1. There is always a web of market interconnections, but the problem is that the web is always changing.

2. You should never try to make money the same way two or three times in a row.

3. The worst mistake a person can make in business is to get in over his head. Had I held the 7 or 8 largest investments I made, each one a 6 or small 7 figure expenditure, most of them would have made me 9 or 10 figures. The next worst mistake a person can make in business is to pursue a lawsuit when a reasonable settlement is in the cards. Comparable to this mistake is to get in business with disloyal or untrustworthy partners.

4. I am reading The Tyrrany of Experts by William Easterly and each page has new insights as to why the common man, the lowly man, when left to his own devices can improve his well being through technology, innovation or trade. The opposite side of the coin is how technological development from an authorian dictator can lead to trampling of natural rites and ruination. The story of the hard work that led to the prosperity of the immigrants on Greene street in Greenwich Village in new York is particularly inspiring and warrants a visit to that street.

5. The Story of Mankind by Hendrick Willem Van Loon written in 1922 is a great unbiased history to read to your kids.

6. The bonds have been down 14 days in a row or so on a 3 day basis, and they are due to go up.

7. The grains are at a series of 20 day low below constructal numbers and are worth a buy.

8. On option expiration day, the markets will revolve from one round number to the other in order to create maximum churning.

9. The book Principles of Chemistry by Michael Munowitz is the best science text book I have ever read, and I wish I could turn over the trading business to my colleagues and spend a few months educating myself by reading it and his companion physics book.

10. My colleague Gene Epstein to whom I turned over the moderation and selection of the New York Junta which I ran for 30 years has been improved vastly by his supervision. However, he doesn't like the kind of speakers that I get who teach people like me with so much more to learn like George Meegan on how to walk 12 years in a row or Gary Hoover on the story of retailing or Ian Bagley on the heroes of New York.

11. The part 3 of Atlas Shrugged which one saw last night is very inspiring and true to the message of "living for oneself and not as a sacrificial object". The portrayal of the politicians is true to life, and the heroic messages that the producers in Galt's Gulch give to Dagny are timeless and inspiring. Galt's speech is done very well, and there are exciting visual effects of trains and trees and abandoned factories. It starts nicely with Galt refusing to be part of a employee owned business where everyone shares what everyone makes. 

11. I would hypothesize that anyone who bought an index fund of companies with the name video or game within it, would have superior market performance the next 12 months. The moderator of our site likes to invest based on what's hot for millennials, and her performance including several 5 baggers like Tesla, and Netflix has been exemplary. Had I followed her guidance, I would be a wealthy man.



 Joseph Heller invited Puzo and Updike to steeplechase where you get 50 rides for a 0.25. He told them how when he was a boy growing up in Coney Island he'd wait near the finish for the old people to come out, and ask them for their unused rides of the 50 they didn't take. In the current, Puzo went through the revolving barrel and hurt himself and they all sat on a bench and talked about their terrible publishers and agents, and the decline of the book business, and their kids wasted time on television. As they left after a few hours, some kids came up to them. "Hey mister, can I have your tickets?". There were 47 left.

I played raquetball on Sunday at the central park courts, where 53 years ago I won three national tournaments with my father watching. I was good in those days, and the only way I could get a game was to play my opponents for a quarter hitting every shot behind my back, or if they were really good, hitting it through the legs. I challenged some guys to a match, and they told me they would only play me their backhand against my regular game. I jauntily refused and challenged a 70 year old guy to a singles game. He was ahead 11-6 when he hit one to my backhand and I ran to cover it, and for the first time in many tens of thousands of matches, I fell hard on the back of the head. The sound was so great that the players 4 courts over rushed over to see if I had lost consciousness. When I got home, I mistakenly told the perfect wife about it, and she looked at me and said "should we use heroic measures tonight to wake you up if you don't wake up". I said "No, just take the money, and put it in index funds, and marry someone much younger".

Pitt T. Maner III writes: 


Hope your head is OK and you recover quickly. Sure that the doctors on the site have told you to be careful with that type of injury. At 70 you are considered just a kid in Palm Beach…

I have not heard from Mr. George Meegan lately [recent junto speaker and world traveler] but he is in the news in New Zealand.

Tomorrow an anniversary date recognized in New Zealand (where it is already the 18th).

"1983 - British adventurer George Meegan finishes a six-year long walk from the southernmost tip of South America to Prudhoe Bay, Alaska; covering 30,605 kilometers (19,021 miles)."

Thursday, September 18 - World - NZ Herald News



 One attended a lecture By Malcolm MacKay, author of Impeccable Connections, about the rise and fall of Richard Whiteny, who was the face of the stock market during 1920-1936 before going broke pegging the stock of a distillery in New Jersey whose game plan was to sweep the nation with apple jack after prohibition was repealed. Whitney spent 3 years in jail and had the entitlement that one often sees among the white shoes whereby when he was in trouble he'd go up to his worst enemy on the floor and ask him, "spot me 250,000 on my face" for a few months as I'm behind on some debts. He had 15 outdoor servants and 5,000 acres on his hunting estate in short hills so often he was in debt. He believed in free enterprise and thus was assured of getting bad press but he deserved it, as he showed no remorse for all the millions he embezzled. Fortuitously he embezzled so much from the NY Yacht Club that they had to sell their adjacent property to the Harvard Club where the lecture was held, and where the present author was not on the losing side of the lead up to the Nationals there for 10 years. He jauntily walked into the US steel pit on black Thursday and bid up the shares of all the blue chips thus temporarily stemming the tide of black Thursday so that stocks closed down only 3.5 %^. His brother ultimately paid off all his debts, and knew of his transgressions but was advised by the senior Davis law firm not to bail out a wrong doer as he might be an accessory to the crime.

Whiteny always wore his Porcelain pin and got some good hits on the prison baseball team playing first base. The wife came back to him after his mistress left him shortly before he entered Sing Sing where he was called Mr. Whitney, and the prisoners stepped aside when he passed. He ultimately tended a farm in Mass, and started a mail order orange company in Florida which he kindly offered at cost to his Harvard classmates on his 50th reunion book. He was the bond broker for the Morgan Bank interests during his heyday.

