Sep

22

A good indicator of an over-valued, or at least fully valued, market: "Insider Buying Dries Up Defying $275 Billion of Buybacks"

On the other hand, if prices are high, why not sit on the cash until they come in a bit? Are insiders not buying in a risk diversification move?

Gordon Haave:

One wonders if insiders are really immune to errors that individual investors make. Individual investors see their neighbors portfolios going up and wish they had owned more stocks and then jump in. In the case of insiders they actually see other directors/executives making a fortune from owning shares. I would have to think that the psychological pressure of "missing out" would be even greater that that of the average guy.

Sep

17

Interesting study, though the numbers are small.

"Study Says People Smell if Someone Has the Same Political Beliefs as Them"

Scott Brooks writes: 

You can also tell a lot about people from the shoes they wear, their clothes, the kind of car they drive, and how many bumper stickers they have on their car. 

Sep

3

 I'm in Chicago for a few days to attend to some personal business matters. I'm sitting in hotel lobby when a part of three very loud men sit down at the table next to mine and began to discuss the previous evening's Chisox game. I couldn't care less about the Chisox, mind you. Not my team. But when one of the three fellows observed that "Baltimore is just having a lucky year," I calmly looked over at the fellow and asked, "A lucky year? Really? Why do you say that?"

"It has to be luck. Look at their players. There's no A-Rod there. No Jeter. They're over-performing. It's just luck." "You mean like last year was luck?" "Yeah, like that. Last year, Baltimore was lucky too." "Do you think Baltimore is always lucky?" "For the most part, sure. It's not in the big leagues that Chicago is. Or LA. Or New York. Or Cincinnati."

That last comment burned my ears.

"You're from Cincy?" "Yes, yes, I am. 3rd generation P&G." "So remember the days of the Big Red Machine." He smiles and responds, "Yes, yes, I do. Johnny Bench and Sparky Anderson? Yeah. Those were good times." "Do you remember the 1970 World Series?" "No, not specifically. Was there something special about it?" "The Big Red Machine was in that series." Another smile. "Yes, yes. I remember now. They were."

"Do you remember what Sparky said about that series?" "No." "Look it up. Something about dropping a paper plate and being thrown out at first." The image of Annie Savoy lecturing Nuke LaLoosh on the importance of lizard eyelids to success in baseball forms in my head. "Sparky Anderson?" "In 1970, Brooks Robinson played 3rd based while Orange Crush, the 1970s Orioles, systemically took apart the Big Red Machine." "OK. I guess Baltimore had a good 1970 season." "Y'think?" "But there's no way the Orioles can be as good as their record suggests. No way. How can they possibly win games like that without the players?" "Easy. Pitching, defense, and an 'Earl Weaver Special.'" "What's an 'Earl Weaver Special?'" I was getting up to go to a meeting and finished paying my tab. A waiter came over, smiled at me as he laughed and said to the fellow, "An 'Earl Weaver Special' is a three run dinger. I grew up by DC, and we heard about them all the time. Everyone in Maryland did." I looked at this very confused Reds fan, and said, "Buck's for real, and so are the Orioles. Orioles Magic is back. Get used to it. This is a team that's going to remind people of how the Birds flew high in the 1960s and 1970s." "But they're just not that go—" "They're for real. Get over it." At that, I got up and the waiter, clearing dishes off the table, smiled at me. I gave him a thumbs up. He laughed, and I walked off to go to my meeting.

I grant you that every team is entitled to its due. And those who know me know all too well my passion for the Birds, dating back to the time I got laryngitis as a 3 year old screaming about a Jim Gentile home run. But the reality seems to be that sports teams in Baltimore don't get much respect. The Os this year are the real deal. They don't just win. They create runs. They persevere when the pitching staff is having a bad outing. They cover for one another, and while Machado (before the injury) and Hardy aren't quite Robinson-Belanger, they're getting close. Is Brian Gaussman a Jim Palmer? Not clear yet. How about Chris Davis? Few teams could have handled having their heaviest hitter go into the swoon he did and handle it as well as the Os did this summer. And I don't mean teams just in 2014.

Aug

28

 Dearest Scotland,

In only days you can choose to cleave yourselves from our United Kingdom. We sit one of the five or six greatest nations and mightiest economic powers on this earth: wedded together in a marriage begun almost three hundred years ago. Please don't end our great union together.

As an Englishman and Welshman, I feel great love for Scotland. As a child I would travel from Liverpool to holiday in the beautiful Welsh Ogwen valley. I would be abroad but at home. I would travel to the wonderful Fort William or idyllic Skye: refreshed and energised in my own nation state. I would no more wish to see this separated than the Lake District carved out and floated off into the Irish Sea.

As in every great marriage, both man and woman take occasion to think: "Did I make the right choice? Am I better or worse in this relationship? Am I fulfilling my potential or being taken advantage of?" And it is good to take stock.

So what have we achieved in our centuries long union?

Together, did we not build the world's greatest empire, bestow it with all of our verdant statecraft and know how, then set it free?

Together, did we not fight off Napoleon, in ships commanded by the Earl of Dundonald?

Together, did we not underpin the defense of the first world war? Would you now deny our United Kingdom a great man like Field Marshal Sir Douglas Haig, who so valiantly led the British Army? At the Somme and Ypres, at Amiens and Arras, would you have us separated?

Together, did we not fight off Hitler, the greatest evil the globe has known? It was Monty and Patton versus Rommel: the three generals everyone recalls from that most vicious of wars. One third Scottish! What great debt do we owe to 1st Viscount Montgomery of Alamein? Would you deny him us?

Together, did we not pioneer industrialisation? Medicine? Enlightenment thought? Scotland is eight percent of our headcount. But in prestige, in know-how, in capability, in pride, it is so much more.

Your countrymen have led us seven times from around fifty prime ministers: a big overshoot relative to your population weight. Do not deny our United Kingdom your capability and leadership. Did you not give us James Ramsay MacDonald? A man who changed the British political landscape forever? Who set the political scene for all that was to come for the labour movement?

Mr. Darling has argued from security and risk. And he makes strong points: the currency, the volatility of oil, the curmudgeon of the European Union. But I say - of course Scotland can be great and secure alone! It is a great country! But let us be greater and more secure together.

As with a marriage, one partner makes complaint and the other responds "we've got it great, why are you carping?" But that is not the right response. They want to hear "I love you, I need you." Scotland, we love you. We need you.

Mr. Salmond talks about NHS privatisation, about Trident, about the Bedroom tax. These are important issues. But they are issues of today, not tomorrow. They can be solved and soon. The decision of independence is forever. It is binding. We have not yet had our great generational challenge. Our World War One. Our World War Two. It is yet to come. But it will. Would you have us face it apart?

Our biggest trial so far has been the financial crisis. We have come through it together arm in arm.

The Royal Bank of Scotland: Fred Godwin's bank. Its equity was almost wiped out and stood vast relative to your GDP. Its assets were at great risk: they dwarfed Scotland's GDP. But we got through it, together.

Why was the Old Lady of Threadneedle trusted throughout the world during the crisis? Because of her centuries long history as a great central bank. Her name respected because of all of our collective credit and productivity. Without Scotland, without your prudence, she is less. Without Scotland, our United Kingdom is less.

But you ask: is Scotland just mistreated property? Can't she get on better alone? Just like a marriage, sometimes you crave freedom to forget all ties and run. But just like a marriage, we can discuss and negotiate. Do you want more devolved powers? Let us devolve more powers. Do you want more freedom and leeway? We can give you that. We can perfect our marriage over time. But like a marriage, each obeys certain restrictions for the mutual good and insurance of all.

And in this decision, let us not discount Mr. Salmond's vanity. He wishes to go down in history as the man who brought Scotland glorious and independent. He wants to make his personal history by tearing up our great communal history. Scotland is already glorious, is already independent. But she is also part of our great union!

Mr. Salmond gave us his final question, what he says it all comes down to: "who decides?" for Scotland.

When the UK negotiated the great post war settlement at Versailles, Scotland was there, deciding. Alone, her voice would be quieted.

When the United Nations Security council was formed from the top five powers on earth, Scotland was named to it. Alone, her voice would be excluded.

When the UK joined with the USA to stymie and defend against communism and the cold war, Scotland was there, deciding. Alone, she would be muted.

In a world where the USA is dominant, the BRICS are growing, where the international scene is as complex as ever, would you cut Scotland from its might within the UN, the IMF, the World Bank? At peace and at defense?

Stay with us Scotland. For you are a great nation. But together, we are one of the very greatest of all!

David Lillienfeld replies: 

A very nice love letter. Please permit me to play devil's advocate for a moment (I have no interest in the outcome of the vote, seeing merits in both sides' arguments).

Dearest England,

I do so appreciate your most recent missive. I cried throughout my reading of it with those sweet memories of days past, when the future seemed boundless. Then my German mother noted that one needs to keep one's head at such times and be frugal and focused on what is best for oneself. I had to keep reminding myself of her comments while reading your wistful note.

You list our accomplishments in the past. They have indeed been great. But, dear England, let's be honest. They are in our past. We are no longer spring chickens, you and I.

But now I find myself the scolded, battered spouse. You've taken my dowry and spent it, and on what?! Estates in and around London. Military adventures in parts of the world in which we had no business. At least you had the good sense not to arm your police.

And those wonderful vacation homes in America. You did a fine job of ruining that effort. All I asked was that you build the house there. Maybe a modest estate, even. That's all. Nice and simple. But no, first you insist on taking those nice people in Africa and take them to work on the estate. They didn't want to be there, but you insisted. Then you bullied France. She was so much fun before you did that to her. You know I've a sucker for French accents, dear. But no, you said, I have to make that estate pay for itself, so you had to tax, tax, tax the hired help. Haven't you learned yet that exacting money from people at gunpoint, even if it is legal, is hardly endearing? Oh, England, when will you ever learn. You manage to mess up so much once you've succeeded with your plan. We were poor once, and you managed to beat the Dutch and the Spanish at their own game. And you looked so regal in doing so. I was so proud of you, dear England, so proud. So now we're left with that island in the Atlantic and its gaudy pink beaches and those shorts which men have the temerity to show off their legs. Well, I never!

At least you had the good sense to send those felons off to that island down under. That was one of your inspired moves—something you haven't had in a while. You left them to fend for themselves, and see? They created a nation all by themselves.

And that empire of yours—the one where the sun never sets. I didn't want an empire, some of us like the night. We used to have so a good time after the sun had set, before you filled ever hour of the day thinking about that damned empire of yours!. You had to send me our son, the one who had nothing more worthwhile than issuing a new version of the Bible, to get me to stay in the family, and I went along with it despite my better instincts. United would be stronger, you said. For a while, you were right. But I caught on to your ways, England. You couldn't even decide what your religion would be at first. When you finally did decide, it wasn't mine. And my favorite clothing—those kilts, my favorite instrument—the bag pipes. You've always pretended to like them. And when I celebrate cultural achievements, where are you? Sunning yourself in Spain. You know I'm too fair for that—I'd burn if I did that. Do you drink any of my libations? I spend so much effort and wait years before it's ready to drink. No, you go for the port. Edinburgh now feels so unwanted when you do that. "Scotch on the rocks" to you means taking some of my best creations and putting him or her in that tower of yours down in London. Really, dear, what were you thinking? That I would welcome such treatments? And that gin you favor. Your people had so much of it that you created a set of laws just to control the drinking. A lot of good that did you. They just switched to beer instead! Not something I made, but beer. Honey, if you wanted beer, you should have married Germany. Mother was right, you are incorrigible.

Now let's go back to my dowry. That oil. You can't seem to keep your hands away from it. I keep telling you not to push, but you do. I wouldn't mind if you spent some of it on me, but like I said, England, you've wasted it. The that gambling on Persia pay off? I grant you that it did for a while, but once again, you managed to make a mess out of success.

And if I so much as mention any of this to you during those few occasions you let me talk, there's little I get besides a slap. So now I sit in my lawyer's office, working on the divorce papers. I'll serve you with them just as soon as I can. You know, England, I went to the bank yesterday, and they told me that you had assumed the mortgage, but you cut off my credit line. And my access to the checking account!. Did you think I wouldn't notice? Do you think this is a way to tell me that you again want to waltz with me through those omnipresent formal gardens of yours. Haven't you realized I have an allergy to roses. If you hadn't taken my wealth all the time, I could have afforded the allergy shots at the doctor's office. No, you said, better to spend on some fast aircraft that no one could afford to fly. I know, you said that getting the French involved would help matters. Well, dearie, did it? Not much.

Well, England, I could go on and on. That nasty man Marx for instance. Not Groucho. He was American. No dear, I mean Karl. He wasn't funny at all. Don't you realize how many people died because of his drivel.

You'll be hearing from my attorneys, Dodson and Fogg, soon enough. And they've warned me that you'll try to drag this out so long that no one will remember what the case is about. England, you better set yourself in because I'll remember.

It's time for a divorce, England, time for me to salvage what remains of my dowry, time to get the bankers to look at me and realize that I have wealth, too, time for you and the rest of the world to see me for what I am—proud, able, with lots of resources and a rich heritage.

Good-bye England my my love. Maybe next time, you can get that bard of yours—yes, Shakespeare—to talk about Scotland some time rather than England all the time. And get it straight, dear. No sex is because you're English. Did you hear me English. It's you, not me. It never was me. So say "No sex please, we're English." You'll have to speak to Foot and Marriott, but given the result you got from Shakespeare—after you promised you'd speak with him about that line of his you know I can't stand, nothing changed. I wasn't the problem England. I never was. You always did have problems raising your flags. especially when we in my castles and not yours. You said you could change, learn, be better. Well, how much does it take to raise a flat! And then your promises to change? That's the problem England, there's never any change outside of appearances. Even haggis. You kept telling me I made a great dish, and you kept drinking that infernal gin of yours to wash it down.

So England, I'm sure you'll come out on top some how. You always do.

As for me, I need to see my lawyers. They keep telling me I have quite a case. And they keep suggesting something going on between you and America. They call it a "special relationship." Really, England, how could you? It will all come out in court in due time.

Just realize England, we're done, au revoir, and all that. Maybe you can get America to take it, but won't. Not anymore. I need to finish this letter right now any way, before my haggis overcooks. I have to eat lunch before going to the tailor. He's made me a whole set of clothes using Harris Tweed to wear just for our divorce case. Assuming you decide to make it a public affair. For your sake, England, I hope you come to your senses and realize that it's over. It will be so much easier for you to let go.

Yours,

Scotland

Aug

14

 Isn't this how the US began in Vietnam, as I recall it (Stefan, please correct me on that one if I'm off base)?

"Militants’ Siege on Mountain in Iraq Is Over, Pentagon Says"

Stefan Jovanovich replies: 

Bless you, David, you are not off base; you are not even playing the same sport. The American attempt at "guns and butter" in Southeast Asia involved the last mass conscription among Western nations and outright expenditures on the war itself (not counting the other military efforts for the Cold War) that were a larger percentage of GDP than the entire Defense Department budget, with all its social spending, is now. "Viet-Nam" was the last war of mass armies in what will be seen in retrospect as the age of Napoleonic state militaries (the French, as with so many things, started it, the Prussians, Russians, Holy Roman Empire (Italy, Austria) followed and the British and Americans came in last and made the final industrial improvements.)

We are back in the age of small wars - tactical encounters between professional soldiers (Hamas and ISIS are no more a bunch of amateurs than the Barbary pirates were; this is their trade). If you want to see things in their proper light, look to the campaigns for which Vauban built all those fortresses; there are no proper comparisons to be found with any of the large wars in past American history. This is going to be an age of extraordinary gains in technology just like those of the 18th century before the French revolution - i.e. the French making the first systematic application of mathematics to warfare by inventing ballistic science. The fighting is going to be expensive but nowhere near as economically ruinous as the the mass wars were. It is also going to be equally bloodless - at least for the Westerners.

Aug

12

 There's lots of PE money going to Europe. Given the continent wide slowdown, I have to ask: why?

Tim Melvin writes:

There is a ton of PE and distressed money moving into Europe to buy bank assets and southern Europe. RE, KKR, Apollo, Baupost WL Ross and others have moved in a big way this year. The fund manager survey does not track this more patient (and probably smarter) money at all. Basically the PE and distressed guys are buying what the classic asset managers ares selling. Guess whose side I'm on?

anonymous writes:

On the macro level the fact that Germany is slowing is a major source of concern for the European economy, and the experiment in the single currency. Considering the Asian export market slowdown, persistence uncertainty in the Ukraine and ME it is unlikely German will have a meaningful pick up in 2014. German was supposed to be the main source of growth of Europe as the rest of Europe tightens budgets and deals with domestic crunch. The growing debt levels in the periphery, persistent weak growth, disinflationary forces, social and political discontent cannot portend well for the future.

The Italian government bond market is the 3rd largest in the world and they can borrow at roughly the same level as the US. Since 2010 public debt has gone from 120% of GDP to 135% and over the past 10 years GDP has been barely above .3%.

There is value in many of these assets being liquidated by banks and asset managers but expect the ECB to remain easy and the currency to make much of the adjustment necessary balance the macro picture.

Milton Friedman said:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it's hard to believe that it's going to be a stable system for a long time. … If we look back at recent history, they've tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn't in on the euro. It's only a year old. Give it time to develop its troubles.

Boris Simonder writes: 

Interesting quote by MF. That must be a very old one judging by his comment. Fourteen and half years later the Euro is alive and kicking, in fact, well beyond of what any skeptic would believe given recent years.

John Floyd adds: 

The quote was from 2000, alive and kicking is relative, the euro straight jacket has done no favors to other macro indicators such as GDP, productivity, debt levels, etc….I am not making a prediction on Euro survival or failure, in the end that will be a largely political event, as was the inception, one cannot ignore the fact now that a negative political and economic vortex is forming and become self-reinforcing, where the braking mechanism is in asset prices I am not sure, and full disclosure I have been bearish the Euro concept since inception, luckily I have learned from mistakes and been able to squeeze out some profits and both sides and from other asset markets playing the same thematic tones, such as long the front end curves, I merely ask the question now is the timing and confluence of catalysts pushing us closer to seeing the Euro move lower? And yes alive and kicking for some time it has been, but so did the Argentine Peso pegged at 1 for about 10 years.

Boris Simonder writes:

The macro indicators you are referring to has more to do with national and cultural structures of each individual EU country, than the currency itself - As for betting against the Euro since inception, I'm sure no one envisioned an almost 100% rise between 2002-2008. Euro moving lower? Speculators net positioning in the futures market would think so, and perhaps the macro crowd betting on widening EU/U.S rate-spreads would support as well. If you consider Euro to be a risk-on currency, then the climate isn't perhaps the best to support that. Or how about the bag of technical breakdowns since May.

As for the comparison to Argentine Peso, can you really compare a pegged currency against a free-floating one? Or yet a single country against a bloc of countries with far more political and monetary power?
 

Aug

12

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

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

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

Victor Niederhoffer writes: 

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

David Lillienfeld writes: 

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

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

John Floyd writes:

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

Chris Cooper writes: 

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

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

Aug

4

 An interesting story on NPR this morning dealing with banking among the working poor. No surprise that this is a group that is underbanked in so far as there isn't much access to branches. There is access through through smartphones. I don't know how many in the working poor in the US have smartphones, but my guess is the number isn't overly small. In Africa, a continent which is underbanked, apps for smartphones have been flowing more strongly than water over Minnehaha Falls in Minneapolis during the summer (I know we have some readers in the Twin Cities who can attest to the amount of water involved). Within 5 years, maybe 10 at the outside, banking in Africa will be a mobile phenomenon. There may still be some bricks and mortar offices—neanderthals like me like to see such things. But for the kids—soon to be adults—and the young adults, mobile will be it.

Banking execs are going to have to change to deal with this paradigmatic shift. The current leaders arose in a different era, and their understanding of mobile banking will necessarily always be in the context of bricks and mortar branches. (This has already begun happening in Africa.) As I said, the branches aren't going to disappear, just fade/be relegated downwards in importance as a means of interacting with customers and generating business. This got me thinking about the US banking system. There's been lots of talk about the coming wave of layoffs on Wall Street because of the decline in volatility ("The End of Equities" the cover declared in 1979—I'm waiting for a similar one on volatility this year). Banking in the US has changed during the past 6 years since the crash. Fees are returning as the basis for banking profitability. Boring. (Though Mr. Melvin has made some nice change, and not exactly chump change either, off of boring.) Mobile banking will come at some point to US. But I have to wonder if the growth of mobile banking and the paradigmatic shift to fees rather than trading profits hasn't revealed a major weakness in US banking—or at least the larger US banks: leadership.

While bank managements attempt to deal with a new era in which trading doesn't produce much in the way of profits, I have to wonder if the problem isn't with the managements themselves, rather than with the rules under which the banks operate. Much as mobile banking requires a different mindset than bricks and mortar banking, maybe the new era in US banking requires new managements—wholesale. Perhaps that's the key component, thus far missing, in dealing with TBTF. There should be lots of opportunities in mobile banking, but one needs to have come from a mobilized background rather than a brick and mortar one. Planck's Law applied to finance. One might have expected shareholders to demand new managements to effect this change and maximize shareholder value, but replacing managements by shareholders is about as hard as defeating an incumbent Representative. It's possible, it's just hard to do, expensive to do, and happens pretty rarely. When it happens, it's in the context of a wholesale shift.

Perhaps the banking system in the US isn't functioning to the top of its capabilities because of managements who long ago should have retired. At least part of the problem, that is. How big? I'm not prepared to suggest a number.

My impression is that banks, at least the larger ones, are still trying to work through the changes. For all the hoopla about the recent earnings report from JPMorganChase, the reality remains that profits were down and no one knows if the increase in small business loans, for instance, is a blip or trend in the making. With retail looking a bit peaked, I'm pretty sure those loans aren't going to small retailers. With Europe continuing to behave like a diabetic uninterested in controlling his disease, and whittling up both legs as gangrene sets in, I'm wondering how much of the other parts of the US economy are going to be throttled back in the second half of 2014 and looking into 2015. Getting the banking/financial services sector to function optimally is important for US economic growth. I'm not sure the current managements are up to the task. Wholesale change may be necessary, but I have nary a clue as to what might bring it on.

anonymous writes: 

I have listened to de novo (new) bank presentations for 30 years, and this underbanked crap is mentioned in every single one. It's as bad a global warming. There are NO underbanked communities in the US. There are only lazy people.

Additionally, many new bank equity presentations are frequently overweight products that the so-called under-banked wouldn't even use.

The under-banked, when there was such a thing, learned to go to credit unions.

Jul

24

This is an intriguing piece, but I have no sense as to how well founded it may be. Any thoughts anyone?

"Wall Street Skips Economics Class"

Mr. Isomorphisms writes: 

Noah is not credible among his peers, although he's at least infamous. He's stirred up this DSGE discussion beforeâ€"or, rather, piggybacked on Delong/Krugman/blogosphere discussion of same.

In fact I think when he first started blogging (6 years ago? basically a PhD ago) he expressed some reservations about DSGE.

E Falkenstein has made the same point as have numerous econ PhD holders, that the mathematics used in econ grad school is not considered valuable by industry. By contrast FEM gets things done and is flexible enough so the people who deal with the real world (and lose money there) can fill in the tedious details and jerry-rig something together that really works, in the here-and-now. So in short, people have been making this critique for a long time. And even longer if you include the predecessor Arrow-Debreu general equilibrium theory, which was also of only academic interest. I don't think the "only academic interest" critique is particularly damning. Academics want deep answers whereas money-makers want something that actually works right now, and leave the hard critical thinking for mañana.

Two things I noticed from googling around this story: 1) Mark Buchanan writing the same piece in January in bbgView, cites Noah. And Dr Buchanan is a physicist, not an economist. 2) Someone added to Wikipedia that apparently the ECB uses a DSGE model. It doesn't surprise me at all that econ PhD's are more likely to work for a government than a hedge fund. Think about any economic model you've ever seen; it's almost always from a policy perspective. Economists are interested in social engineering, so fairness; discrimination; unemployment; inflation; tax policy; utility; housing shortages; bubbles as they affect the man-in-the-street; benefits of trade to the man-in-the-street…Financial econometrics is a small subfield of economics-in-general, meaning it's a small subset of what economists are interested in. So it doesn't surprise me that they're not good at predicting financial markets.

anonymous writes: 

I like Duncan Foley's critiques, because he goes back to the Walrasian auctioneer which is a more reasonable starting-point of where the fully-cleared markets goes wrong, and where in my opinion geography-less, individual-less theory diverts from common experience of market participants.

As far as I can see this sort of critique gets at the heart of what's going wrong without being too focused on specifically DSGE or Aâ€"D or some other clas of models.

Jul

22

 I thought this was an interesting article: "The most effective way to fight HIV Worldwide may be legalizing prostitution"

This is a "Gary Becker moment," an instance in which discrimination (in the form of criminalization) undercuts the discriminator and the discriminated. Becker held that in such situations, one should eliminate the discrimination to benefit both discriminator and discriminated. That's on an economic level. Let's face it, economics is one of the driving forces of prostitution worldwide.One might argue that in Southeast Asia (particularly Bangkok and other venues in Thailand), anything which might mitigate HIV transmission should be tried. HIV is among sex workers isn't quite at the level of Botswana (at 33 percent of the population—no, that's not a typo), but it's not that far behind. And trafficking is clearly an issue there. I'm just not sure that focusing on the customer will do much to protect the prostitutes. Customers will still want a maximal amount of privacy and will work to avoid interaction with law enforcement personnel, LEOs will be focused on prostitution rather than more violent offenders, and in response to customer desire for privacy, the prostitutes will exact higher charges with consequent entry (because of perceived ROI) on pimps and encouragement of trafficking (since there's still lots of money to be made).

The Swedish model, which attempts to regulate demand, is based on the same logic as arresting drug users in the US. That's been such a success that it merits being adapted/adopted to prostitution? Is there any data that the Swedish model has enjoyed any more success than its predecessor? The one advantage to full legalization is that if a prostitute has an infection communicated to his/her customers, there's one less reason for a customer to not seek treatment–or at least diagnosis. In the Swedish model, the customers would still have an incentive not to do so. I submit that that isn't a minor issue.

