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

anonymous writes: 

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



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

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

David Hillman comments: 

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

anonymous writes: 

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

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

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

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

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

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



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

Stefan Jovanovich comments: 

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

Paul Marino writes: 

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

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

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

Stefan Jovanovich replies:

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

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

Paul Marino adds: 

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



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

Anatoly Veltman writes: 

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



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

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

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

4. The cobweb theorem holds for all markets.

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

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

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

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



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

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

In honor of the 36 possible backgammon dice combinations:

Backgammon and Trading Markets

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Victor Niederhoffer writes: 

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

Andrew Goodwin adds: 

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



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

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

The Selfish Gene

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

Anatoly Veltman writes: 

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

Victor Niederhoffer writes: 

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



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



 Last  week           This week

mon       -1.0                 -3.10

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

A syncopathy.



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

Rocky Humbert comments:

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

Scott Brooks writes: 

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

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

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

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

There are three lessons here:

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

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

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

Craig Mee writes: 

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



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

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

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

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

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

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

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

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

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

Larry Williams writes: 

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

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

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

Gary Phillips writes: 

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

anonymous writes: 

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

Victor Niederhoffer replies: 

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



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

Larry Williams writes: 

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

Steve Ellison adds:

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

anonymous writes: 

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

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

Victor Niederhoffer writes: 

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

Bud Conrad responds: 

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

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

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

Anatoly Veltman writes: 

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

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

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

anonymous writes: 

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

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

Jeff Watson writes: 

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



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

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

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

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

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

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

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

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

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

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

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

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

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

Gordon Haave adds: 

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

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

Growth of the Soil, by Kunt Hamsun.

Independent People
, by Halldor Laxness

And Chronicles In Stone, by Ismail Kadare

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

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

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

David Lillienfeld writes: 

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

anonymous writes: 

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

anonymous recommends: 

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



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

"Did you get caught?" I asked.

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

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



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

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

Adrian Bejan responds: 

Hi Victor,

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

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

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

Good night,


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


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



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

anonymous comments: 

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



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

Stefan Jovanovich comments: 

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

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



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



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

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

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

anonymous writes:

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

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

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

anonymous writes:

A few Monday morning thoughts:

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

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

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



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

Stefan Jovanovich writes:

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

From Cole Porter's bio on

Draft registration began June 5, 1917.

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



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

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

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

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

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

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

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

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

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

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

Stefan Jovanovich writes: 

Quibbles re #4:

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

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

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

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



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

anonymous comments:

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

anonymous writes:

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



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

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

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

Stefan Jovanovich comments: 

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

David Lillienfeld adds:

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

Stefan Jovanovich comments: 

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

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

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



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

Russ Sears writes: 

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

Rocky Humbert writes:

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

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

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

Working Paper #2015-912A

The Effect of Personal Voiding and Market Liquidity

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


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

anonymous writes: 

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

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

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

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

anonymous writes: 

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

anonymous writes: 

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

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

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



I haven't read the paper that apparently says that trend following at certain times in the past made profits. However, I have read many trend following papers, including one from 5 mathematicians in France that came up with a significant to based on millions of observations. And I pointed out that the funds that follow trend following are tracked by many services and they have inferior performance unless they somehow gravitate into buy and hold in stocks.



The reasons trend following doesn't work are myriad including ever changing cycles transactions costs, and bid asked spreads, the opportunity to game the system against them, and the ease of triggering mechanical rules and the fact that markets are homeostatic, and supply curves change as prices move up or down.

Ed Stewart writes: 

In my opinion, part of it is that people who mostly trade their own money look at IRR or "cash on cash" returns, and thus see issues of gains and losses more clearly vs. those who only look at marketing documents and time-based returns of recently hot funds.

Larry Williams writes: 

Trend following does not work on just one (or 2, 3, or 4) instrument. Trend followers have to have a large basket of 'bets' on the assumption that someplace in the world a market will trend and that one massive trend—think CL this year and last—pays off the other bets.

It's like betting on all the numbers in Roulette one number pays big odds. Trend followers say they cannot predict which number will show or market will trend, but with enough numbers bet, one will win.

Stefan Martinek writes: 

Larry, you make a great point. TF is more risk/exposure management on a basket than trading. Argument that benefits of diversification end after ~20 markets is such a nonsense (my teacher said that too together with other corporate finance theories; they probably never tested anything outside of equities).

Diversification across groups, styles, markets, and time frames improves risk adjusted returns in a long run. Of course in a short run concentration is great - let's bet all on Apple. TF has a nice barrier of entry which is good: First, some money is needed; second, most operators cannot run 2 years without rewards if necessary. They quit. Philosophically it is somewhere between "systematic macro" and "private equity". In PE you expect that most bets will be a crap unless you are in LBOs and other later stage deals. You expect that some areas will be in slumps maybe for years. Patience is such a great thing if one can afford it.

Orson Terrill adds: 

Well if I hadn't unnecessarily deleted all of my old code I would just spit out some examples… I wrote several functions that tested trend following, and mostly what was observed was that the number of intervals (days, weeks, whatever) in which a trade would be open generally follows an exponential distribution.

For those that do not know what that implies: Lets say trend "A" has been going for 5 days, the probability that the next day will be the end of trend "A" is roughly the same as if trend "A" were 1 day old, or 20 days old. The next day the probability of "A" ending is generally the same, regardless of its age (like a Poisson process for the arrival of the end). The general notion that longer trends are more, or less likely to end, due to their age, is not backed up.

Just because a run is multiple days old/young does not mean it was profitable. In many markets nearly half of the period's range is traded through during the next period, on average (I think this is true on almost all scales in the EUR/USD, but its been a while). This means getting in on momentum greatly increases the likelihood that a trade is entered at such a point where near term downside is slightly more likely than near term upside (assuming its a long equity position).

There were marginal improvements through adding responses to measures of volatility(mostly changes in absolute ranges), rates of change of price medians from multiple length of time intervals, and most significantly in the general case: reversing intra-trend can garner a couple tenths of 1%. Specifically applying those while using several time series which switch regimes in the sharing of strength of running correlations in percentage changes like SPY, TLT, and GLD, might have some interesting results (I eat what I kill, so I had to leave it there).



 In the US, coal is on the ropes for several reasons. First, the strong dollar is making exporting coal [and LNG] relatively uneconomic.

Second, coal has become uneconomic. Coal burners are turning to lower-cost natural gas or renewable energy. In fact, no US utility is seriously considering building a new coal-fired power plant. To make matters worse, most utilities who own coal-burning assets are seeking exit plans.

Then, there's this:

"Recent report reveals dramatic decline in number of active W.Va. miners"

The article describes declining mining activity in WVA. They report that 2,596 WVA miners lost their jobs in the first quarter. It should not be a surprise. What they do not say is more jobs will be lost in 2015 as dozens of uneconomic power plants exit from the nation's deregulated power markets.

The article is exaggerating when it suggests the root cause of WVA's mining woes is a federal war on coal. There's no federal war on coal. There is federal [and state] war on carbon.

Just ask the natural gas burners. Ask oil burners. Ask nuclear burners. Ask state regulators. But, don't ask the media. And, for heaven sakes, don't ask a politician.

Victor Niederhoffer asks: 

If all this supply is coming off the market, isn't that bullish? 

Carder Dimitroff writes:

Interesting question. The answer is not simple.

Coal mining will struggle. Coal transportation will struggle. Gas boilers will struggle. Manufacturers supporting these types of assets will also struggle.

Turbine manufacturers are gaining. General Electric, Siemens and other turbine manufacturers are seeing growth in high technology turbine sales (combined cycle gas turbines). They offer turbines that are 60 percent fuel-efficient (coal burners are approximately 20 to 30 percent fuel-efficient). The combination of high fuel efficiency, low fuel costs and low labor costs offers buyers a significant competitive advantage.

Energy prices are unlikely to improve. Market-clearing prices for wholesale power are challenged as low-cost gas turbines enter the market. Ohio alone expects six new gas turbines (the equivalent of four new nuclear power plants). These turbines will likely lower average market-clearing prices by displacing less competitive sources (coal).

Energy prices are also challenged as renewables and energy efficiency programs take hold and grow. As California demonstrates, it only takes a small amount of renewable energy (or energy efficiency and demand-response) to shave off average market-clearing prices.

Nuclear power is winning on the carbon war argument. The State of Illinois recently passed a carbon bill, which helps existing nuclear power plants (Exelon) and renewable energy sources.

While existing nuclear power is a winner, new nuclear plants are losers. It appears no new nuclear plants will be built for a long, long time. Yes, there are nuclear construction projects underway. Yes, nuclear power displaces carbon and other air pollutants. However, it's not enough. After watching TVA, SCG and SO struggle with spiraling nuclear construction costs, it's unlikely other utilities [or state regulators] will repeat their mistakes. In fact, it appears most other applicants have put their nuclear ambitions on the shelf.

Capacity markets are improving. Old and inefficient plants cannot compete. Some assets are failing to clear auctions. As such, it shouldn't be a surprise that the market's losers are forced into permanent retirement. They can blame the "war on coal" if they want, but it's mostly operating economics that are driving retirement decisions. Those decisions are also capturing other types of plants; not just coal plants.

In the spirit of markets, there appears to be clear winners at the expense of losers.

Stefan Jovanovich writes:

Thanks to another part of my misspent youth, when the U.S. Navy wasted its money teaching me about marine propulsion systems, turbines continue to fascinate me. So, any pretense of knowledge here is restricted to that subject only. The inefficiency of what Carder calls "coal burners" comes from the fuel, not the gas that moves the turbine blades. Steam is actually slighty more efficient than natural gas in its isentropic efficiency because it is easier to capture the residual heat energy from steam after it passes through the first (and second) turbines. (Note: "isentropic efficiency" is the ratio of a turbine's actual power output to those of theoretical turbine with perfect physics with the same inlet conditions and discharge pressures. Or, to put it in engineering speak - actual enthalpy drop divided by the isentropic enthalpy drop).

So, "coal burners" - i.e. plants that burn coal to generate steam - are "inefficient" only because coal has a much lower energy density than other fuels. (This why the British Navy switched from coal to bunker oil; the same ships could go much farther without refueling using the same fuel storage spaces.)

As to how prices for fuels will arbitrage the energy density differentials, beats me; but List members should not take the relative electrical generating efficiency numbers to be a statement about the obsolescence of steam turbines. This is not a repeat of the fate of the railroad steam engine.



 The Sound of Their Music, a bio of Rodgers and Hammerstein, by Frederick Nolan, has many layers of interest for the speculator and others, especially considering that Nolan seems to know nothing about the technicalities of music such as harmony or rhythm, and he seems to be uninterested in the personal lives of one of his heroes. Here are some of the interesting layers.

1. It describes the life and career of the greatest musical duo in history

2. It gives a birds eye picture of the evolution and creation of each musical

3. It gives a glimpse of every great popular composer of the 20th century, up to and Lloyd Webber as the duo collaborated with every one of them including Gershwin and Romberg and Sondheim

4. It gives the financial details of raising money in those days for each musical, e.g. 75,000 to put on Oklahoma

5. It provides a great snap shot of what life in the 20th century was like for the middle classes who loved music in the days when there were 150 American piano manufacturers versus 2 or 3 today.

6. It has great pictures of all the stars and directors of the day

7. It contains a great picture of the dynamics of a beautiful 2 person partnership (R and Hammmerstein) and a terrible one (R and Hart)

8. It contains nice details about the significant family events and deaths of each character.

9. It shows by indirection the techniques that built up a billion dollar business in the field masterminded by Rogers.

10. It shows how many musicians including the duo were able to overcome great neurosis and bounce back to do great work.

A great example of boom and bust was between 1924 and 1929 there were 26 new theaters built in NY, and these would house a total of 225 new shows a year. Similarly in 1929, the Hollywood studies produced about 250 talking musicals, but by 1934, hardly none at all and movie theaters would have to place a sign on their marquees: "there is no music in this show". 

I was also interested in some of the lessons for speculators and great anecdotes contained. Here are some of my favorites. When the cynical critics came to vet the duo's musicals in tryouts they often said as Mike Todd did about Oklahoma: "no leg, no jokes, no tits, no chance." They said the same thing about The Sound of Music. And Hammerstein in a typical quote (he was a saint) said: "the cynics hate to see a kid playing, a blushing bride, and a happy family."

