January/February 2022 by Luckbox Magazine

life. money. probability. PLUS

FIBONACCI, CRYPTO, CANCEL CULTURE, ALLBIRDS, THE GRAMMYS, OCCULT ROCK & MORE JANUARY / FEBRUARY 2022

THE ANNUAL

FORECASTING ISSUE

FORECA STS F O R ‘22

SPECIAL REPORT

How policymakers could set aside their hostility and perform in harmony

the control freak's guide to life, money & probability

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January / February 2021

Forecasting

14 Adversarial Collaboration: Bickering for Better

When ideological foes set aside their differences, they can work together to arrive at especially accurate predictions. Here’s how.

19 Money Over Mind

Traders unconsciously alter their beliefs to fit ideas that are making money for them in prediction markets, according to a neuroscientist who teaches business.

20 A Tale of Two Prediction Markets

Executives from Kalshi and Nadex explain why their nascent industry is here to stay.

22 Fibonacci’s Arithmetic Revolution

Can a string of numbers introduced in Europe in the 13th century reliably predict stock prices? Luckbox investigates.

28 Crypto Doomsday

The bear market of 2022 will bring a slowdown in bitcoin gains, a collapse in altcoin prices and the end of cryptocurrency’s Wild West era.

30 20 Predictions for ’22 and Beyond

Luckbox takes a shot at forecasting outlier events for the next two years in the markets, economy, politics, sports and the media.

25 Experts Meet the Masses

Five veterans of the equities markets make predictions for the coming year. But for good measure, we compare their projections with those of our readers.

January / February 2022 | Luckbox

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Luckbox | January / February 2022

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Allbirds' Wool Runner-up Mizzles in Atlas (Black Sole) See p. 42 editor in chief ed mckinley managing editor yesenia duran associate editors mike reddy kendall polidori editor at large garrett baldwin technical editor mike rechenthin contributing editors vonetta logan, tom preston creative directors katherine bryja tim hussey contributing photographer garrett roodbergen editorial director jeff joseph

trends life, luxury & the pursuit of happiness

RECORD HIGH

33 Grammy Predictions 36 Rockin' the Occult

SOMETHING VENTURED

38 Private Security SENTIMENT

40 Is Cancel Culture Toxic?

FINANCIAL FITNESS

41 Your 2022 Physique TRENDLINES

42 High-flying Allbirds TRADER

44 Meet Joseph Barbuto

trades&tactics actionable trading ideas

CHEAT SHEET

CHERRY PICKS

INS ERT It’s Your Move

49 Seeking Diversity TECHNICIAN

NORMAL DEVIATE

DO DILIGENCE

THE LAST PICTURE

contributor’s guidelines, press releases & editorial inquiries editor@luckboxmagazine.com advertising inquiries advertise@luckboxmagazine.com subscriptions & service support@luckboxmagazine.com

64 High Art

media & business inquiries publisher: jeff joseph jj@luckboxmagazine.com Luckbox magazine, a tastytrade publication, is published at 19 N. Sangamon, Chicago, IL 60607

56 Essential Market Forecasting Tools

Editorial offices: 312.761.4218 ISSN: 2689-5692

FOREX

Printed at Lane Press in Vermont

58 COVID-19 Redux?

luckboxmagazine.com

FUTURES

60 Slippery Oil Prices

46 The Luckbox Bookshelf

61 A Prognostication Tool

CALENDAR

ADVANCED TACTICS

47 Tigers & Groundhogs

FAKE FINANCIAL NEWS

10 Cartoon Clairvoyance

54 Probability Reigns

BASIC TACTICS

BOOK VALUE

50 Dark Days Ahead?

comments, tips & story ideas feedback@luckboxmagazine.com

63 The Wisdom of Crowds

Luckbox magazine

@luckboxmag On the cover: Illustration by Paul Lachine

2019 & 2020 Best New Magazine Folio Award for Custom Content

Luckbox magazine content is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities and futures can involve high risk and the loss of any funds invested. luckbox magazine, a brand of tastytrade, Inc., does not provide investment or financial advice or make investment recommendations through its content, financial programming or otherwise. The information provided in luckbox magazine may not be appropriate for all individuals, and is provided without respect to any individual’s financial sophistication, financial situation, investing time horizon or risk tolerance. luckbox magazine and tastytrade are not in the business of executing securities or futures transactions, nor do they direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. luckbox magazine and tastytrade are not licensed financial advisers, registered investment advisers, or registered broker-dealers. Options, futures and futures options are not suitable for all investors. Transaction costs (commissions and other fees) are important factors and should be considered when evaluating any securities or futures transaction or trade. For simplicity, the examples and illustrations in these articles may not include transaction costs. Nothing contained in this magazine constitutes a solicitation, recommendation, endorsement, promotion or offer by tastytrade, or any of its subsidiaries, affiliates or assigns. While luckbox magazine and tastytrade believe that the information contained in luckbox magazine is reliable and make efforts to assure its accuracy, the publisher disclaims responsibility for opinions and representation of facts contained herein. Active investing is not easy, so be careful out there!

January / February 2022 | Luckbox

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FALSE PROPHETS In the year 2525, if man is still alive If woman can survive, they may find In the year 3535 Ain’t gonna need to tell the truth, tell no lie Everything you think, do and say Is in the pill you took today In the year 4545 You ain’t gonna need your teeth, won’t need your eyes You won’t find a thing to chew Nobody’s gonna look at you —2525 (Exordium & Terminus), Zager and Evans (1969) As we wrap up the annual prediction issue of Luckbox, our thoughts turn to Michel de Nostradame (aka Nostradamus), an enterprising early master of the side hustle. Although he was kicked out of med school for prematurely practicing apothecary, he continued practicing medicine during the plague. He was highly regarded as an astrologer and dabbled in the occult. But he established his true legacy as a seer with the publication of his Les Prophéties in 1555. As a result of that book, Nostradamus is credited with predicting outlier events that include the Great Fire of London in 1666, the French Revolution in 1789, the rise of Napoleon in 1799, the rise of Hitler in 1933, the atomic detonations at Hiroshima and Nagasaki in 1945, the Apollo moon landings in 1969, and the 9-11 attack on the World Trade Center in 2001. But most of his estimated 6,338 prophecies fell flat. His prediction that in 2021 a Russian scientist would develop a biological weapon that turns the living into zombies was especially wacked-out. Still, Nostradamus deserves credit for being

smart enough to play the long game—like the one-hit-wonder pop duo Zager and Evans. But the Italian prophet’s prediction that the world will end in 3797 still isn’t a good excuse to stop funding your IRA. Nostradamus also understood the value of forecasting big events. Why go small when you can go big and really attract some attention? He also had the foresight to predict the outrageous, a trait that author Nassim Taleb (The Black Swan) finds lacking among today’s popular financial forecasters. “Our predictors may be good at predicting the ordinary, but not the irregular and this is where they ultimately fail,” Taleb wrote. “Economic forecasters tend to fall closer to one another than to the resulting outcome.” But any way you look at it, forecasting poses a reputational risk. Two years before the Great Depression, famed economist John Maynard Keynes confidently declared that “we will not have any more great crashes in our time.” Wrong. In 2006, as Alan Greenspan was completing his fifth and final term as Federal Reserve chair, he proclaimed that “the worst is behind

Thinking Inside the Luckbox

Luckbox is dedicated to helping active investors achieve skill-derived, outlier results. 1 Probability is the key to improving outcomes in the markets and in life.

2 Greater market volatility brings greater opportunity for traders and investors.

3 Options are the best vehicle to manage risk and exploit market volatility.

4 Don’t rely on chance. Know your options because luck smiles upon the prepared.

us” with regard to the housing slump. Wrong. The evening of Donald Trump’s presidential election victory, Paul Krugman, a Nobel Prize laureate in economics, predicted an immediate global recession. Wrong. In light of the persistence of noise and false prophets, why does Luckbox insist on revisiting the art and science of prediction each year? It’s the science that attracts us. From covering forecasting and the prediction markets for previous issues of Luckbox, we’ve learned that nearly anyone can learn to become better at divining the future—an invaluable skill for any active investor, gambler or prediction-market trader. This issue continues our exploration of prognostication with an article on “adversarial collaboration,” a proven method of making better predictions that deserves the attention of America’s political class. Next comes research that indicates winning—or losing— in the prediction markets can change the way one views the world. That’s followed by reports on what’s up with a couple of prominent prediction markets. Then there’s an assessment of whether to trust the Fibonacci sequence to predict stock prices. That’s followed by long lists of jarring predictions for cryptocurrency, the Grammys, the political scene, the world of sports and life in general. It’s a total of 88 Luckbox forecasts for this year and beyond. So the magazine’s packed with stories about the science of forecasting, but what about the art? Readers may recall economist Nouriel Robini’s warning on the eve of the mortgage meltdown in 2008, Lehman Brothers analyst Elaine Garzarelli’s bearish vision of the markets just days before 1987’s Black Monday, and Lawrence Summers’ early 2021 alert on imminent inflation. They were right. Ed McKinley Editor in Chief

Jeff Joseph Editorial Director

Two ways to send comments, criticism and suggestions to Luckbox Email feedback@luckboxmagazine.com Visit luckboxmagazine.com/survey A new survey every issue.

Luckbox | January / February 2022

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IN OUR MOST RECENT SURVEY, WE ASKED LUCKBOX READERS ... Will Amazon begin to accept cryptocurrency for purchases on its U.S. site before Oct. 1, 2022? No ................................................................. 44.6% Yes.................................................................41.7% Will ethereum increase its market cap relative to bitcoin by March 31? Yes ................................................................ 76.2% No ................................................................. 23.8% What will President Biden’s approval rating be as of March 31? Lower than 40%.......................................... 49.8% Between 40% and 45%.............................. 32.7% Between 45% and 50%................................ 9.5% Above 50%..................................................... 8.0% Which party will win control of the U.S. House of Representatives in the 2022 midterm elections? Republican Party......................................... 64.0% Democratic Party......................................... 36.0% Which party will win control of the U.S. Senate in the 2022 midterm elections? Republican Party......................................... 76.0% Democratic Party......................................... 24.0%

Inflation Station I like Luckbox because it goes off the beaten path. The inflation issue was spot on. —Tom Anderson, Chesapeake, VA

There’s more to Luckbox than meets the page.

I like that Luckbox presented both the “inflation is with us now” and the “inflation is transitory” positions. Economics is not a science, it is an art, and no one has all the answers. —William Cooper, North Little Rock, AR

Look for this QR code icon for videos, websites, extended stories and other additional digital content. QR codes work with most cell phones and tablets with cameras.

Probably my favorite issue of Luckbox since subscribing a few months ago. Loved the balanced coverage for both camps, as well as the comparisons to historical data and events. —Scott Mason, NC

There will be military aggression because of China’s planned establishment of a permanent base in Africa. —Anthony Primozich, Edmonds, WA

Your thoughts on this issue? Take the reader survey at luckboxmagazine.com/survey

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1 Open your camera

Reader Predictions Cardano will go from sixth to third in market cap for crypto. —Rahim Jiwani, Hamilton, Ontario

—Luckbox Reader Survey

Take our reader survey!

SCAN THIS

OPEN OUTCRY

Federal legalization of cannabis may happen. I’m betting on it. —Greg Van Meter, Long Beach, CA China’s withdrawal from markets will cause redeployment of capital elsewhere. In other words, banning crypto mining will cause companies that own mining machines to redeploy equipment to countries with low-cost energy. —Stuart Cohen, Katy, TX

2 Hover over the QR code

3 Click on the link that pops up

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SHORT INTEREST

THE ART & SCIENCE OF FORECASTING Virtually every consequential thing we do in the world is an implicit forecast because we’re making assumptions about what will follow later … It’s central to public policy. It’s central to human life. Whenever you decide to get married or not to get married or get divorced or whatever, it rests on claims about possible futures.

[The Fibonacci sequence] has continued to identify key trading opportunities in the markets since 1989, and it has never failed me. —Carolyn Boroden, aka the Fibonacci Queen SEE PAGE 22

SEE PAGE 14

—Philip Tetlock, co-author of Superforecasting: The Art and Science of Prediction

If you want people to care about politics more, give them free stock in a prediction market and they’re going to now start caring a lot about that because they stand to make money.

SEE PAGE 19

Ethereum’s price will rise at a much faster rate than bitcoin due to the move to proof of stake. —Tom Higgins, CEO of Gold-i

SEE PAGE 28

The crypto-economy market capitalization will rise from a peak of $3 trillion in 2021 to over $7.5 trillion at some point in 2022. —Rohit Talwar, CEO of Fast Future

—Moran Cerf, neuroscientist and business professor at Northwestern University

Two stocks destined to double in 2022

SEE PAGE 30

—Garrett Baldwin and Jeff Joseph reveal their top 20 predictions for this year

Luckbox | January / February 2022

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—Paul McCartney’s total Grammy nominations. He has won 18.

SEE PAGE 33

+32% Allbirds quarterly revenue increase —Year-over-year,

$23 million The amount of money Facebook spends annually on Mark Zuckerberg’s security and protection —Business Insider

SEE PAGE 38

SEE PAGE 42

“IT’S THE BEATLES, THE MUSIC THEY’RE PUTTING OUT. THESE KIDS LISTEN TO THIS MUSIC AND PICK UP THE MESSAGE. IT’S SUBLIMINAL.” —Charles Manson to the judge who sentenced him to death row for the 1969 murders of actress Sharon Tate and six other people

SEE PAGE 36

January / February 2022 | Luckbox

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FAKE FINANCIAL NEWS

Cartoon Clairvoyance The Simpsons displays an uncanny ability to tap into the zeitgeist and a knack for predicting the future By Vonetta Logan

Keep an eye on the first family of Springfield to find out if Elon is going to become president.

COURTESY OF FOX

ethods of predicting the future include old-school toys like the mystifying Magic 8-Ball and the slightly haunted Ouija board. But a local psychic or astrologist on TikTok can provide a slightly more high-powered approach: “I see you paying me $59.95.” Still, there’s no better soothsayer than a film or television writer. Think about it: They’re sleep-deprived and subsist on takeout sushi, Red Bull and Funyuns as they race to provide fresh and innovative stories. They go beyond the mundane and the plausible to create seminal pop culture moments. They imagine not just what is, but what could be. Take the writers of Star Trek. They thought up the PADD (Personal Access Display Device), an eerie harbinger of the iPad that preceded the Apple device by 23 years. Let’s not belabor the fact that the props department’s limited budget—not just the writers’ power to see the future—kept the PADD as simple as the no-nonsense iPad. But a show that has spanned 31 years and produced nearly 700 episodes possesses not only an uncanny ability to tap into the zeitgeist but also a knack for predicting the future: The Simpsons. Writing in Esquire about The Simpsons, Justin Kirkland maintains that “despite many of its storylines being asinine beyond belief, they end up getting mimicked in real life later on.” Whether that’s prescience, good luck or bad luck, it’s a jarring trend. “Even creepier,” Kirkland writes, “the show seems to be getting it right with increasing accuracy.” Some take The Simpsons very seriously, devoting college-level courses to studying the show. With that in mind, here’s a rundown on Luckbox’s favorite Simpsons predictions that have come true.

Luckbox | January / February 2022

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MURDER HORNET/ CORONAVIRUS PARLAY ⊲ SEASON 4, EPISODE 21, MARGE IN CHAINS (1993)

A Japanese factory worker spreads the “Osaka Flu” by coughing into a package bound for Springfield. Mass confusion ensues as the authorities prescribe bed rest, declare there’s no cure and predict everything will return to normal soon. Panicked townspeople overturn a truck filled with killer bees, and BOOM that’s the 2020 pandemic/murder hornet parlay. APPLE’S ENTIRE PRODUCT LINE ⊲ S6, EP8, LISA ON ICE (1994) ⊲ S6, EP19, LISA’S WEDDING (1995)

Was Steve Jobs a visionary, or just a huge fan of The Simpsons? In the 1994 episode, the school bullies dictate a memo to their Apple Newton, but the device changes “Beat up Martin” to “Eat up Martha,” eerily foreshadowing how ducking hard it is to use autocorrect. The episode provided a rallying cry for engineers developing software for the iPhone keyboard, Megan McCluskey reported in Time. “If you heard people talking and they used the words ‘Eat up Martha,’ it was basically a reference to the fact that we needed to nail the keyboard,” an Apple exec told McCluskey. A year later, in an episode about Lisa’s future nuptials, she wore what appears to be a prototype for the Apple Watch 15 years before its introduction. POLITICAL SHENANIGANS ⊲ S11, EP17,

Betting pools are accepting wagers on what The Simpsons may foretell during the 2022 season— hover cars, Mars colonization or a robot takeover? stop before hitting bottom,” he said. “It was pitched because it was consistent with the vision of America going insane.” Eerily, the purple pantsuit Lisa wears as commander-in-chief seems almost identical to the outfit Vice President Kamala Harris wore to the inauguration in 2021. In the 2008 Treehouse of Horror intro, Homer tries to cast his ballot for Barack Obama, but the voting machine keeps changing his vote to John McCain. In 2012, footage emerged of a voting machine that switched votes from Obama to Mitt Romney. And who could forget the scapegoating of Dominion voting machines in 2020? (Please don’t sue Luckbox.) In the Marge in Chains episode, Mayor Quimby leaves town for warmer climes in the middle of a high-profile crisis (the Osaka Flu), foreshadowing the junket Republican Sen. Ted Cruz took to Cancun during the Great Texas Winter Blackout. GREECE DEFAULTS ⊲ S23, EP10, POLITICALLY INEPT, WITH HOMER SIMPSON (2012)

Homer appears on a cable news show called Head Butt, and the chyron across the bottom of the screen reads, “Europe puts Greece on eBay.” This was a full three years before Greece had the honor of becoming the first developed country to default to the International Monetary Fund. Too bad Greece couldn’t “buy now, pay later.”

