unknown_apostle

"survivorship bias". Bullshit.

In the specific example I gave, I talked about putting in stink bids for burned down companies you already wanted anyway, during the 1 or 2 month window when its stock has a big chance of getting another kick in the teeth for simple fiscal reasons.

The cost for trying this is pretty much zero. The worst that can happen is that the price never hits the bid and then you have to be content with the regular price. If it does work, you may get an additional 30% or whatever discount on the company.

If the rest of the story doesn't work out, it won't be caused by the extra discount. So stink bids literally do help performance and active investors do put them in and a lot of them do suck for a lot of reasons and these tax loss selling waves do happen despite everyone knowing about it because they are caused by regulations.

"passive index funds inevitably win out over attempts to time the market" This is a totally different discussion, not about the chance and impact of getting a low bid filled, but about efficiency of markets and whether people who beat some chosen benchmark are lucky or skilled.

But maybe there is a relationship. Let me ask you this: do you think Wall Street has ever had a good idea (like ETFs) and didn't take it way too far? Like 3x inverse Venezuelan Beaver Cheese ETFs? If there is a demand for passive index funds, Wall Street will indulge. But to make a passive index fund you need an index. And so they have been puking up a whole circus of indexes. With some of these indexes, especially ones that involve small companies, I wonder what will happen during the next serious drawdown. And so we can get back to the subject of stink bids.

by lots of people hoping to replicate this and putting in lots of low bids that would cushion the next fall? :-)

"unlikely"

Complexity fattens the tail. Ethereum must be one of the most complex things out there.

It's been live for 1 year on GDAX and then it went for a 3000x round trip. What does that tell you about odds?

Yes it's sometimes called a stink bid.

Lots of contexts where this kind of bidding is a good idea. E.g. after a really bad year you can expect big price swings around tax loss selling season (nov-dec), where people take out their frustration on their worst performers. Doesn't always work but if you've already identified a couple of trainwreck stocks that you think deserve a second chance, getting a stink bid filled for one or more of those stocks can make a very big difference later on.

Of course, the Ethereum flash crash is on a different level :-)

Yes but they also compare mid 1800s with late 1800s. No data readily available, but I assume it was still quite high in the late 1800s, especially with the working classes.

In this matter of extreme complexity and nonlinearity, how can you ever tell the point where being paranoid is the right thing to do?

E.g. how can you know that transferring a gene from maize to petunias is still "sufficiently close" to the level of variation seen in ancient natural processes and evolution?

(Genuine question but also genuine worry about this.)

That's what I mean by government bonds being in a special place; like a balloon pushed underwater by the ever escalating central banking interventions of the last decades.

And it's not just in US history, we may be talking about all of history. And not just on the short end. In 2016, a country like Belgium, where the government has huge unfunded liabilities, was able to borrow on 10yrs for around 0.2%. Japan is even worse.

The price of all credit ultimately relates back to these bonds. That's why the entire financial market is setting new records, for the 3rd time in 20 years. That's why in some sectors being profitable is once again not being considered as important as various metrics of "growth potential". And, to get back to Robinhood, that's why they can offer margin trading rather cheaply to the masses.

It's a massive bubble, and some comments here reflect that. The only thing we can't know is when it finally pops and where the epicentre will be this time.

(My guess would be somewhere in the nexus between ETFs and the bond market. Throw in bipolar, on/off liquidity and high volatility-of-volatility caused by modern versions of program trading-style hedging and HFT and you can have a panic with a whole new look and feel.)

Yup. Exactly this.

Some measures suggest the current bubble is even bigger than the one in 1999. Or at least more broadly carried, in the sense that in 1999 the bubble was limited to a fairly narrow range of tech stocks.

This time it's all over the place. It's not limited to a few stocks. It's not even limited to the broader stock market or to subprime credit. Today even government bonds are in a very special place.

PS: it's also very interesting that so many people here in these comments think that shaving a penny off on order flow is all there is to say about HFT.

