Steve Hou
@stevehouf
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Research @Bloomberg Indices, @umichEcon , @ETH and @UVA alums, opinions my own.
New York, USA
Joined November 2016
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I wrote new blog (and whitepaper, link inside) on analyst ratings as a systematic signal for equity selection. Comments welcome!
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Let me scare you with a bit of PhD math: in theory we can fall 5% every single day forever.
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One of the most popular sociological internet catchphrases in China doesn’t have a good translation. “内卷” or technically “involution”, which nobody understands. But it describes a perverse state of affairs where competition get perniciously fierce while rewards get ever smaller
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@TheStalwart
wrong HS math has almost as many likes as my correct PhD math. That in a nutshell tells you why the stock market is crashing.
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“This is the equation of the ‘standard model’ of physics. This equation correctly predicts the result of every single experiment we’ve ever performed in science.” - David Tong
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I never assume just because someone has a PhD they must know what they are talking about. I have a PhD and I have no idea what I’m talking about. I just like talking that’s all.
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Recession my ass. Waited 10 mins just to find a parking spot.
At Costco, it feels like we are experiencing the greatest economic boom ever.
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Highly recommended. I wish I was able to read this book during grad school. I would’ve understood that it wasn’t me that’s insane but the macroeconomic canon that was insane. Rational expectations theory, real business cycle theory, Lucas, Prescott were members of the same cult.
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Classic example of lying with statistics.
The reason this chart looks this way is that these are overlapping monthly observations. I won't go into too much statistics/econometrics, but it suffices to say that there is indeed a negative relationship but the relationship is not
From today’s WSJ. If you don’t understand this chart, don’t have money in stocks. If you do understand this chart, why do you have money in stocks?
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Mitt Romney has a very dim view of JD Vance: “I don’t know if I can disrespect someone more than J.D. Vance.”
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I can attest that since I started running a 5k every morning for the past few months I don’t worry very much anymore. I’m much happier.
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… where peers exert ever more effort to fight over the same or shrinking amount of resources/income, which leads to a steady decrease of the reward to effort ratio for all, or a high “inflation of hardwork/efforts”. 3/3
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Food delivery note in Beijing now. The food preparer, packer, and the courier all have to measure their temperatures.
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Forgot how eloquent Buttigieg was! Absolutely destroyed JD Vance here. Where has Pete been this whole time?
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I just saw another definition:“A certain terminal state, that could neither stabilize nor transform into a new regime, but must incessantly evolved into an ever more complex sociology.” In China it has been used to describe irrational peer-to-peer competition … 2/3
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@netcapgirl
holy sh*t you are right! What a boss move! He thanked one person, who wasn't even a physicist. Just a school buddy from Zurich.
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Jerome Powell is a genuinely good man and the right man to be the Fed chair. Sound judgment, intellectually humble and curious, and a generous good heart. He could be making a fortune staying in PE but he opted for public service and has done a great job. We should be thankful.
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No one seems so concerned with irresponsible bond supply anymore. We could finish tomorrow at 3.5% on 10y at this rate.
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I did a
@BloombergTV
interview last Tue and explained how my 2018 doctoral thesis explains why long term interest rates have surged. Thanks
@scarletfu
and
@RomaineBostick
for having me on!
My segment starts around 01:45:
My dissertation was also recently
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My tree removal guy just told me that the U.S. is screwed from issuing so much debt that generations of Americans will end up paying and that Trump is still the president in secret and running everything from behind the scene. I was tired so I agreed with him
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Ok so I listened to the Joe Rogan interview of Peter Zeihan that some seem to think was “amazing”. The whole thing is 2 hours. I listened to the first 30 mins or so. This is at 29:10. I just couldn’t do it anymore. I mean c’mon.🤦🏻♂️ 🤣
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@Biohazard3737
1) China is going through a financial crisis and everyone from economic elites to the general public have increasingly completely lost hope. It’s a case of “you know I know you know.”
