50 200 MAI don't want to touch off a quant vs tech battle, but was interested in thoughts about the use of moving averages. The claims are seen so often in the media for example as 50m/a has crossed the 200m/a as bullish or bearish. As quant this is easily testable, but is there some fallacy built into the assumption, checking once premise. As an average of levels over some period is this overly sensitive to a large event that may have happened at the beginning of the period, or as new data are added and taken away from 200 days ago. This seems a drawback. So on an unchanged day the 50m/a could cross the 200m/a, so it is a lagging measure. I have not used them much but interested in testing and what the merits might be if any. I am prepared to buy a round if venturing too far from our charter.

Craig Mee comments:

Normally people use exponential moving averages which put more weight on the most recent numbers, however it must be noted when looking at technicals from any of the major houses, one day they may be looking at the 50 day exp m/a, the next day the 20 day exp m/a, next day 16 and so on. There seems to be little uniformity and who's to say the market's in a 50 day cycle or 20 or whatever, no doubt this will change at any rate, it must be proven, as to the reason it's used , and this is never done. 200 day just constitutes a longer term trend number. Could be 167 or 198 for the purpose. They may have more of a chance to perform some sort of return in a slower moving stock or short-end rate market, but for futures markets, there is way too much given away on the turn (i.e. consolidating flat markets forever paying away the spread to get in and out.) It's much the same in running a moving average over your profit and loss on a trading system as a filter , normally what you'll find is that the major gains are made on the swing, for that's when markets are extending, and if you're not in then you're not in!

Victor Niederhoffer comments :

Not to mention that it is extremely spurious and dangerous to your wallet to see cycles in moving averages.This is due to the Slutsky-Yule effect, a consequence of regression to the mean, creating false cycles.

Anatoly Veltman suggests:

The best M/A use I know of has nothing to do with crossovers, or even with price charts' current levels vis-a-vis averages. It has to do with current slope of all averages in an optimized pitch-fork of three averages. The method was originally described by Stan Weinstein, as applied to longer-term stock strategies. I’ve had positive results applying the general overriding idea; and over the years, I’ve worked with people who did optimization and chose a pitch-fork of 14-, 30- and 50- day pivot simple M/As. Furthermore, a few effective signals were developed: dubbed Moving-Average Fake-Out Trade and Moving-Average-Divergence Trade, at the time…



FlyI took a day to fish the Farmington River  recently, not far from where I live in Connecticut. It is a beautiful river, wide and easy for casting, varied in structure, with a flow perfect for wading this time of year. The Fall colors are just starting, and a blue sky lights the clear river water. It is my favorite time of year to fish. A large portion of the river runs through a state park, so the access is surrounded by an old growth forest. It is a nice walk from the car to the water, a transition and a time to think. I always like to rig up on the water, not by the car. Standing in the river, I can listen, watch and plan.

The Farmington, besides being one of the more beautiful rivers I have fished, is also one of the most popular among anglers and gets pressure. But, there are plenty of large rainbows, browns and brook trout to make up for this. At the fly shop on the last trip a guide showed me a picture of a 30 inch brown he had caught earlier that day. This is the type of thing that keeps one coming back. Here they allow bait fishing as well as fly fishing. Fly fishermen and bait fishermen often have to tolerate each other but rarely do they enjoy the other's company. It is sort of like snowboarders and skiers, sailors and power boaters. They have a fly fisherman only section, but today I venture out to the open waters to see what the day brings.

ForestI drive up-river higher than last trip, park the car and begin walking through the forest. I enjoy this part, listening to the forest and river. I am looking for clues, the insects, water color, flow, structure of the river. I scan below the water for signs of fish. Though I pass only a few anglers, I decided that today I need to do things a little differently to be successful. These fish see many anglers over the season and the learn the lures and flies. To start with, I find a spot which is hard to access, down a step embankment. Then instead of the smooth glassy water, I look for the rocky, fast water. This will rule out the bait fishermen who can only fish the deep pools. Most fly fishermen won't wade the rocky water to risk slipping and losing gear. Plus, the trout like this aerated water with plenty of food. The rocks below provide a nice spot to relax after a meal. I call it "pocket water". I see some small insects flying around, but decide to put on a large attractor fly to see if I get a reaction. After a few casts I hook into a nice brown trout, 16 inches. My day is already a success.

RainbowUpriver I see a deep pool where earlier a fellow angler was casting without success. I know this area gets fished often, but for good reason as it holds large rainbows deep below. I walk up and try a few casts. Shortly after I see a fish rising across the current. As a general rule, the largest fish will be in the most difficult areas to reach. It is the survivorship bias as played out in nature. In this case the fish is just on the edge of a swift current, which would sweep a fly line away before it could reach the fish. I move up ahead and scramble out on some rocks for better position and wait. Sometimes the best thing to do while fishing is to stop and wait. He rises again for a small insect. I find that the largest fish tend to eat the smallest bugs. I think they like to challenge the angler; smaller flys are harder to cast and difficult to see on the water.

I scan my fly box for a selection and decide to go with an even smaller bug than normal. I throw several casts over the current into the seam when he is feeding. I try to vary each cast, different lengths, changing the speed or angle. Sure enough, a quick splash and he takes the bug, a beautiful 18 inch rainbow. I tighten up the line and feel the tug on the other end. I focus on keeping the pressure on him and steer him towards the shore as I move off the rocks. A fish quickly landed is much easier to return to the river. I land him a few minutes later. I take a mental picture for the winter months ahead, the red, blue and green colors on his back, his wide oval shape, strong tail slapping on the water, the bright reflection of the sun off his scales. A great day!

I did catch a few more here and there over the course of the day. Doing things just a little bit differently turned the day into a big success.



On Friday I saw Anvil: The Story of Anvil.

It was the most interesting movie I have seen in a long time. It is an independent film I saw at the Oklahoma City Museum of Art. Anvil was an up-and-coming heavy metal band in the early 1980s. I vaguely recalled the name… I myself was an Iron Maiden and Judas Priest fan. Anyway, unlike Maiden, the Priest, Scorpions, and others, Anvil never made it big time.

The lead two member of Anvil, however, never gave up, and they have been playing together for thirty years. They are broke and work regular jobs, yet they still think that one day they will have a hit album and become world-wide rock stars.

The film is a documentary about Anvil, and their quixotic quest to become world-renowned stars. At first it is amusing – almost like watching Spinal Tap as the lead singer and guitarist "Lips" lives in his fantasy rock and roll world. As they movie progresses, it becomes a bit depressing. The third part is the culmination of their attempt to launch a new album with a new producer, and an attempt to get a contract with a major label. The last scene is fantastic, but I will not tell the readers how it ends.

I spent most of my time thinking about my own life, and the lives of others that I know. When is the appropriate time to give up? Most second rate metal bands from the 80s gave up a long time ago. Are they better off for it? Or should they have kept living the dream? The same could easily be applied to traders and money managers. I for one gave up trading last year. Should I have? How long should I have kept at it before quitting?

This is of course an unanswerable question.

Duncan Coker recalls:

When I was 18 I had dreams of forming and being a part of the next Allman Brothers band and pursed this the first few years of college — much to the detriment of my GPA and class attendance. That dream ended in my early 20s. But I still play and enjoy guitar to this day and my musical friends of earlier days are still among my closest. So I will always be a guitarist, but never a rock star.

GM Nigel Davies analyzes:

There is an answer, but it requires thinking in terms of the journey rather than the perceived destination. As long as someone experiences personal growth as a result of his endeavours (and this manifests itself in a feeling of passion) then the activity is worth continuing. But when it becomes all about destinations (ambition, money, power) then the odds are high that an accident will happen.



MesaI have been thinking about my current modern civilized lifestyle versus a more primitive lifestyle of the hunter-gatherer or pastoral nomad. It started on a recent visit to Mesa Verde in southwest Colorado. Here with my sister and nieces we visited early villages built into the rocks dated around 1100-1300. They are beautiful to see both as a wonderful reminder of the past and their incredible setting high in the cliffs with views 50 miles out onto the plateau. But in reading the history these relics are just the very last remainders of a very ancient culture they call the Ancestral Puebloans. The earlier people had no structures and were nomadic. They moved in rhythm with the seasons and were hunter-gatherers. Their life was much different than the agriculturalists who built the cliff dwellings. The early people had more time away from the fields of labor for one thing. Mobility was also an important part of the older culture, though it took more land to support this. I can see many advantages, more time for culture and family, less work, plenty of movement and variety, fewer possessions to maintain, better physical health. But I believe there was one main disadvantage that led them away from this lifestyle — risk. These people had to live day to day, week to week with great uncertainty. There was no store of grains to support them should supplies dry up or if the hunt was poor, no fallback position. They ate what they could kill and gather. This was a cost for the lifestyle they preferred. The hunter-gatherer still exists somewhere within me today, the desire for simplicity, movement, physical agility, more time for family, and a sense of living in the present. All very positive things.



