Apr

29

a terrible warning form 1956 Road to Serfdom: the bulk of the intellectual community almost automatically favors any expansion of government power so long as advertised as a way to protect individuals form bad corps, relieve poverty. anything goes, "protect the environment, promote equality."

one has been reading Forty Studies that Changed Psychology in conjunction with my visit with several prominent psychologists at Gail's 80th. while the personages don't subscribe to these studies, I am amazed at the the self-serving biases.

studies in the main don't take account of multiple comparisons (they tend to implictly look at many hypotheses and choose one that works). I will review some of these studies but the study on predicting the outcome of marriages with a slope as the key confirmation is terribly indicative.

a good thing to keep at hand when visited with a loss in markets or life:

Why the Giannis Antetokounmpo ‘Failure’ Speech Is a Viral Phenomenon

a little banking-crisis news is what the dr. ordered to set everything up with bonds and stocks at 20 day highs.

how does the next 8 months look given that the bonds and S&P are up during the first 4 months? it has happened only 8 times since 1996: 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017. strangely that run of 8 years up was the only times they were both up.

during that period the S&P advanced from 10325 to 27028. that 170% run were the golden years. S&P fell once in 2011 by 6%, in 5 of those remaining years, the S&P rose to end of year by 10%, the other two just a small rise. all prices adjusted for drift and contract changes.

How is the S&P during next 8 months given bonds and S&P up first 4 months? predict up 7% in next 8 months. strangely the next two months looks down with the last half of year showing a 8% rise. bad however is refusal of Germany to catch up to US. depends imho on whether perfect father continues to stay ahead in presidential odds. of course with 8 observations all clustered form 2010 to 2018, margin of uncertainty is great.

Vic's twitter feed

Apr

27

Liquidity Builder - a patent portfolio for a system to trade securities more quickly (larger retail orders) at close to the midpoint of the bid-ask spread while eliminating market makers and payment for order flow.

Five key points. First, the brokerage industry relies on payment for order flow from market-maker firms like Citadel Securities. Investors are told that their trades have achieved “price improvement” when a buy order is executed below the ask price or a sell order is executed above the bid price. This “price improvement” may be as small as one-tenth of a cent. However, how often have you experienced displaying your limit order as the best bid or ask and before the other side can hit your limit a market-maker jumps in front to execute a trade often at one-tenth of a cent better than your displayed limit price?

Second, the Liquidity Builder (LB) platform reflects a different view of the trading world. As the order size increases, the task is to minimize the time to execute the entire order at a price close to the midpoint of the bid-ask spread.

Third, contrary to the conventional practice of time priority for limit orders at the same price, LB provides for size priority. The largest order, at a given limit price, is first in line to be executed regardless of the time when it was placed.

Fourth, The LB platform eliminates market-makers and would be a magnet for larger orders and with increased liquidity, the platform becomes more valuable as the number of participants increases.

Fifth, the LB platform is secured by a patent portfolio with wide reaching claims. Those claims include the implementation of a larger-order-first system plus a variable price limit in which the limit price varies depending upon the number of shares traded.

In summary, the retail investors with larger orders would gain the opportunity to quickly complete their entire order at a price close to the midpoint of the bid-ask spread whereas the institutional investors would achieve a price somewhat better than the midpoint of the bid-ask spread. I have had discussions with exchanges and large brokerage firms and they have told me that the LB would work but it would disrupt payment for order flow and their principle of equal treatment (equally disadvantaged?) for all investors. One strategy may be to start with a trading platform solely for institutional trades; prove the concept works, and then expand. Ideas are greatly appreciated. My website is LearningWhatWorks.

Apr

25

great books read over the weekend during my trip to Austin: Our Town by Thornton Wilder, The Road to Serfdom by F. Hayek, Mathematical Biology: I. An Introduction by JD Murray, Life of Francis Galton vol. 1 by Karl Pearson. reviews of each forthcoming.