The question becomes: what's the point of decriminalization? Is it to move prostitution (the world's oldest profession) out of the back alleys or to minimize the trafficking of women? If the former, with the attendant potential for regulated health check ups and maybe even some measure of revenue for the state (not unlike legalizing pot), then teh Swedish model won't have much impact. If the latter, it may have impact, it may not–the data are hardly definitive. Either way, the status quo in much of the US certainly does not facilitate disease control among the prostitutes or their customers, save in Nevada where it's legal and health checks are mandatory.

It's not just HIV (deadly as it is) or GC/syphilis (with their attendant morbidity) but also HPV and herpes (which has its own co-morbidity during childbirth). There's more here than meets the eye, or the…

Jul

22

 I like sunshine. For me, the best time of the year is June. The days are getting longer, the air is warming up, and pitchers' arms are getting limber and hitting their (hopefully) triple digit marks—or in the case of the knuckleballers, not hitting them. Summer solstice is my favorite day. Of the whole year. Let the sun shine, let the sun shine in. Perfect weather for baseball, for as Walt Whitman called it, "America's game."

For some time, football has been in ascendency in the US, and baseball falling from its perch as the "national pastime." With the development of the replay challenges, pastime certainly fits. I'd add in the time the pitchers spend prancing about on the mound. What are they thinking about up there? Fantasizing about when the mound is raised another 8 inches? The past two years haven't been kind to football, and I think it safe to suggest that football is now on a down spiral. That some parents in Texas are steering their children clear of school football teams tells me that pro football's problems are just starting. Maybe that's the reason for the increasing popularity of soccer in the US.

Baseball. Growing up, it was easy to imagine that one was Mantle at the plate, Robinson snagging the unplayable ball at the hot corner, Koufax throwing the unhittable curve (well before Clint Eastwood), Mays with a basket catch. My curve ball never did break, but that didn't mean I couldn't try throwing it as though it did. Take a look at the leading players throughout baseball's history, and you'll find lots of kids in outsized bodies, kind of like a Big goes to the ballpark sort of thing. During the 1920s, as baseball tried coming to terms with the Blacksox fiasco (it was well beyond a scandal), Babe Ruth appeared and salvaged the game, leading it to new heights. Ruth was one big kid. Maybe that's why kids flocked to him and he was willing to engage them as he did. Fast forward to the 1990s, and one finds the national pastime struggling with the body blow of a strike. Not many Americans were particularly happy with the MLB during the first half of the 1990s. Players, owners, didn't matter who, Americans were upset with them. There were lightening rods—George "I need to fire Billy Martin one more time before I die" Steinbrenner is but one example. There were others.

The strike could have been the knockout blow for baseball, such was the level of discontent with it. For a period of time, I swore I'd never go back to the ballpark. (My wife was all too happy that I decided I had been too hasty in that decision—she didn't like to go with me, and it gave her some well-earned time for, well, those things that women do when they get together for lunch and an afternoon out. Fortunately, there were rarely new hats or dresses awaiting me on returning from ballpark.)

Yes, a knockout blow. Except for one person, one player who would play in the same position as Ruth did in the early 1920s: Cal Ripken. It's now a generation that has grown without Cal on the diamond. Few of them know about how he and a few others redefined the position of shortstop from what it had been for a century. Away from the Luis Aparicio style of fleet afoot, contact hitting, "get on base" to be driven home type of shortstop. Cal was big, strong, a quiet leader, perhaps, but a leader all the same. He came to work everyday, and that was something John Q. Public could relate to. The millionaire players, not so much (not that Cal wasn't well paid for his efforts). One sportswriter tried to ask Cal about his work ethic when it became clear in the early 1990s that he was in position to challenge Gehrig's 2130 game streak. Cal asked the reporter if he came to work every day. The reporter replied that he did. Cal followed, asking if the reporter liked coming to work every day. "For the most part," he replied, "but some days are just bad." "Same for me," Cal said. "And if I don't play, I don't get paid any more than you do when you don't work." Perhaps, Mr Ripken, not quite, but John Q Public understood well enough. It was Ripken's passing of Gehrig's streak with nationally televised games the likes of which hadn't been seen since Hank Aaron hit number 715. Those games, that streak shook off baseball's funk. Football may have become the national sport, baseball, though, was back. People focused on Ripken and his streak (with stats that would assure a spot in Cooperstown in any era), much as they had Ruth and his four-baggers.

Fast forward a couple of decades. Baseball has gone through an exasperating scandal of performance enhancing drugs with fallen heroes like Raphael Palmero and Barry Bonds. Through it all, though, was the Yankee captain, Derek Jeter. No Yankee Clipper—the team didn't perform well enough to assemble any sort of record comparable to the Yankees in the middle part of the 20th century. But Jeter was like the foundation around which the baseball club operated. And his performance commanded attention well beyond his base of New York City. There was never any question about whether Jeter had used PEDs. It would have been so out of character for him to have done so. Possible, sure. Anything's possible. But 10 sigma events aren't something that one bases one's understanding upon.

Jeter will no doubt grace the halls of Cooperstown soon enough. This year, he said before the season began, would be his last one. Yesterday's All Star Game will be his last one, too. When he went onto the field and was then brought back off of it—as happens in All Star Games as managers try to use everyone on their team—he received a well earned ovation. Earlier, the recognition from his peers underscored the man's significance to the game—not just his performance but his commanding ability on the field and at the plate. There was little mention of ARod last night, he of the suspended in association with PED list. Lots of mention of Jeter. And Jeter, like Cal ("Silent Cal") accepted it, enjoyed it, and then went back to doing his thing—being a member of a winning team. Thank you, Mr. Jeter.

Baseball has been down for a time now. It's about to rise again.In the immortal words of the Great Man:

"People will come, Ray. They'll come to Iowa for reasons they can't even fathom. They'll turn up your driveway not knowing for sure why they're doing it. They'll arrive at your door as innocent as children, longing for the past. "Of course, we won't mind if you look around", you'll say, "It's only $20 per person". [Prescient–it does indeed run about $20 a head these days.] They'll pass over the money without even thinking about it: for it is money they have and peace they lack. And they'll walk out to the bleachers; sit in shirtsleeves on a perfect afternoon. They'll find they have reserved seats somewhere along one of the baselines, where they sat when they were children and cheered their heroes. And they'll watch the game and it'll be as if they dipped themselves in magic waters. The memories will be so thick they'll have to brush them away from their faces. People will come Ray. The one constant through all the years, Ray, has been baseball. America has rolled by like an army of steamrollers. It has been erased like a blackboard, rebuilt and erased again. But baseball has marked the time. This field, this game: it's a part of our past, Ray. It reminds us of all that once was good and that could be again. Oh…people will come Ray. People will most definitely come."

(Note to the reader: My daughter goes to school in Grinnell, Iowa, known for its regional hospital, regional John Deere dealership, regional WalMart. No regional Starbucks, though. Most of her fellow students are from the MidWest, often from Iowa and Central/Western Illinois. She found out during her freshman year that many (most?) have no idea what the Field of Dreams is or that there's a cornfield in northeast Iowa of any cultural significance. Her generation has some catching up to do. Just saying.)
 

Jul

15

I wonder if there's some way to use bizarro patents as an index of where the market is at and may be headed—kind of like the hemline and skyscraper indices. For bizarro, I mean things like this: "Airbus Patents 'Bicycle Seats' That Look Terrifying For Airline Passengers". Yep, stale peanuts for $3, a can of flat Coke for $5 and a copy of Lance Armstrong's autobiography. Makes that 6 hour red eye from LAX to JFK really tempting, eh? Since I don't see any possible use for such a patent, my conclusion is that its filing represents sufficient accumulated wealth that a company doesn't much care about wasting some of it for the prestige of a patent. There must be some directional clue from such developments.

Jul

7

Does anyone know how much multiples contract during crashes, has there been any trend in those contractions, and do industries differ in any meaningful way in the degree of contraction?

Allen Gillespie writes: 

Normally, a crash is the fast repricing of a full recessionary effect and recessions typically are 16-21 month affairs, so a rough rule would be you wipe our 16-21 months of market activity with about a 33% contraction in earnings and 7% for the investment backers to raise capital, so 40%. If you really have a bubble, then you can wipe it out all the way back to balance sheet valuations of the prior recession, which might be a 10-12 year period, but that generally takes time and if you blow up the government too then 90% seems to be the rule.
 

Jul

3

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

Victor Niederhoffer writes: 

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

Gary Rogan writes:

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

Ralph Vince writes: 

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

anonymous writes: 

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

Jun

17

I'm not a technician so I may have this completely off, but the Baltic Dry Index is making 12 month lows coming off a head and heck. I'm told that my suggestion of the HAN is off because the decline wasn't immediately after the right shoulder and the necklines were declining, but it makes me wonder about China.

John Bollinger writes: 

The point of studying such formations is to identify the underlying psychology and then act on it if appropriate. Perhaps, a core understanding might help? Richard Schabacker, Humphrey Neill, John Magee and Richard Wyckoff are a few of the authors that might throw some light on the matter for you.

Best,

John

Jun

16

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

David Lillienfeld writes: 

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

Jun

4

 It may help to remove some of the heat from further discussions if we can all agree that individual liberty was never any American's birthright. The idea that people should be left alone and not harassed by officialdom was as radical an idea as the notion that God does not need appointed intermediaries to translate the message of faith.

Exhibit 1: The Oath of a Freeman

And June 1st was the anniversary of Mary Dyer's execution on the Boston Common.

David Lillienfeld writes: 

Since your citations are more than a century before the Declaration, I'm not sure I'm ready to accept your proposition. What are your distinctions between a 1776 definition of individual liberty and what you would characterize as what was viewed as the birthright?

Stefan Jovanovich replies: 

Franklin, who opposed actual slavery of other human beings, was wise enough to edit out of the Declaration of Independence Jefferson's indictment of King George for making white Americans "slaves". Jefferson, who never saw anything wrong with the enslavement of black and copper-skinned people, had thought it was a telling indictment and a politically appealing one to be added to the 1776 "definition of individual liberty". Franklin knew better. Neither Jefferson not anyone else i 1776 had a good answer offered to Samuel Johnson's question: "How is it that we hear the loudest yelps for liberty among the drivers of negroes?"

You really must sit down and actually read the Declaration of Independence, David. There is no definition of individual liberty in the document; if you want to find even a hint of that radical idea, you have to fast-forward nearly a dozen years. First, you have to watch the country go through a ruinous civil war and catastrophic financial default. Then you get to watch the genius and wisdom from experience of Washington, Franklin, Morris and (to a lesser extent, although the academics like you give him the greatest credit) Madison produce the first official confirmation of the rights of individual citizens in American history - the U.S. Constitution.

Here are a few things for you to consider as you follow the lesson plan:

1. The Declaration of Independence has no legal authority as far as the United States of America is concerned; it was the unanimous Declaration of the thirteen united States of America. That is why it is the favorite document of people who want to believe in absolute "states rights" and, like Justice Sotamayor, in a legal authority that is not required to be confirmed by the votes of the actual citizens of the country, as the U.S. Constitution has been.

2. If you read the document carefully, you will find that it has absolutely nothing to say about individual liberty; it is very detailed in its descriptions of the abuses by the King and his ministers and agents against individuals but those violations are mentioned as justifications for the rebellion that had already occurred in and around Boston, not as wrongs to be corrected in the laws of England and America.

3. War messages never, ever contain assertions about individual liberty; they only speak of "the people" and "the state". Note the entire absence of any statements about individual liberty in Jefferson's Wow finish: "That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor." The colonists are telling King George what the new boss is going to do; they are not spending any time telling him what the distinctions will be between their sovereign authority and the one held by the old boss.

I offered "my citations" as a reminder that Americans have not yet been gifted with individual freedom from birth. The arrival at Plymouth did not change that; neither did 1776. Thanks to the war veterans who were the majority in Philadelphia in 1787 and those who were a majority in the Congress in 1868 we have, as a country, made a more than decent start at establishing, once and for all, that people's natural rights come before everything else at law. But, we are still very far removed from Jeff Watson's ideas of freedom; and it is the worst kind of schoolie propaganda to assert that this is a nation founded "in liberty". We Americans (and the foreigners unfortunate enough to be snagged in our courts) have a few specific individual rights that can, with money and luck and honest judges, be successfully asserted. But, as too many of our List members know from painful experience, "the law" spends most of its time telling the citizens that the sovereign is right even when it is clearly wrong and then charges "the people" extra for the privilege of reminding them who is boss.

May

26

 David Lillienfeld writes:

Last year, Tim Melvin posted a classic piece about Memorial Day. It brought me to tears then, and it did so this morning when I went through it again. It is some of the most eloquent writing I have seen about Memorial Day, and it's a shame that it hasn't received more notice outside of this site than it has to date—it certainly merits it.

Tim Melvin writes:

They call to you this weekend. From Flanders Field, from Normandy, Khe San, Gettysburg, Concord and Lexington, the Chosin Reservoir, from the hull of the Arizona, and from all the hundreds of thousands of resting places marked and unmarked they call to you. The call to you from the depths of the Pacific and the jungle of Asia, from the deserts of the American Southwest, from the fields and cities of Europe, from Cuba, from around the world they call you with a request this weekend. Remember me.

Remember who I was and the hopes and dreams I willingly laid upon the altar of the great American experiment. Remember that like you I was once flesh and blood and I gave that up to secure a portion of the American Dream and secure essential liberties at home and even for people around the world. You may not have agreed with the rational for some of the conflicts we have ensnared ourselves in over the centuries and I am not even sure I fully understood it. But our nation called and I answered. Liberty carries a price tag and I paid it for you. Remember me.

War is an idiotic human endeavor and I wish we never had to go engage in such a wasteful exercise. But at times throughout history it has been necessary for good men to take up arms to secure our freedom from tyranny and defends ourselves against expressions of pure evil and hatred. When such times have arisen I have taken arms and defended the freedom and liberty in which I believed and for which all humanity years. Remember me.

Do not remember me with tears and sadness. Pray solemnly and shed tears if you must but that it is not my preference. Remember me in a violent celebration of all that is America. Take your families to the seashore and frolic as man has done since we merged from the sea. Go out on your boats and go as fast as you can over the waves with the winds of a free land and a free people blowing back your hair. Fire up your grill and invite the neighbors up for food, drink and laughter. This is why I laid down my life. Not so you would cry for me but so you could enjoy your life and your family, your loved ones and friends. Remember me in the laughter and joy of being alive.

Hear me in the sound of loud music coming from a dock bar. Hear me in the growling of a stock car engine taking a green flag or the whine of Indy car hitting 200 mph on the backstretch. Hear me in the laughter of a child skipping in the surf or running through the sprinkler in the back yard. Hear me in the chatter of friends around a BBQ pit. Hear me in the swell of an orchestral pop concert on a wide meadow as the sun settle over the land. In all the joyous raucous noises of being alive, hear me and remember me.

 See me in the flag unwinding in the breeze. See me on the baseball diamond, the soccer pitch the basketball court. See me at the bar with my friends raining a glass to good times gone by and still to come. See me in the smile of your wife, your girlfriend or male equivalent thereof. See me in the hammock beneath the tree taking a slow summer nap. See me in all the moments and times of that make life special. See me and remember me.

Remember me best in living well. Think of me when you are passing around the steaks and steamed crabs. Remember me as you sip the cold gin and tonic in a sweaty solo cup under a shade tree. Think of me in the fisszt of a beer bottle opening, the fizzing of soda pop in a glass, the shaking of a martini, the pop of a cork, and the tinkle of ice. Remember me in the sounds of the party of life.

I do not want you to remember me in solemn sweaty ceremonies and pompous parades of politicians. You do not need to go to the cemetery to remember me for I am not there. I am at the beach, the ballgame and in the backyard. I am at the lake, on the boat and fishing on the riverbank. Do not remember me simply because I died. Forgetting to duck or being ordered to charge impregnable positions is a crappy legacy if you ask me. Remember me because I lived and I died protecting your right and ability to live and experience all the joys and madness that is life.

I am not merely a dead soldier who died in the service of his country. I am all the things that were made possible by freedom gained and protected. I am Mark Twain, William Faulkner and Hunter Thompson and all the words written by the geniuses spawned in the America. I am the music spawned among a free and talented people. I am Robert Johnson, Miles Davis Liberace and Ted Nugent. I'm all the great scientists and inventors that have graced this land. I am Edison, I am Feynman and I am Ford. I am all the great athletes born in the towns and cities of this nation. I am Mantle. I am Unitas. I am Jesse Owens and Jim Thorpe. I am every greatness achieved by this nation born in a sea of blood and protected by rivers of it over centuries. Do not mourn me for the time has past for that, but remember me.

Remember me for I am also the future of this great nation I died to build. Remember me as you live, as you build as you work and as your create. Remember me as youprotect my legacy from the charlatans, thieves and idiots who make up our political class. Remember me when you refuse to cede personal liberties I died for to those who have good intentions and bad ideas. Remember me when you take chances and reach for your dreams and ideal. Remember me when you refuse to participate in limiting freedom or opportunity based on skin color, sexual preference or genital make up. Remember me when you dream, when you achieve and when you celebrate. These are things for which I died and for which I would be remembered.

My voice calls to you today. Life, love, laugh dream, build achieve. Do this in remembrance of me.

Happy Memorial Day. Remember me.

Stefan Jovanovich writes: 

 Memorial Day used to be Decoration Day — the day when the graves of soldiers were draped in flags — and there was no official Federal date. In Gettysburg it was held on November 19, the day the cemetery was dedicated. In the South it was on various dates in the Spring. It was never, ever a day for speeches until the official South decided that the soldiers graves should be part of a general uprising to justify the Rebellion — the same political movement that gave us official segregation; at that same time - the late 1880s — the states began legislating official holidays for Decoration Day, they also made Jefferson Davis' birthday a state holiday. What we now observe dates only from WW II, and the date itself was fixed in the 1960s. It is strictly a Cold War ritual that has been revived for the war against unspecified terrors.

I hope Tim finds an equilibrium somewhere between thinking that everyone who ever died in uniform as a hero and believing war is everywhere and always to be considered the worst of all things. I hope everyone enjoys the ceremonies today. If I don't, it is not out of disrespect for what people have done. I don't like official remembrances for the same reason Grant hated parades; they tend, by their very nature, to be organized lies.

They allow the people in the reviewing stands to preen and they present a picture of order that is the very last thing that wars ever are.

The truth is that some wars are worth their awfulness and some are completely stupid. The people best qualified to judge are the ones who have done the fighting; as with so many other things in life, those who know the most are the very ones who don't say much. There are exceptions, like Professor Sledge:

"War is brutish, inglorious, and a terrible waste… The only redeeming factors were my comrades' incredible bravery and their devotion to each other. Marine Corps training taught us to kill efficiently and to try to survive. But it also taught us loyalty to each other - and love. That espirit de corps sustained us."

"Until the millennium arrives and countries cease trying to enslave others, it will be necessary to accept one's responsibilities and be willing to make sacrifices for one's country - as my comrades did."

anonymous comments: 

I differ…greatly.

I preface by saying I have not served in the services nor in a war.

Yet I've known many…young, naive or foolish men who have answered the call. Many didn't believe in the cause and thought their superiors to be idiots. Yet they stayed and fought. I respect and remember that loyalty, and buy dinner or drinks for them and their family when I come into contact with them. I do it out if loyalty and not guilt. They upheld their end of the bargain. The least I can do is acknowledge them.

These are not the she-men that appear to surround me, those who talk about shat should be done yet are never there to do it. They have loyalty to no one.

There are pieces meant to rouse the animal spirits and conscripted ranks. I felt Tim's piece wasn't a call to enlist as other pieces.

The generation of Vietnam castigated those who were drafted and required to fight. That double bind or catch-22 has always bothered me. There's a similar thinking in DC now, where you are encouraged to break laws and obey them simultaneously.

One if the primary social contracts is to take care of your own. Tim's piece echoed that sentiment. The Chair demonstrates it too, as do many on the list.

In the Catholic Church, there are many celebrations of saints. I have learned, not having been raised Catholic, that many saints were far from perfect. There was a similar idea in his piece. Monday isn't a celebration of personal perfection or success in war. As Tim writes, it is recalling the guy who once sat in the empty chair at our table.

Semper Fi et Ductus Exemplo. 

Ralph Vince writes: 

There is nothing more inadvertently dangerous than a young man.

There is nothing more potentially vicious than a woman on her own.

One must tread carefully around these. 

May

13

 Have you seen this interesting graph of debt/GDP ratios of the G7 countries since 1946.

It's puzzling to me that in 1946, UK had 270% debt to GDP, and US and Canada had >100%, while at the same time Germany, Japan, and Italy had almost no debt.

I'm sure the allies didn't want another Versailles, but still this seems like an extreme outcome.

David Lillienfeld comments: 

Germany, Japan, and Italy also had almost no assets. Their currencies were worthless, hence no debt. I'm guessing that the same phenomenon occurred with the Confederacy as the end of the war approached.

Stefan Jovanovich retorts: 

David's answer is - alas - a muddle. The currency and the debt of the government of the Confederate States of America was officially worthless after the surrender at Appomattox. (Read Section 4. of Amendment XIV of the U.S. Constitution.) So were Germany's debts, currency and laws after the formal surrenders signed by the remaining German General Staff officers with first the Americans and British and then the Soviets. Germany, like the Confederacy, literally disappeared. That is why the line for Germany beginning in 1945 is flat at 0 until the reconstruction loans that were part of the Marshall Plan took effect in 1948. What is interesting is the other flat-line - the one for France. The Vichy French government never formally surrendered; one of deGaulle's marvelous bits of arrogance was to assert that Vichy itself was not a government and could have no recognition. Somehow that also became the rule for the debts of the Third French Republic (I don't know exactly how) as well. After the war, their debts, like those of Vichy and Germany, seem to have legally vanished. When deGaulle took charge after the Normany landings he was meticulous about asserting that he represented the Provisional Government of the French Republic (GPRF), not the Third Republic. Yet somehow the financial assets of that Republic - specifically the gold on deposit with the Federal Reserve bank - were "saved" and became the property of the new Fourth Republic that came into existence after deGaulle resigned in 1946. Italy, which had overthrown Mussolini and signed an Armistice with the Allies, and Japan, which retained its Imperial Rule, both continued to exist as governments; their debts were restructured but not officially abolished.

FWIW, Charles, I don't think the the parts of the graph that deal with the immediate aftermath of WW II have any meaning. They are another attempts to put prices on things for which there is no market. The statistics for the U.S. GDP during WW II are another example. As Higgs and others have pointed out, the "recovery" of the U.S. economy in WW II cannot, in any sense, be measured in dollars. We know what the U.S. "spent" but that money cannot be considered an "investment"; the factories had no value except to make things that only governments would want to buy and this was at a time when all the governments of the world, except the U.S., were broke.

 So, how did the U.S. "recover"? Sewell Avery and others conservatives feared that hard times would return; Truman was certain that the U.S. would need to return to Hoover and Roosevelt's managed economies. They were both wrong; just as the voters in Britain threw out the existing government, the voters in the U.S. decided that whatever they wanted, it wasn't what they already had. They voted for the war plants to be closed and the military to be demobilized, and they all went out and spent the money that they had been saving. The war had been financed by money created by the central banking system; what made this less than a fraud were the wartime restrictions on spending. The war debts were funded by the ability of the banks to draw on the deposits from the defense workers' and military inductees' pay. When WW II ended and triumphal march to socialism (ah, national health care) was at least temporarily post-poned, what came instead was a boom of spending on consumer goods by a population that had been on rationing for a decade and a half. That cash spending, plus the flood of borrowed money from consumer finance (something previously unknown except on a small scale for radios and cars) and home mortgages, did not (contrary to the usual myths) "pay off" the debt or inflate it away; but it did create incomes and the taxes that go with making money. That revenue was more than enough to fund the much smaller government and to sustain the rolling over of the maturing debts from the war. When the British and Canadians got tired of Laborism, much the same thing happened for them - as the graph illustrates.

May

12

 

It's not central bank policy per se that makes the price of the market go up or down, it's Common Knowledge regarding the ability of central banks to control economic outcomes that makes the markets go up or down.

-Ben Hunt

The market has been locked in a trading range for an extended period of time. Is it because the market is still in the process of vetting both the taper and Janet Yellen or is it simply Le Chatelier's principle's market clearing effect? And, while there has been, both a policy change and a changing-of-the-guard at the Fed, it is still unclear as to whether there has been a regime change in the market. What we are left with is a stable equilibrium where competing influences are balanced, resulting in no net change. While it is virtually impossible to predict, it will certainly be interesting to see, what shock to the system will have enough influence to disrupt this equilibrium.

Stefan Jovanovich writes:

What the market may, in fact, be forecasting is the beginning of a shift in sentiment to a common opinion that the government cannot and should not "control economic outcomes". What we now see as the classical liberalism of John Stuart Mill - laissez faire - was hardly the product of benign progress. It came to be received wisdom only after a deep skepticism had taken hold of the country. People whose families had seen a 100-fold increase in public indebtedness over the previous century had had enough when that spending to defend Britons had ended not in freedom but in the loss of traditional liberties.

I leave it to the readers of this site to gauge how the exact parallels between the post-Waterloo period and our own; but there is no question that the rise in the sentiment for "free trade" would not have occurred without the reaction to Robert Jenkinson's ministry. The suspension of Habeus Corpus in the U.K in 1817 (which had not happened during the Napoleonic Wars) was a shock; the adoption of the Six Acts was the last straw. Between them they produced a financial and political revolt that ended with the bi-partisan abolition of the Corn Laws and the adoption of the Bank Charter Act (think the repeal of the Internal Revenue Act and the enforcement of the gold clause in the original Federal Reserve Act for the appropriate modern American comparisons).

For those who may not know them, the Six Acts were these (my numbering):

1. The Training Prevention Act - which made attending a meeting for the purpose of receiving training or drill in weapons a crime punishable by transportation.

2. The Seizure of Arms Act. It allowed local magistrates to order the search of any private property for weapons, the seizure of weapons and the arrest of the owners.

