Jun

6

books read on recent tour of California, Japan, Thailand, Singapore and Hong Kong with Aubrey and his good friend:

Singapore: A Biography, by Mark Ravinder Frost and Yu-Mei Balasingamchow

The Trees in My Forest, by Bernd Heinrich

The Birth of the Modern: World Society 1815-1830, by Paul Johnson

And for music: La Divina - the Best of Maria Callas Compilation

Also, a great book about 200 years of peace and harmony in Japan, The Fantastic Edo Era, but a completely opposite take by Paul Johnson in The Birth of the Modern.

also one terrible book, Every Man a Speculator, by Steve Fraser. the author hates speculation in all forms and writes 800 pages of selected anecdotes with thousands of footnotes to support his biased and hateful review.

Gavan Tredoux comments:

Paul Johnson is not a careful writer, makes too many factual mistakes, often accepts received wisdom uncritically. He writes well, as a journalist would, but I wouldn't trust anything he produced.

Vic's X/twitter feed

Jun

5

back from a few weeks tour of Asia with many books read and museums visited and zoos and botanical gardens and aquariums, and much abalone from many great restaurants. will provide reviews shortly.

Vic's X/twitter feed

Jun

4

today (Wed, 4 June) a very healthy day for sp.

Jun

4

round # of 6000 approaching, sp now at 5973. the octet rule in chemistry: the concentration of stops at rounds. what else causes inordinate concentration? limit orders tend to be concentrated at round numbers. many compounds lose electrons to reach a stable, nonreactive 8. tests show that when a stock breaks thru a round number, it is bullish.

The Octet Rule: Help, Definition, and Exceptions

The Octet Rule is a general rule that is used to describe chemical bonding and draw Lewis Structures. The rule states that Main Group elements form bonds in a manner that results in each atom having eight valence electrons in the highest energy level (sometimes called outer shell). This results in each atom having the same electronic configuration as a noble gas.

Vic's X/twitter feed

Jun

3

I can't find any books from the 1700s. Big events like the Mississippi Scheme and the South Sea Bubble happened in that period. But I can't find literature from the 1700s of people describing markets then. Maybe they had PTSD from having their fingers burnt? I heard Newton never wanted anyone to mention "South Sea" around him. (he lost his pile in the investment)

Stefan Jovanovich responds:

Essai sur la Nature du Commerce en Général, by Richard Cantillon (1680s–1734)

During 1719 Cantillon sold Mississippi Company shares in Amsterdam and used the proceeds to buy them in Paris. Mississippi Company shares surged from 500 livres in January 1719 to 10,000 livres by December 1719; during the same period the prices in Amsterdam went from 400 to 7,000. The daily average spread is calculated to have been between 20% and 40%.

Carder Dimitroff suggests:

Empire Incorporated — The Corporations that Built British Colonialism, by Philip J. Stern

The book provides historical perspectives about British markets and corporate financing. It's not an easy read, but it is fascinating.

William Huggins writes:

there is a collection of "things written afterwards" about 1720 called The Great Mirror of Folly but its mostly moralizing tracts than a steely-eyed review of what went down. keep in mind the experience (a bubble in uk-fr-nl, all at the same time) had profound effects on the market for almost a century afterwards with the fr retreating from paper money and the british passing the bubble act which made it waaaay harder for anyone to raise capital. trading stock largely returned to being an insiders game until the 1800s. GMoF was recently published along with a pile of other primary docs by Yale U press:

The Great Mirror of Folly: Finance, Culture, and the Crash of 1720

I like the goetzmann treatment of 1720 from Money Changes Everything personally. He's got a couple of good recorded talks on it too. for those interested in institutional developments around markets and financial institutions in north america, I strongly recommend Kobrak and Martin's "Wall Street to Bay Street."

Steve Ellison offers:

Extraordinary Popular Delusions and the Madness of Crowds was written in 1841 by Charles Mackay. The first three chapters are devoted to the Tulip Mania, the South Sea Bubble, and the Mississippi scheme. The remainder of the book is about non-financial episodes of irrationality, including a chapter about plagues that I re-read closely in March 2020.

Jun

1

The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources, by Javier Blas and Jack Farchy

In The World for Sale, two leading journalists lift the lid on one of the least scrutinised corners of the economy: the workings of the billionaire commodity traders who buy, hoard and sell the earth's resources. It is the story of how a handful of swashbuckling businessmen became indispensable cogs in global markets: enabling an enormous expansion in international trade, and connecting resource-rich countries - no matter how corrupt or war-torn - with the world's financial centres.

Interview with the authors:

The Most Powerful People You’ve Never Heard Of

Just beneath the surface of the global economy, there is a hidden layer of dealmakers for whom war, chaos, and sanctions can be a great business opportunity. Javier Blas and Jack Farchy, the authors of The World for Sale, help us shine a light on the shadowy realm of commodity traders.

Michael Ott agrees:

I read The World for Sale about a year ago and wholeheartedly recommended.

Francesco Sabella recommends:

Many interdisciplinary insights and very elegant clarity:

The Order of Time, by Carlo Rovelli

May

31

I was browsing the Daily Speculations archive and found this:

10 Things I’ve Learned About Markets, from Victor Niederhoffer

No. 11 is, "All higher forms of math and statistics are useless in uncovering regularities."

Define "higher form". To someone that has just learned basic arithmetic, basic algebra seems "higher form". Does The Chair maybe mean "PhD level" math? Or does he mean that basic "counting" is the only proper way to uncover regularities?

Fazil Ahmed responds:

I think Ralph Vince has explained well, copying from the post:

Certainly in a post-'08 world, quants are out of favor, and for good reason. Most anyone I know who DOES make money in the markets, does so with very simple, robust techniques. Having considered going to quant school, and studied a good deal of it, I finally came to the conclusion that they are simply working with "models." Models of how the world behaves. unlike hard sciences like Physics and such where you can perform a test, come back a year from now, perform it again and get the same results, you don't have this in financial modeling. And I think this is where the quants have fallen short. Models are NOT reality, and they never got down to the bedrock, the reality of what his game is about. Of course it had to fail, and in a large way, at some point. A good rule of thumb is that if I need a computer, if it isn't simple enough to do in my head on the fly in the foxhole after I have been awake for over 100 hours, I can't use it.

Larry Williams comments:

This gets down to there are hard questions: What is the capitol of Montana? Only one answer: Helena.

And soft questions: How many people are in Montana? Varies from hour to hour.

May

30

Perplexity says it best:

The U.S. population is projected to keep growing through the end of the century, mainly due to immigration, even as deaths begin to outnumber births after 203325. By 2055, the U.S. is expected to reach 372 million people, with net immigration as the primary driver of growth. In contrast, China faces a rapidly aging population: by 2050, about one-third of its population will be over 65, and the number of elderly will vastly outnumber children, creating an “inverted pyramid” demographic structure. This aging trend is expected to slow China’s growth and strain its social systems, leading some to describe China as “becoming a nursing home” by century’s end. Meanwhile, the U.S., thanks to sustained immigration, will remain younger and larger than it would be from natural increase alone.

Asindu Drileba writes:

Professor Bejan's constructal law guarantee's that China will go bust on a long enough time horizon. I attribute this to China's rigid political system. Like Daenerys Targaryen said, "Those that don't bend, will break." Professor Bejan's TED Talk.

William Huggins responds:

for entirely different reasons, both Daron Acemoglu (econ Nobel 24) and Peter Zeihan are also in the China-bear camp long term - the former due to hitting the limits of "growth under extractive institutions", the latter due largely to demography (even if his tone is alarmist). Dalio's indicators suggest the opposite but all his data comes from a demographic regime of pyramids, not chimneys or inverted pyramids so i'm not sure his forecast will play out.

May

29

Larry Williams on the Fed, Interest Rates & Markets! What’s Next?
Larry Williams breaks down the latest GDP cycles, shares his predictions on the Fed's next move on interest rates, and analyzes TSLA, NVDA, AAPL, and XLP.

May

28

Street smarts: how a hawk learned to use traffic signals to hunt more successfully

But what was really interesting, and took me much longer to figure out, was that the hawk always attacked when the car queue was long enough to provide cover all the way to the small tree, and that only happened after someone had pressed the pedestrian crossing button. As soon as the sound signal was activated, the raptor would fly from somewhere into the small tree, wait for the cars to line up, and then strike.

Easan Katir predicts:

Next iteration: the hawk will be pressing the pedestrian crossing button!

Michael Brush quips:

Pavlov’s birds.

Henry Gifford writes:

When I was hiking down The Grand Canyon I sat on a rock at the edge of the trail and took out a sandwich and started to eat. A bird came flying from my left side, toward the sandwich in my right hand. I reacted by pulling the sandwich back, to the right side of my head. Another bird came from behind and grabbed it.

Later I heard the birds’ favorite food is tuna fish, which they steal cans of from hikers. They open the can by grabbing it in their beak and flying above the one of the three cabins at the bottom of the canyon where the park rangers live and dropping it on the roof. The rangers have been trained to comply by opening the can and placing it on a convenient rock.

Pamela Van Giessen responds:

Was it a raven? They are particularly smart birds when it comes to getting food out of visitors to the national parks we have visited.

Asindu Drileba writes:

Crows & ravens would make good scientists. Here for example a video of a crow showing that it understands water displacement in different scenarios.

Bo Keely, from the desert:

Yesterday at the meteor crater in Death Valley two crows perched on the rim. They had grown feather sunglasses and asked for food. I went to the car & they followed and I gave them whole wheat bread. Then I got in & drove a couple miles down the road, pulled over to check directions, and they landed outside the driver's door asking for more bread.

May

27

Drawdowns and Recoveries: Base Rates for Bottoms and Bounces
Michael J. Mauboussin
Dan Callahan, CFA

Long-term wealth creation for companies is also heavily skewed.
Hendrik Bessembinder, a professor of finance at Arizona State
University, studied the roughly 28,600 public companies that have been
listed in the U.S. from 1926 to 2024. Key to his definition of wealth
creation is that a stock produce returns in excess of one-month
Treasury bills.

His data show that just under 60 percent of the sample failed to match
the returns of Treasury bills, destroying $10.1 trillion in value
through December 2024. The other 40 percent or so created $89.5
trillion in value. Just 2 percent of the companies produced 90 percent
of the aggregate wealth creation of $79.4 trillion, and the top 6
(Apple, Microsoft, NVIDIA, Alphabet, Amazon, and ExxonMobil) alone
added $17.1 trillion.

Had you been astute enough to buy and hold any of these super wealth
creators you would have suffered meaningful drawdowns. For example,
the lifetime wealth creation of Amazon, a technology company known for
e-commerce and cloud computing, was $2.1 trillion from its initial
public offering in 1997 to year-end 2024. Yet Amazon shares dropped 95
percent from December 1999 to October 2001. The average maximum
drawdown for the stocks of the top 6 companies was 80.3 percent,
similar to the average of the full sample.

Asindu Drileba responds:

This is fairly consistent with the findings of Robert J Frey (former Managing Director of Rentech). He gave a talk titled 180 years of Market Drawdowns. The main point of the talk is that since the 1830s to present, the structure of the market has changed a lot.

