- "Is Trump About To Cause Another Crisis?": 2008 Could Be Eclipsed As Bank Restrictions Eliminated
Submitted by Mac Slavo via SHTFPlan.com,
Beware of what may be coming next. We already know the establishment has a plan to blame President Trump for the next financial crisis, and now there are moves being made that will support that narrative.
After the 2008 fiasco, a spotlight on Wall Street misbehavior and some weak, but better-than-nothing regulations were put on the industry in the hopes of preventing another string of bank failures and crippling economic disasters.
But as the system teeters on edge and prepares to endure the backlash of increased rates at the Fed, Trump is also taking off the shackles that have been put in place by the Dodd-Frank Act which instituted certain protections for consumers, including a requirement that pensioners don’t have their nest egg devoured, etc.
For the tens of millions of baby boomer retirees and aging pensioners, the social security net is all they’ve got to count on, apart from a few debt-saddled kids who have hardly been able to save a dime under eight years of Obama.
The 2008 economic crisis penalized everyone with an entire cycle of wage freezes, job starvation and crushing dependence upon government programs for assistance. Wall Street, and the banker class at large were spared from blame or reparations to a society that was robbed blind. Instead, eight years of quantitative easing sent a tidal wave of easy money to the financial sector that created a gorge of asset buy-up from the top – especially in housing, where soaring rates are forcing single households to become renters instead of mortgage debt-slave owners once again.
The election of President Trump created optimism about our collective financial prospects – with seemingly tangible promises of bringing home jobs and returning to American Greatness™. But the banksters also cheered his election; stock markets shot upwards in celebration. Key positions in the White House were offered to Goldman Sachs men and others of their ilk.
Now, President Trump has issued an executive order that has Wall Street once again self-congratulating for backing the right man. The order is expected to gut protections that currently require financial products sellers
As the London Independent reports:
Donald Trump is expected to order a review of the Dodd-Frank Act, which was implemented in the aftermath of the 2008 financial crisis to prevent a repeat of the worst financial crash since the Great Depression.
[…] council has the right to break up banks that it thinks could pose a systemic risk to the global financial order. It also has the ability to demand that banks hold higher reserves, or cash buffers, to minimise a squeeze. Separately, the Dodd-Frank Act also created the Consumer Financial Protection Bureau, to oversee consumer financial products, such as mortgages.
A key part of the Act is the Volcker Rule, which restricts the way that banks are allowed to invest and places restrictions on speculative trading. It also restricts banks from engaging in so-called proprietary trading, or trading for the firm’s direct gain, instead of on behalf of a client.
So in effect, the rule is designed to separate the investment and commercial businesses of banks.
It seems clear enough that this move benefits many of those at the top of the pyramid, but a Bloomberg report directly quoting from senior leadership on Wall Street, and now inside the Trump Administration, makes crystal clear that the intentions are quite self-interested:
Chief executives including Goldman Sachs Group Inc.’s Lloyd Blankfein and JPMorgan Chase & Co.’s Jamie Dimon have been pushing for changes for years, arguing that the industry has been too constrained by the system put in place by the 2010 Dodd-Frank Act. After Trump focused on limiting trade and immigration during his first two weeks in office — policies opposed by many in the financial industry — the president’s stroke of a pen unleashes a process to undo many of the rules they find most irksome.
“We’re going to attack all aspects of Dodd-Frank,” Gary Cohn, director of the White House National Economic Council, said Friday in an interview with Bloomberg Television. “We are going to engage the House, we’re going to engage the Senate. They are equally interested in reforming some of the regulatory processes as well. We can do quite a bit without them, but the more help we get from Congress the better off we’re all going to be.”
Not necessarily the brightest news for the people.
Though it isn’t immediately obvious that this change in the rules would cause immediate trouble, there is reason for concern. If the limitations – inadequate as they were – are lifted off the banks, specifically with investing in commercial banking and with pensions, things could once again take a turn for the worse.
If the same reckless behavior is repeated, it could not only bring the system to a halt, and crash the stock market, but it could potentially wipe out the holdings of those who need it most – pensioners.
Meanwhile, defaults and the burden of a debt-supercycle are also threatening to topple the system. One way or another, the next era will have to handle enormous risk of total economic crisis.
As the Independent notes:
Does this mean we’re at risk of facing another financial crisis? Some economists have even been bold enough to say that getting rid of Dodd-Frank could indeed pave the way for another crisis.
What makes matters a lot worse, is that many experts believe that global financial systems and economies are more vulnerable now than they were ahead of the last financial crisis. So if we do suffer another major crash, the damage has the potential to be a lot more grave.
Central banks around the world have already slashed interest rates to record lows leaving them with limited ammunition to do more to stimulate economic growth. Government debt has also sky rocketed over the decade since the last crisis.
Whatever comes next, there is a toxic cycle that is waiting to crash down upon us with a tsunami of financial misfortune.
Federal Reserve policies in the wake of the last crisis set up the American people for a very bad fall. Economic vibrancy among the middle class and general population has been sucked dry, and they will be ill prepared to handle a new crunch in credit and possible hyper inflationary/deflationary crisis.
Trump’s pro-business, pro-American policies may help if they are instituted correctly, but enabling the financial sector to once again prey upon people and fuel the rise-and-collapse of a massive series of bubbles and a derivatives WMD is not a healthy option.
The stage has been set for a nightmare that we must pray never comes.
- "Davos Man Is Dead" – Trump's EU Ambassador Slams Out Of Touch Elites
As prominent MEPs are slamming US President Donald Trump's choice for ambassador to Brussels, RT’s Afshin Rattansi sat down with Ted Malloch for his personal views on the matter.
RT: The EU parliament is somehow trying to veto your appointment as the next ambassador to the European Union. What is your reaction?
Ted Malloch: They must not have got the notice that Donald Trump won the American election. Of course, ambassadors are chosen by their home countries to represent those countries and those national interests in foreign capitals, in this case, in Brussels.
RT: Is it symptomatic of the fact that European politicians don’t really understand their power relations with Washington?
