What kind of moving average of the last x days is the best predictor of current and future happiness, and how does this relate to markets?

Anatoly Veltman writes: 

The widespread misuse of MAs concept is what gives it bad name. 90% of testers and users look at crossovers, and the remaining 10% look at break of MA from above or below. All wrong

The only proven way to apply MAs from trend-follower stand point is to look at nothing else but SLOPE. (Trading Days) Is 14-day MA sloping upward? If so, then is 30-day sloping upward? If so, then is 50-day sloping upward? If so: then Shorting is forbidden! Mirror test may save you from disastrous bottom-picking.

Bill Rafter writes: 

I beg to differ. There is no way the "average of the last x days is best predictor…" It by definition is at least a coincident indicator and more likely a lagging indicator. BTW the same can be said of the SLOPE of the last x days.

However, you can construct a leading indicator by comparison (difference or ratio) of the coincident to lagging indicators. For this newly created leading indicator, there tends to be a lot of false signals, due to random market action. To guard against that you need to have very smooth coincident and lagging inputs. Making them smooth also makes them more lagged, but that will not hurt you as you are not going to look at them outside of a difference or ratio, which will be quite forward-looking.

The real problem is that investors want to identify a static x. In doing so they are insisting that the market be modeled by x periods. Well, the market doesn't always feel like cooperating. At times the market may be properly modeled by x periods, and at other times by x+N, in which N can assume a wide range of positive and negative values. The solution is to first identify the exact period over which the market should be modeled for the coincident valuation. And then go on from there. Rinse, repeat. 



The biggest takeaway for me this week has been "it hurts to follow the news". Everything was so dark in Europe over the weekend. The consensus was that this was worse for Europe than 9/11 was for us. Everyone knows the terrible decline of 7% that followed 9/11. This time exactly the opposite.



A shibboleth on Wall Street and life is that we underestimate change.  I've heard it a million times in popular and academic papers. Zarnowitz adduced it in his study of forecasts 50 years ago also. I felt a fast study might be of interest. Do the big changes following big announcements in the early periods tend to continue or reverse. I tested it for 100 of the biggest changes. As usual the popular view is totally off. There is a big tendency for the big rises to be followed by big declines to an inordinate extent and the same reversal tendency for big declines. The study would have to be expanded to be of merit but it's a much better way of quantifying the effect than the subjective studies festering about.

UPDATE: I found 600 article (items) with the tag "underestimating change stock" on google and many of them are very interesting including an article on underestimating earnings announcement price movements and buying straddles to profit, also analysts not taking account of price changes before earnings announcements in making their predictions. But I didn't come across any that examined a large sample with a definite and non-overlappng data set like mine. My study shows that if you take all the important announcements, and look at the change in the first 10 minutes that are big, there is a significant tendency to reversal. I also looked at all the big 10 minute changes around 830 without regard to the announcement and found the same effect. I can say that at least at the microscopic level, with moves of about 0.2% expected, there is a substantial tendency to overestimate the impact of announcements. 

Adam Grimes writes: 

Thank you for that study and the perspective. It makes a lot of sense, and makes me ask a few related questions:

Something I've been wondering about is the claim that markets switch regimes faster now and that markets basically don't trend as well as they used to.

Two thoughts: 1) it's used as justification for the "death" of simple directional strategies… there does seem to be some evidence that we don't have the long trends of the 1980's that gave CTA-style trend following legendary returns for a while, but question 2): why do we assume this is linear? The people who discuss this would have us believe that we look back to the past and see markets that trend and have now fallen into a chaos (perhaps that's overly dramatic) where markets essentially no longer trend. Isn't it also possible this is cyclical, and that we could see more decades of those long, relatively "easy" trends in the future? The assumption is always that it has been driven by electronic trading, more competition, etc… but I wonder. (Always hard to truly understand the drivers… I guess understanding the effect would be enough.)

Not sure how to look at this idea in an objective way. Does this raise any thoughts?

Adam Grimes CIO, Waverly Advisors, LLC

My book: The Art and Science of Technical Analysis

Shane James writes: 

Hi Vic,

I concur with this.

Of note in many of the macro markets is that there is quite an imbalance in the price formation process.

In other words, within the idea of 'conditional heteroskedaticity' or 'volatility clustering' the relatively large moves do tend to occur contemporaneously and the relatively smaller moves also do the same,

The 'imbalance' I refer to above is that- overwhelmingly- the clustering of small moves proves the point more so than the clustering of large moves.

In terms of sign the smaller moves have more persistence than large.

Rocky Humbert writes: 

The money quote in the Forbes article that you cite is, "Find the trend, but don't sweat the details or the timing because you'll always be wrong." There are 4 sub-statements in this sentence. Which of the 4 are you challenging? And bear in mind that your answer must be consistent with your faith in the "Triumph of the Optimists".



 In describing a Hitler oration Shirer in Berlin Diary: "in the sound of the magic words of Hitler, they were merged completely in the German herd." Rosenbaum in his introduction to Rise and Fall of the Third Reich: "was it a unique one-time phenomenon or do humans possess ever present receptivity to the appeal of primal herd like hatred". Galton in his Inquiries into Human Faculties likens the human tendency to gregariousness to the oxen he tried to train to lead without success. We see evidence of this herd like gregariousness all the time in markets, and the only problem is to ascertain the end of its irrationality so as to profit from it.

Anonymous writes:

A CEO told me over the weekend that now that his business is "hot" he has been told the Japanese company that kicked the tires and decided not to buy much lower might now buy at 1.5X to 2X the current price as popularity has created the needed validation for the purchase. Wonder if that matches your observations.

Victor Niederhoffer writes:

Sounds like the gregarious imitative Japanese persona. Do you agree?

Larry Williams writes:

I agree, but disagree. The buying is not based on any unique Japanese Persona, rather most all people buy high and most all people are afraid to buy when prices are falling. Human nature. High prices prove it. Only real speculators look past today for proof.

anonymous writes:

Larry and Vic,

The anecdote and your responses illustrate both of your biases, which are not necessarily any better or worse than the Japanese buyer's bias.

Example 1:

If the company is an early-stage drug company with billions of potential long-term profits, but dependent on Stage 2/3 clinical trial results, it may be demonstrated mathematically that buying the company after it achieves positive results (and after the price has increased 2x) is a better risk-adjusted return for an acquirer who doesn't like portfolio volatility.

Example 2:

If the company is entering a new space and is a first-mover, there are numerous examples where buying the company after it has critical mass is a better bet than speculating on a long shot. Goldman Sachs is a primary example of a company that rarely enters a market early.

I heard a truism on the radio last week: "People love to go shopping when things are on sale. The only exception is the stock market where lower prices scare the buyer." This is both a true and false statement. If a sweater gets marked down 20%, it's the same sweater. However, if an individual stock price goes down 20%, it may OR may not have the same earnings potential prior to the price change. There is a difference between "price" and "value". Great investors understand this difference and even they sometimes get it wrong.

So, while I am not defending the Japanese fellow, generalizations without numbers on the table are no better than snide racial epithets.



 Very good letters from N.C Wyeth in the book The Wyeths by Betsy James Wyeth, (Andy's wife). A beautiful passage by the author: "If I could just say to him "I'm sorry". Perhaps this was my motivation while I worked on the manuscript gathering everything together. I knew him for six years, but I never understood him until now. Forgive my foolish heart".

