July - 2014
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P +13.40
 USB -0.27
2
 S&P +1.90
 USB -1.03
3
 S&P +9.90
 USB -0.08
4
5
6
7
 S&P -6.60
 USB +0.22
8
 S&P -10.60
 USB +0.29
9
 S&P +6.80
 USB +0.12
10
 S&P -9.40
 USB +0.04
11
 S&P +4.60
 USB +0.09
12
13
14
 S&P +8.60
 USB -0.15
15
 S&P -3.00
 USB +0.01
16
 S&P +6.80
 USB +0.07
17
 S&P -21.20
 USB +0.31
18
 S&P +18.00
 USB -0.02
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20
21
 S&P -5.30
 USB +0.12
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Jul

24

One of the greatest features of any market is they enable price discovery. The words are almost interchangeable. Markets equals prices. Once a price is established from hundreds, thousands or millions of transactions, then the laws of supply and demand, scarcity, comparative advantage, can kick in to allocate resource to create the greatest aggregate wealth. Also things can be measured when there are accurate prices to study baselines, make comparisons, and determine trends. The opposite would be true for industries where there is no price discovery. I can think of one big industry prices where discovery is notably absent and there is much waste as a result.

anonymous writes:

anonymous's comment deserves far more applause than it is going to get - given his understandable reluctance to have his words delivered to the public. Marx's "Capitalism" - that schoolteacher word of schoolteacher words from the postdoc of all postdocs - says almost nothing about prices except to ridicule the notion that they are anything but a fraud. It is not surprising that Leftist thinking almost always ends up saying something nasty about "the Jews". In different times and places, you can substitute "Hugeunots, Quakers, Italians (actually not but use it as a short-hand for Venetians, Genoese, Milanese, etc.), Greeks, Phoenecians, Lebanese, Masons…." - anyone guilty of being able to do the math.

Of course, prices are bent; someone in every trade has the advantage of having a better idea of what his present costs and future profits are. But, an unfair trade is a better start than a hope for mercy or "fairness". People learn from prices; they learn what Morgan said was most important - "the character" of their counter-party - and, where there are markets, they have the means of acting on what they learn.

FWIW, Eddy agrees with you, anonymous, about the waste that results from the failure of our medical-industrial system to allow any bid-ask pricing to intrude on its theological rationing of services. She told her Dad aka the History Beet (not Kerouac but the vegetable) last night at dinner that she now understands how so many of the monasteries collapsed even when they were not taken over by Henry VIII and other monarchists: "the abbots swallowed all the money with their building programs and then complained about the greed of their donors and the usury of their lenders".

anonymous adds:

With anonymous's support I am emboldened. As a thought experiment if there is a cogent argument against having accurate, transparent prices for a good or service, what are those benefits? It is not a left vs. right issue as they are not mutually exclusive. I can be in favor of giving away apples and still think it important to know what the price of that apple is.

Jul

24

Pure random sequences are difficult to artificially generate using computers or algorithms. Some random number generators use natural phenomenon, such as a flame to generate a random sequence. Looking at the ocean waves, or sand dunes it is fair to think of the patterns a being random in the sense one cannot predict where a particular peak or valley will be at a particular time and place. Sailors know this all too well. However, there is an underlying process with its own set of internal rules that generates the the so called random pattern. For waves it is the dynamic between wind, the water surface and the water surface tension and viscosity, the length of the fetch and speed of the wind. Even with such a seemingly random pattern it is possible to predict certain aspects of wave generation such as size, direction with information of the wind speed and direction and duration. Applying the idea to markets, if one could identify the underlying functions would it not be possible to have some predictive ability on the wave size, or in markets volatility as to size time and place as is possible in wave prediction. The navy and NOAA has spent considerable sums on creating models for waves as it is used to time war attacks, landings, how it affect shipping, oil rigs and other industrial needs. Weather prediction is one of the main forefronts of computer science and modeling due to the large number of people affected, and the risks of life and property. Surfers happen to benefit being able to quite accurately predict waves, timing, arrival and size.

What are the winds that drive the markets? Fed stimulus, currency moves, economic forces, upward drift, regulation, bank policies.

Jeff Watson writes:

It is much more difficult than one would think, to generate truly random numbers.

Gary Rogan writes:

While there is no mathematical proof, as far as we know the digits of pi while of course truly deterministic also form a truly normal distribution.

Orson Terrill writes:

How would that be? It seems to me that the 10 digits (0 to 9) would merely have an irregular distribution for any stopping point, but would approach the same number of observations as the number of digits observed approaches infinity. Therefore, the digits would form a uniform distribution, no?…

summary(piVector)

Min.   1st Qu.  Median   Mean   3rd Qu.    Max.

0.000   2.000   4.000   4.443   7.000   9.000

691 decimal points.

Mr. Isomorphism writes: 

Getting arbitrarily long π is pretty easy with the Berkeley Calculator.

$ echo "scale=2222; a(1)*4" | bc -l > pi.2222

(    a(1) == arctan(1) == quarter-circle     )

then in R:
pi.2222 <- scan('pi.2222', 'character')
slice.pi <- strsplit(pi.2222, "")
table(slice.pi)

slice.pi
  .   0   1   2   3   4   5   6   7   8   9
  1 199 229 230 204 219 230 223 217 227 245

One is then limited only by patience….

It's unclear what a 'normal distribution' of digits would mean, since the normal is defined on [−∞,+∞] and most of its mass is between [−3,+3] … it's not defined on {0,1,2,3,4,5,6,7,8,9}…. I think that Ï€ is actually a normal number, which means the digits are distributed uniformly.

Another nice artefact of using bc -l is that with obase=2, obase=16, etc one can play with the question a bit more, as 10 digits is not sacrosanct. The binary expansion of pi

11.00100100001111110110101010001000100001011010001100001000110100101

should have a 50/50 distribution of 0's and 1's if the decimal digits are evenly distributed, and higher bases (imagine bsae 12837687622234) would count what appear as "longer patterns" in base 10. I believe it's this way of thinking that leads people to say eg the works of Shakespeare are encoded in pi.

Jul

24

This is an intriguing piece, but I have no sense as to how well founded it may be. Any thoughts anyone?

"Wall Street Skips Economics Class"

Mr. Isomorphisms writes: 

Noah is not credible among his peers, although he's at least infamous. He's stirred up this DSGE discussion beforeâ€"or, rather, piggybacked on Delong/Krugman/blogosphere discussion of same.

In fact I think when he first started blogging (6 years ago? basically a PhD ago) he expressed some reservations about DSGE.

E Falkenstein has made the same point as have numerous econ PhD holders, that the mathematics used in econ grad school is not considered valuable by industry. By contrast FEM gets things done and is flexible enough so the people who deal with the real world (and lose money there) can fill in the tedious details and jerry-rig something together that really works, in the here-and-now. So in short, people have been making this critique for a long time. And even longer if you include the predecessor Arrow-Debreu general equilibrium theory, which was also of only academic interest. I don't think the "only academic interest" critique is particularly damning. Academics want deep answers whereas money-makers want something that actually works right now, and leave the hard critical thinking for mañana.

Two things I noticed from googling around this story: 1) Mark Buchanan writing the same piece in January in bbgView, cites Noah. And Dr Buchanan is a physicist, not an economist. 2) Someone added to Wikipedia that apparently the ECB uses a DSGE model. It doesn't surprise me at all that econ PhD's are more likely to work for a government than a hedge fund. Think about any economic model you've ever seen; it's almost always from a policy perspective. Economists are interested in social engineering, so fairness; discrimination; unemployment; inflation; tax policy; utility; housing shortages; bubbles as they affect the man-in-the-street; benefits of trade to the man-in-the-street…Financial econometrics is a small subfield of economics-in-general, meaning it's a small subset of what economists are interested in. So it doesn't surprise me that they're not good at predicting financial markets.

anonymous writes: 

I like Duncan Foley's critiques, because he goes back to the Walrasian auctioneer which is a more reasonable starting-point of where the fully-cleared markets goes wrong, and where in my opinion geography-less, individual-less theory diverts from common experience of market participants.

As far as I can see this sort of critique gets at the heart of what's going wrong without being too focused on specifically DSGE or Aâ€"D or some other clas of models.

Jul

24

"You do not buy photographs from Otto Leipzip and you don't buy Degas from Signor Bonati."

Jul

23

 I listened to an interesting NPR piece about Florida crime novels. One of the authors, John D Macdonald, is one of the best crime writers I've read and The Deep Blue Good-bye is a great book, filled with bad people, easy women, and a glib philosophical detective set in a dark background. You can burn through it in a day or two.

Tim Melvin writes: 

The John Deal books by Les Standiford are also great. Lawrence Shames' key west crime novels are hysterical. Tom Corocoran also has a nice series set in keys. All Travis McGee books are right there with Louis L'Amour. Must reads, good stories, many lessons.

Jul

23

 Susan's cousin wins Downeast magazine's award for best lobster roll in Maine.

The Floyds and I had 10 between us when on the Island last week.

But is a stay there good for the market?

Perhaps the only week in last year when the market didn't immediately move to new high (this time it had a few bad down opens before doing so). 

Jul

23

Given that a market has moved past a constructal number–(that's a hard job to define), is the amount of time or the extent of the magnitude that it will spend on the other side when it breaks through related to time and or magnitude on the other side? How to quantify? Can this be applied during the day and or fray?

Jul

23

 One wonders whether insider trading by women is more profitable than insider trading by men. They are very shrewd and always look for the main chance.

anonymous writes: 

Women may be better able to benefit from plausible denial. For instance, the case of a banker looking to subsidize the mother of his daughter from an illicit affair.

Jul

23

This is a great documentary if you have access to iplayer (or use a proxy like identitycloaker to freeload on the British taxpayer).

"Sir Chris Hoy reveals how he went from a cycling club in Edinburgh to
becoming Britain's greatest ever Olympian, comparing his experiences
with others including Sir Steve Redgrave."

Jul

23

One of the greatest features of any market is they enable price discovery. The words are almost interchangeable. Markets equals prices. Once a price is established from hundreds, thousands or millions of transactions, then the laws of supply and demand, scarcity, comparative advantage, can kick in to allocate resource to create the greatest aggregate wealth. Also things can be measured when there are accurate prices to study baselines, make comparisons, and determine trends. The opposite would be true for industries where there is no price discovery. I can think of one big industry prices where discovery is notably absent and there is much waste as a result.

Jul

22

 I guess one of my greatest weaknesses is that after 50 years on wall street, I still don't have enough feel for any markets that I can make a trade and feel properly foundationed and backings with it if I don't have back testing and quantification. Perhaps if I could do things based on feel and tai chi I would be a wealthy man. But the Hindu will do what he can do.

I have a new business in case I run into hard times again. While in Vinyl Haven I set myself up at the flee market with a sign by my daughters: "checkers 50 cents a game". I found that like Johnson's there are no owls in Ireland, "there are no checker players in vinyl haven". I only lost 194% on my investment on that one as I had to pay $4.00 to the space not counting the 20 buck bribe paid to the mistress of the flee market.

I had two customers. One was so demure I paid her 0.50 to play me, and the other I reduced the price to 0.25 for the play. I did beat my daughter Kira in a hard fought game however. Anyway, a perfect occupation for a speculator down on his luck in the most boring place in the world if you're not a nautical or lobster personage.

anonymous writes: 

The pieces should be shells and lobster claws vs. sea stones or pine cones to give the game a local flavor. Also, a "learn to play" or "lessons" lead in might work better than pay-per-game. Might end up the talk of the town for the next 50 years.

Pitt T. Maner chimes in: 

 Backgammon holds an interest among some. I learned the basic rules of the game from an Obolensky in Palm Beach–but you have to be very good to make money at it.

An Israeli documentary was made about this fellow, an intuitive player ranked among the best:

"He is committed to backgammon, which is his main source of income—to the extent that he can find wealthy people who want to lose to him in cash-only private games. There are more of these than one might expect, but not a lot. Finding them and hanging on to them is a skill."

and

"At its heart, backgammon's cruelty resides in the dramatic volatility of the dice. Even a player who builds flawless structures on the board can lose to a novice. The good players simply win more often. As a result, backgammon is often played in marathon sessions that reward physical stamina, patience, and emotional equilibrium. One notable match lasted five days, with both players getting up only for bathroom breaks. The loser fell to the floor."

This is a great New Yorker article about him: "The Chaos of the Dice"

"Falafel (his real name is Matvey Natanzon, but no one calls him that, not even his mother) can make ten thousand dollars in half an hour playing backgammon."

Jul

22

Does anyone know the definition of the difference between a pit and a ring? For a ring you are forced to deal openly and equitably? Whereas a pit you are allowed to make 'proprietary' deals and not mandated to offer pro rata or take the best offer from/to all dealers first?

Jul

22

Would anyone advise on how to determine backtesting periods?

I presume one should choose the most recent period because it may better correlate with the present situation. But is that really true? If it is, then how far back should one include, and how far in the future can it correlate? My experience seems to say that a short backtest period can lead to a very short future prediction or even a very poor prediction. On the other hand, a longer period often leads to poor performances during the present situation.

Shane James replies: 

At the Spec Party I had the privilege to spend a reasonable period of time one to one with the remarkable Sam Eisenstadt.

His work is likely one of the best examples of creative thought in the history of financial markets. He explained to me that there wasn't much backtesting to what he/they did. He came up with some principles that made sense to him and started applying them in real time.

Now, in our so called modern world, things may have moved on (Sam graciously stated as much to the room when he was giving his views on the modern markets). HOWEVER, maybe not so much…..

Try this:

1. If your trading idea has an average holding period of a few days (preferably less) then start from today and run it in real time for the next 90 days or so. By definition, the prices upon which you are testing your ideas did not exist when you had the idea so you have already eliminated most bias if you do this.

2. If you are happy with the structure of the returns (win, lose or draw) then consider if the results were biased by any factor during your live test phase and if related to long only stock index trading then make the requisite adjustments for drift.

3. Perhaps now consider a backtest.

The point being that I think it makes sense to test on data that did not exist BEFORE you perform the backtest.
Some like to 'exclude' certain data and 'pretend' it didn't exist so they can assume that the excluded data is 'out of sample'. For instance they may take 10 years of data and use the odd number years as test data and the even number years as 'out of sample'. This might be a reasonable idea to make yourself feel more comfortable but there is an intangible and very difficult to explain benefit to performing the kind of 'spontaneous' testing set out above on data that did not exist at the genesis of your idea before one starts seeing how well a set of heuristics performed in 1971!

Leo Jia responds: 

Hi Shane!

Thanks very much for the valuable advice.

Wow, Mr Eisenstadt! I would really love to thank him for my early success stories with referencing the Value Line. But I guess it wouldn't matter to him as he might have heard from too many!

Talking about my early experience (back in the 90's), I actually had been using your suggestion all along. There was never backtesting for me — I got an idea and went to buy the stock the next day. It actually worked well overall.

Should I go back doing the "novice" way? That becomes a question worth thinking now that you mentioned it. Perhaps this goes with the valuable lessons where having had enough struggles using complex ways, one discovered the neglected simple way being far superior. In Chinese culture, Tai Chi can be considered as that type of "simple ways".

Now, a couple questions about your suggestion.

1. By putting a new idea directly live, what problem is one trying to solve? Is it the concern that poor backtesting result may make one throw out potentially a good strategy? And is this concern because of the belief that past data are already different from the present situation?

2. In what ways can this idea that seemed to come from nowhere be better than the many ideas one gets by studying historical data? I know inspirations are invaluable, but one doesn't often get those inspirations that are not the results of study. So beyond the mistrust of the correlations between past data and present situation, are there any other reasons?

Thanks again for your thoughts.

