Sep

15

Vic tweeted that "after 5 down days in a row for S&P, it's very bullish. 5 days later only 2 of ten down with high positive expectation especially with bonds up and last one down."

That provoked a quick counting project. The main issue with this analysis is that everything is overlapping, but nonetheless I think it's an interesting result.

The data is SPY adjusted closes from inception thru 6 Sept. I identified all the down days and the streaks of down days, including 1-day "streaks", up to the longest which were 8-day streaks. So each down day fell into a bin, 1 up to 8. Each down day was put in a bin, whether it was the last day in a streak or not. (This eliminates the look-ahead bias of just considering only the final day of streaks.)

Then I calculated the 5-, 10- and 20-day % moves for every day in the data and compared the results for all the down days with the % moves for all days.

The table shows the results, with the best outcomes - streaks of 3, 4, and 5 days - highlighted.

Sep

14

the more he claims he won, the greater the odds against him. reminds me so much of the refereeing against me in the 1970's. of the 5 national singles i won, my opponent in finals didn't reach double digits. that was the only way for me to overcome bias.

Ed. - Racket Guy from Brooklyn, Sports Illustrated, March 03, 1975:

To the victor—Victor Niederhoffer, that is—belongs another silver pitcher. Last week in New York, at 31, he won the U.S. National Singles Squash Racquets championship for the fifth time. His opponents did little but gasp, sweat and run. But Niederhoffer seemed to play effortlessly. His shots were not always brilliant, but he patiently waited out long rallies, and his frustrated opponents consistently found themselves in situations where most of their moves were of high risk. And then they were forced to make mistakes which ruined them.

reminds me of what my father always said when people told him how good he looked as he was suffering from chemo: "thank you, i'll be the healthiest corpse in the graveyard."

the symmetry of it all. last week 5 down days in a row - from 5659 to to 5515. this week 5 days up in a row from 5421 to 5630.

Vic's X/twitter feed

Sep

13

Politics, money

September 13, 2024 | Leave a Comment

the forces of regulatory capture won the debate handily and that is good for the stock market. more emoluments to business. more centralized control, or as Waltz says, "neighborliness".

As money mutates into a new form that demands all kinds of markets, new ways of making financial transactions, and new kinds of business.

From: The History of Money, by Jack Weatherford.

From primitive man's cowrie shells to the electronic cash card, from the markets of Timbuktu to the New York Stock Exchange, The History of Money explores how money and the myriad forms of exchange have affected humanity, and how they will continue to shape all aspects of our lives–economic, political, and personal.

Vic's X/twitter feed

Sep

12

Book Review by Victor Niederhoffer: The Math Behind the Music (25 Sept, 2006)

The Math Behind the Music (Cambridge University Press, 2006) by Leon Harkleroad, will be of interest to musicians, mathematicians and marketicians. In a form that is accessible to every layman, the author describes the elementary mathematical principles behind sounds, instruments, compositions and visual aspects of scores in just 135 pages with a nice section of references and an included CD that covers examples of music that used math. No background is required as even such simple lower-school concepts as the factorial are developed by counting.

The first chapter is about the connections, history, common abstract patterns, and the composers and compositions that used math. The second chapter is about the physical basis of harmony, pitch and timbre that make up music. Considerable attention is paid to the frequency relations of various harmonies, and it's a good refresher for those who don't remember off the top that a fourth comes from any note by raising its frequency by 4/3, a fifth by raising its frequency by 1/2 and an octave by doubling. Sine curves are introduced to encapsulate the frequency patterns of various notes produced at different pitches by different instruments. Overtones are explained simply as the ratios of higher frequencies that a note produces that don't block out the original frequencies and the relation between harmonies and overtones is shown.

The third chapter discusses instrument tuning systems consistent with all the overtones and frequency relations between the notes of a scale.

The fourth chapter is the most interesting in that it shows how themes and melodies can be varied with simple rules such as opposition, inversion, and transposition. The relation between these simple rules and group theory are examined, and various ways of notating and combining the rules are covered.

The fifth chapter is about bell music, which is merely a variation of permutation and combination theory.

The sixth chapter is about randomization in music, with many of the same methods used to construct music as we use for simple simulations in markets.

The seventh chapter is about an attempt by one student to find the common basis, the patterns of harmony that make up the most popular songs. The eighth chapter is about how scores of music can be developed from visual cues, with rules to go from visual to music.

The ninth and final chapter is about failed efforts to combine music and math, with particular reference to George Birkhoff's efforts to develop a complete theory of aesthetics by developing a scale of beauty based on the simplicity-to-complexity ratio of a composition.

I found myself thinking many times of the relations between music and markets as I read the book. The combinations of opposites and inversions (where the intervals above a note and played the same intervals below, and transpositions (where the same theme is repeated a given number of intervals up) happens every day in the markets. The notation that musicians have developed to grapple with these techniques, including the summary of horizontal and vertical movements in visual sightings that the composer Villa-Lobos used to construct symphonies that depict buildings in a city, seems like a very fruitful field to augment technical analysis of markets.

The book is full of anecdotes and charts and methods that will be right on the top of the page for market practitioners, and will spark many a fruitful extension by those who wish to take the pencil to paper, and systematize what they have been doing in markets or charting with the work of some great composers and mathematicians in this related field.

Laurence Glazier offers:

This sounds a fine book. Abstract shapes indeed can be used for thematic material, in my chess days I considered using the outline of pawn structures like black's in the Dragon Variation. My mentor uses the letters in his friends' names. Music is developed by changing patterns in various - ever-changing! - ways, whether transposition, inversion, speed-changing, and I would add to the list in the book the use of rotation, a technique Chris Sansom and I used in the Fractal Music software. All this (except presumably rotation) applies in trading. The issue is whether it is predictive for traders, and that is akin to trying to predict what a Bach would do, the patterns are especially evident once they have happened.

Asindu Drileba adds:

The work of Dmitri Tymoczko might also be interesting for those that want to understand the relationship between randomness and music.

Sep

10

It's a critique of the relatively famous Kahneman et al study on how meal breaks affected sentencing by judges:

Impossibly hungry judges

Which also led to more background, because I had not heard of "Cohen's d":

Effect sizes

Jacob Cohen (statistician)

Sep

9

Bud Conrad comments:

The US BLS understates inflation, which causes the calculation for Real GDP growth to become overstated. Thus, we have a recession going on, but it is hidden by the BLS's low inflation rate. The rich are doing well as asset prices have risen; the rest have lost ground because the cost of everything has increased more than the labor rates.

Ditto on jobs and employment that suggests there are lots of new jobs every month, but then restates the number downward in succeeding months, which accumulated to 818 K jobs that are overcounted in the year ending March.

The supposed Fed's being "data dependent" is a cop-out from thinking "How to stabilize the dollar", meaning that they claim they will use these corrupt numbers for policy decisions.

Sep

7

Buildings Don't Lie: Better Buildings by Understanding Basic Building Science
Hardcover – January 1, 2017
by Henry Gifford (Author)

A simple, clear, thorough, and complete explanation of basic building science applicable to any building in any climate. Over 1,000 large color drawings and photos, plus fun quizzes. No charts, graphs, or math. Read this book and become your own expert on making buildings comfortable, healthy, safe, durable, and very energy efficient, because you will understand the underlying science of the movement through buildings of heat, air, water, light, sound, fire, and pests, and how these can be controlled. This book also includes sections on designing building enclosures, indoor air quality, choosing heating and cooling systems, and how to ventilate, heat, and cool different types of buildings.

Henry Gifford comments:

Yes, I wrote and published that book, now in its fourth printing. Book is divided up into chapters on basic science, nothing about buildings, followed by that science applied to buildings, to learn the science better and to understand buildings better. Could ruin some of your teenage offspring for some college science classes.

Gyve Bones appreciates:

I am grateful and obliged to Henry for his magnificent book. I have long lamented not having an owner's manual for my house and this would seem to fill that need—not only the owner's manual, but the service manual as well, and along the way lessons in physics, fluid dynamics, thermodynamics, natural philosophy, and practical engineering. Very well illustrated and pains-takingly explained. I am enjoying learning so much I took for granted or was ignorant of in the science and technology of creating and maintaining a comfort-able habitable shelter.

Sep

5

From Ask the Specs, by Victor Niederhoffer, Laurel Kenner, and Dr. Brett Steenbarger (December, 2003):

May I issue a call for an emphasis on predictive distributions rather than descriptive studies? By predictive, I mean, a study that:

• enumerates all observations of what has happened after a defined market event over a specific period of time;
• weighs whether the results indicate a random phenomenon or a tradable anomaly;
• measures the uncertainty associated with the latter conclusion; and
• predicts the probability that an x-percent move will follow the event being studied.

Based on my experience, the biggest mistake a trader can make is to concentrate on “advanced” methods such as Hurst exponents, regression coefficients, Fourier series, chaos, wavelets, fractals, et al. Unfortunately, all of those sophisticated techniques will get you nothing but a barrel of retrospective nothingness.


The key is to find a measure that can be calculated often and independently and then use it to predict. For example, what happens in the next one, five and 10 days after stocks reach a 20-day low? The philosophic memory and longings and expectations of the market are of great interest, but I have found queries as to whether they trend or reverse in accord with Prechter or Fibonacci or Elliott a distraction to the pursuit of profitable trading.

You could put the 100 smartest academics in the world in a room and let them try to predict the market for 100 years, and unless they were steered on a path to make fruitful predictions with readily ascertainable estimates of uncertainty, constantly adjusting for ever-changing cycles, they would achieve below-random results. The numerous professors I have hosted and supported in my office have not disabused me of this assessment.

Sep

4

Richard Hamming, "You and Your Research", June 6, 1995 (44:02)

The Art of Doing Science and Engineering: Learning to Learn was the capstone course by Dr. Richard W. Hamming (1915-1998) for graduate students at the Naval Postgraduate School (NPS) in Monterey California.

This course is intended to instill a "style of thinking" that will enhance one's ability to function as a problem solver of complex technical issues. With respect, students sometimes called the course "Hamming on Hamming" because he relates many research collaborations, discoveries, inventions and achievements of his own. This collection of stories and carefully distilled insights relates how those discoveries came about. Most importantly, these presentations provide objective analysis about the thought processes and reasoning that took place as Dr. Hamming, his associates and other major thinkers, in computer science and electronics, progressed through the grand challenges of science and engineering in the twentieth century.

Sep

3

Sydney Morning Herald: Three Months to Back Up the Grid as Risk of Summer Blackouts Ramps Up.

Interesting Engineering: Australia Is Generating Too Much Solar Power (12:25).

IMO, expect:

1. volatile wholesale energy prices, including deeply negative prices,
2. forced load shedding and expanding demand-response programs,
3. sudden awareness that infrastructure is needed,
4. growing reliance on natural gas/ LNG, and
5. growing interest in competitive energy contracts

Sep

2

Counting: Seasonality

September 2, 2024 | 1 Comment

A lesson from the archives: Seasonality and changing cycles, by Victor Niederhoffer and Laurel Kenner, (04/26/2004)

A good part of the anomaly literature is devoted to studies of seasonality. A basic problem with these studies is that merely picking a season to study involves making guesses as to when and where the seasonality is. For example, is it in January or December, on Monday or Friday, in the United States or the Ukraine? (Yes, our Google search turned up a study of anomalies in the Ukraine.) Thus, the very choice of a subject might involve random luck.


Another aspect of seasonality studies that must be considered is whether the effects noted are sufficient to cover transaction costs. A retrospective study showing that you can make 2 cents more on Friday trades than Monday trades in your typical $50 stock would not be sufficient in practice to leave anyone but the broker and the market-maker richer.

Thus, it's essential to temper the conclusions of such studies with out-of-sample testing — in other words, with real trading.

