Dec

29

Chance, luck, and ignorance: how to put our uncertainty into numbers - David Spiegelhalter, Oxford Mathematics

We all have to live with uncertainty. We attribute good and bad events as ‘due to chance’, label people as ‘lucky’, and (sometimes) admit our ignorance. In this Oxford Mathematics Public Lecture David shows how to use the theory of probability to take apart all these ideas, and demonstrate how you can put numbers on your ignorance, and then measure how good those numbers are.

Coffee cup he got from MI5 showing verbal-numerical scale they use.

Also: The Art of Statistics

William Huggins offers:

i like to give this guide to my students for whom English is a 2nd/3rd (sometimes 4th+ language).

Kim Zussman is unimpressed:

David Spiegelhalter was Cambridge University's first Winton Professor of the Public Understanding of Risk.

Translation: He is the most qualified of the vast array of those who don't know WTF they are talking about, but are knighted to tell us.

Peter Grieve responds:

I heard a story a decade ago about one of the big decision theorists, I think it was a Harvard professor. He was offered a position somewhere else, and was agonizing about whether to accept it. A colleague suggested he use his decision theory, and he said "Come on! This is serious!" I've no idea about the veracity of the story, or who was involved.

Alex Castaldo clarifies:

You are talking about Howard Raiffa. The story was told by another professor, although apparently Raiffa later denied that he had said it.

Dec

20

How Old Are You? Stand on One Leg and I'll Tell You

I’m always interested in ways to quantify how my body is aging, independent of how many birthdays I have passed. And, according to a new study, there’s actually a really easy way to do this: Just stand on one leg.

Pamela Van Giessen writes:

I slipped on black ice a few years ago and broke my wrist. It was awful and I exclaimed that I would do everything possible to avoid that happening again. I have never had great balance to begin with. I started doing lots of planks. Minor improvement. This year I started running and walking backwards for ~10 mins/day (and I increased the planks to 4 mins). I have been doing this at least 5 days/week since January. I also do about 3 mins/day (7 days/week) sideways leg lifts (one leg at a time and then alternating) with my eyes closed.

HUGE improvement. On recent hikes I was able to rock hop over creeks without my usual falling on my rear and walked several round tree trunks over creeks (like a balance beam) successfully. Two yrs ago I would have had to scootch over those tree trunks on my butt.

Falls are one of the leading causes of mortality as we age because when people fall and hurt themselves it takes longer to recover and they get really nervous about it happening again so they become more sedentary. Peter Attia spends a lot of time discussing this in his book and podcast.

Larry Williams offers:

I had this in my February letter:

We are all aware of how dangerous falls can be for older people. I did not realize it was this dangerous; “The mortality rate for falls increases dramatically with age in both sexes and in all racial and ethnic groups, with falls accounting for 70 percent of accidental deaths in persons 75 years of age and older.” Am Fam Physician.

Most say older people fall because they lose their balance, surely that is part of it. But, there’s another part you can start working on now that costs nothing.

When you start to lose your balance, your body immediately corrects it with how you are standing. Weak ankles, as I see it, are the problem. I first realized this when training for the Sr Olympics. Faster sprinters have stronger ankles. Weak ankles mean you can’t “catch yourself” as you start to fall. To strengthen your ankles, walk barefoot. Walk on your toes, then walk on your heels (careful) to build up these muscles and protect you from falling. Lots of YouTube videos on this as well. Strong people fall less. Muscle loss and ankle strength will keep you upright.

A good exercise is to rock back on your heels, may want to hold on to something, to develop balance and strength

Andrew Moe adds:

Walking backwards uphill, dragging a big weight sled backwards and doing squats on an incline board are all favorites of the Knees Over Toes guy. He's an innovator who believes in building strength from the ground up. Also combines strength and flexibility. Worked for me and is now part of my regular exercise.

Dec

12

Want to Live a Long and Fulfilling Life? Change How You Think About Getting Old
Research consistently shows our attitudes and beliefs influence our health and longevity.

Data is mounting, much of it from research by Yale epidemiologist Becca Levy, about the impact our attitudes and beliefs have on our health and longevity. Levy’s interest in the connection began in the 1990s, when she traveled to Japan to try to understand why the Japanese had the longest lifespan in the world. She was familiar with explanations that attributed this longevity to diet—Japanese people consume less meat, dairy products, sugar and potatoes than other wealthy countries. But what stood out to her was how the culture respected and celebrated older people.

“It struck me as very different to what I had observed in the U.S.,” she told me. “So I began to wonder if these positive age beliefs could contribute to the longer lifespan in Japan.”

Nils Poertner writes:

Psychology plays a huge role here - eg. excessive nostalgia means one does not appreciate the moment - in my view it is also linked to far-sightedness (went farsighted at the age of 15! which is rare and then recovered). there is somewhat a placebo in life - and the joke is on us really.

Big Al comments:

There are maybe complicated issues around causality, e.g., do people with a positive attitude live longer and better, or do people with underlying factors that promote health and longevity tend to have a positive attitude? But I will stipulate that we might as well try it. Which leads to the issue of people feeling like they have failed if they *don't* have a positive attitude. Perhaps as a way of avoiding this pitfall, we could be given information on how to *practice* a positive attitude. Then, over time and with practice, we might see a benefit.

Nov

25

Book Review: How To Become a Professional Con Artist
3/25/2005

Dennis Marlock opens his "How To" book with a testimonial:

As a law professor, I have read countless books, articles, and dissertations on fraud and deception. This, however, is the first time I have elected to endorse any author's work. The book is indeed an academic gem worthy of inclusion in university curriculums throughout the nation.

The beautiful thing about the professor's testimonial and the related, "I first bought the book hoping to discover why a cop would tell people how to commit fraud. Having read the book, I must now ask why he didn't write it sooner" is that they were both short cons written by the author.

The book lacks the scholarship, timelessness, humor and general principles of David Maurer's classic The Big Con, which I would recommend as one of the seven best books for market practitioners right after Ben Green's Horse Trading. Nevertheless, it is replete with cons and techniques we are exposed to in our day-to-day work in the market. The most relevant topic is chapter 4, "Tools of the Trade," which lists such essentials as "How to Talk Without Saying Anything." An example of this would be market talk such as "1040 is a key level." Yes, if it turns at that level and goes up it was key, and if it hits that level and goes below, why that proves that it didn't hold. A variant of this is the "the market is good as long as stays in the 1025-1075 range."

An important sub-technique is to "use abstract and otherwise equivocal and meaningless rhetoric." I have already written about this, and California Phil's precis of the earthquake "professor" is a classic here. But the market confidence man in general does always frame his thoughts in ways that cannot be disproved or refuted.

One loves the discussions of power laws in this context, as there's no way to differentiate a normal distribution from a power law with any degree of confidence for any samples involving 750 observations or less, and by then the situation has changed so much that one can always rely on Oct 19, 1987.

One must always appear confident as a confidence man and "I am completely confident that you will be totally satisfied with this necklace" is a phrase that the confidence man uses often. This is even more effective when you receive this assurance from a friend of the confidence man. I recently read an interview about a large man who has lost billions of dollars for his investors in publicly reported funds, yet the interviewer refers to the millions he has made the 30% a year internal rates of return, and the nine-figure amount that his followers made applying the techniques that the large man proudly boasts he took the lions share of , and the amazing returns he himself is making at the very present time, despite the difficulties he apparently has in making money for customers.

One of my favorite passages in "How to Become a Professional Con Artist" is the depiction of the big businessman as the ideal mark. "They're cows waiting to be milked," Marlock writes. "They are in abundance, they don't complain when being milked, they provide useful products, and they are used and abused by almost everyone. They are abused daily by employees, lawyers, stockholders, customers, suppliers, lenders, accountants, partners, tax collectors, and competitors. except for the stiff competition, bus schemes are the easiest, safest, and most profitable.

Read the full post.

Nov

14

Should the market cap of crypto currencies be included in money supply for macroeconomic purposes?

William Huggins replies:

I'd you cant use it to pay taxes it doesn't count (just another asset, like a stamp).

Kim Zussman asks:

Why not? They add because if you pay taxes with fiat you can buy merch with crypto.

William Huggins responds:

you can barter wine or chocolate for a ton of things online too but we don't count those either. if money is "anything taken as payment" then we have to get very serious about "degrees of moneyness" (hence m0,m1,etc). in that spectrum, its pretty clear that the only things on the list are legal tender so unless you live in the land of bukele, it doesn't count (also, whose money supply does crypto count as exactly?)

Peter Penha:

I will volunteer that there is no moneyness to crypto as it was determined a 100% haircut asset by the DTC.

I think this leaves Blackrock and other crypto ETF managers in the interesting position that they cannot include crypto ETFs in one of their asset allocation funds or a target date fund, etc - inclusion would pollute.

Crypto in the USA appears to be a walled garden - the only contagion I can see to the financial world would be to holders of Micro Strategy Convertible Debt.

Stefan Jovanovich writes:

The question you all are raising here has a history - how far can "the law" go to monetize promises to pay? Originally, the answer was not one step. The Constitution says that legal tender can only be Coin. Article I, Section 8.

The lawyers have been working around that limitation ever since. Their greatest difficulty has been getting around the literalist non-lawyer Presidents who keep following the actual instructions the People established by vote as "the law".

Success came with the Aldrich-Vreeland Act which authorized banks with Federal charters to form "currency associations". Those were given authority to issue emergency currency could be backed by securities other than U.S. bonds, including commercial paper, state and local bonds, and other miscellaneous securities.

Section 18 of the Act: "The Secretary of the Treasury may, in his discretion, extend from time to time the benefits of this Act to all qualified State banks and trust companies, which have joined the Federal reserve system, or which may contract to join within fifteen days after the passage of this Act: Provided, That such State banks and trust companies shall be subject to the same regulations and restrictions as are national banks under this Act: And provided further, That the circulating notes issued under this Act shall be lawful money and a legal tender in payment of all debts, public and private, within the United States."

Everything since 1908 has been a variation on that theme - "lawful money" can be whatever Congress says it is.

Bill Rafter comments:

I started this question because I am working on a slight variation of digitally quantifying inflation. With the loose definition of inflation being “too much money chasing too few goods”, then the “money” part should include all that can conceivably buy the “goods”. Since one can increasingly buy a whole lot of stuff with crypto, then crypto deserves inclusion. If one were to fast-forward to a time of massive currency instability (this is just a thought experiment), having included the cryptocurrency might have facilitated greater forecasting.

Stefan Jovanovich adds:

For me the paradox of Bitcoin is that it has been a spectacularly successful asset - like a share of Berkshire Hathaway stock bought in the days before Buffett even went public - but it has never been a money. If I had Bill's brain and cleverness, I would try to include in the calculations the sum of personal and corporate credit that the lenders cannot easily pull away from the table (the potential moneyness supply) and the amount of credit actually used; and then seek the correlations to the fluctuations in that spread. In the days before central banking, speculators watched the net supply of commercial paper as such an indicator.

Oct

31

There is a lot of talk about how precarious US Debt situation is. Two questions:

1. What possible disaster may come out of this? I am thinking Zimbabwe type hyper inflation. What other kind of disaster can happen?

2. What can retail level people do to protect themselves from this? Buy Swiss Francs? Gold & Silver? Bitcoin? What?

Larry Williams responds:

Gloom and doomers here is the chart to look at:

Bud Conrad writes:

Gold 1 year is up 24%. Silver 1 year is up 50%. The circumstances today are still very bad for the dollar. (Which is what is actually declining.)

The BRICS+ are meeting in Russia tomorrow Putin, Xi, Modi, Iran, Saudi Arabia (observer only), UAE etc.) to continue de-dollarization with non-dollar-denominated trade through non-SWIFT transactions for international Central Bank settlement. NO body is talking about this, being focused on how much the candidates will print up to bribe us for votes. The $1.1 T for interest on the $35 T of official Government Debt could rise, as the 10 year Treasury rate hit 4.2% while the Fed CUT short-term rate. Including unfunded liabilities for Social Security and Medicare would say the debt obligations are more like $200 T.

This is 10 year Treasury. Red pointer is when Fed Cut short term rate:

There is no way around avoiding the money printing required. Inflation and price rises are inevitable, as foreigners divest their $8 T of Treasury holdings, to avoid US asserting sanctions or seizing assets like the $300B of Russia holdings. They want out of US Hegemony fast, because of 14 rounds of sanctions on Russia.

Read the full conversation.

Oct

24

Spec variety pack

October 24, 2024 | Leave a Comment

Hernan Avella provides a quick book review:

The Biggest Bluff is a decent book, light enough to enjoy in audiobook format. The book follows a simple narrative, weaving decision theory and cognitive biases into the context of the author’s journey learning poker while being mentored by one of the best ever. There are many useful nuggets for the discretionary trader throughout. In today’s markets, where speed and computational power are abundant—much like the solver and GTO approach in poker—the wisdom of the great Eric Seidel can be distilled as follows:

• Focus and pay attention
• Emphasize the decision-making process, iterate, and improve upon it—don’t obsess over results.
• Don’t complain about bad beats; take randomness stoically.
• There’s always something to learn, and always be humble.

David Lillienfeld on GLP-1s and Alzheimer's:

It's rare that one can say much that's definitive about Alzheimer's–other than that we don't know much. However, it seems there's some reason for hope coming from the GLP-1:

Ozempic predecessor suggests potential for GLP-1 drugs in Alzheimer’s in early trial

A small clinical trial suggests that drugs like Ozempic could potentially be used not just for diabetes and weight loss but to protect the brain, slowing the rate at which people with Alzheimer’s disease lose their ability to think clearly, remember things and perform daily activities. The results need to be borne out in larger trials, which are already underway, before the medicines could receive approval for the disease.

Kim Zussman on happiness, money, and "olfactory enrichment":

The Price of Happiness
What is the shape of the relationship between money and happiness, and what are its implications?

People typically think about money in raw units such as dollars. Yet research on money and happiness typically examines the association between happiness and the logarithm of income, or Log(income). This logarithmic association between income and happiness is frequently either overlooked or misunderstood. To help address this, the present report examines this association and makes five key points….

Overnight olfactory enrichment using an odorant diffuser improves memory and modifies the uncinate fasciculus in older adults

Conclusion: Minimal olfactory enrichment administered at night produces improvements in both cognitive and neural functioning. Thus, olfactory enrichment may provide an effective and low-effort pathway to improved brain health.

Oct

19

From Pariah to Pioneer

In 1973, when John Wennberg published his first journal article on unwarranted variations in the delivery of healthcare, he was largely ignored. But over the past 40 years, Wennberg—the founder of the Dartmouth Atlas Project and the Peggy Y. Thomson Professor Emeritus in the Evaluative Clinical Sciences at Geisel—has helped to change the way physicians and patients approach medical decision making and shaped efforts to reform the nation's health-care system.

Over the course of two days at Dartmouth, Jack and his colleagues laid out the content of their work—leaving me to sort out its revolutionary implications. Elliott Fisher, David Goodman, and H. Gilbert Welch, all physicians, showed me data suggesting that in regions of the country and at individual hospitals that delivered the most medical services—as measured by days in the hospital, tests, procedures, and visits from multiple specialists—patients did not, on average, live longer. It also did not appear that regions whose patients were the sickest on average—and therefore potentially most in need of more treatment—were the ones where the most care was delivered. Jack and the others went on to show me that many patients were unwittingly getting elective surgeries (including cardiac bypass, mastectomy, and prostate surgery) that could cause side effects that patients did not know about or fully understand, raising the question of whether they would have wanted the surgeries had the pros and cons been explained to them in a way they could grasp.

Tracking Medicine: A Researcher's Quest to Understand Health Care, by John E. Wennberg.

Kim Zussman adds:

There are financial incentives to do procedures (both for drs and hospitals), creating moral hazard. I.e., it is more likely for an interventional cardiologist to recommend an angiogram than it is for a non-interventional to do so. Note the income difference in the table. Click on the image for full view or go to the article:

Cardiology salaries on the rise, how does yours compare?

According to Modern Healthcare’s 2017-2018 By the Numbers report, most physician specialties have seen an increase in average salary since 2015-2016. Interventional and non-invasive cardiology are no exception.

Oct

10

Discussions on Florida prompted another look at domestic migration (one state to another, from 2020-2023) by presidential vote in the 2020 election. Using Wiki data on net migration and 2020 results*, here is a table of the top and bottom 10 in-migration states, on a per-capita basis, with voting colors**.

6/10 top in-migration states were Red, but only 2/10 top out-migration states were Red. Also of note is the out-migration raw numbers for CA and NY.

* List of U.S. states and territories by net migration

* Red states and blue states

** Red = Trump, Blue = Biden, lighter colors were close to tied.

Oct

7

From Carder Dimitroff:

Note: 1 GW = about 1 nuclear power plant.

US DOE/EIA: Batteries are a fast-growing secondary electricity source for the grid.

Utility-scale battery energy storage systems have been growing quickly as a source of electric power capacity in the United States in recent years. In the first seven months of 2024, operators added 5 gigawatts (GW) of capacity to the U.S. electric power grid, according to data in our July 2024 electric generator inventory. In 2010, only 4 megawatts (MW) of utility-scale battery energy storage was added in the United States. In July 2024, more than 20.7 GW of battery energy storage capacity was available in the United States.

