What do you think are the events or situations that may cause a hoisting upwards of the US Bond Yields curve?

The deceptive veils that Ms Market must always wear to find the easy suitors to give up their fortunes is one of the bases on which my mumbo jumbo reading of visual data propels me to frame this conjecture.

A) Whats the probability of this happening, soon? A rough number so to say to elicit your vote on this conjecture! B) If this happens, will the S&P500 yield not spike up?

Larry Williams writes: 

We are in a bull flattener now—critical that is understood.



What does this signify in the context of markets as they are now?

How does one put this datum to the trading terminal?

Why does this work?

Jordan Neumann writes: 

TA-35 has to make up for Thursday too. Makes it closer. If you look at the index, it started down and stayed there. We are all looking for tea leaves. Just another 90 minutes.

Alexander Good writes: 

CnhJpy is a good gauge these days for early move.



 One of the most popular pieces of #BullCrap is that when crude prices go down its good for economies like India that are dependent on large imports to fulfill majority of the crude consumption domestically.

Fundamentals are not funny'mentals, but the over-reach of intellect to fit things anyhow even if erring in fitting square pegs in round holes or putting the cart before the horse make it funny! The urge to find a reason for explaining a regularity in markets ends up reaching an extreme of imagination.

The popular opinion that crude down so India or similar economies will do well and our Sensex or Nifty Index should fly suffers from:

1.    Imagination that a critical commodity as energy is traded by Governments and large down stream marketing companies the same way as a trader in Chicago is trading futures.

2.    All expected demand for downstream products that forms the cracking hedge must be long for several months ahead to cause a zero disruption economy. So when a short term down move in crude futures at NYMEX happens actually these companies doing the cracking & marketing gig suffer that consumer is perceiving profiteering. Majority of oil products marketing companies are state owned and the Government comes under flak that Nymex Crude has come off 50% in 3 months and consumers on the street level gas stations are still buying at highest ever prices. So its neither good for the people on the street level gas stations, nor the people running the Oil Marketing companies, nor the people running the Government and the imaginary idea that significantly down crude prices are saving India money is a baloney of a high order.

3.    No one wants to talk about the oft present spurious correlation that prices of equities and prices of crude are both measured in Dollars and it is often the big moves in Dollar, as broadly reflected in the Dollar Index, or the selective beating down of emerging market currencies that are connected often to the downtrend in crude prices or uptrend in crude prices. An optical illusion in simpler words if the hoi polloi do not wish to encumber them to google up what the chair meant by spurious correlations.

4.    The bigger point most are missing is a conjecture I wish to place on the table before this august list of speculators. The futures price of crude is the speculatively contested price for delivery at Nymex. It doesn't reflect the real physical demand or supply worldwide on a day to day basis. So is a sustained down move (I didn't use the word trend!!) in crude a canary from the mines that risk-off bump is ahead on the road?



 Thirty years ago when I was just about finishing high school and entering college, the idea of professional speculation fascinated me. A few of my classmates were sons of established stockbrokers and their forays would cause me a confusion if I should consume several several more years into structured education or just drop out of the classroom routine to hang around the curbs of the Jute Forwards market at 5 Clive Row in Kolkata (Modern Speculation in India arose really from a very active derivatives market in Jute futures almost a 150 years ago & until my college years the Jute traders were the best & biggest in this country).

So I would often go and hang around the curbs of this commodity exchange where even in the deep after hours of the formal closing bell of the exchange there would be torrential trading on the pavements and the street outside. Not just testosterone but one would distinctly feel dopamine rushes in these jaunts.

On these visits I used to notice the biggest trader in Jute in perhaps last 50 years frequently pull out a small (very small) diary like pad to look into it, jot something and keep it back in his pocket, while his trading log was always spread on a table as bulky as him. I was intrigued what was that special tiny diary.

Then six years later I had networked enough to know the CEO of one of his companies and at my earnest request to meet with the big man I was introduced to him. I asked him after having had a chance to hear him on many things, whats that special small diary he seems to maintain so well.

He said its my ledger book of time. I got totally intrigued whats a ledger book of time. He said I do a double entry accounting for my time. Each transaction with any other person or object has two elements: (1) the task or goal (2) the other is timeline. So I have dedicated pages for people I continuously and regularly deal. That's the ledger/account of key individuals. Then I have a Sundry Account where I put all other individuals. I keep 30 pages for a month extra in this tiny diary and soon as I have decided upon, agreed upon or have been given a commitment for something I enter it in two places: on the page for the date ahead and a double entry on the page of the individual.

If I have to deliver something to a person I mark him credit and if I have to receive an outcome from a person I mark him debit. My date pages with corresponding contra debits and credits provide me a quick view of how much profit I am making on my time for each day. Any time left on any page is the amount of life I am left with for that day.

I am wondering now that everything is digital, how can we put this simple idea to code and have an efficient time management weapon.



 Russia collapsed. Did anyone anticipate it? Not many!

Why did Russia collapse? Common sense is uncommon. Russians kept selling commodities for more than two decades below cost of production. They were burning an enlarging hole in their real income statement but covering it up with managing artificial strength in their currency (balance sheet pumping).

What is similar to that scene of 1987 and the coming couple of years?

China has been selling everything, not just commodities, at a deep discount to cost of production. Whether this is to gain market-share or there will be another trader who may receive a presidential pardon in the last five minutes of the second term of a US President for having maneuvered the communists yet again to dig their own grave will be known later. The Chinese pegged the "volatility" of their currency to the Volatility of the US Dollar.

The Russian Communists had played the game of hiding their grave by pegging their IOU or their currency to US Currency, the Chinese have pegged the volatility of their currency to US currency. Everything else is same.

Complex explanations need not be better as we know adding more and more variables to a regression doesn't improve the R Squared. Commonsense of business is no one could avoid going broke selling below cost. All dandy accounting or engineering the books or currency can prevent the basics of business to play out.

Even while the CFA Institute taught in its curricula for the last 20 years that China and India will be amongst the top 3 economies of the world in terms of GDP as their growth rates due to demographics were sustainably superior while the western hemisphere was going the Japan way in demographics, the fact remains if you over stretch the binge to grab marketshare and keep hiding the real losses through balance sheet jugglery a day comes when Full Monty happens.

While I do anticipate their will be strong reactions to this simple post, likely in disagreement as much as in agreement I seek the minds of those who are able envision deeper and farther than a mere commonsense guy What If China indeed goes belly up at some point forebodes for the rest of the world since China is the largest holder of the US Bills? Can Great Britain that's getting out with a Brexit be the next bull run? Will the British Pound fetch 2.0 US Dollars in say by 2025 or 2027?

Has anyone ever heard the name of what the Chinese Intelligence Agency is even called? If not, are the very clever Chinese doing deep, detailed, deviant work world over? Is this going to remain merely a trade war? Where are the next big proxy battles going to be fought? Will it begin with the breaking up of Pakistan into a number of smaller states? Oh how badly I miss our all time giant Mr. E a.k.a. Krisrock! I hope he sends some of his intel that was always ahead of almost everyone else. But without him around implies we may have an even more onerous task to imagine more intensely. All forecasting is only imagination modulated, tempered and restrained with study of history.

Greg Van Kipnis writes: 

In a well ordered capitalist economy if a company is not covering its variable costs they will be bankrupt quickly once they exhaust their reserves and their credibility. The same is true for a country. From what I know, China is different from Russia in several important ways that gives them greater staying power. They have a positive trade balance, they have large currency reserves and there is little sovereign foreign debt. In the case of Russia the state was bankrupt and it could no longer afford to maintain the Soviet Union because most of the Republics were a drain on the treasury.

In the case of China I know little about the dividing line between the state and the personal financial interests of the mandarins (or whatever the heads of the party are called). These mandarins will be the first to rebel when their sources of income and borrowing from state entities dry up. The government can keep expanding domestic money and credit as long as the mandarins don't want hard currency and inflation doesn't explode (which it sure will after a time).

I believe internal financial stress has begun. I read that private borrowing in dollars is quite large and exceeds privately held dollar balances. This is good for the dollar and bad for the Yuan. Another indicator of private stress that is already starting to happen is the drying up of Chinese buyers of luxury real estate in the New York.

Sushil Kedia writes:

Keeping large forex reserves and maintaining a positive trade balance at the cost of selling everything below cost of production is the hope of the mandarins too that they can stay afloat longer. Irrespective of the length of survival time, a losing trading strategy is a losing trading strategy.

So a simple question whose answer needs imagined on priority now is: if there were continued losses in this trading strategy where are those losses hidden? Or China did not lose by selling everything below cost of production as the Mandarins would like us all to believe?

This is the known unknown, where are the losses hidden? Now coupled with this if capacity utilization dwindles the fixed cost of putting up the gargantuan cities, factories and everything else will weigh in down faster. 



 Humility, without a doubt, is a celebrated value for speculators. Not just here on Dailyspec but anywhere trading is a means to self-actualization.

A humble man is a learner. Taking responsibility for mistakes is the attitude that allows the flowering of the virtue of humility on the tree of cognition. But what if humility is the antidote to ego? Is humility the absence of ego?

No! Humility is a sub-set of the Anti-ego or Un-ego (kindly allow this word as anti- is an extreme and un- only a nullification).

A humble mind has only adapted to overcome one of the three primary perils of the human mind (hard wired over the journey from chimpanzee to man). That one peril is that the human mind is coded to prove its superiority.

The other two primary perils are that the human mind loves to posess and control on one hand and loves to enjoy. Those amongst the humble who haven't been working on addressing these two default states of the human mind are the Humbly Egoistic.

To overcome the desire to possess & control it seems one good approach is to be the custodian of the risk capital at disposal. Even if one is 100% shareholder of his firm, such a person sees the firm as a distinct entity from himself.

Such a person will be able to accord due respect to risk, risk capital and the human resources around. This creates a greater shift from ego towards un-ego than being just one who is quick at accepting mistakes.

The devil however, is the primordial wiring in each mind to enjoy. The pursuit of joy is not the same as pursuit of happiness. The pursuit of joy then naturally has to keep meeting with agony, disastrous drawdowns and such things. If one can start working on ignoring the neural circuits that motivate one to find joy one lays a conjecture the same neural circuits are the ones that create a sense of being evaluated, being judged, producing suffering. Abandoning a path that is sub-optimal is the iterative process to seek the optimal. For such a mind then work is a responsibility & fulfillment of this responsibility the stepping stone to satisfaction.

All the three states of humility, state of custodianship and abandoning the path of self-judgements combine together to create the ego-free man. The unegoistic trader (it's an asymptote obviously, of an idea and not the absolute ever) is then the one closest to reason. Any other man not working at freeing himself from each of the three primordial hard-wirings is then at risk of not acknowledging the most potent idiosyncratic risk, i.e. the self or the origin of ego.

Getting back to the first couple of sentences in this note now, the whole idea of self-actualization is a powerful oxymoron then. In actuating excellence the whole crux is in leaving the self aside! Is that what the Chair does when he leaves shoes outside his trading room?

Nature hasn't designed a single variety among the species with vision that can see itself. At most we can see our transposed mirror images. That's the natural design. So ego is a perception derived from observing with our three primordial mental lenses how the universe is treating us. That explains why traders prefer to trade alone, replace phone ring tones with beeping lights, mute the #NB# tubes etc. etc. No, its not being alone. Unegoistic state of mind is being without the imaginary perceived notion of the self.

For all the accusations of selfishness on a trader, the truth stands placed well thus, a trader has to be self-less to remain in the game. Neither humble, nor humbly egoistic and certainly not egoistic a trader true to his grain is self less. A trader is a state of mind where only a responsibility to capital and a focus on risk exist. Rest is left with the shoes, outside the dealing room.

Laurence Glazier writes:

Thanks for posting this. The question of ego is interesting, because it normally relates to expectations of society and colleagues, and in this sense it is a diversion, but a sense of self-worth would preferably not depend on the opinions of others.

Every work of art is in some way a self-portrait, and every trade reflects the trader, which makes the activity very useful for self-observation. And humility, aside from the basic truth (that, from a distance, we are dots living on a dot), helps remove noise from the signal. But beyond the floating bubble freed from ego, there needs to be direction and force, and it is there that resistance to progress is very helpful in developing the core, for without resistance can there be growth?

In fact, resistance appears to home in on every nascent growth, and tests our mettle. Ayn Rand had many rejections from publishers before Atlas Shrugged saw the light of day, though it should have been evident to them all that here was a fabulous book.

Sushil Kedia writes: 


Thanks for the thanks. But why only art? Every human output has some reflection of the self. That precisely is the point that the human mind has become hard wired with the 3 perils enumerated in the post. Goal for reaching a state that produces excellence is to overcome & bypass these three default factory states we come packaged with.

For example, the necessity of counting is to bypass the self. If counting validates a theses, a trade is fired. There is no self in this. The self is so tightly coded into our personages, for example, that soon a counting based trader will brag "I do not let any trade happen here that are not validated by counting". The I has to be cut down to the size it deserves to be. Not sure if many here give credence to NLP, it works out well at this end of the world. So this sentence when changed to "without validation from counting trades do not happen" removes the I.

In fact, with my EQ trainer who I have accepted as my Guru in every way, the pact is to avoid using three words in any conversation with him, "I, Me, Mine". Instead he has approved sentences such as "Sir, would you care to meet Sushil" and not "Sir, would you care to meet me".

As we practice being less and less conscious of the illusory perceived image of the self by not giving it so much importance the mind shifts closer to higher EQ states.

If it is the "I" that suffers fear, greed, lust, anger an endless spectrum of idiosyncratic emotions then this "I" is the most vulnerable piece of code that hangs around without due acknowledgment on the trading desk. Once acknowledged that it is the I that is the biggest source of idiosyncratic risk a trader starts getting trained to ignore it and focus on the defined processes.

A trade or piece of art that doesn't carry the reflections of the self is super. Let us acknowledge the shades of grey and paraphrase this line. A trade or piece of art that reflects less of the self is superior. 

Laurence Glazier writes: 

I would agree with a lot of this, and we might indeed abandon use of the words me and I, and refer to ourselves by our names, and perhaps even them place them in quotation marks, like "Sushil" or "Laurence".

We live in an age of automation, which started long ago and develops now with AI. A trading system which is fully automated with signals for going in, adjusting, and coming out, can be done by a machine, and it is a special interest of mine to be less like a machine and be more essentially like a human.

Removing the I, if such a thing is truly possible, would create a tabula rasa. How much great art has come from such a state? If such a blank slate is achieved, one might prefer to inscribed it with new patterns, a new identity informed by inner qualities rather than influenced by the culture and education of our childhoods. But such a planned approach may not be as good as natural development. I am all for the "considered life", however.

While trading is for many people an art for its own sake, art - in the sense of painting, writing and composing - can be a transcending activity. Charles Rennie Mackintosh put it well:

"Art is the Flower - Life is the Green Leaf. Let every artist strive to make his flower a beautiful living thing, something that will convince the world that there may be, there are, things more precious more beautiful - more lasting than life itself."

Picasso thought that every child is born an artist. A plant may flower in nutritious light and soil. Leonard Cohen wrote - there's a crack in everything, that's how the light gets in.

Being in a comfort zone is not always a spur to creativity. Without resistance, how can the spirit progress? In my experience questions are of much more intrinsic value than answers. Some questions from me:

Would you rather buy a painting or paint it? In what sense can a painting be owned?

I'm always glad of the opportunity to reflect on these things!



What inspiring ideas do speculators derive from palindromes and the Palindrome?



Dear Muskaan,

Soon, in a couple of months, you would step out of your teen years. Your daddy is very happy to find you have worked at configuring a fine personage. One has written to you a few years ago, a great mind works well in a healthy body & the two are held together well by a fine personality. While you are pursuing varied extra-curricular activities that range from numeracy skills to verbal to spatial I take note of the fact that you are moving forward in the Rubik’s cube championship in moving to the National round. Heartiest congratulations! The cube puzzle is a test of pattern memorisation, mind-body co-ordination and highest levels of focus! All three are a matter of practise. If possible, for preparing for the national round try to pick up a cube that resembles closest the one provided to you at the contest and buy several pieces of the same and set them up for different levels of smoothness and practise across all of them. This will provide you the familiarity with any cube piece you may get to work with at the National Round!

One draws immense satisfaction that you have worked at developing a vocabulary that is talked about much amongst your peers. Today amongst a few things daddy would like to first share with you how a powerful vocabulary can be delivered with unprecedented impact. Daddy has learnt from his Gurus those who are champions are economical in their movements & speech, on one hand. On the other it’s a well- known and widely known truth that body language is what brings impact to frugal speech. A rich vocabulary empowers you to express the closest hue of the most relevant emotion for the moment. The impact is brought in by emoting your words. I suspect, body language drives communications deeper for two reasons:

1. Mind processes things at the subconscious level much faster

2. Body language actions travel at the speed of light & reach faster than your speech that can travel only at the speed of sound.

In any Acting 101 class it is taught early to students of acting that if body language of physical actions accompanying speech are signalled out before the words are let out the acting becomes way more real. Likely the two facts enumerated above make this happen.

While there are a few good books always on the market on explaining body language, a fine personage that is always a student will continue to learn by constantly being observant. There are three perspectives from which any observation can be made as far as body language is concerned. To observe which physical expressions or signals of yours worked well in achieving your communication goals and which did not is one. To observe how others’ body language triggers positive & negative feelings in you is as good. To observe how one another impacts with her body language yet another even better. The best way is however none of these three. If you can train yourself to observe yourself as a third person in your interactions with any other person you will begin to minimize the self or ego and maximise the objective mind in you.

Ego is a construct nature built into all beings to give them a sense of identity so as they can practise with greater seriousness self-preservation, self-propagation & self-expression. One cannot thus and should not be ego-less. The problems of most relationships are a far heightened sense of self, i.e. an extra-ordinarily larger than required ego. All of us know what is wrong with most things. Few of us get the opportunity to learn from others or by self-deduction how to overcome the wrongs. One good way to minimize the self, down to only the necessary level is to be observing the self from another’s point of view at all points of time.

A heightened sense of the self or a larger than required amount of ego is also the origin of all passions or passive emotions. The switches that world can trigger within one make one easier to be manipulated into digressive emotions. To suffer pain & fear or to be taken over by lust or anger are all due to this larger than required ego.

