Monthly Archives: November 2014

Things That I Am Thankful For

He is right:

The world is awash with liquidity that is flowing into stocks and keeping keeping treasury yields low. Smart people are creating the next generation of technologies that will accelerate the economy and improve living standards.

In the spirit of Thanksgiving, here is an incomplete list of the things that I am thankful for:

1. Thankful for Darren Wilson being acquitted

2. Thankful for GOP control of senate

3. Obama’s approval rating falling

4. Bay Area real estate

5. Stocks going up

6. The US economy being fundamentally sound

7. IQ being important

8. Free market capitalism

9. STEM people making more money than everyone else for the economic value they create

10. Web 2.0 and Silicon Valley

11. American exceptionalism

What are you thankful for?

The libs say we’re in a housing bubble, but mortgage lending at a 13-year low:

The Left Jubilant as Ferguson Burns

With the exception of the predictable Ferguson verdict and the subsequent rioting, we’re still in the slowest news cycle in years. Even though I’m Republican/libertarian, it’s nice to see America not have to reel from one crisis to the next. Unlike the aforementioned article, I thank the Bush administration for the post-2008 period of peace and prosperity, not Obama. Obama is just taking credit for the work Bush and the fed did in saving the financial system, and all politicians to some extend take undue credit, but let’s not pretend that this is an Obama recovery, because it isn’t.

The left seeks crisis so that stocks fall and the rich lose money, but it just won’t happen. They wanted a debt ceiling default to prove that America is not exceptional. They, the left, wanted Ebola to get worse to feed their appetite for destruction and crisis, only to be disappointed when it suddenly ended, the CDC predictions of ‘millions dead’ up in smoke, predictably so. They wanted stocks to keep falling , but the S&P 500 is up 15% since the October lows. They want Ferguson to burn, while ironically tweeting #peaceforFerguson. Same for the 2010 BP oil spill. They wanted it to get worse to indict ‘big oil’ and were disappointed when flowing stopped and the oil on the surface was quickly subsumed. It’s like they want mayhem, provided the victims are the successful such as store owners and rich people. On the smartistsphere on sites like Reddit and 4chan, smart people see though the lies of the liberal media, agreeing that Michael Brown, having no redeeming qualities as an individual, deserved to die for being a menace to society.

The Power of Linear Combination ETF Portfolios

Money lubricant that gets the wheels moving. I wanted to test a new investing strategy and existing strategies of picking stocks had mixed results, with large draw-downs and stagnation between gains. So I ponied up $35 for this cool program etfreplay and began testing strategies, which I call ‘linear combinations’. This is because you are taking some linear combination of ETFs and weightings to create a superior portfolio to just passive indexing and with less risk than owning an individual stocks.

Here is one such combination that is long 50% TQQQ (nasdaq 100), long 40% TMF (20 year treasuries) and short 10% EDC (emerging markets) rebalanced quarterly:

It has beaten the market every year since 2010 and has annual returns close to 50%. To demonstrate the power of linear combinations, there is no individual stock in existence that has produced such substantial, consistent risk adjusted returns for the past five years.

The Daily View: Biological Determinism Bull Market, GOP, Basic Income, Shirtstorm

The biological determinism bull market can’t be stopped as stocks keep making new highs with no end in sight. Same for those Bay Area real estate prices and web 2.0 valuations – those keep going up with no end in sight, too. Don’t get your hopes up, libs, that this is all a bubble that will end in a fiery crash, because it’s not. In the past five years more wealth was created than in any prior five year interval in the history of civilization, and this will continue, culminating in the transition to a type 1 civilization, the construction of a Matrix, the singularity, and transhumanism. The stock charts will rise to to infinity, lavishing obscene wealth upon a the select, smart few that can only be expressed in scientific notation or in an interminable string of zeros. In 2008 the Rubicon was crossed, and there is no turning back. Nothing short of divine intervention an make the stock market go lower – for God to extend his arm and push it lower. The demarcation between the lackadaisical pre-2008 economy and the post-2008 economy when the economic switch was flipped to overdrive is indelible. In the future there will be more wealth inequality, more meritocracy, an even greater premium on IQ, stocks going up all the time – more of the same. America’s post-2008 intellectual Renaissance cannot be stopped, and the left will dragged kicking and screaming into this new era of unending wealth creation, technological innovation, and prosperity (if only for some). The future is near and it’s going to be awesome.

