March - 2015
 S&P +11.10
 USB -2.05
 S&P -9.10
 USB -0.26
 S&P -8.30
 USB -0.03
 S&P +3.20
 USB +0.03
 S&P -28.90
 USB -3.08



There were only 9 instances instances in this millennium when $SPY posted 10 day worst loss for 3/4 trading days:





 1. Most journalists are "change-the-worlders" of the collectivist, "government should do more to…" sort.

2. Too many journalists were liberal arts students and are deathly afraid of math…any sort of math, even the common-sense kind.

3. Too many journalists regard their role as writing down the "he said-she said" rather than as working to find the facts.

John Bollinger writes: 

The AG's report on Ferguson is so rife with errors in the usage of statistics that it could serve as the course material for a "Mistakes Not to Make in Stats" course or a second edition of Huff's "How to Lie with Statistics". The report features many of the errors commonly seen in analyzing markets. For example, it appears no attempt was made to find the actual distributions to compare discovered distributions to and in no case does it seem that the negative hypothesis was formulated or tested. The interesting thing is that no one seems to have noticed/ objected. The media just picked up the report and ran with it, rather than dowsing it with a dose of critical analysis and skepticism; just as few notice/ object to poor usage of stats in market analysis and run with them. Since a lot of this is common sense rather than math, one wonders why.

anonymous writes: 

"One wonders why": The reasons are identical, I think.

Facts are made to fit a particular agenda. An attempt at applying objective truth of the kind that puts a satellite in orbit or makes the technology in an iPhone function never enters into the equation. That is the difference between politics and ideology and an actual, legitimate applied science– unless the science being applied is willful deception, which is realistically what is actually going on. 



Despite the lack of any real value in doing so nowadays as part of the research function, I read one 'scholarly' research paper each day. Mainly these are directly related to the study of price action. Given the incentives these days for researchers to keep 'the good stuff' to themselves (indeed I can think of one or two erudite gentlemen who started this process in the 1960s and 70s to their and their family's benefits), it is no wonder that compelling lines of research do not make it through the process.

If I read one more article involving parameter estimation (aaarrgghhhh)….. I am, however, overjoyed when I find something of note that, whilst still mainly descriptive, has within it some directions towards genuine alpha.

The overall conclusions are not necessarily ground-breaking but his way of getting there is interesting. This is just such a paper: "The Financial Market Effect of FOMC Minutes"

A year in a trading environment for the author, and learning some simple lessons therefrom, could push this work towards the asymptotic goal of greatness. One highly recommends also some of the references sited by Mr. Rosa.

Further, and begrudgingly, I bow down before various of the Laureates at the Federal Reserve and, perhaps even more so, to the team at the Swiss National Bank. Perhaps somewhat surprisingly, the FED team do good work on agriculture, a potentially fruitful, tangential pathway for us on this site.



 In honor of #WorldBookDay, here are my 10 must reads from a blog I wrote long ago.

‎#10. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

"Trading and Exchanges demystifies the complex world of trading. It is a must for anyone interested in investing in the public markets" –Maria Bartiromo, CNBC News Anchor

"My goodness, if only I had known this, or hadn't let it happen to me!" or, "never again, the b##tards!" - Victor Niederhoffer

‎#9. The Art of War by Sun Tzu

The classical Chinese War Manual written 2500 years ago that is a must read at every Military Academy in the world still! Why do we need to understand war? Begin to think in the context of the markets, should I take this trade, should I not the type of conflict present in everyday trading life. ‎

#8. Statistics Without Tears: A Primer for Non-Mathematicians by Derek Rowntree

This primer without any of the mathematical formula and equations uses words and diagrams to help readers understand what statistics is and how think statistically. ‎

 #7. Twenty-Eight Years in Wall Street by Henry Clews

Author Henry Clews was a giant figure in finance during the late nineteenth century, and his firsthand account brings this colorful era to life like never before. This abridged version of an investment classic touches on a wide range of important financial issues, including:

-The causes and consequences of Wall Street panics

-The influence of Wall Street on national politics

-How individuals made their fortunes

-The characteristics of winning and losing speculators

–How operators attempted to corner the markets for individual stocks ‎

#6 Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies by Aswath Damodaran

A no-nonsense book by Professor Aswath Damodaran in which he debunks many myths, and he shoots at all styles: value, growth. No investing style is spared. This is a very accessible overview of finance research on most major investing strategies/or themes. The book introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" – which is probably intuitive, but often neglected in the search for a magical investing potion.

 #5 Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh and Mike Staunton

There's plenty of reasons every day to assume the world is going to end. The media is constantly speculating about immediate financial collapse, the forthcoming mother of all recession, hyperinflation, debtflation, imminent stock market crash, pandemics, terrorism, etc… You might also find specialist #permabear, gloom & doom blog sites dedicated to each such topics "Triumph of the Optimists," is must read which shows the success of the equity markets over the past century. By far the most important investment book in years…It is the best and most complete source of data yet available…If you spend an hour with it and don't learn anything worth the price then you're truly lousy at learning about markets…Right now, buying this book makes more sense than buying stocks. (Ken Fisher Bloomberg Money )

"This will become the definitive empirical basis for analysis of the world's capital markets over the twentieth century. It is an important work of scholarship; no one else has calculated the equity premium of a large number of countries over the long term. In doing so, the book contributes to the very lively debate on the magnitude of the equity premium and will make a splash."

–William Goetzmann, Yale University

‎#4 Day Trading With Short Term Price Patterns and Opening Range Breakout by Toby Crabel

One of its great strengths in this book is that it is an attempt to statistically test the efficacy of price patterns. Instead of merely asserting that a chart formation is bullish or bearish, Crabel actively searches for evidence. With his empirical approach, you will be filled with 'Wow!' and 'Unbelievable!' with startling regularity over the course of reading the book. Test, test, test. Test everything you can. A person who doesn't test will lose money. Data is available for almost anything you can imagine.

#3 The Education of a Speculator by Victor Niederhoffer

"with an original mind and an eclectic approach, Victor Niederhoffer takes the reader from Brighton Beach to Wall Street, visiting all stops of interest along the way. What emerges is a book full of insights, useful to the professional and layman alike" – Palindrome Victor Niederhoffer gives us page after page of distilled investment wisdom. Taken together, this is pure nectar to those who aim for consistently superior stock market performance." -Barron's ‎

 #2 Secrets of Professional Turf Betting by Robert L. Bacon

It is best book on professional speculation around! While reading, just replace the words 'race' 'racing' with stock markets. What is a 'race', a day of trading? How rare is the man that understands mass psychology and how to "copper" the public. The horses are the companies. The day's trading session is the race. Different issues maneuver for position. The trainers at the racetrack are like the corporate executives, receiving prizes for winning and fees for getting their horses in shape. The bookies are the brokers. And the punters in the stands… they're like us… the guys who pay all the fees and commissions. "People who know the facts of life have called racing "the poor man's opportunity". An opportunity, because it is always possible for a poor man, or a man who has failed at every other profession or business, to get started at race betting with mere "peanuts". It is always possible for him to go on and "run it up" into a sizeable fortune. Any race any day any track can lay the foundation of betting success! It is possible for any man (or woman) who has the required even temperament for turf operations to "get off to the races" with small capital. Perhaps with capital as small as a day's pay! THAT IS TO SAY, IT IS POSSIBLE….." [from the book of chapter one, page one , & first one and half paragraph] ‎

#1 Introduction to Objectivist Epistemology by Ayn Rand

from Doc Brett Steenbarger's blog:

Introduction to Objectivist Epistemology is an attempt to explain how the human mind is able to grasp reality. (Epistemology is the philosophy of knowledge). Central to Rand's account is the role of concept formation. "The ability to regard entities as units is man's distinctive method of cognition," Rand wrote (p. 7). This ability opens the door to both mathematical and conceptual reasoning. Rand defines a concept as "a mental integration of two or more units which are isolated according to a specific characteristic(s) and united by a specific definition" (p. 11). The formation of concepts requires abstraction–isolating certain attributes from others–but also integration: combining concretes into a larger category. When we form the concept of a "trend", we are isolating certain aspects of price and volume and integrating these on the basis of a definition. Through ever-widening efforts at abstraction and integration, we expand our conceptual universe and extend our grasp of the world. Ayn Rand understood that philosophy is the most practical of disciplines. Without a solid epistemological foundation, what assurance do we have that we're trading anything other than randomness?

p.s: I'm really sorry if you have found me to be disrespectful for not including books from such minor deities like Edward and Maggie, John Murphy, Ben Graham, Peter Lynch, boy plunger a.k.a Jesse Lauriston Livermore so on & so forth.



The value of commods varies so much with the attention the sector gets, and especially when there is so much money sloshing around, looking for an "investment", or players stocking warehouses full of copper as collateral against shadow-banking-system commitments, etc. The situation introduces so many orthogonal drivers of price beyond mere end-user demand.



 It is ironic in Sao Paulo, Brazil that the storage of rainwater during the recent, severe drought by citizens in open containers has lead to an outbreak of mosquito-borne diseases (dengue and chikungunya ) and may require the use of a genetically modified organism (GMO) to counter the problem. And that the testing of these GMO mosquitoes is being considered for the Keys in South Florida. A great testing ground for mosquitoes would be Flamingo, Florida in the Everglades Park.


Experiments already conducted in Malaysia, Brazil and the Cayman Islands have found that releasing bioengineered male mosquitoes can reduce the A. Aegypti population by 90 percent. For the past five years, officials in the Keys have been working with Oxitec to get approval from the U.S. Food and Drug Administration for similar experimental trials in Florida. Derric Nimmo, Oxitec's head of mosquito research, says only male A. aegypti are released in these experiments. "It mates with the females in the wild," he explains, "and passes on that gene to all the offspring. The female goes off and lays her eggs. The eggs hatch. But then they die before reaching adulthood."

2. Here is the Oxitec website and more on Florida project.



Rocky Humbert says: "Commodities belong in your portfolio when they are cheap and/or rising in price"

I agree. The question is are they cheap now? A very naive approach looking at Oil as a proxy for the group and compare it on a long term basis with stocks or bonds, you can say commodities are as cheap (relatively) as they have been in the last 20 years (bottom 10% of the range).

What other ways of assessing the 'value' of commodities are out there?

Alston Mabry adds:

The value of commods varies so much with the attention the sector gets, and especially when there is so much money sloshing around, looking for an "investment", or players stocking warehouses full of copper as collateral against shadow-banking-system commitments, etc. The situation introduces so many orthogonal drivers of price beyond mere end-user demand.

Alex Castaldo adds:

Here is a quote: "For commodities, we define value as the log of the spot price 5 years ago (actually, the average spot price from 4.5 to 5.5 years ago), divided by the most recent spot price, which is essentially the negative of the spot return over the last 5 years." (Asness, Moskowitz & Pedersen). So that is one possible definition, but I am not sure it is a satisfactory one since it relies only on price. To me value involves the comparison of price to something else.



I'm holding a snap contest with a $ 1,500 reward. I ran a piece called "What is a Trader" about terrible and typical things in our ken. I'll give a 1500 reward to the best augmentation to this by the end of next week. Award to be determined by open vote. Send your entries to me here on Dailyspeculations or to my twitter @VicNiederhoffer .



 A trader at the Grand Bazaar in Istanbul where gold trading has been going continuously for 550 years, amid shouts of 10 whole ones for chocolate tomorrow, a trader in sweats and a wool cap notices my screen, and says "Gold? That's what we love to deal." "Yes," I say, "and stocks and bonds, and oil and grain". "Ah, that's what we love," he says. "Tell us about market trading in the States. What's it like?". I start to tell him but… [where to begin?…]

At 4 am in the morning, a sleepy trader wakes up and finds that prices are climbing. He's short. He looks at the screen and notes they're up 5 points. Thank goodness, he says he saw the price of the stock market on his screen, and it wasn't the bonds he's short… The bond price was a mistake. But then he looks again, and the bonds have risen 6 points. He learns later that day that the minutes of the Open Market Committee were released secretly to 100 politicians and bank officials, on a "need to know" basis and that they were acting on it 10 hours before the release.

The stock market opens down 200 Dow Points, and you buy a line. It quickly goes down another 100 in the first 5 minutes. And you're down a few big. A news flashes across the screen that Janet Yellen just gave a talk to selected Democrats at a closed door meeting, and the market spikes up so you have a 2 tick profit of a grand or two. You quickly get out, thanking your lucky starts that you're not broke, and indeed you have a profit. The market continues to go up, and ends up 400 Dow on the day, and if you had just held your position you would have been able to retire and pay for the education of all your kids.

You stay at your screen for 48 hours straight, nursing a losing position that's being hammered by instability in Europe. The market is very thin, and you need a big move and big news to get out. Finally after waiting without sleep or food, you go to the refrigerator to get a coffee for 30 seconds, and in that time an announcement that the ECB is stepping in comes out and the market rises to where you would have had a profit, but by the time you get back there's only 2 contracts bid for, and by the time you find enough liquidity to get out, your loss is gigantic.

You're sick in the hospital bed, all wired up with tubes and lines but they're on rollers. A mentor comes from California to visit you to see and comfort the family. You have a big position, and have to trade it. But your ashamed to be looking at at the prices, while he's here to see if you're alive. So you go to the bathroom trailing your lines behind you, and your friend says to your wife, "I guess the kidneys are in desperate shape".

 You have a big position in gold, and it's gone against you 100 bucks. You pick up your terminal and you find that Goldman had issued a bearish report on the metal the previous night. Their next report: "As predicted, gold has plummeted to 600. Our prediction was right on target. But we said sell at 800 and it only reached 795 overnight so we missed 5 bucks of the move."

A lot of people have asked me why so many hundreds of thousands trade short term in America. Almost all of them lose. Almost all of them base their trades on mumbo jumbo things that are completely random. The only constant is the vig they pay to the house, which is often 25% of their average gain or loss on the trade. The chances they'll end up a winner is less than the parts in a warehouse spontaneously assembling themselves into a beautiful girl.

I asked an eminent psychologist who has written many books on the market about it. And he said there is a feeling here that no pastime is good unless it causes pain. Most of the traders feel guilt about their childhood, and what horses asses they were and what evil thoughts they had. They wish to atone through trading where the pain of a loss is infinitely greater than the rare occasions that they make a comparable profit. I don't know enough about psychology to know if he's right, but as I suffer through the trading year, and take our small profits on every big move in my favor, but lose it all in the few big moves against, and the little woman says, "when are you going to learn to cut your positions by 90%", I think he may be on to something.

A trader from South Africa comes to your office, and says he's been following your blog for years, and you're the one person in the world that can appreciate his methods. He says he has an IQ of 190 and was on the Olympic handball team. He has the ability to predict the exact range of the day in every market. But his marketing firm won't let him trade unless they execute the trades for him and he wants you to back him. You tell him that being able to predict the range is useless for making profits as far as you're concerned. He leaves the office, curses you out and says he'll be throwing mud on your well deserved and soon to be utilized grave.

