Jul

31

 Anything of relevance?: "Rogue Wave Theory to Save Ships"

Stef Estebiza writes: 

Better than "of relevance", it is fundamental. The wave is only the visible part of the situation: "Artificial Surfing Reefs".

Pitt T. Maner III adds: 

Have you seen this video of a rogue wave hitting a tanker? The video is not, by any stretch, a rogue wave though. Those are large enough that their weight simply breaks the ship's steel.

Here is a picture of the damage from a rogue wave to Hornet from WW 2.

Steve Ellison responds: 

Yes, in the markets too there are infrequent "rogue waves" that can be catastrophic. A recent example was the move in the Swiss franc after the Swiss central bank abandoned the peg to the euro. If one is using leverage, such a rogue wave can easily be fatal.

The study of earthquake recurrences might also be fruitful. There was recently some media attention to the possibility of a magnitude 9 earthquake in the US northwest that would have many characteristics of the Japan earthquake in 2011, including elevation changes that would put some areas below sea level and drop others to within range of a tsunami. Such an event could occur tomorrow or might not occur until a later century.

Jim Sogi writes: 

A rogue wave can be a "hole" in the ocean due to random overlapping of normal size waves. Sometimes a hole forms big enough for the ship to drop into the ocean, and get covered up. The waves are not always "high" waves.

In the market, random and other forces can cause big air drops, or a no bid situation. I think these are the ones most damaging to traders. It's not just the big climax peaks.

Jul

31

 1. How many times have you taken a position in a market and had it moved against you, and then got out pursued by a debacle only to find that the market moved in your favor 9 or the next 10 days? Please quantify the situations and see if you can take the other side. Monday, July 24 spu????!!!!!

2. The Senator loves to find a market hitting a new x day low I believe at near the open and then going above some level (I believe the previous close or some such) as a great opportunity to buy. His Japanese acolytes took furious notes and wished to make him a national icon for this. How can it be quantified for individual stocks and markets?

Ralph Vince writes: 

#1 occurs ONLY when one has stops in the market of interest. Otherwise, it just doesn't happen that way– I am Cain (the market sees me, yes, me, there, in the shadows and trying to hide anonymously in the crowds).

I have to turn away, walk away in these situations, and look back at some as-yet unknown future point. "I'll be at the Coyote Motel, with it's missing light bulbs and wax bars of little soaps and the maids that never show. I will be eating cheese and day-old Reubens and watching the markets (now pointing with my index finger) and I will return when you can act like a lady."

Jul

30

 Daily Speculations offer at 2,500 prize for the best lyrics for a song that captures the spirit of the endless and ephemeral movements of markets to Greek news over the past 6 months.

Here are past examples. Entries to be submitted by July 31.

Winner to be determined by popular vote.

I kept hearing this song overnight which inspired it: "It's Greece".

Thank you. Also, we'll have Kino and Jon Burr sing and play the song at the spec party September 5th.

Alston Mabry writes in: 

(sung to the tune of "The Major-General's Song")

I am the very model of a modern Brussels bureaucrat,
I've information technical, political and Eurostat.
When lunching with reporters I can sound just like a democrat
And dismiss any notions of a Continental coup d'etat.
I keep my Strasbourg mistress in a cozy little Neudorf flat,
(My wife could find it in the bills - I hope she doesn't think of that!)
I'm very well acquainted with the back seat of a limousine,
I never fail to have my way with any offered haute cuisine.

I'm veteran at promulgating regulations Byzantine,
Discretely lift my nose up to the mass of bourgeois philistine,
In short, in matters technical, political and Eurostat,
I am the very model of a modern Brussels bureaucrat.

Precisely I can calculate the solid waste municipal
Per capita for Capua, Montpellier and Dinkelsbühl.
So comprehensive was my last report on herb medicinals
That several of my colleagues thought my brilliance unforgiveable.
I'm called upon to explicate the latest fruit juice label scheme,
Then lecture on the trade gap between Luxembourg and Liechtenstein.
And then I'll do a scatterplot of Swedish satisfa-action,
Against the recent increase in French farmers' tractors' tra-action.

They wonder why I spend all day in study of parabolas,
Then I predict the future size of bathing suits in Malaga!
In short, in matters technical, political and Eurostat,
I am the very model of a modern Brussels bureaucrat.

When I can add my sister's husband's cousin and his son-in-law
To every second item on my monthly cash expense report,
When I can down my seventh glass of '08 Chateau Haut Brion
And still expound on Maastricht until half the room is comatose,
When I can differentiate a "bailout" from "austerity",
I'll also know the spread between employment and hilarity,
And when I know what's truly meant by "income inequality",
I'll know my income's getting close to where it really oughta be.

With all this Euro-knowledge in my brain where it's supposed to be,
I hope I don't get catatonic Euro-neuro-entropy,
But still in matters technical, political and Eurostat,
I am the very model of a modern Brussels Eurocrat.
 

Gary Rogan submits: 

I Dreamed a Dream (Fantine's song)

From Les Miserables (almost)
There was a time the EU was kind
When their voices were soft
And their words inviting
There was a time the Germans were blind
And Greece was a song
And the song was exciting
There was a time
Then it all went wrong
I dreamed a dream in time gone by
When the Euro was high
And life worth living
That Greece's dream would never die
I dreamed that the Germans would be forgiving
Then I was young and unafraid
And dreams were made and used and wasted
No margin call was to be paid
No song unsung
No wine untasted
But then the Greeks rebelled at night
With their voices loud as thunder
As the EU tore their hopes apart
As the markets turned my dreams to shame
They talked for days, they talked at night
They filled my days with endless wonder
They took the lying Greeks in stride
But all was gone when summer came
But I still dreamed they'd talk again
And we could trade for months together
But there are dreams that cannot be
And there are storms we cannot weather!
I had a dream my life would be
So different from this hell I'm living
So different now, from what it seemed
And Greece killed the dream I dreamed

also:

Not quite a show tune, but what the heck
Trade This Way

by Aerosmith (almost)

High risk lover never ready to cover
'Till I talked to my broker he say
He said, "You ain't seen noting
'Till you're out of margin
Then you're sure to be a-changin' your ways"
I met a cheerleader, was a real news reader
All the times I can reminisce
Ah the best shorts lovin'
With her sister and her cousin
Started with a little miss, like this
Markets swingin' with the news out of Greece
With the futures flyin' up in the air
Singin' hey diddle-diddle with the kitty in the middle
You be swingin' like you just didn't care
So I took a big chance that the Greeks will dance
With a frau who was ready to pay
Wasn't me that they were foolin'?
'Cause I knew what they were doin'
When they taught me how to trade this way
They told me to
"Trade this way, Trade this wayTrade this way, Trade this way
Trade this way, Trade this way
Trade this way, Trade this way"
Ah, just give me a kiss
Late night hustles they were meeting in Brussels
I remember I was betting on Greece
There was three young brokers at the airport locker
When I noticed they was lookin' at me
I was a market loser
Never once made a profit
Till the boys told me something I missed
That Greece had neighbour
Who also needed a favour
And the Germans will give'em a kiss, like this
Markets swingin' with the news out of Greece
With the futures flyin' up in the air
Singin' hey diddle-diddle with the kitty in the middle
You be swingin' like you just didn't care
So I took a big chance that the Greeks will dance
With a frau who was ready to pay
Wasn't me that they were foolin'?
'Cause I knew what they were doin'
When they taught me how to trade this way
They told me to
"Trade this way, Trade this wayTrade this way, Trade this way
Trade this way, Trade this way
Trade this way, Trade this way"
Ah, just give me a kiss

Franklynn Phan submits: 

"Ain't Misbehavin'"

(In the style of Louis Armstrong)

No one to talk with, all by myself
No one to shop with, cause I'm happier to sell
Ain't misbehavin', Savin' my cash for you

I know for certain, the top is in
I'm through flirtin' with down side predictin’
Ain't misbehavin', Savin' my cash for you
Like Old Hussman in a corner
Not “perma-bear”, but I don't care
Low valuations, worth waitin' for, believe me

 Don't be TOO long here, don't stop to buy
Know I’m alone dear, me and my bearish pride
Ain't misbehavin', Savin' my cash for you.

Scoobededa doot diddlee doot doot

Ken Drees pens to the tune of Supercalifragilisticexpialidocious: 

Drees "uberallymerkelisticgrexieurodoughshush"

It's uberallymerkelisticgrexieurodoughshush
Even though the thought of it is nothing like ferocious
If you trade it long enough, drool sideways bound neurosis
Uberallymerkelisticgrexieurodoughshush
 
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
 
Abuzz I was to trade the greek
Then just a simple fad
Thy market sent me up a creek
and sold me out twas sad
 
But when come May I burned a third
That graved forsaken close
The glibbest bird I never jeered
And hiss is how it blows, go
 
It's uberallymerkelisticgrexieurodoughshush
Even though the thought of it is nothing like ferocious
If you trade it long enough, drool sideways bound neurosis
Uberallymerkelisticgrexieurodoughshush
 
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
 
Greek raveled all abound and whirled
And derriere he spent
Greek 'buse his herd and all could bray
Share does a rarer cent
 
Then hoops and ouzoquaffage
alas the chime to pay writhe fee
Eye sway the speshill slurred
And then play mask-wee 'bout to pee
 
So uberallymerkelisticgrexieurodoughshush
Even though the thought of it is nothing like ferocious
If you trade it long enough, drool sideways bound neurosis
Uberallymerkelisticgrexieurodoughshush
 
Numb fiddle, fiddle fiddle, glum fiddle lie
Numb fiddle, fiddle fiddle, glum fiddle lie
 
So you can play it awkwards, which is doughshusheurogrexlisticmerkeallyrebu
But that's growing a wit too far, won't you wink?
 
So then the rat has shot your bung
There's no heed for delay
Dust coming up its blurred
And then move not a dot to play
 
But bettor ruse it warily
Or it could derange for strife
For example, jest, one night I fed it to a bar-girl
And now the bar-girl's my wife, oh, and a homely thing she's too
 
But
 
She's, uberallymerkelisticgrexieurodoughshush
Uberallymerkelisticgrexieurodoughshush
Uberallymerkelisticgrexieurodoughshush
Uberallymerkelisticgrexieurodoughshush

anonymous submits: 

Sung to the tune of "Rolling in the Deep" by Adele:

There's a crisis starting in my hinterland
Reaching a fever pitch, it's bringing me out the dark
Finally I can see you crystal clear
[Clean version:] Go 'head and sell me out and I'll lay your ship bare
[Explicit version:] Go 'head and sell me out and I'll lay your shit bare
See how I leave with every piece of you
Don't underestimate the things that I will do

There's a crisis starting in my hinterland
Reaching a fever pitch
And it's bringing me out the dark

The scars of your own failed loan remind me of us
They keep me thinking that we almost had it all
The scars of your own failed loan, they leave me breathless
I can't help feeling
We could have had it all
(You're gonna wish you never had lent me)
Rolling in the deep
(Ratings are gonna fall, rolling in the deep)
You had my mint inside of your hand
(You're gonna wish you never had lent me)
And you wagered it, to the limit
(Ratings are gonna fall, rolling in the deep)

Baby, I have no story to be told
But I've heard one on you
And I'm gonna make your cash burn
Think of me in the depths of your despair
Make a bank down there
As mine sure won't be repaired

(You're gonna wish you never had lent me)
The scars of your own failed loan remind me of us
(Stocks are gonna fall, rolling in the deep)
They keep me thinking that we almost had it all
(You're gonna wish you never had lent me)
The scars of your own failed loan, they leave me breathless
(Stocks are gonna fall, rolling in the deep)
I can't help feeling
We could have had it all
(You're gonna wish you never had lent me)
Rolling in the deep
(Bonds are gonna fall, rolling in the deep)
You had my mint inside of your hand
(You're gonna wish you never had lent me)
And you wagered it, to the limit
(Bonds are gonna fall, rolling in the deep)
We could have had it all
Rolling in the deep
You had my mint inside of your hand
But you wagered it, with no limiting

Throw your Euro through every open door (woah)
Count your Shillings to find what you look for (woah)
Turn my borrow into treasured gold (woah)
You've paid me back in kind and reaped just what you sowed (woah)
(You're gonna wish you never had lent me)
We could have had it all
(Metals are gonna fall, rolling in the deep)
We could have had it all
(You're gonna wish you never had lent me)
It all, it all, it all
(Metals are gonna fall, rolling in the deep)

We could have had it all
(You're gonna wish you never had lent me)
Rolling in the deep
(Currencies are gonna fall, rolling in the deep)
You had my mint inside of your hand
(You're gonna wish you never had lent me)
And you wagered it to the limit
(Currencies are gonna fall, rolling in the deep)

We could have had it all
(You're gonna wish you never had lent me)
Rolling in the deep
(Assets are gonna fall, rolling in the deep)
You had my mint inside of your hand
(You're gonna wish you never had lent me)

But you wagered it
You wagered it
You wagered it
You wagered it to the limit.

anonymous submits: 

(From Paint Your Wagon, "They Call the Wind Mariah"

Through unrest, we gave a name

To Pain and Hun and Liar,

The Pain is Debt, the Liar's Greece,

and we call the Hun Pariah.

Pariah throws the loans around

Then sends Hellene a-crying

Pariah makes accountin' sounds

Like mokes down here weren't trying.

Pariah, Pariah,

We call the Hun Pariah

Before I knew Pariah's name

And took to wealth enshrinin'

I took on debt and debt had me

And the Hun commenced his whinin'.

But then one day I left the whirl

And let it not define me

And now I’m lost, I’m oh so lost

No Gallic bawd can find me.

Pariah, Pariah,

They call the Hun Pariah

I hear they got a name for Pain

And Hun and Liar only

But when you’re broke and all alone

There ain’t no "yes" to "loan, please?"

Pariah, Pariah,

We call the Hun Pariah

Pariah, Pariah, - send a loan to me.

Now I’m a lost and lonely state

Without a fool to front me.

Pariah, float a loan to me

I need Bear-Stearns behind me

Pariah, Pariah

I’m loanless can’t you see

Pariah, O, Pariah

Please float a loan to me

Pariah, O, Pariah,

Please send a jubilee.

From Hope Sears:

To the tune "Baby Got Back" a.k.a "I like big butts"

The world: Oh my gosh, look at that plan.

That is the biggest plan I have ever seen. Like, who thinks that works?

Greece: I like the Euro and I cannot lie

All you other countries can't deny.

When you got a slim paycheck and a round figure in your face, you get sprung

Gonna show up all tough

Because you noticed everyone was gonna get stuffed

Deep pocket they be wearing

I'm hooked and I can't stop staring

Oh, baby I wanna get with ya

And take your selfie picture

Other countries tried to warn me

But that money you got

Make Me so over the top horney

Got my jacket of leather skin

You say you wanna have your money

Well you can't because we ain't that average groupy

I'm tired of all the liens

Landlords saying they want their things

Take the average Greek man and ask him that

He ain't gonna give that money back

Greece: So Fellas Other Euro countries:(yeah)

Greece: Fellas

Other euro countries:(yeah)

Greece:Has your country got the Euro?

Other Euro countries: (hell yeah!!)

Greece: Well spend it, spend it, spend it, spend it, spend that can do no wrong Euro.

Euro got my back.

Jul

29

 I am searching for a musical song that illustrates the constructal law.

The constructal law teaches us that anything that flows, which is just about everything, is 'alive' because it evolves as it flows. Life is the persistent movement, struggle, contortion, and mechanism by which animate and inanimate flow systems morph to generate better access for what flows. When the flow stops the configurations becomes a flow fossil (dry riverbeds, snowflakes, animal skeletons, abandoned technology, and the Pyramids of Egypt).

From Design in Nature

Victor writes to Rorianne Schrade: 

One wonders if there are any musical pieces that illustrate this idea.

Rorianne Schrade responds:

 Dear Victor,

I hope this finds you and all of your beautiful family doing well. My apologies for not getting to this sooner–you are always delving into such interesting topics. While I'm probably unqualified to comment in any depth on constructal law, I think music relates to ideas of flow in more ways than one could ever count. The first thing that pops to mind is the need to keep a single tone itself "alive" — something that in early music gave rise to all sorts of trills and embellishments for the prolongation of tones, the continuation of the melodic momentum, and the development of musical life in a composition or improvisation. Whole sets of variations could be used to illustrate this as well, the starting with a simple theme, the gradual building and elaborating all as a way of keeping the theme alive as well as creating new music. The "flow" may be interrupted with what seems like musical "death" (a "flow fossil" or "dry riverbed" as you mention– these are beautiful too, in their own ways) in the middle of a piece of music– but the flow somehow returns or survives until the end of the piece (and longer in one's mind) if I've got the right idea of what is meant here. Another illustration might be jazz improvisation on standard tunes … keeping it flowing in a single performance as well as keeping it "flowing" through the decades through variation and new interpretations… I must be oversimplifying, but thank you always for the food for though! love to you all, r.

Alston Mabry writes: 

Here are some musical pieces that I find illustrate constructal flow/order/disorder.

Starting off with the more challenging stuff:

Iannis Xenakis: Metastasis

Edgard Varese: Ionisation

Richard Carrick: Dark Flow - Double Quartet

And the more accessible:

Claude Debussy: Dialogue du vent et de la mer

Stravinsky: Le sacre du printemps

John Luther Adams: Dark Waves

Oregon: Yellow Bell

Cliff Martinez: Is That What Everybody Wants

Scott Brooks:

Here are two metaphorical songs about the flow of life's progressions

"Wasted on the Way
" by Crosby, Stills and Nash

"Nether Lands" by Dan Fogelberg

Both of these songs are two of my all time favorite.

