Profit. It's one one of the most hated concepts in modern society, but why? Sure, profit is selfish in the sense that individuals follow their rational self-interest to reap the fruits of their labor. However, the prosperity that profit brings in turn benefits society as a whole. This subtle but important concept is fundamental to a free society, yet many students — much less adults — still don't understand it. That's why African Students For Liberty teamed up with the Free Market Foundation to produce a short video explaining the benefits of profit in the form of a parable called "The 100th Man". 

"The 100th Man" tells the story of an African village that is burdened by a two-hour uphill walk to fetch water from the nearest river each day. That is, until one entrepreneurial tribesman has the idea to divert part of the river into a small stream flowing downhill to the village. An economy quickly emerges, but it is not without its challenges. I don't want to spoil the ending for you, so I'll stop there. Click here to watch the video on YouTube, and pass it along to your liberty-curious friends. The time has come for the world to relearn the miracle of prosperity that the pursuit of profit have bestowed upon humanity.

Sincerely & For Liberty,

Olumayowa Okediran
African Programs Manager
Students For Liberty

P.S. Although "The 100th Man" is an African parable, Students For Liberty is a global organization that you can get involved with no matter where you are on the planet. Select your region on our website to find out more about our student activities near you. Or, if your college days are behind you, join our global alumni network. Connect with us on linkedin facebook and twitter.




I was excited to hear on Bloomberg radio about the launch today of a new VIX product — that allows investors to own/short the VIX without the negative carry of the futures and VXX. Sadly, upon reading the prospectus, I am very disappointed to see that this isn't actually how the product works. Savvy arbitrageurs, however, may see opportunities.

The VXUP is supposed to track the VIX positively, and the VXDN is supposed to track the VIX negatively. They are paired — so the profits from the VXUP offset gains/losses from the VXDN. Specs with a long memory may recall a similar structure in a crude oil ETF several years ago. However, that ETF blew up when crude went from 40 to 100+ — which wiped out the short crude ETF and so the long crude ETF stopped rising. The crude ETF pair was unceremoniously liquidated.

The creators of VXUP/VXDN think that they solved the 200% price rise crude oil problem — by having reset/distribution dates — where money flows between and out. And they imposed a 90% price rise cap in place — just in case the VIX quickly pops from 13 to 26+ . That indeed "fixes" the liquidity problem however it creates a much bigger problem. The VXUP/VXDN will not perform in line with the VIX if the stock market crashes — because the VIX will quickly go from 13 to 70ish.

But there's more.

The far more serious problem is that they embedded a "penalty" charge for the VXUP. (See page 3 of the prospectus). Here's the text: "During any Measuring Period and in order to create a balanced market for the Up Shares and Down Shares of the Fund, the Class Value per Share of each Up Share of the Fund will be reduced and the Class Value per share of each Down Share of the Fund will be increased by [a] fixed amount ["Daily Amount"]. In each Measuring Period where the VIX Index has a level of 30 or lower on the prior Distribution Date, the Daily Amount will be 0.15% per day of the Class Value per Share on the prior Distribution Date. If the level of the VIX is greater than 30, the Daily Amount will be zero."


I stopped reading the prospectus after this paragraph because it completely destroys my interest in the product — it has all of the VXX problems of roll-negative carry when the VIX is under 30, but it doesn't have the VXX positive carry when the VIX futures get backwardated. In essence, they have created a product that won't perform if the market crashes, but has all of the problems of the VIX futures and VXX (for volatility bulls).

So what's the arbitrage for Specs who like these things? I see an obvious one. They've arbitrarily picked and locked in a roll cost. And a cap when they think the market will backwardate. They will surely be wrong on both of those arbitrary decisions. For example: Right now the May15/Jun15 Vix future contango spread is 13%. So the 38% annualized penalty for the VXUP is vastly less than the negative carry for the futures roll. The May15/Dec15 futures roll is about 38%. So again, the VXUP penalty charge is less than the market roll. Hence, the obvious arbitrage is that the VXUP/VXDN has priced in a contango of 38% annualized — but the futures market has a different contango. They have also implicitly priced in the VIX level when the VXX goes from negative carry to positive carry (30%). The reality is that the VIX futures market will backwardate at VIX levels much lower than 30.

The way to exploit this arbitrage is left as an exercise for the readers.



A nifty web counting and computation tool is Wolfram Alpha.

I'm sure most or even all know about this site, but it is worth playing around with if you have not done so in a while. It is better than it used to be. It can often help one to count "stuff" that would otherwise be arduous to look up given time limitations. The cool part is that you can use regular English in conjunction with mathematical notation to do some neat analysis very quickly. For example, it is a great way to double check reporters statistics or assumptions, including a quick computation of a relevant base rate.



 I highly recommend the book Natural Born Heroes. It's an incredible WWII story and infinite wisdom for our finite minds. The book also documents what is reported as the only time in history a standing general was effectively removed from the battlefield (the crete kidnapped him, hid him and finally, after a month, removed him… on and from an island). This is a great outside magazine article about the story: 

"No, Heroes Aren't Born. They're Built. And This Is How You Become One.": One of the most
surprising heroes of World War II was a pint-sized shepherd nicknamed
The Clown—and his fitness wisdom can change your life.



The USCI Commodity ETF recently showed up on one of my screening runs. I looked at the chart and noticed that on 5/6/15, USCI traded down from the previous day's close of 47 to a low of 23.875 and then rebounded– closing unchanged.

Upon closer examination, there was a single tiny trade at the open (down 50% in price) that was later canceled by the exchange. Given that this is a commodity ETF, the price move defies logic and was obviously a bad data point.

Yet both the stock exchange and Bloomberg consider this a valid trade.

And so the chart of USCI looks just like the humans who refuse to correct this error: idiotic.



 Excitement levels are rising in my household as the Monaco Formula 1 Grand Prix approaches. I try to attend every year.

This year, one has the rare pleasure to be watching the event from a yacht in the harbour owned by a world class scientist who has recently retired from markets.

I shared a wonderful (all too brief) lunch with him yesterday in a wonderful eatery on St.James' in London called CafeMurano… But I digress…..

We spoke of the great things he has done in markets and what I was doing, amongst much else.

I share the following, absolutely invaluable quotes with those on this list - they are now on my office wall alongside something that Jeff Watson send me some time ago of equal import:

"…..- we made so much money with so little risk because we were applying techniques that were, a/ roundly rejected by academia b/ conceptually very different from what is taught in higher education establishments …" and, most compellingly of all - this gem '…. There exist phenomena in the market that completely and utterly defy physical and traditional mathematical 'laws'…we focused on what we could not see…." (his emphasis upon the word laws).

Let us redouble our efforts. I know I am.



 April is the time of the Master's and jackets (usually iill-fitting of green), and of Opening Day. The grass is freshly mowed. The paint on the dugout top is bright. The peanuts are crisp, and the seats still creak from the stills of winter. The call of "Play ball!" is usually a welcome one, but particularly in April, probably more so in the Northeast and Midwest, where the snows may still be melting, but generally around the country regardless of the specifics. April is the month Passover, of Easter, of renewal. The baseball season awaits, pregnant with potential to confound the statisticians whose analyses figure into most, if not all, of the moves a field or general manager may make in the course of a game, a series, a week, a month, a season. Now is the next season we spoke about last season.

By May, the season is in full bloom. The first assignments to AAA have been made, the first players have been placed on the 15-day DL. The true depth of a team's bench, of its pitching staff, of its bullpen, of its farm system are becoming clear. The Derby is done as the run for the roses completes and the golf world disengages from Amen Corner to contemplate the upcoming US Open. As the month progresses, teams find their grooves and the season begins to take shape.

So one might be pardoned for wondering if the same Orioles team that prostrated itself 10-2 before Toronto last night could possible be the one that skewered the same opponent 5-0 this evening. Looking at the program, they are indeed the same teams. But the games played couldn't be more different.

That's the thing about baseball. It's a 162 game season. Sure, some games are a bit strange, like when the Os played Chisox in an empty ballpark. And there are the glimmers of genius that surface in those who previously performed as if they has no clue, as in Sandy Koufax's show in 1961 (does anyone realize how close he came to just hanging up his cleats after the 1960 season?). Maybe this year, that will be the case with Ubaldo Jimenez. Certainly, there is the potential.

The season's still young, though it is May. Preakness is coming up, and the Stakes isn't too far behind. The wheat fields will be coming to life around then, the cornfields too. And somewhere across the US, there's an 8 year old boy or girl heading off to the ballpark, A, AA, AAA, or the show, makes no difference, glove in hand, convinced that he or she will catch a foul in the stands and, if someone will sign it, a great thing for "show and tell" that week. And at least a ball for a game of catch if not.

Baseball in May. Breathe it in. Smell the freshness of the cool grass in the outfield. Hear the clap of the ball off the bat.

It's restorative of the soul. And watching a team metamorphose as the Orioles did from last night to tonight, restorative of hope and of dreams. In May, in baseball, all things still remain possible.

Play ball!



Always better to see the writing on the wall sooner than later.

"Faces of the Queensland drought":

Cattle grazier Duncan Emmott, who runs stock at Whitehill Station, just south-west of Longreach, (QLD Australia) said he saw the writing on the wall last year. He made the decision to cart off much of his stock and, as of next month, will only have about 120 head of cattle left on his property – less than 20 per cent of what he would normally have on the land. "I think it's a lot easier to make the decision in times like this and to sell and get your stock off while they're still alright to sell, rather than hanging on," he said. "I think that emotionally, psychologically, it plays on your mind a lot more watching your stock get poor, dying, getting bogged, seeing them get pulled out of the bog every day– that's a tough thing to do, to see that happen."



Brendan Simms likes to refer to Germany and the Holy Roman Empire as a force multiplier and their 10 year bund has had a range of 200 points in a day compared to ours of just 50 points in a day recently.

anonymous writes: 

A very sagacious Dailyspec contributor recently stated that when we look back in a few years from now, the Bund will be remembered as the JGB was in the 1990's– as a graveyard of bond bears.

I have no idea beyond the next 36 hours but I do remember the JGB debacle….

Arguably, if my oft stated view that the European (and soon US) banking systems are to be 'Japanified' proved to be correct, then the above will certainly be true as the banks go further and further out the curve to pick up a basis point or two.



 The charity industry is America's oldest profession (the whores came only after the British took over New Amsterdam and brought in the young men in uniforms).

"Helping" in the name of God/Progress/Equality was established as the primary career for the properly educated even as the Indians were coming close to driving the colonists back into the Atlantic.

Without "helping" there is no justification for compulsory primary and secondary education, college attendance and all the soft subjects that are now the bulk of graduate school education in the United States.

It is– and always will be– the real "jobs" program because it is the only way the commercially-inept can maintain their social status and pass on their sinecures. As the First Lady reminded us the other day, she is "an Ivy-League educated lawyer". So there.

Russ Herrold writes: 

The thought that I had when I saw the initial post was this meditation:

"I am for doing good to the poor, but … I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. I observed … that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer."

― Benjamin Franklin



 Russ Roberts did an interesting EconTalk with David Zetland recently on water. A comment by Zetland:

I did a crazy, back-of-the-envelope calculation for replacing California's water with desalination, which a lot of people think of as the holy grail. And putting aside the massive energy costs and costs of running desalination, you'd need 500-plus desal plants for California. And they just spent 20 years fighting to get one, near San Diego. So, that's not going to happen.

A summary of the talk:

David Zetland of Leiden University College in the Netherlands and author of Living with Water Scarcity talks with EconTalk host Russ Roberts about the challenges of water management. Issues covered include the sustainability of water supplies, the affordability of water for the poor, the incentives water companies face, and the management of water systems in the poorest countries. Also discussed are the diamond and water paradox, campaigns to reduce water usage, and the role of prices in managing a water system.

anonymous writes: 

It will be tough to convince the majority of Californians to build nuclear plants for desal after their getting the Wave from Japan. On the other side of the ring of fire, those in the CA cities are too green to approve. CA had lax groundwater restrictions but the bottled water companies and private labels are relocating now. This indicates the value of the land is falling because a round of groundwater extraction restrictions is on the way. Water channels from north of CA and use of the rails more likely. Longshot and long-term bet on towing icebergs through the Straits of Drake interesting. 