Bill Rafter writes:

I am sorry to jump into this discussion late, but think there are a few points that can still be brought.  Looking for beta over a constant period of time (say 6 months) is somewhat meaningless and useless.  It’s a bit like describing a man with one foot in a fire and another in ice as at a tolerable temperature.  You have got fat tails with market volatility and a static window might be good for a journalist, but of limited value for a trader.

At a given time there is a time period over which the study of a market’s behavior will be significant.  And let’s say that at this time it really is 6 months, or 126 trading days.  Assuming no real changes, tomorrow that time window will be 127 trading days, and so on until you get a market change.

When the sea does change, bad things can happen in a hurry and beta value for the preceding 6+ months will be of little value.  Within the last week this happened with biotech:  it had been happily chugging along with good but not extraordinary outperformance of the indices.  Then it got clobbered with huge excessive relative volatility to the downside.  Had you been adapting your monitoring of volatility you would have been prepared, whereas if you stuck with your 6-month window you would have been clobbered along with the group.

My advice to you is to learn how to deal with the market adaptively.  I assure you that if you have a monitoring mechanism which you like, if you make it adaptive you will improve results dramatically. And it doesn’t matter which signal type (momentum, volatility, sentiment) or time frame (intra-day to weekly) you favor.

Jul

22

 I thought this was an interesting article: "The most effective way to fight HIV Worldwide may be legalizing prostitution"

This is a "Gary Becker moment," an instance in which discrimination (in the form of criminalization) undercuts the discriminator and the discriminated. Becker held that in such situations, one should eliminate the discrimination to benefit both discriminator and discriminated. That's on an economic level. Let's face it, economics is one of the driving forces of prostitution worldwide.One might argue that in Southeast Asia (particularly Bangkok and other venues in Thailand), anything which might mitigate HIV transmission should be tried. HIV is among sex workers isn't quite at the level of Botswana (at 33 percent of the population—no, that's not a typo), but it's not that far behind. And trafficking is clearly an issue there. I'm just not sure that focusing on the customer will do much to protect the prostitutes. Customers will still want a maximal amount of privacy and will work to avoid interaction with law enforcement personnel, LEOs will be focused on prostitution rather than more violent offenders, and in response to customer desire for privacy, the prostitutes will exact higher charges with consequent entry (because of perceived ROI) on pimps and encouragement of trafficking (since there's still lots of money to be made).

The Swedish model, which attempts to regulate demand, is based on the same logic as arresting drug users in the US. That's been such a success that it merits being adapted/adopted to prostitution? Is there any data that the Swedish model has enjoyed any more success than its predecessor? The one advantage to full legalization is that if a prostitute has an infection communicated to his/her customers, there's one less reason for a customer to not seek treatment–or at least diagnosis. In the Swedish model, the customers would still have an incentive not to do so. I submit that that isn't a minor issue.

The question becomes: what's the point of decriminalization? Is it to move prostitution (the world's oldest profession) out of the back alleys or to minimize the trafficking of women? If the former, with the attendant potential for regulated health check ups and maybe even some measure of revenue for the state (not unlike legalizing pot), then teh Swedish model won't have much impact. If the latter, it may have impact, it may not–the data are hardly definitive. Either way, the status quo in much of the US certainly does not facilitate disease control among the prostitutes or their customers, save in Nevada where it's legal and health checks are mandatory.

It's not just HIV (deadly as it is) or GC/syphilis (with their attendant morbidity) but also HPV and herpes (which has its own co-morbidity during childbirth). There's more here than meets the eye, or the…

Jul

22

Have we hit the low in market bashing…i.e libor fixing, forex fixing, hft, dark pools? Is now the time to go bid on volume and volatility? Or is there plenty more in store….

"Barclays' 'dark pool' volumes drop in wake of lawsuit, data shows":

Volume in Barclays Plc's private U.S. trading venue, or "dark pool," fell 79 percent in the week and a half after the New York attorney general accused the British bank of giving an unfair edge to high-speed traders, according to data released on Monday.

Jul

22

Amazing how no matter how high bonds are they always go up big when stocks down. I believe there is a theoretical reason for bonds to have a drift up, the same way that stocks do but in smaller dimensions, but I believe it is a very technical things related to the upward slope usually of the yield curve but this is not reflected in the main in the long term drift of adjusted bond futures.

Anatoly Veltman writes: 

Of course there is drift to a 30y, as it is less flexible than any shorter term obligation. So in the real long term (30 year minimum, but it may as well be a lifetime), it's programmed to realize the highest yield of any paper. Punters of any shorter paper will have paid for flexibility.

But on the aspect of perpetual outperformance: just like with any stock, there is a small wipe-out risk. So, I venture say, there is no lifetime guarantee.

anonymous writes: 

There are three further issues.

1. The much vaunted 'convexity' buyers at certain parts of the curve as rates accelerate toward zero
2. The FED holdings. The 'free float' - as it were - is much less than before QE.
3. The Japanese-ization of the global banking system. (see previous posting on Japanese banks..'US Banks will go the same way as Japanese banks - June 27th on site)

If relevant, these factors are in order; 'severe' in the case of point 1. Maybe permanent in the case of point 2. and tragic in the case of point 3.

 

Jul

22

Bonds and stocks are both near highs for the year and yet the traditional relationship of moving opposite on a daily basis seems to still hold. I looked at daily changes of stock and bond futures using a time of 1600. Here are the percent of times they move together in the same direction vs opposite along with number of observations. I exclude unchanged days.

2014    28%/72%   n= 35/89

2013    43%/57%   n=106/139

2012    26%/74%   n=63/179

2011    25%/75%   n=63/185

2010    36%/64%   n=87/155

2009    41%/59%   n=101/142

Jul

22

 I like sunshine. For me, the best time of the year is June. The days are getting longer, the air is warming up, and pitchers' arms are getting limber and hitting their (hopefully) triple digit marks—or in the case of the knuckleballers, not hitting them. Summer solstice is my favorite day. Of the whole year. Let the sun shine, let the sun shine in. Perfect weather for baseball, for as Walt Whitman called it, "America's game."

For some time, football has been in ascendency in the US, and baseball falling from its perch as the "national pastime." With the development of the replay challenges, pastime certainly fits. I'd add in the time the pitchers spend prancing about on the mound. What are they thinking about up there? Fantasizing about when the mound is raised another 8 inches? The past two years haven't been kind to football, and I think it safe to suggest that football is now on a down spiral. That some parents in Texas are steering their children clear of school football teams tells me that pro football's problems are just starting. Maybe that's the reason for the increasing popularity of soccer in the US.

Baseball. Growing up, it was easy to imagine that one was Mantle at the plate, Robinson snagging the unplayable ball at the hot corner, Koufax throwing the unhittable curve (well before Clint Eastwood), Mays with a basket catch. My curve ball never did break, but that didn't mean I couldn't try throwing it as though it did. Take a look at the leading players throughout baseball's history, and you'll find lots of kids in outsized bodies, kind of like a Big goes to the ballpark sort of thing. During the 1920s, as baseball tried coming to terms with the Blacksox fiasco (it was well beyond a scandal), Babe Ruth appeared and salvaged the game, leading it to new heights. Ruth was one big kid. Maybe that's why kids flocked to him and he was willing to engage them as he did. Fast forward to the 1990s, and one finds the national pastime struggling with the body blow of a strike. Not many Americans were particularly happy with the MLB during the first half of the 1990s. Players, owners, didn't matter who, Americans were upset with them. There were lightening rods—George "I need to fire Billy Martin one more time before I die" Steinbrenner is but one example. There were others.

The strike could have been the knockout blow for baseball, such was the level of discontent with it. For a period of time, I swore I'd never go back to the ballpark. (My wife was all too happy that I decided I had been too hasty in that decision—she didn't like to go with me, and it gave her some well-earned time for, well, those things that women do when they get together for lunch and an afternoon out. Fortunately, there were rarely new hats or dresses awaiting me on returning from ballpark.)

Yes, a knockout blow. Except for one person, one player who would play in the same position as Ruth did in the early 1920s: Cal Ripken. It's now a generation that has grown without Cal on the diamond. Few of them know about how he and a few others redefined the position of shortstop from what it had been for a century. Away from the Luis Aparicio style of fleet afoot, contact hitting, "get on base" to be driven home type of shortstop. Cal was big, strong, a quiet leader, perhaps, but a leader all the same. He came to work everyday, and that was something John Q. Public could relate to. The millionaire players, not so much (not that Cal wasn't well paid for his efforts). One sportswriter tried to ask Cal about his work ethic when it became clear in the early 1990s that he was in position to challenge Gehrig's 2130 game streak. Cal asked the reporter if he came to work every day. The reporter replied that he did. Cal followed, asking if the reporter liked coming to work every day. "For the most part," he replied, "but some days are just bad." "Same for me," Cal said. "And if I don't play, I don't get paid any more than you do when you don't work." Perhaps, Mr Ripken, not quite, but John Q Public understood well enough. It was Ripken's passing of Gehrig's streak with nationally televised games the likes of which hadn't been seen since Hank Aaron hit number 715. Those games, that streak shook off baseball's funk. Football may have become the national sport, baseball, though, was back. People focused on Ripken and his streak (with stats that would assure a spot in Cooperstown in any era), much as they had Ruth and his four-baggers.

Fast forward a couple of decades. Baseball has gone through an exasperating scandal of performance enhancing drugs with fallen heroes like Raphael Palmero and Barry Bonds. Through it all, though, was the Yankee captain, Derek Jeter. No Yankee Clipper—the team didn't perform well enough to assemble any sort of record comparable to the Yankees in the middle part of the 20th century. But Jeter was like the foundation around which the baseball club operated. And his performance commanded attention well beyond his base of New York City. There was never any question about whether Jeter had used PEDs. It would have been so out of character for him to have done so. Possible, sure. Anything's possible. But 10 sigma events aren't something that one bases one's understanding upon.

Jeter will no doubt grace the halls of Cooperstown soon enough. This year, he said before the season began, would be his last one. Yesterday's All Star Game will be his last one, too. When he went onto the field and was then brought back off of it—as happens in All Star Games as managers try to use everyone on their team—he received a well earned ovation. Earlier, the recognition from his peers underscored the man's significance to the game—not just his performance but his commanding ability on the field and at the plate. There was little mention of ARod last night, he of the suspended in association with PED list. Lots of mention of Jeter. And Jeter, like Cal ("Silent Cal") accepted it, enjoyed it, and then went back to doing his thing—being a member of a winning team. Thank you, Mr. Jeter.

Baseball has been down for a time now. It's about to rise again.In the immortal words of the Great Man:

"People will come, Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. "Of course, we won't mind if you look around", you'll say, "It's only $20 per person". [Prescient–it does indeed run about $20 a head these days.] They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds us of all that once was good and that could be again. Oh…people will come Ray. People will most definitely come."

(Note to the reader: My daughter goes to school in Grinnell, Iowa, known for its regional hospital, regional John Deere dealership, regional WalMart. No regional Starbucks, though. Most of her fellow students are from the MidWest, often from Iowa and Central/Western Illinois. She found out during her freshman year that many (most?) have no idea what the Field of Dreams is or that there's a cornfield in northeast Iowa of any cultural significance. Her generation has some catching up to do. Just saying.)
 

Jul

22

 Subtract 200 from 2014, add a little steam, and you're thrown into present day Amazonia. Today I spoke during a 50-cent canoe taxi ride from Iquitos city shore to shore of Prospero Island about life on an amazon farm that is an American success story. Prospero Island is two miles in diameter – half as big six months ago – at 4 steamy degrees south of the equator. The Isle has a natural irrigation system from the dripping rainforest and an inimitable fertilization system with a seasonal 35 feet vertical drop in water level. Hence, we would land twenty minutes later on the Island when it is nearly its smallest, and richest, for the 500 farmers.

Aboard the 30' pecapeca (motorized canoe) taxi, I spoke with Señora Verde, and penetrated her chocolate eyes, because I always liked gardening. I slept as an infant in a hand-paw dug flowerbed depression with a Basset like it was a cradle, once as a tyke my mother told me if I kept digging in the potato patch I'd reach China and I tried till eight feet, as a teen weeded the neighbors' shrubbery for free, in university only Farmhouse Fraternity rushed me, and I actually ended up living now in a 10' hole in the ground (with a trailer pushed in) like a savvy mammal of the Sonora desert. I would not say I found God, nor would I admit missing him.

By the time our canoe taxi reached the outlying island, I knew enough to tell you how to become an Amazon farmer. It begins with a machete. When John Denver sang that 'Life on the farm is kinda lay back…' he was daydreaming. In the Amazon, the machete replaces the shovel; a wheelbarrow in lieu of tractor; and canoe to market in place of a truck. The overhead amounts to the cost of the seeds. When it comes time to fertilize, following three annual crops, the river rises ten vertical meters, laps over the land and covers the family's two hectares (five acres) with one meter of water. Five months later, the water blanket evaporates, leaving an inch or so of rich black deposit from the Amazon River. The food quality down here in the jungle tropics is due to the soil, and water, from days of travel and hundreds of miles upriver at the base of the Andes Range, and its snow melt. It's a fascinating balance.

Ayn Rand, who loved a good farmer in Anthem, wrote 'The fields are black and ploughed, and they lie like a great fan before us, with their furrows gathered in some hand beyond the sky, spreading forth from that hand, opening wide apart as they come toward us, like black pleats that sparkle with thin, green spangles.' This better describes the four Verde children with brushed hair, sun dried clothes, and river polished shoes, rather than the muddy shore the taxi bumped in the traditional Amazon docking to hit and stick. Señora Verde boasted rising, 'I made the children with my husband to work the farm, because that's what life is about.' The kids, three boys, a youngest sister, and all aged 4-10, beamed until the calluses on their hands and feet nearly popped.

The leading strategy of American farming, and worldwide, is crop rotation or changing plants in succession on the same land to preserve the productive capacity of the soil. For example, the rich, clay loam of the Black Hills of South Dakota resembles the banks around us on the Rio Amazon where it's slippery to hike but if you fall the mouthful of dirt tastes okay. The primary crop in the Black Hills is corn, which is especially demanding for soil nutrients, and not everything does well after an encore of corn. Although corn taxes the soil, if potatoes follow, they leave it fairly unhindered. Potatoes and squash, being both big leafy plants, back-to-back serve as cleaning crops to reduce weed pressure, in preparation for beans in the next rotation. Beans are fantastic nitrogen fixers, which prepare the earth for corn again. They are called the 'Four Brothers'; they sustain each other.

However, this earth chess isn't played down on the Amazon farms. Señora Verde plants corn, then corn, and a third crop of corn. The initial yield's the biggest (10¨ long x 2¨ diameter), the sweetest, and most plentiful. The second crop is still good, and the third poorer. Then rises the Amazon River during the five month 'fertilization season' when the soil is totally refreshed. And it's organic.

Millions of families throughout the Amazon sit in their huts like frogs throughout the five month high water, and this has made them a patient, verbal society. As the water rises from the snowmelt from December through April the island diameter shrinks 50%, which in land area is like turning a XL pizza into a small. Up comes the river slapping at the ladders to the hut platforms on 8' stilts. The kids no longer walk to school, which is also raised on 8' pilings, but canoe there. For the past two years, the water change has been 40 vertical feet and flowing into their living rooms, so they smile and paddle in the front door to the supper table, or bed, where belongings are heaped for a couple months until the ebb. Virtually everyone on the island admits to an amphibian's insight, and enjoys the dry season more.

There are two types of farms on the Isle: group owned, which is shared, and individual or family owned. She prefers their independent farm in trying to explain an individuality that when her corn is ripe today, mine may be tomorrow, but she doesn't want to labor both days for us. She teaches her children not to depend upon the debt nor gratitude of others. Sow, the family labors alone. And so, the ultimate goal of farming is not the growing of crops, but the cultivation and perfection of human beings.