I am especially fond of two sets of lyrics in Nether Lands where Fogelberg sings…

Anthem's to glory and anthems to love

And hymns filled with earthly delight

Like the songs that the darkness composes to worship the light

and

Once in a vision, I came on some woods

And stood at a fork in the road

My choices were clear, yet I froze with the fear, of not knowing which way to go

One road was simple acceptance of life

The other road offered sweet peace

When I made my decision my vision became my release

As I think about those lyrics, my mind wanders to the progression of life and how we end up where we are today. I think of many of the decisions, good, bad (and non-decisions that I wished I had had the courage to make) that I've made. I don't focus on how I would be happier or my life would have been different had I made other choices in my progression. For if I let me self start the "second guessing game", it will consume like a cancer.

Instead, I focus on what I've learned from all those decisions and how I can apply them to my progression going forward and, hopefully, improve my life, the life of my family, my clients and my friends.

I think that's what progression is all about.

Gary Rogan comments: 

Couldn't think of anything totally appropriate but this may come close (and it's The Surfer's favorite band)

"Natural Science"

By Rush

When the ebbing tide retreats
Along the rocky shoreline
It leaves a trail of tidal pools
In a short-lived galaxy
Each microcosmic planet
A complete society

A simple kind mirror
To reflect upon our own
All the busy little creatures
Chasing out their destinies
Living in their pools
They soon forget about the sea…

Wheels within wheels in a spiral array
A pattern so grand and complex
Time after time we lose sight of the way
Our causes can't see their effects

A quantum leap forward
In time and in space
The universe learned to expand

The mess and the magic
Triumphant and tragic
A mechanized world out of hand

Computerized clinic
For superior cynics
Who dance to a synthetic band

In their own image
Their world is fashioned
No wonder they don't understand

Science, like nature
Must also be tamed
With a view towards its preservation
Given the same
State of integrity
It will surely serve us well

Art as expression
Not as market campaigns
Will still capture our imaginations
Given the same
State of integrity
It will surely help us along

The most endangered species
The honest man
Will still survive annihilation
Forming a world
State of integrity
Sensitive, open and strong

Wave after wave will flow with the tide
And bury the world as it does
Tide after tide will flow and recede
Leaving life to go on as it was…

Jul

29

What is the significance of companies breaking from above 100 to below and vice versa vis a vis future performence. A study inspired by sportscasting where the number of 300 + hitters versus 299 is disproportionately high, and similarly for earnings beats.

Jul

29

 There have been hundreds of fights over time and these are the most memorable:

1. 1988 Sir James in Huntington Beach‏

In 1988 I was living in Huntington Beach, CA doing demonstrations on the beach and under the pier in preparation for my attempt to break 100 inches of concrete at the Ed Parker National Karate Championship. I was in top shape, and had a buddy, Joe, who was small and got picked on. He came up to me one day to report that some guys at a beach party had disrespected him. I hopped on the back of his moped and we rode into the party. I got off and there were no words. They knew why I had come. Two guys came flying at me and I dropped them with a left and right to the chins using their own momentum to knock them out. Two more came and I forward jabbed them in the faces knocking them out. Two more came and I spinning back kicked one in the face and in the same motion back fisted the other, and both were knocked out. They started calling me, Sir James, and one of the six reported, 'Sir James is a dangerous man. He knocked six of us out in 13 seconds.' Actually there was a seventh who came on slowly, alone. He had some boxing skills and we fist fought. He had speed, but I was a little faster, so I slowed down and took a few blows to see what he had. Every good martial artist should to take strikes to know what his opponent is made of, and out of respect. I kept him in it for a long exchange, backed him up against a wall, and said, 'You are one touch youngster' and he hit me in the face drawing blood in the corner of my mouth. I liked that, and walked away from him, but the Sir James name stuck.

2. 1984 Graniteville, SC

In 1984 some local toughs called the Moss brothers catcalled my sister in the Graniteville, SC market parking lot and wouldn't leave her alone. When I came on the scene she was in near tears with two of the brothers on the lot and the oldest in their pickup. They were rough guys, but not gangsters and probably were picking on sis to test me. Sometimes I think people started fights with me just to watch the performance at the price of getting their asses whopped. One came up to me and said, Rambo (my nickname in the south), what are you going to do if I hit you with this bat?' I said, 'Hit me and find out'. He reared the bat over his head and I threw him the pitch. It was a spinning back kick to the chest with so much force he flipped head-over-heels and landed out cold. His brother was moving forwarded but hesitated, and I whirlwind swept him with a spinning squat with one leg out taking his legs out from under him. I helped him up and asked, 'Want to go again?'. He shook his head. I walked to the oldest brother in the pickup and asked, 'Do you think that was a fair fight?' He said, 'Rambo, there is never a fair fight with you,' and rolled up the window.' My sister swooned, 'Oh, James!', and I became friends with the Moss family after that. You have to defend family but can't embarrass someone in a small town and expect to ever relax. It's better to make friends of your enemies after you beat them up.


#3 1985 CCI in South Carolina‏

Central Correctional Institute (CCI) in Columbia, South Carolina was a dangerous place in 1985, especially for me. I had a rep as the toughest guy in this oldest Confederate prison in America. The main hall was called Death Tunnel with several cell blocks on both sides. I had just come out of Metal Shop into the Tunnel and two guys came at me. One was holding a 16" pipe and a 7" knife and the other had murder in his eye. For them to have those weapons here must have been a setup by a guard who either wanted to see a good fight or to have me killed. There was a guard standing next to me as the two advanced, and I asked, 'Well, are you going to do something?' He was frozen with fear, so I eyed the PR4 strapped to his hip which is what the correctional officers call a swivel baton that martial artists call a Japanese Tonfu. I was an expert with the Tonfu. The guard saw me eyeing the baton in his holster, and said, 'Rambo, don't do it', and as he spoke I grabbed it and faced the killers. The one with the pipe and knife muttered, 'Rambo, we're going to beat your ass and kill you.' As he swung the pipe I thrust the Tonfu out from under my shoulder in a fake strike and did a spinning back kick into his solar plexus that knocked him ten feet back and he lost both saddles and dropped the knife. I knocked the knife out of the way with a foot. He got back up with the pipe, and i said, 'You'd better do it quick 'cuz the cops will be swarming in thirty seconds.' He swung and missed, and I stepped in and hit him with the baton with a series of serious strikes. There was blood all over, so I wiped off the baton, slid it back across the floor to the guard (so I wouldn't be accused of attacking him), and the cops were all over us. We were surrounded by inmates chanting 'Rambo' who explained to the cops what had happened. They dragged the attacker away with a broken jaw, orbit, fractured skull and missing some teeth, and his partner had fled. The guard got fired, and I never got bothered again at the prison.

4. 1994 Corcoran Shoe Scopaletti

Corcoran State Prison in CA was called the 'most troubled state prison in America' by the *Los Angeles Times* when I was there in 1994. It was more trouble for me as a sexual offender because the Brand Aryan Brotherhood was murdering sexual offenders right and left. You cannot house convicts and sexual offenders in the same facility and have peace. Over a period of two months, of the Brand had eased into a relationship on the SHU (Special Housing Unit) yard where we would slap each other on the shoulder and do the prison routine of walk and talk around and around the yard. One day, I sensed something in their mannerisms that was suspicious; it had been a set up. They took a killers' stance around me like a pride of lions. One named Dennis 'The Mongoose' Scopaletti clapped me around the shoulder, and I felt a sting in the front of my neck. It spun my head and I continued into a spinning back kick that caught Scopaletti in the temple that crashed into a cement pillar. Blood and gray matter oozed out, and he sunk to the ground flopping like a fish, already dead. The other three ran away into the razor wife. Alarms sounded, red lights blinked and I started to get pelted from the wall by wood bullets. A Big Bertha block got me in the leg, and I knew the next shot would be live, so I lay still on the ground while the responders surrounded me. They dragged the Mongoose off and the guards got me up and asked me if I was alright. I said, 'Yeah', but was having trouble swallowing. A welding rod I hadn't noticed stuck in my neck, so they walked me like Frankenstein to medical where they pulled it out and sewed me up. The yard camera had caught it all, and the guards said I was safe now because the Brand had sent their best man the Mongoose to kill me and he had failed.

5. James Doc Holiday

Had I known that James 'Doc Holiday' was the General of the Black Guerilla Family (BGF) and leader of the Symbionese Liberation Army (SLA) when he patted my ass and said, 'Welcome home, boy', our fight might have lasted more than one second. When he started that in the shower room I finished it with a foot in his temple and he went down out cold. Three guards rushed up, asking. 'Do you know what you just did?' 'He started it, I finished it.' I said. 'Gather your clothes, one ordered. They slapped on a K-10 Red Bracelet on my wrist that is the most sensitive custody. I was crowned 'King of the LA County Jail' by the inmates, guards and staff. It was 1978 and I was only nineteen. Doc Holiday and I made up in High Power maximum security but in every facility I entered after that someone wanted to test the 'King'.

6. 1992 Rolling Pin at Ely, Nevada

‏When the California prisons (CDCR) couldn't hold or protect me any more in 1992, they transported me to Ely, Nevada State Prison. That warden wasn't happy with the responsibility because I was a marked man as a celebrity martial artist and sexual offender. Soon after the transfer, two Aryan Warriors came at me with a typewriter rolling pin and screwdriver. As the rolling pin crashed the back of my head I spun into high caps and hit the Warrior four times with my elbow in the face. In that instant, the other stuck the screwdriver in my forehead at the hairline. I backed him up against the wall as a wave of guards rushed us. Now they made we walk the gauntlet between the guards and the jeering convicts who might have it in for me. The screwdriver was jiggling up and down as I did a sidestep on my own blood through the hallway to the clinic. They unscrewed the driver, and then put me in solitaire. I was so mad I kicked the door until the walls started cracking and the hinges bent out. The guard screamed for backup, and they had to torch the door open. The warden called California and told them, 'You come get this guy. No cell here can hold him!'

7. Sixteen Officers Down‏

In 1978 at the LA County Jail third floor chow hall a guard smacked the back of my head for no good reason. Guards do that to get themselves in hot water so the rest of the guards can jump in and beat up an inmate. The guard smacked me and said to, 'Hurry up,' and I went off verbally. In seconds, my buddy Virgil Kim and I were surrounded by five shouting guards. They didn't count on the backbone of Virgil Kim, a Korean who was an expert in open hand Karate. Back to back, we fought the charging guards until the Goon Squad arrived with their nightsticks, shields and riot gear. That made it even until one dropped his nightstick. I grabbed it and hit them so fast Virgil's eyes were spinning. Then I tossed him the nightstick and he beat the ones nearest him. We used their shields and helmets, passing the baton and hitting them with everything in the chow hall including the coffee pots. Sixteen officers were down! Sergeant Bullis and Brother Gerald, the Catholic chaplain, came in quietly and approached us with palms raised. I had great respect for both of them, and when Bullis said, 'Calm down, and this won't happen again,' I believed him. We piled all of the riot gear next to the unconscious cops, and Virgil and I got our pictures taken wearing their black helmets, and the officer who slapped me got fired.

8. Mexican Standoff‏

Unit 3100 in LA County Jail is called the 'soft block' and I was there as a first time offender of any law of the land and had not yet been declared 'dangerous'. This was my first and last fight in a soft tank because, after it, I would go on to knock down James 'Doc' Holiday and the third floor chow hall 'Sixteen Officers Down' and from then on be housed in special units because either I was dangerous or someone dangerous was after me. But in 3100 in 1978 I was minding my own business in the day room when six burley Mexican's decided to test me. They walked up and said, 'We hear you're good. Let's see how good you are!' I always give people like them a chance to walk away, an out, so I replied, ' Are you sure?' The response was two advanced from the front and two from the back, while two stood at ready. I always take care of what's behind me first, so the ones in front can watch and have a chance to leave. I saw the ones in back in my peripheral vision and used Bruce Lee sounds like, 'Ooh! and Hah! to distract them. I took them out in one motion with a kick to the chest and leg swept the other. I spun, and did the same with the ones in front. The two others had just seen poetry in motion, and didn't want to be the next stanza. I helped them up, asked them if they wanted to play it again, and they said, 'No Mas!' The test was over and we became buddies. You never hit anyone in the face who's trying to test you or establish a pecking order because it's more of a handshake than a fight.

9. Brush at Wasco

In Wasco State Prison in 2009 an inmate came at me with a toothbrush with a razor blade fixed in the handle. He was out to brush my teeth, waving it in my face to intimidate me. I asked, 'Are you sure you want this? I don't want you crying about it later.' He raised the razor, and I right forward kicked his shin. I usually defend against prison weapons with a kick because it would have to hit an artery to do any damage. Then I follow up with punches. My kick broke his tibia that stuck out through the skin like a splintered stick, and then i closed with an elbow across the face that knocked him out. They call assassins like this 'Torpedoes', but he never touched me.

10. Chinatown Street Fight‏

In San Francisco's Chinatown in 1981 I was contacted to fight the ranking world street fighter, Jimmy Tenaca, a Japanese from Seattle, in what the Japanese sometimes call *Kumite*. The modern version of this is Ultimate Fighting where *Kumite *often takes place inside a ringed area similar to that of a boxing ring. In this case, they led me at dawn into Chinatown where the shops were closed on both side of a street that was blocked off, and no cops. It was illegal, high wage street brawling. Tenaca was ranked #3 on the street fighting circuit and this was my first fight. He was cocky and muscular, known for his hand and foot speed. I was a backwoods, self-trained and also known for hand and foot speed. We were surrounded by about 130 people including many Japanese Triad in their sleeved shirts and old Chinese gentlemen smoking. Dozens of kids perched on the shop roofs as Tenaca and I did the pre-fight bow and moon-sun hand-in-fist 'handshake'. He instantly moved in with punches and kicks, while I dodged his attack to observe. I saw he was a traditional fighter trained in a dojo, so I took a free style position. I began throwing punches and kicks using mainly Wing Chun for close combat. My blows landed hard on his arms and shoulders causing him to wince. The Chinese in the crowd murmured to acknowledge their impact and the kids on the roof clapped. After three minutes of exchanges, Tenaca waded into me with hands held high, and by a fluke he raised one to throw a punch just as I released a front snap kick that went under his arms into his advancing chin. Down he went, but not out. They stopped the fight as I walked away the winner out of Chinatown with $7000, I was invited into the USA street fighting circuit but it wasn't my style. I only fight for defense or to aid a victim. It will sound strange, but my best techniques are lethal and can't be used in street fighting. I didn't want people to know what I could do, and wished to remain a free spirit.

Victor Niederhoffer writes: 

What's your opinion on how the former 'world's greatest martial artist, escape artist, and psychic fared with fists.

Jim Sogi adds: 

I've been reading a lot of Lee Child's Jack Reacher series. It's pure pulp fiction, but surprising captivating book after book after page after page. Great mystery also.

Jack fights a lot, street fighting. He uses the head butt, which people don't expect, and the forehead is strong against the nose, and eyes.

He also does a lot of low kicks the the knee, and elbows to the face, and punches to the solar plexus. Punches to the face often result in broken hands so are not effective.

His motto is get your revenge in first, and don't fight fair. Of course he's 6'5' and 250 lbs which makes the punches more effective.

A great guy, I really like him.

I question some of the reverse and spinning kicks the guy talks about in Vic's post. Such kicks in reality are much too slow, and give the opponent way to much time to kick you in the balls while your legs are up in the air. Real fighter don't use high and spinning kicks. It's movies stuff.

Anton Johnson writes: 

Hi Jim,

Thought you might enjoy this video clip, even though it may be a set-up.

Jim Sogi replies: 

In a real street fight the idea is to incapacitate the attacker instantly and permanently, then walk away quickly and not gloat over the attacker.

People think "put up the dukes" and picture Bruce Lee high kick and don't expect the low fast kick to the knee. A big low kick to the thigh can prevent the attacker from chasing when you run right after also.

If you train and can do it size wise, broken finger by hitting attacker hands with a weapon is good. Some sort of weapon is also helpful and advised. Timing is important, don't wait those first beats, strike first.

Now I'm too old for that type of thing anyway.

Trading lessons abound. Strike first, strike hard. Don't necessarily wait for regular hours. Hit and run.

Chris Tucker writes: 

An old friend, Mike, was Marine Force Recon–astonishingly huge guy–arms bigger than my thighs, was hanging with some friends from Seal Team 2 in Honolulu, stepped out of the bar with one of them and headed down the street. A huge Samoan dude hails them from an alley "Hey Bra", "yeah??", "why don't you give me your wallet now?" Mike reaches back for his wallet, winds up and slams this guy in the chin with a roundhouse. The Samoan, a head taller and even larger than Mike, touches his chin and smiles down at him. The Seal, a medic and only 170 pounds wet, gently pushes Mike aside and says "Let me handle this". He steps in front of him and darts past the Samoan, slamming a wicked kick with his heel into the side of his knee, putting him down instantly, screaming in pain. "I told you to let me handle this stuff, you big dummy".

Ralph Vince writes: 

But the problem with a kick, a rear kick or a sidekick is they need to pretty much be standing still. It's very difficult to do if someone is moving around, at least for most mere mortals or fat guys like me.

I've given a lot of consideration to the idea of "getting out of there," after a confrontation, or during it, or if there are multiple attackers. I think you have to stick around, no matter what, and I think there are a number of reasons for this. (I had an episode, a possible entanglement, just last night, that I thought might be trouble, late night in Buenos Aires, with the wife, and the thought occurred to me).

Assuming you are NOT the aggressor (and old fat guys like me never ought to be), then you have to consider several factors, all of which suggest you need to stick around the scene after a problem.

For one, you're probably captured on video somewhere, so if you leave, there's video not only of you, but that you left, which is not something innocent people should do. Secondly, there is a good chance you will be with a female, and a good chance she is in footwear not conducive to getting out of there. Third, I'm too old to run away, and not much inclined to no matter what the younger aggressors might have in mind. Of course, this is why you always need to have multiple, non-redundant weapons with you (and an extra clip of ammo. Look, if you have to shoot someone, and stick around, and you better, they likely have friends, or family nearby, and they may be armed too).

