The canopy of the large coastal redwoods contains a forest of trees growing from the top branches and trunk. Sometimes an oak tree for example grows at 175 high from the trunk. Half of all living species are contained in this canopy. It is good to remember this relative to the counterpart to bearometer at this level.

The coastal redwood is the longest lived, biggest, and heaviest living thing in world dwarfing the biggest whales by 50%. 

Craig Mee writes: 

There are some great photos and a good story in this 2009 National Geographic article: "The Super Trees"

"California revolutionized the world with the silicon chip," Fay says, his voice deceptively soft. "They could do the same with forest management." "Perhaps the most amazing thing about redwoods is their ability to produce sprouts whenever the cambium—the living tissue just beneath the bark—is exposed to light. If the top breaks off or a limb gets sheared or the tree gets cut by a logger, a new branch will sprout from the wound and grow like crazy. Throughout the forest you can find tremendous stumps with a cluster of second-generation trees, often called fairy rings, around their bases. These trees are all clones of the parent, and their DNA could be thousands of years old. Redwood cones, oddly enough, are tiny—the size of an olive—and may produce seeds only sporadically. As a result, stump sprouting has been key to the survival of the redwoods throughout the logging era."

This ability of the redwood, may highlight the importance of accumulation to build anything of a significant structure.



WSF Sees Risk of Stock Retreat on Rising Bond Yields - News Agency Headline

As Mr. Stewart suggests, there would be some purpose in an article talking about how high levels of yields would be bearish for stocks. To complete the circle the firm purveying this mumbo should publish or disseminate bullish views on fixed income so that they would be correct either way: "with high levels of stock prices now, we would advise a bullish stance on fixed income as a increase in yields would be bearish for stocks, especially during election concerns.".

anonymous writes: 

"Our analysts hit another bulls-eye, bonds fluctuated within a range and so did stocks"



There is an interesting harmony, a consilience if you will, in the dollar values of almost all futures contracts

name  contract size  dollar value

S&P     50 x index      $99,000

crude   1,000 barrel    $102000

tbond  100,000 us      $138000

ten year bd 100,000 usd $125000

gold     100 ounces        $131000

kospi    500,000 krw       $125000

copper  25,000 lbs          $81000

silver     5,000 ounces      $103000

platinum 50 ounces          $73000

Jap. Yen  12,500,000 yen $123000

There is a certain beauty when you consider the manifold units and reasons for sizes and starts values and changes that so many should end up around this constructal level. The distributions of % changes in the various futures could also be expected to be about the same. For example, there have been 45 moves of 50 points up in crude from close to close this year, and 54 moves of 50 points or more up in the S&P, and 43 such moves in gold, and 32 such in bonds.

The contract sizes and the moves and the margins would seem to be in perfect harmony to create the maximum level of transfer from the bottom to the top, the maintenance of the infrastructure with a proper level of vig, the continuity of hope and fear, the proper amount of use of stops to transfer resources from the weak to the strong, and other harmonies that I am not astute enough to grasp. Do you believe it's just chance or are their deeper levels of forces creating thereto.

anonymous writes: 

There are deep underlying forces at work but there are stochastic elements. Aside from randomness another possibiltiy exists for consiliences. Numerical progressions sometimes cause notable consiliences. For example Benford's law creates concentrations in lower digits that is not very intuitive. Silly things like dates/time being 12-12-12 at 12:12 PM. As groups of numbers cycle through either fixed or stochastic progressions, consiliences occur. Another example might be the solar convergence when all the planets align in the solar system. Though a result of a regular progression, and caused by deep underlying principles, or even if caused by random occurence, the consilience causes large effects. An example is the recent super moon when the moon was the closest to the earth in millenia and cause very very high tides here in the ocean allowing surfing in places where it is usually not possible. Space ships take advantage of certain consiliences to sling shot into orbits.

Perhaps these ideas might be applied to various markets. Bonds are high again. Equities are high. Ags are low. Coffee bounced. 



Interesting flexionic move of crude from 101 to 101.40 in minute just before announcement of Russian sanctions on oil tech. ["EU Expected To Add More Names, Entities To Ukraine Sanctions List"].

Anatoly Veltman adds:

Yes. And of course the jump was mainly on the Brent contract; WTI suffered greatly on spread basis.

Also note that US unleaded gasoline has lagged behind the oil advances of this month very significantly.



 Susan's cousin wins Downeast magazine's award for best lobster roll in Maine.

The Floyds and I had 10 between us when on the Island last week.

But is a stay there good for the market?

Perhaps the only week in last year when the market didn't immediately move to new high (this time it had a few bad down opens before doing so). 



Given that a market has moved past a constructal number–(that's a hard job to define), is the amount of time or the extent of the magnitude that it will spend on the other side when it breaks through related to time and or magnitude on the other side? How to quantify? Can this be applied during the day and or fray?



 One wonders whether insider trading by women is more profitable than insider trading by men. They are very shrewd and always look for the main chance.

anonymous writes: 

Women may be better able to benefit from plausible denial. For instance, the case of a banker looking to subsidize the mother of his daughter from an illicit affair.



 I guess one of my greatest weaknesses is that after 50 years on wall street, I still don't have enough feel for any markets that I can make a trade and feel properly foundationed and backings with it if I don't have back testing and quantification. Perhaps if I could do things based on feel and tai chi I would be a wealthy man. But the Hindu will do what he can do.

I have a new business in case I run into hard times again. While in Vinyl Haven I set myself up at the flee market with a sign by my daughters: "checkers 50 cents a game". I found that like Johnson's there are no owls in Ireland, "there are no checker players in vinyl haven". I only lost 194% on my investment on that one as I had to pay $4.00 to the space not counting the 20 buck bribe paid to the mistress of the flee market.

I had two customers. One was so demure I paid her 0.50 to play me, and the other I reduced the price to 0.25 for the play. I did beat my daughter Kira in a hard fought game however. Anyway, a perfect occupation for a speculator down on his luck in the most boring place in the world if you're not a nautical or lobster personage.

anonymous writes: 

The pieces should be shells and lobster claws vs. sea stones or pine cones to give the game a local flavor. Also, a "learn to play" or "lessons" lead in might work better than pay-per-game. Might end up the talk of the town for the next 50 years.

Pitt T. Maner chimes in: 

 Backgammon holds an interest among some. I learned the basic rules of the game from an Obolensky in Palm Beach–but you have to be very good to make money at it.

An Israeli documentary was made about this fellow, an intuitive player ranked among the best:

"He is committed to backgammon, which is his main source of income—to the extent that he can find wealthy people who want to lose to him in cash-only private games. There are more of these than one might expect, but not a lot. Finding them and hanging on to them is a skill."


"At its heart, backgammon's cruelty resides in the dramatic volatility of the dice. Even a player who builds flawless structures on the board can lose to a novice. The good players simply win more often. As a result, backgammon is often played in marathon sessions that reward physical stamina, patience, and emotional equilibrium. One notable match lasted five days, with both players getting up only for bathroom breaks. The loser fell to the floor."

This is a great New Yorker article about him: "The Chaos of the Dice"

"Falafel (his real name is Matvey Natanzon, but no one calls him that, not even his mother) can make ten thousand dollars in half an hour playing backgammon."



Amazing how no matter how high bonds are they always go up big when stocks down. I believe there is a theoretical reason for bonds to have a drift up, the same way that stocks do but in smaller dimensions, but I believe it is a very technical things related to the upward slope usually of the yield curve but this is not reflected in the main in the long term drift of adjusted bond futures.

Anatoly Veltman writes: 

Of course there is drift to a 30y, as it is less flexible than any shorter term obligation. So in the real long term (30 year minimum, but it may as well be a lifetime), it's programmed to realize the highest yield of any paper. Punters of any shorter paper will have paid for flexibility.

But on the aspect of perpetual outperformance: just like with any stock, there is a small wipe-out risk. So, I venture say, there is no lifetime guarantee.

anonymous writes: 

There are three further issues.

1. The much vaunted 'convexity' buyers at certain parts of the curve as rates accelerate toward zero
2. The FED holdings. The 'free float' - as it were - is much less than before QE.
3. The Japanese-ization of the global banking system. (see previous posting on Japanese banks..'US Banks will go the same way as Japanese banks - June 27th on site)

If relevant, these factors are in order; 'severe' in the case of point 1. Maybe permanent in the case of point 2. and tragic in the case of point 3.




 Louis L'Amour always had something resonant to say in his books when he talks about life in the West or the topographical features. In his book Last of the Breed he has a great discussion of how the back woodsman and trappers of the West had to adjust their lives to changing conditions and ever-changing cycles like the market man.

They once traded furs but that market dried up and they had to move to manufactured goods. They always had to keep their eye open for bear and outlaws and the Native American. They were not very educated in the scholarly stuff, although L'Amour never loses an opportunity to show how they read Herodotus and Gibbon and Walter Scott in their spare time and that many of them were former professors and Lords, although many of them were running away from debts and wife(s) also. You get the picture. 



What is the best formula for description, and separately for prediction, for separate markets (say S&P, bonds, gold, …) involving the first, second and third difference, taking account the number of past observations considered such as last 4, 5, 7 or 10.



I was doing some study on small caps ($IWM ETF) on sequences of 20 day low closings and 20 day high closings.

If a current close is a 20 day low coming after a 20 day high closing, calling it as the 1st 20 day low closing (marked as 1, under #), and if another 20 day low closing is printed, then call it as a second 20 day low (marked as 2 under #) after a 20 day is already printed, and so on. The sequence is counted till a new 20 day high is printed.

Currently we printed a 3rd 20 day closing as on yesterday on $IWM.

It looks like about 46% of the total (of 319) 20 day low closings continue further, if they don't stop by the 4th 20 day low closing print, before printing a 20 day high closing print

% not stopped column indicates how many further 20 day low close prints of the total (319), continued further

data since 2001

# Instances  % Not Stopped

1    50    84.33

2    47    69.59
3    39    57.37
4    34    46.71
5    28    37.93
6    22    31.03
7    17    25.71
8    15    21.00
9    13    16.93
10    12    13.17
11    10    10.03
12    8    7.52
13    5    5.96
14    3    5.02
15    2    4.39
16    2    3.76
17    2    3.13
18    2    2.51
19    2    1.88
20    2    1.25
21    2    0.63
22    1    0.31
23    1    0.00



A conglomerate run by a flexion nears the constructal number of 200,000.

Steve Ellison writes: 

Price is down today in every market, even the bond market, except the dollar and the pound. I will have to study if this has portended anything in the past.



 Some 53 years ago I worked on the crisp files [CRSP ] and formulated a hypothesis. Stocks breaking through the round #s 10 and 100 tended to outperform the market. I didn't trust my results at the time as I was just learning to program and my stump tailed macaque distracted me from work on the 7094 [IBM 7094 ] which had a 24 hour turn around if you made the slighted typographic mistake on your program. The results while very alluring were overwhelmed by the fact that many of the companies reaching the criteria did so in battalions in years like 1933 or 59 or some such. I wasn't agile enough at the time to perform a Mann Whitney test of the performance of these companies versus randomly selected counterparts at the same time. However, the study would be worthwhile to do, if one had an exact as is, with no retrospective file. Perhaps someone will do it correctly and see how it did relative to my hypothesis and the related hypothesis of the J. Livermore who departed from life at the Sherry Netherlands because of excessive vig.



 I was recently asked by a friend whether Jack Aubrey had any lessons to teach for trading. I don't know anything about nautical things but I answered him as below. He asked me if I had written about deception anywhere. I would be interested in any lessons that others have learned about markets from Patrick O Brian's books.

[…] there's a fake Englishman strategist, L!ddell H@rt, who fancies himself a master of deception. And I covered his insights. He's sort of like Ogilvie. Everything self serving. I believe that deception is one of the things they are very big on in the Military colleges. Deception in nature is the model. It's ubiquitous.

Lessons? From a  layman's point of view, yes. Forget the maneuver. Go for the jugular. And always have an escape plan. And use indirection at all times to get your way during the battle. And always be prepared to change your plans in the midst of the battle. Almost all the battles he won, he had to change in the middle.

Paolo Pezzutti writes:

I think the chair describes three main aspects of Jack Aubrey that are very relevant. Those aspects are:

1. deception

2. the determination to go for a big win over the enemy

3. the ability to adapt to changing situation.

I also think Jack Aubrey's has some characteristics like those of successful traders– for example, confidence. Jack was intimately aware that his abilities at sea as a Captain were first class. This was because of nautical competence, instinct, hard work training, cohesion and sharing of objectives with the crew, detailed planning and analysis of all factors before engaging a battle. Finally the intimate conviction the the British Navy was far superior to any other Navy. He also had the willingness to take risks. You can't win if you are not willing to lose. Jack Aubrey was taking big risks in order to leverage his edge against the enemy. This is similar to how traders take larger trades when the odds are in their favor. 



Since 2012 there have been 30 occasions when the eighth trading day of the month existed. And indeed the gain on the next three days was cumulatively 1.2 points, 2.4 points, and 4.2 points in actual S&P futures.

Three cheers for Yale and the super 8. ….except for all days during that period the gains the next 3 trading days were cumulatively 1.2 points, 2.4 points, and 3.6 points.



 I have the pleasure of having in front of me The Stock Trader's Almanac for 2014 by our good friend, Yale Hirsch and his son Jeffrey Hirsch, now published by Wiley. The book contains a myriad of data on seasonals, tips for investors on pivots and candlesticks from John Person, "the first ever to use the powerful combination of candlesticks and pivot points. Our similar musical and movie tastes made it that much easier to work together".

Also contained are presidential cycle information, the Friday Monday effect, the January barometer, first trading day of month, September: a correction for all seasons, the super 8 days around the turn of the month and trading days 9 to 11 when 401k's are invested, market moves before 3 day holidays, best months switching strategies, methods a la Silver of predicting midterm congressional elections (it's peace rather than prosperity), the free lunch before Christmas et al.