And the comments also make me wonder about the staggering popularity of ETFs. ETFs are much bigger than in 2007. In themselves a sound idea, I do wonder how things like the 3x Inverse Synthetic Foobar ETF consisting of 99% bond meat with 1% mystery spices will fare during a real panic.

« That age – which includes such historically important figures as Arrow’s fellow Nobel laureates Paul Samuelson and Gary Becker – represented a development and expansion of formal economic theory that brought unprecedented precision to the logical foundations of social science. »

And here we are, picking the fruits of this golden age of unprecedented precision. With a mountain of record low-yielding debt serving as the backbone for a mountain range of derivatives and synthetic products. With low savings and with record public participation in investments. Because the infomercials say the risk^D^D^D^Dvolatility is controlled by science and computers n shit.

How's that (honestly interested in your opinion).

Also, I think when China began its gradual reform, the country quite simply already had hit rock bottom, coming out of the utter chaos of the cultural revolution. Chaos is different from a fragile order. You can't burn down ashes.

But we seem to have strayed off course somewhat.

Don’t really know much about China to be honest. They definitely managed to open up gradually, even if mainly in terms of allowing private investment decisions.

Let's see how the Chinese communist party handles a situation where the low hanging fruit of pedal-to-the-metal big percentage GDP growth has been picked.

Gorbachev inherited 65 years of Soviet communism: a super fragile system, based on very tight, top-down command & control. On the surface these command & control societies appear more orderly than democratic societies, but they are very bad at dealing with complexity and at adapting to big changes. Gorbachev made the "mistake" of perturbing the system too much through his attempts at reform.

Also, economically, I don't think the Soviet Union was in such great shape as you say. A space shuttle is not the same as having an economy that creates surplus wealth in real terms. The war in Afghanistan and having to compete with a West bouncing back from 1970s stagflation were other factors not under Gorbachev's control.

The same will at some point happen to e.g. North Korea or Cuba. It has happened to some of these Arabic regimes: when the top echelons are removed or the repressive nature is relaxed, the entire order collapses, leaving a big void and a population which has less than before. In some cases, much less... (Hopefully, North Korea and Cuba will receive lots of support from their neighbours, so it won't be too bad.)

It may also happen with our financial system, the continuation of which comes with ever escalating costs, top-down intervention, bluff, guarantees and outright financial repression. Like Gorbachev, some politician or bank would accidentally upset the balance and would get the blame. E.g. "he raised the rates too fast". Or "too slow", depending on what actually happens. But in reality you should blame the historical fragility of the system itself. (I like the term Soviet monetarism.)

Tangentially related, to the fans of Fidel Castro: there's an interesting line of thinking that Cubans became healthy not because of Cuba's phenomenal health care system, but because they had to simplify their diet considerably in the wake of the Soviet Union's implosion. They had to eat homegrown veggies because they had no other choice.

For those interested: Nassim Taleb extends this kind of epistemological conservatism to other complex domains, such as economics, finance, religion and psychology.

"You would not have read this far into this article if your food culture were intact and healthy; you would simply eat the way your parents and grandparents and great-grandparents taught you to eat. The question is, Are we better off with these new authorities than we were with the traditional authorities they supplanted? The answer by now should be clear."

For all the greatness of Democrites in so many ways, I'm always a bit wary of reading too much in classic thinkers predating what we now know about the physical sciences. Without experiments, introducing the concept of atoms was speculative. Conversely, even today an improved understanding of how matter actually behaves at very small scales, still doesn't make the case for atheism or materialism.

I'm warning everyone: don't come to France (or Belgium). The worst thing that could happen to you, is that your startup actually becomes hugely successful. You will get ripped off left and right by an pugnacious socialist state, supported by a spoiled population that still hasn't fully digested just how irrelevant they have made themselves in the world.

Anybody any idea on how the ATO has managed to collect petabytes? Must include audit logs and disk images etcetera, but even then...

Nobody seems to mention the interesting issue that goes to the heart of Trump's and Bannon's economic nationalism.

Decades of supposedly "allowing" China and Mexico to steal US jobs has a different side not often discussed. It was one way to deal with the Triffin dilemma.

