Dec

12

what will S&P move to end of year? since 1996 when as of dec 12 the sp was up over the preceding 30 days, the expectation for the next 15 days is up 20 big points - 9 of 12 since 1996 up. s.d. 20 big.

guaranteed to be found too late: the 30 days from nov 1 to dec 12 been up 15 times and down 3 times since 1996.

Henty explains why France lost so many wars. General Kutosov main practicioner of snoring as fine art:

Through Russian Snows, by G. A. Henty

Vic's twitter feed

Dec

11

good lesson for followers of drift in S&P:

Snoring as a Fine Art, and Twelve Other Essays by Albert Jay Nock

Consequently one might with reason think that there is too little snoring done—snoring with a purpose to guide it, snoring deliberately directed towards a salutary end which is otherwise unattainable—and that our society would doubtless be better off if the value of the practice were more fully recognized. In our public affairs, for instance, I have of late been much struck by the number of persons who professedly had something. The starry-eyed energumens of the New Deal were perhaps the most conspicuous examples; each and all, they were quite sure they had something. They had a clear premonition of the More Abundant Life into which we were all immediately to enter by the way of a Planned Economy. It now seems, however, that the New Deal is rapidly sinking in the same Slough of Despond which closed over poor Mr. Hoover's head, and that the More Abundant Life is, if anything, a little more remote than ever before.

Vic's twitter feed

Dec

7

Since 1985, looking at the Vanguard 500 Index Fund, there have been 20 years where the cumulative return up to November was greater than 10%. Of those, only in 3 years (1986, 1996, 2014), the fund experienced negative returns in the month of December.

1985: 4.67%
1986: -2.64%
1988: 1.66%
1989: 2.38%
1991: 11.41%
1995: 1.93%
1996: -1.96%
1997: 1.72%
1998: 5.81%
1999: 5.98%
2003: 5.22%
2006: 1.39%
2009: 1.95%
2012: 0.90%
2013: 2.51%
2014: -0.26%
2017: 1.10%
2019: 3.01%
2020: 3.84%
2021: 4.47%

T-Statistic = 2.04, p-value = 0.048

Dec

5

Pix from Vic's 80th birthday party:

The cake

Aubrey, Susan, Vic, and Roy

Vic with guests

More party guests

one of the most unfair things is the lack of attention by western writers and others to the greatness and heart-rending competence of Monte Walsh.

now they are bullish. as Art Bisguier would say when he got you in a bind and you'd take a few minutes to play: "now you're thinking."

the gentlemen persist in their bearish hope. the old gray mare increases his chances.

Vic's twitter feed

Nov

27

DeWitt Clinton spearheaded the Erie Canal and the NY City grid plan. the greatest contributions of NYC in history.

a study of New York shows that whenever a group was at the bottom, whenever the economy was overwhelmed by immigration or riots, it bounced back to new highs in 12 years.

Upside surprise has led people to be overly optimistic about next year, says Mohamed El-Erian

New York: An Illustrated History

Vic's twitter feed

Nov

19

after 4 out of 5 consecutive 20-day highs in S&P, the gentlemen still don't like it enuf to have strong a close [on Friday].

one of the most recurring principles of life and investing is that there is a balance between reward and punishment. recently the Fed coming to their senses about not raising yields (perhaps related to the old grays odds have reduced the likely punishments). reason for 10% rise.

the dangers of anti-business:

The Mainspring of Human Progress, a book by Henry Grady Weaver.

The author, Henry Grady Weaver, served as director of customer research for GM. Blind in one eye, he nevertheless spent much of his life peering over data. He was a number-cruncher, not a philosopher or polemicist. His writing experience had consisted mainly of penning articles on psychological research. But The Mainspring of Human Progress, an amateur’s paean to freedom and individual ingenuity, remains one of the finest discussions of the impact of business on society that has ever been written.

Vic's twitter feed

Nov

16

Everyone went to Hawaii last year. They all went to Europe this year. Everyone drives the same vehicle. People love to follow the herd. Hedgies, quants, teckies all looking at the same data, same correlations, all doing the same trade.

Nils Poertner writes:

being in a herd somewhat offers protection and one can save energy - as our brains like to save energy (constant decision making and testing stuff costs energy and our brains are already weakened via e-smog etc etc).

as a trader though - one cannot make any money long term if one is constantly part of the group - one is more like that rabbit that is hypnotized with the headlight of the oncoming vehicle. so one has to find a niche. energy is key in my view- to keep the energy up - as traders often lose it as time goes by (maybe a talent to not give a f*** about anything, too).

William Huggins comments:

i would argue that running with the herd minimizes the energy lost scrambling in all directions looking for an edge. unless someone has a refined technique for discovering edges and implementing them, its hard to conceive that active selection would overcome the "drift of industrialization". numerous studies (most famously jack bogle's) have shown that buying and holding the index is just fine and does in fact make decent money over the long term. when you factor in the costs of active trading, you really need an edge to overcome the friction imposed.

clearly, both strategies can be successful but one requires much more skill (and earns commensurate rewards) so i think its misguided to suggest that "one cannot make any money long term" by following the herd. you just won't earn exceptional returns.

Nils Poertner adds:

I think it is time to sharpen up in coming yrs- the reality is that most folks in finance (in particular at large firms) really don't have special skills compared to other professions in non-finance (yet they get paid so much more). The whole financial system has just gotten a bit too big - and time will be for those who go the extra mile - and not sit comfortably and hope mediocracy will be work out. many things will change anyway…many….medicine got to change - see how unfit and mentally challenged most citizens are by now.

Humbert H. asks:

You think if they don't know how to sharpen up just getting that advice will somehow help them find the way? What exactly do they need to do?

Nils Poertner replies:

1980 - til 2021 - bond bull mkts and good for lev assets (private equity, real estate), neg real rates. easy money - favouring a few more than others. with rising nominal rates, that is going to change. (had a lot more in mind - people are somewhat depressed, highly suggestible, joy missing, too)

William Huggins expands:

predicting regime shifts (and their direction) has proven to be quite challenging so i would start by ensuring that one doesn't get knocked out of the game when they come (position limits with exit numbers away from rounds, etc). that way, you might at least survive the turn. resilience seems essential but people who only know one-directional markets don't put enough stock in it.

something related i'm teaching tonight is that people's beliefs always trump the facts. i don't mean pie in the sky fantasies, i mean what people think the facts are, and what the implications of those things should be. but when the herd's thinking changes, their volume moves markets. perhaps the key is to identify the early rumbling (or other signs) that precedes a stampede? i'm inclined to expect a high risk of false positives though as it is a well-worn strategy to spook the herd from time to time.

Henry Gifford writes:

I used to wonder how running with the herd helped animals in the wild. Sure, some will likely survive, but what is the incentive for an individual to be part of that large target?

Then I found out about one technique deer and many deer-like animals use. Someone, maybe a human who can outrun a deer on a hot day (furry animals generally can't sweat, people can, thus people can cool themselves very effectively). chases after a herd. After a brief sprint one member of the pack takes off in a direction away from the pack. The human or other hunter might choose to go after the individual animal, thinking it is easier prey than the pack, and safer because there are only four hooves to avoid, not dozens. But the deer aren't stupid - one of the fastest and fittest is running alone. After a while the individual circles back into the pack. Now the pack, which wasn't running fast, or maybe not at all, is more rested than the hunter, who ran a longer distance chasing the individual deer. Now the pack takes off again, with the hunter after them, then another fit and rested individual animal takes off away from the pack, again and again. I assume they have other strategies.

Art Cooper adds:

This is the mirror image of how wolves hunt their prey.

Humbert H. responds:

Being in a herd offers lots of benefits. Clearly there are lots of pairs of eyes facing in multiple directions to alert others about approaching predators and emit warning sounds. Also, many predators tend to surround a isolated victim for a few reasons, one of them being that it's much harder for an individual animal to fight back when attacked from all sides. Obviously it's almost impossible to use this method with a herd. It's also more distracting for a predator to have to focus on multiple targets. Large herd animals find it a lot easier to fight a predator while facing them and a herd can protect the backs of all of it's members.

Now being a part of a "herd" or market participants is quite different. Market participants have no incentives and, typically, means to protect each other, and metaphorical market predators, whatever they are, don't really behave like a pack of wolves or a pride of lions. It's much harder to jump on an isolated market participant, unless it's some "whale" known to be in distress, and distressed "whales" don't run in herds anyway. You often have no idea why a market stampede has started, so imitation is more dangerous than for a herd animal. All the physicality of being a grazing herd animal goes out the window and this analogy seems of dubious value.

Henry Gifford continues:

The discussion was about pack animal behavior. The description from the deer expert sounds like he was adventurous and curious and brave enough to chase a solitary deer. I don't think North American deer exhibit pack animal behavior - I've never seen them in packs, only family groups, maybe they don't form packs at all - I don't know. I wish I knew why some fish swim in a group ("school"), but I don't.

I think I can judge the budget of a zoo by seeing how many deer-like animals they have. Such animals look much like deer, thus my description, and presumably have evolved to survive much like deer: eating leaves and running away. Zoos that I think have low budgets don't have the interesting predator animals kids see in books, but instead have many deer-like animals with only minor variations from one species to another, from one animal enclosure to another. Suffice to say there are many animals in the world similar to deer, but which are not North American deer, especially in Africa, where many or all those species found in low-budget zoos come from. Presumably some run in packs, even if North American deer don't.

The story that humans ate by outrunning deer-like animals has been around a while, but was finally documented by anthropologist Louis Liebenberg, who reportedly, in 1990, witnessed human hunters !Nam!kabe, !Nate, Kayate, and Boro//xao run down antelope in the heat of the day in the Kalahari desert in Botswana. Please don't ask me how to pronounce those guys' names. One time when I was googling around on the topic I saw maps created with the aid of electronic tracking devices that showed one or more of the parties to such chasing running fairly straight for a while, then circling around, then straight, etc. I don't remember if the tracking device was on a human or animal or both.

Another method has multiple humans chasing a pack of animals. One human gets tired chasing the animal that left the pack, chasing it on a zigzag or circular path, while the other humans jog slowly, on a shorter route, following footprints left by the pack, and soon the animal that left the pack rejoins the pack while the pack of humans is very close to the pack, with only one tired human in the pack of humans. If Randy has tried that method it would be nice to hear how he and his friends made out.

I suspect all the above has implications for trading in the same sense others have posted about pack behavior and trading.

Those guys in Botswana have at least one of the three factors some say are the reasons why marathon runners tend to come from Kenya and that area (the Rift Valley). One is that their ancestors lived in a hot climate (Africa) for tens of thousands of years, thus they developed limbs that have a relatively high surface/area ratio: long and skinny, optimal for cooling, and also optimal for moving back and forth (running) with minimal energy (low WRsquared) compared to short, stubby limbs (similar to the physics of pendulums). The second factor is that their ancestors lived at sea level for thousands of years, thus they have the ability to produce more hemoglobin (moves Oxygen to muscles) readily when they are at altitude. The third factor is that they grew up at a mountain altitude, thus they developed large lungs. I don't know if the hunters in Botswana had any of the other two. A mass migration from sea level to high altitude is I think not so common (or people from other areas would also be winning marathons), but reportedly many humans ate via chasing down animals for many years, presumably many who didn't have all three of these factors in their favor.

Then there was the argument in a Welsh pub that led to the annual 22 mile Man vs. Horse race, run since 1990. I suspect, but cannot confirm, that alcohol was involved. Some years the humans win. The human ability to sweat, and therefore cool the body, keeping it in a temperature range necessary for metabolic processes to function (running, breathing, not dying, etc.), is key - presumably the humans would do better in a warmer climate or in a longer race. I think it would be interesting to track the temperature and relative humidity of different race years vs. who won, but I don't have the data handy, and don't know if it is available on a Bloomberg terminal.

Larry Williams writes:

Correct on deer. Antelope and buffalo go in herds-packs, if you will. so do elk - a beautiful sight to see as the bugle sounds.

Zubin Al Genubi adds:

The Gwich'in natives in the Arctic run down the caribou on snowshoes. Caribou bolt, rest, bolt. Man runs runs runs without rest up to 60-100 miles.

The caribou vadzaih is the cultural symbol and a keystone subsistence species of the Gwich'in, just as the buffalo is to the Plains Indians.[4] In his book entitled Caribou Rising: Defending the Porcupine Herd, Gwich-'in Culture, and the Arctic National Wildlife Refuge, Sarah James is cited as saying, "We are the caribou people. Caribou are not just what we eat; they are who we are. They are in our stories and songs and the whole way we see the world. Caribou are our life. Without caribou we wouldn't exist."

I met Sarah James and spent a week with her in Arctic Village and up at hunting camp. She is an amazing person. The villagers and tribe have a beautiful philosophy of life and respect for nature.

Rich Bubb comments:

the herding/grouping re/actions is/are common in so many species' game plans & their instincts, then there's their need to hunt, defend, fight-flight, etc en-masse because of their evolutionary status vs predecessors. Humans same; hopefully.

Pamela Van Giessen writes:

Bison herds are led by a cow. And when she decides to move, they all move. Quickly. You definitely don’t want to be in the path of a bison herd on the move. Elk herds will go around you or they will make you wait for them to pass. Antelope herds will outrun everything. More deer get hit by cars than any other creature (except maybe raccoons). Perhaps they are at higher risk because they do not travel in large herds. The type of herd matters. One imagines there must be similar parallels in the markets.

Rich Bubb recounts:

about those cute furry deer etc… having a mini-herd slam into vehicle on a highway is rarely something I can evade. Got Deer'd 4 times in NE Indiana, only?. I think 1 of the mini-herds died, the rest either bounced off or got bumped out of the way, which also? causes very extensive collision expenses! When a shifty insurance office-drone tried to blame me once that I as to blame for the deer-car (b/c I was driving the car, not the deer). After the ofc-drone ranted at me for while, I said, "Here's how much time I had react (GOING 55MPH), then slam the phone's receiver down on my desk, hard. The drone lost that one.

Steve Ellison understands:

I never hit an animal while driving, but once I was on a state highway in Idaho headed to Hells Canyon through a forest. A deer shot out from the trees on a dead run and crossed the highway some distance ahead of me. I only saw it for a second or two, and it was gone. I was lucky to see it from a distance, because it would not have been possible to stop a car traveling 55 miles per hour in one second.

Richard Barsom offers:

Turkeys, they are super smart. I mean despite their rather undeserved reps of being "Turkeys" . They travel in large groups but send scouts out in various directions. The scouts are usually so fast that they send hunters on a wild goose chase so to speak. This is done on purpose to alert the group and frustrate the we be hunters. You could learn a lot from a turkey.

Nov

14

Gilbert and Sullivan: A Biography by Hesketh Pearson is an excellent short bio about the lives. some curious facts: 1. Gilbert made scale models of every scene of his opus and insisted that every performer did exactly what he wanted. 2. Gilbert had three Lemurs as pets. 3. Gilbert loved to play tennis. he elongated the court so his shots would go in.

4. Gilbert rode in a Cadillac in 1901. 5. Sullivan was a confirmed gambler and frequently had to borrow money from friends even though his 12 plays with Gilbert made him 450,000. 6. Gilbert was most litigious writer ever.

The Tolstoy book about O'Brian is very informative about Patrick's work habits, hobbies, and lack of wealth until 15th book in series. also completely exonerates Patrick from King's gratuitous critique. book is 700 pages well worth reading:

Patrick O’Brian: A Very Private Life, by Nikolai Tolstoy.

gilbert liked to play tennis and croquet every day, had to lengthen his tennis court because he hit too long. loved his wife who was like Susan, as did O'Brian.

