Another forgotten battle has its anniversary today. When he read the after-action report of his commander in the field William Beresford, Wellington was not happy. He is reported to have said to one of his staff officers, "This won't do. It will drive the people in England mad. Write me down a victory." 'The report was duly rewritten, although Wellington privately acknowledged that another such battle would ruin his army.' (from Wikipedia)

Soult, the French commander, did his own rewriting. In his initial report to Napoleon the Marshall proudly announced that France had achieved a "a signal victory". Soult had accurately estimated British, Portuguese and Spanish casualties at around 5,000; he reported his own at half that number - which was half what they actually were.

In Robert Southey's History of the Peninsular War Soult is quoted as having confirmed the general opinion of Wellington's soldiers: "I always thought they were bad soldiers, now I am sure of it. I had turned their right, pierced their centre and everywhere victory was mine – but they did not know how to run!"

The folks at Strategy Page have a note on the anniversary that includes a section from Henry Evelyn Wood's memoir. Wood had become Lt. Colonel of 90th Perthshire Light Infantry. The regiment had been given new colors, and Wood (probably on his own initiative) wanted to arrange for the old ones to be properly retired by being hung in town's cathedral. On a visit to Perth Wood met an old man whom he recognized as a former soldier. Wood recalled:

I asked one of (the Perth City councilmen), pointing to a distinguished looking old man, with a long white beard, who he was, and received the somewhat contemptuous reply, "Oh, he is of no importance - only an old Peninsula soldier."

I repeated my question to the stationmaster, who was more sympathetic, and at my request, obtained his initials from the Goods Office.

When I got back to Stirling, I went up to the Mess-room, where we had the Army Lists for eighty years past, and was rewarded by finding the name of the distinguished-looking old man who had been present in a Fusilier Regiment at the Battle of Albuera in 1811……. On the 27th June we went up to Perth – 16 officers and 14 non-commissioned officers, and the Commanding officer asked me to return thanks for our reception at the luncheon given to us by the Provost and Council.

On rising, I said, "I should have been glad to do so, but that I stand in the presence of one who has taken part in a more stubborn struggle than it has been my fate to see," and I recited Napier's stirring description. As I finished the last sentence, "The rain flowed after in streams discoloured with blood, and 1500 unwounded men, the remnant of 6000 unconquerable British soldiers, stood triumphant on the fatal hill!" I said, "I call on Lieutenant _____ of the Fusiliers to answer for the Army."

He was at the end of the Council Chamber, having taken literally and metaphorically, a back seat, and rising slowly and with difficulty, for he was more than eighty years of age, he doddered over to the table, and leaning heavily upon it said, simply "Let me greit [cry]!"

And "greit" he did; but presently brushing away his tears, and drawing his body up to its full height – and he was 6 foot 2 inches – he made an admirable speech, the gist of which was that he had lived in the City of Perth since 1814, and no one had ever asked him anything about the Peninsula; no one had ever spoken to him about the Battle of Albuera; "but now" he concluded, "when I have one foot in the grave, I see before me officers in the same coloured coats, and with the same sort of faces, and instead of talking about what they did in the Crimea or the Indian Mutiny, they recount in wonderful language the crowning scene of my military life." Then sinking back into a chair, he added, "I shall die happy."


For another day:

Napier, ac



Colonial counterfeiter Owen Syllavan (Sullivan) was executed in New York on this date in 1756.

The police blotter is the best single source of the actual facts of American history until you get to the time when progressives turned incarceration into a major domestic industry.



 Last fall Pat Caddell did a thorough poll on American attitudes. His findings were interesting:

72% of adult Americans believed that the country was "in decline" 60% of adult Americans thought that their children would NOT be "better off" than than they were; the same percentage thought that their parents had left them better off than their parents had been 86% of adult Americans do NOT think that they can succeed by working hard and playing by the rules; they think the rules are rigged 89% of adult Americans think both political parties are fundamentally corrupt

And yet, somehow, the journalists, commentators and political party leaders and spokespeople are surprised that Donald Trump has won the Republican Party nomination and Bernie Sanders would have won the Democrat Party nomination if Clinton Cash had not been able to buy the Iowa Caucus and subsequent party allocations of delegates.

I like Caddell because he is one of the few people left in American political consulting who knows what it is like to win AND to lose; and he never pretends that the losing did not happen (vide Bob Schrumpf and everyone who "advised" McCain and Romney).

In his interview Caddell compares what is happening to William Jennings Bryan, and that is just wrong. Bryan was a complete unknown, and the Democrat Party was literally being torn apart by the conflict between the Cleveland supporters and the silverites. Bryan was the ideal candidate because he was in favor of segregation and prohibition but not a Southerner. The modern historians who are Democrats have to sweep that under the rug just the way the Schelsingeristas ignored the fact that Jackson's "democratic" revolution had the active support of the New Yorker boys who wanted to take all the Federal bank business away from Biddle's Philadelphians.

You can't look to history for repeats or rhymes, only box scores of past contests of personality and political economic interest and accident.

In terms of personality Trump is clearly Teddy Roosevelt, Sanders is Henry Wallace and Mrs. Clinton is Robert Taft, Jr.

In terms of political economic interest the present contest is between the party of the people who now get money directly from the government and the party of those who don't get money from the government. The Democrats represent most elementary and secondary school teachers, almost all current Federal and most state and local public employees, lawyers, everyone in college and graduate school education, and everyone in medicine whose pay is determined not by what they do but by what their status is. The Republicans represent everyone who works for themselves and the people who get the money from the government but think they earn or earned it (the recipients of Social Security and military and government pensions, people in the military outside the Pentagon, cops, firefighters, prison guards).

If you choose, you can add to the box score the people who provide and handle the graft - the campaign contributors, consultants, et. al. - but they are rarely important. The Unruh rule applies, at least for the electoral winners: "If you can't eat their food, drink their booze, screw their women, take their money and then vote against them you've got no business being up here." 

Money may be the mother's milk of politics, as Unruh also said; but anyone who has children knows that they teeth at a very early age. The voters are the children; and they remain permanently unruly in their attention and inattention.

What remains are the elements of accident.



 If you come to accounting from business, as people did up to the the 1920s, you marvel at two things: (1) the ability of the system of ledgers and accounts to identify individual transactions and (2) the inability of the system of balancing of accounts to explain enterprise.

The numbers add up; they just don't get to the sense of things.

They can't. The essential part of any business–its customer and supply relationships–cannot be assessed or even assayed using the calculations of profit and loss, asset and liability. The stock market, with its extraordinary and persistent volatility and seemingly irrational sensitivity to quarterly earnings numbers, is the only mechanism that comes close to even implying what the accurate number of a business's net worth is. The balance sheet and its residual–equity– are worse than a bad guess.

Yet, almost all the "serious" thinking done by economists uses accounting logic for an explanation of how the world does business. Here is a recent sample of the such wisdom:

As an accounting matter, a country's income is allocated to either consumption or saving while spending goes to either consumption or investment spending. These two identities mean that a nation's saving equals its investment spending when income equals spending. Opening up to trade allows a country to have its income exceed its spending when its exports exceed its imports, and this difference exactly equals the difference between saving and investment spending. The insight here is that the gaps between spending and income, between saving and investment spending, and between exports and imports all equal a nation's lending to (or borrowing from) the rest of the world.

The logic is irrefutable; under the system of accounts that economists use, investment must everywhere and always = savings; and the reverse must also be true.

Yet, to the people who invented double-entry (the Italians in the late 11th century), this and the other tautologies of balance sheet accounting would have seemed a bad joke. For one thing, there was no attention paid to the question of number - what defined the unit of account itself?

The primitive minds who were able to lend money to from Milan to London using only ink and parchment thought this was an important question. Accepting the sovereign definitions of money at face value was foolish; even the dimmest wits at the trade fairs seemed to have an amazing ability to estimate how much of the metal in coin was actually precious. 9 centuries later, things seem to have gone backward.

Measuring cross-border financial flows is also difficult. The financial account in the balance of payments is supposed to do this, but those numbers often differ substantially from the current account when they should be of the exact same magnitude, ignoring the trivial capital account. It is easier to measure imports and exports than financial flows, which makes the current account balance a better measure of net financial flows. The relative reliability of the two balances was important last year when China reported net financial outflows from both public (the central bank) and private investors at $143 billion, while the current account implied that net financial outflows totaled $331 billion.



The "book" on these elections is meager; there have only been only 43 people sworn into office as President and only 44 distinct administrations (Grover Cleveland got a do over).

The statistics for elections after a re-elected President is completing his second term in office are even fewer. Here are the 11 Presidents who were elected twice, in succession, and then left office:

George Washington

Thomas Jefferson

James Madison

James Monroe

Andrew Jackson

Ulysses S. Grant

Woodrow Wilson

Dwight Eisenhower

Ronald Reagan

Bill Clinton

George W. Bush

How many of these Presidents saw their own political party's nominee win the succeeding election?

Washington - yes and no. Adams claimed to be Washington's party successor; but Washington never participated in Federalist politics and thought Adams was precisely the kind of lawyer/faction-monger the country did not need for President. (Of course, he held the same opinion of Adams' successor Jefferson.)

Jefferson - yes. Madison - yes. Monroe - no. Jackson - yes. Grant - yes. Wilson - no Eisenhower - no Reagan - yes Clinton - no Bush - no

The American people have not been reluctant to elect a party to the White House more than 2 times in a row, but they only seem to do it if they can think they are re-electing the person already in the White House. Madison was Jefferson's protege; Monroe has literally the anointed one of all of Virginia's previously-elected Presidents. from Virginia. (Monroe is the only President besides Washington to be re-elected by acclamation; neither man had any formal opposition to their second run.)

Van Buren was Jackson's Vice-President. Grant was, for everywhere except the die-hard South, as popular as Washington had been. Like Washington he established a national dominance for his party and its "home" region that lasted for decades. (Ohio was for the last quarter of the 19th century what Virginia had been for the first quarter.)

But after Grant and his mid-Western Republican successors, the odds turn against people seeking to put their party in the White House for a 3rd consecutive term. in the last century and a third only two people have done it: Truman, who ran and won a 5th consecutive term for the Democrats (but was already in office as Roosevelt's Constitutional successor) and G. H. W. Bush, a sitting Vice-President.

The assumption that Mrs. Clinton will win easily seems to be based on the presumption that Donald Trump will do his best to follow Michael Dukakis' example and that her term as Secretary of State gives her the status of President Obama's formal successor.



 Geoffrey Williams has done a study of the Fraud in the Development of Victorian British Banking. I came across it while doing some research into the failure of the City of Glasgow Bank in 1878.

Two comments were particularly interesting:

"In the first 20 years of the Victorian era, 1837 to 1857, there were more than a half-dozen large-scale bank failures due to fraud in England, as well as a number of others in Ireland and Scotland, not to mention fraud-induced failures of smaller banks."

"Fraud at the high levels of financial institution management appears to have been a major issue across the period, with serious consequences for shareholders, depositors and the general public. The early years of joint stock banking were particularly problematic, with particular problems during the boom years of the 1850, and in the Lancashire region."

Lancashire was the Jiangsu and Zhejiang of its day. Those of you who understand what is going on now in the world of large credits and debits can tell us whether our time is seeing a variation on a 19th century theme.



 "As the poor die earlier, Social Security isn't paying off"

This noise is a prelude to a means to testing. It will eventually be a reality.

BTW, has anyone really dug into the new 2012 mortality tables? IMHO, they are a real game changer for both SS and pensions.

I posit that most defined benefit plans will be underfunded once they have to apply the 2012 tables to their calculations.

Big changes are coming in the pension world. I'm seeing a lot more buyout offers being made, even from pension funds that are supposedly over funded.

Data point: I don't know if it was across the country, but I know that locally retired teamsters have seen their monthly pension checks cut by 40% - 50%. That's a real unpleasant surprise to couple who is living on their pension and SS. Couple that with the fact that their SS COLA was (almost) completely eaten up by the increase in medicare premiums and we have a recipe for a real problem cooking…..but of course, I've been saying this for years on this site.



 I hypothesize that the prevalence and visibility of homeless and poverty and related downtrodden stricken people is an intentional manifestation of the collectivists attempt to keep us all small–i.e the idea that has the world in its grip. It makes us think purpose of life is to take care of the unworthy. The underlying cause of this might not be conscious activity by evil collectivists but could be an invisible evil hand at work. I'd be interested in your views on this hypothesis.

Stefan Jovanovich writes: 

The "news" has only two sources:

1. press releases from the government and businesses and non-profit agencies and celebrities and academics who are announcing to the world what they are (or claim to be) doing

2. journalists' own "investigations"

There are no incentives for either group to minimize the "visibility" of poverty, any more than there were any incentives for missionary groups to tell the congregations back home that "actually the heathen seem quite content to remain unconverted".

The government gets its money because of "problems". Businesses want always to seem "charitable". Non-profit agencies are in the business of "charity" and "problems"; and, as Jason Reitman's wonderful script puts it, every celebrity needs a "cause". No explanation is needed for the academics.

Here is something for those who have not yet heard of Nick Naylor.



 My friend said to me the other night, "I don't seem many people carrying or using cash much any more, except in the gangsta videos. Coins certainly are a pain in the neck to carry and spend."

Even street level drug dealers use Square now a days since their users utilize 7-eleven bought money cards. Wholesale drug pushers can carry around 500k easily in money cards and the police wouldn't know the difference. Lot more deceptive than the gangsta rolls with rubber bands (Escobar spent 25k per mo.). You can hide money! So, even the lowest level of illegal activity is paperless these days.

Jim Sogi reflects:

In Roman times, leaders coined their own currency. In old England, when the mint failed to print small enough coins to pay small labourers, a private company came up with a copper penny to allow wages to be paid and business to go on.

Stefan Jovanovich writes: 

There is a fascinating (to me, at least) book on the question of private coinage that is freely available through Google books: Private gold coinage of California, 1849-55, its history and its issues, Edgar Holmes Adams.

Adams describes how the shortage of legal tender coins led to private minting in California after the gold rush began. What is fascinating is that the private coinage did its best to imitate the products of the U.S. Mint even as people were busy accepting ingots as payment. The private money-makers did so because that allowed them to do a minor bit of counterfeiting; the private coins were, on average, 3% less than the proper weight and fineness that the Coinage law specified.

This is not the story told by the Misean gospel; it directly contradicts what Murray Rothbard used the incident to try to prove - namely, that sovereignty was irrelevant to the question of money.

Sovereignty is the only question where money is concerned - what monopoly authority has decreed that their paper, coins and digits are legal tender as far as the sheriff, bailiff, court clerk, tax collector and other licensed strong-arm agents of the government are concerned.

Bitcoin is not yet money for the simply reason that you have to get someone to exchange it for legal tender if you want to use it to buy any legal tender currency. Neither are the phone cards, money cards and other forms of wealth verified by magnetic strips that the dealers are using. (I think J.T. is unfairly maligning N.C. cops; according to K.H. (a now-dead vice cop for one of the cities here in the Triangle and a truly wonderful person) the first thing cops do is run the plastic through the dealer's own Square to see what it is worth.)

Bit coin may become money; some forms of credit are now as officially sovereign as the Federal Reserve's own certificates of IOU. You can now pay your taxes and court fines (though not yet large judgments) using credit cards that Visa and Master Card (though not, in this jurisdiction, American Express) are willing to clear.

The authors of the Constitution gave Congress and Congress alone the authority to "Coin Money" because they had seen the ruin caused by the States abusing their sovereignties to issue money that was, in fact, nothing more than bad credit. That remains the central question of all discussions about "money" now - how good is the credit. J.T. and James are right; money, as legal tender, is no longer Coin. It is now only and everywhere an IOU that is a form of credit officially-approved by the sovereign.

The tricky part remains the one people dealt with in California in 1849. How good is the assay? For us retards Bitcoin's assay remains far more than 3% below par. 

Jeffrey Hirsch dissents: 

Cash is still king. US $20 bill is still the best global icebreaker.

Anonymous writes: 

In Argentina a $20 US bill buys $100 in value, and is readily accepted and preferred over the peso. 



 The results of a recent study of 119 tank vs. tank combat actions during the Korean War (U.S. Sherman, Pershing, Patton, and Chafee and British Centurion tanks vs. Russian, Chinese,N. Korean T-34s:

Allied tank fired first 60%, roughly 2/3rds resulting in kills T-34 fired first 40%, with 3/8ths resulting in kills

75% of enemy tanks lost to Allied air strikes 1/3rd of Allied tanks lost to mines (Kill-ratio for enemy anti-tank mines: 1 tank for every 1000 mines laid)

The Lessons: "Boots on the ground" most reliably get killed by what is under it and what is up in the air.

Andrew Goodwin writes: 

The Vietcong mastered the counterattack methods in their tunnel defenses. Some great defenses emerged that allowed entire hospitals and armies to gather in cities underground that were nearly impervious to attack. Here are some of the methods they employed. I got these tactics from an army manual on counter guerrilla warfare that General Petraeus helped constuct:

1) Build an elevated chamber near the tunnel entrance that collects the smoke from incendiaries designed to flush you out of the tunnel. The smoke gathers in the chamber and nullifies the clearing tactic. If they throw grenades down the tunnel entrance, then you need a capture chamber for these with a drop tunnel beyond the first cavity impervious to this first assault.

2) Place one mine that is obvious to the tunnel rat invader's eye so he avoids that one while the really big mine is buried a short distance behind the obvious one. When the rat dismantles the obvious mine he thinks he's found the trap but gets in trouble with the secondary hidden charge.

3) Hang live poisonous snakes from the roof of the tunnel to terrorize the raiders. Otherwise leash poisonous snakes to an anchor inside the tunnel on the natural approach line.

Basically the tunnels allowed infiltration into enemy areas and were too dangerous to dismantle. Aerial bombardment in the Iron Triangle could not alleviate the tunneling method successfully.

In avoiding a corporate raid or a bear raid, the number of toxic defense strategies and deceptions are limited only by one's devious creativity.



 My daughter has been given the assignment of writing a 4 page paper on global warming. What might others more knowledgeable than I suggest for research that would lead to a balanced gathering of facts in an objective fashion?

Stefan Jovanovich writes:

There are three basic questions to be asked:

(1) Has human activity over the last 150 years, in particular, increased the release of CO2 into the atmosphere over what it would have been if tail-less monkeys had not been using carbon-based fuels?

The answer, by everyone who has studied the data, is "Yes"?

(2) Does an increase in CO2 releases into the atmosphere cause an increase in below surface and surface temperatures in the oceans, surface temperatures on land and low altitude temperatures in the atmosphere?

The answer is "It depends". The evidence from ice core samples drilled near the poles tends to suggest that temperature rises come BEFORE increases in CO2; this is somewhat confirmed by tree ring data. But there is other evidence that suggests that CO2 increases come first.

(3) Is the interaction between CO2 and global temperature so intensely powerful that the projected releases of CO2 over the next half century will cause a climate catastrophe?

The answer, so far, is "No". The scientists who think that we are on the eve of destruction have not distinguished themselves by being scrupulously honest about their research data. Some of them have been downright dishonest in the way they have rewritten the data to make it say what they want. Does that prove them wrong? No. But it does suggest that their certainty is more religious than scientific. That may explain why their criticisms of the scientists who disagree have used the terms that the devout have applied to heretics and non-believers.

As our Chair and KSS wisely remind us, religious discussions are best left for private exchanges after dinner in the ward room is formally adjourned.

Simon Franak writes:

Some quotes

"The cooling has already killed hundreds of thousands of people in poor nations. It has already made food and fuel more precious, thus increasing the price of everything we buy. If it continues, and no strong measures are taken to deal with it, the cooling will cause world famine, world chaos, and probably world war, and this could all come by the year 2000."
–Lowell Ponte, The Cooling, 1976.

