friends and family are getting teslas. Oil is headed to zero. Better to invest in tech not commodities.

Nov

30

 Pheasant season just opened in Slab City and right on the tick of 5:51 AM of the shooter's time table a salute of fifty shotgun blasts startled me from sleep in the weeds. The shooting continued for the next thirty minutes until I decided to risk rising, and on peeking out the bushes discovered hunters stationed every quarter mile for as far as the eye can see. Every few minutes a hawk sound screamed through the air and dozens of bats flicked off the branches. The hunters were using hawk callers to uproost the pheasants, but hawks also hunt bats. It was a wonder the hunters didn't shoot each other, but as they didn't I felt safe in rising and walking out the battlefield. The scene put me in mind of the sheriffs chasing fugitives through Slab City. There are so many citizens on the run, that the sheriffs 'shake the bushes' out their loudspeakers, 'We know you're in there, come out with your hands up!.' The sheriffs are nearly as successful as the bat hawks who capture prey on 40% of their attempts. They don't necessarily catch the fugitive their looking for, but they get one.

Nov

29

Slab City is crawling with spies for the military, feds, police, and for Slabbers. The local town dick may be identified by her large breasts. All the undercover people look, dress, and party harder than the true citizens, and are hard to pick out. The only real cues are their hard pistol callous on the heel of hand, and they cannot hide an extremely high innate intelligence, which unfortunately is also prevalent among the residents.

Most of the spies are inserted long term here, but have arrived in the past two years in conjunction with thefts from the military base and macabre murders in the Slabs. You'll see tattoos appear and disappear overnight as part of their disguises. In regard to the recent decapitation of the knife sharpener, someone else found a head with a mop of curls on the ground not far from my camp. A neighbor approached it, was freaked out, and went for a stick to probe it. His companion kicked it and screamed in pain, for it was a stone with a wig on top. They called me to investigate and the wig looked exactly like my hair that had been cut two days earlier down the road. I didn't want to touch it either, but returned the next day, and on examining the wig it was not my hair but the ugliest piece I've ever seen. I took it to camp and washed it, and bought a balloon to stick it on in a window when I'm absent. I wear a different wig when I leave town so I won't be recognized and my place robbed.

Nov

28

The Prez was right with all his comments about Powell being hawkish and "not a little bit satisfied with Powell" and the markets all over the world gave everyone wealth. But now we shall have to hear about "succumbing" and "interference" and the inviolable "independence of the Fed being violated".

Pete Earle writes: 

Here is something I wrote a month or two back regarding the media assertion that the current President is conducting himself in manners vastly outside historical norms.

Nov

28

A person on twitter said it best: "the agrarians hate prosperity".

Kim Zussman writes: 

A note from a notable reform school:

"Raise Rates Today to Fight a Recession Tomorrow. A downturn is inevitable as asset prices fall. The Fed can prepare by continuing to raise rates now"

By Martin Feldstein Nov. 26, 2018 7:00 p.m. ET

Nov

28

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

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

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

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

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

Ralph Vince replies: 

Zubin,

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

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

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

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

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

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

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

Orson Terrill writes:

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

Ralph Vince writes: 

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

Nov

28

 Exploring the data:

Rolling 10-yr % increase in GDP (in nominal dollars, hence the peak value occurs in Q2 1981)

Nov

28

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

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

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

Kora Reddy writes:

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

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

Nov

28

A movie of the second best western ever: The Good Old Boys (1995)

Nov

28

 Victor Niederhoffer writes to Bo Keely:

Can we have your reaction to the Smithsonian article on Slab City.

Bo Keely responds: 

Slab City is an anarchist psych ward in a sand box that used to be General Patton's desert headquarters. Hence we citizens have immunity from pretty much everything. I held my neighbor's skull (minus the body) in my hands a couple weeks ago, a knife sharpener who made the mistake of robbing the wrong person. Yet, the population has doubled since last year, and shows signs of continued growth. People read about it online and arrive for the freedom, free land, and independence, but find it's also an outlaw town. I've been doing a study of the peculiar, and cannot point to one citizen who is not. Therefore there is a lot to be learned about human nature and consciousness.