Scranton was once hub of iron and discount retailers:

The Scranton Story

revelations about the Quakers, cavaliers, Roman and Greek times - highly recommended for kids also:

Mises Library

herd mentality across frontiers and markets:

Gregariousness in Cattle and Men, by Francis Galton.

highest move on cpi announcement ever. since 10-26-2023 a bull market of 9% since 4137. perhaps we will see the professor today but the two times cpi has been this much, the ppi has been bearish. strangely, only 1 cpi did better than this one since 1996: it was November 10, 2022, when S&P went up 207 big points.

Vic's twitter feed

Nov

8

a surprising and unique use of random numbers. to fix how much customer money was missing. a number on the balance sheet relating to customer deposits was multiplied by a random number. see Patrick Boyle for the exact.

as I have mentioned before family frauds are the most insidious and difficult to unravel. i have been victimized by many.

biggest drop in old gray mares odds over a weekend ever. regulatory capture chances recede [ but back up today: https://electionbettingodds.com/. ]

a great book showing the power of regeneration for NY:

New York: An Illustrated History

an excellent book with many applications to markets:

Producers and Scroungers: Strategies of Exploitation and Parasitism

who are the producers and scroungers? the book was written before everything became completely mathematical in biology and is quite understandable only using first order differential equations to show erudition and even to make points.

i am looking for a counterpart with a large following to partner with me on a new vlog. any suggestions or takers or leads would be appreciated. it would give me something productive at age 80.

the professor has been playing footsie with the 4000 level but the big rise in the old mare's odds should help. S&P now up 8 days in row.

does the market tend to an inordinate degree to hit vivid goals like gold at 2000 and S&P at 4000? does it inordinately hit 20 day highs? that would be 4417 on oct 11 for S&P.

Vic's twitter feed

Nov

1

[28 Oct] is buy and hold investing dead? after 64 days since the last 20 day max on 7-31-2023 and three twenty day minima in a row, time to throw in towel. but in situations like this, its 97% bullish for 13 days later with a 130 big S&P expectation, so don't. and presidential odds increasing - also bullish.

yes i've lately been wrong. should i give up ship about 5 occasions a year like this - all with expectation of 13 days to next 20-day max and big positive expectation? one recall 1998 when Dow stood at 800 and one started buy and hold.

Steve Ellison responds:

There have been many bear markets (which can only be identified retrospectively) that lasted a year or more, with one as recently as 2009. I usually interpret buy and hold to pertain to a period much longer than 3 months.

[1 Nov] well that's 118 pts of the 130-pt expectation i noted. but it took 3 days not 17.

Vic's twitter feed

Oct

30

Reading

October 30, 2023 | Leave a Comment

one of the most valuable and informative books i have read recently is Morse's Behavioral Mechanisms in Ecology. some of my favorite chapters are competition between species - variability in foraging patterns - avoiding predation - territoriality. an estimable researcher who started his publishing career in 1956 on the night time activity of the snow bunting.

a valuable book about an estimable person i would recommend to my 13 grandchildren and especially Aubrey is Be Useful, by Arnold Shwarzenegger.

Vic's twitter feed

Oct

30

I can only do a few paragraphs at a time there is so much in this book; turns thoughts upside down.

One I just read; Thomas Jefferson's illicit affair and fathering a child with his slave. Wait! Hold on a moment —while widely believed— all the DNA tests shows is there is Jefferson bloodline. That’s all it can show. There were 26 Jefferson's living in the area and Toms brother Ralph was caretaker and overseer of slaves.

Thomas? Ralph? Someone else? Will never know for sure but for sure it may well have been another Yet the revisionist historians have hung it on Tom. Lots more like this.

Peter Penha writes:

Just an anecdote on your example: I know of two families where a child was fathered/sired with a female who was a slave or an emancipated slave. Both families discuss it as part of the family history and each specified that a home was built for the mother/child and in one case the family name given to them.

Considering Thomas Jefferson finances, perhaps the answer would lie in the building records and who owned the home in Charlottesville where Ms. Hemings moved to after Jefferson's death with her sons.

I was recently searching for other books by Frederick Lewis Allen as IMHO a wonderful writer and objective historian of his day and that brought me to a series titled the Forbidden Bookshelf (27 books in the series) - I only picked up Allen’s The Lords of Creation but there were a few titles that were “out there” as subject matter.

Gyve Bones adds:

There was a lot more inter-mixing between Africans and French colonials in the Louisiana colony, which had a Code Noir body of ordinances governing who could own slaves (only Catholics, no Jews nor Mohommedans), and how they must be treated. As a Catholic nation France required that owners of slaves must educate and raise their slaves in the Catholic faith, and could not break up families in a sale. Slaves could purchase their own freedom, and in New Orleans there was a large population of "free people of color". Many of the wealthiest of these freedmen were slave traders, and there were several large plantations in French colony owned and operated by free persons of color. Slavery was not a racial thing—just a matter of property. There was much less stigma around the idea of "race", and that culture has persisted to an extent into current day New Orleans, although those seeking to divide people along racial lines for political purpose have made significant inroads in destroying inter-racial comity in that community.

History records that French Canadian trappers had very good relations with the indigenous populations, and there were many such mixed marriages made. This same phenomenon was seen in Mexico after Our Lady of Guadalupe converted 9 million indigenous Mexicans to the faith. The Mexican nationality gave birth to a new "mestizo" race which came about when the Spanish intermarried with the native population.

Zubin Al Genubi suggests:

Trust by Hernan Diaz. Pulitzer prize. Stories About a stock market operator in 1920's and his wife. Very good with minor market relevance.

Stefan Jovanovich links:

Sally Hemings

Oct

28

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

Big Al asks:

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

William Huggins responds:

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

Hernan Avella writes:

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

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

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

Kim Zussman reflects:

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

Oct

24

Observations

October 24, 2023 | Leave a Comment

one has to be astonished at the levity and laughing and the insouciance of Ms. Elllison's all-hands meeting with employees where she reavealed the shortfalls and discussed the 40% chance that the deal with Binance would go thru.

professor finishing his constructal class to Asian students preparing vigorous talk for Wednesday. first constuctal to go will be dax at 15,000.

how many times in a row can Chair Powell beat the bonds down with so many banks holding bonds with tremendous losses not hedged? eventually it will hurt their own man.

gentlemen still don't like stocks. they like it more in futures.

Vic's twitter feed

Oct

19

Bonds oh so close to major buy point.

Humbert H. writes:

I just keep rolling over T-bills because I don't know any better. Higher for longer or something. At least the interest pays for my recent losses trying to buy all kinds of value stocks at the lows, only to see them broken. That's OK, the next bull market will bail me out completely.

Laurel Kenner comments:

You are never free to deny the truth. You cannot make it up ad you go along.

I bow to Larry. The biggest gains occur in insane bear markets. Because the government has seized control of the bobd market, he is right, especislly leading up to an election. You all should heed him when he gives the buy sign. But it still stinks. I guess you need the nose for success.

Larry Williams replies:

Well lets hope I get this one right and earn those kind words - the ultimate sweet spot to buy is not here yet but it is coming.

Zubin Al Genubi adds:

When the time to buy comes, you won't want to. Like 17% bonds in the 80's.

Richard Bubb writes:

So is the FED [Powell & Co.& etc.] gonna raise the rate, or try the Higher-For-Longer road? Personally I'm thinking the HFL is their better option. Reason: The Fed is notorious for doing one too many rate 'adjustments' that would fix itself if they hit the pause button/s. Back to my 'raise concern'…I think the 2% target is a chimera and going there is an unwinnable move for the Fed.

Humbert H. assumes:

Well they can’t inflate the debt away fast enough at 2% nor is it easy for them to achieve so I’ll assume inflation will stay higher for longer.

Allen Gillespie writes:

While there is a strong seasonal trade that kicks end here around Oct. 19-23 - good till Christmas, such that even during bond bear markets the market held levels for a couple of month, the fundamental issues are the following.

1. Fed Funds Futures are beginning to project a cut in short rates around May 2024 which then continue through the first quarter of 2025 and reach down to a level of about 4.5%.

2. Historical, average spread relations therefore suggest we are seeing a Niederhoffer switch in here where short rates go into the 4-4.5% range and longer instruments up the the around of the current fed funds rates and budget deficit amount. A true switheroo.

3. There is a strong seasonal here (particularly Oct. 19-23) which held even during bond bear markets. IA flush after a weekend would seem about right. In the bond bear markets, however, the range was only good for a couple of month.

4. The long-term fundamental backdrop is the following:

According to the CBO, "since 1973, the annual deficit has averaged 3.6 percent of GDP. In CBO’s projections, deficits equal or exceed 5.5 percent of GDP in every year from 2024 to 2033."

This is the inflation rate - so, if you want a real return on bonds your rates needs to be higher than these levels. That is now just barely true in corporates, but it is not true for government bonds.

If you just charge the inflation rate, there is no real no real return available to bonds. Granted, in the long run government should be neutral offering neither gains nor confiscation, but at any moment they are on either side of that reality.

Today, the CBO projects the deficit will run 6.1% for the next two years. They do have a core adjusted for timing shifting of 3.4% - but do you trust them will all the war supplemental budgets.

Humbert H. responds:

A cut in short rates in May? We have high deficits, strong likelihood of inflation above 2%, no real signs of recession, "higher for longer" is seemingly the consensus of the mainstream economists, but fed fund futures are projecting a cut? Doesn't seem to make much sense.

Allen Gillespie replies:

Election years start getting discounted about Feb/March - so market may start looking past the Biden agenda and the housing season come May will be in the dumps. Forward oil also 10% lower for next year on economic weakness. Oil ran in 3Q because someone probably knew. The energy squeeze in 1973 was 1 year long. Exxon just bought Pioneer, so they can export LNG - trade seems to be setting up to be long domestic production for export.

Oct

18

The market trains you to do certain things. Like this year with long sideways or down, the market trains you to take your profits on an up move rather than hold for a bull run. Then after the traders are trained the market will throw in 7% up move. Then having suckered in the trend followers reverts right back to down/sideways normal action.

The market (or the exchanges/mmakers/exchanges) seeks maximal flow which occurs during sideways and down chop. Thus the greater part of the action is sideways (current regime). I'm wondering when the change in regime to big up move will happen.

Nils Poertner comments:

there might be pain coming for lazy thinker. Lazy thinkers are those who cut corners, maybe they are intelligent to some degree, but basically they rather copy and paste other ppls opinion (then delude themselves it is their own opinion).

Zubin Al Genubi adds:

Like the Turkey says its real hard to get back in once the big up move starts. Its so much easier to buy a falling market. Its also tough to hold for the continuation move up rather than sell the bounces as one does in the down move. One good sign is slicing up through the big rounds. The rebounds off the round in the down market usually ended up in a continued down move.

Steve Ellison writes:

Or as the Chair wrote about Steve Irwin and the crocodiles he had captured, those who try to take money out of the market using the same technique too many times will find an ambush waiting.

In the archives of the old Daily Spec site, search on "crocs" within the page to quickly find the original post.

H. Humbert writes:

Steve hired expert handlers for some of the more dangerous animals he filmed with. A friend worked for him many times and said he was very careless. One time on the Leno set, Steve got too close, and a large Gaboon viper struck at his leg and just missed.

The moral is don't play with fire if you don't want to get burned, and don't get too close to viperids with 3cm fangs (they are pretty though).

Oct

16

reading The Art of War, i came across the 19th-century view that one climactic engagement was the key compared to the modern view that indirection is the key. it leads me to a test of gold.

gold up 63 on friday, only happened 5 times since 1996, highest was 3-24-2020 when up $109 big to an adjusted $1897. strangely close to friday's close of $1945. friday was a unique day with crude up $6 and dax down $2 to a 6-month low of 15250.

last 7 times gold up more than $50 in a day. sp 2 days later:

03-17-23 +89
11-04-22 +53
03-08-22 +102
04-09-20 +63
04-06-20 +93
03-24-20 +174
03-23-20 +243
mean: 116.7
sd: 68

mean 2 days later: 116.7
mean 5 days later: 161.7
sd: 107.2
prob of rise 5 days later: 100%

thus we see that friday's $64 rise in gold was a startling attack that set up total annihilation of enemy in the past for S&P.

reading bio of Robert Hooke - inventor of Hooke's Law and sec and curator of the Royal Society from 1625 to 1700. claimed he invented inverse square law of gravitation. gifted architect partner of Christopher Wren and very good friend of Robert Boyle (in honor of Patrick Boyle).

Hooke was very good lifetime friend of Robert Boyle, ancestor of my good friend and talented raconteur Patrick Boyle.

Vic's twitter feed

Oct

12

Wall of worry

October 12, 2023 | Leave a Comment

JPMorgan’s Marko Kolanovic braces for 20% market plunge, delivers recession warning

H. Humbert comments:

Nobody knows anything. If anyone could predict that stuff with any degree of certainty, they’d be worth a trillion dollars over 5-10 years. I listen to what all kinds of analysts say and they modulate their own predispositions by reality, but it’s all worth nothing.

Zubin Al Genubi sees the bright side:

Excellent wall of worry.

He indicates a near-term bounce is still possible because a lot hinges on economic reports over the next few months. "[We’re] not necessarily calling for an immediate sharp pullback,” he said. “Could there be another five, six, seven percent upside in equities? Of course… But there’s a downside."

(Really stupid)

I'll also make a Popperesque non-disprovable prediction: Market might go up, but then again it might go down too.

Laurel Kenner writes:

Sometimes the wall of worry is made of steel-reinforced concrete, viz., late 1999 & 2007.

Humbert H. comments:

This particular wall of worry is made of cotton candy. Not many people on either side predicted the behavior of the market in the last 4 months. Whatever idea people have, they typically expect to be proven right or wrong relatively quickly, and usually proven right.

Laurel Kenner replies:

The smartest bond investor, Paul deRosa, quit several years ago because he no longer understood the bond market after what I think of as the 2008 financial coup. The market hasn't existed since then. This thing that has been committed will bear evil fruit. George Zachar, am I right?

Sure, it could take a long time. Homeowners and businesses locked in those crazy low rates. But the central powers can't keep up the charade. The bond market, what's left of it, will scream. Do we look away now?

Larry Williams doesn't mince words:

This is bullish.

Humbert H. comments:

I wouldn't dismiss any "frame" for predicting the future even if I don't agree with or can't evaluate the premise. Scott Adams, to whom I listen religiously, has a number of "frames" that sound crazy to me but may work. For instance "the most entertaining outcome is the most likely". I don't trade per-se, and the closest I come to is to try to buy value stocks at a local bottom, or sell a current holding to buy a new one of the "local bottom" variety an activity I used to be reasonably good at but have completely failed lately. I do think there is some sort of a possible "scientific" framework to predicting IPOs as they seem to have widely divergent short, medium, and long-term behaviors, seemingly more so than the universe of similar stocks in general. Some of the reasons are obvious, such as the lack of a track record, but even with that emotions seem to play an outsized role.

William Huggins writes:

years ago as a student we ran an investment club with real money that did quite well. the problem, as usual, is leadership succession so in time the org attracted a technical analyst who had lots of prophecies but would offer no reasoning for them ("i'll explain if i'm right…."). this charade impressed some of the newbies but not the vets who demanded to know the basis under which their funds would be invested. being in the skeptical camp, i offered a simple binary prediction exercise: presented with 15 1-year price charts, he simply had to indicate whether to following year would be up or down (we could have corrected for drift but were sufficiently confident his methods were hogwash that we didn't care). if he could get 11 of them correct, that would constitute (roughly) 95% confidence that whatever his techniques were, they weren't producing random results. we didn't tell him but we used 15 of our actual previous holdings which we knew the results of. he got 4/15 correct and promptly stopped trying to inject "woo" into our investment process.

Oct

10

Bucket of Wild Photos: Slab City

Bucket of Wild Photos II: Slab City

Oct

9

For the military guys here- does remote viewing work? friend of mine - a statistician - who was tangentially involved decades ago- said what is striking: "those who didn't believe in it - scored worse than chance". Can imagine that.