With great power comes great responsibility. As long as the US has the privilege to print the world's reserve currency, it has the responsibility to keep the planet flooded with sufficient dollars.

Therefore, I'm (genuinely!) not sure for how long they will be able to combine a strong dollar, run deficits, manage the debt, boost US exports at the expense of others, help those other countries with any dollar shortages and keep the global monetary order friendly and stable -- all at once.

I do know that when the world meets with the Triffin paradox in one variety or another, big changes have occurred. Right now the pundits are comparing Trump to Reagan. Maybe in a few years they will end up comparing him to 1971's Nixon.

Why does this get downvoted?

People in communist countries trade in some of the classical liberties, to make a higher level of economic planning possible.

In one form or another, this is the “trade-off” believed in by most genuine communists. The classical liberties are just a lie anyway, and this trade-off will result in a kind of progress and general wellbeing that would far surpass anything seen in backwards, private capital-oriented economies driven by the profit motive.

Castro was not like Pol Pot or the Kim dynasty. The Cuban regime had a shot at enforcing progress for 50+ years. Cuba appears reasonably stable; although the real test of this will come in the post-regime era. It has managed to keep some of its charm, despite truly being a police state.

But some people here on HN are suggesting Cuba is not doing so badly (and by extension, the trade-off proposed by communism), because Cuba’s self-stated numbers have kept up with countries that are plagued by bouts of deep, crippling political and social malaise.

I think that’s a terrible argument for obvious reasons. Especially in the case of GDP and in light of what most communists believe their system can achieve. The comparison just proves there are many ways you can screw a population.

So once again: why does pointing this out have to get downvoted?

And for the record, about the embargo: I am staring at Cuban cigars right now. I will light one up tonight to honor Castro, because as far as commie bastards go, he wasn’t the worst.

Ok let's take GDP numbers at face value and let's assume this says much about daily life.

Basically, you're stating that 50+ years of Marxist order imposed by the Castro regime has managed to keep up with countries plagued by 50+ years of general chaos in the form of pathologically corrupt regimes, nepotism, inflation, rampant violent crime, civil war, guerilla movements and narcoterrorism.

Hmmm... I will contemplate the US embargo argument tonight, as I light up one of my precious Cuban cigars to honor the old commie bastard and to celebrate this great achievement of dialectical materialism. Hasta la victoria siempre!

"What is seen and what is not seen”; tracing the consequences of a policy to all groups affected. These are basic economic truths and skills that are extremely important to impart on kids and young adults. Skills that many adults miss.

Just like “I Pencil” delivers the crucial, uplifting insight that complex economic cooperation spontaneously emerges everywhere. This order will exist prior to and regardless of any political system.

Keeping these broad insights front and center at all times, does not imply that you have to reject every proposed intervention a priori. But if you know that every intervention will have side effects and can backfire because of the sheer complexity of the order, even when meaning well, you will naturally be much more careful and skeptical.

Which in my opinion is really a very, very, very good thing. Especially in this day and age, where the spontaneous order is more complex than ever and where government is once again very big, technocratic and e.g. willing to "clamp" macro economic variables.

I also quite simply disagree that EIOL is “beneath simplistic”. If the kids are interested in economics, they should obviously read much more than just these texts.

Yes, in the context of getting high school kids acquainted with the emergent nature of economic order.

The shield/lode star thing: let's not go full politics. I'm not narrow minded... Let's just leave it at that :-)

Piketty's book contains a correlation-implies-causation statistics-driven narrative to pitch yet another tax increase.

Economics In One Lesson is an exercise in logic, showing that many popular economic policies are flawed or will necessarily have non-obvious side effects.

EIOL is also deliberately written to be an easy read.

It's hard to compare the two.

(In the unlikely case anyone cares, my personal take on Piketty: wealth inequality doesn't matter unless you think jealousy is a matter of public policy. Wealth inequality is an inevitable consequence of progress. What matters is whether the wealthy can loose their wealth due to their own mistakes, and whether wealth inequality implies legal inequality. Private profits and public risks, bailouts, legislation a la tete du client, bribes, lobbying, monopolies, special tax agreements, propping up markets, complicated laws, ... that's how the 99% get screwed. Taxes allow the government to function. They cannot "counterbalance" the legal privileges of the 1%.)