When the ego is huge, the sense of entitlements is huge. In this world those living with a sense of entitlements undergo most denials! The switches of an ultra-sensitive person with higher sense of entitlements are dangling out in the open. Anyone can click those switches. Hide & fade away your switches. This can be done only by fading and minimizing “you” to just the required humble level!

So I urge you to think about this know-how that daddy just shared on how to dilute the self by containing the ego through always be observant of the self in third person. Such a personage is also able to generate feedback ahead of what the world will tell you about your “self”. You will be a step ahead then! Humility is one of the big outcomes of ego-reduction & it is the world’s most powerful currency that works even when money fails! It helps you provide a continued supply of put options that the world writes to you at your own follies! The other equally important outcome is annihilating the sense of entitlements. You are the daughter of a capitalist & one knows you have learnt today the communist ideas of entitlements make the whole life and not just economics, a paralysis.

Emotions are not at all bad. They are necessary. But the problem with emotions is only when we get driven by them, due to this ego, instead of driving our own motions / petitions / proposals / pitches to the rest of the world. You must not by any chance understand that daddy is an anti-emotion robot. No way! Emotions drive relationships & all engagement in human society. Yet one must ride the horses of emotions and not be dragged by them into a directionless whirl-wind of a life. However, any energies you draw from your well thought out principles for life & values are emotions rising from within and they will make you compassionate, honest, and sincere & therefore a happy & successful person. Let them prevail. The rest need to be left outside like you would leave your shoes.

Having discussed briefly emotions & how to emote, daddy has stated in passing that you would be a happier person in doing these effectively. Yet, the essence of life is not happiness, it is really how each will overcome suffering. Pain is guaranteed to each in some or the other form in some or the other intensity at all points of life yet suffering is optional. Those who can train them to choose to not suffer and handle pain really only as a signal requiring one to bring change are the ones who are successful at whatever they could choose to pursue in life. Pursuit of happiness is a chimera. The real pursuit of evolving as a human being is to be able to minimize suffering. Those who choose to not suffer are the ones who are happy. Else happiness becomes contingent on outcome of events and quality of objects & behaviour of other people. To have your locus of control right within yourself it’s important you switch your perspective today and now that the pursuit worth undertaking for this life is to minimize suffering. Daddy awaits to realize in the near future his daughter has become one of the strongest people, he has known, who chooses not to suffer!

Change is the only constant in the world we live in. A transitory, impermanent universe of objects, processes, people & ideas is what our world is. We have a finite beginning & a finite end. Our body continuously keeps changing and it can be proven that in approximately seven years every single atom in our bodies is new. So that brings to this concluding note for now, your body is not you. Your body is one of the key devices given to you by nature. You are an infinitely more potent force than can be seen, heard or perceived. So, while you must take care of this very important device your body, you have to be confident as this body changes over time that the real you is an infinitely more sophisticated and capable construct.

Today the world is getting swept by ideas of the internet of all things and the coming wave of artificial intelligence. There is excitement as well as fear that the coming AI Robotic age may destroy us humans. Elon Musk has often been tweeting about the dangers of Artificial Intelligence. You however might agree with me the term Artificial Intelligence itself is ultra-egoistic. No one can prove if we the humans are not already one layer of Artificial Intelligence brought into being by a higher degree intelligence that is often called God?! Perhaps AI should be renamed to Derived Intelligence? Irrespective, of the nomenclature, the fears are uncalled for. Perhaps mankind will learn to emote well enough with the coming AI Driven Robots & turn them emotional when required (wink, wink).

All I would tell you for now, fear again originates from a sense of entitlements and too much attachment to the idea of the self. The way evolution of species has propagated so far the best would survive. If AI is going to produce entities driving emotions and not driven by emotions then daddy has rested a compelling case on your desk now, emote better my daughter than getting emotional! You will then certainly be riding well through the age of AI & Robots also & until then more effectively with mere humans! Wink! Wink!

Proudly yours,




 He told me some time ago, before I woke up and while I was dreaming that Sell in May and go away is known to everyone including every cabbie anywhere in the world, even the ones in Namibia and Ethiopia.

So I asked him, what are you trying to say just tell me clearly. Can't you have some compassion for a man deep in sleep in a comfort zone that one earns after a day's hard work.

He smiled. Said once those who have read the book that is an Almanac of the past year's behaviours and have sold it out, the market mistress will inflict regret and then anguish. There will be many who sold by the book and will be forced to buy it back. That's when you sell at the end of May or even if it becomes early June.

I almost had woken up by then. Asked him now what is this way to startle someone and pose a riddle first and then surmise a conspiratorial idea as if now the flexions have also taken the cabbies within their matrix. He said well everything is possible but the simple idea is some always say "this time its different" and the mistress must keep them in the business as well to keep the infrastructure complete as ever.

So I had two choices. To fix a cup of coffee and abandon sleep and get back to some mumbo jumbo. The other choice was to leave this note on this erudite list and ask as usual another question. Would you care to think of what just this cabbie uttered and then vanished away in ether? Oh I forgot to tell you, he also had said if you can figure out Sushil what is the density of High of the Year in any given week number or month its not a bad thing to burn the midnight oil on.



In the last few days one of the economic talking heads commented on how he has "not seen volatility like this since" sometime in the past. I forget whether the former time was 1998 or 2008, but it doesn't matter, as there are many periods in the past with greater volatility.

My quick look at past volatility consists solely of looking at the height and duration of VIX in earlier periods. I took the standard measure (VIX) because of its relatively universal acceptance. I could use some of my own measures, but not without the risk of being flamed for subjectivity, despite the fact that they compare with VIX on a relative basis.

Question: Is there something I am missing? Is there some measure of vol that I am unaware of? Could the high volatility simply refer to the gentleman's equity balance? Could this simply be an effort to gain a headline, i.e. fake news? Any thoughts?

Gibbons Burke writes: 

The VIX seems skewed to being more sensitive to downside volatility and not so much to upside volatility, and it is based on one instrument: the S&P 500 index calls and puts and their ability to speak to the volatility of the underlying index.

The standard Historical volatility calculation of the same underlying instrument used as the input for option pricing models is somewhat more flexible in that it can be applied to any instrument since all it requires is daily closing prices, and the S&P 500 retroactively before the VIX was created.

The two measures, VIX and SPX historical volatility correlate closely—and most interesting is when they depart from that correlation, which shows that the options market is anticipating something which has not shown up in the movement of the underlying. You know all this of course, and have developed some very interesting work on options and their open interest already as it relates to the underlying, no?

In technical analysis realms, average range, and Wells Wilder's Average True Range (which considers the previous day's close as part of the day's range if it is above or below the high or low of the day, which captures post-close volatility and gap moves) has been used as a volatility measure for input into risk allocation components in trading systems, and as breakout bands for trading systems like one made famous by Larry Williams and others like Steve Notis.

A newer volatility measure which came out of chaos theory ideas when they became popular measures the total range (or true range) over some n-period window of previous market activity, and measures the sum of all the individual period ranges (or true ranges) as a ratio. Two instances of this volatility measure are Adam White's VHF index (vertical-horizontal f-something) and CTA Ed Dreiss' Choppiness Index. Both are solid conceptually, easy to calculate, and are already implemented in many systems.

anonymous writes: 

For the S&P, here is the mean daily High-Low range as a % of the Open, for each year since 1962:

year  /  mean daily H-L as % of Open

2018 -  1.44%
2017 -  0.51%
2016 -  0.95%
2015 -  1.10%
2014 -  0.86%
2013 -  0.85%
2012 -  1.06%
2011 -  1.62%
2010 -  1.36%
2009 -  2.00%
2008 -  2.74%
2007 -  1.17%
2006 -  0.85%
2005 -  0.88%
2004 -  0.95%
2003 -  1.41%
2002 -  2.08%
2001 -  1.75%
2000 -  1.84%
1999 -  1.54%
1998 -  1.58%
1997 -  1.42%
1996 -  1.01%
1995 -  0.72%
1994 -  0.82%
1993 -  0.71%
1992 -  0.82%
1991 -  1.11%
1990 -  1.31%
1989 -  0.95%
1988 -  1.22%
1987 -  1.77%
1986 -  1.12%
1985 -  0.79%
1984 -  1.00%
1983 -  1.01%
1982 -  1.60%
1981 -  2.03%
1980 -  2.21%
1979 -  1.55%
1978 -  1.60%
1977 -  1.37%
1976 -  1.60%
1975 -  2.16%
1974 -  2.58%
1973 -  2.06%
1972 -  1.53%
1971 -  1.54%
1970 -  2.09%
1969 -  1.74%
1968 -  1.78%
1967 -  1.62%
1966 -  1.77%
1965 -  1.26%
1964 -  1.16%
1963 -  1.26%
1962 -  1.73%

Sushil Kedia writes:

​VIX measures the price of volatility all are wagering on. Price is the weighted mean/vector sum of all individual values of volatility the various have for themselves. 
Combining a few well accepted ideas, here & everywhere else: 
Depending on where one is in the market food chain there are different versions of what is noise and what is tradeable information content. 
So a simple and effective & consistent to calculate the value of volatility for oneself is to objectively write down what is the minimum movement size below which you dont act. For a HFT robot it could be every tick & for "markets cannot be timed behemoths collecting only other people's money, a.k.a. long only passive funds" it could be 5%. Whatever it be define your sensitivity and lets call it your sensitivity unit move. 
Then each occurence of a move of a unit size is counted — as in counting by toes or a computer programme over any observed length of data. Count the absolute vaues of the Unit sensitivity. Divide the net change over the same length of data with the sum of absolute values of unit sensitivities observed. 
A straight line move would thus give you zero volatility or noise and a perfectly tradeable information content. If however over the observed length of data, on the other hand, net change is zero then there is only noise. 
I remember, many years ago Bill & few others had discussed here how Point & Figure method from the university of mumbo jumbo is an approach that is very similar to this thinking and a fantastic way to separate signal and noise relevant to each as per their forebearance within the food chain. 



The moment a tick changes, at that moment parties that transacted on the prior tick "experience" a zero sum game. If the same parties only continue to transact with each other with every further change of tick it remains a zero sum game.

However, soon as the "pool" of competing players changes in the pit, either by someone closing out all outstanding positions for whatever reasons and stepping aside or any new players entering the pit, the game changes. It creates a very interesting web of potential ways to lay out the game in a mathematical sense. This remains true for any further longer / larger time frames. Lets focus on this part.

The gains or losses made, lets call it impact for ease of language, by existing players is shared now with the new ones. But not only MTM impact that can be measured only at the present moment, this ultra sophisticated "game" must account for Opportunity gains / Opportunity losses or the Opportunity impact also.

The zero sum game can still be visualized as zero sum where the sum of all MTM Impact + Opportunity Impact = 0.

MTM or the present moment impact is simple and lets leave it aside. The real juice is this Opportunity Impact construct. Before we enter this labyrinth let us first choose to do a post mortem of those who left the game. Lets use the term "Out" for those who are out of the game. Lets use the word "In" for those who remain in the game up to any point of time.

The Out have taken an MTM Impact and gone! Right? No Opportunity Impact taken by them? Well if I sold out a position at 100 and became an Out, and the price becomes 125 in a year have I incurred an Opportunity Impact of 25? I have, since if i came back into the game a year down the line I would be shelling out 25 dollars more. Same way if price went down to 75 in a year I have an Opportunity gain impact of 25.

This is what makes the market appear like a variable sum game.

Things get a little more interesting and more realistic when we introduce one more final variable, Those Not yet In the game whom lets call for this note, whom we can say name as the Virgins. so for any stock, any contract, any investible or tradeable entity this world produces three types of Players: Ins, Outs, Virgins.

For an easier visualization lets assume we are only evaluating the game of playing the long term drift.

So the MTM Impact of Ins = -(Opportunity Impact of Outs + Opportunity Impact of Virgins)

This equation above is an over simplification and displays only a long only deliverables only contract. If we add the derivatives layer the left side of the equation will have instead:

MTM Impact of Long Ins - MTM impact of short Ins = = - (Opportunity Impact of Outs + Opportunity Impact of Virgins)

Finally if we will allow minds to now wander along a constantly fluctuating market that has the drift or some markets that are bereft of it, different time horizons, different risk-return optimal curve seeking individuals, different tax & liquidity constraints apart from the decisively different placements within the food chain causing differences in information seeking, processing and actionability skills the market can still be described as a zero sum game in terms of the net value of all actions taken, not taken, exposures taken, not taken, different skills, abilities, compulsions to be zero.

Obviously then such a zero is a philosophically provable construct that:

a) Skill pays in markets,

b) As much as luck might pay

c) No one is in a real sense out of the markets. Those without an exposure have a notionally negative exposure to markets! They are the one's who will get lured at some point.

d) Apart from maximising the number of hands feeling that they have a bad game, the tape is likely moving in ways to minimize the number of Virgins of markets left in this world, I surmise.

d) MTM is a game of money management (LHS) which derives its value from the Inability of all those who are not managing their emotions well (RHS)

e) Whether the universal prevalence of deception as an evolutionary tool pervading the markets or the flexions or the skilled they all are part of the grand design of the market mistress who indeed plays a zero sum game on N dimensions, not on a unidimensional game of just MTM.

f) As much as this is true in life that no one wants to die a virgin, the markets have achieved a constructal to fulfill this idea in the context. This is where the deception, the flexionic matrix works most silently.

anonymous adds: 

It is not a zero sum game. True value and wealth are being created in large part due to the liquidity and capital created in the capital markets. As the the prices rise, wealth is created out of thin air, out of confidence, out of technological advances, out of new ideas, out of new people, out of new people participating in the global economy. 



Is the S&P 500 falling because the Chinese wont let American companies profit as much? If this is the reason, why are the US Treasuries not falling? Can America become a safer and better economy (which is what rising Treasuries should mean) while American corporations are going to lose money or make less money?

Or are we being fooled by the tape to imagine that as the Chinese make more money they will buy even more of the US Treasuries? Aah so Ms. Market is trying telling us the Chinese are such fools they will buy more of safe assets in America while negatively impacting America's riskier assets with a long term drift due to the power of compounding the re-investment in growth?

A risk off kind of emotional feeling more than any rationale? Ok so in emotions everything seems as valid. Hmm.



We sit very close to an uptrend line of 35 years in the prices of the US 10 year Year Treasury (TY).

What does it signify?

a) A new world order is coming, with a breakdown below this line, keeping aside for a moment whatever the word trend is not supposed to be and thus its line?

b) Why has this drift persisted so long on the TY? What is not changed for this persistence to continue?

c) What can change to break down this persistence. Yes, let's not call it a trend line, but just a persistence.

An easy monthly chart shows it here.

Anatoly Veltman writes:

Btw, your chart data (which may be all that Chicago futures ever traded) doesn't go back far enough in actual 10y treasury's history, and thus it misses the actual chart's record low. Proper historical data will show your trendline already "broken". Not that such "break" vs "not break" makes any difference in my book.

35y was way too long to go one way. Some listers, incl. Jeff, Rocky, and possibly more, were not in agreement with me when yields were dancing around their terminal lows. I guess your concept of "drift" was appealing to them. Never to me. Again, 35y is plenty enough. I see no reason to keep pushing it, counting on "drift".

Steven Ellison writes:

A plausible reason for the trend of the last 35 years was the aging of the population in the US and other advanced economies. The demographic trend may level off at some point, but it shows no signs at all of reversing in the foreseeable future.

anonymous writes: 

A naive reading is that yields dropped because bogey-man inflation dissipated as major governments wanted it gone. Lately (2008-) there is worry about deflation. Now inflation again.

Whatever. If you have 50 years to live, maybe diversify between material goods and risk assets. Better yet, perpetuate your genes, bolster your family, and try to understand love.

In any case the financial literature's dependency on risk-free rate of returns looks like an ivory tower artifact.



Core CPI comes less than expected. Dollar drowns Euro spikes up. Wow! A less than expected inflation in America is good for America or bad for America? A less than expected inflation in America is good for Euro or bad for the Euro? If inflation is less than expected should gold spike lower or higher? It spiked higher.

Today we are in a world where anyone having a logical mind that is sound on what should happen is irrelevant. Today is a world where what is happening you must tag along and ride all illogicalities.

This has been around for a while. With close to zero cost of money in most key economies and in a few sub-zero cost of money, the entire logic of money is gone with the wind. We spoke earlier here on this forum how the Discounted Cash Flow model is only good monkies now, since if you are discounting to present value using a negative interest rate the longer durations become even better valuations implying that those holding a bleeding asset are going to be wealthier.

It's an upside down world.

Should one try to put one's wit to work in an unwitting world? Or should one take a good long holiday and travel around the world like the adventure capitalist?



 In a jam-packed life, with 24/7 markets and all other things to do, how do the voracious readers of this site, including the Chair, do so much reading?

Do you read word by word, line by line, or there are other reading techniques you use.

Overwhelmed eager minds to get back into good old days of lot of reading will benefit if you share your reading methods.

Larry Williams writes: 

I read 2-3 books a week. I used to speed read but now I skim a book to get the gist and if it looks good I plunge in. I read very few market books. Mostly history. I look to learn or be royally entertained—a few books do both. 2 I recently enjoyed were:

Today We Die a Little!: The Inimitable Emil Zátopek, the Greatest Olympic Runner of All Time

The Plains of the Great West and Their Inhabitants



 Indian equities have been smoothly chugging along. Flagship indices at PE of 18 and some pink papers writing its already the most expensive market in the world. Another headline that caught my eye today was that Market Cap of Indian stocks has reached 2 Trillion USD, whiskers lower than that of Germany & Canada.

No, I am not describing the current moment as a bubble, AT ALL. Yes this market seems valued and while it is flirting very very close to the first 5 digit round number, the magical 10000, there is a much deeper bubble building up and the current market is nowhere close even its onset.

Before I lay my two line thesis, at the end of this note, let me share an image that was circulating much through market-mens' whatsapp here today.

In the local market-colloquilism, the market operators are typically alleged to make the public wear stock at the tops. So when a wearable cloth image was going around on Whatsapps today, one could not miss recalling old posts on the list regarding the struggle ahead of a big round and its eventual release. Well thats a digression into the short term.