⊲ S20, EP4,

TRULY NERDY PREDICTIONS

TREEHOUSE OF HORROR XIX (2008)

⊲ S10, EP2, THE WIZARD

⊲ S4, EP21, MARGE IN CHAINS (1993)

OF EVERGREEN TERRACE (1998)

BART TO THE FUTURE (2000)

President Lisa tells her Oval Office staff, “We’ve inherited quite the budget crunch from President Trump,” thereby predicting the 45th president some 16 years before he took office. In a 2016 interview with The Hollywood Reporter, writer Dan Greaney explained that the joke was meant as a warning to the country. “That just seemed like the logical last

⊲ S22, EP1, ELEMENTARY SCHOOL MUSICAL (2010)

“Higgs boson” may sound like an internet personality test, but the “God particle” is actually a scientific breakthrough that helps explain how everything in the universe has mass. Scientists didn’t confirm its existence until 2012, but in the 1998 Simpsons episode, Homer is pictured in front of a blackboard bearing an equation

that predicts the mass of the yet-to-bediscovered particle. “If you work it out, you get the mass of a Higgs boson that’s only a bit larger than the nano-mass of a Higgs boson actually is,” science writer Simon Singh said in an interview with The Independent. “It’s kind of amazing as Homer makes this prediction 14 years before it was discovered.” In the episode Elementary School Musical, Martin holds up a Nobel Prize betting pool bingo card with the name of MIT professor Bengt Holmström circled in red. Holmström won the prize six years later for his work in economics. Other Simpsons predictions that came true include the National Security Agency’s scandalous practice of spying on innocent Americans, the tragedy of a Las Vegas entertainer killed by a white tiger and Lady Gaga’s intense Super Bowl halftime show. How do they do it? The showrunner of The Simpsons, Al Jean, who has been writing for the show since it debuted in 1989, had this to say: “One of our writers, the guy whose episode predicted Donald Trump as president, said it best: ‘If you write 700 episodes, and you don’t predict anything, then you’re pretty bad. If you throw enough darts, you’re going to get some bullseyes.’” And the public can get involved. Betting pools are accepting wagers on what The Simpsons may foretell during the 2022 season. Could it be hover cars, the colonization of Mars or a robot takeover? While prognostication is fun, The Simpsons feels eerily good at it. But it’s a numbers game. It’s why trading small and trading often in the stock and options markets can improve the odds of success. In the meantime, keep an eye on the first family of Springfield to find out if Elon is going to become president. Vonetta Logan, a writer and comedian, appears daily on the tastytrade network and hosts the Connect the Dots podcast. @vonettalogan

January / February 2022 | Luckbox

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Luckbox Presents...

THE ART & SCIENCE OF FORECAST 12

Luckbox | January / February 2022

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Foes Unite Adversarial collaboration lessens hostility and improves predictions

Money Talks Beliefs shift when traders earn cash in prediction markets

Predictive Markets Two exchange CEOs assess their industry

Fibonacci Sequence Can a 2,200-year-old string of numbers predict stock prices?

Experts Speak Veterans of the markets hold forth on what lies ahead

Crypto Chango Cryptocurrencies are about to become unrecognizable

STING

Divining 2022 Two Luckbox editors offer predictions for the new year

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the art & science of

FORECASTING

Philip Tetlock, a professor at the Wharton School of the University of Pennsylvania, has helped a generation of forecasters hone their prediction skills. At the university’s Good Judgment Project,

LUCKBOX LEANS IN WITH

PHIL TETLOCK sitory or roaring back,” key figures could work together—with the help of trusted third parties—to identify what they disagree about and how to meaningfully test those disagreements.

WHERE

is adversarial collaboration used, and where do you see the most potential for it? The idea of adversarial collaboration has deep roots in the sciences. A famous example is the adversarial collaboration between prominent psychologists Daniel Kahneman and Gary Klein. Kahneman and Klein each won acclaim by developing such seemingly contradictory schools of thought that each scholar appeared to be a threat to the legacy of the other. They could have chosen to hunker down and fire off rival polemics, but instead they got together to discuss why they had such different views and how those views could be reconciled. The result was a 2009 paper in which they concluded, “We agree on most of the issues that matter.” On the rest, they could disagree without being disagreeable. Superforecasters apply this concept regularly to collaborate and derive more accurate forecasts. The same concept can be used in other domains, from personal investment decisions to policymaking on critical issues of the day. With a debate like “is inflation tran-

Why hasn’t adversarial collaboration been adopted on a larger scale? Adversarial collaboration requires good faith and the ability to say, “I was wrong” in the face of evidence. It needs a neutral platform and clear tests of one’s beliefs. But in noisy public arenas, that doesn’t make good television. This is probably why the media often turn to the loudest talking heads who do make good television no matter how bad their track record may be. Sadly, those voices usually have zero interest in adversarial collaboration. In other areas also, people tend to find a confident “yes” or “no” more satisfying than “maybe” and “on the other hand.” Research shows people trust more confident financial advisers over those who are less confident, even when their track records are identical. People all too often equate confidence and competence and mistakenly see concessions in a debate as a sign of weakness. Would politicians be likely to embrace adversarial collaboration to reach policy decisions? Individual politicians can be adversaries and collaborators. Sen. Bob Dole had strong views about how the world should be yet regularly reached across the aisle to craft legislation. Ted Kennedy and Orrin Hatch were strong adversaries in debate but collaborated productively on many issues. So it can be done. It’s really up to the politicians to do it, and right now the emphasis seems to be more on “adversary” than “collaboration.”

Tetlock worked alongside his wife and research partner Barbara Mellers to form a team of forecasters so accurate that they outperformed intelligence analysts who had access to classified data. He and journalist Dan Gardner were coauthors of an influential New York Times bestseller, Superforecasting: The Art and Science of Prediction. For this article, Tetlock agreed to field questions about adversarial collaboration, a process that creates solid predictions by combining differing views.

What challenges stand in the way of more widespread adversarial collaboration? The biggest obstacle is the reluctance of most political leaders to take the risk and present their beliefs in a way that can be rigorously put to the test. The answer is for all of us to hold them accountable and recognize leaders who are willing to take that risk. A psychological mechanism is at work here. Studies show that if people feel they will be held accountable for their views, they tend to avoid cognitive pitfalls such as overconfidence and the failure to update beliefs in response to new evidence. But if people make predictions that can never be disproved, it poses no reputational risk, and, in turn, encourages overconfidence and even more extreme predictions. If we get serious about keeping score, with it will come accountability that is dismally lacking in public discourse today. What’s the most important thing to know about adversarial collaboration? Adversarial collaboration is about disagreeing without being disagreeable. It is about having the integrity to examine one’s beliefs in a set of clear tests. It is about making more accurate forecasts and getting a little wiser each time. Ultimately, it’s about improving public discourse.

Luckbox | January / February 2022

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ADVERS

ARIAL

COLLAB

ORATION (Bickering for Better)

Congress battled bitterly over domestic policy in 2021. Is there a cure for the country’s polarized politics? BY WARREN HATCH

awmakers’ disagreements over government spending—from the bipartisan infrastructure bill to President Joe Biden’s “Build Back Better” agenda—have at times seemed insurmountable. Concerns about inflation have played a central role in many of those disputes. Experienced forecasters recognize this as a battle of predictions. Proponents of more government spending predict legislation will help address inequality and strengthen the economy, both now and in the long run. Opponents predict that additional social spending risks unleashing inflation and exacerbating poverty. Strong views have led to heated debates but, alas, little agreement. Concepts remain nebulous, hedge words like “might” and “could” are used to prop up weak arguments, and cognitive pitfalls, such as overconfidence, result in extreme ideologically driven predictions. AGREEABLE DISAGREEMENT

“Adversarial collaboration” offers a better way to conduct these important debates. Forecasting is implicit in policy posi-

tions, a fact politicians often fail to realize. Philip Tetlock, a professor at the Wharton School of the University of Pennsylvania and co-author of Superforecasting: The Art and Science of Prediction, suggests this creates a hugely detrimental lack of accountability. Running lab studies since the 1980s, Tetlock has discovered that if people feel their predictions will be evaluated by others, they start to think preemptively of ways they might be wrong and then construct their predictions more carefully. Adversarial collaboration, as Tetlock describes it, involves disagreeing without being disagreeable. This seemingly simple concept requires the courage to seek out those who hold different views and find common ground with them. Even now in his semi-retirement as a scientist, Nobel Prize winner Daniel Kahneman maintains his commitment to adversarial collaboration. Good forecasters, and certainly those few who have attained the status of Superforecaster, practice this, too. The science behind Superforecasting shows that greater cognitive diversity correlates with improved insight. Accurate forecasters harness the benefits of a healthy debate. They

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the art & science of

FORECASTING produce forecasts on contentious issues in a non-contentious way. Good Judgment Inc, the forecasting company spawned by the research of Tetlock and his colleagues, uses its international team of Superforecasters to answer clients’ questions about the future. The Superforecasters don’t always agree on everything, but their exchanges on Good Judgment’s private Superforecaster platform provide strong evidence that debate can be civil and inclusive of diverse views, even on highly divisive issues. Tetlock’s spouse, research partner and fellow UPenn professor Barbara Mellers observed the same results on Good Judgment’s public platform, GJ Open, throughout the 2020 election cycle. It confirmed her earlier findings that forecasting can greatly reduce political polarization. A THOUGHT EXPERIMENT

Effective adversarial collaboration requires asking questions that reflect the vast array of views across the political spectrum of a hot-button issue. Right now, few issues are hotter than inflation. Is it transitory and likely to fade away in upcoming quarters? Or is it just getting started, with the specter of double-digit inflation of the 1970s looming if action isn’t taken now?Now imagine: What if prominent politicians holding opposing views on the subject came together to engage in adversarial collaboration? While each side would certainly want to be right, what if they wanted even more to develop the best-informed policy direction? The adversarial collaboration among them would start with identifying what they disagree about. The next step would be to decide which forecasts would meaningfully test those disagreements. It’s crucial that the forecasting questions are precise: How much inflation is a problem? Measured by what benchmark? Over what period? What are the drivers?

The imaginary debate could feature, for instance, Sen. Ted Cruz (R-TX), Rep. Alexandria Ocasio-Cortez (D-NY), Sen. Joe Manchin (D-WV) and Sen. Rand Paul (R-KY). For Cruz, Manchin and Paul, the solution is to cut spending. For Ocasio-Cortez, increased fiscal spending, higher wages and universal

GREATER COGNITIVE DIVERSITY CORRELATES WITH IMPROVED INSIGHT. child care are the way forward. So we begin to have an intersection of forecast topics that each side believes will support their position and undermine the other side. A FORECASTING CHALLENGE

Let’s pose some key questions to the forecasters and then assign probability estimates to see how each side fares. The idea of adversarial collaboration, with its deep roots in the scientific literature, is an integral part of effective forecasting. Superforecasting is a data-driven empirical process that leads to better forecasts, both for individuals and for teams. To ensure the accuracy of their forecasts, Superforecasters at Good Judgment Inc engage in adversarial collaboration on a regular basis. On the issue of inflation, they start by asking whether the currently elevated inflation numbers are transitory. They also seek to identify the effect on unemployment, the likelihood that supply

chain bottlenecks will persist and what actions the Federal Reserve is likely to take.“ A single dot on a canvas is not a painting and a single bet cannot resolve a complex theoretical dispute,” writes Tetlock. “This will take many questions and question clusters.” To get a more accurate picture of the inflationary pressures of today and tomorrow, Good Judgment’s Superforecasters weigh in on such questions as: • What will the percentage change in the Personal Consumption Expenditures Price Index be in the fourth quarter of 2022 relative to the fourth quarter of 2021? • What will the U.S. civilian unemployment rate (U3) be in the fourth quarter of 2022? • When will the Federal Reserve conclude its monthly quantitative easing bond buying? • By how much will the U.S. Congressional Budget Office’s FY 2022-2031 budget authority projections for the “Nondefense” and “Other Spending” categories increase in FY 2022 as compared with July 2021? • Will legislation raise the top marginal tax rate for long-term capital gains to more than 20% before Jan. 1, 2023? This example of an exchange on the Superforecaster platform occurred in September 2021: Forecaster A: “Given the data to date, including the latest [Consumer Price Index figures and not the Personal Consumption Expenditure Index statistics], there’s virtually no chance of inflation being less than 4%. Forecaster C’s posts are instructive in pointing toward the 4%-5% range.” Forecaster B: “But doesn’t Forecaster C’s latest post suggest less than 4%? Either way, I’m surprised how extreme these forecasts are.” Forecaster A: “Good point. I believe the supply chain issues are substantial and are not ending soon. The delays that cause short-

The Superforecasters GOOD JUDGMENT INC, an international company that provides forecasts and forecasting training to businesses and government agencies, bases its services on the work of the Good Judgment Project academic research at the Wharton School of the University of Pennsylvania. The company, which draws upon the work of a diverse group of people scientifically identified as Superforecasters, is challenging politicians and other policymakers to set aside their differences and use the Good Judgment platforms to work together. They could avail themselves of a process called “adversarial collaboration” that the Good Judgment Superforecasters have demonstrated can produce actionable results. It’s the process of discovering common ground by agreeing to disagree without being disagreeable, says Good Judgment CEO Warren Hatch.

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ages and the increased costs of shipping will continue to drive inflation this year.” You don’t have to be a Superforecaster to weigh in on similar questions in the Inflation Challenge on GJ Open, a public platform that Good Judgment runs to promote better forecasting practices. Tetlock sees value in such forms. “Sadly, in noisy public arenas, strident voices dominate debates, and they have zero interest in adversarial collaboration,” he wrote. “But let’s not make the cynic’s mistake of thinking that those who dominate debates are the only debaters. If learning, not gloating, is the goal, that is progress.”

A POWERFUL TOOL

Backed by experiments in cognitive psychology and the science of Superforecasting, Good Judgment’s approach to forecasting aims to show how adversarial collaboration can enrich the debate and lead to improved forecasts. When it comes to thinking about the future, the wisdom of the crowd is an effective tool. Given the right practices and a supportive environment, forecasting platforms such as Good Judgment’s private Superforecaster platform and GJ Open enable people to become more accurate forecasters. And better forecasting rewards accuracy over extreme, ideologically driven predic-

tions. Adversarial collaboration can indeed provide the cure to today’s woes of political polarization. The Superforecasters invite politicians and other key figures in the inflation debate to join in on inflation adversarial collaboration. Everything’s ready to go: We have the platform and we have the best forecasters. We just need the political adversaries in Washington to come and collaborate. Warren Hatch, a former Wall Street investor, is CEO of Good Judgment Inc, a commercial enterprise that provides forecasts and forecasting training based on the expertise and research of the Good Judgment Project. @wfrhatch

The sweet sound of collaboration IN THIS THOUGHT EXPERIMENT, FOUR PROMINENT POLITICIANS HOLDING OPPOSING VIEWS ABOUT WHAT DRIVES INFLATION AND HOW TO MITIGATE IT USE ADVERSARIAL COLLABORATION TO DEVELOP A MORE COMPLETE PICTURE FOR DETERMINING POLICY. THE IMAGINARY DEBATE BELOW USES ACTUAL STATEMENTS MADE BY SENS. TED CRUZ (R-TX), JOE MANCHIN (D-WV) AND RAND PAUL (R-KY), AND REP. ALEXANDRIA OCASIO-CORTEZ (D-NY).

Sen. Ted Cruz: The trillions that are being spent, the trillions in debt that is being racked up—it’s historic and not in a good way. … We’re seeing skyrocketing inflation.

Rep. Alexandria Ocasio-Cortez: If you’re worried about inflation, it’s important to understand why it’s happening: supply chain, labor and healthcare complications. We can address these issues by investing in infrastructure, wages, healthcare and benefits.

Ocasio-Cortez: Conservatives argue against raising wages by claiming it’ll raise prices. But that isn’t reliably supported with

historic data. However, what we’re seeing now is perhaps an example of prices rising when wages and benefits are too low—not enough workers, hurts supply chain, prices hike.

Sen. Joe Manchin: There’s not one senator out of 100 that does not want to raise the minimum wage. Sen. Rand Paul: The people who lose their jobs first when you hike up the minimum wage are black teenagers. … Even the government says that nearly four million people will lose their jobs.

Paul: In [Joe Biden’s and the Democrats’ socialist] America, inflation and supply chain issues are apparently a “high-class problem,” even as working American families are seeing the greatest of impacts. … Don’t let the Democrats fool you—nothing is free,

and ultimately you will pay the price of their agenda through taxation and inflation.

Manchin: Some in Congress have a strange belief there is an infinite supply of money to deal with any current or future crisis and that spending trillions upon trillions will have no negative consequence for the future. I disagree.

Ocasio-Cortez: For folks saying “We have inflation because we printed a bunch of money last year,” if you want to trim down needless spending in these bills to address inflationary issues, the answer isn’t to cut basic benefits for people. It’s to target the massive corporate giveaways. Cruz: Biden has proposed a $6 trillion budget, and Congress already passed a $1.9 trillion bill Biden wanted ostensibly for COVID-19 relief. But only 9% of that bill went to actual COVID-19 relief, and the huge price tag on the bill is part of what’s driving the inflation we’re seeing today.

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the art & science of

FORECASTING

tock and options traders are continually trying to predict the future. After all, every market decision boils down to the same question: “Will this or won’t this make money?” But not all markets are created equal. Investors and economists have had hundreds of years to study markets like the New York Stock Exchange, which was established in 1792. Other markets, such as event-contract prediction markets, are still in their infancy. It was only last July that Kalshi, the first-ever federally regulated events

“It’s hard for the human brain to think about the future, and we thought that using technology we can make it easier for us to transport ourselves to the future and imagine it better.” They picked the topic of climate change and recruited self-described believers and skeptics. The point was to see if participating in a climate-themed prediction market would shift beliefs because the market would serve as a non-partisan arbiter of truth. Following the experiment, some did change their beliefs, but not merely because they participated. Participants shifted toward stronger concern about climate change proportional to the amount of money they won, regardless of whether they were believers or skeptics. “The nuance is that giving you a stock that’s contrary to your beliefs that constantly makes money does change your mind,” Cerf said. “When you constantly get feedback that your stocks that go against your beliefs are making money, you get feedback that says your beliefs are not aligned with reality and it would have been more financially rewarding for you to have the other beliefs.” Then, gradually, you shift your beliefs without realizing it—even if your exchange, opened its identity doesn’t change. virtual doors for a public Climate skeptics who Making—or losing— began acting more like beta. Users are already trading hundreds of thoubelievers still identified money in prediction sands of shares in its largas skeptics, Cerf said, “So est-volume markets, each I think the shift is not markets can change share representing somecomplete—it is in pracbody’s expectation for the beliefs. But how does tice, but not in theory.” outcome of a future event. The experiment was repeated focusing on With more-established that work? prediction market platsports instead of climate forms, such as Predicchange, and the results by Mike Reddy tIt, it’s not uncommon suggested that fandom is for trading volume in a not as closely tied to one’s number of markets to surpass millions of shares. identity as environmental beliefs. It’s easier That was more than enough to catch the to accept a favorite team losing a game than attention of Moran Cerf, a neuroscientist being wrong about ideological principles. and business professor at Northwestern But for prediction markets to change University. He and his team decided to beliefs, Cerf said, participants must accept construct a prediction market for a research a common arbiter of truth. project—not to learn what the markets do, “It only works if when you lose, you accept but instead to find out what could be done that you lost, and if you win, you accept that with the markets. In practice, the project you won,” he said. “And in this game, you accomplished a bit of both. entered knowing the rules, and you got an “We thought that we can use technology to outcome that’s like going to trial. The jury change people’s minds,” Cerf told Luckbox. says ‘yes’ or ‘no.’”