"SEC Approves Pilot to Assess Tick Size Impact for Smaller Companies"

I found it of interest that they set up a scientific type test with a control group.



I recall when I first started trading, I did not do execution myself and in fact wrote down the orders on trade sheets, blue for buy, yellow for sell. Then took the written order, walking across the whole trading floor, all taking notice, and handed it to the execution trader. I had better have had a good reason for whatever I was doing. This was a very good process and instilled discipline, discouraged over trading and resulted in reaching full holding period more often than not.



Many of the major markets had made quite respectable gains and losses YTD up until recently.

These same markets have, on the whole, traded back to where they were at the start of the year and, in the case of bonds in Europe, gone well beyond.

In the closed system of major financial markets there is more than gristle to be had by looking at relative magnitudes and times elapsed from the beginning of periods to extremes and back again of different markets in ones trading 'universe '.

It is also worth asking if the, for lack of a better term, 'reversionary laggards'–in this case EURUSD and the DAX–both of which still some way from 1-1-15 levels–if this is predictive. Must these errant sheep rejoin the pack and trade back to initial levels seen the start of the year?

Is this a constructural phenomena? I believe it is. And a strong one at that.



I have some reading to do in the form of this paper by Burton Malkiel, John G. Cragg: "Expectations and the Valuation of Shares".



Chart of the Day- 30 Year Mortgage Rate

I, for one, do not share publisher's spin that this implies something down-trending at this junction. I view this chart better representing the fact that rates are way below historical norm. This is not to say how imminent the reversal is; but to say that once reversed, the rates have way more room to the upside than any remaining downside.

Jeff Sasmor writes: 

Two things:

1. that chart doesn't go back far enough for me. This one goes back to 1900

Assuming that that chart is roughly correct, one can see that for most of the last century mortgage rates were generally between 5 & 6 percent. Once out of that range it didn't return for about 30 years (except for a short blip).

2. Rates returning >= 5% will induce great hue and cry from many directions. I am not asserting that such a thing is armageddon-ish, but many will. It will be interesting to see if the Fed has the will to hold back from trying to influence the economy some more at that point.

Rocky's Ghost writes: 

Firstly, I would point out that the bond market (as it drops like a stone) is behaving like a bull market right now. Huh? How can that be? Yes, kids — bull markets are characterized by persistent grinding price gains and vicious pukoramas declines. Think about that statement very carefully before you disagree. Bear markets, in contrast, are characterized by grinding and persistent price declines and vicious price rallies. Again, think about that statement very carefully before you disagree.

But let us assume that Anatoly is correct as a thought exercise. Let us then note that the current bull market has lasted for 35 years. If you want to start setting secular (as opposed to cyclical and trading shorts), what's the hurry? I submit that one needs at least a few months to validate the secular bear market thesis. That thesis requires a lasting change in inflation expectations that break out of the 2-ish% range or a change in the perception of growth/capacity or a change in labor union/gov't policies or a change in the perception of sovereign risk/real rates or a war that changes the balance of investment/spending or deficit financing that exhausts savings or any other number of things that don't happen in a fortnight. Can they happen? Sure. Have they happened? Not yet. Heck, the Fed hasn't even tightened yet. A knock-down drag out cyclical bear market will the fed to be behind the curve on growth and inflation. Growth is still anemic. PCE inflation is still below the desired target.

All that has happened so far is that a bunch of people were on the same side of a multi month trend (bonds, dollar, crude oil, european QE) and those people are all exiting at the same time and moving prices to an equilibrium. This move is about positions. It's not about fundamentals. Yet. 35 years is 12,775 days. The high tick in the TLT was on 1/30/15. So we are about 125 days off the all time high.


P.S. Look at what has happened over the past few years when the 10-15 day moving average crosses below the 100ish day moving average in the TLT. People pay 2&20 for that nugget of advice. Hah.

anonymous writes: 

or perhaps the bear began in july 2012, when the 10-yr yield fell to 1.4% and cpi hit a low of -2.1%.

anonymous writes: 

You say this move is about positions.

From the cheap seats, this seems like the null hypothesis, for sure. Certainly, everybody didn't suddenly decide there's going to be a huge ramp-up in inflation. Or a default in bonds. More likely that many players are leveraged in the same direction(s), and recently enough have decided to "take profits", that others have decided to follow.



 As one gasps for breath the following thought springs forth, motivated by:

A: the recent co-movement in Bonds , the dollar and stocks

B: the LoBagola completed (just about) in Bund futures a little while back this AM.

When related but different markets are experiencing a relatively high/unusual degree of co-movement, might the relative duration taken to 'LoBagola'/ reverse in each market be predictive?

As usual, I am trying to write words while there are only numbers, functions and classes in my head. So, put another way, might not the relative speed of reversal back to an initial market price be predictive for some future time period during periods of extended and robust co-movement?

Good day ahead all.

Anatoly Veltman writes: 

well, on what happened last couple of weeks.

As Bunds neared 0.05%, a handful of prominent entities took a position. They telegraphed the fallen king, who joined in. The risk was not nearly as high as it usually runs in the markets, and thus the speculation could be inordinately large of size…

The contrary trade gained speed as it continued to be helped both verbally and pyramidicly. In the process, the EUR began to look more and more attractive correspondingly.

Eventually, the high velocity moves in both rates and currency disrupted the equities peaceful drift. So you got the moment of all three moving in the same painful direction.

Vince Fulco writes: 

Sounds poetic looking in the rearview mirror.



 I am not a conspiracy theorist, but the official explanation behind Dave Goldberg's (Sheryl Sandberg's husband) cause of death seems improbable:

"He reportedly left his room in the resort near Nuevo Vallarta at 16:00 local time to exercise, and family members went to look for him when he failed to return.

He was found at about 18:30 in the gym, lying by a treadmill, with a blow to the lower back of his head. It was apparent he had slipped on the treadmill and hit the machine, a spokesman for the Nayarit state prosecutor said."

Can someone explain the physics of how you (a) lose your balance; (b) whack the back of your head; (c) end up "lying by a treadmill". Anyone care to bet whether there is a video camera in the gym? Access control? An autopsy report from a board-certified pathologist? Are there any other examples of severe injuries to the "lower back of the head" from a treadmill?

Until I see the data, I'm canceling my trip to Nuevo Vallarta and betting that this was a botched kidnapping (Sandberg is a facebook billionaire) and is being covered up by the hotel and local authorities to prevent a tourist exodus.

Russ Sears writes: 

Treadmills are dangerous if operated at the higher speeds. What is a high speed depends on the individual working out. There are several ways to fall. In order of frequency for me:

1. Step half way off the tread.

2. Power outage due to either over heating motor, or simply power failure.

3. Pulled muscle or cramp.

4. Sudden distraction

But at hotels it's often due to improper maintenance, such as a loose tread or over heated motor. 



 Those amongst you who receive bucketloads of bank Research (even with spam filters turned on high) will note the extraordinary versatility of sales people to be 'experts' in everything. In just the past twelve months, my counterparties have been offering risk taking 'advice' based on their expertise in:

Geopolitical events (Ukraine)

The Euro

Oil prices



And now… BUNDS.

They are all so clever! In all fairness 'cross product sales' and associated financial incentives for same (sales credit anyone?) is likely a driving force.

The fever pitch in the spam often occurs fairly coincidentally with slowing rates of change or reversal in the relevant sector….like Bunds now perhaps.

It is a good demonstration of misdirection, obtaining alms from customers, encouraging the wrong actions at the wrong time and bare faced hypocrisy.

One has to stand up and applaud futures broker this AM for making special phone call recommending the purchase of very short dated 15 delta BUND puts at a volatility so high that no amount of movement could give anything other than a loss.

The seeds of the next move of substance are likely in markets not in focus… Perhaps yield curve in NZD, Rice, South African Rand, or the on going Japanification of the US banking system and its ramifications for the still positive integer on the left hand side of long dated US treasury yields.



It looks like a new currency awaits.

There's lots of assertions about what happens to Greece in case of a Grexit given that the resulting drachma would probably quickly lose value. What if Greece were to tie itself to bitcoins or some other cryptocurrency?

anonymous writes: 

The first step will be capital controls. The second step will likely be some form of domestic IOU's and or default. Those IOU's may or not morph into a New Drachma, etc. depending on both domestic and international factors. Very good chance they default and remain in the Euro as well. The Greek populace has made it clear they don't want to leave the Euro and want some sort of compromise. The bridge to cross between the two sides, however, has proven to be too far to cross. Further, the Greek economy is collapsing and all targets are moving faster than "shoot the freak" on Coney Island.

-primary budget now at best deficit of 1.5% of GDP, target was 1.5% surplus

-so need 3% of fiscal tightening in middle of this recession

-Greek constitutional court now talking of reversing some pension reform

-watch the bank deposit and financial market flows for keys to whether capital controls will be implemented



One notes the chart on page 65 of the May 2-8th edition of The Economist magazine detailing selected MXN bond yields over almost the past 200 years. (required a log scale clearly)

The recently over subscribed 100 year issue puts into perspective just how desperate the market is for yield, come what may and history be dammed.



 Seventy Years Later, I Still Remember….

The scene of the liberation, as an inmate in the concentration camp of Mauthausen, Germany on May 5th, 1945

"It was early afternoon, and lying on the topmost bunk, I saw through a tiny window, on the top of the hill, grim buildings of the camp administration surrounding the Appellplatz, the square where prisoners were counted before going to work. For days now there was only deep silence there: no more labor troops. The Appellplatz seemed totally deserted.

"Suddenly, on the winding road a jeep appeared, followed by an armored car with a soldier at the machine gun mounted on it. They moved very, very slowly, cautiously uphill. The buildings on top were separated by a steel barrier from the rest of the camp. Today it was not the usual SS guard; the soldiers wore a different uniform. The two strange-looking vehicles reached the barrier. They stopped, and for a while the two sides eyed each other. Then the German guard raised the barrier without any resistance. Just as slowly as they came, the vanguard moved forward and stopped again in the middle of the square. Two giant-looking American soldiers got out.

"A minute later, the eerie silence was shattered by an earthquakelike rumble. Humanlike shapes, clad in striped prison pajamas, crawled forth from nowhere, moving grotesquely, seemingly senseless, stumbling, falling, and getting up again, trying to approach the Americans. All the while, they were shouting and screaming inarticulately; the sounds emitted were hardly human. They threw themselves at the Americans, who stood there in shock and disbelief, taking in the apocalyptic scene. Tripping over each other, they kissed their hands, their feet, their uniforms, wherever they could touch them. Many crawled around the vehicles convulsively, in hysterics.

"If man ever cried out from the depths, here was the nadir. These were the victims of the great German empire. All the enslaved, humiliated, down-trodden people of Europe.

"This moment remains indelibly set in your memory. Very few lived through such a scene and survived to bear witness. This is an experience during which you know, right when it happens, that the rest of your life can produce nothing like it. And perhaps time ought to come to a stop here.

For a brief moment it seemed that justice prevailed after all: the innocent is set free, and the evil is punished.

"Lying on the bunk, all that crossed my mind. But I didn't cry. I had run out of tears long ago."



 Any man who plays tennis knows how great a good, men's doubles match can be, with pace and at the net — a fight involving of four where you don't feel the punches.

In November 1996, I had a regular game with three others in a club I belonged to every week, at about 530 a.m. It was worth getting up for. One of those days, I would have a flight later that day to Newark, and from there a taxi or car into the city to do a class at New York Institute of Finance late afternoon, back out to Newark for a red eye flight to Amsterdam, where I was to speak at an IFTA conference the following morning.

One of the staff came out, midway during our game, to tell me I had a phone call.

I took the call, and they were telling me that my 96 year-old grandad had passed away that night. Realizing I couldn't bail on the commitments I made, I got on the plane, did what I committed to do so no one got stood up, managed to get a ticket off the street in Amsterdam (since the airline wouldn't change my ticket) for a flight, out of Brussels the following night to JFK. I got into JFK late, rented a car, drove the 11 or so hours, and showed up at the old man's funeral.

