Apr

28

Dear Victor: "i got stopped out of long position in S&P on Tues when the market dropped 67 points from 3pm to 4:15pm and another 15 pts from 4:15pm to 5pm. my margin was raised to $22,000 a contract at 4:15; by the start of night trading after 15 minutes market was back". an example of why the public always loses to the infrastructure. the strong take from the weak. but things like this eventually will decimate trading by the public. the most the S&P has ever fallen in a day is 150 big points or $7500 a contract.

Vic's twitter feed

Apr

27

Laurel Kenner on Substack: Nobody Asked Me, But…

Apr

27

as bacon would say "the public has no rite to lose this much". as I would say, the vig is key. the infrastructure must take money from the public. note the costs of 5 billion compared to 1 billion from timing. this in a bull market.

Retail Trading in Options and the Rise of the Big Three Wholesalers
Svetlana Bryzgalova, London Business School - Department of Finance
Anna Pavlova, London Business School; Centre for Economic Policy Research (CEPR)
Taisiya Sikorskaya, London Business School
Date Written: April 12, 2022

Abstract
This paper documents rapid increases in (i) retail investor trading in options and in (ii) payment for order flow (PFOF) for options transactions received by the U.S. retail brokerages. PFOF comes from so-called wholesalers/internalizers — market makers who execute order flow for a retail brokerage. Exploiting new reporting requirements and transaction-level data, we isolate wholesaler trades and propose a novel measure of retail investor trading in options. We find that retail traders prefer cheaper, weekly options, the average quoted bid-ask spread for which is a whopping 12.3%, and lose money on aggregate. The inflow of retail investors also coincides with an increase in call options left suboptimally unexercised. Market makers (and other arbitrageurs) exploit these mistakes via the so-called `dividend play' trades, producing (virtually) riskless arbitrage profits. Puzzlingly, they forgo 50% of these profits, leaving money on the table for option writers. Our findings suggest that the arbitrageurs behave non-competitively and that the Big Three wholesalers, whose share in PFOF for options surpassed 85%, seem to benefit disproportionately from the growth in retail trading.

Vic's twitter feed

Apr

25

Lucky call

April 25, 2022 | Leave a Comment

the compliments about my lucky call for a rally today reminds me of the good old days when i was a big operator and had a big staff and when I could visit somewhere and have a good chance of beating anyone in tennis without nowadays likelihood of having an ambulance sent.

in the good old days, I received 6 calls in one day from brokers. 3 told me that they were monitoring my trades so they could follow me. and 3 brokers called to warn me that they were monitoring all my trades on the floor so that they could copper me.

i receive a heads up from a most astute relative that says that if twitter now would stop censoring trades, i would be a miracle and great. i have to hand it to them the way they subtly censor me and presumably countless others. If the tweet is not 100% for the masters 100 and the business roundtable and the alphabet agencies et al, my tweet doesn't get circulated to any but my current followers.

isn't this the aim of the infrastructure also in the market — to scare the public out of positions though volatility that the public can't stand (and possible margin calls) and to create fear galore with the pantheon of bears previously lampooned.

a typical Mencken and Nock quote: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."

Mr Parisian: in your mentorship of the People did you learn from the People's boat building-skills and do you apply it to markets? I learn much from Jack Aubrey's tactics. he was always ready to change tactic when victory was in jeopardy. and he always had an escape route.

However in all deference to my sagacious relative, I refer him to Mencken and Nock and Jefferson. The powers that be aren't corrupt when they join the agrarian societies. they become corrupt when they become part of the buying of votes in exchange for providing alms.

"Like all predatory or parasitic institutions, the state's first instinct is that of self-preservation. All its enterprises are directed first toward preserving its own life, and, second, towards increasing its own power and enlarging the scope of its own activity." a typical Mencken and Nock quote. "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary."

isn't this the aim of the infrastructure also in the market — to scare the public out of positions though volatility that the public can't stand (and possible margin calls) and to create fear galore with the pantheon of bears previousoly lampooned?

