Nov

13

Stocks looking pretty vulnerable in here.

Victor Niederhoffer writes: 

Yes. But remember the senator's golden apple and Vince's admonition that you have to be crazy if you're not long and refresh the dimsonian 40,000 a century and see how it works in Nov and Dec.

Nov

11

1. Gann's son says rumors about his dad's fortune are false

2. Heiby didn't trade much but had a printing bus that paid bills

3. Senator is bullish but finds it harder to make the triple digit returns any more

4. A certain bear has 30 people writing bearish things for his followers

5. It was hard finding a place to trade during the hurricane in St. Croix

6. Arthur Merrill was a barbershop singer

"The Senator" Larry Williams writes: 

Heiby's business was selling printing presses or other industrial items as I recall, not printing business as such. Trying to locate him and may have a lead. He would be close to 100 now.

Gann's son said he "never saw all the money dad was supposed to have made, we lived simply and in a simple house; dad was a chartist". I also knew WDG's promoter, FB Thatcher. He had the best Gann stories.

Yes bullish long term may have a correction here, but no bear market in sight. Had a good run early this year but equity keeps going up to old highs and backing off–need a break out here but still treading water with equity curve.

Art Merrill was very much gentleman as is VN. Unlike me, Art was very good with details. Details are one of my great weaknesses.

Oct

23

 Red Notice by Bill Browder is a true life story of present day Russian capitalism and the murder of Magnitski. The author's father was chair of the mathematics department at Chicago, and the two sons were chair of math at Princeton and Brown. Bill Browder inherited the parents intelligence and applied it to becoming the biggest investor in Russia. He found that Russian assets were being sold at 5% of their value and got Salomon to invest 25 big at the lows. The funniest part is how all his colleagues approached the news. "What's the spread between bid and asked?" "What are the advisory fees we can get out of it". He describes the market where the chits to buy the properties were sold and it's like an early version of the commodity exchanges with armed guards every where since all the transactions had to be in cash.

There are many intelligent observations he makes- eg Russians love children and it's the only place in world where you can bring a crying child into a restaurant and people will smile. That led to the importance of the adoption restriction we've heard so much about. When Magniski was murdered, Kerry refused to sign off on a bill to censure Russia but Browder put so much of a full court press on that finally it passed after the election when Kerry was going to become secretary of state anyway. So Putin in retaliation banned the adoption of Russian kids by US families.

It wasn't such a innocuous thing that the kids were involved in when they met with the Russian Prime minister but a cause celebre in Russia. It was amazing to see that Browder gave up his business to get vengeance for his lawyer Magniski who was beaten with a rubber hose shortly before he died. Above all, it the story of a very smart businessman and how he became a billionaire by buying headlong into an undervalue assets.

Anatoly Veltman comments: 

I assume Browder took a lot of profits out of Russia. And he lived, too.

Look, something had to be paid. He didn't. His employee did…

Vic started this thread with an ode to the wonderful risk taker/capitalist. Part of the truth was that privatization drive resulted in the wealth of the populace ending up in just a few hands. Browder included. Many a babushka in the vastness of Siberia have taken a cut in their $60 social security to buttress Browder's retirement. Browder's brand of capitalism was a lil' too much for the majority rank and file in that land. Yes, he did pay for that nation's former assets 5c on the dollar.

Oct

20

Yes.

Oct

18

 I am asked, "what were you doing 30 years ago Oct 19th, 1987".

I got very long bonds and stocks at the close. And had a huge profit in bonds at 5 pm. But then I hedged it in the cash market. I walked home with the palindrome that afternoon and asked him if he wanted to borrow some money from me. He sold all his stocks Thursday at the opening and made fortunes for all the guys who took the other side. We played tennis on Saturday at the columbus racket club with the head bond guy at Morgan Stanley. He had a good overhead. And Susan said, "at least we won't have to truncate the prices when we put them in the trs 80 again. The German market rallied Thursday at noon, when everything was down the limit, and that fixed things. A big options trader bought 2 S&P futures and held them for 10 years, and made a million bucks on it. Jim Lorie had been short from 200 pts lower in SPU and covered at breakeven on the limit down open. My broker on the floor was filling orders for a fee for others during the crash and I fired her because she could have been hit with an out and bankrupted us. I did not get much sleep that week as I often don't now, 30 years later. I didn't realize that prices were locked limit in the morning with a big overhang to sell at the limit. And I bought at the limit when it reopened around noon, to find myself holding a huge immediate loss as the real price was much lower. Baker did it by saying we had to weaken the dollar which caused bond prices to fall. I met his daughter and showed her an article about King Canute realizing he couldn't control the waves, and told her that's what her father should have done. She kept calling him Daddy and she called me up afterwards to chat but I hung up on her because I thought she was a salesman.

Oct

17

 On my way with Aubrey on Grand street at 4:00 pm, I notice a line of 100 people waiting at the entrance of a store.

What were they selling—- pickles.

I believe they were the Pickle People store.

Right adjacent to a bagel store in China town with about 25 people waiting outside.

Also noted, I had  Penguin ice cream and it was the second or third best banana ice cream I've had in 50 years.

Oct

12

 I recently got conned also about my books which I love and are part of my soul. Out of clear blue sky like Mr. Grain's mom, I get a call from a letter dealer. He's been refraining from contacting me the past 25 years because he's such an ethical guy and didn't wish to compete with the other dealers he sells letters to and then I buy them.

He comes to my house. And he sees lots of rare books. Well he can recommend a great book dealer who can give me a great deal, a special deal. But because there is some mold on some books, and they can't tell the condition until they see them, I am recommended to ship all my books to the dealer.

"Okay, I say, but don't send any books worth 2,500 or less. I go to the book dealer and I'm thinking about my trades and Aubrey is there. They offer me 350,000 for 200 books and I say I'll reflect. They raise the offer to 400. I wasn't thinking and because the books are part of my heritage, I didn't look at the list of books they took. I like to do a deal, and since they're recommended by my letter dealer as special and I've done much business with the book seller before, I say yes.

Then I realize that I sold 200 books with min of 2,500 and max of 20,000 for about 1200 a book. I immediately write back that I'll pay them a 100 break up fee if they cancel the transaction. "You see, they can't do that because the books are already in play. The letter dealer then tells me that "how did you expect me to be compensated. Of course I was partners with the book seller".

Every day, I make a mistake like that in the market. But it doesn't hurt as much because the books were part of me as my parents had more books from the book sellers dump than I had and I loved the books. I still think about it every night, and haven't gone into my library in the 3 weeks since the con.

Aside from Mr. Grain's mol, I am the easiest to con in the world.

Another con is to involve the victim in some wrongful behavior so that he doesn't wish to bring in the police. Frank Perdaux was great at that in the railroad con where the confederate whispers to the mark that he can see the hole card and therefore they are sure to win. The confederate also shows empathy with the mark by joining him in fleecing the southern rube who is so brash and naïve and saw the women in scanty clothes.

One of the most reprehensible things to me in the recent con played on me is that the con man read my book and knew I loved and admired my dad. The con man sent me a video of his father who supposedly was a colleague of my dad, to show me how he respected his father just as much. To add icing on the cake, he told me how his son was a great basketball coach and had the integrity of Cato refusing to bow to the rough and tumble unethical behavior of the other coaches. It was a very nice touch but it still rankles. 

Bo Keely writes: 

I enjoyed your post on being conned. You have read as many books as I about getting conned, but the most important point they omit is that a smart person is conned when he is rushed or tired. I have tried to solve this in my daily transactions that are susceptible to cons at Slab City by mentally causing myself to pause before saying, or signing something. When money is flashing, I reinforce the pause by stepping back. I only make mistakes when I'm compromised, and imagine you are about the same. Regards to your rare letter man. 

Oct

10

 The Columbo series showed a different kind of detective mystery.

Instead of starting out with uncertainty and finding the perp, it starts out with a carefully documented murder, and then the plot is "how to catch him" rather than "who did it".

For a linear difference equation there are only 9 shapes that the dynamic solution can take. Depending on the y(t) = b(y(t-1) + a how are these two paths to the solution related.

Right before I go to sleep I like to play with a good difference equation preferably second order. It's often a fibonacci.

Oct

10

They vet you in Stockholm to see if you're a fellow traveler before giving you the Nobel, and I guess this imposter passed the test.

Pitt T. Maner III writes: 

The lack of overreaction must be very puzzling.

Of possible interest–NNT has been very critical via tweets and made note in retweet feed of Swedish/Dr. Nudge affinity for a "cashless society". Perhaps risks/dangers of… With that it must be time for a Fika.

Oct

8

Interesting paper (Capital Structure Dynamics and Stock Returns, 2006) on debt ratio as a predictor of stock returns relating to companies issuing equity reducing debt ratio when stocks too high and against signaling theory that companies issue debt when they are sure they can pay the interest back. Calls for an update.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=685462

Oct

6

 Victor Niederhoffer writes to David Hand:

I am good friend of Steve Stigler and recently read and recommended your book. I came across an interesting coincidence in our mutual field. Every day I post a colored graph of 4 possible outcomes of directions of bond and stocks previous day. 11 of the last 16 occurrences have been yellow days with stocks up bonds down. The binomial prob of that is 1 in 10 million or so. I point out that events have to happen. And this is one of many billions of starting stopping pts and outcomes. Still it seems like an anomaly as I point out, the more important question is what does it portend for future. What's your view? Random or not?

David Hands replies:

Hi Vic,

Thanks for recommending my book!