Now, the old family farm of the Verdes is popping up the cash crop and the children have corn kernels in place of missing teeth in their smiles. They say still they enjoy the taste of it after pulling hundreds of thousands of ears in their short lifetimes. Harvest is the most joyful part of farming around the globe, but in the Amazon it's achieved differently. The corn is plucked and stuck into rice bags the size of pillow cases that, when full, weigh about 20 pounds each. These are loaded from the field into a wheelbarrow and carted a quarter-mile to the family motorized canoe, which carries the harvest two miles across the strait to the Iquitos Mercado Productores. This rambling shoreside market reminds me of the first supermarket that supposedly appeared on the American landscape in 1946. Until then, where was all the food? It was in gardens, homes, local fields, and forests, cellars and pantries, and on the tables. Now, with markets, one may specialize in something outside agriculture, while remembering the most important product is produce. Each Verde crop of approximately 1000 sacks sells for $5 each, so thrice yearly the family nets $5,000 for a royal total, almost pure profit, of $15,000 per annum.

The Señora grins that theirs is the richest, because they are the hardest working, family on the Isle. Then she admits that she toils during the hot, dry season that she may afford to make more babies during the stilted high water who will grow into workers. They spend the profit on clothes, school books, and an extended family. None of the other families work as hard as the Verdes, she claims, and right now her husband is weeding in the field with the sole farm tool, a 3' machete, while many of the rest are drinking the local aguardiente alcohol. She describes farming as a progression of hope, and with two index fingers rising in parallel points at a direct proportion between how hard one works and the standard of living. Many of the other families jump out of Aesop's Fable of the Grasshopper and Ants who sing through the planting season, and watch their ribs stick further and further out during the high water, as opposed to fewer Ant families like the Verdes who never want.

A farm is a manipulative creation. The maker is responsible, from start to finish, for the thing made. There is no such thing as finished. Work comes in a stream and has breaks, but has no end. Things must be done now and not later. The threat the farm gets on you, that keeps you running from furrow to furrow, is this: do it now.

It's time to get you a pair of overalls.

Jul

22

"The general welfare"–where would we be without its defenders?

"TLC Wrongly Accused Hundreds of Being Illegal Cabbies in the Past Year"

Jul

22

I had the pleasure of seeing a very entertaining production of The Merry Wives of Windsor the weekend. It was fictionally set during the 1960s at a summer resort in the Poconos. Think Dirty Dancing meets Downton Abbey. The play shows Falstaff in all his completeness. The sometimes modern theme of women outsmarting their dullard husbands began long ago in this play. But in this story somehow the mockery is not spiteful or malicious, but to use a pun is "playful" with a touch of ribaldry to keep it interesting. I highly recommend everyone get out to see open-air Shakespeare somewhere this summer.

Oh yeah, and the play contains a fantastic use of the word alacrity: "I have a kind of alacrity in sinking"

- Falstaff recounting being tossed into the bog, outsmarted by the Wives. 

Jul

22

 The Hawaii housing market is starting to warm up after years of lethargy. It lags behind the mainland markets and a good sign of a market cycle maturation. Inventory is low. There have been cyclic bubbles in the local market for vacation condo's and home from mainland, Canadian and Japanese investors over prior market cycles. Excess money from various world markets makes it way to the luxury market as 2nd homes or vacation homes here. There are many new home building projects, busy contractors in sharp contrast to the last several years.

Jul

22

For 6 years I kept up a daily blog "Masteroftheuniverse" on which I shared a few insights. The blog was well crafted and I had many feature areas. Sadly, family and political pressures made me take it down. One of the areas, my free books download, has been demanded so many times that I resurrected it. If you have any ideas of links to books to add, please send me a PM and I will try to add it.

Jul

22

I picked up this nifty short book Deep Risk: How History Informs Portfolio Design by William Bernstein today. I'd be interested in hearing the thoughts of others who've read it. For the rest: the theme is roughly "portfolio theory in emerging markets" (i.e., with real risks to buy-and-holders, not just "fluctuation risk" which only hits those who dip in and out.

Jul

21

 Louis L'Amour always had something resonant to say in his books when he talks about life in the West or the topographical features. In his book Last of the Breed he has a great discussion of how the back woodsman and trappers of the West had to adjust their lives to changing conditions and ever-changing cycles like the market man.

They once traded furs but that market dried up and they had to move to manufactured goods. They always had to keep their eye open for bear and outlaws and the Native American. They were not very educated in the scholarly stuff, although L'Amour never loses an opportunity to show how they read Herodotus and Gibbon and Walter Scott in their spare time and that many of them were former professors and Lords, although many of them were running away from debts and wife(s) also. You get the picture. 

Jul

16

What is the best formula for description, and separately for prediction, for separate markets (say S&P, bonds, gold, …) involving the first, second and third difference, taking account the number of past observations considered such as last 4, 5, 7 or 10.

Jul

16

And the headline news was a 3-point decline in the S&P 500 that was attributed to the grandmotherly chair thinking some stocks were too high. It seems like a nice deception. "Do as I say, not as I do."

Jul

16

 I had a cab ride last night with a 53-year-old Romanian immigrant. He grew up milking cows manually and his father earned $1 a day. Driving a cab in New York is hard work. When this driver comes home at night, he has to go out for a walk twice in the evening to relieve the stiffness in his back and bottom. He jokes that he tells his wife, "You'll have to go with the milkman, because I'm too tired." But he now makes $400 a day, equivalent to the average monthly wage in Romania when he was growing up. He has saved his money, so that without going too heavily into debt he has bought a spacious two-level apartment in Queens with a garden and a parking space. His two teenage daughters have the whole second level as their rooms. He bought what he thought was a giant-sized flat screen TV for $2,000, but his daughter's room was so big that from her bed to where the screen is, she can barely see the image. He and his wife emphasize education, with the result that his elder daughter was one of 100 students accepted to a top school that had 15,000 applicants and his younger daughter has a 97 average. Summing up, he is proud that coming from a humble beginning, he has become a millionaire by owning his own cab and a medallion that he bought for $200,000.

A truly inspiring story: By being part of a government-operated conspiracy to suppress competition, he has amassed $1 million of wealth based on economic rents. Heavy lobbying perpetuates this scheme. Just one question: What will the value of the collateral he put up for his home loan as Uber becomes better established?

Paolo Pezzutti writes: 

This story shows once again how the generation of immigrants now 50 or so years old lived the American dream. The romanian taxi driver was able to arrive in the US penniless and end up sending his kids to good universities, buying a house and owning a very valuable medallion. The story of growth and success has occurred to millions of immigrants over the past decades. This is what really is fascinating about the US. The question is whether the US is still able to sustain the American dream. Will the new generation of immigrants find it harder to integrate in the society, find a good job and provide education to their kids?
 

Jul

16

I was doing some study on small caps ($IWM ETF) on sequences of 20 day low closings and 20 day high closings.

If a current close is a 20 day low coming after a 20 day high closing, calling it as the 1st 20 day low closing (marked as 1, under #), and if another 20 day low closing is printed, then call it as a second 20 day low (marked as 2 under #) after a 20 day is already printed, and so on. The sequence is counted till a new 20 day high is printed.

Currently we printed a 3rd 20 day closing as on yesterday on $IWM.

It looks like about 46% of the total (of 319) 20 day low closings continue further, if they don't stop by the 4th 20 day low closing print, before printing a 20 day high closing print

% not stopped column indicates how many further 20 day low close prints of the total (319), continued further

data since 2001

# Instances  % Not Stopped

1    50    84.33

2    47    69.59
3    39    57.37
4    34    46.71
5    28    37.93
6    22    31.03
7    17    25.71
8    15    21.00
9    13    16.93
10    12    13.17
11    10    10.03
12    8    7.52
13    5    5.96
14    3    5.02
15    2    4.39
16    2    3.76
17    2    3.13
18    2    2.51
19    2    1.88
20    2    1.25
21    2    0.63
22    1    0.31
23    1    0.00
 

Jul

16

 The Secret Diary of Arthur Burns provides a first hand account of the Federal Reserve Board Chairman for the period of 1968 to 1974. It was an interesting time frame for Fed policy. Among the issue they faced were; leaving the gold standard, floating the currency, renewing deficit spending, managing tariff/price controls, and dealing with an energy crisis to name just a few.

The context of the book takes the reader back to the highly regulated world of pre-Reagan America. Industry, trade and currencies were overseen by technocrats and this Republican administration had their hands seemingly everywhere. Bureaucracies like a wage and price boards set industrial pricing. Tariff boards controlled international trade, and currency pegs served to formalize handshake agreements between countries. The Nixon administration, however, marked the beginning of the end for at least some of these controls. Gold, famously, was the first to go. The metal increased from the longstanding $35/ounce peg. Eventually it floated freely.

The book portrays a cabinet completely preoccupied with politics, internal power struggles, and meddling in economic areas beyond their competence. On the monetary side, Milton Friedman's ideas were used but they were misapplied. The Fed boosted M1 as stimulative, but then developed a spider web of price controls to reduce the inflationary results. Hubris and indifference to basic economics were displayed by all the central players, Nixon, Burns at the Fed, Shutlz on Budget and Connally at Treasury.

For example, in dropping the gold standard Burns was the first to admit they had no idea what the consequences would be. It was purely a politically expedient decision. They needed more paper dollars to fund the ending of the Vietnam War. Also, they wanted to begin what would become many decades of federal deficit spending. In one such discussion he outlines the dynamics of a typical meeting:

page 66. "Here we were Kissinger, a brilliant political analyst but admittedly ignorant of economics; Connally, a thoroughly confused politician… Shultz, a no less confused amateur economist; I (Arthur Burns) the only one there with any knowledge of the subject, but even I not a real expert on some aspects of the intricate international problem"

Burns did argue for some growth policies including tax reductions and industry incentives. However, he was not persuasive enough. Time and time again the economically correct course was discarded for the politically easy one. Tariffs were arbitrarily thrown up to protect certain jobs prior to an election. The currency was expended to allow for politically targeting spending. Double digit Inflation was an acceptable consequence for fiscal expansion.

As an unintended benefit the book gives an interesting preview of recognizable characters in their youth like, Volcker, Shultz, and Kissinger. Burns though is often brutal in his character assessments. Burns made clear the book was not to be released until 30 years after his death. I can see the reason why.

Jul

15

A conglomerate run by a flexion nears the constructal number of 200,000.

Steve Ellison writes: 

Price is down today in every market, even the bond market, except the dollar and the pound. I will have to study if this has portended anything in the past.

Jul

15

 Some 53 years ago I worked on the crisp files [CRSP ] and formulated a hypothesis. Stocks breaking through the round #s 10 and 100 tended to outperform the market. I didn't trust my results at the time as I was just learning to program and my stump tailed macaque distracted me from work on the 7094 [IBM 7094 ] which had a 24 hour turn around if you made the slighted typographic mistake on your program. The results while very alluring were overwhelmed by the fact that many of the companies reaching the criteria did so in battalions in years like 1933 or 59 or some such. I wasn't agile enough at the time to perform a Mann Whitney test of the performance of these companies versus randomly selected counterparts at the same time. However, the study would be worthwhile to do, if one had an exact as is, with no retrospective file. Perhaps someone will do it correctly and see how it did relative to my hypothesis and the related hypothesis of the J. Livermore who departed from life at the Sherry Netherlands because of excessive vig.

Jul

15

Shortly before Gowex confessed to financial reporting fraud and went bankrupt, a leading technical analysis firm said the stock could rise by 29%. A fundamental research shop, in contrast, set a target price of zero. Some chartists don't think their field is discredited by practitioners who rely on astrology.

"Technical Analysis is Fundamentally Flawed" [My article in Forbes].

Jul

15

 This article raises questions with regards to the private sector-government relationship. Interesting that a young firm like AMZN is winning these sensitive types of contracts vs. IBM, etc.

For whatever reason it brings to mind something I noticed when I was a kid. When two or more horses are in a corral or pasture together there is always a "leader" or "boss". And then one day something occurs and the relationship shifts– the power dynamic is reversed. The owner is not always around to see what triggers the re-orientation but it is usually fairly obvious to him/her. The key is that one has to be paying attention to the relationship, most people would not see it.

Jul

15

 In the age before central bank IOUs had become money, even the opponents of the gold standard understood what the words "gold standard" meant. Could you go to a bank or Treasury office in a country and present a bank or Treasury note and ask for and receive a gold coin in exchange? If you could, then that country was on the gold standard; if the bank or Treasury refused, then the country was NOT on the gold standard.

It is important to understand this definition because almost all of the scholarship written in the past 75 years has tried to use Keynes' definition of the gold standard. In Keynes' view, because of the barbarous beliefs of people who did not understand modern economics, a gold standard was still necessary for settlement of claims between nations' central banks. It was regrettable but unavoidable. There would have to be a gold price for each national currency so that central banks could have a way to clear accounts - i.e. know how much a French franc and a British pound were each worth in gold. Eventually, when people came to see reason, there would be no need for such an official gold price; central banks could settle accounts using a made-up international currency. (Keynes thought it should be something called a "Bancor".)

But, even under foreign exchange gold standard, Keynes thought there was absolutely no reason for people to be able to demand gold coin for money. He criticized Churchill for choosing the wrong gold price for the pound when Britain agreed to settle its foreign accounts in gold, but he applauded the fact that Britain had not actually "returned" to the pre-war gold standard. No one would ever again be legally allowed to demand gold sovereign coins in exchange for pound notes, even at the official price.

Jul

15

Goldman saved me the trouble and published a study showing that since 1974 the world cup winner gets a 3.5% one month outperformance boost (n=8). In this case it would take the DAX right back to 10,000 where it ended two weeks ago. I don't doubt it will get there. Even factoring in the cost Germany will shoulder in aiding its weaker brethren, the market seems to take it all in stride as part of doing business on the continent.

Jul

15

I wonder if there's some way to use bizarro patents as an index of where the market is at and may be headed—kind of like the hemline and skyscraper indices. For bizarro, I mean things like this: "Airbus Patents 'Bicycle Seats' That Look Terrifying For Airline Passengers". Yep, stale peanuts for $3, a can of flat Coke for $5 and a copy of Lance Armstrong's autobiography. Makes that 6 hour red eye from LAX to JFK really tempting, eh? Since I don't see any possible use for such a patent, my conclusion is that its filing represents sufficient accumulated wealth that a company doesn't much care about wasting some of it for the prestige of a patent. There must be some directional clue from such developments.

Jul

15

 Pecking order is a hierarchical system of social organization that originally referred to the dominance in chickens, like those that run the yards at my Sand Valley neighbors. Power in chickens is asserted by various behaviors, including pecking, but in other animals by tooth and claw, while humans use lingo, gloves, shivs, and money.

The ultimate function of a pecking order, as reported from the ivory towers, is to increase the individual or inclusive fitness of the animals involved in its formation. Closer to the truth, in the wilds, fighting to acquire resources such as food, water and mates is expensive in terms of energy and the risk of injury, and by developing a pecking order animals determine which individuals get priority access to resources, particularly when they are limited.

The order isn't as neat as a deck of cards, graceful as a statistical curve, exacting as a Marine roster, or accurate as a mafia hit system, however it's seen in every walk of life.

Today, while walking the jungle trail around the Island of Iquitos on crutches, I fell upon two men sparring their roosters 'with the gloves on'. Each bird wore ping pong balls on the razor spurs, and a 6" segment of plastic tube that ran from the top to bottom beaks, thus dulling every strike. The animals fought bitterly without blood in an instinct for pecking order for three five minute rounds – the equivalent of about eight rounds of professional boxing – before being put to rest in the shade of a stilted hut. They looked like scuba chickens with regulators and floats, reminding me of when I was chicken to enter the oceanic job market that would include stints as a gardener, babysitter, construction, factory, shop, playground supervisor, cleaning kennels, veterinarian, hobo guide, landlord, author, publisher, teacher, security, professional athlete, coach, technical analyst, psych tech, old folks counselor, and swap meets.

