Mar

30

I remember a number of Spec Party dinners in Delmonico's, and I had a very educational conversation with then-81-year-old Yale Hirsch at one of them.

America’s Original Steakhouse Is Expanding - After Nearly 200 Years

When Delmonico’s first opened around the corner from Wall Street in 1837, it coincided with a financial panic, bank failures and the popping of a real-estate bubble. But the steakhouse survived. And in the coming years, it would serve famous customers such as Abraham Lincoln and Mark Twain.

Now, nearly two centuries later, the restaurant that calls itself the first fine-dining spot in the U.S. is poised to open its second outpost in Midtown Manhattan next year.

Jeffrey Hirsch responds:

Thanks for the memory Steve!

Mar

29

Noticed when societies go a bit off kilter, women are much easier to talk to sometimes (Can't believe I ever say this). Or maybe women are less interest to go extreme in the first place (family, home, other values more important). I mean how many lawyers in the city of London make it to the top and are female. Or run hedge funds. Or go for 100km races. Anyway, big changes in societies come when men change - maybe we will see that soon.

Jeffrey Hirsch responds:

Interesting observations. My wife and I actually just watched the Louis Theroux documentary Inside the Manosphere - it’s a fascinating (if often cringey) look at these societal shifts. With two sons (18 and 21), I can see the validity of the motivation behind some of these trends, even if the execution is often extreme or 'trashy.'

I’d highly recommend Scott Galloway’s new book, Notes on Being a Man, as a counter-balance. It covers similar ground but with a focus on being a 'mensch' rather than a hustler. I actually gave copies to my sons this week after I finished it with a note about what fine young men they already are. It’s a great read.

Mar

27

Self-importance really does weaken humans.

Got a call from 2 (mediocre), young traders. Asked them how they do. They are really in their heads 90pc of their time as their thoughts go in circles (missing out on nuances in markets / changing patterns now.)

Inner dialogue
"How I am doing?"
"Whether am up or down with someone else"
"My career path"
"My degree from this or that famous school" who cares I thought!
"My P/L" or "L"…
etc etc etc

Complete self absorption. Recipe for disaster.

Sushil Kedia responds:

The purpose of all work is to annihilate and subsume the sense of self by focusing as deeply as one can on the task at hand.

Financial Markets have the fastest feedback mechanism and thus any trader is constantly suffering feedback he is right, he is wrong, he is right, he is right, he is wrong, he is wrong, he is wrong.

The speed with which financial markets will make saints out any man is unparalleled as compared to any other work. Those who will realize and learn sooner, will know that no one can hope to be paid at all, forget about getting paid consistently without adding value. To add value one has to be other-centric. When markets are panicking absorb that panic with your cash. When markets are euphoric to the extreme absorb that euphoria by giving away your securities. That's just one example of adding value. When bid-ask has gotten significantly wider than usual, fill up the void. That's just another example of adding value.

All amateurs, with or without articulating to themselves these basic tenets that in no economic activity anyone can get paid without adding value, do grow up.

The whole idea of data reigns supreme amongst all sensorial inputs and that testing matters more than anything is the opposite of self absorbed judgemental behaviour.

Let baptism happen by the fire. No one burns, but just gets baptised.

Mar

26

NBER Working Paper Series: Firm Data On AI

We present the first representative international data on firm-level AI use. We survey almost 6000 CFOs, CEOs and executives from stratified firm samples across the US, UK, Germany and Australia. We find four key facts. First, around 70% of firms actively use AI, particularly younger, more productive firms. Second, while over two thirds of top executives regularly use AI, their average use is only 1.5 hours a week, with one quarter reporting no AI use. Third, firms report little impact of AI over the last 3 years, with over 80% of firms reporting no impact on either employment or productivity. Fourth, firms predict sizable impacts over the next 3 years, forecasting AI will boost productivity by 1.4%, increase output by 0.8% and cut employment by 0.7%. We also survey individual employees who predict a 0.5% increase in employment in the next 3 years as a result of AI. This contrast implies a sizable gap in expectations, with senior executives predicting reductions in employment from AI and employees predicting net job creation.

Mar

24

1) Jay Gould was a hero not a villain.

2) Gilbert and Sullivan: Opera Explained is my favorite nite time listen.

Mar

22

The moment specs apply their approach (test ideas, challenge group beliefs, count, be curious etc etc) to other disciplines - eg medicine, botanics, anything really.

One can easily see that one has learned "cliche-thinking" in university/school. And that most normies never leave that cliche thinking. That is fine with me. Gell-Mann effect is real as well. Good to keep it tight and focus on markets though.

