Feb

28

the only commodity i can find that is not near a high is sugar. what else am i missing? between the bonds forecast and the commodity forecast i'll go with the bonds.

it time to educate the ignoramus camp kinderland pronoun person chair of the fed concerning ever-changing cycles. there must be some 20-year old study at the fed which shows that commodity prices tend to reverse. but they haven't reversed for a long time. and to base an
inflation forecast on the out-of-date and non-statistically-significant tendency of commodities to reverse by looking at a core price index rather than an unadjusted one only an ignoramus who doesn't know ever-changing cycles and statistics would be prone to.

everything at the treasury and their sisters at the fed is based on politics. let us assume that the economic numbers will all be adjusted to political expediency by people like the press secretary and the systematic racism person at the Treasury.

apparently i am afflicted with a perfect wife who can fix everything, and does, around our dinosaur house, and i am immobile at 100 years old so I don't patronize Home Depot and Lowes enuf. but i don't share the hatred of the common man and the working man. the progressives despise the working man, the trucker, the plumber, the builder (who's not in a union), the deliveryman, the electrician, the boiler man. I admire them. it's just that my wife handles all of that so I don't get a good tell from Loews or Home Depot.

Vic's twitter feed

Feb

28

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

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

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

Zubin Al Genubi comments:

Parameters need to be dynamic and adjust with volatility.

John Floyd responds:

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

Kim Zussman offers:

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

Zubin Al Genubi agrees:

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

Theodosis Athanasiadis writes:

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

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

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

Feb

23

the round numbers are easy to grasp and calculate from. also there is concentration of energy there so that the flow is greatest when rounds are hit. (see limits in specialist's book et al.)

There is beauty in swings of a volatile market where it covers in swings in 1 day almost a full year's average change at the end. it brings to mind the old man and the sea. after reeling the fish in the old man says "We killed each other". how many specs feel that way at end day?

nobody asked me but:

there is hysteresis in the crypto relative to a force from S&P - what other markets show this?

the shark can teach us much about markets. particularly its shape and scales and height and width relative to rate of flow.

to what extent is the hatred and fear of Putin related to the professed help that the Russians gave to his election campaign and his professed closeness to 45?

Vic's twitter feed

Feb

21

while I was out on thur and fri, feb 17 and 18, i had occasion to listen to Heroes by Stephen Fry. He occasionally makes summarizing statements on the Heroes so that one can gain order beyond the names and varieties of Heroes.

One point he emphasizes over and over again is that many great Kings see voluntarily or forcefully to abdicate in favor of their son. It occurred to me that this would be just what Doctor ordered in our country at this time. and it would be a boon for the market. i'm sure you are thinking along the lines of who would be the ideal vice pres. for the son. i would suggest at the ideal counterpart the cattle trader herself. that would definitely bring the market to an ath.

Vic's twitter feed

Ed: The other books in Stephen Fry's series:

Mythos

Troy

Feb

18

A scholarly query

February 18, 2022 | Leave a Comment

i am looking for a reference to a book on individual differences that showed pictures of the anatomy like stomachs of humans showing tremendous differences in all body parts. it would have been published about 1960-1970 and Arthur Jensen might have referenced it. i will give three signed copies of Education of a Speculator to the first one that finds it. i believe William may have written it.

Ed: Post any ideas on Vic's twitter feed.

The below are good references but not the target of this search:

Bergman's Comprehensive Encyclopedia of Human Anatomic Variation 1st Edition

Lippincott Williams & Wilkins Atlas of Anatomy

Feb

18

The old canard, “You never go broke taking a profit” was not coined by a winner, that’s for sure.

Big Al adds:

Markets are an excellent venue for cultivating outcome bias and hindsight bias. It's too easy to look at a chart and think, "Why didn't I buy *here* and sell *there*???" Then you turn to face the future, and the future is blank.

Jeff Watson writes:

People who watch televised poker with the hole cards exposed and % to win, frequently make judgments of the players performances based on the complete information they see vs the incomplete information the player is working with. It’s easy to be an armchair quarterback.

