Sometimes you hit the wrong shot in a game and it goes in. That leaves your opponent completley demoralized and usually is good for a win. The people who thought that Hillary would win were wrong, but they bought stocks and sold bonds. They made a fortune for the wrong reason. How often does this happen in markets and can it be quantified. Morgan Stanley made billions in their bond trading presumably through this error.



There is some merit for investors to approach the markets as a good collector approaches his collections. Start by building a good understanding of business and economy and then slowly start to accumulate the greatest pieces be it the best stocks and/or bonds. As time goes he continues patiently to accumulate the pieces he wants while re-investing his dividends/coupons especially during periods when others are looking to sell because they don't understand their value. Every 5-10 years he looks back at his collection with satisfaction knowing that he has a great collection that would pass to his kids.



Here is a nice invidious reference to Galton on herd like behavior.  



What were memorable round numbers breached during the week? Gold played footsie and breached 1200 the 30 year went above and below 3% yield with abandon. Dow made abortive runs toward 20,000 but didn't come that close. What else, what are the predictive properties? Nice move down in bonds on Thursday of 1 full point in afternoon after 30 year auction and then again in morning next day.

Anatloy Veltman writes: 

Well I didn't notice anyone contributing examples of footsies yet, so I'll pitch a humble question.

I just glanced at raw longer term price charts (just price history, no internal indicators or anything else), and this is what struck me: if (Ralph, for instance) says it's a great buy at this stage, then when is it EVER a sell?! It seems to follow that (likely) never… Somehow, I'm not convinced there is no alternate answer

Ralph Vince writes: 

When the back end of the yield curve, especially the 20 yr constant maturity is above the 30. That's a good time to sell…..and look to start slowly building the position back again as it drops, for the relentless, upward climb of man's resourcefulness, as expressed in the broad indexes themselves.

The yield curve gives a great picture of the health of the market If there is multiple inflection points (another one outside of that 20 year point) that's even more negative, and if the far left, the short durations, start flippering madly, quickly…..you definitely want to be out of. People look to see if it is flat or inverted, but there is much to be gleaned by the finer details of its personality.



 I asked Brett one more time to quantify some of his multiple classifications and descriptions of cycles and advance declines et al and he responded: "Very nice quanatification of cycles with admirable transparancy of track record fromm @stockspotter. Brett is a Dr of great respect and is adverse to mumbo in all forms. But someone should look at stockspotter to see if it passes the usual scientific standards.

Phil McDonnell writes:

I first came across John Ehlers in the early 1990s. He and I traded his MESA program for my Option Trader software. MESA stands for Maximum Entropy Spectral Analysis. I had earlier written a Fast Fourier Transform (FFT) program which is similar to MESA. FFT constructs a set of multiple cycles over 32, 64 or 128 days to 'fit' the recent history of the market. The problem is that cycles evolve with time. MESA attempts to fix that by taking a shorter term average cycle than FFT.

My experience then was that the software seemed to have some promise but it was not perfect. It offered a look-ahead graph of where the market would go and that was how you picked potential winners.

A quick look at the stockspotter.com site showed a track record of 'closed trades" for the last quarter of 2016. I glanced at the first 10 pages of trades. Out of this sub-sample of 140 trades very few were losers. On the face of it this seems to be a very successful system.

But there is a catch. The trade record shows only a few days (3-6) on the first page. But later pages show a clear trend of more days in a trade (~5-9) as it goes on. This may be evidence of some sort of 'first profitable close' exit strategy. Thus there may be a larger number of deferred losers hidden in the undisclosed current trades which were not revealed.

As it stands the data cannot really be analyzed scientifically. However that does not mean that there is not something interesting here.



This is a masterful article about the importance of quiet study and good businesslike habits.

"The Godfather of handicappers: Pittsburg Phil changed the game forever"



Hope spring eternal that the market will go down because the cattleist is not in power to increase service rates and other third term policies. But the article provides a good read on the kind of thinking that pervades the street that provides a cushion for the drift, especially with the rates back below 3% and 2.5 %.

"U.S. PREVIEW: Is Trump Rally Real? Jobs Report May Contain Clues"

By Carl Riccadonna and Yelena Shulyatyeva (Bloomberg Intelligence) 

There are three main focal points in the December jobs report: the potential for a post- election hiring acceleration, the durability of the recent drop in unemployment and clarity regarding wage pressures. Analysts will watch to see if the post-election surge in business confidence is translating into a more aggressive approach from hiring managers. If so, this could be a signal that improving sentiment is contributing to a virtuous economic feedback loop.

The drop in the unemployment rate, following an extended period of stability, is also garnering attention, including among Fed officials, as it could be a sign that labor shortages are intensifying. If this is true, then average hourly earnings should show a more pronounced bias to move higher as well. With the pace of economic output firming moderately in the second half of the year, there is little reason to expect a significant deviation from the recent hiring trend.

What to Expect:

• The consensus among economists polled by Bloomberg anticipates an increase in December nonfarm payrolls of 175k (170k private), modestly below the six- (205k) and 12-month (188k) moving averages. The payroll trend has decelerated over the past two years, but BI Economics expects the trend to at least stabilize, as economic conditions firm over the next few quarters. Improving economic sentiment could significantly impact hiring intentions, if elevated optimism endures. BI Economics projects a mildly above-consensus outcome, closer to 195k.

• Historically, December payrolls have shown little bias relative to the consensus forecast, thereby implying a modest upside risk relative to the result of the December ADP survey (153k).

• The seasonal adjustment of the payroll data turns negative in December, as recurring winter layoffs commence in a range of sectors. In recent years, the seasonal adjustment factor for December payrolls has averaged near -315k.

•Within the sub-industry details, analysts should be alert for an outlier result in the transportation/warehousing sector, or more specifically the even narrower category of couriers/messengers, which has benefited from seasonal shopping increasingly shifting online. The BLS has attempted to correct for this, but the structural trend is ongoing, so the series may yet be insufficiently adjusted. Retail and construction hiring are also prone to December irregularities.

• The median forecast for the unemployment rate projects a minor retracement in December (to 4.7% from 4.6% prior). The impressive descent from 10% to 5% unemployment from late 2009 through the end of 2015 gave way to an extended period of stability in the vicinity of 5%. The four-tenths decline over the past two months is less remarkable given that it coincided with a two-tenths drop in labor force participation. BI Economics also anticipates a one-tenth increase.

• Consensus projects no change in the length of the workweek, at 34.4 hours. An increase could help break the recent pattern of sluggish income growth by lifting aggregate hours worked, but this appears unlikely given that it has maintained the same level in nine of the last 10 reports.

• Average hourly earnings growth will provide important insight into whether the labor market is witnessing mounting wage pressures as the economy operates near full employment. The prior two months were whipsawed (-0.1% vs. 0.4% prior) by utility workers (-1.8% vs. 1.7%) being in high demand following Hurricane Matthew. As such, the December results may provide the first non-distorted reading for the quarter. Consensus anticipates a 0.3% increase in the month, which should enable the year-on-year growth rate to return to the post-recession high of 2.8%, logged in October. BI Economics estimates a more moderate 0.2% gain. Earnings averaged 2.1% in 2014 and 2.3% in 2015, so the recent acceleration poses a compelling signal that labor-cost pressures are finally intensifying.

• Annual revisions to household survey data: As per usual at the start of the year, the December jobs report will incorporate annual revisions into the household survey data. Seasonally adjusted data for the most recent 5 years are subject to revision.

Employment Scorecard

Wage Pressure Becomes Fed's Focal Point

The minutes of the December FOMC meeting indicated that policy makers were increasingly confident that labor market conditions had reached or were close to reaching the committee's maximum employment objective. "Most" participants shared this view, while "many" saw an increasing risk that an unemployment rate significantly undershooting the level consistent with full employment could compel the Fed to raise rates more quickly than currently anticipated. Furthermore, "several" noted that faster interest rate normalization could also impact the timeline for unwinding asset purchases conducted through QE.

Policy makers appear increasingly concerned that a potential overheating of the labor market could complicate their desire to normalize policy with gradual deliberation. As a result, the evolution of labor market conditions over the next few months will significantly influence officials' comfort-level regarding the current rate-hike schedule. The level of the unemployment rate and the wage pressure trend will be subject to particular scrutiny.

BI Economics is optimistic that firming growth prospects in 2017 will at least stabilize the pace of hiring near the average (188k per month) over the past year, which is well in excess of the natural growth rate of the labor force (roughly 100k per month). As a result, the unemployment rate is likely to remain subject to downward pressure, which will in turn magnify upward pressure on wages. BI Economics anticipates an acceleration in wage pressures in 2017, but given the lagged nature of inflation (including wage inflation), the pressure may take a bit longer to emerge.

The accompanying figure shows the recent pattern in average hourly earnings growth. Overall, average hourly earnings are up 2.5% over the past year, and the pace is poised to return to its cyclical high of 2.8% if the consensus forecast is correct. However, further acceleration may prove elusive in the near term, as the 3-month and 6-month annualized rates of change are running at similar paces (both at 2.4%). This suggests that there has been little acceleration-bias in recent months (despite the choppiness in October and November.)

The above figure further breaks out trends in the service- providing and goods-producing sectors, and the results show a similarly stable trend in the former and a marked deceleration for the latter. In fact, among the main underlying categories, of which there are 14, only seven are exhibiting an acceleration bias. These include non-durable goods manufacturing, retail, transportation, information services, professional/business services, education/healthcare and other services. The relevant conclusion is that while a select group of industries are witnessing accelerating labor costs, pressures are not yet widespread.

The diffusion of labor-cost pressures will be a critical trend to watch in the near term, particularly now that policy makers are increasingly confident that full employment has been achieved. Reading the trend has been complicated of late, in part due to temporary pay increases for utility workers following Hurricane Matthew. Unfortunately, the lack of clarity is likely to extend into early 2017, as minimum wage increases in 20 states take effect in January, likely resulting in further volatility in the average hourly earnings data.

To be sure, an increasing minimum wage does reflect rising labor costs — this will undoubtedly have a ripple effect into workers earning near the minimum wage — but the impact on the average hourly earnings data in the jobs report could temporarily exaggerate the trend. The risk is that this could lead casual observers to panic unnecessarily at the prospect of labor costs boiling over–just ahead of a subsequent moderation. Analysts and policy makers would be wise to remain patient during this short-term flare-up in 1Q.



The players ask for rules, but in a game a lot of random things happen, you can't script every play that's going to happen in a practice or shootaround, so a lot of times you do have to just figure it out"

-Jeff Hornachek about the Knicks woeful defense and also why no systems can beat judgment.



 One has been searching for the proper framework to analyze the abstention vote on Israel that would have never been made before the election because it might have cost cattleist votes. The references to Lame Duck seemed apt. The lame duck is wild when it can't swim and is very dangerous. It has nothing to lose as it knows it's a goner. That's why lame duck congresses and retiring office holders are very dangerous. They can't be held accountable by the electorate if they do something bad, and there are no checks or balances from losses that might accrue to their party if they do something wrong. But somehow that didn't quite capture the enormity of the incensed behavior that must have led to all the planning for the abstention.

It then occurred to me that I had written about it. Somewhere in Education of a Speculator, I wrote about gamblers in Malaysia who when they lose everything, which happens often, cut off their hair or wear it in a pony tail. And it's permissible to shoot them on site because they obviously have nothing to lose, and have lost their mind.

There's a picture of my colleagues with their hair in a pony tail recalling the situation to make fun of me. However, I can't find the passage in ed spec. And the market might do something big while I'm looking so I can't spend too much time looking for it.



The paper that apparently tries to debunk the relation between IQ and income seems to be out of the agrarian back burner. I know enough about this subject to know that there are numerous studies showing a 50% correlation between IQ and income. They must have teased and bifurcated the data and added many non-sense correlated variables to no end to eviscerate the direct relation.

"If You're So Smart, Why Aren't You Rich?" by Faye Flam



We must watch out for the humorous chair to follow in the footsteps of her boss now that there is nothing to lose, and the cattleist no longer in the picture. Once my opponent tried to kill me with a 150 mph shot at the back of my head when he was down 14-5 in the final game. It put the UN move in context.



 "On the twenty fourth of May came the black Friday panic, which has burned into the souls of thousands of sufferers in every part of the continent. The storm of voices–yells and shrieks lost human semblance. The labor of years was disappearing and reappearing in the wave line of advancing and receding prices. Fortunes melted away in a second, and white terror stricken faces told the sad story of broken hopes and hearts. In Wall Street masses of men gathered and riots were anticipated. Failures followed failures. The stock exchange was suspected of weakness and throngs crowded its corridors and overhung the stairways for a glimpse of the commotion but could only hear the roar of the biddings. The threats of violence against those who were suspected of treachery and wild outbreaks of despair from such as had been ruined will never be obliterated from the memory of those who witnessed the scenes"

Wall Street in History, Martha J Lamb, 1883



Here's a story I like almost as much as Stubby Pringle.



