May

24

Modern cockroaches have been around since the early Cretaceous period (about 150 million years ago) so they obviously have something going for them. I know at the University of Florida entomology school students were known in the 80s to take Madagascar Hissing Cockroaches home to study and appreciate –  But more recently we have the following:


1.

"For decades, people have been getting rid of cockroaches by setting out bait mixed with poison. But in the late 1980s, in an apartment test kitchen in Florida, something went very wrong.

A killer product stopped working. Cockroach populations there kept rising. Mystified researchers tested and discarded theory after theory until they finally hit on the explanation: In a remarkably rapid display of evolution at work, many of the cockroaches had lost their sweet tooth, rejecting the corn syrup meant to attract them."

2.

Dylan Grice, an analyst formerly with Societe Generale, has written about cockroaches and discussed a simple portfolio strategy (which may be similar to others) named after them. But even he may have underestimated the evolutionary aspects of the roach "algorithm" (and its ability to avoid deadly baits).

'But what I like best about cockroaches isn't just their physical hardiness, it's the simple algorithm they use to survive. According to Richard Bookstaber, that algorithm is "singularly simple and seemingly suboptimal: it moves in the opposite direction of gusts of wind that might signal an approaching predator." And that's it. Simple, suboptimal, but spectacularly robust…'

Craig Mee writes:

Very good point, Pitt. Defense. Defense above all else keeps you in the game. Floundering in volatility and leaving yourself exposed with no control is always a bad move. As in trading so in life.

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May

19

Woodson reminds me of the trader who holds a losing position 10 days in a row until it totally ruins him. He stays with Smith despite the fact that he's a loose cannon,loses the ball by relaxing on offense, goes 1 for 6 from floor continuing his usual shooting percentage,has Anthony giving up as he unbelievably notes Smiths bad play, gives a gratuitous technical foul, and generally tries to get his game back when the season is at a precipice. Yet Woodson stays with him regardless the way a trader holds a losing position until he goes broke. Its pathetic to see this stubbornness. The worst thing that happened to Knicks aside from the sullen Ewing resonance on the team and the three point holdover from Antoni is the lucky game winning shots that smith made at the beginning of the season. One remembers the winning shots he made, two, but he lost 10 or 20 games with the same shots later in the season.

Craig Mee adds:

The cowboy really doesn't have a place in this day and age of professional sport or markets. Players are way too fit and every part of their game is looked at and tested to expose any edge the opposition can utilise. The question now is how on earth are things going to evolve in the next 10 years as the last 10? For sport or the markets … and is there a way to foresee this and be better for it, in knowledge or profit.

May

18

Isn't Flexionism part of human nature just like shouting from the rooftops to crave recognition when trade research and timing techniques pay off. People will always want to be the leading pack animal or drive the herd, under whatever or differing pretense . Does the way one speaks to his broker whether making money or not, under all market conditions tell the world really the type of person he intrisically is. Will we never be rid of the flexion, things are just more transparent now… and its just a itching parasite that begs to test us mentally…

May

15

The bonds are down about 6 points in the last two weeks. Worse yet, those who bought at the auction a week ago, actually have a loss. There's a famous incident where a great cricketeer was up by 1 run, and then on the last pitch, he rolled the pitch to the batter instead of hurling it. The epithet "it's not cricket" is appropriate to the temporary loss that the flexions and colleagues at the bank have. One would imagine that the upside down man is persona non grata. But more important, who was the player that did the dastardly deed. One believes it was in the mid 70s the last time that the bonds discommoded the colleagues, but what was the team and the player?  

Can you top that? What is the most disgusting incident in the history of (the market) relative to Trevor Chappell rolling the ball you can recall in the market? Was it the mingling of funds without retribution by the Governor? Or the flash crash before the French Inside trading before Leeson announced? To me it was being blindsided by a high bid for bonds that I took from Michael Lewis's firm right before the flow of funds man announced his bullishness. What's yours? 

Update: A kind correspondent says it was Ian Chappell. Worse yet it was a game among the colonies, New Zealand vs. Australia. One can only analogize it to the IMF not being paid back first on account of a bad debt or a country in the EC defaulting on its debt. "It's not cricket". The rain in Brussels might preclude taking the mistress out for a fish dinner.  

Craig Mee writes: 

Victor,

Ian would gasp at being associated with this (as well as most of the nation)… his equally talented brother Greg Captaino instructed the third brother Trevor to do the dastardly underarm deed to "prevent New Zealand scoring the sux they needed to tie"

wiki the "underarm bowling incident of 1981".

Anatoly Veltman writes: 

I'm afraid to say: buying a single lot of SP futures near October 16th, 1987 close. On that triple witching Friday, which followed the relentless two-week decline, the floor rumor had it that one Palindrome had accumulated an outsized long position (the whisper number I heard was over 10,000 lots). I traded Gold and Silver, which closed an hour and half before the SP. Feeling lucky from my metal profits, I decided to take my first plunge into stocks. I thought to myself: if a trading legend is compelled to accumulate that much into this close, then this must be an exceptional value. Still, the novelty of buying stocks and the discomfort of taking a Long position period, made me limit my experiment to a single lot.

Well, as history books will tell you — Black Monday's opening gap down was the largest in all of the preceding stock index futures history! And wouldn't you know it: a very rare opening signal developed by an exclusive research group of like-minded younger traders stared huge in my face that morning. The signal had three conditions, and that's why it would occur so rarely:

1. If a market dropped big into the close AND

2. If the sentiment survey diverged (I.e. went up) AND

3. If a market subsequently gapped down big against such bottom-picker sentiment

Then you must SHORT that gap-down opening!!!What made my one-lot Long the worst position I've ever taken in my trading career was that instead of executing this rare Shorting signal of mine on that Monday morning - I had to digest my damning stupidity of following somebody else's silly Long of Friday. Another younger trader, who was not burdened by any silly Long, did execute the Shorting signal and doubled his Short position once the SP opened down around 260.00 and proceeded to plunge lower. Lo'n' behold, that day ended up printing 190.00; and the younger trader has become the Robin Hood that the community admires today…

anonymous writes: 

I worked for the 'Robin Hood' you mention in your comment below for 3 years.

Although quantitative types such as I believe that he is an example of survivor bias I must say this — I have never witnessed such ferocity, focus and ability to cut losses with alacrity as I saw him demonstrate time after time. (In all fairness I was not fortunate enough to work alongside the Chair at NCZ back in the day….)

A genuine trading talent.

Anatoly Veltman replies: 

Yes, and therein another lesson: that the "survivor bias" is not entirely random. Were you part of that Liberty Plaza office that sported the sign: "Maximize size, minimize risk!"

That particular trade carried the trademark of the genius: nimble lightly to Short a potential bubble over 330.00; adding substantial Short that melted the 300.00 phantom support a month later; and finally doubling up below the 260.00 where the black hole of no bids guaranteed the break of 200.00 before the bell could save the day!

May

14

I first saw the 'dead eyes' look of a poker player/loser when I was 13 or so. Still gives me restless nights and I know I cannot become that way.

My dad took me into the "stockman's bar" in Billings, Montana to impress upon me what degenerate, greedy people turn into.

Probably another sleepless tonight tormented by that devil.

Gary Rogan asks: 

What is the real difference between gambling and speculation (if you take drinking out of the equation)? Is it having a theory about the odds being better than even and avoiding ruin along the way?

Tim Melvin writes: 

I will leave the math side of that answer to those better qualified than I, but one real variable is the lifestyle and people with whom one associates. A speculator can choose his associates. If you have ever been a guest of the Chair you know he surrounds himself with intelligent cultured people from whom he can learn and whom he can teach. There is good music, old books, chess and fresh fruit. The same holds true for many specs I have been fortunate to know.

Contrast that to the casinos and racetracks where your companions out of necessity are drunks, desperates, pimps, thieves, shylocks, charlatans and tourists from the suburbs. Even if you found a way to beat the big, the world of a professional gambler just is not a pleasant place.

Gibbons Burke writes: 

Here is something I posted here before on this distinction…

Being called a gambler shouldn't bother a speculator one iota. He is not a gambler; being so called merely establishes the ignorance of the caller. A gambler is one who willingly places his capital at risk in a game where the odds are ineluctably, mathematically or mechanically, set against the player by his counter-party, known as the 'house'. The house sets the odds to its own advantage, and, if, by some wrinkle of skill or fate the gambler wins consistently, the house will summarily eject him from the game as a cheat.

The payoff for gamblers is not necessarily the win, because they inevitably lose, but the play - the rush of the occasional win, the diversion, the community of like minded others. For some, it is a desire to dispose of money in a socially acceptable way without incurring the obligations and responsibilities incurred by giving the money away to others. For some, having some "skin in the game" increases their enjoyment of the event. Sadly, for many, the variable reward on a variable schedule is a form of operant conditioning which reinforces a compulsive addiction to the game.

That said, there are many 'gamblers' who are really speculators, because they participate in games where they develop real edges based on skill, or inside knowledge, and they are not booted for winning. I would include in this number blackjack counters who get away with it, or poker games, where the pot is returned to the players in full, minus a fee to the house for its hospitality*.

Speculators risk their capital in bets with other speculators in a marketplace. The odds are not foreordained by formula or design—for the most part the speculator is in full control of his own destiny, and takes full responsibility for the inevitable losses and misfortunes which he may incur. Speculators pay a 'vig' to the market; real work always involves friction. Someone must pay the light bill. However the market, unlike the casino, does not, often, kick him out of the game for winning, though others may attempt to adapt to or adopt his winning strategies, and the game may change over time requiring the speculator to suss out new rules and regimes.

That said, there are many who are engaged in the pursuit of speculative profits who, by their own lack of skill are really gambling; they are knowingly trading without an identifiable edge. Like gamblers, their utility function is not necessarily to based on growth of their capital. They willingly lose their capital for many reasons, among them: they enjoy the diversion of trading, or the society of other traders, or perhaps they have a psychological need to get rid of lucre obtained by disreputable means.

Reduced to the bare elements: Gamblers are willing losers who occasionally win; speculators are willing winners who occasionally lose.

There is no shame in being called a gambler, either, unless one has succumbed to the play as a compulsion which becomes a destructive vice. Gambling serves a worthwhile function in society: it provides an efficient means to separate valuable capital from those who have no desire to steward it into the hands of those who do, and it often provides the player excellent entertainment and fun in exchange. It's a fair and voluntary trade.

Kim Zussman writes:

One gambles that Ralph and/or Rocky will comment.

Leo Jia adds: 

From the perspective of entering trades, I wonder if one should think in this way:

speculators are willing losers who often win; gamblers are willing winners who often lose.

David Hillman adds: 

It is rare to find a successful drug lord who is also a junkie. 

Craig Mee writes: 

One possible definition might be "a gambler chases fast fixed returns based on luck, while a speculator has time on his side to let the market decide how much his edge is worth."

Bill Rafter comments: 

Perhaps the true Speculator — one who is on the front lines day after day — knows that to win big for his backers, he HAS to gamble. His only advantage is that he can choose when to play. 

Anton Johnson writes: 

A speculator strives to be professional, honorable, intellectual, serious, analytical, calm, selective and focused.

Whereas the gambler is corrupt, distracted, moody, impulsive, excitable, desperate and superstitious.

Jeff Watson writes: 

I know quite a few gamblers who took their losses like men, gambled in a controlled (but net losing manner), paid their gambling debts before anything else, were first rate sports, family guys, and all around good characters. They just had a monkey on their back. One cannot paint with a broad brush because I have run into some sleazy speculators who make the degenerates that frequent the Jai-Alai Frontons, Dog Tracks, OTB's, etc look like choir boys. 

anonymous writes: 

Guys — this is serious, not platitudinous, and I can say it from having suffered the tragic outcomes of compulsive gambling of another — the difference between gambling and speculating is not the game, the company kept, the location, the desperation or the amounts. The only difference is that a gambler, when asked of his criterion, when asked why he is doing this, will respond with "To make money."

That's how a compulsive gambler responds.

Proper money management, at its foundation, requires the question of criteria be answered appropriately, and in doing so, a plan, a road map to achieving that criteria can be approached.

Anton Johnson writes: 

It's not the market that defines whether a participant is a Gambler or a Speculator, it's his behavior.

Gibbons Burke writes: 

That's the essence of my distinction:

"gamblers are willing losers who occasionally win"

That is, gamblers risk their capital on propositions where the odds are either:

- unknown to them
- cannot be known

- which actual experience has shown to have negative expectation
- or which they know with mathematical precision to be negative

They are rewarded for doing so on a random schedule and a random reward size, which is a pattern of stimulus-response which behavioral scientists have established as one which induces the subject to engage in the behavior the longest without a reward, and creates superstitious as well as compulsive behavior patterns. Because they have traded reason for emotion, they tend not to follow reasonable and disciplined approach to sizing their bets, and often over bet, leading to ruin.

"speculators are willing winners who occasionally lose." That is, speculators risk their capital on propositions where the odds are:

- known to have positive expectation, from (in increasing order of significance) theory, empirical testing, or actual trading experience

They occasionally get unlucky, and have losing streaks, but these players incorporate that risk into the determination of the expectation. Because their approach is reason-based rather than driven by emotion, they usually have disciplined programs for sizing their bets to get the maximum geometric growth of their capital given the characteristics of the return stream, their tolerance for drawdown.

If a player has positive expected value on a bet, then it is not a gamble at all. The house does not gamble. It builds positive expectation into its games. It is a willing winner, although it occasionally loses.

There are positive aspects of gambling, which I have pointed out earlier in the thread and won't belabor. To say that "all gambling is bad" is to take the narrowest view. Gamblers who are willing losers (by my definition all are) provide the opportunities for willing winners (i.e., speculators) to relieve gamblers of the burden of capital they clearly have no desire to hold onto, or are willing to trade in a fair exchange for the excitement of the play, to enable their alcoholic habit, to pass the time, to relieve their boredom, to indulge delusions of grandeur at the hoped-for big win, after which they will quit playing, or combinations of all of the above.

Duncan Coker writes: 

I found Trading & Exchanges by Larry Harris a good book on this topic and he defines all the participants in the exchanges and both gambler and speculators have a role to play. Here is something taken from page 6 that make sense to me: "Gamblers trade to entertain". Speculators to "trade to profit from information they have about future prices."

He divides speculators into those that are well informed versus those that are not. One profits at the expense of the other. Investors "use the markets to move money from the present into the future". Borrowers do the opposite.

May

6

Has the DNA of the market been changed of late due to the type and nature of trading?

Has the molecular structure which provided the support in floor trading days been abolished with the whizz and bang of market maker's (never there when you need them but screaming that they're the life blood of the market) and DMA strategies that are quicker and more deceptive then a gypsy in Barcelona? Have the flash crashes of late provided the canary, signalling we are ill prepared for these new dynamics and any back-testing prior to 97 is null and void.

Smoke and mirrors, smoke and mirrors.