Oscar's father and grandfather were impresarios in the business, and one of the rules that Hammerstein emphasized was "there is no limit to the number of people who would stay away from a bad show." Rogers said something similar in "the smartest people to judge a musical are the audience". And he was always willing to change a tune or cut if the audience didn't like it.

The musicals all needed road shows and tryouts to become good. They started out 4 1/2 hours long, and they changed enormously by the end based on what the audience and the critics liked. Hammerstein would have been a lawyer and Rogers, an underwear salesman if they had listened to their family and tried to get a steady job as they were urged. Both fathers were absentee fathers who spent little time with their kids as they were too involved in business. Many chance meetings let to the great shows. Hammerstein collaborated with Kern on showboat because they met at a Victor Herbert funeral. Kern was able to convince Ferber to let them use the book because he met her at a how with Woolcott and interrupted his conversation with a pretty lady saying "you have to introduce me to Ferber at the Circle" and Woolcott said "I think that could be arranged. The one you rudely interrupted is she".

After the success of Oklahoma, Hammerstein took out an ad in Variety saying "Here are my recent failures. Very warm for May, ball at the Savoy, three sisters, free for all the gang's all here, east wind, and gentlemen unafraid. I've done it before, and I can do it again". The latter thought is something that all speculators should perhaps plaster to their walls.

David Lillienfeld comments: 

It's interesting that it was during the mid 1920s that Park Avenue above 42nd Street took on its current characteristics as a major residential street. By 1928, 10% of all the millionaires in the US had a Park Avenue residence. Emery Roth designed many of those buildings (leading to perhaps the greatest irony in NYC real estate). This was also the time that the Vanderbilt mansions on 5th Avenue began to fall and multistory co-ops replaced them.

That there would a number of musicals appearing on Broadway makes sense given the wealth then accruing in NYC.

What I find curious is that when I think of a movie musical, I think of MGM. MGM practically minted money during the 1930s. Louis B. Mayer was rumored to have a $500K (some suggest it was as high as $1 million) annual salary during the Great Depression. So how is it that there were no musicals made?



 The energy of a closed system will increase when heat or work is transferred to it. 

The rises in Asia and Shell's cash infusion had o go somewhere, and Israel shows it best as always.

"Israeli Stocks Head for Biggest Jump in 2 Years; Dubai Rises"

By Shoshanna Solomon and Sarmad Khan (Bloomberg)

Israeli stocks are poised for the steepest increase since January 2013 after drugmaker Mylan NV offered to buy Perrigo Co. Shares in Dubai advanced.

The TA-25 Index climbed 2 percent at 11:56 a.m. in Tel Aviv, to a record high of 1,683.26. Global health-care supplier Perrigo, which has the biggest weighting on the index, surged 21 percent to an all-time high of 784.50 shekels. Dubai's DFM General Index rose 1 percent to 3,790.29.

Mylan NV offered to buy Perrigo for $28.9 billion, or $205 a share in cash and stock, according to a statement on Wednesday. The offer represents a premium of about 25 percent over Perrigo's closing price for its U.S.-traded shares on April 7, which rose 18 percent on April 8 and closed at $198.55 on April 10. The Tel-Aviv Stock Exchange was closed April 9 for the Jewish holiday of Passover.

"Today's rally is all about the Perrigo buyout offer," Saar Golan, a trader at Bank of Jerusalem Ltd. in Tel Aviv, said by e-mail. "Mylan's $205 bid is likely not the end of the story as rival bids may appear and Mylan may need to improve its bid."

Before Mylan announced its pursuit of Perrigo Wednesday, it had seemed to be a likely merger partner for Teva Pharmaceutical Industries Ltd. Mylan's offer is raising questions about whether Teva will seek a transaction with either company or look elsewhere. Shares in the Petach Tikva, Israel-based company added 3.9 percent to a record 264 shekels.



I'm holding a snap contest with a $ 1,500 reward. I ran a piece called "What is a Trader" about terrible and typical things in our ken. I'll give a 1500 reward to the best augmentation to this by the end of next week. Award to be determined by open vote. Send your entries to me here on Dailyspeculations or to my twitter @VicNiederhoffer .



 A trader at the Grand Bazaar in Istanbul where gold trading has been going continuously for 550 years, amid shouts of 10 whole ones for chocolate tomorrow, a trader in sweats and a wool cap notices my screen, and says "Gold? That's what we love to deal." "Yes," I say, "and stocks and bonds, and oil and grain". "Ah, that's what we love," he says. "Tell us about market trading in the States. What's it like?". I start to tell him but… [where to begin?…]

At 4 am in the morning, a sleepy trader wakes up and finds that prices are climbing. He's short. He looks at the screen and notes they're up 5 points. Thank goodness, he says he saw the price of the stock market on his screen, and it wasn't the bonds he's short… The bond price was a mistake. But then he looks again, and the bonds have risen 6 points. He learns later that day that the minutes of the Open Market Committee were released secretly to 100 politicians and bank officials, on a "need to know" basis and that they were acting on it 10 hours before the release.

The stock market opens down 200 Dow Points, and you buy a line. It quickly goes down another 100 in the first 5 minutes. And you're down a few big. A news flashes across the screen that Janet Yellen just gave a talk to selected Democrats at a closed door meeting, and the market spikes up so you have a 2 tick profit of a grand or two. You quickly get out, thanking your lucky stars that you're not broke, and indeed you have a profit. The market continues to go up, and ends up 400 down on the day, and if you had just held your position you would have been able to retire and pay for the education of all your kids.

You stay at your screen for 48 hours straight, nursing a losing position that's being hammered by instability in Europe. The market is very thin, and you need a big move and big news to get out. Finally after waiting without sleep or food, you go to the refrigerator to get a coffee for 30 seconds, and in that time an announcement that the ECB is stepping in comes out and the market rises to where you would have had a profit, but by the time you get back there's only 2 contracts bid for, and by the time you find enough liquidity to get out, your loss is gigantic.

You're sick in the hospital bed, all wired up with tubes and lines but they're on rollers. A mentor comes from California to visit you to see and comfort the family. You have a big position, and have to trade it. But your ashamed to be looking at at the prices, while he's here to see if you're alive. So you go to the bathroom trailing your lines behind you, and your friend says to your wife, "I guess the kidneys are in desperate shape".

 You have a big position in gold, and it's gone against you 100 bucks. You pick up your terminal and you find that Goldman had issued a bearish report on the metal the previous night. Their next report: "As predicted, gold has plummeted to 600. Our prediction was right on target. But we said sell at 800 and it only reached 795 overnight so we missed 5 bucks of the move."

A lot of people have asked me why so many hundreds of thousands trade short term in America. Almost all of them lose. Almost all of them base their trades on mumbo jumbo things that are completely random. The only constant is the vig they pay to the house, which is often 25% of their average gain or loss on the trade. The chances they'll end up a winner is less than the parts in a warehouse spontaneously assembling themselves into a beautiful girl.

I asked an eminent psychologist who has written many books on the market about it. And he said there is a feeling here that no pastime is good unless it causes pain. Most of the traders feel guilt about their childhood, and what horses asses they were and what evil thoughts they had. They wish to atone through trading where the pain of a loss is infinitely greater than the rare occasions that they make a comparable profit. I don't know enough about psychology to know if he's right, but as I suffer through the trading year, and take our small profits on every big move in my favor, but lose it all in the few big moves against, and the little woman says, "when are you going to learn to cut your positions by 90%", I think he may be on to something.

A trader from South Africa comes to your office, and says he's been following your blog for years, and you're the one person in the world that can appreciate his methods. He says he has an IQ of 190 and was on the Olympic handball team. He has the ability to predict the exact range of the day in every market. But his marketing firm won't let him trade unless they execute the trades for him and he wants you to back him. You tell him that being able to predict the range is useless for making profits as far as you're concerned. He leaves the office, curses you out and says he'll be throwing mud on your well deserved and soon to be utilized grave.

A weather forecaster is introduced to you at a party by a friend. He informs you that he's been able to forecast correctly a month in advance the last 7 major droughts in the Midwest. He wants you to subscribe. You ask him why he doesn't just make a killing on these things himself. He informs you he would but he was caught big in one of his forays and lost his stake.

An expansive trader who knows stocks and bonds but knows nothing about the grains decides to take a position in soybeans. He buys a few hundred contracts at the market before the open, and it opens limit up and closes limit down. He finds that he didn't get out before the delivery notice, and his broker informs him that he's now storing 10 big train loads of soybeans in a warehouse at a charge of 10,000 a day + interest.

A trader opens a position in a short put spread selling 20,000 of premium. It goes in his favor for a few days, and it's 15% away from his higher strike price and potential loss. He checks with his broker on the margin and finds that he has 1,000 of premium left but the required margin is 1.5 million. He calls up to find if it's a mistake. "No, that's correct, during the last 3 days before expiration, we assume 10 scenarios, and take the worst which in this case was an immediate 30% decline in price. Furthermore, we're charging you 5,000 a day in Exposure Fees, to compensate for our extra risk. And yes, we just doubled our charges, because we got hit for a 300 big loss on Swiss franc positions, so don't complain."

The lone trader does his analysis and doesn't worry about being taken because he is just one guy trying to make a few trades. And then his setup happens and he takes his position…and the market does exactly the thing that will cause him the biggest loss. How can this be? he thinks. He is just one clown trying to clip a few ticks or points, here and there, not worthy of being a target. But he starts to suspect that maybe he is just one of a thousand clowns, or ten thousand, who are all doing exactly the same analysis at precisely the same time and taking the same positions, which are exploited by a better algo in a co-located box somewhere with huge backing. This "thousandth clown theory" starts to gnaw at him, makes him doubt.

Orson Terrill adds: 

An investment bank with operations in Houston hires an MBA from one of the most prominent business schools in California, he's also the son of the CEO of one of the largest banks in Latin America, and surely there will be huge deal flow for them. They put him on with great access and freedom. Instead of putting on a bad trade of several hundred thousand, he's able to executes several hundred million, accidentally, and loses several million in the first day. He ends up being a high paid restaurant manager, for his financial acumen and pedigree, and he sets the place on fire.



 Steve Stigler, in discussing regularities relating to the height IQ correlation proposed a rule of his father "the correlation between the intelligence of economics and their height is 0.99 with the exclusion of Milton Friedman and John Galbraith (6'8'')".

Andrew Goodwin writes: 

The idea I heard pitched once in Harvard Anthro classes was that it was the body size to cranial capacity ratio that had greater correlation with intelligence. Dolphins are supposed to rank highest in this ratio among the mammals. Dolphins probably have greater intellect than the humans looking at such simple and deterministic measures.



 The book Fundamentals of Modern Statistical Methods by Rand Wilcox describes many situations where slight departures from normality create large distortions in the usual methods of statistical analysis. It recommends more robust procedures such as using the median, the trimmed median, bootstrap simulation, absolute deviations, running correlations, likelihoods, and something I hadn't seen before, M-estimators, to overcome what seem like trivial departures from normality like mixed normal distributions rather than single such.

The book is self contained and doesn't require a high level of previous mathematical or statistical background. It contains summaries of each chapter in five easy steps. It's a good primer and spark for improved methods of looking at data.



 Franklynn Phan writes:

Dear Mr. Niederhoffer,

Thank you again for the "What Is A Trader" challenge. I thoroughly enjoyed reading the varied submissions.

Recently, I was listening to a radio show from the CBC that reminded me of "The Education Of A Speculator". The broadcast (Wire Tap - Forgotten History) describes a Brighton Beach/Coney Island environ as vivid as the one that you describe. I have taken the liberty of attaching a link, not only because I think that you might enjoy it, but also as a thank you for the many eclectic show tune classic that you post (the most recent one being a fav).

(It starts at 3:26)

Best regards

Victor Niederhoffer replies:

Thanks for those resonant memories. Now I'll tell you one.

