Yeah, I don't have much sympathy for the high frequency traders who pretty much just doing a hi-tech version of front-running of customer orders. If they get stomped by the Meme Stock traders, tough luck. Don't go to the casino if you don't want to gamble.
This was inauspiciously, one of Jeff's most thought provoking posts.
After the original GME squeeze, I looked up the original post by "DeepF*ckingValue" (Kitty) on Reddit. It was exceeding well reasoned and articulated. Kitty knew what (floor) traders understand well: micro timeframe speculation isn't about fundamentals, it's about positioning. DFV spotted a (meme) stock where shorts-who were focused/motivated on GME's negative fundamentals- were over extended via both shares and short call exposure. He realized it would only take a bit of buying to squeeze those shorts into covering at much higher prices. I'm sure in his wildest dreams he never guessed how high GME would ultimately trade.
After the stock had already gone from $5 to $40, Citron's famous short seller Andrew Left disclosed that he'd taken a short position. Interestingly, rather than the Reddit "apes" being intimidated by such a notable player fading them, they were licking their chops at the prospect of a new "paper hands" (weak) short being on the table to feast on. Indeed, Left was soon carried out.
There's a saying among bettors, "nobody knows nothing." Virtually no one has enough bona-fide information to accurately predict what the Fed Funds target will be 18 months from now. Some may think that inflation has topped and that rates are heading back to 1%, others may think that we're finally at the end of our fiscal rope, and that hyper-inflation could spike rates to 20%. Those scenarios along with the higher probability in betweens are virtually unknowable. It's funny that traders will listen to Powell's press conferences with rapt attention and then move prices with force, when Powell has no more clue to August CPI or Sept wage gains than he has foresight to predict who'll win the AFC East or the Belmont Stakes. Like Jeff Gundlach says, "it's not like the Fed has super secret data that no one else does."
We'd laugh at someone betting the ranch on the random musings of a broken down racetrack tout, yet we believe the head of research at JPM actually has an idea where $SPX will finish the year. Trading and betting is about figuring out when participants are undervaluing the odds of a viable event. Speculation is NOT about, dogmatically predicting those events.
Jeff, I think most of us were degenerates on the floor. I could care less of Roaring Kitty, Cramerand Bernie Madoff on CNBC both are fools abd just get the lemmings to follow them and jump off the cliff as they follow them. And I agree with you about the commentators on all the business channels just a pretty face in a nice suit who couldn't make it in the real world.
One last important thought that comes to mind, as long as my seventh cup of iced coffee for the day has made me long-winded 😄...
Nothing personal, but years ago I heard my dad say to me, and keep in mind my mother was an Elementary Education Major At U Of I after skipping 2 years of school, so she was no dummy:"People that can do something, do it, and people who can't do it well, teach."
It brings to mind an analogy:"Those who can make money Trading, do so. Those who cannot make money Trading, sell their opinions."
As much as I may joke about Roaring Kitty on Facebook, your comments are spot on.
When I speculate on short-term price fluctuation that is all I am doing and I emotionally detach and focus on that and (nearly) nothing else. Yes, of course I don't ignore fundamentals, but I put them in their proper perspective. You nailed it by rehashing your conversation with Bill that 99% of Wall Street is all about selling.
Decades ago I had a conversation with Brian Moneison/BPM, who was just an incredible boss, probably the best one I ever had, certainly one of the best, and we talked about how so many people have such a high opinion of so many people in New York who can't trade for s***, but are damn good salesmen LOL and yet are more well respected than guys in Chicago who have 20 times their net worth. Brian, and his partner Mike Rosenthal, were both mathematics PHDs from the University of Chicago but very well grounded. In fact, Brian served as Chairman of the Exchange. I always thought he got kind of a raw deal on the suspension and fine, where he gave the benefit of doubt to a childhood friend of his who worked as a sales guy at GNP, rather than a disgruntled former employee who reported the childhood friend of Brian's for improprieties, but it turned out the disgruntled former employee was telling the truth and it cost Brian dearly for his loyalty.
Anyway, I have found that in four decades experience in the industry that the people with the most confirmation bias tend to be those with Ivy League MBAs and I attribute that in many cases to pride and ego, which if you're a "street and exchange floor guy", you learn damn fast will not work and you cannot afford that mindset. Probably 90% of my foolish decisions, or more accurately, compounding them, in trading are directly attributable to confirmation bias, because it's human nature to want to be right and I've had to work my ass off to get to the point of smiling at my own mistakes and being grateful that I can learn and hopefully apply the lesson. When I do that, the consequences of such show up in the results. It's remarkable how important that is and it extends to a macro level and that is so often forgotten by so many, because you've got your so-called experts touting their crap to sell more stuff and make them more famous(and more money of course, but by selling not Trading) and you've got a bunch of journalists who are trying to do the same thing, because their industry is flopping and failing miserably, so they're trying to make themselves stars as well and it's all about selling us a bill of goods. If I can pluck one useful bit of information out of a single article, I consider that a successful read.
To echo a previous comment, you nailed it with your assessment on this one, great article.
Brian was a sweetheart of a man. One day he and I were watching the S+Ps trade. He looked at me and said, "Things have changed." I said, "What do you mean?" He said, "in the old days, the pit was the center of information and information flowed out of the pit, into the world. Now, information flows into the pit, and the pit reacts. Very different." He was talking about edge.
Amen to free trade Mr Carter! I noticed the "Roaring Kitty" because all the "right people" were aligned against him. Not my world but it makes for great drama and maybe a sequel to the movie Dumb Money! Thanks for the insight Mr Carter. Keep them coming!
