May

18

‘Like a chairlift up Everest’: Once running’s supreme challenge, has the value of a four-minute mile diminished?

"[Peter] Thompson has previously worked with running brand Hoka to develop carbon-fiber-plated shoes and delivered a workshop on the performance-enhancing effect of “super shoes” and “super spikes” – as they are now ubiquitously known – at the World Athletics Championships in Eugene, Oregon, last year.

The carbon plates, Thompson says, function as “spring-like devices” and give runners more energy return compared to traditional shoe models.

According to data he collated, between 30 and 38 athletes competing in NCAA Division I indoor track races ran sub-four-minute miles each year between 2015 and 2021; that figure has increased about three-fold over the past two years to 90 in 2022 and 97 in 2023, he says."

Larry Williams responds:

I've been running is these [carbon-fiber-plated shoes] for 2 year. not sure about bounce but much easier on your legs = better endurance.

May

13

The playoff images and all other games illustrate one of the fundamental principles of a successful life: Never put all your eggs in one basket - the mouse with one hole is quickly taken. essential for market success also.

the Knicks relied on Brunson exclusively - the Warriors relied on Curry exclusively with wristy shots with no hope of subsequent action. when the wristy shots failed, they were gone. What other illustrations of this principle do you have?

How is this related to market sense? a million ways. the foremost is never go for a regularity that leaves you with one exit based on a singular event. don't go for short term profits. what else?

Vic's twitter feed

May

10

Character(s)

May 10, 2023 | Leave a Comment

most gentlemen don't like stocks.

Most Gentlemen Don't Like Love

How to Succeed in Business Without Really Trying (1967)

the worse the polls, the better the odds - like the market - the worse it looks the better it is.

gas stoves, eternal flame, air conditioning, what else? how has consumer's ability to choose been restricted, and how does this cause inflation? lady follower at the treasury can always be counted on for support of expansion of direction from above.

two biographies of great men: one leaves you sick, A Most Remarkable Fella: Frank Loesser and the Guys and Dolls in His Life: A Portrait by His Daughter; the other Theophilus North by Thornton Wilder.

Loesser was a great composer, of Show tunes, lyrics, and popular songs, but the book doesn't say anything about how he composed the music, the harmony, rhythm, melody, et al. but we learn about his drinking, smoking, womanizing, and chiseling all his players. Mien was similar to Rogers.

Loesser was a great business man - similar in all his personal characteristics to Rogers. Wilder on the other hand was always helping people, didn't drink, and teaches you about Goethe, Shakespeare, Goldsmith, Homer, Bach, and other greats.

one of the problems of a malfeaser is that when your associates know about the bad deeds, you can't say no to them. It is for this reason that the shrewd palindrome who I worked for intimately for 10 years was very careful not to involve or disclose to me any such deeds. Those currently in high office have a similar monkey on their backs.

Vic's twitter feed

May

10

Lately I have seen a lot of "sell in May" analysis with this being a good example:

Chart of the Day: Sell in May S&P 500

So I looked at all SPY years and calculated the returns for two periods: (1) "summer", end of May to end of October, and (2) "winter", end of October to end of May:

For owning "summer", $100 became $186.
For owning "winter", $100 became $790.

Seems like a clear victory for "sell in May", except for what they always leave out: buy and hold over the whole period turns $100 into $1474.

H. Humbert adds:

It's obviously a much more ridiculous idea if you consider capital gains taxes, which would be short-term if you truly buy and sell for the winter.

Jeffrey Hirsch replies:

Issued my Best Six Months MACD Sell Signal on April 25 for Dow and S&P. Everyone gets so hyper focused on "sell in May", they forget to "buy in October and get themselves sober," as I like to say.

I tweeted on this last week.

Larry Williams provides perspective:

Never forget: Prior to 1950's best was to buy in may to make some hay….Long gone but once in the data.

Jeffrey Hirsch responds:

Thanks for the Reminder Larry! So true. Here's the chart I use to make that point:

Steve Ellison writes:

For any seasonal pattern, I ask, "Who is the sucker at the table who will buy too high at one time and sell too low at a different time?" And do said suckers have a reason to continue their behavior into the future? The late Mr. E said that a lot of money flows into the stock market at the beginning of a new calendar year as, for example, high-income people who maxed out their 401(k) contributions the previous year can resume.

There was an annual cycle of profitability at the multinational technology company where I worked for 20 years; conveniently, their fiscal year end of October 31 aligned exactly with the Best/Worst 6 months thesis. First quarter, ending in January, was usually strong as it included both the Christmas season and the end-of-year "budget flush" in which corporate managers had to spend any surplus lest their budgets be cut the next year. Second quarter, ending in April, was also usually strong.

Third quarter, ending in July, tended to be a bit weaker as summer started. Fourth quarter, ending in October, was a mixed bag as back-to-school selling season was offset by European businesses mostly shutting down in August. But with commissions and bonuses on the line, the sales force would work 24/7 in the second half of October to close deals and bring in a strong quarter.

Additionally, with third quarter results being reported in mid-August while Wall Street was in the summer doldrums, the company was disproportionately likely to report any major writeoffs or other bad news in the third quarter.

May

7

there is a shibboleth among scientists that if an effect is true, the greater the magnitude the more likely it is to hold. nothing can be more detrimental to the market player. the intricacies of deception that the market plays are even more ingenious than those played by spiders and other animals and insects.

some pickleball thoughts: In Brooklyn, especially Brighton Beach from 1930 - 1977, a game almost identical to pickleball was played by thousands including my whole family - it was called paddle tennis and played the same in New Zealand.

the game was very popular in the 1920-1930s and was a mania played in private facilities on the rooftops of big buildings in Manhattan. It was played with a tennis ball sometimes punctured and that bail is still most appropriate and better athletically than the contrived plastic and ugly ball now in use. The game was and is completely athletic with all good players rushing to the net on the serve and return of serve. the one area that the old good players were much better than the current is that they all had topspin backhands or lefts.

Vic's twitter feed

Apr

29

a terrible warning form 1956 Road to Serfdom: the bulk of the intellectual community almost automatically favors any expansion of government power so long as advertised as a way to protect individuals form bad corps, relieve poverty. anything goes, "protect the environment, promote equality."

one has been reading Forty Studies that Changed Psychology in conjunction with my visit with several prominent psychologists at Gail's 80th. while the personages don't subscribe to these studies, I am amazed at the the self-serving biases.

studies in the main don't take account of multiple comparisons (they tend to implictly look at many hypotheses and choose one that works). I will review some of these studies but the study on predicting the outcome of marriages with a slope as the key confirmation is terribly indicative.

a good thing to keep at hand when visited with a loss in markets or life:

Why the Giannis Antetokounmpo ‘Failure’ Speech Is a Viral Phenomenon

a little banking-crisis news is what the dr. ordered to set everything up with bonds and stocks at 20 day highs.

how does the next 8 months look given that the bonds and S&P are up during the first 4 months? it has happened only 8 times since 1996: 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017. strangely that run of 8 years up was the only times they were both up.

during that period the S&P advanced from 10325 to 27028. that 170% run were the golden years. S&P fell once in 2011 by 6%, in 5 of those remaining years, the S&P rose to end of year by 10%, the other two just a small rise. all prices adjusted for drift and contract changes.

How is the S&P during next 8 months given bonds and S&P up first 4 months? predict up 7% in next 8 months. strangely the next two months looks down with the last half of year showing a 8% rise. bad however is refusal of Germany to catch up to US. depends imho on whether perfect father continues to stay ahead in presidential odds. of course with 8 observations all clustered form 2010 to 2018, margin of uncertainty is great.

Vic's twitter feed

Apr

27

Liquidity Builder - a patent portfolio for a system to trade securities more quickly (larger retail orders) at close to the midpoint of the bid-ask spread while eliminating market makers and payment for order flow.

Five key points. First, the brokerage industry relies on payment for order flow from market-maker firms like Citadel Securities. Investors are told that their trades have achieved “price improvement” when a buy order is executed below the ask price or a sell order is executed above the bid price. This “price improvement” may be as small as one-tenth of a cent. However, how often have you experienced displaying your limit order as the best bid or ask and before the other side can hit your limit a market-maker jumps in front to execute a trade often at one-tenth of a cent better than your displayed limit price?

Second, the Liquidity Builder (LB) platform reflects a different view of the trading world. As the order size increases, the task is to minimize the time to execute the entire order at a price close to the midpoint of the bid-ask spread.

Third, contrary to the conventional practice of time priority for limit orders at the same price, LB provides for size priority. The largest order, at a given limit price, is first in line to be executed regardless of the time when it was placed.

Fourth, The LB platform eliminates market-makers and would be a magnet for larger orders and with increased liquidity, the platform becomes more valuable as the number of participants increases.

Fifth, the LB platform is secured by a patent portfolio with wide reaching claims. Those claims include the implementation of a larger-order-first system plus a variable price limit in which the limit price varies depending upon the number of shares traded.

In summary, the retail investors with larger orders would gain the opportunity to quickly complete their entire order at a price close to the midpoint of the bid-ask spread whereas the institutional investors would achieve a price somewhat better than the midpoint of the bid-ask spread. I have had discussions with exchanges and large brokerage firms and they have told me that the LB would work but it would disrupt payment for order flow and their principle of equal treatment (equally disadvantaged?) for all investors. One strategy may be to start with a trading platform solely for institutional trades; prove the concept works, and then expand. Ideas are greatly appreciated. My website is LearningWhatWorks.

Apr

25

great books read over the weekend during my trip to Austin: Our Town by Thornton Wilder, The Road to Serfdom by F. Hayek, Mathematical Biology: I. An Introduction by JD Murray, Life of Francis Galton vol. 1 by Karl Pearson. reviews of each forthcoming.

But experience is often fallacious in ascribing great effects to trifling circumstances. Many a person has amused himself by throwing bits of stick into a tiny brook and watching their progress; how they are arrested, first by one chance obstacle, then by another; and again, how their onward course is facilitated by a combination of circumstances. He might ascribe much importance to each of these events and think how largely the destiny of the stick has been governed by a series of trifling accidents. Nevertheless all the sticks succeed in passing down the current, and they travel, in the long run, at nearly the same rate. So it is with life, in respect to the several accidents which seem to have had a great effect upon our careers.

- Francis Galton, Journal of the Anthropological Institute, 1875, p. 391.

volume 1 of Pearson's Life of Galton is devoted mainly to the great man's childhood, his ancestry especially on the mother's side, and his relation with his cousin Charles. It is a moving and memorable chapter. How did I come to read it over weekend?

it was my first wife's 80th birthday, and she managed to keep all the books and paintings. While the great personages among her friends passed by at the party hosted by my daughter Katie, I saw vol 1 on her copious book shelves and gave myself a treat by rereading it.

when i presented this painting at a Galton meeting in London, the speaker decried Galton's lack of Mathematical rigor and the tradition was "no feedback from the audience". Subsequently Stigler showed how nonsensical that claim was. It is interesting and telling that at a meeting designed to honor Galton, even his greatest followers were afflicted with shame. it is amazing how good mathematician can be so foolish when venturing out of his own field. the same is true when quants take a gambol on markets. and I would guess the same is true of chat gpt.

the big circular thing in the background is the cyclone imported from the Columbian exhibition of 1899. the cyclone is still packed even though the Dow had declined from 290 in 1929 to 70 today. the construction in the North is the Trapeze designed to give soldiers training.

my comments about sticking to your own last for math people was based on Murray's foray into psychology quantifying likelihood of marriage dissipating based on Gutman's work which is completely overdetermined et al.

David Margulies in his review of Our Town calls it the great American play. "it's all there, the passages of life." there's no scenery and no curtain. If you appreciate the commonplace and the wisdom and greatness of the common man or woman you will love this play. Although I had seen the play a few times, I never appreciated its greatness until I reread it this weekend. It inspires me to write a play based on my experience. "no curtain, that's Arthur Niederhoffer taking his physical test for being a policeman in 1937."

Road to Serfdom of 1942 is all too prescient. "the emphasis shifted from gov administered production activities to indirect regulation of private enterprises and to gov transfer programs." look at a typical day in gov control. no meat in nyc, no private money for everyone else.

"coordination of men's activities through central direction leads to serfdom. also central direction is a road to poverty." intro to Road to Serfdom.

Vic's twitter feed

Apr

22

Caught a discussion of the benefits/drawbacks of international diversification for US investors, so I had to do at least some basic counting and found that over the last 10 years, using weekly % changes, SPY and VXUS (Vanguard ex-US ETF) have a correlation of +0.85. But SPY provided twice the return (155% vs 74%).

If you want an uncorrelated asset, EEM (MSCI Emerging Markets ETF) had about a zero correlation with SPY or VXUS…but a return of about -10%!

Hernan Avella responds:

This is a rather unsophisticated way to look at the issue of diversification. How about you extend the lookback period, run some simulations, perhaps including a withdrawal rate. Anyways, to some extent I agree with the idea that US investors might be ok with a bit less international diversification vs investors from other countries. 20-30% should be ok. I believe all cap funds for international might not be optimal, I prefer to use cheap multifactor funds. Mother Vanguard is recommending 40+% in foreign.

Starting period is a bit unfair to US equities, but it's the longest overlapping period of the 4 funds. Since Jan 1999, cagr and correlation:

S&P 500 +6.97%
International value (DFIVX) +6.02% cagr .82 corr
Emerging value (DEMSX) 10.52% cagr .75corr
China (MCHFX) 10.79% .53 corr

The framework on a forward basis should be robust/agnostic to globalization - deglobalization, war, currencies crisis. Passive, Cap weighted is a good starting point.

Big Al replies:

Yes, different lookback periods and different funds give you different results. My point is that it's hard to sell people on diversification given the last 10 years.