One should add that I had two distinguished guests with me, the father of market psychology, Mr. Brett, and Mr Siskind, the king of real estate deals during the last 50 years. Brett wondered whether Mr. Whitney had bi-polar disease and Donald Siskind noted that his personality was very similar to many of the real estate developers of the the previous generation. I would note that he reminded me of Peter Peterson who would throw out memos on the floor on the understanding that the servants would pick them up and transcribe them. It should be noted that Peterson once told me that Lorie liked to call him whenever there was a new joke, and didn't hesitate to do so during the Oct 19, 1987, crash interrupting Peterson from a board meeting.



With all the talk about history, one should note that the markets had a historic move last week. Bonds went down 9 of 10 days, a total of 4 1/2 points, the last 6 days in a row something they do only once a year. Crude and the grains and gold and silver are down about 10% in the last month. The stock market is still at an all time high relative to the fixed incomes even after declining one % last week. People forget that bond yields are determined by expected inflation at a time like this, and that gold has nothing to do with international tensions and corn has nothing to do with the size of the harvest. What a time for great macroscopic trades, and level thinking.



 The contagious and pervasive influence of video on our popular culture and markets is highlighted each year by the Video Music Awards held for the 31st consecutive time on Sunday, August 24.

The influence runs the gamut from the extensive time our kids spend with video compared to other pursuits to the spate of billion dollar deals and hundred million user apps that are reported daily these days.

Considering that the demographics and spread of video are ripe for epidemic growth, it seems like an appropriate time to consider how our market activities can be influenced by video.

A good place to start might be the following 10 interactions with markets that the recent awards ceremony elicits.

1. The VMA video of the year was won by Miley Cyrus and accepted by a homeless man who is wanted by the police.

The investment implications are that we should buy the grains to feed the homeless, buy the brics that are in troubles, buy fixed income of Spain and Italy and Greece and Portugal, and other weak EC countries.

Redistribution is the meme for the next year.

2. A cursory look at the video game and video music industry shows that the customers are young and growing and diffusing to all countries. All the major internet platforms are seeing more traffic to these applications. The customers are young and have a life expectancy of say 40 years more than the average customer for a product. This means that repeat business which is always more profitable should be feasible. The spate of acquistions in this space, the latest being Amazon's buying of Twitch and the emphasis that all the device makers and search engines are placing on making their equipment compatible for videos shows that the most knowledgeable and most successful companies in the world see this trend continuing.

The obvious implication from the VMA's is to buy the video stocks. Regrettably they're all up a google this year, but the growth rate trumps value any time. The top video stocks are Electronic Arts, Activision Blizzard, Take Two Interactive, Vevo, and Game Stop. The weather gauge is so good that I believe I'll buy them myself.

 3. The most useful words… are small. All the big stars of the Video world and other world have one word names. There's Bey, Iggy, Sia, Miley, Eminem, Lorde, Avicil, Ariana, Kesha, Usher. Does the same dynamic hold for companies? Are the best companies, the ones that are most exciting, most useful, perhaps most profitable, one word companies.

I found 124 companies on the S&P 500 with one word names. Corp, LLC, and Inc were not considered as words. The average performance of the 124 companies was 9.1% in the first 8 months of the year, a hair above the average of 8.0%. For the rest of the 176 companies with two word and more names. A suggestive difference but not a significant one as the average deviation is 5 percentage points. Hats off to the best one word S&P 500 performers: Alco, up 60%, Nabors, up 60%, Mallinckrodty, up 59%, Micron up 56%, Allegran, up 52%, Delta, up 51%, and Harmn, up 44%. 

4. There is a stampede of interest in video music. Vevo, a joint venture of Sony and Viacom, for example, has 6 billion downloads a month, up 50% from last year. Interest in video is spreading like wildfire. Who will profit from this? Most of the videos are being watched on Mobile. Who will profit from it? During the gold rush, the popular wisdom with some truth in it is that the suppliers of materials and apparel like Levi Strauss were the ones that profited, not the gold miners themselves. Who are the platforms, the suppliers, that will profit here. Perhaps Facebook, and Google, and the distributors of the music will be the best buys. 

 5. The more one learns about the video music field, the more respect one has for the movers and shakers at MTV. They are not only at the hub of all that 's going on in the field, but they make the trends. Each year, they have another innovation, some of them quite revolutionary. The latest was that they had multiple screens, and multiple feeds going for the VMA. Now, everyone will have to have two or more mobiles and TVs going at all times including the shower. Their latest trick was to have a team of translators on hand to make all the messages about the VMAs fit for mobile.

One looks back on previous VMAs and notes the prescient way that they showed same sex kissing, nudity, and many other aspects that became the be all and end all of popular culture. Their latest VMA's spread the meme of the importance of family with Bey holding the child and kissing the husband, and of course the idea that has the world in its grip that the purpose of life is to take care of those who have less, and to redistribute the wealth and trophies to the homeless, and to make policing less violent and more in tune with the neighborhoods they cover.vIt's no accident that Angelina and Brad announced their marriage right after the VMA. As always the trends were set and popular culture follows.

Okay, we know that popular culture is set here. How does it affect our market activities. Let us buy family friendly stocks, like Bed Bath and Beyond and Disney for starters.

 6. Why is it that video of all kinds is up 50% year to year with a typical statistic being that interactive streaming logs 35.5 billion streams in a current quarter versus 25 billion last year, or Vevo being up 50% to 40 billion downloads a quarter versus 25 billion? The ease of communication from mobile as opposed to a fixed location in a home or a car is the difference. Also, the ability to download contributions from everyone in the world versus a few producers who are responsible for the fixed communiques. We're living in a mobile world, with the know hows and ideas of each individual available for the masses. It's a communications revolution in the new millennium comparable to the industrial revolution in the 19th century.

7. If you can't beat them, join them. The populace demands video. The DailySpec is a meal for a life time that is not with it. We need video here. We are looking for a attractive video personality that knows enough about markets to encap one of the daily spec contributions or Brett's each day in a 2 minute focused and interesting fashion. We'll pay a reasonable amount, and the personality and we will become relevant and modern and diffuse through the masses. Note: One would like to thank a Director of Marketing at MTV, Ms. Joyce Kwon, for alerting me to the importance of video, and the excitement and influence generated by the VMAs.

8. We only respond to video these days. Until the tape of Rice beating the wife surfaced, or the beheading of the reporters was aired, there was no outrage. We're wired to respond to images of things. With all the video apps, the only way to spread a meme these days is through clicks and forwards. All bid individual moves in companies can be accelerated by videos as in the recent Apple announcements of the new Ipods and countless others. 



