Pressure Cooker

Dear All,

Yesterday I tried to inject some silliness since it all feels so tense everywhere I look.

The divide is getting vicious where one half thinks the other half are idiots. WW3 gets mentioned more and more. Are we headed for a black swan event with the national debt? X, where I used to find interesting topics, is now a total cesspool (I think Musk set the tone there after the assassination attempt). Misinformation is everywhere trying to suck you in. And there's been some tension in our forums too.

Social media is naturally the enabler of a lot of the tension. But, since it is here to stay, what's the future hold?

Cheers

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I think (and hope!) that social media in general (and X in particular) give a misleading image of what people actually believe. Extreme opinions are overrepresented and negativity bias + viral dynamic leads to the weirdest and worst stuff floating to the top. I guess election season in the US is not helping either.

"Injecting silliness" and logging off occasionally seem like good solutions. I try to remind myself that on social media or reading news, I'm forced to look at the world through a negativity filter. IMO the world is a pretty great place, mostly.

I wonder how LLMs will affect all of this.

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Could not agree more!!

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I don't think so. Mainstream opinions are still the hegemony in social media as a whole. Just visit Reddit. Most bots there (even in WSB which were filled by far-rightists before) are centrist. X is different because of Elon Musk himself.

Yes, THE WORLD is mostly a pretty great place to scam people. Just look at NVDA and FFIE. LLMs make it even greater. What a brave new world. Let's make another great again!

I follow authors that present data with objective conclusions on twitter. If I sense that an author presents inaccurate data or extreme language to promote fear then I stop following them. I also don't watch mainstream news. It's much easier to filter at this level then absorb negative media garbage

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The media does like to feign surprise over inconsequential trivialities in order to ignore the real (so extreme) issues. For example, the media pretends for DJT that it's a piece of garbage that's particularly worth fussing over, while ignoring the huge number of extremely bad microcap "pig slaughter" scams that have been very serious for several years now, the bigger extreme dilution scams like RIVN/MARA/RIOT, which are even more serious than DJT, and the even much bigger extreme scams like NVDA. That's why they have to use inaccurate data and extreme language to imposter. They need to cover the fact that those popular topics are just trivialities.

I like to look at short-selling reports (Bear Cave is a good information source for that), scam victim communities and the short sides of my systmes to find out about these real (so extreme) problems, rather than the noise and deception that fills the information space in the media to cover up the real problems.

The option of paying off debt through inflation has always existed. The debt ceiling crisis is just a show to hide the real problem: the long-standing, global, long-term stagnation of productivity growth. This makes deficits a necessity to support the economy and interest rates, otherwise the current economy (and the future returns of wealth) would be worse than it is now.

None of this has much to do with P123 traders, however. What matters is systematic statistical analysis of probabilities (an advanced version of which is also called machine learning or AI) and also systematically following predictions to trade, no matter what your underlyings are.

Just like if I had to trade mega-cap stocks and my strategy told me to buy NVIDIA, I wouldn't hesitate to buy NVIDIA even if I thought it was a scam. My model has told me many times to buy common stocks of crap companies that I think they have completely unsustainable business models, but I don't hesitate to buy them - if I even read what those companies were.

Interestingly, investment banks and hedge funds have actually performed worse than mutual funds in this regard. It may be that investment banks and hedge funds lack the risk controls, collective participation and bureaucratic procedures that mutual funds have. The latter inhibits managers from being overly reckless in buying expensive junks.

The idea that the 2008 crisis had anything to do with the black swan analogy is really just a reflection of the ignorance and arrogance that was prevalent in the financial industry prior to 2008: many believed that a new era had dawned "this time is different". But in reality, given the stock market crises of 1973-1982, not to mention 1929-1933, it is simply ludicrous for Taleb to call an event like '08 a so-called "black swan event" that "has never been seen or imagined, but did happen!"

It's as if factor investors prior to '08 thought the severe momentum collapse of 1932-1933 could never happen again, but the momentum collapse actually happened again in 2009. Even the value factor collapse of 2018-2020 was seen in the 19th century. But people just choose to deliberately forget the bad things to better walk into the darkness and then claim they were hit by a black swan event. No, you just crashed into a tree.

Also, the risk of uncompensated nationalization of assets, which occurred in Eastern Europe (especially Russia) and China, cannot be ignored. Hyperinflation crises and sovereign debt crises around the world during the Napoleonic War and in various developing countries over the long term are also deliberately ignored to improve the "confidence". And historical data on asset classes always has upward biases in future returns even when it is perfectly correct because asset classes themselves have been selectively biased.

In short, people like to stay optimistic and positive, but this is not good for preserving and growing wealth.

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All I (we) can do is try to make investing better. But with all this craziness, we can't just offer tools for mainly long portfolios, no matter how smart these tools are.

