May

31

I was browsing the Daily Speculations archive and found this:

10 Things I’ve Learned About Markets, from Victor Niederhoffer

No. 11 is, "All higher forms of math and statistics are useless in uncovering regularities."

Define "higher form". To someone that has just learned basic arithmetic, basic algebra seems "higher form". Does The Chair maybe mean "PhD level" math? Or does he mean that basic "counting" is the only proper way to uncover regularities?

Fazil Ahmed responds:

I think Ralph Vince has explained well, copying from the post:

Certainly in a post-'08 world, quants are out of favor, and for good reason. Most anyone I know who DOES make money in the markets, does so with very simple, robust techniques. Having considered going to quant school, and studied a good deal of it, I finally came to the conclusion that they are simply working with "models." Models of how the world behaves. unlike hard sciences like Physics and such where you can perform a test, come back a year from now, perform it again and get the same results, you don't have this in financial modeling. And I think this is where the quants have fallen short. Models are NOT reality, and they never got down to the bedrock, the reality of what his game is about. Of course it had to fail, and in a large way, at some point. A good rule of thumb is that if I need a computer, if it isn't simple enough to do in my head on the fly in the foxhole after I have been awake for over 100 hours, I can't use it.

Larry Williams comments:

This gets down to there are hard questions: What is the capitol of Montana? Only one answer: Helena.

And soft questions: How many people are in Montana? Varies from hour to hour.

May

30

Perplexity says it best:

The U.S. population is projected to keep growing through the end of the century, mainly due to immigration, even as deaths begin to outnumber births after 203325. By 2055, the U.S. is expected to reach 372 million people, with net immigration as the primary driver of growth. In contrast, China faces a rapidly aging population: by 2050, about one-third of its population will be over 65, and the number of elderly will vastly outnumber children, creating an “inverted pyramid” demographic structure. This aging trend is expected to slow China’s growth and strain its social systems, leading some to describe China as “becoming a nursing home” by century’s end. Meanwhile, the U.S., thanks to sustained immigration, will remain younger and larger than it would be from natural increase alone.

Asindu Drileba writes:

Professor Bejan's constructal law guarantee's that China will go bust on a long enough time horizon. I attribute this to China's rigid political system. Like Daenerys Targaryen said, "Those that don't bend, will break." Professor Bejan's TED Talk.

William Huggins responds:

for entirely different reasons, both Daron Acemoglu (econ Nobel 24) and Peter Zeihan are also in the China-bear camp long term - the former due to hitting the limits of "growth under extractive institutions", the latter due largely to demography (even if his tone is alarmist). Dalio's indicators suggest the opposite but all his data comes from a demographic regime of pyramids, not chimneys or inverted pyramids so i'm not sure his forecast will play out.

May

29

Larry Williams on the Fed, Interest Rates & Markets! What’s Next?
Larry Williams breaks down the latest GDP cycles, shares his predictions on the Fed's next move on interest rates, and analyzes TSLA, NVDA, AAPL, and XLP.

May

28

Street smarts: how a hawk learned to use traffic signals to hunt more successfully

But what was really interesting, and took me much longer to figure out, was that the hawk always attacked when the car queue was long enough to provide cover all the way to the small tree, and that only happened after someone had pressed the pedestrian crossing button. As soon as the sound signal was activated, the raptor would fly from somewhere into the small tree, wait for the cars to line up, and then strike.

Easan Katir predicts:

Next iteration: the hawk will be pressing the pedestrian crossing button!

Michael Brush quips:

Pavlov’s birds.

Henry Gifford writes:

When I was hiking down The Grand Canyon I sat on a rock at the edge of the trail and took out a sandwich and started to eat. A bird came flying from my left side, toward the sandwich in my right hand. I reacted by pulling the sandwich back, to the right side of my head. Another bird came from behind and grabbed it.

Later I heard the birds’ favorite food is tuna fish, which they steal cans of from hikers. They open the can by grabbing it in their beak and flying above the one of the three cabins at the bottom of the canyon where the park rangers live and dropping it on the roof. The rangers have been trained to comply by opening the can and placing it on a convenient rock.

Pamela Van Giessen responds:

Was it a raven? They are particularly smart birds when it comes to getting food out of visitors to the national parks we have visited.

Asindu Drileba writes:

Crows & ravens would make good scientists. Here for example a video of a crow showing that it understands water displacement in different scenarios.

Bo Keely, from the desert:

Yesterday at the meteor crater in Death Valley two crows perched on the rim. They had grown feather sunglasses and asked for food. I went to the car & they followed and I gave them whole wheat bread. Then I got in & drove a couple miles down the road, pulled over to check directions, and they landed outside the driver's door asking for more bread.

May

27

Drawdowns and Recoveries: Base Rates for Bottoms and Bounces
Michael J. Mauboussin
Dan Callahan, CFA

Long-term wealth creation for companies is also heavily skewed.
Hendrik Bessembinder, a professor of finance at Arizona State
University, studied the roughly 28,600 public companies that have been
listed in the U.S. from 1926 to 2024. Key to his definition of wealth
creation is that a stock produce returns in excess of one-month
Treasury bills.

