Making Money In The Market Should Never Be This Easy

We are in the heart of earnings season and as short term traders this is where the majority of our attention is focused. But on Friday July 29th there was a major fundamental catalyst in MCRB. Its FDA drug trial had failed. The stock was trading lower more than 50%. By 8AM before the market had opened it had already traded more shares than it does in an average day.

When I am evaluating potential trading opportunities each morning one of my top criteria are “pre-market” trading volume. We use SMB Scanner to sort for this. MCRB was #1 on the Scanner. It was trading around $ 8 down from $ 35. Visually it reminded me of SRPT from Read more […]
SMB Capital – Trading Education


This is mostly a comment cleaner, since the comments have gone berserk in the prior post. Anyway, it turns out the data on the daily bars for the ES were somewhat off. The range on the ES was actually tighter than I thought, and as of Sunday evening, we’ve slightly broken above the range. This […]
Slope of Hope

Russian welfare: all cash

During three days in St. Petersburg I questioned various Russians, especially our tour guides, on the question of welfare.

In the Soviet times, every able-bodied adult worked. There were no stay-at-home parents, for example. On the other hand, if you worked the government would make sure that you had a house, food, health care, etc. On the third hand, the “house” might not be so great. One of our guides described living with her parents and brother in a “communal apartment” in which her entire family of four had one room and then shared a kitchen (“three tables”) and bathroom with two other families. “As you can imagine, the line for the bathroom could be long in the morning,” she said, “and we were very happy to get our own apartment in 1975 after 14 years on the waiting list.”

Do Russians offer a plethora of means-tested programs in which the less you earn the more subsidies you get (see “The Redistribution Recession” for an economics professor’s analysis of some of these)? No. It seems that the only government handout that is available is an actual handout of cash. Disabled? You get a “pension”. Single mother? You get a small cash subsidy. Unemployed? You get some cash. (If you continue to be unemployed you will also get training; as in the U.S., the Russian government does not subscribe to the Glengarry Glen Ross “a loser is a loser” theory of employee quality. (near the end of the video clip)) An apartment in the center of the city in a brand-new building, as some low-income families in Manhattan, Cambridge, or San Francisco might enjoy? No. A special debit card that you use to buy food? No. A different price for health insurance than what others pay? No. Once you’ve gotten the government cash you go into the market economy and buy whatever you can afford.

Note that the overall amounts of these cash handouts are small compared to what an American welfare family might get and therefore the welfare standard of living is low (though of course the standard of living for a working family outside of a major city may be quite low by American standards as well). “Your primary safety net is friends and family,” said one Russian.

Isn’t there any way for an able-bodied person to enjoy a comfortable lifestyle without working? “In our school there are mothers who stay at home if the husband has a well-paid job,” said a guide who teaches English in K-12 in what she described as a “wealthy” area. What if the mother was never married and perhaps only slightly acquainted with the father? “She can get 25 percent of his income [as child support], but once men have to pay this they will try to stop working,” she responded. Is there any limit to child support following a brief sexual encounter? The teacher/guide wasn’t sure but she didn’t personally know any women for whom single motherhood, without being preceded by a marriage, had enabled a work-free life.

[Note that the Russian 25 percent formula, if taken on a post-tax basis, would be roughly comparable to the New York or Wisconsin 17 percent of pre-tax income. If in fact there is not a limit, Russia would be unlike Germany and some other Civil Law jurisdictions. Russia would be more like U.S. states such as Massachusetts in that a woman will have a higher spending power if she has sex with a couple of high-income men compared to if she entered into a long-term marriage with a medium-income man.]

Russians with low levels of skill and education and/or who live in obscure parts of the country need Bernie Sanders and Hillary Clinton rather badly. According to one guide, minimum wage is only slightly over $ 100 per month (confirmed by CNN; compare to about $ 2595/month at $ 15/hour). An apartment in St. Petersburg, on the other hand, costs about $ 2000 per square meter. The same guide said that a typical apartment was about 75 square meters and therefore cost about $ 150,000 (i.e., about 115 years of minimum wage income if we use CNN’s numbers). How about getting a mortgage? The interest rate in rubles is typically around 14 percent.

What’s the end-result of this rather meager and extremely simple welfare system? Are people reduced to begging in the streets? Certainly there are fewer beggars in St. Petersburg than in San Francisco or Los Angeles. Compared to the U.S., it does seem as though there are more old people working in retail jobs. One gets the impression that there are quite a few Russians doing jobs that they would rather not do because they need the money.

Philip Greenspun’s Weblog

Short Interest on Leading Stocks At Multi-year Lows

Short sellers are often vilified by the mainstream media, CEO’s of publicly traded companies & many institutional money managers which are forced, by prospectus or other security selection parameters, to maintain only long-side exposure to the market. I won’t go into all the benefits that short sellers provide, such as liquidity and sniffing out corporate […]
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Linguistic impact of the Brexit?