DGCMy bride and I recently returned from a visit to a musical Caribbean location, the name of which rhymes with a large brass musical instrument.  It was quite an eye opener. Among other things it reaffirmed the importance of so many of the ideals spoken about on this site, like personal freedoms, private property rights, freedom of movement and employment.  How dramatically life changes if even one is taken away! Simple tasks like booking travel in country are simply impossible or involve many black-market channels and considerable risk.  An unauthorized drive in a car can result in jail time for a local. Blue and green clad officials adorn nearly every street corner in the capital city. There is no ownership or credit.  Cars and houses are grandfathered from 50 years ago. There are shortages for everything.

But in front of all this and in the streets is the constant sound of music, and a tapestry of movement and life. Rhythm and art are woven into this culture and they do thrive. Creative methods to circumvent the system are adopted by all as well. The small businessman is emerging.  Private dinner clubs, hotels and other services are allowed in limited numbers and are the best-paying enterprises.  There are plenty of unlicensed businesses as well who take on even more risk in order to be entrepreneurs. The health and education are very good for those who have practical access. But afterward there are no opportunities to apply those skills. So you have PhD Botanists giving rainforest walking tours, microbiologists explaining historic sights, doctors and scientists arranging travel plans.  The government jobs surprisingly are the worst place to work, with very low pay. So no one wants to work there.  One does not sense government corruption but rather paranoia and massive inefficiency.  A 50th anniversary passes with barely a notice.  Signs of a famous Argentine are ubiquitous. But movement and desires of the populous is admirable. There is no island mentality here and things do get done despite the handicaps. There is desire for change on all fronts.



White shoe firmIt is reassuring that the secret high frequency algorithms have been secured and are back in safekeeping. As the government prosecutor said, in the wrong hands these algorithms could be used for evil purposes like "market manipulation." I will feel much better when they are back in the hands of the trading desk investment bankers who designed them so they can be utilized in their altruistic way.

Vin Humbert writes:

It is good to know that at all times one is playing against a robot that pays 1/100 of the commissions and gets paid for its orders, and gets to see your orders before putting on its trades, and is always two computers and a geographic distance of light ahead of you. As Willie Sutton said when the Dodgers lost, it makes you feel so bad you want to turn yourself in to headquarters.



Lately I have been reading several books about sea travel in the 1600-1800's, one about the whaling community in Nantucket, one about the Dutch early traders and one concerning the Mayflower voyage. An interesting aspect of sea travel at the time was the use of leverage in the context of sail and mast relative to the boat hull size. The trade off was simple, a large mast with much sail was faster, however during storms the large sails could cause a "knockdown". This occurred when strong winds pushed the ship over horizontal to the sea. The wind and sail acted as a lever and lifted the much heavier hull of the boat. It was a trade-off the captains had too make, deciding on a balance between the amount of sail to raise and the chance of a storm. It would often take hours to adjust the square rigged sails, so when a squall came it was already to late. But managing this type of leverage was part of being a ship captain.

Jeff Rollert adds:

When one looks at boats of that time, they had high bows and sterns, but lower mid sections. This was fine unless water/waves came in to the middle area, where they could quickly find a way thru doors/hatches into the boat.

Square rigged boats can't turn into the wind/waves quickly, as the sails were mostly centered on the boat. If you saw a huge wave coming, you had to take it at a relatively broad angle, otherwise you would loose steerage and go backwards/broach. The sails had to be removed as quickly as possible as soon as the wind picked up - hence the old sailors lines "You reef before you need to / If you think you may need to reef, do it immediately."

Lastly, for those who have not gone up a mast, it can get scary quickly. On the boat I race, a one inch change in the deck is a movement at the top of five feet…in wind those old whalers/freighters could have guys in the rigging when their location was moving forty feet, side to side, while they bundled sails up and tied them down.

Also, they were ballast boats, which meant they had stones (literally) in the bottom to offset the weight and leverage of the mast. The bottoms were flat/ to slightly rounded, so in big waves a 90 degree movement from side to side was common. At 120 degrees, the boats rolled over and sank quickly. This is a reason few sailors then learned to swim. It was moot, the boats sank so quickly.

As a sailor complement, those guys had balls, but with a 60% fatality rate.



Buy SellI have been giving some thought to the adage "cut your losses and let your profits run." It has always rung hollow to me. Maybe I am missing something, but it seems retrospective and such decisions can only be made after the fact and not prospectively. It ignores all those unrealized profits and losses that often reverse over the course of a trade. All those winners that were supposed to run that turn into losers and all those losers that we are told to cut, that turn into winners. To argue the other side, I suppose one could just set a stop loss exit on all trades and no stop on the upside. This would reduce risk and profits, as one would expect, no great pearl of wisdom. I believe the adage should be reworded to "allow your winners to become losers, but don't allow your losers to become winners," or "realize your losses and make less money." Very catchy.



 I don't trade many individual stocks, but I have one long-term holding, which is a sleepy consumer products company with a low beta. I saw it drop for no particular reason about 10% the last two days. Then this morning the news of a downgrade from buy to hold by an analyst. Guess a few people knew about it beforehand. Classic Wall Street. Only good news is, it should rally from here.

An Anonymous Commenter comments:

The secretary of the interior and his colleagues allowed the news of the land sales last month to leak before the number or anything? Makes you wish to turn yourself in a la Willie Sutton to the authorities after the Dodgers lost.




 Efficient market proponents argue the market has no memory, that every day is independent of the previous, like each roll of the roulette ball. I believe the market does have a memory based on the cumulative memory all the current market participants. My memory seems to focus on all my losing trades which I can recall with intense detail. The '87 crash is probably in the market's memory since many now trading lived through that first-hand. Maybe the 1970s bear market is part of its memory, but I doubt the '29 crash or the 1930s or 1907 panics are in its memory. The last six months will be remembered by the market for a long time. This will add some risk premium for those who like to trade from the long side.

I have always like this quote from William Faulkner: “Memory believes before knowing remembers. Believes longer than recollects, longer than knowing even wonders.”

Like a lot of Faulkner, the meaning shifts every time you read it. It takes us a long time to understand our past.

Vince Fulco writes:

It is tough to imagine the older worker ants represented by the baby boomers gravitating back to equity markets after being burned so badly twice in a decade. Particularly since in this downleg, perceptions have grown that contractual obligations have weakened so dramatically. Thinking about the creditworthiness of long term disability and life insurers specifically. Perhaps some of the 'fool me once, shame on you…' mentality will creep in too.



There is a simple rule one can apply when looking at long term assets like houses or core stock holdings. If you are a seller, imagine you have cash and no house. What is the most you would be willing to pay for that house? That price should equal your selling price. Subtracting transactions fees, this is your personal clearing price. In reverse if you are a buyer, imagine you owned a house and ask yourself: what would be the least I would sell this house for? That should be your buying price. The beauty is everyone has different answers to these questions and this is what allows trade to take place. "Armchair Economist" by Steven Landsburg is a good resource for these questions.



 I won't argue if the salary caps are warranted or not, as this is a political issue. But what I believe to be factual in economics is that caps on prices leads to supply/demand imbalances, econ 101. For example, capping gasoline at say $1.00 a gallon would cause consumers to demand more, oil companies to produce less and the result is shortages. For executive labor in the banking sector, this will be the case too, shortages of talent. It is possible there could be a massive supply curve shift where all these executives are will to take lower pay. More likely I think is that they decide to go somewhere else, and that place where ever it is, would be an interesting place to invest in.

Kevin Depew is skeptical:

Agreed, the economics of salary caps seems clear, but, to paraphrase Jon Stewart, these banks have lost hundreds of billions of dollars. Just what "executive talent" is being lost?



 The financial crisis has a number of causes including weaknesses and gaps in regulation and supervision. However, the idea of a growing government as a solution to problems created by greedy capitalists and bankers around the world looks too simplistic and has a bit of populism in it. There may be results in the short term, but in the longer term the issues will likely be more than the benefits with an expensive bill for the next generation of taxpayers and citizens. I am not referring specifically to the US, but also to Europe to some extent.