His data show that just under 60 percent of the sample failed to match
the returns of Treasury bills, destroying $10.1 trillion in value
through December 2024. The other 40 percent or so created $89.5
trillion in value. Just 2 percent of the companies produced 90 percent
of the aggregate wealth creation of $79.4 trillion, and the top 6
(Apple, Microsoft, NVIDIA, Alphabet, Amazon, and ExxonMobil) alone
added $17.1 trillion.

Had you been astute enough to buy and hold any of these super wealth
creators you would have suffered meaningful drawdowns. For example,
the lifetime wealth creation of Amazon, a technology company known for
e-commerce and cloud computing, was $2.1 trillion from its initial
public offering in 1997 to year-end 2024. Yet Amazon shares dropped 95
percent from December 1999 to October 2001. The average maximum
drawdown for the stocks of the top 6 companies was 80.3 percent,
similar to the average of the full sample.

Asindu Drileba responds:

This is fairly consistent with the findings of Robert J Frey (former Managing Director of Rentech). He gave a talk titled 180 years of Market Drawdowns. The main point of the talk is that since the 1830s to present, the structure of the market has changed a lot.

- Different political regimes
- Different sets of stocks
- The creation of a central bank (in 1913)
- The advent of electronic trading
- The rise of high frequency trading
- The creation of the SEC (1934)
- Many new regulations
- Different people trading the markets in those 180 years.

But one thing has remained constant in those 180 years: The S&P is in a drawdown 75% of the time. He defines draw downs as a period between the decline from an all time high [where somebody bought] to the point that they break even. So psychologically speaking, 75% of the time, [some] investors in the S&P are in a state of regret. I am thinking that if you can find a way of trading this, the edge will probably last forever.

May

26

I believe every trade I enter will be a loser–that is my most powerful trading belief. That concept keep me on guard and alert. Emotions are strictly Money Management. If/when you are too emotional, it just means your position size is too big for your emotions.

H. Humbert responds:

The attitude will tend to put you in contrarian positions at the best times, the times of maximum fear in the market or towards a stock. What you said is the same as saying "your best purchases are the ones that are the hardest to make." Of course if you recognize that you are a contrarian, at the same time on some level you have faith that the position will work out. It just depends on what level you want to think about it, emotionally. First derivative second derivative stuff.

The point is, with money in the market based on who is, or who is not, playing tennis (times 10,000 investors with their own 10,000 irrational superstitions), there are bound to be mispriced securities somewhere. Our job is to find them. Despite all their spreadsheets, NPVs, TA, back testing and “counting,” investors remain among the most irrational and emotional creatures on the planet. That is a good thing. That has always created mispricing, and opportunities. In essence, trading is about betting against human nature.

Galen Cawley writes:

I would say that thinking in advance that every trade will be a loser does not provide a positive edge so much as it prevents behavioral errors.

1) If you are a completely algorithmic trader, then the question is largely moot.
2) On the discretionary side, focusing on potential losses prevents unforced errors such as overconfidence manifested in the form of both overtrading (size and frequency).
3) Visualizing worst-case outcomes can prevent you from going on tilt during a crisis or during a string of losses.

Asindu Drileba agrees:

I have this attitude too. I assume every position will be a loss. So practically it helps me size my positions modestly. When I am placing a trade. A position is only in two states: a) I am over betting, in which case I may blow up. b) I am under betting, in which case I won't blow up. The only way to make sure that you are on the side of b) is to: 1) over estimate your losses; and then 2) under estimate your wins.

Another reason for assuming that your position is going to be a loosing one is that you are proactive to your trades, not reactive. Reactive means that you improvise when surprised by how things have gone. Of which you may not be in the right head space to make a decision. Proactive means you already assumed the trade was going to loose, so you had a plan ahead of time (when you were clear headed). I, for example know exactly the maximum I can loose on each trade, and it is always an amount that doesn't make me panic. Do I get Annoyed? Disappointed? Yes. But I never panic.

May

25

This morning I finished rereading the classic Atlas Shrugged of Ayn Rand and every time I learn something new; her thought is monumental. I don’t agree with a lot of her ideas and I fully agree with others, but I’ve always found this book to be an impressive catalyst for thought; this is in my opinion her power: the ability in sparking debate.

Rich Bubb comments:

Atlas Shrugged is also available as a 3-part movie. I think the book was better.

Adam Grimes writes:

My opinion on her work has shifted over the years, in a strongly negative direction. Too much of my experience contradicts her metaphysics and epistemology, particularly the rigidity of her rational materialism, and, as someone who treasures the craft of writing, much of her prose lands as clunky and overly didactic. I'm also now unconvinced on the primacy and sufficiency of rational self-interest… but, as you said, perhaps her greatest value is in creating discussion.