 This is one of my favorite stories. I hope you enjoy it, and I wish you a Merry Christmas. — Victor Niederhoffer

High on the mountainside by the little line cabin in the crisp clean dusk of evening Stubby Pringle swings into saddle. He has shape of bear in the dimness, bundled thick against cold. Double stocks crowd scarred boots. Leather chaps with hair out cover patched corduroy pants. Fleece-lined jacket with wear of winters on it bulges body and heavy gloves blunt fingers. Two gay red bandannas folded together fatten throat under chin. Battered hat is pulled down to sit on ears and in side pocket of jacket are rabbit-skin earmuffs he can put to use if he needs them.

Stubby Pringle swings up into saddle. He looks out and down over worlds of snow and ice and tree and rock. He spreads arms wide and they embrace whole ranges of hills. He stretches tall and hat brushes stars in sky. He is Stubby Pringle, cowhand of the Triple X, and this is his night to howl. He is Stubby Pringle, son of the wild jackass, and he is heading for the Christmas dance at the schoolhouse in the valley.

[For the entire text of the story, please follow this link ].



 As predicted now that the president is to be Trump, all the hawks from the Fed have been let out of their cages, and talk about the virtues of a hot economy, the meme that the humorous chair pulled out to help the cattleist onto victory has been put back in dungeon.

Fed Hawk Lacker Says May Need More Than Three Hikes in 2017 

By Steve Matthews (Bloomberg) –

Jeffrey Lacker, one of the Federal Reserve's most hawkish policy makers, warned that the U.S. central bank may have to raise rates more than three times next year and said he doesn't know if policy makers are already behind the curve on inflation.

"If we were to see a burst of demand growth, that would suggest a steeper path of rates to maintain price stability," the president of the Federal Reserve Bank of Richmond told reporters Friday after taking part in a panel discussion in Charlotte, North Carolina.

"There is a range of paces of interest rate hikes that would qualify as gradual, including paces more rapid than one or two or three a year," he said. "We can get where we need to be with a pace of increases that qualifies as gradual." His next scheduled turn as a Federal Open Market Committee voter is in 2018.

Investors have sold bonds this week in anticipation the U.S. central bank will accelerate policy tightening next year, pushing yields on the 10-year Treasury note to 2.60 percent from2.47 percent on Monday.



It is apparent that everything the Fed does in the near term will be out of the book of public choice, i.e. for(a) their self interest, (b) their party, (c) to to maintain their power and perks, and finally (d) if anything left to do what is right for the citizenry. But what can they do for a, b, and c above?

Certainly a strong statement above the necessity of independence from political interference. But what else? How to humiliate the President Elect, maintain the humorous chair in power?

Roger Arnold writes: 

Your elucidation of the Fed's priorities, although accurate, are leading in your query. I wonder why. The questions you follow with stumble out of your assumptions but without explanation like someone falling down a flight of stairs. I've noticed this with many of your posts here since I came back, and it troubles me.



There is considerable mumbo about how the consumer price index should not be adjusted for temporary things like oil and food. The research seems very wrong and misleading.



What are the factors that make so many useful idiots and alluring shibboleths so prevalent and harmful in our field. The desire for publicity and renown must be one of them. So many personages who don't or can't trade achieve prominence and self esteem by becoming pundits or propagandits on the media. Many of them are second handers who can't make a profit on their own, but can only prospect by forming a fan club that carries their positions along once they front run the positions on both the long and the short side. Others achieve prominence by coming up with a very unpopular call that will turn out to be right once in 10 occasions and gives them long lasting fame. Others have recently been fired from their jobs, and join the media as a way of achieving psychic or economic remuneration.

The question arises as to whether a useful idiot has always been a useful idiot or becomes one after he rises to prominence. The same with shibboleths. Have they always been wrongful and harmful or do they become such only after they are bruited to the public. In considering this subject it might be helpful to start with an enumeration of current useful idiots and shibboleths. Certainly those who are consistently bearish on stocks and risk assets like the man of multiple court cases and yoga, or the recently passed Barrons' columnist, or the world stater who always calls for more agrarianism and is always bearish on enterprise must be near the top of the list. But what are the general factors that determine our following a useful idiot or harmful shibboleth? How can this phenomenon be usefully unraveled?

Kim Zussman writes: 

Why would successful traders/ money managers dissipate their advantage by publicizing their methods or thinking? Most or all would want to keep their insights secret. If trying to market to investors, returns sell better than talk.

Depleting the persistently successful from the pool of talkers means more talk from the less skilled, and few meaningful revelations.

anonymous responds: 

There are some strategies that benefit immensely from increasing participation.

Russ Sears writes: 

Of course idiots are useful to those that know they are idiots and take the other side. It's the old dot com hucksters and short sellers secret that promoting a position you already have, once you're holding full position, you want someone to unload it, you need someone left holding the bag. How else could the markets cause maximum losses for the most people.

Might I add that it is easy to find fault and sound profound, but it is difficult to pin-point why someone or some company will succeed and even more difficult to find an audience for ones wisdom. Further, most can't comprehend that volatility is not linear but clearly see the risk tomorrow. Few comprehend the risk premium outweighs the volatility over time, and few are willing to wait, but many want to do something. The law of showbiz meets the internet age: If there is an audience, someone will play for it.

Ed Stewart writes: 

The useful idiots or shibboleths that rise to celebrity circulate and gain steam because they serve an unmentioned interest–they have an unseen fan club. Some times it is increasing the brokerage commission, sometimes it is simply giving the public the "red meat" it needs to get clicks/eyeballs for add revenue, sometimes it is literally as servant to "the idea". At times it seems all three at once. Hat trick. The only known defense is the cane.. to hobble down and buy at puke points, but also to raise over head and smash the media channel that pipes the idiots to restore a more sound state of mind.  I did it 7 years ago. So far, so good.  



Like the climax of a classical symphony, there are many spectacular moves today as November month ends with dollar yen, S&P at open, big big high. Gold, bonds at big big lows. Many others.



 Due to some unfortunate circumstances I have had occasion to spend much of the thanksgiving holiday alone. However I had a chance to read some great books which I can recommend.

John Dos Passos, U.S.A. Beautiful paen to America in its plenitude.

Tom Reiss, The Black Count. Amazingly well researched book about the real count of montecristo and a authors love for his n'er do well father who turned out in later life to be a man of principle. Also hybrid vigor.

Nicholas Higham, Princeton Companion to Applied Mathematics. How modeling, and mathematics are used in our everyday life and should be used in many more of our pursuits. Some chapters quite accessible and suggestive.

Stan Gibbilisco, Calculus Know It All. A very easy to read review of derivatives, integrals, and analytic geometry with a small chapter on differential equations. Simple and nicely formatted. Easy guide to math fall river press, very good for middle schoolers.

H.L Mencken, Prejudices. The best essay on Beethoven and capitalism I've ever read. Stirring. Magnificent.

One thing I've noticed at B and N is that their hard bound textbooks in most fields now sell for average of $275. Also that their spoken words section is down to about 25 titles out of say 100,000 titles in the store. Also, that most of their activity is in gifts and teen age reading.



 You can almost hear the exhilaration in the "failing of Trump trades" after 15 of last 17 way up.

"Trump Trades Falter as Stocks Fall, Treasuries Rally With Gold":

By Eddie van der Walt, Sofia Horta e Costa and Rita Nazareth (Bloomberg)

The Donald Trump effect lost its sway over global financial markets as investors shifted to new threats including the future of Italy's government and fled to the safety of bonds and gold.

U.S. stocks slipped from all-time highs as investors speculated that gains sparked by expectations for brisker growth under a new administration went too far too quickly. Treasuries climbed, while gold pared its monthly decline. Italian banks led losses in Europe as Prime Minister Matteo Renzi faces a key referendum that may see voters reject his constitutional reform and prompt his resignation. A fund that holds stocks in companies that could gain if the U.S. lifts trade restrictions with Cuba had the biggest rally since December 2014 after former President Fidel Castro's death.

Yanki Onen writes: 

One thing that won't change for the foreseeable future is that people will take profit come month-end and the market will recover what it has given and then some before it is over.



 1. After a decline in the prospects for a world state, the Palindrome, the upside down man, and the Sage will be bearish on stocks.

2. A reduction in the service rates will be treated as bearish by all pundits on the grounds that people don't care about having more disposable income, and they would much prefer to have entitlements and infrastructure.

3. The bonds will take a huge dive on the grounds that the Fed is likely to increase rates because output is increasing.

4. A chain letter to all economists from MIT and Yale, and all Nobelists over 90 years old will warn against putting conservatives on the Supreme Court.

5. All news about the cattleists health, hydration, and physical lashing out against her advisers will be eliminated from the blogosphere.

6. Gold will swoon whenever interest rates rise on the grounds that there is going to be more inflation and the dollar will rise.

7. Crude will hit a minimum before the OPEC meetings as news that one country or the other refuses to agree to an output restriction.

8. Stocks will go up on any seemingly bearish announcement that was preceded by a big fall.

9.  The longer stocks have spent without setting a x day maximum, the more bullish it is.

10. The prediction markets will badly miss the two biggest market events in history and cause tremendous losses to those who followed it.

11. The polls will all be biased against the republicans before an election by sampling fellow travelers to a disproportionate extent.

12.  A great uproar will ensue after an election if a conservative is appointed to the cabinet.

13. The Asian markets, especially Hong Kong will be the bell weather that foretells the subsequent moves in the Western Markets.

14. The PPI announcement will bail out holders of the bonds.

15. There will be a rise in the Stocks in the 5 days before expirations.

16. The economics announcements after the election will be much weaker than before the election on the grounds that there will not be as much reason to beat up those who say they are in bad straights, and similarly the Fed announcements will be much more bearish.

Please feel free to add.



 How would you define uncertainty in a market context? The market seems to maximize its closes and opens and other bench market prices so as to maximize uncertainty among all the players so as to maximize trading of all systems and beliefs?

Pete Earle writes: 

The market is the kind of fighter that either jumps on you at the bell in the first round, testing your defenses and seeing if it can catch you cold ("dry"). It is also the type to, in the last round, or last minute or so of the last round, burst forth with brutality and attempt to catch you while you're tired or confident about a win. 



 One likes to use Israel open to close for prediction of US markets the next day over the weekend. This must be counted out. Strange to see it down 7% year to date versus our S&P up 4% year to date.

Anatoly Veltman writes: 

A few considerations:

1. A short term indicator - intraday trend Sunday morning as predictor of the intraday trend Sunday evening - may well be valid. One better know make-up of participation "over there". Are foreign "actively trading funds" significant participants?

The above notwithstanding, and to address the second observed anomaly

2. Longer term trends may be cyclical, and they may also be lagging. Being "surprised" with 11% discrepancy is not everything (yet). What was the delta in FX for the same period? (I'm assuming their index is in shekels). Maybe shekel also depreciated 11%, and under-performance is actually 22%…Interest rate differentials and trends are another variable. Finally, U.S. aid and geopolitical threats loom huge over any Israel forecast.

I wonder if anyone can weigh in on "Dem vs. Rep" impact on Israel's future.

Rocky Humbert writes: 

Please. Two stocks, Teva Pharma and Perrigo Pharma account for 20% of the TA-100 index. Both stocks have declined massively over the past 12 months and can account for the index underperformance.

As anyone who is sentient should know, the bio, pharma, and generic drug stocks have performed horribly over the past twelve months — beginning with Valiant and Shkreli and Hilliary's tweet — and more recently on bad R&D and earnings news and speculation about the end of price-hike-led earnings growth. When I was buying the drug stocks during the last Hillary-scare, the pe multiples were 9x to 12x. The multiples today are 15x to 23x — even after the declines.

Someone should tell the "public" …

TA-100 Index: The TA-100 Index, typically referred to as the Tel Aviv 100, is a stock market index of the 100 most highly capitalised companies listed on the Tel Aviv Stock Exchange…

David Lillienfeld writes: 

It seems likely to me that the generic manufacturers are going to come under a lot of pricing pressure moving forward. The ethicals? I'm not so sure. Yes, there's looking to be a potential product failure on Regeneron's cholesterol drug, likely partly because of price, but almost half of all drug development today is for orphan drugs—and I haven't seen much in the way of push back from the market with regard to them. Lots of kvetching, no changes in purchases.