TM: I think there is some sense of that. But there is also an inkling, particularly in some leftist political circles in Europe, to wish Trump away or to think that in four years they might have Obama back or basically to call me things like ‘malevolent’ which actually requires a theory of ‘good and evil,’ which they don’t have.
RT: How out of touch are elites continuing to be in European capitals and the MSM when it comes to Trump?
TM: I don’t think it is just Europe. It is certainly the case around the world. The Davos Man is dead. We had the Davos World Economic Forum the other week and of course they had a lot of has-beens there. The keynote speakers were all people who were leaving office, for example, US Secretary of State John Kerry. Xi Jinping was their poster boy for globalization, and in effect, China has been a beneficiary of globalization. The 300 million jobs that were created in China was a significant economic fact, but lots of those jobs were taken out of the hallowed places of Western Europe and Middle America.
RT: In the diplomatic world, Britain’s ambassador to Washington, Sir Kim Darroch, believes that “Trump inexperience will be able to be exploited by the UK.” Wise for Britain to have a diplomat there that thinks like that?
TM: Good luck. Of course, facetiously, Donald Trump suggested that someone else be the ambassador to the UK, obviously that didn’t come to fruition and wasn’t going to happen. Everyone underestimated Donald Trump this entire past year and a half. Seventeen political candidates and Republican primaries, Hillary Clinton, the most experienced, seasoned pro in American politics – what happened to all of them?
- Gorsuch May Not Shift The Balance Of Power On The Supreme Court As Much As You Think
Submitted by Michael Snyder via The Economic Collapse blog,
On Tuesday, President Trump announced that he would nominate Neil Gorsuch to fill the open seat on the U.S. Supreme Court. Gorsuch currently serves on the 10th U.S. Circuit Court of Appeals in Denver, and he was confirmed unanimously by the Senate when he was appointed to that position by President George W. Bush in 2006. Gorsuch appears to have some strong similarities to Antonin Scalia, and many conservatives are hoping that when Gorsuch fills Scalia’s seat that it will represent a shift in the balance of power on the Supreme Court. Because for almost a year, the court has been operating with only eight justices. Four of them were nominated by Republican presidents and four of them were nominated by Democrats, and so many Republicans are anticipating that there will now be a Supreme Court majority for conservatives.
Unfortunately, things are not that simple, because a couple of the “conservative” justices are not actually very conservative at all.
For example, it is important to remember that Scalia was still on the court when the Supreme Court decision that forced all 50 states to legalize gay marriage was decided. Justice Anthony Kennedy joined the four liberal justices in a majority opinion that Scalia harshly criticized. So with Gorsuch on the court, that case would still have been decided the exact same way.
Sadly, even though Kennedy was nominated by Ronald Reagan, he has turned out to be quite liberal. In the past, not nearly enough scrutiny was given to justices that were nominated by Republican presidents, and a few of them have turned out to be total disasters.
And let us also remember that Scalia was still on the court when the big Obamacare case was decided. Chief Justice John Roberts joined the four liberal justices in a decision that was perhaps one of the most bizarre in the modern history of the U.S. Supreme Court.
For some reason, Justice Roberts was determined to preserve Obamacare, and if you read what he wrote it is some of the most twisted legal reasoning that I have ever come across.
As someone that was once part of the legal world, let me let you in on a little secret. Most judges simply do whatever they feel like doing, and then they will try to find a way to justify their decisions. So if you ever find yourself in court, you should pray that you will get a judge that is sympathetic to your cause.
Fortunately, Gorsuch appears to be one of the rare breed of judges that actually cares what the U.S. Constitution and our laws have to say. In that respect, he is very much like Scalia…
Gorsuch is seen by analysts as a jurist similar to Scalia, who died on Feb. 13, 2016. Scalia, praised by Gorsuch as “a lion of the law,” was known not only for his hard-line conservatism but for interpreting the U.S. Constitution based on what he considered its original meaning, and laws as written by legislators. Like Scalia, Gorsuch is known for sharp writing skills.
“It is the role of judges to apply, not alter, the work of the people’s representatives,” Gorsuch said on Tuesday at the White House event announcing the nomination in remarks that echoed Scalia’s views.
One of the most high profile cases that Gorsuch was involved with came in 2013. That was the famous “Hobby Lobby case”, and it represented a key turning point in the fight for religious freedom. The following comes from CNN…
In 2013, he joined in an opinion by the full Court of Appeals holding that federal law prohibited the Department of Health and Human Services from requiring closely-held, for-profit secular corporations to provide contraceptive coverage as part of their employer-sponsored health insurance plans.
And although a narrowly divided 5-4 Supreme Court would endorse that view (and affirm the 10th Circuit) the following year, Gorsuch wrote that he would have gone even further, and allowed not just the corporations, but the individual owners, to challenge the mandate.
Donald Trump said that he wanted a conservative judge in the mold of Scalia, but I think that he was also looking for someone that he could get through the Senate.
And considering the fact that Gorsuch was confirmed unanimously by the Senate in 2006 will make it quite difficult for Democrats to block him now. Gorsuch has tremendous academic and professional credentials, and he will probably have a smoother road to confirmation than someone like appeals court judge William Pryor would…
Trump may have favored Gorsuch for the job in hopes of a smoother confirmation process than for other potential candidates such as appeals court judge William Pryor, who has called the 1973 Supreme Court ruling legalizing abortion “the worst abomination of constitutional law in our history.”
But Pryor is still reportedly on the short list for the next spot on the Supreme Court that opens up, and by then the rancor in the Senate may have died down.
If Gorsuch is confirmed, what will this mean for some of the most important moral issues of our time?
As for abortion, even if Gorsuch is confirmed I do not believe that the votes are there to overturn Roe v. Wade. But if Trump is able to nominate a couple more Supreme Court justices that could change.
But even if Roe v. Wade is overturned, it would not suddenly make abortion illegal. Instead, all 50 states would then be free to make their own laws regarding abortion, and a solid majority of the states would continue to keep it legal.
The analysis is similar when we look at gay marriage. If the Supreme Court decision legalizing gay marriage in all 50 states was overturned, each state would get to decide whether gay marriage should be legal or not for their own citizens. And just like with abortion, it is likely that only a limited number of states would end up banning gay marriage.