John Floyd adds:

How do we best consider this on a forward looking basis?

1. What about a reversion given massive US outperformance vs ROW past 10 years plus led by tech mega caps?
2. What about massive reshoring to NA (Canada, Mexico, US) of US and non-US firms given COVID, geopolitics, etc.
3. China had one of the greatest credit booms in history with the speed and size (beyond Japan in 80s, US in 2000s, etc.), that game is over.

H. Humbert writes:

The Sage has Japan in his sights:

Warren Buffett’s trip to Tokyo is seen as a ‘stamp of approval’ for investing in Japan

“For Japanese institutional investors, this really is now the stamp of approval that Japan can deliver superior returns,” Monex Group’s Jesper Koll told CNBC’s Street Signs Asia.

BTW, I had owned exactly one Japanese stock in my life prior to last year, and obscure bra maker, and it hasn't gone anywhere, literally. But in the beginning of last year to me Japan started appearing really attractive, especially for dividend-paying value stocks which is the only kind I buy, so I bought two stocks: TAK, at the beginning of the year which so far has provided a 24% return not including the 4% dividend and KNBWY a year ago which provided an 11% return not including a 3% dividend (both are documented online at the time of purchase). Nothing to write home about but better than the market. If you consider that they are one of the largest pharma companies and beverage companies in the world selling for peanuts, you couldn't find anything of comparable value and safety profile in the US at the time.

Hernan Avella asks:

Mr Humbert, what % of your portfolio did you put in 2 stocks?

H. Humbert replies:

1% for the first one and 0.5% for the second one. Since I own over 200 stocks that's my typical purchase size for something I don't have any particular conviction about. I don't believe in concentrated portfolios since (a) I don't trust my own judgment THAT much (b) I never sell other than in rare cases for tax loss purposes, so this way regardless of what the stock does it never becomes a critical part of my portfolio so I have to trim it and pay taxes.

I also bought four British stocks, so pretty soon you run out of percentage points this way, but way over half of my purchases last year were in foreign stocks. I found much better values abroad, but the European stocks had different reasons to be more attractive than the Japanese ones.

Apr

20

the greatest imperative for disaster is excessive vig. e.g. trying for a little profit during the day. the other day there were 60 bonds offered at 1 tick above the last, e.g., 129 03 bid 60 offered at 12904. i bought 50 at market and i got filled at 129 05. tell me this is fair.

more important than the unfairness of this all: how in the name of the Bad One can you hope to make profits going for a few ticks in bonds or 1 1/2 in S&P. when I am interviewed, the interviewer is likely to say, "of course the way to go is to make small profits when available." i always say that's a certain disaster. impossible. tell me how it's possible to make money in the zero-day expiry options. I wish to learn.

old faithful reminds me of the venerable and sapient Alan Millhone. I wish I was as wise as he. I don't know what the certain disaster in chess is. But in checkers it's going for a shot. I never played with a good player who succumbed to a shot, i.e., a 4 for 3 or some such.

guaranteed to happen: the chat ai recommends quick scalping as the key to riches.

Vic's twitter feed

Apr

18

The Bourgeois Virtues: Ethics for an Age of Commerce shows the contributions of entrepreneurs and private property especially originating in the Netherlands.

One can admire, appropriately, the entrepreneurial vigor of heroic figures, an in 1958, for example, the Austrian sociologist and anthropologist Helmut Schoeck did: "We tend to forget that mankind's emergence from stereotyped and stagnating ways of life, on low subsistence has exclusively depended on the emergence of independent and enterprising individuals…who had enough resistance to escape from social controls… imposed in the name and interest of 'the whole society.'"
– Deirdre Nansen McCloskey, Bourgeois Equality

McCloskey makes the point that it is the emphasis and praise of society for entrepreneurs like Jobs and Musk that creates the benefits and material well-being of society.

It is clear that we are in the opposite kind of society now where entrepreneurs are vilified and held up to scorn — as witness that no bio of Baron Coleman. and countless other great benefactors who start businesses are ignored. yet the death of the most minor actress or sports figure is cause for great acclaim and promotion.

nobody asked me, but…Gunsmoke and The Collected Stories of Jack Schaefer cover the same 1860-1880 period, but Schaefer's stories are much more poignant.

Vic's twitter feed

Apr

16

nobody asked but…one of best ways to understand today's developments is to reread Hayek's The Road to Serfdom. the 1956 introduction is all too prescient. the zero-day options seem like a magical formula for vig. the ETF's using zero-days strategies must be great shorts.

query: what are the chances for a Barron Coleman day on Monday? a Barron Coleman day is named after one of the most remarkable and gifted men I ever met. He was the founder of two billion-dollar companies and he was a golf champion and musician. he was a great salesman. when you asked him how he was, he liked to answer "everything's up except my widdler." a Barron Coleman day is one where both bonds and S&P are up.

in a grievous omission I cant find a life or legacy of Baron Coleman or references to him for building Hospital Corp of America or Hospital Affiliates. Hopefully some readers will fill in details of this great man. (See Baron Coleman legacy.)

Vic's twitter feed

Apr

14

Was in Delhi last week. One of the meetings was with a deep pocket, amongst whose large holdings were some trophies…this one a significant equity in a 5 star chain. The chef was out to flaunt his care for the patron. Of endless twists one stood out taller than the rest, a barbequed pineapple for dessert. Simplest recipe yet mind blowing.

A whole pineapple, uncut, but peeled and all the warts taken out. Insert the skewering rod along the vertical axis. Drip pure honey all over it (don't soak in honey since it's so thick it wont seep on its own into the crevices of the pineapple as air may not rise out of thick honey).

Skewer the honey smeared pineapple on wood fire, rotating it only until ita neither crunchy nor soggy. Chunk out large pieces straight out of the fire vertically ( leaving the central unjuicy axis). Use fork & knife, not just to be clean, but skewered pineapple is "hot".

The smokey(d) honey with the ripe enough pineapple smears a unique aroma. Specs in love of barbecue may find this a good final course.

Apr

14

in terms of timeliness and forecasting ability, the ppi should be replaced after 70 years of untimely misinformation. much better is an index of futures prices like copper and S&P and grains.

how many times will an announced number cause vig with no meaningful effect on drift?

you would think with 200 economists on the staff, someone would update the 60-year-old studies of Moore and Shiskin of 1967.

everyone should read The Origin of Species and Don Quixote every year or so. it's like a cleansing tonic and leaves one more productive and joyful. the narration of The Time It Never Rained by George Guidall is memorable, i can't praise it enuf. my favorite is the banker.

Vic's twitter feed

Apr

12

Cigs & vigs

April 12, 2023 | Leave a Comment

nobody asked me, but…increasing vig: i estimate that on a 2 hour 30 minute radio broadcast half of the time is devoted to commercials. in the 1950's radio shows had 2 minutes of commercials per half hour. Just to max vig the big westerns were supported by Big cigarette. the cigarette commercials of the 1950's were so good that one would have been tempted to start smoking. the filters were white and the packing was tasty and pure. what other examples do you have of vig increasing in markets? public performance in options?

a bastion of vig. 1 billion a quarter: 2/3 interest rates and 1/3 stock futures:

CME Group Inc. Reports Fourth-Quarter and Full-Year 2022 Financial Results

Geraldo Orchestra - I've Got My Eyes On You 1940 Cole Porter Songs From "Broadway Melody of 1940"

if i were asked to name a book i recommend, it would be The Time It Didn't Rain by Elmer Kelton, the biography of Francis Galton. Atlas Shrugged. also Secrets of Professional Turf Betting

A loser's lament on crude:

It's All Right With Me - Ella Fitzgerald

Vic's twitter feed

Apr

10

Harpo Speaks is a book of very flawed men playing poker and drinking. one good thing is Oscar Levant spelling Prokofiev on his own concerto. Harpo never learned how to play the piano or harp. altogether an ugly group to say nothing about how he treated the idyllic wife. but who knew that the drunkard but very knowledgible Oscar Handler was the higher-paid concert pianist of his era.

Umberto Eco showed that new technology loses value for the masses over time. the tendency for all speculative activities to become maximizers of vig is similar. all become such that 52% is necessary to win and this is out of reach for most.

the loathsome spectacle of McEnroe and Roddick and Agassi playing pickleball like amateurs illustrates the point i was making about Umberto Eco with everything devolving to a max of vig.

the funny thing and indicating of max of vig is that in Brighton Beach and New Zealand we played a game 90% like pickleball with 30 courts in Brighton Beach alone but we played with a tennis ball which is much better for the current game than the plastic monstrosity that they use today.

by the way without patting myself on the back usually i was much better at the age of 11 than all the tennis players at the game. i admire the pro pickleball players who are good on all aspects of the game. Ben Johns is a good player in all aspects who would have been one of the best at Brighton Beach.

you've heard the one about how the amount of below-the-waste romance is 1000 times greater when you are engaged than after you're married. 45 years ago when susan and i got engaged she played racquetball and tennis with me all time. the last 45 years not once but we put up a court on our hard court tennis court and she played yesterday. and I say she could beat Chris Everts after a week or two of practice. i'm very proud of her that she didn't forget.

Bobby Riggs liked to come to Brighton to hustle in paddle tennis and paddle ball and I played him both games when I was 12. he was lucky to get 7 pts in each.

kindly forgive my boasting about the play of 70 years ago. you see now i am immobile after having a stroke and the old times are much sweeter.

Vic's twitter feed

Apr

6

no better way to while away the market night time hours than listening to 100 Great Radio Shows, mainly westerns, detective stories, comedy, and suspense. only 2 minutes of commercials for a 30-minute show. highly recommended.

along with The Story of Mankind, by Hendrik van Loon, and 10 Gunsmoke radio shows this has been my night time listening lately. so much quality here. so educational. so resonant.

Elmer Kelton who won the spur award 7 times and wrote the best western in The Time It Never Rained was forced to make ends meet in his last days by speaking to Elder Hostels. He talks about the plight of Western versus Eastern in Elmer Kelton Tells the Truth: His Best Talks on the West, Cowboys & Writing.

He Created a New Kind of Western

a good bio of a great man. but the one thing I demur is that Kelton, in listing the best Westerns, leaves out Jack Schafer's Monte Walsh, which to me is the second best western of all time.

the third greatest western writer: John Meston. all his scripts for Gunsmoke are masterpieces.

Vic's twitter feed

Apr

4

Money and markets

April 4, 2023 | 1 Comment

query: lots of talk about the money supply having a terrific down but I can't find it anywhere. apparently not released weekly anymore. my charts don't go past 2021. query is where do i get current figures? good old Paul Derosa always had the latest by surveying banks.

very quietly S&P is up 9% for the year, and 30 year bonds are up 7%. this is a uniformly bullish scenario for the next 3 months for both markets. this in conjunction with perfect father reaching a hi 0f 32% in odds of winning.

if the great Sam Eisenstat were alive, he'd run regressions to show how bullish it is. all we point to is 86% up back to 2011.

with agrarians at their peak in the 3-letter agencies and the treasury, regulatory capture looks to be at max. what could be more bullish?

Individual Investors Slow Stock Purchases, Leaving Markets Vulnerable

SceneScape: Text-Driven Consistent Scene Generation

what are the elements that make the scene in the market and how can it be quantified and predicted for market behavior?

Vic's twitter feed

Apr

3

Suggestions welcome for this new edutainment venture that I'm trying now:

website: house wives trading & investing in Indian stock market
YouTube channel: watanabe

The idea here: 6 selected participants (all-female team) will try to prove to Indian traders and investors that the world is not going to end, and by keeping things simple, average investors and/or traders might at least match the benchmark returns.

The show starts and goes live from 31st mar 2022 at 3pm Indian Standard Time, which is accounting year-end date.

Update:

The Watanabecrew is now raising the bars to day trade (& hopefully beat the vig) 1 crore account (about 125 K USD) from today. Please come watch us during Indian market hours on youtube channel.

Princiya Crasta adds:

I am part of the Watanabe team and the journey and learning is wonderful. I aspire to continue and grow with Kora sir. All the trades are live on Youtube. We go live every trading day 9.15am and 3.15pm IST. Looking forward to see you there.

Mar

28

Charles W. Morse was instrumental in two panics. the first came during the civil war. he believed that the worthless greenback would lead to all industrials and railroads going thru the roof. when sec chase sold gold, the boom burst and Morse was execrated. the second Morse was the ice king panic.

there's trouble in market city. it's all because the bond prices are way below the cost for many banks and others. even the perfect father is beginning to suffer. there's one way out. for bonds to go way up. a good speculation.

one has been reading Fifty Years in Wall Street. the book is resonant with me because i could write a book 65 Years in Wall Street. that will have to wait until stocks go to a new high amid ag making fun of me. i can hear him now: "It took 18 months."

but the Clews book is amazing in that all the characters he talks about from the 19th century have their exact counterparts today. i will memorialize these shortly.

it's a little difficult for me because I was asked to write a preface for that book. and the frugal publisher didn't want to spend the $750 to get a copy of the book. they borrowed my book. and returned it unbound. its 700 pages, and in my current state i can't lift it.

Vic's twitter feed

Mar

24

Dear Chairman Gensler, Commissioner Crenshaw, Commissioner Lizarraga, and SEC review staff:

Thank you for the opportunity to comment in support of proposed rule S7-31-22, ‘Order Competition Rule’.

Commissioner Peirce and Commissioner Uyeda:

Although you both said that you looked forward to reading public comments on the proposed rules, and then voted against opening them up for public comment, I hope you will nonetheless read the comments with an open mind and vote to adopt the rules.