MONEY OVER MIND

Prediction Markets AUGUR was developed by Forecast Foundation as a global no-limit decentralized prediction market platform built on the ethereum blockchain. BETFAIR, a London-based online gambling company, operates the world’s largest online betting exchange and hosts prediction markets on domestic and international politics. KALSHI, a new federally regulated prediction market based in the United States, began its beta in July 2021 with markets based on COVID-19, climate, politics and pop culture. NADEX (NORTH AMERICAN DERIVATIVES EXCHANGE), a regulated financial exchange, specializes in short-term binary options and spreads. It recently introduced a suite of prediction markets for forecasting economic events. POLYMARKET, a prediction market platform built on the Polygon blockchain, uses USD Coin (USDC), a cryptocurrency stablecoin, to make trades. PREDICTIT, a New Zealand-based prediction market, was launched as a research project in 2014 with a no-action letter from the Commodity Futures Trading Commission. It emphasizes politically themed markets.

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the art & science of

FORECASTING

HOW PREDICTIVE ARE PREDICTION MARKETS? Kalshi’s co-founder discusses what she’s learned about the exchange’s forecasting power since it launched last summer by Luana Lopes Lara

hen Tarek Mansour and I started Kalshi, we had a vision of an “everything market,” an exchange where people could hedge, forecast and trade on the things they were talking about. Forecasting was always an important part of the vision: Both of us had read the classics from Philip Tetlock and Robin Hanson, and one of us had done

research in forecasting using statistics and machine learning. We dove deeper into the literature on forecasting, reading papers from economists, such as Justin Wolfers and Eric Zitzewitz, that showed why prediction markets were theoretically optimal information aggregators, and psychology papers that showed how the markets could fail. In the process of building the exchange, we used every shred of this acquired knowledge to choose the order book model, design the fee structure and craft the trading mechanics—all with an eye toward maximizing the forecasting power of our markets. Let’s take an example market category, COVID-19, and see how it has performed in the wild.

One of the most interesting COVID-19 markets is one that hasn’t yet settled: VOHC-001. This market asks if the CDC will identify a “variant of high consequence” (VOHC) by March 1, 2022. Vaccines and therapeutics are ineffective against VOHCs, and no variant has yet been labeled one. The Delta variant, for instance, is a “variant of concern,” which is one tier below. From the market’s launch on Sept. 6 to the time of this writing, traders have indicated that the probability of a VOHC emerging is at least 20%. Already, this is notable because predictions from news media, politicians and even scientists have been—and continue to be—far more optimistic about the continued usefulness of vaccines and COVID prevention measures. A spike appeared in the “YES” probability on Nov. 25. What changed? That was the day South Africa reported news of the new, highly transmissible Omicron variant. There wasn’t much information about the variant at the time, except that the World Health Organization

BINARY OPTIONS: THE ORIGINAL PREDICTIVE MARKETS Investors can derive valuable market forecasts from binary options. To learn more, Luckbox spoke with Travis McGhee, CEO of Nadex, a binary options exchange pending acquistion by crypto.com.

ell us about Nadex’s new prediction markets. We’ve recently added approximately 11 new contracts on recognizable economic events, such as retail sales, crude oil inventories and the Consumer Price Index (CPI)—to name a few. We have plans to offer more, many of which will step outside standard economic event classification. What we have seen with more retail traders entering the financial markets is that there is increased demand for access to opportunity. Ten years ago, opportunity came in the form of the S&P 500 or Apple stock. Now, traders across the globe are looking to speculate or hedge with events—both financial and non-financial—whose outcomes may directly or indirectly impact underlying financial markets.

What inspired you to launch these markets? Funny enough, we’ve listed many of these markets at various points throughout our history. A lot of these new prediction markets are top-of-mind for world citizens and impact the global economy. So, we thought finding the right markets to fit the current macroeconomic landscape made a lot of sense. With the recent pandemic, economic downturn and ongoing recovery, we have been busy adding many markets that are debated in the news and at the dinner table around the country.

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quickly labeled it a “variant of concern.” Traders drove yes-side prices up to 50%. In the days after, media reports questioned the new virus’s transmissibility and lethality, causing the probability of “YES” to swing rapidly before eventually settling around 40%. By early December, as even more was learned about Omicron, the probability was back within the mid-20% range. The market is still predicting a higher probability of a VOHC than is reported in the news or suggested by scientists. What does this mean? Prediction markets can produce very different and more frequently updated forecasts than other sources. Kalshi has another series of markets, called VAXX, forecasting the number of vaccinated Americans. The underlying data source is published daily by the Centers for Disease Control, and it’s updated with a one-day lag. VAXX markets were structured to fit a weekly schedule, which means that if the market is functioning properly, it will become more determined over time as the possible variation in the weekly number is reduced by

the trickle of daily data points. Over the weekly markets’ lifetimes, prediction error drops significantly as the market nears resolution, suggesting the markets responded extremely quickly to new information and updated probabilities without succumbing to narratives or biases prevalent in other sources. COVID-19 is just one example, but the rest

Prediction markets can produce different forecasts than other sources and update them more frequently. of Kalshi’s markets work the same way. They’re constantly updating, taking into account new information and providing facts-first forecasts. Our experience with Kalshi has reaffirmed our belief in the power of prediction markets, and we’re excited to share this powerful tool with the world. Luana Lopes Lara co-founded Kalshi, the first-ever federally regulated events-contract prediction market. @luanalopeslara2

The insights gleaned from Nadex’s prediction markets are exciting, but their value is often overlooked. What do traders need to know before participating in these markets? Each contract is effectively a yes-or-no (binary outcome) question. For example, “Will the next CPI release be greater than 0.9%?” Most prediction markets on Nadex have five strike prices—or price levels— to choose from. If you think the next CPI release will be greater than 0.5%, you can trade that as well. Nadex contracts provide traders with extra options and flexibility in prediction markets. These contracts typically open and are available to trade about a week before the prediction numbers are released and the contracts expire. Once they open, people can trade these markets 23 hours a day, five days a week. Are there any contract limitations? While the possibilities for new prediction contracts are nearly endless, Nadex, as an

exchange regulated by the Commodity Futures Trading Commission, is prohibited from offering some of them. Political elections would be one of those areas where we’re prohibited from listing markets. That said, we plan to expand our offerings in the coming months to include predictions around current issues relating to crypto, pop culture, travel, the pandemic and many other interesting topics. What makes Nadex’s prediction markets different? Beyond prediction markets, Nadex members can also speculate on stock indexes, commodities and currencies—all from the same account they use to participate in event contracts. What trends will these markets be able to capture? The insights gained from these markets may be the most exciting, but also the most over-

looked aspect of their value. As these markets continue to grow in popularity with people from all walks of life, we can begin to get a statistically significant indicator of the real day-to-day experience of Americans and their views on the probability of future outcomes. Additionally, because these are not just questions that may have been hastily answered on some survey but opinions and predictions backed by real money, they may arguably be a more accurate gauge of the current economic temperature. What do you hope the future holds for Nadex’s prediction markets? We are continuously researching and evaluating opportunities to list contracts, both in the economic realm and outside, to continue offering our members the most innovative and interesting trading opportunities available anywhere.

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the art & science of

FORECASTING

FIBONACCI’S ARITHMETIC REVOLUTION

A series of numbers known as the Fibonacci sequence revolutionized

commerce and science. But can it help traders pick the right stocks?

by Ed McKinley

13th-century Italian mathematician known these days as “Fibonacci” helped create the modern world of commerce and finance by introducing Hindu-Arabic numerals and mathematics to Western civilization. The decimal-based system he popularized in Europe arose in India in the 6th or 7th century and uses the numerals 0, 1, 2, 3, 4, 5, 6, 7, 8 and 9, notes Keith Devlin, a Stanford professor emeritus of mathematics who’s devoted three of his 33 books to Fibonacci. Before Fibonacci enlightened them, Westerners were still relying on clunky Roman numerals and counting on their fingers. That was holding them back in business, science and the arts, Devlin said. But Fibonacci set out to change that. In 1202, he published the book Liber Abaci— which is now spelled several different ways— to teach modern math in the Late Middle Ages. Yet the book’s revelations didn’t end there. Fibonacci wrote at length about how to run a business. That included the best practices for dividing profits, employing weights and measurements, dealing with foreign currency exchange rates, and assessing the value of the alloys contained in coins, Devlin said. Within 20 to 30 years of its publication, Liber Abaci helped establish the banking and

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accounting principles that form the basis of commerce. Fibonacci lived until 1250—long enough to see the changes he had wrought. “It was always assumed that [Fibonacci’s] Liber Abaci started that revolution,” Devlin noted. “That assumption was proved true in 2003 with the discovery of a manuscript in T H E

F I B O N A C C I

S E Q U E N C E :

a library in Florence.” He can testify from personal experience that it’s “awesome” to hold in one’s hands a hefty piece of parchment that launched such profound and lasting change. And don’t forget that the hand-written tome predated the invention of the printing press by more than two centuries. But the modern ideas contained in the age-old volume continue to foster debate and spawn myths. The mythology begins with the man himself. For one thing, he wasn’t really named Fibonacci. That’s just the appellation a 19th-century historian gave him. During his lifetime the man now known as Fibonacci was called Leonardo. When he became famous, people began referring to him as Leonardo of Pisa to distinguish him from others with the same name. But let’s call him Fibonacci just the same. He was born in 1170 in Pisa, one of several Italian cities that rode the crest of international trade in that era. His father was engaged in that commerce, which exposed the young Fibonacci to the business practices of merchants from the Muslim world. Those practices remain relevant to this day, including a series of numbers now known as the Fibonacci sequence. (See “The Rabbit Problem,” p. 24). Devlin calls the numbers “a simple little recursion that incorporates enormously interesting mathematical properties. “Numbers from the sequence appear often in mathematics—in the measurements of pentagrams and pentagons, for example. They pop up with an eerie frequency in nature, like the patterns in the seeds of sunflowers or the number of petals in a flower. Centuries ago, they provided the rhythm for Sanskrit poetry. Instructors use the Fibonacci sequence to teach induction proofs in advanced high school math classes or in introductory college math courses. Students can use it in 40 to 50 exercises that prove “this or that,” Devlin noted.

13,

21,

34,

55,

89,

144,

. . .

Some stock traders have latched onto the idea that the Fibonacci numbers might predict the movement of equities prices.

“The Math Guy” KEITH DEVLIN, the Stanford University mathematician who helped put the Fibonacci sequence into perspective for Luckbox, has a history of bringing math to the masses. Devlin became known as “The Math Guy” during his tenure with National Public Radio, and he’s a co-founder and

mathematical cognition, models of

the president of BrainQuake, a company

reasoning, the theory of information and

that creates video games that teach

applications of mathematical techniques

mathematics.

in the study of communication.

But he backed those expeditions into

He’s written 33 books and earned the

popular culture with impressive academic

Carl Sagan Award and the Joint Policy

credentials that include directing a long

Board for Mathematics Communications

list of university programs and projects

Award. The California State Assembly

and serving as a fellow for numerous

recognized him for his “innovative work

institutions.

and longtime service in the field of

Besides designing information systems that analyze intelligence, he has studied

mathematics and its relation to logic and linguistics.”

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FIBONACCI, author of a lengthy 13th-century missive that revolutionized the way

year and none of them die. Suppose it takes a month for the first

the Western world does business, used the

two bunnies to reach maturity and have

example of rabbits to teach readers how

two offspring—one male and the other

to use the Fibonacci sequence of numbers.

female. That makes for a total of four

The sequence generally starts with zero and then adds one. From there, users find

rabbits. The second generation takes a month

the next number by adding the two num-

to mature, and then they have two off-

bers before it. The resulting sequence is:

spring, once again a male and a female.

0, 1, 1, 2, 3, 5, 8, 13, 21, 34 …

And so it continues. Every month, all

The rabbit problem begins with a single pair of bunnies. The question is how many there will be if the original rabbits and their descendants keep reproducing for a

of the mature rabbits produce another male/female pair. Can you figure out how many rabbits there would be at the end of the year?

of each month this way: 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and 233. So, at the end of a Answer: The Fibonacci sequence would yield the number of pairs of rabbits at the end

The Rabbit Problem

year, there would be 233 pairs or a total of 466 rabbits.

“It’s a wonderful little piece of pure mathematics that’s quickly accessible and attractive and brings students in very early,” he says. In fact, the sequence has been attractive enough to inspire a whole mythology. The mythologizers have convinced themselves and many others that the Fibonacci numbers correspond with the dimensions of the human body and influenced classical architecture and classical music—none of which is true, according to Devlin. But now for the big question: Can traders use the Fibonacci sequence to make better investment decisions by accurately predicting the movement of equities prices? Legions of investors have become unshakably convinced that charts tracing the movement of stock prices that reflect the Elliott Wave principle of recurring fractal patterns will pinpoint future prices and result in a better-than-average return. Those traders often rely on Fibonacci retracement levels, the horizontal chart lines that indicate where support and resistance are likely, according to the Investopedia website. Each level is associated with a percentage that shows how much of a previous move the price has retraced. The Fibonacci retracement levels of 23.6%, 38.2%, 61.8% and 78.6% are created. While 50% isn’t an official Fibonacci ratio, it’s also used. Traders often find the indicator useful because they can draw it between any two significant prices. The indicator creates the levels between those two points. But does it really work? Can it predict prices? “I’m just going to say it’s bogus,” Devlin reluctantly concludes. “There’s no mathematical reason this would work.” Still, that’s not his last word on the subject. “If enough traders believe [the sequence can ferret out future prices], that imposes some structure on the market,” Devlin notes. “If you know how all of the other traders are going to go, that gives you an edge.” What’s more, using technical chart patterns that reflect the Fibonacci numbers won’t cause traders any harm if they keep them in perspective. Savvy investors might use them as one of many pieces of evidence for taking a bullish or bearish position, he suggested. “I’m fine with that, but that’s not mathematics,” Devlin maintained. “That’s just being very smart and using evidence in different ways.” Another expert with broad experience of

the Fibonacci numbers has reached a similar conclusion. He’s Tim Knight, a Luckbox columnist and tastytrade web show host who’s been using technical analysis to trade the markets for decades. “In my experience with charting, I’ve found precious few instances in which anything Fibonacci-related was helpful,” Knight said.

CHECK OUT THE NEXT ISSUE OF LUCKBOX TO SEE HOW THE FIBONACCI SEQUENCE— AND THE GOLDEN RATIO AND GOLDEN RECTANGLE ASSOCIATED WITH IT—HAVE INFLUENCED HUMANITY’S UNDERSTANDING OF MATHEMATICS, NATURE, ARCHITECTURE, MUSIC AND THE VISUAL ARTS.

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the art & science of

FORECASTING

LUCKBOX READERS VS. MARKET EXPERTS

WHAT WILL THE MARCH CONSUMER PRICE INDEX (TO BE RELEASED MID-APRIL) LOOK LIKE?

3%-4% Chris Beauchamp: Pricing pressures are likely to moderate as supply chain problems ease and production increases slow price increases. Dylan Ratigan: Moderate inflation will persist.

The Luckbox editorial team uses polls to gauge reader sentiment ahead of every issue. This time, the editors posed the same questions to a panel of financial experts. Here’s how the results compare.

Meet the panelists CB

CHRIS BEAUCHAMP: Chief market analyst at IG Group. @chrisb_ig

Anthony Scaramucci: Still slightly hot. Tom Sosnoff: It’s just a guess. The majority of Luckbox readers (31.5%)

4%-5% Ed Yardeni: Too much money chasing too few goods. Once supply chain disruptions ease, some of the inflationary pressures should dissipate. I also expect strong productivity growth to help moderate inflation later next year.

DYLAN RATIGAN: Former global managing editor for corporate finance at Bloomberg News and current cohost of the Truth or Skepticism podcast with Tom Sosnoff. @dylanratigan ANTHONY SCARAMUCCI: Founder and managing partner of SkyBridge Capital. @scaramucci

TOM SOSNOFF: Co-CEO of tastytrade who appears daily on the tastytrade financial network. @tastytrade

<2% ......................................................................... 5.0%

ED YARDENI: President and chief investment strategist of Yardeni Research Inc. @yardeni

2%-3% ................................................................... 19.0% 3%-4% ................................................................. 31.5%, 4%-5% ................................................................... 28.5% 5%+ ....................................................................... 16.0%

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FORECASTING

WHAT WILL THE RETURNS ON THE S&P 500 BE FROM ITS CLOSING PRICE ON JAN. 1 THROUGH CLOSING ON MARCH 31?

A loss of 5% to 10% Tom Sosnoff: The market will normalize after the huge rally from 2021.

A gain of less than 5% Chris Beauchamp: Strong likely gains into year-end will set up the risk of a pullback in the first quarter.

Dylan Ratigan: Markets will be calm in Q1. Anthony Scaramucci: The markets are built to go higher.

Ed Yardeni: Strong economic growth is

WHAT WILL THE RETURNS ON GOLD BE FROM ITS CLOSING PRICE ON JAN. 1 THROUGH CLOSING ON MARCH 31?