[ … ]

Comment by Philip J. McDonnell, a former student of the Chairman at UC Berkeley: Dr. Niederhoffer points out that there is no a priori reason to believe that any one day of the week is stronger than any other. Thus when Y— collected the data (thank you!), presumably the reason was to find out if any days of the week behaved differently. Only after peeking at the data was it possible to say that Monday was the best and Tuesday the worst.

There are 10 such pairwise comparisons:
Mon with other 4 days 4
Tues with 3 last days 3
Wed with Thu & Fri 2
Thu with Fri 1
Total 10

In other words it is also possible that Tuesday could have been the best day and Monday the worst or any other pairwise comparison by chance alone. So when the one best and the one worst day shown by the data are compared and shown to have say a 5% significance we need to remember that we implicitly ruled out the other nine cases which weren't the best or worst. So we need to take our 5% number and multiply by 10 to get the correct significance of 50%. 50% is exactly consistent with randomness.

The problem is multiple comparisons are often subtle and remain unrecognized. Multiple comparisons are insidious because they dramatically reduce the power of the statistical tests we employ.

[ … ]

[More reading: Multiple comparisons problem]

William Huggins offers:

Bonferonni method suggests raising the confidence level proportional to the number of tested hypotheses. To get 95% confidence despite ten tests, he suggests 99.5 as a threshold.  It's a huge problem when testing which variables to include in a regression model.

Asindu Drileba writes:

The right way to do this type of thing is to form a specific hypothesis based on a single comparison and then to test it on the data. It is even possible to use data from a prior period to formulate our hypothesis. We then test our hypothesis on the subsequent period which excludes the period where we formed our hypothesis.

This is an approach used in machine learning. Datasets are always split into "training" and "test" datasets. "Training" datasets are exclusively used to build the components of the model. "Test" datasets are not used to build the model at all. They are excluded when building the model. The model built using the "training" dataset is then asked to make predictions on the "test" dataset. The accuracy on predictions made on the "test" datasets is then used to determine how accurate the model is (so it can be tuned for improvement or thrown away).

I found this particular statement from the full post so insightful because I didn't think of applying this approach to building models using other statistical methods (I thought it was something limited to machine learning).

Sep

1

Executive Hobo: The Extraordinary Life of Bo Keeley
Changing Roads Podcast

Travel back in time with us as we sit down with the legendary adventurer, Bo Keeley. From his humble beginnings, to veterinary school, to his rise in fame in sports, to his break from society, trading a normal life for the hobos life, to traveling the world, to his unconventional home in a shipping container in Slab City, California, Bo's life is a testament to relentless exploration and resilience.

With every twist and turn, Bo imparts invaluable lessons on survival, curiosity, and the unyielding human spirit. This episode is a treasure trove of stories from a life lived on the edge, full of profound moments and unforgettable encounters.

Aug

31

Trader longevity

August 31, 2024 | Leave a Comment

Shigeru Fujimoto, age 88:

Video: Why the Japanese Yen Is So Volatile
Bloomberg Originals

Asahi Shimbun: 88-year-old Kobe day trader talks about his life, investing keys

Fujimoto has lived his life by the philosophy that, "You should take a chance, even at the risk of a failure, when something makes you think, ‘This is it’, whatever your age.”

He began operating mah-jongg parlors after he had a flash of inspiration saying, “This is it.” The parlors prospered, and he sold the business for 65 million yen after it had grown large enough to have three outlets.

He capitalized on his nest egg to become a full-time investor in 1986. He rode the tide of Japan’s asset-inflated economic boom of the late 1980s and increased his assets at the time to 1 billion yen.

The economic “bubble,” however, burst. There was nothing he could do as his assets slid to 200 million yen. He suffered an additional blow from the Great Hanshin Earthquake of 1995, which left the entranceway to his apartment crushed.

He fled the strong tremors with only the clothes on his back and walked barefoot on streets that were littered with glass shards. His heart drifted away from investments as he lived the life of an evacuee in an elementary school building.

A turning point came when Fujimoto became acquainted with the world of online stock trading in 2002. Fujimoto, who was 66 at the time, had never even touched a personal computer, but he was undaunted.

His approach has, of course, sometimes led him to make wrong decisions and suffer failures.

“I have stumbled not just seven, but about 50 times,” Fujimoto said in referring to a Japanese idiom that goes, “stumble seven times but recover eight.”

Aug

30

many market lessons The Warrior's Path: Wisdom from Contemporary Martial Arts Masters. concentrate on one move or trade. be humble, et al. start at 5 yrs old. stick to one martial arts. what else?

Karate: The Art of Empty Hand Fighting: The Groundbreaking Work on Karate, by Hidetaka Nishiyama (Author), Richard C. Brown:

The remarkable strength manifested by many individual karate techniques, both offensive and defensive, is not the mysterious, esoteric thing many observers, as well as certain proponents of the art itself, would have you believe. On the contrary, it is the inevitable result of the effective application of certain well-known scientific principles to the movements of the body. Likewise, knowledge of psychological principles, along with constant practice, enable the karate man to find openings and execute the proper techniques at the proper times, no matter how minute the movements of his opponent. At an advanced level, it is even possible for a karate expert to sense the movements of his opponent before they take place.

grandfather Martin's favorite song from the 1930's:

Most Gentlemen Don't Like Love

Vic's twitter feed

Aug

29

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

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

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

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

Henry Gifford provides some analysis:

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

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

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

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

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

Aug

28

often the markets move to a constellation where the expected move is different despite the similarity of the independent variables. Bacon called it ever changing cycles. the silviculturists call it a reaction norm:

A ‘reaction norm’ describes the sensitivity of an organism, or of a set of organisms of the same genotype (e.g., the members of a clone), to some specific environmental variable. It quantifies phenotypic change (or lack of change) in a selected aspect of the phenotype as a function of variation in the environmental factor of interest.

A book of interest on this and other topics:

Geographic Variation in Forest Trees: Genetic Basis and Application of Knowledge in Silviculture

Geographic Variation in Forest Trees is the first book to examine this subject from a world-wide perspective. The author discusses population genetic theory and genetic systems of native North American tree species as they interact with environments in the major climatic regions in the world. He then demonstrates how this knowledge is used to guide seed zoning and seed transfer in silviculture, basing much of his discussion on models developed in Scandinavia and North America. In the final chapter, the author addresses the issue of genetic conservation — a subject of great concern in the face of accelerated forest destruction, industrial pollution, and climatic change. This comprehensive, well-researched book makes a significant contribution to the knowledge of one of our most important renewable natural resources.

More background: Phenotypic plasticity

Vic's twitter feed

Aug

27

Applied Linear Statistical Models, by J. Neter, M. H. Kutner, C. J. Nachstein, and W. Wasserman, (Times Mirror Higher Education Group, Chicago, 1996), 4th ed.

I have been using and teaching from Neter et al.'s book on regression for 28 years now. Great book. First chapters show you how to do univariate regression via loop/summation indexing on a worked example, then they show you how to do multivariate regression using matrix notation. All the best/hard topics are covered, including multi-collinearity and prediction intervals. You need to understand regression at this level to know when it is working and not working, as well as to code it and interpret outputs from stats programs like JMP. The 2nd half of the book shows you how to do ANOVA in terms of regression.

There is a 5th edition out, and you can download the pdf from various places.

Aug

26

A Primer on Correlation and Regression, by Victor Niederhoffer
(07-Nov-2006)

Applying Regression and Correlation: A Guide for Students and Researchers, by Jeremy Miles of the RAND Corporation and Mark Shevlin of the University of Ulster, illustrates the proper and pitfall-laden path that leads to the many beautiful and illuminating things that correlation and regression can accomplish. The book is written for psychology students without any training in calculus, and it contains simple examples and extensive commentary on the regression output from standard statistical programs such as SPSS. However, the applications for psychology are almost identical to those that would be used in markets, with such variables as industries substituted for classes and companies for individuals.

And what a wonderful array of applications and extensions this book contains. I found myself augmenting my knowledge or learning something new on almost every page, and I have read many dozens of books on this subject. There are great sections on how to code your data so that you can do categorical regression, categorical covariance, structural equation analysis. There is a very good section on how to go through all the steps of logistic regression with simple examples and calculations to show how the maximum likelihood solution is computed. There is a very fine discussion of the reasons that you should never use stepwise regression and why hierarchical regression is much better. There is a complete chapter on all the computational methods of measuring the individual contributions to the prediction and the influence of each independent variable and each observation in the regression.

One of the main themes of the book that hold everything together is that everything that can be done with the usual analysis of variance techniques can be done with regression, but that regression does so much more. While I had read this before, I had never seen such a clear exposition of how to code the data so that you can actually accomplish the transformation and always come up with the more complete and useful regression solutions to such problems.

Read the complete review.

Aug

25

What is the role of Machine Learning models and Features selection in this "counting" philosphy? Have all these "new" methodologies overcome and made useless the traditional counting and statistical approach? Or can they coexist, as long as one can find a niche in which to conduct profitable operation?

William Huggins responds:

ML and feature selection run on "traditional statistics", which is basically about comparing empirical data to what randomness around a benchmark should look like. think of them as like hydraulics, which transformed the shovel into the backhoe for large operations but without rendering the "basic version" obsolete.

Big Al links:

In the Google Crash Course in Machine Learning, the first model is Linear Regression.

Aug

24

In all these years I could never understand how this [counting] approach can coexist with affirming the reality of the ever-changing cycles. Like how do you know when to trust this counting and when the cycles changed on you?

H. Humbert responds:

My understanding has been that counting is also usually rather simple and apparently (but not) naive statistics. That there's great power in simply comparing counts on a fundamental level. And yes, everything cycles, but cycles have their predictability as well so our data gathering needs to understand this. Am I wrong on this?

Peter Ringel writes:

to have a workflow for out-of-sync systems is a/the king's discipline of trading to me. Monitoring the equity curve in a naive or clever manner is probably always involved. Ever changing cycles / relations is often a function of reflexivity, IMHO. Required minimal sample size is also important here. Because of the drift, one can get away with quite a lot in equities. But laziness it is.

H. Humbert responds:

cycles have their predictability

Seems questionable as it relates to counting.

Peter Ringel replies:

cycles, as in phases/regimes, not as in 7-week cycles. Though the senator showed us many "classic" cycles too.

Larry Williams comments:

Once you count and have the numbers you may find patterns or cycles, etc.

Humbert H. asks:

But we're talking about the "ever-changing" part. How do you know when past information is no longer as predictive as it once was?

Larry Williams responds:

Great question. in my working theory of cycles all data is important for long term. for shorter term 5-10 years… but I am still a student of this stuff.

Aug

24

I remember an interview by Vic where he said he did a lot of "counting". Does he mean combinatorics? Or something else. What are some resources where he has talked about this "counting" in more detail?

William Huggins replies:

he literally meant count the data/do the math. at its most basic, statistics is about counting and comparing to the results we would have expected from randomness. too many people form their beliefs because they were told something, or were presented with cherry-picked "supporting" data so the chair's injunction has been to actually check before committing capital.

Zubin Al Genubi adds:

Count the number of: Private Jets, pretty girls, closed businesses, for lease signs, big market drops, increase in vix, number of down days, number of days since last high/low, volume of trades, bids, offers, crashes, all time highs, stocks at new highs/ lows, crosses of round numbers, cigarette butt length, change in price, etc etc.

Test: is number above or below mean/ median? How many standard deviations away from mean? What happened after the time of count?

Penny Brown adds more:

I'll add to the list: the price of thoroughbred horses sold at auction and the length of women's dresses. (long hem below knee is bearish as was style in 70s, short hem in mini skirts is bullish)

Asindu Drileba responds:

Thank you. "Test Everything" is definitely something that keeps coming up whenever I listen to the chair.

Humbert H. asks:

In all these years I could never understand how this approach can coexist with affirming the reality of the ever-changing cycles. Like how do you know when to trust this counting and when the cycles changed on you?

