How to lose an election in four easy steps. 

August 21, 2016

This is a great recipe to reduce your popular support to zero.

1. Fire verbal grenades so odious that more than half the country can’t support you purely on moral grounds. 

2. Turnover your campaign staff twice within a few weeks. 

3. Acknowledge that your in bed with the same bank as your opponents, albeit for different reasons. You borrow from them and hope they won’t pull their lines. While your opponents just takes big equity checks from them. 

4. Pivot on the one issue that drove your initial ascent around immigration. The same issue that led to the Brexit vote. Turn your vitriol of xenophobia around to come center.  

Hallelujah, Trump to Reverse Draconian Immigration Policy

August 21, 2016

He’s hired a Hispanic task force and is provoking an about face to draconian deportation measures.  Hopefully this is enough of a pivot to lose the rest of his poor uneducated white base.  Well there’s that and the fact that he’s also in bed with the big banks as he has borrowed billions to finance his private companies. 

Nominal rates don’t matter any more. 

August 14, 2016

We are in a currency war between superpowers.  It’s ironic it’s called a “war” as it’s better orchestrated than Star Wars was. 

Life at the zero bound distorts a few things. 

1. Risk is unarguably priced as a premium to treasuries (for finance geeks). 

2. Risk pricing at the zero bound collapses along a convex curve. Distortions occur because the nominal rate is low punishing savers.  Distortions also occur as credit spreads tighten to new nominal lows, irrespective, of historical ratios. . 

3. The demand for yield converges with the demand for risk, something that has not happened in a long time.   Assets become mis priced in both nominal terms and along historical ratios.  

4. Looking at nominal differences without noticing historical ratios is like looking through a 1 mile square of the moon and making grander assumptions about your small areas.  

5. Currency operators need to orchestrate a systematic, measured and rotating dance of interest rates in order to give each currency nation a chance to grow as their local currency declines and their exports move into favor. 

6. If this can he measured it would likely result in a period of global coordinated easing until all currency actors are back on a reasonable secular growth path, ignoring cyclical tendencies. 

7. As rates around the world among funding currencies converge, it becomes the real nominal relationship between currencies (ignoring historical tendencies) that stears global tightening or easing.  The wider the spread between two funding currencies then the faster demand should avail itself for the best real return.  

8. At the Zero Bound yhe highest yielding currency will inevitably be teathered to the lowest yielding currency.  
9. Global easing and tightening becomes a web of relationships among major funding currencies. The US can no longer remote-control risk just using Fed Funds. They MUST consider the consequences and risks among all actors.  

The press should boycot Trump

August 14, 2016

After reading this it struck me that if most of the press simply boycotted Trump he would burn through his campaign finances a lot faster than Hillary. Mission accomplished. 

In addition, it’s really a win-win strategy if you think about it. 

A. If the press boycotts Trump, and you don’t support him, you never need to hear from him again (and he loses his lost valuable megaphone, and will drain his coffers faster.)

B. If the press boycotts Trump, and you do support him, you never need to hear him embarrass himself again.   

Donald Trump threatens to revoke press credentials of The New York Times

Extended Cycle

July 14, 2016

With rates at history-of-mankind lows, coordinated central bank policy, just in time manufacturing, globalized and flexible labor, and on the heels of the worst financial crisis of 100 years what if this is a bull market in slow motion?  What if this bull market becomes a 20 year recovery.  

Here’s a narrative of why markets could continue to rise. 

Pessimism is at all time lows.  Lower than in March 2009. Stock market valuations are above averages but not near historic highs and equities on a relative bases are eons cheaper than bonds which trade at an equivalent price-to-earnings of infinity in Europe and Japan and around 70x in the US.  

The dividend yield on the S&P is about 50% higher than bonds, and equity subsections like emerge and technology are still very cheap on a yield basis in a yield starved world. 

While there are local areas of real estate excess like in NYC the broader main-street recovery is still underway as household formation was delayed a decade by millennials.  This, the “echo-boom” has yet to enter their highest earning (and spending) years.  

My generation, GenX, is a population bottleneck which is set to be digested as the echo-boom takes over. 

No one knew what would happen with Brexit (and no one still does). Likewise, all the whiz-bangs on wal street and On TV may just be missing the forrest through the trees. 

