Reflexivity, A Billion Dollar Race Track Gambler and Algorithmic Information Dynamics

Tyler here with this week’s Macro Musings.

The May Macro Intelligence Report (MIR) is coming out near the closing bell today. In it we’ll have our latest thoughts on the US dollar, China’s macro deleveraging, and how all this relates to stock markets around the world. If you want to stay plugged into the macro narrative and keep tabs on the trades we’re taking to capitalize on it, get yourself a copy. We have a 60-day money-back guarantee, so there’s literally no risk for you to check out how we’re positioning for the summer months. Click here and scroll to the bottom of the page to sign up for the MIR.


Recent Articles/Videos —

A Developing Soros Style Boom-Bust – Alex explains reflexivity and how the market is always wrong. These are the exact principles George Soros used to extract billions from the global markets.

Ed Seykota’s “Fundamentals” And A Massive Pain Trade – Alex dissects the budding dollar bull trend in the context of reflexivity and market positioning.

Shorting Gold — AK covers our short gold thesis.

Black Swans — AK explains Nassim Taleb’s black swan theory and how to protect your portfolio against these events.


Article I’m reading —

Bloomberg has been killing it with some newly released content. (Probably as a function of moving to a paid subscription model instead of an ad supported one.)

Here’s my favorite one of the week.

The Gambler Who Cracked The Horse Racing Code – A mini bio on race track sharp Bill Benter. Benter got his start in Vegas counting cards based on Ed Thorp’s system in Beat the Dealer. He then transitioned into betting on horse racing at the Hong Kong Jockey Club. Benter created a quantitative system that could accurately predict what horses were going to win. He created this decades before quant analysis became commonplace in professional racetrack wagering.

Long story short, he pulled a billion dollars out of the track over the course of his career. This article details the entire crazy story from start to finish. And it’s stuff that Benter has never before released to the public. If you liked Ed Thorp’s come up story from Vegas to Wall Street you’ll love this one too.


Podcast I’m listening to —

If Aaron Brown goes on a show then I’m listening. His latest appearance is on the Better System Trader podcast. (link here)

Aaron’s a veteran quant who actually knows Bill Benter from the article above. He’s a poker player, trader, and the ex-risk manager for AQR — a multibillion dollar hedge fund.

On the podcast Aaron talks about the biggest misconception regarding risk and how traders should approach drawdown management. He also makes a great point on how low volatility environments can be riskier than high volatility environments.

Aaron is the authority on risk management. So if you need help cutting losses, then give this episode a listen.


Video I’m watching —

Alex told me the other day that he was enrolling in an online course on Algorithmic Information Dynamics from the Santa Fe Institute. It’s only $50 and you can take it from the comfort of your home. What piqued my interest was the course trailer. You can check that out by clicking here. And here’s a link to the course sign up page.

The instructors are out to teach us how to tackle causality in non-linear systems from a model-driven approach that does not use traditional statistics and classical probability theory.

The class may help with understanding and modeling complex systems, like economic ones. Give the intro video a quick watch and if you have some down time this summer consider enrolling alongside Alex.


Chart I’m looking at —

I found this table on @OddStats Twitter this week. It shows positive performance begets positive performance and negative performance begets negative performance in stocks. Obviously each year has many other nuances and subtleties that affect eventual performance. But we can at least use this to start tempering expectations for returns in 2018.

Quote I’m pondering —

When I saw that screen light up that day in the Merrill Lynch offices, I lost any residual doubt that Bloomberg could make it. We had picked just the right project. It was big enough to be useful, small enough to be possible. Start with a small piece, fulfill one goal at a time, on time. Do it with all things in life. Sit down and learn to read one-syllable words. If you try to read Chaucer in elementary school, you’ll never accomplish anything. You can’t jump to the end game right away, in computers, politics, love, or any other aspect of life. ~ Mike Bloomberg   

Whenever I’m struggling or frustrated with something I try to chop it up into smaller pieces. Like Bloomberg, I’ve found that breaking up macro goals into micro goals helps to keep things moving forward. And as an added benefit I get a significant mood improvement from having a sense of accomplishment.

If your defined task is overwhelming it’s easy to feel beaten down and burned out because you haven’t been able to cross something off the mental checklist. Completing smaller subtasks helps you stay motivated and moving forward.

That’s it for this week’s Macro Musings.

If you’re not already, be sure to follow us on Twitter: @MacroOps and on Stocktwits: @MacroOps. Alex posts his mindless drivel there daily.

Here’s a link to our latest global macro research. And here’s another to our updated macro trading strategy and education.

 

 

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.