Monty Python had a classic "Olympic Hide and Seek Final" in which the first seeker took 3 years, 27 days, 11 hours and 42.23 seconds to find the first hider. Then they reversed roles, did it again, and the result was…a tie.

Similarly for "value" and "growth" over the 23-year lifespans of the Vanguard "Growth" and "Value" index funds.

anonymous writes: 

The feud has been going on for far longer. In 1970s, Nifty Fifty stocks claimed victory with an average P/E of 42, and then crashed by 1974. It looked like growth was a bubble and has lost. Twenty years later, Siegal claimed victory for growth. As long as one diversified and got Walmart in the portfolio, it turns out that Nifty actually did OK.

The next 20 years as your graph suggests shows the Dot-Com and Biotech booms for growth.



I have this serious cheap problem, where my brain has a hard time grokking what the market is capable of. Sometimes as an exercise I will compare the current market to some other market/year, to try to force my brain to see what the possibilities are. Right now my lizard brain very stubbornly has its teeth in the idea that 2015 will wind up looking a lot like 2011.



 Jon Moen and Ellis Tallman wrote a wonderful paper on the Call Loan Market in December 2003.

It explains in detail how and why the Federal Reserve system originated as a further extension of the New York Clearinghouse.

The Central Banks and their own intermediaries (IMF, World Bank, et. al.) are now what the Federal Reserve was designed to be - the people who will never let the markets run short.

The premise then was that the demand for specie (what Friedman called "high-powered money) was an inescapable part of any national banking system and international trade. Settlement ultimately had to be in gold, even if, in a crisis, the clearing of trades would be done Bagehot style - using the central banks' own credit.

In another few years it will be half a century since gold was the ultimate currency for international settlements.

It is now credit turtles all the way down.




Q: Can anyone explain why I am constantly reading posts about possible entry points, buying times/conditions, number crunching stats as to undervalued situations, etc., when it has been absolutely clear to me that we are in the midst of a secular bear market? Mind you, this has nothing to do with personal sentiment or opinion; it is simply interpreting what I am seeing each and every day and trading accordingly. I am not a doomsday bear, nor do I have any biases; it is just amazing to me how many established professionals are still trying to buy buy buy at every possible juncture day to day. Does anyone who calls themselves a trader ever short overvalued stocks/markets/moves? How many rallies do you need to see fizzle into oblivion to prove what we are in the midst of? (Obviously, there are specific sectors and stocks that rise at specific times or under specific conditions and certain short term trading styles where you can be as bullish as you wish; I speak of the market condition in general.) Why have I been able to count on one hand the number of times I have read of any bearish play or overvalued situation? Doesn't this market call for at least some posts of a great short on some overvalued garbage? I am aware that everyone has their own style, but I find it incomprehensible as to why I continue to hear predominantly of bullishness. I'm open to your reasons.

Chair's response:

A personage who is absolutely convinced that we are in the midst of a bear market inquires why he finds so little company on our list besides those obviously talking their book. The reason is that most people on this list have read "Triumph of the Optimists" and "Practical Speculation," and both books emphasize the long-term 10%-a-year upward bias in all stock markets in all countries. That's the reason at a theoretical level. At a practical level, I would add, and this is just personal based on my observations of many years in the business, as well as exposure to almost all major hedge fund managers, including one who hates enterprise as much as Buffett — yes, I would add that the reason we don't hear from those absolutely convinced that we are in the midst of a bear market is that they have been, are or will shortly be, broke, morally and financially, metaphorically speaking. Drinks on me.



In such a technologically influenced trading environment, one is used to instant co- and counter movements in markets.

Without thinking too deeply about it and with respect to Arnold Zellner's 'keep it simple' mantra, one is compelled to ask the following:

Why the heck didn't TYU5 and USU5 trade way higher on Friday given the SP500 move?

anonymous writes:

During a run on Thursday night east coast time I thought about the market and the potential opportunities and pitfalls that may lie ahead in the next 24 hours. Basing my thesis on several factors, the most direct I will elaborate on below, the others too long to espouse upon at the moment. My conclusions consisted of some of the following all of which I acted upon reaching a telephone after reaching my phone:

1. the front end of the curve in the US, namely EDH8 or the like, should rally and have minimal short term downside risk as a continuation lower in equities, the general drift higher in the front end over the past several years, lower commodity prices, stronger dollar, sub-par US growth, etc. supported the view…this is in my view is a slightly cleaner trading on expectations of Fed to less than market expectations based on recent data and markets than the back end, particularly given the flattening in place since around July 13 led by the back end, looking at a simple regression I don't see a meaningful difference between the US 2yr or US 10yr to SPX either

2. the U.S dollar would probably weaken and be led by the JPY given market positions, albeit correlations are not that great to the Nikkei or US 2 year rates, but one thing to consider is newly dirty float of CNY which is somewhat based on "market rates" so I expect that to stabilize or strengthen possibly next week allowing some downward pressure off of Asian FX, including the JPY, I also sold the British Pound on the thesis that there is too much tightening priced into the front end of the curve and the market is long GBP on expectations of the BOE and FED leading the tightening charge, let alone the somewhat mixed UK data of late and the "economic surprise indices" I watch are on the high end of expectations of the past few months

Having said this I made the large mistake of not hedging properly my Euro puts versus the US dollar over the past few weeks and that is a greater lesson of many mistakes to be improved upon.



I am re-reading something about Long Term Capital Management. The way they added leverage intrigues me. It says that without leverage their annual return on asset would be something like 2.5%, but by adding leverage, they got it to 46%. So, the borrowed money had to charge much lower than 2.5% interests. How could they always easily find that low cost loans in the 90's?



Sadly we lost a local doctor Saturday who was trying to set a new world record for depth—1,200 feet. He never came back. [News Story ].  More experienced divers have posted these comments that ring true to many of my trading errors.


Four Attitudes Characterize Leading Tec Divers

In considering your growth as a tec diver, it’s worth noting the characteristics tend to typify leaders in not just tec diving, but in most areas of exploration:

Humility. They realize that they don’t know everything, and that there may be more than one right way to do something. Their ego doesn’t get in the way of learning, doing or teaching.

Open Mindedness. They never reject something just because it’s new or different, and they listen to other viewpoints. They don’t fear change and they’re not threatened by differing opinions.

Analytical. They accurately and realistically weigh the merits of a technology or procedures for themselves and never accept something just because it’s new or because someone else thinks it’s better.

Competent. While they’re open to change and alternative ways to do things, their own methodologies are solid and they can demonstrate a rationale and realistic basis for each. They’re quietly confident about how they dive.



Imagine a world where:

You can observe 'n' prices :X1, X2, X3…..Xn occurring at times Y1, Y2, Y3…..Yn - all in real time and the next day, incredulously, the 'officially provided' information does not agree with this. One should think about what this means for testing and what adjustments might be efficacious.

Almost all information transmitted to subscribers of the major industry standard news / data platforms is of no use whatsoever. One should think about how information gets to the flashing screens in front of you and how many layers of 'flexionic ether' it passes through en route.

The things that work make no sense and are non intuitive. For many years , say between 1990 and 2005, one rejected much because it 'didn't make sense'. A great personage on this list cured me of that most debilitating of trading ailments.

Imagine that world… I'm just saying, is all!

An anonymous old time trader adds:

In the real world, at the exchange, right after the close there is the last price after which the settlement price is determined. The settlement price usually, but does not always agree with the last price, and that is due to the power of the pit committee or whatever they call it nowadays. Things have gotten much better since the closure of the pits, but there are still very rare occasions when the committee will override the last print and adjust the settlement price. There's a lot of money changing hands with a cent and the orders difference for a contract that has an open interest of a million contracts. The rule of thumb is that the committee will move that last price to inflict as little damage as possible to the members and insiders. For what it's worth, this happens more frequently in the grains and meats than the financials but it must be noted that it's a very rare occurrence in these electronic days. Nowadays, there might be the rare occasion where it will differ by a quarter cent, but a couple of years ago, it was the wild West. In 2012, I complained privately to the Chair that my legal limit position at the second largest wheat market, was subject to an average of a 2 cent adjustment everyday at the close, always against me. I knew what they were doing and as a former member of a couple of pit committees, I understood what was going on but still didn't like my pocket getting picked every day. Once after a week straight of their shenanigans, my complaint to the exchange, and threats were so vociferous, they changed the settlement price in my favor… hour after the close….on a Friday. As an aside, a meal for a past lifetime, my mentor taught me to watch the pit committee's adjustment and listen to the conversation right after the close and hear the number they gave the reporter. This gave an excellent indicator as to whether the pit was long or short. But that was then and this is now.



The Haloid Company went public on April 17, 1936. The company name was changed to Haloid Xerox Inc. in 1958. Here is the chart of its full rise to being the stock of the first technology "bubble". From its effective IPO, when it was listed in July 1961 on the NYSE, the company's stock price increased 15 to 20-fold to its height of the early 1970s "Nifty-Fifty" bubble (a period of a bit more than a decade). By then the company was so worried about the inestimable value of its name that it paid to run ads telling people that they should not call copying "xeroxing".

During roughly the same period of time (a dozen years) Amazon's stock price has increased 29-fold from its initial offering price of $18 on January 2, 2002.

 So what did Xerox do differently than Amazon?



Is it a coincidence that I can't find any canned algo type orders that allow a limit price to get hit and then add in a time delay before they start executing? Who would wish to put in a limit order when there could be a news spike that will only get filled well beyond a news shock adjustment price? I'd like a canned order that lets me put in a time delay after limit price hit before it starts to execute. This sort of thing could make a fellow a conspiracy theorist.



Bo's new Executive Hobo website



 Rogue waves can be defined in many ways, yet the one I prefer is "a wave of extreme severity that appears unexpected even to an expert". Given that definition, rogue waves do exist, yet there is no evidence that they would be globally more frequent than conventional (non-linear) waves theories predict, they just don't happen where and when — i.e. in the most extreme sea states — one would expect them. There is no evidence either that the "modulational instability" theory that my colleague Prof. Akhmediev puts forward to explain them would not apply: the theory was validated in wave tanks, optical fibers and plasmas. It is just impossible to know whether the necessary boundary conditions are satisfied in nature. Several points may be noteworthy to the Specs:

1. A recent article shows that rogue events can be empirically predictable, but that for ocean waves the delay would be of the order of the time needed to shout "Buddies, grab something and hold on to it!"