Joseph Heller was born in Coney Island and always went to steeplechase where the clown blew up the skirts. You got a 50 ticket card for 25 cents there. As you went through the rides the 50 holes were punched. Joseph couldn't afford the 25 cents but it was no problem. They'd wait for the old men to come out, and then say, "mister can I have your ticket." The old men would give it to him, usually with 40 holes left and the kids could enjoy the rest of steeple chase for free. About 50 years later in '64 right before steeple chase was closing, as a blast, to recap the old, Heller brought Puzo and Mailer to steeplechase. They bought the tickets, but when Puzo when through the roller, he fell, being somewhat rotund (by the way Puzo never met a mafioso but did the whole thing on library research). Okay, the three of them sat on a bench and cursed their agents, and talked about the declining sale of hard back, and the problems with their royalties et al for the rest of the day. As they got up to leave at 4 pm, some kids approached them: " Mr., Can I have your ticket". They looked at their tickets 49 left on each of them.



 The demise of Capt. Cook, Hawaii, Feb 14 1779











1. The book Captain Cook by Vanessa Collingridge tells the story of the rise and cannibalization of the greatest explorer in English history, and the discovery of Australia, and the attempt by a nobleman illustrator to take away his renown by showing that a Portuguese actually discovered Australia, and is a great travelogue of an intrepid modern day explorer geographer in Vanessa Collingridge, a cousin, and contains much material of salience for Aubrey lovers, e.g. Joseph Banks the naturalist rode with Cook and had a Maturinesque relation with Cook similar to Maturin's with Aubrey. But for me the highlite of the book was the story of 10 disparate random things, terrible coincidences that led to Cook's death at the hand of the Maori's in Hawaii. First, Cook had to create hostility with random killings by his rebellious officers on the previous visit, then he had to be turned back by icebergs when he left trying to find a northern route bak home, then he had to choose to go bak to the Maoris, then a Maori chief had to steal the tiller and carpenter's tools, then they had to have a miscommunication as they decided to blockade the harbor but Cook went out alone to catch the culprit, then the chief was ready to come aboard as a hostage, but at the last minute the wife intervened to beg him to stay, then one of his officers on the other side of the island had to kill a native, then the marines and Cook failed to watch their back not believing that a deity like Cook could be in danger. All had to happen for the fatal clubbing behind his back to kill Cook. It's like what happens with a bad trade that is not properly thought out that leads to disaster. Brett Steenbarger is rite that a few minutes of delay and thought before pulling the plug can save the Kingdom.

2. The round numbers are becoming particularly attractive all over.

3. The more I study chemistry, the more convinced I am that all the quantum and whole number states and jumps between wavelengths as in climbing up a ladder and angles between the atoms of the molecules have direct and useful implications in our field.

4. LoBagola is living in many markets with moves up and down the ladder occurring with inordinate frequency.

5. The Japanese baseball is a perfect model for how all traders should be prepared in our field, and it would be useful for all to see a Tokyo Giants game. An added bonus is that there are beautiful songs for each player.

6. The books about Rothschild show that he played the same role in financing the railroads at the start of the Industrial Revolution in Europe that the venture capital firms in Silicon Valley play today.

7 The best sushi restaurant in the world is in Awaji Island (outdoor scene restaurant the food ),the shellfish capital of the world. The beauty of eating non-frozen sushi just off the boats, and having abalone in abundance rite out of the shells is unrivaled.The price of a comparable meal in NY at Masa or Nobu would be 10 times as high, and 1/2 as good.

8. I know of many kids of Commodity Traders who are as independent as their fathers and often turn that independence into rebellion

9. Crude oil goes up and down with Mideast hostilities but like all commodity markets ultimately moves as Sushil points out to telescope future supply at lower prices and moves to balance today what future prices will transpire when the supply at current prices is reduced. In other words, the cobweb theorem still holds and trumps Russian and Yemeni and Saudi moves.

10. The elderly agrarian at the Fed seems intent on bulling up the economy when it will help our agrarian counterparts in the legislative branch.



Speed Traders Make Peanuts in Profits From Economic Data Plays - Bloomberg News Item

Vic Niederhoffer:

Excellent academic paper with many fascinating facts, e.g. the human reaction time is 200 ms. vic

Paolo Pezzutti adds:

It is called:

"Do High Frequency Traders Need to be Regulated? Evidence from Algorithmic Trading on Macro News" by Tarun Chordia, T. Clifton Green, and Badrinath Kottimukkalur

The link:,Green,Kottimukkalur_WP2015.pdf [38 page pdf]

Burgess Humbert comments:

Taking the paper at face value, and Ceteris Paribus, the elimination of excess profit down to a 'utility' rate of return is a natural phenomenon in a field whose technological advance has resembled an arms race of late.

Unfortunately - ( and this does not denigrate the thrust of the paper or its authors ) - a call to ex colleagues in the field just now led to them falling off their chairs laughing at the idea that the marginal returns are ( or are beginning to ) decline.

As to the other part of the paper about the need for regulations etc. Let me answer this way -

Execution via High Frequency execution has both improved and decimated 'liquidity'. ( Here , I refer exclusively to spot FX, commodity futures, long end interest rate futures and stock index futures )

It has improved liquidity for transacting small parcels that are small enough to be executed within the first two levels of the bid/offer depth order book. I find the improvement stunning - particularly FX.

In terms of dealing in size - well, just a year ago, one could call a counterparty and get a stunning bid and or offer in say 75 mio GBP/ USD Spot FX. No more…. a combination of regulatory change and HFT execution has worsened fills by about 0.00015 in this amount. ( please let's not even start with discussion about using market maker provided execution 'algorithms'…. )

A real life example to put some meat on the table ; The last time I sold 50 mio GBP USD the rate going in was 1.4987/89… the following 'fill profile' is typical of a market order of this size nowadays-




Worse case fill at 86 when dealing with senior professionals just a year ago.

There are ways to improve on this, but I wanted to demonstrate how HFT has both improved and decimated liquidity at the same time.

Andrew Goodwin is skeptical:

What is the cost to every resting limit order in every correlated asset? Think of all assets including options, stocks, futures and derivatives or combos. Isn't is a fool's errand to look at profit from S&P 500 futures to generate the conclusion that HFT does not make much money on news breaks?

Burgess Humbert agrees:

Indeed. Let's call it 30 billion a year with a Sharpe of something approaching infinity.

stef says:

The real problems with HFT are the rules and how they protect the manipulators

See "Direct vs SIP Data Feed"

Burgess Humbert adds:

There are indeed some very nasty yet very legal order types. The description of some of the orders extends to 20 pages ( yes twenty pages ).

But, there are ways to minimise and work with it some of the time.

I encourage all to regularly read;

One particularly amusing story on that site ( that caused a change in Federal Reserve data release policy !!!!) is called something like '… Einstein and the great Fed robbery …'

Look it up- it will change your world.

Surely a candidate to be made into a film one day.



Larry is treated as a God in Japan. He started the whole industry of technical trading in Japan and about 1000 of his students were in attendance. He believes in conveying specific tested trades to his audience, and he has many students that he has been teaching for 20 years. One of his students handed me his card, and he was the Richard Branson of Japan owning 15 businesses including one involving the cruise ship outside our hotel . Larry concentrated on specific trades, and I concentrated on principles. We were a great tag team. But we both felt that we didn't get the universal respect we are entitled to. We decided at a great sushi dinner the nite before to rectify the situation. The only way to get universal respect in America, guaranteed fawning from the media is to come out of the closet. So we announced that we were coming out of the closet at our Sunday afternoon presentation, and we were greeted with appropriate plaudits, and Tokyo tv which followed us around and video'd the whole program was suitably appreciative. The highlite of the tirp for Larry and me aside from seeing all his fans was our trip to the Tokyo Giants suggested by Larry. I got there at 3 pm to see the 4 hour warmup. The best part was the 80 year old manager leading his team in calisthenics, all the time berating the laggards for not doing it expeditiously enuf. I used that scenario in my talk about the importance of preparation and wa. vic



The trading contest entries were fantastically good,and I compliment all of the entrants on great ideas and spirit. The Prize was 2250. The winnner is # 59 . The second and third place are 18 and 37. The prize will will be split 1500 to the winner and 400 each to the second and third place. Some of the entries were so good that they deserve to be rewarded . I am just back from Japan but will review all the entries and send canes to a number of the great entries that were not winners. The canes can be used as you know for hobbling down with your overplus to wall street during period of panic. Winners kindly send your address to and a check will be sent. Thanks for your heroic and valuable efforts. Sincerely, Victor

ps. The contest went so well that another contest will shortly be held. vic



 One comes back from a trip to Japan with yet another mumbo concept to inspire fear. This one is that 26 days have gone by without the market showing 2 rises in a row. Indeed the last time the S&P 500 went up 2 days in a row was 2 17 when it moved 2076 on 2 12 to 2086 on 2 13 to 2088 on 2 17. This supposedly is bearish showing that the market can't put a sustained rise together. The song "Let's Misbehave" comes to mind. But does it ever occur to anyone to test it? That's what we're here for. "Er, have you tested that" is the motto of some parts of the spec list. Indeed there have been 6 occasions since 2007 when the market went 25 or more days without two consecutive rises. And indeed 5 of 6 of them were up an average of 2%, three days later.

Much more important, the stock bond ratio at 2053 to 164. or 12.45 is at a big, 28 day minimum and what are the alternatives to stocks, for investors, centrals, and pension. Same holds true for Japan and I predicted a new high there 3 to 5 years from now.

One notes the advanced computer technology in all of Japan and one was particularly pleased to buy two tickets on the bullet train to Kobe. And there were 50 sets of 3 seats on the car. The computer left only one vacancy and it was next to us two Gaijin . It was good to see that the computer is programmed to espouse Japanese values. And good to be back.

Just for fun a music video: Let's misbehave .

Anatoly Veltman replies:

The video trumps the test, by far. I thoroughly enjoyed the flick; but the test idea - not nearly as much. The moment I saw 2086 to 2088, I immediately thought to myself: this can't be serious. I've always questioned the idea of day's + or -, which at the same time didn't differentiate between a substantial and a randomly minuscule. So test results and expectations would differ if some day's delta was -2.00 as opposed to +2.00 with the subject value of 2,086.00? Something tells me the idea should be refined before a test. Great to have u back.



As there have been many excellent contributions to the "What is a Trader" contest recently, we will extend the deadline for votes for the best until Friday, the 20th. We will pay interest and augment the prize to $2,250. Good luck.



Kindly vote for the best entry to "what is a trader" contest. The entries are numbered. Just tell us the number of entry you think is best. We'll announce winners at end of week. I would also say that the entries are well worth reading as they constitute the best writing on what trading is about that I have ever seen. Vic



Here is a nice more recent study of life expectancy with statistics on intervention showing a 20% reduction in the hazard rate.



A surprising number of SPU 500 stocks are between 95 and 100 having fallen recently below the round. JNJ, MCD, AON, GPC, GILD, HSY, ITW, NKE, PVH, PEP, PNC, R, SWK, PLC, SBUX, INTU, CME, MCO, MJN, it will be interesting to see how many of them and in what duration climb above 100 and whether this is non-random or not.

Jeff Watson writes: 

Corn and beans went through their round. Wheat is hovering above it…for now.



 Hi Vic,

Sorry I didn't get to say hello at the last Junto meeting, which was terrific.

Regarding the question you asked at the event: This is not a comment on the validity of Mackey or Teicholz's position. I think Gene was right about needing to do the marathon rather than the sprint, i.e., reading up in greater detail to get fuller knowledge of the topic. But you asked Teicholz whether she rejected the findings of epidemiological studies in the face of many experts who considered them valid.

My question is how you come down on The Phenomenon Formerly Known as Global Warming, i.e., climate change, and whether the skeptics (called "deniers," as in "Holocaust deniers," by the proponents) should bow to the opinion of the majority of experts, notwithstanding the fact that the 30-40 years ago the experts were very concerned about Global Cooling.

I think you or one of the other questioners raised the point that medical journals have 20 referees on an article. So perhaps the studies are more reliable than those in financial journals, where a professor at UMass assigns his grad students to study the results reported in articles and finds that 25% have serious errors. No need to write a treatise on this, but I'm interested in your thoughts.