From Kim Zussman:

Argentina Scrapped Its Rent Controls. Now the Market Is Thriving.

For years, Argentina imposed one of the world’s strictest rent-control laws. It was meant to keep homes such as the stately belle epoque apartments of Buenos Aires affordable, but instead, officials here say, rents soared.

Now, the country’s new president, Javier Milei, has scrapped the rental law, along with most government price controls, in a fiscal experiment that he is conducting to revive South America’s second-biggest economy.

The result: The Argentine capital is undergoing a rental-market boom. Landlords are rushing to put their properties back on the market, with Buenos Aires rental supplies increasing by over 170%. While rents are still up in nominal terms, many renters are getting better deals than ever, with a 40% decline in the real price of rental properties when adjusted for inflation since last October, said Federico González Rouco, an economist at Buenos Aires-based Empiria Consultores.

From Asindu Drileba:

Fraud, So Much Fraud

Charles Piller and the team here at Science dropped a big story yesterday morning, and if you haven't read it yet, you should. It's about Eliezer Masliah, who since 2016 has been the head of the Division of Neuroscience in the National Institute on Aging (NIA), and whose scientific publication record over at least the past 25 years shows multiple, widespread, blatant instances of fraud. There it is in about as few words as possible.

It turns out that alot of FDA drug approvals where based on this guy's research (a few listed in the article). I wonder what effect it may have on pharmaceutical businesses based off his research. Imagine spending decades & billions on a drug whose prior research turn's out to be completely forged (photoshopped images). This looks really bad for the Alzheimer's drug focused pharmaceutical industry.

From David Lillienfeld:

This is a comparison of international drug prices. U.S. gross prices are higher than those in comparison countries for all drugs and for brand-name originator drugs but lower for unbranded generic drugs.

Oct

5

Larry Williams comments:

Yield curve is very bullish at this time - it is so misunderstood.

Peter Ringel does some counting:

I found a FED Cut gives some bear pressure on SPY 5, 10 days after. Then it goes into meaningless regarding SPY.

only T+5 , T+10 are probably significant. We just crossed the end of that bearish pressure.

T+1 10000 reshuffled - Observed difference: -0.03, Bootstrap p-value: 0.8573
T+5 10000 reshuffled - Observed difference: -0.96, Bootstrap p-value: 0.0206
T+10 10000 reshuffled - Observed difference: -1.13, Bootstrap p-value: 0.0514
T+20 10000 reshuffled - Observed difference: -0.88, Bootstrap p-value: 0.2829

(a work in progress)

Oct

2

Anyone else sick of the idea that gamblers are best at financial markets? Why aren't the champion players the richest in the world? Would you hire a gambler to manage your life savings? Don't gamblers (Livermore, etc) die broke?

Why This Wall Street Firm Wants Its Traders to Play Poker

Young traders who join the trading giant Susquehanna International spend at least 100 hours playing cards during a 10-week training program. When the stock market closes at 4 p.m., they often head straight from the trading floor to a dedicated poker room at the firm’s headquarters in the Philadelphia suburbs.

Jeff Yass, Susquehanna’s co-founder, sometimes joins in, scrutinizing hands new hires play and gauging how effectively they bluff. Thousands of employees, from traders to technologists, participate in the firm’s annual poker tournament. At least three have notched wins at the World Series of Poker in Las Vegas.

Big Al offers:

Trading Is a Lot Like Poker

Peter Ringel writes:

I agree to all the points from the trading side. I know the basics of poker, but not a skilled player. Not even a novice. It makes sense to use the filter "skilled poker player" for manager selection. But how to become a skilled player ? Is it easier to become skilled in poker vs a skilled trader? I suspect it is a similar hard battle.

Asindu Drileba comments:

The problem with "skill level" is that they kind of translate differently. Warren Buffet for example is a Bridge addict. (Bridge is also a game of chance like poker) He (Buffet) is definitely an "above average skill player", but nit amongst the top 20 in the world. In investing however, Buffet may be regarded as part of the top 5.

The same goes for other financiers. Sam Altman (top VC in Silicon Valley), Jason Calcanis (Top VC in Silicon Valley), Charlie Munger were probably above average poker players but their edges were stronger in the finance & investing world — but all these attribute poker to their success.

Big Al writes:

1. Poker is very different from other casino games. There is a lot of skill involved, a lot of math (at the higher levels), a deep understanding of game theory (at the very high levels), and there are many more decisions to be made in poker compared to, say, roulette. Most poker pros probably wouldn't call poker "gambling", though some are degen gamblers when they walk away from the poker table.

2. Poker is a lot like the other casino games in that, for most people, the best decision is not to play. Like in markets, where the best decision for most is not to trade but just buy a diversified portfolio and hold it for a long time.

3. But firms like Susquehanna are not advising "most people" and they're not buying and holding SPY. For them, poker is a good way to assess and develop various skills that are relevant to hacking the market and making big bets. Poker is a great laboratory for testing "risk tolerance".

4. The poker "ecosystem" is a lot like the trading market in that there is a need to keep getting new suckers to enter at the bottom level and convince them they can win.

Aug

29

How Big Data Centers Are Slowing the Shift to Clean Energy
In Virginia’s data-center alley, rising power demand means more fossil fuels

An explosion of so-called hyperscale data centers in places such as Northern Virginia has upended plans by electric utilities to cut the use of fossil fuels. In some areas, that means burning coal for longer than planned.

These giant data centers will provide computing power needed for artificial intelligence. They are setting off a four-way battle among electric utilities trying to keep the lights on, tech companies that like to tout their climate credentials, consumers angry at rising electricity prices and regulators overseeing investments in the grid and trying to turn it green.

Ground zero for the fight is Northern Virginia’s “Data Center Alley.” About 70% of global internet traffic passes through the area’s data centers. A spider web of power lines connecting data centers to the grid crisscross neighborhoods and parks. More are coming.

Henry Gifford provides some analysis:

There are about three laws of thermodynamics, the first says that energy cannot be destroyed or created.

I’ve seen photos of data centers that allegedly use huge amounts of electricity. If that is true, all that energy enters the building as electricity and somehow has to leave as heat. I saw one photo of part of a building that looked like it had cooling equipment, but mostly I just see ominous looking buildings – maybe the photos are darkened in photoshop. If the building does not have a huge cooling system, such as a large row of large cooling towers – those machines on the roof that evaporate water, putting off a cloud of visible water droplets – or some other large cooling system - then either they don’t use much energy or the buildings are cooled by politics or magic or etc.

No, they can’t use geothermal cooling systems, those systems that put the heat into the soil under the building, because very soon that soil would heat up, rendering the cooling system inoperable. That works for a single-family house, especially if they take heat back out of the ground to heat the building during the winter, but a large building that dumps heat into the ground all year long? No, it doesn’t work.

Yes, liquid cooling is part of the picture; the liquid takes the heat from the computers, then the liquid gets pumped to something to cool the liquid. Cooling towers are a common way to cool the liquid - this is how office buildings are usually cooled. Geothermal uses the ground as a heat sink to cool the liquid. The heat goes from the computers to the liquid and then to someplace else.

Given the enormous amounts of electricity data centers are typically described as using, the someplace the heat goes cannot be very small - that something must be large.

Aug

23

Today, the U.S. Energy Information Administration (EIA) is counting how many power plants were added in the first half of 2024 and projecting how many will be added in the last half.

It's all wonderful news. About 20.2 GW (the equivalent of about 18 nuclear power plants) were added. By the end of the year, EIA expects about 62 GW of new capacity. About 95 percent of these additions are intermittent sources (wind, solar, batteries).

Offsetting this new capacity are retirements. Utilities plan to retire 7.6 GW, all of which use coal, natural gas, and petroleum as fuel. They are likely being retired because they are uneconomic and rarely dispatched. Their levelized costs exceed revenues, and investors want to tidy up their books.

Statistics unearth a problem that counting hides. The problem is not on the supply side; it's on the demand side. Specifically, counting 24/7 demand reveals tremendous growth (e.g., baseload). It appears there's a hidden mismatch between supply and demand. While there will be hours on most days when the grid is flooded with cheap power, there will also be hours on other days when there will not be enough supply to serve all loads.

Retail prices will jump. In fact, they already have. PJM is the Regional Transmission Organization (RTO) that manages bulk power markets for the mid-Atlantic region. It's one of the largest of the nation's ten RTOs. In addition to transmission line responsibilities, PJM manages energy and capacity auctions for power plant production.

PJM conducts an auction for capacity each year. Power plant asset owners may enter the auction and offer their prices. Owners are paid a daily rate for each megawatt if their bids clear. Auction results:

2024/2025
$28.92 / MW-day

2025/2026
$269.92 / MW-day

Next year, a 1,000 MW power plant can earn $269,920 daily compared to $28,920 this year. These payments are in addition to any revenues earned from energy auctions.

While these auctions seem arcane to the average consumer, they will feel it in their pocketbooks—and not just in one part of the country—it's everywhere. All these costs will flow to the consumer, who will have only the choice of paying or reducing consumption.

Two options may become quickly viable. One is to build gas turbines as fast as possible. To attract investors, capacity payments have to be attractive. But starting new projects today may be too late.

The other option is "demand-response," where consumers are enticed to reduce demand for a price. Demand response is in place today but has yet to be aggressively implemented. It appears grid operators like PJM (not the government) will be forced to become aggressive and offer lucrative demand-response programs.

Lastly, those who invest in "behind-the-meter" assets like their own renewable energy sources, including geothermal, will avoid some of these accelerating costs. Those who have already invested will likely experience returns higher than expected.

The roots of this problem germinated decades ago. That is its own story for another time.

Kim Zussman wonders:

XLU?

Big Al observes:

XLU up 25% from Feb low.

Jeffrey Hirsch was there before us:

Our recommendation at the outset of XLU/Utes seasonal bullish March-Oct period.

Humbert H. writes:

Nuclear is clearly the real solution as the current generation of nuclear reactors are pretty much (we hope) not vulnerable to meltdowns. But as the situation stands, battery technology is likely to receive an ever-increasing amount of investment, and also reused old EV batteries will be more and more prevalent as storage banks for solar and wind. Intermittent sources = more and more need for battery capacity.

William Huggins offers:

one possible solution to transmission problems is to use rail-bound batteries.

Aug

21

Financial Statement Analysis with Large Language Models
Chicago Booth Research Paper
Fama-Miller Working Paper
54 Pages Posted: 21 May 2024
Alex Kim, Maximilian Muhn, Valeri V. Nikolaev
University of Chicago Booth School of Business

We investigate whether an LLM can successfully perform financial statement analysis in a way similar to a professional human analyst. We provide standardized and anonymous financial statements to GPT4 and instruct the model to analyze them to determine the direction of future earnings. Even without any narrative or industry-specific information, the LLM outperforms financial analysts in its ability to predict earnings changes. The LLM exhibits a relative advantage over human analysts in situations when the analysts tend to struggle. Furthermore, we find that the prediction accuracy of the LLM is on par with the performance of a narrowly trained state-of-the-art ML model. LLM prediction does not stem from its training memory. Instead, we find that the LLM generates useful narrative insights about a company's future performance. Lastly, our trading strategies based on GPT's predictions yield a higher Sharpe ratio and alphas than strategies based on other models. Taken together, our results suggest that LLMs may take a central role in decision-making.

Aug

17

Wall Street’s Trash Contains Buried Treasure
Investors buying index-fund castoffs could have made 74 times their money since 1991

Rebound relationships are best avoided, but maybe not in the stock market.

In a paper that starts out by stating that “no one enjoys getting dumped,” two investing quants reveal some surprising, and potentially lucrative, traits of companies that have really let themselves go. With about half of the money invested in American stocks now sitting in index funds, and many active managers holding portfolios that resemble them — just try beating the market these days without “Magnificent 7” stocks such as Nvidia or Microsoft — index castoffs have a hard time meeting someone new.

That is when investors should pounce, says Rob Arnott, chairman of advisory firm Research Affiliates, with colleague Forrest Henslee. This week they are unveiling a stock index named NIXT that would have earned investors about 74 times their money since 1991 by buying stocks kicked out of indexes.

Big Al links:

The Disappearing Index Effect
Robin Greenwood & Marco Sammon, Harvard Business School
Revised, November 2023

The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 7.4% in the 1990s to 0.3% over the past decade. This has occurred despite a significant increase in the share of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns during the 1990s, but only 0.1% between 2010 and 2020. We investigate the drivers of this surprising phenomenon and discuss implications for market efficiency. Finally, we document a similar decline in the index effect among other families of indices.

Aug

10

Physical capability in mid-life and survival over 13 years of follow-up: British birth cohort study

Grip strength was measured isometrically with an electronic handgrip dynamometer. The dynamometers were calibrated at the start of testing by using a back-loading rig and are accurate, linear, and stable to within 0.5 kg. The retest variability within individual participants for maximal voluntary tests of strength in those unused to such measurements is about 9%. Two values were recorded for each hand and the highest used in analyses. Chair rise time was measured with a stopwatch as the time taken to rise from a sitting to a standing position with straight back and legs and then to sit down again 10 complete times as fast as possible. For high scores to indicate good performance, we calculated chair rise speed by dividing the number of rises (that is, 10) by the time taken to complete 10 rises (in minutes). Standing balance time was measured, using a stopwatch, as the longest time, up to a maximum of 30 seconds, participants could maintain a one-legged stance in a standard position with their eyes closed.

Big Al lists:

I've been doing balance exercises with a stopwatch, but mostly eyes-open. With eyes closed, I've only gotten up to 12 seconds.

Humbert H. comments:

It seems the article deliberately stayed away from remedies. It noted that certain things (most of which I have seen before in similar contexts, so this isn't entirely new) are associated with increased mortality. Exercise is universally recognized as positive, but there wasn't even a hint that doing anything specific about any of the indicators reduces mortality. Causation and what to do about any of these need a lot more research, it seems.

Big Al responds:

Yes. Causation arrow pointing one way: Eyes-closed balance measures some more complex internal state of health that predicts longevity. Flip the arrow: I practice balance exercises to improve my balance and thus reduce the chance of falling which is a major cause of hospitalization and death in older cohorts.

Humbert H. agrees:

Excellent point, that can be generalized as follows: when you don't understand the root cause of the problem, limiting its negative effects is always the right strategy.

James Goldcamp writes:

The eyes closed one leg stand is exceptionally hard.

I used to measure grip strength and own a hand dynameter. I found grip strength could vary/range as much 145 lbs to 177 lbs in the same month based on rest and recovery state.

Since these are all basically a function of power and strength (standing up and rate), and neurological efficiency (grip/ balance) unilateral leg strengthening (e.g. pistols to a chair of suitable height) and carrying objects (walk around room it yard with a dumbbell or kettlebell within ones level of strength) would be the obvious activities. Another challenge as we age is doing any resistance activity for power (vs strength)since the obvious choices carry injury risk (sprinting, box jumping, Olympic lifts, med ball throwing).

However, I believe its less a matter of training to these qualities than these measurements select for people who have maintained power/strength generally (strength trumps muscle for longevity though they obviously overlap).and are thus less susceptible to falls and things like hip fractures that cascade people downwards. It would be interesting to know how much of the longevity is predicated on fall reduction and or recovery after.

Aug

1

Google DeepMind’s new AI systems can now solve complex math problems

AlphaProof and AlphaGeometry 2 are steps toward building systems that can reason, which could unlock exciting new capabilities.

Google DeepMind says it has trained two specialized AI systems to solve complex math problems involving advanced reasoning. The systems—called AlphaProof and AlphaGeometry 2—worked together to successfully solve four out of six problems from this year’s International Mathematical Olympiad (IMO), a prestigious competition for high school students. They won the equivalent of a silver medal.

To test the systems’ capabilities, Google DeepMind researchers tasked them with solving the six problems given to humans competing in this year’s IMO and proving that the answers were correct. AlphaProof solved two algebra problems and one number theory problem, one of which was the competition’s hardest. AlphaGeometry 2 successfully solved a geometry question, but two questions on combinatorics (an area of math focused on counting and arranging objects) were left unsolved.

Download the 2024 International Mathematical Olympiad problems

Jul

30

Two Diets Linked to Improved Cognition, Slowed Brain Aging

An intermittent fasting (IF) diet and a standard healthy living (HL) diet focused on healthy foods both lead to weight loss, reduced insulin resistance (IR), and slowed brain aging in older overweight adults with IR, new research showed. However, neither diet has an effect on Alzheimer's disease (AD) biomarkers.

Although investigators found both diets were beneficial, some outcomes were more robust with the IF diet.

Larry Williams adds:

A “dry” fast loses weight more than wet fast.

Big Al writes:

Sergei's AI says:

The main difference between dry fasting and wet fasting, also known as water fasting, is whether you consume liquids:

Dry fasting: Restricts both food and liquids, including water, broth, and tea. It can be done as part of intermittent fasting, which cycles between eating and fasting. For example, you might restrict food for 16 hours and eat during an 8-hour window. Wet fasting: Allows you to drink water, and sometimes certain teas.