While in Israel I talked to a British national who was being sued by a woman named Jennifer. He referred to the divorce lawsuit that he was thus defending as “the Jexit”.

Readers: What innovations in language have you heard or do you expect from the Brexit?


  • a piece on divorce law in the U.K. (completely different from the rest of the EU, as it happens; a child that yields $ 120,000 in Germany could be worth $ millions in Britain)

Philip Greenspun’s Weblog


For our Sunday service, here are actual Bible quotes you should know and follow. The second one is my personal favorite. Duet 25:11 When two men are fighting and the wife of one of them intervenes to drag her husband clear of his opponent, if she puts out her hand and catches hold of the man […]
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The Mandibles: Investment Ideas for a Post-Dollar World

Continuing my posts about Lionel Shriver’s The Mandibles: A Family, 2029-2047

The Mandibles posits a world in which the dollar is no longer a desirable reserve currency for non-U.S. governments and the domestic value has been seriously eroded by inflation. This scenario may sound far-fetched to an American, but it is familiar to a lot of folks in Latin America.

Traditional diversification didn’t protect the characters in the book because (1) anything denominated in dollars fell, (2) the U.S. government ran out of money to pay for entitlements and the salaries of workers and therefore adopted a dual strategy of printing money and taxing savings, and (3) the government simply confiscated hard assets, such as gold, that were held domestically. A character who had a box of gold in a safe place in Asia or Europe would have done okay. Here’s a speech from America’s first Latino president:

Using the powers vested in your president by the International Emergency Economic Powers Act of 1977, I am calling in all gold reserves held in private hands. Gold-mining operations within our borders will be required to sell ore exclusively to the United States Treasury. Gold stocks, exchange-traded funds, and bullion will likewise be transferred to the Treasury. In contrast to Franklin Delano Roosevelt’s gold nationalization of 1933, when FDR made his bold bid to rescue our suffering nation from the Great Depression, there will be no exceptions for jewelers or jewelry. All such patriotic forfeitures will be compensated by weight, albeit at a rate that does not reflect the hysterical inflation of gold stocks in the lead-up to this emergency. Hoarding will not be tolerated. Punitive fines of up to $ 250,000 will be levied on those who fail to comply. Retaining gold in any form beyond the deadline of November 30, 2029, will thenceforth be considered a criminal offense, punishable by no less than ten years in prison. All gold exports from our shores are henceforth prohibited. In retaliation for outside agitators’ attempts to fray the very fabric of our flag, all foreign gold reserves currently stored with the Federal Reserve are hereby confiscated, and become the property of the American government.

I have never liked gold as an investment because I don’t understand how (1) it can be sustainably worth more than the cost of mining (as with oil, at a high enough price there is a lot of additional gold to be found on Planet Earth), and (2) it can be worth as much as a productive asset such as a factory or a piece of real estate. Thus the purpose of today’s posting is to get ideas for what kind of investment strategy would protect an American citizen from a serious decline in our economy and the value of the dollar. Note that I personally don’t believe that we’re likely to have a crisis in the near-term. In my opinion Americans are biased towards thinking that our economy will either grow dramatically or shrink dramatically. Given our European-style welfare state and associated disincentives to work it seems to me that European-style stagnation is a plausible future. That said, a multi-decade stagnation would look like a serious decline when compared to dynamic economies elsewhere. And the whole point of diversification is to protect oneself against unlikely events, as long as the cost is not too high. (As noted above, I think storing bars of gold in a Swiss bank’s safe deposit box is too high a cost.)

Readers: What are your best ideas for keeping assets safe from (a) a decline in the dollar, and (b) sudden or gradual confiscation by the U.S. or a state government?

[One idea: Why not just own commercial real estate in three foreign countries? If these are leased out triple-net there is minimal management hassle involved. The return should be similar to the return on U.S. real estate, which in the long run might not be that different from other financial assets. Own the real estate either directly (name recorded officially as the owner) or as a shareholder in a small foreign company. If things fall apart in the U.S., just move out to where one of the properties is. Presumably there could be some paperwork hassles in declaring this foreign-sourced income every year to the IRS, but the actual taxes wouldn’t be different than they would on a U.S. commercial property, right? The paperwork hassles could be considered the price of insurance against being wiped out by a U.S. financial crisis.]

More: Read The Mandibles.