2. "Normal" extremes are at least as frequent as "special" ones, and all indicators based on breather theories such as Akhmediev's have false alarm rates of at least 90%, perhaps 99%, and still fail to warn of about 10% of actual rogue waves.

3. Experienced sailors deny having met "rogue waves". They say that they encountered waves that were rogue, they capsized or broke some ribs (Roger Taylor, Isabelle Autissier), but when you discuss it directly with them, nothing that they were not expecting and had not prepared their ship for.

4. Only a very small percentage of fatalities occur well off the coast (Nikolkina & Didenkulova), most of them happen at the coast or in shallow waters where victims feel wrongly on safe ground or in safe waters.

William Weaver comments: 

Your fourth point is similar to many car accidents happening within a small area from home. People make more mistakes when they feel comfortable. I'm not sure how this changes when accounting for activity though. For example, you could normalize accidents per mile driven and then compare close to home versus far from home, or do a similar normalization for the study mentioned with at sea fatalities, which I have not read. It might be helpful to measure after splitting into bins for types of vessel (cargo ships might have more miles, farther from home travel and less fatalities), and by type of mariner, which might be self defeating as it is more likely less experienced seamen would stay close to shore ( which is not the case for drivers staying close to home).

It seems like a data set prone to torture someone. But do we make more mistakes when we feel safe? The opposite might be true too. My observation is the difference between good and great traders is often the number of mistakes they make. Bring back the checklist posts?

Jeff Rollert writes: 

I see some sample issues. Most sailors (N) do not venture more than 20 miles from the coast. The ones that do are orders of magnitude better prepared (boat) with experienced crew. So I suggest the distribution is bimodal.

Also, there is more than one kind of "rogue" wave. One is an overtaking wave, which is when two waves combine; the second, and more deadly, is when the wave comes from a direction that is unexpected. In my experience, these are the most deadly, as they roll (or broach) the boat. They are also the hardest on the structure of the boat and hit the weakest points harder (deck access from the stern, control or bridge room windows and electrical systems). For fisherman, they dread losing engine power, as the boat becomes exposed in the same way, as fishing boats have the windage at the bow, which turns the boat and presents a breaking wave to the stern.

Lastly, looking at single vs combined storm fronts also messes with their structure.

IMHO, they oversimplified their model.

Jim Sogi writes: 

Surfers expect at least 1 wave each day that will be 3-5x the smallest wave. It's called the wave of the day. In a random sequence this would be one of the far tails. They tend to come with the incoming tide as there is an extra push from the moon.

I think the rogue waves in the ocean might be 20x or more if there were a number of storms with crossing wave trains which could combine. It's the cross chop that creates these large events through random combinations. Rogue is often and mistakenly used as unexpected. Sailing through large parallel swells on a calm surface is quite easy. Sailing through a cross chop is very tiring and rough. Refraction and reflection from shores often make coastal sailing rougher than in the mid ocean.

What always surprises me is how calm the ocean tends to be. You would think it would be rougher given how big it is. 



The link below shows where we stand on data security. Of concern is the fact that what we 'the public' read is likely behind the form i.e it surely extends well beyond this. It is likely that any 'commercial' information is obtainable by those at the sharp end of this kind of work. ( With some degree of risk attached to be sure). One gathers that military and security services have protections (errrr Edward Snowden notwithstanding). One genuinely does not begrudge occasionally losing in organised markets to those who are smarter, have found a new edge, or have deeper reserves/staying power . However, what grates somewhat is losing to technology cheats. ( That is to the extent that it is actually happening, a point on which I have zero proof other than excellent anecdotals from

From Reuters News:

"U.S. researchers show computers can be hijacked to send data as sound waves"



 I've only broken out of four prisons, but each was dramatic:

1. Utah State Prison - Pole Vault I climbed to the prison chapel roof near the perimeter fence with a 16-foot piece of irrigation pipe. It was tin and had the spring of a pole vaulting pole. The roof was level with the razor wire on the top of the fence and I was looking at a 10-feet gap between the edge and wire. I sprinted like a pole vaulter to the end of the roof, and pole vaulted over the fence to land in a roll on the ground on the other side. My getaway ride was waiting.

2. Aiken County Detention Center in SC

Thunder Kicks Finally, after days of waiting and doing leg thrusts, a thunderstorm moved in. The thunder was loud enough to mask my kicks that I matched with the lighting flashes, and counted 'One alligator…' to time the claps. The prison wall I kicked was 15" thick rebar-reinforced cinder block and red brick. In a couple of minutes, the wall began to crumble around a barred window. A minute later, the window popped. I stepped out to my waiting ride.

3. Waynesboro, GA Jail 

Out the Back Door This was an old Andy of Mayberry trick that I saw on TV and put into action. I was on the hall phone chatting with a friend when a deputy entered the back door and walked by. I handed him the phone and asked to find out how much my bail was. He took the phone, and I walked out the back door of the jail.

4. Columbia Correctional Institute (CCI) in Columbia, SC

Escape from Death Row This was my publicized escape by bending the bars on Death Row. The court had placed me on Death Row in Block 2 for my own protection. Every man on Death Row in CCI history had been executed, and the court forgot to include the paperwork that I was not to be. My execution date rolled around, and the guards began to look at me pityingly. Now for the first time I'll reveal how I escaped. My cell had inch-thick steel bars, and since I was well known I had a hacksaw blade smuggled up to me. It took thirty minutes one evening to saw a single cut through the bottom of one of the vertical bars near the floor. I bent it with kicks until it fatigued, and restored it upright with the invisible cut. The show was set. The next day, with inmates and guards as witnesses, I shouted, 'I'm not going to die!', and bent the bar with my hands before their eyes! I crawled through the opening, and leaped to a catwalk and grabbed an officer's mace. I sprayed anyone who came near, and waited for the warden. He brought an attorney named Gaston Farley, who unsealed the classified case and found the court had not ordered me to prison but on parole for a minor charge. I received an out-of-court settlement of $25,000.



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

Stef Estebiza writes: 

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

Pitt T. Maner III adds: 

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

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

Steve Ellison responds: 

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

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

Jim Sogi writes: 

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

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



 In my lifetime it has been a fool's errand to bet against property in Central London.

One non predictive anecdote caught the eye this morning: In 2014, 3900 homes in central London were sold for a value exceeding £1 million ($ 1.55 million).

Apparently there are officially 54000 (fifty four thousand) Central London properties being built or redeveloped from commercial to residential use whose sticker price will be £1million or above coming to market by the end of 2017. It all likely reflects the sharp narrowing in the geography of wealth in the obvious global hotspots that is becoming more acute. (It reminds one of stock indices making new highs on the back of just a few stocks, which may or may not 'mean' anything).

For my money, it's Point Piper in Sydney. (Google some images). Funny how the market works.



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

1. 1988 Sir James in Huntington Beach‏

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

2. 1984 Graniteville, SC

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

#3 1985 CCI in South Carolina‏

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

4. 1994 Corcoran Shoe Scopaletti

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

5. James Doc Holiday

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

6. 1992 Rolling Pin at Ely, Nevada

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

7. Sixteen Officers Down‏

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

8. Mexican Standoff‏

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

9. Brush at Wasco

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

10. Chinatown Street Fight‏

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

Victor Niederhoffer writes: 

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

Jim Sogi adds: 

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

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

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

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

A great guy, I really like him.

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

Anton Johnson writes: 

Hi Jim,

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

Jim Sogi replies: 

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

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

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

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

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

Chris Tucker writes: 

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

Ralph Vince writes: 

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

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

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

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

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

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

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

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

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

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

John Floyd writes: 

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



 Forever Stamps are used for currency in prisons and psychiatric hospitals where inmates and patients aren't allowed to have money. Not only is it a medium of exchange, it is a good store of value as stamps appreciate with the US Postal rates which historically have never declined.

The days of prisoners and patients being allowed to have two packs of cigarettes a week are long gone. In California and most other states there is a full ban on tobacco. Regardless, smokers get them and, per supply and demand, the price of tobacco in the facilities has risen astronomically, and can be even more expensive than dope.

When you think of prison economics the second thing that should come to mind after cigarettes is ‘mack' – small tins or pouches of preserved mackerel or tuna. Since 2004, mack has replaced ciggies for trading goods and services because they are small with a inestimable shelf life. Inmates and patients have built an entire economic structure around the oily fish.

Then, in 2007, Forever Stamps became the staple currency because they are smaller and last as long as cigarettes and mack, and they appreciate in value over time. They are non-denominational first class postage which means they can be used to mail first class letters no matter what the future postal rate. For example, in 2013 a Forever Stamp cost $.46 to mail a first class one-ounce letter, but today it costs $.49, which is an appreciation of about 7%.

One pack for a microwaved Mexican cuisine. Two macks for a haircut. Two books of Forever Stamps for a jug of bootleg wine. Forever Stamps are so popular that improvised black markets spontaneously emerge around them with inmates offering everything from handcrafts to clothes and televisions. There are 20 stamps per booklet which has a value of $10.00, and the booklets are generally not broken. That is, starched laundry is a book but never a book-and-half, and a bodyguard for a day may cost five books but stamps are never pulled.

Inmates and patients can procure postage stamps easily and legally by mail or in in-house exchanges for goods and services making them a de facto form of payment. In fact, postage stamps are considered legal tender in the United States. You should be able to go into Wal-Mart or any store and purchase any of these items offered in prisons and hospitals.

However, bill collection in the underworld is more grisly. If inmates don't get paid for goods, services or loans then criminal acts are going to follow. Contract hits over owing Forever Stamps occur daily.

There is an odd wrinkle called 'upping the value' of a booklet by offering a $7.00 item for two books of stamps that are worth $10.00. Yes, it cost the buyer $3.00 more but the thing was in demand with stamps in great supply. The seller may then turn around and put the stamps as money on his prison or hospital commissary account, or send the booklets home to be used as full value to send him more goods or stamps.

All of which means the prison or ward economy runs much like a commodities market: Money in a commissary account can’t be traded, but goods sold at the commissary can be. And since the amounts in circulation are tightly regulated, their value can far surpass their price in dollars. Store men — prison or psych businessmen who have amassed a fortune of stamps — often mail stamps to loved ones outside effectively converting their fortune into cash, reducing the number of stamps in play and thereby inflating the value of individual stamps.