The facts have emerged, in recent years and months, from research into past ice ages. They imply that the threat of a new ice age must now stand alongside nuclear war as a likely source of wholesale death and misery for mankind."
–Nigel Calder, former editor of New Scientist and producer of scientific television documentaries, "In the Grip of a New Ice Age," International Wildlife, July 1975.

I believe that increasing global air pollution, through its effect on the reflectivity of the earth, is currently dominant and is responsible for the temperature decline of the past decade or two" Reid Bryson, "Environmental Roulette, Global Ecology: Readings Toward a Rational Strategy for Man, John P. Holdren and Paul R. Ehrlich, eds., 1971.

At this point, the world's climatologists are agreed…Once the freeze starts, it will be too late."
–Douglas Colligan, "Brace Yourself for Another Ice Age," Science Digest, February 1973.


Because you can't argue with science. There is always something to be scared of, from which the State has to save us. The problem is usually artificially created, so then it can justify expansion of the State. Like in Atlas Shrugged, they always "need to do something."

No problem that there were no goods on the shelves, it's the cost one must've paid for peace in the Soviet bloc. It can be a diseases such as sars, bird flu, and ebola; it can be2 terrorists such as Al Qaeda or ISIS. The more invisible but potentially dangerous and global it is, the better. Climate change is then perfect problem for the State to save us from.



 "Johan Cruyff, footballer - obituary: Proud and mercurial Dutch football star who developed a fast-moving and fluid
style of play"

Anatoly Veltman writes: 

OMG Stefan! I was a big fan circa WC 1974 (could it be his upright "arrogant" posture?) As the youngest Master of Sports among all official sports in that era's Soviet Union, I think I was pervasively identifying.

In most of the 10×10 checkers games (each game lasting 4-6 hours in a daily round-robin) that I won in category under-19 (I wasn't 13 yet), my opponents felt somehow crashed right out of the theoretical openings. Their sitting posture at the board was somehow deficient, believe it or not. They might have been more gifted tactically, and counted forward better than my max. 30 or so moves - but they felt I somehow had strategic grip, and they slowly relinquished key cell configurations, resorting to (the inferior) off-center surround strategies.

RIP Maestro Cruyff.



 It's clear to me personally, that whatever the mouthpiece for the Fed will be next week, will try to tepidly unwind a bit of dovishness that triggered the USD collapse this week…

A much longer term consideration is that I'm speculating that USD will remain the world's single reserve currency for quite some time, despite the growing mountain of debt. This will keep US inflation in check, no matter what horrible deficit picture will need to be addressed from time to time. And Europe's inflation will be checked by wage stagnation. As to the emerging markets' real world: they have decades of survival experience with 5-10% inflation, and such would not be an issue to their economies and population.

Stefan Jovanovich writes:

Could we all agree to stop using obsolete terms like "reserve currency"? The term had a specific meaning before 1914 when banks throughout the world held pounds sterling as a reserve against calls for specie redemption by their depositors and counter-parties. It had a shadowy meaning after WW 2 when central banks agreed that the U.S. Dollar would be treated as being as good as gold, but no part of that Bretton Woods notion of the dollar as a reserve currency included the right to demand specie itself from either the Fed or the U.S. Treasury. If people and banks and central banks now choose to own dollars, they do so because they expect to use the dollars to pay someone else or they expect the exchange price of the dollar to rise against another currency or currencies. There is no reason to believe that people's preferences for holding dollars has any direct effect on the prices of goods and services traded in open markets, given the fact that all "major" currencies can be fully hedged and arbitraged. In such a world "inflation" itself has no independent meaning that can be distinguished from changes in exchange rates and price increases that are caused either by reductions in supply or rising demand. Monetarist theory itself becomes a tautology when all legal tenders are central bank IOUs.

Anatoly Veltman writes: 

Thanks Stefan! To re-iterate the technical picture: I anticipate very profound USD strength going into Q2 2016. This will test the commodities anew…And curiously, I also anticipate Yen's renewed strength - albeit after it first digests its sizeable 2016 gains to date. There, I'm at a bit of a loss for fundamental explanation: to envision this peculiar global macro scenario, in which both the risk currency USD and the risk-off currency JPY will suddenly dominate Q2!

Stefan Jovanovich comments:

Almost from the first day Vic was kind enough to let me wander in from the street, I have been panhandling his List's members for answers to my foolish questions. Thanks to AV's recent comments, I think I have found another.

It always puzzled me why people who traded stocks, futures and bonds were so sensitive to what a government spokesman said or was rumored to be about to say. Why should the people who were directly engaged in the most directly competitive of enterprises want to know about stale information from people whose idea of risk was going to a new restaurant on their government-paid expense accounts? Why would Henry Kaufman's guesstimates about M numbers be able to move the markets?

"Markets" are no more "free" than trade is; what distinguishes them from autocratic directives is the fact that their activities are open to anyone willing to make a bid. That is stating the obvious; but what is not so obvious is the fact that people use their bids in open markets to offset the risks from autocratic directives. The markets move in response to government (fill in the blank as to type) statistics as a hedge against (1) what those statistics are likely to make the government do and (2) what future bids are likely to be after the government "does something". A market cannot controlled by the government; if it is, then people stop coming into the room to bid. But all markets, because they settle in legal tender, end up being like taxpayers; they have to account for what the large idiot in the room will do.



 In the Chaos Manor that is our family's daily round, Kurzweil's web site and Vic's List and our own discussions are the 3 constants. Kurzweil had a great article on the gravitational waves.

Then Jeff's email mentioning Newton arrived.

That led to her idiot Dad asking the daughter if medicine had arrived at its equivalent of Newtonian physics. Eddy said, "yes, but just barely. In practice we are barely past the Newcomen steam engine.

That led to an expression of hope from Eddy that, in her lifetime, medicine will get to what would be the equivalent of Maxwell's equations for the body's messaging. But, Kurzweil's dream of immortality will remain as permanent elusive as time travel. The machines will have to do the exploring.



 The Iowa Caucus system for Presidential candidate selection began in 1972 for Democrats and 1976 for Republicans. Since they started 40 years ago for the GOP, every Republican candidate who received the party nomination had these results:

(1) First in Iowa, Second in New Hampshire (2) Second in Iowa, First in New Hampshire

Ford, Reagan (twice), G.H.W. Bush, Dole, G.W. Bush, Romney all had these results.

Among the present candidates Donald Trump is the only one who has passed the 1-2 test.



Negative rates are:

1. Tax on cash.
2. Service charge, like a bank.
3. Currency war weapon. Weaponize as Mr. E used to say.
4. Policy tool to encourage risk and capital movement.

Stefan Jovanovich writes: 

Negative rates are, as James writes, a tax on short-term IOUs from government-guaranteed issuers; but they are a subsidy for actual cash currency. The banks already charge for holding our "cash"; and anyone who has held significant balances already knows that their cash has been trashed in terms of any returns from interest.

Those of us sitting here in the back of the bleachers see the central banks as doing everything they can to force the banks to "go long" - i.e. push the maturity of their reserves much further out than they have been. Could it be that we have a new consensus among the countries that have dealings in size in each other's currencies? They will each do their best to enable their national Treasures, state-owned enterprises and retirement systems to continue to fund the transfer payments that are now at least 2/3rds of total government expenditures and no one will worry about exchange rates because capital flows between countries are now a trivial concern compared to the actual and potential losses of capital itself from a "crash".



 After reading this article "The Rich Are Already Using Robo-Advisers, and That Scares Banks", I wonder three things:

1. Making a broad assumption that most of these "artificial intelligence" schemes do similar things isn't it likely to cause even more herding behavior as assets in these plans increase?

2. Placing money in several plans and observing what's done might provide foreknowledge of what might be executed in the future.

3. Are they using ETFs or individual stocks? From the small amount I've read about these plans it seems to be ETFs.

For sure the assets in these plans are not currently enough to move markets -yet. But like ETFs which began as a small force and grew to be of great influence they could eventually move markets on their own. It's the commoditization of investment advisors in a similar way that ETFs commoditized retail trading.

Rudy Hauser writes: 

I would add the move by pension funds into equity investing. When my late friend, Prof. Paul Howell, who at the time ran the NYC pension funds, wrote an article in 1958 that appeared in the Harvard Business Review and madeg the case why pension funds should mainly be invested in equities, it had the largest request for reprints of any article in that publication up to that time. The idea of pension funds investing most of their assets in stocks was a new trend at the time. I would also add the event of mutual fund investing, that really took off in the decades after WWII.

Stefan Jovanovich writes: 

Another really dumb question for Jonathan and the other pros. But, first, a brief description of what those of sitting in the bleachers see as the great events in "financial history" since WW II.

1. End of fixed commissions; "discount" brokerage
2. Retail/commercial trading in Financial futures
3. Retail/commercial trading in Options
4. Derivative trading
5. Retail/commercial trading in Currencies

Now the dumb question: Which, if any, of these 5 developments are the historically comparable to the rise in ETFs?



 The comment has been made that Moneyball strategies undervalue pitching and defense. As a Braves fan I can most assuredly attest that post-season pitching needs and season pitching needs are different. During the season, a 4 deep pitching rotation almost assures extra wins as the other teams pitching tends not to be as deep (so hence the long runs of divisional wins), however, post season pitching rotations get shortened, so one needs one less pitcher and one more bat (hence all the post-season loses). This is why the Braves had incredible records but only the one World Series during their amazing run.

Stefan Jovanovich writes: 

The data suggests something else: they (the GM and Cox) never let John Schmoltz–their one genuine strikeout pitcher–start Game 1. Strikeouts win World Series.



 A friend of my daughter works for Tesla. His parents described driving in a self driving car in San Francisico. As I drove through LA traffic, I thought of the many benefits self driving communicated net cars would have.

Almost all accidents are caused by driver error. If all cars were self driving, and communicated with each other, it would reduce accidents, increase traffic flow and congestion. Lane changes could be done quicker and more safely when other cars knew the changer's intention. Cars could drive faster and closer together where human reaction attention and reaction time were eliminated by communicating cars. Rear enders would be eliminated by front sensing brakes. Cars could self park like auto valets.

Stefan Jovanovich writes: 

This is really the night for "let's all submit to higher authority". The problem Google and others are trying to solve - traffic congestion - is not going to be resolved by turning the public roads into digital autobahns, not without the complete loss of individual liberty.

Our "traffic" problem comes entirely from the commons theory of access. Right now, no one pays any direct price for deciding to use the freeway during rush hour; the road usage is - quite literally - free. If those same smart, smart folks would put their attention to the question of mechanisms that priced timed usage by location…

Thomas Miller writes: 

One problem with self driving cars, (for municipalities) is that they wold lose all the revenue they now make from traffic tickets, which is not insignificant. Self driving cars would never break the speed limit, run red lights, make illegal turns, etc.

Stefan Jovanovich writes: 

When roads were uncommon, they were privately owned and subject to usage tolls. Road travel was incredibly expensive because of the physics of friction and gravity (in a boat the water does the carrying; in a wagon the rims) so almost all freight moved by ocean and river which were the commons. When iron and steel rails solved the friction problem, land transport exploded - still under private ownership. Our present commons of free public roads only really go started in the 1920 after the development of pneumatic tires and leaf spring suspensions made transport of heavy loads possible. There was no practical way to put tariffs on the road usage but cars were so expensive to own that "traffic" did not become a problem until the combination of cheap gasoline and inexpensive used cars developed in the late 1950s.

This is not a difficult problem to solve, given the capacities of digital technology. What I find fascinating is how much the people who know that technology best (the folks at Google) are determined to use it to limit people's freedoms and prevent government's monopolies from dissolving under their own economic obsolescence. There is no social justification for "driverless cars" - auto accidents continue to decline and the injury rates for vehicles where people are passengers, not drivers - buses, vans - are far, far more bloody than for personal vehicles. This is a technology avoiding a useful solution in order to promote what will be an utterly useless green fascism.



 On this day in 1835 on this day Richard Lawrence attempted to kill President Andrew Jackson. Jackson survived the attack because both of Lawrence's pistols misfired (probably because the powder was too damp to ignite).

The Schlesinger story of the Jackson Administration focuses on the Bank War; but that was not nearly as important as the political explosions that came during Jackson's second term. No one, who had not been bribed, was in favor of Biddle's bank, any more than people now are in favor of the Federal Reserve. (According to Gallup's last poll on the subject, the IRS is the only Federal agency that has a lower current approval rating that the Fed.)

The Lawrence incident brought out into the open the much more important split that would be Jackson's legacy - the divide among the two tribes of War Hawk spenders. The moral issue of slavery was not the cause of the Civil War; it was, if anything, the camouflage for the rivalry between the people who wanted the U.S. to go West and those who wanted it to go South (to the Caribbean, Mexico and Central America). That is the sub-text of Horace Greeley's famous bit of advice that gets completely lost.

If the Bank issue had been truly divisive, Jackson would not have chosen a New Yorker, Martin Van Buren, as his successor; and accused his long-time ally, George Poindexter, of being part of Lawrence's "conspiracy" (sic).

The argument between Richard Mentor Johnson, Van Buren's Vice-President, and Senator Poindexter, over the subject of race is fascinating. Johnson had married his Julia Chinn, his slave mistress, openly.

"Unlike Jefferson, Clay, Poindexter and others, I married my wife under the eyes of God, and apparently He has found no objections."



 Moneyball is a wonderful movie made out of what is a lousy baseball book. The A's teams that Billie Beane built ignored defensive skills and looked for home run power. Beane's giving Billy Butler $30M in 2014 is a classic example of his trying to buy "power" on the cheap. The result was absolutely the worst team in American League baseball.

What wins in the post season is (1) pitching (everybody knows that), (2) fielding and (3) being able to put the bat on the ball, even if all you do is hit a weak ground ball to 3rd base.

Kansas City, winner in 2015, runner-up in 2014, has the formula: "Because contact is less prized by modern teams than patience and power, it's also less expensive. And given the physical skills of the players who tend to possess it, it might also be easier to pair with good defense, another commodity that the free-agent market has historically undervalued. In the most generous interpretation of their roster construction, the Royals' old-school approach is actually innovation in disguise, a version of Moneyball built on the opposite strategy of the early-aughts A's."



 After some practice, a kid can throw a ball and compute the trajectory on the fly. It becomes internalized. Mathematically it is a complicated computation. Normally people don't think statistically unless say after 45 years of doing it it is internalized.

My question to Chair and others is whether after trading for many years using statistically based evidence you have internalized the data and math such that a trade is similar to throwing a ball. Computations of course help reject ideas, or deflate misconception, or identify newly arising cycles but what percent is intuition? Even system traders identify new systems by eyeballing data or plots or using analogies.

Stefan Jovanovich writes: 

If we are talking baseball, the throwing equations have their own internal derivatives. To throw a ball well enough to play the game at even a semi-professional level as a pitcher requires a great deal more than "some practice"; for the people who make it all the way to "the show" the internal computations get down to the questions of how much pressure you place on the joint of each toe. The calculations about how you hold the ball for each pitch are maddeningly complex; then there is what you do with your biceps, elbows, trunk, etc.

I suspect surfers have the same kind of subtlety in their thinking about what they do. But, I don't know: can't pitch, wouldn't dream of surfing. What I do know as a catcher is that pitcher's internalization process is never finished; they are flakes because they have to be.

anonymous writes: 

When surfing at the home break, most of the good locals have it pretty well wired. Knowledge of the bottom, how the surf breaks on different tides, swell direction, currents, winds, and where the wave will peak allows a local to successfully get waves. When traveling for waves, new breaks tend to present a host of different challenges. While I will never have another place wired like my local break, when visiting a different one, I'll catch a few waves, but the locals will catch many more. I find injuries are more common at other breaks, mainly because of the lack of knowledge of the wave and the lineup. An outsider never knows all of the quirks, inside rules, players, and forces at a beach.

Seems like a good time to present a market analogy. A competent local surfer generally gets more waves than a competent outsider, just like an insider or specialist in a single market generally has more opportunities than outsiders for good trades. The insider/specialist knows his market just like the surfer knows his home break.

Jeff Watson writes: 

Surfing is a good example of an intuitive process internalizing complex multiple variables. At my big wave spot I know the secret line up markers: a grass spot on the mountain, the tops of certain palm trees, a rock, some foam. It puts me in a 6 foot square in the ocean. I can see the waves in the distance, sit in a certain spot, and the wave come right to me. Someone 6 feet to the right is in the wrong spot. Newbies often get slaughtered. For example, there was a big crowd out two days ago with medium size waves when a HUGE set came thru and washed almost everyone out who were sitting on the inside.

On the rare occasion that I hit it right, I enter a trade at a good spot and ride it on most of the full move. You can feel the variables, the amount the market has fallen, its speed of trading and movement, the way its trading. The price location in relation to the last week, the last few days, the last few hours give info. When to go out and not watch. Seems like there is a lot of info being processed internally, somewhat unconsciously that has valuable input. Ideally one could quantify all these and have a computer do it with AI better than a human. The multiple variables make it hard to quantify though. I suppose some simple rules apply: after multiple 2% drops is a good time to buy or after a 50 point down move in a day on the third or fourth down day, after fake bad news, on on some stupid announcement like FOMC and the market dives 50 points for no reason. I'm sure there are more rules of thumb that one always keeps in the back of your mind, including all of Chair's caveats, and all Wiswell's proverbs. Maybe that's the point, over time one internalized all the rules, the basic setups, the data, even more complex set ups, without having to count on the fingers as its happening. 



Since 1955 the national student-teacher ratio has gone from 27 to 16. Per pupil expenditures, after adjustment for inflation, have increased by more than 400%. The United States now has the highest per pupil expenditures in the world.

And the winner is… The Program for International Student Assessment has published its rankings for academic achievements by 15-year-old students, in 34 OECD countries, using the most recent data (Calendar year 2012).

In mathematics U.S. students ranked 27th; in reading, 17th; in science, 20th.

Clearly, "we" - i.e. those of us who have already escaped the schoolies–need to spend more money so they can continue to torture the young.



 A popular TV journalist from NZ sent me a link to this story with the comment that it explains lots of things and that I must read it: "The Gujarati Way"

Interest has been expressed in the Rothschilds and their business secrets among this group. This story on the secrets of the Gujaratis should be intersting to you as well.

Stefan Jovanovich writes: 

If you substitute the word "Lutheran" for Gujaratis, you could tell the same story about their "secret" success in becoming the largest grain farmers of North and South America. It would not actually tell you anything, but it would be an equally plausible fiction and yet another iteration of the Carlisle/Emerson/Roosevelt (TR)/Rhodes fantasy about commercially favored strands of ethnic DNA.

The Rothschilds had no "secrets"; they had connections and the advantage of being permanent outsiders. Since they were Jews, they could be trusted by the Royal Houses of Europe precisely because they had no chance of becoming politically-influential in their own right. They could be trusted to hedge every position. Their influence declined precisely when the Germans and French and British all decided that the answers to questions finance were political and the rewards of empire would pay for all the military peculation.



 These are hard times for those of us who live in a Rogers Hornsby world. When asked what he did after the baseball season, Hornsby replied, "Look out the window and wait until spring". Note: he said spring, not spring training. It is only baseball when the games count. So, one is left with the short-timer calendar and idle thoughts.

The idle thought for today is this: the fundamental correlation with stock prices is not "the economy" or even expectations about "the economy". What moves quotes is the supply of free and easy money. Leverage, through central bank and government guarantee lending, offers easy money; but the stuff that is both free and easy is never borrowed. It is the cash flow from businesses, colonies, possessions, conquests that have wonderful margins between what they cost and what they earn. The great bubbles of the early years of stock trading all came from one source: the discovery of a new territory that would duplicate the wealth that the Spanish had enjoyed for nearly two centuries from their ownership of the mines of the New World. "Mississippi" and the "South Sea" were going to produce the same fabulous returns. (Secondary idle thought: bubbles are created when pricing reacts not to the flows of free and easy money but to mattress money - the stuff people have been saving - that is tired of its meager returns.)

