February - 2016
 S&P +1.20
 USB -0.16
 S&P -33.90
 USB +2.16
 S&P +11.10
 USB -0.21
 S&P -0.70
 USB +0.12
 S&P -32.50
 USB +0.16



 One wonders if the structure of end games in chess and checkers might be useful for aids to proper money management. The pawn chain and the triangle are very good in both games as is having the move. This would correspond to putting on your positions in stages, and constantly forcing your opponent back respectively. Too advanced a position would expose your pieces in both games to attack. The isolated pawn would correspond to a single limit order left way away from the market. The holes in your position where you could get stopped out. Fisher always said he liked to be able to grab all his pieces, not keep them disparate. This might correspond to trading only a single market. Nigel recommended Pandolfini's Weapons of Chess as a guide to proper pawn play, and Kmoch's book Pawn Power I got for Aubrey but it was too complicated for both of us to understand. The end games in chess are very similar to most checker games. I hasten to add that I am a very poor chess player, but I am trying to learn so I can help Aubrey.

anonymous writes: 

It can be proven both theoretically and using empirical data that it is sub-optimal to only trade a single market. Or put another way, diversification is the only free lunch.

Are you challenging this conventional wisdom?



 Like many on this site, I have created economic, trading, and predictive price models. Therefore I have an appreciation for the work that goes into building them. Donald Trump's "Superlatives without Specifics" (SWS) political model is pure genius. It is structured to be multi-faceted and applicable to nearly any interview situation. Not only does he not provide specifics but in many ways he makes that one of his strengths. Like any good tease in a sales process, you find out the answer only after you have made the purchase.

Another key point and what I love even more is that it completely contradicts conventional election wisdom about what it takes to win over the electorate. While I don't know how this will ultimately play out, this has a certain air of "money ball" aka Billy Bean of the Oakland A's, who actually analyzed the player stats in a different way and signed free agents as well as drafted accordingly. My suspicion is that this algorithm of Trump is no mistake and most likely the byproduct of rigorous modeling of both semantics and exit polling data of past elections.



Here is a promising area of research.

"Drug to prevent ageing closer as scientists extend life of animals by 35 per cent"

Now scientists have shown that mice who received a special compound to clear out the senescent cells lived 35 per cent longer than those allowed to age normally. They were also stronger and healthier for longer.



From my view point, half way up the stands, it would seem to be a worthy time to discuss the balance of power and the ground that was made and ultimately lost in the price action of the market since the initial wave of fast selling hit in early January. The struggle of price to fight back from its low point with minimal great runs, epic short term battles between good and bad near the recent highs, and finishing the week on a low point, and the potential changing fundamentals at play, (with heavy selling in USD this week), puts this conflict on the big screen. Could it not be said, that the market during January did little to flush positions, and that the opportunity costs of holding longs at this juncture is just far too great? I say this to engage everyone in discussion, as I see a break from these levels as a high risk of opening up some clean air to the downside.



 After reading this article "The Rich Are Already Using Robo-Advisers, and That Scares Banks", I wonder three things:

1. Making a broad assumption that most of these "artificial intelligence" schemes do similar things isn't it likely to cause even more herding behavior as assets in these plans increase?

2. Placing money in several plans and observing what's done might provide foreknowledge of what might be executed in the future.

3. Are they using ETFs or individual stocks? From the small amount I've read about these plans it seems to be ETFs.

For sure the assets in these plans are not currently enough to move markets -yet. But like ETFs which began as a small force and grew to be of great influence they could eventually move markets on their own. It's the commoditization of investment advisors in a similar way that ETFs commoditized retail trading.

Rudy Hauser writes: 

I would add the move by pension funds into equity investing. When my late friend, Prof. Paul Howell, who at the time ran the NYC pension funds, wrote an article in 1958 that appeared in the Harvard Business Review and madeg the case why pension funds should mainly be invested in equities, it had the largest request for reprints of any article in that publication up to that time. The idea of pension funds investing most of their assets in stocks was a new trend at the time. I would also add the event of mutual fund investing, that really took off in the decades after WWII.

Stefan Jovanovich writes: 

Another really dumb question for Jonathan and the other pros. But, first, a brief description of what those of sitting in the bleachers see as the great events in "financial history" since WW II.

1. End of fixed commissions; "discount" brokerage
2. Retail/commercial trading in Financial futures
3. Retail/commercial trading in Options
4. Derivative trading
5. Retail/commercial trading in Currencies

Now the dumb question: Which, if any, of these 5 developments are the historically comparable to the rise in ETFs?



 Mosquitoes aren't going to be the means by which this virus spreads in the US. And health officials have likely made a mistake suggesting that the risk in the US is low. That's not a statement that an outbreak is imminent, just that there's more to this virus than just swatting flies.

And don't be surprised at the economic effects. SARS, you may recall, led to essentially empty planes flying to and from Hong Kong for a period (albeit somewhat short) of time.

Any sense of what the impact of zika will have on the Olympics this summer? Not that Brazil needs any help in figuring out new ways to torture its economy (the nationalization of Petrobras being Exhibit A), zika may have an economic dimension the effects of which aren't yet fully appreciated. I wonder how big the tourism industry is in Brazil.

Stay tuned, same bat time, same bat station.

"Brazil Finds Zika Virus in Human Urine and Saliva, but Risk Is Unclear"



 The comment has been made that Moneyball strategies undervalue pitching and defense. As a Braves fan I can most assuredly attest that post-season pitching needs and season pitching needs are different. During the season, a 4 deep pitching rotation almost assures extra wins as the other teams pitching tends not to be as deep (so hence the long runs of divisional wins), however, post season pitching rotations get shortened, so one needs one less pitcher and one more bat (hence all the post-season loses). This is why the Braves had incredible records but only the one World Series during their amazing run.

Stefan Jovanovich writes: 

The data suggests something else: they (the GM and Cox) never let John Schmoltz–their one genuine strikeout pitcher–start Game 1. Strikeouts win World Series.



 I go fishing with my best friend. We start at night about 2 or 3 am. He has a fish finder and can see the fish. We fish for Opelu which is a small silver fish about 6 or 8 inches long to use for bait for bigger fish. We use a hand line on a spool. We hang a bright light over the side to attract the shrimp that the Opelu like to eat. On the end is a leader rigged with five or six different color hooks with small colored plastic skirts that imitate small shrimp or squid. There is a weight on the bottom. We drop the line down and jiggle the line. Almost immediately there are several sharp tugs on the line and the line is pulled in with several wiggling silver fish. Its great fun. The fish go into a tank in the bottom of the boat where they swim around while we head out to sea to fish aggregation buoys. The small fish are rigged, alive, to a big hook. The Mahimahi are large aggressive fish who love the opelu. Whatever we don't use for bait we can eat fried up and are very delicious. Mahi, however, is my favorite fish. When they strike, they jump high in the air spinning. When they come into the boat, they glow in rainbow iridescent colors.

When the market is taking a dive, I figure its going to drop to around its maximum recent range, and that is a safe depth to drop my line of hooks at different depths to try land some silver spus. Hopefully I don't catch a huge marlin or shark that takes me and my lures down into the deep dark depths. The goal is to pull them right up. Its funny that the lines on the charts look almost exactly like the readings on the fish finder. Its important to find the right depth.



The NYC Junto will meet on Thursday February 4, 2016 at the General Society Library, 20 West 44th Street. The open discussion begins at 7:00 PM and the featured speaker begins at 8:00 PM. Acclaimed writer and sociologist Charles Murray ("Losing Ground" (1984), "The Bell Curve" (1994), "Coming Apart" (2012)) will be speaking about his latest book "By the People".



 The Global Burden of Disease Study published in 2012, is the most comprehensive and systematic analysis of causes of death undertaken to date, involving nearly 500 researchers from more than 300 institutions in 50 countries, and starting with almost 100,000 data sources. What did the researchers find? Here in the U.S., they determined that our biggest killer was our diet. Number 1 on their list of the most important dietary risks was not eating enough fruit, responsible for an estimated 4.9 million deaths a year around the world.

link to article

link to study



 The gravitational constant, G, is 6.7 x 10^-11 N-MM/kg. Is there a similar G in financial markets for the super hot stocks? It is conventional wisdom that information is analyzed faster and better today than 20 years ago. If that is true, then G has increased. But is it true? Or is the constant really human nature?

An anecdote:

Iomega, the (in)famous disk drive manufacturer that was going to take over the world, ipo-ed in June 1996. It went parabolic. And then flamed out. It took 22 months to trade back at its IPO price before descending into oblivion and a takeover by EMC for about 3$/share in 2008.

GoPro, the hip portable camera manufacturer (with a surfing dude for a CEO) was going to take over the world (and was the next BIG media company), ipo-ed in June 2014. It took 17 months for this stock to trade back at its IPO price amidst a flameout — and with yesterday's news of a loss, is on its way to oblivion — to be acquired by Sony? for about $3/share in about 5 years?

Based on this non-scientific study, the market is indeed moving someone faster. But still plenty slow enough that if you strap a gopro to your forehead and point yourself in the direction of the major slow trend, you'll still make plenty of money (and have a nice video to upload too).

Steve Ellison writes: 

Anecdotally, when I started working at Hewlett Packard in 1992, I worked in a division that manufactured hard disk drives. It was a very dysfunctional organization (that was shut down by the company a few years later because of excessive losses). The production lines were especially dysfunctional. To ensure quality, the drives were tested in a "burn-in" process that took more than 24 hours. Only a minority passed the tests and were shipped; the rest went into a rework queue. The lines prioritized producing new drives over troubleshooting and fixing those that had failed burn-in. This tactic kept revenue flowing, but resulted in ever-growing inventory.

Fast forward to 1995. The division was drowning in red ink. Over a few months, nearly all the manufacturing managers left the company to go to Iomega. Imagining the practices I had seen being implemented at Iomega, I had an idea that Iomega was going down.



 Joe Stock is a IFGMA internationally certified alpine guide from Alaska and an all around great guy, full of energy and smiles. He has done some truly epic feats traveling though and across hundreds of miles of mountainous terrain on foot. He has a system to stay alive which addresses the human factors and the group dynamics.

He quotes Sarah Carpenter's system as an example.

1. Check the avalanche forecast every day.
2. Follow the weather.
3. Track avalanche activity.
4. Plan before you leave the house.
5. Be prepared.
6. Have an opinion.
7. Adjust your plan if conditions are different than you anticipated.
8. Report your observations.
9. Review your tour at the end of the day.

How appropriate such a list is for trading. Joe says: "test every slope before skiing". For traders, like Chair, it is advised to test your ideas before trading.

The main thing is to avoid the silly mistakes, which happen no matter how much you know or how careful you are. Probably one of the most important things I've ever learned since growing up is I can and will make mistakes. You need to mitigate that though, and give yourself the leeway to get out of a tight spot you'll eventually find your self in.



 One problem with using satellites for measuring crop yields is that although they don't involve much manpower, they are not as accurate as direct measurement on the ground and in the fields. Still, the costs of satellite data keep decreasing, and the images are getting better. One problem with remote sensing is the yield gap, which is the difference between yield potential and and the average yield.

Lobell has written a paper explaining the methodology of using remote sensing for estimating crop yields and calculating the yield gap. This is a fascinating high level overview of remote sensing of agricultural fields, what goes into determining usable parameters, methods of calculations, fudge factors, etc.

The techniques discussed are not only another tool in the trader's tool belt, but can be useful to anyone in the grain business.