Philip Greenspun’s Weblog

Divorce litigation in Israel

Israel is a country of immigrants, which means that many Israelis make the decision to marry in a different legal system from that in which they will get divorced (the fate of 30-41 percent of Israeli married couples, depending on who is counting). At the Museum of the Diaspora, for example, an exhibit shows a guy who was married in Ethiopia and then divorced in Israel:

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Based on my discussions with some experienced attorneys, Israeli divorce lawsuit defendants from countries that operate under Civil Law will probably be the ones who wish that they had stayed in their original home. Jewish law provides few financial incentives for divorce plaintiffs. If a man divorces a woman he has to pay her according to the ketubah, essentially a prenuptial agreement. If a woman divorces a man she may not receive any share of the man’s future income (it could still be financially rational for a woman to divorce her husband if she can find someone richer to replace him with). On top of this ancient legal tradition Israel has layered some aspects of British common law. The result of this combination is that what would have been a straightforward procedure in Europe or Russia (examples) with legal fees (if any) limited to a small percentage of total assets can turn into an American-style no-holds-barred war in Israel.

The end of an Israeli marriage results in the parties’ assets being consumed by lawyers in both the government-run courts (about 74,000 cases in 2015) and also in a religious court. A woman who wants to be rid of her husband will sue him in the government court for property division, custody, and child support. The divorce per se is litigated in a religious court, e.g., the rabbinical court for Jews, an Islamic court for Muslims. “The rabbinical court is a lot more efficient than the civil court,” said one lawyer, “but it can still cost [$ 50,000+] in fees to a separate attorney.”

Israeli plaintiffs who follow economic incentives will sue a husband for property division, custody, and child support in the civil court but not seek a divorce in the rabbinical court. The litigation posture is that she wants to stay married and isn’t interested in a divorce, but she wants to live separately, be the primary parent, and get paid for taking care of the children. Then there is a game of chicken to see who will crack and sue first in the rabbinical court (as noted above, if the woman were to initiative a divorce per se she wouldn’t be entitled to alimony).

Property division is simple in theory but complex and expensive to litigate in practice. It is supposedly a California-style system in which premarital property cannot be obtained by a plaintiff, but property acquired during the marriage is divided 50/50. “There was a Supreme Court decision about two months ago,” said one source, “in which a man had inherited an apartment that was rented out. He deposited the rent into a joint account and that was enough to make the property divisible by the court.” Plaintiffs also may allege that a defendant has hidden assets and don’t need any documentary evidence to keep the allegation alive through a final trial.  If there are assets worth fighting over, litigation can take more than three years. “If there are 1 million shekels in assets [$ 250,000] the fees will end up being about 1 million shekels,” said the attorney. As in the U.S., a judge can order a defendant to pay a plaintiff’s legal costs but this may be only 20 percent of the “real costs.”

What happens to the joint apartment (standalone houses are rare in Israel) during the three years of litigation? “The court cannot order the husband out,” said the attorney, “unless the wife makes an allegation of domestic violence, so either the couple negotiates or, more commonly, the wife accuses him of physical or psychological abuse.” (A variety of U.S. states have a similar system; see “The Domestic Violence Parallel Track” and Amber Heard)

Israel is not a great jurisdiction for profiting from extramarital sex. Unlike many U.S. states where it is more profitable to have sex with a high-income person than to be in a long-term marriage with a middle-income person (some numbers), in Israel child support starts by considering the needs of the child. This in contrast to the U.S. system in which the primary factor determining profitability is the income of the target of the child support lawsuit (see the History chapter for how the big switch happened around 1990). Child support can still be profitable in Israel if there was a marriage and a shared household for at least a year or two. Now the defendant can be ordered to pay to keep the children in the lifestyle to which they were accustomed during the marriage and the only way to enable that is also to keep the plaintiff in the lifestyle to which she was accustomed. If the litigants just met for one night in a bar, however, the official standard for child support is more based on the cost of rearing a typical Israeli child.

As noted in a July 23 posting, custody lawsuits are simple if the child(ren) are under 6: Mom wins. Mom also is guaranteed to be the one receiving child support, even if the children live with their father. As in the U.S., legal fees can be expended to determine a child’s schedule but the end result is nearly always that children are entitled to spend every other weekend with the father (Friday morning until Saturday evening or Sunday morning) plus a few hours on a weekday. With older children, 50/50 schedules are possible though the cash continues to flow from father to mother even when the two parents have equal incomes or when the mother earns more than the father. The mother’s revenue is reduced to one third at age 18 when a child will enter the military and cut off at age 21 (compare to full cashflow through 21 in New York or 23 in Massachusetts).

Philip Greenspun’s Weblog

One-Edged Sword

Things are seldom what they seem, Skim milk masquerades as cream; Highlows pass as patent leathers; Jackdaws strut in peacock’s feathers. – H.M.S. Pinafore It turns out the Brexit was just about the worst thing that could have happened to the bears. On the night it happened, I was ecstatic. I thought, finally, “this is […]
Slope of Hope

Stuck. Still.

Well, even a complete letdown by Kuroda isn’t enough to get this market to drop a reasonable amount. For the 12th day in a row, we’re basically at sorta kinda 2160 on the ES. Hey, at least Kuroda didn’t give the bulls some pleasure-inducing mega-package. Be thankful for tiny miracles. Oh, and of course, oil […]
Slope of Hope