Asindu Drileba adds:

Ayn Rand had a reading group called the "Ayn Rand Collective" — Which Alan Greenspan was part of. They [Greenspan, Rand and a "professor"] would meet at Rand's apartment to read every new chapter of her new book. She (Ayn Rand) then fell in love with the professor and they started dating.

After sometime, the "professor" encountered a pretty young student in his own class and he "fell in love with her". The professor told Rand about the affair, but Rand begged the professor to cancel it. The professor then said that he would dump Ayn Rand, and then exclusively date the young pretty student. He said that this was the right thing to do since he was following his "rational self-interest". Ayn Rand got angry, slapped the professor in the face twice and kicked him out of her reading group.

This was a good illustration of cognitive dissonance. Rand thought her readers should practice "rational-self interest" towards everyone else, except her.

Francesco Sabella met a girl:

I was very fascinated to meet a girl times ago who I knew for her philanthropic activities and for her ideas being the exact opposite of Rand; and I was surprised to see her carrying an Ayn Rand book and she told me she didn’t like at all her; it made me think of her ability in creating debates.

Victor Niederhoffer responds:

i would always marry a girl who admired the book. susan introduced me to it and i knew then i had to marry her. it was very good choice.

Read the full conversation.

May

22

I noticed that I know of very few books on the stock market before 1900. I only know of:

Confusion of Confusions, by Joseph De La Vega (1688)

The Art of Investing, by John F Hume (1888)

Are there any books about the market before 1900 that can help me grow this list?

Big Al replies:

Lombard Street: A Description of the Money Market, by Walter Bagehot

Fifty Years in Wall street, Henry Clews

Francesco Sabella suggests:

The Stock Exchange: A Short Study of Investment and Speculation, by Francis W. Hirst

Stefan Jovanovich offers:

The Stock Exchange from Within, by Van Antwerp, William Clarkson

Martin’s Boston Stock Market, by Joseph Gregory Martin

Wall Street in History, by Martha J. Lamb

May

21

If Cobb saw a pitcher more than 20 times, he was able to hit better than .300 (the batting average that now gets you into the Baseball HOF). The two exceptions was Red Ruffing and Waite Hoyt.

Once Cobb saw what you had, he owned you; but he had to see what you had. This explains the anomaly of his doing badly against the "pitchers" who were not, in fact, pitchers but field players - Clark Griffith and George Sisler.

David Lillienfeld adds:

It depends on the pitcher, too, though. Willie Mays commented once that Sandy Koufax would tip off batters all the time as to what pitch he was going to use. A Koufax curve was as wicked as a Koufax fastball to Mays. He said that trying to hit that pitch, even knowing what pitch Koufax had thrown, was "like eating soup with a fork. You just can't do it."

May

20

Which are the flaws of trend following strategies? For me, the markets are homeostatic but not in a strictly way, they are like a thermostat trying to keep a room’s temperature steady. But, sometimes they can spiral into imbalance when people’s actions and beliefs feed off each other.

I’m amazed by how this dynamic of the markets has never been of particular interest in the academic world. It’s years since I don’t put in serious research given my focus on active trading, but unless something changed over this time, The classics wisdom is that markets are (let’s leave the perfectly efficient markets alone) in a perfect world supply demand state, I don’t remember having read of documented positive feedback loops etc, and overshooting and disequilibrium, which are clearly the case. I studied economics and I always found funny how some theories are.

William Huggins writes:

econ is not the right place to learn about markets because the demands of "equilibrium" require us to bend reality into the "preferred" (supposed logical) state. what most EM theorist missed was the friction in markets (adjustment time, imperfect info, etc). but momentum has been documented by financial theorists for decades. you're just digging in the wrong part of the field.

Francesco Sabella responds:

I know momentum has been documented, my point was about my economics classes, where I’ve never read about the topic, but also about how the mainstream academia is built - disequilibrium is not the classic wisdom and not even considered; you’re right that some academics have addressed momentum, but the mainstream economics is still fixated with equilibrium.

William Huggins adds:

econ likes equilibrium because its calculable, and because it approximates a physical science - if only those pesky active agents weren't so concerned about their perception of what matters instead of just obeying economists' assumptions!

in the end, its -hard- to math out the implications of imperfect, changing perceptions among a changing cast of strategically interacting characters when the targets are moving and trading may (or may not) be informed. because of these challenges, most prefer to stick to sanitized general equilibrium models, even if those are basically mathematical masturbation based on definable, stable, continuously differentiable utility functions. people usually find it expedient when modelling to pretend the net impact of all the above microstructure is "random" (its not really random, more like "too complex to model") within some defined distribution, which itself is a fudge but as Bachelier showed in 1900, might not be a bad one (and it helps avoid overfitting your forecast models).

here's are a couple of articles less than 30 years old on dynamic disequilibria (i cited Jegadeesh and Titman years ago so they were top of mind). the first talks about implications for macro, the second for asset pricing:

Towards a Dynamic Disequilibrium Theory with Randomness

Quantum Equilibrium-Disequilibrium”: Asset price dynamics, symmetry breaking, and defaults as dissipative instantons