Laurence Glazier offers:

Music is the pleasure the human mind experiences from counting without being aware that it is counting.

- Gottfried Leibniz

Aug

23

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

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

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

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

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

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

2024/2025
$28.92 / MW-day

2025/2026
$269.92 / MW-day

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

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

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

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

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

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

Kim Zussman wonders:

XLU?

Big Al observes:

XLU up 25% from Feb low.

Jeffrey Hirsch was there before us:

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

Humbert H. writes:

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

William Huggins offers:

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

Aug

22

A great thanks to Henry for sharing his book Buildings Don't Lie. As a prospective homeowner, I plan to devour it upon arrival.

I don't have a proper book to share but I did author a course on financial history that I teach. To help my students, I recorded all the one-directional talks as short videos. Rather than proceeding chronologically overall, I broke things down into 11 topics (plus an intro) and did those chronologically: payments, debt, banking, central banking, companies, stock markets, derivatives, insurance, trusts and funds, pensions, government finances.

Aug

21

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

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

Aug

18

Back in the day, Chair treated spec-listers to a night of classical music at Lincoln center, then dinner at Picholine. It was an unsurpassed evening, especially in generosity. The last course was a cheese course, and the restaurant's cheese sommelier - Max McCalman - made a short presentation about the wonderful cheeses being served.

This was Mrs and my introduction to fine/delicious cheeses, which we enjoy to this day. Max showed us his book The Cheese Plate, and immediately Chair offered free copies to all the ladies in the room and asked Max to autograph them. The Cheese Plate remains a valued book in our collection.

Here is Max and an aficionado.

Alex Castaldo adds:

Yes, I remember that dinner well! Vic took guests to the best restaurants of New York in the early 2000s (Boulud, Le Bernardin, Picholine, Four Seasons, etc.). Those were great occasions, that I will always remember. Met some knowledgeable people, including Henry Gifford, on some of those occasions. Unfortunately I also remember that I never adequately thanked Victor for his generosity. Which I regret.

Aug

17

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

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

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

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

Big Al links:

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

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

Aug

16

The Potential for AI in Science and Mathematics - Terence Tao

Terry Tao is one of the world's leading mathematicians and winner of many awards including the Fields Medal. He is Professor of Mathematics at the University of California, Los Angeles (UCLA). Following his talk, Terry is in conversation with fellow mathematician Po-Shen Loh.

Po-Shen Loh is an American mathematician specializing in combinatorics. Loh teaches at Carnegie Mellon University, and formerly served as the national coach of the United States' International Mathematical Olympiad team. He is the founder of educational websites Expii and Live, and lead developer of contact-tracing app NOVID.

Aug

14

Observations

August 14, 2024 | Leave a Comment

one listens to the radio broadcast of the yankees game. about 60% of time is devoted to advertisement. about 95% of these ads are dei. why?

amazing jump for regulatory capture of 35 percentage in just 3 weeks.

Vic's twitter feed

Aug

13

diffusion of information has been applied to everything (soon AI ) but not to change in relations of markets. a good book.

Diffusion of Innovations, 5th Edition Paperback – Illustrated, August 16, 2003, by Everett M. Rogers

In this renowned book, Everett M. Rogers, professor and chair of the Department of Communication & Journalism at the University of New Mexico, explains how new ideas spread via communication channels over time. Such innovations are initially perceived as uncertain and even risky. To overcome this uncertainty, most people seek out others like themselves who have already adopted the new idea. Thus the diffusion process consists of a few individuals who first adopt an innovation, then spread the word among their circle of acquaintances—a process which typically takes months or years. But there are exceptions: use of the Internet in the 1990s, for example, may have spread more rapidly than any other innovation in the history of humankind. Furthermore, the Internet is changing the very nature of diffusion by decreasing the importance of physical distance between people. The fifth edition addresses the spread of the Internet, and how it has transformed the way human beings communicate and adopt new ideas.

Vic's twitter feed

Aug

12

This is not going to end well:

59 GW in data center load seeking to connect to Oncor’s system: CEO

Nearly three-fourths of new interconnection requests are coming from data centers, Oncor officials said.

FWIW:

59 GW ˜ 50 nuclear power plants.
80 GW ˜ 65 nuclear power plants.

1 new nuclear plant - about 15 years to build one.

Conclusion:

If these loads connect to the grid as planned, expect sizeable investments in natural gas and combined-cycle gas turbines. Turbines may share the same real estate as data centers and avoid utility costs.

I expect to see development near the Texas Waha hub (Waha prices tend to be lower than Henry Hub), or if not on or near Waha, on a pipeline connected to Waha.

CCGT strategies may work in the short term. However, history suggests they could be financially problematic for turbine owners in the long term.

Humbert H. writes:

Next gen data centers are expected to have about 18% lower in overall energy consumption. Next gen would mean it is likely happening in a couple of years. It doesn't quite move the needle in the percentage sense. But every bit helps. Let me quote what Wayne Gretzky once said, "Focus on where the puck will be at, not where the puck is at."

Aug

11

22-Aug-2006

Almost every page of the book Trees: Their Natural History teaches one new things about the workings and adaptations of trees, and I find these lessons of great value in improving my understanding of the markets.

The chapter on the shape of trees starts with the idea that one of the objectives of a tree is to raise its leaves above a competitor's, so that it can get the greatest possible share of light. It makes its shape based on a compromise between this and its other needs; its ability to pollinate and disperse its seeds, how much trunk it needs to support itself against wind, snow, and moisture, the conditions of the soil, the threat of fire and insect pests. All of the compromises vary with age.

One thing learned is that trees found at a high latitude and altitude are cone shaped with short downward sloping branches, and that the broad crowns of most hardwoods are associated with moist sites, deep shade, or harsh tree line conditions. In Britain there is a moist environment so most of the trees take on spherical shape.

Pines further south develop a flat topped umbrella shape which helps resist drying winds and maximizes convective heat loss by allowing free passage through the canopy.

The tree is an expert in shifting its center of gravity so as to minimize stress on any part of its structure. The principle it uses is to minimize lever arms. This means making the weight that any branch carries away from a fulcrum as small as possible, reducing the possibility of breakage. This principle keeps the horizontal length of a branch as small as possible, always subject to the compromise that the further a branch is extended outwards, often the more light it can get.

What the tree does is to bend its branches upright, so that the lever arms are not pulling the tree sideway. This applies not only to branches, but to the leaning of trees towards the sun. A beautiful set of diagrams illustrate the similarity of the adaptations that the tree makes to maintain a center of gravity to the adaptations a human makes to maintain their center of gravity. Trees use their terminal buds to build modules that change their shape, while humans use the brain to decide to change our center of gravity, for example when we bend forward whilst we are climbing up a hill.

Sample market hypotheses generated by this way of thinking are: The horizontal moves of markets would seem to be the reversals that they take from a given center of gravity. The more that they reverse to one side from a central point, perhaps a round number, the more likely that structures and activity will grow on the other side to minimize the stress. Eventually, conditions of light (competition) cause the market or a stock to move.

Alternatively, the greater the rate of ascent or descent, the more likely a market or stock is to show movement in a opposite direction to bring its center of gravity to a more stable level.

J.T. Holley responds:

Something that I have dealt with recently is the feeding of dying trees to resuscitate or bring them back to life. 'Spiking' trees with silly fertilizer spikes works well with the smaller trees, but you need bigger guns when you have the limbs leaning downward towards the ground. In parks and high traffic areas this is a huge hazard, the tree will seem to shed the limb to relieve the stress that Vic has mentioned above.

The only thing I learned regarding saving a tree is to take an auger, pipe, or some large metal rod and drive it into the ground. Rotate this until you have a two to three foot deep hole and pull it out. Fill this two thirds full of 10-10-10 and cover the rest with dirt and put your grass back over. These holes must be done around the 'drip zone' coming off the base of the trunk just inside the 'splash zone' from the outermost limbs.

I too believe, and should test, that the markets use these round numbers or spots to relieve their stress. These spots of light and competition allow it to be able to gain strength in times of weakness (sell off) to gain the nutrients to move higher and become stronger than before! Its like testing and finding Trend followers spots where they utilize "reversing stops" with their "fixed system". The Drip Zone is where the fertilizer is planted to pick 'em off and gain the edge.

Aug

10

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

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

Big Al lists:

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

Humbert H. comments:

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

Big Al responds:

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

Humbert H. agrees:

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

James Goldcamp writes:

The eyes closed one leg stand is exceptionally hard.

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

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

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

Aug

9

To be silent the whole day long, see no newspaper, hear no radio, listen to no gossip, be thoroughly and completely lazy, thoroughly and completely indifferent to the fate of the world is the finest medicine a man can give himself.

- Henry Miller

Nils Poertner responds:

Excellent. Media is like Queen Mab and we are Merlin - and Merlin had to learn to not care too much about Queen Mab…

Aug

8

I'd add that, in business and socially, don't "hang around" too long past appropriate. If you get the response you are seeking in a meeting, proposal, or discussion be courteous and respectful and get out of there. This is where Costanza had it right (his practice of leaving a meeting on a high note after a good joke). I found this to be a commercially, socially, and romantically valid concept.

Nils Poertner offers:

some may like the list that Gurdjieff gave to his daughter. (a number of overlaps)

Sushil Rungta writes:

I am quite mortified as I post this message but in the spirit of camaraderie posting it even though, in doing so, I am indulging in a little self promotion (totally unintended). I frequently write to my children sharing my experiences and what life has taught me. A very few of these I also publish on LinkedIn and Medium.com. Providing a link to two of these letters:

A Father's Message

12 Lessons from a Father

Hope you like them and please do excuse me for this immodesty.

Aug

7

Essentials

See what you look at. Listen to what you hear. Feel what you feel.

Finding a way to use heart, hand, and mind together leads to joy.

Treat yourself as you would a dear friend.

Don’t lie. Lying tangles up your heart and mind. Lies require more lies, sapping energy.

Much of what is considered normal is wrong or worse.

Turn away from cynicism, intoxication, and callousness.

Read Xenophon’s account of Cyrus to learn about leadership. Read Seneca and Publius to learn how to retain your composure and virtue through Fortune’s ups and downs.

Be trustworthy.

Keep a good reputation.

Don’t talk trash about others behind their backs. That sort of talk has a way of flying like a bird back to the target and can turn people into enemies. Talking trash also makes your companions wonder what you say about them when they’re not around.

Genial curiosity can sometimes defuse bad situations.

Bad behavior is often about them, not you.

Deportment

Good manners reveal strength.

Respecting others as human beings is the essence of good manners. You don’t have to overthink it; good manners are often about little things, such as:

Get to appointments early.

Open doors for people with crutches and watch out for their feet.

Open doors for women and mothers with baby carriages.

If a woman joins you at a table where no seat is empty, give her yours. Pull the seat out for her and help her settle in.

Do not swear. It makes you seem churlish.

Don’t comment on the appearance of others. The exceptions: Tell your wife she looks lovely and tell a friend if his fly is open.

Do not make fun of what another person eats, drinks, or thinks.

Invest in comfortable, well-made clothes. Cheap clothes waste money because they don’t last, and they make people wonder if you will be as careless with them as you are with your own appearance.

Women

As you know, one of your most important roles is to protect women.

Women are vulnerable to falling in love too quickly, because they instinctively want a family. That's true of all women.

Sexually liberated women do not exist. Recognize that women who think they can act like men are prey in a harmful culture. You must protect them.

At Home

Wash sheets and pillowcases weekly.

Light and fresh air are healthy. Keep the windows in your room open if possible.

Follow the one-touch rule: Put things in their places. Put dirty clothes in the hamper. Put dishes in the dishwasher. Throw out papers you don’t need.

An orderly house helps keep life happy and productive.