One of the "wake-up calls" for the industry has been what happened with Gilead's Hep C franchise. (When Gilead bought Parmassett, from whom it got this franchise, everyone thought they grossly overpaid—not unlike Pfizer and Wyeth for Lipitor. It was the deal of the century thus far—for Gilead.) It made a lot of money—short term. There was lots of grousing about the high cost, never mind that it was curative in ways that existing treatments were not, i.e., it was cost-effective even if insurers didn't appreciate the fact immediately. What few understood was that most of that revenue—and profits—resulted from a backlog of patients, now emptied, through which Gilead had to recover its costs and pays the piper for past failed efforts. Did it overcharge beyond that? Depends whom you ask.

There were other viral diseases (Gilead's specialty) it was supposed to have turned its attentions to, as well as (finally) some performance from its oncology unit. About 6-7 weeks ago, though, I noticed that construction on the Gilead campus had slowed. Not stopped, though. I tried speaking with people that I know there, make that knew there, and heard that a couple of retired and have fallen off the grid. One was pretty disgusted and turned up at Genentech—and was unwilling to talk except to say that he was still detoxing.

Look at pharma companies like BioMarin and Ultragenyx and you might find companies with lots of pricing power. Also lots of waiting-to-be acquired power. Will they be hauled in front of a Congressional committee? Perhaps, but I doubt it. That's the nature of an orphan drug—and I don't see that changing anytime soon. The costs of development (fixed costs) are almost as high as for those intended for more common conditions. Yes, there are fewer patients, but they may also be harder to find (= expense). And there are the drug failures. Go ask Bristol-Myers Squibb about the impact of those—BMS is in the process of hacking off a good portion of its R&D department after a major failed trial/program.

Two thoughts: First, stay away from cancer immunotherapy. Yes, someone will win big there—maybe. No one has any clue as to whom/if. In 5 years, probably a different story, but at the moment, not ready for prime-time. (If you like to gamble, go to Vegas or Macau.) Think of this area as the equal of NASH. Maybe Intercept will be a big winner. I'm not so sure. One thing is clear—there's an increasing amount of roadkill on that highway.

So yes, Rocky, the generic manufacturers are challenged—and given the size of the generics marketplace and some of the price hikes that have taken place, I don't see that ending any time soon.

But the pharma space still offers opportunities, just not with the larger companies.



I am reading here Ripley's Believe It or Not: Book of Chance and find it amazingly accurate and interesting. It gives ideas for inventions that are very useful and came to be, and has a million interesting things about luck and skill, and gambling.



 A symptom of what's wrong with America, economics, and the cattle trader's economics is this sentence in Robert Gordon The Rise and Fall of American Growth. If the stock market continues to advance, we know that inequality will increase, for capital gains on equities accrue disproportionately to the top income brackets". The book predicts that "the outlook for future growth in the standard of living is not promising" because of this predicted inequality (and slowing innovation, the baby boom, increased debt, and poor education). "We face headwinds that are stronger barriers to continued growth than were faced by our ancestors a century or two ago". Yes, the barriers are economists like Gordon and policies like those of the cattle trader. A totally flawed book suffering from the English and Pickety disease that could have been great if not suffused by collectivist fallacies.

Jim Sogi writes: 

Take a look at the Nikkei chart for the last 50 years. They had decades of tremendous growth. In 1989 it peaked, and crashed. Then for the next 25 years until now, its been in a range. Their population is declining. Young Japanese people, increasingly, are not attracted to the opposite sex. When you go to Japan, you really notice a lot of 60 year olds. There is a big population bulge at that age. Those are their boomers. There are no immigrants. There is no diversity. Diversity causes innovation.

Technology has a hard time increasing productivity in the face of large demographic shifts. The cell phone brought huge increases in productivity, but there is a plateauing zombie effect going on with increasing screen addiction.

Both the above are presented in support of my theory about long term market ranges.

Alex Castaldo writes:

Sogi-san's idea about the importance of demographic trends finds some support in a recent paper by Fed economists:

The United States, like other advanced economies, is undergoing a dramatic demographic transition related to the unfolding of the post-war baby boom. As a consequence, the growth rate of the labor force has declined and should remain low for the foreseeable future. In this paper, we investigate the extent to which demographic changes, especially those related to the baby boom, can explain the currently low levels of real interest rates and GDP growth.

We build an overlapping generation (OG) model that is consistent with observed and projected changes in fertility, labor supply, life expectancy, family composition, and international migration. The model allows us to explore the extent to which demographic changes, in and of themselves, can explain the timing and magnitude of movements in real interest rates and real GDP growth during the post-war period and beyond. […].

We find that demographic factors alone can account for a 1.25 percentage-point decline in the equilibrium real interest rate in the model since 1980 - much, if not all, of the permanent decline in real interest rates over that period according to some recent time-series estimates, such as Johannsen and Mertens (2016b) and Holston et al. (2016). The model is also consistent with demographics having lowered real GDP growth 1.25 percentage points since 1980, primarily through lower growth in the labor supply; this decline is in line with changes in estimates of the trend of GDP growth over that period. Interestingly, the model also implies that these declines have been most pronounced since the early 2000s, so that downward pressures on interest rates and GDP growth due to demographics could be easily misinterpreted as persistent but ultimately temporary influences of the global financial crisis.

Larry Williams comments: 

Amen! Especially now that everyone owns stocks in one form (retirement programs,etc) or another.

Like JFK said, "a rising tide lifts all ships".

John Floyd comments: 

I first arrived in Japan in 1985 in the midst of the boom. Reservations were necessary well in advance to have a sit down lunch anywhere and the likes of Maiko Kawakami were more than willing to pay me $40 an hour to teach them, English. But after many years of a palpable buzz that included the Plaza Accord, expanding money supply, real estate price increases, etc. came the arrival of a new BOJ Governor Mieno in December 1989. Mieno believed the gains in asset prices was a bubble and "undermined the stability…of Japanese society by weakening the ethos of labor…" and immediately began tightening monetary policy. Equity markets began a decline and with a lag of a year or so did real estate prices.

In thinking about Japan I would consider some of the following, Further I would consider how it relates to what is happening in Europe, US, and China at the moment, to name a few.

Why has the "great hedge fund trade" that began in the mid 1990's of shorting Japanese bonds not worked?

Is there something inherent in Japanese culture that has prevented the open restructuring of debt that is more prevalent in Western societies? Why can you drop $1,000 of your English teaching money in a restaurant and have someone return it to you the next day gift wrapped?

Does an aging population save or spend more and what might that influence be on the economy and markets?

How does the rise in China debt levels over the past few years compare to both the Japanese(circa 1980 area) and US debt (circa 2000 area) expansions?

Do you believe the Japanese will stick on the path of the 3 arrows which have been partially successful? Might they expand their arsenal?

What is happening to the stock of JGB's and the ownership there of and thus the subsequent interest rates demanded?

What about this new 10 year yield target and how does it square with inflation and the Yen?

Is there a debt write off as that is the ultimate solution? General government gross debt has gone from about 50% of GDP in the late 80's to about 250% now.

What happens to the JPY, stocks, and bonds if debt is restructured given the impact on growth, inflation, etc.? I was last in Japan a few years ago and remarkably the prices had not changed much since the 1980's for hotels, noodles, beer, coffee, etc. But, alas I did not price out the demand for young English teachers.



 The cast of characters that goes along with the Zacharian "your own man" and the proverbial "useful idiot" is large in our field. I see "the captain", "the pessimist" (perhaps the bearometer), "the cheat" (perhaps a bio executive from Boston), "the complainer" (perhaps Steve Jobs), "the sanctimonious scoundrel" (from Nebraska). I am seeing the boy (market) who plays "lady I did it" with a big spike overnight then a return to unchanged at the open. What other characters from the playground do you see? Do you feel this is a useful type of thinking?



 One is thinking of retiring and setting up a radio flyer wagon on Wall Street, and selling guidance on markets for 5 bucks a query. One has given up studying the factors that determine the bull or bear of individual stocks., especially since no studies are valid unless they use a compustat as is file and according to Andy Lo, even those are adjusted. One wonders if there is any systematic way of dividing stocks into good and bad that works these days? A related query is whether the Value Line rankings of stocks into group 1-5 have held up now that the great Sam Eisenstat has been eased out. Do you think I could be as good as Kramer?

Jim Sogi writes: 

Years and years ago I read Value Line regularly in the binders at the brokers office and generally followed it during the bull market. It did well. Later, I subscribed, but found that by the time I got my issue, first by mail, then electronically, that the chosen No 1 stocks already had made their move making it impossible for me to get in with any hope of profit. I always wondered how that worked.

Larry Williams writes:

We tested value line ranking is Q&A software (Thompson/Reuters) about 2006-2009 time frame and were not able to come up with much that rolled into/out of top ones or bought and held for 6 to 9 months. Maybe need a long hold time. 



In a rather simplistic and limited analysis this is the first time after a debate or "election news/event" that was deemed to favor the Dems that the Mexican Peso is lower on the day.



Who are the most resonant useful idiots in our day that can always be counted on to say something idiotic? I find it useful to look at El Erian and Gross, as both are never bullish on stocks.

Steve Ellison writes: 

Anything on zerohedge



 We are listening to Rigoletto here, and it occurs that the theme of 90% of the operas before 1870 are with Trump like rich men taking advantage of poor beautiful women before receiving their retribution. Would that be correct?

Stefanie Harvey replies: 

This is also a war rallying theme. I just finished SPQR: A History of Ancient Rome by Mary Beard. Many a campaign began after a rape or attempted rape of an elite or community of women.

Short book review: a bit of slog due to excessive detail but wonderful humor and a light tone in writing.



Joseph Garber Stadium

The best one-wall handball player in the world in 1940 was Joe Garber. He was drafted an Ace, and got killed flying in a Boeing B-17G over Munich on 21/7/1944. The Brighton Beach Baths, now Russian condos, built a handball stadium holding 500 in his honor. Artie Niederhoffer, my father, and I watched the handball sweeps every weekend from a perch in fourth tier. To add to excitement, Artie always sat next to Bookie, and they played a game of checkers as they watched the handball, often the notorious Uncle Howie teamed up with Hershkowitz against the runner Moey Orenstein and Mortie Alexander, who could kill the ball from 20 feet behind the long line. Bookie took bets on all the games, at 11-10. Pick em on Moey. Or Eisenberg, +3 against the Milkman. (That game was rained out, but that's another story.) It was hot in the concrete stadium and if the score got to 18-11 or some such in a game Bookie would pay out all the bets on the winning teams so that the winners could get a swim in the adjacent public ocean. Shades of Paddy Power paying out all the bets on the Cattle Trader.

Stefan Jovanovich comments:

Political bets are not really like athletic contests since there is no running tally. The polls issued throughout the election campaigns used to be a kind of pseudo-line score so you could use some of the techniques that the Brighton Beach bookies used for in-game sport betting. But that is now gone, like the Baths. The public polls are now so thoroughly corrupted (statistically, not morally) that you cannot think you are watching a game progress. Even if Vic had not decided that state polls' collective predictions for the Electoral College were an inappropriate intrusion of politics, I would have abandoned the daily score-keeping. The collapse in sampling that has occurred this year makes the fall-off in TV ratings for the NFL seem moderate by comparison; and there has been a quantum increase in the distortions in pollster's models. Those distortions are partly the result of the sampling problem but they are also from political bias. The models' partisan break-downs are completely inconsistent with anything seen in the actual elections last year and in 2014. The only information out there that is statistically valid are the longitudinal polls like the LA Times/USC poll - where the same people are repeatedly polled. Those continue to show a score that is 13-11, not 18-11. Nate Silver made the smart move over to ESPN just in time.



All these possibilities are quite analogous to those who like to fight the drift in the market. There are so many things that could go wrong. There are so many factors that people don't consider that could cause a big drop. Just in the last 4 days, there was the w.f. wagon, the Chinese trade, the alcoa signal, the Hillary speech. Every day there's some unaccounted for worry. My goodness, that's what the market takes into account, why it is where it is, where people put their money on it, and equilibrate taking into account all the positive and negative factors. That's how it is with the predictive markets. They take account of the turnouts, the prevalence of preference, the changes in votes as the election nears, the states, the coming news, the efforts to bring out the vote. If it gets too far out of line, money comes in to move it to the right direction. It's just like the market, and the reason that the best estimate of the market for the next period is always the drift.



 Contagion and infections of new groups of susceptibles may work to create a landslide to throw the real estate promoter proud of stiffing thousands out of the race now with favorable impact on stocks, and lessened pressure on centrals to hold off from tapering and hawkish interest rate increase talk before election. Thus, while the hurricane theory that insurance companies will have to sell bonds to cover losses is off the table, the hawks may be let out of their cages.



