June - 2017
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
1
 S&P +18.50
 USB -0.09
2
 S&P +8.10
 USB +1.10
3
4
5
 S&P -3.20
 USB -0.16
6
 S&P -3.70
 USB +0.20
7
 S&P +1.10
 USB -0.15
8
 S&P +0.60
 USB -0.09
9
 S&P -1.75
 USB +0.01
10
11
12
 S&P -1.80
 USB -0.08
13
 S&P +11.60
 USB +0.02
14
 S&P -2.70
 USB +1.19
15
 S&P -3.20
 USB -0.05
16
 S&P -1.10
 USB +0.05
17
18
19
 S&P +16.50
 USB -0.06
20
 S&P -10.00
 USB +0.31
21
 S&P -3.90
 USB +0.03
22
 S&P -1.80
 USB -0.01
23
 S&P +3.10
 USB +0.05
24
25
26
 S&P +1.10
 USB +0.09
27
 S&P -15.40
 USB -1.07
28
29
30

Jun

27

 Batteries will become increasingly important actors in the future. This opinion is shared by many managers in the utility industry. As evidence, there are massive R&D public/private partnerships already underway, involving government laboratories, universities, and corporate participants. There are at least five separate centers of innovation in the United States, Europe, and China. Already, there have been interesting breakthrough technologies announced, including lithium ion II batteries.

For our conversations, I believe it might be important to have a common understanding of the term "battery." For me, a battery is an energy storage mechanism. In most cases, it's a chemical.

In my opinion, a fuel cell is not a battery any more than a car engine is a battery. A fuel cell does not store energy; it converts energy. The fuel tank stores energy.

If you chose to combine the fuel tank with the fuel cell and call the combination a battery, that's fine. Personally, given where we are today, I don't believe there are many opportunities for fuel cells in the transportation sector.

A problem with fuel cell economics is how proponents set up the question. They usually begin the argument with, "given I have hydrogen," fuels cells are amazing. I might agree; fuel cells can be amazing little power plants if sourcing hydrogen were not a substantial challenge.

Unfortunately, that's not reality. If fuel were free, oil-burning power plants could also be amazing.

Fuel Cell Electric Vehicle (FCEV) serves to make a point. What is an FCEV? It's an electric car with a fuel cell, and a hydrogen tank bolted on. Like a Tesla, an FCEV needs a motor and a bank of batteries. However, FCEV's battery capacity has to be reduced to accommodate added weight and space needed for the fuel tank, fuel management system, and the [hot] fuel cell. To make concerns more challenging, the fuel tank in an FCEV has to be larger than normal because compressed hydrogen is a relatively low-density fuel and it can be hazardous.

The first macro question that should surface is basic. Specifically, what is accomplished by toting around hydrogen?

I will save time. If there's something to be gained, it's not substantial. Compared to a combustion engine, a fuel cell is more energy efficient. It's more energy efficient.

However, hydrogen is not economically efficient. If the objective is to compete with electricity, I doubt hydrogen could ever be a cost competitor anytime soon.

In many ways, hydrogen and electricity are similar. One is about protons, and the other is about electrons. Both are secondary fuels. Both are manufactured from primary fuels. Most important, both require vast investments in infrastructure to be useful.

They differ economically. The electric infrastructure is already built. Electricity already has a comprehensive infrastructure in place. It was developed incrementally over several decades. It cost hundreds of billions of dollars to build and more to maintain.

The hydrogen infrastructure does not exist. As a redundant fuel, to compete with electricity economically, any hydrogen infrastructure would be scaled, vast and costly.

As Western utilities move towards natural gas as their primary source of fuel, electric cars store natural gas' energy in their batteries. FCEVs store the same energy in hydrogen tanks. Why not deploy natural gas vehicles (NGVs)? You'd save several energy conversions.

TL;DR:

Approximate energy densities MJ/L:

Coal:        34-43
Diesel:        36
Gasoline     34
Fat:             34
LNG:           22
Wood:         13
H2 (comp):    9

Jun

27

 The scenic Georgian mountain town Kazbegi is less than 10km to the Russian border. One afternoon we decided to bicycles there. After about 3km there was a tunnel of about 2km long. It's dark inside and we could see barely the light at the other end. As we entered, there were some cars with lights so we could see the way. But when the last car of the group passed us nearly 300m inside, it became pitch dark looking forward.

I tried to ride forward but felt something very strange. I had a hard time controlling the bike. For less than 20 seconds, I brake but then felt my hands and one knee on the ground and the bike lying down. I don't know why and how i fell but instinct told me to stand up quickly because vehicles can arrive very soon. So I did that and pulled the bike up and started walking back toward the light. My wife was ok as she stopped very early trying to call me. I was not much hurt except some scratch on the knee. I think i was very lucky.

But anyhow, the point I want to make is that I couldn't control the bike in the dark. It started fishtailing, if that is the right word, or swinging from side to side much like the front tire was flat. Now thinking about it, without sight my mind had to rely on other senses that are much slower than vision, so the control was out of sync.

Perhaps there is a lesson here for trading. The reason market swings up and down is that the market participants trade in the dark. They rely on senses that are much lagged behind. So even when the market fell, traders don't know why and how it fell.

So a better vision is indispensable.

Jun

27

According to the CDC, the U.S. population's growth rate is undergoing a dramatic decline.

The teenage birth rate - which, in the past, has been the leading indicator for overall population change - has fallen in half.

In 2007 births per 1000 females aged 15-19 in 2007 were 41.5; for 2015 the number was 22.3.

Jun

27

 You will be discriminated against in Slab City or any other outlaw town if you are:

•    Educated

•    Don't drink alcohol or do drugs

•    Display no broken teeth or knife wounds

•    Have no tattoos

•    Never been in jail

•    Have no one to vouch for you

•    Lack anecdotal evidence in story telling

•    Are not on food stamps or SSI

•    Do not wolf your food from past hunger

•    Are not an anarchist

•    Use your true name

If you are uneducated, have a drug habit, show tattoos and knife wounds, like to party, steal and tell stories of the road, have a prison record, know someone who will vouch for you, use an alias and dislike authority, you are welcomed in Slab City.

Jun

22

 One failing of modern medicine is that tests, which control future diagnoses and treatments across the board, are generally conducted on a small sampling from cities of people who are victims of 'diseases of civilization' from smog, bad water, & processed foods. healthy people are rarely tested, so our medical system is full of holes. Responses vary from group to group and individual to individual. Lewis Thomas, famous for Lives of a Cell, provides a more professional explanation in Dr. Thomas's ass-kicking autobiography The Youngest Science: Notes of a Medicine Watcher.

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Jun

22

 Back in September 2015, GS introduced their first active beta ETF to much fanfare, including the fact that the management fee significantly undercut competing products.  Time enough for a reality check. Total Return Since Inception:

GSLC: 25.93%

SPY: 30.02%

Annualized equivalents:

GSLC: 14.82%

SPY 17.04%

[Note: results from 9/30/2015 to 05/31/2017]

Hernan Avella writes: 

It looks like the same can't be said abut Blair Hull ETF (HTUS). It seems to be accomplishing it's goal, beating SPY since inception and with less volatility. I haven't looked under the hood of fees, distributions, taxes. But superficially looks good.

Rishi Singh writes: 

The return/sharpe are meaningless for a sample size of a year, espeically as the fund (according to prospectus) is balanced quarterly. I would want to see tracking error of live results vs their backtest. Also - I don't think people would buy this ETF expecting a return > than SPY every year, but for the correlation benefit. Again, what's the backtested corr, vs live and tracking error?

Russ Sears writes: 

I would respectfully disagree that "return/Sharpe are meaningless for a sample size of a year" because if they have had 4 quarters, it should give someone watching an idea of how stable each part is compared to S&P, and idea of its volatility. The returns/Sharpe may not tell one much but the individual data points of 4 quarter returns and volatility/correlation the picture has become clearer. While I would agree that it may not be enough to make a statistically significant conclusion, I would not even use a fund for diversification/correlation if the volatility/correlations to standard benchmarks are not somewhat stable. And the poor start does not bode well for the fund's strategy's alpha's consistentcy.

Further, if you had invested say $100 million of some institutions funds in the fund with a benchmark of S&P arguing a $2.6 million under-performance would not be something I would want to defend too rigorously or try to initiate the fund.

Jun

22

 A few thoughts:

The spread of software into just about everything (combined with miniaturization of the hardware on which that software runs) is a major change in how the built world works, and how we interact with that world.

Quantum computing, if it comes to pass, will have a big impact (e.g., everything that's currently secret via cryptography would come out into the open).

Semi-related is blockchain: it's essentially an immutable, fully transparent version of double-entry bookkeeping (another major change from the 1300s), but applying to all data, not just finance. This will upend practices like auditing.

Retail stores have existed for centuries, but they might be going away for most goods - that seems significant.

The relentless advance of automation will change the nature of many jobs, or eliminate them entirely.

As video games and the like become ever more realistic, some people seem to be giving up on work entirely.

Jun

22

 A few years back, it seemed like Carnival couldn't get out of its own way, and one person opined that maybe there was some form of employee espionage at work.

It seems that the disease has spread to United. It's having a true annus horribilus:

"United passengers left terrified and injured after turbulence on US flight"

Jun

22

 Does anyone shop at Staples anymore? Doesn't Staples own Office Depot and Office Max? Is this another reason to buy AMZN because of the fact that Custer's band of soldiers over at Staples(and most other retail) is circling the wagons before the inevitable?

I was the only customer in my local Staples today. The store was empty and this was at 2:30 after the grain close, normally a busy time when I go there. They were staffed very light with a girl running the front end and register, the general manager on the floor, and one guy on the floor stocking and waiting on customers. And this was after their lunch break according to the guy on the floor when queried as to why the light staff. Looks like they have a pretty tight payroll with no hours to spare and the guy said that he was full time and cut back to 32 hours. Yet they have help wanted in the window. The store was badly in the weeds, and the shelves showed the empty spaces of out of stocks. In fact, they were out of what I stopped in there for and said it would take a couple of days. I was tempted to order it off of AMZN for tomorrow's delivery in front of the manager who tried to find what I needed. He knows retailers like Staples are dinosaurs and times are a changing. Why make him feel worse by rubbing it in? The poor guy looked beleaguered, like everyone in retail is. Working in retail has to be the shittiest existence in the world. It is top down management, everyone is responsible for making their numbers, yet nobody is making their numbers. There seems to be money everywhere, but none in their shop. The despair shows in many of the faces in every retail place you go….hours are being cut with the same work, quotas, and numbers as before, in fact more from less. It's gotta be hell for the workers getting ripped by their bosses, those bosses in turn are getting ripped up by their bosses, and on and on all the way to the top banana.

Face it, we're all getting spoiled online, and discovering that driving to places to buy something, go shopping is a waste of time. How much more enjoyable is life if one can substitute a round of golf, tennis, surfing, museums, music, rather than the drudge of shopping and dealing with surly staff? How uplifting to be liberated from shopping which is equivalent to the period 90 years ago when the average middle class housewife got a washing machine and was liberated from the hours and hours a day doing laundry by hand.

Jun

22

Changes in prevailing direction in market with respect to time period H, such that H > t, often occur as period t has elements with increasing number of lows and increasing number of highs; often ranges decline, as the median price trajectory tilts over, volume decreases (very related to range decreases). The market is in a thixotropic state, where the market making viscous forces are the dominant presence. Sudden change in trading volume (and log changes in trading volume have a negative serial correlation, so such a thing is more likely than usual) perturb the system to a more inertially dominated market than before. Or: volatility contracts and expectations are harder to hit, and traders sideline, while the few voters left who think they have worthwhile wager battle it out.

Jun

22

 Can you mount a factual argument in support of the Paris agreement? Can you explain the fossil fuel industry's support of it?

All I have heard is (a) empty platitudes: "USA leaving is bad for the world", usually from people that fly private jets– and (b) extreme coercion in support of a deal whose stated outcome is to spend a lot of money and accomplish very little.

Fossil fuel industry support is likely explained by promotion of methane hydrates - an opportunity that Japan is pursuing with vigor. I personally am less enthusiastic about an undersea landslide enveloping us in a gigaton methane plume, however.

Consider too that the net impact of increasing EPA emissions standards has been to increase global emissions as industry is forced offshore to China with a grid that is several multiples dirtier than the US, and with 8,000 miles of round trip shipping added on. A disaster for the environment. Emissions targets in the Paris agreement perform a similar function.

The UN's green climate fund does not preclude investment in coal-fired plants, and green group's have already condemned their plans.In general I am skeptical that shipping boatloads of cash to unaccountable bureaucrats will fix anything. A feeling that is not assisted by knowledge that the UN's WHO spends more on travel (including first class flights) than it spends on Aids and Malaria.

Climate change is a problem that can only be solved by the invention and industrialisation of technology. I'm putting my money where my mouth is - I'm substantially overweight Tesla and am privately invested in promising battery and solar tech R&D. Deregulation of the energy grid, as voted for in Nevada, will provide room for these technologies to be adopted. Dismantling the petrodollar would help too.

Jun

22

 We owe our modern misconception of optimism/pessimism to Voltaire, who in the interest of satire, oversimplified the schools of thought greatly.

It's possible to be an optimist in the sense of being a judicious risk-seeker, of seeing opportunity everywhere, while being an anthropological pessimist.

The judicious risk-seeker assesses the probabilities and is unreserved and aggressive, not assuming the worst.

The anthropological pessimist is a philosophical conservative, not in the modern political sense, but in the sense of Oakeshott:

"To be conservative, then, is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss."

People too often think that schools of thought are in contention, instead of being potentially syncretic. The post-Marxist Leszek Kolakowski articulated one type of syncretism brilliantly: "As for the great and powerful International which I mentioned at the outset–it will never exist, because it cannot promise people that they will be happy."