3. The Misdemeanors Act. It restricted the availability of bail and allowed summary trial.

4. The Seditious Meetings Prevention Act. No meeting of more than 50 people could be held without the permission of a sheriff or magistrate if the subject of that meeting was "church or state" matters. Attendance by people not inhabitants of the parish was a violation.

5. The Blasphemous and Seditious Libels Act confirmed that political speech could be a crime; punishment was increased to fourteen years transportation.

6. The Newspaper and Stamp Duties Act required all publishers to post a surety bond and pay a duty for any publication (previously only "news" papers but not journals of opinion had been required to pay a duty; neither kind of publication had had to post a surety bond.)

Gary Phillips comments: 

Perhaps they're taking a knee, but I wouldn't count out the perception that Fed policy was responsible for sanguine market outcomes; if that wasn't the case gold would be trading at much higher levels. The QE narrative continues to persist and effectively shape our world today and like all good narratives it succeeds because it has an intrinsic ring of truth which speaks to broader interests on an intellectual and emotional level and even though, it always coincides with flexionic goals and preferences.

Stefan Jovanovich writes: 

During the century in which the Bank of England's notes were taken to be as good as gold, the metal's price declined. The market expectations are never true in a compass sense; they are always shifting - sometimes against insiders' certainties. The bets made against the dollar during and after the Civil War did a great deal to weaken the City's dominance over American finance. If the flexions in London and Amsterdam and Vienna and Paris, the Morgan Bank would still be a mere correspondent.

Anchors drag.

David Lillienfeld writes:

A number of railroad bankruptcies helped, though they also affected the Dutch, not just the English.

May

6

 Growing up, like many of the kids on my block, a hot summer day in Baltimore was as good a reason as any for a stickball game. We'd find a tennis ball or maybe a pinkie, and a broom, and in the street we'd set out our bases. The broomstick provided us with a bat. With little hands, it was far easier to manipulate than a real bat, and a plastic bat (a la whiffle ball) didn't work too well, getting dented. We'd play for 3 hours and then the Good Humor truck would come through, or maybe the ice cone truck, and off we'd go to our individual homes to get some money for some relief from the heat. Then it was back to the street for another hour before the calls for dinner started. Getting older, use of a real bat became practical. It was a symmetric piece of wood with an little bit of a handle at the end, usually with a stamp that one was to always keep facing away from the pitcher (and presumably the ball). These were the days of the 4 man rotation, the long relievers in the bullpen, strategy around whether to pinch hit for the pitcher late in the game, and so on. Baseball in the 1960s and 70s bore a remarkable similarity to that in the 1900s and 1910s. There were now black players, and Daddy Longball, as we used to call a homer, had made a visitation and decided to stay for a spell, but the similarities were still striking.

Great pitching (the era of Koufax and Gibson, McClain, Ford and Palmer still shut down great hitting. And there were great hitters (Mantle, Robinson (F), Mays), great runners (Brock), and just basic competitors (Robinson comes to mind immediately, but there were others like Berra, albeit in the twilight of his playing years, and Ernie Banks). Starters tried pitching a full game, and the question was usually whether he made it through seven innings, not when has he thrown 100 pitches. (101 pitches? OMG, his arm?!) Throwing a complete game was a sign of strength, and shut-outs were a good example of pitching skill. A no-hitter was a special show of pitching finesse. Then came the divisions, and the designated hitter. I get the DH. Liven the games up with some hitting. It ruined the whole idea of pinch hitting for the pitcher late in the game, but it still fit within the framework of the game. Career stats in the 1970s and 1980s were comparable with those 80-90 years before. Then came Rollie Fingers and the "Specialist Reliever" (I think it was Fingers who defined the role). Still, baseball was still baseball. All was at peace in the world.

Fast forward a few years. Now we have inter-league play. Why bother with a World Series, then? TV money. If you're going to have inter-league play, liquidate the leagues and form geographically defined divisions. Most recently, there's been the imposition of instant replays to "clarify" the ump's call. This would be done at a central facility in NY. Baseball has always been a relatively slow game compared with football or basketball. This new "innovation" is one which robs the game of much of its feel, at least to me. Maybe the idea was dreamed up by some NFL marketing maven. Count me as one of those who sees little benefit and lots of downside from this new rule. Some of the other recent rule changes are equally vexing, like where the catcher can stand, what constitutes a catch, and so on. But baseball continues.Baseball endures. An Earl Weaver special remains a 3 run blast.

So you might imagine my surprise at hearing a report on NPR this morning of an proposal to change the shape of the bat to be more like an ax handle. In some ways, I can understand the idea—it may be more comfortable, especially for the kids. Fair enough. But how do you bunt with such a beast? What about bat control—will it really be easier or harder? Some of these question will need to be considered—and considered with more care than some of the more recent misdirected effort at progress have been.

In any case, it's just the first week of May. There's a lot of the season to be played. I just hope they don't muck it up with more talk of an ax-handle bat. What will they do next, lower a basketball net to 9 feet so the average fan can hit more baskets?

Apr

29

 Today, at 10 AM Israeli time (noon on the US West Coast), throughout Israel, the air raid sirens sounded. There was no air raid, though. On highways, drivers pulled over to the side of the road and got out of their cars; any passengers did too. In offices, work stopped at the sounding of the sirens. In schools, even on the playgrounds, play stopped (or at least as best as parents might make out of the situation). For two minutes, all activity throughout Israel stopped as silence overtook the country in memory of the Shoah—the Holocaust.

Whether the number of Jews killed was 6 million or 7 million we will never know. And the Jewish communities of Europe were not the only ones marked for genocide. Roma, gays, lesbians, among others. Nor was the Shoah the first such effort in the 20th century, as the Armenian Holocaust preceded it by two decades. There were 1 million or so Jewish children among those murdered by the Nazis.

In some ways, one might argue that the power of today's moment of silence is no longer one of sadness nor of simple memory, never mind the calls of "Never again!" I heard in my youth at Yom Hashoah ceremonies. The power is that a nation built in part to assure that Jews always have a homeland to go to is not merely surviving but is thriving. While thousands or tens of thousands throughout Europe and North America contend that Israel is an illegitimate state–some going so far as to label it a "cancer" on the Middle East, Israel is the emerging superpower in cybersecurity/cryptowarfare.

Friends at place such as Palantir tell me that the only place with companies comparable to those in the US in this area are in Israel. A few have said that working for an Israeli company would be the only step up from where they are today. While I find it hard to accept the proposition that the US is falling behind Israel in cypersecurity/cyberwarfare capabilities, Israel is clearly holding its own in the cyber world. At one time, Every Israeli would time every year on army reserve duty. Some have suggested that Start-Up Nation derives from that annual commitment and the quasi-talmudic state that accompanies it—questioning constantly, asking for justification, and so on. (Shai Agassi's demise and the collapse of A Better Place doesn't much undercut the thesis.)

 When I was growing up, the Shoah cast a shadow over many of the activities in the Jewish community. When my late brother was born in 1948, he was named for the first king of Israel, Saul. I was named after Saul's successor, and my parents once volunteered to me that had I had a younger brother, his name would have been Solomon. In my generation, it seemed that half the Jewish boys were named "David." I think they may have been thinking of the David in David and Goliath rather than as the king of Israel. No matter, the result—a Jewish nation secure in its position within its part of the world for the former, the ability to take down one's foe regardless of size for the latter—was essentially the same with regard to Jewish survival.

It used to be that survivors of the Shoah would attend and often speak at Yom Hashoah ceremonies. But their numbers are fading, and as the temporal distance from the Shoah increases, its importance within the community seems to fade to a degree, too. When I was Treasurer of the Jewish Federation in Central Maryland, our head of programming noted repeatedly—and correctly—that the American Jewish experience has to transcend the Shoah at some point. If you focus on it as the basis for community cohesion, she predicted, the community itself will dwindle as younger members leave, looking for something more uplifting, more fulfilling more affirming of life. She was right—and while I can't attribute the decline in the Jewish population in the US to a focus on the Shoah alone, it certainly hasn't helped.

Yom Hashoah is a solemn day, to be sure. A day of remembrance. Yet it is no accident that it is after the end of Passover with its themes of redemption, rebirth, and liberation; and after the onset of spring, with its theme of renewal and life, and the return of growth. It is also a day to remember "om Yisroel chai": The Jewish people live. And thrive.

Apr

28

 Last night was a special night at Camden Yards. Or at least it might have been. We'll have to see what happens the rest of the season. The Os won in a 10 inning game, 3-2. The score doesn't capture, though, the victory happening with a base hit and the bases loaded. It's the sort of victory that teams in the hunt have to win. Every team of note has at least one game where the team energized and stayed energized for the remainder of the season. For Os fans, you need to go back to at least 1996 for such a game. That one was the de-energizer one, actually (10th Yankee, Jeffrey Maier).

But there are such games, ones that define a team's season. There are a few I can think of immediately when it comes to the Os. Doug Decinces' home run blast on June 22, 1979. It was 3 years before America would record "You can do magic" (I've always wondered if the opening image came from Pippin)—a song played just before the start of every Orioles game in September 1982 (it was played loud enough on the final day of the season, Earl Weaver's last game, that you could hear it over at the VA a quarter mile down the road)—and I think that carried over into 1983, but I'm not sure)—and there was the incessant talk about the reappearance of "Orioles Magic."

Everyone in town knew the reference. It was impossible not to; whether at Bo Brooks, Obryki's, or even Phillip's out in Ocean City, so the buzz went (I went to OC only a couple of times that year, so I'm not sure; down in Annapolis, though, by the marina near downtown it was a constant topic of conversation throughout the summer). But it was in 1979 that the Magic made its visitation at Memorial Stadium. When it came and found a home for 100+ games. When Flanagan (who won the Cy Young and never figured in the voting again, never win winning it), McGregor and Three are from 1966, one from May 8 when Frank Robinson hit the only ball to ever go outside Memorial Stadium (the point of departure marked by the "Here" pennant that perplexed visitors to Baltimore until the move to Camden Yards) 450+ yards on the fly and the other at Yankee Stadium when Frank Robinson hauled in the two outstanding catches, arguably the two best acts of defense of the year (remember that this is the team with Brooks Robinson—two years after he was MVP and four years before he gave a clinic on how to play 3rd base during the World Series—never mind his general daily play for the Os.

Last night may have been one of those games. It felt like one of those games. It's early in the year (as Tim Melvin keeps reminding me) and the Os bullpen bears more resemblance to the stability of jello than an iron wall, but that game last night was something to behold. Not a work of art. Gritty. Spirited. The memories of the 1979 Birds came to mind last night. 1979 featured only one standout pitcher—Flanagan. The rest of the staff (well, maybe excepting Tippy Martinez) was just, well, blah. Even Cakes. But blah enough to get to the series, but still blah all the same.

  I remember the night the Os clinched in 1979. I was a student at JHU, on the Homewood campus. My apartment was on Calvert Street, so it was a short walk to the stadium. 1979 was only two years since Brooks retired (some still think he was pushed out—and maybe he was, maybe he wasn't, the stats are pretty mixed), and his absence still cast a bit of a shadow over the team. It had poured that day, there was autumnal chill in the air (I think it was in the low 60s at game time), and the stadium still had a lot of water in the stands (who knew that within 5 weeks, the playoffs would be take place in weather more appropriate for football than baseball). The stadium was pretty empty that evening. You'd never guess that this was a team that had captured the hearts and minds of a city. With the rain that day, I'm sure many decided it would be better to stay indoors. But it was a grand game. I think the Os lost, but it didn't matter much. They were going to the playoffs. Make that returning to the playoffs. And in a year when no one thought they would much of anything. Take that, Yankees. Take that, Boson (the nemesis of the Os in the 1970s—moreso than the Yanks as I recall it).

Harborplace was still under construction downtown, and there was lots of skepticism about pouring so much money into downtown. It was the era of the Big City Mayors—Koch in NYC, Schaffer in Charm City. Schaffer put a lot of political capital into Harborplace, and that investment paid incredible returns. But there are those of us who think that the turn-around in Baltimore's economy began on June 22, 1979. Orioles Magic indeed.

 Some have opined that this year feels like 1966. I remember 1966. I lived through it. All way through the back to back HRs by the Robinson boys in the 1st inning of the 1st game in the World Series and the picture of Brooks jumping into the air after the Os won game 4 and the series. This isn't one of those years. From 1966 through the mid 1970s (maybe with the exception of 1967, when the pitching staff was worse than this season's), the Orioles dominated the American League East. Jim Palmer won 2 of his 3 Cy Youngs in 1974 and 1975 (and would have won in 1982 if he had pitched to form on the last game of the season). From 1969-71, they just dominated the American League.

The 2014 Os do not resemble any of those teams. There's no Frank Robinson, no Brooks, no Jim Palmer, no one of that ilk. That doesn't mean they can't go all the way. Maybe for the first time in 22 years, Orioles Magic makes an appearance at Camden Yards. For the whole season and not just one game.There's still September to be played. And May. And June, and July. Tim's right—it is early in the season. Still time enough to dream. To recall. To relive the joys of one's youth.
We'll see.

Play ball!

Apr

27

 This blog post gives some very stunning data on "coronary heart disease", which I assume means "heart attacks". Supposedly the rate of death per year per 100,000 people has gone from over 500 in the 1970s to 20 now. People just stopped dying from heart attacks.

What's up with that? Is the data misleading in some way? Has coronary heart disease started getting re-classified as something else? (And for that matter, isn't "coronary heart disease" redundant?)

Seems like a good topic for Dr. Lillienfeld.

Dr Lillienfeld responds: 

A few thoughts:

First, the commentator in the link should not be confused with the UNC ob-gyn epidemiologist David Grimes.

Second, coronary heart disease, in which atherosclerosis is present in the coronary arteries supplying blood to the heart musculature, differs from valvular heart disease (in which one or more valves malfunctions and needs to be replaced) and other manifestations of heart disease. Syphilitic heart disease referred to in the blog is, I think, a reference to dissecting thoracic aortic aneurysms, which used to be a major problem in the US, but with control of syphilis, it's declined in occurrence.

Third, as for the main issue, there has been a substantial decline in CHD mortality in the US and in the UK. The peak in the US was in 1968 and in the UK, 1970. Stroke mortality has similarly declined. There are lots of questions as to what is actually taking place in the population—is it better treatment? is it reduction in exposure to risk factors? We know that there's been a significant reduction in risk factor prevalence—smoking rates have declined from 60% or so in the US to 20%. (The impact of the e-cig boom isn't clear as yet). There have been significant reductions in air pollution, especially in the small particulate portion, and the consumption of a fat/cholesterol-based/laced diet has also declined.

Hypertension has come under control (though in the early 1980s, with budget cuts in public health clinics, hypertension control lessened, and for a period of about 8 years, stroke incidence went up). Oral contraceptive use—a significant factor in heart attacks in younger women and also strokes—have reduced their estrogen content (we're now on the 3rd generation), and with that reduction, the associated risk of a heart attack or a pulmonary embolism has declined, too. (There's parts of this story in Foundations of Epidemiology 2nd edition and 3rd edition), but we didn't include it in the first edition—that was much of a lung cancer-cigarette smoking focus.

So far, so good. Except that the decline began in the US in 1968, just after the role of oral contraceptives in heart disease in young women was discovered (and before any reductions in estrogen content had been undertaken). (By the early 1970s, something like 60% of American women under the age of 50 had used oral contraceptives for at least 18 months; it was a widely used medication-especially among women who smoked—and smoking acted synergistically with oral conceptive use in increasing the risk of a heart attack. Hypertension control was introduced into the US during the 1960s. It would be difficult to say that it was widely prevalent by the end of the 1960s. During my residency in Minnesota in the mid1980s, we undertook many different ways to get everyone in the population screened for hypertension, and we know we didn't succeed nearly enough to suggest that there was effective control of high blood pressure in the population. In any case, control of high blood pressure really took hold only after the decline began. (It has had an impact—on chronic kidney disease; it has reduced hypertensive renal failure significantly. And since Medicare covers the expense of dialysis, the use of those anti-hypertensives has saved a lot of money. Whether Medicare should have ever covered the cost of chronic renal failure, much as whether it should have covered coronary bypass surgery, is a matter of contestation.)

Similarly with blood lipids. Cholesterol levels have declined, but the impact of the statins (the effects of which have been shown in a number of randomized trials) would have been felt only since the mid 1990s; lovastatin wasn't even introduced in the US until the late 1970s, and atorvastatin (Lipitor) wasn't until 1997. In other words, the big three risk factors for heart disease—blood lipids, smoking, and high blood pressure—have declined, though lagging the decline in mortality. Then there's Europe. Smoking in Europe did not decline nearly as much, nor as fast, as in the US. I don't know about the extent to which high blood pressure control occurred in Europe, but I doubt if it was any faster than in the US. Yet the decline took place to the same degree as in the US.

Ah, I hear you say, that's because it's the result of better treatment. All that money wasted on disease prevention programs. Except that the data supporting that contestation are as out of sync with the decline as were the risk factors. Many cardiologists have declared that the decline is a demonstration of the impact of all the coronary care units built during the 1960s and 1970s. CCUs were the crowning jewel in many academic medical centers. There were high tech and they were effectively black holes for money. Despite many efforts by epidemiologists to subject CCUs to randomized trials, cardiologists insisted (much as psychiatrists were doing at the same time) that to deny access to the CCU to any patient meeting criteria for admission to the CCU was unethical. But CCUs were an American creation. The UK and much of the rest of Europe didn't build them until the decline was well underway. That build-out wasn't completed until much of the decline had happened. The same is true for coronary bypass surgery and the use of stents.

 Bill Rothstein looked at this issue (to a degree) in his book (http://www.amazon.com/Public-Health-Risk-Factor-Revolution/dp/1580461271). Bill got into quite a heated discussion when he presented his first paper on the subject at the 2012 American Association for the History of Medicine meeting in Baltimore (esp with Bruce Fye, who I think is still at Mayo), and more recently at the 2013 meeting in Atlanta with Henry Blackburn (from U Minnesota). Henry's compiled his own online history of cardiovascular epidemiology (http://www.epi.umn.edu/cvdepi/people_list.asp), but at least when I last spoke with him late last year, he had no response to Rothstein.

Frankly put, no one understands the decline, and to suggest that statins and the like had little contribution to it doesn't make sense given the extensive clinical trial data showing significant effects. Lipitor can reduce the blood lipid level by a third, for instance. The only thing everyone agrees on is that there was indeed a decline. Maybe it's lots of little contributions, except that the lag times don't concord with that explanation, either.

I hope that helps.

Charles Pennington writes: 

Yes, that was masterful, seriously. I am still digesting it. Thanks!

If you still have energy left, I would also like to know about the left hand side of the curve–the enormous accelerating increase that took place from 1910 (when the rate was very close to zero) through the 70s. Was that at least partly a reporting/diagnostic issue — that they just didn't recognize this mechanism of death in 1910?

David Lillienfeld replies: 

Let's start with what we know and work from there. We know that by the 1960s, there were many heart attacks occurring in the US male population—women would catch up in a couple of decades (yes, Benson and Hedges had it right, just in the additional context of disease as well as social conventions, occupational opportunities, and so on). The phrase "He had a coronary" was part of everyday discussions. For a middle-aged American male, having a heart attack was almost a part of life's passages, much like one's first love, marriage, children, and so on. Heart attacks were diagnosed by EKG until the 1960s, when wide-scale availability of serum chemistry analyzers in medical laboratories facilitated the development and use of elevations in different enzymes as indicative of a heart attack. At the same time, the idea of a "silent MI," as it was called, was developed, in which some myocardial tissue died from a mini-heart attack that did not cause sufficient pain or shortness of breath to cause the individual to present to a physician. That's how we came to know that there were a lot of heart attacks in men during the 1960s (which is not to suggest there wasn't lots of heart disease in women, too).

How did we get to the point of having so much heart disease in the first place? Heart attacks have been known as a distinct clinical entity for a long time. In Major's Classic Descriptions of Disease (I think I have the second edition, but I can't find it immediately), the credit for the first observation of a heart attack is given to Adam Hammer, a physician in St. Louis, who published the description during the late 1870s. Angina pectoris, as a distinct entity, would await William Osler, but I don't remember the date. It was later than Hammer.

During the first part of the 20th century, there's general agreement that the majority of cases of heart disease were rheumatic, ie, sequelae to a case of rheumatic fever; specifically, there was damage to the heart valves. (While there was some controversy about the diagnosis of rheumatic fever and what might be its cause up until the 1940s, when T. Duckett Jones put forth a standardized set of criteria that have served since as the basis for making the diagnosis, the cardiovascular effects were accepted as such back by the turn of the century.) While there are some controversies outstanding about how exactly rheumatic heart disease develops, its clinical diagnosis can be made with assurance using the medical technology and skills available in the early part of the 20th century. It seems unlikely, then, that there were many heart attacks misdiagnosed, unless one posited that there were lots of silent heart attacks. I don't know of anyone putting forth that idea, though.

Two big factors weighed on the population's health during the turn of the century—better nutrition and, for reasons not well understood, a declining frequency of active tuberculosis. The two may be coupled, but again, that's controversial. Suffice it to say that American diets included many dairy products, providing a source of animal-based fats. This was the "anti-tuberculosis diet" of the early 20th century. It provided sufficient calories that even in the presence of an active case of tuberculosis, the patient was not literally consumed by the infection (this is why TB was known as consumption). The problem was that that same diet was also fantastic at creating fatty plaques the lumens of the coronary arteries (other arteries too). As the population became wealthier, consumption of meat and processed dairy goods increased. Concurrent with that was an increase in the prevalence of smoking. Prior to 1900, there wasn't nearly as much smoking as there was in the mid-20th century. And the vast majority of that smoking was among men. The incubation period for smoking on heart attacks is much shorter than dietary fat or hypertension. WW2 didn't help matters—the cig cos gave the cigs out free to soldiers—a whole generation hooked on smoking.

Hypertension is a little more challenging. No one's really sure when it really did first appear. Until the 1950s/60s, increasing BP with age was considered OK.

The bottom line is that there was a confluence of factors, all of which were increasing at the same time—a trifecta if you will. Or a perfect storm.

Apr

23

When it seems that the trading day can't finish soon enough, take heart that you weren't one of the pilots of this El Al plane trying to land without its landing gear deployed. Not a good situation—but at least caught by the automated alarms on board, averting what would have been a disastrous landing (I think the engines hang lower than the fuselage).

anonymous writes:

As the Chair has noted, the importance of checklists.

Apr

15

Taking a look at the BDI over the past year, is there now a head and shoulders? I ask out of pure ignorance—just trying to learn.

Gary Phillips writes: 

Back in the day, before the day…

I am loathe to admit it, but I first read Technical Analysis of Stock Trends by Edwards and Magee in 1971 when I was 18 y.o. (Btw: the acknowledged bible on technical analysis was written in 1948). There weren't any computers back then, so we had to keep the charts by hand. Along with reading and studying the book, Leo Melamed and Barry Lind mentored me in the application of TA to trading. I used to keep charts back then for Tom Dittmer, who ran Refco. In return, he taught me how to scalp in the pit when I first became a member of the CME in 1976. Bob O'Brien sr. taught me about the livestock markets, and when I migrated to the CBOT, I leased my membership from Bill Eckhardt, and was lucky enough to receive his tutelage. I stood next to the largest independent futures trader in the world (Tom Baldwin) for 10 out of my 25 years in the bond pit, and after + 40 years of trading, at the age of 61, I am still learning the craft from Vic and others on the list. Ghere are a couple of points to be gleaned here:

1. as Rocky H. once said, I am smart enough to know I'm dumb enough, that I don't know everything; which is the reason why I have always surrounded myself with individuals who are smarter and more experienced than myself. Unless you are playing poker, you never want to be the smartest person in the room– you won't learn anything, and you should never stop learning! and 2. the bible on technical analysis was written when Truman was president. I think they were still communicating by telegraph back then! Does anyone in their right mind really think that today's machine driven markets even remotely resemble the markets of that era? 

David Lillienfeld writes: 

Ok, but I don’t think the BDI is an object of HFT. So wouldn’t older approaches (i.e, from 1948) still be applicable? Or from a technical perspective, is it the tenor of the market (a butterfly in Africa flapping its wings sort of thing) which matters?

Gary Phillips writes: 

It's still an index and algo-driven professional trade, and I can't envision the palindrome putting on a massive short position predicated on a h&s top formation.

What is timeless in reference to traditional TA, is the tendency for traders to isolate the one data point (formation) that supports their directional bias while ignoring data points that contradict with their forward looking view of the market.

Charts in and of themselves are invaluable. They provide a point of reference for money management, capital flows, correlations, relative strength, etc, but, traditional TA (cliched patterns, trendlines, etc) seem anachronistic as a stand-alone predictive tool.

Craig Mee writes: 

Hi Gary,

I think its a mistake to put all TA in one basket. For example, trendlines are very different than patterns. If you can quantify the edge your setups possess, you may have something to work with. The problem that I see is with most technicians, they are running so many parameters and indicators that this is unachievable. I think market volatility and news is a function of whether markets behave similarly now to 60 years ago and am constantly amazed at often they do.

Gary Phillips writes: 

Perhaps in a very generalized manner, i.e., markets go up and they go down, they back and fill, and uncertainty is still a fundamental reality in trading, and, just as in the past, the best we can hope to achieve, is an incomplete, but probabilistic knowledge of that environment. However, the tools we use have changed and so has the perspective needed to understand the context of the contemporary market. It requires an approach built on an analytical framework that is relevant to current drivers of price. While traditional TA may provide a comfortable resolution and a summary shortcut to order amongst all the chaos, it doesn't yield any insight into market structure. What dramatically distinguishes today's trade from yesterday's is market structure and Fed policy. To a very large extent, price action is no longer controlled by humans, and to an even larger extent, price action has been contaminated by qe/zirp. This is the fork-in-the road where the past deviates from the future. This means resisting the sirens' call to assign causality to traditional ta patterns, trend-lines, fibs, and other hackneyed tools that were created for highly auto-correlated markets, driven by human decisions and real risk/reward considerations. It means using the right tools with proper perspective and incorporating relevant informational signals from a wide range of deterministic processes. The new-normal approach begins with recognizing the current dynamics of liquidity provision and developing an informational framework with signals that reflect the machine driven reality of HFT, along with an understanding of the impact of qe/zirp and risk-on/risk-off.