My motorcycle broke down two months ago, stranding me here, walking, hitching, and tracking bad guys. Because of that, I've met most of the newcomers. The population is high IQ and stoned across the board. My new neighbors, two lesbian ex-military, are the only two besides me who don't indulge in drugs. Our introduction was a couple days ago as they chased me across my own property with four snapping dogs, horn honking, and gun under the seat. The other arrivals are young roadies, freight hoppers, anarchists, divorcees, retirees, many musicians and artists, and a few unemployed professors and executives.

All hail Slab City as the last free place, but most succumb to meth to make it a hotbed of any abnormal activity you can think of. It's paradise to a behaviorist like me.

Nov

28

 One thing to remember about buying art is that the vig is very high. It costs 15% buyers fee and 10% sellers fee. Plus the markets are generally wholesale markets so that what you pay for retail is likely twice the wholesale price. So you start out about with a 50% to 70% loss, it's greater for items that are 8 or less. You should think of waiting at least 10 years to get even.

Jeff Rollert writes: 

I find art (along with vintage cars) is best acquired from someone's near bankruptcy, as time pressures reduce shopping/selling opportunities. BK goes through the courts which permit other games. Of course, documentation must be present.

Also, if they are still alive, buy directly from the artist. 

Nov

24

It's amazing to me how many people who think all of life—or at least the mainstream media's presentation thereof—is a con job are actually just being conned, but then of course they know that I only think that because in fact the mainstream mind alteration is so successful.

"Anatomy of a Conspiracy Theory" (about the Las Vegas shooting)

Nov

24

 I am thankful for the blessing of healthy children who are driven, intelligent and ambitious.

The ability to make money and create the world I want for myself, my family, my clients and my employees.

Good parents who raised me well, even in bad circumstances. Parents who gave me a work ethic and a drive to succeed and build on their legacy of hard work.

The lessons, friendships and business relationships I've made being a part of this group!

These are a few that come to mind.

How about the rest of you?

Russ Sears writes: 

Health.

A family that loves me and is healthy.

Friends and family that are motivated and cheer me on when I succeed and pull me back together when I fail.

Love is miraculous when you're healthy and see the miracle of life in your children.

Life and the energy to enjoy it. Almost every morning I run 7 miles at 56 years old. Each morning I am grateful and amazed what the human body can do.

The wealth of the time and place I am living. The technology, knowledge and wisdom that has come before me, and I have had the chance to see marvels upon marvels developed during my life.

I propose a thankfulness hypothesis and leave it as an exercise to the reader to prove or disprove on an individual basis. Billy Graham believed that worry was usually due to a lack of gratitude. Or failure to see the reality of how blessed we are, only seeing the problems at hand. Hence I suspect that the Santa rally comes from the thankful spirit of these holiday season. The individual test for a trader therefore is when you're most worried, take a few moments like this to be thankful and see if that will clear your head and help you trade better.

I am thankful I'm a part of this site!

Nov

24

  In the great tradition of all failed prognosticators, I hereby declare that it is not my model that was in error but reality. A week before the election Paul Ryan declared that President Trump was hurting the Republican's chances by talking about immigration. Gallup has just released a poll that strongly confirms the election results. The candidates who wrapped themselves in the America First flag outperformed the average for Presidential mid-term for the party in the White House; those who waffled lost the Independents and failed to win enough votes to survive the last minute ballot discoveries that are the Democrats' most enduring tradition.

Nov

22

November 22, 2018 (our annual article about Thanksgiving)

Thanksgiving is about sharing prosperity, and it's a good time to think about where
prosperity comes from. The Pilgrims figured it out in 1623. We'll retell
that story as we celebrate the way it lives on in countless U.S.
families and companies today. And in particular at one company,
McDonald's, that in its humdrum way beautifully
demonstrates the source of prosperity and the American way of life.

The Pilgrims started with so little. They had to hide in England
because the authorities considered them dangerous. They fled to Holland
but found themselves compelled to take menial jobs. On the way to
America, many of the company died. They lost their way to Virginia and
landed in Massachusetts just as winter set in. The Virginia Co., their
backers in London, went bankrupt and couldn't send relief supplies.

