May

14

 I have seen more and more of this story reiterated over the last few months… That hi-tech and robotic innovation are leading to greater displacement of the middle class in the United States and around the world.

"Think Your Job is Robot Proof? Think Again"

A Stanford professor recently commented that technology and scale are greater drivers of job displacement than previously expected. They are also the strongest drivers of significant wealth. The Forbes 400 is now dominated by innovation and those who have perfected scale.

I am surprised that so many economists have been commenting on this so often so recently, as if it's new news.

Ricardo noted this trend in technological unemployment long long ago, but it completely seemed to have disappeared as a story for 190 years.

Even Krugman admitted that if technology is such a significant driver of the divide between the rich and the poor, then surely it makes a mockery of any attempt to balance wealth in this nation since you cannot tear down innovation in the pursuit of balanced distribution.

How did economists ignore this? For fear of being labeled Marxist?

This reminds me of my first three minutes at Hopkins. I asked a professor who had worked at the DOE what would happen if a radical green innovation displaced oil…

He replied… "You don't want to go down that road…" Innovation has its downside, and to him, it was millions of angry young men in the middle east without a source of income from oil.

Stefan Jovanovich comments:

The principal argument of the intellectuals who supported slavery was that economics itself was an inherently "dismal science". Carlyle genuinely believed that a system of accounts based on money prices was far more vicious than any lash. His spoken corollary was that black people needed slavery because they could not otherwise compete. The unspoken corollary of his intellectual successors was that many other groups of people needed protections from the market because they, too, could not compete. That unspoken corollary became spoken when Progressives discovered Marx.

No believer in liberty in 19th century (the people who called themselves "liberals") had any doubt that machines could do it better, faster and cheaper. That was the point of inventing them in the first place. Those liberals also had no doubt that, in a world of scarcity, "better, faster and cheaper" was a good thing because savings and costs were more important than incomes. That is the same reason why they wanted Money to be made only out of the 16K tons of the one metal that was indestructible and, in milled coinage, impossible to fake. If prices had their unit of account determined by the supply of something that could only be produced with great ingenuity and industry, then the implicit fraud of government (we take money from you as an individual at the point of a gun so people you do not choose can receive benefits) would be limited;and thrift would be rewarded.

The liberals' faith was the presumption that, over time, thrift and family virtue would outrun the machines because accumulated capital would profit from the ever-lower costs that machines always produced. The Progressive/Marxist answer was that we could all speed up economic evolution if we just let the government keep the capital and define the costs. What is truly dismal about much of current academic economics is that the basic argument that produced the science itself is now considered to be a fully-settled question. Meanwhile, the economists on the street are filing for disability with the help of the friendly lawyers they found on TV, highly-penalized work (the stuff classified as "wage and hour" employment remains scarce, and yet per capita discretionary retail sales (what people buy after they pay for food, energy, communications and shelter) are once again rising.

As the Lackey would say, "Hah!"

The principal argument of the intellectuals who supported slavery was that economics itself was an inherently "dismal science". Carlyle genuinely believed that a system of accounts based on money prices was far more vicious than any lash. His spoken corollary was that black people needed slavery because they could not otherwise compete. The unspoken corollary of his intellectual successors was that many other groups of people needed protections from the market because they, too, could not compete. That unspoken corollary became spoken when Progressives discovered Marx.

No believer in liberty in 19th century (the people who called themselves "liberals") had any doubt that machines could do it better, faster and cheaper. That was the point of inventing them in the first place. Those liberals also had no doubt that, in a world of scarcity, "better, faster and cheaper" was a good thing because savings and costs were more important than incomes. That is the same reason why they wanted Money to be made only out of the 16K tons of the one metal that was indestructible and, in milled coinage, impossible to fake. If prices had their unit of account determined by the supply of something that could only be produced with great ingenuity and industry, then the implicit fraud of government (we take money from you as an individual at the point of a gun so people you do not choose can receive benefits) would be limited;and thrift would be rewarded.

The liberals' faith was the presumption that, over time, thrift and family virtue would outrun the machines because accumulated capital would profit from the ever-lower costs that machines always produced. The Progressive/Marxist answer was that we could all speed up economic evolution if we just let the government keep the capital and define the costs. What is truly dismal about much of current academic economics is that the basic argument that produced the science itself is now considered to be a fully-settled question. Meanwhile, the economists on the street are filing for disability with the help of the friendly lawyers they found on TV, highly-penalized work (the stuff classified as "wage and hour" employment remains scarce, and yet per capita discretionary retail sales (what people buy after they pay for food, energy, communications and shelter) are once again rising.

As the Lackey would say, "Hah!".

Jim Lackey responds:

Correction! It is Mr. Vic that says HA! Lackeys say, "get the joke", which is a joke as it takes me 3 times to get it… or the "get the joke is "we are the last to know" when it comes to the "news".

Apr

24

 Old racers and traders agree on quite a few things:

1. Do not look to get out even after a big loss of position. This is in regards to time. A runner, dirt bike rider, or race car driver would never consider an attempt to go back to the lead after a bad crash in the main event. Most realize it might take a couple weeks to regain strength before attacking for the victory.

2. Hold your place. The market or a race isn't about you. The gist is the ability to win a national event is the work you put in the prior 6-8 weeks to the event. Racers are either 'on top' or 'not feeling it' which is code for strength vs. the others or skill on that track.

If 'on top', you make a huge mistake and almost blow up. After such a near disaster we look to the front of the pack and we are still right there? Now most engineers or spectators will say, hold your place regroup. Go get them after you calm down. A racer is never, ever going to do that. The gist is if I almost crashed and my heart rate is pegged at 199, look up and we are close to the lead. We are going for it full throttle. The gist is you made a huge mistake and should have lost it. You're right there! This means everyone almost blew up and too many will, coast for a bit. You can go strait to the lead if you do not hesitate.

"Not feeling it'– That line is easy after a big mistake. We look back over the shoulder and see how much we must push to hold the position.

3. Take your loss. From the drop of the gate everything is wrong. Matter of fact the last laps of the past race everything was wrong. There are two codes in race results that team owners and managers always get upset about, DNS did not start/qualify DNF "did not finish". There is always a push to regroup and gain at least a point on the week. I am cringing as I write. It's so painful. Racers call it, do not get killed. Let's not make a bad weekend worse and ruin, destroy the season. Get back out there! You can do this! Ah, okay, but…..

It has always been easy for me to DNF, load up the trailer and spectate. I remember dad arguing with his best friend. We were at the track and we could not figure out why the engine was down on power then there was a leak in the transmission. Dad said "On the trailer" No, no! No, everyone else agreed we can fix it.. "On the trailer now!" and dad walked away. Later that week we were working on the race car and found 5 more problems. His buddy said, "good thing we put it on the trailer, let's make that a rule"

To be clear, I am talking about what everyone always talks about –"them or "I". The markets are either weak or strong. The position you have vs. the field or the market has nothing to do with how the rest of the field will perform that day. Unless you crash and take the leaders out.

If you're weak and they are strong and you make a huge mistake, take a step back for a lap. If you're weak yet they are weak, you might try standing on the gas. This does not come natural. We are trained from little ones to take a seat and rest after a fall.

There is the old athlete problem. Fighting them for the sake of respect and competitiveness, we all do it… Basically the trade is all risk for little to no reward. That happens to traders all of the time. We spot a window of weakness and go for a pass. We find ourselves boxed out and lose a few points on positions. We add, for no good reason! We didn't have the skill, power or traction to make the pass the first time. That was, with a good pattern window to make such a move. Now our only pattern is competitiveness, the will to win. We are weak, yet feeling it, or best we feel nothing at all because we are mad as Hades. We lay off for a moment build all kinds of speed and go at them with everything we have.

That is how that 30 minute window and a 2 point loss turns into 10 handles against us, all in. How in the world do we get our selves into such bad positions? OH I dunno the last 50 times we made the pass the first time and 4/5 we came back after a regroup and passed everyone back in a lap. We have do this so many times we never think, until it's too late. Then the boss comes on the radio… other than hope, why are you still out there? The pit window is open. Bring it in now! Please….. Good men act silly when they trade or race angry. The gist is we are weak and too upset or stupid to realize it.

There is old dailyspec line on losses. In a big move, in a panic, if they let you out for even, it goes much much more in your favor. Of course, that is big market moves or a huge crash on the track… stay out there and gain all the spots you can. In general that does not work in day trades. It's all your fault, you caused the pile up for self and or others. Perhaps that is where the bias is from, a baseball player pops up a perfect fastball to hit. A football player fumbles. A driver loses focus and hurts the car. Next time out we find the hole we stand on the gas and get boxed in and the will to win, never ever give up attitude takes over.

Which is where the old coach line must have come from "Come on lack use your head" and "are you okay– you have a concussion or something, that was not like you" or " usually you're much better than that".

Apr

24

 Years ago, Dr BO, the hobo, our kind of crazy genius, posted a report on the realization, he could live of a few $ a day by eating some 1,000 calories per serving at McDonald's, with that 2k a day calories plus a bit of walking he'd lose a few pounds per month. A couple memes destroyed and on the meme generators, He would never read newspapers again.

P.S. last night at BMX track a few asked about eating the AAPL. My comment was when the price of a good lap top is under the cost of the telephone/computer pad… got that?

Yesterday was a frustrating day. I took out all my frustrations on the starting gate. I have a few kids that can't get the hole shot, or 1st out of the first turn. To remedy this I announced let's see how many starts we can do in one hour. I managed 32, about double the kids. Which is silly, as interval training probably slows you down in the short term. Yet the proper form and muscle memory is needed for certain tasks. This comment is in regards to school or requirements of jobs to have a degree when nothing about the job or degree will help perform the task. "We had to do it so, you do to" the gist is the Chief of hiring requires the degree in X because we had to do it. That reminds me of running up the Indiana beach Sand dunes because Walter Peyton was doing it. Or, the silly habit we had as kids to run or walk around with ankle weights.

My cousin, same age, is like my brother and my best friend. He ran MX at Red Bud the famous track we raced as kids. He reported that his results of 15th of 18th last Sunday. He never quit riding but hasn't raced in forever. We had planned on racing the event June 8th. He reports that there is no way in hades we can run the vintage class (same bikes we had as kids 30 years ago) as the track is too difficult. Yet, if I really wanted to race, (he talked me into it in the first place) I can ride on of the practice bikes or 5 years or older bike in another class.

On race results that had import to excel. I then figured out why he was so concerned about me being run over. He had no clue how well he did vs. the current 30 and over Vet pros that ride for money cash awards. The top 5 in his moto or race won the 30 over and beat one of our old friends that run 40 over Vet pro. Plus my cousin is riding a 10 year old 125CC 2 stroke in the 250 4 stroke class. Yet he wasn't even in that class with the kids…as he didn't want to get run over. He exclaimed BUT the class was called Vet sport C class or 122CC and over bikes for riders just coming back.

Bobby I don't care what they called the class… that day it was 30 over open class and you were in there with the Pros X pros on 450's brand new technology bikes… Those guys ran two classes and a few of them finished better in the money race then in our open for trophy of the day. OH!

Which reminds me of yesterday and the flash crash. Guys had stops in 10, 15 and 20 under or trailing on their advanced computers. The problem was hours later they were getting fills and now ofcurse they were now caught short from waaay below.

The electronics and software of the markets remind me of the TPI or fuel injection that was coming on productions cars in the mid or late 80s. They didn't work right and were basically junk. Yet by the early 90s it was good and now it's awesome. My dad, frustrated, pulled the TPI off his vette and threw an old school carb, fuel pump on his mid 80's vette… For years he exclaimed how the computers and all was junk. For years I argued.

Today it's now about Turbo charging small CID engines or running direct injection into a V-6 that makes some 300 HP. For example my first good job and check I bought a 91 vette that had only 325HP.. By my second in 95 it was up to 350 HP with electronics and head designs alone.. Now a much smaller engine, a V-6 with 12-1 compression and variable valve timing makes 300+ HP and the little 4 banger engines are making 300 HP with turbo chargers. All of this was available 20-30 years ago but was junk. Now it works with computers.

So, if walstreet computers follow the time line of race carz to production car it will be 20 years since electronics were first introduced into market making about 97. In 4 years it will all run right and we will not even notice.

Apr

2

 "Jimmy, you can crawl or walk the beams all day without tools, or you can man up and walk the beam."

I was about 17 years old, not too high, 25', walking a steel beam, the crane just set as I tossed a couple of bolts in one side and walked the beam to set another. Dad was ribbing me, "you're not afraid of heights, son, walk it, let's GO!"

I may not fear heights but I sure do not like them. I just did a silly trade. I sold out before the book said to sell. It cost 1/7th.

Now you might say Oh Lack, a point or two is nothing. You silly day traders.

I'll explain it this way… in every racing school and many other sports the world champions teach "everyone looks for the one big edge, but the winners know it's a bunch of little things, done right is what makes the difference."

You know the guys that always win and make it look effortless.

P.S. in retrospect a "get the joke" was 3 am this morning, I was working and the Bloomberg guy said Oh just wait til the Dax opens. SPU was unchanged so I left it alone. Woke up to 7up. 

Apr

1

 The Family just returned from Florida. One can see a boom or a bust around every corner. On one hand (econ joke) you can see the boom– new real estate projects, Disney full to capacity as of noon. On the other hand the bust– the Space coast Condos at whole sale prices 89k a few hundred meter walk to the most beautiful beaches.

What is remarkable to me is to see and hear of old friends doing the same things as 11 years ago. Yes, the bucket shoppes are back with 50 men screen watching.

I love Florida. My family and friends are there. The weather was a bit cold for a few days, then it was perfect. The Atlantic waves were a blast with the full moon set to the West and the magnificent sunrise over the ocean. What a perfect way to start the day.

After a 12 hour drive into the Nashville rain, with the grass a bit greener, a few leaves on the trees, it is a very late spring here. I asked the wife, FLA? She replied, not a chance. Make some money honey and buy one of those condos with in walking distance and do learn how to surf.

Kudos to Watson and Sogi… what a workout those waves are! One may never forget how to ride a bike, but when it comes to the waves, I put on the towel. Not sure if I'll ever learn. 

Mar

15

Despite what I have read I am not convinced the HFT in aggregate are profitable. Buying High, Selling low, and making it up on volume just does not seem like a good business model to me. The research on HFT seems unadjusted for survival bias. They study the biggest and most profitable firms to see how big and profitable they are. I personally know an HFT firm that made money 3 years in a row, then after 4 months of bad performance they realized their edge was gone and they closed shop. I am sure they were never included in HFT research. I use limit order so I suppose HFT is taking the other side and the jury is still out.

Jim Lackey writes: 

Of course, Dunc, it should be like all things sports MX. Top 10 sleep in the Hilton and ride in the Factory rig and the next 10 best in the world sleep in their trailer in the pits 20-99 are part timers and lose money racing. 

Mar

5

I see that headline from a finzv blog headline machine. It caught my eye as I am having one heck of a time buying used carz. To find deals to "trade for profit" forget about that last year.. To find one to buy, it's frustrating as all hades and I am wasting too much time looking for a good 10-12k 06-07 used BMX type vehicle.

Of course we know all of this as production fell from 18mm units to 8.5 mm in the crash. So off lease carz lets call them 09's and 2010's are very steep in price. What this does is causes all used cars to go up …seemingly… I talked to a guy this weekend. He had a clean car for me. When I looked up loan value… never mind dealer wholesale I asked him where in the world did you get 11k price? he said its +++ what he paid for it.. I asked what did you pay for it… "you don't want to know" but I guess he can make his 800 off the unknowing.

There is a flood of rebuilt titles due to the extreme high costs of rebuilds. That is a new business. Of course I don't want a rebuilt car… and after Sandy I am sure there will be a flood of flooded out carz.. So this problem is Nashville to Fla.. used car prices are a total rip off and its much better to buy new. Yet I have no idea what the +- over production is a GM vs F and the Koreans are giving cars away with very high residual values with leases. Reminds me of the Japanese when they built Lexus brands in late 90's.

Mar

4

 Complicated things of high quality don't just break down in a big cataclysm. Take a modern car. They are well built. The engine will last for half a million miles if properly maintained. However it is the little things that start breaking: the plastic ashtray falls out, the rubber seals wear, the bearing start getting loose, the fabric tears. These little things can get more serious. If the seal leaks, and the oil is low, the engine can wear prematurely. The shocks wear, and the ball joints go. The steering gets loose. Small things can lead to bigger problems. Take a modern city, like New York in the 70s. First it's some graffitti, then some broken windows, soon vagrants move in, garbage piles up and the city head to bankruptcy. It's the small things first. Take a huge economy like the US. The GDP isn't going to fall apart. Employment probably won't go off a cliff. It's going to be small things first. Take a corporation. The earning won't collapse right off. It will be receivables up, inventory up, sales down, or even smaller things. Maintenance up, or down. Take a market like the Nasdaq.

Leo Jia writes: 

These are very insightful. Our bodies are about the same. And while the destruction process happens this way, it is interesting to note the creation process is also quite like this. First, small trivial things get created, then the large more significant things. All things seem to move like this in circles. Bubbles start small, grow big, then shrink a little, then burst.

Jim Lackey adds: 

Hold on ther' hoss. The first thing we do, it wash, feed and stable the horses before the cowboys. This car post caught my eye. If the simplest part breaks, a mass air flow sensor, the engine runs rich and bad things happen. Yet we have a dummy light! Even back in the day we had dummy lights for high temp, or low oil pressure. These little 25-200 dollar parts break on brand new machines. Take the worn out 100k 7 year old car. Yes what you say is true. 35 years ago the 100k car may be dead in the crusher for scrap. Today what people thing of the heart of the car is the engine. With CNC , CAD and CAM all short for, computers do not have UAW contract for, tired nor sick nor go out of whack and slap together the last V-8 at the end of bowling night. Therefore the engines are designed and build and installed to Engineer spec. They do last for 250k. Most but not all of them do 250k except for the short cut copy cat Far East red flag waiving commies BYD my 6.

The little things that are build to spec yet cant possibly last for 7-12 years as you say rubber O rings, Balls joints, tie rod end,s brake rotors struts all must be changed or maintained. The most complex and weakest link of the chain on new cars is automatic transmissions. I made one the of the worst mistakes trading this week. I was taught about racing cars bikes and anything with an engine, failures. In a way we kept track of the max min wait time on a failure of a part. We change them at or before the median failure time. I forgot all about that for our trading. Didn't lose, it was much worse than that to a racer not winning is as painful as being on fire.

One spec posted a customer service report on cars and diamonds weeks ago. The gist was one man said change all parts. The other man said wait 5,000 miles. The implication was the second man said wait, and was best. What wasn't taken into account was two things. The performance of the car and his safety and time of a second trip to the shop. Other was the parts probably were not in stock at dealer B. There fore the guy simply told what most want to hear, no money today rather than we will have to keep your car over night as the parts are coming off the ship from Japan.

The discussion also goes to medical. too much of medicine is based on illness. When talking to my Docs and their ranges for normal I burst out and said, your kidding right? How do basic stats escape Medical training? How much better can we all feel if we did X and Y do the the people all wait until a breakdown and see the Doc for solution which prescribed as X. I know why. I did the same thing last week on my trading. I didn't consider wellness. I was waiting for the market to become sick then do trade X. My trading doc even warned me and kept me from having a bad loss. He was focused on wellness ( is best I can describe) I was looking for the illness. (Okay so the markets went 1530 to 1490 and I said why not wait for 1475 to come in? I pull my racing pits cap over my head and tell the wife, at least I didn't lose short)

How much better will a car perform with New tires brakes and rotors vs a car with 5,000 miles of anecdotal testimony to wait. I can give you the stats on new vs 20k or 40k miles and after one race on a real car. Racers change brakes and tires after each and every weekend. We rebuild engines most every weekend depending on class. In some pro classes we rebuilt engines after every single 1/4 mile run, new pistons, rods and bearings, Valve sprints and retainers, all seals and gaskets.

What the anecdote above states is the engine will run for 250,000 so then to should the car. Yet the car will not move with a broken ball joint. The engine will die with a broken timing belt and over heat with a bad water pump, that now last to 110,000 miles. So the engine system is still only good to run for 110,000 miles. The trans and rear end gears all die at 125-150 and the fuel pumps and all do the same. The catalytic converters die way before this. Most cars have a 5 year 100,000 mile warranty on the drive train. Its only 3/36 or 5/50k on bumper to bumper.. The emission control systems or parts are now only good for 80,000 miles.

So in theory your car is now worse than a 1969 model. It will break down and be non drive able 20,000 miles before the 1969 model died and went to the crusher. Yet your correct, at 80k miles your car will be fixed for 1,000 bucks and in 69 you needed a new engine trans and every hose belt and switch was dead.

This entire deal of failures was burned into my trading memory banks for life. I used it in some ad hoc way since MR Vic showed me in 2004. Yet the advances in his technology on how to quickly repair the trading engine and have it on the road to profitability was lacking by lackey.

The story I wrote about my teenager failing to appreciate the need for trans fluid made me dump the BMX van for 25% above scrap rates to a new friend. I am now shopping for a good used van. There is also a meme on pricing of used vs new cars. We try not use never always when it comes to life. Yet the financial advice out there has man a never and always do.

Too many men are all over the past 10 year return of stock at or about nil. The we are in a range trader calls have been falsified many times this decade. The SPU made a high in 07 the Russel or what ever made a high this year. Yet its true and maybe always is tr that not all stocks make a new high as the joke is many stocks fail to exist, survivor ship bias. Its all mumbo as they use all or this or that index.

Then to say all new cars have engines that run to 250k miles and do not fall apart all at once.. is also false. A brand new car has the ability to shit down or go into safe mode. Its broken according to our ladies who drive. It can only be idled at 35mph to your local shop. With palladium and platinum are such high prices the emission control systems are too expensive. The cars heart is not the engine, it never was the brain. It used to be the driver and the mechanic. Now its a computer. We have fire trucks that will not start if the diesel engines emission system is on soot burn mode.

Now we have computers in control of making markets for the global stock and futures markets. All economic reality seems to be lost in the short term. If political hack from Berlin says A and EU hack said confirm A and US is about to have a press conference you can forget about the next four hours prices being predictive. The markets computers go into safe mode. They will move and shut down quickly and we must, as traders idle at 35 MPH to our local dealer of data to find out what happens next after that part failure.

For what ever reasons I have gained my passion for markets back. Of course we know where we lost it. What makes men take risk? What makes risk takers skip a generation? Is that true? I had a friend as me this week about becoming a spec. I asked him to answer this one question. Would you rather trade your money and take risk per 500k account to eeke out a living or use another mans money and take 20% of profits yet no fees? I have asked this Q so many times and it reveals much about a mans capacity to take risk, yet most important to take pain. Ya see racers, we do not care about losing crashing or getting hurt. Its part of the game. We do not like losing, yet not winning that is so painful, like I said we wear fire suits and not winning is as bad as completely destroying your car on driver error and being on fire.

The gist of the answer is if your rather trad OPM you do not belong in the hours 1/2 day markets, ever. Do not do it..It has to be the hardest way to make a living. The easiest way if you have any capacity to sell or raise money is ride the tides and collect a fee. I am sure you can find a way to make a firm stand on the middle ground. Some fine research and pick some fine stocks and short some over plus commodities after the bubble has been busted and hold that roll that for years. Now you have the ability to take down a small fee and a profit incentive.

What has changed my attitude is being certain about one thing. These markets change direction and patterns change so quickly its fast, like racing and Fun! Where in the hades have I been the past few years not to look at all of this as a positive thing for, me. I love to go fast. lack

My motivational quotes for this week attached.

August 1908 issue of a periodical for bicyclists called "Bassett's Scrap Book". A short item contrasted the modern age to ancient times and presented a variation of the epigraph:

"Naram Sin, 5000 B.C. We have fallen upon evil times, the world has waxed old and wicked. Politics are very corrupt. Children are no longer respectful to their elders. Each man wants to make himself conspicuous and write a book."Johnson's often-quoted definition of genius, "the infinite capacity for taking pains."

"genius is inspiration, talent and perspiration." Kate Sanborn

The President of the Old Speculator's Club, Jack Tierney, writes: 

I seem to recall the name

Carnegie's "Gospel of Wealth" idea took his peers by storm at the very moment the great school transformation began—the idea that the wealthy owed society a duty to take over everything in the public interest, was an uncanny echo of Carnegie's experience as a boy watching the elite establishment of Britain and the teachings of its state religion…Since Aristotle, thinkers have understood that work is the vital theater of self-knowledge. Schooling in concert with a controlled workplace is the most effective way to foreclose the development of imagination ever devised. But where did these radical doctrines of true belief come from? Who spread them? We get at least part of the answer from the tantalizing clue Walt Whitman left when he said "only Hegel is fit for America." Hegel was the protean Prussian philosopher capable of shaping Karl Marx on one hand and J.P. Morgan on the other; the man who taught a generation of prominent Americans that history itself could be controlled by the deliberate provoking of crises. Carnegie used his own considerable influence to keep this expatriate New England Hegelian the U.S. Commissioner of Education for sixteen years, long enough to set the stage for an era of "scientific management" (or "Fordism" as the Soviets called it) in American schooling. Long enough to bring about the rise of the multilayered school bureaucracy. But it would be a huge mistake to regard Harris and other true believers as merely tools of business interests; what they were about was the creation of a modern living faith to replace the Christian one which had died for them. It was their good fortune to live at precisely the moment when the dreamers of the empire of business (to use emperor Carnegie's label) for an Anglo-American world state were beginning to consider worldwide schooling as the most direct route to that destination.

Mr. Krisrock writes: 

This happens when there is a world price for labor…that American foundations arranged for 100 years.

Jack Tierney responds:

I'll go along with the parts played by American foundations, but not the 100 years. In a recent book by David Horowitz, "The New Leviathan," he points out that many of the great foundations we still hear so much about have wandered substantially from the goals envisioned by their founders.

Among them are the Ford and Rockefeller foundations, as well as those of Pew and John MacArthur. Each accumulated substantial fortunes in very capitalistic endeavors…and expected their trusts to continue to promote efforts in that direction.

At first this worked as the initial appointed trustees were chosen by the benefactor. Over the years, however, (and this relates to my initial post) subsequent trustees went off in their own, very contrary direction. inevitably, they labeled these modifications as "progressive," a catchall phrase that seems to excuse almost any perversion of original intent.

Most of these changes in direction have occurred over the last 50 years as the original trustees passed away or retired. Only Olin was prescient enough to "sunset" his trust to forestall this drift.
 

Feb

15

 For about 3 years, I've been monitoring the trend in public notices of foreclosures and sheriff sales in the local newspaper. These have gone from nearly a full section 2-3 years ago, to several pages a year ago, to near zero today. Similar observations in other locals while traveling have been made.

It looked a couple of years ago that goo would be flushed from the system by the second half of this year. The upward trend in new construction, home prices and building materials in the last half of last year caught me by surprise as well.

Out here in the boonies [at least in my boonies], we were not hit nearly as hard as the coastal regions in either the housing or employment markets. In reviewing and measuring housing, let's not forget……geography matters, as does what is selling.