Gratitude

Gratitude creates happiness. Write down five things you’re grateful for in a notebook every day.

Adulthood

What does it mean to become an adult? In a word: responsibility. Paying rent. Creating and protecting your family. Planning ahead. Making a career. Fulfilling your obligations. Making money. Contributing to freedom, community, earth.

On a higher level, adulthood is the ability to consider two opposing concepts. Adults can deal with ambiguity and subtlety.

Many wise sayings have converses that are equally wise and true. For example, perseverance and endurance are virtues; but the adage “survival is mobility” saved many Jews from the Nazi death camps.

In our modern world, “survival is adaptability” may be more apt. You must become adaptable without losing your soul.

Farewell

With all my love, I send you out into the world, an eagle destined to soar among mountain peaks. Be strong. Don’t forget to call.

-Mom

Vic adds:

beautiful advice - reach out to learn new things and be good to friends. don't be too trusting.

Sushil Rungta writes:

Wonderful lessons. While I loved all, the lessons on respecting others resonate with me the most. How often we behave callously towards others! Sometimes, unintentionally. Here, practicing mindfulness really helps.

Aug

6

Since I have become my grandson’s teacher (and playmate), I’ve been compiling advice lists. Wish someone had shared this with me.

1. Don’t call someone more than twice continuously. If they don’t pick up your call, presume they have something important to attend to.

2. Return money that you have borrowed even before the person who loaned it to you remembers or asks for it. It shows your integrity and character. The same goes for umbrellas, pens, and lunch boxes.

3. Never order the expensive dish on the menu when someone is treating you to lunch or dinner.

4. Don’t ask awkward questions like ‘Oh, so you aren’t married yet?’ Or ‘Don’t you have kids?’ Or ‘Why haven't you bought a house?’ Or ‘Why haven't you bought a car?’ For God’s sake, it isn’t your problem.

5. Always open the door for the person coming behind you. It doesn’t matter if it is a guy or a girl, senior or junior. You don’t grow small by treating someone well in public.

6. If you take a taxi with a friend and he/she pays now, try paying next time.

7. Respect different shades of opinions. Remember, what may seem like 6 to you might appear as 9 to someone else. Besides, a second opinion is good for an alternative.

8. Never interrupt people while they are talking. Allow them to pour it out. As they say, hear them all and filter them all.

9. If you tease someone, and they don’t seem to enjoy it, stop it and never do it again. It encourages one to do more and shows how appreciative you are.

10. Say “thank you” when someone is helping you.

11. Praise publicly. Criticize privately.

12. There’s almost never a reason to comment on someone’s weight. Just say, “You look fantastic.” If they want to talk about losing weight, they will.

13. When someone shows you a photo on their phone, don’t swipe left or right. You never know what’s next.

14. If a colleague tells you they have a doctor's appointment, don’t ask what it’s for. Just say, "I hope you’re okay." Don’t put them in the uncomfortable position of having to tell you their personal illness. If they want you to know, they'll do so without your inquisitiveness.

15. Treat the cleaner with the same respect as the CEO. Nobody is impressed by how rudely you treat someone below you, but people will notice if you treat them with respect.

16. If a person is speaking directly to you, staring at your phone is rude.

17. Never give advice until you’re asked.

18. When meeting someone after a long time, unless they want to talk about it, don’t ask them their age or salary.

19. Mind your business unless anything involves you directly - just stay out of it.

20. Remove your sunglasses if you are talking to anyone in the street. It is a sign of respect. Moreover, eye contact is as important as your speech.

21. Never talk about your riches in the midst of the poor. Similarly, don't talk about your children in the midst of the barren.

22. After reading a good message, consider saying, "Thanks for the message."

APPRECIATION remains the easiest way of getting what you don't have.

Aug

5

From Cellular bet-hedging:

Today, we seek to gain some insight into how bacteria bet hedge. We will imagine that we are designing the stress response system for a custom, designer super-bacterium. Our goal is to maximize its survival and proliferation. To help it out, we provide it with an array of sensors, information processing circuits, and responses—exactly the sorts of circuits we have been studying.

A poor little bacterium doesn’t stand a chance of accurately predicting future temperature, salt, toxins, antibiotics, and attacking immune cells all by itself. Instead, it uses a form of biological bet hedging, in which the shared genome of a clonal cell population effectively spreads its bets, in the form of individual cells, across multiple physiological states, each adapted to a different possible future.

It is part of a larger course called Biological Circuit Design. I really don't like reading maths as I don't understand most of it. But fortunately, this course also has Python implementations for a lot of the concepts they outline.

Big Al adds:

You might also call this a good example of portfolio diversification.

The portfolio concept in ecology and evolution

Biological systems have similarities to efficient financial portfolios; the emergent properties of aggregate systems are often less volatile than their components. These portfolio effects derive from statistical averaging across the dynamics of system components, which often correlate weakly or negatively with each other through time and space. The “portfolio” concept when applied to ecological research provides important insights into how ecosystems are organized, how species interact, and how evolutionary strategies develop. It also helps identify appropriate scales for developing robust management and conservation schemes, and offers an approach that does not rely on prescriptive predictions about threats in an uncertain future. Rather, it presents a framework for managing risk from inevitable perturbations, many of which we will not be able to understand or anticipate.

Aug

4

Book Review from Victor Niederhoffer: 'An Illustrated Guide to Theoretical Ecology'
(02 October, 2006)

Every now and then one comes across a book that completely clarifies what every educated person should know about a subject that is essential to understand as we go about the humdrum business of life and trading. Such a book is An Illustrated Guide to Theoretical Ecology, by Ted J. Case. I cannot recommend this book too highly, as it provides a foundation for thinking about competition, mutualism, growth, resource depletion, diffusion, population density, predation, life cycles and space. The book introduces the basic principles behind each of these subjects with simple algebraic equations and illustrative charts that describe various plausible relations. It then follows through with analytic solutions to develop a deep understanding.

Aug

3

Europe (decreasing use of natural gas)

It appears Europe needs less natural gas and will import lower volumes of LNG. As a whole, their gas-fired and thermal power plants are experiencing lower capacity factors. Several factors contribute to the decline.

One factor is the French nuclear power plant fleet, which has been experiencing higher capacity factors and lower production costs. Another is the EU's wind, solar, and energy storage assets, which have low production costs. Other factors include the EU's weaker economy and milder winters.

- Gavin Maguire, Reuters, 6 February 2024
- Sarah Brown, Dave Jones, EMBER, 7 February 2024
- Seb Kennedy, EnergyFlux.News, 1 August 2024
- European Network of Transmission System Operators for Electricity (ENTSO-E)

United States (increasing use of natural gas)

U.S. power plant operators generated 6.9 million MWh of electricity from natural gas on a daily basis in the lower 48 states on July 9, 2024, the U.S. Energy Energy Information Administration (EIA) said, which is “probably” the most in history, and definitely the most since at least January 1, 2019, when the EIA began to collect hourly data about natural gas generation.

The spike in natural gas-fired generation on July 9 was because of both high temperatures across most of the country and a steep drop in wind generation. According to the National Weather Service, most of the U.S. experienced temperatures well above average on July 9, 2024., with particularly high temperatures on the West Coast and East Coast.

- Sean Wolfe, Power Engineering, 25 July 2024

With July heatwaves, US ‘probably’ saw highest natural gas generation in history, EIA says

Differences

Several factors may explain why the United States is consuming more natural gas than Europe. One factor is price. Wholesale natural gas prices in the United States are much lower than in Europe.

Air conditioning is an important factor. Air conditioning is widespread in the United States but not so much in Europe. Air conditioners consume large amounts of electric power, and they are the key asset targeted by utility demand-response programs.

A related factor is that the United States has two energy-consuming peaks (summer and winter), while Europe's major peak is in the winter. With lower bulk pricing for natural gas, bulk power prices are also low, and incentives to conserve energy are muted.

Finally, the United States economy is outperforming Europe.

There's India:

- John Kemp (Reuters), India electricity generation - Selected indicators, 31 July 2024

Aug

2

Incentives

August 2, 2024 | Leave a Comment

the CEA test has a positive predictivity of 80% for colon cancer. most studies show it doesn't have a cost effectiveness. How accurate is a CEA blood test?

Doctors don't use the CEA test to make a first-time diagnosis of cancer. This test isn't an accurate way to screen for it because many other diseases can cause the levels of this protein to rise. And some people with cancer don't have high CEA levels.

but but but… the studies don't take account of the incentives and the next steps taken / it has positive predictivity of 80%. who wouldn't take the next step after a positive (CEA above 3.5)? I am not an MD. none of my kids and good friends who are MD's recommend it.

Vic's twitter feed

Aug

1

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

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

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

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

Download the 2024 International Mathematical Olympiad problems

Jul

31

A comparison

July 31, 2024 | Leave a Comment

Deep Enough, a beautiful heroic book about the same subject as a hateful book, Angle of Repose. one won the Pulitzer Prize, the other is hardly known but highly recommended by me.

Vic's twitter feed

Jul

30

Two Diets Linked to Improved Cognition, Slowed Brain Aging

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

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

Larry Williams adds:

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

Big Al writes:

Sergei's AI says:

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

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

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

Jul

29

In the 1,526 singles matches I played in my career, I won almost 80% of those matches. What percentage of the POINTS do you think I won in those matches? Only 54%.

When you’re playing a point, it is the most important thing in the world. But when it’s behind you, it’s behind you. This mindset is really crucial, because it frees you to fully commit to the next point… and the next one after that… with intensity, clarity and focus.

The truth is, whatever game you play in life… sometimes you’re going to lose. A point, a match, a season, a job… it’s a roller coaster, with many ups and downs.

[ H/t to Ritholtz ]

Jul

28

Inflection points at prior highs and lows seem pretty obvious recently especially in lowered liquidity. The market makers seem to thin and spread their markets for protection resulting in bigger directional moves. The vol gives a small trader good opportunity as the big boys dump large orders creating large auto trade moves like escalators.

Anatoly Veltman wants more information:

every word I read on three lines of text appears totally (?) random. It would be extremely impressive, if you ventured to explain at least ONE of these, and how this could be used as edge. P.S. Bonus would be to know the approximate date (?) of "lowered liquidity"

William Huggins responds:

It's not random, it's about microstructure. MMs spread their risk as they usually get caught out by information driven moves while they supply liquidity. When they spread their capital to diversify, or withdraw from choppy markets, the price impact of trading rises (Kyle's lambda).

Steve Ellison comments:

My takeaway from Zubin's post is that there are edges to be found in studying market microstructure and looking for clues in price action of what some of the key players are doing. A specific example I have found is, if you bin trading days by number of days before or after options expiration, options expiration day has had the worst total return in the S&P 500 of any day of the month in the past 6 years or so. Apparently the need for a large number of market players to adjust and re-establish hedges can create imbalances in supply and demand of various assets.

I could form a hypothesis about liquidity that a sustained price move in one direction, as happened a couple of times to the downside in the S&P 500 since July 17, is toxic for market makers and forces them to widen their spreads lest they be saddled with unwanted inventory. I'll leave it as an exercise for the reader to test this hypothesis.

Jul

27

Here's a performance of a one-movement sonata for flute and piano I wrote a few years ago.

Traditionally, sonatas were three or four movements. My goal here was to respect that structure, but to do so in a highly compressed format. The piece is built around a recurring pattern (an ostinato) that the flute first "discovers" before it lands in the bass of the piano. The middle section begins with a nod to a more primitive, primal flute. Again, a pattern is discovered that is worked and reworked in counterpoint between the instruments. This little sonata is a pretty solid reflection of my musical aesthetic: I'm striving for a whole that makes sense, but also exploring some extremes.