Andrew Goodwin adds: 

It is possible to clock the timing of the passes of the satellites over the relevant areas. This is how the weapons inspectors have been defeated. You simply cover up the activity when you know the satellite is about to get an orbit able to take pictures of the sensitive sites. One counter method is to put propulsion on the satellites so that you can change the orbits and catch the brigands in a position of culpability. This is why the time of day and day of the week pattern trades should not work well in trading against those who can access the data of the satellites with the flexible orbit change features.

I would prefer to have stealth high altitude planes do fly overs randomly in the sensitive areas to garner useful data on agriculture.



Wild elephants migrate back every year to partake in an annual mango feast, retracing their steps right through the lobby of a hotel. It seems to be snopes certified.

Here is a great short video about it: "The Elephants that Came to Dinner"



The book Advanced Raquetball by Steve Keeley (the hobo) is the best book on racket sports that I have ever read (and I've read them all) and I recommend it highly to all players of squash, racketball, and tennis.



 Astrology and numerology rule markets, ok, Julian?

"We're all prone to a bit a Calendarism thanks to the birthday cult, but this "worst start to the year" thing doesn't make sense even by time measurement standards. A year is the unit of time the earth takes to make a revolution around the sun, so every day is the start of another 365-and-a-bit-days period.

And one man's calendar is another's papist intrigue. The Gregorian calendar would have you believe today is February 1, and all that January stuff is over. By the Julian calendar, it's actually January 19. The All Ordinaries Index has had a positive start to the Julian year, it hasn't fallen at all. And the Julian is only one of many alternative calendars to play with or live by.

Never mind months, there are myriad years to choose from. Go all North Korean with the Juche calendar (it starts on Kim Il-sung's birth) and it's only 105. Or break out your ab urbe condita toga to make this 2769. (I thought we'd have intergalactic travel by now.) Personally, I like the choice provided by the various Hindu calendars – we could be pretty much anywhere between 1938 and 5117.

It might help to apply some perspective to the market's outbreak of Calendarism by looking at a graph of the All Ordinaries Index over the past five or 10 years – either Julian or Gregorian.

"There's suddenly nothing particularly special about the latest tooth added to the saw – it's just another one. There have been falls bigger and smaller. It matters little what name the calendar puts on it."



 A friend of my daughter works for Tesla. His parents described driving in a self driving car in San Francisico. As I drove through LA traffic, I thought of the many benefits self driving communicated net cars would have.

Almost all accidents are caused by driver error. If all cars were self driving, and communicated with each other, it would reduce accidents, increase traffic flow and congestion. Lane changes could be done quicker and more safely when other cars knew the changer's intention. Cars could drive faster and closer together where human reaction attention and reaction time were eliminated by communicating cars. Rear enders would be eliminated by front sensing brakes. Cars could self park like auto valets.

Stefan Jovanovich writes: 

This is really the night for "let's all submit to higher authority". The problem Google and others are trying to solve - traffic congestion - is not going to be resolved by turning the public roads into digital autobahns, not without the complete loss of individual liberty.

Our "traffic" problem comes entirely from the commons theory of access. Right now, no one pays any direct price for deciding to use the freeway during rush hour; the road usage is - quite literally - free. If those same smart, smart folks would put their attention to the question of mechanisms that priced timed usage by location…

Thomas Miller writes: 

One problem with self driving cars, (for municipalities) is that they wold lose all the revenue they now make from traffic tickets, which is not insignificant. Self driving cars would never break the speed limit, run red lights, make illegal turns, etc.

Stefan Jovanovich writes: 

When roads were uncommon, they were privately owned and subject to usage tolls. Road travel was incredibly expensive because of the physics of friction and gravity (in a boat the water does the carrying; in a wagon the rims) so almost all freight moved by ocean and river which were the commons. When iron and steel rails solved the friction problem, land transport exploded - still under private ownership. Our present commons of free public roads only really go started in the 1920 after the development of pneumatic tires and leaf spring suspensions made transport of heavy loads possible. There was no practical way to put tariffs on the road usage but cars were so expensive to own that "traffic" did not become a problem until the combination of cheap gasoline and inexpensive used cars developed in the late 1950s.

This is not a difficult problem to solve, given the capacities of digital technology. What I find fascinating is how much the people who know that technology best (the folks at Google) are determined to use it to limit people's freedoms and prevent government's monopolies from dissolving under their own economic obsolescence. There is no social justification for "driverless cars" - auto accidents continue to decline and the injury rates for vehicles where people are passengers, not drivers - buses, vans - are far, far more bloody than for personal vehicles. This is a technology avoiding a useful solution in order to promote what will be an utterly useless green fascism.



SPY (2000-present) was checked for instances when the last day of the month was up more than 1%, while the 20 day return to the end of the month was down (including the up last day). Then, what was the return for the next day (first day of new month), and the next 5 days (first 5 days of the new month).

Here are the results:

One-Sample T: last DOM+, prior 20 day ret-, 1OM, 5OM

Test of mu = 0 vs not = 0

Variable              N       Mean     StDev   SE Mean             95% CI
last DOM+         14   0.016441  0.008813  0.002355  ( 0.011353,  0.021530)
prior 20 day ret   14  -0.043020  0.032422  0.008665  (-0.061740, -0.024300)
1OM                  14  -0.007521  0.025683  0.006864  (-0.022350,  0.007308)
5OM                  14  -0.019825  0.041358  0.011053  (-0.043704,  0.004055)

Variable              T      P
last DOM+          6.98  0.000
prior 20 day ret   -4.96  0.000
1OM                  -1.10  0.293
5OM                   -1.79  0.096

There were 14 down months with big up last days. The mean last day of month return was +1.6%, and the mean down month return was -4.3%. The next day and 5 day periods were negative, with the 5 day about -2% (both NS)



 This article is quite thought-provoking; although my amazement probably results from my somewhat novice understanding of quantitative finance; although I've learned quite a bit over the last year and a half (in large part due to this site, and of course The Chair, who has greatly inspired my relentless study of statistical analysis, and computational finance).

This article discusses a study conducted by Poland's Institute of Nuclear Physics who studied 100 works of classic literature using advanced statistical techniques. They discovered that the works that have stood the test of time are actually fractals, an ideal mathematical pattern found in nature. Some are actually multifractals.

Among the works analyzed in the study include those from authors like Sir Arthur Conan Doyle, Honre de Balzac, Charles Dickens, Fyodor Dostoevsky, Aleaxander Dumasn, Umberto Eco, George Elliot, James Joyce, Victor Hugo, William Shakespeare, JRR Tolkien, Leo Tolstoy and Virginia Woolf. One particular book mentioned is War and Peace.

"Study Finds Mathematical Structure in Great Literature"



 On this day in 1835 on this day Richard Lawrence attempted to kill President Andrew Jackson. Jackson survived the attack because both of Lawrence's pistols misfired (probably because the powder was too damp to ignite).

The Schlesinger story of the Jackson Administration focuses on the Bank War; but that was not nearly as important as the political explosions that came during Jackson's second term. No one, who had not been bribed, was in favor of Biddle's bank, any more than people now are in favor of the Federal Reserve. (According to Gallup's last poll on the subject, the IRS is the only Federal agency that has a lower current approval rating that the Fed.)

The Lawrence incident brought out into the open the much more important split that would be Jackson's legacy - the divide among the two tribes of War Hawk spenders. The moral issue of slavery was not the cause of the Civil War; it was, if anything, the camouflage for the rivalry between the people who wanted the U.S. to go West and those who wanted it to go South (to the Caribbean, Mexico and Central America). That is the sub-text of Horace Greeley's famous bit of advice that gets completely lost.

If the Bank issue had been truly divisive, Jackson would not have chosen a New Yorker, Martin Van Buren, as his successor; and accused his long-time ally, George Poindexter, of being part of Lawrence's "conspiracy" (sic).

The argument between Richard Mentor Johnson, Van Buren's Vice-President, and Senator Poindexter, over the subject of race is fascinating. Johnson had married his Julia Chinn, his slave mistress, openly.

"Unlike Jefferson, Clay, Poindexter and others, I married my wife under the eyes of God, and apparently He has found no objections."



 Moneyball is a wonderful movie made out of what is a lousy baseball book. The A's teams that Billie Beane built ignored defensive skills and looked for home run power. Beane's giving Billy Butler $30M in 2014 is a classic example of his trying to buy "power" on the cheap. The result was absolutely the worst team in American League baseball.

What wins in the post season is (1) pitching (everybody knows that), (2) fielding and (3) being able to put the bat on the ball, even if all you do is hit a weak ground ball to 3rd base.

Kansas City, winner in 2015, runner-up in 2014, has the formula: "Because contact is less prized by modern teams than patience and power, it's also less expensive. And given the physical skills of the players who tend to possess it, it might also be easier to pair with good defense, another commodity that the free-agent market has historically undervalued. In the most generous interpretation of their roster construction, the Royals' old-school approach is actually innovation in disguise, a version of Moneyball built on the opposite strategy of the early-aughts A's."



Question: Does January serve as a predictor of volatility over the next 11 months?

For fun, I dug up an old measure of volatility I used to use, where I calculate the "minimal path" that a price would have to traverse through the normal Open-High-Low-Close data, i.e., either C-O-H-L-C or C-O-L-H-C. This can be over any given time period. (For many calculations, the High-Low range gives similar results. Note at bottom on calculation.)

Using SPY, calculate the minimal path for January, as a % of the December Close, along with the minimal path for February-December, as a % of the January Close. The results:

Date / Jan minpath / Feb-Dec minpath
Jan-15   5.1%   29.9%
Jan-14   6.0%   28.7%
Jan-13   7.4%   25.9%
Jan-12   10.1%   25.0%
Jan-11   6.6%   43.8%
Jan-10   10.6%   31.0%
Jan-09   23.7%   76.4%
Jan-08   22.7%   67.5%
Jan-07   4.9%   27.7%
Jan-06   6.8%   22.2%
Jan-05   6.7%   19.4%
Jan-04   9.2%   20.4%
Jan-03   19.6%   45.6%
Jan-02   15.8%   50.3%
Jan-01   13.8%   47.9%
Jan-00   13.1%   37.3%
Jan-99   9.8%   27.7%
Jan-98   17.1%   44.0%
Jan-97   14.1%   42.5%
Jan-96   9.6%   35.3%
Jan-95   4.0%   36.8%
Jan-94   4.7%   15.2%

Correlation between the two series:  +0.843
R square:  +0.711

Given the strong R square, I ran a regression with "Jan minpath" as the independent variable, and got the equation:

Feb-Dec minpath = 0.123062 + 2.197213779 * Jan minpath

The minimal path for January 2016 is 18.8%.  Plugging that into the equation:

Feb-Dec minpath = 0.123062 + 2.197213779 * 0.188208

= 53.7%

Multiply that by SPY December Close of 193.72

= 103.95

Or approximately 1040 points on the S&P, i.e., the equation predicts that the minimal path for the S&P for Feb-Dec 2016 will be 1040 points.

Even assuming this estimate is accurate, it doesn't tell you what
*shape* the market will have over the next 11 months. You can, however, model some scenarios.

For example, I saw a recent collection of big-bank predictions for where the S&P (cash) would end 2016, the highest of which was 2350. If you plug 2350 in as the Close and also assume it is the High, then the minimal path for the next 11 months looks like this:

Jan Close:  1940
2016 High:  2350
2016 Low:  1623
2016 Close:  2350

In that scenario you get a predicted Low of 1623.