A weather forecaster is introduced to you at a party by a friend. He informs you that he's been able to forecast correctly a month in advance the last 7 major droughts in the Midwest. He wants you to subscribe. You ask him why he doesn't just make a killing on these things himself. He informs you he would but he was caught big in one of his forays and lost his stake.

An expansive trader who knows stocks and bonds but knows nothing about the grains decides to take a position in soybeans. He buys a few hundred contracts at the market before the open, and it opens limit up and closes limit down. He finds that he didn't get out before the delivery notice, and his broker informs him that he's now storing 10 big train loads of soybeans in a warehouse at a charge of 10,000 a day + interest.

A trader opens a position in a short put spread selling 20,000 of premium. It goes in his favor for a few days, and it's 15% away from his higher strike price and potential loss. He checks with his broker on the margin and finds that he has 1,000 of premium left but the required margin is 1.5 million. He calls up to find if it's a mistake. "No, that's correct, during the last 3 days before expiration, we assume 10 scenarios, and take the worst which in this case was an immediate 30% decline in price. Furthermore, we're charging you 5,000 a day in Exposure Fees, to compensate for our extra risk. And yes, we just doubled our charges, because we got hit for a 300 big loss on Swiss franc positions, so don't complain."

The lone trader does his analysis and doesn't worry about being taken because he is just one guy trying to make a few trades. And then his setup happens and he takes his position…and the market does exactly the thing that will cause him the biggest loss. How can this be? he thinks. He is just one clown trying to clip a few ticks or points, here and there, not worthy of being a target. But he starts to suspect that maybe he is just one of a thousand clowns, or ten thousand, who are all doing exactly the same analysis at precisely the same time and taking the same positions, which are exploited by a better algo in a co-located box somewhere with huge backing. This "thousandth clown theory" starts to gnaw at him, makes him doubt.

Orson Terrill adds: 

An investment bank with operations in Houston hires an MBA from one of the most prominent business schools in California, he's also the son of the CEO of one of the largest banks in Latin America, and surely there will be huge deal flow for them. They put him on with great access and freedom. Instead of putting on a bad trade of several hundred thousand, he's able to executes several hundred million, accidentally, and loses several million in the first day. He ends up being a high paid restaurant manager, for his financial acumen and pedigree, and he sets the place on fire.



 I recently purchased a convertible desk that allows you to sit or stand. I highly recommend them. In this first week I have been gaining stamina each day and now stand about half of the work day. It is great for the back, but more than that allows you to get a different perspective. Going from sitting to standing I think stimulates some energy or intensity and gives you an extra focus in your work. When you stand you mean business. For trading, I think the act of standing simulates the energy of the pits and whether real or imaginary is beneficial. I find I am getting more work done particularly in the afternoons when fatigue sets in. I have one from Varidesk. Ergotron looks like another good manufacture.

Tom Printon writes: 

There was many issues for me to contend with when transitioning from 25 years in the pits to an office, one of which was sitting. Purchased a sit/stand desk a few years ago (Geekdesk) and felt much better for all the reasons Mr Coker stated.



 What are the odds of playing Texas hold'em, getting a pat straight flush on the flop and losing to a higher straight flush? What are the odds of driving a new car out of the car dealer's lot and having it totaled by a truck? What are the odds of your wife, who has never made a bet in her life, sweeping nine trifectas in a row(3 of them paid four figures) at the dog track? What are the odds of seeing four people get bitten by sharks within thirty minutes while surfing at New Smyrna Beach? What are the odds of playing the best golf game of your life with a hole in one, three eagles, two birdies, yet still losing by a stroke? What are the odds of both grandmothers dying exactly a year to the day apart, same time of day, in the same hospital room? What are the odds of losing forty two copper trades in a row? What are the odds of standing in line to buy a scratch off lotto ticket, and the person ahead bought the same ticket the wife requested and it paid $120,000. What are the odds of going to Publix, and within ninety minutes, running into three people from different periods of your past? What are the odds of running into a guy from first grade while waiting for a train in Morocco? What are the odds of winning two first prizes in two separate drawings at the grand opening of a mall?

None of this is good luck, bad luck, or is unusual because people beat long odds all the time and it's easy enough to explain. Life presents thousands of opportunities/happenings/events every day. Multiply that by thousands of days, and there are millions and millions of opportunities/happenings/events every lifetime, and the total distribution will show a number that could be described as long shots.

One's chance of facing and beating long odds(for better or worse) in one way or another during a lifetime is near 100%. Repeating the mantra that beating odds is not always favorable, as failure has odds too.

The markets offer the player all kinds of odds, changing all the time, all day long, every trading day of the year. For every few thousand 3:2 plays, there will be some that offer 50:1, 100:1, 1,000:1 or maybe more. It is likely that the participant will stumble across many of these long odds scenarios in a career. Looking at the chart where an option traded for a quarter, it is important to remember that someone bought that option which immediately went to $85, and somebody also bought beans at $6.00 that doubled. Conversely, someone sold that option, and sold the beans which possibly caused them great harm.

All in all, it's important for the spec to develop good skills and learn to handicap everything in life and the markets. Although cliche, it's necessary to expect the unexpected. Keep to the high ground when the 100 year flood shows, and don't get cocky when three inches of gold unexpectedly rain down on the street.



Whether man-made or from nature, the more work done on a structure the stronger it should be. Thus inday trading there are many things that could knock over a juvenile formation, like flow or a breath of hot air. This together with the vig and blinkered vision to macro events (and the inability to accumulate willfully) generally spells disaster.



 Join us for a special junto event this Thursday.

It will be an Oxford Style Debate between Whole Foods co-CEO John Mackey and investigative reporter Nina Teicholz.


Date: Thursday, March 5, 2015

Time: 7:30 p.m. - 10:00 p.m.

Free admission, no RSVP required

Hosted by Victor Niederhoffer's "Junto"

Moderated by Barron's Economics Editor Gene Epstein

A before-and-after vote will be taken in the audience to declare the "winner" of the debate.


20 West 44th St., ground floor

New York City

 March 5, 2015 - Debate: Nina Teicholz vs. John Mackey

"An animal foods/low-carb centered diet is unhealthy compared with a 90+% plant-based diet that excludes sugar and refined grain products."

Mackey takes the Affirmative and Teicholz the Negative.

 Teicholz, an investigative reporter, spent nine years researching nutrition science for her book "The Big Fat Surprise: Why butter, meat & cheese belong in a healthy diet," a NY Times bestseller. A "Best Book" of 2014 by the Economist, Wall Street Journal, Mother Jones, Kirkus Reviews and Library Journal, also "The Most Memorable Healthcare Book of 2014" by Forbes. It's received rave reviews.

Mackey is working on a book about healthy diet. He's co-CEO of Whole Foods Market. His stores often have Dr. Fuhrman's Nutrient Density numbers on items on the salad bar. Fuhrman says 90% of the daily diet should be nutrient rich plant foods.

Whole Food Market's healthy eating.



  I think ultimately the biggest hindrance in trading, if not the biggest hindrance in anything, is oneself or one's own mind. Your thinking is your opponent.

Is the market mechanistic or competitive? I think it depends on the situation. I tend to imagine that the market has the following participants in any day:

1. bulls and bears

2. primates.

The former are big and have their views decided for that day or the following period. They mostly fight fiercely. The latter are small and are simply ready to join either the bulls' camp or the bears' camp at anytime depending on their own views of which side is stronger.

The fight between the bulls and the bears are competitive. But for the primates in this case, it is not competitive (or at least not in the same sense). To them, it is simply making a choice.

The bulls and bears both understand the nature and tendencies of these primates, so they try to take advantage of the latter whenever possible. So, in this case, the primates have to compete with the big ones. This might only be possible when the two big sides are not fighting fiercely between themselves.

The primates are controlled by their innate nature of fear and greed (let's just say that the bulls and bears are less prone to fear and greed), so their combined behavior is quite predictable. So when either the bulls or the bears (when one side is absent or subdued) attack the primates, it is quite mechanistic.



This is a very interesting paper: "Grand tree of life study shows a clock-like trend in new species emergence and diversity"



 Humor from Yellen:

"The economic and financial news has been grim," she told colleagues at a mid-March2009 policy meeting, according to the transcripts. "Things are now so bad that I actually open the Greenbook with greater trepidation than my 401(k)." The Fed's so-called Greenbook is its official summary of economic and financial conditions.



 What does a good trade look like?

Continuing in my vein of only speaking about areas in which I possess a modicum of understanding of and experience in, I shall stick with the shorter term end of the holding period spectrum, say minutes to 36 hours.

There isn't anything necessarily predictive about any of the following, but it certainly opens areas of research. After an enumeration of a large sample of recent transactions I think the 'feel' and visual manifestation of a 'good trade' includes the following:

1. Imagine a car hitting a very thick wall. The energy of the car flows into the wall and is 'reflected' back into the car which then jumps back away from the wall. Rather like hitting a ball on the half-volley. Buying into mini Armageddons and selling into mini Elysiums can have this 'feel'.

2. There is almost no 'shown' liquidity (Ha!) on the depth screens of the DMA access point.

3. As one is not a silicone based life-form (Yet! Just waiting for the compulsory cybernetic transformation over coming decades in the name of 'security') an analysis of ones thoughts as a dealing level approaches is interesting. Although the effect in me personally is much less than two decades ago, I still note my thoughts and I find the following:

- If the decline or rally leading to my execution level is caused by news or the ramblings of a politician, then one tends to magnify its importance.

- If there is a round near then that may also increase anxiety.

- I bet Kovner and Druckenmiller are the other way around… All three mental phenomenon are nonsensical, distracting and negatively correlated to trade success.

Another related matter is the battle between trying for perfect execution of strategies or just getting them on. On balance, and in the context of high numbers of transactions, I think it pays to go for something very close to perfection (self/ strategy defined) Even though this sometimes leads to periods of noticeable inactivity as I personally experienced last summer.



 "Hey, red pants, old man, whats trading like in America?"

Everyone plays it off the announcements. But not the way you'd expect. If the economy is weak, say the unemployment is up, that's very bullish because the Fed will do more QE or they will keep interest rates below zero for longer and interest rates will stay down and then stocks will go up. But then interest rates go up regardless. But stocks go down anyway. And the opposite happens when say the Manufacturing is up. That means less QE. And interest rates will go up. And that 's bearish for stocks, but then interest rates instead go down. But instead of interest rates going down they go up. But stocks go up anyway. Almost all the announcements are ephemeral. Meaningless because of seasonal adjustments, or in case of manufacturing, they only take account of 15% of the US economy for one month, or even worse in one region. But still they effect the market by 1 or 2%. You want to throw up your hands and say, "this isn't right, or as good tennis players used to say when the opponent stayed at the baseline and pushed, "this isn't tennis". But it is the market. Why are things so topsy turvy and volatile after meaningless numbers? To get people to do the wrong thing. To lean the wrong way. To trade and dissipate their wealth through commissions, bid asked spreads, and fear.



Remember the story of Anthony Morse who along with Flowers used to bull all the canals and trolleys up. He had quite a pool behind him. But then when Flowers died, he couldn't bull them up anymore and got caught in a few panics. His friends left him and he lived on the Bowery where my dad might have had to take him to the morgue if he were working in that era. But then bedraggled, he came to Trinity church to beg for a sandwich, as it were in exchange for a tip. But someone recognized him and just the remembrance was enough to cause an enormous bull move on the board. Of course when the move peetered out, he was alone and desolate, a man who was financially and morally belly up as it were and had to go back to the Bowery again.

Okay, just at the height of the bond rise yesterday, the bedraggled and discommoded and man of ill repute who haggled over bonuses for his colleague and publicity, and who has been leading the read for years like Morse came out with his usual that stocks were in an unsustainable boom and bubble, and that the Fed was likely going to do something about it. If only instead of his yoga mat on the beach he could go back to the Bowery when he touts his bearish views on equities similar to those he had at Dow 6000 and talking his book on bonds.

Alex Castaldo notes: Anthony Wellman Morse (active 1860's, described in Markham's Financial History of the United States as "specializing in the cornering of railroad stocks") is not to be confused with Charles Wyman Morse (October 21, 1856 – January 12, 1933) who cornered the copper market in 1907.



Hearkening back to weather stories from edspec, I saw on twitter: a Chilean volcano erupts.



This is an excellent article on deception with many applications to our field where deception is needed at all levels to stay ahead of competition.

Gary Phillips writes: 

We're not only susceptible to being deceived by the narratives of others, but by ourselves as well. We take a linear view that doesn't lend itself to the complex systems described above. We see something happening in the market, and we can't help but create our own narrative to explain what's happening. Traders are very good at linking cause and effect, often incorrectly; thereby unintentionally deceiving themselves.

However, you can't understand a complex system, by simply looking at it's individual parts. There are multiple heterogeneous agents that make independent decisions that evolve over time. These agents will interact which leads to emergence i.e., the whole becomes greater than the sum of the parts. and, emergence will disguise cause and effect. Therefore, it may be difficult to determine if deception would have an effect on the outcome, or not.

In hindsight, it's often the hidden factors that one did not anticipate or even consider, that were the drivers behind a move. So, even a move built on the back of deception or misinformation, may still be an actionable event, if one if one practices good trade management.

Jeff Watson writes: 

I remember back in the pit days when I'd want to shake out some weak hands by trying to fake a rally…..I'd start, then after 5 minutes I'd start believing my own fake out.



 There are a google of factors affecting this company, all seemingly electroaffinitive to the observer from the grandstand, leading to the question of whether companies hit hard by currency depreciation versus the dollar are good buys. Talk about bad luck. This company hurt by currency depreciation to the us and currency appreciation to Europe. How often has that happened to you in your trading and life.

"SodaStream Maker Thwarted by Currency Troubles"

Anatoly Veltman writes: 

I find this a prevailing factor 2015 in the Orlando Resort market. Strengthening US currency worldwide is a double whammy: first the resorts see reduced foreign tourist flow. Room Occupancy figures languish, and shrinking top line eventually feeds into a deficit bottom line. How long can a resort in an over-built market like Orlando operate at a loss? So the seller will become progressively more distressed as we move from 2015 seasons into 2016. I see a brief period looming when properties will be given away. Chinese or other foreign investors will be priced out of US bidding by their own depreciating currencies. The Chinese were purchasers of over 25% of all hotels sold in Australia this year - and that's thanks to AUD devaluation by 20%. Similar devaluation is on the way in EUR, CAD and most other open to foreign investment regions…So bargains of our generation may well be abound in US resort property market, and that's something worth heed and preparation for a speculator these days



The history of deception in war. Very applicable: "All is Fair in Love and War" by John Chomeau

Steve Ellison writes: 

"Find out what the enemy is predisposed to believe and to reinforce those beliefs while at the same time altering your plans to take advantage of these reinforced false beliefs."