What I think might be interesting to the group is that some elements of this piece were generated from financial market data. (Think of a GARCH-type process.) Aspects of volatility were allowed to dictate some elements of harmonic density and texture in the piece. I bent this to my overall musical concept as opposed to leaving it bare. (I don't find much engaging in process-driven compositions… they are far more interesting to write and maybe to talk about then to hear, in most cases.)

Sushil Rungta appreciates:

Very much enjoyed it. It was marvelous. Thanks for sharing.

Peter Ringel responds:

Beautiful. TY Adam.

some elements of this piece were generated from financial market data. (Think of a GARCH-type process.)

This seems brilliant. I have no doubt that volatility is deeply human. Sadly, my ear is too poorly trained to understand your translation of this into composition.

Somewhat related: I use order-flow audible sounds during my day-trading. Like the old guys used floor noise. There is a non-regular rhythm to it. For me it is so ingrained now, I feel naked without it. It also helps with not needing to stare at the screen all the time. The Mkt- music will alert me if necessary.

[ Lagniappe: Sonata, pl. sonate; from Latin and Italian: sonare [archaic Italian; replaced in the modern language by suonare], "to sound"), in music, literally means a piece played as opposed to a cantata (Latin and Italian cantare, "to sing"), a piece sung. -Ed ]

Jul

26

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

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

Laurel Kenner comments:

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

Bo Keely reports:

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

Asindu Drileba is concerned:

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

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

Jul

25

- Lord Cochrane's 'Speedy' capturing the Spanish frigate 'El Gamo', by Nicholas Pocock

Description from the Royal Museum Greenwich:

Between 28 March 1800 and 3 July 1801, Thomas Cochrane, in command of the 14-gun brig-sloop ‘Speedy’, claimed to have taken 50 vessels, 122 guns, and 534 prisoners while cruising off the Spanish coast. The most spectacular of his small-ship victories was the boarding and capture of the 32-gun Spanish frigate ‘El Gamo’, a ship more than twice as powerful as his and with a complement nearly six times larger.

Cochrane ran ‘Speedy’ alongside the ‘Gamo’, and fired his guns treble-shotted into her. The Spanish tried three times to board but, at each attempt, Cochrane pulled away briefly and fired on the concentrated boarding parties. Eventually, having depleted the enemy, ‘Speedy’ emptied her whole crew upon the Spanish ship’s deck and carried her after a bloody struggle that cost four killed and seventeen wounded, the Spaniards losing fourteen and forty-one wounded.

In a calm sea, ‘El Gamo’, flying a Spanish ensign, is shown in starboard-broadside view, obscuring all but the stern end of ‘Speedy’ behind her. ‘Speedy’ flies both white and blue ensigns (the American colours Cochrane is said to have flown on approaching are not depicted). Both ships’ sails have been peppered with shot, and vicious hand-to-hand fighting is underway on ‘El Gamo’’s quarter-deck. In the background, a few miles distant, the Barcelona coastline is depicted approximately, in aerial perspective.

Inscribed: “To the Right Honourable Earl Spencer (late First Lord of the Admiralty) this print representing the Boarding and taking his Catholic Majesty’s Xebecque Frigate El Gamo, by His Majesty’s Sloop Speedy, Commanded by the Right Hon. Captain Lord Cochrane after a close Action of One Hour and Ten Minutes off Barcelona at Noon on the 6th of May 1801. Is most respectfully Dedicated. El Gamo 32 Guns 309 Men. Speedy 14 Guns 54 Men”.

Bio of the man: Cochrane: Britannia's Sea Wolf, by Donald Thomas.

Jul

24

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

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

Humbert H. asks:

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

Asindu Drileba writes:

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

Humbert H. responds:

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

Asindu Drileba adds:

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

Zubin Al Genubi observes:

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

Asindu Drileba expands:

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

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

Nils Poertner comments:

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

Humbert H. writes:

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

Jul

23

We cheered on Larry who competed in the Big Sky Games, Sunday, July 21.

Big Al adds:

Larry had a great result in the 5k.

Larry Williams writes:

Pam’s donuts, she kindly brought a box to Red Lodge were the most beautiful I have ever seen (cute little ones) and best tasting…well worth a trip to the Home of Dan Bailey.

Big Al is enthusiastic:

Daisy Donuts look great!

Pamela Van Giessen responds:

Not great pic of the mini donuts Larry enjoyed. I should have taken a photo before we left instead of in the car while driving. For anyone venturing to Red Lodge MT, we highly recommend the pig races in Bear Creek. And a nice visit with Larry!

Jul

22

Probability matching is an interesting phenomena, a bit subtle as to trading.

Probability matching is a decision strategy in which predictions of class membership are proportional to the class base rates. Thus, if in the training set positive examples are observed 60% of the time, and negative examples are observed 40% of the time, then the observer using a probability-matching strategy will predict (for unlabeled examples) a class label of "positive" on 60% of instances, and a class label of "negative" on 40% of instances.

Andrew Lo takes a very deep dive into probability matching:

Evolutionary Foundations of Economic Behavior, Bounded Rationality, and Intelligence
Andrew W. Lo, Massachusetts Institute of Technology
Institute for Pure and Applied Mathematics, UCLA May 19, 2015

Jul

21

From the original version of the Daily Spec site and worth a review:

The Speculator's Reading List

Jeff Watson writes:

Being There is a movie adapted from Jerzy Kosinski’s book about a gardener who took Washington DC by storm. His name was Chance and he could not read or write, but the public thought he was a genius. He ultimately became the President of the United States. The book should also be on the list.

Stefan Jovanovich suggests:

Shattered Sword

Asindu Drileba offers:

- Risk Savvy by Gerd Gigerenzer. How to cut your cancer risk by 50%, how to beat Nobel Prize portfolio strategies, why certainty is an illusion. I think everyone can benefit at least one thing from reading this book. It doesn't matter if you're a spec or not.

- The Visual Display of Quantitative Information (everything by Edward R. Tufte is worth reading)

- Adam Curtis documentaries. He has dedicated his life talking about "Power", mostly the relationship between Markets, Politics, Science, Religion & Philosophy. He informed alot of my thinking about the relationship between those. An incomplete assortment.

- Zurich Axioms. This was recommended by on a podcast. I think it was Larry Williams (but I am not sure). It's a very good book of aphorisms, useful to get your psychology right.

- This is the Road to Stock Market Success (1944). Recommend by Vic. I also find the book very instrumental in developing a psychological edge.

Zubin Al Genubi recommends:

Conrad, J, Heart of Darkness. A river trip into Africa loses grip.

Khilav Majmudar agrees:

Loved Heart of Darkness. Conrad's writing is hypnotic.

Humbert H. adds:

Heart of Darkness is kind of similar to Kafka’s writing in that it’s mysterious and unusual, and nobody knows what it’s really about after reading it. It was famously an inspiration for the movie Apocalypse Now which is arguably even stranger.

Jul

20

First the chart. The two data sets are of different magnitude, so to compare them they must be normalized. The chart represents the slope of the data divided by the trend of that data. Both are determined by regression over 12 months. Each point on the chart is effectively the expected rate of change of the data as determined by the moving trendline. As such, the data is NOT lagged, and presents a truer picture than that of lagged data.

Interpretation. Periods of higher part-time employment tend to coincide with recessions. However, if the employment picture is recessionary, then how would one explain the growth in Payroll Tax Receipts, which I have shown separately? Well, it turns out that the growth from January to June in Part-time employment matches the growth in Payroll Tax Receipts. Thus, the economy is growing solely by the increase of part-timers.

Zubin Al Genubi writes:

Many young people I know do gigs, seasonally or part time. Recent employment numbers (with temp way up and full-time way down)support the theory.

Humbert H. adds:

I’ve seen a lot of information on part-time vs full-time. Often it’s accompanied by foreign-born vs native-born, where the dichotomy is similar, in favor of the foreign-born.

Jul

19

golden ratio of 1.65 appears in thousands of settings over thousands of years.

The Golden Ratio: The Divine Beauty of Mathematics, by Gary B. Meisner (Author) and Rafael Araujo (Artist)

The Golden Ratio examines the presence of this divine number in art and architecture throughout history, as well as its ubiquity among plants, animals, and even the cosmos. This gorgeous book—with layflat dimensions that closely approximate the golden ratio—features clear, enlightening, and entertaining commentary alongside stunning full-color illustrations by Venezuelan artist and architect Rafael Araujo.

A trader writes:

I have used the golden ratio trying to predict where the technical people find Fibonacci support and resistance levels in both cash and futures and applying them to grain spreads and basis capture. This was in conjunction with other tools being used and tested. I completely abandoned the method after finding other, more successful ways that work better than random.

William Huggins offers an historical lagniappe:

Leonardo of Pisa may be best known for his "sequence" but in his lifetime, it was his work as a tutor to the rich business class of late-Medieval Italy that paid the bills. His mathematical treatise Liber Abaci (1202), which was only "recently" translated into English, is broken into chapters including basic operations but he quickly jumps into the calculation of profits from business voyages and even introduces the notion of the time value of money.

Vic's twitter feed

Jul

18

Investing in places where property rights are fundamentally not respected just isn't worth it because you can't calculate the risk.

This is completely true. In my country (Uganda) there is a lot of what you may call "arbitrary use of power". If you a Ugandan and are political connected enough, you can screw almost any foreign or local financier by summoning a "presidential directive". Here are some examples within the past 2 - 3 years:

1. Some guys lent money to a financier and used the mosque as collateral. When the mosque defaulted on the loan, the Moslem community appealed for "help" from politicians. The liquidation of the mosque was blocked.

2. In another instance, some foreign financiers lend money to some local "tycoons". When they defaulted on their loans, the courts suddenly declared that the foreign entities did not have enough paperwork to actually lend the local "tycoons" any money. So the "tycoons" didn't have to pay anything back. This didn't happen once, but *thrice* in the last 3 or so years.

3. Last year (2023) people woke up one day to discover that all licenses and permits to export timber were cancelled. So if you invested money into forestry for export, your return on investment was basically marked to zero.

So if you do business in these places:
a) Be well connected politically
b) Plan your exit at least as well as how you enter into business
c) Don't think long term
d) Restrict yourself to a business that is easy to move to neighbouring country.

A group of financiers however that has seen some success seems to be Venture Capitalists. They are well positioned in b) & d). VCs for example will not touch your business if it is not a Delaware C-Corp. This limits how much damage local politics can affect your business. Also, VCs tend to favour software businesses & service businesses over say manufacturing. This makes them easy to expand or ship operations at a whim. Some VC backed Startups for example just have 1 employee per country just for legal & administrative purposes.

Humbert H. writes:

Regarding publicly listed companies in sub-Saharan Africa, I do not think there are many that would fit the requirements of global institutional investors. This fact contributes to the challenges that private equity firms have in finding exits for investee companies.

Many of the listed companies in Sub-Saharan Africa are owned by the public pension funds in the corresponding country. For example, South African pension systems (PIC, GEPF, ESKOM) are significant shareholders in companies listed on the JSE therefore there is limited liquidity.

Every time I go there I am reminded how small the national economies of countries in sub-Saharan Africa are relative to Europe and the US. In 2010 Goldman Sachs published a paper called Lions on the Move which sounded a bullish tone; however, in my view most of what they predicted did not come to fruition.

Sub-Saharan Africa needs to produce higher value products with their raw material and natural resources on the continent as opposed to simply exporting their raw material and natural resources.

H. Humbert comments:

Historically, property rights were respected in Northern Europe and some of their former settlements/colonies, parts of Central Europe, China, Japan, Korea, small parts of Italy, and small enclaves in Southeast Asia and the Iberian Peninsula. These are relatively high-trust societies. Among many problems I have with mass migration is that it always flows from low-trust societies to high-trust societies, which can't be good for the latter. Migration and ever-decreasing penalties for property crimes even in the high-trust societies leave very few counties safe. Switzerland and Japan are likely to last the longest, Germany is doing pretty well although I think it's doomed long term, but the rest of the world is circling the drain. It's possible to reverse trends locally, as recently demonstrated in El Salvador and Argentina, but that's not common. In Russia and Ukraine, if you didn't give bribes or had "blat" (connections) nothing could be done. I don't know the current details, but they're obviously still highly corrupt, as there was no reason for high trust to be established. China (which is a historically high-trust society but corrupted by the Communist dictatorship) and India are complex and have elements of both high-trust and low-trust. If you look at the map of the world, between Russia, Africa, Latin America, and (arguably) a lot of Asia property rights are rare indeed.