Since 1973 the free and easy money of the world has come from one source: the Middle Eastern oil fields. For the third of a century after the embargo that quadrupled the "normal" price of oil, the spread between what it cost to produce the black gold and what it reliably sold for was never less than 20 times the profit margins of everyone else's business. The collapse in prices in 2008-2009 was the first time that the sovereign wealth funds of the oil-exporting countries had had to examine the question of what to sell rather than what to buy. The current episode is a repeat, with the added pressure of the end of the Iranian embargo.

Is there any free and easy money left? The answer may be "yes, but not from energy but from American business itself". The Byron Wiens of this world have no idea of what regulation and taxation do to "average" profit margins. How could they? They live in a city where space itself is rationed by the government. If Mr. Wien's prediction about the Queen of the Night's election proves false, we may have one of those infrequent "ah-hah" moments in American political history when a significant number of the regulators are sent packing. Grant's election in 1868 was one; the Schlesingeristas in academia are still trying to square the circle of how the last third of the 19th century saw the country's greatest ever explosion of wealth, immigration and technology during a period of what they called "ruinous deflation". Harding and Coolidge's election in 1920 was another. 2016 might be yet another. After all, it is another even year. Go Giants!

Vince Fulco writes: 

Every seven years, roughly, since 1973/4 at least, we have seen spots of liquidity vacuums, and as I have made mention on here before, it's the liquidity vacuums that re the thing to fear, not the proverbial "bear markets" (though they can coincide, see 80/81). Yes, 94 wasn't much of anything, but the recent action (go look at the opening on big, broad stocks on August 24, 2015) and it all fits the cyclical pattern of 7 year liquidity messes (and translates out into the future years of troubling asteroid flyby's coming up).

Is the liquidity vacuum that began in August over? Or do we have another wave coming? Either way, every single one of these situations we have seen, the market has moved on to higher highs in very short order, and I can;t find any compelling reason for that not to be the case here.



 The historians say that the Eurodollar trade developed as a way for recipients of U.S. dollars to escape the Federal Reserve requirements on deposits and acquire a better interest rate. But, what had it explode in volumes and size was the fact that eurodollars were the one way people could hedge against the future exchange rate of the dollar. The dollar might be as good as gold but you had to be a central bank to be able to ask for bullion instead of paper on settlement day. Contrary to all the textbooks and most of the journal articles, the "inflation" of the 1970s that resulted in double-digit interest rates on U.S. Treasuries is best explained as the reaction of the Eurodollar market to the sustained anticipation of lower dollar exchange rates. Offering sky-high interest rates was the only way to create a Buy side for the Eurodollar trade.

The "Euro" Yuan trade that developed in Hong Kong now offers the same opportunities for hedging. But the dynamic is rather different. People now buy yuan in anticipation of selling them when they have to pay for Chinese exports - if the exporter will not accept dollars or euros. People sell yuan because the anticipate that they will get a better exchange rate now than in the future. If the markets were to anticipate a sustained fall in the exchange rate of the yuan, the result would be zero or even negative discounts for the sellers. To get someone to take the Buy side, the Sellers would have to imitate the behavior of their cousins in the 70s and offer a sufficient interest rate spread to offset the cost of the likely yuan decline.

And for those of us eating popcorn in the bleachers this will mean?: "Offshore Yuan Rebounds From Five-Year Low on Intervention Bets"

"China Fires a Warning Shot at Yuan Speculators With Bank Bans"



 Someone sent me this: "U.S. Cold War Nuclear Target Lists Declassified for First Time"

1. No one can be an "enthusiast" of any war, even a cold one. One studies wars because they have always been the way stupid people in charge destroy each other and take the rest of us along with them.

2. There were no norms that protected "civilians" from carnage before the Americans had their civil war and ended their Indian wars. In the last quarter of the 19th century treaties were signed that were supposed to limit the direct brutality of Europeans towards each other, but they had zero effect on the terrible carnage done in Asia, Africa and South America. They continue to be rules for the people who are not fighting or war planning to follow.

3. The serious studies of WW 2 bombing showed that Harris had been right but for the wrong reason. He had thought that the enemy's civilian morale would crack. What broke was the tolerance of the High Command for allowing cities to be bombed because of the disruptions to supply. So, instead of sending 88s to the Eastern Front to defeat the T-34s, they were kept at home to shoot at bombers in the night sky

4. Targeting civilians is the only purpose of nuclear weapons; it was inherent in their original design.



 Alec Guiness as George Smiley in the 1982 BBC adaptation of "Smiley's People by John le Carré, Part 4 (some things never change):

"In my time, Peter Guillam, I've seen Whitehall skirts go up and come down again. I've listened to all the excellent argument for doing nothing, and reaped the consequent frightful harvest. I've watched people hop up and down and call it progress. I've seen good men go to the wall and the idiots get promoted with a dazzling regularity. All I'm left with is me and thirty odd years of cold war without the option."

"So what does that mean in little words?"

"It means, that if a rogue elephant, to use Saul Enderby's happy phrase, charges at me out of the thickets of my past, and gives me a second shot at it, I intend to shoot it dead. But with the minimum of force."

Link to a place a minute or so ahead :

Full link, go to time 1:48:08.

Guinness also played Smiley in the prior BBC production of "Tinker, Tailor, Soldier, Spy"–they are both worth watching in their entirety. Old school and extremely well done.



One of Wikipedia's better articles about enterprise and its rise and fall: Gimbels



 Nothing I or anyone else ever sees in the movies, either in front of or behind the camera, has even the remotest connection to what goes on in a war or a traffic accident, for that matter.

The phrase "Full Metal Jacket" appears nowhere in Gustav Hasford's novel. There is no reason why it should have; full metal jacketed rounds have been the standard ammunition since the Lebel rifle was adopted by the French Army in the late 1880s.

Enjoy the movies for what they are, not for what their PR claims for them. They are real as themselves but not as a portrayal of life. The only time they come close is when they are about themselves.

Intolerable Cruelty is wonderfully accurate; Kubrick's movies are less real about war than a Met production of Die Walkure.



 The movie In the Heart of the Sea about the Essex, as previously mentioned, is coming out on December 11th. Here is a cool article about the film:

"How Nantucket Came to Be the Whaling Capital of the World: Ron Howard's new film "In the Heart of the Sea" captures the greed and blood lust of the Massachusetts island":

And here is author of the book the film is based on, Philbrick, on Nantucket:

Bad weather had thrown off Pollard's lunar navigation. On the night of February 11, 1823, the sea around the ship suddenly churned white as the Two Brothers hurtled against a reef. "The ship struck with a fearful crash, which whirled me head foremost to the other side of the cabin," Nickerson wrote in an eyewitness account he produced some years after the shipwreck. "Captain Pollard seemed to stand amazed at the scene before him." First mate Eben Gardner recalled the final moments: "The sea made it over us and in a few moments the ship was full of water."

Stefan Jovanovich writes: 

Here is a cool report from the NY Times from 1861 about the whale oil business.

Contrary to what the Smithsonian and Mr. Philbrick have written, Nantucket was never the center of the American whaling industry. The trade journal for the industry, the "Whalemen's Shipping List and Merchants' Transcript," began publication in New Bedford in 1843 and was still being printed (as a single broadsheet) when Walter Sheldon Tower's History of the American Whale Fishery was published in 1907. Tower's comment: "New Bedford was a greater whaling port than Nantucket ever was."

FWIW, Melville's adventure sagas - Typee and Omoo - (also freely available both on Kindle and on Google books) are actually a better portrayal of life at sea than Moby Dick, which Melville wrote as an attempt to emulate Homer's prose poem of Ulysses. The American public loved the South Sea tales but they found the great work heavy going. Contrary to the usual biographies, Melville was not heart-broken by his novel's "failure" (sic), only worried because he needed the money. But, then, he got a decent civil service job and went back to his first love - simple poetry - and became the Wallace Stevens of the NY Custom House.

anonymous writes: 

No argument on the ultimate rise of New Bedford over Nantucket, but give them a little credit for being one of the main birthplaces of commercial US whaling.

Relatedly, I finally successfully made it through all of Moby Dick a few months back. Although not much of it came easy, I enjoyed it overall, and actually found parts of it pretty amusing.

I am looking forward to going to the Whaling Museum in New Bedford for the first time as soon as I can squeeze it in. I've heard it's quite nice.



 I am told that the students at Harvard were highly impressed by President Obama's talent for telling his law professors exactly what they wanted to hear. Some of the subversives even went so far as to channel their inner David Mamet and develop a grading curve for sucking up. It was called the Obamameter. According to someone who was there: this was, unlike Olympic judging, an absolutely pure and unbiased measure of a student's brown nosing skills. It used the standard 10-finger scale. The President never scored less than a 10.

There is no question that this is the only way to succeed in school and, so it would appear, in public life. The question is why anyone would ever do anything else.

The Navy has had a useful corollary, the Seaman's cardinal rule: "If it moves, salute it; if it doesn't, paint it."



 The contango between current prices–oil for delivery within 90 days–and those 6 years out attracted my attention for what is probably a very stupid reason. I have been rereading Charles Dow's journalism, and I was struck by his comment that the "commercial cycle" (his term) in prices ebbed and flowed every 6 years. Not 4, not 11, but 6. Dow thought that scientific speculation (also his term) was a matter of finding values within the prices that the markets produced each moment. Values for him were not some Platonic idealization but a matter of commercial sense. One of the rare complaints he ever wrote to his readers about them was that, in dealing with the stock market, they abandoned the very commercial sense that had given them the money to speculate.

Is there value in a future commodity price that is, once again, at a rare extreme compared to the costs for present delivery? Dow would have thought so.

P.S. FWLIW, Dow thought a scientific speculator should expect to double his money in every commercial cycle–i.e. earn 12% compounded annually.

When I asked "is there a value in a future commodity price that is, once again, at a rare extreme compared to the costs of present delivery?", Charles Dow would have thought so because, as he wrote, "the best profits in the stock market are made by people who get long or short at extremes and stay for months or years before they take their profit." Contrary to modern journalists, Dow made no presumptions about his own abilities to find where in an extreme the profits were to be found. In oil itself? In E&P stocks? In refiners? What made Dow such an exceptional journalist was his rare combination of humility and curiosity. He wanted to know what the market would tell him; he never thought he had advice for the market.

Jeff Watson writes: 

That's the difference between a professional and everyone else. The professional lets the market speak to them, tell you the story, and everyone tries to tell the market what to do based on their own cognitive biases. 



"The stock market leads the economy, not the other way round"

Are we sure of this old bromide?

anonymous writes: 

Yes, the data support the conclusion. Even more so because we know the results of the stock market immediately, and we get the GDP number only each quarter, and then after a delay of months that is then revised three times.

Andrew Goodwin writes:

A statistical method for testing this theory with precise equations is given here for those who would care to update the work:

"The Stock Market as a Leading Indicator: An Application of Granger Causality"

To summarize the conclusion reached using this "Granger causality" method:

Our results indicated a "causal" relationship between the stock market and the economy. We found that while stock prices Granger-caused economic activity, no reverse causality was observed. Furthermore, we found that statistically significant lag lengths between fluctuations in the stock market and changes in the real economy are relatively short. The longest significant lag length observed from the results was three quarters.

Stefan Jovanovich writes: 

"Is the causality relationship more consistent with the wealth effect or with the forward-looking nature of the stock market? The results from this project are consistent with both the wealth effect and the forward-looking nature of the stock market, but do not prove either. Another possibility for future research is to further evaluate where expectations about the future economy are coming from. Our results reveal that expectations for future economic activity are not simply formed by looking at the past trend in the economy as the adaptive expectations model would suggest. Expectations are being formed in other ways, but how?"

The argument for the "wealth effect": rich people's spending is the Keynesian pump that gets its money flows from the drift towards higher stock prices. The argument for the forward-looking nature of the stock market: the same one that applies to all asset and credit pricing, even those for "true" bills. The argument for "adaptive expectations" models: straight lines are easier to draw.

Stock prices go down because enough rich people think they will go down. God only know what makes them decide to think that, even though they have all the lessons of the past to tell them otherwise.

As Eddy and her Mom and others remind me, my sarcasm can be a bit heavy-handed, obscure and unfunny.

Let me try again, now that Big Al (who has saved me from gold standard oops moments and other follies) has come to my rescue.

The Chair's drift is a fact of enterprise itself; people get richer because they figure out how to do things better, faster and cheaper, and the price for that know-how rises steadily because it is the means of producing more wealth.  (Marx was not wrong to focus on the means of production; he just left our distribution and exchange as the other necessary parts of the deal.)

The people the Chair left behind at Harvard, Berkeley and elsewhere share their own kind of Marxist illusion; they think that people can manipulate the way we all keep track of wealth - the unit of account, the interest rate on government debt - and have the manipulations produce further drift which will, in turn, somehow produce greater wealth.

This all reminds me of what a WW II veteran once told me about sharing a bivouac with the Russians while Truman, Churchill and Stalin carved up the world at Potsdam.  The Americans, with their wonderful energy, had set up tents and installed GI showers and faucets after running lines to the nearest pond with clean water.  After seeing the GI walk over to a faucet and turn it on to fill a pail of water to feed the radiator in his Deuce and a Half, a Russian soldier yanked off the faucet, walked over to the Russian side and defiantly banged it into a post.  He was enraged when he turned the tap and nothing came out.

Fat thumb correction:  stock prices go up and down because enough rich people take one side of the trade or the other that they change the price of wealth expectations for that particular company. There is no way of knowing what their particular "reasons" are; markets are part of Heisenberg's universe.

Bill Rafter writes: 

Allow me to come into this party late and probably tick everybody off. What drives markets most of the time (i.e. 90+ pct.) are two things: momentum and sentiment. If you have a handle on those you can make money. Probably the same two things drive the economy, but you cannot make money trading the economy, as the data coming out of the economy is more lagged than the data coming out of the markets. Hone your skills where they can count.



 I'm in Ushuaia Terra del Fuego Argentina en route to Antarctica. Argentina is experiencing severe inflation. Some years ago (say mid 2001) the Peso was on par with the dollar. In 2013 it was 8:1. Now it's 12 Peso to the dollar. A hamburger is 85, a beer is 50, a crab dinner is 170. Classic economics defines inflation as higher price goods. However I see 3 different causes of inflation that seem to be different mechanisms and have different results

First is classic. Inflation where demand grows or supply shrinks and price goes up. Second is the situation in Argentina where the Peso devalued due to government default on its international loans The third is the Fed increasing the money supply and causing the oversupply of dollars to (in theory) raise prices. But it doesn't work. The latter two do not seem to either increase demand or relate to supply change. To me they seem to be different mechanisms at work. The problem with increasing money supply is that it doesn't increase demand. Instead the money flows to a bubble. The classical definition of inflation does not accurately describe the latter two mechanisms. Isn't there a better way to describe them?

Stefan Jovanovich writes: 

There is no way to separate the causes of an increase in the nominal current selling price of a good or service - let's call it Item X. Is it the result of a decrease in the supply of Item X? Is that decrease the result of sellers actually running short of Item X or are the sellers holding back inventory from the market in anticipation of a future price rise? Or have the suppliers all gotten together somewhere and agreed to form a cartel that will restrict the supply of Item X? Or are the sellers all agreed that the unit of account that prices Item X is now in greater supply? And is the unit of account that prices Item X in greater supply because lenders are offering less restrictive terms for borrowers? Or is it because the government has issued more checks or made more electronic transfers from its central bank account exchangeable on demand for the currency that the Sellers and Buyers of Item X accept as the unit of account?

These are just some of the supply questions that affect pricing; there is an even larger list that can be written about the variability of demand.

The Peso's devaluation relative to the U.S. dollar can be explained quite simply; people holding dollars do not want or need as many pesos as they once did and their counter-parties, the people holding pesos, are now far more eager to swap Argentina's currency for ours. When one then asks why, we are back in the land of multiple explanations: Argentina is not seen as a profitable place for holders of dollars to buy businesses or property, the risks of regulation, currency controls, legislated devaluation and other forms of legal confiscation have increased, etc. etc.

"Inflation" only has a a theological definition; it is part of the modern economists' vocabulary for describing how many monetary angels should be standing on the tope of a GDP pinhead. And like those other now obsolete serious academic questions, it has a very useful purpose; for its presumed answer one must look to the diviners of expectation.

What Samuel Butler wrote as a satire in Erewhon is now how the world worships; we no longer spend much time in the Musical Banks because we all know that the important messages now come from those who sit on the thrones that are Reserved.



 I think DailySpec baseball buffs will really like this history on the greatest to ever play the sport.

"Ty Cobb: Anger in Athletes"

Stefan Jovanovich writes: 

I have my usual quibble. Dr. Mirkin really has no idea what he is talking about when he writes that "the only reason that (Cobb) was not among the home run leaders was that he played before the age of steroids and weightlifting." Cobb was stubborn. He stayed with the small taper thick-handled bat to the end of his career in 1928. That allowed him to have a broader hitting zone (in the same way modern tennis rackets have expanded the "sweet spot" with their much larger string area); but he had to pay the cost of reduced bat speed (something aluminum and then composites saved tennis players from having to sacrifice). One theory (that I subscribe to) is that Babe Ruth was able to achieve his revolutionary change in hitting technique because he was a pitcher before he was an everyday player. When he started experimenting with the "toothpick" bat (because of his its handle that shifted weight to the middle of the barrel), none of the baseball purists minded because Ruth was a pitcher and a left-handed one at that (everyone knew Southpaws were crazy). It also helped that he was already "The Babe" - a kid the size of a polar bear who was always having fun with everyone, including the manager.

Steroids had nothing to do with it. By the early 1920s the rest of baseball had caught up, and Rogers Hornsby - as good a hitter as Cobb - had gone to the toothpick. Hornsby hit 42 home runs in 1922, nearly twice as many as anyone had before then in the history of the National League. That helped the Giants beat Ruth and the Yankees 4 to 1 in the World Series. 




 The notice of the anniversary of this special date in the year 1800–"The Great Moltke's birth"–is being sent to the DailySpec because the Field Marshal was a dedicated speculator. His family lost all its wealth when the French burned their estates in Mecklenburg-Schwerin (north of Brandenberg, east of Prussia) during the War of the Fourth Coalition (1805-1807). Prussia lost half its territory and Napoleon and the Czar divided up the rest of Europe south of the Baltic between them at the Treaty of Tilsit.

The family moved to Holstein (then in Denmark) and sent Helmut to the cadet school in Copenhagen. By the time he was old enough to be a soldier (first in the Danish, then in the Prussian Army), all the fighting was over. In spite of his love and knowledge of art and music, von Moltke managed to be attached to the Prussian General Staff when he was 32. Over the next decade he produced the first German translation of Gibbon's Decline and Fall and traveled to Constantinople to serve as an adviser to Sultan Mahmud II. In his one direct experience of combat von Moltke and the rest of the Sultan's army were routed by Muhammad Ali of Egypt at the Battle of Nizib (1839).

von Moltke survived and returned to Germany to write, marry an Englishwoman, become a member of the First Board of Directors of the Hamburg-Berlin Railroad, which is still going strong.

And that was only the beginning.

Wikipedia has the rest.

One of Ulysses Grant's rare disappointments in life was that he did not get a chance to see the Field Marshal when he visited Berlin. He did get to see Bismarck and most of the other members of the General Staff. What they discussed remains almost entirely unreported; and–alas–what little is known is the fiction of the journalists–Adam Badeau, being the worst, who were repeatedly pissed off about not being allowed in the room.



In obedience to the command of the Constitution, it has now become my duty "to give to Congress information of the state of the Union and recommend to their consideration such measures" as I judge to be "necessary and expedient."