The real big bubble factors could be:

a) The world needs its next, bubble. This is a key surmise for one to guesstimate where the next bubble will rise. [More on this on a separate thread, why the world needs the next bubble]

b) Sobriquet of fastest growing economy already bestowed.

c) Political risk computes on India are at all time low with a uber-dynamic CEOesque Prime Minister. Valuations are a function of confidence and quality of management in any security. India was ranked as having the highest confidence in its Government amongst all countries recently, with 76% of the sample stating so, highest of all countries.

d) Cutting the long list of so many other potential factors that may appear to be mere bones, when I put this piece of meat on the table: The Government may very likely drop the Income Tax Rates from the current 32% to almost 12% or 10% before the General Elections in first half of 2019. It might do so by way of a policy to bring the Income Tax rate down in 5 years from 32% to 12%. Many reasons for the Government to do this:

i) Very low rate of compliance right now. The Laffer Curve may be put to play or expected to put to play. ii) Black Money, or unaccounted wealth of Indians, stashed in the banks around the Alps has been a key element of all political rhetoric. Destroy the device that motivates c reating black money, a.k.a. high Income Tax Rates so there will be huge jump in disclosure of incomes. There may be a huge flight of capital inwards into India too.

e) For now, the thing that may be important is, whether or not this much of a tax regime tectonic shift comes or not by 2019, these expectations will be taken very very seriously in the next eighteen months.

So while through the school of mumbo & jumbo, with this indicator or that indicator or this study or that study will keep pointing to a 5% dip for traders to keep playing, the huge huge short gamma, short delta risk on India will be out in the open pretty soon.

In the long run, before we all are dead, the expectable income is truly only gains in taxes and reduction in the cost of capital.

Alston Mabry writes: 

Thanks for the analysis, Sushil. I notice too that most estimates of currency valuations show the rupee as one of the most, or the most undervalued.

Peter Ringel writes: 

This sound like wonderful news for India!

I am quite a Modi fan boy myself. I am happy to read, that his administration has not lost it's drive yet.

I think there was a lot of FDI into India because of Modi – like a Trump-like catalyst and these tax reforms sound very healthy to me.

I am very surprised that Modi is able to do this.

After decades of socialism, related red-tape/corruption and state-sanctioned monopolies I had pretty much given up on India.

I was wrong and now I think the potential in India is huge.

Thank you for the update, Sushil.

Charles Pennington writes: 

As of January 2015, the Big Mac Index had the rupee 60% undervalued. The only two currencies that were more undervalued were the Russian and Ukrainian currencies, 72% and 75% undervalued, respectively.

By a long shot, the Swiss franc was the most over-valued based on the index, 57% over-valued. Second place — Norwegian krone at 31%.

Only 5 of the 57 currencies listed were over-valued against the dollar.

I was a little surprised to see Hong Kong at 49% under-valued. Supposedly a Big Mac costs $2.43 in Hong Kong and $4.79 in the U.S. The U.S. number seems high — does that include fries?



 Pakistani equities are down 20%.

It could very likely be a case of spurious correlation, yet worth taking a glance at.

Down 20% from the highs of the year, so far.

Interestingly, in the last 15 odd years that it's allowed foreign participation, it moves like the highest beta stocks would. Races up and comes down ahead of most other markets.



 The humorous one didn't inflict any joke hurting anyone, it seems.

Commodities Up, Bonds Up, Equities Up & even the USD Index Up.

Everyone is Happy. Capital Markets are trading like it's communism everywhere!

Or there can be a sustained move in the same direction everywhere?

So is there really no joke today? Or when is the joke going to be understood? Which of the four is the deception?

How does one try to figure out the answer to such questions?



 Does a single day large drop past 4 sigma imply:

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

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

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

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



 15th March. Debt Ceiling at 20 Trillion USD will be law?

Will it be Stop Loss day for America, deployed with discipline?

Or Trumpesque Trump-speak will unleash volatility violence world over?

Is this market an unstoppable train that is going to keep on its rails or an unstoppable train that will skid to stop?

What do you think?

Gold up, Dollar up, S&P Up has been a good nice happy game for all. Will all 3 keep moving up? Which one or two will tumble?

Negative interest rates in some parts of the world and unbelievable debt mountains in other parts of the world. Cognitive Dissonance is the new normal?

Is might going to be right or right is might?

Will Trump stick to the pre-defined stop loss for the balance sheet of the treasury? Or he is the savviest trader ever that we are yet to see who will break the rules to come out winner?

Is this a situation where sticking to the stop loss will bring more losses since Cognitive Dissonance is the new normal or sticking to the stop loss will keep the Equities train unstoppable?

Kora Reddy writes: 

Anything quoting Mr. Stockman suffers from at least 3 problems that I could think of:

1. "defensive attribution hypothesis"

2. as a counter in me says "a broken clock is wrong 22 times wrong" –> "David Stockman warns both Trump and Clinton could lead to 25% sell-off"

As we all know that on 4th Nov 2016 $SPY close is 207.33 vs. today's close of 237 roughly 30 points up or ~15%


ps: I hope I wont be banned from Dailyspec as I used nc-17 rated words like "zerohedge". 



 If one visualizes the equity markets as a passenger train and oneself as one of the passengers, many interesting insights can be gleaned.

Imagine a trader, always on the lookout for the next big pattern breakout. Such a trader is akin to a fellow running along a train that has already started to move out of the station. While raising his own velocity in running along the train, such a trader must touch the pole at the door ONLY if his relative velocity to the train is zero. He wont be able to touch the train if he is still running even a .01 mi/hr slower. He can very well touch the pole AFTER his own velocity has gone up by a .01 or a .001 mi/hr in excess of the train. Disaster happens if such a touch is made. The net relative momentum or force is calculated as the Difference in mass of the train and the person X the net relative velocity. The net relative velocity is actually -.01 mi/hr but because the mass of the train is almost infinitely larger than that of the over-smart runner the total force is a gigantic crushing pull that tears the runner under the wheels of the train!

Being early for a trader is being wrong? No, for a trader it can be suicide!

Since no trader will be trading a single lot only or plunge in his entire bid or ask at a go, diversification works not only across assets, but definitely across the time, even if in split seconds.   



 The cabbie with the car made of gold visited me right at midnight 40 minutes ago. I am not sure if I was sleeping.

He was weeping. Indians are going to be hounded by the Times Man of the Year, winner of readers' review, their own Prime Minister, very soon, by the end of this month, in getting to open their gold lockers. Married women can own 500 grams, unmarried can own 250 grams and men can have 100 grams. Any excesses will be taxed along with penalties for possessing unaccounted and untaxed wealth. Indians have been the biggest hoarders of gold. This will suck away the demand and might even create supply.

He was weeping what will happen to his car made of gold?

I told him to go away and to not be disturbed. But his weep was so sorrowful, I could not help but get out of the cozy mildly wintry wrap of the blankets and fix a cup of dark coffee. Sipping I pulled up my charts.

I smiled. The cabby need not be right every time.

The biggest hoarders if participating in the biggest panic is the bleakest point of demand. When their panic will settle and when they will come back with a vengeance, the flexions are not going to keep driving gold further 300 dollars down so that they can be charitable to them. The crowd will sell away into the bottom.

Do markets bottom out when there are no more fools left to sell? Or do they gallop up when the fools are forced to sell? In any case in a sterilized surgically sealed boundary physical sales of gold will be absorbed by another waiting within that membrane to absorb the physical. Inability by the hoi polloi of the gold pit to buy any longer is a reason for my dear cabbie to cry? Well if he knew how flexionomics works and how the wisdom of the crowd also is an inconsistent function of the same, he wouldnt be a cabby.

So I take out my cane at this hour? And rather than just throw the few coppers in the pocket onto the gold roulette, I insist on pawning my humble cane.



 It is crazy what is happening in India.

"How India's currency ban is hurting the poor"

The Prime Minister had given a cryptic warning during the month long Voluntary Income Disclosure scheme through October to disclose tax evaded stashes now "or else soon what I am going to do you will not be able to tolerate."

At 8 Pm on 8 Nov 16 when he announced on national TV the demonetisation unofficial gold bars prices traded at up to a 105% premium by midnight. Since then there been a very active market in this and premika have ranges between 20-25 percent.

Endless number of small and big accounting firms have been arranging "entries" at similar premia and these loan entries are to be reversed I'm next year financial.

Real estate lobby which was the biggest borrower and user of "cash" has been hit most. They have gone belly up in the 100 billion USD odd equivalent credit market in unaccounted cash directing the lenders to come back two years later. Bids in realty and rentals dropped 20 percent next morning with hardly any turnover since then.

Physical USD bills (God knows how many trillions of them in fakes are circulating all over the earth) are getting traded in a similar price trend.

The real targets have been 3 fold:

1. Massive supplies of fake currency were anticipated from Pakistan for funding terrorism. That rogue state is the primary supplier of most fake currency bills in Asia.

2. Entire left wing and center wing political spectrum that had fed on 60 years of deep corruption had been caught holding pants down. They deployed the very large number of poor people on India to throng banks to deposit the limited amount of old currency allowed per person.

3. This hoi polloi has found new joy in the manhood of Narendra Modi and this 70 percent voter population at the bottom of the pyramid that was always with the socialist political spectrum has suddenly found a new Messiah in the Right Wing political ruling party! The business community that always backed this right wing party in power today has become sour. The biggest coup of this Re-monetisatiom had been 180 degree reversal in the magnetic poles of the political spectrum. Modi is unlikely to abandon his traditional voter base and is too intelligent a person to lose it. Given the annual budget of the government this year has been preponed by 1 month leaving 2 months time to the end of financial year (budget was always 28 feb and this year will be on 1st feb and financial year ending remains at 31st March) I have an extremely strong hunch that this government will water down income tax rates in a Humongous way and not bug cut. A positive shock is very likely planned.

So to my mind Modi government has diluted the enemy of the nation across the border , enemy of the government (the entire political opposition spectrum) and snatched the voter base. 3 birds killed in one stone.

I am somehow having a deep lurking fear of a super bull market perhaps even a bubble to develop out of India into the next year, a further 10-12 percent equities drop in between notwithstanding.



Imagine a world that were perfect. Imagine such a world would have no approximations. No variations. No risk.

Such a world would have no humans, but only pre-destined robots that appear to be humans. Such a world would also have no opportunities. In such a world, enterprise would have no value. It would certainly be a boring, unchallenging place. Such a world would have no incentives.

So we should rather feel happy that we live in an imperfect world that makes us perfectly human, offers opportunities, and incentivizes enterprise. Uncertainty should never be eliminated. If it were possible to eliminate uncertainties it would be a world of the living dead.

Well, if uncertainties prevail, the only choice we have is either switching off for a while from active risk to passive risk and then switching back on. Risk cannot be eliminated. From choosing styles, instruments, level of exposure we are only able to make a choice to believe we are better off handling one type of risk over another. Returns originate out of risk and not vice versa, since whether or not there are prospects of any returns, risk will always be there.



 This is a very old adage: don't fight the central banks. That provides me the gumption to label them as the Gods of the markets. Einstein had quipped God doesn't play dice. Perhaps he felt the unmanifest, invisible, unascertainable authority in the universe is the creator of the universe and had control over its creation. Coming back to the manifest, visible and ascertainable behemoths of the marts a.k.a. the central banks, one is pushed to think that for the first time in recorded history they are sitting on trillions of dollars of negative yielding securities.

Are these visible Gods of markets playing dice or they are still the deterministic factor in the markets who will still determine what happens?


a) Keep dying a slow death losing small chips every year for a long time to come with the negative yields.

b) Raise yields and kill the balance sheet?

c) Inflate dramatically some asset to shore up the balance sheet while exercising option b to make financial assets have sense. In scenario c, the traditional asset of bonds is already inflated. In 5,000 years we have never had yields below zero. Equities are at all time highs. What else is not at all time highs? Again a real estate bubble? Or will it be gold sitting in the vaults beneath metro stations around the world? Gods wont let go of their stature to be Gods, even if these are man made Gods.

Now, after scenario c also plays out, since nothing is permanent and ever changing cycles will again at some point bring something down, what is it that is going to go down first and what is it that will go down most?

If the unthinkable of negative yields came in too, why can not the unthinkable and the least obvious scenario (a) persist? Imagine eventually people getting money to buy cars, homes, tuxedos, rolexes and receiving an interest for taking away the trash called cash from lenders, banks and Gods? This then is not an option that can persist for long? Or it can?

The whole earth is going the Amazon way!? Will Jeff Bezos be known as the pioneer of the new world, where you get paid to usurp and use up money that in any case is at a discount? Is the motor created by John Galt working now to produce energy from nothing? Who will cut this motor off? When? Why?

Is the motor already broken? The endless mint-churning has produced endless currency. This currency is akin to endless static charge that has accumulated. Its not creating motion. This currency is unable to and unwilling to move into the system. Why? Is it that the window dressing of every bank balance sheet that began in the aftermath of 2008 in the developed world is not yet complete? Only book entries are happening?

Why do I get illusions that the cigarette buts in my ash tray sometimes appear to have a $ insignia printed in gold? Well if I were to go by the wisdom of the Reflexivist that one makes big packets on betting on the unobvious, I call this Gold insignia bit an illusion since fundamentally gold is too obvious a bet.

Will the world return back to before Bretton Woods? Will every key central bank agree together to print only more currency equivalent to gold it has making the yellow shining bars jump up to 2200? Then chart reading pros and amateurs will find a divergence in momentum and short sellers will come in and the dream of the gold bugs would be fulfilled to have record shorts in the move from 2200 to 1800 so as a jump to 4000 will become feasible? Will that suddenly bring a solution that none of the banks are sitting really on junk anymore? Will it still allow the permanence of the Senator's observation that a good suit has always costed an ounce of Gold? Or then, a good suit will be available at half an ounce of gold?

Despite change being the only permanence in markets, few things have never changed. Of those unchanging ideas the infinitude of the abilities of mankind at struggle for survival, conceit, deception, keenness to find the next scapegoat don't seem will dissipate away with just negative interest rates. No one will believe that everyone will go down equally and in fair proportions. So who is the lunch now, when its almost lunch time?

Monkeys have been now using the Discounted Cash Flow model. Yes, the longer you hold negative yielding assets the larger becomes your Net Present Value. The more you are willing to bleed the wealthier you are now! If this negative yield quagmire has any shelf life in plain simple English (no Greek and no grammar-nazis required) no one will have an incentive to save. If there no savings incentivized why would investors be incentivized? Lord Keyenes we really wish this day has not come, yet it has.

The most illogical times have arrived. Why am I seeking to imagine the odds using any logic? Would an illogical unintended consequence save the world? Why don't we remember that in the yo-yo moment of 2008 when the biggest churning of the USD mints happened, the biggest flight of capital until then in the history of this world happened INTO the USA and not OUT of the USA?

Would logic have to prevail, eventually?

So I am sending out this humble hat to the spec-list citizens, please pour in your (ill)ogical bets into this seeking hat. If trend is your friend, until it bends or ends.



Release is a word I understood in a totally unique manner through the writings of Vic on the lists through the last decade.

Pent up emotions, that reach the bottled up state gradually over time, get released as any event that is scheduled to happen comes by.

For events that are unscheduled and happen suddenly emotions get pent up very quickly in the first place and then dissipate.

Whatever category of events we are inspecting, whether scheduled to happen or sudden, emotions are pent up and released.

Rational minds, systems, approaches, styles will focus on this process and aim to benefit from it and strive to be not part of this process. That's what perhaps the Reflexivist means when he says markets reward for playing the unexpected. He hasn't likely meant that the winner doesn't expect or speculate buy likely that the winning hands usually play the underdog.

At a scheduled event that has fear as theme puts are already expensive and when greed is around calls are already expensive. Do butterflies work well at the release moment of a scheduled event? When there are many butterflies in bellies, sell the butterflies?

For the surprise event types not talking here about how to handle existing position but leaning on Vic's favoured phrase of how a good trader has many rabbit holes should one be chinking the mind Into separate halves : the survivor and the opportunist working simultaneously? Find the rabbit holes for fastest risk control and simultaneously work on fading the pent up emotion when it arrives to play for the release ?



You may have heard the following quote:

Philosophy is like being in a dark room and looking for a black cat.

Metaphysics is like being in a dark room and looking for a black cat that isn't there.

Theology is like being in a dark room and looking for a black cat that isn't there, and shouting "I found it!"

Science is like being in a dark room looking for a black cat using a flashlight.

Spirituality is being in a dark room looking for a black cat with a torch and discovering "you" are not there.

I would like to add: 

Trading is like waiting for a bookie to get in a dark room first and yell out a spread and then not going into the room until you have locked up one leg of a wider spread, then going in and giving it to the bookie at the tighter spread he is holding on to. 

Of all ideas available, wherein non action is not a possible choice, then choosing the one where one may claim better understanding or lesser severity in testability to handle adverse incursions better, is defined as risk management. 

I disagree with the definition of science, since the moment you have a flash light on, the room ain't dark any more. So will instead settle if you kindly change that to looking for a black cat in a dark room using body heat sensors. 



When the amount of buying is always the same as amount of selling, it has been discussed many times before here that price behaviour is not a game of demand and supply but expected demand and supply. That is also reflexivity adjusted demand and supply.

At a tick, inside the last "exchange" in the pit what is it that is moving the tick this side or that side?

I would simplify for my mind and place on the table an idea that it is the "Path of Greater Impatience". Whether a white shoe firm is "aware" of impending larger clients orders and therefore bidding higher or lower or there is a Technical Analyst anticipating some breakout or reversal and therefore not willing to be patient or there is a news driven, a.k.a. fundamental trigger puller, or there is an HFT machine that is sensing the depths of the order book, anyone who makes impact on the next tick is the one willing to stake a claim that her impatience is justified and is going to be profitable.

Ticks arise on impatience. Prices propagate on impatience. When too many minds and wallets are left into the patience zone, the impatient "in the money" hands get into whipping a notion that the patient will eventually turn impatient. That is where the reversals, small and big happen.

I would leave this note with a cheeky surmise that patience ain't the virtue, knowing when to be not patient and knowing when not to be impatient is the virtue.

Wondering if there is a way to capture from data streams any metrics of what percentage of existing bids and offers in the order book are changing and if such a series of data could be established how would it enhance trading decision making. This could get even more interesting to plot / numerically analyse what percentage of bids and offers are changing closer or away from price, what percentage new bids and offers are coming in and what percentage bids and offers are going out of the order book.



 The search for happiness has a Heisenbergian aspect: the more certain you are about what you want, the less happy you will be attaining it. It seems to happen unexpectedly, and often only in hindsight.

There is also an "aspergian" aspect: like Viktor Frankl's "The doors of happiness open outward". I take this to mean searching and engaging with the world (rather than perpetual introspection), but it could also be the joy in helping others (as risky as it may be).

