Think it’s too late? The world’s greatest fund manager didn’t make money until he was 52

Jim Simons had modest wealth at 52; now he’s worth $ 23 billion

Jim Simons

Financial markets — and risk taking in general — are largely the domain of the young. Early adulthood is the time to swing for the fences while middle age is a time for prudence, perhaps risking a manageable part of the nest egg.

Yet that’s not always true. It’s particularly untrue of some of the world’s greatest investors.

Among them is Jim Simons, the king of quants. Yesterday Gregory Zuckerman published “The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution.”

It details how a 40-year old math professor walked away from a job at Stony Brook University to try trading currencies. He had no idea what he was doing but raised $ 4 million with a few partners. He recruited renowned mathematicians to help him. It didn’t work and losses topped $ 1 million.

“If you make money, you feel like a genius,” he told a friend. “If you lose, you’re a dope.”

He gathered more data and persevered through the 1980s with a mixed record. In 1989 he lost 4%.

Finally, Simons along with recently recruited colleagues Henry Laufer and Elwyn Berlekamp, started to focus on short-term patterns — Monday’s price action often followed Friday’s, while Tuesday saw reversions to earlier trends.

It worked and the Medallion fund gained 55.9% in 1990. It hasn’t stopped. His fund as generated average returns of 66%, racking up gains of $ 100 billion. No other fund or manager is even close. A $ 10,000 investment 30 years ago excluding fees would be worth $ 40 billion today. Even after fees, it would be worth $ 195 million.

How the fund makes money is one of the world’s most-closely guarded secrets but it’s story isn’t. Simonds certainly had mathematical talents but he know almost nothing about markets when he started out at age 40 and managed to amass one of the world’s great fortunes.

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It’s been 90 years since the original Black Monday. The lessons are ominous

A look back at 1929

The period of October 24-29, 1929 was a defining moment in financial world history. Over the course of four trading days, the market fell 25%.

It started with an 11% loss at the open on Thursday, Oct 24 that started a panic. It was halted by the heads of the biggest US banks — Morgan, Chase and National City and the index closed only modestly lower. The buying continued Friday and in the half-day sessions that took place on Saturday at the time.

However it all came apart as news traveled of the rescue over the weekend. On Monday, October 28 the selling and margin calls started. The index fell 13%. The next day it fell another 12% on a volume record that wouldn’t be beaten for 40 years.

From there, the dip buyers stepped in. The market rallied 12% on Wednesday, Oct 30 but they were soon wiped out. A number of bear market rallies extended into April of 2020 when nearly all the losses were recovered. But the market would go on to lose 89% before it bottomed. The peak wasn’t surpassed until November, 1954.

stock crash

Those are all less-important details. What’s still not understood is why the collapse happened. The conventional wisdom is that it was caused by borrowed money and sky-high valuations but that’s just not the case.

As the WSJ highlights, Industrial stocks were priced at about 13 times earnings, down from 15 times in September. The best-performing stock of the year was Radio Corp of America and it peaked at 73x earnings, about the same as Amazon at the start of this week.

That’s what’s so scary about the crash 90 years ago. Even after 90 years of looking, there are no easy answers. There were some obvious mistakes — interest rates were too high, protectionism was rising — but there was something intangible and inexplicable in the mass psychology of the market.

We’ve seen it since in various episodes including the drop in 1987. Even the nearly 20% drop in stocks last December had all the elements of a panic.

So long as people are involved in markets, there will be fear and irrationality. What’s unique about 1929 is that the drop came before one of the worst economic periods in history. What’s less understood is that it wasn’t really the cause or the beginning of the Great Depression. It wasn’t until 1930 and 1931 when banks began to fail that the Depression hit.

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It’s a light one on the North American calendar today

Economic data is slim

Economic data is slim

It’s all about impeachment, Brexit and China-US talks this week as the economic calendar is light today and for most of the week.

Equity market sentiment is negative to start the week, partly on a Bloomberg report suggesting that China won’t consider reforming industrial policy or government subsidies. On NPR, Peter Navarro said the White House wants a big trade deal with China or no deal.

There is also chatter today about faultlines in corporate policy where US companies are appeasing China. The flashpoint today was that the GM of the NBA’s Houston Rockets tweeted support for Hong Kong. It’s set of such a firestorm that there’s even talk he could be fired.

There are also rising geopolitical fears after Trump announced a pullout from Syria. The fear is that Turkey could invade and destabilize the region.