Uber will be worth $100 billion on IPO. Snapchat $40 billion. Google will be worth a trillion dollars and Amazon, still refusing to turn much of a profit, will revolutionize commerce and digital infrastructure more than it already has. Tesla stock going to $600 share. Facebook $140. These companies, along with biotech, will be the leaders of the type-1 transition.

Stocks will keep rising as it becomes apparent the GOP will not only have a super-majority, but the presidency too. The pro-growth policies of 2002-2008 will make a huge comeback as part of a massive neocon resurgence. That means the Obama tax hike will be rescinded. There will be more defense spending and with Obama gone, the GOP will stop talking tough on immigration, seeing as an endless supply of cheap labor and consumers is more important than politics. All of this is bullish for stocks and real estate. Healthcare and biotech will benefit because Obamacare will not be repealed and everyone regardless of ability to pay gets access to super-expensive drugs. Biological determinism will be more important than ever, and the neocon insurgents will begin to tacitly acknowledge its merits. Maybe some people fail to get ahead because they aren’t smart enough; let’s stop wasting tax payer money on those cognitively preordained to failure and start allocating more resources on those who actually contribute to society such as as Wall St. and STEM.

On a related note, a common criticism of the basic income is that it’s an economic drain by giving people an incentive to be unproductive. A possible, but very politically incorrect way to circumvent this is to make the basic income only applicable to individuals with a STEM degree (but could be extended to anyone with a degree deemed sufficiently intellectual) and or demonstrably high IQ. This income would be much more generous than welfare, with the only necessary precondition being intelligence. Technically it’s no longer a ‘universal’ basic income, but a basic income without some preconditions is doomed to fail. You look at today’s most successful, fastest-growing companies such as Facebook, Snapchat, and Uber and it’s evident they are were all founded by smart people. A basic income for hihg-IQ individuals would help the economy because these are the people with the skills and talent to create business, make discoveries and, in general, advance civilization. If the next Mark Zukerberg or Elon Musk is too busy trying to pay the bills than creating, that is a great mind potentially wasted.

The post-2008 hyper-competitive economic environment has magnified the socioeconomic disparities stemming from the cognitive differences between individuals, versus 50 or so years ago when the differences between life outcomes of a person with a 130 IQ versus 100 IQ wasn’t as great. The cognitively unfit are falling between the cracks, and not much can or should be done to help them. Is the tradeoff of more egalitarianism for less innovation a worthwhile one? I think not.

It’s not just smart, rich individuals who are accelerating ahead of everyone else. The bigger is better, ‘winner take all’ theme also applies to countries. America is running circles around the rest of the word, especially since 2008. Japan, Russia, most of Europe, and Australia are either in a recession or teetering on one. Other countries such as Brazil have more growth, but lots of inflation. The left says Europe is doing badly because of austerity, but then how would they explain Japan which has more stimulus relative to GDP than America and is in recession? We have the best performing stock market a strong currency, and the most innovative companies. America’s economic hegemony has only been strengthen since 2008 – the opposite of what many predicted, which was that the banking problem would usher a ‘post-America’ era. Why is America so exceptional? Free markets, effective policy during crisis, good demographics, ownership society, high premium on IQ, tough on crime, meritocracy, and so on.

Regarding gamergate and now ‘shirtstorm, the left is waging war on nerds because they, the social justice warriors, want society to regress to purely egalitarian state and because, from stocks to real estate and web 2.0, nerds are the ones making all the money in the post-2008 hyper-competitive, high-IQ economic boom, and the left resents this. The good news is like gamergate, ‘shirtstorm’ is another culture war that the left is losing, or at least losing in the court of public opinion. Sites that cater to a high-IQ, empirically minded audience, like Reddit and 4chan, overwhelmingly support Matt Taylor, as do most scientists and other smart people.

Why is the left losing? Because reality doesn’t agree with their point of view, and because the economy and the meritocracy is slapping them across the face – their wanting of crisis and redistribution going unheeded as the stock market plows higher week after week and the rich get richer. The high water mark of welfare liberalism was the election of Obama and the 2008 financial problem (that the left helped instigate), and now it’s all over. They wealth spreaders lost, both economically and culturally. From the job market, to the Ivy League, to Wall St., Reddit and web 2.0 – the high-IQ meritocracy has taken over, with achievement and talent being more important than ever. Online reputation status (Reddit karma, Instagram & Twitter followers) and knowledge is the currency of the post-2008 economy. To among the cognitive elite means you’re an important person. The collective hope and optimism following the election of Obama and the brief decline financial elite proved to be temporary respite for the left, as the elite have not only regained their power, but solidified it further. And the optimism has ceded to an aura of a pervasive results-oriented, empirically-minded cynicism and skepticism, especially in the smartistsphere and among the digerati, as well as in real life where even small missteps can have long-standing consequences. But this expected because the left is losing, and more and more people are questioning the veracity of the fanciful delusions of welfare liberalism. The ideal of altruism and egalitarianism of welfare liberalism doesn’t hold water in the real world. STEM and IQ rules the world. Web 2.0 and Bay Area real estate valuations keep going up. Interest rates never going up again. All of this is evidence the left is losing. One nation under Silicon Valley and a perpetually rising stock market, divisible into the super-wealthy and everyone else, with apps and cloud storage for all. It’s wishful thinking by the blank slate left to blame money, just in the same way they blame rich people for keeping the lower/middle class down. It’s always some environmental factor, never biology for the failure for so many to succeed. And for those who do succeed, it’s because of luck or some other unfair environmental advantage.