Real change would be first to understand weaknesses and challenges of our industrial, financial and social systems. The world is changing. There are new players in the game. And the relative importance and power of countries is changing with time, and accelerating. We should recognize this fact. This has consequences on our present and future ability to be innovative and competitive, on the possibility to maintain the same lifestyle in the future, the same welfare. This crisis has shown that the US is still vital and fundamental for the good of the world's economy, but it has also dramatically shown the increasing difficulties of the US in maintaining this leadership, which is not only economic, but also intellectual and political. After this crisis we cannot go back to business as usual and our countries will end up with more debt on their shoulders. We cannot solve the crisis just pumping government money in a model that is not working without doing anything to change it. We will only have crisis after crisis if we do not eliminate the roots of the problem. And the problem is that new players in the global economy produce goods cheaper than we do, that they are learning fast how to make high tech products and services, that they sell more than they buy. This is causing a fundamental imbalance in the global system that market forces should solve within a proper framework and set of rules provided by governments. Also we should probably all realize that may be we are living a standard that we cannot afford any more.

From a WSJ article:

One memorable moment in "Atlas" occurs near the very end, when the economy has been rendered comatose by all the great economic minds in Washington. Finally, and out of desperation, the politicians come to the heroic businessman John Galt (who has resisted their assault on capitalism) and beg him to help them get the economy back on track. The discussion sounds much like what would happen today: Galt: "You want me to be Economic Dictator?" Mr. Thompson: "Yes!" "And you'll obey any order I give?" "Implicitly!" "Then start by abolishing all income taxes." "Oh no!" screamed Mr. Thompson, leaping to his feet. "We couldn't do that . . . How would we pay government employees?" "Fire your government employees." "Oh, no!" Abolishing the income tax. Now that really would be a genuine economic stimulus. But Mr. Obama and the Democrats in Washington want to do the opposite: to raise the income tax "for purposes of fairness" as Barack Obama puts it.

Riz Din writes:

Not so long ago, I heard a pundit commenting on recent economic policy responses saying something along the lines of when the fires are raging, the first priority is to put them out, and to deal with the longer term implications later. Personally, I think it is better to sometimes let things burn and let nature take its course.

I agree that we are living a standard we cannot afford any more, but only in the sense that we may have 'brought forward' living standards by a few years and that we may have to contend with tougher times before the wheels of progress start spinning again. Indeed, while a part of me worries that all this policy meddling risks damaging the natural checks and balances of a free system, I am reminded of the old adage 'necessity is the mother of invention', and look forward to new discoveries being born from a period of relative hardship.

Duncan Coker adds:

Looking to history, in the 1930s all the programs rolled out by FDR did little to solve the Depression. There was even a mini Roosevelt depression within a Depression in 1937-38, four years after all the government action. What did get people back to work was arming for potential conflict, which added three million jobs in 1939-40 and continued through the horrible conflict to follow. All the FDR structural reforms played a bigger role a decade later, after the war, when security and arguably a more transparent system allowed for exponential growth for middle class incomes, housing and standards of living. I believe it will be the small businessman and entrepreneur that paves the way this time, really the only ones that can "create" jobs.



 I spent 10 days in South Central Alaska floating a river last summer. I was with three other friends in two rafts floating down a 50 mile stretch of river, fishing (trout and salmon), hunting (mainly for grouse) and taking it all in. The bears were a big part of the experience. On the river banks where we would pull over there were always tracks, some the size of dinners plates. Each day, more or less, we would see a few or them, large brown bears, Grizzly. It was usually from a distance and they look like large moving boulders across the tundra. On one occasion we came up on a single male along a river bend. We were both startled, but he quickly turned and disappeared into the woods. I was rowing and my friend up front got the closest look, maybe 20 feet away.  

The nights we took precautions, but knew that anything we did would matter little if an aggressive bear wanted to get into a tent. But as the days went on we became less concerned and grew more comfortable with the surroundings and the dangers always present. I think during long periods of time outside in nature, the mind and spirit slow down to become part of the natural order. And as the days passed, I felt less like the enemy or prey of a bear and more like a fellow creature in the wild. I think the more a bear senses you belong here, the less likely he is to view you as a threat. In any case for those 10 days we lived in a harmony with the bears, rivers, mountains and trees. I felt I had found balance with the wilds, which maybe can be applied in many places.



 Here's one for the guaranteed to happen file:

Last January we had three down days in S&P futures leading up to the end of the year and followed by another five down days more or less (one slight up of 0.3 in there). This year we had five up days leading into the year end followed by two more up days so far. Of the eight most recent examples of up two day moves at year start, the results are mixed for rest of month.



 I am reading Freedom from Fear, by David Kennedy, an excellent recount of the '29 Crash and Depression years of the 30s up to 1945. It is long, 900 plus pages, and I am only up to the year 1934. For me it was striking to compare the context of events between then and now. For example, one of the big issues of the 30s was the gold standard and strict adherence. Hoover shaped much of his policy around this. So he was restrictive on monetary policy, and fiscally wanted a balance budget. He proposed raising taxes in addition to cutting spending to add confidence to the system. FDR was different and informally went off the gold standard trying to inflate assets prices, a major policy shift. Another big issue was the roll of agriculture at that time. It made up around thirty percent of GPD, and FDR shaped many programs to support the farmers. He thought the farmers and their purchasing power were the key to getting the economy inflated again. FDR was also very concerned with over-production, so came up with a myriad of alphabet soup programs to centrally plan various industries. The world was much less open to free trade at that time. Most nations opted to go it alone. The ideas of Keynes were just being disseminated into the public forum. Labor unions were in their infancy.

My take away is that though they did have a banking crisis, and a credit crisis, and massive deflation of assets, the context was far different. Today there is no gold standard, much smaller agricultural affects, little concern with overproduction, open trade, more sophisticated economics and labor unions in decline. Regarding government and business responses, they did what they could given the tools they had, but their policies seem unrelated to today and somewhat misguided looking back in retrospect. I believe the next five year will not resemble five years during the mid 30's and see little of predictive value. I do enjoy reading about the period though. Beside an interest in history for its own sake, it makes me realize how much better off we are all today than 70 years ago. And whatever we are going through now, it is nothing compared to the hardships of those times. We have have advanced as a nation even after years like this one and that is a reason for optimism.



DuncanI just finished Better: A Surgeon's Notes on Performance by Atul Gawande, mentioned by James Sogi. The five points the author makes at the end of the book are good recommendations. These are: Ask unscripted questions, Don't complain, Count Something, Write Something, Change. The balance of the book is also very good. His theme is ways to improve performance in various fields, but specifically medicine. Diligence, ingenuity and doing right (sounds ethics) are the pillars of his approach. These are all good ideas, but the interesting part of the book is in the details and the examples he presents.

He starts with with diligence, and presents a case of infections in hospitals. Each year 2 million patients acquire and infection like Staph or Enterococcus while in the hospital. Ninety thousand will die of the infection. I found this staggering. The main cause of this is the doctors themselves through patient contact and not executing a very simple procedure, washing their hands. There are reasons for this, time being the biggest. To properly wash ones hands it takes about a minute. If a doctor sees 30 patients in an hours, that is 30 minutes an hour just washing hands. The best hospitals have come up with solutions for this, including antiseptic jells, greater use of gloves, greater awareness of the problem, better access to washing areas. But it comes ultimately back to the doctors to be diligent in such a simple area. It reminds me of the Coach Wooden's simple advice to players about how to tie their shoes before games.

Another chapter focuses on the eradication of Polio. This is a great success story, but diligence continues. When a half dozen cases are found in places like India, the World Health Organization and others, mobilize a staff to inoculate 4 million children. It takes them 3 days. There are great costs, but millions of children have been spared the horrors of polio through this diligence.

The chapter on ingenuity discusses the comparative advances in specific areas of disease prevention. I found the chapter on cystic fibrosis compelling. Using a rating system patients can identify the best hospitals for treatment. The top hospital nationally is in Minneapolis and has survival/longevity rates well above their peers. They achieve this by designing, testing and implementing aggressive treatments well before peers accept this as the standard. The director here invented tools like a duel stereo stethoscope to better identify lung sounds and a mechanized chest-thumping vest to allow better clearing of fluids. The entire treatment regime is carefully monitored and adapted to patients. It shows results. Life expectancy with CF nationally is around 33 years, at Minneapolis it is 47.

The chapters on doing good (ethics) deal in the gray areas of medicine. He looks at issues like compensation, involvement in state executions, and where to draw the line on fighting for an apparently terminal patient. I would recommend the book to all. There are definitely ideas to improve trading, but also the book is a glimpse into the medical field and the challenges they face as they try to improve and save lives.