Many participants in the market are predisposed to believe that a catastrophe is just around the corner, judging from the perennial success (in selling subscriptions) of bearish newsletter writers. A whiff of actual bad news may get them selling in earnest.



At BEA. Okay, she's one of us. Let s not embarrass her talk. Gives her room. But let's not make it too high either. We're getting a lot of flack from those who say that 10% of GNP is actually negative like the defense. But not too low either. The election's coming up and we need to keep our girl in. Feather the nest so to speak. The rates have been going up. Keep it down a little. Stocks can handle it. They're near a high. They're estimating 2.0. Lets go with 2.2. Okay. Let the dem caucus know so they can alert the cronies and lobbyists. All agreed? Fine.

anonymous writes:

I would add it is a universal truth that when the word jobs (employment) is uttered by an agent of government the conversation in no longer without partisanship.



One has been looking for a long time for a good reference to the part of gestalt theory developed by Fechner that covers the just noticeable difference phenomenon where if you put a frog in boiling water he'll jump but if you heat it up he won't. It came to mind with the recent moves of gold. Here is a great reference very readily quantitative with much qualitative significance. Highly recommended. We must tip the hat to Irving Redel on this as he first brought it to my attention 35 years ago, and used it often in his forays into gold where the small moves were designed to keep you in and the disruptive moves to get you out.



 The best health related book I've read recently is The Long and the Short of It: The Science of Life Span and Aging by Johnathan Silvertown. It's relatively short but packed with good information and a good rhythm outlining the history of the field. The book is organized in short sections: Life Span, Aging, Heredity, Plants, Natural Selection, Suicide, Pace and Mechanisms.

The key evolutionary concept to understand is that at some point in the life span, because of the diminishing contribution that individuals make to future generations as they grow older, natural selection loses it's power altogether. Before that point, natural selection fixes the weakest of the big 4 links (immune system, the resistance to cancer, the resistance to oxidative stress and efficient insulin signaling), ensuring that cellular function is not vulnerable to failed maintenance.

There's also a nice chapter on plants and two major takeaways. First, there seems to be a correlation between slow growth and longevity. The book shows a nice experiment where they stress fast and slow growing plants and see how they fare afterwards. The other takeaway, particularly relevant to systems, is about the advantages (for longevity) of plants modular design.

More related to our field, It could be interesting to look at the concept of 'senescense' or deterioration of biological function as it pertains to the longevity of market moves. The book introduces Gompertz Law, which states that after certain age, the mortality rate doubles at a constant rate. Perhaps a line of research can include some counting of market moves older than X and see whether there are some patterns in the mortality rate (>50% reversal). Alternatively, instead of 'age' of the move, one could look at size, given the strong relationship between them both in nature and markets.



John Cochrane explains it:

"The Fed may have deliberately dug itself in a hole. By buying lots of long-term bonds, the Fed will take big mark to market losses if interest rates rise, and stop remitting money to the Treasury. This is a precommitment not to raise rates. So, a good answer to "how did QE 'work'" is not just by implicitly promising to keep rates low for a long time, but by making it very hard to raise rates!"

and the sequel: 

If "respectable central banks" have agreed that no exchanges between them will be refused, then the primary risk of domestic "easing" has disappeared for those countries. Their banking systems can simply accept central bank transfers instead of customer deposits as the base on which to issue credit. The problem for the unrespectable countries is that they cannot rely on foreign counter-parties to take their IOUs. They can, like all other countries that lack a weight and measure definition of money, have their central banks redeem their outstanding debts by issuing reserves; but they can't sell their new debt to anyone but themselves. When Bagehot wrote that the Bank of England could draw specie from the moon if it raised the discount high enough, he was assuming that the Old Lady's credit rating - its ability to redeem paper with coin - was unaffected by the change in rates. If, as Cochrane argues, reserves that pay market interest rates have no monetarist effects for prices, then credit creation is now being rationed even in the "respectable" countries not by reserves but by uncertainty about repayment by anyone not already a member of the primary dealer club.



 The Chair talks about trees often. I find them interesting as well. Tree roots emit an unknown chemical that attacks competitors roots, but supports their own species roots or symbiotic plants. Trees in Hawaii predate other trees and choke them out. I've seen that in the Amazon forest also.

Companies such as Microsoft and Google design their programs so that other companies apps and programs do not run well or at all on their systems, but allow their own apps and programs to run well, or those of cooperating companies.

Countries obviously help their own companies survive and create barriers for companies of other countries thru tax incentives, tariffs and regulations. Politicians look after their own state's, and their own supporters interests.

Various market exchanges make is harder for orders coming from other sources to execute and give preference to their own dark pools, and cooperating brokers. Brokers give preference in execution to their own proprietary traders, over their own clients or outside orders.

This idea of looking after your own and torpedoing the competition has far reaching implications at many levels. The flexions, and the military industrial complex are just two broad examples. Knowing how this works is important to succeed in in business and trading.

Steve Ellison writes:

Jim, I remember asking you about the roots of the banyan trees when I was in Hawaii. I had never seen anything like them. Some roots dropped from branches to the ground.

In northern California, there are mistletoe plants that are parasites on other trees. The mistletoe roots bore into the host branches. When deciduous hosts drop their leaves, it is easy to see the evergreen mistletoe.



I found this article very interesting:

"Killing the Ball: People & Power investigates how a match-fixer and his syndicate corrupted global football"

Focus on the weak who are allowed involvement in major competitions for the sake of being global, and rig away. What markets could be similarly placed?



 Three films for March: A farm tale, a fable, and a photog

McFarland, USA

Directed by Niki Caro

Although a nagging suspicion that this film was released now for a political touchdown at a time of controversy and disagreement over illegals' "amnesty," tax "rebates" (for people paying no taxes) and drivers' licenses dispensed like Pez to those who have no insurance or indeed right to be driving inside the US, "McF/USA" also does what cinema does best: It brings viewers into a world not our own, invites viewers to explore unseen lives in ways more compassionate than pedagogic, and leaves us feeling better informed and more connected to people whose aspirations, unvoiced yearnings and anxieties aren't so different from those we know.

CPAC meeting in the eyes of enthusiasts and TV viewers after the fact also adds to the fuel: Amnesty is very much a part of the conversation across the land. We listen to Jeb and think back to his take on deportables. We watch Rubio and gauge how his view has shifted to right as he competes among his congressional opponents. Rand gets his base hyped up with his signature isolationism dressed as populism. It all feeds into the debate on Mexican and Other Than Mexican (OTMs) living inside the borders, either assimilating or, more often, not.

But. It's a truism that sports-based movies 1. are audience pleasers, and 2. feature the addled or straddled team/individual making it in the end. And those are certainly true here.

Thus despite the (obvious) focus on Costner moods and determination to succeed in this last hurrah, the film had us smiling throughout, with a likable, if grousey Kevin Costner as the Homey coach, Jim White, of a tiny school in a no-count town populated by decent people of Mexican extraction in the south. His 'team' is a One from column A, One from B, etc. The fat guy. The ladies man. The earnest achiever.

They are, regardless of their speed and running prowess, daily migrant pickers of cabbages and almonds, as the season demands, all Hispanics (with nevertheless excellent and unaccented English, which aspect does not seem accurate considering the parents, also pickers, rarely understand a word of Anglo), and all sweet, winning teens with admirable grit, relentless drive, and strong legs. And perfect teeth.

White starts up a cross-country running team, noting how some of the boys in his phys.ed. class run to and from school, lacking cars or bikes. (One could well make a doc about subtropical African schoolboys who run 20 miles each way to and from their tiny shack schools in Lesotho and Namibia. Except those guys consistently come in #1 and 2 in marathons across the land, so no need to highlight their efforts despite poor footwear.)

We train with them as they radiate suppressed hope that they can escape the life of the field their parents have deeded them. We never quite know if these families and warm-hearted people are Americans, and references to the at-first awkward losing team as "Mexicanos" don't help decide for us. But Costner pulls them together, we cheer on these taciturn but valiant boys, whose faith is strong enough to evoke a Tebow knees-down prayer huddle after one win. The parents are proud and strong, hard-working and generous with their neighbors and friends.

Coach White is a ne'er-do-well hothead, dismissed from more than a few school teams for unwillingness to tolerate sass or laziness in privileged teens. He's determined to stick it out at McFarland, though he doesn't really know much about running, or coaching running.

Maria Bello, White's tired-looking but supportive wife, ferries their two daughters around, trying to get her coach-hub to notice their progeny once in a while. He spends every minute trying to get his overworked guys into shape for the meets.

What to say? It's a triumphant Spanish version of Rocky Balboa, with shorter, stockier, tawnier and more hirsute players. But even a die-hard anti-illegal can't help being charmed by the tough but charming likes of these likable, earnest, laconic icons of fieldhands in the modern world.

If it were a confection, McFarland would be a three-cavity entertainment. And the amazing thing is: This is a true story; post-script notes tell you what transpired with each of the boys shown in the film.


 Directed by Kenneth Branagh

With Cate Blanchett, Lily James, Richard Madden, Stellan Skarsgaard, Holliday Grainger, Sophia McShera, Derek Jacobi, Helena Bonham Carter

More engaging, and subtly sexier, than "50 Shades." Seriously. The evil stepmother, played seductively and with a touch of acidulous irony, is the perfection of Cate Blanchette, marvelous as always. The surprise is Helena Bonham Carter as the fairy Godmother (always a godmother, never a god–<sigh>) , whose choice as cast member is perhaps cheeky: She allegedly broke up Branagh's first marriage, to Emma Thompson, and cut into Tim Burton's too. A real Diana, huntress extraordinaire…) , a real hoot, albeit nearly unrecognizable. Cinderella is lovely enough, Lily James, a blonde version of the gorgeous Natalie Portman, and the handsome prince is sweet as well as alluring, as played by Richard Madden.

We know the story. Yet it still came out fresh and amusing, touching but not mush.

Of special note are the special effects, which seem integral to the action, are lovely by themselves, and are happily images that kidlets deserve to have in their little heads—magical swirling gossamer dresses and mice turning into tiny horses, geese transmuting into footmen, and all the little animals gifted with hilarious comic throw-away comments.

The tiny tots in the audience enjoyed it immensely, judging by their giggles and smiles, even at the late 8:30 screening. More surprising, so did the adults.

 The Salt of the Earth

 Directed by Wim Wenders and Juliano Salgado

[France/Italy/Brazil] [Documentary]

A spectacular meal for eye and mind, a life told in sweeping, oftentimes morally outraged pictorials of cultures, wars, African massacres, jungle peoples, exquisite natural wonders, catastrophes, natural beauties the world over. Elegant and mind-bending in austere and brilliant black and white.

Some critics carped that though this is a documentary of a great photographer, told by his son and great filmmaker Wim Wenders, there was practically nothing in the way of tech talk of cameras, shutter speeds and all the lacunae of the photography dodge. Nor are there experimental angles or unusual cropping, which some viewers complained about. (The same ones.) For the non-pro, the film is a ravishing look into the encompassing lens of a talented, searing artist over a lifetime of awareness.

In Portuguese, Spanish, French, English. Subtitled where needed.



 I published two books in one day for the second time in my life an hour ago. You may find them at Book of Bo: Gems of my Life and Book of Bo: More Gems of My Life.

In 1978, I published in one day It's a Racquet and The Kill and Rekill Gang out of an unheated garage on a Michigan lake where the keys of an IBM Selectric froze when I breathed on them. Here however, the two books come from a Miami high-speed internet office where I've worked a month of daily double 7-hour shifts with a miner's lamp over the keyboard and sleep on the roof in the sun.

With these publications, I'll hit the trail to exercise something other than the fingers, and probably stumble on new adventures.



 Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have "worked." Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is– zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices….

The bad news is that Berkshire's long-term gains – measured by percentages, not by dollars – cannot be dramatic and will not come close to those achieved in the past 50 years. The numbers have become too big. I think Berkshire will outperform the average American company, but our advantage, if any, won't be great.

Ed Stewart writes: 

Some time ago I began to consider to what degree the inheritance tax as we know it is actually a round about, but understood rule to unduly force private businesses into large corporations or financial owners. Ive tried to find related material but no luck so far. It seems highly likely that a similar scheme has been used before, say in Europe or more ancient times. It would be very amusing if the measure to supposedly prevent great wealth consolidation was in fact one of its largest causes yet in a way most people can't recognize.



 We're talking about watch sales around here. Rolex apparently sells 650 million in watches each year. Susan says that wearing a watch these days is like jewelry for men, and that it's useless since everyone has a smart phone. We're thinking about Apple's watches. They'll have to compete with all the other watches. Supposedly they forecast it to use up 1/2 of all the gold production in the world. I wonder when Apple will stumble and launch a product that doesn't set the world on fire. Samsung wearable watches apparently didn't do that great. What do you think, and how will it affect the price of Apple. We just bought some on the news that they had to pay 600 million out of 150 billion in cash on a patent suit, which will probably be reduced to 10 or 30 million.

Stefan Martinek writes: 

I agree with the view that watches = jewelry, but then it is more about IWC Portuguese watches in platinum having an unassuming steel look and simple elegant design. Apple is not a competition here. Apple watch will need a phone for core applications + daily charging. Some people probably like to carry two devices when one is enough. Some people probably disagree with Diogenes "who wanted to be free of all earthly attachments — on seeing a boy drinking with his hands from a stream he threw away his drinking bowl, his last remaining possession".

Pitt T. Maner III writes: 

Given the popularity of the "Quantified Self" and Fitbit, why not a watch that monitors all your physiological parameters (via implanted sensors) and provides feedback on the optimal things to do next.

An early example might look something like this: "a new digital wellness and telemedicine platform which helps patients live a healthier lifestyle and connects healthcare providers to patients using telemedicine and wearable mobile technologies, today announced that its platform will be fully integrated with Apple Watch products. Or this: "Apple Watch wearers with diabetes will be able to use an app to monitor their glucose levels."

Carder Dimitroff writes: 

I believe the iWatch will be an ongoing success. Like they've done with the iPhone, Apple will convert the old watch into amazing and useful technologies. As such, the iWatch will likely become less of a watch and more of something else.
In my family, we seldom call each other. It's either an email, text or FaceTime. Phone calls are the last option. Our iPhones are not used much for phoning home.

Like the iPhone, each iWatch upgrade will pack in more technologies on less real estate. We will likely learn new tricks, become mindful of health issues and live a better life.

You can sign me,

Dick Tracy

anonymous writes: 

My son asked me why he has to go to school? "Why can't all this learning simply be uploaded into my brain?", he asks.

anonymous writes: 

The question becomes:

1. Will it ever have a cam?

2. Will it ever be independent of an iPhone?

3. What body sensors can be built into it?

4. Perhaps it will be the base for iHome?

Just some questions.