Dry fasting can be dangerous, especially for long periods of time. Some potential side effects include: Dehydration, Nutrient deficiencies, Urinary problems, Kidney issues, Heat injury, and Swollen or ruptured cells.

Jul

26

A mass sacrifice of children and camelids at the Huanchaquito-Las Llamas site, Moche Valley, Peru

Here we report the results of excavation and interdisciplinary study of the largest child and camelid sacrifice known from the New World. Stratigraphy, associated artifacts, and radiocarbon dating indicate that it was a single mass killing of more than 140 children and over 200 camelids directed by the Chimú state, c. AD 1450. Preliminary DNA analysis indicates that both boys and girls were chosen for sacrifice. Variability in forms of cranial modification (head shaping) and stable isotope analysis of carbon and nitrogen suggest that the children were a heterogeneous sample drawn from multiple regions and ethnic groups throughout the Chimú state. The Huanchaquito-Las Llamas mass sacrifice opens a new window on a previously unknown sacrificial ritual from fifteenth century northern coastal Peru. While the motivation for such a massive sacrifice is a subject for further research, there is archaeological evidence that it was associated with a climatic event (heavy rainfall and flooding) that could have impacted the economic, political and ideological stability of one of the most powerful states in the New World during the fifteenth century A.D.

Laurel Kenner comments:

In Lessons from History, the Durants write that Peru was a happy socialist state until the arrival of the conquistadors in the 16C.

Bo Keely reports:

Iquitos, Peru at the headwaters of the Amazon Rio is the only of two places I've lived in the past 20 years. The other is here in Slab City. I had a trip planned to Peru this month but got a desert skin infection that the jungle would have ravaged. As such, i've lived in the Peruvian Amazon a half-dozen times for months at a stint, all in the jungle hiking and hitchhiking banana boats. The proposed postponed trip was to hitch the rios again doing magic tricks for the natives in putting together a photo-essay. The Peruvian Amazon is my haunt because the people operate very low on the brainstem. Cannibalism and malaria make them perhaps the greatest evolved and toughest humans on the planet. Put succinctly, if one is invited to dinner make sure the host isn't licking his chops. I'll go back, and escape again with magic.

Asindu Drileba is concerned:

Put succinctly, if one is invited to dinner make sure the host isn't licking his chops. I'll go back, and escape again with magic.

You have unlocked a whole new level to what I consider a set of risks people take. Please don't do that again.

Jul

24

‘Greatest Bubble’ Nearing Its Peak, Says Black Swan Manager

Universa’s Mark Spitznagel, who has made billions from past crashes, sees last hurrah for stocks before severe reckoning

Humbert H. asks:

His job is to make money on black swans, not to predict black swans. What kind of black swan is it if it can be predicted?

Asindu Drileba writes:

Black Swans are relative. If you have tail risk protection it means you are aware of tail risk. If you don't have tail risk protection, the notion of a "surprise" when it happens means you encounter a black swan. So Mark may be speaking form the perspective of those that actually don't think they will encounter a black swan.

Humbert H. responds:

Is there anyone who invests in the magnificent seven and NVDA in particular who isn't aware of their elevated valuations, possible bubble formation, and the risk of a major decline? There's some level of obviousness to warning people of this possibility. It's like he is suddenly preaching "past performance is no guarantee of future results" or "correlation does not equal causation". Is he doing this to help humanity? Someone will make more money and someone will make less money if they act on his warning, and there will be bagholders either way, so humanity will not benefit as a whole.

Asindu Drileba adds:

I think for his case, he is just marketing his fund.

Zubin Al Genubi observes:

Cheap Deep OTM puts are up 45% on a 3% decline showing exponential gearing in place from ATH as a directional trade or as a hedge. Surprisingly unidirectional.

Asindu Drileba expands:

His philosophy is more like that of "insurance" for stocks. I think Uncle Roy also has the same philosophy. I remember his describing portfolio protection akin to having fire insurance for your house. To benefit from fire insurance on your house, you don't need to predict when it will burn down. Just make sure you always have coverage for it. So most of the time, percentage wise, your predictions of having a fire are going to be wrong. He mostly advocates that everyone should have "fire insurance" for your portfolio.

To learn more about Mark's strategy:
1) A section called "The Forest In the Pine Cone" inside his book The Dao of Capital
2) His solution to the "narrow framing" problem
3) How he sizes his positions

Nils Poertner comments:

good to be open minded. that said: the more stories (like this one) we can read in mass financial media (FT, WSJ, etc) - the less likely this is going to play out anytime soon. "get the joke"

Humbert H. writes:

I don't think it makes any difference unless "everybody" has the opposite view of the future from what the market is doing. Every single day multiple people prognosticate both doom and gloom and full steam ahead. Since the motivation for this warning is clearly suspect this is white noise. But if his prediction comes true soon which it obviously has a reasonable chance of doing he'll be venerated for decades as the great prophet. This guy is clearly a disciple of Taleb, and they even collaborated in the past. Victor's take would be interesting.

Jun

25

Why This Simple Heart Failure Symptom Is So Easy to Ignore

Patients with decompensated heart failure who have bendopnea on discharge from hospital appear to be at significantly increased risk for all-cause mortality within 2 years, reported investigators.

The research, presented here at the Heart Failure Association of the European Society of Cardiology (HFA-ESC) 2024 and published in the European Journal of Preventive Cardiology, found that across two study cohorts, the risk for all-cause mortality was at least doubled among patients with shortness of breath when bending forward.

"Bendopnea can be assessed through a simple and noninvasive examination," said lead researcher Taisuke Nakade, MD, from the Department of Cardiovascular Biology and Medicine, Juntendo University Graduate School of Medicine in Tokyo, who pointed out that the association with mortality is "independent of other known prognostic factors."

Jun

11

Wall Street’s Favorite Recession Indicator Is in a Slump of Its Own
Treasury yields have been inverted for the longest stretch on record

One of Wall Street’s favorite recession indicators looks broken. An anomaly known as an inverted yield curve, in which yields on short-term Treasurys exceed those of longer-term government debt, has long been taken as a nearly surefire signal that an economic pullback looms. In each of the previous eight U.S. downturns, that has happened before the economy sputtered. There haven’t been any glaring false alarms.

Now, though, that streak is threatened. The yield curve has been inverted for a record stretch—around 400 trading sessions or more by some measures—with no signs of a major slowdown. U.S. employers added a solid 175,000 jobs last month, and economic growth this quarter is expected to pick up from earlier in the year.

Big Al snarks:

If a recession doesn’t materialize soon, it could do lasting damage to the yield curve’s status as a warning system.

I'd hate to have to spend my day thinking up stuff like that.

Larry Williams writes:

A close up study of it shows it has often been way wrong—this is just one more time.

Nils Poertner comments:

As those "indicators" lose their importance, the more ppl (and WSJ and FT in particular!!) talk about it. "get the joke" Lack would have said.

Jeffrey Hirsch responds:

NBER that said 2020 was a recession. Fed started cutting rates in 2019 and the curve inverted then.

The recession lasted two months, which makes it the shortest US recession on record.

It is just a shame bond market traders didn’t tell the rest of us that covid was coming. And what about the 2 back-to-back negative quarters of GDP in Q1&2 of 2022? That looked like a recession as well IMHO.

Big Al adds:

The Fed (from before the GFC) says levels matter, too:

The Yield Curve and Predicting Recessions
Jonathan H. Wright, Federal Reserve Board, Washington DC
February 2006

Abstract:

The slope of the Treasury yield curve has often been cited as a leading economic indicator, with inversion of the curve being thought of as a harbinger of a recession. In this paper, I consider a number of probit models using the yield curve to forecast recessions. Models that use both the level of the federal funds rate and the term spread give better in-sample fit, and better out-of-sample predictive performance, than models with the term spread alone. There is some evidence that controlling for a term premium proxy as well may also help. I discuss the implications of the current shape of the yield curve in the light of these results, and report results of some tests for structural stability and an evaluation of out-of-sample predictive performance.

Jun

1

Numberphile Video demonstrating that a cone that is 80% full in height is actually 50% full in volume. You will also know if your getting scammed in a bar.

Cones are MESSED UP - Numberphile

Zubin Al Genubi writes:

This is why convexity, compounding, and geometric or exponential growth are hard to comprehend.

Kim Zussman comments:

Geometric returns are important when assessing performance. From an investor's perspective, average returns underweight when a manager loses everything (because it is sum-based), but geometric returns don't (because it is a product).

Geometric mean

May

19

Apropos worry wall:
- Unprecedented US debt
- Presidential candidates to debate from jail cell vs hospital room
- Democracy in decline

Humbert H. writes:

Sooner or later, everyone is right.

Larry Williams responds:

Bob Prechter would like to hear that!

Steve Ellison adds:

My pinned tweet documents 53 bricks in a 53-year wall of worry. But Venita Van Caspel made the original chart in her 1983 book The Power of Money Dynamics. I just added 40 years of additional worries.

May

16

Wealth Creation in the U.S. Public Stock Markets 1926 to 2019
Hendrik Bessembinder, W.P. Carey School of Business
Last revised: 12 Nov 2020
Date Written: February 13, 2020

Abstract
This report quantifies long-run stock market outcomes in terms of the increases or decreases (relative to a Treasury bill benchmark) in shareholder wealth, when considering the full history of both net cash distributions and capital appreciation. The study includes all of the 26,168 firms with publicly-traded U.S. common stock since 1926. Despite the fact that investments in the majority (57.8%) of stocks led to reduced rather than increased shareholder wealth, U.S. stock market investments on net increased shareholder wealth by $47.4 trillion between 1926 and 2019. Technology firms accounted for the largest share, $9.0 trillion, of the total, but Telecommunications, Energy, and Healthcare/ Pharmaceutical stocks created wealth disproportionate to the numbers of firms in the industries. The degree to which stock market wealth creation is concentrated in a few top-performing firms has increased over time, and was particularly strong during the most recent three years, when five firms accounted for 22% of net wealth creation. These results should be of interest to any long-term investor assessing the relative merits of broad diversification vs. narrow portfolio selection.

May

4

The Doctor Is In. And He’s an Orangutan.

For the first time, researchers have seen a wild animal treat an open wound with a medicinal plant. After getting injured—probably in a brawl with another male—a wild Sumatran orangutan chewed the stems and leaves of a vine humans use to treat wounds and ailments such as dysentery, diabetes and malaria. The orangutan then repeatedly smeared the makeshift salve on an open gash on its cheek until it was fully covered. After the treatment, scientists saw no signs of infection. The wound closed within five days. And it healed within a month.

Jeffrey Hirsch is enthusiastic:

This is awesome! An good friend of mine spent several years in Borneo working with Orangutans under Birute Galdikas’ program. They are super crafty and smart. Don’t doubt this.

Humbert H. writes:

And nobody can explain how they know to do this in these situations. There is obviously a lot of learning apes can acquire from others, but this? There is also no way the current understanding of how genetic information is passed on that can explain this. There is something very mysterious about the mind and animals doing non-obvious things is the best example, this is not a simple biological phenomenon.

Asindu Drileba comments:

One of the things I hear in the AI research community in the pursuit of of AGI (Artificial General Intelligence) is people thinking of intelligence as something hierarchical like height.

In The Singularity is Near Raymond Kurzweil makes a plot of Computers approaching AGI. He puts insects at the bottom and manuals later then humans at the top. You often hear some people say that "We haven't yet reached dog level AI, so we can't say we can reach human level AI soon." That statement makes the assumption that A humans intelligence is more than that of a dog. But it has been reported in some cases a dog's sense of smell can be 100,000 more acute than that of a human being! And not just that it can tell time just by smelling what's around. Another example is also how birds can sense magnetic fields and use them like a compass.

Anyway my point is that just by the (limited) way humans perceive reality we have access to some secrets we can't pass to animals. My suspicion is that animals also have their own secrets that they cannot pass to us.

Humbert H. adds:

They have recently discovered that some insects are self-aware. The test that's used for animals is that they recognize their reflection in the mirror as themselves judging by their reaction. Usually only dolphins, apes, and some corvids (crows) pass the test.

But more importantly, what I meant was that animals seem to "know" how to do things that no current scientific understanding can explain. This means we don't understand basic things about animal (and human) mind. AI is a machine function: an algorithm using some data provides some outputs in response to inputs. A mind is like that too, except we really don't understand the nature of self-awareness, nor do we understand how animals just "know" things. Sometimes they call it "instinct" but there is no real science behind that word. And in this case it's not even that, apes have no "instinct" to cure wounds with specific processed plant material.

Jeff Watson writes:

Here is an interview with cognitive psychologist, Donald Hoffman. Some find him brilliant, some a flake. His ideas are unconventional to say the least, but the questions that come to mind out of his interview will break one’s brain. Many moments in the video, I pause and ask myself how this applies to markets.

Stefan Jovanovich gets philosophical:

The wheel of time turns on the axle of our self-awareness: Transcendentalism.

Apr

25

FTC Announces Rule Banning Noncompetes

Today, the Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

Kim Zussman writes:

This will also help knock down the value of businesses. Mike sells his business to Mary. One week later Mike opens the same kind of business one block away, and contacts all his old customers. How much should Mary pay to buy Mike's business?

H. Humbert comments:

Certainly has more merit than trying to destroy Amazon or preventing Kroger from buying Alberson's, her two other favorite busybody activities. Not a very libertarian thing to do, but noncompetes are often used against many powerless people as a nakedly aggressive move.

The argument she uses is that Silicon Valley where noncompetes are illegal beat out Boston Route 128, and is doing just fine in terms of starting new businesses. Whether it's due to noncompetes or the weather is anybody's guess. The other argument is that noncompetes are used to restrain security guards or sandwich shop workers from getting employment across the street, cases where intellectual property or customer lists are clearly not involved.

Pamela Van Giessen adds:

There is another downside to this. When companies lay off people, especially middle and senior management, they give them attractive parting gifts that are contingent on non-compete agreements. E.g, ABC co lays off senior manager, pays them up to 1 yr salary plus health benefits, etc. but the caveat is that former senior manager doesn’t work for a competitor for x period of time. These workers already have the right to decline the parting gifts if they don’t want to sign the non-compete. Now there is almost no incentive for companies to provide compensation to the people they lay off since they can’t bargain for a non compete. That sucks for employees who can now be laid off with pretty much nothing. I’d say this is a loss for employees and a win for big companies. Thank you to Joe Biden & co.

William Huggins responds:

let's not oversell this - firms seek out non-compete agreements for THEIR benefit, not that of employees. strange that an erosion of their position would somehow strengthen them but war is peace and ignorance strength?

Apr

17

Bits and pieces

April 17, 2024 | Leave a Comment

Zubin Al Genubi on market prices:

Twenty S&P points used to be a good trading day. It still is, but now 50 points is the new normal. Need to recalibrate mentally and recalibrate old systems. It's a dichotomy between points and percentages as the prior Rocky/Vic argument discussed. The higher price has resulted in a stealth increase in leverage. Announcements widen spreads and create great small entry points. The FED speak traders are always wrong and offer great opportunity. Why are they wrong? Bad news is not good news.

I've read that the current market price is always right. I disagree. The market price is set at the margin by a few, maybe several hundred participants with a variety of reasons for transacting. The reasons are often wrong and the price is wrong at that moment. This can be used to advantage either in patterns prospectively, or in the case of liquidity holes on the fly.

Big Al suggests:

Daniel Kahneman on Cutting Through the Noise | Conversations with Tyler

Andre Agassi tennis hack against Boris Becker

Nils Poertner on effortless learning:

When learning a foreign language, we learn the best when being PRESENT and don't fret to get it right all the time. This being right puts a huge amount of unnecessary stress on the student. To some extent it seems the same in trading: we don't need to know everything in advance - far more important is to be PRESENT.

Easan Katir on an old book:

NHK offers a sensitive review of In Praise of Shadows. The book is by Juni'chiro Tanizaki, one of Japan's eminent novelists. Market relevance? One can muse on how much of market activity takes place in the shadows, the dark pools, the anonymous orders whizzing by on level 2… is there a shadowy level 3, 4, 5 where identities are revealed?

Kim Zussman responds:

Relatedly to spec interests, A Taxing Woman, a nice film about Yazuka/tax evasion at Nippon ATH ca late 80s.

Apr

7

Kim Zussman is optimistic:

Age and High-Growth Entrepreneurship
Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda
American Economic Review: Insights
Vol. 2, No. 1, March 2020

Abstract

Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. Integrating administrative data on firms, workers, and owners, we study start-ups systematically in the United States and find that successful entrepreneurs are middle-aged, not young. The mean age at founding for the 1-in-1,000 fastest growing new ventures is 45.0. The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.

Asindu Drileba adds:

This infographic is really good.