Assume that the Close is 2350, and raise the High to 2450, and you
also raise the low by 100 points, but still have to get down to 1723:

Jan Close:  1940
2016 High:  2450
2016 Low:  1723
2016 Close:  2350

Assume a Close of 2100 and a High of 2200:

Jan Close:  1940
2016 High:  2200
2016 Low:  1598
2016 Close:  2100

Et cetera…

For me, this analysis works as a mental exercise to help me with a severe shortcoming: My idea of what is possible is always much narrower than the market's version. For example, if from here we drop to 1600, it will be hard for me to think, "We could easily pop back up to 2200 and then finish at 2100".


The minimal path calculation looks like this:

abs(Open - prevClose)
+ (High - Low)
+ min(
[ (H-O)+(C-L) ],
[ (O-L)+(H-C) ]

Divide the result by the previous Close to get the %.



 "Still Mine" is a decent flick that could never make it near modern Oscars (not even best janitor):

An old but stubbornly competent white guy dogged by epicrats* while trying to help his infirm white wife who was the love of his life.

No people of color. No disease. No apologies. Therefore to see it you will need to search and find it.

*epidemic bureaucrats



 We've been enjoying an excellent BBC series, Men of Rock, about the Scottish geologists who moved that science forward: "Geologist Iain Stewart retraces the steps of a band of maverick pioneers who made ground-breaking discoveries in the landscape of Scotland about how our planet works."

The series has terrific photography that highlights the beauty of Scotland. For me, the science is fascinating because while I have read the general outline, the series does a nice job of presenting the actual observations that these men were making, as well as the conclusions that were the result.

Three parts:

Part 1: Deep Time

Part 2: Moving Mountains

Part 3: The Big Freeze

We use Chromecast to put it to the telly, and the BBC science shows alone make the investment well worth it.



People are afraid. They watch too much TV. TV shows many bad things. They access net info aggregating and confirming their fears in confirmation bias. A friend of my wife appears unreasonably afraid of Dengue fever, but the chances of getting it are very very low. Seems there is a lot of fear in the market shaking out weak hands. People vote from unreasonable fears. People fear crime, but crime is lower. The fears are mostly unreasonable, and should create opportunities.

Alston Mabry writes: 

Check out this article.

Fear and Loathing in Las Vegas: Evidence from Blackjack Tables



Psychologists study regret primarily by measuring subjects' attitudes in laboratory experiments. This does not shed light on how expected regret affects economic actions in market settings. To address this, we use proprietary data from a blackjack table in Las Vegas to analyze how expected regret affects peoples''decisions during gambles. Even among a group of people who choose to participate in a risk-taking activity, we find strong evidence of an economically significant omission bias: players incur substantial losses by playing too conservatively. This behavior is prevalent even among large stakes gamblers, and becomes more severe following previous aggressive play, suggesting a rebound effect after aggressive play.

from the paper:

Panel A also illustrates the first-order result: approximately 80% of all deviations from the Basic Strategy involve passive mistakes; ones in which the player should have taken an extra card and did not, ones in which the player should have split or doubled down but did not. Only one mistake in five involves players behaving overly aggressively. In panel B we no longer restrict attention to single-hand deals, but also include deals in which the player (rightly or wrongly) split. In a handful of cases, the player splits more than twice, but in general the basic fact that passive errors are much more common than aggressive errors holds regardless of the number of hands played (or won).

[ … ]

This paper uses novel field data obtained from actual play at a Las Vegas Blackjack table to show that errors of omission are four times more likely than errors of commission. This profound omission bias occurs in spite of the fact that real economic agents are making real decisions with their own money, reaping the rewards of skill and good luck, suffering the costs of bad luck and mistakes. The bias we observe grows more common in the wake of past aggressive play, and is robust to controls for memory and skill. Perhaps few decisions of economic consequence are made at a Blackjack table. Nevertheless, the underlying mechanism here—choosing between acting or not acting in an economic environment with uncertain payoffs—is present in many economic problems, such as planning for retirement, searching for a job, or starting a business. Indeed, the findings from our field study are striking when one considers that Blackjack players are not a random sample of economic agents: they have self-selected into the game of Blackjack based on their willingness—indeed, desire—to bear risk. The conservatism that we identify at a Blackjack table is all the more severe when we consider this self-selection issue.



 "Future Grains"

This is seeing the data before the actual data is announced. The rice example leads me to think that the same can be done with corn, wheat, cotton, coffee, poppy, coffee, and any other crop that has color change that is visible from satellite imagery.

It definitely gives a leg up for this to those that get to see the commodity of choice they trade or hedge.

Is it really for the common good of the world or is it to be a tool for a heroic trader?

Jeff Watson writes: 

I've been using satellite data since the 80s. 



"Japan adopts negative interest rate in surprise move"

Didn't they do this in the 80s as well? Was this on the Commercial and Industrial (C&I) loans in the 80s?

John Floyd writes: 

10 year government yields tell you the story [quote]. Factor in the deflation, lack of growth, and JPY move [link]. More recently look at the shifts in the Balance of Payments in large part driven by oil and nuclear issues [link]. But the core of the question is best summarized by asking what are the likely policy actions going to be and how might markets react given where the macro story is likely to move to. For example, consider the sovereign debt levels [link], demographics trends and their influence on consumption, etc., where is future inflation likely to be, and then factor in Japanese stoicism [link].



 Being Mortal by Atul Gawande thoughtfully looks at the process of aging and dying in America. Before modern science, normally people died suddenly at home. Now doctors propose more and more expensive and invasive and often uncomfortable treatments. Hospice provides palliative care to increase the quality of the last days of life, and ironically extends life compared to invasive procedures and aggressive treatment. Doctors, now unable to address this need, need to be able to have this discussion with their patients and receive training in end of life decisions regarding palliative care.

Aging and diminished capacity requires additional care, but the aged person wants his independence. Assisted care home are evolving to meet these needs.

I highly recommend this book for many who have aging relatives and are dealing with these issues.



 After some practice, a kid can throw a ball and compute the trajectory on the fly. It becomes internalized. Mathematically it is a complicated computation. Normally people don't think statistically unless say after 45 years of doing it it is internalized.

My question to Chair and others is whether after trading for many years using statistically based evidence you have internalized the data and math such that a trade is similar to throwing a ball. Computations of course help reject ideas, or deflate misconception, or identify newly arising cycles but what percent is intuition? Even system traders identify new systems by eyeballing data or plots or using analogies.

Stefan Jovanovich writes: 

If we are talking baseball, the throwing equations have their own internal derivatives. To throw a ball well enough to play the game at even a semi-professional level as a pitcher requires a great deal more than "some practice"; for the people who make it all the way to "the show" the internal computations get down to the questions of how much pressure you place on the joint of each toe. The calculations about how you hold the ball for each pitch are maddeningly complex; then there is what you do with your biceps, elbows, trunk, etc.

I suspect surfers have the same kind of subtlety in their thinking about what they do. But, I don't know: can't pitch, wouldn't dream of surfing. What I do know as a catcher is that pitcher's internalization process is never finished; they are flakes because they have to be.

anonymous writes: 

When surfing at the home break, most of the good locals have it pretty well wired. Knowledge of the bottom, how the surf breaks on different tides, swell direction, currents, winds, and where the wave will peak allows a local to successfully get waves. When traveling for waves, new breaks tend to present a host of different challenges. While I will never have another place wired like my local break, when visiting a different one, I'll catch a few waves, but the locals will catch many more. I find injuries are more common at other breaks, mainly because of the lack of knowledge of the wave and the lineup. An outsider never knows all of the quirks, inside rules, players, and forces at a beach.

Seems like a good time to present a market analogy. A competent local surfer generally gets more waves than a competent outsider, just like an insider or specialist in a single market generally has more opportunities than outsiders for good trades. The insider/specialist knows his market just like the surfer knows his home break.

Jeff Watson writes: 

Surfing is a good example of an intuitive process internalizing complex multiple variables. At my big wave spot I know the secret line up markers: a grass spot on the mountain, the tops of certain palm trees, a rock, some foam. It puts me in a 6 foot square in the ocean. I can see the waves in the distance, sit in a certain spot, and the wave come right to me. Someone 6 feet to the right is in the wrong spot. Newbies often get slaughtered. For example, there was a big crowd out two days ago with medium size waves when a HUGE set came thru and washed almost everyone out who were sitting on the inside.

On the rare occasion that I hit it right, I enter a trade at a good spot and ride it on most of the full move. You can feel the variables, the amount the market has fallen, its speed of trading and movement, the way its trading. The price location in relation to the last week, the last few days, the last few hours give info. When to go out and not watch. Seems like there is a lot of info being processed internally, somewhat unconsciously that has valuable input. Ideally one could quantify all these and have a computer do it with AI better than a human. The multiple variables make it hard to quantify though. I suppose some simple rules apply: after multiple 2% drops is a good time to buy or after a 50 point down move in a day on the third or fourth down day, after fake bad news, on on some stupid announcement like FOMC and the market dives 50 points for no reason. I'm sure there are more rules of thumb that one always keeps in the back of your mind, including all of Chair's caveats, and all Wiswell's proverbs. Maybe that's the point, over time one internalized all the rules, the basic setups, the data, even more complex set ups, without having to count on the fingers as its happening. 



Since 1955 the national student-teacher ratio has gone from 27 to 16. Per pupil expenditures, after adjustment for inflation, have increased by more than 400%. The United States now has the highest per pupil expenditures in the world.

And the winner is… The Program for International Student Assessment has published its rankings for academic achievements by 15-year-old students, in 34 OECD countries, using the most recent data (Calendar year 2012).

In mathematics U.S. students ranked 27th; in reading, 17th; in science, 20th.

Clearly, "we" - i.e. those of us who have already escaped the schoolies–need to spend more money so they can continue to torture the young.



 Many have seen the brilliant, viral video from Casey Neistadt snowboarding in Manhattan on Saturday. Casey did a brilliant job and millions have seen his artful video which already has 100 million hits on Youtube.  I love Casey and my entire family appreciates his work, but at the exact same time he was filming during the blizzard, a couple of surfers in Montauk were hitting it hard with 10' waves, and this would have to be labeled as one of the best surf sessions of all time. Casey did a bang up job with his video, and having Sinatra's song as the background was nice, but this surfing video, with Pearl Jam in the background captures the zeitgeist of hard core, northern, surfing. For what it's worth, both videos are great.



Many/most analyses of buy & hold use a model where a set amount is invested in the market at a specific time and then tracked over X years, which doesn't seem very realistic and certainly isn't the only viable model. So here is a different model:

The results below are for the following: Invest $1000 every month in the S&P 500 and collect the dividends at the end of each year [1]. For each year, calculate the total value of shares and dividends for the 5 years ending with that year, e.g., 1960-1964. Also calculate the 5-year total's % over/under the $60,000 investment during the 5 years. Negative years highlighted, and mean and sd shown at the end.