Well, the text makes visible an invisible machine, built by all but planned by none.

I don’t think the author wanted to write a reference work on all aspects of its subject :-)

Here’s what I personally get out of its perspective: contentment and inspiration. It provides glory to the seemingly mundane tasks of everyday economic life. Comparing prices, finding customers and suppliers, solving small problems, settling disputes. This is what the invisible machine is composed of.

It also shields my mind, like a lode star that guides me away from many popular beliefs about what “needs to be done to boost GDP”.

This is one of the great texts on economics. Together with "Economics in One Lesson" by Hazlit, should be required high school reading all over the planet. These texts immunise the mind against logical fallacies about material progress. They will make mankind come together without politicians or enemies.

"There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found." This is one of the beautiful miracles of our kind, a fact that remains unknown to most of us. Including many who figure themselves at the commanding heights.

Every attempt to make this fictional mastermind more powerful makes our fate worse.

> "during periods of economic uncertainty way worse than today. Such as the period from 1982 till 2006"

The bulk of the period you mention is referred to as Great Moderation by high fiving central bankers. It’s part of one of the great green areas on the chart of the original post. It was marked by disinflation, fall of the Iron Curtain, corporate adoption of computers, globalization, trade and offshoring. (And rising central banker activism and financialization.) And yes, gold went through a gruelling secular bear market during the Great Moderation.

Conversely, all big red areas on the chart saw positive action in gold.

In the 1930s-1940s large quantities of gold were being hoarded. The official price of gold itself was fixed but e.g. gold mines did great.

In 1960s gold was being hoarded again, to the extent that by 1971 they had to give up the fixed price and let it float.

Since 2000 gold has being doing great again (with corrections in 2008 and a bigger one since 2011). Interestingly enough, the latest correction seems to have reversed the exact day Yellen decided to hike rates with 0.25%.

Imagine you could reconstruct a performance chart for gold, similar to the S&P chart of the original post. I’m fairly sure it would be roughly inverse to the original S&P chart.

(In practice it’s hard to really do this, because the gold price was fixed until 1971. So before 1971 you’d need to reconstruct perhaps some kind of measure of “stress” on the price fix, or use an imperfect proxy such as gold mines.)

> "There are plenty of growing sectors and there will continue to be."

True. But in some eras an investor can make a 1000 mistakes and still expect a good outcome. In other times there’s much less room for mistakes in terms of timing and securities picking. Things are harder, like really much harder. The difference is caused by general valuation levels, the kind of profits that are being priced in, and by the amount of eyes that are looking at the same things.

That's just a different formulation of the exact same message the original chart is telling us.

The last great investment desert ended ~35 years ago. Once again, around the time when people where lining up to buy gold. Crawling out of that desert, if you thought you had found a bargain on the stock market, a real gem of mispricing, chances were good that it actually was a bargain.

In my humble opinion, we're somewhere deep inside another investment desert. This one appears to have longer lasting and more elaborate fata morgana's than before. But I expect we will witness a few serious extinction events before we can even think about crawling out.

Sure there are alternatives. For the record and as a direct response to cloudjacker, my proposed alternative is called precious metals.

What's yours?

Maybe this is a good book: "A Fool and His Money" by John Rothschild. Containing such gems as "Never buy the June call nor sell the October put simultaneously, unless you know what they are".

Comedy gold about the overfinancialization of everything. As early as 1988 no less!

Btw if "overfinancialization" is not a word, it should be.

The chart from the article disagrees.

Investing in the mid- to late 20s generally, a period of overvaluation, you would have done well initially. But for people who didn't have perfect timing to cash out (aka most shmuks like me), every buy-and-hold dollar invested in that timespan would remain deeply in the red for a very long period of time.

Due to the severity of the actual 1929 crash, a brief moment of semi-good investment returns (measured over multiple timespans from a few years to decades) occurred in 1933-1935.