 Today was a perfect day in the way expectations work. I don't fully know how they work but some of these factors were involved.

1. Market started way down Monday for fear that Trump would win the debate. The old accepted thing is always what the market wants even if it's creeping socialism and higher service rates.

2. Then on Tuesday evening, the market went down 1/2 % before the debate on fear that Trump would win. Fear always causes stops to be run.

3. Then during the debate, the market went up 20 points as it became obvious that the cattleist was winning and that trump was rambling, and interrupting, and proud of fact that he made money by stiffing people, and buying foreclosed houses, and not paying service.

4. Then the market went down 26 points to the open on the theory that you should buy the rumour and sell the news. Sort of a variant of "the threat is worse than the execution". Often good news i.e that the cattleist won, is worse than bad news. Of course often the good news is known in advance by flexions and they sell after it. Of course some people might have sold because the realization that the cattleist would win means that after-tax capital gains will be lower and regulation will be higher.

5. Then the market went up 10 quick points from the open to show that they were happy after all with the cattleist and to take profits from those who were stopped out at the open.

6. Then the market dropped a quick 5 points to recapitulate yesterdays and the prior days decline. People suffer from the remembrance of last 2 events effect or whatever absurd name Kahneman specifically gives it [Ed.: recency bias?].

7. Then finally the market advanced to where it was after the debate, letting no good opportunity for a stop or profit go unheeded. And it ain't over yet. Only a Brett can make sense of it all.



 I'll go with the prediction market which reduced the probability of wining to 0.30 from 0.37 for Trump. Having listened to the debate, it is hard to believe that anyone could have thought Trump won the debate. He was totally unprepared. He could only mutter "wrong" and talk about his abilities in response to totally prepared remarks from Hillary. The Times gave a good fair analysis of the debate. As did Washington Post and Fortune.

anonymous writes: 

The prediction market is not anything like the markets that you all trade in every day. (Those of us out here in the piney woods are guilty of buying and selling stocks on occasion but comparing what we do to what you all do is like comparing subsistence farming to Cargill.) For one thing, there is no size. The move down 7 points came on basically no volume. If a stock moves that much on that little money changing hands, the shares belong to a business that is already bankrupt. Oh, wait, that is the general business magazine trade these days….and the newspaper business. For those who want to know where the money went…  There is not much volume; but there is, as there used to be with Berkshire in the good old days when its owner did outperform the market, some considerable size.

Victor Niederhoffer replies: 

I believe that the many small traders with insights and incentive to make money keep the prediction market very accurate. And there are numerous studies that show that the prediction markets work much better than the polls. (I think). 

Andy Aiken writes: 

A problem with most prediction models, including prediction markets, for the US presidential election, is that they combine state polls using a Gaussian copula-like approach. Andrew Gelman, political scientist at Columbia, showed how this approach is subject to the ecological fallacy. He resolves this with a hierarchical Bayesian model, which Nate Silver adapted for his 538 site. This is not to say that 538 is accurate, since it is only as good as the polls that are used as inputs, but it avoids a common methodological flaw. It doesn't take too much capital to manipulate a prediction market. I personally know some people close to Bush who in 2004 would push up or down the Presidential Election contracts market on the Iowa Electronic Market, merely to influence perceptions. Brexit may have been an example of such a manipulation attempt.



The black doctor inspires some relevant Wiswell Proverbs.

1. "Not all games are lost in the mid and end games; many players go astray in the opening"

(beware of hasty opening forays)

2. "Some players know the game very well but don't know the game players themselves: this can lead to self defeat"

(It is bad to trade against the Fed or the flexions or small groups that control the fixings or pricings)

3. "Some players can stand a series of dull games, but the creative player lives for a challenge and a crisis. The latter star may win a brilliancy prize now and then but often at the risk of losing a few"

(A derivatives expert can make a profit once every 10 years or so assuming he can get out without the 100% bid ask spread or that homeostasis does not come at expiration)

4. "Keep your manuscript and in your years ahead, your manuscript will keep you"

(write down your trades and prices and keep them handy in front of you not on an instrument that can be wiped out by a (hammer?) or an algorithm)

5. "It is important to keep your forces together, yet flexible, ready, to attack or defend as the game develops. Any General will tell you that a divided army is hardly headed for victory."

(too many positions, too many accounts, too much money committed to margin is guaranteed to cause failure)

6. "Do not assume that every move a master makes is strong, or that every move a patzer makes is weak. Play the board not the player."

(the palindrome and the upside down man have been known to nod)

7. "When we resign with a draw on the board, and many of us do we don't deserve a draw"

(getting out of a winning position when it starts backpedaling is a dreadful psychosis that we should ask Dr. Brett about)

8. "The fourth dimension. In addition to the opening, the midgame, and the ending, there is a fourth act to every game– the result."

(you can play a great and lose, and a bad game and win)

9. The right way to win a game is before the first move has been made.

(prepare before the opening and know why and what you are doing)

10. "The winner of a game is not always determined by who is right–but in the end, by who is left."

(squalls, stops, and margin calls can occur)



 O. Henry often boasted that you could name any place, any situation, any number and he could write a short story about it. I have often felt that I could take any situation, and relation, any game, and find a relation to markets in it (albeit not usually a predictive one).

I recently was studying integration by parts so I could compute moments of the exponential distribution. I gave myself the challenge of finding a market relation for integration by parts. I am wondering if anyone can find some useful take off point and relation to markets in it. I will give my answer after the market closes today.



Chain Rule says that the area to be covered by u dv = uv - area covered by v du

In that case when u and v are high the effect of a change in the other one should be algebraically higher than when u or v is low.

I looked at the 5 occasions when tbonds, crude and SPU all set a 10 day high, sort of like today although not all highs. In the last 6 years.

I find a change in SPU is very bearish– down 32 next 5 days. A change in bonds down is very bullish. Change in crude very bearish. Down almost 10 ^+% next 5 days. Change in bonds quite bullish.

Compare that to 3 occasions when they all were at 10 day lows:

change in S&P fairly bullish

change in bonds very negative

change in crude fairly bullish

No significant effect except that bonds tends to continue at extremes.



 Centuries ago, sailors on long voyages would leave a pair of pigs on every deserted island. Or a pair of goats. Either way, on any future visit, each island would be a source of meat. These islands were home to breeds of birds with no natural predators that lived no place else on earth. The plants there, without enemies, evolved without thorns or poisons. Without predators and enemies, these islands were paradise. The sailors, the next time they visited these islands, found the only things still there would be herds of goats or pigs. Build your bridges slowly, and don't burn them.

Victor Niederhoffer writes:

I look around 3 times and wait for Dr. Jov to correct.



 In honor of new member Richard Prout:

"I've known scores of men who were unable to wait to win. They are too impatient. They want to do everything all at once. When I was racing my horses, all over the world I always figured there was plenty of time. I would be out there with them at crack of dawn watching them. And I would see to it that they lost races until their prices were right. I didn't care how long it took. But when they were right, and I knew they were right, I got busy."

The cowboys and soldiers fought when Frank wasn't taking their money in cards. "The odds were all in favor of the cowboys. The soldiers nothing but city boys, and didn't know anything about firearms except what they were taught in the army. The cowboys were all gun fighters. The cowboys filed down their triggers until they hung on a hair, just being discharged by pulling back the hammer. The solders guns were hard on the pull, a necessary army reg to prevent the poor gentleman from shooting each other by mistake. Lots of soldiers were killed". "There wasn't any law except guns unless a man shot someone in the back or got caught stealing horses. A man or two was killed, and what could be done about it? Nothing. The army could just charge it to profit and loss."

"The women liked to gamble. And they were all wild about systems. Of course it is a mathematical fact that no system can be built to get around the zero the percentage always must be in favor of the bank. In Monte Carlo there is one zero in roulette and here there are two zeros. Of course for a professional gambler like myself the casinos would be foolish places to spend my time. I gamble only to make money… when a hand of cowboys came in and with their gold dust, or sold their cattle, we would sit up night and day spelling each other until we had cleaned them out. I never put a shovel to the ground during all those mining fevers, and I saw them all except the great gold rush of 49. And I wasn't born then."



 In Australia, the best trading story I know is in Following the Equator by Mark Twain. The gist is that Cecil Rhodes started his fortune by catching a shark in Botany Bay. The shark had eaten a German spy in the North Sea when war broke out between Germany and France. The spy's diary was in the shark's belly and Rhodes immediately cornered the wool futures market as England would no longer be exporting wool. One thing led to another and Rhodes soon used his stake to buy his first diamond mines.

As an aside, to take a page out of the book of all the world travelers we have, my favorite botanical garden is the Rhodes Gardens in Capetown. I like the Gardens in Hilo, Hawaii also and will buy a tree there for Artie. Through the spec list I met a good man, Ken Roman, and I now have a beautiful bench in the Bronx Gardens: "In honor of Artie and Elaine and their love of books and nature," looking out at the stand of tulip trees from the 1890s, and the library and Ken's Roman Pavilion Gazebo. One thing leads to another.

A favorite thing to do when trading was going very well in the old days was to take Laurel or Susan (never together) to the Roman pavilion and read a 100 year old book about markets there surrounded by the smell and sight of the trees. One apologetically notes that "The Autobiography of Frank Tarbeaux is only 86 years old. A spate of such books was planned in 1929 and published in 1930.



 I just posted that Gary doesn't know one book game in chess but beats me and Bill, a 1700 all the time. He's an athlete and doesn't know how to lie or cheat like the others. He has common sense as his answer showed as both combatants are using our ammo. He doesn't have 30 secret service or handlers following him around like the others. As he said, "he'll just try to be smarter in the future". But is it smarter to know these jeopardy questions thrown at him to humiliate him. I'd put his IQ at 160, probably the equal of his partner who knows all the pres's of each country, and speaks Greek and Latin the way the 36 in his family had to do to get into Harvard.

Jeff adds:

Remember that Trump doesn't know what the nuclear triad is and the harridan cattle trader didn't know what the letter C in an e-mail header meant. The termagant also didn't know that Libya is having a civil war, one that she started. Gary shouldn't know what Aleppo is as his concerns are to stay away from foreign entanglements.

Charles adds:

A colleague suggested that a good comeback would have been "Look, my intention is to not start wars, so that Americans won't have to know the name of every war ravaged hamlet on earth."



Arizona Frank who did much turf training and punting in Australia would berate all his jockeys when they tried to win. He insisted like Bacon that the only way for him to make a reasonable return on his stable was to make his horses run bad in the races while he prepared them to win so that he could receive proper winning odds when he bet on his horses. How much like a market that looks bad.



 There are some nice part whole fallacies in the article below. And one should comment on the one thing he knows about Pouille and Nishikori have beautiful games but their serves aren't good enough to win. The serve is key to the game, and the court is so fast that there is little left for good all around players like the aforementioned. The key to the serve apparently is a loose arm and body and a strong wrist snap from a high toss. I like those who try to hit it exactly before it descends i.e. when it's moving at 0 velocity. Nadal I knew would lose and he can hardly hold his serve anymore and his grotesque strokes wear the body out much faster than the flowing one so his career is over. The two handed backhand seems to be the only one that will return a fast serve effectively. Everything depends on the serve and a good way to practice it is to serve from a sitting position. Interestingly Arizona Frank in gun fights often jumped to a sitting or side position or suggested that there was someone behind his adversary in his many gunfights.

"Keeping Score: Key to Winning at the U.S. Open Is in the First Four Shots"



One has had pleasure of reading the autobiography of Arizona Frank and if he isn't the spitting reincarnation of Jeff I don't know. He played every scam, known in those days as "gyps" in the book especially the minister horse trade, the race walking trade, the sawing off the trigger scam (a good way to kill someone), three card monte, and many others. He killed many a man without compunction but gave up drinking at 75. Almost all of the gyps are quite comparable to those we see in the market. He had the luxury like Marty Riesman of being the son of a bookie, in this case the most astute horse trader of the plains and he could tell just by sitting on a horse what ailments it had. He liked to buy horses from those trying to cheat him, and he never let them know he knew of their fraud as that raised the price when the fraudster knew he knew. I wish I had 1/10 the knowledge of Arizona Frank regarding frauds as it would have saved me hundreds of millions. So many of those that have defrauded me have used variants of the Gyps that Arizona Frank wrote about.

Here's the start of one of Arizona Frank's best gyps: 

His newspaper ad.