Vic's twitter feed

Apr

25

nobody asked me but… (1) no better indication of ever changing-cycles is the performance of companies in the pandemic and after. the ones up the most in the pandemic are down the most in last 6 months. (2) Rumpelstiltskin and his followers have renewed their habit of very subtly creating canceling of info by not sending any info to new followers. my followers has been steady within 1 for last 2 weeks.

Vic's twitter feed

Apr

22

Tremendous decline in chance of the big guy's presidency from 15% to 10% in one day. No wonder the market was down big - regulatory capture less likely. 16 million bet so far from combined sources.

Vic's twitter feed

Apr

22

the problem with robots is they don't take into account ever-changing cycles. true in markets and why I've challenged any robot to a single combat with real money in markets.

in baseball, Yankees are robot-like in decision making: they didn't pitch to Cabrere and LA took Kershaw out in seventh while pitching a perfect game. have the robots no appreciation for fans cming back to the game and hating Yankees for denying them the oportunity to see the 3000th hit? no wonder baseball interest is declining 20% a year. same would be true if infrastructure lets hfq and infinite captalized banks have open sesame with public. all the big exchanges efforts to prevent public from getting timely prices (except with fee) a horse from same garage.

Vic's twitter feed

Apr

21

Trading Strategy Rules: Bill Ackman Strong Risk Management skills triggers and he exits the stock from his portfolio. We buy the stock & hold for one year. Below are the prior 4 instances, when the trading system got a buy signal, and a comparison with SPY:

One notes Bill Ackman exited Netflix , with the following note on risk management practices of Pershing Square:

One of our learnings from past mistakes is to act promptly when we discover new information about an investment that is inconsistent with our original thesis. That is why we did so here.

[Note: We are not able to get the details on Borders Group.]

Apr

19

books read on a weekend trip to see grand child #13 and Professor, all are highly recommended for markets and life:

The Hidden Life of Trees

The Forest Unseen: A Year's Watch in Nature

The Tree: A Natural History of What Trees Are, How They Live, and Why They Matter

Discrete Mathematics

Infrastructure: A Guide to the Industrial Landscape

Professor's 31st book, Time And Beauty: Why Time Flies And Beauty Never Dies, explains why even ratios and round numbers are attractors.

Vic's twitter feed

Apr

14

is occurs to me that the growth of talent in the NBA is a manifestation of professor Bejan's constructal law.

Aubrey (my son) has been insistent that NBA players are better these day. and it brings up what Uncle Howie always told me "i agree with you that you don't know anything about basketball." i used to think that shooting 3 pt shots was a losing strategy. I didn't appreciate Curry at all because he seemed to shoot wristy shots which are very bad in racquets. At least I was right about saying that the two Knicks of 10 years ago who shot inordinate 3's were losers - Porzingis and Gallinari. the latter always high fived himself after a make. seed of destruction.

the one thing I said about basketball that Uncle Howie agreed with me on was that D'Antoni was the world's worst coach. I gave him a pass when he followed me like I am now giving the upside down man. after I played a conga in his honor I agreed not to ridicule his bear any further.

Vic's twitter feed

Apr

13

Carlsen has a great poker face:

World Number One Magnus Carlsen Stuns Everyone With His Poker Skills

Every time you watch the world chess champion, Magnus Carlsen, he never fails to amaze. It’s like he is the best in everything he touches. His brilliant skills are not just limited to the world of chess. But the Norwegian Grand Master can easily adapt to other games as well. While Carlsen’s stats in the Fantasy Premier League can give you chills, his poker skills are even better.

WATCH: Magnus Carlsen, Best Chess Player In History, Turns Pocket Aces Into A Bluff

A reader writes:

i have noticed that ambitious chess players, by and large, seem to be pretty straightforward type guys….not saying they never lie - they are humans but it made me think about certain disciplines in life requiring a sense of honesty to improve - also honesty for oneself - cuz the game itself is not about gaming others but by using memory, logic etc. and lying itself puts extra mental strain on the brain, and they need to concentrate for hours and hours. whereas say ppl who manage OPM…well, a lot are good in marketing etc. no prob with that, just saying.

Zubin Al Genubi adds:

The joke about lying in our family comes from when our kids were little.

We asked,"Who did this?"