Best regards,


Victor Niederhoffer replies:

The hazard rate is the gold standard in epidemiological studies. And the hazard rate for life expectancy in the typical studies of meat versus vegetable studies is about 2 to 1. You can imagine the significance of such a difference with 80,0000 subjects or so. The estimate of p has a binomial distribution. When you have a sample in the millions as the meta studies of such divergences have, there is no room for selective sampling. What are the chances that a million people are selectively different from the remained. The statistics of quota sampling are relevant here.

I would also point out that all the epidem studies use the cox hazards model as their statistical foundation. The cox model is like a standard multiple regression model but deals with probabilities instead of levels or changes. All such studies control for all measurable independent variables such as health status, smoking history , and weight. The chances that other independent variables mite affect the outcome with numbers this large in the meta studies is zero.

 You ask why science is sometimes wrong about such things, and I would say that the epidem studies with millions of subjects in many different counties with many different independent variable and selected groups are in a completely different kind of scientific category than climate change where the dependent variables are temperature changes over time, and the independent variables are chemical entities with say 10 or 20 observations and more independents than observations. There are no epidem studies possible in climate change.

I believe Nina is very out of her area of competence and it was dysfunctional to have her armchair rebuttals of highly refereed studies and statistically significant results in the one in a billion categories based on sampling errors and hypothetical differences in the groups studied.

Victor Niederhoffer adds:

 Another way of responding to this tomfoolery less statistically and more qualitatively and common sense is this. The differences between the groups that eat meat and eat vegetables in the many life expectancy studies are of the order of 5 to 10 years. Such differences are important to most human beings who wish to live. With samples in the millions in aggregate and attempts to control for all measurable independent variables there is a reasonable likelihood that the two groups are representative of the populations.

Now if there was a difference in these groups with respect to some other variable, like exercise or preference for risky activities, and somehow that was not covered by the other independent variables, then what could that variable be. Let us find it, because it would be the key to health. i.e. if it had so much of an impact by not being measured, it is truly important, much more important than the diet, and if it could be found it would be the open sesame.

But of course it can't be found because it would be statistically impossible to find something uncorrelated with the other variables that have been studies that has such an effect. It only exists in the armchair and the debunking retrospection and Monday morning quarterbacking. 



Perhaps it would not be remiss to express some thoughts I had over night.

1. Friday was perhaps the greatest loss in wealth ever.

2. Extraordinarily rare since the 90s for both stocks and bonds down 200. Actually only once since 1999. That in 2009.

3. Useful idiots attribute it to revision in expectations of fed increases.

4. But actually the rise had nothing to do with that but had to do with discounted value of returns on capital and lowering of inflation targets.

5. Amazing that good news can cause so much havoc.

6. But the market is the market. It will do what it wants.

7. But of course the stock market vigilantes, and now the bond market vigilantes will make it do the rite thing, especially before election.

8. Ephemeral things can cause great consternation.

9. The threat is worse than the execution.

10. They got me big yesterday. I actually make a nice little profit in SPU by getting out at 10 am.

11. However, I lost big in bonds, very big.

12. One will have to be more careful as the markets rise to new highs again. 

Jeff Rollert writes: 

It felt more like a systematic deleveraging. A balance sheet shrinkage, on both sides.

Anatoly Veltman writes: 

I think there is an important element missing from all these statistics. A drop such as Friday's is felt big by an SP futures long, because the SP futures long is very leveraged, while his currency exposure (hedge) is straight cash, unleveraged.

On the other hand, the real one day depreciation is miniscule for a holder of US stocks - as USD gained so much on the day. Compare a holder of US stocks Friday with an EU or UK person who held no stocks but their cash in the bank - and that person lost plenty, without being Long of US stocks.

Hernan Avella comments:

Anatoly, the reason why it was indeed very big is because you did not have the buffer of buying bonds, golds or oil. Furthermore, the 50-50 theoretical portfolio lost big on Friday on top of a bad streak of 5 down days out of the last 7, and now it's slightly down on the year.Now, when one accounts for stock market appreciation over the five year period as strictly "fundamental", "value of returns on capital", etc etc - one yet skips over a harder to quantify element of market truth: that Central Banks, with their long-standing zero interest policy, have left little alternatives for world wide investors but to pour cash into stocks the past five years. Some of that cash hasn't gone all in based on fundamental projections, it's just gone in. Like in "market will do what it wants". Enter one of the current day hot factors: EU is in dis-array. There is a lot of European capital that isn't investing based on long term returns on equity these days…They are paralyzed in fear of what next shoe will drop. So corrections such as Friday's are inevitable



 "Hey, red pants, old man, whats trading like in America?"

Everyone plays it off the announcements. But not the way you'd expect. If the economy is weak, say the unemployment is up, that's very bullish because the Fed will do more QE or they will keep interest rates below zero for longer and interest rates will stay down and then stocks will go up. But then interest rates go up regardless. But stocks go down anyway. And the opposite happens when say the Manufacturing is up. That means less QE. And interest rates will go up. And that 's bearish for stocks, but then interest rates instead go down. But instead of interest rates going down they go up. But stocks go up anyway. Almost all the announcements are ephemeral. Meaningless because of seasonal adjustments, or in case of manufacturing, they only take account of 15% of the US economy for one month, or even worse in one region. But still they effect the market by 1 or 2%. You want to throw up your hands and say, "this isn't right, or as good tennis players used to say when the opponent stayed at the baseline and pushed, "this isn't tennis". But it is the market. Why are things so topsy turvy and volatile after meaningless numbers? To get people to do the wrong thing. To lean the wrong way. To trade and dissipate their wealth through commissions, bid asked spreads, and fear.



Remember the story of Anthony Morse who along with Flowers used to bull all the canals and trolleys up. He had quite a pool behind him. But then when Flowers died, he couldn't bull them up anymore and got caught in a few panics. His friends left him and he lived on the Bowery where my dad might have had to take him to the morgue if he were working in that era. But then bedraggled, he came to Trinity church to beg for a sandwich, as it were in exchange for a tip. But someone recognized him and just the remembrance was enough to cause an enormous bull move on the board. Of course when the move peetered out, he was alone and desolate, a man who was financially and morally belly up as it were and had to go back to the Bowery again.

Okay, just at the height of the bond rise yesterday, the bedraggled and discommoded and man of ill repute who haggled over bonuses for his colleague and publicity, and who has been leading the read for years like Morse came out with his usual that stocks were in an unsustainable boom and bubble, and that the Fed was likely going to do something about it. If only instead of his yoga mat on the beach he could go back to the Bowery when he touts his bearish views on equities similar to those he had at Dow 6000 and talking his book on bonds.

Alex Castaldo notes: Anthony Wellman Morse (active 1860's, described in Markham's Financial History of the United States as "specializing in the cornering of railroad stocks") is not to be confused with Charles Wyman Morse (October 21, 1856 – January 12, 1933) who cornered the copper market in 1907.



This is an excellent article on deception with many applications to our field where deception is needed at all levels to stay ahead of competition.

Gary Phillips writes: 

We're not only susceptible to being deceived by the narratives of others, but by ourselves as well. We take a linear view that doesn't lend itself to the complex systems described above. We see something happening in the market, and we can't help but create our own narrative to explain what's happening. Traders are very good at linking cause and effect, often incorrectly; thereby unintentionally deceiving themselves.

However, you can't understand a complex system, by simply looking at it's individual parts. There are multiple heterogeneous agents that make independent decisions that evolve over time. These agents will interact which leads to emergence i.e., the whole becomes greater than the sum of the parts. and, emergence will disguise cause and effect. Therefore, it may be difficult to determine if deception would have an effect on the outcome, or not.

In hindsight, it's often the hidden factors that one did not anticipate or even consider, that were the drivers behind a move. So, even a move built on the back of deception or misinformation, may still be an actionable event, if one if one practices good trade management.

Jeff Watson writes: 

I remember back in the pit days when I'd want to shake out some weak hands by trying to fake a rally…..I'd start, then after 5 minutes I'd start believing my own fake out.



 There are a google of factors affecting this company, all seemingly electroaffinitive to the observer from the grandstand, leading to the question of whether companies hit hard by currency depreciation versus the dollar are good buys. Talk about bad luck. This company hurt by currency depreciation to the us and currency appreciation to Europe. How often has that happened to you in your trading and life.

"SodaStream Maker Thwarted by Currency Troubles"

Anatoly Veltman writes: 

I find this a prevailing factor 2015 in the Orlando Resort market. Strengthening US currency worldwide is a double whammy: first the resorts see reduced foreign tourist flow. Room Occupancy figures languish, and shrinking top line eventually feeds into a deficit bottom line. How long can a resort in an over-built market like Orlando operate at a loss? So the seller will become progressively more distressed as we move from 2015 seasons into 2016. I see a brief period looming when properties will be given away. Chinese or other foreign investors will be priced out of US bidding by their own depreciating currencies. The Chinese were purchasers of over 25% of all hotels sold in Australia this year - and that's thanks to AUD devaluation by 20%. Similar devaluation is on the way in EUR, CAD and most other open to foreign investment regions…So bargains of our generation may well be abound in US resort property market, and that's something worth heed and preparation for a speculator these days



The history of deception in war. Very applicable: "All is Fair in Love and War" by John Chomeau

Steve Ellison writes: 

"Find out what the enemy is predisposed to believe and to reinforce those beliefs while at the same time altering your plans to take advantage of these reinforced false beliefs."

Many participants in the market are predisposed to believe that a catastrophe is just around the corner, judging from the perennial success (in selling subscriptions) of bearish newsletter writers. A whiff of actual bad news may get them selling in earnest.



At BEA. Okay, she's one of us. Let s not embarrass her talk. Gives her room. But let's not make it too high either. We're getting a lot of flack from those who say that 10% of GNP is actually negative like the defense. But not too low either. The election's coming up and we need to keep our girl in. Feather the nest so to speak. The rates have been going up. Keep it down a little. Stocks can handle it. They're near a high. They're estimating 2.0. Lets go with 2.2. Okay. Let the dem caucus know so they can alert the cronies and lobbyists. All agreed? Fine.

anonymous writes:

I would add it is a universal truth that when the word jobs (employment) is uttered by an agent of government the conversation in no longer without partisanship.



One has been looking for a long time for a good reference to the part of gestalt theory developed by Fechner that covers the just noticeable difference phenomenon where if you put a frog in boiling water he'll jump but if you heat it up he won't. It came to mind with the recent moves of gold. Here is a great reference very readily quantitative with much qualitative significance. Highly recommended. We must tip the hat to Irving Redel on this as he first brought it to my attention 35 years ago, and used it often in his forays into gold where the small moves were designed to keep you in and the disruptive moves to get you out.



 We're talking about watch sales around here. Rolex apparently sells 650 million in watches each year. Susan says that wearing a watch these days is like jewelry for men, and that it's useless since everyone has a smart phone. We're thinking about Apple's watches. They'll have to compete with all the other watches. Supposedly they forecast it to use up 1/2 of all the gold production in the world. I wonder when Apple will stumble and launch a product that doesn't set the world on fire. Samsung wearable watches apparently didn't do that great. What do you think, and how will it affect the price of Apple. We just bought some on the news that they had to pay 600 million out of 150 billion in cash on a patent suit, which will probably be reduced to 10 or 30 million.

Stefan Martinek writes: 

I agree with the view that watches = jewelry, but then it is more about IWC Portuguese watches in platinum having an unassuming steel look and simple elegant design. Apple is not a competition here. Apple watch will need a phone for core applications + daily charging. Some people probably like to carry two devices when one is enough. Some people probably disagree with Diogenes "who wanted to be free of all earthly attachments — on seeing a boy drinking with his hands from a stream he threw away his drinking bowl, his last remaining possession".

Pitt T. Maner III writes: 

Given the popularity of the "Quantified Self" and Fitbit, why not a watch that monitors all your physiological parameters (via implanted sensors) and provides feedback on the optimal things to do next.

An early example might look something like this: "a new digital wellness and telemedicine platform which helps patients live a healthier lifestyle and connects healthcare providers to patients using telemedicine and wearable mobile technologies, today announced that its platform will be fully integrated with Apple Watch products. Or this: "Apple Watch wearers with diabetes will be able to use an app to monitor their glucose levels."