So the nomination of Neil Gorsuch to the Supreme Court appears to be a positive step, but it does not mean that we are going to see dramatic change when it comes to issues such as abortion or gay marriage any time soon.
But at least Gorsuch can help stop the relentless march of the progressive agenda through our court system. So in the end we may not make that much progress for right now, but at least the liberals won’t either.
- TEPCO Admits Fukushima Radiation Levels Reach Record Highs As Hole In Reactor Discovered
With just 3 years left until the 2020 Olympics, Japan is likely desperate to reassure the world's athletes that all is well, but an admission from TEPCO – the Fukushima nuclear plant operator – that they discovered a hole at least one square meter in size beneath the reactor's pressure vessel, and lethal record-high radiation levels have been detected, will not likely reassure anyone.
Radiation levels of up to 530 Sieverts per hour were detected inside an inactive Reactor 2 at the Fukushima Daiichi nuclear complex damaged during the 2011 earthquake and tsunami catastrophe, Japanese media reported on Thursday citing the plant operator, Tokyo Electric Power Company (TEPCO). A dose of about 8 Sieverts is considered incurable and fatal.
As RT reports, a hole of no less than one square meter in size has also been discovered beneath the reactor's pressure vessel, TEPCO said. According to researchers, the apparent opening in the metal grating of one of three reactors that had melted down in 2011, is believed to be have been caused by melted nuclear fuel that fell through the vessel.
The iron scaffolding has a melting point of 1500 degrees, TEPCO said, explaining that there is a possibility the fuel debris has fallen onto it and burnt the hole. Such fuel debris have been discovered on equipment at the bottom of the pressure vessel just above the hole, it added.
The latest findings were released after a recent camera probe inside the reactor, TEPCO said. Using a remote-controlled camera fitted on a long pipe, scientists managed to get images of hard-to-reach places where residual nuclear material remained. The substance there is so toxic that even specially-made robots designed to probe the underwater depths beneath the power plant have previously crumbled and shut down.
However, TEPCO still plans to launch further more detailed assessments at the damaged nuclear facility with the help of self-propelled robots.
TEPCO confirmed a black lump in the space beneath the pressure vessel. There is a possibility of nuclear fuel melting down (fuel debris). If it is fuel debris, it will be the first time that fuel melted down will be taken after the Fukushima Daiichi nuclear accident.
- The Market Wizard's Wizard – An Interview With Jack Schwager
Submitted by Erico Matias Tavares via Sinclair & Co.,
Mr. Schwager is a recognized industry expert in futures and hedge funds and the author of a number of widely acclaimed financial books. He is one of the founders of FundSeeder, a platform designed to find undiscovered trading talent worldwide and connect unknown successful traders with sources of investment capital. Previously, Mr. Schwager was a partner in the Fortune Group (2001-2010), a London-based hedge fund advisory firm. His prior experience also includes 22 years as Director of Futures research for some of Wall Street’s leading firms, most recently Prudential Securities.
Mr. Schwager has written extensively on the futures industry and great traders in all financial markets. He is perhaps best known for his best-selling series of interviews with the greatest hedge fund managers of the last three decades: Market Wizards (1989, 2012), The New Market Wizards (1992), Stock Market Wizards (2001), Hedge Fund Market Wizards (2012), and The Little Book of Market Wizards (2014). His other books include Market Sense and Nonsense (2012), a compendium of investment misconceptions, and the three-volume series, Schwager on Futures, consisting of Fundamental Analysis (1995), Technical Analysis (1996), and Managed Trading (1996). He is also the author of Getting Started in Technical Analysis (1999), part of John Wiley’s popular Getting Started series.
E Tavares: Jack it is a pleasure and an honor to be speaking with you today. You are a reference, even sort of like a guru for us in the futures / commodities industry. Throughout your work – and we read much of it – you seem to have a slight preference for trading futures over stocks and bonds. Is that right, and if so why?
J Schwager: That’s absolutely true. First of all, I got into the industry as a commodities analyst. There were no financial futures, which now dominate the markets, in those days. Two years as an analyst then 22 years as director of futures research for several firms, with several years designing trading systems along the way. Much of that continues in different shapes and forms, so the bulk of my professional career has been in futures. That’s the primary reason for me.
The stock trading that I do has been sporadic. It’s very different from my futures trading, which basically consists of trades with stops to control risk. In stocks I will be much more contrarian, looking to buy things when they have been out of favor, at low or pummeled prices. Not because I know much about the underlying fundamentals, just that it’s a type of business where I believe the long-term downside is very limited irrespective of the technical/price chart patterns, and there is much more upside than downside.
For example, in late 2008 I had no idea when the whole collapse in the equity markets would end but it seemed to be the classic panic. So I looked to buy very long-term out of the money LEAPS (call options) in things that were totally crushed, like FXI (China ETF) or XME (Metals & Mining ETF). They were trading so low that it was unlikely they would lose much more value from there. I did not have any stops even if the whole thing went to zero so it is quite a different way of trading from futures.
In fact it’s a complete 180 degrees different. For me futures is more like trading and stocks is more contrarian, long-term investing…
ET: … like value investing?
JS: Sort of, although I don’t do all the related fundamental work. That’s not my forte. But I look at things like prices hitting fifteen, twenty years lows, it’s a pure panic, commodities will not go out of favor, China and India will continue to grow, and so forth. So it makes sense to buy now and put it away for a few years. And if it goes to zero it goes to zero.
If XME goes from 50 to 12, it can go anywhere but I figure that at 12 it probably will not go much lower, but not because I have done any fundamental work.
ET: You just published a new edition of A Complete Guide to the Futures Market, which we can’t recommend enough. The first edition came out in 1984 and was already considered to be a seminal book on the subject. What prompted you to write a second edition more than thirty years later? Is it because the markets have fundamentally changed and as such the materials needed an update?
JS: No, the catalyst was the publisher! They bugged me throughout the 1990s to do an update and I finally balked once they threatened to get somebody else to do it. Once I got started I ended up turning it into three volumes and 1800 pages.