Duncan Coker writes: 

A watch is a perfect accoutrement for a man as it is rooted in a practical function. The form and design however vary greatly. They can be showy and expensive or simple, like the Timex my father had. Men like things that have a purpose. Watches are handed down from fathers to sons or daughters for generations. The Tank watch is one of my favorites though I don't own one. Fountain pens are in the same category as would be certain sporting gear like classic hunting rifles, bamboo fly rods, Hardy reels, or Swiss pocket knives that every man used to carry. For Apple I know design is very important along with function which is a good start for continuing this tradition.

Jim Sogi writes: 

A Swiss army pocket knife with can opener, screw driver, wine bottle opener and blade, a simple model, is the most handy camping tool. I love mine. I also have a pocket tool with pliers, knife, screwdriver with multiple tips. It's very handy for many things like sports, camping, and skiing. 

anonymous writes: 

I got a very nice waterproof sport watch used at the Salvation Army for $6. The guy at the jewelry store laughed when he saw the price tag and the battery was $15. You can get a real nice casio waterproof sport watch for $20 with alarms, date, stopwatch. I just don't understand some guys desire for expensive watches or computer watches. If the watch were small, had a phone and music and alarm, and GPS and the battery lasted… maybe.



Very happy. February 26, 2015: Exactly unchanged to open and from open to close. Anyone who trades loses the bid asked spread and more through stops.

Paolo Pezzutti writes:

There cannot be a forecast at any moment, but there are technical situations in markets that stimulate non random moves. These patterns occur over time. Although cycles are everchanging and all good things eventually end. You have to listen to the inner music of the market, the hidden messages that it sends at certain times of the day, certain days of the week, when it moves from point A to point B in a given time and magnitude. Behaviors are recurring because of regulations, operational technicalities of big players, effects of fear and greed on the herd, impact of margin calls, announcements, rollovers, etc… It is up to your creativty, intuition and ability to scan the markets finding the hidden jems that can provide you with a meal for a lifetime. Unfortunately, this is not enough to be a profitable trader. Similarly to other endeavours in life, I would say that the technical edge is never enough.

anonymous writes: 

Imagine the 1000's of shorts looking for their profit target on a day like today– "missed by a tick or two". Price moves back to breakeven– "Never turn a profit to a loss, time to exit". Price reacts down again– "but I can't afford to miss the overdue correction, It's now been confirmed". Then stopped out once again, to be repeated at the end of the day. If it held it overnight, it will gap up big the next morning for maximum capitulation. 

Gary Rogan writes: 

But is this intentional (teleological to get all philosophical) or just a day out of many days in which this particular relationship between the open and close holds? Almost all the other days are different, so how should one view this particular day: a totally random occurrence, somebody's clever plan, or the market itself deciding through some collective thinking process to play a practical joke on all the short-term trading participants?

Ed Stewart writes: 

Gary, if for a short-term trader there are questions that leads to meals for a lifetime if studied and answered, that is one of the better ones I have seen.

anonymous writes: 

The round number magnet effects must be exacerbated by the fact that many options strikes are at round numbers. Pin risk and gaming risk of options are real. Exotics make the numbers hidden but draw in large capital sometimes.

You can't see the motivations if the options are OTC and not listed. Recall the story of the large macro manager who got into a lawsuit with his exotic option brokerage firm. He was able to get prices to go just one momentary tick beyond his barrier knock-out/knock-in strike and the prospective payout was so large that the breaking of the barrier on the single tick was contested by the parties.

One of the parties offered unlimited supply on the offer to stop the breach of the strike. –Can't recall seeing who won that lawsuit. Still the fact that large players often think in terms of hidden strikes, could lead to defending and attacking of certain price levels on a given day. The exotic expirations are customized as well.

anonymous writes: 

A word about round numbers & option strikes in the OTC markets.

It is interesting to consider, study & think about the following;

1. What is the 'real' round number. Consider the currency markets. As I type, the AUD USD spot FX rate is 0.78244. The June 2015 AUD futures contract is at 0.7773. The forward FX points that one adjusts the spot rate by the get the outright forward are merely interest rate differentials expressed as FX points. So, if the futures price rallies UP through the 0.7800 round then the spot market will likely be around 0.7845/50 - arguably a 'nowhere' price.. So, because the futures price incorporates the forward does that 'round' have any significance at all. Arguably, the important 'rounds' are only relevant to the core market. It is an interesting null hypothesis that currency futures rounds of a given expiry are 'artificial'… Something to chew on there.

2. Another point about the 'Strike Price Heat Maps' that our magnanimous friends in various market making institutions provide in 'research' pieces/ updates. Be aware that many, many flows are NOT included in these due to wording in various Prime Brokerage agreements, other legal documents and sometimes courtesies given to, for example, institutions in mercantilist high growth non English speaking parts of the world. So you end up just looking at poor quality partial information infected by contractual, confidentiality & 'cover my posterior' bias.

For the avoidance of doubt and to pre-empt the snipers on the list who pop their heads up when a sacred Taboo of theirs is breached, I am specifically referring to OTC markets, incomplete information provided by market makers & bias that anyone who has tested the information will have seen in out of sample results.



 Orlando has always been warm and exciting each of the dozens of times my family has visited. A few Bearish observations of this Mid Winter Break, nonetheless.

Firstly, we're seeing another ticket hike for Disney parks. In tune with price inelastic never-subsiding demand for passes, park hikes actually hit the 100-million plus annual visitors hard. Hotel occupancy may well suffer from it. I see widespread bleeding permeating within the hotel industry, and I have actually started preliminary negotiations on behalf of private investors to take over the ownership of an area resort. My speculation is that the theme as such is timeless, and that it should prominently figure on every bargain hunter's list.

Another curious observation is that a prominent RV rental operator Moturis (of Germany) has folded its US operation as of 2015. Truly, things appear gloomiest right before the bottom is reached. I'm sure that if Moturis had the vision to foresee the sharp Oil and Gasoline price collapse into 2015, they would've not proceeded with their folding plans. But the $3-4 gas of the last few years did eventually break their backs.

Another temporary casualty is SeaWorld. Plagued by a variety of short term troubles, from Shamu accident to the dolphin rights demonstrators outside, they got taken over by Blackstone Group and promptly halved the price of non-resident Annual Passes! Incredible bonanza, which in my estimation will not last more than a year. Get them while you can!

Also (I forgot to add): strengthening US currency has been acting to price out potential foreign buyers. Chinese investors are concentrating on bargains flashing mainly by devalued AUD, and possibly EUR and CAD as well



 I put this together after hearing of his passing.

A legend of the value world has passed. Irving Khan passed away at 109. Mr. Kahn was a teach assistant for Graham at Columbia University and worked on both Security Analysis and the Intelligent Investor. When Graham closed his partnership he suggested clients consider taking their accounts to Mr. Kahn who was then at Abrahams and Company a firm eventually purchased by Lehman Brothers. In 1978 he left Lehman and founded his own firm Kahn Brothers. He also wrote a book titled Benjamin Graham, The Father of Financial Analysis that is available on Kindle and is suggested reading.

In a 2014 interview he described his approach thusly ""I prefer to be slow and steady, study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven't changed, then I should like the stock even more when it goes down." In the same interview with UK based Telegraph he added ""During the recent crash and in other sell-offs, Tom and I looked for good companies selling at a discount, which do surface if you're patient. If the market is overpriced, an investor must be willing to wait. There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market. Throughout all the crashes, sticking to value investing helped me to preserve and grow my capital. Investors must remember that their first job is to preserve their capital. After they've dealt with that, they can approach the second job, seeking a return on that capital."

He also said in the Telegraph piece that ""I would recommend that private investors tune out the prevailing views they hear on the radio, television and the internet. They are not helpful. People say 'buy low, sell high', but you cannot do this if you are following the herd. You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It's also helpful to remember the power of compounding. You don't need to stretch for returns to grow your capital over the course of your life." In 2012 he told Jasn Zweig of th e Wall Journal "Individual investors who avoid "doing things you know too little about" still stand a decent chance of outperforming professional investors, especially by sticking to smaller stocks." He laos added a quote that my well end up as a tattoo or throw pillow around Chez Melvin ""If you command a lot of cash you can be wrong and still not have to worry."

In 2008 he told Financial Week that ""There are very few true value investors.Value investing takes discipline, patience and a healthy dose of skepticism. We live in an era with too much confidence in advertising. Everyone tells you that you can attend a seminar for $250 and make lots of money. Value investing means being much more discriminating." More Irving Kahn quotes to consider that well help you be a better investor and perhaps even have a better life:

Stop buying things that you don't need, and start focusing on the essentials; then you will live long and be happy.

You don't have to be fully invested all the time. Have patience, keep your standards.

Ben always believed in the Socratic approach. He never provided students with a ready answer, believing that through thorough discussions and rational deductions, solid conclusions would be reached. I remember asking him about the word 'tranche' as it applied to finance. Instead of providing the definition right way, Ben asked me to look it up in the dictionary. I discovered that it means 'slice' in French. Ben believed that if he told me the answer right away, I would forget it, but if I took the initiative to look it up myself, then I would always remember it.

I understand that net-net stocks are not too common anymore, but today's investors should not complain too much because there were only a handful of industries in which to look for stocks in the old days. Now there are so many different types of businesses in so many different countries that investors can easily find something. Besides, the Internet has made more information available. If you complain that you cannot find opportunities, then that means you either haven't looked hard enough or you haven't read broadly enough. Tim's hint – Think community banks

Prices are continuously molded by fears, hopes, and unreliable estimates, capital is always at risk unless you buy better than average values.

 Why are results so often below average? I believe there are two reasons. First, the institutional client illogically expects security selection to be limited to the major corporations conventionally selected by others. This conventional bias dooms performance to an approximation of the average. Second, the institutional investors believes he should have his hand held a few times a year to confirm his own reactions to the current scene.

Never buy popular stocks, except maybe in a depression.

I'm a passionate reader. That's why being an investor is the perfect job for me.

Successful investors, like successful doctors, must have a good understanding of the hard facts expressed in numbers

If the art of investing were actually easy, or quickly achieved, no one would be in the lower or middle classes. To be a successful investor learning is essential.

Security prices are as volatile as ocean waves – they range from calm to stormy.

Shrewd investors must resist following the crowd; when everyone is making money these investors know this portends a decline. Value investing is one of the best ways to step apart from the crowd and to protect oneself from the unpredictable behavior of the securities markets.

If a company has great prospects everyone already knows about it. We won't be comfortable paying for good prospects. People are always worried about the economy and the world, especially since the financial crisis of 2008 and Europe's sovereign debt crisis in 2011. I feel that people should learn to be optimistic because life goes on, and sometimes favorable surprises come out of the blue, whether due to new policies or scientific breakthroughs.

The world is full of complications, and the media are full of advertising. Stop buying things that you don't need, and start focusing on the essentials; then you will live long and be happy. In life, the goal is to achieve happiness, so start thinking about the things that count!

Lemmings always lose.

Any market mania comes up against hard reality in the end.

Real investors should never feel bearish because the time to buy value is when markets go down!

I cannot top or add to the wisdom of a legend and one of the founding fathers of value investing. RIP Mr.Kahn and thanks for all the fantastic stock ideas we stole from your SEC filings over the years.

Have great week all. There will be no Thursday update next week as I am off to Baltimore for my daughter's wedding. I am told there is a lot of stuff I have to do to get ready for the big day. I have no idea what all that stuff is but I am sure that between my daughter, my wife and the groom mom I will have lots of instructions as to how to carry our my various tasks!

Have a great week.



"Irving Kahn, Investor, Who Profitted in '29 Crash, Dies at 109":

Mr. Kahn was a value investing icon who served as a teaching assistant for Ben Graham and worked on the classic tome Security Analysis and the original edition of The Intelligent Investor.

He was still working a few days a week at 109 years old at the firm he founded back in 1978.



 What is striking is the shift in TOTAL preference for the Democrats. In 2008 it was +20. The best Bush II ever did was in 2003 when preference for the Democrats was only +3. But, in the last four years (2010 to 2013) the numbers have been -4, -3, +4, +5. That really is news; the Republicans have never had 4 years when party preference was statistically EVEN, not once in their entire 150+ year history. We will have to wait for the numbers for 2014, but the election results hardly suggest that the Democrats had a rebound in overall popularity.



 Primates of Park Avenue: Manhattan Motherhood from an Anthropological Perspective is a new book that will be released June 2nd, 2015. I found the description quite fascinating. 

1. "Like an urban Dian Fossey, Wednesday Martin decodes the primate social behaviors of Upper East Side mothers in a brilliantly original and witty memoir about her adventures assimilating into that most secretive and elite tribe.

After marrying a man from the Upper East Side and moving to the neighborhood, Wednesday Martin struggled to fit in. Drawing on her background in anthropology and primatology, she tried looking at her new world through that lens, and suddenly things fell into place. She understood the other mothers' snobbiness at school drop-off when she compared them to olive baboons. Her obsessional quest for a Hermes Birkin handbag made sense when she realized other females wielded them to establish dominance in their troop. And so she analyzed tribal migration patterns; display rituals; physical adornment, mutilation, and mating practices; extra-pair copulation; and more. Her conclusions are smart, thought-provoking, and hilariously unexpected."

2. 'From a deconstruction of the exercise and self-care practices of the caste of women with children she calls "Manhattan Geishas" to the lurid details of her own crazed pursuit of a Birkin bag; to an analysis of the rites of passage like the co-op board interview, the gut renovation, bed bug battles and "ongoing" school applications that brought her to her knees; to an exploration of what she calls "the world's most complicated, fraught, and misrepresented relationship, the dance between mothers and the nannies they hire to help them raise their children"; to an inside view of the galas, benefits, kiddie birthday parties and other extravaganzas of conspicuous consumption that define her adopted tribe, Martin spares no detail in exploring what makes Uptown motherhood strange, exotic and utterly foreign and fascinating.'



 The tennis playing slice backhand former fake doc, bathtub loving, former owner of forecasting company based on blast furnace usage, chair of the Fed, gave the perfect Delphic prediction, right out of Delphi and the singers. "Something big is going to happen". Yes, that will be true whether the Athenians or the Spartans win and since it has no time horizon, 100% true by randomness. Hats off to someone at his advanced age with access to lunch at the Fed every day to further enhance his consulting company gravamen, for his Delphic pronouncements.



 Your biggest opponent in trading is yourself. Has anyone heard this statement? It seems incredibly naive to me. Not surprisingly, I just read something like it posted on twitter. When I put in an order and get 3 shares filled, it is clear to me that someone is gaming the order. They get the info and then I don't get a real fill. On the other hand when I develop a strategy that qualitatively seems to anticipate stop or momentum buying, my buying is part of the force that pushes price to that level–releasing potential energy, one of the most useful concepts in trading. Everything has an impact. To think it is all just a "mental game against yourself" suggests that the market is mechanistic process vs. a competitive process, which is entirely wrong.

anonymous writes: 

This (not well documented) jab at mom and pop retail investors comes to mind: "Fidelity Reviewed Which Investors Did Best And What They Found Was Hilarious".