Version 2, corrected for overstating dividend, which adds 2009 as a
negative (slightly) year:

date   5yr Total   % over investment
Dec-15   $80,943   +34.9%
Dec-14   $91,399   +52.3%
Dec-13   $94,956   +58.3%
Dec-12   $77,990   +30.0%
Dec-11   $68,060   +13.4%
Dec-10   $67,534   +12.6%
—Dec-09   $59,566   -0.7%
—Dec-08   $47,067   -21.6%
Dec-07   $77,666   +29.4%
Dec-06   $80,894   +34.8%
Dec-05   $72,530   +20.9%
Dec-04   $68,208   +13.7%
Dec-03   $60,778   +1.3%
—Dec-02   $47,322   -21.1%
Dec-01   $63,044   +5.1%
Dec-00   $82,804   +38.0%
Dec-99   $112,527   +87.5%
Dec-98   $116,433   +94.1%
Dec-97   $108,250   +80.4%
Dec-96   $95,239   +58.7%
Dec-95   $88,800   +48.0%
Dec-94   $74,533   +24.2%
Dec-93   $81,002   +35.0%
Dec-92   $84,726   +41.2%
Dec-91   $87,246   +45.4%
Dec-90   $76,904   +28.2%
Dec-89   $91,919   +53.2%
Dec-88   $84,916   +41.5%
Dec-87   $84,079   +40.1%
Dec-86   $97,688   +62.8%
Dec-85   $96,159   +60.3%
Dec-84   $84,680   +41.1%
Dec-83   $90,854   +51.4%
Dec-82   $86,713   +44.5%
Dec-81   $79,628   +32.7%
Dec-80   $89,410   +49.0%
Dec-79   $76,722   +27.9%
Dec-78   $72,193   +20.3%
Dec-77   $69,175   +15.3%
Dec-76   $74,530   +24.2%
Dec-75   $63,669   +6.1%
—Dec-74   $50,482   -15.9%
Dec-73   $66,026   +10.0%
Dec-72   $79,389   +32.3%
Dec-71   $71,656   +19.4%
Dec-70   $67,302   +12.2%
Dec-69   $66,362   +10.6%
Dec-68   $76,575   +27.6%
Dec-67   $76,567   +27.6%
Dec-66   $70,349   +17.2%
Dec-65   $83,286   +38.8%
Dec-64   $83,760   +39.6%

mean:   $78,856   +31.4%
sd:   $14,535   24.2%

max:   $116,433   +94.1%
min:   $47,067   -21.6%



The correlation between daily changes in SPY and USO were checked every non-overlapping 10 day period, from present back to 2006. The attached chart shows the result.

Current correlation between stocks and oil is high but consistent with the entire period, though recently somewhat higher than the past two years.

Russ Sears writes:

Here is a scatter of the Absolute value of 21 day correlation of USO/SPY at the start of each calendar month. To the next 21 trading days log normal returns. I used the Absolute value because it appeared high R^2 increase volatility even if the correlation positive or negative. But R^ 2 curves this relationship. Not predictive but clearly implies increased volatility with higher R^2









I would suggest that there is however much more to this suggested change in regimes on a daily or day trader holding period basis and those interested should study it further .



Every now and then it is advisable to check out what the Fed is doing. There have been upticks recently in the aggregates (since New Years, and concurrently since the drop started), although in my opinion the upticks do not alarm or impress.

monetary base




One wonders if with all the people who hate business, the collectivists and world staters who assemble at Davos each year, whether there is a tendency for the market to be bearish during their retreat. Certainly it inspires the palindrome to be bearish as he has so many followers there than can exponentiate his already put on position.



 I am struck by the news that Iran arrested 100 protesters who torched the Saudi embassy and announced it publicly. As you may recall, Iran usually blames elements like "students" and does not intervene. If they make arrests, it's behind the scenes.

This may indicate that the Shiites are willing to make a deal with Sunnis to get the price of oil up a bit. As the price of oil drops the volatility used to rise as the chances of OPEC cutting supply increase. When the Saudis cut off the head of Nimr, and the Iranian "radicals" attacked the embassy, it seemed less likely that they would think of even talking. That looks like a item to stick in the bullish column for oil prices.

"Iran arrests 100 people over attack on Saudi embassy"



 I first learned about Thompson's On Growth and Form at a talk back in the late 80s by Benoit Mandelbrot, who referenced the book as an influence. I think Thompson's book has relevance to equity markets, philosophically as well as on more practical terms. Thompson simply observed nature and described relationships of form to function. He didn't attempt to infer an evolution process. In this sense the book is an early precursor of Bejan's Constructal Theory.

Examples: Thompson shows that the speed of a fish or ship is proportional to the square root of its length, and that the kinetic energy exerted by an organism is proportional to its mass to the fifth power. Thompson considered form as the product of the dynamic forces acting upon it. Logarithmic spirals reflect a constant proportional growth rate. The logarithmic spirals in pine cone scales or sunflower seeds result in a Fibonacci expansion in the number of scales or seeds. The Fibonacci sequence is just a discrete version of the continuous logarithmic curve.

It's not unrealistic to think that logarithmic spirals and Fib sequences crop up in equity prices. Daily returns are often assumed to be lognormally distributed. The relationships are probably not as simple as "stock x should drop to 38.1% Fib level and bounce".

One of the forces acting on the form in this case is human perception of emerging patterns. One of the more powerful conclusions drawn by Thompson is that many species share features that are invariant under simple linear transformations. So the shape of a gorillas skull and skeleton is the same as a human's through a "stretching" deformation.

If we make an analogy to stocks, this could imply self similarity in price patterns (fractal relationship) or the idea that we need to adjust for both price and time transformations when using historical analogs to predict future returns..



Anyone see a 20% move up in SHCOMP by Counting or by Mumbo?

There is consensus that China will take this world down. If there is such a rally, is the world also going to rally by the same amount?

If not can ideas similar to bond convexity be applied to inter relationships between key equity markets and all equity markets and if such convexities shift and or change over time what import do such shifts carry for either quant forecasting or for mumbo jumbo?



Six Charts That Show Stock Indexes Teetering at Key Support.  Six major indexes are testing key support levels amid the current market selloff. Whether these hold or break will be a significant factor in determining if the global decline extends. - Bloomberg terminal

One sees a headline on bloom saying that 6 major indexes are now testing support and whether they hold or not will determine the likely course. I don't know what the indicators are but one doesn't know how support can be measure and also whether a break is bullish or bearish. All my studies and the quantifications show that the more the big drop the greater the positive expectation. One indicator is stock to bonds at 11. 78. As far as I can see a multi year low (a well meaning assistant has made it impossible for me to go back for more than a year with alacrity). Which is better, the upside down man's toilet paper view or the 40,000 fold a century view with a view to where it's starting from with a 7% spot from where it was a month ago.



 It will come as no surprise to readers of this list that I am an Orioles fan. Like most fans,

(In 33 days, Orioles pitchers and catchers report. Spring is almost here. It's raining in NorCal and there's snowpack at Lake Tahoe. Almost all is right in the world.)

I enjoyed the dominance of the 1970s (actually, 1969) through the early 1980s, and living through the dim times at the beginning of this century. The Orioles traditionally were built around pitching defense and the 3-run home run (aka Earl Weaver Specials). Speed didn't much matter, contact hitting didn't much matter, bunting and such didn't have much of a place, hit and run wasn't of consequence (though these days, the Os are hardly unique in that regard), and so on. And Orioles Park at Camden Yards (aka Camden Yards, or just Yards for the locals—23 years young and still one of the greatest, if not the greatest, places to watch a ball game in the baseball universe) is certainly a ballpark made for power hitting left-handers, with 318 ft down the right field line.

Of course, not every major hitter the Os have sent to the plate at the Yards has been a left handed one. Cal Ripken spent half of his epic career (no, not just the streak, but the 400 HR and 3,000 hits) at the Yards—always as a righty. More recently, Nellie Cruz dominated the HR race as a righty at the Yards. But lefties have an advantage.

Enter Chris Davis, the Os All Star first baseman. Davis started his career in Texas, and it's pretty clear that it's principally been since coming to the Os that he's experienced success. Lots of success. Twice leading the AL in homers, once in RBIs, and if he didn't strike out so much chasing some awful pitches, he may have gotten a Triple Crown. Alas, it was not to be.

This year, Davis is a free agent. He's been offered $150+ mil for 7 years. Not chump change. But the Os have made it clear to Davis's agent, Scott Boras, that the offer is what it is. Some have even suggested that the offer has been withdrawn )including the Os). But if Davis were interested in accepting it, I doubt there would be the least hesitation from the Orioles front office in putting it back on the table. Meanwhile, Boras is shopping Davis as a first baseman-left fielder. That latter one is interesting. I can't imagine Davis hitting as well while learning left field on a permanent basis. But he is getting shopped around, and some have suggested that Detroit will pick him up and drop him into left field. Maybe. But one of the things that no one has ever suggested about the Os, even during the awful 2000-2010 period, is that the team lacks heard, lacks soul. Cruz made it pretty clear that he wanted to stay in Baltimore. Seattle apparently made him an offer impossible to refuse.

So what will happen with Chris Davis? If I were a betting man, I'd bet that Davis is going to play for the Tigers next year. Fortunately, there are only a limited number of games that the Os would have to face him. I think he might find that his performance isn't quite what he's used to, at least for a year while he learns a new position. As for relations between Scott Boras and the Os, well, it's baseball, there's always next year. At least Duquette actually did something this winter.



Where is SPY 10 tdays later, after >7% drop over 10 tdays, using only first occurrences to eliminate overlap:

count: 27 mean 10d move: +0.2%

Ref: For entire SPY period, 1993-present, including overlapping periods, mean 10-day move is +0.32%.

date / 10d fwd
24-Aug-15  +4.18%
3-Oct-11  +9.37%
4-Aug-11  -4.78%
30-Jun-10  +6.26%
24-May-10  -1.01%
7-May-10  -1.93%
20-Feb-09  -10.98%
16-Jan-09  -2.92%
12-Nov-08  +3.67%
3-Oct-08  -15.52%
17-Sep-08  -0.47%
17-Jan-08  +4.61%
27-Jan-03  -1.40%
23-Sep-02  -5.41%
3-Sep-02  -0.51%
12-Jul-02  -6.80%
2-Jul-02  -4.45%
10-Sep-01  -5.10%
12-Mar-01  -1.81%
21-Feb-01  +1.08%
12-Oct-00  +2.68%
14-Apr-00  +8.13%
7-Oct-98  +9.78%
31-Aug-98  +8.40%
4-Aug-98  +3.15%
27-Oct-97  +5.95%
16-Jul-96  +1.29%

It was easier in the 90s.



I was discussing the Weibull distribution, the classic bathtub distribution, with a colleague this week in the context of time to failure of computer hardware. He pointed out that the Weibull distribution is really a combination of two distributions, a distribution of the weak (high "infant mortality") and a distribution of the strong (in which wearing out from old age is the primary culprit). This is an interesting insight that might have applications in our field.



 Around the time Bernie Madoff became famous I quit my subscription to the Wall St. Journal. The paper had lost its allure as an erudite alternative to leftist treyf in California, for personal reasons.

As a young man I subscribed to the LA Times. Dutifully every morning skimming the headlines and articles over coffee before work because one should stay abreast of current events. However over time one became too sad and too angry at the start of every day, and upon analysis the Times was dumped. Overselling tragedy and engineered remediation, I concluded, and my bid faded away.

The new Wall St Journal subscription paid for itself almost immediately. A local politician / financial planner had been pitching his version of 401K for my business, along with his generous commissions and yearly management fees. Luckily I spotted a Schwab ad for a SARSEP IRA plan - which (then) could provide 401-like benefits for zero fees or commissions. The plan was adopted, later grandfathered, and to this day continues (cost free).

So I owed her big time. And truly appreciated the more balanced views and high school level writing. But as trading evolved I was found to be too weak to view hourly or even daily market updates. It was better to study the moves and avoid the noise because, even emanating from a quasi-non-hystrionic viewpoint, all noise was ultimately detrimental to discipline. (Applies to these lists as well) So the Journal was quit.