Big sis says,"Kenny did it."

Little Kenny says,"Kitty did it!"

J.T. asks:

So poker is the antithesis of chess?

Big Al responds:

From what I've read, von Neumann didn't consider chess to really be a "game" because of complete information. On the other hand, he loved poker because of incomplete information and the possibility of bluffing. He felt poker was, therefore, a true "game".

Andy Aiken comments:

Sprague-Grundy Theorem states that all impartial games are equivalent to Nim. Since a chess game starts impartially, and there is a process of removing pieces (and therefore at each turn, a chess game has a nim-state equivalent), it is a game in the classic sense. But the randomness of play is due to human error, not chance.

The current chess programs can beat international grandmasters and eventually they'll be insurmountable by humans. The final stage of programs playing one another (if anyone cases to watch such games) will probably consist of elaborate opening traps and gambits, with volatile position scores until midgame, at which point the winner will be obvious.

Poker has a large element of chance that can be increased without any change to game rules (adding decks to the shuffle, table bet limits, etc). And there's the additional issue of money/bankroll management that adds further uncertainty. In contrast to poker, in which everyone plays for money, I only know one person who plays chess for money, and he's a 2600+ rated player.

J.T. writes:

Don’t forget the use of bluffing in poker whereas chess doesn’t have such.

Stefan Jovanovich disagrees:

"Bluffing" is the essence of chess - and warfare. Both players see the board - as opposing armies see each other's deployments. What each player cannot see is where their opponent intends to attack and where they plan to defend and how much those plans will change as the game continues.

The biggest part of the blitzkrieg lie is that the French and British did not see the Germans coming through the Ardennes. They did; they did not think it was going to be the main axis of attack. And, until the Germans had the good fortune to have their opponents recover a copy of their tasking orders from a general staff officer, the plans did not have the Ardennes being the center of focus.

I am, as in most things, barely mediocre at chess; but I am unembarrassed by my lifelong habit of asking dumb and then dumber questions. The one person I know who is capable and who studies the game like a real-life Philip Marlowe tells me that deception is the key and the great challenge is not to fall victim to your own certainties about what is going to happen next on the battlefield.

List of chess openings

Big Al responds:

You've using a very soft/fuzzy definition of information and bluffing. In game theory, chess is a game of *complete information*, i.e., all the information about the game is visible on the board to both players at any given time. Poker is a game of *incomplete information*, e.g., in Texas Holdem you don't know what your opponents hole cards are and you don't know what cards will be dealt on the flop, turn, and river. Also, in poker you can truly "bluff", i.e., pretend, through betting, that you have cards you don't have. In chess you can't pretend to have more pieces than you do or that they are in positions on the board other than the ones they actually occupy.

War is definitely a "game" of incomplete information.

Stefan Jovanovich contends:

No. Militaries know what each other side has - in terms of resources - and unlike poker the game is continuous. There are no hands, bets and then the winner takes all; and then new hands are dealt. I can understand how JHH and others see Ukraine as winning; judging each day's events as a single operation or poker hand shows a picture of success for Ukraine. Yet here we are in a war that continues with no end in sight even as Ukraine gets more advice based on the presumption that Russians cannot think more than one move ahead.

Apr

13

I've uploaded the Autobiography of Charles Darwin to my website of public-domain books, optimized for reading on phone or tablet. Enjoy!

Laurel Kenner applauds:

Thank you, Peter, and thanks for letting us know about the site. It's a treasure, full of interesting books.

Peter Saint-Andre responds:

Thanks, Laurel. I'm always adding more books and suggestions are welcome.

Bo Keely comments:

I'll read it again because it's worthwhile.

Peter Saint-Andre adds:

Oh, and I've discovered that Francis Galton wrote an autobiography, too. I'll add that to my publication roadmap.

J.T. approves:

Most definitely

Apr

13

I recall a study we did years ago on April 15 effect of everyone cashing in to pay the tax bill.

Jeffrey Hirsch responds:

No effect anymore from our studies.