 All Harvard and Yale would have to do to increase their endowment by 2 billion a year, would be to dollar average, putting all their money into index funds or Spiders on a once a month for 12 month basis over the next years, and eliminate 99% of their fund managers.

Russ Sears writes: 

One of the hardest things to do is to get someone to see they made a mistake because they did not have a broad enough vision or face all the the important facts, when they did have a well thought out plan but based on a narrow approach.

Kahneman's "what you see is all there is" needs to be expanded, to include the stubbornness that comes with it. This is the real danger of modeling. A good scientific model can help you overcome your emotional biases, but models are not perfect. Admitting that the models are not reality and letting yourself adapt when they are not accurate representations of what is happening is critical. This is why I believe in "counting" except when there is a liquidity crisis.

Basing performance on a Sharpe ratio has several problems / efficient frontier has several problems that it is blind to. First, it does not consider liquidity and accounting risk. Second it is exposed to modeling error on hard to model assets. And third it is exposed to execution risk or timing risk due to over-managing "exotic" assets.

A nice accounting scheme, can make certain assets almost guaranteed high sharpe ratios for the short term. Ask Gordon about how this worked with Federal Home Bank Loans and insurance companies. But same can be said about most real estate and other illiquid assets.

Second, the models assume correlations are constant and that there is no auto-correlation within the time periods. But if any asset is exposed to runs on the them, such as home ownership, then these are not valid assumptions. Structured assets are highly exposed to this risk. But so are banks and cash value insurance companies.

Finally, those that are blind to WYSIATI risk are those most susceptible to the news. Buying high because they hear how great others are doing. And then sell at the bottom because they hear how the others made a mistake. Further, most organizations that are void of valid self examination of leadership have many second tier leaders looking to say "I told you so" for any investment outside the norm, whatever that norm may be.

I have sat through many efficient frontier presentations where the conclusion was always the same; invest more in illiquid assets, invest more in assets that are impossible to model right, and invest more in exotic assets which I knew management did not have the guts to buy low and sell high.



This story [about the first demonstration of anesthesia at Harvard] has many of my favorite things in it, including Harvard's ability to pull the wool over the eyes of its alumni and pay its fund managers 100 times as much as the average professor, not taking into account that there is no sales cost, no symmetry of risk, and no taking into account the normal random variations in performance which would always lead to some doing better and some doing worse. But more importantly it causes one too reflect on how he should change his views over time, be open to new things, and be humble, and appreciative of the young and unaccredited. What revisions of your thinking have been helpful, and what should we do so as not to decry things of value.



There is often a tell. In retrospect of course. This time the tell was the hang seng up 2 1/2% on some seemingly ephemeral service survey, presumably doctored. How did Hong Kong know that there would be a Russian settlement? What other tells were there.



 An article by El-Erian believes that you fail to realize that there is always an unrequited and unanticipated reason for a market move. The question you are asking is incapable of falsifiying as it is descriptive and retrospective rather than predictive. One wonders if you are still suffering from the new normal disease. An acquaintance with the triumphal trip of Dimson, Marsh, Staunton would convince you that the 500,000 fold rise since 1899 in the index was not due to unusual anomalies related to expectations but was due to the return on capital of 15% and compounding. Such a compounding is particualry alluring during times when the earnings price ratio and the return on capital are so much greater than the long term interest rate as would be consistent with theory and the Fed M.O.



 How many of the rich were in the lower quintiles like What's App which recently sold for 18 billion to Facebook and the owners were on food stamps the previous year. Is that bad for a society to provide such opportunity and for the mobility between classes to increase or should we be like England where once you're in one class you can never move to another.

Richard Owen writes: 

I am unsure if its really true that class barriers exist to any greater degree in the UK than the USA, other than perhaps in the mind or money of the classes themselves. A bit like Mr. Cosby's riffs to African Americans: don't perceive barriers for yourself. As my friend staying at the Knickerbocker club and being variously harassed for his attire, decorum and guests the other week reported "a certain strain of New Yorker could surely teach the British a thing or two about snobbery." Sure, we have a Conservative government with a disproportionate number of Etonians in it, but when one becomes Prime Minister, one tends to reach for trusted friends and fellow travelers. And being an Etonian is not a vote enhancer. Annunziata Rees-Mogg was asked to reframe herself Nancy Mogg for the purposes of election PR. The USA does not seem short of its own political dynasties and classes.

Ralph Vince writes: 

The chair's example of WhatsApp I believe is the exception more so than the rule.

The churn at the higher stratas sees parties leaving unexpectedly. Those arriving, arrive slowly, believing they will be there forever.

Vast sums of money are lost in a day, a minute or the blink of an eye. You see this principle play out at the baccarat tables and the markets. The new arrivals, the beneficiaries of money-begetting-money for protracted periods, often generations. 

Mr. Isomorphisms writes: 

Regarding the very long timetables, I admired both the diligence/ingenuity of Gregory Clark and The Economist for publishing that the surname "Micklethwait" has enjoyed a run of good luck, when its chief editor is John Micklethwait (graduate of Ampleforth College, and later Oxford). Miles Corak also earns a mention in that Economist piece. A short list of Americans from expensive high schools includes Dan Ellsberg, Charles Coker, Thruston Moore, Glenn Close, Adlai Stevenson, Cosma Shalizi, but not Dan Einhorn. 

Stefan Jovanovich adds: 

If you do any serious searching of genealogical records, you discover 2 things:

1. Longitudinal searches of census data by county locations, including the immediately adjacent ones, show limited "social mobility" because the people who stay where they are born and whose children stay there are largely content with their lots in life. This is one reason America scores better than Britain in the 19th century; the people who stayed in Britain were ok with their lives where as, in America, nearly everyone was moving around, even if many of them eventually came back to "home".

2. The people who leave are the ones who become very rich, by local standards, or flat broke or need to get away from the law. The very rich tend to move to the places where they can be with their financial equals (so the Rockefellers abandon Euclid Avenue Baptist Church and become Episcopalians in New York) and the flat broke know they have better chances getting help from distant relatives than from local ones (a great deal of the Northern migration of freed slaves and, even more so, their children follows that pattern). The need for people to get away from the local sheriff hardly needs explanation.