Big Al finds value in experience:

Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace
John A. List
ISSUE DATE June 2003

Abstract

Neoclassical theory postulates that preferences between two goods are independent of the consumer's current entitlements. Several experimental studies have recently provided strong evidence that this basic independence assumption, which is used in most theoretical and applied economic models to assess the operation of markets, is rarely appropriate. These results, which clearly contradict closely held economic doctrines, have led some influential commentators to call for an entirely new economic paradigm to displace conventional neoclassical theory e.g., prospect theory, which invokes psychological effects. This paper pits neoclassical theory against prospect theory by investigating three clean tests of the competing hypotheses. In all three cases, the data, which are drawn from nearly 500 subjects actively participating in a well-functioning marketplace, suggest that prospect theory adequately organizes behavior among inexperienced consumers, whereas consumers with intense market experience behave largely in accordance with neoclassical predictions. The pattern of results indicates that learning primarily occurs on the sell side of the market: agents with intense market experience are more willing to part with their entitlements than lesser-experienced agents.

Apr

2

California Restaurants Cut Jobs as Fast-Food Wages Set to Rise
Chains lay off workers, shave hours ahead of state minimum-wage increase

Big Al suggests:

Jacob Vigdor on the Seattle Minimum Wage, Mar 4 2019

Jacob Vigdor of the University of Washington talks with EconTalk host Russ Roberts about the impact of Seattle's minimum wage increases in recent years. Vigdor along with others from the Evans School of Public Policy and Governance have tried to measure the change in employment, hours worked, and wages for low-skilled workers in Seattle. He summarizes those results here arguing that while some workers earned higher wages, some or all of the gains were offset by reductions in hours worked and a reduction in the rate of job creation especially for low-skilled workers.

Mar

30

From The Mind of Bill JamesThe Mind of Bill James by Scott Gray, which I've been reading:

All things in baseball tend to return to their previous form. A team whose record improves one year will tend to decline the following year, and vice versa. In 1980, for example, only five of the twenty-six teams moved in the same direction in which they moved in 1979. It also applies to individual players. Bill found a way to express not merely the statistical principle of regression to the mean, but also what he called the 70/50 rule. Seventy percent of teams that decline in one year will improve the next; 70 percent of teams that improve will decline; and in all cases the amount of rise or fall is about 50 percent, so that a team twenty games over .500 one year would be ten games over .500 the next. (The percentages are much different for very big or very small improvements and declines.) “These were not things that I had expected to find,” Bill wrote. “Weaned on the notion of ‘momentum’ since childhood, I had expected a team which won eighty-three games one year and eighty-seven the next to continue to improve, to move on to ninety; instead, they consistently relapsed. Half-expecting to find that the rich grow richer and the poor grow poorer, I found instead that the rich and the poor converged on a common target at an alarming rate of speed.

It also applies to individual players. Bill found a way to express not merely the statistical principle of regression to the mean, but also what he called the 70/50 rule. Seventy percent of teams that decline in one year will improve the next; 70 percent of teams that improve will decline; and in all cases the amount of rise or fall is about 50.

Steve Ellison writes:

From my experience, I think the S&P 500 is less mean reverting in 1- to 2-week timeframes now than it was in the mid-2010s. On the other hand, the presidential election cycle pattern has been spot on since the beginning of bearish midterm election year 2022.

Eric Lindell comments:

These data pertain to relative performance — eg, a team's record relative to other teams. For absolute gauges — like how much I weigh on a diet, there's no such reversion to mean.

Kim Zussman responds:

Funny stuff! For asset managers everything is relative. For their customers (without yachts), it is absolutely absolute.

Where Are the Customers' Yachts?: or A Good Hard Look at Wall Street

Humbert H. agrees:

And that’s why people should not entrust their assets to asset managers, unless these people suffer from some sort of emotional instability and can’t handle losses without some stranger pretending to care.

Mar

24

An alternate understanding of a market being at all time high (market reaching new prices it has never encountered) is this: "Everyone that has ever bought that stock or instrument is now in profit". What might be the psychological implications of this?

Kim Zussman comments:

It is possible (and probable) to buy, then sell after a decline and stay out only to see it reverse and go up further. This (timing) is one reason it is so much easier to do better with B/H than trading.

Big Al adds:

The other advantage to B&H is that the opportunity cost viz time/attention required is basically zero. I have looked at various index timing approaches and have not found anything that beats B&H, especially when considering the vig and opportunity cost. However, should one need to scratch the itch, timing strategies may work better with individual stocks. But again, opportunity cost.

Humbert H. writes:

I've always been believer in B&H vs. trading. But even in B&H the debate between indexing and individual stock selection never dies. I don't like indexing, but I don't have a mathematical basis for that. It's a fundamental belief that buying things without any regard to their economic value has to fail in time, at least relative to paying some attention to it.

Zubin Al Genubi adds more:

Another aspect of buy and hold that Rocky pointed out is the capital gain tax severely eats into returns. The richest guys hold for years and have only unrealized untaxable gains.

Art Cooper agrees:

There was an excellent article in the Jan 7, 2017 issue of Barron's by Leslie P. Norton on VERY long-lived closed end mutual funds which have surpassed the S&P's performance. They have all followed buy and hold strategies.

Michael Brush offers:

Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.
- Peter Lynch

Steve Ellison brings up an important point:

And yet trading is one of the focal points of this list. The way I square this circle is to keep most of my trading account in an equity index fund at all times. When I think I have an edge, I make trades using margin.

Larry Williams writes:

B&H is the keys to the kingdom, but…the massive fortunes of Livermore were short term trades despite his comment about sitting on your hands. Even the current high performers, Cohen, Dalio, Tudor etc use market timing. When I won world cup trading $10,000 to $1,100,000, it was all about timing and wild crazy money management. One approach wins big the other wins fast. A point to ponder.

Bill Rafter writes:

What we found in studying only the SPX/SPY is that in the long run a buy-and-hold yielded 9.5 percent compounded annually. That was from 1972 to recent. Our argument is that studies before 1972 are flawed. That 9.5 was great considering there were several collapses of ~50 percent. However if you could just eliminate the collapses you could raise the return to 13.5 percent compounded annually.

Eliminating the down moves did not involve prescience. You did not need to forecast recessions, only identify them when you were in one. That was not difficult, and timing was not a critical as one might think. We identified several algos that worked well.

When you were out of equities, you could either simply hold cash, or go long the 10-year ETF. The bonds were better, but not by much. Interestingly, long term holding of bond ETFs yielded low single-digit returns. Best avoided. Which also means that the Markowitz 60/40 strategy was a sub-performer.

Taxes are investor/vehicle specific. For example, if you use a no-tax vehicle, there are no taxes. Regarding turnover, there are very few transactions, as there are very few recessions. The strategy is basically B&H, but with holidays.

Asindu Drileba has concerns:

My problem with buy & hold Is that it has no risk management strategy. If you bought the S&P 500 in 1929 for example during the wrong month. It took you 25 years i.e until 1954 not even to make profit, but just to break even. The real question is, how do you know your not investing in a market path that will take 25 years just to break even?

Humbert H. responds:

That’s why, dollar cost averaging. I don’t think anyone thinks buy once in your lifetime and never interact with the stock market ever again. I think if you had averaged in monthly or quarterly from the summer 1929 through summer 1959 and then held and lived off dividends or cashed out/interest in retirement, you did well.

Art Cooper adds:

The year 1954 is almost universally given as the "break-even" year to recoup losses for buy & hold investors who bought at the 1929 peak. It's wrong to do so. First, it ignores dividends. Had dividends been re-invested the recovery year would have been much earlier. Second, it ignores the deflation which occurred during the Great Depression. In this column Mark Hulbert argues that someone who invested a lump sum at the 1929 peak would have recovered in real economic terms by late 1936.

I'm not arguing against dollar-cost averaging, merely pointing out a historical falsehood.

Hernan Avella writes:

What people should do while they are young and have human capital left is to leverage!

Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk

The most robust research, incorporating lifecycle patterns and relevant time horizons for long term investors tells us that the optimal allocation is 50/50 all equities, domestic and international. But most ppl don’t have the gumption to be 100% on equities.

Feb

29

Nvidia Hits $2 Trillion Valuation on Insatiable AI Chip Demand

The chips are so valuable that they are delivered to the networking company Cisco Systems by armored car, said Fletcher Previn, Cisco’s chief information officer, at The Wall Street Journal’s CIO Network Summit this month.

H. Humbert is skeptical:

This won't end well, but I have no idea about the timing. I have a mixed record on predicting the future, so my prediction is worth what you paid for it, but this is what's likely to happen: due to the chip shortage (the TSMC bottlenecks described aren't easily solved in the short term) and their high prices, NVIDIA's hold on the software stack will be punctured. Someone will say "Hey, we need a second source, it's not good to just have one supplier". Once that happens their monopoly will be over, and it will deflate. Are there any signs of this today? No, none.

Asindu Drileba writes:

Nvidia's edge will evaporate if there is a breakthrough in a new AI paradigm that is not as computationally intensive as deep learning. Herding exists in research just as it does in markets. As of today, researchers are herding on deep learning because it is what has shown a great track record so far. But it is clearly known that there are better (but unarticulated) ways to build systems that exhibit the properties of Artificial Intelligence that industry wants to use to solve problems. As long as these techniques are not yet developed. I still see a growing market for someone like Nvidia in the long term.

H. Humbert adds:

Nvidia will see a growing market for a long time to come, the point is they're not levitating due to durable hardware advantages but because nobody wants to abandon their CUDA toolkit. Not yet, but some day someone will diversify for any number of reasons. They will still remain king of the hill, but cracks will develop.

Humbert H. comments:

Von Neumann latency and huge power consumption are issues and will eventually be a big enough problem. It is a know problem. If not solving the problem organically, I am sure they are looking out to buy the solutions if there are viable solutions. Don't know when it happens but will happen.

Jensen Huang's speech in 2011 about failure and changing course quickly. Sounds like a trader mindset.

Some alternate techniques are being developed but most of the average Joes don't know that yet. Speaking from my observation of what are happening, not just sheer speculations. This conference ISSCC - International Solid-State Circuits Conference on solid state device held this week at SF definitely covered areas related to high speed solid state device advances, limitations and solutions. The published papers and abstracts should have the most updated information.

Yelena Sennett is skeptical, too:

As long as Nvidia are buying their own chips, their sales will keep growing, especially if they keep recording it as revenue before delivery, lol. Scott McNealy's famous 'What were you thinking?' rant to investors for bidding Sun Microsystems' stock price up to 10x sales during the DotCom bubble:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?

It’s not different this time - trading around ~ 30 times sales! The only question is if the market is different this time and NVDA is just one stock that will not affect the general market when it goes down back to reality of $200 - $300.

Feb

19

Wandered across it a bit randomly. Of course, one could argue that "experimental finance" is/should be what every trader is practicing.

Experimental Finance

Potentially useful links in this article:
Experiments in finance: A survey of historical trends

A key figure:

The Lab Man: How experimental economics emerged from the shadows
Jeremy Clift interviews Nobel Prize winner Vernon L. Smith

Also:
Herd Behavior in Financial Markets: An Experiment with Financial Market Professionals

Kim Zussman adds:

Late list member Ross Miller worked with Vernon Smith and Charles Plott during his undergrad at Caltech in the early 70s.

How to Stay Mentally Sharp Into Your 80s and Beyond

Vernon L. Smith, 97, is a very busy man.

The economist at Chapman University just finished writing a book about Adam Smith and works about eight hours a day, seven days a week in his home office in Colorado Springs, Colo. He enjoys chatting with friends on Facebook and attending concerts with his daughter.

“I still have a lot of stuff to do. I want to keep at it,” said Smith, who won the Nobel Prize in economics in 2002.

Feb

5

Kim Zussman offers:

Meet the Investors Trying Quantitative Trading at Home

Pietros Maneos trades stocks like many of Wall Street’s most sophisticated operations: running dozens of computer-driven strategies in parallel to chase market-beating returns. But he isn’t some tech-savvy math type. He is a published poet who doesn’t know how to code. Maneos, 44 years old, uses online-trading platform Composer.trade to build, test and bet on quantitative trading algorithms that buy and sell stocks and exchange-traded funds out of his home office in Boca Raton, Fla. One algorithm, for example, holds a triple-leveraged exchange-traded fund tracking the Nasdaq-100 index if the S&P 500 index has recently trended higher—and Treasury bills otherwise. He is currently running 72 such schemes he constructed with the application’s graphical interface, but can also type requests in plain English that Composer’s AI will translate into code. “It’s like having my own personal black box,” he said. “You could argue that I’m a hedge fund with 72 strategies.”

Big Al is puzzled by this bit from the above:

Many users praise its simplicity. But several warned about the tax implications of wash sales and the absence of some common Wall Street risk-management tools, such as one that would automatically exit a strategy when a specified loss is reached.

Huh?

Zubin Al Genubi wonders about market microstructure:

On CME is not clear. Is there somewhere how price changes is explained? Seems the asks should go to 0 before price clicks up but they don't. There is a lot of juggling in the queue as well, spoofing, stuffing. I'm reading Flash Crash, by Liam Vaughan.

Jeff Watson responds:

Here is an excellent perspective on spoofing.

Big Al adds:

This book gets recommended a lot but I haven't read it. Pubbed in 2002.

Trading and Exchanges: Market Microstructure for Practitioners, by Larry Harris.

Asindu Drileba recommends:

I am currently enjoying this biography of Jessie Livermore by Patrick Boyle. It's so well narrated, I hope some of you enjoy it.

Henry Gifford observes:

Patrick Boyle says he used to work for Vic.

Jan

28

This is my favourite channel an YouTube. And I liked this particular episode so much it may be my favourite so far:

What The Prisoner's Dilemma Reveals About Life, The Universe, and Everything

The prisoners dilemma is a choice participants need to make that are as follows:

1. If both participants cooperate, they both get $10 each.

2. If only one of the participants cooperate, the defector gets $1, and the one trying to cooperate (be honest) gets $0.

3. If both participants defect (both are dishonest to each other), they both get $1, which is way less than the $10 they would each get by both cooperating.

These are the only four possible states or outcomes of the game. The objective is simple, if the game is repeated for several rounds, under different environments (varying ratio of cooperators & defectors). What strategy should one choose to make the most money? Several agents choose independent strategies and play against each other with whatever strategy they have chosen. All with the aim of making the most money. It turns out that the best strategy for this game amongst different agents is one they call "Tit for Tat". It can be summarised as, "Be Nice, Try to forgive, But don't be a doormat/push over."

Stefan Jovanovich writes:

Pinched from a Stanford course catalog from 1998/9: Axelrod's Tournament:

In 1980, Robert Axelrod, professor of political science at the University of Michigan, held a tournament of various strategies for the prisoner's dilemma. He invited a number of well-known game theorists to submit strategies to be run by computers. In the tournament, programs played games against each other and themselves repeatedly. Each strategy specified whether to cooperate or defect based on the previous moves of both the strategy and its opponent.

Big Al adds:

The Evolution of Cooperation, by Robert Axelrod

We assume that, in a world ruled by natural selection, selfishness pays. So why cooperate? In The Evolution of Cooperation, political scientist Robert Axelrod seeks to answer this question. In 1980, he organized the famed Computer Prisoners Dilemma Tournament, which sought to find the optimal strategy for survival in a particular game. Over and over, the simplest strategy, a cooperative program called Tit for Tat, shut out the competition. In other words, cooperation, not unfettered competition, turns out to be our best chance for survival.

Kim Zussman gets biological:

Cooperation and Darwin:

Cumulative exposure to paternal seminal fluid prior to conception and subsequent risk of preeclampsia

Humbert H. comments:

The original prisoner’s dilemma was about literal prisoners who didn’t get to play even twice with the same “partners”. There are a lot of situations in the real world that map to the prisoner’s dilemma, but a lot fewer that map to playing the same game with the same partners who are rational and capable of learning.

Big Al appends:

Yale Game Theory Course (24 videos), with Dr. Benjamin Polak.

Peter Grieve goes deep:

I am convinced that the principal functions of a healthy society are (1) to get to the good payoff of the Prisoner's Dilemma, and (2) to find an acceptable solution for the Trolley Problem.

Jan

26

Daily sd's 1 (1,1,1,1,1,0,0) mean variation .71 PL 2
Daily sd's 2 (0,0,0,0,0,0,5) mean variation .71 PL -18
Correct forecast, but went bust anyway, due to lumping of volatility.

Asindu Drileba asks:

What would be the best strategy to capture the return of this distribution? How would the position size be computed? Say you have $10.

Zubin Al Genubi replies:

OTM option? Don't know which direction so maybe a strangle? Its an example of a fat tail event surprising someone expecting a certain variance. Like the LTCM guys. $.20? 2%? As a hedge. Depends if its hedge or a trade.

William Huggins comments:

what you're picking up on is that variance alone doesn't describe non-normal distributions very well - you need additional tools like skewness (possibly kurtosis) to pick up on those differences. despite having a better description though, there is the presumption that the data generating process is stable across the sample period, and going forward. I've generally found (despite my poor timing record) that money is to be made when the distribution is changing, not stable (the computers rule those waves imo) so detecting breaks may be more valuable than fixed descriptions.

Peter Ringel writes:

I can confirm this from the math-undereducated trading side. Stability is boring, and boredom can lead to undisciplined trades. Shocks and short-term exaggerations are great.