"A Widow Lady…. Will sell at a great sacrifice the cotts of her deceased husband's sporting stable, consisting of the fast, valuable and well known road team orange boy and blossom. Orange boy has traded the mile is 22 1 blossom at 225 and double to pole in 230. They are six year old and perfectly sound, beautiful dark bays and black points, 115 hands. They drive together like one. They will not be sold for turf purposes. Will also dispose of trotting wagons, training cart, fancy blanket and harness. In fact the complete contents of a gentleman's driving stable. Michigan avenue"

The ad proved itself to be as attractive as I had intended, not only in luring prospective buyers for the horses, but also in drawing suitors for the widow lady."

Frank had bought the horse for $25 bucks at the stockyard and dressed up as a minister to shoo away all the potential buyers who wished to use the horses for "turf purposes".



 "Why can’t we see that we’re living in a golden age?: If you look at all the data, it’s clear there’s never been a better time to be alive" by Johan Norberg

Jeff Watson writes: 

There's huge money in doom and gloom.

Ralph Vince muses: 

A person should live each day of his life with the same mindset, the very same attitude of savor and gratitude for every minor thing, as if he got out of jail that morning.

Or, as the Old Frenchman himself would say, "If you have the same address as a thousand other guys, you don't have a lot going on."

Alston Mabry writes: 

Pessimism is a strategy. People who have learned, usually from childhood, that they cannot act on their most important impulses use pessimism as a way to devalue what they deeply believe they are not allowed to want.

Bill Rafter adds: 

Just a minute…

As we all know from trading, if you want to increase your profitability over time the most effective strategy is to limit losses. Possibly related to this is the result of several studies attesting that fear is a greater motivator than greed, buy a factor of 3 to 1. Furthermore, we all look at prices and know both instinctively and historically that those prices will not be constant over time. They may be higher or lower, but not the same. Thus, pessimism is historically justified, profit-saving and possibly life-saving.

But to want to trade these markets for profit, one also has to be optimistic, often excessively so in light of bad experiences. You need both.

Jim Sogi writes: 

Jeff is right. Television causes pessimism. Don't watch TV. I haven't had TV for 47 years. It's not only the content. It does something to the brain. It's harmful. 

Stefanie Harvey writes:

Exactly. Television, especially US news television, is the poster child for confirmation bias. 

anonymous writes: 

Many good reasons for worry exist. If you're not worried, you're not paying attention. All of the worries stem from something completely nobody talks about in polite company: population explosion. In 1804, the world's population was 1 billion. In 2012, it topped 7 billion. It's projected to reach 9 billion in 2042 — within my son's lifetime.

True, Paul Erlich got it wrong when he said we'd all starve by the end of the 1970s– but go back read his book. Then reflect on how much different life is.

All those people are unsettling policymakers, with these results (and they are what's secretly worrying us):

Unspoken Fear #1: War. Today's empire builders are intent on grabbing resources; nuclear weapons are in too many hands.

– China: rich and populous; thanks to the free-trade break we gave them in the 1970s, they've created a war machine and ready to go for our jugular.

– Islam: implacable and populous; we have spent trillions trying to establish a decent government, and the area keeps morphing into an empire that despises us and all we stand for; they want their old empire back, be it from Baghdad or Istanbul.

– North Korea: Our strategy is, "Let's all ignore that man in the corner, and maybe he'll quiet down."

– Russia: ruthless, and intent on restoring the empire of Rus.

Unspoken Fear #2: Dystopia.

– When people don't have honest work, nothing good can come of it. In America alone, 94 million people are out of the work force. We're not being honest about the impact of robots and artificial intelligence. It's this fear that gave Trump the nomination, not that he knows what to do with it.

Unspoken Fear #3: Central government that keeps growing.

– Confronted by the population explosion, the elites have decided that the masses must be controlled and pacified. This political philosophy shows up in the fear of liability for anything fun, in subsidies, in central banking. We see sledgehammer policy-making, from FDR to Obamacare.

– And the educated love it! Calls for authoritarianism are the norm among socialist youth, aging hipsters, authors and "educators" at all levels.

These memes and unspoken but rational fears show up in pop music, with its ugly pounding overamplified brutalist mindlessness; in contemporary academic music, with its screams and jaggedness; in art, with its sneering cynicism; in architecture, with its boxy Stalinist aesthetics.

It shows up in the piggishness of the powerful, with Hillary Clinton the prime example. The rich expect multiple homes in idyllic spots, bodyguards, private jets; the poor suffer in overbuilt, crowded, noisy, polluted cities.

I happen to be an optimist, and always see the glass as half-full. Please note I am not prescribing anything; for one thing, it's gone too far. Nor do I think that going to Mars will help.

Russ Sears writes: 

First, human super-cooperation is built on trust. To evolve as a group, a high percentage of that group must be trustworthy for the compounding effect of the prisoners dilemma to work. As the group grows too big, it becomes too easy for a individual to feign cooperation. Hence the need for creative destruction and for power being placed in the smallest sized group necessary. It has always been easy to look at the big groups and see the corruption and assume that they are in control of the long term future. But the truth is they are dinosaurs and will lose out to the small but wise group/ businesses that still operates at the human individual trust one another level and are quite hidden from the spotlight, because of size. But these time and time again raise the tide for all.

Second, personally, it is too easy to dwell on the jerks that simply can ruin it for everyone but that fall into everyone's life. They can ruin many nights even if as a rule I try to avoid them. A single jerk can derail my perspective and keep me up at nights and easily crush my spirits if I let them. I found the best antidote for me is to turn the tables if I start thinking of the jerks and think instead of those in everyone's life that have blessed them with love, grace and patience. I think of my Dad's second wife, caring for a dementia patient at home for 13 years and weeping tears of love on his passing, the coach that helped me, the friend that's always there, etc. I try not to let the jerks own my mind rather than those loving, lovely (my spouse), good and virtuous people in my life. This also goes with those news makers, politicians and on the dole.



Many people feel guilty and wish to atone for their wrongs and have a wish to suffer.



 The movie Florence Foster Jenkins is poignant and beautiful based on a true heroine and her solicitous cohabitiere from 1944.

Great walk on by Toscanini, Cole Porter, and Earl Wilson.

Brings tears to the eyes.

People love it because it's part of idea that has world in its grip and it makes people feel small.

But it's beautiful and highly recommended. 



 I spent the Aug 8-Aug 13 week in Vinalhaven with my wife, son, and a friend's family of four. During that time I read the complete set of 130 years of their weekly newspaper, The Wind, I read the book Cities and Economic Development: from the Dawn of History to the Present by Paul Bairoch [link ], and the book Salt in Their Veins: Conversations with Coastal Mainers by Charles Wing [link ]. I resided at the Tidewater Inn, owned by Phil Crossman, who compiled the highlights of the local newspaper and just finished a three year walk and reminiscences of the 20 square miles of the town. I had occasion to interview Phil. I supplemented this with daily visits to the Surfside where local salts gather each day at 4 am to provide council on the byways of town life. In addition, I have the good fortune to be married to Susan Cole, who spent her childhood summers on the Island, has 100% salt in her veins, and whose mother born Norma Skoog lived on the Island and whose father is one of those salt in their vein boat builders so prominent in the building and heartthrob of coastal Maine. I supplemented this with conversations with Shawn Chilles, a local caretaker, descendant of a Skoog, (almost all the families on the Island are at least second cousins to each other ) and long term resident with many jobs. Although I am not a nautical person, I learned a lot from my visit and thought that my observations from the grandstand or from Mars might be of interest.

As background, Vinal is an island fishing village with a population of 1,200, covering 20 square miles, about the size of Manhattan. The density of Manhattan about 100,000-200,000 per square mile with visitors compares to Vinal's density of 60, a differential ratio of 1,500 to 3,000 greater for the City. There are 300 boats, 300 families, 550 households in Vinal, augmented each summer by about 2,000 summer people who come for the beauty, solitude, and vitality of the place. It's one of the coldest places in the US with average temperature of 48 degrees, 35-40 in the spring and winter, 64 degrees in the summer, a record winter low of -30. The town is said to capture the largest lobster catch in the world, perhaps 25% of the Maine Lobster catch of 120 million.

Vinal was once famous as the granite capital of the world, and in 1880 it had a population of 3,000, and provided the granite for such famous entities as the Brooklyn Bridge, the Chicago board of trade, and the Penn. Railroad. The granite industry and the rope industry, it's two majors at the time, have gradually withered away and the town is dotted with abandoned quarries and a rope factory or two, which the kids use as swimming holes and hideouts. The population has steadily decreased since then. Hardly a dozen retail stores still exist, and real estate prices have been in a decline for the last decade. As one walks down Main Street, which once had 3 grocery stores, 3 hardware stores, and a booming retail economy, one notes that almost every remaining store including its iconic restaurant, The Harbor Gawker, the paper store, the ice cream store, are for sale. The two or three restaurants remaining close are open mainly on weekends and close down after the summer.

 And yet, the town is vibrant. There are concerts every day. Volunteer organizations provide almost all the amenities of city life. There is little migration off the island. The locals are able to put on a big city vintage car exhibit. Many artists including the hermit Robert Indiana who lives on Main Street with boarded windows the whole year thrive, and there is a very active tourist industry during the summer months. Almost all the residents have salt in their veins, are self reliant, many have 3 or more jobs. The price of lobsters, now at an all time high of $4 a pound, provides a buffer of wealth that lifts up the spirits and economy of the town. My pleasure was enhanced by playing on one of the three soft court tennis courts in town, before being rained out, an opportunity that must exist only a handful of days in the year.

I found the town a great case study in the growth of cities and civilization from rural beginnings as its halfway between a hunting, fishing and gathering village and a city. The pace of life is slow (all the stores close down at 6.) There is outdoor recreation, mainly boating and kayaking, but there is hardly any indoor recreation on the island aside from a Peyton place locus of romance (the movie theater, and the bowling alley closed down, and there is no chess or checkers), except for drinking (Phil Crossman shrewdly owns the Island Spirits store). There is ample opportunity to reflect on the better or worse of Island Living, and how it relates to the more specialized life of information, trading, specialized professionals, finance, and city administration (police, fire, garbage, education et al) of the city.

The tyrannies of transportation costs, agricultural and fishing productivity, population density, heating costs, and change in life styles provides a nice foundation for appreciating the limits and potentials of life in villages versus cities, and augments one's understanding of day to day activities and markets. One of the first things to realize is that a fishing or hunting village can't sustain much more than 1,000 people, the minimum necessary for a city. Bairoch puts it this way: "The especially crucial point is the existence of true urban centers presupposes not only a surplus of agricultural produce, but also the possibility of using this surplus in trade. These possibilities are directly conditioned by the amount of ground that has to be covered in transporting it." There is an iron law of how much and how far a human can carry on his back. A good estimate is 75 pounds over 15 miles in a day. But a human needs 2 pounds a day for food. That's 4 pounds back and forth for 15 miles. And 40 pounds needed for 150 miles. Thus, he consumes 1/2 of his food by transporting his food, and this doesn't even take account of the needs of his family which say, adds another 1/2 to food needed, thereby taking up the entire weight of the good transported over 150 miles. But in order to have trade you must transport the goods.

You might say that horses and oxens and wagons extend the distance that a man can travel but it turns out that when you take account of the cost of roads, and the driver of the horses, and the food required by the beasts of burden, they don't add much to what can be transported. Indeed, camels seem much more efficient than cars or wagons throughout the Mideast as a man can drive four camels but usually not more than one horse.

Granted that goods can't be transported over large distances, what about the productivity of hunting and fishing. It's estimated that in primitive hunting or fishing societies without agriculture a man can capture about 10% more food than he needs to survive. There are 8,000 lobstermen in Maine and they capture 120 million pounds of lobster in a year. That's 15,000 pounds of lobster a year–revenues of 45,000 a year at a price of $3.00 a pound. Taking into account the cost of fuel, and bait and the depreciation on a $200,000 boat, to say nothing of the cost of a sternman if he wishes to increase his chances of survival, the average lobsterman is lucky to gain income of $30,000 a year, which is in line with the census figures for the average income of the working population of Vinal. That's close to the cost of food and housing for a family. Thus, no surplus is produced…no profitable trade is possible, and without a surplus the population can't grow and cities and civilization can't be born.

One notes again that there are some 20 square miles of area in Vinal, and with a population of 60 per square mile. It compares to France with a density of 100, US with a density of 84 and Israel with a density of 50 and 3 in Iceland. There are many cities in these other countries. Thus, the reason for Vinal's lack of growth and lack of urban activity is not population density. My colleagues suggest that the weather, location upstream to a river, and the proximity to wealthy enclaves might be the answer.