WHAT WILL THE RETURNS ON BITCOIN BE FROM ITS CLOSING PRICE ON JAN. 1 THROUGH CLOSING ON MARCH 31?

A loss of 5% to 10%

A gain of less than 5%

Anthony Scaramucci: Bitcoin is

Dylan Ratigan: Bitcoin doesn’t move

replacing gold.

as much as you think it does.

A gain of less than 5%

A gain of 5% to 10%

Chris Beauchamp: A potential weakening

Ed Yardeni: Bitcoin will continue to

of the Federal Reserve’s hawkish narrative should weaken the dollar and help gold.

trend higher as long as there are more buyers than sellers, a situation that is likely to persist well into next year.

Dylan Ratigan: Inflation will persist. Tom Sosnoff: Gold has been quiet for so long, it’s time to move.

Ed Yardeni: Cryptocurrencies are

likely to support solid growth in earnings of around 8% next year. Profit margins are likely to remain high, thanks to productivity.

providing an alternative hedge against central banks. Real interest rates are likely to rise next year, which is a negative for gold.

The majority of Luckbox readers (24.9%)

The majority of Luckbox readers (42.8%)

The majority of Luckbox readers (24.7%)

A gain of more than 15% Anthony Scaramucci: Network effects and supply shock.

Tom Sosnoff: Bitcoin may not go lower for quite some time.

AS TS

DR DR

AS EY

EY TS

A LOSS OF MORE THAN 15% ............................ 5.0%

A LOSS OF MORE THAN 15% ............................. 2.5%

A LOSS OF MORE THAN 15% ............................. 7.4%

A LOSS OF 10% TO 15% ..................................... 7.5%

A LOSS OF 10% TO 15% ..................................... 3.5%

A LOSS OF 10% TO 15% .................................... 45.0%

A LOSS OF 5% TO 10% ..................................... 16.9%

A LOSS OF 5% TO 10% ........................................ 7.5%

A LOSS OF 5% TO 10% ....................................... 7.5%

A LOSS OF LESS THAN 5% ................................. 17.4%

A LOSS OF LESS THAN 5% ............................... 15.9%

A LOSS OF LESS THAN 5% ................................. 6.0%

A GAIN OF LESS THAN 5% ............................... 24.9%

A GAIN OF LESS THAN 5% ............................. 42.8%

A GAIN OF LESS THAN 5% ................................ 15.4%

A GAIN OF 5% TO 10% ..................................... 22.9%

A GAIN OF 5% TO 10% ..................................... 24.8%

A GAIN OF 10% TO 15% ..................................... 4.5%

A GAIN OF 10% TO 15% .................................... 3.0%

A GAIN OF 10% TO 15% .................................. 18.3%

A GAIN OF MORE THAN 15% ............................. 1.0%

A GAIN OF MORE THAN 15% ............................. 2.0%

A GAIN OF MORE THAN 15% ........................... 14.4%

Luckbox | January / February 2022

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TRADING VOLUME FOR NON-FUNGIBLE TOKENS SURGED 700% TO $10.7 BILLION IN Q3 2021. IN 2022, DO YOU EXPECT THE NFT MARKET TO GROW, SHRINK OR STAY ABOUT THE SAME?

Grow Chris Beauchamp: The supply of people fascinated by a new asset—no matter how useless it is—remains strong!

Dylan Ratigan: NFTs are just getting started.

WILL STRIPE HAVE AN INITIAL PUBLIC OFFERING AND SUBSEQUENTLY TRADE AT A MARKET CAP EXCEEDING $100 BILLION AT ANY TIME BEFORE MARCH 31?

THE YEAR 2021 HAS BEEN A CRAZY ONE, AND MORE UNCERTAINTY IS COMING. WHAT LIES AHEAD FROM NOW THROUGH THE END OF MARCH?

Chris Beauchamp: Markets will continue to be briefly distracted by fear of a global slowdown. But, overall, the rise in earnings provides a foundation for further gains. However, years like 2021 that are quieter in terms of volatility can be followed by noisier ones. So be prepared for markets to be busier than last year.

Chris Beauchamp Dylan Ratigan Anthony Scaramucci

Yes Tom Sosnoff Ed Yardeni

Anthony Scaramucci: It’s the

Dylan Ratigan: Asteroid.

beginning of a new era of culture.

Anthony Scaramucci: Algorand

Tom Sosnoff: It’s in its infancy.

becomes a Top 5 Layer-1 blockchain protocol.

Ed Yardeni: Asset diversification.

Tom Sosnoff: Less uncertainty and

The majority of Luckbox readers (65.3%)

more normalization.

Ed Yardeni: Geopolitical crisis.

AS DR

GROW ................................................................... 65.4% SHRINK ................................................................. 19.8% STAY THE SAME ................................................. 14.9%

WIN L L I W EAM T H C WHI

VI? L L OW B R SUPE

Brady rs, Tom e e n nse a c Buc at defe a Bay ts, gre p io m r t a a T n: nd P Ratiga Engla Dylan : New i s fan! c c u a Bear back aram ’m c I S : ff y uarter o n q o n t s h a t o e n S r A 6.5%) fs, g Tom neers (2 y Chie t a i c c C u s B a ay Kans mpa B rdeni: ers: Ta d a Ed Ya e R uckbox ity of L Major

January / February 2022 | Luckbox

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the art & science of

FORECASTING

CRYPTO DOOMSDAY The year 2022 will mark the demise of cryptocurrency as we know it

hen forecasters get a prediction right, critics often chalk it up to little more than coincidence. But let’s give it a go: 2022 will bring the end of cryptocurrency as we know it. Begin with bitcoin. Its price can’t increase forever, and the parabolic rise in its value that began in December 2018 broke in November 2021. (See “End in sight?” below.) Whether bitcoin’s price continues to decline, trends sideways or recovers and moves higher, we can expect a bear market in 2022.

THE GREAT ALTCOIN PURGE What about ethereum and the thousands of other cryptocurrencies that aren’t bitcoin? During the last bear market in 2018, every altcoin declined more than 90% from its peak. Some plummeted 99%, and a handful went to $0. While the technology has improved and the best altcoins actually do something other than “go up,” every altcoin has problems—even the biggest ones. Ethereum can’t scale and costs too much for small users. ETH 2.0 keeps getting delayed and nobody knows if it will work as expected. New ethereum tokenomics screw up some DeFi (decentralized finance) protocols, and behindthe-scenes conflicts breed drama that developers may never resolve. Binance, a cryptocurrency exchange company, is a walking magnet for FUD by Mark Helfman (fear, uncertainty and doubt). Cardano, a public blockchain platform, doesn’t work. The leader of EOS, an entrepreneurial operating system for businesses, bailed on the project after raising $4 billion in an unregistered securities End in sight? offering. The cryptocurrency DOGE Can the price of bitcoin bounce back from a recent decline and find its way higher in 2022? Not likely. has an unlimited supply. SushiSwap, a decentralized exchange that oper100000.00 USD ates as an automated market maker, 60000.00 started as a scam. Early investors in 48810.79 Internet Computer (ICP), which facil40000.00 itates smart contracts, dumped their 24000.00 tokens on innocent newcomers at the peak of the last altseason, that brief 16000.00 period when money flows out of bitcoin 10000.00 into altcoins. Thorchain, a protocol that offers cross-chain liquidity, has 6000.00 suffered at least three hacks, but at least 4000.00 it works—unlike most projects. 2750.00 Don’t expect any of those early-stage, 1750.00 experimental technologies with uncertain product-market fits and novel struc1150.00 tures to hold up in a bear market. At least 750.00 bitcoin has users and proven technol510.00 2017 Jul 2018 Jul 2019 Jul 2020 Jul 2021 Jul 2022 ogy, and lots of people have a stake in its success. Most altcoins have none of that. Source TradingView Once the hype dies down, 2022 will

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bring a collapse in altcoin prices. Many will drop 99% or more from their high. Most will never recover. The only question is how high they will go before they fall. WALL STREET AND REGULATION The bear market of 2022 will end cryptocurrency’s stint as the Wild West of finance. Already, global financial regulators are probing stablecoins, the privately issued cryptocurrencies pegged to the U.S. dollar and other major currencies. They regard stablecoins as digital versions of the wildcat banks of the Old West. With both, customers have had to trust a private company instead of the full faith and credit of the U.S. government to back their dollars. At least one stablecoin likely doesn’t appear to have enough money in reserve to pay out everybody who asks to redeem their tokens. Perhaps all of them fall short. When the bear market arrives, investors will find out who’s swimming naked. Some will go to jail, and others will pay huge fines. Even crypto die-hards will realize governments should regulate who can create and distribute digital dollars. That’s why society will probably turn over control of crypto to Wall Street and big banks. U.S. regulators have already begun to create a framework that banks can use to put bitcoin in their reserves, and U.S.-based companies are working on crypto-based financial products. Other countries have gone even further. Derivatives will boom as speculators take out short positions and institutions choose to keep bitcoin off their books. With the proliferation of futures, exchange-traded funds and other derivatives for bitcoin and some large altcoins, big buyers and sellers can already move in and out of the market without pumping or crashing prices. As more money flows to paper-traded investment products instead of the spot market, it’ll take a lot more enthusiasm to pump the crypto market again. The longer it takes for bitcoin’s price to go back up, the less fun it will be.

99%

HOW MUCH SOME ALTCOINS WILL DECLINE THIS YEAR

Investors will get bored the way they did during each of bitcoin’s three previous bear markets. But something has changed. Now, investors have ways of gaining exposure to bitcoin without actually buying it. Plenty of people will continue to accumulate bitcoin, but the 13-year speculative phase of crypto will end, and a new phase will begin. What will that phase look like? That’s a subject for 2023 predictions. Suffice it to say that builders will keep building, developers will keep innovating and some platforms will adapt, persist and bloom. The technology will evolve while the price bleeds for months, as it did in each of the three previous bear markets. Frankly, that may be the best thing for bitcoin. It can finally prove it has value beyond just going up in price. Mark Helfman, crypto analyst at Hacker Noon, edits and publishes the Crypto Is Easy newsletter at cryptoiseasy. substack.com. He is the author of Bitcoin or Bust: Wall Street’s Entry Into Cryptocurrency. @mkhelfman

Want Cheaper Crypto Trades? 1% Commission. $10 Cap.* VISIT TASTYWORKS.COMMCRYPTO *Cryptocurrency commissions are capped at $10 per order ticket. TASTYWORKS, INC. IS A MEMBER OF NFA AND IS SUBJECT TO NFA'S REGULATORY OVERSIGHT AND EXAMINATIONS. HOWEVER, YOU SHOULD BE AWARE THAT NFA DOES NOT HAVE REGULATORY OVERSIGHT AUTHORITY OVER UNDERLYING OR SPOT VIRTUAL CURRENCY PRODUCTS OR TRANSACTIONS OR VIRTUAL CURRENCY EXCHANGES, CUSTODIANS OR MARKETS. Promotional cryptocurrency will be provided by Zero Hash Liquidity Services LLC, MSB # 31000181510564, and/or Zero Hash LLC, NMLS # 169937, and deposited into a cryptocurrency wallet provided by Zero Hash LLC. Cryptocurrency trading and this promotional offer are not yet available for customers who reside in New York and Hawaii.

November 2021 | Luckbox

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the art & science of

FORECASTING

PREDICTIONS FOR 2022 AND BEYOND

by Garrett Baldwin and Jeff Joseph

Sheryl Sandberg

BUSINESS & MEDIA

s Mark Zuckerberg shifts his attention to the dystopian hellscape known as the metaverse, Meta announces a surprising departure. Sheryl Sandberg , COO of Meta Platforms, sets her sights on Dianne Feinstein’s California Senate seat. Twitter is acquired after a dismal showing during the first three quarters of 2022 without Jack Dorsey at the helm. The company goes private or merges with a data company that already has too much information on American citizens. ESPN spins off from Disney, and the new company’s stock doubles in price in the first two days of the initial public offering. Investors love its new coverage of sports gambling, especially the ESPN-branded sportsbooks. Following Discovery’s takeover of CNN (WarnerMedia) and Chris Cuomo’s firing, Brian Stelter and Don Lemon are ousted in a dramatic overhaul. The network decides to test an avatar host.

PHOTOGRAPHS: (SHERYL SANDBERG) REUTERS; (CNN AVATAR) SHUTTERSTOCK; OPPOSITE PAGE: (LARRY HOGAN) REUTERS; (BINOCULARS, MARSHALL ISLANDS, ENGLISH FOOTBALL FANS, CANADIAN HOCKEY FANS, ROBOT) SHUTTERSTOCK

After a respectable showing with last year's predictions, Luckbox returns to forecast 20 outlier events for the next two years

Luckbox | January / February 2022

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MARKETS & THE ECONOMY

The U.S. economy lands in a rut in the second quarter of 2022 and falls into recession in Q4. Some question whether Jerome Powell will complete his term. Bitcoin surpasses $100,000 in 2022, thanks to another wave of institutional and retail capital. While bitcoin hits six figures, Peter Schiff is still tweeting about the great opportunity in gold. The percentage of able-bodied Americans working full time falls below 61% for four straight months, raising concerns about robots taking jobs and workers leaving the labor force permanently. The Sigma variant of COVID-19 makes the male penis shrink, quickly driving American male vaccination levels above 97%. Oil prices reach $120 at the end of 2022 because of flagging capital investment in forward production and constraints related to company scores in environmental, social and corporate governance (ESG) tests. The New York Stock Exchange delists Alibaba amid concerns about compliance and the rift between the United States and China. After doubling in 2021, cobalt prices rise more than 50% to historic highs in 2022 because of insatiable demand for electric vehicle batteries. DraftKing’s and Penn National Gaming’s stock price doubles as more Americans embrace online wagering.

POLITICS

While territorial disputes in Ukraine and Taiwan continue to make headlines, a new hot spot emerges as China cozies up to the Marshall Islands. It's happening as America’s Compact of Free Association with several Micronesian nations expires in 2023, and China seeks Maryland Gov. to expand its influence in the Pacific. Larry Hogan Poland and Italy both announce separate plans to depart the European Union. Sen. Raphael Warnock (D-GA) and Sen. Maggie Hassen (D-NH) lose their bids for reelection, as does Sen. Ron Johnson (R-WI), sending mixed messages across party lines. But the shocker comes in Maryland as Republican Gov. Larry Hogan enters the race late and knocks off Democratic Sen. Chris Van Hollen. After an unsuccessful bid for the Democratic nomination for governor of New York in 2022, former Secretary of State Hillary Clinton announces her candidacy for the 2024 Democratic presidential nomination. Political prediction markets rank Clinton, Sen. Amy Klobuchar (D-MN), Illinois Gov. J.B. Pritzker and Rep. Alexandria Ocasio-Cortez (D-NY) as early frontrunners for the Democratic presidential nomination. Florida Sen. Marco Rubio, wins his bid for reelection by a healthy margin as more Hispanic Americans turn toward the GOP. Along with Rubio, political prediction markets rank Florida’s Gov. Ron DeSantis, Former Secretary of State Mike Pompeo, former U.N. Ambassador Nikki Haley and former President Donald Trump as early GOP presidential nominee favorites.

SPORTS

A Canadian hockey team wins

the Stanley Cup for the first time since 1993. It comes home. England wins the World Cup at +700 odds. The Purdue Boilermakers win the NCAA National Basketball Championship.

January / February 2022 | Luckbox

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trends

life, luxury & the pursuit of happiness

RECORD HIGH

Rockhound Picks the Grammys By Kendall Polidori

PHOTOGRAPH: (FLEET FOXES) RICHARD GRAY/EMPICS ENTERTAINMENT

he creation and consumption of music have changed profoundly. So many artists are competing for attention that the average listener may know the names of only a fraction of them and would have trouble naming more than a few of their songs. So, do award nominations mean much in this new age of music? Maybe not as much as they did before Spotify, YouTube and TikTok came on the scene. But musicians still deserve recognition, and nominations for Grammy Awards still make sense in pop culture. The 64th Grammy Award ceremony is scheduled for Jan. 31, and here are my predictions for some of the top categories, based on music charts and the artists’ presence in pop culture.

BEST CONTEMPORARY BLUES ALBUM NOMINEES: Delta Kream (The Black Keys) Royal Tea (Joe Bonamassa) Fire It Up (Steve Cropper) 662 (Christone “Kingfish” Ingram) Who will win: Delta Kream (The Black Keys) Who should win: Delta Kream (The Black Keys) Delta Kream, one of the picks for Rockhound’s Top 5 Rock Albums of 2021, is meant to win a Grammy. The 10th Black Keys album, an ode to classic blues, reflects the band at its core. The album reached No. 1 on multiple music charts, including Billboard’s rock and blues charts.

Robin Pecknold of Fleet Foxes

BEST ALTERNATIVE MUSIC ALBUM NOMINEES: Shore (Fleet Foxes) If I Can’t Have Love, I Want Power (Halsey) Jubilee (Japanese Breakfast) Collapsed In Sunbeams (Arlo Parks) Daddy’s Home (St. Vincent) Who will win: Daddy’s Home (St. Vincent) Who should win: Shore (Fleet Foxes) This is by far one of the strongest categories, and whoever wins is well-deserving. Annie Clark of St. Vincent is a veteran in the alternative/rock world and proved her range with her ‘70s-esque Daddy’s Home. Fleet Foxes shouldn’t be ignored but often slides under the radar of listeners who aren’t in tune with alternative folk-rock. Not one song on Shore deserves to be skipped. Listen to it from start to finish. It’s cohesive and adds to their long discography of accomplished recordings.

The Beatles, Stones and Zeppelin were awesome— but rock lives on. Why not break out of the classic rock cocoon and give new rock a chance? Rockhound is here to help. Think of it as a bridge from 1967 to today and beyond.

January / February 2022 | Luckbox

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BY 1893 INSPIRED

F E W H A S T H E S P I C E . H A N D - M A D E I N S M A L L B ATC H E S, U S I N G A M A S H-B I L L INSPIRED BY WHISKEY ’S PRE-PROHIBITION GOLDEN ERA. F E W COMBINES A HIGH RYE CONTENT & PEPPERY YE A ST TO MAKE A UNIQUELY SPIC Y BOURBON.