- Different political regimes
- Different sets of stocks
- The creation of a central bank (in 1913)
- The advent of electronic trading
- The rise of high frequency trading
- The creation of the SEC (1934)
- Many new regulations
- Different people trading the markets in those 180 years.

But one thing has remained constant in those 180 years: The S&P is in a drawdown 75% of the time. He defines draw downs as a period between the decline from an all time high [where somebody bought] to the point that they break even. So psychologically speaking, 75% of the time, [some] investors in the S&P are in a state of regret. I am thinking that if you can find a way of trading this, the edge will probably last forever.

May

26

I believe every trade I enter will be a loser–that is my most powerful trading belief. That concept keep me on guard and alert. Emotions are strictly Money Management. If/when you are too emotional, it just means your position size is too big for your emotions.

H. Humbert responds:

The attitude will tend to put you in contrarian positions at the best times, the times of maximum fear in the market or towards a stock. What you said is the same as saying "your best purchases are the ones that are the hardest to make." Of course if you recognize that you are a contrarian, at the same time on some level you have faith that the position will work out. It just depends on what level you want to think about it, emotionally. First derivative second derivative stuff.

The point is, with money in the market based on who is, or who is not, playing tennis (times 10,000 investors with their own 10,000 irrational superstitions), there are bound to be mispriced securities somewhere. Our job is to find them. Despite all their spreadsheets, NPVs, TA, back testing and “counting,” investors remain among the most irrational and emotional creatures on the planet. That is a good thing. That has always created mispricing, and opportunities. In essence, trading is about betting against human nature.

Galen Cawley writes:

I would say that thinking in advance that every trade will be a loser does not provide a positive edge so much as it prevents behavioral errors.

1) If you are a completely algorithmic trader, then the question is largely moot.
2) On the discretionary side, focusing on potential losses prevents unforced errors such as overconfidence manifested in the form of both overtrading (size and frequency).
3) Visualizing worst-case outcomes can prevent you from going on tilt during a crisis or during a string of losses.

Asindu Drileba agrees:

I have this attitude too. I assume every position will be a loss. So practically it helps me size my positions modestly. When I am placing a trade. A position is only in two states: a) I am over betting, in which case I may blow up. b) I am under betting, in which case I won't blow up. The only way to make sure that you are on the side of b) is to: 1) over estimate your losses; and then 2) under estimate your wins.

Another reason for assuming that your position is going to be a loosing one is that you are proactive to your trades, not reactive. Reactive means that you improvise when surprised by how things have gone. Of which you may not be in the right head space to make a decision. Proactive means you already assumed the trade was going to loose, so you had a plan ahead of time (when you were clear headed). I, for example know exactly the maximum I can loose on each trade, and it is always an amount that doesn't make me panic. Do I get Annoyed? Disappointed? Yes. But I never panic.

May

25

This morning I finished rereading the classic Atlas Shrugged of Ayn Rand and every time I learn something new; her thought is monumental. I don’t agree with a lot of her ideas and I fully agree with others, but I’ve always found this book to be an impressive catalyst for thought; this is in my opinion her power: the ability in sparking debate.

Rich Bubb comments:

Atlas Shrugged is also available as a 3-part movie. I think the book was better.

Adam Grimes writes:

My opinion on her work has shifted over the years, in a strongly negative direction. Too much of my experience contradicts her metaphysics and epistemology, particularly the rigidity of her rational materialism, and, as someone who treasures the craft of writing, much of her prose lands as clunky and overly didactic. I'm also now unconvinced on the primacy and sufficiency of rational self-interest… but, as you said, perhaps her greatest value is in creating discussion.

Asindu Drileba adds:

Ayn Rand had a reading group called the "Ayn Rand Collective" — Which Alan Greenspan was part of. They [Greenspan, Rand and a "professor"] would meet at Rand's apartment to read every new chapter of her new book. She (Ayn Rand) then fell in love with the professor and they started dating.

After sometime, the "professor" encountered a pretty young student in his own class and he "fell in love with her". The professor told Rand about the affair, but Rand begged the professor to cancel it. The professor then said that he would dump Ayn Rand, and then exclusively date the young pretty student. He said that this was the right thing to do since he was following his "rational self-interest". Ayn Rand got angry, slapped the professor in the face twice and kicked him out of her reading group.

This was a good illustration of cognitive dissonance. Rand thought her readers should practice "rational-self interest" towards everyone else, except her.

Francesco Sabella met a girl:

I was very fascinated to meet a girl times ago who I knew for her philanthropic activities and for her ideas being the exact opposite of Rand; and I was surprised to see her carrying an Ayn Rand book and she told me she didn’t like at all her; it made me think of her ability in creating debates.

Victor Niederhoffer responds:

i would always marry a girl who admired the book. susan introduced me to it and i knew then i had to marry her. it was very good choice.

Read the full conversation.

May

22

I noticed that I know of very few books on the stock market before 1900. I only know of:

Confusion of Confusions, by Joseph De La Vega (1688)

The Art of Investing, by John F Hume (1888)

Are there any books about the market before 1900 that can help me grow this list?

Big Al replies:

Lombard Street: A Description of the Money Market, by Walter Bagehot

Fifty Years in Wall street, Henry Clews

Francesco Sabella suggests:

The Stock Exchange: A Short Study of Investment and Speculation, by Francis W. Hirst

Stefan Jovanovich offers:

The Stock Exchange from Within, by Van Antwerp, William Clarkson

Martin’s Boston Stock Market, by Joseph Gregory Martin

Wall Street in History, by Martha J. Lamb

May

21

If Cobb saw a pitcher more than 20 times, he was able to hit better than .300 (the batting average that now gets you into the Baseball HOF). The two exceptions was Red Ruffing and Waite Hoyt.

Once Cobb saw what you had, he owned you; but he had to see what you had. This explains the anomaly of his doing badly against the "pitchers" who were not, in fact, pitchers but field players - Clark Griffith and George Sisler.

David Lillienfeld adds:

It depends on the pitcher, too, though. Willie Mays commented once that Sandy Koufax would tip off batters all the time as to what pitch he was going to use. A Koufax curve was as wicked as a Koufax fastball to Mays. He said that trying to hit that pitch, even knowing what pitch Koufax had thrown, was "like eating soup with a fork. You just can't do it."

May

20

Which are the flaws of trend following strategies? For me, the markets are homeostatic but not in a strictly way, they are like a thermostat trying to keep a room’s temperature steady. But, sometimes they can spiral into imbalance when people’s actions and beliefs feed off each other.

I’m amazed by how this dynamic of the markets has never been of particular interest in the academic world. It’s years since I don’t put in serious research given my focus on active trading, but unless something changed over this time, The classics wisdom is that markets are (let’s leave the perfectly efficient markets alone) in a perfect world supply demand state, I don’t remember having read of documented positive feedback loops etc, and overshooting and disequilibrium, which are clearly the case. I studied economics and I always found funny how some theories are.

William Huggins writes:

econ is not the right place to learn about markets because the demands of "equilibrium" require us to bend reality into the "preferred" (supposed logical) state. what most EM theorist missed was the friction in markets (adjustment time, imperfect info, etc). but momentum has been documented by financial theorists for decades. you're just digging in the wrong part of the field.

Francesco Sabella responds:

I know momentum has been documented, my point was about my economics classes, where I’ve never read about the topic, but also about how the mainstream academia is built - disequilibrium is not the classic wisdom and not even considered; you’re right that some academics have addressed momentum, but the mainstream economics is still fixated with equilibrium.

William Huggins adds:

econ likes equilibrium because its calculable, and because it approximates a physical science - if only those pesky active agents weren't so concerned about their perception of what matters instead of just obeying economists' assumptions!

in the end, its -hard- to math out the implications of imperfect, changing perceptions among a changing cast of strategically interacting characters when the targets are moving and trading may (or may not) be informed. because of these challenges, most prefer to stick to sanitized general equilibrium models, even if those are basically mathematical masturbation based on definable, stable, continuously differentiable utility functions. people usually find it expedient when modelling to pretend the net impact of all the above microstructure is "random" (its not really random, more like "too complex to model") within some defined distribution, which itself is a fudge but as Bachelier showed in 1900, might not be a bad one (and it helps avoid overfitting your forecast models).

here's are a couple of articles less than 30 years old on dynamic disequilibria (i cited Jegadeesh and Titman years ago so they were top of mind). the first talks about implications for macro, the second for asset pricing:

Towards a Dynamic Disequilibrium Theory with Randomness

Quantum Equilibrium-Disequilibrium”: Asset price dynamics, symmetry breaking, and defaults as dissipative instantons

May

19

Resolving a Paradox: Retail Trades Positively Predict Returns but are Not Profitable
Posted: 18 Feb 2021 Last revised: 22 Mar 2023
Brad M. Barber, University of California, Davis
Terrance Odean, University of California, Berkeley - Haas School of Business

Retail order imbalance positively predicts returns, but on average retail investor trades lose money. Why? Order imbalance tests equally weight stocks, but retail purchases concentrate in attention-grabbing stocks that subsequently underperform. Long-short strategies based on extreme quintiles of retail order imbalance earn dismal annualized returns of -15.3% among stocks with heavy retail trading but earn 6.8% among other stocks. Our results reconcile the literatures on the performance of retail investors, the predictive content of retail order imbalance, and attention-induced trading and returns. Smaller retail trades concentrate more in attention-grabbing stocks and perform worse.

May

18

With long-term investors, short-term traders, trend-followers, mean-reversion advocates, and buy-low-sell-high activists all confident their strategy is superior and showing market success, is this evidence that all approaches work together, or does survivorship bias and misplaced confidence masks that no single strategy truly dominates in today’s volatile markets?

I’ve always been fascinated by the fact that there are investors holding forever competing with traders who do the complete exact opposite and usually one says the other person is an idiot and the same is the opposite haha. (The only time I think I’ve heard of someone praising another’s way of working which was totally opposite of his in this business, was the yearly speech of Buffett and Munger claiming Jim Simons and his team were very very smart.)

Steve Ellison responds:

There are different ways to find an edge in the market, so market participants behave differently. A market maker who uses order flow information behaves very differently from a fundamental investor who believes a company has value that is unrecognized, but they may both be very good at what they do. Probably neither person could do the other's job. It's a big reason why I heed Livermore's admonition to neither seek out nor act on tips about the market.

My observation having seen multiple market cycles is that bad news spreads fast and is known quickly, while good news often occurs so diffusely and so quietly that it often doesn't even register as "news". I have as my pinned X post a 54-year chart of the S&P 500 that is annotated with the most prominent bad news for each year. Every one of these events seemed at the time to be a reason for stocks to go down (as did many other things that were only the second or third worst news of the year). I adapted this from a similar chart that Venita Van Caspel published in her 1983 book The Power of Money Dynamics.

May

17

An analysis of runs of "up" days (i.e., Close-Close change is positive) in the S&P, through 2 May of this year:

And then I asked an AI to model flipping a coin biased in the same way (53.7% heads), and you can see the results here.