To cope with want, the Pilgrims made the same mistake that so many
countries do even today: They divided all their land, efforts, supplies
and produce in common, to each according to his need.

As always in such systems, need surpassed supply.

The Pilgrims spent their first three years in America suffering from
hunger, illness, cold and infighting. People stole from the common
stores "despite being well whipped," according to William Bradford's "Of
Plymouth Plantation."

Bradford, governor of Plymouth Colony, records what happened next:
"They began to think how they might raise as much corn as they could,
that they might not continue to languish in misery. After much debate,
the Governor decided that each settler should plant corn for
themselves."

Under the Land Division of 1623, each family received one acre per
family member to farm. That year, three times as many acres were planted
as the year before. Prosperity was not long in coming.

The Pilgrims turned from their Old World system of common ownership
to incentives. They didn't go that way out of ideological conviction,
but because they didn't have the luxury of waiting for support to come
to them.

How many families in America tell the same tale? "When we came here, we worked hard and our lives were better."

But that wasn't the end of the story. Before the switch to
incentives, the hungry settlers were at each other's throats. Hard
workers resented receiving the same portions of food as those who were
not able to do even a quarter of the work they did. Young men resented
having to work without compensation to feed other men's wives and
children. Mature men resented receiving the same allotments as did the
younger and meaner sort. Women resented being forced to do laundry and
other chores for men other than their husbands. Many people felt too
sick to work.

But when they were allowed to farm their own plots, the most amazing
thing happened. Everybody — the sick, the women and even the children —
went out willingly into the fields to work. People started to respect
and like one another again. It wasn't that they were bad people,
Bradford explained; it's just human nature. Adam Smith came to the same
conclusion later, and Friedrich Hayek updated Smith's ideas for the 20th
century. But we don't need to go back to New England for understanding.
Similar outcomes can be seen at McDonald's every day.

For centuries, people on the lower rungs of the social ladder weren't
able to eat meat. They ate grains and beans. But people like beef. And
chicken.

When McDonald's started popping up in every neighborhood, all of a
sudden there was an affordable place for families to eat. Previously,
one of the main differences between the upper and lower classes was that
the rich could eat out. Even if the poor could afford the tab, they
couldn't hire baby sitters, and they couldn't bring their kids to the
elegant establishments designed for the rich because they would have
disturbed the other diners.

Most kids don't like fancy restaurants anyway. They want fries, not
polenta with wild mushrooms. They want fried codfish, not turbot. They
want burgers, not lamb chops.

How many people has McDonald's made happy? How many families has it
brought together? How many Happy Meals have been eaten there? How many
kids have enjoyed the playgrounds? How many tired workers have been able
to catch a quick meal? How many women are able to pursue careers and
other productive activities and dreams because McDonald's has freed them
from the task of having to cook every night?

The Pilgrims might have served 200 or 300 American Indians at their
Thanksgiving feast. McDonald's serves 26 million customers a day at
13,700 U.S. restaurants.

For the traveler, McDonald's is a home away from home, offering so
much for so little. The restrooms are clean. And McDonald's serves hot
strong organic coffee in smooth cups of some wonderful material that
keeps liquids hot without burning the hand, shaped to fit into the cup
holders that just happen to be in your car, with carefully designed tops
that permit just the right amount to be sipped.

No regulator, no fascist dictator, no socialist planner decreed sip
tops or cup holders. But how many late-night drivers have died for the
lack of a good cup of coffee? What could be more munificent than saving
lives?

And the story doesn't end there. Consider the employees of
McDonald's. How many people have worked there and learned the most
important lesson in America: The customer is always right?

The anti-this-and-that people who demonstrate against profit
incentives and free markets like to single out McDonald's as a symbol of
modern capitalism. (They don't mean that in a nice way.) As the McLibel
Support Campaign puts it: "(McDonald's) has pioneered many business
practices that have been taken up by others, and have come to represent a
symbol of the way that society is going –'McDonaldization.'" But when
have you ever seen an unhappy customer at McDonald's? There couldn't be
too many of them, because about 10% of America eats there each day.
Given the choice of cooking at home or going to other restaurants — and
competition ensures that there are other restaurants — people go to
McDonald's because they trust they'll find good food, quick service and
value for money. What could be more munificent, more representative of
sharing the fruits of hard work than McDonald's?