But then there are situations like last night, where you cannot be carrying weapons, and you're at a tremendous disadvantage, especially against potentially multiple aggressors.

Hydrick had some interesting stuff in that post. I think he mentioned something about not being afraid of other boxers or grapplers or martial arts kinds of guys– and you never should be, at least in my opinion. Those are different sports altogether than a real fight. They need their footwear or their clothing or whatever to be comfortable, and they are used to certain rules, etc. If you look at someone you can get a pretty good idea of how they would fight, based on their build and physiognomy. Just because someone has a lot of boxing in their background doesn't mean they have an advantage in a real fight.

For example, it's not uncommon to see a lot of boxers move into a position down and to the outside of their opponent in a sort of "crouched" position, with, if the two opponents are right handed, has the crouchee with his left hand almost against his tummy, his right hand up, not unlike the very popular-of-late "shoulder roll" position, the latter being far away, the former where the aggressor wants to get inside.

But that position (and I contend there are only 8 positions your head / body can viably be in in any fight and have a chance, and most people quickly get out of position) will get you biffed in a real fight where kicking occurs. Instead, someone who wants to get "to the outside: of his opponent (again, assuming two right-handers) is to step in with hands high, left shoulder snapped down towards the right hip, and not waste time in their (whereas the crouchee does want to waste time, he really cannot be hit with any force down there, and he can skooch out if necessary, but this all falls apart in a world where kicks are coming and the fight is usually over in a few seconds).

So there's really not a lot to fear in any opponent, as long as you've decided you're going to hurt him and stick around, and if multiple people, you aren't going to have to encounter more than two or three of them, and most of them are without a clue and not looking for a fight really (which is why they are in numbers), even if you don't have a weapon on you.

So, I've kind of come to the conclusion that it's a bad idea to leave. Best to stick around and tell the cops how you were being attacked, and that "It's probably on video," and be able to live with myself.

John Floyd writes: 

This is pretty standard kick called "kansetsu geri" or "joint kick", it takes some practice for getting the right power and timing but is very viable, and in this case if the Seal really wanted to hurt him there were at least a dozen other things he could have done, one would be a "toho" to the carotid artery or "nukite" right through his eyes, there are also many techniques that allow death to occur slowly over several days to avoid immediate implication of the attacker, but the best advice though is just avoid these situations if you can.
 

Jul

22

 All traders have a tendency to be happier with down 5% after their max loss was 60% than up 25% after their max profit was 50%. Most Asian markets are up substantially with Chinese 25 to 40% up, and yet everyone is talking about the depths of despair there.

Hernan Avella writes: 

It's ubiquitous. I sit here in the airport, after my flight was delayed 3 times and then cancelled at 11:30pm. They tried to settle for a flight tomorrow night. I fought my way into a 5 am flight. I have to spend the next 4 hours in the airport (perhaps finding regularities). It's a disaster outcome that feels like a victory compared with the alternative. Rumors in the airport were that the Obama trip to New York messed up with air traffic. How appropriate.

Thomas Miller writes: 

Do flexions work the same in all markets? When they want to buy at lower prices do they push fear and negativity through media outlets (increasingly social media like TWTR) so the weakest hands sell out at the bottom where they come in buying positioned for the next move up? Or am I being overly paranoid and conspiratorial?
 

Jul

22

 Let it be memorialized vis a vis Rocky that the man who saw a terrible price and then found it was a mistake but the subsequent price was much worse is according to the erudite Mr. Zachar, "a Millstein" not a Finnegan.

Rocky Humbert writes: 

I went back to Daily Spec and found the original definition of Millstein and it was basically a price retest of a price reached in error as opposed to a further deterioration. Perhaps a Finnegan is related to Finnegan's Wake, a piece of literature which admittedly makes no sense, thus "a Finnegan" is an event that cannot be understood in any context, and named after something characterized by a literally critic as "a work where every sentence opens a variety of possible interpretations, any synopsis of a chapter is bound to be incomplete." But if that's not true, would confusing a Millstein with a Finnegan for someone of Rocky's stature deserve a Millegan, I mean a Mulligan?

Jul

22

 It is hard to find any regularities bullish for gold since Jan 2013 since the drift of gold is 80 cents a day down.

Tim Cook and the Upside Down man seem to me to use similar kinds of down talk or colloquial phrases consistent with the idea that has world in its grip.

The reverse of a Millstein should be named with a Ring Lardner type title after his short story "Horse Shoes".

Jack Schaeffer is one of the greatest writers of the 20th century but he is looked down upon by literary critics because he wrote about the heroes, who opened up the rugged west, and westerns are looked down upon because of their individualist mien.

Stocks are particularly bullish when they haven't set a new high for x days. The bond stock relation is always changing but seems to be going back to its predictive ways of old.

The constructal law should be quantified as to its predictive properties for markets.

John Markman and Virgina Postrel elicit the most dynamic aspects of the world in their posts on twitter and one admires their dynamism enormously.

Crude is a gnat's eyelash away from meeting the constructal number of 50.

One owned recently the equivalent of a freight train of 100 cars but fortuitously did not hold the position for too great a loss. At least one could have provided a home for the hobo for a few days had one taken delivery.

When a company's sales are up 25 % or more, but it misses analysts projections and drops like a rock in the after market, one looks to buy it. One took such a position with Twitter but because their salaries seem way out of line with their profits, one exited the position.

One often tries to trade individual stocks but finds that companies trading volumes like 5 or 20 million shares a day, which used to be the total volume of trading on the NYSE when I started on a good day, cost about 1/2 % to get out of a position in a hour, and this is much greater than one's edge in trading.

Jul

19

Stocks up 5 days in row. Gold down 5 days in row. Crude back to 51 bucks a barrel. Bond yields back to their average [see screen below]. My goodness. What fools we mortals be.

Jul

19

 “The moves are all there, waiting to be made…But you have to find them.” -Tom Wiswell.

It’s all so simple–in retrospect. The Greek Crisis had to end the way it started–the sonata form. Beethoven’s fifth–the tension release–the frustration aggression hypothesis–the constructal law–. The odds were 100 to 1–that it would end right where it started. But what a game it was.

Paolo Pezzutti writes: 

4 consecutive times both S&P and bonds up is a rare event. It occurred only 6 times since 1999 (it does not seem really predictive though). Gold, oil and euro have printed new n-day lows for 3 consecutive days. Markets have liberated forces that have changed the constantly unstable balance and relationsip between assets. Nothing terribly new has actually happened: gold, oil and euro have continued their downtrend. Stocks have moved once again in the direction of the past 7 years (I could be very wealthy had I followed the Chair’s advice…). I would dare to say the euro is driving. As these macro moves are initiated and sustained by “central planners” there may be room for mean reversion, but one should be careful not to burn his fingers.

Jul

17

 I saw Penn and Teller's show with Aubrey. They state there are 7 principles of magic. Palm, ditch, steal, load, simulation, misdirection, switch.

How are these principles of magic carried out in markets. It's a nice classification of deception I think, but I don't know enough about magic to dare to expatiate.

Larry Williams writes: 

I would add—big move covers little move and confederate.

Tom Printon writes: 

I just finished the book Sleights of Mind by Stephen L. Macknik and Susana Martinez-Conde.

Two neuro scientists get an insiders view of how magicians operate. Many interesting insights on biases and deception. Could help a trader navigate a flexionic world where up is really down and down is really up.

There are some good passages from Teller, and it's worth a read in my opinion.

"Magic tricks work because humans have a hardwired process of attention and awareness that is hackable."

Jul

16

Is there a law of multiple proportions, i.e. that when two elements combine, the weights of one element that combine with the other are in a ratio of small whole numbers that applies to markets. I've often thought that the relations between markets, i.e. the weights with which one market affects the other are in small whole numbers.

Jul

14

I had a nice experience with Zapotek. The UN gave me a medal for sportsmanship and one to Zapotek. I spoke first and spoke about the importance of the profit motive as an incentive to devolve the best in athletes and give the spectators the best product. Zapotek spoke next. He stumbled. He couldn't read the writing. The Czech ambassador had thought that I gave a propaganda speech. He hastily wrote out a speech for Zapotek on the comradarie that team sports such as team handball and soccer developed in the eastern European countries. It was hilarious. Right out of Sid Caesar and I believe Zapotek was embarrassed. The French all rushed up to me after and said, "we needed that speech of yours on free enterprise". We all laughed at each other knowing that we were all flawed and human.

Jul

13

One hypothesizes that anything that increases the ability of flexions to aggrandize themselves with pecuniary or non-pecuniary perks will have a positive impact on the market proportional to its value. Alternately, that anything that furthers the idea that has the world in its grip will be positive for the market. E.G is banks were given the ability to trade derivatives willy-nilly (over and above the 4 trillion that JP for example has, that it would be extraordinarily bullish.

Jul

10

"Radical economic transparency" allows hedge funds to count lites and other worthless things related to markets.

"These Investors Have Satellites; They're Seeing Data You Don't"

By Jeff Kearns (Bloomberg Business)

Some 250 miles above the Earth, a flock of shoebox-size Dove satellites is helping to change our understanding of economic life below.

In Myanmar, night lights indicate slower growth than World Bank estimates. In Kenya, photos of homes with metal roofs can show transition from poverty. In China, trucks in factory parking lots can indicate industrial output.

Images from these and other satellites, combined with big- data software, are helping to create what former NASA scientist James Crawford calls a "macroscope" to "see things that are too large to be taken in by the human eye." Aid organizations can use the results to distribute donations. Investors can mine them to pick stocks.

anonymous writes: 

You're evaluation as "worthless" is surprising. I would have thought this was your cup of tea, but 2 decades ahead of pack.

I watched the train tracks that pass a several miles away heading to the refineries burdened with miles and miles of tankers, and the pipe yards fill up

On a related note, the restaurants in Houston that used to bustle with employees that are directly and indirectly related to the oil and gas sector have fallen quiet at lunch time. There is no longer a wait at the sushi restaurant, and others that are surrounded by service companies. 6 months ago you would be on an hour wait, now you walk in anytime and have a seat. The office buildings are emptying out, and my partner is considering buying his landlords building out on the cheap. Residential real estate has diverged though, actually shot up in price in Houston's core. There are many amateur speculators that didn't get the memo. We'll see if these properties move.

Jul

10

Given that a swing has covered a territory of x, and a turning point has been reached, what is the ideal point vis a vis return and risk to exit on the way back. And how should the turning point be defined, hopefully with less retrospection and naivete than the professor's with the 200 year trend following system. By the way, how did their trend following work when big money could actually follow it? I believe a run of of length 8 x when x is an unbroken 5 move might have a very positive expectation after a swing in the opposite direction of 2.

Anatoly Veltman writes: 

Trend following has worked for them well– once all moving averages are sloped down (which I don't currently have proper charting to verify, but I can well visualize and speculate that it HAS BEEN the case indeed, on daily charts of both SP and CRUDE as of early last week), they are not allowed to position Long at any point.

I imagine they covered the first few spikes down, but now they'd intend to hold on to Shorts at least to pinch 2000 if not to pinch 1900, depending on the precipitous nature of the move. Of course, SP is trading sharply up this Thursday session, but they may are likely anticipating to reach their near objectives by early next week…

Of note also is the fact that (following the May's record print) SP started to punctuate double-top sets of resistance prices. First set occurred in May and June, and we just got another set this week. Once down-phase is indeed on a roll, it's my personal observation that such price resistance sets develop numerous times through the entire cycle. This was very much the case during the entire 2008 roll (from 1500s all the way thru below 1000s).

Jul

9

 As part of an amusing, frustrating, wretched but ultimately uplifting and loss minimising part of my daily routine, I categorize mistakes made, differences observed and yes, things that were done successfully in a timely manner.

The hope is that there are some pedagogical benefits to be had from said classifications. What follows is a hard list (no wisdom or homey style nuggets).

It is regrettable that I do not have much perspective on broader aspects of life outside markets that might allow something approaching the towering lists of a Tom Wiswell. But it is what it is and anyway, I have Messrs. Jovanovich, Watson, Niederhoffer & The Poltergeist that provide one with regular cerebral sustenance.

I entitled this post the things 'we' do wrong. The list is mainly me, but I have had the privilege of observing the best and brightest so there are are few others added. All of their problems are subsidiary to mine:

1. Not enough focus on the stock market. I have missed substantial turns in stocks bearish and bullish because one imagined a speculation in Gold, for example, to have been more important.

2. Ignorance of a certain portion of the trading day (heaven forbid I might rest a while). In my defense, this has been fully rectified.

3. Not focusing enough on trade size. I keep an approximately equal size per speculation as I take some 2500-3000 odd trades a year. My view has been if one trade stands that far ahead of the others in terms of expected return, then why would you bother with the 'sub optimal' trades? Thus the constant position size.

4. Ignoring holding period (I am fortunate to say that this is not a point of worry personally).

5. Never adding to positions.

6. A dislike of hard core programming. I much prefer a simple interface through which questions can be asked. It is notable that the only products in this category that are any good are not available for purchase. It is only in recent times that programming/ hacking skill was valued above picking direction accurately. A reckoning approaches on this but I will not discuss it here.

7. I trade too many markets. My universe has 23 macro instruments in it. 3-5 would suffice.

8. I have never found anything REPEATABLE with a holding period more than a couple of days that satisfies me or any of my backers (who would never allow a 10% + drawdown).

9. This one is a bit controversial. I always assume the other market participants are 'better' than me. That their strategies are better in some way. This has stopped me going for the kill in a few very notable instances.

10. I don't have risk on in the moments before scheduled economic announcements or planned flexionic commentary. This has cost me but has allowed a very very low volatility relative to return down the years.

Ed Stewart writes:

Good list. Particularly the conjunction of size, time horizon, and to add a few of my own - reaction to a destabilizing price shock, endowment effect, prospect-type behavior, distractions such as an in-law asking to participate with you for the day, rationalizing excess conservatism when aggression is warranted which leads to the avoidance of big scores, among other things.

Vince Fulco writes: 

Chutzpah built up over an outsized good run (frequency of wins or profit generation) leads to stepping on a landmine you could have avoided if leverage was kept in check.

anonymous writes:

I've accepted the fact that I will feel like an idiot on a day to day basis. The upside of this is that when I calculate a 6 year compound return as I just did last week, I'm stunned as to how it occurred. How can one climb a mountain (in my case a not so big one) while always feeling one is falling and failing.

Victor Niederhoffer writes:

It is always good for a speculator to be humble. Also I think to follow Irving Redel's rule whenever people ask him how he's doing in market: "Fair". 

Jul

8

 Some books I read on my 1 week trip to the country:

Chemical Principles by P. Atkins and Loretta Jones

The Development of Chemical Principles by C. Langford and R. Beebe

My Early Life by Winston Churchill

Pattern Thinking and Cognition by Howard Margolis

Rodeo by Elizabeth Lawrence

Europe by Brendan Simms

The Meaning of Sports by Michael Mandelbaum

Knowing by Michael Munowitz

Chemistry for Dummies by John Moore

Going Solo by Roald Dahl

Difference Equations by Ronald Mickens

I read enough of them to recommend them all and wish the markets were not so volatile that I will not be able to finish and or digest them except for the Churchill book which is perfect and inspiring and insightful for anyone, and thanks to Richard Owen for sending me it.

Galen Cawley writes: 

Thank you for the rec. Knowing by Munowitz is superb. I am reading it in conjunction with Feynman's Tips on Physics in order to develop some intuition behind the formulas. It's a summer project, being added to AP Calc and other subjects that I tutor on the side. Fear of flop sweat is a powerful motivator.

Marketwise, I am 1/3 through a fine book called How to Measure Anything by Douglas Hubbard. He spends too much of the first 60 pages proselytizing, but the parts on calibrating, guesstimation techniques, sampling, etc look tasty.

Jim Sogi writes: 

Ed Spec by Chair was one of the most influential life changing books in my life. Now I have another. The Life Changing Magic of Tidying Up by Marie Kondo. I've previously used Pareto distributions by throwing away 80% of the the stuff you use 20% of the time. This time sorting by category, suggests keeping only the 20% of stuff you really love. Discard the rest. Do it by category, not by room. Life changing stuff. It's not Feng Shui. Real practical applications.

Hernan Avella writes: 

Thanks for the recommendations. Here are some I'm reading now:

1. Pure Intelligence: The Life of William Hyde Wollaston by Melvyn C. Usselman

2. Europe Transformed: 1878-1919, 2nd Edition by Norman Stone
3. Choice and Chance, by William Allen Whitworth

Jul

6

 By the way, I believe it might be a subject of speculation whether  Mr. Simons and his colleagues have found anomalies that they can still exploit as they might be much too big, and there is much too much competition from other humble anomaly seekers.  Yes, as Mr. Harry Browne would say, as described by  the true believer below, their pantheon of geniuses soars on a much higher level of cognition than myself or any of my colleagues or hundreds of followers - but then again superior intelligence isn't everything. And aside from the profitability of market making, as first enumerated by MFM Osborne, it might be difficult to capture anomalies on a systematic basis that the competitors in St. Louis and other small venues might have missed, no matter their profundity.

Anatoly Veltman writes: 

Does this also answer the query as to WHY would Virtu decide to go public?

A true believer writes: 

If there is anything whatsoever to the legion of gambling analogies to markets, market ecology and human endeavor then most of the chips will end up in very few hands.

The Medallion Fund represents the very apogee of human brilliance so applied to financial markets.

What is more likely, that there is something rotten in Denmark? Or that the combined work of pure genius including:

James Simons

Elwyn Berlekamp

Robert Frey

Henry Laufer

Sean Pattison

James Ax

The whole 'European Contingent' - I will not list those names here.

Plus a host of mere 'worker ants' cleaning data, programming testing machines and keeping the lights on.

Might just have come up with the single best group of high capacity strategies ever known.

We should all celebrate this achievement. It represents everything this list is about, surely?