Ed Stewart writes: 

It reminds me of something I read in a poker book about one of the top cash game players (I'm not a poker player). He would supposedly call out to people considering a game, saying, "hey, come on over, we are playing all of your best games, imagine what a little luck could bring" very friendly, etc. I could see in a similar situation someone calling out, "Hey, if you master the mental game against yourself, the rest of us will hand you our money, we are just bystanders". 

anonymous writes: 

I believe that there is nothing inherently wrong or detrimental to a successful trading process from some form of self-awareness.

The problem is that it is very rarely quantified. This list has/had a resource in this regard, the esteemed Dr. Steenbarger.

One has had occasion to work through both of his main texts in isolation & in a more institutional setting. Regardless of ones view about this stuff, I would encourage all to read and think about their market approaches in the context of both books. He is a serious guy and performed some intense experimental tests upon himself in real time.

It is reasonable to assume that such help would be more suited to fundamental discretionary traders, but a more in depth thought process may expand that.

One whole heartily agrees that throwaway lines are useless ( much more so when transmitted through what may prove to be one of the Four Horsemen of the Apocalypse- i.e TWTR.)

Leo Jia writes: 

I think ultimately the biggest hindrance if not the biggest opponent in anything is oneself or one's own mind. As you suggested that someone thinking that trading is all just a mental game against himself is wrong, you actually suggested that his thinking is his own opponent.

Is market mechanistic or competitive? I think it depends on the situation.

I tend to view market has the following participants in any day: a) bulls and bears, and b) primates. The former are big and have their decided views for that day or the following period. They mostly fight fiercely. The latter are small and are simply ready to join either the bulls' camp or the bears' camp at anytime depending on their own views of which side is stronger.

The fight between the bulls and the bears are competitive. But for the primates in this case, it is not competitive (or at least not in the same sense). To them, it is simply making a choice.

The bulls and bears both understand the nature and tendencies of these primates, so they try to take advantage of the latter whenever possible. So in this case, the primates have to compete with the big ones. This might only be possible when the two big sides are not fighting fiercely between themselves.

The primates are controlled by their innate nature of fear and greed (let's just say that the bulls and bears are less prone to fear and greed), so their combined behavior is quite predictable. So when either the bulls or the bears (when one side is absent or subdued) attack the primates, it is quite mechanistic.



 Mattel showed up on one of my screens yesterday because it's stock price is at a 3+-sigma (long term) divergence versus competitor, Hasbro.

This is an interesting company for a variety of reasons. But a key question facing a contrarian buyer is whether the franchise value/moat built on key brands (e.g. Barbie, Fisher-Price, American Girl) is in secular decline. The company currently has no CEO and a key Disney licensing deal expires next year. They reported a truly dismal fourth quarter. All of this is in the stock price. The stock yields 6% which tells us that Mr Market believes it will be cut. They announced a new product with Google and the market yawned. Presumably the stock will pop on the appointment of a solid new CEO who will then take kitchen-sink writeoffs, cut the dividend, restructure, and start anew. But as always, timing is everything and the stock could be a lot higher (or lower) by the time all of this new news is digested.

Mattel is also facing macro/demographic headwinds (but presumably so is Hasbro which is doing quite well). Remember also that Jill Barad made a dismal acquisition of LeapFrog years ago and there were aborted takeover talks when they tried a ?hostile? acquisition of Hasbro. Mattel and Hasbro dominate this industry.

Is this a value trap or opportunity? And if MAT is a value trap, does that mean HAS is a short too? I'm not expressing any opinion except that there is no obvious reason why MAT should outperform the SPX over the next ____ days unless they announce a new CEO that Mr. Market loves. Would be interested in other insights and especially from Tim and the other "value" folks.

Here are the comparative valuations from Bloomberg:


P/E=16 (on distressed earnings)
Yield: 6.0%
P/S= 1.4
EV/T12Ebitda= 7.1
Ebit/Tot Int Exp= 8.2
Mkt cap= 8.6B
EV = 9.7B

Ebit/Tot int exp=6.8
Mkt cap=7.8B

anonymous writes: 

My daughter wanted a new doll, so we went to Toys-R-Us. The Barbies were on sale for $6. But she wanted the $30 Frozen doll. I offered her 5 barbies but she declined. The no-brand dolls were going for $2. Clearly, offering for a discount doesn't change demand much — and perhaps the same for the stock price.

She is a 3 year old educated consumer too — I asked her why, and she said the head turns and the eyes are hypnotic. She can't read the package, but she has already watched the commercials.




 Whether Grexit is on or off the table, it would appear that the Greek government is boxed in not only by the EMU but also by its own electorate. At one time, I thought that whatever happened in Greece short of Grexit would stay in Greece. Now I'm not so sure. Nationalism is a theme on the rise in the EU. To what degree will responses such as this one by the Greek electorate "spill over" to other countries in Europe?

"Europe Has Approve Greece's Reform Plans"

Stefan Jovanovich writes: 

David's use of the domino theory surprises me. In the Balkans there has never been a need for "spill overs"; nationalism is all that these small, poor countries have. What you have to understand about the Greeks is that they actually do remember the Nazis. If the French, British and even Putin have forgiven the Germans and shifted to the Gaullist notion that it is all the Americans' fault, the Greeks still think about what the Third Reich and its Muslim allies did to their country. They think less about how WW II was followed by a hot and cold civil war that continued, with various interruptions, for another 40-odd years - until the fall of the Berlin Wall.

The combination of those historical memories - one remembered, one deliberately forgotten - is what allows practically everyone in the country to now have the politics of a Beverly Hills communist who has just received an audit notice for his/her tax shelter.



 Biomimicry is a fast growing field lead by expert Janine Benyus.

1. "As unlikely as it seems, the most promising routes to regional job creation, revenue generation and business expansion are the meandering trails of the Cleveland Metroparks; the oft-maligned waters of the Cuyahoga River and Lake Erie; and the rich canopy of trees and other plants that sustain thousands of species in the Cuyahoga Valley National Park. Welcome to Northeast Ohio, the emerging global hub of biomimicry. Or so it could be."

2. 'Hippopotamus sweat is a natural sunblock, Harman said. Furthermore, it's waterproof, antiseptic, antifungal, antiparasitic, self-spreading and non-toxic. Researchers at the University of California-Merced are looking at ways to use the chemical in commercial sunblocks, which are often either ineffective or toxic. "This is going to completely change our world of sunblock," Harman said. "And this is just one molecule that is going to transform the world of pharmacology and chemistry."



 I am finishing The Deluge by Adam Tooze, an ambitious undertaking of a book which covers the post-WW1 rebalancing of power on a global scale. WW1 was largely a war of feuding imperialist nations with entangled alliances. But after the war the world became a different place. One particular issue that has relevance today is that of debt. Europe was very familiar with debt with from 1917 to 1925, particularly Germany. All the powers, Germany, England, France and Britain had borrowed heavily from their populace and international bankers (JP Morgan and friends) to finance the war and reconstructions. The populace could be easily taxed or the currency devalued to eliminate a portion of the debt. The foreign debt holders, however, demanded payment in hard currency or gold and were ruthless in collection. Their was no debt forgiveness by friends or foes. The Entente (Britain, France, Russia) had their ongoing currency and gold wars amongst themselves and with the US over debt. Germany was crushed by debt during that period. Perhaps Germany's intransigence today is due to their history. No one showed them much mercy at that time.

All told today in Greece the total debt at par is roughly 400b euro. A reasonable haircut could easily be absorbed by the central banks and official institutions who own most of the debt. I think the battle is one of ideas. The German notion of aggressive self reliance and go-it-alone attitude, versus the dream of a family of nations which Wilson wanted ( at least for everyone outside the US). I predict in Europe the latter path will prevail. No one wants another war, metaphoric or otherwise. The cost of a write off is negligible when the ECB is prepared to spend 1.6 trillion euro on various paper. The 5 and 10 year Greek bonds appear to agree as they started to rally in October well in advance of the current debate and are up roughly 40% since that time.

Stefan Jovanovich writes: 

Adam Tooze has written a very good book on the Nazi economy. Now he has written a very bad one. There was only one foreign debt holder for Britain and France after WW I - the U.S. The only justification for describing the Americans as "ruthless" is the Keynesian one: the U.S. Should not have insisted on being paid back in the same money that it had lent - gold priced at the U.S. Exchange rate. The U.S. Did not, in fact, collect any war debts beyond the amounts lent to Germany under the Dawes and Young plans which were paid to the European Allies as reparations and then sent back to the U.S. Finland is the one country that actually paid back what it borrowed. Germany was not crushed by debt; the hyperinflation literally wiped out all the creditors. The reparations demanded by the Allies were large, but they were less than a third the size of the ones demanded from France after their defeat in 1870. The French actually paid, in gold; the Germans never did pay up. The British thought they could ignore their default by adopting a gold exchange standard - i.e one that only applied to account reconciliation between central banks but not to money held privately. The French and the Japanese, to their credit, actually tried to restore fully so that their money would once again be automatically exchangeable to specie. The Japanese were defeated by the Tokyo earthquake and fire of 1925; the French by the U.S. Reversion to mercantilism under Hoover and Roosevelt's planned economies and the devaluation of the dollar. The great sin of the U.S. Was not to have tried to collect the war debts; it was to have violated the Constitution by failing to value foreign coin. Without the U.S. Treasury and Federal Reserve's connivance, the New York banks would not have been able to discount francs and pounds at pre-war par; and the war in Europe would have ended by summer 1915.



 One's reading material for his trip to Florida to say hello to Irving Redel were 3 chemistry texts: Principles of Chemistry by Michael Munowitz, The Extraordinary Chemistry of Ordinary Things by Carl Snyder, and Science 101 by Denise Kiernan and Joseph D'Agnese.

I'm too aware of my ignorance to try to devolve the million things we can learn about markets from chemistry so I'd appreciate my more erudite colleagues here to suggest things. However, I found the tendency of all elements and molecules to form Octets very resonant of moves to the inextricable move of markets to round numbers, and their stability as of the noble gases once they reach there.

Also, one found the discussion of catalysts and inhibiters very resonant as some recurring things like aluminum chloride a catalyst like Janet Yellen or employment and inhibitors like enzyme inhibitors and the quiet before announcements also very common.

What are the acids and bases of the market? The activators? And how does total energy stay constant in markets in a closed system and what predictive value does it have like when the Greek news was very bad, the potential energy was so great for a move to the upside. An ignoramous like me poses these ideas and solicits some erudite thoughts and possibly paths to reduce his ignorance.

And of course, the most salient of all chemical relations. What is the periodic table of markets about. Which are the groups of similar behaved ones? Which are most reactive. Which combine and reduce and increase et al?

Jeff Watson writes: 

As of late, the equity market has been chugging along, with a bias to the upside but within a narrow range. News and reports that one would expect to wreak havoc and change on the market have not made it budge. One could compare the equities market to a buffer solution. A buffer solution is composed of a weak acid or base and it's conjugate acid or base in an aqueous solution. A buffer solution readily withstands a moderate amount of strong acid or base added to it where the pH will only change a little. Consider the market to be the buffer solution and the added acid or base to be the news or reports. Bad news does not make the market go down that much but conversely, the good news doesn't make it rally hard either. Along those lines, one would consider the buffer capacity to be the most important characteristic and measurement. The buffer capacity is a measurement of the resistance of a buffer solution to pH change with the addition of hydroxide ions. This can be easily quantified, and the formulas can be found in any quantitative analysis textbook. The buffer capacity of the market can be defined as how much resistance the market will have to change, given the amount of good or bad information supplied it.



 Vic Niederhoffer and Irving Redel, 2/20/2015, Florida, USA



There's lots of discussion of correlations on this site. In many ways, it's a big data in the financial world.

Yesterday, I was working on a pharmacoepidemiology syllabus and realized that in epidemiology, we now have the technological power and data access (in theory, at least) to follow entire populations of tens of millions of people. It's the age of big data. It's the age of genomics/genomic markers. In such circumstances, do the precepts of what is a cause change? Is it a matter of biological plausibility when the correlation for a genomic market with a disease is moderately strong but there is no known mechanism (and may not be since the market may be a regulatory gene—or it may be close to the gene that has an effect)? With big data, epidemiologists may be able to follow vast populations (tens of millions even). In such circumstances, are the means of making a causal inference unchanged?

The correlations reported have been provided a course to profits for some. But if the precepts of causality haven't changed, then the correlations in the absence of other data don't provide a much of a path; those sustaining losses from using the same correlations (assuming the events themselves are random) would simply be silent. Our perception would then be that the correlations have some meaning, and we build upon them.

I'm sure I'm missing something here, but I'm also confident that those on the list can provide some needed direction.

Steve Ellison writes: 

We have sometimes discussed here the problem of multiple comparisons. If one looks for enough things in the same set of data, the odds of finding something that appears to have p <0.05, but actually occurred only by chance, increase dramatically.



 Since Eddy and her mother abandoned me for the pleasures of visiting Charlotte and Charleston this weekend, I have had to amuse myself with reading Marx and Engel's (mostly Marx's) dispatches to the New York Tribune. Poor man; if only he had lived a century or so later, I am certain he would have been able to win the Nobel Prize AND write for the Times.

It is fascinating how much Marx despises the man who gave him and Engels their claim to fame. David Ricardo's assertion that profits and wages inexorably contend with one another is surely the basis for the Marxist's "labor theory of value". Yet neither revolutionary author has even a single kind word to say about the first great English-speaking practical speculator. Neither, for that matter, does Wikipedia. One wonders why. Ricardo was an abolitionist, he opposed the Corn Laws and favored an expansion of trade as the only means by which the poor could escape permanent destitution.

There are only two explanations that I have come up with in a weekend's reading of MarxEngelian journalism (which could, with a few changes of names, easily be reprinted as commentary on the current "Greek" crisis. One, Ricardo was truly at home with international finance and counting; his father was a stockbroker, his sister a mathematician and his family, through its religious connections, had ties with Holland and Portugal. In an age when nationalist rivalries, religious bigotries and Marxian envy were as stupidly persistent as they are now, Ricardo's 19th century liberal belief in freedom and enterprise was an insult to both Right and Left. The other explanation is that Ricardo at the end of his life (he died in 1823) was abandoning the very idea of "value" that was to dominate the ideologies of economics itself. The longer he worked on the idea of labor as the basis of value, the more he came to see it as a theological question that had no practical meaning. There were only prices expressed in currencies; and markets were the only free way of setting those prices.

We are, yet again, at that lovely point where the official Left and Right can come to agreement. How can the Greeks, who are clearly unable to pay the debts to themselves, let alone those to other nations and entities, be allowed to declare bankruptcy? Unthinkable in the minds of anyone whose opinions are likely to be heard on the subject. In the great game of central bank cold warfare, such a surrender to the speculators would be an absolute heresy. Leaving Greek enterprise and labor to find their best prices would be anarchy. Leaving the discounting of the various monies used to price that enterprise and labor and "capital" would be absolute anarchy. Everybody with a proper education knows that the fluctuations of credit can be restrained; it simply requires wise administration by people with the authority to own the means of production or regulate the measure of capital (choose One).