Apr

22

It may pay to keep an eye on the Aussie dollar in the near/medium term as it appears things have been coming to a head. A recent article in the Sydney paper mentions 42 dollar fish and chips, and 10 dollar bottles of water being sold. Add this to project investment diminishing, commodity prices on the back burner, banking services employment in some sectors struggling, a government political landscape that possibly has been the worst ever, and further rate cuts on the agenda. The market has been in a yearly range of 1.02-1.06 and it looks like the lower end is about to be tested. The Titan may be now be tested.

Apr

18

It is good to know from the Blodget interview that 142 people including bank and public relations people get Fed releases 1 day in advance on an "embargoed basis". As Willie Sutton said when the Dodgers lost to the Giants, "makes you want to turn yourself in to headquarters". No wonder the market tends to go up the day before favorable employment releases et al.

Craig Mee writes: 

"Embargoed basis"… looks like the medicos do it too. So much room for shenanigans:

"In the case of a trial that I already know I probably want to cover, I will often ask the PR person if I can get access to the slides beforehand, and I assure them that I fully intend to respect the embargo. In most cases my request is turned down, for any number of good reasons: the company doesn't have the slides, the investigator is terrified of an embargo break, etc. But often enough the request works and I'm able to save a lot of time and effort during a busy meeting by preparing some of the work beforehand."

And from the tech stock crowd (from June 2011):

"And there's one more big problem with embargoes: newsmakers haven't been holding up their half of the bargain. Part of the gentlemen's agreement is that if a reporter or a news organization deliberately breaks an embargo, there will retribution. The company or PR firm whose embargo got flouted is supposed to exclude the offending reporter or organization from future embargo offers and pre-briefings. But I don't see that happening any more. TechCrunch, in particular, breaks embargoes with total impunity. Like codependent spouses, companies and their PR reps always seem to rationalize away the breach and go back to Arrington's crew with the next confidential story.

You can't fix the embargo system with more embargoes. It's time—for me, at least—to walk away from the whole bankrupt system."

Apr

17

Okay, the 142 bank pres and public relations people have the minutes already to be released to public in 10 minutes. Bonds are up and stocks are down. Germany is getting killed. Which way will the release to the non-flexions affect bonds stocks and gold. I've been buying gold whenever it drops as I believe that the bank deposit confiscation has to be bullish for gold as are the trend followers short.

Anatoly Veltman writes: 

Rocky is patient at $1390, getting ready to pull trigger on test of $1320.

Victor Niederhoffer writes: 

Rocky a lot more astute than me perhaps because he has a bit of the idea that has the world in its grip in him from his days at the 'Bank' and his love of trend following. One passed their headquarters near the scene of the crime yesterday evening and it was replete with canine k9 4 footed operatives.

anonymous writes: 

One can imagine the scene:

Fed: Honey, I would love to be with you but we have to lay low a few days after the press got pictures of us together.

Banker responds: If that is the case, you and the D. C. boys have fun by yourselves. Give me the checkbook and I will go home to L.A. to shop. Call me when you decide you need the markets to go up again.

Rocky Humbert writes: 

For the record: I am flat gold. If Cyprus (or any other country) could cure their ills simply by selling gold, there would be no ills. My recollection is that the Korean housewives were selling their gold wedding bands to support the Won … during the 1997 financial crisis over there. Korean bonds were yielding 15% at the time. And I bought a few as an investment. That worked out ok. I am not buying the bonds of Cyprus, Greece or those other places. The wealth of a nation is in its land, its laws, and its work ethic. Everything else is a speculation.

Gary Rogan writes: 

"The wealth of a nation is in its land, its laws, and its work ethic."

Brilliant! I would add "respect for its just laws" to the list. May those who want to reward millions of those who broke the laws of this country by giving them the very object of their law-breaking and by making them a part of this nation give this some thought.

George Parkanyi writes: 

This is not scientific, but my feeling on gold is that given government interventions (manipulation is such a strong word) in markets these days, they can't exactly let that turn into a complete rout either. Fear is fear. Gold was supposed to be the haven of last resort. If people see that collapsing then there is the sense that there's nowhere to hide. The panic could transfer to other markets. It's not behaving as it "should" under the circumstances, which further calls into question in people's minds what the hell IS going on? And what is this action discounting - massive deflation? Governments sure want that idea to spread. This is one of the reasons I'm still holding fast to the core position - though I've taken stop-outs on portions. Not large enough portions to avoid a big hit. But it is what it is. The gold stocks are really getting creamed as well. Solid producers trading like penny stocks. Unless deflation IS ultimately our lot, I'm smelling blood in the streets (some of which is mine) and screaming bargains.

I think the odds are good for a sharp reversal rally. If things go really bad in other markets, that's where they'll be looking to cash out rather really pounded down precious metals. And gold is an international commodity - still highly valued in many cultures. This crowded-trade unwinding behaviour I think could reverse very quickly, very soon.

A commenter adds: 

Was the fall in Gold the result of some bigger thing that I am unaware of, and did someone smell a canary that has been dead for a few months and was the first to find out triggering the selling?

David Lilienfeld writes: 

Let's take a look at what's known:

1. Europe was weak going into 2013, but the dimensions of that weakness are becoming evident. The collapse of auto sales in the EU, the episode with the Cypriot banks (which I still don't understand why the Cypriot government didn't say, "Fine, Germany, we're leaving the euro, we have all these euros in our banks, our new exchange rate is X, and now you have a big mess on your hands, much as we do on ours; don't like that? Fund us!), the coming episode with Slovenia, followed by Spain, Italy (if it can figure out who is the government) and France. Then there's the farce previously known as DC. There's the leader of North Korea trying to demonstrate that there is testosterone flowing throughout his veins. The dimensions of many of these has become evident recently. The degree to which China is slowing down and the degree to which the US housing "recovery" might slow down have also started to clarify recently. I won't get into the potential for a repeat of a SARS-like outbreak in East Asia.

I don't think the canary's been dead for a few months as much as it had a massive stroke, followed by resuscitation from cardiac arrest a few times (OK, OK, it was many times), and it's now brain dead and being maintained by artificial life support, ie, it's dead but it doesn't know it. Or the canary's been dead for much longer than a few months.

There's a lot of bad stuff that's gone on the last few months, and the extent to which the market in the US is near its all-time highs is a wonderful gauge of nothing so much as the power of denial. How there could be as much complacency as there's been (a topic of recent interest on this list) is something I don't understand.

Craig Mee writes:

If you haven't noticed, the first stop for gold was the width of the consolidation. I bring you information on laying of track to take into account expansion and contraction. We must work out what size volatility or influences allows for temperature rises and falls.

EXPANSION AND CONTRACTION.


1611. In laying track, provision must be made for expansion and contraction of the rails, due to changes of temperature. As the temperature rises the rail lengthens, and unless sufficient space is left between the ends of the rails to allow for the expansion, the ends of the rails abut one against another with such force as to cause the rails to kink or buckle, marring the appearance of the track and rendering it unsafe for trains, especially those running at high speeds. If, on the other hand, too much space is left between the rails, the contraction or shortening of the rails due to severe cold may do equally great harm by shearing off the bolts from the splice bars, leaving the joints loose and unprotected. The coefficient of expansion, i.e., the amount of the change in the length of an iron bar due to an increase or decrease of 1 degree F. is taken at .00000686 per degree per unit of length. 

Mar

28

Before work I drink two double espressos. I wouldn't have the courage to leave the house otherwise and go to work. I just rely on jitters to move me uncontrollably and eventually I bounce out the door. An espresso around my house/work costs approximately $3.00. That's $6.00 a day. I drink these on weekends as well, so, that would be around $42 a week and there are two of us in the house. $84 a week. We go through around $10 beans per week. We also need to factor in cleaner for the machine, but I bought industrial bulk cleaner for $20…it'll last a year or two even with weekly double cleans. We also give others a coffee when they come around. I'll ignore that, however.

I bought the coffee machine for around $800 on special and it makes a very tasty cup. We've had it since late 2007. So, we've been drinking $4,368 per year for four years, so $17,472 for the life of the machine. Only $2,080 for the beans over four years. All up, I think we're ahead. There are power costs and so on, but, they're minor. We've probably saved, conservatively, around $13,000 in the last four years.

Here is a good article reviewing the best home coffee machines.

Jeff Watson writes:

I drink a lot of Cuban Coffee, which is espresso, and is very sweet. My pot cost $12 at Target and I've had mine for at least 15 years.

I buy Cafe Pilon which is priced at 4 bricks for $22 and that's a 2 month supply, figuring 4 cups a day.

It takes less than 5 minutes to knock out the coffee.

Dylan Distasio writes: 

My company recently eliminated the free Green Mountain brewed coffee as part of a bean counter initiative and switched over to Flavia packets which is a very poor substitute. I have been going downstairs to buy a large cup of coffee a day for $2.67 but am looking for a cheaper alternative.

I am about to order one of these aeropresses based on the reviews I've read of the device and the coffee it makes. It is essentially a gentle one cup espresso maker which can then be turned in a cup of Americano if desired simply by adding additional hot water.

Update:

So I got my Aeropress and wanted to report back my coffee findings to the group. I am a huge fan of this device and believes it consistently brews a delicious cup of coffee quickly and easily. The only downside I see is that it can only brew one cup at a time. For me, this is a non-issue though since I am using it at work and not for a group. Even if I used it at home (I am considering getting a 2nd one for that purpose), my wife does not drink coffee. I have a Keurig I had bought for convenience at home in case I wanted a quick cup of joe on the weekends. There is no comparison between the two not surprisingly; the Aeropress blows the Keurig with its k-cups out of the water.

Just a little additional background on my coffee habits…I drink my coffee black with a few exceptions…I generally don't like SBUX brew. I am with the folks who call them Charbucks. I prefer McDonald's or Dunkin Donuts coffee, but will drink the SBUX Blonde or an Americano (espresso plus hot water) there under duress. I am not a coffee snob (at least not yet) so you will not be hearing me talk about brewing beans picked out of civet droppings or $1000 burr grinders.

I picked up a bag of whole bean Jamaican Blue Mountain coffee from Costco for my first brews with the Aeropress. I am using a burr grinder versus a bladed one but it is a relatively inexpensive Mr Coffee one I bought years ago when I was experimenting with a Braun Espresso maker. I am grinding relatively fine somewhere between espresso and french press.

Once the coffee is ground, it is a very quick, simple process to brew a tremendous cup of coffee. The Aeropress comes with a measuring scoop which I use to scoop around 2 - 3 scoopfuls into the device after placing a fresh filter disc at the bottom. I then pour relatively hot water obtained from the dreaded Flavia machine onto the grounds and stir with an included stirrer for approximately 30 seconds (they recommend 10 seconds). I then insert the plunger piece into the waiting grounds and with some elbow grease slowly press the coffee down through the filter leaving the grounds behind. After that, I add additional hot water to my coffee mug to craft an Americano. I have tasted it undiluted and it is also delicious. I'm not really sure it would replace an expensive espresso machine since it is not applying the same pressure, but for me, it is a nice cup of what the Aeropress folks call espresso.

Clean up is simple. You just unlock the piece that holds the filter in place, and plunge the grounds into the trash. After that, it's a breeze to rinse off.

One of these would also be great for travel and camping/backpacking. It is pretty small and easy to carry.

In case you didn't notice, I am sold on the Aeropress. I'd highly recommend checking it out if it sounds like a good fit for your purposes. I'm looking forward to experimenting with the grind settings and some different coffee beans in it.

Just to continue this discussion, does anyone have any whole bean coffee recommendations to try?

For those of you interested in debating how many angels can dance on a java bean, check out coffeegeek.com also. The minutiae available for coffee lovers there may blow your mind.

Mar

28

Pulled into a local gas station or "servo" as we call it here in Australia…and a particularly chatty attendant told me (twice in as many visits) to fill up because the price was going up the next day… It never has. But he did shed one light, he said not many people are getting out for easter and filling up the cars, only 20 bucks here, 20 bucks there. If you could attach a measure on the pump, and see how many full "extractions" there are compared to how many small "tops up" there are…we might have a leading indicator of sorts, local specific. 

Mar

25

What inter markets are easier to drive to spoof speculators into thinking that something is about to happen in another market which is harder to manipulate…only since when the main market does follow, they can offload size and get the biggest bang for their buck.

Manipulate product to product.

Manipulate Asia time zone to set up a U.S reversal.

Flexions manipulate a figure release in order to drive the reversal, rather than being ahead of the curve?

Mar

18

In fx of late, particularly of dollar yen, it's like taking Mrs. Watanabe over the coals. One week of ok trading, with risk contained, ending in one weekend of 5x allocated risk blown out. Ouch. It's funny how most retail fx platforms open long after interbank market, with even fx futures on CME not opening until 10am Sydney, (and shut every morning for an hour from 9-10 am). What fun can be had by the men in grey to screw down the retail just a wee bit more.

Mar

4

Have you ever had to deal with a stalker? It could just as easily be the Market Mistress.

And to understand the market mistress we must better understand each of the
following:

Common Stalker Characteristics

   - Jealous
   - Manipulative
   - Narcissistic
   - Deceptive
   - Obsessive and compulsive
   - Falls instantly in love
   - Socially awkward or uncomfortable
   - Needs to be in control
   - Depends on others for sense of self
   - Unable to cope with rejection
   - Sense of entitlement (you owe me!)
   - Unable to take NO for an answer
   - Does not take responsibility for own feelings or actions.

Feb

13

It's amazing how the general public, mostly low risk takers and even those who are relatively well off, will swoon around those that are perceived to be in another stratosphere in wealth, no matter their line of business.

Glamour and dreaming allows people to escape, and it would seem the swooning is some selfishness on the publics behalf, allowing them to ponder a life less worked.

It makes sense that the man devoting his life to others allows for a lot less interest unfortunately.

This human trait probably allows traders to gain an edge, as the public wash from one latest craze to another, and nobody likes the doormat, on its lows, going nowhere fast.

Feb

5

The locals are ingrained to take on this sort of borrowing, to get a start and try to move ahead, at considerable vig.

But it's catch
twenty two for the banks. It's easy pickings early, but would they do better long term by easing the compatriots up the
ladder instead of putting grease on it?

For what markets in what locations is price determined by such ingrained processes by the national players?

"World’s Most Profitable Banks in Indonesia Double U.S. Returns":

Borrowers like Suryadi have helped make Indonesian lenders
the most profitable among the 20 biggest economies in the world,
according to data compiled by Bloomberg. The average return on equity, a
measure of how well shareholder money is reinvested, is 23 percent for
the country's five banks with a market value more than $5 billion, the
data show.

Jan

24

1. Serena Williams was 1.01 at the table running into yesterdays match… she lost.

The fact that she injured her ankle earlier in the tournament and had played a two hour + doubles match with her sister the day before, may of been canaries for value betters for her protege.

What markets get hurt and then try to keep up, push even harder and spread their wings further, only to be exposed, their previous strength and formidable durability becoming more of a hindrance than a help in present decision making.