Recently Ben and Jerry Leftkowitz of ice cream fame thought to fund a new flavor in honor of socialist fart Bernie Sanders:

"I have fantasized about a Bernie Sanders ice cream, and it would be called 'Bernie's Yearning,'" Cohen said in a recent CNN interview. "It would be a giant chocolate chip on top of the ice cream that covers the entire top. . . . The rest of it is all mint. The giant chip on the top represents all the wealth that has gone to the top 1 percent of the population over the past 10 years," he added, nodding to the Vermont senator's decades-long attack on inequality in America."

For one thing it should be a marshmallow on a mound of chocolate chip. For another………a call to action. Like the clarions of an archaic generation - if not now, when? It was time to re-enlist.

Bernie made me re-subscribe to the Wall St Journal….print edition to be delivered again next week.



Listening to fin-tv, one hears over and over, "But low oil prices are good for the economy, so why is the market going lower?" And then a friend posed the same question. I said, well, there's a lag…

On the negative side are the oil producers and their ecosystem, who are no longer receiving that $2.5T in revenues. On the positive side are the consumers who are no longer paying that $2.5T.

On the positive side, the effects of, say, lower gasoline prices are generally subtle. Andy Average fills up the tank and notices that it's under $2 a gallon - cool. But he doesn't project forward the effects on his checking account for the next six months and then decide that now he can afford to buy that nice leather jacket. Instead, six months from now, a few hundred extra dollars have accumulated in the checking account, so he has to decide on the jacket, or paying down credit card debt.

A small business running a fleet of pickups doesn't see the lower prices as a game-changer or anything. Maybe budget for a few extra replacement tools.

But on the negative side, for the people no longer getting the $2.5T, it's a *crisis*. Debt restructuring, default or bankruptcy. Political instability - including the possibility of death - and civil unrest. Job losses, budget cuts, bonuses gone - major impact on individuals and families. Even Norway is having an oil-price crisis.

The negative consequences are immediate and vivid, while many of the positive consequences may go unnoticed for a while.



 The appearance of the stock ticker machine in 1867 removed the need for traders to be physically present on the floor of a stock exchange. Speculation underwent dramatic expansion, and with the connection of the internet boundless expansion occurred. Basically, speculation to me means higher risk investment that turns over rapidly. The coin is not in the air long. Another characteristic of speculation is that it's a judicious process of learning which makes it an intellectual competition. The market is like a gigantic chess tournament.

Traders then are a set type with traits, or they generally fail. They are usually competitive, individualistic, romantic, capable of bearing risk, athletic, of an addictive nature, scholarly, analytical, and good with numbers.

As a kid perhaps you recognized patterns in your stamp collection or on the baseball field, and sat alone in trees in independent thought analyzing them for the outcomes. You were passionate but rational, and one day went out on a limb to the idea of trading in the markets. Perhaps you had a mentor, or came up the harder way via books and trial and error which fosters patience. You were smart to start out small, and parlayed a stake into larger trades that afforded an augmentative income with dreams of diving full time into the market.

As a fish, to amphibian, to reptile in the market you've done what everyone else has – studied the books, surfed the websites, made some trades, attended a couple of seminars; and then one day it hits you like a ton of bricks - knowledge is power. The more knowledge the more power. However, infinite knowledge is limited by the time to learn it, so you map a plan to first study the central ideas to your trades, and expand from that nucleus outward. And you win.

As the information snowballs and interconnects a second paradigm arrives – I'm not thinking about a hunch or gut feeling. It's not about a trend or percentage game. You will predict the future by thinking. Think, think, think accurately. It gets to be a habit wherever you go. If you think fast you will be first.

One evening you look in the mirror and see a thinking guy or gal who has it all. There are facial creases of frowns and joy, but mostly the latter. That's when the third epitome shatters the glass – it's all about decisions. You keep right on making them even when you don't need to. You get into a what if thing, and start speculating about what you would do if some problem was yours instead of somebody else's.

Trading is a dual major in liberal arts and math. The former provides overview, but math is where you are measured and the ruler of your percentage success. The poetry of math, statistics, govern your choices.

The idea of going up against huge funds on an immense board finding ways to beat them is a real high. The rolls and swells at home become secondary to the lows and highs at the market. Little David vs. an illuminated Goliath and getting rich off the battle.

What you do next is decide to trade full time or not. The general guidance is to try anything new without burning bridges. As a full time trader, you're information is vast, thinking habit is hard, decisiveness is always near, and it doesn't matter how fast the market moves and changes, you're on top of it with a select few.

They are squeezed through the rollers of pressure. Ultimately you must have in your nature the trigger to pull under stress situations. The brighter they burn, the hotter you get.

There are many good analysts in the markets, but because of two Achilles heels few of them are able to translate their analytical prowess into profitable speculation: They must learn to walk away from a bad trade, and to avoid financial greed. There's nothing wrong with breaking Ft. Knox after Ft. Knox, but one day you will make substantial money to discover there are other challenges that speculation may support.

There is not time for romance and coffee now; this isn't a Louis L'Amour novel.

The summit of speculation is scantily populated by those who became high rollers from meager beginnings who play the market hard to win and learn rather than create surplus cash. The real thrill is working the game itself, like a kid on a perpetual peak experience. Turning the math into money, watching the bank grow without breaking character.

If you are original and creative but also a rational thinker, you may have what it takes to get on the road to speculation. Remember that experience counts for more in this profession than most, and paper trade at first, then graduate to trading with minimal funds, and scale up as your training, experience and resolve heighten like a professional athlete.

Success in speculation is a metaphor for achievement of self.



 This is very good writing starting with The Hateful 8. Economic theory with current events considered.

"Slavoj Žižek: The Cologne attacks were an obscene version of carnival"

Andy Aiken comments: 

"So what if we conceive of the Cologne incident…as a carnivalesque rebellion of the underdogs?"

To dismiss what happened in Cologne as a droll little Rabelaisian episode is forgetting that the middle class they deride keeps the lights on at the universities. The Euro and US left intellectuals will be surprised at how swiftly they find themselves on the losing end of a cultural counterrevolution, how adamantly the return of Volkish horrors defies their browbeating.

But they have created the preconditions for this. The social sciences have become as detached from the tradition of free inquiry as University of Freiberg was in the 1930s. They have thrown away the weapons that could have fought it.



 My friend's bearish posture toward Stocks stems from deflationary signs. Yes, they are pronounced. Wage growth has been non-existent. There is no pricing power anywhere. Currently you can't give away raw materials world-wide. Copper at $1.95, Brent led WTI to below $30, grains/fertilizer are cheap. Coal must be given away: just look at US's largest coal Peabody (BTU), down from $1100.00 in 2011 to below $4.00! Uranium is shunned: I notice UEC down from $7 in 2011 to .72 cents! World's largest miner FCX is $4.35 from $60+ in 2011. No wonder credit is being pulled from under most of Canada's enterprises, with Canadian currency depreciating 50% during the same time frame. Investors dread holding the bag over the weekend, as increasingly more corporate treasury shenanigans may need to be disclosed/announced.

Yet Chair reminds us that all of that is (eventually) Bullish, as the lower input prices should act to improve margins. But how do you re-ignite demand and revive pricing power? Surely not by interest rate hikes via the lift-off. So what policy actions can we anticipate nowadays, as Bullish weekend surprises?

anonymous replies: 

The usual quibbles:

FCX is not the "'world's largest (copper) miner"; SCCO is. Its price has fallen by half from its peak at the end of 2012 and by a third since its recent high in May of last year. Hardly wonderful performance but nothing extraordinary for the copper business. The decline in FCX is a comment on its woeful balance sheet. The company has a quick ratio of .6 and current ratio of 1.7; SCCO's numbers are 2.5 and 3.5.

Even two years ago, none of the public U.S. coal companies had a balance sheet that was anything but a joke, especially if you included the pension liabilities. Peabody was bankrupt 2 years ago; the stock market just didn't know it.

As Carder has patiently explained for over a year now, in the U.S. coal now suffers from having direct price competition from natural gas. Those of us who lost a third of the money we put into a coal mining equipment stock (JOY) last year bought the company because, unlike all the U.S. public coal companies, it had a decent balance sheet. It still does; and if we were not busy trying to lose more money in the refiners, we would be tempted to try for being a 3-time loser now that the private owners of coal reserves (the Lexington KY gang) have gotten some wonderful news.

For those who are looking for possible speculations, the Stowe Coal Index is the best source.

In carbon-based energy, demand is not the problem, even for coal; supply has been. The dramatic increases in output from new production techniques (fracking, continuous miners to name 2) have created a surplus. The question now is how much of a surplus. The EIA now says it will be a year before supply and demand in oil match each other.



I think the key to levered macro speculation is that the people who do it have to make public statements to move everyone else to their point of view. The goal they have is to make everyone have the same view of the world. Their weakness is that they have to express their opinion to others to make it viable before they make their big move that finally reverses the prices.

When you get the infrequent statement from a flexion, that is time to switch from short term patterns to wave trading. The flexions don't boast and brag all the time and tell you what they are doing. They wait until they can pounce to tell of their positioning.

They go silent once the market starts going their way and let the other folks do the work. Once you get into a reflexive pattern like oil prices where they have to pump more to get the same amount of money as the price falls, the pattern trader is taking too much risk even if he wins on the buy side.



 While the world was mesmerized with China currency "manipulation", and played hot potato with equities worldwide - the Japanese retail and institutional investors decided over the weekend that they've had it enough with chasing South African yields. The result was a 10% gap opening that produced a new all-time low in that country's currency. Of course, the opening was overdone, and the extreme quotes were way too wide to deal any substantial size. Yet, the signal went out - even if it was little noticed.

So the South Africa Reserve Bank will have to deal with run on their currency. Indeed, no Central Bank will allow overly rapid devaluation - so they'll have to be buying Rand in the open market, daily. With what? Obviously, they can't spend their meager reserves of US Dollars doing that - and they'll have to auction off or pledge some of their Gold reserves (I believe they hold Platinum bricks as well).

Now, when I pointed that out at last night's CME open, Gold was still up much bigger than Silver - on pure speculation. Speculation based on standard notion that Gold would be more valuable than Silver "during Stock Market uncertainty". That's pure speculation. The dynamics I point out about the South African Central Bank is less of a speculation - they are rather the actual procedural transactions in these kinds of circumstances. Thus buying Silver futures against a sale of Gold futures was a smart thing to do right from the Sunday night open. And that's as close to easy money as one can come!

anonymous writes: 

Just read the South African Reserve Bank's annual report and appendix: "Management of gold and foreign exchange reserves." They don't have any platinum. Their forex reserves have increased to over $60 Billion (according to this document). So they've got plenty of ammunition to intervene if they want to.

Markets will do what they want to do. However, if the gold and silver markets are behaving based on Anatoly's theory, the mkts are wrong on the facts.

John Floyd writes:

My African Grey parrot has learned to whistle the beginning of the Rocky theme song. I would frame the opening two rounds between anonymous and Anatoly more broadly by considering the following.

1. To what extent does the move in the South African Rand last night portend for future pockets of illiquidity, for example the stock flash crash, the fixed income flash rally, the Chinese currency devaluation, etc. ? How might that be best handling offensively and defensively?
2. Why has the decline in oil and gasoline prices not transpired to a more robust pickup in consumer spending?
3. Why are corporates generally more willing to buy back stock than increase capital spending?
4. Is it an issue that according to the BIS emerging market debt has risen from $15 trillion in 2010 to $25 trillion today?
5. What happens to domestic risks when foreign currency denominated debt has increased from $1.5 trillion to $5 trillion?
6. What happens to inflation when emerging market currencies plunge and how do central banks respond in an already weak domestic economy?
7. If the Fed was concerned about global risks in September how might this change their behavior?
8. In 2008 troubles in the US$10 trillion mortgage market had broad implications, are there parallels today?
9. What might occur to cause present market themes and trends to reverse?