Trying to pick holes in something like this is the equivalent of the Barron's columnist bearing bearish for 30 years on U.S. stocks.

My belief and optimism is based on facts, not some idol worship groupie phenomenon.

anonymous writes:

Is one allowed to agree with both the True Believer and the Chair? What Simons and the others did was pure genius–they used mathematics to identify the consistent anomalies that occur when people buy and sell securities. Those of us who lack their pure brains and mathematical chops marvel at what they have accomplished and have done our best to create a glacially slow mimicry using employment data and their correlation to the business cycle. (They are playing Scarlatti the way Michelangeli did; I am playing chopsticks hitting one key a month.)

But, as Vic notes, the question is whether or not there remain any arbitrage opportunities left now that those anomalies have been examined in such detail for decades by the far greater number of smart people who have come after the folks at Medallion.

Bill Rafter adds: 

Like others, I agree with both the Chair and Shane. The question then is "how much juice is left in the fruit?" As Stefan says, he gets one a month.

I would posit that it is a question of time frame. Certainly the HFT opportunities are gone for us simple folk, and maybe much of the day trading. But there are still anomalies if we are willing to accept less certainty and leave our bets on the table a little longer. After all, realize the prop shops do not want their worker bees to have an overnight position. Which means those of us willing to have such a position will have an automatic edge. As an example, compare the Open to Close returns to the Close to Open returns of certain derivatives. There's an edge, less than it used to be, but still there, and the edge favors the overnight holders.

Also, we simple folk cannot expect to outperform by trading only SPY (or perhaps its overleveraged sisters), the most competitive and liquid of assets. The greatest returns have always been in the least liquid of assets. 

Shane James replies: 

I see no disagreement with the Chair on this thread. As with the Chair, myself, Medallion, DE Shaw, Citadel and all such people interested in trading from all walks of life - we shall continue to look at new angles, different ways of splicing the available information amongst much else. Medallion too will do this. The outcome? Only the shadow knows.

On this next point, the Chair, myself and anyone with half a clue will be in violent agreement - it is always best to be the bookie . The RenTech entity, at the last count when the info was still public, collected 8% management fee and 45% performance fee (I may be off by just a little here).

To use a collection of letters used by my children to describe this: OMG.

It's good the be the king. 

Jim Sogi writes: 

Much of what they have done is computer science not just math. It also has to do with understanding and moving or changing and understanding and exploiting regulations at the exchanges. In a competitive environment, there will always be an edge available somewhere. They change and move, but there is always opportunity in change, the change in others, the rate of change, the unforeseen effects of changes. I think there is opportunity for the slow and small as well. Computers are stuck with their algos. They leave tracks, patterns, singly and as a group. The markets are complex, and no person or computer knows exactly how it works, though they may find opportunities in complexity. There are always effects of effects of effects, unknown to the actor. Waves spread out from every action.

Jul

6

 Without in any way attempting to aggrandize myself, “the older we get the better we were” and all that, I had an instructive experience today playing one wall racquetball at the courts on 101 st. I lost 21-4 to a player 10 years older than me. This might not have been expected as when I was 11 I beat the best paddle ball player in the world in a big money game, and I won 4 national paddle ball tournaments, 2 in singles and 2 in doubles, and was ranked in the top 10 in racquetball some 45 years ago. I stayed back, quite afraid of mixing it up in the front court, and I was not very mobile. I hit the ball very hard and tried to blast it through my opponents who were up front and just tweaked the ball back to the front wall and since I was standing back and am not mobile I couldn’t reach the ball. To add humiliation, Aubrey was watching.

It occurs to me that macro traders find the same problem when they go into micro or day trading, and micro traders find the same problem when they go into macro trading. Their techniques are all wrong for the new game they are playing– they are fish out of water. They take long term positions and they are margined out or stopped out by the swings designed to take chips from the poor, or flexionic moves. The micro trader going into macro trading might have lost to me because when I don’t have to be mobile, I can stay back and my strokes, the macro traders fundamentals, and if he works for a bank the unlimited potential that he has to withstand loss makes him an impossible adversary for the micro trader.

One guesses the moral is that the cobbler should stick to his last. And one should always be humble about any past success and realize that things are very different in the modern era.

Jul

5

 Michael Munowitz's Knowing: The Nature of Physical Law is a great book. All pairs attract and repulse based on proximity. Very relevant to bond stocks last week while away. A do si do.

Gary Phillips writes: 

I was lucky enough to buy spoos/sell bonds Tuesday morning feeling that the principals had traveled far enough apart, and would begin to attract to one another. I subsequently added 20% to my position the following day as their proximity increased and the attraction between them grew stronger. Unfortunately, I only covered a portion of my position on the payrolls number, and then the balance between attraction and repulsion tilted the other way. I hope that that the principals are simply taking a "step back" (covering short bonds due to a less than robust number), and that the attraction will resume next week.

Gary Rogan writes: 

Why is it more useful to look at unrelated things being attracted to one another vs. them getting to cheap or too expensive and reverting to some sort of a "mean" which would look like attraction if one is so inclined? Or if the yield on one sort of security is out of whack with respect to another and they equalize over time is this attraction or people buying for yield and selling expensive stuff?

Jul

5

 There is a nice passage in Going Solo by Roald Dahl. The Vichy French are their enemies and help to destroy any Englishmen trying to fight the Germans. Dahl's squadron passes over a Vichy airfield trying to neutralize it. Sure enough all the Frenchmen are showing off their aeroplanes to a group of attractive French girls in high heels enjoying some wine. Out of chivalry the British pass off the airfield to allow the women in their high heels to run into the hangars:

"We went round again, but this time we were no longer a surprise and they were ready for us with their ground defense and I am afraid that our chivalry resulted in damage to several of our Hurricanes. But we destroyed five of them on the ground."

Dahl's story contains innumerable examples of British incompetence in the control and direction of the air force in Greece and Egypt and it appears that 90% of the pilots there were killed, mostly unnecessarily. The fog of war and as in markets.

Jun

29

One found this article one of the most revealing I've read in sociology:

"Negatively Sixth Street"

Gary Phillips writes: 

I've been on the road for the last 8 weeks or so, traveling the eastern seaboard with my wife and 3 of our 6 (call it a partial fill). While I had envisioned a trip worthy of Kerouac or even Kuralt, the eventual reality presented was much more griswoldian. Nevertheless, traveling by car does allow one greater freedom, the opportunity to experience extraordinary scenery, and the ability to capture the charm of small towns and the inherent individuality of its people. It also allows one to step back in time to a place where the only cracks visible are in the sidewalks, and not above the baggy trousers worn by rapper wannabes. And, it serves to remind us of the civility that once was part of the rich heritage of this great nation.

One used to receive a hearty "you're welcome" or "it was my pleasure" when one expressed gratitude. The contemporary response appears to be "no problem", as if your social counterparty was doing you a favor. I once believed the ubiquitous sense of entitlement and 'increasing narcissism" I encountered was and primarily contained among the members of generation z, but was disheartened to discover the casual disregard of manners crossed generational, regional, and cultural boundaries. This phenomenon has been summarily rationalized as the result of the internet's effect on the way people communicate. And indeed, social media may have conditioned individuals to be expert parsers of language, meaning, and authorial intent. Perhaps the brevity of discourse does not allow for a subtext of manners and humility. But is it really anybody's fault? "For a flow system to persist in time (to survive) it must evolve in such a way that it provides easier and easier access to the currents that flow through it". According to constructal theory, a written language evolves to "connect" better to the masses. If the elements that constitute a language are complicated, the language will take too long to write and will be more difficult to remember, and global resistance will increase. On the other hand, if the language elements are too simple, the users of the language will lack precision. The meaning of words will be misconstrued. The natural evolution of written language, then, must head for a balance between the complicated and the simple, and twitter seems to fit the bill. And as with the case with language, technological advances in information technology have caused markets to quickly adapt to anomalies and present traders with less and less opportunities. Nevertheless, one may still find an oasis of civility here and there if one looks hard enough and lucky enough, and the same can still be said for trading opportunities.

Jun

29

 I just computed the rate of return of the web mistress's account at Scott. She doesn't know what the p/e is or the balance sheet although she is very smart and she can climb a pole and make more money per hour than most. In any case, it's about 50 percentage points a year higher than mine, (one almost runs into the problem that idiot savants from academia run into where they can't compute a negative p/e and fail to note that an e/p solves the problems but that would denude their results). In any case she had a few 20 baggers, including Netflix and Tesla, Facebook, and Disney. You might think that it's because of a meaningless low denominator, but we're talking 7 figures. One is tempted to stop trading, give all one's meager funds to Toria, and with the underpluss, see if I can negotiate the Medallion fee down to less than 50%.

Jun

26

 We're in the swing dance season where anything good for the republicans will be bullish for the stock market, (of course long term bearish for the individualist idea that has gone with the wind), but thank the Good One for the Supremes helping the Republicans by upholding the hateful law that has caused all so much misery, extra expense, and waiting endlessly in line, and filling out paper work rather than seeing your Dr.

anonymous writes: 

Anything that brings clarity to the level of corruption at the top such as important words being clearly interpreted incorrectly in full public view is long term positive. This counteracts the much more common gradual and deliberate shifting of those meanings to the point where everyone accepts them to be very different from what they were a few decades ago. This was an "emperor does have clothes because he clearly meant air to be considered clothes" moment.

anonymous writes: 

Every presidential cycle I break out Fear and Loathing on the Campaign Trail '72 by Hunter S. Thompson. It's like a checklist of how the campaign plays out. Plus, it's really funny. I'll start reading it soon once we know who is really running.

It was "the least factual, most accurate account" of the election, according to Frank Mankiewicz, Mr. McGovern's campaign manager.

I'm a big believer is in Hunter's and others' maxim that the truth is never told between 9-5 and this book just expounds on that.

Jun

25

 Will someone explain to me why news of Greece no deal is bullish for bonds, i.e what it has to do with the long term rate of inflation? And why news of a deal is bearish for bonds? Also while at it, why no deal is bearish for stocks and deal is bullish?

John Floyd writes: 

A market pundit might say (not a personal explanation): "if there is no deal in Greece that is bad for Europe and the ECB will have to do more QE and buy European bonds to get confidence up, growth up, and inflation up, that would be bearish for the Euro, the uncertainty around no deal is bad for stocks in the short term." On the next contradictory headline you can expect the mirror image response.

Alston Mabry writes: 

From the cheap seats: no deal for Greece, or even Grexit, means a mini-catastrophe, where lots of players will be looking to get out of certain positions and move to safety until the smoke clears and we find out if a Greek exit actually raises the possibility of Portugal or Spain leaving, too. So in this case, Treasuries = safety.

John Floyd writes: 

As I sit and watch the headlines on Greece I can't help but recall similar headlines and market reactions prior to the Russian default on August 17, 1998. Hopefully I have learned at least one thing since then. While not financially ruinous, and actually profitable in many ways, it was amongst other things a tiresome and loathsome experience getting up at 1 a.m. NY time to watch the latest headlines and developments.

The first lesson would be to attempt to recognize an untenable position from a macro economic and geopolitical standpoint in the medium to long term. A corollary is to not position investments with the thesis that an untenable position will be resolved in the short term and provide profits.

The wolf of the markets will at some point overpower such a short term view. The PIGS in the periphery perhaps might have their houses and building materials tested further. The wolf will have to be careful though as the cauldron waits in a house and may try and stymy speculative avenues.

Jeff Rollert writes: 

In a "normal" world, a large debtor defaulting forces participants via systematic transmission to add Treasuries/AAA bonds to portfolios to return to the prior risk/reward or VAR state for a window of time until asset recovery levels become apparent.

Jun

22

I haven't read this story because it's in the Times, but it would seem that with all the centrals and internationals hovering about with all their flexionicism in play, and the US backing them, (the agrarian chair from Brooklyn stated there is a contagion effect) to signal where we stand, that somehow a few billion of emoluments will be found, printed, or funded.

"Dealbook: As Deadline Looms, European Central Bank Plays Key Role in Greek Crisis"

Jun

22

 I like the part of The Boys in the Boat where the freshman coach pretends that Cal can beat them handily. The necks of Cal swell even further making it even for Washington to cut them off. I followed the same principle in squash, and never admitted that I had a chance to win. I also never admit to a profit in the market for the same reason. It will be interesting to hear what Mr. Rafter has to say about The Boys in the Boat because he has won many national rowing championships. In particular the wisdom and ability of George Peacock, the world's best boat builder, whose materials in wood have now gone with the wind.

David Lillienfeld writes: 

The beauty and terror of baseball is that there is no clock; and the second you stop thinking about the next pitch, you are on the way to losing no matter how big a lead you have.  What made last year's 7th game so good is that neither team ever once lost that focus; the game score was as close as one can be, but neither team ever for a moment got "tight" thinking about the end result before play was over.

Alston Mabry writes: 

Yes, in games like basketball or football or soccer, you can work the clock. But baseball and tennis have that exciting element of the game not being over until it's over.

anonymous writes: 

I have had the pleasure of seeing some true greats in action over extended periods of time in the markets. The only time these guys really lost any money was when they ignored time.

A fixed clock on any speculation in the organized macro markets is vital in my opinion and experience.

Unlike most things we discuss, the addition of fixed clocks (or predetermined holding periods for individual speculations) is actually countable and its efficacy is testable.

Jun

20

 As I continue on my arduous journey for selecting and also constantly keeping traders at their A-game, I was wondering if Vic, Brett or others on the list have any experience with how Sports Psychology could be used with Traders.

A competing athlete goes through pretty much the same psychological challenges that a trader goes through…and I was wondering if any research had been done on this subject.

Mental training helps athletes perform more consistently, find the zone more often, keep a winning streak alive, and learn how to think well under pressure. Or, as one sports psychologist put it, mental toughness is "the ability to consistently perform toward the upper range of your talent and skill regardless of competitive circumstances." As psychologists debate the roles of genetics, environment, and learned skills in determining mental toughness, they do agree (along with athletes and coaches) that high levels of mental toughness are associated with athletic prowess and success. In fact, mental toughness (or "grit") may be the defining factor between finishing at the front of the pack and not finishing at all.

Any thoughts from Specs would be welcome.

Victor Niederhoffer writes:

One would turn to Galton as one should on most areas involving human faculty. The key to athletics success is the sports gene. A key to trading success is intelligence. I would also look to the circle of friends, colleagues and influencers that a prospective employee has. Is he benevolent or a hoodoo. Beware of the hoodoo, and stay with the ones that create benefits for those associated with them.

John Netto writes: 

Sushant. I would read Market Mind Games by Denise Shull. It's excellent and will be a nice resource on your journey. Good luck.

anonymous writes: 

Ability to learn from and then put losses behind them. The inevitable mistakes being made are then analyzed, learned from, improvement sought, and then move on without negative baggage and lament about what could have happened.

Longevity. Injury, early retirement, or large losses do not afford one the ability to succeed.

Independent thought. A Zen like ability to follow one's own methodology and ideas in a non-conformist fashion, yet to balance with the ability to absorb appropriate outside information

Simple hard work. The will to stay out on the field longer than anybody else. Think Jerry Rice, Marcus O'Sullivan, Patrick Kane, Michael Jordan. 

Brett Steenbarger writes: 

Frankly I think the best writing on the topic is your account of your racquetball career. I agree that mental toughness is important, but all the toughness and repetition in the world won't be helpful if a person is working on the wrong things. I continue to find that good trading makes for good psychology just as often as the reverse.

Larry Williams writes: 

The mark of all greats is the ability to come back from behind.

Hernan Avella writes: 

From Handbook of Sport Psychology. Gershon et al.

"Personality traits like dispositional self consciousness, reinvestment and trait anxiety have been associated with predictors of performance failure. Research has also demonstrated that giving athletes practice at dealing with the types of attention demands that performance pressure induces can reduce sill failure when the stakes are high. Also, that preventing athletes from acquiring the type of explicit knowledge that pressure may exploit to begin with may also help to quell the negative effects of stress at high levels of performance."

Paul Marino adds: 

I had a long discussion today with my father regarding choosing the humble person over the boisterous kind of person in any of of life's dealings, from the dry cleaner or barber to your doctor or broker. I tend to get less agitated around the humble and have an easier time speaking my mind. If my physician was loud I might not tell him as much about my life and habits as I should. It's what works best for you that counts, like in any system, trading or otherwise. "Know thyself" may be the best known and least used maxim of all time. 

Jun

20

Ratio used to be a favorite of value investors and is still used to separate growth from value in some metrics, always showing that growth beat value on a prospective basis. The return on capital is a much better metric. As compounding works wonders. P/b has been the standard since 1970, and has caused almost as much mischief and wrongful, hurtful studies as pairs trading.

Jun

19

 My current challenge is onboarding approximately 200 new traders in the next three months. While we have built sophisticated tools, systems, risk models etc., I have been becoming a bigger believer of the concept that "Who we are as individuals is how we trade in the markets'. I have compiled some of my own weaknesses and strengths and am trying to build a matrix of self-cognition for other traders to follow. It would be great to get the groups feedback on the thoughts below.

•Ambitious

Makes and follows long term business plan

•Unambitious

Will ignore long term business plan

•Calm

Will handle times of market volatility and make smart decisions

•Worrying

Will panic when markets are volatile and make stupid decisions

•Cautious

Strictly follows Stop-Loss rules and Protects Trading Capital

•Rash

Will not be diligent with Stop losses and will risk trading capital

•Cheerful

Handles losses and down times in markets

•Gloomy

Gets depressed when facing losses and makes poor decisions

•Well-Organized

Daily updating charts, indicators, business plans, Economic calendars

•Disorganized Too many charts, irregular updations, too many instruments

•Flexible

Willing to change view on market based on where the market is going

•Stubborn

Sticks to own views and will fight the market even if he is wrong

•Hardworking

Puts in the hours required for daily research, trading and journaling

•Lazy

Trades based on mood, not bothered with daily research and journaling

•Honest

Accepts his mistakes made while trading and tries to improve

•Dishonest

Does not accept his trading mistakes and blames the market

•Practical

Understands and acknowledges that every day is different in the markets.