Jun

22

A visit to a nyc public park just opened in a West Side neighborhood brings bak many resonances. This is the Gertrude Ederle park . She was first to swim the English channel in 1926 and was cal coolidge's best American girl. The park was 10 years in construction and once held a 1920's type swimming pool which has been remodeled. As I was passing by doing my dailyjob, I heard 100 kids playing . As I passed one shouted in the midst of pushing 3 other kids " Its already settled. Its already settled. Your own man said we were rite ". The park is quite decrepit and I doubt whether they still have a Greek solarium in it so typical of the one patronized by former Chicago community organizers before they reached the Beltway.

Jun

22

“In the next 30 years, the world’s pain will be much greater than its happiness,” Ma said at an entrepreneurial conference in Zhengzhou, China. “Social conflicts over the next 30 years will hugely impact every industry.”

“Machines should only do what humans cannot,” Ma said, adding “only in this way can we have the opportunities to keep machines as working partners with humans, rather than as replacements.”

“Fifteen years ago I gave speeches 200 or 300 times reminding everyone the internet will impact all industries, but people didn’t listen because I was nobody," he said.

"people should prepare for decades of social upheaval and pain as the internet disrupts the global economy."

Jun

22

 An old high school friend (who reads and has commented on DS) recently told me that he is burned out in his career and wants to trade FX for a living. Apparently he knows 2 people that make a living trading through one of those shops. I gave him more than several reasons why he should consider taking a pass on this new career, but he's going to a 4 hour seminar to learn why FX trading is the way to go. He is willing to invest $10K in this venture. My immediate comment when hearing about his limited bank roll was that he would need to generate an extraordinary return on his money just to make a living and that would be near impossible. I ask the list for some guidance….questions he should ask the FX broker, questions he should ask himself. I've tried to talk him out of this, but he is still considering taking the plunge. What are your thoughts about someone 60 years old, quitting his job and trading FX on a $10K bankroll. I know my thoughts, but ask the list to add some of their own.

Generally speaking, when casual acquaintances ask me this question, I tell them that they will do better going to Vegas….at least when one blows through the $10K bankroll, they might get a few comps….the mistress of the market will just take one's money without even a thank you kiss in return.

Stefan Jovanovich writes: 

Cue Marcel Proust: We remember the stories of our lives but there is very little of the past that our nervous systems actually keeps in the present.

One of the lucky and tough survivors of the torpedoing of a merchant ship sinking in WW II described the part of the whole thing that stayed longest in his active memory.

It was the voices of the barely 20 year old seamen in their Mae West's calling for their mothers.

Jeff's friend seems to be another believer in the age-old faith that Mommy is still out there somewhere and will magically save us from the hardships of shipwreck. 

Bud Conrad writes: 

Read the opening personal story of Education of a Speculator for an example of how hard the high leverage can become. You could quote me as saying: "I wouldn't trade forex without a $300,000 portfolio." This kind of desperation often accompanies market reversals. For forex I don't know what the change will be, but I would warn your friend in the strongest terms.

anonymous writes: 

I think risk of ruin is too high if you're under 100k bankroll. With 10k there is leverage needed to make a living, but with a 100k you can survive a couple bad streaks. 

Jim Lackey writes: 

Good afternoon, Chair, Brothers, ladies and gentlemen. Interesting post, I just caught a young man screen watching. It's the stare of hope. If one would focus enough the prices would go our way. I was asking him if he wanted to buy the truck or not. He cursed and I knew it was about something online. I said what is going on dude? He said "look at this. " He motioned me to look at his screen. It was forex quotes, I said, what is your position?. "Long the Euro and they said it is going up because….". I asked who are they and why would they tell you and what is their position? He looked up and………., huh? First off one must start with individual stocks 2-1 only. Secondly they always know and I was always the last to know. Huh? Do you want the truck or not? He looked back at the screen and said "but the Euro….." If he bought the truck I would have given him a few good books. I'm sticking with trading cars and trucks. It is not a very profitable business margin wise. It is a lot of physical work. I am in excellent physical shape. I can sleep at night. I'm not sure if it is a permanent disability, but I have lost my ability to take risk in the financial markets. However, I would never discourage anyone from speculating for a living. Buy them a cup of coffee and after an hour see if they would read the good books. Specs are honorable and benefit society in ways that I did not comprehend until years after I hung up the racing helmets.

Larry Williams writes: 

While I've already agreed with the majority comment on the subject let me add this…

A few years back I got a letter at Christmas time from a guy who wrote basically saying, "Larry I bought your trading course I actually went to the blood bank and saw blood to buy it. I raise some capital while I was learning started trading now here I am in Vail Colorado. I'm a single father my kids are with me I'm living in a house beyond my wildest expectation, all because of learning to trade etc., etc."

Of course I replied that it had nothing to do with me was his success and good fortune but nonetheless this was a wake-up call in lesson for me it's hard to tell people know don't do this because this letter was not an exception have had others, not as extreme, but in a similar vein. Clearly there been other people who have lost money, some probably even shirts or shorts.

This is a hard-core to stop somebody so what I personally do is let them see the doors open but also all the dragons and monstrous just beyond the door. Full disclosure, brutal disclosure then if they want to pick up the craft they can.

I know you don't build good athletes by telling them they can't do something you have to encourage them so this trader, want to be trader need some encouragement.

Jim Lackey adds: 

This is what happens in forex too: Cascading margin calls for so many and who was holding the other side after everyone was forced out of their positions? GDAX affiliates? GDAX?

A side point: a few million worth and the price is crushed. Small market. Any medium sized player can own the price action in that arena…

https://www.cnbc.com/amp/2017/06/22/ethereum-price-crash-10-cents-gdax-exchange-after-multimillion-dollar-trade.html 

Jun

19

 The Liddell Hart theory–i.e. a war of movement can avoid the costs of frontal assault–has been almost entirely discounted by modern studies of what actually happened in WW II. If the Great War was so much bloodier than WW II for the British and Americans (but not for the Russians and Germans), it was not because of any change in tactics or strategy but because the Anglo-American forces spent so much less time at the sharp end. When you compare killed, wounded and missing per day of direct combat, the WW II battles (the Bulge, to take one, which is still and is likely to always be the bloodiest battle in American history) are no less "massive showdowns" than Western front struggles in the Great War and just as awful. The casualty rates are the same.

Hart's hope that tanks could produce battles of movement was not proven true; as soon as the opposing forces learned to use them, the anti-tank guns created their own stalemate. Kursk became a mechanized meatgrinder equal to Verdun.

The military analogy that comes to mind for the Bezinator's successful campaign is Curtis LeMay's firebombing of Japan. With its massive capacities for warehousing and delivery and the logistic coordination that allows customer orders to be processed without interruption, Amazon has done an incendiary bombing of its competitor's profit margins.

Andrew Goodwin writes: 

I have read Liddell Hart and Clausewitz. The losses on a frontal assault were too high in land campaigns.

Napoleon did the indirect attack in a formulaic way by a mock frontal assault covered by a horse screen on one wing ending in a back side cutoff of the supply line of the enemy. The maps of his campaigns are well seen through the book called "The Campaigns of Napoleon" written by David G. Chandler.

This approach appears to create a panic in the enemy lines. The method to defend against this has developed considerably since then. You have to think about how they worked a way to defend against the elephant charge.

If you leave corridors open, the elephants will look for less resistance and charge through the gaps you create. Then you can cut them off from behind.

The one who figured out how to use this in more modern warfare was Von Manstein. He created passes and then encircled from the rear. How this is done today with air and sea and land combat is not of my reading yet.

Stefan Jovanovich replies: 

Er, not quite. Neither von Manstein nor Napoleon ever doubted his own genius, but we can't take them at their face value. Von Manstein managed to be consistently blind to any possibilities that the Soviets might also use their brains. His great triumph - Kharkov - came between two disasters that were far more consequential - Stalingrad and Kursk.

Napoleon's genius came almost entirely from his ability to move his cannon quickly to the point of attack. In the set piece battles for which he is justly famous, that allowed him to bring massive firepower to bear and then follow it up with attacks in column by infantry that were classically "frontal" - most of the time the infantry did not even discharge their muskets but marched forward in a phalanx of bayonets. In the wars that he lost, his cannons were useless; in Russia because of the mud (the same factor that lost him his chances at Waterloo), in Spain and Portugal because of impossible terrain.

Nelson followed largely the same tactics, with the same success. His ships attacked in column, not line, and in direct frontal assaults.

The actual record of the use of elephants is that they look impressive but are - like the massive artillery guns the Germans loved - not worth the trouble. Alexander refused to use them; and Hannibal discarded them (they probably ate them) long before Cannae.

Jun

19

 A great video to watch: Hitchens on Orwell.

Christopher Hitchens talks with EconTalk host Russ Roberts about George Orwell. Drawing on his book Why Orwell Matters, Hitchens talks about Orwell's opposition to imperialism, fascism, and Stalinism, his moral courage, and his devotion to language. Along the way, Hitchens makes the case for why Orwell matters.

Jun

19

 Memory preservation is an area apparently in need of further research, but the recent statement highlighted below by one in the field is surprising to read.

1. "Working memory and distractions were the subjects of the second speaker, Fiona McNab, a Wellcome Trust Research Career Development Fellow at the University of York (UK). McNab explained that working memory is important for decision making, reasoning, language, and mathematical processing. She said there was no scientific evidence to show current brain training games could improve working memory; while games might improve the performance of a specific task intrinsic to the game, they do not have a transfer effect to other tasks. Instead, McNab highlighted the use of functional magnetic resonance imaging and behavioural studies to explore working memory and distraction. She also referred to the Great Brain Experiment, an app that allows users to play games to test their memories and provide data for neuroscience research."

2. There is certainly an interesting history to the idea of memory improvement though. Pelaminism was a popular subject in Victorian England.

Jun

19

I was talking to a gentleman who is a classic pessimist and here is what I wrote to him:

You are such a pessimist. I'm glad I don't suffer from your disease. I'm an unbridled optimist for the earth, and for the uplifting progression of mankind. Do you realize that mankind is headed for a bull market in "mankind." It will be a multi-century bull market. This is evidenced by things like reduced total worldwide extreme poverty by 90% since 1950. We're getting more peaceful too, with many less getting killed in any conflict than at any other time. Hunger is down significantly, life expectancy overall is way up. Childhood deaths are a fraction of what they were in 1950, and real per capita income of the planet is up 85% since 1950. Worldwide literacy rates have never been higher. Our technology will increase by a million percent in the next 300 years. There's so much to be optimistic for and mankind will most certainly benefit from this new golden age. Incidentally, everything good for humanity, like reducing poverty, disease, early deaths, wars, famines etc has been done by optimistic people. The exponential increase of science and technology is solely because of optimists. The optimists of the world are responsible for every great achievement of mankind, from the Magna Carta to penicillin to landing on the moon. Nothing has of note has ever been done by pessimists. Pessimists add no value to anything as they are too busy waiting for the sky to fall, the market to crash, and the bankers to take the lint out of your pocket. How can one positively add to the human condition when one is huddled up in a defensive mode crying about how whatever cabal, what boogeyman is trying to bankrupt you and eat your children in some blood ritual.

I really feel sorry for those who's emotions are not on solid ground. One suspects that it's all the bad news one is inundated with 24/7(if it bleeds it leads), and the large segment of the population that cannot think for themselves. Most people can't, hence the popularity of the different outlets like Fox and MSNBC that tell their disciples how and what to think. If one can think for one's self none of this bad "news" is going to be a make any difference, certainly not in one's day to day life. Anyways, what poses as news these days is mostly editorial. It goes without saying that I prefer facts and figures to news/editorial. The facts are strongly indicating that we're in the initial stages of a grand movement, a total upward trajectory for the human race. A market equivalent is that right now we're the S&P 500 and we're priced at 72 points and getting ready to rally. And a reality of the present stock market is that some of this optimism is priced in, as it should be.

Jun

18

 How much bad news was there last week with the market refusing to go down?

If 1 millionth as much good news came and the market didn't go up, every commentator would be saying the market is in the worst shape ever because no good news will budge it. But not the reverse.

There must be consternation and frowns at the marbled corridors of the Governors. They tried so hard to knock it down.

Reminds me of the Union Club on fifth avenue in the 1950s where the members sat at the windows looking down at fifth avenue and frowned at the women wearing mini skirts et al.

Ralph Vince writes: 

It reminds me of when I was an adolescent, and work was at Cleveland's food terminal, and the old kraut I worked for set starting time at 5 am sharp.

The endless ghetto lay between the job and my bed and the only way there was with my thumb. The jungle would always be hopping at that hour, kids out riding their bikes, etc. I would go through there like a ghost, and disregard any danger, trying only to be ready for it.

This market is identical, and calls for absolutely the same, exact, unflinching mindset. The same exact thing.

Jun

18

There's something lethal in this exchange between the NY Times and the humorous chair.  "We've certainly noticed that the stock market is up over the last year. That usually shows up in financial conditions indexes." The hate, the umbrage, the distress from both the questioner and the answerer is almost palpable.

Jun

18

This is a great SI article on a 45 year old's quest to hit a home run. Lots of practice required.

Jun

15

As I've mentioned before, I am not a very good peer-to-peer lender.

Lending Club says that my account (adjusted for loans that are in default, late, etc.) is now worth 3.9% more than it was when I opened it in early 2016 and that my annualized return has been 2.87%, much lower than what they claim to be typical, which is >5%.

Stats on my loans are given below. I give the number of loans for each rating category from A to E, along with the number of "bad" loans in each category.

I define "bad" to be either "in grace period", "late 16-30 days", "late 31-120 days", or "charged off".

Occasionally you'll hear someone claim that you should just lend to the highest interest rate borrowers because the bad loans are relatively independent of rating. That was totally false in my case. I had literally zero bad loans in the "A" category, and only a reasonable 5% of my B loans were "bad". Meanwhile about 13% of my C and loans went bad, and 27% of my E and F loans went bad. "E and F" borrowers probably overlap a lot with "Ebay merchants" in my opinion!!!

Of course, when a loan goes bad, it's typically not a 100% loss, but believe me, it's pretty bad.

In retrospect I would have done much better by sticking to A and B loans, or even just A loans.