Oliver Joseph writes:

To challenge established thinking in any human endeavor whether hard or soft sciences will in my mind invariably produce push back, most of the time. While perhaps a bit hyped right now the K-means algorithm offers in my mind an interesting way to conceptualize group think. In a simplified market context x1= Bull x2= Bear K=2 Bull vs Bear When a local minimum is reached for a cluster often time depending on the data set it makes sense and is workable however there are times where you must reinitialize based on your understanding of the dataset and the results your getting. If we are driving towards a conclusion in a field of endeavor we will reach a local minimum for a variety of reasons. Sometimes what works just works of course conversely sometimes we will converge to a local minimum that does not match our understanding of the dataset. Until we converge we don’t know. Darwin's theory of natural selection represents one such conceptual reinitialization in my mind (with the unfortunate delay in the theories convergence due to many years spent looking at barnacles). There is profound wisdom in the comment by George Soros “buy the lie”. An understanding that the prevailing conclusion is wrong but due to various frictions that exist in the conclusion generator the music will keep playing. Of course until the risks involved in staying with the group's conclusion exceed those of breaking off from convention. The higher the stakes the more pushback from the conventional crowd. Or perhaps Gustave Le Bon:

For it must not be supposed that merely because the justness of an idea has been proved it can be productive of effective action even on cultivated minds. This fact may be quickly appreciated by noting how slight is the influence of the clearest demonstration on the majority of men.

I often ask myself, what barnacles am I staring at?

Mar

19

Christopher Balding on X:

[Paul Ehrlich's] predictions were not premature but just flat wrong. Not wrong as in they were a little off but wrong as in completely and entirely wrong not even close. However, that is not the part that people are missing.

Ehrlich thinking wormed its way into [so] much thinking and dominates large parts of polite society thinking today. Europe hands out advanced degrees in 'degrowth' and while no one would say it is an advanced degree in Ehrlich's wrongness, his ideas permeate polite society.

It boggles the mind that his ideas which are so universally wrong have such life under a different brand.

William Huggins writes:

It's always useful to understand why a prediction is wrong, rather than simply lambasting anyone with enough guts to take on the humbling task of estimating the outcome of mankind's war against entropy. In this case, Ehrlich, like Malthus, made his predictions on the basis of "the system as we know it, from accumulated data". This made his understanding slow to recognize a new data regime where in both cases, agricultural yields were set to boom as a result of new techs. one of the big contributors to lifting the ceiling on food production between 1960-2010 (+1/3 to +1/2) was the widespread application of chemical fertilizers (from Haber-Bosch, which cratered the cost of nitrogen), while India and much of the rest of Asia began applying Norman Borlaug's seed improvements (plants able to process more fertilizer…). Echoing Malthus' timing right as the British agricultural revolution was hitting its stride, Ehrlich's book came out just as these developments were really kicking into high gear.

The bigger issue appears to be blind spots regarding what "can't happen" (failure of imagination?). Last generation's notion of peak oil was informed by similar thinking but along came improvements in the economics of fracking. While the long-term drop in agricultural commodity prices seems to reinforce the idea that tomorrow is a brighter day, it has been built on processes which are themselves vulnerable to disruption (globalized hydro-carbon trade being the most proximate example) so imo there is also a converse risk in assuming stability.

on that note, is anyone else (long Canada)-(short everyone else) since the attack on Iran? easy macro trade on the stability of oil exports.

Peter Ringel comments:

the problem is, in Europe the base line is Malthusian. always has. Odds are, the inteligencia here has not even heard of Borlaug. And if, then rejected based on the Holy Church of Green. A variation of the idea, that has the world in its grip. Short the continent. Already based on that.

Mar

18

Yes it certainly can be trained – from a note I wrote on intuition a couple of weeks ago:

One of the biggest mental shifts that your work has given me is how I understand intuition. It stopped feeling mystical or vague and became a real internal compass. I really started to see intuition as lived experience, emotional 'data', pattern recognition, and self-awareness integrating in real time. Paradoxically…this has made me calmer rather than more impulsive. I tend to trust myself more, take better risks, and stay aligned with my process more consistently.

- Toby Donovan, CITI, Director, Commodities Trading

His experience exemplifies what the founder of a large hedge fund said on Thursday. “Your brain is picking something up. Are you in touch with that internal conversation?"

Academic researchers also describe the value of intuition. Valerie Reyna, Professor of Human Development and Psychology at Cornell University, the Director of the Human Neuroscience Institute, and the co-director of the Center for Behavioral Economics and Decision Research, directly links intuition to probability, and risk judgment, saying that “intuitive reasoning contributes to performance in hard, fast-paced probability tasks.”

In her fuzzy trace theory, gist-based intuition provides an advanced form of cognition that often outperforms verbatim, analytical processing. She shows how reliance on intuition can grow and yield better decisions than strict adherence to probability calculus, especially when the key is extracting the bottom-line meaning.