Anatoly Veltman comments:

Yes you're putting numbers out - no complaint there. Huge complaint on the premise: why would 9-day "run" into tomorrow bear same fruit as some totally different 9-day "run"?? What's a "run"; why would different-size price increases under all different relevant variables have the same impact on further trajectory - just because you assigned the same "9-day length" value to current "run"??? IMHO this sort of input can't be expected to help much.

Big Al responds:

That's actually the point: when we assign importance to runs of days, we have to be careful because the run distribution in actual data looks like the distribution you get doing a coin-tossing exercise with a market-biased coin. Which doesn't mean that analyzing runs can't produce anything useful, just that there is a high hurdle.

Anatoly Veltman adds:

My point is mostly about DIFFERENTLY-SIZED up-days. Some days could've been up $2, while others $200…Some days might have been not up-days in SP500 index, while up-days in SP500 futures. And dozen other variabilities that would make one "9-day run" be vastly different from other "9-day run" in impact on future expectations. Not that there are many ideal ways of Input, but this sort may just be prohibitively flawed.

May

16

The chair recently made a tweet about a Galton book he was reading. I could read the text on the image but had to squint. I later took a copy of the image as asked Grok to extract for me the text so I can read it comfortably. Grok could only extract the text "Natural Inheritance."

After that, it didn't tell me it failed to extract the rest. it just made up its own fictional text that sounded plausible. I quickly learned it was just slop since I had already read some of the actual text in the picture.

My worry is that some people are using these LLM tools for medical records, creating legal documents. The latest AI gimmick is the so called "Agents" that will supposedly be used to file tax returns, book flights and do actual tasks on behalf of humans. My opinion would be to completely cut out all AI tools for critical tools.

Steve Ellison responds:

I am very, very careful about what I enter at an AI prompt, especially when doing proprietary or confidential work, lest my ideas become part of the cloud.

Laurence Glazier comments:

For this sort of thing use NotebookLM. Choose your sources for it, it will give you citation and preview.

May

15

I went to China recently. What I saw and nearly all the people I talked to were not happy about the economic situation there and almost everyone thinks Xi is stupid.

Humbert A. responds:

This has been the status quo since pre-Covid times imo.

David Lillienfeld writes:

Peter Drucker observed that the problem with totalitarian regimes is that with only one person in charge and no one in a position to offer alternatives/challenge that individual, there is no means of identifying and developing managerial talent in a society and the society inherently slows until the person in charge dies and there is a contest/market for new leadership. There will be problems showing in China soon enough–it has a demographic hurdle coming and it shows no signs of having any idea how to deal with it. It has lots of domestic health issues that will likely cost it considerably within the next decade. Maybe Xi will demonstrate Drucker as being wrong, but I doubt it. Barely three decades ago, the concern in the US was that Japan was about to walk all over the US. It didn't. I'm not sure that China is going to do any better.

Asindu Drileba writes:

This is my exact suspicion.
1950s to Soviet collapse — US Vs Russia (Narrative is Russians will take over USA)
1980s to Asia Currency Crisis — USA Vs Japan (Narrative is Japan will take over USA)
Early 2000s to Present — USA Vs China (Narrative is China will take over USA)

Peter Ringel adds:

There is a perverse stickiness to it. I grew up in one of these shit-holes ( not Japan ! ) - East Germany in my case. All the models and all the data point to implosion. And then it takes decades and centuries and more. And finally, when it collapses everyone is surprised, and no one was expecting it.

May

14

One person who left a profound impact on my life when I was in school was Sergio Marchionne. He was the CEO of Fiat Chrysler Automobiles and CEO of Ferrari. One legacy he left on me as a person and for my work on the financial markets is definitely his philosophy. He had a very particular philosophical thought which I've always found unique for being practical and abstract at the same time, an intellectual and a mechanic, a quality I deeply admired. There is much of his thought that I find highly relevant for understanding the markets:

- Marchionne never followed predictable roads, but always pursued new, creative, bold roads. When he was appointed as CEO of Fiat, basically the most important asset of Italy at that time, he was losing 5 million euros a day; and he got out of that terrible point by taking courageous and strategic moves which were totally unexpected.

- He always stressed about adaptability. I know he was a big fan of Darwin and of course it very much applies to our field. He had a belief that failure to adapt was severely punished and the same if for the markets, where having an open mind and spirit of adaptability cannot be negotiated.

- There is a quote of him which I particularly like as someone who operates in a field which is survival-based, which is "We can never say: things are going well. At most: things are not going badly. We must be paranoid. The journey is extremely difficult. We are survivors, and the honour of survivors is to survive" and it highlights perfectly the financial markets winning mentality to employ.

- Another thing he used to say is that "Leadership is not anarchy. In a large company, the one who leads is alone. 'Collective guilt,' shared responsibility, does not exist. I often feel alone." and that definitely applied to trading.

- “Mediocrity is not worth the trip" is one of these iconic quotes.

-He believed that the market was without morality, without consciousness, and without being able to differentiate between what is right, fair, and what is not, and that none of us could break or alter the operations of the markets.

Sergio Marchionne was an extraordinary man, maybe not a perfect one, but definitely exceptional, brilliant, determined, consistent, with an open mind, humble but strong, decisive, courageous, and a true leader. He thought that "focusing solely on yourself is such a small ambition." Without this quality, it will be hard to stand above mediocrity, unless you find someone who takes the risk for you.

May

13

I am putting together a list of the Best Investments Books of the Year. I am not seeing many great books on trading, investing, finance, markets, crypto, options, futures, cycles, etc. I would love to hear if you folks know of any great books out in the past 6 months or so or coming soon.

Matthew Gasda is justifiably proud:

The Sleepers: A Novel

Big Al offers:

This is high-level quant stuff - ie, over my head, and despite "Elements" in the title - but a fun stretch:

The Elements of Quantitative Investing (Wiley Finance) 1st Edition, by Giuseppe A. Paleologo

His more basic 2021 book is "Advanced":

Advanced Portfolio Management: A Quant's Guide for Fundamental Investors, by Giuseppe A. Paleologo

Carder Dimitroff suggests:

This book is about historical finance and may not be a direct response to the question.

Empire, Incorporated: The Corporations That Built British Colonialism, by Philip J. Stern

William Huggins responds:

on a similar (historical) note, one of my students just recommended this title to me. looking forward to cracking it later this month:

Ages of American Capitalism: A History of the United States, by Jonathan Levy

Asindu Drileba adds:

If you would regard a speculator/investor as someone who also builds businesses:

Never Enough: From Barista to Billionaire, by Andrew Wilkinson

Andrew is building Tiny. His intention is to build the Berkshire Hathaway of Tech and software. He is inspired by Monish Pabrai (The Dhando Investor). So he is more in the "Value investing" camp not really quantitative.

May

12

does the law of multiple proportions apply to the way markets combine with each other and the general factor which combines with specific factors to make up intelligence?

todays market up exactly 3% and 0.5% and 1% on other days inordinately likely. 75-day hi in sp today at 5850 but not an all time high of 6100 from nov.

Thus we have a two-month max in sp but still 3.5% below nov all time hi of 6100, a relatively common way of coming bak that is short-term neutral but bull for next several months.

Vic's X/twitter feed

May

11

I have heard every single one of these more than once on the floor. This is the G version; the X version would be very inappropriate for this venue.

You’re long hope and short reality.
He couldn’t trade his way out of a wet paper straddle.
You’re bidding like it’s your wife’s money.
His stops have stops.
He buys the high, sells the low, and thinks he’s range trading.
If brains were dynamite, he couldn’t blow his nose.
He's so underwater, Aquaman just waved.
Tighter than a bull’s ass in fly season.
Your size is what we use for toilet paper.
He’s a momentum trader—in reverse.
He couldn’t fill a corn order, let alone an order ticket.
That guy trades like he’s reading Braille.
He thinks ‘limit down’ means he hit the jackpot.
He trades like he’s got a rearview mirror taped to his glasses.
He’s scalping—his own account.
Nice fade. If I ever need a contrary indicator, I’ll call you.
He went from hero to sandwich in one tick.
I’ve seen better risk management at a toddler’s birthday party.
Market’s moving—better go ask your horoscope.
You trading or just making donations today?
He’s got a 30-lot mouth and a 1-lot account.
That guy’s P&L looks like an EKG flatline.
You're not trading—you're gambling, but slower.
He’s so unlucky, he’d lose money in a rigged market where he’s the rigger.
The guy’s charts look like modern art—ugly, meaningless, and overpriced.
He averages losers like he’s building a position in failure.
Don’t worry, he’ll blow up before lunch.
His fills are like Bigfoot—plenty of stories, no proof.
That trade had more slippage than a greased pig at a county fair.
He went full margin—and full stupid.

Asindu Drileba writes:

I watched the documentary "Floored" that was about the extinction of pit traders due to the advent of computer driven traders. A lot of the traders seemed to have their edge in bullying and intimidation that was both physical and psychological.

I made a pit trading playlist that I binged on, and this seemed consistent even to pit traders in the currency pits of London.

One of the pit traders called the computer "The most vile invention ever made." I think he was just sad that his bullying was no longer an advantage. You can't insult a computer, or use your big body to push it away so you can have the edge, or seduce it with good looks.

Michael Brush responds:

Behind every computer, there is a person.

“The offer is $25.”
“But my computer says $45.”
“So sell it to your computer.”

Pamela Van Giessen adds:

For those interested in a biography of a once famous and beloved pit trader, I recommend Charlie D: The Story of the Legendary Bond Trader by William Falloon.

Francesco Sabella adds:

It's an incredible book! I read it years ago, I even saw a 2 hour video of Charlie D. when i was in high school where he gave a lecture on trading on 1989.

Larry Williams writes:

Charly D was one stand up guy. He loved the Bears and suggested a bet with a young lady trader for a nickel on the weekend's game. She said sure…and won. Monday morning Charley D gave her 5 grand (a nickel in betting parlance). She was astounded, told him she meant 5 cents not 5G's. No way could she risk that or take the money. He left it in her hand and walked away.

I was fortunate, thanks to T Demark, to be part of his Vegas support group - he was just amazing to hang with.

May

8

Bart Kosko came out with the "fuzzy thinking" quite a while ago. Some of his ideas are very relevant today.

Fuzzy Thinking: The New Science of Fuzzy Logic

An authoritative introduction to "fuzzy logic" brings readers up to speed on the "smart" products and computers that will change all of our lives in the future.

Of course, the P/L at the end of the day is either red or green- but life in general is way more greyish and shades. And the over-use of "black-and-white" thinking is also recipe for going insane (and that is easy to spot in some parts of society).

Big Al adds:

An interesting interview with Bart Kosko.

And here is his lecture as part of the Linus Pauling Memorial Lecture Series:

What is Noise? What is Signal?, Dr. Bart Kosko, University of Southern California

Noise is a social nuisance, a cause of deafness and high blood pressure, and an all-around annoyance. But what is noise really? As Kosko simply states, “Noise is a signal that you don’t like.” It occurs at every level of the physical universe, from the big bang to blaring car alarms. Today, noise is considered the curse of the information age, but, in fact, not all noise is bad. Debunking this and many other commonly held beliefs about noise, Kosko gives us a vivid sense of how deeply noise permeates both the world around us and within us.