Craig Mee writes: 

Agreed there are some larger drivers at play, and something like a magnetic or invisible hand keeping the pull to one side. But the boom and bust nature of the markets of the last 19-20 years is far from at an end so any extension will still be reverted. There may be periods and instruments where opportunities at times are limited, (for example, I would say its probably easier playing the curve now in rates then trading outrights) however fear and greed under the right volatility conditions is, in my humble opinion, still a force to be reckoned with. Separating the house of TA from price action and behavioral sciences is probably a good start so as not to give a illusion of believing in hocus pocus and mad methods while not understanding the underlying. The major returns and opportunities will still run with fundamentals, whether forced or established, but being able to have a value entry via the opportunities that humans create through their ever present qualities such as running with the herd on news and perceived threats which don't eventuate can allow for outperformance. I believe that the question of whether to weigh the opportunities that human behavior presents has to be sized up under the right volatility to ascertain whether risk has been compromised. 

Apr

10

 1. If an agrarian reformer without the agriculture is in the driver's seat, does that mean you should steer the car for bullish highways for gold and bank stocks.

2. Who would have thought that ducks are as smart as the floor traders, and at the slightest movement of voice, smell, or reflection will veer away from your blind at the speed of light or the speed of a HFQ slipping ahead of you.

3. All books by the former intern at the Brothers will be engendered by a foundation of hatred of the rich and envy. How would this affect in reflection his book on the statistics on baseball.

4. The continuously adjusted corn contract hit a low of $1.80 in June 2010 and reached a high of $7.00 inSpe 2012 and went down again to 4.2 in Feb 2014, and is now playing footsie with $5.00

5. The kudos being handed to Smith for breaking the 3 point record is a horse from the same garage of ephemeral moves always being harmful to shortsighted people.

6. What are the transformations of markets like the Laplace transform in math that make it easy to unravel their basic structure and path?

 7. The best restaurant in the US is Brushstroke on Duane street, but it takes the life of a Methusala to finish the meal there.

8. The SPU is very high relative to the Nikkei and this is presumably bullish for Nikkei as was the recent leading movements in the Tel Aviv 25 bullish for SPU.

9. What are the most recent humorous remarks by the Chairwoman that should be added to the 1.4 million adulatory references on Google of her past humorous remarks.

10. If there was one person from history that I would like to sit on a log with and learn from, it would be Francis Galton. One wonders if he was as good with the buying and selling of stocks as his cousin Darwin who filled out a questionnaire in 1869 saying that the timely buying of stocks was his greatest talent.

David Lillienfeld writes: 

I’d go for Richard Feynman. My father told me that in addition to the intellect, Feynman had a wicked sense of humor in high school (and he apparently ran circles around the Columbia math PhDs then teaching at Far Rockaway High). 

anonymous writes:

 Speaking to both HFT and Laplacian transforms, some of the bid/ask action from HFT algos look spot on for the triangular wave, square wave, sawtooth, and step functions. Catching the price with a sawtooth and moving it with step function.

Steve Ellison writes: 

A propos of your third point, there is a hint on the book jacket of the library-owned copy of Moneyball in front of me at this moment. The last sentence on the flap goes: "He also sets up a sly and hilarious morality tale: Big Money, like Goliath, is always supposed to win … how can we not cheer for David?".

Gary Rogan adds: 

The full title of the book is Moneyball: The Art of Winning an Unfair Game. The man himself is a son of a community activist and lives in Berkeley. The richer he gets, the more he hates his own kind and the side represented by his other parent, a corporate lawyer.

Apr

10

 If you are responsible for the care of an elderly family member, beware of a new development. Medicare is increasing pressure on hospitals to admit patients under "observation status." It appears their goal is to shift hospital costs onto patients and third parties. According to AARP, when a patient is classified under "observation status," the hospital may provide similar services. However, they are not compensated under Medicare Part A; they are compensated under Part B.

Compensation under Part B means the patient's family could be in for a surprise. Unless they pre-purchased additional insurance, the patient assumes financial responsibilities for hospital charges. Those charges could be significant.

There is more. The decision to admit under "observation status" reaches beyond the hospital. It means the patient will be denied Medicare coverage for any subsequent skilled nursing facility expenses, even if those services were ordered by the the hospital or the patient's doctor. Under these circumstances, patients become financially liable for most of facility's daily rates and charges.

Most thought they thought they were insured for these expenses. They are surprised by by the hospital's admission decisions. They are also surprised by consequential financial obligations.

To learn more, read AARP's bulletin. In addition, google "Observation Status" (keep the quotes).

David Lillienfeld writes:

Back in the early 1990s, 25 percent of all health care expenditures in the US occurred during the last year of life. It is now up to 30 percent.

Medicare and Medicaid was 36% of health care spending in 2011, though the same fact sheet lists government expenditures as 28 percent of spending. Not included in these data are the health care expense coverage for uniformed military personnel, their dependents, those in the VA system, and those in the federal government. If those were included, I'm sure the proportion of health care funded by the federal government would increase.

Of note is that not all of Medicare is spending on the elderly. Medicare also covers those persons with end stage renal disease (ESRD). There are already at 950,000 of such patients in the US, and while the incidence rate has leveled out (probably reflective of better blood pressure control, reduced rates of renal arterial atherogenesis, and better control of early and mid-stage Type II diabetes mellitus (most commonly secondary to obesity but not exclusively so)), the prevalence of the disease will likely continue to increase.

Individuals with ESRD receive regular dialysis treatments. These are time-consuming, sapping of energy, and expensive. The only way to stop dialysis is with a kidney transplant. Medicare will cover the costs of a transplant, but it will not cover the cost of the immunosuppressive medications afterwards. A not uncommon experience is for the patient to receive the transplant but not be able to afford the immunosuppressant drugs, and the transplant is consequently rejected. The patient then returns to dialysis which is—you guessed it—still covered by Medicare, until the next transplant. (If you wonder why DeVita is a low risk stock, at least in terms of demand for its product, this description provides an answer.)

One of the complications of ESRD is anemia, correctable by erythropoietin. Amgen sells this biological and has, courtesy of Medicare coverage, built a $4+ billion product. Unless the FDA allows generic biologicals, that franchise is pretty safe. It's worth remembering that generic biologicals are not as easily produced as pharmaceutical ones, so some caution is in order.

I don't know what proportion of Medicare expenditures are for ESRD care, particularly for those under 65 years of age, but I can't imagine it to be trivial, and it is growing. As with coronary bypass surgery (which at one time Medicare did not cover), however, the projections of likely expenditures has been eclipsed by the actual amounts spent.

One would like to see efforts at identifying best practices funded, but that idea has been repeatedly shot down.

With health care spending at 17-18 percent of the economy, it is a substantial industry. Trying to restrain its continued growth will be challenging on many levels. There is little political will/leadership to do so.

Apr

2

 1. When you got out for lunch, the market will take a big move in your favor that you were too slow on the trigger to capture. Your wicked friends will stay glued to the screen during that time, knowing the big move in what would have been in your favor is about to happen.

2. When you switch your position size down after series of big losses, you will hit 5 winners in a row, which will not compensate you for just one of the big losses you took.

3. The bonds will rally big on a economic number like GNP, but stocks will go down sharply and the explanation will be concerns about interest rate increases.

4. The big basketball game will feature a comeback the previous evening that is exactly like what happens in your market, and your team won't make it to black nor will you.

5. Whenever you have a big loss, and it turns around and goes to break even and you get out with a hootenany of relief, the market will go at least as far in your favor if you held as your were under water before.

6. Whenever there is serious morbidity in your family, you will lose many days in a row.

7. After a tremendous decline, the market will percolate around near unchanged for a day or two until you give up hoping for a rise, and then it will have a huge rise in your favor.

8. After a series of lucky trades in your favor, you will increase your size and the market will give you a tremendous beating. The same thing happens with basketball teams when they hit a lucky % of threes in the first half. When they try the same thing in the second half, they will make only 10% of them, and will go on to an ignominious defeat.

9. The worst trader on your team will be the one that defends you after a big loss and says that everyone should rally behind the boss, he's been trading the longest. Imagine the ignominy of having Smith the worst player in the league, and the cause of all the Knicks woes, defending Woodson and saying all the team should rally behind him because he works so hard.

10. Your wife will come in and look at the roller coaster chart of your swings on the day, and suggest "why don't you get out of half". You won't listen to her and you'll double up, and you'll be so ashamed you'll quietly sleep in the dogs kennel that evening.

11. The more time that passes from your early days as a speculator, the better you were (in your own eyes).

12. When you're long the grains in the summer, and you spend a weekend in the Hamptons, the sun will shine brightly all day, and a light rain will fall at the end of the day.

13. When you go out for dinner, the person next to you will be talking about his youngest daughter bought Netflix and Tesla and made millions on them.

14. After getting out of positions successfully on a swing during the day, you will try it the next day, and by the close if you had held your position you would be a rich man.

15. When you're long the market over the weekend, war will break out, or John Kerry will be reported to be visiting the Mideast or Russia to put out a fire.

Please add to the list.

David Lillienfeld writes: 

Vic, if it makes you feel any better about it, I often wind up having to sleep in the kennel, and that's without a trading loss. And we don't even have a kennel.

Gary Rogan writes: 

David's tale of woe reminded me of the old definition of Metaphysics: it's like being in a dark room and looking for a black cat that isn't there. Either that or the waterbed joke: you know it's going to be a bad day when your waterbed has sprung a leak and then you realize you don't even have a waterbed.

But for me what's guaranteed to happen is this: if I buy a little of some stock, I will have a nice gain, if I buy a lot, I will have a big loss.

Ed Stewart writes:

 The malevolent invisible hand guides ones trades when the in-laws visit. Suddenly your position size is 3X the norm, getting bigger, and at just the wrong time.

George Parkanyi writes: 

16. When you sell or short a stock - a takeover announcement will happen the next day (that happened to me twice - sold Robert Simpson; shorted General Instrument).

17. When you go from theory to practice, your well-researched and tested system will immediately bleed money, and will only start making money (without you) when you stop using it.

18. The positioning of your stop-loss order is irrelevant - you WILL be stopped out within a few cents of the low/high, and the market WILL go roaring the other way. (This is the only sure thing in trading.)

19. You will apply logic, reason and critical thinking to the market. You might as well have thrown a dart.

20. In exasperation you will eventually just throw a dart. Your position will go against you.

21. You will continue trading anyway, because your DNA has failed, permanently locked in the "I can do this" switch position.

Craig Mee writes: 

As soon as you mention a position to
anyone (some more so than others–for example, Vic's Hoodoos) the
heavens will open and you can kiss it goodbye.

Ed Stewart adds: 

Another guaranteed to happen item. Far more often than should occur by chance an invisible hand keeps you in the loss by a few ticks. At this point if you get out with a planned time based exit, most often prices move quickly in what would have been your favor. If you stay in, it does the opposite. And a related item, if you get out with a day-trade profit, it keeps going in your favor for days. If you swing trade it, the reversal was just a blip in the previous trend and you are soon dunked underwater again. My thought, and I could be wrong, is that much of this is real, not imagined, and is a more distant effect of the adverse selection problem with limit orders.

Mar

31

 Today, in Baltimore as in many other cities across the United States, today is Opening Day, the first game of the 2014 baseball season. For many, spring began on March 21; for fans of baseball, it begins today. In the Baltimore of my youth, on opening day, there were usually a few empty seats in the classroom once noon came around. It was understood that some parents had procured tickets to opening day and that was that. One teacher at my elementary school tried to schedule a test on opening day as a means of getting her students to stay in school. Word of this innovation reached the Mayor, who subsequently called the principal and told her that such approaches were not in the best interests of civic spirit. The test was re-scheduled. My school was not unique, as this episode was reported across the city, and dutifully written up in the Sunpapers and the News American as though it was something novel when it never was.

 When I was 4, the premier home run hitter in the Orioles line-up was Jim Gentile. I remember screaming myself hoarse at many a games as though my utterances would have any impact on the path of his well hit balls to the deep outfield. Of course, they never did, and most times, the ball was caught. But that interest faded, as Brooks Robinson began what can only be described as his amazing career. (To this day (37 years after retirement), in Baltimore he is known as Mr. Oriole and when he travels in the city, it's as incognito as he can get not so much out of disrespect for the fans but, rather, in deference to them. I remember once waiting at the stoplight at end of the Jones Falls Expressway going into downtown Baltimore. The driver of the car at the head of the next lane over was Brooks Robinson. He was recognized by the driver in the car in the next to him, who promptly exited his car and, with paper and pen in hand, went to Brooks' car. A fellow in the car behind Brooks's car started honking his horn—the light had changed and the driver now by Brooks's car screamed back, "It's Brooks Robinson! Can't you wait a second, fellow?" The driver of that car soon emerged from it, also with pen and paper in hand. This scene repeated a few times, with a mob forming near Brooks's car. He finally got out of the car to rousing applause by the assembled fifty (maybe more) or so drivers and onlookers on the sidewalks leading to the intersection. He asked if anyone else wanted an autograph and as you might imagine, hands went flying into the air. Not a few were by parents with a child in tow, waiting to see the legend. He said he was pulling off to the side of the street on the other side of the light so drivers could exit the expressway and get to where they were trying to go. Of course, that didn't do anything to get the now abandoned cars off the JFX, as it was known. The mass of people moved forward and engulfed the car as Brooks got out of it again. A policeman came over to see what was going on, and there were soon Baltimore Police Department cruisers blocking off the streets around this scene. After about 45 minutes or so, Brooks started pointing at the abandoned cars and thanked everyone for their support over the years and how proud he was of the city and how much he looked forward to seeing them at the stadium. That was Brooks. Years later, Bob Costas was interviewing Cal Ripken after Ripken had broken Gehrig's streak. Costas noted that Ripken was known throughout the city as someone who, when walking somewhere and approached by any—especially anyone young—he would stop and talk with them, sign a piece paper and so on. Costas wanted to know why Ripken did it, it was so unusual for ballplayers. Ripken said that he had grown up "just up the road" from Baltimore, was a lifelong Orioles fan, and that when you grew up near Baltimore, you learned how to play third base by watching Brooks. "Watching Brooks taught me a lot about playing third, and also about living your life. Brooks did it, so I do it too. It's the right thing to do for the fans. Especially the kids.") As with many youth in Baltimore, when my father would take me to see an Os game, I went with my Spalding baseball glove (the one with Brooks Robinson's name in cursive on the palm) and my Johnny Unitas crew cut. If you looked around the stadium, every boy under 10 looked like me, convinced that there would be a ball hit towards them, and that the Brooks Robinson Gold Glove mitt would let they haul it in. I never figured out what the kids behind home plate thought, with the netting and all. If the netting gave way, though, they were prepared with their mitts ready for action and their right hand prepared to drop the soda cup to catch that ball.

 Boog Powell was another fixture of the Orioles of my youth. He played the outfield for a while, but at 6'4 and 225 pounds, he was too good of a target at first base to be left in the outfield. Powell was a strong hitter. He hit over 300 homers during his career—and these weren't balls that maybe without an assist from the wind would have been foul or good for a long fly ball out. Nope, these were creamed. There was no doubt that the ball would soon be gone. Which was good in a way, since Powell batted left handed and was a dead pull hitter. Lots of times, the opposing team would move the shortstop behind second base, the second baseman to midway between between first and second, and the first baseman guarding the line. It didn't much matter when the ball was smashed through the infield into the outfield. In 1970, Boog's AL MVP year, one team once tried a different type of shift. The third baseman playing behind second, the second baseman and the shortstop were playing between first and second, and the first baseman was holding the runner. Boog was the tying run, and the opposing team wanted to make sure he did not get on base. Boog proceeded to hit a curve ball to where the 3rd baseman should have been, in which case it would have been a pretty routine double play and the Os would have lost. The ball had lots of spin on it and after it hit the turf, it took a wicked twist into foul territory. By the time the 3rd baseman fielded the ball, the runner had scored and Boog, representing the tying run, stood at second base with a stand-up infield double. (No error, just badly positioned fielders for that particular player.) Elrod Hendricks (who subsequently became the Os bullpen coach), at least I think it was Elrod, came to the plate and on a 1-1 pitch, lofted a ball just over the right field wall. Os won by a run. There was the time Boog was on first, a left handed hitter at the plate, and Boog got a great jump on the pitcher (what pitcher in his right mind was going to hold Powell on first??). As just about everyone in the stadium fell off their seats (Powell never stole bases, he was simply too slow), the catcher released the ball pretty quick, and the shortstop came into position to take the throw and tag Powell for the out. Assuming of course that Powell was out. Which became a moot question when Boog drops to a slide, left leg extended, spikes visible to all. Seeing 235 pounds of angry pot roast coming at him, the shortstop got out of the way as the ball, thrown perfectly just right of second base, went sailing into center field. Powell wisely didn't try to take a base on the error, he would probably have been out. As it was, he scored two batters later. Someone (I don't remember who) interviewed the shortstop after the game about that throw. The shortstop replied that he could let the ball go by and take the error, or (seeing Powell starting his slide) he could take the throw and deal with the spikes and the mass behind them. He said he could live with the error but observed that it's hard to live when you're dead. Yogi Berra was not the only profound philosopher in baseball.

 There are others in Orioles history I'm sure many already know about—Paul Blair, whom Willie Mays thought covered more of center field than Mays ever could, and if Mays invented the basket catch, Blair perfected it—Frank Robinson, arguably the most intense competitor in the game during his career—even more than Pete Rose at the time and others. Bob Gibson said that Robinson was one of the players he most feared (his word) pitching to—"he has so many ways to beat you." Frank stands out not just for his exploits on the field but also his difficulties in finding a home for his family in Baltimore. This was in 1966, and Baltimore was still de facto (though not de jure) segregated. Robinson had trouble finding a house. He found one eventually, but not before the News-American, at the time with the highest circulation in the city, published a front page (not sports section front page) above the fold article about Robinson's experience. I wonder to this day whether that experience, and the publicity attending it, helped with integration (such as it was) in the city.

It's getting to be time for the game to start, so I'll stop here. It's time to think back to those innocent times as a kid, at Memorial Stadium (I have lots of memories from it), glove on my left hand peanuts in my right, ready for that ball that I was sure was coming my way, my father by my side. Tim M—do you think Tillman wins the opener?

Scott—sorry, I haven't followed the Cards this spring. The season needs to advance some for me to get much of an idea about them this year.

Regardless, it's time to "Play ball!"

Tim Melvin writes: 

Nice piece David. Tillman has pitched well all spring so he has a good shot at a win if he can go deep and keep ball out of the hands in the bullpen.

David Lillienfeld replies: 

Thanks. I agree with you on both counts.

I've often wondered if the tell on the re-ascendence of the US will be signaled when baseball resumes its long-standing role as the national pastime. The NFL may have over-reached with over-exposure, not to mention health issues. We'll see if the MLB comes back. Football is such a militaristic game (blitz, bomb, mounting a drive, etc). Nothing like that in baseball. Walt Whitman called it "our game, America's game".

Mar

20

 With spring in the air and mosquito season not far behind (especially in Minnesota, where the state bird is the mosquito and there are two varieties—the ones small enough to fit through the window screen (aka "no-see-ums") and the ones that just lift the screen up), a note of caution: Beer seems to render one more attractive to a mosquito—i.e, a bigger target for a bite. This is true at least for malarial mosquitoes. I suppose it's possible that other mosquitoes are not so attracted. Perhaps the next round of research will examine those other mosquito varieties.

Mar

10

 Has anyone put into practice or examined Ray Kurzweil's (of Google fame) lifestyle advice for living long enough to make it to the singularity (the point where nanotechnology will allow you to live forever?). It's described in his book, Fantastic Voyage: Live Long Enough to Live Forever

(I have not read it yet).

anonymous writes: 

I have a copy of the book, and have read it. I am interested in working with a doctor who is Kurzweil friendly but have not actually broached the topic with mine. My biggest concern with some of the content is the large number of unproven supplements Kurzweil is ingesting. He is a believer in the health properties of alkaline water which I have a very hard time buying into. There are also other supplements that I don't think bear out under scrutiny. A lot of its recommendations are common sense in terms of what to eat and what to avoid. However, I did find other parts of the book to be interesting though, and think it is worth a read. Some of the theory in particular will be of interest for those inclined to go down the rabbit hole.

If you go to their website, you can actually download a short guide to much of what the book goes into depth here.

After doing a lot of my own research, I think Vitamin D is probably a key supplement for most people, and I am now taking it daily.

I've actually read all of Kurzweil's stuff and am a fan overall. I would question though why the singularity has not already happened somewhere else, unless we truly are the only intelligent civilization in the entire universe. It seems like at the very least we should have encountered probes by now.

David Lillienfeld writes: 

There are some data available, and those have been looked at many times. The Mediterranean diet, for instance has repeatedly come up in the Seven Countries Study, and ditto for the Adventist Health Study. Migration study findings of differences in mortality likely includes differences in diet, but what exactly that is remains unclear. I don't thing there's much debate about the Ornish diet reducing mortality, though the practicality of getting anyone to remain on it for any length of time may be questioned. Depending on how one looks at alcohol consumption (whether a food or something else), one can say that there's pretty good data that reductions in alcohol consumption are associated with relative reductions in mortality, though the effect is best seen at higher levels of consumption. In contrast, trying to make sense of any of the data collected using FFQs has been challenging at best.

Mar

3

There have been at least 5 instances in the post WWII era in which Russia has invaded another country: Hungary, Poland, Czechoslovakia, Afghanistan, and Georgia. Are there any analyses on what happened to the S&P the day following the start of the invasion, the week following, the month following, and the year following?

Kora Reddy writes:

War                                         Start      First Market Open Date     t       t+1    t+5    t+10    t+20
Hungarian Revolution                23-Oct-56    23-Oct-56                -0.24    -0.41    0.54    2.15    -3.14
Invasion of Czechoslovakia        01-Sep-61    01-Sep-61                0.18    -0.34    -1.33    -1.44    -2.08
War of Attrition                         20-Aug-68    20-Aug-68               -0.04    -0.26    -0.22    2.26    3.67
Eritrean War of Independence    01-Jul-67    03-Jul-67                       0.3    0.49    1.73    2.85    4.91
Ethio-Somali War                       13-Jul-77    13-Jul-77                    0.14    0.59     2.01    -0.8    -1.44

Soviet War in Afghanistan         24-Dec-79    24-Dec-79                   0.07    0.11    -1.76    1.29    5.37
East Prigorodny Conflict            30-Oct-92    30-Oct-92                    -0.52    0.97    -0.26    0.9    3.03
Civil War in Tajikistan               05-May-92    05-May-92                  -0.02    -0.01    -0.13    -0.11    -0.54
Georgian Civil War                    22-Dec-91    23-Dec-91                    2.53    0.63    5.11    5.36    5.37
First Chechen War                    11-Dec-94    12-Dec-94                     0.56    0.15    1.88    2.89    2.71
War of Dagestan                       02-Aug-99    02-Aug-99                   -0.05    -0.44    -2.28    0.2    -0.3
Second Chechen War                 26-Aug-99    26-Aug-99                   -1.43    -1.01    -3.15    -0.76    -6.22
Russo-Georgian War                  07-Aug-08    07-Aug-08                   -1.79    2.39    2.12    0.92    -1.88
North Caucasus Insurgency        16-Apr-09    16-Apr-09                      1.55    0.5    -1.55    0.87    3.21

                                                                                              avg    0.09    0.24    0.19    1.18    0.91

                                                                                         median    0.03    0.13    -0.18    0.91    1.21
                                                                                                std    1.03    0.79    2.13    1.75    3.48
                                                                                             t-test    0.32    1.14    0.34    2.54    0.97
                                                                                               max    2.53    2.39    5.11    5.36    5.37
                                                                                               min    -1.79    -1.01    -3.15    -1.44    -6.22

for MICEX, the historical data goes back only till 1997.

War                                            Date               t        t+1    t+5    t+10    t+20

War of Dagestan                      02-Aug-99      -0.43    -1.81    -13.57    -6.56    -9.12

Second Chechen War               26-Aug-99       -3.94    -3.55    -3.65    -4.65    -21.49

Russo-Georgian War                07-Aug-08         1.61    -5.25    0.69    -2.81    -10.66

North Caucasus Insurgency     16-Apr-09          1.23    1.72       1.2      0.35     10.44

                                                         avg    -0.38    -2.22    -3.83    -3.42    -7.71
                                                     median    0.40    -2.68    -1.48    -3.73    -9.89
                                                         max    1.61       1.72    1.20    0.35    10.44
                                                         min    -3.94    -5.25    -13.57  -6.56    -21.49 

Feb

10

 It seems commercial construction in Sydney is picking up again as Chinese money is arriving. Apparently it appears they are just scratching the surface.

Side Note: an apartment in the middle of a Chinese area in the middle class north shore of Sydney had 16 registered ethnic Chinese buyers and sold for a million. It seems there's plenty of fire in that dragon down under… or I should say buck in the horse.

David Lillienfeld writes: 

I'm hearing from friends that the Singapore construction market is bloated at the moment. Might that money now be going to Australia? And is that money flow into Sydney indicative of problems developing in China and everyone who can is getting their money out?

Feb

10

 There's lots of discussion about raising—or not raising—the national minimum wage. Lots of arguments on both side of the issue. There's a recent analysis from the Chicago Fed which suggests that while the impact of such a change on jobs per se may not be much, it does have an impact—many small businesses close and approximately an equal number open. The conclusion was that the closures occur as an "older" management with a staid business model finds it difficult to cope with the new wage floor and shutters, while a newer entity, with a "younger" management, starts with a fresh business model that is adapted to the new reality. 