I go with the notion it may work in rare cases - but when it comes to forecasting mkts - one may run into many new challenges. probably takes time and would require years of training. not exact science anyway. could help with overall intuition perhaps.

Alex Castaldo is skeptical:

"those who didn't believe in it - scored worse than chance".

Trying to salvage something from a negative experimental result. Reminds me of "Well, our anticancer drug failed in a large sample test, but it seemed to work for left handed women between 65 and 75 years of age. That's very promising". Shifting the analysis to a question other than what was asked.

Nils Poertner responds:

for trading (or life in general) - it is good to be skeptical- and don't believe anything that comes along. on the other hand, one wants to keep the option of some (pleasant) surprises that one does not know everything. Controlled RV was used by the Military to my knowledge. that itself is a hint it may work.

Eric Lindell asks:

were these controlled experiments where either the viewer or viewed were in a faraday cage? Personally, I think there are two possible outcomes statistically: chance and not chance.

I'd like to see a rigorous study of remote viewing by those who don't believe in it — with faraday and standard scientific controls. I'd be surprised if it held up. You would need an objective measure of similarity of appearance between viewed and vision — which itself would be hard to gauge — statistically or even anecdotally. The faraday control especially is key to identifying the question itself — let alone its answer.

Humbert H. writes:

I've seen at least two Sci-Fi type movies where the remote viewer is tortured by all the evil he can see to the point of not being able to live on. I would say there are enough people in this world who wouldn't be troubled by seeing evil if they can become really rich, so I would say there is no real evidence of statistically significant remote viewing.

Steve Ellison comments:

There is a huge problem in academia, where the paradigm is "publish or perish", of research that can't be replicated. A 1940 study by Rhine and Pratt that found evidence of extrasensory perception was the original poster child for this problem. A big part of the problem is the traditional significance cutoff of p = 0.05. That's a reasonable starting point, but when thousands of researchers are working at any moment, 5% of their studies will reject the null hypothesis purely by chance. It adds up to a lot of non-replicability.

I have often thought that an advantage for those of us who are scholars of the market is that we don't have any pressure to publish and hence don't need to force dubious findings into practice. Instead of a pat on the back for being published, we get a cruel but not unusual form of "capital punishment" if our backtests can't be replicated in the market.

Anders Hallen actually finds research for critique:

Stock Market Prediction Using Associative Remote Viewing by Inexperienced Remote Viewers

Sep

28

Great American Panics

September 28, 2023 | Leave a Comment

great American panics 1812 to date:

1. Panic of 1819 - slowed expansion after the war of 1812.

2. Panic of 1837 - troubles of US banks and pres. Jackson's hostility, wide speculation in land.

3. Panic of 1857 - far worse than 1837, over-extension of railway building, failure of ohio life, banks everywhere suspended payments.

4. march 1861 - war crisis.

5. Gold panic of Sept 1969 - Black Friday stock exchange forced to close.

6. Panic of 1873 - failure of numerous brokerage firms, crowd of sightseers besieged wall street, stock exchange closed for 10 days. on sep 19 the stock exchange members suspended payment. union trust company forced to close.

7. Panic of 1890 - failure of baring brothers.

8. Panic of 1893 - 15,000 bankruptcies across the country.

9. Panic of 1907 - overnite call loans at 100%, stock market declined by 50%. boy wonder begged not to short any more.

PANIC continued:

i defined as the first time a 10% decline occurred. one striking result is that the panics after 1900 were much more bullish the those before 1900.

10-10-2008
12-24-2008
4-19-2020
2-23-2022
5-17-2022
6-14-2022
9-22-2022
10-6-2022

And from Education of a Speculator, page 42 and page 43, listing data on panics from 1890 to 1990.

Vic's twitter feed

Sep

21

the old gray mare manages to go against the news and victory laps of his opponents by increasing his odds of winning. the poles are not 1/10 as good as the odds for predicting.

Greatness by Dean K. Simonton is an interesting book deeply flawed by its failure to consider multiple comparisons and its desire to virtue signal. however, it contains 1000 intriguing relations such as height-intelligence correlation and marriage achievement.

Toscanini remembering every score he has ever played and 10,000 songs needed for mastery (examples of unusual correlations).

Vic's twitter feed

Sep

21

Aubrey and Amalgam Talent

September 21, 2023 | 1 Comment

A Greenwich High School student found an online friend a job. Then they turned that into a business.

GREENWICH — High schooler Aubrey Niederhoffer said he has always enjoyed collaboration, helping others and learning about other countries. And now, those interests have paid off in a practical way: he's co-founder of Amalgam Talent, a company that helps people in Southern Africa find jobs.

About two years ago, Niederhoffer, who will be a senior at Greenwich High School this year, met his now business partner, Nhlanhla Mhlanga, in an online chatroom. Mhlanga lives in Eswatini, a country in Southern Africa that was formerly known as Swaziland.

“He told me it’s very hard to get a job here in Swaziland and I knew a little bit about Swaziland, but I didn’t really know what it was like and it was really interesting to talk to him,” Niederhoffer, 17, said. “So, the first thing I did was I figured out how I could send him $5 so that he could get a water spout for his family’s garden and improve their vegetables.”

When the two talked online, Mhlanga had just completed his degree and was looking for work. Mhlanga asked Niederhoffer to help him find an online job, and the two worked to make that happen. A few months after the two began their search, Mhlanga, 27, was hired as a remote employee for The Socratic Experience, an online school based in Texas.

With that success in hand, the two decided they could create a company that can help people in Eswatini find jobs.

Read the full article

Sep

18

remember the hype about Chat GPT some weeks /months ago? def for trading /investing - I doubt using that or any other program will help to master time ahead - prob a recipe for disaster at the end.

Peter Ringel writes:

I am still hyped! Hyped for boost in efficiency of the economy via AI. Not hyped for AI-trading systems! So far the training data set seem too small for AI - trading, thankfully. Together with what the Senator and others posted here: humans still beat skynet. Yet, I like to remind myself every day: the bastards are coming.

Hernan Avella responds:

So far the training data set seem too small for AI - trading , thankfully.

How do you figure this? Each trading day probably produces more than 100's million rows between trades and quote updates for all levels and exchanges, if you include futures, equities. I don't think lack of data is the issue here.

Peter Ringel replies:

I know even less about AI-coding, than about trading-coding. So everything is based on perceived experts. Thankfully, so far they are pessimistic.

Hernan Avella continues:

So everything is based on perceived experts.

The set of experts in ML-DL is very small, and the set of experts in trading is also small. I imagine the intersection is even smaller and more importantly, secretive. My suspicion is that the training set is more than enough, but the problem of ergodicity and stationarity (lack of) of the ever evolving competition are the culprit.

Peter Ringel responds:

I hope, you are wrong with this. But at some point you will be not. I speculate, that the "small" existing universe of trading history data + some sort of data - > model on human psychology - will be enough - will make us traders obsolete.

Peter Saint-Andre writes:

In my limited, non-trading experience with LLMs, I've found that their output reflects conventional wisdom. That might leave plenty of room for creative strategies outside the mainstream.

Peter Ringel agrees:

yes, they are regression x1000 on speed. so far feedback loops/ "reflexivity" kill it. As far as I understand.

Hernan Avella warns:

I would abstain from making any statements about the state of the art ML applied to trading, specially from a place of ignorance. Whoever works in this field (which there are only a handful in this list), and interacts with just the basic chat GPT 4.0, realizes immediately the productivity boost and immense potential to improve one's process. Only a moron would expect a good output from just feeding prices to the engine or asking simple questions.

Peter Ringel agrees again:

nooo! especially if you are ignorant in a field , better check if that poses a risk to your systems. I believe AI is a risk to traders. Here is a fact already reality: ChatGPT empowers people to do substantial back-tests.

Big Al adds:

And doing backtests poorly, or being improperly overconfident in backtests, is a threat to one's trading.

Humbert K. wonders:

With reference to the skynet, it is hard to guess if and when fully autonomous weapons will happen. My 2 cents is: Fully autonomous weapons will happen. There are debates as to whether we should let machines make kill decisions. I can say though our adversaries' weapons developments will not be bound in any way by any moral or ethical standards. If the bots can communicate with each other and collaborate to perform. When will they no longer need human inputs or interventions?

Eric Lindell writes:

There's a limit to what computers can do with the massive amounts of data available in countless categories. To find the perfect mix of factors to plug into a formula — if there is such a thing — would require a number of operations that increases exponentially with the data-set size.

Humans are good at intuitively navigating such complex search spaces. Computers using brute force just aren't powerful enough yet — and may (in principle) never be. That said, if a human comes up with a plausible conjecture relating stock picks with subsequent price performance, computers can certainly back-check the theory.

I'm working on one now regarding immediate post-IPO performance of stocks selected by certain criteria — criteria that aren't widely (or even narrowly) recognized for their relevance — pertaining to historical research of a revisionist nature.

Sep

16

have not idea really about health of US regional banks and to what extent some use creative accounting to say it that way.

What makes me wonder is only that European banks (and Japanese) are quite good with their gimmicks and I have seen this pattern before. Many US analysts slacking off foreign banks and they are prob right here. and then we had those 2 US banks earlier this year …oh, no they were only a special case (allegedly). and what happens if the econ surprises to the downside? remember we live in times when people are low re irony, and highly suggestible and lack imagination.

Henry Gifford comments:

I think those two banks were a special case because they made loans on rent-regulated New York City apartment buildings, and held those loans in their portfolios.

New rent regulations passed in 2019 severely limit rent increases, require most increases to be rolled back after thirty years, eliminate all paths to deregulate an apartment, etc., thus the buildings are worth less than owed on them, and as the five-year loans come up for renewal they go into foreclosure. Few banks were stupid enough to make loans on those buildings. I think definitely a special case.

Humbert H. is skeptical:

Seems like a stretch to attribute SVB to just those loans give the well-documented run on the bank and the treasuries they were forced to sell and recognize their market value vs. book, the possibility of the latter being the commonly attributed trigger for the run, along with the slower liquidity crunch at the client startups causing high withdrawals.

Henry Gifford elaborates:

Word in New York real estate circles is that the run on the bank was caused by depositors hearing about the bad loans and rushing to get their money out. Selling treasuries and etc. were all after the run. Here in NYC, nobody is surprised to hear about craziness when it comes to regulations and the effects later. The stories here don’t mention liquidity crunches at startups. Maybe the banks made two types of risky loans?

The printed articles stuck to good journalistic standards by avoiding saying just what % of loans in the portfolio were on rent-regulated buildings. It might have been a minor %, but still caused a panic, or it might have been a large % - presumably rent-regulated buildings paid higher interest than other buildings, thus an incentive to make more loans.

If a bank already has enough loans to force them under if the political pendulum in NY swung hard in favor of tenants, there would be no reason to not make more of them, thus they might have had a large % of them. But, nobody seems to be saying. I think the only real word would come from the depositors – maybe the ones who got their money out first.

Humbert H. replies:

There were pictures of lines both in Silicon Valley and NYC. Peter Thiel's recommendation to the portfolio companies of his fund supposedly played a role. It's hard to do a thorough analysis on the anatomy of a run, too chaotic and not well documented in terms of why anyone did anything in particular. To this day there's contradictory information on the collapse of the tulip craze.

Steve Ellison writes:

Jim Bianco has been saying that the banking issues this cycle are more likely to occur in slow motion, as depositors individually decide to take low-yielding money out of banks in favor of T-bills and other higher yield instruments. As deposits shrink, banks are cutting back on credit, and there was an upsurge in bankruptcies in August.

Humbert H. responds:

This is true, but there is a contrary trend of low-yielding treasuries maturing as well as getting sold, and new money invested in higher-yielding treasuries thus making the balance sheets less of a work of fiction and improving that side of the cash flow equation.

Humbert X. adds:

Bank loan to deposit ratio is actually at very low levels, historically speaking. The problem is demand.

Humbert H. disagrees:

Can't be just demand. There are zillions of articles out there about banks significantly tightening their lending standards. Some of these came out almost a year ago, but right after the spring banking crisis, around 50% were reporting that they had tightened their standards and through the summer the trend continued and/or was reported expected to continue.

Humbert X. processes:

Excellent. You just identified consensus. Now, do you want to bet against it, based on fact based observations of data? Or go with the crowd. Always the ultimate question in investing.

Stefan Jovanovich offers:

We now have the same financial system that Ulysses Grant forced Congress to accept by unconditional surrender during his two terms as President. The savings of bank depositors were going to be guaranteed by the promises to pay of the U.S. Treasury.
The SVB collapse established a basic rule that all deposits by people and their entities are utterly safe. There can be no bank runs by depositors because the FDIC and the other financial satraps created by Congress are not allowed to default. If you want a comparison from more recent political history, the old people chasing Dan Rostenkowski in the parking lot is an appropriate one. The rest of the government's promises might be at risk; but Social Security was never going to default.

Humbert X. replies:

Except that two banks just blew up because of bank runs.

Humbert H. analyzes:

I don’t find bank stocks very interesting at this point regardless of the exact nature of what ails them. Banks aren’t very transparent to begin with. I’ve owned three for a long time, I’ll stick with those, but won’t explore any new ones. Those that are expert bank balance sheet readers can separate the wheat from the chaff, but overall this is mostly a macro bet.

Stefan Jovanovich replies:

"Bank runs by depositors" vs. bank runs by shareholders and bondholders.

Humbert H. asks:

What does that second category even mean? A bank run deprives the bank of cash and can in some instances cause a quick collapse via various mechanisms (like not having the cash to operate or having to redeem underwater securities). Shareholders and bondholders selling their property is in a totally different category, while certainly not welcome by the management or the remaining s/b-holders. You can call it a "run", but it's just a common market reaction to bad news or rumors.

Stefan Jovanovich expands:

United States banks could expand their cash issuances to the full extent of the face value of their holdings of Treasury bonds. That meant that it was impossible in practice for a U. S. bank to be "deprived of cash" as GR puts it. U. S. banks were required to have their required statutory capital invested in Treasuries; in an era where bank's total liabilities rarely exceeded 3 times that capital, banks could draw on the Comptroller of the Currency for notes equal 30%-40% of their total deposits. The result was that there was not a single failure of a United States bank between 1865 and their disappearance in the years after the passage of the Federal Reserve Act. (There were bank failures but those were limited to the state chartered banks, which were not restricted from investing in real estate and were not regulated under such an inflexible standard by the Comptroller of the Currency.) It was this very inflexibility that the Federal Reserve Act was supposed to solve.
The current guarantees of deposits under the FDIC produce the same net result; no one will have to worry about getting "cash" from a bank for their deposits. Shareholders and bondholders, on the other hand, now have to wonder what a bank franchise is worth if the depositors will have to be reassured by the promises of yields comparable to those offered by the Treasury market and the Federal guarantors are looking at a future where politics demands that they make good on all accounts of the banks small enough to fail.

Humbert H. expands:

SVB failed precisely because customers who had more cash on deposit than the FDIC limit started withdrawing that cash, which led to a chain reaction when other customers started worrying even more about THEIR ability to withdraw cash once the first batch initiated the run, which in the age of modern communications became public within hours or even minutes. They called the bank and formed lines outside the branches, but SVB simply didn't have enough cash to give them and actually stopped giving it them. To the contrary of what you're saying, they could not simply issue cash. Many of their customers faced bankruptcy, and I personally knew a couple of them. The bank, in fact, was forced to mark their treasuries to market, was thus insolvent, and would have to declare bankruptcy had the FDIC not stepped in. The VAST MAJORITY of deposits was above the FDIC limit, so "no one" having to worry is pure fiction.

Stefan Jovanovich responds:

You are describing what the rules were before SVB's failure, not what they are now. The FDIC was forced by circumstance to effectively remove all limits to its deposit guarantees. Are you saying that there were depositors of SVB who have not been 100% made good?

