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Ray Dalio: Why I Came Out of the Woodwork

….For Dalio, the current issue at hand is for people to come together and have “thoughtful disagreements” concerning their conflicts, especially since the divergences are now possibly much greater than they have ever been. These political and social differences are one of the main reasons as to why he feels that—in a world where timing is everything (especially in the markets)—the best possible time to release the first phase of “Principles”is now.

“I think the book is very relevant to now because it is about the power and processes of thoughtful disagreement to get to the right answers,” he said. It’s to provide clarity on which guiding principles can help to navigate the quagmire of disagreement in a class system that, he said, creates different economies. And it’s about “being clear on the principles that unite us, and the principles that divide us and how to get past disagreements,” which, he believes, are “the most important economic issues because of the disparity in conditions,” Dalio said.

“The conditions for the top 40% of the population as a whole are very different from the conditions for the bottom 60% of the population. The bottom 60% of the population has had a very bad economy. So even talking about the economy as a whole is misleading because there are really two economies or more, and it’s important to understand them both. So that’s the big issue, I think. These things go in cycles and right now we’re in that part of the cycle.”

More here – Chief Investment Officer

PS: Coincidentally my copy of Principles has just dropped into my PO box – I will report back when I have had a look.

The Joy Of Looking Backwards

The other day whilst pulling into my gym I hit a magpie. Not a brilliant start to the workout since my favourite alarm clock is the sound of magpies singing and I have made friends with all the magpies in my area – obviously not the one I ran over. I only knew I had hit it because I saw it in my rear vision mirror, anything that literally runs under a car cannot be seen in advance, you only know after the event. The reason I bring up this tale of ornithological genocide is that whilst having a glance at what markets had done over night a news item popped up in the corner of the screen boldly claiming alarm at the level of margin debt that is powering particularly the US  stockmarket. My initial thought was so what, as was my second thought but I used to occasionally look at margin debt and the cost of seat sales on the NYSE just as something to look at. So I thought I would take a look and being too lazy to generate my own chart I found someone else’S. The chart below comes from Advisors Perspective and it shows the level of margin debt compared to the S&P500.

Margin Debt

As you can see the level of margin debt is at a higher level than at any point in history and you can also see that peaks in margin debt seem to be positively correlated with market peaks. However, my initial thought still stands….so what. The reason I have such an opinion can be found in my rather one sided run in with a magpie. I only knew I had hit it by looking in the rear vision mirror – looking backwards post an event tells you a lot about the event after the fact. It tells you nothing about the actual occurrence of the event since you were blind to that. This is true of indicators such as margin debt, forward PE’s, the VIX and any other host of things that seem at fist blush to be correlated with or predictive of the market. But we can only see that margin debt and market peaks might be correlated by looking back and trying to find a pattern.

The notion that margin debt is at a record high is largely an irrelevancy since it has been at record levels since late 2013 and since that time the market has advanced almost 25%. If you had taken margin debt as a forward or leading indicator then you would have exited the market three years ago. Back in the day when I first started this journey it was almost impossible to get closing prices from overseas – the information was obviously available just not transmittable. Now the information is not only available it is available in torrents of noise and this sort of data is part of the noise. There is very little signal involved and someday margin debt might still be at a record level and markets turn south but it will still only be something you see in your rear vision mirror.

2018 Bentley Continental

Wall Street’s Best-Kept Secret

On East 83rd Street there’s a squat brick walk-up that’s a viable contender for the least fancy apartment building on Manhattan’s Upper East Side. But for the past 25 years, Wall Street machers and captains of industry have marched up to its gray-carpeted third floor to learn the secrets of attack and defense from Lev Alburt, a three-time U.S. chess champion and one of the most prominent Soviet defectors of the 1970s. Alburt has long been giving ­patter-filled private lessons to New Yorkers from all walks of life, encouraging, cajoling, and reprimanding men and women as they attempt to learn the so-called game of kings. 

Wall Street has a fairly well-trodden history with games: During off-hours and downtime, games of chance and risk mitigation such as ­backgammon and bridge offer the opportunity for high-level betting, and chess, with its ­corollaries with game theory, occupies a prime position. In 2015 at the Sohn conference, hundreds of finance professionals such as Bill Ackman paid $5,000 to watch Magnus Carlsen, the Norwegian grandmaster, play simultaneously against three people, blindfolded. George Soros is a well-known and aggressive chess player, as is Saba Capital founder Boaz Weinstein, a chess prodigy who reportedly got his start at Goldman Sachs & Co. when an executive at the bank who’d played him competitively set him up at the trading desk.

More here – Bloomberg

This Stanford Professor Has a Theory on Why 2017 Is Filled With Jerks

We are living in a world full of assholes. To be sure: There are no census figures to back this up, no national registry from which to draw statistics, but one need only look at the headlines to see that the asshole population has not only grown in recent years but also spawned some new and rather alarming mutants. I mean, Martin ShkreliTravis KalanickPewDiePie?

“You can make the argument that we are living in Peak Asshole,” says Robert Sutton, a Stanford professor who, as the author of the iconic 2007 book The No Asshole Ruleis perhaps the world’s leading expert on the species. According to Sutton, the problem of “disrespectful, demeaning, and downright mean-spirited behavior” is “worse than ever,” which, while it may be bad news for humanity, is good news for The Asshole Survival Guide, the book Sutton came to New York to promote. And he has a point, citing the recent “fiascoes” at Uber and Fox News as examples of “assholes running wild.” Then, of course, there’s “the degeneration of American political discourse,” as Sutton delicately puts it. We are sitting, on a Monday afternoon in mid-September, in what may arguably be the red-hot center of an Asshole Heat Map, if one existed: the pink, veined lobby at the base of the colossal penis that is Trump Tower.

More here – NY Mag

Female hedge funds outperform those run by men

Hedge funds run by women have generated returns two times higher than their male counterparts this year, piling further pressure on a sector that has been branded “male, pale and stale” to recruit more female portfolio managers. The HFRX Women index, which pulls together the performance of female hedge fund managers, has returned 9.95 per cent for the first seven months of the year. This compares with 4.81 per cent for the HFRI Fund Weighted Composite index, a broader gauge of hedge funds across all strategies and genders. The strong performance comes despite women being under-represented across the hedge fund and wider asset management industry. It also tallies with previous data that show that hedge funds run by women outperform those run by men over five years.

More here – Financial Times

Hugh Hendry Is Closing His Fund

The wonderfully irrepressible Hugh Hendry of Noddy car fame ( see this video for the reference) is closing his fund. His rationale is explained here.

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