The Harvard study deliberately ignores #1 and #2. "We assign children to commuting zones based on where they lived at age 16 – i.e., where they grew up – irrespective of whether they left that CZ afterward." The study also makes no adjustments for relative costs of living as a discount factor in gauging incomes. A child who migrated from Charlotte to San Jose gained 50% in gross income during the study period; but he or she gained no wealth with the added income compared to a child of lesser social mobility who stayed back home.

There is one other fact of human nature that you learn from reading the ancestry searches people have done: Everyone with any pretensions finds a way to trace their ancestry back to European royalty, even if the parish records stop 300 years or more before the connection is made.



 Let those of you who follow the news alert us if the humorous agrarian grandmother leavens her talk with any epatez the rich or similar anti individualist things.

Richard Owen writes: 

The consistent theme in reportage on central bankers (and their patrons) at the moment seems to be their benignity and attractiveness.

The Fed has a sweet but worldy wise grandmother. Mark Carney is assessed for his suave, tan, and similarities to George Clooney. Rajan is admired for his John le Care father and good looks that have put the 'sex into the Sensex'. Abe was painted in superman costumes replete with bulging red underwear.

It's as if they going to bring us off with gentle palm and sweet nothings.

Kora Reddy writes: 

I don't see any edge in the week (weekly returns) after Jackson Hole for $SPY (up by 13/21 with avg 0.11 %, less than the drift of ~ 0.2 %) while $GLD up 8/9 (avg 1.5%, the last symposium was a hole with a weekly loss of -0.2%), $TLT up 10/12  avg 0.94%)

ps: avg % includes the losses as wellfor convenience of others (from here)

end of jackson    the following mon/tue ( if holiday)
24-Aug-13    26-Aug-13
1-Sep-12      4-Sep-12
27-Aug-11    29-Aug-11
28-Aug-10    30-Aug-10
22-Aug-09    24-Aug-09
23-Aug-08    25-Aug-08
1-Sep-07      4-Sep-07
26-Aug-06    28-Aug-06
27-Aug-05    29-Aug-05
28-Aug-04    30-Aug-04
30-Aug-03    2-Sep-03
31-Aug-02    3-Sep-02
1-Sep-01      4-Sep-01
26-Aug-00    28-Aug-00
28-Aug-99    30-Aug-99
29-Aug-98    31-Aug-98
30-Aug-97    2-Sep-97
31-Aug-96    3-Sep-96
2-Sep-95      5-Sep-95
27-Aug-94    29-Aug-94
21-Aug-93    23-Aug-93



 One had a loss today and found it appropriate to go back to Wiswell to see if I can improve in the future.

We have losing days, drawing days, and winning days, and not every day is a losing day, and not every day is a drawing day, and although we may not like it, not every day is a winning day.

The real trouble with making our moves is that we don't know if they are good or bad… untill we have made them.

The good player loses without an alibi, wins with grace, and draws with a smile.

Don't strive to be brilliant, do not scorn simplicity. There is simplicity in the highest flights of all art.

To study the strong players is to learn how to play, to study the weak players is to learn how not to play: to study ourselves is to learn how to play the game of life.

I suggest you study your great victories a long time, and study your great defeats twice as long. You may well learn a great deal more from the latter.

Never let the fear of striking out get in your way.

Many games are won by the art of judicious leaving alone of pieces and men. This negative habit often develops into a win.

Good players do not complain about their lack of opportunities. They are good, in most cases, because they go out and make their opportunities.

Many a draw is lost for the simple reason that you did not ask for it– at the right time.

I seldom use the word impossible regarding chess and checkers. You will see just about everything happen on the board.

The art of playing is not only to make the right move at the right time, but to leave unmade the wrong move at the moment of truth.

Success in the opening can lead to a weak middle game, and finally defeat in the ending.

Playing much, suffering much, and studying much… these are the three pillars of learning.

Common sense wins many games, but there are positions where it would actually lose, and it will take uncommon sense to win or draw. You must decide when uncommon sense must come to the rescue.

The search for the right move while you are playing is helped by the research you have done before playing.

The good moves are all there— waiting to be made: all you have to do is sort them out and put your hand on the right pieces and move them to the right squares. Yet some of the greatest master have made serious mistakes in carrying out this "simple" transaction.

Andrea Ravano writes: 

Great ideas Vic. I've often been confronted with poor performance, and the most difficult part of it is looking straight at yourself in the mirror and saying to that innocent looking person "you are wrong". Admitting ones own errors is the beginning of rebirth, just as realizing that your win at the backgammon board was more then the consequence of unusual dice statistics over your calculating power. 



 The erudite and esteemed historian of ours raises the question what can we learn from ancient Rome. Richard Epstein [cv ], believes that almost all that is good in our own law comes from Rome. Nock believed that only classics should be taught in college because everything good and bad happened in Rome and Greece and all we have to do is learn from the mistakes. I have always believed with Nock that the stock market will do whatever it has to do to increase agrarian reform, i.e. whatever will create a easier flow for reduction of social power and increase in the palindrome type of state. I often follow that line in my own trading. Do you believe Rome, Caesar, the two wolf men et al the Greeks, have things to help up with our investing?

Stefan Jovanovich writes:

Eddy aka our daughter Nora had the great good fortune to study Art History at Cal Berkeley while doing the requisite training in molecular and cell biology that would enable her to go to the wikipedia school of medicine at UCLA. She had the even greater good fortune to discover Andrew Stewart and make certain that she took every one of his classes. This left Eddy with the handicap of having the closest thing to an Oxbridge education one could get in America; Stewart was a kind, clever and relentless tutor; he even forgave her at graduation for abandoning a career in art history for the dubious privilege of wearing progressively longer white coats.

My apologies for the long-winded preamble; I am attempting to explain where I got my answer to the Chair's question. The "Greeks" of the Hellenistic period, not the classical one, are the people from whom we should take our lessons about finance; for they are the people who established the patterns of trade - grain from Egypt, Crimea and Sicily, manufactures from the Eastern Mediterranean, spices and clothes from West Asia, etc. - that endured in spite of the Roman's preference for military-industrial pillage. 

Dylan Distasio writes: 

 Today marks the 2000th anniversary of the death of the emperor, Augustus.

If our esteemed historian would be so kind, I was hoping he might provide one of his favorite books on either Augustus or ancient Rome in general.

Stefan Jovanovich replies: 

Karl Galinsky's "Augustus: Introduction to the Life of an Emperor"

His discussion of Augustus as a politician is the best description of how "Rome" actually worked politically that I have ever read.

