https://twitter.com/Brad_Setser Great stuff on Turkey from Brad Setser, perhaps there will be some opportunity to buy TUR bello $19
"But by holding all of their equity in lira even though a large part of their funding and lending was in dollars, the banking system's capital ratio falls as the lira falls (see the FT). That’s why the central bank is letting the banks use the end June levels of the lira to assess their capital needs. The banks have a bit of "wrong way risk" in their capital structure: their capital levels mechanically fall just when the banks are likely to need capital." https://www.cfr.org/blog/framing-tu...rabilites-some-rhymes-asian-crisis-not-repeat Turkey potentially faces reflexivity to the downside. I'm interested in a big panic to buy there, I wouldn't want to buy periods of stabilization
With this Trump thing, I mentioned it before, I believe Trump will eventually be impeached (or at least, will face the proceedings). Mainly because the collusion with the Russians did occur and he knew/ordered the whole thing (Abramson on twitter does a decent job listing the evidence of that collusion, even if in a too biased of a fashion https://twitter.com/SethAbramson) But that seems irrelevant, at this point I even think Trump leaving and Pence taking over is bullish. Pence will keep the pro-business republican agenda but without the volatile behavior/mouth from Trump. That's probably why SPY/ES has barely cared even though his lawyer is about to rat him out
Good point by Taleb here. Its similar to my case. Bitcoin is a call option on blockchain speculation/sentiment, options benefit from uncertainty. For the intelectually honest (or those with skin in the game) there is a LOT of uncertainty of where Bitcoin will trade at in the future, therefore it makese sense to be long options rather than short (partially except if the 'short' is just talking, no skin in the game, in that case the damage is only reputational). He goes as far as saying 'BTC doesn't even have a variance, steep power law.' One might be able to calculate BTC's historical variance but the number is so unstable and the amount of needed samples is so large to be able to arrive at this final variance that you might as well call it infinite. A typical power law distribution needs 10 trillion samples (IIRC) for one to be able to say with confidence what the standard deviation (and variance as well) is, Bitcoin might be even more unstable than that The only folks that can beat their chests in a bravado and talk about how worthless BTC is are the ones with no skin in the game and those who dont care about their investing reputation. Real risk takers know that something that goes up 400,000x can trade at almost any price
I find it really annoying when people really bash with a lot of bravado tech companies (usually that are up massively in recent years) but then say 'I wouldn't short it at all'. It seems to me that the confidence that they display should be brought DOWN by the fact that they are afraid of having skin in the game. Its a tell that there is something wrong with their opinion. That something wrong is the convexity/optionality of the investment, the open ended nature of the investment. Lots of times bulls can win in many different ways -Bull thesis is correct -Bull thesis is wrong but speculation drives the invesment up -Bullish surprises Whereas bears have to be correct about their thesis, correct that speculation wont take place, correct there wont be bullish surprises (like GOOG buying Youtube in 2006, which these days is probably worth over $50B). In other words, in open ended markets with a lot of optionality bearishness is FRAGILE whereas bullishness is ANTI-FRAGILE. Bulls might face bear surprises but there is an big assymetry in their payoff matrix, when bulls are wrong they lose their investment but when they are right they win multiples of their capital. Therefore bull surprises tend to be stronger than bear surprises. For an investor the bullish case needs LESS evidence than the bearish case (which explains why stock investors might listen to rumors as an heuristic), etc etc The rational way to analyze a convexity market is NOT to weight bull arguments and bear arguments equally and 'rationaly' determine what is right and what is wrong. But rather, there SHOULD be a bullish bias in that analysis, this due the optionality and payoff matrix
Other at the very least, the THRESHOLD to get bearish should be higher than the THRESHOLD to get bullish. So if someone presents a very good bear case for bitcoin and someone else presents a very good bull case, a rational investor might think its 50/50 on who is right. But he will still invest in the long side because of the optionality and pay off matrix ("If I'm wrong I lose 1 unit, if I'm right I have 5") This is what I call THRESHOLD THEORY. What makes a great trader/investor is where they place their threshold to get bullish and bearish at and how they weight bull arguments and bear arguments relative to the market they specialize in. NOT what the trader SAYS or WRITEs (or even what they would describe their 'investment philosophy'). People will say and write all kinds of things for millions of reasons but they will only TRADE or INVEST for the purpose of making money. I know traders that will talk bullish fundamentals and then dump stock as soon as it turns. They weren't talking bullish because they really thought that, but rather they were trying to HELP THEMSELVES by creating staying power, not getting shaken out of the position. As soon as the stock significantly reversed they are out. The only real way to know what someone thinks is to see what they are doing with their money and what risks are they running. Talk is meaningless