Stefan Jovanovich writes:

As is so often the case, the light from the brightest bulb blinds rather than illuminates. The point of the minimum wage is to create a higher floor above which fixed rates are calculated. David has no idea how many contracts set pay rates as a multiple of the minimum wage. He also has no idea how easy it is to offset the minimum wage raise effects by doing a speed-up. For the more modern employers that is no problem at all; for us old farts who have actually bussed dishes ourselves, that requires being a bit more of a bastard than the face we shave allows.

There used to be two choices with businesses that hired teenagers and other people with limited skills - teach or grind. Thanks to academics of proper authority there is now only one so some of us have retired permanently from teaching.
 

Feb

5

Rocky's looked at natural gas; I follow biotech pretty closely. While some of the real biotechs (the ones with products in the marketplace) are doing OK, Celgene looks a bit extended. Its PE is north of 30, and looking at its chart (and I'm nothing close to some of the technicians on this list), it looks like it finally broke down. Strange that Celgene broke but Regeneron did not.

Jan

27

 We've had some interesting discussions during the past couple of money about power and energy, including some about renewables. So I thought it was interesting to open my NYTimes this morning and see this interesting piece about some differences among conservatives about renewable energy and its economic impacts and underpinnings.

It seems that there is now Green Tea, a reference to Tea Parties given favorably towards renewables. (I guess with caps is one thing and without is another.) No one has talked about BlackTea, as yet, but maybe that's yet to come. What exactly it would mean is well beyond me. There's Texas Tea, which I learned from the Beverly Hillbillies (hey, I was 6 years old—the indiscretions of youth) is oil. There's Mr. Tea, who is either an actor or a device to make tea perfected by Father Guido Sarducci (nee Don Novello) and demonstrated on an SNL appearance (it was pre-Billy Mays, so it wasn't a big seller, I guess).

There are many themes that we’ve been talking about on this site for the last few months that seem to be playing out, based on this article. Couple it with some suggestions that the solar industry may be the next battlefield in the economic war now in its early stages between the US and China (—at least it seems to be early stages. Maybe it’s later along than that, and one has the sense that renewables are clearly ascending in their visibility in American daily life.

Jan

20

 The Palestine Exchange is difficult to understand. It's not a stretch to say that some of the companies listed could be gone in an instant. The exchange itself was set up to deal with such matters, but the listed companies, not so much.

The Tel Aviv Exchange isn't what it used to be (on lots of levels). It used to trade on rumor and there was a bit of insider trading back in the day. Previously, many Israeli companies would have listed on the TAE and then, maybe, migrated to the NASDAQ. Such a move was a big deal back then. I remember explaining to the members of one of the investment clubs that I ran back in the 90s that such a move was good. They thought that the move should have been to the Big Board. It was this smallish pharmaceutical company no one had heard of—Teva.

The interesting one is Saudi Arabia. Some of those stocks been sitting around like some of the Kenyan banks were 5 years ago. There's some good values to be unlocked there. On the other hand, valuing banks in Islamic countries is something I haven't yet mastered. Ditto for insurance. There are other exchanges too, not listed on this screen. Did you know there's an Iraqi exchange? I thought it a joke when a friend mentioned this to me last month. He claims that the returns have been pretty good. I think, though, it may be more like the Palestinian Exchange, where the company disappears physically rather than financially in an instant. Maybe by the end of February, I'll have finished a deep dive. It's not as though there can be that many companies to survey.

Jan

10

In the days of my youth, there were two national department stores, Sears and Penney. It was a fierce rivalry between the two. Penney tended to do better at the soft goods, Sears, the hard goods. Regardless, they competed against one another. Over the last couple of decades, it seems that rivalry waned. I can now definitively state that this rivalry is back on. Competition, the essence of America! It seems that both companies are in a race to see who can get to Chapter 11 first. Or maybe Chapter 9.

Jan

8

For those who thought that European troubles were a thing of the past and that European banks must be OK, it's worth taking a look at France and Italy. France has been talked about as the sick man of Europe for a while now. There are too many links to offer. But Italy just came out with a report about continuing unemployment problems. Given that there remain serious problems in two major economies in Europe and they show no signs of resolution any time soon, can European troubles really no longer weigh on US markets?

Dec

30

 A few months ago, we had an animated discussion regarding the long-term viability of Facebook (and by extension its value). Reports were already starting to surface at that time that youth were moving away from FB. Some ethnic groups like blacks had moved on to other sites, such as MySpace. While most of these reports were US-focused, there is now similar findings for European youth. How FB will address these changes, if it addresses them, is not clear. Also unknown is what the recent disclosures of FB's responses to NSA surveillance requests is also not known. In any case, evidence is mounting that FB is a passing fad, at least among youth. I do not know of similar reports for their parents.

Peter Tep writes: 

In terms of cool factor amongst youth, 12-25, I believe FB is indeed fading but its usability is still second to none. As a Google+ user also, I can say that there is no comparison to FB, especially since one can also keep in touch with his older less technologically inclined older relatives.

Twitter definitely has the edge over FB now in terms of instant connection etc and teenie boppers can feel more connected to their beloved celebrities.

Although fading, I'm yet to believe that there will be a worthy competitor of FB.

My 2c

Dec

27

For those who understandably thought that the Iran front would be quiet while Iran built their nuke, ’twas not to be the case.  It seems Iran is determined that if more sanctions are levied at it (and the US Senate is certainly headed in that direction, White House be damned), it will raise its enrichment program to a 60% level—well beyond any claim of a peaceful use. I’m mystified as to why Iran did this, unless it’s trying to further upend the Obama White House (I’m not sure that’s possible at this point) or to taunt the Israelis (which would be thoughtless, since the one country that won’t hesitate to strike is Israel. Given that Kerry is trying to shove a treaty down Israel’s throat and is being adamant about not releasing Jonathan Pollard even as it demands that Israel release convicted murderer, I don’t know that Obama has much credibility left in Jerusalem to throttle Bibi back. One thing is clear: When Iran detonates its device, assuming Israel has not struck Iran, Bibi’s political career will be over. I doubt Bibi is willing to accept that possibility. That’s my take. I’m sure there are some other ones on this site.

Dec

24

 These are some of the events that I've concluded qualify as some of the "Black Swan" events of 2014:

1. In a final pique with the US over its Iranian policy, its Syrian policy, and its Egyptian policy, Saudi Arabia announces cuts in production of 80%, sending the price of Brent up to 130. This precipitates a crash in the markets, a reversal of Spanish and Italian stabilization, and an accelerated contraction in the French economy. Christine Lagrande announces her candidacy for the Presidency of France in the face of massive demonstrations in Paris by students who looking at an umemployment rate of nearly 40% when they leave school as Hollande's approval ratings drop below those of Obama. After 6 months, the Saudis relent and return production to pre-reduction levels, but the EU has already settled into a recession.

2. India announces a ban on ownership of gold, leading to panic in the gold markets. Bitcoin prices stage a temporary rally to $1500 as investors try to find someplace "safe" to store money realized from sales of gold and out of the government's reach. An earthquake is felt in the vicinity of Jim Dines' grave (well, that one is pretty speculative, I grant you).

3. Results of five epidemiology studies suggest that drinking coffee is a cause of erectile dysfunction. Spot coffee prices go limp (sorry, couldn't resist) as Jim Rogers appears on every CNBC show proclaiming it to be a buying opportunity of the century. Dunkin Donuts and Starbucks both announce the addition to their menus of different tea varieties and drink.

4. Reports of massive corruption in Nigeria trigger a coup d'etat, with nationalization of mineral resources. China voices concern over the security of its mineral purchases in Africa and announces an across the board stockpiling of commodities. The yuan is pressured even as commodity markets show more life than during the previous 5 years.

5.
The nation's university graduate schools face a wave of unionization following the success of such efforts at NYU. The presidents of the University of California, the University of Texas, the University of Michigan, and the University of Pennsylvania announce that unionization of their school's graduate students will push tuitions up to unacceptable levels and leave the middle class impoverished paying for college. Tuitions increases of 10% for 2014-2015 are announced.

6. The Mets win the NL pennant. The Orioles win the World Series. (Tim Melvin is pretty sure this one's a lock.)

7. A breakdown in the HVAC system at Goldman Sachs HQ in the early spring during a multi-week heat wave leads to management to allow (temporarily) employees to "dress down" and not wear ties or suits. Three days after this new, temporary dress code is put into place, the rest of Wall Street does likewise and men's clothing stores throughout NYC begin to close as a result of the decline in business.

8. TheStreet.com is purchased by News Corp as an effort to diversify its holdings in electronic media.

9. Delta Airlines announces that beginning in 2015, all lavatories on domestic flights will require electronic payment of $0.40. In the face of consumer uproar, Delta announce that the new fees will allow it to lower airfares, which it never does. Airline stocks rally at the news.

Just some possibilities. Be on the lookout for them.

Peter Andre writes:

None of these are "Black Swan" events. Coup d'etats, market volatility, sports victories, and research outcomes may be unlikely or surprising, but they are not - as a "Black Swan" episode requires - unknown unknowns which are computationally intractable and later forced into a narrative which suggests future predictability.

Using only the first example: so long as, say, oil option prices in the wings (50 puts, 150 calls) are not only traded in some volume but priced and repriced according to news, even if erroneously, the likelihood of a price move for any reason carries some degree of computability; there are always bulls and bears in a market, and thus a price drop (or spike) does not lie outside the realm of expectation, albeit on the fringes. But if North Korea, Switzerland, or Australian researchers were to suddenly announce and demonstrate their invention of a cheap and broadly applicable energy source which in several years would render oil, gasoline, etc. obsolete, sending the price of oil to $5, with the pits eventually being closed and massive political instability taking hold across the Middle East, yes: that would be a Black Swan event.

Dec

10

 One point of Gary Hoover's, who recently spoke at Junto, was that stores that were most successful were the greatest showmen. I am not too good at the showman but I made a few sales today with an unusual Barnum close. Australian customers were in Aubrey's booth, and they were walking by. First, I offered them a hot tea. I drank it myself with them and told them the story of Gino Paolocci who swallowed the grasshopper in a taste off of his chow mein when the grasshopper was on top of the opened can. They still hesitated. I gave all the 4 daughters a free colored spice jar for 1 buck each. They demurred, but I told them a Homeric story or two with the tag line "never look a gift horse in the mouth". They still hesitated. I asked them if they had any relatives who had been Transported. They nodded. I then told them in all honesty that my father was a policeman and I felt guilty for the Transport and I give 25% discounts to all progeny whose forebears were Transported. That closed the sale and I made a 5 buck commission offsetting potential losses in the speculative field for the day.

David Lillienfeld writes: 

Showmanship takes lots of flavors—Harry Selfridge, John Wannamaker, Marshall Field, and so on.

You're in good company.

Nov

22

Ode to Janet Yellen: A Fed Prayer

Dearly Beloved,

Let us pray.

Our Fed
Who art in Washington
Yellen be thy name
Thy printing come
Thy will be done by Ben as it is with Janet
And as it was before by Greenspan.
Give us this day our daily 3 billion
And increase us our debts
As we bail out our debtors
And lead us not into inflation
But deliver us from down markets
For thine is the printing, the bubble and the euphoria
Forever till taper
Amen

– Anonymous

Nov

4

 I have a hypothesis that older people with money to invest put too much value on youth in their investments, i.e, that they think that young people and things that young people buy are better than other things. I wonder if this is because of their desire for immortality or just a rejection of their loss of virility. I looked for articles that were relevant to this hypothesis but not having the scope or sweep of Pitt, or Mr. E, I have not yet struck pay dirt.

Vince Fulco writes: 

Add to the mix of hypotheses, worry about not keeping up or relevant on world developments, IT, or scientific advancements. It is exhausting for some generations given they were raised with sliderules.

Scott Brooks writes: 

Isn't it fair to say that the growth companies of yesterday are the value companies of today?

Older people probably want, at least, some growth in the portfolio, so they invest some of their money with the younger generation who generally more innovative and/or more attuned to "newest" innovations and idea's that come out.

This makes me think of the thread that we had on the open list last week about music. The older we get, the less we are attuned to modern (innovative?) music. We become entrenched in what we know and what impacted our lives growing up.

My theory is that the growth stage of our lives occurs during our teens, 20's and 30's. In our 40's we begin to transition into entrenched value stages and by our 50's (and one), we are value driven.

I think this applies to music and investing.

However, if we are smart (and I'd like to think we are…..at least some of the time), we inherently understand that "youth innovates and invents" and we want to be a part of that.

And since by the time we are in our 40's (and up) we have the money, we are the ones that the "youthful innovators and inventors" come to for cash to fund their ventures. And if we missed the Angel/VC and even IPO stage, we'll still invest a portion of our portfolio's with them to harness their vision……and recapture some of our own lost youthful vigor and insight.

Kim Zussman adds: 

Perhaps this wasn't the case before Microsoft (Apple, Google, Facebook, etc) showed that young computer mavens could hit it big, and that nerds will rule the world. People who came of age in the PC era.

Weren't the big success stories pre-1980's stodgier companies?

Scott Brooks writes: 

Wouldn't it be fair to say that GM, Ford, IBM, were the growth and innovative companies of the Henry Ford and Bob Hope Generations?

IMHO, every generation has their MSFT or AAPL, or GOOG……it's just that by the time we know about them (we being the next generation), they've become value companies.

The car companies and airline companies of our parents generation were the equivalent to the computer companies of our generation.

Pitt T. Maner III adds: 

 One would think that the influence of youth is increasing due to the higher use of the internet by the over 50 crowd (which includes me).

1. "Baby Boomers Driving Technology Wave":

'What explains the rapid pick-up of tech tools among the older crowd? "The younger investor is usually an influencer towards their parents in terms of technology," says Ryan by email.

The numbers dovetail findings by the Pew Research Center's Internet & American Life Project that more than half of adults 65 and older are online today. They're flocking to YouTube, social networks and shopping sites—while also growing more comfortable using banking and other financial services online. They form a surprisingly active demographic for Facebook, where 57% of those 50 to 64 are on the social network, according to Pew.'

So you might look at who are the main internet influencers with respect to individual stocks and the stock market and older internet users. For instance Cramer appears to have a fair amount of online "clout" with respect to stock selection as might several others on CNBC.

2. There are many companies trying to figure out and somewhat quantify who the influencers are– such as Klout.

3. This is a recent paper on the influence of the collective mood state on Twitter with respect to the market.

Behavioral economics tells us that emotions can profoundly affect individual behavior and decision-making. Does this also apply to societies at large, i.e., can societies experience mood states that affect their collective decision making? By extension is the public mood correlated or even predictive of economic indicators? Here we investigate whether measurements of collective mood states derived from large-scale Twitter feeds are correlated to the value of the Dow Jones Industrial Average (DJIA) over time. We analyze the text content of daily Twitter feeds by two mood tracking tools, namely OpinionFinder that measures positive vs. negative mood and Google-Profile of Mood States (GPOMS) that measures mood in terms of 6 dimensions (Calm, Alert, Sure, Vital, Kind, and Happy). We cross-validate the resulting mood time series by comparing their ability to detect the public's response to the presidential election and Thanksgiving day in 2008. A Granger causality analysis and a Self-Organizing Fuzzy Neural Network are then used to investigate the hypothesis that public mood states, as measured by the OpinionFinder and GPOMS mood time series, are predictive of changes in DJIA closing values. Our results indicate that the accuracy of DJIA predictions can be significantly improved by the inclusion of specific public mood dimensions but not others. We find an accuracy of 87.6% in predicting the daily up and down changes in the closing values of the DJIA and a reduction of the Mean Average Percentage Error by more than 6%.

4. That reminds me of these websites

tickertweets

Marketpsych

avoiding the herd

5. This influence effect on the older investor might have to be considered with respect to the depressing findings asserted by this research:

"Examining the economic costs of aging, we find that older investors earn about 3-5% lower annual return on a risk-adjusted basis. Collectively, our evidence indicates that older investors' portfolio choices reflect greater knowledge about investing but their investment skill deteriorates with age due to the adverse effects of cognitive aging."

David Lillienfeld writes: 

And the problem is that it's unclear that there's any company to take over the place of MSFT, AAPL or GOOG besides AMZN, which can't seem to earn any money (real profit, not just revenues). I had hoped that my now, there would be some suggestion of which companies those may be, but I'm not seeing them.

Scott Brooks writes: 

You could have said almost the same thing about railroads…..then came big steel.

You could have said almost the same thing about big steel….and then came GM.

You could have said almost the same thing about GM…..and then came IBM.

You could have said almost the same thing about IBM…..and then came MSFT.

You could have said almost the same thing about MSFT…..and then came GOOG.

You could have said almost about GOOG…..and then came……?

You have successful well run companies that create cash flow and then use that cash flow and credit to buy up smaller (other) companies….and become dominate.

Isn't that just the way the eternal business cycle works?

Isn't that really just the way of mankind and government?

Oct

30

 I'm a bit concerned about the last Apple quarter report—not because of what's going on right now but because the thing that i was hoping to hear was that the company wasn't concerned about margins so much as market share. That was the mistake of the 1980s—Apple focused on keeping margins up. Scully thinks that that was a mistake though not as much as firing Jobs. I think he has it backwards. Amazon is worth a fortune without having worried much about earnings. Apple would be the same—if it focused on market share first.

On the innovation front, Apple has always been about changing the relationship between man and his environment. That's what the iPod was, that's what the iPhone was, that's what the iWatch will be about, ditto for the iTV. What are the next two things in Apple's quiver? Try these two:

1. Apple purchases Nest, creates an iTune interface for all manner of modules to control a house. For instance, it reaches an agreement with Whirlpool to put those modules into Whirlpool's products. The modules cost all of $20-30, but they allow you to control everything in your house remotely. Everything.

2. Apple reaches an agreement with Ford to put an Apple iCar into each Ford auto. The iCar contains a description of what properties you want the car to be optimized for. Speed? Mileage? Handling soft ride? Handling firm ride? and so on. You could even build into the iCar a module, software programmable by an insurance company to monitor driving habits, a la Progressive. You could change the iCar with an iTunes like interface, and each driver in the family could have their own iCar. Junior wants the car? Dad puts the iCar into the car—using a secured compartment that Junior wouldn't have access to. Why? Because Dad's put a special limit on the iCar to keep Junior from going more than 70 for more than 15 seconds every 15 minutes. (Junior may need that momentary spurt to escape an accident.)

Ford would like the device because it could segment the market with it—the more expensive the car, the more capabilities in the iCar, and the iCars could be separated on the basis of the attached device, much as differentiates the iPhone 5 from the 4S.

There's lots Apple could do with such a device.

Strange that I have't heard anything about it—and that would sell quickly. You could even upgrade the iCars with each model year. Apple would have secured built in obsolescence. Upgrading the motor? Upgrade your iCar. Etc.

Now, if I can think of that, why hasn't Apple?

Jeff Watson comments: 

If you don't like what's going on, you can always short the stock.

Ed Stewart comments: 

Tying the aspirational Apple brand to something so lame as a mainstream car company seems like a terrible idea to me.

As for Nest, I think about my smoke alarm or other appliances in the home only once every 3 years or so, if that. It is a non-issue that does not solve any significant need. I can handle my smoke alarm without notes from my iphone. Why apple would want to tie in with such things once again seems a non-starter to me, degrading to the brand's appeal. If anything such features could be done through an app of little significance, a side feature among tens of thousands for those who want it, developed by a third party.

I could be dead wrong, of course. One person's strategic brilliance appears banal and foolish to another.

Good thing we can trade and sort things out.

Carder Dimitroff writes: 

I'm not an expert on Apple. I have no idea what they may be developing. However, I do think David may be offering an interesting idea.

Somebody will offer a simple home management system to manage energy consumption. It would take someone like Apple or Google to figure out a simple, easy to use system. It also could come out of somebody's garage.

Pressure is building for consumers to gain control of their energy consumption. Despite low wholesale prices, retail energy prices continue to increase. Regulators are promoting demand side management policies. Intermediaries are happily removing themselves between the consumer and the [volatile] power markets. Smart meters are being deployed across the nation to help consumers become responsive to market conditions.

The setup is nearly complete. A new day is arriving. Consumers will become fully exposed to the dynamics of the deregulated power markets, which operate 24/7 and change every three to five minutes.

The utility will always own the meter and outside wires. The consumer will own everything behind the meter. Creative developers will begin focusing behind the meter and help consumers manage their purchases of electric, natural gas and water.

Residential and commercial consumers will need programmable sensing and control devices. I have no idea what the technology will look like. However, it needs to be simple, buried and invisible to slow adoption consumers (like automobile computers). It also must manage energy consumption without altering lifestyles.

This is more than managing a thermostat. It is about controlling everything on the consumer side of the meter.

Apple and Google are very aware of energy issues. They are aggressively investing in large-scale alternative energy production facilities (solar, wind, fuel cells). Google invested in high voltage transmission lines.

Combining their energy knowledge with their consumer electronics experience suggests they are in a unique position to offer innovative demand-side management technologies. This would include the opportunity to manage massive amounts of data (Oracle is already trying to claim this space). If Apple or Google takes this path is another question.

Apple and Google have already demonstrated that change usually comes from the outside. One fact we know, consumers cannot expect their plain old utilities to develop innovative technologies. The question for me is whether Apple or Google can still deliver an out-of-the-ballpark product.

Oct

30

As we bid adieu to October, does anyone know how frequently busts and crashes have started/taken place during November/December during the last century or so (maybe 125 years)?

anonymous writes: 

Firstly, define busts and crashes. That is difficult enough given that market volatility keeps shifting. If only the big ones, you have only 12 datapoints!

If more generous, none recently on Dow Jones but since 1900:

11/1909
11/1916
11/1919
12/1961
12/1968

Secondly, define market. Most recent would be 12/1989 but that is on the Nikkei.

Lastly define peak. There are some double tops where the actual high was in Oct or Jan.

I wonder myself what it means — is a December less or more likely, given it is the least frequent month historically?

Oct

24

 There's lots of chatter about the decline in oil resulting from perceived risks of war in the Middle East. That's strange, since the risks haven't been higher in a while. Consider: Turkey did a pretty good job of betraying the Mossad by revealing 10 agents in Iran. How many of those agents were involved in monitoring Iran's nuclear weapons program I do not know, but I doubt that their absence provides the Israelis with any sense that Iran is far away from being able to build a nuclear weapon.

As a result of the above event, the US responded by canceling drone shipment to Turkey. Since Turkey was trying to reposition itself as a ME power and away from the EU (which it assessed as a losing proposition a few years back), it's not clear what the impact of this action may be, though it certainly doesn't increase US influence.

The US cut off aid to the Egyptian military, losing leverage. The Israelis are concerned because they saw that aid as the guarantee on the peace treaty with Egypt. Israel is also concerned about the return of the Muslim Brotherhood to the Egyptian government, with its connections with Hamas and complicity in support of the Gazan tunnels into Egypt. Of equal concern is the re-emergence of Russia in Egyptian affairs, with Putin moving to sell arms and provide financial relief to Cairo.

Saudi Arabia just turned down election to the Security Council as a protest against inaction in Syria and against IranThe Iranian PR offensive continues with absolutely no suggestion of any real behavior change by the regime.

Bibi is again talking about Israel's right to defend itself and that Israel will not tolerate anything short of the shutdown of the Iranian nuclear weapons program, including Iran's ability to enrich uranium (which Iran has declared to be off the table). I've seen no suggestion that concern among the Israeli electorate about Iran's intentions has lessened.

Syria has attempted on three different occasions in the past month to move chemical weapons to Hezbollah in Lebanon, even as the Lebanese re-evaluate their tolerance of the group in Lebanon.

Syria continues to decay, the Iranians continue to prop up the Syrian economy (or what's left of it), and refugees continue to enter Turkey and Jordan. Russian influence in Syria has increased in the wake of the negotiated quasi-destruction of some portion of Syria's chemical weapons store (the part that's visible and easily monitored). Iraq deteriorates as political support for the government continues to drop.

US credibility in the area is greatly diminished as a result of multiple international and domestic missteps. None of these occurrences should be a surprise. But in light of them, why is the "war premium" going down? If anything, instability in the Middle East, especially in the Gulf, has increased.

Ed Stewart writes:

You said: "None of these occurrences should be a surprise. But in light of them, why is the "war premium" going down? If anything, instability in the Middle East, especially in the Gulf, has increased."

It might be the difference between kinetic vs. potential energy. A specific crisis (kinetic) creates focal point for risk premiums. Some of the regional potential energy has been talked about for so long (business as usual) it is less relevant until movement occurs which signifies it is activated and being released.

As to if the "chatter" is correct or not, I have not, I have no clue.

Oct

22

 There's lots of talk, understandably, on this list about trading patterns and technicals. All well and good. But I'm a fundamentals kind of guy (back in the 1970s, I was a fundamentalist, I guess, but that word has a different meaning altogether these days). And, as Rocky can attest based on numerous emails, technicals remain something I'm still figuring out. So it was with interest that this choice article appeared yesterday in the NYTimes about the making of Fiddler on the Roof.

Many may suggest that the show was a success because it was such a compelling story–and it was/is, particularly for the 1960s, with its celebration of the centrality of the family in the journey of life. I don't mean to get off into the high grass on that topic. Rather, there's a comment in the story about when Zero Mostel went through a doorway and touched the mezzuzah, the piece of parchment on the doorpost ("You shall write them on the doorposts of your house and on your gates", Deut 6:9).

Some have suggested that the mezzuzah represents the painting of the doorways by the Israelites during the last of the 10 plagues, but it's not inferential. Robbins, who had little interest in Judaism and detested any suggestion that his parents were immigrants, changed his name to minimize his connection with a Jewish heritage. On the other hand, having been raised in an observant household, Mostel could not conceive of Tevye, the lead character of the show, going through the door without touching the mezzuzah. (Not noted in the article is Robbins' previous collaboration with Mostel in A Funny Thing Happened on the Way to the Forum.) Robbins, the director stood his ground, and Mostel deferred. The next time Mostel went through the door, he crossed himself, and touching the mezzuzah went back into the show.