2. With the champions of tennis, like trees, having the ability to be flexible and be thinkers when it gets tight, you would think David "the Machine" Ferrer would be a good sell tonight, since a man of his absolute focus and steam engine mind set will struggle to ever win a major, as the versatility does not seem to be with him, although no one would want any other right hand man next to them when going over the trenches in the heat of battle.

The ability to take away risks and ease them back on when needed, massaging your position, in changing market conditions, need a similar flexible mindset to Novak. 

Jan

23

Like a good trading system or profit and loss curve, a champion tennis player (or other great sportsperson), will have maximum allowance for upside, but any downside sees a fast reversion to the mean.

Down 15 -40 on their serve…. ACE ACE, = Deuce… Noticeable by its speed and brutality, they have the means to get back on top or at least equal footing quickly, with any edge that dissipates being quickly regained, or found elsewhere…fast.

Victor Niederhoffer writes: 

Craig's idea about a bull market quickly reversing any losses from tennis results must be tested in the market with numbers. How to define such an ability to bounce back quickly? And is it predictive.

Jan

22

Some may find ever changing cycles easier to comprehend from the comfort of their couch.

In life you crave different things at different times (just like you crave different things in your diet at different times). Some months it may be freedom and warm weather, other years a good bean bag and sitting by the fire with friends, family and dog. At times it seems the longer you're in one position, the more you wish for what you find appealing in the other.

Then should it be so surprising that markets do the same– they crave movement, they crave stability. One minute trend following, the next mean reversion.

What does science tell us about what percentage of the population is truly stable, and does this change with weather and geopolitical instability as it appears?

Jan

21

I've watched a fair bit of the Aussie tennis open in week one, and it is amazing to watch the amount of drop shots that are getting played, with the net effect of approximately 30 played and 3 winning points against player 27 in the matches I've watched. Not good odds, some may say.

Is it that players are tired? And going for the easy out, or some 3 dimensional hiccup in the brain, which makes them think that it's a percentage play, with the opponent right down the far end of the court, even if it is rebound ace. Do they just want to mix up their game, knowing they will lose this point but provide unsurety in their opponent for the following points? Or is the RIO trade alive and well, i.e they just can't help themselves to go for the "get out of jail free" shot.

I'm not sure… I wish I knew the answer.

It seems unforced errors is possibly the most major stat to take interest in, along with 1st serve percentage. Winning, doesn't mean a great deal, if one has the same unforced errors, and in this day and age one needs a 70%+ 1st serve in, to give them some space.

If one doesn't following their trading plan suitably and manage risk appropriately, then winning a slam becomes a distant thought.

Victor Niederhoffer writes: 

The same thing about the drop shot being non-percentage could be said about the lob. Both become even more non-percentage as the game wears on. It's almost as bad as trying to take a few ticks out of them near the close of a market. The mouse with one hole is quickly taken. The one thing that could be said is that the weak players don't have coaches who count. And the hard surface makes drop shots even less effective than usual. But of course, it does tire the opponent out, and set him up for when you need a point. And of course it is like the penguins jumping into the whale first in social learning, as the one shot that you hit with non-percentage makes the vast majority of your " colleagues" , the subsequent shots, that much more effective.

Jim Lackey writes: 

One that knows nothing about racquets, sees something similar in dirt bikes. We take the extreme inside line in a tight corner vs. the outside berm rim shot, it's much faster. It's about the line or exit of the corner. If you dive bomb on the inside you can cut off the exit of your opponent. This forces him to either take an inside line or a tighter line on the outside, thus slowing him down.

The wear out your opponent is a funny thing. Everyone that does count knows every single move and limit of the other riders… If towards the end of a race I know a guy gets "arm pump", which is literally your forearms swell up and it's hard to hand on the bikes, we use or force those boys to inside. One needs to stand on the brakes very hard to take the inside line. When you have arm pump it's very difficult to let go of throttle and put a couple fingers on the front brake to slam on. I'll put it another way… like tennis looks, it seems much easier to stand back in one box and hit it as hard as you can when you're exhausted vs. running around and using your touch. Same with MX. It's so much easier to stand on the gas and take the outside and go as fast as you can vs modulate.

I am doing BMX now here, it's a short 400 meter spring and to pedal. It's similar but a different training sport, but the counting goes on. I made a comment off the cuff to a 14 year old expert about changing a gear ratio 0.1-T or we use decimal gearing since it's single speed bikes. IT pinch ratio you can have the same gear ratio in a chart book. IE 41-18 X 24" circumference tire. At the big races towards end of day I would lose power. So I'd go down to a 40.9-t custom gear. It's still a 41T sprocket but the circumference of the gear is small, so it's a lower ration shorter roll out IE I crank revolution 2.277 vs. a 2.72222. t changes it just a tick and its enough to help.

Our friend, an MIT grad and racer, picked up on our questions to why the same gears felt a tick different on other bikes and he'd always say, "it's not same ratio," it's tire diameter or pinch in gear brands. So he invented a new business. Guys ask me if it works and I burst out laughing. I been doing that for 30 years. (Yet dad didn't have CNC machine so we have to mess with combinations IE got from 41-18 to 36-16 but we measured and charted ever, single combination on every race every track every time.)

Bottom line for MX, BMX, or any other sport. I never ran a 4.5 40' and can't run under a 22 minute 5k so I was always stuck in the middle and never a great athlete. The only reason I ever won a national event racing was counting, everything. Yet in baseball or the A pro level of all racing… "everyone does that".

Anatoly Veltman writes: 

Drop shots are akin to those who try to "provide liquidity" against an Elliott Wave impulse (offering against the third wave, or early on against the fifth).

Jeff Watson writes: 

 Just exactly what is an Elliott wave???? Has anyone ever seen one, or do they only exist in hindsight?
 

Jan

15

New Years eve brought the biggest best waves of the year to Kona. In the morning it was triple over head, clear blue sky, perfect shape, completely glass on the water without a breath of wind, and only a handful of friends out. It doesn't get any better. That afternoon the waves got even bigger. Just before I went out a huge wave cleaned out the entire line up and washed people on to the rocks. They got out with white faces and minor injuries. I had a perfect day where I did not fall once, did not get caught inside and caught each wave perfectly and rode it to the end. All in all a very rare day, one to remember for a lifetime.

Lack recently wrote about not making any errors. My son used to play Mortal Kombat video game as a kid and when he beat the opponent without suffering a single injury it was a perfect fight. It's the kind of day when you enter perfectly at the bottom tick and your bid is taken in size, and it immediately starts up, you ride it all the way and exit right at the top. For some reason it's not the kind of thing you can do at will, nor does it happen all the time. I had been training so felt strong, and there had been waves for the prior two weeks. Mentally I felt good. I wish I knew the secret to achieving such good results with more consistency.

Jeff Watson comments:

The key sentences, "I had been training, so felt strong, and there had been waves for the prior two weeks. Mentally I felt good. I wish I knew the secret to achieving such good results with more consistency."

Well played Sogi San. And you answered your own question.

Meanwhile our waves have been thigh to waist high and the SUP has been getting the workout, not my 9'6" or fish or any other board in between. It's really a drag living on the pond of the Gulf of Mexico.

Craig Mee writes:

Sounds great Jim, good job indeed.

Having a consistent plan before you paddled out, and it seems conditions were relatively steady, probably allowed for a strong take off with commitment each time. Finally, as you felt comfortable, you were probably more likely to squeeze each wave for everything it was worth. Your day, your market, your result– excellent.

Jan

8

Maybe the most appropriate phrase to mention when talking about markets (over the last 15 years at a minimum) is "Time heals all wounds".

From the Asian crisis to long term capital to Y2k to Sept 11th to 08…it seemed every one was going to be the last…and the end of the world. (I remember sitting at the desk in London, as some one came through the headset in the midst of the '08 panic shouting, no cash in any ATM in the square mile). Rumours or truth, who knows, but panic it was.

How many fortunes were put on hold, as economists and managers argued the toss, how this would be it, and it was difficult not to get involved while struggling to believe that all would be well. How many talking heads said they were was absolutely right, (but took 3 years and 20% rally in the meantime that they let slip before they got thier reward). How many smart men have also under performed due to this (Hussman is in the back of my thoughts, obviously many more).

It now appears the Euro currency is looking sweet as a nut, and all is in order.

I don't know if the cheese can continue to be plugged, but it looks like it certainly has paid to bet that way (while those holding a few short end rate futures in the top pocket from the outset seem to have done well to boot).

Maybe those that have seen this from the 60s and 70s caught on early, and saw every problem for what it was… opportunity… the Cane's hobbling down to Wall Street as the chair mentions.

As many of you have pointed out, with so many now with a vested interest to keep this robot, underpinned, possibly it will continue to surprise as dips kick in into the future.

Dec

30

Driving a motor car or motor bike is probably the best analogy I can think of for trading.

Start, Stop, traffic lights, dogs and cats on the road, cows, give way signs, t intersections, signs saying "kangaroos for next 50 kilometres ahead–and that is just in the first few 100 metres of leaving home– and then when you hit the express way, and consider yourself in the clear, there may be road works, or fog, and unsighted hazards ahead.

It's very rare you can enter an express way…of start to finish, or finish a journey uninterrupted.

It is our jobs as traders to close down all risks as they appear, in whatever form, to cause minimal bumps and bruises to ourselves. Problematic situations will appear when you expect OR when you least expect them, and when you do get uninterrupted runs, you appreciate them, since it is what you have planned for, but see less often than one may hope for.

Be flexible, bend like the tree, always give way when on the road, and when you hear the sirens move top the left and beware of trouble ahead.

Peter Tep writes: 

"Be like water" - Bruce Lee

Nice post Craig. I liken trading to Bruce's Jeet June Do methodology– using all the skills we have to move forward and strike the opponent down.

What worked yesterday may not work tomorrow. Especially with the presence of HFT, SMSF, central bank presence.

Chris Tucker adds: 

If one were to "always give way when on the road" in NYC, one would never get anywhere. Cabbies will eat you alive if you let them, they will try to force their way in front of you and then look at you as if you are a criminal when you fail to yield.

Yes, always giving way is a much less stressful way to navigate, but there is no victory in it!

Jeff Sasmor writes: 

Depends on how aggressive you want to be and what sort of car you are driving. If you are driving a beat up car and honk and go, they give way. I speak from personal experience on both sides of that transaction.

Jim Lackey adds:

Look where you want to go. Do not look where you don't want to end up. In a slide, if you look at the wall, you'll run right into it. If you look ahead down the race track it's amazing, you'll auto steer and correct your way out of the spin. In a crash, hold on, and do your best not to get hurt and head for the pits for repairs.

Last night during the 200 MI trip from the hill outside of Birmingham, AL, the transmission cooler lines on my BMX van broke. It must have been a sight as trans fluid was all over the engine trans and back of van in a cloud of smoke. Good thing we didn't have a fire. You know what I did? I eased it back to the pits. I exited, dumped some fluid into the trans and made it home. This AM all fixed.

I froze my tail off shooting weapons for 12 hours in the Bama country with my Sisters family. They have more weapons than anyone I know. My son did the walk balk with the AK-47 and I burst out laughing as another teenager was taking some hot brass as they ejected from the chamber. I told the kid to move. Good fun safe day. I can still hit a 300 meter tager with a .22 rifle 2nd shot after 20 years of no practice. Okay, it wasn't 300, but simulated as a 4" target X meters away…bing…

My nephew made the comment, all these weapons are so easy to use it's ridiculous. Yeah, that is how and why there are 10 year olds in the militia in Africa. The only reason I shot at all was the current news flow. I really have no interest in firearms. After shooting the 150MM main gun and killing tanks at 4,000 meters on the move, with F-15's as cover and the Apache on my 6 and MLRS destroying 1k by 1k boxes at a time… real war is reprehensible. All the arm chair warriors really need to tone it down a bit. The only comment I agree in the past 4 weeks of talk was Professor Stefan with his Bellini. If you want to put on the show of defense, that is the smartest idea I have ever read. Those shot guns are world class and perhaps I'd buy it from him. I own no weapons.

I am still thawing out after 13 hours outdoors then the 3 hour drive home then the work this am. My water heaters theromcouple died.. Lowes and HD are useless! Ugh, Ace hardware has all the parts they are amazing, but after inspection my buy American just bit me… Standard brands, made here in TN, has a special thermocouple. I asked the local heater man if he'd be kind enough to drop one off in my mailbox. He said sure, but the clerks said they have to charge me 69 bucks for the Sunday trip. I can wait a day. The part is 14.99. I can do it myself. It's already apart.

I am a man. The ladies must have hot water now. Ill sacrifice my McDonalds budget for Jan and have my man stop by. Perhaps he will find another problem as well.

Back to Carz racing and trading… it's not the one big edge that makes a champion…it's the 10,000 little things all done perfect that adds up to a big edge. The biggest edge of all is the drift over 100 years. After two crashes and a dozen panics the past 12 years, I find it hard to believe that buying every panic with prudence over the next decade will not produce a fine profit. 

Dec

11

I found this article about the nocebo effect quite interesting on a number of fronts. It made me think about religion and applications to trading, as well as what sort of trader you are and what you may be affected by. There may be a scientific basis as to why you should turn off the tv and not read any one's views of what you're looking to invest in:

"Most experienced the placebo effect and their pain decreased. But to
the doctors astonishment, 15 per cent got worse… They suffered the
nocebo effect."

"I think if you are told something from someone who has the authority, whether it's a witch doctor or physician and you take that in, then I think your entire physiology starts to play around with that belief."

I think about people's susceptibility to salesmen and how salesmen often risk being prosecuted for losing investments simply due to an individual's biological make up.

Dec

11

I have a question for Jeff Watson and Jim Sogi, our two surfing experts. Do you think Kelly Slater been able to dominate surfing for the last decade plus partly due to the conditions in surfing being so variable…so nobody gets "set" ? Not to diminish his obvious ability to take new younger opponents and their fresh techniques apart piece by piece…

I am reminded of this article I recently read from the world of cricket… Michael Vaughan (England) was commenting on when Sachin (India) (arguably, or maybe not, the second best ever batsmen in the world) should retire:

"Sachin could still eke out a few runs for another 12 months but he is not batting at the levels he used to. Look at the way he was out in the second innings in Kolkata. It was a good ball from Graeme Swann but he was just prodding at it.

He got 76 in the first innings but the man at the crease was not the Sachin Tendulkar I know. He was not playing the free-flowing way we have loved down the years. He is having to think and really work out where he can score every single run but in the past it came naturally."

… once you have a solid start, the middle order feels more comfortable and is coming in with the game already set up."
 

Jeff Watson replies: 

Slater is smart, is a complete waterman, and a great competitor who knows how to win. Pro surfing contests are a game, and Slater plays it better than anyone. That being said, he is an animal, a freak of nature, a surfer like one has ever seen before (and we might never see one like him again). Slater is arguably the best surfer in any and all conditions, from the slop in New Jersey to big gnarly Teahupoo in Tahiti. Slater has that uncanny ability to predict what the wave is going to do just like the best chess grandmasters are able to look 10 moves into the future.