Pete Earle adds: 

Ironically, this was published today as a 'Think Piece' by the Adam Smith Institute: "Currency Reform in Ancient Rome". In it I look at four obscure emperors and their efforts (as well as their fates) with respect to shoring up the denarius as Rome entered its "Age of Inflation".



 "How to Be Prepared for a Secular Stagnation" by Mohamed A. El- Erian

A bad agrarian reformed always comes back.

Stefan Jovanovich writes: 

"Economists know how to beat secular stagnation. There are really two sorts of policies here according to Summers: prevention and cure. Policies that stimulate productivity growth and raise labour-force participation build in buffers against the zero lower bound by boosting persistent investment demand. Such pro-growth policies are uncontroversial in the policymaker world, even if they are politically difficult to implement."

It would be cruel and possibly racist and certainly totalitarian to find where Hubert Humphrey and Augustus Hawkins' minds came from and then impose a Carthaginian peace on the places and ideas. But it is tempting. The idea that enterprise can somehow through "policy" be connected to employment is the soft socialist fantasy of the modern world. There are no "policies" that stimulate productivity growth; there are only ideas and their applications through machinery and process that allow people to do things better, faster and cheaper. And the "cheaper" invariably involves substituting software and equipment for labor.

"Pro-growth policies are uncontroversial in the policymaker world" precisely because the only growth in employment those policies create is more jobs for policymakers and the Keynesian knock-on effect that comes from their spending money to go to conferences.

Shaw really did have it right
. The problem with the undeserving poor is that they have even greater requirements than the people who accept the market values for their skills and services. What makes those casualties of "secular stagnation" so attractive is precisely that their greater requirements involve perpetually more funding for the people who know they can fix the problem.



Earnings drift relative to the surprise factor, the reaction in the minutes after the announcement, the relation to size of company, and its continuity and change is of great interest. Many people study it and try to predict the earnings and sales, and talk about the anticipatory moves before the announcement, and the subsequent moves after. There are numerous articles about it on ssrn, including 495 with the heading "earnings report" and almost all of them seem to leave out the question of ever changing cycles and are based on outdated data.

Typical of the research is a recent paper by Jiasun Li on moves after earnings announcements. He finds that if you put a limit order half way between bid and asked and follow the drift 1 minutes after the announcement, there are profits to be made. Bloomberg seems to have incorporated many of the academic papers and gives a history of the last 40 earnings reports classified by such things as the estimated earnings, the actual, the surprise, the price change, the p/e. It's amazing how many of the actual earnings, are proximate to the estimates. Also, the muted reaction of price to the earnings change is also notable.

Two exceptions are Hewlett Packard and Netflix which often seem to have prices changes of 10 to 40% in the day following the earnings release, but almost all the other changes are within 2 or 3%. Most of the studies show that transaction costs are very high relative to any regularities that exist, and as mentioned these are before taking account of ever changing cycles, and the tendency of any published research if it didn't have the numerous biases that they tend to have, to be vitiated by shrewd operators in the period after publishing.

One intelligent thing that a few of the papers do is to classify the earnings surprise by dividing by a denominator based on price change rather than earnings announced. Considering the intense focus on earnings reports and the many firms that provide the estimates and base their trading decisions upon it, and the small margin of superior or inferior performance that exists, the tendency of those who follow it to endeavor to create market neutral portfolios that would lose the entire upward drift of the market in a dysfunctional effort to reduce risk, one would consider that it is a fallow area for research and only an academic could afford to low increment to knowledge that would result from attempting to unravel the biases, regularities, and opportunities for profits. At least that's my opinion, and I am interested in any corrections, or augmentations that might be made to my preliminary thinking.



 Tom Wiswell, 1910-1998 wrote 22 books on checkers, was world champion from 1951-1975 and coached me and Wisdom in my offices in a series of weekly lessons over 20 years. Each week he'd prepare 10 proverbs about checkers and life with a view to the markets that his students strove to master.

Wiswell thought that the book of his proverbs would be his best book. I have about 8,000 of these proverbs and I often study them, to improve my game. I find them sustaining and inspirational. I looked through about 500 of them last night and here are some of them that I found particularly useful for the market game. I find that by substituting markets for checkers they are quite resonant and appropriate.

P.S. Whenever Tommy would come into the office, and we'd put the sign up "Board Meeting in Progress", he'd like to say, "Victor— the one thing I regret the most in my life is that I didn't marry a girl like Susan. Then he'd look down at the legs and around a few times and say… "But then again if I had, I might not have written 22 books. But this one's going to be my best."

Here are 16 of his proverbs:

Check your checkers. Every defeat not checked today will haunt you by future defeats tomorrow. Defeats that are corrected are transformed into victories.

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

Sensing Danger. A good payer sees the hand-writing on the wall before there is any hand-writing on the wall.

Good Character. Weaknesses of Character are normally shown in the game of checkers and markets.

Defeat. In many losses, it is the one fatal move that breaks the camel's back.

The Good and the Bad. We are inclined to remember the things that go wrong in our games and that's good, but we should also remember the things that go right, that can surely help us.

Thinking Ahead. I have lost many a checkers game– because I didn't think ahead.

Temperance. The race is not to the swiftest, nor the slowest. The Laurel wreath is awarded to the steadiest and the surest.

Keeping records. Writing your games down– and studying them is one combination that often leads to victory: if you don't write you are wrong.

Warfare. It's always wise to remember that your opponent may be as machiavellian and scheming as you are.

A Double Loss. When you have a winning move and instead make a losing move, it is like two games: you lose instead of winning.

Coordination. Never let your hand move faster than your brain: synchronize your thought processes.

Reflection. Sometimes the best move you can make — is to make no move. Take time to reevaluate your position and you may discover a move that you entirely overlooked before. I've often saved a draw. The "no move" may be your best move.

Star Dust. Against a player who makes only star moves– it is very difficult to score any wins.

Depth. The length of time that you have studied is not as important as the depth. You must get to the bottom of the game if you want to reach the top.

Hovering. Good players seldom hover over the board. After you decide on your move– take a firm hold of the piece– and move it to the right square. Hovering shows that you are nervous, undecided. That gives your opponent a decided advantage. You may be headed for a fall.