A Beethovian passage from NC Wyeth: "However practical we might want to be, however, we must make elemental nature our basis of inspiration. Without this as a starting point, our aims and actions must needs be extremely limited. I think of a hundred things a day that I would love to realize on canvas. [he carefully leaves out his amorous thoughts.] The process of mind after grasping the purely elemental motif, quickly reduces it in rapid success to a practical scheme".

There are beautiful letters about instructing Andy in the technical and creative powers of painting, starting with drawing cubes and cones that should be read by everyone. The railroad accident that claimed the life of NC and his 2 yr old son at 60 is put into perspective in a very different and reasonable way here relating to distraction from looking at a field of corn here rather than the intentional crash elicited in the major bio of NC. Very worthwhile and hats off to the author, a model for all good wives and daughters in law.



 The malachologist John Dupont has left a withering monument in his seashell museum of natural history with 3 or 4 visitors, but a list of 20 founding Dupont donors.

One can see the signs of madness in the displays enumerating the 5 classes of mollusks.

I found the exhibit of volutes particularly interesting as it similar but much smaller to my own collection, but I did not harm any of the squash players I have coached.



 With all the market soaring again and panic out of the air for a time, it's good to gain equilibrium by turning to the endless store of 10,000 Wiswell proverbs he created for checkers, life, and markets at our weekly meetings over a 20 year period.

Here are some of my favorites from volume 5.

The Speed Artist

One thing you can be sure of, the faster you move, the sooner you'll lose.

Double Time Player

The real secret of patience is to continue thinking while it's your opponents move "tomorrow never comes"

If you want to become a good player, there is one thing that you must learn to do: you need to analyze the games before, during, and after the playing. Don't put it off till tomorrow.

A Cardinal Rule

A move once made can never be unmade.


The player with a strong double corner is double hard to corner.

Your Daily Prayer

Before every game say the following: "I can defend myself from my opponent but who will defend me from myself".

The Trading Game

Every exchange makes a fundamental difference in the character of your game. Therefore every trade should be made with great care regarding the new formation.

The Shadow

Some of your best moves were moves you never made and they saved you from many defeats. What you don't do is as important as what you do.

Jumping to Conclusions

If you jump to conclusions you can lose at checkers, chess, or commodities.

Stop Look and Learn

The player who hesitates is often saved Friend or Foe.

Having the opposition in chess is comparable to having the move in checkers (or having the swings in your favor in markets, or having one extreme after another make you money). Both can be very friendly and at times very unfriendly. Trust and verify.

Treasure Hunt

All the right moves are there on the board, waiting to be made. Your job is to find them.

anonymous writes: 

I've found with regard to waiting that when a market moves out of bounds of regular activity, wait until you are no longer eager to make the trade and then buy. The first impulse is too early many times. If one is early one lets the forces of capitulation out of their error too easily. The waterfall can last longer than one thinks. Eagerness is a killer.

Steve Ellison writes: 

I am guilty of such "one-way thinking" because I have difficulty finding situations in which the forward expectation for the S&P 500 is actually negative. I won't say that I have never found such a situation, but they are hard to come by.



One corollary of Shirer's account: the danger of giving up our sense of selfhood for the illusory unity of a frenzied mass movement of devolving from human to herd for some homicidal abstraction. It is a problem that we can never be reminded of enough.

From Ron Rosenbaum's forward to The Rise and Fall of the Third Reich. One would point out that often great historical works have much insight to markets.



 I would posit that the Asian markets, and the emerging markets in particular have had a predictive and leading impact on the US stock market. They went down hard before our crash, and now are going up strong before the Dow and SPU close the year at all time highs. However, I ask a general question. Is there one market, anywhere in the world an any time in the 24 hour cycle that has a predictive and profitable impact on another, and if so how long will it be before the cycles change?

John Floyd writes: 

On a slightly more qualitative avenue I would consider the prevalence over the past decade plus to say the least of "bad economics leading to bad politics leading to bad economics loop"

The recent Portugal elections and ECB statements today are an upwelling of fertile information to consider in terms of Europe in the immediate future.

The extension could go to Asia as well where the capital outflow and reserve losses from China share some parallels with that of Russia in 1998.



I would ask an important question. In the marketplace when are the best times to wait?

Jim Sogi writes: 

Rocky said mean reverters make a little money a lot of the time, like 99% of the time, but on 1% lose big. Its those big big 100 plus point days or weeks that can cause great harm. Those day you wished you waited to the end of the day, until the next day to buy. Those days you wished you stayed in bed. Is there a way to avoid the ax, the falling knife, the big vol trend down weeks? Is there a warning, a canary to tell you, wait? When 99% of the time it's the opposite?

Our friend Seattle Phil used to say, its all about leverage and max expected draw down. Chair says it's about broker margin games. They're all right of course.

On the days when it's 40 plus down, it seems a bit easier, because you know it can't go much further, normally. The other days that are difficult are the low vol creep upwards week after week.

anonymous1 writes:

The Skew Index provider thinks there is an answer in measuring the market implied probability of an extreme tail event in the stock market. It carries the assumption that the market can evaluate the risk in its assignments of implied volatility up or down.

If it can, then you scale risk exposure levels to match the skew risk measurements. High skew means cut back exposure.

That said, I'd rather know the margin call levels available only to the brokers as a composite readig on all their customers. That can work better than skew for capturing the cleanup prints at the end of the day when increasing margins knock out the risk takers.

CBOE SKEW Index Introduction to CBOE SKEW Index ("SKEW") The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500® returns. Investors now realize that S&P 500 tail risk - the risk of outlier returns two or more standard deviations below the mean - is significantly greater than under a lognormal distribution. The CBOE SKEW Index ("SKEW") is an index derived from the price of S&P 500 tail risk. Similar to VIX®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the probability of outlier returns is therefore negligible. As SKEW rises above 100, the left tail of the S&P 500 distribution acquires more weight, and the probabilities of outlier returns become more significant. One can estimate these probabilities from the value of SKEW. Since an increase in perceived tail risk increases the relative demand for low strike puts, increases in SKEW also correspond to an overall steepening of the curve of implied volatilities, familiar to option traders as the "skew".

anonymous2 writes: 

Back in 1994, during that memorable Fed tightening cycle, every time the Fed tightened, the market priced in a greater probability of more and faster tightening. Chairman Greenspan referred to the Eurodollar futures market as "A blind man looking into the mirror."

Similarly, I do not think looking at Skew index will help you systematically avoid risk and make money for similar reasons — namely, it is self-referential. At the risk of articulating an Epistemology, any market price that is set by market participants cannot correctly discount the probabilities of something that isn't correctly discounted. I know that sounds like a typo, but it isn't. It's the nature of arbitrage-free pricing.

To say that "high skew means cut back exposure" is way too simplistic and it is what gives rise to the high skew in the first place. It's similar to market participants who adjust exposure based solely on VaR — they take more risk when things "look" safe and reduce risk when things "look" dangerous — with the blessing of academics and statisticians and other wonks. In contrast, many successful investors do the exact opposite: they reduce exposure when things look safe and increase exposure when things look dangerous.