Can I first check the basis for your calculations. (I may have misunderstood what you meant.) If we take a simple model in which the probability of each of the four types of up/down pairs is equal, and the days are independent, then the probability of getting 11 out of 16 having (stocks up; bonds down) is Choose(16,11)*(0.25^11)*(0.25^5) = about 1 in 4000?

But you presumably chose (to comment on) the pattern (stocks up; bonds down) after having seen the data. So if instead we say what about the probability of any one of the four patterns coming up 11 out of the 16 times, then we have four times the probability. So, now it's 1 in 1000.

That sort of calculation would be ok if we simply had a set of 16 days to look at. But, of course, we are scanning across time. The longer we go on, the more we should expect apparently anomalous sequences to crop up. For example, we should ask not 'what is the probability of getting 11 out of 16 the same?' but 'what's the probability of getting 11 out of 16 consecutive days the same over the past 1000 (or however many) days?'

I really liked your website, which I had not seen before.

All the best

David

Professor David J. Hand Imperial College, London

Pitt T. Maner III adds:

A 1 hour lecture by Prof. David Hand on this subject (2014) is available here.

I was watching Professor Hand's lecture and thought it amusing that he found himself in a situation where a man with his same name was staying at the same hotel at the same. This reminded me that at the University of Alabama about 39 years ago I had, if my memory is right, a Professor Hand for an advanced, introductory chemistry course who was a Harvard graduate. Ironically, the chemist Dr. Hand liked to grade on a curve and on his first test the grade for a "C" was 35% instead of the normal 70%! The first question on this first test involved multiplying/dividing two large numbers and determining the number of significant digits–this took about 15 minutes of the allotted 1 hour test time to do with a calculator but was only worth 5% out of the 100% perfect test score– such a tricky fellow. Now the professors get rated online by the students!

Oct

3

 Toria my 4th daughter's boyfriend is a dealer in the Bellagio. He was dealing there when the shooting started. As predicted, the poker did not stop, thereby replicating the situation on the titanic where the gentleman continued their backgammon game until they sunk and the band continued playing.

Stefan Jovanovich writes: 

The White Star Line invoiced the heirs and family members of the ship's band–for the cost of the unreturned company uniforms.

anonymous writes:

The sinking of the Titanic was a harbinger of change — for some things. (Below is an excerpt from the book And the Band Played On by Christopher Ward. Ward's grandfather was the Titanic's Violinist.)

But the Titanic revealed changing social attitudes, as well as atavistic ones. Andrew Hume, for instance, did not pay the bill for his son's uniform. He forwarded it to the Amalgamated Musicians Union, which published it without comment in its newsletter. Public opinion was beginning to assert itself. More than 30,000 people lined the streets of Colne in Lancashire for the funeral of the liner's bandmaster, Wallace Hartley, who, with the rest of the band, had heroically played until the end to maintain calm.

If White Star learned nothing from the consequences of its recklessness, its employees did. A week after the sinking, 54 stokers and firemen, most of whom had lost a father, a son or a brother, walked off the White Star liner Olympic when they discovered there were insufficient lifeboats to accommodate the passengers and crew. They were arrested for mutiny, but the magistrates discharged them. They returned to the Olympic, whose departure had been delayed by a fortnight, to find 16 additional lifeboats.

The captain and crew of the Mackay-Bennett also discovered that the old order was changing. Having risked their lives sailing more than a thousand miles into ice fields, they might have expected to return to Halifax as heroes. Instead, they were the subjects of a public storm, for they had come back with only 190 corpses, having buried 116 at sea. What made the difference between a body being tipped overboard and one being brought ashore? The purser's conscientious descriptions provided the explanation: tattoos or a foreign-sounding name.

Oct

3

 1. The moon moves slowly but it crosses the town
2. By the time the fool has learned the game, the players have dispersed
3. It is the calm and silent waters that drown you
4. The fools sheep break loose twice
5. Don't test the depth of water with both feet
6. You cannot build a house with last year's summer
7. Around a flowering tree one finds many insects
8. A white dog does not bite another white dog
9. If a dead tree falls it carries with it a live one
10. There is no cure that does not cost
11. An eel that was not caught is as big as your thigh
12. Cross the river in a crowd and the crocodiles won't eat you
13. He who wishes to barter does not like his own property
14. A wealthy man will always have followers
15. If you run from the white ant you may stumble upon the stinging ant
16. When the mouse laughs at a cat, there is a hole near by
17. If you rise too early the dew will wet you
18. If you climb up a tree you must climb down the same tree
19. Events follow one another like the days of a week
20. Everything has an end
21. Darkness conceals the hippopotamus
   

All from African Proverbs compiled by Charlotte and Wolf Leslau

Jefferey Hirsch writes: 

When an old man dies, a library burns down. — African proverb

This is one of my favs. Wish I knew if it was from Kenya or Congo or Sudan or Somalia, but I don't. 

Sep

28

The NY Times and Bloomberg wrote about this new paper (August 2017) that purports to show that Tbills outperform almost all stocks over the long run–and that a tiny number of stocks account for all of the returns. I just read it. I recommend that you read it too–since it is counter intuitive.

I see several unrealistic/unspecified methodologies in this paper including (1) equal weight holdings from IPO to delisting of every stock; (2) no clear explanation for how the capital from mergers, acquisitions and spinoffs are handled; (3) where the new investor capital comes from to buy fresh IPO's and where the cash goes when a company is acquired for cash. I also didn't study his statistics carefully. Since most every company goes through a life cycle, it's intuitive that most will disappear or be acquired/acquire, so I need a better explanation for the investor's portfolio management/cash to really understand the practical. What other problems or unique insights do you see in this paper? Something just feels wrong here.

Do Stocks Outperform Treasury Bills?

Hendrik Bessembinder, Arizona State University. Revised August 2017.

Abstract:

Most common stocks do not. Slightly more than four out of every seven common stocks that have appeared in the CRSP database since 1926 have lifetime buy-and-hold returns, inclusive of reinvested dividends, less than those on one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed companies. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness of multiperiod returns arises both from positive skewness in monthly returns and because the compounding of random returns induces skewness. The results help to explain why active strategies, which tend to be poorly diversified, most often underperform market averages.

Victor Niederhoffer writes: 

This ridiculous paper from anti stock which I haven't read and goes counter to the carefully worked and accurate work of the triumphal trio duly reported in all their yearbooks is an absurdity. Of course most stocks will underperform. That's the nature of cross sectional returns. The distribution has quite a few good winners. It's probably true of a normal distribution also. Certainly for the kind reported in the NYSE year book. Certainly for the stocks in any variant of the pareto distributions. How far will they go to undermine the value of equities. It's so absurd I can't begin to say how it would apply to most any real life distribution in any field like IQ's.

Stefan Jovanovich writes: 

Index investing works because it allows people to avoid the risks of trading; and most of us are lousy traders.

Enterprise ownership beats public investment in terms of ROI (not "Radio on Internet"); but the public markets offer the only way for entrepreneurs to cash out. We still own one of our start-ups; its annual payout as ROI has been greater than 40% annually for the last 38 years. But, we cannot not "cash out" by selling it to someone else. The actual market for private businesses that makes hundreds of thousands, not millions, does not exist. We have been able to "retire" - i.e. extend the life of the business beyond the time we directly manage it - by doing a private variation on an ESOP; our former employee now runs it as a part owner.

As for the tug of war between "capital" and labor, we have been lucky enough to escape Marxism almost entirely. The cash flow from the business is distributed using the New England whaling ship model of "shares". Keith, the captain and part owner, sails out into the unknown every month and we get our cut on what the barrels that he lands in New Bedford. What we all share - Keith, Eddy and her Mom, your pontificating correspondent, and everyone else in the crew - is a 19th century American sense of equality. We are all equal members of the enterprise in dignity and responsibility and everyone understands that what people "make" is a function of talent and timing, not innate worth.

P.S. Every business failure in my life has been a situation where the people in charge (including me) thought that talk about the business as "family" and a mission statement on the web site would do the trick. It didn't; it can't. 

Rocky Humbert writes: 

I read his paper again and was able to tease one critically important fact out of it.

Page 15 and table 2A/Panel C: 70.5 % of the stocks that are in the largest decile by market cap outperformed the Tbill with a 1 decade horizon. And 81.3% of those stocks had a positive return. It's only for the smallest market cap groups that a substantial percentage substantially underperformed Tbills. Look at that table carefully and you can look at your own portfolio and it all makes sense.

In essence — if you own the biggest companies, you have beaten the Tbill (as we know from experience), but if you own the smallest market cap stocks, you have not. This makes intuitive sense since there are only two kinds of small cap stocks — those that start small and end up big. And those who were once big and are on their way to 0. It's a rare and bizarre company that starts small and always stays small!

The press reports and paper abstract are written in a bearish sensationalistic manner. For whatever reason, he chose not to include the key point mentioned above in his abstract. Now that I found this fact, I feel like everything else is noise — except for reinforcing one lesson that I've discovered anectodally: individual price momentum on the way down matters. If you have a stock that was once a $100 billion market cap and is unfortunately now a $10 Billion market cap, you should take your tax loss and reinvest whatever is left in another stock. And not wait for it to go to zero…and definitely not keep averaging down. In contrast, if you bought a $50 Billion market cap stock and it's now a $100 Billion market cap stock, don't sell it because it went up a lot. The skew and history suggest that it will continue to do well. (Until it doesn't).