We were quite close, though our horns were always locked. He was a gritty guy who spoke with a Southern Ohio/ Kentucky accent ("I see you on the fourth of Joo-Lie") not unlike the old cartoon rooster Foghorn Leghorn. He played and coached in the early days of pro football ("The worst was that day in Detroit, the wind was cold, the field was cinders, not grass, and every time you went down you gotcha self scuffed"). I used to describe him as "Tougher than catshit."

He was.

But he was gregarious, and fun, and we used to go down to Lou-vull for the Derby quite frequently. It was a big deal every year– it was the culture he was from.

Every year on Derby day, I can;t help but think about him, and how now, now that I am older and slower don't care about a lot of things I once did, I realize how right he was about so many things.

The following May, I had to go without him, and it was more of habit than anything else (and it is not a glamorous place, contrary to the depiction on television, quite the contrary, there is a pervasive seediness to the whole area).

Hemingway describe The Derby as "the most exciting two minutes in sports, an explosion, an emotion."

That Derby
, that one, with my Silver Charm - Captain Bodgett Box, I got it, I got Hemingway. Absent the old man, it wasn't the best Derby I could remember — but it was certainly the most exciting for me.



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

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

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

anonymous writes:

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

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

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

anonymous writes:

A few Monday morning thoughts:

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

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

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



DoubleLine Capital's Jeffrey Gundlach said he's considering making an amplified bet against German bonds to join a growing group of top money managers wagering against the debt after some yields turned negative…

Since September last year, the pool of European bonds that essentially charge investors to own them has almost tripled to 2.8 trillion euros ($3.1 trillion) from 1 trillion euros, according to Bank of America Corp. data. The increase has been driven by central banks buying bonds to stimulate economies and has sent yields on German two-year notes to minus 0.273 percent, according to data compiled by Bloomberg.

When you short negative yielding bonds you have a positive carry.

If German 2s yield -0.20%, shorting them produces a positive carry, which when amplified by 100 equals a 20% return.



I wonder what the parameters of the globex trade matching program are for changing the price. One consideration would be to change price to encourage the maximum number of trades. A normal auctioneer calls a price to sell and if there are zero bids after three requests will drop the price. Or if the price is lifted will offer a new lot. Globex does not wait until all the bids are gone before dropping the price. Sometimes it will get stuck with just a few offers. There must be a counter for the number, or frequency of trades and whether they are at bid or ask, and if there is not enough trades, the price will move. There must be a different algo for regular market hours and after market. There probably are fast market programs that kick in also. Seems like an astute counter could reverse count what is going on, and I'm sure some do.



(From my stockbroker)


Nobody has a perfect answer to when to buy and when to sell. If they say they have the answer, just wait for the weather to change.

Just to share info with you… I rely upon a study call "Williams Percent R" listed on tech analysis of Google Finance as "%R" (use 18 periods or days).

Study this a bit. Larry Williams has been very successful with this. %R is a take-off of Dr. George Lane's stochastics. Williams took the stochastics info and put it on one chart so you can see up and down–read on down the page.

The five people shown below are the developers of the most profitable tools. Welles Wilder is in New Zealand.

Notice… below .. %R is the bottom chart … you would prefer to buy when the %R is below 90 and sell when the %R is above 10.

It is not perfect so you should compare it to the price envelop…(red line on price is 3% above and 3% below the 18 day moving average).

Note the main chart is a daily chart. The chart in the background is a weekly chart of the same security. Set this up on two screens. Each of the people shown above often use a tool call "divergence". If the weekly chart has a 30 %R and the daily has a 90 %R, then the daily has diverted off of the path to the low side and may soon revert to the mean, or go back to the range of the weekly, near 30 or 40. This may give you enough to trade for a profit.



 The more accommodating to other drivers I am, the easier it is to get through traffic and avoid potential crashes. Meaning, in those 100 brief moments of interaction between drivers that occur on any city drive, even in a city like Chicago that lacks any notion of community spirit, more than 50% will attempt to return the favor if you yield first are courteous. So you get a positive expected value, perhaps do to the psychological pull of the reciprocity principle.

I am wondering if there is application to this in our trades. One thing I like to do is start with passive orders that are pre-placed, then if/once those fill and the other guy has had his way, I "take my turn" and go active. And it seems many times there is a line of cars that follow along behind me taking their turn as if they were waiting for me to make a move. That observation would need to be tested, as it is based only on my ad-hoc observations. Perhaps this reciprocity or "taking turns" analogy can be extended to broader market action in some way.

anonymous writes: 

A substantial personage in whose employ I was for a few years used something like this,

Using T note futures as an example, he would offer, say, 2000 lots at say 19/32, 'allowing' the market to buy from him (letting them have their way). Once filled he sold 10000-15000 at the market–overwhelming them–taking his turn, as it were!


Ed Stewart writes:

That is exactly what I am referring too, only my experience is not at that size or in that market. My (ad-hoc) observation is it is a useful tactic precisely when it seems most foolish by "normal" logic that does not take into account how it alters other trader behavior (similar to the driver analogy)–creating a shift in tone or sentiment for the rest of ones "drive home". 

Anatoly Veltman writes:

Ed, not sure if anyone finds ANY link to markets further in time of this discussion - but I have a comment re: your initial premise.

I've driven over a quarter million miles, mostly 30-foot vehicles, without an accident. I happen to be a holiday driver (i.e. not driving daily where I live in NY, and not having owned a single car since my distant student years). Unfortunately for myself, I'm yet to own GPS or even use one for the first time - this btw may tie into FB raw that list just went thru. I never opened a FB account to date, either. I think we venerable listers may be too lazy to adopt the basic society's milestones - and no wonder the latest 24y.o. billionaire is way ahead..

What I did found on my dozens drives coast-to-coast and the hundred drives of the entire length of the I-95 was appalling to me, but apparently a norm to what you're participating in daily. Passing thru any urban thru-fare, I see cars obediently lined up for minutes (and possibly adding up to hours), invariably leaving the right lane completely empty and entirely legal to drive on (this is the regular lane on the left of the prohibited shoulder lane). If I once did NOT make use of that legal right lane, giving me substantial edge in traffic, I'd quit long-distance driving summarily. But as it is, it gives me tremendous pleasure to skip hundreds of area regulars in minutes, and leave their daily congestion in rear-view mirror



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

anonymous comments:

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

anonymous writes:

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



I believe that one might consider ALL price movement to be a result of two 'forces' referenced by 'Round Numbers'.

Force 1 can be thought of as a type of 'ionic bonding' where there is attraction between (say) negatively charged round numbers and positively charged prices. So, force 1 describes the 'constructual' path of prices to round numbers.

Force 2 might be when the polarity of the price action changes to match that of the round (as the round number has been 'achieved'). In this case, two similarly charged phenomena repel from each other.

Thus the total sum of price action might be considered as something approximating:

Total = Constructural + Repulsion.

I'm interested in testing this:

One may find better results from testing DIRECTIONAL strategies in the Constructural piece as prices approach the round.

Interestingly, I believe testing 'volatility' (not directional ) strategies for the Repulsion force part is likely a better option as there appears more volatility in the 'sign' of the repulsion move than 'normal'.

So, which is stronger,  Constructural or Repulsive?

I do not know. Depending on how you set up your test you likely could 'prove' both.

Given the way chains of relationships develop in cross market price action, my null hypothesis is that Constructural wins more often but Repulsion wins more.

anonymous writes:

Rather than a "Force 1" of ionic bonding, electronegativity might offer a more complete insight. 



There are lots of perspectives attending the oil bust, including the costs of the hedges, the losses associated with the accumulated debt, the write downs in equity values, the decline in asset values associated with the decline in the price of oil (thought this will likely go up in the future at some point) and so on. In the interim, companies are doing what they can to stay afloat.

"The chilling thing Blackstone said about the oil bust



 Yesterday was the anniversary of the tragic 1906 San Francisco Earthquake (Mag: 7.8 EQ)

Dr. Lucy Jones, a USGS Seismologist (@DrLucyJones) tweeted an interesting fact surrounding the aftermath: "The greatest growth [earthquakes] in Los Angeles was the ten year period after the 1906, while San Francisco shrank"

This has my mind racing on trading ideas for testing. If you figure Earthquakes as single financial instrument and SF & LA as two separate markets with similar securities and something like security volatility as earthquake magnitude (my first guess approximation, there are probably better indicators, perhaps security liquidity.) Which of these would you think are worth testing for similar outcomes:

Various Central Banks maneuvers- Perhaps we're seeing it now as the US Fed unwinds and ECB picks up QE.

WTI vs. Brent

S&P vs Dax or UK or Asia

Currencies- take your pick.

Not a commodity expert so hard to decide there. I would consider gold but it seems universal.

Would love to hear of your thoughts and please feel free to call me out for Ballyhoo.

Enjoy your weekends.



anonymous writes: 

 On or about the 8th March this year I posted a piece on the site that may help clarify your initial thinking on what to test.  ( if you want it sent direct to you please advise ).

Amongst much else, there are two types of waves involved.  So called P -  and S - waves.  ( Wikipedia has a reasonable description of both ).

They P waves travel in the direction of the energy propagation whereas the S waves ( or shear waves) travel in a perpendicular fashion.

One starting point is to consider P wave as movements within and between the same type of markets ( SPU, DAX, NIKKEI) and S Waves as subsequent/coincident moves into unrelated markets. 

The key is that P waves show up first on the seismograph. There is no Mount St. Helens eruption without a P wave but there are plenty of P waves without Mount St. Helens eruptions.

One reads much about the precursors to major things/ events/ phenomena.  They almost invariably focus on only one side of the distribution (ie the crash scenario in markets). I believe the trifling ( yet cumulative /additive) information available in research papers should be used for predictions of melt- ups AND melt downs, not merely the downside.

Paul Marino replies: 

Thanks for the quick response, will certainly track down your post. I totally agree with you at the one-sidedness of looking for the crash as opposed to the melt up and its ramifications elsewhere in the system.

I'm looking at it from the SF side where things stabilized and grew and the calling signs for fut growth there were reinforced by the "event" moving along to the other markets. As Vic says a forrest fire clears the underbrush for future growth and a firmer ground.

I see it as a value with growth opportunity in the initially affected area, SF, and not so much looking for future crashes although you could hedge/pair against the trade by going against whomever is along the fault line thereafter as an idea. 

anonymous writes: 

What grew in the 10 years after the San Francisco earthquake (God's work) and fire (largely the work of the stupid U.S. Army) was construction, development and population in Los Angeles, not "earthquakes". Los Angeles largely owes its pre-eminence in California to the effects of that boom and San Francisco's literal downfall. 

Pitt T. Maner III writes: 

Related to the San Francisco discussion, I wonder how the recent dramatic changes in depth to groundwater in some areas of California might change the odds over time.


"Researchers proved that the Hayward Fault, which stretches through largely populated areas in the East Bay as far south as Fremont and as far north as San Pablo Bay at Richmond, actually touches the Calaveras Fault, which runs east of San Jose. There is an estimated 14.3 percent likelihood of a 6.7 magnitude or greater earthquake along the Hayward Fault in the next 30 years and a 7.4 percent chance on the Calaveras Fault, according to the U.S. Geological Survey. "The smooth connection between the two faults means that an earthquake could quite easily break both faults at the same time, making for a substantially bigger and more destructive event," said Roland Burgmann, campus professor of earth and planetary science and co-author of the study. "Deeper in the Earth, we find small earthquakes that clearly define where the connecting fault is.""

2. Average time between ruptures

A interesting list of earthquakes in California



In the GE conference call yesterday, the word "organic" was used 28 times.

anonymous writes:

The plant is a complex organism, the fruit of biological evolution occurred over hundreds of millions of years. Each genetic modification caused by man in it, however small, will still produce irreparable damage that often can not be recognized, because we know with certainty only a few dozen vitamins and pro-vitamin substances. There are tens of thousands of vitamins and other substances contained in plants which are the responsible for the proper functioning of the complex biochemistry human and the human genome (DNA).



 One of the frustrating things about going against price action is sitting there watching the various markets' movements align to eventually produce a constantly changing level to buy or sell at. It's like a dog-fight between two state of the art fighter jets.