There are many paths to heaven.

Almost no one reading this post has invested a period of protracted 0% CPI or deflation in the USA. I'd suggest that one consider this possibility and its implications — as it is very easy to miss the forest from the trees. The Skew is the trees.

Larry Williams says:

On a different note, seasonality might offer a reason to wait.


Bill Rafter writes: 

If you compare SKEW and VIX you can get some good signals that predict the equities market. But those signals are not necessarily better than signals from other indicators. This coeval of signals is simply evidence that when a market is ready to go [fill in your choice, here], its intention to do so is writ wide across the landscape.

If you compare ratios or differences between SKEW and VIX you find that relative to VIX, SKEW is a pussycat. So essentially the comparisons are merely using SKEW as a benchmark with VIX doing the wild dancing. N.B. the series have different orders of magnitude, which means if you want to take their differences you should cumulatively normalize them.

We have always been suspicious of sausage and indices, as one frequently never knows exactly how they are put together. Those newbies studying VIX would benefit from a good understanding of its construction. Dave Aronson (we believe) had similar concerns, prompting his creation of a less theoretical measure of volatility ("True VIX"). The same can be done for SKEW by taking not prices, but ratios of volume and open interest of equity calls and puts and index calls and puts. We have done that and found profitable results, but again not enough to forsake our current algos. However, we have researched the data with the goal of improving equities trading. Someone with the resources to pursue a full blown options program (e.g. a large investment bank) probably would find further study of additional value.

This is our experience to date. We haven't checked everything as doing so is, to say the least, mildly distracting.

Ed Stewart writes:

Anxiety and waiting sucks. How much of winning is just being willing to wear the opponent down, exhaust them. Play the long game to when when no one else sees it. In markets but also business. It seems easy, but if you play that "long" game, everyone else thinks you are an idiot for along time, asking why, up to the moment you win. Then they get it, see you won, but don't see how. They say, "it was luck". That is why it's difficult. One needs to value results over accolades. 



Out of 17 headlines, all 17 bearish and negative, with bonds and stocks way up.

Gary Phillips writes: 

Paul Lynde in "Bye Bye Birdie" comes to mind. Mr. Eisenstadt must read those headlines in wondrous amazement and think to himself…"Kids".



 There is a nice passage in Jack Schaefer's Old Ramon, who by the way is one of my 3 favorite American writers of the 20th century, that talks about the stupidity of sheep. He says "the individual sheep is stupid, but the herd is very smart. They always know the right way to go, the right thing to do (especially when guided by the dog and shepherd).

The stock market reminds me of that every time there is an earnings report of a major company. It originally does something stupid, as if the company reporting like Intel, Netflix, or Goldman $achs were the only company. But then after a proper time, it does the right thing.

Andrew Goodwin writes:

The Chair's points on reversals after single company earnings and upon the law of the ever changing cycles make great sense in light of the discovery of the hacking of the earnings release sources and the subsequent sale of the information to traders.

One phenomenon that likely would revert would be the predictive property of price moves in minutes prior to announcements of earnings. If the regulators can shutout the hackers from the news wires that hold the earnings reports for a release time after preparation of the news then a much smaller batch of insiders could use them.

One thinks that the true insiders would have to act earlier than in the brief intervals before releases that allow the hack info buyers to take less time risk in acting close to the news event.



 Kareem Abdul-Jabbar has a nice knowledge of Sherlockiana in this novel about the young Mycroft in boxing, rowing, boating, and caring for his companion of color in the caribbean with a femme fatale waiting in the background. Except for the contrived heroism and prejudice of the person of color, and the contrived observations of Mycroft on character and cryptography, the book can be recommended. I don't believe we have fully considered the insights of Sherlock and Mycroft, as they relate to markets, and I'd be interested in your thoughts. Perhaps the least insights are those emanating from the spiritualism of Conan Doyle.

Adam Grimes writes:

Interesting topic and idea. I recently re-read A Study in Scarlet and there were a number of spots that jumped out as having pretty direct relevance to markets. I'm sure I'll misquote, but (roughly):

"They say genius is an infinite capacity for taking pain. It's not a good definition, but it does apply to detective work…"

Also "the world is full of obvious things which nobody, by any chance, ever observes"

It will be interesting to think about this topic in more depth, but the connections to market "detective work" seem to run strong.

Gary Rogan adds: 

"The dog that didn't bark" has got to be one of the most important concepts in understanding how things really work.



 Can this be explained in words so that a reader like me can understand it? The question arises: how to explain this to a normal person not a statistician?

"The ‘Hot Hand’ Debate Gets Flipped on Its Head: A new paper shows how a simple coin toss may prove that basketball players really can get hot"

Prof. Stigler ?

Steve Stigler writes in: 

Here's one take.

It comes from averaging relative frequencies over different numbers of trials.
Here are the possibilities for n=4 and the relative frequency of H following directly after H:

HHHH 3/3=1
HHHT 2/3=.67
HHTH 1/2=.5
HTHH 1/2=.5
THHH 2/2=1
HHTT 1/2=.5
HTHT 0/2=0
THHT 1/2=.5
HTTH 0/1=0
THTH 0/1=0
TTHH 1/1=1
HTTT 0/1=0
THTT 0/1=0
TTHT 0/1=0
TTTH 0/0 undefined
TTTT 0/0 undefined

Total rel freq = 5.67; average over the 14 cases that give data = 5.67/14= .40
Even though the number of successes is 12 out of 24 cases of looking at a
result after a H.

Victor Niederhoffer adds: 

But isn't there a conditional probability explanation for this from normal statistics of bayesian or just conditional nature. Seems like a simple math team problem. 



 There is no such thing as a bear market. Nor is a 10% decline more likely to be followed by declines than rises. The limited number of such moves in past makes it completely non-predictive even if there were some conditional moves following it that were different from the first. However, the moves at the close yesterday before the 23 pt rise today have the semblances of death throes.

if we have any experts on such besides the hobo vet, it would be good to hear their insights.

Bo Keely writes: 

The pressed dinosaur image in the death throes article you linked to has a more probable explanation. I disagree with the paleontologists about the cause of death being agonizing and with the vet who diagnoses the cause as opisthotonus. It makes more sense that nearly every dinosaur skeleton, whatever the cause of death, is slowly weighted by accumulating layers of dirt, which press it into that position.

anonymous writes: 

1. The common definition of a bear market is a 20% decline from its most recent high price. The common definition of the Loch Ness Monster is a cryptid that reputedly inhabits Loch Ness, a lake in the Scottish Highlands. Some will say that neither exist. I have the photos of both.

2. The necessary condition for a 20% decline is a 10% decline. Hence the probability of a 20% is infinitely higher after a 10% decline than before a 10% decline. Based on what I've read, the pundits are obsessing whether this is "2011 all over again" (whatever that means). I am trading with the view that the answer is more likely "no" than "yes". Whatever that means.



 One wonders if the volkswagen problem is endemic to all industries regulated by their colleagues at the agencies. Since the companies vet and establish the regulatory hurdles, they would have every reason to design a way to pass the tests. The drug companies with their supposedly double blind studies of individuals free of other diseases who complete the tests, from a carefully selected group to start come to mind. The problem must be legion? Is this a reasonable way of thinking or am I overly cynical. I believe my father wrote a book or two about this starting with his cynicism tests for policeman in Behind the Shield.