Arman Agdaian remarks:

How to get better? In order to get better in anything you have to be humbled and punished many times over to never repeat the same mistakes. In my years of brokering and trading in the commodity markets, I will be the first to admit, I have learned you have to be willing to be wrong to be right. Life is about the sweet and the sour. How do you know how sweet something is if you never been soured?



 I am right now in the process of setting up a 529 plan for my daughter. For those not familiar, it is a college savings plan where the growth of contributions is tax free if applied to education. It is a very good deal. But the main point is that she is 9 months old now, so at earliest this is a 17 year investment, by far the longest I have ever entered. Interesting to think where the developed markets will be in 17 years. All the crises, euphorias, recessions, recoveries, bubbles and busts we will see. But ultimately all those moves will look like rings on an evergreen tree against the backdrop of time. And I also planted a few young spruce trees in the back yard to chronicle the occasion.



As the market goes back and forth, trying to scare out the longs and then the shorts in one market or the other, stocks, bonds, et. al., and a call for more barbecue appears on this web site, one thinks of Beethoven's meeting with Rossini, when Rossini came to pay honor to the downtrodden, overlooked Beethoven in 1814 while he was in eclipse to the popular Italian operas. "Give us more Barber" Beethoven said, "and whatever you do, stick to comic opera."

What we need is more square dancing. The market going back and forth, in its very civil way, around unchanged, it's like a do si do. We need more square dancing insights (and other dancing insights) into markets.

Art Cooper replies:

It reminds me of a merengue, the partners circling each other slowly and majestically (although the tempo of the music might become frantic), sometimes twisting their handholds into intricate pretzels, sometimes separating completely while remaining "tied" to each other, their steps remaining small, each partner suggesting actions which are never quite realized.

Jim Sogi adds:

In ballroom dancing you have the basic box step, a square pattern, then after a few of those, a line step. I'm not sure what they call it, but when you dance forward or back and cover some ground. Like the market did last week, then down. Now box step, then… In country dancing, a move is sometimes punctuated by swinging your partner around in a spin. It all has a nice rhythm and feel to it with a lot of back and forth motion and various patterns set to a cadence. Our markets sure have a nicer feel to it now than the head banging mosh pit earlier this year.

Recently, The Sunbaked Spec gave me an Indo Board to play with.  Its lots of fun. It's a board on a single roller and you have to balance on it, and roll it back and forth. At first I couldn't understand why he gave it to me, but now I do. It's the perfect physical demonstration of how the markets have this tendency to roll quickly to one side or the other. Like Friday with the down volume multiples of up, or today slamming the other direction up, and Monday and Tuesday balanced in the middle. Its fun, but you have to watch out because if you are off balance, you will fall on your butt. Kind of like trading.

Duncan Coker comments:

This market of late is definitely a Quick Step, one of the fastest and most complex of the Ballroom dances. It is full of syncopated steps, explosive running and hopping moves with lots of rotation and momentum. It has some similarities to a waltz but is a dance in 4/4 time. But many of the step are 1/8th note duration and very fast. It was most popular during the Jazz Age, when the wire houses, pools and syndicates moved the markets, when fortunes were made and lost at the bucket shops and curbs.



So often of late I hear the phrase "commodity X posts another record gain, on weakness of the dollar." Is there any true arbitrage that would cause a drop in the dollar versus euro, yen or another currency to translate into a rise in some global commodity, particularly oil? Or is this just another thing to say when no other explanation is apparent? I suspect the later, though it makes intuitive sense that a weaker dollar would be inflationary for global type products.

Heard another good definition of a bull market recently, as those times when all are waiting for the final shoe to drop. Which of course it never does.

I predict the Fed makes a tidy profit on the loans to Bear Stearns, when they are finally sold off, plus interest. Like Doc Greenspan back in the S&L days. Wonder if Bernanke was taking notes back then.



 I am sure JP would be proud to see his legacy coming in to restore confidence — though I doubt the all-night meeting was as dramatic as lining up the Trusts in his library and passing around the subscription pad until it was full, back in '07. I am checking the wire for any gold shipments from London, maybe Tuesday. And the Curb rates still below triple digits last time I looked, so that's a help. Commodity corner still holding up fine, and I've seen no lines at the Knickerbocker. All in all an unchanged week.

James Sogi adds:

The mob should be satisfied with the sacrifice of the Governor and a major brokerage. Just as after Charles Barney went down, they had to stop the carnage somewhere. The Panic of 1907 by Robert F. Bruner and Sean D. Carr is a good recount. See especially page 133 on what happened Monday morning after the brokerage credit crisis was relieved.

Stefan Jovanovich replies:

"The mob"? The Governor was such a pathetic amateur as a criminal that he managed to trigger the most basic surveillance mechanism in the Federal banking system by repeatedly splitting cash transactions to keep them under the $10,000 limit so that they do not require reporting. If he'd had had the gumption to walk into the bank and ask for $50,000 all at once and filled out the form and put the cash in a safe deposit box, no one would have been the wiser.



DuncanIn addition to the birthday of my better half tomorrow, another important date comes next week. No, not PPI or GDP. Rather, Feb 27th will mark the one year anniversary of Vol. I remember it well. We met after four down days and a nice down open, I throwing all caution to the wind. Then came the worst day since 2001, down some 58 S&P — and still no worse day since then, despite some perilous moves. Vol has never really looked back since then. The trigger that day was not subprime, credit, bank losses, the Fed, or housing. Merely a big down open in China after some huge gains. And what a year it has been for Vol. After nearly a 60% increase on that day alone, it went on to triple over the summer and fall, and now settle around double where it was a year ago. I would like to raise a toast to our good friend or fierce enemy, Vol. What a year it has been. Can't wait to see where we will be a year from now!

Wil Kenney remarks:

I for one know my brow sweats a little more as Vol increases, and from time to time that can be frightening.

James Bitumen replies:

There is nothing wrong with Vol, nor is it to be feared. It is what it is. There is nothing wrong with a rising market, nor is there anything wrong with a declining market. Change outside of a rather longstanding pattern is only that, change.

The market is no different today than what it was a year or two ago. It's simply removing levels of leverage one level at a time — we are at the exactly same spot. There are more levels to be removed. The key to trading the market is identifying where and when these levels will be removed from the system.

We are in the process of a credit bubble unwind. An institution owns an asset — no debt. Global rates at historic lows following the late-90s equity bubble deflation, 9/11, recession. They borrow against the asset at very low rates (just like the housing nightmare we are seeing not just in the US, but UK, Spain, etc.), and toss the free money into various asset classes all over the place — emerging market equities, Google, hedgefunds. What is considered equity to the asset manager is simply borrowed money. Borrowed money on top of borrowed money. The problem: economic growth never before has been so tied to asset price growth (housing primarily — ~30% of US workforce is tied to real estate). This is why the Fed has been so fiercely content to hit the ease button: They need to pump in liquidity in order to support asset prices, which they hope will protect bank balance sheets that have ballooned.



 A few shocking anomalist notes in honor of yet another virtuoso performance:

Once again the Nikkei predicted it, going up 0.3% after the US market declined 1.5%, its first such rise in seven days.

Tremendous negativism with the S&P index up 19 to 1409 but the futures up a mere 14.6 at 1411.6 for a 2.6 basis, about 1/3 of a percent prediction to down side.

The Dow went down to 12502 intradaym a nice 1000 since christmas and a continuous 1250 from 12/10 when it closed 13727. Same corresponding stuff for S&P, a run of eight open to close without a rise in S&P futures comes to an end with a measly up 13.

VIX finally goes above 25 on January 8 and gives a bullish signal sort of consistent with what the Spec Duo said in Daily Spec that it's bullish when above 25. Of course one had to wait five years, but during that time, continuous buying of futures would have lost money.

Bonds at a nice 1 1/2 year high at 119 making the total wealth of those who borrow trillions constant with the 10% decline in stocks offset by a 10% rise in bonds.

The terrible moves in last hour and the move to 1375 in the index and 1385 in futures, enough to wipe out gains of last 1 1/4 or 1 1/2 years .

Countrywide around 5 acting like other stocks in possible final stages below 5, with the market swinging from its signals as if it was the only stock even though it represents a 1/10 of 1% or so part of pie.

Ample opportunity for those who issued bearish recommendations to cover their shorts and reestablish positions in bellwethers like Intel and City. And so many other things; feel free to add some.

James Sogi adds:

A 32 point up handle to match the 39 point down afternoon handle of prior day.