I wanna think maybe this is a combination of having paid down or reorganized our debt, learning our lesson about over-extending and being house-poor, having begun to save and invest and spend more wisely again, and with the market up we're feeling better about our fortunes and the future, we notice there are still vestigial housing deals out there as well as new ones, recognize they might not be there for long as home prices are increasing, and figure the time is right to buy again. Kind of like recognizing a market bottom has occurred and buying in at the beginning of the upswing.

I don't think this is a head fake, but a certain amount of prudence is not ill-advised, because, as we saw in 2007, nothing lasts forever.

Henry Gifford writes:

One time I was negotiating to buy a house and I told the seller "Your house is in mint condition." The broker in the background was cringing, and repeatedly recommended I hire a home inspector, and the only thing that would quiet her down was explaining that the home inspectors have an association, which has a magazine they read to learn about what to look for when they inspect a house, and the latest issue had a cover article I had written.

I told the seller I was going to make an offer to the realtor within the hour, and my offer would be contingent on me not dying. No mortgage contingency, no inspection, no nothing. We agree, we sign, we close.

My offer was lower than other offers that day. We closed soon after without hassle.

When selling property I generally ask for an "as is" contract, to avoid the games.

The legal side of it all says that a seller is more obligated than a buyer because "specific performance" says the seller is promising something very specific (a unique house) while they buyer is not. As a practical matter, a buyer can threaten to sue for some obscure term of the contract, tying the property up indefinitely if they are not refunded all their money.

It is all just another way honest people are at a huge disadvantage in life, but it is the life I have chosen.

Jim Lackey writes:

A hold back near nashvegas: rent exceeds the cost of carry here. Even @ 0% down FHA rate + tax tag and title (yet minus the unknowable maintain costs) if you rented it yourself, no management fees, i.e, rent 1500 per month, cost of carry 1200 on 4br all brick nice hood and schools. Yeah, if it was a cash buyer it is grocery store, wait AMZN margins so it can trade 100X earnings. lol. I just figured it out as a few of my friends have moved (bought new new) and held on to their old house and we have renters in the hood. Yet, it's still cheaper to buy new vs. used. Hipsters are in deep buying East Nashville tear down/ guy rebuild. My buddy told me it was dead 20 years ago. His new wife as a college kid bought dead homes for 3,000 bucks. Yes, you can imagine correctly.

Feb

4

 As near as I can discover, my first "American" ancestor was one of the Hessian soldiers rented to the British for use in fighting against the colonists during the Revolution. He was captured at Trenton and paroled and, instead of returning to his command, hired himself out as one of those "Pennsylvania Dutch" farm laborers whom Benjamin Franklin detested. Within 50 years his descendants were no longer Roman Catholics but Methodists living in Georgia; by the Civil War they were in Alabama and Mississippi — still on the losing side. One was with Evander Law's Brigade.  The other, who was a rich man, somehow managed to spend 4 years in Barksdale's Brigade without even making it to the rank of corporal.

The Hessians were all "pressed men" — conscripts who were literally forced into service by the same recruiting techniques that the British Navy used (the very ones that were among the primary grievances that provoked the Southies in Boston to become Sam Adams' loyal followers). Even though most of the Southern branches of my family still prefer to start the genealogy with the Hessian's respectable children (which still qualifies everyone to be a Son or Daughter of the Confederacy), as an unreconstructed Yankee, I prefer the Hessian. I like to think that disgust for the draft is one of my better genetic inheritances. If I am fortunate enough to have grandchildren, I pray that neither the grandsons nor the granddaughters will have to break the law by refusing to participate in the charade now known as "Selective Service". If they take after their ancestors, they will be willing to volunteer: but they will not let the government tell them where their duties of service lie.

Jim Lackey adds: 

The lack's first recorded Military was the civil war. He survived, so his dated service was near the end of the war. I wasn't an officer so I didn't attend war college or any true military history classes. I defer to Pete or the other officers and historians on this august site.

Yet one can still tell you a map and a compass can and will take you anywhere. With my manchild (17 year old) on a Bama trip he made fun of my in the van nav technique at 6am. I retorted kid we will be cold and tired and driving out of here at midnight. The phones did not work in the valley and I refuse to use GPS on carz.

One of the things about Chicago childhood was it was too easy to navigate by map or memory. For years I traveled by dirtbike on RR tracks or powerline dirt cuts. At Ft. Knox I had no struggle adapting to on foot map and compass…Yet in Germany on a fast moving tank one can out run his map in 5 mikes.

Point? In Nashville or anywhere S or East, one can visit any civil war battle field, take a history book and do the stage to battle advance and or retreat on foot. One can imagine an all day forced march into and out of a fire fight with bad food no sleep and my gauche, I have only explored these fields in good weather.

I admit to never reading one word of Civil word history until two years ago. I find the entire war too much to bear. However a few of the battles S Nashville, and the surrounding areas to be quite interesting on a topographic map reading exercise. I can imagine marching up from Bama, sending my cav due east then attacking on foot with a battalion. There was quite a few balzy moves by the South in the awful war. I find the short swift battles and counter attacks most educational. The huge mass of troops is in all of history, to me is boring. The outcome was decided before day break. The after the fact of what went wrong is almost a bad joke. Some of the recounts on 91 are so silly I laugh. I do wait to read the 2003 recaps in good books if there ever is one.

Yeah the battle of Cowpens in the revolution or the battles of the 1860's around these parts N Ga the Cav counter attacks or attacks on the egregious Union supply lies are very exciting to walk through. Only a history book can describe Grants Forging and engineering work on the rivers to attack mass in force are a bit interesting. WW2 I was forced to learn all about the Battle of the Bulge or Ardens as that was my units history. Patton is far less interesting as a commander when you see his route or axis of attack and know the situation of the German. One day I'd like to visit the Ukrane and or Russia to look at the actual lay of the land. Those were some wicked battles. Yet the history often blames the German command. I am sure there are some reasons on the Map that many have failed to mention.

When you actually walk that last mile and top the crest and imagine an entire Battalion (or Army) when your at Brigade strength after marching all night all day and then go strait into attack at supper time.One can only imagine… as after a full nights rest, then driving 20 miles and walking just 5 up the trail to the hill. Then thinking we will be here all night and all day tomorrow under fire. Good lord, war is hell..

Jan

28

One doesn't recall seeing so many bullish things in a market recap in many years. It reminds one of the bearish lists that Alan Abelson would come up with in the complete enumeration of his weekly articles from 1956 to 2005 that collab and I read from 1956 to 2005, during a period when the market went up about five fold.

Jim Lackey writes: 

If one was at The weekend meeting…

"Say, look fellas, this mumbo of 1000 point rallies and declines of the same on political mumbo jumbo must stop. We need the public in the game and moving their book to cover the eco system overhead of the US market. Look at Mr White, he had to take a pay cut! Why are we losing our friends when we lost many in the crash. This must stop. Let's agree to keep the declines at a swift 300, a gamber smash 20 day max to minimum in three. Yes and lets keep the news flow all declines are healthy and pauses to refresh. HFT keeps stealing? Lets do to hft what we did to the day trader in 2004. Work the open and close as gentlemen and from1030 to 330 lets agree to play it as tight as possible. If HFT does not have the big orders to front all the have is to catch a retail 100 share order at lunch or best fight each other to the death. All HFT not backed by us making markets will be gone in a year.
Hear here..cheers long live the US markets."

Jan

25

 The ease with which Lance was able to maintain his hoax, and the difficulty that others had in breaking it, and the penalties they had to bear, and the great emoluments that were made from it by Lance and his crew should be generalized. What other hoaxes and conspiracies are there in the world? What is the dead weight and direct cost? I have been the victim of several such frauds and conspiracies but was smart enough in the last ones not to take legal action as I knew that my legal and opportunity costs would be many times greater than the possible recovery. I believe several on the list have also been so victimized. How prevalent is it? And how can they be defeated and fought against?

Anatoly Veltman writes:

Not a direct answer by any means, but the first time I heard Carl Lewis respond to a question on how good Ben Johnson was (question was posed way before Ben Johnson got publicly "discovered") — I was quite stunned by Carl's stern reaction. It was like you asked him if he could outrun a Martian in his prime. One might either conclude sour grapes from hints like that, or suspect that there is no smoke without fire. In any case, maybe one of the best ideas is to ask a competitor?

The question raised here, by the way, may be the most important question of the couple of decades. Every single one of you places your livelihood on the line daily in the system which is totally rigged against you in the worst way.

Jim Lackey writes:

I'll guess the opportunity cost of the lengthy background, due diligence to N^th, and flat out distrust of people, most of whom are benevolent and kind, would be something like the a 1,000,000% drift stocks give us per century. I'll flat out call it that being a skeptical, safe person is costly.

If it is too good to be true, it is, and we are not idiots. We all have some street smarts here. A well oiled con? I'll fall for it every time and I usually get the joke. To hell with them. To catch a thief one must be one or a good officer of the law.

David Hillman writes:

Some of the answers we know.

1] always get it in writing, 2] pigs get fat, hogs get slaughtered, 3] know thyself and resist your weaknesses, 4] invest in what you KNOW, 5] there's some business we just don't write, 6] most of us will make more money investing one's self than in someone else, 7] in the Shakespearian spirit…."neither a borrower or lender be", gifts are OK, but don't expect a return, 8] give at the office, 9] don't invest what you aren't willing to lose, 10] don't buy meat off the back of a truck, and 11] never buy anything with "Magic" in the name.

I have almost always found it best to be the "initiator" of an investment, an idea, etc. than to be "initiated upon". Also, when one is in the mud, it's usually better to hint at legal action, then settle rather than sue (The con often has the same legal and opportunity cost as you, at least the same amount of risk of losing and possibly more dire consequences.)

Even if one is optimistic and has faith in humanity, something I share with Lack and the chair, one of the best ways to avoid cons, scams, etc. is just to say "No, thank you" and go on about one's business. Except, of course, when the high school girls soccer team shows up at your door step in short uniform shorts and t-shirts, smiles all around, selling $1 candy bars to raise money. You say, "Sorry, ladies, I don't eat candy, but here…..", then you give them $20 and go on about your business.

Jim Lackey replies: 

David,

First never let little ones have a coke out of kitchen or touch your computer. One of mine must have spilled soda in my key board.

Next I must differentiate a scam from a good con. A scam, as in Fla scams or any mumbo we see on buy it now sites, well, burn me once and the 2nd time I am a fool and we get that joke.

A well oiled Con, do not even try. Do not worry about it. These are men of genius and spend their lives dedicated to stealing. Cops are so silly. It takes the after the fact to catch most cons. Only a genius officer of the law with 100 years experience will catch these guys in the act.

If you ever read or see some of the cons these men come up with… yeah, I guess it's easy to see after the fact, yet I am amazed at the work, the genius the art and science, James Bond movie types.

They seem to prey on our weakness of love and benevolence. Give that up and ………….. well just don't.

I can see why a Mr or others are concerned. We try to warm family for their future. I guess that is what lawyers and trusts are for, to protect the pot.

Trying to prevent the next con is to me like attempting to predict the next tech innovation. We all saw the music deal and the Ipod, but we dissed or didn't get the Iphone's change of the world and laughed at a zillion Ipads later. Now my friends are trying to buy aapl on a pullback at 500. Umm it was 15 or 30 or 50 many baggers ago. Move along.

Anatoly Veltman writes: 

Jim, yours is very good advice on relationships. My grandpa taught me exactly that. But when it comes to today's electronic financial markets, there are a number of caveats. And since you brought up drift again, let me try this: what if today's world heads have no interest in perpetuating the traditional drift? What if we're moving toward a reset, after which today's investors will not regain purchasing power in a generation or so? What statistics can you rely on, if the US has not conducted ZERP in many preceding decades? Nor has it ever experienced the current rate of deficit growth.

Gary Rogan writes: 

To know about a large financial conspiracy for sure you either have to be present during its planning or see overwhelming and pervasive accounting irregularities. How can one ever be confident that some group has conspired for some wide-spread reset? Whose evidence can you trust? If any particular highly-placed person is saying "yes" or "no", or if someone is writing that it should be clear based on this or that, how can you be sure that any of this is a result of a conspiracy and not otherwise-originated processes or actions? 

Anatoly Veltman clarifies: 

 I'm not saying there is conspiracy already in place as defined. There are certainly unusual goings-on:

1. The Fed has never entered the long-term market to this extent before.
2. The banks have never had access to zero-cost funds for this long before.
3. The employment data has never been groomed in particular fashion for this long before.
4. The US deficit has never been in this shape before.
5. The European experiment has not been really tested yet.

There will come a point, when only unprecedented last-moment multi-national "co-operation" will save the humanity. Figure out in which way, and you are golden.

Richard Owen adds: 

I was recently thinking about just this topic and was considering penning something along the lines of "Conspiracy and the Scientific Method" — even if just to try and settle what I think.

My sequence of thoughts about the helicrash in London had made me think of the essays by actuaries about 9/11. How your correct statistical assumption for 9/11 upon first impact was a terror event. One of Goldman prop's guys in London protected his book with Eurodollar to good profit.

Like all complex topics, it is complex. On the one hand, conspiracy or, more often, functionally equivalent structures, are very important in business. On the other hand, I think for the most part "there is no they".

To precis one thought: I think Lance is a good case study: it wasn't an 'illuminati conspiracy': he was widely known to be doping in the right circles. A public charade was maintained by many parties involved. The message was packaged and diluted appropriately for the media. That sort of "widening circles" structure is what differentiates it from the nutty "illuminati" type conspiracy concept.

For a very interesting case study, see Richard Heckmann and China Water. If Heckmann can be taken for a fraud, after huge ground work to avoid so being, so can all of us lesser mortals.

Gary Rogan comments: 

To quote Victor, "Market is pricing in inflation of 1 or 2% a year for the next 10 or 30 years. Yet every repub and every free market person predicts a catastrophic rise in inflation and interest rates. Who knows better?"

I can't agree that all will end well, but my theory of the market is that it doesn't really price what it has no idea about, so they just haven't figured it out. Under such circumstances, for anyone in particular, other than the guys planning it (paging Dr. Palindrome) plus some Free Masons and the Illuminati, it seems like figuring out how and if the unprecedented last-moment multi-national "co-operation" will save the humanity is too computationally intensive.

Jim Lackey writes:

Perhaps Mr. Stefan can overrule me as to when, but one doubts there was ever a time when the elite class wanted to perpetuate anything but the certainty of their own. Unless the rules in the USA go above and beynd the restictions of the EU, China and all, I can't see how anything but good can come out of our future. Less good or not as good as ones past or beliefs is relative. Yet I grew up in the 80s and saw the worst of it all for the good working men. Now we see the recession and depression of finance and perhaps the medical. Let's get the joke no way can the govie medical and finance command such a slice of the economy. It will be shared fairly by free market forces in new buisiness and growth. Construction is back and even oil refineries are being expanded again and never ending job at BP in Whiting IN.

I'll note the huge growth and investment now In Tulsa OK out to Nashville and building plants and things right here in US of A as even the advantage of current energy costs is enough to over come the rise in tax or any other threat. If you do not believe it, the Nordic EU venture boys are in deep buying all they can in Tulsa and kids are running Hass Machines out of their garage as start ups. The innovation is not in Silicon valley and instagram or new social…it's building real for the fracking that may or may not go global.

Tommy Ryan shot me an email back and once I figure out how deep this fracking can go global we shall have better answers to your questions. The DC boys are so far behind the kids. They are busy trying to regulate the white show firms that are already old line banks. From what I can tell, the kids already left for Singapore or some island to trade. I'll never leave the US, but if my kids were not in grade school I'd be Larry's neighbor.

Stefan Jovanovich writes:

There is only one reason to be optimistic about the future of the United States. It is that the country keeps redefining who the 'elites" are. It infuriated Henry Adams that a man with only a technical education could become the 19th century's most popular President. What was even worse was that a jumped up railroad lawyer's son could become the voice of all that Republican hard money. The Zinnistas, who never bother to do any counting, love the idea of the ruling class because that crude parody of Darwin's theory is as wonderfully tautological as the notion that a species' fitness determines its survival. The present Mandarin rule by believers in the pump theory of money spending is truly awful, but it hardly qualifies as a uniquely disastrous deficit ZIRP episode. One can argue that the country's entire history from the 1830s through the Civil War was comparably awful. We are not taught to see it that way because the extravagance, waste and fraud occurred not at the Federal level but among the states, not on Wall Street but among the country banks and state treasuries; but the country's government and official lenders were just as skint as they are now. All of this is now safely forgotten because of the explosion of wealth creation that occurred even in the defeated South in the last third of the 19th century; but no one visiting the U.S. in 1840 or 1850 or 1860 was writing home to tell everyone how marvelous it was. Dicken's sour descriptions were accurate, and Tocqueville's rosy forecasts were already an anachronism by the time they were published. No one was predicting that the Democrats' spoils system would do anything but continue. Yet within 2 decades the dollar had become an international currency and the marvels on display at Philadelphia were putting the Crystal Palace show to shame. We shall simply have to wait and see; the only certainty is that the Times (assuming they can get Mr. Slim to give them the money to survive) will be against whatever the future brings.

Gary Rogan adds:

 This is an interesting case of a hoax that refused to die even when exposed, it's illustrative of how no amount of denial will destroy a hoax that is sufficiently implanted prior to the denial.

The Indian rope trick is stage magic said to have been performed in and around India during the 19th century. Sometimes described as "the world’s greatest illusion", it reputedly involved a magician, a length of rope, and one or more boy assistants.

The trick, considered by western magicians as a hoax, was perpetrated in 1890 by John Elbert Wilkie of the Chicago Tribune newspaper. There are no known references to the trick predating 1890, and later stage magic performances of the trick were inspired by Wilkie's account.

 

Jan

21

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

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

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

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

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

Victor Niederhoffer writes: 

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

Jim Lackey writes: 

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

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

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

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

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

Anatoly Veltman writes: 

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

Jeff Watson writes: 

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

Jan

7

You know what I love? A huge American breakfast!

No one around 'ere knows Steak and Shake does breakfast. I dunno about Belpre, but around these parts any Saturday morning the breakfast joints are lined out the door. Not that IHOP is great, but they always have a wait. Saturday AM, I take my young girls to breakfast. 1/3rd of the time Daddy's choice is Steak and Shake…I can get in and out of there quick. I am sure many here think of breakfast in terms of quickness on work days. Yet on Saturday AM's–Sunday noon just when Church lets out are for lunch and church picnics–Saturday AM is for breakfast!

P.S then go exercise for 10 miles to burn off the 1,000 cals.

Dec

30

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

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

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

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

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

Peter Tep writes: 

"Be like water" - Bruce Lee

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

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

Chris Tucker adds: 

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

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

Jeff Sasmor writes: 

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

Jim Lackey adds:

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

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

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

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

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

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

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

Dec

28

 The "get the joke" theme works well when it comes to business and the trading of stocks and markets. My theory about why it doesn't work in politics, unless you have a man in DC, is that the political men have a two party monopoly over all. They will drive business or the country into the ground simply to disgrace their competition.

This would never happen with Coke and Pepsi or two MX racers or anything I can think of right now in life. The only thing I can think of this minute is when my dad was in Indianapolis for a convention and he went to the rest room. Quail and his cronies walked by and saw working man dad in a biz suit and didn't realize who he was. Dad overheard him say I told those A holes what they wanted to hear. Trust me when I say Dad was a very strong and able man. At the time he was 39 years old.

Dec

24

 I had a few rants and raves vs. the Md's on these lists the past few months. My biggest beef is with congress. The VA has a very good system for those with certain illness. Currently if you have a job that pays above the minimum, congress didn't fund enough for X combat vets. They do not accept my insurance or cash! Huh? It turns out I am fine, and after seeing 4 MD's and the dentist I am worn out. Only thing I know for sure is MD's are fantastic. It's clear the insurance companies are in charge. Soccer moms are excellent at gaming the current system. They get the job done. Medical office management needs reform. They are not happy. I learned that with a big smile, a hello, a I hope you have a great day, you'll get more done with medical clerks than offering 100$ cash tips. I am fine, 100% healthy and back to myself.

Over the past many years we have had orders from Berlin or DC to NY markets. Let's just say I didn't cope well with my lack of sleep. A post a year ago was on how great men must have the ability to go weeks on 4 hours per night and retain their abilities. I can make it three days in a row and work a straight 48, then I crash hard. I need to sleep. The markets know this and turn just as we have hit our exhaustion point.

My Dad, the boilermaker, worked emergencies for power plants or the mills many times in his career. He'd get his over time, bust out 7-12's and run it the straight 48. This is what men do. Yes, this is what women with small children have always done.

I have no idea why it took so long, but dad finally asked me what the hades my problem was. I said its the shifts. Some nights 1 am, some 5 am, some we know there is nothing as of the open so we can be at work 8 am. He said ooooh son, you can't do that… He could never work nights, and never ever do shift work. Son, why don't you get up 0200 every day and work til the close? Take a break and do your research once the kids are in bed, then hit the rack. It's only 5 days a week and that will not be a problem for you. You're tough, go get them tiger. "It's better then 7-12's, welding 200' in the air in February at Bethlehem steel in Gary IN. Immediately my entire life changed. Thanks dad, as a kid I needed you. Now that I have kids, I need you even more.

p.s. Young traders you will read in Ed Spec you must exercise every single day. I don't care if you lace up your running shoes, hop on your bike, get to the end of the drive way and say, that's it for today… The next day you'll make it to the end of the neighborhood, a week later you'll run 2 miles or bike 5-10. The excuse, you're tired, you work 75 hours is the reason you must exercise. Sleep and a consistent schedule is imperative. Traders must work 2x as hard to make the same money we did 10 years ago. Hey, that is true in any sport, job or gig that is a free market. Once you get your head around these facts of life, the stress, the ability to deal with kiddy colds and school functions, the ability to walk away from work, and not think about Sunday night's opens your day of rest will return. You'll be back.

Nov

29

Has anyone on this site profited from the political news flow the past year or two? I ask because I have found it has hurt my results. I am not asking how you do it. I am considering going back to where I began–simply ignoring all news flow. Problem for me is I had nice results on the "get the joke" on biz news flow from 99 to 2006 ish. Yet today I can't read a biz article with out the political being the theme.

Nov

26

 I have a renter and a good worker at our local Auto Zone. Many go there to do their own vehicle repairs. Due to an improving local economy his hours have been severely reduced. He tells me people don't have the extra cash at present to fix their own cars!

Regards,

Alan

Jim Lackey writes:

When I was a kid, the local parts store, like the local ace hardware, was owned by a neighbor. They knew what they were doing. It wasn't difficult. There was only a few brands and few suppliers. The first push to cheaper is better and super sized stores wasn't all bad. Chains of Western Auto/ Sears auto parts is now Autozone, O'Reilly's bought up the regional chains over a Pep Boys that attempted to take the service business from the local car dealers service department near affluent neighborhoods. My dad's buddy got rich by selling out. Those that fought the trend, went bust.

The prolific professor Haave has pointed out many times the local retailer didnt do much for the customers on his way to the country club. How many times have we heard, I can order that for you and it will be here in a couple of days? They cashed out, sold to the chain stores and went to country club full time.

The big box stores offered lower prices on the same brand names with a huge stock. The crash of 2008 changed the way Home Depot, Sears, and too many auto parts men stocked the stores. In the rush to reduce costs and raise margin, there is a limited lowest price stock. The staff is a kid that will run around in circles attempting to figure out the puzzle of where a tool, part, or product may be located. The nice working mom is best as she quickly goes for her radio. She calls the manager in charge and he replies, we are out but will have it in a couple of days.

The current box stores are worse than the local retailer that we lamented as kids. The new toy wasn't in stock 30 years ago. Now the simple tools that have been produced for 50 years are hard to find. No one works on their own stuff anymore. Everything seems to be produced as cheap as possible. When it breaks we toss it in the garbage. I've been married for 18 years and I have bought 5 vacuum cleaners and never once changed a belt. In their genius to lower costs and close stores, the auto parts men are circuit city- ing their way out of business. Auto Zone and O'Reilly have spent a fortune on their websites offering free shipping. Once a do it yourself shade tree mechanic is at that level, it's the same as shopping at Best Buy and ordering off Amazon, with a bonus. Now we find out where the auto parts are manufactured.

A problem with do it yourself, (DIY carz) was having the correct proprietary tool for each make and model car. Many can't comprehend why cars are so complicated and difficult to fix. They are designed to be produced cheap and quick. Car models have a different so called upgraded part for every model year. That, coupled with low cost aftermarket parts, did away with many rebuilt, remanufactured, go to the junk yard and buy a used part for your beater car. The cost of replacing a damaged car with goofy insurance rules on salvage titles has created a business. There is a flood of rebuilt titled cars on Craig's list. The demand for totaled cars by shops that rebuild a crashed out Camry with cheap after market Chinese knock off parts has left the junk yards picked bone dry. (This post was wrtten months ago before the storms, do not even buy a flood damaged car unless you rewire the automobile. That's a big job, I've done it twice.)

The dealer buys his network and charges premium shop fees for high skilled labor. The pep boys of the world or chained repair shops buy non branded premium OEM parts, with a skilled man and a few apprentices and offer slight discount. Many times a Honda dealer charges a lower price to change a timing belt than a chain store. A V-6 Honda timing belt, water pump and seals are the same in most Hondas. The dealer can buy in bulk and have a few mechanics that are so efficient they can do a few per day vs. all day yourself to save 200 bucks. Dealer, 499$ on mailer, me/parts 300, local guy, 500, chain shop, 800 bucks. The dealer is competitive on sale and puts the local guys and chains out of that service. DIY shade tree mechanic says, why bother. It's worth the 500.

For brakes, at over 100k miles you need, rotors, pads, some brake clean and maybe a few tools, impact driver to get screws out of rotors and a air hammer or drill bits when one strips out. We can do autozone duralast branded cheap parts, or made in China and save 50 bucks. O'Reilly brake best which are Affina same factory as Raybestos. You can buy good ceramic or premium Wagner coated rotors and your confusion and parts bill is 300-400 bucks vs 600-800 complete OEM from the local shop, which has their parts delivered from the local Napa store. There is no way a DIY guy will pay 400-800 to have his brakes done, when he can buy the OEM for 300 shipped to his door and have the job done in a few hours.

The DIY guys say give me the cheapest on sale brand for the beater 3rd car or truck. We go OEM for the daily driver and aftermarket premium for the hot rod. What we learned many years ago was a Western Auto parts store electrical switch or new cheapo alternator was junk. It was much smarter to buy a rebuilt Delco or new OEM. One would have never thought this would evolve to all car parts. What is a brake rotor? It's a cast chunk of steel machined to spec. My gauche, they have been making disk brake rotors for 60 years. Brake pads have evolved. The newest cheapo metallic pads slice up a cheap worn brake rotor in a year. Ceramic brake pads are awesome if the rotors are aligned. Guys claim all sorts of problems,with the cheapest pads and rotors from autozone, yet its usually a bad caliper frying one corner of your car. Mechanics swear what were premium brands years ago are now junk as they must file off bad stamping before install.So, what does a car guy do? Go to rockauto.com Now we can buy premium products at low prices. We can buy OEM parts at discount prices. We can know where the parts are made. They tell you strait up where the factory is that makes the parts.If the local parts store doesn't have OEM quality parts for the daily driver in stock, one can buy premium parts for daily driver for the same price. Most likely what I will do from now on is buy OEM quality for daily driver and now the beater eats OEM, no more junk. Buy all filters, seals, that we will need for fall and spring maintenance at once vs stopping at the parts store a few times a year.

