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once you've seen a black swan, it's no longer a "black swan"

Shyam Sunder
Oct 2, 2022
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Markets have been bad this year. The S&P 500 has had one of the worst years in a decade and the NIFTY is barely getting by thanks to the BAAP & HODL crowd.

US bonds have had one of the worst drawdowns in history.

The TLT (iShares 20+ Year Treasury Bond ETF), is now down more than 40% from its peak in August-2020.

The US 60/40 investor is down more than 20% while meme-investors have felt a special kind of loss.

So, yes - a lot of pain in both retirement and speculative portfolios. And when there is pain, investors seek out “reasons.” And only the most controversial/scary headlines scale the social-media leaderboard.

THIS IS A LEHMAN MOMENT

- every nutjob since 2010.

Only this time, it is some shitty European bank.

Credit Suisse and Deutsche Bank have been in the dumps for longer that I care to remember. They are both the chronically sick children of the European “extend and pretend” head-in-the-sand approach to cleaning up bank balance-sheets after 2008. And in a weird “If you're not first, you're last” vibe, Credit Suisse has been willing to blow itself up in the pursuit of fees. Archegos, Greensill, and the Citrix LBO, to name a few recent ones.

So, it’s no surprise that CS is down 80% from its Jan-2018 peak.

The Lehman bankruptcy was a “black swan” - the stuff that made Taleb intolerable for the next decade. Thankfully, we don’t live in 2008 anymore. The rules of the game have changed. The system is inoculated - what didn’t kill it has made it stronger. Also, the post-2020 pump was not because of a credit-binge. It was largely a fiscal over-stimulation.

The markets are experiencing a hangover, not an implosion.

Remember, at one time Nike was supposed to be software-platform/social-networking company. And NFTs!!!

Now down more than 50% from its late 2021 peak.

It’s not like they suddenly stopped making shoes or people stopped running. The market just got a bit ahead of itself.

So, relax. This too shall pass.

Markets this Week

Links

Black-Scholes (and related) models, for which Nobel prizes were won: we do NOT use them as models, we use them as normalizations only, as a convenient change of variables. (thread)

~

Twitter avatar for @TheStalwart
Joe Weisenthal @TheStalwart
Goldman's measure of financial conditions is at its tightest level since spring 2020. In this environment, it doesn't take much of a nudge (like a change in fiscal policy) to start breaking things
Image
6:48 PM ∙ Sep 30, 2022
72Likes8Retweets

There are three distinct policies that go under the name of QE. (thread)

The shortest economic suicide note in history? (lse)

Twitter avatar for @jeannasmialek
Jeanna Smialek @jeannasmialek
The idea that New Zealanders randomly invented the 2% inflation target is ~true, but not the full story. The full story is even more fun. A thread.
Twitter avatar for @kylascan
Kyla Scanlon @kylascan
it's great that the 2% targeting is because a guy on New Zealand TV was like "hm yeah that sounds about right" https://t.co/BqjfbAEH0E https://t.co/Ud8XJDWWip
10:07 PM ∙ Sep 26, 2022
472Likes117Retweets

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Twitter avatar for @JohnAllenPaulos
John Allen Paulos @JohnAllenPaulos
The Efficient Market Hypothesis subtly sidesteps the Liar Paradox: The stock market IS efficient if and only if most (or at least a sufficient number of) investors believe it IS NOT efficient. --><-- More at math.temple.edu/~paulos/whos_c…
4:17 PM ∙ Sep 30, 2022

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Something to keep in mind while back testing - most of the “inefficiencies” would not have been accessible during that time. Regulations, technology, liquidity and cost of capital play a large but ambient role.

Twitter avatar for @darjohn25
Darrin @darjohn25
I see a lot of commentary from research, advisor types about prior inefficiencies—Eg trend following in the 70s and 80s—that highlights how large the edges were such that non-quants, plumbers, working class types could profit “easily” back then…
6:39 PM ∙ Sep 30, 2022
13Likes1Retweet

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I hear about the number of employees in some of these “new-economy” companies and can’t help but wonder what they do all day.

Twitter avatar for @ryxcommar
Senior PowerPoint Engineer @ryxcommar
Oh no, my publicly traded company with 6,000 employees is going to go bankrupt because of a UCLA comp sci student's summer Apple internship project. RIP Docusign.
Twitter avatar for @ValaAfshar
Vala Afshar @ValaAfshar
This is how you can scan and sign documents with an iPhone https://t.co/ZpSap5TPuI
4:12 PM ∙ Sep 29, 2022
7,617Likes408Retweets

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VC firms pivoting from hiring from the business school to the law school.

Twitter avatar for @ecommerceshares
Wasteland Capital @ecommerceshares
If you’re wondering “where all that money went”, this is the scooter rental co’s $BRDS founder’s Miami mansion. Bird went public at a $2.5bn valuation, and now trades at $98m. Investors lost 96%. Ponzilords at banks, in media & on here enabled this massive grift. Who’s the fool?
Image
9:38 AM ∙ Sep 29, 2022
370Likes56Retweets

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We need a G10 wealth-tax.

Twitter avatar for @robkhenderson
Rob Henderson @robkhenderson
Interesting twist on aristocracy: The Manchus in 17th century China implemented a tax on social status. Automatic family status depreciation acted as an incentive for the younger generation to prove itself in the eyes of the emperor.
Image
4:40 PM ∙ Oct 1, 2022
295Likes58Retweets

Schools in England warn of crisis of ‘heartbreaking’ rise in hungry children. (theguardian)

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Memes of the Week

Twitter avatar for @gunsnrosesgirl3
Science girl @gunsnrosesgirl3
A group of people doing CrossFit ran passed a restaurant Dozens of diners thought they were escaping from something and abandoned their tables to run off too. This happened in Brazil 1/🧵
4:42 PM ∙ Sep 25, 2022
42,114Likes6,862Retweets

Twitter avatar for @psarofagis
Athanasios Psarofagis @psarofagis
In times like this, don’t forget the "Rule of 72" when saving for retirement: Be dead before you reach 72
8:16 PM ∙ Sep 27, 2022
2,176Likes219Retweets
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