Sep

25

 40 years ago when one first fooled around with the idea that there was a web of interconnections between markets like the web between producers and consumers in biomes of nature, one concluded that there was always a web between markets, what I called the ecology of markets, i.e. when stocks went up it caused bonds to go down, et al–but the problem was that the web was always changing. In looking back at that hypothesis and observation, doing many recent rests, one concluded that problematically that the observation was correct, and the main problem as far as opportunity is that that the web is always changing. Perhaps this is because of ever changing cycles, but perhaps due to homeostatic activities by the central banks and flexions.

anonymous writes:

1. Most of the money today is managed by AI methods.
2. AI data input is biased toward current decade, to substantial degree.
3. Within current decade, most intraday moves had Bonds suppressed by Equities strength.
4. Bonds are still not far off their ultimate record high valuation; and Equities are on their records.

It would make a hard sell to modern asset allocators to point that 40 years ago Stock fortunes were in lockstep with Bond fortunes. Will ancient history make abrupt comeback? This would make for utter disruption.

anonymous writes: 

How many markets or asset categories make up the web? Just trying to keep it simple here is what I came up with:

1. Equities
2. Fixed Income (Bonds)
3. Commodities
4. Currencies
5. Real Estate
6. Arts & Collectibles

Did I leave anything out? 

Stef Estebiza writes: 

American markets steadily, slowly, go upwards…the markets are opportunistic pathogens…until a bad note of any nature happens, they continue to do what they were doing, in this case they are going up, using the most illicit systems to do so exp-multiple. Panic has been abolished by law…what is it that still has to happen to cause a change? A random nuclear explosion? When you have liquidity and infinite ability to handle any "indicator" as you like (even the debt) what can you expect? The only one would be a collapse of consumption…one of those non-controllable costers from central banks. For now the sun shines, navigates upwards…waiting for Trump…and in the meantime, all the MINCHIATE on artificial intelligence, bitcoin etc…can also stay. 

Russ Sears writes: 

"panic has been abolished by law". Please define "panic" and put some numbers to this. It would seem to me that "panic" implies some over-reaction During the election when it was clear that HC would not win..There was panic…S&P futures down 100… then a reversal by end of day. It would be hard for me to put a market impact number on a nuclear attack, because it would be huge, and probably would be some "panic" at some point. But lack of big down days implies that the market believes it essentially has got it (the future) right. Not conclude that it is being manipulated. It's much easier to get people to believe a malicious falsehood about someone/thing than it is to get people to believe in benevolent falsehoods. 

Sep

22

David Hand's The Improbabiity Principle should go along with a book on multiple comparisons and a simulation program should be on all speculators desks.

Sep

20

An old time book well worth reading is A Century of Prices by Theodore Burton and G.C Selden.

It suggests that high commodity prices are bearish for interest rates
because it requires more capital for all inventory and investments with
high prices. I wonder if this could be tested.

The book is very suggestive of many hypotheses. From 1919.

Sep

19

After each missile test by North Korea, the reaction changes slightly. On the first ones, there is a big decline overnight, then a rally. On the second not so big an overnight decline. On subsequent ones, hardly a blip overnight with the rally in US trading the next day a little less. Can this reaction to information be generalized and quantified, and can predictions be made? Will a subsequent missile test actually lead to a rally overnight? The theory of information bits is relevant I think.

Gary Phillips writes: 

Recursive events sans any consequences has resulted in the market becoming desensitized to the disruption, the resulting effect much like a diminishing return. The same phenomenon can take place when one takes his first bad hickey, and realizes one's world hasn't come to an end. Becoming de-sensitized to risk or large losses can be very destabilizing to a trader.

Kim Zussman writes: 

"The market's like an aging lothario that continually needs its balls fluffed (by cb's) to get and stay erect."

-Fun Zayn Moyl in Gots Oyer

Sep

14

"After a big thunderstorm, you will find that people become more friendly and sociable" from The Lost Art of Reading Nature Signs by Tristan Gooley. Does the aftermath of hurricanes and floods bring bull?

Sep

13

When will pseudo economists and foolish people at the Fed realize that low inflation is good as it increases the stock of wealth that individuals have, and stop trying to increase inflation on the absurd idea that the higher the rate of inflation the lower the rare of unemployment.

Sep

6

 This is a very naive question, but if gasoline is way up doesn't this mean that buying crude would be profitable since gasoline is a reasonable proportion of the refining of oil and shouldn't this make crude go up with crude at a 6 month low at 46 a barrel? Does the flooding in Houston cause demand for crude to fall by that much to offset it, and is there an effect from the reduction in crude supply that shutting down drilling and possibly refining would cause?

John Netto writes: 

Vic, my apologies in getting this to you so late. I consulted my colleague who actively trades the US-Europe energy complex and he broke down how this situation with the rise of gasoline has very little impact on the price of crude oil.

Flooding in Houston depresses all kind of demand, both electricity and gasoline (no driving), but the impact on electricity is larger. Mostly this is a supply issue for gasoline alone.

The refineries are offline for awhile, so timespreads blow out (Sep/Oct and Oct/Nov go ballistic) because the gasoline supply is not there. The timespreads strengthening opens up the arbitrage to bring over European gasoline from Europe (via ship). So the arb guys sell US gasoline, buy European gasoline, and book a ship. So the supply is coming regardless of what happens to the refineries.

Crude doesn't necessarily move because crude is not being used while the refineries do not run.

More refinery downtime = no crude demand.

Once the refineries go back online, there isn't really much of an "overdrive" option to run even faster (individual refinery runs can go up and down marginally, but usually don't vary that much to matter vs off)

I hope this clarified your question.

Sep

5

Many insights into our field with the value of unpredictability and its measurement.

https://scienceblog.com/496099/hop-skip-run-leap-unpredictability-boosts-survival-bipedal-desert-rodents/

Andrew Moe adds:

One of the best skills you can teach young basketball players is to use multiple speeds when on offense. Stop and go moves, fast to slow to fast, quick changes of direction and hop cuts are all carefully choreographed skills that can be combined into a seemingly random pattern. When you watch Steph Curry juke left, right, forward, back and into a hop step pullup 3, he's not making those moves up on the spot. He's linking sequences of carefully planned, well practiced maneuvers designed to leave his defender completely befuddled. I would guess that additional study on the jerboa, especially on play patterns of the young, would reveal similar sequences of moves to avoid predators. In the markets, the sequences are meant to draw volume. Today we saw a cut downward off the open, a crossover back the other way, another crossover to the downside, a slowing of pace and then a hard drive to the downward basket. I'd call today a Westbrook move more than a Curry so far.

Bo Keely chimes in:

Living in the sonora desert, and having been through three major Mouse Wars, suffered from Mouse Dust, observing thousands, befriending dozens, raised one as if a child in my pendleton pocket, and staying on even footing with them on whole for 20 years, here are my postulates re: desert rodent locomotion. loco is a proper prefix. there are about 7 species that i observe day in and out around my camp, and during long hikes. when they run from me, or predators, the start-up off the blocks is seemingly programmed en utero and childhood, and so is similar across individuals of the same species for the first few yards. this, of course, is the result of evolution, for the poorly locomoting ones would have been hunted and eaten long ago, and not reproduced. then, in the second stage of flight, the animals' instincts give way to sheer terror, and the gait becomes more random. it's in this range that the animals may be more easily mouthed by the snapping jaws, because careful evolution has chosen the best flight plan for the initial stage. the upshot is, in my theory, that the rodents that are able to sustain longest their instinctual gait before caving in to horror will survive to reproduce, yielding the most most disciplined rodents. animals are far ahead of humans on evolutionary scales because we aren't hunted as much except at borders, and then the jail sentence still allows bail or release and copulation. we have become a very undisciplined species except in outlaw towns like Slab City. if you observe a person running from a mugger, even me on my long legs, i follow a prescribed stage one flight that, if closed in on, gives way only after a long distance to an all out adrenaline burst at angles and speeds the brain cannot plan before execution.

Sep

4

One of the most amazing experiences of mine on the spec list was 15 years ago. I took Hillman, the computer checkout expert from Cincinnatti, to my establishment in a remote part of Weston with 100 twists and turns. 5 years later we went back, and he drove exactly to the right place. He said he was born with it but perfected it in the navy.

Sep

3

 Many specs are expert on geography. I wish I knew more of the subject. One of the best books I am reading is Tom McKnight, Darrel Hess Physical Geography. I like to read books on spatial statistics as a useful byproduct. The main technique seems to be to make a football type grid with two perpendicular lines N.S and E.W and then to count within each part of the grid and do correlations.

I recall with fondness my connection with Russ Shields who when chair and founder of Navtech hired 75% of all the geography graduates in each year. The books I have on political geography, economic geography, historical geography, and politica geography (I have Glassner's) are endlessly fascinating to me. I always admire those I meet who can locate and navigate to any place in the world that they visit without any aids except the mind's eye. (Susan is one of them) although that ability is not quite as valuable now that the computer directions (from Navtech) and G are so ubiquitous.

And venerable, great Jim Lorie who had a Churchillian wit, (and gave the eulogy lecture at UC when Churchil died always liked to ask geography majors when he met them "what is the capital of this state or that?"

Looking at the performance of each country in a year is a fascinating exercise in geography as it's almost like seeing a map with the closer the countries the higher the correlation of the market and as you move from east to west, the correlation becomes increasingly negative with for example the US and Russia always quite negative in a year.

Sep

3

The back and forth between North Korea and the US is so much like that between Germany and England during 1935-1939. Always Hitler said: "Please meet my just demands or I'll make war". He'd say, "My patience is running out." And then: "This is absolutely my last territorial demand". The reaction in England was that war in the past was very destructive, and that he did have some justice on his side. But they got to know him as wily. So they provided "economic sanctions" against him and appealed to the League of Nations to create peace.