•Impractical

Tries to treat every trading day as same and forces his trading style

•Punctual

Follows a strict daily trading routine based on market hours and economic releases

•Late

Irregular with trading hours, does not strictly follow economic calendars

•Logical

Understands why markets are trading up, down or sideways and trades accordingly

•Illogical

Will focus on personal profit or loss to determine trading strategy

•Modest

Grounded and humble after making good profits - knows that he can lose it all

•Conceited

Thinks he has 'figured out the market' and feels he can always beat the market

•Not Envious

Focuses on personal trading results and how to improve his own trading

•Envious, Jealous

Is troubled by the results of other traders and loses focus on improving his own trading

•Peaceful

Has the ability to maintain an inner peace and composure during extensive market moves

•Quarrelsome

Is constantly agitated at every up or down move of the market and keeps fighting the market

•Persevering

Keeps trying no matter what happens and does not give up till he starts becoming profitable

•Quitting, Fickle

Gives up too soon if faced with trading losses and blames the market for his failure

•Polite

Because he is polite, he can learn from other traders and benefit from expert knowledge

•Rude

Because he is rude, he is unable to build a network of successful traders and misses out on the learning community

•Responsible

Realizes that he needs to do whatever it takes to support himself and his family and trades systematically

•Irresponsible

Thinks only of himself and takes rash trading decisions - often willing to gamble it all.

•Secure

Understands that trading takes time to become profitable and plans his personal expenses accordingly

•Insecure

Is looking to reap profits in trading from day-one and cover living expenses - makes rash decisions

•Thorough

Will only trade based on defined entry and exit rules

•Careless

Will trade based on mood, greed and fear

•Thrifty

Will ensure that he trades less to keep the commissions low

•Extravagant

Will overtrade and land up giving up all the profits in commissions

•Reliable

Builds a consistent track record of trading profits and can raise outside funds to manage

•Undependable

Inconsistent track record means no one will give him additional capital to manage

•Forgiving

Realizes that all the trading results are of his own making and does not blame markets

•Vengeful

Will revenge trade the markets in order to recover losses

•Self-Disciplined

Follows all the rules of trading and DOES NOT find excuses for breaking the rules

•Weak

Willed Breaks trading rules often based on feeling fearful or greedy

•Rational

Always analyses profits and losses and accepts where he got lucky and where he made a profit based on his strategy

•Irrational

Does not differentiate between getting lucky and making a profit based on trading strategy

Regards

Sushant Buttan
Founder and CEO

Brett Steenberger writes:

Interesting! The internal research we did suggests that cognitive variables are more important to profitability than personality variables. Personality variables had a strong relationship to trading style, not necessarily to trading outcomes.

Pitt T. Maner III writes: 

You are looking for professionals who respond to what seem to be the characteristics shared by most successful traders. But you can not standardize a trader, it's not a HFT robot.

For example, this morning I found this:

Bridgewater's Ray Dalio Simple Advice For Success: "Think Independently, Stay Humble"

and

"machine learning is the new wave of investing for the next 20 years and the smart players are focusing on it.

"Bridgewater Is Said to Start Artificial-Intelligence Team
"

Sushant Buttan responds: 

Thanks for the feedback. Much appreciated.

The responses are interesting and in some cases the qualities of a good trader seem to be diametrically opposite to the qualities in the list I posted…definitely food for thought. Vic, please feel free to post on the Daily Spec…would love to get as much feedback as possible. Thanks.

Victor Niederhoffer writes: 

Mr. Buttan's List is a good list for a spouse I think. As to whether they are good for traders' success, one would not know. Some of the best salesman and traders are totally disreputable. I would think that one key thing for Mr. Buttan to do is to do as much of the trading in house as he can, thereby eliminated slippage and bid asked spreads and capturing profits for the house. Indeed if Mr. Buttan were to make his trading floor a central exchange for all Mideast trades, so that he can capture the spread, I think his idea might work. MFM Osborne always wanted to create an automated market making system, and it would be great to see that developed to ones' profit. I have a query for Mr. Buttan. Does he want me to put his list up on daily spec. It's a seemingly useful list, and it might get him some helpful feedback. Galton always said the most important qualities for success were health, persistence, organization and a modicum of ability. One would recommend reading his work on eminence, which Jeff seems to have readily available. A good library would be great as a foundation for his traders.

Brett Steenbarger comments:

Yes, persistence in particular is important. The research on "grit" is relevant in that context. It is not necessarily the case that positive personality traits are associated with successful trading. Some of the highest Sharpe ratio PMs I tested score surprisingly high in negative emotionality. It is their fear/concern with the downside and overall vigilance that helps them achieve good risk-adjusted returns and avoid overconfidence biases. I would think putting the list on the Spec List would indeed generate useful input.
 

Jun

19

 Can one predict with all the trillions swashing around, and the ability to print money, and all the countries meeting to save their perks and flexionism, and the Greek stock market vigilantes down 15% in a week to make sure there is a deal, that a deal will be made. And it will be flimsy one. That as soon as it's made, it will be like the two 8% drops that occurred back to back when the bail out deal first was missed and then was made.

Jeff Watson writes: 

Greece's GDP is a little over half the size of the Dallas-Ft Worth Metroplex GDP. As far as the total Eurozone GDP is concerned, the Greek GDP is a metaphorical rounding error. If France and Germany are going to get screwed, they control the ECB and can print some more money. But news and concern about the Greeks suggests that the flexionic cowboys driving the herd this way, then that way, their Border Collies nipping at the heels of the herd.

Jun

19

 "When by extraordinary chance, one has gained some great advantage or prize and actually had it in ones possessions and been enjoying it for several days, the idea of losing it becomes insupportable."

Thanks to Richard Owen for augmenting my book collection with My Early Life describing the feelings not of making a speculative coup and fear of giving it back, but of elation at being rescued and fear of capture by secreting oneself on a train.

Jun

19

A rumour that is interesting

.

You’ve Been Warned: Central Bankers Turning Less Market-Friendly
" by Simon Kennedy

Anatoly Veltman writes: 

I think the point to ponder is WHO planted this rumor on the eve of the fact. And the fact indeed was and is: what actual hike can be contemplated while faced with the emergency of keeping Monetary Union? Absurd. So, again: everything is done to prop the impression that hikes are imminently contemplated, while they are not even possible. Which loops back to the suspicion that articles are planted

anonymous writes: 

This is not a new thought for central banking and other authorities, pre Bernanke’s speech that in part caused the taper tantrum, and the Fed to back off, this was a hot topic within said circles and in part instigated his speech.

Jun

17

 I thought it would never happen but it did. One person in this humble trading operation bought at a price, and the other person sold at the same price. Thus, we were guaranteed to lose, and the brokers were guaranteed to win. I suggested that if this were to be a template, we would be guaranteed to go bankrupt and the brokers would become infinitely wealthy. I would ask the brokers to send us a fish dinner to encourage us and reward us for this terrible thing, but I don't think they would get the drift of why it's so great for them.

Russ Herrold writes: 

Certainly, IBKR understands and matches quite intentionally 'crosses' in house at once, before ever exposing the net delta in position to an exchange. It is part of their disclosures

In designing my order management system I also set it so that it flags an exception event when short 'trading' positions, would cross against long term 'investments', and offers a simple journal entry to avoid the commissionable 'trip'.

Victor Niederhoffer writes: 

To say nothing of their ability to take the other side of trades when their customers are stopped out for margin. According to one list member, they proudly acknowledge this in their conference calls. And one often sees huge bids below the market when the market is down big, and assumes that it is such an entity on the other side. In all fairness, however, I know from others that they give you a warning of 2 seconds or so and you can forestall being stopped out if you get the wire for your new margin to them within that 2 second window albeit, you might have as much as 2 minutes if you receive the margin call in the evening when the banks are closed. 

anonymous writes:

Yes, they might consider handing out copies of "duel momentum" to all of their advisor customers, particularly the ones utilizing portfolio margining. 

Stefan Martinek writes: 

BTW, momentum made D. Harding (Winton, AUM ~30B; track record) one of the richest guys in the UK. (Harding on momentum) .The other point is that the "dual momentum" = absolute + relative momentum is used by traders since eternity, "discovered" by academics in 70s, and discovered again in 2014 by Mr. Antonacci. 

Jun

15

 "There is no reason why they should not be used by all momentum investors." :"Momentum and Stop Losses"

All traders are invited to the party.

p.s. Don't forget to send a thank-you note.

anonymous writes: 

This guy is making quite a name for himself of late. Book has been well received by Quant community. I had an advisor tell me that he thought Dual Momentum was the most important book ever.

Victor Niederhoffer writes: 

There is hope with useful idiots like this.

Ed Stewart writes: 

My thoughts exactly. More juice for the sprained ankle trades of all kinds, among other things.

anonymous writes: 

If you look in the mirror often enough, you will actually believe you look good for your age, until you see a photograph of yourself, and realize how much you've aged. This perceptual bias may be the result of the repeated exposure phenomenon. I see myself in the mirror everyday while I brush my teeth, and shave. My glances into the mirror are incidental and repeated on a daily basis. On the other hand, I rarely look at photographs of myself. No facebook, no selfies. The resulting effect is a psychological phenomenon by which people tend to develop a preference for things merely because they are familiar with them. Therefore, I have developed a bias due to the frequency of exposures to my image in the mirror. It has been determined that changes in affect that accompany exposures do not depend on subjective factors such as the subjective impression of familiarity, but on the objective history of exposures, and even more interestingly, when exposures are subliminal they are frequently liked better. It's not difficult to become subliminally seduced if one allows themselves to be exposed to a myriad of mumbo-jumbo.

Jun

15

 A turn to the Origin is always good to put the moves of the markets most beautiful and wonderful and often circling back to the beginning according to the fixed laws of gravity, constructalism, and flexionism after a week where SPU begins and ends at the exact same level.

It is interesting to contemplate a tangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent upon each other in so complex a manner, have all been produced by laws acting around us. These laws, taken in the largest sense, being Growth with reproduction; Inheritance which is almost implied by reproduction; Variability from the indirect and direct action of the conditions of life, and from use and disuse; a Ratio of Increase so high as to lead to a Struggle for Life, and as a consequence to Natural Selection, entailing Divergence of Character and the Extinction of less improved forms. Thus, from the war of nature, from famine and death, the most exalted object which we are capable of conceiving, namely, the production of the higher animals, directly follows. There is grandeur in this view of life, with its several powers, having been originally breathed by the Creator into a few forms or into one; and that, whilst this planet has gone circling on according to the fixed law of gravity, from so simple a beginning endless forms most beautiful and most wonderful have been, and are being evolved.

-Charles Darwin

Stefan Jovanovich writes: 

The tangled bank is Darwin's theology; no one, certainly not John Murray (his publisher), forced Darwin to insert and keep the phrase "by the Creator" into the 2nd and subsequent editions. Blaming "popular pressure" is a libel on the pubic which embraced Darwin; the demand from the public is what caused Murray to print another 3000 copies (what would be 300,000 now). The criticism of Darwin's views about God and Nature came entirely from the schoolies.

There is no question Darwin ceased to believe (if he ever did) in the literal truth of Jesus' resurrection. In that regard he was following a hundred years of apostacy going back to George Washington and Voltaire and Hume. What he believed in was the miracle of life itself, what Washington called Almighty Providence. As to the origins of that miracle– as opposed to the laws that governed life's evolution, he declined to offer any opinion and was happy to have his remains left in a church with the memorial markers conventional for that time and place.

Jun

15

 One believes that the properties of random numbers with the variance = to the duration times the initial variance is not only why fires have a height equal to the breath but why 99% of observers see trends in time series when they are properties of random numbers.

anonymous writes: 

Not unlike the sandpile. If one randomly drops grains of sand of onto a sandpile, the pile will grow and the slope will build up until the slope exceeds a specific threshold value, at which time the sandpile will begin to collapse.

Jun

11

 The surfing grain trader's post brings to mind the fine performance of Guys and Dolls one saw at the goodspeed last Saturday, as well as the sordid life of Titanic Thompson on whom the character of Sky Masterson was developed. And a bit of counting inspired by the surfing grain trader.

Given we were NOT red or NOT green or NOT yellow or NOT blue yesterday,(lets call that a failure ), what is the duration until the next occasion of a success.

Duration to next success after a failure yesterday of 4 colors 2007 to date:

     after green   4.7 days
     after red     8.4 days
     after blue    3.6 days
     after yellow  3.0 days

Green is both up, red is both down, blue is bonds up, S&P down, yellow is  bonds down, S&P up.    The unconditional chances of green, red, yellow, and blue were
respectively, 0.21, 0.12, 0.30, 0.33.

One leaves it to the reader's judgment whether this sort of counting can compare in its utility to that of the surf grain trader.

Jun

10

 HK Stocks Retreat as Fever Case Sparks MERS Speculation - News Item

Chinese Stocks Drop for Second Day After MSCI Defers Inclusion - News Item

Many areas of interest in this article: "a woman in China is being tested for fever". And after a 100% rise it's scary that "Chinese stocks drop for a second day".

Andrew Goodwin writes: 

The Chinese quickly move to quarantine entire towns as they did in Yumen.  When they find an illness, you get trapped if you do not flee on the rumor.  The practice of mass quarantines raises the spectre of a panic if rumor gets to too many ears before they perfect the envelopment.

Jun

10

The lords in the Fed have a dilemma. On one hand they wish to keep the agrarians in office. And they know that if they raise rates, the economy will slow. On the other hand, the longer they keep transferring wealth from the “total” to the holders of short term wealth, the greater the ultimate rate of inflation.

Jun

8

 A lesson that the worst error you can make in business is to get in over your head. Whenever Tom Wiswell was in a complicated game, he'd say, "I'm in over my head. I better simplify." Tom was undefeated world 3 move champ for 25 years before retiring. I also believe that if you start a business or trade with a flimsy foundation, it will lead to a debacle. I have had experience making both errors frequently.

What brings this to mind is a visit to the Peabody museum where they had a nice exhibit on the life of the Samurai. They tell the story of the 47 ronin very well. I have subsequently read a few books on the story and find that the thing that caused it all was the Shoguns edict to ban killing of any animals, especially dogs. When they died they were buried with honors and transported to their funeral on a Pallatine by loyal servants. This caused widespread famine, and unrest among the samurai. And it led to daimyo Asano getting so disgusted that the Kira insulted him one last time (one story has it the romance was the last straw), he struck Kira with a dagger leading to the whole tragedy.

It should be noted that the loyal retainer, Oishi, planned the revenge when he wouldn't be in over his his head. A good story, some good lessons and a good book by John Allyn.

Jun

8

This article on a pairs trade has more mumbo jumbo in it than can fit in a big barn. And it brings to mind the absurdity of pairs trade in the first place, and how much money is lost in trying to implement, and how great it is that almost all the short funds have gone into oblivion, that such funds and ideas still provide us with trillions of dollars more that those who look to the drift can fletcherize. One notes a comparable set of "opportune " articles that the "Dax has entered a bear market today".

"How to Play a U.S. Trucker Pair Trade Rising Off Five-Year Low"

Jim Sogi writes: 

A Former Fed Governor mentioned in an interview that I think Mr. Chair posted mentioned that there was a shortage of truck drivers in the work pool. Not enough could qualify by having no criminal convictions, sober, commercial license, and the ability to add and subtract.

Jun

8

 I have often walked down the moving average street, but I like to look at what number for the average elicits buying so as you get near it, you can hope for a nice change in the distribuion of subsequent changes. I like to stop and stare at the amount that the curent price is above moving averages of different length and look at the expectations that follow various amount above and below. The changes in direction of the moving average have also been of interest. And the first advisory service I ever bought in commodities was called 'the cumulative average'. 60 years ago I bought it.

Ed Stewart writes: 

In 2012 I applied a 10 - 20 moving average cross to VIX trading product as an example showing the propensity to trend downwards in those markets, do mostly to the massive contango effects that were even more severe at that time - I also noted that every single MA combination worked in a wide range. A guy has continued to track that simple MA cross in XIV (inverse VIX etn), and it has continued to work, often much better than "sophisticated" multi-factor systems. I have had a great deal of luck trading the VIX futures with a combination curve slope, moving averages, and my preference for getting a period after a (seemingly) failed breakout of elevated volatility.

My thought based on this is that if one has reason to believe a market has a great deal of trend persistence yet timing might still be an issue, the simple MA approach seems like a good or reasonable tool. It's not the tool or technique itself so much but the features of a market that count and define if an idea or tool might work.

On the distance from MA idea, I like to do a similar thing but use mid-point of an X period range or a point like open, close, or other specific time.

Gary Phillips writes: 

"It's not the tool or technique itself so much but the features of a market that count and define if an idea or tool might work."

Good point. Any technical information and inferences made from using this or related indicators reflect not a primary but a secondary process that involves compliance of the indicators with fundamentals and/or a cognitive bias. However, indicators that are derivatives of price, track price changes; and, if there is persistence (the future is like the past) they inevitably end up contributing to the myth that they are predictive.

Stefan Martinek writes:

I think the best tools/techniques "learn" from the market and use the data features in some way (e.g. market specific level of noise, noise "memory", etc.). This is why I never use MAs or anything that has MAs inside where we arbitrarily via parameter selection force our views on data. Good techniques are usually adaptive and ask data what parameters are preferred now.

Jun

5

One wonders how a 30 year yield of 3.1 % and 10 year of 2.4% might impact the economy negatively and whether that will give pause to hawkish activities especially before an election. One wonders also how the inflation adjusted bonds fit in with these numbers.

John Floyd writes: 

The 5y5y inflation swap [see chart below] has remained in a range, the election and/or referendum to watch may be the one in Greece, which I would say is greater than 50/50 probability of occurring, that is likely to have some impact on Bunds and UST, and the sirens of Fed and ECB don't seem quite confident on economic growth.