A really good analogy is the pilot looking through the HUD (Head up display) in which he can see at least three variables operating in more than one dimension all working to get the red dot on the target that is then augmented by a beeping sound (more multidimensional input).

Getting back to markets then, whilst all this is happening the reversalist is watching the price action move towards the zone… Waiting, waiting…The thought that eats away at me is this–why aren't I 'on' this move that is occurring NOW (as we approach my zone of interest).

Today is a perfect example. The market mistress allowed me to sell GBP USD at a much less worse than usual moment. However, I watched it climb in a straight line for 3 1/2 hours from the London open before it got there.

For the life of me, I cannot find repeatable techniques that will allow me to trade both sides of the market (using the same model) over the day. (I am excluding My high frequency activity here).

I know it is greedy, but I don't see why I can't have the cake and eat it.

Another tidbit that reversal types will identify with: During winning periods isn't it horrible that the moves that lead up to your taking risk are relatively more smooth and pleasant than those subsequent….

Which leads me to this:

I speculate that market moves which, after the fact, look beautiful, calm and smooth are relatively substantially more difficult to predict than subsequent horrible messy volatile reversals.

principiis obsta (et respice finem)

And the reverse.

anonymous writes: 

All 100% true in my limited experience. Its feels like a great irony that you wait for key moments, and then your key moments in a sense seem more difficult vs. what you had just witnessed… If you think it is going to "get there" why the hell is one not already long (or short)?

Consider a military ambush. The enemy might be in field of vision for a shot for quite a while before they enter the "kill zone". In fact the shot might be more clear as they (the prey) are in the open. They wonder about predictably, or so it seems, strutting or driving forward in a linear fashion. So why wait for "the kill zone" to make a shot? The difference is when they are in the kill zone, they are cornered and their reactions to that first shot are predictable - they are trapped and you can gun them all down much more reliably. I see waiting for the key moments as identifying points where the competition is off balance or trapped vs. just having a guess at market direction. It seems like it should be the same, but maybe it isn't.

By the way If my analogy is off-base I apologize to anyone with actual knowledge of how military ambushes are constructed. 



Some time ago someone posted a link related to backtesting strategies. I believe the idea was that prior familiarity with the data can cause one to over-assess the signifigance of a strategy, as one can very easily tweak a strategy or come come up with a rule set already knowing how it will turn out. Statistically (and I'm sure I described the issue poorly) I'm sure that this critique makes all the sense in the world. I have seen similar critiques in other places, all suggested that prior familiarity with the data is a bad thing.

The problem i have with the above is that in actual application it seems to suggest that having zero knowledge of how markets function might is an advantage, as then our tests would not be using our prior knowledge of what has already been discovered.

In practice I have found the opposite. In my experience, the more new strategy fits into one of my learned or pre-existing conceptual frameworks, the more likely it is to work in real application. In other words it is more signifigant vs. a random rule that might also test well statistically.

I wonder if the purely statistical critique of such things misses the fact that some regularities or price behavior have tended to persist over time and are related to other rules - meaning it is not just a grab bag of unrelated "ineffeciencies" one is looking for. Rather than being a disadvantage, knowledge of these things is actually a significant advantage, in my opinion. I'm considering if a classification system similar to what is used for the animal kingdom might be a useful way to classify relationships between strategies, and clear up some of the confusion (Perhaps only mine!). Then a test for significance could be done against this smaller subset, vs. (say) the average for all 24 hour periods. Judged this way it might be found that so many different "strategies" (what quantitative hedge fund does not employ at claimed 100,000 or more?) are basically all the same thing.

anonymous writes: 

I concur with what Ed said, and also found that critique confusing. Lately I come to think that it is more meant for data scientists who research on data but don't actually trade. Scientists chew the data hard and can find all kinds of regularities (I have been just through that route). And actually many of these regularities can be due to chance only leading to the situation where one can not tell which are valid and which are not. But I don't think the critique poses as a solution. I think the solution lies in bridging the mentality of scientists and that of traders in a nice and delicate way. One should start from a pure trader's mind and then proceed on to a scientist's way but doesn't get carried away. 

anonymous writes: 

I am agnostic (or given the hyperbole, that should be atheistic) as to the past returns of strategies that seek to position themselves for large, lower probability outcomes over extended periods and those that seek to profit from fleeting latency dependent methodologies.

By the nature of markets that I have studied including the early grain markets of the 19th century up to the new 'Crypto-currency' phenomenon of recent years (Are you reading this Satoshi?), the prospective probabilities of large or small moves keep changing and so must those that manage money.

Here are a few thoughts:

1. It is very instructive to start ones millisecond, second, minute, hour, day, week, month, quarter, year or decade with a view of what strategies worked well and what didn't and think of why that may continue or not. In terms of markets I would refer SpecListers to EdSpec pp (94 - 100) & pp (316 - 319). There is another email from the chair not in this thread re: Trend.

2. In terms of strategy returns (and only looking at the Survivors obviously ) the returns are HUGELY reversionary. It is quite stunning to see the names at the top and bottom of the performance tables over 12 and especially 18 months.

3. It is fully right that some firms in the self declared trend following space have made high double digit returns given the straight line moves experienced in many of the assets in their universe. I leave it to the reader to consider that whether or not these moves (or rather the internal 'structure' of these moves) will continue. Maybe they will!

4. Anyone on this site who thinks testing a set of trend following factors, applying a backtest, going live and then trading things unchanged for the next 20 years has a different view of reality than I.

5. A note from the trainers stable. Over 1/2 the returns from many trend strategies come from the choice of the volatility target and the 'sector weightings'. Whilst there is science behind the volatility target piece, the sector weightings thing is a pot luck gamble–which is just fine–but it should be noted that if a fund continues to apply a 60% weighting to the commodity space (for example) after it has experienced a massive straight line trend then, well, read the disclaimer.

6. If it is about making money and surviving well… Put it this way, three consecutive losing years until the second half of last year for some of the brand names in the space… One wonders how many investors were there left standing for the last 12 months' spectacular returns.

7. Given the above the pro-cyclical nature of flows into alternative investment strategies continues to astonish me. Gotta keep backing those winners…. right?

8. Taking a reasonably long time frame one believes that most of the time the markets behave like a casino and then there are spectacular periods that capture the imagination like recently that skew the thinking. The best combination is the two together but usually what happens is that the guy who had done well recently gets all the assets from his manager despite the negative correlation so the effect is not allowed to work.



The markets have a plethora of different structures and associations with numbers. Some examples are:

1. Round numbers

2. Opening & closing times

3. Limits

4. Constantly changing magnitudes and significance placed thereupon (for example there were extended periods last summer when the SPU futures had daily ranges in the mid single digits and now it's a score (20) per day).

Much work is done splicing and dicing numbers and looking for statistically significant positive expectations based on various past conditionality.

As another part of that, I wonder whether or not the first, or second or third instance of some stimuli is more or less predictive than the other or others.

This has been brought up in my mind by the recent dance of the seven veils of many markets with many round numbers.

As a start, how about this:

1. Is the first break of a round more or less predictive than the second (assuming the market has reversed intermediately)?

2. Are moves of the same magnitude in the same or opposite directions of interest within a given timeframe?

3. More qualitatively, when a market breaks some predefined barrier (a round, a magnitude, a correlation coefficient et al) and subsequently does so again later, is this last move more likely to have the same sign/ opposite sign and will the magnitude be greater or lesser?

One might start today with a live test case to think over.

Gold Futures traded 1199.7 earlier after opening above the 1200 round in Asia… The market rallied up to 1208.8. If we break the round again we may start observing things like those set out above that may lead to a testable heuristic.



 I do not look for one dimensional geometric shapes in visual manifestations of historical data. Not because there is nothing there but because I have no edge in doing so against the market.

However, it is fascinating how, occasionally, a market puts in an act of such beautiful symmetry that one is moved to ask further questions about multidimensional geometrical solutions to market forecasting.

Yesterday is a case in point. I will use New York time for the following and I refer to the S&P 500 futures (June).

The market at 3am opened the hour at 2093. Soon after the floor opening it topped out at 2101.25, an 8.25 point rally. Next the market declined to 2085.25, a 7.75 point decline from the 3am rate. The rate at 3 am this morning was 2092.50.

The flow and symmetry was beautiful and the old adage "The bookie always wins" comes to mind.

I do not know quite what–but there is something to be gleaned from the referenced 24 hour period.



 I was with a commercial real estate broker for several hours today looking at office space for my business. He said that Commercial Real Estate is really moving well and inventory is coming way down. It's a sellers market. Rents are going up.

He said that in 2014 in the St. Louis area they leased more commercial real estate than they had in the previous 3 years combined.

David Lillienfeld writes: 

In Silicon Valley, commercial real estate (CR) is almost non-existent, and the same is true for residential. Sunset Publishing maintains a beautiful garden at its headquarters in Menlo Park. After decades during which the garden was built, it will be plowed over for housing starting Jan 1 next year. Google and Facebook are both within 2 miles.

However, the situation in Tracy, on the East Bay, is a different story entirely. CR over there isn't nearly as in demand as in the Valley, and there's still reasonably-priced apartments (read: those earning under 100K can still afford them). (See this article from yesterday for a nice summary of the state of the valley economy.)

As an index of CR in the valley, though, consider: there is real estate speculation starting along the CA-92 and 17 corridors, and there are whispers of the valley extending its reach into Half Moon Bay and perhaps even Santa Cruz in the next one-to-two decades. HMB seems more likely, though, should it happen at all.

There are now two impediments to further growth in the central valley: open space (marsh lands are being looked at for construction) and infrastructure. In the AM, 101 rivals the LIE as a parking lot. East Palo Alto could be developed but it has almost no available water supply (not just water, but the infrastructure to distribute it).

So while CR is now strong out here (and residential too—as of yesterday, there are a total of 10 houses for sale on the peninsula. There are many for lease, though even then you're only talking about 50-55 or so), it's also strained—there's a limit to how many customers can get to it, there's an understanding that the valley business environment is frothy, and while there is household formation, it's anyone's guess as to how long it persists. Things change quickly when you cross to the East Bay. Strong in the valley (including the peninsula extension) and so-so in the East Bay. Everyone "knows" a downturn is coming, but no one it seems is much prepared for it. Go to the Stanford or Santana Row shopping centers, and you get the sense the area is floating on a cloud of money. (I think of it as the fleecing of Wall Street.) One sign of this state of affairs is the abundance of Teslas on I280, I680, and the 101. The Ferrari dealership in the west valley isn't hurting, but it's nothing like it was in San Diego near the QCOM and biotech ridge locales. Teslas are now seen as the new "chick magnets."

The big imponderable in California right now (and the other constraint on RE demand of any sort) is water. One story making the rounds had Facebook and Google considering moves of some of their admin functions to Reno, until they realized Reno was as short of water as California.

If there's another year or two of drought, I think much of the money now going into CR will be written off—there won't be the growth to sustain it. Not without a war between the San Joaquin Valley and the coast over water. With 10 percent of the state's water going to almond trees versus 12 percent for all human use, it seems likely that the almond trees will lose, but not before a battle



Good trading is a mixture of quick reaction times and having no 'intellectual baggage'.

Intellectual baggage holds one back from making good trading decisions.

Amongst much else, intellectual baggage contains memes similar to (and the opposite of):

1. stocks have to go down because rates are going up.

2. the Euro & Gold always move together

3. the EURO has to go down because they have a lot of debt & unemployment.

4. Oil has to decline because inventories are higher.

5. Bonds have to go lower because of a very strong run of pay rolls numbers.

6. The Russian Ruble can't possibly be the strongest emerging market currency against the USD in 2015 because oil has collapsed and the US have imposed sanctions against Russia.

7. The EURO can't possibly rally because the U.S. may be raising rates this year.

This short list was made from a cursory perusal of the front pages of a few sell-side 'research' publications.

I seriously do not know whether to laugh or cry.



 Basic Relativity theory tells us that the further away from and the greater the velocity of travel that one gets from a fixed observer at one's point of origin then the greater the effect of 'Time Dilation'. The effects are not really noticeable until you reach approximately 40% of the speed of light.