Sep

1

Churchill liked to dictate while pursuing his useful hobby of bricklaying at his country estate of Chartwell. The secretaries would climb up the ladder to take his dictation while he was building walls and dams for the lake he converted into descending pools and a heated swimming pool the family used during the winter.

Aug

29

A good estimate of the range is that it’s 4 times the standard deviation. If you have a random walk with 9 transactions each with variance 1, the standard deviation of the total change is 3. The range is 12. Similarly for any other number of transactions. Working backward one can estimate the number of transactions from any range.

Aug

25

Here is a good article on deception in the military. Along with a wiki article on deception in nature, it's a good duo. Deception in romance good to study also. All that's needed to complete the square is deception in markets. Doubtless the senator and I will complete that in 70 Years On Wall Street.

Aug

21

 Buzzy is with Schlomo and they're both 13 and he's in love with her. She's his cousin. Her mother ran away. They get off for Succoth. He tells her that he can jump over mountains, climb through valleys, swim the deepest rivers. Why are you doing this she asks him? "To save the princess." They are holding hands. She says to Schlomo, "You don't have to try so hard". Just then the mother calls them "Schlomo, Buzzy, come in for shawl."

Aug

20

 In reading recent bios of Beethoven, Hugo, Verdi, and Churchill, I find their persona and characteristics very similar. Do you feel that there is a certain type that is characteristic of greatness to an inordinate extent. I like that Churchill insisted as first sel lord that all hands including the captain and admirals join together each evening in singing popular ballads presumably Pinafore to maintain proper morale. Verdi would never allow anyone to give him guidance about his pumps or drilling at his estate. Beethoven said "he who has heard my music can never be the same again". "Hugo insisted on sleeping with two or 3 women each evening and kept a record of it.

Aug

8

 In a visit to The War Rooms and a reading of every one of the 1000 pages in Manchester's The Last Lion, I was not impressed by the heroism of the French, and with deference to Jovanovich, the chances of the French not turning their navy over to the Reich after the armistice would seem to have been close to the proverbial parts in a salvage dump spontaneously assembling themselves into a jet. It led me to think of all the times all my opponents in squash defeated in earlier rounds would stay around to the finals hoping I would lose. This led me to think of whether when one market has a terrible fall, whether it predicts with inordinate frequency that a related market will suffer a similar fate. The latter must be tested.

Stefan Jovanovich writes: 

About Dunkirk there is no question that the French stood and fought–bravely and well.

The Vichy French did not turn their Navy over to the Germans; they refused to turn it over to the British. Not quite the same thing. The result was Operation Catapult.

Churchill is not to be trusted about almost everything he wrote and said regarding the strategies of the war; in almost all cases he was a blowhard and a buffoon. But, he had luck. He had one subordinate commander brilliant enough to ignore his orders and preserve the RAF (in spite of Churchill's sending two months' of fighter production to Singapore so they could be captured by the Japanese weeks after being off-loaded in their crates on the docks). Hugh Dowding and the pilots won the Battle of Britain; and then the Germans lost the war by choosing to invade Russia instead of completing their conquest of North Africa and the Middle East and Iraq and Persia's oil reserves.

Andrew Goodwin writes: 

Greenspan cares about the bond bubble. If his commentary has influence perhaps he will move to remarks about other markets that don't share the same ecosystem. That 1000 page Manchester book was excellent and the brain makes the link finally in the naming.

anonymous writes: 

Sad but true: before WW I both Churchill and Roosevelt thought that the greatest threat to Anglo-American Empire would come from the Russians in Europe and the Japanese Navy in the northern Pacific. The Germans were not going to be any problem at all, no matter what the stupid French kept saying.

Jay Thompson writes: 

Accepting the above as true then major kudos to Churchill and Teddy as they possessed more foresight than the vast majority of foreign policy experts–to say nothing of US Presidents–in the past 100 years. Russia was/is a threat to the civilized west if for no other reason than it has been such a tempest - incredibly unstable and nearly ungovernable The near totality of Russian leadership was Germanic (like most of Europe that mattered) yet the people are Slavs. This exacerbated the already tense relationship between the peasants and the aristocracy or, if you wane Marxist, the bourgeois and the proletariat. The Japanese had a long lead time in their accumulation of navy power and the associated increase in their sphere of influence.

Patton, and Churchill, were right. We should have continued on and/or let the Third Reich destroy the Soviets. If for no other reason it would have taken away the "Cold War" as an excuse to waste trillions of dollars and the lives lost in the hot wars of Korea and Vietnam. 

Victor Niederhoffer writes: 

Anyone who believes that the Vichy prezs, petain and lebrun would not have turned over their entire navy to the Germans as smoothly and easily as they killed all the jews in Southern France, and who also believes that without Churchills courage and refusal to surrender that England would not have signed an armistice with Germany in 1939 or 1940 is very biased against the man who saved the world from German rule. With French armaments their would have been no hope left for the British and Churchill would have been booted out of office by the many collaborationists he brought into his cabinet.

Jul

28

 From The Asylum:

Kaufman, a floor broker, talking: "I still remember the guy who had the record for the fastest knockout. He was a 300 pound former NFL linebacker. "Tiny took one look at him and just took him out. I personally got tackled by a floor broker once for nothing other than not checking on his trades fast enough"

Kaufmann's boss was Smith the senior, VP of operations. When a probe of the Manhattan DA ousted him over a bribe of just 75,000 his replacement came in. "I came into my the office that morning and my cubicle along with my boss's desk and and just about everything else was covered in police tape." Kaufmann remarked: "At the exchange you never really knew who was going to get nabbed for something on a given day… if a major trader let you stand near to him, that was a big deal because you'd be hearing all the information he was getting." If you were allowed to dual trade you could give the customer the bad trades and keep the good ones for yourself. Or jump ahead of the customer with your own trades before fulfilling the customers orders.

Fisher was hailed by the other traders as a genius. He has an MBA from Wharton. In his spare time he had written a book "The Logical Trader: applying a method to the madness" "We would start each day by looking at the pinup girls in the local newspaper. We would have playboy mailed to the office. The author remarks "the booths also had drugs and alcohol in them."

Jul

24

 The Asylum by Leah McGrath Goodman tells the sordid story of the history of the NY Merc from the time it traded potatoes in the early 20th century to its purchase by the Chicago Merc in 2008 as oil barrels went up from $50 to $150 a barrel and back to $25 in just a few months. The NY Merc was called an asylum and its members inmates because it resembled an unruly insane asylum where drugs, fights, vulgarity, drunkenness, sex, bribery, gambling, police raids, infighting, revolving doors with bureaucrats, corruption, and most of all illegal cheating of the public was rampant.

As such it provides a good baedecker of what the markets have been like while pit trading was rampant prior to the electronic screen trading of the current era. Some anecdotes give the flavor. A Hasidic trader was told to take off his yarmulke as it would give too honest an impression of the floor. One trader after another knocked the other out if they dared to stand in the way of a short term profit at the expense of the public on the floor.

The book provides interesting coverage of the chairmen of the exchange. Each one like an Atlantic City Mayor was kicked out and fined by the Feds for illegal activity of one kind or another. A particular favorite who the author seems to admire is Zoltan Louis Guttman, a Hasidic trader, who chaired the exchange for 6 years but was convicted of fake option trading and banned from executive and trading activities. Compared to the other chairmen she writes about Guttman was a saint as his activities were not at the expense of the public or the members but merely for self preservation.

The author is particularly sensitive to sex on the floor. She quotes with umbrage: "Whether you were the chairman of the exchange or the lowest of the low, blow jobs were the one thing everybody could agree on." She follows the traders to a sex bar adjacent to the exchange and is appalled at the sex acts she sees there. When in Washington, she is appalled at the lack of understanding of the politicians to the nitty gritty of the exchange and can tell from a distance that the politicians are more interested in the tight miniskirts of their assistants than the testimony of the exchange officials. Like Miss Clavel in Madeline she decries the women on the floor who wore high heels and tube tops and quotes approvingly a trader: "they took jobs on the floor to catch a rich husband. They'd marry a trader, they'd break up a year later, and she'd walk off the baby and half his net worth."

 There are interesting stories about some of the traders habits. One likes to play practical jokes on his assistants. Another is known as a great scholar because he schools his traders in technical analysis before they go on the floor. Another is very handsome and rich and smart and a martial arts expert who dines at Raos.

The book reaches a climax as the traders fight like mad dogs over their sale to private equity firms and the Chicago Merc. They see the end of their ability to cheat the public in the usual way when screen trading is imminent. They sue each other and fight with each other even after death as they decry the rise in the value of their seats from 50,000 in the 1970's to $15 million when they finally sell to the Chicago Merc and the price of their stock reaches 150. None of them seem to realize how lucky they were as the sale took place right before the crash of 2008 and the descent of oil from $150 to $25.

The energy market is important in many way for the commerce of the world. While there are competitive exchanges in Europe and Dubai the Ny Merc continues to be the premier market in terms of volume of trade. The exchange charges a fee for each trade by non-members, and this is the source of the valuation of seats on the exchange. Many interlocking webs with the regulators, politicians, and competitors maintain the oligoplistic nature of the market. I found the book fascinating, couldn't put it down, and would recommend it to all as both a warning and a education in what it was like, what they were up against in their own trading through the pits, and what the trajectory is likely to be in the future.