In the corrections and hospital system, enterprising businessmen amass vast fortunes of strange juju. These eccentric fortunes cannot be deposited into traditional banks nor can their value be added on machines. Instead, they are hoarded in secret piggy banks like seat cushions and hollowed bedposts. One never knows when he will need an uncommon item not sold by the commissary such as clean urine (stored in condoms) for a drug test, and has to go to the bank to pay for it. In the joint, everything has a value and ingenuity is priceless.

And with that, we must study the improvised, underground economies of America’s vast prison and psychiatric systems. In traditional economies, money has three primary functions: as a medium of exchange, as a unit of account, and as a store of value. Forever Stamps are the underworld gold standard that citizens outside the walls might envy in some ways.



What sub-sectors are traditionally used to benefit from the elections campaigns, or will the campaign be fought on twitter and other social media?

Victor Niederhoffer writes: 

Tim Melvin is the expert on this. Any company that depends on government largesse will benefit as the idea that has world in its grip is that we are victims and the purpose of government is to take from the productive and give to the poor and foster smallness in humans, and strive for inequality so that none stand out as counterweights to the perks and emoluments and mistresses of the governs. 

Tim Melvin writes: 

Oddly enough today's column addressed this big government trade:

While macro stuff is not my strong point I feel like I can identify some segments of the world we live in that are more or less have to happen situations. Obviously small banks fit well into my long term view of the world. Smaller banks are going to have an increasingly difficult time keeping with regulatory and technology costs. The will find that it makes more sense to sell to a larger competitor rather than struggle to remain independent. This simple trend should makes us all a lot of money over the next decade.

The next powerful trend is one that I hate to see but the fact is that without a social and political revolution the Federal government will continue to play a larger role in the lives of its citizens. They are developing programs for medical care, social programs, energy policy and a host to other instructions and instructions that are going to require huge expenditures. A whole bunch of that money will find its way into the hands of consulting companies like Willdan Group (WLDN), Provident Service Group (PRSC), CACI International, FTI Consulting (FCN) and Ameresco (AMRC) that provide specialized consulting services to the various government agencies that will develop and oversee these programs.

And don't forget the print news and radio companies that will see a ton of advertising dollars from local elections–ahc, salm, SBSA–the hispanic vote will be HUGE and much $$$ will be spent there…TV station owners like GTN, MEG, SBGI–ssp owns both local tv stations and newspapers….

And many thanks. I was just sitting here wondering what in the fresh H*** to write about for tomorrow. Problem solved. I will post full column here when done if chair would like.

Ed Stewart writes: 

I think the same thing Tim talks about in banking is going to happen with brokerage firms, though a bit more stealthily. The second tier firms that are primarily marketing firms are going to give up on the technology side, much of the regulatory compliance side, etc, and become something more like introducing brokers. When this occurs most of them, or a great many of them, will consolidate under IBKR's global platform and then focus on sales and service. Apparently scottrade is the first, they have outsourced their options trading platform to IBKR - and the commission will be the exact same (supposedly) that IBKR's clients receive. They do this because ibkr will treat each brokerage relationship as 1 client, give them the volume discount, and then the other firm keeps the spread between the volume discount and what their individual clients are actually doing. Its a neat business model.

It will be invisible from a client perspective as the front-end will be customized or rebranded. One interesting small cap play on the hispanic market and possibly cycle is hemisphere TV, run by an experienced TV executive. I've looked into it just a bit, perhaps if i do more I will write a brief thing on it for the idea list.

IBKR is also starting to capture more fund business as smaller funds are kicked off the big platforms.

anonymous writes: 

I took a quick look at HMTV. It's an interesting company. But it seems to have a focus on niche markets within the hispanic community. I don't know how much appeal that may have to political campaign advisors. That's not to say it may not make for a great investment. My father invested in Perkin-Elmer in the 1960s because it launched a product that he thought would be great in the classroom. It flopped. Didn't matter, though. The company flourished because of its position as the leading supplier of electronic manufacturing equipment—a booming industry of the 1960s.



 1. It is doubtful that anyone has really profited from the brave new world of "printing paper" other than the people who "manage" the printing. That is a considerable number of people, especially if you count everyone whose work is not tested by actual demand. (Of course the civil servants are smarter and deserve better pay; they know how to avoid any questions about the market for what they do.)

2. Value is another Benthamite corruption; for those who want to find justice in discussions about money and credit, it is a very useful notion. It allows "policy" to become the question and avoids the petty information of what people are actually paying for stuff and services and promises. The awful thing about prices is that they seem to have no memory or conscience.

3. I don't fault the Greeks, Portuguese and Spanish for cheating any more than I fault people here in the United States for having taken out liar loans. The rule is always caveat emptor. If the Germans are now unhappy with what they bought with their currency union, that is something for them to discuss with their therapists at the IMF.

4. The idea that the Germans are worried in their bones about hyperinflation is a wonderful fiction. They, like the Chinese, are worried about export surpluses. As long as they are collecting more money from foreigners than they are sending them, all is good. The currency union with modern central bank attached was, they presumed, going to allow Germany to have a permanent surplus without the risks of having the national Treasury have significant debt held by foreigners.



 As some might recall, I follow coffee pretty closely. And while coffee trading may be a relatively closed shop, the price still responds to supply and demand. I recall from my econ class that even monopolies have to factor in the reduction in demand consequent to an increase in price unless the good is inelastic. That's four decades old, though, so maybe my recollection is off.

Here's the thing: oil's dropping as the supplies bulge and the dollar strengthens. Gold's weak as well. That fits a deflationary environment. Increasing interest rates fits an inflationary one. Coffee remains weak, trolling multi-year lows. What's intriguing to me about this is that evidence continues to grow that the el Nino taking place is getting stronger, and there's now discussion of whether this year's even might be stronger that the record one in 97-98. El Ninos generally mean the coffee crop is smaller than average. So while weather developments suggest a reduction in supply, pricing suggests a marked decline in demand, too. Either that or deflation with a stronger dollar.

Maybe I'm missing something here. (I probably am.) Anyone care to help me understand this better?

anonymous writes: 

Procter & Gamble, Starbucks, Sara Lee, Kraft, Tchibo and Nestlè control 60% of the market. Actually they are in overproduction, 120 million bags (sixty pounds) of coffee products, 105 consumed. The inventories accumulates from year to year.

They are trying to introduce into the market a GMO coffee variety whose seeds ripen all at the same time, greatly cutting production costs and collection costs, allowing automatation. They are destroying the lives of 125 million people, mostly small-scale farmers and their families for profit in exchange for a coffee built in the laboratory.

Andrew Goodwin writes:

Has anyone else made the same observation that nearly without fail, the same people who make the sternest warnings about climate change are the same ones who mostly firmly protest GMO food?

If the climate is changing then please explain why the crops that worked in the old climate will succeed in the new one. Sometimes it is enough to make me think these folks are going to succeed in starving us all.

In this case, respectfully, it seems that some parties would rather see higher coffee prices, which they think will help some number of people. They don't consider that the destruction of the Brazilian rainforest to make room for coffee plantations, profitable only with prices at higher levels, might have catastrophic impact on humanity in the longer term. 

Michael Ott writes: 

I've noticed that those that are vocal about climate change tend to make arguments based on the overwhelming scientific evidence. Yet when pressed with overwhelming evidence about the safety and benefits of GMOs they ignore it or claim it's a conspiracy. They make fun of those who ignore climate change science or claim it's a conspiracy. It's all hypocritical. This article was thought provoking: "Unhealthy Fixation: the war against genetically modified organisms is full of fearmongering, errors, and fraud. Labeling them will not make you safer."

Jim Sogi writes: 

The Kona Coffee specialty crop will be big this year. There are a lot of beans and just starting to ripen. We had some big rains right at the beginning of the season and there were rows of fragrant coffee flowers early on. The coffee borer was bad last year, but as with many natural cycles, it is not as bad this year. With the trees stronger from good rain, the pests can't get as big a foot hold. There is not enough Kona Coffee to make even a drop in the world wide market, but it's what I grow, harvest, process, dry, roast, grind and drink. There's not many coffee gourmets who can say that.

My son got me a nice Rancilio grinder. It's made a huge difference and now I enjoy real Italian style espresso and cappucinos. It's a game changer compared to the cheapo grinders and results in a very even fine fine grind which you can't get any other way.

Stef Estebiza writes: 

There is a ton of material about the problems with GMOs, and not only with the way in which they are then treated with pesticides. The list is long, but lobbyists' interests are mor profitable and important than your health. Here are two articles:

"Cancer Viruses Are Deliberately Inserted Into Your Food"

GMO: Study Shock, Toxic to Animals and Man

Michael Ott replies: 


Those articles are perfect examples of unfounded claims. This quote is just false: "because they are heavily contaminated with the toxic herbicide, Roundup". Literally dozens to hundreds of tests have been performed and prove the opposite.

False: "petunia plant which is a nightshade. That means folks with nightshade-induced arthritis can now get arthritis from soybean products." This has never been shown in a valid scientific study. Rather it's been repeated by pseudoscientists from a base false claim.

The second article showed results based on massive unrealistic doses and has been widely discredited. 



 Andy Lo (paper link here) studied varied technical formations and concluded that the Head & Shoulders isn't useful for the universe of stocks. His paper didn't address the gold market.

I am not a professional chartologist (but I play one on TV), and a cursory look at the gold chart from November 2014 to present sure looks like a head and shoulders. If you believe this stuff, closes below 1150 should project to $1000/oz and below. Certainly, the strengthening dollar, rising real US interest rates, and various other stuff (like the Chinese reserve report released yesterday) and oil prices are not particularly friendly for gold bugs. Also, the long term gold price is still ahead of the M1 and CPI — but it will look fairly in line at 950-1000/oz.

Specs may recall that I very publicly rode the gold bull market for several years and exited in early 2013. I still occasionally trade around it for fun, but I am structurally flat. If you held a gun to my head, I'd rather be short than long right now for a trade. For now, I'm waiting for the GDX to trade at zero before I stick my toe in the water. ;) These are big cycle, macro economic moves — and that gold didn't catch a bid during the Greek crisis or Puerto Rico panic says it all.

Perhaps more interesting than gold is platinum — which just broke $1000/oz. It's pretty rare for platinum to trade at a discount to gold. I know Vic likes to trade big round numbers.

And definitely more interesting than either are GOOGL and NFLX — neither of which I own. Ugh.