Dendi Suhubdy comments:

True. You could however predict the bluff rate, and percentages from past play, which can be used to win a game. New outlier players are hard to predict because lack of data, you need some sort of one-shot learning there. Hard.

Zubin Al Genubi responds:

The best buys are at the point of maximum pain and uncertainty.

Feb

14

HUGE 2nd Reef Pipeline Set Mows Down Surfers In Lineup

Gyve Bones comments:

Ever-changing cycles.

Feb

12

I just thought I'd share with the list. Almost two weeks ago, I mentioned here that I had committed to doing regular music composition for 100 days in a row…after a year of producing essentially nothing!

Today, I have a small piano piece finished that I can share with you. This piece is interesting because it has quite a bit of obvious math embedded in it…and it's a little more process-oriented than most of my pieces.

I'm also learning (and re-learning) things I thought I knew about the creative process…so far, this project has been worthwhile and rewarding.

Peter Saint-Andre asks:

Excellent work, Adam! Do I hear a whiff of Debussy in the harmonies?

Adam Grimes answers:

Debussy? Not deliberately. (Though I'm far from an expert on his music…I'm sure I haven't played two dozen of his pieces over the years.) But the harmony is very ambiguous at times, which might be the tie-in you're hearing…so, yes, I can see that!

Feb

12

I don't listen to or follow any news during the trading day so I didn't learn that the reason that stocks went down on Fri afternoon was the admin warning that an invasion of Ukraine was imminent. Upon reflection i wonder what reason there was to make this announcement during trading day.

similarly why wasn't the cpi tweaked by 0,1% to show no monthly increase? also one wonders how the Bullard announcement was vetted and if so by whom. Certainly the pronoun people at the Fed and Treasury must have given their okay.

Out of the same garage is the press secs. her sudden familiarity with the intricacies of seasonal adjustments and recording periods. They certainly didn't teach this at Wake Forest English or in the Obama admin where she worked as asst. communications director. What is the reason for all this market affecting negativity?

Your guess is a good as mine. but I attribute it to desperate situations require desperate remedies. Things are so bad that everyone must suffer to deflect grievance against the sickness restrictions. what would your explanation be? or am I completely on the wrong track?

Vic's twitter feed

Feb

10

A challenge!

February 10, 2022 | Leave a Comment

the market makes me feel like an idiot every day but I still feel I could predict S&P better than any artificial intelligence on day to day basis despite collab between google and CME.

i issue this as a challenge. Rumpelstiltskin and his followers have beaten Go and Checkers and Chess often. Perhaps I could even find some backers to make it interesting for both parties.

Vic's twitter feed

Feb

7

i can't figure out what aspect of plant or spider behavior is closest to the propaganda generated before the employment number that it was going to be a very bad number likeley showing a decline in employment. i know in sports its common to talk about how good the opponent is and how likely the opponent is to trounce you. I used this downplaying for 10 years in my squash career where I spoke about all the young wolves snapping at my heels and I didnt have a chance. I didn't lose a match during that period. I used the same techniques in Gladwell's interview of me versus Nassim . Nassim was braggadocio and all I could say was how it was impssible for me to withstand his dynmaic buying of out-of-the-money puts. Gladwell fell for it hook, line, and sinker as I believe is his wont. here's a story of deception, downplaying, some techniques that the market uses:

Deception, Disinformation, and Strategic Communications: How One Interagency Group Made a Major Difference

Vic's twitter feed

Feb

7

From Downtown America: A History of the Place and the People Who Made It:

But variety store shoppers habitually brought out familiar often old fashioned merchandise that they could not find elsewhere" - thingamajigs such as 39 cent diamond engagement rings, pant stretchers and plain serviceable stationery. "The typical variety store customer - old and frugal, low-income, taking public transit or walking - participated in urban commercial life in ways that defied the pronouncements of market analysts. When Woolworth closed its remaining American variety stores in 1997, Kurt Barnard of Barnard's Retail Marketing Report observed that the company "died many years ago, but it just wasn't buried."

But Woolworth refused to give up their emphasis on variety stores until 1997. Walmart took another tack and their bathrooms and water fountains were integrated.

