It seems to me that Sumner suffers from confirmation bias-as everything proves he's right according to him. Everything proves that Keynesianism is dying, that the multiplier is zero-indeed that there is a negative multiplier-that there is always full monetary offset and that expectations are wholly rational.
For example the 1987 market crash proves he's right-as it didn't lead to a recession-ergo, there are no bubbles. Of course, what the crash doesn't prove is that the market is irrational though as he says it's not clear to this day why the market sold off 20 percent in one day. Yet why would rational market participants engage in such unjustified panic selling-so much storm and stress over nothing? Does this not at all suggest Keynes' animal spirits?
I am currently reading Jim Cramer's Get Rich Carefully. He makes the point that on any given day anything the market can do anything. He mentions the Flash Crash of 2010 where the market lost 1000 points in a few minutes for no reason at all. Even a blue chip stock like Proctor and Gamble dropped from $60 to $40 in a few minutes-with no rational reason at all.
k
This week I we've had a week not unlike the 1987 October Crash or the Flash Crash with the market up or down by triple digits every day. We started with two such down days then had a very big up day Weds and an even bigger down day Thurs and another very big down day Friday. I've had a lot of luck with Bank of America since news of their settlement with the DOJ hit a few months ago.
This week due to my frustrations in trying to time Gilead and Yahoo I figured put all my option money in a $17.00 BAC call figuring it's the one stock who's tendencies I know the best through long trial and error. On Weds I got out of all other option positions and double my position in BAC 200 calls.
Of course, the common wisdom would criticize me for no diversification at all but I just figured the way the stock was moving the last few weeks there was very little chance of a big down move-what could be the news that would bring it down? After all the big drag-the $17 billion fine to the DOJ had been fully priced in and now there was nothing holding it down.
On a purely rational, fundamental basis I think I was right. However, what I forgot is what Cramer mentions in his book-the 'micro' in BAC may be very good right now but there is all this 'macro' panic-the large indexes have been very volatile especially since the Alibaba IPO.
So on Thurs BAC dropped from 17.20 to $16.85 for reasons that had nothing to do with the fundamentals of BAC and something that has everything to do with the market is getting nervous for some reason-animal spirits?-that has no real tangible rational basis. Actually Crmaer thinks the tail wagging the dog is actually Russia and the Ukraine.
I did actually find his advice on Thursday night helpful-that it's rarely the right move to sell into weakness. I found this plausible as he admitted that the one time it was the right move was in 2008. I remember 2008 and that was a good time to be a bear-I made some nice money shorting the bank stocks that year. For more on this crazy week see here.
http://www.cnbc.com/id/102037345
Speaking of unexplainable market moves, I have this idea of applying this analysis to other stuff-like NFL football games. In a way Denver's loss in the Super Bowl last year is kind of like 1987 or the Flash Crash. Based upon their 2013 performance theirt 43-7 loss to Seattle seems out of nowwhewre. It wasn't shocking that they lost; it was lot more suprising that they were blown out but what was most shocking was that they only scored 7 points. A 63-27 loss would have been a lot less shocking.
It strikes me that the 2013 Broncos are a movie that we've seen before. They were a 13-3 teams and they set an NFL record in points scored, outscoring opponents 606-399. They scored under 31 points only 3 times in the regular season. In the playoffs that actually were somewhat slower offensively scoring just 24 and 26 points during the playoffs in wins over San Diego and New England. However, the 7 points was out of nowhere and shocking for a team that had set a record, scoring over 600 points. In a classic offense-defense showdown-the Seahawks scored a 'paltry' 417 points while giving up 239. So defense won to say the least.
Again, we've seen this movie before-we saw it in the NFL with the 1983 Redskins, the 1998 Vikings and the 2007 Patriots. All these teams set what were at the time NFL records in points scored and then went on to come up disappointly short. The Skins scored a record 541 points in 83, led by Theisman and John Riggins but this record setting offense was a no show in the Super Bowl against the Raiders, as they were dismantled 38-9.
Just like the 2013 Broncos the offense failed to even score 10 points when it mattered. Their point differentials were quite similar as Washington's 83 point differential was 541-332. In the semifinals against the Rams the sky seemed the limit for the high octane Skins who smoke the Dickerson led Rams 51-7. Yet what I find even more interesting is that in the Championship game in Washington the point machine noticeably slowed down in the second half. In the first half they ran up a 21-0 lead but in the second the Niners tied it up at 21 and they needed overtime to eek out a 24-21 win.