Sushil Kedia responds: 

Mumbo jumbo being acceptable on this site for one moment, the head and shoulder argument is good for prospecting how much bearish opinion might be existing here and there. The truth from the university of mumbo jumbo is that momentum as measured by rsi is making higher lows and price has been making lower lows, commercials have the largest long position ever, and if at all someone must look for mumboistic patterns there is a terminal triangle on a c wave. A rocket will fire up soon…. 



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

Hernan Avella writes: 

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

Thomas Miller writes: 

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



 This page on youtube has narrators talking about the best book they ever narrated. It has some very interesting vids!

anonymous writes: 

Two high-quality long time favorite podcasts of mine are:

1. New Yorker fiction podcasts: one famous author reads another's work aloud and discusses it, eg George Saunders, Roddy Doyle, Harold Brodkey.

2. In Our Time podcast: interviews with 3 professors at once on a subject of intellectual history, eg the Cavendishes, Francis Bacon, The Enclosures. Rarely or never found either programme to be a waste of time.



 Twitter is a fantastic idea, but the point is whether they will be able to expand it to justify the current prices.

Currently much of the "social crap" is standing only thanks to divine intervention.

Who will stand at the next crisis (when the tide of liquidity retires).

The possibilities are incredible for Twitter for business.

Isis recruits about 46 thousand Twitter accounts.

A Jedi can affect weak minds: can alter their perceptions into believing that you have not heard what they heard or hear sounds that do not exist. With the media, you can induce weak minds to indulge your sentences, to answer yes to your question.

With the growth of your faculties, you will be able to convince the weak minds not to see you, and become invisible to them.

Immeasurable is the power of the dark side of the force on the weak-minded. Don't miss out on this media power.



I have briefly conversed with two of of the more experienced traders on this site in recent days.

Our chat has surrounded price spreads between exotic real assets and the current valuation thereof.

Arguably, when dealing with the relativities between somewhat exotic 'real' things like Tin versus Aluminium (and yes Americans that IS how it is spelt!) that a purely quantitative or systematic approach is not sufficient. It is this reason (in addition to the the triggers below) that explain why I would never sell Silver/buy Tin as a spread trade. Conversely I have no problem being long stocks/ short bonds or other financial assets (for example).

History is replete with examples of great traders brought low by these types of trades real asset spread trades.

Almost regardless of how compelling the spread level appears, it is usually only those who grow, mine, harvest or ship the commodities concerned that make money. Likely, this is due to a combination of a genuine understanding of the flow and low to zero leverage.

It is possible to do these trades and, more importantly, exit them with a reasonable proportion of the maximum available profit. However, as has been imparted to me, any size big enough that the players notice is bound to attract penalty rates on exit.

There are similarities to trading Emerging Market currencies in some ways. For example:

You must secure your funding.

One must understand substitutability in case your short cannot be covered.

In the off chance that you out manoeuvre the real players, be prepared to graciously hand them 10-30% of your profit to replay their magnanimity in allowing you to escape their world with a slight overplus.

Anatoly Veltman writes:

A counter-query: isn't it more desirable for "wrong crowd" markets to carry you to profit, making exit easy? Why take on Commercials?

You rightfully point out that Entry at times may appear a no-brainer, but in a narrow specialized market you're likely one of the last to notice



 Questions for speculators to ask themselves:

1. Considering secondary and tertiary effects, what would one have done differently on Friday with foreknowledge of the one minute Armageddon this morning in Gold?

2. What predictive sequencing of runs, cross market relationships and other contemporaneous information of a quantifiable and repeatable nature (if any) existed before the close on Friday that would has encouraged a short position?

3. Is it predictive of anything that the EUR, the JPY, the S&P 500, Oil & the bonds couldn't give a flying '##+#' that Gold experienced a moment of disquietude? i.e they barely budged.

4. Has the true enemy shown his face? Are previous time and magnitude studies of substantial moves 'out of time zone' as it were, predictive of anything more than similar studies during New York hours ? Is it sustainable that the pressure valve just blown will not effect other markets further down the pipeline.

5. A perspicacious study of documents/ agreements with one's Prime Broker may reveal that in liquidating a client's trades due to insufficient margin they may be allowed to act defensively, with 'predictive discretion' and, intriguingly, there may not be any language confirming whether or not the broker or a related entity, in the case of forced liquidation, is or is not allowed to act as a principal.

anonymous writes: 

I am not taking a victory lap since I am flat gold (but it always amazes me when this chart stuff works, which partly answers the bloomberg news rhetorical headline).

"Gold Rout Spurs Search for Answers as Prices Sink to 5-Year Low":

The rout in gold isn't showing any signs of slowing down. In about 15 minutes during Asian trading hours on Monday, prices fell the most in two years, sliding below key levels watched by investors who use chart patterns to trade. While gold later recovered some of the losses, it's still at a five-year low and headed for a sixth day of declines. Gold for immediate delivery retreated 2 percent to $1,112.04 a ounce at 11:23 a.m. in London.



 I'm wondering if others have this experience. Sometimes when I try to reach for something new or novel, I never seem to find it. Other times I look to what I already know. The weird thing is I learn more that is new and novel when I look at something I thought I already knew. The most simple thing that I thought I knew 15 years ago–it turns out I had only the most superficial understanding of it. With luck, in 15 years I will feel the same way about what I know now. Some things are so deep, perhaps it is only just before you die you finally understand half of it, but at each moment you felt you knew everything about it.

Stef Estebiza writes: 

The more you accumulate, and from different angles, points of view, the more your Dbase accumulates nuances, alternatives on which to reason. Reread old books. Concepts overflown and unassimilated, suddenly seem logically obvious. Like trading, the more you experience, the more you realize that they are many faces of the same coin. The problem is that the brain eventually degenerates, loses enamel, and has a hard time tracking down the cluster stored. The hard drive is likely to lose sectors. For this reason you take photographs, directors make movies to store the emotions, a programmer writes a code idea to simplify and recover in a moment the hard work of years of accumulated experience. There is nothing more powerful than the human brain…

anonymous adds: 

Practical trading experience and genuinely new research into live trading applications is asymptotic, i.e there are permutations and combinations of market outcomes that have never happened before. So, in that sense, one never reaches perfect knowledge.

The reaching for something 'new or novel' often comes after observing something new work perfectly and then trying to test it and seeing that it is, like most things, ephemeral.

Intriguingly however, there are things about markets that one can know everything about. I do not believe that 99% of market participants know everything that is publicly available about the quantitative (measurable) securities that they trade, invest or hedge exposures in. Things like: How the Bund and DAX futures open and what goes on in the 60 seconds between the two events.

One can know everything that has happened to a market individually and relatively in the past. The Chair and Ms. Kenner have suggested a periodic table of markets with a bunch of relevant statistics. One suspects this would help prevent much stupidity.

The heterogeneous nature of the FX markets, the uselessness of Value at Risk, the times of day when market making machines are maintained and serviced, the importance of New Zealand and Australia to FX are all knowable.

So, yes, I understand your sentiment.

Also, 'simple' is relative. My first 'upstairs' trade in 1992 was the purchase of an SPI futures contract because it went through a line someone had drawn on a chart. Could there be anything simpler?

Well, on Thursday I sold EURUSD based on an approach I have used more than a score of hundreds of times that looks like rocket science compared to the 1992 stupidity.

As you say, perhaps we will feel the same in another 20 about what we do now.



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

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

Larry Williams writes: 

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

Tom Printon writes: 

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

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

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

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



Largely as a result of technological advances so magnanimously disseminated throughout all the markets by latency, distance and microwave dependant strategies (pernicious and otherwise) it is only very rarely that we get to see what a given market is really trying to tell us. I think this is particularly true in physical equities.

Arguably, players in the markets of 'weight'–as it were–now consider leaving substantial orders, limit or otherwise, in the market to be anathema to a successful implementation of their trading or investment process. So, when something 'statistically shocking' occurs many orders rush into the breach to try and move volume.  For the purposes of what follows, one would exclude actually announced takeovers as another order of activities ensues in those cases.

The most recent example of this would be the rumour induced move up in that flea ridden end of civilised discourse inducing stock that everyone appears to love–TWTR.

One might find it enlightening, and possibly nourishing, to study all the publicly available information surrounding these occurrences.

Perhaps a list might include:

1. 'x' period returns pre- and post the 'event' to see if they are of a magnitude that is reasonably divergent from randomness

2. Have these events in previous instances occurred during the death spiral of a stock ( all lurking haters and TWTR apologists please send your hate mail elsewhere ) or are they part of a volatility enhanced 'basing' process.

3. time to new high/low created by the 'event' In other words, does the event accelerate the invisible hand's activities.

4. Is it just 'one of those things' that happen and irrelevant to the future path taken by the market in question.

My null, if you like, would be that the reaction of the market to such ephemera says quite a lot about where the big boys are directing their flow.



There are two unpleasant experiences that every trader will face in his lifetime at least once and most likely multiple times. First, there will come a day after a devastatingly brutal and agonizing stretch of losing trades that you'll wonder if you will ever make a winning trade again. And second, there will come a point when you begin to ask yourself why it is you make money and if this is truly sustainable. That first experience tests an individual's grit; does he have the stamina, courage, guts, and smarts to get up and engage the battle again? That second moment of enlightenment is the one that is actually scarier because it acknowledges a certain lack of control over anything. I think I was almost 38 years old when one day, in a moment of frightening enlightenment, I knew that I really did not know exactly how and why I had made all the money that I had over the prior 17 years. This threw my confidence for a jolt. It sent me down a path of self-discovery that today is still a work in progress.

-Paul Tudor Jones



 With the leverage of technology and the network effect, when one hits on an idea that is perfect for its time, it just seems to take off and almost run itself. This fellow just sold the Plenty of Fish biz for 575M.

Very different from a business I have followed but never invested in, Spark networks, (LOV).  Spark trashed their business by diverting funds from their astoundingly profitable JDate into immensely wasteful add spending for mostly failed Christian Mingle, all while neglecting their underlying user experience and product.  

In the second case, they attempted to "force feed" a success vs. the first case, which seemed to feed and grow by itself.

 Is there an analogy in trading strategies, I wonder?



A booming capitalism is occurring in the largest psychiatric hospital in California brought about by short wages to the 1200 residents. I'll call the mental hospital Capitola where entrepreneurs are improving themselves by opening little stands and pushing carts past the assessment offices, nurses stations, seclusion rooms, and along the mall, gym, and gardens. The regular wage for residents is $1 an hour and they're allowed to work only two hours per day. However, it's legal to sell items to residents and staff including the psych technicians and security.