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Stefanie Harvey writes: 

I have been playing on Lending Club for 5 years. I now choose all the loans I fund rather than "index"

- I only choose "A" loans
- Borrowers must have 2 years of employment and a credit score higher than 730
- I exclude any loan for "medical" or "relocation"
- My return is around 5%

Great discussion; Jeff thanks for posting that article (and agree - poorly edited book excerpts!)

I have done over 1000 loans and the A loans default at just under 2%. I lost more the first year I invested when I tried mixing risk. 

anonymous writes: 

Very interesting, thank you.

Maybe the whole idea of the D, E, and F loans with interest rates >20% is just a broken model. It's hard to see how those can have a good outcome for several reasons:

–If you're really strapped for cash, are you even going to be *able* to pay off the 20% loan, when the interest itself is so staggering?

–If you're really strapped for cash, are you even going to be *willing* to pay off the 20% loan, given that there's no collateral? Surely you'll pay on anything else first–mortgage, student loan, whatever. And your credit rating can't go much lower than it already is.

Seems like maybe the whole model — charge a higher rate to compensate for the higher risk of default–might be broken because of a Heisenberg effect–the rate itself affects the default rate.

Regarding loan selection, I read elsewhere some stats purporting to show that, counter-intuitively, one of the best credit risks is people who borrow to pay for a wedding.

Conversely, borrowing to "start a business" turned out to be a bad credit risk. The easy explanation was that such people would soon be quitting their steady-paying jobs.

anonymous writes: 

It brings to mind the payday loan business and makes one think that productive research could be done in that area, with the usual caveats.

Jun

15

Finally something useful and not hateful from the fraternity paper.

"In the Hunt for New Antibiotics, Scientists Hit Pay Dirt" by Jenna Gallegos

Bill Ray writes:

Until fairly recently, the direct was a great place to find antibiotics. Streptomycin, which was the first treatment for TB (and which showed that randomized trials had a place in clinical research) was discovered in direct, as was erythromycin, I think. There have been many others, as well.

Soil can be fertile in lots of ways.

Andy Aiken writes: 

I heard someone recently mention colloidal silver as a natural antibiotic with zero side effects. Zero collateral effects, except turning blue. Also, probably zero effect on melanoma and other conditions that colloidial silver is supposedly used to treat.

Vancomycin, Erythromycin, Penicillin, etc are all the purified form of natural antibiotics produced by fungi. Why consume silver, which has no nutritional function, when the best antibiotics use the ancient wisdom that playing in the dirt provides excellent immune protection?

Jun

15

Aside from an effort to sink the President, how does a hoped for increase in inflation above 2% help the economy and overwhelm the "data driven" of the past? Wow, all of old time economics where employment was related to the real rate is going out the window. I must throw all my 19th century economics books out.

Jun

15

The humorous chair and agrarian wild man both hoping for end of prosperity. One sees an albatross; the other notes with trepidation that the stock market is up

More a frenzied man of TV says "prez has become an albatross to the stock market": let us hope there are more albatross like him out there

The more prosperity we have, the better it is for everyman and the Prez, and the worse for cattle and prospects for camp kinsella policies

Here's the humorous chair on stock market…it's almost like she hates to see it up. and why not? the move prosperity.

@VicNiederhoffer on twitter

Jun

15

It was only after business men and women sent their children off to be thoroughly schooled in administration in the late 19th century that there were economics textbooks. Poor Jack Morgan never fully regained his father's respect after he came home from Harvard and told Dad what he had learned about banking from Charles Franklin Dunbar.

The beauty of the late 19th century in the United States was that its massive failures were awful but never frightening. For people who had endured the Civil War, the financial collapse of a third of the railroads in the U.S. was something to be gotten over; but not the end of the world. Sensible people bought and owned the bonds that the Morgans put their names on and understood that the money market was a fascinating place to go gambling but hardly the appropriate investment for themselves and the other people who were not speculators.

Morgan made only one public prediction about "the market" in his entire life; when asked what it would do, he laughed and said, "It will fluctuate." He knew that his customers would accept fluctuations precisely because they were owners, not traders. That is why his bonds could be paying 4.5% when offers of 15% were failing to draw sufficient call money to carry a position through from Saturday afternoon to Monday's open.

The present portents of an inverted yield curve are supposedly warnings about recession and inflation. What they might be instead is a signal from the Chairwoman of the Federal Reserve that the central bank is no longer willing to be the Treasury's bitch - i.e. the customer of first resort - now that the ECB really needs a friend. Ms. Yellen can either help the ECB pretend that European sovereign debt is never ever going to be a problem or allow Secretary Mnuchin to roll over his inherited overdraft at bargain rates. For those who believe in the global future of globalism, that is hardly a choice; the Euro must be saved by being discounted freely just as Bagehot commanded. (Oh, wait, he was talking about domestic borrowers, wasn't he - since FX did not allow for any discounting until the Austrians decided that they wanted a Balkan War of their own.)

anonymous writes: 

I show that the curve is still in up trend-bullish. Am I missing something (as I usually am)? 

Jun

14

 Amazon hits 1000 and FANG pulls back. Already commentators at Barron's, CNBC and TheStreet.com are talking about a topping out of growth stocks and a shift to value stocks…

Anatoly Veltman writes: 

Talking strictly random digits: both AMZN and GOOGL exceeded 1000 right before reversing; AAPL and FB both reversed from 156 area.

Andy Aiken writes: 

I didn't call it a reversal. I called it a pullback.

The morons in the media are quick to call every pullback in a bull run a reversal or a popped bubble.

Anatoly Veltman writes: 

Yet other morons may be paying 1000, like there is nothing else to do with 1000.

anonymous writes: 

Without resorting to invective by calling people morons, didn't Ableson have a similar denigrating mindset to yours when he wrote that people thinking the S&P was cheap at 400 were "intellectually challenged?" I think the word he used back then was idiot, but he still was a name caller. Wasn't the late Abelson the name he used on others that didn't share his wrong beliefs?

Jun

13

 Ken Burns' Vietnam series starts in September.

I wonder if Gen. Vang Pao's story will be part of it:

"Gen. Vang Pao, Laotian Who Aided U.S., Dies at 81"

Even before President Dwight D. Eisenhower's vow in 1960 that Laos must not fall to the Communists, the country was immersed in bloody conflict. Its importance grew immensely during the Vietnam War, when most of the Ho Chi Minh Trail, the serpentine route that North Vietnam used to funnel supplies southward, ran through Laotian territory.

The United States wanted to interdict the supply route, rescue American pilots shot down over Laos and aid anti-Communist forces in a continuing civil war, but was hampered in doing so publicly because Laos was officially neutral, so the C.I.A. recruited General Vang Pao for the job. At the time, he held the highest rank ever achieved by a Hmong in the Royal Laotian Army, major general.

The Hmong are a tribe in the fog-shrouded mountains separating Laos from southern China, and they were natural allies for the C.I.A. because of their enmity toward Laotian lowlanders to the south, who dominated the Communist leadership.

General Vang Pao quickly organized 7,000 guerrillas, then steadily increased the force to 39,000, leading them in many successful battles, often against daunting odds. William Colby, C.I.A. director in the mid-1970s, called him "the biggest hero of the Vietnam War."

Lionel Rosenblatt, president emeritus of Refugees International, in an interview with The New York Times Magazine in 2008, put it more bluntly, saying General Vang Pao's Hmong were put "into this meat grinder, mostly to save U.S. soldiers from fighting and dying there."

When the C.I.A. approached him in 1960, he was already fighting Laotian Communists. The next year, he would also fight Communists from Vietnam after they had crossed the Laotian border. The Times in 1971 said that the C.I.A. did not command the general's army at any level, because his pride and temper would have never permitted it.

The general led troops into combat personally, suffered serious wounds and was known to declare: "If we die, we die together. Nobody will be left behind." About 35,000 Hmong died in battle.

General Vang Pao was also skilled at uniting the 18 clans of Hmong. One technique was to marry women from different tribes, as multiple marriages were permitted in Laos. He had to divorce all but one of his five wives when he went to the United States in 1975, settling on a ranch in Montana.

General Vang Pao lived more recently in Southern California and Minnesota, where many of the 200,000 Hmong that followed him to the United States or were born here live. His picture hangs in thousands of homes.

Stefan Jovanovich writes: 

The beauty of the New York Times is that they always get it wrong. Eisenhower's "vow" came in 1954, not 1960. There is even video.

I can guarantee that Burns et. cie. will get wrong the other unspoken part of Eisenhower's "domino" theory - the one that was communicated privately to the Soviets now that Stalin was dead: Indochina would be the last acceptance by the U.S. of territorial war by the Comintern. Spying, subversion - everything that Stalin had initiated as part of communism's "cold" war - would be accepted as part of the normal woofing between major power; but this would be the last "war of liberation". If the Soviets persisted in that policy, they risked bringing on their own nuclear destruction.

The Soviets knew Eisenhower was serious because Admiral Radford as Chairman of the Joint Chiefs had asked for permission to use atomic bombs to rescue the French from Dien Bien Phu. Ike knew that the Soviets knew what his reply had been; the U.S. would not "defend" British, Dutch or French imperial possessions in Asia. As the British later learned over Suez, Eisenhower meant what he had said. The U.S. had not fought WW 2 to defend European empire.

But it had fought WW 2 and Korea to defend Europeans' and East Asians' rights to "self-determination". That is the part of the story that the Democrats never ever seem to understand even though the policy itself goes back to Woodrow Wilson - the one thing the man got right.
 

Jun

11

Happy father's day to all the fathers who read our site. The fathers who are on this list are very benevolent and competent as far as I know. If I had one thing to impart as the father of 7, I would say teach the kids at an early age about the idea that has the world in its grip, and put all their assets in spiders or a comparable zero rake equity fund. And let them know that their own situation and the world will get better.

Jun

11

He sees a case against Prez but the 30,000 emails deleted, smashed computers, emoluments to foundation contributors were not enough for a reasonable prosecutor to consider a case against cattle.

"Bharara 'Absolutely' Sees Enough Evidence for Case Against Trump"

Stefan Jovanovich writes: 

The monopoly on prosecution is another part of the American legal structure that has no support in either canon or common law. It is based on sovereign presumption and preemption; to a horrible extent, allowing a district or U.S. attorney the discretion to decide whether or not someone should do the time for their crime is a product of the desires of the early New England emigrants to North America. They wanted to establish a Congregationalist theocracy. They succeeded. Now, of course, we have the high priests throw the Federal Criminal Code instead of scripture at the apostates; but the outcomes are entirely the same. None of us is without sin, and we are all guilty of something; our actual freedom is almost entirely a matter of having not yet pissed off someone in authority who thinks we are a ham sandwich in human form.

19th century Americans understood this in their bones. That is why The Scarlet Letter was the first blockbuster novel in U.S. publishing history. I know we are all supposed to prefer Melville's tract; but I think the public got it right. It remains the best single work of fiction ever written by an American.

Jun

11

Whenever the conversation turns to the health care system, and the question becomes, "Well, what would you do?", I always say that whenever prices are rising rapidly and you think they shouldn't be, then look for 1. constraints on supply, and 2. subsidized demand. Root out those two problems first, and then allow economic liberty some time to sort the situation out, and then look to see if there are externalities that need to be addressed or common goals that aren't being met.

Jun

10

Interesting hypotheses from Mr. Kedia reminiscent of the self serving tautological contrived promiscuous hypotheses of the behavioral science Nobelists. That's why we test such things. My tests indicate business as usual. The test from the 12 observations, 11 in 2000 and 1, three Wednesdays ago show continuations of previous marching order will be apt.

Jun

10

 Does a single day large drop past 4 sigma imply:

a. short term horizon bulls are mostly all stopped out and supply curve at higher levels is all gone into the stops?

b. short term horizon bears have become fatter and at further dips, if they come, there will be a stronger demand curve nibbling in?

c. effects of one market over another, a.k.a. the pulley effect, should be ignored or such large drop in one segment of the market, Nasdaq in this case on Friday, has its Pascal's law effects on the bigger wider board N days later?

d. Such large massive one day drops in one specific market are an isolated event only or a yellow canary inside the coal mine?

Jun

7

 The Chair and Collab wrote in Practical Speculation that the frequency of home runs in baseball goes up and down with public sentiment on the economy. Contrary to the upside-down man's persistent gloom, baseballs are flying out of parks at the highest rate ever.

In 2017 to date, 14.2% of all hits in major league baseball have been home runs, a larger percentage than last year's record 13.3%.

Exhaustive statistical analysis has led to a change in technique. The following paragraphs are quoted from The Washington Post, "The statistical revelation that has MLB hitters bombing more home runs than the steroid era", June 1, 2017:

In 2015 the league introduced Statcast, a "state-of-the-art tracking technology capable of measuring previously unquantifiable aspects of the game," giving teams, scouts and players access to detailed data which is used to make the physics of hitting a lot clearer.

The biggest change brought about by the Statcast data is illustrating the importance of an uppercut swing that results more often in fly balls and line drives rather than groundballs. According to MLB's Statcast data, the average launch angle in 2015, the first year data is available, was 10 degrees. That has jumped to 10.8 degrees in 2016 and 10.9 degrees in 2017, causing the frequency of extra-base hits, also known as isolation percentage (ISO), to spike to .165 in 2017, which is closing in on the record mark set in 2000 (.167).

Jun

6

 The standard academic introductions to economics spend no time discussing the invention of credit. They usually have the conventional summaries about the uses of money - store of value, et. al. - but there is literally nothing about the invention of promises to do and to pay. In one way, that is completely understandable. People live their economic lives in a world of futures; they measure even their savings by what the hoards will earn; evn in Rousseau's world of pure nature, financial promises would be made. Given those facts, it makes sense that economic textbooks do not spend any time discussing the invention of credit; IOUs have always been part of human interaction itself.

But, if credit's origins do not need to be part of the history of economics, surely the invention of legal tender deserves at least some small attention. Coinage is usually given at least a few paragraphs, but there are rarely any discussions of how the law came to be the method that defined what would be the financial unit of account. Hayek, at the very end of his life, complained that money had been literally hijacked by the state, that people should be free to use whatever money they choose. Even his theoretical opponents agree; current "mainstream" economic theory begins with the assumption that there is no need to give state money any special legal status; in the natural world of credit people can buy and sell using whatever coinage they want, as the success of BitCoin has proven. And yet, the IRS insists on being paid only in dollars, by check or credit card or wire transfer. (One of the wonderful ironies of the current age is that actual money - currency printed by the Treasury for the Federal Reserve Bank - is NOT an acceptable means of tax payment.)