May

19

Resolving a Paradox: Retail Trades Positively Predict Returns but are Not Profitable
Posted: 18 Feb 2021 Last revised: 22 Mar 2023
Brad M. Barber, University of California, Davis
Terrance Odean, University of California, Berkeley - Haas School of Business

Retail order imbalance positively predicts returns, but on average retail investor trades lose money. Why? Order imbalance tests equally weight stocks, but retail purchases concentrate in attention-grabbing stocks that subsequently underperform. Long-short strategies based on extreme quintiles of retail order imbalance earn dismal annualized returns of -15.3% among stocks with heavy retail trading but earn 6.8% among other stocks. Our results reconcile the literatures on the performance of retail investors, the predictive content of retail order imbalance, and attention-induced trading and returns. Smaller retail trades concentrate more in attention-grabbing stocks and perform worse.

May

18

With long-term investors, short-term traders, trend-followers, mean-reversion advocates, and buy-low-sell-high activists all confident their strategy is superior and showing market success, is this evidence that all approaches work together, or does survivorship bias and misplaced confidence masks that no single strategy truly dominates in today’s volatile markets?

I’ve always been fascinated by the fact that there are investors holding forever competing with traders who do the complete exact opposite and usually one says the other person is an idiot and the same is the opposite haha. (The only time I think I’ve heard of someone praising another’s way of working which was totally opposite of his in this business, was the yearly speech of Buffett and Munger claiming Jim Simons and his team were very very smart.)

Steve Ellison responds:

There are different ways to find an edge in the market, so market participants behave differently. A market maker who uses order flow information behaves very differently from a fundamental investor who believes a company has value that is unrecognized, but they may both be very good at what they do. Probably neither person could do the other's job. It's a big reason why I heed Livermore's admonition to neither seek out nor act on tips about the market.

My observation having seen multiple market cycles is that bad news spreads fast and is known quickly, while good news often occurs so diffusely and so quietly that it often doesn't even register as "news". I have as my pinned X post a 54-year chart of the S&P 500 that is annotated with the most prominent bad news for each year. Every one of these events seemed at the time to be a reason for stocks to go down (as did many other things that were only the second or third worst news of the year). I adapted this from a similar chart that Venita Van Caspel published in her 1983 book The Power of Money Dynamics.

May

17

An analysis of runs of "up" days (i.e., Close-Close change is positive) in the S&P, through 2 May of this year:

And then I asked an AI to model flipping a coin biased in the same way (53.7% heads), and you can see the results here.

Anatoly Veltman comments:

Yes you're putting numbers out - no complaint there. Huge complaint on the premise: why would 9-day "run" into tomorrow bear same fruit as some totally different 9-day "run"?? What's a "run"; why would different-size price increases under all different relevant variables have the same impact on further trajectory - just because you assigned the same "9-day length" value to current "run"??? IMHO this sort of input can't be expected to help much.

Big Al responds:

That's actually the point: when we assign importance to runs of days, we have to be careful because the run distribution in actual data looks like the distribution you get doing a coin-tossing exercise with a market-biased coin. Which doesn't mean that analyzing runs can't produce anything useful, just that there is a high hurdle.

Anatoly Veltman adds:

My point is mostly about DIFFERENTLY-SIZED up-days. Some days could've been up $2, while others $200…Some days might have been not up-days in SP500 index, while up-days in SP500 futures. And dozen other variabilities that would make one "9-day run" be vastly different from other "9-day run" in impact on future expectations. Not that there are many ideal ways of Input, but this sort may just be prohibitively flawed.

May

16

The chair recently made a tweet about a Galton book he was reading. I could read the text on the image but had to squint. I later took a copy of the image as asked Grok to extract for me the text so I can read it comfortably. Grok could only extract the text "Natural Inheritance."

After that, it didn't tell me it failed to extract the rest. it just made up its own fictional text that sounded plausible. I quickly learned it was just slop since I had already read some of the actual text in the picture.

My worry is that some people are using these LLM tools for medical records, creating legal documents. The latest AI gimmick is the so called "Agents" that will supposedly be used to file tax returns, book flights and do actual tasks on behalf of humans. My opinion would be to completely cut out all AI tools for critical tools.

Steve Ellison responds:

I am very, very careful about what I enter at an AI prompt, especially when doing proprietary or confidential work, lest my ideas become part of the cloud.

Laurence Glazier comments:

For this sort of thing use NotebookLM. Choose your sources for it, it will give you citation and preview.

May

15

I went to China recently. What I saw and nearly all the people I talked to were not happy about the economic situation there and almost everyone thinks Xi is stupid.

Humbert A. responds:

This has been the status quo since pre-Covid times imo.