Without any falderol there is contained an enumeration of monthly levels in all the major indexes since 1950, and highlights as to the witching hours, the 10 best and worst days, years, weeks, months, quarters, seasonal patterns since 1901, discussions of IRA's awesome advantages, and GM Loeb's battle plan for survival, best performing months et al.

Hats off to Yale. And a book well worth having whether you believe in predictive power of seasonals et al or not.



 Some commodity futures markets I have been trading just opened night sessions (from 9pm to 2am). That created some unknowns for me, as I don't know how the night sessions would affect the daytime sessions, particularly the opens/closes of the day sessions. The strategies I have been using are based on studies of the past 3 years' data. So I stopped trading these and just watch. Since these markets all have overnight overseas markets, I suspect the newly added night sessions would not make much difference to the day sessions.

Would anyone would share some experience on this?

Victor Niederhoffer writes: 

You should find markets that already have these sessions, and apply your methods to them which will work just as well as your normal. The volume in these abbreviated sessions by the way will be very low, and you won't be able to trade them. But the volume will be just enough to throw off all your opening regularities from the past.

Mr. Krisrock writes: 

Be aware that global futures markets are looked at as ONE MARKET. Time zones aren't important but prices and liquidity and price targets are very important.



 The Master Trader by Laszlo Birinyi reveals the secrets of some of Birinyi's greatest successes and most celebrated techniques. Such secrets are timeless, valuable, and thought provoking as I often learn walking down the street with the very recognizable Laszlo after our tennis games, when a grateful passer by stops him "You're Laszlo Birinyi, the guy from Wall Street Week, aren't you. I owe you so much. You recommended Apple to me when it was 3 and Amazon at 50 and I bought them. And now, my whole family is sitting pretty because of you.".

Among the public, Laszlo is most famous for having by far the best record on Wall street week, 1000% versus the average of 270% for the other panelists during the 1992 -1999 period that the program was in its hayday. Among professional investors, he is most renowned for inventing the concept of money flows, a measure of the dollar value of a stock bought and sold during a short period. He is also the developer of a myriad of practical, tested money making ideas for individual stocks and the averages that are widely used by investors.

Some of his other discoveries, are the beauty of sprained wrist stocks, companies that are hit hard by temporary concerns but have not had their basic business model hurt, the predictive value of corrections of more than 20%, likely moves after big days, the moves after gaps, the rotation of industry performance during various segments of the market cycle, the superiority of growth stocks over value stocks in recent years, the long term unprofitable record of smart bears.

Most important of all the insights in "The Master Trader" is the snap shot of a creative and curious man who never accepts conventional wisdom, and has the patience and persistence to go back to the original sources to ferret out the truth from the mumbo jumbo. Those traits were noticed by Mike Bloomberg while Birinyi was a neophyte at Salomon Brothers and quickly led to his becoming head of equity research at the firm. He refined his money flow indicator and applied it in the short and long term to stay ahead of the market.

Birinyi is well known and highly respected by Barrons readers. His stock picks, market calls, and indicators are frequently cited. He was the subject of a thoughtful interview in January 2009, where he elicited one of his favorite themes— the experts are always behind the form, the number of stocks down 50% in a year varies inversely with future market moves, and recommended buying Amazon at 50 among other great calls.

He runs a successful investment firm with mid 9 figures under management out of his Westport estate, still likes to eke out a profit or two in his own trading, and publishes a daily advisory service that applies the myriad indicators he has developed to picking individual stocks, and future market performance for the day and the fray.

 The question arises why would he reveal his secrets in a book, and how valuable is the book, which retails for $65 in the Wiley Trading Series. My guess is that he feels that after 35 years in wall street, he has a responsibility to restore some sense to the mumbo jumbo that is often accepted as wisdom on wall street. He believes that the data that is used, the records that are kept, and the performance figures that are reported are misleading and often harmful to the investor. Before he shuffles off, he feels the responsibility to rectify the situation. All investors would prosper from reading this book which should serve as a Baedecker for market people.

The Table of Contents of the book, always a good place to start lists 94 golden nuggets and hidden treasures for market people. Some of my favorites:

The Advance Decline Line : A Favorite but Why?

Technical Analysis fails a Rigorous Test

The Dow Theory in Real Time

The Issue of Cyclically Adjusted Price Earnings Ratios

The Public Versus All Others

The Demise of the Japanese Market was Structural

How to Tell Whether We Are in the Eighth or Ninth Inning

Group Rotation Exists

The Fed Tightens: It Hurts Only for a Little While The Morning after a Big Day

It's 10 AM: Do You Know Where Your Stocks are Going

Gaps Provide Opportunity and then Some

Cost of Timing the Market

One can become overwhelmed from the treasures revealed in the 224 figures and 97 tables contained within the book. However, there is one overriding theme and lesson that the book teaches: "It's smart to be Bearish but Not Necessarily Profitable." Here's why. "The Market does not articulate its positive insights while the negatives are front and center. We appreciate that it is disconcerting to read the morning papers regarding global strife, political corruption, man's inhumanity to man and nature, and still have an optimistic outlook… The Negative is Obvious: the future is opaque."

The studies contained support this view. Stocks with big declines go up in the next 3 months. Sprained wrist stocks that suffer big declines from ephemeral causes like the big banks when they are caught with their hands in the cookie jar tend to recoup their losses. By getting out of the market and missing the 5 best days each year, a buck invested in 1900 would have diminished to about 1 cent by 2012. Compare this to the $40,000 or 50,000 that you would have received by buying an index fund with this 1 buck during the same period as documented by Dimson Marsh and Staunton. Yes, when you get out of the market when you see that there is a likelihood of a catastrophe you can reduce your chances of suffering a big drop. But you also reduce you chances of gaining the immense drift that compounding a 8 or 10% a year return from stocks or a 15% return on capital can obtain. Which is better? As Jim Lorie, the founder of the Center for Research in Stock Prices at the University of Chicago liked to say, "When you get out, you never know when to get back in".

The book has many virtues but there is one weakness. Birinyi seems unaware that there is considerable randomness in the market. You can't expect every regularity or forecast to repeat. Time and again he shows how this or that forecast or insight turned out to be wrong. Yet even the best regularities are right some 60% of the time. Furthermore, the cycles are ever changing. The things that work the best in one period frequently work the worst in the next. Many of the studies for example that Birinyi reports that have alluring profits in the 2009 to date period, would have led to disastrous losses in 2008 and 2000. This is a small price to pay considering the many recurring and startling insights contained in the hundreds of documented regularities that do show consistency.

An edited and perhaps more sprightly version of this review appears in Barron's of July 7, 2014 on Page L28.



 "The people who are coming into the game, the creativity, the intelligence—it's unparalleled right now. In ten years if I applied for a job, I wouldn't even get an interview" -Billy Beane quoted in The Signal and the Noise by Nate Silver. Silver knows baseball very well, and there are many insights and carry overs in his chapter on W's and L's in his book. Here are some of them.

1. Silver developed a system called Pecota to predict when a hitter was going to be good. He picked Petroia who became a Most Valuable Player whereas all the other systems missed him. He started out badly and then improved greatly. The principle of ever changing cycles applies to baseball as well as our field. While silver doesn't know anything about markets and his chapter on it is one of the worst I've read, he seems like an amiable personage. I like his humility. He goes up to Petroia to get an interview: "'No. I won't give you a minute. I'm trying to get ready for a Major League baseball game,' he said in as condescending manner as possible every syllable spaced out for emphasis."

2. In developing his system, he tries to weasel out skill from luck the same way Galton did. He doesn't like batting average but likes things like home runs and strikeouts versus walks. Would we be better by looking at how far down or up, the market was rather than the win or loss.

3. There is an aging curve. A player is good after a few years but bad near the end. It's sort of like the s curve for growth. Silver tries to capture which part of the aging curve a player is on and uses that to pick how much to pay a player. He doesn't seem to realize all the difficulties in differentiating between the 20 kinds of curves that are possible, and the predictivity of making assessments even if you knew the curve a player was on. It's very similar to the problem we have in looking at similarities. Which are the variables to measure, and even if you could find the most similar would that be predictive. Neural networks is based on the similarity algorithms.

4. Bill James comes up with a similarity rating starting with 100 to see how a player compares to other greats. Seems to use linear distance. Much of James work should be applied to markets. The trend follower who lost so much who's now the baseball owner should have used James as his chief speculator rather than following blindly the moving averages.

5. Silver concludes that scouting + computers is better than just computers. I believe that no system is good without judgment and the question of clinical versus objective rating is a ongoing debate in psychology.

6. Silver actually evaluates his predictions versus the scouts and concludes the scouts did better. One has to compliment him for his objectivity in making such an evaluation. It is amazing how few of the forecasters in our field actually provide an evaluation.

7. Silver points out that everything about baseball is encapped in the score cards and the videos. He believes that baseball is the best slate, the most detailed and accurate base of operations for forecasting. I wold say that our own field where tick data for all trades is available is just as good.

8. He comes up with 4 factors that go beyond the statistics that are good for evaluating a player. Preparedness, concentration, competitiveness, and stress management. It would be good to have Brett's take on these factors. They all seem reasonable and might be applicable to our field in choosing employees and partners but they are untested. I would think humility would be one of them for our field as well as hard work. I like that Petroia never wasted a second but tries to play his hardest even in the warmup. That's what I like in a trader and how I tried to be in racket sports also.

Brett Steenbarger writes: 

"4 factors that go beyond the statistics that are good for
evaluating a player. Preparedness, concentration, competitiveness, and
stress management. It would be good to have Brett's take on these
factors. They all seem reasonable and might be applicable to our field
in choosing employees".

There are several meals for a lifetime in
that post; thanks for sharing. I strongly suspect that there is at
least one single factor that runs through preparedness, concentration,
competitiveness, and stress management and that's the ability to sustain
an intense level of goal-directed activity over time. Dean Keith
Simonton's work on greatness finds that successful people are productive
people: they are highly purposeful. Traditional interview methods rely
on self-report and end up being biased by the interviewer's perceptions
of an interviewee's likeability. A more objective measure would gauge
how productive a candidate is across domains.For example, one of my
favorite interview questions asks applicants to walk me through their
process for generating an idea for a trade. The successful ones offer
rich detail about a unique process that entails significant analysis
(digging into an area) and synthesis (assembling observations into
conclusions). The unsuccessful ones offer superficial explanations of a
generic nature. You learn a lot by delving into the details of how a
market participant prepares for the trade. Much of what predicts success
are cognitive strengths, not just personality.

Paolo Pezzutti writes: 

I think the ability to sustain an
intense goal-directed activity as suggested is an important factor for
anyone who runs an organization. The main thing however is to couple it
with a vision of what the organization has to be in the future. This
translates into a number of goals that lead the organization to that
point. These goals have to be analyzed in order of impact and effort it will take to achieve. Finally they have to be
prioritized and executed. Competence, determination, leadership, the ability
to sustain long working hours, the will to succeed are all important in
the execution phase.



 I've spent the last week in Sacramento, and the week before that in San Francisco. Two things caught my attention that seem like ticking time bombs no one is talking about: sub prime auto (and other non-mortgage) loans and interest rate resets on mortgage rate resets from 2010—leading to lots of houses about to be foreclosed on. I heard a bit about these two from individual perspectives. I don't know, though, how large these two may be. Anyone know how big the sub prime auto loan market is now?

Victor Niederhoffer writes: 

In my 55 years in wall street, there is always a month when there is something bad happening. From 1954 to his helpful passing for those who refrained from buying during his incessant and invariable weekly bearishness, one can merely look at the king of pessimism's column to find the bearish thing of the month– a very helpful thing for the bulls as it creates unnecessary fear and selling. After his passing, there was our friend the bearomoter who consistently found bearish things. This will save one from having to look through every days newspaper which I'm told is much easier now that you can look at it in the net and don't have to use microfilms any more, although I have not had the pleasure of doing this yet. However, Doc Lilienthal often has very helpful pessimistic things he's noticed, and the ticking time bombs mentioned above are a helpful substitute for the bearomoter with the elegant equestrian partner.

Gary Rogan writes:

But overall it seems like examining any individual piece of news, positive or negative, is pointless with respect to predicting the future market direction.  If it's out, it's already in the market, and the vast majority of them are too small to affect the market in any predictable way anyway.  Certainly something that is known by someone will affect the market, but knowing what it its among the thousands millions of candidates doesn't seem worthwhile.  The good doctor seems to have an idea that the market needs an excuse to do something.  I don't know if it does, but short of a sudden outbreak of a major war that one can't predict anyway or some well-known employment of Fed news that everyone knows, it seems pointless to look at news as a guide.

Ralph Vince writes: 

I would point to any short which shows US Equity prices and US recessions, and I would argue that US GDP is relevant when it is contracting for multiple quarters, and we should bear in mind the 1st qtr predictions, none of which were as negative as the final number came in at, and consider we have second quarter preliminary right around the quarter.

anonymous writes: 

Auto loans are not backed by the feds, while most home loans are, thus I expect fallout from the sub prime auto loan market will not get the same attention in the media or in Washington that home loan foreclosures will get.



 There is a passage in Memoirs of a Superflous Man I believe from Turgenev about a lake that appeared so beautiful but was deceptive about the coming terrible storm. Sort of like Caesar trying to calm the senate before becoming dictator. I will try to find that passage which Nock used to describe the calm and deceptive serenity before World War I's outbreak. And angler fish uses it in a form of aggressive mimicry. The movement of crude today at the open, the only market down among 30 on my screen to the constructal number of $5.00, strikes me as such a fish. Amazingly I will not buy it today. What other deceptive calms arise to lure you in before devouring you for the kill?

Update: I found the beautiful passage from Ivan Turgenev's "Clara Militch":

"Evil is coming… and here is the lake, isn't it blue and smooth? And here is a little boat of gold. Will you get into it? It floats of itself."

Now I sound like the bearometer. But I mean it merely for the one market that's down today. What is the performance for example of the 10 worst stocks of the day when the market is way up?

Allen Gillespie writes: 

 This is my favorite bull to bear passage from one of the best books ever written, Lonesome Dove by Larry McMurtry Chapter 91.