Brexit, Predictions, Polls and Bias

June 16, 2016

Story of the week, and after 6/23 could be the story of the year is the looming referendum in the UK to decide if it will stay in the European Union. 

A surface level understanding of the situation teaches that the UK, after Germany is the largest “net” contributor into the EU financial partnership. The balance of payments to and from the EU systems means that the UK ends up with the second shortest straw as it comes to the measurable financial benefits of the economic union. (

Greece by contrast is one of the biggest beneficiaries receiving nearly four times what I contributes in the balance of payments. 

This single factor is helpful to understand much of the unrest over the last seven years and the pending referendum and ensuing global markets uncertainty for the outcome. 

I’m not intending to discuss the depths of the issues facing the EU, not am I qualified. I have, however, been sucked into watching the daily polling data via a variety of sources including Bloomberg’s Brexit Tracker ( as well as PredictIt’s poll-wagering system. 

For full disclosure I have a modest wager that the vote next week will be for the UK to remain in the EU. This is based on immaterial  facts and more of a social common sense than any good on-the-ground intelligence. The level of change and uncertainty that will result from the UK’s exit from the European block simply seems too palpable and I cannot imaging 51% of the voting population will want to risk damage to the UK economy and ignite conversations that could lead to the unwinding of the economic block. 

What has facinated me is the run up in polls from a probability in the 20% range to nearly 50% range is less than two weeks, based heavily on polling data. 

I have learned that if you had to split the deongraphics, the older generations within the UK would opt to remain in the EU while younger generations would opt to exit. 

There have been some article talking about the polling proces which in this day and age is largely digital. It inflates my curiosity to think that there could be a strong adverse selection bias in the recent polls, particularly as many are driven by technology which is assumed to be far more prolific among younger voters. 

In addition as prediction markets have re-proliferated in recent years, I followed my curiously to track the odds on PredictIt over the last week or so. 

The gambling bug got the best of me, so I signed up and put about $100 bet on a “No” vote for next week. 

After I entered my order to buy about 160 contacts for about $100 a bet that would pay me $160 if I’m right and leave me with 0 if I’m wrong (not great odds, but to me seemingly easy money)  I figured well if I like the long “No” vote, I would probably also like a short “Yes” vote. 

So without proper research I simply attempted to do what I though was sell a “Yes” but the resulting transaction simply sold my “No” contacts for about a $3 loss (the spread at that time).  After a few minutes and not being able to find my two open positions, I realize my follie, and I immediately rebought my “No” votes. All in I probable paid about .60 cents (worth about .53 cents today). 

After a couple of days and seeing the trade go against me, but seemingly more swiftly than even the polls would suggest it occurred to me that in a market where the only option is to buy a No or a Yes that distortions are possible. 

Conceivably the sum of the prices for No+Yes  should equal $1.00.  This is not completely true as Predict it takes about a 3 cent spread on the bid/ask. This is the balancing mechanism in place to ensure all bets between rational actors can settle for $1. If Yes gets bid up the next buy of No should be paying less for it. 

However here is my concern:  Those who are betting on a Yes vote are one part speculator but it’s conceivable (even in this micro-marketplace) that there are some bonafide hedgers. Bonafide hedgers would pay more than the probability  up to an offsetting price against their hedged position.  It is unclear if shorting the GBP or EUR or going long the Yen or USD will truly hedge an adverse outcome from the referendum. Although those are the cheapest ways for large institutions to do it. However, PredictIt provides direct protection which is worth a premium if the trade size and volume is sufficient.  

Also, since registered participants are not allowed to sell-short either the Yes or No bet, there is no true counter-balancing trade and it’s very possible that prediction markets are creating an adverse feedback loop for a “Yes” vote as the insurance becomes over priced to the probability of the outcome. 

That said these are binary trades, and either you will be 100% right or 100% wrong. And in a world bubbling with populism anything is quite possible. 

It’s surprising to me that few pundits are talking about the self fulfilling reinforcement of excess polling and prediction markets.  If so, such big data endeavors me become a form of campaigning that can alter outcomes in our post-modern world. 

Critical Thought

March 24, 2016

Agreement without critical thought is the breeding ground for totalitarian regimes. 


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