Business is vigorous now in July because residents are receiving their income tax refunds to finance new small businesses. The cycle repeats annually: They get a grand or so from their income tax, from an investor, a loan, or by saving over time. Investors make about 50% semi-annually on their seed capital for one year. The vendors order items online and shipped directly to the hospital, or have them smuggled in bananas or the rectums of psych techs.

The hottest selling items from the carts, cardboard box shops or sidewalk blankets along the mall are computer and TV cables, video games, jewelry, food and tobacco, coffee, bras for cross-dressers, and tennis shoes. Electronics such as radios, DVDs and televisions go at double or more the retail price. A cheap watch that sells for $10 outside goes for $50 inside. The vendors always undercut the hospital grill and store to attract bargain crazy residents, and guarantee their products. Maxwell House coffee that sells for $8 a jar outside goes for $10 from a vendor and $15 at the hospital store. A handful of residents are called 'warehouses' who buy in bulk from online, and then distribute them to resident 'distributors' who either buy and sell inside the hospital at a markup of 50%, or take a 20% commission.

The carts are made from wheelchairs which the vendors rent by the day from residents who have them, and other sellers use cloth shopping bags or spread their blankets along the halls and mall.

Money inside the mental hospital is illegal to touch, and almost all sales are via booklets of Forever U.S. postage stamps.

No one seems to mind, and the staff in their clean white coats believe the responsibility of capitalism keeps the residents busy and stimulates their minds.



 In the spirit of broadening horizons within the aegis of a selfish profit motive, this site discusses concepts that are extraneous to the financial markets that just may have some applicability to one's daily speculations.

Of the many posts on this site that I have observed and participated in, topics can be classified broadly into two genera:

1. Motivational, general, commonsensical et. al.
2. Potentially quantifiable and directly applicable.

I will focus on type 2.

For one's own part, the allometry of trees, seismic activity and gravitational effects of heavenly bodies are my three favorites (nemeses!).

All involve non linear relations between at least two quantities that take account of magnitude, time and force or gravity.

The real problem with using the mathematics from many of these areas is that the relationships in the real world (ex markets) are often much more stable and less prone to 1 in a trillion shots like 1/15/15.

Also, the problem of units. Gravity is one in particular where units (m/s ^2) is hard to transfer.

A discussion on conversion of units, stability of distributions and alteration of some of the more formulaic aspects is apropos.

For one's own part, the most intellectually compelling extra-market relationships involve gravity and allometry but the dual directional nature of the two forces involved in seismic activity seem most applicable.

In all honesty though, making the jump from a compelling description of events to satisfactory prediction thereof remains elusive from these three areas of toil.



 "Ron Clarke, athlete - obituary"

"Although he never won one himself, one of his most treasured possessions was an Olympic gold medal given to him in 1968 by the Czech athlete Emil Zatopek, a four-time gold medal winner, with the words: "Look after this. You deserve it." The medal was for the 1952 10,000 metres."

"Zátopek's running style was distinctive and very much at odds with what was considered to be an efficient style at the time. His head would often roll, face contorted with effort, while his torso swung from side to side. He often wheezed and panted audibly while running, which earned him the nicknames of "Emil the Terrible" or the "Czech Locomotive". When asked about his tortured facial expressions, Zátopek is said to have replied that "It isn't gymnastics or figure skating, you know." In addition he would train in any weather, including snow, and would often do so while wearing heavy work boots as opposed to special running shoes. He was always willing to give advice to other runners. One example he often gave was always to be relaxed and to help ensure that while running, gently touch the tip of your thumb with the tip of your index or middle finger. Just making that slight contact would ensure that arms and shoulders remained relaxed."

John Floyd writes: 

There are quite a few parallels to life, trading, and chivalry here… your own man, value of hard work, stretching for the limits, tenacity, gifts to those believed deserving with mutual benefit, shared comradery in an individual sport, timing of being in the right place at right time…



 I was born with a thirst for knowledge. The earliest harvest was a series of projects. The order was: geology, dinosaurs, astronomy and rockets, birds, rocks, leaves, animal behavior, microscopes, gardening, chess and psychology. I allowed either one or two months, depending on the breadth and availability of literature on the topic. At the end of each I made a list of the half-dozen pertinent points for refreshing later. A stunning discovery at ten was that information on topics began to overlap and to pool into other subjects.

At twelve I began a series of sports (sprints, high jump, homeruns…), famous quotations and board games. I theorized that all the topics would eventually merge to form a bank which has proven true. There was a pause, of course, for university where the study was veterinary medicine. On graduation the small projects continued with stocks and commodities, journalism, body language (studying every night at bars for ten years without drinking), physics, survival, geography in each of 105 countries visited, cons, martial arts and negotiation.

The best advice I can give is that knowledge is power and to keep on reading.



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

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

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

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

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

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

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

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

5. Never adding to positions.

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

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

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

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

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

Ed Stewart writes:

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

Vince Fulco writes: 

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

anonymous writes:

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

Victor Niederhoffer writes:

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



 An interesting hobo-esque story of hiding out in the woods since 1986. No contact with humans

"The Last True Hermit"

"I drove until I was nearly out of gas. I took a small road. Then a small road off that small road. Then a trail off that." He parked the car. He placed the keys in the center console. "I had a backpack and minimal stuff. I had no plans. I had no map. I didn't know where I was going. I just walked away."

Victor Niederhoffer comments: 

A hoboesque hermit.

Bo Keely writes: 

The quote describes one of two reoccurring situations around the world. The first is when someone decides to shuck society and take a turn into the wilds. It's a cold turkey withdrawal not unlike leaving drugs: You drive to smaller and smaller roads, then walk on less and less distinct trails. In this way, there is no turning back. The other situation it describes is hoboesque in leaving all familiar behind to start on a new track. It usually takes the form of sneaking out the bathroom window and trading the wife in for a freight train to adventure. In the Amazon, the version is taking a large steamboat on a big river to a smaller one on a thinner brook to a canoe alone into a green tunnel of quest. The point is not to be afraid to try anything new.



When he was partners with the Palindrome at Quantum, Mr. Rodgers liked to speak of buying not just when it was cheap, not just when there was a Rothchildian blood on the streets moment but also when the flexionic types were closing the markets down.

With 70% of the free float either suspended or down the limit in China, I feel we are in a massive period of opportunity.

I do not wish to debate The Motorcycle Man's other interests and calls over the years, rather just mention the above.

Unleveraged purchases of Chinese stocks with a portion of the overplus from other speculative activities with a reasonable holding period begins to look favorable as the zero bound approaches.

A good day for reversing today in many markets, at last…



 Saudi Stock Exchange (Tadawul) Opens Up To Foreign Investment:

With the opening up of the Saudi Stock Exchange (Tadawul) last month, H+K Financial's Bobby Morse writes in Banker Middle East about the new communication priorities this brings for companies in the Kingdom.

Worth more than all regional Gulf markets combined, Saudi Arabia's Tadawul is arguably the jewel in the GCC's capital markets' crown. It is home to some of the region's most prized investment targets, including blue-chips in key sectors such as petrochemicals and banking.

Up until now these investment opportunities have been largely out of the reach of the vast majority of non-Saudi investors, except through complicated swap arrangements. However, from June 15 this is set to change as the exchange opens to foreign investors.

With the world's most powerful fund managers now eyeing the Kingdom's brand new and extremely attractive opportunities, we can expect to see Saudi Arabia's companies concentrate on their internal structure and external profiling.

anonymous writes: 

It's not really open in the sense that most US equity investors would expect. Foreigners still need to be approved as a Qualified Foreign Investor in order to buy Saudi shares. JP Morgan put out a SA investment primer last month in which they termed the qualification process as "somewhat cumbersome." I got the sense that the Kingdom wants only the most passive of foreign share owners, with significant limits on foreign holdings in each particular company, and there is inability to effect takeovers or present as an activist.

It also isn't clear what the solution is to a structural budget deficit problem might be (other than the possibility of higher energy prices). Their economy seems to be the antithesis of what libertarian minded folks (such as on this site) would want to see in a marketplace. You can get exposure to a somewhat corrupt and deficit-burdened energy sensitive economy by allocating assets to Russian equities, at far lower valuations than are offered in SA.



I'm not sure how to frame this out yet (perhaps others have ideas) but I am thinking of an accumulation indicator. The basic idea is this. Have you ever seen a market that went from "volatile" to almost a controlled, with a steady rise up. The qualitative thing you see is every single morning dip reverses very quickly. The second thing is that over a period of time there are no sustained pullbacks of any magnitude, an invisible hand guiding the market up. You can imagine how that kind of market feels for a short–every single short covering opportunity is thwarted prematurely.

Regardless, out of these conditions the qualitative hypothesis is that the price needs to accelerate before it can reverse or have a substantial correction. The question is, if defined quantitatively, might such an accumulation pattern show above average expected value. It is perhaps the flip side of the normal swing-type idea of buying a dip. Also, it might be helpful to only look at markets that have a positive drift.

John Bollinger comments: 

Fred Wynia's volume work addresses this concept quite well. The work
is proprietary and quite elegant/sophisticated, but the underlying
concept, that of measuring and comparing volume in swings, has been
around for a long, long time. As usual, the devil is in getting the
details right.

Gary Phillips writes: 

Ed, good luck trying to develop an indicator that is both robust and deterministic. Just a note however, if one only looks at markets that have a positive drift, back-testing results could be affected by said structural bias and rendered useless because they would only reflect the longer-term tendency of the market to go up.

Ed Stewart replies: 

Thanks. The idea as it stands is to complex to begin evaluating. I don't think I have captured the essential nature of the idea yet. I'm going to look if any specific elements of the idea on a stand alone basis. In terms of drift impacting results, that is very true. Drift needs to be incorporated in or it is pure futility. Many years ago when I was a random reader of the site I emailed in and Victor sent me a paper explaining a method that I still utilize, if I recall correctly. That ended up helping me tremendously. 

When I wrote the accumulation post, it was in large part based on watching the climb in IBKR over the prior few months and also similar observations on a short-time horizon. What do you know, IBKR has accelerated quite nicely. Up 5% today and almost 10% in prior 3 days. You can see the qualitative example if you look at a 3 month chart. No luck though, understanding the phenomenon on a systematic basis on the intermediate term. I've had luck with the idea on a shorter time horizon though. 