Stock Market Going Much Higher

Things like moving averages, technical analysis like head and shoulders, put/call volume, vix, advancing declining, breadth, distribution days (worthless IBD indicators) imho all these don’t work reliably, especially not for indexes.

The only indicator that seems to be reliable is the candle size of the monthly chart of the ES/SPY/QQQ relative to earlier candles. A choppy pattern with large candles like in 2000 and in 2007 is a bearish indicator.

So right now, six years after the greatest bull market in nearly a century, the candles are still tiny and show no signs of growing. I can’t be any more bullish than I am now. And let’s not forget, interest are not going up for at least another year or two and as the rest of the world slides into recession, the US economy keeps plowing ahead, impervious to everything. America has the best consumers in the world, best multinationals, best free market, best fed, best institutions of higher learning, smartest people, best tech start-ups and so on.

For reference, here is a screenshot of when I began my candle method when the ES was 150 points lower

Short term targets S&P 500 going to 2500

Doom and Gloom on the Blogs

So much doom and gloom on the blogs lately, but I can understand why as the super-competitive, winner-take-all, post-2008 economy has created a lot of losers and only a handful of winners. You even see this pervasive leftist pessimism on discussions about physics. The left says that because string theory cannot be tested, it is therefore invalid. They, the left, also hold capitalism to the same impossibly high standards. Because because some mistakes were made in the events leading up to 2008, all bankers are evil and capitalism should be abolished, or something along those lines. They see success like string theory, the stock market and Facebook and wish to bring it down. That’s why through this blog I’m trying to merge optimism with HBD.

As stocks post week after week of record highs, the post-2008 biological determinism bull market rages on. Individuals who are cognitively unfit to thrive in today’s hyper-competitive economy are falling between the cracks, where they belong.

The future will be much like today, but to the extreme. So whatever trends exist now will be magnified.Extreme wealth inequality, extremely high stock market and web 2.0 valuations, extremely high bay area home pries, etc. Physics 101: an object in motion will stay in motion unless some outside force acts on it. There is not the slightest hint of evidence of forces that will slowdown these existing trends. America is still the richest and most prosperous nation in the world, even if few can participate in it. In America’s hyper-meritocracy where the cognitive elite are getting richer and smarter than ever, the dow is going to 19,000 soon.

One of the things about finance is that people in this field are not idealistic; they are not fooled by hazy claims or leftist ideas. A lot of the time, finance people are grounded, if sometimes too cynical. America’s institutions of technology, higher learning, and finance are bastions of empiricism and smartistm, unhindered by political correctness and egalitarianism.

In a recent video, Aaron says that as president he would have all the bankers responsible for the 2008 financial problem ‘executed’. But if Aaron actually sat down with one of these bankers and had a chat, he would find a lot of common ground. They could probably both agree that liberals are trying to destroy the meritocracy, not to have sympathy for those who wasted money and time on a worthless liberal arts degree, that free market capitalism is the best path to prosperity, that STEM and high-IQ is important, that most people are idiots, and as a form of eugenics, that birth control should be mandatory for welfare reipients.

Bigger is Better Theme Will Dominate in 2015

He is right. Let’s stop blaming Wall St. and bankers for the overblown financial problem and instead put the blame where it is really belongs: reckless borrowers, regulation, and the doom and gloom media that tried to fan the flames of crisis to get Obama elected.

Blame the left for trying to spread lies about the economy being weak to justify wealth redistribution under the mistaken assumption that it will help boost the allegedly sluggish economy (note: The US economy is doing just fine, despite record wealth inequality).

We’re not in a financial meltdown right now and the fixed income market clearly doesn’t think we’ll be in one anytime soon given the yields on long-term treasuries. Ditto in the FX markets. Ditto in equities.