Jul

17

I don't have much knowledge of foreign exchange, although I admire and envy people like John Floyd who do. In 2017 I was interested in the idea of using PPP (purchasing power parity theory) to select countries that might be good prospects for stock investing over a 4-5 years horizon.

Looking at 2 different publicly available PPP rankings I noticed that SAR (South African Rand) was considered undervalued approximately 50% (!) on a PPP basis. In addition after several years of mismanagement the country seemed ready for a turnaround (bad policies cannot continue indefinitely). I purchased some shares of EZA (IShares South Africa ETF) in October 2017 at 59.36 usd a share.

Today, 7 years later, EZA is at 44.32 a share. More interestingly SAR is considered undervalued by 52.5% (on one of the 2 rankings, I can't find the other at the moment) and has been one of the most undervalued currencies throughout this period.

My mistake was not to do a thorough historical study of stock markets of countries that are undervalued on a PPP basis, and giving too much credit to the academic theory that PPP undervaluations are substantially corrected in 4 or 5 years time. Clearly some countries (eg Switzerland) can stay PPP overvalued more or less forever, and some like SAR can be consistently undervalued more or less continuously.

I learned my lesson.

Humbert H. writes:

I have been involved in raising private equity funds for emerging markets (Asia, Latin America, and Sub-Saharan Africa) since 2004. I have been specifically focused on Sub-Saharan Africa since 2017.

In my view and the view of others who I know that have been tasked with raising capital for these markets over the past 20 years, investors in these markets have not and do not get paid for the risk they are taking.

Nils Poertner responds:

maybe you are right on SA. am interested in the liquid stuff - and that is already a challenge in some of the EM markets.

Bruce Kovner used to say that most investors never really practise much imagination and test new ideas- they tend to go along with what others tell them - and then repeat the learned ideas (as their own). keeping this in the back of the mind everyday (even intelligent ppl forget that).

H. Humbert comments:

Investing in places where property rights are fundamentally not respected just isn't worth it because you can't calculate the risk. I've always considered Russia uninvestable, had one Chinese stock, would never buy any stock in a country led by a dictator. I do have a Mexican stock but in general avoid highly corrupt countries. SA is just too full of crazies to calculate the risk. The US love of sanctions and confiscations of Russian assets and the desire to impose wealth taxes endangers property rights and thus the overall level of attractiveness. At the moment, looking what happened in France, that makes it un-investable. When an Antifa leader leader on the national security watchlist gets elected to the National Assembly and and admirer of Hugo Chavez and Fidel Castro has a realistic path to be PM, watch out.

Henry Gifford responds:

Investing in places where property rights are fundamentally not respected just isn't worth it.

Indeed there is no need to look to outside the US to find examples. Just buy an apartment building in New York City and try to make a profit with the politicians telling you how much rent to charge. A politician looks at an apartment building and sees the owner as one vote, but the tenants as a large number of votes, thus the politician "buys" votes by "giving" low rent to the tenants. A few years ago the property owners in California lobbied for universal rent control on all properties, and got it, out of fear of a worse version passing into law.

In general avoid highly corrupt countries: In New York City it is impossible to get a gas or electric meter installed without a cash bribe to a utility company employee, and almost impossible to get any improvement to a building, including a single-family house, past inspection without a cash bribe to a city inspector. And the sanitation police who come fine store owners $250.00 for a cigarette butt or a leaf on the sidewalk (or on the street within 18" of the curb) have been reported paying their supervisors to assign them to areas with lots of stores, not single-family homes, so they can collect bribes for not fining the store owners $250/day.

Yes, it is possible to do honest business in New York, but it is very, very hard. I have never paid a bribe but don't make nearly the money I would if I did. Things are getting worse this way in New York City, which is perhaps the future of the US as the idea that our chair says has the world in its grip gets ever more popular.

I think Mr. Humbert's advice is very wise, but amounts of socialism and corruption are relative - find someplace completely free of both and I will move this afternoon.

Pamela Van Giessen suggests:

Wyoming might be the closest we get to corruption and socialist-free from what I can tell. Corruption, tho, is hard to uncover from a distance.

Jul

16

The trade is the first (power producers) but not the second (uranium). I'd caution anyone considering uranium as an investment proxy for nuclear power. Traders may see bumps from news stories, but uranium fundamentals should not and do not track well with bulk power production.

Speculating in bulk power prices is difficult because power is a unique commodity with no [mature] futures market. The first derivative of bulk power might be merchant power plant fleets composed of nuclear, natural gas, and coal-fired power plants. Wind power might be responsive, but solar would be low on my list.

Since this thread is about nuclear energy, commercial nuclear power plants could emerge as profitable assets for the first time in over a decade. Consequently, merchant nuclear power plants would be among the first derivative beneficiaries.

Sticking with the nuclear theme, nuclear fuel would be the second derivative, and uranium would be the third. Therefore, speculating on uranium at the end of nuclear power's value chain would require different considerations. Let me explain.

All commercial nuclear plants operating in the United States are large light water reactors. Unlike military reactors, commercial reactors consume low-enriched uranium (enriched between 3 and 5 percent). This enrichment level is by design and regulation.

Mining is the first of many steps in producing nuclear reactor fuels. Globally, vast reserves of raw uranium, including Virginia, Australia, and many other places, could be available for mining.

The second step in creating nuclear fuel is milling and processing, generally conducted at NRC and EPA-regulated sites near the mine. Processing uranium into yellowcake is the last step in creating a commodity. Because yellowcake is a highly regulated asset, speculating on its pricing is a unique endeavor requiring specialized knowledge.

Regulated carriers ship the yellowcake to enrichment facilities, where the fuel is de-commoditized. The enrichment process and fuel fabrication add the most value. Fuel fabrication creates customized fuel rod assemblies tailored to fit into specific reactors. Because they are customized, those fuel assemblies are, for the most part, not fungible.

Commercial nuclear plants must order their new fuel from approved facilities capable of handling their fuel configurations. They must order far enough in advance to ensure that their place in the facility's queue meets refueling schedules (this queuing problem is why Germany could not extend or restart its retiring nuclear plants after Russia invaded Ukraine; they fell out of the fabricator's queue).

After receiving new fuel, individual nuclear power plants store it onsite and wait for the next refueling. Volumetrically, small amounts of new fuel are needed because most commercial plants run on existing fuel for 24 months before refueling. When they shut down, they do not replace all the old fuel with new fuel; they replace their oldest fuel with new fuel and reconfigure the remaining fuel to achieve specific physics.

In summary, for uranium investors, the critical points are:
Uranium may be a commodity, but nuclear fuel is not.
Nuclear fuel is highly regulated, controlled, and difficult to trade.
Nuclear plants do not consume uranium like legacy plants consume coal.
The elapsed time between mining and consuming is months or years.
Speculating in uranium is complex and requires specialized knowledge.
So, the question remains: how do investors profit from the coming changes in the power markets? For me, it's not speculating in uranium or uranium mines.

I don't provide investment advice. Be cautious, do your additional research, and seek professional advice. Given those disclaimers, consider Constellation Energy (CEG), the owner of the nation's largest fleet of merchant nuclear power plants. They also own other generating assets. They stand to gain if bulk energy transactions sustain elevated prices.

Keep in mind the following facts about merchant nuclear power plants:
Their LCOE is relatively high compared to gas and coal-fired power plants.
Their production costs are relatively low compared to the same plants.
They run 24/7/365, independent of market prices (capture negative prices).
They need constant access to cool water (problem: droughts and warm water).
The market value of nuclear assets is likely below book value ($ is in decommissioning).
Not all US commercial nuclear plants operate as merchant plants.
Nonpartisan federal/state policymakers protect nuclear power assets.

For me, CEG is a long-term investment. But short-term prices may react to the news.

Jul

15

Only some people agree, but the power industry believes there may be a demand-supply mismatch from AI data centers. Here are some summary views - from the American Nuclear Society's Nuclear Newswire (April 2024):

Major tech companies see artificial intelligence (AI) as something that will transform their industry, and there is a race to be first. When they look for clean, dependable power 24/7, nuclear clearly stands out as a good match. Constellation [the nation's largest nuclear utility] summarized it best in its recent forecast:
• AI and data center growth will drive power demand.
• Major tech companies are expected to invest $1 trillion in data centers over the next five years.
• In the next five years, consumers and businesses will generate twice as much data as all the data created over the past 10 years.
• AI data center racks could require seven times more power than traditional data center racks.
• Between now and 2030, domestic data center electricity consumption is expected to grow anywhere from 6.5 percent to 7.5 percent (335 terawatt-hours to 390 terawatt-hours).
• In its report, Data Centers 2024 Global Outlook, global real estate services company JLL has said that "AI is driving extreme scale for new developments with requirements now ranging from 300 megawatts (MW) to over 500 MW."

From the IEEE Spectrum (June 2024):

Scientists have predicted that by 2040, almost 50 percent of the world's electric power will be used in computing. What's more, this projection was made before the sudden explosion of generative AI.

From Data Center Dynamics (May 2024):

US utility Dominion expects to connect 15 more data centers to the grid in Virginia over the course of 2024, after connecting 15 facilities last year totaling almost a gigawatt of capacity [1 gigawatt = 1 nuclear plant]. In its most recent earnings presentation this week, the company said it had connected 94 data centers with more than 4GW of capacity in Northern Virginia since 2019. This included 15 data centers totaling 933MW in 2023, and 15 more are due to be connected in 2024. The company didn't include the capacity of those 15 facilities going live this year, and in the earnings call, CEO Robert Blue said he doesn't know how quickly they will ramp up to full capacity.

For those who think new nuclear power is the solution (2024), this is not a quote but a fact: The new Vogtle nuclear power plant took about 20 years to design and build, from concept to commercial operations. This recent construction schedule was set by an experienced nuclear utility that previously built access to transmission on a nuclear site they've owned for decades.

The critical metric is not the overall demand. Data centers' demand sits on the grid 24/7, so generating capacity must be available 24/7. While massive amounts of energy are already oversupplying some US power markets, most new sources originate from part-time wind, solar, and battery assets. Those part-time assets cannot serve the 24/7 load demanded by data centers. Therefore, the critical metric is the difference between the base supply and the constant load.

With growing 24/7 demand, a fleet of legacy power plants (natural gas, nuclear, coal) is needed to fill in the [significant] gaps left by part-time renewable energy sources. That fleet currently exists, but its overall capacity is declining. Retired plants (to the extent they can be summoned) and new generation will be needed.

However, any new base generation will experience poor capacity factors and difficult gross revenues. Both impair investors' revenues and erode their expected levelized cost of energy. Even if investors overcome profitability concerns, the time it takes to commercialize any new traditional generating asset exceeds the expected demand for new power (extreme example: Georgia Power).

These projections and concerns appear to contradict current trends. Demand has declined in the United States, Europe, and the United Kingdom. Current reporting suggests there could be too much supply, particularly in Europe. However, if projections described by ANS, IEEE, and utilities are correct, the opposite problem could be presented: insufficient supply. If supply becomes the issue as expected, scarcity curves will be taxed, unprofitable generating assets will become profitable, and residential, commercial, and industrial consumers will pay more. This issue is not limited to North America.