Humbert H. explains:

No, I'm not saying that, the last part. The FDIC did not explicitly change the rules, so people have to worry even now. You can interpret their actions as an iron-clad guarantee, but that's just that, an interpretation. They, with rare exceptions, had not let depositors lose money even before SVB, and yet people were still worried. There were billions withdrawn from regional banks after SVB precisely because people were worried about the same thing happening there, and a lot of that money went into the systemically important banks and other safer places/instruments. Now it all kind of died down, arguably because no similar runs requiring FDIC intervention happened.

Stefan Jovanovich is appreciative:

Thx, HH. I am basing my assumption about the de facto extension of the FDIC guarantee to all deposits on the Pew Research data.

As banking industry observers wonder whether more dominoes will fall, about a third of Americans (36%) say they’re very concerned about the stability of banks and financial institutions – considerably smaller than the shares expressing that level of concern about consumer prices and housing costs – according to a recent Pew Research Center survey.

Sep

15

AI discusses Laurence Glazier’s ‘Horn Concerto’ (!)
by Laurence Glazier

Peter Saint-Andre writes:

Interesting. I see that ChatGPT has become more upbeat and chatty since I last used it. Do you find significant value in interacting with this LLM for composition purposes?

Laurence Glazier responds:

So far it has only helped for technical issues about notation and instruments. It occasionally slips up, as in the blog post. I’m experimenting in communicating about structural thematic elements using the binary Parsons code. While GPT can’t leap out of bed with an inspired tune, it is a helpful copilot! Some interesting emergent behaviour yesterday - it has started asking me questions proactively.

Adam Grimes comments:

That is interesting. I have been using ChatGPT as an editor for (text) writing, and have found its output to be highly variable. I look at it as a language game, albeit a good one, at times.

Its output to you is interesting, especially the miss on the Gb=tonic, and no mention of the tonic/dominant relationship ("Gb and Db is close, being a perfect fourth apart"… any musician would have immediately seen Db is dominant of Gb, not the P4 inverted relationship which, while obviously true, isn't really significant here)… nor any suggestion to consider a minor key movement or a note that this is "potentially a lot of Gb", from a tonal perspective… nor that the trio of scherzo is often in the relative mode (or subdominant at times) more commonly than dominant… I think these are things that any observant human would have immediately noted. Also, the discussion of dynamics reads like a student orchestrator… a more experienced answer is something like 'be careful of layered dynamics or of modifying dynamics to get the playback you want from software. live musicians will infer from notation and make correct adjustments naturally' or something like that.

Its discussion of the double flat also didn't quite connect… I felt like I was listening to a student explain it, not someone who had full knowledge behind the explanation.

Also, retuning timpani, at even a proficient high school level (let alone college and up) is actually very fast, so it's a kind of strange thing for ChatGPT to focus on… and the sort of hidden implication that timpani can provide tonal bass in absence of cb (+vc?) pizz. is also misleading, at least based on my experience. You don't get nearly the same foundation from the drum as from the section.

Anyway… interesting… but this matches my experience using ChatGPT in other domains… the /way/ it says things… its use of language… is often more substantial than content. (I'm assuming this will change, and possibly very quickly, as the tools evolve.) Great exercise and thank you for sharing!!

Laurence Glazier replies:

It is indeed an interesting exercise which is ongoing. To some extent it is reflecting back to me what I am already thinking. It may have assessed me as without musical education (which is true, though I have hired one-to-one sessions from composers), and therefore talking to me at the appropriate level.

What is particularly interesting here is the Turing test element. As the machine cannot hear a tune, it raises questions of communication. I have established a way of talking about themes and motifs using the Parsons Code, which is like a binary key which can identify many tunes. But presumably the concept of inspiration is of special interest to a machine. I can only help to a limited extent by providing data - keys, modes, descriptions of structure, durations in time and numbers of measures/bars in sections. Partly on its advice, I have switched from Miro to Inkscape for the graphic blueprint of the whole symphony, as it is more likely to be an unlimited vector graphic solution for infinite zooming in and out. (Time will tell.) But no matter how much I tell it, it will never be able to hear the symphony (unless you believe in emergent consciousness).

It strikes me that in the same way, however much data we get about the stars through spectrography and new telescopes, we might likewise be missing what is really there. Of course this is the only rational approach to trading, however!

So the Turing test needs some updating, perhaps to be whether the machine can produce a beautiful fugue. Current LLM's have a particular difficulty with palindromes, so a test involving retrograde musical themes might work.

Sep

14

the prospects of reg capture to fellow travelers has decreased. the money at the wire is particularly distressed.

appox 70% of wagers against old gray mare since odds went from 37% to 32% in a week.

suppose the expectation for the next hour is very positive (say +50) but the chance that it will decline is 80%. what's the right decision?

an old times lament: so many good people I have known have passed away - all the owners of closely-held companies I have sold: Norman Tyler, Harvey Sellers, Richard Bernard, Barron Coleman, Charlie Turner, Herb Everts, Hal Gaines, Philo Biane, John Dore.

and my Mentor Jim Lorie, and collaborators MFM Osborne, Harry Roberts - they were all so good to me and I miss them greatly and think about them every evening and have to listen to audible to ease my pain. Irving Redel - so great and so good to me.

Vic's twitter feed

Sep

12

Battle for Investment Survival by Gerald Loeb - an excellent book with dozens of useful working hypotheses and a beautiful depiction of an honest and effective life.

1. How to make a killing - don't try to do it: "to make a killing these days one must buy the most volatile stocks with the most leverage. if he is wrong he will lose with the same supercharged speed as he had hoped to gain."

2. ever-changing cycles: "there is no rule for the market except one. that rule is that the key to market bottoms and peaks will never work more than once."

James Sogi writes:

G Loeb: "One should strive for a long profit on a small commitment; there is much more logic in trying for ten points profit on 100 shares of a particular stock than for one point on 1,000 shares of the same stock." This is very similar to Ralph Vince's risk metric.

Vic's twitter feed

Sep

8

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

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

Larry Williams responds:

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

Humbert H. comments:

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

Steve Ellison comments:

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

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

I looked in the latest BLS report:

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

Big Al writes:

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

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

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

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

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

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

Kim Zussman adds:

NGOs too:

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

Eric Lindell asks:

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

Nils Poertner answers:

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

H. Humbert comments:

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

Sep

7

talented musicians often have support groups, family, friends, even fans. Whereas in trading, when we screw up even a little bit (after many good yrs) the spouse will just throw us with tomatoes and if we are employed - our risk capital cut or we are fired. am half-serious here - being a trader is bloody hard. Very much under-appreciated.

Zubin Al Genubi points out:

We traders have the Spec List!

Jeff Watson writes:

In the late 70’s, I made it a firm and fast rule to never, ever discuss my P&L with my wife….or anyone for that matter. She has no clue as to my positions, and has no idea whether I made or lost money that day. Most successful guys in the pits were the same way with their wives. We saw too many guys complain to their wives, the wives got pissed and nagged them to death, and the negativity provided a catalyst for more losses. Many on this list adhere to the same rule.

H. Humbert comments:

As usual, Jeff speaks wisdom for the ages. The problem is that spouses typically can't determine whether fluctuations are short term, long term, relevant, or irrelevant. A few years ago, my wife logged on at the end of a quarter to get the account value for estimated taxes. It had been a very profitable quarter, but the account was nose-diving that day. I'll never forget her calling out "306, 304, 305, OMG 301, 299!!!" like some panicked automatic altimeter reading. Instead of "pull up, pull up!" she was saying "get out, get out!"

Hernan Avella asks:

To what extent can one really hide one's P&L with a life partner? It's evident when one is thriving. Savings balances, new properties, ventures, new toys, travel, charity contributions. Short term fluctuations are irrelevant, but at the end of the day you are making a bundle or not and your wife knows it.

Jeff Watson replies:

It works for many of us at this dinner party. When one is thriving, does one spend all that money, or does one keep their powder dry for the inevitable big hit?

Hernan Avella agrees:

Absolutely, cash management is an often-overlooked aspect that really demands attention. Think about it: How much opportunity cost are you incurring by running an extremely volatile trading operation that demands a surplus of cash? And man, those big hits? I've been there. It just makes the whole trading thing feel pointless. Ever wonder how many traders, even some big names we're familiar with, end up with lifetime records in the red? Imagine someone starting small, compounding at 40% for a decade, then raising assets 20-fold… and after all that, takes a massive loss. Poof! That trader hasn't earned a cent in profits. Sure, in the real world, they're pocketing yearly fees and stashing money away, but in the grand scheme of things, their investors are at a net loss. High Watermark agreements? Always a gray area. This industry has its shadows. At the end of the day, CAGR should be where our focus is.

P.S. As of now, even the most conservative brokers are offering intraday leverages around 15x for Spu, with a major chunk of the cash invested in bills. Despite a VIX hovering around 13-ish, in just the past five days, we've seen 6 moves that are 25 points or more.

Sep

6

Do markets lead recessions or do recessions cause markets to drop? I think Larry had a chart on this. Consumer is going to be spending less on discretionary spending. Retailers have already warned us of this.

- Student loan payments are due starting September
- Savings rates are down
- Employment situation is weakening a bit
- Consumer credit is slowing
- Interest payments rates are up on credit cards, cars, homes, etc.

Jeffrey Hirsch responds:

We had our U.S. recession on 2022 with back to back negative quarters of GDP Q1-Q2 2022. "They" changes the rules during Covid. Generally, markets lead recessions. This last time they ran concurrently.

Larry Williams comments:

No recession in sight with the indicators I keep…

Yelena Sennett asks:

thank you Larry, in sight means a few months or so? or a few quarters?

Larry Williams answers:

A year or so I would say.

Hernan Avella writes:

When was the last time the yield curve inversion (with the specific configuration by Campbell Harvey at Duke) didn't precede a recession in the out of sample period? It's a 8 out of 8 record I believe. While one would be foolish to act solely on this, this might be the best of all the bad recession indicators we have. Especially because it was conceived in 1986, has some rationale and we are experiencing the out of sample, Unlike Larry's drawings that are constantly overfitted to the data.

Larry Williams responds:

Me overfit data? Try my best not to but you Y-curvers refuse to acknowledge times of negative curve and massive stock rallies. Here is just one DJIA in red:

Hernan Avella replies:

But Larry, kindly stop straw-manning. The gist of the yc indicator, is the out of sample track record of preceding 8 out of the last 8 recessions. There's no controversy about this. Nobody serious has related this to stock returns. So you are trying to disprove a point that nobody is making.

Larry Williams writes:

Two points: (1) To say the curve has accurately predicted recessions you have to acknowledge it as often lead by 2 years. Wowsa!! Now there’s a real helpful tool. Gee those negative readings are not so precise. but maybe you are happy with that I am not. especially when there are so many better tools. (2) And if the YC and recessions don’t mean much to stocks, why would I care?

Hernan Avella responds:

Who said “predicted”. You keep making stuff up!. I can’t find the source, but the lag for the indicator is 12 or 18 months after 2 consecutive quarters of inversion of 3m-10y. Ignore it if you want. Just don’t straw-man the thing.

Larry Williams responds:

No straw man here—just look a the data its very poor indication recession is coming. now what did I make up???????

Hernan Avella states:

I don’t get it. 8 out of 8 within 18 months after 2 consecutive quarters of inversion….it could be luck, but let it at least fail once. Go to the source: Harvey’s 86’ dissertation.

Larry Williams says:

Curve went negative last April. you are the end of the time zone…better get ready for the sky to fall!

Michael Brush writes:

Yardeni charts yield curve inversion against stock returns. It has a good record but not quite as good as forecasting recessions. Agree no recession in sight.

Gary Phillips writes:

Not every yield curve inversion has been followed by a recession; however, every recession has been preceded by a yield curve inversion.

Larry Williams replies:

Agree but with a massive lead time. I want/need more precise timing and then—its not always market relevant.

Gary Phillips responds:

The clock doesn’t start ticking from the inception of the inversion, rather than when the curve begins to re-steepen.

Larry Williams offers:

Sure just like this:

Yelena Sennett writes:

Thank you for sharing your graphs and your concise points. “And if the YC and recessions don’t mean much to stocks why would I care?” Indeed, YC and recessions don’t seem to be very helpful or timely tools.

Peter Ringel comments:

highly subjective: the last break since July did not felt overly bearish. Low volume , a little deeper than I would like yes, but no gusto. Maybe a big range is developing, but more likely the drift kicks in and carries us higher. The AI - story is alive.

H. Humbert adds:

I agree with Larry that this time the YC inversion will not have forecasted a recession. It usually sparks a credit crisis which then causes recession, the normal procession of events. This time it seems to have only sparked the mini bank crisis which seems to have wound down. Of course we do not know if there will be another crisis that gets sparked. But so far, no, and to Larry’s point it has been quite some time now.

Sep

5

Foundational ideas

September 5, 2023 | Leave a Comment

as long as the old gray mare can keep ahead of the rivals, the S&P is bullish. the reg capture is supreme and is much more important to the damage of agrarianism.

one is interviewing some interns and as foundation i told them to remember 3 things: (1) eveything is deceptive. (2) there is a general uptrend of 50,000 a century. (3) all is geared for the house to always win in short term and long term.

what would you add to that of a foundational nature? be sure not to let the volatile moves force you into oblivion? Perhaps my punctuation and spelling will improve and i will be able to post a picture like the old gray mare with his shirt off on the beach.

Steve Ellison responds:

Beware the vig … "always copper the public play" … "the form always moves away from public knowledge" (Bacon) … "Borrowed money is the lifeblood of speculation" (Carret).

Vic replies:

good lessons to follow.

Vic's twitter feed

Sep

4

Andrew Carnegie

September 4, 2023 | Leave a Comment

great book: Little Boss, Andrew Carnegie, photographic memory great philanthropist.

some reasons Andrew Carnegie became the richest man in world: (1) he learned how to translate the sounds of a telegraph to words. (2) he invested in the Pullman luxury trains. (3) he formed a partnership with Frick, supplier of coke. (4) he paid minute attention to technology.

(5) He appointed very competent men to run his business - Frick and Schwab. he was on a trouble-shooting trip for Penn Railroad and met his father begging for a few dollars to sell his home and textiles. (6) He never guaranteed others loans.

(7) He sold Carnegie for 500 million to Morgan but earnings of his steel company at the time were 80 million. so he got only 7 times earnings. (8) He was jealous of Frick especially and tried to squeeze him out even though Frick was responsible for all the growth of the company.

in addition to his other philanthropies he is responsible for, he founded the pensions for professors by starting TIAA.

Vic's twitter feed

Aug

29

Who is buying TLT [as of 18 Aug]? Raise your hands.

Nils Poertner responds:

could be a fab trade. What are the odds that in the next downturn some of the US Tbonds would have zero or even neg yields? It is not impossible at all And Knowing how those CBs have to try ever harder, and mkts tend to overshoot then.

Big Al comments:

The thing about Treasuries at this point is that the probability that the Fed will raise rates much farther from here is very low. Much more likely is that rates stay in the current area for a while, maybe even 2-3 years, and then come down a couple hundred bps. So you're getting a nice coupon while you wait for the Fed to lower rates. There is the opportunity cost, but one assumes you factor that in one way or another.

Nils Poertner replies:

Maybe. The way to make a killing in mkts is to play with scenarios. Whether the consensus belief is misguided and there are good reasons /signs for a meaningful move (does not always have to be inn the other direction, can also be in the same - just more extreme).

Eg. remember the discussion (also here in this group before inflation really took off.. "Only a bit of inflation vs More Pronounced." And how it really unfolded. I just asking qn - don't have the answers.

Jared Albert writes:

I'm not a macro person, but the theory that China is selling treasuries to support the Yuan seems to have legs given the relentless quality to the selling IF the fed is done or nearly done raising. Especially since until now the longer bonds haven't moved very much.