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2/19/19 AM 12/17/216:16 2:29 PM

6:16 AM

BEST ROCK SONG NOMINEES: All My Favorite Songs (Weezer) The Bandit (Kings Of Leon) Distance (Mammoth WVH) Find My Way (Paul McCartney) Waiting On A War (Foo Fighters) Wolfgang Van Halen

Who will win: Waiting On A War (Foo Fighters) Who should win: Distance (Mammoth WVH)

Although Paul McCartney may seem like the best choice for a rock Grammy Award, his latest album McCartney III Imagined did not meet expectations. Foo Fighters stuck with their signature sound on their new album, a sound that attracts flocks of rock fans. But Mammoth WVH’s song Distance is the heartfelt response to the loss of one of rock ‘n’ roll’s greatest, Eddie Van Halen. The song, written and performed by Van Halen’s son, Wolfgang, is a beautiful tribute to the legendary songwriter and guitarist. It is the perfect reflection of what the rock world lost in 2020.

Taylor Swift

BEST ALBUM OF THE YEAR Who will win: Planet Her (Doja Cat) Who should win: Evermore (Taylor Swift)

SONG OF THE YEAR Who will win: drivers license (Olivia Rodrigo) Who should win: Leave The Door Open (Silk Sonic)

BEST NEW ARTIST Who will win: Olivia Rodrigo Who should win: Japanese Breakfast

Eric Burton of the Black Pumas

PHOTOGRAPHS: (WOLFGANG VAN HALEN) BANG SHOWBIZ; (BLACK PUMAS) FUTURE IMAGE; (TAYLOR SWIFT) IMAGINECHINA

BEST ROCK ALBUM NOMINEES: Power Up (AC/DC) Capitol Cuts - Live From Studio A (Black Pumas) No One Sings Like You Anymore Vol. 1 (Chris Cornell) Medicine at Midnight (Foo Fighters)

LUCKBOX ASKED READERS WHAT WILL WIN THE BEST ROCK ALBUM AWARD AT THE 2022 GRAMMY AWARDS. HERE’S WHAT THEY SAID: Medicine at Midnight by Foo Fighters: 35.6% McCartney III by Paul McCartney: 26.4% Capitol Cuts - Live From Studio A by Black Pumas: 16.1% Power Up by AC/DC: 12.1% No One Sings Like You Anymore, Vol. 1 by Chris Cornell: 9.8%

Who will win: Medicine at Midnight (Foo Fighters) Who should win: Capitol Cuts - Live From Studio A (Black Pumas) There’s no doubting Foo Fighters’ talent or their place in rock music. The band has earned 29 Grammy nominations and won 12 of them. But with newer bands breaking into rock, it’s time for a new Grammy Award winner. In 2019, the Black Pumas delivered a soulful, instrument-driven self-titled debut album. Their new live-in-the-studio album captures the power of the band and the nuances of frontman Eric Burton’s vocals. It’s crisp and full of life.

More Grammy Nominations

Kendall Polidori is The Rockhound, Luckbox’s resident rock critic. Follow her reviews on Instagram @rockhound_luckbox and Twitter @rockhoundlb.

January / February 2022 | Luckbox

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trends

RECORD HIGH

Rockin’ the Occult A look at rock ‘n’ rollers’ infatuation with the supernatural By Kendall Polidori

ock ‘n’ roll often embodies the paranormal. In the late 1960s, bands like Coven and Black Widow helped create a subgenre called occult rock that incorporated elements of hard rock, proto-metal, psychedelic rock, progressive rock and blues. The most notable example was Iron Butterfly’s 1968 track In-A-Gadda-Da-Vida. The new wave of music had lyrics referencing the occult, horror movies and occult-related novels. But the otherworldly themes didn’t necessarily include worshiping the devil. Just the same, some alleged that satanic rituals led to the recent Astroworld incident, where eight concertgoers died and 300 were badly injured during a performance by Travis Scott. A TikTok video even labeled the festival a “ritual to sacrifice souls.” Earlier this year, rapper Lil Nas X ignited an uproar when he released a video for his song MONTERO (Call Me By Your Name) that showed him performing a lap dance for a satanic figure. So, is there a deeper connection between music and the occult? It might be a matter of personal belief.

1956

Screamin’ Jay Hawkins recorded the single I Put a Spell on You, launching what seems like a thousand covers. The song and Hawkins’ onstage histrionics bring to mind Hoodoo, a set of spiritual beliefs and practices that arose among enslaved Americans.

1967

The Beatles released the album Sgt. Pepper’s Lonely Hearts Club Band with a cover that depicts a crowd of celebrities, including Aleister Crowley, an early 20th-century English occultist who founded a religion called Thelema.

1967

The Rolling Stones album Their Satanic Majesties Request may have marked the first time the demon’s name appeared on the cover of a major pop record. The Stones’ musical career has connected with satanic imagery a number of times, including on the song Sympathy for the Devil on the 1969 album Let it Bleed. The group’s reputation for the occult worsened that same year with the accidental death of member Brian Jones.

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1969

The band Coven released Witchcraft Destroys Minds & Reaps Souls, an album rife with occult and satanic themes. The jacket blatantly displayed satanic horns and inverted crosses. It broke ground for the occult in rock but was soon removed from stores during the hysteria surrounding the Manson Family murders.

PHOTOGRAPHY: (LIL NAS X) IMAGE PRESS AGENCY/NURPHOTO; (GHOST) BANG SHOWBIZ

1970

Led Zeppelin’s Jimmy Page bought Boleskine House, a home in Scotland that occultist Aleister Crowley once owned. The house graced the cover of Led Zeppelin III, accompanied by a Crowley quotation that matches the rock ethos: “Do what thou wilt / Shall be the whole of law.” The band was plagued by rumors of the occult, some based on the death of singer Robert Plant’s son in 1977 and the death of drummer John Bonham in 1980. And the band has had to endure rumors of their song Stairway to Heaven delivering a subliminal message when played backward: “There is no escaping / Whose path will make me sad, whose power is Satan / He will give you 666 / Here’s to my sweet Satan.”

Songs that Seemed to Foretell the Future

1970

Rage Against the Machine appeared to predict the Donald Trump presidency 18 years before he took office. In 1999, the video that accompanied the band’s track Sleep Now In The Fire showed activists brandishing Trump signs on Wall Street.

Conspiracy theories arose surrounding the death of Jimi Hendrix, one of a number of notable people who died at the age of 27. The so-called “27 Club” also includes musicians Robert Johnson, Brian Jones, Jim Morrison, Janis Joplin and Kurt Cobain.

1972

Blue Öyster Cult, the band whose logo became a symbol of the supernatural, released its self-titled debut album. The band went on to inspire a host of occult rock bands, including Ghost.

1977

Members of KISS lent their band’s name and their likenesses to a Marvel comic series, which was said to be printed with their blood. The band has denied rumors that its name is an acronym for Knights in Satan’s Service.

Rage Against the Machine spliced footage from Donald Trump’s abortive first campaign for president into a 1999 music video, presaging what was to come.

Jimi Hendrix seemed to predict climate change in 1967 with his song Up From The Skies, which included the lyrics, “The smell of a world that has burned / Well, maybe, maybe it’s just a change of climate.” Radiohead probably predicted society’s reliance on technology with their 1997 album OK Computer. Wilco seemingly predicted 9-11 on the 2001 album Yankee Hotel Foxtrot, which was supposed to be released on Sept. 11, 2001, but was pushed back a week at the last minute. The album includes tracks like Poor Places, with noisy waves of feedback and radio-like static overpowering the instruments, perhaps foreshadowing 9-11. The song Jesus, etc. had these lyrics: “Tall buildings shake / Voices escape, singing sad, sad songs.” The track Ashes of American Flags seemed to foretell the tragedy, and War on War addressed the post-9-11 world, including the U.S.-led invasion of Iraq in 2003.

1978

Black Sabbath released the album Never Say Die, one of its many collections of music devoted to demonism and the supernatural. Guitarist Tony Iommi recalls that members of the band once returned to their hotel after a show and found the corridor outside their rooms full of followers wearing black coats. The band’s devotees were sitting on the floor holding candles and chanting.

2006

The occult rock act Ghost was formed in Linköping, Sweden, in the belief that music can bring salvation and that live shows can serve as religious services. Frontman Tobias Forge plays the role of a satanic priest, while backing

band members are referred to as “nameless ghouls.” Notably, Foo Fighters frontman Dave Grohl once took on the role of a ghoul in a Ghost performance. On stage, members wear skull makeup and three-pointed papal mitres while playing odes to Lucifer and songs about zombie queens, psychic powers and Hungarian countesses bathing in the blood of virgins.

January / February 2022 | Luckbox

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trends

SOMETHING VENTURED

Private Security A veteran of the $48.1 billion industry tells what it’s like protecting the rich and famous By Ed McKinley

ere’s how a rookie mistake provided the founding principles for a thriving business. Todd Sheets was working as a cop in a medium-sized city in 2008 when his part-time gig in private security took him to a beautiful hotel in Brazil. He was assigned to guard an A-list tech CEO, and he and his client were assigned adjoining rooms. Everything seemed quiet early one morning, so Sheets decided to squeeze in a workout on a treadmill in the hotel basement. He was SAFETY FIRST jogging on the machine Want to secure a house from when his squawk box intruders? Security expert blurted his name and Todd Sheets recommends having summoned him to the a dog, a chain-link fence and command center. motion-sensing lights. It seemed that Sheets had left his BlackBerry in his room, and the device had automatically turned itself on and sounded a wake-up alarm. It rousted his justifiably displeased client out of bed. Prepared for the worst, Sheets presented himself to the client, explained what happened and asked for forgiveness. “Don’t even worry about it,” the client said. “Have a nice morning.” By responding so reasonably, the client— Facebook CEO Mark Zuckerberg—taught Sheets the importance of direct communication and owning mistakes. What’s more, he was reminded that people make mistakes but learn and move on. Those insights became mantras for Big Bison, the Atlanta-based security business Sheets launched in 2014. Beyond law enforcement After 20 years as a cop, Sheets had sometimes found the job dull. “You can only write so many traffic tickets and catch so many jaywalkers before that becomes a bit stagnant,” he said. So, he welcomed an opportunity that arose to manage arena security part-time for big-name entertainers, professional athletes and other wealthy VIPs. He liked dealing with the varied personalities and found it challenging to figure out how to work with those clients without annoying them or disrupting their routines. The early gigs tended to last from one to three days at the arena and beyond. But ensuring the security of celebrities can

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feel unnecessarily risky because the clients often welcome or at least tolerate the free publicity that comes with crowds of fans or droves of paparazzi. Now, Big Bison caters to clients who are well-heeled but not necessarily well-known. About 10% are top executives from public companies, 15% to 20% have accumulated wealth but want to live normal lives, and the rest are mostly tech gurus. “I’m really drawn to people in the tech sector, especially those with startups or blossoming unicorns,” Sheets said. “There’s a real drive to innovate and to move fast and break things.” Whatever their background, clients with high net worth face the risk of theft, kidnapping or extortion. Part of Sheets’ job is to evaluate their exposure to such dangers and share his assessment with the people who hire his firm. Some clients underestimate their vulnerability, while others worry too much.

Today’s bodyguards increasingly rely on brains instead of brawn to facilitate travel, move clients in and out of buildings, or place them in the right seat for an emergency evacuation. “Some see a boogeyman around every corner, and some perceive that because no one knows who they are, there’s no risk to their livelihood,” Sheets noted. “It’s a challenge because I don’t like to sell fear.” Clients seek trust Whatever they’re thinking about risk, they tend to seek the same thing: a security provider they can trust to do the job and keep it confidential. They connect with the low-profile Big Bison after hearing about it from peers. Trust also motivates Sheets. He hires only people he knows or who come to him with recommendations from people he knows.

His hires don’t necessarily flex bulging muscles or tower over normal people. They use brains instead of brawn to facilitate international transportation, ensure quick ingress and egress from a building, arrange for dinner reservations at the right time or make sure to place clients in the right seat for an emergency evacuation. That emphasis on planning and logistics causes Sheets to shy away from terms like “security” and “bodyguards.” For him, it’s all about making every aspect of a client’s daily life work smoothly—and that includes keeping the alarm clock from going off too early.

HOOKED ON THE MARKETS?

Visit DailyFX.com for continuous updates on global markets in currencies, commodities, and stock indices.

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trends

SENTIMENT

More Debate See who won the debate

IS CANCEL CULTURE TOXIC? I N T E L L I G E N C E S Q U A R E D U.S. invites some of the world’s brightest thinkers to debate issues of the day. The organization was founded in New York in 2006 to promote intellectual diversity by fostering respect for differing opinions. The debates are organized in the traditional Oxford style. The side that convinces more audience members to embrace its arguments wins. The excerpts below come from a debate in November about the cancel culture’s benefits—or lack thereof.

FOR KASPAROV: Schools and universities are where we most need to challenge and be challenged, but how can we learn what’s right if we’re afraid to ever be wrong? Well, increasingly you hear, “Oh, we’ll tell you what’s right and good,” but it reminds me too much of the ideological education I grew up with in the Soviet Union. If you disagreed, you were wrong. If you were wrong too loudly, you were silenced. The good news is that the United States is not Russia or the Soviet Union. No one is going to be sent to the gulag for failing to draw the line. But just because there’s no party with a capital “P” does not mean there’s no party line. FOSTER: Love, hate, freedom and various other things are all somewhat difficult to define but nevertheless exist and have real and profound consequences. The fact that polling has consistently demonstrated that people believe cancel culture is there—whether one believes that is a result of the media sensationalizing it or because of realities that they experience in their everyday lives— actually illustrates our point. The reality is that the fact that people believe this suggests they will in fact curtail their behavior, which is another thing that they acknowledge doing. There’s a universe of people who stay silent because they fear cancelation, and that is the dynamic we are concerned about. Garry Kasparov: Russian chess grandmaster Kmele Foster: Political commentator and co-founder of Freethink

68% 15% 17% FOR

AGAINST

UNDECIDED

–AUDIENCE OPINION BEFORE THE DEBATE

“CANCEL”

THE

IN CANCEL CULTURE REPUTEDLY

ORIGINATED FROM CHIC’S 1981 SONG YOUR LOVE IS CANCELLED

71% 69%

OF REGISTERED VOTERS SAID THEY STRONGLY OR SOMEWHAT BELIEVE CANCEL CULTURE HAS GONE TOO FAR –HILL HARRISX POLL OF REGISTERED VOTERS SAID CANCEL CULTURE UNFAIRLY PUNISHES PEOPLE FOR THEIR PAST ACTIONS OR STATEMENTS –HILL-HARRISX POLL

AGAINST MATTHES: You might say that cancel culture isn’t just about public shaming. It’s also about the loss of jobs or opportunities—the function of that public shaming. But it seems like cases where people do lose their jobs as a function of being canceled are vanishingly small, and indeed it seems like often it’s more likely that people acquire new opportunities as a function of being canceled: speaking opportunities, book deals, etc. So, it’s really hard to see how the claim that being canceled is harmful is supposed to be established. ATTIAH: I do not see it as a coincidence that cancel culture is now being turned against marginalized communities as a way to stifle what is actually happening, which is actually the opening of space. We have more voices than ever before—Latinx voices, nonbinary voices, transgender voices—who are now speaking out against those systems and those who perpetuate the systems that have long participated in what I would say is erasure culture. That has led to generational wealth being disappeared. It has led to literal incarceration, and it has led to basically just a deep systemic continued erasure. And I would say this is the same for women and #MeToo, so it’s not an accident to me that this supposed boogeyman of cancel culture is really status anxiety and discomfort in the fact that there are more voices.

Erich Hatala Matthes: Author of the book Drawing the Line: What to Do with the Work of Immoral Artists from Museums to the Movies Karen Attiah: Washington Post columnist

Luckbox | January / February 2022

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trends

FINANCIAL FITNESS

Your 2022 Physique Here’s what will determine how your physical presence will change as another year unfolds By Jim Schultz

he two paths to fitness in 2022 couldn’t differ more. There’s the familiar sun-drenched path that’s littered with the footprints of heavy traffic, while the dimly lit unfamiliar path is overgrown with weeds from lack of use. You and you alone will choose your path. Think of it as the amalgamation of the dozens, hundreds or even thousands of micro-decisions you make every hour, day, week, month and year. One trajectory propels you closer to your goals, and the other distances you from what you desire. It’s that simple. Obstacles will arise on both paths. You’ll sail through some days and struggle through others. Some people on the path may seem to have an innate advantage, while the rest of us labor for every hint of progress. But there’s plenty to consider when it comes to planning for fitness in 2022. How do you want your physique to look? How will you train? An upper/lower alternating program that works the upper body one day and lower body the next? Or a bro split that trains each muscle once a week? What’s the nutritional strategy? Something quantitative like macros based on protein and carbs, or something qualitative like clean eating based on unprocessed foods? You call the shots. A lot of micro-decisions will occur along the way, but let’s look at the big picture. Two characteristics far outweigh your training strategy and nutritional choices: consistency and stamina.

2201_TRENDS_financial fitness.indd 41

Think of the path to fitness as the amalgamation of dozens, hundreds or even thousands of micro-decisions.