Vic's twitter feed

Feb

6

Woolworth

February 6, 2022 | Leave a Comment

Woolworth: it brought back many useful highlights of my life when I read Dr. Brett's story "I am Woolworth" [Ed: see page 45 in The Psychology of Trading]. here was a patient who thought he was Woolworth despite the modern world. He lives in a different reality just like we often find ourselves completely out of touch with market gyrations and can't understand why. The sage and Charlie Munger exemplify this best as they persist in saying Crypto is worth nothing and will eventually go to zero because it doesn't produce anything like a farm.

Woolworth was started in Scranton and Wilkes-Barre, PA, the home of great entrepreneurs like Carnegie and Frank Woolworth. I worked there for two years as Tennis Instructor at the Valley Club. I visited the site of the first Woolworth store there but was too immature to appreciate it. Even then, there was a tremendous entrepreneurial spirit in the city and I still marvel at all the great, creative, dynamic entrepreneurs I met there. strangely many of these entrepreneurs were in the shoe business and while Woolworth went for the 5-and-10 business after 10 years and kept its one successful business as Foot Locker, the shoe entrepreneurs in Wilkes-Barre tended to fail. My first contact with Woolworth was when I was 12 and after school each day i would ride a trolley.

retailing then and now was such that no customer liked to walk more than 500 feet. My Woolworth I used to buy a 19 cent banana split every day after school. The lunch counters at W. were the site of local daily meetings and one of their most popular features.

There was great nostalgia when W closed its 900 5-and-10 stores after 100 years in 1987. "Where else could you buy such nick-nacks as a 37 cent diamond engagement ring?" I got engaged to my wife of some 50 years there, when I bought her that diamond ring at W. She still wears that ring and if she's in a expansive mood, she will send a picture of it to this site.

after splurging on the 37 cent diamond ring, i had to economize with a root beer float for 10 cents along with the grilled cheese sandwich.

Vic's twitter feed

Feb

6

1. the markets were not happy with the employment numbers but the administration was. bonds had their worst reaction to a Jan employment number ever falling more than 2 points from wed close to fri close of 153 and 16/32 from 155 and 25/32. S&P fell both thur and friday by a total of 60 pts. the german dax fell by 3.5%. yet the admin was ebullient. it started a new idea of prosperity caused by the D's, that goes along with the daring strike against ISIS masterminded and ordered by the Pres.

2. the Jan employment numbers are notoriously meaningless because season adjustment swamp them. actually employment fell by a large amount but seasonal adjustments swamped them.

3. the admin presumably gets the numbers a few days in advance and the hands at the BLS work hard to receive 3 chairs from the next meeting of all the pronoun people and the systematic racism people at the Fed and Treasury at camp Kinderland.

4. you have to hand it to them as it was a grand deception to have everyone talking about how the numbers were going to be so dismal and terrible when they presumably knew what the announced seasonally adjusted number was. since when does press secretary psaki become an expert on the intricacies of the reporting periods and collection periods of employment data? amazingly crypto went up 10 % within 10 minutes of the Amazon announcement.

5. we live in a world where everything is politics and all media is geared to help the Prez along. No wonder we were able to disable the helicopter in a jiffy on the 2 1/2 hour raid but were unable to disable 70 billion worth of equipment in Afghanistan.

6. close was amazingly bullish for S&P and the prediction of a new ATH in 8 days is intact. we've gone 21 days since the last one.

7. haven't heard anything about bearishness of the Jan barometer lately. why? like all technical indicators, it's subject to multiple classification and ever-changing cycles.

Vic's twitter feed

Feb

3

From Einstein On Creative Thinking: Music and the Intuitive Art of Scientific Imagination:

In other interviews, he (Albert Einstein) attributed his scientific insight and intuition mainly to music. "If I were not a physicist," he once said, "I would probably be a musician. I often think in music. I live my daydreams in music. I see my life in terms of music…. I get most joy in life out of music" (Calaprice, 2000, 155). His son, Hans, amplified what Einstein meant by recounting that "[w]henever he felt that he had come to the end of the road or into a difficult situation in his work, he would take refuge in music, and that would usually resolve all his difficulties."

btw, today [3 Feb] is the birthday of Felix Mendelssohn Bartholdy.