In markets it is very hard to find happiness, and it is probably foolish to look there. A good source of unhappiness, however, is limit orders. You place them with great hope and the market runs away and leaves you behind. Or you get filled and then it takes you way down. Or you're overjoyed to finally get out with a modest profit, only to find you sold too soon and missed the big one*.

*Holding losers long and selling winners short: the hardest thing not to do.

Sushil Kedia adds:

Happiness is life. It has a unique property. The conditional probability of happiness is a certainty if you have a happy nature else it is zero for every other variable.

Anything contingent on an outcome (event) or a property (belongings) is not happiness. Happiness is unconditional. Happiness is an absolute.

Happiness is neither a milestone nor the journey of life. Happiness is the fuel of life. By this assumption or understanding one can see pain is not the opposite of happiness. Pain is only a signal asking us to change something.

On a lighter note, obviously no one normally seeks happiness from a mistress. In Markets, you come for taking what you have come to take and not search happiness, since happiness is within. 

Ken Drees writes: 

"You never see the stock called Happiness quoted on the exchange."

"It is better to desire the things we have than have the things we desire".

-Henry Van Dyke



I solicit DailySpec members to write one interpretation of the phrase "ever changing cycles". Let's see what gets compiled.

My favorite one line description of what ever changing cycles are reflected most in is that the correlations of no contracts remain the same, they keep changing and often in gradual non erratic "tendency". (No please don't kill me, I didn't use the equally vague word 'trend', but only said tendency).

I also request, our generous host, the chairman of the list, and the one who coined the phrase ever changing cycles, helps elicit as many responses as he can and then shares with us his own notion of the mystical ever changing cycles.

Gibbons Burke writes: 

Two words: random walk. 

anonymous writes: 

Are the cycles ever changing?

I'm not certain, I think the cycles are always there but they get accentuated from one time to another. It is what causes them that is the great mystery which has caused me to pound my head into the wall many times late at night. That helps, occasionally I get a glimpse of something going on that is causing this.

However no clarity yet on that point.

Paul Marino writes: 

Mr. Mac, the most practical thing that you ever did in your life would be to shut yourself up for three months and read twelve hours a day at the annals of crime. Everything comes in circles – even Professor Moriarty. Jonathan Wild was the hidden force of the London criminals, to whom he sold his brains and his organization on a fifteen per cent commission. The old wheelturns, and the same spoke comes up. It's all been done before and will be again.

- Sherlock Holmes

The Valley of Fear
, Arthur Conan Doyle

I see ever changing cycles inside the big cycles, demographics, interest rate regimes, etc.

The President of the Old Speculator's Club writes: 

The inability of law enforcement to police the streets effectively provided Wild with the perfect conditions in which to build his new business. Victims of theft generally had little chance of getting back what was stolen from them, let alone catching the thief. Through Wild's new service, however, owners of lost or stolen property could apply to him for help in recovering their possessions for a fee that fell below what it would cost them to replace the objects. His business proved to be extremely popular.

Wild benefited from this policy by collecting a fee every time he was able to prosecute a criminal. His office, then, essentially served as the de facto "Scotland Yard" of the day. Jonathan Wild, the man supposedly responsible for clearing the streets of criminals, was in point of fact the head of a vast criminal empire and a well-oiled criminal machine. Wild's Lost Property Office was actually a clearinghouse for stolen goods that members of his own organized gang had themselves acquired. The thieves he apprehended, supposedly for the good of the community, were fall guys; they either belonged to rival gangs, or were members of his own gang who had tried to double-cross him, quit his business, or ceased to be more valuable than the 40-pound reward given by the government for capturing and convicting a criminal.

This new [Transportation] Act gave judges the option of removing felons from the streets and jails without having to take away their lives in the process. As a side benefit, the Act seemed to offer help with the American colonies' desperate need for cheap labor. Settlers in America faced the problem of securing labor at a cheap enough price for them to grow their businesses, mainly because anyone who had sufficient means to make the trip overseas from Great Britain to start a new business in America had no intention of working for anyone else…convict transportation killed two birds with one stone: It rid the Isles of unwanted criminals and provided cheap labor for the American colonies.

A provision in the draft of his Transportation Act aimed specifically at curtailing Wild's organized criminal activities. This provision made it a crime for anyone to take a reward for returning stolen goods to their owner without at the same time capturing and giving evidence against the thief. Failure to turn in the criminal could subject the person taking the reward to the same punishment as the thief, assuming the latter was ever caught. This provision was so clearly aimed at Wild that the Transportation Act also became known as "The Jonathan Wild Act."

Since the Transportation Act made it a crime to collect a reward for returning stolen goods without turning in the perpetrator as well, Wild shielded himself by using transported convicts to return stolen goods and collect the reward from their owners. Returned convicts not only provided Wild with protection from the provision in the Transportation Act aimed directly at him, but if they ever tried to betray him, he could easily turn them in for a large reward, and they would receive an automatic death sentence.

From Bound with an Iron Chain (The Untold Story of How the British Transported 50,000 Convicts to Colonial America) by Anthony Vaver



There are endless applications of the concept of gravitational waves to markets and much more easier to perceive every minute, every hour, every day that one might even state that market folks are humbler in not stretching their own perceptive lenses to theorize physics and wait for scientists to do their jobs.

Market Cap Gravitational Waves: Very large cap stocks make a sudden wobble, indices wobble, sentiment wobbles, most stocks move with the wobble. A large mass stock wobbling the volume price fabric of endless other stocks and dramatically the smaller ones.

Earnings Gravitational Waves: Earning Season is witness to undue anxiety or excitement. The prevailing Volume/OI - Price Fabric is already constructed and the extension of this fabric, i.e. immediate next bet, is much more largely a function of the existing V/I-P Fabric. Yet, a lot of volume or change in OI continues to be witnessed on most widely researched large cap names that are good fades. Rarely do quarterly earnings ever alter permanently the existing "fabric" but most often create a temporary wobble.

Contested Gravitation Waves: Significant change in Volume or in Open Interest, both reflect a significant change in the level of contest for discovery of price. Large dramatic moves or wobbles in High Volume or High OI pits put gravitational distortion on other pits. Margin selling or contgations as their extreme are observed in falling markets and complacent buying into un-understood unanalyzed trophy adventures as a wealth effect in rising markets. Market is a casino where players' behaviours alter with the level of House Money.

Food Chain Gravitation Waves: The waves, the unduluations, the idiosyncratic movements, the never at equilibrium but tending to equilibrium behaviour of prices are all a matter of the big fish (the White Shoe Firm included) nudging with their Gravitational Waves the small fish to be swimming hither and thither. The never wavering permanently rising equity curves of some of the rarest wealth creators in markets is what one would notice at the top of the food chain. Whereas the brownian motion equity curves are at the bottom of the food chain. Gravitational Waves are working from the top down to the bottom of the chain.

So on and so forth, every perspective in markets is explained by ideas similar to gravitational waves. I should leave this note open for others to help tautomerize further.

What perplexes me much that marketmen have evolved in their thinking far ahead of the evolution of Physics. When you think about Reflexive Gravitational Waves as an idea that is routine in our "universe" wherein the Space Time Fabric itself is exerting Gravitational Waves on the future events and keeping the ecosystem in a self contained completeness, will a future discovery in Physics be guided by this imagination that the endless expansion of the Big Bang Universe is not for a reason beyond this Universe, but the Universe is the reason and that the Universe is the influence on the Universe?

Peter Grieve responds: 

From the LIGO wiki page:

"Gravitational waves that originate tens of millions of light years from Earth are expected to distort the 4 kilometer mirror spacing by about 10−18 m, less than one-thousandth the charge diameter of a proton. Equivalently, this is a relative change in distance of approximately one part in 1021"

The gross world product is estimated at $76 trillion, a fluctuation with the same proportion world be 7.6 millionths of a cent.

Which is not to say they haven't detected something, but is (in my mind) a good reason to wait for more confirmation. I hope it comes. Imagine detecting a black hole coalescence!



 Gold is glittering one more time.

The question that comes to mind and one not normally asked in popular press is is gold only a super currency or does gold behave sometimes as super currency, sometimes as a super asset and often in normal times as another asset, which many pundits love to dismiss as a latent unproductive asset.

If one were to run correlations of gold across these varying regimes, how can we have a logit or a probit model where a probability distribution of risk-off factor is included.

When risk is a bad word in the markets, does gold first behave as a super currency and only later as a super asset or is it vice versa? Or there is a more likely scenario that the super currency vs super asset status also has a localised idiosyncracy that can be modeled using another function?

anonymous writes: 

It is a manipulated asset. Study the structure of the Futures market, the term "Paper Gold", and the dominance of the handful of bullion banks in the delivery process. Look at the international shifts in holdings, and question the "reality" of the Ft. Knox inventories.

More importantly, who do you trust? Central bankers, governments, and economists all have biases, some with monstrous financial incentives to have bases for their pronouncements.

You might want to describe what you mean by super asset, since that is not a term used around gold that I know of.



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

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

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



 I read a few days ago on a website that no more evolution is possible beyond the human form, until consciousness is worked upon. I interpreted that nature kept forcing a biological evolution & brought us into human form and hereon for remaining relevant in the continuing evolution, for improving the lot within this and the next live(s), one will have to raise the envelope of one's consciousness.

If I connect this idea to another idea that we cannot let people press the wrong switches in our being, causing either morbid fear or fatal attraction, then I have a combined thought that for my evolution to continue I have to de-activate the wrong switches in my consciousness such as outside of me other forces cannot trigger them. Only inward flow of intelligence into any action or thought switch has to activate any.

This leads me to a thought that if God is the supra-intelligence design that Governs this Universe and every Universe, then there is a tendency for the human world to keep becoming more and more vigorous, intense in the stimuli each next generation will keep getting. The one effective in a world that will have more and more intense stimuli are then going to be those who are stronger in the face of such stimuli. The same way that progressive resistance training builds the muscles on our body, progressive resistance training to information stimuli may develop Emotion Intelligence.

More information, more TV channels, more internet, more books, more facilities, more attractions & eventually more frustrations and at an increasingly faster speed is the trend within this life. To evolve and become more effective than others is a goal of the process Darwinian Evolution, then each life we get is a preparation for the next one is one view. To be given birth in a much faster, more enticing, more opulent world one might be then actually getting eligibility by effectively training received in a lesser / simpler / easier world to respond less and less to external attractions and frustrations.

So if I let this process of imagination propagate forwards, undergoing evolution of the Emotionally Intelligent side of our brains we may one day become eligible to be given birth into Heaven and if we keep failing the tests of Emotional Intelligence we may keep receding into lower worlds and reach Hell too.

Yet, who knows if all universes are co-existent and time is a mere illusion that causes a sense of separated-ness and time provides a mythical yarn on which our mind travels, then Heaven and Hell may both be very well existent within this life and many have been to both several times within this life.

May I therefore conclude, those amongst the human specie that are able to restrain an impulsive response to stimuli more than others are on the way to building their Heavens, while those who respond more impulsively than the rest are accelerating their journeys towards Hell. This is felt most truly in the profession of trading, that provides unambiguous instant feedback with each piece of action and inaction, yet may be true in every human enterprise since this is the path of the ongoing evolution.

I am hopeful you will allow me an indulgence that, mere Intelligence is for those who are afraid of handling the journey to hell and emotional intelligence is for those who are making a successful trip back from hell with a determination to get to heaven on this leg. Perhaps, the passport to heaven, for getting in and staying there, is a high EQ and not a mere high IQ.

Gary Phillips writes: 

One can never count on the consequences of their actions, yet one can always count on the motive(s) of the action. The trader needs to take responsibility for the consequences of his own choices. The market demands objectivity and precision which is directly quantifiable. The ego is completely different from the market, and can only be measured subjectively and qualitatively. Why not simply, look at life as a flash of beta? There isn't any measurable premium to be paid to insure compensation or avoid retribution for the kind of earthly life one lead before one's option expired. Trite but true, "not everything that counts can be counted, and not everything that can be counted counts."



If the last couple of years the DXY and the SP500 rose together, a parallel from the 80s was justifying that the US economy is improving and hence both money and the assets this money can buy can appreciate together.

Usually in the developed markets, say the G-7, a regularity has indeed prevailed that the value of money and assets do not move together.

So during the last couple of years, where indeed all key central banks have been steroid fountains (naah the throwing cash from helicopters is phrase that everyone has forgotten so I will use this one) pumping up their supremacy in dictating markets, there have been countries in Europe where equities went up despite the underlying Euro declining.

So this set of arguments is therefore either contradictory or inconsistent or incoherent.

In trying imagining (forecasting begins with an imagination which is eventually restrained with the aid of studying the statistics of data originating in the past) how this present world will find coherence, I have three questions:

a) Is the more important Money going to be gold for now, the super-currency that will get acknowledged as having this status with the reality cheque now being shoved up on every desk?

b) Can the steroid factories drive value of both Gold and Equities together now, while in the last couple of years DXY and Equities indeed drove together?

c) If Price of Crude is better visualized as anti-money and not money, since the world has to consume it to produce wealth, will it drive along with the prices of equities or against them, hereon?



If Volume as well as Open Interest are indications of the amount of struggle for the discovery of price, which seems a likely good way to look at these two important variables in market data, then price gaps or price jumps must be occurring at moments of high consensus and low struggle.

Consensus fades. A point of high consensus, if identifiable, is a good point to search for fading trades.

Then, how come a market as Hong Kong continues to display for long years continued gaps on the daily price plots? If indeed these opening gaps are a strong consensus developing with overnight news (I wonder why should only in the Hong Kong market the news-vendors are so efficient, chuckles) then why are the daily candles not displaying too many hanging mans and the faders are unable to prevail? This leads to a disturbing instinct, that the gaps in Hong Kong are something else and not points of low struggle high consensus price jumps. Those price jumps are something else.

What is underlying this "regular" opening gap behaviour in Hong Kong that is "irregular" in the context of how other large markets are?



 It would probably never happen, but journalists should have to pass a regulatory exam of basic market sense. Maybe that way they would stop abusing the idea of freedom and liberty.

So journalists get the poetic license to spew such bunkum as rise in gold prices by 5% will reduce demand. The whole world reads such comments and gets affected, forgetting totally that Gold is a "Giffen Good" where the economic utility is derived by possessing it and not by consuming anything of it. The more the price rises, the more demand rises…. a.k.a. the tulip mania. But Liberty must be allowed to be abused by those holding the pen.

So this morning in India, when I noticed a certain Business News Channel that has been hollering all the last 20 days that gold is drowning, gold is drowning suddenly without any rhyme commented the overnight jump in gold prices will "reduce demand in the festive season ahead", I pulled my handkerchief and collected the small nickels I had wagered on the gold wheel and pocketed a humble profit.

I wonder if Liberty would be breached at all, if regulators world over made it mandatory that newspapers should only supply news and stop behaving as views-papers. All publications and broadcasters should have well defined separate sections called the "views-paper" wherein only those journalists who have passed a regulatory exam that measures if the candidate has an IQ of 100 or above should be entitled to publish.

A typical news supply source, whether a newspaper or a TV channel are today very difficult to be separated from what in yesteryears we used to call a tabloid. 5% news, 35% views, 10% gossip, 10% titillation and the rest of the bandwidth choked with advertising.



I am happy that even counting has limitations. I am happy that everything has limitations except the human folly and human imagination. Because if there were any way in this universe, in this market, in this life that was totally bereft of any adventure and therefore any risk, there would be hardly any difference between the living and the dead.

Uncertainty is life. Uncertainty is evolution. Uncertainty is the fuel of progression. Uncertainty is the reason that learning, knowledge, enterprise and effort have value. Without it, a stone and a man would be identical at best. Perhaps the stone would be at peace and man still restless. It is uncertainty that makes the restlessness of man the fuel for transporting us into the future. Certainty, the chimera that all chase, I am happy exists in non-existence only.



 I was waxing nostalgic when I was reminded of one of Vic's favorite precepts…

Not that it was anyone's business, and not that anyone really cared, but after the trading day was over, one was often asked matter-of-factly, "so how'd you do today?" even back-in-the day (on the floor of all places) traders doled out socially accepted responses to this very probing question. These responses were realistically based on a hierarchical assessment of one's intra-day p&l.

Ranging from bad to worse, were the losing days…

- they got me
- got killed
- at least I got my health

Ranging from good to better, were the winning days

- not a bad day
- got 'em
- had a nice week today

A gentleman never kisses and tells; and a trader does not provide full disclosure about his performance; the trader should instead exhibit humility. For those on the right, humility may be seen as political correctness by a different name, while those on the left may see this as a way of stifling free expression. However, like a poker player without a tell, one should never be able to discern if a trader had a good day or a bad one. A trader shouldn't whine, or proffer excuses on bad days; and there should be neither bragging, nor hubris tendered on the good ones. Trading makes strange bedfellows. Individuals from disparate backgrounds with varying opinions, beliefs, and backgrounds are brought together by their passion for trading. But, what should also unite them is a shared belief that humility is not only there to protect them, but is a kind of moral compass that should always remain a virtue.

Anatoly Veltman writes: 

People would never guess so after the close, if I just made some easy six figures. I never-ever thought of the reality of that cash (for me, the winner). People would hear me going off at "that silly market", which just did so unprofessionally today.

Reminds me of one Robin Hood's trading idea to never cover if the market let his contrarian position recover back to break-even. His logic was that if "they" were covering themselves so aggressively as to even forget "to force me out first"–then my initial premise must have been reeeeally good, and is bound to go a long way!

Jim Sogi adds: 

My second cousin is a pitcher for the Dodgers. He and every other baseball player has daily, game by game, lifetime, yearly statistics kept and prominently displayed whenever his name appears. Why don't professional traders have this type of info if they are running a public fund or ETF? I think it would be good.

Sushil Kedia writes: 

In my earlier years, there was a dream job I wanted to get hired for. Interview processes lead me to the final round with the big man, who has been an idol nearly for me for close to two decades now.

At the deeper end of what most would consider to be a long interview by his standards, since he had already given me twenty minutes he asked me to tell him one exceptional quality I have in me which would be really difficult to find in most others and how it is relevant to the job of running his billion dollar book.