Carder Dimitroff writes: 

I believe the iWatch will be an ongoing success. Like they've done with the iPhone, Apple will convert the old watch into amazing and useful technologies. As such, the iWatch will likely become less of a watch and more of something else.
In my family, we seldom call each other. It's either an email, text or FaceTime. Phone calls are the last option. Our iPhones are not used much for phoning home.

Like the iPhone, each iWatch upgrade will pack in more technologies on less real estate. We will likely learn new tricks, become mindful of health issues and live a better life.

You can sign me,

Dick Tracy

anonymous writes: 

My son asked me why he has to go to school? "Why can't all this learning simply be uploaded into my brain?", he asks.

anonymous writes: 

The question becomes:

1. Will it ever have a cam?

2. Will it ever be independent of an iPhone?

3. What body sensors can be built into it?

4. Perhaps it will be the base for iHome?

Just some questions.

Duncan Coker writes: 

A watch is a perfect accoutrement for a man as it is rooted in a practical function. The form and design however vary greatly. They can be showy and expensive or simple, like the Timex my father had. Men like things that have a purpose. Watches are handed down from fathers to sons or daughters for generations. The Tank watch is one of my favorites though I don't own one. Fountain pens are in the same category as would be certain sporting gear like classic hunting rifles, bamboo fly rods, Hardy reels, or Swiss pocket knives that every man used to carry. For Apple I know design is very important along with function which is a good start for continuing this tradition.

Jim Sogi writes: 

A Swiss army pocket knife with can opener, screw driver, wine bottle opener and blade, a simple model, is the most handy camping tool. I love mine. I also have a pocket tool with pliers, knife, screwdriver with multiple tips. It's very handy for many things like sports, camping, and skiing. 

anonymous writes: 

I got a very nice waterproof sport watch used at the Salvation Army for $6. The guy at the jewelry store laughed when he saw the price tag and the battery was $15. You can get a real nice casio waterproof sport watch for $20 with alarms, date, stopwatch. I just don't understand some guys desire for expensive watches or computer watches. If the watch were small, had a phone and music and alarm, and GPS and the battery lasted… maybe.



Very happy. February 26, 2015: Exactly unchanged to open and from open to close. Anyone who trades loses the bid asked spread and more through stops.

Paolo Pezzutti writes:

There cannot be a forecast at any moment, but there are technical situations in markets that stimulate non random moves. These patterns occur over time. Although cycles are everchanging and all good things eventually end. You have to listen to the inner music of the market, the hidden messages that it sends at certain times of the day, certain days of the week, when it moves from point A to point B in a given time and magnitude. Behaviors are recurring because of regulations, operational technicalities of big players, effects of fear and greed on the herd, impact of margin calls, announcements, rollovers, etc… It is up to your creativty, intuition and ability to scan the markets finding the hidden jems that can provide you with a meal for a lifetime. Unfortunately, this is not enough to be a profitable trader. Similarly to other endeavours in life, I would say that the technical edge is never enough.

anonymous writes: 

Imagine the 1000's of shorts looking for their profit target on a day like today– "missed by a tick or two". Price moves back to breakeven– "Never turn a profit to a loss, time to exit". Price reacts down again– "but I can't afford to miss the overdue correction, It's now been confirmed". Then stopped out once again, to be repeated at the end of the day. If it held it overnight, it will gap up big the next morning for maximum capitulation. 

Gary Rogan writes: 

But is this intentional (teleological to get all philosophical) or just a day out of many days in which this particular relationship between the open and close holds? Almost all the other days are different, so how should one view this particular day: a totally random occurrence, somebody's clever plan, or the market itself deciding through some collective thinking process to play a practical joke on all the short-term trading participants?

Ed Stewart writes: 

Gary, if for a short-term trader there are questions that leads to meals for a lifetime if studied and answered, that is one of the better ones I have seen.

anonymous writes: 

The round number magnet effects must be exacerbated by the fact that many options strikes are at round numbers. Pin risk and gaming risk of options are real. Exotics make the numbers hidden but draw in large capital sometimes.

You can't see the motivations if the options are OTC and not listed. Recall the story of the large macro manager who got into a lawsuit with his exotic option brokerage firm. He was able to get prices to go just one momentary tick beyond his barrier knock-out/knock-in strike and the prospective payout was so large that the breaking of the barrier on the single tick was contested by the parties.

One of the parties offered unlimited supply on the offer to stop the breach of the strike. –Can't recall seeing who won that lawsuit. Still the fact that large players often think in terms of hidden strikes, could lead to defending and attacking of certain price levels on a given day. The exotic expirations are customized as well.

anonymous writes: 

A word about round numbers & option strikes in the OTC markets.

It is interesting to consider, study & think about the following;

1. What is the 'real' round number. Consider the currency markets. As I type, the AUD USD spot FX rate is 0.78244. The June 2015 AUD futures contract is at 0.7773. The forward FX points that one adjusts the spot rate by the get the outright forward are merely interest rate differentials expressed as FX points. So, if the futures price rallies UP through the 0.7800 round then the spot market will likely be around 0.7845/50 - arguably a 'nowhere' price.. So, because the futures price incorporates the forward does that 'round' have any significance at all. Arguably, the important 'rounds' are only relevant to the core market. It is an interesting null hypothesis that currency futures rounds of a given expiry are 'artificial'… Something to chew on there.

2. Another point about the 'Strike Price Heat Maps' that our magnanimous friends in various market making institutions provide in 'research' pieces/ updates. Be aware that many, many flows are NOT included in these due to wording in various Prime Brokerage agreements, other legal documents and sometimes courtesies given to, for example, institutions in mercantilist high growth non English speaking parts of the world. So you end up just looking at poor quality partial information infected by contractual, confidentiality & 'cover my posterior' bias.

For the avoidance of doubt and to pre-empt the snipers on the list who pop their heads up when a sacred Taboo of theirs is breached, I am specifically referring to OTC markets, incomplete information provided by market makers & bias that anyone who has tested the information will have seen in out of sample results.



 The tennis playing slice backhand former fake doc, bathtub loving, former owner of forecasting company based on blast furnace usage, chair of the Fed, gave the perfect Delphic prediction, right out of Delphi and the singers. "Something big is going to happen". Yes, that will be true whether the Athenians or the Spartans win and since it has no time horizon, 100% true by randomness. Hats off to someone at his advanced age with access to lunch at the Fed every day to further enhance his consulting company gravamen, for his Delphic pronouncements.



 One's reading material for his trip to Florida to say hello to Irving Redel were 3 chemistry texts: Principles of Chemistry by Michael Munowitz, The Extraordinary Chemistry of Ordinary Things by Carl Snyder, and Science 101 by Denise Kiernan and Joseph D'Agnese.

I'm too aware of my ignorance to try to devolve the million things we can learn about markets from chemistry so I'd appreciate my more erudite colleagues here to suggest things. However, I found the tendency of all elements and molecules to form Octets very resonant of moves to the inextricable move of markets to round numbers, and their stability as of the noble gases once they reach there.

Also, one found the discussion of catalysts and inhibiters very resonant as some recurring things like aluminum chloride a catalyst like Janet Yellen or employment and inhibitors like enzyme inhibitors and the quiet before announcements also very common.

What are the acids and bases of the market? The activators? And how does total energy stay constant in markets in a closed system and what predictive value does it have like when the Greek news was very bad, the potential energy was so great for a move to the upside. An ignoramous like me poses these ideas and solicits some erudite thoughts and possibly paths to reduce his ignorance.

And of course, the most salient of all chemical relations. What is the periodic table of markets about. Which are the groups of similar behaved ones? Which are most reactive. Which combine and reduce and increase et al?

Jeff Watson writes: 

As of late, the equity market has been chugging along, with a bias to the upside but within a narrow range. News and reports that one would expect to wreak havoc and change on the market have not made it budge. One could compare the equities market to a buffer solution. A buffer solution is composed of a weak acid or base and it's conjugate acid or base in an aqueous solution. A buffer solution readily withstands a moderate amount of strong acid or base added to it where the pH will only change a little. Consider the market to be the buffer solution and the added acid or base to be the news or reports. Bad news does not make the market go down that much but conversely, the good news doesn't make it rally hard either. Along those lines, one would consider the buffer capacity to be the most important characteristic and measurement. The buffer capacity is a measurement of the resistance of a buffer solution to pH change with the addition of hydroxide ions. This can be easily quantified, and the formulas can be found in any quantitative analysis textbook. The buffer capacity of the market can be defined as how much resistance the market will have to change, given the amount of good or bad information supplied it.



 Vic Niederhoffer and Irving Redel, 2/20/2015, Florida, USA



Dear Mr. Niederhoffer:

Insider Insights' Top Trades Email Alerts are sent four times daily: 11am, 3:30pm, 7:30pm, and 10pm Eastern Time. They contain the top 20 insider purchases and sales filed at the SEC in the hours between each alert, based on dollar value.

These are factual lists, not buy and sell recommendations. Dollar value is only one factor when assessing the importance of an insider transaction, and, frankly, often not the most important metric that determines if an insider trade is significant.

At , we find new investment ideas just about every day using these and more intricate insider screens to determine where we should focus our subsequent fundamental and technical analysis. And while stocks don't (or shouldn't) move up or down based on insider activity alone, insiders tend to be good indicators of when real stock-moving events like earnings surprises, corporate actions, and new products may be in the offing.

So use these regular emails as the initial research tools they are meant to be, and click the links in the tables to analyze a company's or insider's full insider history. Also feel free to email Top Purchases for 2/19/2015 (3:30pm)

 Filer Name          : HELMER WILLIAM F
    Insider Title(s)    : DIR
    Company             : STERLING BANCORP
    Ticker              : STL
    Trans Type(s)       : OB
    Dollar Value        : $591,924
    Shares Traded       : 46,100
    Trans Date(s) From  : 2/18/15
    Trans Date(s) To    : 2/18/15
    Trans Price(s) From : $12.84
    Trans Price(s) To   : $12.84
    Direct Holdings     : 285,311
    Indirect Holdings   : —
    Other Info          : —
    Input Date       : 2/19/15 2:12:57 pm



Popperian falsification of hypothesis that stocks need oil up to go up today.



In their quiet way (as grandpa Martin would say), bonds have Lobagolad up and down by 6 point since year end 2014.

Gary Phillips writes: 

If one thing is to be gleaned from from last week, it was there were no real signs of systemic risk or true market stress; only the perception thereof. The dissemination of public information forced the movement of common knowledge. The media's voice became the context of the market and the market's negative sentiment made for the healthiest of market environments. The time to get really worried is when the market is priced to perfection and everyone is overly bullish. Therefore, true trading ability is not determined by how well someone can interpret an illusory chart; but by the ability to identify the message's ambiguity, and by the conviction to become a non-conforming player. This is what separates the successful trader from the herd. 

Bill Rafter writes: 

We've had a significant overweight in the bullish sentiment for quite a while now. The market has rallied against that along with the classic wall-of-worry. True trading ability is whichever tool you use that can generate superior relative returns, including charts with various inputs.



When you put a limit in, can the market smell a man like a duck, and come in very close, and then veer away at the last minute saying "whew, am I lucky, that man almost got me with his gun (limit)".

anonymous writes: 

It might be like recent tests show of cancer cells. They give off their own vapour /smell, to the HFT guys at a minimum.

Ed Stewart writes:

I think so. If the short-term edge is too great, they don't want to give you a fill. You have to let out some line first. And if you try to counteract what occurs you will independently discover the banned trading techniques.



 Specs. I am trying to write a little something about technical analysis. Here's what I came up with. (by the way the first one to show that random charts and stock market charts look similar was Harry Roberts I think in 1956 or so but Holbrook working may have done it 20 years before). Anyway, how would you improve on what I wrote.

Most traders in the markets use charts and technical analysis to establish and exit their positions. Academicians and skeptics point to the random nature of many technical patterns. Here's a typical chart generated by random numbers. If you don't tell a trader it's randomly generated, they'll come up with all sorts of predictions and patterns that the chart generates. And if you dare to suggest that what they're doing is mumbo jumbo, they take great offense and beat you on the head with examples of great traders who follow charts, and examples of others who consistently make a fortune by using charts.