The theoretical effects of time dilation can be 'calculated' (perhaps approximated is a better term) using something like this;

Dilated time = stationary time multiplied by the square root of (1 minus [velocity squared divided by the speed of light squared])

For the purposes of this post I shall not complicate matters by introducing a proximate gravitational mass.

Something quite different is happening in markets in my opinion. I believe that the further away from a reference point ( let's say the 'open' ) we are and the faster that the price is travelling, then, in contradiction to Relativity in the SpaceTime world– time SPEEDS UP, relative to the price action at the open.

Often, a large proportion of the magnitude of a move from (say) the open to the subsequent low (say) of the session occurs in the culminating few minutes of the time elapsed from the open to the time of the low. So, for example, the SPU may open at 2077.75, spend 4 hours working its way to a low at 2069.75 but 4 of the 8 point decline might occur in the final 3 (for eg.) minutes of the decline.

It is in that sense that it feels, to me, that time speeds up in these final few minutes relative to the minutes after the open. There is absolutely no reason why relativity should hold in this context so perhaps my perception of time is not at all unusual. (Author's note - all this talk of 'feelings' is making me queasy. Ha!)

Next time you are watching a market pull away from its opening price in an accelerating fashion then watch a minute by minute chart and if the price develops as I set out above ( with most of the move occurring in the last few minutes of the swing ) then I think you will also experience this idea of the 'blowoff' price action that concludes the move in the last few minutes happening more quickly than quiet price action around the open or whatever reference price you like.

Relativity joins a long list of concepts (exogenous to the mechanics of the markets themselves) that must be adapted in some way if one wants to apply some facet of it to distributions of prices of assets and liabilities in the financial and other markets.

Sushil Kedia writes: 

By the definition of Dilated Time cited here, its values can range from zero to stationery time, when respectively velocity is equal to that of light or the velocity is zero.

In other words there is no time dilation if any thing is traveling at the speed of light and the dilation of time is the same value as the stationery time if any object is stationery.

Time, it has been discussed variously on the list(s) before is an entity undefinable without involving self-referential terms. I have argued in the past that time is an entity that provides a measurement of the separatedness of events and objects.

Blackholes do not have any separatedness and therefore there is no time either in that non-space. The universe on the other hand is an unending expanse still growing and there is time as well as space in it.

The Theory of Relativity, to my "mind", is as much a powerful leap in the Cognitive Sciences as much as in Physics. The so called bends of the space-time-continuum and the endless related ideas of time dilation are cognitive constructs and also explain the cognitive limitations of "intelligent design", "intelligence" & even "intellect".

Having laid these few simplified working terms, I return back to the core of this post. Is the trading pit outside the realm of this universe and if indeed there is anything happening that is not part of the universe, as postulated by James? I strongly doubt, since the universe or anything else that a human mind can observe, including the trading pit, is what our individual cognitions are. The reality is only what each is perceiving it to be! The example of the star 4 light years apart I placed in a recent post illustrates this point.

For a moment, think of it another way, what are Lobogalas? If a sharp quick ephemeral (time frames are a matter of choice and time is most fungible construct apart from being the most illusive construct human mind knows) move happens as described by James, that seems to be outside and in fact the opposite of how things happen in the universe, then is it a regularity or an irregularity?

I would like to shoot that it is an irregularity, there is money to be made by fading it and those who count & test do make money from such moves in this manner. 

anonymous writes: 

I know nothing about the theory of relativity, but it seems to me that when the Greeks began to wonder about the forces of nature (physics), Greeks wanted to study exactly the natural forces.

(The Greeks who now they want out of the euro– the style now used by 'ISIS in erasing the traces of other civilizations).

These markets are anything but natural, are totally and deliberately manipulated. in this sense, trying the accused, a reference point, I would observe only the liquidity injections, foreign body (by central banks) and rates.

Financial markets would be simple… but you can't control a system designed on purpose to move the perception of risk. This has nothing to do with the natural forces. Without considering HFT that subtracts wealth like a leech on the pretext of providing liquidity to the system.



 I just saw this on twitter today: "Stanley Druckenmiller Lost Tree Club Speech".  I had never seen it before and found it fairly worthwhile to read.  Thoughts on finding situations to "bet big" on and also some interesting admissions on "biggest mistake" as well as biggest successes. I think that idea applies to bid qualitative ideas as well as quantitative or systematic ideas–viewing the strategy as what one is betting big on, vs. "the trade".

The strategy I have been developing that is new to me (within past 5 years) is using long term options to frame out these types of bets. Sometimes the leverage is extraordinarily cheap (in the way that I figure it).   

The mistake he discusses is interesting as he admits he had a compulsion that he felt was irrational, but could not resist it (lost 3B on tech stocks). Also some interesting thoughts on the economy and potential distortions created by government intervention. Very long intro that is easy to scan past if you dislike such things. Lastly I was amazed to find Dunavant Enterprises mentioned in the intro– it seems like the same "inner circles" alwasy resurface. 



 If anyone needed reminding that incentives work, look no further than the recent 'What is a Trader' competition on this website.

There was a monetary prize attached for the victor/s and, perhaps even better, canes for other notable entries.

It is quite noteworthy that the ratio of competition entrants to regular contributors to the SpecList was very high. (Even allowing for the fact that the two samples are not exactly homogenous). Evidently, incentives matter!

Given that many of the hopefuls were likely traders from varying markets, backgrounds and experience levels–might not some of you consider sharing potentially quantifiable thoughts with the list from time to time as the mood arises.

There really is nothing like this list anywhere. Whilst this is mainly due to the Chair there are others who have very deep cutting edge front line in the trenches experience who learn new things from this list if not every day then certainly every other week.

Back to incentives… The REAL incentive is the cross fertilization of potentially quantifiable and testable thought from strong to weak, inexperienced to experienced, expert to expert in different fields.

Perhaps this defines what a trader is–someone who believes in incentive driven exchange of information that can be utilized in markets using his or her own comparative advantage.



 It's May 6th 2010. Its lunch time and you're ready take a lunch break at your house from your high school up the block. You turn on your TV and turn to channel 724, CNBC. On the TV is a massive mob outside the Greek Parliament Building, which is surrounded by police in riot gear. There is this one gutsy guy who walks up to a police officer's riot shield and starts shouting. You open up your laptop and see that the little money left over from a string of losses earlier that year could be put to work by going short for a quick profit. The Dow is already down by at least 200, and then all hell breaks loose. The protesters and the police clash. That man taunting the police officer earlier is hit with a baton on the back of his legs and is seemingly flipped by the impact, and is swiftly hand-cuffed. The Dow, S&P 500 and NASDAQ all drop in unison. The ticker tape on the screen keeps showing lower and lower prices. You get this crazy idea to buy a far-out and cheap $115 put option on Apple, which is trading at around $140. You buy two contracts for .40 each, confident that Apple will tumble, hard; and it does. In an instant, those two contracts are worth well over $900, which makes up for the year's loss. As quick as the stock drops it rises, and by the time you go to close your positions the contracts are worth next to nothing.

A trader learns from mistakes like the one above, which is day-trading an option contract based on very little to no information other than a hunch. A trader learns to go by a system of rules with some elasticity. He knows his time scale for trading and has a plan-B for when things do not play out as they were supposed to. He is aware of other factors, such as changes in commodity prices or changes in foreign exchange rates which might affect his position. And last but not least, a trader knows when to take a break from trading.



The "What is a Trader?" entries were so good, we have some additional winners that deserve a cane. Numbers 14, 19, 26, 42, 47, 48. Kindly send your physical address to and we'll send you a cane for hobbling down to wall street during periods of panic.



 It is interesting to consider if, in addition to the statistics, one should consider the environments in which it makes relatively more or less sense to lay traps for certain types of prey.

For example, up until just a short time ago, it made eminent sense to lay traps for lumbering momentum strategies close to opens and closes as these firms were forced to use the (very well known) volume distribution to get set (you can accept it or you can reject it but these firms are too large by an order of magnitude). Nowadays many of these strategies have started using either bank provided or internal 'execution algorithms'… The seeds of destruction are planted. N.B. For the purposes of this post the efficacy or otherwise of these strategies is not under discussion.

Things keep changing. So here are are few thoughts:

1. Note the restrictions (notably integer time and linear volume accumulation restrictions of many bank/broker supplied execution Algos)

2. Note the distribution of quotes sent from HFT versus actual trades transacted and how this changes during the day.

3. Note the unusual behavior for the 2-3 weeks a year when London and NYC have a 4 hour time difference rather than the usual 5.

4. Note the several 'openings' in the FX markets each day.

5. Note the more 'persistent' price action in relevant markets ahead of governmental debt management and issuance.

6. Note the lack of a zero bound in some markets and very high Kurtosis for higher frequency data in some markets.

7. Note short term counter trend strategies buying sharp moves down almost every day in stuff……🆘

These may all be helpful in big game hunting.

All the different beasts roaming the market jungle all have a habitat. Now, they do try to change things but the camouflage is never perfect ( large players need to get volume done ).



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

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



What Is A Trader?
 I ask the man.
He looks at me.
A trader is not a bystander, nor a mindless member.
 Neither is he a selfless servant. No,
A trader is an ecosystem,
 Refusing to be categorized or labeled,
 Branded or defined.
Not one role,
 Not one task,
 Not a tool or production line,
 Not one idea or small man. No,
A trader is an ecosystem,
 Challenging all else
 To survive and thrive, evolve and change, or
 Sink and die. Extinct.
A trader knows existing today is not tomorrow.
 Buttons pushed, research tested, markets predicted.
A trader lives for certainty in self and tomorrow’s unknown.
 Adapting to survive, evolving to advance, competing to learn.
A trader creates a pulse that connects and propels
 An ecosystem he designed to challenge our own.
So the trader returns back to the question,
 What am I and who are we?
Consistent, curious, and connected,
 Accurate, authentic, and adaptable,
 I strive to be.
 I am an ecosystem within this unknown we.
Know Thyself,
 He says to me.



 It is difficult for me to fathom why a now struggling toy company would pick a Greenwich, CT based 64 year old, classic corporate guy (who ran Pepsi for a few years) to be its CEO. Maybe he has grandchildren? Or great-grandchildren?

anonymous writes: 

They must think their problems are organizational.

But it got me thinking about how a modern toy company needs to focus on what kids want now, which made me think that AAPL should produce something like the iKidPhone, which would be a less-expensive, limited cell phone for little kids, with game and learning apps, and the ability for the adults to let the kids have just a specific set of numbers for friends and family that they can call. Might work. I know, I know, "it's called the iPhone 4". But AAPL might be able to create a specific product that would sell nicely and maybe cannibalize some of that hand-me-down business.



 All are welcome at the Junto tonight

Date: Thursday, April 2, 2015

Time: 7:30 p.m. - 10:00 p.m.

Free admission, no RSVP required

Location: 20 West 44th St., ground floor New York City

Jason Riley will speak on the topic of "PLEASE STOP HELPING US: How Liberals Make It Harder for Blacks to Succeed"

Here is a Barron's Review of his book:

Reviewed by Gene Epstein

In this courageous and clearheaded polemic, Jason Riley recalls the racial profiling he suffered as a young black man attending college. Living off campus, he was stopped so often by police while driving to his classes in the morning, that he "started taking a different route to campus, even though it added 10 to 15 minutes to the trip."

Moving to New York after college, Riley kept encountering indignities, like being avoided by cab drivers or being asked to prepay for a meal after ordering in a restaurant. But while he recalls these experiences as frustrating — "I was getting hassled for the past behavior of other blacks" — he recounts them without anger.

Riley also recalls that he himself practiced racial profiling as an undergraduate working the night shift at a gas station with a mini-mart. Since "the people I caught stealing were almost always black," he writes, "when people who looked like me entered the store my antenna went up." He points out that, given "the reality of high black crime rates," most ordinary people, black or white, practice racial profiling because they are "acting on probability." He admits to crossing to the other side of the street at night when young black men approach, not because he is "judging them as individuals," but because he does not want to "take the risk."

As part of the author's plea that liberals "stop helping us," he argues that it is no help for liberals to blame racial profiling on racism, or to deny that society must be tough on crime. Since "90% of black murder victims are killed by other blacks," liberals' general indifference to effective crime prevention comes down to caring "more about black criminals than their black victims."

