Inflation is dominating headlines around the world...except in Japan. While most OECD countries are experiencing the biggest surge in inflation in decades, Japan continues to struggle with deflation. In the U.S. the Consumer Price Index ("CPI") gained 6.2% y-o-y in Oct, the highest increase in over 30 years. The U.S., U.K. and other major OECD economies have now averaged a 2.5% y-o-y increase in CPI over the past twelve months; Japan just -0.5%.
Source: OECD.Stat, Mantabye
Inflation in moderation is good for the economy, but too much or too little it hurts economic growth. Japan has been fighting deflation ever since its economic bubble burst in the 1990s. Over that time Japan has attacked the problem with innovative policies, including "using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing." But nothing has really worked. Economists believe a combination of self-fulfilling expectations of lower prices, Japan’s aging population, globalization, and technology have worked to worked to keep demand and costs down. It's part of the secular stagnation thesis, popular among prominent economists. The big worry, even a few quarters ago, was that the U.S. and Europe and would also struggle with the same forces. And they may yet do so, but for right now one of these things is not like the others.
That's still a mystery. But new evidence shows that two of the three persons actually convicted of doing so were innocent. Inspired by the Netflix documentary of the same name, the Manhattan DA--Cyrus R. Vance, Jr.--is set to exonerate Muhammad A. Aziz, 83, and Khalil Islam (who died in 2009), who along with Mujahid Abdul Halim, were convicted of killing the the charismatic civil rights leader in 1965. Vance acknowledged that Aziz and Islam did not get a fair trial and plans to ask a judge to vacate the convictions on Thursday. Both men have consistently denied being involved in the murder. Halim has confessed to being one of the three gunmen who killed Malcolm X, but testified that neither Aziz nor Islam were involved in one of the most important political assassinations in American history. Both Aziz and Islam served more than two decades in prison for the crime.
Chartr has great data and charts. In light of Rivian's massive IPO, this one, based on work by University of Florida professor Jay Ritter (aka "Mr. IPO"), seems very relevant:
It's probably just a coincidence that the last time only 20% of IPOs consisted profitable companies was in the 1999-2000 period. Naturally, it's different this time.
Elon and Jeff are not just vying for supremacy in space (if that weren't enough!), they both want to take over transportation on earth too. Electric vehicles ("EV") are all the rage (at least among investors) and Telsa is the $1 trillion colossal in the space (no pun intended). Musk's company is more than three times bigger than Toyota by market capitalization, even though Telsa sells only about 5% of the cars per year that Toyota does. Yes, yes, it's all about growth...but still...there are limits? There were 56 million cars sold worldwide in 2020, 3 million were EVs, Telsa sold 500K of those, and it is worth more than all those other car manufacturers combined!
Well, Bezos has certainly taken notice. After all of Musk's snarky tweets and jokes, Bezos has hit back with him own EV-maker Rivian, that went public on Wednesday in the largest share sales since Facebook in 2012. Sort of...Amazon owns 20% of Rivan, and Bezos maintains a 10% ownership of Amazon (Musk owns 17% of Telsa). At one point in the trading day Rivian was worth $100 billion, more than Ford or General Motors, even though the company had delivered just 53 vehicles, so far, in 2021. Why not? It's electric, and it's being funded by Amazon, err Bezos. Rivian is 10% the size of Tesla by market cap even though (based on full-year 2021 projections) it sells about 0.2% of the cars as Telsa. Makes sense.
The only question is which one would you buy? And if you're keeping score Elon is ahead...
And why not? In the U.S. everything these days is either Left or Right. Why should a virus infecting the world be different when it come wrecking havoc here? Even the solutions are political. The NY Times' David Leonhardt has great piece highlighting the large gap in vaccination rates between Democrat-leaning areas and Republican-leaning areas of the country. He writes "the political divide over vaccinations is so large that almost every reliably blue state now has a higher vaccination rate than almost every reliably red state." That pattern further extends to the county-level of each state. And that's led to significantly higher deaths among Republicans:
Why is this happening? It's predictably about conspiracy theories and "own the left." But even conspiracy minded right-wing pundits are beginning to question their side's rejection of vaccines..."In a country where elections are decided on razor-thin margins, does it not benefit one side if their opponents simply drop dead?" Maybe the easiest way to own Liberals is to stay healthy and vote?
