2024-01-08 Weekly Links

2024-01-08 Weekly Links

“The scariest moment is always just before you start.” Stephen King, On Writing

1. My Map Is The Uniquest

19 trillion maps of the United States / Fake is the new real - Link - DB

“[T]he four color theorem, or the four color map theorem, states that no more than four colors are required to color the regions of any map so that no two adjacent regions have the same color. See Four color theorem - Wikipedia - Link - DB.

The map shown above is my unique map. You can’t have it.

Additional References

2. Amortization, Refinance Projections and Break-Even Calculations in R

Mortgage Constant: A Calculation Guide - PropertyMetrics - Link - DB

Whether to refinance or consolidate existing debt can be a complicated calculation.

A rate reduction generally means lower total interest costs. But lower interest rates may not always be immediately beneficial in lieu of transaction costs. How long would it take to breakeven if you refinanced? And is prepaying or making additional principal payments on the existing note a viable alternative that avoids the hassle of refinancing? These issues are further complicated in a multi-loan situation.

On the flip side, modifying amortization terms to increase cashflow might be attractive or even necessary for business purposes. Lower periodic loan payments or a lump sum cash out in exchange for a longer amortization period and/or a higher interest rates can be necessary. Costs, future refinancing opportunities and breakeven points need to be analyzed.

Below is a non-exhaustive list of items to analyze when considering exchanging debt:

Additional References

3. Better Living Through AI

New material found by AI could reduce lithium use in batteries - Link - DB

Pretend you are a scientist tasked with sifting through 32 million potential new and untested battery materials.

Behind door A, it will take you 20 years using conventional scientific methods.

Behind door B, you can plug it into AI and it takes a week to spit out 18 potential candidates.

Yeah, I’m gonna go with door B…

As the article says, we are on the verge of compressing 250 years of scientific discovery into 25 years.

Of course, not all of this technological advance is a net positive. This sort of process can also be used to make chemical weapons. See Dual Use of Artificial Intelligence-powered Drug Discovery - PMC - Link - DB.

Additional References

4. Tails Never Fails? Nah, Face Wins The Race

Scientists Destroy Illusion That Coin Toss Flips Are 50–50 | Scientific American - Link - DB

Instead of “tails never fails” maybe the saying should be that the “face wins the race” since scientists discovered that flipping a coin is more 50.8/49.2 depending on which side starts face up.

Have we failed in our statistical assumptions of randomness or is there more to the story?

Apparently physics has a little bit to say on the matter. “Airborne coins don't turn around their symmetrical axis; instead they tend to wobble off-center, which causes them to spend a little more time aloft with their initial “up” side on top.” So if you are in a coin toss, make sure you call the face up side for a slight advantage.

Additional References

5. Arbitrage Opportunities in Leveraged and Inverse ETFs

Arbitrage Opportunities and Overnight Returns in Leveraged and Inverse ETFs by Daniil Kardava - Link - DB

Leveraged and inverse ETFs have become increasingly popular over the last 5-10 years. These types of ETFs typically seek to provide returns on a daily basis that is equal to a certain multiple (1x, 2x, 3x) and/or an inverse return of the underlying asset (note the emphasis on the term “daily”).

The theory is that the typical investor can gain exposure to both leverage and short positions without having to use margin or sell short. However, leveraged/inverse ETFs are historically ineffective at tracking the underlying asset over a long period of time generally due to “market volatility and compounding of returns [that] lead to long-term underperformance in leveraged ETFs.” High expense ratios may also be to blame as the compounding effect drags total return down.

Although it is accepted that long-term performance is less than promised, new research shows that single-day returns are also inconsistent. This is because of the need for the ETF to rebalance internally and the slippage these funds experience in executing the strategy. Additionally, the conclusion of the above paper is that single-day and overnight returns are systematically mispriced by the market and can provide a profitable opportunity.

A brief overview of the strategy:

Below are some quick charts of the combined cumulative return of each of the above pairs held long overnight only over the last 2 years. Note that the charts assume equal amounts allocated to each fund:

Additional References

Bonus Links