Jordan Low writes: 

That makes sense. Reminds me of Self-Regulatory Organizations — looks like bankers, lawyers, doctors and realtors all have their own version.

anonymous writes:

A candidate for some measure of malfeasance in this 'technologically enlightened' age is surely the click through advertising piece; for example, advertisers paying based on number of clicks.



Will someone explain to me how a 57% man survey versus a 57.5 consensus in cha— must be 1 in 200 varied, with a standard deviation of the number of 5 percentage points or 25… could cause an immediate drop of 20 points in SPU and 300 in Nikkei et al. Is it random? Is it bullish or bearish in itself? The old story… a number is seen as bad for China. The US markets swoon. And then China goes up regardless, but the bearishness persists. When people are bearish they're bearish.

Gary Phillips writes: 

Herd behavior appears to have become more institutionalized i.e, ETFs, risk parity funds. Traders need to adjust to the reduced level of liquidity (Volker Rule's effect?), and the higher level of realized and implied volatility. Eventually these things sort themselves out and the fundamentals reassert themselves. I suspect that's what will happen this time too. 



In looking back at this year, where all materialistic regularities seem to have been noxious, irregular, non-predictive, absurd, one is led to reread the works of Albert Camus with profit, especially “The Plague” and “The Fall”, where absurd remedies are hauled out in a world that is out of touch with day to day activities.



 'Cyborg Chess' or 'Advanced Chess' is an area that might be of interest to specs in that humans are allowed to use computers during the decision making process. There is evidence that strong human players can add considerable value to pure computer play when the process is managed in the right way, for example Arno Nickel defeated Hydra in a correspondence chess match in which he used a regular PC against the the most powerful supercomputer in the World at that time. This event wasn't publicized as much as it might have been, but you can read more about Nickel and Cyborg Chess here:

Arno Nickel

Advanced Chess

I've experimented with 'Cyborg Chess' in correspondence tournaments in which computers are allowed. The results haven't been great, probably because I don't use deep calculation setting on the engine, but the experience has been educational. A major issue is in understanding where it is that I can add value as there's a temptation to either overrule what the engine recommends or be led by it indiscriminately. Probably a series of protocols would be a good idea but where does one start? Here's a provisional list:

1. Write down your list of candidate moves, in order, and then compare them with the top choices of the engine.

2.Consider whether this is the kind of position in which engines are likely to do better than you (ie highly calculative tactical ones).

3. Give greater weight to particular candidates based on point 2.

4. Check your top candidate(s) more carefully, perhaps using deeper engine settings, until a particular confidence level is arrived at.

It seems reasonable that different people might give a different weighting to their own choices versus those of the computer, but in either case it does seem that better decisions might be arrived at. In fact Nickel's achievement sort of proves that, and even if computers get so powerful that the more or less 'solve' chess the synthesis of man and machine should still have value in less finite fields.

Victor Niederhoffer writes: 

 "Cyborg Chess" by Nigel brings up the effectiveness of human versus
robot trading in markets. Certainly costs must be considered as well as
effectiveness the way it is in all the studies of robotic versus human
surgery. Apparently robotic beats laporofic.
There should be areas where the robots have to be turned off for the
evening where the humans could develop an advantage. It seems the robots
are forcing early capitulations in many markets which is presumably an
effect of their programs.

anonymous writes: 

To list just two of scores of regular robot shutdowns that one knows of:

1. On Sunday nights in the professional electronic FX markets (using HotSpot as an example), one only has access to prices from 5PM NYC time unless you get on the phone and call a counterparty direct in New Zealand or early Sydney.

This 'dead zone' is almost completely without 'silicon based entity' interference and often sees a reasonable range that goes unrecorded. A stint in that dead zone is a prized achievement for FX traders learning how markets 'really' trade. Much like time on the floor of an exchange, it is an experience that is dying off.

2. Each night at 5 PM NYC time the professional electronic FX market goes dark for a few minutes as the value date changes.

After reopening, the market making algorithms kick in first with relatively wide spreads that narrow quickly when the Carbon based life forms start to interact. The HFT 'order facilitation' ( Ha!) kicks in next.

What is of increasing concern is that the lunatics are running the asylum. Meaning that the firm's running the robots are deciding when and why markets open and close rather than some supervisory body. I guess this is more a question of nature versus nurture.

Arguably, there is some marginal information that is helpful, in an accretive sense, to the buy or sell decision–from the opening procedures of robot dominated markets.

The first order possibilities for testing might involve: number of transactions per unit time, rate of change of spread contraction, the epps effect All for relatively short periods as the robo-market opens.

At a practical level, and without investing what I know to be substantial funds to study this issue, I believe it still comes down to basic conditionality, expectations based on that conditionality and finally path dependency.

Additionally, the predictive nature or otherwise of the situations introduced into the price generation process by exchanges, that I have previously posted on - must be tested and incorporated.

Jim Sogi writes: 

 By their nature, cyborgs must look for fixed patterns. They have limited adaptability. Sudden bugs, unexpected changes, changes in cycles, and divergences will always surprise them. They can't anticipate. Their advantage is that they are as fast as their circuits, and comm allow. The unknown is how they perform in a complex system with other cyborgs and humans. As Nigel points out, a human can add value and beat a pure cyborg. Human foresight and understanding of human nature can add value.

Hernan Avella writes:

Machines keep improving, some moving away from brute force approaches…

"Deep Learning Machine Teaches Itself Chess in 72 Hours, Plays at International Master Level":

"Lai has created an artificial intelligence machine called Giraffe that has taught itself to play chess by evaluating positions much more like humans and in an entirely different way to conventional chess engines.

Straight out of the box, the new machine plays at the same level as the best conventional chess engines, many of which have been fine-tuned over many years. On a human level, it is equivalent to FIDE International Master status, placing it within the top 2.2 percent of tournament chess players"

Andrew Goodwin writes:

I still have my ticket stub from the match that Kasparov lost to Deep Blue in 1997 in NYC. Maurice Ashley was using the Fritz engine to evaluate the moves of the champion and the supercomputer in real time for the theater audience, as I recall.

Instead of making the next move optimization target the best calculable move, the supercomputer could make goal seeking calculations that lead the match to the most time consuming calculable end game for human competitors. It won that match with clock time to spare. That's the advantage.

The Chair's idea of a downtime for computer engines sounds sound for human comparisons.

Jim Sogi writes: 

I would challenge anyone to quantify what exactly is the difference between a cyborg traded market and a human traded market. Sure it feels different, but how exactly? How do the numbers trade. Are there less big blocks? Are there fewer round sizes? Are there fewer takers on breakouts, i.e stop buy orders? Where are the numbers on the table?

Hernan Avella writes: 

Difference? Generally speaking, most of the time, when bots are the market makers there is less friction, reduced bid-ask spread, more ability to get the trade done with less price disruption. Winners: longer term traders willing to pay the bid ask spread or less to get into or out of a position. Losers: human market makers who want to earn the bid-ask spread. They can no longer compete.