"But a week passed an they saw no Indians. The men relaxed a little. Antelope became more common, and twice they saw small groups of buffalo….The country began to chnage slightly for the better. The grass improved and occasionally there were clumps of trees and bushes along the riverbed…He felt the threat of drought was over…Traveling became comparatively easy…

The next day, as they were trailing along a little stream that branched off Crazy Woman Creek, Dish Boggett's horse suddenly threw up its head and bolted. Dish was surprised and embararassed. It had been a peaceful morning, and he was half asleep when he discovered he was in a runaway headed back for the wagon. He sawed on the reins with all his might but the bit seemed to make no difference to the horse.

The cattle began to turn turn too, all except the Texas bull, who let out a loud bellow.

Call saw the runaway without seeing what caused it at first. He and Augustus were riding along together, discussing how far west they ought to go before angling north again.

"Reckon that horse ate loco weed or what?" Call asked, spurring up to go help hold the cattle. He almost went over the mare's neck, for he leaned forward, expecting her to break into a lope, and the mare stopped dead. It was a shock, for she had been quite obedient lately and had tried no trciks.

"Call, look" Augustus said.

There was a thicket of low trees along the creek, and a large, orangish-brown animal had just come out of the thicket.

"My lord, it's a grizzly," Call said.

Augustus didn't have time to reply, for his horse suddenly began to buck. All the cowhands were having trouble with their mounts. The horses were turning and running as if they meant to run to Texas. Augustus, riding a horse that hadn't bucked in several years, was almost thrown.

Call drew his rifle and tried to urge the Hell Bitch a little closer, but had no luck. She moved, but she moved sideways, always keeping her eyes fixed on the bear, though it was a good hundred and fifty yards away. No matter how he spurred her, the mare sidesteeped, as if there were an invisible line on the prairie that she would not cross.

There was confusion everywhere. The remuda was running south carrying the Spettle boy along with it. Two or three of the men had been thrown and their mounts were fleeing south. The thrown cowhands, expecting to die any minute, though they had no idea what was attacking, crept around with their pistols drawn.

"I expect they'll start shooting one another right off," Augustus said. "They'll mistake one another for outlaws if they ain't stopped."

"Go stop them," Call said. He could do nothing except watch the bear and hold the mare more or less in place. So far, the bear had done nothing except stand on its hind legs and sniff the air. It was a very large bear, though; to Call it looked larger than a buffalo.

"Hell, I don't care if they shoot at one another," Augustus said. "None of them can hit anything. I doubt we will lose many."

He studied the bear for a time. The bear was not making any trouble, but he apparently had no intention of moving either. "I doubt that bear has ever seen a brindle bull before," Augustus said. "He's a mite surprised, and you can't blame him."

"Dern, that's a bit big bear." Call said.

"Yes, and he put the whole outfit to flight just by walking up out of the creek." Augustus said



 I feel like a Spanish conquistador on a small scale. My past vanquishes from seven trips to Peru include malaria, elephantitis, amoebic dysentery, hepatitis, and last year three fly larva with sprouting wings crawled beneath the skin looking for a way out. Once any disease is identified, the treatment is straightforward and efficacious, as with these. Each ailment, if one is able to study and feel it in progress, is an honor with a merit badge of antibodies or sash of resistance. I was ready for the next exotic disease.

However, I got blindsided yesterday with the diagnosis of chronic anemia from a worm infestation I had pined for since veterinary school out yonder in the Michigan countryside on call at the barnyards (our offices). There the extracurricular dogs, wasted and grown so thin they were shadows of dogs, except with hanging pot bellies, were dosed with worm medicine before we went on to the big jobs of treating the cows and horses. I grew fascinated with intestinal parasites but had no idea that the chronic anemia the suckers caused could nearly kill a person.

Anemia is a decrease in the number of red blood cells or less than the normal quantity of hemoglobin in the blood. Hemoglobin is a main part of red blood cells and binds oxygen. If you have too few red blood cells, or your hemoglobin is low, the cells in your body will not get enough oxygen. Breathing is like drawing air out of a paper bag. The name is derived from Ancient Greek ἀναιμία anaimia, meaning 'bloodlessness'. Because hemoglobin (found inside RBCs) carries oxygen from the lungs to the capillaries to every cell of the body, anemia leads to hypoxia (lack of oxygen) with varying degrees of anemia fostering a wide range of clinical consequences. Anemia is the most common blood condition in the U.S. affecting about 3.5 million Americans, while the 2014 issue of Blood magazine for medical practitioners reported that the global anemia prevalence in 2010 was 33% or 2.3 billion people.

Chronic is a condition that persists and has been present for at least three months. I'm certain my anemia was contracted nine months ago In Peru when I was unable for one month to escape the delivery boat of a demented captain far up the Rio Tigre and ate and hobnobbed with a string of villagers where hookworms are indigenous and zoonotic among their runt animals that made my earlier Michigan barnyard dogs and cats look like champions of show.

In collecting evidence on a medical subject there are three fronts: observation of the client, his history (more difficult for animal patients), and laboratory reports. My Peruvian doctor said I was as white as a ghost, and then began the history. A physician who takes a good history and a patient who gives one nearly always and quickly solve any mystery that we call illness. I learned the first rule is to take the history chronologically, and the pieces of the puzzle fall together into a diagnosis before the mercury is shaken down into the thermometer. Then he gasped as my lab reports popped up on his computer monitor. 'You'll be a very sick man if you're alive one month from now without treatment.'

My hemoglobin is 6.3 gm/dl while the adult male's normal range is 14-18 gm/dl. In the laboratory test hemoglobin (Hb) is measured as total hemoglobin and the result is expressed as the amount of hemoglobin in grams (gm) per deciliter (dl) of whole blood, a deciliter being 100 milliliters. My hematocrit by volume is 22% whereas the norm in males is 40-50%. Hematocrit is the ratio of red blood cells expressed as a percentage by volume of the blood. It can be said that I'm existing on less than half the oxygen of what the normal reader is.
The lab report supports my suspicion for the past two months that I am hypoxic; however I thought it due to a heart or lung condition and estimated the reduction of available oxygen at 30%. Unless you have been there, it is hard to explain how a desert dweller develops a skin like a coyote nose that detects water at a distance, and how an athlete who has jogged eight miles a day for twenty years owns a palpable cellular sensation for the presence, or absence, of oxygen. The three symptoms for the past two months have been dizziness, fatigue, and shortness of breath. To climb a flight of stairs has created the same oxygen debt as fifteen minutes of wind sprints with the similar inclination to keel over. Twice I've lost consciousness during uphill walks with the faint echo of the inspirational lyrics from The Impossible Dream, 'To try when your arms are too weary…to reach the unreachable star'.

I could never have imagined that a legion of vampire worms could cause such hypoxia to deprive an adequate oxygen supply and cause a near death experience. There have been a half-dozen instances when I felt I could 'will' myself to die as the old folks in homes that I used to do volunteer work at claimed was possible, and in Indian circles. It's a floating, paradoxical REM sleep. A person may die when, scientifically speaking, he ought to have lived if he is in an almost heaven. Yet, each time as consciousness drained like a liquid from lack oxygen in the brain, a spark ignited alertness perhaps due to old timers urgings such as 'This ain't a dress rehearsal, Sonny', and 'Get out and milk life dry.'

My nemesis is Uncinaria, a large family of hookworms that infects man and dogs, with frequent zoonotic transmission between them. These hookworms are present throughout the world, and especially in warmer climates. In the United States, hookworms are found everywhere and commonly along the East. Worldwide, zoonotic hookworms are found in tropical and subtropical regions where the parasite is better able to survive in the tropical conditions. Their mecca is the Amazon where they grow three times as large as anywhere else in the world to 1.5 inches.

These nematodes are slender beasts with bent heads like a hook for leverage of a hammer claw and a mouth with cutting plates and an inner single pair of teeth to bury deep in the intestinal mucosa to gnaw through the walls to the capillaries. All hookworms suck blood, and the Amazon variety are capable of removing 0.2mls of blood per worm, per 24 hour period. They are in competition with themselves for space and blood along the walls like bickering tenants in a skid row hotel, or old revolvers in newly opened mining districts so that when they do want RBCs, they want them badly. Dogs have been known to carry thousands of worms in their intestines, and I suppose given the chronic anemia that I may harbor as many.

The Uncinaria were positively identified yesterday in a microscope slide report at an Iquitos clinic that was tardy relative to the other results which had provided a clean bill of health. The lab report didn't quantify the infestation beyond 'heavy', and was supported by a greatly elevated eosinophil count of 27% (eosinophils usual account for less than 7% of circulating leukocytes) which makes it a textbook case of parasitosis, according to my Peruvian doctor who has seen several as severe.

The patient has two sleeves, one containing a diagnosis and the other a therapy. The diagnostic lab is my favorite area to place the first sleeve, and in vet school I worked six illuminating months as a budding medical Sherlock Holmes, as we all were, diagnosing diseases by a battery of tests – blood, fecal and a few others. The laboratory spun with tubes and slid with slides like a rock concert. The medical lab is the bastion of the fight against disease where the etiology of each is identified by the tests. Sometimes the lab reports weigh as much as the emaciated patients, so much the better. Reading them is exactly like perusing an Ellery Queen mystery such as The French Powder or The Dutch Shoe mystery and solving for the crime before the last page is turned. (By the way, Ellery Queen is both a fictional character and pseudonym used by two cousins from New York.) The laboratory is a palace of probability that few pathogens can sneak by undetected, and once fingered they stand little chance of survival.

'This is Good Medicine!' I cheered the doctor, on the way out the door, and he understood that modern medicine had diagnosed and would conquer another microscopic army that had tried too hard to infest a human body. If more smartly evolved, the worms would have allowed me to remain asymptomatic while sucking me dry instead of my plan to load for bear to kill them and then taking the advice of the oldsters to suck life dry.

Hippocrates advised, 'The physician must be able to tell the antecedents, know the present, and foretell the future — must mediate these things, and have two special objects in view with regard to disease, namely, to do good or to do no harm.' That is exactly what this seasoned tropical doctor did, and I walked out his office on lighter feet. He was a general physician, and It must be understood that no one can be a good physician who does not perform surgical operations. There is as great a difference between a physician and surgeon as between a mechanic who has learned from texts and one who has lifted hoods and had his hands in the muck. Never settle for a doctor or specialist who is not also a surgeon. Even in middle age he seems astonished at being paid for doing something as enjoyable as solving daily medical mysteries and curing. Wherever the art of medicine is loved, there is a love of humanity.

The doctor proposes that my severe condition, which he's seen in villagers that have a 20% incidence of hookworms, requires no blood transfusion. In the USA, in contrast, a severe anemia is defined as hemoglobin of 8.0 or less with symptoms present and is considered life threatening and prompt treatment is required. In U.S. my case would probably be met with a blood transfusion, which currently is controversial with a circulating slogan 'Anemic patients should know they have the right to speak up for a transfusion.' However, I've seen thousands of potbellied people and pups around the world looking more bedraggled than I, and don't worry a bit about the diagnosis. The anemia is a blessing, but a change, and requires a moment in the thick of the crisis to check the flow and redirect the focus.

After the diagnosis comes the treatment, as he penned two prescriptions in striking calligraphy: Albendazole and Confer. The former is a broad-spectrum anti-helminthic for roundworms, hookworms, threadworm, whipworm, pinworm, flukes, and other parasites that works by killing the worms straight out from the blood. It doesn't taste badly to me and I suspect something is added to intoxicate the toothy heisters. This really is war, with my life at stake, and theirs. Despite their sophisticated mouthparts, and a nervous system that may also deliver an almost heavenly state of consciousness, these bloodsuckers have no excretory organs and no circulatory system, that is neither a heart nor blood vessels.

I'm not a pill Frankenstein tampering with nature, but there are many bull's-eye synthetic and natural medicines that are literal miracles that I will take, and otherwise would be dead a few times over if having lived in the time of Tarzan a century ago. Albendazole is an efficacious one. It is commonly prescribed worldwide, and particularly in USA for zoonotic infections. It's on the World Health Organization's List of Essential Medicines, a tally of the most important medications needed in a basic health system. In 2013, GlaxoSmithKline, the principal international marketer of the drug, donated 763 million Albendazole tablets for the treatment and prevention of parasitic infections in developing countries such as Peru, bringing the total to over 4 billion tablets donated since 1998. Closer to home, since 2010, and for understandable reason, the U.S. price of Albendazole has increased by 4000% to over US$100 per 200-mg tablet. Disease is the biggest money maker in our economy. I paid 20 cents a tablet yesterday for my two-tab a day supply for one week totaling about $3.

In addition, I filled a prescription for an oral iron supplement called Confer. Unlike salt licks, you may not find the nearest igneous outcrop and expect to lick usable iron. Because iron is the principal component of hemoglobin, consuming a supplement and iron-rich foods will raise your hemoglobin levels. Dietary iron must be attached to either animal meat or plant tissue to be absorbed by our intestines, and the supplement probably contains both. I've also started eating iron rich seafood, red meat, and leafy green vegetables. The doctor assures that my 6.3 hematocrit will increase two units per month so that in four months I'll reach the low norm, a triumph as complete as Operation Detachment in the Battle of Iwo Jima.

But I also have my own ideas about disease recovery to cure. Walking is first rate medicine and is my first thought to accelerate the doctor's prescriptions. Healing is a biological process and there are few ailments that do not respond immediately and expansively to the increased circulation of a vigorous walk. Walk in increasing increments with escalating weight to let the clean air blow the cobwebs from your body.

In the aftermath, there's money in the bank to cover the cost of the trip to Peru and lots of salads and seafood. The medical expenses totaled $US200. In the USA it would have cost twenty times that, with additional superfluous tests and requisite specialists, and taken weeks instead of two days. One well-trained physician of the highest type will do more for a patient than ten specialists because everything medical within the body is interrelated and cannot be separated.