Time for a reassessment. Our next focus will be to lower the noise in your portfolios. No announcements yet. Stay tuned.

Thanks

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@marco I think about risk a lot in relation to my US equity investments given the historically high market valuation. In fact I am mainly invested elsewhere with a very minor allocation due to these concerns. I am not sure this will help in a meltdown where everything is correlated.
Any new ideas/tools would be very interesting.

Trend following in futures markets or long volatility via VIX futures/buying puts. Short-bias hedge funds are not as good to give you "crisis alpha". However, it is better to support long-short strategy to get a higher sharpe ratio in the largecaps.

I would be happy to see futures/options backtesting/ranking system functions but it is unlikely to have many customers for them in my opinion so P123 may not want to build them. Those derivatives are to protect your portfolio instead of making money though.

So I just trade them based on papers. At least it is better to trade them via qualitative analysis unsystematically (like treating collar, butterfly or opinions about greeks as any "strategy") and for underdiverfiied underlyings like most traders do. But I just thank those ret...uninformed traders for donating money to the philanthropic market makers and me.

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Marco, fwiw, on twitter I find the "Lists" feature is the only way I can find value. It lets me ruthlessly curate. I'm oblivious to 95% of the stuff, and imho mentally in better investing place because of it. It makes the curation very important though, so I have to be active about pruning out, and careful about adding into the "List" - but there are some very good follows for my temperment that help me contextualize. There's so much noise, it's how I've tried to deal with. All fwiw.

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I just quit Xitter altogether because there were weirdos on there trying to find out my personal information and Elon Musk don't allow me to follow anyone without creating an account.

And I can't find useful financial information on it.

Any recommendations for finance related accounts? I've looked at Bear Cave's recommendations but haven't found any good financial-related accounts.

People are alienated in their lives. Alienated as defined in my old sociology classes: " the process by which individuals become disconnected or estranged from their social environment, their work, their sense of self, and their relationships. It’s often associated with feeling powerless, meaningless, and isolated within societal structures,.."

I am most qualified to speak in the area of medicine. One can have a life threatening condition and have troubles finding a human to talk to in order to get authorization for what they need. E.G. a diagnostic test or a medication that may not be on the formulary.

I am less qualified to discuss politics but I can imagine people wondering about the present 2-party system and their choices.

I see X as evidence of alienation. People are resorting to interacting thru electronic devices to feel less isolated. As ZGWZ correctly points people continue to go on X even though they cannot even be sure whether they are interacting with a bot or a human. Just adding to their feelings of alienation.

They may feel less alienation on X than how they feel talking to someone at a call center. Someone they have difficulty understanding. Someone they have never met. Someone giving answers based on a computer monitor readout.

Not just the lack of direct human contact but the powerlessness and the inability to interact with the people who control their lives. And the frustration that comes from that powerlessness.

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Hi ZGWZ,

I was looking through, these are some of accounts on my finance list. These are probably highly specific to what works for me, but maybe of interest. I know we're all different, but would be interested to hear if you have a few accounts that I should check out?:

On macro I tend to be naturally too risk averse, so I seek out those with more positive/constructive viewpoints to balance my own natural tendencies. So different people would calibrate differently than I would - but some I find particularly valuable: I like "EconstratPB" alot. He's been so good on macro. "wabuffo" is good too on macro. "mark_dow" was really good to read for macro during 2022/2023 timeframe, although he's much more strategic w/ ideosyncratic specific trades. He's good at explaining how the FED thinks imho. He can get a bit political at times, so avoid if that bothers.

For company takes "borrowed_ideas" is good. He does deep dives on large companies.

"AlphaSenseInc" is good for conference calls and expert call info.

"fabknowledge" is good semiconductor industry follow. I usually don't understand much of the tech, but do pick up useful perspectives, especially understanding scale of capex buildouts.

"EdBorgato" mostly posts or reposts insights or lessons he's learned, and I find those useful.

"WalterDeemer" is a cool follow for technical. He's one of the original technical analysis guys and cool to hear what he thinks about in real time. I don't know much of anything about technical approaches, but enjoy his comments and stories

"RihardJarc" has good posts from media/advertising perspective, including some expert call info.

"GavinSBaker" doesn't comment alot, but very insightful on tech and investing landscape
"modestproposal1" is insightful imho

"NonGaap" is good for corporate dark arts/malfeasance or fraud. He calls it out before the SEC investigations get announced.

"TheStalwart" is Joe Weisenthal's account. It's probably the only major news-source account that I follow, but I like how he manages his twitter feed. It's a good general purpose "if he tweets about it I probably should know at least something about this."

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I simply subscribe to the mailing lists of AQR Research, Hindenburg Research and Muddy Waters Research. I was unable to find a source of information that could be analogous to them. Maybe Google Scholar is the only exception.