I would say again it's the level of interest rates versus the rate of return on capital. Consider the rate of return of 15% versus 3% interest rates. Eventually, the 15% will be 1000 times as great as the 3% in 20-50 years. The differential is what matters because of compounding. The difference between the situation in 1987 and today is that rates were about 8 or 10% then. The compounding effect didn't swamp it. We'll go much higher shortly one believes.



In 1970 Frank Cross and I wrote about the Friday down Monday down effect. (published in Financial Analyst Journal 1973 Vol 29 No 6 page 67 [3 page PDF ]). Subsequently it transpired on the 1987 crash, the 1997 and 2008 crash. It would be interesting to see an update on it. Looking back to 1996 one sees one decline of 50 points or more on a Friday on 4 14 2000 with the market going up 44 points 1 day later, 85 big points two days later from an adjusted 1438 on the Friday with a 122 point rise 1 week later. That was before last Friday. Similar results for 20 and 30 point declines.



One notes 23 times when the S&P has been down 30 on a day and 100 big points on 7 day since 1998. Average more 3 days later 20 points, 12 points next day 6 of them occurred on a Friday. 2 days later market up 26 points. 5 of 6 up. Results similar for market down 100 points on 10 day basis. The current market is down 100 on 10 day basis and 110 on 7 day basis.

Russ Sears writes: 

Since the S&P index has not been down less than -4% for two days returns since Nov. 1, 2011 I looked at the historical S&P index. There have been 100 non-overlapping 2 days when the S&P was down less than -4% (LN return) counting this Friday. The next 2 days returns cumulative has been 58.4% or 0.59% average 62 of those 99 have been positive Max return 9.1% Min Return -28.2% (Oct. 87). 



 In a beautiful passage from Les Miserables, Hugo speculates that Napoleon at Waterloo might be compared to a race horse that was crippled who we all feel great sorrow and compassion for. Contrast this to the envy and loathing that we tend to feel when a rich man loses his fortune especially in the market. One notes a middle response to Tiger Woods missing his third cut in a row in a major tournament. There is empathy because he is a personage of color, but an opposite because he was not a man of faith?



 There was discussion here about the importance of doc Greenspan warning of euphoria bubble in bonds. Some were skeptical. I said that regardless of a person's current acumen, the memory of his past deeds lingers on until eternity. Furthermore, I say he is a man of great gravitas with the Fed. They're such a bunch of fuddy duddies so enraptured with their undeserved status that they are bound to treat a former chair with great undeserved respect.

Ken Drees writes:

This to me seems very plain and straight forward, very uncomplex and without a whiff of fraudulent opacity. And since rates are already backing up and the Fed needs to get on the right side of things, the 1/8pt peck on the cheek may just be coming in September. But Dr. Greenspan also said that you can't tell when its a bubble till its been popped, so this statement could simply be interpreted as financial entertainment—remember Wayne Angell?

Alan Greenspan has a warning for bond investors as the U.S. central bank
prepares to raise its benchmark interest rate from close to zero. "We
have a pending bond market bubble," the former Federal Reserve chairman
said Monday in an interview with Bloomberg. "What ultimately will
determine where it goes is to reach back and to ask ourselves where is
the normal interest rate?"



The search for proverbs about being late leads me to turn to Wiswell for timeless guidance again. Something that the people on this site seem to agree with me about "avoid useless checks, traps, and trades. They lead to loss".

"We depend on our opponents bad moves to make some wins."

"Sometimes you have your opponent exactly where he wants you… and then it's too late."

"A trade once made can never be unmade."

"There is a time to attack, and a time to defend–and a time to wait." (the summer markets favor the latter).

"When your opponent offers you a piece as a gift. It is often better to just say no."

"Instead of trying to learn all the openings it might be wise to just adopt two of three favorites."

"Trading is like checkers. A single bad move can create a domino effect– and lead to loss."

"After fifty years of paying checkers I've learned one thing. Those who hesitate are those who win the gold."

"Cocksureness in checkers, trading or life is the badge of ignorance."



 So now they tell me why the S&P rose 30 points from noon to close yesterday.

What is the appropriate proverb for this? "The news follows the price"? "Too late by half"? "Prediction is easy–after the event has occurred". "A stitch too late helps no fate"? "Better late than never"? "Better to be late than risk being wrong". "It is easy to be wise– after the event"? "Wait before you leap". "A prediction after the fact is never wrong"?

Okay. Thinking about it leads me to believe that one of the most important things for summer markets is to wait. Sit on your hands. Don't trade until half an hour has passed?

"Finland's Stubb Optimistic Greek Bailout Deal Will Be Reached"

2015-08-13 09:45:26.142 GMT

By Chad Thomas and Raine Tiessalo

(Bloomberg) — Finnish Finance Minister Alexander Stubb expressed optimism that a deal will be struck with Greece in the coming days, allowing the government in Athens to meet debt payments later this month.

"Things are looking much better right now," Stubb said in an interview on Thursday in Helsinki. "We have indicators that the Greek government is more serious now. The path towards recovery has started. It is going to be long but we have weathered the worst of the storm."

Stubb said he's confident that euro-area finance ministers gathering Friday in Brussels will be able to reach either a conclusive deal to provide 85 billion euros ($95 billion) in aid or at least extend a bridge loan to the country in time for Greece to make a payment to the European Central Bank of 3.2 billion euros next week. Germany's government on Wednesday withheld approval of the draft bailout plan, saying a bridge loan remains an option if a full aid program isn't agreed in time for the ECB payment.

"We are quite agnostic about which one is used," Stubb said. "If more time is needed we can do that. If we can already now verify that the measures that have been agreed by the Greek government and the troika will fully take place, we will probably be willing to give a green light to the program."

John Floyd writes: 

Build a strong foundation of knowledge of what is driving the European macroeconomic and geopolitical cycles and how market will respond. Analyze how the opponent is moving and perhaps it is better to attack the single or double corner. Perhaps the attack is directed to the currency markets as in the past year. Or, rather, perhaps the attack is directed to the rate markets as in years prior. The opponent continues to move and play the same strategy. You remind yourself as Einstein said "Insanity: doing the same thing over and over again and expecting different results". But, there is a time to press the position and there is a time to wait out the opponent's hubristic bad moves. Stick to the knitting of the core repertoire that are the main arrows in the quiver.



 There's nothing new in the world of sports or trading. Although yesterday it was close. This story about Kyrgios saying that another player nailed Wawrinka's honey is exactly like Gannet telling Anthony that LaLa tastes like Honey Nut Cheerios during the heat of battle.

TENNIS: Stan Wawrinka urges action against Nick Kyrgios

2015-08-13 11:03:03.627 GMT

Aug. 13, 2015 (Sports Network) — MONTREAL (AP)

French Open champion Stan Wawrinka urged tennis authorities on Thursday to take action against Nick Kyrgios for an ''unacceptable'' comment during a match at the Rogers Cup. Wawrinka wrote on his Twitter account that the Australian's words were ''not only unacceptable but also beyond belief.'' A courtside microphone picked up the 20-year-old Kyrgios saying that Australian player Thanasi Kokkinakis had slept with a player who is reportedly Wawrinka's girlfriend. ''There is no need for this kind of behaviour on or off the court and I hope the governing body of this sport does not stand for this,'' the 30-year-old Wawrinka wrote on Twitter.