Duncan Coker writes:

I hypothesize many fixed systems took a beating this first month of the year; mine certainly did. Perhaps another good reason not to use them. Improvisation comes to mind. Even after the two up days, we have had the worst start of the the year in last decade. How things can change, was it the employment number and a 35 point decline, or New Years' resolutions never to buy stocks again. Ranges of 34, 31, 45, 21, 25, 25 recently giving ample room for market to sweep all the chips off the table. Or the market saying it needs 2% wiggle room to decide where it want to reprice itself. It certainly makes for interesting trading. 



Blackbeard the PirateWhile spending some time in the Outer Banks of North Carolina I had a chance to read "Blackbeard the Pirate" by Robert Lee, published 1974. Blackbeard often sailed in this area and met his bloody end in Ocacoke inlet at the southern end of the Outer Banks. Born as Edward Teach, he was from Bristol, England, and perhaps from an educated family. He quickly went to sea on an "expedition" to the West Indies. The author argues that at this time in history most sea adventures were mainly plunder activities, which lasted for several years and were often hugely profitable. For example a century earlier, Francis Drake's famous three-year expedition earned 1.5m pounds. In Blackbeard's time, around the turn of the 18th century, ventures would routinely bring back 200,000-800,000 pounds. This alone would be strong incentive to go to sea to seek fortune. In addition, England was constantly at war with either Spain or France and often employed privateers to disrupt enemy shipping. This distinction gave private ships a license to plunder at will enemy ships abroad. Pirates would do the same, though without license, so technically illegal.

The Bahamas at that time was under the authority of the England, but had no rule of law to speak of other than that of the pirate and privateers. They had a semi-democratic system of government, though most disputes were settled by one of the captains, at the tip of a sword. The formed a loose Alliance and called themselves the Brethren of the Coast. While at sea, the Brethren would never attack one another. Outsiders like Spanish or French trading ships were fair game. On land the pirates broke few laws other than drunkenness and small arguments. Blackbeard apprenticed here under another captain and showed all the core traits for a successful pirate. Highest among these was an excellent knowledge of the sea, navigation, and naval combat. He was also ruthless, violent and aggressive in his pursuit of "prizes." After several years, Blackbeard took over one of the captured sloops and command of a crew of 50 men.

Blackbeard cultivated his reputation and was feared across the sea. Many under attack would surrender before shots were ever fired. He was tall, did indeed have a long black beard, carried two pistols and a cutlass, the pirate sword of the day. He would, oddly, burn rolls of hemp strung from his hair to add to the image. Blackbeard enjoyed a decade of successful plundering during the early 1700s. One of his boldest acts was a blockade of the city of Charleston, which he held for ransom. At that time he had four ships under his command. It goes to show how defenseless and lawless the early colonies were. No one was killed in this blockade, and he collected only a small ransom of medical supplies, which apparently were highly valued at the time.

Blackbeard's FlagOften when ships would approach at sea they would fly false colors to confuse the other ship. Most ships carried at least six flags. So it was a dance as they would approach, each knowing the other was trying to deceive and each changing flags as they got closer. Usually it was only within shouting distance that they could identify the other party and know his intentions. For Blackbeard it was an ultimatum: surrender and he would grant quarter; resist and all would be killed.

On land, many of the local economies were based around the pirate trade. Brokers thrived by trading the riches pirates had obtained, often bought at a huge discount. The taverns, brothels and inns catered to pirates. Piracy was accepted as a business activity of the time by the locals, though still not legal. Blackbeard, when on land, was very popular with the fair sex. He was a softy with women and would many times marry as he left port, thought maybe never see his new wife again. He was married sixteen times. Often when a war would end in Europe, the Crown would offer clemency to existing pirates, if they swore an oath to stop their ways.

Blackbeard is believed to have gone into semi-retirement around this time in 1716, near the town of Bath in North Carolina. Though he still took small prizes in his local waters, his major ventures into the West Indies came to an end. However, after several years even these small conquests were noticed by authorities. As a result the governing authority of Virginia sailed south and came into battle with Blackbeard in Ocracoke inlet. After a bloody day, Blackbeard was killed, taking five bullets and dozens of sword wounds. Blackbeard died as he had lived. Virginia took 2200 pounds from his ship. But his real treasure, many times greater, was believed to be buried elsewhere, and is searched for to this day. His reputation and place in history were welled earned. He is deservedly the most famous and successful pirate of his time.

Alan Millhone writes:

In 1985 my late father took my younger brother and me to Normandy to see all the landing points of the D-Day Invasion that our father was a part of in the Signal Corps. One day we took a catamaran from France to Jersey. On the approach, our boat guide told us the fortress we saw ahead at the tip of Jersey was once inhabited by Blackbeard and later by Sir Walter Raleigh as the island's governor. Both men literally lost their heads in their later days.



Parameter: the Dow cash closes above a 1,000x round number for the first time in last 20 days.


percent positive: 46.34

But recently this has been bullish, (the last 10 following day moves are listed below):

2,34,25,31,58,2,0,30,0,-9,15  Dow points.



Sources listed at end

Agents/Foghorns: The propaganda which accompanies the moves in the leading stocks may be supplemented by sending agents to dozens of brokerage houses to talk loudly of moves in the less prominent stocks. This policy may be a negligible factor in a move, but a "foghorn can walk into an office where there are 20 customers and several employees of the firm, buy 100 shares to back his statements and influence customers to buy. (Hickernell)

Agitation: It is only when misgovernment grows extreme enough to produce a revolutionary agitation among the shareholders that any change can be effected. (Spencer)

Army of Speculators: The army of speculators who form their battalions and charge up and down the field of the stock market is a motley crowd, and like the army of Xerxes, includes representatives from many nations — Americans from all sections of the Republic, Englishmen, Scotchmen, Welshmen, Irishmen, Germans, Frenchmen, Spaniards, Italians, Russians, Norwegians, Danes, Hungarians, Hebrews, Greeks and Ethiopians, masquerading under the guise of bulls and bears, swell the host and rush together in hostile combat. (Fowler)

Ballooning: To work up a stock far beyond its intrinsic worth by favorable stories, fictitious sales, or other cognate means. (Munsey's Magazine)

Bear Brigade: The old gentleman took an omnibus up town, with a serene smile playing on his venerable features at the thought of his Pittsburg. J.F. passed down William Street with the air of a man who had inflicted, or was about to inflict, a terrible revenge on his old enemy Pittsburg, and joined a group of sad but determined looking men who belonged to the bear brigade and used to stand in front of the office of D. Groesbeck & Co. During the two weeks then next ensuing, it was amusing to watch the goings, comings and general looks of the bear brigade. Every pleasant morning they could be seen roosting on the iron railings in William Street, and sunning themselves, or standing around like lay figures the inside entrance to the regular board. First they were loud-mouthed in their predictions that the market was just on the eve of panic. Then, as the prices rose, they grew stiller, and finally subsided into a sulky silence. (Fowler)

Bear Operators: Several years ago, during a general market reaction, practically all active stocks were attacked by bear operators. Nash Motors held at 52. The money to buy Nash at 52 in unlimited amounts may have been provided by officers of the company engaged in Factory Activities. (Hickernell)

Behind the Market: A laggard pool hopes to sell out to investors who have the habit of selling something which has advanced sharply and then looking around to buy something which is "behind the market." (Hickernell)

Blackingless: No one who has entered the precincts of the stock exchange will have failed to notice certain nondescripts who constantly frequent the market. They are men who have seen better days, but having dropped their money in the street, come there every day as if they hoped to find it in the same place. These characters are the ghosts of the market, fixing their lackluster eyes upon it, and pointing their skinny fingers at it, as if they would say, "Thou hast done this! They flit about the doorways, and haunt the vestibules of the exchange, seedy of coat, blackingless of boot, unkempt, unwashed, unshorn, wearing on their worn and haggard faces a smile more melancholy than tears. (Fowler)

Body Blow: (From Bernard Baruch?s testimony before Congress regarding the shorting of Steel Common in December 1916.)

Baruch: The next day I covered a third of the stocks I was short on.