This strikes me as somewhat like the Broncos 2013 p;layoffs where though they won both games their offense was a little less spectacular. The 2013 Broncos and 1983 Redskins were very similar. The other two teams that were in some ways closer to each other. However, both the 98 Vikings and 2007 Patriots were similar but in some ways more similar to each other. Both were unbeatable all year-literally in the case of the Pats, the next thing to for the Vikings.
The Vikings shattered the 83 Skins record with 556 points scored against 296 allowed. At 15-1 the record setting Vikes were the favorites but after blowing out the Cardinals in the 2nd round, lost a 30-27 overtime loss to the 14-2 Falcons. This was different in that they weren't blown out and the offense wasn't wholly shutdown like the Washington and Denver were but it nevertheless surprised everyone and was another case of a team seemingly unbeatable in the regular season with a record setting offense, falling short.
Then of course we have the 2007 Pats, the first team ever to go 16-0. The 17-14 loss to my Giants was not a blowout but it still was stunning-after all they came in 18-0 to a Giants team that was only 10-6 in the regular season. Just as both the Redskins and Denver started looking a little less impressive just before the big game, the Pats hadn't been so dominating in the playoffs, winning their two games just 31-20 over the Jaguars and 21-12 in the Championship against the Chargers. Actually despite scoring 589 regular season points to just 274 allowed during the regular season, they had seemed to even slow down somewhat over the last 6 regular season games, having a lot more close games and not scoring quite as many points as during the first 10.
While many commentators dismissed it, I still think that the final regular season game where they had to rally from 11 points to just edge out the Giants 38-35 gave the Giants a lot of confidence and had a lot to do with them making the SB much less defeating the Pats in the rematch.
So is there something about setting new scoring records along with record point differentials-recall that Bill James' Abstract tells us a large point differential is s sign of a strong team that's conducive to seeing your offense and team come up short at the last minute when it really matters? This gets back to the economists' distinction of correlation and causation. Maybe there is no causation but I still wonder what the odds would really be to see such strong correlation.
For example the 1987 market crash proves he's right-as it didn't lead to a recession-ergo, there are no bubbles. Of course, what the crash doesn't prove is that the market is irrational though as he says it's not clear to this day why the market sold off 20 percent in one day. Yet why would rational market participants engage in such unjustified panic selling-so much storm and stress over nothing? Does this not at all suggest Keynes' animal spirits?
I am currently reading Jim Cramer's Get Rich Carefully. He makes the point that on any given day anything the market can do anything. He mentions the Flash Crash of 2010 where the market lost 1000 points in a few minutes for no reason at all. Even a blue chip stock like Proctor and Gamble dropped from $60 to $40 in a few minutes-with no rational reason at all.
k
This week I we've had a week not unlike the 1987 October Crash or the Flash Crash with the market up or down by triple digits every day. We started with two such down days then had a very big up day Weds and an even bigger down day Thurs and another very big down day Friday. I've had a lot of luck with Bank of America since news of their settlement with the DOJ hit a few months ago.
This week due to my frustrations in trying to time Gilead and Yahoo I figured put all my option money in a $17.00 BAC call figuring it's the one stock who's tendencies I know the best through long trial and error. On Weds I got out of all other option positions and double my position in BAC 200 calls.
Of course, the common wisdom would criticize me for no diversification at all but I just figured the way the stock was moving the last few weeks there was very little chance of a big down move-what could be the news that would bring it down? After all the big drag-the $17 billion fine to the DOJ had been fully priced in and now there was nothing holding it down.
On a purely rational, fundamental basis I think I was right. However, what I forgot is what Cramer mentions in his book-the 'micro' in BAC may be very good right now but there is all this 'macro' panic-the large indexes have been very volatile especially since the Alibaba IPO.
So on Thurs BAC dropped from 17.20 to $16.85 for reasons that had nothing to do with the fundamentals of BAC and something that has everything to do with the market is getting nervous for some reason-animal spirits?-that has no real tangible rational basis. Actually Crmaer thinks the tail wagging the dog is actually Russia and the Ukraine.
