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The ‘Absurd Market’ Hypothesis

The ‘Absurd Market’ Hypothesis

Op-ed submitted by Jack Raines via Young Money,

The Efficient Market Hypothesis is a hypothesis in financial…

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2 years ago

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The 'Absurd Market' Hypothesis

Op-ed submitted by Jack Raines via Young Money,

The Efficient Market Hypothesis is a hypothesis in financial economics that states that asset prices reflect all available information.

A direct implication of the EMH is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information. Developed independently by Samuelson and Fama in the 1960s, the EMH has become a holy grail for investors and academics alike.

I personally think there's more to this market thing than the net present value of future cash flows, and markets certainly don't seem to efficiently digest new information.

Today I am publishing my rebuttal. Ladies and gentlemen, I give you the Absurd Market Hypothesis: 25 Instances That Prove Samuelson and Fama Wrong.

CAPM, meet CAP MEME.

1) In 2020, a zero-revenue, electric battery/hydrogen-powered semi-truck startup, Nikola Motors, went public through a reverse merger with a SPAC. On June 9th, 2020, Nikola reached a market capitalization of $31B, making it $3B more valuable than Ford.

Nikola Motors was founded by Trevor Milton, a man with zero auto and engineering experience and a past filled with questionable entrepreneurial ventures. The company had no sales, no proprietary technology, and no working prototypes. It did, however, have a "gravity-powered" semi-truck and some computer-rendered images of a pickup, the Nikola Badger.

Investors wanted to find the next Tesla so badly that they turned this JPEG into a $31B public company. The Nikola Badger was the original NFT.

This company, whose founder was charged with three counts of criminal fraud for lying about “nearly all aspects of the business," is still worth $3B as a publicly-traded company with no product.

2) Someone paid $1,000,000 for this picture of a rock.

3) Dogecoin, a Shiba Inu-inspired cryptocurrency that was created to make fun of other cryptocurrencies, reached a near-$100B market capitalization last May largely because the world's richest man continued to pump it on Twitter.

This cryptocurrency still touts a higher valuation than both Vail Resorts, the biggest ski resort chain in North America, and Chewy, the largest Ecommerce dog food company in the world.

Dogecoin > Doge food.

4) Speaking of the world's richest man:

Elon Musk has, in the last few years, claimed that he secured funding to take Tesla private at $420, used his Twitter account to disparage current Twitter management after making a deal to buy the whole company, and repeatedly punked the SEC.

Every time Musk hits "send," tens of billions of market value are created and destroyed.

5) And speaking of Chewy, its founder, Ryan Cohen, may or may not have sparked the short squeeze that sent GameStop's stock price from single digits to $400+ in two months after he took an activist stake.

The short squeeze turned Reddit user "Deepf*ckingvalue" into a multi-millionaire and folk hero. Seriously, the dude even has a Wikipedia page now.

6) Cohen's $GME short squeeze paved the way for another meme stock: AMC Theaters. In one of the more interesting market developments of 2021 (which is quite the statement), a left-for-dead movie theater chain that did not have an obscene level of short interest jumped 1000%, letting insiders cash out for millions.

AMC's stock now has a cult following, with many "investors" believing that it is their moral prerogative to buy the stock. Seriously, there's a Reddit forum dedicated to AMC's stock. Weird stuff.

7) I sold my used 2016 4Runner with 90k miles for more than its purchase price last fall. Used car markets are markets too!

8) A "stable-coin" whose value was tied 1 to 1 with the US Dollar became quite unstable, dropping to $0.03 per coin and erasing $18B in market capitalization overnight. Of course, 1 US dollar is still 1 US dollar. But why use dollars when you can use internet coins that are tied 1-1 with dollars? Can't go tits up.

9) In 2020, Ark Invest would publish its daily trade log for its email list. Stocks that they purchased would rip 10%+ after hours, just because Ark had made a purchase. In 2022, Ark's flagship ETF has now underperformed cotton since its inception.