The point of this story, on the Dailyspec, is its demonstration of two different views of the world. Robbins, in the here and now, could have cared less about the historical roots of Tevye and the rest of the plot. All that mattered to him was what just happened, more or less. Authenticity? Robbins wasn't bothered–it didn't affect the pattern, it wasn't therefore of interest. He was a technician, basically. If there was a pattern that might be present, he wanted to find it and use it to advantage. His choreography reflects that approach.

 In contrast, Mostel had essentially lived Tevye's life, not so much in Europe as from an observance perspective. His approach to Tevye wasn't based on the here-and-now of Robbins, but rather on the fundamentals of Tevye's character.

This isn't to say that fundamentalists and technicians need be at loggerheads, just that they are complementary views of the world, not merely different methods of addressing a given situation, and not limited to the activities usually of concern to list readers.

I thought I'd share that synthesis with the list–it provides some insights into what we do and why we do it, not merely how we do it–in life.

All of which is preamble to my question of the day: Does anyone have more than a passing familiarity with 3D printing? Please contact me off list if you do. I'm looking into the area for an investment for my grandchildren's college funds. Yes, there's a bubble now, but there won't always be.

Stefan Jovanovich writes:

"Mostel had essentially lived Tevye's life from an observance perspective."

Err, no. Zero had no fear of the Czar or the Cossacks; on the contrary, he expected to be the one wearing the uniform. (He was a member of R.O.T.C. when he was at CCNY.) Tevye was a successful dairyman; Mostel's family were such poor farmers that they fled Connecticut for the Lower East Side, and thereafter his father worked in an office as a chemist. Mostel was, like practically everyone who worked for PWAP, a communist; it is impossible to imagine Tevye being a communist or having any more success with the Leninists than any other "rich" (sic) peasants did — assuming he survived the war.

David Lillienfeld responds:

I'll go by what my grandfather and aunt, both of whom lived in the Settlement, and offer that Tevye was hardly a successful milkman–at least by community standards. The butcher was a major, wealthy member of the community, not so the diary man. There's Tevye's comment somewhere in Fiddler about having 5 daughters. That meant 5 dowries, and for a milkman to so provide as one of the lower folks on the economic totem pole was a challenge.

As for Mostel, the fact remains he was raised in an observant household. Whether he aligned with socialists, communists, Paulsenites, or whatever, isn't relevant to the discussion at hand. Both my parents were raised in observant households–my maternal grandfather was one of the founders of the Ner Israel Yeshiva back in the early 1930s and my mother used to regale my siblings and me with stories of the students who would room in my grandfather's house during the 1930s. Both of my parents were pretty liberal, my mother slightly less so than my father. That didn't impact on either's understanding of orthodox observance. One of my earliest memories of my father these days is his arguing with the Ner Israel Rosh Yeshiva (head of the yeshiva) about how one performs a bris, a circumcision. I don't remember the specifics any more, except that there was one point where my father started to curse at the Rosh Yeshiva in Yiddish, and you could tell from the RY's face that that was the last thing he was expecting. Years later, when the RY's wife was diagnosed with breast cancer, my father was the physician he consulted on what an optimal treatment might be. I guess whatever my father said during that argument didn't impact that aversely on my father.

In any case, neither Tevye's nor Mostel's political beliefs are relevant. Unless you're suggesting that Mostel was making a political statement by kissing the mezzuzah?
 

Oct

18

 Out here in SoCal land, specifically San Diego, life has been good. 70 degrees every day, no rain, usually no clouds, etc. But all is not as it appears: the housing market is weakening.

For those not aware, in San Diego, the military is a major employer. By some estimates, directly or indirectly, between 20 and 30 percent of the economy of San Diego is based on federal spending. The home base for the USN Pacific Fleet is in San Diego. Also Miramar (think Top Gun), Camp Pendleton, among others (and there are others).

While the softness in the housing market out here isn't solely due to the sequester, even local economists of the conservative persuasion acknowledge that the sequester is having an impact locally. The assertions from some that the effects of the sequester are minor do not seem to ring true, at least not out here. I expect that while there are housing markets that will be less affected by the sequester than San Diego's, there will be an affect.

Staying away for the moment from housing-related stocks seems a prudent course of action.

a commenter adds: 

Second best city in the world behind Sydney.

Oct

17

 Those who follow the biotech world may have seen that Regeneron reported some fantastic results on its lipid-lowering drug. Much more efficacy than statins. Safety data was not reported but it seems safe to say that suggestions of hepatotoxicity that first appeared with the early statins and seem to be a fixture in use of statins for the first 6 months is a segment of the population, were not present; FDA wouldn't have hesitated to intervene if there had been such suggestion, since in FDA's eyes there are already "safe" lipid-lowering drugs on the market.

The same is true for rhabdomyolysis–essentially break down of muscle (some thing the muscle soreness often associated with statin use may be a pre-rhabdomyolysis state, but the data are anything but clear on that). It was rhabdomyolysis that was the reason Bayer's Baychol was withdrawn from the market.

There are some caveats:

1. There has long been the observation that if cholesterol levels are brought below 90-100, there is little gain in mortality (some studies suggest there may even be an increase) and that cancer risk in particular goes up. Of course, recovering from a heart attack has a higher probability than doing so from cancer. Unfortunately, I can't tell you which sites–I just don't remember.

2. There are some established drugs in the lipid-lowering space. Lipitor and Crestor come to mind. The former is generic, and it is probably finally making it onto many P&T committee lists. The latter is still patent protected and, not surprisingly, costs a bit more than the former. That's not to say that Crestor is more efficacious than Lipitor. In a given patient, one may prove to be less efficacious or better tolerated than the other. YMMV.

3. The thing that made the statin market what it is today was a series of studies by Bristol-Myers Squibb and Merck showing that use of statins was associated with lower mortality–quite a bit in fact. Since the effect of Pravachol from BMS in mortality reduction was greater than might be expected if only lipid-lowering were the explanation, there has been a persistent question over what exactly it is that statins are doing besides lowering lipids. There are suggestions that they reduce chronic inflammation (considered part of the pathophysiological process underlying atherosclerosis), reduce risk of osteoporosis (very controversial), reduce risk of gingivitis and periodontitis (Dr. Zussman is better positioned to opine on that one than I am), and some suggestions of reduced risk of Alzheimer's disease, among others. Will Regeneron's drug do any of these? We don't know. Will it even lower mortality? Again, we don't know. Such studies take some time to complete, and I'm not sure if they've even been started. There's also the comparative effectiveness matter. How much this drug will cost for each QALY (quality-adjusted life years) gained isn't yet know, and whether the drug is seen to be as good a value as the statins were when they first came to market isn't known. However, make no mistake, all of these factors will enter into the calculus of how successful, if at all, Regeneron's drug might be.

4. As one who has taken Lipitor for 13 years (horrible family history of heart disease–I keep my total cholesterol below a 100 and LDL below 75), I'm not particularly interested in switching drugs, never mind drug classes. There are many patients taking statins who, I think it's probable, think likewise. That most statins are now well off patent (and cheap generics) is another reason to stay with something of known efficacy in a particular patient. That presents a problem for Regeneron: How to convince physicians to put new patients on its drug and to convert those on statins to switch. The former may be straightforward, though the issue will be one of how much more growth can there/will there be in the lipid-lowering market. I'm agnostic-to-skeptical that there's a whole group of patients needing another lipid-lowering drug. That's not to say there aren't some, though. On the other hand, obtaining health insurance coverage may be problematic, as I'm sure that Regeneron will price the drug in the "near and dear" category (to use industry parlance), meaning high. Very high. I doubt that Regeneron will follow the Pfizer strategy of pricing the drug 10% below the leading statins (or in this case, perhaps, Crestor) for two years to gain some traction in the market, but I could be wrong. One thing to consider is that biotechs are not used to pricing competitively. Usually, they are the long entity in a market space, and they will price accordingly. As for switching patients off of statins, I guess if there are those not getting enough of a reduction, perhaps with LDLs over 140-150, there's a chance of a switch being made. There aren't that many of such people, though. All of this means that Regeneron will have some work cut out on the marketing end to get newly diagnosed hyperlipidemics onto its drug, as well as getting insurance reimbursement.

The long and short of it is the Regeneron's drug may be a game-changer in heart disease–but we just don't know enough as yet about it. The data released yesterday seem compelling, yet they are only in terms of reduction in lipid levels. Fine, except we know from the statins that something may be needed to get much benefit from a lipid-lowering drug.

For those of you liking growth stocks or story stocks, this is a company with a nice story to follow, perhaps to take a position in. For value investors (read: Mr. Melvin), enjoy using the drug (if it gets to market) but don't even thing about looking at this stock. It won't be a "value" one for a decade or two at least.

The President of the Old Speculator's Club writes: 

I wonder if any studies have been done on the increased cancer risk. A little while ago, a scientist did a study and claimed that a cancer cure could save something like $5 trillion a year. However, tagged on to the end of the study was a one sentence disclaimer to the effect that the suggested savings did not take into account that while a cancer cure could well cut down on costs, survivors might find that their longer life brought on equally (or more) expensive disabilities - like diabetes or, more likely various dementias. I've been in two post-operative cardiac exercise programs - both for several years. In that time, quite a few individuals come through - most stay for the minimum period; others, like myself continue on. One thing we long-timers watched for was the continued health of those who stayed and, if possible, those who left. The nurses at one hospital were especially diligent in keeping in touch with members of both groups. Over the years (18 to be exact), as one would expect, there have been numerous deaths. However, very, very few were due to cardiac problems - more often, cancer was the cause. So, here's the question: is the propensity for cancer among cardiac survivors an inevitable result of their survival, or can (and should) their deaths be attributed to statins. I know the latter is a popular one, but hell's bells, lawyers couldn't make a dime if it proved out that longevity was the real cause.

Kim Zussman writes: 

Life should be more expensive than death because it is more valuable, especially to survivors. The problem is that the disease lottery is zero sum: you will die of something. As medical / nutrition science advances, death rate due to some diseases has plummeted - and survivors go on to die of something else.
Hand (and voter) wringers over increasing medical expenses should start by blaming antibiotics:

"Historical Diseases Death Rates" (see first table)

The progress made with infectious and cardiovascular disease has been faster than cancer treatment (and cheaper). So don't smoke, eat fish, hit the gym, wash your hands, and prepare for the final fight with unregulated cell division.

Oct

11

Since Bamster has apparently figured out that de-linking the CR and the debt increase isn't in his interest, isn't it clear that political strategy is now the dog and the market is the tail? If the market is so smart, why can't it see more than a day ahead, and why does it swing wildly based on words, leaks, conjectures?

Rocky Humbert writes:

When this whole thing started, I wrote: "This slow motion train wreck will probably continue (and stock guys will keep denying it) until CNBC puts the 1 month Tbill on the side of their price montage. Once that happens, you'll know it's safe to go back into the water. (I'm only half kidding)."

Remarkably, that happened late on Wednesday and the WSJ dutifully carried a large news story about the breakdown in money markets after the close Wednesday and in the print edition of Thursday. The current Obama administration is pretty light on people who understand the systemic importance of the money markets and what would have happened if the panic continued to accelerate.

I suspect that they (and perhaps you) got an impromptu lecture from the NY Fed Open Market Desk and understand this better now. (Or perhaps you consider the timing of the stop-gap, face-saving 6 week extension headline to be total coincidence???) The plumbing of our entire economy is the money markets. Not the stock market. Not the bond market. The money markets. It's the dog. And everything else is the tail. 2008/2009 demonstrated this powerfully. If you've ever been in an argument with your wife and both noticed a serious plumbing leak in the midst of your argument, you stop arguing and call the plumber. It took a spike in yields of roughly 5,000% to get the politicians back to the table. The dog wagged the tail.

Gary Rogan replies: 

I appreciate this line of thinking, it's very instructive. But help me out with one thing: my model of how Obama operates is that he would LOVE to crash the economy if he could blame it on the Republicans. While I can see how the Republicans would be forced to negotiate, is there any real pressure on Obama, Fed lectures or not? Perhaps than this is a recipe for the total Republican surrender, since they are the only side with the market pressure on them, but still: is Obama in any sense motivated to solve the market problem as opposed to find a way to assign the blame to the opposition?

David Lillienfeld writes: 

So you subscribe to the thesis that the GOP crashed the economy in 2007 to blame it on Barney Frank and get Dodd-Frank repealed?

Gary Rogan replies: 

No, this is a random thought that has never occurred to me. The GOP would never crash the economy on purpose because they are not Marxist revolutionaries and because they are largely beholden to a lot of business owners and operators. It would also be hard to believe that as a party they would want to hand the victory to the Democratic Presidential candidate in the following year, so this is an absurd suggestion.

Obama has clearly demonstrated that he personally only cares about the following things: (a) income transfer to the "unfortunate" (b) gay rights (c) Muslim rights (d) black rights (e) triumphing over any opposition regardless of any collateral damage" You can see that he has a tin ear for what's important in the "flyover country" by his handling of the "death benefit". Getting him to act normally is like trying to explain human behavior to a creature from some Alien movie: they can certainly pretend most of the time, but once in a while the algorithms fail and a few humans bite the dust.

David Lillienfeld retorts: 

Sorry, but you'd have to go back to the DNC's decision in 1972 to have George McGovern give his acceptance speech at 3 AM (at least I think it was 3 AM–I was pretty sleepy at the time) rolling all the way forward to McGovern's declaration of "1000%" support for his Vice Presidential candidate a few days before the latter withdrew to find anything rivaling the political stupidity and naivite evidenced in the GOP's actions in the past couple of months. As for the biggest absurdity in the present situation is the GOP's apparent suicide wish. I had thought after the last election, there was some desire in the GOP to come to terms with its growing political isolation, that it understood that the American electorate was not amused at the sight of an 82 year old man lecturing an empty chair on a stage. Apparently I was wrong. I also find your premise that business owners and the like are beholden to the GOP. That's starting to change, though I don't think that means they will be any more interested in aligning with the Democrats than they are right now. The effect of the shutdown and even moreso the debt ceiling doings on business has hardly been a positive one.

Not everyone in the Democratic Party is a Marxist and not everyone working in the White House is a Marxist (the idea of Chuck Hagel as a Marxist is humorous, though, I grant you, and ditto for Jack Lew). Not everyone who voted for Obama is a Marxist. And there are those who voted for him while not supportive of everything he says or does if only because of the choices they were confronted with. Just because someone disagrees with you doesn't make them a Marxist, either.

I lived through the "America: Love it or leave it" period in the late 1960s and 1970s, and I'd like to think that we're past that as a society.

Stefan Jovanovich clarifies: 

David is too good a scientist not to know that public opinion polls have become suspect precisely because so much of the actual electorate chooses not to answer the phone or answer the questionnaires. In fact, for more and more people answering Gallup's questions is considered to be the equivalent of voting - i.e. I answered the poll questions so I don't need to get an absentee ballot. Some of us made this mistake in predicting the last Presidential election; David seems determined to repeat our error by taking the "public's voice" for being equivalent to the electorate's.

As for the description of the Democrat Party, I am afraid my answer is "yes, they are all Marxists". To say that, I have to rely on my own peculiar definition of Marxism; but I think it is an accurate precis of what Marx, Engels and Lenin all thought. In their world a person always and everywhere believed that labor had a value independent of (and almost always superior to) its market price? Since the late 1950s, when I first started following politics, I have never met a Democrat, left, center or right, who did not agree with that assertion. It is hardly an odd opinion; for most of my life it has been shared by not only all Democrats but also a majority of Republicans. Both parties have shared the fantasy that there are two "sectors" in an aggregation called the economy and that the prices for the "public" sector and those for the "private" can be directly compared to one another. That is why, even now, a majority of the Congress supports labor unions, Davis Bacon, non-judicial regulation and all the other forms of soft and hard government-enforced monopoly.

All this upsets Gary - understandably. It would upset me if I were not a hopeless optimist. The idea of actual liberty - of people being absolutely free to paint their houses whatever colors they liked, swap fluids with whatever consenting adults they chose, eat, drink and smoke things that are "bad" for them, believe in Joseph Smith's golden plates, heavenly virgins, Darwin's universe, whatever - has always been a truly radical idea. That it has never yet been the majority opinion is no reason to believe that it will not someday become the "common sense" of humanity. The dedicated Communists who were my grandfather's friends - the ones who actually went to Spain to fight Franco and the Nationalists - had, in their own way, the same stubborn faith. They thought Stalin was a monster, but that not shake their belief that someday the dictatorship of the proletariat would not longer be necessary and we would all be free. Grandfather agreed. He just thought we could skip all that petty and monstrous bossing around of other people and get straight to the Don't Tread on Me that had been his reason for coming here in the first place.

Sep

30

 Today marks the close of the regular baseball season. For those of us old enough to remember, one might have expected the World Series to begin on Tuesday, possibly a night game, but more likely a day one. Now with the post-season trifectas, it's amazing the October classic isn't played in November.

Pardon the curmudgeonliness, but the Os finished 85-77. The season closed on a high point, and Jim Johnson continued in his quest to rival Don "Two Packs" Stanhouse for how close one can come to blowing a save without actually doing so while garnering his 50th save. Chris Davis finished the year leading the league (AL) in RBIs and HRs–he made it over 50, only the second Oriole in history to eclipse Frank Robinson's epic 1966 Triple Crown season with 49. Despite that, and despite Adam Jones' 3rd place in the AL RBI standings, the Os generally didn't produce what they needed to in order to get to that October/November classic. Pitching was weak. Actually, weak would have been an improvement. There was one starter on the staff with any consistency, and lots of games the bullpen blew. Still, given the prediction that last year was a fluke and the Os would return to the AL East cellar, there is some satisfaction to be had in the omnipresent cry at the end of the season, "Wait 'til next year!" I'm also betting that Buck keeps his job. And after two decades of baseball folly, to have two winning seasons in a row, well, it just puts the season into perspective.

As Tim Melvin has observed, it's now time to become re-aquainted with the Kindle. Personally, I'm looking around for a copy of "Birds on the Wing"; it's pre-Kindle, but since it's a physical book, neither of my kids will have touched it, so it will be exactly where I put it a couple of years ago (pre-Buck). If you grew up in Baltimore during the 1960s/early 70s, I'm sure you know of the book. That and Freedom's Forge should get me to Halloween. Then the countdown to spring training can begin anew.

There was an interesting piece in today's NYTimes about what ails baseball. I found myself in disagreement with the analysis–at least part of it. But I want to give the matter some more thought, and I'll get back to fellow dailyspecs with some comments in the next couple of weeks. After all, there's a cold winter to be navigated yet, and 4 months of quiet before hope springs eternal again and the cry goes out, "Play ball!"

Steve Ellison writes: 

In PracSpec, the Chair and Collab postulated that baseball was a mirror of American culture. Eras when baseball emphasized fundamentals and hard work, such as the present, tended to be followed by favorable economic periods. It was the long-ball eras that heralded trouble ahead for the economy and stock market.

Stefan Jovanovich writes: 

 Yesterday was the anniversary of Willie Mays' catch and throw in Game 1 of the 1954 World Series. Since I played hookie from school every day the Giants were in town during the summers of 1952, 1953, 1954 and the spring of 1955. (The NY Public Schools in Harlem and the Bronx were so stuffed with boomed babies that no one missed me.) As a life-long Giants fan I have no more nostalgia for the Polo Grounds than for Candlestick. As Joe Torre (born in Brooklyn but smart enough to be a Giants fan) said, "I never hated the Yankees; I just wanted our Giants to be as good a franchise as they were.)

From the beginning the Yankees were smart enough to build a stadium that rewarded their left-handed dead pull hitters. (Ruth didn't build the stadium; Rupert built it for him.) With the Polo Grounds it was the exact opposite. The stadium absolutely killed the teams that I grew up with. They had a wealth of talent; but their best players were - like so many of the great Southern ball players of that era (Aaron, Matthews) - brought up in the Ty Cobb school. They were gap hitters with power. But, instead of getting County Stadium (where Mays hit his 4 home runs and Aaron and Mathews had the careers made), my Giants got the impossibly deep alleys of the Polo Grounds - the places where Monte Irvin's and Willie Mays' homers regularly went to become outs in Richie Ashburn's glove. The only genuine sluggers the Giants ever had in all the years at the Polo Grounds were the baby Ruthies - Mel Ott and Johnny Mize - dead-pull left-hand hitters who were late on the ball if it went anywhere left of right field. (Mize thought he had died and gone to heaven when he was traded to the Yankees late in his career. The right field fence in the Polo Grounds was 15 feet high; in Yankee Stadium it was 3 feet.)

As dreadful as Candlestick was, it was not that bad; Willie Mays and McCovey could reach the right center fence without having to take steroids. But, with the wind blowing in from the north (which it still does almost all the time), only Dave Kingman had the strength to regularly hit it out to left field. To his credit Peter Macgowan had the sense to remember the Polo Grounds and Candlestick and build the former and now again AT&T Park with a short right field so that his Babe Ruth (Mr. Bonds) could find the seats. It was the making of the franchise, which sold out - again - this year even though the team only tied for third in a weak division on the final day of the season - also yesterday.

P.S. Go Cleveland, Go Pirates!

Aug

19

 On a visit to the Botanical Gardens today, I found myself thinking about the purpose of leaves in trees as a way of improving my knowledge of markets. I picked up some oak leaves and tulip tree leaves and saw many veins in them. The veins seem to provide more paths to exchange nutrients and perform photosynthesis. The leaves are very light, so they maximize their surface area relative to volume, thus giving them more opportunity for photosynthesis, and probably preventing an excess of loss of water through evaporation. But in handling the leaves, I was amazed at their toughness, like a abalone. In researching the subject, I learned that toughness of leaves, i.e. the amount of cellulose in them, is now considered the main way that leaves survive. It also reduces their palatability to predators.

What can we learn from leaves about markets. Perhaps a wider range at a price below increases their resistance to death? Perhaps a stronger book of limit orders (in contrast to Mamis's dictum that the larger the buy limits the worse the price?). 

What can we learn from the roots of trees? I wish all my people would learn to have strong roots rather than deferring to the latest fashion or predictive hour? In general the trees change with the seasons? Can we learn from trees about ever changing cycles? The summer has been very different from the previous spring and winter this year. It always seems to be. Strong moves in one market, i.e. the bonds have overwhelmed the rest. And of course my favorites, the theory of uniform distribution, — why do trees together reach the same height,and my favorite of favorites, the theory of least effort which relates in part to how branches curve to have the same forces on them at all levels of the branch. But I know nothing about trees compared to the rest of you. What can we learn? How can it help us?

David Lillienfeld writes: 

Let's play with this idea a bit further. We know that photosynthesis occurs in response to the presence of sunlight, and varies in response to such presence. The process takes place in specialized organelles. Might the organelles be like market makers? Without them, the leaf dies, ie, they are vital for providing the liquidity (energy) the system needs to survives. They need an external energy source to function, and in the absence of that energy, the supporting system (the leaf) dies. Though I'm not certain of the fact, I would expect that in the presence of sunlight, chloroplast number increases, much as market makers increase in the face of liquidity.

The analogy works to a degree, but I'm not sure where it might take us.

Alan Millhone writes:

I am not a stock forrester but can relate how the leaf veins branch out into many openings found in British Draughts Player.

The lines of play that go in many directions and studied and learned well gives you solid footing and deep roots of knowledge for a strong game at the board.

I can see where stock research in a methodical way can benefit the trader.

Aug

19

 In this society, the notion of someone having any backbone is quaint. It is also wonderfully discordant with the realities of the society. Expediency has become our byword. Vision and courage are in short supply. Let's face it, few will take a risk unless it's with someone else's money.

And our government is the best at using OPM's to mitigate risk…..well, the risk of their political cronies.

Jeff Watson writes: 

The aforementioned men can be found on the few trading floors that are left, in back offices trading their own accounts. Ayn rand summarized it best when she said:

"The symbol of all relationships among [rational] men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot, are traders, both in matter and in spirit. A trader is a man who earns what he gets and does not give or take the undeserved. A trader does not ask to be paid for his failures, nor does he ask to be loved for his flaws. A trader does not squander his body as fodder or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirit—his love, his friendship, his esteem—except in payment and in trade for human virtues, in payment for his own selfish pleasure, which he receives from men he can respect. The mystic parasites who have, throughout the ages, reviled the traders and held them in contempt, while honoring the beggars and the looters, have known the secret motive of their sneers: a trader is the entity they dread—a man of justice."

Jul

25

Back in the 1980s, when the concern was with Japan, Inc, the fad sweeping the US was teamwork. Japan, it was said, was in its ascendancy because of teamwork, and the US needed to focus more on teams if it wants to compete with Japan. So the US focused on teamwork. Guess what. When you focus on teamwork, the individual's approach to his/her own work takes on a different hue. Ketchum is just picking up on that.

"Steve Ketchum on Hiring"

Jul

24

 In talking with several DailySpec listers the last week about Detroit, I was told that the bankruptcy filing to be (or then a fait accompli) had already been priced into the general muni market and there likely wouldn't be much reaction to the event itself. Now there's a suggestion that state law may have some role to play.

Question to those in the muni market–what's the likely impact on the muni market if pension benefits are considered out of bounds for the bankruptcy court and the payment to creditors is reduced even further. Will the muni market exact a premium for future muni issuances from Michigan alone? For all munis? Or is this a non-issue?

Part of my curiosity is that I expect a lot of infrastructure spending to be supported by muni bonds. If there's a premium for the Detroit mess, that's less funding available for the IS work itself.

Jul

24

 I heard something on NPR this morning (from the CEO of Mashable) which got me thinking about Apple. Consider: Back in the early 1980s, Apple was flying high–it occupied the high margin section of the emerging PC industry and it was making lots of money. Its CEO Steve Jobs was seen as a major entrepreneur. However, by the mid 1980s, Apple had lost its way, as it maintained its margins even as it lost market share. Jobs had been jettisoned in favor of someone with no computer industry marketing experience. Apple maintained many of Jobs' hires as Apple saw its market share shrivel. The high flyer then was a software company whose offerings ran on a host of hardware platforms–Microsoft. Everyone could use Windows and everyone could use Office. Now, fast forward a generation: Apple is again flying high, determined to hold its profit margin even as it loses market share. But there's a new kid on the block offering a mobile operating system used with different hardware platforms: Android. And Jobs is no longer running Apple. And Apple is again run by someone lacking computer industry (or consumer electronics) marketing experience.