David Lillienfeld writes:

Peter Drucker observed that the problem with totalitarian regimes is that with only one person in charge and no one in a position to offer alternatives/challenge that individual, there is no means of identifying and developing managerial talent in a society and the society inherently slows until the person in charge dies and there is a contest/market for new leadership. There will be problems showing in China soon enough–it has a demographic hurdle coming and it shows no signs of having any idea how to deal with it. It has lots of domestic health issues that will likely cost it considerably within the next decade. Maybe Xi will demonstrate Drucker as being wrong, but I doubt it. Barely three decades ago, the concern in the US was that Japan was about to walk all over the US. It didn't. I'm not sure that China is going to do any better.

Asindu Drileba writes:

This is my exact suspicion.
1950s to Soviet collapse — US Vs Russia (Narrative is Russians will take over USA)
1980s to Asia Currency Crisis — USA Vs Japan (Narrative is Japan will take over USA)
Early 2000s to Present — USA Vs China (Narrative is China will take over USA)

Peter Ringel adds:

There is a perverse stickiness to it. I grew up in one of these shit-holes ( not Japan ! ) - East Germany in my case. All the models and all the data point to implosion. And then it takes decades and centuries and more. And finally, when it collapses everyone is surprised, and no one was expecting it.

May

14

One person who left a profound impact on my life when I was in school was Sergio Marchionne. He was the CEO of Fiat Chrysler Automobiles and CEO of Ferrari. One legacy he left on me as a person and for my work on the financial markets is definitely his philosophy. He had a very particular philosophical thought which I've always found unique for being practical and abstract at the same time, an intellectual and a mechanic, a quality I deeply admired. There is much of his thought that I find highly relevant for understanding the markets:

- Marchionne never followed predictable roads, but always pursued new, creative, bold roads. When he was appointed as CEO of Fiat, basically the most important asset of Italy at that time, he was losing 5 million euros a day; and he got out of that terrible point by taking courageous and strategic moves which were totally unexpected.

- He always stressed about adaptability. I know he was a big fan of Darwin and of course it very much applies to our field. He had a belief that failure to adapt was severely punished and the same if for the markets, where having an open mind and spirit of adaptability cannot be negotiated.

- There is a quote of him which I particularly like as someone who operates in a field which is survival-based, which is "We can never say: things are going well. At most: things are not going badly. We must be paranoid. The journey is extremely difficult. We are survivors, and the honour of survivors is to survive" and it highlights perfectly the financial markets winning mentality to employ.

- Another thing he used to say is that "Leadership is not anarchy. In a large company, the one who leads is alone. 'Collective guilt,' shared responsibility, does not exist. I often feel alone." and that definitely applied to trading.

- “Mediocrity is not worth the trip" is one of these iconic quotes.

-He believed that the market was without morality, without consciousness, and without being able to differentiate between what is right, fair, and what is not, and that none of us could break or alter the operations of the markets.

Sergio Marchionne was an extraordinary man, maybe not a perfect one, but definitely exceptional, brilliant, determined, consistent, with an open mind, humble but strong, decisive, courageous, and a true leader. He thought that "focusing solely on yourself is such a small ambition." Without this quality, it will be hard to stand above mediocrity, unless you find someone who takes the risk for you.

May

13

I am putting together a list of the Best Investments Books of the Year. I am not seeing many great books on trading, investing, finance, markets, crypto, options, futures, cycles, etc. I would love to hear if you folks know of any great books out in the past 6 months or so or coming soon.

Matthew Gasda is justifiably proud:

The Sleepers: A Novel

Big Al offers:

This is high-level quant stuff - ie, over my head, and despite "Elements" in the title - but a fun stretch:

The Elements of Quantitative Investing (Wiley Finance) 1st Edition, by Giuseppe A. Paleologo

His more basic 2021 book is "Advanced":

Advanced Portfolio Management: A Quant's Guide for Fundamental Investors, by Giuseppe A. Paleologo

Carder Dimitroff suggests:

This book is about historical finance and may not be a direct response to the question.

Empire, Incorporated: The Corporations That Built British Colonialism, by Philip J. Stern

William Huggins responds:

on a similar (historical) note, one of my students just recommended this title to me. looking forward to cracking it later this month:

Ages of American Capitalism: A History of the United States, by Jonathan Levy

Asindu Drileba adds:

If you would regard a speculator/investor as someone who also builds businesses:

Never Enough: From Barista to Billionaire, by Andrew Wilkinson

Andrew is building Tiny. His intention is to build the Berkshire Hathaway of Tech and software. He is inspired by Monish Pabrai (The Dhando Investor). So he is more in the "Value investing" camp not really quantitative.

May

12

does the law of multiple proportions apply to the way markets combine with each other and the general factor which combines with specific factors to make up intelligence?

todays market up exactly 3% and 0.5% and 1% on other days inordinately likely. 75-day hi in sp today at 5850 but not an all time high of 6100 from nov.

Thus we have a two-month max in sp but still 3.5% below nov all time hi of 6100, a relatively common way of coming bak that is short-term neutral but bull for next several months.

Vic's X/twitter feed

May

11

I have heard every single one of these more than once on the floor. This is the G version; the X version would be very inappropriate for this venue.