"The first half of April used to outperform the second half, but since 1994 that has no longer been the case. The effect of April 15 Tax Deadline (April 18 for 2022) appears to be diminished with numerous bullish days present on either side of the day. Traders and investors are clearly focused on first quarter earnings and guidance during April. With conflict in eastern Europe and the Fed raising rates, companies may lean conservative with guidance during this upcoming earnings season."

From my blog and newsletter.

Apr

13

inflation numbers being leaked like a sinkhole before release these days. do insiders know that first reaction can be wrong? hypothetical conversation at house of rep: "the ppi was way above expectations why isn't everything cratering? i now have a low on my bond short. there ought to be a law."

"this isn't cricket" - hypothetical exclamation from those who had leaked ppi numbers at 8 am. only honest market that doesn't get leaks ahead of time is the crypto.

if instead of climate change and racial equality and universal education, the fed and Treasury would concentrate on keeping the monetary foundations in order, the world would be a better place.

why does every news source have bearish bias. the big financial one reads like racial equality and climate change are the keys to markets. "jumbo hikes" galore.

Nobody asked me but: (1) one of most dangerous things iv'e seen in making public lose more than they have any rite to lose is the "reverse" button on my broker's trading platform. (2) i gave up on the big option makers platform that gives you 10 seconds at 11 pm to meet their required margin of 10 times what competitors charge. but worse than that is their prices seem to be 10 minutes late. are things that bad that you are supposed to trade with lagged prices?

Vic's twitter feed

Apr

12

Good to have assets and debt. Assets go up, pay back deflated dollars. Advice from 1970's. Leverage real estate comes to mind. Malls did well back then. Maybe REITs now? Offices not so much. Residential already had quite a run.

J.T. writes:

Malls are going for pennies on the dollar. Lots of very interesting repurposing going on around Virginia with Malls. My local mall that’s been empty for years just turned the old JC Penny’s into a Children’s Hospital. The empty Applebees turned into a Chicken Salad Chicks. BTW, if you’ve never been to a CSC’s before then it is a must go! It’s also a great libertarian story of its foundation in Alabama.

Apr

11

the least I can do is to share Tom Wiswell's favorite proverb which is relevant: "moves that disturb your position the least disturb your opponent the most." there's so much wisdom in that mainly because it minimizes vig and captures the Dimsonian drift of 10,000 fold a century.

For those that are new I find that the co-movements of bonds and stocks are predictive. i post a chart every day that memorializes the co-movements in the current month. also, i find checkers much more instructive than chess. it's like logic gates. Tom Wiswell was world champ of 3 move checkers for 25 years and provided 15,000 proverbs for me relevant to markets, life, and checkers.

Vic's twitter feed

Apr

10

In Dawkins work he frequently mentions the tendency of all trees in a stand to grow to the same size. they have to compete for light. and a symmetric arms race makes them the same height. I believe the vig and the range of markets show the same phenomenon. Your thoughts?

What Determines How Tall a Tree Can Grow?

Vic's twitter feed

Apr

9

it is interesting to look at conditional odds on the polls. Its 55% that the proud father will win if nominated. but only 75% that he'll be nominated. the person with the highest chance of winning if nominated is DeSantis with 66%, whereas 45 is only 50%.

chance that proud father will win has stayed steady at 15% for 6 months. watching these odds to me is a better predictor of the market than war news, although they both are weak. if chances of 46 winning go up from 15% that's bullish.

Vic's twitter feed

Apr

8

one would like to see a good study of how the range of the day at various times of the day like at 1200 pm affects the future price move classified by how close the current price is to the high or low.

Reply to: Vic's twitter feed

Apr

8

nobody asked me but it's strange to see bitcoin going down during midst of Flor. conference biggest ever of 25,000 bit supporters and sponsors.

the dissemination of news about the bona fides of the laptop is similar to the way certain truly big bear markets are designed. first there's an isolated big one day-rise (the Post story), then nothing for a year, then all of a sudden a flurry of rises (the Times, wapo, cbs). this must be quantified. it's more an impression than a regularity.

The flurry of news about the laptop these days along with all the bad news about the father leads one to think that there is a bombshell soon to come out that will not be favorable to Masters 100 or the regulatory capture boys.

following our guiding principle that the more it shows the terribleness of U.S the more bullish: if the 2022 senate and house races were to go against the 85% betting odds and the D'S should win, it will be bullish. similarly for the 2024 election.