Art Cooper points out:

Stability is boring, and boredom can lead to undisciplined trades. It's Minsky's Theory when this becomes widespread.

Zubin Al Genubi responds:

Thank you Dr Huggins. That is indeed the point that variance, regression, sd, means, should be used with power law distributions with extreme caution or not at all.

Hernan Avella questions:

Why is all that mumbo necessary when all you need is good entries and good stops? The house never closes and there are so many opportunities ahead. f you need that big of a stop, or it gets triggered so frequent that ruins the profits, your system sucks! It’s not a stop-loss problem.

H. Humbert comments:

I think he is saying the system did suck because it relied on improper statistical analysis, using gaussian distributions for prediction when it should have used a more sophisticated statistical analysis that doesn't make such assumption. If you know of good entries reliably without using statistics, more power to you! And maybe he needs volatility swaps in addition to variance swaps and then his system will be A-OK because that could be a simple way to hedge the fat tails. Since I don't trade, I'm just trying to interpret what's flying by.

Humbert H. writes:

Var swap vs. vol swap would be the purest expression. You could also buy a call on realized variance, by buying an uncapped variance swap and selling a capped variance swap (for historical reasons, the cap is struck at 2.5x the variance swap strike, the cap level acting as your effective call strike).

For 100k vega notional and uncapped strike at 22, and capped strike at 20, and realized vol over the period of 80:

100,000/(2*strike) = var notional = 2,272.72 var units uncapped, 2500 var units capped
Pnl uncapped 13.4mm
Pnl capped -4.1mm
Net 9.3mm for ~0.2m cost, not bad (approx (22-20) * vega not).

Some payouts were on the order of 2000:1 during March 2020. Pre 2020 you had some active sellers:

‘Amateurish’ Trades Blew Up AIMCo’s Volatility Program, Experts Say

H. Humbert responds:

Interesting. And an interesting article. You'd think that after LTCM people would realize that 100 year floods are just named that for convenience. That's why I never buy stocks in insurance companies. He whose name shouldn't be mentioned (not the fractalist but the Middle Eastern guy) always advocated buying black swan options, but I think the Chair didn't think he made money on this.

Kim Zussman links:

The hedge fund titan who’s been watching for ‘black swans’ for decades says the ‘greatest credit bubble in human history’ is set to pop—but he’s not worried

Dec

31

Mr Fake Meats does not support is own research:

Health effects of dietary risks in 195 countries, 1990-2017: a systematic analysis for the Global Burden of Disease Study 2017

Findings: In 2017, 11 million (95% uncertainty interval [UI] 10-12) deaths and 255 million (234-274) DALYs were attributable to dietary risk factors. High intake of sodium (3 million [1-5] deaths and 70 million [34-118] DALYs), low intake of whole grains (3 million [2-4] deaths and 82 million [59-109] DALYs), and low intake of fruits (2 million [1-4] deaths and 65 million [41-92] DALYs) were the leading dietary risk factors for deaths and DALYs globally and in many countries. Dietary data were from mixed sources and were not available for all countries, increasing the statistical uncertainty of our estimates. [Funding: Bill & Melinda Gates Foundation.]

Note meat does not pop up in this data.

Jeffrey Hirsch writes:

Lot’s of meat works for me. Keto, exercise and sleep. I’m down 50lbs. Skipping the Booze was a big help.

Pamela Van Giessen comments:

Virtually all nutrition studies are pretty meaningless because it is almost impossible to confine study to one food to the exclusion of all else (do people who eat red meat also not drink and exercise regularly; do people who eat low grain diets also eat a lot of processed food and lack exercise, and so on).

Maybe you can hack your health and longevity with diet. Maybe not. I’d err on the maybe not side and get a lot of good exercise (mix of cardio and strength training), dial back the alcohol and soft drinks, drink a goodly amount of water, eat everything in moderation but be sure to get good protein, green veggies, and fruit, especially as you age. But know that your diet is meaningless without the exercise, good mental health, and purpose in life — whatever it may be for you.

Pretty much what my grandmother, born in 1901, used to say. Except I also drink a glass of athletic greens every morning. Can’t hurt. And stretch and do planks/core work. Both are super important to maintaining balance and agility. More ill health and deaths start with falls than anything else.

K. K. Law wonders:

No argument about the benefit of exercising. But a simple and cursory inspection of the regional maps of (a) and (b) show the people in the regions highlighted by red ellipses appear to have lowest death rates. Do they have something in common in their diets that lead to longer lives?

Pamela Van Giessen responds:

Shouldn’t the question be to first isolate commonalities in everything among the people in those regions as opposed to assuming it is solely a food such as fatty fish? Is it just omega 3 or do peoples in those areas also have lower obesity rates, for instance? If they have lower obesity rates (and where there are lower obesity rates, there are routinely lower premature death rates), how come? What are they doing? Is it all diet or are there other variables?

That said, I try to eat fish at least twice a week. Fortunately I have a neighbor who likes to fish but he doesn’t like to eat fish. So we have a steady stream of fresh Montana trout. And elk. Elk meat is fantastic.

Kim Zussman adds:

Genes are a big factor in longevity, likely the biggest factor (besides distance from windows in Moscow). Could explain regional performance since primates primarily mate locally. The best tactic is to choose your parents carefully.

H. Humbert writes:

The media story on how the 100 yr old lived that long because he had one shot of whiskey per day or ate French fries three times a week always crack me up. I’m not saying nutrition (and exercise) do not matter, but of course their longevity is most likely because they won the gene pool lotto and not because of whatever quirky dietary habit they had.

“Virtually all nutrition studies are pretty meaningless”. This comment always cracks me up. It is untrue. Of course epidemiological and observational studies (observation) have value, even if they are not double blind placebo. For example, if you observe four people eat strychnine and die, would you not conclude that it might be dangerous? Would you stay in line to be the fifth person, even though you have merely done an observational study, and strictly speaking causation is unproven by a scientific study? If your answer is “no” then you must believe that epidemiological and observational studies have some value. Otherwise, you would be “blinded by science” (and dead).

Humbert H. responds:

Of course simple studies, like is strychnine dangerous, are useful. However, studies of subtle effects are generally useless, because of the various biases involved. It is to this day not possible to know if Ivermectin helps fight Covid, or if so, to what degree. Partly is because people are invested in the outcome and the set up of the studies appears suspect, and partly is because the effect is seemingly not overwhelming. Hearing about various "Coffee is good/bad for your health" through the years is a more common example.

Big Al adds:

Another issue with broader studies is that we are learning more about how different individuals with different genetics respond differently to coffee or salt or red wine or a high-fat diet. It becomes more difficult to make conclusions like "coffee is good/bad for you".

Humbert H. replies:

I agree completely. Coffee, if I drink it for a week and than stop, gives me terrible, incapacitating headaches, and if I keep drinking it, eventually I will get the same headaches. I don't know anyone else who has the same side effects, but I can only drink it once in a while. So all the recent studies I've read about the positive effects of its consistent use are of no use to me.

H. Humbert agrees:

Yes, this is absolutely true. And the genes may respond differently to foods over time, as other lifestyle factors change. Epigenetics.

Big Al offers:

An interesting show to watch:

Live to 100: Secrets of the Blue Zones

Though thinking about the stats, you would assume there would be pockets of longevity around the world just by chance. Also stat-wise, he claims there is a correlation in Corsica between the longevity of people in towns with the steepness of the streets in the town (steeper = longer lived). Haven't seen the data, but that's an interesting one on an intuitive basis. Maybe you could compare NYC residents on the first floor vs those on the fourth floor of a walkup building. ;-)

Peter Saint-Andre is skeptical:

That Blue Zone hypothesis is somewhat questionable. Here's one critique.

My impression from previous reading is that in some of these remote and frankly somewhat backward areas (e.g., Sardinia, Ikaria), the original cohort of centenarians contained a large number of people who faked their ages (e.g., to obtain government benefits), which they could do because they were born before birth certificates were common. The centenarian numbers didn't hold up in cohorts born after documentation of birth dates kicked in.

Pamela Van Giessen maintains:

The comment is true. Nutrition studies are meaningless. It’s a backward science in crisis with a host of issues starting with what gets published (and then reported) to garbage analytical studies on the same data sets, most of which have null results (but don’t get published) done from a laptop in about an hour.

Until people spend some time learning how “science” gets funded and what gets published, and demanding change, our knowledge will remain more antiquated than my grandmother’s guidance which was at least practical and based on real world experience.

John McPhee wrote about the funding problem in geology in Annals of the Former World. His observations apply to most fields. In short, what gets funded is what is trendy until it is not and then the new trend gets funded. This process takes about 100 yrs. In nutrition it may be worse. Vinay Prasad does a nice recap of the problems.

Dec

19

How does the arithmetic average differ from the geometric average in measuring returns?

The arithmetic average calculates the average gain per trade without accounting for the compounding effect. On the other hand, the geometric average (CAGR) considers the actual compounding from start to finish, providing a more accurate measure of the actual return.

Can positive arithmetic averages lead to losses or ruin in trading?

Yes, even with a positive expected arithmetic average, losses or ruin are possible due to the risk of ruin and the increased burden in recovering from drawdowns, . Geometric averages, considering drawdowns and compounding, offer a more realistic view of potential outcomes.

From quantified strategies.

This is the path dependency issue. Conclusion is position sizing is important to avoid risk of ruin or catastrophic drawdown.

Bill Rafter responds:

You are almost there. Think: can these two means be used to identify anything else?

Kora Reddy adds:

also called volatility drag:
vol_drag = mean(x) - exp(mean(log(x)))
or an approximated formula
Volatility Drag = -0.5* (Volatility)^2
PFA useful leteratrue

Zubin Al Genubi replies:

The expectation and the maximum drawdown can be used to compute optimum f, the fixed fraction of capital to risk on each trade.

I read the article [on volatility drag] and disagree with it. Ralph Vince says that a system will experience drawdowns equal to f and that is the only way to the highest compounding resulting return. It is impossible to get the return without the volatility. Diversifying systems can counter balance drawdowns if truly uncorrelated.

It is non-ergodicity of trading markets that make the geometric mean more important. A loss is not a straight line down, but convex because it takes a 100% gain to recoup a 50% loss. The geometric mean captures this. Arithmetic mean does not.

Big Al offers:

Shannon's Demon, or rebalancing between uncorrelated assets (they claim it's "little known", but that is doubtful).

Kim Zussman contextualizes:

"Say, your fund is down almost every year. What value do you add?"

"We're uncorrelated! (with buy and hold)."

Oct

28

It seems a misnomer to call longs bonds risk free. Indeed the default risk is near zero, but the interest rates risk is wilder than a bronco at Montana rodeo. Credit risk is also a factor with potential downgrades. Which begs the question will risk premiums decrease equity vs bonds. Which asset class is actually carries more "risk"" on an annual basis.

Big Al asks:

Are long bonds (UST 30s) referred to as "risk free"? I think of the "risk-free rate" as Treasury bills. Whereas with bonds, doesn't longer duration equal greater risk?

William Huggins responds:

the risks of a long-term contract are mostly in getting out early at a bad time (and thus having a holding period yield lower than YTM), default, and of course inflation. if you hold to maturity (liability matching for instance) then the first risk vanishes but the last two remain. in gov bonds, the second risk also vanishes but the third becomes all important since a gov can promise to give you 1000 currency units but makes no reps about what that will buy at maturity.

Hernan Avella writes:

Interest rate volatility is only a problem for people who don't know how to immunize the risk. One should always match the investment horizon to the duration of the bond holdings. To quote Campbell and Viceira:

In financial economics a one-period indexed bond is usually thought of as riskless. Over one period, a nominal bond is a good substitute for an indexed bond, and thus by extension the riskless asset is often identified with a short-term nominal asset such as a Treasury bill. In a world with time-varying interest rates, however, only the current short-term real interest rate is riskless; future short term interest rates are uncertain. This makes a one-period bond risky from the perspective of long-horizon investors. For such investors, a more natural definition fo a riskless asset might be a real perpetuity, since this asset pays a fixed coupon of one unit of consumption per period forever.

In practical terms, given that we do live in the most powerful country in the history of the world and this country issues indexed bonds. For a long term investor, a TIPS ladder to finance your long term consumption is the riskless asset. Which should be 100% of the portfolio of the infinitely risk averse investor with zero intertemporal elasticity of substitution.

Kim Zussman reflects:

The most risk-free state is death because nothing worse (or better) can happen to you. Less severely one likes to lay on the floor. The cool hard surface is good for back pain and there is no further to fall.

Sep

8

More an open question - don't have the answer…To what extent are economic figures released from gov and gov related entities are really representative of the whole eco situation in the US and Canada? Eg have a number of friends in the US who have lost their jobs in recent months in various industries - and find it hard to get back in. Of course these are all anecdotes only.

The thing I noticed about so many analysts now (also traders) is that they take everything for granted- but our world is based (at least to some extent) on smoke and mirrors.

Larry Williams responds:

For years I have heard this argument: the Gummint guys cook the books, yet their data has, indeed, reflected reality. As I see it, the Shadow Stat crowd just seeks something to prove they are right about being wrong.

Humbert H. comments:

This weekend some figures came out with a huge drop in employment of the native-born Americans and a large increase in the employment of the foreign-born. Supposedly, Bureau of Labor statistics show that 1.2 million native-born workers lost their jobs last month while the number of foreign-born workers increased by 668,000 in August. So depending on who your friends are, you can get a vastly different impression of the overall employment situation.

Steve Ellison comments:

The labor market is very much a mixed bag. The Wall Street Journal had a feature article in May about the "white-collar recession", while it appears that job openings for blue-collar and service workers are going begging.

The big tech company layoffs this year included significant numbers of H-1B visa holders. An H-1B visa holder who is laid off must find a new job within 60 days or leave the US. I read a month or so ago that 90% of the laid-off H-1B visa holders had found re-employment. That situation might be exacerbating the white-collar recession for native-born workers as even in good economic times, many companies use H-1Bs as a way to pay below-market salaries. It is easy to imagine that in a tech market glutted with job seekers, most companies choose the cut-rate H-1B holders.

I looked in the latest BLS report:

Comparing apples to apples (in thousands):
first number July - second number August
Foreign-born employed: 29728 - 30396
Foreign-born unemployed: 1142 - 1171
Native employed: 132254 - 131031
Native unemployed: 5230 - 5452

Big Al writes:

When I think of economic data, I think about how the releases affect markets. As has been posted on the list before, the question is: If you knew the number beforehand, could you trade it? How will the market react? And in today's market, there may be many black boxes programmed to trade each release in particular ways, and then adapting to the reactions to previous releases. And then one must wonder whether some players get the number faster than others.

I asked ChatGPT for examples of data breaches, and it provided these:

US Federal Reserve Lockup Breach (2020): In March 2020, it was reported that a former Federal Reserve employee and his contacts had allegedly leaked confidential economic information to a financial analyst, who then provided it to traders. This case raised concerns about the security of the Federal Reserve's data release process and led to a review of its procedures.

UK Pre-Release of Budget Information (2013): In 2013, it was discovered that some traders had gained access to the UK government's budget information a day before its official release. This breach resulted in regulatory investigations and legal actions against those involved.

Australian Bureau of Statistics Data Leak (2016): In 2016, the Australian Bureau of Statistics had to delay the release of its employment data due to concerns about leaks. The incident highlighted the importance of maintaining data integrity and security in the release process.

European Central Bank Data Leak (2016): The European Central Bank had a data leak in 2016 when it accidentally released sensitive market-moving information to a select group of media organizations a day ahead of the official announcement. This breach raised questions about data handling procedures.

Kim Zussman adds:

NGOs too:

Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001

Eric Lindell asks:

Relative to which indicators would you say their data reflects reality? The government misdirects on so many things, why would their data be reliable? Cost projections for scientific or national security projects are not reliable. Remember when they redefined unemployment to make it drop a few points? Didn't they stop reporting M2? Didn't they lose a couple trill in the pentagon budget? Have recently reported CPI numbers reflected actual costs to consumers? From what I've seen in stores, CPI numbers seem low.

Nils Poertner answers:

exactly. Eric, or see this Gell-Mann amnesia effect. People (not just medical doctors) correctly knew about "misreporting" related to some viral infections, but then read the WSJ and think CPIs numbers are all correct.

H. Humbert comments:

My take is the labor market is just fine and doing exactly what we want to see. Labor participation is rising. Demand for workers is falling.

Jul

28

Scientists stand on the shoulders of giants and knowledge advances. Economists on the other hand keep stepping on the same rake. @GrantsPub

Bud Conrad writes:

The underlying science for Economics is not agreed upon, and so predictions are as often wrong as they are right. Economists spend lots of time criticizing each other. The different names for schools of economics are debated. No one debates what school of Algebra of Chemistry is right.

I spent quite a bit of time trying to fit data to the IS/LM model that is the bedrock of first year Macro Economics, and found it flawed. The most used book was by John Taylor (the Taylor Rule and one time assistant Secretary of the Treasury), and Robert Hall (NABE, and Stanford professor). I showed my analysis to Hall, who agreed that the model didn't work.