But experience is often fallacious in ascribing great effects to trifling circumstances. Many a person has amused himself by throwing bits of stick into a tiny brook and watching their progress; how they are arrested, first by one chance obstacle, then by another; and again, how their onward course is facilitated by a combination of circumstances. He might ascribe much importance to each of these events and think how largely the destiny of the stick has been governed by a series of trifling accidents. Nevertheless all the sticks succeed in passing down the current, and they travel, in the long run, at nearly the same rate. So it is with life, in respect to the several accidents which seem to have had a great effect upon our careers.

- Francis Galton, Journal of the Anthropological Institute, 1875, p. 391.

volume 1 of Pearson's Life of Galton is devoted mainly to the great man's childhood, his ancestry especially on the mother's side, and his relation with his cousin Charles. It is a moving and memorable chapter. How did I come to read it over weekend?

it was my first wife's 80th birthday, and she managed to keep all the books and paintings. While the great personages among her friends passed by at the party hosted by my daughter Katie, I saw vol 1 on her copious book shelves and gave myself a treat by rereading it.

when i presented this painting at a Galton meeting in London, the speaker decried Galton's lack of Mathematical rigor and the tradition was "no feedback from the audience". Subsequently Stigler showed how nonsensical that claim was. It is interesting and telling that at a meeting designed to honor Galton, even his greatest followers were afflicted with shame. it is amazing how good mathematician can be so foolish when venturing out of his own field. the same is true when quants take a gambol on markets. and I would guess the same is true of chat gpt.

the big circular thing in the background is the cyclone imported from the Columbian exhibition of 1899. the cyclone is still packed even though the Dow had declined from 290 in 1929 to 70 today. the construction in the North is the Trapeze designed to give soldiers training.

my comments about sticking to your own last for math people was based on Murray's foray into psychology quantifying likelihood of marriage dissipating based on Gutman's work which is completely overdetermined et al.

David Margulies in his review of Our Town calls it the great American play. "it's all there, the passages of life." there's no scenery and no curtain. If you appreciate the commonplace and the wisdom and greatness of the common man or woman you will love this play. Although I had seen the play a few times, I never appreciated its greatness until I reread it this weekend. It inspires me to write a play based on my experience. "no curtain, that's Arthur Niederhoffer taking his physical test for being a policeman in 1937."

Road to Serfdom of 1942 is all too prescient. "the emphasis shifted from gov administered production activities to indirect regulation of private enterprises and to gov transfer programs." look at a typical day in gov control. no meat in nyc, no private money for everyone else.

"coordination of men's activities through central direction leads to serfdom. also central direction is a road to poverty." intro to Road to Serfdom.

Vic's twitter feed

Apr

22

Caught a discussion of the benefits/drawbacks of international diversification for US investors, so I had to do at least some basic counting and found that over the last 10 years, using weekly % changes, SPY and VXUS (Vanguard ex-US ETF) have a correlation of +0.85. But SPY provided twice the return (155% vs 74%).

If you want an uncorrelated asset, EEM (MSCI Emerging Markets ETF) had about a zero correlation with SPY or VXUS…but a return of about -10%!

Hernan Avella responds:

This is a rather unsophisticated way to look at the issue of diversification. How about you extend the lookback period, run some simulations, perhaps including a withdrawal rate. Anyways, to some extent I agree with the idea that US investors might be ok with a bit less international diversification vs investors from other countries. 20-30% should be ok. I believe all cap funds for international might not be optimal, I prefer to use cheap multifactor funds. Mother Vanguard is recommending 40+% in foreign.

Starting period is a bit unfair to US equities, but it's the longest overlapping period of the 4 funds. Since Jan 1999, cagr and correlation:

S&P 500 +6.97%
International value (DFIVX) +6.02% cagr .82 corr
Emerging value (DEMSX) 10.52% cagr .75corr
China (MCHFX) 10.79% .53 corr

The framework on a forward basis should be robust/agnostic to globalization - deglobalization, war, currencies crisis. Passive, Cap weighted is a good starting point.

Big Al replies:

Yes, different lookback periods and different funds give you different results. My point is that it's hard to sell people on diversification given the last 10 years.

John Floyd adds:

How do we best consider this on a forward looking basis?