You’re long hope and short reality.
He couldn’t trade his way out of a wet paper straddle.
You’re bidding like it’s your wife’s money.
His stops have stops.
He buys the high, sells the low, and thinks he’s range trading.
If brains were dynamite, he couldn’t blow his nose.
He's so underwater, Aquaman just waved.
Tighter than a bull’s ass in fly season.
Your size is what we use for toilet paper.
He’s a momentum trader—in reverse.
He couldn’t fill a corn order, let alone an order ticket.
That guy trades like he’s reading Braille.
He thinks ‘limit down’ means he hit the jackpot.
He trades like he’s got a rearview mirror taped to his glasses.
He’s scalping—his own account.
Nice fade. If I ever need a contrary indicator, I’ll call you.
He went from hero to sandwich in one tick.
I’ve seen better risk management at a toddler’s birthday party.
Market’s moving—better go ask your horoscope.
You trading or just making donations today?
He’s got a 30-lot mouth and a 1-lot account.
That guy’s P&L looks like an EKG flatline.
You're not trading—you're gambling, but slower.
He’s so unlucky, he’d lose money in a rigged market where he’s the rigger.
The guy’s charts look like modern art—ugly, meaningless, and overpriced.
He averages losers like he’s building a position in failure.
Don’t worry, he’ll blow up before lunch.
His fills are like Bigfoot—plenty of stories, no proof.
That trade had more slippage than a greased pig at a county fair.
He went full margin—and full stupid.

Asindu Drileba writes:

I watched the documentary "Floored" that was about the extinction of pit traders due to the advent of computer driven traders. A lot of the traders seemed to have their edge in bullying and intimidation that was both physical and psychological.

I made a pit trading playlist that I binged on, and this seemed consistent even to pit traders in the currency pits of London.

One of the pit traders called the computer "The most vile invention ever made." I think he was just sad that his bullying was no longer an advantage. You can't insult a computer, or use your big body to push it away so you can have the edge, or seduce it with good looks.

Michael Brush responds:

Behind every computer, there is a person.

“The offer is $25.”
“But my computer says $45.”
“So sell it to your computer.”

Pamela Van Giessen adds:

For those interested in a biography of a once famous and beloved pit trader, I recommend Charlie D: The Story of the Legendary Bond Trader by William Falloon.

Francesco Sabella adds:

It's an incredible book! I read it years ago, I even saw a 2 hour video of Charlie D. when i was in high school where he gave a lecture on trading on 1989.

Larry Williams writes:

Charly D was one stand up guy. He loved the Bears and suggested a bet with a young lady trader for a nickel on the weekend's game. She said sure…and won. Monday morning Charley D gave her 5 grand (a nickel in betting parlance). She was astounded, told him she meant 5 cents not 5G's. No way could she risk that or take the money. He left it in her hand and walked away.

I was fortunate, thanks to T Demark, to be part of his Vegas support group - he was just amazing to hang with.

May

8

Bart Kosko came out with the "fuzzy thinking" quite a while ago. Some of his ideas are very relevant today.

Fuzzy Thinking: The New Science of Fuzzy Logic

An authoritative introduction to "fuzzy logic" brings readers up to speed on the "smart" products and computers that will change all of our lives in the future.

Of course, the P/L at the end of the day is either red or green- but life in general is way more greyish and shades. And the over-use of "black-and-white" thinking is also recipe for going insane (and that is easy to spot in some parts of society).

Big Al adds:

An interesting interview with Bart Kosko.

And here is his lecture as part of the Linus Pauling Memorial Lecture Series:

What is Noise? What is Signal?, Dr. Bart Kosko, University of Southern California

Noise is a social nuisance, a cause of deafness and high blood pressure, and an all-around annoyance. But what is noise really? As Kosko simply states, “Noise is a signal that you don’t like.” It occurs at every level of the physical universe, from the big bang to blaring car alarms. Today, noise is considered the curse of the information age, but, in fact, not all noise is bad. Debunking this and many other commonly held beliefs about noise, Kosko gives us a vivid sense of how deeply noise permeates both the world around us and within us.

May

7

one is reminded of table tennis against a robot or chess game against deep 6 or later computers but the analysis at the fed that is data dependent as long as it sinks the bad guys. "only monetary policy here and no influence of politics". But there has to be a philosophy.

Vic's X/twitter feed

May

7

Francesco Sabella in Conversation With Victor Niederhoffer: Harvard Educated Hedge Fund Pioneer

Gary Boddicker writes:

Thanks Francesco. Always good to see and learn from Vic. Subscribed and look forward to your future interviews.

Steve Ellison adds:

This is a great interview. The 2 minutes starting at 13:36 about ever-changing cycles is itself a meal for a lifetime. "The world is always changing, and [the] road to success is always a little different, and the techniques that you’re using are always subject to competition. You should try to be alert to change."

I increasingly perceive that the pre-2020 world in which I lived most of my adult life is gone forever. It's a new era, and old techniques in many fields don't work any more.