The guy at the autozone may be suffering from the Internet. After all they tell you at the checkout to look at .com and the parts can be delivered right to your door for free. Once you go net, do you ever go back? In the old days you could go to the parts store and tell the guy the problem, show him your parts as we always had a core charge,so you took the car apart before you went to the store. They would look, test offer some advice on how to fix a big problem. Now a days we go strait to YouTube, bust out the list and have it shipped UPS or Fed X. One or two parts chains will survive. Perhaps napa as they supply the locals. I do not see a need for the three other big chains, Autozone, O'Reilly and Advanced auto parts. One will be around forever to sell the cheapest priced batteries, oil filters and brake pads and proprietary tools. There is demand for cars that need a jump start to drive directly to the parts store and have a new battery installed. I dunno why jiffy lube doesn't do it.

Every 3-4 years you need a battery. Kids with the subwoofers and amps need optima yellow top, 150-200 bucks and most likely a more powerful alternator. It's amazing how interested a 17 year old will be working on his own car vs the family truck. When he talked stereo equipment it took me an hour to figure out all he wanted vs how many amps of power it would use. Which reminded us how to calculate Mr OHMs how much power watts a stereo would really produce amps x voltage as they don't advertise the loss in heat. Talk about confusing! Car audio equipment is hilarious.

Sure son I can save you the few hundred in install fees and the overcharge on wiring kits and we can wire the car. Yet I have some bad news for you. The 600$ you were quoted turns out you need more electronics to be correct, so the boom boom doesn't drown out the vocals. Dad I do not want real loud. It doesn't matter, just add up the head, amplifiers max amperage and think of driving on a hot summer night with headlights and the air con running and explain to me how a big amp draw is going to work? Your boom boom with be a click click next time you go to start the engine. You need battery and alternator or go with low amps draw big buck class D. I think he has decided to save for a good car and listen to his headphones.

These stereo stores must make a fortune selling mono amps for subwoofers as the kids must come back for a good amp and speakers for the interior of the car then an alternator and battery for when it all dies. I see 2,000 dollar cars cruising around with 1500$ dollar stereo systems. These kids today! We had 1,000 dollar cars with 3,000$ engines. You may ask where did the other 500$ go? We didn't have cell phones.
 

Nov

22

 I wish all the specs and families a Happy Thanksgiving. We all have much to be grateful for. We have many friends that have had a rough year. A few specs deserve a medal of integrity for their actions. I had a bit of family drama. One trip to visit the VA hospital removed any doubt that I am blessed. Some guys do volunteer work. Some do mission trips with church. Many on this site are stand up guys and would give anyone the shirt off their back. For me, to see these kids just back from war, in the hospital, was a life changing event. I give my word to never complain or sweat the small stuff. For that I am grateful.

P.S. meeting the WW2 Vet, that was a card and was smooth talking the ladies cracks me up. There are 90 year old men still marching around telling all that care to listen, how blessed we are to be Americans.

Sep

21

 One finds it very dysfunctional to lose my temper on all occasions, but especially when trading or with the children. It could even lead to tilt. So forgive me if I don't mount the high horse in my disapproval of talk about Fibonacci and Elliott wave and Gann waves on the spec list as our raison d'etre is almost as antithetical to such things as it is to politics, religion, and honeys (may they never meet).

Scott Brooks writes: 

Losing one's temper is among the worst decisions you can make. Emotions supplant logic and all is lost.

I coach my oldest son's high school age baseball team. On that team we have a few hotheads. Those kids are the bane of my existence. They cause us more problems and are the source of 99.99% of the drama on the team.

Their inability to control their emotions only makes the situation worse. And even when I am able to calm them down, get them to reasonably understand that getting emotional was a bad choice, they still get emotional the next time something doesn't go their way.

They boys that have the most trouble when it comes to controlling themselves will likely, IMHO, have a very difficult life.
 

anonymous writes: 

This recent book by John Coates, "The Hour Between Dog and Wolf" is certainly relevant to the topic of controlling one's emotions, though I disagree with some of the author's conclusions. He documents how our biological changes under conditions of risk and uncertainty impact our processing of information, often for the worst. His conclusion that markets would be less volatile if we populate the trading world with more females and older men strikes me as simplistic…some of the greater episodes of tilt that I've noticed have come from members of the fairer sex and those long past their biological primes! 

Jeff Watson writes:

Jim Lackey writes:

A lack of emotion in sports or trading can be very dangerous due to lack of focus. If there was certainty, there wouldn't be an emotion. The most uncertain outcome and the greatest risk is quite often the best opportunity. The fight or flight emotions should not be ignored.

We will make mistakes following our emotions and that experience will teach us when to ignore the fear response. The best trades or moves on the race track are when we are fearful, yet we attack. The best saves are when we begin an attack with confidence, slip, then quickly withdraw. Learning by making mistakes in real time is the only way to gain the experience to overcome.

Deception is a funny thing as it's difficult to call someone on it, unless they are a friend. If you're wrong and call someone out, you make enemies. Which is part of the reason deceptions work on the inexperienced.

At the race track there is always someone mad as Hades. On the track he is as cool and smooth as can be. There is always some one sick, wounded or coming off an injury. On the track he is as strong as an ox. Every year a new pro says after the races, "I thought they were going to fist fight! or Wow! That was an amazing performance for a guy that was sick or coming off injury". The old pros burst out laughing, "ride your own race, kid".

Aug

14

 Until this week's news vacuum for the Olympics and Euro Vacations, in the last two months SNP 500 cash market has had a wave like behavior. Of course, the SNP futures trade all night in low liquidity and are influenced by overseas currencies and markets. Futures prices are more volatile and spotty than the cash daily, open hi low close levels.

If I was a conspiracy nut, I would think insiders know the news and influence the news hopper timing. It's easy to see how the HFT crowd with quick news reading machines jump to bid or offer the markets for an hour. At first I thought how easy it would be to have a buddy writing the news headlines, or drop a fed/ecb easy money story at my time and trade the futures by front running HFT, that is front running the shorts covering.

After looking at the cash charts, Oh my gauche, talk about making some real money. The billions that could be put to work in the cash markets on the big down for 4 days in a row, a small day in between, then rip it back up over a few days. It rallied just enough over the last rally highs, say 7-11 points or a whole percent this time to unload a massive inventory. (Especially easy as everyone remembers what happened last year at this time. We had the declines, but this time we get the fed/ecb news hopper rallies.)

It's not so much the Surfer Sogi's waves never happened before in markets past. It's more about the number of days and the way we rally, or magnitudes/time. The 4-5 downs in a row and the 2-3 fast ups, then straight back down, notice the magnitude! In SNP futures, I didn't catch on. Yet the cash markets look like some electronic or electromagnetic type wave. Could that be a computer model? Humans do not seem to be so passive and so aggressive so many times in a row. After all we seem to learn from our mistakes, right?

Okay, I have no idea what I am talking about in electromagnetic radiation waves or computer models for trading. Yet I see 'near field' with hft and news. Then, no action news black outs is the far fields, the wave patterns this week.

Not only were the magnitudes of the declines and rallies similar, the durations were similar to this wave pattern . vs 2 month SNP cash charts.

Give me 20 minutes and I'll come up with anything more fun than "markets rally on Fed Easing hopes", "markets decline because there might be a problem with the Euro banks", over, and over again.

Aug

6

 How many market maker jobs do you figure were lost in the past five years since HFT market making came in heavy? Could it be 2,250 jobs? What is that at 200k a year per man? 450mm?

The wealth was merely transferred. Even if all was lost to the industry, which it wasn't, the industry would still be a couple billion ahead. It is absolutely amazing how technology has reduced labor costs.

On that note, I see that production plants for cars remain open this summer (an excuse for good labor reports) when every GM car lot has cars and light trucks parked in the fields next to the dealer. I assume some economist at GM decided labor or housing would pick up so they built too many pick up trucks. Yet GM is not selling.

I understand why the GM econ team had issues, with their pent up demand market call. They sold 600-700k pick ups– wait, no, that is 850k a year on average from 2000-07, as we must add Chevy + GMC as its same chassis so their sales dropped 35-40% from mean to this year. They were down over 50% at the nadir. FYI ford F-150 looks to be down 27% off the 2000-07 average of 850k per year to a low of 413,625 in 2009.

Pick up trucks are the best selling vehicle in USA and very easy to classify. Also the gist is, people use trucks to work and play. We have such a long way to go before we come back to full strength. All this talk of feds and bond spreads and government reports, we need a big pick up… truck.

** take my comments as optimistic as to how far we need to grow and improve simply to regain what has been lost, since the crash of 2008, not to mention all the improvements we shall see over the next decade.

(One can argue MPG and fuel costs for 2nd vehicle pick up's 20MPG average vs 30 for a small car. Ford is testing a F-150 with all aluminum body! F is attempting to shave 700 pounds off their trucks. That should get them 24MPG's Yet it's not to sell more trucks. It's to meet EPA Cafe standards for fleet MPG that is at some astronomical number by 2017. It's a costly bad joke.)

Feb

1    Ford F-Series    +16.9%    February 2012    47,273    +25.9
85,766    February 2011    37,549

2    Chevrolet Silverado    -1.3%    February 2012    32,297    +1.8
59,147    February 2011    31,728

3    Ram Trucks    +31.3%    February 2012    22,595    +21.2
40,504    February 2011    18,644

4    GMC Sierra    -6.7%    February 2012    11,306    -3.3
20,823    February 2011    11,696

5    Toyota Tacoma
+30.2%    February 2012    10,662    +35.3
19,560    February 2011    7,879

6    Toyota Tundra    -9.6%    February 2012    6,328    -9.7

July

Rank    YTD Sales    YTD vs. 2011
Year-Over-Year    Monthly Sales    vs. July 2011

1    Ford F-Series    +11.9%    July 2012    49,314    +0.4%
350,455    July 2011    49,104

2    Chevrolet Silverado    +3.5%    July 2012    28,972    -12.5%
223,480    July 2011    33,121

3    Ram Trucks    +22.8%    July 2012    23,824    +17.3%
162,405    July 2011    20,311

4
   GMC Sierra    +4.8%    July 2012    11,105    -11.8%
84,050    July 2011    12,596

5    Toyota Tacoma
+27.0%    July 2012    11,350    +27.1%
78,503    July 2011    8,929

6    Toyota Tundra    +14.0%    July 2012    9,176

May

14

 My first memory of a car that I wanted to see as a pre-school kid was the Shelby Daytona Coupe race car.

That is one of the most beautiful race cars ever built.

Dad had a drag car so naturally I became a drag racing fan. Any kid in middle school would tout the quickest production car, in the 1/4 mile.. Some would say Jeff's 67 big block Mustang, A Dodge Hemi or the1967 L-88 427 Vette, or the big block Camaro with a ZL-1 all aluminum427 factory installed race engine that ran a remarkable 11.40 seconds in the 1/4 with those awful hard compound tires.. and that was the trick of the questions. The aluminum head L-88 that was rated at 425 HP was well over 525 Horsepower. Get this a ZL-1 68 Camaro was 7200 bucks.. a V-8 camaro was 3100$ The engine was a 4100 dollar option. They sold 50 cars. The legend was that the dealers pulled the other engines and sold them to race teams and put in a new motor and sold the car as a custom. In a way the dealers learned and became famous for specializing their cars. Yenko, a famous Chevy dealership that made the Yenko Camaro. Chevy and Ford had to stuff enough of these radical engines in a few hundred production cars and sell them to the public to meet the racing rules of the 1960's.

The Guinness World record when I was in middle school was held by the Shelby Cobra. It ran Zero to 100 MPH and… back to Zero, in 13.x seconds! Caroll Shelby stuffed the Ford racing 427 engine into the AC roadster built in England. So their trick was to sell 300 cars total vs the Factory teams that needed to dump a few hundred engines in a 35,000 production per year Corvette or the Millions of Camaros and mustangs that were sold every year in the late 60's. The Cobra was deemed the Corvette killer. Shelby was a great racer. The line is this, he built custom cars for individuals… sure he did a few hundred a year. I love racers and rule books.

Wiki is funny here: "Shelby American was also highly involved with racing".

Shelby American was founded by Carroll Shelby in 1962 to build and market high performance parts and modified cars for individuals. Some of the automobiles produced by Shelby American were the Ford Mustang-based Shelby GT350 and Shelby GT500. Shelby American also created the legendary Shelby Cobra which was an AC Ace with a Ford V8. The company was also highly involved with racing, with Shelby cars winning many races at the dragstrip, at the 24 Hours of Le Mans and America's first win at the World Manufacturers' Championship.[2] In 1966, the same year that Shelby American helped Ford Motor Company land America's the World Manufacturers' Championship, Shelby American also provided support to Ford for their successful campaign to win the 1966 24 Hours of Le Mans. Shelby American moved in 1995 to Nevada becoming the first automobile manufacturer in Nevada and began production.

Dec

22

 1. There is a critical point in the market, a critical decision that the market gods weigh on a scale like Zeus with his balance scale deciding whether Achilles or Hector will win, that determines the market fate, and it is key and should be the focus of all news stories and market considerations but never is.


2.
Never trust anyone but your family and best friend because everyone is disloyal in a pinch. Peleus was left for dead by his father in law after killing his brother in law to become ruler and this led to the Trojan war. Caesar trusted his best friends but they turned on him when an opportunity for power, money, and romance reared its ugly head.

3. Deception is key. The most successful Greek was the Deceiver Odysseus, and he tricked everyone he dealt with as the market tries to trick you with Odyssean power.

4. The goal is always to come home. Odysseus went home, as does the market. The only loyal ones were the wife and son and the best servant. The market retraces and comes home to break even an inordinate number of times.

5. Never mix romance with business or the market. The Trojan was was started by Paris intervening in romance and being swept off his feet by Aphrodite, and Achilles killed tens of thousands and prolonged the war by 10 years when Menelaus stole his mistress.

6. Don't try to walk with the Gods. Peleus married a half God and married her the last time the Gods and mortals mingled at a celebration and it caused him to be the most distressful of men. Trying to emulate Soros or the other greats is the seed of destruction.

7. Okay, give me the rest. And correct and tighten the above. I'm out of my depth but wanted to get the gist across.

Ken Drees comments:

 Like using a mirror against Medusa, one must plan against the adversary and sometimes use their expected attacks to beat them. Like shielding oneself from the siren song, one must be totally prepared, seek council before the journey (the trade) about what dangers are expected.

Also, it seems every entity in mythology had a weak spot. It's probably best to note these weaknesses in your thinking and in your emotions, not how can I beat the market, but how can the market beat me today?

Bill Rafter writes:

The greatest two rules:

(1) nothing to excess and (2) know yourself.

Pete Earle writes:

One lesson from mythology which resonates with me is the oracles/prophets/predictors almost always forecast correctly, but rarely in an obvious or immediately relevant way. The predictions made are usually realized, but not before taking extremely circuitous, and usually counterintuitive ways to reach fulfillment.

In my experience, predictions regarding the direction of equities or commodities inferred from option markets so often prove accurate…but only after traveling in the most wrong, most unanticipated ways.

Alston Mabry responds: 

 Pete, I think of that as "shaking the tree", i.e., we're gonna get there, but we're gonna shake out as many weak hands as we can along the way.

Peter Earle replies: 

Absolutely. Stop-running and the like as the "gods" way of seeing who's "worthy"; who can withstand the flood, the fire, the sturm und drang.

Jim Lackey writes: 

In 2008 I learned from Ryan Carlson– Sisyphus. There is a little useless book Wit and Wisdom from Wallstreet. So many of the quotes are the exact opposite from 3 pages ago… yet for a day they are seemingly sage advice. Worse for the long term. It's all good advice, yet in the mean time we must eat, and in the long term we all end up dust in the wind.

Traders lament when we miss profits. We are miserable when we lose. If we are not careful we are never happy. I have the habit of having to work myself up into a fury to win a race, pass a test or trade. My wife calls it "business mode" everyone else calls it being a jerk. Finally this year I have the ability to take a loss and this week miss a glorious rally and profit… yet at 4:20 PM its over. I am done pushing the boulder back up the hill for the day. I will return at 1:30am or by 7am, all but two business days a year. It can be torture if you do not like to trade, but if you love it…

Here is a quote from my kids music, "This is Our Science" by Astronautalis: "Our work is never done/ We are Sisyphus".

p.s I notice that if I don't like the rap beats I miss quite a bit of new poetry. I hear my teenagers say random lines and say what! That is amazing. Then I hear the song and say no wonder I never heard that line before. Damn drum machines.

Jack Tierney adds: 

Recently I've been reading up on complexity, system dynamics, and the unpredictable consequences that occur when tinkering with non-linear systems. The markets seems subject to all and, if I'm even remotely correct in interpreting the literature, there's only one certainty: expecting linear consequences (e.g, provide banks with more liquidity, bringing about an increase in business borrowing, resulting in a resurgent economy) is rarely, if ever, realized.

Instead, the unseen effects on unimagined factors, almost always derails the logic train. A source I've referred to on occasion is "Cassandra's legacy." Appropriately enough, the custodian of that site provides an interesting historical allegory, in the form of Goth Princess/Roman Empress, Galla Placidia, and her part in the demise of the Roman Empire. It's a very lengthy read and, unless history like this interests you, tough going. So, a few highlights:

"Managing any large structure is difficult and we tend to do it badly; a whole empire may be an especially difficult case. To do it well, we would need to use a method what I mentioned before: system dynamics; which is a way to describe systems and the relation of the various elements that compose them.

"…every time that the Romans fought the Barbarians, they could win or lose, but each battle made the Empire a little poorer and a little weaker. The empire was using resources that could not be replaced; non-renewable resources, as we would say today….the solution was not more troops but less troops. It was not more imperial bureaucracy but less imperial bureaucracy, not more taxes but less taxes.

"In the end, the solution was right there and it was simple: it was Middle Ages. Middle ages meant getting rid of the suffocating imperial bureaucracy; it meant transforming the expensive legions into local militias; have people paying taxes locally, in short transforming the centralized empire into a decentralized constellation of small states. Without the terrible expenses of the Imperial court and of the Imperial bureaucracy, these small states had a chance to rebuild their economy and start a new phase of prosperity, as indeed it happened during the Middle Ages.

"What Placidia could do as an Empress was, mainly, to enact laws….It seems that Placidia was acting according to her style; ease the unavoidable, don't fight it….Placidia forbade the coloni, the peasants bound to the land, to enlist in the army. That deprived the army of one of its sources of manpower and we may imagine that it greatly weakened it. Another law enacted by Placidia, allowed the great landowners to tax their subjects themselves. This deprived the Imperial Court of its main source of revenues."

Stefan Jovanovich comments:

As much as King George's scribbler Edmund Gibbon despised Christianity, he had the Middle Ages even more because its bureaucracies were the worst of all — local and mean and stupid.

Professor Bard should revise his history. What he wrote here — "Middle ages meant getting rid of the suffocating imperial bureaucracy; it meant transforming the expensive legions into local militias; have people paying taxes locally, in short transforming the centralized empire into a decentralized constellation of small states. Without the terrible expenses of the Imperial court and of the Imperial bureaucracy, these small states had a chance to rebuild their economy and start a new phase of prosperity, as indeed it happened during the Middle Ages." - is nonsense.

The Roman Empire's tax collections were always "local"; that is why Roman politicians were willing to pay such enormous bribes to be appointed provincial governors. The legions were also "local"; the Empire's expansion came from granting "foreigners" - i.e. the people we would today call Spaniards, French and Syrians - the privileges of citizenship, which meant they were also qualified to serve in the local legions. This was equally true under the Republic; "crossing the Rubicon" would not persist as a bad metaphor if Rome's soldiery had been centralized.

As for economics, whatever the "terrible expenses of the imperial court", they were nothing compared to the ravages of coin clipping. The solidus of the Eastern Empire maintained an unchanged weight and measure for 4+ centuries - a record that is likely never to be broken. (It exceeds the span of sound money for the British Empire and the United States of America put together.) After Princess Placida's day coinage, under the wonderful decentralization of the Middle Ages, effectively disappeared.

"Dearth of provisions, too, increased by degrees, and the scarcity of good money was so great, from its being counterfeited, that, sometimes out of ten or more shillings, hardly a dozen pence would be received. The king himself was reported to have ordered the weight of the penny, as established in King Henry's time, to be reduced, because, having exhausted the vast treasures of his predecessor, he was unable to provide for the expense of so many soldiers. All things, then, became venal in England; and churches and abbeys were no longer secretly, but even publicly exposed to sale." - William of Malmsbury wrote this in 1140 AD - the period that Professor Bard praises so highly for its progress over the degeneracies of the Empire.

Hume deserves the last word on this and most other subjects that interested him.

"Mankind are so much the same, in all times and places, that history informs us of nothing new or strange in this particular. Its chief use is only to discover the constant and universal principles of human nature."

Easan Katir adds: 

The Greeks have fooled people since the Bronze Age. Instead of a horse, they now have Trojan bonds.

Steve Ellison comments: 

Jack, the Atlantic had an article about why projects that had successful pilots often failed when rolled out to the general population.

Why Pilot Projects Fail– Here are some excerpts:

Promising pilot projects often don't scale … Rolling something out across an existing system is substantially different from even a well run test, and often, it simply doesn't translate.
Sometimes the 'success' of the earlier project was simply a result of random chance …

Sometimes the success was due to what you might call a 'hidden parameter', something that researchers don't realize is affecting their test. Remember the New Coke debacle? …

Sometimes the success was due to the high quality, fully committed staff. …

Sometimes the program becomes unmanageable as it gets larger. You can think about all sorts of technical issues, where architectures that work for a few nodes completely break down when too many connections or users are added. …

Sometimes the results are survivor bias. This is an especially big problem with studying health care, and the poor. Health care, because compliance rates are quite low (by one estimate I heard, something like 3/4 of the blood pressure medication prescribed is not being taken 9 months in) and the poor, because their lives are chaotic and they tend to move around a lot … In the end, you've got a study of unusually compliant and stable people (who may be different in all sorts of ways) and oops! that's not what the general population looks like.

Dec

13

 On a sunny and breezy day she brought me to visit a blacksmith's workshop in the countryside of Tuscany. It was like being on the run for some reason. Far from our responsibilities. Far from our daily routine. I was living a parenthesis that would be forgotten the next day.

The place was quiet and took us a hundred years back to the past. The workshop was located along the course of a creek. It would produce electric power through a rudimentary water mill. It was intriguing how it would exploit the energy of that flow. I discussed with her parallels between the ever changing shapes and speed of water and trading. Even if characteristics and parameters would rapidly and unpredictably change, nonetheless there was energy in there that was transformed and utilized. That power was used to build something that you could touch, use. Something that you could see and weigh. Not some obscure and confusing virtual service.

Here was this old guy in a little village in Tuscany who would make a living manufacturing handmade nails, knives, tools. At times when in a globalized market you can buy nails from companies in China, which manufacture 600 tons of low carbon common nails per month. She gave me as a gift one of his nails. It looked strong and hard. But it was bent. And crushed.

She handed it over to me and did not say a word. She was waiting to see my reaction. That was her way of communicating ideas and feelings. Through objects. It was a fascinating challenge. Someone clearly tried to hammer that nail into something and failed. When you drive a nail into something you have to hit it hard several times and be accurate. You have to be determined. I thought she was referring to my long quest to be a better trader and my stubbornness. Regardless of my inability to professionally structure my trading operations. Even the hardest and quality nails could end up bent. That nail was about failure. My failure. I was somehow disappointed. I always wanted to be encouraged in my effort. She noticed it. "That is not the right answer", she said. "Unrequited love is very painful. It is something irreversible. You can be tough and strong. But you end up like a bent nail. You can try to straighten it up, but you will never fully succeed. It's like having butterflies in your stomach forever…".

This happened a long time ago, but I still have that nail. It reminds me that we can be hammers or nails and there's not much we can do about it.

Jim Lackey comments: 

A post of greatness. Passion for the markets waxes and wanes over time and with results… but there is never anything more enjoyable or motivating to me as to read posts such as these. Thank you. lack 

Nov

30

 "How Paulson Gave Hedge Funds Advance Word"

Paulson tips hedgies over lunch in '08.

Jim Lackey writes:

Looks like it just happened again. Last week an EU bank was in trouble… Monday they gap it to the moon on the relief nothing went under…and today the news.

All of this mumbo reminds me of Rocky's experiment on unemployment Fridays. Even if you know the number or have the inside scoop, do you have the whole story and or can you predict the markets move, since who else already knows?

My day trader's guess is too few knew about today's news… or we wouldn't have gone 10 over open prices. I used to let these things bother me. Now I just say, now you know…. Now you know why I gravitated to the counters. Win, lose, or draw, do your best.

Nov

22

 Mistake: I was up at 130CST after a nap, and I look at quotes, and say to myself, okay, cool. But I must have shut off the alarm in a sleep walk as it's set to continue to go off every 30 minutes to 5am…ya know, to be sure you're on the job. I wake up in a panic at 3:30 am. I am still in the markets and knew I haven't moved any. I look at the quote now 2 points difference against me. I look at hi low which is 5 points worse. I worked it out and of course, but you're so mad after such a mistake you can't sleep.

I just told my buddy about that and he said, you ever wake up on a Saturday and think you're long and had a nightmare about a crash? Then you realize not only is it Sat am and you're flat? That is funny.

"Good luck": Luck in a casino is for… or let's say cards. Either you're good or not. In general as traders we do not wish each other luck often. I will in this market! In racing we wish each other luck, but its for all to not have a bad crash and get hurt. It is never good luck for your cohorts to win. Team mates, its understood, finish 1-2 and we usually say go get em. Yet in these markets I now consider luck as a very nice gesture and appreciated.

Nov

7

MF Global “was felled by over-the-top leverage and bad derivative bets on debt-weakened European countries.”.

-New York Times.

(Quoted by ISDA)

The main issue is that some segregated funds are apparently missing. Complex economies rely on trust. If actors cannot trust counterparties, intermediaries or legal constructs, the scope and pace of activity will decline, and all actors will suffer.

The Lehman debacle's aftermath concentrated the commanding heights of US finance into a menagerie of TBTF above-the-law cronies.

The control frauds at the GSEs, AIG, and others have gone conspicuously unpunished.

A broad sustainable ramp up in living standards and asset values requires capital allocators to have faith laws and regs and rules and norms will be honored. (For some recent research on this see for example, Zingales: Measuring Trust ).

So don't blame the highly leveraged players. First they came for the highly leveraged specs, and I said nothing…..

James Lackey writes: 

JPM could have said we have a couple billion here on Monday night, or on Tuesday Open; or even Tuesday at 3 would have been nice.. Wednesday goes by,  Thursday, Friday.. Oh Friday how nice.. That was no, let's wait to report we have a few billion from MF here.. Let's imply it was lost or stolen. Of course this doesn't bother hedged unleveraged fee-collectors.