I don't know of any other athlete in any other sport that has dominated like Kelly and been the best in the world with a 22 year run. It simply has never happened before, so there's no data to compare it too. Furthermore, whenever the naysayers say Slater has lost his mojo, he wins another title…..and the naysayers have been saying this since 1996-1998……One could argue they thought he lost it in 1991 when he was on the TV series Baywatch, and was dating Pamela Anderson . And I think that was around 10 titles ago. 

Jim Sogi adds:

Kelly was the youngest world champ and is now the oldest. He is in phenomenal shape and has muscles on his muscles in his calves. He trains constantly and scientifically down to what he eats. He has a fierce and competitive attitude. The mental part is probably the biggest factor. Many younger guys have athletic ability or gifts, but the road around the world to the competitions is tough. Kelly cherry picks the contests to which he is seeded, so doesn't have to work his way up or qualify, saving him valuable mental and physical energy. He can travel with style. He loves what he does, and this is the most important thing.

Craig Mee says:

Thanks for your thoughts gentlemen. And now a few words from Slater himself while at this years concluding event where a few points separated Slater and another world championship):

"Slater played guitar and sang at a concert at the Turtle Bay Resort while the event went on hold this week. Golf has been high on the agenda. The stress does not appear to be killing him.

'We've had enough time to think about it,' he said.

'We're trying to put it out of our heads as much as possible because when you're out in the water, if you're thinking about a world title, it's taking away from what you need your mind to be on.

It's Pipe. You have to be on your toes. Which way are the waves going? Do you have to paddle deep? How's the lineup look? How far in on the reef are you? How big is this set going to be? Where's the guy you're surfing against?

'You have to be clear-minded enough to make good decisions every time there's a peak coming at you.

'There's enough to think about in the present moment without worrying too much about the bigger picture.'

Dec

10

"Senior Cherishes Australian Open Win":

The 53-year-old Peter Senior overcame galeforce winds and a three-hour delay at the windswept Lakes course to become golf's oldest Australian Open champion.

'God, golf is such a funny game. One minute you think you're down, the next minute you're up.

'I didn't play particularly well this week, but I got it up and down out of some places all week and today was no exception.'

Sounds like something else I know…. the old boy holding his nerve (and assessing the situation and his options at each exact time to the best of his abilities, I'm sure), when he needed it most… and took all his tools out of the box… 

Nov

29

I may say that this is the greatest factor—the way in which the expedition is equipped—the way in which every difficulty is foreseen, and precautions taken for meeting or avoiding it. Victory awaits him who has everything in order — luck, people call it. Defeat is certain for him who has neglected to take the necessary precautions in time; this is called bad luck.

— from The South Pole, by Roald Amundsen"

Nov

18

Going to the chemist, known locally as the Apotik, down here in Indonesia, normally located in tourist areas, there are two or three relatively attractive girls who man the doors and ask you what you need as you enter. This puts them right between you and where you want to go, which is the pharmacist at the counter at the back of the shop. So you answer politely you have a cold, or whatever may be the case, and the girls walk you over to the most expensive "solution or non solution" to your problem there is in the shop. Finally if you can duck and weave by this interruption and  get to the counter, there are pill strips you can buy for normally 3-4 dollars to solve the problem though it pays to google your need first and present the "pharmacist" with your drug of choice.

If the girls nail you at the front of the shop, (as they would many tourists, thinking they were being well advised, not used to what is available in country) the products they flog you are marked up sufficiently that the pharmacist doesn't care what you buy since they still get a cut, and the girls, no doubt on commission only, get a hefty slice of the action, so all are happy.

Sounds like some investment banks around town….

No doubt, also, it may be similar to some execution tricks played by some , that guide you, on the other side, in the wrong direction, due to your need to get a fill quickly (due to health reasons:-) only to find out with a bit more effort and patience and knowing what you need, you could of saved much money.

Nov

13

Whether it's politicians or bankers or previously highly regarded journalism i.e the BBC, it seems no amount of cutting sacrificial heads will vary the course of the ship. The culture has changed, and whether it's due to changes in morals, etiquette, the transfer of private to public companies, or an attitude of extreme competitiveness, I'm not sure. Listening to an interview I believe on the BBC the other day, they mentioned something they could have been sued for, and said something like, "yes we overstepped the mark yadda yadda", all the while staying very business like…. The interview finished with the memorable last line of "we got away with it!", which showed their true colors of course.

I don't have an answer, but I know that the BBC has been inviting problems for years in its transfer from high end to mass appeal, and as one paper editor mentioned recently in West Australia, words to the effect of "after all the masses are not that bright", they want more goss than substance….maybe that is the conundrum across the board.

Market wise…well…the need of most to think about themselves first and foremost, especially in times of chaos, will always provide the cane swinger with opportunities.

Richard Owen writes:

Like so many things perceived to be a linear spectrum (eg. left wing / right wing), at the extremes it bends round in a circle. In an attempt to achieve equality of opportunity, the world is now bending round to extreme disparity from that.

If you allow people access on a meritocratic basis, you need measurement. But all reasonable measurement systems exceed the patience of the professionals concerned.

It is everywhere, from employee measurement systems within General Electric a-la Jack Welch; political voting structures; the index measurement of asset classes. The aspiring middle class has become subject to as much whipsaw as Ed Seykota's SPU contracts.

In politics, you have 10 year duration policy being set in response to sentiment on 2 hour rotation news bulletins. Churchill used to read and paint in the afternoons to give him perspective during the war — can you come close to imagining that for a PM now?

This means the well held canes of family capitalism are stronger than ever.

Add in the fact that branded education and prime property is on the way to being repriced only for that family elite, and you have something quite pernicious in effect. If you look at where Hittlerite Germany really took off, the legitimacy came not through working class populism, but when the aspiring middle class goat soaked by currency default. It's when the 80-95-%tile (who have worked their asses off to always get grade B+) get their hands slapped down that things get really ugly. They are smart enough to create real havoc.

And I think what Craig points out is another symptom of this development.

Anton Johnson writes:

It is human robustness that is undergoing what could be termed reverse-evolution. Numerous historically attenuated genes, ranging from those coding for hemophilia to astigmatism, are now proliferating. Consequently, as a species, we may well morph into that frail, technology dependent brain-vessel depicted in the advanced alien species of science-fiction.

Nov

11

An article excerpt is talking about the lawyers' argument on an unsolved persons case. I find it interesting from a position of how to quantify a tradeable market.

"Mr Evenden admitted police had uncovered some inconsistencies in the evidence, but he told the Deputy State Coroner Sharon Freund this was not enough to prove the family was involved in a ''cover-up''.

''Some of them provide a basis for suspicion - but even if one put them all together, they don't raise that suspicion above speculation,'' Mr Evenden said.

I'm wondering, what allows suspicion to be raised above speculation and beyond reasonable doubt?

Nov

7

It seems in the market there are times when participants come into the auction and in doing so present worthwhile opportunities for more astute traders. Maybe this is after lunch, after a big ball game, after a holiday period, and the market has whipped around somewhat over this time period. Traders watching the screens through this period will see a market totally different to the johnnie come latelies. They will have seen the mine/ yours already played out and a market potentially in equilibrium. The latecomer will see a market which needs to be stopped out of, leveraged up on, faded…you name it, an interpretation will be there, due to a lack of "vibratory sense". (new term)

This presents an opportunity to trade value for the astute cane toting old timer, who will quite happily make a market for the new flow.

John·ny-come-late·lies or John·nies-come-late·ly (jnz-) Informal

1)A newcomer or latecomer, especially a recent adherent to a cause or trend.

2)a brash newcomer, novice, or recruiit

Nov

4

Should you find yourself in need of a kite for kite flying this weekend, I highly recommend a foil kite over traditional framed kites. A foil kite has a stitched honey comb design which inflates expanding the canvass to catch wind. They require no cross bars or frame. They are lighter, pack much smaller, require less wind to fly and can be stored in a backpack to be near when the kiting urge takes over. Premier is a good brand. Find a field, some wind, a small child, or child-like mood and enjoy the day.

Jeff Watson writes: 

I fly a lot of kites and use this purveyor Into the Wind. They have my good seal of housekeeping. 

Craig Mee adds:

The Tao of Kiteflying: the dynamics of the tethered flight by Harm van Veenmuch is quite a good little book with a great foreword: "dedicated to all those who have not yet unlearned their sense of wonder about reality in general and the phenomena of kites in particular". 

Easy enjoyment and also market lessons for all.

Oct

24

The below article which talks about Australian cricket spin bowlers and gives advice from an ex world best to keep it simple, brings up certain good points in trading about focusing on what comes naturally first and foremost. Get that right and the numbers will play out, (as soon as you dilute the edge and get too fancy with new things that you haven't crunched the numbers on, your performance will suffer.)

"Warne's Back to Basics Approach": 

"The emergence of so-called mystery spinners such as Saeed Ajmal, Sunil Narine and Ajantha Mendis has ignited debate about coaching methods, after Muttiah Muralitharan said Australian spinners had the creativity beaten out of them by perfectionist coaches early in their careers. But Warne takes a different view, cautioning against teaching young spinners to push the boundaries of legal actions. He believes Lyon will be best served with his stock ball.

''Graeme Swann does OK, he bowls an off-break and a straight one. So I think Nathan Lyon has done very well, too, and if he can just concentrate on his off-break and the straight one, I'm sure he will be fine,'' the Melbourne Stars captain said. ''Don't try too much stuff, just bowl well, and over a period of time you'll have better games than not. We're traditional [in Australia]. If someone comes along who is unique you'll embrace it and encourage it but you're not going to go and teach doosras and all those sorts of things.''

Oct

23

I have been wondering, is there any strategy for slots? I know there is a lot of strategy for blackjack and other casino games that is applicable to trading but I've never really read about/considered slots. My quick online searches returned nothing very scientific. I assume slots have a routine (low) payout ratio. I wonder how random the results are (the conspiracy theorist in me is highly skeptical, especially of video slots).

It seems the time to play would be after a string of losses as the payouts do need to come. Sort of like counting in blackjack, you could watch other players on machines, wait for them to lose a lot and potentially assume the odds were going up. It also seems (much like old horse racers) the best recipe would be to bet a consistent amount. Watching players I see bet sizes swinging all over and a lot of loss. Usually it is bet big, lose, reduce size, win, up size, lose, repeat until broke.

Bets could vary but only as a constant function of capital (I.e. 1 with 10 in capital, 2 with 20, etc). This would be subject to casino limits but would probably beat changing size due to martingale risk. I also figure different machines would have different odds. Best to play the machines with the highest odds. The scratch lotto for example publishes the odds of their games in ny, I imagine one could find similar publications with slot odds.

Next I wonder how stop losses could be tied in. Would it be best to use a set number of losses to move to the next machine. When playing with house money should you let it ride or use a rolling stop. Rolling stop sounds better. Also if you had a big win it stands to reason that machine was not going to be paying out big soon so you should cash in and move on.

This all may be virtually impossible too unless there were teams working in shifts (people have to sleep) but casinos don't.

Welcome any thoughts or ideas. I know slots aren't sexy like table games but the anonymity and lack of fellow players makes them fun at times (but it would be more fun to walk away up money).

Will Weaver writes: 

If slots are random they don't have a 'quota' of payouts… and as in flipping a coin, every iteration holds the same probability. So there shouldn't be any advantage. But I know nothing about the machines other than they probably are not completely random, though closer than would generate an edge.

Sam Marx writes: 

If they are electronic slots, I believe they use some sort of random number generator. So I've had the theory that if there was some way to determine the formula used, then they might be beaten.

Craig Mee writes: 

Watching the payout numbers on a screen a long time ago when a technician was working on one– this was a poker slot– showed the payout to be approx 80% before double up, and after double up it went down to the low 60% if memory serves me correctly. When playing I took the strategy of banking all my small wins due to this, and doubled up on any large wins i.e 4 of a kind and the like. From there I would work a stop at flat after doubling the stake (if I won my doubles) and then a trailing 20% stop of total win one tripled my initial stake. It seems to let you have a plan, and walk away, rather than the guy next to you, tipping money into that feeder all night. If you must play, then having a plan of attack is the most important aspect, so you bank or your stop goes off …quickly…and you're out of there. 

Jeff Watson writes:

There s one great slot strategy that hasn't been touched on. The best way to win at slots is to not play at all. Even the places that offer 98% payouts. What they are really saying is that for every $100 you feed through the machine, you will get 98 dollars back. The vig is too tough for me, or any other sensible person, for that matter. One has noticed that the really easiest games of chance usually have the highest vig. Things like wheel of fortune, chuck-a-luck, slots, and keno all have outrageous vig and should be played by no one. Save your money and go to a great show.

Pitt T. Maner III writes: 

Along the lines of the slots thread, here is some info about roulette strategy:

1) Under normal conditions, according to the researchers, the anticipated return on a random roulette bet is -2.7 percent. By applying their calculations to a casino-grade roulette wheel and using a simple clicker device, the researchers were able to achieve an average return of 18 percent, well above what would be expected from a random bet.

Read more

2) "There have been several popular reports of various groups exploiting the deterministic nature of the game of roulette for profit. Moreover, through its history the inherent determinism in the game of roulette has attracted the attention of many luminaries of chaos theory. In this paper we provide a short review of that history and then set out to determine to what extent that determinism can really be exploited for profit."

full article here.

Chris Cooper writes:

The most obvious and effective countermeasure is to disallow betting after the ball is released. The casinos allow betting after release because customers like it, but if they have any doubt it is a simple matter to change that practice.

Secondly, Thorp's original work (and mine) were based on finding wheels which were not quite level. After he hit a few casinos successfully, he found that the number of out-of-level wheels decreased. The paper cited in the original post details an approach for level wheels, but notes that more accurate timing is required.

Plus eV roulette did make it to book form, if not the front pages, by a group from Santa Cruz. More recently, a Hungarian was purportedly successful to the tune of over one million. My paper many years ago is lost to the ages, but in any case you can learn much more by reading the paper cited in Mr. Maner's post.

Oct

10

I thought it would be fun to see who we can find at the top of any sport (or interest) that we have been involved in, who can teach us a lesson or 10.

Maybe this interview could be of some interest. It's Kelly Slater, talking about a few things, unfiltered. One highlight for me was his refreshing insistence on not selling out and going corporate…

Jeff Watson writes: 

When Slater was young, he took a year off the tour to star in the TV show, "Baywatch" with Pamela Anderson. The big guys on the tour at that time, Curren, Andino, Occy, Potter, et al all busted his chops for being a corporate sellout. Then when he did his album, "The Surfers" with Machado and Peter King, people called him a sellout. His big 7 figure yearly sponsorship, Kelly INC,….people call him a corporate sell out. His 30-40 movie appearances, the naysayers call him a sellout.

Personally, I like what they call "Sellouts." It shows that the individual is engaging in selfish behavior and that's a good thing.