Then they wanted another update but just in a single volume. I finally agreed but at that point started working with a co-author that I respect a great deal, and just went over his revisions. The original 1984 book was still relevant; in fact without wanting to sound immodest it was very good. I thought I did a good job the first time around. However, today nobody is going to read a book that is over 30 years old. I thought it was a shame to let it go by the wayside when ninety percent of it was still pertinent and the rest could be easily updated.
There were no real meaningful changes to the first edition other than market updates, expansions in some topics and contractions in others. There were no analytical approaches that I thought were wrong now. Actually, hardly anything of substance needed to change.
So the book was still pertinent, it just needed to be revised and updated and a new edition was necessary to bring it to the attention of a new readership.
ET: Picking up on the analytics point, markets do evolve over time right? As such systems need to adapt. Perhaps a good example might be the famed Turtles system, which supposedly produced many millionaires almost a generation ago, but seems to be much less applicable today. Do these market changes prompt you to revise your techniques from time to time?
JS: That’s absolutely true but in the original book, while I did not cover the Turtle system per se, I did talk about broader trend following systems which are still applicable today. Back in the 1970s and 1980s these systems used to work extremely well but as more and more people started to use them they lost their efficacy, like anything else.
However, my approach in the whole book was not to say “this works absolutely”. Instead, I explained why a system worked. If you are going to do systems development you need to strictly avoid hindsight otherwise the results will be meaningless. All of that is still pertinent today. The systems I presented then worked, but I chose them primarily for illustration purposes.
When you get down to the particulars, like the exact signals, you are quite right – these tend to change over time. You have to be willing to adapt as a result. What doesn’t change is the appropriate methodology for developing, testing and implementing systems. What also remains true is the types of inputs that you might use. Yes, markets change but the broad principles and methodologies to me did not seem like they needed a lot of change.
That’s on the technical side. It’s really the fundamental approaches that changed the most because markets tend to go through these structural changes and such fundamental models can quickly lose their efficacy.
ET: Related to that, perhaps as an effort to keep traders aligned with the evolution of the market one of the sections of your book covers the development of systems for futures trading, an area that attracts a lot of interest these days, since most people now have access to enough computing power and market data to do all sorts of analyses.
However, when retail traders go into the market they are up against hyper sophisticated funds which most likely have examined all profitable combinations ahead of everyone else. Some can even execute trades much faster. So how can those retail traders have any chance of competing successfully in the market, meaning being consistently profitable over time? Are there areas like picking longer timeframes, higher risk tolerance and so forth that can give them an edge over the big players?
JS: You are probably talking about a sophisticated retail trader, someone who has experience and know what they are doing, meaning having an edge and a methodology with good risk management. In other words, someone who has a reason to be trading which in my opinion excludes the majority of people, who don’t have any of that. They are better off not trading at all.
In that sense, how does such a trader compete against the super firms with not only tremendous computing power but also teams of PhDs? You can’t beat the likes of Renaissance and DE Shaw at their own game. They are using super sophisticated and effective quant strategies. You can’t do it that way.
But the retail trader may have an approach that works. There are so many different possibilities and combinations that people can still come up with something that works. This is very possible although much more difficult compared to the 1980s for instance, let alone the 1970s.
The other distinction I would make is between systematic and discretionary trading. It is probably more difficult for a retail trader to excel using a systematic approach but I think a large percentage of them would fall under the category of discretionary. That’s where I think there still is quite a bit of room to be profitable with reasonable risk control.
Let’s say that a trader is making discretionary decisions based on charts. You can program some patterns, like a breakout or even a more complicated head & shoulders formation, test a mechanical approach based on that and you will probably come up with something that is not that great. However, the human mind is actually extremely good at finding patterns, to the point where certain people who have a particular skill in noticing them – especially at the subconscious level through intuition – are able to use them as a signal that would otherwise be missed in a pure mechanical system.
In that sense, as an example, it’s not that the market is forming a flag pattern, but rather that it is forming that pattern in a broader context with some other chart features that improves your edge. Then you go in with a stop to control your risk, and you can very much compete against the big funds with that approach.
Also, the retail trader has one big advantage over the big funds and that is size. It is a lot easier to trade and put in stops when you are trading small size as opposed to when you are trading billions or even hundreds of millions of dollars.
ET: What about timeframes? It seems longer is better for the smaller investor.
JS: Not necessarily. That depends on the individual methodology of each trader. However, if you are thinking in terms of conventional things like trend following, then you are correct.
I think I had in the original edition of the book, but is certainly there in the current edition, the concept that longer trends are more reliable. In other words, longer term crossovers perform better than shorter term ones. And there’s a very good reason for that: they are very difficult to trade. Markets tend to punish traders who employ easier approaches and reward those willing to suffer some pain.
The idea is that yes, when you use a long term approach it is true that you are getting in much later on a trend and you also surrender a much larger portion of open profits when you are right – and not many people are willing to go there since both are painful things. However, it is also true that shorter term systems give you so many back and forth whipsaws – and you can test this empirically over time like I did – that on balance you are worse off. Those whipsaws more than offset the larger gains from getting in earlier and the smaller surrender of profits from getting out earlier.
In that sense trading over a longer horizon has more efficacy, but emotionally it is a very difficult thing to do.
ET: In the book you describe in detail various trading approaches, including technical and fundamental. And while expressing some preference for the former you suggest that it is up to traders to find what works for them. This is a crucial point that is often forgotten.
JS: When I give talks about trading and lessons from Market Wizards one of the foremost points I make, maybe the first point about what you should do, is the need to find an approach that works for you. That’s going to be different for everybody. So many people don’t realize that. They try to chase the best methodology or learn from somebody else.
It’s like you can have the most expensive suit but if it’s from someone who is not your size you will not look good in it. It’s much better to have a cheaper suit that fits you. It’s the same thing with trading. You can’t make someone else’s trading methodology work for you. Everybody has their own skills, preferences, biases, emotional strengths and weaknesses and all those traits suggest having a different approach for each person.