Oct

31

 I took the young man child to work this AM. I realized I have no idea how to drive in heavy fog. We never raced anything in the fog. Let's call it 200 feet max, the ability to see a brake light ahead for danger. I was shocked to have cars passing me doing some 80MPH. I thought if they knew the risk they were taking…Then I realized I have no idea how far this car takes to stop from 55mph. All I knew is that in a couple hundred feet I could stand on the brakes hard, let off them, hard right and motor through the grass at some 25MPH to avoid disaster. (Last thing you want to do in fog is to stop in the road and get rear ended, you need to get off the path).

I figured out that driving on the HWY in fog is too dangerous. The slower side roads with traffic lights is the way to go. One thing racing cars taught me is how dangerous speed can be, even slow race speeds from 250mph at 70-80MPH it's slow motion but the crashes are the exact same as at very high speeds. There is nothing you can do. But if your at sub 40MPH there is everything you can do to avoid destroying your equipment.

What amazes me this year, after all these years of trading, is I am still learning how to avoid bending up my accounts. You'd think your at a safe speed after running 200+ mph all week, your cruising along at an easy 65mph on cruise and you have no idea how to drive in the fog. You must drive to get to your destination. The route and speed you take, just a tiny change in pace and route is a profitable one and avoids a disaster.

Oct

31

 The win of the Cardinals in game 6 of world series combing from one strike away from losing in both the 9th and 10 inning of game 6 is very similar to the win of Djokovich over Federer in the open where he came from one service return away from losing to Federer in the semis'. Both the Djokovich and the Cardinals went on to win the championship. It should give us all hope that fighting to the end is possible, and can snatch victory. It should also teach us never to let up.

I have often seen people give up in the market when one strike away from total disaster, when winning was still possible. Also, much more common the trader who's ahead and relaxes. What did the Rangers and the Federer do wrong in the last service and strikes to give the other side the chance to snatch victory away? How can you and your kids prevent that from happening to you?

James Lackey comments:

In racing we are taught to attack get to the front and go as fast as you can go, push, push, push. However there is one small problem.. Its not that you relax or take a victory for granted.. Oh no.. Its not like traders that are afraid to lose so they book the week month or year and do not take any risk at all. Racers always push, push, push, but it's quite rare to take on a new big risk with a lead.

When we are going as fast as the bike or car vs the track can go.. it's rare to find a new line on the track that is faster when your in the lead at the end of the race. Its much easier to be in a close 2nd and judge your very aggressive risk taking, vs the leaders times on the track. The best ever is when a winless one is leading and thinking too much and the champion is hot on his tail, showing him a wheel in every corner. Hi kidm I am on your 6. From 3rd you can see both lines of the track. If the winless one chokes and bumps the champ you have the double edge.. you know the fastest and 2nd best line on the track and they were forced to slow down for a corner. Its the old joke of life, you win with experience, you gain experience by making mistakes. Mistakes cause losses.. A loss can be you could have won the race but finished second. In the markets there seems to be no shame in finishing way out of the top ten.. All the shame is from blowing up, losing more than X%.. The joke is if your 99th and up small, all your funding may be pulled. Your result is the same, your out of a driving job.

Which to any racer is not winning, at least one day or one qualifier race of a day in a long season. What drives me nuts about the markets is traders walk around and brag they have never lost. The joke is if you do not win or finish in the top three on the podium often in MX your sleeping in the trailer. If you win your sleeping at the Ritz. I am not a big fan of sports where men that finish 99th make millions. I look at it all if your top 3 your great… even once in your life that is awesome.. If your top 10 you get to sleep in the hotel. If your 11th 20th in the USA your sleeping in the trailer. If your 99th and your prospects do not improve by next season.. even if you do not crash and blow up , your done get a real job kid. The results are the same, with out winning, your done.

Mr Vic's examples are for the best in the world. I have never been in the position to be top two in the world and have it all go down to the last race. Yet, for the life of me I can't imagine any man, team or organization not laying it all out there for the win. There is no shame in finishing 2nd at that point and the only risk is blowing it from being too aggressive. I cant find fault in any man that is too aggressive going for the win and losing. Then again, I have been trained to go strait for the lead and push. I hate to attempt a comeback from way behind. There is too much risk for disaster. We do try to take losses like men. The most difficult is being stuck in the pack with all the indecision and not knowing if you have what it takes to get to the front for the race. One bad move and your going to 99th, with severe injuries after being run over by the field.. Even with savings your out for the next season as the injuries are too severe to over come.

There are usually happy endings to all racing stories. The best comebacks stories are from guys off injury, very strong, well rested, but an under capitalized privateer. Any top 10 finish is considered amazing by all. Its one of those times in a career where your satisfied with anything but first place. Only men that have won will understand this next line. It's the only time your happy.

Winning brings all the pressure to continue, therefore your never satisfied. Finishing 2nd is frustrating. Fourth is the worst plate you can run. Tenth is some what motivating as you know the ten kids sleeping in the trailer want your hotel room and are going to do what ever it takes to run you over to get to the top.

Oct

19

Years ago we used the weather as a anecdotal guide to describe the markets and attempt to predict. I went on about air temps, humidity (water grains) pressures to make engine power. Radiant heat for the intraday markets, like sun on the race track or track temps for traction. The gist was how to make more power and when and how to use it. Yet, in heavy weather in racing or trading most have more power than the track can hold.

The get the joke was and still is that small investors have a bit of an edge over the big fish in sloppy or heavy weather days. The gist is simple, we can move quickly and the big boys can't. When its beautiful, those with the most power have the edge. A very strong, steady up market those with the most money, can deploy their huge reserves and win the race. The smaller traders must use leverage, a tonne of leverage to make a living wage in a small range but strong and steady market. The big fish know this and we see little duststorms in the markets. It may cause the over leveraged spec or racers to make a pit stop at best or crash and burn.

I can see and tell the difference in most forms of racing or trading Not that any of us can't tell who has the edge in the trading world. They make money every single day and rarely if ever have a huge trading loss. The form for specs is either we make small money almost every day and have too many huge losses…or brag about never had a huge loss, but seemingly do not make much on balance as they take little risk.

When the rules boards set the parameters for the next season, we all scramble to adjust. For trading it can be a simple margin shift. For racing that is a change in engine specs to reduce power for safety and or to keep the costs of racing down. Perhaps in trading these shifts in margin rules cause as many bad accidents as they cause in racing.

If they lower the power of the race car, we will find another way to go fast and win. We will use aerodynamics and ofcourse, they always change the rules the 2nd race in the season. My gauche, they are going just as fast as last year with less power. How that is done is suspension tech and taking downforce out of the cars. All cars have wings, whether you can see them bolted on or not. A trunk lid can be a wing and normally you will see a spoiler bolted on the car to cause the pressure over the lid to push the car down for traction. The size and shape of the roof changes how the air moves over the rear of the car.. On an Indy car it is obvious. They have wings.

If the rules boards lower the engine power, rule on how much downforce you must have in the car and or how much wind you must push (aero drag) this forces the race car drivers to run in the draft. What isn't obvious is how fast 1-2-3 or 10 cars can run in a draft until you get them on the track. What looks good on paper or in the wind tunnel test, can be a disaster waiting to happen in a real live race.

The most dangerous situation is when only a two car draft is the fastest. A single car is some 2-3 seconds slower than a two car draft, yet three cars is slower than the two.. This causes the 2nd driver to tuck under the lead car. He cant see. The 2nd cars driver's job is run on the tail of the lead car all day long. He fights all day not to lose his drafting partner. If he does lose the draft, he is solo and can't run with 2 other cars to make three as that is slower and breaks up the 2 car draft. He is a dead duck as a solo race car and so is his old partner. It will take them 2 laps to recover top speed. That is only if they all have the same power and must run full throttle all the way around the race track. Let's call it 600HP. Where 800HP they would have to let off the gas before the corners or lose traction.

Now what is seemingly dangerous is a single car that can run 235MPH lap speeds solo.. Oh my gauche they will be going too fast in the draft, maybe 255! So, they get them to run 215 solo.. but then they run 225 in a pair and 229 is the best pair.. Now the best pair is going some 14 MPH faster than a solo car.. Throw in a dust storm, the driver in 2nd, tucked into the draft, has no idea the lead car is about to get off the gas and he spins him out and they both crash.

That is not the real problem, they are all pros, the best in the world.. The real problem is no matter how hard a driver tries and no matter how worn out the other cars tires or brakes are at the end of the races..its almost impossible to pull out of the draft and slingshot past for the lead with an underpowered race car…well….almost..

When you pass a truck on the HWY you can feel the turbulence… But there is a spot right before you pass the truck where a side draft feels like its going to suck you over into the semi.. At 200+MPH that same side draft is used to shoot past a car. That side draft in open wheel racing which unlike stock cars if they touch, two open wheels make contact, one race car can be shot up into the air.. When all have the same power the same set up its like trend following.. one little hickup causes a jam and the chain reactions, cascades, cause a big pileup and at times, loss of life.

Now if all cars had 750 or 800 HP and could go 235 on good tires but had to slow down when on old worn out tires by letting off the gas and perhaps tapping the brakes at some point during that race, the engines power would be a huge help in completing passing in racing. The regulations to keep the power down for safety, actually cause crashes! Its not unlike dry powder in trading during a duststorm on the prairie… or those years where we are all pinned full throttle long… a little zig and zag is required..others are hitting the brakes and have no horsepower to recover their momentum. Those with the reserves can stand on the gas and have the power to overcome the pack.

Oct

19

Gentlemen, unless your honor code keeps you from writing a program and co-locating to join the HFT club, what then are you waiting for, if the HFT has an edge for life. I have been racing one form or another ever since I was 10 years old. I can assure you that if too few have the edge they will change the rules. If they do not change the rules its only a matter of time until everyone has the same machines.

…"as if" it matters much or at all… As my drag racing instructor once taught me on the introduction of school, "everyone looks for the big edge, its the many tiny edges that add up to a razor thin edge, that, with some luck you can win a championship".

The best advice my dad gave me on racing, "son, no matter how much they cheat or race dirty, if you get a big enough lead no one can take you out". That was after leading one of my first dirt bike races when I was 12 years old and was taken out by a dirty rider. That was the only time I ever threw my helmet. The gist of Dad's words after my helmet toss, "I do not care what happened, and listen real close son. If you ever throw your helmet again there will be no more racing, got it?.

Oct

14

A point about HFT that [Fred] is not quite grasping is stock vs. futures. I'll explain it this way. Let's say the CME allowed HFT to use penny quotes and made the rest of us use 1/4 point spreads for the SNP futures. Then let the HFT quote stuff a million prices and quotes within those quarter points as you're trying to route your orders to the CME. ( You think it's just the current bid and ask prices, no, they stuff the entire book all the way up 5 points of 50 cents in a stock).

Let's say you are buying a 100 mini lot on scale 1211.25 down to 1110, it gets to your 1st 25 lot but you are not filled and you say to hell with it, I'll take the 100 down here. The price is now offered at 1112 and normally you can simply take a 1112 offer or at the market get filled 1112.25.

But if your quotes are stuffed and we rally (so you were correct in cancelling and taking them down) your order to buy is so far back in the QUEUE of traffic it doesn't show up on the CME for a few seconds, and you're not filled and if you're using a market order let's say you're now filled (on stocks) 1116 or call it about 1/3rd of a % higher.

Now you'll say, well I was wrong originally and scale should have been… to 1111.5.. or if you don't get it forget it and never use market orders.

Okay now you can see my point [concerning] my 2010 trades when my no fill column in the spread-sheet was huge, or it was obvious that using a market order for as little as 500 shares was as usual an awful thing to use.

On other hand it's just trading. When you get [filled on] your full line you don't want them and when you get a partial fill you know you should be all in.

Oct

14

 Are HFTs like insider traders? Insiders have an edge because they know nonpublic information about their businesses. What edge do high frequency traders have? Do their fleeting orders that are pulled within milliseconds give them unique insight into order flow?

Victor Niederhoffer comments:

No. It gives them the insight to earn the bid asked spread which specialists used to earn and prevents others from doing the same. See Niederhoffer and Osborne on this point jasa 1966.

Vince Fulco comments: 

HFT machines and their algorithms, competing fiercely amongst themselves to be the point of the cathode (bid, the electron receiver) and the anode (ask, the supply of electrons) across which a trade sparks, make it possible for a market order in size to be executed within the public bid-asked spread, which, in stocks is a penny. That means if the bid is 42.12 and the ask is 42.13, a buy order will likely be filled at 42.127566.

Compare to not too long ago when the minimum increment was a sixteenth (six and a quarter pennies) and before that an eighth (twelve and a half pennies.) As long as we aren't competing to be market makers, we the trading and investing public have benefitted from the machines duking it out in milliseconds and micropoints to sell at the ask and buy at the bid. It has narrowed the spread, speeded up executions, and facilitated ever larger trades which do not disturb the price.

This increased mechanical competition provides depth, though it is much less visible depth because the machines can flash in and yank bids and offers faster than the message can travel from your retina to your lizard brain. The supposed lack of depth is simply because the depth has gone stealth. It is there.

The franchises available to humans to make the market are gone are will be in the liquid equities markets. The machines have taken over. Our edges in humans, while they last, must span larger time scales.

anonymous writes: 

This just seems like a better adaptation, right?

At least in stocks, the order book is locked until the order executes, and so there is no way to get into the book ahead of anyone else to provide liquidity for an order as it execute. Similarly, there is no front running possible as the order book is closed.

The NYSE Specialists saw the orders first and made the quotes, and so had an 'unfair' edge. Otoh, they had to buy on zero or minus ticks unlike the HFT guys who can take stock.

As an aside, I assume that much of the price spikyness is is HFT (generation something) gunning against each other.

Phil McDonnell adds: 

 The edge they have is that their co-located servers get to see your order 30 milliseconds before it becomes marketable. This allows them to front run orders with a fast acting algorithm. Their orders are acted upon instantly but not yours. In effect they get a 30 ms option on your order.

The opportunity is very similar to the wire scam in The Sting where the results of the track races are delayed so that the scammers can appear to be picking winners.

Jim Lackey writes: 

 I bid for 5,000 shares of a nazzy stock during lunch and watched the HFT gone wild. When ESRX was pre split and over 100 a share I fooled with it at lunch one day last summer of 2010. It's exactly like us back in the day watching instinet bids and offers and we soes the market makers. Problem is or the unknowing if they can see your market order (even if limit to take the offer) 1 millisecond before it goes public the HFT can take the offer and then be the next higher offer and make a cent or as Gibbons says 1/10th of a cent. That was flash orders that are supposedly banned but who the Hades knows.

However, if you know there is nothing in the dark pool throw a market order up for as little as 500 shares and watch them take it up .125 or .25 cents and right back down. It didn't upset me much but it was funny as back in the day the spreads on those stocks were always .25 and the 1/8th for the most liquid. Order handling rules of 1997 changed the game so market makers couldn't make a living they quit became day traders the bubble hit there were no adults in the nazz and well, you saw what happened.

Opposite was the 666 lows and flash crashes. 

That isn't an edge we had that with ISLD exchange 13 years ago. First in line is no big deal, that is playing low or high tick of the day and or trying to take offers just as you know it's about to take off. We all operate on scales and if your no filled at all or enough it's because you were wrong not because your last in line for the penny or the 1/4 on the futures. Co location is the last thing I worry about. Even if you hide your orders or use limits at the offer prices or even above where your scale would be I do fear shortly the order sniffers would make my bid thru the ask the bid by the millisecond it takes my order to go from my machine in Nashville to the CME. Then see my order codes and say wow this lack is on the ball today and I go to buy 5es and they buy 50,000…

Yes that was a joke.

anonymous writes:

Hi Phil,

As I understand it, if I send an order to NYSE, my order posts to the NYSE book, and if it is marketable, the book is frozen (no new orders into the book) until my order becomes unmarketable. Are you saying that participants other than DMM's can see my order before it gets into the NYSE book? If so, I am headed to OWS.

Thanks! Jared

Tradercraft writes: 

They simply see and can react to bids and offers more quickly. If you put in a bid to buy at 15.23, they will bid 15.232. You pull yours out, and they pull theirs. You can't compete with them at the sparking tip of the arc gap. They make their money by making the market, so the competition is to be the just-highest bid, and the just-lowest ask. They pocket the spread. Outside pay the spread. That is life in the markets.

Vince Fulco comments:

Trade flow for all non-HFTs gets screwed up. Inevitably you have to bid much smaller and with wider scales lessening the chance of a full fill. HFTs exist for no other reason than to goad one to pay up.

Jim Lackey adds: 

I am not going to argue with time and sales whether or not HFT adds or takes liquidity for that second. However all day long they are simply market makers or short term scalpers, so at some point they add liquidity back.

Look at it this way, if a HFT decides to front run and buy and that next second the euro drops and the algoes whack all the bids then HFT is now a seller, which is good for us if we are looking to buy 5-50 or 5 hours later at lower prices. It's only bad when I am not long and we rise or I am long and it's a dramatic last hour decline. How you, me, and traders vs. investors scale is a function of the magnitude of ranges, day change/velocity and margin/firepower at the end of start of runs.

If you want my vote to kill off HFT or triple levered ETF's I say start with the ETF's first. What difference is it to me if its GSCO MLCO, Floorbrokers or HFT trying to rip me off? Yet the Triple nippled ETF's that are used to get around margin rules now make the stock it self a derivative of a ETF or an Index.

In a way its as wacky as that ABX intex or other mumbo that at first was a design to help and hedge a market and became a weapon. CDS ETF's all that off the book. Makes being a bookie a tough game…for what good reason? People gave up on the game as its so rigged now we have 5-10% air pockets in the entire US stock market. Kinda silly…

Anton Johnson adds: 

Will the evolutionary terminus be that the pride of once cooperative machines turn on each other once their prey is pressured to extinction, or will there be equilibrium where the apex predators maintain both population and stress levels that permit sufficient sustenance for their prey to coexist?

Gibbons Burke comments:

They are doing that now. There are algorithms that are designed to exploit the patterns of the other algorithms. There are all sorts of games being played at the millisecond level which are predatory in nature, and adaptive.

Oct

10

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. 

Oct

5

After all these years I just realized what separates the wheat from chaff in leadership. Trading is one thing… in the panic periods most nights are sub 4 hours of sleep and some night none at all. It's no big deal as anyone that is ex military can tell you. However go a few weeks on that and you lose ability. I now get the joke on those who rise above Brigade command or LT Colonel or Top, first sergeant to full bird Colonel or CSGM… they can go the entire war without loss of ability.

Stefan Jovanovich responds:

Schopenhauer wrote that talent was aiming at and hitting a difficult target but genius was hitting the targets no one else had even seen. Nimitz deployed his submarines across a third of the globe to attack Japanese merchant shipping that was considered so secure that convoys were never considered, let alone put into practice. Nelson's "primitive" tactics of heading straight towards the enemy (as opposed to the more sophisticated ones of maneuver, thrust and parry used by the French, Dutch and Danish navies) had the genius of seeing that the pure rage or iron discipline needed to withstand the rain of iron and splinters could only be sustained for tens of minutes, not hours.

Oct

5

Did Bank of America upset every woman in the world with their 5$ a month fee? The wifee just came in with new account info from a local bank. It turns out these little banks are offering lagniappes to new customers. She has been asking me for years should we move here or there for a simple checking account. I was informed I had ignored her requests but enough is enough for her. I look at the stock quote and thought.. why didn't she come with that idea yesterday.. It may have saved us more than a five a month. I didn't see the news till now about how the politicals told all to close their BAC accounts!

Ralph Vince comments:

Yeah, this is a very interesting phenomenon, and it is interesting in a twofold manner:

1. Women seem extremely steamed at this, even more so than men, and ARE acting with their shoes here.

2. Raising prices, on anything in this economic period, is akin to suicide, regardless of your industry. Just ask NetFlix or look at cable-tv providers, look at price-sensitivity on airline tickets or look how well the Chevy Volt has sold.

I think this move from Bank Of America is going to make them do a full-scale retreat on it — should be interesting. (Incidentally, just what IS their product?) 

Anton Johnson comments:

If debit card fees don’t stick, banks will have a revenue reduction, retailers will have lower costs, and consumers will be unaffected or benefit slightly because it is highly probable retailers won't lower prices commensurate with the purported 22 cents savings per debit card transaction attributable to the Durbin Amendment’s swipe fee caps.

Sep

28

 Uh oh: "Share Traders More Reckless Than Psychopaths, Study Shows".

Jim Lackey writes:

Wait, is it a trader, a stock broker, or a banker. The article sources all 3 and they are very different men. The differences are the same as butcher, baker, and candlestick maker… yet perhaps there is some irony. Traders are honest as can be about their trades, losses, lucky breaks and fair dealing with their cohorts, but on the other hand we all carry a copy of Rand in the right hand and hit the buy bailout button with the left hand as we know the markets are in the short term set up to bail out the bakers and candlestick makers… ummm, yeah, I realize we are the butchers. 

Sep

16

 Those rogues can't be stamped out when they lose: "Rogue Trader At UBS Loses $2bn " .

Russ Sears writes: 

Could these problems with rogue traders at too big to fail institutions be the case of misinterpreting the example of leadership. Like the bribe taking cop's son getting busted for theft or the philandering preacher's boy getting the deacon's daughter pregnant. Corruption without some good protection is unforgivable!

Jim Lackey writes:

It's always a tech guy that can hack around the internal risk controls. It's easy to catch a trader in trouble if the managers actually talk to traders. The kid went on tilt and blew it up. Let me guess long the Dax hoping for a bailout. I always laugh at rogue or unauthorized. That is code for throw the new kid under the bus. Fact is no one was watching him.

When I was the new kid we had this happen. A tech guy wanted to be a trader. They gave him the usual line for trainees of 200 shares and no more than 5 positions. Weeks later he had 100,000 shares short of a Broadcom.com type stock right as the launch in 99.

It was the final nail in coffins at that bucket shop. Lessons learned, but weeks earlier I protested the clearing firm change from S to P. I loved clearing thru S and by then it was G. I was promised much cheaper clearing costs and for a day trader , man was it much cheaper… Of course the get the joke lessons learned was the firm was undercapitalized which is not the big deal. They were not smart. You can tell if traders or risk managers are smart on how they exit bad trades. They were obviously not, so the S risk manager boots the firm.

(edited for color but this is the gist of how it goes down) The street is small… "watch out for those guys". p calls late at night..hey what's up with the 100k short 5 against you… Instead of doing the correct thing and saying oh that is fine its a hedge on options position and we will get that trade cross first thing tomorrow…. they said OM gauche! what that isnt ours! Oh yes it is! Oh My thats a 500k loss no trader has a limit higher than 100k loss in a day.. that is not possible! Oh yes it is and dont worry it will be 1.5 million by the open. (no disaster plan)

By the next AM I have friends calling from other firms asking who is the moron that told everyone that NY guy is caught short 100k lot and he's a 200 share trader.. I said I dunno they didnt call me or Id be long with you on this huge gap up as the broker covers all at the open at the market.

We all pulled out money and quit the next day. A week later the firm was up for sale. No one bought it. A month later they were gone. and if the banks didnt have a line to treasury and feds this is how all of these disasters would go down. It's much like the 19th century system.

Not to say that the bank today with their 2 billion in losses should go. Yet I have 5 stocks on my screen right now that under normal trading conditions would be gone 3 years ago.. and we would all be uh better off.

Now you know who sold the Dax under 5,000, 10% ago. lack 

Aug

31

I wonder how much opportunity lost is cost by reading that always bearish website?

If a young man has expectations that his new wife is going to give him lovin' 2x a day for ever and that is his friends consensus estimate…his life will come in below expectations.

Okay so get the joke… its all BS. Yet this earnings cycle stocks were taken down a bunch and I kept reading Bloomberg say "earnings come in over expectations" when 2 weeks prior they were tankin' down.

Now it's all about the EU, but I save this to remind me not to read too much current events… here was circa end of 2007 start 08.

Aug

29

 You can now visualize a panic of a short squeeze. The panicked buying of bottled water, bread and gasoline comes in, and no it doesn't matter how many storms in a row or if this one was bad or not for the next time. That short squeeze always plays out as the retailers only let the shelves stay so full. The Florida boys are experts as they an predict how many pallets of water or how many trays of bread to bake. Yet the shelves are always less than full as it's imperative to sell out on the panic and not get caught long as everyone eats out the next week.

It's quite manly to go on personal generator power. As Jay posted it's best to run your generator at your AC machine's junction box back into the house. That's a good safe spot to tarp your generator so no Monoxide can get back into the house. If you run them in the rain, even a Honda will blow up if it sucks water into the engine.

Now once the chain saw is on, it's the second tank of gas, you may think, wow I am getting good at this. Your productivity sky rockets and this will not take as long as you thought. Stop, tighten the chain, make sure there is oil in the chain lube… and slow back down. When we get too confident with our machines with engines is when accidents happen.

Good luck with the clean up! The Hurricane news tell is when they stop talking wind and start with the storm surge. Then it is a simple big rain storm.

Aug

26

 I rode out and drove away from Hurricanes in Fla. Now I'm in Nashville and my flight is cancelled for thunderstorms today at JFK. I heard the same BS on stand by for Army flights. There is always a way. Turns out they were behind from the earthquake's few hour shut down. Throw in a thunderstorm and the fear of the hurricanes and basically the airlines are telling you to not fly.

I am not sure if I am mad about the trillions of dollars blown on nothing when we could build some good airports and tech to handle a T storm stoppage. Or is it just the fact that American airlines are so cheap and efficient that one little hiccup shuts them down? Or was it the regulations of the Jet Blue ice storm fiasco a few years ago. Basically the nice looking young lady said, "you don't travel much now a days, huh?"

I thought it sounds exactly like Army stand by. Well maybe we can get you in by 8:30 Fri… for sure noon Sat… Oh to get back home… no way to tell.. think Tues or Weds. I never flew Army free air flights for that reason. First time I ever did an airline said "sir would you like a refund?" I dunno I guess this is first time I ever didn't want refund and wanted the flights. This is also first time I realized that Nashville is an awful flight route vs Fla or Atlanta or Chicago where I lived. No wonder they call us the fly over states.

Sorry I will miss you all. Lack

Aug

23

 WASHINGTON

Mon Aug 22, 2011

3:39pm EDT(Reuters) -

Goldman Sachs Chief Executive Lloyd Blankfein has hired Reid Weingarten, a high-profile Washington defense attorney whose past clients include a former Enron accounting officer, according to a government source familiar with the matter.

Full article here

Aug

21

 Aug 19 (Reuters) - U.S. technology company Apple is now worth as much as the 32 biggest euro zonebanks.

That reminds me of my day trader buddy that told me in 2002 that Broadcom's market cap was bigger than all the gold stocks he just bought for buy and hold. I asked him a few years later how it was working out: "Great, if I would have held them."