Gary Phillips adds: 

Most trend following systems have average win rates because of high draw-downs during whipsaw periods. The fundamental problem of most trend-following systems is that in order to deliver a high payoff ratio they must sacrifice a high win rate. If you try to increase the fraction of winning trades, the payoff ratio will suffer. So in effect, you would like to mitigate the negative effects of these problems by by combining a trend following strategy with a short-term trading system that would compensate for the negative trend following performance when markets are range-bound or mean-reverting. I am sure there are those that would argue that volume and volatility are both robust and deterministic indicators, but neither rising volume, nor falling vol, are necessary, nor sufficient, for the market to always trend higher, and even if they are randomly presented they do not necessarily establish timing. 



Econ 101: price discovery has a cost.

Buy Low, Sell Prime

Sam Cohen's business works like this: He walks into a big retail store and buys a bunch of stuff. Then he sells it on Amazon for more.

This is a multimillion-dollar business for Sam — and for lots of other people who do the same thing.

How is this even a job, much less an industry?

anonymous writes: 

Pricegrabber and other broad product aggregators make price comparisons a near effortless task.



 At the spec party in 2014, I had the pleasure of an audience with Mr. Eisenstadt. Actually, in hindsight I believe that I monopolised his time more than was polite– photographic evidence exists of my transgression on Mr. Owen's telephonic device.

Regardless, I discussed this meeting with an ex colleague who had just recently gone out on his own. I had worked with this gentlemen at two previous hedge funds in both Chicago and London.

The amazing thing about the early work from Mr. Eisenstadt was the lack of often pointless long term back tests on unclean data. Cutting through the detritus, what he did was come up with an idea and then test it in real time with only a small reliance on the past–the ultimate in financial market experimentation.

Anyway, my ex -colleague, in the rare times when he experienced a notable drawdown, was always able to pin point the problem to 'switching' his stop loss or limit levels based on changing contemporaneous information.

After my discussion with him, he undertook a live experiment. For a period of one year he was to record the difference between his override trading and the actual levels he set when he initiated the trade.

I have before me the results. Those of a certain Galtonion proclivity may have a passing interest:

Total trades - 477

Wins - 267

Losses - 94

Scratch - 116

He managed an 13% return over the period.

The net result of his 'switching' based upon gut feel, headlines and other ephemera was negative 3.6%.

I don't suggest anything groundbreaking in this. Rather it is the result of a real experiment, with real money, in real time.

He feels that he is ready to start a process where he will begin to cure himself of his 'switch-itis'.

An interesting comment from him was: "It makes more sense to lose what I was initially comfortable risking on a losing trade than to try and finesse it."



 People, people, people. Please, lose the conceit that Europe is all that is in play here. Sure, one interpretation of events is that Greece overplayed its hand. But let's consider what doors are open to Greece:

1. The China option (granted, the Chinese are busy rescuing their stock market, but I doubt that they will let the opportunity for a Mediterranean base slip by so cheaply) is still on the table.

2. Russia may not have money (although Greece may not need much on a short term basis), but it does have commodities it can barter. I don't know how easily Greece might monetize those commodities, but that option may exit.

3. The Greeks could also play the humanitarian crisis card.

4. Greece might threaten NATO with forming an alliance with China/Russia/Iran/etc. "NATO, help us or we're gone." There is a path for countries to leave NATO, as the French did in the 1960s. In the midst of the West's efforts to contain Putin's Russia, I don't know that Greece's departure from NATO would be greeted quickly with "Good riddance."

Lastly, Greece may have some issues in front of it. They may present challenges. But I think the EMU has a bigger challenge—preventing Spexit and Pexit (and maybe Itexit). It also has some write-downs to contend with.

Then again, who knows, perhaps Greece will declare war on the US. Anyone recently seen a copy recently of The Mouse That Roared? This isn't just an economic situation. It's a political one. It's a social one. The EMU leadership is no doubt angry and frustrated with Greece, but that doesn't mean it isn't in its interest to assist Greece. The last thing the EMU wants (or needs) is a Somalia on the Mediterranean 700 miles from Rome and 1,100 miles from Zurich.



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

Anatoly Veltman writes: 

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

A true believer writes: 

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

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

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

James Simons

Elwyn Berlekamp

Robert Frey

Henry Laufer

Sean Pattison

James Ax

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

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

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

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

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

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

anonymous writes:

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

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

Bill Rafter adds: 

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

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

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

Shane James replies: 

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

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

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

It's good the be the king. 

Jim Sogi writes: 

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



If the el Nino forecasts for an event on a par with the supercycle of 1997-8 are correct, Brazil's recession will be ever worse still than is suggested in this piece.

"Best Forecasters of World’s Worst Currency Predicting More Pain"



 I just computed the compound annual return of my IRA for the last six years, which is the period over which I have had it. I made what might be an interesting finding. Perhaps it is just chance, but I doubt it. When I stopped reading libertarian blogs about half-way through the period (3 years ago), my returns from that point forward increased by about 10% yr vs. the average of the prior three years. I was definitely not buying the regular staple of small cap, money losing miners headed towards zero that libertarian sites tend to recommend, but I do think it colored my perceptions in a negative way.

anonymous writes: 

Do libertarian blogs really recommend microcap miners? That sounds like more of a goldbug site. Just want to make sure us libertarian kooks aren't being lumped in unfairly with the goldbugs.

Ed Stewart comments:

There is a lot of overlap, at least on certain sites.



 Here is a thought provoking chart that made its way to me this morning. Much in the literature talks about different distribution selection dependant upon the existence or otherwise of 'excess Kurtosis' inter alia. (k = 3 for normal distribution). Much online about this interesting measure. Debatable though if the higher moments are useful in the trenches– as it were.

Good weekend all.

P.S. Aliens have landed. No, not really, however - in news that has a similar probability of observation - London is set to have a run of two (YES, TWO!) consecutive days where the sky will actually be visible through brief partings of the oppressive, grey clouds . There have even been rumours on the internet that the temperature may scale the heady heights of 25 degrees centigrade. Like the perfect game, that last point may be an event too remote without divine (or at least Flexionic) intervention.

Steve Ellison comments: 

In the past year, I did some research on kurtosis to inquire whether there might be any predictive implications when the price change part way through a period of interest was in the "narrow shoulder" of the distribution.



 I recently picked up Make: The Annotated Build-It-Yourself Science Laboratory: Build Over 200 Pieces of Science Equipment! to work on some science project ideas with my 7 year old daughter.

It was originally published back in 1963 when chemistry sets came with cool stuff that could hurt or maim the unwary. It has been revived and annotated by someone I have a lot of admiration for over at Evil Mad Scientist, Windell H. Oskay. He has done his best to modernize it with annotations, especially in the area of suggesting modern day ingredient equivalents or where to get some now harder to find chemicals.

It's a fantastic book that provides instructions on building out a home lab, while at the same time providing a ton of experimental questions to consider.

Anyways, I would definitely recommend checking it out. Here's an official blurb:

Raymond E. Barrett's Build-It-Yourself Science Laboratory is a classic book that took on an audacious task: to show young readers in the 1960s how to build a complete working science lab for chemistry, biology, and physics–and how to perform experiments with those tools. The experiments in this book are fearless and bold by today's standards–any number of the experiments might never be mentioned in a modern book for young readers! Yet, many from previous generations fondly remember how we as a society used to embrace scientific learning.

This new version of Barrett's book has been updated for today's world with annotations and updates from Windell Oskay of Evil Mad Scientist Laboratories, including extensive notes about modern safety practices, suggestions on where to find the parts you need, and tips for building upon Barrett's ideas with modern technology. With this book, you'll be ready to take on your own scientific explorations at school, work, or home.



I don't know whether to laugh or cry.

EUR drops 200 yesterday on nothing and TODAY Greek PM Tsipras tells the media that the creditors have not accepted the latest raft of proposals.

It is an outstanding example of flexionism. Or more charitably an efficient market discounting mechanism (yeah, sure!).

One decides that laughter should carry the day in this instance.



 Today was one of those days where you are both exhilarated and exhausted. The wife had trouble sleeping last night. When that happens, she tosses and turns all night. Her restlessness made it impossible for me to fall asleep. So I was awake until sometime after 2 am and up at 7 am.

So this may be a short report as there is a deck chair with my name on it and I am experiencing a serious "nap attack".

First a personal observation: We took a bus tour today. Although the tour guide was very knowledgeable, his grasp of the English language was not that great. And maybe we were spoiled in Gibraltar with a tour guide who went out his way to make everything interesting and personal, but that was not the case today. We often couldn't hear our guide because we were in crowd of 40 people. Couple that with other tours, and the noise was just too much.

If I do this again, I'm going to look into hiring a personal tour guide to show us around.

The history of Cartagena is fascinating. We were told that "he who controls Cartagena, controls the Mediterranean.

It is a very strategically located port and that is easy to defend due to it's shape. The father (?) of Hannibal had a wall built around the city that became known as the Punic Wall. It was thought to be a great defense system that would protect the city. When coupled with the shape and location of the harbor, the city was thought to be a very safe place to be (which turned out not to be the case).

The geological wealth of the city, especially in the form of the silver mines grew the wealth of to fantastic proportions.

The wealthy of the city chipped in and built the great Roman Theater of Cartagena. It was very cool touring the theater and learning of it's history and architecture. It was amazing to me that the theater was lost from history until discovered by archeological digs in the 1980s.

They've been able to recreate most of the theater using (they say) 70% of the original materials and building blocks.

We toured the city streets of the area, walked into a small Catholic Church and took pictures of the statues. I'll try and post some of the pictures later.

The Punic Wall was very nice to see. We were told that we stood at the same place that Hannibal gathered his army to march across the Alps. Supposedly, 90,000 men and 100 Elephants.

Of course, while Hannibal was trekking to Rome, The Roman's used that as an opportunity to attack Cartagena (it was called by another name then…I don't recall what it was). The Romans conquered Cartagena. Hannibal was absent.

Not the best military maneuver on the part of Hannibal.

A few personal notes:

Try not to have elbow surgery a few days before you go on a trip. it limits your ability to do stuff.

I had an infected bursa sac and had to have some minor outpatient surgery. Apparently, there is an international law that says if you see Scott, you must find a way to bump his elbow.

There is a basketball court on the ship. So I went out to shot a few free throws. There are maybe 3 or 4 other people on the court shooting around. As I stand on the free throw line getting ready to see if I can go 5 for 5 from the line, SLAM, a ball crashed into my left elbow. Not my knee, not my back, not my butt, my freaking elbow. Of all the places the ball could have gone on that court, it hit me on the elbow.