This is matter of trial and error and being conscious of what seems to work, what you are comfortable with, what you believe and so forth. Some people should use just technical, other just fundamentals and others a combination of the two. I can’t really tell anybody what would work for them – that's a question only they can answer.
ET: What really moves the markets in your opinion? Some people say it’s just a random walk, a coin flip, and so impossible to make money since it is very hard to figure out if the next flip will be heads or tails. Others say there is a hidden structure, at least during certain time periods, and with enough education and determination you might be able to figure it out. Who is right?
JS: If the random walkers are correct, all market participants are wasting their time because you can only make money if you are lucky. It also means that I wrote four Market Wizard books about a bunch of very lucky people. There are many reasons as to why there is something else at play. In fact, I wrote a whole chapter on this in another book, Market Sense and Nonsense, debunking the random walk theory.
Now, the markets behave like they are random or have a lot of randomness to them. That part is true. But what is generally wrong about the random walk theory is that, first of all, the idea that everything is discounted and fully reflected in the price at all times, and therefore nobody can make money, is demonstrably false.
I’ll give you a recent example, in addition to the many I outlined in that chapter. It’s one of my favorites and it’s from a recent talk by Richard Thaler, the renowned behavioral economist. There is a closed end fund with the ticker CUBA (like the Caribbean island), which like most closed end funds usually trades at a 15-20% discount to the value of the basket of securities that compose it. And then in one day all of the sudden it skyrocketed up to a 70% PREMIUM. What could have happened?
Well, President Obama had just given a speech that he would normalize relations with Cuba. Now, CUBA did not hold any Cuban securities for two reasons: 1) there were no Cuban companies to invest in; and 2) even if there were it would have been illegal to do so. It did hold some South American companies, but nothing directly in Cuba!
So you had this huge change in one day in the price of the fund when none of its securities were directly affected by the catalyst causing the price surge. And of course a couple of days later the price went back to the prior levels.
There are so many other examples. Take the internet bubble. You have this sixfold share price rise in one and a half years then back to the original prices in one and half years. But there were no major news developments that satisfactorily explained the moves in either direction. During the advance, there was a market euphoria and a buying-at-any-price mentality because people were afraid of missing the bull market. Then the music stopped and everybody is looking for a chair and there are no more chairs around. Once the buying fever broke, prices collapsed because the gains were never justified in the first place.
And the random walk theory is wrong because it misses a tremendously essential component of the markets and that is human emotion. It does not play a major role all the time, but when it does it can cause massive dislocations.
However, it doesn’t mean it’s simple. The irony is that while I believe the efficient market hypothesis is wrong, it is still very difficult to beat the markets. In early 1999 you could have said that the market was experiencing a bubble and that one should go short, and you would have been absolutely right. But when the market finally topped out in March 2000, you could have gone bust by then. So you can have markets be non-random and yet be very difficult to beat. And that is what fools many people into believing that they are random.
It’s also a fault in logic. The converse of a true statement is not necessarily true. You can say that because markets are random they are difficult to beat. However, the converse – markets are difficult to beat and therefore the markets are random – is a flaw in logic. It is true that all polar bears are white mammals, but not all white mammals are polar bears.
ET: Over the years you have interviewed the best in the business, the Market Wizards. These guys are truly amazing but there is one question that has always intrigued us, appreciating how hard it is to make it in the markets, as you just described. How can you truly distinguish luck from excellence, since both play such a significant role in speculation?
For example, statistically speaking it is very unlikely to have twenty flips that all come out heads, but with enough people flipping coins there will be a very small group who will do it. Without this perspective you could get the erroneous idea that they really know how to produce heads. How can you distinguish those lucky flippers from investors who happened to be profitable over, say, twenty years? In other words, couldn’t the Market Wizards be more a product of chance than a particular trading approach, especially as markets continuously change?
JS: Yes, in most cases it is very difficult to figure that out. Just because someone has done well for ten years or even twenty years doesn’t guarantee that they weren’t just lucky over that period.
If you have 1024 people flipping 10 coins, on average, you can expect one of them to toss 10 heads. However, even if you had every person on earth flip 200 coins instead of ten, what are the odds that one of them will get 195 heads? That’s going to be infinitesimal small.
I’ll give you an example. The first fund of Edward Thorp ran for 19 years, with only three losing months during all that time, and all of them less than a 1% loss. The gains were much larger than the few losses that occurred. Using a binomial loss-win distribution to gauge the probability of his performance is actually very conservative because his wins were much larger. But even with that conservative approach, the probability of achieving Thorp’s record is actually significantly less than the probability of randomly picking the same atom twice out of the mass of the Earth.
So there are people out there who have records that are so lopsided, so preposterously skewed towards winning, that evidence of skill is very strong. DNA evidence probabilities are in the order of a few billion to one, but here we are talking about extraordinarily greater odds. So track records such as Thorp’s would be impossible if there were not non-randomness in the markets.
ET: That is very interesting. And actually very relevant for your FundSeeder venture, since we believe the goal is to find the best trading talent out there that would have otherwise remained hidden, correct?
JS: Yes, although you need a long track record to demonstrate that irrefutable evidence of skill. However, while finding people who can deliver superior return-to-risk – our key measure of performance, as opposed to just returns – based on a daily basis (which is statistically far more significant than the conventional use of monthly data) may not guarantee that they are skilled you will have some assurances that this is a person who more likely than not has skill. It doesn’t prove it though. For that you need a very long track record.
ET: Yes, but at the same time we are reminded of how past results don’t guarantee future results. This means that if you pick a trader based on a great performance over the last, say, 5 years, even if you use the most refined risk-adjusted returns measurements all that can easily change on a dime going forward.
So how can you navigate through all this and reach a solid, informed decision on trading performance? Or, rather than results, are traits like consistency, a good trading plan, risk management and so forth the key differentiator for you?
JS: That cliché remains absolutely true. But there are a couple of elements to it.
If you are talking about strategies that correlate to sectors, indexes or hedge fund style, a good past performance in the past can actually be an indication of potential poor performance in the future. In my book Market Sense and Nonsense, I empirically showed that for these strategies investing in the worst performers over the past 1, 3, and 5 years actually does better than investing in the best.