A Darwinian view of medicine makes disease more meaningful. Diseases arise ultimately from past natural selection. It's a continual war within one's lifetime, and over the centuries, of the forces of pathogens vs. the soldiers of the immune system. They evolve after each skirmish, and then counter-evolve like in Mad magazine's wordless black comic strip 'Spy vs. Spy'. Paradoxically, the same capacities that make us vulnerable to disease often confer benefits. The capacity for suffering in itself is a useful defense After all, nothing in medicine makes sense except in the light of evolution.

Nature didn't find the perfect place to hide the little assassins in my gut; but rather the Uncinaria developed through epochs of struggle and earned their position. Now they have revealed themselves and will die. Perhaps a few during the Albendazole fusillade – one in 10,000 - will adapt, survive, and reproduce resistant pathogens. Such is life.

Through hard traveling and having contracted and beaten a string of diseases that remain like untied knots the emotions have been, 'I love you. I hate you. I like you. I think you're a loser. I think you're wonderful. I don't want to be with you. I want to be with you. You should have believed me.' Health and disease, unlike what you may have been taught in middle school Health Science 101, are the same thing – vital actions intended to preserve, maintain and protect the body. There is no more reason for celebrating health than disease. After vet school my body became like an aquarium to me and I always carry a fishing pole to catch and squeeze every ounce of information I can out of each condition. I´ve had and recovered from nearly 33% of the ailments listed in the physician´s bible called the Merck Manual only to conclude that life is so short to learn so long a craft as disease cure.

In a subsequent medical text of alternative cures that I wrote, a certain pleasure is revealed that came from nudging the ill layman in the direction of terror, and bringing him back safely and happily and licking his wound. It´s too bad, but given the conventional medical wisdom that's the sort of paradigm shift required to accept like a Third Worlder that disease is a normal course of life. We don´t have to get as sick nor as often in the First World, but our attitude can become saner by accepting rather than fleeing in dread from the knock of unfavorable conditions at the door.

If you 'listen' to your body and intuition, they'll guide you well through sickness and into better conquering forthcoming illnesses and old age. You´ll gain wisdom about anatomy, physiology, biology and the mind. There are countless ways to develop the listening skills such as sports, dancing or drumming, but most of all by awareness through disease, while keeping a journal. Read about it in texts. It's more interesting to examine an ailment in onset, flow, and remission than it is gazing at virus Facebook.

The public bladder about medicine is that one must see a specialist and get a battery of tests when actually as much and almost instantly for free can be gleaned from recovered peers at an online chat forum for specific ailments. Such a well-chosen anthology of case histories is a complete dispensary, as well as studying the progress of one´s own conditions. Always pick a physician who is older, seasoned, a surgeon, preferable a sports medicine practitioner, and lord help you if he is busy. The profits will follow a good physician to the grave, but he is more difficult to find nowadays in USA, and all the more reason to seek professional treatment at a fraction the cost in other countries. Perhaps this is the only solution to whip the ill American health care system back to health.

As for Global Anemia, already the dead worms are evacuating, and I say, 'I tried to tell you. You said you didn't care, remember?' Today we fight. Tomorrow we fight. The day after, we fight. And this disease plans on whipping us, but if we have paid close enough attention they had better bring a sack lunch for the extra innings.

Victor Niederhoffer writes: 

A rather heroic friend I have.

Marion Dreyfus writes: 

One of the most useful posts I have read. I am sending it to a friend who has been battling Pneumonia contracted while she was in Paris, and had collapsed lungs and hypoxia when she was admitted to Roosevelt for a week. Thanks for troubling to write all this down, Bo. She is now completing her regimen of O2, and can begin to ambulate again like a regular person again.

Bo Keely writes: 

In any respiratory distress the first line of defense is a simple technique few doctors will prescribe. One must have lived in the North where pipes freeze to think of it. It´s loosely wrapping a towel or scarf around the neck & knotting it while sleeping all the night. This heats the air going down the trachea and into all parts of resp system. It cuts healing time by half and prevention is about the same 50%. Tested and proven by Michiganers. The other thing she should do that even the best doctors may not suggest is during recovery, when able, she should be walking or bicycling to keep things moving inside the body which promotes healing.



 We all know by now that one of the main purposes of the market is to create more flow so that the public can do the wrong thing. The market accomplishes this in a infinite variety of beautiful ways. One of the unobtrusive ways is through colors as in the Peacocks tail. The various quote machines flash red when down on the day and green when up on the day. Many markets, much too many for chance, flash from red to green incessantly until they attract your notice and lure you into an unprofitable for you trade. Right now Crude has flashed red to green to red about 1000 times in front of one's poor wherewithal.

Art Cooper writes: 

This is straight out of Las Vegas's playbook, where the slot machines ("One-armed bandits") are set up to maximize flashing lights, noise, etc. especially highlighting the (very rare) payouts.

Hernan Avella writes: 

Yet, it is remarkable that participants keep depending on the same limiting media tools which shape their understanding of the system. I watched this video from a leading computer programmer and it got me thinking about the possibilities if one steps out of the conventional offerings. I'm convinced that one has to design their own tools to watch the market, given our propensity to fall for deception and traps, specially of a visual kind.



 The morning turned in to a burlesque show for the shorts.

Victor Niederhoffer writes: 

They finally gave us a down day. The kind that hurts the most when you're short and waiting for the down day to cover.



 Within 2 blocks from where my sometimes office is, where the spec party was held, there are the retail outlets, Bed Bath and Beyond, Best Buy, Staples, Whole Foods and Coach. (all within 1 block from Time-Warner building.) One finds that they rank 496, 497, 499, 499, and 500th worst of the 500 companies in the S&P 500 with declines for the year of -25% for Bed Bath, to -38% for Coach.

There are only about 2 establishments that are listed in S&P 500 not in that category I would guess within that 2 block radius. I believe this is not chance. Does it mean I am a hoodoo? Or is it related to the dynamism of the vigorous that are not located in the Time Warner. Or is it related to the poor performance of big box retailers. Or the excellent performance of these companies in the previous 5 years. The average S&P stock is up 6.2 % for the year. One believes there is some deep truth in this geographic excursion.

anoymous writes: 

One recalls that there were at least a few Woolworth's retail stores in that area in the mid 90s. (A big one near 86th and 3rd, I think). I'm unable to draw a parallel to the fact that they have a skyscraper named after them on lower Broadway, but as far as retail disasters were concerned, they left a lot of open space in Manhattan when the last stores finally closed.

Jeff Rollert writes: 

There are buildings with poor traffic characteristics. I keep a list of them in LA. When a retailer moves into one, I sell their stocks. Period. I have found they have either passed the point of scalability for their market or for their real estate staff/advisors.

It 's a variation of "never push a bad position."

A commenter writes: 

This sounds like the skyscraper rule gone retail.



Henry George has the insight that all business decline cycles started from excess rents. Presumably the rents in those stores which on Fifth Avenue run $ 3,000-3,500 a square foot per year, but for office space in Time-Life itself rent for only $65.00 a square foot per year, are too high for the companies to make a profit.

Let's say they are $ 500 a square foot. That means a 10,000 square foot store has to cover 5 million a year in rent. If rent is 15% of sales, that means sales of 35 million a year from 10,000 square feet or 3.5 thousand a year per square foot. That's $12 a day per square foot to break even. That seems high. The willingness to pay such rates is probably a symptom of decay or bad management?



Open local dynamical systems when pushed further from thermal equilibrium by energy flows, minimize their energy-mass dissipation but also optimise their information and synthetic complexity over time, through the reiteration of archetypal, convergent, asymptotic, analogical feedback processes which have canonical symmetries associated with aesthetic beauty and proportion in art, design, and architecture.

- "Is there a new law of thermodynamics?", Constructal Law Conference, Nanjing, China

One is not sagacious enough to tell whether this is sublime or mumbo.



Now that stocks are at an all time high, gold at 20 day high, and bonds near their highs, even corn up 2 1/2 this morning, and the euro between 135.5 and 136.5 for 25 days, what will the evil market mistress come up with to create flow and induce us to do the wrong thing?



The word "Huh" appears spontaneously without any root in all languages. Is there a regularity that appears spontaneously in all markets? The minimum on Monday? The big up open? The liquidation at the close from margin calls? What's your word?

David Lillienfeld writes: 

Huh is a palindrome. Palindromes seem like a good system idea.



 One found this Ted Talk on the Constructal Principle the most stimulating video about markets I've seen in the last years.

Gary Phillips writes:

Configuration - Evolution - Performance

Humans and animals instinctively nest before giving birth while price intuitively reverts to the mean or fair value time regulates gestation before each moves away– driven and sustained by an evolving flow structure that moves price and people more effectively and is fueled by monetary and human stimulus.

Richard Owen writes: 

I couldn't tell in my naivete if the video Vic kindly shared was genius or stating the obvious. Or indeed, stating the tenuous: "life is a function of force times distance and energy" is a bit like saying "the pop charts are a function of quantum mechanics". In some fundamental sense yes, but, well… um.

I have spent the afternoon trying to manipulate 600mb of data. With rudimentary tools on a regular computer, this is is not very efficient and requires souped up DBs and subscriptions to a cloud and so forth. This is despite my processing requirements being very simple.

As is typical with such affairs, I end up with fifteen applications and fifty browser windows open, trying to speed read this, that and the other, with high tonnage of adverts and so forth. Thus everything slows to mud.

This experience seems to have been a constant throughout my years of using computers, despite Moore's law and my task business task being somewhere in complexity along the lines of what IBM was tinkering with back in the 1950s.

I then start to wonder if the constructal principle isn't subject to its own law of relativity, such that just as light is constant in speed despite all available rocketships, so are my cromagnon perversions a constant despite all available processing power. Now hmm, where's that Miley Cyrus video where you can almost see her nips. I'm sure I had that loaded HD on youtube somewhere.



All systems that move tend to devolve to a structure and shape that increases the current through it. Thus, when a contract changes from June to September like SPU today, there is a increase in volatility and fearfulness to induce those who are long one to switch to the other, especially if they are long so that they can't get out of their positions without an extra curren(T)cy to the top feeders.



 The Constructal Principal where all flows move to the most efficient and point of least resistance and the prevalence of round numbers, one believes has a certain comity and unified cause to it. The question is, is it predictive as well as descriptive.

Gregory Van Kipnis writes: 

It is macro descriptive, for sure, and it's micro predictive if you have enough information. In personal discussion over the past few days with sports analysts, everyone agreed on its relevance to predicting outcomes in football and hockey (probably other sports as well). If you study the teams, their bio-physical make up and their play strategy (spreading out vs bunching) you can pick the winner with high accuracy. As for markets though, so much is invisible. To understand and predict each event's outcome so much has to be divined.

Orson Terrill writes: 

The options volume and open interest clustering at rounds as a partial explanation is good, and also reinforces the idea that there is a structural preference for the round (the standard strikes). What the Chair says about there being a point on the battle field where doves fly so both sides can come to agreements, and get their needs met, is also an excellent nuance that is worthy of consideration.

When I was taking game theory in school, with a Harvard educated game theorist, the Chairman's round number observation was always on my mind in that frame work; there are multiple scenarios(games) that can explain many situations in markets, and make a prediction if you have the information (what van Kipnis said).

SolarCity Jan 2016 Calls

The 10 rounds are ~35% of strikes, but account for ~75% of the open interest.

Column 2 is open interest, column 1 is the strike (rounds are highlighted).

       [,1]   [,2]
 [1,]   8.0    1
 [2,]  10.0    1
 [3,]  18.0   15
 [4,]  20.0   66
 [5,]  23.0    1
 [6,]  25.0   29
 [7,]  28.0    3
 [8,]  30.0  202
 [9,]  33.0   19
[10,]  35.0   31
[11,]  37.0   14
[12,]  40.0  874
[13,]  42.0   31
[14,]  45.0  264
[15,]  47.0   74
[16,]  50.0  487
[17,]  52.5   66
[18,]  55.0  148
[19,]  57.5   76
[20,]  60.0 3346
[21,]  62.5   60
[22,]  65.0  148
[23,]  67.5   78
[24,]  70.0 1605
[25,]  72.5  146
[26,]  75.0  571
[27,]  77.5   92
[28,]  80.0 2117
[29,]  82.5   23
[30,]  85.0  209
[31,]  87.5   31
[32,]  90.0  425
[33,]  92.5  117
[34,]  95.0  602
[35,] 100.0 2296
[36,] 105.0  382
[37,] 110.0  134
[38,] 115.0  619
[39,] 120.0  244
[40,] 125.0   88
[41,] 130.0 1873
[42,] 135.0    5
[43,] 140.0  204
[44,] 145.0   16
[45,] 150.0  283
[46,] 155.0  892
[47,] 160.0   20
[48,] 165.0   15
[49,] 170.0  391



In looking at the S&P 100 index members which have earned a median of about 15% for last 5 years, not counting the recent additions, and not counting those that were dropped which were probably few, one notes a surprising number very close to 100 as of date:

company name/ price

Amgen 117

Raytheon 98

United Tech 120

Berk Hath b 128

Anadarko Pet. 103

General Dynam 121

United Parcel 103

Johnson and J 103

Schlumberger 106

Chevron 124

Mcdonalds 101

Occ Pete 100

Exxon 102

The question emerges whether this is a random phenomenon at 13 out of 95 or whether there is an inordinate flow to 100. The related question emerges as to whether a stock that breaks through 100 from below tends to outperform versus one that breaks through from above. The crisp files should answer this readily.



Another day another 10 day or all time high. Out of 610 days since the beginning of 2012, 194 of them were new 10 day highs. Is this good or bad for the future. Some words from Bejan about markets flowing to ever higher and more efficient steady state seem of resonance. But scary divergence relative to bonds.



 What do you call it when one of your friends pretends that he's criticizing you while really praising and exonerating you. It's not "your own man". It's a variant of "the perfect lie". You pretend you're blaming your friend while really praising him. "We called silver top at 950 but it really went to 10 before cratering so we were wrong." As Harry Browne said, "Well, if this guy considers himself wrong when he misses by just 5%, he must be incredibly accurate. I better sign up now."

Gary Rogan writes:

I have seen Woodward do it a number of times. Some may remember "the threat" to Woodward from the White House a little over a year ago after "Inarguably, Woodward has had greater access to the White House than any other journalist in town."