Wawrinka, ranked fifth in the world, announced in April that he had separated from his wife, with whom he has a daughter. Wawrinka has since been linked with 19-year-old Donna Vekic of Croatia, who is ranked 127th. Vekic played mixed doubles with Kokkinakis, also 19 and ranked No. 76, at the 2014 Australian Open as a wild-card entry. Kyrgios beat Wawrinka on Wednesday when the Swiss retired with a lower-back injury while trailing 4-0 in the third set. In a post-match interview on court, Kyrgios said Wawrinka had provoked him. ''He was getting a bit lippy at me so, I don't know, it's just in-the-moment sort of stuff,'' Kyrgios said. ''I don't really know, I just said it.''



A gotterdammerung predicted today by the palpable nervousness out there with corn up 5% saving the day. The upside down man likes to do the conga after his daily 830 am yoga sessions.



What do you think of Granger's article  "Forecasting Stock Market Prices: Lessons for Forecasters"  - A Reader

One would suggest that many of the studies use multiple classifications to find the best fit, none of them update the results past 1990, the earnings data they use suffers from the retrospections bias, the samples do not use as-is-files in most cases but data assuming the present members of the index are still there, and they don't take account that people are smart, and they follow the essence of the academic papers. As for low e/p being superior, it is no accident that growth has beaten value for each of the last 12 years or so. As for low volatility being good, naturally if you divide up stocks into 9 regimes, one of them would be best. Granger shot his wad with attempts to apply Fourier analysis with Morgenstern ineffectively, and now he retrospects. Sort of like the sage looking for stocks selling at below cash liquidating value. Great if you can ignore the transactions costs of 25%. However, I agree with Larry and Granger concerning the conclusion but for completely more refined and specialized analysis.



 Entries are now numbered below. We ask for your votes in the comments of this post.

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

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

Winner to be determined by popular vote.

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

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


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

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

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

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

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

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

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

from Alston Mabry


I Dreamed a Dream (Fantine's song)

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

from Gary Rogan


Trade This Way
by Aerosmith (almost)

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

from Gary Rogan


"Ain't Misbehavin'"

(In the style of Louis Armstrong)

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

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

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

Scoobededa doot diddlee doot doot

from Franklynn Phan


(to the tune of Supercalifragilisticexpialidocious): 


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

from Ken Drees


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

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

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

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

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

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

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

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

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

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

from anonymous


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

Through unrest, we gave a name

To Pain and Hun and Liar,

The Pain is Debt, the Liar's Greece,

and we call the Hun Pariah.

Pariah throws the loans around

Then sends Hellene a-crying

Pariah makes accountin' sounds

Like mokes down here weren't trying.

Pariah, Pariah,

We call the Hun Pariah

Before I knew Pariah's name

And took to wealth enshrinin'

I took on debt and debt had me

And the Hun commenced his whinin'.

But then one day I left the whirl

And let it not define me

And now I’m lost, I’m oh so lost

No Gallic bawd can find me.

Pariah, Pariah,

They call the Hun Pariah

I hear they got a name for Pain

And Hun and Liar only

But when you’re broke and all alone

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

Pariah, Pariah,

We call the Hun Pariah

Pariah, Pariah, - send a loan to me.

Now I’m a lost and lonely state

Without a fool to front me.

Pariah, float a loan to me

I need Bear-Stearns behind me

Pariah, Pariah

I’m loanless can’t you see

Pariah, O, Pariah

Please float a loan to me

Pariah, O, Pariah,

Please send a jubilee.

from anonymous


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

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

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

Greece: I like the Euro and I cannot lie

All you other countries can't deny.

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

Gonna show up all tough

Because you noticed everyone was gonna get stuffed

Deep pocket they be wearing

I'm hooked and I can't stop staring

Oh, baby I wanna get with ya

And take your selfie picture

Other countries tried to warn me

But that money you got

Make Me so over the top horney

Got my jacket of leather skin

You say you wanna have your money

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

I'm tired of all the liens

Landlords saying they want their things

Take the average Greek man and ask him that

He ain't gonna give that money back

Greece: So Fellas Other Euro countries:(yeah)

Greece: Fellas

Other euro countries:(yeah)

Greece:Has your country got the Euro?

Other Euro countries: (hell yeah!!)

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

Euro got my back.

from Hope Sears


To the Tune of The Doobie Brothers’ Toulouse Street:

I’m running thru price levels like they couldn’t believe
Faces, they smile when I fall or flee
Poking my price just below the low, your stop was too tight again
I just might pass this way again
I just might pass this way again
I just might pass this way
I just might pass this way again

Overnight debates are hot, the markets whip and fly
2050 my oscillating center point, the prices trade on by
Lets start trading at the low then we’ll wrap up at the high again
I just might pass this way again
I just might pass this way again
I just might pass this way
I just might pass this way again

Locked in a room at the EuroSummit
Outside, Money’s flowing fast
Locked in a room over-at the EuroSummit
Outside, Money’s flowing fast

Overnight debates are hot, the markets whip and fly
2050 my oscillating center point, the prices trade on by
Locked in a room over-at the EuroSummit
Outside, Money’s flowing fast

(With the right imagination, lyrics needn’t be changed at all to hold relevance)

from Sam


“Turn! Turn! Turn! (To Everything There Is a
Season)” written by Pete Seeger (or King Solomon if you will) and best
performed by the Byrds. As with Greece, as with so much in the world
and markets in general, there really is nothing new under the sun.

Ecclesiastes 1:15
What is crooked cannot be straightened;
what is lacking cannot be counted.

from Nick Pribus


“Help!” By The Beatles

Help, I need somebody
Help, not just anybody
Help, you know I need someone, help

When I was younger (So much younger than) so much younger than today
(I never needed) I never needed anybody’s help in any way
(Now) But now these days are gone (These days are gone), I’m not so self assured
(I know I’ve found) Now I find I’ve changed my mind and opened up the doors

Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me

(Now) And now my life has changed in oh so many ways
(My independence) My independence seems to vanish in the haze
(But) But every now (Every now and then) and then I feel so insecure
(I know that I) I know that I just need you like I’ve never done before

Help me if you can, I’m feeling down
And I do appreciate you being ’round
Help me get my feet back on the ground
Won’t you please, please help me

When I was younger so much younger than today
I never needed anybody’s help in any way
(But) But now these days are gone (These days are gone), I’m not so self assured
(I know I’ve found) Now I find I’ve changed my mind and opened up the doors

Help me if you can, I’m feeling down
And I do appreciate you being round
Help me, get my feet back on the ground
Won’t you please, please help me, help me, help me, ooh

from Eric Wing


Go Your Own Way - Fleetwood Mac

Loving you
Isn’t the right thing to do
How can I
ever go back to GRD?