I told him humility is my most effective quality. He asked why. I told him that it is the most powerful currency that can ever be invented. He stared at me and asked why. I told him, without spending any cash of any type, it is very effective in seizing a put option from the world of your own short-comings, follies and errors. He said, this may not always work, as some will be so good that they will still encash your short-comings. I wasn't sure if he didn't like what I said. Then with a long pause he asked, what more ways can you justify saying that humility is the most powerful currency. I said it helps you see others' cards often better without revealing most of yours. He smiled. He asked, tell me a third way in which humility is a currency. Told him, the same way that deception minimizes struggle for the discovery of the deal zone, humility also reduces the required effort for closure. He said you are hired, subject to reference checks.



 Andy Lo (paper link here) studied varied technical formations and concluded that the Head & Shoulders isn't useful for the universe of stocks. His paper didn't address the gold market.

I am not a professional chartologist (but I play one on TV), and a cursory look at the gold chart from November 2014 to present sure looks like a head and shoulders. If you believe this stuff, closes below 1150 should project to $1000/oz and below. Certainly, the strengthening dollar, rising real US interest rates, and various other stuff (like the Chinese reserve report released yesterday) and oil prices are not particularly friendly for gold bugs. Also, the long term gold price is still ahead of the M1 and CPI — but it will look fairly in line at 950-1000/oz.

Specs may recall that I very publicly rode the gold bull market for several years and exited in early 2013. I still occasionally trade around it for fun, but I am structurally flat. If you held a gun to my head, I'd rather be short than long right now for a trade. For now, I'm waiting for the GDX to trade at zero before I stick my toe in the water. ;) These are big cycle, macro economic moves — and that gold didn't catch a bid during the Greek crisis or Puerto Rico panic says it all.

Perhaps more interesting than gold is platinum — which just broke $1000/oz. It's pretty rare for platinum to trade at a discount to gold. I know Vic likes to trade big round numbers.

And definitely more interesting than either are GOOGL and NFLX — neither of which I own. Ugh.

Sushil Kedia responds: 

Mumbo jumbo being acceptable on this site for one moment, the head and shoulder argument is good for prospecting how much bearish opinion might be existing here and there. The truth from the university of mumbo jumbo is that momentum as measured by rsi is making higher lows and price has been making lower lows, commercials have the largest long position ever, and if at all someone must look for mumboistic patterns there is a terminal triangle on a c wave. A rocket will fire up soon…. 



This article at Trader Planet says commercials are record net long and in the past such has resulted into large up moves.

Without invoking the testing or testability of such a thought process yet, I seek the Senator and other CoT experts on the site to help define in the least ambiguous way how to filter out the True Commercials, The True Speculators and the True Small Traders.

Is the COT data so straightforward to leave a free lunch on the table for the whole world?

I also wish to twist this one thread in evaluating why would this tool of thought also not suffer from the ever changing cycles?

Also indulging in the more routine task and the more mundane task of imagining the future: once the pent up emotions of a Greece that was greasy for last five years having been released, with equities everywhere in the world been ho-hum for a good time, with an iPhone in the pocket of every college kid in India, is the world complacent enough here for a regime change? Oh, yes with peak oil ideas being forgotten completely, the world has also been quite happy in imagining 45 for the Nymex Light crude is also not going to hold, oil will be free some day very soon.

Anatoly Veltman writes: 

The article is (surprisingly) erudite: commercials are mean-reversion, while small specs are trend followers. This always explains increased commercial Long after decline, and diminished small spec Long. Not really predictive, except if you believe in mean reversion anyway…

The only COT-specific signals are in fact trend-following, and occur rarely: divergence. Divergence is one situation only: when commercials have NOT countered the move. Recent move was down, and if commercials have NOT increased Long, then it would be a rare signal "to sell!". But, of course, no signal right now. If Gold embarks on long rally, and commercials will NOT sell into it - there will be "buy!" signal.

All other COT interpretations are coincidental or superficial. Commercials should not be followed because "they know better"; but following them is safer because "they don't care", i.e. will not be force-liquidated! (It did happen to them twice in 35 years: during Hunt silver corner in 1980, and during Ashanti failed financing in 1999).



 Every kid in college in Mumbai, who is either paying for fees by loan or by leaning on parents, has an iPhone on hand.

Has the 'me too' club become full or are there more pockets for Apple Inc. to keep taking out more dollars from still?

The phone heats up. Accessories pucker. You can't upgrade the memory. There is more loss per phone per dollar in Apple than Android etc. etc.

In 2009, if you didn't have a blackberry or two you were not good enough. In 2014 if a college kid doesnt have an iphone he is not good enough.

What is the thing for 2019? I want to buy the stock of the company that would put a 'me too' in the hands of every college kid in Mumbai in 2019, by next year.



 One of the most frustrating things in trading is when you research a (qualitative, not a systematic) trade, stay up late figuring out how you want to express the idea to maximize gain and minimize loss, and then the next day when you want to put on the trade that stock is up near 3%.   

Considering it has done nothing for months you figure, "I will wait till to buy on a decline a bit lower".  Then the next day you see it is up 8% and the options you had looked at were would be up 60% in a few days had you conceived of the idea just 1 day sooner. 

I think at such times (similar things have happened to me 3 times so far this year) one is very prone to going on tilt, such as finding some other market to chase, or otherwise do something out of frustration that is not logical and end up losing what you would have made had you been one day sooner.   

I am wondering if there is any way this sequence of events can be generalized beyond specific circumstances of one trader, to general market phenomenon, maybe even events that lead to predictable circumstances.

Jeff Watson writes: 

Whenever I go surfing, I miss a lot of good waves. I either am in a wrong position, miss it completely, or just blow it off thinking a better one will be behind. I never feel bad about missing a wave because there will always be another wave sooner or later. I look at trading exactly the same way I look at surfing.

John Floyd writes: 

Agreed, put another way as someone once said to me “there is a bus every 5 minutes”.  Also importantly in terms of the limits of time and energy don’t spend it worrying about missed moves, focus on what is ahead.  

I read a poignant quote recently in The Joyful Athlete: ”Second tier athletes tended to beat themselves up for mistakes, while the champions simply noted their errors and moved on, wasting no energy on self-recrimination.” 

Stefan Jovanovich writes: 

I have the same problem. Sometimes I wait on a trade too. I think it is greed, the desire to seize the least/highest perfect. So I remember: "Luke, trust your instincts!"

Anonymous writes: 

I strenuously disagree with the philosophy that "there is a bus every five minutes." (My late great father used to say, "there's always another street car.")
This is a rationally flawed analysis. Because it treats an opportunity cost as economically different from a realized cost.  The reality is that the P&L from an opportunity cost is real, and it compounds over time. And this is true so long as one is consistent regarding timeframe, methodology and performance benchmarking. The most pernicious thing about this street car delusion is that it can be hidden,  rationalized and forgotten.
By way of example, our fellow Spec Lister and Bitcoin Booster, Henrik Andersson declared on March 12: "Crashing commodity prices, currency war, crashing yields (with a big chunk of European debt trading at negative yield), surely this can't be because everything is so rosy in the world, this cant possibly be 'good' news. Couple this valuations close to ATH  and I have for the first time in 25 years sold everything (I started investing when I was 12). Everything." 

Since this declaration, the SPX, Dax and Nikkei have all risen between 3 and 6% — and the DAX is at an all time high.  If Henrik measures his performance on a daily or weekly basis, this is a bona fide opportunity loss of substantial note. But if Henrik measures his performance on a long term, multi-year basis, it is way too early to render a verdict and this opportunity cost may well morph into an opportunity gain.

John Floyd comments:

Point well taken and a good one. I was afraid my quick comment might garner the need for elaboration.   The point I was trying to make is if you “miss” a trade you should learn from the experience and move on, while trying not to repeat the same error in the future. Juxtaposed against expending energy lamenting the perceived lost opportunity, which also has a cost. Assuming this is done with some degree of improvement I think it is both rational and sound.  In this way the opportunity cost is treated as real and minimized over time. If there is improvement made then returns are compounded in a positive fashion as opposed to a pernicious one.  In anonymous’ example that might even mean Henrik recognizes what may or may not have been an incorrect thesis and “buys” everything the minute he read anonymous’ post.  

Sushil Kedia writes: 

My two cents on the table:

Opportunity costs as well as realized costs are both known and quantifiable only after the market has moved. At the instant of a decision as to whether to decide to take a trade or not, both are unknown.

Since a real P&L is a progression of a series of unknown infinitesimally sized but infinite number of moments, it is likely a flawed debate to undertake whether or not opportunity costs compound, since if those said opportunity costs actually turned out to be realized losses they too would compound.

Transliterating approximately what the Senator has said often in the past, the purpose of a trader is not to be in the market, but to come out of the market, one would like to tune one's mind to focusing on how much could one gain without losing beyond a point. For each this is a unique set of numbers despite the market being same for all. This uniqueness comes not only from different skills, but different restrictions on the types of trade one is allowed to take, the different marketing pitch each has to use for garnering risk capital (oh we keep transaction costs low), the different risk tolerances each must remain within etc. etc.

So each needs to focus on how one will travel from an infinite series of infinitesimally small pockets of time in deciding when to not decide. 

Paolo Pezzutti writes: 

With regards to missed opportunities, I have two observations.

Firstly, I think our mind is biased in focusing on the good trades that one could have made. We tend to forget the bad calls. It is true, however, that if your trading methodology is systematically not "efficient" then your performance will eventually be sub par.

Secondly, if you continue to miss opportunities, you may have an issue in pulling the trigger when it is the right time to do it. I have a long way to go to improve my trading and I think I have to work on both these areas. My trades are inefficient, because I can spot good entry points but my exits too often get only crumbles that the market mistress is willing to leave on the floor after a lavish dinner. Moreover, one tends to be afraid of taking the trade right when the risk/reward is more convenient, that is when fear is the prevalent sentiment in the market, the moment when you should "embrace you fears" as Larry Williams would say.

As a final comment, I have to commend the market mistress for her naughtiness and deceitfulness. The employment report on Good Friday released with markets closed saw prices of stocks plunge seriously (20 pts in 1 hour) to get 30 pts back on Monday.  Many opportunities during the Easter weekend in stocks, bonds, currencies, commodities because of ephemeral end deceptive moves. Who knows if they were orchestrated or simply "random". 

I went short gold on Thursday at the close (1715) at 1202.6. The first price  printed on Monday was 1212.7. I eventually took a loss later that day of about 14 points. After 2 days gold was down at 1994. Focused on my potential loss, I did not exploit the huge opportunities offered. Afraid of even bigger losses, I liquidated my position instead of trying to close the big gap printed at the open. Moreover, I did not buy stocks or bonds to trade the obvious lobagola move. Double damage.

It is a matter of mindset.  There are coincidences, situations; there is the ability of a trader to translate into action tests, statistics related to these conditions created by the market mistress. The more extreme the conditions, the more compressed is the coil, stronger and more powerful it will be the reaction in the opposite direction. Much to learn.

Duncan Coker writes: 

I have always had a hard time reconciling opportunity costs/gains with realized costs/gains, though I know in economics they are comparable. For example, a casual friend offered me a private investment opportunity which didn't smell quite right and I declined and I left the money in cash earning -1% real rates. Shortly thereafter the enterprise went bankrupt and all would have been lost. I suppose on an opportunity basis it was a huge success for me, 100% gainer, and yet my cash account is the same earning -1%. Every day trading is a missed opportunity to be fishing on a nearby river which is easier for me to grasp and adds to the overall cost of the trading endeavor. Being able to forget and move on is a useful thing in trading. A swim or run at the end of the day does it for me.

anonymous writes: 

I do believe one can go broke from taking profits. Maybe if one has very few positions at a time this could take a while to notice (the benefit to marketing a long term strategy of any sort– few observations) but everyone will fail.

Think of football, a defense might determine that if they can hold the other team to 17 points that they have won their part. What if the offense deploys their secondary after 14 points? May your successes be larger than your defeats.

We are playing an unbounded game, we have no idea the amplitude of future gains or losses, let alone their frequency. Taking profit when unwarranted may not give us a chance at tomorrow.

As for opportunity, we all balance the fear of missed opportunity with the fear of loss. The more successful traders I've known are slightly more fearful of leaving money on the table than losing money. Slightly.

But that depends on the difference between the value and utility of the opportunity. Duncan, you bring up the ultimate question about the purpose of life. Way to make this a deep conversation.



Many thanks for indulging my post.

Allow me to stretch some thoughts on Reality & its Perception.

Say, a star is said to be 4 light years away from us. If it is assumed for a moment that, it would be possible to travel at the speed of light or slightly less than the speed of light at some point in the coming future, then too it will take one to reach that star a little more than 4 years. To know the reality of the star for sure, one would thus be separated from its reality by the distance and the limitation on the velocity of cognition. One will therefore know only much later after the star ceases to be in existence when it so happens. Without the assumption of the travel at the velocity of light, all minds — scientific or otherwise — are limited by a fact that for an entire 4 years all could be only perceiving a star to exist that has actually ceased.

Same way, for any other observation of reality, there are perceptive limitations. Limitations brought about by the limited availability of tools of observations and the necessary and unavoidable lag on the one hand and limitations brought about by impositions of our unique minds (that are self organizing pattern seeking systems) on the other hand.

As economic agents, we are not required to and are often unable to work on the challenges of improving up on the available tools of observations. But as economic agents we are required to and all the time observe with the limited tools. We have a freedom to overcome our minds or succumb to them. Traders are those who overcome the mind. The rest are merchants, sales-traders, sales persons, research analysts, strategists. Each of the other agents in the financial markets is allowed to and encouraged to exist in their respective ivory towers of imagination, self-justified values and beliefs. Traders are neither allowed to exist in ivory towers nor do they choose to live there. Traders respect markets more than any other agent and the maximum weightage they attach to any inputs are the inputs provided by the behaviour / activities of the markets. In this simpler sense, traders are the ones who observe markets closest to the purest state of observation, while all others evaluate markets from their perceptive screens.

This connects the dots well with the idea that traders thrive and not just survive the intense frequency of feedback that markets produce. Those others farther down the perceptive efficiency chain (the food chain), ignore a lot of signals of the markets that are eeking red lights at them, since those others choose to not handle the intense feedback mechanism. This is true, according to my "mind", of any participants on any frequency / time horizon in the markets.

Traders, in fewer words, act spontaneously along with the market. All others act after imposing their beliefs. Some continue to live in Abelsonian denial.



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

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

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

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

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

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



Ed Dunne was an endless number of different people for the endless number of different people in this world. Appropriate to each and appropriate for every occasion.

My initial year on the list led me to a feeling that he is a Samurai, ever ready for a battle with a massive sword, on any idea that touches speculation remotely. As I got to eventually know him somewhat closer, I realized he was an even greater Monk ready to give as well.

Full of wisdom, his fatherly advice was encouraging, realistic and purposeful.

I will recount just one anecdote, how he always set examples for one to emulate:

The first and the only time I met him in person was in the summer of 2011. I was packing my bags from a hotel off Wall Street to leave for India and meet with Ed Dunne for an hour before I set out to the airport. I was expecting a man in his 30s with the body of a baseball player.

He walked in to the Hotel Lobby and I found a man with the body of a baseball player at 70 perhaps. Yet, the same energy, the same vibrancy as he always emanated on our Googletalk chats (he used to love offering as gifts free accounts on to everyone), phone calls and emails was radiating.

During this meet-up I realized he personally drove down 200 miles as his scheduled car pick up failed on him. He didn't want me to go back disappointed without meeting with him and kept his word.

While he appeared to have very strong views against any specific persons, it was to my mind his penchant for just skimming the truth. He always loved you. Even during the days that it seemed you and he are at odds, he would be ready to gnaw the flesh out of any face that may even begin to utter anything unseemly. Yes, I knew it from the very moment he has immense love and respect for you. When he one day asked me about you, I hesitated at first and then eventually told him, "When two big boys appear to be at odds on the school soccer field, stay apart has been my mantra since eventually the two big boys are the two big boys." He fumed back, " you are too smart" and then after a pause recounted endless stories of your and his camaradries and how you both went out of your ways to care for each other over a long time.

How will I ever find anyone who can take his place?

- Sushil



 Bio-feedback is a science that is around for sometime already. A computer game where no inputs are possible from the keyboard, mouse or any such human input device, but where a set of sensors measure the galvanic current on the skin of your fingers to estimate your mind-state is what Wild Divine offers.

I had bought this close to five years ago and gave to my daughters. They did play it sometimes. Discovered it in recent months again from their closet of abandon toys from "junior years" & began fiddling with it. Results are amazing.

I find this a constructive use of time, unlike the broad spectrum of other computer games. The only situation in which I could really observe my own emotions and had to practise rousing specific emotions to solve specific situations to meet game requirements.

If life too is a game and where deploying my emotions rather than succumbing to them is key, this package is a good beginning for taking such an approach to life.

Try it. There are delights to savour even purely from the perspective of refining one's cognitive skills.

DISCLAIMER: I otherwise do not like the soup of big words that one of the pop-philosophy Gurus behind this project, Deepak Chopra, spews. Yet a decent working invention of bio-feedback relevant for a trader who is nothing but a pure mind-worker.



The Path of Least Resistance seems to be an oxymoronic idea if not an irresponsible usage of words. Any meme, theme, passion, fashion that has the least resistance has already come to the point of expiration on the philosophy of ever changing cycles.

An idea that has the least acceptance will be the one that will find the most universal supply favouring those who have accepted it. This excessive supply or liquidity from disbelievers is what compensates the minority or rare thinkers and doers. Any idea that has least resistance will suffer from universal demand. If say an ongoing meme is downwards movement (for whatsoever reasons) then there are more put buyers than writers, there is more size at the ask than at the bid etc. etc.

Similar holds true for other data that indicate mind of the market. For example a rising volume or a rising open interest is a reflection of rising struggle for the discovery of price and thus for the acceptance of the meme.

Again, I do run the risk of ending up construing meaning of words inappropriately in my mind. Rather than trying to rest the case on the table, I seek from the erudite why is the phrase "Path of Least Resistance" in such vogue? What does the Path of Least Resistance really mean?

Jeff Sasmor writes: 

Sushil was asking, what does the Path of Least Resistance really mean?

In electrical engineering terms, and when there are multiple paths with differing ohmic resistances, linearly proportionally more current will flow in paths with lower ohmic resistances. However, that's strictly true only for a DC circuit.

If you're talking about markets and money flows it might be more apropos to think about AC circuits with their complex impedances. In this sense, current flow is dependent on the *frequency* of *both* the voltage and the current. Further, the currents themselves create magnetic fields which have their own time-variant effects on the flows. Talk about flexionic!