2) China and the US have never particularly had strong financial market ties. They used to
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I think it’s important to be clear what we mean by “recession”. 2 consecutive Qs of -0.2% GDP growth? Who cares? It seems more useful to distinguish demand-driven vs supply driven recessions. In the last 10 years, we’ve been conditioned to think recession is demand-driven 1/4
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I have two (bond career ending) predictions:
1) the Fed won’t hike tmrw
2) the supply of Treasury coupon bonds still incoming is already priced in, will be muted and won’t squeeze yields higher
I’ll explain why below.
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@asv141
Annual tuition will be automatically deducted from your Clay Mathematical Institute Prize money. :)
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Pelosi timed a WaPo Op-Ed to be released the moment she landed.
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Fiat system with inflation and debasement. It’s not even close.
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Some very nice graphics from
@Reuters
. I’m not gonna lie. I went through an entire macroeconomics PhD without learning how unemployment rates are really calculated from scratch and all the intricate subtle assumptions that enter. We take the headline aggregate numbers as given
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First London trip in 5 years review:
Despite my incessant complaint of the rainy weather, there’s much to love. London is more walkable than NYC. The architecture is cooler. Many more newer buildings with cool, modern and varied designs interlaced with beautiful old buildings
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I must admit I’ve never understood what’s so great about French food. I can’t even tell you what a classic French dish is. Italian food on the other hand I love. It’s so hearty, flavorful without pretension. It’s very similar to Chinese food. Italy food >> French food imo.
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There’s no such thing as “I’m not a maths person”. You didn’t put enough effort into it.
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@jimcramer
Tesla isn't a car, it's a tech product on wheels. People who can afford it aren't sensitive to gas price. You can get all the functionalities of a smartphone for a lot less than the cost of the iPhone, and yet iPhones capture 80% of smartphone profits.
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Chicago is a seriously underrated city.
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Spoke with a friend whose family manufactures clothing, photo frames and LED lights. She thinks decoupling is unrealistic. India, Vietnam etc simply don’t have the efficiency to deliver on time. 3-6 month delays are regular. Firms need to order way ahead and tolerate costly delay
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Random thoughts:
To become fabulously wealthy, it sometimes requires an irresponsible amount of concentrated risk taking, which is the exact opposite of what all of traditional finance teaches. You’d have to be utterly ignorant or find yourself accidentally down such a path
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@philbak1
I’m confused. Above the line there are two offsetting “flow” variables: tax revenue and deficits, which equals spending minus tax revenue. And below the line, we have debt which is a “stock” variable, which should really be compared with assets. Have the assets gone up?
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This is one of
@tracyalloway
’s favorite plots. People love to say that bond markets are smarter than stocks and make better forecasts. But, in reality, since the 80s (prob before) bond markets were consistently surprised by the secular downward trend.
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Sent this picture to mom and dad last night from dinner.
Mom instantly replied: “Where are you eating out again? You already got so fat eating.”
This morning at 7:45am got another text from mom: “You should get your teeth cleaned. They are so yellow already.”
I love my mom.
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Congratulations to Messi and the nation of Argentina!
What a hard fought and well deserved final victory! Long time coming and overdue!
🐐
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Is it just me or is everybody starting an econ PhD at a top US school this week? I swear I thought some of them already had PhDs.
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Finally read about 2/3 of “The End of Accounting” on the plane. Can confirm that it’s an excellent book, even if the first 3 chapters may not seem so. The book picks up pace. It presents strong evidence and makes a persuasive case that modern accounting reporting is quite broken.
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Very excited to dig into this book. Thanks for the recommendation from
@therobotjames
@NotQuiteMidlife
and forgot who else that discussed this book in a thread.
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This is a classic example of how misinformation travels on Twitter. You have a bunch of hacks, who weren't particularly good students in school, got into finance, heard some words, start name dropping them on Twitter and get liked by people who don't know any better and get
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Econ PhD students do yourselves a favor and get on Twitter. More than anything it helps you build confidence that all the profs you are terrified of are just normal human beings. They may ask you really tough questions in seminars, but they prob don’t know what’s going on either.