1. What about a reversion given massive US outperformance vs ROW past 10 years plus led by tech mega caps?
2. What about massive reshoring to NA (Canada, Mexico, US) of US and non-US firms given COVID, geopolitics, etc.
3. China had one of the greatest credit booms in history with the speed and size (beyond Japan in 80s, US in 2000s, etc.), that game is over.

H. Humbert writes:

The Sage has Japan in his sights:

Warren Buffett’s trip to Tokyo is seen as a ‘stamp of approval’ for investing in Japan

“For Japanese institutional investors, this really is now the stamp of approval that Japan can deliver superior returns,” Monex Group’s Jesper Koll told CNBC’s Street Signs Asia.

BTW, I had owned exactly one Japanese stock in my life prior to last year, and obscure bra maker, and it hasn't gone anywhere, literally. But in the beginning of last year to me Japan started appearing really attractive, especially for dividend-paying value stocks which is the only kind I buy, so I bought two stocks: TAK, at the beginning of the year which so far has provided a 24% return not including the 4% dividend and KNBWY a year ago which provided an 11% return not including a 3% dividend (both are documented online at the time of purchase). Nothing to write home about but better than the market. If you consider that they are one of the largest pharma companies and beverage companies in the world selling for peanuts, you couldn't find anything of comparable value and safety profile in the US at the time.

Hernan Avella asks:

Mr Humbert, what % of your portfolio did you put in 2 stocks?

H. Humbert replies:

1% for the first one and 0.5% for the second one. Since I own over 200 stocks that's my typical purchase size for something I don't have any particular conviction about. I don't believe in concentrated portfolios since (a) I don't trust my own judgment THAT much (b) I never sell other than in rare cases for tax loss purposes, so this way regardless of what the stock does it never becomes a critical part of my portfolio so I have to trim it and pay taxes.

I also bought four British stocks, so pretty soon you run out of percentage points this way, but way over half of my purchases last year were in foreign stocks. I found much better values abroad, but the European stocks had different reasons to be more attractive than the Japanese ones.

Apr

20

the greatest imperative for disaster is excessive vig. e.g. trying for a little profit during the day. the other day there were 60 bonds offered at 1 tick above the last, e.g., 129 03 bid 60 offered at 12904. i bought 50 at market and i got filled at 129 05. tell me this is fair.

more important than the unfairness of this all: how in the name of the Bad One can you hope to make profits going for a few ticks in bonds or 1 1/2 in S&P. when I am interviewed, the interviewer is likely to say, "of course the way to go is to make small profits when available." i always say that's a certain disaster. impossible. tell me how it's possible to make money in the zero-day expiry options. I wish to learn.

old faithful reminds me of the venerable and sapient Alan Millhone. I wish I was as wise as he. I don't know what the certain disaster in chess is. But in checkers it's going for a shot. I never played with a good player who succumbed to a shot, i.e., a 4 for 3 or some such.

guaranteed to happen: the chat ai recommends quick scalping as the key to riches.

Vic's twitter feed

Apr

18

The Bourgeois Virtues: Ethics for an Age of Commerce shows the contributions of entrepreneurs and private property especially originating in the Netherlands.

One can admire, appropriately, the entrepreneurial vigor of heroic figures, an in 1958, for example, the Austrian sociologist and anthropologist Helmut Schoeck did: "We tend to forget that mankind's emergence from stereotyped and stagnating ways of life, on low subsistence has exclusively depended on the emergence of independent and enterprising individuals…who had enough resistance to escape from social controls… imposed in the name and interest of 'the whole society.'"
– Deirdre Nansen McCloskey, Bourgeois Equality

McCloskey makes the point that it is the emphasis and praise of society for entrepreneurs like Jobs and Musk that creates the benefits and material well-being of society.

It is clear that we are in the opposite kind of society now where entrepreneurs are vilified and held up to scorn — as witness that no bio of Baron Coleman. and countless other great benefactors who start businesses are ignored. yet the death of the most minor actress or sports figure is cause for great acclaim and promotion.

nobody asked me, but…Gunsmoke and The Collected Stories of Jack Schaefer cover the same 1860-1880 period, but Schaefer's stories are much more poignant.