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Brexit endgame: It’s PM Johnson vs parliament in historic showdown

By Kylie MacLellan and William James

LONDON (Reuters) – After more than 1,000 days of political brawling, hordes of headlines and dizzying lurches in sterling, the battle of Brexit enters the endgame.

Britain’s ancient parliament will next week host an historic showdown between Prime Minister Boris Johnson – who has vowed to leave the European Union on Oct. 31, “do or die” – and lawmakers who view themselves as the last bulwark against economic ruin.

Members of parliament, expected to include rebels from the ruling Conservatives, will try find the majority they need to either topple the government or change the law to prevent Britain withdrawing from the bloc without an exit deal.

They may have just days to stop Johnson, and are ready to use every piece of arcane parliamentary process at their disposal.

“We’re entering new political terrain in terms of parliamentary politics,” said Ruth Fox, director and head of research at pro-democracy charity the Hansard Society.

“Next week we could see an act of parliament the government doesn’t want, it may end up with a vote of no confidence in which Conservative MPs bring down their own government, or all the opposition’s plans could fall apart.”

Johnson, the face of Brexit for many Britons, has staked his political future on taking Britain out of the EU on Oct. 31, with or without a deal to smooth the divorce between the world’s fifth-largest economy and its biggest trading partner.

His showdown with parliament will determine the course of Brexit – the United Kingdom’s most significant geopolitical decision since World War Two.

Whatever the outcome of the Brexit chess game, it will go down in the history books of the Westminster parliament, which traces its history through the English Civil War and Norman Conquest to the ancient Witan of Anglo-Saxon England.

In a 2016 referendum, 17.4 million voters, or 52%, backed Brexit while 16.1 million, or 48%, backed staying in the trading bloc-cum-political project it has been a member of since 1973.

The result divided the population at every level, from the government cabinet table to the family dinner table, and the intervening three years have seen little reconciliation.

The current parliament, for decades defined by loyalties to either the center-right Conservatives or the center-left Labour Party, reflects those deep divisions, with a minority government in power and each party internally split over the right approach to Brexit.

REMAIN ALLIANCE

When lawmakers return from their summer break on Sept. 3, those opposed to Johnson’s strategy, combining all rival parties and some Conservative rebels, have two main options to try to stop him: change the law, or change the government.

Johnson, a newly-appointed prime minister and Britain’s third since the Brexit vote, has dared this so-called “Remain Alliance” to try and stop him, and shown he is prepared to test the limits of his executive power to defeat their efforts.

On Wednesday, he sparked fury by announcing the suspension of parliament for more than a month between mid-September and mid-October, depriving parliament of debating time to put their plans into action – which his opponents decried as an assault on Britain’s constitutional integrity, and democracy itself.

“We won’t be dictated to anymore,” the opposition Labour Party’s second most powerful man, John McDonnell, said on Thursday. “Parliament now is reasserting the traditional centuries-old democratic rights of the people.”

Johnson denied any impropriety, saying it was in line with the conventions that allow him to set out his new political program, and insisting there would be time to debate Brexit.

The move has raised the stakes for his opponents, potentially giving them as few as four days in parliament to make their move before the legislature is suspended.

Of the two options at their disposal, the group favors trying to pass a new law that would probably require Johnson to seek a delay to Brexit.

The exact wording of the plan is being kept a closely guarded secret and could go much further, towards stopping Brexit altogether.

But the process, expected to begin next with a request for an emergency debate, is fraught with challenges.

It would require a helping hand from parliament’s Speaker John Bercow – who denounced Johnson’s move to suspend the assembly – to seize temporary control of the legislative process, as well as several days of parliamentary time, and total unity in order to win votes.

Johnson’s Conservatives govern with a working majority of just one seat in the 650-seat chamber thanks to the support of a small Northern Irish Party.

Scottish National Party lawmaker Joanna Cherry, who is also leading a court bid to determine the legality of suspending parliament, told Reuters she believed there were double figures of Conservatives willing to rebel against the government.

“They are going to be pivotal, we have got to get enough Tory (Conservative) rebels, not to bring down their government just to say to the government: you can’t have a no-deal Brexit.”

Johnson has an armory of parliamentary devices he can use to stall the process if needed, from jamming the timetable with immovable events to filibustering the legislation in parliament’s upper chamber, the House of Lords.

But, the once-unheard of process of passing a law against the government’s wishes has a recent precedent – earlier this year legislation demanding that Johnson’s predecessor Theresa May delay Brexit was successfully voted through.

