Mercenary Trader

Long/short equity, medium-term horizon, hedge fund manager
Mercenary Trader
Long/short equity, medium-term horizon, hedge fund manager
Contributor since: 2010
This is a Donald Trump style worldview. Everything is simple with a simple solution or a simple explanation. Immigration a problem, just build a giant wall and keep everybody out. China a problem, just yell at them or shake a big stick or what have you. False simplicity is the cognitive equivalent of taking the arms and legs of a complex situation and cutting them off with a chainsaw. The truncated torso of understanding, jammed through the narrow window of a simplistic worldview or market view, is not actually worth anything. It is not possible for a plunge protection team to work indefinitely without reaching the point where valuations and market signals are so distorted that the free market economy itself starts to malfunction to the point of breakdown. That is in fact largely where China has gotten to and the reason for the August turmoil. As Denzel's character said in Training Day this is chess not checkers. If an answer or explanation feels comfortable coming out of the mouth of a drunk guy at the bar it is probably a little too non-nuanced to provide actual useful understanding.
Not even sure what this is supposed to mean... or who exactly we owed an explanation to...
Thanks! Yep it all comes down to standard aspects of human psychology, common issues with mental models and so on... usually we just let it roll off, every once in a while seems worth mentioning but mostly a non-issue, "comes with the territory" etcetera.
Regurgitating government reports? Umm, we never do that... and there are plenty of people who do (simply repeating ISM numbers and GDP prints and quarterly earnings data etc)... we share proactive trading ideas on a regular basis, but generally keep that within the community.
You were truly excellent in Apocalypse Now...
That whole section should be understood in devil's advocate context. If the ultimate fallout from China and EM drags down markets by, say, mid-2016, that is a different proposition than asserting the impact will now create immediate follow-through.
Needlessly bitter (your own karmic reward perhaps) and with no apparent clue what "our thesis" actually is. Perhaps the fact that traders need to be flexible in the near term even as structural factors play out longer term makes you angry? By all means stay as far away from our services as possible, if you were ever even "seriously contemplating" them in the first place (likely a bald-faced lie wielded for effect, given your natural animosity towards any semblance of flexibility, a trait we see often in narrow-minded one-dimensional market participants, rigid as plastic cutlery before it snaps under pressure). We welcome you to the other side of our trades and, given your acid tone, would happily meet you face to face at some point to see if you would have the guts to speak in the same uncivil manner. (Answer already known though: You almost certainly wouldn't.)
Your frustration would be so much better served were your target an actual devotee of Austrian economics. But we are not. We simply have appreciation for some of the models that the Austrian mode of thinking deploys. We also have appreciation for certain Keynesian models, and in fact many years ago described our operating thought process as "Keynesian with Austrian tails" ... and no doubt believe things that a "pure" Austrian would undoubtedly consider heresy (while also seeing flaws in "pure" Keynesianism that one could drive a mack truck through). As for the rest -- yawn. You don't like our view of general academia. Build a bridge and get over it.
Great to hear! Thanks!
I don't think anyone can say with any certainty where a bottom might or might not be based on historical price relationships, we have never before seen the type of monetary policy distortion that just ran for six years, nor have we ever seen a capital misallocation mega-ponzi the size and scope of China's building up the equivalent of 10-20 years' worth of corruption, dead wood and underbrush.
No most of it is not discounted, and this is part of the broader point. If everything were already "priced in" and a return to higher EM was just around the corner then we would be dealing with just another correction / downturn, not the onset of a new crisis.
Yes, if your strategy is to ignore all major market dislocations, grit your teeth and hold through all meltdowns and secular bear markets, and not cash out until you are 70, by all means (and good luck with that). But then one wonders why the deployer of such a strategy would even consume market-related news in the first place.
"there are many people working hard to make things better"
Yes, Beijing worked very hard to make things better by avoiding any semblance of a crash or slowdown via build-up of artificial growth policies over the course of many many years...
Priced in - you really believe that? The multi-trillion USD carry trade unwind has not even kicked off in earnest yet. This is beginning, not ending. And your behavior is classic the "too early" value investing mentality that brushes off the reality of overshoot to the downside as well as the upside.
This is "mad at big government" idealism masquerading as an attempt to understand markets. It isn't helpful to anyone trying to develop situational understanding for the purpose of making trading or investing decisions.
I wasn't attacking you personally. I don't even know who you are, and that statement was made in response to a separate comment, with clear emphasis on the state of academia in general.
You mischaracterize Austrian economics so badly that I don't think you even understand it, or understand how some people use it. Austrian economics offers a suite of logic-based models, some of which are useful, and the ones that are useful can be used in logical context for scenario development or understanding a situation as it unfolds. Of course, this type of understanding, which a skilled macro practitioner may use to make an investment or a trade, necessarily embeds certain amounts of ambiguity or uncertainty. It is the same with scenario building based on models of understanding from the non-mathematized insights of Minsky, Soros, Buffett, Munger, Klarman, and others. The broad point is that one can pick and choose from various logic-based models, and derive utility from them, without overly restrictive mathematization -- indeed, many successful traders and investors do exactly this.