Legal tender - officially enforced money - only exists because some exchanges are not and never have been voluntary. Hayek's assumption that money developed as a means of payment to clear private debts is bad history. The archaeological record shows that the earliest money coinages survive from the Greek city states that traded with one another in the Aegean Sea in the 7th century B.C.E. The first known coin, the Lydian Lion, (formed from electrum - a naturally occurring alloy of gold and silver) can be dated to 610-600 B.C.E. It was minted by the tyrant Alyattes in Sardis. Every money hoard discovered by archaeologists in that region has been found in sites that were government treasuries, not private merchants. The German historical school's standard story (the one used by all the textbooks) is that people invented money as a "store of value". No. Tyrants, monarchs, emperors and - eventually - democracies all created money as a means of collecting taxes.

Why? Well, for one thing, the governments could do what the people who control governments always want them to do - keep crooked books and fiddle with the tax rates and preferences . The taxpayers would have to use drachmas, and the state would define what a drachma was. The standard historical theory for "inflation" is that when people with the power of the state stretched their credit beyond its limit, the state would increase its "money supply" by changing what a drachma was. The more realistic assumption is that coinage as legal tender was manipulated from the moment of its invention. Tyrants did not have to wait around to discover that they could "manage" their economies by "tightening" and "loosening" public credit. Even the U.S. Constitution takes it for granted that the Federal government will charge a fee for making its own money. Needless to say, this "money" thing caught on. Within two centuries every part of the Mediterranean world had its official money.

As Hayek so beautifully points out, free human exchange creates its own systems that work even though they defy logic. When confronted with the demand for tax payments in "money", people did what they always do - they started trading. The money market was born. As every black market in the world confirms, there is the official price for currency and then there is the market price. If you owed tax to Necho II, you could save some of its cost through arbitrage among the coins minted by Aegina, Samos and Miletus. (The Egyptian Pharaohs used all 3 as their official money.)

The academics have it backwards. "Money" was never a store of value and never the primary mechanism through which human exchange developed. It was how the state paid for and exercised its own power through war.

Jun

6

 The J.P. Morgan test applies for both customers and employees: you should only deal with people whose character you trust. Every successful business I have owned (including the one I still own) applied those rules; in every failed one I thought that exceptions should continue to be made.

I have never been shrewd enough to be able to judge the character of people until I have dealt with them. So, for me, until experience has proven otherwise, I deal on the assumption that others will be honest. (There is also a good deal of evidence from applications of game theory that this Tit for Tat approach has actual rewards, provided that the game is one of repeated encounters, each with limited risk.)

But, once you have seen someone cheat, there is no excuse for continuing to deal with them. Every significant business failure I have had started with my telling myself that a lie did not matter. That meant, of course, that the dishonest had already begun to compound itself; I had lied to myself and others by letting the dishonest person skate.

Jun

6

 August is the hottest month in my home state of Montana so I went to Intellicast to see how the temperature has risen since Global Warming began.

The hottest August temp recorded was in 1934 at a smoking 107.

Looking at each day of the month none of the hottest days ever recorded were in this century. One has to go back to 1988 to get a record setting day.

So I thought maybe GW is not heating up the summer months but at least the cold months should be showing a warming effect so I looked at January. What I found was the coldest January was 1930 with -39 below.

Highest temp ever seen in a January was 1897. The average hi has been 37, average low 13.

Again I looked at each day of the month to see when the coldest and warmest ones were to be found expecting to see warming in this century. There it was! 2 days out of the 31 were record setters, 1/24 and 25 with 64 and 59. I had to go back to 1992 to find the next record setting days.

From this limited data it I hard pressed to see any warming trend. Suggest other try it on their home towns etc. We did the same thing for US Virgin Islands and again you have to go way back to get the hottest days.

David Lillienfeld writes:

The discussions on this site about global warming remind me of the discussions about cigarette smoking and lung cancer. One of the early arguments from the Tobacco Institute, that domicile of wise, impartial men, was that cigarette smokers didn't die only of lung cancer—there were other diseases that they died from, and at higher rates. All true, but not particularly relevant.

Then there was the TI's argument that most cigarette smokers didn't even die of cancer. Also true. Also irrelevant.

Then there was the argument that there were other reasons, like psychological factors, that led those with a predilection to lung cancer to smoke. Well, there actually is, but it's too small to explain the relationship.

Then there was the argument the TI made that lung cancer among cigarette smokers was the result of occupational exposures to carcinogens. Also true. But cigarette smoking has a stronger, some might opine much stronger, relationship to lung cancer than the occupationally-related cases. And in some cases, like asbestos, there is an interaction between smoking and occupational carcinogens.

The TI was successful, to a point, in constantly changing the focus of the discussion.

I could go on.

While any scientific hypothesis should account for observed phenomena, one must be careful in how one phrases the hypothesis. Let's be clear about what we are talking about, since I sense in these discussions (and I think this is round ninety-one or so) are often about more than one hypothesis.

Just an observation.

anonymous writes:

Increased CO2 is measurable, and more a function of our numbers than our behavior.

What is enigmatic is the expected temperature increase is not manifest in recent decades.

Why? Not an ideological answer to "Why?" But actual, scientific (repeatable by experiment) why. If the stakes really ARE so high then why be ignorant about this? The answer may buttress the AGW debate (in which case, we must periodically cull our numbers so that aggregate CO2 output is sustainable, for those who have he stomach for such) or it may not.

But blindly arguing either side from a standpoint of ignorance is only done to support one's interest.

Jun

6

 I just wrote this two minute primer on Bitcoin and Blockchain.

We are at $2,500 but potentially a long way to go still. The must read that explains the fundamentals of a blockchain and bitcoin is still the original white paper.

The breakthrough is the ability to transfer ownership of a digital good without a trusted third party - this was not possible before bitcoin. The implication is that cash can for the first time become digital without an intermediary like a bank, visa, paypal etc. Much of the nomenclature is borrowed from mining. The miners in a competitive process keep the network secure and is rewarded by transaction fees as well as a block reward, currently 12.5 bitcoins per block - on average every 10 minutes. The block reward is cut in half in about every 4 years. There will never be more than 21 million bitcoins. Bitcoin can be seen as digital gold - limited supply, hard coded the protocol, no cost of storage and transferable as easy as an email, Gold 2.0. The bull case of bitcoin is that it is arguably 'better' than gold, and gold's 'market cap' is around 10 trillion, which would equal around $500,000 vs. the current price of around 2,500 per bitcoin.

Each block in bitcoin is capped in size to 1MB, this has meant that transaction fees recently gone up dramatically as the blocks are getting full and is now averaging some $3. There has been a big scaling debate in the space for a couple of years now that hasn't been resolved yet. Barry Silbert of Digital Currency Group is right now building consensus around a promising scaling solution. It if becomes a reality, one could expect the price of bitcoin to experience a relief rally.

As for investing, most trading are done on dedicated exchanges such as GDAX, Bitstamp, OKCoin etc. The Winklevoss ETF was rejected by the SEC earlier this year, currently that is being reviewed for a final decision but there are not big hopes. Interestingly, CME Group launched an index last year and rumor has it they might look into launching futures on Bitcoin. The most liquid listed asset is currently two ETNs listed on the Stockholm Stock Exchange by xbtprovider. Their combined assets are around $80M. They have seen some institutional buying as well.

The price currently seems to be driven by Japan, Korea, maybe India. Seen quite high premiums in those markets recently.

Other blockchains:

Every major bank is currently researching blockchains as it has the potential for instant and secure settlements in combination with the fear of being disrupted by nimble fintech startups. I think they are slowly realizing that if you create a private blockchain without a token which is required for the consensus mechanism in an open blockchain such as bitcoin, you are essentially just creating a shared, inefficient database; nothing revolutionary. The point with blockchain is precisely that you're able to do away with the trusted 'third party'. The biggest bank project is called R3: and is run by more than 70 financial institutions. They announced earlier this year that they in fact is not building a blockchain. I think this blockchain hype much driven by consultants preying on banks scared of being disrupted will slowly die down.

The open blockchain currently with the most promise besides Bitcoin is Ethereum. The transactions in Ethereum is much more flexible than Bitcoin, which gives rise to the possibility of trustless 'smart contracts' - programmable money. These contracts will execute according to the code, ie code becomes law. I can imagine asset management type of apps, financial derivatives, decentralized autonomous organizations (the most famous was called the DAO, and had a funding of $150M, see ) all built on top of Ethereum. If the "killer app' for Bitcoin is digital gold, the current killer app for Ethereum is tokens and so called ICOs, this is a really good introduction by a partner at Andreessen Horowitz, Balaji S. Srinivasan.

This is another take on the token space by Chris Dixon also Andreessen Horowitz. As an example the BAT, an Ethereum based token earlier this week raised $37M in 30 seconds.Even though Ethereum is attracting some real money it is still experimental in nature, still very much evolving, buggs are still found, their consensus algorithm is untested at this stage, the native token ether might not be a store of value as the inflation is not capped as Bitcoin's is. The project is much more centralized vs Bitcoin.

There are many other blockchains, one example is Zcash that uses zero knowledge cryptography to protect the privacy of transactions. This discussion with Nick Szabo and Naval Ravikant is really good– two of the absolute brightest minds in the space.

Resources:

Bitcoin stats

Crypto market caps

Bitcoin price

General info

Ethereum

Industry research

Jun

6

How I got out of Florida condos at the top:

1) The tennis pro at the building became a realtor.
2) The fellow who installed my window treatments became a realtor.
3) Hurricane season was approaching.
4) A "ballerina" I knew quite well told me to delay selling my condo until she could take the newly instituted 5 day cram course to get a realtor license for which there was a several month waiting list.

This week I heard from a fashion model eagerly desirous of entering the coin market who had opened up accounts at several shops and was mad because they had a waiting period for her buying of various coins.

The conventions on coin presentations were oversold and standing room only.

Sad I can't hand out a statistical answer to document the froth, but there are many.

1) Control of more than 50% of the coins potentially weakens the security.
2) The leaked ability of the hackers to enter any computer in multiple ways retrospectively.
3) The advent of access to quantum cloud computers by corporations in beta (which means govts have had access longer)
4) The untested nature of the post-quantum algos.
5) The need for the governments to track and tax money flows.
6) The investigation powers newly needed to stop ransom attacks requiring payment of coins to "anonymous" wallets.

Andy Aiken writes: 

Possibly some lessons are:

Techies, anarchocapitalist utopians, Chinese elites, even ordinary people desire a currency not controlled by the state, that offers privacy and security without requiring armed guards for a big gold stash.

The financial technology and payment processing systems for USD, Euro, etc are antiquated and slow, decades behind what is feasible and in reach, struggling under a mountain of regulation.

A currency is what people use to pay for things. When the European banking system was in shambles after WW II, people paid for food with cigarettes. Scrip has been used many times throughout history.

Getting financing for a company by working with bankers is an expensive, frustrating experience.  Business founders will find a way to cut the middlemen out of the game if they don’t add value.
 
The cryptocurrency mkt is definitely frothy. As with the dot com bubble, most of the coins & firms will fail.  Some will go on to be the future Amazons. These human needs are in search of a solution even if all of cryptocurrency goes to zero tomorrow.

Orson Terrill writes: 

Same here, starting about 2 weeks ago, yet again, people are asking me about bitcoin. This has usually coincided with near term top, and has been true since 2012. Same for stocks.

anonymous writes: 

I do some consulting in this area, and last week I had a few calls (one from a PE firm) come in asking me for a general overview of the competitive crypto landscape, including who mines, what the pecking order of coins is (in terms of best, most used, etc.) and so on; stuff that could pretty easily be found on the web, by haunting Reddit, etc.

Froth indeed.

Stefan Jovanovich writes: 

Thanks to Andy Aiken, I have been able to get some sense of how Bitcoin actually trades. Also thanks to him, I learned - yet again - the most important lesson about trading: you can't claim to understand a market if you don't actually trade it.

I don't trade Bitcoin and have absolutely no idea what will happen to the markets for it. But, it does seem to me that the participants in the markets for cryptocurrencies - whether long or short - are making one assumption that is simply not proven by the evidence.

Bitcoin is not a currency. Neither, for that matter, are ounces of gold. These days a currency is an IOU that

(1) is accepted as a credit for deposit by the banks that are willing to use that currency as a unit of account; (2) is accepted as final payment for taxes and legal judgments; and (3) is the face denomination for the government debts that are accepted as officially-sanctioned reserves for financial institutions

That Bitcoin is not a legal tender has not mattered in the slightest as far as the traders in Bitcoin are concerned.

In the days when money was coin, there was a long history of unofficial credits being actively traded and readily exchanged and even accepted for deposit. The Virginia lawyers who most closely followed Washington as President (Jefferson, Madison) were infuriated by the speculation they saw in New York over the debts that were to be redeemable in the country's new money. They were themselves active speculators, as Washington had been; but their gambles and savings were in warrants and other paper claims on the Western lands. When the people who support and believe in Bitcoin argue that the digital claims they have bought or mined are as "real" than as the digits that represent the vast bulk of people's dollar/pound/Euro/yen/renminbi "money" (sic), they are absolutely right. Bitcoins and dollars are both simply collective promises that what is represented has the value of scarcity and is not counterfeit, and they both have to be taken on faith.

There is only one problem. Governments, as Hamilton demonstrated, have a serious interest in having their official fictions take precedence. The risk of any Bitcoin "bubble" is that, in the name of the protection of official legal tender, unofficial digits may find themselves being investigated for their risks of "fraud". Government can always be relied on to investigate others for having committed the very sins that the government wants to preserve for its own spiritual authority. 