Looking at this picture, I have to wonder if it isn't deja vu all over again. Now, I know that Apple has gazillions of cash that it can use to buy companies, but I'm looking at which of its acquisitions has been that helpful to its bottom line. Not much help that I can see. Kind of like Cisco during and soon after the dot-com boom and bust. Lots of money, not much to show for it. Its products are looking dated (and some products, like AppleTV, haven't appeared at all), several products have been introduced though they no longer elicit the oohs and ahs that characterized the products commanding the profit margins associated with Apple. Its execution on the software side has been little short of awful (the cloud in particular is something Apple doesn't get), and it no longer commands the attention of young engineers in the manner that it once did. And while it's PE is low, there's nothing to suggest that earnings will stay healthy, particularly if profit margins give way.

Is history repeating itself?

Gary Rogan writes: 

Apple is followed by zillions of super-smart people who track every available piece of information, many in real time. It also has a lot of moving parts and a lot of very smart people working for them. I doubt it's feasible to make money by out-thinking them all without some identifiable edge.

anonymous writes:

Didn't they say the same thing about Japan in the mid 80's?

Gary Rogan responds: 

Did Japan have a P/E of 10 and down almost 50% from its recent peak? There doesn't seem to be either irrational exuberance or irrational despair about AAPL but there is frenetic interest. It's latest numbers resulted in some pretty healthy volume after hours and a reasonable jump. Who knew how much it would jump and in which directions? Someone probably did, but it wasn't on the basis that Apple doesn't get the cloud. The point is, if there was ever an efficient market this is it. Not always, not for all time, but for here and now.

Jeff Watson writes: 

Isn't every stock that's not on the Pink Sheets followed by a bunch of super smart people who get tons of info in real time? Do you think the market makers have a pretty good estimate of the value of the stock? Don't insiders in their particular companies know if their stock is too cheap or too expensive? Just because AAPL is a cultist type of phenomena, please don't ascribe mystical powers to the stock. It's going to do what it's going to do, without any regard for the super smart people who follow and trade it. In fact, personal experience tells me that the super smart people are going to feel the most pain.

Gary Rogan retorts: 

I don't ascribe any mystical powers to it at all. It's a stock constantly in the spotlight. In my experience, there are "sleepy" stocks and there are highly followed stocks, in the sense of constant attention being paid to them everywhere. The market seems less efficient in the stocks that are not in the news all the time. If you have a long time horizon, and the highly followed stocks is showing signs of a mania, it may be a good short candidate, and the opposite if there is widespread despair, but it's hard to know. Of course it will do what it will do, I never claimed otherwise, but ruminating that their CEO, who at some point was in charge of worldwide sales, doesn't get marketing or the company doesn't get the cloud, or that Jobs is dead, or that there is this new kid on the block called Android would get you about as much as edge as me claiming that the world population is growing and needs more wheat and therefore going long wheat.

David Lillienfeld weighs in: 

Let's deal with these one at a time, and keep the emotion out of it.

First, Tim Cook was EVP for Sales and Operations, but insofar as he's never held a marketing position in his career (certainly not as long as he's been at Apple), this position seems as much organizational as anything else. His marketing value-add seems to be pretty small, if not nil. Fact. Cook's role has been manufacturing, and he executed pretty well. But that's quite a ways away from marketing, I think you'll agree. There isn't any report suggested that Cook has ever had any involvement in marketing other than this title, and one must note that at the time Cook was placed into the position, Jobs was handling marketing himself. Fact.

Right now, Android is doing to iOS exactly what Windows did to Mac OS in the 1980s. Fact. Apple kept a closed system and IBM/Microsoft an open one. Guess what. The open system won. When the Mac came out, one of the things seen in its favor at the time was that, much as happened with the Apple 2, there was software around to run on it. Same thing today–except it's now in the form of the App Store. Again, fact. We're now seeing the same thing happen in mobile. Google may not be able to monetize Android, but that's probably a matter that will be dealt with once someone figures out how to monetize mobile. (That's opinion, but one I think is supported by facts.) Do you deny that Android has taken market share from Apple, that it's more widely used than iOS, or that iOS doesn't seem to have much place in the low margin East Asia market? Moreover, Apple focused on maintaining margins rather than going after market share–both during the 1980s and also during the recent period. Fact. Earlier, that turned out not to be the way to success. Fact.

As for Apple being followed, that's irrelevant. Apple was heavily followed in the first half of the 1980s. I remember it well. By the latter half of the 1980s, it was no longer followed because it was in the process of becoming irrelevant in the face of Windows. By 1997, the company was on the verge of bankruptcy with 90 days of payroll in the bank. Fact. That's hardly the setting for a followed enterprise. Successful companies are followed. When success disappears, so does the following.

Lastly, if you think Apple gets the cloud, then I suggest you review how Apple's efforts in that space have fared compared with its competitors. I know of few who would opine in favor of Apple's efforts, even the cultists. Let's not forget that fantastic roll out of Apple Maps. Fact. Enough said.

I also noted that Apple has lots of money to work with, but then again, back in the early 1980s, it did too. (It's worth remembering Microsoft was similarly fortuitous–and well followed–and I don't know that it has a similar following today as it did in years past.)

That a generation has grown up since Apple's last appearance in similar circumstances of adulation also suggests that the younger minions may have forgotten that Apple's earlier escapade didn't result in hegemony–far from it. Fact.

As for Jobs, the reality is that since Jobs died, Apple hasn't functioned anything close to what it did when he was around–and he was active until about a month prior to his death. Fact. He may have picked the management team to succeed him, but much as happened back in the 1980s, without Jobs, that team didn't perform well. The contrast with, say, Alfred P. Sloan or Andrew Carnegie, or John D. Rockefeller, or David Hewitt or Adolph Ochs, or Robert Noyce or … I could go on, but the one thing that separates this group of CEOs is that when they stepped down as CEO, it took at least two generations of managers after before the company hit much of a bump. That's the mark of a great CEO–in addition to what happened to the company on the CEO's watch. Jobs didn't do so well with it in the 1980s, and it appears he didn't do so now.

If you don't like the facts, that's fine. Don't like them. But those are the facts. I'll leave the other elements of your comments for some other time.

But let's stick to the facts.

anonymous writes:

Let's cut to the chase. Tell me the long term growth rate of AAPL's earnings and I'll tell you (+/- 10-20%) what the stock is worth today. The bloomberg consensus growth rate is 19%, so the stock is worth about 1090/share.

If you cut it to 10%, the stock is worth 512/share.If you use a 5% long term growth rate, the stock is wroth 340/share.

The primary reason that 19% is wrong is that AAPL is simply too big to grow at that rate — or it would suck all of the oxygen out of room. At 442, it's priced for about a 8.25% growth rate. Not crazy, but 8% is still a lot of growth for such a big company. But their buyback can provide a lot of help in achieving EPS growth. BUT — the chart looks good! 

Jul

1

 The military's ultimatum to Morsi seems destined to set off the powder keg now known as Egypt. At first, I thought this strange, since Morsi was threatening to go to war with Ethiopia. That's means going through Sudan and South Sudan (two countries not world renowned for their ability to co-operate with one another). But if the military, with its hands deep in the economic cookie jar, feels it's losing money with Morsi in office, it would likely move to oust him.

Egypt sent heavy armor to the Sinai-Gaza border and since I doubt that the tank crews are going to sunbathe in the summer sun, I'm concerned about their presence. Add in that Morsi has essentially destroyed the summer tourism season (or what little of it there was) with his appointment of a strict Islamist as governor of Luxor, and one senses that Egypt is in a pretty unstable state.

Did I mention that the country has only 4-5 months of foreign reserves available to purchase food and just about every other commodity needed (of which there are a lot)? Maybe that situation is forcing the military's hand.

Jun

24

 I moved to San Diego with my family for a new job about 3 years ago. While San Diego is nice (the weather can't be beat–even in comparison with Hawaii's), it's not San Francisco. Having renovated our house on the peninsula south of SF (we're in the northern part of Silicon Valley) to suit our needs and tastes only accentuates what we miss about the being by the Bay. I guess we're NorCal, not SoCal people.

The one thing no one in my family misses in the Northeast winters (I keep telling them that they had it good compared to the hearty souls in Minneapolis, where I took my residency training.) There are lots of things upended in moving 500 miles, things that one may not consider particularly significant. Examples include finding a new physician, finding a new racquetball partner, figuring out if there's any place to find a good bagel (Izzy's in Palo Alto wasn't quite at the old H&H level, but it was close)–we're still working on this one, and so on.

Something that one might dismiss as one of those myriad things one needs to feel "settled" in an area is a barber. In San Diego, barbers run from $5 (I can't recommend at least two–I thought the shears likely had some Hep B and/or C) all the way up to V's which charges $25 for basically the same haircut, albeit in a place with wood paneling (I guess the wood paneling adds somehow to one's appearance, but I remain unsure as to how).

I found a barber who charges $8 for a pretty good cut. The shop is down near the navy base, and her husband is, not surprisingly, a sailor, now deployed someplace in the Pacific/Indian Oceans. My guess is that she's in her mid-20s, no children. She and her husband have decided against starting a family as yet. Between his deployments and her constantly working at the barber shop, they didn't think having children made sense for themselves just yet.

I went for a haircut yesterday. She wasn't as jovial as she usually has been. For the past 3 months, as the sequester has taken hold, she's observed a fall-off in business. It's been noticeable. She said that she and her husband had already begun cutting back on expenditures, expecting there to be some impact of the sequester on her (and their) income. They've already eliminated any vacations and some clothing purchases for the foreseeable future. She volunteered that some of her friends (with at least one spouse in the military) are using food stamps. She also mentioned that her brother-in-law is an aviator out of Miramar and his flying times are being reduced, supposedly by the sequester. Regina commented that her immediate worry is with their apartment. Their lease is up at the end of August (I think that's what she said), and the landlord told her yesterday that their rent will be going up to cover additional interest costs since borrowing costs are going up.

In northern San Diego County, away from the navy base (south of downtown), one might have expected less of an impact of the sequester. However, there has been something felt by some of the businesses–probably because of Camp Pendleton, which occupies a spit of land between San Diego and Orange County. Asking some of the merchants at the outlet mall in Carlsbad about business, there's some suggestion of softness, but there's been layoffs in the mall, at least not yet. What happens next though, is a (to use Yul Brenner's phrase) a "puzzlement."

The local biotech industry is slowing making its way back from the premature death sustained when Biogen Idec closed its local campus. Health in general, though, seems to be in growth mode. So is mobile engineering. And there's some suggestions of an improvement in the local tourism trade, with the opening of non-stop service to Tokyo. (The inaugural flight was greeted by about 200 cheering individuals positioned just off the edge of the runway. They clapped when they saw the plane overhead as it was landing.)

Most are aware of the weakness of the economy–the employment growth numbers remove the little doubt about that condition. Though we are used to looking at number, there are people behind those numbers. As an epidemiologist during the early and mid-1980s, it was possible to become numb to the statistics behind the AIDS epidemic. The numbers were unlike anything seen in the US for many years. Each of the persons represented by those numbers was someone's son or daughter; someone's husband, boyfriend, girlfriend, wife; someone's brother or sister; and so on.

It's easy to forget about the people when looking at the data. Data don't have faces. They don't have arms and legs. And most of the time, they don't have voices. That shouldn't remove the reality that there are people behind those numbers. At the same time, one must remember that there are still real ills present in our economy, that dealing with them will require dealing with real pain and that, since we are a globalized economy, the effects of what ever actions we take are likely to have impact far from our shores (I'm thinking of something more than the butterfly effect). How we go about doing it, with what level of rancor and disdain (which seem omnipresent in DC these days, which isn't surprising I guess given the absence of political leadership by just about anyone), will say provide its own Rorschach Test result about what the US is all about, how we want to be perceived, and what values do we hold dear and which are just "so much fluff.

As Regina was telling me about her family's situation, I wondered when do we, as a nation, begin to have an economy growing sufficiently that Regina and her husband feel they can start a family, that they can take a vacation (even if only to Palm Springs overnight), that we unite rather split apart, and that not merely allows civil discourse about our society and what we want it to look like and function but rather encourages it. At its core, it's about how we interact with one another as people, how much we value someone else as an individual and not a statistic in a table or a model. Perhaps it's a matter of giving the country more time to address its ills. I'm not so sure that time will make that much difference by itself.

I think with all of the activities in our daily lives, we are quick to stereotype–almost like zombies–someone based on an utterance or two. It's faster that way. It's also the lazy approach. It takes effort to get to know someone, to see them as more than a statistic on a page or in a table. Let's hope that we, as a country, get past zombie mode and move the country forward. For all of our ills (and there are many of them), the US remains as the sole superpower on the face of the Earth. Let's not squander the opportunities to fashion our world and realize all of its potential. Until then, however, I think I'm going to think about letting my hair grow longer.

Jun

14

 My home office adjoins my daughter's room. Her last day of high school (and therefore public school) was today, and now that she's finished it, she's home finally clearing out her room of the school year's detritus. It's amazing how much "stuff" she managed to keep in her bedroom. Walking by that room's door brings to mind the scene in A Night at the Opera of the ship's storage locker holding something like 10-15 people. Tomorrow, she will join her class at graduation; at some time, she and some of her peers will be saluted for academic achievement. I'm told that that's the top 5% of the class. Given the nature of the high school, that's a better result than my wife and I had expected. Her high school is rigorous–almost to a fault. During spring break, some of her friends now freshmen at MIT and Cal Tech came by for some pizza. The frosh from both schools kept commenting on how much they were enjoying college. It was easier, for some courses much easier, than high school. Both my wife and I were shocked, but perhaps these kids aren't aberrant in their assessments.

That my daughter, our youngest child, will be graduating within 24 hours brought to mind my graduation. For my daughter, the biggest graduation in her life thus far will be the one tomorrow; for me, it was 29 years ago when I graduated from medical school. It's not that it was the last graduation I would share with my father, though it was–or even the last time I would see him, though it was that as well. It's not that I thrived in medical school. Hardly, having bombed in biochemistry (I think it's psychological moreso than the material, but that's for another thread) and having a simply awful experience with one medical resident (I nearly dropped out of school in my third year–almost unheard of; on hearing of my interest, the Dean inquired as to what was my reason, and when I explained, she promptly called in that year's class of 2nd year residents in medicine and read them the riot act about abusing the 3rd year medical students. My classmates were aware of the situation, and when the abuses stopped-at least for my rotation–many thanked me, though I told them it wasn't altruistic on my part, it was survival), I saw my graduation from medical school as a triumph. It's not the degree of which I am most proud–that would be my MSEngineering, and it's not the one I worked hardest for–that would be my MBA in marketing, nor even the degree which most of my peers associate me with–that would my MPH in epidemiology. It is, however, the degree with which I most identify, the one most enmeshed in my identity.

There are parts of medical school I would dearly love to forget–but I can't, though I have no doubt that I am a better physician for having lived through them. Telling the mother of a 3 month old kicking and screaming with a 103 degree fever a few hours later that her son had died, being told of the attempted suicide of a pregnant 15 year old girl I had attended to at clinic three days before and diagnosed her pregnancy (she wanted an abortion and was terrified of what her parents–both alcoholic drug users (they were also "practicing" Catholics–at least that's what they said–who later informed me they wouldn't have consented to an abortion for their "slutty daughter"–might do to her if she asked for their permission), digging elbows deep into someone perforated bowels at 3 AM and dealing with seeming endless human waste–yes it's life saving, but that doesn't mitigate the stench and it doesn't stop the waves of nausea or the multiple re-gownings and re-glovings, the 17 year old who decided to take on a tree while riding his snowmobile during a blizzard–the tree won and he sustained multiple organ failure, including a closed head wound that left him in a vegetative state even as he recovered from a severed liver that a decade earlier would have rendered the head injury meaningless as he would have died of the hepatic damage, my first patient during my medical rotation–Mr. B–who had classic hypothyroidism–the confirmatory lab test had to be sent to the VA central lab in Ohio instead of the local lab and the results weren't due back until Monday; unfortunately, Mr. B developed a pneumonia, becoming septic, and dying on the Sunday before, and the too many meetings of the Baltimore Knife and Gun Club on Friday and, especially, Saturday nights. As bad as telling the mom about her dead baby (threw up afterwards, and my attending, cued in by my resident, had the good grace to sit down and talk with me about it; I asked her how she managed to deal with such things, and she responded that you don't, and that if you did, it was time to leave medicine. That may seem a bit harsh, I realize, but I've come to understand what she meant.

 In medical school, during the first year intro to clinical diagnosis, there's much effort expended on trying to get med students to empathize with patients, though not sympathizing with them. I began to understand the idea much better after talking with my attending what was meant by the empathic physician that we strive to be, that our patients need if we are to be effective in helping them maintain or improve their health.

Among the "ghosts" in my memory is the 20 year old man who presented at surgery clinic with his partner. He came from a religious family out west and had come to Baltimore when he was 16 to get as far away from his family as after he came out to his parents, they told him he would burn in hell, that he should forget that he was a member of their family, that his brother and sister were to be told he had died and that they should forget him, and requested that, as they kicked him out of the house without so much as a change of clothing, he change his name so no one would associate him with their family. He had met his partner while homeless on the street, and the two bonded. He managed to put his life together enough to gain admission one of the local colleges on full scholarship as his partner became got a job on a construction crew digging ditches (also a story for a different thread). He presented to surgery clinic with groin swellings. It was the fall of 1983, the AIDS epidemic was in full swing with every sign indicating that it was a infectious disease. (At that time, I doubt that the 2/3s of gay men resident in San Francisco in 1981 realized that they would die from HIV infection.) Understandably, he and his partner were terrified about these swellings. We biopsied them–it's the only time I've quadruple-gloved. He had a lymphoma, and in short order, developed pneumocystis carinii. Long story short, he had AIDS. I wasn't on the medical team treating him but I kept up with what was happening to him in hospital and I managed to stop in and talk with him a few times. He was a bright guy, witty too. He was thinking of becoming an engineer–he enjoyed math and dreamt of using that knowledge to change the world. He was dead within 6 months. I don't know what happened to his partner.

Those experiences contrast with some of the other ones, perhaps less emotionally challenging, perhaps not, such as my first appendectomy (not holding the retractors but doing the surgery; what should have been 30 minutes under anesthesia for the patient became 60 minutes for me–not unusual, I'm told), trying not to cut too deeply, hoping to pick up the peritoneum, all of 4 cells in thickness, sweat pouring out of my brow (and being attended to by a fortunately doting circulating nurse) even as the temperature in the OR stayed a steady 63 degrees. The patient came through the procedure OK. For many medical students, their surgery rotation, while grueling, is also the most fun one. One gets to see the pathology present, instead of surmising it the way an internist would. At the same time, one comes to appreciate that being a surgeon takes a certain personality–not just bravado or ego but also perspective on the role of a physician in the treatment of a patient. A surgeon is cutting on a patient to help the patient therapeutically. She cuts on living flesh seemingly on a daily basis. Granted, it's with anesthesia, but even so, it is a concept which in the abstract may not seem challenging, or even when one's encounters with the surgeon are infrequent. Seeing surgery daily, though, is different, whether it's the surgeon, the surgical nurses, or the anesthesiologist. I think the former two have the most challenge. It's one thing to nick someone's skin for a biopsy, it's another to open a chest to transplant a lung. There's the old joke about the surgical resident at the poker game tossing $20 into the pot with an ace-high hand, while the medical resident hems and haws about whether to raise a nickel with a full house. It fits better than most might appreciate.

Graduating from medical school meant a change not merely in life but in me as a person, in my identity. I don't know that that was true for all of my classmates, at least not that they were willing to say come reunion time. It was for me.

As my daughter graduates, so will my wife and I. Empty-nester syndrome may hit, hopefully not. My daughter will move on to the next phase of her life, to begin adulthood. Both my wife and I wish that she comes through her college experience as enriched as she has her high school one.

In 24 hours, her world will change in ways she won't appreciate for years to come. Perhaps her mother's and father's will do so too?

May

26

 By tradition, in the United States, Memorial Day has come to mean the start of summer. Swimming pools open, schoolchildren begin to think of school being out (and the interminable playing of Alice Cooper to drive home the point), and for some (like my daughter), it's prom season, graduation and for others, a walk down the aisle and up to the alter. On Sunday, the Indy 500 will take place. There are all manner of other activities associated with this weekend.

But none of these activities relate to Memorial Day itself (except insofar as we can undertake these activities). As I look out my window and watch the cars coming out of Camp Pendleton onto i-5, it is hard not to be reminded about the meaning of this holiday, designated to remember those who "gave the last full measure of devotion" to ensure that we could continue to enjoy the freedoms provided by this nation. When I lived in the SF Bay area, we would go over to the national cemetery in San Bruno for the memorial service. Though there are national cemeteries in the San Diego area, we finally found one with such a service, and we will go there on Monday.

My grandfather used to tell my father that while, as an immigrant, he could not appreciate the liberties afforded by the United States as much as my father (born in the US) did, he could understand them better than my father could. He told my father that as someone who did not grow up enjoying those liberties, they were not inculcated into the engrams of his mind as they would be with my father's. Though I'm sure there may be those on this list who will take me to task for placing the issue in such terms, it nonetheless captures for me and my family the spirit of Memorial Day, not merely remembering the fallen, but also what they fell for. It matters.

As we have since my wife and I married back in 1989, we will play "Find the cost of freedom" on Monday evening. When our kids were born, they didn't understand why we put this song on the hifi (and then the CD player, and finally, iTunes). As they grew, they have come to understand the reasons. I can only hope that they impart that understanding to their children. I also hope that while many head off to the beaches or the backyards for BBQs and the like, they take a moment to remember. It matters.

Have a happy, safe, meaningful holiday–I am sure everyone will take a moment on Monday to remember.

May

21

David, you are obviously much more knowledgeable about the game of baseball than I, so I'd like to ask your opinion on Gibson and Koufax.

How do you think they would have fared in today's modern game and how would they have been used by their teams?

David Lilienfeld writes:

Thank you, but I doubt the premise of your question is true. Gibson and Koufax would likely still anchor their respective teams, but neither would likely get more than 25, maybe 26 starts, tops. I doubt that their arms would have been as strong–they wouldn't have developed to be, they would also throw only 100-110 pitches/game (sorry, having seen the great Orioles pitching staff of the late 1960s/early 1970s, I'm a big believer in strong arms that throw complete games). Their control would continue to have been outstanding. The thing about both Gibson and Koufax is that they pitched enough innings and in enough games that when they got tired and they knew the bullpen staff was pitched out arm sore, they would suck it up and make a go of it. They would change their set-ups, mix-up pitches more and so on. But a pitcher can only be that mature if given the opportunity to play–and that's something verboten today. So while both of these folks would have excelled, I doubt they would have been the dominant forces that they were in their day.

Take a look at their records, or throw in Jim Palmer and Denny McLain too, if you want. They routinely pitched more than 270 innings–good seasons and bad. It wasn't until Koufax started throwing more than 220 or so innings that he came into his own. Heck, even in his last season, when his elbow had been so threaded by arthritis that he needed to soak it in ice for 2 hours after each game, he threw 27 complete games. I guess you could say that his career would have lasted longer if he hadn't pitched as much as he did–except that that's how he found his groove.

It's not as though this was something that characterized only the greats of the day. Jim Kaat started 42 games one season–and he played for more than two decades. Never mind that he won 280 games and was never elected to the HoF. Take a look at Steve Carlton. These guys were good, sure, but I think that, like Koufax, part of their greatness was that they were worked hard.

I'm sure there are those on this list who will say everything's fine with how pitching staffs are managed today, that I'm a dinosaur for taking such a risk with someone's arm to let them pitch so many innings, start so many games–that that experiences really isn't necessary for pitching excellence, never mind greatness along the likes of Koufax and Gibson. Much as I think the days of someone as competitive as Frank Robinson are passed, so too are the days of the dominant pitcher. Consider Jim Lonborg, who pitched more than 270 innings in his CYA year (1967). During the World Series, he pitched game 7 on two days rest. Two days! Would any manager even think of doing that today? I doubt. it. I could hear the players union rep going to court about it violating some contract clause. His wife might complain that he's being asked to do the impossible–3 days rest is pushing it as it is. Nope, the days of the strong pitcher are done.

Koufax and Gibson: we likely won't see their likes again anytime soon. Probably not in my lifetime, at least. And I doubt that if they came up today, they wouldn't be nearly as dominant, good as they might be. They would never be given the chance in the first place. It's almost five decades since Koufax retired, and people still talk about the devastating Koufax curve. The same is true of Gibson and his fastball. You need someone with the insights of a Branch Rickey to go back to the four man rotation that produced a Koufax, a Gibson. Do you see a Branch Rickey around? Me neither.

All of which may not be surprising. 100 pitches isn't very many, after all.

(Sorry for the long-winded answer, but pitch counts are a tender topic for me. I don't like coddled arms–just a sign of a pussy-wussy approach to managing the bull pen.)

Stefan Jovanovich comments:

Koufax and Gibson would most certainly be stars no but so would Bob Feller and Christy Mathewson (Tom Glavine as a right-hander). What has changed in baseball is that starters can't start at 80% and then work up to full capacity the way they did in the good old days. Matt Cain's innings pitched have matched the old timers but what he and other top-line starters have painfully discovered is that they now have to pitch the first and second innings with intensity. The technology revolution has allowed all hitters to diagnose their own swings and pitchers deliveries the way only a genius like Ted Williams once could do with only his own eyes. Felipe Alou sat down with his son Moises when the Giants got their first screen analyzer; his comment was "I never understood my own swing". The pitch count is stupid because it is a hopelessly crude metric. 75 pitches at Coors is a solid performance; at AT&T the same effort should produce 95-100. But no one now can go as long as pitchers once did; hitters aided by video study won't let them.

http://en.wikipedia.org/wiki/Felipe_Alou

David Lilienfeld replies:

Respectfully, Cain doesn't have the innings pitched numbers of past cohorts. And I disagree on the "new" need for intensity. You don't pitch an ERA of 1.1 without that same intensity, and while analysis of one's swing is helpful, pitch selection is moreso. You could have an optimal swing, you still couldn't hit a Koufax curve. Palmer's slider wasn't quite so devastating, but if he was on his game, it didn't much matter how good a hitter you were, you weren't going to hit the ball.