May

7

one is reminded of table tennis against a robot or chess game against deep 6 or later computers but the analysis at the fed that is data dependent as long as it sinks the bad guys. "only monetary policy here and no influence of politics". But there has to be a philosophy.

Vic's X/twitter feed

May

7

Francesco Sabella in Conversation With Victor Niederhoffer: Harvard Educated Hedge Fund Pioneer

Gary Boddicker writes:

Thanks Francesco. Always good to see and learn from Vic. Subscribed and look forward to your future interviews.

Steve Ellison adds:

This is a great interview. The 2 minutes starting at 13:36 about ever-changing cycles is itself a meal for a lifetime. "The world is always changing, and [the] road to success is always a little different, and the techniques that you’re using are always subject to competition. You should try to be alert to change."

I increasingly perceive that the pre-2020 world in which I lived most of my adult life is gone forever. It's a new era, and old techniques in many fields don't work any more.

May

6

Shtetl (full documentary) | FRONTLINE

This is a very depressing video about envy and how bad things can become. I think it also adds to previous discussions about madness of crowds (how ordinary people start participating in senseless murder) and illustrates that there is really no limit to how primal humans can become as long as they are given the green light.

Two take aways:

a) Don't hang around envious people.

b) Always make sure you have as little as possible that people can envy you over.

May

5

Fundamentally one thing i like of Tesla its the self driving technology, even if proper implementation is probably years ahead, maybe even more. And this extraordinary technology was funded thanks to Tesla high stock price. With the high stock price it strenghtned the fundamentals which fueled funding for innovation creating a virtuous cycle.

Thanks to this Elon could borrow easier and invest more and more… i waited to see if sentiment flipped on its favor again, but it didn't, so the same dynamics that made him so successful in the past will now (not now actually, as its months already) work against him can help deteriorate the fundamentals even faster.

I do not forget about the exceptional ability of american companies into adapting to different economic environments, but i have a lot of confidence on this trade. Plus all the reputational risks of Elon with his political activity and its exposure. Again, Elon's exposure is what helped a lot TSLA growing so big, but now that exposure is working again him unless he recognizes the mistake is doing and change the way he deals with his public image, which he won't.

In Q1 2025, Tesla's net income dropped an incredible 71%, to just 409 mln , compared to the same quarter in the previous year. This dramatic decline signals serious trouble in maintaining profitability, especially when you consider that without 595 mln from selling zero-emissions tax credits, Tesla would have actually posted a loss. This reliance on external credits to stay in the black is a grim indicator of weakness in its core operations. Operating margin is Operating Margin is at 2.1%, which is below industry.

And, in my opinion one of the most bad-looking things is the warranty liabilities, which is out of control. Let’s assume they hit $3.5 billion, up from, say, $2.5 billion in Q1 2024—a 40% jump in one year. Compare that to their $409 million net income in Q1 2025, and you’re looking at a liability that’s 8.5 times their quarterly earnings which will drain cash and destroy profitability.

If this trend holds, which very likely will given the self reinforcing behavior of the stock, tesla will need to raise prices of the car to cover the costs shutting demand even more,cut research and innovation and raise capital.

And most don’t realize how much Tesla’s battery production hinges on cobalt from politically unstable regions and a conflict or export ban could choke their supply chain overnight, spiking costs or halting production. It’s a hidden risk, that can cause serious problems, without adding the macroeconomic current environment which you are probably aware of.

Elon's bold announcements worked very well in the past because it was unexpected, now he lost that power. He has no power to influence his stock if not for a day or two, those especially retails who bought the dip in the past, made a lot of money and will do it again more and more forgetting about Robert Bacon ever changing cycles and the market can only come down when nobody expects it.

Henry Gifford writes:

A few days ago I attended a reunion of my grade school class. Guys I haven't spoken to in decades were commenting on how the rush to all-electric for cars and buildings strikes them as insane.

For seven years I taught about energy efficiency at the graduate level in an architecture college. One assignment was to compare the energy used by a gasoline powered car to an electric car, including the energy required to make the electricity to charge the batteries. No student over those years argued that electric cars saved any energy at all when the energy needed to make the electricity was included. In the later years more students refused to do the assignment, and instead take a D, as the assignment became more politically incorrect as the years went by.

I imagine fewer students would do that assignment these days, but sooner or later those who don't believe electric cars save energy, or reduce burning of fossil fuels, will get even more tired of keeping quiet to avoid being seen as an outcast. Remember, it was a kid who pointed out that the emperor was naked - no adult dared say that. But sooner or later, something along these lines will have a large effect on TSLA stock. Or, there simply won't be enough electricity around, and/or the price will be so high people will not want to buy the electricity and stop buying TSLA cars.

Without the backstory that TSLA is good for the environment, or saving the planet, it wouldn't be much more than a cool looking, inconvenient car that will need a very expensive battery replacement long before a gas engine needs replacement.

Sam Johnson responds:

Electric cars seem the best optimized for full self driving (individual tire motor control, acceleration/deceleration). They will take over in most climates for this reason alone. Everyone will want the tech, even if "less green."

Stefan Jovanovich comments:

The point of Tesla from its inventor's point of view was that it would provide ideal learning curves for (1) advanced fabrication and (2) autonomous machine thinking. If you were going to visit Mars in your lifetime, you had to have a rocket and a planetary construction technology that used (1) and (2). The instinctive mistrust of Elon Musk by short sellers and Democrats has not been misplaced; he is the consummate hustler. Since we (the BW and I) never trade or speculate, we have never once been tempted to go long or short on TSLA.

For us the connection there is an unavoidable connection between TSLA and NVDA; and we have, as a family, been long on NVDA for a dozen years now. We had no choice; our one and only child chose one of its engineers for her true love, and he chose her. We had to study Nvidia as a business because we were financially married to it. What we found is that rare company that can have repeated growth spurts like a child's - where everything financial - revenues, earnings, cash flows - increases 10 times faster than the financial world around it while its "bad" years never see declines any greater than the figures that Wall Street considers normal for a "recession". It did this without ever once getting the permanent subsidy that Musk had to depend on for TSLA.

I agree with HG about TSLA's technology; he is confirming Carroll Shelby's prediction that, in the end, hybrids would be the best engineering solution to the question of how you match electrical motor drives to automobiles.

TSLA as a car brand can disappear, and Musk will not care; he will have acquired the knowledge needed to build rockets at scale. Given his wonderful abilities as a financial hustler - PayPal remains to this day a wonderful invention of something no one needed but everyone bought into, Musk may find a way to get others to buy him out (has anyone ever actually made money in Ford after it went public?).

Update to earlier Idiot advice about common stocks: NVDA and PHM are now Owns, not Buys. TOL is the one company we are still punching on the Buffett bus ticket. We will continue to be married to NVDA financially because its climb to vertical integration is only half-way done. I asked the SIL if there was any comparison between Carnegie's acquiring the coal, iron ore, clay and earth metals that his mills used and Nvidia's "investment" in America. He wisely deferred to offer any opinion since that would be, in the small minds of SEC lawyers, "inside" information. He did offer a general comment: for the world of ICs and their users, the vertical integration is already happening; it is AI.

May

3

Some in these areas of science (genetics, animal development and behavior) have proposed that humans have essentially domesticated ourselves during the Holocene.

Domesticated silver fox

The domesticated silver fox (Vulpes vulpes forma amicus) is a form of the silver fox that has been to some extent domesticated under laboratory conditions. The silver fox is a melanistic form of the wild red fox. Domesticated silver foxes are the result of an experiment designed to demonstrate the power of selective breeding to transform species, as described by Charles Darwin in On the Origin of Species. The experiment at the Institute of Cytology and Genetics in Novosibirsk, Russia, explored whether selection for behaviour rather than morphology may have been the process that had produced dogs from wolves, by recording the changes in foxes when in each generation only the most tame foxes were allowed to breed. Many of the descendant foxes became both tamer and more dog-like in morphology, including displaying mottled- or spotted-coloured fur.

But there has been criticism of the breeding experiment and conclusions.

Asindu Drileba responds:

My definition of "domestication" used to be that of "Animals simply living under the care of other animals". When I watched a PBS Eons video some years back, I learned that Paleontologist's had a very different definition of "domestication". They define it as "the dependence on the care of other living things, to the extent that they cannot no longer live in their natural environment (the wild) anymore."

In the animal context, humans domesticated dogs and stray dogs (dogs with no owner) are riddled with wounds and in general don't do well. They would probably die if left in a forest. Foxes however look good in the wild.

In the human context, a human being with no owner (a government, a parent or an employer) usually does as badly in the manner of the stray dog. This human would perfectly fit the paleontological definition of what would be a "domestic human". The same applies for the ownership class/ruling class. They have used the working classes to domesticate themselves so they too, also can't survive with out them either. An undomesticated human would be people that can survive in an environment urban dwellers can't, the natural environment.

Like how the Khoisan do well in the desert, or tribes in the deep Amazon also do well. If you dumped a random urban dweller in the Amazon rain forest or the Kahalari desert (under same circumstances as the natives) 99% of them would die within weeks.

May

2

I wanted to ask Carder's opinion on this article that I came across titled:

China builds world’s first working thorium reactor using declassified US documents

It uses molten salt to carry the fuel and manage heat, while thorium serves as the radioactive fuel source. Experts have long viewed thorium reactors as the next leap in energy innovation. Some scientists estimate that a single thorium-rich mine in Inner Mongolia could theoretically supply China’s energy needs for tens of thousands of years with far less radioactive waste than current uranium-based reactors.

Carder Dimitroff responds:

Thorium is a fuel that is currently used in some commercial reactors. Canadian reactors can accept thorium and other nuclear materials in their CANDU reactors. (Read more: We can use thorium.)

One reason that the US, EU, and other reactors do not use thorium is that their reactors and related supply lines were not designed to accept that type of fuel. In US PWRs and BWRs, the reactor relies on precise fuel physics to achieve optimal performance. Changing the type of fuel would present a tough, if not impossible, outcome in terms of performance, let alone capital and operating costs.

When compared to a plant's production costs, nuclear fuel is surprisingly inexpensive, including the cost of disposal. Most of its energy is wasted. Consequently, there is little motivation to change the nuclear fuel's value chain.

Molten salt reactors are not new. In 1959, the US built the "Sodium Reactor Experiment" in California. Since then, several other countries have improved the design. Today, it is a viable technology, particularly in the Small Module Reactor (SMR) market. One example is TerraPower's Natrium Project (Bill Gates). They are currently testing the liquid sodium fuels for their Small Modular Reactor (SMR) product. (Read more: Terrapower: Natrium)

Apr

29

a goldmine of techniques to use for markets. concentration ratios, capture recapture, signaling, aural detection, etc:

Ecological Methods 3e

Ecological Methods provides a unique synthesis of the methods and techniques available for the study of populations and ecosystems. Techniques used to obtain both absolute and relative population estimates are described, and approaches to the direct measurement of births, deaths, migration and the construction and interpretation of life tables are reviewed.