Humbert H. writes:

I was listening to an interview of some fund manager from Reno earlier today and he was talking about power shortage around where he lives due to AI server farms. He said they could be quickly and cheaply addressed with new gas powered plants, but due to the Biden administration now requiring all such plants to have complete carbon sequestration this stopped them from being a practical solution.

H. Humbert writes:

Increased the energy supply for data centers is the obvious and near-term brute-force solution. Of course (almost) everybody not in the tech industry assumes that the joule per bit per second for data centers can't be improved and hence producing more energy is the only solution using nuke. In fact Sam Altman said that too, what conventional thinking can possibly go wrong, right?

Zubin Al Genubi asks:

What would be a good way to invest in modern nuclear power? How about Bill Gates project?

Asindu Drileba adds:

I would suspect via buying Uranium ETFs? I first saw this conjecture from following the financier Lyn Alden.

Mark Zuckerberg of recent also mentioned in an interview that Energy and not Compute will be the number 1 bottle neck to AI progress.

H. Humbert responds:

The energy being the presumed AI investment proxy won't last in the long term. Increasing the energy supply is just an incremental engineering no-brainer approach to solve a longer term problem and the approach is not disruptive and it doesn't change the world.

Stefan Jovanovich offers:

Radiant Nuclear
Kaleidos: a Portable Nuclear Microreactor that Replaces Diesel Generators

Peter Penha writes:

A relevant interview on the Hidden Forces podcast with Brian Janous who was hired by Microsoft in 2011 to focus on energy (Google had just hired someone themselves as they thought the cloud might become something) - wound up as VP of Energy.

AI data centers need to be where they can individually draw the electricity of a city like Seattle (800 MWh) - so away from major urban areas - discusses the history of the grid from Sam Insull through to where we are going…also on the efficiency / consumption of AI chips - his view with AI is Jevons Paradox will apply and the more efficient the chips and the (new) grid gets the more consumers will demand.

Jul

14

I would love to ask Dr. David Hand to answer the question of randomness of the negative correlation between Yankees winning and S&P performance. i believe the negative correlation is a real expression of the nature of the commercial background and spirit of the Yankees. all commercials e.g. are dei.

i thought it mite be an easy example of a random coincidence that would be grist for Dr. Hand's mill. i admire his work enormously. sent one of his, Statistics: A Very Short Introduction, to Berkeley son. The book has no numbers or maths in it and my Aubrey just received yet another 5 on his grads even though he never took a stats class.

[And now for the song…] completely fictional made up by Sondheim. example of how great composers with evil in hearts and do great things like Debussy and Wagner:

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

Jul

13

I am sure there are people who treat what Goldman Sachs says as Gospel.

GEN AI: Too much spend, too little benefit?

Tech giants and beyond are set to spend over $1tn on AI capex in coming years, with so far little to show for it. So, will this large spend ever pay off? MIT’s Daron Acemoglu and GS’ Jim Covello are skeptical, with Acemoglu seeing only limited US economic upside from AI over the next decade and Covello arguing that the technology isn’t designed to solve the complex problems that would justify the costs, which may not decline as many expect.

Big Al writes:

The main critique seems to be one of cost/benefit: benefits are, as of now, too small, and costs too high. But it's apparent, even from the cheap seats, that lots of very smart people are devoting lots of resources to (1) improving existing models and creating new ones, thus increasing benefit; and (2) improving the efficiency of the hardware (and related software) to improve processing efficiency and reduce power consumption. Given how quickly things have developed over the last few years, it's hard to predict where we will be even 2-3 years from now.

Fwiw, this caught my attention:

GS US semiconductor analysts Toshiya Hari, Anmol Makkar, and David Balaban argue that chips will indeed constrain AI growth over the next few years, with demand for chips outstripping supply owing to shortages in High-Bandwidth Memory technology and Chip-on-Wafer-on-Substrate packaging—two critical chip components.

So I asked Gemini:

What companies produce High-Bandwidth Memory?

There are a few major companies that produce High-Bandwidth Memory
(HBM), but the top three are:

Micron Tech
Samsung
SK Hynix (https://en.wikipedia.org/wiki/SK_Hynix)
These companies have been producing HBM since its introduction in 2014, and they continue to develop new and improved versions of the technology. HBM is used in a variety of high-performance computing applications, including artificial intelligence (AI), graphics processing units (GPUs), and supercomputers.

What companies produce Chip-on-Wafer-on-Substrate packaging?

Chip-on-Wafer-on-Substrate (CoWoS) packaging is a type of advanced packaging technology that is becoming increasingly important for high-performance computing applications. Here are some of the leading companies that produce CoWoS packaging:
TSMC (Taiwan Semiconductor Manufacturing Company)
Intel
Samsung
ASE (Advanced Semiconductor Engineering)
Amkor Technology
JCET Group: JCET Group is a Chinese company that is a leading provider
of OSAT services in China.

K. K. Law comments:

Regarding the bandwidth constraints, the other one is communication bandwidth which still has yet to catch up with the computational speed. There are limits as to how close they can move their chips closer together even using 3-D integration to shorten the latency caused by propagation delay. In the near term, there are companies, including Intel, working to move the optical communication pipelines to the chip level. That in and of itself also soon presents a challenge as there are only so many optical fibers can be accommodated right next to the chip.

The generative AI appears to the biggest elephant for now because that gets the most attention from general public. However, AI/ML is penetrating into all sorts of applications that have not got much attention. The Goldman Sachs people, despite they are highly paid, they are surprisingly ignorant in this subject mater.

Jul

10

the negative corr between the Yankees winning and the S&P during last 25 days is about -0.80. can you come up with an explanation?

Yankees record in last 25 games

SPY prices

The Improbability Principle: Why Coincidences, Miracles, and Rare Events Happen Every Day

In The Improbability Principle, the renowned statistician David J. Hand argues that extraordinarily rare events are anything but. In fact, they're commonplace. Not only that, we should all expect to experience a miracle roughly once every month. But Hand is no believer in superstitions, prophecies, or the paranormal. His definition of "miracle" is thoroughly rational. No mystical or supernatural explanation is necessary to understand why someone is lucky enough to win the lottery twice, or is destined to be hit by lightning three times and still survive. All we need, Hand argues, is a firm grounding in a powerful set of laws: the laws of inevitability, of truly large numbers, of selection, of the probability lever, and of near enough. Together, these constitute Hand's groundbreaking Improbability Principle.

Vic's twitter feed

Jul

9

Amazing Weston Lifetime Collection of a Gentleman

Sale begins to close:
Wednesday, July 10th 2024 at 8:05 pm est

Vic's twitter feed

Jul

9

I’ve posted a link to this documentary before but feel compelled to post it again for all of the newcomers to the list. It’s a great weekend flick, and covers a period when we used to do our business in the pits. There was nothing like it.

Floored - The Complete Documentary Film

About the film:

Floored is a 2009 documentary film about the people and business of the Chicago trading floors. The film focuses specifically on several Chicago floor traders who have been impacted by the electronic trading revolution and whose jobs have been threatened by the use of computers in the trading world. Directed by James Allen Smith, the film runs for 77 minutes.

Jeffrey Hirsch writes:

Thanks Jeff. Just sent it to my 18yo son who has been getting into the markets and trading.

Nils Poertner asks:

Were you a floor trader, Jeff, and if so, what lessons did you learn that helped you in trading electronically?

Jeff Watson replies:

Yes I was. The most important lesson I learned was to not overtrade.

Humbert H. comments:

Asking Jeff is he was a floor trader is like asking Paganini if he ever played the violin, asking Taylor Swift if she ever thought of making a living as a pop singer, or LeBron James if he ever heard of a game named "basketball". But what I really want to know Jeff is if you like to surf?

Jeff Watson answers:

I would love to surf, but my health won't allow it. We’re still a surfing family, but I just don’t surf anymore and am relegated to taking pictures from the beach.

Jul

8

The CMT Association proudly announces Ralph Vince and Larry Williams as the recipients of the prestigious 2024 Charles H Dow Award for their seminal paper, The Ripple Effect of Daily New Lows. The award, bestowed annually, recognizes outstanding research contributions to the field of technical analysis and market behavior.

The winning paper, The Ripple Effect of Daily New Lows, delves into the intricate dynamics of market movements following the occurrence of daily new lows. Through rigorous analysis and innovative methodologies, Vince and Williams unveil the profound implications of this seemingly minute event, shedding light on its cascading effects throughout financial markets.

Their groundbreaking research not only expands our understanding of market behavior but also provides invaluable insights for traders, analysts, and researchers alike. Their work exemplifies the essence of the Charles H. Dow Award, which honors excellence, innovation, and scholarly rigor in the field of technical analysis.

Ralph Vince, an esteemed figure in the financial industry and a pioneer in quantitative trading, expressed his gratitude for being recognized with this esteemed award. "It's a tremendous honor to receive the Charles H. Dow Award for my research on the ripple effect of daily new lows," said Vince. "I am deeply grateful to the CMT Association for this recognition and to all those who have supported and inspired me throughout my journey."

Williams added, "This is the star on the Christmas tree of my career, and to share it with Ralph (we’ve been working together since 1986) is a glow that will last many years."

Pamela Van Giessen writes:

Congratulations, Larry. I recall the first time I met you in person was at a CMT conference where you were a keynote speaker, and I thought you were given some kind of award but I am hazy on those details. May 1995. I also vividly remember that the Grateful Dead were staying at the same only non-gaming hotel in Vegas and would pass Jerry Garcia by the pool. I signed you to write a book but neglected to get Jerry’s signature. There has to be a trading analogy here. I think that you have single-handedly gotten more people into trading all around the world than maybe anyone else.

Humbert H. adds:

It’s a good thing you didn’t sign Jerry to write a book since in May 1995 he only had three months left to write it.

Pamela Van Giessen responds:

I should have asked Garcia for his autograph. The trade I let get away. 3 months later I took a 5 am flight from Phoenix to LA for a meeting with Bill O’Neil. Walked into his office wearing a Jerry Garcia tie (remember those?) on the day it was announced that Garcia died, but I didn’t know it. O’Neil and the editor of IBD asked if my tie was signed. I did not tell them that I could have had it signed a few months before in Vegas. That would have been sort of embarrassing but I can admit to it now.

Jul

7

I found this interesting piece of research:

Ergodicity transformations predict human decision-making under risk

Decision theories commonly assume that risk preferences can be expressed as utility functions, which vary from person to person but are stable over time. A recent model from ergodicity economics reveals that if people want their wealth to grow at the fastest rate they need to adjust their utility functions depending on the dynamics of their wealth. Here, we ask whether humans make such adjustments by exposing them to different wealth dynamics….Together, these results provide evidence that human risk-taking behaviour is sensitive to the dynamical context in which decisions are made and that long-term wealth maximization is an important explanatory principle.

It's about two things concerning the psychology of gamblers. First, is the attitude of risk towards bets that entail absolute returns & absolute losses. An absolute return from a bet is when:
- a gambler is given say $10 if they win
- and if they loose the outcome is -$5
What amount they loose or gain is absolute i.e in dollars terms, $10 or -$5.

Second is a group of gamblers whose risk is phrased in relative terms. A relative return on a bet is when:
- a gambler gains 10% if they win
- and if they loose the outcome is -5%
Rewards & gains are framed as percentages.

The conclusion of the research is that people that gamble in absolute terms take more risk than people that gamble in relative terms. People do change their risk appetite if you present gambles to them differently.

So I have a question for you specs: Which statement would make you more likely to buy Nvidia's stock?
a) $1,000 invested in Nvidia stock at IPO ($0.04) would become about $3,200,000 ( i.e absolute terms)
b) $1,000 invested in Nvidia stock would grow by 327,000% (i.e relative terms)

Personally a) would do a better job at baiting me to buy some stock (the research is true for me). What about you?

Here is a twitter thread by one of the authors with a more simplified explanation.