Here is a good heuristic for analyzing the stock market (a convexity market) that would fix a lot of issues with investors: "When someone presents a case about why the stock market is headed for a fall, be open but be very skeptical about it, demand a lot of evidence, a lot of conviction before acting on it. When someone presents a case about why the stock market will continue to rise, be very open and dont be very skeptical about it. Demand some evidence but not too much" This is why some 'rational' people (like the John Hussman's or Jeremy Granthams of the world) can have some trouble with stock investing. They think the analysis should be 'fair and balanced'. No it shouldn't
Here is a good heuristic for analyzing the stock market (a convexity market) that would fix a lot of issues with investors: "When someone presents a case about why the stock market is headed for a fall, be open but be very skeptical about it, demand a lot of evidence, a lot of conviction before acting on it. When someone presents a case about why the stock market will continue to rise, be very open and dont be very skeptical about it. Demand some evidence but not too much" This is why some 'rational' people (like the John Hussman's or Jeremy Granthams of the world) can have some trouble with stock investing. They think the analyz
As if it werent enough to have to deal with these issues, there is another reason why people with bearish tendencies are wrong to be the way they are. Most shorts are glass half-empty kind of people. Thats one of the reason why they became shorts. This sort of attitude not only is bad for happiness (since it undermines gratitute, one of the keys to happines) it only makes the person hard to like (who likes negative people?), so it also undermines the relationships of that person, which is another key for a happy life. Chances are they will attract other people with negative tendencies. Lots of shorts (from my observations) tend to be highly competitive people, competitiviness is also bad for personal happiness for much of the same reasons above. Competitive people tend to become workaholics who chase achievement but find hard to enjoy them. Since there is pretty much always someone better than you at anything, how are they going to enjoy things for any significant length of time? So they just work some more and chase more achievement, in search of a feeling of being 'enough'. But its a never-ending chase Now, I have seen some of the same behaviors and problems in bulls as well, but quite less so. But main issue is that shorting tends to REINFORCE those problems. If you keep looking for reasons and keep betting against things, it will just dig yourself deeper in that hole (and draw other people with those same tendencies into yourself, and we tend to be influenced by people we spend time with as research indicates). That said, I have no problems with shorting every once and a while and making bearish bets. I do them quite often, however, I do not identify myself in that fashion, be it as a short seller, a contrarian or as a competitive person (which a lot of people are proud of but I dont think its one thing to be proud of, not if you want to maximize happiness). I also try to avoid behaviors that tend to reinforce those things. For that reason, I don't have a lot of respect for people that describes themselves as a short seller, to me that makes so little sense that I already have to discount whatever they say because in my mind, they are behaving in very irrational way
An example of threshold theory. I recall that in late 2016 early 2017 someone asked Ray Dalio about the stock market, he called it "modestly attractive". Then the reporter asked "but what about this foreign policy issue" (IIRC, it was North Korea). Dalio said "every year there are concerns like that". Suggesting it was not enough to stop him from being long. Dalio knew that while he should pay attention to those concerns, the THRESHOLD to get bearish based on that info should be VERY high. His inner thresholds tend to be properly calibrated to the stock market because he has been doing it for so long that he learned where to place those thresholds and how to weight data in his decision making Now, if you take the same piece of info and give it to someone whose thresholds are uncalibrated, say David Rosenberg. Then he will go ape shit on that info. He will OVERPLAY the fact that North Korea said this, and Trump said that. He will suggest perhaps people should sell stocks. His inner thresholds do not look calibrated, furtermore he does not seem to weight the data properly for stock investing. Or at the very least, the Rosenberg the commentator looks to have these issues. What he does with his actual portfolio might be very different (I suspect he is far less active than his writing suggests) And in my mind, what makes someone a great investor or great trader is this calibration of inner thresholds and weighting of the data. Is knowing when a piece of data should be ignored, when it should be considered (by also HOW MUCH it should be considered) and at what point one has enough data to become bullish/bearish (at what point it has reached the properly calibrated threshold). Calibrating these threholds and weighting data well is, of course, easier said than done. But to me, that is the challenge and the art of trading and investing. That's where the game is played