Aug

8

 Between and betwixt all of the market volatility, there was an under-reported litigation development on Thursday — which can both explain some of the volatility in the financial stocks AND can explain BNY/Mellon's decision to impose a fee on parking cash. This development could be a game-changer for the capital markets. (Bigger than Spitzer going after AIG for example.) During the week, the New York Attorney General sued BONY/Mellon for breach of fiduciary duty as trustees/custodians! (I suspect almost nobody noticed this.) They are the largest custodian in the USA.He's seeking penalties and restitution.

The issue at hand relates to their role in the 8+ Billion settlement with BAC (which was on the rocks already). HOWEVER, that the AG would sue a trustee/custodian (at all) and under these legal principle is a game changer — that could have repercussions for the way the entire capital markets function — and the costs of being a custodian/trustee. Being a trustee/custodian has always been a sleepy business — where you collect a couple of basis points — and fill out forms. To the extent that trustees/custodians now have billions of dollars of liability changes the landscape forever.

Jim Lackey writes:

Someone posted a chart Friday of Preferred stock index or ETF. It was down near 2% and the posted yields on some of these things are near 7%…. like ISEE after the '09 bank lows. There was one other hick up in April 2010. It was calm seas until Thursday. Friday am looks like get me out now orders. 

There are only a handful of global custodians — and when the stock market is gyrating, it's different to discern the chaff from the wheat. However, I believe that the AG's interfering in private litigation under these legal principles is just as shocking as BNY/Mellon's charging a fee for holding cash. The timing of both announcement, I believe is not a coincidence. IMHO this litigation was by far the most bearish development of the week.

Aug

5

It's strange that traders work so hard for days during calm seas to make 5 or 10 pointers, yet they always fear at any moment that a twister can kick up a dust storm and destroy the month. Yet, in a panic a trader gets lucky and is up 10 points in 10 minutes, or up 20 on a random number generated news story, and you almost have to reach through the data feeds yourself to get the guys to sell.

It must be why some fighter jets have 2 men in the cockpit and race car drivers are totally dependent on their spotters and radio.

Aug

4

Traders are so convinced it's all rigged so we get this comment from a chartist.

"Can you believe this is the low of the day.. that can't be a coincidence."

SPX Low 1,234.56

Jul

21

1:28pm| The New York Times report was written by veteran journalists Carl Hulse and Jackie Calmes. The paper appears to be standing by them, despite denials from all sides.

________________________________

1:25pm| Carney says report that administration informed congressional leaders that a "grand bargain" was near "is incorrect." Says discussions going back and forth..

________________________________

1:25pm| A spokesman for Eric Cantor tweets: "To be very clear: @GOPLeader Cantor is not aware of any deal or aware that any deal is close."

________________________________

1:24pm| Carney says he "will not address current negotiations and the parameters of them." Won't comment on whether tax reform, entitlement cuts still on the table.

________________________________

1:23pm| NBC News: White House Legislative Affairs Director Rob Nabors seen waiting outside Speaker Boehner's office..

________________________________

1:22pm| NBC News is reporting OMB Director Jack Lew was spotted going into Senate Democratic lunch..

________________________________

1:21pm| Carney: The suggestion we are close to a deal is incorrect."

________________________________

1:20pm| Carney: "There won't be a deal until there is a deal… Not having one now doesn't mean one won't be reached… We are cold-eyed realiists to the challenges to reaching a deal." 1:15pm| Carney says "We are not there, but we are hopeful we will get there." Says White House confident a $3 trillion to $4 trillion deal can still be reached.

________________________________

1:12pm| White House Press Secretary Jay Carney has started his briefing. Updates to follow.

________________________________

1:11pm| More from White House Press Secretary Jay Carney: "there is no progress to report but we continue to work on getting the most significant deficit reduction package possible.” He added:”Talks are ongoing over the phone and in person at the staff level and above."

________________________________

1:10pm| The New York Times appears to be standing by its reporting, tweeting again: NYT NEWS ALERT: Obama and Boehner Close to Major Budget Deal, Officials Say.

________________________________

1:09pm| Sen. Tom Coburn (R-OK) says Gang of Six deal can't be passed by Aug. 2 deadline. He wants Cut, Cap, and Balance to be the final deal.

________________________________

1:08pm| The New York Times has posted their report here.

Read the whole thing here.

Jul

19

 I still ride/race little kid BMX bikes. My buddies get a kick out of the fact I don't show up for 6 months and blow past them down the straits with all the jumps. I get a kick out of the kids. "You don't look that old"… On the feeling old front, it takes forever to recover after vigorous exercise. We must force ourselves to just ride. I got out almost every day and never feel like riding. Most days it's a lap around the neighborhood with the little ones. Once a month or so, hit it hard. You will feel great. If you hit it all too hard, feel sick, after an hour or so you feel awesome. I feel like a kid again.

On the roadie bike front, I have never been a roadie. My dad would not allow me to ride one of those "bikes with those stupid skinny tires that can get caught in a drain and you do a face plant".

Yet, road bike training is one of the best ways to train to race MX motorcycles. Try to ride a long duration with a high rollout gear on a BMX bike and you cant average more than 15MPH. A road bike you can really fly. The new breed of mountain bikes are awesome. They have the Urban series that is a BMX frame, Fox shocks so I can ride long distance and still ride down stairs and jump over anything. Nashville is a blast to ride downtown. I am going at 6am.

If you don't ride much or for a long time your butt needs to get into bike shape. Nothing gets more sore than your hind end. It takes 2 weeks. Also you do not use your hamstrings much or at all riding bikes. It's imperative to stretch them anyways. After B ball or a run you can always feel your tight hammys. After vigorous bike riding you can't. But your quads get stronger so there is a ying and yang. Stretch them our or your lower back will hurt like all hades. It's not your back!

FOOT DOWN is a great game to play in the drive with your kids to learn bike skillz. Mark off a box where if you leave, go over a line your out. We play drive way to drive way. You ride and try to make the other riders put their foot down. You're not allowed to touch or grab. It's not good for 5k road bikes in case some one does hit your wheel. I knock all the kids in the neighborhood out. I can pull in front of them stop, hold my brakes and still balance for a minute or I bunny hop out of a jam.

We can teach - 3 year old kids how to ride bikes. They can race at 4 and for sure by school age. For years we took the cranks and pedals off the cheap walmart 12" wheel bikes and let them scoot around. A few years ago our BMX buddy starting this company. Of course he has little show races about 30 yards on some part of the track and it's cute.

 Kids don't ride bikes much anymore. I encourage every kid to ride a BMX bike or buy a MX trail bike if they are not interested in team sports. The biggest group of racers used to be 11-14 year olds. Now, not so much as both parents are forced to work and can't bring their kids to the races. Our biggest group of new racers is 5-8 year olds. That is the time where kids cant dribble, hit or catch a ball that great. Also that is about the time where mom has second child, a new baby in her arms as the little grommet is out there racing their new bike.

There is something to economic numbers/jobs and sport participation. I noticed the same thing in the 80's. It was a wicked recession back in the day and dad didnt work much and if he did it was out of town for a boiler repair job 4-6 weeks working 7/12's. So we never went with out. Yet once the economy picked back up the amount of racers attending the big races dropped off. I see that again now. People say, that is because the economy is so bad. I say, naaa it's because people are going back to work. They need to make some cake. Many men were out of work during the recession. Americans said, fine, screw it, I am going racing with my kids.

Now it's time to start to "get back ahead of the game" I hear that a lot lately, and it's an attention getter. Dad said that so many times. I can tell you one thing for sure. It's very difficult to be a sprinter after you hit around 40. In BMX racing we have Vet Pro and its 30. I complained for years it should be 35, best 37 and over. I see a few guys still in pro ball in their pate 30's. I didnt lose much sprint speed from 28 til 38, but I lost a ton of power at 39. Yet endurance sports can be played forever. My wife as most female runners do got better with age. All my X Motocross buddies are back racing. They had some vintage class the 50+ guys raced and my buddies started there. Glad I didnt fall back into that. They are all now on Brand new Honda's and Kawasaki's racing Nationals. Oh it's not that I can't or I am scared of injury. Perhaps that's a problem. Naa, the real problem is it's costly and I'd spend time away from my little girls. My son is Mr. highschool football and escaped the racing addictions. I'd hate to take my little girls (who do race BMX) to MX races and have them want to be a girl pro. Yes, now a days there are awesome young women that are professional MX racers. They are fast!

Check out Ashley Fiolek.

Jul

19

 Have the dept of treasury's statements ever not been a theatrical farce?

Ken Drees writes: 

I was taken in by the hushed tones of interviewer, Steve "lies" man, the dimmed lights, the Maria Bart dusky set, and the hunching closeness between the two — I thought it was a soap opera. I thought either a kiss was coming or an unannounced visitor was going to enter stage right.

I mean if Obama doesn't get his tax hikes we are gonna get it — screw the seniors, scare the markets with a down day after the t secretary gets in your face on fin tv (lesson here), and all the other drama that this market is trading about. I mean monday morning theatre!!!!!!!

Is this the norm? Maybe this is not a meal for a lifetime –but it's surely market popcorn. 

Jul

12

 Suddenly, after all these years they can not use the 5000 - 10,000 workers. Even if (which is usually total BS) the average comp was 100k and they did save a billion.

Goes back to my 10 year discussion we have had on this list going back to INTC and Andy Grove's mumbo: "America doesn't produce enough engineers" Yeah, that will work for 15 bucks an hour.

Read the full article here:

Cisco Systems Inc. (CSCO), the largest networking-equipment company, may cut as many as 10,000 jobs, or about 14 percent of its workforce, to revive profit growth, according to two people familiar with the plans.

Jun

15

 So some more "how's business in the heartland" observations. I needed some new tires for my trailer and ended up at a truck towing/repair shop in southern, IL last week. Had a lengthy talk with two individuals, one (Randy) who was the owner of this shop and two others. The other was a stock broker turned truck driver for whom I have no name. Randy's observations (with a grain of salt, since it was 10pm and he struck me as someone who likes a good story…)1) Truckers are keeping their trucks longer. He attributed this to distrust in the new diesels which are designed to meet new emissions requirements. The new designs have proven difficult to maintain and expensive. He is doing a booming business repairing the old ones and "deleting" the emissions from the new ones (think back to the introduction of the catalytic converters). Those who want their new engines "improved" have to sign a waiver that the vehicle will be used for racing…. I suspect it maybe because the truckers can't get financing..

2) Randy's towing business is booming to the extent that he is turning away "road side service" contracts that would cut into his margins. This of course drives some of his repair business. The booming towing business would seem to indicate that the operators are delaying preventive maintenance until the trucks break as well.

3) The stock broker/trucker moved from Wall Street to the freeway in 2002-2003 to get away from the stress of dealing with clients. He is an owner operator under contract with one of the large brokers. He lives in Florida and is home about 1 week a month, though he mentioned taking loads to specific locations to visit his friends. Plenty of work, plenty of money to be made.

4) Also spoke to a tow truck operator who says the new Ford diesel pickups are dying like flies on the freeway. This is a new engine specifically designed by Ford to meet the new emissions standards and it is not doing well. Ford has done very well in the heavy duty pickup market in recent years (F350/450/550) and if their new engine does not hold up, it will affect their standing.

5) My observations about truck vs car traffic are holding up. Long distance traffic (inter city) is predominantly commercial/truck traffic. The hotels that are busy seem to be catering to the contractor/temporary worker market. The big trucks are definitely driving slower than the have in the past. I think I've only been passed twice in the last 2 days by a semi.

Jim Lackey writes: 

The important thing for Nat Gas as a fuel to work is stable nat gas prices. Fleet managers cant have the Nat gas go from 4-16$ back to 4$. All the new supplies LNG to CNG and the new transportation ships and lines are all nice. There is a need for just in time supply. Storage is a problem.

Yes! Nat gas works great as a fuel for cars and trucks. The problem is going from the pipe in the ground and compressing and filtering the gas at home or at the fuel stations. I looked into it for hobby use and it's a no go for me in the garage, so far. The fuel tanks to run a gasoline and nat gas system take up too much room unless you have a big SUV/ truck. If you're solo Nat gas it's then a round trip 300 mile only vehicle.

Westport technologies WPRT and FSYS Fuel system solutions are my idea for investments if this tech ever took off. It didn't. UPS and other fleets use WPRT at 10k a click for LA garbage trucks and 50k for long haulers. The costs would pay off if you had a route like UPS USPS and wanted to invest in the fueling station and systems to run all your tools..forklifts, trucks to tractors.

I am unsure on the delivery costs for LNG to CNG via trucks like they deliver fuels today. It only made sense to me to use the normal Nat gas lines, but then it needs to be compressed and water free. I don't want a CNG tank at my house. Perhaps when all my kids are driving and I own a fleet, Ill buy a Nat Gas compressor and build a shed refuel station. I do not want to burn down the house.

The Germans and Detroit Diesel spent a fortune in the emission tech. Mercedes and BMW use it in their small diesel car engines. Here is the gist.

Cummins, Detriot Diesel and all the engine makers had to deal with how to comply with the new rules set in 2007. Most bought new trucks right before the financial crises..so it was a double hit to production. In New Ford F series trucks the new engine is a 2009 design.. Cummins (for light trucks) is 2007, so lets say they have many of the bugs in the electronics, fuel and mainly the exhaust systems worked out.

The auto makers spent a fortune on Hybrid tech.. That is the gate way to fuel cells.. the cars are powered by electric.. The truck makers spent a fortune on clean Diesel tech. It's a hard lobby job to get all to say let's go nat gas.. even if it makes perfect sense..therefore don't look to free markets for solutions even if nat gas trades at a huge discount per BTU..

On Ford F-250-350 breakdowns…

The old school Ford 7.3 Powerstroke was the engine that went a a half a million miles. The new school Electronic fuel injection 7.3 to the mid 90's was even better with electronics and intercooled turbos.Ford made an awful 6.0 diesel in the 2000's that few liked. The 6.4 was the new engine for the 2008 rule change.. apparently it wasn't a good engine either.

The new Ford 6.7 'scorpion"is a killer engine. However all diesel truck engines suffer from soot clogging up the DPF.. This is how and why new trucks break down.. If you notice a new truck there isn't black smoke out of the exhaust.. here is how that task is accomplished.

"DPF Filters require more maintenance than catalytic converters. Ash, a waste product of burning away the soot during regeneration, builds up on the surface of the filter and will eventually clog the pores. This increases the pressure drop over the filter, which when it reaches 8 pounds per square inch (55 kPa) or higher it will cause a significant increase in NOx emissions and fuel consumption. Regular filter maintenance is a necessity."

and check out how this works.Regeneration is the process of removing the accumulated soot from the filter. This is done either passively (from the engine's exhaust heat in normal operation or by adding a catalyst to the filter) or actively introducing very high heat into the exhaust system. On-board active filter management can use a variety of strategies:

1. Engine management to increase exhaust temperature through late fuel injection or injection during the exhaust stroke
2. Use of a fuel borne catalyst to reduce soot burn-out temperature
3. A fuel burner after the turbo to increase the exhaust temperature
4. A catalytic oxidizer to increase the exhaust temperature, with after injection (HC-Doser)
5. Resistive heating coils to increase the exhaust temperature
6. Microwave energy to increase the particulate temperature

All on-board active systems use extra fuel, whether through burning to heat the DPF, or providing extra power to the DPF's electrical system, although the use of a fuel borne catalyst reduces the energy required very significantly. Typically a computer monitors one or more sensors that measure back pressure and/or temperature, and based on pre-programmed set points the computer makes decisions on when to activate the regeneration cycle. The additional fuel can be supplied by a metering pump. Running the cycle too often while keeping the back pressure in the exhaust system low will result in high fuel consumption. Not running the regeneration cycle soon enough increases the risk of engine damage and/or uncontrolled regeneration (thermal runaway) and possible DPF failure.

Diesel particulate matter burns when temperatures above 600 degrees Celsius are attained. This temperature can be reduced to somewhere in the range of 350 to 450 degrees Celsius by use of a fuel borne catalyst. The actual temperature of soot burn-out will depend on the chemistry employed. The start of combustion causes a further increase in temperature. In some cases, in the absence of a fuel borne catalyst, the combustion of the particulate matter can raise temperatures above the structural integrity threshold of the filter material, which can cause catastrophic failure of the substrate. Various strategies have been developed to limit this possibility. Note that unlike a spark-ignited engine, which typically has less than 0.5% oxygen in the exhaust gas stream before the emission control device(s), diesel engines have a very high ratio of oxygen available. While the amount of available oxygen makes fast regeneration of a filter possible, it also contributes to runaway regeneration problems.The new big truck buying push….

As of December 2008 the California Air Resources Board (CARB) established the 2008 California Statewide Truck and Bus Rule which—with variance according to vehicle type, size and usage—require that in-use diesel engines (in California) be retrofitted, repowered or replaced in order to remove at least 85% of particulate matter (PM) emitted from diesel engines. Retrofitting the engines with CARB verified diesel particulate filters are one way to fulfill this requirement.[1] In 2009 the American Recovery and Reinvestment Act provided funding to assist owners in offsetting the cost of diesel retrofits for their vehicles.[2]

Jun

7

International Paper (IP +3.34%) said it would pay $30.60 a share for all of Temple - Inland's (TIN +42.36%) 108 million shares outstanding. The deal represents a 46% premium to Temple-Inland's closing stock price of $21.01 Monday.

Just when it looks like the markets are doomed, companies pay a high price to acquire their cohorts, which we have all seen before in bull mania past. Yet how common has it ever been to spend so much, and that the acquirers stocks goes up as well as the company purchased?

That doesn't seem bearish for stocks.

May

30

 One has to wonder why this whole "college is a waste of time" meme has suddenly become so prevalent. Is it because so many people have trouble with college loans? Too many writers who have nothing more to say about O's birth certificate?

Thinking one can predict the future based on what one does in the present is a persistent human foible. For sure a lot of kids go to college who don't need to. But is this truly something new? Would anyone sensible make a decision based on what they read about this subject? Unfortunately some probably will.

It remains to be seen how employers of the future will react to resumes that state "I am really smart but I didn't go to college because I read online that it was BS; but I really am smart."

One of my kids is 1/2 way through college and the other is just entering this fall– and I don't spend any time at all thinking it's a waste of time or money; it's been a path to prosperity in my family where none of the previous generation had any education past high-school (if indeed they finished that at all).

On the other hand my wife and I went to CUNY at a time where the cost was $35/semester. That's not a typo.

But I still wonder what's behind the impetus to discredit higher education?

Ken Drees writes:

I get the vibe that the intent is more of a cost justification issue. You don't send a kid to college who gets middle of the road grades and majors in marketing anymore. The job market out of college is poor and will continue to be poor. College now will set you back serious money as a percentage of household income and there will be serious debt burdens on the student and parents upon graduation. You can't put the college payments on the credit card or the home equity loan anymore.

I believe that a college bound child needs serious career planning up front, which is tough to do since kids sometimes do not know what they want to do prior to going off to the higher education arena. Like the union bubble which is feeling the backlash from the debt riddled state pockets empty reality, colleges need to step back, cut back, stop the pay raises–else enrollment is going to crater and the pie shrinks.

Victor Niederhoffer comments:

 A college education will always serve as a signaling device to employers and partners and parents that one is capable of being admitted under highly competitive circumstances and then has the fortitude to stick with the program, and finish the requirements, and the moral fiber not to have been kicked out. The signaling will always be of value and the rate of return from college should stay relatively constant.

Russ Sears comments:

Very similar qualifications could be said about homeownerships, commitment to paying a mortgage and good citizenship of being a good neighbor. When a persons limit to leverage has no bearing to what they could reasonably expect… many with nothing to loss will gamble with somebody else's money. This of course creates a bubble in some areas where there will be large oversupply of X degrees. For instance everybody will think in 2022, "what were they thinking taking forensic science and $100 grand of loans?"

The problem is when you use the argument that is it "should" be worth it to argue that everybody has a "right" to upgrade there lives. Further when you grant this "right" to any 18 year old capable of getting a high school degree you are bound to get many that should not have been given this privilege without working a few years and tasting responsibility. I still believe orginially there was a segment of responsible people that were granted sub-prime loans. These people however, proved to be the exception to the rule when everybody was given this right.The difference may be that those youth that are the sharpest will see the "bubble" within these areas and avoid them.

Could we be looking at the class of 2011? on a resume and subconsciously think what a deadbeat?

James Goldcamp writes: 

 I agree with chair's analysis of the signaling value of education, but one also wonders at what cost. I would find it hard to believe the return on invested capital has not gone down with both greater real costs and general degree (volume) inflation over time. It occurs to me that a rigorous self study program with standardized tests against which one could be compared might provide some lesser but nonetheless valuable signaling vehicle at 1/20th the cost of the current college education. Interestingly, one hire we had years ago was more known for his perfect SAT than his multiple Ivy degrees.

Thomas Miller writes:

This anti college education and anti home ownership "debate", seem to reflect a negative attitude that is growing in this country. The theme seems to be "dont even bother to go to college or strive to own your own home. it's not "worth it." just give up and settle for less." Of course college education or home ownership is not for everyone, but those that propagate these defeatist platitudes, (especially the ones that do it on internet blogs read by a large audience), are doing a great disservice to young people. "just settle for less" is not the attitude that made this country great. A generation ago, many that chose not to pursue college could get a decent job with benefits and be fairly sure of being able to retire from that job. There are very few of those jobs available now. The gap between those with a college degree and those without will continue to widen.

Russ Sears comments:

 I believe those that are "anti" college are saying take more risks start a business instead.

And for those that it will not turn out for the better, it's not good government to guarantee the loan. More responsible decisions will be made if they have to compete for access to loans like anyone else.

Ralph Vince replies:

I cannot speak for others, but I am not advocating a "give up," or defeatist attitude here. I speak with those who have children of college age frequently, as well those who ARE of college age frequently too. One of these day, I'm going to stop speaking to people who don;t take my advice (most people are incapable of taking advice, we simply have to learn things the hard way, and usually more than once)

I hear an awful lot of talk from all of these people that a college education is necessary to enter the American job market, as though it were a ticket to the dance, a means to an end as it were.

(I should point out in full disclosure I do not have a college education. I am self taught. When I decided I should learn math, I started with algebra, geometry, trig, analytic geometry, calculus, topology…..eventually stochastic differential equations, which is used (with near exclusivity) to model prices with (a nice target for a math track for someone interested in the markets, but I find these methods model prices with a degree of reality akin to Oz modeling Kansas). When I wanted to learn literature, I started with Homer, then Virgil….through to the 1950s. Of course one cannot study everything and anything, you have to make selective, intelligent decisions (which is where talking with others comes in) and someone must WANT to dispal their ignorance (and this is the key attribute, the acknowledgement of our ignorance and a desire to overcome that — whether formally educated or not).

The last time anyone ever asked me about my educational background was probably when Reagan was running against Carter.

So when I look at what people are learning, and WHY they are learning it, I DO come away in MOST cases with a "Why bother with that?" attitude.

So once we acknowledge that there are two reasons for edication:
1. To dispel our ignorance, and ultimately, to study material we are passionate about, should have such good fortune, and
2. To make ourselves, personally, a marketable product (i.e. posses a marketable "trade," be it electrician, brain surgeon, or truck driving certificate)

people can make better decisions. Unless they are fortunate enough to be a trust fund kid, they need #2. A mere college degree does NOT provide that — this is a wives tale that floats about America wherein a lot of money is being wasted in its pursuit.

#1 is a luxury — one must have the good fortune of finding what fires their jets at a young age, aside from pornography, and find a way to pursue it. If they have the resources and time, college is the way to go. If not, anyone with a spark and a modicum of resourcefulness will find a way to pursue it.

I've spoken of this before. The number of persons from the 2000 census to the 2010 census is up 20%, the number of households, nowhere near that amount. Clearly, in the not-so-distant future, either much housing must be created or much work must be done to convert the "cul-de-sac development" McMansions into 2 and three household homes. What young person is a yeoman plumber out there, or plasterer? Not many, certainly not many over the past 10 years — but it is the fastest track to acquiring #2, above, for most.

And most need #2. Not everyone needs #1, and if they have that luxury, nothing will stop them from pursuing it. But the notion of borrowing a lot of money for a ticket to a dance based on some parent's misguided model of reality (Oz!) is something the educational institutions feed on, benefit by and play to.

Jim Lackey writes:

 College is the time to meet your mate, your equal. For the fortunate men, it's  the better half you spend life with.

In your college years, there is only so far you will go…. Either to fake it, to fit in/get ahead or rebel against, to get off easy and/or explore the adventures of danger. The gist is how you act when no one you know is looking. Sin may resurface later in life. For certain people, the hypocrisy of life will rear its ugly head. If a married couple knew each other during these years of growth and uncertainty it's near impossible to argue later the lack of full disclosure prior to marriage.

A grievance can always be resolved. A slight, an imaginary hurt, the lack of full disclosure–the "I thought I knew that person". That person will hate you til the day they die.

My guess that is how/why bitter divorces ruin families… vs the much higher than average success rate of current marriages from my anecdotal evidence of family, friends and cohorts that married some one they knew from school.

Jeff Sasmor writes:

Good article on "What's a Degree Worth" :

What Are You Going to Do With That?

For the first time, researchers analyze earnings based on 171 college majors

By Beckie Supiano

Tuition is rising, the job market is weak, and everyone seems to be debating the value of a college degree. But Anthony P. Carnevale thinks these arguments are missing an important point. Mr. Carnevale, director of the Georgetown University Center on Education and the Workforce, has argued that talking about the bachelor's degree in general doesn't make a whole lot of sense, because its financial payoff is heavily affected by what that degree is in and which college it is from.

Now, new data from the U.S. Census Bureau sheds light on one big piece of Mr. Carnevale's assertion: the importance of the undergraduate major. In 2009, the American Community Survey, the tool the bureau uses to collect annual estimates of population characteristics, included a new question asking respondents with a bachelor's degree to give their undergraduate major.

After combing through the data, Mr. Carnevale says, it's clear: "It does matter what you major in."

Laurence Glazier writes:

After the signalling provided by college qualifications, the deliberate undertaking of full-time employment may signal the willingness to allow creative fruit to wither on the vine. A shibboleth of perspective. So many wait for retirement (which may not come) to allow vent to such aspirations, but the law of the farm dictates regular irrigiation throughout a lifetime.

To this end there would be much benefit to all if full-time work became less the norm. The end of government subsidy of unsound housing loans would reduce the pressure on people to suppress their finest qualities.

The Harry Potter books emerged not in spite of the writer's modest circumstances, but aided by them.

David Hillman writes:

Very astute observations.

A laborer can be trained to dig a ditch to a certain depth. A monkey can be trained to dance to the organ grinder's tune. Even a plant can be 'trained' to grow in the desired fashion. But few of the former are, nor neither of the latter can be, trained to *think* and creatively problem solve.

One might speculate that emphasizing skills, specialization and technology in educational curricula and employment qualifications may be the culprits.

While a college education being increasingly available only to the affluent because of financial considerations is, indeed, an issue, perhaps another of our chief concerns should be that we are creating a nation of people who are trained, rather than educated.