It is further ironic you characterize one as "following" the Austrian model who wrote a piece that started out describing how core elements of popular Austrian understanding were wrong. Austrians themselves would not call us Austrians, and we have not planted a flag of following for the school, but only pointed out that certain core models of Austrian thought have empirical validity, and do a good job of explaining what is now happening in China. You can't compare empirical use of a mental model with logical financial historical parallels to worship of the bible or worship of anything -- your own frame of the situation is so bad you do not even clearly see the position of the person you are accusing of religiosity.
I stand by my assertion that the body of academia -- the collective majority of those who punch the clocks and fill the slots -- are not very bright, just as the body of middle managers in corporate America are likely not very bright. Those who are bright tend to find more fulfillment and better compensation in other fields of real world application and inquiry. As for the fact that the cream of the academic crop produces insight, well certainly (with heavy caveats). I never said that ALL academia is populated by plodders, just the vast majority. When Einstein spoke of great spirits facing violent opposition from mediocre minds, I would wager it was the academic community and scientific establishment in general he referred to.
And you, sir, seem to be stumbling on your lack of precision in respect to debate in the English language, as you keep trying to pin a flag of Austrian devotion on someone who has never even claimed such, but only pointed out that some core Austrian models apply. Perhaps you would be better off mathematizing your assertions, as use of text-based logic is too hard or slippery? Or perhaps you do not have as nuanced an understanding of my position as you think you do, or of the situation in general. By introducing yourself as "a trained scientist" (smug plodder warning) and demanding mathiness as soon as you show up, dismissing a school of thought as a religion, rather than seeing that some of the models within that school may have evidence based merit, you demonstrate the very mediocrity I speak of sir. You demonstrate increased probability that you are one of the plodders missing insights that reside in front of your face, and your closed-mindedness and lack of subtle insight likely serve as detriments to your ability to actually understand and produce worthwhile non-academic insights in the real world.
The fields of academia are also heavily populated with people who are not very good at what they do, not very bright, and overall sharp as butter knives, yet possessed with a quality the Nobel prize winning physicist Leon Lederman dubs "sitzfleisch" -- flesh for sitting -- thus giving them the ability to get their lettered credentials or whatever through sheer force of plodding along like oxen. So you have a phenomenon where academia is flooded with not too bright mediocre minds, people who are good at taking structured tests or parroting memorized equations but not good at making real connections or insights. There are so many of these people, they start taking over academic institutions and setting the standard for what is acceptable. And because they are mediocre, and not very bright, they demand that everything be turned into mathematical equations that are proved in triplicate, because this bureaucratic process acts as a shield against the requirement to be creative. If you have to take every insight you have and mathematize it to death, it is okay to have no insights at all, because all your work is buried in thickets of minutia. What you then wind up with is a field full of plodders, straining to congratulate themselves for being rigorous, when along with the "rigor" you have a heaping helping of "mortis" -- a dead field, full of dead ideas. What's more, because plodders run the show, the whole field becomes self-selecting for more plodders. Bright, sharp, creative people are turned away from these fields of drudgery upon realizing that new and creative ideas are frowned upon -- killed by demands for more math-proof-in-triplicate. And then the plodders, having dominated their academic realms, transform into intellectual high priests, and take up a sword of self righteousness, declaring that anybody not as heavily equation-emphasized as they are is not doing good economics or some such thing. And brilliant insights, of the types offered by Minsky's Instability Hypothesis, say, or Soros' Reflexivity Theory, are rejected out of hand because they make too much use of plain english and widely accessible logic. The system then completes the loop by actually worshiping obscurity and obtuseness and opacity -- in many academic fields today, particularly economics, writing clearly and plainly is actually a liability. If you want a paper to be accepted by such-and-such scholarly journal, it has to be tortured into the accepted language of the community, which means awful writing deliberately made hard to read and hard for anyone outside the field to understand. It's sickening really. Modern academia, at least in the realm of economics, has been taken over by arrogant plodders, who then perpetuate a system that reinforces itself by hiring and promoting more plodders, while killing ideas via requirement of proof in triplicate in part because the mediocre plodders are not bright enough to understand insight when they see it, and in part because a system that kills ideas in their crib creates a safe path for someone who has no ideas of their own, but is willing to churn out endless reams of mathematized jargon, impossible for the outside public to understand or benefit from. Meanwhile, completely outside of this academic feedback loop, real understanding and real value is created through the deployment of mental models in service to wealth building trading and investing decisions. But that's a wholly separate thing, driven by pragmatic [profit incentive and a logical search for understanding as such that can be applied via trial and error plus empirical evidence accumulation plus intuitive experience through functionally proven methodologies in the real world.