Anatoly Veltman writes: 

Centrals may investigate and outlaw whatever they wish - but since they've encouraged the vastness of the internet, it's impossible for them to replace the cork. Eventually, they'll be adapters of a protocol.

anonymous writes: 

And that is exactly the point.

With crypto there are no groups of individuals painstakingly crafting bills in basements OR shadowy dictators buying eight figure currency printing machines from manufacturing facilities in Bavaria or Switzerland. Even if governments manage to cripple or persecute the Bitcoiners - (who? miners? users? developers? writers? consultants?) - there are as I type this 735 existing crypto issues, over 100 crypto assets, and thousands of tokens trading in nearly 4000 markets of varying mechanisms and liquidity around the world. Far more important than that, each day tens of thousands of new minds are brought into the crypto sphere, some of whom are brilliant programmers both (a) eager to outdo the best of what is currently available, and (b) eager to get rich. There is no, absolutely no, putting the proverbial genie back in the equally-proverbial bottle.

Jun

2

Moderate Drinking Does Not Appear to Prevent Heart Attacks

An analysis of 45 studies of relationships between heart attacks and alcohol consumption reports that the studies that associated moderate drinking with reduced heart attack rates are flawed (Journal of Studies on Alcohol and Drugs, May 2017;78(3):375-386). To show that moderate drinking is associated with heart attack prevention, researchers must show that non-drinkers have more heart attacks than moderate drinkers. The problem is that in most of the studies, the non-drinking group includes a high number of people who have been told that they need to stop drinking because they:

* have liver, heart, lung or kidney disease

* are diabetic

* are alcoholic

* have had heart attacks

* have any of the many other reasons that alcohol can harm them.

Once the researchers remove people who have stopped drinking alcohol for critical health reasons from their non-drinking groups, the drinkers show no advantage over the non-drinkers. Long-term studies that have followed people into their later years have shown no advantage from moderate drinking.

Journal of Studies on Alcohol and Drugs, May 2017;78(3):394-403

May

31

Here is a copy of Wallace Lee's excellent, out of print, booklet, "Math Miracles". As a youngster, this book provided the basis for many proposition bets to add to my repertoire. It's an entertaining read and mere words cannot do it justice.

May

31

 I parked my Hertz Chevy Spark at Siphon 6 of the Coachella Canal outside Slab City on Saturday at 9am and went for an hour walk. Returning at 10:00 there was a crash over the last sand dune and I jogged up it in time to hear and see a quad speed off from my car. Five minutes later, I was standing in the broken glass of the two back rear windows. The burglars had broken the windows, crawled in to keep the alarm from sounding, and in seconds fleeced everything of value. I called the Imperial County Sheriffs who responded immediately with a patrol car, and an officer who was uncharacteristically professional, sympathetic, and thorough. He took a report including photos of the quad tracks, and pulled away to track the burglars who had fled 30 minutes earlier along the Coachella Canal road. I pulled around onto the main track to head the bad guys off at the pass by the Slab City Library.

Not finding the thieves or the cop, I started to solve the crime on my own Slab City style. I got two expert trackers who know every quad track in the area. One at a time, I returned with each to the broken glass along the canal. The first peered at the tracks, and said instantly that he knew the vehicle and who drove it. A few minutes later, the second tracker told me he knew the vehicle and thought it belonged to the first tracker I had taken to the scene.

This is called being 'Slabbed', where everyone passes the buck until a crime becomes so muddled it is impossible to solve.

One suspect was one of the trackers, and the other was a person I had once helped file a complaint against a corrupt Imperial County deputy who had scraped the license tag off his vehicle, told him it was not tagged, and impounded the vehicle.

My own burglary became a federal offense when I discovered they had taken my passport from the glove box.

I returned to find the deputy to tell him this, and found him a quarter-mile from the scene stuck in soft sand. I helped him get out, and Slab City continued into another merry 110F May afternoon.

May

31

Check out this video. Paul Haber: Against the Wall

Paul Haber did the impossible beating the world racquetball champion in a winner take all Hands versus Racquet match in Memphis. Sports Illustrated called it the greatest mixed sport match in the history of athletic competition. In the world of handball, Paul Haber was Arnold Palmer, Jack Nicklaus, Bobby Hull, Joe DiMaggio, Joe Namath, and a dash of Frank Sinatra. A Sports Illustrated writer called him "the most colorful champion in sports since Namath - and with better knees."

Howie Eisenberg writes: 

Ironically in the match with Muehleson, it looked as if Paul was playing clean and the dentist, pullar of society was intentionally blocking. It didn't seem as if Muehleson was using the power advantage that a racquet has. Yes Paul Haber was a a scumbag but except for the screaming at the refs was not bad on the court. Nobody had any greater will to win than him. He was actually fun to be with if you weren't playing against him or lending him money or he wasn't sleeping with your wife as he did with some guy who was dumb enough to invite him to stay at his house for a tournament. He and his father also named each other as corespondents in a paternity suit. Other than that he was a paragon of virtue.

May

30

A beautiful story about systems, work and family from a master:

Download [19 page PDF, 12MB in size, 5 minutes to download]

May

29

 I am asked by a son for tips on how to be a good trader. Here's a good start. Ask yourself be4 you trade:

1. Have you tested it?

2. Is it already in market?

3. Are you getting in over your head?

4. Are you trying to make money the same way many did yesterday?

5. Are you shorting stocks and going against the drift?

6. Are big things happening in related markets that could domino over?

7. Is there much fear in the market before the next announcement thereby giving you an opportunity to come in before it?

8. Are you paying too much implicitly in vig, rake in terms of how big a profit you are going for relative to your vig, rake bid asked spread?

9. Are you playing someone else's game, like trying to make a 1/10 of 1% profit on your trade in the next hour while high frequency taking 100 mill a day?

10. Is something bad e.g. sickness happening in your family that will prevent you from proper decision making?

11. Can you afford to lose?

12. Did you stop to test, consider all these things before you traded or did you just make a reflex kind of trade?

13. Is liquidity going to be reduced shortly so you're playing mah jong against a group of experts with little chance of beating them?

14. Do you have a backup position with most of your assets long stocks?

15. Have you had sex recently good or bad and is it influencing your decision the wrong way?

What would you add or subtract from this?

Ralph Vince comments:

Along the lines of 11, can you handle the worst thing that can happen (and along the lines of 13, this event should include the notion that there will be no liquidity, which will haunt you in the quietest moment of the night.)

I would also add: "What's your time horizon on all of this–on this trade and how many of these?" Ad infinitum is an answer here, but there should be a reason for that answer, not as a default.

Once both of these two questions are answered, unequivocally and clearly, a trader can address the most important question, in my opinion, which answers the "how much," but is approached by answering the pinnacle of questions all traders must answer, which is "what are you trying to accomplish within this given time frame?".

Jeff Watson writes: 

Do you really know and understand the game being played that you are trying to join? Are you aware that there are always games within games that might have a totally different, secret, set of rules?

Are you under the delusion that grains are "easier" because they seem to move slower and with less violence than the metals, oil, spus, etc?

Are you in good shape financially and physically?

Have you developed an aversion to losing money?

anonymous writes: 

Focus on process over outcome. It's not whether you make the shot, but whether it was a good decision to take the shot.

May

28

 How many lives are lost because the FDA uses double blind rather than decision making under uncertainty as the gold standard including the data for metformin which is a decision making under uncertainty 99% for life extension but could never even be tested and approved because it would cost over 1 bill to test.

The gold standard also applies the "precautionary principle", thus avoiding the political fallout of another Fen-Phen. They make it uneconomic for sponsors/manufacturers to do research in life extension, delayed senescence, cognitive enhancement, and other outcomes that require the "proactionary principle".

Alston Mabry writes: 

I still remember the first time I heard the term "evidence-based medicine", and how my first thought was, "As opposed to what?" Upon investigation, I realized that what we have is essentially "experience-based medicine", i.e., doctors do what their experience, and the experience of their teachers, tells them is the best course of action. Then I read articles about how hospitals resist the tracking and publication of the performance of, say, their surgeons, because they don't want to lose patients if they look bad.

There is so much data produced by our whole healthcare system, and the bulk of it is lost. The whole country is a pharmaceutical experiment, but I wonder if we capture even a small fraction of the useful data.

Dylan Distasio writes:

Agree 100%. I think the gold standard has done more to set back the areas highlighted than any others, although they (along with the legal environment) also make it extremely hard for MDs to experiment with cancer protocols. There was a great article awhile back (which I can't find at the moment) highlighting the fact that early (by early I mean 1960s-70s) creative protocols based on taking calculated chances and empiricism could never even be attempted in today's the "proactionary principle".

Charles Pennington writes: 

Speaking out of ignorance here, but I have the impression that a very disproportionate amount (>80%?) of important world pharmaceutical R&D is done in the US. Are there any familiar prescription drugs that we take here that were developed and/or marketed by Japanese companies? I can't name one. Obviously there are some big European pharmaceutical firms, but it still seems like the US is the center of mass, and even more so if one is considering "biosimilars" — seems like the US really is even more dominant in biotech

Is this impression correct, and if so, why?

(I imagine it's true in spite of the FDA rather than because of.)

May

28

Probably the greatest lyrical example of Vic's suggestion to always having more than one mouse hole. It's an Elmore James song made famous by the Allman Brothers.

In honor of the late Greg Allman who passed away yesterday.

May

28

Some 52 years ago I studied the Friday down Monday down effect, a tendency for Monday moves to be inordinate bad after Friday declines. The z's for it were about -15 for the preceding 25 years. It seemed appropriate to update it. I found that the last 469 Friday declines were followed by an average move of 001 on a base of 15000 with the last 512 Friday rises followed by an average move of 002.

Those are moves of 1/100 of 1%. The standard deviation was about 50% higher at 180 for the Monday moves following the Friday declines showing a significant increase in volatility following Friday declines. That's all that's left of a regularity that is still extant in many of the book.

"The Behavior of Stock Prices on Fridays and Mondays"

May

28

 I have a friend, fairly young (today is his 20th birthday) guy in London. He has no university degree, and has spent not very much time there. Working as a project manager at some IT company, he was earning about what my daughter will be at Morningstar (where she will start in about two weeks—let's hear it for the econ major, better yet, let's hear it for mom and dad who warned about the perils of an English or history major—and can point to the lack of jobs those folks have now that they've graduated) at a ridiculous salary (not that she's complaining).

He just snagged a job at one of the major consulting companies building a blockchain group as the program manager at about 4.5 times (no, not a typo) what he was earning before (with barely 4 mos experience). At first I didn't believe him, but I heard overnight from another friend that an announcement had circulated among a few folks at the consulting firm confirming that this fellow was starting on Monday as program lead.

Absurd? Perhaps—but that's what the market rate is. For those of us who lived through the dot-com bust, it suggests just how out of kilt the area seems to to be—not merely the valuations of the currencies but the perceived opportunities by corporations. At the height of the dot-com bubble, some kid with minimal work experience and a high school diploma could create an idea (like Hotmail) and implement it with 2 days of programing (like Hotmail) and then sell it for a cool $100 million (like Hotmail). Or be hired as a COO for a start-up at a $200 million valuation at a ridiculous salary—and no product (though they had a photo of a whiteboard sketching out a potential produce with a price point no one knew had any basis in reality. Or…you get the message. But if companies are willing to invest in the area to the degree that it seems to be with him, I have to wonder if we're looking at the side of the picture, not its center.

Blockchains are in that situation, as the money flows into them. Or are they? Real products doing real work with real pricing (for the systems supporting the blockchains). So while we can argue about ethers vs bitcoins and whether they are too high or too low, the basis for those currencies to exist is undergoing explosive growth. And that's really the story here. You might get burned on the specific currencies, but investing in blockchains is a low risk-high reward proposition right now. And the question du jour is how to invest in blockchains, not the currencies.

Levi Strauss made as much as many of the 49er miners, and he kept doing so long after they had passed from the scene. Selling the pickaxes may not create as much wealth as using them, but it's a lot safer and will yield a lot of profit.

Sentiments about cryptocurrencies may be hard to assess. Sentiments about blockchains is another matter altogether. That's not only real but with significant money behind it. While I am happy for my friend, I think he would acknowledge that he's not sure how to explain the orders of magnitude change in salary except as suggesting a lot of confidence in this area as one of the building blocks of the future (or present, I suppose).

This thread may be about the blockchain du jour, cryptocurrencies.

Perhaps it should be about blockchains, the emerging technology of informational interchange.

Henrik Andersson writes:

I believe this sentiment described by David to be deeply flawed. The current bubble is in blockchain, the technology. Typically you hear these type of arguments from non technical, consultant type of people. The reason for using a blockchain in the first place is its trust less nature, it needs to be public, open and will be open source - thus this is not where the economic value lies. The banks and the consultants preying on their fear of being disrupted are using blockchain as a buzzword but without a token, it becomes nothing more than an inefficient database. R3 is maybe the best example - they recently realized tis and have abandoned the blockchain technology altogether! There is nothing revolutionary in a private blockchain, it is a shared database, not an immutable ledger. The economic value will lie in the tokens of these blockchains - they become the fat protocols that now can be monetized directly for the first time. The value lies not in the many times free software underlying these tokens. This is a good think piece: "Thoughts on Tokens".

May

27

 From pro poker player Sam Farha:

"The one who bets the most wins. Cards just break ties."

Doug Martin writes: 

I sat next to him on the way back from Aruba about 8 years ago. I had no clue who he was until someone on the plane told me. I rarely win at the casino.

That trip in Aruba was odd. I was playing Roulette for about an hour. Red, Black, Odd, Even, etc, just passing the time over some drinks. It got awkward. The dealer started to randomly pay out on some of my losing hands. After about 3 losers where the dealer gave me free money I wandered off with my girlfriend. Very strange but I remember it vividly.

I would imagine about 5 more of those "winning" hands I would have been followed out and asked to hand the money over to some kid in on the scam.

It was a small hotel casino, probably 40 people there total. 

