Recap :


Fantastic history of hedge fund cycles:

And a detail description of the lives of two tech entrepreneurs:

Note that the emotions described in this article are also experienced by traders – who have a massive position that is under water – and with negative carry – which is what you’d expect of people who are long really low delta call options financed on margin. So despite the fact that persevering beyond rational hope is not a desirable quality for a money manager, for the entrepreneurs who make it – kudos to them.

From a bigger picture perspective, as highlighted by the two articles above, the widespread embracing of option type payoffs – in finance, tech, sports and many other sectors – suggest that our society remains geared toward risk taking. The risk fearing attitudes that prevailed in the 1930’s and 1970’s are not prevalent in the 2010’s. The key difference, of course, is that real rates are around zero now rather than double digit levels that prevailed in the prior episodes.

Separately, this is a bit old, but I had a read through the 2013 Social Security Agency Letter:

In 2012, the combined cost of the Social Security and Medicare programs equaled 8.7 percent of GDP. The Trustees project an increase to 11.8 percent of GDP in 2035. (So if current laws are unchanged, expect an increase of ~35% of combined social security and medicare related taxes starting around 2020 and ending around 2035) Chart of social security (blue) and Medicare (red) costs as a percentage of GDP below. Note that the last time entitlement program costs rose as this pace was in the 1970’s. And nominal growth was MUCH higher then. An additional tax burden of 3% of GDP may not have been such a big deal then, but in today’s 4-5% nominal growth world, it’s a much bigger deal: (granted, it is over a long period of time)

An even slower growth rate => even lower long term interest rates => higher PV of financial assets => higher barriers for savers (young & poor people) => higher wealth inequality => less effectual monetary policy, more option seeking behavior => likely political stress. Not necessarily in that order.


  • US Pending Home Sales rose 3.4% MoM in March vs 1.0% exp
  • China’s stocks fell, sending the benchmark index to its biggest loss in seven weeks, after the nation’s biggest life insurer reported a drop in profit and concern grew that new share sales will divert funds. In terms of China IPO pipeline, the volume of filings was speculated to rise to 481, about 5x the number announced last week.
  • Bank of America said on Monday that it was suspending its share buyback program and a planned increase in its dividend after it discovered flaws in the information it submitted to the Federal Reserve as part of the stress test process. In a statement, the bank attributed the error to an incorrect adjustment related to the treatment of structured notes assumed in its acquisition of Merrill Lynch in 2009. As a result of the error, the bank said, its capital levels are lower than what it had disclosed to the Fed. – Dealbook On a fully phased-in basis, Bank of America estimates that for the first quarter ended March 31, 2014, the common equity tier 1 capital ratio under the Basel 3 Standardized approach decreased 27 basis points to 9.0 percent from the previously reported estimated ratio, and the estimate for the common equity tier 1 capital ratio under the Basel 3 Advanced approaches decreased 29 basis points to 9.6 percent from the previously reported estimated ratio. –BAC GS: we suspect today’s restatement takes meaningful capital returns off the table for BAC in 2014

Upcoming Data:

  • Tue: Germany Gfk Consumer Confidence, UK GfK Consumer Confidence, Japan PMI, NZ Business Confidence
  • Wed: Month End, Turkey Trade Balance, EU CPI, South AfricaBalance, US ADP Employment, CanadaGDP, US GDP, Chicago PMI, Australia PMI
  • Thu: UK PMI, Yellen Speaks, Jobless Claims, PCE, ISM Mfg, Japan Employment