This is essentially high level trolling. Read Origins of Wealth by Beinhocker or Complexity by Waldrop. "Physics Envy" and the assumption that everything should be mathematized has led to serious deficiencies of understanding, coupled with unjustified arrogance. There is a reason why, when the economists and the physicists got together at the first large-scale meeting of the Santa Fe Institute, the economists were openly laughed at. Those who make the Austrian case for what is happening in China, meanwhile, do not do so by hand waving. They point to empirically available data that supports a flow of logical hypotheses, which are in turn supported by empirical evidence from other times, places and cycles. There are mental models available within the Austrian school of thought that are useful and logical, and empirically supported by the general sweep of financial history and an understanding of how things work. To dismiss all this would be the actions of a high minded mathematizer whom, in actual real world trading and investing terms, is more likely to stay poor than to actually build something that works and scales. Calling something a religion when it is just a suite of mental models, some of them useful, says more about the embedded religiosity of the accuser than the system being labeled non-science. Finally, to implicitly assume it is all just math is to be obtuse. In almost every field requiring nuance, subtlety and craftsmanship, taking the english language out of the learning and studying process would be as nonsensical as, say, taking Buffett's body of Berkshire Hathaway letters and converting the whole thing into equations, then suggesting more knowledge would be obtained from studying a string of symbols. It is an academic way of approaching the world, meant in the worst sense -- bereft of the pragmatic intuition that comes from practical experience or practical requirements of actually building something or understanding something to practical end. There is a reason why the wide body of mainstream economic theory, not all of it but very large swathes of it, is essentially considered useless.
Absolutely. It is all probability, all scenario development and logical adjustment to informational inputs, all rational response to fluid information sets, all finding the combination of real-time decisions that yields the highest expected value. This way of thinking and behaving is so antithetical to our natural wiring, it takes a deliberate rewiring of the system -- a changing of the brain through training and practice -- to really fully grasp it.
You are setting up multiple straw men in your head. First you implicitly assume that whoever talks about this stuff missed out on the equity rally. Then you assume predictions are being made instead of discussing scenarios. Then you build in your own implied assumptions on a de fact basis with denial of a presented scenario -- something that was a concern, not a prediction. And you also presume to know something about other traders and investors when you have no clue. Someone can keep a weather eye on the Fed and still have been long equities, or make a killing in other areas of the market (as we did with long USD in 2014). It is ironic that you are here to pompously slay supposed assumptions and presumptions when you are the one who is full of them.
You've got to be bloody kidding. Dalio was cited as someone credible, along with the IMF, who publically warned against a 1937-style scenario born of the Fed choosing to hike rates prematurely, which was the point of the article and the debate, and thus wholly logical to mention him, with no pretense of being him whatsoever. You embarrass yourself with non sequiturs so inappropriate and lame they practically suggest you are drunk.
Yep. Condensed into a question: We have seen a major currency (the yen) strengthen against its issuers' will and the deflationary consequences of such... what happens if that happens to the USD?
I get what you are driving at, but I daresay empirical evidence shows it would be headache-inducing to try and engage in an extended meaningful exchange with you. Maybe you can meanwhile reflect on the fact that a premature rate hike in the presence of a fragile economic recovery has a legitimate danger aspect of killing said recovery, which has in fact happened before (1937) -- which is why not-dumb guys like Ray Dalio and the IMF have explicitly and publicly warned against the dangers of kicking off a hiking cycle prematurely, which essentially encapsulates what Tim Duy was worried about. And perhaps you could also mull the virtues of not getting hung up on predictive pronouncements in regard to presumed correlations that you may not actually understand quite as well as you think you do.
Hahaha, what? Help me understand. Are you suggesting ISIS poses a legitimate challenge to the geopolitical dominance of the United States? Or that the measure of a global superpower should somehow be how good it is at exterminating cockroaches with twitter accounts in dark corners of the world? Thanks to shale, Uncle Sam doesn't even really give a rip about Middle Eastern oil anymore. We are only going through the motions of caring at this point. Meanwhile China's authoritarian regime is facing collapse from within and Vladimir Putin sweats another bullet with every downtick in the crude oil price. And the United States is on its way to stepping up oil EXPORTS, and will also be making a killing exporting liquid natural gas in the next 5-10 years. I'd say the global superpower thing is going fine...
You are conflating arguments and deploying red herrings. Saying we have never had an extended period of zero rates, therefore we have no prior example of extended zero rate episodes to refer to, is not the same as saying "this time it's different." Read up on what happened in 1937, which is a rough parallel to Duy's argument. Or don't.
That's a nonsensical statement. Can you cite any time period, in general financial history ever, other than the one we have just been through, where interest rates stayed at zero for six years in a row? If something hasn't happened before, you can't cite lack of past examples as a counterpoint. This seems so bloody obvious it is almost mind boggling that someone could miss it.
It's not that the US will expand that much, or even much at all. The rest of the world in relative terms will contract...
China intervention to arrest the halt of yuan falling too quickly
I'd wager a very nice bottle of scotch that, within 5 years, US GDP calculations as % of world GDP will be back toward the 25% end of the range or even above it...
Actually, the Fed has a long and storied history of not giving a crap what happens in emerging markets (or outside the United States for that matter)...
I don't think this materially changes the observation -- if the frackers don't tap out and oil prices stay extremely depressed, they eventually run out of money. Imagine a scenario in 2020 where fracking is still going strong, their cash reserves are down to $150B, and everyone is wondering what's next and no answer exists.
Haha, yeah was trying to be conservative