Jeff Watson writes: 

Last time I saw Sammy play was at a 5/10 NL game at the Bellagio. He did not look happy in his reduced state/bank roll. He had the same hang dog expression and demeanor the same as some of the hundreds of busted out traders I have known over the years. This brings to mind the story about Nick "The Greek" Dandlos. Having played for millions, winning and losing 20 fortunes over the years, in his dotage Dandlos was reduced to playing $5 draw poker at the Normandie Club. At the table, the Greek was asked by another player how he could be playing for such reduced stakes and he replied, "Hey, it's action, isn't it?"

May

27

As long as there are useful idiots in the world like those that I often enumerate from Cal, and the twin former Harvard fund manager, there is no need to worry about A.I in our field.

Orson Terrill writes: 

The idea out there that there is no discoverable alpha, or soon there will be no discoverable alpha, because of so many quant funds, hft, AI algos, have absorbed it all…. is ridiculous!

People should be excited that no one can get to it all.

The factorial reality when trying to get the faintest idea of the market as a closed system was already beyond the grasp of current human ability. Attempts to increase precision with AI doesn't remove anomalies from the market at an increasing rate, it will slow the rate of removal. Deep learning adds a huge amount of variables (random weights, nodes, whatever you want to call it) to the computational load.

Say you want every basket of 10 stocks you could make with the SP500, for 10 years of data, OHLC, volume, ranges of various frequency, day of week, day of month, month of year, 1st 2nd 3rd (and on) differences of everything, some various filters such as averages, then you want covariances, the changes in those.

THEN! (Maybe!) You take those 200 octillion data points (seriously) and get to work with some AI? Seriously? Every computer in the world probably couldn't do this, and of course you'd still have over fit models in the end.

To make the point about AI:

Formulating a model, or an hypothesis about a condition, with all the data wrangling and basic transformations involved, that are then used to make orders of magnitude more data by fitting something as basic as a neural network auto-regression model, essentially means the potential combination of inputs, and computational demand, has left the universe. It's way beyond the scale of any computational feat happening even the most bleeding edge. So. Far. Beyond.

In other words, think, dig, have ideas, test them, and don't worry that you might be the only one trading on something. If what you're trading on has just a minutia of complexity, it probably wasn't found via brute force search by some high performance computing juggernaut. Bet on that. They have trillions and trillions of the most simplistic price change anomalies that they are still chasing/racing each other for all over the world.

The stuff that the Chair was doing in the 70s (before I was even born!) is still being chased today…and everything else (which is almost everything) is left on the table. The structural reality of: What computers are good at, returns to speed, large funds needing to focus on the most liquid assets for risk control, and because large funds need larger sources of liquidity to match against, guarantees most money is crowding in the same large liquid spaces. 

Stef Estebiza writes: 

Warren Buffett's favorite holding period is forever.

anonymous writes:

That is his favorite holding period for everyone else, particularly those holding his, as it reduces the directional liquidity to the upside and therefore reduces the the power of the viscous forces to resist change and increase slippage to the upside.

May

27

 No sooner had I said that the attempts to damage Him seemed somewhat epicyclic, that his hand shakes are belittled and ridiculed. I can't find the proper analogy for these attempts in nature right now but I can in the one thing I know about–racquet sports. Often one plays against a player who is relatively impervious to your game. First you try bringing him to the net, then you hit to his week side, then you try rushing to the net, then you lob. Then you play dead. Then you delay. Finally you hit one down the middle and rush the net, I once played Ralph–in the finals of the gold rackets, and I was up 13-5, 2-0. He had tried a bag of tricks but it didn't work. He then turned around off the backwall and aimed it for the back of my head with all his might. I demanded the referee default him even though I was up 14-5. But the refs like the press now were always against me.

"Macron Out-Trumps Trump in Handshake Duel Before NATO Summit"

By Jennifer Jacobs, Margaret Talev and Craig Gordon

Donald Trump is known for employing knuckle- crushing, testosterone-driven, arm-shuddering handshakes. But he met his match today in Emmanuel Macron.

It took the French president just six seconds to out-Trump Trump in a handshake that showed the world — and a man three decades his senior — that there's a new leader on the world stage.

Trump's trick is to go in strong and then hold on just slightly too long, often pulling the other man toward him. Meeting Macron for the first time before a NATO summit in Brussels, Trump went in firm as usual. But this time, it was Trump — not Macron — who tried to back out first. Macron simply wouldn't let go as Trump tried to pull back once, and then flexed his fingers straight to get out. On the second try, he was able to pull away.

May

27

 Growing up, my family's next door neighbor was the family Norman Currey, a jolly Englishman who worked as an engineer at Lockheed in Marietta, Georgia.

Up until this Christmas I hadn't seen him for decades, but now, at age 91, he lives in the same senior community as my mom. So I got to see him this past Christmas. I was stunned that this man could be 91 years old, as his mind was not only crystal clear but also quite engaged in some productive activities. He told me he was working on publishing a book on the history of aviation, written in a fun style for the layman.

Lo and behold, his book was published four days ago on Amazon. It looks very professionally done. There are not only hardback and paperback options but also a kindle version, which appears very well formatted.

I just ordered a hardback version. Meanwhile I've read bits and pieces from Amazon's preview. Looks like it's going to be a very fun book to read:

Airplane Stories and Histories by Norman Currey

May

25

 I took a son to a Yankees game yesterday.

The score was 2-0 on a two hitter to Yankees favor at the end of sixth inning. We left.

The royals won 6-2 scoring 6 in the last 3 innings.

The S&P did the same thing after the minutes failed to have the desired Fed effect.

Was it chance or was our impatience a sign of expanded potential for a reversal in baseball and markets?

May

25

 The Pentagon has confirmed that the USS Dewey sailed within 12 miles (20 kilometers) of Mischief Reef in the Spratlys. The DOD spokesman stated that the U.S. "operate(s) in the Asia-Pacific region on a daily basis, including in the South China Sea….We operate in accordance with international law. We fly, sail, and operate wherever international law allows."

This "violates" the claim that these waters are sovereign territory of the PRC. The Chinese report that two frigates drove the Dewey out of the area.

That seems improbably. The Dewey is the size of a WW II heavy cruiser. Chinese frigates are the size of American Coast Guard cutters.

May

23

 Let us return to the glorious days of Festinger studying the Keech cult but this time let us study the much more poignant, harmful, and prevalent failed prophecies of the Abelson zombies, and the bond twins.

.

.

May

23

 I am not familiar with Kurt Godel, but I think his ideas are similar to the ideas of cosmologist Max Tegmark. Here is an excerpt from the BBC documentary Horizon interviewing Max Tegmark.

He states that our Universe/Reality is math. So math is not only a language to understand the world, but it is the world itself.

My knowledge of the topic ends here-– it is fascinating though.

Quoting T. Mcclellan:

Plato was probably the last person to at least be on a level with the then leading thinkers of functionally all branches of human thought (Aristotle conventionally thought to be even more so).

There is an interesting refutation of the ideas in the Republic in the Parmenides. In this second dialogue Parmenides delivers a devastating criticism of Plato's skepticism about empirical reality. Plato has him argue strictly on Platonic lines that in fact if we grant that the Forms (for example numbers) truly exist, even then we could not know them–and worse, if we exist then pure beings such as the gods could not know us! Thus not only are ideas as unreliable as appearances they are no surer a foundation for knowledge. Obviously not a great conclusion for a Platonist!

Believe it or not, the real existence of forms–or the Pythagorean equivalent that all the universe is number (perhaps numbers) is still hotly contested today. Supposedly Kurt Godel could not understand people who did not believe in the literal existence of numbers outside the human brain. Although of what substance he thought them to be composed, I know not.

Russ Sears writes: 

The following is what I wrote to the spec-list in 2010, concerning Godel and Singularity. Kurt Godel was a close friend of Einstein, they often walked to and from the University together. He is most known for his "Incompleteness Theorem".

It has been suggested before that Godel's proof gives us insights into human intelligence. John Lucas was one of the first to suggest it. "Godel's Theorem seems to me to prove…that minds cannot be explained as a machine".

Roger Pemrose has 2 books, "The Emperors New Mind" and "Shadows of the Mind" that supposedly show Godel disproving "mechanism" and "artificial intelligence".

Pemrose suggests that while we're not a machine, we are a physical system and should consider quantum mechanics.

Godel was much too timid about conjecturing on the record. He was very fearful about confrontation. As suggested, the Third Reich probably never did give him or his kind a second thought. To his paranoid mind the world would conspire against him to keep all mankind stupid. So what we have from him on this subject is from his private conversation with Hao Wang and a lecture.

Wang on Godel: "Either the human mind surpasses all machines (to be more precise it can decide more number theoretical question than any machine) or else there exist number theoretical questions undecidable for the human mind." or as Ms Goldstein suggests: "The incompleteness theorem, by showing the limits of formalization, both suggest that our minds transcend machines and makes it impossible to prove that our minds transcend machines. Again, an almost paradox."

Or in my words we could simply be deluding ourselves that we have access to "truth" through intuition. This is of course is tragic and ironic in that while we can't know the pure case, Godel himself succumbed to some major delusions and was paranoid later in life.

And we as speculators certainly can't cast the first stone. While I would suggest that we may "transcend machines" through quantum mechanics, our minds may also transcend time through quantum mechanics, leaving a rendering of our "physical system" difficult if not impossible to interpret and to reproduce. 

May

23

 If American Enterprise Institute's numbers are correct and if the Trump Administration is serious about their promise of creating jobs, Trump should immediately give up on coal and focus on solar. Unfortunately, AEI's presentation is wrong.

AEI put their thumb on the solar scale. For solar, they included employees dedicated to the construction and installation of new solar assets in addition to operating employees. They did not do the same for coal. They didn't do it for coal because almost no one is building a new coal plant.

Instead of comparing apples with oranges, AEI compared apples with orange trucks. Nevertheless, on the jobs front, the conclusion is the same: Trump should give up on coal.

Stefan Jovanovich writes: 

When Milton Friedman was shown a construction project in The Third World where the earth moving was done by people using shovels, he was told that this was helping with employment. Friedman is said to have replied: "Then why not take away the shovels and give them trowels." The output for solar remains trivial - .04 billion MWH vs. 1.24 billion for coal and 1.38 billion for natural gas. Even the most optimistic projections of the DOE don't have solar producing even 10% of the present output of either coal or natural gas before 2025. Perhaps the solution to the employment problem is to abolish the long-wall mining equipment and bring back the shovels.

Leo Jia writes: 

It is alive and well here in China. At my building complex on the east side of Shanghai, which was an early 1990s series of lux buildings, they'll send a ground crew of 10 to trim hedges all day. I could have easily done the same with a trimmer in an afternoon during my summer odd jobs.

Other bizarre aspects of town– even in some of the most posh areas with the latest buildings, there are a dirth of street lights and almost none of the bicycles, runners, and electric mopeds, even the newest, have lights and/or reflectors.

Another thing I wince at is workmen of all kinds not using safety glasses which cost all of a couple of USD equivalent. The ones I see wearing are the supervisors well away from the dangers.

May

23

This paper argues that most anomalies go away when microcaps are removed from the bucket:

Replicating Anomalies

Kewei Hou, Chen Xue, Lu Zhang
NBER Working Paper No. 23394
Issued in May 2017
NBER Program(s):   AP   CF   EFG   IFM   ME

The anomalies literature is infested with widespread p-hacking. We replicate the entire anomalies literature in finance and accounting by compiling a largest-to-date data library that contains 447 anomaly variables. With microcaps alleviated via New York Stock Exchange breakpoints and value-weighted returns, 286 anomalies (64%) including 95 out of 102 liquidity variables (93%) are insignificant at the conventional 5% level. Imposing the cutoff t-value of three raises the number of insignificance to 380 (85%). Even for the 161 significant anomalies, their magnitudes are often much lower than originally reported. Out of the 161, the q-factor model leaves 115 alphas insignificant (150 with t < 3). In all, capital markets are more efficient than previously recognized.

May

23

Here's an excellent article in Munsey's magazine describing BP Hutchinson's wheat corner in 1888. The article very accurately describes what went on, the history, the players, how the corner was played, and the consequences of his corner to the shorts and to the general public. Financial machinations always have social consequences. Near the end of the article is mention of Leiter and Armour and their games.

May

23

 I took a survival and orientation course over the weekend. Reading maps is a lost art and good skill to have; being able to plot a course using a simple protractor, degrees and adjustments for magnetic north. The error calculations are interesting: for example if you are off by 1 degree over a 1000 meter walk this is 18 meters of error. Over a few miles this error can be quite large and easy to see how people get lost in the woods. GPS can solve many off these issues, but still good not follow GPS blindly as it could lead you over cliff or an obstacle heading to a coordinate. Accuracy and attention to detail are important in planning. Once in the field you should use the terrain features to makes sense of the course, look for check points and reevaluate often.

In survival there is a rule of 3's. The body can survive 3 minutes without air, 3 hours in harsh conditions without shelter, 3 days without water, 3 weeks without food. If you have a plastic bag, wrapping it around a green branch will produce condensation water in just a few hours if there is sun on the bag. Fire can be made with shoe laces leveraged to turn wood pieces using friction. It is not easy, but possible. Shelters can be built in a few hours and improve both physical and mental outlook. Preparation is critical and a few simple things like having a plastic tarp, knife, and first aid kit can make a big difference. Improvising is important: For instance batteries in contact with metal will heat and make fire; Tree branches can be used to make simple snares; pine nuts in the west or acorns in the east can sustain the body.

May

22

 Tom Wiswell ended his last set of proverbs with "a million moves ago– the good old days. All times when old are good. So many moves, so many variations. So many players–so many friends."

Shortly thereafter, he came late for the first time in 25 years to his weekly checkers board meeting at our offices. "Victor, I couldn't remember the floor to get off". A week later he was in a veteran's hospital for loss of memory.

May

22

 The Lost Art of Reading Nature Signs by Tristan Gooley.

Here's a great quote from Gooley talking about trees usual orientation towards the south: "If you are surprised by what you see in trees, there's an explanation. Randomness is not a great strategy in nature. So it's rare."

That quote to me is so profound. So often what seems absurd, ephemeral, has a much deeper explanation (that often already transpired). Gooley was talking about a tree that grew stronger and bigger on the north side. It turned out that the North was receiving reflections from a big glass building on that side.