'Money is the way we keep score at work,' told a one-lunged semi-pro quarterback and swap meet mogul. This is the attitude I've carried into each job, and that there must be more to work than money. You should consider jobs that you would do without a love for money, and let that score be secondary. This is possible in America, but less so among the masses of billions around the world. However, once you make enough money to buy the necessities and are able to focus on the luxuries, then the 'Pecking order of Finance' comes into play. This defines the capital structure of an entrepreneur or company, and how it makes financial decisions. The basic idea is that businesses will tend to take the course of least resistance in seeking their financial sources, taking first from the sources that are most readily available, and then steadily moving to sources that may be more difficult to utilize.

 If you have ever watched a Peruvian crowd observe a weakened bird pecked to death in the wilds, or a dog among a pack, fish in a feeding frenzy, or cannibals around the spit in the Upper Amazon, it quickly becomes evident that they think differently than the reader. Why are they mesmerized? It's a death rehearsal for each observer, and he leaves the scene as if rising from a psychiatrist's couch and greatly relieved that the burdens of his life will end so effortlessly.

And, I clomped from the rooster fight with gloves, leaving stabs in the mud like dropped coconuts, to circle the island. I'm working out to recover from the worst case of anemia in jungle history, and yesterday was a bit dizzy in the steamy humidity and fell bruising a knee. The rental crutches should be pitched tomorrow to resume the normal mend. I hipped past the 800 lb. grandest pig of the island that grunted at the new look, and by a giant turkey that surpasses Guinness Book of Records for the biggest tom at 86 pounds that charged me like a Rottweiler with wings puffing its breast feathers and fanning its tail. But a 'Rule of Thumb' of pecking order is that if one individual sees the other is larger, faster, or more determined, he will back off. Previously, I hadn't had this problem with the animals, and believe they sensed a weakness.

Near the end of the two-mile perimeter hike the trail is trimmed to widen to enter a fifty shanty town on whose fringe a pack of about 15 dogs attacked me like buzzards after intestines. They were of innumerable breeds and varying size, barking 'Gringo!' Two wooden canines flashed unexpectedly and caught two of the curs in the chops, that sent the rest of them off yelping, as is the gang way.

The establishment of the dominance hierarchy reduces conflict and is a sort of account. I was the top chicken on the island today, and shall get the royal treatment tomorrow.

Jul

13

I enjoyed this article: "Lionel Messi Is Impossible".

Jul

13

America falls out of the skyscraper race.

Also, more on the edifice indicator.

Jul

11

 I was recently asked by a friend whether Jack Aubrey had any lessons to teach for trading. I don't know anything about nautical things but I answered him as below. He asked me if I had written about deception anywhere. I would be interested in any lessons that others have learned about markets from Patrick O Brian's books.

[…] there's a fake Englishman strategist, L!ddell H@rt, who fancies himself a master of deception. And I covered his insights. He's sort of like Ogilvie. Everything self serving. I believe that deception is one of the things they are very big on in the Military colleges. Deception in nature is the model. It's ubiquitous.

Lessons? From a  layman's point of view, yes. Forget the maneuver. Go for the jugular. And always have an escape plan. And use indirection at all times to get your way during the battle. And always be prepared to change your plans in the midst of the battle. Almost all the battles he won, he had to change in the middle.

Paolo Pezzutti writes:

I think the chair describes three main aspects of Jack Aubrey that are very relevant. Those aspects are:

1. deception

2. the determination to go for a big win over the enemy

3. the ability to adapt to changing situation.

I also think Jack Aubrey's has some characteristics like those of successful traders– for example, confidence. Jack was intimately aware that his abilities at sea as a Captain were first class. This was because of nautical competence, instinct, hard work training, cohesion and sharing of objectives with the crew, detailed planning and analysis of all factors before engaging a battle. Finally the intimate conviction the the British Navy was far superior to any other Navy. He also had the willingness to take risks. You can't win if you are not willing to lose. Jack Aubrey was taking big risks in order to leverage his edge against the enemy. This is similar to how traders take larger trades when the odds are in their favor. 

Jul

11

 There was a BBC documentary about Joan River's life and she seemed like a real tough lady who has had a lot of challenges in life and has come out ahead. Much respect. I thought this was an interesting review:

WARNING: If you suffer from spineless conformity; a deformation of the personality often euphemized as political correctness—quit reading this column, NOW!

If you don't quite know whether you are thus afflicted, ask yourself this: "Do I police what people say for political propriety? To the extent that I seek it out, do I scrutinize great literature, music, art, television or comedy for signs of so-called sexism, racism, elitism, homophobia, antisemitism and meanness? Am I incapable of appreciating a superbly written script or book; a sublime painting or symphony; a smart stand-up routine, if only because the material and its creator violate the received laws of political correctness?

Still unsure if you belong to the tyrannical, joyless tradition of cultural Marxism, read on. In the event that you convulse with laughter, give yourself a clean bill of health. If you foam at the mouth, fit to be tied, go away. And stay away.

Women who should make themselves scarce but won't are the prototypical, inquisitor-cum-anchors plaguing leftist "news" networks. Acting anchor-enforcer for Fourth of July was CNN's unremarkable Fredricka Whitfield. Fredricka What'sHerName's would have left behind a sustained program of non-achievement. No longer. Henceforth, her claim to fame is that she attempted to re-educate an iconic comedienne, Joan Rivers.

Since cultural Marxists police speech for propriety, if not consciously, then reflexively, they will take pains to stigmatize and isolate those who violate standards set by the PC set. The term re-education is associated with this totalitarianism. It has been used in the context of both brainwashing as well as "reformation" induced in labor camps.

Through a series of loaded, snide taunts, coupled with unhinged body language, the prissy preachy Fredricka set about reeducating her featured guest about the rules of conduct in the post-personality era. "You shall not be mean" (*except to all men and all conservatives and authentic contrarians) is the latest monomania to grip the politically correct.

Alas, as the object of her pelting, Fredricka the fundamentalist was foolish enough to target the wrong funny lady. Rivers is too old and too independent for "rehabilitation." …

Rivers mentions Winston Churchill, and I believe it is potentially true now that if you tweeted some of Winston's writings as your own in the UK, those opinions would potentially get you in trouble with the police. It is no doubt a fine and dangerous line to regulate acceptable opinion by imprisonment.

Jul

11

Since 2012 there have been 30 occasions when the eighth trading day of the month existed. And indeed the gain on the next three days was cumulatively 1.2 points, 2.4 points, and 4.2 points in actual S&P futures.

Three cheers for Yale and the super 8. ….except for all days during that period the gains the next 3 trading days were cumulatively 1.2 points, 2.4 points, and 3.6 points.

Jul

11

 I have the pleasure of having in front of me The Stock Trader's Almanac for 2014 by our good friend, Yale Hirsch and his son Jeffrey Hirsch, now published by Wiley. The book contains a myriad of data on seasonals, tips for investors on pivots and candlesticks from John Person, "the first ever to use the powerful combination of candlesticks and pivot points. Our similar musical and movie tastes made it that much easier to work together".

Also contained are presidential cycle information, the Friday Monday effect, the January barometer, first trading day of month, September: a correction for all seasons, the super 8 days around the turn of the month and trading days 9 to 11 when 401k's are invested, market moves before 3 day holidays, best months switching strategies, methods a la Silver of predicting midterm congressional elections (it's peace rather than prosperity), the free lunch before Christmas et al.

Without any falderol there is contained an enumeration of monthly levels in all the major indexes since 1950, and highlights as to the witching hours, the 10 best and worst days, years, weeks, months, quarters, seasonal patterns since 1901, discussions of IRA's awesome advantages, and GM Loeb's battle plan for survival, best performing months et al.

Hats off to Yale. And a book well worth having whether you believe in predictive power of seasonals et al or not.

Jul

11

 I took the time to write below a collection of tweets by Jack Schwager (@schwager). I find there are a number of useful quotes.

"Scaling out of a position ensures at least partial profits if move continues while mitigating profitsurrender if mkt reverses"

"You don't have to get into or out of a position all at once."

"Traders who are successful over the long run adapt" [O'Shea]

"Traders who fail may have great rules that work, but then stop working." [O'Shea]

"What we call intuition is the objective synthesis of information based on past experience, unhindered by emotional distortions"

"The trick is to differentiate between what you want to happen and what you know will happen."

"Whenever you try to get all your losses back at once, you are most often doomed to fail." [Schwartz]

"Impulsive trades can be dangerous. Trades cited as their most painful by the Market Wizards were usually impulsive ones"

"The market will seldom reward the carelessness of trades born of desperation."

"The markets are an expensive place to look for excitement."

 "I don't trade for excitement; I trade to win." [Hite]

"Hollywood image of trading as adrenaline-filled and high-risk makes for good visuals but has nothing to do with successful trading"

"If I get a rush, it means that something has gone horribly wrong." [Alex Honnold]

"Most people lose in trading because their inclination to make comfortable choices leads to worse-than-random results"

"The more a trading system has been optimized to improve its past performance the less likely it is to perform well."

"If you bring normal human habits and tendencies to trading you'll gravitate toward the majority and invariably lose" [Eckhardt]

"Investors did much worse than random in selecting stocks from our prescreened list" [Greenblatt]

"The need for emotional satisfaction will lead most people to make decisions that are even worse than random." [Eckhardt]

"Position sizing should be reduced when different positions are positively correlated."

"Traders should be willing to take larger trades when they have very high conviction."

"When you have tremendous conviction on a trade you have to go for the jugular. It takes courage to be a pig."[Druckenmiller]

"It's not whether you're right or wrong that's important but how much you make when right and lose when wrong" [Druckenmiller]

"You cannot win if you are trading at a leverage size that makes you fearful of the market." [Seidler]

"One sure way of knowing your position is too large is if you wake up worrying about it." [Clark]

"Trade within your emotional capacity or you'll get out on meaningless corrections and lose on trades that would have won"[Clark]

"The larger the position the greater the danger trading decisions will be driven by fear rather than by judgment and experience."

"A greedy trader always blows up." [Kovner]

"Advice to novice traders: Undertrade, undertrade, undertrade. Whatever you think your position ought to be cut it in half." [Kovner]

"Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?" [Jones to himself]

"The thing that saved me was when a trade met all my criteria, I would trade 5 times the position size as other trades" [Marcus]

"Just as in blackjack trading larger for higher probability trades & smaller for lower ones could shift negative edge to positive"

"Be wary of trumpeting your predictions about mkt b/c it will make you more reluctant to change your view if mkt facts change."

"Good traders liquidate their positions when they are wrong; great traders reverse their positions when they are wrong."

"If I was thinking one way & now see it was mistake then I am not only person in shock so I better be first one to sell" [Platt]

"When I am wrong, the only instinct I have is to get out." [Platt]

"Soros has the least regret of anyone I ever met. When trade is wrong he will just cut it, move on, & do something else" [O'Shea]

"When mkt moves counter to my expectations have always been able to say "hoped to make money on this but not working so getting…"

"Loyalty is a good trait – in family, friends, and pets, but not in a trader. For a trader, loyalty is a terrible trait." 

“If you don't stay with your winners, you are not going to be able to pay for the losers.” [Marcus]

"The success rate of trades is the least important performance stat and may even be inversely related to performance" [Eckhardt]

"The need to ensure that a trade will end up in the winning column leads traders to leave a lot of money on the table."

"Human nature seeks to maximize the chance of gain rather than the gain itself." [Eckhardt]

"While amateurs go broke by taking large losses, professionals go broke taking small profits." [Eckhardt]

"Men who can both be right and sit tight are uncommon." [Lefevre]

"It was never my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight!" [LeFevre]

"Beware of taking dubious trades born out of patience."

"Debussy said, "Music is the space between notes." One could also say that successful trading is the space between the trades."

"There are no called strikes on Wall Street." [Warren Buffett]

"I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up." [Rogers]

"One of best rules anybody can learn about investing is to do nothing absolutely nothing unless there is something to do" [Rogers]

"Dangers of watching every tick are twofold: overtrading and increased chances of prematurely liquidating good positions"

 "Having a quote machine is like having a slot machine on your desk – you end up feeding it all day long." [Seykota]

"There is plain fool who does wrong thing at all times but there is Wall St fool who thinks he must trade all the time" [Lefevre]

"Trading is a matter of probabilities. Even the best trading processes will lose a significant percentage of the time."

"You can't win if you are not willing to lose."

"A losing trade that adheres to a prftbl strtgy is still a good trade b/c if similar trades repeated process will win on balance."

"Do not confuse concepts of winning and losing trades with good and bad trades. Good trade can lose money and bad trade can make…"

"To win at trading, you need to understand that losing is part of the game."

"Amateur traders lose money because they try to avoid losing. Professional traders understand they need to take losses to win."

"If you get out even, you can say, "I was not wrong. I didn't make a mistake." That need not to be wrong is exactly why people lose"…

"I was able to become a winning trader when I was able to say, "to hell with my ego, making money is more important."

"Why is getting out even so important? Because it protects the ego." [Schwartz]

"What is the ultimate rationalization of a trader in a losing position? I will get out when I am even."

"If you know you have won the game of trading before you start, then there is no problem taking a loss." [Dr. Van Tharp]

"One sure sign that you lack confidence in seeking the advice of others."

"One way to gauge whether you will be successful as a trader is whether you are confident that you will succeed."

"Confidence is one of the most consistent traits exhibited by the successful traders I have interviewed."

"If you listen to anyone else's opinion, no matter how skillful or smart a trader might be, I guarantee it is going to end badly."

"You have to follow your own light. When you try to include someone else's style you end up with worst of both sides." [Marcus]

"It is truly amazing how the market will not let traders get away with even a momentary lapse of discipline."

"As long as you are in a position, there is tremendous anxiety. Once you get out, you begin to forget about it." [McKay]

"If you stick around when the market is severely against you, sooner or later they are going to carry you out." [McKay]

"When I get hurt in the market, I get the hell out. It does not matter at all where the market is #trading." [McKay]

"Effective money management is not a matter of complexity, but rather a matter of discipline."

"By only risking 1%, I am indifferent to any individual trade." [Hite]

"It is the 80/20 rule of life. In trading, 80% of your profits come from 20% of your ideas." [Platt]

"While you are in a position you cannot think. When you get out, then you can think clearly again." [Marcus]

"When in doubt, get out and get a good night's sleep." [Marcus]

"If undecided btwn liquidating losing trade + gritting teeth + riding out remember there is 3rd alternative: partial liquidation."

"By trying to be 100% right, many #traders end up being 100% wrong."

"The need to be 100% right prevents many #traders from considering partial liquidation."

"In-the-money options may sometimes provide a more attractive risk management tool than stops."

"Place stop at level that disproves your trade premise, not your pain level. Mkt doesn't care about your pain threshold." [O'Shea]

"Placing stop too close can lead to multiple losses. Traders will want to get back in b/c they don't think they're wrong" [O'Shea]

"You have to be willing to allow enough risk for the trade to work." [O'Shea] 

"Why is deciding where you will get out before you get in so important? Because before you get in is last time you have objectivity."

"The most important trading advice if restricted to only 10 words: know where you will get out before you get it."

"Know your uncle point." [Schwartz]

"The amount of attention most beginning traders devote the money management is inversely proportional to its importance."

"You can do well with a mediocre method and good money mgmt, but go broke with a superior entry method and poor money mgmt."

"Don't focus on making money; focus on protecting what you have." [Jones]

"If your portfolio is sailing to new highs almost daily and virtually all your trades are working, watch out!"

"Winning streaks lead to complacency and complacency leads to sloppy trading."

"My biggest losses have always followed my largest profits." [Schwartz]

"If the trend in your equity is down, that is a sign to cut back and reevaluate." [Marcus]

"Traders may be aware of a losing streak but slow to realize that a loss has far exceeded acceptable levels."