I want to start with a quick thought experiment. Imagine if the NYSE specialists had been able to act like wholesalers: If they could have backed away from quotes, picked and chosen which orders to execute, sent orders they didn’t like to other exchanges, bought on plus ticks and sold on minus ticks for their own book, and placed their orders ahead of others’ orders. How long would the investing public put up with that behavior?

I encourage the SEC to ban payment for order flow and unexposed internalized flow outright. The notion that paying for ‘Right or First Trade’ is legitimate is extremely disappointing. It is a discretion that no registered dealer with a fiduciary duty would be allowed. The ability to pay to see the order first, take or decline that order, and then use the aggregate information from seeing so much order flow first to front run that aggregate order flow for one’s own account is outrageous.

Read the complete post here.

Mar

24

Pirate Latitudes, by Michael Crichton. Aubriesque tale of privateers and Spanish Galleons.

As the SPEC list is about books, as well as markets, counting, and barbeque.

William Huggins adds:

single best book on the history of finance that i've come across is William Goetzmann's Money Changes Everything. He's a Yale finance prof with a background in art history and archeology and its shows throughout the book as he looks at the roots of our toolkit (sumerian word for "baby cow" is the same word they used for "interest", etc). a very good description of the 1720 bubble with the hypothesis that the bubble was a reasonable reaction to the shifting expectations around insurance companies and the lines of risk they could cover. he also suggests that Venetian gov debt (1172) snowballed into the creation of western capital markets, which in turn propelled the west ahead of "the rest" (to steal a ferguson quote). three solid chapters on the tools imperial China used to increase its "span of control" over its rugged territory. 10/10.

(I used to use it as the required reading in my history course until I realized too many were balking at its size)

Jeffrey Hirsch responds:

Appreciate the reco Mr. Sogi. Almost done with Pam V’s reco on Keith Richard’s autobiography, Life, which is far out. Here’s one from me, The Immortal Irishman, by Timothy Egan. Irish revolutionary becomes a Civil War general. Adventurous tale across many continents.

Laurel Kenner writes:

I offer Harpo Speaks, the autobiography of Harpo Marx, the silent brother. Plenty of poker, speculation, and spectacular success, including an account of his Soviet tour, to entertain this List well.

Pamela Van Giessen responds:

Harpo Speaks is fantastic. For a meditative introspective read on things out of our control and how the body copes A Match to the Heart, by Gretel Ehrlich.

Big Al suggests:

I will recommend The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win, by Maria Konnikova.

First of all, it's just an entertaining, well-written story. But in her study of poker and portrait of one of the best professional players, Eric Seidel, there are many lessons for traders.

Penny Brown writes:

I recently re-read the cult classic, The Moviegoer, by Walker Percy. It has nothing to do with trading but the main character is a stockbroker. Read it for the wonderful prose and the delineation of Southern characters with great dialogue.

Also, re-read A Fan's Notes, Fredrick Exley's memoir of growing up under shadow of his father's football fame in Watertown. It's amazing that this book even got written since Exley makes three trips to mental institutions where he undergoes electro-shock and insulin therapy and was an inveterate alcoholic for his entire life. You can see the influence of Nabokov and Edmund Wilson (among his favorite writers) in his prose style.

And then I read Embrace the Suck - a book I literally found at my feet on the sidewalk - hey, the price was right - and I assumed it had a special message for me. It certainly did. It describes the training undergone to become a Navy SEAL including the infamously horrid "Hell Week" that resulted in the death of one participant. It has lots of lessons for traders as it extols the virtues of discipline, focus, planning and most of all, a willingness to embrace suffering, as a means of moving beyond mediocrity.

One guy's way of shaping up for the ordeal of SEAL training was to run the Badlands Ultramarathon - a little 100 mile race through the desert at temperatures over 110.

Okay, I'm not going to try that - never could have even in my prime. But it got me out of my chair committed to doing a full set of Bikram's yoga postures including the ones I hate because I can't do it - Salabhsana - or hate because it hurts - Supta-Vajrasana. As the author says, "you've got to embrace the suck everyday."

Gary Boddicker adds:

I recently read Mule Trader: Ray Lum’s Tales of Horses, Mules, and Men. I originally picked it up for the regional interest. Ray was based about 60 miles down Hwy 61 from me in Vicksburg, and traded mules and livestock throughout the Mississippi Delta…but, it turns out a few of the Chair’s favorite writers, Dr.Ben Green and Elmer Kelton, were running buddies of Ray and are mentioned and vouch for his character in the book. Many tales of trades, moving the herds as the tractors slowly replaced them from California to the Delta. In one case, he bought 80,000 horses in South Dakota, and arb’d them to where they could be used. The book rambles a bit, as it is essentially an oral history, but many lessons within.

It brought to mind a discussion I had years ago over dinner with an buddy of mine who farms about 20,000 acres in NE Louisiana. “Gary, there is isn’t a real farmer in Louisiana who picks up that government agricultural census and doesn’t mark down that he owns at least one mule. We are damn slow to admit we gave ‘em up.” I haven’t fact checked him, but a betting man says the mule census is Louisiana is overstated.

Gyve Bones responds:

I have two copies of that book… one autographed by the re-publishing editor. It’s a great book.

Mar

22

nice deception in bonds: down over 4 pts in last 2 and a half days…yet the entire problem with all the banks was they had bonds way against them down. so naturally the maneuvers for the market and the perfect father is to bull the bonds up.

although the chair without a background in finance is an ignoramus regarding economics, he can sense the agrarians all over the 3-letter agencies, the consumer products companies, and the agrarian at treasury, that they all want bonds up. presumably the 5000 financial economists and the banks which they all talk to before the meeting have emphasized that the perfect father and the fellow travelers want bonds up.

what is useful number 1 advocating? presumably the discussion at 2: 30 will put him in limbo.

as part of the back scratching and incestuous relations, ed used to give stipends to half of all finance profs. presumably they still back scratch each other. my grandfather Martin who spoke 50 languages as a interpreter used a back scratcher to dance with.

there is always a record. the decline form 1530 to 1600 in just one half hour from 4037 to 3969 - a terrible 68 full big points - was the second largest ever. the only exceedance was on 2-6-2018 when the decline was 86 points.

Vic's twitter feed

Mar

21

the public has no right to lose so much and to be fooled by the bromide that they get a better deal from the high frequency boys at the opening. the reversals at the opening 30 minutes are spectacular unless you are trying to get a good fill.

nobody asked me, but…perhaps the single greatest mistake that specs make is to try to go for short term profits -like the move in the next half hour or worse yet trying to sneak 2 pts of profit. the vig on such trades is at least 20%. much better to try the impossible of beating the 52% on sports bet.

always a record somewhere: gold down second largest ever, down $39 before FOMC. only 12-22-2011 bigger down move of $45.

one is reminded of my 1 day i had a job on Cramer's site. i got fired because i mentioned that Galton had invented the concept of regression. he says there is always a bull market somewhere. I say there's always a record move somewhere.

i place Cramer and Mad Dog in the same box. they both know so much and try so hard to come up with good predictions, they both have the benefit of experts and insiders, they are both less than random.

Vic's twitter feed

Mar

19

My theory is the market is mostly self organized. One important mechanism is stigmergy - spontaneous, indirect coordination between agents or actions, where the trace left in the environment by an action stimulates the subsequent action. The traces basically is time and sales or on a cruder level charts and trade data.

H. Humbert comments:

My theory is that markets do sometimes self-organize, but at the very basic level they operate in two regimes: normal and "emotional". Of course they are always emotional to some degree, but what I mean is this: they are good at processing distributed data, that is averaging out the noise and extracting information from multiple participants who create noise and add bits and pieces of information. But that is only when the information is widely distributed. When like now key pieces of information come from very few participants in random bursts (as compared to the typical regime) the markets get swept up in emotion generated by each jolt and self-organize around that emotion. Even in normal markets they can abandon reason and self-organize into manias or panics, more into manias when there is prolonged liquidity, but more prone to do so when there is a distributed information glut and participants just generate noise.

Gary Phillips adds:

No doubt that (decentralized) collective behavior is shaped by adaptive evolution. That is, efficiency gains are a result of stigmergy and constructal theory. Perhaps, there is even a coordination between the two.

The recent explosion in 0DTE options volume comes to mind. And, the stigmergic and constuctal theories may explain how the phenomenon evolved. This self organized collective behavior emerged as a perceived improvement on futures as a vehicle for day trading i.e., better liquidity, flexibility, and leverage.

Both stigmergy and constructal theory are self-reinforcing processes. The more something works, the more people it draws, and the more people available to improve it further.

Mar

19

Below is an update on some counting I did on the NCAA basketball tournament and the Final Four, originally posted in 2010. The data are the programs that made it to the Final Four from 1979-2022, as well as the results. I divided the schools into ones that had made 1 trip to the FF, 2 trips, 3 trips, and 4 or more trips.

58 programs made 172 trips to the Final Four, 1979-2022
Total FF slots: 172
Total Championships: 43

Schools that made 1 trip to the FF
FF trips: 28 - 16.3% of total trips
Championships: 2
Success rate: 7.1%

2-trip schools
FF trips: 14 - 8.1% of total trips
Championships: 1
Success rate: 7.1%

3-trip schools
FF trips: 21 - 12.2% of total trips
Championships: 3
Success rate: 14.3%

Schools that went 4 or more times
FF trips: 109 - 63.4% of total trips
Championships: 37
Success rate: 33.9%

You can see that programs that consistently get to the FF have a much higher success rate for winning the championship. These "power programs" dominate the "lucky underdogs" who have only gotten to the FF once or twice.

The "modal Final Four" is probably 3 power programs and one lucky underdog, and the underdog's luck has usually run out. The 3 power programs then each have about an equal chance of winning the championship.

Notes for fans: The two 1-trip teams that have won the championship are NC State in 1983, and Baylor in 2021. Of the power programs, the outlier is UConn which has been to the FF 5 times and won 4 championships, for an 80% success rate.

Scott Haley asks:

Pardon my ignorance, but the data considers programs' number of FF trips "prior" to the championship of that year, correct? Not total as of 2022?

Big Al replies:

Not ignorance but a good question! No, this is purely an ex-post analysis, totaling up all FF trips and championship wins. Predictively, it supports betting against first-time FF teams, but maybe a lucky underdog is starting a period of sustained performance that will make them a powerhouse.

Scott Haley adds:

An interesting consideration would be the effect of the head coach often being poached by another team after a lucky run. It almost always happens as the lucky underdogs rarely have the resources and/or gravitas to keep them. Basketball is not my speciality so I am unlikely to be able to properly do the analysis. But it's food for thought.

Mar

17

with agrarian economists in every 3-letter agency and the treasury, it's hard to look to free markets in the near term. but this too will pass as the British Library scholar of the 1840's views go out of style and poverty and envy reign.

A little story: Richard Sandor once introduced me for a lecture about my non-mathematical colleague at UC who garnered a Prize. He told that while he was on the Exchange many savants noticed the vol of distant options was way too high mathematically and market speaking. He ended right before my talk, "Not one of them is still around the Exchange." As the "prefect father" according to Ron Kline would say "true story" and one has nightmares about 30 years later.

the great Robert Merton was in the audience as his son was also honored. I told the story of Davey Crockett refusing to vote for aid to the benefit of a widow of a distinguished naval officer and how he offered to pay out of his pocket. Amazingly I have a letter from the 90-year old Robert Merton asking me for the reference to that story.

not the end of the story. I went up to Richard Sandor at the end of my talk and I said that like Horatio Bunce I realized from Richard's talk that I was a wrong to sell out-of-the-money puts and that I would never do it again because my adversaries controlled the margins et al.

Vic's twitter feed

Mar

12

(1) the bonds had their biggest two-day advance of 4 big pts ever. (2) the problem seems to be that Silicon Valley Bank was offering depositors 2.2% on their deposits. no wonder they all flocked to them.

(3) the most laudatory testimonial for the two silvers come from man who doesn't read books SBF. it was taken down. (4) interesting to see the judicial system bending all the way to accommodate comfort of SBF, the Uncle Remus tale of Brer Rabbit and the briar patch comes to mind.

Vic's twitter feed

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.

Mar

7

Now, when every fool and his mother fruitlessly attempts to interpret what size the brief case means, this book is timely, very well written and highly recommended:

Limitless: The Federal Reserve Takes on a New Age of Crisis

Also, another interesting read, 180 years old, with lessons for the modern reader, Walter Bagehot’s seminal 1873 book, Lombard Street: A Description of the Money Market.

Kora Reddy suggests:

PDF download: Credit Suisse Global Investment Returns Yearbook 2023 Summary Edition

here is a two-line summary (as TAPAS [there are plenty of alternatives]), as opposed to the one-line summary i used to do: figure 50 is interesting "higher the inflation higher the interest rates thus higher the stock market returns." table 15, short rubber spot & long coal is the trade in the commodities.

Mar

6

Futures prices, particularly financial futures like S&P and Bond prices, have a relationship to the cash markets which can be arbitraged. It is a function of cash flows usually interest borrowing costs and dividends, but it depends on being able go short and long the cash/spot markets. My questions is this: seems to not hold in hard assets like crude where there is currently large backwardation. You can buy Dec 24 Crude at a large discount and have been able to do so for some time. Specifically, is it possible to short the spot market for crude? Is there a counterparty that will accept this trade? It seems that for term structures like crude futures, the prices are an actual prediction of supply and demand and not an interest rate arbitrage.

Zubin Al Genubi responds:

With crude, storage (or not to store) is part of the future price. I read there is a lot of Russian crude stored in ships now. I'm not sure how that figures in.

In backwardation (tight market) normally one buys the future waiting for convergence with spot. Selling spot- yes you can, but delivery is an issue.

