There’s Never Just One Cockroach in the Kitchen

Tuesday, February 6, was a disaster for an untold number of speculators. For anyone holding an electronically traded product ( ETP ) tracking the inverse of the VIX index, the end of the low volatility regime that was 2017 obliterated their allocated positions. As various commentators have warned, an 80% increase in the index could trigger liquidation of the respective funds. Given the more than 100% rise in the VIX, such provisions were indeed triggered and internet message boards are abuzz with speculators licking serious financial wounds from their overexposure.

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Excuse me…but this calls for a cartoon

A local artist was commissioned to draw the cartoon below during the bust. It appeared again in writings in early 2007. It made its most recent appearance in the closing chapter of A Decade of Delusions. It seems apropos that it appears here at this moment in history. It has the added appeal of reducing the average word count. 🙂 Since the cartoon is copyrighted, simply send me an email if you wish to reproduce. Continue reading “Excuse me…but this calls for a cartoon”

Letters to the Fed & the Importance of Productivity

Seven years ago, on November 15, 2010—less than two weeks after QE2 was announced—a group of prominent, nonconformist and thought-to-be forward-thinking economists, investors, and political strategists sent a letter to then Fed Chairman Ben Bernanke. They did not equivocate. The open letter, under the letterhead of the Hoover Institution, succinctly outlined concerns about undesirable side effects of QE. No attempt was made below to emphasize any words, phrases, or sentences that might distract the reader. Continue reading “Letters to the Fed & the Importance of Productivity”

The Bitcoin Premonition

On October 19, Edward Chancellor debuted as the first guest writer of this blog. His most recent commentary on the Bitcoin phenomenon, originally appearing on Breakingviews, is a timely expose on modern bubbles:

Bubbles aren’t just about the madness of crowds, nor are they simply manifestations of excess liquidity and leverage—even though both of these factors are present in the extraordinary rise of bitcoin over recent months. Every spectacular bubble involves a premonition of the future. The trouble is that they turn out to be deeply flawed premonitions. In this respect, the current excitement about crypto-currencies has much in common with great historic speculative manias. Continue reading “The Bitcoin Premonition”

Tax Cuts, Debt, & The Pretense of Knowledge

In the fog of fake news and partisan debate, most tangentially informed individuals are bewildered as to the effects from the tax legislation being fast-tracked through Congress. Larger corporations, with their phalanxes of lawyers, are not so in the dark. Chase Bank CEO, Jamie Dimon, chairman of the Business Roundtable and former head of the now passĂ© “Fix the Debt” committee, broadcasted the corporate view without equivocation or qualification. “Passing tax reform is the single most important thing that Congress can do to make American companies more competitive, boost the economy, create jobs and spur wage growth.” Continued caution on the part of lesser luminaries is understandable.

As mentioned in other posts, the future anticipated by current forecasts must be measured against the facts of the past. That past would indicate that regardless of who might be opining, even the most constrained of forecasts will prove to be wildly—and quite likely destabilizingly—optimistic. Continue reading “Tax Cuts, Debt, & The Pretense of Knowledge”

Is the Business Cycle Dead, Or Just Hibernating?

Eight years since the official end of the Great Recession in July, 2009, rumblings of another recession are conspicuous by their absence. Is the business cycle dead? Although expansions will eventually die, old age itself is not among the direct causal factors, despite the popular adage. Moreover, expansions—like humans—are living longer while the duration of recessions has shrunk. Continue reading “Is the Business Cycle Dead, Or Just Hibernating?”

Two Sides of the Same Coin


While best known for its Consumer Sentiment Survey, the University of Michigan conducts a host of other subordinate surveys. The chart below shows the response of households to a specific question. “Suppose that tomorrow someone was to invest $1000 in a type of mutual fund known as a diversified fund. What do you think is the percent chance that this $1000 investment will increase in value in the year ahead?” Continue reading “Two Sides of the Same Coin”

1929 Is More Apt Anniversary Than 1987

Edward Chancellor and I met soon after I read his prescient and literarily superb book, Devil Take the Hindmost: A History of Financial Speculation (2000). We have stayed in regular touch, including attending a Berkshire Hathaway annual meeting together. This morning he sent me the following column from Breakingviews which, with his permission, I am including as the first guest post to my blog.

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The Tail Risks Optimizer’s Dilemma: Taleb Vs Spitznagel

Nassim Taleb[1] and Mark Spitznagel[2], former partners and collaborators, are the reigning authorities on optimizing portfolio outcomes for when tail risks manifest. Neither, collectively nor independently, has been able to find a workable solution to what I call the “Tail Risk Optimizer’s Dilemma.” In Fooled by Randomness, Taleb lamented his inability to build a career by just betting on black swans. “There simply weren’t enough “tradable opportunities” and the life of a ‘crisis hunter’ tests the patience of even the most stoic.” Fortunately for Taleb, managing money is not currently his day job, but it is Spitznagel’s. Taleb is a best-selling writer, itself a positive swan phenomenon, and can afford to be philosophical. Spitznagel, who must hold a portfolio of equities to justify his fees, cannot. Hypothetically, a Taleb portfolio is beyond robust. Extreme adversity will make it stronger (and concurrently more valuable). Because of the probable drawdown in the value of the risk assets in Spitznagel’s hedge fund portfolios, it’s hard to imagine him doing much more than mitigating those losses. Taleb’s approach is not commercial and Spitznagel’s is a concession to the institutional imperative. As they stand, neither gets us to tail risk optimization—profiting from adversity—which, admittedly, sounds almost offensively negative when compared to profiting from opportunity. It’s often very difficult and seemingly antisocial, but we must discipline ourselves to see the world as it is, not as we wish it to be.
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