Consistency and stamina will make all the difference. Train heavy or train light, you either keep showing up or you don’t. Whether you count calories or cut carbs, you either keep working or you stop. Until you go all-in on consistency and stamina, nothing else really matters. “OK, Jim, fine,” you may be thinking, “I’m interested, but this is all fluff and flowery stuff. Give me something practical that I can use today.” Here you go: Train when you feel like it and train when you don’t. Eat broccoli when you’re digging it and eat it when you’re not. Do that over and over, again and again, for as long as it takes. This is the open secret. When you consistently show up and refuse to give up, it’s difficult not to change your physique radically. So, as 2022 begins, you can fool yourself into thinking that the wellworn familiar path represents the only way forward. But that’s as false as the belief that consistency and stamina are special skills reserved for the elite. The choices are yours. Jim Schultz, Ph.D., a derivatives trader, fitness expert, owner of livefcubed.com and the daily host of From Theory to Practice on the tastytrade network, was named North American Natural Bodybuilding Federation’s 2017 Novice Bodybuilding Champion. @jschultzf3

12/17/21 2:05 PM

trends

Men’s Wool Piper Mids $120 allbirds.com

TRENDLINES

High-flying Allbirds Celebs, consumers and investors are flocking to Allbirds, a footwear unicorn made from sheep By Mike Reddy

efore Allbirds appeared on the Nasdaq, its shoes appeared on the feet of Paul McCartney, Matthew McConaughey, Jennifer Lawrence and former President Barack Obama, to name just a handful of its celebrity clientele. But as the company’s footwear grows more common, its business model remains anything but. The customers who sport any of the more than eight million pairs of Allbirds shoes sold since their 2016 debut probably didn’t discover them through advertising, and they definitely didn’t stumble upon them in

chain shoe stores. That’s because at least 60% of the company’s business is driven by word-of-mouth marketing, according to Footwear News. And if that weren’t contrarian enough, Allbirds was launched with a direct-to-consumer sales model powered by e-commerce—something virtually unheard of for brands whose products depend on perfect fits. Since then, the company has built a brick-and-mortar presence, opening its first stores in 2017. From its headquarters in San Francisco to locations in Tokyo, Allbirds now has

Leonardo DiCaprio

Barack Obama

35 stores scattered across the world. That said, with roughly 89% of its revenue coming from internet sales last year, Allbirds’ primary customer base irrefutably remains where it started: online. For what’s now a multi-billion-dollar footwear industry disruptor that defies all expectations, it’s only fitting that the Allbirds origin story is comparably unconventional. If it weren’t for 970 backers on the crowdfunding website Kickstarter, the shoe brand might never have taken off. New Zealander Tim Brown, a former professional soccer player and the co-founder of Allbirds, launched the pivotal Kickstarter campaign in early 2014 with the goal of creating natural, anti-bacterial and anti-odor wool shoes. The idea was to make them with merino wool, an especially fine and soft type of wool said to be stronger— yet feel lighter—than cotton. The campaign was aptly named “The Wool Runners: No Socks. No Smell.” With a $30,000 funding goal, the project raised over $100,000 after just five days.

Jennifer Lawrence

Matthew McConaughey

Luckbox | January / February 2022

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Following the campaign’s success, Brown teamed up with Joey Zwillinger, a San Francisco-based biotech engineer and renewable materials expert, and together the duo officially founded Allbirds in 2015. The company name, Brown told CNBC, pays homage to New Zealand and its early settlers. Legend has it that upon recognizing a distinct lack of mammals on the Kiwi landmasses, explorers called it a land of all birds. It didn’t take long for investors to take notice of the innovative shoe-selling startup. The company attracted the attention of Seattle-based venture capital firm Maveron, which led its $7.25 million Series A funding round in 2016—the same year Time magazine called Allbirds “the world’s most comfortable shoes.” Things snowballed from there.

Last year, roughly 89% of Allbirds’ revenue came from internet sales.

ALLBIRDS’ WINGSPAN ⊲ January 2014 Kickstarter campaign ⊲ July 2015 Allbirds founded ⊲ September 2016 $7.3 million Series A funding round ⊲ April 2017 First store ⊲ October 2018 Unicorn status ⊲ November 2021 Nasdaq debut

In five different funding rounds from 2016 to 2020, the company raised more than $200 million. During that venture capital bonanza, Allbirds joined the unicorn club in 2018, a distinction reserved for private companies that reach valuations of $1 billion. In that same year, Leonardo DiCaprio drew more eyes—and ink— to Allbirds’ shoes when he announced he was investing in the company. “Allbirds is on the forefront of developing new materials that will serve as a model for the footwear industry,” DiCaprio said in a statement. “This kind of innovation is

crucial for creating a more sustainable future. I am proud to join the company as an investor.” Last November, Allbirds procured the suitable ticker symbol BIRD and IPOed on the Nasdaq, opening up the investment opportunity to the public. After an initial surge in the market, the company reached a valuation of more than $4 billion. Only time will tell what’s ahead for Allbirds now that it’s a publicly traded company. It may continue its ascent to the heavens, or it could fly too close to the sun. But with more than eight million pairs sold, Allbirds isn’t going anywhere anytime soon.

Listen Here Truth or Skepticism

Tom Sosnoff, entrepreneur, options trader and co-CEO of tastytrade, joins Dylan Ratigan, businessman, author and former host of MSNBC’s The Dylan Ratigan Show, for a weekly podcast covering everything from sports and investing to politics and monetary policy. One’s an iconoclast, and the other’s a contrarian. Tune in each week find out who is who. It’s unscripted and unpretentious—some like to think of it as rants, but refined.

The Prediction Trade

If you can trade it, or bet on it, you can bet they will talk about it on The Prediction Trade—the only podcast for gamblers, traders, investors, math freaks, data geeks and superforecasters devoted to the intersection of probability, prediction and profit. Each episode features expert guests with proprietary forecasting models and insights into the outcomes of prediction market events. So whether you live to bet or bet to live, check out the next episode of The Prediction Trade.

Truth or Skepticism and The Prediction Trade are available on your favorite podcast platform.

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trends

3 4 2 1

7 6 5

MEET

JOSEPH BARBUTO 44

Home/Office location

Long Island, NY Age

Years trading

How did you start trading?

Around 1987, I was working for a small electronics company that Bear Sterns took public. This gave me some insight into the reality of small public companies. I started playing with penny stocks. What I learned about penny stocks was that I didn’t want to trade penny stocks.

I’ve also used traditional advisors. I had a “friend” sell me Class A shares in a mutual fund instead of the Class B shares that I requested. On Class A shares he gets his commission upfront. When I confronted him about this, he said that “it’s because this is a great fund, so they don’t offer B shares.” I reminded him that there are thousands of mutual funds. I concluded it’s human nature for my friend, the broker, to put his needs before mine. My financial advisor friend once told me that “I don’t have time to follow the market like you do because I have to spend my time looking for clients.” Eventually, I learned how to trade naked puts and

1. Brokerage accounts on two screens 2. Vectorvest for writing scripts and find trading ideas 3. Daily market trends 4. ETFDB for trade ideas & Finviz heatmap 5. tastytrade 6. Echo Show for calendar updates 7. iPad for Zooming with trader friends

Luckbox | January / February 2022

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covered calls with the Long Island Stock Traders Meetup Group. Over the years I’ve read dozens of books on trading, taken classes, tried different products, like forex, and talked to people at traders expos. Although I’m not a purist, trading options the tastytrade way is by far the most engaging for me. Favorite trading strategy for what you trade most?

My go-to strategy is selling strangles at the expected move using the feature built into tastyworks against high-volume index exchange-traded funds (ETFs). Learning how to trade futures from tastytrade’s Tom Sosnoff at a New York futures symposium opened a whole new world of trading tax advantages for me.

2201_TRENDS_trader.indd 45

Average number of trades per day?

Five to 10

What percentage of your outcomes do you attribute to luck?

Around 35%? Making money in the stock market is easy. Keeping it is the hard part. Where I take a bullet is when the market shifts from some news headline that has little correlation to the real world and creates a pullback. It’s part of the reason I like trading more ETFs more than individual underlyings. Personally, I think that we find a headline to correlate with whatever the market does on any given day. As my tennis friend with a Ph.D. in economics likes to remind me, the stock market is not the economy. I like to say that you’re only as good as your last trade and your second serve.

Favorite trading moment?

When I realized that it was more important to learn how to manage losers and stay mechanical with a written trading plan than it was to hold onto a bad trade because I wanted to be right. Worst trading moment?

The May 6, 2010, flash crash. I had just put on a bunch of new positions with no trading plan and no exit strategy. I also had a few 0 DTE SPX Iron Condor trades I’d rather not talk about. (An iron condor is two credit spreads. One on the put side and one on the call side.) The problem with 0 DTE trades is there’s nowhere to run if it goes against you.

FAVORITE TRADING BOOK Trading in the Zone: Master the Market with Confidence, Discipline and a Winning Attitude By Mark Douglas $20.90 hardcover, 240 pages

Want to be featured as the next issue’s trader? Have story ideas? Let us know: yd@luckboxmagazine.com

12/17/21 2:42 PM

trends

BOOK VALUE

The Luckbox Bookshelf New and not-so-new books that captured our attention this month

The Man of Numbers: Fibonacci’s Arithmetic Revolution By Keith Devlin

In this scholarly 2011 biography of Leonardo of Pisa—the 13thcentury math whiz better known as Fibonacci—author Keith Devlin documents a life of nearly unparalleled achievement. At the same time, Devlin shoulders the task of dispelling some of the many flawed theories Fibonacci’s work inspired. While it’s true that Fibonacci reshaped the Western world by introducing it to mathematics from the East, his work also inspired an incredible array of false theories in disciplines ranging from architecture to music. (See p. 22.) But don’t let the tall tales woven by others overshadow Fibonacci’s astounding contributions. After all, he’s credited with popularizing the Hindu Arabic numerals 0-9 in Europe. Before that, the West was still relying on unwieldy Roman numerals. He also introduced Westerners to an Eastern series of numbers that came to be known as the Fibonacci sequence. It’s a progression of numbers that recur in mathematics and nature, but not necessarily in investing.

Principles for Dealing with The Changing World Order: Why Nations Succeed and Fail By Ray Dalio

In another installment of his Principles series, veteran investor Ray Dalio demonstrates in his new book that a long string of tumultuous moments in economics and politics indicate the future won’t resemble the past. In recent years, Dalio has witnessed dynamics unlike anything he has seen before in his years of following markets. Globally, they include staggering amounts of debt and near-zero interest rates in the world’s three major reserve currencies. Inside individual countries, he sees political polarization, inequality of wealth and cultural conflict. Add to that the escalating tension between China and the United States. His research shows the convergence of such conditions tends to precede shifts in power and redistribution of wealth. But there’s hope even in the face of monumental change, he suggests. Policymakers, business leaders and investors must look to the last 500 years of history to learn the lessons taught by nine empires that have risen only to fall. Connect The Dots: The Art and Science of Creating Good Luck By Christian Busch

Far too often, book reviews drive away readers. But reviews present just one stranger’s view, and taking them to heart leaves great books undiscovered. The Luckbox Bookshelf offers profiles instead of reviews. Don’t look to these pages for opinions. Think of Bookshelf as a place to discover books that educate, entertain and challenge entrenched beliefs.

The Serendipity Mindset, subject of a feature in the May 2021 Luckbox, is coming out in paperback with an additional chapter. Latch onto it to learn how author Christian Busch teaches the art of turning uncertainty into opportunity. Through his work at New York University and the London School of Economics, Busch has studied hundreds of people and has found an intriguing common denominator: The most joyful and successful people have developed the skill of “connecting the dots.” That means they recognize opportunities and turn them into positive outcomes. They do it by tapping into a seldom-mentioned force in the universe—serendipity. Many define serendipity as an accidental coincidence with a happy ending. But Busch insists that people can learn to think in ways that invite serendipity into their lives. He backs up that belief with anecdotes that show how certain habits set the stage for serendipity to occur. Once that’s established, he offers exercises to help train readers to attract serendipity. It’s his formula for happiness and success.

Luckbox | January / February 2022

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trends

CALENDAR

JANUARY

1 New Year’s Day

9 Golden Globes

11 Trading Options with Tom Sosnoff

17 Martin Luther King Jr. Day

17 Australian Open Melbourne Park

19 Elton John’s Farewell Yellow Brick Road Tour kicks off Smoothie King Center, New Orleans

20-30 Sundance Film Festival Park City, Utah 28 Data Privacy Day

31 Grammy Awards Ceremony

FEBRUARY

1 Chinese New Year

2 Groundhog Day

3 The Day the Music Died

4-20 2022 Winter Olympics Beijing 13 Super Bowl LVI SoFi Stadium, Inglewood, CA

14 Valentine’s Day

Learn the Trade Join veteran trader Tom Sosnoff, on tastytrade.com, at 3:40 p.m. Central Time Tom Sosnoff for a live 30-minute demo on trading options and using the tastyworks platform to apply earnings strategies. Tiger Kings Adherents of the Chinese zodiac expect the Year of the Tiger— Feb. 1, 2022 to Jan. 21, 2023—to bring positive change. They believe babies born during that period will become vigorous, ambitious and confident. Furry Prophet For more than 120 years, Americans have turned to Punxsutawney Phil, a groundhog, to let them know how much longer winter weather will last. If Phil sees his shadow on his designated day, observers expect six more weeks of winter. If he doesn’t see his shadow, they lightheartedly predict spring will arrive early. As many might expect, it turns out Phil isn’t all that reliable. According to a meteorologist, Phil only has a 47% accuracy rate. American Pie So bye-bye, Miss American Pie / Drove my Chevy to the levee, but the levee was dry / And them good old boys were drinkin’ whiskey and rye / Singin’ “This’ll be the day that I die / This’ll be the day that I die”

Don McLean’s song American Pie, Pt. 1 became a major hit in 1971, but younger listeners may not know that it commemorates the loss of innocence of the early rock ‘n’ roll generation. The eight-and-a-halfminute song serves as a cultural touchstone of the day in February 1959 when musicians Buddy Holly, Richie Valens and J.P. Richardson (the Big Bopper) died in a plane crash while flying to a venue in Moorhead, Minnesota. It happened during their “Winter Dance Party” tour across the Midwest when the artists were expected to put on 24 shows without a day off, travel up to 400 miles between stops and endure freezing winter weather. Some of the traveling musicians contracted the flu, and some were hospitalized for frostbite. To reduce travel time and get some rest, Holly, Valens and Richardson chartered a plane. But instead of getting a respite, they met their untimely demise. The tour ended early, but their influence on rock ‘n’ roll lives on.

January / February 2022 | Luckbox

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12/17/21 6:09 PM

trades& tactics

Cheat Sheet #19

Rem o and ve s this ave page !

It’s Your Move Trading platforms offer built-in tools that point toward expected stock prices By Mike Hart

he market is defined from moment to moment by every single decision made by each trader—combined with all of the decisions made by all of the other traders—and instantly processed and displayed. With each tick up, down or sideways, the winners and losers prepare for their next trade. For most traders, that preparation centers on forecasting future movement. While some traders rely on instinct to predict the movement of the market, others improve their odds of success by using tools built into their trading platform. Those tools can do the math and point to the expected movement of a market over a given period of time. Then the tools take another step and determine the probability of a future move and the probability of touch. The probability of touch is the likelihood that a stock will trade up or down to a strike price at some point between now and expiration. But it may not stay at that level. Using options, traders can estimate the movement of a market over a given time period. They can take that another step further and determine the probability of a future move, including when it may occur. They can also determine the probability of touch.

Mike Hart, a former floor trader at the Chicago Stock Exchange and proprietary futures trader, specializes in energy markets and interest rates. He’s a contributing member of the tastytrade research team. @mikehart79

Great expectations

Determine a short option’s probability of success by choosing a delta and subtracting from 100.

Delta

To calculate

Probability of success

(100 – 16) = 84

84%

(100 – 30) = 70

70%

(100 – 40) = 60

60%

Most trading platforms determine the expected move. The tastyworks platform displays this in two different ways. The first is by looking at the far right of the options trade page. There you will find a +/- expected move. Another way is looking for the orange-brown line on the trade page. Finally, you can use the equation below for the expected move. The expected move = Price of an at-the-money (ATM) straddle x 60% + Price of strangle one strike away from ATM x 30% + Price of strangle two strikes away from ATM x 10% Apple Inc. (AAPL) $174 Date

Days

Implied volatility

Expected move

Jan. 21, 2022

33.5%

±$11.76

Feb. 18, 2022

35.8%

±$16.94

March 18, 2022

100

35.1%

±$20.01

April 14, 2022

127

35.2%

±$22.72

May 20, 2022

163

35.2%

±$26.72

The probability of touch is the statistical likelihood that a strike price will be reached at some point prior to expiration. It is useful to consider because it gives context to expectations for a trade.

Delta

To calculate

Probability of touch

Multiply by 2

32%

January / February 2022 | Luckbox

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12/13/21 3:12 PM

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1/8/21 4:40 PM

trades&tactics actionable trading ideas

CHERRY PICKS

R I PE & J U I CY T RADE IDEAS

Seeking Diversity Rather than seeking to predict the next big thing, consider buying any of these 20 tickers to diversify a portfolio in the new year By Michael Rechenthin

hen all of the stocks and exchange-traded funds (ETFs) on a portfolio page are colored either green for profit or red for loss, those holdings aren’t diversified. But diversification is worth pursuing because it generally strengthens a portfolio by combining a variety of companies, components and strategies. It often reduces risk without reducing returns. While simply adding stocks generally helps diversify a portfolio, it doesn’t if they all come from the same sector—such as technology, for example. That’s where data science can come into play. Traders can easily scan the most liquid stocks and ETFs to diversify a portfolio that’s heavy in the S&P 500 Index. The table tracks 20 tickers and ETFs that have been trading without correlation to the overall market, as measured by their six-month historical relationship with the S&P 500. For many traders, the easiest way to diversify is by purchasing shares. But another method calls for buying 100 shares of the underlying and then selling a covered call against the shares held. That has the advantage of increasing “cash flow” because the money received for selling the call acts as an extra dividend to the portfolio.

On their own Buying these equities, which have not been moving in sync with the markets, could diversify a portfolio. Symbol

Name

Industry

IV Rank

Expected volatility

3-month price change

12-month price change

BDX

Becton, Dickinson and Co.

Surgical & medical instruments & apparatus

28%

Medium

-5%

BIO

Bio-Rad Laboratories Inc. Class A

Laboratory analytical instruments

35%

Medium

-9%

32%

CPB

Campbell Soup Co.

Food & kindred products

28%

Medium

-9%

CHD

Church & Dwight Co. Inc.

Soap detergents, cleaning preparations, perfumes, cosmetics

18%

Medium

15%

11%

CLX

Clorox Co.

Specialty cleaning, polishing & sanitation preparations

18%

Medium

-1%

-17%

CMS

CMS Energy Corp.

Electric & other services combined

16%

Medium

-2%

CAG

Conagra Brands Inc.

Food & kindred products

25%

Medium

-3%

-9%

Dollar General Corp.

Retail trade

30%

Medium

Consolidated Edison Inc

Electric & other services combined

36%

Low

11%

13%

Eversource Energy

Electric Services

57%

High

-1%

HOLX

Hologic Inc.

X-Ray apparatus & tubes & related irradiation apparatus

36%

High

-7%

SJM

JM Smucker Co.