The kid apologized hitting me in the elbow. I accepted his apology (he certainly didn't do it on purpose…at least I think he didn't ;-) and decided to try some other activity.

I tried to get a ping pong game going, but the tables were all full. So I came back to the room. My 16 year old, Hunter was sitting at his desk working on something. I asked him what he was doing, he said, "chemistry".

He set a goal of doing at least a little bit of chemistry or physics or anatomy study on the ship each day in preparation for his AP courses in those classes.

It warmed my heart!

Well, it's off the flow rider to watch the kids ride the boogey boards.

Take care, my friends!



 I wonder if there is a point in time at which it becomes too late (unprofitable) to go against in markets. This is clearly under a time bound, like the day, the week, the month etc.

This needs to be analysed in two frameworks. Firstly, the road to some form of answer is different between 'bounded' futures markets and markets that trade in the fashion of spot currency markets whose short term higher number central moments are often very extreme.

Secondly, my work indicates that the 'answer' is not linear. It will not be a specific time of day. The proponents of the arc-sine work have some measure of empirical evidence on their side for the close as the best guess, but it is a blunt tool in this context.

A fascinating case study is the EURUSD spot market today- down almost every hour since London midnight with the total move of relevant statistical 'weight'.

In other words, you should study if a specific time and magnitude combination negates subsequent reversal strategies for the time period under consideration (regardless of the strategy's historical efficacy).

I'm starting to sweat as the EUR declines as I have a bet with an exceptional trader in the spec list that the EURUSD will trade its 1-1-15 level again before the end of the year. The prize is steak and lobster at The Palm in New York.



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

David Lillienfeld writes: 

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

Alston Mabry writes: 

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

anonymous writes: 

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

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

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



 Oeyvind Schanke runs Norges Bank Investment Management in Oslo. They own about 1.3 % of the global equity market apparently.

The Singapore business news carried an interesting quote from him:

"We could choose to wait four days before we execute in the hope that during the course of these four days we will find a natural counterparty to cross this up with".

The article was bemoaning high frequency front running. Of note is that the comment made by Mr. Schanke is eminently testable. They believe that opportunity costs are less than getting stuffed by front running.

What is the question they have asked? Likely something resembling:

Given an expected high frequency rip off factor on our execution, how many days (or some other time period) is it best to wait that allows us to benefit from the normal variability of the market in question.



 10 questions to ask about Greece:

Does the recent outflow of deposits and collapse in growth and tax collections make the patient too sick to rescue?

Do the Europeans proceed without the IMF, at least to extend in the short term?

Do Merkel and Tsipras acquiesce to common ground and still keep their electorate placated?

Do the Greeks hold a referendum and or election given the factious nature of the ruling party and need for popular support?

Does the deal being contemplated even make a difference as all signs point to it being a repeat of the current deal which has been unsuccessful?

Does Italy raise a concern for contagion?

Does a Greek exit matter?

Does Greece resemble Puerto Rico and vice versa?

Do upcoming European elections continue on the recent track of anti-Euro sentiment?

Does the great Euro experiment ever work or is it a flawed concept?



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


Makes and follows long term business plan


Will ignore long term business plan


Will handle times of market volatility and make smart decisions


Will panic when markets are volatile and make stupid decisions


Strictly follows Stop-Loss rules and Protects Trading Capital


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


Handles losses and down times in markets


Gets depressed when facing losses and makes poor decisions


Daily updating charts, indicators, business plans, Economic calendars

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


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


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


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


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


Accepts his mistakes made while trading and tries to improve


Does not accept his trading mistakes and blames the market


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


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


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


Irregular with trading hours, does not strictly follow economic calendars


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


Will focus on personal profit or loss to determine trading strategy


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


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

•Not Envious

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

•Envious, Jealous

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


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


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


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

•Quitting, Fickle

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


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


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


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


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


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


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


Will only trade based on defined entry and exit rules


Will trade based on mood, greed and fear


Will ensure that he trades less to keep the commissions low


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


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


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


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


Will revenge trade the markets in order to recover losses


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


Willed Breaks trading rules often based on feeling fearful or greedy


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


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


Sushant Buttan
Founder and CEO

Brett Steenberger writes:

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

Pitt T. Maner III writes: 

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

For example, this morning I found this:

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


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

"Bridgewater Is Said to Start Artificial-Intelligence Team

Sushant Buttan responds: 

Thanks for the feedback. Much appreciated.

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

Victor Niederhoffer writes: 

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

Brett Steenbarger comments:

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



HFT, from anonymous

June 19, 2015 | 1 Comment (the modern day Robin Hood of high frequency information dissemination) has a couple of absolute 'doozies' on the website lately.

I won't go into the specifics but all should read the latest from the site once or twice a month. It's great entertainment. Kind of like a celebrity gossip site for people in the game.

Just one thing to note with a comment:

Quotes for Large Stocks and ETF's are cancelled in less than 100 ms 35-45% of the time and cancelled in less than 1 second in 55-75% of the time.

Intriguingly, a notably lower percentage of quotes are cancelled for mid to low priced Etf and stocks.  I wonder why that is. I gather there is an institutional reason to do with the infrastructure. In the blink of an eye (takes 200 ms — twice the time in which 35-45% of quotes cancelled). I feel my blood temperature rise.

But, where we once had the horse and cart, we now have the Maserati Quattroporte! And as such we need to move on. (take a look at microwave technology's entry into data transmission in markets if you want to be really disheartened).

If your view is that you cannot beat them then there are ways to join them. Virtu is one such and there are plenty of shops out there.

We shall see if this activity is stopped or lessened by regulatory activity in due course (I don't see how, when many from the regulatory field have left to join the party).

I thought that Virtu going public, and magnanimously allowing ordinary stockholders to join in the fun, would lessen the future returns from this activity in true 'Baconion' fashion…I guess we shall have to wait and see.

It certainly would be the apogee of Bacon's "coppering the public".



A rumour that is interesting


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

Anatoly Veltman writes: 

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

anonymous writes: 

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



I participate in Taoist meditation at night. I find it calms my "monkey mind" and I sleep more soundly, get up earlier and refreshed. It has helped in every facet of life. I drink less coffee, lost 20+ pounds and I haven't tested this but my trading has improved.



 One grows tired of not possessing a concise, very readable and practical text covering the majority of known statistical tests.

Despite the last edition being 10 years old, I believe that the book 100 Statistical Tests by Gopal K. Kanji is the very best book of its kind–period.

Each test covers no more than 2 pages. The author suggests when to use it, shows a practical worked example and some other info with tables in the back of the book.

If one wants more detail then a deeper text can be consulted elsewhere. But as a grab off the shelf, check the index for your test and then see how it is done tool, this book scores very highly with me.

William Hughes writes:

Here is a downloadable pdf link for the "100 Statistical Tests" book you were discussing.

Jeff Watson writes: 

In addition to that excellent book here is a great probability and statistics cheat sheet.  



A partisan politics chart from the Fed.



IBKR is up nearly 60% since it sprained its ankle on the Swiss Frank in January. Imagine how much bigger the skid and relative low might be in the future if the "dual momentum" catches hold in a bigger way as the most important book in investment history: "Limiting risk is a no-brainer, after all".



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

All traders are invited to the party.

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

anonymous writes: 

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

Victor Niederhoffer writes: 

There is hope with useful idiots like this.

Ed Stewart writes: 

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

anonymous writes: 

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



 Hi Victor,

Here is a new discovery that may be of interest to your readers at Daily Speculations, and which may serve as introduction to my Junto presentation on 3 September:

"Why humans build fires shaped the same way"

It has generated a wave of interest on the web during the past few days.

Here is an excerpt from the Abstract:

Here we see why humans unwittingly build fires that look the same: edifices of fuel, as tall as they are wide. I show that the hottest pile of burning fuel occurs when the height of the pile is roughly the same as its base diameter. Key is why humans of all eras have been relying on this design of fire "unwittingly". The reason is that the heat flow from fire facilitates the movement, spreading, and survival of humans on the globe.

With best wishes,


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

Gary Phillips adds: 

I wonder if there are corollaries from the abelian sandpile model that are relevant to the ways fires are built and subsequently burn.



 I like LinkedIn as a company – it's oriented about a useful business service (jobs and business references) rather than being purely social. They also recognize that once people get a job they have less reason to visit the site, so they're developing programing to draw people to the site other times. I bought the stock for these reasons – and because my high-performing granddaughter (Yale summa, Baker Scholar at Harvard B School) chose to accept a job there rather than return to McKinsey.

Jim Sogi writes: 

I like FB.  Did you read Dataclysm?  It's all about getting personal private data…big data. That's what Goog is about.  Very scary is the info they have and what they can do with it.

Quants take the data they give and package it for us but there is so so much more data available to some and at different times. That's Chair's flexion beef. Creativity should be directed more at data and sources than chewing over the same old data feed. Satellite live data, crowd cloud data, twitter data, goog data. Buy a data stream from them for market turns. There have been a few failed hedge funds trying this idea and it sounds interesting. 



 What brings an end to an exuberant speculative driven market? The government changing legislation or changing the playing field first and then a trigger kicks?

Take the Australian property market. After explosive growth in its capital cities, particularly in Sydney and Melbourne, they're now reeling in unlawful chinese buying in their residential property market, with an initial 200 home purchases being investigated and this being mentioned as the tip of the iceberg.

It may be worth looking at what transpired in Singapore some years ago, and whether the same forces are at work in different ways in Australia. Singapore ended with a 40% top to toe haircut after their government made significant changes over time and then the Asian crisis hit. Will the same occur in Sydney, Australia?

anonymous writes: 

Your post is titled, "this is the end" and it is substantively similar to the useless idiots who warn others to exit the stock market before it "crashes" … But your logic is arguably worse because a home is a consumption good that has a store of wealth value with substantial transaction costs.

If you want to contribute something useful to Speclist, might you share with us the rate of return on average Sydney/Melbourne home prices from the top tick in 1996 to the present time? I'm certain you will find that it's significantly above the rate of inflation. I'd also guess that you don't own a home.

I have recently done some simple studies of the prime/average Australian real estate market. I find the local pundits to be ignoring the cost of comparable real estate in other world capitals. The typical story says that average prices are 9x income. But the way those numbers are calculated are completely bogus — including taking account of mortgage rates that have declined from >8% to 4ish%. The Australian market looks rich compared to its historical valuation, but it's not rich compared to its peer markets. Since its been the marginal foreigner buyer that is making the headlines, the peer markets need to be considered as the benchmark.

