Kyle Bass vs China … and the winner is…


Kyle Bass is a legend. He doesn’t have to be right on China to establish that.  But so far the market has weighed Bass… and weighed China… and found Bass to be the light-weight. This is the problem with having strong opinions. They are very expensive! As a small fish,  I find its better to have theories that one drills down into, identifying the stress-crack markets that should be an early warning to that theory. Now Bass knows this better than myself. He just possesses a bully-pulpit, which he can use to shape the markets perspective. So far the market is rolling its eyes at him. But the idea that “Bass doesn’t know why he is getting smoked in China” is just stupid. Maybe a good headline… but just stupid. 

Sometimes, no matter how right you are, you’re still wrong and you’re still going to lose money.
On Thursday hedge fund manager Kyle Bass of Hayman Capital told Reuters that China’s credit problems are “metastasizing” and that he still expects the yuan to fall 30% against the dollar when it does.
It’s a bet he’s been making since February of last year, and the currency has mocked him for his efforts. After a 2% devaluation in the summer of 2015, the yuan rallied, gaining 2.1% in 2017 alone. Of course, that doesn’t mean that the country’s problems with debt have disappeared. The banking system is indeed fragile.
“What the public narrative is and what they have been doing behind the scenes are two completely different stories,” Bass said in a telephone interview with Reuters. “China has been masterful controlling the public narrative. As a fiduciary, I have no idea how anyone can invest in China.”

Having won California, self-esteem went on to conquer the world.

Having won California, self-esteem went on to conquer the world. And so here we are, living with the first generation to have been raised entirely on the intoxicating mantra of its own excellence. Storr argues provocatively that an obsession with promoting self-esteem has led to an increase in narcissism, and he has some interesting research data to back up this claim.

More AQR goodness… big read!

So if I had a student who was serious about global macro trading, I would give him or her this paper.  I would require he or she to read it, making a list of every term or idea they weren’t familiar with, then research every term/idea, then read it again. Then repeat the process with every referenced paper.  Then, I’d hire them.

Executive Summary • Much has been said about superstar investors and their investment styles, but there has been much less empirical analysis to explain their performance.

• Our findings suggest that success for many great investors is not luck or chance, but in large part reward for long-term exposure to factors that have historically produced excess returns.

• Thus, a key takeaway for investors is to identify structural edges (factor tilts or otherwise) and then have the patience to stick with them for the long term.

• Though our results may seem compelling, we have the clear bene t of hindsight. Any “alpha” that comes out of our analysis is thus understated. These great investors “figured it out” first, had the ability to stick to their philosophies, and rightly deserve their reputations.


On writing as value… paul Romer
People make progress by discovering and sharing useful ideas. The value of an idea is proportional to the number of people who use it.

Spoken language gave humans a unique capacity for moving an idea from one person’s neurons to another’s. Writing makes it possible for one person to convey an idea to many others. If a document is well written, anyone with a copy can read it and convert the codified knowledge stored in text back into human capital stored in neurons.

Writing is the bottleneck that holds back the rate of diffusion of ideas. Writing is a production process that converts knowledge stored in neurons into knowledge codified as text. Writing clearly and concisely is a time consuming, multi-stage process that starts with composing and is followed by multiple rounds of editing and user testing. The essence of this process is captured by the apology that I used as the tagline for this update: “I would have written less but I didn’t have the time.”

Paul Singer’s market truths – excellent!!!
“No security price is too high (or low) that it cannot go higher (or lower);Turns in markets are impossible to time;

Big changes in market prices frequently occur far in advance of when the reasons for the changes become apparent, and by then it is too late to incorporate the new information into one’s trading at the old prices;  (this is so true! – nd)

One of the most important reasons to avoid significant losses is to avoid the painful and sometimes terminal effect of severe adversity on the quality of money managers’ decision-making processes; and

A wide and deep education about the world, not just about capital structures, corporate business strategies and industry dynamics, is essential to the long-term success of money managers.”

These lessons “have shaped Elliott’s attitude towards trading, investing, predictability of markets, risk management and building an organization,” Elliott added.

Man vs machine

Like most traders who have operated as both a discretionary trader and a quantitative or algorithmic trader, I have spent a lot of time thinking about the pros and cons of both systems. Currently, I am almost 100% algo driven. This story gives data on both styles and shows the edge that systems traders have.
If I had personally had the discipline to stay as a system trader throughout my career I would have done much better. But following a system day to day can feel very stupid. Because the system will have you entering positions when the market feels very extended one way or the other. Your mind will tell you you know much better. But our minds are programmed to lose money. 

We are easily convinced we know THE truth when actually what we know is A truth. And we catalog the things we think we know rather than the things we surely do not know.  

— Beliefs are a mixture of assumptions, the narratives we tell ourselves, memories, influences, with a small amount of actual data stumbling about like drunks in church.