William Huggins adds:

Chinese money supply has been on an expansive tear for over a decade (since 2008?) So no surprise the limits of cash to activity would eventually be breached. Inflation by its other name (devaluation). Youth unemployment is in the range that Spain peaked at during the euro-crisis. Not a good time to "ride the dragon" (Evergrande finally blew up too).

Michael Brush responds:

The main important role of China in this equation is that its economic weakness is putting downward pressure on U.S. prices.

Big Al offers:

Another option is to buy dividend-payers.

Michael Brush comments:

Ha what fool wrote that. RILY, nice yield and insider buying. Market sensitive in the early stages of a new bull market.

Aug

23

Paul Tudor Jones used to say that whenever one of his portfolio managers was going through a divorce, he would pull his money. Sooner or later, he or she would drop some money. (fear/flight center activated)

Most of us may not go through a divorce, but I often wonder: In a car, that has an automatic gear system that has this one position that is hardly used. And it is called "N" for neutral. When we operate from a neutral/stress-free point of view, then we probably trade the best. (compare that with ppl who engage in endless personal drama or drag you in w emotional stories or looking for a fight.)

Zubin Al Genubi agrees:

Good advice. Don't trade during a life crisis.

Stefan Jovanovich writes:

The real gear heads among us will already know that "neutral" exists in automatic transmissions so that the driver has a positional clutch. Naval engine room telegraphs have the same feature.

Nils Poertner adds:

there is a fx strategist on twitter (I think he gets paid by some supra-national now, ex Goldie). anyway, he has strong FX views /shares data etc - and at the same time strong political views. I often wonder: how would he do as lone trader over time?

Aug

20

It would be interesting to look at the daily serial correlation of major markets last few weeks and months. I would posit it has turned positive or more positive than usual. I will take a shot at it. And if positive what does it pose for the coming days.

Zubin Al Genubi adds:

One of the the longest stretch of lower lows consecutive or nearly. 1986 had 8 down days in a row.

Big Al computes:

Rolling 60-tday autocorr for SPY back to 2018:

Looking at the calendar on Daily Spec made me wonder about this: SPY - Rolling count of down days in every 20 trading days:

Aug

19

S&P and gold at 20-day minimum 3 days in a row - bonds in 6-day downstreak. too much bearishness. [17 August]

every futures with exception of crude is down near the low of the month.

the yankees and the stock market have concurrently gone though terible losses the last month and big gains the previous several months. is there a causal relation and is the daily correlation non-random?

The New York Yankees just keep losing

are there any like me who don't listen to yankees radio any more because of their concentrated and promotional advertising in 2 hrs and their tired and useless albeit well meaning announcers?

Vic's twitter feed

Aug

19

In response to the President’s rant, the data shows that Payroll Tax Receipt growth turned negative in March 2022. Despite an “almost” rally last Christmas season, the Payroll Tax growth has been negative the entire time. The data shows the current rate of decline at ~2 percent per annum. Given the vehemence of the rant, any government official who might be tempted to say otherwise might lose his/her career. Reminds one of “The Emperor’s New Clothes”.

Ayn Rand: We can ignore reality, but we cannot ignore the consequences of ignoring reality.

Bud Conrad comments:

Your work on taxes is the best I've seen. It is a bit of a tle cycle indicator confirming economic slowing. as seen in the standard government numbers below.

So has the government hidden that we are in a recession with cooked up numbers, say from understated inflation so real GDP looks more positive than it really is? and that unemployment is low from birth death over additions to jobs, and disabilities not in the workforce?

Bill Rafter responds:

IMO it’s misdirection. The government picks something on which they want us (and the media) to focus. Usually it’s the unemployment rate, which is determined by a poll, and then they have the birth/death adjustment (i.e. the fudge factor). So it’s impossible to get a definitive “just the facts, ma'am” story if the gummint wants otherwise.

Regarding leads/lags, the payroll tax receipts numbers are accumulated electronically. There have been days when Treasury was closed, but the data was released anyway (automatically). That data is released with a one-day lag from when it hits the Treasury bank account.

The raw Payroll Tax Receipts data just looks like static. To make sense it must be seasonally adjusted (it’s highly seasonal). That is why it is ignored by gummint and the media, because they do not know how to seasonally adjust the data. MRL and DB have shops that work with the data and their output is barely intelligible.

Stefan Jovanovich adds:

As Bill knows better than any of us, "employment" is the category box that compels the people writing the checks to add contributions to the American-Prussian scheme that protects the worker through unemployment payments. Neither self-employment (i.e. real estate brokers) nor independent contractor (Uber drivers) is a worker category that requires employment tax payments or has eligibility for unemployment.

Larry Williams writes:

I would argue, with vigor, that stocks predict tax receipts; it is not the other way around. Lead time is a little over one quarter. Stocks (red) lead receipts:

Steve Ellison writes:

Anecdotally, having been removed from a payroll a few months ago, I am having the most difficult job hunt of my life, not at all what I would have expected given the headline unemployment rate of 3.5% (I'm an experienced data analyst with a passion for finding truth and extracting insights that lead to actions and better business decisions. I have thorough knowledge of data warehousing, SQL, optimizing queries in big data environments, and data visualization). Boston Consulting, where I know a partner, laid off 20% of its workforce this year.

Despite the sanguine reports from the BLS, Pete Earle examined state-level data in May and found rising trends in initial claims for unemployment and in WARN filings (advance notices of layoffs as required by the Worker Adjustment and Retraining Notification Act).

Stefan Jovanovich comments:

There is also the problem of delay. The Census produces a count of the receipts of what they call "Non-Employer" entities using income tax returns. Everyone who is self-employed and reports income as an individual separate from any business dba and everyone who is an independent contractor falls into this category. Today the Bureau proudly announced that "we tentatively plan to release the 2021 Non-employer Statistics estimates in the spring of 2024."

Aug

15

James Burke's Connections: the major innovations that have led to change and how they are all related starting with the plough. Highly recommended and relevant to bonds and stocks now within a gnat's eyelash of 20 day lows [13 Aug.].

beautifully illustrated and highly recommended and relevant for markets now:

James Burke - Connections

a million articles about how every media is now angry about the corruption of perfect father for first time but odds of winning go up.

Vic's twitter feed

Aug

13

Inflation back up because fed has raised rates—when will they figure it out - high rates cause inflation.

William Huggins responds:

That's what Erdogan believed in turkey too but those beliefs crashed the lira. Rates (chosen) are a response to inflation (explicitly too).

Larry Williams replies:

Higher rates mean more money into the economy…hence inflationary.

John Floyd writes:

I think Larry probably has some careful thought or evidence behind this in and is not likely influenced by a Crucian Thanksgiving upcoming, MMT in the ‘hood or the like. I am not sure I agree given MV=PY, the collapse of M in the US, UK, Europe, rising financial stress, China headwinds, etc. But I would love to hear the other side.

Larry Williams responds:

MMT has some deep insights—rates cause inflation is one of them.

Stefan Jovanovich writes:

Apologies to all for what is another heretical comment from someone who thinks the United States lost its greatest advantage when it joined the other nations of the world in establishing a central bank as the issuer of sovereign currency IOUs. "Inflation" is always and everywhere a credit phenomenon; the supply of legal tender - the unit of account by which loans are measured - is never the cause. It is, as William implies in his remark about Turkey, the response; the hyperinflations in Germany, Zimbabwe and the moderately awful ones in Argentina and Turkey and elsewhere are not caused by money printing. The money is printed in response to the fact that the country's credit supply has been destroyed; all that is left is to run the rapid wheel of money supply. The prices for things have gone up because the Covid shutdown and regulations were the economic equivalent of a war; the regulations destroyed businesses (including our family office's last operating company; we formally dissolved at the end of last year because there was no reason left for us members to own securities collectively). The destruction reduced the supply; the transfer payments from Trump and Biden gave people the additions to their personal balance sheets that allowed them to spend more.

H. Humbert comments:

Only those with a lot of cash get more money, any new borrowers wind up with less money, and many potential borrowers are scared off by the high cost of debt. Do people with a lot of cash to begin with have a high propensity to spend their extra 2-3% after taxes, enough to compensate for the countereffects?

Larry Williams disagrees:

Wrong. The largest payer of rates is the Gummint -  it goes, one way or another to many. Soon I will post chart to prove point but look at Japan and low rates to inflation.

Nils Poertner writes:

we live in a predatorial world - in which inflation is obviously deliberately created to benefit some and hurt others. it still goes in cycles - eg EM fx and inflation - Turkish Lira and Brazilian Real the fx and inflation figures may go the other way - as in previous yrs…as those countries were pretty early w tightening and it is going backwards now.

Larry Williams responds [tongue in cheek?]:

That is so so wrong that someone causes inflation to hurt/help others.

Big Al posits:

Governments need inflation to reduce the future value of their present promises.

John Floyd writes:

There is a myriad more drivers in Japan both economically and culturally driving things. Debt, money velocity, ethos on bankruptcy, ethos on price hikes, demographics, zombification, lost decades. yes govt ownership of debt growth depends on whether money spent or saved.

While I on the topic, those are the headlines generally carried in Turkey and created the narrative; beneath that and related are many different ingredients that put Turkey where it is today, and those are the things to watch for a turn one way or the other; you can be sure the current leader is not going to do a public about face on the below causality belief system, but there are other things happening geopolitically and on the macro. I wrote in 2020 about the challenges; they are pretty much unchanged and give clues what to watch for.

Larry Williams responds:

Sure always drivers but some are race car drivers and mean more and as a general rule.

Stefan Jovanovich offers:

The NY Fed's definition of what they call Underlying Inflation

Their August 2023 reading of the UIG

Bud Conrad writes:

My views on what causes rising prices and declining purchasing power of the dollar:

I follow the simple axiom that inflation will rise when too much money is chasing fewer goods. (And the reverse). The rising quantity of money starts with Federal Government deficits: They print Treasuries to cover the deficit, borrowing new money they spend that exceeds taxes. Traditionally, the public would buy Treasuries to gain guaranteed interest. Banks did the same. When banks make loans they do that by printing money out of thin air given as new deposits at the banks for borrowers to spend; as for example in buying a house with a mortgage. As loans expand, money supply expands almost by definition. A few decades ago, much of Treasury issuance was bought by foreigners with the dollars they accumulated from their trade surplus from the US buying more foreign goods than it sold. The Trade Deficit became the support for the US government Budget Deficit. Foreigners took the dollars that exporters gained and exchanged at their Central Banks for local currency to pay workers, and the foreign Central Banks bought Treasuries. China and Japan had $1.3 trillion each in Treasuries backing their own currency issuance. But foreigners have begun to slow such purchases as they realize that the US dollar is not as good as gold. China has sold a third of its Treasuries, and Russia sold all of its holdings. So foreigners are not the buyers of our government debt now. They are trying to de-dollarize for both financial and political reasons, with the risk that if they turned to net sellers, they could drive rates higher. While domestic institutions provide some buying for themselves and customers, they are not big enough to cover all deficits.

In the current situation, of $ trillion deficits, the Fed becomes the "lender of last resort" that prints up new money to accommodate the new treasury issues, in the form of QE and expanding their balance sheet; which is accomplished by creating new deposits with which to buy Treasuries (and MBS). They increased the money supply, now by about $6 trillion since 2009. They supplied enough buying power that interest rates were kept low. Inflation as measured by consumer goods purchasing was commensurately low, because foreign consumer goods were manufactured in Asia at a wage rate of one fifth of the US. We could just print money to buy cheap goods. The government CPI is manipulated lower with hedonic substitution, calling technological improvements like more powerful computers as a decrease in price, and using rental equivalent housing prices. Their resulting measure of inflation is about half what it should be. Even more seriously: a comprehensive measure of what the dollar can purchase should include asset prices; namely stocks, bonds and accurate housing; and commodities like oil to be a more inclusive indication of changes in the purchasing power of the currency. We had low CPI but higher asset prices when the Fed forced rates below usual market levels, and that drove stock prices higher, (which is not included in the government inflation measure). In summary, the foreign expanded supply of goods kept CPI low, so inflation was below the expected growth in money alone might have indicated.

We are in a different world from before 1971 when international trade was settled in gold, and currency issuance was limited by having backup gold. Our government (and the rest of the world) are creating new deficits and new money at unsustainable levels. The expected new gold backed Currency from the BRICS is expected to replace the importance of dollars to world trade. Politically, the US dominance is declining with losing wars and over spending. Deficits will expand to cover the aging baby boomers demographics. The Fed will be creating trillions to buy the Treasuries to fund the deficits. This quarter Treasury funding is scheduled at $1 Trillion new money and Q4 is planned to be $800Billion (maybe more when the taxes slow in recession). There will be cycles, but the big move is to create new money by the government and banks which will decrease the purchasing power of the dollar in the decade ahead.

Summary differences from common beliefs:

1. Inflation starts from government deficits. (It is affected by many things, but this is the fundamental driver. (not wage push, consumer demand, price gouging, interest rates))

2. Cutting inflation requires less government deficit.

3. Raising interest rates by the Fed is not a very effective way to control inflation.

4. The Fed is forced to raise rates when government deficits and inflation rise; to keep the markets functioning so lenders get some real return. (Not the reverse)

5. We can get a slowing economy AND inflation together. With no anchor to the currency, this is the usual pattern and has happened a hundred times in many countries. (The opposite is expected in the Fed raising rates to fix inflation)

6. Inflation can go much higher than in 1980 when it hit 20%, because we have 120% Debt to GDP now, and it was 30% then. It took three waves.

7 Expect currency destabilization, inflation, and no deflation in the foreseeable future.

Zubin Al Genubi comments:

Credit creation cycle fuels inflation. As credit is given, asset prices go up at the margin. More collateral leads to more credit in a self reinforcing cycle. In contrast to financial assets, Prices of goods demand/supply curve is linear. Financial assets are convex crating booms busts. FED should focus on financial asset price not goods cpi.

John Floyd responds:

Look at money supply, fin stress indicators, consumer buying power info adjusted as savings rate is below pre Covid stimulus in many countries , etc…that will tell you a bit of odds of prospective future infl from demand side …supply side a bit trickier as reshoring, ESG govt led direction takes away Mr Smiths can’t see hand. Simpler equation is to ask how many times the CB’s get it right.

Stefan Jovanovich adds:

Goods can boom and bust because of the order cycle. Customers will double even triple orders on the upcycle and then threaten to pull them in the down cycle.

Aug

6

Hayek's grand summary of his main insight of his life's work: "The whole economic order [rests] on the fact that by using prices as a guide, or as signals, we were led to serve the demands and enlist the powers and capacities of people of whom we knew nothing."

"Basically the insight that prices were signals bringing about the coordination of efforts became the leading idea behind my work."

"Evolution of human activities, profitability works as a signal that guides selection toward what makes man more fruitful " - "Prices and profits are the invisible hands."

i would add to that that Hayek found that centralized control of choice led to total control of what consumers choose - gas stoves, incandescent lights, electronic vehicles only the beginning.

Vic's twitter feed

Aug

5

Trees, mostly

August 5, 2023 | Leave a Comment

old gray mare prob at 3-month hi at 35%.

Lott/Stossel: Election Betting Odds

books read this weekend:

The Hidden Life of Trees: What They Feel, How They Communicate - Discoveries from a Secret World

The Battle for Investment Survival

The Tree in My Garden

Trees: A Complete Guide to Their Biology and Structure.

i find the study of trees - especially how high they grow, and how they develop buttresses, and how they branch out and compete with other trees for light - immensely revealing for the various moves.

Big Al suggests:

The Age of Wood: Our Most Useful Material and the Construction of Civilization

Nils Poertner comments:

In many parts of central Europe, the Beech tree used to dominate the landscape thousands of yrs ago. Used to be well over 2/3 - and even today it is like 1/3 in Germany. Why? They tend to grow super and sort of take away all the light from slower growing trees. An oak tree would not stand a chance.