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Reminder: inflation is a rate of change. If a loaf of bread goes from $1 to $10 and stays there, inflation would go from 1000% to 0%. Does that mean “inflation is transitory”? To the Fed and economists, yes. To most ordinary people, “transitory” means bread price coming back to 1
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3% inflation is a small price to pay if we can avoid Trump 2.0. Very small.
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Everyone go read “Lord of Easy Money”. When I saw the title I thought it was one of those predictable angry cranky books. But it turns out to be possibly the best macro book I’ve read in years. It’s thoughtful and thought-provoking. Whoever recommended it to me, thank you! 5/5
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Ran into this superstar
@kylascan
IRL for the first time! 🤩 She’s every bit as brilliant and beautiful in person as she is on her videos!
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It is not. Since Jul 27 when the Fed stopped hiking and removed the recession-hedging demand, 10y yield rose 93bps while NYFed 10Y term premium rose 103bps. So the increase is entirely explained by risk compensation for absorbing incoming Treasury Supply. 1/5
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I have to admit Huawei’s Harmony OS is a lot better than I expected. I greatly underestimated Chinese tech companies’ ability to create software. I thought Chinese tech firms could do hardware but were hopelessly behind in terms of software. The US truly might be in trouble.
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Yellen has serious food alpha. She’s got all the best spots scouted out for her favorite genres. Does she do this in each of the countries she visits?
Here’s the menu. All classic Szechuan dishes. I’d prob have added 辣子鸡 or Szechuan/Chongqing spicy chicken popcorn, which
After much covered tasting of Cantonese food in Guangzhou,
@SecYellen
's first meal in Beijing is at a Sichuan restaurant. In fact, it is a Zhujingban operated by Sichuan government and long touted as one of the most authentic sichuan restaurants in town.
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I think this isn’t asked nearly enough.
@danwwang
made an observation on an Odd Lots last year that China could remain shut for a few years while enforcing zero COVID. It sounded implausible to me at the time, but has clearly proven out. Most of us just assume China would reopen
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In case you were wondering what happened with the Bank of Japan shock decision:
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Your favorite fintwit global macro market experts know next to nothing about China. They know of the word and the concept but not much beyond. It’s a foreign language and culture. Yet, China integration is prob among the biggest contributor to the last 40 years of disinflation.
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Is it just me or is this totally not what Powell expressed at the last FOMC presser? He was given multiple opportunities to express this and he emphatically pushed back on this narrative. This most recent rally and easing of financial conditions, which the FOMC members say
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I’m a centrist. Socially slightly left, fiscally maybe slightly right. I don’t have a fundamental problem with conservatives. Check and balance is good. So is ideological rotation. I don’t like Trump. Not bc he’s a conservative, which he’s self-admittedly not. It’s bc he is a
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Vote Harris so Powell may be reappointed. Best chair in the Fed’s history.
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If you are interested, my slides can be found at
I gave a talk on “inflation regime investing” at the Bloomberg Portfolio and Index Research Conference today. Will post slides as a thread soon. Video recording will be available on demand on the terminal at SEMR <GO>.
Thanks to
@MiquelVilam
for photography!
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Just accepted an offer to join Bloomberg's Portfolio and Index team as a quantitative researcher in NYC. I start in 7 weeks and am excited to start this new chapter of my life!
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At Costco, it feels like we are experiencing the greatest economic boom ever.
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What does this say about our society to have the “crème de la crème” of our talents banging their heads to get into asset and wealth management to help wealthy people grow their wealth, which is a perfectly defensible thing to do, while occupations like school teachers languish?
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Everyone wants something to break, a crisis bc they’ve finally wisened up on how this game is played: crisis-> low rates-> lever up on long duration assets like tech stocks or prime real estate. Except after 4 decades, it doesn’t work anymore. We are in for a grind like the 70s.