Canned fruits, vegetables, preserves, jams & jellies

27%

High

10%

15%

Kellogg Co.

Grain mill products

23%

Medium

KMB

Kimberly-Clark Corp.

Converted paper & paperboard products (No containers/boxes)

24%

Medium

-1%

MRNA

Moderna Inc.

Biological products

30%

High

-43%

63%

NEM

Newmont Corp.

Gold & silver ores

18%

High

-2%

-5%

PKI

PerkinElmer Inc.

Laboratory analytical instruments

22%

High

28%

PFE

Pfizer Inc.

Pharmaceutical preparations

60%

High

16%

28%

GLD

SPDR Gold TR Gold SHS

ETF

16%

Low

-3%

The Kroger Co.

Retail grocery stores

40%

High

42%

Michael Rechenthin, Ph.D., aka “Dr. Data,” is the head of research and development at tastytrade. @mrechenthin

For more information on this quantitative way of trading, subscribe to cherry picks and market insights at info.tastytrade.com/cherry-picks

January / February 2022 | Luckbox

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12/17/21 11:40 AM

trades& tactics

THE TECHNICIAN

A V E T E RA N T RADER TAC K LES T EC HNICALS

Dark Days Ahead? Technical analysis of stock prices indicates the markets’ “everything bubble” may burst in 2022 By Tim Knight

nhelpful pundits often make technical analysis seem terribly complicated. But the basic tenets of good charting focus on supply, demand, support, resistance and trend lines. Using a limited palette of tools, a skilled chartist can glean great insight from long-term charts about possible directions and their likelihood. One interesting twist to the world of charting is using those tools and techniques on ratio charts instead of standard charts. Traders can distinguish between a standard chart and a ratio chart by the number symbols used to construct it. If a single symbol is used (such as AAPL for Apple or MSFT for Microsoft), then it’s a standard chart. If more than one symbol is used—sometimes dividing one by another—then it’s a ratio chart. In other words, it displays the ratio of the first symbol compared with the second. Any given financial instrument can be divided by another. The resulting chart might be interesting, but it might not be useful. For example, one could divide the price history of Apple on a daily basis for the past 40 years by the price data for wheat over the same timespan. But as unrelated as those two things are, the resulting chart would likely be pointless. There are, however, ample opportunities to create ratio charts from instruments that have powerful, long-term relationships. Let’s examine a variety of such charts and determine what they suggest for the year ahead.

A down period A long-term view shows prices stayed relatively low during the 1970s. 0.30 0.28 0.26 0.24 0.22 0.20 0.18 0.16 0.14 0.12 0.10

0.08

0.06 1959

1969

1979

1989

1999

2009

2019

slopecharts.com

The money supply The S&P 500 did not ascend in a financial vacuum. Instead, stocks increased in price in recent years thanks to a tidal wave of liquidity provided by an endlessly accommodating Federal Reserve. Thus, traders could create an honest picture of the performance of the S&P 500 by simply dividing the value of the daily data of the S&P 500 cash by the level of the M2 money supply, as reported by the Federal Reserve. The resulting chart is called “Mostly upward.” The second chart accompanying this article, “A down period,” above, goes back farther in time than the first. The second chart begins in the 1950s and breaks down into some broad component parts:

Phase One: This is the steady descent of equity markets through the 1960s and 1970s. Even though the nominal value of the S&P didn’t take on the appearance of a quarter-century bear market, in reality, that’s what was happening beneath the surface—if one measures the stock market through the lens of the money supply. This relentless grind lower ended in the middle of 1982.

Classic charting techniques suggest that stock prices could be in for serious trouble in 2022.

Phase Two: This was when the last long-term organic bull market took place, and it was gargantuan. From 1982 until early 2000, the stock market roared higher. The fact that the M2 money supply was changing through this period is taken into account by virtue of the fact this is

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a ratio chart, and the M2’s growth didn’t hinder the genuine strength of stocks. The green basing pattern that straddles these first two phases illustrates the clarity, longevity and cleanness of the bullish base that formed and launched stocks into their greatest bull market of the century. Phase Three: Here we have the reversal pattern that preceded the 2000-2002 bear market. Phase Four: From 2002 through 2007, the market recovered, but take note of how weak the recovery was when the M2 money supply is taken into account. Although the nominal indexes were making new highs, the truth beneath the surface is that this was a flimsy rally propped up by growth in the money supply, and the facade all came crashing down with the great financial crisis. Phase Five: Finally there was the steady lift in equities from 2009 to date. What’s remarkable about this phase is that even though stock indexes are much higher than ever before (the Nasdaq, for example, soaring well over 200% above its year 2000 high), the M2-normalized data shows that the true strength of the stock market is well shy of the glory days of the 2000 top. In addition, the COVID-19 crash pushed this line chart beneath its ascending trend line, and the strength that followed (based on more trillions from the Fed in 2020) served only to push the line back up to the now-broken uptrend. In a sense, this ratio chart illustrates how phony the market’s nominal highs have been for the past couple of decades. The true organic peak of the bull market occurred at the turn of the millennium. Interest rates Interest rates clearly have an enormous effect on the economy, influencing different sectors of the

30 YEARS OF THE S&P 500

The S&P 500 cash index identifies three distinct market phases during the past few decades: 1992-2002 Back when the equity markets were still relatively organic and the Federal Reserve more or less left them alone, a large boom-and-bust cycle occurred, as some might expect from natural market conditions. High tech led a strong bull run from 1992 through early 2000, followed by a bear market of about 18 months when the Nasdaq in particular was dealt a devastating blow. 2002-2009 Another boom-and-bust cycle occurred, permitted by the relatively organic conditions of the day. The equity markets remained strong from 2002 through 2007, led by the housing bubble. A financial crisis followed that was far stronger than the bear market of 2000-2002. The crisis wrought extraordinary damage that ushered in the virtual nationalization of the equity markets that continues even now. 2009-Present In sharp contrast with the ascent, rounded top and subsequent descent of the previous two phases, this 12-year period has been a relatively uninterrupted ascending channel. The most severe interruption came with the COVID-19 crash, which lasted a mere three weeks but sliced a staggering sum from the value of the market. But all of that loss was recovered with the Federal Reserve’s deployment of trillions of dollars in cash. Since then, markets have ascended to unthinkable levels, and companies such as Rivian (RIVN)—with literally $0 in revenue—have attained market caps approaching a fifth of a trillion dollars.

Mostly upward With the help of the Federal Reserve, the S&P 500 has been on the ascent most of the time since 1994. 4500 4000 3500 3000 2500 2000 1500 1000

500 ’94

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market in different ways. Higher interest rates tend to discourage consumers from buying real estate, but they help banks prosper. For lower interest rates, the converse is true. Generally, interest rates peaked in the early 1980s and steadily fell for decades after that. In 1981, no one would have believed that the 30-year mortgage rate would be 2.5% in 2020. The next chart, “Interest rates,” right, illustrates the value of the S&P 500 divided by the 10-year interest rate and shows the relationship between those two components. It yields a fascinating chart. For a full half-century, the ratio chart was steadfastly bound by a price channel. That’s interesting with not just the defining trend lines but with the midline as well. The one exception to that “bounding” of the data took place during the pandemic, when interest rates were battered so long and stocks went so high that the ratio actually escaped the ancient boundaries of that channel. It has since re-entered its familiar path, yet is still in the upper half of the channel pattern, indicating the risk of lower stock prices ahead. Overvalued technology Of all the sectors that have increased in value since the pandemic stimulus began, none has benefited as much as technology. Semiconductors, electric vehicles, personal electronics manufacturers and internet sites have seen their stocks appreciate by hundreds or even thousands of percentage points in a matter of months. An objective way to view this sector, which is historically overvalued, is by way of the RYT/IEF chart in “Tech stocks,” right. The RYT is an ETF dedicated to the technology sector, and the IEF is an instrument that represents yield. In a way, this is similar to the previous chart, except it focuses specifically on technology stocks. There is a channel in this instance as well, although it extends back to

Interest rates For a full half-century, a price channel has bound the ratio chart of the S&P and interest rates. 5500 4500 3500 2500 1500

500

1974

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slopecharts.com

Tech stocks Stocks in semiconductors, electric vehicles, personal electronics manufacturers and internet sites have appreciated by hundreds or even thousands of percentage points.

Pullquote ipsunt remque de volore, poccaborecero magnis nulloribus, nosaepe ditatibus as sitatas

2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6

0.4

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slopecharts.com

2008 (as opposed to 1973). Nonetheless, the channel is well-defined and provides an excellent “quick take” as to the relative value of this sector over the long haul. It illustrates how in 2012, 2015 and early 2019, tech stocks were relatively cheap, whereas the data in late 2021 shows this

The descent of stock prices in 2022 could aggravate an already acrimonious political landscape for the midterm elections.

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sector to be at its maximum potential (assuming the ratio chart stays confined within the pattern). If more evidence is needed, the chart, “The Nasdaq,” right, divides the Nasdaq Composite by the M2 money supply. The rationale, again, is to view the more honest valuation of this index through the lens of a changing money supply. This chart goes back quite a bit farther, all the way to 1996, and shows three major events. First came the boom and bust of the internet bubble; second, the boom and bust of the housing bubble; and third, the boom (and yet-to-bust) ascending channel of the “everything bubble.” Even if this channel continues to rise until the end of time, as surely the Fed would desire, present price levels show that the tech sector is by no means bargain-priced. The risk of small caps The charts clearly suggest that the stock market is richly valued, with the tech sector “fully valued,” to put it politely. Traders might consider one last ratio chart that doesn’t compare a stock index or ETF to an outside economic data set but instead directly compares one index to another. See: “Small-cap woes,” right. Specifically, it divides the price data of the Russell 2000 smallcap index by the much more highly valued S&P 500 stock set. If history serves as any guide (specifically, the small tinted dome on the left side of the chart), it seems logical to believe the years to come will be much worse for small-cap stocks than large-cap stocks because this is an enormous “rounded top” pattern. If the value of this contrived chart falls, it means, at a minimum, that the ascent of the S&P 500 will be much heartier than that of the Russell 2000 or, more likely, that the Russell 2000 will fall more swiftly than the S&P 500. Both produce the same outcome. It’s fascinating to examine combinations by way of classic charting techniques. What these simple

The Nasdaq A ratio chart of the Nasdaq Composite and the M2 money supply illustrates three cycles of boom and bust. 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30

0.25 0.20

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Small-cap woes Combining two indexes in a ratio chart suggests that small-cap stocks won’t fare as well as large-cap stocks in the coming years. 0.64 0.62 0.60 0.58 0.56 0.54 0.52 0.50 0.48 0.46 0.44 0.42 0.40 0.38 0.36 0.34 0.32

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combinations seem to suggest clearly for the year 2022 is that stocks could be in serious trouble. Their descent could create a particularly acrimonious political landscape for the midterm elections.

Tim Knight has been using technical analysis to trade the markets for 30 years. He’s the host of Trading Charts with Tim Knight on the tastytrade network and offers free access to his charting platform at slopecharts.com. @slopeofhope

January / February 2022 | Luckbox

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NORMAL DEVIATE

Probability Reigns Unless we know the chances they’ll come true, predictions mean almost nothing By Tom Preston he new year brings resolutions and predictions. Spend time with friends or family in late December or the first few days of January, and you’re likely to hear about their plans to get more exercise, lose weight or save money—all admirable choices. But despite those good intentions, the chances are they’ll break every resolutions in less than a week, which makes them kind of useless. Similarly, turn on the TV or visit a news website, and you’re likely to hear predictions for the coming year. They often come from Wall Street analysts, stock prognosticators and talking heads who have opinions to share on where the market might go. How useful are those predictions? About as useful as the personal resolutions. Why? Because even though market predictions are (hopefully) well-intentioned, they’re based

on guesses about one or more of dozens of potential talking points, including how well companies will perform, whether the economy will grow or contract, and how much the Federal Reserve might cut or hike interest rates. Without attaching a likelihood—a probability—to those guesses, it’s hard to use them to try to make money, which is why investors watch those market predictions in the first place. After all, making profitable investments and trades could go a long way toward meeting a few of the personal resolutions. Figuring out the probability requires volatility. Without volatility, it’s impossible to quantify the probability of a stock or the overall market reaching a certain price, higher or lower, in the future. Volatility helps predict future asset prices because it’s derived from options prices and thus represents the opinions of hundreds or even thousands of traders who

Volatility helps predict asset prices because it’s derived from the opinions of hundreds or even thousands of traders.

are risking real live dollars trading those options. The cumulative buying and selling of an option pushes it to a fair value, and converting that option’s value into a volatility—specifically the option’s implied volatility that can then be converted into a probability—makes for the best estimate of how high or low a stock or index might go. Once traders know the probability of a stock or an index reaching a price, they can use an options trade to take advantage of that. Options trades that are tied to probability quantify risk and potential reward. That’s useful, and can be the basis of profitable trading and investing. But a question arises. With hundreds or thousands of options at different strike prices and different expirations, each with its own implied volatility, which is the best one? For example, the Apple (AAPL) 160 put in the March expiration has a 31% implied volatility, while Apple’s 100 put in the March expiration has a 50% implied volatility. If a trader is trying to determine the probability of Apple hitting $200 in the next three months, 31% gives a very different probability than 50%. Instead of picking one option and

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its implied volatility to determine a probability of a stock reaching a certain price, it can be smarter to use a cumulative volatility that combines the prices of many of a stock’s or an index’s options to capture more of those traders’ opinions. One cumulative volatility is the CBOE’s VIX, based on SPX options. But a similar cumulative volatility is available for individual stocks, exchange-traded funds and other indexes on the tastyworks platform. For instance, it boils down Apple’s 160 put, 100 put and all of Apple’s other options into an overall implied volatility for Apple that captures the cumulative knowledge of every trader in Apple. That’s what makes this style of cumulative volatility reliable for predicting stock or index prices. Moreover, on the tastyworks plat-

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Two-Sigma stock prices Statisticians consider 95% probability a significant level of confidence and call it a two-Sigma event. They apply the three-Sigma designation to events where their level of confidence reaches 99.7% Here’s where some major stocks and indexes may land at the end of this year, based on the overall volatilities of their options in the December 2022 expiration and a 95% probability. Apple between $75 and $305 Alphabet between $1,400 and $5,100 S&P 500 between $2,350 and $7,900

form, each option expiration has its own overall implied volatility, which enables traders to calculate the probability of a stock hitting a certain price for different times in the future. How that’s done is

Gold between $1,210 and $2,550 Oil between $25 and $150 Bitcoin between $10,000 and $170,000

covered in previous Normal Deviate articles. Tom Preston, Luckbox contributing editor, is the purveyor of all things probabilitybased and the poster boy for a standard normal deviate.

12/17/21 11:57 AM

trades& tactics

DO DILIGENCE

QU I E T FOU N DAT I O N HELPS INV ESTO RS FIND NEW T RADING O P P O RT UN I TI ES

Essential Market Forecasting Tools Traders benefit from understanding market trends that repeat over time By James Blakeway

iShares Russell 2000 ETF bullish trade

hile the saying “history repeats itself” may seem like a nauseating cliche, it often holds true in economics, finance and trading. Take the example of positive drift in the stock market, which suggests that an aggregate index of stocks will continue to rally over time. Not every stock will increase in price, but a broad-based index will grow as innovation continues at new and established companies. Positive drift has generally held true since the advent of indexes such as the Dow Jones Industrial Average in 1882 and the S&P 500 in 1860. Another idea that tends to repeat itself is that fear is overstated in the markets. Financial assets with liquid options markets have implied volatility values, which can be utilized to estimate the magnitude of future expected movement. An asset should fall within the expected the expected range 68% of the time. But history shows that stock indexes stay within that expected range more often than anticipated. Take the iShares Russell 2000 exchange-traded fund (ETF) for example. It represents a portfolio of 2,000 small-cap U.S. stocks. Unlike

This trade has a breakeven price far below the current price.

IWM at $213.38 IVR: 57% Bullish to neutral

Jade Lizard

Buy 1 IWM 232.0 Call in February-18’22 (66 DTE) Sell -1 IWM 229.0 Call in February-18’22 (66 DTE) Sell -1 IWM 180.0 Put in February-18’22 (66 DTE) 240 230 220 210 200 190 Downside Breakeven Sep 15

Oct 01

Oct 15

Nov 01

Credit/debit: $3.16 credit

Nov 15

Dec 01

180

Dec 15

Estimated buying power reduction: $2,010

Max profit: $316.0

Max loss: $17,684

Downside breakeven: 176.84

Upside breakeven: No upside risk

Max profit zone: Between 180.0 and 229.0

iShares Russell 2000 ETF (IWM) Short 30 Delta Put backtest results Win rate

Average premium collected

Average profit per trade

Average profit per day

86%

$187.39

$32.73

$0.78

“Positive drift” means the overall stock market increases over time.

the Dow, S&P 500 and Nasdaq-100, the Russell 2000 holds no more than 1% of its portfolio in any single stock. From 2004 to the present, the Russell 2000 has landed within its expected 30-day range 82% of the time. Keep in mind that it’s only supposed to stay in the range 68% of the time. Thus fear—in either direction—is overstated. Benefitting from history Traders can begin taking advantage

of positive drift and overstated fear by investigating the short put strategy in index ETFs. The short put is a simple bullish strategy where a trader sells a single put option with a strike price typically below the current price of the stock or ETF. The strategy’s goal is for the stock or ETF to increase in price, stay the same price or not fall too much. For example, if XYZ stock is trading for $100 per share, a trader may look to sell the 95 strike to express the assumption that the stock will increase or at least not drop below $95. This trade wants the stock to stay above $95 and the 95 put to expire worthless, meaning the trader keeps the credit received for selling the put option. New traders who are learning about implied volatility and expected movement can use the delta values to help them pick their options strikes. The delta value tells a trader the expected probability that an option will not expire worthless. Think of the example above. If the 95 put has a delta of 30, then there’s a 70% theoretical chance the option will expire worthless. If the delta was 40, there’s a 60% chance the option will expire worthless. But because fear is overstated,

Data from lookback by tastytrade

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Overstated fear distorts traders’ expectations for future stock prices.

Another IWM bullish trade

This trade can make money even if the ETF price falls.