Q. What did you do in Steel on December 13th?

A. I sold 23,400 shares starting early in the day.

Q. Why?

A. I think the reason should be apparent to everyone. When I read the German Chancellor's speech, which, after the greatest war, was a declaration of peace, I realized what this meant to business and finance. My mind worked to the conclusion that a man of intelligence would act quickly and sell securities. The technical position was bad and this speech was a body blow. Peace would open an era of other activities but would raise trouble with the stock market. (Hickernell)

Carried; Booming Usually: A "foghorn" is not paid a salary. He is "carried" for 100 shares or more of the stock he is booming by the operators who give him instructions. (Hickernell)

Carrying Stock: To hold stock with the expectation of selling it at an advance .(Munsey's Magazine)

Caught on the Rallies: Every man with a dollar's interest in the market was broke, tied up or disgusted. The large traders, who made money on the way down, got the big-head, over-sold, and were caught on the rallies. ("A Specialist in Panics")

Chiseler: The pool manager of a stock little known will also pay money to the chiseler. The chiseler claims to have contacts which will enable him to publish propaganda in the right places, to introduce the pool manager to the right people, to arrange with financial editors of certain newspapers to comment favorably upon the stock, and to develop a public interest in the other ways. Money need not be paid to the chiseler unless he fulfills his bargain. (Hickernell)

Clique: A combination of operators controlling vast capital in order to expand or break down the market. (Munsey's Magazine)

Constitutional Bear: Somehow, the market is never more than 'barely steady' to the constitutional bear. When it is dull, he quotes it 'soft,' which, in his vocabulary, means declining, or in a condition suitable to be depressed. When it is rampant, then it is 'just on the verge of a severe break,' and when its tendency is upwards, it is only 'barely steady.' (Fowler)

Conversational Activity: Just before the unloading begins, the pool manager may send lieutenants to numerous brokerage houses to inquire whether they know of any large blocks for sale, 10,000 shares or more. They remark: "We offer a commission to anyone who can acquire such a large block. The stock is wanted by a capitalist who is keen to make an investment in the company, but who does not wish to push up the price in the open market." This offer becomes gossip in each brokerage house. Presently the whole country hears that the stock is good in the course of conversational activity at lunch clubs, dinner parties, hotels, golf clubs and other places where people congregate, and if only 500 people buy 100 shares each, the pool has sold 50,000 shares. (Hickernell)

Corners: The history of the Street, for the past thirty-five years, is one constant succession of these "corners," in which great fortunes have risen and fallen like the waves on a stormy sea. Among the more remarkable of these corners may be mentioned that in Canton, 1834 and 1835, when it sold up, from 60, its par value, to 300; that in Harlem, in 1864, which carried the price to 285, and that in Prairie du Chien, in 1865, which sold in three months, from 40 to 250. (Fowler)

Cover: A favorable day is selected when everything looks bright and sunny in the financial world, a plausible report relative to the prospects of the Railroad Company whose stock is under the control of the ring is noised abroad, and different brokers are employed to bid up the price in the market in order to frighten the bears, and at the same time they are notified to deliver the stock which they have borrowed of the ring. Thus, the bears are compelled to cover, that is, to close their contracts by buying and delivering the stock, which the ring alone can sell them. (Fowler)

Cross Currents: It is desirable not to have a fixed idea regarding the duration of pool cycles or the longer swings which are influenced by the business cycle. There are cross currents in every business cycle which prolong or shorten the prosperity period. (Hickernell)

Crowd; Sponsors: It is impossible to judge the daily ripples. Floor traders, the old Waldorf crowd, the new Palm Beach crowd and professionals generally are daily testing the market to ascertain whether sponsors are supporting stocks or retreating. (Hickernell)

Delmonico's: Hear them talk, and you would suppose they lived on hope, rather than on those delicious ragouts and choice wines which Delmonico, or Schedler, or some of the other famed restaurateurs furnish them.

Disquieted: The public was disquieted to see the Australian Agricultural Company run through all its capital of 41,900,000, with nothing to show for it. (Train)

Favoring Conditions of the Hour, The: In the commercial world it sometimes happens that injudicious purchases result in disaster; but this is also induced by excessive timidity or by slowness to seize upon the favoring conditions of the hour, which wait upon the convenience of no one. (Stock Exchange Investments)

Financial Writers You have walked through New Street: That is the common name for the Hall of Delusions. Retracing your steps, you will notice that all buildings, new and old, stand with their rear elevations to New Street. From that circumstance it derives a sort of privacy and other advantages, and is the more suitably devoted to the uses of brokers, traders, put-and-call dealers, financial writers, failures, touts, tipsters, moribund speculators, men of mercurial fortunes, and all the other accidental human phenomena of a great marketplace where wealth is continually changing hands. (Garrett)

Full Figures: 'I made the orders at 1/8 above the even marks, having noticed that in violent breaks the bottom prices were usually at full figures.' ("A Specialist in Panics")

Gilded Speculator: Let not the hard-working lawyer, the burdened and anxious merchant, or the hardy sons of manual labor, envy the gilded speculator, though he recline on silken couches, and dally with the daintiest of viands, and sip wines of the vintage of Waterloo, out of Bohemian glass. And yet…beneath his frontal sinuses, amid the convolutions of his brain, the vulture passions are at work, led on by their generals, ambition and avarice. Pining envy, fear of an evil which always impends, rage over injuries inflicted by others, or by his own weakness and incapacity, jealousy and hatred of successful rivals, all hold carnival in the space of an hour, and are kept active and sleepless by hope which quickens them with her enchanted wings."

Gunning a Stock: To use every art to produce a break when it is known that a certain house is heavily supplied and would be unable to resist an attack. (Munsey's Magazine)

Hammering: If a group of operators believe a decline is in order and think they can break the market, they first gently sell moderate amounts short at top prices. They put out short lines over a period of weeks. Hammering tactics do not begin until they are short of large amounts. Then stocks are hammered. (Hickernell)

Harrowing Career of a Speculator: One day he is lifted to dizzy heights, the next, plunged into black depths. He is hurried through dark labyrinths through paths where a single step is destruction. He climbs on the edge of a sword to a fool's paradise, where he tastes joys brief as a dream, and in an hour is abased to the earth where he drinks the full cup of humiliation and want. Blacksmiths' sparks flicker before his eyes. His blood regurgitates to his heart, which beats on his ribs like a trip-hammer. Paralysis, apoplexy and aneurysm are watching for their prey. Not long since, a great man of the "street lay for weeks in the clutches of this last disease, and the muffled door-bell told the results of this harrowing career of a speculator. When he died, they said he left four millions. But he had paid for this colossal fortune with a life worn out in middle age by the weary burdens and sharp vicissitudes of the stock market. (Fowler)

Heavy: It is remarkable how many stocks react 50% from the crest of each wave. A stock which reacts more than 50% is considered "heavy It may be desirable to shift from those which are "heavy into those which react only 10% or 20%, or not at all. (Hickernell)

Inferior Securities: In 1931 Washington believed that Wall Street had sold out control of America's gold to Europe in exchange for inferior securities. (Hickernell)

Insiders: It looked like a trade war, so I began to study these securities with a view to buying the best among them when these new-blown balloons busted. They were grossly over-capitalized, and their reports were made as glowing as possible so that insiders could make a market for the shares. ("A Specialist in Panics")

It Might Have Been: Those saddest words of tongue or pen, "It might have been, enter largely into the thoughts and conversation of the thoroughbred speculator. If and but are the most frequent conjunctions in his vocabulary. His whole life is a series of regrets, and strange to say, these regrets are more often for what he might have made, but did not, than for what he has actually lost. (Fowler, p. 34)

Kite Flying: Expanding one's credit beyond his limits. (Munsey's Magazine)

Learned a Valuable Lesson: Stock operator code for a sizable loss. (Tom Ryan, 12/29/04)

Magnanimous Proclamations: The prices which had been galloping up for ten days now closed the heat with a rush. When Pittsburg was struck on the morning call, Morse jumped into the center of the crowd and yelled at the top of his voice, 'I'll give 105 for the whole capital stock, or any part.' He bluffed the whole board. No one took him up on his liberal offers. But while he was holding up the market price by making these magnanimous propositions, his agents were busily at work selling Pittsburgh on every side. (Fowler, p. 234)

Mania for Speculation: He presented a singular psychological phenomenon — a distinct phase of the mania for speculation. He had got to look upon the market as a live thing — a fantastic monster. He spoke of it as of the feminine gender. 'She rises.' 'She falls.' He seemed to think of it as a debtor which owed him money. It was a question of revenge, however, with him, more than money. He hungered for revenge for his losses. His operations were undertaken in a spirit of vindictiveness against every stock in which he had lost. When he made a lucky hit, he would flourish certified checks, and boast like an Indian brave over the scalps which he had taken from an enemy. (Fowler)

Margin: Why do brokers' faces look black when their customers' margins have nearly run out? When stocks begin to break, they often quietly sell their customers' stocks. Then, after prices have declined so far as to leave little apparent margin on the account, the customer, quite unconscious that his stocks have been sold at a much higher price, finds himself subjected to various influences to induce him to give the order to sell. His broker looks glum, and talks of tight money, and the dangerous condition of the market. If the customer gives the order to sell, of course the broker puts into his own pocket the difference between the higher price at which he sold his customer's stock, and the order to sell given under the pressure of those glum looks and bear talk. We do not allege that all brokers are in the habit of doing this, but it is certainly one of the ways by which the public are fleeced."