A member of the editorial board at The Wall Street Journal (published by Dow Jones, which also publishes Barron's), Riley would surely call himself a conservative. But he pays homage to liberalism's achievements on behalf of blacks. "The civil rights struggles of the mid-20th century," he declares, "were liberalism at its best." He hails the Civil Rights Act of 1964 and the Voting Rights Act of 1965, and includes in his honor roll "Rosa Parks, Martin Luther King Jr., the Freedom Riders, the NAACP, and others who helped to destroy significant barriers to black progress and make America more just."

But Riley believes that liberalism has long since become a part of the problem rather than part of the solution — and especially the liberalism of today's black leaders. "The civil rights movement of King has become an industry that does little more than monetize white guilt," he observes. By contrast, "King and his contemporaries demanded black self-improvement despite the abundant and overt racism of his day. King's successors . . . nevertheless insist that blacks cannot be held responsible for their plight so long as someone somewhere in white America is still using the n-word."

Liberals portray young black students as victims of school systems run according to "European American" values, a judgment that exempts the students from responsibility for poor performance. One reason this view is dubious, the author points out, is that black students from African countries generally perform better in school than their American counterparts, even though English is not their first language.

Another reason: Black American students show much-improved performance in charter schools — public schools run by independent organizations according to the same European-American values. The success of charter schools, he notes, is "one reason why they are so popular with black people." These are black people — as distinct from black civil rights leaders — who refuse to succumb to liberalism's destructive delusions about the proper schooling of their children.

"*Please Stop Helping Us*" is written in a clear but understated style that gains power from understatement. Not once, for example, does the author use emphatic words like "hypocrite" or "hypocrisy." But he does expose liberal hypocrisy in some of its blatant forms.

Speaking of the achievements of the school-choice movement via charter schools and vouchers, he points out that, while liberals "urge poor people to sit tight until . . . bad schools are fixed, they themselves typically show no such patience." Among liberal champions of public schools who nonetheless rejected these schools for their own children, he includes in the hypocrisy hall of shame Bill Clinton, Barack Obama, and Ted Kennedy.

The author quotes the bracing tough-talk of entertainer Bill Cosby, which he much prefers to the liberal rhetoric of President Obama. "We, as black folks, have to do a better job," Cosby declared in a speech for which he was vilified by the black intelligentsia. "No longer is a person embarrassed because [she is] pregnant without a husband. No longer is a boy considered an embarrassment if he tries to run away from being the father."

Or as Riley puts it, "Having a black man in the Oval Office is less important than having one in the home."



 Franklynn Phan writes:

Dear Mr. Niederhoffer,

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

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

(It starts at 3:26)

Best regards

Victor Niederhoffer replies:

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

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



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

Vic Niederhoffer:

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

Paolo Pezzutti adds:

It is called:

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

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

Burgess Humbert comments:

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

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

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

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

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

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

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




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

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

Andrew Goodwin is skeptical:

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

Burgess Humbert agrees:

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

stef says:

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

See "Direct vs SIP Data Feed"

Burgess Humbert adds:

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

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

I encourage all to regularly read;

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

Look it up- it will change your world.

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



Positioning for relatively low probability outcomes ( in terms of both magnitude & runs of consecutive similarly signed trading periods ) has been the optimal thing to do for the last several months in CL, Currencies, Bonds and DAX. ( ex- post profitability from momentum strategies likely in the order of that list also ). Contemporary returns from the HF world up until last Friday support all of this.

This post does not seek to challenge or discuss the wisdom of these moves or the disturbing future ramifications.

In dealing with the market's regular shifts between rewarding either;

* positioning for low probability scenarios


* positioning for high probability outcomes

It is difficult to assess how the market has done because the practitioners keep changing, survivors bias comes into play (in addition to all the other factors that are common in these types of studies)

One approach that has been fruitful has been to run theoretical portfolios of naïve trend following strategies and portfolios of naïve reversionary approaches. The aim is not to trade them but rather to have an objective measure of what strategies the market is rewarding with outsized gains and looking, quantitatively, at conditions that indicate a change in regime.

To those of this list who care - I believe a substantial change of fortune is at hand based on the above.

For the avoidance of doubt - Further out than the next 36 hours I have very little idea as to the direction of any of the major markets so I most clearly am NOT calling the end of any major 'Trend' ( whatever that is - Sorry, couldn't help myself). What I am saying is that the mistress is likely to be much more discriminating in sharing her pleasures than she has been in the last several months per unit of risk taken.



P.S. One of the gravest errors in the area of testing and counting is the assumption that if something is statistically significant in one period it will be predictive in the next (in markets or life). 

My market views:

Europe UP as long as Ukraine and Greece do not worsen.

USA with strong $ has lost competitiveness vs rest of the world, revenues do not justify present stock prices.

The tax burden is increasing in America. It is likely that markets remain flat (fall on worsening data).

Before Europe solves the problem of Greece … and EU proceeds with the QE, before skies are blue again [much time will pass]

The world central banks all involved to bring rates into negative territory, didn't they learn anything from the competitive devaluations of 1930's.

Summers advised Janet to NOT raise rates (and so the $) …maybe bring about negative rates?

All these Trillions printed in anticipation of future earnings… in a global economy that will not restart… and not one billion flows to the underlying… the real economy. Consumers are to be listed in the WWF web site as endangered species.

There seems to be an inflation of red pills:
Blue pill, the strange vision ends, tomorrow you wake up in your bed and believe whatever you want.
Red pill, you stay in Wonderland (rates negative and QE when needed), and they show you how deep is the white rabbit hole.

What are they waiting for? A miracle? Or the restart of the Chinese economy in April…

From 2009 to end 2014:
1514 total days, 27.53% of them "red 10 day" [positive 10 day momentum]

In 2008 it was only 11.81% (I am using S&P500 index, not futures).



When planning a research agenda, I believe that it is fruitful to start with a modicum of thought about the ways in which markets try to misdirect our focus.

In extremis everything available to the modern trader that is supplied to him by the providers of the market infrastructure ( exchanges, banks, government et. al.) provides a picture or 'information/data' that in some way attempts to generate 'business' for the provider ( commissions, taxes, subservient behaviour etc. )

Whilst the above borders on tin hat conspiracy ( after all, we need SOMETHING to analyse! ) it makes one think about what factors affect prices that are not readily available.

Some are:

# True bid/ask volume and depth. Nowadays, this information as shown on DMA platforms arguably does not represent the intentions of the buyers and sellers in the market given all the different order types & not to mention HFT. So, one should research into whether magnitudes and changes in it have anything to do with future price changes in and of themselves.

# The price formation process. One has seen live trading evidence that there are very high levels of mathematics- applied to reasonably high frequency data ( not so high frequency that latency or hardware is the true 'edge') - that there exist relationships between numbers that are very predictable for short holding periods ( interestingly this type of predictive analysis descends into randomness with holding periods longer than about 36 hours - it may be of interest that the best trading firm since we left behind the primordial slime trades within this time frame) So, at the meta-level is there a price formation process that ( whilst not necessarily available to all, might in some way reveal itself )

# Changes in regime. Whilst not wanting to enter into a discussion here about things like hidden Markov switching et. al. It is very interesting to consider how, when & why the markets shift regime. This may be from Trending to non trending, from relatively low to relatively high levels of Volatility.

# Markets' varying responses to the same stimuli. An example shall suffice -yesterday morning, one was fortunate to sell GBP USD at a very good level based on one of my approaches. The market declined sharply subsequently. The same trade idea applied later in the day would have been the exact wrong thing to do. Now, I know why in terms of my trading approach but the bigger question is still there - it's all just data isn't it. Of all the four points listed in this post, this last is most reasonably addressed by an understanding of non linearity- but that for another day.

Just as I concluded the above it strikes me that perhaps 'comparative advantage' can be made to work in trading - I am certain that I have a 'closed form' answer to research that others have spent two decades on and I am sure others might look at some of my strategies' short comings and have improvements that would be very helpful to assisting one become a Rothschild.

Good day ahead all.

Ed Stewart replies:

Great post.

My working hypothesis is that markets "advertise" to draw in the maximum amount of resources to the system. Price action and "fast action" seems to entice the basic urges the way i fishing lure does for the fish. Much of the "stuff" out there, is to draw in new participants and their $$, like blinking lights at the casino. And it is not a "conspiracy" but rather spontaneous order of the market do to competing profit incentives.

Of course the above is not my idea, i learned it (expressed much more eloquently and accurately) from Victor's books. It is only "mine" in the sense that the more I trade, the more i see the applications, and the more certain I am that it is true. I would say it took me about 5 years to get the point, so I am a slow learner.

Mike Caro the poker author had an article recently that said something like "you should be happy when your opponent draws out on you". ( ) Of course, because it keeps them playing and taking shots. Same is true with trading, i think.

What the market does is advertise the "drawing out" situations and then entice people to make those plays, which are not percentage plays. Anyone who looks at a chart naturally picks out those "drawing out" situations and says, "I would have bought here and sold here" etc.

Even investors, traders, or hedgers who do not officially use charts or market-based signals can still be influenced by them, because they have psychological impact or pull that does not require conscious articulation.

Jim Sogi adds:

Big orders used to mean something in the depth, but deception is the rule of the day now. Some of the traders or market participants at CME get info on who is making the orders. That might mean something in a deceptive environment. When also seems to be important. How long seems to be a regulatory and legal grey area now as well.

Gary Phillips writes:

Deception is nothing new, and the market's micro-structure is nothing new. back in the pit, it was always my belief that the market would trade to size. floor traders would inevitably be lured into stepping in front of large orders, only to race one another as their lean got hit/taken and disappeared. the exchanges have since struck a faustian bargain to provide the same benefits to hfts, (including front-running, etc.) in exchange for the provision of market liquidity; something that was once the provenance of the floor trader. the new micro-structure, doesn't appear to have changed things much. back in the day, when we wanted to "pull liquidity" we simply put our hands down, and like the hfts, we would do the same things, at the same time.

Hernan Avella adds:

Gary observes: "and the market's micro-structure is nothing new"

When talking about the stock market, this is certainly not true. Here's a good reference Fox, Glosten,Rauterberg: The New Stock Market . When taking about futures markets, the differences are also profound. Electronic trading is a continuous auction that features an order book, because of this you add another dimension to the game: the priority in the book. You also have different types of orders that affect liquidity and risk transfer. The meta-principles of deception and whatnot might be the same in life, pits or servers, however, an observation relevant to practice has to take into account the enabling mechanisms . Hernan.

Paolo Pezzutti argues:

Overnight when trading is lighter the book may provide some " true" indications (although this should be tested…). Algos are less active, hft is not there and the slow trading pace sometimes looks more driven by arbitrageurs more than anything else. This might give an edge in an environment that has different characteristics and competitors than during regular hours.



I have come to like these posts which ask us to examine in depth the nature of trading. Today I think and write of very successful traders (speculators, if you like) who do not seem to ever be excited about their profession. This brief comment (from a few years back) by Sir Vic started me in this direction:

"Jim Lorie was one of the most successful speculators I ever knew. He passed away with a vast estate and he did it mainly on a teacher's salary, which was very modest in those days. His method was always to ask his friends for a good stock, buy and hold it, letting go only when it was bought out."

Sounds boring; really boring.

For some reason Jim Lorie reminds me of one of the most successful commodity traders of his day, back-in-the-day. I won't speak his name since his privacy was important to him and he may still be with us. He had a small office on "the street" and visited a nearby deli, where he would have lunch and take the rest of the day off - the rest of every day off. This is where I made his acquaintance. I think he liked me because I did not know everything and did not act like I did.

He shared his trades with me. Very rarely did he have a loser; his winners were usually big winners. He traded in size for himself and he had a small, but very wealthy, client base. He was never excited about a trade. Mainly, he thought about his garden and fly fishing. He had one simple approach:

"Let the technicals confirm the fundamentals."

A book about folks like this would be a snoozer. The general impression about the successful speculator is that he is on the edge of stress every day in an exciting world of near misses.




Everything was ready [for Eurozone economic recovery] but now Greece's blackmail threatens to blow up the party.