Jul

20

There's a very good story by Jack Schaefer about a hunting lodge with Peyton, an excellent naturalist, who is as sporting as Scott when it comes to culling a sick or weak deer, finally a rancher calls him a predator like the wolf and tells Peyton that he's been searching for a word that appropriate for the predatory hunter. The word is "humility". It's good to have it in the market especially when shorting the stocks.

Jordan Low writes: 

The NYT wrote an article about short sellers, but is unable to find one willing to go on the record, except a retired short seller from 2008.

Jul

14

 Mr. Wheat asks for a few Wiswell quotes great for trading:

"We suffer defeat gladly, as we know that is the only way to learn, and improve, and ultimately to win"

"The world can't guarantee you wins. You must depend only our own good moves for success"

"Look twice before you move once, and do it every game"

"The board supplies no easy answers. Therefore it is necessary to take a calculated risk: that is not the same as gambling"

"If you want to knock a player out, you have to go for the solar plexus"

"How can a genius make all the right moves in a board game, and then make all the wrong moves in the game of life".

"Occupy, or attack the center. The sides and corners are lifeless. The center radiates warmth and energy"

Jul

12

 What is this thing called vig?  See old man vig from Mr. Grain.

"Bored Traders on Tinder Are a Symptom of Wall Street Revenue"

By Laura J. Keller (Bloomberg)

One bond trader says he's been slipping out early to watch his kids play sports. A fund manager says his office just staged a golf retreat. A trading supervisor at another bank confides he's swiping through a lot of profiles on Tinder, the dating app. Welcome back, Wall Street, to the doldrums. After four straight quarters of rising income from trading, the biggest U.S. investment banks spent the past few months in a renewed slump. Shareholders will soon see how dull it's been. Analysts estimate the five largest firms will say their combined revenue from trading dropped 11 percent from a year earlier to $18.4 billion — the smallest haul for a second quarter since 2012. The banks start posting results July 14. Behind the scenes, traders grouse about a lack of market- moving news. Congressional gridlock is eroding optimism that President Donald Trump can enact a sweeping, pro-business agenda. Other geopolitical frictions have yet to jolt markets. The Federal Reserve is sticking to its interest-rate path. Among the hardest hit are fixed-income traders. Combined, the five firms are likely to say revenue from that business fell 16 percent to $11.2 billion, according to estimates gathered from nine analysts. At Goldman Sachs Group Inc., it probably tumbled 23 percent to about $1.5 billion, the estimates show. At JP Morgan Chase & Co., it likely fell 17 percent to $3.3 billion. In equities trading, analysts estimate total revenue slipped 2 percent to $7.2 billion. Stock-trading leader Morgan Stanley may post the sharpest decline, about 6 percent. Spokesmen for the five banks declined to comment.

Jeff Hirsch writes:

It's seasonal….

Victor Niederhoffer writes:

The market needs vig regardless of the season. 

Jeff Hirsch writes: 

Of course. But vig has seasonality too and that may be part of what drives market seasonality. It is clearing repetitive collective human behavior at work.

Jul

12

It is funny to see some of the European performances year to date, like Russia and the Americas always moving in opposite directions, and Turkey up 28% or so, the best [Chart of Istanbul 100 below]. As Haaretz says, the markets don't care much about authoritarian rule, or democracy, or individualism or religion, as long as there is a rule of law so that the investors can get their money back. But rule of law not even upheld there.

http://www.azlyrics.com/lyrics/samcooke/wonderfulworld.html

 

 

 

Jul

8

@vicniederhoffer the definitive explanation I believe for flash crashes. It's margin calls triggered by the notorious broker and fellow travelers. As Bacon says: "The public has no right to lose as much as they do". But it's perfectly legal and unmentionable; but in fairness you have 2 minutes to meet a margin call by wiring money at 2 am to an unreachable counterpart before they take the opposite side to you. You can often see seemingly unnatural huge bids and offers away from the price just waiting to devour you in this context. As mentioned to add risk to injury in the event that one out of a thousand customers isn't exited in time for the broker to take all their chips, they add a risk fee to you next time around to take account of what might happen to them if the market moves 10%or 20% or so in a minute and they can't avalanche you out.

Jul

6

 The Match King by Frank Partnoy covers the Swedish Match company and Ivar Kruegar who committed suicide after developing many derivatives, forging Italian bonds, and developing new methods of manufacturing buildings and matches. He did real trading unlike Madoff but used many of the same techniques. He tried to follow the example of the south sea bubble and Mississippi bubble to get us lenders to funnel money through him to loan to foreign governments in exchange for monopolies.

Author is a respected attorney with Wall street experience. Very resonant. Also A History of the United States in Five Crashes by Scott Nations. Cover the 1907, 1929, 1987, 2008, and flash crash of 2010. Insightful, interesting and anecdotal with some analysis.

Jul

1

After a week of low volume two weeks ago, last week was highly volatile and erratic. It coincided with the advent of a new intern in the office. During the day, we don't talk much but as the market gyrates we try to quantify many different regularities. In the last 5 minutes of trading the market swung back to the lows before a holiday and a shortened day of trading before the first day of the month with gold, bonds at low, and the S&P who knows where. The moves raised a number of queries. And I realized that to a new intern and a outside observer it sounded very much like we were inmates in an insane asylum. It reminded me so much in retrospect of the idiot savant that the collab and I met at the baseball hall of fame who came up to us, and recited the batting averages of every player on every team from 50 years ago.

Anatoly Veltman writes:

I realize that one thing hasn't changed: institutions need to be invested. But other than that one thing, every other market make-up and mechanism has changed due to globalization, algos (especially HFT) and the incredible successful CBs experiment of 2010's with long-lasting zero-cost of all major currencies.

So that would mean to me that pre-2010s patterns are unreliable. And if one follows only a few years of pattern, then the problem lies with different placement within economic and election cycles, as well as most recent hacking waves. Which leads me to believe that the only constant is a CHANGE, and patterns that still CAN be relied on need constant adjusting of sorts…

In conclusion, I venture say that institutional investing has grabbed an oversize share (of course at the price of individual investing). Thus, given my introductory sentence, I have recently expected a Bull phase to last as long as it is - and then switch over to a lasting bear phase to wipe out 50-80% of the preceding gain. Now in that sense, not much change from 2007/2008 grand pattern - except for the exchange execution mechanics (with politicians dominating haphazard rule changes). So yes, lots of fun ahead for the intern.

Ralph Vince writes: 

The relentless move continues throughout the Summer, the majority waiting on the sidelines, assessing the virtues of each thumb, and the litany of those who should know better who all were looking for a top at various points up.

Yes, things are overvalued by most metrics. It's a bull market. That's how they go, have people forgotten this?

We've gone from a market of fear and disbelief, to merely one of fear now - a dangerous environment for weak stomachs as we have seen the past six weeks. The kind of market that wants to shake out those who are and have been aboard, and tempt those who aren't with a certain legerdemain only Mr. Market could do so as to get those who want to get aboard, unable to by crossing their feet and getting their weight going the wrong way.

Voir venir as mom would say.

anonymous writes: 

"Wait and see."

Anything to make us think it's no longer a bull market. Quick, volatile drops in speed and magnitude like we saw this past week, or long, slow, drawn-out affairs where new highs haven't been seen for months, yet still within the context of this bigger, overarching, fear-driven bull market.

Jun

22

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

Jun

18

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

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

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

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

Ralph Vince writes: 

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

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

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

Jun

18

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

Jun

15

Finally something useful and not hateful from the fraternity paper.

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

Bill Ray writes:

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

Soil can be fertile in lots of ways.

Andy Aiken writes: 

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

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

Jun

15

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

Jun

15

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

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

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

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

@VicNiederhoffer on twitter

Jun

11

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

Jun

11

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

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

Stefan Jovanovich writes: 

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

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

Jun

10

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

May

30

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

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

May

29

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

1. Have you tested it?

2. Is it already in market?

3. Are you getting in over your head?

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

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

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

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

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

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

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

11. Can you afford to lose?

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

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

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

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

What would you add or subtract from this?

Ralph Vince comments:

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

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

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

Jeff Watson writes: 

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

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

Are you in good shape financially and physically?

Have you developed an aversion to losing money?

anonymous writes: 

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

May

28

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

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

Alston Mabry writes: 

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

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

Dylan Distasio writes:

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

Charles Pennington writes: 

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

Is this impression correct, and if so, why?

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

May

28

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

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

"The Behavior of Stock Prices on Fridays and Mondays"

May

27

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

Orson Terrill writes: 

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

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

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

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

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

To make the point about AI:

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

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

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

Stef Estebiza writes: 

Warren Buffett's favorite holding period is forever.

anonymous writes:

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

May

27

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

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

By Jennifer Jacobs, Margaret Talev and Craig Gordon

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

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

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

May

25

 I took a son to a Yankees game yesterday.

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

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

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

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

May

23

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

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May

22

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

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

May

22

 The Lost Art of Reading Nature Signs by Tristan Gooley.