But first and above all, our thanks are due to Almighty God for the numerous benefits which He has bestowed upon this people, and our united prayers ought to ascend to Him that He would continue to bless our great Republic in time to come as He has blessed it in time past. Since the adjournment of the last Congress our constituents have enjoyed an unusual degree of health. The earth has yielded her fruits abundantly and has bountifully rewarded the toil of the husbandman. Our great staples have commanded high prices, and up till within a brief period our manufacturing, mineral, and mechanical occupations have largely partaken of the general prosperity. We have possessed all the elements of material wealth in rich abundance, and yet, notwithstanding all these advantages, our country in its monetary interests is at the present moment in a deplorable condition. In the midst of unsurpassed plenty in all the productions of agriculture and in all the elements of national wealth, we find our manufactures suspended, our public works retarded, our private enterprises of different kinds abandoned, and thousands of useful laborers thrown out of employment and reduced to want. The revenue of the Government, which is chiefly derived from duties on imports from abroad, has been greatly reduced, whilst the appropriations made by Congress at its last session for the current fiscal year are very large in amount.

Under these circumstances a loan may be required before the close of your present session; but this, although deeply to be regretted, would prove to be only a slight misfortune when compared with the suffering and distress prevailing among the people. With this the Government can not fail deeply to sympathize, though it may be without the power to extend relief.

It is our duty to inquire what has produced such unfortunate results and whether their recurrence can be prevented. In all former revulsions the blame might have been fairly attributed to a variety of cooperating causes, but not so upon the present occasion. It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of the paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of their stockholders rather than the public welfare.

The framers of the Constitution, when they gave to Congress the power "to coin money and to regulate the value thereof" and prohibited the States from coining money, emitting bills of credit, or making anything but gold and silver coin a tender in payment of debts, supposed they had protected the people against the evils of an excessive and irredeemable paper currency. They are not responsible for the existing anomaly that a Government endowed with the sovereign attribute of coining money and regulating the value thereof should have no power to prevent others from driving this coin out of the country and filling up the channels of circulation with paper which does not represent gold and silver.

It is one of the highest and most responsible duties of Government to insure to the people a sound circulating medium, the amount of which ought to be adapted with the utmost possible wisdom and skill to the wants of internal trade and foreign exchanges. If this be either greatly above or greatly below the proper standard, the marketable value of every man's property is increased or diminished in the same proportion, and injustice to individuals as well as incalculable evils to the community are the consequence.

Unfortunately, under the construction of the Federal Constitution which has now prevailed too long to be changed this important and delicate duty has been dissevered from the coining power and virtually transferred to more than 1,400 State banks acting independently of each other and regulating their paper issues almost exclusively by a regard to the present interest of their stockholders. Exercising the sovereign power of providing a paper currency instead of coin for the country, the first duty which these banks owe to the public is to keep in their vaults a sufficient amount of gold and silver to insure the convertibility of their notes into coin at all times and under all circumstances. No bank ought ever to be chartered without such restrictions on its business as to secure this result. All other restrictions are comparatively vain. This is the only true touchstone, the only efficient regulator of a paper currency–the only one which can guard the public against overissues and bank suspensions. As a collateral and eventual security, it is doubtless wise, and in all cases ought to be required, that banks shall hold an amount of United States or State securities equal to their notes in circulation and pledged for their redemption. This, however, furnishes no adequate security against overissue. On the contrary, it may be perverted to inflate the currency. Indeed, it is possible by this means to convert all the debts of the United States and State Governments into bank notes, without reference to the specie required to redeem them. However valuable these securities may be in themselves, they can not be converted into gold and silver at the moment of pressure, as our experience teaches, in sufficient time to prevent bank suspensions and the depreciation of bank notes. In England, which is to a considerable extent a paper-money country, though vastly behind our own in this respect, it was deemed advisable, anterior to the act of Parliament of 1844, which wisely separated the issue of notes from the banking department, for the Bank of England always to keep on hand gold and silver equal to one-third of its combined circulation and deposits. If this proportion was no more than sufficient to secure the convertibility of its notes with the whole of Great Britain and to some extent the continent of Europe as a field for its circulation, rendering it almost impossible that a sudden and immediate run to a dangerous amount should be made upon it, the same proportion would certainly be insufficient under our banking system.

Each of our 1,400 banks has but a limited circumference for its circulation, and in the course of a very few days the depositors and note holders might demand from such a bank a sufficient amount in specie to compel it to suspend, even although it had coin in its vaults equal to one-third of its immediate liabilities. And yet I am not aware, with the exception of the banks of Louisiana, that any State bank throughout the Union has been required by its charter to keep this or any other proportion of gold and silver compared with the amount of its combined circulation and deposits. What has been the consequence? In a recent report made by the Treasury Department on the condition of the banks throughout the different States, according to returns dated nearest to January, 1857, the aggregate amount of actual specie in their vaults is $58,349,838, of their circulation $214,778,822, and of their deposits $230,351,352. Thus it appears that these banks in the aggregate have considerably less than one dollar in seven of gold and silver compared with their circulation and deposits. It was palpable, therefore, that the very first pressure must drive them to suspension and deprive the people of a convertible currency, with all its disastrous consequences. It is truly wonderful that they should have so long continued to preserve their credit when a demand for the payment of one-seventh of their immediate liabilities would have driven them into insolvency. And this is the condition of the banks, notwithstanding that four hundred millions of gold from California have flowed in upon us within the last eight years, and the tide still continues to flow. Indeed, such has been the extravagance of bank credits that the banks now hold a considerably less amount of specie, either in proportion to their capital or to their circulation and deposits combined, than they did before the discovery of gold in California. Whilst in the year 1848 their specie in proportion to their capital was more than equal to one dollar for four and a half, in 1857 it does not amount to one dollar for every six dollars and thirty-three cents of their capital. In the year 1848 the specie was equal within a very small fraction to one dollar in five of their circulation and deposits; in 1857 it is not equal to one dollar in seven and a half of their circulation and deposits.

From this statement it is easy to account for our financial history for the last forty years. It has been a history of extravagant expansions in the business of the country, followed by ruinous contractions. At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of mere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stock gambling. When the crisis arrives, as arrive it must, the banks can extend no relief to the people. In a vain struggle to redeem their liabilities in specie they are compelled to contract their loans and their issues, and at last, in the hour of distress, when their assistance is most needed, they and their debtors together sink into insolvency.

It is this paper system of extravagant expansion, raising the nominal price of every article far beyond its real value when compared with the cost of similar articles in countries whose circulation is wisely regulated, which has prevented us from competing in our own markets with foreign manufacturers, has produced extravagant importations, and has counteracted the effect of the large incidental protection afforded to our domestic manufactures by the present revenue tariff. But for this the branches of our manufactures composed of raw materials, the production of our own country–such as cotton, iron, and woolen fabrics–would not only have acquired almost exclusive possession of the home market, but would have created for themselves a foreign market throughout the world.

Deplorable, however, as may be our present financial condition, we may yet indulge in bright hopes for the future. No other nation has ever existed which could have endured such violent expansions and contractions of paper credits without lasting injury; yet the buoyancy of youth, the energies of our population, and the spirit which never quails before difficulties will enable us soon to recover from our present financial embarrassments, and may even occasion us speedily to forget the lesson which they have taught. In the meantime it is the duty of the Government, by all proper means within its power, to aid in alleviating the sufferings of the people occasioned by the suspension of the banks and to provide against a recurrence of the same calamity. Unfortunately, in either aspect of the ease it can do but little. Thanks to the independent treasury, the Government has not suspended payment, as it was compelled to do by the failure of the banks in 1837. It will continue to discharge its liabilities to the people in gold and silver. Its disbursements in coin will pass into circulation and materially assist in restoring a sound currency. From its high credit, should we be compelled to make a temporary loan, it can be effected on advantageous terms. This, however, shall if possible be avoided, but if not, then the amount shall be limited to the lowest practicable sum.

I have therefore determined that whilst no useful Government works already in progress shall be suspended, new works not already commenced will be postponed if this can be done without injury to the country. Those necessary for its defense shall proceed as though there had been no crisis in our monetary affairs.

But the Federal Government can not do much to provide against a recurrence of existing evils. Even if insurmountable constitutional objections did not exist against the creation of a national bank, this would furnish no adequate preventive security. The history of the last Bank of the United States abundantly proves the truth of this assertion. Such a bank could not, if it would, regulate the issues and credits of 1,400 State banks in such a manner as to prevent the ruinous expansions and contractions in our currency which afflicted the country throughout the existence of the late bank, or secure us against future suspensions. In 1825 an effort was made by the Bank of England to curtail the issues of the country banks under the most favorable circumstances. The paper currency had been expanded to a ruinous extent, and the bank put forth all its power to contract it in order to reduce prices and restore the equilibrium of the foreign exchanges. It accordingly commenced a system of curtailment of its loans and issues, in the vain hope that the joint stock and private banks of the Kingdom would be compelled to follow its example. It found, however, that as it contracted they expanded, and at the end of the process, to employ the language of a very high official authority, "whatever reduction of the paper circulation was effected by the Bank of England (in 1825) was more than made up by the issues of the country banks."

But a bank of the United States would not, if it could, restrain the issues and loans of the State banks, because its duty as a regulator of the currency must often be in direct conflict with the immediate interest of its stockholders. if we expect one agent to restrain or control another, their interests must, at least in some degree, be antagonistic. But the directors of a bank of the United States would feel the same interest and the same inclination with the directors of the State banks to expand the currency, to accommodate their favorites and friends with loans, and to declare large dividends. Such has been our experience in regard to the last bank.

After all, we must mainly rely upon the patriotism and wisdom of the States for the prevention and redress of the evil. If they will afford us a real specie basis for our paper circulation by increasing the denomination of bank notes, first to twenty and afterwards to fifty dollars; if they will require that the banks shall at all times keep on hand at least one dollar of gold and silver for every three dollars of their circulation and deposits, and if they will provide by a self-executing enactment, which nothing can arrest, that the moment they suspend they shall go into liquidation, I believe that such provisions, with a weekly publication by each bank of a statement of its condition, would go far to secure us against future suspensions of specie payments.

Congress, in my opinion, possess the power to pass a uniform bankrupt law applicable to all banking institutions throughout the United States, and I strongly recommend its exercise. This would make it the irreversible organic law of each bank's existence that a suspension of specie payments shall produce its civil death. The instinct of self-preservation would then compel it to perform its duties in such a manner as to escape the penalty and preserve its life.

The existence of banks and the circulation of bank paper are so identified with the habits of our people that they can not at this day be suddenly abolished without much immediate injury to the country. If we could confine them to their appropriate sphere and prevent them from administering to the spirit of wild and reckless speculation by extravagant loans and issues, they might be continued with advantage to the public.

But this I say, after long and much reflection: If experience shall prove it to be impossible to enjoy the facilities which well-regulated banks might afford without at the same time suffering the calamities which the excesses of the banks have hitherto inflicted upon the country, it would then be far the lesser evil to deprive them altogether of the power to issue a paper currency and confine them to the functions of banks of deposit and discount.

Dylan Distasio writes: 

Thanks. The failure of Ohio Life Insurance and Trust in the panic is slightly reminiscent in broad brush strokes to AIG. The naive, good old days of specie, eh? No parallel there unfortunately.

Stefan Jovanovich replies: 

The Ohio Life Insurance and Trust Company's failure did not come from doing an AIG - extending massively leveraged bad bets with financial counter-parties. Its failure was pure fraud: it was an Enron or, if you prefer, a Madoff. The insiders had literally looted the Cincinnati bank while publishing fictions about their outstanding loans to farmers and merchants. Its failure is one of the main reasons that Cincinnati lost out to Chicago as the center for the meat trade.

Anonymous comments:

The excerpt above is apparently from President Buchanan's annual message of the president to congress, December 7, 1857.



 A beautiful bio: "Om Prakash Munjal, cycle tycoon - obituary". Entrepreneur who conquered the Indian bicycle market.



 In some states, like Oklahoma, there are no emissions inspections. So it would seem like now would be a good time to buy one of these cars on the cheap before the software upgrade and then not do the upgrade (assuming that is, that you don't care about the emissions).

A friend said: "Don't underestimate the seriousness of this.  I am not a lawyer, but isn't triple damages common due to fraud, if proven?"

My answer: Ha! You are assuming that laws actually apply to top corporate executives.

Jordan Low writes: 

I almost purchased a "clean" diesel vehicle. Even if the government is out of the picture, as a consumer I would be outraged. As a consumer, wouldn't you want to return a product that has fraudulent specifications? The liability would already be huge for VW.

Stefan Jovanovich writes:

Read the fine print, people. The car does pass regular emission standards; the software fix was needed so that it could also pass the higher standards that made it eligible for "clean" (sic) energy tax credits. Those were, for a brief period, so ginormous that they would, by themselves, sell the car. That was the incentive for the cheating. 



 Scott Sumner, of Bentley University talks with EconTalk host Russ Roberts about interest rates. Sumner suggests that professional economists sometimes confuse cause and effect with respect to prices and quantities. Low interest rates need not encourage investment for example, if interest rates are low because of a decrease in demand. Sumner also talks about possible explanations for the historically low real rates of interest in today's economy along with other aspects of monetary policy, interest rates, and investment.

Jim Sogi writes: 

If real interest rates are in fact negative, then the FED rate is still high and offers the best return. Rates at banks are in fact negative when you subtract bank fees the return is negative. Its not real clear what negative interest rates are to me. I suspect it has something to do with international currencies and the strengthening of the US dollar, and the FEDs warning on the global situation. Maybe the US doesn't want a flood of foreign (Chinese) money.

Martin Armstrong writes: 

The Fed is really caught between a rock and a very dark place. Yes, they have the IMF and the world pleading with them not to raise rates for it will hurt other debtors who borrowed excessively using dollars to save money. The Fed is also caught between domestic policy objectives that dictate that they MUST raise rates or they will bankrupt countless pension funds internationally and emerging markets will go into default because commodities have collapsed and they have no way of paying off this debt that has risen to about 50% of the U.S. national debt. 

Gordon Haave writes: 

Perhaps I am not understanding something. Is this saying:

A. We can't raise rates or emerging market economies will be hurt due to their dollar debt, and; B. We must raise rates because if not emerging markets will go into default?

This makes no sense to me but perhaps I am misunderstanding what he is saying.

Stefan Jovanovich writes:

The presumption of central banking in the late 19th century was this: through adjusting the discount rate on its own good as gold credit, the Bank of England could literally regulate how much net foreign exchange (specie) flowed into or out of Britain. The presumption was believable, provided that no one questioned that the Bank of England would redeem all its own paper in gold. After 1914 there were nothing but questions.

Central banks now have two presumptions: by talking about adjusting the discount rate and by actually writing checks to their national treasury they can control not only foreign exchange flows but also how much credit its citizens and domestic companies will use in the immediate future.

Montagu Norman went to an early grave precisely because he knew there was now way for Britain to have its cake and eat it, too. If the Bank of England's own paper was going to continue to be priced based on private demand and not ability to pay out specie, on demand, then either the Empire would have to restrict trade to its own colonies or counter-parties would be the ones who determined the discounts at which foreign exchange could balance (translation: the Americans would have to let their gold go overseas by running a persistent deficit).

3 Trillion in U.S. IOUs is supposed to give the Chinese "power" but that pile of another central bank's money only has use if it is spent abroad. Like the Americans' gold in the 1920s, it is worth nothing if it is not allowed to be drained away. There is no reason to think that anyone with a higher education will allow that to happen in China or, if that miracle occurs, that the politicians in this country will not respond with the same imperial preference mercantilism that guaranteed Britain would win the war and lose its empire.

Larry Williams writes: 

So you really think we at Dailyspec are smarter and have more information on our fingers than the people at the Fed? I don't. In retrospect over many many years the Fed has done a remarkable job. I know, you people dis them at every turn, claim you know the answer, we know the answer, but the truth is year in and year out compared to what could've happened they have not done a terrible job. Probably I should explain something called upward drift for those who are not aware of it. It seems to be pretty important.



 From the 1960s-1982 the Dow stayed in a range between 600 and 1000, with several 40% swings. Then came the great bull market.

Is there any reason why we might not return to such a range for 20 years or more? We are off all time highs, but with quite the penumbra around 1950s. Also, it's been a bull market for 7 years.

anonymous writes: 

In real terms (adjusted for inflation) from the peak in 1966 to the bottom in 1982, that was a 75% decline in the value of the Dow, and a 29-year trough before a new high was made. The decline from 1929 to 1932 by comparison was 85%, also with a 29 year valley before the 1929 peak was surmounted.

Ralph Vince writes: 

Yes, but in August of 1982, you KNEW the lid was coming off.

On Friday the thirteenth, after a languishing bear market, things jumped. It had a different feel to it. By the next Tuesday, the 17th, it was off to the races.

I remember it well. It was a complete change in market character from what had been going on for several years before it (at least since the Summer of 1980, and August of 82 was profoundly different than that even).

My point is, you didn't have to be a contrarian to know something big was just getting going. It came in with bang,

We live in an era where damn few remember — if anyone ever knew — how to read a tape, the pace of whats coming across the Electro-Lux. I've tried to catalog this in terms of patterns of volume bars. If you go back and look at the Friday, August 13, 1982, it occurred on a low volume bar turnaround — v. bullish (assuming a descent into it).

But the real tell came later — the 18th, a high volume bar day, the end of the short term runnup, On the 18th, the DJIA dropped a small amount, on very heavy volume, marking the high that day as an interim high that should hold for a few days. Not only did the market blow through that, showing extreme strength, but the coup de grace was the following week when the market continued higher on very high volume. Often, a single bar making a high on high volume markets an interim high (there are fine points I am not mentioning here), or, even stronger still, if there is a few bars in between and another high on high volume. But a series of 3 or more bars, on very high volume, where the market continues to grind or grind higher, is very, very bullish.

There was a confluence of factors leading up to that — negative sentiment, bank failures, bankruptcies, etc. amid an environment of declining energy prices, falling rates, technological breakthroughs (as evidenced by Ipos in the 18 months leading up to it — Apple, Genentech, etc.) the pc was in its infancy , Apple was talking about "Lisa," the mother of Mac, there was by many people's accounts, a political climate favorable to business.

There are perhaps many similarities to today, and many differences. I suppose it could happen, could happen in the coming months (look at the advances in cancer treatment, and I don't think we've even begun to feel the effects of the technological advances afforded by a true, coast-to-coast high speed network drones and mass transport, or even the productivity created asa result of the handheld devices most of us use today). But if it's anything like the last, great bull market, it come in with a roar, and I would expect it to be evidenced by inexplicably high trading volume that generally persists.

anonymous writes: 

I miss the noise those Trans-Lux jets made, with those funky fluorescent black lights and those little colored pegs. They were crude, but effective. The bars around the exchanges all had jets so you could have a drink and still see the prices, real time. Nobody minded in those days if a broker went down to the bar for a quick one or three as long as they were good earners. The Germans, Irish and Italians were the ones who went to the bars for a quick one during market hours……..the Jews at the CME always wanted to maintain decorum and control, and never show public intoxication…..the drug of choice for the Jews was cocaine and naturally they didn't drink like the Germans/Irish, and the lack of good drinking establishments around the CME was evidence enough. The bars around the Merc were never legendary like the ones at the CBOT like Broker's Inn, Sign of the Trader, Trade Inn, and Alcotts around the corner. Those bars were in a league of their own and the back stories of what went on in those establishments would be worthy of Runyon or Hemingway. I have sources that have the 1970's Russian Grain Deal being worked out at a back table of the Broker's Inn. Whether or not this event occurred and is verifiable, I wouldn't say it would surprise me. I've seen 20mm tonne cash grain deals done on the back of a napkin and with a handshake.