So not only do I agree with the contention that past superior performance does not necessarily imply superior future performance, the relationship is often inverse. My qualification here is that it depends on the strategy. Those strategies that correlate significantly with sectors, indexes, or specific hedge fund styles can become overbought and oversold as we talked about earlier, hence the tendency for a reversal in performance.
However, I want to separate this situation from a trader who is uncorrelated to any index, sector or hedge fund style. For that type of trader superior return/risk performance could indicate trading skill as opposed to reflecting a portfolio in a sector of strategy style that has become overbought. While even then you can’t say that past performance is predictive, if you are going to look for good traders, it certainly makes more sense to focus on those who have been successful. There is no rationale for assuming a trader who has not done well in the past will suddenly start doing well.
So you might as well focus your research on those who have demonstrated that ability. Then, as you suggest, you have to evaluate other things more carefully, like why they have done well, what their edge is. For example, someone with a great risk-adjusted return might have employed a strategy of selling way out-of-the money puts on equities since late 2008. That strategy would have produced great return/risk performance, almost like a money machine, but the trouble is that type of strategy also embeds a large tail risk. So even though the track record of this strategy would show low volatility, there would be the risk of catastrophic losses if there were another abrupt market selloff as in 2008 or 2000.
So you have to take into account exposure to event risk. Ironically, many strategies with low volatility are the most susceptible to event risk. For these strategies you can have low volatility, low volatility, low volatility… and then all of the sudden extraordinarily high volatility.
If there was no adverse event in the track record, you can end up with very misleading conclusions if you don’t account for this. I only look at risk-adjusted returns to select from a larger universe and then I take a deeper look into the associated strategies.
ET: Finally, there’s this somewhat inspirational belief that if you do well in the industry at some point you can trade for a living – from your mansion at the beach sipping daiquiris. You have met so many people over the years. Do you know any smaller investors that live exclusively from market speculation, or is this just a mirage used to suck people into the markets?
JS: Sure. I’ll just provide one example because he is a friend. Peter Brandt started trading some forty years ago, starting at Commodities Corp, a firm that hired proprietary traders back then. He then left after some years and ended up trading his own account for the rest of his career. Not managing other people’s money but living off his trading income, making money consistently over the years.
That’s the trader you just described. He doesn’t use any powerful computers. He’s just an experienced chart analyst with good risk management discipline. He hasn’t won every single year although he has been profitable most of the years. He has lived his entire life like that.
ET: One major drawback regarding that lifestyle is that not having a steady income stream on the side could really affect your psychology because your heightened emotions might get in the way. The pressure to make money can really throw you off track.
JS: That’s a great point. I have never put myself in a situation where my livelihood depends exclusively on trading. I trade sporadically. Sometimes I trade, sometimes I don’t. I have never entertained any thought of trading for a living. It is more of a hobby than anything else. But I believe that if I tried doing it for a living I would fail because I couldn’t handle the emotion of your living expenses coming out of trading. So it does require a special kind of person to be able to do that and only a small percentage of people can do that.
If I had enough money to live comfortably for the rest of my life then I might be able to do it. But if I had a cushion that would only last two or three years, I’m pretty sure my emotions would eventually sabotage me. So that would not be a good idea. This is actually a very important point.
ET: Thank you very much for sharing your insights. It sure has helped us and we’re sure many, many other people over the years. All the best to you
JS: Thank you.
- How The IRS Can Empty Your Bank Account Without Warning
Having just filed his 2016 taxes, a Zero Hedge reader submits the following bizarre story.
On January 20, the reader filed his Federal tax return using Tim Geithner’s favorite TurboTax software, which the IRS formally accepted three days later, on January 24. One week later, on January 31, the IRS made an automatic deposit into the reader’s bank account, who then used the refund to pay down his credit card debt the very next day.
This is when things turned bizarre, because as our readers writes, just two days later, without warning, on orders of the IRS his bank empties out the bank account handing over its contents to the IRS:
“the IRS emptied our bank account February 3, 2017 for erroneous refund with no notice! (please see attached letter).
The only other thing I could think of was that TurboTax did not work correctly and calculated to large of a refund but the letter from the IRS stated it was a “processing error at the Internal Revenue Service”. The refund we received was the same as what TurboTax calculated. I researched the IRS manual about erroneous refunds and could not find anything referring to a “R17” code as stated in the letter.
Called them. Our return was fine. The amount of refund was fine. Not an identity theft problem. Error on their side. According to the person I spoke with they are doing this to a large block of filers. They seemed hesitant to give more info.
He then adds that “in our phone conversation they told me that the return was fine and the refund amount was correct, it was not an over refund issue but some kind of IRS internal error and they would reissue the same refund after receiving the money back. It makes absolutely no sense to me but this is what I was told.”
So, as our reader summarizes, “no outstanding taxes. Never been audited. Always file on time. Not a small business, just a normal employee W2, not a structuring issue. Only typical deductions and student loan interest. Scrambling to cancel auto payments and trying to figure out how we will pay mortgage and any payment that will not accept credit card.
His question, “how can this be legal with no notice?” is not simply rhetorical. To be sure, the IRS has virtually unlimited rights over individual fund flows and stock, among which to:
- File a tax lien against you;
- Levy your bank account;
- Garnish your wages;
- Close down your business;
- Seize and sell your home;
- Assess you personally for corporate employment taxes;
- Put you in a monthly installment payment arrangement that is too high;
- Contact your banker, neighbors, friends and business relationships concerning your tax liabilities;
- Go after third party transferees of your assets.
… but all of the above are only permitted in the course of “due process”, when an individual taxpayer has been found in violation of US tax laws.
In this case the IRS counterparty was in no way at fault, and was merely the lucky recipient of a clerical IRS error, in the IRS’ own words, without any justification or validation. That the IRS would then have full liberty to indirectly enter the account with no warning, and take out whatever funds it deemed appropriate – again, with no explanation of just what the “error” was – is sufficiently disturbing, and is why the person who this happened to would like to know if it has happened to other ZH readers and if so, does he have any legal rights in this particular case.