Jun

4

Janine R. Wedel will speak about her book “Unaccountable: How elite power brokers corrupt our finances, freedom, and security.” She is a previous Junto speaker and a Professor in the School of Policy, Government and International Affairs at George Mason University. Meeting starts at 7:30pm, main speaker at 8pm. Location: General Society Library, 20 West 44th St., ground floor, New York City. All Dailyspec readers are invited.

Jun

3

There has been a subtle change in the comovements and contramovements between bonds and SPU during the same day in 2015 from previous years. Given that bonds are down the conditional prob of stocks being up has been 60% in 2015, 80% in 2014, 68% in 2013, 82% in 2012, 79% in 2011. Given that bonds were up, the conditional prob of stocks being up has been 38% in 2015, 48% in 2014, 51% in 2013, 30% in 2012, 31%% in 2011 note that these are movements during the same period, not leading in any way. Assuming perfect knowledge, it would be useful, but it is purely descriptive. However, what the descriptive tab shows, is that comovements , the red and green in our tabs, have been relatively more numerous this year, than in previous years. Indeed there were 39 comovements so far in 2015, and 62 countermovements, giving comovements as 38%. In 2012, and 2011, the comovements were just 26% of the total.


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Jun

2

 Yet another class of bears—- the peg ratio. And a lonely voice of reason—- the discount rate– and Peter Lynch, the man who never read a book or went to the opera.

"Lynch’s Secret to Finding Value Discovers Little in S&P 500"

anonymous writes: 

It's unfair to say he never went to the opera. In fact it was his interest in musical performance that got him fined by the SEC–Twelve musical concerts and many sporting events. He made the mistake of never taking along even one of the execution brokers who provided the freebies he actively pursued.

It's often the company one keeps that determines one's results and one's customers' costs. It makes it impossible to trust Lynch's comments on S&P valuation as meal substance when he misdirects about opera attendance v. football attendance as a validity of one's personal measure.

SEC case links here and here.

Jun

1

 An excellent book is The Wool Trade in English Medieval History by Eileen Power, the "most interesting woman" of the 1930s. Shows that they counted every aspect of the sheep better than technicians do their counting today. Also shows that the entire English Constitution devolved from the free markets of the pastoral shepherds and the exporters versus the merchants of wool in medieval times.

The wool entrepreneurs developed into the middle class of England from whom the industrial revolution, the constitution,and prosperity evolved. A typical passage:

In these baillifs accounts, the long rond of the shepherd's year unrolls itself like on of those horizontal Chinese scrolls that have taken one from spring to winter by the time the eye has traveled along their length". In the manorial roles sheep were carefully divided into ewes, wethers and yearlings, lambs, and there was set down the number with which the reeve started the year, the numbers added by purchase or natural increase, lost by disease, sold or given in tithes, (the number that disgraced themselves by not giving progeny) and the number left at Christmas when the account was drawn up. Of course every purchase was accounted for, and balanced with the ending sales to wholesales.

A great admirer of Eileen Power to whom I owe the introduction to this great scholar is Tracy Quan   whose books and persona are equally scholarly and interesting.

Stefan Jovanovich adds: 

 Amazon has a free Kindle edition of Power's best seller from the 1920s: "Medieval People"

(Caution: Historical Hobby Horse in Use) Power was a colleague of Norman Angell, Ramsay MacDonald and C. P. Trevelyan in the Union of Democratic Control - the last "pacifist" organization that was not simply a front for the Comintern.

What Angell wrote about the Grand Illusion of Imperialism is still true and is worth considering in light of recent efforts to find a new cause of war in the South China Sea:

"wealth in the economically civilized world is founded upon credit and commercial contract (these being the outgrowth of an economic interdependence due to the increasing division of labour and greatly developed communication). If credit and commercial contract are tampered with in an attempt at confiscation, the credit-dependent wealth is undermined, and its collapse involves that of the conqueror; so that if conquest is not to be self-injurious it must respect the enemy's property, in which case it becomes economically futile. Thus the wealth of conquered territory remains in the hands of the population of such territory. When Germany annexed Alsace, no individual German secured a single mark's worth of Alsatian property as the spoils of war. Conquest in the modern world is a process of multiplying by x, and then obtaining the original figure by dividing by x. For a modern nation to add to its territory no more adds to the wealth of the people of such nation than it would add to the wealth of Londoners if the City of London were to annex the county of Hertford."

Angell was equally prescient about the Balkan Wars and their danger:

"The fundamental causes of this war are economic in the narrower, as well as in the larger sense of the term; in the first because conquest was the Turk's only trade -he desired to live out of taxes wrung from a conquered people, to exploit them as a means of livelihood, and this conception was at the bottom of most of Turkish mis-government…..

"If European statecraft had not been animated by false conceptions, largely economic in origin, based upon a belief in the necessary rivalry of states, the advantages of preponderant force and conquest, the Western nations could have composed their quarrels and ended the abominations of the Balkan peninsula long ago-even in the opinion of the Times. And it is our own false statecraft-that of Great Britain-which has a large part of the responsibility for this failure of European civilization. It has caused us to sustain the Turk in Europe, to fight a great and popular war with that aim (he is referring to Crimea), and led us into treaties which had they been kept, would have obliged us to fight to-day on the side of the Turk against the Balkan States"

Jun

1

Many ask me why I don't adjust % wise rather than algebraically. A good reason is that the algebraic volatility of the market has not changed in 20 years. In other words the stand dev of a daily change was 14 in 1996 and is 14 today.

Period                          ending lvl      stand dev

12 30 1995- 12 30 1998        1413               12

12 30 1998  12 30 2001        1144               17 

01 30 2001 12 30  2004         1204               11 

12 30 2004 -12 30 2007        1356               11

12 30 2007- 12 30 2010        1520               19 

12 30 2010  12 30 2013        1801               14

12 30 2014-5 30 2015           2108               14    

Another set of mumbo jumbo shibboleths lands in boot hill.

anonymous writes: 

You may have a great point, and no one can force you. Let's hope the market won't either, lol…

My greatest problem with 20 year stats is that they reflected entirely different forces, rules and even psychology (AI is certainly different from humans). Of greatest worry is that cost of money has never been similar to current period, and so all the areas of the business of banking. That calls for changes in investing assumptions, which shouldn't kept static throughout.

May

28

Moves in Japan versus China which were down 7% yesterday to 30 day low recalls the story of tortoise and hare.

anonymous writes: 

No need to run. You have to start on time. The story repeats itself.

May

26

 It is common in athletic events for the sagametricians to say at certain points, things like "the home team has won 87% of their games when ahead by 2 or more run in the seventh inning." Or "the bigs have gone on to win 92% of their 7 game series when they win the first two".

Most of these utterances are completely consistent with randomness. But the question emerges: is there a time in the market when the scales are taken out and Zeus decides whether Achilles or Hector will win the battle based on the calculations from his sexy partners or even his own volition. I would hypothesize that 1:30 pm Eastern Standard is the key hour where the scale is tipped and the market decides whether to head further up or down.

David Hillman comments: 

Exactly the hour when our dear departed Ed's 'big boys' return from lunch sated by filet or dover sole and are deciding if they will dine with their sexy partners that evening at Daniel or take them to Nathan's for a full dress dog. No more testing of the hypothesis seems required.

anonymous writes: 

I believe that there is much to this post from the Chair.

Much of the difference in technique required to trade different financial instruments is due to this type of error in my opinion.

These points are open to conjecture but they are certainly thought provoking:

To say something like, "every time the Dow does X then the result has been Y with such and such summary statistics over the past 100 years". Arguably it has some pitfalls in common with the sports analogy, namely, the composition of the stock index (sports team) has not been constant over the entire test period and so one may not be comparing apples with apples. This is mitigated somewhat by phenomena with a relatively larger number of occurrences.

Stretching it a little more, the LA Lakers team of Magic Johnson and Kareem AJ (wow! What an era - do you remember the playoffs against Boston in the 1980s) is different from that of today. The "Y when X" piece may continue but I think it is these type of statistics that end in Black Swan events. With AAPL being in the DOW, the index arguably has different characteristics than when when U.S. Steel ruled the show.

It is my view that analysis of the major currencies does not suffer from any of this as a JPY is a JPY is a JPY. By the same token one should consider theoretically calculated EUR data before its launch as trash and one may need to change analysis if Greece were to depart the single currency. I believe the same is true of commodity futures markets (grades, etc aside).

May

25

 I read a terrible story about why children are abandoning baseball from Forbes based on a WSJ story of same title.

Stefan Jovanovich comments: 

Baseball was never the "default" sport for young children. The ball is damn hard and a good one has always been expensive enough to be worth stealing. It was the sport for "grown-ups" that you could hope to play when you got big enough to keep up. Until then, you would play catch with your family adult (thanks, Mom) and use a tennis or rubber ball to pitch and hit with your neighbor/brother/sister, using the barn/garage for a backstop. It took years of those repetitions before you could even hope to play well enough to keep up with the men and have it actually be baseball. The game flourished in all the places where men played the sport and let children join them. That is why it still flourishes in all the places where men and their children play it together for fun– the American Southeast, the Dominican, Cuba (although that is dying), South Korea, Japan. Little League was baby-sitting and adults pretending to teach the game instead of simply showing how it is done out on the field against each other. 

Paul Marino writes: 

 This story lends no credence to the fact that southern states play baseball year round vs more northern regional leagues and the population disparity between the two. Baseball is a regional sport on all levels, pro on down vs football and basketball which are national sports.

Also, this article makes no reference to global, specifically lat-am baseball which is a religion in places such as Cuba, DR, PR, etc. last I checked Puerto Rico is part of the U.S. Unless they default on their munis. Plus immigration will lead to a generalized balance in players against the author's "the Great Recession no-baby meme" which has had us all feel poor as humans since they state red the meme. I can tell you my family and friends in their 20-30s are having babies, just a little later in life.

The article would have been more relevant to US if distinguishing the lack of African Americans choosing basketball and football over baseball. White kids will always play baseball at one point or another out of love of the sport or parental pressure to do something where you can't get too hurt. 

Stefan Jovanovich replies:

If Paul means that baseball is "regional" in the same sense that hunting/shooting is "regional", I agree. But the notion that "white kids" will play baseball at one point or another because of "love" or "parental pressure to do something where you can't get hurt" seems to me very far off the mark. No one in their right mind "loves" baseball; it is so relentlessly demanding that it has minute-by-minute failures. There is no room for the fantasy of "we are the champions" that football (American and world) and basketball allow. The best teams in baseball have won-loss records that would disqualify them from the Champions League or the basketball or football playoffs; and the home-away advantage is trivial (52-48%) while, in the other sports, it is nearly overwhelming. It is like chess; you either have the addiction or you don't see the point.

None of this says anything about the game's popularity as a spectator sport. People now love going to professional baseball games more than at any time in the past because: (1) compared to basketball and football ticket prices, it is still a very cheap date, (2) it is like visiting the old amusement parks like Elich Gardens - you can stuff yourself silly while walking around and you don't really have to watch the game, and (3) unlike almost all the other public spaces in American cities the parks themselves are not dumps. Coors Field in Denver, which is a delightful place to see a game even if the altitude makes the game itself seem like a parody, is the 3rd oldest baseball park in the country. Only Wrigley and Fenway are older. 

Paul Marino adds: 

I should clarify "love" as in the love a child has for a player and that gets them interested in playing, the other love is the kind I had where I played for 15 years and got into the minutiae of the game over time.
 

May

25

 It is regrettable to see Goldman forecasting $45 oil along with concomitant declines in all other commodities. And one wonders what the agenda is for such absurd forecasts and whether it is possible to make money by systematically coppering such self serving things.

Anatoly Veltman writes: 

Not sure what they are seeing in other markets, but the supply side of oil remains hard to abruptly turn– thus their reasonable projection. Subdued energy price is also a politically correct position, so not much near term headwind there. But eventually, yes: absurdly low oil was always resolved via war initiative by a foreign power.

May

23

 1. Germany is a semiconductor that expands energy in other markets in the East and West.

2. The Upside Down Man and the 100 Million Man, formerly his partner before and after Harvard, talk a much better game than they play. The more bearish they are for stocks, the more bullish it is.

3. The more the media feature startling bearish forecasts, the more bullish it is.

4. The cobweb theorem holds for all markets.

5. the low vol in the stock market during recent days can't continue because the public would not lose enough if it continues.

6. Sales growth is much less important for stocks than profit growth.

7. The agrarian reformers at the Central Banks will not allow cattle trading operatives to recede.

8. The leaks in Brussels to hedge funds were rampant and premontory. They will arabesque to other forms now that early release to the media of the transcripts has been curtailed. The good one knows how it plays out in other countries.

May

21

 This winter in order to stave off the polar vortex II, I joined the USBGF and tuned up a forgotten game, played online and re-read some books. My goal was to play in my first over the board USBGF tourney in the spring here in Cleveland. It was a very difficult yet rewarding. I wound up playing in the intermediate flight, and lost in the semi finals (money match) to a Ben Franklin looking naturalist from the woods of Pennsylvania. He went on to beat the next man and win the section. I hedged with him and as the loser –still won my entry fee back and then some, so I exceeded my expectations as a first timer. I played with professionals and held my own.

Backgammon sharpens the mind, dampens the swinging emotions surrounding wins (highs) and lows (losses). It makes you perform quickly and decisively. The sport seems to be having a slow rebirth. Many backgammon experts went over to the poker tables over the last 15 years. Maybe this is a patch for me to exploit. Everyone there were very friendly. Not many people under 30 at all. Probably 25% women at the tourney. There is a lot of wager money in this game. I played on a $3000 custom board with a dice rolling tower during one game. There is quite a "gambler" mentality there that I felt could be expolited–I avoided a lot of side bets, skipped the drinking and just ground it out. I was exhausted afterward and also satisfied.

In honor of the 36 possible backgammon dice combinations:

Backgammon and Trading Markets

1. Match play is a grind. Every game, like a trade needs to be executed, and evaluated and reexamined roll after roll due to the changing landscape conditions. In an 11 point match, you could wind up playing 21 games.

2. Expect to lose. As in trading, you must minimize drawdown. Losing a game is no big deal during a match, but getting gammoned sometimes or backgammoned will cause you most likely a match.

3. You need to be physically fit. Playing 20 hours of tournament backgammon over the board in two days takes a physical toll. Food and diet usually fall off, sitting and not being in routine makes your body fall out of rhythm. Trading foreign markets comes to mind here. Tourneys usually begin the day's play around 11:00am and end late into the evening. If you are a morning person, you need to change your habits.

4. Fatigue can make one loose with the cube, or willing to take risks with hits or leaving blots. It can also be exploited of your opponent. Your opponent due to fatigue, may just take a risky double. Or you may decide to play a grinding, long slow back-game with complexity in order to really move him into deep water when he is tired.

 5. As in trading, don't let a brilliant win go to your head, or an unexpected loss go to one's soul.

6. Backgammon opponents are like different markets. Some are binary, robotic, calculated. Some can be cagey, erratic. Watch your next opponent before you play him or her. Study your intended market before you trade it. Watch out for the delicate little old lady, and pray you don't get paired against the hot looking woman.

7. Be ready for everything to go foul and stay foul. Cut your losses quick, play safe, concede one point games. The dice are not to be blamed–but when your opponent blames the dice agree with him or her that indeed the dice are not good for them today. Kindly reinforce their beliefs. Don't make excuses for your losses.

8. Blitz! Hit loose, blitz in, keep hitting, slot your points and keep it up till it runs out, then double if its correct–especially early if the chance arises. So take that quick hit winning trade, just bank it and move to the next trade.

9. Be ready to be put on a camera under bright lights or in a featured table for live feed against a big star opponent. In trading this may be like a sudden streak of wins when spouse says nice things or maybe when you are called by a friend for your "expert" opinion.

10. Remember, that everyone else may be tired too, or hungry or in discomfort of sorts. You are not the only one

 11. Match equity rises and falls for each opponent on each roll of the dice and subsequent move. Each trade has a heartbeat, an ebb and flow, prices change. BG is a pricing game to a degree. You need to know if you are over valued, even, or under all the time.

12. What is the trading plan; what is the game plan? Are you running, priming/blockading or are you playing an intentional back game. You need to review your plan prior to making your move –does your roll help or hinder what you are doing. Did your trade look suddenly different from its planned start?

13. Sometimes too much success leads to failures, multiple doubles in a row tend to get you off to a great start that actually pushes you way past your optimal timing leading to a forced stacked up game. You now find yourself out of position. Don't overtrade, do not double up because you feel bulletproof.

14. In a short length match, seize upon a good starting position and double. Your opponent may shrink and pass since he will judge the risk as too great at this early stage to gamble. You must have a good start and his must be neutral or lagging.

15.Every play is a potential cube turn. Ask yourself if you should be doubling before you roll. In trading, once again–review your plan at each logical turn.

16. Be ready for the quick re-double right back in your face. Now the stakes are way up if you take, funny how your position shrinks up on a redouble? Akin to a whipsaw or a flash crash, the market has just gone 180 degrees from where you were. Where you ready for that?

17. What will my opponent do if I double? What will the market do if I take that offer?

18. I have just been doubled, is it a take, a pass, a redouble or is it quite impossible to judge? Use Woolsey's law then and take the double. As in trading, sometimes its better to take the trade on with insufficient knowledge and then do some analysis rather than pass it up.

19. At Crawford game during match play the doubling cube is not used. It gives the players one game where they must play through without upping the stakes. A trading holiday, a risk off breather is always a good thing once in a while. The Crawford game happens when either opponent is one game away from winning a match. It stops an automatic cube double from the lagging player.

20. If you make it into the money matches in a tournament, it is usually wise to hedge with your opponent so if you lose you don't leave empty handed. Do not be greedy and demand whole hog. Many market examples can be found regarding hubris.