Kathleen Parker: The Obama White House 'threat' to Bob Woodward matters

Now Woodward is somehow sure (from the Newsmax article) that "Obama didn't intend to do something dumb… He just wanted to do the humanitarian thing and get Bergdahl released, "and then they failed to manage it."

I mean what else can it be? In the olden day the King never knew all the bad things that happened to the simple people, he was always deceived. But he always meant well.

And those who watched last Sunday's Fox's morning program saw how Woodward gently (well OK, snidely) made fun of a conservative talk show host because she just can't forget about Benghazi. What's a man to do if he has to maintain access? Or maybe this is about more than maintaining access. There is no reason to anthropomorphize these animals.

Russ Sears writes:

In track it's called "missing his seeded time". The only thing I have personally experienced that comes close to the lies traders to themselves and others is runners and their training and Personal Record. If you don't believe me talk to some fat person who has been to jogging for over a year and hasn't lost any visible weight, how their training been going.

A PR in most big races that have entry times now must be validated. Often in a race like Boston, the NCAA Track Championships or the Olympic trials, the times are so stringent that the racer often peaks before the race and then race day conditions are never as perfect as they were on PR day.

But in track, in minor races, coaches must give a "seed time" for the race officials to pick the lane and the heat that often are unverified. A seed time is suppose to be from a recent race, but rarely are they verified. The good coach will whittle his best runners times down to give him the best lane/heat. Then of course after his race, when his times are higher than seeded, "it wasn't his day".

Its unspoken but understood if he had the best time on the team, why he missed his seeded time.

George Zachar writes:

This seems like a first cousin of the "humblebrag", which is when you, usually consciously, try to get away with bragging about yourself by couching it in a phony show of humility, like "your inflatable inner-tube is way cooler than my 80-foot yacht. You get to be so much closer to the water and to nature. I envy you, I really do."
Perhaps it should be called "humblepraise".



 One notices that crude has been building a nest around the level of 10250. One wonders whether nest building has anything to teach us about markets. Apparently its a biological imperative for birds and others.

Ed Stewart writes: 

How could the nest be defined. I noticed (including today) a sequence of 4 CL closes within the day's range that was prior to that. Is closing price proximity a good measure of nest building– if defined relative to the recent past. Gold seemed to be a very well built nest– just before the break.

Hernan Avella writes: 

I found this article about ant nests very interesting.

Despite some "agents" beliefs that the numbers themselves have any significance, volume/time/activity clusters are all results from local interactions, . In the ever-changing cycle of consolidation-expansion, the consolidation phase is like a living architecture building process (nests). Researches have discovered three main rules of nest building in ants: "The ants picked up grains at a constant rate, approximately 2 grains per minute; they preferred to drop them near other grains, forming a pillar; and they tended to choose grains previously handled by other ants, probably because of marking by a chemical pheromone". One often sees the liquidity asymmetry games (big bid, small offer) as the building blocks of this structures. Traders (algos), like the ants, follow the patterns of the bid/offer and consolidation begins. This process has moments of high predictability and increase competition.



 On my recent visit to the Boston aquarium I had the pleasure of seeing 5 chambered nautilus. The nautilus has existed relatively unchanged for 500 million years, and is the longest lived cephalapod at 20 years, so it must have many lessons to teach us. What do you think it might teach us about markets other than changing its behavior, depth, and speed in the day and night, and building larger and larger chambers in a Fibonacci series as it grows, and using its 100 tentacles independently to catch food, and using its hard shell to protect itself, and moving very slowly except when it has to escape when it uses jet propulsion, and its camouflage in the night?

Pitt T. Maner III writes: 

 On a similar note, a blue leg hermit crab (possibly Cilbanarius tricolor) caught my attention on Clarke Beach in Palm Beach last week (a beach where I once found many years ago the fantastic shell of a paper nautilus/argonaut–best find ever).

Mr. Hermit was a very cautious fellow and quick to withdraw into his shell at the slightest vibration or passing of a shadow and took several, patient minutes before determining the "coast was clear" to begin walking again with his shell home. After finding a nice clump of seaweed and other shells to blend in with, however, Mr. H was content to stay relatively motionless until the tide came back in. I imagine the tricolor leg markings are a bit disconcerting for a predator trying to figure out if Mr. H is edible–the blue looks absolutely toxic!

 One scientist who has brought lessons learned from observations of the predator-prey rich California tidal pools to other fields (including national security) is Dr. Rafe Sagarin.

In the speech below Sagarin discusses the powerful lessons to be learned from nature and tips a hat to an earlier biologist, Edward F. Ricketts (of Steinbeck, "The Log from the Sea of Cortez" fame). He notes the need for organisms to leave the "comfort zone" and adapt at times when predation becomes intense and notes that they do not plan, predict or try to be perfect. Sagarin points out the mola mola as an unlikely design for a very successful fish. His take is that animals tend to "learn" from successes and not failures. Adapt and overcome, to use a military phrase, is the evolutionary order for the day.

He thinks the octupus to have a beautiful brain and wrote a book in praise of the animal: Learning From the Octopus: How Secrets from Nature Can Help Us Fight Terrorist Attacks, Natural Disasters, and Disease by Rafe Sagarin

I found this article by Rafe very interesting: "How an octopus can help us thwart terrorists"

EVERYTHING would be better if we learned from nature, says Rafe Sagarin.

A couple of more links of possible interest:

A youtube talk about the octopus by Rafe Sagarin: "Learning From The Octopus: Unleashing Nature's Secrets of Adaptation"

Rafe Sagarin's website 



 In my opinion the worst thing about [Mr. X's bearish, stubborn approach] with regards to trading is that it takes one out of the market's rhythm or one's system with unhelpful thoughts. For example, if one shorts as part of a swing trading or short term program, what works is some variation of, "short and cover" but if you miss the "cover" part because you think, "this is it, the End of The World prophecy is coming true", you don't cover, you get run over, you lose positive focus, become stubborn, miss your next long trade, basically are completely thrown off of your game. That type of scenario is all too easy to fall into and must be guarded against.

Victor Niederhoffer adds:

I believe the worst part of it is the cognitive dissonance that comes from being wrong, which makes you double down on your reasons in an effort to find new straws in the wind that support your view, the carry over impact on your other views that makes you a confirmed pessimist, the related problem of being wrong so often that the only way to maintain your mojo is to become a promoter, the inability to realize that there is always something bearish as Mr. Ellison has helpfully pointed out, the refusal to pay heed to the fed model as developed by Mr. Downing and myself, the refusal to take account of the power of compounding with a return on capital of 15% versus an interest rate of 3%, and the lack of consideration of the evolution of how big companies have learned to be flexionic to grab higher rents from their cronies, et al. That said, the great Jim Lorie agreed with Mr. Stewart that the worst thing was when you get out of the market, you never know when to get back in, so you miss the drift.



The question of profits growth versus the GNP and stock growth is an interesting one. How can profits go up more than GNP without it triggering countervailing tendencies? And how can stocks go up in the long run more than profits growth. It would seem to require an increasing p/e. The difference between profits growth and book value growth is also an interesting one. One notes often that a company has enormous gains in profits with a much lower growth in new worth. The difference could not be explained by dividends. Might one possibility for the growth of equities be that they have learned how to gain verisimilitude from Washington, and that this enables them to eke out a return on capital which when put into the p/e hopper enables them to increase their share of the total adjusted for interest rates? Inquiring minds wish to consider it.



We have now gone 8 days without a decline of 1 point or more in SPU, the last decline being on 5/20/2014. What does that portend for the future. In general what does a long period without a decline portend and more generally what does a long period without a move of x or more portend. An interesting follow up arises following the big rise or decline. For example, we've gone 8 days without a decline over the last 8 days. What happens after a period of big rises following the big decline. Does it head for the hills or the valleys. One quantifies it, and finds that the most bullish thing occurs when a big rise is broken by a big decline, i.e. one should hope that there is a bit of a decline in stocks now, as that will be quite bullish not bearish.



The next meeting of my NYC Junto will take place Thursday June 5, 2014 and feature Robert Begley on Man the hero: The crucial role heroism plays in life. All DailySpec readers are invited: Meeting begins at 7:30pm, speaker at 8:00pm.  General Society Library, 20 West 44 St, NYC.



 Forgive me if I haven't augmented the dinner party lately as one was at his 50th reunion at Harvard where I heard a great Boston Pops concert, did some bird watching at the very elegant and peaceful Mt. Auburn Cemetery, and found many of my classmates who seemed just like ordinary boys in '64 were now quite eminent and personable. About 1,000 out of 1,200 living out of 1,500 entrants were there. The joke was that if Bin Laden had been a Harvard student, the fund raising apparatus would have had his whereabout so they could solicit him. You will be hearing from me shortly.

Rocky Humbert writes: 

According to the Social Security administration, out of an all-male '64 class size of 1500 entrants, only about 1065 should still be alive.

Perhaps going to Harvard is the secret to longevity?

Russ Sears writes:

There is considerable self selection in going to college. Higher education could be thought of as an annuity ceasing upon death. SS death rates are higher than most actuarial tables, because life insurance is generally underwritten. But annuity tables have the lowest death rates due to the self selection. Incidentally the more options you have in a payout of say a pension plan or even SS, the more likely the annuitant will game the options. Where politicians often start with equivalent tables. 



 Do markets move in the shape of a torus, which is at the heart of the constructal principle more frequently than chance, and is it predictive?

anonymous writes: 

When you say "torus" I think "circle times circle". (Referring to the surface of the torus, not a solid torus.)

The surface of a sphere, by contrast, is not circle times circle. (The standard physical models are: two angular measurements in a TIE fighter, versus lat/long measurements on the Globe. (Think about the poles and notice that lat is 180 degrees, not 360.))

From an external point of view the surface of a torus is a 2-dimensional curved surface with one hole in it.

By "markets" I assume you mean agreed prices over time (for some contract? for some index/composite?). Prices are (nonnegative) scalars, not surfaces, so somehow we need to make the prices "live" on that surface, i.e., map from possible price space to the torus' surface.

In that context — what would genus 1 (number of holes==1) mean?
A related idea, which is not speculative at all, is to use "projective spaces" in portfolio design. This is what is going on when people talk about purchasing a security for $0.97 and selling it for $1.00.



 To what extent can Pascal's principle where a change in pressure is transmitted undiminished to all parts of an enclosed liquid or gas system, whereby a small change in force on a narrow area can move a much larger force on a larger area as used in car lifts or construction machinery, be applied to markets in certain situations? Is this a useful question?

Stefan Jovanovich writes: 

The Chair has asked a question that I cannot answer so I will add to my stack of irrelevant comments. What is called the Industrial Revolution was neither. Metal working and large scale enterprise were not new things. The Arsenal at Venice and the Royal Navy's yards with Brunel Sr.'s block carving automatic lathe did not need the "invention" of the steam engine. It was the discovery and application of the paradoxes of fluid dynamics that created our modern world — first steam, then gases and liquids generally.

Gary Phillips writes: 

Mauboussin likes to talk about the market as a complex adaptive system and critical points where large scale reactions are the result of small scale perturbations, the implication being that causality can be difficult to identify because it is often very subtle.

Traders tend to focus on multiple and ubiquitous agents that may not drive price, but do support their directional bias, while ignoring potential outcomes with low probability that may be driven by hidden or obscure agents. Same with systems with too many degrees of freedom and over fitting.

Gary Rogan writes: 

I often think of the market as a Pascal system or a school of fish. How do all the stocks know to move the similar direction?

Ralph Vince writes:

In the context of fluid dynamics, Gary's question leads to the (near inescapable) conclusion that the movement of stocks prices, in this context (with an isomorphism to 3D space of the varioius stocks) is characteristic of the flow WITHIN the de/compressing cylinder itself, under varying states of compression at varying times.

A study of hydraulic flows would show that fluid flow within the cylinder itself is not uniform, and is also a function of various degrees of pressure.

From this we could create such a model.

Gary Rogan responds: 

It is kind of like that, but it's almost like there are local agitators within the cylinder. This morning provides a perfect example that I can see in my own stocks. Some joint venture news in MDLZ, one of the Kraft spinoffs has provided positive agitation to the food stocks, and more so to the specifically beverage stocks, and less so to the consumer non-durable stocks. This agitation is somewhat sticky in that when the market first rose for whatever reasons and then fell likely on Yellen's remarks, these stocks seemingly have experience a smaller sensitivity to the market had the important news not occurred. It's like a decompressing cylinder with small local explosions/collapses.

Ralph Vince adds: 

 Matter in the expanding (i.e. decompressing) universe may be a better model?

But it still boils down to a feed back loop where the output of one becomes the input for the next ( in one case amplifying and in the other dampening).

Gary Rogan writes: 

That's an excellent analogy and something I've been reading a lot about! It's not perfect but likely productive.

Immediately after the Big Bang the small world was pretty uniform. But then quantum uncertainty fluctuations have added a small pattern to the Universe that was the progenitor of what we all see today. In addition sound-like wave resonated within the Universe leading to the spectrum we still see in the microwave radiation today. Gravity has dramatically amplified the initial quantum fluctuation leading to the truly observable local pattern of galaxies, stars, and planets. And of course all the following star formations, collapses, and explosions created all the heavy elements as well reshaped the local structure of galaxies. Plus there is all the dark matter and dark energy (dark pools?) that exert gravitational and expansionary forces that can only be guessed at by their effect.

Craig Mee writes:

From the back benches, I think the problem may lie in measuring the change in volatility, since under no news conditions, the environment may be ideal, for example, after news releases in Europe mid morning before the states come in. After that though, it may be difficult to separate cause from effect. 

Jim Sogi writes: 

Might a small amount of money pouring into something like gold or oil or wheat move the entire market? The canary principle might be at work rather than Pascal's causal function, and there may be a lag, complicating the relationship.

anonymous writes: 

 The use of finite-volume methods in sell-side modelling suggests it is a useful question. Market cap is a "squishy" concept of volume, as it can change when prices rise and fall. Book value is less squishy but still far from rigid.