The redacted IRS notice sent to the readers’ bank, in this case the ASCU, is below:
- BuzzFeed Sued For Defamation Over Trump Dossier 'Fake News'
BuzzFeed (as well as editor in chief Ben Smith and former British spy Christopher Steele) faces a new lawsuit over its publication of an unverified dossier of claims against President Trump and others, McClatchy reported Friday evening. In response to the lawsuit, Politico reports that BuzzFeed issued an apology on Friday evening (presumably admitting to publishing ‘fake news’).
McClatchy reports XBT Holdings, a tech firm with Russian ties named in the document, is suing over the January 10 publication of what the suit calls “libelous, unverified and untrue allegations.”
The dossier, which includes uncorroborated allegations about Trump, claims the Cyprus-based XBT, which is owned by Russian tech magnate Aleksej Gubarev, “had been using botnets and porn traffic to transmit viruses, plant bugs, steal data and conduct ‘altering operations’ against the Democratic Party leadership” in 2016.
In response to the lawsuit, Politico notes that BuzzFeed on Friday evening issued an apology and said that it had redacted Gubarev’s name, and the names of his companies, from the dossier.
“We have redacted Mr. Gubarev’s name from the published dossier, and apologize for including it,” BuzzFeed spokesman Matt Mittenthal told POLITICO in a statement.
CNN Money and McClatchy were the first news organizations to report on the existence of the lawsuit against BuzzFeed. (You can read Gubarev’s full defamation complaint against Buzzfeed here.)
“Although Buzzfeed and Mr. Smith claim that they had the dossier in their possession for weeks prior to its publication, and despite their claims that they had four reporters working near full-time on attempting to verify the claims made in the dossier, prior to publishing the Defamatory Article and the dossier, neither Buzzfeed nor Mr. Smith contacted the Plaintiffs to determine if the allegations made against them had any basis in fact,” the complaint states.
“After the dossier’s publication numerous journalists (more than 30) contacted Mr. Gubarev with some even arranging to travel to Cyprus to discuss the publication with Mr. Gubarev. During this time, and up to the present day, neither Buzzfeed nor Mr. Smith contacted the Plaintiffs to determine if the allegations made against them had any basis in fact.”
The complaint also states that Gubarev is not a public figure and that the publication of the dossier has ruined his reputation.
“Plaintiff Aleksej Gubarev, who is married with three young children is not, in any way, shape, or form, a public figure,” the complaint states.
“As a result of Buzzfeed and Mr. Smith’s reckless publication of defamatory materials, he has found his personal and professional reputation in tatters. His wife has found herself a target of online harassment and the family’s personal security has been compromised.”
Although BuzzFeed did not redact Gubarev’s name when it first published the dossier, it did redact the names of a few other people mentioned in the dossier.
The lawsuit, filed in London and Fort Lauderdale, Florida, seeks unspecified damages, according to The Hill, and says BuzzFeed’s story has been viewed nearly 6 millions times.
- Trump Files Appeal Challenging Judge's Block Of Travel Ban
Following angry tweets all day from President Trump, the U.S. Justice Department filed notice Saturday evening of a formal notice of appeal of a Seattle judge’s temporary restraining order which put the administration's immigration order on hold. The notice followed a statement by the DHS to comply with Friday night’s court ruling by reverting to immigration procedures in place before the Jan. 27 executive order on immigration, and by the State Department to reverse the provisional revocation of about 60,000 visas.
“The opinion of this so-called judge, which essentially takes law-enforcement away from our country, is ridiculous and will be overturned!” the president told his 23.6 million followers after U.S. District Judge James Robart in Seattle lifted the ban on all refugees and on visa holders from the seven countries. He later wondered “what is our country coming to when a judge can halt a Homeland Security travel ban.”
The administration said it was taking the case to the U.S. court of appeals based in San Francisco, hours after it was promised by the White House. Ironically, as Bloomberg notes, that court is considered far more liberal than most other federal appellate courts, which means that after this action, the next move will be an almost certain escalation to the Supreme Court.
Robart’s comprehensive ruling eclipsed a Trump administration win earlier on Friday, when a federal judge in Boston refused to extend a temporary ruling blocking enforcement at that city’s airport of the ban on immigrants from seven countries. “Why aren’t the lawyers looking at and using the Federal Court decision in Boston, which is at conflict with ridiculous lift ban decision?” Trump said on Twitter.
The DOJ appeal faces an uphill battle: “The Washington suit is so much more broad than anything else we’ve seen because it goes into the economic interests of the parties — that’s a very big development,” Hoffman said of a likely appeal by the federal government. “Appeals of temporary orders occur only in very, very extraordinary measures. I doubt it would be successful.” The reason why Robart was so quick with his decision is because he had the support of some of America's largest tech companies.
Washington Attorney General Bob Ferguson said the effects on his state included economic consequences for employers based there, including Microsoft Corp., Starbucks Corp. and Amazon.com Inc. Bellevue, Washington-based Expedia Inc. had about 1,000 customers with flight reservations in or out of the U.S. from the seven countries, he said. Meanwhile, DOJ lawyer Michelle Bennett, arguing at Friday’s hearing, said the president was acting within the authority granted him by Congress and there was no financial harm to the states. The judge disagreed.
Unless the appeals court blocks the lower court order, it will remain in place while the judge considers a request to permanently invalidate the president’s order, Ferguson said that hearing will probably occur within a month.
Echoing criticism of Trump's action from within the Democratic party and progressive human rights groups, David Miliband, president and chief executive officer of the International Rescue Committee, said Robart’s ruling demonstrated that Trump’s executive order wasn’t adequately thought out. “There is every right for the administration to review and build on existing arrangements,” Miliband said in an e-mailed statement from the refugee assistance group. “There is no excuse for tearing up carefully developed procedures that have kept America safe.”
Ironically, the appeal hit just minutes after Trump tweeted:
Why aren't the lawyers looking at and using the Federal Court decision in Boston, which is at conflict with ridiculous lift ban decision?