TORTURED PROCESS

The tortured process of seeking to deliver the result of the Brexit referendum has already repeatedly pitted parliament against the government, and parliament has often won.

Lawmakers have forced reluctant ministers to give them a vote to approve any exit deal, and to publish legal advice and official assessments of the impact a no-deal exit would have.

The battle has tested the limits of most lawmakers’ knowledge of parliamentary procedures and shown the difficulties of Britain having an uncodified constitution, which is largely upheld through convention and precedent, to the fore.

“People don’t really know what the rules are. There are competing versions of what is and what is not proper constitutional conduct,” said Andrew Blick, Senior Lecturer in Politics and Contemporary History at King’s College London.

“We’re experiencing a real conflict between direct democracy as expressed in the referendum, and representative democracy.”

The ultimate test of that conflict could come in the shape of a move to topple Johnson’s government, initiated by Labour calling a vote of no confidence.

Labour say they will call one when they think they can win it, and want to use a 14-day period after the vote to install their leader Jeremy Corbyn as head of a temporary government with the purpose of delaying Brexit and calling an election.

That plan has already been rejected by parts of the Remain alliance, including some members of Corbyn’s own Labour Party, who say his far-left politics are too divisive to lead a cross-party government and his opposition to Brexit has been too weak.

Even if Johnson lost a vote of no confidence he could use the gray areas of untested electoral law, passed in 2011, by refusing to resign. That would deprive opponents of a shot at forming a government and delay an election until after Brexit.

Some argue an election would even play into the hands of a prime minister who has spent his first five weeks in office on a de-facto election campaign.

“Johnson’s real objective is to use Brexit to win a general election, rather than use a general election to secure Brexit,” Tom Kibasi, director of the Institute for Public Policy Research wrote in the Guardian newspaper.

“By forcing the hands of his opponents, he has defined the terrain for a ‘people versus parliament’ election.”

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Trump Has a Favorite Currency, and It’s Not Bitcoin

© Reuters.  Trump Has a Favorite Currency, and It’s Not Bitcoin © Reuters. Trump Has a Favorite Currency, and It’s Not Bitcoin

(Bloomberg Opinion) — When Donald Trump’s former adviser, Steve Bannon, praised last year as “disruptive populism” and revealed he was working on his own cryptocurrency, it was evidence of something many people had long suspected: The forces driving the growth of anarchic, get-rich-quick digital tokens are very similar to those buoying Trump and his imitators. Both are born out of a resentment of establishment politics and a hatred of central authorities such as the Federal Reserve.

This week, though, the U.S. president turned his back on alt-right cryptonomics with a series of tweets that made clear he has time for only one currency: The dollar.

Trump made three unusually thoughtful and concise points. One: Bitcoin and other cryptocurrencies are great for criminals and speculators, and bad for everyone else. Two: Facebook Inc (NASDAQ:).’s proposed digital token – Libra – is going to put Mark Zuckerberg’s social network under tough scrutiny by financial regulators. Three: The reigns supreme.

It will hurt Bitcoin supporters to hear it, but it looks like Trump is listening to the establishment and bringing the hammer down on potential threats to the dollar’s status as the world’s reserve currency, and with it the ability to enforce U.S. policy worldwide.

Despite repeatedly bashing Fed Chairman Jay Powell over interest rates – “way too high,” Trump groused in June – the president’s tweets echo the central banker’s views on crypto. Bitcoin is a “speculative store of value” that has failed to catch on, Powell said on Capitol Hill this week. He warned that Libra, in particular, raised serious concerns about financial stability and regulation.

Trump’s preoccupation with Facebook’s digital token is probably not whether Zuckerberg’s project conducts adequate know-your-customer and anti-money-laundering checks. For the president, it’s more likely to be a question of whether the cryptocurrency will serve American interests or undermine them. Libra’s ambition is to be a cross-border medium of exchange, effectively operating outside the banking system and catering to at least two billion users across Facebook, Instagram and WhatsApp.

Democratic Representative Maxine Waters – no friend of the president’s – frets that Libra could be a parallel system that rivals the greenback one day. It sounds more like Facebook First than Trump’s vision of “America First.”

To be fair, we already know that Libra will include currencies like the dollar in the basket of assets that backs it. We also know that the project plans to respect international sanctions, such as those re-imposed by the U.S. against Iran over its nuclear ambitions.

But Trump is laying out his stall early: If Libra is ever to hit the market with his administration’s blessing, it will have to be, as much as is possible, an extension of the U.S. dollar. If it starts to look like a vehicle to escape, or blunt, U.S. policies like sanctions or trade tariffs, the full force of those financial regulations will be felt. Remember that the one cryptocurrency actually banned by Trump is the Venezuelan petro.