The total risk in a trade can be deconstructed as the sum of market risk, process risk and idiosyncratic risk wherein each risk element originates respectively from the trade, the process of trading, and from the trader. This is akin to the idea that any observation has only a partial perspective if the focus is only on the observed. A complete perspective will incorporate the observation process as well as the observer.

The same trade of entry in to an X quantity at a Y Price with an exit at Z price when undertaken by any two different traders or by the same trader through any two different trading infrastructure has different risks.

Given, estimations of probability distributions for process risk are similar to those used in operational risk and are less easily believable and the distribution for idiosyncratic risk close to being conjectural / randomness, most of the time any discourse on risk amongst traders ends up focusing only on price or market risk.

Is systematic trading the answer to eliminating idiosyncratic risks borne out of the trader? Can the total amount of risk be reduced for the same expected return level or one is only modifying the type of risk from idiosyncratic to a larger process risk? Or is it that systematic trading trims down both the left as well as the right tails of returns distributions?

This thinking can be tautomerised to ask a deeper question: Is there ever a reduction in risk feasible or it is always a modification of the type of risk? If a money management overlay, whether self-monitored by a stand-alone trader or by an elaborate risk-management department, is eliminating the idiosyncratic risk borne out of a trader in discretionary trading approaches, is there an advantage that while the left tail is aimed to be trimmed the right tail is left intact? If total risk never changes, is there an unaccounted for expansion of process risk that the risk management systems will end up following the Peter Principle?

While good risk taking is what analysts, strategists and commentators also do as traders do, it is the skill at avoiding bad risk taking or winding up a risk-exposure that is going bad that separates traders from all other market-citizens.

While all bad risk taking can be avoided by actually doing nothing and holding on to the theoretical cash, the moment one begins to even trying good risk taking, the skills at avoiding bad risk taking must come along.

Finally for now, if the value of risk at a moment is unique to each individual, firm, system, approach yet its historical value (focusing only on the market risk as explained earlier) common for all does it all boil down to "to each his own"? The right combination of good risk taking skills and avoiding bad risk taking skills is then as idiosyncratic as each trader is?



 Dear Muskaan,

Daddy is proud, despite his strong belief in the value of humility, at your fantabulous accomplishment.

At this school leaving examination, which also happens to be the first public examination you have taken in your life & conducted by the Indian Council of Secondary Education, you have accomplished what none so far have in your gerontocracy. Your score on each of the subjects is higher, into the high 90s, than your father could achieve or his forefathers could. Well surely you indeed have also scored higher than any other student in your school.

Soon as the results sprung out on the internet, all over the country there was a frenzy of several million test-takers discussing their accomplishments with their peers. Yet within such a busy patch of time, even as a budding teenager, you have been resplendent in speaking to me for such a length of time, even if in five pieces of conversations. This assures me, your values are deeply family driven. The simplicity with which you can internalize a big moment deserving a big celebration as this was proven yet again, when you chose to order Pizza from Dominos and savour your victory just with your family. This is touching.

Yet, as you step forward further to be much more on your own, the value of networking and connecting can hardly ever be over-emphasized. Education and performance at exams are often solitary sojourns, wherein a good student puts in endlessly long hours working on her own abilities. Wisdom however, will be in being able to apply it. The more adept you hereon become in connecting and building on your rapport with everyone, the more you will be able to utilize your learnings.

Your leanings towards numbers is apparent right from your early schooling days wherein you scored a perfect 100 in maths and high 90s in science subjects many times through years. Yet, at this key public examination, I am gratified to note, that you have done equally well in languages. The power to express is definitely as important as the power to ideate, visualize, observe, calculate, infer and deduce. The big difference between those who end up spending their entire life-times in laboratories and those who create products that fill up stores worldwide with customers is their ability to take their work to masses. I urge you to keep growing your repertoire of expressions, vocabularies, diction etc. throughout your life. Not only for enriching your ability at communications, but also for the fact that literature is the mirror of society, do invent some time to read some of the finer classics. I also urge you to begin reading Ayn Rand with a goal of triggering your own thoughts around her ideas. Yes, you got it right that while you have been progressing well on Java, C++ etc. etc. you must not lose out to any other on your ability at the old world languages as English and Hindi.

Since you do have a clear focus to put in your entire might into seeking an admission to the top Engineering Colleges in the country couple of years down the line, I will share a few recommendations of some of the finest books from an era gone by long ago and yet these are still likely the best.

To master Differential & Integral Calculus, hunt down the two volume compendium by N. Piskunov that was originally published by Mir Publishers but now out of print. An amble around the old and used book-stores markets to ferret out such jewels is yet another indulgence an erudite person must begin to savour. Over the years, the nourishment your soul may find in the company of old and difficult to find books, will surely drive your passions to be not just a good but a great learner.

To get an in-depth grip on High School and beyond Physics locate the book by Resnick & Heliday. It may subsume your mind, but it surely is worth it to create a solid foundation that will last with you.

Yet another out of print book, but surely a master-piece on Organic Chemistry was written by I M Finar. Locate it.

While you delve deep into grasping concepts, you must recognize that it is practice and practice alone that makes not just men but women as well perfect. Solve as many computations as you can each day. Go down to the steps where you went wrong and it at these steps you will iron out the wrinkles in the crevices of your sub-conscious mind so that your thinking processes are evolved through this humbling process of knowing where do you err, in advance.

An old world saying, that a good mind lives in a good body. So, I am sure you will be keeping an even focus on keeping building a good health. Yet, with the evolution through my and your generation, it may be apt to believe that a good mind and a good body are held together by a great personality. So, somehow do find the time to indulge in competitive activity on the stage (in college) and surely at the sports-field.

Lastly, yet most importantly, I gave you the name Muskaan. Your name derives from the Urdu word that means a beautiful smile. Over these years, trust me, not just because your are my daughter, I have and others have felt you have been gifted with a smile that is rare. Yet, in the recent several months in the run up to your exams perhaps, there is a recurring frown on your forehead way more than your magnetic smile. Please learn right away, early enough in life, that consistent and sustained achievement is seldom feasible while existing at extremes. The concept of optimality applies to every human endeavour. In any case, the goal of life is the pursuit of happiness and to lose your miraculous smile for sub-goals of life is something I will want you to avoid. The same way that you balanced your achievements across languages and numerical subjects, I wish for you, that you achieve a life where work and play are so finely inter-woven that each journey of achievement is as much a joy for you as each milestone will bring.

While your immediate goal and focus for the next two years is the Engineering College Entrance test in India, which without an argument is the most competed for exam in the world, since God made too many of us in this part of the world, I need you to study Statistics and at least one human science at an appropriate time. Even while the study of natural sciences is so much complete in itself, each of us will use our abilities within the human dilemmas. What can be cognized by man is what truth is. Everything else is within the domain of postulates. So the approximations and the imperfections, that create all the opportunities, must be studied well too.

The first time ever someone's eldest child writes a public examination and beats daddy in each and every subject is a joy that comes to only some. What a bliss you have brought me. Hereon, while you keep beating me in every next exam you write, I need you to know, you will create a happiness multiplier function, should you achieve with elan, grace, happiness and health.

Here's to my rock-star, a big congratulations! Keep moving forward, with your focus, zeal and hard work and yet do it with happiness, health and a continuously growing personage.

An amazed father!



If Round Numbers, perhaps because they are the easiest multiples of other numbers, attract attention and thereby either a struggle or a release of pent up tension occurs around them, then the antithesis of a round number may likely be a prime number.

Do markets move past prime numbers with least activity/least resistance? If that is so, there should be evidence that the often talked about supports or resistances are observed to occur much less frequently around such numbers than may be in a consistent with randomness world.

If the numbers are a human invention (the choice of the base that all of us stick to is surely a convention, since the mathematics of the universe still remain the same whichever base of numbers any may choose), due to which variable behaviour around different types of numbers observed in prices may only be explainable, then such behaviour may be observable in time too and not just prices.

Perhaps the Senator has studied behaviour of markets through prime numbered years? Perhaps Kora may quickly run through his numbers cannons a study on prime numbered trading days from the lowest low in the last century?

Do markets move more than consistent with randomness or less around prime numbered prices? Similarly do markets move or less than consistent with randomness in prime numbered price bars?



 Risk facilitates exchange and all prospects of any gains arise from change. If there was no room for any uncertainty or risk, then no exchange would ever occur. In a risk-free world if a decline is guaranteed no one will buy and if a rise is guaranteed to happen no one will sell. Thus no one will be able to gain even if it was guaranteed that a fall or a rise is going to come, due to absence of any exchange.

Therefore, those who are ready to lose only have a prospect of winning.

How much is one entitled to lose is something each must assess, on a single trade, in a single period of time, in a single window of measurement etc.

Yet most end up focusing on forecasting. Now forecasting to my mind is nothing but studied imagination of the future refined with the help of analysing the past. It is this nature of forecasting, that there is imagination involved not foreknowledge prepares one to accept existence of risk and the need to manage it.

Whether one uses tea-leaves or frequency-leaf-diagrams, it therefore is critical to practice your chosen form of art or science with humility.

If anyone believes humility is the most powerful currency to prevent the market-mistress from collecting a toll larger than you should pay, then there is respect for risk. If there is any other who refuses to respect risk, the mistress then clearly finds a gaping hole in such personae to serve humiliation.



I surmise, for the New Year, that this year shall be:

1. much more kind to the permabears in equities,
2. much more kind to the wounded Gold Bugs
3. more kind to the Greenback
4. an affirmation of Labogalas, almost everywhere
5. definitive in affirming the permanent value of humility & establishing the evidence that complacence suffers.

What are the surmises of Daily Spec readers?



 Driving on my way back from work, at a traffic signal just at the boundary of the business district in Mumbai, it struck me that each and every advertisement is for swank, upmarket housing. The only other billboard was from a bank offering housing loans at "attractive" rates.

With realty stocks at all time lows in India, one wonders if such advertising is a sign of the coming crash in realty prices or the bankruptcies in the debt-laden realty sector companies or both?

What kind of signs have investors noticed in other economies in the world before realty bottomed out or the realty stocks bottomed out?



 I got a call today, wherein a large bull in India was quoted saying, "Victor Niederhoffer has written in his book, the best time to buy stocks is when brokerages are shutting down."

I tried recalling where the chair wrote that.

I assumed he has been quoted correctly, my conundrum is:

Indian equity indices are whiskers away from all time highs, that were seen five years ago. In between in 2011 too a re-test of the all time high had happened and marked dived 30% from there.

While retail brokerages are shutting down en-masse near the highs, domestic mutual fund AUMs have shrunk a tad with hardly any new net in-flows, Foreign Institutional Investors are net buyers.

A further divide on the conundrum:

Individual local investors are in despondency, on one hand. Institutional Global Investors are described in every segment of the market food chain as being complacent at the near high levels with such global & local macro concerns.

Descriptive sentiments are thus split wide open vertically between Individual / Retail/ Local despondency & institutional complacency.

Which way to tip the hat?



 This chart is interesting. It comes from a passionate market historian, Robert Prechter and his Elliott Wave group.

However, I disagree with it. A local maximum in interest rates is established only after they peak out somewhere and start declining again. So this illustrious list of busts and crises is not happening during the spike, but at its end.

A classical cart and horse problem. Framing Bias will make it appear that each time a spike in interest rates happened a crisis happened. The reality is likelier that each time a crisis could no longer be shoved under the carpet, when the economy could not sustain playing on the house money, when the illusory money effect succumbed to gravitational pull of reality, when the epidemic effect of the meme played out the asymptotic end of the S-curve, no one was willing to pay more for using Other People's Money (OPM). Interest rates are a willingness of people to undertake risk. Yet when this willingness becomes a larger risk than the aboriginal risk, a crisis comes.

Also, in the customs I learned on this list, there is always a chance that endless other financial crises have come along the curve too. Not sure, just checking with the specs which other key crises have happened at the troughs of interest rate cycles? Have there been any or as many?

Steve Ellison writes:

Yes, there is always bad news around, and any number of events could have been annotated at the low points on the chart, too.

Here is an example
I posted on the site in 2005.

One of my prized possessions is a chart of stock market returns in Venita Van Caspel's book "The Power of Money Dynamics." Each year is annotated with a reason to have been bearish that year:

1934: Depression
1935: Civil war in Spain
1936: Economy still struggling
1937: Recession
1938: War clouds gather
1939: War in Europe
1940: France falls
1941: Pearl Harbor
1942: Wartime price controls
1943: Industry mobilizes
1944: Consumer goods shortages
1945: Post-war recession predicted
1946: Dow tops 200 - market "too high"
1947: Cold war begins
1948: Berlin blockade
1949: Russia explodes A-bomb
1950: Korean war
1951: Excess profits tax
1952: U.S. seizes steel mills
1953: Russia explodes H-bomb
1954: Dow tops 300 - market "too high"
1955: Eisenhower illness
1956: Suez crisis
1957: Russia launches Sputnik
1958: Recession
1959: Castro seizes power in Cuba
1960: Russians down U-2 plane
1961: Berlin Wall erected
1962: Cuban missile crisis
1963: Kennedy assassinated
1964: Gulf of Tonkin
1965: Civil rights marches
1966: Vietnam war escalates
1967: Newark race riots
1968: USS Pueblo seized
1969: Money tightens; market falls
1970: Cambodia invaded; war spreads
1971: Wage-price freeze
1972: Largest U.S. trade deficit in history
1973: Energy crisis
1974: Steepest market drop in four decades
1975: Clouded economic prospects
1976: Economic recover slows
1977: Market slumps
1978: Interest rates rise
1979: Oil prices skyrocket
1980: Interest rates at all-time highs
1981: Steep recession begins

(Van Caspel, 1983, pp. 124-125)

Unfortunately, I have the 1983 edition, so the chart ends there.

A modest attempt to bring the record up to date:

1982: Double-digit unemployment
1983: Record budget deficit
1984: Technology new issues bubble bursts
1985: Dollar too strong
1986: Dow at 1800 - "too high"
1987: Stock market crash
1988: Worst drought in 50 years
1989: Savings & loan scandal
1990: Iraq invades Kuwait
1991: Recession
1992: Record budget deficit
1993: Clinton health care plan
1994: Rising interest rates
1995: Dollar at historic lows
1996: Greenspan "irrational exuberance" speech
1997: Asian markets collapse
1998: Long Term Capital collapses
1999: Y2K problem
2000: Dot-com stocks plunge
2001: Terrorist attacks
2002: Corporate scandals
2003: Gulf War II
2004: High oil prices
2005: Trade deficit



Is this the next credit crisis? An interesting picture by Zerohedge.

He has picked it off a Goldman report, which collected data from world bank.

Is it quantifiable?



Aversion to losses or aversion to risk? Which of the two is addressed by willingness and ability to close out losing trades?

Well, without invoking mathematics where it is not necessary, it is common and logical to place on the table that when a losing trade is closed one has the willingness and aversion to the risk of the persistence of loss becoming into a bigger one and one does not have aversion to the present level of loss in being accepted.

Now on the other hand, unwillingness to stop out a losing trade is indeed loss aversion.

The computations that show that having utilized some sort of mechanical rules for stopping out adverse incursions actually increased the probability of meeting with adverse incursions is totally flawed abuse of statistics.

Several arguments:

1) Historical data analysis does not undertake the "uncertainty at a given moment to decide upon" into account and is definitely incorporating hindsight 20:20 vision mind-set.

2) Any measurements of uncertainty and thus risk are never definite, since measurement of uncertainty too will be having an uncertainty of its own. So a trader in the middle of a losing trade has to decide that the level of uncertainty in his method, mind or cognition regarding the calculation of the "value of uncertainty" in his trade has become too high for him to handle. That's where humility, the currency that prevents others from profiting more from your mistake, can come into play and allow the willingness to hit the stop.

3) However, when either with or without the illusions of statistical computations of stop losses increasing the probability of meeting with more losing trades, one fails to control the human weakness of loss aversion, to somehow and anyhow turn that loss into a profit, one is becoming totally risk-insensitive. From skill, the turf changes to the power of prayer. The game begins to change from action to hope. Inconsistency of thoughts thus turns one into a trader who is continuing to hold on to risk without a mental apparatus to assess it or react to it. As the loss continues to grow not only the lack of willingness to take it hurts, the ability to accept the increasingly bigger loss also dwindles rapidly.

I am ready to be thrown before any firing squads of mathematical minds and ideas on this list if they can with or without numbers help me learn how come this list celebrates and cherishes a human value of humility and yet indulges in an idea that staying on in a trade that has incurred a level of loss greater than anticipated when the trade was opened are mutually consistent.

I would close my submission for now with one thought:

When loss aversion creeps in it makes a decision system (mind) risk-insensitive and with no respect for risk, returns are impossible. Yet, if a mind continues to be risk-averse it does not have loss-insensitivity and in humility such a mind closes out risk that has turned out to be less than comprehensible.

Phil McDonnell responds: 

Since I am the well known culprit I shall give Mr. Kedia a reply. If the probability of a decline art the end of a period of time equal to your stop is p then the probability of losing the stop amount with a stop loss strategy is 2 * p. It is simply a derived relationship. It is what it is.

It is not a misuse of statistics but rather a description of how a stop loss exit strategy will change the distribution of returns. Larry Connors studied over 200,000 trades from a winning system and compared the results with and without stops. He found the use of stops increased the probability of loss and reduced the expected gain.

In my opinion the best way to trade is to reduce position size so that no one loss hurts your account too badly. That means many small positions to me.

Larry Williams adds:

Ahhh here I go off on a rant; please excuse a tired old mans bitterness at system vendors who claim stops hurt performance.

Yes, they are correct in that the statistics of your system will look better if one) you don't use a stop and two) your use a market with a perpetual upward bias like the stock indexes have been, usually.

They are absolutely totally incorrect in terms of living the life of a trader. So what if I am long in a position that eventually shows a profit but because I did not have a stop loss that one trade moved against be 20,000 or $30,000 and it took a year or so to get out of? Yeah, the numbers look good (high accuracy) with no stops but it's one hell of a lifestyle.

High accuracy is a false God.

Consistency and never being in a place where you can get killed is more critical. Perhaps Mr. Connors has never sat through the reality of a large loss, especially in a large position. I have; I would rather battle the devil at midnight on a new moon with both hands tied behind my back.

It's one thing to have a system with "good numbers" it is quite another thing to be a trader and have to deal with reality.