Imagine a directed graph of trade flows among several companies, forming a trade network. Suppose there is a bottleneck somewhere. Destroying this link might be more disruptive than destroying other links.

My father used to talk about one of his coworkers who whirled about his organisation with fingers in every pot. This individual did much more than his job description suggested. When he left the organisation many projects across departments floundered.

The Allies' North African campaign of WW2 was meant to attack a "pressure point": Rommel's petrol supplies. Paraphrasing ER: "The bravest man can do nothing without guns, the guns can do nothing without ammunition, and neither guns nor ammunition are mobile without petrol."

I would also use the metaphor of joint-locks in jiu jitsu. Consider the manifold of configurations of your opponent's feet, knees, hips, shoulders, elbows, wrists, fingers. Applying pressure (vector) to the wrist and fingers in most of these configurations will not move the opponent's feet or hips. Joint locks find the configurations where a small force in precisely the right direction will cause the opponent's feet and hips to move a lot.

Saving the geekiest example for last: in George Lucas' fantasy world, certain Jedi Consulars are able to, with sufficient meditation and magic, see "shatter points" in a situation–precisely the kinds of vulnerabilities that will spread and multiply force to a wider area.



 I found this article on termite mounds, homeostasis, and especially the constructal law helpful in understanding markets and life.

Pitt T. Maner III writes: 

I found a few more items related to constructal law.

1. I believe Chair would find this website of interest: constructal.org

2. Also Dr. Adrian Bejan's book Design in Nature

In this groundbreaking book, Adrian Bejan takes the recurring patterns in nature—trees, tributaries, air passages, neural networks, and lightning bolts…

3. Also this is a very good Q and A with Dr. Bejan:

Q: In the simplest non-technical terms, what is the Constructal Law?

A: The Constructal Law is my statement that there is a universal tendency (a phenomenon) toward design in nature, in the physics of everything. This tendency occurs because all of nature is composed of flow systems that change and evolve their configurations over time so that they flow more easily, to create greater access to the currents they move. '

4. Here is a Ted Talk by Dr. Bejan on the Constructal Law of Design and Evolution in Nature



In looking at markets with a view to what would maximize their flow, which I take to be volume, according to the constructal principle, I would believe flow would be maximized by the following:

S&P at 2000 versus 1900

vix at 10

dow at 18000

tbond at 140

bund at 150

gold at 1300

dax at 10000 versus 9764 today

spy at 200 versus 190

bac at 15

city at 50.00 versus 47.3 today

corn at 5.00 versus 4.78 today

naz 100 at 3800 versus 3675

brkshire big at 200,000 versus 190,205

copper 3.00 versus 3.16

platinum at 1500 versus 1472

silver at 20.00 versus 19.4

soybeans at 1500 versus 15.15

Let us see if these predictions are better than random.



 The more one thinks about it, the more one believes that the constructal principle  the principle of least effort, the law of uniform stress, and Lobogola's principle are all manifestations of a general tendency to minimize the wasted energy in a market system. How would you improve on that formulation, and relate it to specific examples, and test it's predictive properties?

Hernan Avella writes: 

One can add that markets minimize wasted energy by always facilitating the efficient transfer from the weak to the strong. This transfer has to run at maximum capacity for the system to flow. Whenever the weak "gets lucky"(Internet, Housing, Gold), flow is inefficient and lobagolas are needed to restore order.



It is interesting to consider to what extent there are more or less two day moves in the same direction between markets. For example, the two day move in crude has been up on 9 consecutive days. How frequent is it, relative to other markets, taking account of the drift in markets. Is it predictive of anything in the future? Is it consistent with randomness. e.g. number of occasions that the two day move close to close was up versus down on two consecutive occasions.

2009 - present

market      up         down                                                   

crude      487          421

spu        558          342           

bonds     469           407           

gold      509           397           

euro      483           407                                                    

yen       442           463




 1. Marion Tinsley, the greatest checker player of all time, had a favorite proverb of Wiswell's: "Moves that disturb your position the least, disturb your opponent the most. I believe it has a wide application in all games, and markets. I mentioned it to my new friend Ken Roman and he immediately said, "that's exactly what General Foods failed to consider".

2. One is reviewing the invaluable and unique cache of 10,000 proverbs that Wiswell faithfully wrote for me over a 20 year period, 20 to 40 a week. They are magnificent and timeless. It is unfortunate that few except kids play checkers anymore in the US, and that the British Empire where checkers was king has faded, as they would make an invaluable contribution to posterity.

I pick out one I like at random from the first of four 200 page books of them I have: "after you lose a tough game, there is only one thing to do: set them up and start all over again". Right below it is: "No master is so great that he has never lost, and will not lose again" and "the player who records his losses today won't repeat them tomorrow" and "the player who never takes a chance may be taking the biggest chance of all".

3. Crude and Gold are in a negative feedback loop with each other as are so many other pairs of markets. Does anyone agree with me that 95% of TV advertising is done for entertainment and not selling, and that the worst commercials are those of Geico which has the same superior, supercilious contempt for its viewers that the sage himself has for anyone else trying to improve his lot or make a fee in the world.

4. It is difficult to maintain one's equanimity on days that the Fed minutes are released knowing that the minutes are distributed to 100 important bank executives and public relations firms and other flexions on a "need to know" basis hours before it's released to the public. At least one can bite into the negative serial correlation that pervades such releases.

5. The movie "The Lunch Box" contains a beautiful depiction of food distribution methods in India. "Harvard studied it and found it totally efficient and flawless". And a beautiful literary romance adds to the poignancy.

6. The play "Act One" currently at Lincoln Center has an uplifting theme and heroic view of mankind that is worthy of the 5 successors that dominated musical theater for the next 30 years, Kaufmann, Rogers, Hammerstein, Hart, and Loesser. As Hammerstein said, "I never could write anything that didn't have a positive and optimistic view of humanity in it".

7. Corn and crude has been bouncing around the round numbers like the old ping pong matches where the women sometimes played a point that lasted 30 minutes, during which Marty Riessman could start and finish 3 of 5 match before the women finished the first point.

8. The Knicks will never rise about 500 in the standing until they get rid of the worst player in the league, JR Smith, who has an unholy friendship with Melo that exacerbates the weaknesses of both.

9. When you trade over night, if they give you a small profit, you would have made 5 times as much if you held to the close.



As for drawdowns, one has unrivaled experience with same. One would never play poker with men named Doc i.e. don't trade in inactive markets. Do you really wish to trade against people like Jeff who know their markets inside out including the freight car loadings in Kansas City each day. One would extend that to "don't trade markets where the top feeders take out 8 or 10 billion a bank, i.e. currencies. Whichever way you go, the market will go opposite with volume.

Anatoly Veltman writes: 

I respectfully disagree on staying away from FX:

1. Very liquid
2. Not a zero-sum!!

The only prohibitive thing is a very short-term orientation, given revelation of Virtu prowess. Virtu's record of 1282 straight wins must not be alone within the market-making community.

anonymous writes: 

I will go with Vic. I haven't seen, if not a very few, winners in Forex either big or small, except of course those with unlimited funding.

Larry Williams writes: 

One more with Vic with some hard evidence…look at all the real $ trading contests the Forex and Option buys never do as well as the future traders.

Hernan Avella writes: 

Regarding the Forex-Drawdown discussion:

There are 10-15 top feeders in spu that average 400K/day, don't play their game (See Andrei Kirilenko's paper

I found that to make consistent profits in Forex you have to completely forget the methods that made you money in spu, bond et al.

I know 2 guys that make consistently good money in Forex (~ 8 years). It's the only market they ever traded, they have an excellent quote aggregation software and they specialize in "momentum ignition".

anonymous writes:

In many games a good reason for playing tougher opposition is not to win, but to learn what can't be learned beating up on amateurs. Just got to keep the cost of tuition at a reasonable level.



 "The Strange, Secret History of Isaac Newton's Papers". It's a must read.

Richard Owen writes: 

"But then at the same time he left us 10 million words, which is one of the most extensive of any scientist, or even any one person."

You need to live until about 90 and be averaging about 400 words a day from the days you're out of short trousers. Albeit the 10m seems an exaggeration since much of it was transcripts of others stuff.

anonymous writes:

"Academics have spent much time assessing Mr Niederhoffer's papers in light of his contribution to quantitative finance. It has surprised many that he had a burning obsession with furniture, being that he constantly referred to chairs in reverential fashion. He was also fascinated by forearm strength, regularly making reference to the world's grip. Most surprising of all was a seeming chemical discovery in terms of a compound called flex-ions. Sadly the papers do not elucidate and scholars continue to debate the implications."

Victor Niederhoffer writes: 

The Newton was very good with the alchemy. And I have a few of his letters where he transcribed the alchemy. As for the Niederhoffer, he has an unquestionable shibboleth against the charting, and the trend following, which led to his premature death on many occasions.



Stories about the bid decline in Nasdaq versus SPU are beginning to make the rounds, from Bank of America no less, and one raises the clarion cry of "what does it portend? have you tested that?".

 Nasdaq June 2014 Future



 Wealth Creation by Bartley Madden provides a systematic way of looking at the performance of individual stocks. He believes that values are determined by 4 things. The return on past capital, the growth of assets, the rate of drift from innovation versus competiton, and the stock price itself. He gives examples of how to apply these measures to Apple, Bethlehem Steel, Digital Equipment, Eastman Kodak, IBM, Kmart, Nucor, Medtronic, Walgreen, Donaldson Company. He believes that lean management is one of the keys to success and contrasts Toyota with Bethlehem as examples of the best in lean versus the worst. In 1950, 7 of the top 10 highest paid executives in America worked for Bethlehem. The vice presidents had office windows in two directions. Union rules made them uncompetitive.

He applied these methods at a Hold affiliate which was bought by Credit Suisse. His methods are apparently widely used by many institutions as well as by Credit Suisse. All his ratios which he suggests be considered I n a feedback look must be tested. The Schumpeterian drift from competition is hard to measure. As is the return on future assets. However, the ideas make a lot of sense and provide a good template for analyzing a company.

He is a champion of free enterprise and the benefits that competition and innovation can bring to stockholders and consumers. There are interesting references to behavioral biases and shortcoming in the capital asset model. He recommends for example a visit to the San Francisco Museum of Science to see all the Ames exhibits on lapes in visual perception. I have followed his career for some 47 years when I first noticed him as a star at Berkeley.

Bartley Madden responds: 

As to discount rates, the key idea in the Wealth Creation book is on p.89 … "This systems mindset leads one to the conclusion that the assignment of a discount rate is dependent on the procedures used to forecast [firm's long-term] net cash receipts. This is particularly relevant to models incorporating standard ways of forecasting future fade rates based on company characteristics. In contrast, mainstream finance relies on CAPM-based calculation for the discount rate.. these discount rates are then parachuted into valuation models without regard to how users make net cash receipt forecasts.."

I am arguing that the same market-derived discount approach for bonds (yield-to-maturity) be applied to stocks. Hard part is to maintain a monitored database of forecasts of firms' future net cash receipts .. obviously easy for bonds since we know the anticipated net cash receipts (interest and principal). Long term future fade rates of economic returns (return on capital) and reinvestment rates can be assigned based on firms' observable characteristics. For example, all else equal high return companies with higher reinvestment rates fade (regress to cost of capital) faster than low growth firms.

All of this is easy for bonds and we see that all else equal, higher (lower) credit rating (based on observable characteristics) leads to lower (higher) discount rates. For stocks, high debt loads and lower liquidity tend to result in higher demanded discount rates. This approach is rarely attempted in the academic literature because it requires enormous effort to build a database suitable for this type research.

Bart Madden 



 A Churchillian view of the market:

The future course of the market turns on its ability to absorb this stock. After this almost automatic recovery, following a semi- panic break, the market usually sells off again, slowly, day by day, and not uncommonly approaches the old low level which the first fever of selling had established. It is not true that such breaks necessarily mark the end of major movements, although they have occurred at such times."

-William Hamilton, WSJ, April 4, 1926.

One admires the colorful language "the fever of selling", the semi-panic break, the ability to absorb the stock after the almost automatic recovery. And one thanks Alan Millhone for sending me the book The Dow Theory from which this coloratura is taken. Mr. Hamilton has none of that terrible haughtiness and chronic bearishness of his unworthy successor Mr. Abelson, having passed away on Dec 10, 1929, after riding down a 50% decline in the market in the preceding two months with his daily forecasts in the WSJ, but his writing is Churchillian, and although nothing is tested in what he says, he elicits many interesting hypotheses, pregnant to this day. I will take the liberty of transmitting some of his colorful prose and or leading ideas subsequently.

Also, always to be remembered, as Hamilton said on March 17, 1909:

It cannot too often be said that the road to ruin lies in dogmatizing on charts, systems, and generalizations. Trading on any such basis is Gambling as distinguished from legitimate speculation. It is no more defensible than an attempt to break the bank at Monte Carlo with one of the innumerable systems which have tempted weak human beings since the prehistoric ages when man first learned to count beyond the number of his finers and toes… stocks have been for sale on any recovery.



 "I understand your here to collect your share?" said the Keeper.

"My share of the taxes, yes," said the Visitor, "Piketty sent me."

"Are you sure you want to tax capital? I mean, really sure?" said the Keeper.

"It's only fair," said the Visitor.

"Well, to register and receive you must put on this headset," said the Keeper, handing over a kind of halo object, "it will read your Identity Number, calculate your distribution and begin making a fair deposit."

"Perfect!" said the Visitor, and popped the contraption onto his head. The Keeper stared at him directly, a thin smile on his lips.

The Visitor pressed the power button on the halo. "Aaaah! No, please. What." The Visitor spasmed wildly. "Aaargh! Oh my God! Please, please." The Visitor's flight reflex kicked in, his muscles began to shake violently, bringing him to his knees. The tension in his bladder collapsed and piss soaked his pants. The Visitor writhed on the floor, "MAKE IT STOP! What is this?!"