So it is not a joke about stepping on a rake. It is fundamentally an unsound intellectual base, that is the cause.

H. Humbert adds:

FWIW, even scientists don't agree when it comes to quantum mechanics. The 2022 Nobel Prize in Physics has been awarded to three scientists for their contributions to understanding quantum entanglement and advancing the field of quantum information. The existence of quantum entanglement proves Einstein wrong. If you care what that means, you can read the following. But I guess most on this list won't give a damn about quantum mechanics and not to mention quantum entanglement.

How Einstein challenged quantum mechanics and lost

Stefan Jovanovich comments:

Thx to KKL for making the point BC and I are sharing. The simple test of science is that its rules can predict the future successfully. We all accept the quantum theory's ability to predict motions in time and space so that GPS in our phones continues to work. Einstein was not "wrong"; his ideas "failed" to be a completely successful predictive model for everything we want to know. Economics has no successful predictive models about anything. If it did, our silk tie Marxist and others would make far less money as croupiers in the finance casino.

Peter Grieve writes:

Newton was the last alchemist. Einstein was the last classical physicist. He was wrong about a few quantum things, but right about so much.

In physics we talk about "background". Background is something that affects the world, but is not affected by it. The background is not a dynamical variable. God is background in most modern religions. A set of non-accelerating frames is background in Newtonian physics, along with a Pythagorean method for measuring distances ( "metric"). Einstein reduced the background by making the two things above (really just one thing) into dynamical variables. He also found a revolutionary new symmetry of the world, called Lorentz symmetry. This is everywhere, including in quantum theories.

I forgive him for being wrong about some quantum stuff. I share his distaste for certain aspects, but the mathematics of quantum theory is so beautiful. I don't think quantum mechanics can be a final theory. There will have to be something much different, and much better, still to come. Of course I'm speaking a bit loosely in the above.

Stefan Jovanovich asks:

Question for PG: What do you think of Dirac's criticism that normalization is "wrong" because it is ugly?

Peter Grieve replies:

I agree with Dirac. Feynman thought that the renormalization series actually diverged! The Hamiltonian diverges too, but physicists don't mind, because it works. Quantum field theory has a lot of ad hoc features.

The French mathematician Michel Talagrand often jokes about this sort of thing. He mentions "…the physicists' fairyland, where they discuss mathematical objects that don't exist, and even prove theorems about them!"

My wife's specialty is nonlinear differential equations. She uses the first few terms of divergent series also, and gets good approximations. Renormalization is ugly, but the rest is gorgeous.

Nils Poertner asks:

do you have any example/application for trading/investing - so there is benefit for a wider audience?

Peter Grieve answers:

Unfortunately, I don't. Perhaps someone at the dinner party might be stimulated by this thread, and further the discussion. Free range conversation sometimes has this effect.

Zubin Al Genubi comments:

Science is not what people agree on, it is only what can be disproven as random.

Kim Zussman writes:

What about quantum economics? Predictions are validated by going backwards in time.

H. Humbert responds:

If one is looking for short term trades related to quantum science, the short answer is No. If one is looking for emerging technologies that will give birth to new technology industries, there are indeed something there depending on the time horizon. You often see the average Wall Street analysts on CNBC throwing jargons like quantum computing around as if they know something. I can tell you they don't know squat.

If anyone is interested in where this technology is heading, you can perhaps watch this long video which is approved for public release.

Peter Grieve writes:

I recently learned that a derogatory graffito about my student residence at Caltech is written on the Moon. I lived in Dabney House, and at least in the 50s through the 80s the graffito "DEI" was everywhere. It stood for "Dabney Eats It". Apparently, residents of our house liked a food service item that other students found unpalatable.
Anyway, the astronaut Harrison Schmitt was also a Dabney House guy (before my time), and while he was on the Moon during Apollo 17 he scratched DEI into the Lunar surface.
There is also a story that DEI is inscribed on the back of the plaque on the Pioneer 10 or 11 mission. These plaques were intended to be a possible first written communication with alien life.

Christopher Cooper adds:

And as I recall, “Eats it Raw” was the follow-up phrase. Or, at least it was when heard in my House, Fleming (next door to Dabney).

Jul

14

like Sidney Homer used to say- "sooner or later every generation is shocked by the behaviour of interest rates."

Hernan Avella disagrees:

I don't think many people can be shocked, given the data we have from the 80's. Most asset holders are older folks anyways, that have the memories of the Volker era deep in their heads.

Stefan Jovanovich offers:

Edward Chancellor interview

High Interest Rates To “Slay” Zombified Companies | Edward Chancellor & Joseph Wang

Kim Zussman adds:

America’s Retirees Are Investing More Like 30-Year-Olds

At Vanguard, one-fifth of taxable brokerage account investors aged 85 or older have nearly all their money in stocks

William Huggins responds:

i suspect a good part of that boils down to how one's asset portfolio is defined. most studies of brokerage accounts don't account (haha) for the real estate, pension, insurance, or physical assets of those being studied. if most of my income is derived from a secure pension, its (mathematically) a pretty good approximation to drawing the yield from a large investment grade bond portfolio (less the liquidity). owning your home (usual by 85) would similarly constitute a "housing cost equivalent" yield, as would any reliable health benefits being drawn. seen in that way, one's discretionary funds being kept in equities would be quite reasonable.

Zubin Al Genubi reminisces:

Sure would have been nice to own 17% bonds. 5% not too bad though.

Nils Poertner offers:

Big investors rush into bonds after ‘cataclysmic’ year

Capital Group predicts $1tn will flow into debt markets in next few years as investors move to lock in higher yields

Henry Gifford writes:

In the 1970s my father bought some New York City municipal bonds. At the time there were rumors that the city government was going to go broke. I heard my father say “How can the government go broke? When they want money all they have to do is send people bills.”

The city government defaulted on the bonds. It was widely reported in the news as a disaster, with various solutions to the terrible problem proposed. I was only a teenager, but didn’t see a problem with the government not being able to borrow money any more. I still think it would be great. But, most people believed it was a terrible problem, with disaster looming.

My father reacted by buying more of the bonds – “default” meant they mailed his checks one week late. The bonds were triple tax free: no federal income taxes, no NY State income taxes, and no NY City income taxes. The bonds paid 28%. It was the only time in my father’s life that he borrowed money – to buy more of those 28% bonds. I have no idea for how many years he was collecting 28%.

I started buying apartment houses in Manhattan when I was 20. It was normal to pay 12% interest. One time I bought a small building – only four families – with the goal of replacing the 12% seller-financed loan with an 8% bank loan on an owner-occupied property. I moved into the building, fixed it up, but never managed to get a city inspector to come inspect and remove all the violations without inventing some new ones, as I never bribed an inspector. But for a long time I dreamed of refinancing a little bit of my real estate at 8%.

Nils Poertner responds:

tangentially speaking . we would need to have experience from bond traders of the 1970s and 1980s, today is more leverage though and we have more complex system so not sure how much that would really help. collective mind has been in a long mental bear mkts as well. we need nerves of steel in coming yrs and imagination.

Mar

8

On the Firing Line (Fifteenth in a series) Breathe, Breathe in the Air

One of the first exercises we do in clinics is called “Learning to Breathe”. Of course, the athletes have quizzical looks on their face and say, “But we’ve been breathing all our life. What do you mean?” After sharing a laugh, we explain. Infants and very young children breathe very naturally with their belly being drawn down and slightly out as the diaphragm is lowered in order to fill the lungs. Sometime in childhood, as the stress and rush of modern life takes its toll; the natural belly breathing is replaced by a breathing technique that uses upper chest expansion to draw air into the lungs.

In natural belly breathing, the lungs fill in roughly three stages. First the lowest part of the lungs begins to fill as the diaphragm is drawn down and the belly is pushed down and slightly out. Then the middle part of the lungs fill as the lower rib cage expands slightly. Finally, the upper part of the lungs is filled as the upper chest expands. In the more typically observed upper chest breathing, only about 30% of the lung capacity is utilized. Belly breathing has significant positive effect on both the body and the mind.

Vinh Tu writes:

Back when I took piano lessons, I remember getting some advice on how to breathe while playing certain passages. Recently while playing some rhythm-based video games, I've noticed that either I hold my breath, or try to time my inhalation or exhalation so as not to disrupt my rhythm. The wrong syncopation between your breath and the beat can throw you off the rhythm.

Laurel Kenner responds:

For a smooth motion, action should come after you start to exhale.

Oct

11

Learning From the Most Ruthless Robber Baron (Jay Gould) | Greg Steinmetz

American Rascal: How Jay Gould Built Wall Street's Biggest Fortune

Kim Zussman comments:

Likely worthwhile but I was stopped out at 2:59 "Buffett was a model of integrity"

Stefan Jovanovich replies:

Agreed. One of the many things the List has done is teach me the limits of my own understanding. I find the Oregano offensive because he has an outright pimp for a partner; in a decade of active practice in LA during the GO-GO years of the 70s and 80s, Munger's firm was - by far - the worst combination of self-righteousness and chickenshit deviousness that we and every lawyer we knew encountered. But, Buffett's artful dodging as a taxpayer has never bothered me. Thx to KZ for reminding me that all cheating really is equal in the eyes of God.

Jeff Watson writes:

I liked this biography better.

Sep

16

Talking with strangers is surprisingly informative

"anybody knows more about something than you do"

Significance

Conversation can be a useful source of learning about practically any topic. Information exchanged through conversation is central to culture and society, as talking with others communicates norms, creates shared understanding, conveys morality, shares knowledge, provides different perspectives, and more. Yet we find that people systematically undervalue what they might learn in conversation, anticipating that they will learn less than they actually do. This miscalibration stems from the inherent uncertainty of conversations, where it can be difficult to even conceive of what one might learn before one learns it. Holding miss-calibrated expectations about the information value of conversation may discourage people from engaging in them more often, creating a potentially misplaced barrier to learning more from others.

Zubin Al Genubi agrees:

I've noticed people don't listen well. They often like to talk. Its good to listen and encourage others to talk and they think you are a great conversationalist. As Yogi Berra said, Listen and its amazing what you can learn. I have some good ideas but no one listens to me.

William Huggins adds:

2018's Nobel in econ went out (in part) for the endogenous growth theory, which posits that a good part of economic growth that isn't "more people" or "more kit" comes from the positive externality associated with education. Romer basically says that once someone learns how to do something better, we gain by having them tell us about it. people uncomfortable with updating their beliefs might avoid conversation and lose out as a result (value of keeping an open mind?)

Nils Poertner writes:

deep down it is probably that we are so excited about our own ideas (whether adequate or not) - that we often over-sell it to ppl in our own social circle. mea culpa. whereas with strangers it is often more a light touch - or an encounter that lasts a few minutes only and this lightness creates a magic…and a sparkle and that is all that is needed sometimes.

Gary Phillips expands:

I've always been a gregarious person, not because I am socially needy, but because I often find conversations with strangers to be an edifying experience. Quite instinctively I gravitate to the following people:

1) smarter / better educated individuals - if you're going to converse with someone, you might as well learn something. I love talking with my friend David, who is a Lubavitch rabbi. His knowledge of the Talmud is extraordinary, and its analogs to trading are remarkable.

2) older people - experience has given them a rational perspective on life and insights that are invaluable. My favorite encounter was with Lou Lesser, a L.A. real estate developer who was 93 when I picked him up in Beverly Hills and drove him to Laguna Beach. He regaled me with stories about his life, including personal experiences with Marilyn Monroe, John Kennedy, and Mickey Cohen. It was a ride I'll never forget.

3) tourists in the U.S. - talking with a 2 young ladies from Kyrgyzstan I met at a local bar in Chicago. Extremely intelligent and well educated, they were extremely critical of the lack of education and sophistication of the average American. They were completely shocked by Americans' lack of knowledge and ignorance of what lies outside of America. I was the only American they had met, who had heard of their country. Nevertheless, while they were very cynical, they were also beautiful, charming, and thoroughly engaging.

4) people from diverse and varied walks of life- if you are seeking a diverse experience with people of varying levels of social status, there's no place better than the joint. My 30 days spent incarcerated in the Montgomery County Correctional facility was not necessarily entertaining, but it was certainly educational. There's not much street cred to be earned jacking an O.G., so I was afforded a level of respect, and was able to engage and befriend various inmates, from incredibly disparate backgrounds and lifestyles.

5) people you meet while travelling- my favorite aspect about traveling is the ability to meet a wide variety of people. I have a tendency to let my guard down while traveling, and open up even more than usual. recent trips to Japan, Mexico, and Crete were made all the more enjoyable because of the people my wife and I interreacted with and met.

Kim Zussman responds:

Typically internationals - especially Europeans - look down on Americans in this way. As if the prize is not what you own but what (or who) you know (especially in France).

Funny thing is that in most countries outside the US wealth-generation efforts are futile because of huge governments and massive corruption. At least if smart people aren't allowed to become rich at least they can become educated, cultured, and erudite. Their educated-but-poor status is a consolation prize, and when they are here there is envy.

In the USSR the only wealthy people were in government or military - which is the same now with the addition of para-governmental oligarchs. You can be talented and work like the devil but if you're not connected you have to settle for Dostoyevsky and Dugin.

The problem with America is that, for the most part - less so in recent years - the main limit on your personal success is yourself. This is not very compassionate (elevation of failure), and is the fuel of socialism. We are ugly Americans for not expending formative decades on poetry, languages, and philosophy - but allowing people to compete in a quasi-free economy.

Pamela Van Giessen writes:

There are interesting people wherever you look for them. Especially in this day and age, no one place has a monopoly on interesting and clever.

Larry Williams agrees:

And they don’t have a clue where our state and cities are. Snobs for the most part Europe is not superior to much of anything other that Italian wine and food. It’s a worn out old lady that was beautiful in its day.

William Huggins asks:

Any Americans here happen to read Gustavus Myers America Strikes Back (1935)? He had a pretty savage takedown of European elitists that's heavy on economic history and well referenced. Much of the sentiment here echoes his charges.

Stefan Jovanovich notes:

Disdain for Americans at home and abroad is the oldest of all cultural traditions. It has survived the death of beaver hats, bustles and whist and shows no signs of decline. I think the scorn for Americans here in their own country has its root in bewilderment - how can all these fat stupid slobs have made their language and money the world standards for communication and exchange? Beats me.

Boris Simonder suggests:

A test would be to survey domestic population on domestic locations of cities/states. Who would do better since you mention location of cities/states? Jay Leno has some clips from his Walk of fame episodes.

High quality cars Larry, at least fossil, although EVs and H2 is up-coming and leading. Telecom networks, Beer, furniture design, clothing designs, Handbags/Cases, Trucks, Industrial/Electrical Machinery/Equipment, Pharma, Mineral fuels, Plastics, Optical/technical medical apparatus, Iron/Steel, Organic chemicals, Insulated wire/cables, Optical readers, Centrifuges, Electrical converters, Auto parts to name a few high value exports. EU accounts for approx 30% of total global export value. Just a tad more than Italian wine and food.

That old lady still has some of the most beautiful ones. Go visit Norway again.

Larry Williams responds:

I'll take the food! You can have the handbags and such.

Aug

10

Rereading the Count of Monte Cristo with my highs schooler, I am struck by the fact the all the virtuous characters are failures at business (ship owner, tailor, inn owner), while all the evil ones are great financial successes (currency speculators, war profiteers, state bankers). Of course the Count rectifies this. His fortune comes by way of a cardinal in Italy, a secrete cave and 14 years in prison. Perhaps the author's ( Alexandre Dumas) message is that every great fortune has a dark past. Maybe that was true in his day, but ones hopes that is not the case today.

Kim Zussman comments:

Socialism is as old as the bell curve.

Gyve Bones writes:

I'm reading this book too, and have found it really interesting. I picked it up because I'd seen two different film adaptations of the story, one starring James Caviezel, who a year later would portray Jesus Christ in Mel Gibson's "The Passion", and an earlier one from the 1970s. The two were so different in many details that I wanted to see the real story in the book. Both movies were good, each in their own way.

Like Les Miserables, by Victor Hugo, the Dumas story is about French society dealing with the ripple effects of the French Revolution. Both have heroes who are sort of New Christ figures. Both characters are unjustly imprisoned. In the case of Danton, the "Count", it was a case of a corrupt prosecutor during a time much like now, where Napoleon is in exile, and his alleged supporters still in France are being hunted down and imprisoned. It reminds me a lot of this nation, which has sent a former president into exile on an island off the coast of Florida, and there is an official inquisition into his affairs which is imposing punitive political prison sentences on his political supporters, and making it a crime to speak with the former president on the phone, in order to thwart any attempt to organize a campaign to return to office.

There's a point where the Count uses and extols the virtues of hashish which you might want to be prepared to discuss with your teenager.

Project Gutenberg has a very nice illustrated edition of the book available, which is helpful in imagining the scenes described.

I had trouble with the size of the illustrated ePub version for my iOS Books app on my iPad. It's 76 megabytes with the images included and it would crash the app. So as an alternative workaround, I downloaded the image free ePub into the Books app, and keep a web page open on the index of the images, which are named according to the page numbers in the book, and I view them as needed as I'm reading along.