Vic's X/twitter feed

Apr

28

I’ve been a professional racing driver from the age of 3, the first time I’ve been on a karting circuit driving, until 17 doing a formula 4 championship and I placed myself at the 3rd place in the international final race in karting at 15. Here’s what I learnt from that extremely competitive sport that may apply to trading, investing and I’d say to many other aspects of life:

1. You can’t perform well in all the track conditions and different weathers, you may suffer more with the hot weather and perform best with cold, or the opposite , the key is to survive and doing your best when conditions are not ideal, and maximize your performance when the conditions are in your favor.

2. Think astute and strategically, an important part of winning a race was being smart in the way you used your tires. You could only have one set of tires per race, so if you had a very qualification, during the manche (the fight after qualification which will give you a place on the grid of the final race) it was smart to preserve your tires and drive conservative in order to arrive at the final race, maybe even a couple of positions lower of where you could’ve been, but with better tires. In this way you’re going to be performing best at the last race, which is the only one that matters.

3. When I was 12, a retired legendary old man who was the karting principle of Ayrton Senna (he had like 100 t-shirts with still the sweat of ayrton, because senna when he was in Italy racing never changed t-shirt but just threw them away, but he never sold any as memory) called Ernesto, who’s not very well known online but he’s been a crucial person on Senna’s life, was impressed with my driving skills and decided to help me in winning the world championship when I was 12. He told me, as important rule, the importance of being patience. When I was 2nd, to not surpass the 1st guy, stalk him and make him go nervous , always right behind him , until it’s the right time. You’re going to be relaxed, keeping your engine fresh and when it’s the last 2 laps you surpass him. It very well applies to trading and investing I’d say.

4. Do not show your edge and your strong performance. When I was practicing during the weekend race, I’ve never showed when I was performing well. You need to keep the eyes away from you and make your competitors think you’re performing terrible or average. Then you surprise them on Sunday at the race day. It very well applies to fund managers I think.

5. Talent is not enough. You need to be talented, competitive , prepared and very well trained on track; but it’s as much important to be good at selling your talent to the right person, otherwise you won’t go nowhere. My goal was to become a f1 driver , and I’ve seen countless of people and friends getting extremely close , spending a fortune, and then getting nowhere. And then I’ve seen a guy, talented but not as many others, achieving this goal thanks to his ability to network his talent to the right person. In finance it’s the same I believe.

6. Luck. Luck played a very important role in racing , it was the little peace of the puzzle needed to end a perfect race. But after seeing it so many times, I can tell one thing for sure: luck favors the bold, so when you’ve the wind on your back push over your limits, because luck will drift in your favor.

7. Arrogance and humility. The true enemy of a man , I discovered not to be losing but to win and winning too much. That’s where the real strength is seen; not from how you handle losing.
Winning, especially winning streaks, will make you feel arrogant and superior to others, training and practicing less and underestimating your competitors. Always try to stay as much humble as you can because it was humility that made you winning and it’s the lack of humility that will destroy you.

8. Setups. Always change as many setups as you need until your performance improve if they’re bad and you don’t feel adapted to the current circuit conditions, but NEVER change a setup that it’s currently winning. I’ve often see setups working amazing, turning a race into a terrible performance trying to make a great setup a perfect one. When something it’s working, let it work and don’t interfere.

9. Edge. Don’t expect all your competitors to follow the rules, I’ve often seeing racers, maybe multibillionaires ones who could afford to cheat on an international event , doing little cheating maybe to the engine or to the kart itself to gain that very little edge to win a race. As my father used to told me when as young kid, it’s important to be morally on the right side and do what’s right doing the best we can having the best engine as possible at the limits of what’s allowed, but never a single step beyond. It won’t give you an edge today but it will give you an edge tomorrow.

10. Strategy. You need a strategy to perform, but the biggest wins are the ones that come from your intuition where you drive with your heart and soul and let your talent and preparation to the heavy lifting without rationalizing too much. It very well applies to trading, espeicially on volatile times.

11. Keep eyes open, around the paddock I often had my eyes very opened trying to understand what the fastest drivers were doing and which setups they had, not necessarily to copy them but to get a feeling on what’s working; in fact they were often trying to hide crucial parts of the setup, but still every little detail made a difference; in trading I think it’s important to do that.

Apr

28

Most resonant

April 28, 2025 | Leave a Comment

i've always found the 19th century heroes the most resonant. one of the joys of the Tredoux books on Galton is how they all appear: Conan Doyle, Spearman, Cyril Burt, Pearson, Livingston, Bennett, Binet, Gilbert.

Karl Pearson

Charles Spearman

Cyril Burt

Alfred Binet

George Bennett

Vic's X/twitter feed

Apr

27

88 years old and skating. He started skating at age 70.

Octogenarian skateboarder shreds concrete in Spain's Bilbao

"My bones are special," he chuckles between sips on a post-workout glass of white wine at his favourite bar in Bilbao's working-class neighbourhood of Begoña. "Though I touch wood."

Steve Ellison writes:

In only 2 more years, he will be old enough to have "sufficient experience … to command success" in Wall Street, as Clews put it, and know exactly when to skateboard down to lower Manhattan in a panic.

Apr

26

Does someone have a great modern macroeconomics book to recommend?

William Huggins responds:

it depends how theory heavy you want it to be. the author i usually recommend is Mankiw but Williamson (intermediate) and Romer (advanced) are good too depending on your needs. for the best "whole picture" i like a CFA publication from 2013 called Economics for Investment Decision Makers, by Piros and Pinto, which gives a great summary of micro, macro, and int'l econ under one roof.

for single-day-beach-reading i bought a casually interested buddy a copy of How Economics Explains the World, by Andrew Leigh, which is a great intro for non-users.

Apr

24

Planck's principle:

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die and a new generation grows up that is familiar with it…

An important scientific innovation rarely makes its way by gradually winning over and converting its opponents: it rarely happens that Saul becomes Paul. What does happen is that its opponents gradually die out, and that the growing generation is familiarized with the ideas from the beginning: another instance of the fact that the future lies with the youth.

— Max Planck, Scientific autobiography, 1950, p. 33, 97

relevance of how new ideas are being adopted in science, markets, everywhere.

Jeff Watson responds:

Science by consensus is not science. Just ask Galileo.

Pamela Van Giessen writes:

John McPhee wrote extensively about this and how the science of geology advanced over a few centuries in Annals of the Former World. Scientific community consensus is pernicious, and it is clear that there is mostly no convincing it.

William Huggins comments:

the foundation of science rests of replicability - anyone with the same data should be able to replicate results (even if they disagree about the mechanism). once replication is established, the difficult questions come from "is this data sufficient and representative?"; "is the data generating process stable or dynamic?"; "did i gather data in support of my hypothesis or to try to disprove it?". the fun stuff.

philosophy of science ensures we ask good questions and have good tools to tackle them with. this is why the Ph in PhD is short for "philosophy."

correction: "same data" is the wrong phrase - "equivalent, out-of-sample" would be a better choice of words.

Asindu Drileba writes:

The problem with the human mind is that it has too many glitches. You can verify data successfully and still be wrong. Here are two examples from Astronomy. First, The Mayans had models that would accurately predict eclipses. So, your data of when eclipses occur would replicate really well with their model. However the model of the solar system the Mayans used, had the Earth at the centre and the Sun revolved around it. The assumptions of the model were completely wrong, but the data (predictions) were accurate.

Second, is Newton's models, that predicted the movement of a comet accurately. Then you often here people say that Einstein proved Newton wrong with Relativity.

I think when it comes to science, explanations are very flimsy. What should matter is if the idea useful or not.

Francesco Sabella responds:

I think it’s a very good exercise to start from the point of view that our mind is bound to make mistakes, have glitches and start to work from that assumption; even if it’s not always true but it can be good as working hypothesis.

Big Al recalls:

Years ago, doing simple quantitative analyses to post to this list, I learned that one of the biggest pitfalls was my own desire to get a nice result.

Apr

23

excellent book to study for all biological areas that math will uncover

Modeling the Dynamics of Life: Calculus and Probability for Life Scientists, by Frederick R. Adler

The goal of this book is to each the mathematical ideas that will help us understand various phenomena in life sciences. These are the same ideas that researchers use in their work, as well as in collaborations with colleagues engaged in more empirical activities. They are not specific techniques, such as differentiation or integration by parts, but rather they revolve around building mathematical models.

A mathematical model is that crucial link between a life sciences phenomenon and its description in terms of mathematical objects. We will gain the skills needed to construct a model, make sure it works, and understand what it implies—we will learn how to translate appropriate aspects of a life sciences problem and its assumptions into formulas, equations, and diagrams; how to solve the equations involved; and how to interpret the results in terms of the original problem.

Vic's X/twitter feed

Apr

22

Reading list

April 22, 2025 | Leave a Comment

Victor Davis Hanson Should Stick to the Classics
by Don Boudreaux at Cafe Hayek

Prof. Hanson, for example, presumes that the trade surpluses of various foreign countries are the results of clever cheating by those countries’ governments – cheating that yields unfair benefits to those countries as it damages the U.S. and inflicts on us Americans harmful trade deficits. He’s apparently unaware that countries that run trade surpluses also necessarily run capital-account deficits: global investors prefer, on net, to invest elsewhere than in those countries. In contrast, countries that are especially attractive to global investors run capital-account surpluses – another name for trade (or, more precisely, current-account) deficits.

Jeff Watson is keeping up with the CME dispute:

Here’s an interesting article about the upcoming trial:

Judge clears the way for a titanic trial pitting old-school traders against CME Group

But the plaintiff traders, many of whom formerly worked in the pits and are retired now, allege that CME reneged on a deal preserving members’ rights — including preferred trading floor access and pricing and information advantages — when it closed the physical floors and confined transactions to the Aurora operation. As a result, they say, the value of those memberships (reflected in B shares of CME) has fallen by two-thirds in the past decade even as CME’s A shares (the stock held by ordinary investors) have soared in that period.

Humbert X. writes:

I wonder if the PMs will get a heads up on tariff changes?

Trump Media Launches Separately Managed Accounts

SARASOTA, Fla., April 15, 2025 (GLOBE NEWSWIRE) — Trump Media and Technology Group Corp. (Nasdaq, NYSE Texas: DJT) ("TMTG" or "the Company"), operator of the social media platform Truth Social, the streaming platform Truth+, and the FinTech brand Truth.Fi, along with Yorkville America Equities, an America-First asset management firm, and Index Technologies Group (ITG), an originator and provider of thematic investment solutions, today announced that the three firms have created a strategic partnership and launched a new suite of Truth Social-branded Separately Managed Accounts (“SMAs”). These investment strategies offer investors access to curated, thematic investment strategies rooted in American values and priorities.

The initial lineup of SMA strategies includes:

Faith & Values
Liberty & Security
Energy Independence
Made in America

Apr

20

An interesting article that is making me think its mostly IP theft:

An image of an archeologist adventurer who wears a hat and uses a bullwhip

One of the internet-est things to come out of the most recent update to GPT image generation is the Studio Ghibli-zation of everything - another reminder of how OpenAI (and everyone else) trains on images that are very obviously someone else’s work.