It only takes one bullet in the chamber to kill you when playing Russian roulette. As near as I can tell trading without any stops, in any way whatsoever, is just the American version of this form of spinning the wheel.

Play the game as you wish but please heed the warnings of an old man.

Leo Jia adds: 

I have been studying the use of stops. Due to loss aversion I guess, I would like to use narrow stops. But among the various strategies I have yet found one working well with narrow stops. Good stops have to be relatively wide in my cases, but having no stops or stops that are too wide clearly hurts results (my trades are time limited). So a good choice for me is to size the position according to the stop size.

Sushil Kedia writes: 

If you reduce position size can it be argued that a position of Size N reduces to N-n implies that you took a stop loss on n lots out of N you held. Then too, it validates the fact that you do take stops.

Anatoly Veltman writes: 

Larry covered main bases (different markets, different position sizes, different lifestyles) pretty well. I just want to be sure that reader doesn't end up with wrong impression. I think the best conclusion is "it depends".

And because my act follows Larry's (who is certainly biased in favor of stops), let me try this. If you enter based on value (which is certainly against trend), then there is no justification available for a stop. Unless you argue that this stop proves you were an idiot on the entry. But if you are an idiot on value entries, then why play value…

Anton Johnson writes: 

 The problem with using Conners' simulation as evidence that placing a trade stop-loss reduces returns is that he tested a winning system that likely had never experienced any 5-sigma negative excursions prior to the test date. And of course there are no guarantees that his strategy, or any unbounded trading strategy, will perpetually avoid massive drawdowns.

When implementing a strategic trade, a good compromise between profit maximization and loss mitigation can be achieved by balancing trade size along with a stop-loss, which when placed at a level that only an extreme event will trigger, will likely contain losses to a predetermined range, and also prevent getting stopped-out of a potential winner. If one is disciplined, maintaining a mental stop-loss level is preferable to an order pre-placed in the book, and available for all the bots to scan.

Larry Williams adds: 

But speaking of stops, I go back to my litany, my preaching the essential reason for never putting stops on an exchange server, or even your brokers server. Putting stops on servers means that your stop becomes part of the market. And not in a positive sort of way either. Pick a price, hit the button, and take the hit. Discipline is key here.

Ed Stewart writes: 

A trader needs a decision process for managing the expectation or expected value of the trade as well as the equity position. The problems occur when these two things are in conflict.

The thing with stops is that at times it makes no sense to get out of a trade when the expected value is still good. What is the difference between exiting at a small stop-loss point 4X in a row vs. one loss of that same size? Well, if at each "stop out" point the expected value was favorable, it makes no sense, one is just locking in losses. At times the best "next trade" is simply staying in the current trade.

However, I see Larry's point and it is a good one. Yet, the example of letting a loss get huge or holding an underwater position for a year is to me something of a false alternative. No exit strategy but hoping for a profit at some point is not a reasonable alternative.

What maters, I think, is the expected value of the trade at each moment, and balancing that against equity and a margin or error to ensure, "staying in the game".

Given this I always trade with mental stops, if not on individual positions, on total account equity. Having that "self-preservation" discipline is useful.

Jeff Watson writes: 

I learned very early on in the pit on how to go for the stops, and that weaned me off of stops completely (except in my head).



To add to an already long list of differences between broadly who a speculator may be and who a gambler may be: the successful speculator generally leans onto the side of chance but an unsuccessful gambler is seeking chance to lean on his side.

Countless differences may exist and can be cited between who a speculator is and who a gambler is. When we cut it slightly finer, there are enough similarities between an amateur speculator and an amateur gambler. Same way, there are enough similarities between a professional speculator and a professional gambler.

To seek a generally acceptable set of common characteristics between successful gamblers and successful speculators, I often listen to "The Gambler " by Kenny Rogers [Youtube link].



 There are some traders who make money based on news events. Please tell me how an analysis of the recent news could have been beneficial to traders who analyze news. The first reaction was a drop of 1 % in the last hour in S&P and a rise of a corresponding amount in gold. The reaction overnight was the opposite. Why was this news so bullish overnight? Is all news just an opportunity to do the opposite of the initial reaction? What do you think? Is there a systematic way to profit from news announcements? The 9-11 was not a temporary thing. Was that the clue?

Steve Ellison writes: 

I would hypothesize that any market reaction to a news event that triggers strong emotions should be faded because of the availability heuristic (people tend to give too much weight to dramatic but rare events).

I would also hypothesize that any market reaction to government statistics should be faded, since they have margins of error and are often significantly revised later. However, when I tested this proposition using the government report that routinely provokes strong market reactions, the monthly US unemployment report, it was not clear there was any edge to trading in the opposite direction of the S&P 500's move on the report day.

Jeff Watson writes: 

I generally don't fade USDA crop reports after they come out and grains are offered limit down. However, I've been known to buy wheat right at the top just before the report and have it go limit down on me. I hate that feeling as the noose tightens when the trapdoor opens. In fact that just happened to me on the last go-around.

Alston Mabry writes:

How do you test news events? First, you have to immediately and accurately evaluate what effect the event "should" have, ex ante. And then at some future point in time, compare the predicted to the actual effect the event "did" have, ex post. As there is no objective measure to use for the first step, you wind up simply testing whether or not you're any good at predicting the effects ex ante.

Steve Ellison writes: 

I tested using the following logic. If the absolute value of the change from Thursday's close to Friday's close on an unemployment reporting day was greater than the median of the absolute value of the daily change in the previous month, I assumed the market was reacting to the unemployment report and selected that day. For all the selected days, I backtested a one day trade entering at Friday's close and exiting at the next trading day's close, positioned in the opposite direction as Friday's net change. That is, if the net change on Friday was positive, the hypothetical trade was a short. The results were consistent with randomness.

Sushil Kedia writes: 

News is a rare commodity in today's world. We are inundated with broadcasts today. Any media missives that bring by a communication of fact and those amongst the fact-set that are beyond the expected may still have some market moving value. The durability of that fact or how out of line of anticipations it was may perhaps have some effect on how much and for how long the prevailing state of prices will be affected. Those broadcasts that provoke emotion are likely that are worth inspecting a fading trade. Whether news of war, crop-failures or any such genre' of information flows that produce an instant or moment of endocrinal rush.

The fine art of speculations rests on anticipations. Broadcasting media would never report what is coming to happen tomorrow, but only what may have (no guarantee that the broadcast is totally factual, since we have more "viewspapers" today than newspapers) already happened. Those who rely more on figuring out what they ought to anticipate on such resources are often the food for those who would rely on these broadcasts to figure out where the likely dead bodies will be buried. Price may not have all the information of what keeps happening every moment, but does have more information than any other resources of what is expected to happen.

Event Study Method may be a decent tool to evaluate the statistical behaviour of specific kind of events that occur repetitively with varying outcomes and of studying the repetitive actions of specific mouth-pieces than of studying erratic and randomly occurring news.

In a highly inter-connected markets' world and where the risk-free rate itself has a volatility the comforts of isolating non-random abnormal returns' evidence too is fraught with risks of playing on a frail advantage that keeps fluctuating in its expected value with ever-changing cycles if not fading away. Thus, it seems fair to me rather than an over-simplification that the most important factor for the next price is the price at this instant or any distant instant is the price at this moment and in the prior moments.

Rocky Humbert writes: 

I have one secret on this subject that I will share. Well, actually it was explained by Soros and Druck as the "Busted Thesis Rule." I think I've written about this previously on the Dailyspec.

If there is a news event that SHOULD BE unequivocal in it's meaning (i.e. bullish or bearish), and the market after a bit of time starts going in the opposite direction to the consensus meaning, then it's a wonderful opportunity to throw your beliefs out the window and go with the short-term direction. Many important big moves start this way. For example, XYZ is bullish news, yet the market after a little pop starts going down, down, down, …. don't fight it. Rather, "Sell Mortimer Sell!" P.S. I learned this lesson the hard way when Bell Atlantic made its ultimately ill-fated bid for TCOMA and Bell Atlantic's stock when straight up instead of what it "should" have done … which was go straight down. I won't describe the censure I received by my legendary boss at the time. Amusingly, neither of these companies still exist. Bell Atlantic became Nynex which became Verizon. And if memory serves me, TCOMA was bought by AT&T when they got into the cable tv business…

Gary Rogan writes: 

In a similar type of episode, when 3Com spun off 5% of Palm thus giving it a market valuation, and the resultant value of Palm significantly exceeded the value of 3Com that still owned 95% of Palm, this marked the end of the dotcom era.



 Pain is a subject with which traders are probably familiar. There is psychic pain and physical pain. The amount or intensity of both kinds of pain is not commensurate with the amount of the loss in all cases. There is not a direct correlation between the increasing amount of loss and the increase in the amount of pain. For example, the pain of losing 100,000 is not a hundred times the pain of losing $1000, and the pain does not increase in a linear fashion. The pain of losing a loved one is not 1000 times more painful than losing say $100,000. (multiply amounts for wealthy readers). The pain of a small burn can be as painful as a major illness.

The other curious thing about pain is that it ends and its hard to remember after its gone. Experiments have shown that in time people tend to revert to their mean disposition even after horrific personal losses. Some people can handle pain better than others or recover at different speeds. When one is tired, small things can feel more painful. Pain and sadness are closely related to anger. There are mental techniques to handle psychic pain and effective drugs to deaden physical pain. I suppose one could write a book on the subject.

Sushil Kedia adds: 

Pain is a signal to consciousness or to the mind to search for changing the situation. Those traders who are not experiencing pain up to a level of loss are "willing" to lose that much and will thus have lost that much.

Like all of our perceptions, pain too is relative and there is no absolute measure feasible such as the measurement of temperature. Varying wealth levels or varying risk perceptions will, for one example for traders, bring varying intensity, length or sensitivity to pain.

For another example, in a simple surge-protector the fuse is expected to blow up before "paining" the computer to a point that the computer blows up. Some traders believe their stop loss strategies akin to this surge protector. Others believe their computers can withstand any power-surge, by placing some probabilistic calculations that having a surge protector will increase the probability of a power surge. Different hourses, different courses.

Jeff Watson adds:

The real sad thing is that you can be 100% right and the mistress of the market won't stop flogging you. Need to have my head examined. 



 Tops happen on good news and when there are not many more fools left to buy. Likewise, bottoms happen on bad news and when there are not many fools left to sell. Old saying.

With a slew of goody goody numbers in the US also not pushing the "S&P 500 momentum" higher, if one tiny-in-comparison bit of bad news from Cyprus whose GDP is a fraction of the total global market capitalization causes concern, then I am inclined to tilt my hat to search for evidence that not many more fools are left to buy.

Short Interest in the US is at multiple year lows. Idiosyncratic demand would be low on declines. Is there a larger mess brewing pricewise?



Google+ is increasingly leaving one with a feeling that Late Mover Advantage can be as significant as the Early Mover Advantage. A lot of thoughtful work seems going into Google+ avoiding so many of the aches that a stand alone twitter or a stand alone Facebook may be giving. This one seems way more integrable into many things in the future, what with the android keeping growing.

I had been bearish on Google as a business earlier, based purely on my nationalistic sentiments of their display of different maps of India when viewed from different locations in the world. I need to look beyond my own sentiments and of course on a longer term business basis, this giant continues to display clairvoyance.

Yet, for a speculative mind, if indeed Late Mover Advantage can be significant, how does one profit systematically from ideas such as if a market takes much more time than other related markets to achieve a movement, is the adage delay is not denial become ever-more profitable? Is there a good way to identify how much bunching of a volatility or delay is a good trigger for firing in a trade?

David Lilienfeld writes: 

Microsoft has built a company around Late Movers Advantage–it's their business model. Google has not. The question that needs to be asked, I think, is how and when Google+ can be monetized. As I think most on this list serve know, I'm a skeptic about FB's ability to monetize the 900 million accounts it has. I am equally skeptical about Google+. So far as I can see, the only social media company which has successfully monetized its accounts is LinkedIn. Otherwise (and I know many will disagree), I think social media is the fad-du-jour, much as twitter was the fad-du-jour from a few years back .(Tim Melvin and I had a great correspondence about this when twitter first came in–we followed one another, and neither of us had any idea what it meant to do so!) Or Flickr. Or email (remember when Microsoft bought Hotmail for $400 million? Can someone explain to me how Microsoft has earned any sort of return on that $400 million? I don't think I would change one iota what I think of Google as an investment because of Google+ or anything else it does until it shows it can obtain some revenue from doing so. Otherwise, it's just a freebie, and it doesn't take much to get lots of people using a freebie. Especially since I think Congress is going to shut down the marketing data collection that FB and Acxiom are marketing. And if Congress doesn't act soon (and it's already moving in a bipartisan way to address such data collection), the EU will likely do so.

Bottom line: Where's the revenue? Show me the revenue. Otherwise, it's Larry and Sergei's excellent adventure.



 Is Profit an Event or a Process?

Is Loss an Event or a Process?

Is a Trade an Event or a Process?

Is Price an Event or a Process?

Is Chance an Event or a Process?

This list may become never ending. So let me begin with these only and seek answers to some equally important questions.

If these are processes then, what events are we experiencing ever?

If these are events, then seperatedness of any one type, with another event of the same type being time, is time a process?

So then observation being central to identifying an event, is time a process or is time an event?

If time is neither a process, nor an event, then what is time?



Keep it simple.
The Ideal seldom,
Presents itself,
All at once.

Sushil Kedia writes: 

My 2 cents:

1. A reward can only come from change.
2. Change, though is the only constant, its expectations are never across people or time.
3. Hence, uncertainty of change only allows for trade to occur. If all are certain ever of the amount and time required for change, prices will only jump and no trade will happen and hence no profits possible.
4. Risk thus is a twin-sister of rewards.
5. No Risk = No Reward.



 When, an expected reimbursement for profligate financial behavior to those going bankrupt is causing, a relief from tensions. Can this create wealth? Does it justify the dignity of human enterprise or perilously puts to a sad joke that every media outlet in the universe is singing of the dropping Manna from the skies. Why should the public be right in hoping that the loot will percolate down to it?

The most desperate bullish theses that one ever came across is that the bankrupts will not be allowed to go bankrupt and this somehow is good for everyone. Postponement of a reality check somehow will become a handle for tele-porting the world to well being and such other circuitous arguments are the mark of our times.

If today too, the last available losable dollar from the public's pocket that could take a bet does not, then when it will?



 Real interest rates are back near their recent record lows (5 year TIP= negative 1.2%; 10 Year TIP= negative 0.15%); and gold's recent behavior is once again consistent with these facts. Riddle me this, Batman:

If I buy a 5-year TIP at a negative 1.2% real yield, and hold it to maturity, that means I am certain to lose 1.2% of purchasing power over the next five years. BUT: Were I instead to short a 5-year TIP at a negative 1.2% yield, and hold the short to maturity, does that mean I am certain to make 1.2% of purchasing power over the next five years? And, how can BOTH of these statements be false?

Private riddle for The Chair:

What do Galton, Batman, and Robin have in common?

The Riddler's False Notion:

Robin: Holy molars! Am I ever glad I take good care of my teeth!

Batman: True. You owe your life to dental hygiene.

Sushil Kedia writes: 

Logic Riddle is a misnomer for what is truly a contradiction. The presentation has a contradiction. In life, in markets there are no contradictions. Allow me to quote Ayn Rand from the Atlas Shrugged, "If there is a contradiction, check your premise".

Rocky, your logic is based on inflation remaining what it is right now the same also during the maturity and at the point of maturity of the 5 year TIPS! Market is not pricing that! Market is pricing inflation will come down! That's all. Check the premise, there are no contradictions.

Purchasing Power is a good term to help create this contradiction. Purchasing power will be Cash in your hand on day of maturity Divided by (1+inflation)^5 if I take the Annualized realized inflation readings. Realized Inflation readings five years from now will be known only then.

Rocky Humbert responds: 

Dear MisterMeanor:

1. You should check your bloomberg before you check your premise. These bonds are trading above 105 in price (even forgetting about the inflation adjustment).

2. That means it's possible to have not only a negative REAL YIELD but it's also possible to have a negative NOMINAL RETURN! (So much for the risk-less treasury market.

3. Your definition of purchasing power is unusual. Purchasing power has absolutely nothing to do with the cash in your hand. It's WHAT YOU CAN BUY with the cash in your hand. (Stefan — please elucidate this point).

4. Your statement "Market is pricing inflation will come down! That's all. Check the premise, there are no contradictions" is 100% UPSIDE DOWN. There is little justification for locking in a negative 1.2% compounded real yield UNLESS you have no alternative investment that does better. You need an inflation assumption of RISING INFLATION not falling inflation due to the way these seasoned bonds behave.

I reckon, back of the envelope, north of 3.8% compounded CPI…. is required to have these TIPS beat the bullet 5 year … and even then you still lose 1.2% of purchasing power (compounded) per year. If you want to bet on disinflation/deflation, you would short these bonds at 105 with an inflation factor of 226/220 with abandon, and buy 5 year bullet bonds to term.

Batman just ended. The Flintstones are on now.

Charles Pennington writes: 

That's a very nice riddle.

These bonds trade dearly I think because there aren't many other competing foolproof CPI inflation hedges.

Obviously if you short the bonds AND hold the short sale proceeds in cash, you are at risk of losing money. You short $1 million in bonds and hold the $1 million proceeds in cash. The bonds could go up in nominal terms by a factor of ten to $10 million. Meanwhile your short sale proceeds sit there in cash, still just $1 million, and when you cover, you lose $9 million. That's a loss in any terms.

Of course, if you could use your short sale proceeds to buy something that tracks the CPI without the built-in "negative carry" that the TIPS have, then you'd have a perfect arbitrage. But such a thing doesn't exist.

(Does it?)

Tyler Mcclellan comments:

A 1 year bond is four three month bonds.

A three month bond is a treasury bill financeable for cash as legally defined by the government at the rate set by the federal reserve.

If ex ante you knew that rate, let's say it would be zero for the next year, then if the one year note traded at 1 percent, there would be risk free arbitrage in buying the note (because the note is defined as acceptable collateral to get cash without exception at the overnight rate, it is perpetually fungible).

But all of this is true because arbitrage needs a unit that you're left with at the end, say for example cash, to make the calc.

I will not solve the last part of your riddle yet Rocky.

Let me ask, can the fair value of cash, the unit of account in arbitrage, which is merely the desire to lend known resources today for unknown future wants x years from now, change?

I don't want to lend at these rates.