Jul

6

I just listened to this guy who uses Credit Default Swaps for countries (sovereign CDS) as an indicator to evaluate if a country is good for tourism investments. He claims his methods can make between 15% to 20% annually. The person interviewing (Joe De Sena) was also a trader on wall street for 20 years and asked some questions I liked.

Do all countries have these sovereign credit default swaps? I did some Googling and I could only find a few dozen listed on here. If more countries have them, is there a comprehensive list where I can look them up? I need those of Kenya right now for example.

In this episode, Joe De Sena, chats with his friend Kalojan Georgiev, currently residing in Zanzibar. Kalojan provides an engaging insight into the untapped potential of Zanzibar as a prime investment destination and a wonderful place to live.

Big Al responds:

There is some web data.

Nils Poertner comments:

by and large, CDS on sov not really relevant at all for so many reasons. better to look at traded bonds in USD (or EUR) and look at volume, too. in any case, test everything!

Asindu Drileba adds:

I don't know if anyone here is following what's happening in Kenya but it's falling apart:
- They are heavily in debt (foreign debts are 65% of GDP)
- They government wanted to increase taxes to service the debts
- We are seeing heavy protests in Nairobi & other Kenyans cities
- The new tax Bills have been withdrawn
- Protests are still intensifying
- Interest rates on treasuries are at 19% (I often laugh when I hear Americans complain about 5% interest rates)

I just wanted to know how the Sovereign CDS are pricing the events or if the predicted them.

Nils Poertner writes:

plenty of opportunities coming for EM markets (listed equity) - one needs to do a lot of research, as always (and look beneath the surface and dig deeper and test ideas and express it in a trade and learn and so on). your search, Asindu is your search alone and am not laying out the road map, just saying it is possible.

Jul

4

Bud Conrad is not sanguine:

We avoided an official recession despite negative 2% to 3% tax growth. The Treasury and the deficits were pumping money into the economy in 2023. It now looks like no problem in Tax receipts, but I just don't believe that things are clear sailing. Wars, Debts, Foreigners cashing in Treasuries from their trade surpluses (our Trade deficit), Stock market toppy concentration in the Tech winners. Incompetent politicians. I think things are worse than I think they are.

Steve Ellison keeps the wall of worry updated:

Updated! Now 53 years of convincing reasons why the stock market should go down, superimposed over the 48x increase in the S&P 500 during the same time period (logarithmic scale). 2023: Nearly everybody expected a recession. That reason is added, along with the S&P's 24% increase.

Jul

3

I found this to be one of the worst books I've ever read; I couldn't even finish it. It felt like a disjointed collection of blog posts, miscellaneous information, and ramblings about catastrophes. However, the topic of portfolio protection through options trading does have its merits. Here are a few observations:

Spitznagel's Track Record: While Universa has shown good results, its success could be attributed to the specific sequence of market events. It raises the question of how it would perform in a more stable, long-term market environment.

Leveraging Equity Risk: The argument that paying a 3% annual "fee" allows for taking on more equity risk is compelling. This is reflected in the fund’s CAGR relative to the S&P 500.

Options Trading During Crises: As someone not deeply versed in options, I'm curious about how traders manage to capitalize on positions at the peak of a crisis without losing the hedge if conditions worsen, thus maintaining their investment mandate.

Relationships with Dealers: Effective trading in size in options seems to require solid relationships with dealers.

Further Reading: I plan to revisit Safe Haven: Investing for Financial Storms to pinpoint other intriguing aspects.

Asindu Drileba responds:

On the contrary, I liked Chaos Kings. Scott Patterson is not a financier so I understand it when you read him expecting him to sound like a financier but he doesn't. He is just a story teller. You can tell this in his earlier book, The Quants. Which was not really about finance but just a story about financiers.

Reading "The Quants" for example reinforced/confirmed my suspicion on the relationship between gambling & financiers. I found it to be a very beautiful story. A beautiful beginning & a beautiful ending.

Quick overview of "The Quants":

- It's starts with this poker tournament organized amongst financiers.
- During the tournament, the author describes the characters traits of the financiers by outlining their attitude towards playing poker
- The book then talks about their character when there are in the market. (mostly when they are winning)
- The financial crash of 2007/08 humbles alot of the cocky characters. Previously humble financiers remained humble (also made money). (By cocky I mean hubris)
- Another poker tournament was held after the 07/08 crisis. And the attitudes financiers had towards each other actually changed.

To me, Chaos Kings is a continuation of The Quants. It has 3 central themes. 1st theme is the human story behind the characters.
- Didier Sornette & his love for motorcycles (whom some people in this thread think is useless)
- Yaneer Bar-Yam getting heart broken by famine in Ethiopia
- Mark Spitznagel's love for goats

2nd theme is about the disconnect between how "non chaos kings" think about markets & "chaos kings" think about markets.
- Mark Spitznagel's philosophy on risk for example is that risk management should not simply be to cap your down side, but to actually increase returns. But predicting crashes is impossible.
- Didier Sornette thinks some huge market disasters can be predicted & tactically mitigated.

3rd theme is seeing how people apply inter disciplinary research to markets.
- Didier Sornette uses techniques used to predict mechanical failure in rocket engines. And applys them to classifying the nature of bubbles in financial markets and when markets are likely to fail.
- Yaneer Bar-Yam has his background in modeling epidemics & pandemics (Ebola, COVID). And he uses the same tool box to predict the likelihood of crashes in the market. One of the tools described in the book is a statistical indicator described as "mimicry".

So, my take away is that Chaos Kings is not really an "investment book". It's just a story about how a certain group of financiers approach market crashes. I found it to be a great source of potential research topics.

Jul

2

a book recommended as the best book on economics ever is Reinventing the Bazaar, by John McMillan. you learn about flower markets, camel markets, pharma markets, bazaar markets in Morocco. and what it takes for them to work. i found the book fascinating albeit takes middle road.

Dasgupta, very erudite and sharp economist, recommends the McMillan book as essential for every current and would be economist. it tried to be eclectic as to free markets and need for government control. it's good to keep the enemy close as Godfather says.

Economics: A Very Short Introduction, by Partha Dasgupta.

Wes McCain is one of the most successful and erudite economists I have met in my 65 years career in Wall street. He recommends the Godfather as the most important and useful book for traders. I just watch the three Godfather Movies and they are excellent and highly recommended.

one of lessons that I wish my colleagues followed: "Fredo, don't ever take sides against the family again." so important in business and military, and markets especially.

every one says the opening line "i believe in america" is one of greatest opening lines ever. imagine the contumely that would be directed at it today.

Vic's twitter feed

Jun

30

There is grandeur in this view of life, with its several powers, having been originally breathed into a few forms or into one; and that, whilst this planet has gone cycling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being, evolved.

- Charles Darwin, The Origin of Species

there is grandeur in the inexorable rise in the S&P, documented by Dimson and Lorie.

i am forced to move and my paintings don't have much auction value so i would gladly reveal my methods for 50 million + and throw in a very valuable wife to the bargain.

English Men Once Sold Their Wives Instead of Getting Divorced

Between the 17th and 19th centuries, wife-selling was a weird custom with a practical purpose.

she's a very good one. Tom Wiswell said his one regret in life was that he didn't marry a girl like Susan and since then many visitors have said same. The problem is that she is necessary to take care of me so I believe she could sell me for more than I could get for her. I told her at dinner that I was looking at ways of making money by selling some of our trees. She looked at me and said immediately that she wasn't going to send me the picture of her I asked for.

Vic's twitter feed

Jun

29

Seen yesterday in Kona Hawaii, billionaire's playground:

1 private jet at FBO. Very unusual.

25% commercial vacancies in prime retail.

Tourism down 9%

(Galtonesque count)

Stefan Jovanovich comments:

ZAG's reports are a treasure - and a source of future profits.

Nils Poertner wonders:

easier to be bullish on European /UK equities than having bearish view on US stocks?

Jun

26

Bonds, especially long-term bonds, seem to be the most disliked asset class at the moment. However, they are not only great diversifiers but now might also be an opportune time to start investing in them or increase your current allocation. Here are a few considerations from my perspective:

- Duration Matching: Align the duration of your bonds with your investment horizon. Being relatively young, it makes sense for me to opt for longer durations.
- Capital Efficiency of Futures: Utilizing the capital efficiency of futures can be challenging with current borrowing rates. Nevertheless, if leverage is used productively, it can still yield benefits.
- Inflation Protection: Enhance your fixed income exposure with assets that are protected against inflation.
- 12M Stock-Bond Correlation is at max (as of 17 June):

There's a fourth dimension that complicates implementation. When examining term premiums, such as the spread between 30-year and 5-year yields, the benefits of long-term exposure are minimal—aside from the potential convexity benefits if rates significantly decline.

Furthermore, historical data indicates that long bonds have a lower Sharpe ratio compared to short bonds. However, short bonds lack sufficient volatility to effectively diversify an equity-heavy portfolio. Consider the hypothetical performance of buying short-term (~5 years) versus long-term bonds, adjusted for volatility:

Strategy CAGR Stdev Max DD Sharpe Corr w/ S&P 500
Short-Term Bonds 4.19% 4.81% -14.45% 0.39 -0.06
Long-Term Bonds 4.86% 11.11% -45.29% 0.27 -0.07
Leveraged ST Bonds 6.03% 11.11% -38.11% 0.37 -0.04

The question remains: Is it possible to 'have our cake and eat it too' by leveraging short bonds?

Big Al asks:

In your model, what is the implementation of "Leveraged ST Bonds"?

Hernan Avella answers:

Long VFTIX 2.35x, short 3M Bills as proxy to futures embedding financing costs.

Jun

25

Why This Simple Heart Failure Symptom Is So Easy to Ignore

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

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

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

Jun

23

Queued up to the start of the actual interview:

An Education from a Speculator: Interview with Legendary Victor Niederhoffer

Laurel Kenner approves:

One of the best interviews of the Chair. —The Collab

Bo Keely writes:

i like it, a fine reacquaintance.

Peter Ringel responds:

Thank you, watching it now. I also want to highlight the recent mkt calls on Twitter, which worked nicely. This and the wonderful articles about MFM Osborne.

Jun

20

with odds differential of 20 percentage points a max, how can we expect a change in the numbers announced? i would predict an increase in ppi and cpi.

a sensational phantasmagorical book building up from birth-death processes to the evolutionary theory of markets:

Adaptive Markets: Financial Evolution at the Speed of Thought, by Andrew Lo

Drawing on psychology, evolutionary biology, neuroscience, artificial intelligence, and other fields, Adaptive Markets shows that the theory of market efficiency isn't wrong but merely incomplete. When markets are unstable, investors react instinctively, creating inefficiencies for others to exploit. Lo's new paradigm explains how financial evolution shapes behavior and markets at the speed of thought - a fact revealed by swings between stability and crisis, profit and loss, and innovation and regulation.

given the latitude and longitude of a market, at a time, what do rotational symmetries enable you to predict?

The Force of Symmetry, by Vincent Icke

The Force of Symmetry gives an elementary introduction to the spectacular interplay among the three great themes of contemporary physics: quantum behavior, relativity, and symmetry. In clear, nontechnical language, it explores many fascinating aspects of modern physics, discussing the nature and interaction of force and matter. All these themes are drawn together toward the end of the book to describe the most successful physics theory in history, the "standard model" of subatomic particles. The book is suitable for undergraduate students in physics and mathematics.

D'Oyly Carte arranged for Oscar Wilde to tour U.S. to build up audience for Patience.

Oscar Wilde In America, The Definitive Resource Of Oscar Wilde's Visits To America

These pages document for the first time a detailed, comprehensive, and accurate record of all the dates, venues, and subjects of Oscar Wilde’s 1882 lecture tour of North America. Wilde conducted some 141 lectures over 11 months of 1882 and each has its own page beginning with the first lecture in New York City.

Vic's twitter feed

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