Vic's twitter feed

Apr

16

nobody asked but…one of best ways to understand today's developments is to reread Hayek's The Road to Serfdom. the 1956 introduction is all too prescient. the zero-day options seem like a magical formula for vig. the ETF's using zero-days strategies must be great shorts.

query: what are the chances for a Barron Coleman day on Monday? a Barron Coleman day is named after one of the most remarkable and gifted men I ever met. He was the founder of two billion-dollar companies and he was a golf champion and musician. he was a great salesman. when you asked him how he was, he liked to answer "everything's up except my widdler." a Barron Coleman day is one where both bonds and S&P are up.

in a grievous omission I cant find a life or legacy of Baron Coleman or references to him for building Hospital Corp of America or Hospital Affiliates. Hopefully some readers will fill in details of this great man. (See Baron Coleman legacy.)

Vic's twitter feed

Apr

14

Was in Delhi last week. One of the meetings was with a deep pocket, amongst whose large holdings were some trophies…this one a significant equity in a 5 star chain. The chef was out to flaunt his care for the patron. Of endless twists one stood out taller than the rest, a barbequed pineapple for dessert. Simplest recipe yet mind blowing.

A whole pineapple, uncut, but peeled and all the warts taken out. Insert the skewering rod along the vertical axis. Drip pure honey all over it (don't soak in honey since it's so thick it wont seep on its own into the crevices of the pineapple as air may not rise out of thick honey).

Skewer the honey smeared pineapple on wood fire, rotating it only until ita neither crunchy nor soggy. Chunk out large pieces straight out of the fire vertically ( leaving the central unjuicy axis). Use fork & knife, not just to be clean, but skewered pineapple is "hot".

The smokey(d) honey with the ripe enough pineapple smears a unique aroma. Specs in love of barbecue may find this a good final course.

Apr

14

in terms of timeliness and forecasting ability, the ppi should be replaced after 70 years of untimely misinformation. much better is an index of futures prices like copper and S&P and grains.

how many times will an announced number cause vig with no meaningful effect on drift?

you would think with 200 economists on the staff, someone would update the 60-year-old studies of Moore and Shiskin of 1967.

everyone should read The Origin of Species and Don Quixote every year or so. it's like a cleansing tonic and leaves one more productive and joyful. the narration of The Time It Never Rained by George Guidall is memorable, i can't praise it enuf. my favorite is the banker.

Vic's twitter feed

Apr

12

Cigs & vigs

April 12, 2023 | Leave a Comment

nobody asked me, but…increasing vig: i estimate that on a 2 hour 30 minute radio broadcast half of the time is devoted to commercials. in the 1950's radio shows had 2 minutes of commercials per half hour. Just to max vig the big westerns were supported by Big cigarette. the cigarette commercials of the 1950's were so good that one would have been tempted to start smoking. the filters were white and the packing was tasty and pure. what other examples do you have of vig increasing in markets? public performance in options?

a bastion of vig. 1 billion a quarter: 2/3 interest rates and 1/3 stock futures:

CME Group Inc. Reports Fourth-Quarter and Full-Year 2022 Financial Results

Geraldo Orchestra - I've Got My Eyes On You 1940 Cole Porter Songs From "Broadway Melody of 1940"

if i were asked to name a book i recommend, it would be The Time It Didn't Rain by Elmer Kelton, the biography of Francis Galton. Atlas Shrugged. also Secrets of Professional Turf Betting

A loser's lament on crude:

It's All Right With Me - Ella Fitzgerald

Vic's twitter feed

Apr

10

Harpo Speaks is a book of very flawed men playing poker and drinking. one good thing is Oscar Levant spelling Prokofiev on his own concerto. Harpo never learned how to play the piano or harp. altogether an ugly group to say nothing about how he treated the idyllic wife. but who knew that the drunkard but very knowledgible Oscar Handler was the higher-paid concert pianist of his era.