Whatever the current solution to the crisis of "Grexit", the end resolution remains the same: default by the borrowers and– depending on their perceived leverage– large or small trouble for the lenders.



Dear Mr. Niederhoffer:

Insider Insights' Top Trades Email Alerts are sent four times daily: 11am, 3:30pm, 7:30pm, and 10pm Eastern Time. They contain the top 20 insider purchases and sales filed at the SEC in the hours between each alert, based on dollar value.

These are factual lists, not buy and sell recommendations. Dollar value is only one factor when assessing the importance of an insider transaction, and, frankly, often not the most important metric that determines if an insider trade is significant.

At , we find new investment ideas just about every day using these and more intricate insider screens to determine where we should focus our subsequent fundamental and technical analysis. And while stocks don't (or shouldn't) move up or down based on insider activity alone, insiders tend to be good indicators of when real stock-moving events like earnings surprises, corporate actions, and new products may be in the offing.

So use these regular emails as the initial research tools they are meant to be, and click the links in the tables to analyze a company's or insider's full insider history. Also feel free to email Top Purchases for 2/19/2015 (3:30pm)

 Filer Name          : HELMER WILLIAM F
    Insider Title(s)    : DIR
    Company             : STERLING BANCORP
    Ticker              : STL
    Trans Type(s)       : OB
    Dollar Value        : $591,924
    Shares Traded       : 46,100
    Trans Date(s) From  : 2/18/15
    Trans Date(s) To    : 2/18/15
    Trans Price(s) From : $12.84
    Trans Price(s) To   : $12.84
    Direct Holdings     : 285,311
    Indirect Holdings   : —
    Other Info          : —
    Input Date       : 2/19/15 2:12:57 pm



 Who are the beneficiaries of lower crude prices (other than US drivers).

I own some global power generation utility funds and they seem to be benefiting from lower oil despite the global malaise meme.

Some of the downward pressure on futures would be coming from commercials who are hedging by selling at higher prices to insure the selling price of current production or stock.

After further research, the US Dollar, Thailand, Oil Tankers, Saudi's UAE are winners.

anonymous writes: 

Add India as well. 30% of their imports is oil. It has been a great profit generator with more upside potential. 



 There are indeed spirits afoot, and no, they are not related to Rocky's ghost.

The spirit is one of the spring, a time of renewal, a time of warmer weather, a time when snow melts and the grasses up north start to green as the boys of summer begin to slough off the slumber of winter.

in short, it is spring training time, a ritual going on for more than a century (actually 120+ years). And not only has this rite of spring been going on for a while, it's never been something exclusively American (or at least taking place in the 48 contiguous states), as the Dodgers once-upon-a-time trained in Cuba (extra credit points for the when and for what reason).

Orioles pitchers and catchers report today. (Same for the Cards, Scott.) Let's summarize some notables from the winter: First, the Os did not lose their general manager. On the other hand, that general manager doesn't appear to have done much for a second straight winter. Judging the results from last year, though, it may be hard to argue with his method.

Many O's stalwarts, like Nick Markakis, are gone. They will be missed. The pitching staff remains weak. There are three potential all-stars who missed either all or large segments of last year; will they perform this year? Mochado and Weiters are both question marks in whether they get onto the diamond, and Crush Davis needs to get his 2013 groove back if the Os are to stand a chance at the post-seaon in 2015.

So the Os are a question mark for the season. That's been the case for a while, and one hopes that maybe, just maybe, next winter will be more productive than this past one has been.

In the meantime, some predictions:

First, the Yanks are going to demonstrate that while money isn't everything, it's well ahead of whatever's in second place. That said, there's no reason not to think the Royals might repeat. Time will tell the tale. Regardless, come next January, New Yorkers will likely pay more attention to the Yanks off-season moves than to anything the Knicks may be doing.

Second, the Padres will improve this year. It's hard to see how they couldn't.

 The Cubbies. Ah, yes, the Cubbies. The Cubbies did a lot to rebuild/retool the team in the past 12 months, even as the beloved Ernie Banks passed from our time. However, I will go out on a limb and—to the disappointment of those baseball fans on the north side of Chicago and Cubs fans everywhere else—the Cubbies will not only not win the Fall Classic, but they will not even be in it! I say that with some sense of certainty. Why? Regression to the mean. Except in the case of the Cubbies, going back more almost three-quarters of a century, have not been in the series, and hence, the variance for that regression line is zero. Zip. Maybe this year will be the outlier, but I doubt it. (And for Cub fans everywhere, that may well be the best indicator that the Cubs will clinch the series in four. But we'll see in eight months. Or is the post-season long enough now that it's nine?)

So, in the spirit of spring:

"Spring is here, spring is here
Life is skittles and life is beer
I think the loveliest time of the year
Is the spring, I do, don't you? Course you do
But there's one thing that makes spring complete for me
And makes every Sunday a treat for me

All the world seems in tune on a spring afternoon
When we're poisoning pigeons in the park
Every Sunday you'll see my sweetheart and me
As we poison the pigeons in the park

When they see us coming
The birdies all try and hide
But they still go for peanuts
When coated with cyanide

The sun's shining bright
Everything seems all right
When we're poisoning pigeons in the park

We've gained notoriety
And caused much anxiety
In the Audobon Society
With our games
They call it impiety
And lack of propriety
And quite a variety of unpleasant names

But it's not against any religion
To want to dispose of a pigeon

So if Sunday you're free
Why don't you come with me
And we'll poison the pigeons in the park
And maybe we'll do in a squirrel or two
While we're poisoning pigeons in the park

We'll murder them amid laughter and merriment
Except for the few we take home to experiment

My pulse will be quickenin'
With each drop of strychnine
We feed to a pigeon
It just takes a smidgin
To poison a pigeon in the park.”

Those being the immortal observations of Tom Lehrer, who had only 102 performances in his brief and non-stellar musical career. Even so, enough material for one Broadway (I think it made it that far) show and one off-Broadway show, both of which ran, I think, for some time, gives some reason for pause.

Play ball!



 Ken Jenning's book Maphead: Charting Weird World Geography is a wonderful read, especially if you are into maps and even if you aren't. It introduced us to Geocaching, which is a worldwide phenomenon now, a real treasure hunting experience that the kids love.

The book is good about addressing the true lament of all geographers–geography is NOT just about maps, although he goes into some detail about the market in high value antique maps and the incredible acts of fraud and vandalism that tarnished one of it's best known dealers when Edward Forbes Smiley III was caught stealing from Yale University's rare-book library.

The book is a very quick, fun read and filled with interesting trivia, such as where is the worlds largest island on a lake on an island on a lake on an island.



One of the biggest sources of undue loss I have seen with active traders (decent ones, not the chronically hopeless) is managing day-based strategies on an intra-day basis, using untested assumptions about how this shorter time horizon operates based on the day time horizon idea(s).

Another is having a day-based system, and then managing it intraday based on ones P&L since entry. I have found that these two things are very good at turning a profit into a loss more often than should occur.

On the other hand if you have a day-based system and then do the opposite intraday of what people managing their equity tend to do, and test it, it is abnormally likely to be a decent entry point for a fast profit.

anonymous writes: 

As usual sir you have identified an excellent discussion point.

Within the HF community, the mismatch you mention is called being '5 minute macro'. What this means is trading substantial macroeconomic themes with day trader stop losses.

It is a dead giveaway when a Portfolio Manager of a discretionary bent ( managing say 150 million) sells 200 EURUSD because the U.S. is going to raise interest rates in the third quarter and puts a 30 pip SL in.

Genuine macro trading barely exists anymore. The names that come to mind are Bruce Kovner, Nick Roditi & Stanley Druckenmiller. This is probably a combination of conditions not being conductive in recent years (overall and with exceptions) but it is more to with investor preference for not wanting to lose any money.

Stanley Druckenmiller has an interview somewhere on You Tube in which he talks about how investors used to say that he wasn't trying if his years result was within +\- 25% and 'risk adjusted' returns be damned.

If one's method is genuine macro then one must have a reasonable degree of volatility in performance and long flat periods.

Consider this: The underlying assets that macro traders speculate in have volatilities generally in the range of 10% (currencies) to 60+ percent (energy complex). How then is a genuine trader of macro themes to keep his stop loss to 3% peak to trough (a common number in brand name macro establishments) with a Sharpe Ratio of 1.0 when the underlying all correlate and have huge volatilities… The only answer for these poor souls is tiny position sizes or perfection in entry and exit.

Interestingly, the Principals at the brand name shops do not have these same restraints…. Some allowing themselves 20% hard stops and 3+ consecutive losing years….. It's almost as if the 50-100 PM's at a large macro shop whose names are not above the door have the game tilted against them by their own sponsors… Almost as if they are all window dressing to make the firm seem more deep and substantial to conservative high fee paying 'investors'.

anonymous writes: 

"A perfectly timed trade" the macro trader thinks to himself. His well timed entry has lead to a very quick 30 ticks of open profit. Utilizing his trusty 5 minute chart, he sets a stop-loss just beyond the recent resistance zone. "It's time to sit back, be patient, and let the market do the heavy lifting," he thinks.

Yet the market throws a curve ball, as usual, and now the position is back to breakeven, leaving the trader biting fingernails as the P&L window flickers between red and green. "Perhaps I was early going in with my maximum position size" he contemplates. Clearly, the position will now get stopped out. Within minutes, he has exited with a few ticks of profit."… At least I covered the transaction costs, and green is always better than red".

Only now the market reverses big in what would have been his favor, dwarfing the prior move. "Four times my initial risk… and I missed it!" he observes in anguish. Price breaks a recent low, so the trader shorts again. "Price has now confirming my macro analysis - and a teeny risk is always worth the 20X reward" he rationalizes. The market reverses again, furiously, and stops him out again. Yet within seconds, price has rebounded 20 ticks from the exit point, which restarts the cycle. This train wreck of logic continues until the trader decides to take a break in order to "reset the bearings" and focus on the big picture.

At this point the directional move the trader has anticipated blasts off. He waits for a low risk pullback "I can't afford a stop loss that far from resistance, after all" but it never occurs. Having missed the original move and now seeing the market overextended, the contrarian side looks very promising - "clearly, this has become a reversal market". Yet when his resting limit buy order is filled, there is no rebound - indeed it is instantly underwater by 10 ticks, and within the hour he is down 100 ticks. He adds, and adds again…

At this point if he is with a big fund, (if Anonymous is correct, and I'm sure he is), the manager calls– the trader's call option value with the firm is now zero. "How could my correct analysis have lead to this point?" He thinks to himself as he cleans his desk and is escorted from the premises.




"How a Painting from 1925 Inspired Ford's Customer Focused Future":

In 2007, Mulally tells Fast Company, "I was looking for a compelling vision, a comprehensive statement to deliver that strategy." He found the company's mission for the foreseeable future in a 1925 advertisement in the Saturday Evening Post. It featured a painting commissioned by Ford's ad agency called "Visions of Tomorrow."

I strongly suggest readers of this Mulally puff piece take a look at the real financials and not be swayed by the Art Deco-esque graphics that are reminiscent of the covers of Ayn Rand's books.

Ford had gross profit in 2005 of 26 billion and EBITDA of $14B. Mulally was named President and CEO in Sept 2006. In 2006 gross profit dropped to 3.4 billion. But just a few months after he joined, in 2007 (before the recession), gross profit bounced back to 21 Billion. Most notable, except for one quarter in 2010 (which was a post recession bounced), he never achieved annual EBITDA greater than when he became CEO.

Mulally was a very good CEO. But anyone who knows anything about running a company with $170 Billion in revenues and 190,000+ employees knows that it takes more than a few months to turn around a company; that auto sales are cyclical; and that his major achievement was preventing Ford from following GM into government-controlled bankruptcy — primarily by shrinking the company — not by growing the company.



 I am finding it harder to disagree with some of these young kids about their disillusionment. When they observe, as is the case of Target Corp., a CEO meet almost none of his multi-year goals, then be fired walking away with tens of millions of $$$ in compensation and $125MM in total wealth while 600 line workers are let go due to his failings, the game is badly fixed. And the young and less well off get the joke.



Popperian falsification of hypothesis that stocks need oil up to go up today.



 The strongest material known to man is found in limpet teeth.

“People are always trying to find the next strongest thing, but spider silk has been the winner for quite a few years now,” Barber told the BBC. “So we were quite happy that the limpet teeth exceeded that. The teeth also bested several man-made materials, including Kevlar, a synthetic fiber used to make bulletproof vests and puncture-proof tires. The amount of weight it can withstand, Barber told the BBC, can be compared to a strand of spaghetti used to hold up more than 3,300 pounds, the weight of an adult female hippopotamus.”


“As the limpet tooth is effective at resisting failure owing to abrasion, as demonstrating during rasping of the tooth over rock surfaces, corresponding structural design features are expected to be significant for novel biomaterials with extreme strength and hardness, such as next-generation dental restorations.”




Given the strong whiff of deflationary sentiment in the group and the extended thread about negative yields, I'd inquire if anyone else got a short term buy signal for TIP today? I am going to ignore my signal this time but not because I disrespect this crowd's sentiment.

Rocky's Ghost writes:

My models have demonstrated with statistical perfection that 100% of the TIPS that traded today were purchased by people who think they will increase in value on either an absolute or relative basis.

But regardless of the sophistication of my tongue-in-cheek model, a discussion regarding under what circumstances an investor/trader should ignore one's "signals" is a very worthy topic of discussion. I have found that ignoring an entry signal is more insidious than ignoring an exit signal. Missed opportunity cost doesn't show up in the P&L, hence it results in self-delusion.

Gary Phillips writes:

Missed opportunity can often end up costing you more than money, especially if it causes one to chase or revenge trade.

anonymous writes: 

One corollary question associated with the negative yield situation is as follows: how negative must yields get before managers of short-term assets decide that it is more cost-effective and return-supporting to cease putting assets in sub-zero instruments, and instead hoard physical currency in their own private vaults. Yes, it would incur security and insurance costs, and probably tempt personnel to engage in fraud, but one wonders about the extent to which significant and persistent negative yields would lead to disinternediation.

anonymous writes:

Samuelson discusses negativity in an opinion piece today

"A new economic mystery: negative interest

Stefan Jovanovich writes: 

"Negative interest rates" are no more unprecedented than the idea that the Federal government should be smaller than the combined bureaucracies of New York, Massachusetts, Ohio, Illinois and Pennsylvania - which was the case by the time Ulysses Grant left office in 1877. If you held money - either coin or U.S. notes or a demand deposit account at a bank that saw itself as an intermediary and not a lender, you paid negative interest rates; if you had bullion and you wanted to convert it to money, both the U.S. Mint and the brokers who still dealt in "gold" exchanges would charge you a fee. So would the depository you trusted. The closest you would come to not paying negative interest rates was to do as Charles notes and incur your own "security and insurance costs".

