Tuesday, February 6, 2018


Money and trust: lessons from the 1620s for money in the digital age (LINK)

An Inventor of the VIX: 'I Don't Know Why These Products Exist' [H/T Linc] (LINK)

Not Wages. Not Inflation. Volatility. ETFs. - by Rick Bookstaber (LINK)

Interactive Brokers CEO Peterffy says the 'short volatility' trade is akin to what caused the '87 crash [H/T Matt] (LINK)

This bit from Monday's "Almost Daily Grant's" is worth highlighting, which excerpts some things from a May 2017 issue relevant to recent market moves [Related presentation HERE]:
In light of the veritable explosion in options volatility as measured by the VIX Index, we return to the May 5, 2017 issue of Grant’s (“Portfolio insurance of the 21st Century”) and its examination of strategies which were designed to capitalize on the historically pleasant market conditions of 2017. 
“There is a fair bit of capital. We don’t exactly know how much, but we think it is on the order of a couple of hundred of billion dollars of capital that is invested [in volatility targeting],” says Frank Brosens, co-founder of Taconic Capital. Which is to say: Get invested and keep investing as volatility falls or flattens; scale back as volatility spikes. As volatility has functionally vanished from the market, our hypothetical seller of variable annuities might be emboldened to raise its equity exposure to as much as 140%, say, of normal allocation. 
“We look at this,” Brosens goes on, “and say, ‘Let’s say it’s $200 billion that is invested this way, and it was 140% invested, and if [the market] starts to trade down dramatically, it could go to being 60% invested.’” It could mean that $160 billion comes on the market for sale, not necessarily all at once, as in the week or so leading up to Oct. 19, 1987, but persistently enough to count.
Brosens goes on to compare the 2017 vol-selling regime with portfolio insurance, the infamous pseudo-hedging technique that played a contributing role in “Black Monday.”
I don’t think that we are quite at the point of portfolio insurance, but there is so much capital out there that just seems to be selling vol because it has worked, buying the market because it has worked, feeling confident that they can be invested in the market having done no work because they have these various mechanisms that will protect them if it starts to go down. Collectively, all of these strategies strike us as not so dissimilar to what we saw in ’87.” 
Invest Like the Best Podcast: Emerging Market Opportunities, with Harvey Sawikin (LINK)

How to Think About Culture - by Daniel Coyle (LINK)
Related book: The Culture Code
Dan Pink chats with Steven Johnson (LINK)
Related book: When: The Scientific Secrets of Perfect Timing
Book of the day (recommended by Annie Duke in her chat with Ted Seides): Kluge: The Haphazard Evolution of the Human Mind