Stefan Jovanovich writes:

I don't really think; the few insights I have come from early training in copy editing and a certain skill for moving 3D objects around in space so they fit better (in the good old days this was called warehousing). For that kind of mind mulling, Haydn's Piano Trios have become the essential daily brain food for over a year now.

Nils Poertner replies:

perhaps there is a type of music, or composer, or melody, that resonates with a certain person for a while - almost like good medicine? a little goes a long way though.

Adam Grimes comments:

Speaking personally, I can't listen to complex music and do any other task. My attention is too easily diverted to the music and I spend too much time focusing on the music, which is an obvious reflection of how my brain has been trained. (I do think there are some fundamental differences in the way musicians perceive music compared to "everyone else", and different types of musicians also perceive differently, based on my experience.)

I do, however, like a wide range of musics, and I find bluegrass and old-school country are especially conducive to writing and programming. (Again, a very personal perspective.)

I do think musical training teaches people to hold and to manipulate patterns in a special way. There's also a lot to be said for the work ethic and focus of a musician. (When I was younger, I spent 6+ hours in front of my instrument, day after day. That requires a degree of focus and attention to detail that most people don't encounter very often.) But I'm still a little skeptical about wide-ranging benefits… maybe they are there, but expertise can be frustratingly domain-specific. I suspect there might be something in the pattern recognition and manipulation aspects that's meaningful, though.

Stefan Jovanovich responds:

For one thing, AG, you all actually hear the music. I can recognize the differences between the F-Minor (#26) and the E-Flat Minor (#31) because I have heard the pieces often enough to distinguish one combination of noises from the other; but that is all. I do not perceive the music.

Zubin Al Genubi adds:

After training and practice you can hear in your mind the perfect pitch of a note out of thin air and tell if a note is not in tune. Its another thing to train your voice to hit that perfect pitch.

Adam Grimes writes:

The skill of "perfect pitch" (absolute pitch), which is the ability to name notes out of thin air, is actually not trainable, despite a lot of work and effort. It appears to be a skill that probably all babies have, just as babies have the ability to hear all phonemes in all human languages. At some point, early on, the brain changes and unused (unheard) phonemes become relatively inaccessible (which is why, for instance, native French speakers struggle with the English "th" (and there are many other examples), and this appears to be the window that closes on developing perfect pitch. If musical training begins at a young age, this skill of absolute pitch may continue into adulthood.

It's also interesting that there's a range of pitches that will be accepted as "A", just as there are a range of mouth sounds that will be perceived as a specific phoneme. (in other words, not all speakers will produce the same sounds in a language exactly the same, and the same speaker might produce sounds slightly differently in different words, but the brain adjusts by categorizing.) I don't have absolute pitch myself (though I do have a few absolute "notes" that I can recognize or pull from memory), but in working with people who do, I've noticed they don't have quite the precision of a tuning fork. What they do have is a radically different perception of music than the rest of us, though the rest of us aren't as handicapped as we would be inclined to think.

There's a lot of very interesting work done and being done on perception. David Huron has written a few books that are both precise and accessible–always a nice combination of attributes!

Though perfect pitch can't be trained, what CAN be trained is the ability to judge relative pitches and to hear multiple notes played with precision. As you say, training the voice is another skill. I'm a very poor singer, but producing pitches with the voice is a critical part of internalizing pitch (and music, in general) for instrumentalists.

Big Al adds:

I think one of the most important lessons in music, especially for young people, is that you can begin studying something you know nothing about and, through practice, master it. Many people do not learn this and schools don't overtly teach it.

Feb

3

Non-farm payroll day open, minus previous day close, 1st Friday of the month:

as we can't log log dollars, i'd give give a pass. not a bad idea if TNA sounds like TINA, to have have her best song (feel free to disagree) while sending a a buy order into close or death on close order as it used to be called.