May

6

Shtetl (full documentary) | FRONTLINE

This is a very depressing video about envy and how bad things can become. I think it also adds to previous discussions about madness of crowds (how ordinary people start participating in senseless murder) and illustrates that there is really no limit to how primal humans can become as long as they are given the green light.

Two take aways:

a) Don't hang around envious people.

b) Always make sure you have as little as possible that people can envy you over.

May

5

Fundamentally one thing i like of Tesla its the self driving technology, even if proper implementation is probably years ahead, maybe even more. And this extraordinary technology was funded thanks to Tesla high stock price. With the high stock price it strenghtned the fundamentals which fueled funding for innovation creating a virtuous cycle.

Thanks to this Elon could borrow easier and invest more and more… i waited to see if sentiment flipped on its favor again, but it didn't, so the same dynamics that made him so successful in the past will now (not now actually, as its months already) work against him can help deteriorate the fundamentals even faster.

I do not forget about the exceptional ability of american companies into adapting to different economic environments, but i have a lot of confidence on this trade. Plus all the reputational risks of Elon with his political activity and its exposure. Again, Elon's exposure is what helped a lot TSLA growing so big, but now that exposure is working again him unless he recognizes the mistake is doing and change the way he deals with his public image, which he won't.

In Q1 2025, Tesla's net income dropped an incredible 71%, to just 409 mln , compared to the same quarter in the previous year. This dramatic decline signals serious trouble in maintaining profitability, especially when you consider that without 595 mln from selling zero-emissions tax credits, Tesla would have actually posted a loss. This reliance on external credits to stay in the black is a grim indicator of weakness in its core operations. Operating margin is Operating Margin is at 2.1%, which is below industry.

And, in my opinion one of the most bad-looking things is the warranty liabilities, which is out of control. Let’s assume they hit $3.5 billion, up from, say, $2.5 billion in Q1 2024—a 40% jump in one year. Compare that to their $409 million net income in Q1 2025, and you’re looking at a liability that’s 8.5 times their quarterly earnings which will drain cash and destroy profitability.

If this trend holds, which very likely will given the self reinforcing behavior of the stock, tesla will need to raise prices of the car to cover the costs shutting demand even more,cut research and innovation and raise capital.

And most don’t realize how much Tesla’s battery production hinges on cobalt from politically unstable regions and a conflict or export ban could choke their supply chain overnight, spiking costs or halting production. It’s a hidden risk, that can cause serious problems, without adding the macroeconomic current environment which you are probably aware of.

Elon's bold announcements worked very well in the past because it was unexpected, now he lost that power. He has no power to influence his stock if not for a day or two, those especially retails who bought the dip in the past, made a lot of money and will do it again more and more forgetting about Robert Bacon ever changing cycles and the market can only come down when nobody expects it.

Henry Gifford writes:

A few days ago I attended a reunion of my grade school class. Guys I haven't spoken to in decades were commenting on how the rush to all-electric for cars and buildings strikes them as insane.

For seven years I taught about energy efficiency at the graduate level in an architecture college. One assignment was to compare the energy used by a gasoline powered car to an electric car, including the energy required to make the electricity to charge the batteries. No student over those years argued that electric cars saved any energy at all when the energy needed to make the electricity was included. In the later years more students refused to do the assignment, and instead take a D, as the assignment became more politically incorrect as the years went by.

I imagine fewer students would do that assignment these days, but sooner or later those who don't believe electric cars save energy, or reduce burning of fossil fuels, will get even more tired of keeping quiet to avoid being seen as an outcast. Remember, it was a kid who pointed out that the emperor was naked - no adult dared say that. But sooner or later, something along these lines will have a large effect on TSLA stock. Or, there simply won't be enough electricity around, and/or the price will be so high people will not want to buy the electricity and stop buying TSLA cars.

Without the backstory that TSLA is good for the environment, or saving the planet, it wouldn't be much more than a cool looking, inconvenient car that will need a very expensive battery replacement long before a gas engine needs replacement.

Sam Johnson responds:

Electric cars seem the best optimized for full self driving (individual tire motor control, acceleration/deceleration). They will take over in most climates for this reason alone. Everyone will want the tech, even if "less green."

Stefan Jovanovich comments:

The point of Tesla from its inventor's point of view was that it would provide ideal learning curves for (1) advanced fabrication and (2) autonomous machine thinking. If you were going to visit Mars in your lifetime, you had to have a rocket and a planetary construction technology that used (1) and (2). The instinctive mistrust of Elon Musk by short sellers and Democrats has not been misplaced; he is the consummate hustler. Since we (the BW and I) never trade or speculate, we have never once been tempted to go long or short on TSLA.