If I could
Maybe I’d give you my vault
How can I
When there is nothing left to give

I can go my own way
go my own way
I can call it
grexit or graccident
I can go my own way
go my own way

Tell me why
Draghi won’t give me a dime
packing up
shacking up is all I wanna do

If I could
Schauble I’d give you my world
Line up
Everything’s waiting for you

I can go my own way
go my own way
I can call it
grexit or graccident
I can go my own way
go my own way

from George Papageorgakopoulos


Go Your Own Way - Fleetwood Mac

Grease[Greece] is the word
By Barry Gibb (almost)

They solve their problems and they see the light
They gotta a trading thing, we gotta trade it right
There ain't no danger we can go too far
We know the score, the kind of traders we are
Greece is the word
We think their problems are a passing pain
Why don't they understand it's just a crying shame?
Their lips are lying, only real is real
We start believing that they we know what they feel
Greece is the word
Greece is the word, is the word that you heard
It's got groove, it's got meaning
Greece is the time, is the place, is the motion
Greece is the way we are feeling
We take the pressure and we throw away
Conventionality belongs to yesterdayThere is a chance that we can take it too far
But we believe it now the kind of traders we are
Greece is the word
Greece is the word, is the word that you heard
It's got groove, it's got meaning
Greece is the time, is the place, is the motion
Now, Greece is the way we are feeling
This is the life of collusion
Wrapped up in trouble, laced with confusion
What are we doing here?
We take pressure and we throw away
Conventionality belongs to yesterday
We're making money on the Bund, yes we are,
And Euro futures won't get too far

Greece is the word
Greece is the word, is the word that you heard
It's got groove, it's got meaning
Greece is the time, is the place, is the motion
Now, Greece is the way we are feelingGreece is the word, is the word that you
It's got groove, it's got meaning
Greece is the time, is the place, is the motion
Now, Greece is the way we are feelingGreece is the word
Is the word
Is the word
Is the word

from Gary Rogan



The next meeting of the Junto is Thursday August 6, featuring David Kelley of the Atlas Society. He will be speaking about Ayn Rand and some myths and misrepresentations about her. Meeting begins at 7:30pm, main speaker at 8:00pm. It is free and all Dailyspeculations.Com readers are invited. It will be in NYC at the General Society Library, 20 West 44 Street (Ground Floor), between 5th and 6th Avenues.



 "Why the U.S. Is the Next Greece: Doug Casey on America's Economic Problems"

anonymous writes: 

Doug has been singing this same song since the 1970s.

Victor Niederhoffer writes: 

His most recent book is titled "The Education of a Speculator" . One could learn a lot from Doug about strategic self improving trades, as well as the bon vivant life in Uruguay. 

Anatoly Veltman writes: 

Title is oddly familiar. I wanted to thank Vic again for including me into Four Seasons dinner with Doug guest of honor in March 1993. Doug the world traveler hardly remembered me from Toronto roundtable of 1986.

Also comes to memory another member of that roundtable Ian McCavity who founded Central Fund (closed end gold fund), which caused me to invest in Gold and Silver there, for the first time, because it was offered at discount to book value. I notice the same to be the case with GTU currently: at a historically large discount to NAV! Hedged against GLD, one can be betting the discount will narrow once gold sentiment improves (hey, August is here how!). A free Call option on gold for the price of your cost of funds?

(GTU/GLD narrowed as an activist waged a proxy battle to liquidate the trust at NAV, but they lost and the spread widened.)

Rocky Humbert writes: 

Firstly, regarding Stef's previous post about inflation, it appears that he has confused credit with money.  The S-man has written extensively on this subject — but a contraction/expansion in the money supply (i.e. currency, specie or whatever) has complex interactions both with prices and with credit — especially in a fractional reserve banking system.  I share David's puzzlement about the lack of generalized price pressures with the growth of the central bank balance sheets and monetary aggregates, however, I would note that rent (and housing) prices, certain securities prices, certain taxes & fees, and other things have risen dramatically over the past 6 years. (Even gold!) So while there isn't a generalized inflation, there are (always) some pockets of inflation. Hence my definition of inflation is: "When prices for me rise, that's inflation. When prices for other people rise, that's deflation." My late great uncle, Milton Friedman, claimed that inflation is always and everywhere a monetary phenomenon — that is, too much money chasing too few goods.  However, in his later years, he and Aunt Rose mused that the connection between headline inflation and monetary aggregates had not worked for many years. So perhaps — at the end of the day — inflation is primary a psychological phenomenon that has excess money as a necessary, but not sufficient condition.

A happy jobs report day to all!




Success in the opening can lead to a weak middle game, and finally defeat in the ending. (Today in SPUs?)

The three pillars: playing much, suffering much, and studying much– these are the three pillars of learning.

A breakdown

Market and board players should not rely too much on the computer. Something new might arise and they might have to think.

Idiot savants

There are genius players who have a sixth sense but some of them do not have the other five (Sornette? The derivatives expert?)


Win, lose or draw, it's good to have friends. But it's especially good to have game friends. I've had some of them 50 year years (the spec list was started 18 years ago. How long will it last?)

A paradox

Checkers is so simple– it is difficult. Chess is so difficult, it is simple. (What is the simplest market, the simplest technique. The tall basketballer from Harvard who started with me liked to buy the open to 11 breakout in all markets).

Christopher Columbus

When you discover good moves on your own, you are likely to remember them. When you learn them by rote or the computer, you tend to forget. (Keep doing the hand studies. And follow the 3rd Contrivance in the art of trading. Keep half hour prices by hand. One has been doing so for 45 years. The bound books are all moldy in the former trading room)


The search for the right move during the game is helped by the research you have done before playing (read the 100 year old books.)

These are 10 of the 5,000 proverbs that Tom wrote for us during the 20 years he gave us lessons. He wrote 25 books, and always said that the book he wrote based on these proverbs would be his best book. He'd always look around wistfully after saying that: "the one thing I wished is that I married a girl like Susan". Then he'd shake his head sadly. "But if I had, I might not have written the 25 books."

Gary Phillips writes: 

Like my mother used to say, Mr. Wiswell's first quote gave me goose bumps.

Vince Fulco writes: 

How many times will we decide we need to focus on one position to the detriment of the successful mix reminding of the term "perfect is the enemy of the good"?

Stefan Martinek writes: 

I think perfectionism is dangerous. In trading it leads to procrastination. For example, we can view any system as 3-dimensional cube: (dim "a") p of winning; (dim "b") avgWin/avgLoss; (dim "c") number of opportunities. Retail traders usually love high "a". But high "a" usually reduces "b" (we can also inflate "a" by faster exits/targets pushing "b" down). But in case that one is lucky and finds something with high "a" and "b", "c" typically gets killed (valid also outside of trading). Less perfect models with lower "a" and higher "c" usually make more money on both absolute and risk-adjusted basis.



Foreigners Pull $1.3 Billion From Thai Equities on Economic Woes - News Report

One wonders if the frequency of the conjunction of the word "woes" and "stock market" would be a good bullish indicator.

Gary Rogan writes: 

A quick investigation indicates that lately "stock market woes" is frequently associated with whatever foreign market is in trouble, mainly China and Greece. Could a spike in attention to a foreign market with "woes" be the actual bullish indicator, especially after the US Market is woe-whacked and a new wall of worry is created for it to climb?

Paul Marino writes: 

Laszlo Birinyi with wise words as par for the course: "Birinyi Says You Can Toss Out the Old Tools for Calling S&P 500"

In a March report, the Birinyi Associates Inc. president dismissed
several signals other investors use to underpin bearish arguments. He
said Shiller's cyclically adjusted price-earnings ratio highlights how
the measure "has the tendency to overstate" stock valuations and has
become "the favorite fundamental argument of the bearish community."