Yeah, I don't have much sympathy for the high frequency traders who pretty much just doing a hi-tech version of front-running of customer orders. If they get stomped by the Meme Stock traders, tough luck. Don't go to the casino if you don't want to gamble.
This was inauspiciously, one of Jeff's most thought provoking posts.
After the original GME squeeze, I looked up the original post by "DeepF*ckingValue" (Kitty) on Reddit. It was exceeding well reasoned and articulated. Kitty knew what (floor) traders understand well: micro timeframe speculation isn't about fundamentals, it's about positioning. DFV spotted a (meme) stock where shorts-who were focused/motivated on GME's negative fundamentals- were over extended via both shares and short call exposure. He realized it would only take a bit of buying to squeeze those shorts into covering at much higher prices. I'm sure in his wildest dreams he never guessed how high GME would ultimately trade.
After the stock had already gone from $5 to $40, Citron's famous short seller Andrew Left disclosed that he'd taken a short position. Interestingly, rather than the Reddit "apes" being intimidated by such a notable player fading them, they were licking their chops at the prospect of a new "paper hands" (weak) short being on the table to feast on. Indeed, Left was soon carried out.
There's a saying among bettors, "nobody knows nothing." Virtually no one has enough bona-fide information to accurately predict what the Fed Funds target will be 18 months from now. Some may think that inflation has topped and that rates are heading back to 1%, others may think that we're finally at the end of our fiscal rope, and that hyper-inflation could spike rates to 20%. Those scenarios along with the higher probability in betweens are virtually unknowable. It's funny that traders will listen to Powell's press conferences with rapt attention and then move prices with force, when Powell has no more clue to August CPI or Sept wage gains than he has foresight to predict who'll win the AFC East or the Belmont Stakes. Like Jeff Gundlach says, "it's not like the Fed has super secret data that no one else does."
We'd laugh at someone betting the ranch on the random musings of a broken down racetrack tout, yet we believe the head of research at JPM actually has an idea where $SPX will finish the year. Trading and betting is about figuring out when participants are undervaluing the odds of a viable event. Speculation is NOT about, dogmatically predicting those events.
great comment
Great Substack, bro. Seriously top-notch stuff. Always.
Great post! Yes, a method to Kitty's madness, lol. So crazy!
Wow! Excellent!
Jeff, I think most of us were degenerates on the floor. I could care less of Roaring Kitty, Cramerand Bernie Madoff on CNBC both are fools abd just get the lemmings to follow them and jump off the cliff as they follow them. And I agree with you about the commentators on all the business channels just a pretty face in a nice suit who couldn't make it in the real world.
One last important thought that comes to mind, as long as my seventh cup of iced coffee for the day has made me long-winded 😄...
Nothing personal, but years ago I heard my dad say to me, and keep in mind my mother was an Elementary Education Major At U Of I after skipping 2 years of school, so she was no dummy:"People that can do something, do it, and people who can't do it well, teach."
It brings to mind an analogy:"Those who can make money Trading, do so. Those who cannot make money Trading, sell their opinions."
As much as I may joke about Roaring Kitty on Facebook, your comments are spot on.
When I speculate on short-term price fluctuation that is all I am doing and I emotionally detach and focus on that and (nearly) nothing else. Yes, of course I don't ignore fundamentals, but I put them in their proper perspective. You nailed it by rehashing your conversation with Bill that 99% of Wall Street is all about selling.
Decades ago I had a conversation with Brian Moneison/BPM, who was just an incredible boss, probably the best one I ever had, certainly one of the best, and we talked about how so many people have such a high opinion of so many people in New York who can't trade for s***, but are damn good salesmen LOL and yet are more well respected than guys in Chicago who have 20 times their net worth. Brian, and his partner Mike Rosenthal, were both mathematics PHDs from the University of Chicago but very well grounded. In fact, Brian served as Chairman of the Exchange. I always thought he got kind of a raw deal on the suspension and fine, where he gave the benefit of doubt to a childhood friend of his who worked as a sales guy at GNP, rather than a disgruntled former employee who reported the childhood friend of Brian's for improprieties, but it turned out the disgruntled former employee was telling the truth and it cost Brian dearly for his loyalty.
Anyway, I have found that in four decades experience in the industry that the people with the most confirmation bias tend to be those with Ivy League MBAs and I attribute that in many cases to pride and ego, which if you're a "street and exchange floor guy", you learn damn fast will not work and you cannot afford that mindset. Probably 90% of my foolish decisions, or more accurately, compounding them, in trading are directly attributable to confirmation bias, because it's human nature to want to be right and I've had to work my ass off to get to the point of smiling at my own mistakes and being grateful that I can learn and hopefully apply the lesson. When I do that, the consequences of such show up in the results. It's remarkable how important that is and it extends to a macro level and that is so often forgotten by so many, because you've got your so-called experts touting their crap to sell more stuff and make them more famous(and more money of course, but by selling not Trading) and you've got a bunch of journalists who are trying to do the same thing, because their industry is flopping and failing miserably, so they're trying to make themselves stars as well and it's all about selling us a bill of goods. If I can pluck one useful bit of information out of a single article, I consider that a successful read.
To echo a previous comment, you nailed it with your assessment on this one, great article.
Brian was a sweetheart of a man. One day he and I were watching the S+Ps trade. He looked at me and said, "Things have changed." I said, "What do you mean?" He said, "in the old days, the pit was the center of information and information flowed out of the pit, into the world. Now, information flows into the pit, and the pit reacts. Very different." He was talking about edge.
Amen to free trade Mr Carter! I noticed the "Roaring Kitty" because all the "right people" were aligned against him. Not my world but it makes for great drama and maybe a sequel to the movie Dumb Money! Thanks for the insight Mr Carter. Keep them coming!