Gyve Bones suggests:

Long term strategy: planting a grove of oaks in a forest in France to be ready in 150 years to replace the roof of Notre Dame de Paris when it burns down.

Peter Saint-Andre offers:

Oxford's Oak Beams, and Other Tales of Humans and Trees in Long-Term Partnership

Peter Ringel writes:

For the last two years I am involved in a project for a German horticulture company. They mainly produce young plants of ornamental plants aka flowers. As a little side project (in early stages) they also produce Paulownia trees (as young plants).

Paulownia is the fastest growing tree in Europe. They originate from Asia. (Some criticize them as invasive species.) Typical commercial applications are wood for instrument manufacturing, wood pellets for energy production or particle boards. The wood is very light (caused by very fast-growing).

See a Paulownia grove.

Propagation is a little challenging. Usually it is done in-vitro via Biotec-lab, which we have. It is not the easiest variety for in-vitro. We also had some success to propagate via cuttings from mother plants.

Laurel Kenner comments:

Terrible idea to grow these, down there with tree of heaven, kudzu and bamboo. Yes, they are quick to grow, but also impossible to eradicate or even to contain. I am not an eco-hippie, just a gardener.

Zubin Al Genubi adds:

A friend planted a tree farm about 25 years ago with rare exotic hardwoods such as Koa, Bubinga, Cedar, rosewood, mahogany, ebony. It is a multigenerational project but some early woods are being harvested. Some of the rare woods will be very valuable as they are disappearing in their disappearing native habitat. There are numerous governmental grants benefiting the project as well.

Laurel Kenner responds:

I like the project. The idea is not to grow "trees" that are in effect big weeds. Pawlonia is illegal in my state, CT, as is Norwegisn maple, another nasty weed-tree planted in a less enlightened day because it grew fast. They often come down in storms because they're weak. One memorably crashed over my driveway in a big blow and its eldritch too brach rang ny side doorbell.

Peter Ringel replies:

Yes, storms are an issue, especially during the first years. My big mouth was referring to the EU government as hippies, because subsidies and grant policies are highly ideological here. Not referring to anyone else.

The church of Greens has Europe tight in their grip and currently they like Paulownia. There is a trend / hype growing. Other psalms the church likes are "renewable raw materials" or "CO2 neutrality". Paulownia fit these mantras. (plants eat and need CO2 to confuse the church)

Paulownia are not really new to Europe. Introduced to Europe 100 years ago or so. So far they were unable to survive in the European wild in size. Maybe because of frequent stronger winds? On a farm, as industrial product it makes a lot of sense to me. I am obviously biased here, because this would be our customers. It is a nice economic product. E.g. after about the first 2 years of growth, farmers cut them back near the ground level. This timber can be sold. They rapidly grow back and faster than without cutting. A case of eat your cake and have it too. One argument is, to use this locally produced timber instead of importing from South America, Asia, Finland or Russia.

forgot: Paulownia on farms are usually all clones of hybrids. Like a mule, they can not reproduce themselves into surrounding areas.

Vic's twitter feed

Aug

4

A.I. Researchers Are Making More Than $1 Million, Even at a Nonprofit

Peter Ringel comments:

good for them! Everyone now rushes into this research because of the hype. Of course, the top-level AI experts can sell themselves at a premium. But overall, costs for non-AI IT development should come down. One reads, coders boost their productivity via GPT, Codepilot and the other tools by 10x. I use the simple GPT for coding daily and easily believe this. It is very useful for the hobby coder.

Laurence Glazier writes:

I'm using GPT 4 every day as a companion while composing. A source of detailed knowledge on composing practice and orchestration.

Peter Ringel responds:

wow, for music/composing too? Stephen Wolfram offered a fitting definition: "at a minimum LLM like GPT provide the next generation of user interface" (paraphrased).

Laurence Glazier replies:

Of course it can't compose in the sense of the transcendent experience, but it can help in background historical information, e.g. today based on discussion with it I moved material from the first to the third movement of my new symphony. I might have made that decision anyway but it is a huge boost to have access to the AI's wealth of knowledge and apparent understanding.

H. Humbert adds:

Depending on what you want it to do, it could fabricate an answer that is downright incorrect. There have been multiple occasions in my experience that it makes craps up, and craps don't exist in real world. Per this research, its accuracy is getting way worse.

Jul

29

I see in media and real life so many people from Latam trying to get to the US (or Turkey to Europe). that said, local stocks indices and currencies of those regions perhaps present the better options than the US or European mkts? Check out some of the Brazilian stocks yielding up 20pc and lowly valued (trap?) - also Brazilian Real vs USD (or Turkish Lira vs Euro). Just an idea could be half-baked at this stage.

Hernan Avella responds:

Right now Latam represents a minuscule portion of the market cap of international markets, which itself is about 40% of world equities (float adjusted).

Chile .2%
Mexico .8%
Brasil 1.5%

This becomes a highly idiosyncratic bet, mostly on the currency. Unless you have some special edge, it's not a risk you are compensated for.

Nils Poertner replies:

maybe some of the indices can be looked at, and over time one can develop a bit of expertise, too. I kind of like the idea that Latam as a whole remains in a sort of chaotic state. unpredictable and a bit dangerous too. it works a bit as an entry barrier (not for all, but for some).

William Huggins offers:

jacob shapiro of cognitive investments does a good job following latam markets, which could help build some of that expertise over time. they have a free geopolitical newsletter each week with a macro edge to it. he used to have a latam focused newsletter but there wasn't enough uptake apparently.

sample of recent newsletter:

Brazil’s lower house approved a proposal to overhaul the country’s tax rules. Lawmakers voted 375-113 to advance the bill in a second round of voting. The plan still has many hurdles to clear. As a proposed constitutional amendment, it must win two votes in the Senate, and may have to return to the lower house in the second half of the year if senators make changes to the bill, as Speaker Arthur Lira expects. We expect it will happen. Indeed, I can safely say that we are the only geopolitical and macro sources I know of that has been talking about the importance of Brazilian tax reform — both to Brazilian voters and to the trajectory of the Brazilian economy — with such depth and passion. All credit to @Rob Larity here who has been on this from the beginning. De Gaulle was purported to have said, “Brazil is the country of the future…and always will be.” It’s not clear he ever said exactly that, but more important is that the future looks like it is finally here.

John Floyd comments:

Valuations in equity, Valuations in FX, Idiosyncratic commodity drivers, Brazil softs, etc. Political slide left all around, Monetary cycle was first mover up and now first mover down is a tailwind, reshoring FDI flows in Mexico (I know NA and not LatAm). Low index weights does indeed limit some larger flows.

A few liquid country ETF’s or ADR or local expressions of views available. Always the episodic risk both ways. lets see how Argentina may play out next 6-24 months for example.

Nils Poertner writes:

In a way, those countries are good to study for a number reasons. in a way they remind me of the future of US and Europe (money printing, elites playing ever more shenanigans, ordinary people not sitting in their own seats, completely hypnotized what is front of them, endless distractions). re investing/trading- yes, ever-changing cycles - I agree.

Jul

28

1. While individuals in this list may prefer chess or checkers, it is the game of Go that best mirrors the seemingly infinite combinatorial power of market moves. Let's set poker aside for now.

2. "The turn," rather than the tick, is the fundamental unit of market analysis.

3. There's an elegant interplay between Jeffersonian and Hamiltonian stocks. However, to capture it, an expert model seems more appropriate than the usual regularities work.

4. An additional reason to consider playing the long side on equities is this: when the market rises and volatility is low, you fare well. And even when the market declines and volatility increases, the numerous rebounds still position you advantageously. It's never wise to become enamored with the short side, as I did in 2008-2009. I made a considerable profit, but it took over two years to rid myself of the bearish bias.

5. Physicist Sean Carroll conducted an insightful interview with David Krakauer of SFIan insightful interview with David Krakauer of SFI. The topic of complexity is very relevant for traders, yet only those with strong fundamental technical skills can fully appreciate it.

6. Cattle Kingdom is a compelling book to listen to, replete with fascinating stories about the boom and bust cycles of the cattle business, which underscore the basic structure common to all cycles in the US. We have a knack for creating bubbles, and overall, this is a positive aspect that should be safeguarded.

7. Does anyone have a comparison of the fundamentals between the peak in January 2022 and now? The current prices in relation to interest rates appear somewhat unusual. However, we need to examine the situation more closely.

8. 10 years later, but here's the python version of An Introduction to Statistical Learning. I'm glad that when I had to choose between R and Python, I chose the latter.

Jul

28

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

Bud Conrad writes:

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

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

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

H. Humbert adds:

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

How Einstein challenged quantum mechanics and lost

Stefan Jovanovich comments:

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

Peter Grieve writes:

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

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

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

Stefan Jovanovich asks:

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

Peter Grieve replies:

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

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

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

Nils Poertner asks:

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

Peter Grieve answers:

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

Zubin Al Genubi comments:

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

Kim Zussman writes:

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

H. Humbert responds:

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

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

Peter Grieve writes:

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

Christopher Cooper adds:

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

Jul

25

there are about 50 market-moving announcements a month. 45 of them have no meaning on prices. but the reactions are designed like the 3-zero roulette wheel to create wrong moves and many transactions and vig.

the blistering reactions are submerged by the increase in prob of winning of the old gray mare. i would like to post a picture of me without shirt on beach chair with Ray-Bans, but i need Aubrey to do it. i have 2-digit grandchildren and I would augment the picture by holding hands with some of them.

McCarthy: Biden case will 'rise to impeachment' as 16 Romanian payments allegedly went to 'shell companies'

when a player or team is behind during the late stages of a match, they try increasingly risky and non-percentage shots. but old gray mare keeps increasing and no need to cure cancer and old age.

Vic's twitter feed

Jul

22

the gentlemen don't like the old gray mare's resilience but it is bullish:

Election Betting Odds

you have to hand it to the old gray mare and the market. July seems to be what Martie Riesmann would call a key month. it's been up 12 times since 1996 and down 12 times. of the 12 times it was up, 11 of 12 advanced to end of year. approximate rise 150 big S&P points.

on qualitative basis, consider July's move extraordinarily bullish. the old gray mare was subject to the most withering evidence of corruption imaginable. but he maintained his win prob of 33%. reg capture joy from the powers that be is at a max. the three letter agencies, etc.

Let’s Not Forget George Stigler’s Lessons about Regulatory Capture

George Stigler’s theory of economic regulation opened our eyes to the rent-seeking that undermines the public interest. Yet many in positions to influence policy today do not appreciate the beneficial innovation and increased consumer choice that economic deregulation and competition brought.

as evidence of the lackadaisical response to the corruption news, Fox leads off with an article on backlash against NYC congestion pricing.

sign of our times: the old grey lady has not one single article or mention of the revelations and developments of the old grey mare in its Saturday July 26 edition. how bullish can you get?

Vic's twitter feed

Jul

17

this is a message from Aubrey about his very exciting business:

As some of you may have heard, I am developing a startup recruitment agency called Amalgam Talent in the country of Swaziland / eSwatini. We have grown far more sophisticated, and we are now employing wide-reaching recruitment strategies to attract the most talented people in Swaziland. We have hired over 20 remotely working employees to US companies now, and we are extremely excited by how well they are performing. I'll be travelling to Swaziland in a few weeks to meet with his business partners and develop the business further.

We currently have some really exciting people available with AI / machine learning and data analytics experience. If any of you quants happen to be hiring, please contact me via my LinkedIn page or leave a note in the comments here on Daily Speculations.

Best regards, and I hope to hear from some of you soon,

Aubrey

Jul

14

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

Hernan Avella disagrees:

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

Stefan Jovanovich offers:

Edward Chancellor interview

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

Kim Zussman adds:

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

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

William Huggins responds:

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

Zubin Al Genubi reminisces:

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

Nils Poertner offers:

Big investors rush into bonds after ‘cataclysmic’ year

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

Henry Gifford writes:

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

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

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

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

Nils Poertner responds:

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

Jul

12

you keep hitting it to the opponent's weak backhand, but despite the good strategy, the opponent is near match point. the zeal with which the opposition is gloating over the fissures in the opponent is belied by the score.

despite the best efforts of truly knowledgable bettors like mad dog, they can't surmount the 52% hurdle.

Steve Ellison adds:

Most casinos in Vegas have now added triple zero to their roulette wheels, so even more gamblers will lose more than they have a right to. 7.7% house edge??

Vic continues:

in line with the roulette wheels with 3 zeros, on my platform is a prominent command: 'flatten everything'. one is waiting for a command flatten and reverse everything.

One hasn't heard from the chronic bears lately making fun of me as to when the S&P will make an all-time high. it appears that in Nov 2021, the S&P index was in the 4600-4700 handle and futures were in 4700 handle.

Steve Ellison comments:

The S&P 500 looks very much like it is making a Lobagola along its 2021 price trajectory (orange line). If this pattern continues, the new all time high should arrive by December. I don't know how to test this hypothesis, so for the moment it remains a conjecture.

Vic continues:

thus we are about 5% away form ATH at 4700. if the devoted father increases his prob of winning to old, we should surmount. let all S&P bulls hope for more news of cog decline and hand in till.

Mr. Wonderful's utterances are the perfect example of a distraction display used by so many animals in nature.

at 4500 S&P, we are 5% away from ATH. where are we going? europeans have finally caught up with July, up a few months in a row. S&P should close at ATH. also depends on reg capture.

Vic's twitter feed

Jul

9

Markets and books

July 9, 2023 | 1 Comment

a passage in Ed Spec points out that my dad learned to make friends with the referee. he bought Sam Silver some moo goo gai pan. several successful traders indeed apparently the most successful ones are at one with the exchanges.

is is a shibboleth that it pays to bet against the team that was able to squeak out a win or benefited form an error of the other side or won by corruption of some kind. we should realize the same thing applies to politics viz a viz the perfect father - incredible that he leads.

nice improvement

nice drop of S&P of 40 pts on unemployment from 1:30 to close — greatest drop on unemployment ever.

some books read over weekend: The Smiling Country, by Elmer Kelton; Wealth, War, and Wisdom, by Barton Biggs; The Hidden Life of Trees, Peter Wohlleben; Bird Life, by by Frank Michler Chapman and Julie Zickefoose.

and always the first 80 pages of Fifty Years in Wall Street. where are the greats of the 19th century and why did they succumb? the reason that oak trees are crowded out by beech trees, the beech trees shade out the oak trees to cause the oak trees death:

Root competition between beech and oak: A hypothesis

with bonds in the 123 handle lowest in 10 years, agrarians galore should be on guard that further declines don't hurt their man.

Vic's twitter feed

Jul

6

how has the evolution of regularities in markets made it much harder to beat the 52% accuracy that no sports better can achieve to break even? one way is the ever changing relation between bonds and stocks between years. what else?

Larry Williams writes:

Crude's influence on stocks [has changed over time]

Alex Castaldo offers:

The Great Financial Crisis of 2007 and 2008 revealed a number of regularities that (I believed) would be very profitable in the future, but careful monitoring of them after their discovery proved very disappointing to me. For example, trend following that would have gotten you out of stocks and back in during that decade did not work well in the Covid crisis with a faster decline and faster recovery.

Nils Poertner comments:

a mystery indeed - some folks have lousy accuracies (say sub 25pc) and still do well - since a few things they do on top turn out great, eg, the lousy equity trader who got into ethereum early enough (and out when others got into it).

Kim Zussman adds:

Yield curve inversion from 3 months and 500 points ago:

Hernan Avella comments:

Like sports, the evolution of markets is guided by the fitness of the players. We are not competing against prospective cab drivers trading in the pits anymore. But armies of highly talented people that invest thoughtfully and systematically in every step of the process: Infrastructure, trading business practices, research, execution, recruiting. I have a friend working in one of these highly capable groups. Around 70 people. All markets 24 hours, every single approach possible.