Meanwhile, while they are calling him a sell out, 40 year old Slater has been steadily competing and holding his own. He's the reigning champion, and is competing and beating guys that weren't even born when he started on the tour.

If one weighs things on the balance of life, Slater has contributed so much.

Similarly, punk rocker Johnny Rotten of the infamous punk band The Sex Pistols, is under fire for doing TV commercials selling butter in the UK. The social media in the UK is abuzz with all of this, with most comments being highly critical and negative towards the ex-punker. To Mr Rotten, I say "Bravo." A man has to pay the bills sometime.

Oct

10

I have wondered and hoped that he might be innocent from day 1 because I have seen hundreds of horse play things between kids and athletes when I was in my squash career and head of the association. I have not read the trial transcript however, but can only guess what the incentives to create damaging allegations are for the "victims".

URGENT: Sandusky Professes Innocence, Vows to Fight

2012-10-09 11:47:41.661 GMT

By MARK SCOLFORO Bellefonte, Pa. (AP)

Jerry Sandusky says he's innocent and vows to keep fighting in a recorded statement broadcast by a student-run radio station at Penn State. The statement was aired Monday, a day before the former assistant football coach was scheduled to be sentenced on 45 counts of child sexual abuse. One of his lawyers says he would stake his life on the legitimacy of the statement. In it, Sandusky says that in his heart, he knows he didn't do what he calls "these alleged disgusting acts." He says he's the victim of Penn State, investigators, civil attorneys, the media and others. Mike Fliegelman, student general manager of Penn State Com Radio, says the statement was recorded at the county jail in Bellefonte. Defense attorney Karl Rominger initially said he wasn't aware of the recording. Early Tuesday he confirmed to The Associated Press that it was authentic.

Craig Mee writes: 

Perhaps you are being "gaslighted".

Like 50s murderess, Barbara Graham whose last words ("good people are always so sure they're right") set off a firestorm of doubt in the public's mind about her guilt and inspired the film Gaslight with Ingrid Bergman, we now have our sociopath molester throwing in doubt at the last opportunity before his sentencing with all the urgency and fervor that happens when sociopaths are caught at their own game.

I recommend you read The Sociopath Next Door by Barbara Strout. There is some value in knowing the mindset of these types of people, supposedly 4% of the population. Sociopaths are people without the burden or restraint of a conscience. And the book dovetails into your other post about battle fatigue, where the conscience of the soldier is being forced into repression and then when his buddy is killed a straw breaks and either he lashes out at the enemy in a heroic or dangerous act or he points his emotion inwardly and commits suicidal types of behavior. I agree, financial markets are similar to war sometimes.

Sep

27

For anyone who is interested…it seems this event involves quite a bit of he said she said, with some good old miscommunications, and selected curve fitting thrown in for good measure.

"The Inconvenient Truth Behind the Diaoyu/Senkaku Islands" :

My research of over 40 official Meiji period documents unearthed from the Japanese National Archives, Diplomatic Records Office, and National Institute for Defense Studies Library clearly demonstrates that the Meiji government acknowledged Chinese ownership of the islands back in 1885.

Anonymous adds: 

In the current drama of this event, the very ownership of the island, though seemingly at the core, is actually a very secondary issue. What is worth watching are the following.

1) In a country where there is zero tolerance for demonstrations and even public gatherings, how come  there were suddenly so many demonstrators on the streets?

2) Why is there is so much resemblance between the main slogans, banners and pictures? Who made them?

3) During some demonstrations in front of Japanese embassies, why weren't passersbys allowed to join in? Who were those allowed?

4) Of the people leading most of the violence in the streets, how come many are short-haired, tan-faced, strong-muscled, young and well-coordinated? How come they had no fear of the police when doing the violence?

5) At a time when Bo Xilai is being judged and when the Party leaders are fighting in closed doors for who will take charge in the future, is all this just a coincidence?

Sep

11

I think we can all agree that pursuing one's conviction in life or even a demonstrated talent is hard. Most successful people would contend that the key is through perseverance, resilience and so on. In other words, one should not give up during hard times. I think this should be true for most successful people on this list who have indeed withstood some hardship in the early career but never given up.

This is in sharp contrast with the mostly agreed approach for trading, where quickly admitting mistakes and reversing course is very key. I don't deny that someone may be doing it through perseverance (is Buffett doing this way?). Even Soros has remarked that admitting mistakes is key for his success. It is interesting here that admitting mistakes only applies to every single trade, but not really to the hardships in one's career.

There is the saying about when to hold and when to fold. For career success, the focus seems to be "hold" on, but for trading success, the focus is to "fold" quickly.

How would one reason about the two different approaches or philosophies (perseverance vs. change)? Is one of them wrong?

Craig Mee writes:

Leo, I would humbly say, one is a number game, and the other is what you do…and with that you can certainly do some fine tuning. Problems may arise from a number of things not central to what your preferred "business" is.

Russ Sears writes: 

As a marathon runner who use to be national class, it has been my experience that persistence is only part of the battle. It is very easy for a proclaimed prodigy to persist. What is hard is learning to turn a short term loss into a long term lesson for life. If you watched the Olympics here are a few things that the athletes seemed to do differently than most people.


1. They embraced the pain. Training and hard work was enjoyed. But they also learned from their losses, injuries and general hardships in life. Perhaps these fires are the purifying necessary part of the upbringing that the prodigy misses. Learning to believe in yourself despite what others say, turning losses into a chance to strengthen weaknesses. Things whose first order effect is negative but whose second order effect can be positive are highly favored.

2. They were optimistic about their chances, with a healthy dose of realism about their abilities, their current condition and plan. Before and after the event there were no excuses. They had a plan, believed in the plan and stuck to the plan.

3. There were very few people's opinion that mattered to them, their coach, their immediate family (Dad, Mom, Husband or Wife). They did not care what the critics said, they did not depend on crowd support and were not disheartened by disfavor.

4. There were many opportunities from competition. They found their niche from competing more. While the Olympics may be the showcase for their event they were not dependent solely on its outcome. Worries melted in abundance of gratitude to coaches, training partners, family, other supporter, G_d, and country

5. They were focused on the task at hand. They knew how to avoid the distractions and discount the hype. Yeah, this may be the defining moment in their lives and how they may build their fortune, but as the song says "there will be time enough for counting, when the dealings done."

6. There appeared to be admiration for their fellow competitors. This Olympics were notable in that there were fewer accusation of doping, tainted judges (with a few exceptions about some referee) and general cheating scandals. The badminton scandal being the biggest scandal, suggests to me that the athletes were into the competition more so than the best way to game the system. Perhaps this is an inverse reflection of the markets. Or perhaps simply the media has become part of the cover-up captured by the hype, rather than the watch-dog.

Sep

11

I remember reading somewhere that the guy who wins the first two sets and it goes to five in a tennis match usually wins.

Well, checking U.S Open stats for the first 10 five set matches in which a player won the first two sets in this year's Open, I saw it went to the guy who won the 3rd and the 4th set!

Only one open tournament, I know, but a sizeable drawdown.

Just like trading, a system is tough to follow, depending on the stake, (even if for over 10 years it proved to be true on slams) if your drawdown is extended.

Sep

9

Now as we start thinking about a test of 1575-1600 highs in the SP being possible, we can ask ourselves is there any difference between the run up from 97-2000 and 04-2007?

Have we actually got any sound reasoning to say that the aftermath of these run ups won't play out again, or to argue that the declines to create these monster rallies were unjustified in the first place and 100% run ups over three years in both these previous periods should be looked at in that context?

Internet run/ Housing run/ QE run? What is, or is going to, hold this together?

Even if growth somehow took hold, how much re-adjustment may need to take shape?

Just to finish with a definition of Ponzi Scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going."

Sep

7

What determines how many turns in a screwdriver before the thread wears out? On a quick turn or on one with a little more pressure, it reconnects and sufficiently binds the materials. The strongest material holds good thread, but even poor material can show sufficient strength and there's enough time to feign a bond.

What a balancing act we play.

Aug

29

Heraclitus said, "everything changes except the law of change" and "you cannot step in the same river twice."

The river changes every second and so does the man who stepped in it. Life is ceaseless change. The only certainty is today. Why mar the beauty of living today by trying to solve the problems of a future that is shrouded in ceaseless change and uncertainty–a future that no one can possibly foretell?

-Dale Carnegie

Leo Jia writes: 

I have also been studying the topic of change lately.

Just as Heraclitus said about the river, the ancient Indian Veda teaches that even the human body does not have the same flesh and bones as those a moment ago — it is constantly changing. This constant change has made the concept of death (as we know it) less dramatic. Because death happens at every moment as the change of the body goes, the final physical death becomes no more a distinguishing event.

The very nature of change has led Gautama Buddha, who started as a Hindu monk, to believe that there is no self, contrary to the Hindu belief that there is the eternal soul which is the self.

I believe this ancient concept of change has very good reflections in modern sciences of molecular biology and quantum theories. At the atomic and molecular levels, the body is constantly reshuffling and exchanging, at a very fast rate, the atoms and molecules with the surroundings. This has not only made one body not containing the same atoms and molecules from moment to moment, but also made one body to share the same basic components of life with others in the surrounding. At the subatomic level, the change is even more profound, as quantum theory teaches us. The particles become waves or energy and the waves or energy become particles at all times. With this, the body is no more that physical as we see and feel it. It becomes more of a congregate of energy. And the energy is not in closed form - it is open and exchanging with all in the universe. In this sense, the separation of the bodies amongst us becomes less meaningful.

Isn't there the new concept that information is the change of energy? With that, we no longer need to search or absorb information, the information becomes us and we becomes the information.

Why is it hard to believe? Because we confine ourselves to only rely on our physical perceptions. The physical perception is just that — physical. How do we perceive otherwise? That is what I need to learn, and I look forward to someone enlightened sharing the wisdom.

Aug

27

Dear Mr Niederhoffer,

I really like your website dailyspeculations. There are a lot of fascinating and interesting articles that lead to new ideas and inspiration.

I read in the "About V.N & L.K" section that you trained some very successful traders and hedge fund managers. I am a student of business administration in Germany and want to work as a trader in the future.

It would be interesting to know how the training of your traders was structured and what were the most important things you focused on during the training? If you were now in my age (25 to 30 years), how would you start and where would you try to get the sufficient education for this business?

I hope that you can help me with your insights.

I wish you all the best and hope you will continue to share your insights on the markets.

Kindest regards,

Lars Gutt

Victor Niederhoffer writes: 

This is a good question. Does anyone have a good answer besides reading a good statistics book like [the old] Snedecor, Horse Trading by Ben Green, Bacon's Professional Turf Betting, and starting a hypothetical trading account, and doing some hypotheses testing from a field they know something about?

Jeff Watson writes: 

A big question is why you would want to trade. Trading is a pretty thankless job, very tough, and maybe you only see the media presentation, or you want to tell people at a cocktail party, "I'm a trader," but I'd like to see a why.

Having a good mentor, someone that you can apprentice to, is the most important thing in learning how to trade. A good instructor is much more important than Ivy League Degrees, how to manuals, internet chat rooms, books, systems, gurus, the financial media, and all the other mind numbing stuff out there.

My mentor when I first started was an 85 year old guy who was first trained by Art Cutten. He learned well from old man Cutten, and taught me how to keep out of trouble. The main lesson to learn in trading, more than anything else, is how to keep out of trouble. Manage to keep out of trouble, keep your own counsel, and the mistress might give you a second or third date.

George Coyle writes:

Series 3 study guide is a great (relatively brief) overview of the commodity futures industry. It touches on styles of trading as well as goes through lots of the unexciting but important details (order types, etc.). (Outline of material covered in exam [pdf]). (Online version of Study Guide by Investopedia).

From there the Market Wizard books are good to look at the different styles to see which sounds the best to you.

If quant focused I would say read something on how casino games work (odds and such–Richard Epstein's Theory of Gambling and Statistical Logic book is good) and think of how that might be applied to markets with the trader acting as the casino. Focus on keeping it simple, think of what is practical and possible when working with data.

Read your books of course. Read interviews with William Eckhardt. Larry Williams' recent book (LT Secrets for ST Trading) does a good job of outlining how quant works specifically, as does Charles Wright's Trading as a Business. Livermore's How to Trade in Stocks is a good one too (less popular than Reminiscences but more of a "how to" manual).

Deitel and Deitel C++ How to Program is the best C++ manual out there in my opinion. I dodged it for years but it is crucial and so useful. www.thenewboston.com is a great website to watch youtube vids on various languages to get your feet wet (but Deitel is necessary if you really want to learn the specifics).

And just start trading. The best teacher is experience. Even if equipped with all the great logic from above it seems real experience is necessary to actually follow the rules.

Craig Mee writes:

Understand valuation. Get a handle on all things that move a market price. Maybe have an 8 week internship of your own making with 8 different dealers. Corn farmer, art dealer, financial dealer, car dealer, importer, etc, and understand that whatever you're trading, you potentially should be able to move in theory from one to the other seamlessly. You are a valuer first and foremost, and if you value it wrong, you will also see how most of these choose to cut their positions. This might help to keep in the forefront of your mind what your mission actually is.

George Parkanyi writes:

Well if you can get past the fact that he finally went bust and blew his brains out, I found Reminiscences of a Stock Operator, about Jesse Livermore, to be quite useful. The most notable things I remember are (1) "making the most money when he was sitting, not trading" – meaning a position needs time to make really big money, and (2) to Jeff's point about staying out of trouble – averaging UP a position once its already showing a profit, and never averaging down a losing position. (The latter is especially important when trading with leverage.)

Ultimately, it still comes down to a style you are comfortable with – keeping the staying out of trouble part in mind; however you do that. And this may or may not involve the things mentioned above.

David Lilienfeld writes: 

Go through some psychology texts–learn to understand human behavior and get to know one's own temperament. Understanding on an intellectual level doesn't help much if one's temperament is suited to trading. I have an old friend from high school who was on the Solomon trading in the mid-to-late 1980s. He hated it, often spent the weekends sweating his positions, etc. He moved on to be a buy side analyst, became the portfolio manager for a number of funds that succeeded pretty well under his direction and prospered. He had no trouble sleeping as a portfolio manager, and as I said, his funds did very well. A college roommate became a sell side analyst and was bored as could be doing his job. He did OK with it, but not great. He changed employers (at one point he thought about leaving the industry if he wasn't hired by someone to do something other be an analyst), started in its training program and found himself on the trading floor. He enjoyed it immensely and retired last year (I'm still not sure if he "retired" or was retired by his employer; looking at his homes, it's not as though he's wanting for much, so maybe he really did retire–but it's also not been a topic open to discussion, at least not with me). My guess is that just about everyone on this list has friends with similar stories. The bottom line: You have to know your temperament. You can learn the math, but if you don't have the fortitude, the math doesn't much matter.

The psychology part is understanding what people are about. Understanding gambling is about the mathematics of risk. Important stuff to be sure. But people matter too, and understanding what they are all about is also important.