The libs have been predicting high/hyper inflation for the past five years and during each passing quarter they become more and more zealous in clinging their fundamentally flawed understanding of macroeconomics. The U.S. is an autonomous currency issuer with a zero chance of defaulting due to insolvency (there’s a very outside chance of a technical default due to political infighting) not only because we can print money, but borrowers have more faith in the American economy, government and institutions of innovation than that of any other country. Our debt in nominal terms may be high but we have the world’s reserve currency, the most productive economy (that actually happens to be growing, unlike the eurozone), and trillions of dollars of assets (think infrastructure and federal land).

You know you’re a lib when you go around on message boards telling people IQ is not important compared to EQ, that the stock market is a bubble, that the US economy is weak, that Bay Area home pries are a bubble, that wealth inequality is a big deal, or that the consumer is maxed out. The same for blaming bankers, blaming tech CEOs for collusion, whining about congress being dysfunctional, whining about too much debt, and so on. Some of these people claim to be conservatives or of the ‘right’, but when you probe deeper, they are just libs who have infiltrated the anti-Bush , anti-neocon faction of the Republican party. Others are libs who are confused – who identify as conservative when they really aren’t. The conservative party is the party of wealth creation, homeland security, and policy that benefits the best and the brightest. When you attack Wall St., rentier capitalism, the fed, IQ, the Ivy League and Web 2.0, you are attacking the best and the brightest who comprise those institutions, and that by extension makes you a liberal. The GOP is about raising society to its fullest potential, and to accomplish this sometimes means having to enact policy many find unpopular (bank bailouts, tax cuts for the rich, QE), or ignoring things like wealth inequity.

As part of the bigger is better theme, a great call by me to go long Ali Baba when it was at $90 (now at 117 on its way to 130 and beyond). Just another example of how I’m right about pretty much everything because I have my thumb on the pulse on the market and economy. Like a chess master, I can see many moves ahead and act before the masses do.

The dow is going to 20,000 soon and the S&P going to 2500, but fewer and fewer stocks and sectors will participate in the gains. If you aren’t careful and find yourself in the wrong stocks and sectors, you will miss out, even if you are long.

Be long: Healthcare (XLV), Biotech (PJP), Transports (AAL, IYT) Financials (GS, WFC, MA, V), Large cap globalist tech (QQQ, GOOG, AAPL, FB, BABA), Consumer Staples (VDC)

Weak sectors (avoid): Energy (XLE), Materials (XLB), Small Caps (IWM), Europe (VGK), Emerging Markets (EEM), Miners (GDX), Gold (GLD)

Some portfolio ideas: Long 30% SPY or 20% SPY and 10% PJP and long 70% IEF

Long 60% SPY, short 12.5% of each: IWM,XLB,VGK/EEM,XLE

Long 60% SPY, short 40% VGK

Wealth Spreaders Lose Again As Stocks Keep Going Up, GOP Victories

As the slowest news cycle in history continues, stocks keep raging higher. You can’t stop spendism, can’t stop technological innovation, can’t stop those web 2.0 valuations from going higher, can’t stop exports, can’t stop blowout profits & earnings, can’t stop IQ from being important, can’t stop smartism. Everything is awesome and no one outside of the smartistsphere is happy. The lib’s shrill crisis for crisis ignored as stocks keep going up.

Stocks are giving their nod of approval to the midterm results, with the major indexes posting yet another week of gains as the wealth spreaders on the left lose again. The market has been surging in recent weeks in anticipation of the GOP picking up more seats in the house and controlling the senate, in which the GOP succeeded. We anticipate dow 20,000 soon in anticipation of the Republicans winning the presidency, along with with strong economic fundamentals – thanks on less due to Paulson, Bernanke, and Bush. Obama deserves no credit for the post-2008 wealth creation boom, voters and economists know this as evidenced by Obama’s perpetually falling approval rating. The market could easily post 20-30% gains next year if it becomes more evident the libs have no chance in 2016. GOP control will usher a return of pro-growth neocon economic policy much like Bush’s terms. All that feet-dragging about debt will go out the window, as it should.

The midterm results were a victory for free markets, the meritocracy, IQ, web 2.0 smart people, and success. It was sobering defeat for welfare libs. These are the libs who seek crisis to foment redistributionist policy, deny biological determinism, and believe the pseudo intellectual, egalitarian nonsense espoused by the likes of Malcom Gladwell and Dan Ariely.

