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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ForexLive Americas FX news wrap: Late headlines spark moves

Forex news for North American trade on July 19, 2019:

Markets:

  • Gold down $ 20 to $ 1425
  • WTI crude up 65-cents to $ 55.95
  • US 10-year yields up 3 bps to 2.05%
  • S&P 500 down 18.5 points to 2976
  • USD leads, EUR lags on day
  • NZD leads, GBP lags on week

North American trade started out with a miss on Canadian retail sales. That quickly sent USD/CAD up to 1.3110 on the headline but the gain didn’t last, in part due to details of the report that showed an odd drop in grocery store sales as a main culprit. USD/CAD retreated to 1.3070 shortly after then fell further late as Iran worries prompted a rebound in crude.

The market looked to be grinding towards the finish line but was hit by a series of headlines late. The first was that Iran had seized a UK-flagged ship in the Strait of Hormuz. That sent oil higher and worried stock markets. A WSJ report talking about only 25 bps compounded the move and that sent stocks from flat to solidly negative in the final two hours.

USD/JPY initially jumped on the Fed talk and hit 107.98 but gave back the 20 pip move in the following hour. It was a similar story across the board with the FX market less worried about the timing of cuts.

Cable started the day near 1.2550 and a session high but bled lower into the London fix and fell as low as 1.2476 on the WSJ report before finishing nearly right on the 1.2500 figure.

EUR/USD slipped a bit on a Speigel report about Draghi planning to ease in November but the damage was barely noticeable. Still, it was a rough finish for the euro at 1.1216 from 1.1282 late yesterday on the Williams talk.

Have a great weekend.

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Retiring late: As pensions underwhelm, more Japanese opt to prolong employment

© Reuters. Yasuhiro Furuse, a senior adviser of corporate sales headquarters of Orix Corp., unfolds his laptop at a meeting room in Tokyo © Reuters. Yasuhiro Furuse, a senior adviser of corporate sales headquarters of Orix Corp., unfolds his laptop at a meeting room in Tokyo

By Tetsushi Kajimoto

TOKYO (Reuters) – Yasuhiro Furuse could have retired two years ago, but he wasn’t entirely happy with his pension income and had to put any such thoughts to bed.

It was just as well for Furuse’s employer Orix Corp, a financial services group, which would have struggled to find a replacement, with Japan’s jobless rate at 26-year lows.

This win-win arrangement, increasingly common in Japan, highlights a structural and policy challenge facing the world’s third-biggest economy.

Prime Minister Shinzo Abe’s government is considering raising the retirement age to 70 or 75 from 65 now, to ease pension burdens as well as a labor crunch. But a more durable longer term solution, analysts say, is for Japan to relax its strict controls on foreign workers.

“I have no choice but to work,” said Furuse, 62, a senior adviser at Orix’s corporate business headquarters.

“I appreciate that I could keep working, which makes me better off than living on pension and savings. Besides, I want to do something to contribute to society.”

Japan’s population is among the oldest on the planet and has one of the longest lifespans, putting pressure on its pension system. The old-age dependency ratio — or the numbers of elderly against those of working age — is the highest in the OECD.

The situation is being compounded by Japan’s deep-seated reluctance to fully open its gates to foreign workers, leaving many companies to rely on the old guard to overcome severe labor shortages.

On top of that, a lengthy spell of monetary easing by the Bank of Japan to battle deflation and spur growth has led to near-zero bond yields and crippled savings.

INVESTING IN OLD AGE

The current law requires companies to allow employees to work until 65 if they wish. In practice, most companies, trying to keep a lid on labor costs, set a mandatory retirement age at 60, with an option of further five years’ work on reduced pay.

That is changing.

Orix has raised the mandatory retirement age for its employees to 65 from 60. Some other firms such as Taiyo Life Insurance and restaurant chain Skylark Holdings Co, now also allow staff to work until 65, or 70 if employees wish.

“We will raise the retirement age to 65 to … cope with a decline in the workforce,” Nippon Steel Corp said in a statement this month.

Mayumi Waki, a human resources manager at Orix, says the move was worth the extra spending. The older workers seem more motivated, the firm can benefit from their client relationships for longer and younger talent has more mentors available.

“We don’t consider raising the retirement age as a cost but a necessary investment,” Waki said.

To keep costs under control, Taiyo Life has changed the company’s pay review processes to be more focused on merit, and less on career length – another change in culture which is being increasingly adopted throughout Japan.

RETIREMENT AT 70?

Over 8 million Japanese workers are 65 or older, a staggering 12 percent of the entire workforce, government data shows. The old-age dependency ratio is over 50 percent, and is expected to rise to nearly 80 percent by 2050, the OECD says.

The average employee pension in Japan is about 150,000 yen ($ 1,350.01) a month, lower than government’s target of 60 percent of the pre-retirement income for salaried workers, which would be 220,000 yen on average.

Some economists expect the average pension-to-wage ratio to keep deteriorating and worries are growing that Japan’s ‘pay-as-you-go’ pension scheme may be unsustainable, with fewer workers paying into it and more elders drawing from it.

In a significant move, immigration-shy Japan is taking tentative steps to let in more foreign, blue-collar workers to ease the labor shortage.

Other labor reforms also kicked in this month to curb overtime and promote more flexibility, such as shorter days or working from home, with some analysts saying this could encourage more women and retirees to look for jobs.

Cutting back on Japan’s notorious long hours at work may also make longer careers easier to sustain, analysts say.

“The era of retirement at 70 will come sooner or later,” Taiyo Life’s chairman Katsuhide Tanaka said.

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Economy News

US equities bounce around late but finish near the highs

Closing changes for the main indexes

  • S&P 500 up 18 points to 2793, up 0.6%
  • Nasdaq +0.5%
  • DJIA +0.7%

Here’s the intraday on the S&P 500. It dipped on the China trade talks and that has me worried. The commentary was entirely positive but it wasn’t good enough. To me it’s starting to look like a deal is fully priced in and all the risks are to the downside.

Closing changes for the main indexes

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It's officially a bear market: S&P 500 decline hits 20% on late plunge

Market closes down exactly 20% from the highs

US stock markets crumbled into the close and the S&P 500 finished down 65 points, or 2.7%, to 2351. That’s almost exactly 20% lower from the all-time high, which was set September 24.

The index is also at the lowest since April 2017 as sentiment crumbles on the combination of a tariff war and rate hikes.

I’m going to throw something else out here as well: The market may increasingly believe that Trump is going down. I’m not sure anyone has an idea of how he’s going down but all the resignations in his White House are bad news. Mueller is looming as well.

With this drop, money is going to abandon Trump and that was one of the final things holding together his loose alliance with mainstream Republicans..

If you assume that Trump is done, it doesn’t take too much imagination to imagine an ugly downfall.

As for the decline, markets are mercifully closed on Christmas and that leaves little time left for a recovery before the end of the month/year. If the Dow closes at these levels, it will be the worst month for US stocks since October 2008 and the 16th worst month ever.

Here’s the damage today:

  • S&P 500 -65 points to 2351
  • Nasdaq -2.2% to 6192
  • DJIA -653 points, or 2.9%, to 21792

This tweet came on August 30, the exact day the Nasdaq peaked.

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