McDonald's and the Pilgrims are the essence of America. The people
work hard, motivated by the chance for profits. They provide a welcome
to others, whether to Indians joining in harvest celebrations, or to
customers looking to satisfy their hunger. Their work results in high
quality, low costs and family togetherness.

Those humdrum, everyday attributes are what makes America great.
That's what we should be celebrating. It's the source of all our
munificence, from the first Thanksgiving to today.

Nov

20

 "Will This Be the Season of the Super Cyclone?"

A big typhoon on the other side of the Pacific would make it worth a trip for this Florida boy to go to California to catch some epic South swell. The most rideable waves from those gigantic typhoon swells come right after the peak, when the wave form is changing.

The ocean gives the experienced waterman many clues as to when the form is changing, be it a swell, a hurricane, tuna run, whatever. The markets do the same. There's more than a few market lessons in hurricanes and waves. A difference between surfing and the market is that the very biggest waves on the planet will max out under 1000', nobody knows how high a market can go.

Nov

18

Despite Tel Aviv being up today (this has been a very strong market this year) the spread between the broad Market ETFs and in particular svxy and their net asset values is just too wide in favor of the ETFs, but usually signals a pullback of one to three days, indicative of just a little too much short-term optimism at the moment.

Nov

18

 Gotham and New York: the Novel make a fine pair of telling the history of a great metropolis with many financial insights contained within. Both books are very informative and tell you everything you should know about the hi-ways and byways that led to current times. However, both books spend an inordinate amount of time on the plight of the 1% who did not prosper with the rising tide.

Henry Gifford writes: 

To the list of New York City books I recommend The Island at the Center of the World by Russell Shorto.

Basically, in the 1970s, some government employees were throwing out boxes of junk from the basement of the NY State capital building in Albany, NY, and someone looked to see what was in the boxes and found old documents written in a language nobody could understand. Turns out the documents were written in old Dutch, which very few people can understand, but someone found a translator and a non-government-employee wrote some checks to get the translation done.

The documents were basically the history of NY City when it was a Dutch trading post.

As a trading post it wasn't a country or a colony, but something that perhaps doesn't have a well-matching modern equivalent. New Amsterdam, as it was called then, was run by a governor, but many people from all over passed through or lived there. One description from the time said something like:

"Mine eyes hath never seen such a place so full of people from all over - Africans, Europeans, Natives, Christians, Jews, Mohammedans, etc., each of which has a place where they worship and at least one place where they eat (and I think drink) - all living in harmony. Such happiness and prosperity I have never seen anywhere else."

Maybe still a decently fitting description.

Not many people liked the governor, who was a bit of a jerk, and who broke the law requiring doing what can be done to avoid war with the natives - the law required fair trade, whatever that meant. But, he was appointed by the powers that be in Holland, so there wasn't much anyone could do.

But a Dutch lawyer by the name of Adrien van der Donk, who was living in New Amsterdam, formed an advisory council, elected I think, who advised the governor. They had no official power, and the governor had no obligation to listen to them, but he didn't get to be governor by not being an astute politician.

I won't spoil the rest of the story for anyone, but the book makes a good case that democracy started in New York City, while the pilgrims who landed in Massachusetts were interested in anything but freedom.

anonymous adds: 

The Plymouth Pilgrims were very much interested in liberty. They were superceded by the Massachusetts Bay Colony that had the Royal Charter and, therefore, the sole legal authority; but they never surrendered fully to the Puritans belief in witch hunting and one almighty pulpit. The Mayflower Compact is the foundation of the American notion that the People, as individuals and not merely as a class or estate, are Sovereign. The Pilgrims and the Hugeunots and the Jews - refugees all - brought their ideas of freedom to Holland. They and the native Dutch created the amalgam of open outcry trade and commercial credit by contract whose rewards we all live by and exported it to the New and Old Worlds.