 I was at the Whole Foods this weekend and spotted a very attractive woman giving out samples of a new, "Small Batch" whiskey made by a new "craft" manufacturer. Naturally, I stepped up and requested a sample. While I sipped (slowly, as I am not a regular whiskey drinker) she rambled incessantly, providing the charming "back-story" of this "craft manufacturer." It was a "secret recipe" passed down for generations, etc.

I pulled out my phone and took a picture so I could easily research the brand further when I got home. It turns out this "craft" brewer was featured in the following article.

The "secret recipe" of this "brand" is the unaltered factory product from the standard, generic producer of this Whiskey variety. The entire "charming story" is a work of fiction. I am not naive enough to think that this not often the case, but at some point it gets ridiculous. I think it was that this woman wasted three minutes of breath telling me the ludicrously bogus story that put it in a different perspective. Perhaps if she was not busy telling the fraudulent story, we could have had a decent conversation — which would have made my time sipping the mass-industrially produced whiskey far more enjoyable.

Victor Niederhoffer writes: 

As the Senator would say, where's the picture of the con artist?

David Lillienfeld writes: 

My wife is a pathologist who also completed post-doctoral training in epidemiology/outcomes research. Her thesis was on reasons physicians adopt new laboratory tests. It turned out it was the first time the question had been posited, at least in the academic sphere. It blew her thesis advisor's mind. I was in my Marketing 201 class at the time, and both she and her advisor were surprised with my response to her finding-"Don't you think that the marketing departments earn their keep? If they didn't, that cost would have been cut already." I've been told that mine is a naive view, that no one in a business would dream of cutting marketing back do the degree I suggested if the exercise had little ROI.

Same thing here. Someone in marketing had some rich ideas, and it sounds like the sales department was executing nicely.

John Floyd writes:

What are the usual tells and ways to decipher such marketing? I wonder about market parallels such as market reversals shortly after events that were fully priced, i.e. the market reaction after the first shots in Gulf War, etc….also makes one think of the famous Schlitz live beer taste during NFL games.

Chris Cooper writes: 

It has always been hard for me to understand the appeal of small-batch, "artisanal" marketing stories. Nevertheless, we sometimes use it ourselves in marketing our bottled iced coffee. But the sooner I can scale to big-batch brewing the happier I'll be. I designed the process so that it would scale…now I just need the sales.

Better than any marketing story is simply letting people sample the product. Even better is blind tasting against the competition. When people try it, they know it is the best. But that marketing approach does not scale.



One would posit that the same way the real estate stocks went up a nice 40-50% from their lows, while the S&P stayed at the lows, the Russian equity indexes which are now up 10% from their lows of a month ago (an alleviation?), will mark the end of Russia's negative influence on the western markets.



Of what predictive significance is the first Monday, or second Monday or third Monday or 4th Monday or fifth Monday of the week? Same for Tues, or Wed or Thurs or Friday. If there is any non-random behavior, are any profit opportunities related thereto?

Anatoly Veltman writes: 

I honestly think any hypothesis should originate with a reason for it. In this case: first Fridays are employment data. FOMC also has set schedule for certain Tue+Wed throughout the year. Other than that, you face random occurrences that vary with cycle stages. For example, the recent years adage of Bullish Tuesdays brew within a protracted Bullish phase. Of course, any week in the midst of Bull market would develop its up move from early in the week. But I vividly recall the adage of turn-around Tuesdays thru the 80's and 90's: the decades of more market struggles and volatility, the decades of real market interest rates.



 Here's a composite of a typical season in a horse trader's life that will enable you to understand such things as why the market is bad when it looks good, why the value stocks are good when everyone wants the tech stocks, the importance of liquidity, the prevalence of deception, and the back and forth in the market during the day and year.

Ben's usual technique when entering a new area like Mississippi is to sit at the long table in the hotel and flatter the locals:

Of course I didn't hesitate to let them in on the fact that I was from Texas, and I didn't know too much about the farming business, that I'd made my living on a horse about all of my life. But I told them I had a high regard for the people that tilled the soil and fed the world and provided fiber that made the clothes, and I knew that this type of citizen was the salt of the earth. I said something about what a fertile land the Mississippi Valley was and how much of the rest of the world Miss could feed and clothe. I also dropped in that I knew the Miss Valley was stock with some of the finest old Southern people in the nation because that wasn't going to hurt my case any either.

How many times one is cajoled into some deal where it starts out that they flatter you to death thereby lowering your guard. "Our trader is thrilled at the opportunity to trade with you but begs that you go easy on him."

But this time, hoping to meet a better heeled citizen that could buy 60 mules that he couldn't sell for a dime worth 30 bucks a head, Ben Green stays at a fancy hotel where there are fewer mule men to sell at a proper price when he wishes to sell his mule. "I was just peeping out from under the brim of my Stetson and had my boot crossed over my knee so that everybody could for sure tell I was from way out West". The anxious seller always pretends that he's short on brains and the farthest thing from his mind is selling.

He sees a mark: "He walked up in the lobby and stood looking into the dining room and I could tell for sure he was off his home range." (The best cons come spontaneously when the other side isn't expecting it.)

"I got up and moseyed up close to him to get acquainted because I knew I looked country enough that he would ask me whatever it was that he was trying to find out". It must might be that he wanted to buy some mules and the last thing that Ben wants him to know is that he might sell. (The salesman with tremendous urgency to unload bonds or stock is in conference.)



I would posit that every time an equity market set a 10% correction, defined in some quantitative way, it was a good time to buy. Often the definition of a correction is very fuzzy depending on whether one uses intra day or closing prices, and much latitude is often taken to try to prove the point.

Anatoly Veltman writes: 

Yes: if you are a perpetual Bull, a 10% discount can't be worse than a lesser discount. But that was the question I posed yesterday: are there market junctions, where such discount may be justified, and more discount is likely coming?

My proposition: yes, such junctions are quite possible in the markets. Temporary factors (like sub-prime credit, or ZIRP, or QE) might have produced such overvaluation at market peaks that a one-third price correction (and not just a 10% correction) is required to bring prices more into line with economic realities. In the process of such "one-third correction", you may still get a quick bounce off of a 10% level or any level. Is such a bounce a "good play"? Your stats may well agree. Yet others will prefer to use your bounces as a shorting entry point to continue position themselves within a greater decline phase. Both may be profitable plays. During a decline phase, "Short and hold" will prove profitable. But quick bounce-ups will also prove profitable, because they will be sharp. You are already having an over-20 handle bounce on some Friday short-covering, an odd Putin tweet, all kinds of mumbo. Yes, there are ebbs and flows for both sides.