But the pace and quality of life on this island must be a matter of choice. The degree of happiness and satisfaction with life on the Island seems to the outside observer to be considerably greater than that achieved by most city dwellers. There is little migration from the island, and a high proportion of those that leave temporarily for such things as schooling and family seem to eventually end back where they started. A reading of the weekly newspaper reveals countless examples of inordinate benevolence and happiness at big gatherings that seem to dwarf the comparables in city life. While this is hard to measure, the inordinate satisfaction would seem to arise from the independence, self reliance, competence, and hard work that is required to survive in such a self contained community.

Self interest and local knowledge is the key to profitability. The lobsterman developed and strictly enforce a program of throwing back all female lobsters and those below a certain length thus ensuring that the population of their prey will be conserved and increase.

Perhaps in closing one should add some augmentations to ones business and personal life that one gained from a one week stay that has been grafted on 30 years of shorter enforced visits to keep the family at bay.

Everything on the island depends on nature. The working day starts at 4 am, with the rise of the sun. The lobsters are numerous in the morning, the bait is plentiful, and there is much ground to cover to net the say 150 lobsters that is required for a living. The activity varies by day of the week with a plenitude on Monday morning at 3 am as all lobstermen rush out to capture the prey in their traps who are active from Sunday when no fishing is allowed by state law. The tides are key to the efficiency of all activity and they wait for no man and they influence the profitability and safety of the hunt. The weather especially the temperature, the wind, and the fog determine the profitability of all activity. A city trader like myself receives a emphatic reminder that nature is key to market activity and ignorance of it leads to disaster.

No visitor to the Island can leave without a deep sense of appreciation for the wisdom, abilities, knowhows, and all around talents of the old salts that populate the island.

Vic adds:

I will point out that one indicator of the level of happiness of the Island is that there is hardly any crime. One policeman works part time on the Island coming over a few days during weekends. True, in the 1880s a curious incident occurred. A lawyer rowed in from the mainland at midnight and went directly to a local fisherman , woke him up and told the fisherman that he was the legatee of a a $500,000 inheritance. He asked the fisherman to sign off on the inheritance The fisherman refused saying there would be plenty of time to look into it after reflection. The lawyer rowed back the same nite. Apparently he wished to steal a much larger inheritance from the poor islander.

I added a few paragraphs about what the visit taught me about markets, especially the importance of nature, and days of the week. The tides wait for no man, especially on Monday, et al.

Rocky Humbert writes: 

Vic, very nice essay. I suggest you compare and contrast with Nantucket, which was a dominant whaling community, similar size island land mass, but has grown and prospered despite the demise of whaling. The population of Nantucket was fairly constant from 1880 to 1970 around 3,000-4,000. By 1980, it had grown to 5,100. It's now up to 10,200 in the winter and an estimated 20k in the summer. Median household income for year-round residents is $55k with per capita income of $31k. Median income for households (which includes part-timers) is $83k however. Largest single employer is the Town of Nantucket by orders of magnitude. Like Vinalhaven, it's accessible only by ferry, which restricts trade, commutation, and elevates the costs of everything.

Real estate prices on Nantucket often rank as the highest of any US county. Yes — more expensive than the Hamptons!

So the obvious question for the 21st Century (as distinct from the 19th century): How does a community with natural beauty become a summer haven? I suspect the answers include : (1) Proximity to wealthy urban centers; (2) Critical mass of residents which has a networking effect; (3) Weather; (4) Luck. (5) Rising sea levels (just kidding).

Steve Ellison writes: 

Before the invention of the railroad, travel on water was far easier than travel on land (one looks around 3 times for Mr. Jovanovich). Thus a settlement might be able to jump the hurdle and become a city by having favorable water transportation. One of the earliest examples was the Nile River, where the prevailing winds blew from the north, and the river flowed from the south, so travelers could use a sail in one direction and drift with the river in the other direction. Here is a map of the 146 counties that contain half the US population. Many are along rivers or at natural port locations on the coasts.

Jeff Watson writes: 

That reminds me, by a large factor, that the cheapest way to ship grain within the lower 48 is by barge.

Stefan Jovanovich writes: 

3 facts in support of the Mr. Ellison's observation:

1. The canal mania that began with the Midi [in southern France] and continued through the 1840s was based entirely on the productivity gain. A draft animal pulling a barge from a towpath could go 3 times farther and carry along its own feed AND have more than twice the useful life.

2. The railroads that made money from day 1 were the ones that chose the same routes as the canals or stayed close to the water. The Pennsylvania and Baltimore & Ohio and NY Central literally followed the routes of the earlier canals. James J. Hill made his money from the spur line that followed the Red River, not from the transcontinental route across the prairies.

3. Water transportation still has the greatest efficiencies - now because you can reduce the crew sizes literally to zero. The first driverless freight hauling will be done not on land but on water.

Once, we lived. Enjoyed life to the full, now we have all become slaves of the yields. We run and produce more quickly and in greater quantity, but we do not have the time to appreciate, valorize and enjoy life with the tranquility and the carefree of once. All running…who knows why…?

anonymous writes: 

[To understand Vinalhaven's comparatively low level of economic activity,] consider the proximity of Cape Cod, Martha's Vineyard and even Block Island to wealthy urban centers. Network density at work.

anonymous writes from San Francisco: 

The most recent rise in the price of housing in the Bay Area is not a function of demand; employment numbers for SF and Silicon Valley have been flat for over a decade. The rise is the direct consequence of the restrictions on supply through zoning and other land use regulations. Check the building permit numbers for new construction; they are remarkably unaffected by price changes because permission to build more units in the same spaces is almost impossible to acquire. This disconnect between housing supply and demand has been going on for half a century now, and there is no likelihood that the politics that have produced this result will change. Everyone who gets elected agrees that the environment must be protected at all marginal costs.



We are rapidly approaching the middle of August 2016, from which a 150 big S&P point decline occurred last year. The question emerges: is it bullish or bearish or random. Wyckoff liked to concentrated on memorable holidays in his trading and had ambiguous theories about its continuation or reversal as do most voodoists. I looked at all occasions when the market declined 150 points in the corresponding 20 trading days of the previous year and found 59 of them since 1999. The average move in the next 7 days is 11 big S&P points versus a normal expectation of drift of 1 with a standard deviation of 28.



One would think that with all the benefits of flossing, and the difficulty of doing it manually, someone would invent relatively easy a mechanical flosser with a small electric motor that could be guided smartly to the gums and bacteria. Hardly any innovations have been made in tooth cleaning at home since Singleton's Teledyne bought water pik in 1967.



Reading about the birth of cities, it is clear that a strong and productive agriculture was necessary to support the cost of heating, transporting, and feeding the urban craftsman and infrastructure. Cities had to grow near productive agriculture and be downstream where the cost of transportation was low. One wonders if there is a relation between the grain price versus the manufactured good price that is predictive today. In the old days manufactured goods used to cost 100 times the cost of agricultural good, like cloth versus wheat. If the ratios get out of whack today, are there predictive moves? This is a good start: "The Global Pattern of Urbanization and Economic Growth: Evidence from the Last Three Decades"

anonymous adds:

This economic phenomenon is why many towns in Europe emerged in the middle ages as communities which grew up in proximity, often surrounding, Benedictine Abbeys, and why St. Benedict is the patron saint of Europe. The monasteries, which excelled in agriculture and the production of byproducts like cheese and alcohol, offered hospitality, and medical care to travelers, because in that Catholic spirituality, anyone in need who knocks on the door is treated as if they were Jesus Christ, because they might well be, and in any case that is how he promised we would be judged at the end of time. (c.f. Gospel According to St. Matthew, xxv. 31-46) The monasteries were walled to provide save haven from bandits and barbarians.

Jeff Watson writes: 

I don't think you are asking the right questions, but then again I never seem to ask the right ones either. I've pondered this same question for 30+ years, and found that any solution is way above my pay grade. For the past 125 years, real grain and real manufacturing prices have been racing to the bottom, and the race isn't over and probably won't be for awhile. Maybe when they both finally hit bottom, we'll find a good ratio, but until then one should study other factors like world supply, demand, yields, weather, exports, country movement, dollar value, etc. Maybe I'm overlooking something that's outside the box, and should pay the price for missing the mark, but again, I don't know. Playing the grain markets is the same as beating your head against an ancient master of the game of Go who's holding a tree stump in the way of your head. Grains are a very tough game, the toughest game there is. Despite the fact that many outsiders seem to think how slow the grains seem to move vis a vis the currencies, ES, bonds etc, the grains are designed to extract the maximum money possible out of the outsiders. Grains to the outsiders look easy, seductive, and that's the beauty of the game/con….they're like a carny game that look so easy. Jadwin won the game……until he didn't.

Allen Gillespie writes: 

I found Profitable Grain Trading by Ainsworth a good economic text with some forward thinking on his Dow Theory of Grain Trading.



A typical " objective" report by the wire service used by all media:

"A Tale of Two Conventions: As GOP Nominates a Dangerous Lunatic, Democrats Reaffirm Commitment to Diverse America" by Greg Sargent, July 29 (Washington Post)

anonymous writes: 

Time for the Pauline Kael quote:

"I live in a rather special world. I only know one person who voted for Nixon. Where they are I don't know. They're outside my ken. But sometimes when I'm in a theater I can feel them."

Mr. Sargent has the same broad circle of acquaintances, and he shares the same dim sense that there may be somebody out there who does not read Salon but is still allowed to vote.

Oh, the horror.



 With all its faults was the pit system better than the hft system we have now for the public? A vial of vipers compared to flexions galore?

Gary Phillips writes: 

There are many analogies between the pit and hft i.e., spoofing, front running, etc. However, on the floor, when liquidity was pulled (locals simply put their hands down) traders were still under pressure to make markets in order to maintain quid pro quo relationships with the order fillers they depended on a daily basis. Flash crashes appear to be the direct result of hfts.

anonymous writes: 

Talking strictly flash crashes for a moment: they're ignited by HFT front-running, and then perpetuated by their shut-ins. We know they only provide liquidity when not required.

anonymous replies: 

Sure. HFTs kicked off an arms race that added billions to cost of entering or maintaining a business of trading. And the outsiders will always remain cannon meat.

Then again, in the culture perpetually searching out a greater fool, anything and everything can be inflated ad infinitum, and thus maybe everyone can win?



 There is a game called Logic Links where the object is to put colored chips onto rectangular or circular grids based on clues like "the green chip is not next to the red".

It brings to mind the colored chart of bond stock co-movements that doc has been putting up for the past 3-5 years.

The object of the games seems similar.

I would recommend the game for all your kids, and as an antidote to excessive barbeque as one ages.



Will someone tell Shiller and his followers that p/e's must be considered relative to interested rates. The value of an annuity growing at g is 1 + g /(1 +i) times a factor or two.

Ralph Vince writes: 

Thank you. Anyone who doesn't accept this isn't in the present moment, which is the most inflective moment in finance in my lifetime so far, and few moments in history with more opportunity and peril.

Interest rates are where they are on the planet because there is cash in such ample supply no one is willing to pay a damn thing for it.

Sitting on it, not exposing it to risk, is to expose it certain loss.

Anyone getting their mailboxes stuffed with all kinds of institutions begging them to borrow money?

This money must find propositions of some degree of risk, or it loses with certainty, every equity, every damn wigwam out there, everything is starting to shake and we've never been in a situation where a FACTOR of cash, a FACTOR that is measured in significant digits, is coming downstream.

Alex Castaldo interjects:

Excuse me but… If we receive one dollar a year from now, (1+g) dollars 2 years from now, (1+g)^2 the next year and so forth… and we discount at the rate i, then the present value of this growing annuity is  (1+i)/(i-g)



As all flexions, agrarian reformers, and cb's want the Cattle Trader to win, the idea that 'things are terrible and horrible' of the Real Estate Candidate is very good for stocks as the former will wish to cushion the Cattle Trader's victory.



 Salt in Their Veins by Charles Wing is an inspiring book consisting of interviews with the ingenious, hardworking coastal Mainers from Portland to Eastport by Wing, a professor who wrote 7 books while living on a boat for 8 years. There are chapters about 4 boat builders, 3 restauraters, 7 fisherman of all sorts from local lobsterman to deep sea swordfisherman, a wharfinger, a docker, 3 businessman, 2 artists, 2 fish store operators, a teacher, 2 racers, and a mechanic.

All of those interviewed have been living in Maine for many generations, and have a work ethic second to none that I have encountered.

They are drawn together by a love of the ocean, jacks of all trades, flexibility, a loathing for those who are from away from Maine, and those who rely on anything other than their own hard work and self reliance. Maine has more millionaires per capita than any other state, and perhaps the least migration in and out of any state.