As Shorto's book and others demonstrate, New York became the center of Amercan commerce rather than Boston because, as Harvard daily reminds us, the Bay Colony was more interested in theocracy than free enterprise. The Anglicans in the Duke of York's Crown charter wanted the same monopoly for New York that the Congregationalists had established in Boston, but they always had to struggle against the melting pot that the adventurers from Holland had already set to a rolling boil. To the extent that the Royal authority did take hold in NY, the city lost out to Philadelphia (Franklin, with his eye for the main chance, chose Philly, not NY, when he left Boston). How Gotham became #1 again is the story of how the Dutch and others took hold once again after the British Crown was evicted.

Nov

18

 I'm starting to see multiple points popping up along the constant mat treasury curve. When this has happened, historically, the existing trend exacerbates.

Given that the curve is entirely of bull-market shape (i.e. a positive-but-slowly-flattening curve) I have to take this to be a very bullish omen for the next few weeks to months.

Jim Sogi writes:

Read some of Ralph's books for some "secret sauce". They are quite mind boggling.

I've gotten a glimmer of the concepts. For example, his idea of using discrete math and decision trees rather than the normal continuous calculus curves for making decisions. The market is discrete prices with discrete beginnings and ending points giving the decision tree methodology a good practical basis for making decisions in real time.

The yield "curve" also has discrete points and beginning and endings for the bonds each with a discrete term and rates.

I've only heard brief mention of this idea elsewhere.

Nov

18

After the Thousand Oaks bar shooting, the rules for successful massacres continue to apply:

1. The people being attacked have been forcibly unarmed; even licensed Concealed Carry permit holders are excluded
2. The "security" plan focuses on organizing and controlling the crowd, not spotting the troublemakers
3. The shooter(s) are already well known by schools, military and the legal system to be certifiably nuts

Nov

18

Some folks here might enjoy this video of a talk I gave last month to philosophy undergraduates at the University of Colorado Boulder:

talk (40 minutes)

Q&A (20 minutes)

Nov

18

 A few follow up tidbits after returning from Antarctica via Argentina. I hear interest on Bak accounts is 50%! And interest on credit cards is 100%.

However commerce seems to running along ok. People seem to be okay and happy, and there is no strife.

As elsewhere around the world it's a cashless society and a credit card worked everywhere except taxis. Paypal didn't work in Uber but a credit card did.

Nov

18

 Enlightenment Now by Steven Pinker, I reckon, may become one of Chair's favorite books.

Pinker describes the fantastic improvements in health, life spans, and happiness since the Enlightenment of the 1800s.

Despite widespread denial by many the world has seen an explosive increase in health, lifespan, wealth, productivity, reduction in crime, poverty, disease and he cites the statistics.

Truly a record to inspire optimism.

It's a quirk of human nature not to be able to recognize the improvements.

A must read!

Nov

11

 Charlie Cook got it right. Here is his firm's analysis of what the election says about the future:

"Democrats wanted this election to be about more than just winning the House or the Senate. They wanted 2018 to be a total rebuke of Trump. A wipe out of epic proportions all across the country. That didn't happen. What we saw instead was more of a retrenchment. Red areas stayed red; blue areas stayed blue. The only real movement was in districts that were purple — districts that had voted for Hillary Clinton, Barack Obama or had narrowly supported Trump- tipped overwhelmingly to Democrats. As my colleague David Wasserman pointed out, Democrats didn't flip any district that Trump had carried by 55 percent or more."

anonymous writes: 

It would appear it is going to be a long, hard slog for the D's in that regard. The economy, though hotter than a hotel Coke, and acknowledged by the media is not yet being felt and celebrated on Main St to the extent it seems it should have been.

Half of America, and the other 96% of humanity outside of America, still believes we are in the darkest of times. Of the un-retired, everyone in the private sector, is still shuffling about in a glossy-eyed PTSD-like state from the protracted period of essentially no economic growth, despite substantial population growth in that period. Women in their late 40s to early 60s and older probably in the worst shape from it if they are single.

Millennials, in the main, still hunkered by the tens of millions in their parents basements with their incredible dildo collections.

We have not emerged culturally from the past depression. This is going to take a while, this will not be like the 1980s or it's brother, the 90s, and the reason I believe that not only do the D's have an uphill battle, needing to find a new voice, a new platform–a new direction, but the distance between where we are in terms of economic optimism and where we have been in times past (where the backdrop, sans anything going on policy-wise, has been nowhere near as rosy as now) in terms of euphoria, is a gaping chasm still. More reason why I believe this thing will run longer and go farther than any of us think it will.