Carder Dimitroff adds:

It's also an energy thief. Some data center owners are trying to get ratepayers to cover infrastructure costs through the state ratemaking process. On top of the capital costs, ratepayers are also expected to pay elevated marginal power costs. It's not just power. It's also natural gas:

This proposed gas plant to power a data center campus is massive

The soaring power needs of data centers continue to raise eyebrows, and nowhere is this more evident than at one Pennsylvania project, where a massive proposed natural gas plant would replace a legacy coal facility.

Pamela Van Giessen responds:

Thanks for sharing this. Every publishing/media legal department should read this, along with all artist guilds. And then they should do their own tests. AI was always theft.

Asindu Drileba offers:

There is a developing case NYT vs OpenAI:

Judge explains order for New York Times in OpenAI copyright case

April 4 (Reuters) - The New York Times made its case, for now, that OpenAI and its most prominent financial backer, Microsoft, were responsible for inducing users to infringe its copyrights, a New York federal judge said in a court opinion on Friday explaining an order from March 26.

Ars Technica did a more comprehensive article about it a year ago.

Apr

19

Great and sententious discussion of regression by Tredoux in the second volume of his Galton bio (with tremendous applicability to markets):

However the concept of regression to the mean where it has been comprehended at all has led to persistent popular misunderstandings about its nature. Failure to spot regression to the mean recurs so often it seems to be a universal law of human behavior. Examples could be multiplied endlessly. They involve selection of a bad condition to which some intervention is applied after which the condition is observed again. Usually it has improved. Therefore the policy is supposed to work.

Francis Galton's Genius: 1865-1911, page 225

Vic's X/twitter feed

Apr

18

I know The Chair uses linear regression and so do some hedge funds. But what are you people using it for? Predicting earnings? Stock Returns? Stock Prices?

What kind of inputs make sense to insert into a linear regression model? What mistakes do you think people make when using linear regression?

Big Al responds:

A book the Chair has recommended:

Applying Regression and Correlation: A Guide for Students and Researchers

I've used correlation for exploring lots of simple questions like, "Does the move on Monday predict the move on Tuesday?" The basic model is just "does A predict B?"

One mistake often made when looking at time series like stock prices is to use absolute dollar/point changes rather than % changes. Always use % changes.

Apr

17

An interesting analysis of the options market on April 9th Trump Tariff fiasco. It seems the options market was aware of incoming policies before they were enacted.

$70 Million in 60 Seconds: How Insider Information Helped Someone 28x Their Money

On April 9, 2025, someone risked $2.5 million on SPY call options—and walked away with $70+ million in under an hour. The trade was placed at 1:01 pm. At 1:30 pm, Trump announced tariff pauses. The market exploded upward. These options that cost 85 cents were suddenly worth more than $25.

It wasn’t just the profit. It was the precision. The market moved before the news. The options were bought before the rally. The volume spiked in contracts that almost never see this kind of interest unless something is expected. And the pattern wasn’t visible on previous trading days. This wasn’t a trend. It was a singular event. — $70m in 60 Seconds.

Apr

17

Any market parallels?

The Theory Of Societal Stupidity
by Dietrich Bonhoeffer

Dietrich Bonhoeffer (4 February 1906 – 9 April 1945) was a German Lutheran pastor, neo-orthodox theologian and anti-Nazi dissident who was a key founding member of the Confessing Church. His writings on Christianity's role in the secular world have become widely influential; his 1937 book The Cost of Discipleship is described as a modern classic. Apart from his theological writings, Bonhoeffer was known for his staunch resistance to the Nazi dictatorship, including vocal opposition to Nazi euthanasia program and genocidal persecution of Jews.

Stefan Jovanovich asks:

Why do we need a theory?

Steve Ellison adds:

Gustave Le Bon in his 1895 book The Crowd noted that the intellect of any crowd was far lower than that of any of its members. And he considered all political parties to be crowds.

Apr

16

guaranteed to happen: "powell says that they will do what they do regardless of any political pressure." great applauds in the Chicago audience.

Vic's X/twitter feed

Apr

16

That is the creature Hugh Hendry - the Acid Capitalist - says we have to find in order to profit from our speculations.

The events in Ukraine are that gorilla. They are predicting the likelihood that Trump, Putin and the Muslim oil producers will establish a Drill, Baby, Drill world of orderly energy production and supply priced in U.S. $. The effects on the European and Asian consumers will be comparable to what happened to the German-speaking world and its silver standard when the French fulfilled the terms of the Treaty of Frankfurt by paying their reparations in gold.

Big Al needs some help:

Perplexity answers the question, "What happened to the German-speaking world and its silver standard when the French fulfilled the terms of the Treaty of Frankfurt by paying their reparations in gold?"

Stefan Jovanovich answers:

They = "events, dear boy". The prediction is that the new cartel of oil and gas exporters will establish "orderly production" that manages the risks of overproduction in the same artful manner that OPEC once operated before the invention of fracking.

William Huggins responds:

So you are suggesting us producers will submit to directives from moscow or Riyadh to limit their production? No evidence of anything but predation among those players but somehow trump purs them all on the same page? I have a bridge for sale….

Read the full conversation.

Apr

15

Bullish

April 15, 2025 | Leave a Comment

the 5 days after service day bullish. about 4 in 5 up. also bonds bullish in that long time since 20-day high. thus despite attempt to beggar the neighbor and embarrassing unanimity of advisers that trade is bad, the stats say bullish.

Vic's X/twitter feed

Apr

15

The president seems to believe that trade deficits are evil and must be stamped out. If he ever actually succeeded at meaningfully reducing the trade deficit (so far the reverse is happening), what would be the implications for capital flows into and out of the US, and how might those changes affect markets?

Humbert L. responds:

Finance professor Jeremy Siegal wrote a piece decades ago about how the trade deficit is driven in part to demographics. Currently, the US is consuming more than it can produce, due to baby boomers retiring, no longer working, while still consuming. China is on the other side of the coin, with a younger workforce that is producing more than it's consuming.

Eventually the demographics will reverse, along with the trade deficit. The old folks in the US pass away, along with their consumption, and the US will start producing more than it's consuming, while China's young ones become old, retire, and they start consuming more than they are producing.

Asindu Drileba writes:

This sounds like a very plausible explanation for the phenomenon of "cycles" in the stock market, as described by the senator.

Apr

14

Although the stated goal is to reshore high-tech manufacturing, exempting tech products undermines that aim, while taxing low-end goods won't bring back production that left decades ago. The policy thus fails on both fronts: it neither restores domestic manufacturing of cheap goods nor incentivizes reshoring of advanced technology.

In any case, the US dominates the key technologies of the future. China is only a follower and Europe is not even in the competition so far. So regardless of who is the the Pres or what he is doing, dynamics related to growth may remain untouched.

For a counter, however, once again the “Tweet-based policy” during the weekend eroded predictability of statistical patterns.

Apr

14

Looking back at 2008

April 14, 2025 | 1 Comment

A Few Observations, from Victor Niederhoffer
October 12, 2008

1. Of the 100 biggest markets around the world, almost all are down 40- 60% in dollar terms with the exceptions' being Tunisia and Botswana. The impact of the decline this week, unless rapidly reversed, is going to be very severe on purchases. The previous 20% caused great angst; imagine what this decline will do to those who rely on retirements. The positive feedback of the decline in a negative direction also impacts the election results with every market decline making it more likely the Republicans will be blamed for the situation.

2. The worst aspect of the decline this week from a health point of view was that fixed income around the world cratered, thereby reducing world wealth by a good 15% as opposed to the normal situation where the equities go down 10% and the fixed incomes go up 8% leaving total wealth down only a little. And the people that talked about how bearish it was for stocks because commodities were up would never say that it's bullish now because commodities are down 40% over the past four months.

3. A new word should enter the market vocabulary, a waterboarding decline, being a decline that seems to have a breath of life at the open before going into a death spiral.

4. Because of the decline in all sectors, the wealth/price ratio has stayed relatively constant with corn, copper, soybeans, wheat and oil down 40- 50% since June 30, thereby keeping the number of bushels and barrels we can buy with one DJIA relatively constant, making the number of ounces of gold you can buy with the Dow less than 10 for the first time in a googol, and looking like a bargain for the Dow.

Cagdas Tuna writes:

The plan was to make US assets cheap and make everyone afraid to invest in them(thanks to VIX spike Monday). We all make joke of him but Trump’s post few hours before 90 days pause was the peak. Look at inflation numbers it is officially coming down as most companies were planning this sh*t beforehand. The more we see bad news the bullish stocks are.

David Lillienfeld responds:

You're making the assumption that we're done. I don't know that we are.

Nils Poertner comments:

in any case - def good to watch out for anomalies, or things that shouldn't happen and then they happen - and then there is more of it normally.

Apr

13

i have now finished the brilliant Tredoux bio of Galton. and Tredoux is very Galtonesque in his masterly ability to explicate every area that Galton touched. After 10 years without proper review of Galton, here's a Galtonian example of two geniuses uncovering it at same time.

From 2002, Review of A Life of Sir Francis Galton, author: Nicholas Wright Gillham, reviewer: Gavan Tredoux.

Starting almost from scratch in all the subjects he investigated, Galton invented rigorous intelligence testing, founded experimental psychology in Britain, established the scientific basis for fingerprint identification, formulated the statistical concepts of regression and correlation, pioneered early investigations of genetics, and founded the biometrical school.

Vic's X/twitter feed

Apr

12

Bessent 's most recent public comments about Treasuries seem to me the best answer to the suggestion that "they" want to debase the dollar:

In his remarks to the American Bankers Association on April 9, 2025, Bessent criticized the current regulatory framework, noting that leverage capital restrictions, such as the Supplementary Leverage Ratio (SLR), can become overly restrictive. He pointed out that these rules sometimes treat Treasuries—the safest assets—as if they carry significant risk, requiring banks to hold additional capital against them. Bessent suggested that regulators should reconsider this approach, hinting at reforms that could allow banks to hold Treasuries with less punitive capital requirements. He emphasized the need for a regulatory system that supports economic growth and questioned why "the safest asset in the country" faces such constraints under current leverage rules.

The question to be asked about "the dollar" is the one Hamilton and Willing tried to answer: who will own the Treasuries IOUs? Since the Americans had no savings, Hamilton thought the answer would have to be foreigners. Willing was clever enough to realize that Treasuries could become the savings if banks gave up the fantasy that deposits could be lent. The banks had to be discounters of each others' notes and dealers in personal loans/commercial paper. They could accumulate Treasuries as capital and leave leveraging to private capital (Astor became, by far, the richest man in the country by being Fannie and Freddie for his own and others' properties).

I doubt that Bessent, of all people, has any plan for the exchange price for the dollar any more than Willing had any belief that the BUS (which owned half the capital of the entire country) could set the discount rate. As he said yesterday, “Up 10 down 5 is not a bad reaction.”

Apr

11

I was searching for 'Lobogola' in my saved files… Found this…

Ten Lessons From the Recent Bear Markets, from Victor Niederhoffer
February 3, 2008

1. There is no such thing as a bear market, only markets that have gone down a lot from a previous high in a reasonable time frame.

2. The market had its best week in 5 years two weeks after having the worst week in 5 years.

3. When the vol rises to above 30, expect a 1-2% gain in next two days with say a 90% prob.

4. The differential between the discount rate and the 10 year rate is an excellent predictor of short and long term movements in the market.