That is enough for 9 rounds and hopefully we can all make a victory run up the Philadelphia Museum of Art steps and perhaps make enough to buy van Gogh's Sunflowers inside.

anonymous comments: 

We all must acknowledge that the stock market (and subsequently bond markets) seem connected at the hip with the crude price right now. Does this make sense? I don't know. But it is what it is.

This oil discussion got me to finally run some quick numbers. I'm sure similar numbers have been in the press, but I like to look things up for myself.

In my cheap-seat view of the world from my gopher hole, I've been thinking about how there are certain crucial parts of the global equilibrium that have gone through important changes, and that part the current volatility is a process of finding the new equilibrium.

The various QEx/on-off moves are part of this. And also China, in that they are (slowly [probably]) moving away from the mercantilist import/currency/capital control system, which created the macro-financial jet stream effect where we bought their stuff, and they sent the dollars back to their Fed account, to the tune of a few hundred billion a year, while they paid off their exporters with new yuan and thus created a global inflation sink.

But the biggest, quickest change has been oil. Some nice rounded numbers, referring to the change in $/bbl from June 2014 to present:

global avg daily consumtion: 90M bbl price change: -$77/bbl loss of revs to oil producers: $6.93B/day annualized loss: $2.53T

A big chunk of that money flows into Saudi (about 1/9 of global oil revs), and they have some kind of pattern of spending and investment. Used to be the Saudis spent a big piece of it on gold. Probably not so much now.

They are like one of those deep-sea hot-water vents where the life grows around it. There has been an equilibrium for a long time with that money flowing into oil producers and providing the hot water for those vents. In a very short time, ~$2.5B of flow has shifted away from that system, not to mention all the downstream segments like the integrateds, mids, E&Ps, etc.

I remember when big numbers had an M. Then we moved to B. Now to be big, a number has to have a T. I figure a $2.5T change in the global equilibrium is going to take a while to digest, not to mention the unrealized political consequences in the Middle East and elsewhere.

Again, without being overly precise, subtract US oil exports from imports, and you wind up with 9.2M bbl/day, which translates to a little over $700M/day in payments, which annualizes to $260B. Which, all other things being equal, should be less downward pressure on the USD.

Cui bono? The American consumer, of course. Again, June 2014 to present:

avg gas price/gal:
June 2014: $3.766
Dec 2015: $2.144
Change: $1.622
US est daily gas consumption: 375M gal
Daily savings: $608M
Annualized:  $222B

That's our piece of the action, and it has to be really good for somebody.

I can't think of a clever summary, so there it is.



There is much talk of bearish forecasts and bearish things. I don't buy it. I just believe it's an even better time to garner that 40,000 fold a century return. Quantifying it, the greater it's down over the last relevant 4 day, the more bullish it is. And guess what, almost most bullish of all is down 10% from a hi. I note Israel was relatively strong only down 0.2 % on Monday there as well.

Gary Rogan writes: 

I don't claim any consistent ability to predict the next few months. I didn't think the late September to early November snap-back in the stock markets would happen. One can still have an opinion. Victor is pretty much optimistic no matter what. For sure in terms of not unduly exiting one's long-term positions on some hunch that's valuable because of the drift. I was actually quite optimistic in March of '09 after a huge fall, but (possibly mistakenly) only for high-quality consumer non-durable stocks. Until about a year and a half ago I had no particular opinion as it was something in between, and then turned pessimistic. Of course the longer the market stays down and especially goes down the larger the expected returns at that point will be. As I'm mostly in the market as always and only have slightly larger reserves than average to deploy if and when good cheap stocks shows, my only downside is that they never do. If so, so be it. The real question is the effect of low interest rates on how expensive stocks can or "should" get vs. historical stock ratios with respect to their various internal parameters and the tendency of the latter not to grow to the sky. As there is a lack of precedent for how the Fed has behaved in the last almost decade and how all of this will play out at the end of secular interest rate declines and happy days in commodities, there could be a difference of opinions.



 Silicon Valley-centric but a very quick read: "The State Of The Startup: Fundraising Market In 2016"


- $42B invested in start-ups in 2015
- 34% in seed or series A.
- Substantial shift to consumer investments

Concluding paragraph:

"The late stage market may witness a different phenomenon. More than 40% of the dollars invested in Series B and later rounds originating from corporate venture capital, mutual funds, hedge funds and family offices. This money isn't committed to startup investing. Investment strategies for these types of investors can change quickly. If suddenly all that capital were to disappear and everything else were to remain the same, about $10B would leave the startup ecosystem - a drop of 25%. That would surely be felt across Startupland."

Author is a VC at Redpoint.

It feels a lot like dot-bomb in these here parts…

All the best, Stefanie Harvey



 A popular TV journalist from NZ sent me a link to this story with the comment that it explains lots of things and that I must read it: "The Gujarati Way"

Interest has been expressed in the Rothschilds and their business secrets among this group. This story on the secrets of the Gujaratis should be intersting to you as well.

Stefan Jovanovich writes: 

If you substitute the word "Lutheran" for Gujaratis, you could tell the same story about their "secret" success in becoming the largest grain farmers of North and South America. It would not actually tell you anything, but it would be an equally plausible fiction and yet another iteration of the Carlisle/Emerson/Roosevelt (TR)/Rhodes fantasy about commercially favored strands of ethnic DNA.

The Rothschilds had no "secrets"; they had connections and the advantage of being permanent outsiders. Since they were Jews, they could be trusted by the Royal Houses of Europe precisely because they had no chance of becoming politically-influential in their own right. They could be trusted to hedge every position. Their influence declined precisely when the Germans and French and British all decided that the answers to questions finance were political and the rewards of empire would pay for all the military peculation.



Can you please outline the color coding rationale for the daily performance chart. I am confused on why some down days are red and the others are yellow..etc - A Reader

We track daily movements in U.S. stocks and bonds (specifically S&P Index futures and Long Bond futures).

The colors are based on the performance of both markets:

Red days: both stocks and bonds down.

Green days: both stocks and bonds up.

Yellow: stocks up, bonds down.

Blue (technically azure): stocks down, bonds up. 

The bond futures movements are expressed in points and thirty-seconds of a point. For example 1.25 actually means 1' 25" i.e. 1+25/32. The S&P futures changes are in points.The abbreviation USB stands for US Bonds (the actual futures symbol is US on Bloomberg, ZB on some other systems).

(Original post dated June 25, 2011. Edited January 14, 2016)



 If you want to see individualism at its best go watch mountain man Hugh Glass on a fur trading expedition in the 1820s battle a grizzly, scalped by Indians, swim frozen rivers, fall off a steep cliff onto a tall pine, gunshot, stabbed, and on to the campfire warmth of his own hunting team.

The story is inspired by a real life, though likely enlarged as the frontiersmen biographies I've read. However the acting is decent, especially by the animals, and the photography is exquisite.

It's hard to sit still during the movie and not head for an exit out to the wilds.



 If you were the Government of China, what would you do to stabilize the Yuan and stock market?

Best answer gets dinner on me at Spec annual rendezvous.

Dylan Distasio comments: 

Somewhat tongue in cheek…

1.Eliminate all restrictions on position size for stocks/futures
2. Eliminate all restrictions on foreign ownership of A shares
3. Let the currency float with no intervention
4. Let creative destruction run its course
5. ???
6. Profit



Why chart reading is confusing: "When a Circle is a Straight Line"



The first five days in January were down more than 5% for for SPY. From 1994-2015, here are the returns for the 1st 5d, and the subsequent 5d, 10d, and 30d periods (starting from end of 5th trading day for each year, T test vs zero). First set is subsequent returns for all years–both up and down first %d:

One-Sample T: 1st 5d, nxt 5d, nxt 10d, nxt 30d

Test of mu = 0 vs not = 0

Variable   N       Mean     StDev   SE Mean               95% CI                    T
1st 5d     22   0.007451  0.020490  0.004368  (-0.001634, 0.016536)   1.71
nxt 5d     22  -0.001853  0.022606  0.004820  (-0.011876, 0.008170)  -0.38
nxt 10d   22  -0.005438  0.032450  0.006918  (-0.019826, 0.008949)  -0.79
nxt 30d   22  -0.001758  0.060676  0.012936  (-0.028660, 0.025145)  -0.14

>>slightly down, NS

Next are the subsequent returns when the first 5d of the year were up:

One-Sample T: 1st 5d+, nxt 5d+, nxt 10d+, nxt 30d+

Test of mu = 0 vs not = 0

Variable   N       Mean     StDev   SE Mean                95% CI                    T
1st 5d+    15   0.018284  0.011132  0.002874  ( 0.012119, 0.024449)   6.36
nxt 5d+    15  -0.005035  0.026227  0.006772  (-0.019560, 0.009489)  -0.74
nxt 10d+  15  -0.006290  0.034643  0.008945  (-0.025475, 0.012895)  -0.70
nxt 30d+  15  -0.001706  0.065904  0.017016  (-0.038202, 0.034791)  -0.10

>>also down, NS

Subsequent returns when 1st 5d were down:

One-Sample T: 1st 5d-, nxt 5d-, nxt 10d-, nxt 30d-

Test of mu = 0 vs not = 0

Variable  N       Mean     StDev   SE Mean               95% CI                    T
1st 5d-    7  -0.015763  0.016067  0.006073  (-0.030623, -0.000904)  -2.60
nxt 5d-    7   0.004965  0.010197  0.003854  (-0.004465,  0.014396)   1.29
nxt 10d-  7  -0.003613  0.029654  0.011208  (-0.031038,  0.023812)  -0.32
nxt 30d-  7  -0.001870  0.052451  0.019825  (-0.050379,  0.046640)  -0.09

>>Mixed, with next 5d averaging +0.5% (albeit NS) and 10 and 30d down



 Lord of the Flies takes place on an otherwise uninhabited island among a group of boys who try to govern themselves. Some of the marooned characters are ordinary students, others of a musical choir, and the main castaways. Ralph quickly becomes the leader, not by physical force, but by being elected as having genuine qualities of leadership. Piggy is overweight with asthma and poor eyesight. He is the most physically vulnerable albeit the most intelligent of all the boys. Jack epitomizes the worst aspects of human nature when not under the thumb of society. Roger emerges as the sadist who kicks sand in the little guys' eyes. He will kill Piggy with a boulder that was not aimed to miss. And Simon represents peace and tranquility and positivity, often wandering off in a dreamy state by himself. When the Conch is blown, it calls the children to an assembly, where they agree that only the boy holding the Conch may speak at the meetings to forestall arguments and chaos, and is passed around to those who wish to speak their piece.

Slab City is a one square mile toenail of stark Sonoran desert on the edge of the New River that carries waste from Mexico to irrigate the surrounding crops of Imperial Valley, CA. As a World War II training center, Slabs has no jurisdiction, laced with spiderwebs of buckled concrete, and dead ends, where everyone looks you in the eye. Some of the main characters are the Alpha, a former banker and Special Forces, Ellie the Dog Lady who is the earth mother among the 200 residents, Buzz the caretaker of Salvation Mt., my old acquaintance the Mayor who acts as the hanging judge, BamBam the drug dealer, Sarah who plants flowers and kisses on everyone's faces, Builder Bob who runs the Music Range, and I'm tagged as the veterinary spiritualist. Mostly it's a ragtag collection of overintelligent rebellious kids. Everything is a joke to them. They exist entirely in the present, without responsibilities, conscience, or consequence. Each Saturday the Music Range blares free rock and roll with ten live bands that is also a call to stage of anyone who wishes to express his opinion in a rap or short speech.