Kim Zussman writes:

The "education ruins thinking" argument has value, but simply looking at dollars a college degree pays more than just HS diploma. BLS stats below shows increasing income with formal education: about $400/week more for college grads - which of course does not include harder to value assets like volume of learning, tutored critical thinking, facility of life-long learning, status, access to better mates, good memories, signalling, etc.

One would need about 10 years of the additional (median) college grad salary to pay for 4-year private degree (ignoring taxes). Would the degree be worth it if it took 20 years to pay off?

Unemployment rate     Education attained        Median weekly earnings
in 2010 (Percent)                     in 2010 (Dollars)

1.9%            Doctoral degree            $1,550
2.4            Professional degree         1,610
4.0            Master's degree             1,272
5.4            Bachelor's degree         1,038
7.0            Associate degree           767
9.2            Some college, no degree           712
10.3            High-school graduate           626
14.9            Less than a high school diploma       444

8.2                     All Workers                        782

Note: Data are 2010 annual averages for persons age 25 and over.

Earnings are for full-time wage and salary workers.

Source: Bureau of Labor Statistics, Current Population Survey

Rudolf Hauser writes:

The question of a rate of return on a college education is not that easy to measure. For one, it will vary greatly on the college attended both by cost and quality of education. It would also vary greatly by the course of study and how much a person actually learned as opposed to just getting by and having fun. Even taking account of these variables, it is not an easy question to answer. The math is a simple discounted present value calculation, but the inputs are something else. For one, the attributes of those attending college and those not attending will differ. Those with an interest in learning and working hard, more personal discipline and more ambitious are more likely to be attending college than those who are not. Those people are more likely to earn more than the group that does not go to college even if they had not gone to college. So while the value of the education is the difference in what they earn in the future compared to what they could have earned had they not gone to college, one cannot just assume the latter is what those without a college education currently earn. In addition what is actually earned will not be a single average or medium figure but will have a wide distribution around it based on good or bad fortune, who you know, and countless factors beyond one's control. Costs while being educated in addition to direct costs of tuition ,books include difference in living costs relative to what they would be had one not gone to college and opportunity costs of lost potential earnings from working rather than going to school. Then there is the question of how much of the difference is due to signaling as opposed to the value of what was learned and contacts made during school. That is real but could change if the marketplace found alternatives to such signaling. If lower education had more strict criteria for graduation and grades the signaling value of a college education might lessen as employers had more confidence in that and prior work experience. The cost of loans may also vary, so that how the education is financed will matter a great deal.

In addition to monetary economic measurement, there are other benefits that might be gained. Meeting a spouse has been mentioned by list members as one such benefit. Learning about many areas and learning how to learn, may enrich one's life as a person, contributing to the value one has to society and family and to one's personal richness of life and happiness. But if prospects do not turn out as one hoped, it can also lead to unhappiness. The question then is how much one wishes to pay for these other potential benefits or negatives (i.e., the probability of disappointment). Some areas of study such as general liberal arts, might be expected to have a higher risk of low or negative economic returns than more specialized fields, but specialization runs risks if those skills become of less use to society.

 
On a personal level, I do not believe it make sense to send a kid to college unless they are actually going to work hard to learn. If not, it might be best for them to work for a time and see how difficult life can be without a college education. Often they may then go to college and actually make the most of it rather than going at a younger age and goofing off.

I might also add that education need not be in the classroom. The time spent learning on one's own is also education. One need not attend college to learn. It might not have much signaling value but it certainly helps in many areas. The cost is the value of the time spent either in terms of the value of one's leisure or economic opportunity cost.
The ability to learn might be enhanced by a formal education. One of the things I would advise a person attending college to learn is how different disciplines think. The way a lawyer thinks about problems, the way a scientist does, the way a creative writer thinks , the way an economist thinks differ and are specialized in some ways that takes a time to learn. The first course in microeconomics is difficult for many students, for example. The more ways of thinking one understands, the broader ones ways of understanding the world, understanding other people and in solving problems. Some of the great innovations come from taking of advantages in knowing something about other areas of learning that provide insights into the problems in your area of interest.

David Hillman writes:

Ok, then, I meant the focus to be on the point of training versus education. If it requires more updated or timeless references than those to the 20th Century, so be it, and I beg pardon.

(1) Backhoe operators are *trained* to operate them, but there are many instances of heavy equipment being stuck because the operator failed to *think* about the application.

(2) Musicians can be *trained* to play an instrument, but without a proper foundation, i.e., *education* in music theory, history, etc., while the music may be technically correct, it is often dry and mechanical, uninspired and with an 'off-the-shelf' feel.

(3) An air traffic controller can be *trained* to direct aircraft, but when an emergency arises, he/she must *think* of how to resolve it, not unlike,

(4) A 9-1-1 operator being *trained* to follow protocol, but when that protocol does not apply, hopefully, that individual may be capable of *thinking* of a way to prevent loss of life.

And, what of entrepreneurs like you and me? How can one be *trained* to brainstorm an idea out of thin air, then take it from the drawing board to reality? But, one can certainly be educated broadly enough to think creatively, make connections, take calculated risks and solve problems. Even in strategic planning, one can follow a plan, but the successful execution of it requires feedback from the real world and adjustment, which requires the ability to think, not just the ability to follow an SOP manual.

Clearly, a liberal arts education is not for everyone and the rise of tech schools and alternative forms of education and training should be applauded. For those who require training, the more well-trained they are, the better off will be all of us who depend upon their services. But, one should not necessarily depend upon them to do anything other than the job for which they've been trained, nor to be able to *think* creatively when faced with a situation or event for which they have not been trained. Trained mechanics may depend upon a diagnostic computer and trained line cooks upon a recipe, whereas a great mechanic might 'feel' a rough idle and a great chef might improvise a dish. The latter two have the ability to think and create, some of which is natural, but a good deal of which may also come from an education.

Nor is a college education always the right thing for someone at any given time. There are plenty of examples of individuals who failed to perform well in college as a recent high school grad, but did stellar work 'going back to school', my own being one of them.

Some eschew those who are 'too educated' as being 'troublesome' precisely because they can think. However, if I knew nothing of one's natural intelligence, and had to choose, I'd probably go with the educated over the trained.

That said, neither education nor training has much to do with 'smarts.' For that, you either are, or you are not. Some of the dumbest guys I've known have had PhD's, but so have some of the smartest. Likewise, some of the least educated have been the smartest and most capable, but there have been many that are dumb as a box of rocks.

As someone once told me, "it's better to healthy and rich, than to be sick and poor." I'm kinda thinking it might also be better in the long run to be smart and educated, than to be dumb and trained.

Stefan Jovanovich writes:

David is right. If there is any fault to his argument, it would lie in his optimism about the capacities of higher education. But, then, my cynicism about schooling comes from having literally grown up in the business and from being a 2nd generation academic bum. (There are not many fathers and sons who share the distinction of having gone to graduate school in English literature solely because they had no better idea of what to do and the GI Bill would pay for it.) School, like most things, is what you make of it. My difficulty is that "education" is now what "national defense" was in the 50s and beyond; an open-ended appeal for more money that is always justified in the name of some higher good that is incapable of being questioned.

Jeff Rollert writes:

I concur with Ralph, and if you believe in the concept of singularity, then a repetitive answer method is most likely to be replaced by a machine.

For me, I believe that standard problems will have standard solutions already applied to them before I'm even aware of the problem. So if one were to find employees who where good at sensing/finding the "unknown-unknowns" then they would have to have a non-standardized approach - in other words a non-academic approach.

Lastly, in a logic sense, how can something be a "value" but still be "expensive"? Aren't these mutually exclusive?

Tim Melvin writes: 

We have dealt with both sides of the college issue here in the past few years. My daughter on her quest to be the world only libertarian teacher had no choice. To teach you must have three degrees and credentials. She has on semester left and has pulled a 4.0 throughout. She may have learned some basic teaching techniques she did not know but the general education element was lost on one who reads like her. When I look at the top 10 majors in US colleges I have a hard time seeing what we are producing except middle managers. Teaching and nursing are the only to that offer a truce vocational choice. I would love to have had four years to study literature, but I question the employment value of the degree itself. The top tier schools may be different but is seems to me that our universities are teaching fixed values and information, not how to think. How to think has to be either installed by your parents or learned on your own. I cannot see where this can possibly be worth the cost today. Perhaps Colonel Depew can add a though on this but I think teaching the young to read the Great Books Curriculum would go farther than the current middle management factory that are most schools today.

I never went to college. Truth be told I dropped out of high school at the enthusiastic recommendation of the local authorities. What education I have I obtained from between two covers in the style of Louis L'Amour– I suggest that book as a manual on learning to think by the way. I read constantly when I was a kid. My mother was wise enough to let us read anything we wanted regardless of content. If there was something we didn't understand she made us find the source material to explain it..and this was back in the day when Encyclopedia Britannica was still the source of knowledge not the internet. I have continued to read ravenously all my life. I read anything and everything. I have found that even fiction often contains lessons for life and can be a source of knowledge. As an example, I read two or three of Robert Parker's excellent Spenser series. Great detective books, but read a few and you will learn two or three good quick dinner recipes, several literary quotes worthy of further research and how to win a fight. Many of us on the list have followed the chair's lead and studied the great lessons of Monte Walsh, Don Quixote and Patrick O' Brian. Randy Wayne Whites Doc Ford novels often contain insights into the biology of floridian waterways and the everglades. Knowledge is everywhere if you know how to think. I fear today's world of standardized testing and assembly line universities may not be teaching that valuable skill.

Think about this. The two greatest innovators and business men of the past thirty years both dropped out of college. Some schools may be worth the price tag. I suspect most are not.

My son on the other eschewed school in favor of making a few bucks. He discovered he had a real talent for and love of business. Within six months or so of going to work at Boater's Worlds he was managing one of the top producing stores in the company…at the age of 20. We talked about school and he told me flat out "I can't see the value of spending the money. I have two MBAs working for me now because they can't find jobs that pay enough, and my part time staff includes a phd in English." He moved on when the Ritz family folded the chain. His former district manager brought him over to his new company and he is moving up the rank there. He just undersands the art of working hard and making money. He may need a few accounting classes some day but four years at some state university would have been a waste of time and money.

We need more thinkers who have a passion for knowledge and more curious explorers and fewer managers and chair holders. That's on us as parents as much as the schoools. If our children go onto college make sure they know how to think and the univerisity allows them to do so.

Stefan Jovanovich writes:

Dropping out can be useful even for scholars. Peter Green (the #1 biographer of Alexander the Great) did it.

So did Eddy's favorite professor who didn't teach art history.

Eddy's most treasured legacy from 4 years at Cal was giving Professor Jacobson the recording of her version of the Super Mario tune. He had heard her play it on the UC Carillon and wanted it for the ring tone on his phone.

Dan Grossman writes: 

Found this interesting blog post by Steve Sailer proving the value of higher education:

 A column on a new Gallup Poll asking "Just your best guess, what percentage of Americans today are gay or lesbian?"

"The mean guess was a ridiculous 24.6%. Only 4% said less than 5%, which is probably the best guess.

Polling companies seldom ask questions on which people can make obvious fools of themselves, since those can raise questions about the value of opinion polls.

Looking at the demographic crosstabs, it's evident that low intelligence people were most likely to wildly overestimate the percentage of homosexuals: 53% of people making under $30,000 annually said that at least 25% of the population was gay, and 47% of those with no more than a high school education. 43% of Democrats versus 24% of Republicans got the question wildly wrong.

In general, people are terrible at estimating or remembering demographic statistics. A 2001 Gallup survey, right after the release of 2000 Census results, found that the average American estimated that 33% of the population was black and 29% were Hispanic. That adds up to 62%, but who's counting? Not most people.

In that 2001 survey, nonwhites estimated that 40% of the population was black and 35% was Hispanic (adding up to 75%). In contrast, people claiming postgraduate degrees estimated that 25% were black and 24% Hispanic (only about double the Census numbers), which proves the value of advanced education."

Apr

20

 1. "There is no such thing as easy money"

2. Events that you think are affected by cardinal announcements like the employment numbers at 8:30 am on Friday are often known to many participants before the announcement

[An example supplied on April 18 by Mr. Rogan: "The Reason For Geithner's Weekend Media Whirlwind Tour: White House Learned About S&P Downgrade On Friday" (zerohedge )]

3. It's bad to try to make money the same way several days in a row

4. Markets that have little liquidity are almost impossible to profit from.

5. When the stock market is way down, policy makers take notice and do what they can to remedy the situation.

6. The market puts infinitely more emphasis on ephemeral announcements that it should.

7. It is good to go against the trend followers after they have become committed.

8. The one constant, is that the less you pay in commissions, and bid asked spread, the more money you'll end up with at end of day. Too often, a trader makes a fortune on the prices showing when he makes a trade, and ends up losing everything in the rake and grind above.

9. It is good to take out the canes and hobble down to wall street at the close of days when there is a panic.

10. A meme about the relation between today's events and those of x years ago is totally random but it is best not to stand in the way of it until it is realized by the majorit of susceptibles

11. All higher forms of math and statistics are useless in uncovering regularities.

Mark Schuetz comments: 

A point about # 2: This one might be fun to try to rigorously measure and test, looking at price movements in the time leading up to and including certain announcements (knowing this type of thing has been shown by list members before, but usually it's more descriptive instead of measured). Is it possible to show which types of announcements are more often known by participants beforehand as opposed to other types? Also, if certain participants are informed ahead of time, how far ahead of time do they know and in which way will they "front-run" the announcement (there can sometimes be many different ways to make a position on one economic statistic) ?

Victor Niederhoffer replies:

Certain participants know it and they react to it, and you can figure out which announcements are go with and go against——-but but but. The pre and the post regularities are always changing vis a vis the flexions and cronies and their nephews.

Ralph Vince writes:

What a great post. Thanks Vic. I certainly must second points 1 and 11, the bookends….and they have me thinking…

1. There is no such thing as easy money

This is so true, in the markets, in everything. Those who happen upon money where it DID come to them easily, it seems, as a witness, have had it very fleetingly. In my own case, although I am supremely confident in the profitabliity of what I am doing, in practically any market, in virtually any "regime," doesn't mean it's easy. It works like clockwork and is incredibly painful and distressing. It would be so much easier to simply sell buckets of blood."

11. All higher forms of math and statistics are useless in uncovering regularities.

Certainly in a post-'08 world, quants are out of favor, and for good reason. Most anyone I know who DOES make money in the markets, does so with very simple, robust techniques. Having considered going to quant school, and studied a good deal of it, I finally came to the conclusion that they are simply working with "models." Models of how the world behaves. unlike hard sciences like Physics and such where you can perform a test, come back a year from now, perform it again and get the same results, you don't have this in financial modeling. And I think this is where the quants have fallen short. Models are NOT reality, and they never got down to the bedrock, the reality of what his game is about. Of course it had to fail, and in a large way, at some point. A good rule of thumb is that if I need a computer, if it isn't simple enough to do in my head on the fly in the foxhole after I have been awake for over 100 hours, I can't use it. 

Jim Lackey writes: 

About point # 10: It takes no time at all for the information to spread. Yet how many times have we acted, lost a bit, recovered, then seemingly too much market time expires, and we close out a position. We say "awe everyone knows that it's priced in." The meme is then repeated for the 57th time and on a low pressure day, month, or year and then, kaboom!

Of course, I can think of the few times where we missed a huge score, being short YHOO in 2000 or selling some short in 2008. Yet there are hundreds of low magnitude fantastic long only ideas that we forget about. I look back 6 months later and say wow look at that beautiful rise, what happened? It went up very small, day after day, and only buy and hold would have worked.

Alston Mabry adds:

 12. One should not make one's analysis more precise than one's actual trading could ever possibly be.

13.
If the rational mind has not determined the parameters of a trade, then upon execution, the lizard brain will decide.

14. Never go on vacation with open trading positions.

Or, zooming in:
<click> home

<click><click> to lunch

<click><click><click> to the bathroom 

Paolo Pezzutti writes:

One could test how the stock market reacts to good (very good, wonderful) or bad (very bad, terrible)(a sort of matrix) news when the news is released and after some time. It might help build a strength indicator. Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Alston Mabry comments:

Amazing how the earthquake in Japan and the unrest in Middle East, admittedly extremely bad news, were absorbed by the strong trending markets without any problem (so far). In other times, stock markets might have crashed confronting with the same news.

Chris Tucker adds: 

Stick to your guns, but realize when you are wrong. Easier said than done. Good ideas can lead to conviction, but only experience can strengthen ones resolve. Forget the last trade, look to the next. Try, try, try to learn from your mistakes, but also from your wins.

Anton Johnson writes:

15. When correlations among many typically disparate markets become high, one should reassess leverage and seek novel opportunity.

Jeff Rollert writes:

17. Sell side liquidity is an inverse function of cell signal strength and micros0ft patch frequency, especially at lunch time.

Rocky Humbert writes:

The First Law of Rocky – In every "macro market" (indices, bonds, commodities), all prices WILL be seen at least twice. The only unknowns are: (1) how long it takes and (2) how far prices go, before the price is re-visited. This Law is true 99.999999999% of the time.

The Second Law of Rocky – Rocky always keeps his calculator precision set to two decimal places. Any trade that requires more precision than the hundreth decimal place, is a trade that Rocky leaves for smarter participants

Jeff Sasmor writes:

About Jeff R's # 16:

16a. Never go to the doctor when you have a profitable position as it will reach its maximum profit and reverse exactly at the time that you enter the doctor's office.

Happened to me yesterday…

Ralph Vince comments:

With regards to the First Law of Rocky…."Unless it is a new high, that price has already been seen before."

Victor Niederhoffer adds:

Beware of using hard stops as it's bad enough that the floor can always know your physical hard stops.

Jay Pasch comments:

No wonder over-leveraged daytraders always lose as they are required to deposit a hard stop with their leverage, along with their hard earned money…

Ralph Vince adds: 

Despite numerous posts on this thread, it has not been opened up beyond Vic's original 11…

T.K Marks writes:

Aristotle felt the same way about drama, posited that it could be comprehensively reduced to 6 elements. And any additional analysis would by definition be but variations on those original half-dozen themes:

"…tragedy consists of six component parts, which are listed here in order from most important to least important: plot, character, thought, diction, melody, and spectacle…"

Jim Sogi writes:

Always be aware of and consider current market conditions and how they might affect or even negate your prior analysis.

Even the the weather forecast says sunny, if the clouds look dark and the wind is blowing, stay home or dress warm.

James Goldcamp writes:

One good anecdotal rule I've found that works for investing is that the market that causes you the most psychological pain, revulsion, and visceral response from prior bad investments, or overall perception, is probably currently the best opportunity since others may also have a similar overly pessimistic view (or over assign risk premium). This seems to be especially true for post calamity emerging markets, high yield bonds, and fallen growth stocks (tech). If for no other reason, this is why I think stocks like Citi and the West Virginian's company are good buys now (and perhaps government motors and Russian stocks).

Ralph Vince comments: 

 Thinking on this a great deal the past 24 hours, I think I would add one more, which is to me the most important of them all perhaps, or at least tied with #1 and #11. And that is that most people have no business being here. They don't know why they are here, and, if pressed, can only give a sloppy, struggling answer. "I'm here to make money." "I'm here to improve my risk-adjust return," or some other nonsense.

They are here for action– whether they know it or not, whether they acknowledge it or not. The market is a magnet for gamblers, a magnet for those who compulsively seek out the very action she puts out. People are here because they want to feel they have one-up on the masses, the system, or that they are not as inadequate as they suspect. The very proof of that is their utter inability to instantly articulate their criteria in specific terms. Absent that– they're in a bad place.

They're looking for girls in the wrong dark alley.

It makes no difference how well-capitalized the individual is. The world is full of guys with $10,000 accounts who will lose it all and then some, and full of guys with very fat checkbooks who will lose all of it equally as quickly, in similar fashion.

They still think it is about what you buy, when you buy it and when you get out, facets that have nothing to do with what is going on here (which is specifically why mathematics, simple or higher-order, fails in this endeavor; people are applying to aspects they mistakenly think this thing is about.)

If you examine institutions, they may be equally as clueless as to what this thing is about, but they have one big up on the individuals– they have a specific, well-defined criteria in most cases about what they are in this for, what they are willing to do to achieve something very specific.

Most individuals– of all gradations of wealth– can't, and that's the red flag that they here for all the wrong reasons.

Jeff Rollert adds: 

Amen. If it doesn't hurt a little, you're wrong.

Dec

13

 After Sunday services it began to snow. We spent an hour at the store, and when we came out there was a thick layer of ice on the windshield. In an hour conditions changed from 65mph to 20-40. The whole family was in the mini van so I had to take it easy. Also to complicate matters, it's much easier to drift and drive with rear wheel drive and a longer wheel base vehicle. I was stuck in the mini van with a Floridian wife that fears "black ice".

Of course the kids that it was a total blast. My teenager thought it was boring vs. driving a sports car, and even the big full size van is a blast to drive in the snow. I taught him last winter and we had a blast.

The most dangerous conditions are ice and wet leaves. It's when we go from wet to seemingly dry looking pavement then ahead where there is snow. Snow is easy to drive in vs ice. It's the transitions, the shift change from dry to wet to non salted ice to snow covered.

I was attempting to show the wife that on ice it's near impossible to move at all on a grade. As we all know overpasses are the worst. Yet it's safe to proceed at 20-25mph keep the motion in motion, since you can stop in a reasonable amount of time and the turn at 8-9 mph was a safe crawl, but what ever you do do not pump or slam on the brakes even with ABS. Look where you want to go, and like magic you usually end up where you're looking in a panic.

On wet pavement when it turns to black ice and you are blind to the transition, simply keep the motion in motion. Don't brake, do not over correct, do not panic. Once the vehicle is straight, you can then very lightly brake or coast reduce from 40 to 20 and gain ability steer, enough to lane change and coast, then brake enough to turn from 25 mph max ice speeds to the 9mph corner speed. Yet snow has very good traction. You can rock it 25-40, and use controlled throttle to turn stop smoothly so that the ABS doesn't even kick in.

At every transition in our 10 mile trek there were crashes just over the next peak or the next corner. I demonstrated how and why it all works after and during all the transitions. The wife was always in a panic state, especially when I was at 35-40 mph in the snow. My point was if the traction is good, the kids will drive 50, the people that know how to drive in snow will go 40, so you are in more danger crawling at 20 mph with people braking and turning to pass. Just look ahead for the transitions. Way ahead. I said, look, what if we lose control and spin, I can land a 747 on this HWY. There is no one behind us. There is zero risk. A big fast curve on dry conditions you could take at 200 mph+… I didn't even slow and she held on for dear life. In the big white I can take that at 65mph and drift it..in a rally car all wheel drive I could take that at full throttle at 120.

One block from the house they missed a spot with the salt truck. It was down hill so I idled the van at 3-4 mph…"what are you doing now?" You can't see this? It's pure ice. My street..brick mail boxes line the road…kids at play in the yards…pure ice and there will be no more driving today as I can't get back up the hill out of the hood with the rear wheel drive fun vehicles.

It's the mouse with one hole trade.. There's no escape route even at 5mph, even though the snow covered roads 1 mile from the house are a pure joy to practice sliding, drifting, regaining control. It's great for the teenager and my wife to learn on. Snow covered parking lots are perfect! "Now you decide it's too dangerous to drive more today!" It's not too dangerous to drive today…it's to dangerous to drive in our neighborhood. "We need an all wheel drive vehicle" Yes dear. "All wheel drive with computer controlled traction. You can drive through anything." 

this video is exactly how we learned to drive as kids..in a huge open lot and let it rip.
 

Dec

13

 Since the Chair mentioned Dr. Shinya three times in the past 24 hours, (as a humble omnivore) I fell compelled to point out that the counting here doesn't pass the "smell" test. Given the subject matter, failing the smell test is serious, indeed!

Chair wrote: "dr. shinya would also recommend based on his personal completion and examination of 400,000 colonoscopies with dietary data on each eliminating all dairy, and meat from diet…" He also pointed to the wiki link.

Wiki actually reports that Dr. Shinya has performed approximately 300,000 colonoscopies and, since his breakthrough in 1971, has performed a colonoscopies every 20 minutes.

Let's do the math:

1. Dr. Shinya is now 75 years old. He performs 3 procedures per hour for 8 hours per day (no lunch or rest), five days per week, 52 weeks per year. That's 24 procedures per day; 120 procedures per week; 6,240 procedures per year. This is improbable, but let's continue the arithmetic.

2. Let's assume that he has never taken a vacation; never gotten stuck in traffic; never played a round of golf; never taken a sick day; never given a speech; never done anything at all except perform colonoscopies FOR THIRTY-EIGHT YEARS. I feel sorry for his family, yet even so, that is "only" 237,120 procedures.

The only way one can get to 300,000+ procedures would be to assume that he is performing colonoscopies for 365/7/24….and if this is true, it raises even more serious concerns about his judgement.

I am skeptical about taking advice on ANY matter from a person who has spent the last 38 years looking into peoples' colons to the exclusion of every other activity. The saying goes, "To a hammer, everything looks like a nail." Dr. Shinya takes this aphorism to a deeper level.

Jim Lackey adds:

From medical student forums online

"Hi theremy, chief resident said in private practice he'd be able to do 35-40 Gas/colons a day easy on a 9-5 list with an efficient OR setup. Has anyone seen this being done. He said when hes's done with his residency he could pull in 15-20Gs a day doing just gas colons. sounded a little outlandish.

thanx."

"A single person can do 30 -40 scopes per day. I am telling you…..a majority of scopes are screening scopes, and take 5 minutes……the next pt is in and you can easily do 5-7 cases per hour. I have seen this. It is a very busy day, and do not forget, like a surgeon, GI doctors do not scope every day. Usually only 1-2 days per week. 25-30 is very easy to do in a well functioning private practice. Get out in the real world, out of academia, and you will see this for yourselves..Breaking upwards of 40 scopes requires lots of committment and a very good functioning clinic….But 30 is easy for a good colonoscopist……"

"As an anesthetist, I am joining a private group this summer which covers a GI group. 30-40 colonoscopies is indeed very doable. More than a few groups I interviewed at were involved in this, as it is very lucrative for anesthesia as well the GI docs. These places are very efficient, and need to have a very good phase II recovery protocol in place. Some GI docs still sedate themselves, using an opioid plus a benzo. However, it takes time to titrate to effect safely, and recovery may be up to a few hours in older patients. The centers doing 30-40 cases per room per day uses an anesthesia staff, and use, for the most part propofol only. 50-100mg of propofol iv, is sufficient for most colonoscopies with no other meds given. A good colonoscopist is done in less than 10 minutes, often 5 from the time the scope goes in. The anesthesia bill is separate from the GI docs bill, so once the GI doc sees how efficient this is, how much happier the patients are, and mostly how much cash they are raking in, they love having anesthesia handle the seadtion. It can be a very nice way to offset non-insured patients and can boost an anesthesia practice's income tremendously. Typical reimbursement is 500-1100 in the greater NYC area."

It's "possible" and more likely he's the Henry Ford of the procedure. Hades, you can show up to one country, hit one hospital, and have thousands waiting for the scope. He was the innovator. But the mean seems to be about 775per year a week and 16 per week per Dr. who scopes 2 days a week…for profit. In the US of A.