"If you are in a losing streak, the best solution is not trying harder, but rather the exact opposite: stop trading."

"When you are getting beat to death, get your head out of the mixer." [Dennis]

"When I have had a bad losing streak, I have been able to say to myself, "you just can't trade anymore.[Marcus]

"In the end, losing begets losing. When you start losing, it touches off negative elements in your psychology" [Marcus]

"I will keep on reducing my trading size as long as I'm losing." [McKay]

"After a devastating loss, I always play very small and try to get black ink, black ink… And it works." [Schwartz]

"Keep reducing risk during equity drawdowns so that you will have a gentle financial and emotional touchdown." [Seykota]

"When trading poorly I keep reducing my position size. That way I will be at my smallest size when my trading is worst." [Jones]

"Generals always fight the last war; portfolio managers invest in the last bull market." [Rogers]

“The idea that #tradingsuccess is tied to finding some specific ideal approach is misguided. There is no single correct methodology"

"Were it not for their relentless persistence, many of the Market Wizards would never have discovered their
ultimate potential."

"In trading, just as in archery, whenever there is effort, force, straining, struggling, or trying, it is wrong."

"You have to learn to let the arrow shoot itself"

"If you are out of sync with the markets, trying harder is often likely to make matters even worse."

"If trading is going well, it will seem effortless. if trading is not going well, you can't force it right by working harder."

"The hard work in trading comes in the preparation. The actual process of trading, however, should be effortless."

"It is a quirk of trading that you could be successful for the short-term without knowing anything; that possibility fools people"

"The possibility of short-term trading success by pure luck beguiles people into thinking trading is a lot easier than it is."

"Trading is probably the world's only profession in which a rank amateur has a 50-50 chance of being right in the beginning."

"But the fact is that the people who are really successful in trading are tremendously hard workers. Why are so many people attracted to trading? Because it seems like an easy way to make a lot of money."

"I was amazed to find that so many of the great traders I interviewed were workaholics."

"I always want to be better prepared than someone I am competing against. I prepare myself by doing my homework each night."

"If you have an approach that makes money then money mgmt can make the difference between success and failure."

"Good money management alone is not going to increase your edge at all."

"To make money you need to have an edge and employ good money management."

"Successful #tradersare confident that their methodology provides an edge."

"So what exactly is your methodology? If you cannot answer that question, you are not ready to be risking money in the markets."

"Money mgmt cannot save you if you do not have an edge. It is helpful in preserving capital only if you do have an edge."

"If you don't have an edge then the optimal money mgmt strategy is to bet it all at once–the epitome of bad money mgmt."

"If I try to teach you what I do, you will fail because you are not me." [O'Shea]

"By living the philosophy
that my #winners are always in front of me, it was not so painful to take a loss." [Schwartz]

"Successful #traders find a methodology that fits their personality." #LBMW

"Market success is a matter of finding the methodology that is right for you, not finding the one true methodology."

"There are a million ways to make money in the markets. Unfortunately they are all very difficult to find."

"Those seeking one true answer to the mkts haven't even gotten as far as asking right question let alone getting the right answer."

"There is no single true path in the markets; no single market secret to discover; no single correct way to trade." 

"Persistence is instrumental to success. Most people faced with the early failures of some of the Market Wizards would have given up."

"Novice #traders should start with small amounts of cash because they might as well pay less for their market education."

"Failure is not predictive. Even great traders often encounter failure – and even repeated failures – early in their careers.

Jul

9

Here is an easy read. The paper is courtesy of the Kansas City Fed, on the history of agriculture, the booms and busts, other cycle changes, and agriculture's role in the economy, past, present, and future. For a layman, this represents and provides great value.

"Agriculture's Boom Bust Cycles: Is This Time Different?"

Ed Stewart writes:

Thank you for sharing. I wonder to what extent REIT and other capital markets investors will be adding fuel to this cycles' boom and bust experience.

 

Jul

9

 Some commodity futures markets I have been trading just opened night sessions (from 9pm to 2am). That created some unknowns for me, as I don't know how the night sessions would affect the daytime sessions, particularly the opens/closes of the day sessions. The strategies I have been using are based on studies of the past 3 years' data. So I stopped trading these and just watch. Since these markets all have overnight overseas markets, I suspect the newly added night sessions would not make much difference to the day sessions.

Would anyone would share some experience on this?

Victor Niederhoffer writes: 

You should find markets that already have these sessions, and apply your methods to them which will work just as well as your normal. The volume in these abbreviated sessions by the way will be very low, and you won't be able to trade them. But the volume will be just enough to throw off all your opening regularities from the past.

Mr. Krisrock writes: 

Be aware that global futures markets are looked at as ONE MARKET. Time zones aren't important but prices and liquidity and price targets are very important.

Jul

9

It is happening again. Starting in mid June the realized volatility of stocks futures, calculated with a 20 day look back, is lower than the realized volatility of 30 year bonds futures. Over the last 10 years it happens about 15% of the time. The returns for stocks are slightly negative during these time compared to the normal positive drift for stocks. Bonds are flat. This makes intuitive sense as the now less risky stocks would underperform the more risky (yet still risk free) bonds.

Jul

9

 I've seen this study making the rounds on several websites now as a type of neuroeconomic confirmation of Buffetological principles…

Perhaps procedure might be slightly useful as a means of seeing physical brain improvement by training– such as that found through meditative practices.

"Traders who buy more aggressively based on NAcc signals earn less. High-earning traders have early warning signals in the anterior insular cortex before prices reach a peak, and sell coincidently with that signal, precipitating the crash. These experiments could help understand other cases in which human groups badly miscompute the value of actions or events."

"Neuroeconomists Confirm Warren Buffet's Wisdom":

"Seeing what's going on in people's brains when they are trading suggests that Buffett was right on target," says Colin Camerer, the Robert Kirby Professor of Behavioral Economics at Caltech.

That is because in their experimental markets, Camerer and his colleagues found two distinct types of activity in the brains of participants—one that made a small fraction of participants nervous and prompted them to sell their experimental shares even as prices were on the rise, and another that was much more common and made traders behave in a greedy way, buying aggressively during the bubble and even after the peak. The lucky few who received the early warning signal got out of the market early, ultimately causing the bubble to burst, and earned the most money. The others displayed what former Federal Reserve chairman Alan Greenspan called "irrational exuberance" and lost their proverbial shirts.

Jul

8

 It could have been one of Fed's greatest ever victories, an absolutely amazing comeback to take it to the 5th. However I think his age and fitness let him down. He was all over Novak in the early part of the 5th with Novak in trouble receiving treatment….and the Fed let him off the hook. (It must have taken it all out of the Fed to get to this point, but now was not the time to let up). Then he then got beat as the younger player gained his footing. A lesson to us all. If you're in trouble in a market you're well experienced in, don't stop out at breakeven when it counts…. push harder when you smell blood and be prepared for a long night.

One further thing that should be mentioned is the very big edge Novak had in the 5th set was that he served first. An even larger reason for the need for the Fed to score an early break when Novak's body was in trouble, since one slip up from the Fed and a break to Novak and there was no way back.

Whether it's time until the close or a pending announcement, always know where your risk lies, and like a runner doing interval training, know the optimum times to push and times to back off. 

Jul

8

 The Master Trader by Laszlo Birinyi reveals the secrets of some of Birinyi's greatest successes and most celebrated techniques. Such secrets are timeless, valuable, and thought provoking as I often learn walking down the street with the very recognizable Laszlo after our tennis games, when a grateful passer by stops him "You're Laszlo Birinyi, the guy from Wall Street Week, aren't you. I owe you so much. You recommended Apple to me when it was 3 and Amazon at 50 and I bought them. And now, my whole family is sitting pretty because of you.".

Among the public, Laszlo is most famous for having by far the best record on Wall street week, 1000% versus the average of 270% for the other panelists during the 1992 -1999 period that the program was in its hayday. Among professional investors, he is most renowned for inventing the concept of money flows, a measure of the dollar value of a stock bought and sold during a short period. He is also the developer of a myriad of practical, tested money making ideas for individual stocks and the averages that are widely used by investors.

Some of his other discoveries, are the beauty of sprained wrist stocks, companies that are hit hard by temporary concerns but have not had their basic business model hurt, the predictive value of corrections of more than 20%, likely moves after big days, the moves after gaps, the rotation of industry performance during various segments of the market cycle, the superiority of growth stocks over value stocks in recent years, the long term unprofitable record of smart bears.

Most important of all the insights in "The Master Trader" is the snap shot of a creative and curious man who never accepts conventional wisdom, and has the patience and persistence to go back to the original sources to ferret out the truth from the mumbo jumbo. Those traits were noticed by Mike Bloomberg while Birinyi was a neophyte at Salomon Brothers and quickly led to his becoming head of equity research at the firm. He refined his money flow indicator and applied it in the short and long term to stay ahead of the market.

Birinyi is well known and highly respected by Barrons readers. His stock picks, market calls, and indicators are frequently cited. He was the subject of a thoughtful interview in January 2009, where he elicited one of his favorite themes— the experts are always behind the form, the number of stocks down 50% in a year varies inversely with future market moves, and recommended buying Amazon at 50 among other great calls.

He runs a successful investment firm with mid 9 figures under management out of his Westport estate, still likes to eke out a profit or two in his own trading, and publishes a daily advisory service that applies the myriad indicators he has developed to picking individual stocks, and future market performance for the day and the fray.

 The question arises why would he reveal his secrets in a book, and how valuable is the book, which retails for $65 in the Wiley Trading Series. My guess is that he feels that after 35 years in wall street, he has a responsibility to restore some sense to the mumbo jumbo that is often accepted as wisdom on wall street. He believes that the data that is used, the records that are kept, and the performance figures that are reported are misleading and often harmful to the investor. Before he shuffles off, he feels the responsibility to rectify the situation. All investors would prosper from reading this book which should serve as a Baedecker for market people.

The Table of Contents of the book, always a good place to start lists 94 golden nuggets and hidden treasures for market people. Some of my favorites:

The Advance Decline Line : A Favorite but Why?

Technical Analysis fails a Rigorous Test

The Dow Theory in Real Time

The Issue of Cyclically Adjusted Price Earnings Ratios

The Public Versus All Others

The Demise of the Japanese Market was Structural

How to Tell Whether We Are in the Eighth or Ninth Inning

Group Rotation Exists

The Fed Tightens: It Hurts Only for a Little While The Morning after a Big Day

It's 10 AM: Do You Know Where Your Stocks are Going

Gaps Provide Opportunity and then Some

Cost of Timing the Market

One can become overwhelmed from the treasures revealed in the 224 figures and 97 tables contained within the book. However, there is one overriding theme and lesson that the book teaches: "It's smart to be Bearish but Not Necessarily Profitable." Here's why. "The Market does not articulate its positive insights while the negatives are front and center. We appreciate that it is disconcerting to read the morning papers regarding global strife, political corruption, man's inhumanity to man and nature, and still have an optimistic outlook… The Negative is Obvious: the future is opaque."

The studies contained support this view. Stocks with big declines go up in the next 3 months. Sprained wrist stocks that suffer big declines from ephemeral causes like the big banks when they are caught with their hands in the cookie jar tend to recoup their losses. By getting out of the market and missing the 5 best days each year, a buck invested in 1900 would have diminished to about 1 cent by 2012. Compare this to the $40,000 or 50,000 that you would have received by buying an index fund with this 1 buck during the same period as documented by Dimson Marsh and Staunton. Yes, when you get out of the market when you see that there is a likelihood of a catastrophe you can reduce your chances of suffering a big drop. But you also reduce you chances of gaining the immense drift that compounding a 8 or 10% a year return from stocks or a 15% return on capital can obtain. Which is better? As Jim Lorie, the founder of the Center for Research in Stock Prices at the University of Chicago liked to say, "When you get out, you never know when to get back in".

The book has many virtues but there is one weakness. Birinyi seems unaware that there is considerable randomness in the market. You can't expect every regularity or forecast to repeat. Time and again he shows how this or that forecast or insight turned out to be wrong. Yet even the best regularities are right some 60% of the time. Furthermore, the cycles are ever changing. The things that work the best in one period frequently work the worst in the next. Many of the studies for example that Birinyi reports that have alluring profits in the 2009 to date period, would have led to disastrous losses in 2008 and 2000. This is a small price to pay considering the many recurring and startling insights contained in the hundreds of documented regularities that do show consistency.

An edited and perhaps more sprightly version of this review appears in Barron's of July 7, 2014 on Page L28.

Jul

8

Has it ever occurred to you that it is better to have no market instincts than the ones you think you might have? Just curious.

Jul

8

 "Robert Mugabe Says No Whites May Own Land in Zimbabwe":

Zimbabwe president Robert Mugabe has ordered the nation's remaining white farmers to be booted off their farms in order that the land be given to black Zimbabweans.

In the harshest official policy on race and land reform in a country that has been close to bankruptcy, the 90-year old autocrat said Wednesday that whites may no longer own any land in Zimbabwe. Whites would still be allowed to own businesses and urban apartments.

South Africa is Zimbabwe in slow motion.

Last month the ANC proposed in parliament that farmers give half of their farm land to workers. Next step–the ANC will take the other half of the farmer lands by looking to what what Mugabe did but adapt it for South African conditions.

Yesterday the Zulu King put in a land claim over the virtually the whole of the province of Kwa-Zulu Natal including all mining rights.

South Africa is on the brink of a recession, rating agencies have downgraded us to just above junk status and every month a different trade union has a national strike– same old same old!

Jul

7

A Market Top in Round Numbers

Jul

7

Does anyone know how much multiples contract during crashes, has there been any trend in those contractions, and do industries differ in any meaningful way in the degree of contraction?

Allen Gillespie writes: 

Normally, a crash is the fast repricing of a full recessionary effect and recessions typically are 16-21 month affairs, so a rough rule would be you wipe our 16-21 months of market activity with about a 33% contraction in earnings and 7% for the investment backers to raise capital, so 40%. If you really have a bubble, then you can wipe it out all the way back to balance sheet valuations of the prior recession, which might be a 10-12 year period, but that generally takes time and if you blow up the government too then 90% seems to be the rule.
 

Jul

7

 The people writing and thinking about political economy in the United States in the age before central banks had enormous advantages.

1. They were never, as we are, confused about what money was. It was, quite simply, the stuff that would keep you out of the hands of the people with badges and guns. Money was whatever the revenue agents, excise men, internal revenue collectors, and court, bureau and treasury clerks would accept as payment - either as a bribe or as an actual payment of a tax. If the stuff you handed over was considered legal tender, then it was money; if the officers of the Crown would not take it in payment, then it was not money but something else.

2. They were - for the most part - untroubled by the question of the "value" of money. The money you used to pay the government or pay off the people with official authorities might have a great deal of value or very little. That did not change the fact that it was the stuff that kept you out of debtors' prison.

3. If the people writing and thinking believe that liberty, not authority was the greatest of all values, they wanted money to be what the Constitution said it should be - gold (and silver for small denominations) coin. They did not "believe" in gold; if they were devout, they believed in Almighty Providence and the natural right to be free. If they wanted gold to be money, it was not because they thought that would offer "price stability" or a "strong dollar" or "full employment" or any of the other fraudulent promises that are made every day by politicians and academic economists promoting the latest magical system of "economic order". Gold's price would fluctuate, rise and fall, bubble and crash just like all other prices that are set by actual buying and selling by free people and not fixed by "the law".