Milking the Street: The act of cliques or great operators who hold certain stocks so well in hand that they cause any fluctuations they please. By alternating lifting and depressing shares they take all the floating money in the market. (Munsey's Magazine)

Mushroom Millionaires: The stock market began to fairly sizzle. All kinds of new industrials were floated and boomed. The Waldorf was thronged with mushroom millionaires. ("A Specialist in Panics")

Nameless Graves: As for the rabble of the unsuccessful, they cling to their illusions, till want or decrepitude, or both, drive them into obscurity, to ruminate over a misspent life, and be laid finally in nameless graves, by the hand of charity. (Fowler)

Nondescripts: No one who has entered the precincts of the stock exchange will have failed to notice certain nondescripts, who who constantly frequent the market. They are men who have seen better days, but having dropped their money on the street, come there every day as if they hoped to find it in the same place. (Fowler)

One Word Plastics: A phrase used to describe why seasoned portfolio managers own the latest high flying technology stock even if it conflicts with their investment style. (Tom Ryan, 12/29/04)

Operators: If a group of operators believe a decline is in order and think they can break the market, they first gently sell moderate amounts short at top prices. They put out short lines over a period of weeks. Hammering tactics do not begin until they are short of large amounts. Then stocks are hammered. (Hickernell)

Perturbations: The perturbations to which prices have been subjected on the New York Stock Exchange during the past year have naturally caused revulsions of feeling among those who have suffered from them, and much questioning of the wisdom of some of the recent operations of prominent American financiers. (Conant)

Pine Box: When they have once entered the street, they never leave it except in a pine box or a rosewood case, according to circumstances. (Fowler)

Plantigrade Bear: J.F. was the most plantigrade of bears. The panic of 1857 had changed him from an operator for a rise, into an operator for a fall. [OED: flat-footed.] (Fowler)

Pool Cycle: A business cycle, however, may cover a period of three years or more, while a pool cycle may last only three to six months. There may be five or six pool cycles in one business cycle. (Hickernell)

Pool Manager: If the pool manager of XYZ moves the stock upward, the floor traders will buy large blocks of XYZ if they think the move is just beginning. But the pool manager does not want to give these floor traders an opportunity to make a large profit. He changes his plans and breaks the stock down several points. This frightens the floor traders, and they sell out promptly at a loss, or when the stock recovers to the purchase levels. (Hickernell)

Post-Divestiture Flourish: Refers to the tendency for a security price to accelerate its move in the direction of one's position but only after one has exited the position leaving one with the regret that one could have doubled the profit if one had held on for only another hour/day/week. (Tom Ryan, 12/29/04)

Prodigious Oscillations: Nearly all those prodigious oscillations in the stock market which have startled the public for the past seven years have been due to the influence of those powerful combinations which have obtained control of certain stocks and made them dance up in long erratic jumps, or have hurled them down still more swiftly and strangely. Hardly a week goes by without a recurrence of these singular phenomena. Sometimes it has been Pacific Mail, sometimes Erie, or Old Southern, or Pittsburg, or Reading. (Fowler)

Proposition: Gates was in bed but in a mood to negotiate. He said to the Morgan partner, 'I will sell my L & N shares for ten million more than they cost me.' The proposition was accepted. (Hickernell)

Reaction: A trader who refuses to buy a stock at 70 when the market is dull, will buy on a reaction after the stock has risen to 82 and dropped to 76. (Hickernell)

Quotations: The public often seems to forget that quotations in Wall Street are only the mirror of their own estimate of the value of securities.

Rigging: The great and rapid development of railways in America has brought many securities on the English market. The powers exercised by presidents, with enormous salaries and with opportunities for making money out of contracts and by rigging the share market, are perilous to the interests of shareholders. Political influence is largely exerted, and politics form a lucrative trade with unprincipled adventurers in America. (Stock Exchange Investments)

To Sell Out a Man: To sell down a stock which another is carrying so low that he is compelled to quit his hold and perhaps to fail. (Munsey's Magazine)

Semi-Scientific: The swings of the pool cycles may have little relation to fundamentals or earnings. For this reason the semi-scientific study of price, action, top formations, resistance points and of other indicators of technical position is necessary. Even if the study of price formations and resistance points will never yield perfect conclusions and will never be an exact science, it is also true the manipulated swings in the market will always be in evidence and must be interpreted. (Hickernell)

Semi-Strong Form: An adjective used by financial academics when the currently accepted theory is obviously wrong but as yet no alternative hypothesis has been proposed. (Tom Ryan, 12/29/04)

Settled Investment: Some persons prefer a settled investment, such as Consols, or corporation stock, or railway debentures, from which a small but fixed income is derivable. Of late years the market prices of such securities have risen, and they yield only about 3 per cent, or even less. The tendency is toward yet higher prices, with a corresponding diminution in the return. It seems to be becoming ?fine by degrees and beautiful less,? until it threatens to reach the vanishing point. As a result, persons of this description spend their lives and resources in what Cowper describes as the profitless toil: Of dropping buckets into empty wells, And growing old in drawing nothing up. (Stock Exchange Investments)

Sick Market: When brokers very generally hesitate to buy. Usually consequent upon previous over-speculation. (Munsey's Magazine)

Solid Merchants; The Western Blizzard: A name applied by an ironical Wall Street to the panic of '57 - howled and blustered down that narrow lane on October 13th. Blowing a clean swath through the nation's top-lofty credit, it upended banks and solid merchants. (Davis, p. 93.)

Specter of Panic: Above him hovers, day and night, a vast, dark formless shape, threatening ruin and penury. This is the specter of panic. (Fowler)

Squeezed Out; Figure of Importance: [Jacob Little's] final failure was due to being right too soon. In 1856 he sold 100,000 shares of Erie short. The Erie crowd calculated how high they would need to push the stock to squeeze him and Little's brokers were forced to buy back 100,000 Erie at a high price. He never revived his fortune to a figure of importance after that. (Hickernell)

Spilling Stock: When great quantities of a stock are thrown upon the market, sometimes from necessity, often in order to break the price. (Munsey's Magazine)

Trifling Commission: One-eighth of one percent equals $12.50 on a transaction in a hundred shares of stock worth $10,000. Yet there are students of Wall Street who charge to this trifling commission all the losses of speculation. If, say these theorists, the speculator neither wins nor loses on his investments he will be a bankrupt after a brief experience, because all his money will be employed in paying commissions. (Munsey's Magazine)

Trinity Church: The 'whipsaw' market offered no rest and recuperation to the traders who wanted to get their money back where they dropped it, nor to the bankers who looked wearily up toward Trinity Church, expecting to see its green lawn extended through Wall and Broad streets. ("A Specialist in Panics")

Twist: When the stock price has risen from 20 to 40 per cent, it suddenly grows scarce. The bears find themselves troubled to make their deliveries. Now the ring prepare to "twist" their antagonists. (Fowler)

Unloading: Just before the unloading begins, the pool manager may send lieutenants to numerous brokerage houses to inquire whether they know of any large blocks for sale, 10,000 shares or more. They remark: We offer a commission to anyone who can acquire such a large block. The stock is wanted by a capitalist who is keen to make an investment in the company, but who does not wish to push up the price in the open market.? This offer becomes gossip in each brokerage house. Presently the whole country hears that the stock is good in the course of conversational activity at lunch clubs, dinner parties, hotels, golf clubs and other places where people congregate, and if only 500 people buy 100 shares each, the pool has sold 50,000 shares. (Hickernell)

Wall Street: It dates back, the antiquarians tell us, to the year 1653, for its first survey was in the palmy days of Petrus Stuyvesant when Schouts Burgomasters and Schepens lorded it over the little colony of New Amsterdam. Its name (one of the few remaining landmarks of the early Dutch possession) was derived from the wall built of palisades and earth on the northern line of the street to ward off the aborigines. But what contrasts has the light of two hundred years painted between the mimic life of New Amsterdam and this great, roaring, serious, tragic Babylon of today. No sign now of the quaint, peaked roofs covered with Dutch tiles, the fort flying the blue lions of Holland, the old stockade and half moon embankment at its lower end. But the ancient name of Wall Street still remains. Its name is something more than a shadow, too, for it is in fact Wall Street, still lined with a succession of fortresses, behind whose bastions are garrisons well disciplined and alert, guarding the treasures, if not the lives of a nation. Within its casements and vaults lie piles of coin enough to excite the cupidity of ten West India companies, or to lade a hundred Spanish galleons. Here the forces of commerce silently gather and equip themselves for distant expeditions from which they return again with the spoils of Ormus and of Ind. In these strongholds terms are dictated to the vanquished, and treaties made. Towering over all stands old Trinity, like a giant sentry, day and night, clashing out in peals and chimes of bells from his watch-tower, 'All's well.' (Fowler)

Weakly Margined People: It wasn't what you could call a panic; it was one of those ten- or twenty-point declines that come along every now and then, shaking out weakly margined people and badly scaring those provided with big margins. ("A Specialist in Panics")


Charles A. Conant, Wall Street and the Country (New York: G.P. Putnam's Sons, 1904)

Forrest Davis, Solid Merchants: What Price Wall Street? (New York: Goodwin Publishers, 1932)

William Worthington Fowler, Ten Years on Wall Street; or, Revelations of Inside Life and Experience on 'Change (Hartford, Conn.: Worthington, Duston & Co, 1870)

Garet Garrett, Where the Money Grows, first published 1911.