So I see what you're saying– a local Dr group barely can do so. The only reason I believe it was in the Military you can line up 3,000 men and a few Docs and medics can perform assembly line of so many procedures in less than a full day– it's wild…and if youve ever seen a mash unit… a full blown surgery unit in the middle of the desert…then you know it can be done. Luckily I only needed stitches, but the level and the ability is amazing. Doctors are trained to work 24-36 hour shifts so pulling 5-12's and supervising a team…. Think "chief surgeon" not local private practice.

Victor Niederhoffer writes:

To my credit the last time I visited with Dr. Shinya, I subjected him to a withering cross examination to verify the 400,000 colonoscopies he claims in his books. He gave me a enumeration, and then dismissed me with "I have to see patients. I can't waste my time with people who don't understand medicine." I have always found that the worse the bed side manner of a competent Dr., the better he is at curing. I believe this the case with Shinya.

Rocky Humbert writes:

I have no personal knowledge of Dr. Shinya — but these sorts of claims are eerily similar to the sorts of results reported by Madoff.

Even Shinya's response to Vic's cross examination is reminiscent of Madoff's response to the SEC field investigators.

Consistent, remarkable, implausible performance/results that defy logic or reason … and which improbably persists for years…should cause one to raise one's antenna. This is true in every field of endeavor. (And I'm an optimist!)

Nigel Davies writes:

I read Dr Shinya's 'Enzyme Factor' but found Dr. Servan-Schreiber's 'Anti-Cancer' much better and more thorough on many levels. As a clinical professor of psychiatry who was diagnosed with brain cancer, he undertook extensive investigations of cancer mechanisms and how food/lifestyle can prevent it developing. All of us have cancer cells in our bodies but this disease tends to develop in favourable 'terrain'.

Please note that I've not been diagnosed. But a quick look at the odds makes a convincing case to adopt certain measures in the interest of attempting an extended life span. This is very chess btw; Nimzovitsch, prophylaxis and forcing them to take carry you off to the netherworld kicking and screaming.

Nov

18

These polls drive me nuts, and I used to ignore all news when at best.

Mr. Vic sent a note about 1pm Tuesday a few off the lows, and the response was "what bearishness?". Markets move much faster now a days, yet the gist is the same.

So everyone was right! It wasn't a bunch of bearishness. It was a lack of bullishness.

After Hitting 3 Year High, AAII Bullish Sentiment Plunges By Most In 2 Years

Submitted by Tyler Durden on 11/18/2010 09:21

For a stark demonstration of market momentum euphoria look no further than the AAII weekly bullish/neutral/bearish sentiment. After hitting 57.56% in the week ended November 11, the highest since 2007, bullish sentiment plunged by 17.56%, to 40.00%, the biggest drop since January 2009, and the fourth biggest shift in sentiment since 2006. Alas, this is the kind of bipolar sentiment shift that will accompany a market in which everything continues to correlate with near precision to the dollar, and in which no bad news matter until they matter, and from all in buying the mood shifts to relentless selling…

Nov

11

 In Flanders Field

by John McCrae

In Flanders Fields the poppies blow,
Between the crosses, row on row,
That mark our place; and in the sky,
The larks, still bravely singing, fly,
Scarce heard amid the guns below.
We are the dead.
Short days ago,
We lived, felt dawn, saw sunset glow,
Loved and were loved and now we lie,
In Flanders Fields.
Take up our quarrel with the foe
To you, from failing hands, we throw,
The torch, be yours to hold it high.
If ye break faith with us, who die,
We shall not sleep, though poppies grow,
In Flanders Fields.

Check out this site about the VFW Buddy Poppy Program in honor of Veterans Day. Give a few bucks, and hang it off your rear view mirror.

By the way, another Moe, Richard (who served in the House), is the author of the best unit history from the Civil War. It is about the First Minnesota.

Sep

7

67 CamaroSafety caused a change in driver behavior. My 1st vehicle was a full size Chevy van as my dad knew I would wreck or race any car. My 3rd car was a 67 Camaro and was so dangerous I had to drive it slow.

The cars of today are so safe we do not realize how fast we are traveling. Turn off the tunes, books on tape, and roll down all the windows. The cars are so safe and quiet today, stick your head out the window at 45 mph, or look down at 70mph and wonder what it would feel like to hit the street at that speed falling off a motorcycle. It's fast. But today the cruise set at 74MPH ticket free interstate travel feels like we are barley crawling along. I must do 88MPH to get me to pay attention to detail vs. falling asleep on a long drive.

I hate mandates but some of it sure worked for cars. I'd say Germany was the best place to drive. They have two deals we need to adopt. Much stricter driver training. Much stricter speeding laws fines for speeding or crashes and you're certain to stick to 100K's or 62 int he zone or lose a months Army pay. That and with lights that turn yellow before green– Get ready set GO instead of me honking my horn at your Ipod playing kids but to go on the green light.

2cnd thing Germany has is when it makes sense for me to got 100MPH. Yes it's safe if you're focused and do not have cup holders. I see roads here in the US that I can land a 737 Jet on them, no traffic 5 lanes and its posted 55mph. Stupid. 55 is for junk roads. MPH range needs to be 69-74. Post it up 70 MPH and 75 and over is 500 fine…if you can afford it cool, if not you pay.

Also please do away with drunk driving. Let's just make it a rule. Medicine or not– one beer, one drink– you can't drive. No more 2 beer rules designed to raise revenue for the courts. You drink you drive no more. Period.

Aug

31

 The only thing I learned in my study of weather for markets was my race car computers for engine tuning.

Barometric, water vapor and temp were the same "ratio" as I think Mr. Ellison pointed out I calculated wrong from zero degrees from absolute zero. It was the same ratio of change, and I just learned my complaints on hijacks were luck on the dual halt of INTC last Friday that was a new one for me 2 halts in 20 minutes and the frustration hit limit up. And now that I look at it I guess I must wait for every semi to preannounce as BRCM took out Friday's lowski today.

Better lucky than good and looks like the hijack saved me. I will be more careful about my complaints of rigged markets. ha.

Aug

31

a nobel prizeThis whole news release game is silly. The market is gun shy ahead of announcements and the book drops to nothing guaranteeing a crazy move. The reaction seems always to be behind the form. The info is stale and old. The news producers of course want attention to sell copy.

The consensus game is silly, asking a bunch of economists who can't really seem to get much of anything right or agree on much to give a guestimate of data that is adjusted, manipulated, dated, gathered in questionable means… When the actual number is above or below the guess, oh my! Then what does that really mean?

Each participant in these games has a utility, each has a relative ability to achieve or execute, and each has relative urgency and importance. These are some of the criteria used to evaluate the relative utilities. The real trick is to define the issues in such a manner that the weighting of utilities is predictive. This adds to statistical analysis of past data in that it incorporate the forward looking functions of the markets and its participants. One set of Asian traders from one part of the world trading night shifts where a small order can move the market 1/2 a percent. You have the Europeans taking over early morning with different motivations. You have Bernanke, the flexions, the white shoes, the machines, the slipper crew each with varying abilities to move the market, varying urgencies and connection to our markets, and varying self interests. Weighing these has info in a scientific manner. It was scientific enough for a Nobel prize.

Jim Lackey writes:

It has always been this way for as long as I can remember… Now when it's a stock, no one seems to mind if options say + or (10%) and after the newzi comes out earnings or otherwise the stock rallied 9%…and no one seems to miss the 1/2% moves pre/post 10am numbers as vs fed moved they were nothing and vs 2008 2-3% moves it's easy to game.

All you must do is want to own it. Sell puts in a stock cool you own it 10% lower. I buy 955am cool I buy my 2nd lot 1/2% lower 1002 am. If I didn't want to won it in the first place madd lack buys his 2nd lot trying to trade out of a loss. Let me tell you how stupid this is. but also feels so dumb with a cut and run after a 1/2% 5 minute loser.

My wife shouldnt have married a gambler…but mr Vic gave us the get the joke of all of this. A mouse with one hole is quickly taken. Figured the 1st we'd have an out even if we had to buy 1000 at the close. 

Aug

27

 Nice timing on the INTC news and reports from Jackson Hole… Nice halt "gee thanks". Not sure if it was straight flexion con or I just got hijacked from mobs or… both.

Let me be more explicit:

A few semis were making highs before Bernake text. BOOM INTC gets halted then Bernake text. I had zero leverage and was down 2% in one tick. SNP rallied 5 off the lows and the stocks fell more…yikes.

Come on after all these downs then INTC opens after the halt not down much after all of intc down days. Then it's a mad dash for those to cover. SNP goes back up on the day. Too many tech stocks that were up on the day were still down.

By the time SNP is up 5 nazz comp only up 5 or 1-1. Then finally 11am boyz come in and buy indexes and nazz goes 2-1 up vs spx and all is back to pre hijack highs.

Good thing I know exactly what to do.if I had to think about any of it for 4 tenth of a second I'd be called out on strikes looking.

Aug

27

4 tenths of a second to hit a fast ball.

Look at BRCM broadcom vs. SPX.Open prices to 10AM newsi period. BRCM goes up SPX down.

Then look at that move… good times… As my daytrader buddy just told me "at least you're not short" and certainly my wife will say "at least you didn't lose AGAIN!"

Goodness gracious. I sold down to sleep level. I am shaking my head rubbing my eyes…thinking goodness..It's all the big leagues 90+ mph pitches with good movement, now a days… I'd hate to be a new kid coming up to A ball stock trading in this market today.

Have a nice weekend. Weather broke here in Nashvegas. It's beautiful riding weather. Almost time to hit the dirt track.

Aug

16

Dracula's castle in TransylvaniaI know we don't trade off feel around here… but this is creepy. if I close the blinds it feels like a dark cold, full moon night with the backdrop of Frankenstein's castle in Transylvania. I'd feel a lot more comfortable giving it the old full swing for fences in stocks here if the freaking bonds were not up more than a full point over open prices.

I see the Dow 30 yields more than 10 year. So I see the DOW techies INTC under 20 and CSCO post earnings lows rally the best, but their cohorts are being dragged along at a pace that feels like a retreat slow and steady vs. a hasty defense.

It feels like Kobar towers in '91 when a 500 pounder went off in my AO and we saw the shock wave, dawned our gas masks, and you could hear a pin drop. Total silence.Yet we all know full well the war will be won, and if bonds drop big we will be trading 1100 before I can say cease fire… but I dunno if this is just the start of the air war and the G day or ground war will be in 6 weeks with a full armored assault that lasts 100 hours bonds at month lows and stocks at highs.

Seemingly the same propaganda on defensive positions in markets– a well dug in enemy, tank traps, rings of fire, the mother of all battles weeks later an an entire army destroyed in 100 hours… "if mountains and oceans can be over come anything built by man can be over come… defensive positions are monuments of the stupidity of mankind" –Patton movie

Vince Fulco comments:

Right on, brother… but what fake action will the bots necessarily create before a meaningful base is found…The subtitle to Blade Runner resonates here, "Do Androids Dream of Electric Sheep?" 

Aug

4

Pimco's El-ErianIn several recent essays, Pimco's El-Erian et al claim that reversion-to-the-mean investing will be less compelling in the months/years ahead. Even if one accepts that the US economy will experience slower growth, less leverage, and more regulation, his arguments may be tantamount to endorsing primitive trend-following and saying "this time and every time is different."

He writes; "…, investing based on "mean reversion" will be less compelling. Even though flatter distributions with fatter tails have means, the constituency for mean reversion investing will shrink as those means will be much less often realized in practice. A world where the realized return rarely equals the expected valuation creates a bigger demand for liquid, default-free assets; it also lowers the demand for more volatile asset classes such as equities.

He continues: "… frequent "risk on/risk off" fluctuations in investors' sentiment are here to stay. Investors, based on 25 years of rules of thumb that "worked" during the great moderation, thought they knew more about the distribution of risk than they in fact did. This led to overconfidence during the bubble. The crisis reminded investors that these rules of thumb are less useful, if not dangerous.

He continues: "….With declining confidence in a reliable set of investing rules, markets have become more susceptible to overreactions to daily news and are, therefore, more volatile. Just think of the number of triple-digit days in the Dow. Moreover, because of the complex and broader involvement, real and perceived, of governments in the economy, separating policy signal from noise, and execution vs. intent, has become as important as – but harder than – forecasting the macro data. Third, tail hedging will become more important. An understandable consequence of the crisis is less trust in diversification as the sole mitigator for portfolio risk. We are already seeing increased investor interest in tail hedging, though the phenomenon is still limited to a small set of investors."

My reactions:

1. If the markets experience risk-on/risk-off gyrations, that is the very essence of mean-reversion. (i.e. one should be greedy when others are fearful.) If the constituency for such trades are smaller, it should mean that the surviving participants realize out-sized returns on smaller position sizes. (Exactly the opposite of his conclusion.)

2. If he believes that the systemic tails are larger, "hedging" the tails simply moves the risk from one market participant to another market participant. Absent a directional speculation, if the hedges are correctly priced, there should be no incremental return achieved from hedging which cannot be achieved by sensible asset allocation/position sizing. We've known for years that S&P puts are systematically overpriced relative to calls. Is he claiming that this is no longer the case?

3. Once it's conventional wisdom that we are in a world of everyday fat tails, asset valuations should embed this risk premium, and the phenomenon should self correct. Otherwise, using a slow, primitive trend-following methodology which captures ever bigger fat-tails should produce out-sized returns.

I would be most interested in other's thoughts on his three quotes and my observations. It seems to me that some of his thoughts are contradictory. While the Pimco folks are obviously self-interested, it should be possible to analyze these concepts while ignoring their bias.

Jim Lackey writes:

Mean revert as in 2004 to 07 being levered 14-1 as in no downs greater than 10%… Umm no… so again it's the definition of what "is" is… or forget leverage as that's a function of predictions and max draw downs etc…

How about the fact that we are seeing streaks that have never happened or only happened in 2002, 1933, '34 or all the time in the 19th century. It's been going on since the first shot across the bow Feb 2007. But that's just short term trading… are you talking investing? Then he's dead wrong as the current meme is long term returns are Zero and all I see and hear is "range this adjust for inflation that's a loss" or as usual in any business for a time all rates go to zero…and the get the joke is…that's why so many are tarpitudes and Flexions they need govie contracts rules and regs to profit. So sad.

P.S. I asked the machine tool trader at BMX last night if it's the same trading with Koreans all good vs trading with GE. He said yes but GE is even worse now that it is the government. I said oh come on, you talking bailouts or what. He said no it's like trying to get paper work and all approved to do a trade with the government. Reminded me of in the Army attempting a "lateral transfer" as my tank had an extra M-60 we could use an extra M240 same machine gun one right one left hand feed. It took us forever to get the supply SGT to get the paper work and I found a guy in the Infantry unit that wanted the trade at the mess hall. It took months. But years later the govie got smart and it's all M240's now a days. ha.

Jim Sogi comments:

Mean reversion is too broad a term. The time needs to be specified. The market has multiple time frames and it may be mean reverting in one while trending in another. It is one thing to do mean reversion at 1 hour, and a different trade all together to hold for 4 years in the same vehicle. It is necessary to define the time frame in which there is a claim of reversion or trending, or as Kim notes, positive or negative correlation. 

Aug

3

 Meanwhile the S&P has a 2 point range as of late.

So last week for the first time in years I saw big huge whales buying a few stocks. These guys were so big they did not give a…. Anyways the S&P would drop 4-5 handles and the stocks would rally. I mean really move big caps to no junk. So on this day we are very long these stocks. My buddies are cackling what if snp drops to 1100. I said so what 1100 will fail, it will do 97 and back through, who cares, these type of stock buyers unless we drop 30 today it is in every one's best interest they close at highs.

I am not BSin', 5 minutes later a fed head says Deflation. Boom. The S&P is sliced 1000 and stop run city. Ut oh.

What did the stocks do? They ripped right back up and new highs. Wow. Markets chill buyers calm down. End of day all is looking good, we can close 1100 down on day. if we have a tiny down day we will do excellent. My buddy says unless another fed head says… BOOM DOJ comes out and says ORCL has issues. All tech falls apart. It killed the close. Buddy says I wish these fed guys would just shut up or wait til after the close to talk. I said naaa. I wish they would get their friends and family long so they can talk bullish intra day.

One of the stocks was not strong long term but last week it was a rockstar…RIMM. So today all the pre market chatter was RIMM and goodness, what is with the sheiks and rimm job. Maybe it's War with Iran– close down all internet. I laughed and said maybe or perhaps the sheiks are long AAPL and they are @299

I guess you had to be there.

Aug

3

I am quite skeptical that nowadays it is enough to be a good programmer to make money on Wall Street. A very famous trader recently said in this regard that what is and will always be important is understanding human nature. However, it seems that successful programmers want to strike deals that give them the possibility to share profits and retain the ownership of the code they write. The companies they work for make $100K a day when they may be paid $150K a year. It is an intellectual property problem. When competition increases in high frequency trading, margins will decrease and programmers might want to go back to the old "safe" way they were paid. Sometimes I have the doubt that it is enough to have a piece of spyware, which can monitor information from programs that use certain protocols to make big money. A hacker could monitor someone's trades dropping a sniffer and intercepting trading programs. It would be a sort of real-time insider trading. A modern version of an old, and "sure", way of making money.

Read more in this article.

James Lackey comments:

Stick a trading sheet with a programmer's name on it with a 500k daily loss and see if he wants to enlist in the traders training program or go back to his desk. Ha. It's easy to target shoot but it's harder when they are gunning for you.

But Tony C on here years ago thought he discovered Spyware on his quotes from Enron. Drag your mouse cursor over the quote and see if HFT lifts their 100 share penny offer.

 Charles Sorkin writes:

I've often suspected that something like Tony C's situation happens in the options market. For instance, I can't tell you how often I've entered limit orders on an option with limited activity, and I get "pennied," so-to-speak.

For instance, consider a market for an equity call option that is quoted as $2.50 - $2.80, for a few hundred contracts on both sides. I enter a limit order to sell 10 contracts at $2.70, making the market $2.50 - $2.70, hundreds x 10. Hardly a second later, the market updates again, to something like $2.50 -$2.65, hundreds by 10. GRRR!!!!

Somebody/ something steps in front of me, on a contract that potentially has hardly any open interest, and very little activity in the whole series, perhaps with the expectation that I will lose patience and hit the original bid.

Very frustrating. Sometimes I pull my offer, and watch incredulously as the quote reverts to it's original level.

Jul

29

 Recently I have posited that the market to an inordinate degree shows the main attributes in its daily moves of the most vivid sports game that has not been used. I would add to this that during each hour the market is likely to move to the rhythms and dynamics of the most likely classical music being played on a classical music station in home town, for example the former WQXR in New York, in full knowledge that these programs are often selected 2 months in advance, and noting that I was a subscriber to same when I was 12 years old.

I am adding to my list of mystical encampments and predictions that the fortunes of Apple and Lady Gaga will follow a similar arc in the future, and as soon as the Lady loses her luster, or a substantial base of her gay support, Apple will be ready to nose dive.

Do you feel that because of these ideas that I should resign my post as chair of Daily Spec which is designed to deflate bally hoo, or is this just a symptom of that predilection that old men such as the sage and the fake doc have to maintain their romantic aura?

Ken Drees writes:

Lebron James' Cavs win over the bulls to end that series correlates to the spy top (04/27/10). That was the zenith of his career in Cleveland. They were then going into Boston on a full tank of expectations. The last game (as a cav) in that series marked a secondary top 08/13/10–then the melodrama begins. His great choice to go to Miami did not mark the low but was the midpoint of the latest rally—he is losing his market moving mojo–his ability to focus the market energy . So now he has lost his core fan support like lady gaga at some point will lose her core fan base. No, I don't think the Chair is that off-kilter.

Popular culture icons somehow bleed into market consciousness.

Vince Fulco writes:

I've long thought that the culture has moved into a greater phase of bally hoo, perhaps a derivative of the Romans' 'Bread & Circuses'. We are now just starting to realize or are being forced to understand that flat incomes, poorly funded retirements and insufficient skills in the aggregate set against historically outsized obligations are a recipe for disaster. Fighting falsehoods would seem to be a necessity of survival and good investing for the long haul. Moreover, one has great opportunities to choose from post deflation.

Jim Lackey shares: 

Actually no. AAPL has talent and is'nt just a fad or a show. Not sayin' that the Lady doesn't have talent, but if and when I see her write and produce tunes for others and sing Jazz, then she will be an AAPL. But no! No I did buy AAPl in 2003 when Mr. Eyerman stood right here on list and said buy it now. Jobs is back, and Itunes is brilliant. It's been a ten bagger since, which is what got me to tell the father in law naaa na na no this Xmas as he was on visit to Music City and toyed with his new Iphone all week. He's a MD and a tech freak and he said, "you know what, I don't need a PC or internet at home anymore with this"

It's not CSCO when it was on the way to a trillion dollar market cap in year 2,000. It's post crash now. Also it's no shorted up fad stock, but yes it's a fashion device an ipod in all 3 colors for different outfits. If I had to guess its a DELL circa late 90's. It never crashed and burned until much later in the tech wreck. It just stopped going up and in these markets AAPL must trade 299.75 but not 300. ha. 

Craig Mee writes:

Just like Seinfeld had the bravery to sell the high and knock back the 10Mil for a tenth season, (one of a tiny minority who do) maybe the gagas and apples should too. To keep up the product development and create new bizarreness no doubt gets harder and harder with everyone hot on your tail. Im sure income changes, say for Seinfeld, from shows to marketing, but he has been smart enough to cut and run, and keep the value. A lesson for us all. 

Marlowe Cassetti writes:

The chair has touched on a point of interest that has bothered me. I don’t know about Lady Gaga, but Apple’s climb towards the top of market valuation appears to be inline with the phenomenon of a bubble. Yes, I understand that we cannot declare a bubble until it bursts, but let’s look at the facts:

There are some 47 stock analysts that cover AAPL, all but two have either a buy or a strong buy recommendation. It is the darling of the market. Its market cap is approaching $ ¼ trillion and at the rate it is moving it is on its way to challenge Exxon Mobile Corp. XOM produces stuff that the world needs, AAPL doesn’t produce stuff that the world needs just what they like to have, until something else strikes their fancy.

It reminds me in the 1980's when people couldn't buy enough Wang stock. You hadn't arrived if your office didn't sport a Wang word processor. The bubble will burst when the last fool buys in at a nose bleed price.

Thomas Miller writes:

 Sometimes one's instincts or gut feelings can't be counted or explained but you feel its true. Probably based on years of different observations made subconsciously. A trader may feel strongly a market is about to break without being able to explain exactly why, because subconsciously they have seen patterns many times before. Considering the source, I wouldn't immediately dismiss this as ballyhoo. Instead of resigning, further testing is called for.

Steve Ellison comments: 

Mr. Aronson noted in his book that it is no fun being a skeptic and that the scientific method leaves deep human yearnings unfulfilled. Facts are often tedious and dull, but stories are captivating, which is why people who have bought into a narrative continue believing it even when presented with strong counterfactuals. "Story stocks" have always been prominent in bull markets.

 

Marion Dreyfus writes:

A new study reveals that people are at their angriest on Thursdays. Thus, perhaps deals might better be made on Friday, when people are delightfully anticipating the weekend, or Monday, when they are somnolently reviewing the events of their past free-time indulgences.

interesting … We have been doing product development on a tool to gather data, and do reduction for self-introspection to find and permit prediction of cyclic true 'more productive' highs, and 'down in the dumps' lows.

Jim Wildman comments:

I've been thinking a lot about rhythms. I've noticed on the treadmill at the Y that people tend to fall into step with each other. Being on treadmills, this is easier since you can be running at different speeds, but the same step count. It creates an interesting effect when the treadmills are on a suspended 2nd story as it was at the last gym. I've wondered how many people it would take to collapse the floor.

This study seems to indicate that there are (at least tendencies towards) rhythms in 'group' emotions. What other rhythms are there and how do they affect me? How do they affect the markets?

Vincent Andres adds:

Here is a good paper on this topic of frequency coupling

Some more infor:

Steven Strogatz

Steven Strogatz's publications

A good book

TED video (look at the part on fireflies, near the 10th minute on metronomes (1st historical notice by Huygens), near the 13th minute and the bridge (not Tacoma … but not very far !)… in fact the whole video examples are interesting). 

Easan Katir writes:

In a year when Paul the Octopus correctly picked 7 consecutive wins, well-documented to the world, when the underwater plume in the Gulf of Mexican Oil matched the plume of gritty ash from Eyjafjallajokull, and the rig explosion coincided with the April market top, who can say anymore what is mystical and what isn't. Lead on, Chair! Lead on!

Craig Mee writes:

Looks like Schumacher should of stayed off the track, as HIS value, now may be plummeting: "For all his greatness, he never knows when to give up. He is a shadow of his former self," added hugely experienced former driver David Coulthard" Ouch!

Jul

26

Ray Irani Top Paid CEOToday's WSJ summarizes the decade's top 25 earners among CEOs. While there are many variables which affect CEO compensation, investors should note the troubling absence of any obvious relationship between long-term stock performance and CEO pay. For students of free enterprise and tax policy, there are many questions raised by these findings. Other studies involving the entire S&P 500 universe have shown similar conclusions.

Thought experiment: would the stock returns have been any different if the CEO compensation dropped a "0"? (i.e. $400 million -> 40 million)


comp million$

stk return

leh

457
1.1

nvr
451
1.6

dell
454
34

cdnt
481
51

csco
393
71

iac
1143
78

ctywide
529
81

capone
568
86

tgt

342
101

clp
358
137

nbr
518
141

c
361
143

fst
385
148

qcom
437
192

utx
448
253

yhoo
490
279

oracle
1836
317

sbux
358
333

ftx
332
479

fnf

430
548

unh
469
707

oxy

857
974

aapl
749
1171

chk
332
1179

xto
351
3559

Jim Lackey writes:

There are big list of tells we can use:

1. Dollar a year man. Quickly moves to slash burn and sell the company to no benefit of current holders. Look to the last job/ company he held and where the old management team is. That's where the assets are going.

2. X company man. GE six sigma. Look for them to run the company into the ground with focus on cost cuts firing the bottom 10% "creating shareholder value". Meanwhile their competitors are hiring all those fired with a contact or client book and quickly signing deals. Making money vs reducing costs.

There are many others and to "get the joke" one must watch "Charlie Wilson's War".

Jul

23

Hard to believe that it has been almost 30 years since "The Road Warrior" movie (Mad Max 2), a classic of the dystopian genre and coinciding with DJIA 800 ranges. The show The Colony, starting next Tuesday the 27th, on the Discovery Channel has a bit of that Mad Max/Andromeda Strain post-apocalyptic feel.

I just hope the poor geology professor with no practical skills makes a good showing and can at least find some water–coming from Arizona State.  She probably knows a bit of geohydrology. Did not see Season One, but this looks entertaining:

What would you do in the wake of a global catastrophe? Even if you survived it, could you survive the aftermath?