5. The market likes to set a big minimum at the beginning of the week and all the limits downs have occurred on such days.

6. The knowledge of a big forced seller in the market will filter out and effect everything and the market will go to unprecedented low levels until the sales are requited.

7. The Fed chair thanked Milton Friedman for insuring with his research that the Fed would never again cause a depression by tightening the money supply during a time of economic doldrum and we may thank Milton Friedman and the Fed chair, and Mr Kerviel for insuring that no such depression or recession will be induced again by such activity.

8. The market will go back up along the same path that it went down, i.e. Lobagola lives. (Remember Lobagola's story about the elephants). [More on Lobagola and the elephants below. -Ed.]

9. Buy and hold must not be leveraged too high for it to work.

10. The tried and true patterns are the most dangerous during times of crisis. (Beware of patterns with a 90% chance of success).

Scalawags: Bata Kindai Amgoza ibn LoBagola

But his assumed name lives on amongst the lore of investors. In his book, he tells the story of an elephant stampede. The beasts rush through an area and always return the same way. When there is a surge of the market that soon ceases and comes back again down that same path, that’s called a LoBagola.

Apr

10

Pride

April 10, 2025 | Leave a Comment

the worst thing about the admin's approach to politics, trade, and the economy is failure to take account of the many proverbs along lines of "pride goes before the fall". there are hundreds of examples but "i am the best negotiator" is a perfect one.

Vic's X/twitter feed

Apr

9

20-day highs

April 9, 2025 | Leave a Comment

now 49 days away from last 20-day high on 2-19, 2025 at 6166 (futures). 98% chance that next 20-day high will exceed the old level. expected duration to next exceedance is 12 days.

good example of stock market being the key driver. approval rating dropped to 41% with one 20-day low in stocks after another. someone, a rare bird among advisers, told him to cut the crazy tariff policies.

nice drop in vix of 19 points from 52 to 33. apparently all weak longs were done in.

Vic's X/twitter feed

Apr

7

As we write in mid-2002, surrounded by pessimism, our view is that the required return for holding stocks is at levels unseen since 1990, or 1980, or 1950, when memories of depressions or crashes were still hanging in the air. If ever there were a time that investors would only buy risky investments when the anticipated returns were in the 50 percent-and-over area, this time would seem to be now. We see no reason that our expectations will be disappointed. Why shouldn't an improvement in lifespan or the rules of the game of business reap in the next 50 years the kind of results that greeted investors in the past 50?

Practical Speculation, by Victor Niederhoffer and Laurel Kenner, page 215

Apr

6

the most important influencer of all, the stock market was the only indicator that the Fed Chair didn't discuss in his Friday talk to the editors.

one can expect the opposition at the Fed to double down on the unnecessity of lowering rates in order to punch the enemy when he is down and to increase their importance to staying.

left out in the damaging consequences of tariffs is their increase in the likelihood of war only too often lead to open hostility and armed conflict. For historical confirmation of this fact we need but review the Russo-German "tariff war" of 1893, the German-Spanish tariff war of 1894, the Franco-Italian tariff war of 1888-1899 and the Franco-Swiss tariff war, 1893-1895. The Austro-Hungarian tariff barriers to Serbian exports aggravated the nationalistic conflict between Serbia and Austria-Hungary and precipitated the World War. Economic conflicts and divergence of economic interests.

Vic's X/twitter feed

Apr

5

VIX close over 40–without enumerating because there are often a bunch of close dates with closes over and under 40, but all linked etc:

1) 10/87 with VXO adjusted from 150, I'll call 'over 40' on the modern VIX
2) 8-10/98 Russian financial crises and associated other currency collapses
3) 2000 dot com period into 9/11
4) 2008-9 financial crises begin great recession
5) 8/2011 don't know this one even though I kind of recall it don't think this was flash crash….
6) 8/8/2015 not sure could look it up just counts at 40.74
7) 2/2018 this was XIV and vol related highest closing print was 37.32, but I have to think it traded about that day intraday
8) 3/2020 Covid lock downs
9) 2021-2022 during the lock down there were some spikes, don't recall why, but no closes
10) Today, 4 April, 2025

So kind of 8-10 (depending how orthodox one requires) VIX > 40 closes episodes in the last 40-ish years in terms of canes, We all knew about the tariffs coming , but I would say we all knew about the crappy lending in 07 too…. The others, pardon my youth I was in the scouts in 87, but I think had less general knowledge warning.

Some of these periods with VIX > 40 go on for a while. So definitely not a recommendation or a prediction just a comment about the unusually high level today.

Peter Penha comments:

5) 8/2011 was the debt downgrade of the United States from AAA by S&P - It of course led to a collapse in us government yields in the rush to safety as people had to think through it does not matter what you call or rate the safest asset as long as it remains the safest benchmark asset BUT some people said well if a 2nd ratings firm downgrades the USA then everyone who can only hold AAA assets will have to "dump their treasuries”.

6) August 2015 was the end of the tumble collapse of the Chinese Stock Market ~40% that led to a collapse in commodity prices - oil went from $100 to $40 (a Boston buyside technical analyst had $40 as his oil target and we all thought we would be in a 2009 deflation if we ever saw $40 again) - anyway was the fear of Chinese deflation everywhere - Think the Bank of China came in to sell down the volatility and stabilize markets.

I think in that recent YouTube video link I emailed - the speakers were discussing that in 2009 10 Year US Index equity volatility hit 40%.

I do have one anecdote told across the firm from 2008 from someone who made billions (or “more in 1 week than the firm had ever made globally in a year in derivatives”) in an uncapped covariance swap - he took all the capital from all the equity traders at the firm to put on his covariance swap bet at $100mm per 1% for SPX, Topix, DAX up or down - anyway the reason given was that he said that a top seasoned lifelong professional trader with top Sharpe ratio will second guess themselves and lose money in the chop when the VIX is over 34 - I remember this one as your mentioning covid lockdowns reminded me that Alberta Canda Pension lost some $2bn-$4bn in the blink of an eye selling a similar swap.

Apr

5

I'm liking the look of that huge spike down in ES, out of my euro and sterling, that was a crazy move too. Technically it's nice looking low, from a chart perspective. I'm liking the low interest rate and commodity softening posture, I'm pretty damn bullish on equities.

William Huggins responds:

the shock moment is not when the canes come out - those metaphorically come out when the bulls have given up. those are generational moments related to the culling of new speculators who have only known rising markets (ie, anyone who joined robin hood with their stimulus checks in hand). as long as there are people willing to pay x60-100 earnings for hype, i don't think its quite time for a shift in strategic allocation.

this is simply the first serious wakeup call for anyone who thought this administration is doing anything remotely like macroeconomic analysis when it sets policy. according to the executive, there will be more such shocks to come so as many were fond of suggesting in mid-november "buckle up" (your 401k, and the usd, have both been liberated from gravity!)

Steve Ellison comments:

The S&P 500 has not even gone off the bottom of my hand-drawn chart. The move down since yesterday strikes me as more an efficient market repricing of reduced economic prospects than an emotional panic or forced selling.

By contrast, my hand-drawn chart on February 28, 2020.

Adam Grimes states:

Canes? Nowhere close, in my opinion. And the fact that many people think this is a crash is just a lack of perspective (and a misunderstanding of potential.) Again, all in my opinion, which may change with any tick.

UPDATE: Stefan Jovanovich has a shopping list:

The idiot list is the catalog of companies that our model collects on the presumption that their common stocks will be worth more in 5 years than they are now. I publish it when we guess that our stupidity is within the 25% range - i.e. we won't lose more than $1 out of every $4 we invest in those companies if they liquidate. Thanks to the List and others, we have learned not to trade so the publication is, in no sense, a "Buy"; it is simply an indication that prices have gotten low enough that the list has more than 10 companies on it. (A month ago it had 5.)

Apr

4

Milton Friedman on Trade Balance and Tariffs

Why Some People Will Never Admit They're Wrong

• The inability to apologize can stem from trying to maintain an idealized image of oneself to avoid shame.

• Refusal to apologize can result from the misguided belief that we shouldn’t have to since we weren't at fault.

• Conviction that no apology is needed can stem from a lack of self- and relational-awareness.

one of the many virtues of Tredoux's book on Galton is the way he generalizes from Galton's observations to make universal points.

This is a striking instance of the obstructions through which new ideas have to force their way. Plain facts are apprehended in a moment but the introduction of a new idea is quite another matter for it requires an alteration in the attitude and balance of the mind.

the quote is Galton's but my compliment to Mr. Tredoux is true.

Vic's X/twitter feed

Apr

2

Tariffs Are Awful, but the Income Tax May Be Worse

Every fiber of my economic being cries out against tariffs. If they are so good, why doesn’t each state in the US have one against the products of all of the other 49? That is, Ohio could “protect” its industries against the incursions from Arizona. This is obviously silly. One of the important reasons America is so prosperous is that we have a gigantic, internal, free trade area.

[ … ]

So is there any economic case for tariffs, given the foregoing? Yes, paradoxically, there is—in a way, if the alternative is a tax that’s even worse.

Larry Williams comments:

Tariffs are what made America so powerful when instituted by Hamilton. It’s all about what you place them on Hamilton did it with brilliance.

Stefan Jovanovich responds:

I think more credit goes to Thomas Willing, the President of the Bank of the United States. He understood that tariffs would allow the United States to conduct the same wonderful sleight-of-hand that allowed the national Money to be gold and silver coin while the actual currency became bank notes. The Chair's question - if tariffs are so great, why doesn't every state have them - was answered by the Federal Constitution, which took away from the States the power to issue their own bills of credit as legal tender and the power to regulate interstate commerce. As LW and the Chair both note, it was the ability of the United States to have an ever-growing domestic market that made the U.S. so powerful. People were willing to bring their "real" money to the U.S. to speculate in what is still the largest open market in the world AS LONG AS THEY HAD THE ABILITY TO PICK UP THEIR CHIPS AND TAKE THEIR MONEY HOME. Apologies for the SHOUTING but every "crash" has had as its catalyst the threat that the U.S. would impose capital controls - either directly or by depreciating the dollar by executive order.

Vic's X/twitter feed

Mar

31

An insightful section of Mr. Tredoux's Francis Galton's Nature and Nurture: 1822-1865 shows that the poor forecasts and poor scientific methods of Robert Fitzroy, as uncovered by Galton, probably led to his suicide. Let us hope that a similar fate does not await some of the useful idiots and bears recounted in my posts.

Vic's X/twitter feed

Mar

30

The hypothesis is that at the end of a quarter in which bonds are up while stocks are down, institutions need to rebalance their asset allocations by selling bonds and buying stocks.

I found 14 such quarters since 2002, not including the current quarter. In the last 5 trading days of those 14 quarters, SPY was up 8 times and down 6 times, with an average net change of 0.9% with a t score of 0.76–statistically insignificant.

My Python code that I used to obtain the above results.

Big Al responds:

That's an event I hadn't thought about in a long time. It's hard to imagine a lot of big institutions running a simple strategy like that these days, which doubt your study would appear to support. But it does make me wonder if there are other, more complex balances or relationships that big players do manage on a calendar basis.