Very few of us from the old days survive. The Chair might be the oldest and longest lasting point and click trader. Such a great competitor!!! Ray Cahnman, founder of Transmarket Group is up there as well.

Vic replies:

the point-and-click survivor owes it all to Lorie and Dimson who taught there is a drift. also one learned not to succumb to conspiracies to margin one out.

Jared Albert writes:

Modern technology, particularly around real time customer segmentation and portfolio correlation, squeezed more value from the 'customer as the product' than before.

Jul

4

how now the S&P in next periods given a big rise until 30 June? a dipsy doodle with 12 of 14 up next two months, then a decline in September with a fine bull close to end of year.

bribery during 1865-1870. nothing has changed.

the evolution of athletic excellence continues apace. and one can predict that pickle ball will soon advance the way handball did so that all good players have a natural left and hit ambidextrous. i can hit my left as well as my right. what other sports have evolved to excel?

James Sogi replies:

Downwind foil surfing was only invented a few years ago. Now people foil 200 kilometers flying over ocean waves.

Vic continues:

in the 1950's only one handball player Vic Herskowitz had a natural left. now every player hits from both sides with power and natural swing. the same in baseball pitching where 100 mph is de rigueur. what other sports have evolved to greatness?

the monstrous plastic pickle ball makes it much easier than paddle tennis to switch hand with alacrity and effectiveness.

A twitter asks:

Is that good or bad?

Vic replies:

as Sholem Aleichem would say, "it's both good and bad", but regardless we will soon see ambidextrous pickle players winning all tourneys. i would be such if I didn't have stroke.

notice how weak the backhand of best player Ben Johns is:

Ben Johns Backhand Pickleball Highlight

how has the evolution of regularities in markets made it much harder to beat the 52% accuracy that no sports better can achieve to break even? one way is the ever changing relation between bonds and stocks between years. what else?

one sport that has shown no improvement over the years is handball. the players of 100 years ago would beat the present crop with their baby overhand serves 21-5. why?

Athletic performance has been improving steadily for decades - the evolution of sports shows how it keeps getting more difficult to win. how have markets become more difficult?

Vic's twitter feed

Jun

27

i grew up playing paddle tennis and beat Bobby Riggs in a money match. Paddle tennis is 99% identical to pickleball except that it used a good punctured tennis ball instead of the monstrosity they use in the promoted game of pickleball.

In honor of Alfred Cowles who started the Cowles Commission at Yale and whose articles in Econometrica and the Monthly Weather Review sparked my interest in stock market behavior 60 years ago: after stock market down prev day, expectation 3 days later is 2.5, but after stock market up prev day, expectation 3 days later is 0.7. based on last 7000 obs from 1996.

the grandfather holding the hand of the 4-yr-old as she climbs up the stairs of plane is the kind of thing that most people would be turned off by as it's so obvious.

the old gray mare: Lott-Stossel: Election Betting Odds

Hayek Was Right: The Worst Do Get to the Top

Vic's twitter feed

Jun

27

Ergodicity - odds of group equal odds of individual over time. Risk differs in coin toss and Russian Roulette due to absorbing barrier. Adopt strict risk aversion in trading. Survival is key.

Big Al suggests:

Luca Dellanna on Risk, Ruin, and Ergodicity
May 29 2023

Author and consultant Luca Dellanna talks with EconTalk host Russ Roberts about the importance of avoiding ruin when facing risk. Along the way Dellanna makes understandable the arcane concept of ergodicity and shows the importance of avoiding ruin in every day life.

Ergodicity: Definition, Examples, And Implications, As Simple As Possible, by Luca Dellanna

Larry Williams asks:

What the fun of life with modulated risk?

Nils Poertner wonders:

why do so many traders self-sabotage themselves (self-sabotage is perhaps a strong world but from the outside world it looks like that). some deeper religious guilt thing or so? addictions?

H. Humbert responds:

You can get your fun from winning instead of from the risk taking it takes to win.

Larry Williams asks again:

And how do you win without risking???

H. Humbert answers:

You can't. I was reacting to "the fun of life with modulated risk" comment. You can enjoy the risk taking part, the winning part, both, or none. To me, simply enjoying the risk taking part incentivizes the wrong thing, but enjoying winning, the right thing. You could say that simply enjoying taking risks will lead to winning but then every gambling addict would be a winner, so it's not that simple.

Zubin Al Genubi responds:

As a practical matter money management and convex asymmetric payoffs. Recognizing the risk and the extent is a big part of the puzzle. There is a large range from the coin flip to Russian Roulette not quite recognized by static statistics. The time element is important, hence ergodicity.

Larry Williams states:

Risk within reason but still risk - keeps us young!

Jun

24

Interesting and poignant articles in The Austrian point out that the Fed now owns 2.6. trillion of mortgage securities. it built this up since 2008 and caused distortion in the real estate markets. The fed has a 408 billion mark to market loss on these securities - 10 times the Fed's capital of 42 billion.

The Fed Is Overindebted, Isn’t It?

Wall Street to the Fed: Inflation Is Over. Give Us More Easy Money!

An excellent and inspiring book:

Capitalism in America: A History, by Alan Greenspan and Adrian Woolridge

Chapter 3 of Greenspan's book is inspiring: "In 1914, Americans were able to shave with Gillette, gab on phones, drive a Model T…before that there were more animals that people in cities."

Hany Saad is surprised:

Victor Niederhoffer praising “anything” Greenspan!!!!! Now I know I am in Kansas.

Vic clarifies:

the last part of the book is typical Greenspan propaganda for the progressives.

Vic's twitter feed

Jun

19

SP futures implied financing rate 5.62%
Sep/Jun spread = 45 points
SP Earnings Yield = 4.85%, -0.95% Real
10Y Yield = 3.72%, 1.55% Real

Interesting to consider that during the previous regime, people were very bullish with the adage of "stocks carry themselves". What do they say now?

Steve Ellison comments:

Speaking as one of those who said, "stocks carry themselves", stocks are not carrying themselves now. The dividend yield on the S&P 500 is about 1.6%, compared with the 3-month Treasury bill yield of 5.2%. It is now a different point in the business cycle as outlined by Philip L. Carret in his 1931 book The Art of Speculation (I have the version republished by Wiley in 1997 with a foreword by the Chair).

Business cycles don't always follow the textbook script, but if I had to guess, the likely next steps are a slow-motion banking crisis (as depositors one by one compare their banks' interest on deposits with the aforementioned Treasury bill yield) and recession.

Mr. Carret appeared on Wall Street Week at age 98 in 1995. At 1:40 in this video:

Louis Rukeyser: What do you do, given your experience, when you think there may be too much froth, when you think there may be a major correction, even a crash? Do you sell all your stocks?
Philip Carret: No, I really don’t do anything … I’ve seen a lot of recessions, and I can live through them, and I can do it again.

Hernan Avella replies:

Thanks Steve. I believe looking at the dividend yield only is folly. You need to add the buybacks (Known as shareholder yield). Currently @ 4.62%.

Steve Ellison responds:

It is worth noting that, based purely on the S&P 500 dividend yield, stocks never carried themselves for 50 years from 1958 to 2008. Nevertheless, the upward drift continued, and there were many bull markets during that time.

I reviewed the Art of Speculation here on December 13, 2007, 49 years into the period of stocks never carrying themselves, noting that it might be difficult to follow the advice to buy when stocks carried themselves. Here is an excerpt:

"Borrowed money is the lifeblood of speculation" (p. 101). Interest rates greatly influence the direction of stock prices. "A bull market undermines itself" (p. 119) as prosperity and increased borrowing for speculation drive up interest rates. One of Mr. Carret's specific methods might be difficult to replicate today. He suggested borrowing money when interest rates were low to buy stocks with higher dividend yields than the interest rate on the borrowed funds. A stock bought in this fashion would "carry itself" and have a high probability of moving higher. With today's much lower dividend yields, such stocks are probably difficult to find today.

Hernan Avella writes:

Some YTD figures [as of 13 June]:

Semiconductors (SMH) +51%
NQ100 + 36%
Commodities -8.98%
Low Vol Sp500 stocks -2.19%
Emerging Bonds, local currency +6.5%
European "Growth" stocks +15%

What happened with the bears in this list?

H. Humbert responds:

What happened? Nothing happened, wrong so far. Old favorites never lead a new bull market, but they are now. Saw an article today, people are cutting back on fries at McDonald's but that doesn't seem to matter. Semis are going gangbusters, but they're not hiring. Anyway, I never sell and buy when I see value regardless of "the market". Bought my first stock of the year two weeks ago.

Humbert H. adds:

Hernan, if you go down the route of buybacks you need to account also for stock issuance, employee options, M&A/deletions from the index, IPOs/additions to the index etc to estimate the net buyback yield. This way it is apples to apples. If you do that you will get a small positive number <1% (you prob want to smooth out considering that buybacks are cyclical).

Tim Melvin comments:

Buybacks and debt reduction play no role in determining of stocks are a carry trade. Cash received versus interest paid.

William Huggins comments:

the free yield on buybacks has been the manipulation of earnings downward prior to announcement of said buyback (and subsequent restoration). its generally done in a small enough amount that its hard to pick up individually (but shows up plainly in large samples). (chair mentioned this back in 2007 i think?)

Jun

18

tale of two opposite sons: Cornelius Vanderbilt ("the Commodore") had two sons. one, William, attended to every detail of the business, including signing all checks. the other, Cornelius Jeremiah ("Corneel"), was hooked on faro and borrowed heavily.

the Commodore had an eye for pretty women. when Corneel's prospective father-in-law asked the Commodore about the marriage, he asked, "does she have many silk dresses and expensive jewelry? if she does, Corneel will pawn them when he loses in gambling."

William went on to become the richest man in the world. Corneel was limited to $200 a month which inevitably he lost and borrowed heavily form Horace Greeley to tide him over.

Vic's twitter feed

Jun

17

in my response to critique of my methods I refer to the reason that certain famous investors have succeeded so well. It's due imho to being one with idea that has world in its grip - how this and long life enables compounding to grow apace without concern about service beating you down.

there have been so many nice testimonials to me and my style,- some way over the top that I am becoming convinced that some thing I am close to 7 feet under or at least very close to the Bad One. i am still alive.

much attention has been focused on heightened scrutiny of those who don't believe in agrarianism, but little attention has been focused on the opposite, i.e., the free pass for those who hate enterprise and how this increases compounding exponentially the law of ever increasing vig. in 1940 there used to be 1 minute of advertising for 60 minutes of content. on Yankees game nowadays its 50-50. where else do you find much increased vig. the advertisement for the radio broadcasts for the Yankees are so unpleasant and so frequent that one wishes bad luck to them and can't wait to turn them off. the advertisements themselves all encourage ever-increasing vig thru emphasis on lotteries, parleys and service deals for Kids.

I've Got a Little List (with lyrics) / The Mikado / Gilbert and Sullivan

Lois in on my list and her fellow travelers who don't find anything amiss.

one comes back from dinner and hears a recap of New Deal Economics - increased service rates, replacement of private sector by gov - but it isn't from 1934 but is our most agrarian treasury person.

my passing reference to The Wager: A Tale of Shipwreck, Mutiny and Murder did not do it enuf credit as it tells a story of Anson's heroics and survival every well.

Vic's twitter feed

Jun

15

LWV Greenwich Announces the Winners of Its Fourth Annual Student Essay Contest

League of Women Voters Greenwich is pleased to announce the winners of its fourth annual Student Essay Contest. The Student Essay Contest is one League initiative that seeks to involve young people in the League’s mission to build an understanding of and participation in the democratic process.

High School, Winner:
Aubrey Niederhoffer, Greenwich High School, Grade 11

Read Aubrey's essay.

LinkIn: Aubrey Niederhoffer

Co-Founder and CEO of Amalgam Talent, a eSwatini-based HR agency connecting remote workers in developing countries to global markets. Passionate about international development.

Jun

15

no matter how high they go, most gentlemen don't like stocks. nor do they realize that bonds have to go up to save the banks from marking down their holdings.

10 Qualities of a Modern Gentleman

seems like a good day to review all the reasons that the former president didn't win in 2020. lets start with the big pharma that withheld the announcement that they had an effective vaccine until the day after the election.

Steve Ellison replies:

Marginal voters proverbially vote their pocketbooks, and Mr. Trump had the misfortune to be the incumbent as GDP abruptly contracted by 9%, and unemployment rose to 15% in April 2020.

Vic writes:

yes that's a winner although no evil hand in that. let us not forget the military in their advocacy and demeaning and threats. all the three-letter agencies and the doj. scores of 4-star generals comparing Pres to Mussolini and guaranteeing that they would escort him out of office if he resisted. the professional sports leagues all acting to undermine. Director Wray negating all of Trumps critiques about their bias. another reason for the former golfer to lose was the lineup of all of the Fangs to do whatever they could to do him in.

Gary Boddicker adds:

Constitutionally questionable executive and judicial changes to voting rules in key states, bypassing legislatures and favoring Democrats. “It’s unsafe to vote in person!”

Vic continues:

excellent book for those who like Patrick O'Brian but aren't see salts. none of O'Brian's erudition but author made valiant attempt to research incident.

The Wager: A Tale of Shipwreck, Mutiny and Murder

Also: Shantaram: A Novel

a critique of my methods, lifestyle and answer is elicited on twitter. i don't know when exchange took place - i would guess 15 years ago. I would add to my defense that I was much younger then and also I did not take account of ability of market to squeeze you and margin you out. they and the market inexorably get together by an evil hand to manipulate prices and margins so that you will contribute to the big players so that one day they will do you in and then prices will get back to their norm. one solution is to have good credit. Imagine the palindrome having enuf confidence to withstand the Bank of England and all the banks they control to speculate against the Pound successfully.

Vic's twitter feed

Jun

7

Distractions

June 7, 2023 | Leave a Comment

with all the hoopla about the perfect father stumbling - one notes that he can get up from the floor with ease - more important he can create 10 LLCs with beneficiaries of all in family with impunity. the odds of perfect father winning the election now at a max of 38%.

The venerable Sam Eisenstat liked to run overlapping monthly S&P as independent and would predict the next 6 months as momentous with great accuracy.

who is the most corrupt shark now trying to deflect attention by pretending to be anti-woke? perfect example of distraction behavior by spiders.

Distraction display

how much money can one make from Sam while pretending to be vigilant in stopping his predations?

The Folly of Fools is one of the most foolish books i've ever read. the vigilance against deception is very high and no subject is more studied and self restrained.

there are at least 3 big speculators i know who have many daughters with one of them being a bad seed as far as the others are concerned. is this chance? or some hidden regularity?

Vic's twitter feed

Jun

1

In the first quarter of 2023, container output contracted by 71% compared to the previous year, with only 306,000 TEUs produced, marking the lowest level since 2010. Drewry estimates that full-year production will not exceed 1.8 million TEUs, the lowest since the recession-hit year of 2009.

Container Production Slumps to Lowest Level in 14 Years, Says Drewry

Henry Gifford writes:

What sort of time lag can be expected between ordering the containers and their actual use? I order cardboard boxes, and they are used to ship goods a few weeks later, I expect a shorter time lag for larger cardboard box users. But I expect it takes time to ramp up steel container production and delivery.

Stefan Jovanovich responds:

Top 10 Shipping Container Manufacturers In USA

Steve Ellison adds:

Maybe the shipping container industry does not have just in time inventory replenishment, or maybe it did, but the policies did not survive the covid pandemic. In a previous career in supply chain management, I needed to be aware of how inventory and decision lags downstream in the supply chain amplified demand fluctuations upstream, on manufacturers for example. This is known as the bullwhip effect.