Those are my recommendations. Lucking into a good mentor helps, but observing for a while is also one of the best teachers.

Aug

14

You may have heard of Phantom Limb syndrome before. This passage from an article started me thinking about what things are present in the market that
we feel but don't in fact see, adding to the chance of our ache and
ruin. Or alternately, what is present in markets that helps to guide us,
no matter our deficiencies?

"The woman was born with only three fingers on her right hand and had the hand amputated after a car accident when she was aged 18. She later began to feel that her missing limb was still present and developed a "phantom" hand.

"But here's the interesting thing," Paul McGeoch at the University of California, San Diego, told New Scientist. "Her phantom hand didn't have three digits, it had five."

However RN's phantom thumb and index finger were less than half the usual length and were painful.

Dr McGeoch and Professor V.S Ramachandran used a mirror box which reflected the woman's left hand to make it look like she had a pair of limbs.

After two weeks of training RN was able to extend the short fingers on her phantom limb, which relieved her pain.

McGeoch said the study indicates that there is a hardwired representation in the brain of what the body should look like, regardless of how it actually appears in real life. It showed more about the balance between the external and innate representations of a limb, he said."

Aug

12

Many innovations changed the world and sometimes the person who first had the new technology garnered great power and wealth. In ancient Japan, a man with a sharp and strong sword ruled all those around him and was for the most part invincible. The first group with the stirrup who could shoot an arrow or wield a sword while riding surely began on the road to world conquest. Imagine the first man to invent a tool, fire, or a weapon. Those innovators surely reaped immense wealth and power. In each case those at a disadvantage soon found the weakness in the strategies used by the innovator, or weakness in the technology. Chair's algo's were innovative, and even now new ones seem to keep appearing by the quick footed. Bill Gates' and Paul Allen's programs were innovative and powerful for their day and timing with new computer chips made their strategy a huge success. Google's algo's still seem to rule and their cache of information is scary. As in the old days, the weaknesses are exploited discovered and the advantage weakens over time, or in cycles but not before resulting in great success, wealth and power.

Craig Mee writes: 

James, great insight. I suppose the question then may be are the inflammations of the current system greater than ability of the system to overcome and adapt? Are the internal inflammations getting so large that they may soon take absolute control and lead to death, no matter what the ability of the system to adapt?

Aug

12

Cold reading has much in common with market charlatans:

"There seem to be three common factors in these kinds of readings. One factor involves fishing for details. The psychic says something at once vague and suggestive, e.g., "I'm getting a strong feeling about January here." If the subject responds, positively or negatively, the psychic's next move is to play off the response. E.g., if the subject says, "I was born in January" or my mother died in January" then the psychic says something like "Yes, I can see that," anything to reinforce the idea that the psychic was more precise that he or she really was. If the subject responds negatively, e.g., "I can't think of anything particularly special about January," the psychic might reply, "Yes, I see that you've suppressed a memory about it. You don't want to be reminded of it. Something painful in January. Yes, I feel it. It's in the lower back [fishing]…oh, now it's in the heart [fishing]…umm, there seems to be a sharp pain in the head [fishing]…or the neck [fishing]." If the subject gives no response, the psychic can leave the area, having firmly implanted in everybody's mind that the psychic really did 'see' something but the subject's suppression of the event hinders both the psychic and the subject from realizing the specifics of it. If the subject gives a positive response to any of the fishing expeditions, the psychic follows up with more of "I see that very clearly, now. Yes, the feeling in the heart is getting stronger."

Jeff Watson writes:

Here's a great how-to" book on cold reading.

Bill Egan writes:

A complementary resource I recommend is "The Definitive Book of Body Language" by Allan and Barbara Pease. Always watch peoples' body language and compare it to their words, and watch how both change over time. For example, when the fraud thinks he has you, there is often a split second where he will shift his body position and display a chilling facial expression like a fox looking at a chicken. That half-a-second is real important to you.

Jim Sogi writes:

Trial lawyers look for cues in the jury's race, clothes, hair styles, books or magazines, shoes, apparent class, education, prior experiences who they speak with, their background information on their questionnaires to get a read on how they might decide a case. Trial consultants use broader data on how similar groups might react to similar situation. During Voir Dire, a short question and answer period, the lawyer can ask the prospective juror some questions that might shed light on the juror's prejudices that would justify being removed from the panel or dispose the juror against the lawyer's client. Again, all forms of cold reading.

A fun game I like to play while people watching in restaurants, or on the street is to look at people and try to figure out without anything more than watching from a distance, where they are from, what they do, what the relationships are between members of the group, what they might be like. Family groups on vacation are a pretty easy read as well as their internal family dynamic. Old couples are straight forward. Groups of young people tend to send strong signals. Groups of business men, groups of tourists, newlyweds all have characteristic mannerisms. The next level to try discern their relationship, what they are like and get an idea about them from only external signals.
 

Aug

12

"The explosion is almost here."

Reminds me of the villains talking in Batman The Dark Knight Rises. OK I didn't mind the movie.

Gold had ten inside weeks closes.

GPUSD had ten inside week closes (I see this however had approx 32 weeks of range back in May2009-Jan 2010 before it finally kicked out and moved approx 3-4 times range size.)

In the early 2006 we had 10 inside weeks before a market move 6 x range. Though we have had plenty of other crappy yours mine.

What could be the interest around this movement to decide if this one will kick? Are we in a significant area for concern? What did the move preceding this consolidation signify if anything?

Always be on standby under such conditions and at the controls… and be looking to learn.

Jul

31

Are there any events these days that make people inordinately happy or sad. Perhaps these would influence the market? An event like an earthquake or a mass tragedy in a theater would seem to qualify. Perhaps there are classes of events that effect particular groups like flexions that cause them to be happy or sad that have a measurable effect also, like intervention by the EC, or the Fed. What do you think? Is it worth quantifying?

Rocky Humbert comments: 

Yes, there are such events. Flying a Boeing 767 into a tall office building is one such example.

Scott Brooks writes: 

Not sure this is an event, but…..the realization that massive fraud is occurring. For instance:

The Accounting debacle (i.e. Arthur Anderson, Enron, Worldcom, Global Crossing, etc.) of 2001.

The Mortgage Fraud Debacle of 2008.

Jordan Neuman writes:

The 2003 rally began with the freeing of Elizabeth Smart. Certainly the market was sold out, but I thought a collective sense of gratefulness served as a catalyst. But file this one under the difficulty of setting up the study.

Craig Mee writes: 

Potentially state dinners and the like, when the flexions are busy cleaning their shoes and are getting ready for another free meal. Maybe that's why silly season (late Nov through December) appears to do ok. Plenty of back slapping, industry awards and the like. Also maybe Oscars week (or award month) is a winning combo for listed movie stocks.

Jim Sogi adds:

Here's a couple of ideas. Use facial recognition software to detect a "smile" tune in all the security camera in the world, process for correlation. It's a bit big brother-ish, but there are cameras all over in cities now around the world.

How about using beer sales? Old Chinese proverb: If you want to be happy for two hours, drink wine; if you want to be happy for two years fall in love. If you want to be happy forever, take up gardening.

Track marriages.

Track gardening sales, or farming yields. It's said one of the few real producers of wealth is farming. Good weather=good farm yield=good production=happy markets.

Jul

26

There is a lot of corruption and dishonesty in the markets. The recent Nomura shake up on insider trading, the Libor manipulation scandal, Madoff, PGF, JPM. It seems endemic. People will always cheat and lie. It's only human. It's a cynical view, but the conclusion is unavoidable. Regulation doesn't seem to help much. The question is whether such dishonesty is built into the data, and whether it negatively affects the average joe. Chair's theory is that all under the sun is built into the statistics, the data and if the right questions are asked in the scientific method, information is available. Or does all the manipulation make it futile if one is not a flexion? Or is it, as Tim says, luck?

Craig Mee: 

James, I suppose a question is has this got any hope of diminishing or does the vested interest of the insiders to hold their station under deteriorating economic conditions drive this insanity to greater heights? Will people sell out their grandmother, (well, in this case their great great grandkids) and lock and load until the games not just up for them, but more importantly up for the arrogant, all and sundry.

Jul

24

There is much pessimism on the site about the stock market. One thing I always like to ask is suppose it were true that the economy is really going to be weaker than people expect. Like we'll have 1 or 2% growth rather than 2 or 3. Why should this affect stock prices? What is the evidence that stocks do worse during periods of below average growth? Why should it matter? How does the rate of return on capital of businesses compare to the 30 year rate as stocks are valued based on discounted value of expected future earnings adjusted for risk, with the growth rate of earnings being determined by the rate of return on capital less the pay out on dividends rate. Is it better to buy stocks when people are pessimistic or optimistic?

All these things must be tested. I'm not saying that I'm bullish or bearish on stocks or that one should be. I'm just questioning the glue and the weakness type of stuff. Assuming it was true, which I doubt, why should that be bullish or bearish? Testing is required.

Steve Ellison writes: 

A regression of the 1-year S&P 500 return from 1981 to 2010 against the US unemployment rate reported the previous December shows a 16% positive correlation, with the regression line for the next year's S&P 500 net change being -1.9% + (1.9 * unemployment rate).

t=0.86, p=0.40

Leo Jia writes: 

I often ask myself similar questions but can not answer them. Perhaps one has to answer this question first: what percentage of the people in the market are rational? Or rather, what percentage of the money in the market is rational? Though I don't have an answer, I tend to believe that there is more irrational money than rational money in general. The clear problem is that the degree varies all the time.

J.T Holley writes: 

With the std dev of 18% and annual rate of 8-9%, I'll order a double helpin' of "drift" with a side of "thank you".

If that meal doesn't fill you up then you must question where you get your meals and disregard the gratuity the next time you sup.

Tim Melvin writes: 

Drift only exists if you have a 100 year time frame in my opinion. See 1970s and 2000 to present. Much of investing success last fifty years for most investors is result of membership in lucky sperm club.

Craig Mee writes: 

Doesn't one new variable in a mix during the testing period influence the outcome– QE, no QE, etc etc…(sure, there's been other ways of doing it). But how to judge what has the over riding influence on the outcome? This could vary under certain conditions. How much of the US equity recent rise is in default of Europe, just like EURGBP taking the heat…and how much of the current price is underpinning based on QE to come?

What has recent price action illustrated, if anything at all…

How should weaker growth effect share prices? I would argue that this would just be a further nail in the coffin, when all the ducks are lining up, but how can we say it's got more weight currently than some other significant half ? It's tough. Are the number of running variables any different than twenty years ago? Maybe not. Are market conditions, HFT, leverage, number of participants in the market any different? Certainly. Has this influenced price action? Maybe Richard Dennis may have some views here.

When does the variation in conditions influence the ability to test? I suppose this might be the question.

Jul

18

I recently read the wiki page about The Endowment Effect.

Basically, it says the one values his possession much more than others value it.

Thaler conducted the following experiment. He randomly gave some participants a mug, which sells for $6 in a store. He then asked the ones now owning the mug to give a minimum price below which they would not sell the mug, and asked the ones not having the mug to give a maximum price above which they would not buy the mug. It turns out that the owners valued it for $5.25, while the bidders valued it at $2.75. He concluded that the very fact that the persons owned the mug made them give it a higher value.

Very interesting research. But I wonder if the conclusion is as that simple.

First, I wonder what would happen if the owners were asked to buy another mug. How would they now value it? Since it is not a critical item to have and they already own one, it is reasonable to believe that they would bid an even lower price than the bids from those who didn't own it, isn't it?

Second, what about selling short is allowed in the experiment? If the people who didn't own the mug were asked to price it if they would sell it short. I bet their price would be even higher than what the owners offered, and very likely be higher than the $6 store price.

Any input on this, please?

Gary Rogan writes:

Leo, I'm not sure it's productive to attempt to extend these "effects", and there are many of them, beyond their original definition without doing actual experiments. This particular effect seems to be as simple as "defend what's yours harder than you would attempt to get the same thing from someone else", one of the ancient evolutionary developments. Primitive (as well as advanced) animals demonstrate the same effect when fighting for territory, that's why the challenger loses most of the times. Of course someone who has a relatively useless (from their original standpoint) mug to begin with doesn't want another one. Personally I find it more interesting to think about the practical value of the original effect. In the behaviorist books it's supposed to manifest itself by "holding on to losers too long". Every time I read this I always think about whether the logical conclusion is that a rational person should always sell "losers". Sometimes they bring up the tax loss effect, and that's fair but it doesn't get to the heart of the matter. Considering this question, and all the robotic trading that goes on, how would one take advantage of this effect? 

Pitt T. Maner III writes: 

The self-storage business might be an area where this effect is felt most strongly. There is a lot of rent money being paid (by baby boomers and those who have left houses) and property used to store old things instead of buying new.

Rocky Humbert writes:

This is a fascinating subject for exploration. Being only slightly tongue-in-cheek, I wonder what effect negative real interest rates have on the willingness of people to hold onto "junk" ? To the extent that "the cost of carry" (i.e. monthly rental fees) are small, hoarding is a rational behavior. Also, there was an article in the WSJ last week discussing the effects of "clutter" on marriages and home life. Lastly, there may be a "depression-era" and "aging demographic" effect occurring here. In the situations where I've (sadly) had to empty out elderly relative's apartments, I've discovered that depression-era people hoard useless things like return envelopes from bills, archaic car and doorkeys, memorabilia from bygone days, etc. I think that there are many interesting factors at work in this trend — and there is market-related utility in thinking about them.

Jim Sogi writes:

It's really hard getting rid of one's "junk". There is a weird attachment to the stuff. Its almost painful to throw stuff away. Then there's the issue of getting rid of the junk, and then needing that item the next day. Feng Shui has some good tips on clearing the clutter. There must be some sort of hardwired effect causing one to collect stuff. Look at the bag people pushing around carts of junk.

Craig Mee writes: 

I'm with you, Jim, and in the tropics, clutter, dirt and smells brings mosquitoes, which is a very good reason to keep things clean.

On a side note. I've had a lot of trouble with mosquitoes, though I went to a friend open air villa the other evening , and when dusk hit, no mosquitoes ? I looked around and put it down to a) everything was white, walls , furniture, coverings, a well cared for garden, two ceiling fans, (some sea breeze) and importantly I thought …lights under the table we were sitting at. ie everything was clean , tidy, and white, with air.

Further, I read once, if you haven't worn clothes for a season, toss them. That's certainly worked for me.

No doubt those who make money in one particular stock , get attached, (you see it)…it clutters their mind, and they will drag any positive out of fundamentals, value, whatever to get back involved. Got to clear the clutter, or put it out of sight, to free the mind.
 