The Beast in both the novel and Slabs represents the latent savagery lurking within all human beings. I think this is a product of evolution, nothing to be ashamed of, but simply a recapitulation of our remote ancestors. It stances on the controversial subjects of human nature, and individual welfare versus the common good. The theme in both places is a collection of young humans in conflict with the impulses toward civilization – living in harmony by rules – and toward the will to power. You must read the book or visit the Slabs to discover which way the balance teeters.

Lord of the Flies in my childhood set a mainsail in world travel to visit Utopias. I characterize Slab City as the last free place on earth (the others are uninhabited) where good and evil collide. But the study is exhausted.

I'm alone, 24 hours from Utopia, wherever that is.



 One can hardly deny that making money runs the world today. There are the specialists in making easy money. These are broadly characterized as speculators and gamblers.
Speculation and gambling have several differences.
Speculation involves increasing one’s chances to profit by various means such as news study, pondering, technical analysis, margin trading, hedging, options, and some have used psychics all with the aim of gaming profit from short or medium term market value fluctuations.
Gambling is wagering by means of an uncertain event with the aim of gaining additional assets. It requires consideration, chance, and a prize. The striking feature is that a small fee or amount is required with a chancy large return within a short time.
Bringing Down the House is the true story of how six MIT students turned gambling into speculation to fleece Las Vegas for millions. The best and brightest students are recruited by an eccentric former teacher with teeth like a picket fence of spades, diamonds, clubs and hearts to practice in a college backroom as the MIT Blackjack Team before invading the strip.
The nice thing about the book is that the secrets of card counting, shuffle study, ace cutting, hi-low counting, group spotters, third base coaches, card count code words, statistic indexes, and other tips the students used and the casinos don’t want you to know are revealed. Of course, one wonders the secret they did not reveal to win.
MIT proved blackjack is beatable and Ben Mezrich tells it with a suitable degree of suspense.  
Speculation and gambling are similar in the manner in which they can acquire profit in a short time. Both methods involve risk but a speculator may learn more skills than a gambler’s plain luck to lower his risk. One may invest his hard earned money in intelligence such as Bringing Down the House.



 Common thoughts among the masses:

Invest in bricks and mortar, you will never lose your money. Invest in banks, whenever a bank has collapsed? Buy oil. It can only continue to rise in price, considering the peak oil, etc…

Ralph Vince writes: 


Yes I did, starting in the summer of 08…buying and buying and buying and hotel room trauma in zero degree NR US city pacing at 4 am to meet margin call by 10…

My last position, Corus Bancshares, I saw print a 56 cents from a hot dog stand TV in Sarasota in the Winter of 09, and I knew my 55 cent limit was filled, my last position, exited with a profit — about enough to pay for my lunch that day after all of that!

I learned the hard way — banks aren't brick and mortar– they are bags of air, just as industrial companies are a web page with a picture of their parking lot on it, and some CNC drawings that are being used to make the product in Indonesian machine shops.



 These are hard times for those of us who live in a Rogers Hornsby world. When asked what he did after the baseball season, Hornsby replied, "Look out the window and wait until spring". Note: he said spring, not spring training. It is only baseball when the games count. So, one is left with the short-timer calendar and idle thoughts.

The idle thought for today is this: the fundamental correlation with stock prices is not "the economy" or even expectations about "the economy". What moves quotes is the supply of free and easy money. Leverage, through central bank and government guarantee lending, offers easy money; but the stuff that is both free and easy is never borrowed. It is the cash flow from businesses, colonies, possessions, conquests that have wonderful margins between what they cost and what they earn. The great bubbles of the early years of stock trading all came from one source: the discovery of a new territory that would duplicate the wealth that the Spanish had enjoyed for nearly two centuries from their ownership of the mines of the New World. "Mississippi" and the "South Sea" were going to produce the same fabulous returns. (Secondary idle thought: bubbles are created when pricing reacts not to the flows of free and easy money but to mattress money - the stuff people have been saving - that is tired of its meager returns.)

Since 1973 the free and easy money of the world has come from one source: the Middle Eastern oil fields. For the third of a century after the embargo that quadrupled the "normal" price of oil, the spread between what it cost to produce the black gold and what it reliably sold for was never less than 20 times the profit margins of everyone else's business. The collapse in prices in 2008-2009 was the first time that the sovereign wealth funds of the oil-exporting countries had had to examine the question of what to sell rather than what to buy. The current episode is a repeat, with the added pressure of the end of the Iranian embargo.

Is there any free and easy money left? The answer may be "yes, but not from energy but from American business itself". The Byron Wiens of this world have no idea of what regulation and taxation do to "average" profit margins. How could they? They live in a city where space itself is rationed by the government. If Mr. Wien's prediction about the Queen of the Night's election proves false, we may have one of those infrequent "ah-hah" moments in American political history when a significant number of the regulators are sent packing. Grant's election in 1868 was one; the Schlesingeristas in academia are still trying to square the circle of how the last third of the 19th century saw the country's greatest ever explosion of wealth, immigration and technology during a period of what they called "ruinous deflation". Harding and Coolidge's election in 1920 was another. 2016 might be yet another. After all, it is another even year. Go Giants!

Vince Fulco writes: 

Every seven years, roughly, since 1973/4 at least, we have seen spots of liquidity vacuums, and as I have made mention on here before, it's the liquidity vacuums that re the thing to fear, not the proverbial "bear markets" (though they can coincide, see 80/81). Yes, 94 wasn't much of anything, but the recent action (go look at the opening on big, broad stocks on August 24, 2015) and it all fits the cyclical pattern of 7 year liquidity messes (and translates out into the future years of troubling asteroid flyby's coming up).

Is the liquidity vacuum that began in August over? Or do we have another wave coming? Either way, every single one of these situations we have seen, the market has moved on to higher highs in very short order, and I can;t find any compelling reason for that not to be the case here.



 During the French Revolution, especially 1891-1897, the comedie francaise was restricted to performing shows that had no good things about royalty, and showed the peasants and bourgeoisie doing heroic things to slaughter the nobility.

There was censorship and often imprisonment for the whole cast if they showed the lower classes in a bad light. This is according to Durant's "The Age of Napoleon" who documents many examples of this.

It's very much like the current kind of shows we are attuned to now, where the only ones that can manage to hope to score favorable reviews is if they show business in a very bad light and are otherwise consistent with the idea that has the world in its grip.



 Starring Mickey Rourke, Sarah Silverman and a few mid - low level Hollywood types.

Asbhy is another coming of age story about a young man (Ed) having to make it in a world that he seems ill equipped for.

After his narcissistic parents get divorced in Oregon, his mother (played by Sarah Silverman) moves her son Ed (the 17 year old suffering from teen angst) to Virginia where his the new guy at school.

Ed is a nerd, but also as it turns out, is a jock.

He quickly becomes an outcast at his school. Meets a girl at school who is a little weird (she has an MRI machine in her basement) and they develop an angst ridden uncomfortable relationship that is has become 100% predictable in today's formulaic "coming of age teen angst movies".

Of course, not surprisingly, Ed has a neighbor (Mickey Rourke) named Ashby who is dying of a brain "something" (we never know what is wrong with his brain) and only has a few months to live. He tells Ed that he is a napkin salesmen, but it turns out that he is really a CIA assassin who has killed 95 targets (people).

Ed knows nothing of Ashby being terminally ill till later of course when the formulaic timeline says it should be revealed….thank goodness the (sorta) girlfriend has an MRI machine in her basement to confirm the assassin Ashby's story.

Ed and Ashby have a few adventures mostly involving (insert formulaic adventures in here) wherein Ashby reveals life's truths to Ed, one of which is that Ed is coward.

Ed denies that he is a coward even though he won't catch passes from the team QB that require him to take a hit (oh yeah…..remember it turns out that he is a jock too and the fastest guy on the team). That is another part of this disjointed story that is increases the "boring and stupid" factor even more.

Does this sound exciting so far? No, you say. Well there's a reason for that. It's because the movie was HORRENDOUS.

Here's a few tidbits that I'll mention. Please note that this is presented in a disjointed manner (like this entire movie review) for a reason….the entire movie, the entire plot line, the character development the story development is just a bunch of random clips put together by a director/editor who may well have been never seen an actual movie before.

Anyway…here you go…a few tidbits from the "plot":

Ashby finds out that the last person he assassinated was ordered to be killed so that his "bosses/compatriots" could make a bunch of money. Asbhy does not like this because he thought that all his kills were justified (remember he's a CIA assassin) because they were enemies of the US. Of course, this sends Ashby on the warpath to kill his former "compatriots" in the most boring and ridiculous manner possible.

Since there is something wrong the Ashby's brain (he's dying of….something), he has Ed drive him around to his "compatriots" houses so he can kill them. Of course, Ed doesn't realize this until the formulaic plot timeline dictates it's time for Ed to know.

And just as one would expect, Ed finds out and reacts in the most ridiculous manner possible that defies all logic and reason.

Ashby teaches Ed to fight when he finds out that Ed doesn't stand up for his "sorta" girlfriend.

When Ed scores the winning touchdown, he is carried off the field and one of the slutty bimbo blondes has sex with him. His "sorta" girlfriend pretends to be upset by this (maybe she was…but the acting was bad, so it's hard to tell the difference). Ashby teaches that Ed that he shouldn't just apologize, but make amends (whatever that means).

The "sorta" girlfriend takes him back when Ed sweeps her off her feet with a "teen angst formulaic speech that no teenager in history has ever delivered."

If all that (and other things I won't bore you with) aren't enough, the movie co-starred Sarah Silverman as Ed's mom.

Silverman played the role she was born to play: A vulgar slut who has no self respect or sense of decorum when it comes to sexual exploits in the presence of her son.

Even though Ed is upset by his mother's slut-hood, he still loves her and is far wiser than she (and let's face it, according to Hollywood, what child isn't smarter and wiser than their parents).

In modern Hollywood, all parents are morons…

Well….Except for Ashby (remember, he is the very forgettable and unlikable "anti-hero" of the story), as he is a wise, but flawed man, just trying to undo all the bad he's done (he was an assassin for the CIA and only killed the bad guys) so that he can go to heaven and be with his daughter (who he wasn't there for when she overdoses on pills because she was a troubled teen girl who needed her absent father to be there for her) and his wife who died a few years later (we never learn how or why she died).

Well, good 'ole Ashby kills two of the three compatriots who had him kill the innocent guy for money. When Ed finds out that he's been acting as the getaway driver for Ashby's assassinations, Ed makes Ashby promise not to kill the 3rd compatriots. Asbhy agrees not to kill the third compatriot (and actually keeps his word.)

I won't say what this results in, but you don't have to be rocket surgeon to figure it out (remember, Ashby now has less than a couple of weeks to live anyway), but let's just say that they (the producers/writers/directors) try to make it a beautiful scenic experience in an outdoor setting to which Ashby willingly goes with the assassins sent by the third compatriot (who Asbhy spared) to kill Ashby…..oh heck, now look what I've done. I've spoiled the plot.

Oh well, it doesn't matter. The movie is so bad that you'd have to have (something) wrong with your brain to go see this movie.

Oh yeah, one last thing, did I mention that Sarah Silverman's character is an unlikable, vile, vulgar, slut who should be ridiculed and ostracized by the entire female community (and any self respecting men as well).