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

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

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

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

May

20

 Quantifying Life by Dimitry Kondrashov   

A Modern History of Japan by Andrew Gordon


Tree Models of Similarity and Association
by James Corter

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

The Evolution of Communication by Marc Hauser

Python Programming by John Zelle

The Complacent Class by Tyler Cowen

The Mathematics of Life by Ian Stewart 

The Moscow Puzzles by Boris Kordemsky

Analysis of Longitudinal Data by Diggle et al

 War Paint by Lindy Woodhead

Adam Smith by Ryan Hanley

The Autobiography of Ben Franklin by Benjamin Franklin

Essential Demographic Methods by Kenneth Wachter


The Essence of Stigler
by Kurt Leube

Expected Returns by Antti Ilmanen


The New Libertarianism
by Michael Oliver


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

Statistical Models by David Freedman

May

18

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

Andrew Goodwin writes: 

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

anonymous writes: 

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

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

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

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

Anatoly Veltman writes: 

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

anonymous writes: 

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

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

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

Laurel Kenner writes: 

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

Stef Estebiza writes: 

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

anonymous writes: 

I suggest the opposite is the case.

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

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

May

15

 "Fredo, you're my older brother and I love you, but don't ever take sides with anyone against the family again. Ever." -The Godfather

The Chief felt he was the only honest man in Washington. Wes McCain, the second best trader I have ever known next to Paul Derosa, always said that he had all his interns read The Godfather.

I think it might be a good supplement to Horse Trading, Turf Handicaping, and Frank Tarbeaux.

May

15

Henrik Cronqvist, Stephan Siegel, and Frank Yu:
Value versus Growth Investing: Why Do Different Investors Have Different Styles?  [39 page PDF ]

Abstract:

We find that several factors explain an individual investor's style, i.e., the value versus growth orientation of the investor's stock portfolio. First, we find that an investor's style has a biological basis and is partially ingrained in an investor from birth. Second, we show that an investor's hedging demands as well as behavioral biases explain investment style. Finally, an investor's style is explained by life course theory in that experiences, both earlier and later in life, are related to investment style. Investors with adverse macroeconomic experiences (e.g., growing up during the Great Depression or entering the labor market during an economic recession) or who grow up in a lower socioeconomic status rearing environment have a stronger value orientation several decades later. Our research contributes a new perspective to the long-standing value and growth debate in finance.

Victor Niederhoffer writes:

This is why we count and do prospective studies versus retrospective ones, and why we eschew paying attention to work form Yale professors who average earnings over 10 years , many of which were not reported until 6months after the earnings were or were not reported, with retrospectively selected stocks.

Rocky Humbert writes: 

Vic, by your own admission and work, if the stock market declines massively this year, it increases the probability of a greater-than-average return in the future. And by extension, if the stock market rises massively this year, it increases the probability of a lower-than-average return in the future. Why don't you extend this logic (which is both fundamental and technical) to relative valuation (i.e. growth v value) ; perhaps because your data set is lacking one of the largest multi-year examples (1997-1999) in history?

Also please explain how dismissing Shiller (or anyone else's argument) strengthens your argument– which I interpret as being a blanket belief that "fast growing company stocks outperform inexpensive slow-growing stocks." I can provide you with many strong academic studies that have documented this phenomenon in the past; as well as good studies that demonstrate momentum, small cap and other factors have historically outperformed. I would also like to better understand how you define a prospective study — since I find your use of the term confusing in this context.

As others have noted, this list has increasingly veered from its mission and why I joined; because the direction and rigor comes from the top, this exchange provides an excellent opportunity to reorient — unless you'd rather demur and focus on longevity.

Since when is this kind of thing true for future returns in a random walk? 

Russ Sears writes: 

The stock market declines massively this year, it increases the probability of a greater-than-average return in the future. And by extension, if the stock market rises massively this year, it increases the probability of a lower-than-average return in the future. There is a subtlety in this statement that I think should be pointed out, it is time. A quick hard drop increases the chance of a quick high return next year. However it is not symmetric with time. A large risk may lower expected return over a much longer period of time. Knowledge and therefore increases in wealth stays with us longer than destruction.

Victor Niederhoffer writes: 

Since when is this kind of thing true for future returns in  a random walk? 

May

14

Event History and Survival Analysis by Paul Allison is an excellent book showing you how to deal with events like death, unemployment, recidivism from jail, and stock market declines. It covers regression methods and multiple outcomes. Highly accessible.

May

11

Recent performance of growth over value double 11% versus 5% last 10 years [source ] but why? Previously not the case russell growth versus russell value.

anonymous writes: 

I think it's due to where you pick the starting point out and perhaps the monetary environment. You may reach a different conclusion if you start the study in 1998 through 2008. 

May

11

While we're at it, will someone please show the Yale professors how to handle negative earnings so that they don't exclude these along with so many others that are not in the standard and poor earnings series he used, which used to report yearly six months after the end of the year if at all, perhaps using earnings price ratio?

Phil McDonnell writes: 

The use of PE ratios is very bad for historical studies. A simple mental experiment shows why. Suppose earnings result in a current PE ratio of 10. If earnings are cut in half the new PE will be 20, other things being equal. As earnings get smaller and smaller the PE rises to near infinity as earnngs approach zero.

When earnings go negative the PE suddenly flips from very large positive to negative. This causes the variable to go from a monotonic increasing to sudden negative.

At this point the Yale professor had no choice but to eliminate any such data.Using a slightly different variable of E/P eliminates the problem. It becomes a monotonic variable. When the E factor gets very small the E/P variable goes smaller. When E starts to go negative the variable goes negative with no loss of continuity. With this change there is no need to throw data out.

May

9

Alan Millhone plays a game of checkers like I used to play with friends in squash. I always hit it so that my opponent could just run a little hard and get to the ball, never extending them to much or making them get out of breath. Alan when we played would ask me where I wanted him to move, then he would move there. He would refrain from taking an easy win to extend the game just enough to maintain the tension and enjoyment. It was very nice.

May

6

 This poem captures the zeitgeist of that wonderful time, late 70's, when I was coming up. Those guys that did all the coke and drugs didn't last. The athletes and the people with the bookie mentality were the ones who lasted.

Hamming the Bone by Michael Lee Rubenstein:

hand slaps shoulder knee rhythmically that’s called hamming the bone sitting on a street curb singing making up lyrics i got a transitor sister loves cossack named jake he rides Cherokee chopper all he’s ever known is hate he’s going down underground where a man can be a man wrestle alligators live off the land ebb flow i don’t know racing chasing hair-pin turning at 150 miles per hour downshift to 3rd spread the word sweet sour naked flower touching skin deep within defies all sin with a grin speed speed speed all i need i’m getting off coming on you tawny scrawny bow-legged pigeon-toed knock-kneed Don Juan Ponce de Leon Aly Khan all wrapped up into one going to have f***ing good time good time tonight i feel like an orphan mom and dad seem so far away tonight i feel like an orphan you make me feel this way hand slaps shoulder knee rhythmically hand bone hand bone

Odyseuss drifts job to job construction worker office assistant waiter whatever he does not understand how road to recognition works continues showing portfolio to art dealers but they react indifferently he does not know how to attain notice in art world begins to suspect there is no god watching over souls instead he imagines infinite force juggling light darkness creation destruction love hate Mom and Dad insist he can earn respectable income if only he will learn commodity futures like cousin Chris Mom says you can work down at the exchange and paint on the side a part of Odysseus wants desperately to please his parents he considers perhaps Mom is right for the time being maybe build up nest egg it seems like sensible plan he wonders why Dad and Mom never speak about money how to save manage they treat the subject as forbidden topic Odysseus has no idea what Dad or Mom earn or investment strategies Odysseus is about to make serious mistake the decision to get job working at commodity exchange needs deeper examination why is he giving in to his parents what attracts him to commodities trading is it Chris’s achievement and the money? does Odysseus honestly see himself as a winning trader or does it simply look like big party with lots of rich men pretty young girls is that where he wants to be why is he giving up on his dream to be a great artist does it seem too impossible to reach who makes him think that? is he going to give up on his true self? he halfheartedly follows his parent’s advice begins working as runner at Chicago Mercantile Exchange several friends including Calexpress disloyalty for entering straight world commodity markets are not exactly straight in 1978 clearing firms pay adequately hours are 8 AM to 2 PM over course of next 6 months Odysseus runs orders out to various trading pits cousin Chris rarely acknowledges Odysseus maybe Chris feels need to protect his image of success perhaps in front of his business associates Chris is embarrassed by Odysseus’s menial rank and goof-off attitude maybe Chris senses what a terrible mistake Odysseus has made