The Keeper quickly pulled a handset from his pocket and clicked the interrupt. Nobody so far had completed the deposit in full. The Visitor fell to the floor, exhausted. With his eyes blood shot, watering, the Visitor cried out, "how dare you, what was that torture? You fiend! This is criminal."

"You asked for your share," said the Keeper, "and your bank account is in credit now. Your share of the capital taxes have been delivered, proportionately."

"Are you some kind of SICKO?" screamed the Visitor.

"No. You see, you asked for your fair share. We decided in transferring capital taxes, we should also make an additional deposit to keep it balanced. We gave you a concentrated dose of every sleepless night, strained relationship, cheating business partner, every lie heard, every deal that didn't close, every set-back, every busted asset, every temptation skirted, idea stolen, regulatory intervention, bankrupt supplier, every loss adjusted insurance policy, every giant competitor… all of it. And there's much, much more. Should I complete the deposit?" asked the Keeper.

The Visitor staggered up to his feet, raised his eyes to the Keeper and paused to speak. But nothing came. Instead, he ran straight for the door.

Jared Albert writes:

I think the basic problem with Piketty style wealth redistribution is that everyone wants to read poetry, while no one wants to take out the trash.

That effort is often necessary for wealth, doesn't answer his basic point that in a fairer world we'd help those who strove and failed as well.

Victor Niederhoffer writes: 

Yes, Mr. Albert has encapped the idea that has the world in its grip. When I played ball, I always wished that my opponents would share their points when they beat me. There should have been a law. 

Jared Albert replies: 

A lot of effort has gone down dead ends in battery technology. Those efforts uncovered what doesn't work, and provided methods that may end up pushing some methods forward. Those failures benefit all of us.

According to an ideal Piketty model, the losers should be compensated in some form by winners as they helped move the sum of the effort forward.

I don't know for sure obviously, but I doubt you can find a nobel laureate who doesn't feel that they stood on the shoulders of others.

My point is that in general people are dis-incetized to try any of the routes if their reward has nothing to do with effort.

Stefan Jovanovich writes: 

In a fairer world we do help those who strive and fail; that is how successful teams (right now and for the past 5 seasons under Bruce Bochy, the SF Giants) and families (the anonymous R-Man's to take one of many examples from the List) and enterprises all work. As with most Leftist ideas Piketty has a valid complaint; as with all ideas based on the sacrifice of individual freedoms for collective good his Marxist solution is catastrophically bad. Some people do want to take out the trash rather than let it pile up, but no one does it for very long for the sake of strangers without getting paid in money that he or she gets to keep and spend. That is why inventive and naturally poetic people in Cuba live in a world of uncollected trash and free medical care where the patients bring the medicines to the doctors. But it is fair — everyone lives under the same collective incentive to read official poetry.



I have now read the paper sent me by a momentum fan. Our friend, Mr. Zachar, has a poignant phrase to describe such papers: "your own man". The paper consists of a series of hypothetical critiques of momentum, which he then debunks. Somehow he concludes that value beats growth. But all the prospective studies in the last 5 years, show that growth beats value.

The problem with the studies from my viewpoint is that they don't take account of ever changing cycles. The results from the 19th century don't really affect the current, since the strategy was not followed. The problem with studies of value from the past is that they use retrospective studies in one form or another. And the results are highly dependent on trying to find the few 10 bagger stocks that didn't go bankrupt that are still in the files and remain in the lowest decile of price to book.

The other problem from my viewpoint is that they don't take account of the Gordon model. The return on stocks comes from making a high return on capital say 15% and the compounding effect. Momentum and value go against this in one way or another. There are several fund that try to track trend following funds in real life. There's an ARQ managed futures fund that tries to replicate the performance of momentum funds. It's down 7% this year. The fund was started in 2010 and it's down from there. But it still has 6.3 billion in it.

I believe Dimson tried to track the performance of the best versus worst stocks in a year, and found that in 2008 the best performed 80 percentage points worse than the best. Such results would give one pause. I previously reviewed a study from France where the regression results of trend following showed no practical significance, i.e. a strung out beta of 0.03. I would have to study the Fama french data much more closely, to see how much retrospection is involved. But since the results don't hold up in the real world, I will not review the errors in such, too closely. All this is from memory, and I will have to check all the references to get the figures and references correct.

Jeff Watson writes: 

Lots of grain managed futures guys are closing shop. The managers just don't, as Lack says, "get the joke." There's so much liquidity in grains, I would think fund managers would be jumping at the chance to pick my (and C@rgill's) pocket.



 The more the performance of a system lags behind buy and hold, the greater the initiation period that is necessary or that evolves like the initiation into cults like those in Florida or other "societies" to teach you not to divest, and to hold through the good and bad. In many "societies" the initiation periods costs you money, which is shared by those at the higher level, but to the credit of many funds, the only thing you lose by the initiation period is time, and opportunity cost of buying the Spyder or some such which outperforms in the real life once the academic papers behind them can waft out of boot hill.



 There is something like the keech cult in many academic papers about systems. Many of them don't work in the real world. The more they don't work in the real world, the more the academic papers with titles like "is momentum really momentum?" or "the disposition to ride winners too long—" or "investing with style" or "value and momentum everywhere" or "dissecting anomalies" or "251 years of price momentum" or "the world's longest back test" exist. There seems to be no awareness of the principle of ever changing cycles to explain why things like fama french discovered in 1992 with retrospective compustat data, don't work in practice. Similarly why momentum strategies will reach a peak before a year like 2008 when they lose 85 percentage points relative to neutral.

Ed Stewart writes: 

I believe the failure to account for changing cycles and how the profit incentive inevitably leads to a reduction or removal of a static profit opportunity to cost or worse has to do with the academic's need to create an aura of prestige and permanence in their work. You don't see academics studying supposed profit opportunities in retail or other mundane businesses that lack (what often is) the veneer of intellectualism that finance offers. Reducing things to this reality would kill the profession.

anonymous writes: 

I'm glad the Chair brought up again the subject of Ever-Changing Cycles, a.k.a. "regime switch". Where could one find literature about it, aside from Bacon?

There's an entire industry of publishing about "alpha-generating signals", but I can't find one reliable source of how to treat data in order to be aware of the regime shift as soon as possible.

It seems this is the "Great Arcanum" of speculating, and even the liberated Adepts are not allowed to mention it.

PS: We just suffer the effects of regime switch recently, in a very frustrating way: after 3 months of incredible hard work to put together a portfolio of futures strategies (in order to go "full f" with it), we noticed that something wasn't ok with the distribution of outcomes. We then realized that PBR (Petrobras) which is "the" political brazilian stock, was being traded very differently than the previous years, due to this election year of 2014. It seems that the whole communist party (which PT - Partido dos Trabalhadores really is) is buying the stock, pricing it higher with great urgency, in order to make up the immense dammage they (the government) did with the company. (They could make an oil company to go broke).

But, that's post mortem reasoning: our portfolio remain useles, since PBR (Petrobras) has a great deal of impact in the stock futures contract (our primary trading vehicle).

The question that arises is:

What length of testing should be used as metrics for regime switch awareness?

What is the testing one should do to put aside a strategy that is performing badly?

In other words, what would be the procedures a spec should be doing to prevent being caught in the changing cycles?

We would appreciate very much any guidance.



"Can Kensho Bring Google Style Search to Stock Picking?"

Apparently the program developed by Susan and me 37 years ago, and continuously used by this firm and my many followers and employees thereafter and it's many imitators has yet another instantiation.

Shane James adds:

There have been products like this around for years. Some of the brand names are/were LIM (now a Morningstar product), ECOWIN , Ranger and one other I have seen whose name I shall not mention.

Some of the differentiating variables between them are:

1. quality of source data ( stale, as is, 'real' files). One of the above uses revised economic data to test on financial market activity that occurred before the revision!!!!!!!

2. speed.

3. security.

It makes my old bones feel better to read an article whose author implies than RenTech are quaking in their boots about this or that new machine that in the hands of 99.999 percent of people would lead to the 'discovery' of non predictive, non valid relationships between asset prices.

As for the involvement of a major Wall Street bank. Let's just say you were sitting around asking the computer what happens to Y when X happens and you uncovered the grail… Well… Do you really believe that the spyware build in to these things would not report same to the in house guy at the bank.

Energy traders are particularly fond of one of the products above, to a firm, none of them use the GUI provided but rather lease the data bases so they can better protect themselves.

I am sure the latest 26 year old who wears Converse shoes around the office and has a soft play area to de stress will have the market shaking in their boots. By the way, did the protagonist contact the SEC, CFTC, the police– whoever– about the alleged calls from the hedge fund traders???

I'm just saying is all….



 A friend asked me what I thought about this article about momentum investing by Cliff Asness.

I read the current interview with Cliff in Forbes as I couldn't download the paper. He manages 100 billion. Can't make money that way other than buying stocks and holding. He likes value. All the studies show that growth beat value the previous 5 years. As for momentum, there are too many years like 2008 where the worst did 85 percentage points better than value. I doubt that Asness uses as is files for their work before 2000 or so, so everything before hand is worthless. He talks about Shiller respectfully who some think is a charlatan, bearish since 1996, that Professor Lo has often brought to bear. I don't believe p/b gives useful result because of the survival bias not taken into account in any of the studies. Asness seems a plodding, well intentioned personage who must talk his book as is appropriate. One wishes there was a way to short the results of his fund versus the market.

Anatoly Veltman writes:

Just want to check a revolutionary idea. We've passively observed many regulatory misdeeds for a number of years, without getting bearish. It was ok with me as valuations gradually changed over 1000, 1200, 1400, 1600, 1800. I'm getting somewhat quizzy, when I hear "Can't make money that way other than buying stocks and holding. He likes value." Reminds me of the very-very common thinking about "real property" prior to the eventual 2007 unravel. Most people (or families) back then have never made a single investment decision in their lives (other than buying one house long ago) - yet they were all paper millionaires and felt special about their investing prowess… I'm not saying market demise is imminent, I'm just saying "Can't make money that way other than buying stocks and holding. He likes value" should objectively be nauseating.



 Here's a reasonable explanation of money flows: "Money Flows-the Ultimate Indicator: Laszlo Birinyi on Why This Beats Technical Analysis"

The concept of money flows developed by Birinyi predicts individual and market performance. It's up volume versus down volume. If an institution wants to get rid of a big stock for example, they'll sell big volume on a down tick and let little volume drive the price up. Several academic studies found it worked. But Birinyi doesn't think it works anymore because of the dark pools. I wonder if it works in markets. Presumably this stuff is available on market profile type for stuff carried on Bloomberg. The measure is entangled with the price move also. It might be worth a hand study.



When a stock is down, and then jumps to up, one wonders if the average person is so happy not to take a loss, that he gets out at the break even point, and whether this causes such stocks to be good buys at the time. It just happened with the S&P which was down a few bucks all night, and then suddenly jumped 6 points.



 I have seen many of your posts finding trading wisdom from so many other disciplines. I think they are valuable. Here is a relevant one relating to Roger Federer. "Roger Federer May be More Machine than Man". It is not current and you may know this piece already, but fyi. All the best, Fred Rickey.

Victor Niederhoffer comments: 

Very interesting consistency stats for Federer. But is it good or bad to be that consistent in trading?

Vince Fulco writes: 

As our august surfers on this site have remarked often, i am coming around to the view that trading is more like surfing. Have to watch a number of opportunities pass by until one is right for you then take the risk and stay flexible for the inherent churn, back and forth, sturm und drang caused by the newer HFT players, news/tape bombs and the over-reactors. The minor undercurrents will push you around for no apparent reason. It is as much knowing and developing one's ability to cope as it is having a strong market opinion.

Richard Owen writes: 

A Fed that never delivers surprises? I guess there's also the question of whether the stats are consistent only for Federer, or if this is typical of pro players?

Ralph Vince writes: 

Consistency, if it is the equivalent of variance = 0, is, to my way of thinking, certainly something beneficial to the trader. Given that variance, contrary to the generally-held notion that it is somehow (at least an aspect of) risk, is actually a diminishment of returns (i.e. variance is negative average return), then clearly you want as little of that as possible.



I have one fleeting thought about the GNP numbers and many similar numbers. What does the weakness of the economy (presumably caused by the bailouts and uncertainties of how to pay for money printed by the Fed), have to do with the likely course of the stock market? Is it bullish or bearish for the future? Have bad numbers for GNP been good or bad for the stock market? The stock market look ahead to future discounted earnings over a long period. The Gordon model et al. Similarly for other releases. Empirically and theoretically the good or bad numbers have to be tested as to their impact.

In the trend following paper Rocky asked me to review, they point out that if trend following works, it's a true violation of efficient markets because the prices should homeostasize. And the impact of exacerbating a move from homeostasis should be particularly unprofitable. But they claim it isn't. Especially in the 19th century and the 1970s or some such. And sometimes in grains et al as Jeff can attest. I agree with their idea that it should be particularly unprofitable. And that's why it's so profitable to go against the temporary moves to economic numbers which often in a day cover 1/5 or 1 /10 of the total move of stock markets in a year.



Thursday May 1, 2014 the world-renowned economist William Easterly of NYU will address the NYC Junto. He is the author of 2 best selling books: The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (2001) [link ], and The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Harm and So Little Good (2006) [link ]. He will be talking about his latest work: The Tyranny of Experts [link, review1 , review2]. All DailySpec readers are invited: Meeting begins at 7:30pm, speaker at 8:00pm.  General Society Library, 20 West 44 St, NYC.



The paper "Two Centuries of Trend Following" by Lemperiere, Derenble, Seager, et al of Capital Fund Management purports to show that trend following has been profitable, over a wide range of markets, consistently over 200 years. It deserves to be reviewed as it represents a case study of the statistical practices, and armchair explanations that are sometimes used to justify a system that in the most recent five year period has lost its mojo. Rocky has asked me to review it.

The amazing thing is that the authors seem to know how to compute hyperbolic tangent regressions, and compute the duration of a drawdown given a sharpe ratio, yet they seem completely unaware of the problem of multicollinearity, overlapping observations, and lack of independent observations.