On the precise sampling of "10% declines": why buying into a twentieth "10% decline" is supposed to produce the same success as buying into a seventh "10% decline"? Given the progressively increased valuations (which might have not been supported by corresponding economic growth), such study makes no sense to me. I only hope someone proves me wrong, and I am anxious to find out exactly why my reasoning is worthless.

Jeff Watson writes: 

While the sky is falling among the retail class of trader, and they are getting quite bearish, the fact is that the S&P is only off 4.22% from it's all time close on 7/24. Hardly any reason to shout "Fire" in a movie theater. We're nowhere near correction time yet. And when it does come, there will be great opportunities for the nimble minded trader. I've been in a bear market in the grains for months and am quite enjoying it, but then again I'm one of those who learned the ropes in a decade long bear market.

Gary Phillips adds: 

It all depends on one's time-frame. As a leveraged trader, one makes short-term decisions/trades, manages the risk/ keeps draw-downs to manageable levels and occasionally turns short-term winning positions into longer ones. Since early 2013, the average spx one-year return has stayed above 5%. Today's low was at the ~4% level and at major technical support, i.e., the highs of the previous 3-month-long trading range, so a bounce back to 1950 should not be overruled. Nevertheless, p/c ratios, breadth, and volatility indices, remain on sell signals, leaving the market intermediate term bearish. Long term, everybody knows the " bubbly" situation, yet even the valuation bears see the market going to 2250, and as long as Japanese funds continue to diversify out of the yen, Chinese investors continue to park their money outside of China, Draghi's narrative is accepted, and interest rates don't rise dramatically. The final tipping point is probably years away.

Jeff Watson replies:

Everyone knows the "Bubbly Situation"? I guess I need to be more enlightened because I don't see that at all, or am unable to see the forest for the trees. Anyway, one has seen the effects of a market where "everybody knows." In those kind of cliche cases, everybody usually gets a hard kick to the gonads from the Mistress. Since the stocks as a whole haven't been going down as much as "everybody" thinks they should, I wonder who is on the other side of the trade, buying? After all, the Fed is working 24/7, 3 shifts a day creating money that the flexions get first crack at. That should be pretty bullish for stocks. But then again, I am the absolute worst stock picker on the planet and what do I know? 



It's beautiful to see the stolid Germans selling madly on a 10% decline from 10043 to 9060 based on the fact that there was an official "correction". What fool these mortals be.

Anatoly Veltman writes: 

The straight line DAX decline for over a week may bear all appearances of being "overdone". However, it is my inclination to use the opportunity, and open a discussion: when is a stock market decline justified? This, obviously, begs consideration of fundamental factors, that usher a change. But also, technically: if at some point the chart-critical 9,000 level crumbles, what's there to prevent a 5/6/2010-style flash?

Jordan Low writes:

It is interesting how a correction in the US markets have become "7-10%", rather than 10%. Perhaps participants feel that other markets such as DAX or Russell 2k have dropped "enough" that the SPX will not reach 10%.




 Combat Finance by Kurt Neddenriep applies military values to the field of investments. Nennenriep served for 20 + years in the Army Reserves rising to Lieutenant Colonel while appparently serving as a successful vice presdient in the Morgan Stanley Wealth Managment Division. He has many friends among fellow officers in the Military that he served with and he mixes their insights with interviews of them and pictures with his own guidance.

The book is divided into nine short chapters. The first and most useful to me applies the principles of basic training to investments. The motto of the basic training in all branches would seem to be get there with the right equipment, time, uniform, and attitude and maintaning a military bearing and everything will be all right. The financial analogue is to know what all your revenues and expenses are, cut the expenses to the bone, save for the future, develop a fall back plan, and listen to your superiors. He suggests that everyone needs a side man or wing man to prosper as in the Army and that you should follow the general orders. Guard everything in your base of operations, and only quit your post when properly relieved. Obey the orders of your superiors, which he suggests means to take care of your family in a professional fashion. Your financial bearing is to live within your means and to get rid of all debt.

The second chapter talks about all the reserves that military commanders maintain and suggests that you maintain a reserves for unforeseen bad experiences, financial calamities, and big moves in the market and grand opportunities when distress happens in markets or real estate.

The third chapter describes how to choose a house that you can afford. It uses the insights of planning a big, small or outpost in the combat world. He emphasizes you have to defend your house, but in order to win a war you have to get out of it. He uses insights from the mayor of the combat base to tell you how to buy a house, taking account of what many don't take into consideration, the manifold expenses in keeping it up, and the possibilities that the resources that you'll have to keep the house will dry up.

The fourth chapter is about the importance of training in the military, and how you should always be preparing for different scenarios in the future. He believes that saving is the best way of preparing and shows how compounding even as little as 4,500 a year over a lifetime can lead to over a million at retirement.

The fifth chapter is a tribute to the coast guard, and how they protect our home front. He sees insurance of all forms as the investors coast guard and recommends every kind of insurance including life, disability, long term are, homeowners insurance, health insurance, etc.

The sixth chapter describes the advisers that a good president of his own investments should have showing the importance of your investment adviser, CPA, attorney, and life insurance agent. He gives examples of the importance of delegation.

The seventh chapter describes the importance of strategic objectives and mission statements. "Make a list of all your primary strategic objectives and prioritize them in order of importance". Ask where you want to get, who's going to get your there and how you plan to accomplish the goal.

The eighth chapter describes coordinating all your investment activities the way the military divides up its activities into ground, sea, and land. He likens bonds to the armed forces, individual domestic stocks to the navy, international stocks to the air force, and alternative investments to the marines, and suggests you need each of them in your portfolio.

Finally, he has a chapter on what the fights is for. In the military he believes it's the fight for freedom. In the investment front, he believes the fight is for your financial future.

Okay, the book is very prosaic. And the author doesn't seem to know much about index funds, and the proper balance between stocks and bonds during the age cycles. One also questions whether the military person is putting tremendous input into an area that has little potential output of positive value. The excursions into Iraq and Afghanistan which the author is so proud of and apparently implemented so effectively did not seem to have a high mechanical advantage relative to the input. Yes, they knew how to kill the enemy, build schools, keep them away from the IED's et al, and bring their soldiers back when injured but if you timed all your investments into buying Argentine debt in the last 50 years, you'd have a hard time justifying your expertise and activities.