Steve Ellison writes: 

It took the S&P 500 7 years to regain is 2000 high, but it could not hold that level for long. It was not until 2013 that the S&P 500 again reached its 2000 high, so we already had a retrospectively-defined trading range for 13 years. I have a hunch that the next "great bull market" is already here. The so-called millennial generation in the US is larger than the baby boom generation. I keep noticing things about this decade that remind me of the 1980s, including a commodities bust and concurrent strength in the US dollar and US stocks.

Stefan Jovanovich writes: 

Steve gets my vote. Part of what happened in the 80s was the destruction of previously secure franchises. Mr. Walton's stores destroyed thousands of local "downtown" merchants who had enjoyed distribution monopolies in the villages and towns of what became known as flyover country. Even as AT&T decides that satellite streaming of NFL football games is worth $3200 a customer, the kids are growing up wondering why anyone would be so stupid as to subscribe to a service whose ability to provide programming on demand is as ancient as a Betamax recorder.

anonymous writes:

But where can rates go, Steve? Or perhaps it isn't the direction of rates, so much as their absolute values?

The other big element that concerns me is not the systemic liquidity problem (which we had a taste of on 8/24) but that volume has been tapering off throughout this run up from the 09 bottom.



 On my last haircut before moving, I gave my regular lady a $100 tip on a $17 haircut (applause line here?). That small gesture brought her to tears. She is a very interesting older woman. I've enjoyed talking with the past few years. She knew I worked in investments/trading and asked if I had any ideas for her. I asked about credit card debts and she told me she just cashed in 25K of an IRA to pay down 25K of credit card debt, yet already had accumulated 2K since then and was getting in the hole again. I might invite her down to do some murals in my kids room, and perhaps do some studies on trees (She is an artist who made a living cutting hair for the last 40 years).

The point is (perhaps? At least the relevant one?) is the deadly financial problem of never having working capital that provides the flexibility that keeps one off the spike of usurious interest.

This lady had been sold on long term investments (by her branch XYZ big box bank) in high fee mutual funds with perhaps at best a 5% yr expected value over the long term, while paying off 25% interest rates on credit cards. The scams run on the lower middle class or working class are obscene.

And it is not income. Clearly if these folks can pay these obscene high interest rates, they can afford much more than they have. The problem is that they never understood the idea of having "working capital". I told my friend that her best investment is at least 6 months of living expenses in the bank. As basic as it is, and at such a low margin for error that standard that is, for many it is an alien concept. Her recent issue was a car repair that blew up her budget and started the credit card problem again. With no working capital plus compound interest against, it is like a giant pit metaphorically with wood spikes and lions at the bottom to gobble one up.

So in trading and investing, how can we use this idea? Victor has taught "never get in over ones head" as one of the key tenants of speculation. So how do we manage our cash in our speculations, investments, life's "issues" to have the flexibility to seize opportunities and avoid pit of being bent over a barrel–while still getting a solid return.

Scott Brooks writes: 

The problem is deeper than that.

The people that Ed is referring to don't have the mentality to accumulate wealth and get rich. They are sold on the "here and now" mindset. They go into debt to satisfy the here and now. Something will always come up that will prevent them from succeeding. The only thing they are really good at is coming up with PLE's (Perfectly Legitimate Excuses) to justify their failures.

They are defined by their failures.

anonymous writes: 

Especially with respect to this site, I would wonder the data and testing behind those assertions. Otherwise, one might consider them to be presumptive, elitist, and uncharitable, with mean-spirited implication. But for the grace of god….

Ed Stewart writes: 

"presumptive, elitist, and uncharitable, mean-spirited"

Yes but who cares. I'm guilty of most those things at most times. Is time preference the essence of trading? That might be a more interesting question vs. my original one. Can it be quantified? I think so, as a hypothesis generator. Does it work better than other thought models?

Russ Sears writes: 

Sorry, I disagree Scott. Ed is correct, it's a matter of education and coaching. Have a plan, believe in the plan, stick to the plan.

The average working poor Josie is not a loser. It's the average bank has learned they are more valuable dumb and paying fees than smart with small accounts. The stats say that the fees are several hundred dollars per person in the USA. So some are paying several times that. The banks have the average poor working single parent or mom in a snap trap that they can't figure how to unsnap and lift the door.

The first thing I tell kids is that you need a minimum of $1,000 in emergency cash preferably $2,000. Have a garage sale, stop buying lottery tickets, no gambling, stop buying new clothes, stop cable, and stop smart phones, etc until you have that emergency fund. Also budget, if you can't fix the budget to the pay, downsize housing, get roommates, no car, bus, pay for car pool, whatever it takes to have a workable budget. Then save for the 3 to 6 months expenses in a cash account ready for a big expense. Only then should you invest.

Most people in this problem don't have anyone they can trust to give them the advice and perhaps the tough love they need to stop living in denial. The truth is the banks want the poor.

What does this mean for "investors". Frankly I think most investors have it wrong. It's not so much managing your risk as it is managing your cash flow first, then manage your risk. You can take a lot of equity risk if your investment horizons 20 years out.

Also the lesson to investors is just because someone is in the best position to give you advice and would make some money off you if they gave you that advice, it doesn't mean they will give you the advice that's in your best interest when it conflicts with their best interest. Their best interest is CMA (cover my …) by silence or sin of omission. Then it's to make more money by selling what gives them the most profit to "cover" you like payday loans.

anonymous writes: 

The thing I practice (and I don't know if it adds any edge that can be computed) is to always take some off after a good run. No mater what, be it trading, investing, bonus, etc. Never spend it all–or even most of it. Put it away for when SHTF, because as day follows night, it will…

Andrew Goodwin writes:

A major part of the problem is the thinking that makes the credit limit on credit cards equivalent to ones own money.

For my part, I will never willingly stop at a gas station that has two prices for gasoline with one higher for the credit card user than for one paying cash.

In a world where there are card rebates on gasoline, what is the point of acting responsibly with credit when those who did not act responsibly get subsidized by those who did. The dual pricing also serves to support a cash economy against the public interest.

Peter Grieve writes: 

I feel that I am unique on this site as having been in this hairdresser's situation for most of my life (Hello, Peter). Obviously this is not due to a lack of economic education or upbringing. I feel that the factors include a lack of skepticism regarding my own appetites, a lack of faith in the future, a certain immediacy in response to the world. These are traits associated with immaturity, to which I confess. Of course this leads to tremendous inefficiencies, even when viewed from a purely hedonistic perspective, but it does have its compensations.

I do not regard Scott's comments as elitist, presumptive, uncharitable, or any of that baloney. On the contrary, I find the the use of the word "uncharitable" to be condescending. I do not feel that people in my position are a fit object of charity.

Everyone has their irrationalities, and they are often incomprehensible to those who do not share them. Scott's words are simple, honest truths, which many people (including me) would benefit by internalizing to a greater degree.

Stefan Martinek writes:

It is good to have an emergency cash for at least a decade; locked, untouchable for trading or similar. The rest can be at risk. And after MF Global steal from client accounts (is Corzine still free?), I think it is prudent to keep as little as necessary with FCM. In case of a brokerage failure, the jurisdiction matters (Switzerland is preferred, the UK is too slow but ok, then Canada, and the last option is the US broker).

Ralph Vince writes: 


I entirely disagree; emergency cash has a shelf life which is very short, and our perspective warped as we are speaking in terms of USD. Being the historian you are, you know full well how quickly that cash can be worth nothing. (And again, a many of our personal experiences here would bear out, money is lost far quicker than it can be made).

A bag of air on hand is good for one breath.

People are taught that "saving" is virtuous, borrowing a vice. I would contend that we have crossed to Rubicon in terms of the notion of stored value — no more able to contain that vapor than we can a bottle of lightning. The circulation brought upon by a zirp world, turning all those with savings into the participants at a craps table, the currency being used the product of a confidence game, among the virtues to be taught to tomorrow's youth is that of creating streams of income — things that provide an economic benefit their neighbor is willing to pay for, as opposed to a squirrel's vermiculated nuts.

"Stored value," is a synthetic notion we have accepted and teach as a virtue. It has no place in nature, it is a synthetic construct, one that is not scoffed at in the violent, life-and-death world of fire and ice. Young people need to be taught the fine distinction between the confabulation of "storing value," and that of using today's fruit to generate tomorrow's.

Stefan Jovanovich adds: 

From the other Stefan: I agree Ralph. "Stored Value" is another part of the economist dream that platonic ideals can be found. Money is and always has been one thing: the stuff you could voluntarily give to the tax man that would make the King find another excuse for throwing you into the dungeon. The gold standard did not change that; it simply gave the citizen a chance to make the same kind of unilateral demand on the government. It is hardly surprising that the fans of authority and "government" hate the Constitutional idea of money as Coin. How can you have a permanently elastic official debt if the citizens can ask for payment in something other than a different form of IOU?

However, Stef does have a point. Having a hefty cash balance is a wonderful gift; it gives you the time to figure out your next move. The sacrifice is the absence of leverage; the gain is having literally free time.

Scott Brooks comments: 

There are a lot of companies out there that take advantage of them and the bad advice they were given from their parents. Banks certainly do. Then you've got insurance companies and brokerage firms selling them crap products as well.

But that doesn't hold water in today's society with Suzie Orman and others like her being nearly ubiquitous on the airwaves and net.

These people live beyond their means. Plain and simple.

Yes, they lack education, but even with education available, they don't take advantage of it. They are just doing what they were taught as kids. For far to0 many of these people, as long as they've got enough money for their 1-2 packs of cigarettes/day and their quart of Jack/week, they go and live lives of quiet desperation, hoping that they don't lose their jobs and are lucky enough (i.e. like not spending money on stupid stuff is "luck") to pay off their debts by the time they are in their early/mid-70s so they can live out their remaining few years (if they even make it that long) on social security.

I know. I grew up with these people. I know how they think. But for grace of God (as was mentioned earlier), I might have been one of them. But for some reason, I was blessed with gray matter that works, and I saw the error of those ways, and I was able to get out.

Ken Drees writes: 

I knew a guy–lost touch with him over the years–who exclusively dealt with hairdressers and salonists. He sold variable annuities to them since these people had no retirement plans given to them from the salon owners. I believe in his mind that he was doing them a service–and I really do not know the quality of his products–but at a glance I saw them as mutual fund annuity hybrids that came from heavy fee fund families. He was a tall, dark and handsome gent and he would actually get entire staffs of salon ladies to invite him in after hours for a group meeting/financial planning discussion presentation.

He always said that business was brisk! 

Jim Sogi writes: 

When young friends ask me, how should I invest, I give them a simple asset allocation model based on ETFs or Vanguard and an averaging model. Invest x% of your paycheck off the top each time. Doesn't matter how much really.

Russ Sears writes: 

 Scott, since this is the DailySpec let us bring a little science into the discussion, even if it is social science.

Where we differ is not what is causing the hairdresser's problem. It is in what can be done about it that I differ. I believe you can coach people to delay gratification. I coached kids that never did homework before and got "D's" and "F's" during a summer and by fall the kid was an "A" or "B" student. You probably owe a hardy thanks to the coaches in your life.

Perhaps the greatest social science finding has been the "marshmallow experiment" done at Stanford. They did test on 600 4 year olds telling them if the child did not eat a marshmallow for 15 minutes after they left, they would get a second marshmallow. 1/3rd of them made the whole 15 minutes, a small percentage ate it immediately after the others had waited various amounts of time. They followed up on these kids several time in the last 40 years. Just about every way you can think of to define success was highly correlated with the time the 4 year old delayed gratification: SAT score, college/HS graduation rate, credit scores, long term committed relationships, contentment etc. And almost any way you can define failure was inversely correlated: jail time, high school.

The correlation was stronger than IQ, social economic status at 4 years old. In other words even the dumb poor kid that delayed gratification was happy/content/successful 40 years out. He may not be making much but he is happy with it.

For a humorous view of this experiment reproduced: Joachim de Posada: Don't eat the marshmallow! 



 Our last Ulysses Grant-inspired pilgrimage was to Penn Yan. It has one of the few monuments to the cause of Union from the Civil War. There are literally a thousand courthouse square monuments here in the South for the Confederates but there are almost none for the Unionists in the towns of the North. The winners seems to want to have forgotten the cause of the thing as fast as possible, while making sure that everyone however remotely connected to the Federal army and bureaucracy got a pension.

I mention all this because many of the Amish from Pennsylvania have moved up there–cheaper land, far fewer tourists. The local merchants are welcoming; the local Aldi has spaces in its parking lot with hitching posts.



What fascinates me about cricket is that it is the inverse of baseball. In baseball the really good pitchers are the rarity. Against them even the best hitters can only hope for mediocre performance. At any one time, almost everyone in the major leagues can hit a 90 mph fastball (those few who can't don't last long). So, on the days when a mediocre pitcher or pitchers are unable to control their other pitches, the scores can balloon to lopsided totals that are not seen in even the most thorough drubbings in cricket. The rule for the really good pitchers is the same one Craig has just shared: you have to get to them early. Once a great pitcher has adjusted to the shape of the ballpark's mound and the effects of the day's weather and gotten the first few outs, he will be nearly unhittable.

Galen Cawley replies:

Agreed, but you can't omit this guy!
More importantly, I found this entire discussion on pitching and the art of deception to be utterly fascinating. The video analysis is eye-opening.

It tells you why you know what you know pitching (and hitting)…and makes your knowledge better.

Stefan Jovanovich comes back:

Absolutely. The entire art of pitching is to not let the batter get comfortable with where he is looking. "The plate is 7 baseballs wide; until you get to 2 strikes, you look at either the inner 4 or the outer 4." (That is a steal from a MLB hitting coach whose name escapes me right now.) If you let the batter look in the same horizontal box, he can hit the pitch, as Husband says, even if he is looking "in" and the pitch is thrown "out".

My only quibble is to point out that Maddux's performances in the post season were mediocre. By the time the best teams get to the playoffs and especially the World Series they finally get enough rest between games to be really quick with their bats. That is when a pitcher needs to be able to simply throw it past them - as Maddux couldn't. The pitchers who could reach a virtual speed of 95+ - "virtual" because there are left-handed pitchers like Warren Spahn and Madison Bumgarner who used their high leg kick/body turn to hide the ball as they delivered it on the diagonal Husband describes. Their balls came faster than they were thrown.

Of course, there was also a pitcher named Koufax who hid the ball but didn't need to; he was positively unfair.

Craig Mee comments:

What are the market analogies? Could this conclusion below, for the very best batsmen in cricket be suitable for the top performing markets / sectors . IE The greatest risk is for them to stumble early in a session otherwise it pays to expect further strength?


"The conclusion seems to be that there is a very small window in the beginning of a batsman's innings in which there is a greater chance of dismissal than there ordinarily is. This makes sense — batsmen take some time to acclimatise to the game conditions. But this is a small window — once the batsman has scored about three runs, you have the same chance of dismissal whatever the current score. Interestingly, tiredness does not seem to play a part — the exponential distribution holds well out to 250 runs (quite a few hours of batting).

It should be remembered that this analysis was completed on the top 34 run scorers of all time (5953 innings) and so represents the best ever batsmen. Lesser batsmen are likely to get low scores, so perhaps this window is slightly wider for them. But if we turn to the greatest of the great, Bradman, the window is essentially one run. His effective average before he had scored was a very mediocre nine runs. After he had scored two runs, this effective average had risen to 69. You had to get Bradman out very early!



This is a must read!: "Randomness and Order". It's about what randomness and order mean in different disciplines.

Stefan Jovanovich writes:

The historian's comments were revealing: "Quantum physics is in a formal sense random – the same electron can be in two places at the same time – whereas my stuff is random in a different way. It reminded me that data are random everywhere. And our job is to turn them into something more coherent, and that's true across all disciplines."

The idea that "history", like physics, could be formally random, that people are not, in fact, "in control" is still a completely radical idea. The only place you find even a hint of that understanding is among the classicist scholars who are now dying off. For them the archives were and are limited enough to be fully known, and enough time had gone by for the grand Whig and Marxist and German historical school generalizations of earlier historians to have been not been proven by the actual evidence. That still left the details of what could be known and inferred from the limited records; from those the classicists (A. R. Burn, to name one) were able to find "coherence". But it was the coherence one finds each day in the responses individuals make to their particular circumstances, not a grand discovery of a lasting pattern.

Of course, with such a view, there could only be individual histories of times and places and people. No wonder Marx remains fundamentally popular. He granted permission for the permanent presumption that the true generalizations are, as the X-Files put it, "out there".

As Professor Wickham puts it, "Historians love to study tiny details; I love to study tiny details too, but I like to put them together. I think that putting-together process is a very important one."




 Are there market analogies here? Could this conclusion below for the very best batsmen in cricket be suitable for the top performing markets/sectors? The greatest risk is for them to stumble early in a session otherwise it pays to expect further strength.

"The Curse of the Duck":

The conclusion seems to be that there is a very small window in the beginning of a batsman's innings in which there is a greater chance of dismissal than there ordinarily is. This makes sense — batsmen take some time to acclimatise to the game conditions. But this is a small window — once the batsman has scored about three runs, you have the same chance of dismissal whatever the current score. Interestingly, tiredness does not seem to play a part — the exponential distribution holds well out to 250 runs (quite a few hours of batting). It should be remembered that this analysis was completed on the top 34 run scorers of all time (5953 innings) and so represents the best ever batsmen. Lesser batsmen are likely to get low scores, so perhaps this window is slightly wider for them. But if we turn to the greatest of the great, Bradman, the window is essentially one run. His effective average before he had scored was a very mediocre nine runs. After he had scored two runs, this effective average had risen to 69. You had to get Bradman out very early!

Stefan Jovanovich writes:


What fascinates me about cricket is that it is the inverse of baseball. In baseball the really good pitchers are the rarity. Against them even the best hitters can only hope for mediocre performance. At any one time, almost everyone in the major leagues can hit a 90 mph fastball (those few who can't don't last long). So, on the days when a mediocre pitcher or pitchers are unable to control their other pitches, the scores can balloon to lopsided totals that are not seen in even the most thorough drubbings in cricket. The rule for the really good pitchers is the same one Craig has just shared: you have to get to them early. Once a great pitcher has adjusted to the shape of the ballpark's mound and the effects of the day's weather and gotten the first few outs, he will be nearly unhittable.

See Sandy Koufax and Nolan Ryan

Galen Cawley adds: 

Stefan, agreed, but you can't omit this guy!

More importantly, I found this entire discussion on pitching and the art of deception to be utterly fascinating. The video analysis is eye-opening. It tells you why you know what you know pitching (and hitting)…and makes your knowledge better. It's positively Baconian. Key excerpts:

"What he means by this is that if a hitter swings at what he thinks will be a 90-mph fastball down the middle, he can still accidentally run into either a 96-mph fastball down and away or an 85-mph pitch on the inside — all intersecting the arc of his swing — and make solid contact. Husband believes this happens far more frequently than one might think. Standard baseball strategy says that all a pitcher must do to avoid this dilemma is mix up his pitches — fastballs, sliders, changeups, curveballs. Because they come in at different speeds, the hitter will be confused. Simple, right?

"The problem," said Husband, "is when pitchers pitch backwards."

This means that if a pitcher throws an 86-mph slider high on the inside corner, and follows it with a low-and-away 92-mph fastball, the pitches' EV readings would be exactly the same: 89 mph. And hittable by accident.

[My emphasis: i.e., most pitchers throw to the hitters' bats because they lack command — most retail investors throw money at the markets because they chase the form, and have poor execution to boot!]