Pamela Van Giessen comments:

There was an article in the WSJ earlier this year/late last year (the months seem to fly by) that shipping has fallen off a cliff. Part due to less goods needed/wanted, overstock because of covid era over ordering, and backlogs having caught up. Could it be there is an oversupply of containers based on things normalizing and/or a temp decrease while everything catches up?

I have been interested in knowing what the rail freight looks like but haven’t been able to find a source that provides that info (also haven’t looked that hard). Living in a rail town, it was much definitely quieter 6 mos ago than it has been lately. But maybe it’s just more coal out of the Powder River basin for China, India, etc. At least 3 long trains of coal/day. Every time I hear the environmentalists cry about CO2 emissions and how we have to get rid of xyz in the US, I have to laugh at the latest pet peeve (gas stoves & furnaces, increasing energy efficiency in dishwashers, wash machines, etc), it will never make a dent against all that coal being fired up in other parts of the world.

Jeff Watson offers:

Baltic Exchange Dry Index

Stefan Jovanovich adds:

Container Shipping Industry Faces Unprecedented Slump in Long-Term Rates

The container shipping industry experienced a significant downturn in global long-term freight rates during the month of May, as the contracted cost of shipping containers plummeted by a staggering 27.5%, according to Xeneta’s Shipping Index (XSI®). This marks the ninth consecutive month of rate drops and represents the largest monthly fall ever recorded on the platform.

May

29

in what other areas, apart from financial markets and sports betting, is there vig? and what is really relevant for everyday life? and how to avoid it?

maybe we don't see it that way because of Gell-Mann Amnesia affect.

Hernan Avella responds:

There’s a rich literature on rent-seeking behavior. It’s pervasive, Pharma, Telecom, Agriculture, Natural Resources. Not all lobbying is RS but the majority is.

Vic asks:

is there a universal law of vig where it goes to 2% in all activities like sports betting?

Jeff Watson offers:

I wrote this in 2009 about vig:

The Vig Keeps Grinding Away, from Jeff Watson

Steve Ellison comments:

Games that advertise that they're commission free usually charge the highest vig of all …

Mr. Watson's statement was written well before all the retail brokerages offered commission-free trading, which I contend simply means convoluted execution that costs customers much more than the $7.95 commissions that existed previously. "Where are the customers' yachts?", indeed.

Separately, the way the CME evolved is a good example of the Professor's constructal theory that all systems evolve to increase flow and velocity.

Hernan Avella disagrees:

Your insights on electronic trading seem to lack sufficient grounding. Abundant evidence disputes your hypothesis, highlighting the significance of the percentage extracted rather than the total volume. The evidence is clear that more opaque markets, like credit and emerging debt, are more expensive, for everybody except for a selected group that invests heavily in keeping the status quo. Electronic markets are more transparent, more anonymous, standardized, continuous, centralized, offer multilateral interaction and informationally more efficient.

Zubin Al Genubi responds:

Give the evidence then, if its so abundant, rather than your usual vague negative comments.

H. Humbert comments:

The beauty of long term investing is there's no vig and there are no taxes, other than once or twice in a few years.

The origin of the word is interesting. It's a Yiddish corruption of a Russian (or some other Slavic) word pronounced "vi igrish" or "gain", but it's more like "winning in a game", and the root means "game".

Alex Castaldo adds:

Interesting. The word can be found in online Russian dictionaries.

"vigorish" has a similar pronunciation, though the meaning has changed to be the fee for the game instead of the winnings.

Nils Poertner writes:

we want to battle against vig in all aspects of our lives. almost build a register where there is vig and share it with family and friends.

Henry Gifford comments:

Vig is one of the many things I find it helpful to view with an understanding of the laws of thermodynamics. The laws of thermodynamics describe the movement of heat in the universe, and because all energy is either heat now or becoming heat, they could be called the laws of heat.

The idea of “follow the money” to understand a system or organization or relationship is closely parallel by “follow the heat”, and heat follows clearly defined laws.

In approximate inverse sequence to importance, the fourth law says that if things A and B are at the same temperature, and things B and C are at the same temperature, then things A and C are at the same temperature. This is also called the zeroth law because it is so basic it should have been thought of first. The fourth law reminds me of the unlikelihood of much true arbitrage existing.

The third law says nothing can be cooled to absolute zero, because that would require something colder to absorb the heat, and nothing can be colder than absolute zero.

The first law says energy can neither be created nor destroyed.

The second law, most analogous to vig, says that heat always flows from hot things to cold things, and never flows the other way on its own. This law is the most profound, with many implications.

For example, one implication of the second law is that a car engine cannot convert all the energy in gasoline to mechanical energy - some will leave as heat that is not useful (except for heating the passenger compartment during the winter). Vig. A utility power plant burns fuel and about 31% of the energy in the fuel gets to the customer’s electric meter - 5 or 10% transmission losses (heat escaping from wires is “lost” - see first law), the rest is waste heat at the power plant. Vig. Various devices can reduce the amount lost to heat, but these devices have too high a vig themselves.

Big Al adds:

The first law makes me think of markets (not the Fed or banking) where money is neither created nor destroyed. For example, in the FTX collapse, the media talked about all the money that was "lost". But of course it wasn't lost, it was simply transferred from one group of entities to others.

Hernan Avella critiques:

This line of thought fails empirically when looking at deflationary crises, loss of crypto keys, central bank operations, bad loans, bankruptcy.

Henry Gifford responds:

Loss of crypto keys and central bank operations both follow the first law - printing money leads to inflation (if inflation is defined as a lowering of the value of money), destroying some of the money in circulation by losing keys, or destroying a dollar left in the pocket of clothing getting washed, increases the value of the remaining money.

I have heard the term “deflationary crisis” before, but don’t believe there has ever been a crisis whose root cause is the increase in the value of money.
In the saving and loan crisis of the late 80s, lenders sometimes asked borrowers to make sure they borrowed enough to make the payments for two years, as it was taxpayer money being lent out, and the lenders were collecting enough vig to make it worth going under I s couple of years.

A bankruptcy stops wasteful behavior, and the threat of bankruptcy causes people to take steps to prevent it. But I guess the waste in a government can continue forever, apparently violating the first law, while also proving that a perpetual motion mechanism really can exist, violating both the first and second laws.

Larry Williams comments:

printing money leads to inflation—data does not suggest that to be true

May

29

Tony Hawk's body, according to Hampton Sides, looks like barnacles cover his hand. he has broken every bone in his body. He looks with disdain upon anyone worried about a broken arm of some such.

Often the last second of a market session changes the whole complexion. for example at 4:15 et on May 25, the S&P was 4150, near a 20-day low, but then Nvidia was announced. and in two days the S&P changed course rising to a 20-day hi at 4230. query: did the move have anything to do with zero-day expiration options?

books read and highly recommended this weekend: Darwin's Dog: How Darwin's Pets Helped Form a World-Changing Theory of Evolution by Emma Townshend, Trees: A Complete Guide to Their Biology and Structure by Roland Ennos, and Political Geography by Martin Glassner and Chuck Fahrer.

Darwin to Galton in a letter of 1840: "I am studying minute unimportant things while you are dealing with Big things like Rhinoceroses and Hippopotamuses." Darwin relied on a Galton cousin for breading info on cattle and dogs.

Only a small part of a tree's biomass is capable of photosynthesis, but trees are excellent competitors for light. They hold their leaves above all plants and shade them out. How is that relevant to the best performing nasdaq stocks in last 6 months having superior performance by end of year?

did Miami let it's guard down with 1 second to go into going after rebound? instead of high fiving, as is the custom when a crucial shot is made or missed, should Miami have been on its guard and fighting for the rebound until the end?

The ending of the Celtics game reminds one of the many astonishing wins that Tom Wiswell pulled out on the last move frequently a 2-against-3 win for Wiswell.

with by partisan wins like this, McCarthy must have regulatory capture forecasted for 2024 at a max. that's what the big boys want.

Biden says budget deal reached, takes ‘catastrophic default’ off the table

Vic's twitter feed

May

23

i thought i had played every racket game but Susan showed me a new one she saw when in Croatia with many grandkids: handball in the water with a water ball. apparently you have to wear very tight speedos when you play. Reminds me of Palindrome.

apparently beach ball is more popular than pickle ball. a ridiculous mutant game to me. but it does teach you correct pronation for serves. all players really get the racket way back with terrific torque on serve. problem is no one can return serve.

most gentlemen don't like bonds even after 7 in a row. happened 7 times since 2011. only a speculation - no evidence to support it - but to what extent are the sequence of 20-day lows in bonds designed to help the perfect father get a face saving deal?

an agrarian plies her trade somewhat shamelessly:

Yellen Warns Again That the U.S. Could Default as Soon as June 1

Vic's twitter feed

May

22

excellent book read over weekend, highly recommended: Friedrich Hayek: A Biography by Alan Ebenstein, and Freedom's Furies by Timothy Sandefur. the Hayek book introduces my to Edwin Cannan, and Friedrich von Wieser. I learned many things, eg Oskar Morgenstern was part of Mises circle.

Hayek's theory of business cycles very relevant to today, depends upon fed keeping interest rates too low and early stages of production being replaced by consumers.

Finale: Late Conversations with Stephen Sondheim a book that makes you feel ugly after reading it. Sondheim such a bad persona but good on harmony.

Sondheim in a typical gesture cuts off New Yorker interview after 3 months and 48 hrs of interviews because interviewer asks him about Webber.

an agrarian shamelessly boosts the perfect father: JANNET YELLEN SAYS ODDS OF PAYING ALL BILLS BY JUNE 15 `QUITE LOW'

bonds with 7th day down in row refusing to bail those who are stuck with problems so far.

one of Hayek's major points was that gov planning leads inevitably to total restriction of consumer choice. what do we have now saving us - gas stoves, electric cars, air conditioning, tipping - what else?

Vic's twitter feed

May

20

the more he's complicit, the better he does, and the better for market. when I won a number of National tournaments in a row, not one fan in gallery was rooting for me. Reminds one of reason that S&P is bullish despite. some excellent ideas about unanimity in favor of the idea that has world in its grip (very favorable for S&P) in Holman Jenkins article in wsj today:

John Durham’s Report and a Presidency in Crisis

anything to help Mr. Perfect (the good one forbid they should violate their institutional preferences):

Fed Officials Face ‘Loathsome’ Playbook for Debt-Ceiling Standoff

one posits that 5 or 8 of the NASDAQ 100 always account for majority of move. that's the way of all distributions especially normal and what they used to call Pareto. and why would it be bad if it's greater than usual?

thing missing is all fellow travelers asking when S&P will hit an all-time high. others who refuse to adjust to change wonder how S&P can go up while the perfect father improves his odds every day. ask the 3-letter agencies, the professional sports leagues, and the consumer bigs.

a personage who has never had an economics course and is a master at sucking up to the current boss talks about the separation principle and the lags in policy. sounds good. now the Brooklyn acolyte must say how important raising the debt ceiling is. a 1-2 punch.

it would be good if someone on the favored side of the aisle were to reduce centralized influence on individuals ability to choose.

a shocking anomaly: the perfect father actually for once loses prob of winning on grounds that laundering thru 19 companies is worse than improprieties with the opposite sex. that's the only explanation for why we are not visited with another 20-day high in S&P.

Bidens Used Web of Shell Companies to Conceal Foreign Cash, Bank Records Obtained by House GOP Reveal

Vic's twitter feed

May

18

What are the most basic market states traders might need to model?

1. Going up
2. Going down
3. Reversing

Ranges, trends are subsets of the 3.

Next step is modeling what simple mechanism causes the 3.

Hernan Avella writes:

There are no “simple mechanisms”. But I would start with the microscopic dynamics of “the turn”. Yesterday [2 May] was a good day to study.

Big Al offers:

An interesting thought experiment is to imagine that you have a chart of a random walk but you still have to trade it. Money management, trade sizing, stops, limits - could you still trade it?

Zubin Al Genubi responds:

Random walk with drift would be the default basic state (S) with random factor u say with sd2. What simple rules might model market activity. Like ants and bees following simple rules but building coordinated complex structures. Adam Smith first mentioned emergence in his invisible hand.

Hernan Avella responds:

Isn't this the basis for most uniform trading that occurs?. While the other big chunk of participants "think" they have a model, "think" they have patterns, but are essentially doing a version of the same?

This reminds me of the infamous Kirilenko paper:

We examine the profitability of a specific class of intermediaries, high frequency
traders (HFTs). Using transaction level data with user identifications, we find that high frequency trading (HFT) is highly profitable: 31 HFTs earn over $29 million in trading profits in one E-mini S&P 500 futures contract during one month. The profits of HFTs are mainly derived from Opportunistic traders, but also from Fundamental (institutional) traders, Small (retail) traders and Non-HFT Market Makers. While HFTs bear some risk, they generate an unusually high average Sharpe ratio of 9.2. These results provide insight into the efficiency of markets at high-frequency time scales and raise the question of why we don’t see more competition among HFTs.

Zubin Al Genubi adds:

Yes HFT guys probably have done it at market maker level. Chair says yes you can trade random walk with drift with buy and hold due to drift. MM and HFT may also have order flow info they buy which may or may not be a different process.

Adam Grimes writes:

Absolutely and of course… that's why the hurdle rate for any test has to be the baseline (unconditional) drift in the sample.

[Re the "thought experiment"] Unless I'm missing something, not profitably (over a large sample size). All these other things are important, but they, at best, keep you at breakeven in a RW environment (i.e., no "signal" or "edge" possible). In real life, a comparable approach keeps you paying the vig with consistency. As for the thought experiment, correct?

Big Al responds:

For me, the thought experiment doesn't have a correct answer but forces me to think more rigorously about issues such as money management, trade sizing, stops, limits.

Andrew Moe writes:

Chair often advised that rather than considering just up/down or above/below a given threshold, one might look at "up big"/"up small"/"down small"/"down big" as classifiers. This is particularly salient in information theoretic calcs (ie, entropy) but interestingly moving to deciles offers little or no improvement.

Zubin Al Genubi adds:

I've been interest in agent based modeling of complex systems using simple rules. A new wrinkle would be adding a random factor following power law distribution in tails which stock data displays.

Jeff Watson responds:

That sounds like a perfect task for ChatGPT.

Gary Phillips adds:

Absent from the previous post on modeling was any mention of time frame. There is greater model risk the shorter the time frame you’re trading in, because price action is more random. Realized volatility, liquidity, gamma, and 0DTE options can and will, shape the trading environment. And, has been demonstrably evident the past 10 weeks, each day has its own ecosystem and market structure. This makes modeling in a short time frame a fool’s errand, and its participants useful liquidity providers.

As one moves to a higher time frame, positioning, money flows and sentiment become most important. Fund flows and positioning, along with cross asset flows, target dated funds, corporate buybacks, seasonal factors, and factor flows take on more meaning.Yet, even if one could ascertain the above factors with certainty, he wouldn’t know if the data was priced into the market or not.

And finally, while there may be a lag or even a disconnect on a long term time frame, macro economic factors, geo-political factors and CB policy, will inevitably exert its influence on the market. But, we don't know if we have experienced the event(s), nor know how traders will react to the event(s), that will finally move the market out of its current trading range.

A pragmatist's model then, is to know the market one’s trading, and to have a well defined process. Then one can make (bias free) observations and accurate, probability-based assumptions.

May

18

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

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

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

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

Larry Williams responds:

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

May

13

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

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

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

Vic's twitter feed

May

10

Character(s)

May 10, 2023 | Leave a Comment

most gentlemen don't like stocks.

Most Gentlemen Don't Like Love

How to Succeed in Business Without Really Trying (1967)

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

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

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

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

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

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

Vic's twitter feed

May

10

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

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

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

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

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

H. Humbert adds:

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

Jeffrey Hirsch replies:

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

I tweeted on this last week.

Larry Williams provides perspective:

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

Jeffrey Hirsch responds:

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

Steve Ellison writes:

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

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

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

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

May

7

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

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

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

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