Under the Constitutional gold standard, you traded the costs of negative interest rates for (1) avoiding foreign exchange risk - your gold dollar would be worth exactly as much as its weight in pounds, francs and marks, and (2) the market risk that the fluctuations in securities and asset prices always holds.

In abandoning the gold standard, the United States joined other believers in central banking in the notion that foreign exchange could be "controlled" in a way that still allowed national governments to play credit roulette using their own debt as currency while, at the same time, administering "stable" prices and full employment.


Gary Rogan adds: 

For the purposes of calculating the discount rate of future cash flows and for valuing the stock markets it seems like today's market-based negative (or low) interest rates are in a different category than being charged a fee for bullion conversion.



  While Dr. Lillienfeld and other baseball fans get ready for spring training, I had the opportunity to go to a baseball game in Panama last Friday. It was the best game I have ever been to.

There are, it seems, 3 leagues in Panama.

Fedebeis runs a "juvenile" league and a Major league. ()

There is also a pro league.

The pro league ended in January. The major league is rumored to start up at the end of the month. However you will notice from the web page that they don't actually tell you when it starts which is par for the course in these parts.

I went to the semi-finals in the juvenile league. The players didn't appear to be "juveniles" i.e. little league but are seemingly at least 17 or so. You can read the rules for the league on the website but I sure can't find what the age limit is.

Arriving at the game is not very difficult. The Stadium is not far outside of the city center, although on a Friday afternoon on the day before Carnvinal starts it took an hour in the taxi to get there as everyone was leaving the city for the holiday. It should normally take 20 minutes.

At the game were a buddy of mine, his taxi driver, and two German tourists we had met a few days before at my restaurant and who and wanted to come as they had never been to a baseball game.

Anyway, onto the game. It was Panama Metro versus Chiriqui Occidente. The game was a good one with Panama Metro winning 2-1. While the stadium itself was not up to american standards (see pics here and here)

What was special was the atmosphere:

First of all, there were no commercial breaks. The game moved along at it's natural speed. The more important point however was the Panamanian flair brought to the experience.

I have often made the point that baseball is a lot like soccer. Now, before you choke on what you are eating let me explain:

For most of my life growing up and living in the United States although I played soccer as a kid I thought watching it on TV was boring. That all changed for me on my first trip to Africa. I had a 12 hour layover in the airport in Accra. While there Ghana was playing in the World Cup. I was sitting at the bar with another American guy I met and every time Ghana scored the airport basically stopped as everybody celebrated and airport employees ran through the airport jumping up and down and hugging each other. This was the first time I understood how passionate some people were about soccer and I wanted to understand why.

I finished watching the rest of that world cup with friends in Kenya. Later on, while watching matches on TV in restaurants or cafes in Italy, Albania, and now Panama I have come to like and enjoy soccer.

In essence, it's a cultural thing. It's something you do with your friends and your family and that you follow and talk about at work, at the bar, etc.

In that sense, baseball is the same thing. Although the nature of the game is totally different than soccer it is by and large something learned culturally that you learned from your father and talked about with your friends.

Just as Americans don't understand why anyone would watch 90 minutes of Soccer, Europeans don't understand why anyone would sit through a baseball game.

Both games suffer from long stretches of nothing really interesting happening. Baseball makes up for this with it's obsession over stats to fill the gap, soccer does it with drinking, crowds singing songs, and the like.

Here's what's great about Panamanian baseball:

It's a baseball game with a soccer crowd, only instead of singing there are bands. Two of them. Each team brings it's own band - and the bands don't ever stop playing. In fact, they usually play at the same time.

Here is a video of the Chiriqui Occidente band close-up.

And here is a video that captures the effect of the two bands playing at the same time and also shows a few pitches.

The beers are a dollar, and when the beer guy comes he leaves you the cooler.

Here is what happens when the game ends… flying beer.

And here is the must see post-game celebration out on the concourse. I've never seen anything like this at a baseball game in the US.

When all is said and done, it was a great time and it is a reason why baseball fan should consider Panama for their winter vacations, especially when you consider the prices.

Ticket: $4 Beer: $1 Hat: $5

Here's my obligatory selfie wearing my new hat.



Back in 2011, I noted how quality corporate bond yields had disconnected from sovereign yields– and was undermining the shibboleth that the "risk free rate" is the sovereign rate.

Today, a related thing is happening that may well create an interesting challenge for both the fed and investors.

It's well known that sovereign yields have gone negative in the Eurozone. The second order effect of this is that corporate bonds of GE, Philip Morris, McDonalds, and other A+ corporates are moving towards negative nominal yields too. For example, short term GE paper in Switzerland (Swiss Franc denominated) is now yielding below zero. Yes — that's right. People are giving GE money with the understanding that they will get back less in the future.

This phenomenon has never been seen before in the annals of capitalism. It begs the question of "What is an investment?" Or perhaps even "what is capitalism?"

If GE can issue debt at a negative nominal yield, what does this mean for the valuation of their equity (which is denominated in US$)?

What does this mean for the Fed model?

There are so many questions here that are not addressed in economics text books. For example, how can equity drift be positive when nominal interest rate drift is negative?

Will the answer will ultimately be found in the currency markets? Is this the essence of a liquidity trap? A roach motel for capital?

anonymous writes: 

Seems like it opens up an opportunity for currency storage. Although the highest denomination US currency is the $100 "benjamin", there exists a 1000 CHF note. I'll estimate that you can store about 200,000 notes in 1 cubic meter. With each note worth 1000 CHF, a 0.1% negative interest rate would earn GE 200,000 CHF per cubic meter of storage. For reference, Manhattan apartments rent for something like $1,000 per square meter. Each square meter in a pre-war building with high ceilings could get you about 3 cubic meters of storage. So GE could rent for $1,000 per square meter and earn 200,000 CHF in negative interest.

anonymous writes: 

Again, from the cheap seats: It seems that we're seeing all sorts of strange things because players are looking for safety with some hope of capital/forex appreciation, so they accept negative yield. And since some of the CBs and other banks are pushing negative yields anyway, what's not to like? But is anybody looking at GE's swissie bonds and thinking that the situation represents some underlying economic reality unmediated by CB action? (That's not a rhetorical question, btw.)

When they actually implemented the €Mark, I was skeptical because I thought, "Either the Italians are going to have to become a lot more like the Germans, or the Germans are going to have to become a lot more like the Italians." Now we are seeing the crucial period of the experiment, when we find out whether they can get through this to the other side. I remain skeptical.

Peter Grieve writes: 

There's the rub. There really is no such thing as Europe, just a recently cobbled-together collection of disparate nations with long histories as separate cultures (indeed, some of those nations are themselves rather recently cobbled together!).



In their quiet way (as grandpa Martin would say), bonds have Lobagolad up and down by 6 point since year end 2014.

Gary Phillips writes: 

If one thing is to be gleaned from from last week, it was there were no real signs of systemic risk or true market stress; only the perception thereof. The dissemination of public information forced the movement of common knowledge. The media's voice became the context of the market and the market's negative sentiment made for the healthiest of market environments. The time to get really worried is when the market is priced to perfection and everyone is overly bullish. Therefore, true trading ability is not determined by how well someone can interpret an illusory chart; but by the ability to identify the message's ambiguity, and by the conviction to become a non-conforming player. This is what separates the successful trader from the herd. 

Bill Rafter writes: 

We've had a significant overweight in the bullish sentiment for quite a while now. The market has rallied against that along with the classic wall-of-worry. True trading ability is whichever tool you use that can generate superior relative returns, including charts with various inputs.



 I always felt that Chicago is one of the most exciting cities to call home. Vibrant and sophisticated, yet friendly and very manageable; it's culturally diverse residents have a Midwest sensibility and a blue collar work ethic that complements the resilient economy. While it is often referred to as the city that works, it's politicians and patronage style government have historically, been corrupt. In turn, this doctrine of deceit has spawned many over-zealous and overly ambitious prosecutors, who have used the office as a springboard to higher political office.

I would imagine then, that Chicago would have seemed like the perfect setting for the producers of the "The Sting", a caper film that involved a complicated plot by two professional grifters, Robert Redford and Paul Newman, to con a mob boss, Robert Shaw. They were shooting scenes for the movie, in Chicago's Union Station, whose tracks ran below the Chicago Mercantile Exchange (CME) while I still worked as a clerk, during the summer of 1973. While taking a break from shooting, the cast was given a tour of the CME trading floor by Leo Melamed and other Merc officials. Trading literally came to halt, as Paul Newman, Robert Redford, and Robert Shaw, et al, walked from pit to pit. As they walked by me, I overheard Alan Freeman, a quintessential Merc trader, remark in typical Merc-Jerk fashion, " Well, I might not be as good looking as Newman or Redford, but I bet you I have as much money as they do."15 years later, the same hubris on display that day, would come back to haunt many of the members of Chicago's exchanges, as they became the target of a very similar sting operation.

Chicago had always "enjoyed" a much publicized bad-boy reputation, which some Chicagoans felt, was better than no reputation at all. Before MJ, Oprah, and Obama, Chicago was best known for being the home to the Mob and Al Capone. If you screwed the wrong people they would get back at you one way or another - either physically, or if they were powerful and had friends in the government, they would find a way to seek retribution through the court system. Duane Andreas was the chairman of Archer Daniels Midland, one of the largest food processors in the world. He was also one of the largest and most prominent campaign donors in the country, contributing millions of dollars to both parties. ADM had been investigated for price-fixing and would eventually be assessed the largest antitrust fine in United States history. Nevertheless, it was Andreas who complained to Federal prosecutors, that the Chicago futures exchanges were ripping him and the public off for millions of dollars.

The Federal governments response was to launch an undercover probe of floor trading practices at both the CME and the CBOT. The sting operation would not be easy to pull off. The floors of both exchanges were like a boy's club. Guided by a set unwritten rules and a bond of trust, we were able to make trades with each other, sometimes risking millions of dollars, on nothing more than our word. The FBI agents would have to infiltrate our tight- knit group, and then fool us into becoming their trusted friends. The best way to break into our fraternity, they reasoned, was to become one of us.The FBI sting was to become as intricate and complex as the 1973 movie. Four FBI agents, 2 at the CME and 2 at the CBOT, posed as traders, and taped conversations, both on and off the floor, with the real floor traders and brokers. They created lives for the agents that duplicated the typical trader lifestyle. The agents dressed like us, lived in luxury apartments, drove exotic cars, ate at the same restaurants, joined the same health clubs, and bought memberships on the 2 exchanges. Each agent traded in a different pit. At the CBOT, one agent was trading Beans and another was in the Bond pit. At the Merc, it was the Yen pit and the S&P's. Over a two year period, the agents befriended traders and brokers, going out for meals with us, playing basketball at the East Bank Club, and partying with us. At all times, however, the agents were wired; recording every word of every conversation they had with the real traders.

By the time the sting operation was terminated, the FBI had spent millions of dollars. The agent/traders lost an undisclosed amount of money attempting to trade, but were alleged to have made a profit when they sold back their memberships. In all there were 47 indictments; a small fraction of that number actually resulted in convictions.The alleged millions of dollars in customer losses, turned out to be in the thousands, One trader was indicted for trading after the closing bell and another for changing the price on an order, which turned out to cost the customer $62.50. Of course, the government response was:

"No infraction or loss is too small when it comes to protecting the public. The message has to be sent, that these kinds of actions will not be tolerated, and in the final analysis, operations like these save customers millions of dollars."

It was a classic Chi-town example of hypocrisy, and misuse of power and influence. But, Duane Andreas had gotten what he wanted. He convinced a politically ambitious prosecutor to spend millions of taxpayer dollars to investigate Chicago's "corrupt" futures exchanges, while at the same time, he manipulated the markets on such a large scale that he was eventually fined a $100MM. And in order for the exchanges to maintain their self-regulatory status, the exchanges tightened up their audit trail and increased the penalties for breaking their rules. But, nothing really changed as far as the way business was transacted on daily basis in the pits; we were just more careful about whom we trusted.



 Here are some excellent pictures of a beautiful tree species whose fibers were once used for life jackets from the local "Shiny Sheet".

Historic kapok: ‘a magnificent piece of living art':

"Grand. Awesome. Inspiring. Beautiful. Those are among the words you used to describe the giant kapok tree on the Lake Trail when we asked for your photos and memories of the 186-year-old tree."



 The Triumphal Trio Times 2015 is out. Writing an one line summary is always difficult, but anyway…

1 USD in 1900 in US market is worth 38K as of today, but if invested in tobacco stocks it's worth 6.2 mil and some change of 80K!

anonymous writes: 

Roughly 80% of overestimate has been reduced. In the new data, the past is locked in. Inflation adjustments are to blame for people not realizing just how well off they are and are a constant source or "eat the rich" and "we're no better off" myth that has permeated through all corners of society. Real returns are much better, and explains much of the wealth shock, and real wages are much better too. I'll stop there before I go off on a huge rant.



As we grudgingly approach the 2100 level, let us not forget the legend…

"Opinion: Stock market guru’s new forecast: S&P 500 at 2,300 in six months"



"Currency guru Barry Eichengreen–the world's leading expert on the collapse of the Gold Standard in 1931–thinks Grexit might be impossible to control. "It would be Lehman Brothers squared," he said."

(read more)

The greatest ever changes in the history of human beings and their money came in the 19th century from two disastrous wars: (1) the American Civil War and (2) the Franco-Prussian War. The first created the structure of individual credit dealings that we all live with now - where anyone with any actual money savings has a bank account, credit cards, and property and casualty insurance and people with families have life insurance and investments in securities. None of this existed before 1862 anywhere in the world. What started it off was the literal explosion of printing for currency and debt instruments set off by Secretary of the Treasury Salmon Chase's 7-30 bond issue.

The Franco-Prussian War (called the War of 1870 in France) produced the international gold standard. The German Confederation's receipt of France's reparations gave it sufficient specie reserves; the need to borrow gold to pay Prussia forced France to abandon bi-metallism. The British, in turn, were required to limit the use of silver coin to their imperial transactions, principally with India, while the U.K. and the self-governing countries under the Crown turned sterling into gold. With the U.S. Resumption the major trading nations of the world were on a unitary standard by the end of the decade. The result was the development of a the first international market of private credit independent of sovereign controls and bank regulation. Commercial paper, negotiable, warehouse receipts and bills of lading, commodity contracts for present and future deliveries and the tens of thousands of intermediaries who dealt in them sprang up almost overnight. The conventional narrative of this period pretends that the national banks were somehow in charge of all this. They weren't. The clamor for a flexible currency that led to the creation of the Federal Reserve came from the commercial banks' desire to use their one remaining advantage - their ability to have their checks treated as quasi-legal tender - to regain their former prominence. For the world at large WW I was a tragedy; for the banks it was salvation. International Finance would go back to the good old days of sovereign authority and private credit dealers would stop being such grubby pests.