There is an imaginary stripe that runs diagonally across the strike zone, from the batter's feet to shoulder level in the opposite batter's box, where a pitch's EV equals its actual speed. Husband calls this the Zero Line. He calculated that for every 6 inches the ball moves closer to the hitter from that line, it picks up 2.75 EV mph; for every 6 inches it moves away, it loses an equivalent amount. This gives strikes thrown at identical speeds on a given horizontal plane about a 6-mph fluctuation in reactionary speed from one end of the strike zone to the other. Add vertical differences into the equation and that spread can easily double, all for pitches that are thrown at the same actual speed.

This idea is far less important on a single-pitch basis than it is when integrated into a sequence. The hitter's perception of the speed of a given pitch is affected by the speed and location of the pitch or pitches that immediately precede it. Roughly speaking, a pitch that follows slower pitches can appear faster, and something slow, when following a faster pitch, appears to be even slower.

"Hitters are like sharks to blood," Husband explained. "When they see two pitches in the same place and at same speed, they begin very quickly to be able to time them, and when they can time them, they attack. But that timing maxes out at about a 6-mph difference in pitch speeds."

I Love the idea of a sequence…how many times has the market changed up on my and put me in an 0-2 count?

Stefan Jovanovich replies: 

Absolutely. The entire art of pitching is to not let the batter get comfortable with where he is looking. "The plate is 7 baseballs wide; until you get to 2 strikes, you look at either the inner 4 or the outer 4." (That is a steal from a MLB hitting coach whose name escapes me right now.) If you let the batter look in the same horizontal box, he can hit the pitch, as Husband says, even if he is looking "in" and the pitch is thrown "out".

My only quibble is to point out that Maddux's performances in the post season were mediocre. By the time the best teams get to the playoffs and especially the World Series they finally get enough rest between games to be really quick with their bats. That is when a pitcher needs to be able to simply throw it past them - as Maddux couldn't. The pitchers who could reach a virtual speed of 95+ - "virtual" because there are left-handed pitchers like Warren Spahn and Madison Bumgarner who used their high leg kick/body turn to hide the ball as they delivered it on the diagonal Husband describes. Their balls came faster than they were thrown.

Of course, there was also a pitcher named Koufax who hid the ball but didn't need to; he was positively unfair. 



 Several years ago I saw an off-Broadway production of "Harvey" starring Jim Parsons because I loved the James Stewart film and because I liked Jim Parsons in "Big Bang Theory." It was a disappointment partially because it was hard to follow Stewart's depiction of Elwood P Dowd. It was like seeing "Sheldon" playing Elwood. Creepy. Being a big Holmes fan and having always felt that no one was ever able to follow Basil Rathbone in the role (except perhaps Jeremy Brett), I was primed to see a Holmes played like Gandalf. But Ian McKellen is a good Holmes, not Gandalf at all, albeit one who is past the end of his career and is struggling to remember… things. I don't want to spoil it. A big plus is some awesome cinematography of the English countryside and the White Cliffs of Dover. Overall a really nice character study and quite diverting.

Peter Grieve writes: 

I loved Rathbone when I was a boy, and was blown away by Brett (particularly the earlier episodes). But painful though it is to admit, Benedict Cumberbatch is my favorite Sherlock. In the first two years, anyway. Holmes series (both TV and film) seem to veer away from Conan Doyle's intent before the canon is exhausted.

Stefan Jovanovich writes: 

I agree with PG. I think having Martin Freeman as Watson is what puts them first. The first episode is truly a classic. Rubert Graves, Mark Gattis, Louise Brealey, and Philip Davis. Thank God for the Brits and their Empire.

Where would we Americans be without their performers and writers–watching endless Blue Screen ballets performed by people who don't even know how to dance.



 Buffett is a charlatan precisely because he hides his secrets behind his Barnum act of public-spiritedness. One secret has been pretty well outed by now, both here on the site and elsewhere– namely, the man is the Capablanca of the tax code.

The other secret is the one he hides in plain sight. He gets extraordinary earnings out of his headcount. For a sane company that avoids stupid leverage on its balance sheet, the employees are the liability that matters most; and the Oregano manages that liability with the same skill that the 19th century Titans did. BRK-A's known earnings (the average of the current year's report and the consensus prediction for the next 12 months) are roughly $65K/employee. GM has known earnings/employee of $28.5K.

As a number, known earnings/employee may seem bizarre but it is the best predictor of how consistently a company can continue to generate profit.

We have used the same kind of benchmark in our own assessment of our private businesses; and it has never failed. We have, every time we have gone away from it in the name of "investing in growth", etc.

We don't actually know if this really is Buffett's secret sauce; this is likely pure vanity on our part. But, if, like him, you invest by buying stakes in public companies as if they were private businesses



 More snark from your 19th century correspondent.

1. The world still runs on the Parsons steam turbine.

2. When the New York Times' readers discover the collapse of the obsolete industry that fuels the brand new age, it is finally time to buy.


Stefan Jovanovich adds:

Rhino Energy LLC is a proxy for the Appalachian and Illinois Basin coal industry. The stock symbol is RNO. We do not own it and it offers zero trading opportunities, but it is the closest I have come to finding a public company that publishes numbers about what is happening in the eastern U.S. coal bidness. The news is terrible, as every reader of the New York times knows. RNO has just suspended its distributions, and its $10 stock from 4th quarter 2014 is now under a dollar. But, even as this particular canary continues falls over in its financial cage, operating margins increase slightly year over year and production is sold out for 2016.

The region now has a number of coal "start-ups" that are completely invisible to the public eye. Their registered public addresses are in and around Lexington, KY. They have taken over some coal leases and lands from the bankruptcies and forced sales of the historic companies that have been part of this depression and opened new mines. They have no legacy union contracts and - more important - no "history". None of the miners who work their operations has any thoughts about being owed anything for all the terrible things Mr. Peabody's company did to them or father or grandfather.

So, we have begun buying shares in Joy Global (JOY) on the Howard Hughes theory of investing - i.e. even as the depression in the oil business continued through the 1930s, people needed drill bits; and with the increase in oil consumption from WW II, they needed even more.

Full disclosure: In 2 weeks we are already down 5%; we expect the happy ending, if any, to come years from now.

Stefan Jovanovich further adds:

I am not an engineer and I don't play one either so these comments are even more questionable than my usual rants. But I did get the short course from my uncle, Aunt Mary's husband, along with the cook's tour of the gas and coal fired steam plants around Denver. Uncle Charley loved the prospect of direct use of gas combustion that Carder mentions. Perhaps because he was old and sick, he also saw the limitations of the brave new world he would not live to see.

Uncle Charley's lesson plan for his idiot nephew.

Coal is a poor competitor in HHV values. Where gas on average has 21k HHV BTUs per pound, lignite coal has only 8k and the highest grade coal - anthracite - 14k. On average the bituminous coal used for steam generation has only half the HHV/pound of natural gas. So, coal per pound has to be half as expensive as gas simply to break even on HHV efficiency.

That still leaves the efficiency of the turbines–steam vs. the CCGT. According to thermodynamicist folks at Mankato State steam turbines using coal can do close to 50% at best while CCGTs are, as Carder says, now at 60%. So, coal per pound has to be another 1/3rd cheaper still in order to stay even with gas on efficiencies alone.

Then there are the environmental costs, nephew. Put them all together and coal has to sell for no more than $.25 a pound when gas is at a dollar.

So people will stop building steam generating plants in North America and the rest of the world will keep building them because coal delivered by ship or barge can be had for fixed contracts for a decade @ 1/4th the price of current prices for gas while no one will be willing to bet on natural gas deliveries beyond a year or two at most.

I checked Uncle Charley's numbers before buying JOY.

the U.S. I.E.A. price history for residential natural gas

The current futures price for gas - $2.89 per 1m BTUs which converts to roughly $.09 per pound at the standard prssures and densities - and coal - $43 per ton or slightly more than $.02 per pound.

If Carder is right and Uncle Charley and I are wrong, natural gas suppliers will be willing to offer long-term supply contracts the way people in the oil bidness did before 1973; if Uncle Charley is right, California will have brownouts and demand the right to buy Kentucky coal fired wholesale power before the decade is out. We shall see.



Here are some lessons I've learned during the past 8 years:

1. Call options. If you truly have conviction, buy long dated call options as volatility tend to be under priced for long maturities.

2. Short selling. It is harder to short sell than most think, and almost no one is good at it. One hurdle is the drift, but there are countless more.

3. Romance. You're clearly better off to marry someone in management than to marry the stock.

4. Dip buying. The successful buys on dips and vice versa, it follows that the unsuccessful do the opposite.

5. Market. Everyone is always bearish on the market, only the super successful dares to be bullish/naive.

6. Story. Human brains are hard wired over thousands of years to build stories around your beliefs/thesis.

7. Flexibility. The super successful are always ready to change their mind/direction. Go from long to short or from short to long.

8. Art. Stock picking is as much art as science and very rarely are the smartest the best at this game.

9. Top-down. Local knowledge remains under appreciated. The top down guys ends up shorting the best companies and vice versa.

10. Management. Always invest with the best in class management, however you are better off with a good end market and bad management than the other way around.

Stefan Jovanovich writes: 

Yes! Especially #10. "You are better off with a good end market and bad management than the other way around". It applies even more to private business than it does to public companies. Believe me. 

Gary Rogan writes: 

#10 is a lot like the Sage's favorite. When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

Russ Sears writes: 

Most people cannot admit when they are wrong, in over their head or incompetent. If the tide turns and a business with good economics but bad management becomes a business with bad economics and bad management, then the fraud, accounting tricks and pleas for government bailouts come out. The "smartest guy in the room" is leading the way.



 Joel McCrea, who was the classic Southern Californian, told an interviewer that he had become a rich man because he followed Will Rogers' advice: "Work Hard, Save Half of What You Make, and Live on the Other Half".

It is the only advice I ever offer anyone who "wants to start his own business". If the young person's response is anything other than "what do you mean by 'save'?", I know the rest of the conversation is going to be an utter waste of our time.

My definition of saving is hopelessly uneconomic by schoolie standards; it does not include investing in equipment or any other type of "capital" for the business. Only cash or securities the person is willing to own for at least a decade count as saving. And, still worse, the savings cannot be treated as operating reserves for the business.

For the speculator, none of these rules apply–nor should they. For the speculator the markets in which he/she trades represent opportunities–as Shane's post "when to look for what you are looking for" beautifully explains.

For the business owner the market is not an opportunity but a threat because you have absolutely no control. You are always all in and you can never fold your hand. This is why business owners in this most competitive of nations, the United States, have always so readily formed associations with their seeming competitors. The "market" is the enemy, not the guy down the street who is as much of a price taker as you are.

P.S. There are two reasons why you have to save Half. The first is that thrift is your job; figuring out how to satisfy the customers while spending less and less money is the only thing you can control. The second reason is that, contrary to all the Ron Chernow biographies, the titans of industry became almighty rich by not expanding when times were hard. They prospered by cutting costs and hoarding cash and waiting patiently for the market to destroy nearly everyone else.



 When I visited the Rosslyn Chapel near Edinburgh I was amazed by the beauty of this masterpiece built in the 15th century. Interestingly, the chapel became the subject of speculations related to connections to the Knights Templar or Freemansonry. The topic became popular when Dan Brown wrote about these symbolic designs in The Da Vinci Code.

A specific aspect of the architecture I found fascinating at one end of the chapel, is the ceiling with 4 cross-sections of arches containing designs on each array of cubes. The cubes are attached to the arches in a musically sequential way. Some claim there is a code behind the cubes sequences, which hide melodic and harmonic progressions. In some of the decorations others can recognize symbols similar to Chladni patterns.

Chladni was a German physicist and musician (1756-1827), who was considered as the father of acoustics. He did research on vibrating plates. A metal plate, supported by a post in its center, is vibrated at a single frequency by use of a mechanical driver. For most frequencies, nothing at all happens; when certain special frequencies are hit, however, standing waves appear on the plate, driving the sand away from the points of large vibration to the points of no vibration. By varying the frequency of oscillation, we can find a large number of the so-called resonance frequencies and their accompanying patterns, which become increasingly complex and beautiful as we up the rate of oscillation.

I was intrigued by the concept of a code to interpret what you see, that is the beautiful symbols organized in apparently random sequences. The idea of a hidden key that allows you to read the real message to be delivered in the form of visual patterns corresponding to specific frequencies and, when built harmonically together, to melodies. Interesting is also the concept of resonance, which is responsible, in Chladni's experiment, for moving the sands to the points of no vibration.

There are parallels with financial markets. Do visual patterns in markets hide apparently random price relationships? How to apply the concepts of frequency, amplitude and resonance to breakout moves and mean reversion? Higher harmonics imply more nodes and therefore mean reversion is likely? Could round numbers be associated to points of no vibration as they function as attractors? It is beautiful, however, to observe how sequences offer interpretations that are not obvious at first.

Stefan Jovanovich writes:

The vibration technology testing suggested is 1950s era Soviet/US related and is dated. A quick read about "The Thing" is available to those interested. Basically you throw a broad range of frequencies until you hit one that creates feedback. The Thing had the advantage of passivity and no power source so it was not detected for years.

I'd like to see testing of the hypothesis that the round number effect is more an effect created by options strike price standards and larger open interest at round numbers in home markets Forex rates and price scaling change key index values for international specs.

A brain in the past was Leon Theremin who worked with musical instruments and bugs.

The revelations about "The Thing" and its detection give an idea of how to test for key vibrations or their absence. From wiki:

The illuminating frequency used by the Soviets is said to be 330 MHz.[6] The Thing was discovered in a stroke of luck by a technician with an untuned video receiver[citation needed] — a wideband receiver with a simple diode detector/demodulator, similar to some field strength meters. It was then located during a technical surveillance counter-measures "sweep" of the Ambassador's office, using a signal generator and a receiver in a setup that generates audio feedback ("howl") if the sound from the room is transmitted on a given frequency; the generator was tuned to 1800 MHz. The device was first assumed to operate on this frequency, but tests showed it was unstable and insensitive. Peter Wright, a British scientist, then got the Thing operating reliably at 800 MHz.

For land-based structures, this debate continued through the 1980s. It was important to the nuclear power industry. They were required to design against probable seismological events. Millions of engineering hours were dedicated to modeling flexible and rigid systems. Both worked. Billions of dollars were lost as the industry switched from one approach to the other. Flexible models require detailed analysis of harmonics, which varied by geography. In the end, the industry settled on rigidity–mostly.



 To my surprise both "alarmist" and "deniers" (I guess that I'm quoted as a "denier") measure the average temperature for the whole earth for a whole year to a fraction of a degree, and that the result is significant. Of course it's not!

How can you possibly measure the average temperature for the whole earth and for the whole year and come up with a fraction of a degree? So, I have this cry here. I think the average temperature of the earth is equal to the Emperor's New Clothes. There was a boy who said, you know, who cried at might, "The Emperor has no clothes on," and I would cry out and say, "You can't measure the temperature for the whole earth with such accuracy!"

Chris Cooper writes: 

Is this not addressed by the law of large numbers?



 I don't think history carries a tune, has any lyrics or rhymes, and it most certainly has no moral/political lessons–i.e. the proletariat will triumph. History is always and everywhere just a story about what people did, and one either enjoys stories or one doesn't. The problem with the schoolie versions of history is that they are always fictions with a purpose; the writer reliably distorts, ignores, lies about the known facts of what happened to fit everything to their version of a dialectic. It may not be Marx's but it always has the same presumption of inevitability. They may be "conservatives" like Carlyle or modern day liberals like David McCullough, but either way you end up with a sermon that the writer already knew he wanted to preach. (What makes Gibbon, the historian most often used for lessons in the 19th century, fascinating is that he keeps ignoring the lesson he has in mind in favor of finding the next twist in the truthful narrative. The story wins out over the moral/political lesson.)

This nattering is my apology for offering a historical comparison that today's anniversary brings to mind. On this date, in 1924, the U.S. Marines finally left the Dominican Republic (they had been there since 1916).

The United States has had thirty years of filibustering (not Senators talking but the other kind–adventuring with guns) in the Middle East. Nearly twice that long if you take away most of the guns and leave only the CIA and the American oil companies. By the time the Marines left Dominica, the filibustering in the Caribbean/Central America had been going on for almost a century, if you start with the Texas War of Independence. To this day the importance of all that chasing after sugar, tropical fruit and petroleum gets largely ignored, except by the Zinnistas who use it as yet another proof of the fundamental evil of the United States of America.

I have no doubt that the saga of Texans and others chasing Saudi/Iranian oil will be equally ignored when it comes to understanding what happened to America after Bush I became President. One can only hope that some day the Marines will go home once and for all.



 "Widened Suez Canal to Open in August"

This is the first significant expansion of the canal's carrying capacity in its 145 year history.

Paolo Pezzutti writes:

The Panama Canal is also expanding. The size of ships has increased. They need important changes also to port infrastructure.

"The Panama Canal expansion project (also called the Third Set of Locks Project) is intended to double the capacity of the Panama Canal by 2016 by creating a new lane of traffic and allowing more and larger ships to transit."

anonymous writes:

This latest development is positive for Israeli stocks. The project was underwritten by Egyptian citizens and they are making a bet on the absence of events that will threaten the revenue from the widened canal like and Egyptian attack on Israel or a nuclear bomb exploding in the region. And the fact the Sisi's government decided to undertake it and declared it "military led" is a concrete (no pun intended) sign that their rhetoric of being business-oriented (as opposed to say oriented to destroy Israel).

anonymous writes:

Egypt is a military dictatorship, as such there is of course no "free will" exercised by "the people" of Egypt, but it's certainly a polity. Usually when a dictatorship wants to create an investment by someone other than the core clique it has two choices: coercion or guarantees of repayment of questionable quality. After all, they can change their mind at any time and all the guarantees will be gone with the wind. So observing a non-coercive investment process in a dictatorship is useful to estimate the confidence in the dictatorship by either foreign or local investors. Often large foreign investors have substantially more leverage since they can threaten a military or political retaliation via their own government. In this case, Egyptian citizens, of their own free will, trusted the military to repay them by buying the investment certificates that sold faster than expected. While this is certainly no example of Western property rights, this means that some relatively savvy citizens in a very impoverished country (thus no money to waste) trust their leaders. This is a useful datapoint in evaluating investment and other stability-related prospects in that part of the world.

Gordon Haave writes: 

What everyone is missing because (per our discussion last week) the watch and read US propaganda media is that last week the Deputy Crown Prince of Saudi Arabia, The Saudi defense minister, the Saudi foreign minister, and more importantly the Saudi Oil Minister met in Russia and inked 6 new deals including defense, nuclear, and energy deals with a goal towards a "petroleum alliance".

But hey, an Al Jazeera columnist was once quoted as saying something he shouldn't have 15 years ago, so by all means keep reading US media.

Gary Rogan writes: 

Gordon, as the likely target of the last comment, let me respond. While this bit of news from All Jazz TV is valuable in it's own right (and most certainly no propaganda) and is likely to have major worldwide implication from the war in Syria, to Russia supplying Iran, to Israel, to the Saudi relationship with the US, the price of oil, Egypt, and more specifically Suez Canal, it is unlikely to have had an impact on why the Suez canal project was started many months ago. If it did, the world is even more convoluted than I could ever imagine.



From my limited experience, assessing equity from balance sheet information can be a non-trivial exercise. An issue is the company's assets. Specifically, what are those assets? How were they acquired? What was the accounting treatment?

I've been involved in situations where companies debated the merits of expensing capital costs and capitalizing expenses. Accountants tend to see this question as a black and white issue. Financial officers tend see it as a strategic issue.

The issue frequently arises in project finance. In particular, long-term capital improvement projects tend to finish with complex cost structures. In my experience, capitalized costs can represent half expenses and half assets (bricks and sticks). Some of those expenses include officer salaries, professional fees, corporate allocations and other distributables. In the end, retirement accounts prorate those costs according to the strategic need of the parent company. Once the accountants retire the plant (that is, allocate final costs across company retirement accounts), the asset capex strategy is locked in.