IWM at $213.38 IVR: 57% Neutral to bullish

it makes sense to assume these numbers may play out differently in reality and the percentage of options that expire worthless is higher than the market projects. Time for a test Traders can use Lookback, tastytrade’s free new backtesting and analysis software, to test these ideas. It enables them to see how a chosen strategy, such as a short put option, performed in the past for a specific stock or ETF. Consider again the Russell 2000 ETF. Traders who sell a 30 delta short put option in this ETF can assume the trade is profitable around 70% of the time. Asking Lookback to simulate the results of selling a 30 delta short put in the Russell ETF over the past 10 years, they can see the trade was actually profitable 86% of the time, with an average profit of $33. (See the table “iShares Russell 2000,” p. 56.) No matter how much skill or experience traders have, they can benefit from knowing financial history. On average, the stock market will continue to rise despite dips and selloffs along the way. But regardless of direction, the market will continue to overprice fear and overestimate future movement. Traders seeking additional probabilistic trade inspiration should check out Alpha Boost, the free trade idea email service from Quiet Foundation. Luckbox used Alpha Boost to generate a variety of trade ideas in the Russell 2000 ETF. As always, in the markets and in life, be sure to do your due diligence. James Blakeway serves as CEO of Quiet Foundation, a data science-driven subsidiary of tastytrade that provides feefree investment analysis and trade ideas for self-directed investors @james.blakeway

Put broken wing butterfly

Buy 1 IWM 191.0 Put in February-18’22 (66 DTE) Sell -2 IWM 205.0 Put in February-18’22 (66 DTE) Buy 1 IWM 210.0 Put in February-18’22 (66 DTE) 240 230 220 210 Downside Breakeven Sep 15

Oct 01

Oct 15

Nov 01

Credit/Debit: $1.45 credit

Nov 15

Dec 01

200

Dec 15

Estimated buying power reduction: $755

Max profit: $645

Max loss: $755

Downside breakeven: 198.55

Upside breakeven: No upside risk

Max profit zone: Pin 205.0

iShares Russell 2000 ETF defined risk trade The risk here is only $133.

IWM at $213.38 IVR: 57% Bullish

Short put spread

Buy 1 IWM 207.0 Put in February-18’22 (66 DTE) Sell -1 IWM 209.0 Put in February-18’22 (66 DTE) 240 235 230 225 220 215 Downside Breakeven Sep 15

Oct 01

Oct 15

Nov 01

Credit/debit: $0.67 credit

Nov 15

Dec 01

210

Dec 15

Estimated buying power reduction: $133

Max profit: $67.0

Max loss: $133.0

Downside breakeven: 208.33

Upside breakeven: No upside risk

Max profit zone: Above 209.0

January / February 2022 | Luckbox

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FOREX

F R E E- F LOAT I N G M AC RO I N S IG HTS FRO M G LO BAL CU R R ENCY T RADERS

COVID-19 Redux?

News of the Omicron variant made markets plunge, but the mutated virus might buttress the dollar By Ilya Spivak n the second half of 2021, investors worried about inflation and speculated on how the Federal Reserve would respond. Meanwhile, the Fed tried to allay fears of rising prices—insisting gains were merely “transitory” side effects of the COVID-19 pandemic—even as it pivoted to step up stimulus withdrawal. The matter seemed mostly settled as the holidays drew near. Market pricing of the expected rate hike path, as reflected in Fed Funds futures, evolved over the fourth quarter to match the Federal Open Market Committee’s September forecast of about 180 basis points in rate increases through 2024. Jerome Powell was renominated as chair, signaling continuity. But the backdrop changed suddenly as markets wound down for Thanksgiving. The World Health Organization warned that the new Omicron variant of COVID-19 was spreading across the globe, and a slew of countries promptly imposed travel restrictions. Investors rushed for the exits at the prospect of another broad-based shutdown. The bellwether S&P 500 stock index, a benchmark for overall market sentiment, plunged 2.2% to record its largest one-day decline in nine months. Crude oil prices shed an eye-watering 13%. At press time, it appears that Omicron may not warrant such alarm or could perhaps have demanded even more forceful liquidation. Scientists didn’t know how effective existing vaccines would be against the mutated virus, and a U.K. health official warned that they would “almost certainly” prove less potent.

Stagflation risk However the Omicron saga unfolds, the episode highlights the increasing risk of stagflation. Reimposing barriers on cross-border economic activity would limit growth, and supply chain disruptions would push prices upward. How the Fed’s policy calculus might evolve to achieve the dual mandate of price stability

Omicron wreaks havoc The S&P 500 and the price of oil both declined precipitously with news of the new COVID-19 variant. 4700.00 S&P 500 E-mini futures

84.00

4595.75 80.00 4500.00

76.00

4400.00 72.00

WTI Crude oil futures

4300.00 68.15 4200.00 Markets react to Omicron COVID-19 strain discovery

4100.00 4000.00 3900.00

64.00 60.00 56.00

3800.00 52.00 3700.00 48.00 2021

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Source: TradingView

and maximum employment would seem to call for divergent actions. Uncertainty about the response would probably stoke volatility and cool the appetite for risk. This seems likely to put a premium on liquidity for two reasons. First, liquidity and volatility tend to be inversely related: Price action in assets that are more widely traded tends to be less jittery when all else is equal. Second, greater liquidity confers maneuverability, making risk easier to manage amid difficult market conditions.

Investors rushed for the exits at the prospect of the Omicron variant causing another broad-based shutdown.

The rising dollar Liquidity probably bodes well for the dollar, especially against pro-cyclical so-called “commodity” currencies like the Australian dollar. The monthly chart of the Australian dollar/U.S. dollar exchange rate hints that a major top—with implications for deep losses

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in the coming weeks and months—might be taking shape. Prices appear to be carving out a bearish head-and-shoulders (H&S) technical pattern after retesting support-turned-resistance at a 20-year rising trend line, as well as a price inflection zone approximated in the 0.80-0.82 region. Confirming the setup seems to call for a close under “neckline” support just below the 0.70 figure. If prices manage a breach, the H&S formation would imply a measured downside objective within the support region, marking the crisis bottoms from 2008 amid the financial crisis and 2020 at the onset of the COVID-19 outbreak. That’s anchored at the 0.60 handle. Invalidating the setup would begin with a close back above 0.7556. Ilya Spivak is head strategist for Asia-Pacific markets at DailyFX, the research and analysis arm of retail trading platform IG. @ilyaspivak

Bolstering the dollar Greater liquidity may strengthen the U.S. dollar, especially against so-called “commodity” currencies like the Australian dollar. 1.10802 AUD/USD monthly chart 1.0000 0.95810 0.90000 0.86604 Head Shoulder

Shoulder?

0.81840 0.80000 0.75560 0.69913

Neckline?

0.60090 0.55093 0.50000 0.47780 Negative RSI divergence RSI 2002

2004

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80.00 46.30

2022

Source: TradingView

Experience Fast-Paced Market Action Trade 5-Minute to Weekly Contracts. Access Forex, Gold, Oil, Stock Indices Markets & More.

Discover more. Trading on Nadex involves risk and may not be appropriate for all market participants.

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trades& tactics

FUTURES

A SAV V Y F U T U R ES T RA D ER’S TAK E O N T HE M AR K ETS

Slippery Oil Prices Predicting the future price of black gold isn’t easy

By Pete Mulmat

he economy has apparently Oil futures prices reflect what the withstood this year’s Price check buyer and seller agree will be the 45% rise in the price of The forward price curve of crude oil shows that the price is price of oil upon delivery at some oil, but monetary policymakers higher in the front months than in back months. point in the future. So, those prices remain concerned about the provide direct information on Price Crude oil futures commodity’s future. traders’ expectations for the future (Dollars per barrell) price of oil. Higher oil prices can dampen 76 Like the price of every other risky demand in general, as consum75 ers and businesses spend a larger asset, however, oil futures prices portion of their budgets on oil-reinclude risk premiums to reflect the 74 lated products and less on other possibility that spot prices at the 73 time of delivery may be higher or goods and services. Passing higher 72 oil prices on to other goods and lower than the contracted price. 71 Traders can also use the forward services can result in higher wages and cause inflation. term structure of crude prices 70 But is the price of oil likely to rise to forecast prices. The shape of the futures curve is important to further or will it decline precipcommodity hedgers and specuitously as it did in April 2020 in response to the pandemic? A natulators. Both care about whether ral place to look for an answer is in commodity futures markets are the markets, where oil traders know contango markets or normal backthe industry and where their profits ride on making sound investments. wardation markets. However, these two curves are often confused for Perhaps traders can base forecasts of oil price movements on infor- one another. mation from both the oil futures market and the spot market. To find Contango and normal backwardation refer to the pattern of prices out, forecasting exercises have been conducted to determine whether over time, specifically if the price of the contract is rising or falling. future prices of futures have predictive power in the present for the • Contango occurs when the deferred-month futures price is above the future pricing of oil. expected near-term futures price. Let’s review three ways of trying to determine future oil price • Normal backwardation occurs when longer-dated futures prices are below the near-term or “spot” future price. movements. 1. The random walk model predicts spot oil prices will remain at current To test the accuracy of forward futures contracts to predict crude levels. price, compare the three-month forward futures contract prices against 2. With the opportunity cost assumption, the current—or spot—oil where spot oil is actually trading in three months’ time. For example, in August 2021, spot oil was trading at $71.26, and the price might help predict future oil price movements. Given certain simplifying assumptions, the opportunity cost of storing oil is the three-month forward (the November contract) was trading at $69.15. But foregone interest rate. Therefore, in theory, the expected rate of by November, spot crude was trading at $84.05, a difference of almost $15 return for holding oil should be identical to the interest rate. In other from what the three-month forward “predicted” oil would be in November. words, the price of oil is expected to appreciate at the interest rate. In Oil futures prices contain important information about future oil practice, however, holding oil stocks often provides manufacturers price movements, especially for the near term. Considering the relaadvantages or offers flexibility in managing operational risks. Such tionship between current spot and futures prices instead of considering benefits, commonly called “convenience yields,” should be reflected as only the raw futures price can possibly improve forecasting accuracy. a premium, mostly positive, in the current oil price. Thus, the expected The variation between predicted and actual prices has no upward or rate of return of oil inventories may not be identical to the interest rate, downward bias, and in the one-year sample set had a variance in accuand a forecast based on the current spot price may tend to over-pre- racy of almost 20%. Prediction errors are substantial, and accurately dict future oil prices. predicting the future price of oil seems as elusive as ever. 3. The futures-spot spread model uses the spread between the current Pete Mulmat, tastytrade chief futures strategist, serves as host of Splash Into Futures futures prices and the spot price to predict movements in the future on the tastytrade network. @traderpetem price of oil.

Dec ’22

Nov ’22

Oct ’22

Sep ’22

Aug ’22

Jul ’22

Jun ’22

May ’22

Apr ’22

Mar ’22

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Jan ’22

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TACTICS: BASIC

A Prognostication Tool

Standard deviations can help predict the price of futures anytime between listing and expiration By Michael Gough utures contracts lock in the price of a commodity or index. The former can include oil, gold, soybeans or wheat, while the latter can include the S&P 500, U.S. Treasury Bond yields or foreign exchange rates. By design, futures eventually settle to the published price of the underlying they track. But how can traders predict the price of a future at any point between the time it’s listed and the time it expires? Fortunately, several statistical measures can help. One of the most useful is standard deviations, which traders often refer to as historical volatility. Standard deviations capture spread size compared with mean value. In a normal distribution, one standard deviation captures 68.2% of the values around the mean. Two standard deviations capture 95.4%, and three standard deviations capture 99.6%. (See “Standard moves.”) By capturing the average move and the variability around it, standard deviations provide traders with a reference point for how much an underlying typically moves over a given period. While standard deviations don’t provide insight into the direction of movement, they help set expectations for a trade’s potential profit and loss and may reveal opportunities. So, how should traders use standard deviations? Let’s look at one of the most popular and volatile futures markets: crude oil. At the time of this writing, small crude oil futures are trading for around $70 per barrel. Is it reasonable to expect $80 crude oil

by the end of the next month? What about $90? Well, the last several months of historical data show that roughly 68% of the time (one standard deviation) the one-month move in small crude oil was within +/- $5.50. And 95% of the time (two standard deviations) the one-month move was within +/- $11. The one-, two- and three-standard deviation monthly moves in small crude oil are depicted in “Slim moves,” right. While it seems reasonable that small crude oil could trade up to $75.50, the possibility of moving above $80 over the next 21 trading days appears slim. Those levels are valuable for setting entry points, profit and loss targets, and realistic expectations before entering any trade. As another example, suppose small crude oil sinks from $70 to $60. Contrarians could view that as a grossly oversold market because the price moved roughly two standard deviations lower. If they buy in at $60, they may look to make a $2 or $3 profit or cut their losses at $2 to $3 after a few days or weeks, keeping in mind that the normal monthly move in the market is +/- $5.50. The fact that standard deviations use historical data means they aren’t a perfect measure, and traders should always be aware of the possibility of outliers. However, having a statistical baseline beats trading blindly. Michael Gough enjoys retail trading and writing code. He works in business and product development at the Small Exchange, building index-based futures and professional partnerships. @small_exchange

Standard moves Stock prices tend to fall within two standard deviations of the norm. σ = standard deviation

68.2% 95.4% 99.6% -3σ

-2σ

-1σ

+1σ

+2σ

+3σ

Slim moves While it seems reasonable that small crude oil might trade up to $75.50, a look at standard deviations indicates the possibility of moving above $80 is slim. $70

$75.50

$64.50

68.2%

$59

$81

95.4%

$53.50

$86.50

99.6% -$16.50 -$11.00

-$5.50

+$5.50

+$11.00 +$16.50

Standard deviations help set expectations for a trade’s potential profit and loss, and they may reveal opportunities. January / February 2022 | Luckbox

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trades& tactics

TACTICS: ADVANCED

The Wisdom of Crowds To predict next year’s stock prices, look where investors are putting their money By Michael Rechenthin

ew variants of COVID-19 might drive stock prices lower, or President Joe Biden’s infrastructure plan might push them higher. But what do the markets themselves suggest about the coming year? Let’s estimate 2022 price ranges based on the “wisdom of crowds” by looking at where thousands of traders are actually placing money. The S&P 500, Nasdaq and Russell 2000 are expected to rise or fall by roughly 25% by the end of December 2022. But notice that the S&P 500 is slightly skewed to the downside, with observers expecting a greater fall (22%) than rise (17%). They view the Nasdaq and Russell as almost equally likely to rise or fall. But what’s the source of those estimates? Look at the options Greeks— especially the delta, which traders can use as a proxy for probabilities. A 16 delta is an estimated 16% probability of an option being in the money on expiration. Thus 100% 16% = 84% probability of being out of the money on expiration. The table “What lies ahead” shows the price of SPY at 464, and the 16 delta put is 360. Thus, there’s an 84% probability that the market will be above that point on the expiration of December 2022. And the 16 delta call is 545, so there’s an 84% proba-

Taking on risk should be rewarded. That’s why insurance companies are profitable.

What lies ahead The “wisdom of crowds” indicates the S&P 500 is slightly more likely to fall than to rise in 2022, while the Nasdaq and Russell both seem equally likely to rise or fall. Lower bound S&P 500 | SPY Nasdaq 100 | QQQ Russell 2000 | IWM 20+ Year Bonds | TLT

360 22% below current price 305 24% below current price 170 24% below current price

Current price 464 399 223

125

149

16% below current price

Upper bound 545 17% above current price 500 25% above current price 275 23% above current price 180 21% above current price Data as of Dec. 1

bility the market will be below that upper bound on expiration. About 68% of prices fall between the upper and lower bounds, which is -1 and +1 standard deviation. (See p. 61.) So by the end of next year, the best estimate is that prices will fall between 360 and 545 for the S&P 500 ETF (SPY). How often do prices fall within the lower and upper ranges? At this time last year, SPY and QQQ fell above the upper bound. They performed slightly better than the upper range the options market was expecting. In fact, 30% of stocks in the S&P 500 fell above their expected upper bound from last year’s estimates—and it was an average of 8% above that upper range. But wait. That doesn’t necessarily mean traders should buy options. While 30% fell outside the upper range, only 17% would actually have been profitable.

More Lookback Your free handle on future prices

That’s why selling options is generally an ideal strategy when pursued conservatively. Think of it this way: An options buyer is looking to either offload risk or spend some money with the potential for a large payday. An options seller is looking to receive money by taking on risk from someone looking to offload it. Taking on risk should be rewarded. It’s why insurance companies are generally quite profitable. They’re paid premiums for taking on risk. Occasionally a loss occurs, but over time it’s a profitable endeavor. Don’t believe it? Test a trade idea by scanning the QR code to use Lookback, a free options backtesting application. It draws upon more than a dozen years of data to test any options strategy. Michael Rechenthin, Ph.D., aka “Dr. Data,” is the head of research and development at tastytrade. @mrechenthin

January / February 2022 | Luckbox

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High Art Everydays—The First 5000 Days, a JPG file created by the digital artist known as Beeple, sold a year ago at an online Christie’s auction for $69.3 million. The price set a record for an artwork that exists only digitally as a nonfungible token (NFT). That’s a lot of money but far short of the value of some of the world’s most expensive paintings. Leonardo da Vinci’s Salvator Mundi, for example, sold for

more than $450 million at a Christie’s New York auction in 2016. At the time, it was arguably the most widely publicized art sale in history, and the buyer was none other than Mohammed bin Salman, the Crown Prince of Saudi Arabia. What’s a Luckbox reader to make of all this? Check out the March issue for the magazine’s exploration of the world of art and design.

(EVERYDAYS: THE FIRST 5000 DAYS) CHRISTIE’S IMAGES LTD. 2021

THE LAST PICTURE

Luckbox | January / February 2022

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January/February 2022

Articles inside

MONEY OVER MIND

MONEY OVER MIND

FIBONACCI’S ARITHMETIC REVOLUTION

Rockhound Picks the Grammys

Rockin’ the Occult

High Art

Dark Days Ahead?

COVID-19 Redux?

Seeking Diversity

Your 2022 Physique

Is Cancel Culture Toxic?

High-flying Allbirds

The Luckbox Bookshelf

Meet Joseph Barbuto

Rockin' the Occult

Private Security

Grammy Predictions