4.
The people who believed in Almighty Providence had only one reason to want gold to be money. It would prevent the government from swallowing the people. Governments - the people who could claim the power of "the law" - and "ordinary" citizens were alike in their desire to spend more than they had. Yes, there were some people were naturally thrifty; but they were never more than a minority. What kept most of us gamblers, borrowers and spenders from defaulting on our debts was the fact that we wanted to keep our credit. We paid back our debts so that we could borrow again and even borrow more. The people who could claim the power of "the law" - i.e. the government - were no different about spending. But, they had an advantage the rest of us never had; "the law" would never, ever make them pay off their debts in anything but the stuff that the government itself defined as money. The doctrine of "sovereign immunity" meant that the people who got to wrap themselves in the protections of the flag could never, ever be held personally responsible for the government's debts. But, even worse, they government itself - that collective entity without a face or name - could always write itself a check to pay off its creditors. "Regulation" was no help; the regulators would always be people who also worked for the government. The only effective restraint was to require everyone - whether inside or outside government - to use the same money; and require that money to be something that no one - inside or outside government - could make for free.

Peter Grieve writes: 

A very timely post for me. I've just been reading how a guy bought a large interest in the Bank of England with a notched stick - a stick which the government would accept in payment of taxes.

Of course, they eventually decided that the stick money was silly, so they burned them all. Unfortunately they burned Parliament down in the process. This is an early example of the dangers of misjudged monetary policy.

Jul

7

 Land Ho!

Directed/Written by Aaron Katz & Martha Stephens

Starring: Paul Eenhoorn, Earl Lynn Nelson, Karrie Crouse, Elizabeth McKee, Alice Olivia Clarke, Emmsje Gauti
A refreshing buddy movie, this time doubly so because A, it takes place with two men of a certain age, old timers taking a breather from retirement, disappointment and sadness, and B, it unspools in Iceland, and the very venue is a delight in these muggy, Arthur-visited, over-blanketing summer days of stifling mercury.

It's not a huge mega-production. We could find nary a stunt man, not one wayward CGI fake animal, bot or alien. There were no shocking scenes requiring coverage behind one's fingers.

Just a wry, whimsical bit of narrative with a crusty retired doctor, Kentuckian/New Orleangian Mitch (Earl Lynn Nelson), and his former brother in law, dour-faced Colin (Paul Eenhorn), an Aussie-American mourning the death of his wife, Mitch'es sister. They go to museums up in Reyjkevik (one of our favorite spots, fondly remembered for all sorts of activities), rent out simple beds and one-floor motels, meet Mitch'es younger cousin and her girlfriend up there by happenstance for a few days, go fishing, meet with normal locals, and…talk, grumble, wage folkloric wisdom or remain tight-mouthed. There's gentle humor, naughty references you don't expect from the benefactor of the trip. Once of twice, you fear the film might descend into a fright movie. But…no.

The film stays firmly in the provenance wheelhouse of getting older. They may bristle and butt heads, but each needs the other, and they need the goodwill and fellowship that comes from sallying out in strange venues, after disappointments and failings they bandage over in small bits of revelation.

It's not Michael Bay or Spielberg. Tom Cruise and Jason Statham never put in an appearance.

But it is an enjoyable film for the time it takes. And seeing the bracing scenery and 'bergs up north, in the midst of humid, sun-baked NY, is recompense all by itself.

22 JUMP STREET

Better than 21 JUMP STREET. More silliness. More partnership foolery with Jonah Hill and the magnificent Channing Tatum, this time in college to unearth the perp who is selling drugs and may have murdered a co-ed. An easy-to-digest dessert after anything else you decide to see or do first.

Jul

4

 "The people who are coming into the game, the creativity, the intelligence—it's unparalleled right now. In ten years if I applied for a job, I wouldn't even get an interview" -Billy Beane quoted in The Signal and the Noise by Nate Silver. Silver knows baseball very well, and there are many insights and carry overs in his chapter on W's and L's in his book. Here are some of them.

1. Silver developed a system called Pecota to predict when a hitter was going to be good. He picked Petroia who became a Most Valuable Player whereas all the other systems missed him. He started out badly and then improved greatly. The principle of ever changing cycles applies to baseball as well as our field. While silver doesn't know anything about markets and his chapter on it is one of the worst I've read, he seems like an amiable personage. I like his humility. He goes up to Petroia to get an interview: "'No. I won't give you a minute. I'm trying to get ready for a Major League baseball game,' he said in as condescending manner as possible every syllable spaced out for emphasis."

2. In developing his system, he tries to weasel out skill from luck the same way Galton did. He doesn't like batting average but likes things like home runs and strikeouts versus walks. Would we be better by looking at how far down or up, the market was rather than the win or loss.

3. There is an aging curve. A player is good after a few years but bad near the end. It's sort of like the s curve for growth. Silver tries to capture which part of the aging curve a player is on and uses that to pick how much to pay a player. He doesn't seem to realize all the difficulties in differentiating between the 20 kinds of curves that are possible, and the predictivity of making assessments even if you knew the curve a player was on. It's very similar to the problem we have in looking at similarities. Which are the variables to measure, and even if you could find the most similar would that be predictive. Neural networks is based on the similarity algorithms.

4. Bill James comes up with a similarity rating starting with 100 to see how a player compares to other greats. Seems to use linear distance. Much of James work should be applied to markets. The trend follower who lost so much who's now the baseball owner should have used James as his chief speculator rather than following blindly the moving averages.

5. Silver concludes that scouting + computers is better than just computers. I believe that no system is good without judgment and the question of clinical versus objective rating is a ongoing debate in psychology.

6. Silver actually evaluates his predictions versus the scouts and concludes the scouts did better. One has to compliment him for his objectivity in making such an evaluation. It is amazing how few of the forecasters in our field actually provide an evaluation.

7. Silver points out that everything about baseball is encapped in the score cards and the videos. He believes that baseball is the best slate, the most detailed and accurate base of operations for forecasting. I wold say that our own field where tick data for all trades is available is just as good.

8. He comes up with 4 factors that go beyond the statistics that are good for evaluating a player. Preparedness, concentration, competitiveness, and stress management. It would be good to have Brett's take on these factors. They all seem reasonable and might be applicable to our field in choosing employees and partners but they are untested. I would think humility would be one of them for our field as well as hard work. I like that Petroia never wasted a second but tries to play his hardest even in the warmup. That's what I like in a trader and how I tried to be in racket sports also.

Brett Steenbarger writes: 

"4 factors that go beyond the statistics that are good for
evaluating a player. Preparedness, concentration, competitiveness, and
stress management. It would be good to have Brett's take on these
factors. They all seem reasonable and might be applicable to our field
in choosing employees".

There are several meals for a lifetime in
that post; thanks for sharing. I strongly suspect that there is at
least one single factor that runs through preparedness, concentration,
competitiveness, and stress management and that's the ability to sustain
an intense level of goal-directed activity over time. Dean Keith
Simonton's work on greatness finds that successful people are productive
people: they are highly purposeful. Traditional interview methods rely
on self-report and end up being biased by the interviewer's perceptions
of an interviewee's likeability. A more objective measure would gauge
how productive a candidate is across domains.For example, one of my
favorite interview questions asks applicants to walk me through their
process for generating an idea for a trade. The successful ones offer
rich detail about a unique process that entails significant analysis
(digging into an area) and synthesis (assembling observations into
conclusions). The unsuccessful ones offer superficial explanations of a
generic nature. You learn a lot by delving into the details of how a
market participant prepares for the trade. Much of what predicts success
are cognitive strengths, not just personality.

Paolo Pezzutti writes: 

I think the ability to sustain an
intense goal-directed activity as suggested is an important factor for
anyone who runs an organization. The main thing however is to couple it
with a vision of what the organization has to be in the future. This
translates into a number of goals that lead the organization to that
point. These goals have to be analyzed in order of impact and effort it will take to achieve. Finally they have to be
prioritized and executed. Competence, determination, leadership, the ability
to sustain long working hours, the will to succeed are all important in
the execution phase.

Jul

4

 I must confess that I love me some Fourth of July. It is a uniquely American celebration, raucous, loud and quite often tacky in the way only Americans can be. We have a huge party in the neighborhood today and there will be loud music, screaming kids, fireworks, too much food and I have sworn to do my part to make sure there is an excessive amount of delicious adult beverages as well. It will be as John Adams commanded "solemnized with pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations, from one end of this continent to the other, from this time forward forevermore."

From that humble beginning in 1776 what an incredible nation we have grown. Our achievements in the arts and sciences have been almost beyond measure. We have grown great businesses and great cities over our years. Often we have stood as the last bastion against oppression and evil incarnate. I have traveled the length and breadth of the lower 48 and can tell you we have grown a citizenry of incredible bravery, compassion and determination unequaled on the planet. We have sent men to the moon and solved many dread diseases that once threatened the population. We have spawned great music and great literature. It is a great country and I feel fortunate, if not blessed to have been born here. Unfortunately we have allowed much to go wrong along our journey and at times it threatens to end this great experiment in liberty that our forefathers began.

 As I do every year at this time before I start tipping the Sangria and blowing stuff up I reflect upon where we are as a nation. This is still an incredible nation but I fear we are no longer the bright shining city on a hill that serves as an example of freedom and liberty. We are still the home of the brave but I do not really think we are the land of the free so much anymore. When government can tell you how large a soda you can buy, what type of oil you may cook with, who you have to fire and how much you have to pay them or who you love or marry it is not exactly what I would call a state of liberty. When government can decide how you can live your personal life and interferes in every aspect of your life it is not a free society any longer. We have allowed government to grow and consume that vision the founding fathers originally have. It is not necessarily inspired by evil but rather in the name of some greater good, quite often the children. But as Benjamin Franklin warned us at the very start of this grand experiment ""They who can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety."

 HL Mencken warned us about the spread of government and that slow slipping away of liberty when he said "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary." For that matter Plato was probably the first to warned us about governments inevitable infringement of the rights of the people telling us so very long ago "When the tyrant has disposed of foreign enemies by conquest or treaty and there is nothing to fear from them then he is always stirring up some wary or other in order that the people may require a leader."

I worry that the political parties have done such a fantastic job of spreading government s reach into our daily lives by sowing dogmatic discord throughout the populace. The straights hate the gays, the blacks don't trust the whites, the Northerner dislikes those in the south, the farmer hates the city dweller. We turn gay rights and family values into war cries and march off under our banner to demand our rights and more importantly privileges. The two parties rally the folks around their causes and drive a deep divide into the populace all the while strengthening their death grip on the seat of power and the public purse. If we could all forget what it says on our voter registration card we would be better off as a nation and as a people. Keep in mind that the only real difference between the two parties is how they sway the voters. The Democrats wish to regulate everything but what goes on in your bedroom and the republican want to regulate nothing except what goes on in your bedroom. Both parties are deeply in bed with Wall Street and Corporate America and no amount of ridiculous advertising or rhetoric can change that. They go to great lengths to gerrymander voting districts and do whatever is necessary to keep the two party system entrenched in our society. One again it's our own fault. We were warned that this would happen.

In 1870 John Adams was already concerned about the two party system at work. He wrote then that "There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution." George Washingt5om expressed his fears on political parties in his farewell speech telling the citizens of the fledgling republic "However [political parties] may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion."

 I often fear that George Bernard Shaw was right when he said "Liberty means responsibility. That is why most men dread it." It seems that many would prefer the soft comforting bosom of government to standing up on their own two feet and taking what they want from life on their own effort and merit. If a child is failing in school it must be the governments fault not our own. If we are not earnings much as we want then the generous purses of government must take from someone who is and redistribute it to us. Government should protect us from ourselves and everything around us. That old catch phrase"Why that's outrageous, There ought to be a law" has done an enormous amount of harm over the centuries and unchecked will do more in the centuries ahead. Shaw also once said "Democracy is a device that insures we shall be governed no better than we deserve." The challenge then for us is to deserve more. In the opening scene of HBOs series Newsroom says that we are not the greatest nation on earth, but we could be is our challenge. We could be. We should be. Live in such a way to deserve more.

We need to quit accepting the unholy morass of crony capitalism and go back to the invisible hand of the market as described by Adam Smith so many years ago. Make corporations and government responsible for their decisions and the harm that they do. Whenever someone lectures me about how Wall Street caused the crisis and ruined many Americans and by god the government needs to something about it, I remind that in fact the government did do something about it. They bailed out the very banks that helped create the crisis. But if you are ranting about the situation but have a Bank of America or Chase credit card in your wallet because it is just so convenient you are tying the invisible hand of the market behind its back and are as big a part of the problem as the bankers and legislators. If you are upset about the Gulf Oil spill but pull into BP for gas because it is on the way to work you are as big a part of the problem as the oil company itself. We tend to look for government to punish all these violators when they are in fact in bed with most of them.

We can be the greatest nation on earth if we go back to a nation that embraces personal responsibility. We need to work, learn and strive to accomplish our dream and desires for ourselves and our families and not wait for it to be given to us. We need to each get up each today and do what we can to make our lives better and educate our children in such a manner that they can do the same when it is their turn. The outcome of your life depends on you and your effort and mine should depend on mine. The opportunities are there if we just insist the government get out of the way and allow us each as individuals to achieve our dream. By independent effort and achievement alone do we become a great society.

We need to quit worrying about everyone else does with their life or who they are to become a great a nation once again. Who is marrying who, or sleeping with who is none of your business. Who likes to smoke a little pot instead of drinking a beer is none of your business. The fact that someone's skin tone is different than yours should have nothing to do with your opinion of them. Which version of the great granddaddy in the sky they favor is no business of yours either. As long as they harm no one and do not rely on you to support them let people live their own lives and you do the same.

 We need to restore the spirit of personal generosity. As Jesus said the poor will be with us always.. Even the conservative Austrian Economist Hayek once said "There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody." But we have allowed the safety net to become a way of life for far too large a percentage of the population. We need the kind for generous spirit that helps those less fortunate on our own inclinations and not one enforced at the end of a tax collectors pistol. If life has blessed you then you should look for an opportunity to help others progress in their lives. Because you want to, not because the government makes you. We need to get the government out of the charity business and the people back in it. Our social policy should be based on educating our children and growing an economy that provides jobs for them when they graduate.

We are not the greatest nation in the world right now. But imagine an America where everyone is free to live their own lives in their own way. Where we provide a safe place to educate and teachers do not teach to the test but inspire a lifelong love of science, math, literature and the arts. Where the government does not take as much as half of your income to spend on failed social programs, foreign aid to nations who despise us and illegal wars. Where every child grows up knowing they have a chance to achieve a good life and discover their own version of the pursuit of happiness. Where you can marry who you want, love who you want. Where the rights of the individual come before the desires of the masses. Where the tax code is fair, reasonable and limited. Where business are allowed to grow and create jobs. Where people take responsibility for their own needs, desires and actions. Where Freedom means free to live you own way as long as you cause no harm to others. That America will once again be the greatest nation in the world.

We can make it so. We just have to live in such a fashion as to deserve it.

Now, let the good times roll. It's the Fourth of July and we celebrate what has been and what we can Be. God Bless America and pass me that BBQ!

Cheers,

Tim

Jul

3

An earlier post in Dailyspeculations.Com had the title "closes never seen again". The use of the word "never" is an example of the Hubris that is currently being displayed in certain quarters. It would be better to say "numbers not recently seen".

The early 50s, the mid 70s and the most recent Panic all began with the U.S. Treasury Department worrying much more than usual about what its customers, the bidders at the bond auctions, would do next week and with both the Treasury and the Fed hoping they would "never" be asked about next month.

Jul

3

With respect to recent industry performance, the Newedge Trend Indicator, published daily by the Newedge unit of SocGen, is an earnest attempt to simulate broad-based trendfollowing including transaction costs. Its performance the past 10 years, per data on the Newedge website:

2005 -1.6 %
2006 6.1 %
2007 -1.5 %
2008 31.4 %
2009 2.9 %
2010 7.8 %
2011 1.5 %
2012 -16.0 %
2013 -17.7 %
2014 -4.5 % (through 26 Jun)

Jul

3

The S&P crossed or touched 1950 22 days since February.

