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

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