Big Al ruminates:

Not sure what "shorting the spot price" would even mean, other than Zubin's point where you have to have crude for delivery. Doesn't the concept of shorting a contract inherently involve a future price point? You could have 1-day futures, but then the vig might be far more significant.

If we model it on stocks, then shorting spot crude would involve "borrowing" somebody else's oil and then selling it for delivery. But then you're just back to why futures exist in the first place, aren't you?

But speaking of the term structure of crude, I ran across this:

Forecasting WTI crude oil futures returns: Does the term structure help?

Abstract
Nelson-Siegel (NS) factors extracted from the term structure of WTI oil futures are shown to predict subsequent WTI holding period returns in-sample. This in-sample predictability is not diminished by augmenting with macroeconomic indicators or oil market specific predictors. Allowing the decay factor in the Nelson-Siegel model to vary over time improves in-sample predictions at medium horizon return forecasts. We conduct out-of-sample forecasting exercises on models that use NS factors, such as a simple two factor model that uses a composite leading indicator along with the NS decay factor, and a LASSO model that combines NS factors with macroeconomic indicators and oil market specific predictors. These models significantly reduce forecast errors relative to a no change benchmark across a range of return horizons and futures contract maturities. We also find consistent evidence that models that use the NS factors result in trading strategies with higher Sharpe ratios and better skewness properties than buy and hold strategies and historical mean strategies.

Relatedly, the Nelson-Siegel model.

Mar

5

excellent books read this weekend: The Big Ratchet: How Humanity Thrives in the Face of Natural Crisis, by Ruth Defries. the numerous incredibly lucky things that make life on earth possible. the three indespensible requirement for life are: (1) a stable climate, (2) a planetary recycling mechanism, and (3) a smorgasbord of diverse species.

these 3 mechanisms would seem to play a role in markets, preventing any hatchet-like move in one commodity like bonds and its influence on stocks as exemplified by March 3, 2023 action with a 2-pt increase in bonds sending all market life thru this.

Beating the Dow, by O'Higgins and Downes, recommending buying the lowest-priced and highest-yield components of the Dow as a superior, infallible investment rule. (no cognition of multiple comparisons or ever-changing cycles.) the rule doesn't seem to work anymore.

i have the 1991 edition but many interesting facts about the stability of the Dow. contrary to popular belief the 1923 components are almost all there thru acquisitions. emphasis on Dow stocks as magnets for investment.

Timothy Sandefur's Freedom's Furies, a well-researched and informative review of the work and lives of Isabel Paterson, Rose Wilder Lane, and Ayn Rand.

Thayers Life of Beethoven, revised by Elliot Forbes. A year-by-year chronicle of verified events in B's life. the great man's music and quirks and obsessions.

Vic's twitter feed

Mar

5

the useful:

El-Erian says the Fed should go back to raising interest rates more aggressively

re completely independent and don't take into consideration such things as market moves or politics: they act like puppets with some inexorable force puling on them to arrest market declines like yesterday with Bostic. methinks the Governors and their spokesman and the agrarians at Treasury protest too much.

an admirable performance for the optimists [3 March]: S&P, gold, crude, at 10-day highs, bonds up on week. sogi has Kona coffee twice in day and Prof stands tall. barron coleman day. grains at low. wheat lowest in 18 months. corn lowest in 5 months. fed can pretend they worry about personal consumption prices, as long as it helps the idea that has world in grip.

That same deception: "The Fed doesn’t care as much about Wall Street as Wall Street thinks, meaning that market-based indexes of financial conditions including stocks and bonds aren’t so important to them." the conventional wisdom they like to spread.

where will the markets go next week? after a 20-day minimum and two big up days in S&P but not a 20-day high again. about a once-in-year event. the stats favor Bonds.

Vic's twitter feed

Mar

3

Night of Ideas
New York
Friday, March 3, 2023 | 4:30pm-12am

The Ukrainian Institute of America, 3rd Floor Library, 2 E 79th St,
New York, NY 10075
Talk
9:30-10:00 pm

Freedom, Beauty, Evolution, Nature
Adrian Bejan

Evolution is the defining phenomenon of nature: change after change, in a direction perceptible as ‘time’. Freedom is everywhere because design change is everywhere: inanimate, animate, and human. Power and movement result from the consumption of foods and fuels. Conversion happens in flow configurations (designs). Manifestations of movement are endless. Society is an earth-size organism, constantly morphing to provide greater access to what flows and lives. Society develops, moves, changes, and produces more when endowed with freedom, free questioning, and self-correcting. Nature is dynamic, free, always evolving: one law of physics (constructal law) covers all aspects of evolution in nature.

Mar

3

Calibration of Probabilities: The state of the art to 1980
Sponsored by OFFICE OF NAVAL RESEARCH
June 1981

This paper presents a comprehensive review of the research literature on an aspect of probability assessment called "calibration." Calibration measures the validity of probability assessments. Being well-calibrated is critical for optimal decision-making and for the development of decision-aiding techniques.

The first class is calibration for events for which the outcome is discrete…. For such tasks, the following generalizations are justified by the research:

1. Weather forecasters, who typically have had several years of experience in assessing probabilities, are quite well calibrated.

2. Other experiments, using a wide variety of tasks and subjects, show that people are generally quite poorly calibrated. In particular, people act as though they can make much finer distinctions in their degree of uncertainty than is actually the case.

3. Overconfidence is found in most tasks; that is, people tend to overestimate how much they know.

4. The degree of overconfidence untutored assessors show is a function of the difficulty of the task. The more difficult the task, the greater the overconfidence.

5. Training can improve calibration only to a limited extent.

The second class of tasks is calibration for probabilities assigned to uncertain continuous quantities…. For calibration of continuous quantities, the following results summarize the research.

1. A nearly universal bias is found: assessors' probability density functions are too narrow. For example, 20 to 50% of the true values lie outside the .01 and .99 fractiles, instead of the prescribed 2%. This bias reflects overconfidence; the assessors think they know more about the uncertain quantities than they actually do know.

2. Some data from weather forecasters suggests that they are not overconfident in this task. But it is unclear whether this is due to training, experience, special instructions, or the specific uncertain quantities they deal with (e.g., tomorrow's high temperature).

3. A few studies have indicated that, with practice, people can learn to become somewhat better calibrated.

Stefan Jovanovich writes

Grant's great virtue as a warrior was that he had seen the absence of certainty in war everywhere from the front line (having a fellow junior officer lose his head to a Mexican cannonball as the two them walked forward) to the far rear (where half the sick, women and children left behind in crossing the Isthmus die from cholera because the contracted mules do not arrive; Grant saved the others by buying pack animals at the market price and then spending the rest of his tour in California and Oregon arguing with the War par5ment about the waste of funds). Man proposes and God disposes.

Gyve Bones adds:

In preparing for battle I have always found that plans are useless, but planning is indispensable.
[General Dwight D. Eisenhower]

Feb

28

Self-Organization in Biological Systems

The concept of pattern-formation as a result of self-organization is common in such disciplines as chemistry and physics. For instance, in Chapter 1 we discussed the patterns formed by the Belousov-Zhabotinsky reaction, the ripples on a sand dune, and Bénard convection.

The challenge, is to see whether particular instances of adaptive, group-level pattern formation can be explained largely or fully in terms of a small set of relatively simple behavioral rules for members of the group. These rules are often implemented in the form of a mathematical model or simulation.

Interesting definitions found useful for markets:

A Pattern is an arrangement in time or space. It is created internally without external direction. It is created locally by individual element's reaction to nearby changes without larger awareness or control. The complex patterns result from simple local rules. Very market appropriate.

How does self organization occur? Random fluctuations and positive feedback can form patterns or trends. Humans follow rules, I do what you do. Sygmergy, information from work in progress, such as chart patterns, can accelerate creation of patterns.

Self organization in complex systems exhibits emergent properties known as changing cycles such as Bernard cells. Change occurs due to positive and negative feedback, outside influence, information from neighbors, stigmergy. Self organizing systems can be quantified and modeled! They tend to be stable but can exist in chaotic states, chaos meaning without pattern. Alternatives to self organization are: Leaders (powell), blueprint, recipe.

Nils Poertner writes:

probably a good book to read indeed - thanks for sharing.

yeah. in the human created world - we tend to think leaders run the show - and they do- to some extent
but obviously it is left-brainy to think that is all and not a way make money from (e.g ppl looking at the lips of Powell to trade the next tick…..close to insanity - that is). it is more a mass psych kind of game.

Zubin Al Genubi adds:

Schools of fish self organize to avoid predators. The are able to coordinate by the Trafalgar effect where communication with neighbors is fast like Lord Nelsons ships. Traders self organize - bulls v bears. What is their mode of communication? Volume, tape, executions, speed, change, amount of change, order depth, density of trades, resting orders, many others which could be quantified.

Nils Poertner responds:

fish don't get the clue from adjacent fish (alone) - - they "tap" in their common field (morphogenic field) of that special group - see Sheldrake on this note it is "same" time almost. wild animals have this super- power since they think less - thinking (the cousin is worrying) seem to interfere here (actually in theory humans have the same). can*t verify this but Sheldrake says: the idea is that the brain of animals (also humans) is more like a receiver and sender at the same time - sort of like a TV that emits as well memory is not in the brain per se.

Zubin Al Genubi replies:

It's possible to build a simple model for fish schooling based solely on reaction to the neighboring fish. I wonder if trader behavior might be modeled with similar simple parameters. Trader buys when other traders buy. Trader sells when others sell. Negative feed back starts as buying slows. Test parameters.

H. Humbert responds:

Morphogenic fields are contained within the organism and used for cell coordination such as embryonic development, so it's hard to believe that the fish respond to it as a group. As for morphic resonance pioneered by Sheldrake, while I think it's a promising idea that would explain a lot, casually using it to explain simple events without extraordinary proof is like using some random primitive god to explain natural phenomena. If he is right, than we have to discard most of our knowledge about biology, psychology, etc.

It also seems that modeling traders, many of whom are equipped with machine learning devices, and many who like to buy when others sell, as fish relying on a couple of sensory signals seems too simple to predict the future. Seeing clouds and predicting rain kind of works, but it's not a good starting point for weather modeling by an individual in modern times given the state of the art.

Nils Poertner replies:

Yes probably. But then a lot of older cultures knew it all the way already. see Amazon tribes people or study Carlos Castaneda. Sheldrake found some statistical evidence of telepathy in rare occasions. I don't know to what extent that is correct - for my own purpose I am interested in "intuition" which is somehow linked to telepathy eg being a tad earlier in mkts than others etc.

[Re: Sheldrake: below, a review of Sheldrake's A New Science of Life. -Ed.]

A Book for Burning? by John Maddox, Nature, Sept 1981

As things are, however, Sheldrake's book is a splendid illustration of the widespread public misconception of what science is about….Sheldrake's hypothesis is no better than the hypothesis that a person equipped with a water-divining rod is able to detect subterranean water as a consequence of some intervening "field" generated by the presence of water, and his proposals for experimental tests no better than the argument that since water-diviners succeed in making money, there must be something in the theory.

H. Humbert writes:

As I mentioned, using this theory without proof is like using some primitive deity to explain rainstorms and earthquakes. But I wouldn't be as adamant as the reviewer in attacking it. It has puzzled me for a long time that so many people somehow don't recognize that there is something fundamental missing about our understanding of reality, and different aspects of it. Like when people start talking abut AI becoming sentient while we have no clue about what it really means to feel pain or see colors in the human sense from any kind of scientific point of view (vs having some regions of the brain light up). Or what I mentioned about how various instincts/behaviors are inherited by animals. Like can 20,000 or so genes, mostly used to encode the creation of proteins, really transmit to animals what foods to like, how to have sex, how to be afraid of certain predators, how to fly south from Maryland to Brazil over the Gulf of Mexico and predict hurricane seasons fairly well, or a thousand other complex concepts. Or more fundamentally, what enforces various laws of physics over vast regions of space. So strange theories that try to explain the nature of the universe shouldn't be so easily rejected even if they lack in the scientific method orthodoxy.

Nils Poertner comments:

good that people here are skeptical. as always - for traders - believe nothing, verify things for yourself
(and start with things that are relevant and simple) and go from there.

Feb

28

Bartley J. Madden: Value Creation Principles

Value for customers is the purpose of all entrepreneurial business. Firms big and small must know, follow, and adhere to the principles of value creation. This is pragmatic not theoretical — the consequence of a failure to do so is that the firm cannot survive.

Bartley J. Madden studied value creating firms as a co-founder of a successful investment research firm and then managing director of Credit Suisse HOLT. He is now an independent researcher and founder of the Madden Center For Value Creation in the College of Business at Florida Atlantic University.

He joins the Economics For Business podcast and shared a summary of a lifetime of research.

Feb

27

one of remarkable things about effective altruist saga was that while he was the second biggest donor, and promised to give a billion more, and every celebpol was captured, the Palindrome appears to have been uninvolved. he has instinct.

Beethoven was in a furious rage in 1819. his favorite restaurant didn't have his favorite of veal. he ran out cursing and would have been taken for a vagrant again had not Schlesinger rushed back to Vienna and sent him some veal upon which B kissed him and called him his best friend.

that's Ken Roman who plays squash 3 times a week at 92 and is former CEO of Ogilvie where he taught Ogilvie how to write in complete sentences when he became French.

Vic's twitter feed

Feb

27

Wouldn't the adjusting up of the prior contract data to the current destroy information about the beneficial effects of inflation on stocks and owning assets?

Leo Jia responds:

I had considered about this and believe the adjusting does destroy some information, but one can go around the problem.