Mar

17

The T35 is an index that tracks the largest 35 stocks on the Tel-Aviv Stock exchange. I noticed that the T35 skyrockets during episodes of political aggression. On combing through the actual stocks, it turns out that the largest cap stock (about 10% of the index) is ESLT, a defence contractor.

Gold spikes usually before confirmed acts of political aggression. Oil also has some relationship with that political aggression in the middle east. The T35, mostly ESLT driven also has a relationship with war.

Might some combination of these make a good multivariate predictor?
Spike in Gold predicting a spike in ESLT (T35)?
Spike in ESLT predicting spike Oil?

Big Al writes:

It was often thought that the move of the TASE on Sunday was a predictor for the S&P on at least Monday. However, the TASE stopped Sunday trading in January and shifted from a Sunday-Thursday week to a Monday-Friday week.

Mar

16

Soundness, Trust, and the Real Case Against Fiat Money

Fiat currency may be unsound, poorly managed, or politically abused, but it is not counterfeit by nature, and conflating monetary soundness with legal authenticity undermines any attempt at economic debate. Counterfeiting has a precise meaning: the unauthorized creation of money or financial instruments that falsely purport to be genuine. The defining features are deception and impersonation: a counterfeit bill pretends to be issued by an authority that did not, in fact, issue it. Counterfeiting is a crime under the legal theory that it undermines trust in the monetary system by introducing fraudulent claims that mimic legitimate ones.

Mar

15

Keith Jarrett – The Köln Concert [Full Album 1975]

Keith Jarrett - quite an unusual artist, music almost from another planet. He believed ppl who like music often listen to it in the car But ppl who understand - don't!

Big Al adds:

Famous story:

The Köln Concert

TLDR: They got the wrong piano and it had many flaws. Jarrett was exhausted when he arrived and at first refused to play that piano, but the 18-year-old girl who was the organizer convinced him to go ahead. He was forced to improvise within the constraints of the crappy instrument. The recording of the concert went on to become one of the best selling jazz albums of all time and consistently makes "best albums ever" lists.

Adam Grimes writes:

Keith Jarrett is on my top 3 list of living pianists. (Which might be surprising when you find who the others are.)

I've always respected his technique, melodic sense, but more than anything his sense of time is literally impeccable. Also worth noting that he suffered a stroke and the world has lost this voice. A few links off the beaten path. (I'd encourage you to listen to the Blue Note recordings and also of course the famous Köln concert.) But here are two you might not encounter.

I think this will go on record as one of the greatest artistic utterances mankid ever produced. (If posterity cares, that is):

Keith Jarrett Solo Concert

and, melodic sense, and time… wow:

Keith Jarrett - Old Man River (Live from Antibes) - Transcription

Nils Poertner responds:

Terrific, Adam. Whether Musician or Speculator: We got an "Intuitive Mind" which has something vital to say. But it can't come to our "Thinking Mind" as the latter is constantly chatting…this music reminds me / relaxes me.

Oliver Joseph comments:

Keith Jarrett is a great artist and a huge inspiration. A wonderful counterpoint to the above story of the busted baby Bösendorfer at the Köln concert is the album Staircase. Jarrett had gone to record a track at Davout Studio in Paris and really liked the Piano and stuck around and recorded the album with the extra studio time they had. In particular the track Staircase part 3 is just amazing to me. It is a very beautiful and simple piece.

Mar

12

The Rest Is History podcast episode

‘If it became necessary immediately to discard every line and method of communications used on the front, except one, and it were left to me to select that one method, I should unhesitatingly choose the pigeons’, wrote Major General Fowler, Chief of Signals and Communications of the British Army, after the First World War.

The book:
Operation Columba–The Secret Pigeon Service: The Untold Story of World War II Resistance in Europe

Between 1941 and 1944, British intelligence dropped sixteen thousand homing pigeons in an arc across Nazi-occupied Europe, from Bordeaux, France to Copenhagen, Denmark, as part of a spy operation code-named Columba. Returning to MI14, the secret government branch in charge of the "Special Pigeon Service," the birds carried messages that offered a glimpse of life under the Germans in rural France, Holland, and Belgium. Written on tiny pieces of rice paper tucked into canisters and tied to the birds’ legs, these messages were sometimes comic, often tragic, and occasionally invaluable—reporting details of German troop movements and fortifications, new Nazi weapons, radar systems, and even the deployment of the feared V-1 and V-2 rockets used to terrorize London.

Gyve Bones adds:

Recently watched a dramatization of this story of WWI in the Ardennes Forest, about the Lost Battalion of US Army that carried out their offensive orders too well, penetrating too far without the units supposedly on their flanks, and became isolated and surrounded by Germans, and their only means of communication with HQ was carrier pigeons, carried in cage backpack by the communications guy. It was a sort of inverse Battle of the Bulge, where the allied offensive bulged in and got cut off, but analogous to the situation of the 101st isolated and surrounded in Bastogne.