 I visited the 40 steps in Newport. And found it stirring. What are the 40 steps to market mastery? How about step 1 being never short anything.

Step 2. Don't trade markets between the proverbial pit close and pit open. It's fine to have positions as of close but don't change them or open them between the close and open. 

Step 3. Write down prices every hour.



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

Stef Estebiza writes: 

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

Pitt T. Maner III adds: 

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

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

Steve Ellison responds: 

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

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

Jim Sogi writes: 

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

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



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

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

Ralph Vince writes: 

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

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



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

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

From Design in Nature

Victor writes to Rorianne Schrade: 

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

Rorianne Schrade responds:

 Dear Victor,

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

Alston Mabry writes: 

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

Starting off with the more challenging stuff:

Iannis Xenakis: Metastasis

Edgard Varese: Ionisation

Richard Carrick: Dark Flow - Double Quartet

And the more accessible:

Claude Debussy: Dialogue du vent et de la mer

Stravinsky: Le sacre du printemps

John Luther Adams: Dark Waves

Oregon: Yellow Bell

Cliff Martinez: Is That What Everybody Wants

Scott Brooks:

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

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

"Nether Lands" by Dan Fogelberg

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

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

Anthem's to glory and anthems to love

And hymns filled with earthly delight

Like the songs that the darkness composes to worship the light


Once in a vision, I came on some woods

And stood at a fork in the road

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

One road was simple acceptance of life

The other road offered sweet peace

When I made my decision my vision became my release

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

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

I think that's what progression is all about.

Gary Rogan comments: 

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

"Natural Science"

By Rush

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

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

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

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

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

Computerized clinic
For superior cynics
Who dance to a synthetic band

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

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

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

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

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



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



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

1. 1988 Sir James in Huntington Beach‏

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

2. 1984 Graniteville, SC

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

#3 1985 CCI in South Carolina‏

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

4. 1994 Corcoran Shoe Scopaletti

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

5. James Doc Holiday

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

6. 1992 Rolling Pin at Ely, Nevada

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

7. Sixteen Officers Down‏

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

8. Mexican Standoff‏

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

9. Brush at Wasco

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

10. Chinatown Street Fight‏

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

Victor Niederhoffer writes: 

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

Jim Sogi adds: 

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

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

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

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

A great guy, I really like him.

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

Anton Johnson writes: 

Hi Jim,

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

Jim Sogi replies: 

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

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

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

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

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

Chris Tucker writes: 

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

Ralph Vince writes: 

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

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

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

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

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

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

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

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

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

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

John Floyd writes: 

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



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

Hernan Avella writes: 

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

Thomas Miller writes: 

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



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

Rocky Humbert writes: 

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



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

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

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

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

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

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

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

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

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

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

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



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



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

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

Paolo Pezzutti writes: 

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



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

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

Larry Williams writes: 

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

Tom Printon writes: 

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

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

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

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



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



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



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



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

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

By Jeff Kearns (Bloomberg Business)

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

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

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

anonymous writes: 

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

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

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



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

Anatoly Veltman writes: 

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

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

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



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

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

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

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

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

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

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

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

5. Never adding to positions.

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

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

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

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

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

Ed Stewart writes:

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

Vince Fulco writes: 

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

anonymous writes:

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

Victor Niederhoffer writes:

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



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

Chemical Principles by P. Atkins and Loretta Jones

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

My Early Life by Winston Churchill

Pattern Thinking and Cognition by Howard Margolis

Rodeo by Elizabeth Lawrence

Europe by Brendan Simms

The Meaning of Sports by Michael Mandelbaum

Knowing by Michael Munowitz

Chemistry for Dummies by John Moore

Going Solo by Roald Dahl

Difference Equations by Ronald Mickens

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

Galen Cawley writes: 

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

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

Jim Sogi writes: 

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

Hernan Avella writes: 

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

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

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



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

Anatoly Veltman writes: 

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

A true believer writes: 

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

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

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

James Simons

Elwyn Berlekamp

Robert Frey

Henry Laufer

Sean Pattison

James Ax

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

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

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

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

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

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

anonymous writes:

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

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

Bill Rafter adds: 

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

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

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

Shane James replies: 

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

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

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

It's good the be the king. 

Jim Sogi writes: 

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



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

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

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



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

Gary Phillips writes: 

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

Gary Rogan writes: 

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



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

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

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



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

"Negatively Sixth Street"

Gary Phillips writes: 

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

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



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



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

anonymous writes: 

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

anonymous writes: 

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

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

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



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

John Floyd writes: 

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

Alston Mabry writes: 

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

John Floyd writes: 

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

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

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

Jeff Rollert writes: 

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



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

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



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

David Lillienfeld writes: 

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

Alston Mabry writes: 

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

anonymous writes: 

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

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

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



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

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

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

Any thoughts from Specs would be welcome.

Victor Niederhoffer writes:

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

John Netto writes: 

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

anonymous writes: 

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

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

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

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

Brett Steenbarger writes: 

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

Larry Williams writes: 

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

Hernan Avella writes: 

From Handbook of Sport Psychology. Gershon et al.

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

Paul Marino adds: 

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



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



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


Makes and follows long term business plan


Will ignore long term business plan


Will handle times of market volatility and make smart decisions


Will panic when markets are volatile and make stupid decisions


Strictly follows Stop-Loss rules and Protects Trading Capital


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


Handles losses and down times in markets


Gets depressed when facing losses and makes poor decisions


Daily updating charts, indicators, business plans, Economic calendars

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


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


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


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


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


Accepts his mistakes made while trading and tries to improve


Does not accept his trading mistakes and blames the market


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


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


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


Irregular with trading hours, does not strictly follow economic calendars


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


Will focus on personal profit or loss to determine trading strategy


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


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

•Not Envious

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

•Envious, Jealous

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


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


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


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

•Quitting, Fickle

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


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


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


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


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


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


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


Will only trade based on defined entry and exit rules


Will trade based on mood, greed and fear


Will ensure that he trades less to keep the commissions low


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


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


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


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


Will revenge trade the markets in order to recover losses


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


Willed Breaks trading rules often based on feeling fearful or greedy


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


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


Sushant Buttan
Founder and CEO

Brett Steenberger writes:

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

Pitt T. Maner III writes: 

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

For example, this morning I found this:

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


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

"Bridgewater Is Said to Start Artificial-Intelligence Team

Sushant Buttan responds: 

Thanks for the feedback. Much appreciated.

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

Victor Niederhoffer writes: 

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

Brett Steenbarger comments:

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



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

Jeff Watson writes: 

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



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

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



A rumour that is interesting


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

Anatoly Veltman writes: 

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

anonymous writes: 

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



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

Russ Herrold writes: 

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

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

Victor Niederhoffer writes: 

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

anonymous writes:

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

Stefan Martinek writes: 

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



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

All traders are invited to the party.

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

anonymous writes: 

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

Victor Niederhoffer writes: 

There is hope with useful idiots like this.

Ed Stewart writes: 

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

anonymous writes: 

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



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

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

-Charles Darwin

Stefan Jovanovich writes: 

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

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



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

anonymous writes: 

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



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

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

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

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

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

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



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

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

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

Andrew Goodwin writes: 

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

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