After reading the book, you want to tip your hat to many geniuses you meet with. Typical of these are a self taught mechanic who builds submarines and planes without plans, a businessman who runs Bath Iron Works with 10,000 employees and builds the best boats in the world, there are master boat builders in wood, and fiberglass, there are racers who routinely cross the Atlantic in sail boats in 30 days 3 or 4 times a year.

 The social structure of the inland Maine community is unlike anything you might meet with anywhere else. The kids never move out of the town they were raised in, there is no theft, the center of town is the fish store, or the post office. Half the population is related to each other, promiscuity and drinking a la Peyton place is rampant especially in the winter. And above all, there is loathing for those from away, even after 90 years, if you weren't born there you're not one of them.

Almost all those interviewed had their boats overturned in 40 degree water and survived in one way or another even without knowing how to swim. I found the preparations for these accidents and coolness in the face of imminent death, quite edifying in my own business. One can't compliment the author Charlie Wing, enough. He's the kind of person you would like to meet and sit on a log with and learn from. Every chapter has home grown wisdom form him, that inspires those he interviews to elicit the inner working of their lives.

I loved the book, couldn't put it down, and recommend it heartily. I have an enforced vacation planned at Vinyl Haven in a few weeks, and will keep my ears open while there to learn about life from the locals.

A typical Maine anecdote: Martha Stewart comes to Bar Harbor and of course her cell phone doesn't work, as is typical of most of the Maine coast. There's a line at the pay phone. She cuts in. "I have to make a very important call involving millions of dollars." An elderly gentleman says that "in Maine we all wait our turn no matter how important we are". She says, "Don't you know who I am. I'm Martha Stewart". He says, "Yes I know, I'm John Rockefeller". (He donated Acadia National Park to the state).



Here's a little on Bill Haggett but you have to read the book to see his amazing accomplishments and humility.

"Pineland Farms Inc. Tops $100 Million with William Haggett at the Helm"



 As Tim Sample says in one of the most astute interviews I've read on the subject of "is this a true story?":

"The story is from the oral tradition. It's been around for 200 years. That story is more true than any of the facts that went into its constructions. It has had the stamp and approval of successive generations. It's been passed on as a living document of the values of all the people it passed through. This is resonating and living like a true song. It is a truth about who we are, and it reflects and amplifies and educates along the way".

I am reminded of my story about how Grandpa Martin often traded in the penny exchanges with Jesse Livermore. Often they'd go up to Scott Joplin's brother afterwards to meet the girls and perhaps take them on Jesse's yacht. It should be true.



As much as one admires Zweig, especially since the dad was from Brighton Beach and the grandmothers used to talk about the grand kids, it would be good to test whether advancing volume versus declining volume ratio of 8 or 9 to 1 is bullish or bearish. Theil had a nice article on this circa 1964 in the Journal of Business using information theorem– a nice introduction to same– and the Doc and I have tested it in the subsequent 52 years which might be even more relevant. Whenever you have a hypothesis of importance, always ask yourself, "have you tested that?".



Say that you have a yearly goal of 40% and you achieved in 7 months, or that you have a monthly goal of 10% and you achieved it in 11 days. Do you stop trading at this point? Or do you continue trading thinking the luck is on your side at the moment? Or do you adjust your goal and continue trading with the new goal?

Cheers, Leo

Victor Niederhoffer writes: 

The market will sometimes go much below your goal and to even things out you have to make as much as you can above your goal. Furthermore, the market doesn't care whether you've achieved your goal or not, it will always go its own way, and if you can make a profit on an expected future value basis, you should go for it. Luck is random, but the skill will persist. Apparently you or a colleague has it. Don't throw it out.

Andrew Goodwin writes: 

Your answer may rest in the structure of your money management operation. If it is a hedge fund structure, then heed the following points made in a post on the hedgefundlawblog.com. If you get behind you must know how you will deal with the moral hazard. Since you are ahead greatly, then your incentive is to take the money unless you know with some certainty that you cannot fall below a high watermark and will likely increase your gains.

1) The management fee, over time, usually does not generate enough income to operate and the profitable traders expect bonuses even when the overall fund loses.

2) The winning traders will leave to other firms or will start their own if there is no performance fee gathered to pay them.

3) If fund performance goes negative then high watermark provisions normally go into action. This can lead the manager to swing for the fences or simply close shop.

4) The wind down of the fund can deplete the investor assets and lead to general price markdowns of holdings especially if others had similar strategies and exposure.

5) The fleeing investors will enter into a new fund with a new high watermark and start the process over again.

Here is where the game gets interesting. The author suggests creating exotic option outcome provisions that he calls "Modified High Watermark."

These include A) Reset to zero under certain circumstances. B) Amortize the losses over a period so that the manager can still earn some incentive fee. C) Create a rolling period for the high watermark so that after a time the mark level drops.

His modified high watermark solutions might keep the manager from swinging when the performance fee looks too distant and might keep genuinely unlucky managers around until their skill manifests itself in due course.

Nigel Davies writes: 

There's a case for reducing leverage as one's account size increases so as to reduce the 'risk of ruin', and for some this might be done in a very systematic way. Another question is if there's a point at which one's financial goals have been achieved, especially if one's dreams lie elsewhere. 

Bill Rafter writes: 

You did not specify if your annual goal of 40 percent is based on analysis that suggests a 40 percent return is the mean or maximum. Let me assume that the 40 percent is the maximum annual gain you have ever achieved, if only as an academic exercise. Thus the 40 percent is your quitting point based on perfect knowledge of a particular system.

How frequently have you been calculating your forecasts (or inherently, your position choices?) As was learned from the Cassandra Scenario, "that more-frequent forecasting is inherently profitable, even more so than some forms of perfect knowledge." So:

(1) If 40 percent is your mean annual gain, then continue to trade at the higher level. That is, if you started at 1000 and now have 1400, continue to trade the 1400. Obviously it would also be good to shorten your forecasting period. (2) If 40 percent is your maximum expected gain, then pocket the 400 and start over trading with 1000. Shortening the forecasting period is not a given in this case.

Phil McDonnell adds: 

Let us assume the market has a normal distribution of returns and that the probability of making a 40% return or better, at random is 15%. Then if you decide to take all profits at the 40% level then your probability of a 40% gain will double to 30%. This result follows directly from the Reflection Principle.

The above assumes that your returns are random and implicitly assumes that you have no ability to predict the market. To the extent that you can predict then you should make your decision on your current outlook and not on any arbitrary price point like 40%.

Gibbons Burke comments: 

It seems to me that one should be disposed to let the markets give you as much as it wants to give you without putting artificial limits on that phenomenon, but that practical limits should be enforced on how much lucre it can remove from your wallet. Is more return ever a bad thing, assuming that the distribution of returns is not serially correlated? As our gracious host has noted, the markets have no idea how much money you have made or lost, so the idea of reversion to the mean on an equity curve makes no sense in the same way that it makes sense for market prices which are making repeated excursions up and down seeking the implicit underlying value of the thing (the ever-changing "mean" to which the market is always reverting.)

So, setting a goal to achieve a 40% return seems a reasonable thing to do, but I submit that this goal should be accompanied by the qualifier "or more" and be willing to let a good thing continue.

Regarding the 'limiting losses' idea, in the Market Wizards interview with Jack Schwager, Paul Tudor Jones admitted to having risk control circuit breakers in place so that if he ever lost more than x% in a month he would shut down trading for the remainder of that month. Limiting and rationing losses in ways such as this seem like a reasonable discipline if one is going to set limits on how the market will affect your stake.

An old floor trader's trick I learned while reporting on the futures pits is that if a trader enjoys a windfall gain on a trade, and reaches a pre-figured goal (or more), he takes half the position off the table as a positive reward for being right and taking action on that conviction. Leave the rest of the position on to collect any further gain which the market might want to provide, but he raises the stop to break-even for the remaining position (not counting the profits already taken off the table) in order that a winner would not then turn into a loss. If he stop get hit, he still has half of a windfall gain return in the bank. If the market continues in a favorable move and another windfall gain is realized, the process can be repeated.

This tactic has an anti-martingale character which some more bold traders might object to.

All these thoughts are mostly elaborations on the first two fundamental rules of trading: 1) let your winners ride, 2) cut losses.

Stefan Martinek comments: 

This loss avoiding behavior was well researched by Paul Willman and others. It is observed within traders of all levels approaching a bonus target; cutting off is generally viewed as irrational and Willman discusses how to adjust incentives to get a trader back to risk neutrality. Which reminds me more general but relevant quote from W. Eckhardt: "Since most small to moderate profits tend to vanish, the market teaches you to cash them in before they get away.

Since the market spends more time in consolidations than in trends, it teaches you to buy dips andsell rallies. Since the market trades through the same prices again and again and seems, if only you wait long enough, to return to prices it has visited before, it teaches you to hold on to bad trades. The market likes to lull you into the false security of high success rate techniques, which often lose disastrously in the long run.

The general idea is that what works most of the time is nearly the opposite of what works in the long run.



"The emotional arcs of stories are dominated by six basic shapes"

Kurt Vonnegut on the Shapes of Stories

Victor Niederhoffer writes:

And what would a comparable study of market stories show, and can we learn anything from literature.

Bo Keely comments: 

If you can ascertain the personality of the market then you will know its emotions and therefore its shapes. Start with the personality of the market if that isn't too far a stretch of anthropomorphism. Likewise every story has a shape. I prefer the inverted pyramid from newspaper reporting, but my mentor Art shay taught the arc of the home run to shape a story. 



Allen Gillespie has delivered a shocking rich tapestry of ideas for profit and research that overwhelms the senses. I studied many of these things 50 years ago and wish I had the expertise to follow up on them. The Confederate paper is particularly interesting and brings to mind what one is often told that the price of stocks on the French Stock Exchange during the Guillotine area kept rising apace. Laurel and I had the pleasure of meeting Mr. Gillespie when he was a budding momentum buyer of growth stocks and recognized him as an extraordinary talent. His growth in many areas is most pleasant to memorialize and note as one of the shining memories of a not entirely nondescript career.

Allen Gillespie writes: 

For what it is worth, tonight's bond retest of the high looks like a classic rest of a high after a momentum break and in equities, many crashes end when the YTD performance goes negative. People hate giving up their year. 

Counterparty Risk was what drove a lot of the de-risking in 2008. Since that time the Fed have made banks hold increasing amounts of capital in "safe" assets (aka government bonds). In announcing that everyone passed the stress test and releasing capital for buybacks and dividends, the bond market has sold off. We already discussed the end of central bank buying but if counterparty risk is deemed to have declined - then the sell-off in safe non-earning assets might have a ways to run.



One believes that the tremendous computers at the high priority broker are not set up to liquidate options positions on spiders or options that don't trade till 9:30. This could create a shocking move. On the 8/24/2015 weekend there was a rally from 4 am to 5 am or so before going limit down when the liquidation at 9:30 started. From there it was straight up until the close.

anonymous writes:

​It's a bit too coincidental how many market moving events occur when the US stock exchanges are closed. With all now being electronic, computer-driven, every market could easily trade 24/7, and I wish they would.​

Anatoly Veltman writes: 

Gold up 100 is your sure indicator of big reversals coming in this session.

Allen Gillespie writes: 

Many futures brokers double the margins, so I would think the moves might equal 2x the size of the doubled margin requirements which for most works out to 8-9k per contract. So a 2sd move on the doubled margins just to knock everyone out.

Victor Niederhoffer replies: 

But then the poor public must have maintenance margin of 6000 after the initial move so 80 points is enough to put them well below maintenance.

Allen Gillespie writes: 

Event odds? Does anyone have or know where to get the monthly data for the UK? Specifically, I am interested in the 1931 period around the the British Exit from the gold standard. My working thesis is the Brexit is a similar exit, which I know qualitatively was a 24% currency move and close to the equity lows. I also know the UK lead 21 others ot break from gold with the US finally doing so fourteen months later.  Yesterday, in gold terms, UK shares moved most of that distance but not fully but I believe UK shares might be leading others but it all needs to be currency adjusted. They led on QE and now they will lead on fiscal policy changes.



Can events be classified into those that have a certain date, but are uncertain in magnitude as opposed to those that come out of blue sky and are uncertain in both magnitude and time? Is there a difference in the market reaction? At a more general level, how many qualitative events such as Brexit have come down the pike to create terrible fear in the market and is this bullish or bearish? And for what time?

Allen Gillespie writes: 

This question is near and dear to my research efforts. If any one is interested in discussing further I have been attempting to get DARPA to reconsider the question as they shut down their program after 9/11 [DarpaPAM ] and instead choose to record all information and to what effect? I have attached a few items on the question.