21. What is the pip count? You must be able to size up the score mentally and quickly. Backgammon play is expected to be brisk and in matches slow play is frowned upon. In trading, being aware of the current (daily, hourly) conditions is essential. You can't call a time out in BG, likewise you can't stop the market while you think things through.

22. Leave a blot, but leave it properly, either far away or very close. Leave it so that if it's hit you may be able to recapture. Close out your trades properly.

23. Make points that hinder your opponent's big winners. Block his potentiality. Beware of and block if possible the "miracle" opponent's role, the double threes that get him out of danger and puts you in irons. Set your blots on points that he needs for getting back in. What miracle market move lies in wait to swamp your trade?

24. Again, don't get locked into one type of game, be flexible and take what the dice give you. Take what the market gives, don't hold out for a round number sale.

25. When it's time to run–then Run. Sometimes one gets focused too myopic on trapping and blocking and thus fails to prep for a freeing attempt. In trading, maybe

this is an example of just going with a major momentum swing and forgetting the chop trades.

26. Double hit if possible. Putting two men on the opponent's bar is a powerful move. Keeps him out of the game, for the time being. This gives you leverage. Possible cross over to using derivatives in a trade to maximize an expectation.

27. Hitting a blot takes half your opponent's role away. It is usually wise to hit versus not, yet not always. Automatic action can be seen in some players who always hit no matter what. I like to play against these types. Some markets behave on "autoplay" –use this tendency for planning a trade.

28. The safe move is usually not the best. You need to slot points, fight for the 5 point and be aggressive. Playing safe in the markets may be akin to being long the "favored sectors", last year's winners.

29. Lay out decoy blots. This tactic lures your opponent off his strong point and hopefully gives you compensating re-hit chances, and recycles a man to aid in your timing. Decoy methods and markets are well discussed.

30. Hitting loose is a decision that must be made with a goal in mind–needs to be justified. Taking a market risk that is usually cavalier needs to be justified and quantified. Hitting loose describes hitting a blot when your risk of re-hit is great. Its making the best of bad choices.

31. Know your basics inside and out. 6 x 6 dice table, %chance of rolling any single number, %chance of making a high number versus a low one. Know the percentages faced when getting back in from the bar. Holding a losing trade is not playing the percentages.

32. Aggression is awarded in backgammon in that you need to hit blots, fight for points, and resolve oneself to being hit and thrown back. Its a regenerative cycle and one needs to be able to define the worth/price of the position roll to roll. In trading you need similar levels of mental engagement–how to go for a small victory every venture, yet be ready to turn that into a major winner if the right odds come to the fore.

33. Opening, middle and late game positions, cube decisions during those stages, the match score or cash game level at the time of the stake double. Balance is key –maintain your forces as best as possible under the given dice. Know the landscape when the double arrives. Anticipate your opponent's moves. What is the market telling me at this moment?

34. What is my best move? Why is it that the best moves sometimes are the hardest to do? The best move usually looks risky/naked. Buying when all is lost, when the cane is in your hand is when you are right.

35. Why do I usually win the Crawford game–the game where no doubling is allowed? Why do I win the small trades and lose the bigger ones? Maybe I should be looking over my past trades with a critical eye—do some more work.

36. If I win game one of an odd numbered match, I tend to relax and just grind higher. All I need to do (as in baseball) is win a series. Am I in gammon save mode or gammon-go. Sometimes you need to protect against the double up or go for the double up as your goal when starting a new game. Is the trade a limited one to begin with or an attack strike? Do you realize that each roll can help or hinder that goal and adjustments sometimes need to be made. Or simply waiting is the right answer-
-a move that keeps the position static. 

Victor Niederhoffer writes: 

To Mr. Drees's excellent post an observation. I have known several dissipate drunk squash players who often asked me to set up a game of backgammon with my wealthy friends including Jim Lorie who paid his way through Cornell with backgammon. The dissipate players were all National Champions at backgammon and hustled for a living. To play against them was ruinous and fortuitously I prevented Jim from playing against my player opponent Claude Beers. One should never play markets against men named doc or those who pretend to be dissipate. 

Andrew Goodwin adds: 

When I held a seat on the NYFE, there was a trader whose badge number was mine with only the order of two digits varying. We shared an execution broker. The trader's name was doc, and I had to check in with the clearing firm each day because only his losing trades would end up in my account. Not once did I get one of his winners. One can lose to doc in ways other than merely playing against him.

May

19

 One hypothesizes that prices act to maximize their chances of survival and their volume of activity.

The moves and the announcement during the day and fray are controlled by the prices to create the most successful survival mechanisms.

The Selfish Gene

In bonds did not believe it could reproduce at 15300 at a 3.1 % 30 year rate, and thus demanded that a robot from Euorope would say that they would create liquidity this summer by expanding qe. 

Anatoly Veltman writes: 

Also, a huge market trace of insider announcement distribution "on need to know basis". Both Stocks and USD ended strongly the day before (a pairing that would be hard to explain, otherwise).

Victor Niederhoffer writes: 

In bonds did not believe it could reproduce at 15300 at a 3.1 % 30 year rate, and thus demanded that a robot from Europe would say that they would create liquidity this summer by expanding qe.

May

19

 Far from the Madding Crowd by Thomas Hardy gives a realistic view of sheep farming in the 1860s in England. Nice market scene where the heroine who has the ability to make 3 men fall in love with her, bargains to get a fair price for her seed. A forerunner of Edna Ferber's novels of strong woman who run a business and a portrait of 2 good men, a wealthy farmer and a competent shepherd. Many lush scenes of sheep and meadows. A forerunner of square romantic novels of the 20th century where 3 men compete for the love of a deserving woman.

May

16

 Last  week           This week

mon       -1.0                 -3.10

tue         -0.9                 +0.6
wed        -1.7                 -1.4
thu        +1.8                 +1.2
fri          +0.3                 +2.2
                         

A syncopathy.

May

15

 Last night I had a drink of plum wine. I subsequently made about 10 errors in trading overnight. Similar things have happened to me before on the rare occasions I drink alcohol going back 50 years when I misread a card in poker and ended up losing my then minimal but very important fortune. I wonder to what extent it is a good rule not to drink alcohol on the days before, during, and after trading.

Rocky Humbert comments:

I think that needs to be tested with a controlled study. I volunteer to be the counterfactual.

Scott Brooks writes: 

As a non-drinker, I can confidently say that a fall down drunk Vic or Rocky would handily beat a sober me at trading.

Although I haven't played in over 20 years, I'm pretty confident I could take them both at poker.

But I'm 100% certain that I could take them both at the archery range, even if they were sober.

A drunk Vic would easily take me at squash, racquetball or table tennis.

There are three lessons here:

1. If you are playing "for real", only play the game you can win.

2. If you are playing "for real", only play against people that you are confident you can beat.

3. If you are playing "for real", make sure you are at your peak potential to do. Do nothing to impair your physical and cognitive abilities. 

Craig Mee writes: 

When dealing with leverage and perceived opportunity one unfortunately can stray due to the slightest of distractions.

May

13

 1. One wonders to what extent ind stocks that go up when market is way down are bullish in the next relevant periods. Does something comparable for markets exist.

2. Gold and spu both break through round number on same day. Is it non-random.

3. How low do grains have to go before they turn bullish.

4. One reads The Life of a Leaf by Steven Vogel which shows leaves reacting as much to their environment as our markets do to theirs.

4. The absurd moves up in bonds whenever the economy is weak because of expected liquidity from the fed, and more importantly the absurd moves down in them when the announcements are strong, provides opportunity.

5. I own a reasonable quantity of twitter on the sprained ankle theory . Will it suffer the same fate as the blackberry I rode down from 60 to 10.

6. To what extent now do companies that are hit hard in the stock market by revenue shortfalls provide opportunity.

7. One of Wiswell's favorite proverbs was that "checkers is a game of architecture". I believe the same is true of markets, but I am not a good enough architecht to apply all the proper principles.

8. There are more things in heaven and earth. The great great grand nephew of Robert Boyle comes in and tells me the reason that one can't make money trading in stocks is that all the high frequency people use some sort of lock the price then front run to get ahead of you and not violate the rule that the customer has to get the best price. 

Larry Williams writes: 

Please tell the great, great, grand nephew there are still people making money buying value/momentum stocks and holding for more than a nano-second.

Whenever I hear people decry the market place as to one person, group, etc running the table so we mere mortals "can't" succeed I think it is just a losers lament.

People, lots of them, still win in this game.

Gary Phillips writes: 

Everybody needs a "scapegoat" especially the the disenfranchised traders who thinks the market owes them a living.

anonymous writes: 

It is particularly fruitless on that small time scale because any countermeasure you develop that works will be viewed as a criminal act. You either actively lose or you are found guilty of winning–take your pick. Larry's idea is the sensible one.

Victor Niederhoffer replies: 

As the EC says about all their countries, "they're one of us. We'll protect them", the grand nephew is one of mine. He worked for me and did a fine job, and is well aware of the drift. His only weakness is that he knows that the other side is a bunch of highway robbers, and like the man who complained about the Australian moves even though he doesn't change it, he's a real trader and knows you can never get an honest deal from the markets.

May

11

Over at Business Insider, they carried this graph. It looks pretty scary. I don't think it's possible to sustain current prices in the face of declining inflows, but maybe I'm misinterpreting it.

Larry Williams writes: 

Look at the chart! This has happened many times before where the blue line guys got out and the rodeo went on higher. It's not the first rodeo they missed. Who're you going to believe, the chart or a cub reporter?

Steve Ellison adds:

I don't have the data to test this rigorously, but my hypothesis is that "net inflows to mutual funds" is a contrary indicator if it is an indicator at all.

anonymous writes: 

All the studies such as the ones carried out by DALBAR suggest that returns weighted by investor money flows are always worse than time-weighted returns.

There is a movement of people who think that this "behavior gap" can be closed with education or sound advice for all. I find it more likely that it is a necessary feature of markets for the reasons described by Bacon. Some can do better but nothing can work for everyone at once.

Victor Niederhoffer writes: 

One would have thought that this post came from Mr. Conrad rather than you, who has been exposed to the drift.

Bud Conrad responds: 

Mr. Niederhoffer mentions my name as suggesting I might be bringing negative opinions about the future for the stock market, but I have been relatively quite on this list in that nature in recent years. My base for stock market valuation comes from the view of comparing the potential return from the stock market earnings to that of long term government bonds. For several years and continuing to today, the returns from stocks as measured by dividing earnings by the price (E/P ratio) have far exceeded the returns from fixed income, so I have been a bull on stocks, despite the many worrisome commentaries about the general economy. The Chair and others will recognize this general approach as sometimes called the "Fed Model" for stocks. My summary comment is that "The stock market is the best game in town", sort of like the comment on the dollar compared to other currencies as "The best horse in the glue factory".

I have been bullish stocks for the first half of 2015, but with caution that there are other forces like the Fed raising rates, a slowing GDP for the general economy, a disastrous collapse in the oil and gas fracking that will cost lenders huge sums, and continuing trade and government deficits that make me be more concerned that the outlook for 2016 is possible for a down turn. I'm interested in extending that watch for a turn in stock market optimism as others find quality analysis.

As to the specifics of the flows in the chart from BofA ML, I notice that the 2013 down turn in flows didn't hurt this bull market, so the indicator may not be capturing some of the drivers, like possibly foreigners that are even less enamored with their domestic prospects, who may be finding dollar denominated assets much safer than say those in the declining Euro. As a related note in my local area: Palo Alto is supposedly 20% owned by foreigners, mostly from China. Real estate prices are booming in Silicon Valley, and there is plenty of inflation in asset prices here.

Anatoly Veltman writes: 

This was an interesting point, reminding me of a disaster of a trade I had in 2005. Copper, for the first time in history, eclipsed its decades-long resistance of Fibonacci $1.6180 level at the COMEX. It was clearly driven by developing China demand, and I wouldn't stay in its way. I had good luck picking up Longs at the other Fibonacci end around 61.8 cents just six years prior…

But as the 2005 rally progressed beyond the $1.6180 breakout and all the way to the un-phathomable $2.000/lb round - I could hold myself off no longer. My Shorting reason was that throughout the 2005 rally, COMEX Open Interest figures have declined(!) dramatically. Classical technical analysis states that a commodity's prolonged upside run, when accompanied by progressively declining Open Interest - must be Shorted!! The reasoning is very compelling: in zero-sum game, such event can only mean one thing - that the pricing is extremely over-bought, while progressively more-and-more Shorts have already covered!! Thus, as a new Short, you're getting the greatest downside potential in history, while the risk of potential blow-off to the upside is now severely constrained. Well, I'm still a huge believer in this indicator, except…

…2005 happened to be the first year of an unprecedented GEOGRAPHIC shift in Copper inventory. Away from the COMEX in US, and in favor of the LME in London as well as a brand new physical and derivative market born in China and vicinity. While the COMEX Open Interest was going through temporary decline, the pick-up overseas was enough to feed the demand and put further increasing stress on supply. Thank goodness for my catastrophic COMEX stop-loss above $2.0025 - that trend roared unabated straight to the next Fibonacci extension of $3.62!

anonymous writes: 

Some people are going to believe what they want to believe, hear what they want to hear, and avoid information that contradicts what they already think or believe. These are the people who find comfort with a group-think mentality. On the other hand, there are those who love to fade the market, for the sake of being contrarian. These people cannot resist doing the opposite of popular opinion and possess a mindset toward reactive devaluation. This forum strives to operate on a level where useful information is transferred from one reader to another; often times from the extremely knowledgeable (victor, rocky et al) to the less-so (myself included). We all strive to reach independent conclusions based on a reasoned process. We ignore popular opinion, and do not take anything at face value. We keep open minds, organize and filter our ideas to determine what is relevant, yet allow conflicting ideas to generate new conclusions.

In an effort to promote and perpetuate this practice, I still find myself sanguine about the prospects for the market. Real short-term rates are still negative. The fed maybe tightening, but the yield curve is steepening. GDP has averaged 2.25% per year since 2009, and yes, real GDP growth in q1 was weaker than expected; but that may only serve to be a down-tick and not the beginning of a nascent trend, as as was the case last year. Growth is there, but it has been stultified by the Obama administration's policies. If we were to see tax rates and regulatory burdens rolled back with a new administration, we could see a renewal of corporate investment and risk-taking and an acceleration in productivity and growth, and a much higher market yet.

Jeff Watson writes: 

Many are overthinking this stock market and are missing out on the move. Trying to fit events into one's belief system can be very costly in the long run. Sometimes, like in surfing, you just gotta catch the wave because it's a groundswell, and the waves are stacked up like corduroy all the way to the horizon. Plenty of opportunities here.

May

11

 Some good books one is reading after a hurried visit to the Seminary Book Store in Chicago.

The Best of Ed Zern by Ed Zern, a hilarious and deep book by a writer with part Ring Larnder, part Mark Twain, with all the stories relevant to trading.

Somewhere For Me, a bio of Richard Rodgers by Meryle Secrest, a lugubrious account of a great musical composer, great businessman, son of a gun.

Why Capitalism by Allan Meltzer, an excellent update of Free to Choose and Capitalism and Freedom by a monetary economist with many deep thoughts appropriate for introductions to free markets for kids.

Karl Pearson: The Scientific Life in a Statistical Age by Theodore Porter, a bio that shows how philosophy and morality led to the foundation of frequency statistics, a disciple of Galton.

The Roman Market Economy by Peter Temin, some nice charts and diagrams showing the importance of economic variables, prices, labor, land in the history of Rome up to 300 AD.

Modeling Binary Data by D. Collett, everything you'd want to know about how to explain binary data using logistic models and maximum likelihood. The simple dependent variable makes the book a good intro to variables whose magnitudes go all over the map.

Europe by Brendan Simms, a 700 page intro to European history from 1500 to the present emphasizing the importance of Germany with many pithy and seemingly deep summaries.

 Magnificent Trees of the the New York Botanical Garden, a beautiful pictorial and descriptive journey through the Bronx Garden we will be visiting September 4 with Adrian Bejan, who says it's replete with constructal trees.

Crony Capitalism by Hunter Lewis, a surprisingly informative view of bribery, double dealing and insider activity in the financial crisis written surprisingly by an agrarian reformer.

Top Dog by Po Bronson and Ashley Merryman, shows how competition, incentives, and motivation effect winning in many psych experiments and sports outcomes.

The Improbability Principle by David Hand, a deep book explaining the reasonable probability of coincidences and extreme events by a profound and erudite scientist, good for the layman and the expert.

Chemistry: Science Double Award by B. Earl and L wilford. A secondary school intro to chemistry about my speed in developing a foundation for this fascinating and useful subject.

Gordon Haave adds: 

 I wrestle with reading non-fiction and fiction. I have been reading so much non-fiction for work that I have been trying to read fiction when I can to unwind.

Recently I have finished, for the 2nd, time, three of my favorite books:

Growth of the Soil, by Kunt Hamsun.

Independent People
, by Halldor Laxness

And Chronicles In Stone, by Ismail Kadare

All three are great. After I read Chronicles in Stone I had to go and visit Girokaster, Albania, where it is set.

Here are the pictures I took. The WW2 items are inside the castle which is the focus of the book (the book takes place under Italian occupation in early WW2).

The above is a public link that everyone should be able to see. There is also a picture of Enver Hoxha's house in there.

David Lillienfeld writes: 

I've been reading Supreme City by Donald L. Miller. The book discusses the development of Manhattan during the 1920s. It includes the development of radio networks (Paley vs Sarnoff), the rise of organized crime in the wake of Prohibition, the building of such icons as the Chrysler Building and other buildings, the creation of the Park Avenue residential district (43rd to 96th Streets), and so on. A fun read.

anonymous writes: 

It's been quite a while since I last recommended a book. However, "The Boys in the Boat" by Daniel James Brown deserves consideration. It traces the course of a group of young men attending the University of Washington through their (Depression) years of crewing (eight man) and their quest to represent the U.S. in the 1936 Olympics. We don't produce guys like this anymore– unless you can name a recent college team (any sport) that achieved athletic greatness while all acquired degrees in engineering, science, or law.

anonymous recommends: 

I'm really enjoying Conn Iggulden's 5 book series on Genghis Kahn, starting with Ghengis: Birth of an Empire.