I am not making a call on the Australian real estate market. But if the market value of my home is going to decline 40%, why should I care? But if you think the National Bank of Australia is going bankrupt, then there's a trade there. But that's not what you said. 



 A strange thing happened to me this year in Omaha. I attended the Berkshire shareholders meeting, as usual. I normally stay in the Sheraton, which is a short walk from the conference centre and quite good value. On the morning of the meeting, whilst using the bathroom facilities, I found an unusual note pinned to the wall. I pulled it down and read it with increasing dismay.

I initially thought to keep the contents to myself. However, on finding it again this morning, I have decided to transcribe it. I feel the author may have some serious mental health issues that need addressing. If you think you know who wrote it, please get in touch and I'll try to coax them towards the appropriate professionals. I do apologise for the profanity below but someone's sanity appears at stake.

[Found pinned above the urinals in the Omaha Sheraton, scrawled on hotel notepaper.]

Look down at what your holding: is it tiny and limp? Think about that before you head to the conference centre. What, you've already turned off your blackberry last night? Gonna boast to everyone who'll listen you're not paying attention to prices today? Give me a break. You build a position and hope the stock price goes down as you do it? Did you hope your wife started cheating on you the day after you were married too? You disgust me. Pious pr*ck with your book value and slide rules. So what if your accounts compounded up in some small caps? Over a decade plus? BORE OFF. Did you ever try putting on some portfolio leverage and taking a visit to FAT CITY? How about you go home to the 'burbs and your Mrs Doubtfire looking wife and climb up on that once a month for a minute's gasp? If you get permission! I'll be the one in Tribecca taking some fresh head nightly off of a pair of teenaged Latvians. Did you ever go toe-to-toe with the centrals? No. Did you ever try putting on a spread once in a while? No. Stick your non-recourse where the sun don't shine and try some real margin for once. I'm talking hardcore repos, tick-for-tick, bleary eyed at 3am. Pull that f**king trigger for once, you b*tch. What, you've STILL got 10% of your funds in Berkshire? M. U. G. So what if I had to fold my whole hand. Just 'cos you never went bustid don't mean you don't bore everyone to death. What, you hung up on yet another broker? Made it oh-so-politely clear they shouldn't call? How about I put an army of sell-side families in chicken dinners and new suits with my vig. And then took them for some cocktails and burlesque at W28th for good measure. Try maybe spraying it around once in a while? Don't make me YAWN with your ten minute pitch on some obscure mittlestand engineering concern on 5x EBIT. How about growing a pair and getting five times your equity in cable already? Try tasting some euphoria once in a while. Look down your nose at me running 25% in some 20x sales nubile which is gapping up? Go f**k yourself you motherless f**k. Are you getting the point yet? Anyway, its time you scuttled in to see Warren. Good luck with that. But let me first make it crystal: f**k all you value investors. Now shake it off and zip that embarrassment away.



 "A look at Chinese infrastructure worldwide: China Is Building the Most Extensive Global Commercial-Military Empire in History"

Larry Williams writes: 

I will be speaking there in a few days so did this forecast of their market. Still looks like more rally to come.

Bud Conrad writes: 

I spoke at a huge mining conference last fall and was amazed by China: BIG, teaming, gets things done, has all the latest technology, awful pollution. Despite many warnings from Western economists of Impending real estate implosion, Local government debt, Shadow banking, and Unregulated shark loans; China has kept its momentum. I think optimism on their stocks that may lead to a bubble that exceeds 2008 is likely.

anonymous writes: 

China is positioning themselves to be the world's primary source for commercial nuclear power technologies. They bought their IP from the French and the Americans. They improved on that IP to form their own brand. In the process, they lowered construction costs. Of course, they will attempt to make it on operations and services.

It appears China's biggest competitor is Korea. Their next biggest competitor appears to be Russia.

While painful to acknowledge, American and European technologies are not competitive.  



 I have much respect for many people I have come across along my travels since executing my first transaction in 1992. (For the record it was buying 71 SPI Futures on the Sydney Futures Exchange. I got it wrong and sold them. My superior at the time, an incredible trader and strong protector, made me stand on one leg for 10 minutes practicing the hand signal in front of everyone while they all threw sell tickets at me! Funnily enough it worked and one did not make said error again. Lessons like that handed out to a junior today would see you lose your career in this HR obsessed environment.

I digress. Anyway, I have noted four styles of trading that I have observed over extended periods of time on large assets. As with all styles, they are subject to Baconion cycles and survivor bias but put that aside for one moment. These styles are of varying degrees of 'quantifiability' and I do not use any of them oneself, but in respect to other ways of doing things I thought it might be interesting to list them:

1. One person divides history into regimes, starting with the Fed's stance amongst much else and then uses statistical analysis on each of those regimes to see what worked and what didn't work. He would then take current conditions, look for the closest historical 'regime analogue' and trade accordingly. All of the factors used to create regimes were the same. So, for example, if there were 10 factors that created a regime, then each of those 10 factors must have existed since records began. My guess would be he is 90% quantitative and 10% discretionary.

2. The next style is not really a style but rather a way of getting into trades. Quite simply, this personage ( a brand name in the macro space) takes a trade at the level where his stop loss is. So, for example, if if likes a market at 10 and wants to to risk 3 then he will only take the trade if it trades down to 7. This works for the person concerned as they are very active. This strategy and be quantified fully and combined with some probability work to great effect I believe.

3. A purely discretionary process wherein the protagonist decides what holding period the 'market' has at this point and then ensures that she has a bigger risk profile and longer time frame than the market. I.e she seeks to outlast the short term price fluctuations with wider stop losses and longer holding periods. More than a little horse sense in this. I have quantified half of this, but the other half remains elusive.

4. A pure quant who ensures me he still has no idea what the difference is between a bid and an offer uses a very intriguing approach - he treats each new futures contract as a brand new beast. He assumes that on the first day of trading the market has never traded before and starts amassing high frequency statistics from the get go of the new contract. He says that this allows full objectivity.

One hopes a few things can be taken from each of these.

Have a great day and weekend.

P.S. The U.K. has experienced a record breaking 2 days (yes TWO WHOLE DAYS) of blue skies and moderate (but not warm) temperatures. Apparently the old and the young are dying. Relief is at hand though. Massive thunderstorms are on the way to relieve these temperatures that at one point nudged up against 70 degrees Fahrenheit.



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

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

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

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

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

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



Since first touching the SuperRound of 150.00 basis September Futures on the 3rd of June, the Bund futures contract has fluctuated within a 1% range either side of the SuperRound. This after a prodigious decline from the last SuperRound at 160.00 in April.

It is interesting to consider this 'arabesque', as it were, about 150.00 for predictive possibilities, particularly and coincidentally in light of the bullish reaction of bond markets today in reaction to allegedly bearish for bonds retail sales data.



"The lenders and their mortgage servicers do not foreclose on seriously delinquent properties in the largest city in the nation."

"Why the Housing Market Collapse is Set to Resume"  by Keith Jurow



 It's lots of money, but it doesn't sound like any of the debt is held by banks: "A judge ruled Argentina owes $5.4 billion, not $1.7 billion — now here's the freakout everyone expected"

anonymous writes:

The basic problem is that there is no international bankruptcy court. The reality is that the vast majority of the bondholders accepted the restructured notes. Had this been a domestic bankruptcy with that many noteholders accepting a deal, bankruptcy court could have been used to force the others to accept it as well.

anonymous writes: 

Argentina offers great travel value with exchange rates, I'm guessing here, on street of probably close to 20 pesos to the dollar. They're hungry for the dollar. The wine is very very good,the food very tasty. The countryside is beautiful. The mountains big and snow covered. So their problem is our opportunity. It is much more cosmopolitan than I had imagined and there are many lively young people. It is much more European than Mexico and many of the people have European ancestry and it retains cultural affinity with Italy and Germany in some areas, hence the good wines. 

anonymous writes: 

There is a black market for US$ as well as a blue market, even better rates for yanks. Easiest way for us to change there earlier this year was at casinos that were substantially better than black market. Their rate, of course, on the bet you would wager so we took the bet at their excellent rate and walked happily out of the casinos. Mendosa is a must for wine and foodies.

anonymous writes: 

Agreed with Larry.

If I had to give it all away and go somewhere, I would move to Buenos Aires in a flash. Buy a motorcycle and travel the country on a motorbike.



 I often think about the concepts in the title of this post. So, while waiting to have my positions decimated by a 'tape-bomb' from the embarrassing, puerile discussions between the Greeks and their creditor protagonists, a brief discussion might be in order.

Shapes: When looking to predict markets using information from other markets, my experience is that it may not be too deleterious to use triangles (in some very complex relationships the square or rectangle may be helpful).

So, for example, I might use a triangular shape with the three corners consisting of two predictors and one market to be predicted. The use of the rectangle or square adds another predictor but I believe in this case that too many cooks may spoil the broth (at least in terms of the out of sample testing before entering production/ live trading).

Intriguingly, the techniques that make money in the triangular framework are decidedly non-linear relationships between the three markets. In this context 'non linear' would mean that the chart of the predictive function would not resemble a straight line but some other look.

Univariate versus multivariate question:

It is my contention that futures markets whose underlying asset is something such as stocks, gold, oil, bonds (i.e not currencies) have characteristics such that prediction is best done by looking for multivariate relationships. For example, you might try to predict stocks using bonds and oil rather than just using past SP500 futures information to predict the future SP 500 futures movement.

Of note, and perhaps why currencies are considered so difficult, is that multivariate prediction in currencies, in my experience, comes a very distant second to univariate prediction (i.e using a currency's previous data to predict it's future movement).

The above reflects my experience and that which I have observed since the early 1990s. Many of you may have had different observations and results.

The univariate call in currencies is much stronger than the multivariate suggestion in non-currency markets.

The univariate nature of currency prediction DOES NOT HOLD for emerging market currency pairs.

Before 2005 currencies and multivariate prediction fared well, since then it has been very poor. A major change in some hidden 'Baconion Cycle' occurred then.

I am talking here about minutes to 2 days rather than anything longer.



Below is a plot of year-by-year Kentucky Derby times. It surprises me to see that from 1950 onward there hasn't been any progress in reducing the times. Don't these horses know about doping?!














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