I’m leavin the table. I’m outa the game

These words by Leonard Cohen express very well the joy I feel as I enter this next phase of my life. It is time for me to leave the table of academic research and get out of the game of advising others on portfolio theory.  I am thankful for all who have helped me accomplish the things in my bucket list.  But now is the time for me to focus on being, not doing.

Being aware of my many blessings and enjoying them to the fullest each day. Sharing the beauty of Fall colors with those I love and playing my favorite standards on my old Mark VI.

We hope you also have much to be thankful for.


Frank & Rusty

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Advice to Regulators


The answer to your rhetorical question is: that is the wrong question, which begs the wrong solution.  Citibank’s action is the same as that practiced by specialists on the NYSE back in the days when block trading started and that’s why they sold the exchange to foreigners.  Market making is a license to steal in a market characterized by a continuous flow of small trades.  Lumpy trades of huge blocks were an anathema to the specialists on the floor of the NYSE way back when.  Change the way you regulate hedge fund and algorithm traders.  Don’t expect anyone to swallow a huge block of ETF’s when they don’t know if another ten are right behind it.

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The Algorithm Sky Hook


Why is the S&P 500 only off 3 tenths of a point with news like this? Because it is not included as a factor weighting in the algorithms that serve as a sky hook for the market.  When Guggenheim doesn’t like JUNK bonds, I don’t like equities.

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Lessons Learned


As those who have been following this blog know, I have been 100% in cash since just before the Brexit vote and I was right…for two days.  That is just one of the risks of running a research project live and evidence against doing so.  So far it has cost me 1.3% in foregone profits.  I did make up for the loss I had last year by moving to 97% in equity between January 11th and January 21st but nowhere near the more than 40% profit Goldman Sachs reported yesterday.

I think it is fair to say this is not a marketable strategy to investors who would compare it to a buy-hold strategy in the S&P 500 nor to speculators who would compare it to a trading algorithm like Goldman’s. It is interesting to me as a research project to test the concept of portfolio navigation for an 8% DTR.   I have learned enough to make some dramatic changes when I start investing again.

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Remember when…

Remember when real estate was hot and people were making lots of money flipping homes until…2007.  VNQ is the Vanguard Real Estate ETF.


Well here is this report from Fortune magazine:


Remember when the S&P 500 was beating every other index and almost all managers…until Brexit.


JKK, JKJ and JKL are the three small cap sectors of the equity market first identified by Ron Surz.  The S&P is flat (blue fill).

The thing that caused the collapse in real estate and then the entire market is not what is happening now.  The villain in 2007 was Wall street firms like Goldman Sachs who created weapons of mass destruction  with names like credit default swaps, and pools of mortgages that were falsely identified as AAA.  The last thing anyone wanted to own then was cash.

If we have another collapse it will be caused by a Federal Reserve that has flooded the market with liquidity and manipulated the yield curve to cause long term interest in the U.S. to be zero, resulting in foreign countries issuing  negative interest rate bonds.

There was something wrong years before 2007 but most investors refused to recognize it and act on it.  There is something wrong now and it has been building for 8 years. Once again, the one thing no one wants to own is cash, but I am not sure that cash will be a safe haven this time.  The fact that Bitcoins exist is evidence that citizens are loosing trust.  In God we trust; in Governments…not so much.

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Who’s afraid of the big bad bear?

WSJ quotes Monday morning 9/19.  Markets are up in the U.S., Asia and Europe because:

  1. There were bombs and knife attacks in three American states…and the market is up 100 points? So, not to worry?
  2. The Boston Fed president is worried that low interest rates could be letting markets get out of hand? How about: ARE MAKING MARKETS OUT OF CONTROL. You’re still not afraid to invest?
  3. Libya is becoming more unstable and that is causing the price of oil to drop.  Still?
  4. Banks are too scared to take free money to execute currency hedges between the dollar and those countries offering negative interest rates. Still???
  5. Hillary and Trump are now tied, given the third party vote. I am beyond scared and I don’t care what little piggy’s think!  I like my brick house full of cash!
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A Star is Born?

For years Vanguard’s Technology ETF (VGT) underperformed the Spyder (SPY) and then until the 4th quarter of 2015 it merely tracked the S&P 500.  Now, since Brexit, VGT is 10% ahead of SPY.  Who could have guessed it?  Joshua Ramo, for one.  In “Seventh Sense” He claims the Big Data firms in VGT will not only lead the market but will transform the market due to a new era more dynamic than the industrial revolution.

Professor Yuval Harari ( http://www.ynharari.com ) has some very interesting videos on his website along with excerpts from his bestselling book, “Sapiens”.  I can hardly wait to get his new book, “Homo Deus”.  In one video he answers in two words the question, why would anyone exchange goods and services for the U.S. dollar?

On the other hand, Rana Foroohar in her new book, “Makers and Takers” says Apple hasn’t produced a real innovation since Steve Jobs died and the Silicon Valley giants have been taken over by finance wizards who transform lead into gold by shuffling paper around, becoming takers instead of makers.  I recommend all of the above to broaden your perspective on, where do we go from here?  To remind you of where we have been I offer the following:


I am still in cash.

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