Generally I use one of two schemes to adjust: subtraction, or division, each destroying the info in a different way. Which one to use depends on one's analytical formulas to be used. For instance, if one is concerned about absolute price differences, like close of today minus close of 2 days ago, then one needs to use the subtraction scheme; one the other hand, if relative difference is of concern, like close of today divided by close of 2 days ago, the division scheme should be used. Using it the right ways nullifies the information destruction.

The subtraction scheme can produce an artifact of prices becoming negative, so mostly I concentrate on the division scheme.

Btw, I open-sourced the adjusting routine called Stitcher (in Julia) on GitHub.

Steve Ellison adds:

Much depends on what you are trying to achieve by using adjusted prices. I use them to make sure my calculations of net price changes and n-day highs and lows are accurate in the event such calculations cross a contract roll. When back-testing, I typically do selection using the adjusted prices and then translate the specific occurrences back into the contract that would have been used at the time of entry– then I can compare the net change to the original price, resulting in a more meaningful percentage change.

Feb

27

This has long been in my mind, recently put to text and published on my webpage. Happy to have any feedback.

Statistical hypothesis testing in trading strategy development

So What is statistical hypothesis testing? From Wikipedia: “A statistical hypothesis test is a method of statistical inference used to decide whether the data at hand sufficiently support a particular hypothesis.”

Though the exact procedures are still not without debates, the general idea is: if a hypothesis can be confirmed as true or valid, it has to stand out from the random processes that apply to the same matter of the hypothesis.

So, it sounds very logical. For instance, if you want to prove that you have good skills at the football penalty kicks, you do say 100 kicks (without a goalkeeper) and compare your results with those of a thousand idiots. Say you scored 97 and rank the 11th among the thousand idiots, or the top 1.1%, then the committee confirms your skill, or in other words, they confirm that your claim of having good skills at the football penalty kicks as true or valid. That means that since you rank at the top 1.1% they trust that you truly have the skill and you will score similarly in future kicks.

Steve Ellison comments:

I am one of the "idiots", ha ha, who has found patterns that back-tested with a statistically significant edge, only to find they did not work very well when I actually traded them.

Part of the problem is that, with a threshold of p = 0.05, if you evaluate more than 20 hypotheses, you are likely to find some that show significance just by random chance. And this problem is multiplied in any study that involves multiple comparisons.

Furthermore, in an era of widespread machine learning, some institution is likely to find a pattern before you do, and may either arb the edge away or discover at its own expense there really is not an edge. David Aronson, who was on the Spec List for some years, discussed "data mining bias" in his 2007 book Evidence-Based Technical Analysis, when machine learning capabilities were in their infancy compared to today.

Big Al adds:

That appears to be a big problem with all sorts of research. It's easy to imagine a large, diverse group of researchers forming a sort of "meta-researcher" that is data snooping on multiple levels, even though the individual researchers are not aware of it.

As a trader, one must be skeptical and ideally have enough data to split it into a test dataset while reserving an out-of-sample data set for confirmation.

When I'm feeling more optimistic, I think of the market as layers of players, from very large down to minute (e.g., me), and most of the market bulk is the result of the bigger players making macro moves, which creates effects that smaller players can trade off of. The issue now is that, with AI technology, tens or even hundreds of billions of dollars can be deployed to black-box strategies that constantly search for smaller anomalies and patterns. But then the Palindrome's concept of reflexivity kicks in as all those black boxes create effects of their own.

Zubin Al Genubi writes:

I am looking at what factors causes price change and why and how. Model it to understand its function. Test with Monte Carlo. Its gives you a step ahead of price. Volatility clustering is a classic example. This what modern biologists do.

Jeffery Rollert responds:

My mental model is a sphere of sponge, suspended in space, with rain droplets hitting it everywhere all the time. It’s a variation of Al’s idea yet with more dimensions. One additional dimension is the age of the idea. As ideas are older, they are absorbed and move to the center where they have less impact on the balance. Market moves are represented when the sphere’s center of gravity shifts from the geometric center. Sort of plate tectonics but with a lot of plates.

Feb

23

Starts at Minute 4:00: A Failed Defect Detector and the Train Derailment at East Palestine

The achievement of railroads is that they can carry massive loads thousands of miles with an economic efficiency that no other form of ground transport can come close to matching. To do this they have to violate the first rule of all practical mechanical engineering and have metal scrape against metal without any lubrication. The wheels and rails are steel against steel. If an air brake fails for a wheel, it stops it dead and the wheel becomes a giant flint throwing sparks and then flames. The only solution to this problem is to slow the train to walking speed and move it to a siding. If the train continues at speed (30-40 mph in developed areas), that car will eventually derail. The unanswered question for this incident is why the train crashed in the pattern of an emergency stop by the engine, not the derailment of a single car. That could have been caused by the engineer not having the skill and temperament required to avoid literally slamming on the brakes because "the train is on fire". But, that is pure speculation by those of us sitting safe in the bleachers.

Bud Conrad writes:

Thank you for the explanation in bigger picture context. There seems to be something much more unusual about this particular incident, than just a mechanical failure, of a type that must happen frequently because steel is riding on steel.

Jeffery Rollert comments:

Modern rail cars have systems that brake all cars at once (locomotives included). It’s done by a radio signal or wire, and no longer a pneumatic propagation. I know, because a very good friend designed and built the system decades ago. Cars derail, when the locomotive derails and effectively becomes the brake. So why did the locomotive derail?

I haven’t seen the video, but strongly suspect something in the tracks or a switch was improperly diverted that the locomotive couldn’t handle the redirection at that speed.

Henry Gifford explains:

Steel rolling on steel is a great idea because there is such a small amount of friction. An adult human can allegedly push a fully loaded (200,000 Pounds or more) railroad car along a level track (but not get it started – another story). Rubber covered wheels, in contrast, require much more energy because heat is generated as the rubber flexes (internal friction from molecules rubbing on each other). But, if the railroad train car bearings seize up, steel is sliding on steel – still lower friction than rubber rubbing on a road, thus the locomotive(s) can drag it along until derailment…

Read the full discussion here.

Feb

23

Why is the close price so much higher than trading at the close? Why is June ES 38 points higher than March ES? That's a really big spread. It must mean something. And to adjust the back data to continuous must remove or affect information.

Justin Klosek responds:

March-June ES spread is due to the difference between the (assumed) dividend rate of the S+P and the risk free rate.

Investor A who owns the portfolio of S&P 500 stocks receives the dividends and the return from the changing stock prices. Investor B who owns the futures and a Treasury bill has (to first order) the same portfolio. He does not receive the stock dividend but instead earns the T-bill rate, which is now higher than the dividend yield. So the futures prices have to adjust to account for this.

If the risk free rate is 4.75% vs a dividend rate of 1.25%, that 3.50% difference is reflected in the futures roll—about 87bp per quarter, or around 38 points, plus/minus.

Kora Reddy adds:

Fisher effect as chair says here:

The Performance of Market Index Futures Contracts

Zubin Al Genubi comments:

Seems it would behoove one to own bonds with the futures to capture the roll. Especially now.

Justin Klosek asks:

Long T-bills plus S&P futures is no different than owning cash stocks…. what drives your “especially now” comment?

Zubin Al Genubi responds:

If FOMC is done at 5 1/4, in 2 increments 3 months apart we are 6 months away from the end of rate increases. Powell's bond "put" so to speak. Yields are high. Seems, like today [22 Feb], the bonds have decoupled from stocks. Why not carry some bonds to support a portfolio of futures? Carry margin is much less with futures than stocks. The overnight market is a big plus of futures over stocks.

Feb

21

Weekend reading

February 21, 2023 | Leave a Comment

while snoring at the market over the weekend, and remembering that I had to be awakened by my assistant at 915 on Friday feb 17 as I had "watched" the market for 24 hours straight and I can no longer do that without sleep, I read some good books over the weekend.

i was younger then: Someone in a Tree

the best book was Beethoven Unleashed. here is a year by year chronology of Beethoven's development, family life, music, and love life. I know a hundred anecdotes about Beethoven (collab and I were once going to do a play about the great man) and this book thrilled me by teaching 100 more also about his hard study under Hayden, the progress to write string quartets, and the Austrian war's influence on his fortunes. highly recommended. I recommend the audio version which brings forth music to illuminate each part of his life (although their constant playing of the fifth and ninth symphonies is boring and over the top).

the most disappointing book for me was Models of Adaptive Behaviour: An Approach Based on State by Houston and McNamara. It takes a state approach to predicting molecular behavior. all the states could just as well be market states with the change of a few words. an organisms behavior strategy is a rule that specifies how the organism deals with every possible circumstance. a strategy is a rule specifying the dependence of behavior on a state and time.

"the costs and benefit of an action must depend on state." "fitness is a measure that can be used to measure the performance of strategies." "that an action cannot be considered in isolation is an important reason for considering sequences of actions and hence for using dynamic programming." regrettably there is one empirical finding that illuminates the state-based topology into concrete life. Although I can get the gist of most mathematical treatises, the dynamic programming examples and other techniques were beyond me.

I turn to a book that's much more useful to financial readers and mure more up my alley: This is the Road to Stock Market Success by George Seamans.

the Seamans book was first published in 1944, and the dow was about 150 at the end of that year, and Seamans recommended the base method in use of Heads and Shoulders to sell high and buy low. There are so many bad recommendations in the book that it's even worse as a guide book than Reminiscences of a Stock Operator.

From George Seamans (1945):

What is a business barometer? Whether it be Barron's Weekly, the Federal Reserve Bank, the Cleveland Trust Co, the National City Bank, or any other– it is the published facts of supply and demand as expressed in the volume of steel production, number of freight cars loaded, orders for locomotives, amount of payrolls, amount of checks cleared, bank savings, money in circulation, electricity consumed, quantity of lumber cut.

Supply and demand (the time element theory–a time to buy when low, a time to sell when high) is the basis for all forecasting of market movements.

"But who has time to read books?" he replied. Whereupon I told him frankly he wasn't fit to hunt squirrels.

[One notes that SBF prides himself on never reading books. and if he were one of the big shots that constituted the thousands of clients that Seamans had, Seamans mite call him a baboon.]

In the market session of October 19, 1937. Stocks crashed that morning by ten points or more. However by two or three o'clock of that same day many of these identical stocks were up to their previous prices. Was this the play of genuine and natural forces of "supply and demand"?

The safest time to buy is when the market is dull and trading is going on only in small volume with prices on the easy side. If you buy then, exercise patience (comparable to that of the Insiders) and hold on until activity develops at times taking as long as six months or more for the market to generate. Months later you will get 'the' signal that it is time to sell.

In 1914, at the outbreak of hostilities, stock market prices dropped. In September, 1939, prices soared upward the moment a European conflict became a certainty. Developments in industry since the last war in sociology, economics, electronics, machinery, politics and finance were of sufficient importance to warrant entirely different conclusions. In 1918 for instance we sent troops to Siberia to fight Communism. In 1944-45 our presidents drank vodka with Stalin and toasted his great country.

Seamans is adamant that the big-guy subscribers to his service which number thousands should never hesitate to sell short. Thus he joins the boy speculator in sowing the seeds of destruction.

i am very fortunate to have a very sharp wife who has seen many a mistake in my trading over 60 years i have been trading. (she has only seen 45 years.) she sees me reading all these old books and throws up her hands and like Don Quixote's wife she burns them while I rest.

Vic's twitter feed

Feb

19

Snoring as a fine art

February 19, 2023 | 1 Comment

Snoring as a Fine Art: see War and Peace, General Kutuzov could have snored with all the bulls on S&P, bonds, gold today.

"Snoring as a fine art": desite the enemy's ardent attempt to scare all bulls to oblvion, S&P, bonds, and gold ended close to unchanged or up. a typical way to force speculators to lose much more than their entitlement.

"Snoring as a fine art": bulls in bonds, S&P, and gold subjected to terrible warfare and mark-to-market loss during lows but all markets ended unchanged or up on day. A typical way for the bigs to make public lose much more than their due. (and snoring remedy)

Vic's twitter feed

Feb

14

Many markets are near 30-day highs but haven't breached it. crude, bonds, S&P, gold to name a few. is there a forced of destiny that pushes these markets to set significant extremes when they are close but now quite there?

little things matter in super bowl and market:

The Little Things You Do Together

Chief's coach banned players from watching Rihanna halftime show. i.e., it's the little things that make a win, and shades of Rene Lacoste who was quintessentially focused on the next match period. also Ted Williams. also me when I played squash.

let us reiterate our stand that we must continue the fight against inflation, thereby assisting 30-year bonds. (whatever the perfect father wants.)

Lobogola lives:

S&P refused to set its required 20-day high (for 8 consecutive days). should make the "usuals" teeter to bear.

Vic's twitter feed

Feb

11

is there one general factor, i.e., one market, which impacts all other markets? and does this general factor change within day and between days?

what is reason that the bulk of the consumer products companies - especially Disney, Amex, and Gillette, and the professional sports leagues - are uniformly agrarian? is it in their self interest? or just the training that their top execs get at Harvard and Yale?

a typical article. but i noticed this much earlier. their Hall of Presidents, e.g., has always been a platform against those who admire enterprise.

Disney World was our destination. What I found could be the end for a beloved American company
Massive layoffs at Disney are unsurprising.

a nice, archetypal way for the public to lose more than they have any rite to lose. On thur, crude was the least volatile of any commodity or itself. its total range was 50 pts from 77.50 to 78.00. and the moves between half hours was 20 pts. friday crude moved 250 pts from 77.50 to 80.00 from 2:30 TO 4 EST.

invaluable advice from the great Bill Tilden: (1) Keep your eye on the ball. (2) The body must be at right angles to the net and the shoulders parallel to the line of flight of the ball.