Rudolf Hauser writes:

In considering the impact of the pure psychological effect on value from ownership, one should not ignore the economic effect. The cost of the purchase is not just the purchase price of the item but the value of all the effort that went into finding the item in the first place and how difficult it might be to be able to buy it again. Then there is the risk of the replacement being defective or other problems in the acquisition thereof that might happen. One also has to consider the potential cost of needing an item and not being able to acquire its replacement in time to meet that need. As an example, I once wanted to buy a new ink eraser to replace the one that wore out. I then found that I had to run around to seemingly countless stores to find this inexpensive item –an effort countless times more expensive in opportunity cost than the price of the item itself. Needless to say, when I finally found the item, I purchased a whole box full to insure that I never would have to spend so much in search costs again for that item. Nor would I have sold those again except for much more than I paid for them.

As for the psychological impact, say one has purchased an object of great beauty at a price that subsequently appreciated considerably. The new higher price might be one at which one would not consider it prudent to buy given the overall state of one's financial resources even though it is an item one might wish one could buy. But already possessing it one has the excuse for buying it via not selling it because one already had done the deed in effect. When an item is not unique or rare and is easily replaced when a new one is needed, one would not suspect that same tendency to value the item in possession more than the same item not in possession. It would be interesting to see if this effect still persists in that case and how it compares to the former.

A stock would be of the latter type at least in small quantities. With larger quantities there is always the uncertainty as to how much such purchases might impact the price, which would the economic reason as opposed to a psychological reason. A psychological reason might be the emotional difficulty of making a decision that one is not anxious to repeat, ignoring the fact that with an investment an implicit decision has to be made every day as to whether to continue to hold or not. The difference is that to sell or purchase is an active decision whereas to hold can be a passive decision. In effect holding is also a way of putting off a decision.

Jul

18

Talking about morals, there seems to be no shorting of those without. Note the Secondary Scam. Wow, is this another reason why some in the market keep on getting clipped and have a lack of versatility. "Consistently more are likely to show renewed interest in contact from fraudsters". The magnetic attraction …of what? Excitement, revenge, thrill seeking–it smells of lack of due diligence at a minimum.

From "Nigeria With Love":

"Meanwhile, ''The Psychology of Scams'', a study commissioned by the UK Office of Fair Trading, shows people who have already been a victim of a scam are consistently more likely to show renewed interest in contact from fraudsters. One trick of conmen is the ''secondary scam'' in which they contact a victim some time after they realise they have been scammed and pretend to be lawyers, government officials or police from the scammer's country. This happened to Munro. ''Sean King'', whom she chatted with on another site, told her he had also been the victim of a scammer. He said the Economic and Financial Crimes Commission, a Nigerian law enforcement agency that investigates 419 scams, had helped him and a friend to recover their money. Her local police had already suggested she get in touch with the EFCC, but ''I emailed them and never got a reply,'' she says. Sean told her he would get the employee who had helped him to contact her. ''So he [the EFCC employee] emailed me and then it was all on again,'' Munro says. The emails had the same EFCC logo as she had seen on the site to which the Australian police had directed her. ''They said because such a large amount of money was due to me, I had to get anti-money-laundering and insurance certificates from the bank. All the documents that came to me looked totally believable,'' she says. ''They named the guy who scammed me and said they had his IP address. It was very clever. I was sucked in.'' Thousands of dollars later for a variety of ''fees'' and ''certificates'', Munro realised she was being scammed again.

An interesting article on The Psychology of Scams

Jun

26

More retail trouble afoot for the Billabong surf brand.

I see the potential hazards of a singular founding father in control. Though it currently appears all hope is lost, opportunities on the long side may be surfacing. However, when put into context of what has gone on in the past six months it is no surprise. For starters, it has removed a chief executive, had a profit downgrade, issued an equity raising and knocked back a private equity offer at what was more than triple the present share price.

The company and Merchant have a lot of soul searching to do between now and a takeover but one thing is certain - Billabong will never be the same again.

Read more here.

Jun

23

Anyone who is into horse racing may want to keep an eye on a truly impressive mare, Black Caviar, who is unbeaten in 21 starts. Just got off the plane in England after traveling from Australia for the Group One Diamond Jubilee at Royal Ascot on June 23. If I was in the old dart I know where i would be heading on that date.

Follow Up:

22 from 22. Another win for Black Caviar at Royal Ascot. But there's a trading lesson in there. A different length straight, and changing time zones (horse lacked a bit of zip), almost saw the jockey blow it, as he eased up 200 m from the line, and almost got swamped. Beware complacency in different environments under changing conditions. Even elementary apprentice errors, can still plague you, even when your well experienced. The little things, like this , were probably the last of the jockeys concerns before the big race, but were almost his ruin. 

Jun

18

Within hours of jetting into the Mexican Pacific resort of Los Cabos today, Prime Minister Julia Gillard was lecturing an international business audience on "the Australian way" as a response to faltering economies in Europe and elsewhere in the world.

Read more here.

UPDATE

And this is not unexpected… :

"THE Aussie PM has been publicly slapped down at the G20 summit by the President of the European Commission for lecturing Europe on how to solve its economic crisis.

In an embarrassing swipe at the PM, on the first day of the official meeting of leaders gathered at the Mexican luxury resort region of Los Cabos, EC President Jose Manuel Barroso said he would not be lectured by anyone."

meanwhile back at the ranch.. (or farm) in Oz:

"Mr Hockey, the opposition's treasury spokesman, said Ms Gillard's letter to G20 delegates on why they should get their economies in order backfired when European leaders said it contained no new ideas."The Prime Minister is delivering a lecture for local political purposes only," he said."Around the world no-one is taking the Prime Minister seriously."Instead of engaging in megaphone diplomacy the Prime Minister should be admitting to the Australian people how her record debt and record deficits compromise Australia's international competitiveness.

Julia Gillard would be better placed to take a leaf from the Coalition's playbook during the Asian Financial Crisis and offer behind the scenes regulatory and administrative support."
 

Jun

4

I'm reading Trading as a Business by Charlie Wright. Pretty good book profiling the evolution from discretionary trader to systematic trader. One of those books where I found myself laughing at having been down the paths. More trend following oriented but I think it is a pretty good synopsis of the systematic world and he covers some bases that added value in terms of elements to consider in one's trading (or at least mine). Decent set of checklists.

Do systematically inclined speculators recommend similar books (besides Victor Niederhoffer's and Larry Williams books).

Also, Tradestation seems to do most anything a trader would want in terms of trend following testing. I have never used it though.

Thoughts?

George Parkanyi writes:

The only flaw I find with systems is that they immediately stop working as soon as you try to use them. I think people need to do more research on fading systems.

Christopher Tucker writes: 

Where's the "like" button on the Speclist?

Steve Ellison adds: 

Yes, even systems I developed myself stop working when I try to use them because of data mining bias. Even if there legitimately is an edge, some component of the good backtesting performance is better-than-average luck. 

Leo Jia writes: 

The word "enlightened discretionary" is very appealing. The reason for it, I guess, is because of the word "enlightened" more than the word "discretionary". Everyone hopes to be enlightened in someway. Being enlightened seems to be a spiritual consummation. But I guess that is not the first and real reason why people are after being enlightened. The real reason is that it is mystic and mostly unattainable. This coincides with a human nature of always craving for what they don't have, which is among the reasons why most people are persistently unhappy.

I feel preferring discretion to system is quite illogical. Aren't whatever rules one uses as a discretion by nature a system? It perhaps is not explicitly sketched out, but it by all means is a system of rules that resides in one's head. Couldn't that be phrased and then programmed? I agree some are not very easy. But are they really impossible?

Gary Phillips writes: 

I've been doing this long enough to instinctively know what works and what doesn't. I only need to look at my P&L for empirical confirmation. If in doubt I just try to see the market for what it is and not what it appears to be. One needs to understand market structure, liquidity, and price action and develop a framework for analyzing the market, somewhere between bottom-up & top-down lies the sweet spot. This allows you to see the market in the proper context and provides you with a compass, which will keep you from feeling lost and will show you the way.

Craig Mee writes: 

Aren't ?

Hi Leo, you probably could say "whatever rules one uses as a discretion by nature is a system", but a system may not have the ability to load up once the move kicks (obviously it can be programmed) but at times the opportunity may appear intuitive, and  a trader can do that on relatively short notice, whilst keeping initial risk limited.

Interesting, Gary, the issue with systems seems to be at times data mining against price action and structure which gives strength of understanding. The HFT may work on massive turnover, low commissions and effectively front running, and unless you have those edges then it appears difficult to succeed from a data mining basis (and relatively scary trading something that you don't effectively understand from a logical point of view). However classifying a markets structure, and working off 3-4 premises no more, (as I believe more would allow any edge to be diluted across a range of options), and the ability to leverage once on a move, appears to be something you can work with. This is purely from a hands on execution basis, no doubt the pure programmers can weigh in.

I remember speaking to a guy who professionally programs for others… (admittedly a lot of retail), and we were talking about what are the laws in place for him to not front run me after developing a system I gave him…and he was like "mate, to be honest (probably insinuating "dont flatter yourself") 97% don't make a dime." That was certainly probably expected I suppose, but to hear it in technicolour was confronting and I was surprised he said as much.

Gary Phillips writes: 

I really don't believe that discretionary trading today, is any harder than it used to be. The emotional aspects, and risk management, have essentially remained the same. Methodology is different, because algorithmic driven HFTrading has forced intra-day traders to change from momentum chasers to mean reversion traders. And as you stated, there are countless global/macro concerns as a result of the financial crisis and continued global easing. So, it does demand a broader universe of knowledge, and revamped techniques and benchmarks, but it still boils down to identifying what is truly driving price and how it is being driven. 

I guess this is what gives you the elusive *edge*. But, as we used to say the *edge* can sometimes be the *ledge.* That being said, trading doesn't have to be about being right or wrong the market, or predicting where the market is headed in the next moment, hour, day or week. Trading can be nothing more than a probabilistic exercise, and a trade nothing more than a statistical data point - the next event in a series of events governed by the statistical random distribution of results.

 

Kim Zussman writes: 

"Trading can be nothing more than a probabilistic exercise, and a trade nothing more than a statistical data point - the next event in a series of events governed by the statistical random distribution of results."

One would suggest that trading is a waste of time if your historical or expected mean are random.

May

30

Tom Waterhouse is the youngest of a bookmaking dynasty in Australia. On his website he offers some fine racing tips which are easily translated to the markets. Here they are:

AIM HIGH. Always take the top of the market.This can be done by betting Top
Fluc on saturdays and Best Tote on weekdays.


AVOID the sinking feeling: If the track is heavy , and you see a horse that
is odds on, get on. All bookies want to lay the favourite on wet tracks .
For the horse to remain in the red, it means its going to be very hard to
beat.


WIN BIG LOSE SMALL: Bet bigger if you are winning smaller if you are losing.


GO LONG: If there are two horses with odds under 3.00 get on the longer
priced one.


LAYDAY LAYDAY !: The horses on the front of sportsman and Winning Post
(racing newspapers) are the lays of the day.


DON'T FOLLOW THE HERD: Be very surprised of the hot tips in the papers.Yet
be extra keen if you like a horse and its not mentioned- you will get far
better value.


THE BLADDER EFFECT: If a race jumps and you need to go to the toilet, or
you feel overly nervous, you are betting too big.


STAY THE COURSE: If you reckon a horse is worth 3.00 and you see it paying 
10, do not alter your bet, put on the same amount.Value is king.


OFF WITH THE CASH!: The punter who loses his head loses his money.


TOUGH LOVE: Keep your eyes and ears open when you are on the track and
follow the tough money.


TAKE HALF MEASURES: It always is easier to back winners in the first half
of a race meeting than the second half.


THE CUP DOESNT RUNNETH OVER: It is much easier to find a winner at a
midweek hitout, than the most glamourous race of the year.


DONT PANIC: Never take under. If you miss getting on at the right price,
there will be another race.

A good read about the man for those interested is this article: "A Serious Man".

May

30

The Third Industrial Revolution (link is to a video of Rifkin speaking) will create thousands of businesses and millions of jobs and usher in a fundamental reordering of human relationships, from hierarchical to lateral power, that will impact the way we conduct business, govern society, educate our children, and engage in civic life. Rifkin writes on his website:

With Oil at 147 a barrel people stopped buying, because all the supply
change was too expensive…the entire economic engine of the industrial
revolution shut down, July of 2008, ..that was the great economic
earthquake of the 2nd industrial revolution, the collapse of the
financial markets 60 days later was the aftershock…. we now know the
outer limits of how far we can globalize this world based on elite
fossil fuels its about 150 a barrel and it will shut down.

From the man's home page:

Rifkin's vision is already gaining traction in the international community. The European Union Parliament has issued a formal declaration calling for its implementation, and other nations in Asia, Africa, and the Americas, are quickly preparing their own initiatives for transitioning into the new economic paradigm.

Stefan Jovanovich comments:

Any "revolution" — industrial or otherwise — that needs an "international community" is — by its own definitions — a non-starter. As for the people "stopping buying" when oil was $147 a barrel, a question: did they start buying again at $146? Renewable energy is the canal craze of the 21st century. The one part of it that has worked is the one that people fully understood 100+ years ago when Buffalo, NY was the center of the electrical world - hydro. Everything else has been a crock for the simple reason that it has - and still does - require subsidy. Mr. Watt needed no subventions from Parliament, only the liberty to build an engine without having a committee decide whether or not it was an "appropriate technology".

See the wiki pages for Matthew Boulton and James Watt.

May

7

Anyone who has dined in Singapore's fabulous cheap eateries may be interested in these numbers.

"Secret Roast-Pork Recipe Tests Value of Real Estate":

How much is a recipe worth? About $1.8 million, according to the owner of Kay Lee Roast Meat Joint , who boosted the sale price of her Singapore eatery by that amount when she put it on the market this year.Betty Kong and her husband want S$3.5 million ($2.8 million) for their 60-plastic-stool establishment, a premium over the S$1.25 million assessed value of the site. The price includes the property, their recipe for roasting duck, pork ribs and crispy pig skin as well as other Cantonese-style classics, plus three months of cooking lessons


The Roast Meat Joint generates sales of around S$2,000 a day, she said, or S$620,000 annually, assuming it’s shut one day a week and three days for Lunar New Year holidays. Profit margin is 60 percent, according to her broker Raymond Lo at Knight Frank LLP. The asking price is 5.6 times annual sales, compared with the 1.1 multiple for the Singapore benchmark
Straits Times Index. (FSSTI) It would take six years to recoup the recipe premium.

Larry Williams responds:

Food costs are 20% in the best run restaurants so the 60% profit cannot include labor, overhead etc. No way

Black pepper crab in Singapore is one of the worlds greatest dishes.

May

7

My teens say facebook is yesterday–hope the IPO isn't a "fail" as they call things that suck, or do not work. 

Facebook IPO Status Update:

The stock now could go public at a lower price. Moreover, new uncertainty about the Menlo Park, Cal., company's growth prospects may temper some of the feeding frenzy that was expected to take place on the stock's first day of trading — currently scheduled for May 18.

Craig Mee responds:

Agreed. Looking at explosive movers and shakers like Google, Facebook is a different animal. Google gets the job done, but Facebook is more part of a trend or coolness factor that can be side stepped as quick as the share/message/like buttons allow. What's more, the site, especially the log in page, looks kind of old school. You can buy things, but you can't buy coolness, once you've lost it.

