Close Summary

I was too busy to pay much attention to markets today. There were no dramatic moves. US stocks a bit soggy at the close. The VIX was up a bit, at 25.75 (the future). Twitter saying that the Plunge Protection Team had been deployed. Various news about the Moderna vaccine having some promising properties. Gold was up, SPX was down. Copper was up. Go figure! DX was pretty flat, although CHF was up against it. The 10-year was up a tad, but nothing much.

Basically, a calmish day, with stocks looking a bit over extended but inflation hedges looking good. Tomorrow is a big day: three of the FAANG bunch have results. It could be volatile.

Non-trading

I am not generally a great fan of N N Taleb, but he had some sensible things to say about the pandemic when he was interviewed by Russ Roberts on a recent Econtalk, here. He was good about how you need to take as much risk as possible without hitting the “absorbing barrier” (death). I can’t decide if he’s a genius or a charlatan: a bit of both, probably. His essential point seemed to be that you have to take risk to make money, but you must make sure the distribution of outcomes is such that you never go bankrupt. This amounts to saying that you need to put in protective stops, or buy puts, or do something that puts a ceiling on your losses. Buffett talks about the most important rule of investing is to never lose money, and the second most important rule of investing is never to forget the most important rule. Although this is memorable, it’s not really very practical. The Kelly analysis suggests something more sophisticated: having a utility function that suitably weights “fat tail” losses high enough to force suitable capital-conserving trading strategies.

Politics

The FT is again asking if it’s sensible to encourage leverage via the tax system, by making the (risk adjusted) after-tax cost of equity capital higher than the corresponding cost of debt capital. Clearly, it isn’t. Clearly, the government is not going to change the tax rules. Just like carried interest is still a thing. Just like tariffs and stamp duty are still things. Just like ZIRP and NIRP are still things. Because these policies transfer resources from unfavoured groups to favoured groups.

Article. This is an interesting departure (as far as I’m aware) for the FT in that it created the article by reading the comments left on the website. The FT comments are often of a high quality, from individuals who know what they are talking about. It’s a great pity that they have zero visibility in the printed version, which is probably still the most common way of consuming the FT. It’s true that taxing dividends would cause me a lot of pain, as a business owner.