Vic's twitter feed

Apr

8

When roots of a tree hit an obstacle eg a rock, they embrace it and grow around it. That is how living organism work isn't it - they somehow adapt.

Speaking to younger ppl (below 30) there is a bit of despair I can pick up which wasn't there say 20yrs ago. And plenty of good reasons for it perhaps and I agree with them so often. It is amplified by media, professors, parents, celebrities , and then group think etc etc…they all set this emotional temperature of negativity and cult of fear. applications are everywhere - nominal rates can not rise in the US coz the econ would collapse etc etc etc…completely un-nuanced…whatever the topic…almost irrelevant.

maybe individually or collectively there is a lesson to be learnt from trees.

Henry Gifford writes:

Most everyone has seen sidewalks pushed up by tree roots, but the way the roots do it isn’t exactly what it looks like. The roots don’t actually push the sidewalk up.

What happens is that as the sidewalk expands and contracts with alternating sunlight and darkness, and maybe moves for other reasons, small spaces become available which the roots grow into. Then, each time the space opens up a little, the roots expand a little more, thus the sidewalk can’t move back to its original position, and gradually ends up far from its original position. The mechanism is called "ratcheting." Reminds me of overnight price movement.

Apr

7

Washington Inoculates an Army
The Continental Army Battles an Invisible Foe

Stefan Jovanovich comments:

Washington was always a better strategist than tactician. Even though he lost more battles than he won he had command of the larger picture. In this case he scored a seemingly impossible victory against an invisible enemy.

First sentence: meaningless. Washington was never Commander-in-Chief in the way Lincoln and Roosevelt were. Congress and the French (and later Spanish) allies determined the "strategy" based entirely on their territorial ambitions. You kick the British out of Boston so they and their soldiers have to go to Halifax and then you decide the best of all possible strategic choices is to try to capture Quebec City when the smallpox has already weakened your army?

Second sentence: equally meaningless. The "larger picture" was always the one in the Caribbean, Mediterranean, and the Indian Ocean, not the Atlantic colonies.

Third sentence: The only proof that they did are the Army's own records of the soldiers who reported being sick. The number of those infected with smallpox fall off dramatically in the last two years of the war (1778-1779), but the evidence that attributes this to successful inoculation rather than the accrual of natural immunity is a single case study. The Army surgeons conducted a clinical trial during the winter in Morristown (which was far worse than Valley Forge) when 6 out of 6 soldiers who were vaccinated did not die from the disease versus 5 out of 6 for those who were not vaccinated. See Smallpox in Washington's Army: Strategic Implications of the Disease During the American Revolutionary War.

Apr

5

Train traffic is suddenly up 300% in the past two months on the UP main line that runs one mile from my shipping container. Whenever there’s a quick shift in a single variable look for a parallel shift in cause or effect. That will be the investment.

I imagine the big flux is due to the skyrocketing diesel fuel price. It’s $7 per gallon here, and climbing. Trains are 4-9X more fuel efficient in ton-miles per gallon than semi-trucks. One train hauls hundreds of trailers in a two-mile string that requires only four diesel locomotives.

Apr

5

Joe has challenged me again to chess and handball. He's usually very precise but i won about 100 national tourneys in racquet sports not handball. and i'm very poor in chess but checkers is my game. in honor of Joe's shout out, i'm inspired to post some of Tom Wiswell's checker aphorisms.

(1) always eliminate the bad moves, what's left must be rite. (2) How to win: play loose, but not too loose, or you'll lose. (3) my mother told me, "Don't try to be brilliant. Just try to survive." I think i succeeded (Tom at 82).

i wish I had realized the greatness of Wiswell during the 20 years I took checker lessons from him. he wrote 10,000 proverbs for me relevant to board games, markets and life. He said it was going to be his best book of the 25 he wrote. A. Millhone and I are the only ones that have it.

that brings to mind my wife, old faithful. Tom would come into my office. My sign "board game in progress" (taken from Branch Rickey) memorialized the lesson. Tom would come in, look at Susan, my wife and invariably say, "The one thing I'm sorry about my life is that I didn't marry a girl like Sue." Then he'd shake his head, adjust his hat (which he always wore) and say, "But then again I wouldn't have written 25 books if I had."