Chicago suffers harsh winter in February Roman Polanski skips bail in California flees to France in April President Carter postpones production of neutron bomb which kills people with radiation leaving buildings intact in October Yankees win World Series defeating Dodgers in November Jim Jones leads mass-murder suicide killing 918 people in Jonestown Guyana in December in San Francisco Dianne Feinstein succeeds murdered Mayor George Moscone in Chicago John Wayne Gacy is arrested

darkness descends upon Odysseus his heart is not into commodity business more accurately he hates it he loathes battleship gray color of greed envy he resents prevailing overcast of misogyny he meets many pretty girls yet most of them are only interested in catching a trader it is rumored numerous high rolling traders hire young girls for sole purpose of morning bl**jobs remainder of day girls are free to mingle run trivial errands commodity traders typically trash females it is primitive hierarchy Odysseus bounces from one clearing firm to another then moves to Chicago Options Exchange then Chicago Board of Trade on foyer wall just outside trading floor hangs bronze plaque commemorating all men who served in World War 2 Uncle Karl’s name is on that plaque Daddy Pat bought his son seat hoping to set him up after war Uncle Karl’s new wife wanted to break away from Chicago persuaded him to sell seat move to California Uncle Karl bought car wash outside Los Angeles with Daddy Pat’s support Mom and Dad encourage assure Odysseus commodities business is right choice they promise to buy him full seat on exchange if he continues to learn markets they feel certain he can be saved from his artistic notions the markets are soaring in profits cousin Chris is riding waves a number of Chris’s friends are sons of parents who belong to same clubs dine at same restaurants as Mom and Dad Odysseus is not alpha-male like Chris Odysseus is a dreamer painter poet writer explorer experimenter unlike Chris who has connections Odysseus starts out as runner then gets job holding deck for yuppie brokers in Treasury Dollar trading pit Odysseus holds buy orders between index and middle fingers sell orders in last 2 fingers arranged by time stamp price size in other hand holds nervous pencil he stands step below boss in circular pit in room size of football field full of raised pits everything is traded cattle hogs pork bellies all currencies gold numbers flash change instantaneously in columns on three high walls fourth wall is glass with seats behind for spectators thousands of people rush around delivering orders on telephones flashing hand signals shouting offers quantities every moment every day calls come in frantically from all around world space is organized chaos sometimes not so organized fortunes switch hands in nano-seconds it is global fiscal battleground rallies to up side or breaks to down side send room into hollering pushing shoving hysteria central banks financial institutions kingpin mobsters with political clout daring entrepreneurs old thieves suburban rich kids beautiful people pretty young females abound big guns suck in same air stand next to low-ranking runners everyone flirts sweats sneezes knows inside they are each expendable Odysseus is spellbound by sheer force magnitude he feels immaterial only grip is his success with girls it is not conscious talent he grins girls grin back Chris’s trader friends recognize Odysseus’s ability they push him to introduce girls to them it is way for Odysseus to level playing field he has no money or high opinion of himself he simply knows how to hook up with girls

1979 January Steelers defeat Cowboys at Super Bowl Brenda Ann Spencer kills 2 faculty wounds 8 students responds to incident “i don't like Mondays” in February Khomeini seizes power in Iran in March Voyager space-probe photographs Jupiter’s rings a nuclear power plant accident occurs at Three Mile Island Pennsylvania in May Margaret Thatcher is elected Prime Minister in England in Chicago American Airlines flight 191 crashes killing 273 people in November Iran hostage crisis begins 90 hostages 53 of whom are American in December Soviet Union invades Afghanistan 1980 in November Ronald Reagan defeats Jimmy Carter one year since Iran hostage crisis began

he meets good-looking younger girl named Monica on subway heading home from work he has seen her running orders on trading floor she is tall slender with long dark brown hair in ponytail pointed nose wide mouth innocent face she confides her estranged father is famous Chicago mobster Odysseus recognizes his name they talk about how much they dislike markets arrant disparity of wealth between traders and themselves Odysseus says i hate feeling of being so disposable worthless Monica replies yeah me too he tells her if i was a girl i’d prostitute myself to several handsome generous traders Monica acknowledges that’s an interesting idea but who? how? which traders? do you know? he answers yeah i know exactly who and how Monica says if you’re serious i’m in i have a girlfriend named Larissa who might also be interested i’ll call Larissa tonight following day Monica approaches Odysseus at work agrees to meet at his place after markets close that afternoon Monica and Larissa show up eager to learn more about Odysseus’s scheme Larissa is petite built like a gymnast giggly light brown hair younger than Monica he lays it all out for them cousin Chris and his buddies the money cocaine both girls are quite lovely he suggests they rehearse with him he will coach them on situations settings techniques girls consent for 4 weeks every afternoon they meet at Odysseus’s place get naked play out different scenarios he shows girls how to pose demure at first then display themselves skillfully fingers delicately pulling open labia spreading wide apart buns working hidden muscles he directs each to take up numerous positions tasks techniques then has them switch places he teaches them timing starting slow gradually building up rhythms stirring into passionate frenzy having two mouths four hands creates novel sets of possibilities one girl attends his front while other excites his rear he positions them side-by-side so he can penetrate any of all four holes he stacks them one on top of the other many other variations after reaching orgasm several times making sure to reciprocally satisfy their eager needs Odysseus dismisses girls until following day finally after month of practice Monica and Larissa feel confident proficient primed Odysseus arranges for girls to meet with 2 traders through Chris most traders have nicknames Twist who is hosting event is notoriously wild insatiable on opening night Odysseus behaves like concerned father Larissa and Monica each bring several dresses and pairs of shoes Odysseus helps them choose suggests Monica ease up on make-up he styles Larissa’s hair instructs Monica to call him when they arrive again when they leave he requests they return directly to his place Monica wears hair pulled back in French twist pearl earrings sleek little black dress black stiletto heels she stands several inches above Odysseus Larissa wears braided pigtails pink low-scooped leotard brown plaid wool kilt just above knees brown suede cowboy boots he kisses each on lips then pats their butts warns them to be careful mindful Monica winks Larissa giggles more than an hour passes as Odysseus sits wondering why he has not heard from girls suddenly reality hits he does not want to be commodities trader and certainly not a pimp this is not how he wants to be known or remembered Odysseus wants to be a painter and writer Monica and Larissa are good sweet girls whom he has misguided he calls Twist’s place Twist answers Odysseus asks to speak with Monica when she comes to phone he questions are you all right Monica answers yes we’re fine we’re having a fantastic time why are you calling what’s wrong he explains you were suppose to call me when you arrived i began to worry i think maybe this whole arrangement is a bad idea i want you to call it off and come back home i don’t want either of you to become prostitutes i love you both and don’t want to be associated with dishonoring you Monica says it’s a little late to call it off but we’ll see you when we’re done kissy kiss bye Odys another hour passes then another he frets wondering what they are doing after 4 hours as he is about to call Twist’s house again doorbell rings Monica and Larissa both giggling beaming Odysseus can spot they have a coke buzz Monica announces you should be proud of us Odys we got each of them off 2 times we left them stone-numb and tapped out the girls open their purses each slaps 5 hundred dollar bills unto table Monica says this is your cut Odys we both got a thousand for ourselves he replies i can’t touch that money we need to sit down and talk Monica demands no talking Odys take off your clothes he insists i’m serious Monica i’m never going to send you out again Larissa claims there’s no turning back for me i had too much fun Monica pleads come on Odys we’ll be good we promise now take off your clothes Twist and his buddy never attended to our needs i’m horny as hell Larissa where’s that little bottle of dust Twisty handed you

Chicago Monday night December 8 1980 Cal and Odysseus sit at North End they're on 4th round feeling buzz the place is lively adorned with holiday decorations Cal says you’ve changed Odysseus questions what do you mean? how? Cal says the commodity markets and your cousin and his friends they’ve changed you when was the last time you painted Odys? are you dealing coke Odysseus looks Cal in the eyes answers they’re so goddamn rich Cal you can’t believe it one drives a black Corvette Stingray another a goddamn Delorean anything they want they buy girls cars clothes condos boats yeah i’m dealing coke to Chris’s friends it’s my only leverage remember the Columbian dude Armando we met at tittie bar? i score from him and keep it clean Chris’s buddies pay up for the quality i don’t remember my last painting maybe the black painting i never finished after breaking up with Reiko Lee a girl falls off bar stool crashing to floor at other end of bar Cal says Odys, you better play it careful you’re messing with the devil got any blow on you suddenly bar grows quiet someone turns up TV volume they watch overhead as news anchorman speaks slow solemn camera pans splattered puddle of blood pieces of broken glass on steps to Dakota Building Cal looks to Odysseus John Lennon has been murdered Cal waits for Odysseus to say something tear rolls down cheek Cal glances away stares down at floor they drink in silence

Victor Niederhoffer shares: 

Another great read about the days of the pits.  

May

3

 I attended an Arthur Niederhoffer awards dinner at John Jay the college he co-founded that now has 18,000 students versus the 15 it started with. Immigration restrictions, evil and biased activities figured in every one's talk. And there was raucous applauds when someone demurred about some fine police action against perps that he was forced to take on Nov. 9 as there was for the new President who was a Chief of Attorney General Lynch's justice department who is even more compassionate than the Cattle trader.

Every person speaking made a point of their dismay, anomie about the recent Elect outcome. Every day one meets or hears about hundreds with similar feelings and beliefs. No where are these feelings more pronounced one would surmise than in our own Board of Governors who are meeting today.

No matter how hard they tried to do him in before hand with their Hot Markets stance and their certainty of 10 hikes after, their emphasis on the crazily flawed Cape Model of the Yale Nobelist, the market, the wealth keeps gong up. I say they pull out all the stops to give him a well deserved drubbing today.

Apr

30

 I am reading Walter Heiby's Stock Market Profits Through Dynamic Synthesis, before I prepare for my challenge match with J. Weisenthal at Central Park handball courts today and it's beautiful with 350 pages of tables and 65 graphs. It contains daily data on S&P, advancing, declining, unchanged, ny volume, active issues volume, active issues price, odd lot purchases, sales, odd lot short sales. Monthly data of mutual fund, purchases, monthly debit and credit. It's an admirable effort, and he thanks his father, his mother, and wife for taking an active part in entering all the data and giving him energy for the 40 years at least he's worked on it, (thereby falling short of Larry and the signer's 65 years). It brings to mind the panoply of eminents in Cradles of Eminence: Childhoods of More Than 700 Famous Men and Women: "My wife Eunice Heiby pushed the buttons of our first adding machine, my father who gathered many of the stats which were fed into our clrculators, he also helped perform many of the early calculations that became the basis of the growing body of knowledge that is now known as dynamic sythesis." His "mother, Laura that I owe whichever of these traits of tremendous energy and perserverences". He is very much like Galton on eminence.