I did actually find his advice on Thursday night helpful-that it's rarely the right move to sell into weakness. I found this plausible as he admitted that the one time it was the right move was in 2008. I remember 2008 and that was a good time to be a bear-I made some nice money shorting the bank stocks that year. For more on this crazy week see here.
http://www.cnbc.com/id/102037345
Speaking of unexplainable market moves, I have this idea of applying this analysis to other stuff-like NFL football games. In a way Denver's loss in the Super Bowl last year is kind of like 1987 or the Flash Crash. Based upon their 2013 performance theirt 43-7 loss to Seattle seems out of nowwhewre. It wasn't shocking that they lost; it was lot more suprising that they were blown out but what was most shocking was that they only scored 7 points. A 63-27 loss would have been a lot less shocking.
It strikes me that the 2013 Broncos are a movie that we've seen before. They were a 13-3 teams and they set an NFL record in points scored, outscoring opponents 606-399. They scored under 31 points only 3 times in the regular season. In the playoffs that actually were somewhat slower offensively scoring just 24 and 26 points during the playoffs in wins over San Diego and New England. However, the 7 points was out of nowhere and shocking for a team that had set a record, scoring over 600 points. In a classic offense-defense showdown-the Seahawks scored a 'paltry' 417 points while giving up 239. So defense won to say the least.
Again, we've seen this movie before-we saw it in the NFL with the 1983 Redskins, the 1998 Vikings and the 2007 Patriots. All these teams set what were at the time NFL records in points scored and then went on to come up disappointly short. The Skins scored a record 541 points in 83, led by Theisman and John Riggins but this record setting offense was a no show in the Super Bowl against the Raiders, as they were dismantled 38-9.
Just like the 2013 Broncos the offense failed to even score 10 points when it mattered. Their point differentials were quite similar as Washington's 83 point differential was 541-332. In the semifinals against the Rams the sky seemed the limit for the high octane Skins who smoke the Dickerson led Rams 51-7. Yet what I find even more interesting is that in the Championship game in Washington the point machine noticeably slowed down in the second half. In the first half they ran up a 21-0 lead but in the second the Niners tied it up at 21 and they needed overtime to eek out a 24-21 win.
This strikes me as somewhat like the Broncos 2013 p;layoffs where though they won both games their offense was a little less spectacular. The 2013 Broncos and 1983 Redskins were very similar. The other two teams that were in some ways closer to each other. However, both the 98 Vikings and 2007 Patriots were similar but in some ways more similar to each other. Both were unbeatable all year-literally in the case of the Pats, the next thing to for the Vikings.
The Vikings shattered the 83 Skins record with 556 points scored against 296 allowed. At 15-1 the record setting Vikes were the favorites but after blowing out the Cardinals in the 2nd round, lost a 30-27 overtime loss to the 14-2 Falcons. This was different in that they weren't blown out and the offense wasn't wholly shutdown like the Washington and Denver were but it nevertheless surprised everyone and was another case of a team seemingly unbeatable in the regular season with a record setting offense, falling short.
Then of course we have the 2007 Pats, the first team ever to go 16-0. The 17-14 loss to my Giants was not a blowout but it still was stunning-after all they came in 18-0 to a Giants team that was only 10-6 in the regular season. Just as both the Redskins and Denver started looking a little less impressive just before the big game, the Pats hadn't been so dominating in the playoffs, winning their two games just 31-20 over the Jaguars and 21-12 in the Championship against the Chargers. Actually despite scoring 589 regular season points to just 274 allowed during the regular season, they had seemed to even slow down somewhat over the last 6 regular season games, having a lot more close games and not scoring quite as many points as during the first 10.
While many commentators dismissed it, I still think that the final regular season game where they had to rally from 11 points to just edge out the Giants 38-35 gave the Giants a lot of confidence and had a lot to do with them making the SB much less defeating the Pats in the rematch.
So is there something about setting new scoring records along with record point differentials-recall that Bill James' Abstract tells us a large point differential is s sign of a strong team that's conducive to seeing your offense and team come up short at the last minute when it really matters? This gets back to the economists' distinction of correlation and causation. Maybe there is no causation but I still wonder what the odds would really be to see such strong correlation.
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