Season Two of THE COLONY introduces viewers to a new group of volunteers with differing backgrounds, skills and personalities, to bear witness to how these colonists will survive and rebuild in a world without electricity, running water, government or outside communication. Over the course of 10 episodes, the colonists - who include a construction foreman, teacher, carpenter and auto mechanic - must work to utilize and strengthen their exploration, technology and survival skills in ways they've never had to before.

Ralph Vince comments:

This, culturally, is AMAZING to me. A few weeks back I had an extended discussion with a group of very bright guys all in their early 20s — a candid discussion about their perceptions. A few very revealing things:

1. They are all very upbeat, economically, on a personal level. They feel they are smart and educated and will do fine even though they expect things to dissolve, they believe their formal education is their life preserver.

2. They all hate the boomers and consider them the "entitlements" generation — they regard the ones who were mostly their parents, the ones they refer to as "The greatest generation" as deserving of entitlements, but the boomers NOT entitled. Very interesting — I couldn't get to the logic of this other than we, the boomers, "screwed everything up, did nothing as a generation, and have a grotesque (to them) sense of entitlement to us".

3. They all, universally, expect things to decay, eventually, one way or another, into this MadMax anarchist future. When I would press them on this one, with things such as "Well you were saturated with these types of images growing up of the future, can't you foresee a less dark one, a more optimistic one?" They all universally agreed that "There is no other way the future can work out." Fascinating. Absolutely fascinating. With housing now more affordable than it ever was to any of the boomers — with borrowing at interest rate levels never before seen (and long rates banging around 4% !!!) and a protracted, decade-long-already contraction, the thought of a major up move over the next 15-20 years was something they could not possibly conceive of.

Vince Fulco writes:

Would note the release of the movie "Book of Eli" on DVD recently follows this post apocalyptic meme. Also has a fairly strong underlying theme of Pogo's "we've seen the enemy and he is us."

Pitt T. Maner III responds:

When will the post-Boomers give up on the end of "The Road " ideas and swing towards the "On the Road " themes again? Cyclicity. 

James Lackey comments:

One posits (as Mr. Vic did with movies and baseball) stock returns or better said premiums ratios are higher during futuristic movie and tv times.. see 60's twilight zone and late 90's everything was deep space futuristic.. then post crash it was all cop shows and today perhaps its true on the mad max which came in when the rust belt was dying post 70's Opec deals.

One does not say that its different this time. In my day Generation X was deemed stupid, spoiled and lazy.. It was a cultural and economic shift and we didn't know what to do, but the second we figured it out everyone I know ""just did it" hence the Nike slogan "just do it".

It's good to see the young beat up the old on the net, but quite respectful in person. I have a great deal of respect for my Son's buddies and all the BMX kids we train. Their only problem is over specialization and the quote above shows that in their belief their credentials will be their savior.

I do not agree they despise the boomers… I'd rather think we like to think or say that as Gen X ers for a revenge trade.. No Gen X er believed for a minute SSI [Social Security] would work out so for the Gen YZ kids to even think about it at all is a big joke..Ive never heard about it once…matter of fact if any Old BMX racers bring up the 3 sins of talking about Work Marriage or Politics at the track the kids ride off… the older adult pros age 18-24 say it flat out and crack me up "I can't handle this drama, I am gonna go talk to the girls" These kids today are "awesome". 

Ken Drees comments:

TV has recently been and still now is based on these themes "biggest loser" "bachelor" "dancing with the stars" "angry biker building show" "rock star real life" "idol" "top model" "fashion designer contest show" '"hell's kitchen" "next iron chef" "tattoo shop people" "dangerous fishing boat" "man in the wild" etc—a lot of contests, makeup, high energy, tears, people being eliminated, emotive overkill, action with real life injuries. All of this started with "survivor"–which is pretty much over–except they have a Spanish version of it on the Latin channel that I just flipped over yesterday so that trend must be in the last hurrah phase.

 But these themes are lottery like–taking a chance to make it to the top–be the one who can outlast the competition and the make it all the way. So maybe that consciousness seeps into markets–can we survive another day, the odds are against us but I feel the magic. A big cross section of age groups are relating to these shows—I personally got hooked on Hell's Kitchen–something about the angry language that I try to keep under control and watching that blond haired man just let his anger spew at those inept cooks. Then you get into the finalists and start rooting for a favorite —like horse racing.

Survival in a post 401k smashed world, surviving unemployment, etc.

 Kim Zussman comments:

1. They are all very upbeat, economically, on a personal level. They feel they are smart and educated and will do fine even though they expect things to dissolve, they believe their formal education is their life preserver.

2. They all hate the boomers and consider them the "entitlements" generation — they regard the ones who were mostly their parents, the ones they refer to as "The greatest generation" as deserving of entitlements, but the boomers NOT entitles. Very interesting — I couldn;t get to the logic of this other than we, the boomers, "screwed everything up, did nothing as a generation, and have a grotesque (to them) sense of entitlement to us.

Ralph please send our apologies for screwing things up for them. Ask them not to see "Avenue q", because exactly as Mr.s Rogers and Henson told them - and it is statistically remarkable - they really are all gifted, special, and specially equipped to make this a better world.

Sorry too about our house that you've been eyeing; its 20% upside down because of those college loans, and the one for your first car. At least there won't be any estate tax on it. And remember to hang that Ivy diploma proudly in the latrine - you never know when it might come in handy.

If you decide to get more education - forget about cloud quantum computing gene sequences. Go get your CPA, with emphasis on forensic accounting, and take some classes on retrieval of deleted emails, cash-tracing, and banking in the Bahamas. Also get certified to sell the plastics of the future - insurance.

Big shame about that 401 account. We were, as always, worried about you when they went below 700 and we sold everything. The good news is we got back in at 1200, so please work hard so your earnings propel it to the 12,000 you deserve.

About that screw-up: We were taught something like 2008-2009 was more unlikely than an asteroid collision. However now that the problem has been corrected, you have nothing to fear. Please tell your boss to deduct the maximum for your retirement account, auto-deposited in one of the index ETF's on the first of each month. Add to it on the taxable side too. More is better - buy as much as you can while you're young. Find a good ETF that will go up. If it don't go up, don't buy it.

Sorry about our health. We've been doing cardio for decades, so we're not going to MI like Opa or stroke like Oma. And we floss every day, so there won't be any need for chemo. But we did think to get long-term care insurance, and though you're mad hope you will pick nice nurses for us, and bring a case of Ensure now and then.

Alan Brice Corwin writes:

I've also recently had discussions with a large group of twenty-somethings, but I came away with a different impression. This may be a sampling or a context problem. They may have been less candid towards my generation because they were looking for money for their projects

The main difference in my encounter is that most of these people had boomers for parents. While most of our parents were in their early twenties when we (boomers) were born, their parents were often in their thirties and forties when they were born. There were a few with younger parents, but not very many. (We refer to our parents as the greatest generation because they beat the Nazis and the depression, but who are they referring to and why?)

In fact, I noticed a lot of sympathy for their boomer parents. Several of them noted that their parents had worked hard all of their lives and had expected to retire soon, but are now looking at having to work into their seventies or eighties. There was a general feeling that they would not allow this to happen to them. They would take care of their retirement needs while they were still young.

The main resentment that I encountered was that I was able to get my education for free. They don't think social security will be there for them, but they were young enough so that wasn't really a concern. The idea that someone could go to college for ten years and have money in the bank at the end of it was simply mind-boggling to them. People with full scholarships all the way through told me they had forty grand in debt after school.

I also detected less regard for their formal education among the group I talked to The pretty much all had college degrees, but they regarded their life preserver as their skills at seeing what was needed and building something to meet that need. Several told me that their college education was only good for getting a crappy job for a big corporation, and they had no interest in that.

One point of similarity I noticed is the sense of impending decay. One young man told me that he thought we would see a thousand bridges fail in the US in the next ten years, and that no one would step forward to maintain them. He said he saw no inkling of the common sense of purpose that must have existed when the roads were built. He further pointed out that the infrastructure needs were far greater today because there are now so many more people, but China and Dubai seem to be the only places where they are actively working to build a modern infrastructure. He said we have a 1900 model railroad system and a 1950 highway system (I didn't point out that the interstate highways weren't built until the late fifties and early sixties).

There was a sense that they would never have the life their grandparents had. This same young man said that his grandfather went to work for a company right out of college, worked for them for thirty five years without a layoff, and had been retired and playing golf on a generous pension for thirty years. His grandfather had bought his house for less than ten thousand dollars, and three years ago he could have sold the lot the house was on for nearly a million dollars (not any more).

Another thing I noticed was that almost everyone they idolized in business was a boomer. As you might expect with a group that was more iPhone app developers than anything else, Steve Jobs was far and away the person most admired. Eric Schmidt of Google was another favorite, but ranking way behind Jobs.

Marlowe Cassetti writes:

Wouldn't it be great if they were to make a new reality program based upon the Turtle Traders experiment. All the intrigues of students from diverse backgrounds competing. Ah, the high drama. I bet some of us Specs might be so inclined to view a few episodes. Am I right?

Lars van Dort comments:

Actually the BBC had a program called 'Million Dollar Traders' last year:

"Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund. Can they make a killing?

The experiment reveals the inner workings of a City trading floor. The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead.

The traders were selected in spring 2008, before the US credit crisis gathered pace. The successful candidates were chosen, trained and dispatched to their specially created trading room in the heart of the Square Mile. Among them are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper.

The eight novice city traders struggle to ride the storm as stock markets around the world go haywire. Some of them take big risks, and others lose their nerve in spectacular fashion."
Episode 1:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56317671
Episode 2:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56321444
Episode 3:
http://vids.myspace.com/index.cfm?fuseaction=vids.individual&videoid=56337345

I quite enjoyed it.
 

 

Jul

20

sales of iphone 4Of all the canards, snares, delusions, and misinformation about markets designed to put the investor on the wrong foot, to increase the flow and likelihood of resources from those at the bottom of the web to the top, surely one of the most destructive is the idea that sales are more important than earnings, an idea that seems to have the market in its grip. The reaction of IBM to an increase in earnings above estimate of 8% and sales below estimate by 6%, with the stock dropping 5% is just one horse from that dump heap.

Same thing happened to General Silo when it announced great earnings but sales declined. Must make all these proud CEO's shake their heads in disbelief when they tell their boards that they can't believe that the stock is down when they're doing so well, and their every sale is at a profit and they are only selling profitable products rather than just selling anything they can to get cash.

Indeed, the first item reported now from the traditional income statement announcement is the sales number versus the corresponding quarter, and the surprise factor of sales. Compilations of companies that beat the bogey for sales are now almost as numerous and useless as those for earnings.

Sales are the easiest thing in the world to manipulate. From economics, the buyers have a demand curve for a product, with alternate uses and utilities for it. The marginal utility of each additional unit decreases. At a low price, they will use it and buy it for many uses. For example, the traditional explanation in Heyne where water is used for plants and baths at low prices but only for drinking at a high price.

From a practical standpoint, every business person knows a million ways to increase sales at the expense of profits. you can sell to bad credit risks. You can dump inventory at close to cost. You can offer discounts for bulk orders or pre orders. You can reduce the price and ask your customers to store it for a rainy day or some other use. You can sell to a wholesaler or distributer instead of the ultimate customer, especially for a price. You can justs turn over your product to your customers with a "I'll take 5% on this. Just enough to keep me going". Or you can produce a higher quality product with better terms and tell the customers what a bargain they're getting by taking it out of your hide. Or you can buy a division or company to expand sales, or work off your inventory to change the number.

Indeed there's no item in the expense or revenue side of the income statement that can't be manipulated to increase sales. From a value standpoint, the stockholders desire an increase in wealth, not an increase in sales. What gives them wealth is earnings, not sales.

Okay, where do all these crazy reactions to sales come from? There must be some academic study, doubtless done with retrospective data that shows that sales provides information. And some earnings aggregator sellers must have shown that sales is a important signal with data from one of the retrospective data files that are so misleading and cause so much havoc. Or perhaps there was one period with a turning point where style investing based on sales had some information value.

Of course, companies are very smart, and it's so much easier to manipulate sales than earnings because you don't have to have the complicity of the accountants or move one item on the balance sheet to never never land to change sales. So even if sales were once of reasonable signaling value, now they will be changed in cycles in the typical Baconian way, and of course the public will be behind the form even more than usual.

But in the interim, what a fantastic opportunity to take advantage of this ridiculous malarkey and the reactions of stocks thereto.

The funny thing is what must go on before the release of the income statements these days. The insider and the outside flexions for the big companies must keep the earnings in the hip for a few weeks on a need to know basis only with smug satisfaction that they have beat the guidances they gave out to the analysts and the favored institutions and that they have pulled the wool over the eyes of the accountants to a reasonable degree to pull the earnings into the right territory. Then the horrible realization must come that they forgot to run a sale of buy that division before the quarter occurred and the sales numbers actually show something below the bogey must arise, and their smug satisfaction turns to the agonizing thought that even though business is great, they're going to have to do a lot of explaining to the board as to why the stock is down. 

Paolo Pezzutti comments:

There are also other ways to try and increase sales and earnings at all costs. Apple is in my view the last example of a company which is struggling to keep up growth prospects at all costs. And the bigger the company becomes the more difficult it is. The problem of the antenna of the iPhone indicates that they did not give enough time to their engineers to test and make sure technically it was all fine…because of the hurry to come out with something new as soon as possible. Eventually, however, this approach to customers might painful. Hopefully they understood. 

Ken Drees asks:

Do consumers get conditioned over time that products need fixes and patches and it's just the way it works in tech– so no problem–send me a carrying case and a patch and we love Apple just the same?

Plus, Apple prices their new stuff way high on debut and people can't get enough of it and then they lower prices to get sales goosed–which pisses off the early buyers yet they seem to forgive next time around.

Also, what is your general opinion on dividends? In my market lifetime, dividends were always poo-poohed and shunned as a way to lose capital. Friends in business always reinforced that concept the putting money back into the company was more prudent. However in my father's lifetime dividends were an important investment consideration and if the dividend was solid or not, or if it grew each year and thereby showed business health. High dividend taxation rates affect investor sentiment about holding div paying stocks. The repeal of tax cuts in Jan will hike div tax rates. I wonder how retired people structure their investments to throw off income these days–bonds don't pay much, energy patch only real div sector that comes to mind.

You can't fake a dividend. 

Rocky Humbert comments:

Ken: You are correct in all of your statements about dividends. However, while you cannot "fake" a dividend, you can "cut" a dividend.
The interaction between dividends and taxes, dividends and management stock options, dividends and corporate cash balances/reinvestment are well understood. Also understood is that fact that a substantial portion of total market returns can be attributed to REINVESTED dividends.

Notwithstanding this, whether you cut a pizza into 8 slices or 7 slices doesn't change the size of the pizza. However, if you have eight friends over for dinner, serving 8 slices makes you look like a good host. Whereas serving 7 slices makes you look like a miser. This illustrates nicely the investor preference for dividends from time-to-time. If you don't ever have friends over for dinner, it shouldn't matter….

One thing that is poorly appreciated– and which I encourage you to consider– is the relationship between dividends and the "duration" (to use bond parlance) of an investors' stock portfolio. Here's an example: If you buy the 7-1/4% treasury bond of May 2016 at a price of 129, the duration is 4.9 and the convexity is 0.29. Whereas if you buy the 2.625% of April 2016 at a price of 103, the duration is 5.32 and the convexity is 0.32. So, the lower coupon bond has more duration and convexity even though it's a slightly shorter maturity date and has essentially the same Yield-to-Maturity. I'm sure the quants out there will find fault with this analogy, but I believe there's a similar effect in stock portfolios.

Jim Lackey comments:

No they are not Mr. Vic.. mid quarter updates– TXN or IBM or any of them– say all good, and why stocks gap so much is insider selling and we all know it. It's not all that bad as they raise the full year outlooks and TXN book TI bill ratios fall as a certain handset maker is on the ropes. But the joke is now vs 99 they can contract out manufacturing and ramp up and down production so fast all the old school book to bills or updates are well, perhaps useless. But a few still have their own factories, and if they buy new fabs from Klac LRCX or Nvls… I don't know how it's bearish in the time frame your looking at, but AMAT is all in Solar and that reminds me of used car sales, and one guy on the internet who went to a solar show and he said it reminded him of used car salesman and I thought good! Perhaps some sales will get done.  

Stefan Jovanovich comments:

Samuel Butler scandalized his readers by suggesting that the banking system of Britain had replaced the C of E as the national church. I think he would have been bemused to find that the language of finance has now become completely theological, that wisdom takes expression in the form of discussions about "decent" returns on capital, etc. I know Butler would have laughed out loud at the discovery that in the 3rd millennium mankind had reached the point where money itself could only be discussed in terms of its moral meanings and the words "sinister" and "deflation" could seem perfectly compatible usage in a single sentence.

From Mr. Butler's pen:

"MANKIND has ever been ready to discuss matters in the inverse ratio of their importance, so that the more closely a question is felt to touch the hearts of all of us, the more incumbent it is considered upon prudent people to profess that it does not exist, to frown it down, to tell it to hold its tongue, to maintain that it has long been finally settled, so that there is now no question concerning it."

" I do not mind lying, but I hate inaccuracy."

"Life is the art of drawing sufficient conclusions from insufficient premises."

Those of us who do own companies - not just as thought experiments but as our accursed fate - truly envy Rocky his ability to find answers in the current MBA Book of Common Prayer; what we see on the street in California right now is that the only current action is being handled by the Lackeys and the few other over-traders who have never had the luxury of being able to ignore the current bid. Everything else is talk combined with (1) belief that the "cycle" will somehow continue as the Emperor peddles along on his imported energy-saving machine and (2) a desperate eagerness to get to the next meeting with the representatives of the official church.

Jul

20

There were two sins that would result in an immediate termination at the prop shops. One was holding a leveraged loser and not showing up for work–the O'Hare trade– you go to the airport and call the office to see if you're blown up or not. If so they boarded the plane.

Next was "but its a great company." If anyone ever said that about a stock they were caught long in they were fired faster than….Never since I have read about the markets on my tank in 91 desert battles have the "valuations" of certain stocks in the sector all kids love– tech– never have they been so "cheap."

Now don't get me wrong the 2002 strategy of buying INTC in the teens and selling it over 20 has worked. And no I am not talking the 4 months post LEH when the world was coming to an end. I mean now a normal non panic time vs any other time when the waters were no hurricane force winds. I have never heard so many traders say, "but it's a great company and it's so cheap"…and I respond get the joke or you're fired.

Jul

18

ChinaMy nine-year-old son Jonah and I have been playing chess a few hours a day. I never thought I'd enjoy playing chess as much, but I do. In fact, over the past year I’ve probably played more chess than in my whole life. I win every game! When I win, I win. When I lose I win – seeing your son (your student) beat gives you an enormous satisfaction as a teacher. In fact, I never thought I'd enjoy losing so much. Jonah has this quality that I need to nurture in him – he never gives up. Even a game that is a clear loser for him, he plays till the end. What a great quality to have in life!

I am also enjoying seeing my four-year-old daughter Hannah grow up. We have yet to find an activity we both enjoy doing together (other than hugging to death), but we'll get there. She has almost learned how to ride a bike without training wheels; maybe we'll do cycling together. They’ve been going to a summer camp that is half a mile from my work and six miles from our house. A few times a week, while I tug Hannah in a bike-stroller, Jonah and I ride our bikes 30 minutes to the summer camp, through the park.

I envy my kids; they have the pleasure of spending time with their grandparents. My grandparents lived thousands of miles away from me – I saw them once a year for a few weeks and that was it. My wife's and my own parents live just a few miles from us. My father's house is a block away from my office; I stop by a few times a week for breakfast before I go to work.

My father gave Jonah a 50-state quarter collection for his birthday. Now, every day before Jonah goes to sleep, he and his grandfather spend half an hour on Skype learning about each state; and once they are done with a state, Jonah puts the coin at the proper place in the board. They also play a game of chess on Skype chat.

I gave a presentation last week at the Value Investment Seminar in Trani, Italy (here is a link to the PDF). I strongly suggest you visit their website in a few weeks, as it will have presentations and videos. It was a terrific event; I learned a lot.I spoke about China, Japan, and our favorite stock idea: eBay. I changed the title of the China presentation to “China, the Mother of all Grey Swans” (instead of “Black Swans”). A while back, when I shared this presentation with my readers, I was corrected: China is not a black swan, because a black swan is a rare, significant, and unpredictable event. However, the consequences of what is transpiring in China and Japan are for the most part predictable (especially if I am writing about it). We don't know when they will play out, but they are predictable.

Nassim Taleb, one of my favorite thinkers, who brought the black Swan to life in his books Fooled by Randomness and The Black Swan (I like both books, but Fooled by Randomness is my favorite, plus, it is by far an easier read than Black Swan), solved my dilemma with China by creating a new swan: "grey"– a rare, significant, but predictable event (though the timing is still unknown, or perfectly known only with the benefit of hindsight.)
I spent a few days at the seminar discussing and debating China with some very smart folks, who stirred up some random thoughts.

What really amazes me is how people who would not trust the US or European governments to do their laundry, have unconditional faith in Chinese government involvement in its very complex economy.

The Chinese government brainwashes its people the same way the Russians and Soviets brainwashed theirs: by controlling and censuring media. So I understand when Chinese people who live in China speak highly of their leaders – they are brainwashed (I have experienced this first-hand). However, I am amazed that the Chinese government has been able to brainwash people who reside outside of China.

No, an economy in large part controlled by the state is not superior to ours. Greater control over their economy allows the Chinese government to pull the economy out of recession a lot faster than in the democratic countries, but there is no free lunch. Their actions will just lead to greater excesses and imbalances down the road.

It seems that as Westerners we have an inferiority complex when it comes to Asian cultures. Chinese uniqueness is praised today the same way Japanese superiority was in the 1980s. I even remember reading Russian newspapers in Russia, in 1989, praising the Japanese work ethic and their unique culture and spouting predictions of the continuance of Japanese dominance. I can only imagine how the mainstream press in the US was caressing Japanese uniqueness in the late ’80s, especially as the Japanese were invading (buying) Times Square and the State of California.

What is very interesting about it is that today all those Japanese cultural advantages are looked upon as disadvantages. For instance, “saving face” did not allow Japan to deal sufficiently with failed companies; their economy was full of semi-dead, zombie companies, which did not allow the healthy ones to prosper. Their employment-for-life system that was praised to the heavens during the Japanese golden age is now killing productivity of the economy. I recently read that 12-17 million people in Japan are employed who should not be employed (for an economy of 120 million people, these are huge numbers). In other words 12-17 million Japanese show up for work every day and receive a paycheck, but add little or no value to their employers.

Back to China. Even if the Chinese are harder-working and more entrepreneurial than Americans and Europeans, that doesn't mean the laws of economics are somehow suspended in China – they are not. The Chinese economy was geared for high global growth, while now much lower growth is in the cards. The excesses created by 14% of GDP being “stimulated” into the economy through a fire hose have led to significant overcapacity. It will take time for these excesses to be dealt with, even in a country full of super-hard-working people.

A friend asked, “But what about Singapore; its government plays a significant role in the economy, and Singapore is thriving.” The clear answer: government can only succeed in running very small and relatively simple economies. Let me give you this example. I have a game on my iPad called Flight Controller – my kids love it. The point of the game is simple: you are an air-traffic controller and your job is to land planes. Planes come in three colors, red, yellow, and blue, and each plane has to be landed on the runway matching its color. The objective is not to have mid-air collisions. I can land ten planes no problem, twenty gets more difficult, and forty I cannot handle (Okay, I played the game a few times). The same is true for economies: the more complex the economy the more difficult it is to be centrally planned.

Government is not and never will be an efficient allocator of capital. It empowers bureaucrats, which in turn leads to corruption, which further misallocates capital. The size of the bribe or strength of the personal relationship decides the flows of capital instead of the invisible hand that funnels capital from low to high uses. (A side point: Singapore is one of the most uncorrupt countries in the world; this may explain in part the government’s success. China is not Singapore; it is infested with corruption).

I often hear that you have to go to China to understand it. But tourists who go to China don't see the real China, the same way that tourists who go to Moscow don't see the real Moscow. I was in Moscow a few years ago, and I was impressed by how clean and beautiful it looked; in fact it didn’t look much different from the center of Brussels. Of course, I was only in the center of the city, where you see fancy restaurants, gift shops, museums, theaters, etc.

I went to see my college friend who lives in the real Moscow – I saw a very different picture. The second you veer off the main road, it turns into pothole hell, and the streets are anything but clean. My friend lives in a nine-story apartment building that has not been painted in decades; paint is peeling both inside and outside. Interestingly, most of the sides of the buildings that face large streets in Moscow and in Murmansk (the city where I spent all my Russian life) are usually painted, but the sides that face small streets have not been painted in generations.

My friend – a lawyer – and his wife and kid have to live with his mother, as they cannot afford to live on their own. But you won't see this Russia if you are a tourist visiting Moscow. People who visit China even multiple times harbor an illusion that they understand it – they don’t. In fact they so overwhelmed by its grandness that they stop being rational in their analysis.

I keep thinking about the possible consequences of the Chinese overcapacity bubble pop. It is relatively easy to understand what will happen in Japan: deflation will quickly turn into hyperinflation as government is forced to print money to service its debt and social obligations. They'll announce and may even execute austerity measures, but those will be a decade or two too late. The Japanese yen will likely decline, though maybe not right away, as Japan owns a lot of US dollars and may be forced to sell them.

The Chinese situation is far more complex. China has tremendous overcapacity, but overcapacity is deflationary. It will drive prices for commodities down, and prices of Chinese-made goods will likely decline as well. Demand for industrial goods will collapse, pushing their prices down. But China will also have to deal with a lot of bad debt and will likely have to print money to do so – which is inflationary.

The popping of both the Chinese and Japanese bubble economies will lead to higher US, and likely global, interest rates.

Japan, as the title of my presentation suggests, is past the point of no return. Internal consumption of its debt will likely turn negative very soon. Its post office, which includes a postal savings system that was historically one of the largest buyers of government debt) announced recently that it will be a net seller this year. The situation is out of the Japanese government’s hands. It will probably not be able to intervene in the economy for much longer, so rates will rise and there will be little they will be able to do about it.

China is different from Japan. Its government is trying to slow down lending, but at the same time we have started seeing news of possibly another multi-hundred-billion-dollar stimulus over the next few months. The Chinese government’s actions are the wild card that will determine the duration and the magnitude of the bubble pop – the longer they intervene, the more dire the consequences will be.

Jim Lackey writes:

Why is it that the Soviets lasted some decades and you think China is going to self destruct after 1 decade? Are you guys serious? So the Olympic track builder comes to Nashvegas… we are building a new track and paved the berms. He told us about Beijing and the Olympics. He built the BMX track. So a dump truck so overloaded with hot pavement wheel stands up the hill– yes, front wheels off the ground…

A chopper comes in takes the bucket off the truck flys it to location 100 meters and set sit down. 50 some 50 Chinese kids come running out shovel hot pavement in a ballet and make a perfectly paved berm. He said it was wild to see. Mean while 4 of us did it on half the time with one sub load dump truck a rented bobcat with 1-10th the labor and guess what. In the USA the labor was free! We all volunteered to do it for the love of the game.

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