I also read Henri Poincare: A Scientific Bio by Jeremy Gray, a fascinating genius who made major contributions to differential equations, number theory, probability, electricity, non-Euclidian geometry  effortlessly by applying models that could be transferred from one field to another. The biographer is a mathematician who does a great job in illumining the contributions in each field.

Also Economics for Independent Thinkers by Daniel Nevins. This book in press tells you 100 things that can lead to disaster, especially government debt. While many of the things he highlights are bad, and have historically been associated with disasters in the economies, there is no effort to tie these to markets. There is a good discussion of the effects of QE on lending and activity.

May

20

 Quantifying Life by Dimitry Kondrashov   

A Modern History of Japan by Andrew Gordon


Tree Models of Similarity and Association
by James Corter

Scenescapes: how qualities of life shape social life by Daniel Silver

The Evolution of Communication by Marc Hauser

Python Programming by John Zelle

The Complacent Class by Tyler Cowen

The Mathematics of Life by Ian Stewart 

The Moscow Puzzles by Boris Kordemsky

Analysis of Longitudinal Data by Diggle et al

 War Paint by Lindy Woodhead

Adam Smith by Ryan Hanley

The Autobiography of Ben Franklin by Benjamin Franklin

Essential Demographic Methods by Kenneth Wachter


The Essence of Stigler
by Kurt Leube

Expected Returns by Antti Ilmanen


The New Libertarianism
by Michael Oliver


Out of Poverty: Sweatshops in the Global Economy
by Benjamin Powell

Statistical Models by David Freedman

May

18

My father was the most benevolent guy in the world. He was easy victim for every tarbeauxian gyp. Often a gypsy would agree to fix our roof for a seemingly low price, and one day later the material would wash away. Or a poor man would ask to borrow money from him for a worthy cause and he would empty his pocket. I must have inherited the trait of being gullible and easy to deceive without the good part about being benevolent. I didn't see that the story was from the Onion and the picture looked so realistic that I easily succumbed to believing it. To make it worse I posted it on twitter as a possible cause of the market's decline and looked like an idiot there also, and lost a large part of the credibility I had there.

Andrew Goodwin writes: 

That one was a play on the true historical incident involving Michael Jackson. If armed with the correct technology, it is far harder for a picture modifier to fool the viewer. Here is a link to an article I read yesterday about photo sourcing and source identification. The article touts an app that uses watermarks and timestamps. However, it also provides a useful list of tools to insure one does not fall victim to a gross deception perpetuated by a photo modifier.

anonymous writes: 

I show everything still saying long-term huge bull market. NO major top this year.

I have short term stuff saying buy into this now on weakness, as I said last night. This drop may be only half over, but it's time to begin adding to it.

One of the funds I run avoids short term, so I'm just riding it out there except to peel off some of the hedge down here and realize some profits from that. The other fund, not concerned with tax efficiency in that sense, much more aggressive. Covered the positions in short vol Tuesday, started re-establishing yesterday and continue to do so. This is a nervous time. There is a coup in progress in America, and it appears to be failing. This thing could go up as quickly as it came down with a vicious V-shaped bottom here (this would not surprise me given the underlying strength in this thing and the pervasive fear out there), or it could continue down, the drop only halfway or so done, but still in the time window to be getting back long this thing.

Rates are still in their 35 year bull market. The correlation to equities may be about to flip again in the coming weeks. I still think we're headed to a 1 big handle on the thirty.

Anatoly Veltman writes: 

You knew of course. What you couldn't fathom was that someone (The Onion, of all) could ANTICIPATE a decline in equity fortunes. I loved the line where Warren initially was on a hot streak… No less fascinating was to read the list this week on and on and on and on about stupidity, as if same had nothing to do with us listers. It seemed only Rocky hadn't chimed in, thoughtfully and busily setting up hedges (remember: Rocky never loses much). Ralph also hopefully lucked out depending on his definition of "on strength". A whole generation of specs hasn't seen a 5.1, let alone a 20.0 percent, correction.

anonymous writes: 

I have no worthy insights on the markets. The preponderance of my speculative (as distinct from investment) domestic equity exposure is in SPY calls spreads with the lower strike at 236, and which expire tomorrow. So my net exposure has fallen precipitously over the past 24 hours and I am sitting on my hands at the moment — neither buying nor selling. Similarly, my treasury bond exposure/gamma has shifted from bearish to neutral. I have not touched my speculative foreign stock positions. The market's reaction on election night defied conventional wisdom, and what is happening right now is being attributed to Trump, but is really Mr. Market doing what it wants to do, and finding a post hoc reason. By way of example, last week, at 6am, Bloomberg radio said (and I quote): "S&P Futures are down 4 after the president's firing of FBI Director Comey." The use of the word "after" shows the worse sort of bias, false attribution, and nonsense. The announcer could just as well have said, "S&P Futures are down 4 after five more people were murdered in Chicago" or "Down 4 after XYZ corporation reported earnings below expectation." I must decide whether, if the market goes down another 3% and I have no unique information unavailable to everyone else, am I a buyer or a seller? And then, if the market goes down an additional 5% and if I have no unique information, am I a buyer or a seller? I do not know my answer at this moment. And I am most certainly not predicting that the market will decline these amounts or I would be short. And I am not short.

This is a long-winded way of my weighing in on the conversation about "stupid" people. I don't know what "stupid" means. Every person has some negative traits and some positive traits. For me, the most amazing thing about Tiger Woods is not that he was an amazing golfer and a dismal husband who kept "stupid" texts on his phone. Someone was statistically destined to be the top 0.00001% of all golfers. The amazing thing about Tiger Woods is that his family recognized his innate rare talent and put him on a path that developed it, rather than force him to spend hours studying piano or reading ancient literature or working in a McDonalds. If he had not been put on this path, he might well be robbing liquor stores, smoking meth, or working as a Wall Street trader. There are surely hundreds of people who could have been as a good as Tiger Woods in golf — but their gift was not recognized and developed (for whatever reasons). Conversely, there are thousands of potential philanderers, but for whatever reason, they remained faithful to their marital vows. My point is simply that calling someone "stupid" is primarily a value judgment and reflects how one relatively values different things.

In Tiger's case, relatively values regarding career versus family — allows one to dub Tiger as stupid or not. I am not making any judgment about Tiger Woods, except to say that a similar analysis can be made about anyone who we label "stupid." And lastly, if you choose to be a philanderer, leaving texts on your cell phone may appear to be stupid, or it might be a gutless person's way of initiating a break up with one's spouse.

Laurel Kenner writes: 

As I was stock market editor at Bloomberg in the 1990s, I was an enforcer of the ludicrous practice anonymous described of attributing market moves to whatever explanation lies close at hand. Sadly, although the creator of that practice has been kicked upstairs, no one has changed it. My reporters and their sources knew it was all malarkey, and I was as lucky enough to have some education in statistics and behavioral psychology through the good offices of Chair and many eagles to whom he introduced me. I lasted only a matter of months after getting wise. I don't believe it was stupidity so much as ignorance. The danger is that the ignorant can so easily become pawns for those with a political agenda, as we saw this week with the anonymously sourced Trump story. The market's reaction was used to give credibility to the story. As anonymous points out, Mr. Market does what he does and will brush off impertinent descriptions. 

Stef Estebiza writes: 

Trump politics has been slowed down by the Democrats. With this new story (employee of Putin), we are at the mobile sands. So the fake news of electoral propaganda actually are only words left in the wind, and do not produce the results that the markets expect. Currently Trump is at check. We'll see if he'll be moving to checkmate #impeachment.

anonymous writes: 

I suggest the opposite is the case.

To extend the chess analogy, Trump is playing a positional game while the Dems howl about each pawn they take as their long-awaited victory.

They lost on SCOTUS and they are going to lose on the budget, taxes, health care policy, and eventually foreign policy.

May

18

 Carlo Cipolla's Five Fundamental Laws of Stupidity:

1. Always and inevitably everyone underestimates the number of stupid individuals in circulation.

2. The probability that a certain person (will) be stupid is independent of any other characteristic of that person.

3. A stupid person is a person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses.

4. Non-stupid people always underestimate the damaging power of stupid individuals. In particular non-stupid people constantly forget that at all times and places and under any circumstances to deal and/or associate with stupid people always turns out to be a costly mistake.

5. A stupid person is the most dangerous type of person

Here's a link to Cipolla's essay.

Stefan Jovanovich writes: 

Many many thanks to AC. Cipolla's Guns, Sails, and Empires: Technological Innovation and the Early Phases of European Expansion, 1400–1700 (1965) should be required reading for anyone who wants to presume to understand our "modern" world.

anonymous writes: 

I have the most trouble identifying my own stupidity.

My swat drove home the lessons of liberalism and progressive taxation. It was in Mr Gallagher's 8th grade history class. Before class started, noxious Paul initiated a fencing match with me using pencils. It wasn't my idea but I did score the only point - with a leaden puncture to Paul's forearm. He promptly took his wound to Mr Gallagher, who summarily referred me to the vice principle's office.

Mr Curtis had me grab my ankles for three humiliating whacks. They didn't hurt so much as worry me that my parents would find out (they didn't). And it seemed unfair as I only attacked in self defense.

I won the skirmish but lost the battle, because the system was rigged pro "victim", even then. It would have been better, in a away, had I lost the fight. I wouldn't have snitched but would have learned about another kid to avoid.

Russ Sears writes: 

What I have observed is that some people are too stupid to realize that they are stupid. Studies show that those that do the worst overestimate their abilities on a test of just about anything, while those that do the best underestimate their abilities to test on just about anything. Socrates was right that the beginning of wisdom is to know one is ignorant. However, as his untimely death implies, he was wrong to point this out to stupid but powerful people. However the leaders should not be as Aristotle implies (perhaps as survival mechanism learned from Socrates experience), the most learned dictator, but the ones most capable of producing cooperation from all individuals talents. 

I was told that the reason most people do not know they are stupid is that they attribute their knowledge as being the most important, and therefore under-estimate the importance of their ignorance. Perhaps this is a form of denial, to justify their self-worth. The market's in general is brutally honest on what is "important". 

May

18

 Bitcoin is currently stalling out on transaction speed and will force the hand of the core development team to make adjustments.

At present, the miners are clearing (very roughly) 2000 transactions every 10 minutes, this is primarily due to the limit of the block size of 1 megabyte and the amount of transactional information they can place into that size.

There is a lot of hand-waving about the slowing rate of growth of bitcoin versus other cryptos and the glacial adoption of newer protocols is certainly a part of it. For my part, I am content that the developers are overly cautious as any bug in the implementation can crash the economy. Ethereum learned this firsthand last year after they lost millions due to a bug. That said, Ethereum is also a model about how resilient the cryptos can be in the face of lost confidence.

At some point, bitcoin will increase the size of the block above 1MB and punt the transaction problem down the road for a while, but it exposes one of the problems with it's design which is transactional throughput. Most of the cryptos out there have the same tree-based transactional design that at greater scale will eventually cause the system to come to a crawl under normal load, not to mention making them vulnerable to spam attacks.

There is some promise in a new way of guaranteeing transactional integrity without a tree in DAG (directed acyclic graphs). The concept is more of a mesh of (very) lightweight transactions, each of which is forced to validate two other previous transactions. This obviates the need for miners and makes every initiator of a transaction do the proof of work. This concept would scale far better than (what has become) the centralized miner model of the major cryptos.

I am aware of two cryptocurrencies being developed that use this model, Byteball and Iota, with Iota having a better marketing department. They are completely unproven, flawed, hoarded and still in development, but already have a solid following and are trading at what I'd consider high premiums. If they somehow reach critical mass without implosion there may be a big future in actual microtransactions, fulfilling the promise of cryptocurrencies years ago.

Andy Aiken writes:

Ethereum is on track to convert to a Proof of Stake transaction model sometime in 2018. Like bitcoin, ethereum is currently a Proof of Work cryptocurrency, in which transactions must be included in each new block being "mined".

As Jayson indicates, mining is highly computationally intensive. BTC and ETH mining requires special hardware, and consumes hundreds of gigawatts of power globally.

In a Proof of Stake (PoS) system, the network consists of nodes that reach network consensus on transactions without the computational intensity. The owners of the nodes (stakeholders) get a share of the transaction fees. A node could be run on an ordinary PC. There are currently PoS coins, but they are much less popular than bitcoin and ethereum.

On May 22, there is an Initial Coin Offering (ICO) for Tezos, which will be Proof of Stake right out of the gate. Tezos claims to be a direct competitor to Ethereum for the mantle of next-generation bitcoin. I'm skeptical of this ICO since the issuance is uncapped. This means that interested individuals and institutions will be able to get a piece, unlike other recent ICOs (e.g. Blockchain Capital, a venture fund that issued its own coin) that closed within 5-10 minutes of opening. On the other hand, Tezos could raise billions of dollars while being years from developing anything close to what Ethereum has already developed.

Byteball and Iota are using an entirely different model and a unique distribution system. E.g., if you hold BTC, you can get an allotment of Byteball by providing some personal information.

Cryptocurrency is much like the auto industry of the early 1920s. The failure rate of new coins/businesses will be high. Regulatory agencies are barely present, there are many scams, and a gambling mentality at the cryptocurrency exchanges. But the opportunities appear to be commensurate with the risk.

Stefan Jovanovich writes: 

AA may want to adjust his historical analogy slightly. The failure rate for automobile manufacturers peaked not in the 1920s but in the preceding decade. By the "early 1920s" the "Big 3" were already established.

The historical analogy that works best for me is the growth in the collectibles market pioneered by Joseph Segel. No one can question the Marxist measure of value for the objects that the Franklin Mint and others produced just as no one can quarrel with the enormous amounts of human labor, energy and computation that have gone into producing these current digital collectibles. One wonders what network of Quality Value Convenience will evolve out of all this buying and selling of precious man-made objects.
 