But it has many insights for and principles to apply for those who can find a proper goal in life. The author recommends checklists and procedures that have served the military in all its branches over hundreds of years. There is much to learn from their evolution in the field of investments. And to his credit Colonel Neddenriep and the colleagues he interviews seem like men of integrity, and loyalty that you would want to have as friends and role models.

P.S. I apologize for this prosaic review. But the book is prosaic but valuable, and I would recommend it to anyone, especially those starting out in our field, and those with an all too ephemeral view of life and markets.



 1. Darwin in the Origin pictures the twigs of a tree at all times trying to crowd out and overtake those surrounding it. How can this be applied to market moves?

2. The theory of maximum pain would predict that options end up at the price that maximizes the value to the option sellers. What other moves can cause maximum pain to the lower levels of the market ecosystem and how can hope be maintained and new energy be taken in if maximum pain is inflicted on a regular basis.

3. The stocks are at a 2 month low relative to bonds and this is bullish for stocks.

4. Before a market is ready to spring back it will pretend to recap the old woeful path.

5. The system of digital records for doctors is much less friendly to the patient than the old way where a patient would call the Dr. To get his results and diagnosis.

6. The bank stocks supped with the Bad One in the 2008 period, and now they must carry a long spoon. However, the more the facade of penalties on them is inflicted with one hand, the more they must wallow in the oblivion of unfavorable publicity, thereby keeping man small, the greater the likelihood of the helping hand on the other side. I like buying back below the constructal number of 15.

7. The upside down man disseminated bearish remarks on fixed income, at just the right time to create maximum level of selling at just the wrong time. For example, the bonds went down to 126 and are up almost 10 percentage points since he told everyone the gig was up. The flow of funds man at the Brothers, who held the same position as the upside down man in esteem and followship in his day was more helpful to the public when he changed from bearish to bullish in 1981 when interest rates were 16% or so.

 8. Europe has been incredibly weak relative to the Us in recent weeks down about 5 percentage points more than us stocks.

9. The best book on physics for the layman is Knowing: The Nature of Physical Law by Michael Munowitz. I have not read his book Principles of Chemistry but many reviewers and esteemable academics say he has also written the best book on chemistry.

10. The book Design in Nature by Bejan and Zane proposes that the tree like structure occurs in all things that move and this is the structure that minimizes the loss of energy during the movement.

11. The book Survival Analysis with Long Term Survivors by Maller and Zhou should be required reading for all those who say that the longer the market has gone without a great catastrophe, the greater the chance that it will die.

To be continued.

Peter Grieve writes:

 To expand on the Darwinian twig idea, visual processing centers in the retina also compete for brain space during a "plastic" period.

Kittens were placed in an environment which contained only vertical stripes (with an unpleasant sounding head clamp to make sure the stripes remained vertical with respect to their heads). The result was they responded less to other patterns in learning experiments, presumably because the vertical stripe receptors won the competition for brain support during the developmental period.

Now that I've written this, it occurs to me that the head clamp might be the most useful analogy for aspects of strategic learning.

Gary Rogan writes: 

I read this interesting book a couple of months ago: It's a Jungle in There: How Competition and Cooperation in the Brain Shape the Mind. According to the book the entire nervous system is always Darwinian on multiple levels:

"He argues that the overarching theory of biology, Darwin's theory, should be the overarching theory of cognitive psychology, the science of mental functioning. He explores this new and intriguing idea by showing how neural elements compete and cooperate in a kind of inner jungle, where only the fittest survive. Competition within your brain does as much to shape who you are as the physical and figurative competition you face externally."



Thursday's decline of 40 points was within a few points of the largest decline we've had since 8/10/2011. Many straws were in the wind retrospectively. The 88 year old fake dr. said a decline was inevitable, corn was down at a 2 yr low, the open market committee met yesterday and bonds tumbled 1 1/2 pints their biggest decline since 11/20/2013. Crude was a 20 day low and gold was down 3 small days in a row. What do you think in retrospect was the key weight that pushed the balance scale so far to the bearish side?



There has been much talk about the market having been due for a decline, i.e. it hadn't had a big decline like 1% in a day, or 10% from a high, or a big x day minimum of some.

The drs on this list, and those who study numbers rather than mumbo jumo know when a long time has elapsed since a calamity, the more likely it is that the calamity will not happen. That's why after 5 or 10 years from onset of the terrible disease, most patients like to tell their friends they are free of the disease. Most components on the other hand, including the artificial hip, have a uniform hazard rate, i.e. the prob of calamity each subsequent year is constant. Compare this to the bath tub distribution which the fake Dr. is particularly prevalent to.

How about some stats on the table. There are a number of good ways to do this, and those that have gained access to such a program developed here by Mr. Downing and myself to do such things can easily do it to their own satisfaction. But here's one. The last 10 point decline occurred on 7/17, 10 trading days ago. The probability of a 10 point decline occurring on any day is at a maximum at 27% after there was a decline the previous day. That's called the hazard rate. The duration to the next such decline is at a minimum at 5.2 days after that event. The hazard rate declines and the duration continually expands to 11 days after 20 days without such an event. The expectation after 10 days without such a decline is about 0.4% a day.

Here's another one. We went 60 days from the last 20 day minimum which occurred on 4 14. After 60 days the average duration to the next 20 day minimum of 37 days. The expectation is positive for all subsequent days of remission at about 0.2 % a day. The hazard rate for a 20 day minimum to follow the previous one once it occurs is 0.5, and it drops as it should by randomness to about 10% after 10 days.

In short, no matter how you define it, the longer a period has gone by without a big decline or a big minimum, the better it is. I have the numbers in front of me, and the gist of what I said is completely true, but I haven't fact or spell checked everything here as one is more concerned with the trade of the day than the good throwing today.

Gary Rogan writes: 

I'm sure the numbers are what they are, but why is that? Hopefully, if you are free from a terrible disease for a long time, it is not doing further damage, but a market that goes up becomes more and more expensive. Other than the human life span, while you living disease-free it's not true that in any fashion you are getting more biased towards getting it again, but the more expensive the market becomes the more it seems that it is biased to regress towards the mean historical P/E or some other metric. A person who's been disease free for 30 years seems qualitatively different than a market with a P/E of 30.



 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:

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


keep looking »


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