The situation with Greece seems about to escalate, at first I thought it was a way to buy time until after the May election, but the level of confrontation continues to rise day after day, both from European countries and from outside ( even from warren buffet and his dog, when warren will be food for worms .. Greece will still be there ), now there are hints of the exit of Greece from the euro. The substance is that they do not trust Tsipras, whose blackmail if followed by victory would be a negative signal, a bad example. EU will try to worsen the situation in Greece until new elections in Greece (…?) and replacement of Tsipras with politicians more willing to impoverish the Greek people at any cost . It seems another Lehman and it seems that Europe is willing to risk this poker hand.

So Greece will be "saved" despite everyone knowing the country can never repay their debts. The Russian or Chinese threat is something far worse than $ 300 billion of Greek debt. Which says a lot … about the debt of nations!

 Andrea Ravano replies:

I don't think the World's Nations are supposed to repay their debt, but to roll it on; the European  liquidity crisis which arose after the Lehman collapse is a clear example of lack of re-financing of existing debt. I think we must examine the problem of debt in these terms, not in terms of repayment.



Here is an excerpt from my session in Japan. [You Tube, 0:58].



  Dollar at the round 100 and a 0.00 gain today according to Finviz


Hello all,

I'm Paul Marino, have written a very few times on DailySpec over the years and am a tremendous admirer of many of you and your insights for years.

Hope all is well with you and happy St. Pat's.

I'm half Italian/Irish if the last name and theme don't seem to match. :-)

Best of trading to you all.




 Nodding assent is important so the speaker and group you are in know that you are in agreement and are with them. Japanese want to have group consensus and they want to know everyone is on the same page which nodding indicates. If you don't nod and acknowledge verbally every sentence some one speaks they might feel you don't agree or are looking down on them. So nod and say "yes", "I see", "is that so" after every sentence, even if you don't agree or don't understand. They will be very happy. You can then disagree with everything they say in argument or questioning and its fine. Nodding is also part of the greeting, and social etiquette of bowing and establishing social rank. A nod is a very low bow. Most of them will bow lower to you as you are the respected sensei of trading but a nod will complete the greeting. They don't really want to shake hands, so don't stick out your hand in greeting.

Things are much much more different in Japan now than 10 or 20 and 30 years ago. Many young people speak English. Hotel staff, rental car counters, trains have some English to accommodate tourists. The trains announce in English. People are much more cosmopolitan than before. They don't stare at foreigners and allow handicapped people out and about. This is changed from before.

Japan is clean. There is no rubbish at all in the street. The bathrooms are spotless. The toilets have little water jets.

Out of 100,000 people I saw during a recent trip there, I saw 2 fat people. The rest were thin or skinny. On return to the US, I counted loosely 75% of people were overweight by at least 10 pounds, 50% by over 20 pounds, and a 25% 30 pounds or grossly obese. It was very shocking and will have economic and health repercussions as time goes by for the US.



 A very belligerent moderator of the Junto invited the nutritional equivalent of a chartist to debate John Mackey, and tried to debunk scientific findings. Somehow she believed that a double blind study of say 100 selected subjects (they are all from a pool) might be more indicative than the millions in these meta studies.

A good study in this area is "Does low meat consumption increase life expectancy in humans?".



 I write this from personal experience and in step with a recurrent and important theme here: "know thyself."

Some people trade with the hope that they will accumulate enough wealth to provide for all foreseeable financial needs. What about those of us who, through luck or skill, have reached that goal. The questions then become: "why more?", "isn't the journey over now?", and "why ever take large positions again?".

The answer that comes to mind is that we have acquired an addiction. If that is true, we need to face it and manage it: "know thyself."

Perhaps there is another reason. When trading we are "in the eternal moment." When trading we are so very "in the eternal moment" that we do not hear the triumphal slave, always riding at out shoulder, who incessantly reminds us of our mortality, whispering: "Respice post te! Hominem te memento!"

In that case we trade to block out the "know thyself." Knowing thyself is a reminder of our mortality and that we briefly dance between the two eternities, past and future. And in that case, there is no cure.

Why do you trade?

To "be" a trader is to have had your butt kicked and then gotten back up. Before that you are nothing. To "be" a trader is to know how to manage or avoid those "terrible and typical" things and that only comes with knowledge and experience. They are all different.

The Delphian was speaking to the trader when she said: "γνῶθι σεαυτόν." A trader knows thyself and uses that knowledge to avoid the next knockout. Learning the rules of the market you are trading is easy. Don't be fooled into thinking that knowing the rules makes you a trader.

Trading is ultimately about you.

The market is always probing for your weaknesses. Only you know them; yes, you do know them, don't you? The one weakness you are most vulnerable to is the one the market is always– ALWAYS– after.

That's the one which will kill you.

Thus this existential imperative: γνῶθι σεαυτόν. "Being" a trader is a true Sartrean experience.

Kipling knew: "If"



 Time to reflect on the market as we are at the anniversary of the 6 year bull market.

I hardly know anyone who was bullish at S&P 666 in March 2009, then the market tripled. Think back, who was bullish, maybe that person is worth listening to.

Over the past 8 years whenever I speak to a new [Scandinavian] hedge fund they are short the same stocks, Kone, H&M, Novo, throw in SHB and Autoliv and you have a basket of the highest quality stocks in Scandinavia (and the best performing companies over the past decades). Therein, I believe, lies the value of local research and knowledge.

Even though every fund is said to be 'contrarian' there are always the current fashionable ideas that everyone gravitates to. Currently, in Scandinavia it is short ICA SS (on the thesis that Sweden will be hit with hard discounters like the UK. ICA's margin was hit in Q4 which reinforces the short sellers thesis independently of the reason) and long AKA NO (oil is said to be 'contrarian', couple that with a divestment case and you have powerful story for the analysts to pitch to their PMs).

Crashing commodity prices, currency war, crashing yields (with a big chunk of European debt trading at negative yield), surely this can't be because everything is so rosy in the world, this can't possibly be 'good' news. Couple this with valuations close to ATH [all time high] and I have for the first time in 25 years sold everything (I started investing when I was 12). Everything.

The ones who were bearish during the past 6 years blamed  QE, the Fed, [for how things turned out]. 'My model couldn't possibly predict the government distorting the market like this'. Now the thesis is 'money is free, the only place to invest is the stock market', 'yields will stay at zero forever', 'buy high yielding stocks'. Peter Thiel argues that high dividend stocks are the most bond-like, so isn't that the biggest bubble around. And at the end of the day isn't Peter Thiel smarter than all of us?



 The link below, and perhaps more importantly, the links referenced, provide an up to date review of the literature on the long held wish of the academic community to define and parameterise models (ahem) that describe 'herding'. There is enough in there, in my opinion, for one to finally say "it's a bunch of non predictive claptrap" or "huh!, I might test that":

Herd Behavior in Financial Markets:

Over the last twenty-five years, there has been a lot of interest in herd behavior in financial markets—that is, a trader's decision to disregard her private information to follow the behavior of the crowd. A large theoretical literature has identified abstract mechanisms through which herding can arise, even in a world where people are fully rational. Until now, however, the empirical work on herding has been completely disconnected from this theoretical analysis; it simply looked for statistical evidence of trade clustering and, when that evidence was present, interpreted the clustering as herd behavior. However, since decision clustering may be the result of something other than herding—such as the common reaction to public announcements—the existing empirical literature cannot distinguish "spurious" herding from "true" herd behavior. 

In this post, we describe a novel approach to measuring herding in financial markets, which we employed in a recently published paper. We develop a theoretical model of herd behavior that, in contrast to the existing theoretical literature, can be brought to the data, and we show how to estimate it using financial markets transaction data. The estimation strategy allows us to distinguish "real" herding from "spurious herding," or the simple clustering of trading behavior. Our approach allows researchers to gauge the importance of herding in a financial market and to assess the inefficiency in the process of price discovery that herding causes.

Link Here.



 Nothing highlights the effect of currency moves like foreign travel. The dollar had a major upmove this past year against major currencies. A 20% discount on everything is notable when traveling.

I'm in Japan now where everything is cheap to begin with (I guess due to deflation) and subtracting another 5th is amazing. The big currency moves are important looking forward and are signaling something just what I don't know.



 I thought this was a very good paper with market parallels.


Because members of the public have difficulty understanding risk presented in terms of odds ratios (e.g., 1 in 1000) and in comparing odds ratios from different hazards, we examined the use of time intervals between expected harmful events to communicate risk. Perceptions of the risk from a hypothetical instance of naturally-occurring, cancer-causing arsenic in drinking water supplies was examined with a sample of 705 homeowners. The risk was described as either 1 in 1000 or 1 in 100,000 and as present in a town of 2000 people or a city of 200,000 people. With these parameters, the time intervals ranged from 1 expected death in 3500 years (1 in 100,000 risk, small town) to 1 death every 4 months (1 in 1000 risk, city). The addition of time intervals to the odds ratios significantly decreased perceived threat and perceived need for action in the small town but did not affect response for the city. These framing effects were nearly as large as a 100-fold difference in actual risk. Instances when this communication approach may be useful are discussed….'

Isomorphisms writes:

David Spiegelhalter did a video on millimorts and micromorts. These are useful units in communicating the risk of death. Bicycling 250 miles = 25 micromorts, whereas driving 250 miles = 1 micromort (approximately). Hang gliding once costs 8 micromorts.

Of course, accumulating 1,000, 000 micromorts personally is neither necessary nor sufficient for dying. Those who accumulate the most probably lived best.



 "Ten key things to help you succeed in business, according to real estate legend Peter Thomas"

In 1968, he left to start a real estate investment business. The West in the '70s was an era of go-go growth, and by 1980 Thomas says he was worth $150 million. Soon after, his net worth was negative $70 million. It took years to work his way out from under that crash, but it taught him patience and discipline — and a sense of irony. "I was as close to being depressed as can be," he says. "I asked my wife Rita, 'If I lose everything, will you still love me?' She said, 'I'll always love you. But I'll miss you.'

Scott Brooks writes: 

Great article, Vince. Thanks for posting it. Lots of meals for a lifetime in this article.



 One of the main lessons learned from this website is to look for reasonably quantifiable concepts from other fields to try and apply them to time series of market prices.

The general problem is that the many other fields are dealing with physical phenomena with much greater certainty than the vicissitudes of price variation.

The two enduring things I continue to research ( in vain thus far ) are the measurement of Earthquakes (magnitude, duration, distribution and the concept of Allometry, in particular as it relates to tree & branch growth ( non linear horizontal versus vertical growth of two quantities with ever changing influences surely is a reasonable basis for time and magnitude studies in markets)

It is the first that will be mentioned thus forth in this post. I mention here just one subset of the studies, some similarities between the study of Earthquakes and markets:

1. The time of the day that an Earthquake occurs in relatively built up population centres is very important ( more will die at 10 am in a given office building than at 9 pm). There is merit in studying the after effects of market moves at different times of the day. (ensuring that one focuses on the entire distribution- not just big or small)

2. Magnitude and duration of Earthquakes. The mathematical brigade has started now to formularise relationships between magnitude and duration of very large samples of smaller quakes - the current leading edge seeks to parametrises formulae in a recursive manner to best fit previous data - obviously, the out of sample is poor.

There is some modicum of value in time and magnitude studies in prices. The world of price change though is best approached, in my experience, with the use of blunt tools ( market is up or down by an amount more or less than some reference point then add non linearity for forecasting).

3. Distance from the Earthquakes centre - the further away the better! In markets, are moves of a given magnitude and/or time more or less predictive a given amount of time from the open.

4. Geology of ground and quality of building construction: Poorly constructed structures built on mud come down easier. In markets - well two streams here; the first being the Chair's often mentioned 'base of operations' and the second related to some quantifiable measure of stability in the market - perhaps something to do with its 'state' vis-a-vis bonds et al. This link is instructive.



 This article on "the hot hand" uses sports betting rather than basketball or baseball to look into the effect:

"After winning, gamblers selected safer odds. After losing, they selected riskier odds. After winning or losing, they expected the trend to reverse: they believed the gamblers' fallacy. However, by believing in the gamblers' fallacy, people created their own luck. The result is ironic: Winners worried their good luck was not going to continue, so they selected safer odds. By doing so, they became more likely to win. The losers expected the luck to turn, so they took riskier odds. However, this made them even more likely to lose. The gamblers' fallacy created the hot hand."