Gregory Zuckerman's 2019 book of the same name sought to provide a look behind the curtains of Jim's Simon's Renaissance Technologies, the most successful (and secretive) hedge fund of all time. Well, sort of...While how RenTec makes money is as much a mystery at the end of the book as it is at the start, Zuckerman provides a good background into the key personalities, investment philosophy, and the scope of RenTec's massive engineering infrastructure that has been critical to its success.
Renaissance was founded in the early 1980s by Simons, a highly respected mathematician, successful NSA code-breaker and university administrator who left academia in his '40s to try his hand at this finance thing, drawn by...what else?...MONEY! The Firm became a pioneer in using mathematical and scientific techniques to identify hidden patterns in the market. And its flagship fund, Medallion, has been phenomenally, wildly, crazily successful--a veritable money machine!!! How successful? Since its inception in 1988, Medallion has generated annualized net returns of 39%. Effectively doubling investors' money every two years! By comparison, the S&P 500 has returned just 10% per year over the same period. The average hedge fund, represented by benchmark HFRI Fund-weighted Composite, has returned 9%, as shown below:
Source: Gregory Zuckerman, newtraderu.com, HFR
Just as importantly, Medallion generated those returns with a negative beta to the S&P 500, generating 42% of alpha per year. Its returns were not just spectacular but they were uncorrelated to the broader market. In fact, the Fund's best years were in periods of the worst dislocations for stocks: 2000 (+99%), 2008 (+82%), 2020 (+76%).
Source: Mantabye.com
Mind, you Medallion's 39% annualized net returns are after its hefty 5% management and 44% incentive fees. On a gross basis, Medallion has generated 66% annualized returns. To put that in dollar context, Medallion, which has $10 billion of assets, has produced over $126 billion of gross trading profits for investors (mostly Renaissance employees). It has generated $8 billion of management fees and $51 billion of performance fees for Jim Simons and other shareholders.
No one knows exactly how Medallion makes so much money. Probably only a few people at Renaissance fully know either. Conceptually, Medallion utilizes statistical arbitrage, exploiting very short-term deviations of historical relationships between assets (think trading horizons of minutes and hours). Betting that these relationships will mean-revert, Medallion uses significant leverage to amplify gains. According to the book, Renaissance is only looking to be right 51% of the time, but that's more than enough. Trading thousands of times a day, those gains add up, especially when multiplied by leverage.
So, does Medallion single-handedly prove that markets really are not efficient? Did Simons really solve the market? Or is Medallion the exception that proves the rule? Perhaps it's the latter. Medallion's consistency, or persistence, is so remarkable precisely because of its rarity. Moreover, there are trade-offs. Short-term trading is generally capacity constrained. That's why Renaissance has capped the size of Medallion at $10 billion and distributes profits annually. (It's now effectively the world's most attractive bond! Producing 39% of yield per year!) Renaissance has tried to scale its business by attempting to develop long-term trading strategies that have less capacity issues. Alas, the Firm's other funds, like RIEF, RIFF or RIDA have not able been able to produce anything close. In fact, REIF, RenTec's longer-term equity trading strategy (think trading horizons of weeks and months) has actually underperformed the S&P 500, since inception in 2006 (by 2% per year):
So, in the end Simons and Renaissance's many brilliant researchers have figured how to stay just ahead of everyone else, and that's all they need to do. This video basically narrates Zuckerman's whole book in 20 minutes (with some deepfake images from Mr. Robot). Or you can hear RenTech's story from Simons himself:
Saturday Night Live, introduced a new Donald Trump and it is, by far, the best impersonation of the former President yet. New cast member James Austin Johnson debuted his "the Donald" in this week's cold open and what a Trump it was. Johnson was able to mick Trump's mannerisms, discursive rambling and even the tone of his voice almost to perfection. It is scarily accurate! The rookie cast member is becoming an integral part of the show this season, playing Biden and Trump.