— Donald J. Trump (@realDonaldTrump) February 4, 2017
The judge opens up our country to potential terrorists and others that do not have our best interests at heart. Bad people are very happy!
— Donald J. Trump (@realDonaldTrump) February 5, 2017
The appeal made official what the Trump White House had promised on Friday night.
As AJC reports, the official notice of appeal was a barebones legal document filed by the Trump Administration.
PLEASE TAKE NOTICE that the defendants Donald Trump, in his official capacity as President of the United States; United States Department of Homeland Security; John F. Kelly, in his official capacity as Secretary of the Department of Homeland Security; Rex W. Tillerson, in his official capacity as Secretary of State; and the United States of America hereby appeal to the United States Court of Appeals for the Ninth Circuit from the February 3, 2017 Order (ECF No. 52) enjoining and restraining enforcement of portions of the January 27, 2017 Executive Order on Protecting the Nation from Foreign Terrorist Entry into the United States.
This legal fight will now shift to the Ninth Circuit Court of Appeals – an appellate court with a long legal history that shades to the liberal side, guaranteeing weeks of increasingly more angry Trump tweets, before Trump ultimately ends up at the Supreme Court.
- "Dear Leftist, You Need To Take A Closer Look At The Real 'Refugees' Before You Denounce 'Vetting'"
Submitted by Duane via Free Market Shooter blog,
Plenty of mainstream media outlets have been critical of the Trump executive orders regarding immigration and “vetting” of refugees. There are too many to list, but I will use an excerpt from a U.S. News article to drive the general point home:
When the United States accepts refugees from countries with a significant Muslim population, we undermine the anti-American hatred that underlies Islamic State group recruitment. Closing America’s door to Syrian refugees, therefore, is not only a heartless hiccup in our nation’s history, it also validates Islamic State group propaganda, advances the group’s agenda and drives refugees back into the arms of dangerous terrorists. By turning away Syrian refugees, Trump is plunging America into a national security nightmare.
The “fact-check” website Snopes (which has previously been outed as being heavily liberal-biased, being run by a “failed liberal blogger”) also gets in on the act, saying that Syrian kids aren’t holding guns, instead labeling them as “Pakistani”:
The above-displayed photograph, however, was not taken in Syria and does not show refugees. The claim that the children are orphans is also baseless, as well as the claim that the children are holding real guns.
The photograph was taken in July 2014 on Al-Quds (Jerusalem Day) in Pakistan. The description accompanying the photo on Alamy states that the children are “Pakistani Shiite Muslims” and are holding toy guns during a protest.
If there is one thing Snopes is correct about, it is that Pakistani refugees also need to be intensely vetted, and should be on the list of countries, possibly above others Trump listed. However, Snopes is mostly doing this to dispute the notion that refugees could be dangerous. Which, given the information that is out there, is willfully ignorant at best, outright malicious at worst.
Take a closer look at the children from the opening image, in the below video:
Without question, they would just strike you as “cute children” who deserved a country of their own if you took away the guns and put them in a TV promo looking for donations.
But, Express makes it appear as though these are just “hopeless” children who are playing with toy guns, and that Western nations denying refugees entry into our nations are just awful. Do they realize just how easy it would be for one of these children posing with real guns and real ISIS training to slip in with the kids who deserve a place?
I can already feel the next quote coming: “Those kids in Express’s slideshow were playing with toy guns, and even if the kids in the above video have real guns, they have no real training, and would never shoot anyone!”
Well… when I said the MSM and the many immigration protesters were either willfully ignorant or outright malicious, I really meant it.
The below video is so graphic, I was hesitant to post it. But Free Market Shooter is not a “safe space,” and if you are looking for one, you’re in the wrong place. I will however provide one last warning – if you are squeamish, easily disturbed, or just plain scared of the truth, DO NOT WATCH THIS VIDEO, BECAUSE IT IS EXTREMELY GRAPHIC. A description is provided below the video, if you cannot watch.
For those who did not watch, the video showed armed ISIS-trained children clearing a house methodically and professionally, just like a team of commandos, and executing ISIS detainees within the house. Funker530 originally provided the video, and their commentary is below:
Take a good look at the world today. We have children in the streets of the United States throwing a temper tantrum because they believe that the politicians have failed. Maybe they have. They have failed them by allowing them to believe that they live in a world of sunshine and rainbows.
Politics completely aside, this video is a snap back to reality. This is the real world that we live in today as a species. Grown men are training children, some as young as six, to move through a house in a tactical fashion with live ammunition, having them kill actual living human beings. To put the cherry on the cupcake, they are recording it with some serious production value, and then uploading it to the internet to show the world that their children are ready to die for their cause. I don’t see you marching for women and children’s rights in Syria.
While you whine and complain about social issues that are a moot point in our society, women and children are being raped and murdered around the world by maniacs. Take a look outside of your own safe space, and realize that the world can’t be the Utopian place you want. It isn’t possible, it is never going to happen.
This is why.
If you think this is all just a big production, you clearly have not watched the video. Children are actually delivering kill shots on real live people. This is not The Matrix – this is the real world, and it will never cease to shock and disturb you.
So, think long and hard next time you see that cute refugee kid in the video, and ask yourself – is it possible that this child is actually a trained killer? Whether its man, woman or child, is there any real way to know if someone coming from a war zone is just an innocent, or a seriously dangerous individual?
For the record I’m not certain if Trump has all the answers to the “refugee” question, and whether or not his immigration actions will actually be effective or not. I also realize that these actions are likely harming some innocent individuals who truly mean no harm. Certainly, he can’t just wave a magic wand and make the country’s immigration problems go away overnight, especially given how difficult it is to know exactly who is trying to enter into and/or emigrate to the USA on a daily basis.
However, Trump is clearly aware that the world is a bad place, and is trying to do something to protect and safeguard this country from a very cruel world that very much means to do our citizens harm. At least he is not sticking his head in the sand and being naive or willfully ignorant about the truth, like our MSM outlets are doing every day when they denounce him just for trying something his predecessor didn’t.
If the protesters took the MSM blinders off, and saw the world for what it really is, would they really be so opposed to Trump’s actions?
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