There's a trader from Harvard who uses charts and has made 20 billion who says "using a chart is like a Dr. taking your temperature before a diagnosis." Another one says that if charts are so useless how come everyone including you looks at it before making a trade. One of the most respected and successful traders, a friend, puts the debate in focus: "There are lots of great tools in technical analysis (some of them in his book like trader's positions, and breakouts, open interest and spreads). They're very useful as part of a bigger trading process. There are good saws and hammers but it takes a good carpenter to make them work."

There's a guy in Japan who calls himself the Japanese Victor Niederhoffer who has turned $ 10,000 into 5 million by using charts. I hope to meet him in Japan when I visit there for a talk arranged by one who believes in charts, an estimable fellow who combines charts with anthropology, life extension and sports, and perhaps I will become the American Matsohita-Masamichi.

Options values are determined by using random numbers with the same standard deviation and distribution of prices as would be generated with the random number generators I just mentioned. Every trader on the floor uses such generators to predict the price that an option should trade at, and they do very well with this model– until something like the 1987 crash occurs and they go broke.

A famous former academic big options trader and head of the exchange said that almost all the scientific options traders he knew found that when you apply the random walk model to options, it turns out that puts are priced much too highly. He said that he's watched every last one of them go broke. The problem here is that extreme events tend to occur much more frequently than the random walk model would predict.

As I write, the Swiss franc recently jumped about 100 standard deviations above its last price in a few minutes, a one in a trillion shot, and billions were lost by option writers who used defective models to place their bets.

Andrew Goodwin comments: 

The error made is in the actual coin flip method versus the computer generated random flips. If you flip a real coin an infinite amount of times, then the side that is heavier because of a greater extruding feature weight will land more often on the bottom excluding unknown aerodynamic effects.

I hereby wish to debunk weighted coin tosses as fair. That includes the wear and tear on the coin that changes the weight. Over time, the side with the extruding images on the same coin wears down and you get closer to random results.

With the computer generated flips you get no advantage betting either way unless you game the random seed.

If you get Monopoly style game dice that are indented 6 times on one side and just one time on the other, then you are better off betting on the heavier 1 dot side landing on the bottom on a given role over large numbers of roles even if the edge is tiny.

I officially quite playing indented dice board games now.

anonymous writes:

One approach I have taken is to identify some price formation of interest that can be defined by quantitative rules (perhaps "inside days" or "upside breakouts") and then analyze that formation in an actual data series. If the occurrence and distribution of the formation in the actual data series is consistent with randomness, then I make the assumption that it is highly unlikely that the formation contains any additional predictive information.

Sushil Kedia writes: 

"A synthetic price series if generated using some function incorporating random numbers looks similar to a real stock chart"

Q1. Is every variable in that function taking random numbers as inputs? Q2. If A1 is no, then is any such function using random numbers akin to the error terms in the assumptions of a good regression model? Q3. If A2 is yes, then how does such a random number generated chart conclude that real markets are random? Q4. If A2 is no, then which parts of the synthetic price generating function are significant enough to conclude that the final outcome is really random?

Please allow a surmise to be placed on this table, before you tear it off:

The outcome of prices is a joint function of the random reaction to new information at that instant as well as a function of sensitivity of all participants to trigger or not to trigger actions on such moment by moment information updates. Sensitivity is again a multi-variable function comprising of but not limited to factors such as existing position (bias), risk perception (capacity to add or reduce risk at that instant), time horizon and so on and so forth.

Please allow just one more surmise on this table, for the moment, where I will unabashedly borrow from the Palindrome's famous idea of reflexivity. Markets have a feedback loop.

My arguments supporting the surmises:

Cause & effect thinking that is the cause celebre and raison d'etre of known forms of sciences has yet not evolved into modelling, evaluating or concluding enough about phenomena that have feedback loops as well as random reactions.

That's where art steps in.

Eventually as the long held and commonly accepted belief (derived from philosphical arguments) of this list has been that there is no possibility of any reward without some risk, since at zero risk the other side of the trade does not exist, all workable methods will have approximations and estimates.

If one method may or may not be better or inferior than the other, having a method is better than no method. If even in the illusion of forecasting better than randomness one can use a chart, any form of art, or any other mechanism to stay actionable in the face of risk and prevent oneself from ruin, then too randomness will allow one to get closer to being rich enough.

Finally I will quote two giants from this list itself:

Ever Changing Cycles as espoused by the Chair himself, refute any scope for any one method to remain superior or inferior to any other.

The Senator having said once to me that every Cigarette packet comes with the statutory warning that smoking kills and yet it is the user of that information who ignores it. So any method is not the bigger factor in performance, it is the user of that method.

Whether Technical Analysis appears archaic, has refused to involve beyond the simplistic and lacks the sex appeal of rigorous numerics, so long as it triggers a trader to be adaptive, manage his risk and makes one pay one's bills, it's ok. There are enough systematic quant funds that have blown up and the biggest blowout did happen when Genius Failed, since it refused to recognize the ever changing cycles. 

anonymous writes: 

A price chart is an attempt to model relevant aspects of price change. Price change is not linear displacement, whether vertical, horizontal or oblique. Nonetheless, price change can be represented as vertical displacement and time elapsed as horizontal displacement. Such a model, however, invariably supports relationships that does not correspond to anything in the original process.The angular inclination of a trend on a price chart is a visually striking feature of this representation. Such angles have no intrinsic meaning for the price series, but this is one of the many factors (along with our facility for pattern recognition and wishful thinking) that contributes to our interpreting more from price charts than rigorous testing reveals is there.

- William Eckhardt



 Everyone has to sleep at some time or another, even when you're watching the market for that move to your price. You can't leave a limit because an announcement created quantum jumps so you have to watch it. But guaranteed whenever you doze off the price will move right to your desired level, and you'll miss the price.

Closely related is the law of friends and parties. When you're invited to go to a party and accept you would have made a fortune by staying and trading. When you decline to go because you need to trade, it will be the best party ever, and you would have seen the most attractive others ever and they all were talking about how they wanted to meet you, and you'll lose a fortune in the market by trading.

We all know the law of friends, and it's just too bad that whenever you invite a friend to see you trade, you lose a fortune, and he goes back thinking you're a robot wasting your time on mumbo et al.

Orson Terril adds: 

When in school I had an account with one of those forex online bucket shops, ran up ten fold in a short time….it was exam time and I fell asleep from exhaustion, only to be awoken by alarms from my cascading margin calls. Good experience.



Mr. Bollinger is correct in that all of my trades, my colleagues, and my many followers, and many former employees, a google of whom are contributors to this site, use quantitative analysis of prices, volumes, seasonals, interactions, et al to base their trades. That's a good modern definition of technical analysis I think. In addition, as Mr. Bollinger says, most of us from time to time look at charts. However, many of us, don't believe that charts are predictive except in the sense that commonly used chart techniques like triple tops, and pivot points, are deceptively inviting for bad trades, and should be coppered. A good paper on superstition and ritual in pigeons is most educational I think.



A Commenter writes:

Vic, this being a public forum you probably wont reply, but have you ever thought YOUR method is mumbo jumbo and you were just smart enough to stay your whole career on the right side of the drift, with humongous leverage? Think about it. Your junkyard-boeing analogy doesn't hold water. Soros way works. Munger way works. Icahn way works. Even Buffett way works. Time tested. To the $ billions. Yours didn't stand the test of time, not once, but multiple times and this is the most robust stat test. Maybe you were just lucky to skim enough OPM residuals to provide a comfortable life for your family, and more power to you, but otherwise to an outsider, this looks like a huge waste of one's abilities.

Victor Niederhoffer replies:

Yes, I often feel my methods are mumbo jumbo. And I am always trying to improve based on that supposition. I have had enough pitfalls and debacles so that if I didn't doubt my methods, I would be even more of a useless idiot than you think I am. My self skepticism is compounded by the fact that I am pretty much the founder of the field of using statistical interactions to predict markets, and my former employees who I have taught are legion, and use vast financial and human resources that dwarf me by many thousand fold in their extent and erudition. I try to learn from people like Soros and Munger and Icahn, most of whom I have worked for or studied in one way or another. What I learn from them is mainly that they are one with the idea that has the world in its grip, i.e. they profess a line of keeping man small while rising above the tide through clever use of the service and public attachment to the forces of agrarianism to deflect competition and attrition. Luck and the path has much to do with it also. My family and I are quite cognizant of your criticism, and are never hesitant to deflate my exuberance with sobering warnings and critiques such as yours. 



 1. The January barometer has become a Judas goat for the weak to be slaughtered having failed big when down the last 3 times, in 2009, 2010, and 2014 with average subsequent rises in double digits each time (after holding in 2008) but failing in 2005 and 2003.

The stock markets swoon in last few hours on Friday, Jan 30 was 10th worst in last 15 years.

3. Some constructal numbers of the week: gold below 1300, SPU below 2000, and wheat below 5.00, and vix above 20.

4. The best book on science I have read is Michael Munowitz Principles of Chemistry. Some other great books I am reading is Paco Underhill Why We Buy (does for buying what we should do for the market in terms of scientific analysis), Russ Roberts How Adam Smith Can Change Your Life (applies the theory of moral sentiments to how to live happily in current days), Paul Moskowitz and Jon Wertheim Scorecasting (applies sabermetrics and counting to our favorite sports shibboleths), Michael Begon, Townsend, and Harper Ecology 4th edition (the best selling standard ecology book these days) and William Esterly The Tyranny of Experts (how planning leads to poverty compared to the invisible hand), Chris Lewit The Secrets of Spanish Tennis (gives some great footwork drills the Spanish use to rise to top), Lamar Underhood The Duck Hunter's Book (the most beautiful writing about fauna I have ever read and reread that makes you long for the beauty and poetry of bygone pastimes) Uri Gneezy and John List The Why Axis (uses pseudo experiments in real life and contrived anthropogical settings to attempt to prove liberal shibboleths like why genetics and incentives don't matter), David Hand The Improbability Principle (why miracles are likely by chance). That's enough.

5. The service rate paid by the world's most sanctimonious billionaire has risen from 2.5% to 9.5% on quarterly ebit this last reported quarter.

6. The ratio of stocks to bonds is at a 1 year low.

7. Gold is playing footsie with 1300 and SPU with 2000

8. Crude broke a string of 15 consecutive weekly declines with a 7.5% rise this week finally showing that futures moves to telescope reductions in supply the way Heyne elegantly shows they do.

9. The pythagorean theory of baseball runs scored for and against is a statistical due to random numbers, completely consistent with chance and has nothing to do with any recurring tendencies or baseball tendencies.

10. When my kids and relations start calling me worrying about how far the stock market is likely to fall, it's bullish. Conversely when they all start apps, it's time to wonder whether that goose has been plucked.

anonymous writes:

As to point 1.

I posit that all 'indicators', techniques and strategies in the public domain are worse than useless as presented. Within this I include everything preprogrammed into trading software like Bloomberg or Tradestation, the 'January effect', every indicator written about in Futures magazine etc… There are a few public strategies that some firms have made money from but the volatility is enormous and no note is made of survivor bias of others who used the strategy. There are then the preprogrammed techniques available that can be very useful but only as part of a bigger trading process. These last are probably less pernicious than claptrap like the RSI.

It belittles us all to discuss these things.

Consider it this way– everything that makes its way into a magazine or gets programmed into trading software is detritus from the core of truly predictive strategies.

If there is anything to be gained from this it is that you have to do your own homework. 

Larry Williams writes: 

With all due respect you are way off base on this issue; you mean to say OBV is useless, that seasonals have no value that volatility breakouts are worthless, that Bollinger bands are junk and select price patterns have no value? COT is just a joke, that watching spreads and premiums is the same as an Ouija board? Delivery intentions tell us nothing and advancing stocks, volume and Open Interest reflect nothing?

There are lots of great tools in public domain, just as there are good saws and hammers but it takes a good carpenter to make them work.

Anatoly Veltman writes:

Paragraph 1 falls apart on many levels: so what that "it" failed in 2009 and 2010 at price levels triple and double the 2015 level? So what that "it" failed in 2014 - then via principle of alternating years, "it" better work in 2015! But most of all: in day and age of still ZIRP manipulation, what historical market stats? The 2009-2010 were onset of QE, and 2015 is sunset!