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Want to share some exciting news. A systematic equity index I worked on has been adopted by Invesco as an index switch for an ETF. I will share more in the coming days/wks why systematically capturing “pricing power” has been a good long term strategy.
…
Pricing power factor index: long quality and low vol, short value. Longer write-up coming. Stay tuned!
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I don't remember a single moment over the past 4 years and honestly go as far back as memory allows when the Fed wasn't "making a terrible policy mistake". And yet, Powell and co have gotten us here in better shape than most reasonably expected. Against the doubters, Chris Waller
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The biggest collective policy mistake was to diagnose/treat 2020 as an economic recession, which it wasn't. Supply curve was crimped artificially, and in response we overstimulated the crap out of the AEs using fiscal policy and accommodated the large output gaps using
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As a Chinese, I’m in mourning today as a formal wake is being staged in that distant and foreign land. I feel that I’ve lost my country forever. This is not the “China century” that was promised, or at least how everyone’s wishfully imagined. The 30 years were good to all of us.
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Did some maths by hand today. Maths is indeed like sports. If you don’t practice everyday, you get rusty and forget basic things like how geometric series sums.
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So many of you have seen or reposted this video bc the head of the White House Council of Economic Advisor appears to be stumbling on such a basic basic obvious question: “why does the govt borrow money, which it had issued itself in the first place?” until one pauses to think
CLIP: We hear a lot about the national debt.
But do currency-issuing governments really ‘borrow' their own currencies?
The answer might surprise you.
Watch FINDING THE MONEY documentary, In Theaters and On Demand TOMORROW May 3:
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My new whitepaper: "Pricing Power Everywhere" 🚨
and a blog on a novel equity factor "Pricing Power"!
Please take a look. Would love your comments and feedback!
Disclosure:
@InvescoUS
has an ETF $POWA tracking the US version of the index since Aug 25.
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The U.S. job market is not secularly tight. It’s in fact quite tough to find a job as a white collar person if you’ve been in the labor market the last year or so. You’ll have experienced submitting tons of applications and doing lots of interviews but converting few or none into
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Kyle Bass is a low IQ person. It makes sense he subscribes to every political conspiracy with such earnestness. He lacks the ability to judge what’s likely true and what’s not.
Also, anyone who tells you the Fed/Tsry “pumps the stock market”, under whichever president, is not
This is excellent. Kyle Bass breaks everything down in 5 minutes.
He thinks switching the Treasury auctions from long duration bonds to t-bills enabled the Treasury to throw another $2 trillion of liquidity into the market.
He then gets into the Yen/carry trade. 👇👇
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So was it "short vol" or was it the "carry trade"?
It's a good time to revisit this good piece of research on "carry". Short vol is a form of "carry trade" too. I like this formulation of "carry" in the general sense. You collect premiums for selling tail event insurance, which
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I turned 50 yesterday. I’m in much better shape than myself 25 years ago. In fact, I’m in the best shape I’ve ever been. AMA.
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Germany really miscalculated huh. It hooked its chariot to two horses: Russia for energy and China for export market and supply chain. So much for the German engineering and meticulous thinking.
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After much careful consideration I’ve decided to leave this platform indefinitely. The negativity has just grown too much and I’ve missed the joy of real life interactions. It’s been fun. Thanks for all the fish! 😊✌️
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Totally normal announcement to be made at 5pm on Sun. There’s absolutely no liquidity crunch in the global financial system.
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Does Peter Zeihan actually know what he’s talking about? Instinctually skeptical of people who sound sensationalist
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Mom’s friend’s relatives in Wuhan: whole family tested positive, no fever, no coughing, extreme nondescript discomfort, fatigue, no appetite for food, doesn’t even want to drink water. Hospitals overwhelmed. Some of their friends passed away. Funeral services overwhelmed.
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I think the best way to do a PhD for most is to do a PhD and then go back in time and do it again.
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