I thought this was an interesting TED talk: "Is there an equation for intelligence?". Possible conclusions could be: (a) Markets are generally smarter than traders; (b) One day cybernetic devices will be able to beat human traders; (c) We should never get married.



 Following on theologian Fay Voshell's helpful and erudite review ("50 Shades of de Sade," AT, 16 February) of the political trappings and concomitant events that gave rise to the BDSM predilection in its originator, the Marquis de Sade, the film itself fails on the level of eroticism it tried to evoke. Sadly, too, it fails on the level of basic entertainment. One reviewer, Robert Levine, commented that "50 Shades" is as "stimulating as a cold shower."

One sign that we have come a distracting distance from eroticism and pleasure is the fact that today, writing "BDSM" in a review for a general audience, one needn't even specify what the acronym represents. Anyone past adolescence, anyone with a computer or tablet, knows what it stands for. And having said that, the one-time whispered sordidity, perhaps, has lost its power to thrill or generate much in the way of shivery pleasure.

We all knew, and probably avoided reading, the bodice ripper fan-fiction by E.L. James. No man admits to having read the book, and the few females who have, and who live in the cultural matrix of educated book consumers, all admit they could not plow through the turgid prose after a few pages. The film was an attempt to capitalize on those millions of women somewhere in flyover country who did read the book, and presumably liked it enough to then rummage through sex-toy and –device emporia to buy the whips or paddles or whatever impedimenta the plutocrat sadist in the novel employed to subdue his innocent captive. Sales of "dungeon" stuff–updated and prettified from those used in real dungeons in Zanzibar and other fetid stops along the African slave-trade route operated by Muslims 200 years ago—have reportedly enjoyed an upsurge since the book's popularity took off.

Dakota Johnson, the daughter of Melanie Griffith and Don Johnson, is pretty enough, and reminds one somehow of the early, dewy Anne Hathaway at the start of "The Devil Wore Prada." The female lead in "50 Shades," however, never actually decides, though she accommodates her non-explicit dominator, played by scowling, handsome, well-built Jamie Dornan–who would make a great Superman in any forthcoming installment of that franchise. His megabiz is never quite explicit, though wouldn't we care to learn how he made his billions? He certainly never smiles throughout the film.

We see that he has a bevy of willing and beautiful potential victims, were he to look around his shiny office. The audience is never told why this sweet but unexceptional female, accidentally there to interview him instead of her roommate, a real reporter, is chosen for his erotic/abusive escapade experiments. His apparently unpleasant origins are vaguely but unsatisfyingly hinted at, but not enough to give the audience anything much to explain why he insists on absolute submission, or why he can't seem to function without using his high school notion of "torture," his ridiculous "playroom" full of restraints, chains, flagellation leathers and suchlike.

True, the first 15 or 20 minutes, when Christian Grey is seducing Anastasia Steele (could you find a more artificial construct, one combining the last daughter of the last tsar with the Anglicized last name of the cruelest Communist, Stalin?) into signing his contract as a submissive, has its sensuous and appealing moments.The choice of male moniker, Christian, an ironic take on is unCatholic sexual proclivities, modified to a tolerable, "grey" level, perhaps?

Once Anna is beguiled by gifts and dazzle to submit to his determined advances, however, not his "love-making" nor his applications of infliction of "pain" nor his expensive and puerile sex chamber toys offer much in the way of diversion. We've all seen better, and we've all experienced more in the way of satisfying and reciprocal embraces or approaches. In the end, the not-quite-submissive rejects the whole notion. In the end, most adults. . . yawn.

There is little to the story beyond the hanging question of whether this assertive young woman will in the end sign up for dotted-line-always-say-Yes. There is little in the way of character development, of course. The cinematography, however luscious in various outdoor venues—one particular scene evocative of Claude Monet's "Bain a la Grenouillere" (1869), another of glossy surfaces so refractive one cannot actually figure out where or how the characters actually walk without cutting themselves on edges or metal or glass borders—is wasted. Though initial box office is in the very respectable mid-high nine figures, predictions are that this bauble of bang-up bedding will not resonate very much longer than a pebble in a muddy rill. Maybe word of mouth will guillotine its mushy march.

 Audience interest, keen in the early scenes, hyped by the popularity of the novel and the Hollywood magic-machine, wanes even with the discreetly nude forms of the protagonists. Brief appearances by Marcia Gay Harden as the billionaire's adoptive mother, and the usually lovely Jennifer Ehle, do little to deepen the film for public consumption. Nothing much happens beyond one-wayism.

Spoiler alert: Strangest of all, the film ends so abruptly that people actually stormed out, irritated. Pockets of discussants in the lobby afterwards were thick with complaints about how the film failed on the levels it attempted. After a week of mulling over the screening, one is left with nothing at all much to think about. The eroticism seems a cheat. There is no warmth between the leads, and one is left with a vague, empty sensation of disquiet. Our colleague correctly notes that if Dornan had courted Johnson from a trailer camp, with a dirt bike instead of a swoop over the countryside in his ultralight, no one would give the film the time of day.

Takeaway: Costing $40 million to film, global box office came in at a dominating #1, $240 million in 55 foreign markets ($90 million of that, Stateside), the continentals must be grumpy with political agita, taking to the silly and ephemeral to alleviate the daily grimness of headline news. Those numbers, alas, probably guarantee a sequel.

The Roman Stoic philosopher and moralist beloved of Nero, Seneca (4 BCE – 65 ACE), wrote the correct view to take in deciding whether to shell out for "50 Shades": "De Brevitate vitae"—life is too short to indulge in this clumpy tale for frustrated or celibate shut-ins.

Gordon Haave writes: 

Wasn't that sort of equipment also used in west Africa on the slave trade operated by Christians and Jews?

Stefan Jovanovich writes: 

Gordon has it 2/3rd correct: the "primary" dealers in slaves were Muslims. On the South side of the Sahara they dealt in people with black skin who were - for the most part - animists. On the North side they dealt in people with what we now call "white" skin who were all Christians. The Atlantic slave trade itself was truly a Rainbow coalition; even the Jews got involved. One of the founding Lehman brothers was a factor/lender for the dealers at the principal slave market in Alabama, in the capitol city of Montgomery. (Funny how servitude and government go together!)

Since today is the anniversary of the unconditional surrender of Fort Donelson in 1862 (the first Union victory of the Civil War), I will stretch the reference to religion and commerce to explain why Grant issued his order to exclude Jews from the delta cotton lands the Union Army was capturing. In 1862, in the South, none of the financial intermediaries for the cotton trade were Gentiles. Southerners who wanted to sell their cotton North (by May Farragut had closed access to the Gulf by capturing New Orleans) would be dealing with Jewish cotton merchants and their Northern correspondents. Grant also also knew that Judah Benjamin (who ended his days escaping extradition by living at the Vatican) was quite literally the only financial brain the Confederates had. It would be nice to believe that Lincoln countermanded Grant's order out of a respect for the 1st Amendment to the U.S. Constitution, but the explanation is much simpler. The New York houses were already deep into the contraband business, and they let Seward know how unhappy they were with the prospect of losing access to grey (bad, bad pun!) market cotton.



One thing about the technical debate is the timing side is of greater interest to those if you're using leverage and accumulating a position. If not, it's probably not such a huge question. With thanks to Ralph, it's significance is where you're looking at loading up from and the potential reward it can allow for…with pennies of risk for the potential dollars of gain.



When you put a limit in, can the market smell a man like a duck, and come in very close, and then veer away at the last minute saying "whew, am I lucky, that man almost got me with his gun (limit)".

anonymous writes: 

It might be like recent tests show of cancer cells. They give off their own vapour /smell, to the HFT guys at a minimum.

Ed Stewart writes:

I think so. If the short-term edge is too great, they don't want to give you a fill. You have to let out some line first. And if you try to counteract what occurs you will independently discover the banned trading techniques.



 1949 Born a common man in Schenectady, NY.

1972 Doctor of Veterinary Medicine from MSU.

1973 First of seven Paddleball National Singles Titles.

1972-8 Top touring racquetball professional … Canadian National Champion … First clinic tour of Central and South America.

1974 Bicycled San Diego to Detroit, and Canada to Mexico.

1974-7 Featured in Sports Illustrated 'He Found His Racquet' and other publications.

1978 Owner of Service Press, small publisher of It's a Racquet and The Kill & Rekill Gang in one day.

1975-85 Author of six books and over 100 magazine articles on sports and travel.

1985 Taught sociology class 'Hobo Life in America' at Lansing community College, MI … Psych Technician Certificate from LCC … Worked in psych wards and old folks homes … Lived three months with 'psychic' James Hydrick.

1985-98 Traveled 95 countries of the world under a backpack.

1998 Commodities advisor on a solo 13-country tour made CNN News, Barron's, Wall Street Journal.

1995-9 Hiked the lengths of Florida, Colorado, Vermont and Baja.

1999-2006 Sub school teacher and college tutor in Blythe, CA … Conduct Executive Hobo trips throughout America.

2000-06 Homestead and living as a desert recluse in the Sonora while working on the One-Ton Autobiography of Catman Keeley. 2007-09 Adventure guide in southwest USA and Baja.

2007 First California substitute teacher fired for stopping a playground war … Hit the rails, and foreign travel.

2008-12 Become an itinerant expatriate writing from select Shangri-las including Iquitos, Peru, San Felipe, Baja and Lake Toba, Sumatra.

2008 Three month bus tour of Central America … Caught up in an armed Mexican marijuana smuggling mule train through Copper Canyon. 2009 Buy a seasonal retirement home in the Peruvian Amazon … Continued adventure posts at Daily Speculations, International Man, and Swans Commentary.

2010 Write a biography Kill Richard of an FBI agent who fled murdering CIA agents to San Felipe, Baja … Publish Keeley's Kures while detained by a Sumatra immigration mixup.

2011 Tour Vietnam, Laos and Cambodia … Hobo ride-along with London Times reporter Joe Wobey from Sacramento toward Britt National Hobo Convention written up in 'Twilight on the Rails' … Freight with Central American immigrants from Guatemala through Mexico to USA … Publish Executive Hobo: Riding the American Dream.

2012 Read my obituary, articles, embassy report, memorial service and Art Shay's 'The Legend of Bo Keeley Grows' … Faceoff with bear in scratch contest in NM mountains … Complete a two-month walking and dirt bike reconnoiter of Baja for the Baja 1000 Hiking Trail … Wikipedia 'Steven Bo Keeley' is top rated.

2013 Gilbert Keeley, father dies, and scrap the Chocolate Mt. Gunnery Range for fare to attend his funeral … Fourth attempt through the Darien Gap is foiled by Colombian rebels … 'Last Sail of El Gato' near death sailing from Panama to Cartagena … Three months hoboing Peru rivers in banana boats … Launch the first bilingual tourist newspaper The Amazon Times of Iquitos … Publish five books from Miami including Charlie Brumfield: King of Racquetball, Women Racquetball Pioneers, Basic English One-Page, The Longest Walk, and The Longest Walk Companion… 'Elvis and the Memphis Racquetball Mafia' is syndicated … Founder and curator of Facebook US Racquetball Museum with 5000 friends.

2014 Hobo ride-along with Mother Jones journalist Tim Murphy from Los Angeles via Texas to Chicago and profiled in Jan.

2015 'The Amazing, Possibly True Adventures of Catman Keeley' … Worst case of anemia with 50% normal hemoglobin in the history of Iquitos … Seven months in Peru publishing Stories from Iquitos, Greatest Photos Around the World, Chess and Sport, and Racquetball's Best: Pros Speak from the Box … Asked to a hold rare set of CIA medals by a Miami agent who commits suicide… Inducted into the NPA Paddleball Hall of Fame … Decline induction for the 15th straight year into the USAR Racquetball Hall of Fame.

2015 Publish from Miami Elvis's Humor: Girls, Guns & Guitars, Bill Schultz: Ringmaster of Sport, Book of Bo: Gems of My Life … scuttle a 825 page, 40-year in the making Advanced Racquetball from and the public for 'inappropriate conduct' and quoting Atlas Shrugged … Consultant for documentary 'James Hydrick: Fifteen Minute Messiah' … Read stories to Runes 'Dusting and Sweeping' audio series for the William Buchanan Spoken Word Project … Return to the life of a wandering hermit.



 dear vicnied,

I wrote down the following years ago summarizing my first meeting with Stan Mason. It was the first thing I saw while visiting his invention factory, but think it's an appropriate response to your own ruthlessly honest self-assessment in response to one of your website's readers (included below). Your response smacks with the brutal honesty required to lead the field in an endeavor, and is possibly the most inspirational note I've read of yours. Deepest thanks for reminding me, again, of the almost savage forces one must both confront and unleash in order to move ahead at the highest levels.

Best wishes.

Your friend,


p.s. I wrote Keeley once, a quote from "Beethoven Lives Upstairs": "to be great, you must have the spirit of a gypsy and the discipline of a soldier." Which is true. But I always thought that, additionally, you must have the overwhelming confidence of a megalomaniac and the all-consuming self-doubt of an acute neurotic.

p.p.s it reminds me of the early days of racquetball and the two camps that evolved. First, the leach crew took the prizes, they were the rebels, the pioneers, winning through creating new strokes, shots, strategies. Next, the ektelon gang, essentially the middle of the road statisticians who took the best of the leach crew, threw out the chancy stuff, and played the odds all the way to ho-hum victory. Politics, of course, played a great role in the game's decline. So too, however, did it's developing lack of color and character. (Of course, a ball speed change that reduced the average rally from 12.3 shots long to 2.9, and, of course, the parallel reduction in power versus control, didn't help either.)

p.p.p.s with innovation, as you know, it is almost always second in line who reaps the rewards. First in line is usually busy nursing the wounds of discovery, failure, recovery….

The First Sign You See When Visiting Stan Mason's Invention Factory:

"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, and comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows the great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat."

Theodore Roosevelt, the Sorbonne, 1910




The key point here is not "check" to Merkel, or who blinks first in the short term. The key point is that the gap between the two sides is so large there is unlikely to be a mutually agreed medium term solution, meaning the next 1-3 months. 



A random number generated price chart would be dismissed by the one who created it due to his knowledge that they are generated by random numbers, even if the conclusion that such a chart is random may or may not be verified by the creator.

A person who does technical analysis could be accused of trying to apply his mind to such a chart, without the knowledge that it was generated using random numbers and not a real price chart.

The creator of a random number generated chart suffers from the illusion of knowledge. The Technical Analyst at worst suffers from the impulse to be curious.

Curiosity however may still lead to making some money, even if the performance can be explained by money management and not by any predictive ability of either the Technical Analyst or the chart. Data does not predict. It is the human enterprise, whether scientific or artistic, that predicts.

The creator of such a random number generated chart will however not make any effort to make money from such a chart, because of the illusion of knowledge.

To completely illustrate the point, the logical construct here is akin to putting the same random number generated chart in real time and beaming it to a pool of traders who may or may not trade on it. Some will, and some will make money. Some will lose money.


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