For us the connection there is an unavoidable connection between TSLA and NVDA; and we have, as a family, been long on NVDA for a dozen years now. We had no choice; our one and only child chose one of its engineers for her true love, and he chose her. We had to study Nvidia as a business because we were financially married to it. What we found is that rare company that can have repeated growth spurts like a child's - where everything financial - revenues, earnings, cash flows - increases 10 times faster than the financial world around it while its "bad" years never see declines any greater than the figures that Wall Street considers normal for a "recession". It did this without ever once getting the permanent subsidy that Musk had to depend on for TSLA.

I agree with HG about TSLA's technology; he is confirming Carroll Shelby's prediction that, in the end, hybrids would be the best engineering solution to the question of how you match electrical motor drives to automobiles.

TSLA as a car brand can disappear, and Musk will not care; he will have acquired the knowledge needed to build rockets at scale. Given his wonderful abilities as a financial hustler - PayPal remains to this day a wonderful invention of something no one needed but everyone bought into, Musk may find a way to get others to buy him out (has anyone ever actually made money in Ford after it went public?).

Update to earlier Idiot advice about common stocks: NVDA and PHM are now Owns, not Buys. TOL is the one company we are still punching on the Buffett bus ticket. We will continue to be married to NVDA financially because its climb to vertical integration is only half-way done. I asked the SIL if there was any comparison between Carnegie's acquiring the coal, iron ore, clay and earth metals that his mills used and Nvidia's "investment" in America. He wisely deferred to offer any opinion since that would be, in the small minds of SEC lawyers, "inside" information. He did offer a general comment: for the world of ICs and their users, the vertical integration is already happening; it is AI.

May

3

Some in these areas of science (genetics, animal development and behavior) have proposed that humans have essentially domesticated ourselves during the Holocene.

Domesticated silver fox

The domesticated silver fox (Vulpes vulpes forma amicus) is a form of the silver fox that has been to some extent domesticated under laboratory conditions. The silver fox is a melanistic form of the wild red fox. Domesticated silver foxes are the result of an experiment designed to demonstrate the power of selective breeding to transform species, as described by Charles Darwin in On the Origin of Species. The experiment at the Institute of Cytology and Genetics in Novosibirsk, Russia, explored whether selection for behaviour rather than morphology may have been the process that had produced dogs from wolves, by recording the changes in foxes when in each generation only the most tame foxes were allowed to breed. Many of the descendant foxes became both tamer and more dog-like in morphology, including displaying mottled- or spotted-coloured fur.

But there has been criticism of the breeding experiment and conclusions.

Asindu Drileba responds:

My definition of "domestication" used to be that of "Animals simply living under the care of other animals". When I watched a PBS Eons video some years back, I learned that Paleontologist's had a very different definition of "domestication". They define it as "the dependence on the care of other living things, to the extent that they cannot no longer live in their natural environment (the wild) anymore."

In the animal context, humans domesticated dogs and stray dogs (dogs with no owner) are riddled with wounds and in general don't do well. They would probably die if left in a forest. Foxes however look good in the wild.

In the human context, a human being with no owner (a government, a parent or an employer) usually does as badly in the manner of the stray dog. This human would perfectly fit the paleontological definition of what would be a "domestic human". The same applies for the ownership class/ruling class. They have used the working classes to domesticate themselves so they too, also can't survive with out them either. An undomesticated human would be people that can survive in an environment urban dwellers can't, the natural environment.

Like how the Khoisan do well in the desert, or tribes in the deep Amazon also do well. If you dumped a random urban dweller in the Amazon rain forest or the Kahalari desert (under same circumstances as the natives) 99% of them would die within weeks.

May

2

I wanted to ask Carder's opinion on this article that I came across titled:

China builds world’s first working thorium reactor using declassified US documents

It uses molten salt to carry the fuel and manage heat, while thorium serves as the radioactive fuel source. Experts have long viewed thorium reactors as the next leap in energy innovation. Some scientists estimate that a single thorium-rich mine in Inner Mongolia could theoretically supply China’s energy needs for tens of thousands of years with far less radioactive waste than current uranium-based reactors.

Carder Dimitroff responds:

Thorium is a fuel that is currently used in some commercial reactors. Canadian reactors can accept thorium and other nuclear materials in their CANDU reactors. (Read more: We can use thorium.)

One reason that the US, EU, and other reactors do not use thorium is that their reactors and related supply lines were not designed to accept that type of fuel. In US PWRs and BWRs, the reactor relies on precise fuel physics to achieve optimal performance. Changing the type of fuel would present a tough, if not impossible, outcome in terms of performance, let alone capital and operating costs.

When compared to a plant's production costs, nuclear fuel is surprisingly inexpensive, including the cost of disposal. Most of its energy is wasted. Consequently, there is little motivation to change the nuclear fuel's value chain.

Molten salt reactors are not new. In 1959, the US built the "Sodium Reactor Experiment" in California. Since then, several other countries have improved the design. Today, it is a viable technology, particularly in the Small Module Reactor (SMR) market. One example is TerraPower's Natrium Project (Bill Gates). They are currently testing the liquid sodium fuels for their Small Modular Reactor (SMR) product. (Read more: Terrapower: Natrium)

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