The irony of all this is that the biggest probable threat to the dollar’s reserve status is Trump himself. Ray Dalio, the billionaire hedge fund founder, said last year that the dollar’s privileged position as the world’s currency was more obviously being threatened by the parlous state of the country’s finances than by digital tokens. America is “borrowing too much,” he said.

In the long run, this president may not be the dollar’s best friend.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Trump says it’s time for $100 billion trade deficit with Mexico to end

More on Mexico tariffs

I won’t claim to try to understand Trump but Mexico spent a year negotiating a free trade deal with Trump and they all shook hands on it.

Now Trump is tearing it up before it’s even ratified.

I assume it’s a bluff but it doesn’t send a great message about negotiating in good faith to anyone else who might want a trade deal with the US.

From Trump’s twitter:

90% of the Drugs coming into the United States come through Mexico & our Southern Border. 80,000 people died last year, 1,000,000 people ruined. This has gone on for many years & nothing has been done about it. We have a 100 Billion Dollar Trade Deficit with Mexico. It’s time!

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Fed Confirms It’s as Dovish as the Market Thought

© Reuters.  Fed Confirms It’s as Dovish as the Market Thought © Reuters. Fed Confirms It’s as Dovish as the Market Thought

(Bloomberg Opinion) — Bond traders were spot on in pricing the Federal Reserve’s dovish pivot earlier this year.

Benchmark Treasury yields rose just slightly after minutes of the Federal Open Market Committee’s January meeting were released on Wednesday, perhaps because they had fallen a bit too far. Otherwise, just about everything in the document confirmed the drastic dovish tilt. Many officials said they were unsure about what interest-rate moves might be necessary this year, supporting the idea that the Fed is at least on hold for the foreseeable future and that the next move could be a cut or an increase. What’s more, almost all of them wanted to halt the central bank’s balance-sheet runoff later this year. Here’s a key passage:

Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year. Such an announcement would provide more certainty about the process for completing the normalization of the size of the Federal Reserve’s balance sheet. A substantial majority expected that when asset redemptions ended, the level of reserves would likely be somewhat larger than necessary for efficient and effective implementation of monetary policy; if so, many suggested that some further very gradual decline in the average level of reserves, reflecting the trend growth of other liabilities such as Federal Reserve notes in circulation, could be appropriate.

On top of that, policy makers acknowledged the financial markets and the signals that falling risk-asset prices send about the outlook. As I’ve said before, the market appeared to throw a tantrum over Fed Chairman Jerome Powell’s remarks that the balance sheet was on “automatic pilot.” Well, officials are paying attention now:

Market participants appeared to interpret FOMC communications at the time of the December meeting as not fully appreciating the tightening of financial conditions and the associated downside risks to the U.S. economic outlook that had emerged since the fall. In addition, some market reports suggested that investors perceived the FOMC to be insufficiently flexible in its approach to adjusting the path for the federal funds rate or the process for balance sheet normalization in light of those risks. The deterioration in risk sentiment late in December was reportedly amplified by poor liquidity and thin trading conditions around year-end.

Some traders suggested the minutes weren’t as dovish as expected because Fed officials said that the labor market expanded “strongly” and that household spending growth “remained strong.” Those are just facts, and it’d be silly to expect central bankers to alter their view of economic data to fit their desired interest-rate path. Those positives were countered by comments about moderating business investment and slowing global growth, particularly in China and Europe.

Maybe the market was expecting the Fed to declare that the current fed funds rate is the highest it’ll go in this tightening cycle. That seems like wishful thinking, considering that the most recent “dot plot” from December was forecasting two additional hikes in 2019. Policy makers probably can’t get the market on board with boosting rates twice this year, but they could still do one. And they’re surely going to preserve that option as long as they can.

Treasuries were largely priced for these minutes, and that’s not particularly exciting. Indeed, the yield-curve-inversion trade didn’t come roaring back — at least not yet. The two-year Treasury yield is hovering right around 2.5 percent, the upper bound of the current fed funds rate, which makes sense given the central bank’s on pause but could possibly raise its benchmark one more time. The 10-year yield is 15 basis points higher at 2.65 percent, which is right in line with the average spread between the two maturities in 2019.

The world’s biggest bond market, in other words, is trendless, range-bound and boring. That may be no fun for rates traders and strategists, but it’s probably just fine with the Fed.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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