This seems consistent with real life. From the day trader that makes money early in the morning and winds down participation to the big money managers that early in their career achieve 50-100% return, it creates the illusion of skill, increases AUM, shifts risk preferences and focus on the fees.



Despite the lack of any real value in doing so nowadays as part of the research function, I read one 'scholarly' research paper each day. Mainly these are directly related to the study of price action. Given the incentives these days for researchers to keep 'the good stuff' to themselves (indeed I can think of one or two erudite gentlemen who started this process in the 1960s and 70s to their and their family's benefits), it is no wonder that compelling lines of research do not make it through the process.

If I read one more article involving parameter estimation (aaarrgghhhh)….. I am, however, overjoyed when I find something of note that, whilst still mainly descriptive, has within it some directions towards genuine alpha.

The overall conclusions are not necessarily ground-breaking but his way of getting there is interesting. This is just such a paper: "The Financial Market Effect of FOMC Minutes"

A year in a trading environment for the author, and learning some simple lessons therefrom, could push this work towards the asymptotic goal of greatness. One highly recommends also some of the references sited by Mr. Rosa.

Further, and begrudgingly, I bow down before various of the Laureates at the Federal Reserve and, perhaps even more so, to the team at the Swiss National Bank. Perhaps somewhat surprisingly, the FED team do good work on agriculture, a potentially fruitful, tangential pathway for us on this site.



 In honor of #WorldBookDay, here are my 10 must reads from a blog I wrote long ago.

‎#10. Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

"Trading and Exchanges demystifies the complex world of trading. It is a must for anyone interested in investing in the public markets" –Maria Bartiromo, CNBC News Anchor

"My goodness, if only I had known this, or hadn't let it happen to me!" or, "never again, the b##tards!" - Victor Niederhoffer

‎#9. The Art of War by Sun Tzu

The classical Chinese War Manual written 2500 years ago that is a must read at every Military Academy in the world still! Why do we need to understand war? Begin to think in the context of the markets, should I take this trade, should I not the type of conflict present in everyday trading life. ‎

#8. Statistics Without Tears: A Primer for Non-Mathematicians by Derek Rowntree

This primer without any of the mathematical formula and equations uses words and diagrams to help readers understand what statistics is and how think statistically. ‎

 #7. Twenty-Eight Years in Wall Street by Henry Clews

Author Henry Clews was a giant figure in finance during the late nineteenth century, and his firsthand account brings this colorful era to life like never before. This abridged version of an investment classic touches on a wide range of important financial issues, including:

-The causes and consequences of Wall Street panics

-The influence of Wall Street on national politics

-How individuals made their fortunes

-The characteristics of winning and losing speculators

–How operators attempted to corner the markets for individual stocks ‎

#6 Investment Fables: Exposing the Myths of "Can't Miss" Investment Strategies by Aswath Damodaran

A no-nonsense book by Professor Aswath Damodaran in which he debunks many myths, and he shoots at all styles: value, growth. No investing style is spared. This is a very accessible overview of finance research on most major investing strategies/or themes. The book introduces each chapter with a short story and then builds the case around each investing theme. The bottom line is that there is no investing "silver bullet" – which is probably intuitive, but often neglected in the search for a magical investing potion.

 #5 Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh and Mike Staunton

There's plenty of reasons every day to assume the world is going to end. The media is constantly speculating about immediate financial collapse, the forthcoming mother of all recession, hyperinflation, debtflation, imminent stock market crash, pandemics, terrorism, etc… You might also find specialist #permabear, gloom & doom blog sites dedicated to each such topics "Triumph of the Optimists," is must read which shows the success of the equity markets over the past century. By far the most important investment book in years…It is the best and most complete source of data yet available…If you spend an hour with it and don't learn anything worth the price then you're truly lousy at learning about markets…Right now, buying this book makes more sense than buying stocks. (Ken Fisher Bloomberg Money )

"This will become the definitive empirical basis for analysis of the world's capital markets over the twentieth century. It is an important work of scholarship; no one else has calculated the equity premium of a large number of countries over the long term. In doing so, the book contributes to the very lively debate on the magnitude of the equity premium and will make a splash."

–William Goetzmann, Yale University

‎#4 Day Trading With Short Term Price Patterns and Opening Range Breakout by Toby Crabel

One of its great strengths in this book is that it is an attempt to statistically test the efficacy of price patterns. Instead of merely asserting that a chart formation is bullish or bearish, Crabel actively searches for evidence. With his empirical approach, you will be filled with 'Wow!' and 'Unbelievable!' with startling regularity over the course of reading the book. Test, test, test. Test everything you can. A person who doesn't test will lose money. Data is available for almost anything you can imagine.

#3 The Education of a Speculator by Victor Niederhoffer

"with an original mind and an eclectic approach, Victor Niederhoffer takes the reader from Brighton Beach to Wall Street, visiting all stops of interest along the way. What emerges is a book full of insights, useful to the professional and layman alike" – Palindrome Victor Niederhoffer gives us page after page of distilled investment wisdom. Taken together, this is pure nectar to those who aim for consistently superior stock market performance." -Barron's ‎

 #2 Secrets of Professional Turf Betting by Robert L. Bacon

It is best book on professional speculation around! While reading, just replace the words 'race' 'racing' with stock markets. What is a 'race', a day of trading? How rare is the man that understands mass psychology and how to "copper" the public. The horses are the companies. The day's trading session is the race. Different issues maneuver for position. The trainers at the racetrack are like the corporate executives, receiving prizes for winning and fees for getting their horses in shape. The bookies are the brokers. And the punters in the stands… they're like us… the guys who pay all the fees and commissions. "People who know the facts of life have called racing "the poor man's opportunity". An opportunity, because it is always possible for a poor man, or a man who has failed at every other profession or business, to get started at race betting with mere "peanuts". It is always possible for him to go on and "run it up" into a sizeable fortune. Any race any day any track can lay the foundation of betting success! It is possible for any man (or woman) who has the required even temperament for turf operations to "get off to the races" with small capital. Perhaps with capital as small as a day's pay! THAT IS TO SAY, IT IS POSSIBLE….." [from the book of chapter one, page one , & first one and half paragraph] ‎

#1 Introduction to Objectivist Epistemology by Ayn Rand

from Doc Brett Steenbarger's blog:

Introduction to Objectivist Epistemology is an attempt to explain how the human mind is able to grasp reality. (Epistemology is the philosophy of knowledge). Central to Rand's account is the role of concept formation. "The ability to regard entities as units is man's distinctive method of cognition," Rand wrote (p. 7). This ability opens the door to both mathematical and conceptual reasoning. Rand defines a concept as "a mental integration of two or more units which are isolated according to a specific characteristic(s) and united by a specific definition" (p. 11). The formation of concepts requires abstraction–isolating certain attributes from others–but also integration: combining concretes into a larger category. When we form the concept of a "trend", we are isolating certain aspects of price and volume and integrating these on the basis of a definition. Through ever-widening efforts at abstraction and integration, we expand our conceptual universe and extend our grasp of the world. Ayn Rand understood that philosophy is the most practical of disciplines. Without a solid epistemological foundation, what assurance do we have that we're trading anything other than randomness?

p.s: I'm really sorry if you have found me to be disrespectful for not including books from such minor deities like Edward and Maggie, John Murphy, Ben Graham, Peter Lynch, boy plunger a.k.a Jesse Lauriston Livermore so on & so forth.



 Join us for a special junto event this Thursday.

It will be an Oxford Style Debate between Whole Foods co-CEO John Mackey and investigative reporter Nina Teicholz.


Date: Thursday, March 5, 2015

Time: 7:30 p.m. - 10:00 p.m.

Free admission, no RSVP required

Hosted by Victor Niederhoffer's "Junto"

Moderated by Barron's Economics Editor Gene Epstein

A before-and-after vote will be taken in the audience to declare the "winner" of the debate.


20 West 44th St., ground floor

New York City

 March 5, 2015 - Debate: Nina Teicholz vs. John Mackey

"An animal foods/low-carb centered diet is unhealthy compared with a 90+% plant-based diet that excludes sugar and refined grain products."

Mackey takes the Affirmative and Teicholz the Negative.

 Teicholz, an investigative reporter, spent nine years researching nutrition science for her book "The Big Fat Surprise: Why butter, meat & cheese belong in a healthy diet," a NY Times bestseller. A "Best Book" of 2014 by the Economist, Wall Street Journal, Mother Jones, Kirkus Reviews and Library Journal, also "The Most Memorable Healthcare Book of 2014" by Forbes. It's received rave reviews.

Mackey is working on a book about healthy diet. He's co-CEO of Whole Foods Market. His stores often have Dr. Fuhrman's Nutrient Density numbers on items on the salad bar. Fuhrman says 90% of the daily diet should be nutrient rich plant foods.

Whole Food Market's healthy eating.



 What does a good trade look like?

Continuing in my vein of only speaking about areas in which I possess a modicum of understanding of and experience in, I shall stick with the shorter term end of the holding period spectrum, say minutes to 36 hours.

There isn't anything necessarily predictive about any of the following, but it certainly opens areas of research. After an enumeration of a large sample of recent transactions I think the 'feel' and visual manifestation of a 'good trade' includes the following:

1. Imagine a car hitting a very thick wall. The energy of the car flows into the wall and is 'reflected' back into the car which then jumps back away from the wall. Rather like hitting a ball on the half-volley. Buying into mini Armageddons and selling into mini Elysiums can have this 'feel'.

2. There is almost no 'shown' liquidity (Ha!) on the depth screens of the DMA access point.

3. As one is not a silicone based life-form (Yet! Just waiting for the compulsory cybernetic transformation over coming decades in the name of 'security') an analysis of ones thoughts as a dealing level approaches is interesting. Although the effect in me personally is much less than two decades ago, I still note my thoughts and I find the following:

- If the decline or rally leading to my execution level is caused by news or the ramblings of a politician, then one tends to magnify its importance.

- If there is a round near then that may also increase anxiety.

- I bet Kovner and Druckenmiller are the other way around… All three mental phenomenon are nonsensical, distracting and negatively correlated to trade success.

Another related matter is the battle between trying for perfect execution of strategies or just getting them on. On balance, and in the context of high numbers of transactions, I think it pays to go for something very close to perfection (self/ strategy defined) Even though this sometimes leads to periods of noticeable inactivity as I personally experienced last summer.



 Periodically, financial markets will become divorced from reality – you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have "worked." Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is– zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices….

The bad news is that Berkshire's long-term gains – measured by percentages, not by dollars – cannot be dramatic and will not come close to those achieved in the past 50 years. The numbers have become too big. I think Berkshire will outperform the average American company, but our advantage, if any, won't be great.

Ed Stewart writes: 

Some time ago I began to consider to what degree the inheritance tax as we know it is actually a round about, but understood rule to unduly force private businesses into large corporations or financial owners. Ive tried to find related material but no luck so far. It seems highly likely that a similar scheme has been used before, say in Europe or more ancient times. It would be very amusing if the measure to supposedly prevent great wealth consolidation was in fact one of its largest causes yet in a way most people can't recognize.



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

Stefan Martinek writes: 

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

Pitt T. Maner III writes: 

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

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

Carder Dimitroff writes: 

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

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

You can sign me,

Dick Tracy

anonymous writes: 

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

anonymous writes: 

The question becomes:

1. Will it ever have a cam?

2. Will it ever be independent of an iPhone?

3. What body sensors can be built into it?

4. Perhaps it will be the base for iHome?

Just some questions.

Duncan Coker writes: 

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

Jim Sogi writes: 

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

anonymous writes: 

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



"Irving Kahn, Investor, Who Profitted in '29 Crash, Dies at 109":

Mr. Kahn was a value investing icon who served as a teaching assistant for Ben Graham and worked on the classic tome Security Analysis and the original edition of The Intelligent Investor.

He was still working a few days a week at 109 years old at the firm he founded back in 1978.

keep looking »


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