The issue also appears in operations and maintenance. Sometimes replacing expensive equipment is expensed. Sometimes it is capitalized. Often, there is a combination. Again, accountants tend to see this as a black and white issue. Financing, legal and regulatory people understand it as a strategic issue.

The issue pops up in special cases. It is common for utilities to create regulatory assets out of expenses. They do this with the knowledge and approval of their respective state regulators.

I've found the accounting of assets is not consistent within the utility industry. Policies change over time and by geography. They change as economic conditions change. They also change as corporate administrations change.

Finally, there are the subsequent issues of asset depreciation and mark-to-market values. While depreciation appears simple, it is not. How depreciation schedules are developed and used is complex and difficult [impossible] for third parties to analyze. In addition, the depreciated value of the asset is often uncorrelated to the asset's mark-to-market value.

For me, assets can be fuzzy numbers. Any analysis using asset values as a critical component can also be fuzzy.

Ed Stewart writes: 

All good points Carder.

Another issue is when a company clearly has very valuable intangible assets that are almost completely unrepresented on the balance sheet. Consider Nathan's Famous, best known for its flagship hotdog restaurant and sponsorship of the eating contest. They build on top of that brand value to create a licensing business. Last year (ending march 31) they did 18M of this business, which is almost pure pre-tax profit as they just get a % of sales, renting the brand to a manufacturer/distributor. Capitalize that at a reasonable rate (licensing revenue streams usually valued at a premium) u see it is worth quite a bit of money. Yet, on the balance sheet intangible assets is only something like 1.4M, which is absurd from an economic perspective. 

Stefan Jovanovich writes: 

Accounting was developed to catch internal fraud; the whole point of double-entry was that it required two different people to keep track of every transaction. As long as enterprises were family businesses, single-entry worked just fine (as, for example, in the Rothschilds' books well into the 19th century). In that sense, all "book" numbers will be maddeningly disappointing in terms of their economic logic.

Rocky Humbert writes: 

S-man makes an excellent point. To wit, some of my worst investments have been in insurance company stocks that were trading at significant discounts to their stated tangible book value. What seems to happen (with annoying regularity) is that the company "discovers" that they under-reserved for claims and they write-off massive amounts of tangible equity — leaving the stock at a premium to book value. Hence I view a substantial discount to book value as a warning sign of impending bad news rather than a blue plate special. Mr. Market may go through bipolar episodes, but he's quite astute most of the time.

Ed Stewart writes:

Ive seen another situation beyond unforeseen markdowns that can cause trouble for an investor looking at book value to find undervaluation. The issue occurs when an investor marks book value assets "to market" and finds a supposedly huge undervaluation. The first problem I have seen is that it is very easy for a bad or even mediocre business with a good asset to somehow encumber or use that asset in a way that is not helpful to shareholders - feeding a lousy "growth initiative" or simply mortgaging an asset to fund continued operations. It's amazing how many "value bloggers" write about truly crappy, sketchy businesses because they think they spot this type of situation.

In the case where the business is decent, that by no means the business is going to realize the value of the asset over any reasonable time frame, which means that the value must be discounted far off into the future. So far and so uncertain it might be impossible to assign much value to it at all. In this second case, it might add some positive option value to a decent business that is otherwise worth considering, nothing more. My conclusion is that without an activist situation or change of heart by the CEO or some similar circumstance, undervalued assets are not always what they are cracked up to be.

Gary Rogan comments: 

A bet on undervalued assets IS a bet on an activist situation and/or if not "change of heart by he CEO" change of the CEO. Undervalued assets will not of course suddenly start performing by themselves. That's why "undervalued" cash on the books or undervalued assets combined with a substantial cash flow are so much better than an "undervalued" steel plant or similar: cash is easy to understand and reuse and attracts activists, acquirers, and CEO replacement.

Andrew Goodwin writes:

Not sure why the talk on ratios attracted so much interest. In a group that favors scientific modeling, why no thoughts on finding the significance of each industry valuation ratio through regression studies? 

Charles Pennington writes: 

Stefan, what's your definition of "soft jobs"? Do you have an opinion about which companies out there are wasting their money on "soft jobs" and which are acting more wisely?

Stefan Jovanovich replies:

This is a feeble answer to your question, Charles, but it is all I have. Cantillon wrote that nations got into trouble when their tastes for what he called "luxury" outran their capacities to make enough money to pay for them in foreign trade. He was not a mercantilist, but he thought that nations had to accept the verdict of the foreign exchange market when it went against them. They could not use "Chinese paper" (Singleton's phrase for puffed-up securities) when their counter-parties expected coin. As Cantillon put it, nations cannot use use finance as a substitute for commerce and they cannot indefinitely leverage their credit so that rich men's wives could continue buying more lace. For at least some of the time, even the wealthy have to endure being less rich until trade once again comes into something approaching balance.

It seems to me that many, many companies are now like Cantillon's luxurious nation. David's drug companies are one set. Their profits are projected to continue to grow enormously even as the savings and earnings of the hospitals and governments and individual paying customers have stagnated and even begun to fall again. The drug companies' happy futures are based on the assumption that the centrally-banked remedies to the world's savings "glut" can somehow be transmuted into continuing demand without anyone having to endure even temporary insolvency. There is no arguing that the plan has worked up to now (cue John Hussman's explanations of why he has missed the last 5+ years). But, as the Orioles and other clubs regularly demonstrate, the last innings can be very rough even when the guys coming in from the bullpen have had such sterling records.

P.S. Ignore all monetary puns; this is not a recommendation to buy gold.



 Those of us in the bleachers remain bewildered. We had assumed that the ECB, like the Fed, had control over the actual printing of money. Wrong.

"The ECB does not have a cash office and is not involved in any cash operations."

Where the U.S. Treasury's banknote printers have only one customer - the Fed, the production of Euros harks back to the days of wildcat banking in the United States. Each central bank in the Eurosystem that uses a different language has both the responsibility and the legal authority for printing its own Euros.

Since 2002, euro banknotes have been produced jointly by the national central banks (NCBs) of the euro area. Each NCB is responsible for, and bears the costs of, a proportion of the total annual production in one or more denominations. The annual production of euro banknotes needs to be sufficient to meet expected increases in demand, such as seasonal peaks, and to replace unfit banknotes. It also has to be able to cope with unexpected surges in demand. Production volumes for the years ahead are calculated on the basis of forecasts provided by the NCBs and a central forecast made by the ECB, thus combining national expertise with a euro area-wide perspective. The figures calculated need to be approved by the Governing Council of the ECB.


The comparisons with the Cyprus bank crisis are likely to be wrong for one very simple reason: the Greek National Bank can print as many Euros as it likes. It does not need to go to exchange controls; people can withdraw as much as they want as long as they take it in Euro notes.

In April 2001 the ECB's Governing Council decided that the production of euro banknotes should be decentralised and pooled after the initial cash changeover. Therefore, since 2002 each national central bank of the euro area has been allocated a share of the total annual production of euro banknotes in respect of certain denominations. The respective bank bears the production costs for the share allocated. In September 2002 the Governing Council decided to establish a Eurosystem Strategic Stock (ESS). This stock is intended for use in exceptional circumstances, i.e. when logistical stocks in the Eurosystem are insufficient to cover an unexpected increase in the demand for banknotes or in the event of a sudden interruption in supply. The logistical and strategic stocks ensure that any changes in demand for banknotes can be handled at any time by the national central banks, irrespective of whether the demand comes from inside or outside the euro area. The logistical stocks meet the demand for banknotes in normal circumstances in order to replace unfit (poor-quality) banknotes returning from circulation; accommodate an expected increase in circulation; meet seasonal fluctuations in demand; and optimise banknote transportation between central bank branches.

How exactly does the Eurosystem evict a member national bank simply because it has lousy collateral? I have been chewing on that one for a few days now without finding anything in the bottom of the Cracker Jack box.



 How would President Trump and the Dow react if he runs, and if elected?

Shane James writes: 

Reagan, Eastwood, Schwarzenegger…Trump? Why not! 

Stefan Jovanovich writes:

Ronald Reagan was President of a Union in the 1940s; he was, as the journalists put it, "active" in politics for more than two decades before he ran for governor in California. (To this day I find it wonderfully funny that the Brown clan thought that Reagan - the supposed "amateur" - was an easier opponent than William Knowland.)

The comparison with Clint Eastwood is pretty dodgy. Eastwood is a movie star who can green light any project that interests him, and he has had that power for 4 decades. Reagan was a talented actor who never starred in anything with more than a "B" budget and never made any money in Hollywood at all. Unlike Reagan Eastwood has always been a Republican.

As for Trump, he is the Colonel Sanders of contemporary politics–a recognizable name for a brand that is all signs and no voters. 



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

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

-Charles Darwin

Stefan Jovanovich writes: 

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

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



 About a year ago I clicked on 'Al Jazeera America' with the preconception that I'd be treated a glaring example of biased journalism, but instead found their news coverage was presented from a middle-of-the road perspective and clearly not US centric.

Marion Dreyfus writes: 

Al Jazeera acknowledges they no longer hove to the neutrality/journalistic vantage they promised years ago they would. There is a major lawsuit afoot where the failings are bruited–discrimination to non Arabs, women and hirelings, as well as an abdication of following news that is not pro-Arab and involved almost wholly in Arabic and Arabist affairs. It pretends to a journalism it simply does not follow. People of integrity have abandoned them as they noted this falloff.

Stefan Jovanovich writes: 

Much of what passes for today's journalism is, depending on the publisher/broadcaster, disturbingly and unapologetically, skewed one way or the other. I find myself visiting Al Jazeera regularly - so, too, with Russia Today, NPR, and HuffPo. None are particularly congenial to my world views but each provides in its own way, the dialectic missing from those with whom I find favor. Once upon a time it was recommended that for a view from the right one had to check out the Chicago Tribune, for a view from the left, the NYT, and for a straight account with little or no clever manipulation of adjectives or adverbs, the Christian Science Monitor.

Most other news sources still provided enough of an editorial mix to escape being pigeon-holed. Perhaps the worst thing to happen to print journalism (and with a knock-on effect to the other branches) was Woodward-Bernstein. Hailed then (and still now) as journalistic heroes, their work brought about substantial changes in "straight" reporting. College J-grads increasingly aimed for opportunities to break the next big expose - straight reporting became a dull backwater.

It didn't take long for TV to pick-up on the trend (a liberal trend) which went largely unremarked if not un-noticed . Then Limbaugh and others created some pushback with "talk radio" - which didn't go unremarked, but received a considerable amount of flack - from print and TV…with which I had no complaint…at least initially.

However, what was once a battle between rich publishers with conflicting world views, moved from the Op-Ed pages into the rest of the publication and, eventually, it became increasingly difficult to find a "news story" that didn't, in one way or another, skew the narrative into one that reflected the views of either the author and/or publisher - whether that manipulation occurred during the writing of the article or during the editing process has remained a matter of contention. That question is no longer germane as media outlets increasingly hire only those whose views conform to readily identifiable "values" (to be fair, it is an unusual applicant who applies for a position at an organization hostile to his views.)

Unfortunately, this absence of dialectic has spread to the one place where it should be most strongly championed: the university. No better example can be found than the recent pronouncements of Bettina Aptheker (now Professor Aptheker), an admitted "red diaper baby" and one of the notable participants in Mario Salvio's noted "free speech" crusade at Berkeley - an event whose 50th anniversary will be "celebrated" later this year. Unfortunately, though not unexpectedly, Aptheker has had an epiphany. I quote:

"Freedom of speech is a constitutional guarantee, but who gets to exercise it without the chilling restraints of censure depends very much on one's location in the political and social cartography…We [Free Speech movement] veterans … were too young and inexperienced in 1964 to know this, but we do now, and we speak with a new awareness, a new consciousness, and a new urgency that the wisdom of a true freedom is inexorably tied to who exercises power and for what ends."

A growing number of California's public universities have instituted restrictions on free speech. Sic transit gloria mundi.

A final comment. For somewhat different reasons I have a problem with a List issue that came up some time last week. Rocky has regularly challenged the veracity of Zero Hedge's reporting; others throughout the Net have made similar observations. However, as a source regularly referenced by many other commentators/posters, I find it unwise to not keep abreast of their "contributions." However unmeasurable, they do have an impact - one I believe that should be monitored rather than ignored.



 In January of this year Forbes published a piece by Michael Lingenheld of Cup & Handle Macro reciting the known knowns about the new car business:

1. Average duration new car loans - 5.5 years
2. Sub-prime borrowers are the debtors on roughly 1/4 of total outstanding car loans
3. Delinquencies for car loans made in 1st Qtr. 2014 as of November of that year - 2.6%
4. First year delinquencies for car loans made in 1st Qtr 2008 - 3%

IBD has a more recent story with the same "news".

ALLY, the largest auto lender in the U.S., just had its most recent flooring loan Master Trust rated Aaa by Moody's.

Russ Sears writes:

While this is true is it anything new? Aren't auto dealerships and manufacturers like farmers–prepared for a few bad years and if the cycle is deep and broad enough the Feds have a history of stepping in?

Stefan Jovanovich writes: 

The "everybody knows" history Russ refers to is remarkably short: 2009 is the one and only time auto manufacturers and auto lenders were rescued, even though the depth of the cycles in both 1919 and 1929 were far, far worse. And the difference was?

Here, for those of you who remain curious, is a brief history of GMAC (what ALLY was before its rescue):

Founded in 1919. Initial capital: $2.5M. First branches opened in New York City, Detroit, Chicago, San Francisco, and Toronto. The following year a branch was opened in Britain. By 1928 GMAC had made 4 million retail car loans. 30 years later they had made 40 million; to celebrate, they entered the home mortgage business. 1999: Record earnings, buys Bank of New York's commercial lending unit and forms Commercial Finance Group. 2001: Further record earnings: $1.8 Billion Celebrates 150 millionth car and truck loan, totaling more than $1 trillion in total financings over its history. 2002: Another record: $1.9 Billion. Now lending in 41 countries. 2003: Earns $2.8 Billion 2004: $2.9 Billion, 10th straight year of earnings growth, begins lending in China, opens GMAC Automotive Bank 2006: General Motors sell 51% to Cerberus Capital Management
Rocky and the other pros can carry it on from there.



China has granted another 1 trillion yuan ($161bn) quota to provinces to swap high-interest debt into low-cost bonds, doubling the previous amount, according to people familiar with the matter.

The increase comes as the first stage of the bond swap is under way. Commercial banks have been buying such bonds after the central bank flooded the interbank market with cheap funds…

The expansion will help the government cut risks from a record surge in borrowing that local authorities took on to fund a glut of investment projects. The process — which includes inducements for banks to buy new, longer-maturity, lower yielding bonds — is alleviating a funding crunch among provinces that had threatened to deepen the economy's slowdown.

Local-government obligations may have reached 25 trillion yuan, bigger than the size of the German economy, according to estimates from Mizuho Securities… That compares with the figure of 17.9 trillion yuan as of June 30, 2013 given by the National Audit Office."

- Bloomberg



 So I wish to present the argument that various interests and groups, notably including "Keynesian" economists, have sold to the public a "quasi-doctrine" which teaches, in effect, that "less is more" or that (in other words) "bad money is better than good money". Here we can remember the classic ancient economics saying called "Gresham's law" which was "the bad money drives out the good". The saying of Gresham's is mostly of interest here because it illustrates the "old" or "classical" concept of "bad money" and this can be contrasted with more recent attitudes which have been very much influenced by the Keynesians and by the results of their influence on government policies since the 30s.

"Capitalism is not intelligent, it is not nice, it's not fair, it is not virtuous and not keep promises. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

-John Maynard Keynes

Stefan Jovanovich writes: 

Gresham's law only applies when a country has legal tender coinage of different metals. When he was brought in as agent for the Crown in Amsterdam, Gresham had to explain to Warwick (the head of Edward VI's Regency Council) how he and others had made a hash of things by taking more and more silver out of the shilling coins they were minting. As a result, the Crown's credit was lousy; and no one would accept the "new" shillings except at a severe discount. Because Warwick had authorized several successive debasements, no one in their right mind paid their debts using the still unadulterated gold coins of the realm; those people kept in their strong boxes or sent to Amsterdam where they could profit from the arbitrage opportunity. (In England, of course, "the law" required them to accept all coinage at is face legal tender measure.)

None of this applies to the present situation for the simple reason that coin are no longer legal tender anywhere in the world. The only measure of "bad" money that now applies is whether or not someone will swap your legal tender IOUs for some other legal tender IOUs; now it is the bad money that disappears, not from hiding but from the disappearance of the traders willing to hold it even for a millisecond.

The goldistas, like the Jacobites, still keep thinking that the rightful king will return to the thrown, that, because gold once was money, it will be so again. It may; but, if it does, there will be little arbitrage opportunity - just as there was little opportunity when Grant strong-armed Congress into adopting resumption. Gold will become legal tender again only when a government accepts the wisdom of the authors of the American Constitution - i.e. "the law" cannot put a price on money. As I wrote recently, Cantillon's reform for Greece would be similar to what Gresham did in Amsterdam for Edward VI - a combination of absolute default and establishment of a new currency based on a fixed weight and measure. (I should note that Gresham did not solve the secondary problem of bimetallism; when the coins are "honest" and have the amount of precious metal that the law requires, the ratio of the legal tender values will still create the problem of arbitrage. The actual demand for silver and gold bullion will be at variance with the official ratio. Grant also solved that inescapable problem by limiting silver coinage to secondary coins and limiting the amount minted so that there was no opportunity for arbitrage.)

There is, in Gresham's and Grant's sense, no money in the world right now; there are only IOUs that countries have defined as their legal tender.

This does not make a difference to the people who are "in the market". But, to the great majority of people, who have only their small savings of money, it makes an enormous difference. The great thing about "deflation" - the ability of people to make things better, faster and, therefore, cheaper - was that it rewarded thrift and gave folks a return on investment simply from holding their coins and deferring spending. When people "did not trust banks", it was not simply out of ignorance; they knew that their hoards of gold coin would be worth more and more in the future. So, too, would bank deposits; but only if the bank actually paid out in coin. Default was the risk that debasement now is.



 An excellent book is The Wool Trade in English Medieval History by Eileen Power, the "most interesting woman" of the 1930s. Shows that they counted every aspect of the sheep better than technicians do their counting today. Also shows that the entire English Constitution devolved from the free markets of the pastoral shepherds and the exporters versus the merchants of wool in medieval times.

The wool entrepreneurs developed into the middle class of England from whom the industrial revolution, the constitution,and prosperity evolved. A typical passage:

In these baillifs accounts, the long rond of the shepherd's year unrolls itself like on of those horizontal Chinese scrolls that have taken one from spring to winter by the time the eye has traveled along their length". In the manorial roles sheep were carefully divided into ewes, wethers and yearlings, lambs, and there was set down the number with which the reeve started the year, the numbers added by purchase or natural increase, lost by disease, sold or given in tithes, (the number that disgraced themselves by not giving progeny) and the number left at Christmas when the account was drawn up. Of course every purchase was accounted for, and balanced with the ending sales to wholesales.

A great admirer of Eileen Power to whom I owe the introduction to this great scholar is Tracy Quan   whose books and persona are equally scholarly and interesting.

Stefan Jovanovich adds: 

 Amazon has a free Kindle edition of Power's best seller from the 1920s: "Medieval People"

(Caution: Historical Hobby Horse in Use) Power was a colleague of Norman Angell, Ramsay MacDonald and C. P. Trevelyan in the Union of Democratic Control - the last "pacifist" organization that was not simply a front for the Comintern.