(3) The weight must always travel into the stroke that is from back foot to the front foot. (4) the shot must never be hurried or cramped. Match Play and the Spin of the Ball. Bill Tilden was considered the greatest tennis player ever as of 1930.

Some interesting market advice was given in his classic article, Pace and Speed. "Speed and pace are two very different things. Speed is measured by the time required by the flight of the ball thru the air. Pace is the momentum (speed plus weight) with which the ball comes off the ground from its bounce. It is the solidity of the stroke." one should compare this to the velocity of the price change of a market. that's speed. but pace is the volume behind the advance.

Vic's twitter feed

Feb

7

an interesting hypothetical: what would happen if Flor. Gov would announce that he will not run in 2024. i would guess that 45 would take the lead of now leader "the guy". and the chances of R's winning the election would drop from 51% to 45%. most important S&P would soar.

free associations: two usefuls jim chanos and Mohammad el Erian: pockets of absudity, worthless pieces of paper, gross margin higher than tiffany, "the best father I know", "agree with larry", "as you know, i was calling for a 50-basis hike."

estimated bet on super bowl is 7 billion - estimated on world cup is 60 billion. big industry in spotting fixing in it. the estimated volue in e-minis is 400 billion a day. perhaps same in spiders. which field has more chicanery?

Vic's twitter feed

Feb

6

one has been wrestling with the question, which many put to me to embarrass me over the weekend, when we will hit an ATH again. it's been a whole year. since 1996 there have been approximately 30 days out of 8000 that have lasted more than a year without. from 1996 this would be extremely bullish for S&P, and crude. but from 2022 very ambiguous. for gold the stats are very encouraging - bullish now at $1878. So I turn to books I have read over weekend for long-term foundation.

Verdi A Biography by Mary Jane Phillips-Matz. one learns about every respect of Verdi's day to day life with not one iota of info about his music. Its particularly good about his Menage a troi with Stolz and Strepponi. How the wife suffered with his brutal behavior. and how it was routine for Verdi to leave 50,000 francs in his wallet in shared hotel room with Solz and how Verdi, one of richest men in Italy when he died in 1901, was very generous throughout his life except for the conductor Miriani who he decimated for bringing Wagner to Italy. Much more harmonious and enjoyable is the Life & Works - Giuseppe Verdi by Siepmann, et al.

Memoirs of a Superfluous Man by Albert Jay Nock. this book which honors Jefferson, Rabelais and Artemus Ward is the perfect antidote for those who are dissatisfied with the present milieu and a preventative for going a gaping with strange Gods whose blandishments go against traditions of their culture and discipline. Much closer to home is The Travels of Marco Polo and how a Venetian merchant was able to learn about and prosper from Asian cultures except the Chinese.

Robustness and Evolvability in Living Systems by Andreas Meyer. distributed robustness and not robustness of parts is the key to stability. a brilliant author's exploration of genetics, biology, and chemistry with much extensions to our field.

much talk about bias especially from the big 2 newspapers. but left out is the incredible ratio of pro "guy' to anti golfer articles and reports of former mayor's site. amazing that they persist in this when one would speculate that 50% of their users are neutral. thus the business site joins the professional sports leagues and the 3 letter agencies et al in agrarian activity.

AllSides - Don't be fooled by media bias and misinformation

the guy pulling out to clear lead in odds of winning which is very long term bullish as more capture and consilience with all the agrarians harmonizes.

Marco Polo was a great inventor but was very calm didn't seek out adventures but was a wayfarer as he brought back to Venice gunpowder, spectacles, paper money and numerous maritime inventions of his own. There is a modern day counterpart. Hobo Keely. that's Hobo Keely who traversed 30 separate countries and left every one better off and met all his responsibilities to his noble bosses while not refraining from prurient activities. For those new to the Hobo i would refer you to Daily Speculations where he has chronicled his travels almost daily for 20 years.

Like Marco and Odysseus who were gone from their homes for 20 years, they were not reconized when they came back. and worse yet, all sorts of moochers were living in their home. Hobo has found home stolen or burned down, be it ever so humble even if it was a pipe.

Vic's twitter feed

Feb

4

query of the day: we know that the more trouble it's in, the better the stock market for the future looks. what politician is like that with his odds constantly increasing while the backdrop gets worse and worse?

and the more useful idiots who make the rounds and who have always been bearish and love to predict a devastating fall is ahead, the better it is. the upside down man was correct in saying his partner never had a rite prediction.

as prof does his thing breaking thru unprecedented 5 consecutive Sogi's and constructals, we note gold at an 18-day low down $40 today, and coffee has very quietly dropped 20%. and scarily the European stocks refuse to harmonize up with US stocks. crude touched $74.

Anything You Can Do I Can Do Better

the futures markets refuse to be outshined, in the old days of the pits it was more obvious but i dare say not more prevalent.

How the NFL Cheats: A Five-Part Report

Victor Niederhoffer Presentation

Stout-Hearted Men - South Wales Male Choir (Cor Meibion De Cymru)

from shirtsleeves to shirtsleeves in 30 and 2 days. 2 days gold at 200-day high at 1967. was at low on 6 Jan at 1870. now back to low at 1875 in two days. guaranteed to happen: "let's churn and create liquidation."

The former Ivy prez joins Boy Rasmussen and other chronic bears but this time will not be kicked out for 30 to friend. "Boy Rasmussen" going to Dodge before the others get their first and lower the price. See The Good Old Boys by Elmer Kelton.

Vic's twitter feed

Feb

1

S&P maintains its record in jan 2023: since 2011 there have been 714 separate 20-day highs, of a total of 3118 trading days, that's 23%. in jan 2023 there were six 20-day highs of total of 22 trading days.

there is much adulatory talk about Paul Volker. how current chair admires him and wishes to follow in his footsteps. Having met the tall one at Larry Ritter's bedside and studied his record, I can say that nothing would be worse.

The tall man was Chair from 1979 to 1987. During his tenure unemployment, fed funds and the inflation rate started at 5%. they each increased gradually over the next 3 to 6 years to 10%. Interest rates on long term bonds reached a high of 18%, and the stock market performed dismally until the fake doc Greenspan took over.

dismal stagflation and misery was bound to happen . Mr Volker hated technology . he didn't use a typewriter , computer or tv or tape recorder. with a view of stamping out production and controlling the economy by reducing potential supply of goods, the misery was guaranteed.

correction: during his first four years the S&P was relatively constant, was approx 100. during the last 4 years the S&P doubled. perhaps the S&P anticipated the opposite approach of Mr. Reagan.

Vic's twitter feed

Jan

31

Jensen on Galton

January 31, 2023 | Leave a Comment

Francis Galton

GALTON, FRANCIS (1822-1911) If any figure in the history of the behavioral sciences can be characterized as an original genius, it is Sir Francis Galton. He never held an academic appointment, yet he is rightfully claimed to be the founding father of differential psychology, of psychometrics, and of behavioral genetics. His creative efforts presaged almostall of the major theoretical issues under investigation in these fields in the twentieth century. Few scientists have had such wide-ranging andlasting impact.

Also:

Galton’s Legacy to Research on Intelligence

Jan

30

there has been a remarkable increase in wealth so far in 2023. jan S&P is up 3%, long term bonds are up, gold is up 11%, nikkei up 10%, dax up 7%, copper up 10%, bitcoin up 50%, sugar up 10%.

perhaps this is greatest increase in wealth ever. note that jan 2023 ends with five consecutive 20 day highs in a row. and to top it off regulatory capture for 2024 is ascending with the guy now leading in the odds. perhaps no consilience that big guy is up 50% in odds.

there will be talk soon about Jan barometer. of course it will be untested. problem with it is that in 2009, jan sp was down big. the next 11 months were up 55%. conversely in 2001 big reverse from jan S&P up 5% to down 25% for the year.

it can't go up steadily, or the public will not be wrong footed. indeed the regularities call for a down feb after a dipsey doodle in the first tow weeks of Jan.

putting it all together i find that when jan S&P is up, the average for next 11 months is up 6%. similarly when S&P is down first month, the average change is up 6%. using bonds as a barometer we find similarly random moves to end of year.

all results are from 1996 to present. there is also the problem of ever-changing cycles and the low power of any study with 26 meager observations.

Vic's twitter feed

Jan

26

The first chart needs mouseover code, but otherwise…

An Analysis of Deaths in U.S. National Parks

Charles Sorkin comments:

Before I even scrolled down to the horizontal bar chart, my guess for most likely cause of death was "car accident." The bubbles with the highest death frequency are the ones with extremely high road traffic, such as Yosemite, Great Smoky Mountain NP, and the Blue Ridge Parkway. I'd expected that the super-remote parks, like North Cascades and Denali would be more death-prone, but perhaps visitors are far more prepared for contingencies.

H. Humbert writes:

A man seems to have killed himself or slipped into one of the boiling geysers in Yellowstone this past summer. His foot surfaced a few months ago.

Having hiked pretty extensively in Yellowstone, I can attest to there being more danger from falls than grizzly bears. You can be hiking along and all of a sudden find yourself on a cliff.

My biggest fears when hiking have been lightning (when hiking on a ridge with a quick moving summer storm rolling in) and trees — as in being in a lodge pole pine forest trying to get out and over much deadfall and the wind picks up.

A few of us were wandering far off trail, exploring mud pots and geysers. All of a sudden the ground started sinking under me. Fortunately I reacted quickly and alerted the rest of the group. That was way scarier than the wet grizzly paw print we came upon one time.

Most park visitors don’t venture far off the beaten path which is why drownings and falls are the leading causes of death. Those who do venture out tend to be more prepared and knowledgeable. Most of the time.

There is an older gentleman who does a lot of off-trail hiking in Yellowstone to see wildlife and he records his hikes. He seems to have mastered the art (and science) of wildlife spotting while keeping himself safe.

Shortly after he did this hike, he did another where he had to make himself scarce from two grizzlies. I learned a lot by watching what he did to stay out of harm's way.

Zubin Al Genubi connects:

The category Death by GPS has some lessons for quants who don't look up and around.

Big Al adds:

An interesting fist-person read:

‘That Girl is Going to Get Herself Killed’

There is risk in the wilderness — even in mild adventures — and yet we still seek to reason with it, to assign order to it, to control it, and to tempt it.

H. Humbert responds:

Thanks for the read, Al. It is spot on. I would add that even when we are careful and respectful and experienced, anything can happen. In the wild, especially a place like Yellowstone, change is constant so what may have been safe last year may not be so stable this year. Even for Stan Mills who is super experienced, respectful, and cautious, he found himself between two grizzly bears. As he pointed out in his video on the incident (not the one I linked to), when two bears meet, chaos can ensue and he would have been right in the middle of that mix if not for his swift action and a whole lot of luck. For those of us bit by the wild bug, we do tempt it. Because hiking in these places offers a “high” that is almost impossible to obtain any other way because when you are in the wild you have to be so aware of your surroundings that there can be no space in your head for anything else, and you feel and hear and see more of everything. I call it being in the complete and total present tense. But I have no illusions about trying to order or reason with it.

Jan

24

>(1) i was often beaten but i now ask myself if each of the defeats which fortune did not spare me was not inflicted at the very moment that it was necessary. (2) if i have sometimes beaten a Tilden or Borotra, it is because i have willed with all my forces to win, mainly and necessarily a meticulous preparation.

(3) on the court a player should always be on his toes. one should never face the net. (4) It is not a rapid movement which allows of imparting a lot of speed to the ball but a long and supple movement carefully executed by taking all the necessary time.

(5) one must be patient and convinced that serious and conscientious work will always give the result which ca be reasonably hoped for. progress for me meant placing my feet better and more rapidly. that made me 15 points a game better.

(6) i never play a stroke standing still but always by drawing nearer to the ball and going beyond the point where I struck it. (7) never be immobile but take up a good position immediately for playing the next stoke. (8) "stay calm above all" - Lacoste on Tennis.

Vic's twitter feed

Jan

18

prob of bicyclist winning rises to 21%.

Logic of Belief Revision

with all the talk about how everyone at the fed is on the same page and is locked into raising rates, the real determinant of their activity will be how the bicyclist is doing and what will help him. apparently they feel that hawkish is good for him now with the S&P harmonious.

The investment biker joins el erian and Mr. Wonderful in that special category of usefuls.

the good news for S&P is that the Ray-Ban bicyclist has advanced to 22.5 % in prob of winning. as mentioned, the more he's in trouble the better he gets, like the S&P.

very good news for the bicyclist: He shows that he has at least 12 more years of life expectancy by getting up from floor without using hands or floor or fixed object.

everything at 1-month high since dec 2: S&P, crude, bonds, gold. fortunately, the Fed is always 3 months behind the form. soybeans at 6 month high also.

Bullard: "I told you so":

Simon Wilding The Policemans Song Pirates of Penzance

Huey Calloway, The Good Old Boys: got to get the herd to dodge before the others get their first and lower the price:

Jim Rogers reveals the 'biggest risk' in 2023, as well as 'cheapest assets'

Vic's twitter feed

Jan

14

how many disparate crucial things have been withheld routinely until after elections, starting with Pfizer having a vaccine before 2000, and the son, and this and so may others. apparently this is not ephemeral as prez prob down by 4%.

if only there was as much grief when a businessman who has enriched the masses with beneficial products passes away, rather than Hollywood stars or football players, the world would be a better place.

Schelling on microbehavior and seating arrangements:

Micromotives and Macrobehavior — Thomas Schelling on the Locks and Meshes of Economics

Have you ever paid attention to the seating arrangements at different venues? People are willing to pay good money, for instance, for front row seats at a concert hall, theater, or sporting arena. In fact, students pay even more money to attend college. Yet when it comes to their seating patterns, many seem to do just the opposite, congregating instead around the back of their lecture hall. It goes without saying that different people apply different rules to different settings.

are the seating arrangements like behavior of speculators deciding when to bring prices up to the next ten level? can one predict based on the behavior? when did specs decide from the seating at the 70 level open to seat themselves above the professor at the round?

tremendous increase in world wealth recently - oil, grains, stocks, bonds at one-month highs - some close to 6-month high - the Fed is always 3 months behind the form. talking about fight against inflation. what's the truth? all political.