Excellent made for TV movie:
The Lost Battalion (2001)

Mar

9

As promised, rates drive inflation:

Nils Poertner writes:

With a bit of imagination, one could see that we may get to zero (or even negative short-term rates in the US)

Larry Williams adds:

Zero rates in Japan did not lead to inflation as most econ minds claimed it would.

William Huggins offers:

Richard Koo from Nomura explains why that was - and it has nothing at all to do with the notion that interest rates -cause- inflation.

Larry Williams asks:

Great post thanks.

Inflation is a result of 1) people raising prices and 2) people paying up so what causes that?

William Huggins responds:

as econ understands things (in the MV = PY framework), inflation would be a rise in P, which can result from a shock to any of the other three variables. the most common oversight though is that V is affected by how people behave too - the willingness to extend (or deny) credit has a huge impact on whether or not a transaction (PY) even takes place.

economic historians have long noted the relationship between M and changes in PY which shows up when Mansa Musa dumps a ton (actually several tons) of gold into the Egyptian economy in the 14th century, when the Spanish flood Europe with Inca and Aztec gold (and again when they "discover" Potosi), and during various state-induced hyperinflationary periods in the 20th century (USSR, Germany, Hungary, etc). but as the US from 1873-1893 shows, changes in V (which almost halved during that period) can influence inflation too which was negative for the period, despite increasing M and Y throughout.

overall, the record shows that big increases in the money supply (as in 2020/21) tend to set off inflation with a bit of a lag (digestion time) unless there are equally significant countervailing forces. the big assumption monetarists make (that Koo questions) is that people -will- borrow as rates come down. his argument (for those who didn't watch) is that if you have negative equity, borrowing at any rate is insanity - the whole mechanism of juicing aggregate demand by lowering interest rates relies on the idea that people who can will. as Koo/Japan points out, there is a limit to such linear thinking.

Mar

8

The ordinary human being does not live long enough to draw any substantial benefit from his own experience. And no one, it seems, can benefit by the experiences of others. Being both a father and teacher, I know we can teach our children nothing…Each must learn its lesson anew.

—Albert Einstein, October 26, 1929

Mar

4

The US data center buildout looks increasingly supply-constrained, not because of capital, but because of infrastructure. Announced projects far exceed what can realistically be delivered on current timelines. New capacity requires a rare intersection of:

Proximity to internet hubs.

Reliable, large-scale power (plus generators/transformers with multi-year lead times).

Viable cooling and water.

State/local support in communities that are already pushing back on load growth and land use.

Access to critical, long-lead-time equipment currently has multi-year queues.

Finding sites that clear all five hurdles is getting harder in the US and across most Western markets. This is solvable, but on a 5–10 year grid and permitting timelines, not on 12–18 month tech timelines.

Near-term, not many operational changes, but the narrative probably does. When the market internalizes that a meaningful slice of “announced” capacity is delayed or won’t get built, I’d expect:

Incumbent capacity with grid access to gain pricing power.

Late-stage greenfield and some capex-heavy stories to be repriced.

Utilities, grid upgrade plays, and on-site power to screen better than marginal new-build data center names.

High-level takeaway: AI demand is real; the binding constraint is infrastructure. The gap between slide-deck capacity and physically deliverable capacity is likely where the mispricing lies.

Mar

3

FED interest rate decisions are often associated with the SPY.

1) Interest rate decrease –> Increase in SPY

2) Interest rate increase –> Decrease in SPY

Polymarket has a market for FED decisions. Could a combination of Long SPY & Polymarket contracts (betting on rates increasing) provide some kind of arbitrage opportunity?

Larry Williams responds:

This not correct Interest rate hikes are bullish for stocks—most the time. [See chart below.]

William Huggins writes:

the most important issue with any arbitrage situation is the volume at price is not unlimited, meaning there is a functional "size" to the exploit. my intuition is that such inefficiencies can persist for structural reasons until that size crosses some operator's threshold at which point they trade it until it holds back against the efficient exploit horizon. i don't know what the market depth is like on polymarket but i also suspect the liquidity that such a trade would count on could evaporate such faster than SPY.

Asindu Drileba asks:

[Larry's] pattern indicates:

- Rate increases -> Stock Market up

- Rate decrease -> Stock market down

But for longer periods i.e several subsequent days after.

Since the Polymarket contracts actually expire (resolve) on the day of the announcement. I was thinking this was a strategy that would close on the day of rate announcements. Are stocks also mostly bullish *on the same day* for announcements of a rate increase? (and vice versa)

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