What Angell wrote about the Grand Illusion of Imperialism is still true and is worth considering in light of recent efforts to find a new cause of war in the South China Sea:

"wealth in the economically civilized world is founded upon credit and commercial contract (these being the outgrowth of an economic interdependence due to the increasing division of labour and greatly developed communication). If credit and commercial contract are tampered with in an attempt at confiscation, the credit-dependent wealth is undermined, and its collapse involves that of the conqueror; so that if conquest is not to be self-injurious it must respect the enemy's property, in which case it becomes economically futile. Thus the wealth of conquered territory remains in the hands of the population of such territory. When Germany annexed Alsace, no individual German secured a single mark's worth of Alsatian property as the spoils of war. Conquest in the modern world is a process of multiplying by x, and then obtaining the original figure by dividing by x. For a modern nation to add to its territory no more adds to the wealth of the people of such nation than it would add to the wealth of Londoners if the City of London were to annex the county of Hertford."

Angell was equally prescient about the Balkan Wars and their danger:

"The fundamental causes of this war are economic in the narrower, as well as in the larger sense of the term; in the first because conquest was the Turk's only trade -he desired to live out of taxes wrung from a conquered people, to exploit them as a means of livelihood, and this conception was at the bottom of most of Turkish mis-government…..

"If European statecraft had not been animated by false conceptions, largely economic in origin, based upon a belief in the necessary rivalry of states, the advantages of preponderant force and conquest, the Western nations could have composed their quarrels and ended the abominations of the Balkan peninsula long ago-even in the opinion of the Times. And it is our own false statecraft-that of Great Britain-which has a large part of the responsibility for this failure of European civilization. It has caused us to sustain the Turk in Europe, to fight a great and popular war with that aim (he is referring to Crimea), and led us into treaties which had they been kept, would have obliged us to fight to-day on the side of the Turk against the Balkan States"



 A recent post by Tim Melvin noted that Baltimore may be a shit hole, but it's our shit hole. That of many of us on the list. Even if we no longer live there, we identify with it. The glory of Fort McHenry. The commanding of Johns Hopkins. The ignominy of Bankruptcy Tower. The notoriety of Payoff Row. The poverty and lack of hope for a better life in some places in the city. And of course, The Block. Once two blocks (go figure), it's now not even one. Maybe that's the effect of being right next to the police HQ. Add in a dysfunctional education system in the city, the three decades of the departure of industry and the conversion of the town to a bedroom community for DC (in part), and you have a shit hole. I'm sure that some (many?) may contest that conclusion, but try contesting the elements leading me to it.

In the 1960s and early 1970s, if one were to hear a screaming crowd at Memorial Stadium, 33rd Street, Baltimore, chances were good that it was Sunday and the Colts were playing at home. The stadium was usually sold out. It was the era (the "Diner" era—and the Hilltop Diner really did exit, across Reisterstown Road from the Crest Theater—providing relief from the infernal Baltimore summers—and Barcelona Nut Shop) when Colts season tickets were inherited and valued as much as a car or a prized bottle of Lafite or Mouton. It was the golden era for the Orioles, but they did not commandeer the attention, the love the Colts did.

But all of that changed in 1979, specifically June 22, 1979. Edward Bennett Williams had just bought the Os and was complaining about the lack of enthusiasm (and attendance) by the good people of Baltimore. Maybe the team should move to Washington. Lots of interest in DC. and it took forever to drive back to DC. By his chauffeur. The BCPD tailed him once and clocked his trip as 45 minutes, not much more than from York, Pennsylvania (Birdland North) to the Grey Lady of 33rd Street It was the night of the birth of "Orioles Magic," which eventually had an accompanying song (until "You can do magic" replaced it for when relievers entered the game in a tight pitching situation during the early 1980s).

So 1979 wasn't shaping up to be a great year for the Os. Until June 22, 1979. On that night, in the bottom of the ninth, with one on, Doug DeCinces homered to left field. Anyone in the stadium that night will surely remember it. The roar of the crowd was deafening, and the stadium didn't really begin to empty for at least 15-20 minutes after then. Carley Eckman's call (I was listening on a transistor radio, not unusual for someone in the bleachers, not far from the orange and black "Here" flag) was memorable, too. Objective calling of the game flew out the window that moment. The entirety of the Orioles team greeted DeCinces at the plate (for DeCinces, the hit became, at least in part, redemption; it's hard being the position successor to a baseball legend, the "human vacuum cleaner" aka Brooks Robinson), making for an award-winning photo. The next day, a Saturday, that HR was the talk of the town. The following Monday, discussions around the water coolers and over coffee included at least some mention—and often much more—of the HR. 1979 wore on, and the Birds flew high. No one expected much of that team. There were few dominant players, and it was the rare season when Jim Palmer was out of sorts during the season. The World Series that year found the Os against the Pirates, losing in seven games with the final one at home. It was the last time that a visiting team won the series in seven games.

The night of May 29, 2015, also a Friday night, may go down as the renaissance of Orioles Magic. The game was a hard fought pitchers' dual. Gonzalez had pitched a good 8 innings for Baltimore, giving up only one run—earned. Going into the ninth, the score tied, at 1-1, Darren O'Day, a journeyman pitcher who had become the Os middle relief/setup man, came in, proceeded to give up back-to-back hits and promptly loaded the bases with no one out. A situation pregnant for a hit and an RBI to take the lead. But that wasn't the script that was followed on that Friday eve. What followed were two strikeouts and the final out of the inning, a grounder by Elmore to Machado for an unassisted out at third. O'Day had thrown 24 pitches that inning. 24 (or was it 25?). One inning. That's a lot of pitches. For that final out, the crowd was on its feet and the Camden Yards reverberated with cheers and stomps. The bottom of the inning found Os on 1st and 3rd with 2 down. JJ Hardy, an infield specialist with a batting average south of .200 (Orioles faithful will recall Mark Belanger as having somewhat better production at the plate, which isn't saying much), strode to the plate and promptly hit a single to left field. It was all that was needed. Somewhere between 1st and 2nd, after the winning run had been scored, the Os mobbed Hardy as the sellout crowd registered its approval.

The night felt like that of June 22, 1979. One of those days when many in Birdland can recall where they were when DeCinces homered. Will the Magic reappear? The excitement? Hard to say. Let's revisit it in a month. This year's Os are hardly dominant in just about any position on the field, save maybe Zach Britton as a closer. Jimenez is having a good year, and compared with 2014, a great one. But that's about it. And the Os are in 3rd place in the AL East as a result. One game under .500 and one game behind the Yanks. Who ever would have thought that a third of the way through the season the pace would be set by a team one game over .500. At least the Birds have the best home record in the division. So the team has its work cut out for the next three months—not to violate the first rule of holes for the next month as it gets its act together and the, in a reprise of last year's performance—rise to the top.

We've had some discussions recently about the decline of baseball in the US, and yes, the sport has had its troubles. But it's always managed to find a champion and grittily renew its place in the national entertainment firmament. Babe Ruth, Cal Ripken.The sport is shaking off the self-induced haze of the steroid era. And the helicoptering of kids doesn't auger well for a rebirth of the national pastime, which has indeed become passed time. As the country struggles economically with a recession possibly looming over the horizon, with dysfunction in DC and political sex scandals seeming to be the order of the day (I don't recall them being this common, but maybe it's like FDR's wheelchair, no one ever reported them)—the latest being inappropriate touching by the pre-political life former Speaker of the House (does it much matter that it was pre-political life?)—it must have been some serious touching to merit a $3+ million payoff—the country needs to rally around something. As President Snow observed, hope is the only emotion stronger than fear, and while complacency is the rule on Wall Street for the moment, there's some fear being voiced by those with memories of times before ZIRP, of times when interest rates actually ascended, not declined. Memories of the early 1980s. With deflation the concern du jour of the NFL if not the BEA, it may be baseball's time to shine again.

So, in Baltimore, is it Orioles Magic, 2015 edition? We'll see. As for the moment, it's to be savored. Go to war, Miss Agnes! Let's go Os!

Play ball!

Stefan Jovanovich writes: 

This notion of baseball's "decline" is entirely a construct of the Fairness Police. There is now, in fact, far greater "diversity" (sic) among the players of Major League Baseball than there ever has been; the only problem is that the darkest-skinned players are more likely to be Cubans than American blacks. Measured by money paid to the players (baseball, unlike football and basketball and hockey, does not have a hard salary cap), valuations for franchises, television revenues, ticket sales, and concession revenues, these are the best of times. And, regarding the play itself, Buck Showalter is right: "this is the Golden Age". 

Paul Marino writes: 

Here is a great video of the great player for the Buccos, Andrew McCutchen, making some little kids' life last night when playing in San Diego.

Would love to see Pitt make a run at playoffs again, but in a tough division with the best organization in the league St. Louis playing .660 ball, almost a clean + .50bps win % over entire MLB.

anonymous adds: 

I hated the fact that the Giants had to play Pittsburgh for the wild card; they have a wonderful ball park and a really great organization and they are all around good guys. So, clearly the plan for this year is that the Giants beat the Dodgers outright and the Bucs have their wild card game on the road.

Having your loyal fans cheer for you can be a tremendous handicap when it is all or nothing. The Giants have been lucky to be the road team in their "Big Games". The last 4 times they have won the World Series - 1954, 2010,2012,2014 - the deciding game was in the other guys' park. The one time it was at home - 1962 - they lost even though they had Willie McCovey at bat and the winning run on second base and he absolutely smoked the ball - right into the Yankees' second baseman's glove.



Perhaps it was a good 25, 30 years ago, Gramps and made the track to L'ville, this particular time, arriving early, for the Friday races, the Oaks — roses for the Fillies.

We had gotten there early, the first race hadn't gone off, and there was a platoon of school kids visiting Churchill (before the garish remodeling). Their teacher was a woman, and this kids couldn't have been more than 7 or 8 years old. They young buys, couldn't reach the urinals, they simply weren't tall enough.

In the days before blue M&Ms, when you would offer to do such things without fear of being accused of something, we offered to hold the youngsters up, in front of the urinal, one by one, asking each a question, "Where do you go to school?" or "What's your name," to ease the tension and so they could do what they had to do.

There must have been a dozen or so of them we each held up, and finally Gramps lifted one, who, I couldn't help but noticing, was particularly blessed.

"What grade are you in young man?" Gramps asked the little fellow he was holding suspended above the urinal.

"I'm riding Silver Spurs in the seventh, I've been outta school as long as you old man," the little man shot back, "But thanks for the lift."



 I read a terrible story about why children are abandoning baseball from Forbes based on a WSJ story of same title.

Stefan Jovanovich comments: 

Baseball was never the "default" sport for young children. The ball is damn hard and a good one has always been expensive enough to be worth stealing. It was the sport for "grown-ups" that you could hope to play when you got big enough to keep up. Until then, you would play catch with your family adult (thanks, Mom) and use a tennis or rubber ball to pitch and hit with your neighbor/brother/sister, using the barn/garage for a backstop. It took years of those repetitions before you could even hope to play well enough to keep up with the men and have it actually be baseball. The game flourished in all the places where men played the sport and let children join them. That is why it still flourishes in all the places where men and their children play it together for fun– the American Southeast, the Dominican, Cuba (although that is dying), South Korea, Japan. Little League was baby-sitting and adults pretending to teach the game instead of simply showing how it is done out on the field against each other. 

Paul Marino writes: 

 This story lends no credence to the fact that southern states play baseball year round vs more northern regional leagues and the population disparity between the two. Baseball is a regional sport on all levels, pro on down vs football and basketball which are national sports.

Also, this article makes no reference to global, specifically lat-am baseball which is a religion in places such as Cuba, DR, PR, etc. last I checked Puerto Rico is part of the U.S. Unless they default on their munis. Plus immigration will lead to a generalized balance in players against the author's "the Great Recession no-baby meme" which has had us all feel poor as humans since they state red the meme. I can tell you my family and friends in their 20-30s are having babies, just a little later in life.

The article would have been more relevant to US if distinguishing the lack of African Americans choosing basketball and football over baseball. White kids will always play baseball at one point or another out of love of the sport or parental pressure to do something where you can't get too hurt. 

Stefan Jovanovich replies:

If Paul means that baseball is "regional" in the same sense that hunting/shooting is "regional", I agree. But the notion that "white kids" will play baseball at one point or another because of "love" or "parental pressure to do something where you can't get hurt" seems to me very far off the mark. No one in their right mind "loves" baseball; it is so relentlessly demanding that it has minute-by-minute failures. There is no room for the fantasy of "we are the champions" that football (American and world) and basketball allow. The best teams in baseball have won-loss records that would disqualify them from the Champions League or the basketball or football playoffs; and the home-away advantage is trivial (52-48%) while, in the other sports, it is nearly overwhelming. It is like chess; you either have the addiction or you don't see the point.

None of this says anything about the game's popularity as a spectator sport. People now love going to professional baseball games more than at any time in the past because: (1) compared to basketball and football ticket prices, it is still a very cheap date, (2) it is like visiting the old amusement parks like Elich Gardens - you can stuff yourself silly while walking around and you don't really have to watch the game, and (3) unlike almost all the other public spaces in American cities the parks themselves are not dumps. Coors Field in Denver, which is a delightful place to see a game even if the altitude makes the game itself seem like a parody, is the 3rd oldest baseball park in the country. Only Wrigley and Fenway are older. 

Paul Marino adds: 

I should clarify "love" as in the love a child has for a player and that gets them interested in playing, the other love is the kind I had where I played for 15 years and got into the minutiae of the game over time.



 This coming Monday is Memorial Day. That means different things to different people. For me, it will be my mother's yahrzeit, as well as remembering those whose efforts provided the cover under which the USA lives. But it also means the running of the Indy 500. And switching to the summer comforters. For one of my neighbors, it's setting up the outside grill for the summer—which he does after visiting his brother's grave (he died in Vietnam) at the national cemetery up the road. I'm sure there are lots of similar activities at one another's homes. Some many no longer give much thought to those whose deeds provide that cover, to those who sacrifice assured that we may live under it. But they should.

A couple of years back, Tim Melvin penned a piece that encapsulates the meaning—for at least some of us—of the day. (It will be reposted below)

It is one of the more eloquent expositions of the holiday.

Stefan Jovanovich comments: 

 First of all, it was not Memorial Day. It was Decoration Day; the particular day on which the public would officially do what people regularly did on their own–go to the cemetery and put flowers on the graves of the departed. And it was a Sunday, not a Monday.

Second of all, how does anyone presume to speak for the dead in war? That is the sickest of all sick jokes. If you are lucky/skillful enough to survive one, the one thing you know is that medals for the living are pure vanity; and Grant was–as with so many things– right: parades are only tolerable if they are parties where you throw ticker tape out the windows (ticker tape, windows?) and can make noise in praise of the living. For the dead there should only be flowers, no speeches.

FWIW, the first decoration day was on May 1, 1865 in Charleston, SC. It was held in honor of the Union soldiers who had been held and died as prisoners of war and buried in a common grave. After the Federals occupied Charleston, one of the first things they did was give each of the soldiers' remains its own individual burial and marker. In gratitude for their liberation the Negroes in Charleston built a fence around the new burial ground and an arch over the carriage entrance. The "Union" cemetery was opened that May Day; according to the newspaper reports ten thousand people came to walk among the graves and put flowers on them. (This is what David Blight of the Rocky Ghostly Academy concludes from his research into the subject.)

For "Memorial Day" and this bathetic dishonesty, we have to wait for World War I and segregated mourning.

At least baseball still does it right; people simply stand in silence for a moment, as they did when they remembered Christy Mathewson, a casualty of that truly awful war.



 David Lillienfeld writes:

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

Tim Melvin writes:

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

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

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

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

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

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

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

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

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

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

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

Happy Memorial Day. Remember me.

Stefan Jovanovich writes: 

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

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

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

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

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

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

anonymous comments: 

I differ…greatly.

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

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

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

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

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

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

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

Semper Fi et Ductus Exemplo. 

Ralph Vince writes: 

There is nothing more inadvertently dangerous than a young man.

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

One must tread carefully around these. 



 Vanderbilt used to cross at slack tide. There appears to be no slack tide in Europe:

"Schaeuble Said to Raise Possibility of Greek Parallel Currency"

Stefan Jovanovich writes: 

Vanderbilt sold the last of his steamships in 1864; like the Greek shipowners (Onassis et. al.) whose fortunes got going after WW II using the money paid by the British government in war damage compensation, most of the sales proceeds for Vanderbilt came from the public purse. That was the money he used to buy and build what later became known as the New York Central. The Commodore would have agreed with John about the tides in Europe; for him there was only one currency - gold coin. The arbitrage between greenbacks, Treasury bonds - redeemable and non-redeemable, and coin were the Commodore's first serious speculations in the market (as opposed to the largely private battles for control of the feeder Boston railroads to the Long Island sound that were the source of his steamboat passenger traffic). Then, as now, FX was THE GAME.



 When the Bank of England "suspended" during the Napoleonic Wars, it had not run out of gold; and it did not stop paying out gold and silver coin based on their relationship to the unit of account known as "the pound". Neither did the U.S. Treasury during the Civil War, when thanks to the currency acts that created National Bank Notes, the Treasury had become America's first central bank to control the country's legal tender. There were still outstanding debts that continued to be paid off in coin. What was suspended was the redemption of the bank/Treasury's own near money;in both cases what Cantillon called "the state bank" would no longer redeem its paper notes in coin on demand.

The present American central bank has no redemption obligations for its reserve notes; neither does the U.S. Treasury have any outstanding debt obligations that require interest and principal to be paid in coin. So, there is literally nothing against which dollar paper notes can be discounted as money within the boundary of the U.S. of A. At home the dollar will always be at par; and there will be no "gold cases".

As the bond pros and even us idiot amateurs know, the Fed has gone on an acquisition spree. Its assets have grown from $900 billion at year-end 2007 to over $4.5 trillion, which serious money. To support those holdings, the Fed's has also raised its own capital - from $37 billion in 2007 to $58 billion now.

The question that this raises for us idiots in the bleachers is this: what happens politically when the Fed starts to lose money?. At some point the market value of the Fed's assets is going to fluctuate in the wrong direction enough that the losses are more than the Fed's capital.

Under the Fed's rules adopted in 2011 that will require the Fed to suspend making payments to the Treasury of its "net" profits. The pros who long ago flagged this are not worried.

We amateurs who insist that dealings in money raise questions of "political economy" think the headline: "Fed Goes Broke" may have somewhat larger market implications.



 Roughly 47% of "Debt Held by the Public" ($13.1 trillion as of March 30, 2015) is now owed to people (individuals and institutions) who do not use the dollar as their own unit of account. The rest is owed to holders who do their accounting in greenbacks.

I can remember Galbraith making one of his royal appearances at the one undergraduate class he still taught and entertaining the assembled worshippers with a quip about the national debt not mattering because "we owed it to ourselves".

"We" are about to become the minority creditors. Clearly, the solution is abolish the use of cash itself so that even the vague historical memory of currency as the yardstick for measuring debt can go bye-bye.



This is probably old news to our serious counters: "Gridded Population of the World (GPW), v3"



 When Harcourt, Brace & Company bought World publishing, the wags said that my father Bill Jovanovich had taken over the world. (The better joke came later when the firm changed its name again to Harcourt Brace Jovanovich and someone said that Dad had replaced the world because he knew better.)

The second joke was funnier to me because in the world of testing (which is what World Publishing did) Bill Jovanovich always did know better. He understood something that was so simple and radical that it will be another century, if at all, before the world catches up.

The only sensible use of testing is to allow people to find the full range of their failures; then they can decide what are their best chances for success.

Dad wanted "school" to be nothing but tests– of reading, hopscotch, sewing, everything possible. He wanted them to be voluntary, and he wanted them to be subject to the competition of choice. His idea of open enrollment was literally that– people could send their children to any courses they chose.

That was the only way for "society" to allow people to figure out what they "should" and "could" learn. He thought standardized education was an abomination, precisely because it allowed the helpers to always know best and gave the students and parents no escape from "the permanent record".

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