Biotechs would be in the first class of events given the known timing certainty of FDA events and ability to estimate markets for drugs, pricing, distribution, etc.  Political events to a degree fall in the second - though there may be some momentum towards the event and ability to contingency plan but the time and magnitude of the event may be unknown and the pressures building. Also, political events and calculus are different than market events in that control is the key independent of price (think old school corners, like the Northern Pacific, or strategic petroleum reserves for the US and CHINA in 2008).

Historically, whether an event is bullish or bearish depends on the positioning in relation to the object in question. For example, it would be a negative squeeze if a key commodity (i.e. wheat prices prior to Arab Spring or Oil in the US prior to recession) one imports rises quickly in price and bullish if it falls quickly in price. 

All I known is that defense stocks had momentum before 9/11. Gold has momentum now, however, momentum tends to have a reversal pattern from Mid April thru the third week of august before a re-acceleration. Momentum also tends to turn around calendar points particularly if there are legitimate season patterns or tax effects (for example Jan 1 in the US).

The central banks say you can't recognize bubble but in my experience you can recognize a bubble the following way - when leverage continues to increase and price accelerates despite rising interest rates and future returns are negative - then there is a good chance there is a bubble - I think German Bunds futures reached that point as there are only three reasons to own negative interest rate bonds.
1) You have to [e.g. German life insurance companies]

2) You are so scared as to the future you assume your loss is less than on something else.

3) You believe Central Banks can maintain their corner on the market.

The Euro is Europe's gold standard and has choked many countries. Britain was the first to leave gold in 1931 - so as least some magnitude estimates can be developed as well as an outline of subsequent events. The central planners would hate for Britain to spread freedom once again around the globe and let it be known that markets set prices better than planners. 

After 9/11 it took the market about 3 months to reprice stocks like INVN when it correctly opened the stock around $9 from $3 ran it to $50 by year end which was the cash value GE ultimately bought the stock for year later.

The Japanese and Fed broke the bond corner last week.

Stefan Jovanovich writes: 

A minor historical correction. Britain left the gold exchange standard in 1931; it left the gold standard in 1914, as did all other countries in Europe, when their citizens and foreigners both lost all rights to convert bank notes into coin. The U.S. took a slightly different path, first shutting out stock and bond holders from any exchange rights by closing the NYSE for 6 months and then by allowing exporters to have the Federal Reserve guarantee their customers' IOUs to be as good as gold.  Since all modern academic histories are written with the standard Bernanke assumption that money and its legal tender definitions (and their changes) have no economic effects, nothing written on this subject after 1940 has any relation to reality.



This is a beautiful rendition of how the public feels when flexions ply their trade.



 What is the reference to the famous cricket match where a bowler was up for the last pitch and bunted the ball. They protested "this isn't cricketlike" thereby insuring the win?

Rocky Humbert responds: 

From the preamble of the Rules of Cricket:

"Cricket is a game that owes much of its unique appeal to the fact that it should be played not only within its Laws but also within the Spirit of the Game. Any action which is seen to abuse this spirit causes injury to the game itself. The major responsibility for ensuring the spirit of fair play rests with the captains."

I find Vic's reference somewhat amusing as I daresay that Ayn Rand might find the rules of cricket an antithesis to the notion of unchecked self-interest. Too, I wonder how differently the world would look today if finance (and other industry) participants cared about the protecting the "spirit of the game."

Kora Reddy writes: 

At the other end of the spectrum there is Mr. Walsh. I haven't watched chappels incident on tv live, but this 1987 world cup moment is still fresh in my mind almost 30 years later.



 I needed a hook to start in business in 1962.

Perhaps an audited record of market predictions would help.

I enlisted Laventhal and Horwath to audit the predictions.

They were 70% accurate over a 3 year period but they weren't useful at all because there was no futures and they didn't take account of the Fisher Effect.

Many stocks only traded at the open the next day.

But a Hungarian Palindrome found out about the predictions and we started a 10 year partnership.

We played a lot of tennis and chess.

And my kids really enjoyed staying at his Hampton estate in the summers.

But the palindrome was always bearish and he hated free enterprise and speculation.

I was the opposite.

He severed his connection with me in 2008.

The last words he said to me were, "you are going to lose everything when the market goes down but just turn your positions over to me when it happens."

While we were working together a backgammon player introduced me to options.

I saw a big anomaly.

The vol of the out of the money puts was much higher than in the money puts.

What I didn't realize and what I believe no one else realized was the margin rules were such that those who were long the puts held all the marbles.

Among other things, they established the rules and the margins.

A very astute banker once told me whenever a relative asks him for a loan he always gives half and says "That way we'll both lose half".

I believe both players mentioned above lost at least half as well.



In all fairness, the Central bankers must really believe that it is appropriate for them to plan the economy of their country and the world. Indeed, it's in their mandate to stabilize inflation and employment. It's natural for them to try to help along those who share this view which is in the main the party in power now. So we could only believe that what I have suggested for many months now is that they will do whatever is necessary to help the cattle trader along to win, including making sure they don't raise rates right before the election, they will do out of benign purposes to prevent what they see as a Sorosian collapse of civilization from speculators and other evil people who act in their own interests.

anonymous writes: 

"Could Fed rate moves shake economy, White House bids?":

"Whether or not the Fed's actions bring consequences for the presidential candidates, there could be political ramifications for Yellen. Just ask Volcker. After he raised rates, Democratic Rep. Henry Gonzalez of Texas made his displeasure known.

"My friend Henry Gonzalez — I think for, I don't know, 400 straight days or something — at the closing of every congressional session made a speech calling for my impeachment," he said."

Note Sept 09



 It is tempting to think of the Fed and its machinations as stooges for the World State and now the cattle trader and the idea that has the world in its grip, or to think of them as robots programmed to create a backdrop for the firmament, the vast infrastructure of the market, especially the dealers in bonds.

There is a rhythm to their activities that helps the automaton to do their job. One such rhythm is the series of speeches they give, designed by a hand sometimes visible to prepare the market for their fulfillment of their activities. Another such rhythm is that 11 of the last FOMC day meeting announcement occurred 2 days before the quarterly expiration. What shadows lie in the hearts of men?

Stefan Jovanovich writes: 

The hermit and I are teaching political economy to the E*E and his friend, both of whom are smart enough not to bother with Mensa. As the hermit cracked (before he went in search of King Crab), it is the students who took an incomplete hiring the A's. The most recent chapters in the syllabus have been two "name" people who are As - one an academic (Steven Keen) and one the Milo of hedge fund managers (Kyle Bass). (The hermit insists on saving EdSpec for the final lecture - which I (non-counter, non-trader) will be barred from attending.)

We have been using Keen's lectures from his current course at Kingston and some old Bass interview videos to teach E*E and friend our tectonic theory of the credit chain, which goes like this: wars and major inventions (coal and wood fired steam power, small A/C electric motors, telegraph, etc.) are the manias that produce credit expansions. (Kindelberger et. al. have it backwards: the mania is what begins the credit bubble, not what ends it, if you properly define financial mania as the willingness to spend without any regard to immediate reward.) The vastly increased amounts of financial credit (debt issued plus equity valuations) are maintained or further expanded as the new "normal". What breaks the chain is a foreign exchange/credit earthquake. The war winners and the initial adopters of the major invention find themselves being undercut in price by the war losers and secondary adopters and things go snap. The market prices the calamity but it cannot offer any broadly successful hedge because there are no counter-parties who are themselves rich enough to be able to endure the loss of wealth. Then people pick themselves out of the rubble and the lucky and the tough and the enterprising all get to work forging a new credit chain - unless the utopians take hold of the state and abolish markets themselves (Lenin in 1918, Mussolini in 1923, etc.).

The E*E, who is a very quick study, has already come back to us with a comment along the lines of "if Kyle Bass is still so smart, how come his short sale of Japan, Inc. has failed so badly?" The hermit's answer has been "because Mr. Bass has not followed his work to its logical conclusion. Japan can do what Steve Keen wants - have a debt jubilee - and have its central bank buy every Japanese government bond that matures or is offered for sale by the institutional holders - Japan Post Bank, etc. - for yen deposits without affecting the country's exchange rate, even if Japan's current account goes into deficit. There are no large foreign holders of Japanese debt; and with the decline in Japan's exports, there will be lower and lower holdings of yen by Japan's trading partners and other central banks. There is nobody "out there" to make a run on the Japanese currency." My contribution to the discussion was another snarky comment from the bleachers: "As a Texan and the creator and owner of a successful enterprise, Mr. Bass is still an innocent abroad (Mark Twain reference - read it, his best book). At heart he still expects currency to have a fundamental exchange value that is not controlled by the government's sovereign authority. What he sees as xenophobia in Japan is something quite different: a culture's complete acceptance of money as a purely domestic commodity."

"Ok, then, when's the next financial earthquake."

"That is the Slezak question."

anonymous writes: 

Not to put words in anyone's mouths, but if markets were about rules, laws, algorithms, etc, maths and physics types would rule the world.

However they don't but promoters do.

So choose your parents well.



Vigilanted and Palindrome cronies in S. Hampton trying to force world state by shorting stocks.

Stefan Martinek writes: 


Andy Aiken writes: 

The event guaranteed to elect President Trump is a break in the U.S. Stock market that hits the better people in the 401k. The hermit says the only reason I like his counting is because I share Queen Milo's hope that the Donald will beat the hag. He may be right, but I think the recession is what will make the hermit's numerology come true. If there is one thing Trump's election will kill, it is the one world currency order.



 A non-invasive colon cancer screening has finally arrived. News Item about the Cologuard test.

What's missing in all the tests, all the double blind studies, is taking into account dynamic decision making under uncertainty. The flexions love the double blinds because it costs 500 million to do one, so you can't do a long range or preventive study, or any study outside of stage 3.

More particularly, what no one takes into account on these blood tests, is that a good one like CEA would be taken by everyone if available as an early aid to decision making.

Let's say it has a 90% true positive rate. And the incidence of the disease is 2%. That makes it about 18% you have the disease if you get the positive. All of those 18% would then take the scope. Let's say that would lead to a 25% increased survival rate. And that 100,000 people took the test. That would save 4,500 lives a year. The point is that with a 5 buck test, everyone would have the incentive to take the test compared to say 5% that take it now.



 Book bought over the weekend at the Harvard bookstore:

Dean Abbot, Applied Predictive Analytics (A layman's guide to predicting without knowing what you're doing, highlighting neural networks and Kohonen maps, which sounds like it works with individual observations and builds itself up.)

Peter Frankopan, The Silk Roads: a New History of the World (tries to explain how China and Islam were way ahead of us)

Lewis Lockwood, Beethoven Symphonies   no musical notation within but artistic words about each

Robert Bruce Thompson, Illustrated Guide to Home Chemistry Experiments (a substitute for a high school lab).

Great American Stories, a CD of which there are only 10 or 20 in most stores now. Apparently CDs are as much out of style as cassettes these days (Mark Twain, Stephen Cane, Bierce, London) anything is better than the public radio hateful stories about American humor and failings)

 Ben Applebaum, Recess (from dodgeball to double dutch. Modern with tips. Gives strategy but not as good as the commentary reference in edspec.)

John Hands, Cosmosapiens: Human Evolution from the Origin Cosmology in the spirit of Thomas Kuhn. Very little Darwin.

Chris Woodford, Atoms Under the Floorboard Tries to show the physics of houses, but leaves more questions unanswered than it solves. But good non quant ideas on length versus width.

Henry Petroski, The Road Taken a good supplement to Hayes Matthew

Monk, Minecraft Mastery (something for Aubrey)

James Traub, John Quincy Adams (a worthy president and great lawyer, I think)

Christoph Woff, Johann Sebastian Bach. Always good to know more about Bach's personality, duels, finances, and music.

While I'm at it, I like to read some books that will extend my knowledge of what I do every day

Yvonne Bishop et al, Discrete Multivariate Analysis How to use logarithms to do categorical analysis.

 Deshpande, Statistical Analysis of Nonnormal Data, an Indian book with many elementary rank tests explained.

Jan Swafford, Beethoven: Anguish and Triumph The best book on B that I have read. Scintillating. Gives all his fights with his patrons including the time he walked out of the house of Prince Lichnofsky because he asked him to play for the French, thereby losing half his income. It's so good that Laurel refuses to give it back to me when I loaned it to her, and I bought it from the same book store I originally bought it from at the same shelf from 2 years ago.

One is reminded that Beethoven liked to walk in the Vienna Woods every day. And as he walked he sang like a madman and gestured because he couldn't hear. He met some school children on his morning walk, and they ran away screaming thinking he was a madman. Then on the kids' way back from school, they met him again, and ran away again.

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