Ed Stewart writes:

Taking into account changing cycles, I tend to disagree. I think there is quite a bit of stuff in the public domain that is very worthwhile.

For starters, a careful reading of Victor's book revealed many more specific ideas than it seemed on a casual reading, which I'm sure many/most here know. I have actually made more than decent money with a few ideas (gasp!) I found in the first market wizards book. Larry's book is a bit of a brain dump (which I always like, no offense there), but once again I found some good ideas in it.

I made (for me, not relative to a big fund manager) very significant profits in 2012-2013 using concepts that I first learned about (If I recall) on Falkenstien's blog, and for a time I tried to get a fund started to trade that market. My thought is that sometimes the market is rich for a particular approach do to a counterparty paying a massive premium, consequently sometimes these things go on even when everyone doubts them (which is why they might keep working).

I think the key to public domain stuff is that if one gets the concept behind a good rule-set there might be 1000 other rules related, waiting to be discovered that might be more attuned to the current cycle of market behavior.

Another is in combining ideas. For example in my way of seeing things there are environments were "naive" strategies are very effective - it is a matter of if u can catagolize that environment and then if there is some persistence to it in the next period (My finding is that there often is), though never perfect.

One last thing I learned is (perhaps contradicting the above) Don't ever write anything and assume that no one will reverse engineer and map out every qualitative thing you write. I had a trading blog that admittedly was mostly goofy stuff i wrote to draw free traffic from google, but also some pretty good core ideas I have made good hay with. Then one week I got emails from two different guys (one a big algo firm, the other an execution algo guy at MS) basically saying, "hey, I mapped out these ideas ideas, they really work - thanks!". The next week I took the blog down. So my conclusion is while some good stuff is in the public domain, don't put anything of value in the public domain yourself, even in vague terms not intended to attract a sophisticated audience. 

Stefan Martinek writes:

From whatever I tested, +90% does not hold or does not improve the base case. Few areas are fine despite being in public domain. They can be further developed. It also helps to start PC at least 250-350 times per year, and make tests before forming opinions. There are so many people with beliefs but when you ask them "show me the codes", there is nothing to show. Sometimes an argument goes that you can take anything and make it working, making the dog fly; I agree but I do not think it is a good use of time.



 Here's a quick list of what I came up with but I hasten to add I know nothing about football.

1. Don't try to be tricky. The members are too enabled.

2. Slow but steady wins the race. Don't go from long to short in one day.

3. Stick with the drift. Bonds and stocks have a drift.

4. Be calm and steady. Stay away from exotic and barrier options and all prop things in markets.

5. Regression fallacy is ubiquitous. The last pass to Butler was good. Don't think it will work again.

6. Don't try to make money the same way two times in row.

7. Stay with the quants. You would think that sabermetrics would tell the right way.

8. Never force your opponent to hit a good shot. They set up a play that allowed Butler to reach it.

9. The cobbler should stick to the last.

10. Don't over strategize. Stick with winning.

anonymous writes: 

If nothing else (not being much of a sports fan), Monday morning analyses often emphasize (to me) the existence of the recency bias, or in wikipedian terms, the serial position effect.

The likelihood that the end of the game last night actually had one of the worst play calls ever is actually fairly low. I suspect that lots of decisions poorer than that one have been made in the past. Similarly, there seems to be a longstanding tendency that when the public is surveyed about their opinion of the quality of presidents' administrations in recent history, the current office holder nearly always is at one extreme or the other.

Ralph Vince writes: 

39 F Curl X-back up. Montana through that to win the 89 Super Bowl. The ball was on the 9 yard line with 39 seconds to go. It was a pass right up the middle, in the back of the end zone however, when the more obvious play would be to throw it right at the goal line, by the sidelines — that would have been much harder to intercept, and if you came up short, there was time to finish it. That up the middle pass left Cincinnatti time to try one last flailing attempt, but, most importantly, it is the kind of pass that led itself to being picked-off.

But no one second guesses the plays the worked, or the fact that every play mismanages the clock one way or the other. You never get top tick.

Andrew Goodwin writes: 

Point 9 of the Chair indicates that one should stick to what one knows. The "last" is a form that shoemakers use.

The Seahawks failed in not sticking to their "last." Their footmen were capable and the excessive trickery failed in the pass call.

The right play was run to Lynch on foot instead of to pass. Let the star who got you to the endgame be the one of who fails. You can pay him less next time even if you lose the game.

Point 8 contains the concept of never cornering the opponent in order to avoid his making a brilliancy. That encapsulates a wonderful ambiguity –Never answering but always provoking thought and sometimes provoking profitable action.

Dan Murphy adds:

It was, indeed, the worst play call in Super Bowl history for the following reasons:

1. The Patriots were almost certainly incapable of stopping Lynch from getting one yard if aligned directly behind Wilson. They were by some metrics, the worst team at stopping runs on 3rd or 4th and short this season, and Seattle the best at picking up those yards on the ground with Lynch. There was one key 3rd and 1 earlier where the Pats stopped Lynch in the Red Zone…but that is only because the backside OT pulled on the read-option and the unblocked DE (Ninkovitch) ran the play down from the backside. Straight ahead man-on-man blocking and there is little chance NE prevents a touchdown (maybe 25%) …give them two chances and the probability of success is probably over 90% (and there was a remote chance of a 3rd play with a quick time-out if the first attempt failed)

2. The explanation of “it was being done to run time off the clock” was as dumb as the call itself. An incomplete pass runs no less time off the clock than an unsuccessful run AND if the Patriots were desperate to stop the clock (it would have been running on a failed rush but stopped after an incompletion) they would have been forced to use a time-out (although seems unlikely that they would have called time-out given that they didn’t use one to stop the clock at :50 after the first Lynch run). What would have been a reasonable explanation was “We wanted to make sure that we had three chances to score instead of two.” At least there is some logic to this. With two failed runs and only one time-out, they might not have gotten off a 3rd play before the clock expired. By passing on 2nd down, they had the potential to throw an incompletion, fail by rushing on 3rd down, and then get a last play by calling time-out.

Regarding the throw itself anybody who has watched a lot of Tom Brady over the years can tell you …the safest place to throw that ball is ankle high.. where only your guy can get it. The problem with that is Russell Wilson is 5'10? and therefore throwing in the seams can be dangerous from the perspective of tipped / batted balls. Throwing the ball between the #s from the pocket is his weakest point as a QB … yet another reason why this play call was a disaster.

Personally, I thought the Patriots were going to win the SB from the pre-season…finally Belichick had the personnel to play his kind of defense on a high level (for the first time in nearly a decade), although I’ll admit I didn’t feel too good about this prediction with 30 seconds left in the game.

anonymous writes: 

Caution: Professor Phil will probably disagree with most or all of this.

Even the very best major league hitter can only cover (at most) half the hitting zone for any one pitch. He can, if he is Altuve or Posey or any of the other dozen or so HOF quality current players, cover the entire plate side to side and 90% of it up and down (hence, "high" and "low" ball hitters) with his stance and swing. But, at the speed and spin that good pitchers throw, even with 20/10 vision and complete concentration he can only cover half the plate. So, the challenge for the hitter is where to look and, for the pitcher, to do a reverse Wee Willie Keeler. Sabermetrics "works" in the same way that the having a legal tender convertible to a fixed weight and measure of gold works; it offers a yardstick that is not political. Where sabermetrics fails is in the details of a particular contest; probabilities cannot forecast a game any more than the Constitutional dollar standard could predict the credit markets. 



 I just made a post on twitter about true psych regularities as opposed to things that only appear on contrived questionnaires given to college students to advance socialist agendas. The two that I know are true are the sold out bull effect, and one that is particularly quantifiable and weighty today. The tendency to have a chance for something very good to happen, and then to see it taken away, which causes grievous disappointment. I mean oil way up yesterday way above 50, up 5%. Hope, hope, hope. But then down 200 today. Hope disappears. Tremendous self recrimination. What other real psychological tendencies do you see from trading that are real and important rather than the college questionnaire stuff of the Nobel person designed to be self fulfilling of the flimsy hypothesis.

Stefan Martinek writes: 

The higher frequency of trading we have, the less happy and impulsive we are. A relatively large pool of impulsive sociopaths on intraday time frames can create a good mean-reversion environment.

Victor Niederhoffer replies: 

Could be bad for familial harmony also. 



 Okay. What market situation is similar to The Seahawks decisions to pass with first and goal on The Patriots 1 yard line with 1 minute to go which pass was intercepted.

anonymous writes: 

Working a bid/offer to get flat with a profit ahead of an announcement only for it to come out 1 minute early and go the wrong way resulting in a painful loss.

Andrew Goodwin writes: 

That play call will go down in the annals of history as one of the worst calls ever. The folks who gathered to watch where I watched included one most vocal who cried for Lynch to get the ball to run. Many were calling for the run.

Let us call this a trick play that backfired. The deception factor was high but the pass call was otherwise a poor decision.

David Lilienfeld writes: 

Respectfully, with the benefit of a good night's sleep on it, I disagree. Go take a look at the defensive line. Where was he going to run. The line had been getting a surge. I'm not sure that's the exact passing play to use. A screen might have been better, but a run wasn't going to necessarily do the trick, and with time running down, an incomplete pass buys time for another play. Bad passing call, but going to the pass makes sense. Just not that play. Something a little harder for New England to read would have been better, though.

Chris Cooper writes:

I'm in the middle of reading Scorecasting: The Hidden Influences Behind How Sports Are Played And Games Are Won by Werheim and Moskowitz. The authors do an exceptionally good job of demonstrating how conventional wisdom in such situations can remain wrong. I would not be surprised to find that this particular example was a theoretically correct call which nonetheless always leads to opprobrium by the masses.

I recommend the book, and note that it is on the Chair's reading list as well. The insight into referees is particularly well expounded. Likely many market lessons.

Tim Collins writes: 

At the very least, you try the run. Lynch is truly hard to take down. Call time out if he doesn't make it. Use a QB roll out on 3rd down. Throw it away if not there. That would leave any play open for fourth.

anonymous writes: 

The play made sense in terms of clock management. It was about NOT giving a guy like Brady an extra 20 seconds to come back and beat you. Further, one must wonder why Seattle didn;t let the play clcok run down to :01 and call a timeout at that point.

A similar analog occurred at 2:02 left in the fourth quarter, when NE kicked off winning 28-24. I was certain they could kick the ball short, allow for a run back, let the clock burn on the play and then stop for the 2 minute nonsense, rather than giving away a pass play for free by kicking a touchback.

NE didn't do that of course, and by the two minute warning, the ball was at midfield.

The point is,running down the clock, or not, is not without its risks. The hypothetical — give the ball to Lynch, could have been a fumble as well. The game is comprised of such things, and no play is without risk, as is no trade, hanging out there by its lonesome.

Tim Collins replies: 

Fourth down play doesn't matter, so you have one run and one pass with the one time out. As long as my QB doesn't take a sack on the rollout, I'm fine. Plus, I thought they took too long to get to the line. There was 55 when they huddled up/lined up. Seattle took over 30 seconds to run that 2nd down play. Either way, I run on 2nd down. I'm stopped short and call time out. I now have roughly 20 seconds (plenty more if I actually get lined up in a timely fashion and run), so my QB rolls out. He is told to throw it away if there is not a wide open lane to the end zone or no one is open. As long as he does what he is told, I have plenty of time to run one last play from the 1 yard line. It doesn't matter what the last play is. I either score or the game is over as I will turn over the ball.

Sure, you could switch these and run the roll out on 2nd and the running play on 3rd down. I might even leave that decision up to Wilson based on his read of the defense, but these are my 2nd and 3rd plays. And, yes, I would run it again with Lynch on 4th down from the 1.

Pitt T. Maner III writes: 

My 2 cents and second guessing– Don't lead the receiver. Aim at his body so he boxes out the defensive back(s). The bigger and stronger the receiver you run across the middle the better. More chance of a defensive interference call. It was a play with poor execution. Lynch can catch the ball too as was seen– one would rather have him fight a rookie DB over a short pass. A fade to the corner with your tallest receiver might have been good too. It's all about size and position and ball placement.