Feb

2

in a long and not uneventful life, one meets great personages that one didn't appreciate and learn from enough. here is list of some greats I wish I had stopped and encapped their greatness:

Barron Coleman, Richard Bernard, Harvey Sellers, Arthur Niederhoffer, Robert Schrade, James Lorie, Al Danoff, Tom Wiswell, Alan Millhone, Don Siskind, James Wynne, Rorie Schrade.

Herb London, Lee Henkel, Fred Mosteller, Steve Stigler. If only I could do it over again, and get to know them better and pay tribute to them and thank them for everything they did for me. If only I could meet them in afterlife. One not living who belongs: Francis Galton.

two persons left out of the list of greats who i wish i could get to know better and learn from and express my appreciation to. MFM Osborne, Susan Niederhoffer. In looking through the list the first three were great owners of companies that were models of how to produce.

four more to add to the list from the libertarian field: Bill Bradford, Joan Kennedy Taylor, Tyler Cowen, Adrian Bejan. i believe my daughter Victoria will wish to memorialize these persons some day.

Vic's twitter feed

Feb

1

Here is a thought experiment. There is a market with 1 buyer and 1 seller. The seller has 1 testing sell stop in place at 0. If the buyer can see it, he will take the free offer. If he cannot see it, he will explore with low bids moving at some point to 0 as a buyer wants the best price. Seller takes a loss.

Another day, 1 buyer, 1 seller, 1 offer at 100. Buyer has to buy and so searches, finally taking high offer.

The seller's low stop results in a loss. Can this be generalized?

Ani Sachdev writes:

I don't trade options - I think it's a fool's game to pay/sell premiums. If I have to trade I prefer futures (but I much prefer just buying and holding). I have, however, read a lot about options, and Mr. Taleb's book Dynamic Hedging is excellent at highlighting the important concepts. This conversation reminds me of his description of liquidity holes, on page 71:

Since stop losses guarantee an order, it becomes understandable that some operators can have an incentive to trigger the large stops. The following example shows the execution of a stop-loss in a relatively less liquid market.

[See the book for the chart that follows the above quote.]

Larry Williams responds:

I kind of see stops like getting in a fight… And somebody beating the hell out of you. The best strategy is to run.

That's why I always use stops there, they protect me from getting beat up… And they protect me when I'm not watching the market; which is most of the time.

Kora Reddy writes:

don't worry neither taleb trades options, just my personal opinion, take it with a pinch of salt:

1) taleb recycles others knowledge in a complicated and nonsensical way and presents it in a non readable gibberish manner vs

2) Euan Sinclair explains the same complicated options stuff in a straight no nonsense way and easy to understand

3) think like speaker Nancy Pelosi: go farther out like 2024 Jan leap, spy around 450 levels, I need about 45k to buy one contract if I go via vanguard route [i.e., 100 shares of SPY], but if I go deep itm calls at 400 strikes, its midpoint is at 80, one contract costs me about 8k with benefits about. 65 move for spy one usd underlying move and we know that spy average expectation is about 8 to 10 percent rise per year, so we are looking at 550 levels then, your 400 call is worth about 150 or roughly 90 bucks or 100 percent gains post tax vs no tax on 10k by 45k about 20 percent gains. the trick is to execute it when vix goes back to teens at much cheaper costs.

Editor's note:

Possibly of interest to readers:

Liquidity Black Holes
Stephen Morris, Cowles Foundation, Yale University
Hyun Song Shin, London School of Economics
September 8, 2003

Abstract
Traders with short horizons and privately known trading limits interact in a market for a risky asset. Risk-averse, long horizon traders supply a downward sloping residual demand curve that face the short-horizon traders. When the price falls close to the trading limits of the short horizon traders, selling of the risky asset by any trader increases the incentives for others to sell. Sales become mutually reinforcing among the short term traders, and payoffs analogous to a bank run are generated. A “liquidity black hole” is the analogue of the run outcome in a bank run model. Short horizon traders sell because others sell. Using global game techniques, this paper solves for the unique trigger point at which the liquidity black hole comes into existence. Empirical implications include the sharp V-shaped pattern in prices around the time of the liquidity black hole.

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