I'd rather just have the money in the bank.

But if you know the money in the bank is guaranteed to earn zero shouldn't you buy the bonds and finance them at zero?

And if you know that the nominal bond is priced on the arbitrage condition above, and you believe that inflation will be three percent,t hen if you short the bond and earn the overnight rate risk free, and buy the tip and pay the over night rate risk free,and you hold these positions to maturity, since they are both fungible for cash, then you are guaranteed to earn the difference between future CPI and the ex ante break-even, which is an unknown variable free to take any value.

If you had an opinion on the future rate of inflation you could express that view only because of the other variable being priced to remove arb.And the riddle you speak of which seems to be, why would you commit ex ante to a negative real return can be answered by saying arbitrage of the other instruments demands that only the break-even and not the real rate is solved for by the buyers and sellers in the tips market.

Then What is the real rate set by? That is a very tricky question. The answer is in the above, but not obviously.

Duncan Coker writes:

I believe selling the 5 year Tip and buying the 5 year bond would do better than 1.2% (anti negative real rate) and would actually capture the inflation rate of around 2%. Empirically if you convert them to zero coupon for calculations then sell the 5 year tip around 105, buy the 5 year bond at 95, this makes for a compounded return of around 2%, 10 profit, holding to maturing. But then again there is a reason I don't trade bonds much.

Michael Cohn comments:

 I think of tips only in term of the real yield. It would take a very unusual set of circumstances to get me excited about investing in a situation where I can earn a negative real return. These bonds, if I recall all have CPI floors built into them so persistent deflation while sapping a bond of its built in inflation accretion can't turn the redemption figure below par. Each bond has a different sensitivity to the built up inflation component depending upon when issued. This is because the bond pays the same real coupon and the principal balance is adjusted by prior CPI (riding on a train so can't look up)

Certainly these bonds are one of the only high quality ways to hedge inflation. There are a number of global ways to do this but France, etc. Have bigger issues.

So what can happen when you short one of these. I wonder for those who can obtain info what the cost to borrow for the short is here. Obviously the overnight reinvestment is not a plus here.

Seems like I should expect to earn the real yield in this case which is a depreciation toward par but what is my short cost?

Tyler McClellan responds:

 I set up my example clearly.

The reason the thirty year bond cannot be arbitraged to short term rates is very simple. There is no way to credibly make the claim that short term rates will be X for thirty years. There is no institution that can impose the stick. I put very little weight on all the other things. Its the fact that short terms rates could be radically different in the future that generates the volatility not the other way around. Long bonds are very convex and thus this is a major reason they should have a lower yield, offsetting the term premium.

Your examples about LTCM and MF Global are meaningless. Their assets were never fungible at 100 percent leverage for the overnight rate. The Fed conducts monetary policy by making cash and bonds of certain maturities exchangeable for each other at certain overnight rates. To compare this to MF global where the bonds are explicitly not instantaneously fungible with cash (euros) is very odd.

Your example about RV strategies in fixed income is a good counterpoint to the limits of arbitrage. I agree that a one year rate 29 years forward is not subject to the same laws of arbitrage as other instruments. This is for a simple reason. The one year rate 29 years forward is not something that is dynamically set in the market by participants trading until equilibrium. It is an artifice of other things that are traded in this manner and thus it "falls out" of other asset prices.

In general arbitrage is the mechanism by which the sum of views in the market derive their equilibrium condition. You have to have a variable that reflects some view for arbitrage to do heavy lifting. I cannot arbitrage a one day interest rate 17.75 years forward for the simple fact that there are no views on that variable and thus it is merely an artifice that arises from the ecology of the market.

As for mingling "real and nominal". You do not understand your own analysis. The market already believes that we will have about 2% inflation and is nonetheless holding cash at 0%. So the accepting of negative real returns ex ante exists in many markets as a necessary fall out of accepting other variable. To say that this comes from the TIPS market is strange. All the tips market does is allow people to have differing views on the future rate of inflation. Everything else is determined by much more liquid (and therefore likely to be subject to arbitrage pricing) markets.

You will get negative real returns (your vaunted guaranteed decline in real wealth (a phrase that I dont understand)) ex ante in either the nominal or the TIPS market. If you reread what you wrote, you will understand this has nothing to do with TIPS.

As for your last question. You already understand the answer rocky. You get more than PAR day one for being short the TIP.

If you

1) take all those proceeds and reinvest them at the fed fund rate at the future path

2) and if inflation is equal to the breakeven-rate

3) then you will lose the real value of the capital lent to you at exactly the same rate that the market says the real value of the capital lent to you must go down ex ante.

Put another way,


1) you must earn the nominal return priced in the market,
2) experience the inflation rate priced into the market,
3) and deposit your funds at the monopoly price set by the FED,

then you are indifferent between the two outcomes and are guaranteed to earn the same negative return. Which is of course why there is a market. All of which i wrote a long time ago as a explanation for why it might make sense to be short tips but if an only if you could tell me why based on your estimate of the above three variables. Any speculation on the real rate is meaningless, it is not a variable one can have a view on outside of the above (if and this is a key assumption, cash money from the fed reserve is the unit of account you wish to sum all the steps across. Its very possible the real term structure of other commodities is different)

Rocky Humbert responds:

I will address your many points more specifically when I have some time. But I will make a very simple observation (which you ignored)….which has to do with the interactions between inflation and tax policy and the zero interest rate boundary problem.

Let's assume a simple Taylor rule and that the fed sets overnight funds at inflation+100 basis points. Let's further assume a marginal tax rate of 30%.

Case I) Let's assume that inflation is running at 5%. Then fed funds is 6%. Then my after-tax nominal return = 0.7x 6% = 4.2% and my after-tax real return is negative 0.8%.

Case II) Let's assume that inflation is 2%. Then fed funds is 3%…and my after-tax nominal return = 0.7×3%= 2.1% and my after-tax real return is positive 0.1%.

Case III) Let's assume that inflation is NEGATIVE 2%. Then fed funds is 0% … and my after-tax nominal return = 0%, but my after-tax real return is positive 2%.

This is a clear example where real after tax returns behave in counter-intuitive ways…. and so the apparent negative return on TIPS might have less to do with inflation expectations per se, and more to do with the tax effects…. (or more succinctly, an investor in Case III above would be willing to buy a tip that has a negative 2% real yield and would be indifferent to case II, where the same TIP has a +100 real yield.) Just a thought

Tyler McClellan writes:

Very true. I once worked with Paul McCulley on the tax implications of same. As you never posed that as a question I didn't address it.

I agree with your points and thing it is a modest contributor the the current equilibrium pricing.

 Philip J. McDonnell writes:

I think one point that has not really been made in this discussion is that TIPS are paid back at the greater of inflation adjusted value or par. This means that they have an implied deflation protector built in.

It is like a deflation put which has intrinsic value in and of itself. In many ways we are in a deflationary environment caused by the great credit bubble unwinding throughout the world economy.

Gary Rogan comments:

I just scanned the riddle discussion. It seems to me that the reason you can't make money shorting TIPS is like the obviously idiotic action of shorting dollars in dollars. Let's say you decide to short a million dollars, and sell it to someone for a million. That's what shorting is, and yet you are in exactly the same situation as you once were.

If TIPs are losing purchasing power against a basket of commodities, but dollars are losing it faster, if you short TIPS you get something that loses purchasing power even faster than TIPS, hence no gain. If you could find a way to get paid for your shorted TIPS with a basket of commodities, and there is high inflation, you can buy them back with fewer commodities, so you make a profit.



One is never better off talking their book.

True in so many ways:

If you speak of a position you hold, not only peers smirk you are talkin' your book, a pressure builds up that starts seeking what you spoke must happen. Rabbit holes of all sorts get clogged and only one remaining open is your forecast. Bad trading.

If you speak of a position you could have taken then too much pressure comes from peers that you may be talking your own book while its not true. Pressure gets released that you are not going wrong if forecast is wrong and then the pressure also becomes immense if you are really right but don't have the position.

Trading or talking well are both rare abilities on a stand-alone basis and definitely a feat when done together well.



The stock market today [Thursday 2011/10/06] is gunning it into the close ahead of a good jobs number tomorrow?

James Lackey responds:

I dunno Mr Ken, and I don't care about such things. The number will be produced by the random news generator at best or rigged by The Man at worst… but it's not a meal for a lifetime… Please do not send such comments! Thank you.

 Anatoly Veltman writes:

Lack, this is not about the number. It's about expectation, based on market moves ahead of the number. The lesson to me is calendar-based trading - where money is made because the number is scheduled. Not because you know the number. Is there lesson in that?

Rocky Humbert issues a challenge:

You guys want a meal for a lifetime? How about this meal for the day:

Here are the most likely NFP numbers:

A) between -100k and -50k
B) between -50k and 0
C) between 0 and +50k
D) between 50k and 100k

The person who best assigns a 4pm SPX closing price to each of these 4 choices — and gets the answer right within 10 spx points — will receive a dinner voucher for 2 at my favorite restaurant. (That is, an acceptable submission would look like A=1102, B=1120, C=1160, D=1190.)

The purpose of this challenge is to demonstrate that EVEN IF you knew the NFP, you still won't be able to accurately predict the market's reaction (unless it's a complete outlier).

The judge's decision is final.

 Sushil Kedia responds:

Without any intent to contest the judges decision, my two humble cents:

A reflexivist, who often is a winner in the markets, may need to put up an answer most of the time, as E = 1155, irrespective of where the NFP numbers come.

If the judge so wishes that it may be proper for a complete illustration on the futility of information being beyond markets, may consider providing such a fifth choice. Up to the judge.

The unemployment number is released at 8:30am Eastern Time on Friday. Rocky Humbert responds:

Mr. Collins: One notes that the NFP headline number was 103k — which was above the choice D range (+50k to +100k). The judges are conferring as to whether this constitutes a scratch. They will announce their decision forthwith.

Nonetheless, and for good order, here were the entries in the contest:

Anatoly: SP will drop 90 points

Jonathan Bower: 1125 1125 1125 1125

Mr. Rogan: 1130 1140 1150 1170

Tim Collins: 1099.22 1119.66 1131.24 1149.86

Sushil Kedia: An "unlawful entry" of 1155 in all cases. (Because of his "unlawful entry," from this day forward, Sushil shall be known as Mister Meanor.).

Alex Forshaw: 1155 - 25= 1130; 1155 - 35= 1120 ; 1155 - 45 = 1110; 1155- 55 = 1100

Rocky Humbert writes further: 

I am penning this at 3:43pm — and due to the impending holiday, I need to leave early and hence will not know the final challenge result for about 30 hours. The point of this challenge was to convincingly demonstrate that EVEN IF one knows a macro data point in advance, it's frequently impossible to know Mr. Market's reaction. The signal-to-noise ratio is simply too low. Whether or not my primary point is accepted, (as of this moment) it looks like I've also convincingly demonstrated an equally important truth: "Even a blind squirrel finds a nut." (Or more accurately, it looks like Mr. Rogan has won the challenge.) But I cannot depart for my day of atonement on that note. Tomorrow (Yom Kippur) ends the Ten Days of Repentance (Aseret Y'mai Teshuvah).

 It is a requirement that during this period, one must make amends to those whom we may have hurt in the past; and to ask for and to grant forgiveness to those who ask for it. It is not sufficient to ask God for his forgiveness. One must ask for the forgiveness from one's fellow man. Mindful of the fact that I've dished out some harsh words over the past year to some of you — and I apologize for that — and I hope that you forgive me. It's especially poignant that Mr. Rogan appears to be the winner of the challenge, as he has been the target of some of my more vituperative slings — I apologize to you Mr. Rogan — and I'll try to do better in the year, 5772.

 Gary Rogan responds:

 Hey Rocky, it appears that I may not have won after all, but I appreciate your apology although no offense had been taken. You made me realize how important it is to take the Prozac regularly instead of at random intervals and varying amounts so it's all good. Happy atonement!

 Rocky Humbert responds:

I have re-emerged from atonement and post-atonement eating to find an envelope with the judge's FINAL decision. The winner is: Mr. Tim Collins who was within 6 points. The biggest loser is Sushil (aka Mister Meanor), who almost perfectly nailed the closing price, but because he was more interested in sounding smart than being right, he is guilty of a misdemeanor charge of "unlawful entry" s and walks away empty-handed. There is a meal for a lifetime here too. If Mr. Tim will mail me his US Mail address (off-site), his dinner voucher for 2 at my favorite restaurant will be posted forthwith. Thank you to all for participating and demonstrating many useful points. 



 If time is defined as a measure of seperated-ness of events then,

i) Does time not exist in vacuum, where there are no events?

ii) Does time not exist in black holes, where there are no events?

Analogously to someone watching the tape tick by tick (HFT guys you are doing that, only, albeit with faster machines than most others) market-time does not exist in a price jump / gap? Market-time does not exist when at a single tick very large volume occurs?

How can such a perspective alter any enterprises modelling markets on (dis)continuous time, in any more profitable ways than the traditional ones?



 Funny thing, did you know Domino Pizza's subsidiary in India is called Jubilant Foodworks. It's listed. It does about 1/6th the revenues and profits of the original US based Dominos. Yet the market cap of Indian Dominos is more than the US Dominos!

What does this say? Scarcity of stock? Cornered position in a few strong hands? Does the many times larger P/E of Indian Dominos than the parent imply in any way that Indians will provide greater growth to Dominos than Americans?

I would say, the story unfolds as the price does, and all logical/fundamental explanations are determined by the colour of the pit.



 Greetings to the Specs gathering at the Speculators Party 2011.

I would have loved to meet all at this looked forward to event, but able to travel into New York only in early September.

So here is my question, does the parabolic zoom in gold recently qualify to be a candidate for inspecting if a Lobogalaesque thud will come now?

What are the good ways to be on the lookout for a parabolic move to be turning into a Lobogalaesque detour, in general?





 A Currency Note is akin to a Time Insensitive Zero Coupon Bond with zero regard to the idea of Inflation. Whether you present it now or a year later the Promissory Note that a Currency Note is will provide you with goods or whatever you have agreed to obtain against it at the face value that day.

Over simplification being a standard problem of modelling, the diversification with cash idea propounded by Markowitz is a numerical illusion. Since the face value of cash does not change it dampens volatility. We understand high school level Mathematica. Thank you very much Mr. Markowitz for showing us how by doing nothing one can reduce risk. I as a student of markets am interested in figuring out how can I reduce my risk while I am still doing something.

Yet, things could have been still tolerable had the negative rate of return on cash implicit due to unavoidable inflation would have been plugged in somewhere in the diversification model.

Holding cash for dampening volatility for a very short period of time is fine. But then Portfolio Management is such an aggrandized term that traders cannot even come remotely close to it and has to be a long term religion. How does anyone ever reduce risk by holding onto a guaranteed to lose investment in their portfolios?

Using even my high School standards only Maths I cannot accept to believe ever that cash that keeps getting trashed over time in value will ever add anything but negative returns in my portfolio and even if a theoretically flawed calculation of a dampened volatility is accepted as still correct then too bring me to a higher utility curve.

The higher investment utility curves built using cash to me appear similar to claims of reaching higher states of consciousness by starving. All I have known people reaching is altered states of consciousness by starving.

Hold cash and starve. Simple. Why do I need a celebrated model and an entire marketplace revolving around such a flawed reasoning. Well I need this since without such mass hysteria, where is the money to be made?

Mr. Krisrock writes: 

Cash is a proxy for the currency… that's why the Japanese bond market can be among the best performers despite near zero rates. Smart bond men are willing to accept zero if the total return is simply the currency appreciation. Ask John Taylor he called all this…

Sushil Kedia replies: 

I cannot agree more with your point here. Accepting zero interest is fine if the interest rates on other currencies are higher and thus the currency in which the zero interest rate bond is denominated will appreciate.

Yet that is a different point.

I am only crying over the years consumed in living with Portfolio Theory that was drilled down my brains in the MBA days.



 Between any two occurrences what changes is time. This is true in life other than in markets. For a life in the markets, between penury and wealth what changes is price. Between a well funded account and a margin call, what changes is price. A mere change of time as known in the world will not bring by these changes in a life in the markets. But a change in price will bring these by. So, an equivalent notion of time in markets is then price. It is the connecting thread on which all change propagates.

In this frame of thinking then, measuring progress or regress of one's affair with the markets then against only time is at best half the story or likely less than half. The real story is in measuring things against price. Two stocks both move the same dollar amount over the same time period but one was priced at 100 and the other 200, for example, when you opened the long position. Obviously your capital and you succeeded more with the stock priced at 100.

Now measuring things against price may be more than half the story. Yet, life in the markets has more and immediate refinements. The stock at 100 may move the same amount as the stock at 200 and yet the stock at 100 may waver around a lot more. So not only do we need to measure our enterprise against price but also the likely distribution of prices or the risk undertaken and risk realized.

Time, continues to stick in our brains, being the primordial human instinct. Life in the markets is contested against the primordial instincts of avoiding risk. Market is a place where human beings contest their abilities at claiming better understanding of uncertainty (risk).

Compared to all other forms of human enterprises from the arts, sports, sciences, war, love, cooking, eating, family matters to any thing, the market is a place that requires one to be past one's most basic instinct of time. Of course, who does not time the markets, with some acknowledging it and some not acknowledging the act of timing. Yet, neither the timers nor the self-advertised non-timers are both playing a game that at best is only half as good.

The beauty of the beast called the market then expands to another dimension. You cannot even debate creating time or reversing time. But prices reverse all the time and it is still an ongoing debate if prices can be created. Well some do it most of the time.

With this humble thread of thought, do I get any clues from anyone if the Einsteinian equivalence of time and distance can be modified to include not just the price as holding some equivalence relationship with time, but the distribution of price along with it may fit into some sort of equivalence with price?



With the President being so concerned with the markets on Monday in the absence of a debt deal, is this not a test of who is calling the tune? Bernanke points to the Russell 2000 to judge QE2 a success. Does the market have to come down Monday to keep the theme alive? I would think if non-Governmental market participants had their say, they would rally stocks as a giant middle finger to the President. Who is he to invoke markets?

Gary Rogan writes:

It's a test whether the truth can triumph in spite of all the propaganda

Media Blackout: Nets Ignored Popular Cut, Cap, Balance Bill

Sushil Kedia adds:

The Zimbabwean markets went up like something….. with their QE ad infinitum. Eventually the only thing everyone needed to buy was chastity locks…

keep looking »


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