Umberto Eco showed that new technology loses value for the masses over time. the tendency for all speculative activities to become maximizers of vig is similar. all become such that 52% is necessary to win and this is out of reach for most.

the loathsome spectacle of McEnroe and Roddick and Agassi playing pickleball like amateurs illustrates the point i was making about Umberto Eco with everything devolving to a max of vig.

the funny thing and indicating of max of vig is that in Brighton Beach and New Zealand we played a game 90% like pickleball with 30 courts in Brighton Beach alone but we played with a tennis ball which is much better for the current game than the plastic monstrosity that they use today.

by the way without patting myself on the back usually i was much better at the age of 11 than all the tennis players at the game. i admire the pro pickleball players who are good on all aspects of the game. Ben Johns is a good player in all aspects who would have been one of the best at Brighton Beach.

you've heard the one about how the amount of below-the-waste romance is 1000 times greater when you are engaged than after you're married. 45 years ago when susan and i got engaged she played racquetball and tennis with me all time. the last 45 years not once but we put up a court on our hard court tennis court and she played yesterday. and I say she could beat Chris Everts after a week or two of practice. i'm very proud of her that she didn't forget.

Bobby Riggs liked to come to Brighton to hustle in paddle tennis and paddle ball and I played him both games when I was 12. he was lucky to get 7 pts in each.

kindly forgive my boasting about the play of 70 years ago. you see now i am immobile after having a stroke and the old times are much sweeter.

Vic's twitter feed

Apr

6

no better way to while away the market night time hours than listening to 100 Great Radio Shows, mainly westerns, detective stories, comedy, and suspense. only 2 minutes of commercials for a 30-minute show. highly recommended.

along with The Story of Mankind, by Hendrik van Loon, and 10 Gunsmoke radio shows this has been my night time listening lately. so much quality here. so educational. so resonant.

Elmer Kelton who won the spur award 7 times and wrote the best western in The Time It Never Rained was forced to make ends meet in his last days by speaking to Elder Hostels. He talks about the plight of Western versus Eastern in Elmer Kelton Tells the Truth: His Best Talks on the West, Cowboys & Writing.

He Created a New Kind of Western

a good bio of a great man. but the one thing I demur is that Kelton, in listing the best Westerns, leaves out Jack Schafer's Monte Walsh, which to me is the second best western of all time.

the third greatest western writer: John Meston. all his scripts for Gunsmoke are masterpieces.

Vic's twitter feed

Apr

4

Money and markets

April 4, 2023 | 1 Comment

query: lots of talk about the money supply having a terrific down but I can't find it anywhere. apparently not released weekly anymore. my charts don't go past 2021. query is where do i get current figures? good old Paul Derosa always had the latest by surveying banks.

very quietly S&P is up 9% for the year, and 30 year bonds are up 7%. this is a uniformly bullish scenario for the next 3 months for both markets. this in conjunction with perfect father reaching a hi 0f 32% in odds of winning.

if the great Sam Eisenstat were alive, he'd run regressions to show how bullish it is. all we point to is 86% up back to 2011.

with agrarians at their peak in the 3-letter agencies and the treasury, regulatory capture looks to be at max. what could be more bullish?

Individual Investors Slow Stock Purchases, Leaving Markets Vulnerable

SceneScape: Text-Driven Consistent Scene Generation

what are the elements that make the scene in the market and how can it be quantified and predicted for market behavior?

Vic's twitter feed

Apr

3

Suggestions welcome for this new edutainment venture that I'm trying now:

website: house wives trading & investing in Indian stock market
YouTube channel: watanabe

The idea here: 6 selected participants (all-female team) will try to prove to Indian traders and investors that the world is not going to end, and by keeping things simple, average investors and/or traders might at least match the benchmark returns.

The show starts and goes live from 31st mar 2022 at 3pm Indian Standard Time, which is accounting year-end date.

Update:

The Watanabecrew is now raising the bars to day trade (& hopefully beat the vig) 1 crore account (about 125 K USD) from today. Please come watch us during Indian market hours on youtube channel.

Princiya Crasta adds:

I am part of the Watanabe team and the journey and learning is wonderful. I aspire to continue and grow with Kora sir. All the trades are live on Youtube. We go live every trading day 9.15am and 3.15pm IST. Looking forward to see you there.

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