Victor Niederhoffer adds: 

"Seattle Coach Pete Carroll Stands By Decision to Pass"

Scott Brooks disagrees: 

I disagree.

He had one time left and The Beast in the backfield. Run the ball twice and then use your timeout. At the very least, he Belichik would have been forced to call a time out to preserve the clock in the (likely) event that Seattle could have Beasted that ball across the goal line.

Worst case scenario, if you pass, do a fade route to the corner.

The Pats were stacked in the middle prepared to take on Lynch, why throw it into a sea of blue?

They even had time to do a play action and give Wilson time to improvise and still throw it away if there's nothing there. Then run two running plays and use the timeout in between.

It was a stunningly poor call, one that will haunt Carrol for the rest of his career.

Pitt T. Maner III writes: 

Think of the money involved (excluding endorsements and lots of other things): "This year, the salary bonus for players on Super Bowl teams has inched up a bit to $97,000 (up from $92,000 a year ago) for each winning player, compared with $49,000 for players on the losing squad ($46,000 a year ago). So the total gap between the game's winners and losers should be a bit higher than it was last year, when the difference was just under $3 million."

anonymous writes: 

Read a paper earlier this year that the most statically reliable goal line play was the slant pass. The least was the fade pass. In my observation the receiver needed to be about 2 yards deeper. He was too shallow to get separation.

Craig Mee comments: 

This reminds me of turning a winning position into a loser. We have probably all achieved this in a number of ways. Spreading off risk and turning over possession has got to be up there. I must include talking to a fellow trader and after the chat swinging your position from net long to net short, and watching the market go limit long.

anonymous writes: 

What about the quarterback sneak?

Would be good to have stats on how many inches/feet can be reliably picked up on a quarterback sneak, even if everybody knows it's coming:

"Around the time Pro-Football-Reference added the Game Play Finder in 2012, I used it to look up Tom Brady's rushing success in short-yardage situations (third or fourth down, 1-2 yards to go). The results were staggering. Including last season, in his regular-season career Brady is 88 out of 91 (96.7 percent) on these runs, including 56 straight conversions. That's almost as efficient as the extra point. After researching some other quarterbacks, I found that most of them had great conversion rates. This is largely due to the quarterback sneak, which has worked 85.9 percent of the time since 2009".



 Talk about a biased study where if you get to the top 1% of course you're growth was way up but if you are in the bottom, you ended up way down. A regression fallacy designed to create egalitarianism and agrarianism. Could have been financed by the forces of collectivism.

"1450% Income Growth Is What You Need to Join the 1%":

By Gail Degeorge (Bloomberg Business) — New research shows that not only are rich Americans making more money than you, they're also making money faster than you. A lot faster.

"Average earnings growth over the life cycle varies strongly with the level of lifetime earnings: the median individual by lifetime earnings experiences an earnings growth of 38 percent from ages 25 to 55, whereas for individuals in the 95th percentile, this figure is 230 percent," according to a paper published in January by the National Bureau of Economic Research, by four authors including one at the Federal Reserve Bank of New York. "For those in the 99th percentile, this figure is almost 1,500 percent."

For those in that top 1 percent, that means going from making about $50,000 when you're 25 to about $750,000 when you're 55, said Fatih Guvenen of the University of Minnesota, one of the study's authors.

"Every year, the median worker between ages 25-55 experiences 1 percent annual growth," he said in an interview. "For the top 1 percent, it's about 9 percent per year. And because of compounding, their incomes grow by 15 fold." Age also makes a difference — and the early years really count.

"Across the board, the bulk of earnings growth happens during the first decade," according to the study, which drew on a sample size of more than 200 million men between ages 25 and 60 from 1978 to 2010.

Meanwhile, momentum in earnings growth slows as workers age. For those older than 45, the only groups with earnings growth on average were those in the top 2 percent.

The research also showed that the richer or older someone is, the harder they can fall. Earnings shocks that workers encounter are usually harmful and become "more severe as individuals get older or their earnings increase (or both)," the paper said. This is because earnings growth slows as workers age, and there's an increasing risk of having a sharp fall in income after the age of 45. 



 Stock market vigilantes create Greek moussakis delight

"Tsipras Targets Deal With Euro Area After Market Pummeling"

By Nikos Chrysoloras and Corina Ruhe (Bloomberg) — Greek Prime Minister Alexis Tsipras sought to repair relations with creditors after a week-long selloff in bonds and stocks, a move welcomed by euro area officials concerned they were headed for a showdown with the bloc's most indebted nation.

Greece will repay its debts to the European Central Bank and the International Monetary Fund and reach a deal "soon" with the euro-area nations that funded most of the country's financial rescue, Tsipras said in a statement e-mailed to Bloomberg News on Saturday.

"The deliberation with our European partners has just begun," Tsipras said. "Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole."

Bond yields surged on Friday after Finance Minister Yanis Varoufakis said the new government will turn its back on the rescue program that allowed Greece to pay pensions and public wages for the past five years in exchange for a punishing regime of spending cuts that wiped out 25 percent of its economy.

Gary Rogan writes: 

You'd think that almost 3,000 years after inventing Western Civilization they'd have enough sense not to believe the "No more bailouts, no more submission, no more blackmailing" promises of a wild-eyed radical.



We can soon expect to hear the mumbo about how if January is down the market is likely to be down for the year et al. How many times does this have to fail before it loses its impact.

Rocky Humbert writes:

Feel free to call this "mumbo" — but there are hundreds of millions, if not billions, of US stock market positions that will exit if the market closes today below the 1960-2000 level. I am not predicting today's close and the probability of falling 40+ spu points is always very low (hence betting on this outcome has lousy odds).

However, I will predict with confidence that should these "stops" get triggered, you will be rubbing your eyes next week at the much lower prices you will see. 

Hernan Avella writes: 

What happened with the idea you championed back in December about the wisdom of the common man, that poured $36.5 billion into stock funds on Xmas week, marking the biggest inflows on record as U.S. stocks surged to record highs. Are those the positions that are looking to sell today? Enlighten us please.

Rocky Humbert writes: 

The "common man" will do just fine. It's the professionals who will be selling based on things such as this.

Anton Johnson writes: 

Wondering about the self-promoting Mebane Faber and his recently launched ETF buisness, I found this value nugget:

Cambria global value ETF (GVAL) return since inception (3-12-2014 till 1-28-2015) is ~ -19%.

'The Cambria Global Value ETF seeks investment results that closely correspond to the price and yield performance, before fees and expenses, of the Cambria Global Value Index[…]The Index next separates the top 25% of these countries as measured by Cambria's proprietary long term valuation metrics. The Index then screens stocks with market capitalizations over $200 million. The Index is comprised of approximately 100 companies.'

anonymous writes:

Meb Faber likes to look at 12 month moving averages computed at the end of the month. For S&P we have:

Date              Close

1/30/2015       ??

12/31/2014     2058.9

11/28/2014     2067.56

10/31/2014     2018.05

9/30/2014       1972.29

8/29/2014       2003.37

7/31/2014       1930.67 

6/30/2014       1960.23

5/30/2014        1923.57

4/30/2014        1883.95

3/31/2014        1872.34

2/28/2014        1859.45

You can verify that he would be bearish if the end of January value is 1959.125 or below.

This I believe is the source of Rocky's numbers



 1. The key bellweather these days is the Dax.

2. The reason The Knicks won 3 in a row was that they got rid of Smith. He was the rotten egg that ruined the barrel. After losing 16 in a row they won 3 in a row. The market went down 5 in a row then up 4 in a row. The market learns from sports team.

3. Every situation in baseball and basketball including whether a fielder should have made a put out is captured on video and quantified these days. The book Mathletics by Wayne Winston uses regression analysis to find the value of each player and each play in the major American games. A better technique would be montecarlo simulation. Often Winston makes the part whole fallacy of fitting many variables to an outcome and then reporting an improvement from a naïve strategy. The pythagorean theorem gives good results in baseball, and basketball, and it could do the same in market. Use the ration amount gained in rises /divided by amount lost on losses to predict the % of wins. But there is the part whole fallacy in it. Naturally given the distribution of gains and losses, if you know how many points gained and losses there were, it's going to give you a great estimate by simulation of the games won, that will do much better than the squares of James et al.

4. I've given up on dealing with the big low priced broker as they now add a risk fee to the regular commissions, but it seems like a great stock to buy, as they leave no contingency unopened in order to make a profit at the expense of their clientele. Good bye to any thought of option trading also as I recently had a position with $1,000 of premium with a few days to expiration where the required margin was close to 1 big. The thought too smart by half comes to mind.

5. The main reason that stocks go up more than bonds and the explanation for the dimsonian 70,000 fold a century multiple you make is the power of compounding on a base of the return of capital. It has nothing to do with dividends. However, the differential between earnings price ratio and 10 year rates continues to rise, and that is extraordinarily bullish for stocks for much the same reason as above.

6. Reading Roman history, one sees the wisdom of Nock's idea that the only thing worth studying in history is the Roman and Greek history because everything happened there that will happen again. The prelude to the Crusades is particularly relevant today.

7. The Nasdaq refused to go down with every other equity down on Friday.

8. Gold is now playing footsie with the round of 1300 the same way it did with 1200 last year. But of course everyone was bearish last year so it went up a fast 100 bucks in 2015 proving the old adage that the things that go down the most in 1 year go up the most the next year. However, I stopped trading gold except in small quantities because one can only predict a day or so, and you can't get in or out of a position with poise when your numbers tell you to do so.

9. The Asian markets amazingly go down even more on each meaningless survey than the US or European markets. Of what significance is it that the growth rate in China forecast is lower by 0.1 % from time to time from 7.6% to 7.5 %.

10. One should never forget that once the Fed changes a qualitative rate, the average run in the same direction is 10 or 12 further changes, i.e. a run of 10 in the same direction.

11. I can never read a text on chemistry or physics without getting a million ideas as to how their foundations and findings and experiments provide vast insights into our field.

12. How much does supply have to go down in the oil industry for oil to start moving up again.

Anatoly Veltman writes: 

On 10. The upcoming FED rate hikes: yes, historically, it has been observed that once official hikes or cuts got rolling, they wouldn't stop for that many counts to come. And of course, it is VERY advisable to position yourself in advance for another re-run of the scenario. Curiously, that's exactly where the profit will be made: on an anticipatory position. Because once the first hike occurs, I'm not at all sure that history will play an infallible guide this time around. Why? Because what we've had in the current cycle with ZIRP was unprecedented, and thus this time may be different: after a hike or two and a market upheaval, the FED may reverse back to manipulation.



 I would urge all the electronics experts on this site, old and new, to treat the market as an electric circuit with the inputs tied to an op amp with a negative multiplier attenuated—ultimately with histeresis. Almost all the market moves can be quantified with an output statistically significantly related to the inputs. It's much better than looking at technical indicators which are mumbo. At least this is something you know about and can test.

anonymous writes: 

Interesting…Is this the type of circuit you're suggesting to take a gander at?

Victor Niederhoffer replies: 

Yes. The circuit can be connected to all sorts of components. An input could be the open. It's a start. A good book with all sorts of op amp circuits is Exploring Electronics by Michael Merchant and many paths and outputs seem market related.

anonymous writes: 

Here is something good about Op Amp basics you can read online.



If only the Yale prof would realize that if (a + b) is positively correlated with c, and b is negatively correlated with c, then a is highly positively correlated with c. Also that earnings don't live in a vacuum and the best estimate of next years earnings is last year's + 10% not the 10 year average. When the collab and I pointed out the errors in his thinking, he said it could be an Ito process where all such relations don't necessarily hold, but he realized the gaps in his ideas and they weren't very important to him. Of course the main thing is that the professor has been bearish since 1965 suffering from the English disease that the main determinant of stock prices moves and variabilities is the dividend distribution.

Andrew Goodwin writes: 

A dividend distribution factor as a key determinant of stock price moves seems misplaced given the case of closed end funds that distribute assets instead of solely income as dividends. More on this subject might be of interest.

I have not studied the subject deeply enough to share a view yet.

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