Russell Sears writes:

My daughter says it is because Facebook has been taken over by all the whiners, posting all the time and losers playing games. It seems the only acceptable use is keeping Grandma up to date. Hence if you admit you use it, you are the sucker at the table.

Gary Rogan writes:

In addition to the inherent instability of any high tech company, this one adds the delightful dependence of its success on the what most of its customers think of most/some of its other customers, usually a characteristic associated with trendy fashion retailers and night clubs. Compared to this one, Groupon that made another all-time low today at significantly less than half of its initial trading range is the rock of Gibraltar.

Apr

30

The gbpusd had 10 straight up days as of Friday. For the crunchers, this has happened, if my information is correct, only 3 times (including Friday's run) in the last 3 decades. (none greater). Whats no10 Downing Street to do? Where's the stop? Where do I take profit? Is there a viable risk /reward trade in there anywhere? Oh so many questions…

Apr

26

I found this comment by "Global Guru" on the perceived shift back to the west in manufacturing very interesting:

And for all the talk of the decline of the United States, and the rise of China, India and Brazil, much of the know-how behind this shift is coming from the world's developed economies, with the United States far in the lead.

Much of this historical shift is thanks to the rise of three dimensional (3D) printing. Although it's hard to get your head around it, 3D printing is actually pretty much what it sounds like. Design a part on your computer using some type of three-dimensional software and the "printer" actually manufactures it for you right then and there. In many ways, 3D technologies are the closest things to Star Trek-like transporters you can have. Scan an object in Silicon Valley, and another machine in South Africa can build a copy.

3D printing provides for mass customization on an unimagined scale. And chances are it's already part of your life. Your last customized dental crown or hearing aid was manufactured using this technology. Companies soon will be making customized drugs based on your own DNA sequence. I have no doubt that other 3D printers will one day be manufacturing customized hearts and livers from your body's own cells.

The applications of 3D printing know no bounds. New 3D technologies are helping carbon fiber replace steel; breed viruses to make batteries; and help researchers at Cornell "print" cupcakes. 3D also helps manufacturing processes to accelerate at an exponential rate. While it took 3,000 hours to manufacture a carbon fiber Formula 1 race car in 1981, today it takes four.

Apr

15

I just read The Atlantic article "The Man Who Brok Atlantic City" about Don Johnson the blackjack player who once took $ 6 million in one night from an Atlantic City casino. It was a great read, and I think any one who asks questions about how to be a trader or an investor should read it.

One amazing thing I learned is that Johnson figured out how to drive the house edge even lower. Through hard negotiations he got it down to (by his estimate) just one quarter of one percent. That’s super close to dead even — but still not quite enough. And then came the coup de gras. With some negotiated loss discounts on top of that — agreements for the casino to reimburse a certain amount of if Johnson lost — he actually flipped the overall edge in his favor without the casino realizing it.

House management got played by a math shark. So how did all these casinos end up giving Johnson what he himself describes as a “huge edge”? “I just think somebody missed the math when they did the numbers on it,” he told an interviewer.

Sam Marx writes: 

The article stresses that the player, Don Johnson, did no card counting.

If true, he may have used the Basic Strategy with a few of the newer techniques , plus the concessions he received to get the edge.

Card counting is primarily used to determine size of bet and to a lesser extent to vary the Basic Strategy under different counts.

Beating the House and varying the size of the bet are the two things that give away card counting.

However, varying the size of the bet may be somewhat hidden by betting the same amount from hand to hand but after a winning hand if the count is positive then just the let the original bet plus the winnings ride, as letting a winning bet ride is a technique used by many gambler who are not card counters and usually does not cause the House to be suspicious.

The article does not indicate if Don Johnson varied his bets.

If the article is true, he may have been a big winner even with a small edge , because his bets were huge and he may have quit before playing many hands and with luck may have had a good streak during those few hands he played.

The article is interesting, it may be true or hype.

I would like to know more details.

Apr

10

A potential leading indicator for whether to be involved in direct business dealings with a country could be domestic violence statistics.

I think the reasons may be self evident.

It appears difficult to get solid stats though, which may hamper our ability to quantify.

(2004) China's women suffer the highest suicide rate in the world, a rate 25 percent higher than for Chinese men, and in the countryside, where the majority of China's women live, one-third of all deaths among young women are a result of suicide.


"There is no specific law in China that a woman can charge her husband," said Chen Mingxia, of the Marriage Law Institute.

source

Four out of 10 women in Turkey are beaten by their husbands, according to the recent study entitled "Domestic Violence against Women in Turkey."

"The definition of honor, in the Turkish, more eastern, sense, is always defined within the sexuality of women," Agduk said. "Men believe that when they marry a woman, they possess her. They see a woman just like a car."

source.

Apr

6

How many decidedly creative but reserved people are so locked into to their blinkered existences in the west (or east, north or south) that their lives couldn't be so much more fulfilling for them and productive for the economy and other people given the right government analysis and framework to work with. What is the cost of pulling blanket rules and regs and raging costs and inflation so that this creme does not rise…

Clock in…clock out…

Apr

4

To execute a chosen strategy from the initial plan until exit, takes more gumption than may be initially thought. Ghosts of other strategies, like short term versus a new longer term holding period, try their best to capsize the ship, throwing in sniper bullets, coming up at you at unexpected angles through increased volatility and erratic counter moves, and so do the memories of previous campaigns that have been dealt massive blows in the past, no matter how strong the leadership was. It gives the night watchman plenty of food for thought.

But "holding the wall" and protecting the predefined strategy at all costs is imperative no matter what the adversary. (It maybe wise to remember to say, as per the vow below, when a position has been cleared and a strategy followed to the letter, "And now his watch has ended".

If you are reading or watching Game of Thrones you may be familiar with the vow of the Night's Watch:

The "Night's Watch" is a military order dedicated to holding the Wall, the immense fortification on the northern border of the Seven Kingdoms, defending the realms of men from what lies beyond. The order's foundation dates back to the Age of Heroes, at the time when the Others  were pushed back. The men of Night's Watch wear only black.

When the recruits are considered ready to take the black, they say their vows either in a sept or before a heart tree. The vows are as follows:

“Night gathers, and now my watch begins. It shall not end until my death. I shall take no wife, hold no lands, father no children. I shall wear no crowns and win no glory. I shall live and die at my post. I am the sword in the darkness. I am the watcher on the walls. I am the fire that burns against the cold, the light that brings the dawn, the horn that wakes the sleepers, the shield that guards the realms of men. I pledge my life and honor to the Night's Watch, for this night and all nights to come.”It's customary to finish a black brother's eulogy with the words, "And now his watch is ended."

Mar

22

As the more financially well off in the west live a more and more sheltered life, all brass and glass, and steer away from the hardships of WWII, and the acceptance of some irritations in life, to an existence where nothing can be out of place, does this effect the way we trade our markets?

This is a conditioning, no ifs or buts about it. The more things are in line, the more the general public makes sure the peanut next door toes the line and we don't get our feet wet when we don't have to, and we wear ear muffs when we mow the lawn. Does this effect how we want to knock our markets back into shape when we start believing they are not toeing the line? As individuals generally get more set in the ways the older they get, and less forgiving, does the average age of participants in a market, likewise effect the way a market moves? Are developing world markets, more generous and more flexible, forgiving and acceptable?

Mar

22

What are the measures or leading indicators that the world is facing liquidity issues at any one time?

In light of Victor's thoughts about when to get your cane out, it seems you buy the worst stocks when it's not just the company that's at stake, but due to help from government bureaucracy, and inadequacies and oversights (they have their paw print in there somewhere), the markets are getting trashed, and the government will flex their muscles (well, really yours or your grand kids' muscles) and they will save the world (with political overtones and because it's not their cash), no matter what.

When saving the world is imperative, at the darkest hour before dawn, it's time to be swift and strong, and start your sweeping. When volatility is off, and a big name is going backwards, it may well pay to use a cheaper cane.

Mar

19

A comment on the CFTC:

and this most recent crash in gold and silver during Bernanke's speech on February 29th is of notable importance, as we along with 4 other major institutions, orchestrated the violent $100 drop in Gold and subsequent drops in silver.

Mar

18

In light of the GS machine seeing a fall from grace, outlined by Rocky's man on the ground observations, and further by the recent resignation letter, and the Rolling Stone article showing past deeds do not get in the way when you have friends in high places…

How can you pinpoint when hubris has taken over the culture of a company and there's more back slapping then client phone calls taking place? Whether it's a financial company or otherwise, are there any leading indicators– proportion of bonuses to management as opposed to the minnows, for example? I recall Macquarie Group, (often referred to as Australia's Goldman) some years ago had what seemed like a ridiculous amount of money weighted to the top end, as in 6-8 board members.

Maybe though something as simple as a voice response from a cross section of the community, outlined by the following passage may give you a indication on when they're on the nose:

2007 "In the past decade Macquarie has been one of the great stories of Australian business. In the next decade it will surely be one of the most intriguing. How ready is Macquarie for the consequences of owning businesses on which citizens vitally depend? And how ready are citizens to depend upon Macquarie? While what Macquarie Bank ends up being called is of only minor significance, the tone with which people say its name may matter a lot."

 (MQG off 66.% from Nov 2007 levels).

Mar

15

In terms of using technology to take it up a notch  and play a numbers game, the Nigerian scammers are certainly up there.

I met a bloke personally recently, who said he got done for 4 grand. How did they do it? They sent him a email from his ex wife, with all the language indicative of how an email would be exchanged between the two. She subsequently said she was overseas, which she was, and had a medical issue, and was having trouble getting funds. He tried her mobile but she didn't pick up. He then sent the funds.

Bottom Line: The email that came in, on a closer inspection had one different letter on the back end of it, and his ex wife thinks that they accessed her emails through an internet cafe she was at in London. Didn't sign off, but just clicked out, and they were waiting in the wings to pounce. (Facebook is said to be a wealth of information for them too).

This activation job below, an atypical roll-out by the Nigerians, is just zoning in on pure greed…and due to the money involved, due diligence was being thrown out the window:

The 49-year-old fell victim to an online scam and was convinced a wealthy church friend of hers named Bridget had passed away and left her an inheritance.

"Bridget wasn’t poor, she traveled to South Africa 6 or 7 times a year so she had the money,” Ms Scaf recalls.

She was told she'd need to pay thousands to activate an overseas account holding the $1 million left to her. Ms Scaf says she was emailed a series of documents that appeared legitimate.

"These people are so good at what they do because they come across sounding so genuine,” she said.

Over a period of three months, she transferred almost $40,000 through an online bank account.

Mar

12

The other day I heard somebody say:

"Assuming the future behaves the same as the past, I reason that this way makes my funds efficiently used".

I wanted to say, my experience is that the past is never like the future so we waste valuable time and skills on a false postulate.

As I see it, it is better to have a core strategy to deal with equity drawdowns, etc –based on logic–as opposed to a strategy based on the past real results or back tested as that is for the most part a make believe world since it never happens quite that way again.

Gary Rogan writes: 

Larry's statement seems to be exceptionally profound in what it's saying and in the unambiguous nature of what it's saying. Speculation seems to be about predicting the future. Is there anything but the past, in some sense, that can guide us towards correctly predicting the future? If so, and if it's not similarity, what is it about the past that can help predict the future?

John Netto comments: 

There are ample proverbs espousing the merits of both deriving information on events which have taken place before us, as well as the the complexities in attempting to accurately predict the future due to the inherent uniqueness of the time we are living. As a speculator in the financial markets, sports arena, and poker, it's my experience the answer lies somewhere in between. For me, the ability to extract alpha is how well I can ascertain what qualitative aspects are unique and execute a strategy from there.

Two sayings which are both contradictory and complimentary:

"Past is not prologue" "Those who do not learn from history are doomed to repeat it"

Gary Rogan writes: 

There are many ways to use the past, such as:

1. Under similar circumstances, Security A behaved a certain way during a statistically significant percentage of the time. I will therefore bet that Security A will do it again under similar circumstances.

2. In the past, a certain class of securities had a certain trajectory under similar circumstances. I will therefore bet that this new Security B, which seems fit to be a member of this class, is statistically likely to follow this trajectory close enough to bet on.

3. In the past, when people were this excited/depressed/confused you could bet with them/against them and make money. Let's do it again.

4. The past rarely repeats under these circumstances. Let's bet against the past.

I'm sure there is an infinite variety of similar observations. Yet in every case the past was used SOMEHOW. There is nothing but the past as the basis for human knowledge, and that's why I was so fascinated by Larry's statement, especially because he is a master of his game.

Craig Mee writes: 

Running a stop with any position, regardless of the backtest, is both logical and prudent.

Stefan Jovanovich adds:

When the British and French were forced to give up their remaining military strength in the Arabian Peninsula and the eastern Mediterranean - abandoning the base in Aden, being forced to withdraw from their assault on the Suez Canal, the U.S. did not replace them on the ground. The great fear was that "the loss of the Canal" would result in "the oil weapon" being used against "the West". The actual result was the development of supertankers that by-passed the Canal entirely and increased by an order of magnitude the ability of the oil exporters to ship their crude to Europe and Asia. At the height of the Suez crisis the inflation-adjusted price of crude (using the 1947 nominal price of $15 as the baseline) rose to $18 a barrel - higher than it had been during the Korean War. A decade and a half later - even as U.S. supplies went from 40% of world production to 10% - the inflation-adjusted price fell by nearly a third, hitting a low of $13 in 1972 after production began flowing from the North Sea discoveries.

I find myself wondering if the U.S. eventual withdrawal from Afghanistan and the withdrawal from Iraq already largely completed will not have the same paradoxical effects as the Anglo-French withdrawals did. I realize that this question is completely irrelevant to the questions that anyone trading in commodities has to answer; but those of us in the bleachers are interested in what the professionals on the field think will be the effects of the closing of America's 25-year military misadventures in Southwest Asia.

Larry's maxim: "it never happens quite that way again" - certainly applies to political history. This is the second time in my lifetime that the American public has lost its belief in the virtue of our allies. Last time they were wrong; this time they are right.

 

Mar

12

A fascinating read: "How I was taken in by Britain's Madoff" :

"The mastermind in Britain's biggest Ponzi fraud lived like a playboy until his scheme collapsed, leaving a trail of broken lives. Cahal Milmo spoke to one of his victims "

Mar

7

A recent article entitled "Sleight of Hand at Every Corner" in The Bali Times on the fx money changers on the Island of the Gods sounds like the markets. Even after many years in the game, the squeeze for a little more continues…

Mar

3

Linked here is a very interesting chart on Sydney Dams. Funny, it wasn't so long ago that the dams were getting to a critical point. Now they are close to overflowing. This link on the overall Dams levels is interesting from the point of rapid expansion from a very low point. As with nature as with markets, like any good breakout model. Mean reversion… swift and strong, after plenty of bleeding.

— keep looking »

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