In a nutshell, they compute hundreds of thousands of means, and they combine them and measure how far away from randomness they are. Recall that the average of two random observations is about 0.7 times as variable as one observations. The average of 100,000 observations is about 1/320 as variable as 1 observation.

They report t statistics of 5 to show that their results are non-random. But, but, but. If you have say an expectation of 1 with a standard deviation of 10, ( lets say 1% for a typical market ), and you divide 10 by 320 (i.e. sigma/sqrt of n), you come up with a t of 32… none of the markets they cover are independent. For example, they use 7 and 10 year interest markets, and 7 stock index markets, and apparently treat each observation as independent. Instead of dividing by the square root of thousands, they should be dividing by the square root of tens depending on the years they consider, and the overlap of the running 5 month values of the independent variable.

Their results, as biased as they are are not meaningful in any practical or economic sense. When they look for the effect of subsequent profits of trend following on past result, they come up with a slope of 0.04. What does that mean economically. If the profits of trend following in the last month was 1%, then the profits predicted in the next month would be 0.03%. The variability presumably is 330 times as great as the expectation.

The authors note that over all markets over the last 5 years, trend following has been flat. Considering that the market likes to give you a profit from a system on a market like lean hogs that trades 1/1000 as much as stock indexes in order to lure you in, the fact that it hasn't made money is very negative. Also, the performance of trend following funds tracked by all the services shows that in practice the trend followers have worse results than the averages.

Even though trend following doesn't work in the real world, the authors have several paragraphs on why it should work. They talk about the slow response to Fed actions, and the tendency of heuristics to follow what works in the past. These are arm chair explanations out of the bush with no statistical support, although their ideas that Fed qualitative actions show momentum is a valid one. The authors might benefit from reviewing Bacon on ever changing cycles or being behind the form. Perhaps I am missing some nuggets of gold in the above paper, and I am open to any corrections in my analysis, or areas that favor trend following that I have overlooked.

Vic Niederhoffer adds: 

To hear Mr. Simonder defending the performance of trend following funds which are apparently down 4% from 2008, versus 130% up for S&P as of May 2013.

Boris Simonder writes: 

A more objective description would be that I'm defending against sweeping comments that trend following "doesn't work in real practice" or "in practice the trend followers have worse results than the averages". Now you seem to have backtracked a bit by admitting the fact that there are advisers who have performed better and made money, now and in the past.

As for the percent performance of S&P, 130% as of May, 2013, this seems to be taken straight from the article you posted, although, I only see 86% between 2009 - May, 2013. (Cash index). For what it's worth, here are some TF's with better results than the averages (equities) and in real practice.



Apparently the death throw is a peri mortal stage.

Anatoly Veltman writes: 

"The opisthotonic posture tells us more about the circumstances surrounding death than about what happened after death."

This is the key, and that's why huge players have been known to run their own stops. The ensuing reversals are a sight to behold

anonymous writes: 

It would seem asian session euro fx product range extremes on euro open in particular….



It is always interesting to see a day where Japan goes straight down when NYSE was way up on apple news.

Jordan Low writes: 

And what are the odds of the Dow Jones closing +0.00 on such a wild day?



 I was sent this video about a honey badger taking on 6 lions. I noted a similarity between the way the honey badger reacts to attack. He retreats bitten, backing up with face towards adversary, then counterattacks, retreats for a little, then attacks again and retreat attack again.  Is it general or random?

Ken Drees shares from wikipedia: 

Honey badgers are very intelligent and are known to be capable of using tools. In the 1997 documentary series Land of the Tiger, a honey badger in India was filmed making use of a tool; the animal rolled a log and stood on it to reach a kingfisher fledgling stuck up in the roots coming from the ceiling in an underground cave.

As with other mustelids of relatively large size, such as wolverines and badgers, honey badgers are notorious for their strength, ferocity and toughness. They have been known to savagely and fearlessly attack almost any kind of animal when escape is impossible, reportedly even repelling much larger predators such as lions. Bee stings, porcupine quills, and animal bites rarely penetrate their skin. If horses, cattle, or Cape buffalos intrude upon a ratel's burrow, it will attack them. They are virtually tireless in combat and can wear out much larger animals in physical confrontations. The aversion of most predators toward hunting honey badgers has led to the theory that the countershaded coats of cheetah kittens evolved in imitation of the honey badger's colouration to ward off predators.

Pitt T. Maner III writes: 

 Honey badgers have a very interesting collaborative endeavor with the honey guide bird. It's an amazing partnership. Here is a vid about it: The honey guide bird leads the honey badger.

UPDATE: It's evidently a myth started by an early Swedish naturalist who heard of the behavior from a 2nd-hand source! Similar to the cliff-diving Norwegian lemming movie meme in some respects.

But at least the birds appear to interact at some level with humans on the honey trail and probably are not far behind a marauding honey badger to pick up the crumbs:

"Lies, Damned Lies, and Honey Badgers"

'Claire Spottiswoode, author of the recent honeyguide paper, set me straight. Even though the bird certainly teams up with humans, Spottiswoode said, "There is no persuasive evidence that honeyguides ever guide honey badgers". Cue baffled noises from me, and the faint whimper of broken childhood memories. Spottiswoode continued: "You might have seen the YouTube clip of a honeyguide seemingly guiding a honey badger - I'm afraid that was a set-up with a stuffed honeyguide and tame badger!"'


'The myth of the badger-guiding honeyguide began in 1785 with a man called Anders Sparrman, who had heard the story from local people. He never saw the actual behaviour first-hand. Neither had anyone else. In 1990, three ornithologists – Dean, Siegfried and Macdonald – wrote a paper debunking the honeyguide/honey badger story. In it, they wrote, "Naturalists and biologists have been active in Africa for more than 200 years. During this period, to the best of our knowledge, no biologist or naturalist, amateur or professional, has observed a Greater Honeyguide leading a Honey Badger to a beehive." '

Ken Drees writes:

My sister was in a party hiking in Sumatra, Indonesia some time back that was ambushed by the honey badger. He lay in wait and as soon as the local guide of the group appeared from under a fallen tree at the bottom of a ravine on an established path he swooped. Luckily the guide was quick enough to swing his machete, which had a chunk out of the blade after he caught mr. honey badger's shoulder. My sister was number two behind the guide, ducking under the log at the time of the attack and felt his furry coat on his retreat. The guide was very quick to start hacking a new path through the jungle and organizing the troops to flea since he was certain the honey bear would be back. After a few skipped heartbeats all worked out ok on that day. But it appears from this he's a thinker and from the guide's reaction and concern, the attack retreat attack is possibly not random. 

Jim Sogi writes: 

In The Book of Five Rings one of Musashi Miyamoto's three main strategies is to retreat …attack …retreat…. attack…retreat. It throws the pursuers off balance and separates multiple attackers and allows you the choice of your terrain and setting.



 12 insights about markets and life from reading Ken Roman's The King of Madison Avenue and The Unpublished David Ogilvy.

1. Be unorthodox and imaginative in your hiring. Ready to hire people with unusual backgrounds. Would you hire this man for an advertising executive? "He is 38 and unemployed. He dropped out of college. Has been a cook, a salesman, a diplomat and a farmer. Knows nothing about marketing. And has never written any copy. Is interested in advertising as a career at the age of 38, and is ready to go to work cheap." It was Ogilvy himself who 3 years later became the most famous copywriter in the world and built the eighth biggest ad agency.

2. Treat women as if they are as knowledgeable as your wife when you advertise to them. They don't like to be talked down to or treated as robots. Peter Lynch and Jim Cramer are not the only investors who got 10 baggers from their wives.

3. The purpose of advertising is to sell a product. Make sure you go for the sale. Forget about aesthetics. Learn from the mail order ads where everything is tested, and no ad continues unless it pays it way. Forget about the 3rd and 4th moments in your quantitative measures and concentrate on making a profit on your trades.

4. Don't show off or try to be funny. It doesn't go well in print. It demeans the readers' intelligence. If you show off in a trade or competition, it will defuse your energy, and take you away from the bottom line.

5. Always hire a secretary of the same sex as you to make appointments. It will show you're interested in business and not in romance. And it will prevent you from being too expansive if the romance doesn't work out, or too soporific if it does. You have to be alert to be successful in markets.

 6. You never know someone's character until the chips are down. Everyone's a good winner. Choose side men of unquestioned integrity, preferably eagle scouts, or those who follow the code of the west. Roman himself was not gifted by an excess of loyalty from his mentor when the chips are down. Don't expect your clearing firm to give you the benefit of the doubt in a tight situation. They have to worry about their stockholders and when you are down, there is ample opportunity for them to make a profit against you, the same way a poker player can when he knows you can't withstand a big bet.

7. Always be reading good biographies. Ogilvy was an incessant bio reader and used the lives of the greats as examplars for building his international operation. The best bio of a market person I have read is MFM Osborne's biography by Melitta Osborne and Tom Wiswell's proverbs. Both are available on the DailySpec.

8. Write 100 headlines and read everything about your competitors and your product before you write your ad. Be ready to test 100 systems until you find one that really works and is not subject to ever changing cycles.

9. Surround yourself with people that have talents that are different from yours. Ogilvy knew nothing about finance or tv or computers, and hired good people to fill in the gaps. If you're a macro guy, hire a micro guy to get you on the right track. The palindrome hired me because I could get him a tick or two, and that was enough to start the steam roller going.

10. Work hard. Oglivy supposedly worked 120 hour weeks, and drove his wives crazy by working all through the night. The little bit extra is the difference between success and failure. I won countless matches in squash by diving for shots while my opponents were apologizing for hitting it off the wood.

11. Be prepared with a good defense. Ogilvy wrote what Fortune described as the best sales manual ever for the aga cooker. In it he enumerates 10 common reasons for not buying the product and shows how to turn each objection into a sale. Are you ready on your trades to turn your losses into profits, to survive if it goes against? Prepare a manual of defense and stick to it.

12. Be ready to learn from and compliment your competitors. Ogilvy often walked out of a meeting and told the prospect to go with his competitor because the other side was better. Practical investment people can learn much from the academics, and the fundamentalists and the technicians should be friends.

Andrew Goodwin writes: 

I was thinking about what you said about how you shouldn't expect your clearing firm to give you the benefit of the doubt in a tight situation.

That doesn't make sense unless one gets preferable margin callings or the like due to status as a .01% large player. There is a mathematical sweep or a reg T margin from most brokers one can find who run a tight ship.

For my part, I'd like to see how the clearing firm traders use the customer position data. If you know someone is levered up the gills and has to post more money at certain levels, then of course they will take the other side if there are no Chinese Walls.

Long ago, I saw an indicator in print which showed the margin purchases versus the cash purchases of Merrill Lynch customers. When optimized it had reversion results that were nearly perfect for the many years preceding the printout.

If you know the margin call levels for the largest number of the public customers on Reg-T, then one should fade the mandatory liquidation levels once crossed with little caution. That's why you buy stock in brokers and hope they don't pay themselves all the trading profits in bonuses.



 One of the most astute economists I know who often speaks at the Junto, has described the humorous grandmother as an agrarian reformer without the agriculture. Even worse than the crook that was her chief competitor for the job. One wonders if this is bullish for bank stocks and gold?

Orson Terrill writes: 

She just may be the grandmother not wanting to put the son, who has been living in her basement for possibly too long, out on his own two feet. For this person to remain consistent, inflation should be less of a concern than creating a recession to avoid it, and there has been weight in some academic circles that inflation rates need a much higher target (4%). After the attention they've received in the last few years, it's easy to believe they wouldn't want the appearance of interfering with elections. In that light of all that, it would be more or less of a surprise if there was any substantive action, after the tapering is over, until elections were finished. That would give them a year after tapering was completed to have talked about increases in rates, tri-party reverse repos, permanent MBS positions, and maybe how the only bank prop trading allowed, thanks to the new rules, will be in government debt, which carries a 0% risk weighting, therefore, does not reduce capital adequacy…. and how all of this somehow may curtail the effects of reducing their large positions on the most volatile end of yield curve.



Proverbs by Tom Wiswell.

Do or die: "Drawing is not a dirty word and neither is defeat. Play to win, but take a draw, or even a defeat, and wait for another day. That's the name of the game."

A Doubting Thomas: "If you want to be certain of your position, you must begin by doubting it."

Confidence Game: "in order to win, you must have plenty of confidence, and that's fine unless it becomes conceit."

Your Manuscript: "You will need a blank book: plus a pen or pencil. And something just as important: an eraser."

Defeat: "In many losses, especially among masters, it is the one fatal move that breaks the camel's back."

Stroke of Luck: "With luck, students may win a game or two. But with knowledge and work, they may win many games, and even become masters. Stick to your last."

Ambition: "You have to burn the midnight oil if you want to set the world on fire."



After 25 years lost, I found the original cache of 5,000 Wiswell proverbs about life, markets, and checkers. These were presented each week faithfully for 20 years. It's like discovering the diary of an Einstein, who was amazed when Wiswell gave a simultaneous 10 game blindfold exhibition at Princeton. Tom thought this would be his best of 28 books. Here's a typical sampling from page 1. All of them will improve your life and markets. "I am often asked why I play 11-15 (c3-d4) and I reply, "that's where the wins are". (Perhaps the wins come after weakness?)



 One always appreciates the wisdom of Tom Wiswell. For 20 years, once or twice a week he'd write down proverbs from checkers that were applicable to markets and life. He'd say, "Victor, this is going to be my last book, and the best book. I'm ready to take off my hat". Today, the boys in the office look at the numbers and say, "it's getting quite bullish in SPU". Whenever Tom put you in an untenable position after you made a hasty move, and you started thinking, Tom would say, "now you're thinking" and shake his head sentorially and sadly. I had an opportunity to say that to my colleagues today: "Now you're becoming bullish".

Tom would also add after looking at Susan's legs, and her natural grace, (she never wore a drop of makeup or tried in any way to enhance her natural state), "Victor, the one thing I regret the most in my life is that I never married a girl like Susan." Then he'd sadly shake his head again and say, "but then again if I had, I might not have written 28 books."

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