Stefan Jovanovich responds:

Dumas pere was anything but a socialist. He was an aristocrat who was beyond snobbery and sentimentality. Good people regularly get screwed by thieves, frauds and liars; but then, so do the thieves, frauds and liars by each other. That is the "moral" of the novel. The Count succeeds in his quest for revenge by turning the bad guys against one another. He is a truly great figure, and the wiki page does him proper justice.

Dumas was neither a monarchist nor a Bonapartist. He was a republican and a Freemason. The novel makes that very clear; and it got Dumas in real trouble when a second Bonaparte became Fuhrer. Dumas had to flee France for Brussels, which also helped him escape his creditors. Read the wiki page; it is a beautiful exposition of an extraordinary life.

Full disclosure: One of the Stefan's weird (academics don't even want to discuss it) speculations about Ulysses Grant is that he was reading Dumas' novels when he was at West Point when he was supposed to be studying "tactics". Grant did not have a full duplex brain when it came to language and music; he taught himself to read German and French, but he found it impossible to speak or understand the languages when spoken. He loved music, but could not play it or read it as anything but notation (i.e. he could not translate the symbols on the page to sounds in his head). Hence, his joking about himself that he only knew two songs - one was Yankee Doodle Dandy and the other was not. The biographers all assume that because Grant had no verbal fluency, he had not read Jomini. He had; he also knew it was complete crap, but why say so except to start an argument? (Grant definitely did not have the legal mind or temperament).

Gyve Bones counters:

Straw men are easy to knock over. I did not assert Dumas was either a monarchist or a Bonapartist. In the same way, Hugo, son of a mother of the ancien regime and a father who was a Revolutionary, he was a melding of the two, and the novel sort of becomes a Hegelian dialectic about the synthesis which emerges from the thesis (the old order) in conflict with the anti-thesis (the Revolution). Jean Valjean is his synthesis, the New Man, a man of Christian virtues without Christ and the sacraments of the Church He founded.

Steve Ellison adds:

Dumas lived a high life and was chronically in debt despite having a number of bestsellers. I still remember one sentence from the book, "He was denounced as a Bonapartist …" It made me think that the first totalitarian society was Revolutionary France, but I hesitate to make such a sweeping pronunciation in the presence of Mr. Jovanovich. In any case, current efforts to make modern denunciations similarly career-ending are a grave threat to liberty.

Stefan Jovanovich agrees:

Great comment, SE. The French revolution - as an event - has a scale and complexity that can only be matched by the global war that began in Spain in 1936 and China in 1937 and ended in Korea in 1954. What Dumas was describing was its net effect: everyone in France had become so kind of spy and snitch. So, yes, it was the first totalitarian society; but you need to give the Citizen Emperor the same credit that Stalin and Hitler deserve for so thoroughly organizing the tyranny.

Bill Rafter offers:

Pardon me for coming in late to this discussion, but there is a mistake: The tailor was Caderousse, one of the three co-conspirators against young Dantes. That failed tailor then became the owner of the Inn at Beauclaire, who then murdered the jeweler. The Inn itself failed because its location was bypassed by a newly constructed canal. That leaves Mr. Morrel, who failed because he was in a highly speculative business (the hedge fund of its time) and was not diversified. However his successors in the business, Emmanuel and Julie were certainly righteous and successful. They retired to a nice home in Paris.

Stefan Jovanovich writes:

Not mine. Dumas was very much someone who believed that an honorable life was the only one worth living, whatever its financial costs or rewards.

Henry Gifford writes:

When I was growing up in a part of New York City that was populated by about half Christians and half Jewish people, almost none of the Christian adults owned a business – they had jobs. The one Christian adult that I knew owned a business did not attend religious services. All the Jewish adults owned businesses except a few that were involved in organized crime (professional level: state senator, state assembly, etc.).

When I was a child attending a Christian school, they made us sing a song that included the words “oh lord, do until me as you would do unto the least of my brothers”. I didn’t sing it, even though I was required to, as I saw it as a request for the all the worst things that happened to other people to all happen to me. As a child I thought this included blindness, loss of multiple limbs, leprosy, locusts (even though I wasn’t sure what those were) etc.

I have never had a mentor in my life. The closest I came were adults who advised me to “make sure you learn a trade so you will have something to fall back on”, who I made sure to steer clear of after I nodded and smiled and made good my escape. When I was 16 I asked my father what he thought I should do when I grew up. He suggested I go on welfare. I never asked again, or brought up the topic of what I was doing with myself, etc. When I was about ten years into writing a book, I showed the almost-finished version to my parents, figuring they should see it while they were still alive. The only comment they had was a harsh criticism of the grammar on one page, which they insisted I correct. The “incorrect” grammar was part of an insightful and charming passage written by Benjamin Franklin in the 1700s.

A few years ago I was walking past a Jewish community center near where I live in Manhattan. On the bulletin board outside I saw a schedule of upcoming lectures. One was titled “The Five Risks Every Entrepreneur Should Take”. I picture a member of the community that sponsored that lecture stumbling in business a little while being surrounded by people who are supportive, and who applaud the person for trying, and then for getting up and going at it again. I doubt any member of that community would ask the person who stumbled if she or he had made sure to first learn a trade to fall back on, or demand that children sing a song like the one I and my classmates were required to sing.

I still manage to do OK financially. Among other endeavors I own or am part owner of property in nine US states, soon to be ten, all worth much more than I paid (including the properties I am contracted to buy on Monday). And I have never “paid my dues” by spending years doing something I hate, or by gaining all the easily available advantages of being dishonest. But the Christian kids I grew up with? I can’t think of one who owns a business, and I can only think of two who likely have enough investments to carry them for long if they didn’t keep working at their job. And I can’t think of any who seem to enjoy or gain much satisfaction from that which they spend their day doing.

As for the emotional toll religion has taken on people over the centuries, suffice to say that someone once summarized the difference between the emotional state of veterans of the US military during WW2 vs. those who were veterans of the Vietnam War as the emotional state of Vietnam War veterans being the embodiment of the result of one generation of young men being lied to by their father’s generation. Likewise, young people being lied to about what economic decisions they ought to make, meanwhile a different reality is there for the seeing, also has its cost.

When growing up I spent time in Jewish households when I could, as the people there seemed to me to have an upbeat and healthier attitude, compared to the funeral home ambience I sensed in most Christian households. But, of course, most people growing up in the US do not have that opportunity, and fewer take the opportunity if available. Most are simply beaten down by the forces of religious insanity and stay down for life. Just today I was waiting for a train and a person nearby was shouting into her phone on speaker, describing in an upbeat tone her life that struck me as horrible, while she periodically mentioned that “god is good.” Not to her, I think, but I didn’t argue with her.

Bo Keely responds:

henry, this is interesting from our comparative angles. I’ll bet the few kids like u and I would say the same thing. as a child, I also rejected the ‘do unto others…’ because it included negative things.

i also had no mentor throughout life. when I eventually took a teacher test that required answering, ‘describe your first mentor’ I wrote about an admitted imagined mentor.

likewise, when I was sixteen, my mother asked, ‘what do you want to do in life,’ on receiving a selective service notice. It had never donned on me, so I replied, ‘be a veterinarian’ since that was my summer job. that’s how I became a vet.

and, i also have never ‘paid my dues’ to society figuring i never owed any. The only real money I ever made was in rental housing in Lansing, MI with a strategy of buy cheap complexes, fix them up, and rent to tenants receiving monthly checks directly deposited into my account. i still do well financially with 25 published books that sell, on average, one each per month. my financial secret of life is to have negligible expenses. I have gained satisfaction from each of dozens of jobs too, and never lived hand-to-mouth. it’s long-term gratification.

I have reacted to the lies of my father’s generation by retreating from Babylon into an anarchic desert town. each is an independent citizen who thinks god is a stinking mess in the sky, and one should learn in youth to take care of himself.

Kim Zussman adds a coda:

After the revolution apartments and land was confiscated and living arrangements made equitably* by central committees.

Los Angeles voters to decide if hotels will be forced to house the homeless despite safety concerns

*government jobs, military, connections, etc.

Jul

23

Junk bonds aren’t as junky as investors think – which makes them a good contrarian buy

Tim Melvin writes:

I was looking at BB and BBB shorter-term bonds yesterday…4-6% on five years and less. I prefer to own the bonds because it has a stated maturity….If junk market does go south I still get paid my principal at par at maturity.

Junk closed end fund discounts still well below levels that marked turning points in the past so more volatility and downside not out of the question.

Michael Brush responds:

Thanks Tim always happy to hear your views and I thought of you when I posted that here.

Ethics being what they are, people post our work. Also for future reference we do formally share with MSN so you can often find columns there. And with MW you get a few free hits so you can get around the paywall to some degree by using a different browser.

The T. Rowe manager is overweight CCC for the higher yield and greater rebound potential in a (junk and overall) market recovery, which does seem to be under way now.

Tim Melvin comments:

a gutsy move in the CCC but big returns if he is correct about broad rebound. I just want more one more year of 15%+ junk yields from decent businesses ala 2003 and I promise not to piss the money away this time.

Michael Brush responds:

P*ssing money away can be a lot of fun, but I don’t know what you bought and I am definitely not asking.

Kim Zussman scores:

"decent businesses ala 2003 and I promise not to piss the money away this time"

Jun

14

For SPY since inception (1993):

observations: 127
positive: 79
% positive: 62.2%
mean move: 0.37%
sd: 1.61%
z vs all SPY days: 3.19

Jeffrey Hirsch comments:

Filtering for magnitude might be instructive.

Michael Brush suggests:

Would it need to be Thurs Fri Mon down ahead of a Wed Fed meeting? That seems to be the salient factor. For months markets have been weak in the days leading up to a Fed meeting, and then…

Kim Zussman adds:

There may also be a size effect, i.e., not just down, but down small vs big %.

Apr

3

When looking back at the term structure of interest rates, certain periods stand out: 1998, 2001, 2006-7, 2018, and now 2022.

That history is displayed here, constituting the 2yr, 5yr, 10yr and 30yr rates shown as month-end closes. Note that the 3-month bill rate has been omitted, and that the 2-year is emboldened. All of the periods show an increase in rates prior to the congestion, and all subsequently resulted in economic difficulty. From basic economic education we have learned the causative connection and indeed current political “Policy” seems to be in agreement.

Kim Zussman asks:

Do you think the long term downward slope could affect the forecast ability of yield curves?

Zubin Al Genubi comments:

Its along the lines of "don't fight the Fed".

Bill Rafter responds:

IMO, the downward slope is a function of the Fed essentially trying to remove the US economy from the free market. So (1) yes to Kim for the observation that it will lessen the effect, and (2) yes to Zubin for the always true observation not to fight the Fed.

Had I take the picture back farther, say to the early 70s you would have seen much higher rates (i.e. 21% for the 3-month), so that downward trend is a long one.

Feb

28

Given the following parameters in macro (FX and rates primarily):
Portfolio return target 10%
Vol average 8%
Max drawdown 8% - portfolio cut and out
Drawdown 4% - capital cut in half

How best to consider various ways to trade within these parameters:
What do you do at -2% drawdown in terms of adjust position sizes, risk, etc.?
How adjust position sizes, risk etc. at +4%, etc.?
How consider position sizing at point 0 relative to percent of portfolio at risk, trade return goal, etc.?
How best overall utilize a strategy to reach those objectives?

Generic questions and these and others can be expanded of course. Any thoughts or reference materials I might read?

Zubin Al Genubi comments:

Parameters need to be dynamic and adjust with volatility.

John Floyd responds:

Yes, agreed. I am thinking more along the lines of specific quantitative measures and rules such as fractional Kelly criterion and assessing probabilities outside a fixed system and how to size in drawdowns and upturns both when trading tactically and on longer-term basis.

Kim Zussman offers:

The authority on this is Ralph Vince, who is here or elsewhere. Search optimal F.

Zubin Al Genubi agrees:

Ralph Vince's books are quite good and improve on Kelly's risk measures.

Theodosis Athanasiadis writes:

it depends on the type of approach and systems. those parameters are for a high sharpe approach (>=2) which is hard in rates and fx. they also make you become ostensibly a trend follower and short-term trader in your approach and pnl.

there are many methods for sizing that at the end of the day are similar; expected return divided by a measure of risk. Kelly is just a subset of the whole spectrum. Vince's work is a must read. The question is the inputs and as you know better they are very hard to estimate. fractional sizing, sizing inverse to vol etc will help but it is not going to change your return profile immensely. Most likely you want an approach similar to constant portfolio insurance. the best approach would be to use simulations along with extremes/penalties (eg haircut your returns by half etc) to create a distribution of pnl and then decide the optimal way. it is tedious but you avoid making more assumptions and you incorporate worse than historical scenarios.

from my experience, those don't work well in practice and you end up reducing allocation when expected returns are higher but if you have those restrictions you need to have something in place.

Jan

2

A reader writes:

Time's Arrow by Martin Amis, is a novel which plays on topsy turvyness - everything being upside down, time is moving backwards, what is good is bad and vice versa. E.g, the pimp dishing out cash to the prostitute, doctors killing patients, and garbage men adding more trash into the bin.

In our hyper-rationale world- of cartesian thinking - those novels tease the reader and stretch imagination. Saw pics of overflowing trash bins in NYC - so at least one of the examples could be true today?

Laurence Glazier writes:

Thanks for the reference, I didn't know of this book. I have read some of his earlier, more frivolous books, and also some of his father's, Kingsley Amis. I love time-bending themes, but might find this one harrowing.

A reader adds:

inversion theme - also a link to mkts? novice trader: fundamentals first, then price action, whereas more seasoned trader can see the implicit -and more nuances, eg. house price stocks moved up in 2009, then housing boom in the US etc for yrs to come etc. or spiritually - one can find a few other things ….Castaneda /Gurdjieff - on topsy turvy ness of human perception.

Andrew Aiken writes:

Philip K.Dick’s novel, Counter-Clock World, was published in 1967. By a quirk of physics, time in this future is running backward. In this world, people disgorge whole food, greet with “Good-bye” and part with “Hello”, pregnancy ends with copulation, libraries busily eradicate books, and the dead come back to life in the world’s cemeteries. Because libraries control the availability of knowledge, they have absolute power. Even militaries and police are terrified of the libraries. A departed cult leader, whose following has continued to flourish after his death, comes back to life, with devastating implications.

Nils Poertner responds:

yeah, a number of authors of the previous centuries probably could not take it anymore with society's linear attending to the world and wrote books like these. Lewis Carroll's Through the Looking Glass is another one. some are more light hearted and fun to read than others. good for stimulation of novice traders.

Laurence Glazier comments:

Music is interesting here, as whatever I write is heard linearly, even though I sometimes create it as a non-linear fractal structure. It nonetheless works.

Wondering where the Gurdjieff Work comes in re Time’s Arrow? Phillip K Dick was certainly an extraordinary individual.

A reader responds:

Music is about vibration and energy - and more harmonious energy is good for us and vice versa. We constantly rec and send energy even if we don't think so. I'm not huge into Gurdjieff or Castaneda - only know a few bits about this topsy turvyness in perceptions and tend to concur. Would not interest others here perhaps anyway. Will have a look at Philip K Dick.

Penny Brown writes:

I loved Martin Amis's last "novel" - put it in quotes because it's more of a memoir - Inside Story which chronicles some of his early relationships and the death of his closest friend, Christopher Hitchens, and his literary father, Saul Bellow.

Laurel Kenner enthuses:

Androids DO Dream of Electric Sheep! Reading ALL Dick’s books.

Zubin Al Genubi writes:

I've read pretty much every Michael Connelly book.

Laurel Kenner adds:

I have read all of Michael Connelly, William Gibson, Alexander McCall Smith, John Grisham, John D. MacDonald, Walter Mosley, Eric Ambler, Martha Wells, Earl Derr Biggers, Robert Graves, Gene Wolfe, T.S. Eliot, George MacDonald, and Phillip K. Dick. I recommend Epictetus, Publius, Shelley, Keats, James Burnham, and Curtis Yarvin on Substack. Merry Christmas to all Specs.

Ashton Tate writes:

P.D. Ouspensky, a student of Gurdjieff wrote the novel, Strange Life of Ivan Osokin. It can relate to markets as the story tells of a man who meets a genie who is willing to grant him any wish. The man (Ivan Osokin) wishes to be able to go back in time and replay certain pivotal moments in his life with the caveat that when replaying these events he is aware of the things he did the first time in these instances so that he doesn't mess up again. The genie grants him his wish but assures him that even though he may know what not to do in replaying these scenarios, he will still make the same faulty decision anyways, to which he does, again and again. There is a rumor that this book was used as inspiration for the movie Groundhog Day.

Jeffery Rollert responds:

That idea came from Sartre, in Les Jeux Sont Fait (The Die/Dice Are Cast), and should be required reading by all.

Laurence Glazier adds:

Keith Pearson has written several light-hearted, but well-constructed novels on this theme.

Ouspensky believed in a theory of recurrence, in which lifetimes could be repeated. I don’t think that was connected to Gurdjieff’s teaching, though in Beelzebub’s Tales he suggests that themes in history repeat.