Heiby's numbers and ideas are very valuable. They hold up very well except for the odd lot data. The monthly data are so sparse relative to market movements that any sort of tweaking will yield any conclusions so not as useful as the daily and the ideas. He like almost all his followers has no idea of multiple comparisons and the amazing ability of a few cuts of random data to come up with seemingly incredible results. If you cut 10 times from a normal distribution randomly you are likely to find a 1 in 1000 probability emerging, with exact figures given by the exponential distribution and best obtained today by simulation. So all his conclusions about when to get in and out are worthless and couldn't beat buy and hold but it's a noble effort, deserving to be in the valhalla of our field and aside from the high correlation of advancing and declining issues with price moves itself, the daily data is a nice template for further research.

Apr

26

In your very good article you leave out the most important thing that I know from visiting thousands of companies in my merger business.

All business owners existing and potential are motivated by their after tax returns. [The tax plan] will create an enormous stimulus to new businesses, and expansion of existing. The existing holders for stocks will also be much more likely too unleash their existing enormous gains, ( many I know and infinitely more sit on many millions of gains and won't sell because rates are too high ). Thus, there will be enormous growth in the economy and the market will go up, and regrettably tax revenues will actually increase. That's why joint committee will not use dynamic scoring. They should read Laffer and get out and talk to people who are mainly concerned with their after tax return which will increase by 25 % or so . Should create an immediate 10% increase in stock valuations. vic

Apr

24

Reading the economic journal of 1935 one comes across a Henry Georgian article comparing the price of wheat to average wages in the 16th century. Apparently wheat had never been as high as that time, and it predicted with accuracy a coming recession. It would be interesting to see if grain prices today relative to wages in the rest of the economy are predictive either near max or minima.

Also a beautiful article on the first bar, pie, and circle charts invented by William Playfair in the 18th century "a rare instance of an innovation with no previous precedent". Playfair a man like Babbage with an infinitude of invention gives a beautiful acknowledgment that he owed it all to a brother who currently held the chair of natural philosophy at the University of Edinburgh. A very Patrick O'Brian-esque touch.

Apr

22

 To say nothing about in my specific field the absurd and damaging impact of wearing protective eye wear and other stuff in racket sports, but how soon will it be that the jock strap manufactures pay a royalty to all the sports associations and the Olympic committee like the eye glasses do to insure that we all wear jock straps as a requirement before engaging in sports.

Apr

20

 QE is over, it's back to the same old money creation we've had for centuries — an idea which has actually levered the resourceful potential of man.

Your going to see a car drive in front of you as you stand on the curb, and it will be sans driver.

Your going to see a man in a drone, in a park, lift off the ground.

These things are here, and united airlines isn't in the game. Or any of the others for that matter.

And faster than you can gobble un croque monsieur, they will collide in a 3d, computer controlled "roadway," obsoleting cars and every minor roadway, parking lot and driveway,and traffic jams will be viewed as lice infestations of the past.

But it will take some forward-thinking and planning here. Wasting a trillion-dollar is rebuilding these roads, airports, etc. on an infrastructure plan, is not the equivalent social investment as building the interstate system in the 19 fifties was. This would be a trillion dollar simply to maintain that which we currently have, when the future is about to take an Abrupt turn. That's where we are to be funding things with public monies, as that's where the enormous multiplier in terms of social benefit derived from money spent will be seen much as it was when we built the interstate system originally. To spend that money an existing infrastructure which will soon become obsolete, is equivalent to porkulus, on a diluted scale.

Victor Niederhoffer writes:

Mr. Vince makes a subtle point that I think he means. The most valuable thing in the world is a person. They can make tremendous contributions that all can benefit from. Julian Simon is very good on providing statistics for this. And it is no accident that standards of living are so highly correlated coterminously with population like during the industrial revolution. As to which causes the the other, it's mute.

Ralph Vince adds: 

It is a bad bet to bet against the likes of Jonas Salk. But for every Jonas Salk, how many others of equal insight go untapped throughout their lives?

The population of the earth in 1960, five years after his vaccine was announced, was about 3 billion. It is now 250% of that. For every Jonas Salk of 1960, we would expect 2 1/2 of them….and for every untapped Jonas Salk….2 1/2 of those as well.

And virtually every varlet and their harlot(s) who are not the equivalent of Salk posses some sort of potential to add to the cumulative progress.

Why would you bet against the resourcefulness of man? All bear markets, since the invention of the hand axe, have been short-lived compared to their bullish counterparts, and every single market top over those millennia have been exceeded (save for 3/1/2017…..yet).

To bet against the resourcefulness of man is silly, ultimately futile, and it requires one to time things perfectly. It is a far easier proposition to load up long as when things are selling off, and manage your powder to see it through to the next new highs.

David Lillienfeld writes: 

Two thoughts:

1. There's lots of infrastructure spending to be done to support some of the newer technologies to which you refer. And it's beyond broadband. Just air traffic control alone could use a shot in the arm (well, more actually). There's also the reality that people like to physically move. And the way the society is configured, tire's no doubt that will figure out ways to do so as efficiently as they can within whatever infrastructure exists. Until motivations like sex or control disappear (which seems unlikely in the life span most of us associate with being on the face of the good earth), keeping the existing infrastructure going will also have its benefits. The interest in sex, for instance, isn't disappearing anytime soon, especially among those in their teens, who will do just about anything to get away from the clutches, eyes and ears, of their parents. That takes infrastructure.

2. I recall at the 1964 World's Fair, there was the ATT building in which there were picture phones with an assurance that certainly within 20 years, they would be omnipresent. Didn't seem to work that way. Ditto GM and the future of transportation. I've heard about the new technologies coming into use for more than 5 decades. Yes, the technologies do make it into use. But it takes a lot longer than anyone at first thought likely. Remember commercial supersonic aviation? I don't think it was ever fiscally viable. The story of how RCA came to dominate wireless communications is a case in point. Eventually, the new technology did triumph, but it took longer than anyone had considered likely.

Plank's law comes into play and is part of the explanation, inertia and lack of understanding of the potential of the new technology is another. Remember Amazon in the 1990s when it was starting to hit at sales at Books a Million and the other retail outlets? It still took 15 years for Amazon to practice its hegemony—which represented the triumph of the net over physical bricks and mortar. And even now, Amazon is putting up bricks and mortar. Isn't the internet supposed to displace such things?

anonymous writes: 

Sure trucks and jumbos full-o-junk and folks crossing oceans will still be needed.

But technology gets here in less than half the time anyone ever thinks it will.

And if we're going to spend 1-2 trillion on infrastructure, rebuilding existing assets will not pay off the way they paid off when they were first built; that's only a little better than giving it away to teacher's unions and far-lefty organizations. The electronic infrastructure for tomorrow's transportation would be a much wiser investment than rebuilding existing infrastructure.

J.T. Holley writes: 

Bruce's "Glory Days" lyrics give a beginning of explaining why throwing money at fixing all the decrepit bridges in Pittsburgh is a bad idea.

Now I think I'm going down to the well tonight
I'm going to drink to I get my fill
And when I get old I hope I don't sit around thinking about it
But I probably will
Yeah, just sitting back trying to recapture
A little of the glory of, well time slips away
And leaves you with nothing mister but
Boring stories of glory days

That is all that throwing 1 trillion is going to produce. Eventually just "boring stories". It's just to pacify the unions, steel, and cement industries. The Rust Belt vote will be needed in the future. Hats the only forward looking that is taking place.

Apr

17

 Pre-Suasion by Cialdini is a book that resonates with all who wish to influence. The shocking part is that it's all about what you can do before you create the message to gain influence. There are chapters on (a) the critical moment to establish influence, what he calls the privilege moments (a good time is after you've done a favor for someone) (b) how to gain attention for your message by opening with a situation that puts the listener in a framework where he's ready to assent especially with favorable or unfavorable fragments (c) how to focus attention with sex, threats, mysteries, changes in environment (d) how causality comes from focusing attention (e) the proper way to seat yourself vis a vis others in the room and when to talk (f) how to compliment the listener, (g) how to shift attention to a field where your listener is likely to give a yes, (h) how to elicit content with the universal principle of influence-reciprocity, liking, authority, social proof, scarcity, and consistency (i) a new category of influence for Cialdini not covered in his previous book Influence, the important of unity with the crowd, especially if you can get the listener to join in on the bandwagon, (j) how to make your influence last by creating actions that set them on the road.

Each chapter is self contained, starting with an anecdote from Cialdini's undercover work at high pressure sales meetings, then discussions of how to use the ideas consistently to gain influence, academic studies that support the method of influence, and then a lead into the next chapter as to how to gain even further influence read the next chapter. At the end of the book are detailed notes on the academic papers and further examples to hit the point home.

Cialdini does not place much emphasis on the economic value of the methods of influence he suggests nor its costs. Nor does he reference the studies of direct marketers like Caples who have tested numerous forms of influence, or the craft and lessons that advertisers have learned in their efforts to influence.

He is mainly concerned with how to influence listeners before the message in day to day activity, in business meetings, in politics, and somewhat in advertising. These are all good and the anecdotes he tells especially about hostages, and the Holocaust will rivet you and stay with you forever.

Needless to say, I find that all the techniques of influence are used in the market. We could start with the moments when key announcements are made for their greatest desired effect on the listener, the importance of focusing attention at the open or the close, the role of gurus and experts talking their book, the part of messages left unsaid, which Cialdini says is one of the greatest influences. There are many others.

I can heartily recommend the book on all fronts to anyone who wishes to know how the world works, who wishes to influence his family, business associates, voters, threateners, and or improve his market performance.

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