Vic's twitter feed

Apr

4

books read this weekend include Robustness and Evolvability in Living Systems, by Andreas Wagner, has chapters on robustness in natural systems and robustness in man made systems - advantages of tradeoffs and variation. very relevant to force of destiny in S&P. first book i read from the Santa Fe Institute on complex systems that was not a puff piece.

Vic's twitter feed

Apr

4

everything aligned now for ATH. the academics, the media, the corporate board room, the pentagon, the school systems, the alphabet agencies, the Fed, the Treasury, all sing a harmonious tune that could be an opening chorus at Camp K.

Vic's twitter feed

Apr

4

the book Deceptions of World War II by William Breuer reveals 150 deceptions routinely used by both sides. it is useful for our markets and scary how much we were routinely subject to spies and snares.

[ A related story is The Ghost Army:

In the summer of 1944, a handpicked group of young GIs - including such future luminaries as Bill Blass, Ellsworth Kelly, Arthur Singer, Victor Dowd, Art Kane, and Jack Masey - landed in France to conduct a secret mission. Armed with truckloads of inflatable tanks, a massive collection of sound-effects records, and more than a few tricks up their sleeves, their job was to create a traveling road show of deception on the battlefields of Europe, with the German army as their audience.

This is the book from the documentary. - Ed. ]

Apr

3

When looking back at the term structure of interest rates, certain periods stand out: 1998, 2001, 2006-7, 2018, and now 2022.

That history is displayed here, constituting the 2yr, 5yr, 10yr and 30yr rates shown as month-end closes. Note that the 3-month bill rate has been omitted, and that the 2-year is emboldened. All of the periods show an increase in rates prior to the congestion, and all subsequently resulted in economic difficulty. From basic economic education we have learned the causative connection and indeed current political “Policy” seems to be in agreement.

Kim Zussman asks:

Do you think the long term downward slope could affect the forecast ability of yield curves?

Zubin Al Genubi comments:

Its along the lines of "don't fight the Fed".

Bill Rafter responds:

IMO, the downward slope is a function of the Fed essentially trying to remove the US economy from the free market. So (1) yes to Kim for the observation that it will lessen the effect, and (2) yes to Zubin for the always true observation not to fight the Fed.

Had I take the picture back farther, say to the early 70s you would have seen much higher rates (i.e. 21% for the 3-month), so that downward trend is a long one.

Apr

1

In November I started reading an interesting and beautiful book, Oak: The Frame of Civilization. Partly a book on the acorn and human history, part on Oak forests and the environment. I planned to write a post for Daily Speculations. Then, short of presents, I gave the book to my niece for Christmas. I’ve just ordered it again for Kindle, so hope to writing something on it soon.

I continue to run programs for speech and debate, and continue to research nutrition and health. My analysis for the Goodman Institute on the flawed energy balance theory of obesity was released recently, and I write about it here: Overweight? Blame Energy Balance Theory and Dietary Guidelines

Laurel Kenner writes:

I had the pleasure of taking the author's (William Bryant Logan) pruning class this winter at New York Botanical Garden. I enjoyed his previous work, Sprout Lands, and can't wait to read this one. A very nice man.

Apr

1

no better example of the modified limited hangout (spy talk for a half truth designed to deflect and cut off the whole truth from coming out) is the prodigal son news about authenticity. "but it doesn't mean that anyone else in family did anything wrong."

do we see the modified limited hangout used often in markets to increase the vig we are subject to? Give examples? I will give a prize for the best ones in markets.

one was out of trading today seeing drs. like most people of age i could spend my whole life seeing drs. and none would help. because they are all so specialized they won't help you with anything outside of their specialty. I've been trying to get a prescription for a common problem. several drs. threw me out of their office because i questioned them. the days of private practice seem to be near an end as most drs. seem part of one big entity or another.

Vic's twitter feed

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