Vic's twitter feed

Jan

10

Warnings galore

January 10, 2023 | 1 Comment

warnings galore amid predictions of rates above 5%. as the old timer said, when the brokerage houses are most bearish, that is time for "professor". one wouldn't be surprised is sogi is able to drink some Kona today or tomorrow.

with unanimous predictions of drastic decline in rates, bonds at 50-day high.

"It is only by buying when surface conditions show stocks to be unattractive and by selling when surface conditions are attractive to buyers that one may graduate from the ranks of the lambs." Beating the Stock Market by McNeil, 1926.

lancet study says for adult males above 60, chances of dying is 0.00013 if you dont take vaccine. cox hazard ratio non-significant.

the bed rock is killing inflation regardless of the 1929 where they killed everything.

the Gray Lady is concerned that rate increases will hurt their man in 2024 and be inversely correlated with income of persons.

Vic's twitter feed

Jan

2

I do not focus on foreign currencies in my trading. And there are people here, such as Mr. John Floyd, who are far more knowledgeable about FX. So some of you may find these thoughts a bit simplistic; keep in mind I am an amateur!

I believe that a factor that makes a country's currency attractive to investors is the success (or lack thereof) that foreign investors have investing in the country in question. We can gauge this success by using ETF's that specialize in particular countries. For example SPY measures the performance of stock investors in the US, while EZU tracks investing in Eurozone stock markets.

What do we see? In recent months EZU has been performing better than SPY. For example in the last 6 months of 2022 SPY had a total return of 2.03% and EZU 9.56%. For 2022 as a whole SPY -18.38% and EZU -16.67%, two ugly numbers, but EZU did better. (These numbers will change between now and Dec 31, but not by much).

In my view this kind of comparison (especially given that Europe did poorly the previous few years, so it's a remarkable turnaround) will attract additional US investors to Europe, strengthening the currency. That is why I am bullish on EURUSD for the month of January 2023.

Bud Conrad responds:

Your logic is that if the stock market of a country rises, the currency of that country will rise in exchange rate. In the early days of this Speclist, the chair would ask me if I had "counted" the historical experience, which you cite for the last six months and year, but usually you need something like three cycles of inflection to get confidence.

The more usual comparison for currency strength are the Interest Rate Parity, using the futures market expected exchange rate and the difference in Interest rates.

And there the International Fisher Effect, also described here.

Often international traders look at trade balances for the country that has a trade surplus to be more attractive so the currency might rise. Trade surpluses mean they are a lender and not in debt to other countries. The US is the world's largest debtor, but the currency has been doing well.

John Floyd writes:

Doc makes the broadest, cleanest, and most accurate point about what drives currencies: what are expectations for return by BOTH domestic and foreign participants, and how does that drive investment flows into equities, FI, FDI, etc, which shows up in the BOP and Capital Account - on the other side of the ledge is the Current Account and the Errors and Omissions.

Admittedly I don’t know much about currencies and this is the area I know least about, but flow data is well researched and document by many at banks, independent research firms, IIF, IMF, BIS, etc. One challenge is it is often very much lagged, so Doc’s idea of looking at actual market instruments makes sense, and this is often particularly useful for emerging markets.

Capital account flows can fund a current account deficit for a very long period of time. Look at the US now or look at the Asian Currencies pre the crisis: errors and omissions become important given capital flight, particularly EM. Think Russia pre ’98 and Swiss bank accounts, etc.

As Doc well knows infinitely better than me, we need some more data and this can all be tested.

More broadly, outside of equity flows, Bud’s point of interest differentials will drive some capital flows. Also consider FDI from Europe to North America to diversify dependence on European energy costs and to friend shore manufacturing capacity.

And I would be remiss to not mention Italy (sorry Doc). Italy is in a Euro straightjacket that not even Houdini could get of. ECB is tightening with inflation at 10%, Italy 150% debt to GDP, Italian per capita GDP is barely higher than when joined Euro in 1999, Italy needs circa $250 billion in funding in 2023, 10 year yields in Italy up from 1 to 4.5%, all Italy issuance past few years was essentially bought by the ECB. This is not politically sustainable. Just look at the evolution of recent German politics. The ECB’s TPI is there but is intended for temporary dislocations and will require Italian political concessions. Oh and Italy is 10x Greece and the world’s 3rd largest sovereign debt market behind the US and Japan.

Read the full discussion here with additional contributors and charts.

Dec

27

The market has always been a discursive struggle between the bulls and the bears. A system of oppositions that one might think, would logically or functionally negate each other. Of course, the relationship never stays linear for long and the inevitable convexity leads to a Hegelian resolution of thesis and antithesis.

The dialectical tension between an "impending" (but reluctant to manifest) recession (inverted yield curve) and a resilient economy (Q3 GDP +3.2) and labor market (unemployment 3.7%) underscores the struggle between the "higher for longer" bears, and the bulls who believe in the equivocation of "pause" with "pivot."

A reactive Fed will continue to focus on a strong jobs market and keep its tightening bias, which WILL inevitably cause a deep recession; however, the recession won't come "soon enough" for the Fed to save the day. And, the seemingly gradual descent into negative growth, will allow the recession trade to dominate its opposition.

Larry Williams responds:

The actual economy down but not out or negative:

Gary Phillips replies:

i get what you're saying. (perhaps the economy is strong enough we never have to endure a recession in 2023.)

but, methinks you're missing MY point: the longer the economy "holds on", and the longer it takes for a recession to rear its ugly head, the longer the Fed continues QT ( good news is very bad news). on the other hand, if there was an impulsive and deep, drop in growth, (bad news would be welcomed with open arms) the Fed would be more inclined to pause or pivot sooner (de facto put).

Read the full discussion here with additional contributors and charts.

Dec

22

Click the chart for full view:

Larry Williams responds:

Or this:

Jim Cramer breaks down fresh charts analysis from the legendary Larry Williams

Dec

22

Mr. Wonderful

December 22, 2022 | 1 Comment

correct me if I'm wrong : Mr. Wonderful received 15 million to promote SBF + 3.6 million to cover his taxes: he invested 15 million in crypto and makes a big deal about losing 15 million against 18.6 received. amount of money that was lost by those who were influenced by him is staggering.

somehow Mr. O'Leary should not be on the committee to uncover missing money for those who list billions.

thinking of O'Leary vehement defense, i compare it to Stockholm syndrome, "he doth protest too much, put a thief on a horse and he'll gallop." this picture it best: Willie Sutton disguised as policeman in front of bank he robbed. "how could you ask an officer to violate law."

Vic's twitter feed

Dec

14

i have had the pleasure of reading or listening to 1 book a day for the last 4 years. here are the books i find the most educational or enjoyable that i listen to about once a week.

The Time It Never Rained
Don Quixote
On the Origin of Species
Master and Commander
Americana: A 400-Year History of American Capitalism
American Dispatches from the New Frontier
Infrastructure: A Guide to the Industrial Landscape
Benjamin Franklin: An American Life
Heroes: The Greek Myths Reimagined
The Art Of Travel: Or Shifts And Contrivances Available In Wild Countries

all these books are highly recommended and great for education and mollifying anxieties. All i listened to on Audible (i have 470 books ordered from them) except for Origin, Benjamin Franklin, Art of Travel and Infrastructure.

Vic's twitter feed

Dec

14

revelations from start to finish and duration of many years:

Crypto Critics Corner: Sam Bankman-Fried Arrested

as mentioned family frauds are the most difficult to unravel. query: why is quickbooks considered an inappropriate accounting system to a company? it seems very useful to me.

Vic's twitter feed

Dec

11

Fish in the sea

December 11, 2022 | Leave a Comment

thanks to all who wished me happy birthday.

Someone in a Tree - Stereo - Pacific Overtures - Original Broadway Cast

there are so many fish in the sea. five declines in row, followed by a rise, decline. 22-day low since nov 8. in honor of my 80th birthday, 2 patterns both very bullish, t's of 4 five days later. program originally written by Sue and me in 1979. "i was younger then." still here.

The Mikado (Finale)

fish in the sea. last 2 FOMC meetings witnessed S&P down more than 100 big sp each— the serial correlation is 0. on a favorable note the Ray-Ban bicyclist is up to 23% prob of winning versus 12% 2 weeks ago.

Vic's twitter feed

Dec

11

the most demoralizing recent fraud I was victimized by was particularly disturbing as it involved my books which is a tribute to my parents who had a library of books even bigger than mine since my father was paid by all the publishers to thro books in the river but he saved them.

the fraud inflicted on me was a big con. (1) i received a call out of the blue: a book seller told me that I was buying lots of his books so would i mind if he came over to look at my collection. (2) he recommended that I sell my books at a well known dealer out of state.

(3) the book seller i had done business with but she was in mourning — a friend was very sick. she sent me one of her most trusted lieutenants to go thru my collection. (4) the lieutenant told me my books had mold and that i should send them to her principal so that they could be restored and evaluated.

(5) the new book seller in a nice touch told me not to worry too much about it as the mold was not particularly damaging. he also sent me a video of his father who was a very venerable professor like my father. i took aubrey to visit the old book seller.

(6) i received an offer for my books for about 1/5 of what I paid for them (i had held them for an average of 20 years). seeing all my books presumably with mold and taking account of the tragic situation of my book seller i accepted the offer in haste.

(7) on the train home i began to rethink the situation. (8) i met the new bookseller on the train and asked him why he was at the meeting. he said how was he going to get paid if he wasn't involved?

(9)the next day i called and offered 25% more than the accepted price to cancel. the old book seller (he or she) said that they couldn't accept my cancel and offer since the books were already in play. (10) there were some other turns in the big con. they offered to send me half the books back for a price. so I would be assuaged. but they were the remnant.

i cried about my idiocy for several weeks and haven't gone back to my library in 2 years as it's too painful.

one lesson for the current excitement about crypto is never to let your goods out of your possession. also never accept a recommendation from a celebrity or friend without asking what their piece of the deal was.

Vic's twitter feed

Dec

7

If Timing in mkts is everything - I mean everything - how can one improve it?

Few yrs ago, there was this mixed martial arts boxer called Chuck Liddell. He had amazing timing like no other one else had - and was mostly a counter-boxer. Eventually others figured him out but he has his run. He observed his opponents carefully- - and in the right moment broke the pattern and leaped forward when his opponent didn't expect it. Same parallels to trading mkts perhaps?

a - observe everything
b - develop a bit of courage for the leap (but only after a and plenty of practice)
c - practice.

William Huggins responds:

reminds me of Miyamoto Musashi's exhortation to his students that breaking the opponent's rhythm was the most important part of competition. He suggested a number of techniques (fight with the sun behind you, chase opponent onto uneven ground, stab at the face, etc) but I wonder if those are of limited applicability when squaring off against faceless (and innumerable) market-based opponents simultaneously.

his Book of Five Rings is hundreds of years old and thus free everywhere.

John Floyd writes:

Extending on your martial arts analogy….and bringing in the law of everchanging markets…timing is improved in terms of outcome and consistency if one recognizes and can adapt to prevailing conditions, using experience and intuition, and what tools to pull out of the quiver and employ.

This article from one of my teachers talking about my esteemed dojo mate Paul Williams is a worthy read on an application of timing.

Zubin Al Genubi adds:

One of Miyamoto's strategies was run, then suddenly turn and attack while fleeing. I've found it a useful trading strategy. He would also arrive to a duel early, or late, throwing off the opponent's timing.

Paolo Pezzutti comments:

Intermarket relationships can provide good timing. For example when bonds print a new 20-day it is quite bullish for stocks over the next days. Buy signal last Friday at the close. Since Mar 20 holding 3-5 days T-score up to 4. Last 10 trades after 5 days all positive. (Chart on TWTR.)

Dec

7

Watching Victoria via PBS Masterpiece sub, and it's shown that, during the 19th century, one treatment for syphilis was basically a mercury sauna, inhaling the vapors - yikes!

The history of syphilis is an interesting case for seeing how quack medical treatments, such as mercury, were applied and killed people even more quickly. Of course, one shouldn't judge too harshly as they were treating things of which they had no understanding.

The relevance to trading is that humans have an impulse, when confronted with challenges they don't understand, to resort to superstition and to believe anything that is claimed with great confidence.

Penny Brown notes:

Flaubert took the mercury treatment for syphilis and as a result his tongue turned blue.

Laurel Kenner adds:

Qin Shi Huang, first emperor of China, drank mercury-infused wine to attain eternal life. Rivers of mercury surrounded his burial chamber, a depiction of China. Qin died at 49.

Gyve Bones writes:

We saw examples of that in the recent pandemic. At first "masks don't work. Don't wear masks." then… "Everyone must wear a mask at all times, even alone outside or in a car." Then "The virus stops dead in the vaccinated person, who will not get Covid, and won't spread it to others." then… "Anthony Fauci contracts COVID three times, but is certain it would have been worse had he not been quad-jabbed."

Now there's this disturbing study which shows the effects on infant cord blood and their immune systems from mothers who have been infected with COVID.

Henry Gifford comments:

The early instruction for people to not wear masks was so that security cameras could see people’s faces. The police seem to really love security cameras with an enthusiasm that strikes me as going above and beyond any usefulness to “fight crime”.