The GOP is the party of prosperity, homeland security, merit and wealth creation. Wall St. knows this and that’s why they, along with Silicon Valley’s tech elite, are backing the Republicans. The backlash against PC egalitarianism is building, not just online on sites like Reddit and 4chan, but even in the mainstream media.

Using a Linear Combination to Make Money with Stocks

Any and all forms of day trading and market timing is for suckers. You cannot and can never win. Or attain what finance people call ‘positive risk adjusted returns’

Other things that don’t work:

Moving averages, bands, trend following, Turtle trading, CANSIM, IBD 50 lists, watching Cramer, trying to ‘invest like Buffett‘ , newsletters, speculative stocks like small mining companies and early stage biotech, daytrading, forex, value investing, swing trading, option spread trading, etc ect..all crap.

The problem with the IBD lists is that these stocks are often priced for perfection and are susceptible to being suddenly dumped by profit-taking funds after a large rally. Whenever the market falls, the IBD list falls the hardest, and it isn’t uncommon for fallen stocks to never again recover. The IBD list uses momentum, but the problem is the funds that have engendered the rally in the first place can terminate the momentum at any time and then you’re screwed. I present below a method that uses momentum but eliminates a lot of the risks.

Every time someone comes up with a ‘rule’ for trying to time the market (Dow Theory for example) or some aphorism for making money (buy when there’s blood), I can name many examples of when these rules failed.

So that’s a lot of stuff that doesn’t work.

When the market became difficult in 2014 and picking stocks and trying to time reversals became impossible, I decided I needed a new method that eliminated the timing and guessing and replaced it with fundamentals and statistics, hence the linear combination method. What I do is I form a linear combination of ETFs, resulting in a high Sharpe ratio and where the fundamentals bode well for the underlying trend. Then I leverage the position using deep in the money options and futures.

A linear combination is simply a basket of ETFs, each with a weighing factor. The sum of the weights equals one.

For example: I may go long $100k SPY (a single ES contract)and then offset it with a short of $50k of the European market (VGK or IEV). SPY would have a weight of 6/10 and IEV would have a weight of 4/10. This has a 6-month Shapre of of excess of 4:

So what I did is I created the perfect ‘momentum stock’ that doesn’t have all the idiosyncratic risks associated with stock picking. It’s much harder for funds to manipulate the markets of entire countries than individual stocks. Studies have shown that momentum strategies can generate excess returns. From Wikipedia: For instance, it was shown that stocks with strong past performance continue to outperform stocks with poor past performance in the next period with an average excess return of about 1% per month. Without company related risks and by using leverage, the excess risk-adjusted returns are probably greater. Europe and the SPY have a correlation of .8, meaning it would be very unlikely for Europe to rally and the US markets to not follow; likewise, it would be unlikely for the US markets to crash and Europe to not crash as well. So they follow each other closely, but because the US has better economic fundamentals or due to some other factors, Europe hedges most of the downside and participates only a little in the upside. Unlike traditional put option based insurance or buying VIX futures, there is much less extrinsic value decay and you get the benefit of a smooth equity curve. Some people hedge with out of the money puts. This is terrible because those puts aren’t cheap and will expire worthless 95% of the time. Over many months and years, this can cause substantial loss of capital for a collapse that may never come. But if shit hits the fan, Europe will save the day. And if the market surges, Europe will lag. if nothing happens, unlike an option or VIX futures, there is no decay.

There are many combinations like this. Maybe I’ll post some more later.

Libs Attack Success, Celebrate Failure

They are both correct:

Goldman is right:

Six years after the overblown banking problem, the US economy is stronger than ever. Dow 20,000 soon.

I don’t know much about Ross Douthat, but from what I have gleaned through his writings, if he saw this blog he would agree with most of what is written, as would any reasonably intelligent person. Ross and people like him are the future of the neoconservative movement, fusing hints of biological determinism with edginess, superciliousness and supply side economics.

STEM is more revered and important than ever, says experts. Libs are attacking gamers, STEM, web 2.0, Bay Area real estate, Facebook, Amazon, Apple, the stock market, Ivy League, and free markets because those have been the biggest success stories of the post-2008 economy; and libs therefore, rather than celebrate success, seek failure. We’re becoming a nation of whiners, deriving joy from failure (schadenfreude) instead of from success. When you have a story about a web 2.0 start-up being worth billions, all the libs come out in the comments calling it a bubble and so on. These are the same libs who said Facebook was a bubble in 2007. Because they are so blinded by negativity, libs have a horrible track records at predicting stuff and often become irate when things don’t go their way, taking out their anger on the rich and other targets.