Alex Castaldo comments:

The general idea of trying to take advantage of "fixed behavior" by others is a good one IMO.

Paolo Pezzutti agrees:

It's like finding regularities end of month or Holiday's behavior or several others. I think there may be many still uncovered. Steve on Github has made public a number of Python notebooks. Very nice work to stimulate curiosity in searching patterns. It's not rocket science based on Artificial Intelligence, but I think this methodology has still value.

Asindu Drileba writes:

The rebalancing edge is real. In BTC for example, I realized that the most consistently active, "high activity" period is the time around 0:00 UTC (Server time). Something interesting is always happening during that period.

It turns out alot of people trade BTC daily and it just makes sense to rebalance the position size at midnight. I too even choose it sub-consciously. I don't think many people are choosing 03:00 UTC , 17: 43 UTC etc. Unfortunately, you need second by second, price quotes over many days, weeks, months and years to investigate this activity further. So I put it on pause. But the "activity" still exists.

M. Humbert adds:

Window dressing at quarters end is probably still occurring as well.

William Huggins writes:

several years ago i followed in Markman's steps of investigating the S&P500 drops and additions for irregularities (they did exist but have since been arb'd out). the driving mechanism was that index fund managers were paid to minimize tracking errors, not maximize performance so they would all trade at the same time, causing a secondary effect on the day the change actually took place (there was a preliminary change the day of announcement). it was a pretty basic academic event study but the most valuable part was uncovering "why" big money was doing a thing that created opportunities for fast moving traders (email me if you want it, but the trade doesn't work anymore)

Mar

29

On his blog:

TraderFeed
Exploiting the edge from historical market patterns
Sunday, March 23, 2025
Keys to Great Trading

Peter Ringel adds:

He was also on CWT recently:

Trade Like You: Why Playing to Your Strengths Works Better · Dr. Brett Steenbarger

Mar

28

usually one is accustomed to a political news effecting stocks but now after 50 days form a 20-day high and only 2 pts from a 50-day low at 5579 on march 13, we can expect stocks to effect politics. another decline in sp will create tariff easing.

Single trunks grow at a rate determined by the species of tree and the care it gets. Multi-trunks have seperate root systems and since they are close together, they compete for nutrients. This competition results in slower growth rates….Since they compete, multi-trunk trees grow 30% to 50% slower than singles trunk trees of the same species. Despite a slower growth rate, these trees can still flourish with attention and care.

Heritage Tree Service of Texas

a single trunk tree grows considerably faster than a multitrunk tree. is the same true for stocks? a test will answer this.

Vic's X/twitter feed

Mar

28

The late baseball great studied hitting as closely as a stock strategist studies markets. In fact, Williams' hitting rules can easily make you a better investor.
By Victor Niederhoffer and Laurel Kenner

"Get a good ball to hit."
– Rogers Hornsby to Ted Williams, on the single most important thing for a hitter.

A person, a field, a book. Sometimes they come together with such genius that you wish to carry the lessons around and apply them to everything you do. Such is the case with Ted Williams’ "The Science of Hitting," widely considered the definitive book on the subject. With the baseball season soon starting, the market reeling and investors searching for a rudder, it seems particularly appropriate to learn from the book’s timeless lessons for all fields. But we’ll go even further. We’ll show how to use this method to make a profit by trading IBM (IBM, news, msgs) and similar biggies on Thursdays, when the count is right.

Williams was the last batter to achieve the magic .400 average in a full season — 1941, when he hit .406. (He also had .400 averages in 1952 and 1953, when his seasons were cut dramatically short because of Korean War service.) He is considered one of the three best hitters ever, with Babe Ruth and Rogers Hornsby. “I had to be doing something right,” he said. “And for my money the principal something was being selective.”

His selectivity was unique and inspiring. He divided the 4.6-square-foot batter’s box into 77 zones, and assigned each a hitting percentage. The sweet spot was high over the middle of the plate, where the batting average hit .400.

Rule No. 1: Wait for your pitch

Warren Buffett cited "The Science of Hitting" in his 1998 annual report in a discussion of his favorite subject: How the market doesn’t look good to him. (His most recent annual report, published Saturday, repeats the sentiment.) Buffett said he, like Williams, follows Rule 1 and waits for the great pitches — the great companies — and holds his fire until they arise.

After Rule 1, we will expand the list of hitting rules to 11, drawing from the lessons in Williams’ book.

Read the full article.

Mar

27

Spec roundup

March 27, 2025 | Leave a Comment


Jeff Watson has been watching the CME:
Anyone else notice the increase in seat prices (trading rights) recently?

Big Al found a history lagniappe:

BabelColour
@StuartHumphryes
Travel back in time 117 years to the Russia of 1908. I have enhanced for you this rare colour photo of the Russian writer Leon Tolstoy, regarded as one of the greatest and most influential authors of all time. It was taken in the grounds of his house at Yasnaya Polyana, near Tula, Russia. It is original colour, not colourised.

Steve Ellison provided his own:

Since one might be well advised to beware the Ides of March, here is a picture I took in 2017 of the ruins of the Theater of Pompey.

Asindu Drileba has been reading:

The importance of contrarianism emphasized by Jeff Bezos, from the Amazon 2020 Letter to Shareholders:

Differentiation is Survival and the Universe Wants You to be Typical

Our bodies, for instance, are usually hotter than our surroundings, and in cold climates they have to work hard to maintain the differential. When we die the work stops, the temperature differential starts to disappear, and we end up the same temperature as our surroundings….While the passage is not intended as a metaphor, it’s nevertheless a fantastic one, and very relevant to Amazon. I would argue that it’s relevant to all companies and all institutions and to each of our individual lives too. In what ways does the world pull at you in an attempt to make you normal? How much work does it take to maintain your distinctiveness? To keep alive the thing or things that make you special?…This phenomenon happens at all scale levels. Democracies are not normal. Tyranny is the historical norm. If we stopped doing all of the continuous hard work that is needed to maintain our distinctiveness in that regard, we would quickly come into equilibrium with tyranny….We all know that distinctiveness – originality – is valuable. We are all taught to “be yourself.” What I’m really asking you to do is to embrace and be realistic about how much energy it takes to maintain that distinctiveness. The world wants you to be typical – in a thousand ways, it pulls at you. Don’t let it happen.

Mar

25

We were younger

March 25, 2025 | Leave a Comment

i had the privilege of sitting at the actual Galton desk and a secretary was using it. Jensen and I complained about the sacrilege, and the secretary moved to a modern desk. I noted there in Galton's library a well-read copy of the 1st edition of Wealth of Nations.

we were younger:

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

Vic's X/twitter feed

Mar

24

Vic's X/twitter feed

Mar

23

Dear Mr. Tredoux : I am now through p. 157 of the first volume of your bio of Galton, Francis Galton's Nature and Nurture: 1822-1865. I have never found a life more interesting than yours of Galton. Even though I had read all books and previous bios of Galton I found new material on every page.(i never know he played fives and could throw)

congrats Mr. Tredoux on the Homeric epic you wrote. I particularly admired the way you followed up every mention of people Galton met until 30 with their subsequent fate and fame.

I am sure Mr. Tredoux that many of my friends now departed (like Arthur Jensen) would have enjoyed and learned from your book as I did ( with many questions and follow up still to be.

Perhaps you will cover it later but I still have not seen the answer to why Galton did not have children. (was it the few moments of Pleasure that he experienced on his Islamid travels at age 25?)

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Mar

21

Global Investment Returns Yearbook 2025
(Public summary edition available as free download.)

The Global Investment Returns Yearbook, a body of work assembled by Professor Paul Marsh and Dr. Mike Staunton of London Business School and Professor Elroy Dimson of Cambridge University, has established itself as the definitive source for the analysis of the long-term performance of global financial assets. The 2025 edition, launched today by UBS Investment Bank and UBS Global Wealth Management’s Chief Investment Office, marks something of a milestone, providing us the opportunity to compare the first quarter of the 21st century’s market performance with that of the 20th century. This edition also includes a deep dive on diversification.

Mar

20

WealthWise Relaunch: Jeffrey Hirsch & Larry Williams Unveil 2025-2027 Market Strategies

CrossCheck Media proudly presents the relaunch of WealthWise, now hosted by market expert Jeffrey A. Hirsch, Editor-in-Chief of the Stock Trader's Almanac! In this exciting first episode, Jeffrey welcomes legendary trader Larry Williams, a veteran with nearly six decades of expertise in futures, commodities, and stocks.

Mar

20

I had a reverse shoe shine boy moment to day. A friend, who shouldn't talk to me about markets, talked to me: "Your boy Trump is crashing the markets. My portfolio …." I take such data points serious - in combinations.

Steve Ellison responds:

Similarly, my sister in October 2008 was getting 150 calls per day from clients asking, "Should I sell?" She worked at an insurance company that also offered investment services. My reaction at the time was, "Isn't anybody calling to ask, 'Should I buy?'"

Jeffrey Hirsch writes:

Still hearing a lot of “Should I buy?” Two weekends ago was asked if would come on cable biz Monday 2/24 to say I was buying mega cap tech. I declined and said I did not think is was time. Posted this that day.

Updates:

Nils Poertner writes:

valid observations here. good to pay attention to odd moves, anything strange (eg like bund move recently) - as there may be more odd things coming!! in other words, be like Alexander Fleming - who stumbled on penicillin by chance - and didn't bin the sample as he wasnt looking for it.

Adam Grimes comments:

I obviously understand the shoe shine boy/taxi driver point here, but it's worth considering that market psychology is not asymmetrical.

P. Humbert responds:

Hi Adam. there is high risk, that I initially heard about the old masters from your writings. I agree, that it probably has more weight for tops. I think, that is where you are pointing to? My friend has quite a good performance in being wrong. He called the the Bitcoin top being bullish and some more. He is a nice guy, just not for markets.

Adam Grimes agrees:

Yeah that's always been my thinking–a little more actionable with exuberance at tops. Bottoms tend to overshoot a bit more, on balance, so I think the shoe shine boy cries uncle a bit too soon.

Nils Poertner adds:

sometimes the crowd is right or they have a hunch but they don't connect the dots yet
eg. "a bit of subprime" in early 2008 - as sort of consensus view among your typical investor back them it was high time to position extra cautious.

Bill Rafter comments:

The “crowd” is mostly right, but the problem is that there are usually several crowds, and of course the composition of the crowds change. If you’re lucky, there will only be two crowds, the knowledgeable ones, and those “asleep at the switch”. The trading rule is simple: follow the informed ones, particularly if the uninformed ones are 180 degrees away. A classic example of this is the Commitment of Traders Report. Ideally the reporting specs will be one way, with the non-reporters the other way (and preferably short). Without the benefit of COT, you can identify best- and worst-informed with regression.

Mar

19

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.

- Robert A. Heinlein

best for stocks, now 20 days since ATH.
UBS Global Investment Returns Yearbook 2024
Leveraging deep history to navigate the future
Elroy Dimson, Paul Marsh, Mike Staunton

one has been reading of the Lunar Society and the early childhood of Francis Galton in the fascinating and magnificent book Francis Galton's Nature and Nurture: 1822-1865. one of my favorite books of all time.

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