Walter Hickernell, What Makes Stock Market Prices, originally published 1932.

Edward G. Riggs, "A Wall Street Vocabulary: A simple guide to the technical terms of stock speculation," Munsey's Magazine, Vol. X, No. 4 (January 1894)

Herbert Spencer, "Railway Morals and Railway Policy (Edinburgh Review, 1854)

George Francis Train, "Young America in Wall-Street (London: Sampson, Low, Son & Co., 1857)

Stock Exchange Investments, Universal Stock Exchange, Ltd., 1897.

A Specialist in Panics, from Fourteen Methods of Operating in the Stock Marketing (Magazine of Wall Street, 1909, reprinted by Fraser Publishing Co., 1968)

"Wall Street, Munsey's Magazine, January 1894

Tom Ryan (A D'Spec Contributor): originals from the Sunbaked Speculator



 Now on a visit to Venezuela, I thought I would share some highlights on what's happening here from a ground view. Though I am mainly at resort type areas away from the city, the spirit or how things are done here or not done can still seen.

The black market for dollars in very active, changing daily and at a 30-40% premium to the stated bank rate. It is actually very difficult to change the local currency, Bolivares (B) to dollars, other than through the black market. The spread on the exchange is about 10%. So going the other way and changing $200 for a week's expense in B's garners a nice profit for the locals. Unfortunately the black market is used mostly by the wealthy and connected here as a vehicle to siphon funds. It work like this: the government will exchange B's for dollars at the fictional rate of 2150 B/$ for certain business. They have to justify a "need" to buy imported goods and then can get the very favorable and fictional bank rate. These exchange rights are given to government cronies for big infrastructure projects, of which there are many.

The dollars are then sold back on the black markets at 3300B/$, and they just used domestic suppliers. I imagine this is funded by oil profits that bring in dollars to the treasury, but amount to a heavy indirect tax on the country. Gasoline, however, is government controlled and incredibly cheap, about 40 cents a gallon. There are shortages for other goods caused by price controls, mostly on food distributors who have no incentive to supply at capped prices. It varies from week to week. Sometimes chicken, sometimes meats, dairy, or other. There is very little regulation or laws on ownership for property or vehicles. One of the locals tells me, regarding cars, "If you have the key, you own it." Chevys and Jeeps are very popular here and made in the country. Land titles are slightly more organized but involve much greasing of the wheels.

On a more uplifting note, I saw some incredible bird life while on the island of Los Roques, where pelicans in particular are abundant. When they are feeding they have a signaling element for the local fisherman. Like the seagulls in the Northeast showing the way to the bluefish, the pelicans feeding on bait fish are usually followed by tarpon and red snapper. The feeding skills of these predatorily birds are incredible.

Related to this is my pursuit of bonefish and tarpon. With a fly fishing rod, I'm always honing proficiency. While casting I have been thinking about the steps that lead to the best casts. It is a series of counterintuitive things. You start with creating line speed by swinging loops in the line with the rod. You try to maintain a tight loop, to keep the line loaded. In other words you prefer a v-like line to a u-like line up in the air and taught at all times.

But the most important step is then abruptly and dramatically to stop the movement of the rod. The line continues in the desired direction towards the fish you have your eye on. But the stopping is the key and the difficult part. You have to move the rod tip away from the fish in order to get the line to the target. The closest example I can think of is the action of cracking a whip.

I have been thinking about what stopping techniques are used in trading. If the stopping is the entry of a trade, then I view it as getting in with confidence and size, not limping in afterward. Chasing the trade afterwards is like dropping the rod tip, losing line speed. Another part is to allowing the line to reach its target. It is better to set wide perimeters for profits, not to take quick ones.

Basically, let the line reach its target. The best casts are unforced, combining patience and timing. Sometimes you have to force yourself to relax even in the face of a fast-approaching school of bonefish that will be quickly past you. Relax, but be quick; generate speed, but then stop. It is a combination of counterintuitive actions, much like trading.



I recently finished reading the Island in the Center of the World, by Russell Shorto. I enjoyed the book very much and it contains many Daily Speculations type themes, notably, trading, speculating, sea adventure, Wall Street, markets and New York City. The book is about the origins and development of the first Dutch settlement of the New World, New Amsterdam, circa 1650-1670, which would later become New York.

The book is fascinating on many levels. It is non-fiction but written in a narrative style, telling the story of three characters of history. They are Peter Stuyvesant the strict military ruler, Adriaen Van der Donck the visionary pioneer, and the fledgling colony itself, part military outpost, part trading company, part lawless village, part gateway to the continent. At that time New Amsterdam was just one of many settlements along the eastern seaboard including those of the English, Swedish and French. The way the New Amsterdam came to succeed and dominate all the others and eventually shape the whole country is the subject of this book.

The authors generalizes and makes a bold claim that it was the Dutch not the British that would lay the foundation for the city and the country we know today. I think he supports this claim well throughout the book. The themes of tolerance, inclusiveness, free trade, and incentives were Dutch ideas. Though shaped in Europe, they were first put into practice as governing ideas in New Amsterdam.

The author describes the period in great detail and allows you to imagine how the island must have looked to those first Dutch traders. Hudson was commissioned by the Dutch to search the area for what he thought was a quicker route to India. It was a commercial venture of the East India Trading Company. They found no route, but instead a land rich with forests, wild life, vegetation, fish, and abundance of all kinds. All this was set in the most perfect natural harbor imaginable with a river leading north to a boundless continent. In short order the trading company recognized the value of this area, claimed it and set up their first outpost in the New World. A settlement based on commerce, but with military backing just in case.

The book describes the progress of the early traders and how they negotiated their deals with the local Indians. They learned the many languages in the area, and competed with the French for better trade deals. The Indians were good negotiators despite the legend of Manhattan being bought for 50 beads. In fact the local Indians got much more including full use of Manhattan whenever and however they wanted, an alliance with the Dutch against local enemies, and trade concession for their thriving fur business. Later as trade expanded the village became a major port for merchants and privateers. (The distinction between pirate and privateer was small, the privateer being legitimate due to an 80 year war against Spain.) In all, it is a description of a vibrant and wild place, rich with commerce and a truly international setting.

The author goes on to describe how the village begins to convert itself from an "ad hoc collection of soldiers, fur traders, and whores" to an independent city with rights and laws based on the liberal European thinkers of the time. The ideas of self government, free speech, open assembly, representation, tolerance, were all somewhat new ideas at the time. It was through the clash of two large personalities that this all came to be, Stuyvesant the military commander and Van der Donck, the lawyer activist. The book outlines their various alliances and battles as the city forms around them.

Beside an informative history it is full of interesting factoids, for example: Yonkers is actually a Dutch term for "gentleman" and was an area granted to Van der Donck for his farm. Breuckelen is also a Dutch name for the small village across the river. There were four accepted currencies at the time beaver pelts, polished sea-shells, Spanish pieces of eight and the Dutch guilders. There was of course a wall along Wall Street, and it marked the northern the edge of the original village. It was there primarily to keep the English out as they began to encroach their way over from Long Island.

The lasting impression I have from the book is the credit we should give to our Dutch forefathers for their bravado in taking on the venture that would become New York. The vibrant, multi-cultural, open community that is New York is due in large part to their example. Though the Dutch would eventually lose the city to the British in the late 1600's, by then New York had already secured its own identity and its place as the center of commerce and culture in the world.

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