May

11

 A commodity trader is never happy. "Do you know what happened in Australia over night? What a gyp. It opens up 20 big points, ran the stops and then backpedaled and went as much down the other way running those stops. Margin calls abounded and they had just increased intraday by 100% without notice so everyone was hosed. To add insult, commissions are 50 a contract a 5000 item both ways".

"Did you get caught?" I asked.

"No, I don't trade Australia at all".

There goes a true commodity trader, I said as he caught his train. The market is either too fast, too slow, too opaque, too illiquid, too crowded, too controlled by insiders, too far away from value, too random, too heavily arbitraged.

May

8

 Victor writes to Adrian Bejan, author of Design in Nature: How the Constructal Law Governs Evolution in Biology, Physics, Technology, and Social Organization:

A reader asks if this is related to your work: "Wind Power Without the Mills"

Adrian Bejan responds: 

Hi Victor,

The answer is yes, in the two ways that this flow system behaves and improves itself:

–The natural: the vortices that shed downstream of the pole are constructal designs, the best way to mix the fluid downstream. They are predicted from the constructal law, man cannot change them

–The artificial: the wobbling pole can be designed (fine tuned) to capture and deliver most power to its magnet-power-generation unit at its base. Yet the "efficiency" will be low … this is why the company talk about other attractive features, low cost, easy maintenance, no moving parts, no noise, etc

Good night,

Adrian

Adrian Bejan ( MIT ' 71, ' 72, ' 75 )
J.A. Jones Distinguished Professor
Duke University
Academy of Europe

<http://www.amazon.com/Design-Nature-Constructal-Technology-Organization/dp/0385534612/ref=sr_1_1?ie=UTF8&qid=1327888221&sr=8-1>

On Thu, May 7, 2015 at 6:26 PM, Victor Niederhoffer (MANCHESTER TRADING L) < vniederhoffe@bloomberg.net> wrote:

May

7

One notes that the 30 year bond has gone down 11 big points in the last 13 days, and this is the largest decline in history. Rational expectations would not have predicted that the long term rate of inflation expected has changed that much.

anonymous comments: 

Wages, energy, and housing are all rising faster than the current rate of core inflation, but perhaps not at a rate that would justify such a precipitous bond move. Bonds may simply be getting back in-line with their German counterparts. US and German rates diverged significantly over the past year or so due to fears of Greek default, deflationary concerns, and divergent monetary policy. Last month ust10y rates traded at ~24X det10y rates with the rate spread hitting an all-time high of 190 bps. The recent 55 bps bounce in 10 year bunds from the 0.05% low on rational expectations for grexit and the stabilization of oil prices, has seen the bond/bund relationship begin to revert to the mean with the spread narrowing to ~162 bps and the ratio trading < 4.00. 

May

7

 At times like this one is reminded of Horatio Nelson's admonition to Aubrey: " Forget the maneuvers and go right at them".

Stefan Jovanovich comments: 

But if your men cannot go right at them, your only choices are to avoid engagement either by using the ocean's wide spaces or by staying in port. Pierre-Charles Villeneuve was shrewd enough to know that the only role for the French and Spanish fleets was to be a potential threat but never to actually come out and fight, except in those brief moments when they had overwhelming local superiority. That threat of a "fleet in being" would compel the Admiralty for political reasons to devote most of its energies to patrol duties in the Channel to guard against invasion and to blockading the Atlantic and Mediterranean ports of the enemy. It would maintain a stalemate which would, in fact, be a victory for Napoleon's continental system. But Villeneuve had the bad luck to work for a man who could never sustain a strategy that was working if it contradicted his latest impulse. So, Villeneuve was doomed to be ordered repeatedly to use absolutely the worst of all possible tactics. To this day, the French continue to blame him for the defeat at Trafalgar. They even join the English is questioning the Admiral's character for finally obeying Napoleon's stupid orders when faced with the choice of obedience or execution.

P.S. Nelson's contemporaries had the grace to acknowledge that Villeneuve was a better sailor than Nelson; when he attended the funeral ceremony, his presence was not considered shameful but a further endorsement of Nelson's military greatness.

May

5

One has ascertained two regularities highly applicable today for bonds. As of 1030. One has 10 observations 100% up to 1300, the other has 10 observations 100% down to 1300. Magnitudes very similar also. Right out of Gilbert and Sullivan.

May

4

 What is the real significance of this? Is the sage that clueless that you can't short something riskless and that treasury bonds the second biggest market in world? Or does it relate to waning support for cattle trading?

Buffett Says He'd Short 30-Year Bond If He Had Easy Way to Do It

By Doni Bloomfield (Bloomberg) — Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., reiterated his belief that it's not worth buying long-term bonds at current interest rates and said he expects the value of the securities to fall. "If I had an easy way, and a non-risk way, of shorting a whole lot of 20- or 30-year bonds, I'd do it," Buffett said Monday on CNBC. "But that's not my game, and it can't be done in the kind of quantity that would make sense for us. But I think that bonds are very overvalued, I'll put it that way."

anonymous writes:

"If I had an easy way, and a non-risk way, of shorting a whole lot of 20- or 30-year bonds, I'd do it," Buffett said Monday on CNBC. "But that's not my game, and it can't be done in the kind of quantity that would make sense for us. But I think that bonds are very overvalued, I'll put it that way."

One recalls that his track record included some rather gigantic bets made on the long side in treasury strips.

The notion of not being able to figure it out seems clownish. 

anonymous writes:

A few Monday morning thoughts:

1. Next month will be the 11th anniversary of the beginning of the last Fed tightening cycle. That tightening cycle last 24 months and ended in June 2006. So, it has been 9 years since the last fed rate hike to 5.25%. Do you remember the world before Facebook, Twitter, HFT, ETF's, Barack Obama, Windows 7, and a few other things? Do you realize that Steve Jobs unveiled the iphone to the public on January 9, 2007? Is it imaginable that EVERY iPhone in existence has never experienced a Fed rate hike?

Remember: Plus ca change, plus c'est la meme chose.

2. There was an interesting Bloomberg news story for German bond bears over the weekend — and the unintended consequences of negative nominal interest rates. In a nutshell, if you short German bunds, you receive cash (if you are not leveraged). You then must invest the cash in overnight money markets. But, oops, there are negative interest rates in the cash markets too. So you are paying to hold onto the cash. And if you do the trade in the repo market, you still need to post margin in Euros — and that margin gets paid a negative interest rate. All of these moving parts (eventually) get arb-ed out into the derivative markets — for swaps and esoterics wise-guy trades. The bottom line: If you are good, short/intermediate term trader, you can make money trading bonds/bunds/jgb's etc on the short-side; but unless a central bank is tightening, unless there is a sovereign default fear/currency crisis, setting up structural shorts in fixed income is a very difficult game — due to the negative carry that exists despite negative interest rates. This is probably what Buffett means when he says that there is "no easy way" to short long bonds.

May

4

 Is one that puts the liar in a somewhat but much reduced negative light while hiding the real gravament of major culpability? A good example is Cole Porter saying that he was a member of the French Legion and that the reason that they took him was that they wanted an American to be in it for public relations. But he really wasn't in it at all as he had gone to France to avoid the Draft. And Gross's upside down thing that the secular in stocks and bonds, is over is an example of that perfect lie, although one would guess that he is not aware he is lying and just would not ever say anything good about stocks because that would hurt allocations to his fixed income activities. And he's been calling for the end of the rally in stocks since Dow 1000 or so.

Stefan Jovanovich writes:

"In July of 1917, he set out for Paris and war-engulfed Europe. Paris was a place Cole flourished socially and managed to be in the best of all possible worlds. He lied to the American press about his military involvement and made up stories about working with the French Foreign Legion and the French army. This allowed him to live his days and nights as a wealthy American in Paris, a socialite with climbing status, and still be considered a "war hero" back home, an 'official' story he encouraged throughout the rest of his life."

From Cole Porter's bio on coleporter.com

Draft registration began June 5, 1917.

To justify the enslavement of American citizens, the Supreme Court looked not to the Constitution but to "the law of nations" - i.e. what the Europeans had always done.

Apr

27

 1. Are there any idiosyncratic moves for 4 trading day weeks that are not around on other weeks?

2. Hammerstein liked to sit with his back to the audience and listen to the ruffling of programs, and the number of coughs to tell if the audience was responding well to his shows. This is similar to Galton's method of counting the number of fidgets. Are similar indirect measures indicative in market moves?

3. When will someone make a good study of the expected moves of individual stocks when they break through round numbers such as 100?

4. Is one of the major causes of the decline of the Roman Empire the hatred and contumele aimed at the rich and the lack of banking during the centuries surrounding the C. E causing a lack of growth, and the need to extract resources by military conquest and slave labor? The book The Invention of Enterprise by David Landes makes this case.

5. To what extent do Hong Kong, Japan, and the US equity markets move in a feedback relation with each other, and is it predictive for any of them?

6. What does the inordinate rise in us stock/us bond and us stocks/dax in the last several weeks foretoken?

7. One is asked frequently why one doesn't trade the 10 year bond versus the 30 year bond because the former is 15 times as liquid as the latter. One notes that the 30 year had a 6 point range last week, and the 10 year a 1 pt range. Ending up down 1/2 a pt or so. Versus 3.5 pts for the 30 year. The answer is that the rake, the vig, is too high on the 10 year.

8. Everything that should have worked last year in predicting the crude is working this year as is generally the case.

9. Are the equity moves bullish in year 5, and bearish for year 7 predictive in any sense?

10. To what extent will Centrals, and plunge protection teams or their counterparts shield major declines in the market during election years?

Stefan Jovanovich writes: 

Quibbles re #4:

We moderns see the fall of the Italian half of the empire as "the decline" because Rome is where the Pope lives; for Gibbon and his readers, the important decline and fall was the loss of the wealth of the East - Egypt and Damascus and Constantinople.

There was no decline in banking around the C.E. That was the period of its tremendous growth, which continued in the East until Gibbon's villain–Christianity–had succeeded in converting the Mediterranean world as a whole into believing that the very notions of profit and interest were sins (of which the Jews were, of course, particularly guilty).

Slavery was always at the root of all economic systems in that world; acquiring slaves was, as they became in the American South, the primary means for an ordinary (sic) person to save and invest. (The first investment a successful free black or Indian made was to acquire his own slaves.) Productive land was already owned by the established families–just as it is in our American West–and you needed a lot of it. That was beyond the means of any "entrepreneur". But slaves could be acquired one at a time; they were fungible and they could be rented out to the landowners as seasonal or long-term workers. ("Rome" (the TV serial drama) gets this right. Vorenus plans to retire from the legion by saving up the rewards from his military service–i.e. the slaves.)

The fiction of an independent libertarian-believing yeomanry of Roman citizens electing a representative government is just that–a fiction. The appeals to the mob began generations before the Republic "fell"; and every successful "middle class" (sic) Roman was a slaveholder.
 

Apr

22

 If one could imagine a band of brothers on the spec-list seeing the coming dynamism of Apple, and investing in it, like the Rothschilds did in Italy and Austria and Germany with the railroads and other industries they financed, and profiting from their close ties with the agrarians and the republicans, and flexions of all kinds, and lending them money personally when they needed it and had to disguise themselves to hide from the authorities, all the while doing this with the utmost of integrity, one would get a picture of the Rothschild's during the 19th century.

anonymous comments:

Except that they missed out on the US, though the reasons remain controversial.

anonymous writes:

In reading the book The Rise of the House of Rothschild, by E.C. Corti (which focuses on the Frankfurt, Vienna branches of the family) I was amazed that the business of the continental Rothschilds consisted almost entirely of arranging large state loans. There is never any mention of any financing to the private sector, at least in this book (perhaps due to some bias by the author, I don't know). Even when they make a personal loan, it is always to some prince or prime minister, never to an entrepreneur. In the beginning of course they financed international trade via bills of exchange etc., but in this business they competed against many others and it seems (again according to this book) to have faded in importance as time went on. During the time of the industrial revolution, they seem to have done no industrial financing and not to have participated in the financial innovations (e.g. the large quoted company) of the era.

Apr

20

 All hades broke loose in Europe in 1846, and the Rothschilds played the same role, begging favors, and granting pocket money to the politicians, and financing debt that their modern counterpart of faith and Flexionicism played in 2007-2008, albeit none of them officially received a post in the cabinet. However, despite the revolutions in Germany, France, and Italy, the Rothschilds' offer to take down Austrian debt at 4 3/8% was only 1/4 % higher than the going rate prior to the Hades.

It was interesting to learn how openly the Rothschilds influenced the rates with well timed purchases to help their changing political alliances along. Natah proudly told Metternich "I raised the rates very easily yesterday by buying Mettelligique". In those days a rise in the stock market was good for raising confidence and lowering rates.

The general impression from reading the history of the Rothschilds in this period was that their influence was quite similar to their modern counterparts in Treasury but their grand balls and mansions seemed to the observer from the grandstand to be of a much more ostentatious scale. Hopefully, the great historian Stefan will correct and sharpen these observations.

Stefan Jovanovich comments: 

There were two differences: (1) the Rothschild brothers had to raise the money they lent and paid for their trades. They could not print it or engage in a perpetual swap of one debt instrument for another. They had to have customers believe in their resources and also have the actual specie reserves to back up that belief. Their personal displays of wealth were important as theater and necessary as investments in private accommodations in an age when important visitors became house guests, not hotel customers. (2) they never indulged in national policy. Being permanent outsiders as Jews allowed them to avoid the corruptions of patriotism. They were accused of being guilty of caring only about self-interest and at the same time trusted because no other interest would supersede. They would act in a way that benefited themselves and their clients but never at the expense of their reputation with others. It is impossible to imagine their advising any of their sovereign clients to choose devaluation at the expense of their trading partners.

David Lillienfeld adds:

The Rothschilds did not earn their money from banking. They worked for sovereigns, too, as when they ran the funds for the British government to Wellington's army in Spain. Supposedly, no one else was willing to do it and the Nathan and company earned a nice fee for their troubles. That was supposedly not an unusual undertaking.

Stefan Jovanovich comments: 

Er, not quite. The Rothschilds were merchant bankers; if you can imagine a band of brothers of Larry, Watsurf, the Zachar et. al. dealing in everything from cotton bales to consols, you have a picture of who they were and what they did. They took deposits, underwrote loans and also dealt in used furniture, as the Maturin saga notes.

The story about Wellington's Army has been retailed for over a century; the Sharpe books (and the TV serial made from them) have an episode with Nathan pretending to be a Quaker (or Baptist? this part is entirely from recollection) woman missionary riding in a coach through Spain so he can smuggle a letter of credit to Wellington. It makes - I suppose - good fiction; but absolutely none of it is true.

With Wellington paper would have been more than useless; the French were paying their allies in script. If Wellington and his allies were to win what was the first modern Spanish Civil War, they had to pay in gold. This is where Nathan and his brothers came in; they dealt in bullion. The Rothschilds were sensible enough never to stray very far from their security; Wellington's gold was delivered to John Charles Herries in London. He and the Royal Navy had the responsibility of getting it to Lisbon.

Apr

20

 One of Hammerstein's rules was that the second half of a show must always be half as long as the first half and twice as good. I wonder if this has any significance for markets.

Russ Sears writes: 

The dramatic tension of a recession is swift and deep. But the purpose is the opposite: to lose the audience by the ending, yet maintain the drift. Thus, the first part must be twice as good and the shake-down half as bad.

Rocky Humbert writes:

 Firstly, without minimizing the contributions of Rogers and Hammerstein, one notes the traditional forms of drama go back to the Greeks (if not earlier), and R&H borrowed heavily from many genre's including classical opera.

Secondly, one should not underestimate the importance of looking beyond one's nose. Reading between the lines. Much like the hidden messages in the Beatle's White Album, one should consider whether there might be more information in the intermission than in the drama.

After all, the drama is staged and repeats at every performance. But what happens in the theatre during each intermission is unique. Or is it?

Working Paper #2015-912A

The Effect of Personal Voiding and Market Liquidity

R.U Clogitzibich PhD I. Suram, MD, MPH Department of Applied Biostatistics University of Antwerp

Abstract

We establish in this study a network structure of the global plumbing markets and the relationship between sewage flow rates and stock market liquidity using a minimum spanning tree through the correlation matrix. Based on this analysis, it is found that the US stock market forms clusters of liquidity and illiquidity that are statistically significant and which correlates with the peaks and troughs of participant sewer usage. (p=.002).

anonymous writes: 

1. Wait for the assessment of the first half +, -, and by how much. And of course relative to the expectations which could be said to be the open or something like it.

2. If it is strong we pay attention to the intermission for aberrations as rocky somewhat suggested, and make sure to note the location of the theater staff.

3. If all looks good we sneak in for the brief final half

Definitely rings a bell with strategies I have utilized to create less than the usual viewing displeasure. Kind of like how my son skips the first part of star wars and starts in on the final scenes where Luke explodes the death star and then gets the medal Princess Leia. Though sometimes I've found waiting for the very final scene creates its own set of issues that thwart the expected enjoyment. 

anonymous writes: 

I wonder if R&H shouldn't be looked at from a willingness to take on risk—and reaping the rewards associated with doing so.

anonymous writes: 

Here is another one that I don't know if Hammerstein utilized or not. Sometimes there is a mini-sequence within the first half itself

-An opening hook to get attention
-dead period
-ending the first half on a cliff-hanger to get people back after the intermission

Those who like suspense might enjoy sneaking in for the cliff-hanger, for good entertainment per unit of time.

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