Jul

3

 I've spent the last week in Sacramento, and the week before that in San Francisco. Two things caught my attention that seem like ticking time bombs no one is talking about: sub prime auto (and other non-mortgage) loans and interest rate resets on mortgage rate resets from 2010—leading to lots of houses about to be foreclosed on. I heard a bit about these two from individual perspectives. I don't know, though, how large these two may be. Anyone know how big the sub prime auto loan market is now?

Victor Niederhoffer writes: 

In my 55 years in wall street, there is always a month when there is something bad happening. From 1954 to his helpful passing for those who refrained from buying during his incessant and invariable weekly bearishness, one can merely look at the king of pessimism's column to find the bearish thing of the month– a very helpful thing for the bulls as it creates unnecessary fear and selling. After his passing, there was our friend the bearomoter who consistently found bearish things. This will save one from having to look through every days newspaper which I'm told is much easier now that you can look at it in the net and don't have to use microfilms any more, although I have not had the pleasure of doing this yet. However, Doc Lilienthal often has very helpful pessimistic things he's noticed, and the ticking time bombs mentioned above are a helpful substitute for the bearomoter with the elegant equestrian partner.

Gary Rogan writes:

But overall it seems like examining any individual piece of news, positive or negative, is pointless with respect to predicting the future market direction.  If it's out, it's already in the market, and the vast majority of them are too small to affect the market in any predictable way anyway.  Certainly something that is known by someone will affect the market, but knowing what it its among the thousands millions of candidates doesn't seem worthwhile.  The good doctor seems to have an idea that the market needs an excuse to do something.  I don't know if it does, but short of a sudden outbreak of a major war that one can't predict anyway or some well-known employment of Fed news that everyone knows, it seems pointless to look at news as a guide.

Ralph Vince writes: 

I would point to any short which shows US Equity prices and US recessions, and I would argue that US GDP is relevant when it is contracting for multiple quarters, and we should bear in mind the 1st qtr predictions, none of which were as negative as the final number came in at, and consider we have second quarter preliminary right around the quarter.

anonymous writes: 

Auto loans are not backed by the feds, while most home loans are, thus I expect fallout from the sub prime auto loan market will not get the same attention in the media or in Washington that home loan foreclosures will get.
 

Jul

3

Not that the market needs an excuse for a drop, one may be coming courtesy of Vietnam. It sounds as though VN is going to make a stand. Will the Chinese do likewise? Probably. The result will make for some interesting fireworks.

There is a very, very big round number for the S&P 500 only 27 points away.

Jul

2

Thursday July 3, 2014 the NYC Junto will feature Tyler Cowen, of MarginalRevolutionUniversity.Com and George Mason University. His latest book is Average is Over.

Meeting starts at 7:30pm, speaker at 8:00pm. General Society Library, 20 W 44th St btwn 5th & 6th Aves, New York, NY 10036.

All DailySpec readers are invited.

Jul

2

 There is a passage in Memoirs of a Superflous Man I believe from Turgenev about a lake that appeared so beautiful but was deceptive about the coming terrible storm. Sort of like Caesar trying to calm the senate before becoming dictator. I will try to find that passage which Nock used to describe the calm and deceptive serenity before World War I's outbreak. And angler fish uses it in a form of aggressive mimicry. The movement of crude today at the open, the only market down among 30 on my screen to the constructal number of $5.00, strikes me as such a fish. Amazingly I will not buy it today. What other deceptive calms arise to lure you in before devouring you for the kill?

Update: I found the beautiful passage from Ivan Turgenev's "Clara Militch":

"Evil is coming… and here is the lake, isn't it blue and smooth? And here is a little boat of gold. Will you get into it? It floats of itself."

Now I sound like the bearometer. But I mean it merely for the one market that's down today. What is the performance for example of the 10 worst stocks of the day when the market is way up?

Allen Gillespie writes: 

 This is my favorite bull to bear passage from one of the best books ever written, Lonesome Dove by Larry McMurtry Chapter 91.

"But a week passed an they saw no Indians. The men relaxed a little. Antelope became more common, and twice they saw small groups of buffalo….The country began to chnage slightly for the better. The grass improved and occasionally there were clumps of trees and bushes along the riverbed…He felt the threat of drought was over…Traveling became comparatively easy…

The next day, as they were trailing along a little stream that branched off Crazy Woman Creek, Dish Boggett's horse suddenly threw up its head and bolted. Dish was surprised and embararassed. It had been a peaceful morning, and he was half asleep when he discovered he was in a runaway headed back for the wagon. He sawed on the reins with all his might but the bit seemed to make no difference to the horse.

The cattle began to turn turn too, all except the Texas bull, who let out a loud bellow.

Call saw the runaway without seeing what caused it at first. He and Augustus were riding along together, discussing how far west they ought to go before angling north again.

"Reckon that horse ate loco weed or what?" Call asked, spurring up to go help hold the cattle. He almost went over the mare's neck, for he leaned forward, expecting her to break into a lope, and the mare stopped dead. It was a shock, for she had been quite obedient lately and had tried no trciks.

"Call, look" Augustus said.

There was a thicket of low trees along the creek, and a large, orangish-brown animal had just come out of the thicket.

"My lord, it's a grizzly," Call said.

Augustus didn't have time to reply, for his horse suddenly began to buck. All the cowhands were having trouble with their mounts. The horses were turning and running as if they meant to run to Texas. Augustus, riding a horse that hadn't bucked in several years, was almost thrown.

Call drew his rifle and tried to urge the Hell Bitch a little closer, but had no luck. She moved, but she moved sideways, always keeping her eyes fixed on the bear, though it was a good hundred and fifty yards away. No matter how he spurred her, the mare sidesteeped, as if there were an invisible line on the prairie that she would not cross.

There was confusion everywhere. The remuda was running south carrying the Spettle boy along with it. Two or three of the men had been thrown and their mounts were fleeing south. The thrown cowhands, expecting to die any minute, though they had no idea what was attacking, crept around with their pistols drawn.

"I expect they'll start shooting one another right off," Augustus said. "They'll mistake one another for outlaws if they ain't stopped."

"Go stop them," Call said. He could do nothing except watch the bear and hold the mare more or less in place. So far, the bear had done nothing except stand on its hind legs and sniff the air. It was a very large bear, though; to Call it looked larger than a buffalo.

"Hell, I don't care if they shoot at one another," Augustus said. "None of them can hit anything. I doubt we will lose many."

He studied the bear for a time. The bear was not making any trouble, but he apparently had no intention of moving either. "I doubt that bear has ever seen a brindle bull before," Augustus said. "He's a mite surprised, and you can't blame him."

"Dern, that's a bit big bear." Call said.

"Yes, and he put the whole outfit to flight just by walking up out of the creek." Augustus said

Jul

2

Within the "dark pool" of the market's ecosystem, there exist top feeders who like to provide bottom dwellers with 'insurance' policies. This "magnanimous" activity manifests itself in the provision of such products as options and more 'complex' structured products.

Clearly, as with all insurance policies, the seller of the policy has no intention to pay out upon the risk if it eventuates.

One noticeable element of these structures is the inability to get out of them in a timely fashion.

An examples should suffice:

In 2008 one was fortunate enough to have bought an AUD Put / JPY Call. As the AUD/JPY cross rate declined (and, for those who remember, Armageddon approached) not only was the 'delta' of the position increasing but the 'Vega' was too! A rare occurrence in option-land for TWO of the 'Greeks' to be in one's favour. At a time when I wanted to cut the position with a reasonable gain, the counter parties in the options market made a volatility spread so wide, that to have sold the structure back would have entailed losing money even though I had bought a low volatility and the spot had moved massively my way. To have simply bought back the delta and ridden it to expiry would have led to massive illusory PL swings because of the way options are revalued by the seller. The upshot is that I was unable to collect on the 'insurance policy'

Even in today's 'it can only go up/ prosaic times', market insurance policies are a scam.

Some things for speculators to consider:

1. Is there a level of volatility at which markets become 'untradable'? On the upside, I believe there is a level - or put differently, there is a quantifiable rate of change in the cost of insurance after which the spreads are impossible to deal at (In the above AUD/JPY example the volatility spread was 30% / 130% !!!!)

2. Is there a certain minimum level of volatility that the ecosystem requires? The answer might be different for different markets but overnight implied volatility in the major currencies hit the lowest in more than 20 years yesterday at circa. 5.5% annualised so who knows.

3. As alluded to above, should one watch the bid/offer spread on insurance as a predictor of bad/good times ahead. The magnitude of the spread in At The Money options markets certainly widens as the underlying approaches the point at which the big sellers might have to pay out thus making it hard or impossible to exit.

4. The amount of inbuilt spread in structured product in the street at the moment is genuinely appalling. But it is selling VERY WELL because large over regulated investors are being required by their 'consultants' to deliver 'stability' at all costs….. Not a single one of these structures is fit for purpose.

Lifting a line from EdSpec - '…..are there any words in the English language that mean 10000 times less than zero..' is a good way to explain the probability of the buyers of these products being made whole if the worst happens.

Jordan Neuman writes: 

It is a fear I share when I buy out of the money puts. I recently corresponded with OCC about their "Doomsday" procedures and found out they don't really have anything concrete. How do you plan for option settlements under total chaos? And I do remember the 30%+ spreads on plain vanilla S&P options in the fall of '08.

I recall in the original Market Wizards Jim Rogers advised shorting Japan but said that while you might be able to get some money out on the initial decline, if you wait until the ultimate collapse you won't.

Ed Stewart writes: 

Awesome post with much food for thought.

For the health of the market I would think that two environments are critical -environments that best feed market makers, and environments that most encourage commercial participation. If a market becomes too stable there is less need for commercial hedging, less transactions for market makers, and the range for speculative profit to profit dries up. I see it as speculators "crossing the bridge" between commercial buyers and sellers - the profit incentives motivate us to find ways of doing this. If the path is too short we can't make any money to cover costs.

A notion that I like is that the best speculative markets are where commercial interests have just been pushed to their uncle point in terms of pricing - at that point there is a very strong need for speculators and certain premiums develop - one can see this dynamic if you read the reports of (for example) commodity processors after a large price move.

Also which side of the trade is weak (buyer or seller) might depend upon who is on which side is the speculator vs. the house, or alternatively which side can take delivery vs. the side that needs to offset over a certain time horizon. The edge to the first party grows as (say) first notice approaches.

Jul

2

 I feel like a Spanish conquistador on a small scale. My past vanquishes from seven trips to Peru include malaria, elephantitis, amoebic dysentery, hepatitis, and last year three fly larva with sprouting wings crawled beneath the skin looking for a way out. Once any disease is identified, the treatment is straightforward and efficacious, as with these. Each ailment, if one is able to study and feel it in progress, is an honor with a merit badge of antibodies or sash of resistance. I was ready for the next exotic disease.

However, I got blindsided yesterday with the diagnosis of chronic anemia from a worm infestation I had pined for since veterinary school out yonder in the Michigan countryside on call at the barnyards (our offices). There the extracurricular dogs, wasted and grown so thin they were shadows of dogs, except with hanging pot bellies, were dosed with worm medicine before we went on to the big jobs of treating the cows and horses. I grew fascinated with intestinal parasites but had no idea that the chronic anemia the suckers caused could nearly kill a person.

Anemia is a decrease in the number of red blood cells or less than the normal quantity of hemoglobin in the blood. Hemoglobin is a main part of red blood cells and binds oxygen. If you have too few red blood cells, or your hemoglobin is low, the cells in your body will not get enough oxygen. Breathing is like drawing air out of a paper bag. The name is derived from Ancient Greek ἀναιμία anaimia, meaning 'bloodlessness'. Because hemoglobin (found inside RBCs) carries oxygen from the lungs to the capillaries to every cell of the body, anemia leads to hypoxia (lack of oxygen) with varying degrees of anemia fostering a wide range of clinical consequences. Anemia is the most common blood condition in the U.S. affecting about 3.5 million Americans, while the 2014 issue of Blood magazine for medical practitioners reported that the global anemia prevalence in 2010 was 33% or 2.3 billion people.

Chronic is a condition that persists and has been present for at least three months. I'm certain my anemia was contracted nine months ago In Peru when I was unable for one month to escape the delivery boat of a demented captain far up the Rio Tigre and ate and hobnobbed with a string of villagers where hookworms are indigenous and zoonotic among their runt animals that made my earlier Michigan barnyard dogs and cats look like champions of show.

In collecting evidence on a medical subject there are three fronts: observation of the client, his history (more difficult for animal patients), and laboratory reports. My Peruvian doctor said I was as white as a ghost, and then began the history. A physician who takes a good history and a patient who gives one nearly always and quickly solve any mystery that we call illness. I learned the first rule is to take the history chronologically, and the pieces of the puzzle fall together into a diagnosis before the mercury is shaken down into the thermometer. Then he gasped as my lab reports popped up on his computer monitor. 'You'll be a very sick man if you're alive one month from now without treatment.'

My hemoglobin is 6.3 gm/dl while the adult male's normal range is 14-18 gm/dl. In the laboratory test hemoglobin (Hb) is measured as total hemoglobin and the result is expressed as the amount of hemoglobin in grams (gm) per deciliter (dl) of whole blood, a deciliter being 100 milliliters. My hematocrit by volume is 22% whereas the norm in males is 40-50%. Hematocrit is the ratio of red blood cells expressed as a percentage by volume of the blood. It can be said that I'm existing on less than half the oxygen of what the normal reader is.
The lab report supports my suspicion for the past two months that I am hypoxic; however I thought it due to a heart or lung condition and estimated the reduction of available oxygen at 30%. Unless you have been there, it is hard to explain how a desert dweller develops a skin like a coyote nose that detects water at a distance, and how an athlete who has jogged eight miles a day for twenty years owns a palpable cellular sensation for the presence, or absence, of oxygen. The three symptoms for the past two months have been dizziness, fatigue, and shortness of breath. To climb a flight of stairs has created the same oxygen debt as fifteen minutes of wind sprints with the similar inclination to keel over. Twice I've lost consciousness during uphill walks with the faint echo of the inspirational lyrics from The Impossible Dream, 'To try when your arms are too weary…to reach the unreachable star'.

I could never have imagined that a legion of vampire worms could cause such hypoxia to deprive an adequate oxygen supply and cause a near death experience. There have been a half-dozen instances when I felt I could 'will' myself to die as the old folks in homes that I used to do volunteer work at claimed was possible, and in Indian circles. It's a floating, paradoxical REM sleep. A person may die when, scientifically speaking, he ought to have lived if he is in an almost heaven. Yet, each time as consciousness drained like a liquid from lack oxygen in the brain, a spark ignited alertness perhaps due to old timers urgings such as 'This ain't a dress rehearsal, Sonny', and 'Get out and milk life dry.'

My nemesis is Uncinaria, a large family of hookworms that infects man and dogs, with frequent zoonotic transmission between them. These hookworms are present throughout the world, and especially in warmer climates. In the United States, hookworms are found everywhere and commonly along the East. Worldwide, zoonotic hookworms are found in tropical and subtropical regions where the parasite is better able to survive in the tropical conditions. Their mecca is the Amazon where they grow three times as large as anywhere else in the world to 1.5 inches.

These nematodes are slender beasts with bent heads like a hook for leverage of a hammer claw and a mouth with cutting plates and an inner single pair of teeth to bury deep in the intestinal mucosa to gnaw through the walls to the capillaries. All hookworms suck blood, and the Amazon variety are capable of removing 0.2mls of blood per worm, per 24 hour period. They are in competition with themselves for space and blood along the walls like bickering tenants in a skid row hotel, or old revolvers in newly opened mining districts so that when they do want RBCs, they want them badly. Dogs have been known to carry thousands of worms in their intestines, and I suppose given the chronic anemia that I may harbor as many.

The Uncinaria were positively identified yesterday in a microscope slide report at an Iquitos clinic that was tardy relative to the other results which had provided a clean bill of health. The lab report didn't quantify the infestation beyond 'heavy', and was supported by a greatly elevated eosinophil count of 27% (eosinophils usual account for less than 7% of circulating leukocytes) which makes it a textbook case of parasitosis, according to my Peruvian doctor who has seen several as severe.