Do NOT under any circumstances go see this movie. It has not a single redeeming quality and not one moment that is believable or even slightly entertaining.

It is vulgar and vile and Hollywood should be ashamed of itself for green-lighting a movie this awful.

No actor, Mickey Rourke included, did their careers any good by appearing in this claptrap.

Stay Away!



 On January 27, shareholders of Royal Dutch Shell will vote on the company's plan to buy BG Group PLC (the upstream remnant of Margret Thatcher's privatized British Gas).

If you are a merger arbitrageur, you are praying that the RDS shareholders will shoot themselves and vote yes, as the deal spread is very wide.

If you are a shareholder in RDS and have carefully studied the assets, forward prices, and assumptions, you have concluded that this deal is likely to be remembered among the largest destructions of shareholder value in the history of the world. I reached this conclusion several weeks ago. Today, Standard Life, RDS' 11th largest shareholder concluded the same thing and said they will vote "no."

Perhaps if you are the analyst at Institutional Shareholder Services (ISS) who recommended that shareholders vote in favor of the deal, you might be assured of a future job at Goldman Sachs, JP Morgan or Rothschilds after the deal closes — as the investment banking success fees will likely be extraordinary.

But — where are the activists? They can easily and rightly point out that there are numerous other assets around the world that RDS can buy at much better prices ; with a better risk/reward…


Are we witnessing the downside of billions of dollars of passive index money blindly following the ISS pied piper over a cliff?

Carder Dimitroff writes: 

This deal is complicated. Most shareholders lack enough information to form an opinion. While I'm on record as being concerned about the liquefied natural gas industry as an investment, I have no opinion on this deal.

This deal is about BG and RDS's natural gas portfolios and forward values of any combination. To know future values requires a full understanding of their book of contracts, their hedges and their speculative accounts. It also requires the analyst to be certain about future market conditions.

Here's what I know:

1) By definition, liquefied natural gas is an international commodity. There are few to zero domestic markets for this commodity.

2) RDS will likely become the <production> cost leader in Western Pacific's liquefied natural gas markets.

3) BG could become a cost leader in the Atlantic liquefied natural gas markets. BG bought 20 years of supply in the US market and must sell in another market. Those markets are not correlated. It's likely BG's 20-year purchase agreement is unhedged. Nevertheless, the deal currently has a substantial gross margin. If oil prices increase, their margins will likely increase.

4) Combining portfolios can sometimes offer surprising results (good or bad). Combining Pacific and Atlantic portfolios could create substantial value. It also could create interesting hedging opportunities, which in turn create value. Without understanding details of RDS's portfolio strategies, it would be difficult for most shareholders to correctly value the combined portfolio.

5) Liquefied natural gas can be used as a substitute for coal. Under current market and political conditions, natural gas is currently an economic alternative to coal.

6) Finally, there is a speculative element to liquefied natural gas industry. Consider the pressure to reduce coal consumption. Also, consider desperate gas markets. If Europe and Asian markets can replicate UK and US markets, indexing natural gas to oil prices could be defeated. If defeated, international natural gas markets could open up with RDS as the clear leader.

Apparently, people looked at portfolio details and they have concluded the BG-RDS merger is a good deal. Other experts looked at the same data and concluded the merger is a bad deal. I don't know. 



 This link was sent by hobo without comment.

Andrew Goodwin writes: 

They make nest hammocks out of leaves and vines at the top of trees to sleep in the wild at night. They have some thatching skills from binding these into bedding. Not surprising that it would climb to the top of the cage to make the hammock. It would have to speak like Charlton Heston to get a rise out of me. 

Gibbons Burke comments: 

I find it interesting he or she can tie an overhand knot—I wonder if that technology was taught by a human or another creature or whether he discovered it on his own?

Also note that the animal is a scientist: After tying up the hammock he undertakes an experiment to falsify the hypothesis that the knots will hold his weight and sleep-repositions for an extended period by subjecting the hammock, once tied, to surges of force greater than that exerted by its own resting mass, and a series of rapid transitions of position and configuration. He takes pains during his experiment to keep at least "one hand for the ship" in case the hypothesis is successfully falsified and the hammock fails.

The first configuration fails (not catastrophically, but it is determined to be unsuitable). The nearer knot is untied, repositioned, and carefully retied, with some additional complications added to the simple overhand knot using tassels from the cloth. Then, once the new configuration is secure, a new round of experiment begins, and seemly succeeds in failing to falsify the hypothesis.



I've seen them all on the silver screen from Lone Ranger through Unforgiven and the best movie to my eyes is The Hateful Eight (in theaters now). Eight strangers seek refuge from a blizzard in a stagecoach stopover sometime after the civil war, and the mystery winds from there.



 I noticed at the drug store today a modern devices like a wrist watch that reads your blood pressure, heart rate, and oxygen use. Some years ago Dr. Brett Steenbarger, a trading psychologist, talked about monitoring your vitals as you trade for beginner traders trying to get a hold of the excitement which might detract from decision making. Seems like these might be helpful for a beginner trader getting used to the stress of trading and practicing relaxing a bit under uncertainty.

Brett Steenbarger comments: 

Yes, and the Fitbit devices can also be effective in helping people become much more data driven in their workouts.



 A Korean restaurant opened a few months ago in southern California that is otherwise smothered by Mexican eateries. The food is excellent, the staff on task, and the owner pleasant. I decided to give them a tip.

I'd observed in other communities around the USA that about fifty percent of the income is lunch delivery to local businesses that were repeat orders. And yet, this Korean place only sent to about six establishments. I offered the owner this, hoping down the line to be tossed a bone.

Step One is to pamphlet your menu to the fifty or so businesses with three or more workers within a five mile radius. Step Two is to assign your delivery guys to follow the other food vendors–Domino's, Quiznos, Dunkin Donuts, Chinese, etc.– from 11am to 1pm daily, noting the addressees. Then, return the next day and pamphlet them, with free delivery on orders of $20 or more. You'll double your business overnight! I predicted.

Today, after two weeks, I stopped by the Korean restaurant for an update, and was greeted by the owner with a great smile, and the best meal on the house.



The Chinese stock market is a reasonable barometer of the worldwide demand for manufactured goods and commodities used in their manufacture, as well as the state of the world's second largest economy. As such it has some predictive properties. To claim it's not important because few people participate in it just sounds idiotic.

I keep saying that good stocks in aggregate are too expensive in the US and that "onwards and upwards" isn't the most likely direction, but there isn't much resonance for this type of thinking that I can find. Also today a whole bunch of hotel stocks made new 52 week lows (a relatively new phenomenon) and so did Sotheby's, again. I'm not too optimistic.



 The Revenant has been seen and is the most boring 3 hours one has ever spent in a movie, as I didn't leave early this time as had to escort some daughters home. No survival skills or tension whatsoever, and much pc stuff concerning the evilness of business, and the virtues of the men of paint.

anonymous writes: 

I agree with Victor on this.

I was looking forward to seeing the movie and was quite disappointed.

The action scenes are good, but they were too few and far in between.

In my youth, I felt that I was born in the wrong century. I should have been born in the time of Lewis and Clark and been an explorer. After researching it more thoroughly, I came to the conclusion that it would have been very uncomfortable to have lived in that era (I like my two showers a day). And I don't know how far I would have gotten back in that day due to some relatively easy to fix health problems that I've had that were not easy to fix back then.

The stress on the body of living out in the wilderness (as portrayed by the movie) makes me wonder how any of those people survived back then. Maybe they were just the toughest of our lot.

The scenes of intense cold that involved DiCaprio's character getting into the water, staying in the water for extended periods of time and then getting out of the water with all his clothes completely wet were hard to accept. Especially considering that he had recently been mauled by a grizzly bear.

I guess the drive for revenge can be a strong motivating factor.

The cinematography in The Revenant is the best part of the flick. Otherwise, it was a disappointment.

Stefan Jovanovich comments: 

Hugh Glass was not the only one of these tough frontiersmen. In a bit earlier age you have the likes of Simon Kenton, who survived at tomahawk blow into his skull and before that had a journey through the wilderness naked and without weapons after he barely escaped an Indian attack while sleeping. After that he always slept with a loaded rifle next to him. (See The Frontiersmen by Allan Eckert.)



 Most of us were gently pushed from the nest into the 'real world' via college or a job. That's soft release. The people I've been running into lately in southern California were hard released and hold PhD's in the 'hard knocks of life'.

Soft vs. hard release is taken from animal world where it's an exhaustive, ongoing study. We may take some lessons from there.

Hard release describes letting go into the wild without further support or feeding. It's often employed when an animal came into care as an independent juvenile or adult returning into its home territory. It's also necessary when a captive-raised young animal requires a particular habitat. The crux for this technique seems to be is the animal completely able to function independently after hard release.

Soft release is a means of gradually accustoming wild animals to a new environment before releasing them. It may entail providing food after the release, or into a group or flock, or release inside a cage.

From kangaroos to falcons to Born Free's orphaned lion cub Elsa, release strategy also enters the business world. Business people use the terms 'soft launch' and 'hard launch' to describe two marketing methods when bringing a product to the public. Soft launch is subtle, while the other is brazen. The technique a businessman chooses depends on things such as how much money you want to spend, the condition of your product, and the amount of attention you want to attract. You may want to try soft, hard, soft, hard… with a family of products.

That brings us back to our species of animals called humans. If I had kids instead of a vasectomy I'd choose soft release, and then make sure the door was shut except for Christmas and holidays. In other parts of the world, especially third world countries, the children often are never released but stay on as a unit family until death do them part.

You may also give your offspring the choice of soft or hard by opening the door… If he is in excellent physical condition and can demonstrate the wiles to survive wherever he's bound, then maybe it's time to let him choose which way to go. I had soft release from a comfortable Idaho home, into a college veterinarian experimental program riddled by suicides, and it was all for the best. When I took off from vet school onto the boxcars and world travel, and returned home with exotic stories to the door my parents had opened, everyone was full of cheer.

We are so resilient that both soft and hard release work, yielding slightly different outcomes per the nature vs. nurture argument. With strong genes, a proper upbringing, and a good knowledge of environment, you may release your kids anywhere, and enjoy the result.



A nice technical statistical study of the inverted bathtub distribution for life expectancy data increasing hazard rate up to say 5 years, then decreasing is contained in this article. It would be interesting to fit the yearly % changes to such inverted bathtub type exponential distributions.



The cursory look shows an inverted bathtub type of distribution with the 5 changes in one year within 3% showing strong increases in each case the next year averaging 15%.



It is interesting to consider the moves in the S&P after down years. I find 14 years out of the last 60 that were down with an average rise the next year of 9% as follows:

   year of decline   move next year
        1957                    35
        1960                    23
        1962                    20
        1966                    22
        1969                      0
        1970                   -10

        1973                   -30

        1975                    25

        1977                      1
        1981                    15
        1990                    25
        2000                   -20

        2001                   -14

        2002                    20

        2008                    20

average                      +8%

I like to do all % calculations in head so some errors will creep in.



 "Knicks Spoil Their Own Comeback With an Implosion in the 4th Quarter"

Two things. The score was just like the S&P on Friday. A big decline at opening. A catch up to even at noon. Then down 20 points in the last quarter. And fish seems like he has more excuses than D'Antoni. No wonder the players are losing confidence in him but most all, what kind of idiots allow their teammates to go out at 5 am to brothels on the days of matches. Most athletes know they can't play well unless totally rested and relaxed and full of their romantic ardor before a match. Imagine what Ted Williams and any baseball manager would say about these antics.


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