10) Ja Rule, the rapper who avoided Billy McFarland's fate in prison after the infamous Fyre Festival debacle, pumps NFTs on Twitter.

11) Donald Trump took a social media company that doesn't exist public through a SPAC, creating more wealth (on paper) through this transaction than he had made in his entire career through real estate.

12) The existence of TikTok finance influencers.

13) $400k digital real estate purchases.

14) The world's biggest streaming entertainment company lost the GDP of Greece ($220B) in market value after its first-ever decline in subscribers.

15) Pretty much every tech IPO of the last two years is trading below its IPO price.

16) Humans love speculating to the point of insanity. The Dutch bid tulip bulbs up by 5000%, Isaac Newton himself lost his shirt on the South Sea Bubble, plantation owners speculated on the prices of slaves in antebellum New Orleans, strippers took out a dozen mortgages in 2008 (according to The Big Short, anyway,) and in 2022 investors speculators throw money at all sorts of stuff. Different eras, different players, different pieces. But the game never changes.

17) We suck at evaluating luck vs. skill, and we make poor decisions because of it. Markets are only as efficient as their participants, and I think the last few years have shown everyone that participants are far from rational.

18) A pandemic caused the fastest market decline in history, which was followed by the fastest recovery in history as market participants realized that maybe lockdowns were bullish for large-cap tech companies that benefit from remote work. (Plus the Federal Reserve printed some money.)

But many of the companies that benefited the most from Covid are now trading below their March 2020 prices two years later because they improved too much too fast, that growth rate wasn't sustainable, and now they are all obviously going to zero.

19) Benjamin Graham, the father of value investing, realized greater profits from his one investment in GEICO than from the rest of his portfolio combined.

20) After perusing Reddit chatrooms and discord channels for a few months, I made 7x my annual salary in nine months by hitting the right buttons on my phone, then I blew 3x my annual salary in nine minutes by hitting the wrong buttons on my phone.

21) The entire world has declared sanctions on Russia due to its invasion of Ukraine. The result? After a brief crash, the Ruble is now trading at a two-year high.

22) Some people still think that gold is, unironically, a good investment, even though it was worth more 42 years ago.

Via Macrotrends

23) For about nine months, Chamath Palihapitiya created billions in market value for his SPACs by tweeting out a word doc with a few bullet points about his investments.

24) There has been a lot of talk about money printing-induced inflation this year, but dollars ended up being one of the best inflation hedges.

Over the last 365 days, bitcoin is down 31%. The S&P is down 1%. The US dollar is up 15%.

25) Inversing Jim Cramer is a source of infinite alpha.

The Inverse Cramer tracker is the best account on Twitter, by the way.

After those 25 examples, do you really think markets are all that efficient? Class dismissed.

- Jack

If you liked this piece, make sure to subscribe!

Tyler Durden Sun, 06/05/2022 - 10:30

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Homes listed for sale in early June sell for $7,700 more

New Zillow research suggests the spring home shopping season may see a second wave this summer if mortgage rates fall
The post Homes listed for sale in…

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4 hours ago

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March 11, 2024

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  • A Zillow analysis of 2023 home sales finds homes listed in the first two weeks of June sold for 2.3% more. 
  • The best time to list a home for sale is a month later than it was in 2019, likely driven by mortgage rates.
  • The best time to list can be as early as the second half of February in San Francisco, and as late as the first half of July in New York and Philadelphia. 

Spring home sellers looking to maximize their sale price may want to wait it out and list their home for sale in the first half of June. A new Zillow® analysis of 2023 sales found that homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home.  

The best time to list consistently had been early May in the years leading up to the pandemic. The shift to June suggests mortgage rates are strongly influencing demand on top of the usual seasonality that brings buyers to the market in the spring. This home-shopping season is poised to follow a similar pattern as that in 2023, with the potential for a second wave if the Federal Reserve lowers interest rates midyear or later. 