The patient has two sleeves, one containing a diagnosis and the other a therapy. The diagnostic lab is my favorite area to place the first sleeve, and in vet school I worked six illuminating months as a budding medical Sherlock Holmes, as we all were, diagnosing diseases by a battery of tests – blood, fecal and a few others. The laboratory spun with tubes and slid with slides like a rock concert. The medical lab is the bastion of the fight against disease where the etiology of each is identified by the tests. Sometimes the lab reports weigh as much as the emaciated patients, so much the better. Reading them is exactly like perusing an Ellery Queen mystery such as The French Powder or The Dutch Shoe mystery and solving for the crime before the last page is turned. (By the way, Ellery Queen is both a fictional character and pseudonym used by two cousins from New York.) The laboratory is a palace of probability that few pathogens can sneak by undetected, and once fingered they stand little chance of survival.

'This is Good Medicine!' I cheered the doctor, on the way out the door, and he understood that modern medicine had diagnosed and would conquer another microscopic army that had tried too hard to infest a human body. If more smartly evolved, the worms would have allowed me to remain asymptomatic while sucking me dry instead of my plan to load for bear to kill them and then taking the advice of the oldsters to suck life dry.

Hippocrates advised, 'The physician must be able to tell the antecedents, know the present, and foretell the future — must mediate these things, and have two special objects in view with regard to disease, namely, to do good or to do no harm.' That is exactly what this seasoned tropical doctor did, and I walked out his office on lighter feet. He was a general physician, and It must be understood that no one can be a good physician who does not perform surgical operations. There is as great a difference between a physician and surgeon as between a mechanic who has learned from texts and one who has lifted hoods and had his hands in the muck. Never settle for a doctor or specialist who is not also a surgeon. Even in middle age he seems astonished at being paid for doing something as enjoyable as solving daily medical mysteries and curing. Wherever the art of medicine is loved, there is a love of humanity.

The doctor proposes that my severe condition, which he's seen in villagers that have a 20% incidence of hookworms, requires no blood transfusion. In the USA, in contrast, a severe anemia is defined as hemoglobin of 8.0 or less with symptoms present and is considered life threatening and prompt treatment is required. In U.S. my case would probably be met with a blood transfusion, which currently is controversial with a circulating slogan 'Anemic patients should know they have the right to speak up for a transfusion.' However, I've seen thousands of potbellied people and pups around the world looking more bedraggled than I, and don't worry a bit about the diagnosis. The anemia is a blessing, but a change, and requires a moment in the thick of the crisis to check the flow and redirect the focus.

After the diagnosis comes the treatment, as he penned two prescriptions in striking calligraphy: Albendazole and Confer. The former is a broad-spectrum anti-helminthic for roundworms, hookworms, threadworm, whipworm, pinworm, flukes, and other parasites that works by killing the worms straight out from the blood. It doesn't taste badly to me and I suspect something is added to intoxicate the toothy heisters. This really is war, with my life at stake, and theirs. Despite their sophisticated mouthparts, and a nervous system that may also deliver an almost heavenly state of consciousness, these bloodsuckers have no excretory organs and no circulatory system, that is neither a heart nor blood vessels.

I'm not a pill Frankenstein tampering with nature, but there are many bull's-eye synthetic and natural medicines that are literal miracles that I will take, and otherwise would be dead a few times over if having lived in the time of Tarzan a century ago. Albendazole is an efficacious one. It is commonly prescribed worldwide, and particularly in USA for zoonotic infections. It's on the World Health Organization's List of Essential Medicines, a tally of the most important medications needed in a basic health system. In 2013, GlaxoSmithKline, the principal international marketer of the drug, donated 763 million Albendazole tablets for the treatment and prevention of parasitic infections in developing countries such as Peru, bringing the total to over 4 billion tablets donated since 1998. Closer to home, since 2010, and for understandable reason, the U.S. price of Albendazole has increased by 4000% to over US$100 per 200-mg tablet. Disease is the biggest money maker in our economy. I paid 20 cents a tablet yesterday for my two-tab a day supply for one week totaling about $3.

In addition, I filled a prescription for an oral iron supplement called Confer. Unlike salt licks, you may not find the nearest igneous outcrop and expect to lick usable iron. Because iron is the principal component of hemoglobin, consuming a supplement and iron-rich foods will raise your hemoglobin levels. Dietary iron must be attached to either animal meat or plant tissue to be absorbed by our intestines, and the supplement probably contains both. I've also started eating iron rich seafood, red meat, and leafy green vegetables. The doctor assures that my 6.3 hematocrit will increase two units per month so that in four months I'll reach the low norm, a triumph as complete as Operation Detachment in the Battle of Iwo Jima.

But I also have my own ideas about disease recovery to cure. Walking is first rate medicine and is my first thought to accelerate the doctor's prescriptions. Healing is a biological process and there are few ailments that do not respond immediately and expansively to the increased circulation of a vigorous walk. Walk in increasing increments with escalating weight to let the clean air blow the cobwebs from your body.

In the aftermath, there's money in the bank to cover the cost of the trip to Peru and lots of salads and seafood. The medical expenses totaled $US200. In the USA it would have cost twenty times that, with additional superfluous tests and requisite specialists, and taken weeks instead of two days. One well-trained physician of the highest type will do more for a patient than ten specialists because everything medical within the body is interrelated and cannot be separated.

A Darwinian view of medicine makes disease more meaningful. Diseases arise ultimately from past natural selection. It's a continual war within one's lifetime, and over the centuries, of the forces of pathogens vs. the soldiers of the immune system. They evolve after each skirmish, and then counter-evolve like in Mad magazine's wordless black comic strip 'Spy vs. Spy'. Paradoxically, the same capacities that make us vulnerable to disease often confer benefits. The capacity for suffering in itself is a useful defense After all, nothing in medicine makes sense except in the light of evolution.

Nature didn't find the perfect place to hide the little assassins in my gut; but rather the Uncinaria developed through epochs of struggle and earned their position. Now they have revealed themselves and will die. Perhaps a few during the Albendazole fusillade – one in 10,000 - will adapt, survive, and reproduce resistant pathogens. Such is life.

Through hard traveling and having contracted and beaten a string of diseases that remain like untied knots the emotions have been, 'I love you. I hate you. I like you. I think you're a loser. I think you're wonderful. I don't want to be with you. I want to be with you. You should have believed me.' Health and disease, unlike what you may have been taught in middle school Health Science 101, are the same thing – vital actions intended to preserve, maintain and protect the body. There is no more reason for celebrating health than disease. After vet school my body became like an aquarium to me and I always carry a fishing pole to catch and squeeze every ounce of information I can out of each condition. I´ve had and recovered from nearly 33% of the ailments listed in the physician´s bible called the Merck Manual only to conclude that life is so short to learn so long a craft as disease cure.

In a subsequent medical text of alternative cures that I wrote, a certain pleasure is revealed that came from nudging the ill layman in the direction of terror, and bringing him back safely and happily and licking his wound. It´s too bad, but given the conventional medical wisdom that's the sort of paradigm shift required to accept like a Third Worlder that disease is a normal course of life. We don´t have to get as sick nor as often in the First World, but our attitude can become saner by accepting rather than fleeing in dread from the knock of unfavorable conditions at the door.

If you 'listen' to your body and intuition, they'll guide you well through sickness and into better conquering forthcoming illnesses and old age. You´ll gain wisdom about anatomy, physiology, biology and the mind. There are countless ways to develop the listening skills such as sports, dancing or drumming, but most of all by awareness through disease, while keeping a journal. Read about it in texts. It's more interesting to examine an ailment in onset, flow, and remission than it is gazing at virus Facebook.

The public bladder about medicine is that one must see a specialist and get a battery of tests when actually as much and almost instantly for free can be gleaned from recovered peers at an online chat forum for specific ailments. Such a well-chosen anthology of case histories is a complete dispensary, as well as studying the progress of one´s own conditions. Always pick a physician who is older, seasoned, a surgeon, preferable a sports medicine practitioner, and lord help you if he is busy. The profits will follow a good physician to the grave, but he is more difficult to find nowadays in USA, and all the more reason to seek professional treatment at a fraction the cost in other countries. Perhaps this is the only solution to whip the ill American health care system back to health.

As for Global Anemia, already the dead worms are evacuating, and I say, 'I tried to tell you. You said you didn't care, remember?' Today we fight. Tomorrow we fight. The day after, we fight. And this disease plans on whipping us, but if we have paid close enough attention they had better bring a sack lunch for the extra innings.

Victor Niederhoffer writes: 

A rather heroic friend I have.

Marion Dreyfus writes: 

One of the most useful posts I have read. I am sending it to a friend who has been battling Pneumonia contracted while she was in Paris, and had collapsed lungs and hypoxia when she was admitted to Roosevelt for a week. Thanks for troubling to write all this down, Bo. She is now completing her regimen of O2, and can begin to ambulate again like a regular person again.

Bo Keely writes: 

In any respiratory distress the first line of defense is a simple technique few doctors will prescribe. One must have lived in the North where pipes freeze to think of it. It´s loosely wrapping a towel or scarf around the neck & knotting it while sleeping all the night. This heats the air going down the trachea and into all parts of resp system. It cuts healing time by half and prevention is about the same 50%. Tested and proven by Michiganers. The other thing she should do that even the best doctors may not suggest is during recovery, when able, she should be walking or bicycling to keep things moving inside the body which promotes healing.

Jul

2

 There are hugely important issues concerning firms' culture and overall purpose, management's core responsibilities, and the future of capitalism. Related to this, here is a video of a presentation I have been making to business students at DePaul University titled "Capitalism and Management's Core Responsibilities."

Key Points:

1. We are increasingly following a path of crony capitalism which eventually leads to a social environment like Italy or Greece. In contrast, free-market capitalism enables consumer choice and competition to work to the benefit of all, especially the least well off.

2. There is a wall of miscommunication, with words having strikingly different meanings, between those in favor of maximizing shareholder value and those opposed—better to shift attention to management's core responsibilities.

3. Running their businesses in ways consistent with the recommended five core responsibilities would enable management to both create wealth and earn the moral high ground.

4. Analysis of firms' historical track records provides a lens to understand capitalism from the ground up; i.e., customers, employees, and shareholders have mutual, long-term interests. This is illustrated via three company examples using Credit Suisse/HOLT company data used by worldwide money management firms and by Barron's for the annual Barron's 500 Scorecard.

5. The public's low level of trust in corporations results in a lack of faith in capitalism. Who can lead in moving the corporate world to better deliver on their core responsibilities—one of which is to promote free-market capitalism? Large asset owners (pension funds, sovereign wealth funds, endowment funds, and the like) have a vested interest in the long-term success of free-market capitalism and are in a unique position to reorient how firms are managed to create long-term wealth that benefits all stakeholders.

Jul

1

 Even I am starting to take note of the moves in the grains, logabola and then some.

Like the taxi driver commenting on stocks he is buying unsolicited by passengers, this must be some sort of indicator and I offer it as a free fade to the pros on the site.

Jeff Watson writes:

When you think about it, Ceres is the most important market mistress, because everyone has to eat. Even the insiders tread lightly around her, the medieval devices of torture she still employs are very painful.

Jul

1

 "We thought trees and fungi were socialist, but they're actually capitalist"

The coexistence between trees and fungi is supposed to be very peaceful. Fungi grow on the roots of a plant, providing nitrogen to it in exchange for carbon, in a nearly perfect symbiotic exchange. Each individual fungus, traditional wisdom holds, works in tune with the root it grows in tandem with. But a new study presents a different model: The supposed buddies are actually acting like buyers and sellers in a capitalist market.

Led by IIASA Ecosystems Services and Management researcher Oskar Franklin, theSwedish study (paywall) started with a surprising observation. Root fungi were actually working to maintain nitrogen scarcity in the forest. When less nitrogen was available in the soil, fungi gave up less nitrogen to the trees. But when nitrogen was abundant, they built up their stores like speculators cornering the market in a commodity, effectively forcing the trees to get their nitrogen from the fungi no matter what.

"The new theory pictures a more business-like relationship among multiple buyers and sellers connected in a network," Franklin said in a press release. Instead of being a cooperative trade of carbon and nitrogen between organisms, trees are forced to export large amounts of carbon in order to unlock nitrogen stores from the fungi.

What's more, fungi can play clients off against one another. When different plants get their nitrogen from one fungal partner, the study states, the allocation of nitrogen to each of those plants isn't dictated by need or fairness. Instead, the fungus seeks the best possible return on investment. "Having multiple symbiotic trading-partners generates competition among both the fungi and the plants," Franklin said, "where each individual trades carbon for nutrients or vice versa to maximize profits, not unlike a capitalistic market economy."

This gives trees an incentive to offer up more carbon than their neighbors. The trade isn't always beneficial for both parties. In fact, plants and fungi could get locked-in to a mutual trade agreement that isn't optimal for either party. The authors compare this to carbon lock-in, where industries are stuck in a fossil fuel-based system, even when other energy options are superior.

And while trees may thrive from this exchange, the fact that the fungi hoard nitrogen "traps the whole forest in nutrient limitation," Franklin said. In general, the authors stated, how fungi collect and distribute resources is largely unexplored.But this should change. If we don't understand the market structure of the fungi and trees, Franklin said, won't really know how forests will react to the changes in carbon availability that climate change could bring about.

Jul

1

 First day of the quarter goes up about 65% of the time since 2000 versus 52% of the time on other days. As if the market likes to establish an early lead. So any fund managers, investment advisers or traders who were prudently on the sidelines are forced to play from behind for the rest of the quarter. When you're playing catch-up in any sport or game, like tennis, eventually you have to take riskier shots. While your opponent, in this case the market, can just keep hitting them high and deep to the backhand, waiting for you to make an error.

Jun

30

The stress test failure's are all positioning by the Fed to insure there is a buyer of Treasuries when they depart. Just like Toyota is hit with recalls every time GM's inventories get bloated. The Central Planners are simply using shareholder money for their own public/private purposes. Banks are actually overcapitalized for the current loan volume. Moreover, bank disintermediation is beginning to happen at an increasing rate, as why should a bank be in the middle. The banks will offer safety and buy treasuries– the smart money will leave the banks and lend to entrepreneurs. Watch the LendingClub and Prosper.com etc. as they emerge.

Jun

30

 Here is a list of golf aphorisms written by a friend of mine. He is a competing low handicap golfer of just 20.

You can't win a tournament on Thursday, but you can definitely lose it.

There is no picture on the scorecard.

It is good to compete. It brings out the best of your abilities.

There will always be new swing ideas and people in your ear about mechanics. Stick to the swing that is natural and successful for you.

Approach the toughest hole with the same strategy as the easiest hole.

Golf is a test of your will versus the course, the natural elements and the tournament.

You can't walk off the course and go back to the range.

Play with what you're hitting that day be it hook, slice, or draw.

Have just one or two "swing thoughts" for the day.

If a putt lips out but you hit it the way you wanted, that's all that can be asked.

Learn how to play in different conditions and environments. It won't always be 75 degrees and sunny.

Sometimes hitting the driver 300 yards isn't the best play. Figure out when to be aggressive and when to be tactical.

Always forget your bad shots or good shots for that matter. Focus only on the shot at hand.

Sunday on the back nine you may have to change tactics completely.

Often times a bogey is a great score.

Never get angry with the course set up, the greens, or pin placements. Everyone plays the same course.

Approach practice like a tournament. Make each practice shot live and relevant.

-Austin Williams USC 2014

Jun

30

The Best Of, Compilation and Live albums were all revolutionary to the record industry. They came to the forefront apparently during the '73 oil spike. Vinyl shot up in price and record companies substituted the cost by removing production and recording costs.


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