There was the time a landlord in NYC put a camera outside a tenant’s door to prove if the tenant was using the apartment as a “primary residence”, and would therefore still be entitled to rent protection or not. The tenant’s boyfriend put bubble gum on the lens and was promptly hunted down and arrested and charged with every crime the cops could think of, with an enthusiasm certainly not caused by anyone’s love for a NYC landlord.

Not being seen clearly on security cameras was, if I remember correctly, sometimes even stated as the reason to not wear masks, which made me wonder – if they think masks work, more people dying is OK as long as people can be seen on cameras?

Pamela Van Giessen responds:

Henry — There exists decades of research that show that masks do not reduce transmission. I have yet to see meaningful evidence (research or real world) that shows that they do work. The current situation in China would seem real world validation of the lack of mask effectiveness. Lockdowns don’t seem to work much either. Most people don’t die from covid either. They don’t even get very sick.

Henry Gifford writes:

I tend to believe things if they can be measured, if the measurements can be repeated by others, and if they can be explained by the laws of physics. I tend to not believe anything not meeting these three criteria. As the owner and fairly regular user of over fifty measuring instruments, the measuring part often means measured by me.

Continued…

Dec

4

that third person - who asked re SBF, "why aren't you in jail you piece of —" - just won national merit scholar. one is very proud. i've known that 3rd person for a major portion of his life.

why do prices fluctuate so much? to give speculators hope and make them trade excessively.

seems to be sapient piece except for refusal to acknowledge that 90% of spending actual or promised was to bicyclist — which is expected on mayor's site:

11 Hours With Sam Bankman-Fried: Inside the Bahamian Penthouse After FTX’s Fall

also the secret back door exempting Alameda from margin requirements that others had, and fact that FTX invested more in venture capital firms than they invested in him. but mostly how is a person left with only $100,000 if his parents and friends took 87 million from co?

guess they're saving the reduced employment for close to elections. the 44 strategy.

calling out to Mr. E who always lives even when feet first, who always said that he spoke to the then Pres and he was saving the employment numbers for the coming election. we miss him greatly. the Falstaff and always ready to take care of the woke.

finally verification that FTX gave comparable money to R's as D when he gave 10 million to 46 campaign and promised 1 billion more. he said he gave dark money to R's but was it comparable to "second biggest donor to d's next to palindrome"?

here's a pretty kettle of fish: two small daily declines but from a big x-day high but last small decline had a tremendous rise from 9:30. like everything it has happened before but let's say 5 times in last 11 years.

where's it going. not much to make the professor happy. to add to kettle we have bonds at big y-day high putting them all together into kettle — only happened once in last 10 years.

Vic's twitter feed

Dec

1

DealBook to ask SBF "tough questions". perhaps 1 million investors and their counselors who have lost (10 billion?) will be not as forbearing? i would ask verification of his interview that he gave as much to both sides of the aisle. apparently according to interview with Asian reporter he gave money to other side darkly so that he wouldn't be ridiculed by agrarian sources. either way it's deception like the angler fish. i'd also ask him to expatiate on his statement that he doesn't read books.

Mr. Gitarts or Mr. Aiken who knows infinitely more about the crypto than I: "what questions would you ask SBF at end of deal book conference?" to the observer he seems to be the Houdini and the spider of deception.

a third person who knows as much about crypto as anyone answers my query, "why aren't you in jail you piece of — ?"

Barry Gitarts writes:

Yes, SBF was an outright fraud, but there are other things brewing in the space that have been banned a long time ago in traditional markets but have emerged again in crypto.

Remember the bucket shop? Well it's back as a crypto protocol. It pools investors money and will offer a trader a slippage free trade, the trader gets to choose when they enter and exit, however the pool charges 10BPS on the way in and on the way out, they charge double digit interest rates on the position even unlevered and offer up to 150x leverage which of course leads to liquidations.

So how has it done? Since inception in 2021, traders have lost $40m to this pool, and that is not counting interest, trading and liquidation fees. The pool currently holds $375m in assets, one year ago it had $100M in assets.

One would think traders would leave the venue after consistently losing, but trading volume recently hit a new high of $1B notional traded in a day.

Big Al adds:

The question I would ask is, "Who got those billions that SBF lost?" Mr. Gitarts comments may be a trailhead.

Vic's twitter feed

Nov

22

Markets are teaching me that Freud was wrong about the subconscious and sociobiology is right. The subconscious isn't a personal universe of abstract mysteries revealed through metaphors; it's a biological tool for groups to sort out hierarchies. At some point, how much risk you place on a trade is just a test of your place in the hierarchy of the tribe. Just as kids test boundaries to discover the rules of the tribe, adults make decisions to test their place in it. Making a big bet has more to do with acceptance than greed.

Why? Think of it this way: There is no genetic survival at the group level survival without hierarchy because groups wouldn't be able to effectively organize without a clear chain of command. Upsetting the chain of command puts its entire genetic survival at risk. Nothing gets done if nobody is going to do what they're told. Some must lead, most must follow, or we all die.

The subconscious is how we connect mentally with each other without actually hearing each other's thoughts. Through that mental connection, the subconscious will direct the conscious mind to make decisions that test your place in the tribe.

Doing well in anything fundamentally challenges the structure of the tribe. When we move up too quickly, we can reasonably wonder if the ascension was warranted, and cover our denial through arrogance. There will be times the temptation to make bets against our own interest because the tribe is always questioning your rank and right to exist through your subconscious.

The temptation to make a trade against your own personal interest is just the tribe's way of testing if you belong where you are. The market is an ideal forum for reordering or reinforcing the hierarchy. Making any bet that can lower our place in the tribe is an admission that we can't find consistent asymmetrical returns. Nature uses the markets to sort out who belongs where in the tribe.

After actively trading for two years I understand that my subconscious is not my friend. It's a biological tool that evolved to serve the group over myself. Only by consciously choosing facts do I move beyond factional control. But I also understand the meaning of learned helplessness. Sometimes I'm afraid of what I might learn next.

Bo Keely responds:

nice to read these fresh original thoughts. in addition, anything by the father of sociobiology E.O. Wilson is solid. he is the foremost authority on ants, and my Quaker Army Ants are still pulling the wagon of oats to their nest.

Nov

21

A new post from Laurel Kenner: Annals of Greenwich, Pt. 4: Boxwood Butchery

Nov

20

I believe the mad dog and mad money are both in my opinion useless with their predictions but mad dog genuinely likes his viewers while mad money has contempt and arrogence in his seemingly vitriolic opinions. mad money hates his listeners and Wall street unless they are part of his investment club. mad dog is harmonious. it is interesting that mad money berates his listeners for not trading enuf. they're too much buy and hold.

important and informative video about FTX from Patrick Boyle. be sure to check out ncz art (a nyse and shackleton painting behind Patrick Boyle who worked effectively at ncz for 5 years). picture of wood nymph who ran alameda on boyle's video.

Vic's twitter feed

Nov

17

it is good to realize that just as destructive to the speculator is establishing a position that will not be able to withstand a reasonable fluctuation. take crude down 4.00 to a new 60-day low today. it was a boon to those who don't have to worry about margin. not being able to withstand such a move, which creates tremendous vig for the Bigs, is just as significant a source of loss in magnitude and frequency as the HFT front-running and the big losses with bad fills on the open.

while everyone was watching the finagling in FTX, the infrastructure took the occasion to decimate the longs in crude and S&P with a heads up and minor forced liquidation of the grains.

shades of Alfred Cowles: a reasonably big reversal 4 days in a row with the last down 20 in S&P. the Kona smells so good but just as Sogi brings it to the lips, a ripple knocks it out - temporarily. Sogi's reflexes and surfing is very good since he was an amateur champion and a sports adventurer - so he catches it before it spills into the Pacific.

It is interesting how the two major financial publication don't even mention that SBF was the second major contributor to the D's after Palindrome in their entirely empathetic articles about him. If he hadn't promised a billion more to the D's or if the Good one Forbid he contributed 98% to the Outs instead of 98% to the ins, there would be a diametrically opposed story. we can forgive the Mayor's site because Fellow Travelers congregate there. But why should the WSJ suppress?

Vic's twitter feed

Nov

17

Commonalities

November 17, 2022 | Leave a Comment

one thing common to the Madoff situation and FTX was their close relation with their trading firms. in Madoff's case it was the third market operation that was situated one floor up from the "wealth management". many investors assumed that by front running, profits of the "wealth management" were assured. The proximity of FTX and Alameda supposedly with a Chinese wall between them is an eerie similarity. Bernie Cornfeld's operations and interrelations with IOS was similarly "complex".

interesting article in the wsj about SBF:
The Fall of Crypto's Golden Boy

according to article the boys at the firm weren't interested in money. they just wanted to give it all away. Left out in the article are the things about their being the second largest contributor to D's and plans to give 1 billion more.

Mr. Pater Earle says the situation is more like MF Global than Madoff. but the diffidence, the playing of racquetball in the Catskills, the friendly way Madoff took money from a family friend at a funeral a week before the end, the interconnection between the market maker and trader.

Vic's twitter feed

Nov

17

FTX surprise

November 17, 2022 | Leave a Comment

H. Humbert writes:

I find it amazing that an exchange with monopolistic market making, and no Manning Rule equivalent can ever lose money. As bad as stealing customer funds to cover trading losses sounds, I wonder if there's even worse to come because it sounds so incompetent. However, once again the value of crypto to nefarious actors is demonstrated by the 'asset classes' anti-fragility. Some flavor of the notion of honor among thieves.

Zubin Al Genubi replies:

Market makers can't handle big fast moves, of which we've seen some breathtaking one recently. I believe they are caused in part by the market makers and the ones who are just a bit slower get eaten by the lion. Of course this is sheer speculation on mu part.

H. Humbert comments:

With respect, your model of what a market maker is hasn't existed for about 15-20 years. Market making today is machine driven, speed of light kind of thing, and balanced/correlated across a firm's book. It is almost touchless for the most part.

So for example, if you are a Manning-Rule-free exchange, and you have your own internal market making operation that sees the flow first, you can, at the speed of light, see the direction of the order flow, front run it, sell into it, take the other side of the stupid trades ie the trades that are 'random' going against the flow that you are seeing, see the limit orders and the stop orders and run those etc etc. You see the flow first and decide how to execute against or with it or pass to the punters on the exchange.

It seems impossible to lose money at this and if you don't believe me, look at how few losing days Virtu and Citadel put up and they only get to see about 90% of just the retail flow in equities and they generally can't front run it. They can only decide if they want to take the other side or pass the order on to the market. Imagine if you had no fiduciary responsibility at all and no any kind of rule of best execution.

Anyway I go on and on, but point is, that FTX's Alameda lost money and a lot of it is very strange. Also, I should add, that I know absolutely nothing about crypto.

I can't help but notice that another of Vic's flags is prominent in this FTX story, and that's all the charity work they were doing. All while seemingly running some crazy embezzling thing to cover what? How were they generating these huge losses?

I knew a living human market maker at Schwab in the dot com era. His boss took and traded a single security(I won't name it) and split the rest of the book up. My living human associate got like m-z or something and one day he's long a zillion XLNX. Supervisor screams at him 'What are you and ANAL-IST?"–meaning what ever you think you know, get back to making markets and leave the positions to the buy side suckers. So maybe the losses are from directional market supporting efforts or some such.

Zubin Al Genubi suggests:

Maybe machine/com speed now determines winners?

William Huggins agrees:

can't see why that wouldn't be the case. on a precisely related note, a friend (ex-mit) gave a talk on algos in finance a decade ago, noting at one point how buildings were then being hollowed out to reduce microseconds of lag (i start the clip where its juicy).

H. Humbert writes:

This is one issue with co-location of servers at the exchanges, why it costs so much, why IEX markets a 200ms 'speedbump' to protect resting orders, why dark pools offer some very strange order types, etc etc but ultimately, the winners and losers imo, are determined by rent seeking in the regulations. Ban payment for order flow and Virtu disappears, ban internalization and Schwab has to charge commission, make best execution mean best possible all in price at the moment the order is received and all brokers will institute intermarket sweeps and order flow will go to exchanges, etc.

Stefan Jovanovich comments:

I hope H. Humbert will agree with this comment from the financial bleachers. The anti-trust laws, including agricultural marketing restrictions, have offered the same opportunities for rent-seeking around regulation without having any of the pushback from innovation - i.e. new and better ways to game the system. So, we have an age of inflation at the same time transaction and carry costs for retail customers have gone steadily down.

Duncan Coker writes:

This is a great description of the rent seeking infrastructure or "top feeders" as vic would say. It is all sell-side as that is where the stable income resides. Still as a lowly buy-sider if my choice is to get fleeced by the exchange/locals or the hft hedge funds I think I would go with the later. At least the hedge funds are competing against one other to steal from me. Don't even get me started with the wirehouses. Used to be 100 bp to execute/clear a trade back in the 80s, off exchange that is.

H. Humbert replies:

In the US equity world, which is the only thing I know anything about, the issue that that the HFT shops segment the order flow into smart and dumb and pay for the dumb order flow, which they get first look at and first dibs on off-exchange - through FINRA, which has it's own rules on order handling.

Segmenting the flow makes the rest of the market(not the internalizes, not the payment for flow(PFOF)), both lit and dark, more toxic in terms of adverse selection to resting quotes. This widens the spread, which makes internalization/PFOF more profitable - virtuous cycle kind of thing and also increases the concentration of who gets to see the flow first and decided where to fill.

Given the midterms, I think Chair Gensler has enough political capital to push through some of the rule changes he's been talking about: “Competition and the Two SECs” Remarks Before the SIFMA Annual Meeting

To me, the most likely significant change to get through easily is SEC's own Best Execution rule(amazing I know that there is none currently) and that could dramatically change where orders get filled. We'll see.

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