The thinking these days seems to be that with all the money being paid to pitchers, no one wants to risk an injured arm from over use (!). Hence the five man rotation.

Maybe we're just going to have to agree to disagree.

May

15

 As the cost of a college education soars and the middle class finds itself struggling with paying for public university tuition, MOOCs (Massive Open Online Courses) offer one possible way to lower the costs of a college degree. Lots of promise–and the potential for disrupting the American college, a bastion of the middle ages for the past two centuries–is meeting with lots of resistance, particularly from those with the most to lose from them.

Stefan Jovanovich writes: 

If David includes the Reformation and its Counter within the Middle Ages, then he is right. As Rocky can remind us, until very recently the avowed purpose of Yale was still for man to find God, preferably of the Congregationalist version. The land-grant schools were to be trade schools as Governor Perry's alma mater still is — as a proud "Ag" school. The modern university owes its corrupt origins entirely to WW II and the G.I. bill — as do our healthcare pricing and payment systems. If schools were truly medieval, it would be a good thing. Teachers were paid directly by the customers — the students; and there were no required prerequisite courses. You find echoes of that system as late as the mid-1950s when "name" professors still competed with one another to teach the introductory survey courses; without those butts in the seats the esteemed scholar had little chance of being the next big hit on the textbook circuit.

May

5

Has anyone noticed the rally in the 10 year Bund? I thought that it perhaps had finished, but that's not the case. The yields just keep dropping.

Anatoly Veltman writes: 

David, if you missed that story: major Central Banks vouched they'll never raise rates again. So you can't be short any core sovereign bond today.

My take, however, is that following 32-year-long advance in US bond prices — it's just as important to be ready for the reversal day. Once you think we are getting a reversal day, just imagine how many years you'll be following this position down!

Jeff Watson writes: 

What if bonds don't reverse for a long time? That could happen you know….Logic does not always work. How long are you willing to wait, 10 years? The Fed has stacked the deck and the new deck is a 6 deck blackjack shoe, marked cards. and the deck is very rich, a counter's delight, and there is a run of AK,A10,AQ, all paying the new, reduced odds of 6:5 for blackjack that many games are offering. Unfortunately, when they reshuffle, we get the 2's and 6's while the dealer shows an ace, and the key element to keep the sagacious away is the dealer gets to go last after we all bust out. How do you beat that game? People tend to over think things, and assume that because A=B and B=C, then A=C. We know that the best trading opportunities sometimes lie when A does not equal C for whatever reason. Sometimes I tell people that intellectualize too much to take a page from Charles Bukowski, who in an alcohol fueled rant said "Don't try," but I changed that to "Don't think." I'd like to know how much money has been lost by "Thinking."

Anatoly Veltman adds: 

First there is a Long trade, but I'll let someone else formulate it. I'm really no good in playing the momentum of a 32y old trend. Then, there will be a short trade.

One way to formulate the future Short trade: what's better a. to enter Short at some relatively high point OR b. to enter when the future down-trend "is" in earnest.

I'm reminded of Gold nearing $1900 in 2011, with Rocky (who's been Long since probably $1000 lower) proclaiming: what's the use out-thinking the trend just because she may be "overbought". There are no signs of a bubble, just stay the course. When the top is finally confirmed and the down-trend develops, you'll have years of riding a Short…

So in case of Gold, Rocky finally declared in 2012 that "something has changed in Gold" as it was rapidly correcting toward $1525 for the second time - and he didn't want to be Long of it any more. In 2013, Rocky was anticipating the break of $1600, and announced his now Short bias.

Back to Bonds: there are way more signs of a bubble!! So lets see if Rocky will pick a., b. or a future way of Shorting I haven't thought of.

a commenter adds: 

There are those self promoters who picked the real estate bubble (Shiller et al), the guys who predicted 2008 etc. What you don't hear is their predictions that went south as that would diminish the brand of the promoters. Even a broken clock is right twice a day. And really, how does one really know, and how does one predict with certainty there is a bubble? And if it really is a bubble, who cares as long as you can sell at a high price on the way down. Isn't commentary regarding the morals of whatever kind government action a waste of time? The government does whatever, you go with the flow and relax. Fighting headwinds, fighting the Fed, wasting time on worrying about why things happen, making decisions on emotion and false logic…..these little things are what make the account balance bleed, and drive one insane.

May

2

 Novices can be the scariest opponents a solid poker player can face, especially in a one on one situation. Novices make bad bets all the time, bets no rational player would ever make. Bets like drawing to an inside straight, which gives him a miserable 4 outs, but happens. Since you are playing an irrational player, someone who might have more "gamble," and less knowledge, you need to change your game. If he is really loose, a good player will play tight and vice versa.

In poker, not all weak players are novices. Some are lifetime degenerates that are like ATM machines. I think novices can be extra dangerous because of the belief that beginners can do very well (some would call it luck). I drew a pat queen high straight flush on my very first commodity trade (soybeans) almost 40 years ago as a 16 year old kid, and things like this happen. Most of the poker games I used to play in were full of very tough players, opposing forces, so to speak. I've traded against some pretty solid players in the pit. In both poker and trading, one needs to play around, and not against the tough player, and go after the weak (which is not necessarily the novice). Does the least irrational player come out ahead in the long run? In poker or trading, that is worthy of further study. Then again, I have found on many occasions, the most rational thing to do is act irrational, or at least make your opponents think you are acting irrationally. In any case, the key lesson is to play a very strong defense at all times and keep one's guard up.

David Lillienfeld writes: 

The same thing is true in chess. When something moves out of a rational context, it is challenging indeed. When I played tournament chess (a lifetime USCF member) a while back, I used to go for the upset prize–it meant winning one game instead of the best of 5, and the prize was not quite that for the tournament overall, but it also involved less work. My opponent usually had a much higher rating than I did, and often didn't pay much attention to the board because, obviously, I wasn't close to his measure and he could focus on other things during our match. Sometimes, in the early middle game, I used to start using inane sequences of moves that would absorb lots of my opponent's time (we played on a clock) as he tried to figure out what I was doing. This would absorb a lot of his time. I would then sacrifice a piece or two, which made no sense, but it again absorbed time on his end figuring out what the madman he was playing against had in mind. About half the time, his clock would expire and I would win what was basically a lost position. It's not the best strategy for trying to win a tournament, but for the upset prize, it worked a lot of the time.

Anatoly Veltman comments: 

You may laugh, but at the level of Soviet and International grandmasters, directly the opposite was sometimes practiced by a few leading players who were best of the best in lightning chess (blitz). If they didn't like what they had on the board, they would purposely allow their clock to run down to only like 50 seconds remaining. What they gambled on was that the opponent, who already had a very good game on the board, might instead focus on their clock…

Apr

25

 It is true Enron's management was engaged in a series of bad decisions. It is also true Enron offered major contributions to the energy industry. Their biggest contribution was to introduce power markets to the electric utility industry.

Because of Enron, control of the nation's transmission lines was wrestled away from utility engineers and put into the hands of traders and bankers. Physical transactions were replaced with financial transactions. Free options to use assets were monetized and priced in open markets.

One example is firm transmission rights (FTRs). Before Enron, owners gave away rights to use transmission lines to a trusted few. Now, FTRs are auctioned in open markets, where users bid for the right to use utility assets.

Because of Enron, Regional Transmission Organizations (RTO's) gained significance. RTOs are what many believe is the "nation's grid." The truth is North America has many unconnected grids, ten of which are open markets in the form of RTOs (most of the nation's population centers are located in one of those RTOs). Every day, RTOs conduct a series of open auctions for energy. They also conduct other auctions for capacity, FTRs and related products and services.

Enron helped transform a highly regulated government-controlled industry into a loosely regulated market-based industry. Enron went bankrupt before the transformation was complete. Initially, only the Northeastern states and California jumped into market-based power. Later Midwestern states, Texas and some Southwestern states joined in. But to this day, many Southern states shun power markets, preferring instead a government-controlled regulatory scheme.

It is true that Enron tried to corner the very market they created. It is also true that the financial techniques they introduced were new in the energy industry, they were borrowed from Wall Street, they were transformative, they were sometimes unfair and most were legal at the time.

Today, RTO's operate under Federal Energy Regulatory Commission rules. Those rules include valuable lessons learned from Enron and other actors. They continue to evolve.

On balance, Enron was a positive force for free markets. They were also a negative force for fair markets.

Russ Sears writes: 

 Enron is a good example of what can happen when a company/species goes from a survival of the first strategy into a survival of the fittest as their niche draws competition and does not survive the process. Normally, growth and high profit margins are a sign of strength, but the temptation as the niche gets crowded is to eat the young to support the current generation of leaders so they can grow and have the high profits they were brought up to believe was their birthright. A similar thing happened in the mortgage backed markets.

These are the times that test collaboration and integrity. It is easy to be honest in passing out the pot when it keeps growing fast and furious. I believe Apple may be a case where it survives through a good collaborative environment within. Time will tell. Given Jobs' reputation of being a dictator and his temper, would this have been the case if he was still running things once continued growth became limited? 

David Lillienfeld comments: 

The issue with Jobs isn't what he would have done. It's whether the management team he left leads the company to continued prosperity. It isn't yet clear that they are so doing, but I'll give them another year to show one way or another.

Managements have two responsibilities–place the right people in their jobs and to provide for an orderly succession that allows the company to continue and hopefully better its lot. (Bettering its lot means ultimately bettering the lot of its shareholders.)

The book on Jobs as CEO isn't yet concluded. Many suggest that he was the greatest CEO of all time. I'm not ready to subscribe to that notion–not until his successors provide some demonstration that the company is not adversely impacted by his departure–no man being indispensable (that great Churchill comment about the cemeteries of Europe being filled with supposedly indispensable men). From my limited perspective, I think the title of the greatest CEO remains a tie between Alfred P. Sloan and John D. Rockefeller. One can argue about what they did, but its hard to argue with the results–both during their tenure and afterwards. J. P. Morgan, too. I suppose one could put George Washington in that league too, but I'll defer to others on this list who can speak to that idea–pro or con–better than I can.

Jobs was an SOB, but the man performed. So was Bob "get rid of the olives" Crandall. And Henry Frick. They all performed, they were all considered magnificent CEOs. The latter two hardly qualify as among the greatest CEOs, and the book is still out on the former.

Apr

17

 Okay, the 142 bank pres and public relations people have the minutes already to be released to public in 10 minutes. Bonds are up and stocks are down. Germany is getting killed. Which way will the release to the non-flexions affect bonds stocks and gold. I've been buying gold whenever it drops as I believe that the bank deposit confiscation has to be bullish for gold as are the trend followers short.

Anatoly Veltman writes: 

Rocky is patient at $1390, getting ready to pull trigger on test of $1320.

Victor Niederhoffer writes: 

Rocky a lot more astute than me perhaps because he has a bit of the idea that has the world in its grip in him from his days at the 'Bank' and his love of trend following. One passed their headquarters near the scene of the crime yesterday evening and it was replete with canine k9 4 footed operatives.

anonymous writes: 

One can imagine the scene:

Fed: Honey, I would love to be with you but we have to lay low a few days after the press got pictures of us together.

Banker responds: If that is the case, you and the D. C. boys have fun by yourselves. Give me the checkbook and I will go home to L.A. to shop. Call me when you decide you need the markets to go up again.

Rocky Humbert writes: 

For the record: I am flat gold. If Cyprus (or any other country) could cure their ills simply by selling gold, there would be no ills. My recollection is that the Korean housewives were selling their gold wedding bands to support the Won … during the 1997 financial crisis over there. Korean bonds were yielding 15% at the time. And I bought a few as an investment. That worked out ok. I am not buying the bonds of Cyprus, Greece or those other places. The wealth of a nation is in its land, its laws, and its work ethic. Everything else is a speculation.

Gary Rogan writes: 

"The wealth of a nation is in its land, its laws, and its work ethic."

Brilliant! I would add "respect for its just laws" to the list. May those who want to reward millions of those who broke the laws of this country by giving them the very object of their law-breaking and by making them a part of this nation give this some thought.

George Parkanyi writes: 

This is not scientific, but my feeling on gold is that given government interventions (manipulation is such a strong word) in markets these days, they can't exactly let that turn into a complete rout either. Fear is fear. Gold was supposed to be the haven of last resort. If people see that collapsing then there is the sense that there's nowhere to hide. The panic could transfer to other markets. It's not behaving as it "should" under the circumstances, which further calls into question in people's minds what the hell IS going on? And what is this action discounting - massive deflation? Governments sure want that idea to spread. This is one of the reasons I'm still holding fast to the core position - though I've taken stop-outs on portions. Not large enough portions to avoid a big hit. But it is what it is. The gold stocks are really getting creamed as well. Solid producers trading like penny stocks. Unless deflation IS ultimately our lot, I'm smelling blood in the streets (some of which is mine) and screaming bargains.

I think the odds are good for a sharp reversal rally. If things go really bad in other markets, that's where they'll be looking to cash out rather really pounded down precious metals. And gold is an international commodity - still highly valued in many cultures. This crowded-trade unwinding behaviour I think could reverse very quickly, very soon.

A commenter adds: 

Was the fall in Gold the result of some bigger thing that I am unaware of, and did someone smell a canary that has been dead for a few months and was the first to find out triggering the selling?

David Lilienfeld writes: 

Let's take a look at what's known:

1. Europe was weak going into 2013, but the dimensions of that weakness are becoming evident. The collapse of auto sales in the EU, the episode with the Cypriot banks (which I still don't understand why the Cypriot government didn't say, "Fine, Germany, we're leaving the euro, we have all these euros in our banks, our new exchange rate is X, and now you have a big mess on your hands, much as we do on ours; don't like that? Fund us!), the coming episode with Slovenia, followed by Spain, Italy (if it can figure out who is the government) and France. Then there's the farce previously known as DC. There's the leader of North Korea trying to demonstrate that there is testosterone flowing throughout his veins. The dimensions of many of these has become evident recently. The degree to which China is slowing down and the degree to which the US housing "recovery" might slow down have also started to clarify recently. I won't get into the potential for a repeat of a SARS-like outbreak in East Asia.

I don't think the canary's been dead for a few months as much as it had a massive stroke, followed by resuscitation from cardiac arrest a few times (OK, OK, it was many times), and it's now brain dead and being maintained by artificial life support, ie, it's dead but it doesn't know it. Or the canary's been dead for much longer than a few months.

There's a lot of bad stuff that's gone on the last few months, and the extent to which the market in the US is near its all-time highs is a wonderful gauge of nothing so much as the power of denial. How there could be as much complacency as there's been (a topic of recent interest on this list) is something I don't understand.

Craig Mee writes:

If you haven't noticed, the first stop for gold was the width of the consolidation. I bring you information on laying of track to take into account expansion and contraction. We must work out what size volatility or influences allows for temperature rises and falls.

EXPANSION AND CONTRACTION.


1611. In laying track, provision must be made for expansion and contraction of the rails, due to changes of temperature. As the temperature rises the rail lengthens, and unless sufficient space is left between the ends of the rails to allow for the expansion, the ends of the rails abut one against another with such force as to cause the rails to kink or buckle, marring the appearance of the track and rendering it unsafe for trains, especially those running at high speeds. If, on the other hand, too much space is left between the rails, the contraction or shortening of the rails due to severe cold may do equally great harm by shearing off the bolts from the splice bars, leaving the joints loose and unprotected. The coefficient of expansion, i.e., the amount of the change in the length of an iron bar due to an increase or decrease of 1 degree F. is taken at .00000686 per degree per unit of length. 

Apr

17

 We may be through with the first generation of social media start-ups. The issues go a bit beyond just Facebook, though it too has problems. Twitter's doing OK, but I'd hardly call it en fuego, and unless one thinks of teens as being lagging indicators of social media developments, I think we may be in for a lull of a year or two as the second generation gets going. Come 2015, we should be able to sort things out. But as for this round, unless someone develops some new business models that include more transparency on monitization, this round may be done. If Twitter does come public, it may be the 2013 version of StrataCom. I have it on pretty good authority from within Cisco that while many in the company don't see it as quite at the level of the TW acquisition of AOL, they would like to forget about it as it ranks up there as on the list of horrible 10 figure purchases. Did Cisco even integrate the technology into its product line? I don't think so.

We've had some discussion about FB in the past on this list, but I don't think we've talked much about this round of new social media companies.

Apr

4

 An emerging "flu" may be spreading in East Asia. There have only been 4 deaths so far, so how important could this really be? I have two friends, one is in a think tank dealing with bio-terror threats and the other is at one of the federal agencies. The former canceled her vacation travel 3 weeks hence and the latter did the same, though his is coming up next week. The latter was particularly noteworthy as his wife is pregnant (3 mos) and they had decided (after 4 miscarriages) that they wouldn't travel after she was in her second trimester. Stay tuned. Hopefully, the situation settles quickly.

Apr

2

 As was discussed pretty well on this site last summer, the US corn crop last year was hardly bountiful, courtesy of a drought. In Texas, the drought resulted in the base of many lakes being visible as sheets of dried/drying mud, with piers off in the sky above. I assume that the rattlesnakes didn't fare too well either, but as a severe herptophobe, I won't get into that.

It appears that the drought is here to stay for a spell. At some point, even the CPI will record the resulting increase in grain prices.

Russ Sears writes:

While reading about a drought is interesting from a historical perspective, it is a sure way to trade yourself into the poor house. If yesterday's weather is not already built into the grain markets; then the thousands of farmers who experience it and for years have bet the families bread, do not know what they are doing and should pack up and move to town and find work in auto repair, factory work or construction where they can still work with their hands but predicting the future is not part of the job. The joke on the farm is that these articles always start popping up when the local sail boat lake is once again in business and the next 4 days call for 3 inches of rain… as it is here in OK.

Mar

29

 Some may remember a book appearing in 1961 titled, Black Like Me, describing the experience of a white journalist passing as a black man in the Southern US during the middle of the civil rights movement.

It seems there is a Jewish counterpart of this book , set in present day Denmark, but instead of passing for someone black, it's someone Jewish.

The conclusion of the article, while perhaps not startling (that anti-semitism in on the increase), is sad.

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

Unfortunately, with economic stress increasing in Europe, I expect anti-semitism to do the same.

Mar

27

Lives there not one spec here                                                 
whose profits have caused all hope to disappear                                 
who's meager talents and frailty                                               
would not qualify him for disability

Here are some good definitions on the 54 million American with disability.

David Lilienfeld writes: 

That's an ADL-based definition, and includes persons with Alzheimers, Parkinsons, and several other conditions–including osteoarthritis, which is prevalent among those of us over 50.

Scott Brooks writes:

Still, that's 17.25% of the population. That's 1 in 5.8 people on disability. That number should give even an ardent liberal like David pause.

We have over 15% of American's on food stamps (of which many are both on disability and food stamps).

We have 40 million on SS.

How many taking Section 8 housing? How many others "entitlements" are we paying out?

TBTF bailouts.

How many government programs can even an ardent liberal find in the budget and say, "the government shouldn't be doing that"? I'll bet there's more than a few.

Let's start a contest and all throw $100 into a pot. The winner is the person who correctly identifies the "straw that broke the camels back".

Stefan Jovanovich writes: 

David's liberalism is to be treasured. Liberals have been the people who — throughout American history — got the rest of us to admit that the country had a problem. The difficulty is with their command and control solutions — public education, for example. Penitentiaries (thx friends), planning for land use, minimum wage and child labor laws, drug laws — the list of foolish solutions is endless. (I am not saying these are David's). The "welfare" problem is real — there are tens of millions of adults who are too slow sick or stupid to be profitably employed. That is the problem; what we constitutionalists have to do is find a solution. Offering up the market is a good way to begin the diagnosis but by itself it is the same kind of malpractice that had doctors blaming ulcers on their patients behaviors.

Russ Sears writes: 

Rather than disability a better definition would be unrecoverability. What spec still here has not had their dreams shattered more than once and has not, after some soul searching, found the strength to get up and learn from it.

Frankly, hope is fickle, fleeting, but it only appears to be extinguished. After a few hard runs in the woods and a few days time, hope has always reappeared and shown a path to turning the pain into greater future strength. Not that the path shown is ever easy or sure, but it has always reappeared, sometimes 360 degrees from the path I thought was the way previously.

Running has taught me that training is mastering recovery. 

Jeff Watson writes: 

And right away, getting back up on the horse after he's bucked you and cracked a couple of ribs is very important. Or, when you are surfing in huge waves, wipe out, break your board, and suffer a three wave hold down and nearly die, grab another board and paddle right back out….who knows you might get the ride of your life.

Mar

27

 Review of Trading Bases, a story of Wall Street, Gambling, and Baseball by Joe Peta

A timely book here just ahead of opening day, http://tradingbases.squarespace.com/. Peta relates a lifelong love of baseball and statistics, his experiences as an equity desk trader for Lehman Bros. (15 years) and his subsequent battle back from a horrifying injury sustained by being run over in the streets of NY by an ambulance –as if his Lehman experience wasn't enough to endure. He suffered a "Theisman grotesque" leg break that left him depressed and basically rehabbing alone in his NY apartment with wife and family living on the west coast.

His passion for trading snuffed by not being able to work, hopped up on pain meds, and trapped in the apartment leads to him to watching more sports than ever before. A baseball lover at heart and a statistical junkie, Peta finds a reason to wake up in the mornings. He decides to try his hand at making a statistical model that would identify edges for baseball team wins and losses that would provide him with a betting edge over the Vegas Line.

Peta eventually creates a hedge fund that bets baseball games that returns 41% in 2011 with similar daily volatility as the S&P 500. The book outlines Joe's views on gambling. Baseball is his preferred niche since the juice/spread is the smallest in comparison to other sports, the ability to use statistics to get an edge is available, and the natural alignment between the better and the team– rooting for your team to win versus the convolution of winning and beating a point spread.

Joe explains his model with care, logic, and facts–backing up his assertions with anecdotes, experiences and back testing in terms of the body of baseball evidence from the historical stat stockpile. He builds on the pioneer work of Sabermetrics, Bill James, and Nate Silver. In general his system uses time tested relationships of team win/loss records, runs allowed/runs scored, starting pitching assumptions, WAR/PECOTA analysis, and more. He relates his journey on a monthly basis showing his results, the breakdowns of what went right and what went wrong, his acceptance of a "lumpy" higher return than a smooth more accepted rate of return by clinging to the belief that reversion to the mean will occur–eventually. He uses a concept called "cluster luck" to identify "lucky or unlucky" pockets in team's prior records that should be ignored and removed from overall estimates. This is a key to his being able to form an opinion against the betting line of under or over valuation. His model then picks matchups that should be bet on and he uses a very systematic approach to determining the amount of the fund to bet on any one game–essentially using fund manager skill sets.

One notable opinion of his describes his fondness for "skill sets displayed" versus the recording of errors (mistakes committed and sometimes unfairly attributed). He uses SIERA (skill-interactive ERA) for pitcher evaluation and special modeling for playoffs and interleague games. He also walks the reader through his decision making process for when to tweak the model or when to stand pat—. Over tweaking will result in removing the natural capture of mean reversion. Joe has a friendly writing style and comes across as genuine, interesting and likeable.

I think any spec would like this quick reading book–you will learn something here about baseball stats and baseball betting theory; you may well enjoy the woven storyline of his trading career experiences as these snippets and stories move betwixt his model outlining. It is written for an above average mind, but its not too heavy to put someone off who doesn't deal with wall street or modeling on a daily basis. I read ever page, every micro-print footnote, and every end note.

Ken Drees adds: 

I could not find a section or passage by memory or a reference from the index to overall management influence on single game outcomes or win expectations. One chapter deals with playing from behind and how "small ball" played to cut a two run lead to a one run game is a bad practice–playing not to lose instead of playing to win–giving away your upside to get a better feeling that you are "doing something"–almost like a job justification strategy–manufacturing a run, playing to tie instead of win. Peta backs this up with data –pages 204-206. Obviously management is taken into account when overall seasonal expectations are determined. But the managers don't play on the field so they are not highly considered in Peta's analysis. I would think possibly it may come up as a side data point in the playoffs –having more of a weighting than regular season. It may be that widely popular managers may in fact swell a line up for a team and thus give you a better opportunity to make money against–like the NY Yankees as Peta points out are a marquee club who usually get premium priced in certain situations regardless of true odds.

Interestingly –he bets both national and American league games–turns down activity during interleague play since data is less deep for those occasions and also scales back during the playoffs.

In the chapter, "Focusing on the Wrong Data", Peta parts company with "a total lack of regard for management/soft skills mentality" that some of the sabermetric followers employ. He cites a player's manager, Ron Washington of the Rangers who is loved by his players and who makes a critical decision in game 3 of the world series tied one game a piece. He Gives veteran Torrealba –a 2011 95 game starter at catcher, a "deserved" start over the much better performing player at that time during the season, Mike Napoli. He juggled the line-up and in Peta's opinion weakened his team in two ways in order to give one player a "deserved" start over giving the other 24 players there best chance for a world series game 3 victory and series lead.

So maybe Peta does give some weightings in his model –maybe when playoffs and world series are in the prime-time spotlight managers can be exploited by bettors for their traits–both good and bad.

Victor Niederhoffer writes: 

I agree with the excellence of Trading Bases. The author is very brilliant, and very likable. And his discussion of what went wrong at Lehman is the best as well as his college essay on the central funding department, which almost got him fired, and his well deserved hatred of the boxing head at that firm, who gave him a one sentence interview before hiring him.

He assumes you know a reasonable amount about baseball trivia and it's helpful if you read the annual issues of the baseball prospects and are familiar with the pythagorean theorem of Bill James. The author was a star trader of tech stocks at several firms before being hit by a ambulance and turning to his first love after being fired by the Japanese and carried out in his wheel chair. A great book. I second what Mr. Drees said about it. 

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