The 2.3% sale price premium registered last June followed the first spring in more than 15 years with mortgage rates over 6% on a 30-year fixed-rate loan. The high rates put home buyers on the back foot, and as rates continued upward through May, they were still reassessing and less likely to bid boldly. In June, however, rates pulled back a little from 6.79% to 6.67%, which likely presented an opportunity for determined buyers heading into summer. More buyers understood their market position and could afford to transact, boosting competition and sale prices.

The old logic was that sellers could earn a premium by listing in late spring, when search activity hit its peak. Now, with persistently low inventory, mortgage rate fluctuations make their own seasonality. First-time home buyers who are on the edge of qualifying for a home loan may dip in and out of the market, depending on what’s happening with rates. It is almost certain the Federal Reserve will push back any interest-rate cuts to mid-2024 at the earliest. If mortgage rates follow, that could bring another surge of buyers later this year.

Mortgage rates have been impacting affordability and sale prices since they began rising rapidly two years ago. In 2022, sellers nationwide saw the highest sale premium when they listed their home in late March, right before rates barreled past 5% and continued climbing. 

Zillow’s research finds the best time to list can vary widely by metropolitan area. In 2023, it was as early as the second half of February in San Francisco, and as late as the first half of July in New York. Thirty of the top 35 largest metro areas saw for-sale listings command the highest sale prices between May and early July last year. 

Zillow also found a wide range in the sale price premiums associated with homes listed during those peak periods. At the hottest time of the year in San Jose, homes sold for 5.5% more, a $88,000 boost on a typical home. Meanwhile, homes in San Antonio sold for 1.9% more during that same time period.  

 

Metropolitan Area Best Time to List Price Premium Dollar Boost
United States First half of June 2.3% $7,700
New York, NY First half of July 2.4% $15,500
Los Angeles, CA First half of May 4.1% $39,300
Chicago, IL First half of June 2.8% $8,800
Dallas, TX First half of June 2.5% $9,200
Houston, TX Second half of April 2.0% $6,200
Washington, DC Second half of June 2.2% $12,700
Philadelphia, PA First half of July 2.4% $8,200
Miami, FL First half of June 2.3% $12,900
Atlanta, GA Second half of June 2.3% $8,700
Boston, MA Second half of May 3.5% $23,600
Phoenix, AZ First half of June 3.2% $14,700
San Francisco, CA Second half of February 4.2% $50,300
Riverside, CA First half of May 2.7% $15,600
Detroit, MI First half of July 3.3% $7,900
Seattle, WA First half of June 4.3% $31,500
Minneapolis, MN Second half of May 3.7% $13,400
San Diego, CA Second half of April 3.1% $29,600
Tampa, FL Second half of June 2.1% $8,000
Denver, CO Second half of May 2.9% $16,900
Baltimore, MD First half of July 2.2% $8,200
St. Louis, MO First half of June 2.9% $7,000
Orlando, FL First half of June 2.2% $8,700
Charlotte, NC Second half of May 3.0% $11,000
San Antonio, TX First half of June 1.9% $5,400
Portland, OR Second half of April 2.6% $14,300
Sacramento, CA First half of June 3.2% $17,900
Pittsburgh, PA Second half of June 2.3% $4,700
Cincinnati, OH Second half of April 2.7% $7,500
Austin, TX Second half of May 2.8% $12,600
Las Vegas, NV First half of June 3.4% $14,600
Kansas City, MO Second half of May 2.5% $7,300
Columbus, OH Second half of June 3.3% $10,400
Indianapolis, IN First half of July 3.0% $8,100
Cleveland, OH First half of July  3.4% $7,400
San Jose, CA First half of June 5.5% $88,400

 

The post Homes listed for sale in early June sell for $7,700 more appeared first on Zillow Research.

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Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

Published

9 hours ago

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March 11, 2024

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

“Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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12 hours ago

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March 10, 2024

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act. 

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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