May

17

 The investigation of Iran-Contra diminished Reagan's authority with Congress and killed the second tax rate cuts.  This time the  appointment of a special counsel has saved a Republican President from himself.  The language of Mueller's mandate is to investigate "any links and/or coordination between the Russian government and individuals associated with the campaign of President Donald Trump; and…any matters that arose or may arise directly from the investigation."  Those "any matters" are far more likely to be questions into the FBI's own conduct and those of the Obama DOJ than recordings of Trump plotting with Putin.  The delicious irony of all this is that a career civil servant, not the Republican Congress, has forced the President to return to trade and taxes and Israel and China even as the Democrats celebrate and convince themselves into that "the Russian connection" will be their winning issue for 2018.

We in the bleachers are doubling down on our U.S. Common stock longs.

Ralph Vince writes:

I'm with you Stefan. It's still a bull market, you have a volume bar buy signal tomorrow (a very short term thing) at any point lower than today's low (or for any of the next couple of subsequent days).

I may take some heat on it, but that's what must be done.

Shields up and let's go.

May

17

Dr. Janice Dorn was a well respected member of the Spec List for many years. She became a dear friend via e-mail and phone, though we never met. When she did not respond to my e-mail and her message box on her phone was full, I became concerned and checked the web. Her husband and two sisters had all passed away in the past couple of years. So I had no one else to contact to find out what might have happened. So I was greatly saddened this morning to find that she passed away on April 25th at the age of 78 from cancer. She will be greatly missed by me as she was a wonderful person.

Her obituary can be found here:

In Memory of Janice Bebe Dorn

October 13, 1938 - April 25, 2017 Obituary

Dr. Janice Dorn, M.D., Ph.D., 78, of Phoenix, Arizona, passed away April 25, 2017 peacefully after a courageous battle with cancer. Born October 13, 1939 in Canton, Ohio, she graduated from the Albert Einstein College of Medicine with a Ph.D. in Neuroanatomy and did her postdoctoral work in Neurophysiology at the New York Medical College. She went on to receive her M.D. from La Universidad Autonoma de Ciudad Juarez, then onto a year of clinical clerkships in Phoenix, Arizona as well as a Neurology Internship at The University of New Mexico in Albuquerque.

Dr. Dorn subsequently trained in Anesthesiology at UCLA and also completed a Fellowship in Cancer Pain Management. After the conclusion of a Psychiatric Residency at the Maricopa Medical Center in Phoenix, she accepted the position of Associate Professor at the University of Texas Southwestern Medical Center in Dallas, The University of Missouri Medical Center at Columbia and The Chicago Medical School. She won numerous awards for teaching and eventually held the position of Director of International Clinical Research for a major pharmaceutical company that sent her around the world for nearly a decade searching for methods of life extension and optimal aging. After living in Scotland, Germany and South Africa, in 1987, she began her private boutique practice of Biological Psychiatry, Addiction Psychiatry and Psychoneuroendocrinology in Phoenix, Arizona.

Dr. Dorn held the following Board Certifications:

• Diplomate, General Psychiatry, American Board of Psychiatry and Neurology

• Diplomate, American Society of Addiction Medicine

As a Coach University graduate, in 1994, Dr. Dorn had focused her attention on trading, mentoring and commentary in the financial markets with emphasis on Behavioral Neurofinance, Mass Psychology, Trading Neuropsychology, Futurism and Life Extension. She is believed to have been the only M.D. Psychiatrist and Ph.D. Brain Anatomist in the world who traded actively and coached traders while writing commentary about the financial markets. She authored over 1000 publications relating to Trading and Investing Neuropsychology, Market Mass Neuro-psychology, Behavioral Neurofinance as well as Holistic Wellness and Longevity as she provided coaching/mentoring to more than 600 traders around the world. She also published two books, her first in 2008 entitled "personal Responsibility: The Power of You". She served in the position of Global Risk Strategist for Ingenieux Wealth Systems in Sydney, Australia. She became a sought after media personality, lecturer and trading coach.

Dr. Dorn most recently honored as a faculty member at The University of Arizona College of Medicine as a Clinical Assistant Professor in the Department of Medicine. Her greatest joy was helping others grow & prosper. She was a lover of music, an accomplished pianist and dancer. As a long time advocate of health and wellness, she was also a multiple medalist in the Senior Olympics. She was predeceased by her longtime husband, Thomas McNaughton D.O., M.D. and will be missed by her family, friends, students and colleagues. Donations may be made in Janice's memory to a charity of your choice.

J.T Holley writes: 

She was a kind soul. She reached out to me during my divorce to ease my mind. The world lost an incredible mind and warm heart.

anonymous writes: 

One of the most perceptive people I've ever met.

Jeff Watson writes: 

I've been trying to contact her for months. She was a friend and helped me through a period of great difficulty. Requiescat in Pace.

Jeff Rollert writes:

She was one great lady, and a particularly impressive addition by Vic to our group. I will miss her a lot. There have been too many who have gone silent in my life over the last year. I'd like to ask the List how we replace them in our lives. There must be a practical way.

Russ Sears writes: 

Like Jeff, she helped me through a hard time, all the while she was suffering from impending death of her husband. She also helped me with some writing. She was always eager to help me with any idea I thought was clever. And loved to share her plans. But last contact I could not get any response to what projects she was working on. I had been trying to contact her but was getting no answer. Like Scott, I have a pit in my stomach from the loss. She will be missed. 

May

17

 I have no doubt that Elon Musk will be able to raise billions of dollars for his tunnel projects. However I would provide a polite reminder and cautionary tale that the Channel Tunnel (that connects England and Europe) cost 9.5billion BPS to build–double the original estimate of 4.7 billion.

The tunnel officially opened on May 6, 1994 to much fanfare.

The company filed for bankruptcy reorganization about 12 years after it opened for traffic.

After writing off a ton of debt and wiping out the equity, the company finally achieved profitability, and ironically bought out a bunch of competing ferry companies. Nonetheless, the company stock has produced a negative total return for shareholders since it was relisted post-bankruptcy. See: Groupe Eurotunnel SE.

Similar lousy returns were had by the public investors in most American railroads, subways, canals, and other massive capital expenditure/infrastructure projects.

I know. This time is different.

May

17

 What a mess.

Will Ralph's bicycle helmets be enough to protect our brokerage accounts or do we need more?

Please post any historical studies on how markets normally react to presidential impeachments through the various phases.

anonymous writes: 

At worst, if it goes forward, it will be like the impeachment of WJC, and ultimately go nowhere.
But more likely is that impeachment talk fizzles out after a few weeks like everything else the WaPo wrings its collective hands over.
 
It’s difficult to assess post hoc the effect of the WJC impeachment on the markets, since Russian debt default and LTCM failure were concurrent.
I remember that at the time, traders and CNBC talking heads were imputing the daily news of stained dresses and perfumed cigars as the reason for the sharp selloff.
The news of LTCM breakdown came late in the selloff, but now journalists and media figures talk about 1998 as if LTCM was on everyone’s lips from the beginning.
 
So maybe something else is afoot behind the scenes.  I regard this inordinate market reaction as a warning sign, similar to Feb. 27, 2007.

May

17

 The founder of the modern cow flesh trade Phillip Danforth Armour was born on this day in 1832 in Stockbridge, NY. The town then was the same size that it is now -  two thousand people.  Armour went to California when he was twenty and came back four years later with a fortune - what would be roughly $5 million now ($8000 then).  His next killing came when he got the contract to sell beef to the Union Army. 

Thanks to Nelson Miles, Roosevelt's "brave peacock", Armour and Swift are still seen as villains.  Miles was, what else, a Progressive Democrat; thanks largely to Miles' testimony as a non-witness,  the body counts of the last Indian War have the same accuracy as John Kerry's estimates of what our Genghis Kahn hoards did in Viet-Nam.  

The thing about PD Armour that intrigues me the most is his actions in the wheat market in 1897. In the spring of 1897, 28 year old Joe Leiter decided to corner the wheat market. Leiter had money as his dad was a partner of Marshall Field. The novice Leiter also had a great first trade in wheat, netting $500,000. When he started buying wheat in 1897, it was trading at $0.50 and his buying promptly ran it up to a dollar. (Armour was a seller of wheat). Since dollar wheat hadn't been seen since the Civil War, the farmers sold every grain of wheat they had in storage. Leiter was a hero to the farmers for his "Patriotism." Leiter happened to be a customer of PD Armour, as Armour owned many grain elevators with a capacity of a few million bushels of wheat. He also owned 7,000 reefer rail cars for shipping meat that could be used to ship wheat(or tie up rail lines,) if necessary. Leiter had 1.2 million bushels of wheat in Armour's elevators, which he exported during November of that year, emptying Armour's elevators.

Leiter had a few million bushels of Dec wheat (WZ8 Comdty) and intended on taking delivery which would have left Armour short because he had no wheat to deliver. Armour had his agents scour the country buying up every bushel they could get, plus he also bought wheat futures to cover his short position. Since it was late in the season, Armour had to charter tugs to keep the ice from blocking the waterways and Great Lakes clear so he could get his grain ships through. Armour also built the largest grain elevator in the world on Goose Island to store all the wheat. Interesting factoid…the elevator was built in 28 days.

 Armour got all the cash wheat he needed(he had been short 9 million bushels) and was able to make delivery of 9 million bushels of Dec wheat to Leiter. Incidentally, Leiter had to pay storage to Armour of 3/4 cent per bushel per month. In the spring of 1898, the US went to war with Spain, and the wheat market rallied. However, Leiter was forced to buy May wheat (WK8 Comdty) to keep his corner going. Armour had the wheat, and stuffed another million bushels of wheat on Leiter in May. Armour was hoping that Leiter didn't have the cash but he did have the cash, barely, and was able to hang on.

In March 1898, Leiter charted 21 ships and started exporting wheat. He began lightening up on his July wheat position, selling 6.5 million bushels. While he was selling his July (WN8 Comdty) position, he was attempting to corner the May wheat. Leiter went to Pillsbury and Peavey and got them to double cross Armour and not sell him any wheat. In the meantime, with the war against Spain, wheat traded up to $1.85 and Leiter looked golden. However, Leiter never thought of other variables and left his flank exposed. The wheat crop came in early and huge, and as much as 4.5 million bushels flooded into Chicago in May alone. Armour got Peavey and Pillsbury to re-double cross Leiter and sell him the wheat to stuff down Leiter's throat. The rest of the summer saw Chicago's elevators fill up to the bursting point. All the elevators in the country quickly became full of wheat. The crop turned out to be 650+ million bushels, the war with Spain was short, and the wheat price broke hard very quickly.

Leiter was long 15 million bushels of wheat in both cash and futures. To say he was hurting would be an understatement. His father, Levi, had to come out of retirement to bail Joe out. They ended up selling the 15 million bushels using the very wily Armour as their broker. Leiter never traded wheat again, and he spent the rest of his days being a dandy while hanging around at the track.

The moral of this story is that the cash grain market will always trump the grain futures market. This is very apparent when the front month goes into delivery near the contract expiration.

May

15

 "A Demographic Theory of War: Population, power, and the 'slightly weird' ideas of Gunnar Heinsohn":

"What about America and Europe?"

"Except for its white population, which is falling, America is in demographic neutrality. Europe, however, is in demographic capitulation. Several European countries have birth rates so low they are committing demographic suicide.

Supposedly, the EU was formed because Europeans were tired of fighting. 'Five hundred years of war is enough,' they said. But there is a great lie here.

Why wasn't four hundred years of war enough? Or three hundred?

The real reason Europeans decided to stop killing each other is that they were no longer having big families. They had no more superfluous sons to burn on the battlefield. I talk about these things in my book. I will talk about them today, as well."

"Your book hasn't been published in English," I said. "A demographic theory of war and terror could be a tough sell to a military audience in London." Heinsohn smiled. "Generals understand. If you don't have children today, you won't have soldiers tomorrow.

Stefan Jovanovich writes: 

Heinsohn's economic theories are interesting to me. He is another creditista - i.e. someone who thinks credit is the oxygen for the voluntary systems of exchange that human beings have spontaneously created. But I doubt he would let this amateur into the Otto Steiger club; they join nearly everyone else in the academic world in believing that central banks are somehow essential to commerce.

I don't think anyone can argue successfully with the "youth bulge" theory as it applies to street crime and mob violence; but I wonder if it explains much about how the really bad wars start. There were no "surplus" young males in France, Prussia, Austria or Britain in 1790. There were in Russia, but the Russians were brought into the several Napoleonic Wars by their allies; they were not the ones who started the official killing. There was no demographic bulges in Spain, Germany and Japan in the 1930s or in the United Kingdom, France, Austria and Germany, net of emigration, in the 1910s.

In any case, if demography starts wars, it does not pay for them. For that you need central government taxation and the central banks that can turn government credit into payment, which takes us back to Heinsohn's economics…..

May

15

 When one is trading from the screen, generally speaking, one will not know who is on the other side of the trade. The anonymity the screen brings reduces many inputs but increases privacy. When trading in the pit, one gets to see who fills the other side of the trade. One gets to see what all the other brokers and locals are doing, their actions, and their intentions. There are many visual and auditory clues one could pick up in the pit that just aren't available from the screen. With the screen, one gets anonymity, with the pit, one gets transparency.

anonymous writes: 

I have always found former pit traders' laments about electronic trading as self-interested, sometimes intellectually dishonest, and often hopelessly romantically nostalgic. The market's purpose, I thought, was to bring together the maximum number of buyers and sellers so they could freely engage with each other and find a continuous clearing price — not to have a pit local or broker skim a penny off of every one of my orders, charge steep commissions, and front run me, all while sounding sanctimonious about providing liquidity. . Admittedly, the smartest pit traders have now reincarnated as high frequency trading savants, who now skim a 1/1000th of a penny off of each of my orders, but most evidence suggests that overall transaction costs are lower than ever before.

Similarly, one can compare Social Networks/Facebook/Twitter/Instagram to the old local social club, barber shop, church, town hall setting. As Jeff notes, one provides anonymity and the other gets transparency. But in contrast to Markets, I believe there is a bigger difference between Friends on the screen and Friends in real life. And here, just like the pit trader, I may be a dinosaur, but I prefer friends in Real Life.


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