Penny Brown offers:

My greatest literary experience this year was listening to the 1862 classic, Oblomov, which came as a free addition in the Plus Catalogue (Audible). The narrator, Stephen Rudnicki, has a beautiful resonant voice and adds just the right amount of ironic inflection.

"Oblomovism" or "Oblomovshchina" is a term has made it into the vernacular as representing all the negative qualities of romantic inaction.

Kim Zussman replies:

Do you mean the qualities of an inactive lazy indolent being? The sentient women I have known would not consider such inambition very romantic.

Larry Williams adds:

Laurel did you read this one: A Friendship: The Letters of Dan Rowan and John D. MacDonald 1967-1974. Like you I read every novel he wrote.

Laurel Kenner replies:

Thanks for the tip, Larry. If you believe, as I do, that politics are not on a right-left spectrum but are more like an elliptical orbit with totalitarianism at the nadir and freedom at the apex, read Thomas Pynchon, With a salt shaker handy.

One additional recommendation: Louis-Vincent Gave published Avoiding the Punch in August, and I think it's the best book of the year. Chair and I had the pleasure of dining with him and his brilliant father, Charles, at the lamented Four Seasons restaurant and found them kindred spirits.

Some chapter titles:
The Asch experiment we inhabit
CYA, the guiding principle of our time
Fighting for relevance [central banks]
Who will survive the unfolding Marxist clash?
Are US treasuries set to fall from heaven?

Nov

20

The Speculator: 3 lessons from ace investor George Soros

Kim Zussman comments:

I don't think there is such a thing as an unconditional friend. Everyone wants something - what is friendship if you get nothing out of it?

The same with 'unconditional love'. I had a conditional friend who was a feminist, and she said that her cat loved her unconditionally. I told her to do this experiment: Every day when you come home, find the cat and kick it (obviously just a thought experiment because never be cruel to any animal). After a month tell me about your cat's unconditional love for you.

Stefan Jovanovich adds:

Friendship and love are exchanges, contracts of shared interest and sentiment. Those of us who have endured bad partnerships and been sustained by good ones know that the people who sink the ship are those who are incapable of sharing good sense because they want people to promise to sacrifice "everything" in the name of the perfect union.

May

12

Ag Outlook

May 12, 2021 | Leave a Comment

Kim Zussman writes:

https://weatherwest.com/archives/9141

Bud Conrad writes

Kim, Thanks

The article really nails things with great charts that are making me worry that I shouldn't water any plants or trees, so I can have enough to drink.

We normally have a fire season that starts in Late summer. This year the warnings start in May make me worry about a repeat of last summer's worst-ever, orange smoky days of terrible fires..

Jan

29

We can obtain free markets by trading US stocks on M0scow exchange, and trading Russian stocks on NYSE.  Same way they are liberating social media.

Nov

16

Alex Castaldo  writes: 

Hello fellow Spec Listers -

I'm curious as to anybody's informed take on the likelihood of the implementation of a Financial Transaction Tax, especially at a Federal Level - as this would quite materially harm our craft. Looking to learn more, and to prepare if necessary by pivoting asset classes / markets etc.

Kim Zussman writes: 

https://som.yale.edu/faculty-research-centers/centers-initiatives/international-center-for-finance/data/historical-financial-research-data/st-petersburg-stock-exchange-project

Oct

21

Alex Forshaw   writes: 

CA's property tax system is idiotic and the most dysfunctional in the country.

Property taxes are assessed on purchased basis, not on assessed value. So somebody who bought a home 30 years ago for $10,000 could pay 1/10th (or less) the property tax of someone in an identical house next door.

It has placed a huge relative tax burden on recent home buyers. It has subsidized the aging hippies who bought into CA 30 years ago, who have subsequently voted to throttle housing supply in the name of environmentalism for their own benefit

Kim Zussman writes: 

Your thesis is based on commonality with losers and supplicants.  The only ones subsidized, ever and always, are the socialist organizers. 

Check back with us when you're at the end of your earning years.  Without 13 those who always know better would squeeze you out of your house when you are old and useless to them.  Even if you followed the rules, paid your taxes, and paid off the mortgage, there is always marketable pathos in the unending supply of hungry mouths to feed.

Alex Forshaw writes: 

I'm a raging conservative and I think taxes suck. But if you're going to buy into the idea of a property tax, levy it in a way that's transparent and affects people on a logical and consistent basis. The CA property tax system charges nothing to people who bought 30-50 years ago (who are sitting on gigantic paper gains) and does the opposite to new buyers. It's totally inequitable, capricious, and creates lots of terrible incentives, more so than any other vanilla state tax that I can think of.

Larry W  writes: 

Howards point, and success of prop13, was the unfairness to people that had lived/worked in homes for year and could not afford the tax hike until they sold those gains are illusory until sold and the state was taxing a value the owner never pocketed

BTW Howard was pretty amazing ball of energy, perhaps I’ll share some stories of being on the campaign trail with him one of these days

Sep

18

Another Indicator

September 18, 2020 | Leave a Comment

Duncan Coker writes: 

If you are an ESG investor you may want to move on from this post

Casting aside market morality, if one is looking for a proxy for election and Covid volatility with some leverage kicked in, look to prison REITs. Most are still down around 30% ytd. The sector plunged in March with the rest of the market, but has just stayed there. As background, the previous administration wanted to end the use of private prisons, but this was reversed

in 2017.  Private prisons still make up a fraction of overall prisons and some operate in a hybrid way with public guards and employees.  A democratic win in Nov would most most likely curtail the use of private prison.  Also Covid has been a big issue and the main reason for the declines.  The sector is despised by lenders, pension funds and big banks, so a contrarian play.  If things improve however, yields are double digit and an ethical case can be made that private prisons do a more humane job than public for prison administration. If you are truly against mass incarceration, which I am, then vote to end the WOD, ( but that is a longer post). CXW and GEO are two of the larger REITs. Both have announced dividend cuts.  As always the big question is how much bad news is priced in.  A spike in either direction would be a harbinger for election results or progress on Covid, and not necessarily mutually exclusive.

Kim Zussman writes: 

A bolshie sweep would combine prison and build the wall funds.  Quickly finish walling off the country but repurpose the direction: in only.

Sep

1

And yet

September 1, 2020 | Leave a Comment

The query is what will happen if  incumb win.s massive rioting in nov.

P3losi DUIs and fires her dentures through the windshield, Schifty quits his thyroid meds, and Sleepy Joe shuffles off to one of Cuomo's covid homes.  And masks come off and @ntifa soyboys get to cohabitate prisons with real big men 

Jul

21

Zubin Al Genubi writes: 

I heard an interview on NPR by a writer whose name I did not catch who agrees with Hernan's premise that China has surpassed the US. He attributes  to 2 really useless expensive US wars in Iraq and Afghanistan and failure to spend those trillions on infrastructure and education in the US.  China had no wars and spent extensively on infrastructure .  You can see immediately on landing in Beijing the beautiful, huge airport.  Compare that with the dump that is JFK Airport in NYC.  When I visited China ten years ago, I saw ribbons of highway stretching out into the distance way out in the hinterlands.  

larry writes: 

Yea but NPR is anti usa most always

Kim Zussman writes: 

Zubin is, as always, a devoted son of Mao

Apr

10

You recall they found a lot of iridium at the KT boundary in sediment, corresponding with the extinction of dinosaurs ~65M yrs ago. Luis Alvarez and others concluded that a decent size asteroid struck near what is now Yucatan around that time, resulting in mass extinction.

Long ago (but not that long) when I was involved with astrophotography I befriended* Gene and Carolyn Shoemaker. Gene's dissertation was on Arizona meteor (Barringer) crater, where he discovered "shocked quartz": quartz crystals with microscopically features diagnostic of a large impact. He and his wife spent their life searching for other such impacts, using satellite images and rock samples.

Early on they teamed up with Eleanor "Glo" Helin of Caltech (and my former neighbor), searching the skies for other possible earth-crossing asteroids (there are many of them). Every month taking images with the 18" Schmidt camera (telescope) at Mt Palomar, Gene built a microscope comparator to check images a few days apart to look for stars that moved (=asteroids or comets. Similar to how Pluto was discovered by Clyde Tombaugh using blink comparator). With this device the movement was seen as a 3D relief - like a star floating above the others).

Like many partnerships this ended in a feud, and the Shoemakers and Glo weren't on speaking terms. Caltech resolved it by giving one team the week before new moon (the dark part of the month), and the other after new moon. But Carolyn - who was not a professional astronomer (she met Gene when he was her brother's classmate at Caltech) - was very good at spotting these floating smudges, and went on to set the record of discovery of comets by a woman (Jean Mueller eventually broke this record - story for another time). The shoemakers went on to partner with amateur David Levy, who together discovered comet Shoemaker-Levy 9 - which impacted on Jupiter's atmosphere in spectacular fashion.

Anyway in those days there were cautionary calls for more programs to search for wayward asteroids that could impact the earth. Some suggested huge funding - to try to find these bodies early and also weapons that could be launched to deflect them away from the earth.

The Shoemakers are gone now (Gene died in a head-on collision in Australia while searching for impacts), and so is the impact worry. But imagine (if you will), that today's crisis - instead of a tiny virus - was an inbound rock 10 miles in diameter. "Why? Why Orangeman, didn't you fund X,Y,Z, when your top scientists said it was important? Why did you defund the 18" Schmidt on Palomar (a wonderful but obsolete instrument) when it could have saved us?

*I was using gas hypersensitized Kodak technical pan 2415 film, which they used as well. I did some studies on optimizing this process and that is how we met.

Apr

10

There is a very low but non-zero incidence of prosthetic joint infection with oral organisms. The vast majority are skin bugs (staph aureus, etc), but also colon, respiratory, and genital cooties on rare occasion travel the blood and land on a metal joint. Such transfers can also occur brushing and flossing, eating, defecating, or with sex. So for most people that’s a lot of antibiotics.

Mostly because of CYA, years ago the recommendation was prophylactic antibiotics prior to any dental procedure that could result in bleeding, such as oral surgery, tooth cleaning, etc. Then the dental and orthopedic organizations got together and said for the vast majority this was not necessary, in fact not advised - due to risk of allergic reaction and increasing bacterial resistance. The position paper said it should be reserved for high risk joint replacement patients, without exactly defining that risk. IMO patients with prior prosthetic joint replacements are high risk, as are others including poorly controlled diabetes.

That said most orthos want pts to keep doing this for ever, which reverts again to CYA.

There is a much stronger case for patients with prosthetic heart valves, though mainly the mechanical type.

Feb

28

Thanks for the high end swim goggles to wear at the supermarket! Though I appreciate your concern for our health, I can't imagine wearing them.

This a true panic. Yesterday I overheard several people complaining that masks were all sold out - except the big dorky ones for nanoparticles at Home Depot.

The c-virus may have caused a few deaths in the US in the past week or so. But compare this to the rate of death from auto accidents (~100/day ca 2016)

You are about 1000X more likely to die driving to find masks than to die from CV!

That said there are no good ways to guarantee non-infection, and the best approach is just common sense.

Just got back after spent about 24 hours between airports, planes, lounges…where thousands travel each day. I come in contact with 20-40 people per day at the office - and even tho I wear a mask it is mainly effective in preventing out-going rather than in-coming pathogens. Here's what I suggest:

1. No non-essential travel until things calm down. This will reduce contact AND help you at work - since employers like employees who are there (see #2)

2. There is a risk of recession this year, which is why the markets are tanking. Global commerce has already been impacted and it could get worse. Plus this is a golden opportunity for the leftists to defeat Trump. You better believe the resistance / deep state will pull every lever possible to trigger a pre-election recession. Recession means job risk - so my advice is keep doing your best to hit your numbers and DON'T GO ON VACATION. On top of everything else, in a recession companies will start laying off - and you don't want to be anywhere except in the most desirable group!

3. Upper respiratory infections tend to peter out as it warms up, so this one should be gone in a month or two. Meanwhile they might find effective treatments, which would jolt the market up bigly.

4. About 14,000 Americans died of flu this year, but no one is panicking about that–and most people don't even get the flu shot!

Feb

28

On another note, America should send large aids to Iran now! A lot of benefits in doing so. It will help the US to win Iran on its side from China. Most important is that the kind gesture will help later on solve the peace issue in the Middle East.

Kim Zussman writes:

They will have to wait until next year when Bernie sends more pallets of cash, which hopefully will work better than last time.

Jan

30

If Rocky were here I wonder what lesson would be learned from GE, up 8% today. As I recall he was long calls at 12 ish (last year I think or earlier) that have come back into the money. All prices will be seen at least twice is one of them. Also, positions are bound to go way against before they go in your favor. And the cotton trader's never get out at break even after a big paper loss.

Kim Zussman writes: 

Yes, but for every GE how many Enrons, Tycos, Worldcoms, Pets.com, etc?

Jan

10

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

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

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

Who knows?

Dec

1

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

Kim Zussman replies:

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

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

Oct

21

The biggest fade trade was election night.

Kim Zussman writes: 

Which has subsequently been reversed to the tune of 1000 SPU points.

Oct

16

I also have a son. He doesn't listen to me about anything including squash as he says I'm like the buffalo. Extinct. And I don't know anything about the modern game. I think the racketball strokes have more to teach squash than the usual coaches. My son's recent distinction is he started an affinity group that he moderates that has one poster from every country. He is like the baseball savant I met at Cooperstown that knows the batting averages of every player who played the game. He likes to ask anyone to name any country and he will tell you 3 facts about the country most likely their GNP and their demography.

Larry Williams writes: 

We all have the same son.

Kim Zussman writes: 

Our "son", Snakie, (5 year old Gophersnake but don't tell him. He lives in a Russian apartment in the kitchen) has a large number of very small sharp teeth. They are not for chewing, but for gripping a murdered rodent. And guiding him back to his duty as nutrient to an anachronistic dinosaur who still knows how to make a living.

Carpe dentum.

Gyve Bones writes: 

How sharper than a serpent's tooth it is/ To have a thankless child!

[Shakespeare, King Lear, I., iv., 280]

Oct

11

We are all waiting for the Chinese Army to display their superiority by imitating the Soviets' occupation of Prague. Prague's occupation occurred on August 20, 1968 and helped Richard Nixon defeat Hubert Humphrey in the Presidential election. Sending tanks into Hong Kong will undoubtedly help Donald Trump win a second term. There are very few direct parallels between the two events. Czechoslovakia was a nation-state with its own language and government; Hong Kong is neither. But, the events of 1968 are worth remembering for what they say about the presumptions of Proletariat Dictators who have large armies.

Kim Zussman writes: 

Which means they will wait for Ms Warren

Aug

26

This fits with a study I did once showing significant correlation between distance from the equator and per capita income. (One notes there are other climatological-genetic factors that correlate with latitude)

"Latitudinal Psychology: An Ecological Perspective on Creativity, Aggression, Happiness, and Beyond"

Evert Van de Vliert, Paul A. M. Van Lange

First Published August 21, 2019

Abstract:

Are there systematic trends around the world in levels of creativity, aggressiveness, life satisfaction, individualism, trust, and suicidality? This article suggests a new field, latitudinal psychology, that delineates differences in such culturally shared features along northern and southern rather than eastern and western locations. In addition to geographical, ecological, and other explanations, we offer three metric foundations of latitudinal variations: replicability (latitudinal gradient repeatability across hemispheres), reversibility (north-south gradient reversal near the equator), and gradient strength (degree of replicability and reversibility). We show that aggressiveness decreases whereas creativity, life satisfaction, and individualism increase as one moves closer to either the North or South Pole. We also discuss the replicability, reversibility, and gradient strength of (a) temperatures and rainfall as remote predictors and (b) pathogen prevalence, national wealth, population density, and income inequality as more proximate predictors of latitudinal gradients in human functioning. Preliminary analyses suggest that cultural and psychological diversity often need to be partially understood in terms of latitudinal variations in integrated exposure to climate-induced demands and wealth-based resources. We conclude with broader implications, emphasizing the importance of north-south replications in samples that are not from Western, educated, industrialized, rich, and democratic (WEIRD) societies.

Aug

24

One wonders if Mr Powell will get tired of the continuous criticism and resign. And if so, which direction the 5% move will be.

Aug

24

Our experience with the last two weeks of August has been that the period resembles the time between Christmas and New Years. That is, it's best not to get too excited about market action during this time. Of course the ennui is increased by the G7 meet and Jackson's Hole get togethers.

However the NFP to be released will profoundly disappoint with regard to job growth. We know this because the August NFP report is based on data thru August 16, which is already visible. Noting how all of the media is engaged in piling on this Presidency, those bearish numbers will be ballooned up quite a bit.

Kim Zussman writes:

A bad jobs report could be bullish for Fed watchers.

Aug

16

@Vicniederhoffer on twitter writes:

The apple doesn't fall far from the tree. At a time when socialism in America is finally aroused and at full attention: medicine is at the forefront and daring young people are diving into something foolish compared to agrarian reform or dentistry.

— keep looking »

Archives

Resources & Links

Search