Nov

6

Peter Schiff was the first one where I realized there is an actual gloom-and-doom industry full of people who consistently predict disaster, and then every X years there is a big market downturn, and they can claim to have been right all along, and the cycle starts again.

Nov

5

 The choice for Japan was whether they would follow a European or American model of Empire. Would their Korean colony have the promise of Independence, like the Philippines, or would it be like French Indo-China and the Dutch East Indies and British Malaya? For Hara Kei the American model made sense; European colonies rewarded permanent bureaucracy–the very political economic disease that Japan itself had suffered under.

On this day in 1921 the first commoner prime minister was stabbed to death in the name of Imperial glory.

Nov

5

 The chair wrote about Macintyre's new book about A. Gordievsky. That book references the autobiography of Victor Cherkashin, the KGB Spy master on the other side (co-written by Gregory Feifer Spy Handler, 2005).

I can recommend that book–at a minimum for it's epilogue, "Lessons of Cold War Espionage":

"With Russian and American intelligence agencies again gearing up after the brief if partial truce following the Soviet collapse, what lessons can be learned from the Cold War espionage game?

Anyone who has read this far knows my conviction that intelligence work is less politically important than it may seem. During the Year of the Spy, CIA and KGB operations represented little more than intelligence games. Their connection to real issues of national security, such as stealing military/technological secrets—let alone to the larger national interest as a whole—was often peripheral. Mostly they tried to ferret out moles and recruit enemy intelligence officers."

The Gordievsky episode seems to confirm this.

The other thing about Macintyre's book is I noticed that Gordievsky accused his 1985 KGB interrogators of Stalinist Terror tactics, while interviewing him, under drugs. That angered and confused his ex-comrades and finally helped saving Gordievsky's life.

Maybe there is a trading lesson here. Make your opponent emotional.

Nov

4

 How many of the activities of spying with their misinformation, dangles, floaters and honeytraps, emphasis on the false, and hiding of the true, in general, have counterparts in markets?

I was led to consider this by a reading of the excellent book The Spy and the Traitor. Perhaps most resonant to me was the warning against seeking confirmation from a third party of something you already believe. The false confirmation that the D-Day bombing would be at Calais and the false belief that there were weapons of mass destruction in Iraq and the belief that an imminent nuclear attack on Russia were 3 examples cited by Macintyre in the book. The idea of searching for regularities among market moves that you know will confirm the regularity is horse from same garage.

Jim Sogi adds: 

Spycraft, a meticulous attention to details of deception, is important to spies and traders.

Never brag of success. Don't trust those who do.

Place orders in hidden unexpected places and disguise them and the size.

Use the element of surprise when entering a market.

Test the waters or market before committing all the way like the Commodore in Lefevre.

Never listen to the disinformation laid like traps.

Be prepared for pain under torture.

Understand the triple cross and the double cross always at play and how to use it against your counterparty.

Yeah, I read lots of spy books.
 

Peter Ringel writes: 

Great one-liners. The double/triple cross reminds me of myself searching for a bottom.
 

Nov

4

I missed this book Factory Girls: From Village to City in a Changing City back in 2008, but can now recommend it to dailyspec readers. There were 130 million Chinese migrant workers at that time, and this is the story of two. Sex differences, family trade-offs, freedom, outsourcing–all the meat of life and capitalism is there. Cheers.

Nov

2

Under various combinations, for your mid term election campaigning purposes!

Nov

1

Mark Twain's Roughing It has a 200 page description of a silver boom in 1867 that contains all the hopes and agonies and easy money of many booms and busts since then and is a better description of great rises like Nasdaq in 1999 and bitcoin in 2017 than any other work. It is strongly recommended.

Nov

1

 I am always impressed with how speculation is crowd oriented. This is particularly true when one company in an industry is targeted for acquisition and its industry mates rise in sympathy.

OK, that's a given. However at this particular time there are a number of companies in the "footcare retailing" business giving similar signals. What happened? Did Americans wake up and realize that they were shoeless?


Archives

Resources & Links

Search